InfoBytes, December 7, 2007
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Banking
- Consumer Finance
- Securities
- Insurance
- Litigation
- E-Financial Services
- Privacy/Data Security
- Credit Cards
Federal Issues
Administration Reaches Loan Modification Agreement with Lenders. On December 6, President George W. Bush announced an agreement with a consortium of lenders and servicers to provide an interest rate freeze to certain qualifying subprime borrowers, with specific types of loans, facing interest rate resets. The group of lenders, referred to as the HOPE NOW alliance, has agreed to offer borrowers a five year freeze in their initial rate if they, among other things, (i) hold a first adjustable-rate mortgage with a introductory fixed rate lasting three years or less, (ii) do not meet criteria suggesting an ability to refinance, (iii) have a loan-to-value ratio of more than 96%, (iv) do not qualify to refinance under the FHASecure initiative (covered in the August 31st issue of InfoBytes), (v) have a FICO score below 660 that has not improved significantly since the loan’s origination, and (vi) are not more than 30 days late on their loan payments. Under the plan, servicers are expected to contact borrowers in advance of their resets. A similar plan was recently implemented with certain major servicers by the Governor of California (reported in the November 30th issue of InfoBytes). In announcing the agreement, President Bush also called on Congress to pass FHA modernization currently stalled in the Senate (most recently reported in the November 16th issue of InfoBytes). To view text of the President’s announcement, and see a summary fact sheet of the Administrations foreclosure initiatives, please see http://www.whitehouse.gov/news/releases/2007/12/20071206-9.html.
Senate Panel Holds Hearing on Credit Card Rate Increase Practices. On December 4, the Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Governmental Affairs held a hearing examining interest rate increase practices of credit card issuers. The first panel featured three cardholders whose interest rates on their credit card accounts increased even though they had made timely payments above the minimum payment on their accounts every month. Generally, these cardholders were “re-priced” due to events unrelated to their accounts, such as a decrease in the cardholder’s FICO score. Responding to such rate increase practices, Senator Carl Levin (D-MI), chairman of the subcommittee, stated that “if a person meets their credit card obligations to a credit card issuer and pays their bills on time, it is simply unfair for that credit card issuer to raise their interest rates.” Senator Levin also described the practice of applying the increased rate retroactively to existing balances as “equally offensive." In conjunction with the subcommittee’s investigation into credit card practices, Senator Levin has cosponsored S. 1395, the "Stop Unfair Practices in Credit Cards Act of 2007” (reported in the May 25th issue of InfoBytes). Among other things, this bill would set restrictions on interest rate increases. The legislation is still pending in the Senate Banking Committee. For more information on this hearing, please see http://hsgac.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=509.
House Committee Holds Hearing on Loan Modification Legislation. On December 6, the House Financial Services Committee held a hearing entitled “Accelerating Loan Modifications, Improving Foreclosure Prevention and Enhancing Enforcement.” The hearing focused on proposals to improve loan modifications that could help borrowers at risk of foreclosure to keep their homes. In addition to loan modification, the hearing also addressed the “Emergency Mortgage Loan Modification Act of 2007” (H.R. 4178) which, if enacted, would protect servicers and banks from shareholder suits if they pursued loan workout arrangements with troubled borrowers, as well as an amendment to H.R. 3915 (reported in the November 16th issue of InfoBytes) that would add civil money penalties for repeated violations of certain standards. Senior figures in the FDIC, OTS, OCC, and FRB, as well as from private industry and consumer advocacy groups all testified. For a transcript of remarks, as well as video, from this hearing, please see http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht120607.shtml.
OTS Holds Forum on Housing. On December 3, the Office of Thrift Supervision (OTS) held its National Housing Forum, where the panels discussed topics in the mortgage banking market. Among the topics were discussions on the current risks in the home mortgage market, the outlook for the U.S. housing market and its impact on financial institutions, and consumer protection issues in housing finance. The speakers included representatives from housing regulators, industry, and consumer advocacy groups. For the conference’s agenda, list of attendees, and video record, please see http://www.ots.treas.gov/resultsort.cfm?catNumber=296&dl=135&edit=1
Final Basel II Rules Published in the Federal Register. On December 7, the Federal Register published the final interagency rules on the Basel II Capital Accords capital retention framework (previously reported in the November 2nd issue of InfoBytes). The rule, as published, is available at http://edocket.access.gpo.gov/2007/pdf/07-5729.pdf.
State Issues
Colorado Proposes Further Mortgage Broker Rules. The Colorado Division of Real Estate recently published proposed rules that would prohibit brokers from recommending or inducing a borrower into a transaction that included certain prepayment penalties provisions. Pursuant to new amendments to the Mortgage Broker Licensing Act (reported in the June 15th issue of InfoBytes), mortgage brokers have a duty of good faith and fair dealing which includes recommending only those loans that have a “reasonable, tangible net benefit” for the borrower. The proposed rule would make clear that a mortgage transaction would not have a “reasonable, tangible net benefit” for a borrower if it contains prepayment penalties that extend beyond the adjustment date for a teaser rate, interest rate, or payment rate of the loan, and if the transaction includes such a provision, it will be presumed that the broker breached its duty of good faith and fair dealing. In conjunction with this rule, the Division also proposed several other rules affecting mortgage brokers, including (i) establishing that brokers have a duty to provide documentation to the Division for purposes of investigations, (ii) clarifying the requirements for maintaining contact information and other information necessary for licensing, and (iii) clarifying the requirement that mortgage brokers have contracts with borrowers and mortgage lenders that include the entire agreement between the parties. The division will be holding hearings on the proposed rules on January 8, 2008. All the rules, if finalized, would be effective on March 1, 2008. To view the proposed rules, please see http://www.dora.state.co.us/real-estate/rulemaking/Upcoming/jan82008.pdf.
Maine Releases Final Net Tangible Benefit, Ability to Pay Rule. On December 4, the Maine Department of Professional and Financial Regulation released final rules outlining the “reasonable, tangible net benefit” and “ability to pay” standards for that state’s anti-predatory lending law passed this summer (reported in the June 15th issue of InfoBytes). The final rule does not precisely define “reasonable, tangible net benefit,” but it does outline a non-exclusive list of factors the creditor should consider when assessing the presence of such a benefit. The factors include (i) whether the borrower’s fully amortized payment is lower than the total of all monthly obligations being financed, (ii) whether there is any “beneficial” change to the borrower in the amortization period, (iii) whether the borrower receives a reasonable amount of cash in excess of the costs and fees, (iv) whether there is a reduction in the interest rate,(v) whether the loan moves the borrower from an adjustable to fixed-rate mortgage, and (vi) whether the refinancing responds to a bona fide personal need, as reasonably determined by the borrower or a court of competent jurisdiction. The new rules specify that the existence of one factor may be sufficient to show a reasonable, tangible net benefit. The rule also outlines a disclosure that the broker must make to the borrower outlining the factors in determining the presence of a tangible net benefit, and requires the broker to explain its analysis to the borrower. Finally, the rule specifies that a completed and signed form is evidence of compliance with the tangible net benefit requirement. Regarding the “ability to pay,” the final rule specifies that brokers must document in writing the borrower’s (i) income, noting that a broker may not disregard indications that statements are inaccurate or incomplete, (ii) credit history, (iii) current obligations, including secured and unsecured loans, (iv) employment status, (v) debt-to-income ratio including principal, income, taxes and insurance, and (vi) other resources including existing equity. The rule requires the borrower’s ability to pay to be assessed at the loan’s fully indexed amortizing rate, and consider any balance increase due to negative amortization. When determining the borrower’s income, the rule requires the broker (or a designated third party) to review tax returns, payroll receipts, or bank records, or “reasonable alternatives” such as “statements from investment advisors, broker-dealers, and others in a fiduciary relationship with the borrower.” Both rules shall apply to any loan application received after December 31, 2007. For a copy of the rule, and a discussion of the public comments, please see http://www.maine.gov/tools/whatsnew/index.php?topic=CCR-PressReleases&id=46534.
Courts
2nd Cir. Affirms OCC Preemption, Holds Fair Housing Act Claim Not Ripe. On December 4, the Second Circuit Court of Appeals, in a divided opinion, affirmed a district court’s ruling that enjoined the New York Attorney General from investigating the real estate lending practices of several national banks and their operating subsidiaries based on the preemptive authority of regulations promulgated by the Office of the Comptroller of the Currency (OCC). The Clearing House Ass’n v. Cuomo, No. 05-5996, 2007 WL 4233358 (2nd Cir., Dec. 4, 2007). In this case, the New York Attorney General began investigating several national banks and their operating subsidiaries for evidence of discrimination in their real estate lending practices. The OCC and the Clearing House Association sued for declaratory and injunctive relief against the Attorney General, alleging that the investigation was an impermissible visitation upon national banks prohibited by the National Bank Act and corresponding OCC regulations, which limit such visitation to the province of the OCC. The district court agreed and enjoined the Attorney General from investigating the banks. In this appeal, the Second Circuit affirmed nearly all of the lower court’s rulings. Specifically, the Second Circuit rejected the Attorney General’s appeals for the court to find that there is a presumption against the preemption granted by the OCC regulations and that a clear statement from Congress is unnecessary to demonstrate Congress’ intent to allow the regulations to reach “the outer limits” of Congress’ power. In addition, the court examined and rejected the Attorney General’s argument that the OCC’s regulations should not enjoy Chevron deference, instead holding that the regulations were within the scope of the OCC’s authority and were a reasonable interpretation of the National Bank Act, and therefore the district court did not err in deferring to the OCC. With regards to the final claim by the Attorney General, that even if he is precluded from enforcing state law against the national banks, he may still bring an action to enforce the federal Fair Housing Act, the Second Circuit vacated the holding by the district court. Stating “we are neither sure of the exact harm that might be alleged nor of the relief that might be sought,” the Second Circuit vacated on the grounds that the district court lacked jurisdiction to rule on this claim due to lack of ripeness. The court did note in dicta that “both Congress and the Supreme Court have made clear that the standing to sue under the FHA is extraordinarily permissive.” The district court’s opinion in The Clearing House Ass’n v. Spitzer, No. 05-5629-cv (S.D.N.Y., July 29, 2005) was reported in the Aug 5, 2005 issue of InfoBytes. For a copy of the circuit court’s opinion in Clearing House Ass’n v. Cuomo, please contact .
Federal Court Finds FCRA Preempts Injunctive Relief Under State Law. On November 15, the Eastern District of Texas found that the Fair Credit Reporting Act (FCRA) preempts injunctive relief under state law and dismissed a consumer’s claim for injunctive relief against a credit reporting agency. Smith v. Equifax Info. Servs., LLC, No. 2:07-CV-227-DF, 2007 WL 4225761 (E.D. Tex. Nov. 15, 2007). The consumer, a victim of identity theft, sued a lessor that leased property to the person who stole the consumer’s identity, as well as the three national credit reporting agencies for generating and providing false credit reports, under FCRA. The consumer sought damages and attorney fees, as well as injunctive relief that would require that the defendants reinvestigate and correct the consumer’s credit reports and credit history. One of the national credit reporting agencies brought a partial motion to dismiss the claim for injunctive relief, arguing that a private litigant does not have a right to injunctive relief against a consumer reporting agency under FCRA. The court held that Congress vested the power to obtain injunctive relief solely with the FTC, and that any state law claim that would provide injunctive relief to a private litigant would frustrate Congress’ purpose and conflict with FCRA. The court distinguished a previous case, Campbell v. Baldwin, because the holding in that case was that the Eleventh Amendment was not a bar to injunctive relief under the FCRA and the case dealt with the “duty of furnishers of information” and not credit reporting agencies. Similarly, 15 U.S.C. § 1681t(b)(1)(F), which preempts state laws regarding furnishers, was inapplicable because the claim at issue was raised against a consumer reporting agency and not a furnisher. In addition, another FCRA provision, 15 U.S.C. § 1681h(e), which partially preempts state defamation and similar laws, was irrelevant for the purpose of deciding whether a private litigant is precluded from injunctive relief. For a copy of this opinion, please e-mail .
FCRA Insurance Adverse Action Does Not Occur before Consumer Is Billed at Higher Rate. On November 29, a federal district court ruled that adverse action notification under the Fair Credit Reporting Act (FCRA) is “not triggered until the increased charge was actually billed” to the consumer. In re Farmers Insurance Co. Inc. FCRA Litigation, No. 03-158, 2007 WL 4215833 (W.D. Okla. Nov. 29, 2007). In this case, a consumer brought a class action suit against a home insurer alleging a failure to provide notice of adverse action as required by FCRA. The insurer had provided the consumer with notification required by state law that it would be increasing his premium by more than 50% sixty days in advance of the change, and the action was based in part on information in a credit report. The consumer found an alternative insurance provider, and discontinued his policy before the new rate was billed. In holding that adverse action does not take place until the consumer is actually billed at a higher rate, the court cited several opinions, including the holding in Obabueki v. I.B.M. Corp., 145 F.Supp.2d 371, 391-92 (S.D.N.Y. 2001), that “a preliminary internal decision to rescind an offer of unemployment” does not constitute adverse action. For a copy of In re Farmers Insurance Co., please contact .
Court Rules FCRA Firm Offer Need Not Specify Interest Rates for All Loan Amounts. A federal district court recently ruled that a mortgage solicitation letter offering a clear range of credit, and enumerating additional charges, but only providing a range of interest rates on loans above a certain loan amount threshold, qualifies as a “firm offer of credit” under the Fair Credit Reporting Act (FCRA). Wojtczak v. Chase Bank USA, N.A. No. 06-987 2007 WL 4232995 (E.D.Wis., Nov. 27, 2007). In this case a consumer received a letter offering a 30-year fixed-rate refinance mortgage of any amount between $15,000 and $149,999 and specifying a rate of between 8.4% and 13.58% on loans between $100,000 and $149,999. The consumer then brought a class action alleging that, by failing to provide an interest rate on loans between $15,000 and $99,999, the lender had not provided a firm offer of credit and willfully violated FCRA. In granting the lender’s motion to dismiss, the court considered the three prongs of analysis outlined in Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004, reported in the December 17, 2004 issue of InfoBytes): (i) whether the offer will be honored, (ii) whether the material terms are adequately disclosed, and (iii) whether offer is of any substantial value. The court found no reason to question that the offer would be honored, satisfying the first prong. The inclusion of so many aspects of the offer, together with the provision of a toll-free number to answer further questions, met the second prong to the court’s approval. And the court found the third prong was met by the clearly stated, and substantial, range of credit being offered, in contrast to the mere $300 underlying the ruling in Cole. The court also ruled that any violation of FCRA in this case would not be “willful,” and thus do not qualify for statutory damages, as the lender’s reading of the law was not “objectively unreasonable.” (See Safeco Ins. Co. of Am. v. Burr, 127 S.Ct. 2201 (2007) reported in the June 4th InfoBytes Special Alert.) For a copy of this opinion, please contact .
Court Finds “Firm Offer” in Platinum Credit Card Mailer. On November 28, a federal district court in Wisconsin dismissed a Fair Credit Reporting Act (FCRA) claim that a credit card mailer was not a “firm offer.” Johnson v. Juniper Bank, 2007 WL 4219431 (E.D. Wis. Nov. 28, 2007). The consumer received a “platinum” credit card mailer which did not include the minimum line of credit; instead it provided a toll free number to call for that information. The consumer argued that the exclusion of the minimum line of credit rendered the mailer a “sham” and not a firm offer, and therefore the bank did not have a permissible purpose to access her credit report. The court held, however, that the mailer was a “firm offer” under the FCRA. Following Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004, reported in the December 17, 2004 issue of InfoBytes), to determine whether there was a firm offer the court considered (i) whether it appeared likely the offer would be honored, (ii) whether the material terms were adequately disclosed, and (iii) whether the amount of credit was minimal or subject to so many limitations that it was of little value. The court found that the terms in the mailer combined with the toll free number were sufficient to meet each factor. The court also held that even if it was wrong and the mailer was not a valid firm offer, its violation was not “willful” because many courts have held the FCRA does not require a statement of the minimum line of credit. Therefore, under the interpretation of willfulness as used in FCRA announced by the Supreme Court in Safeco Insurance Co. v. Burr, 127 S. Ct. 2201 (June 4, 2007, reported in the the June 4th InfoBytes Special Alert.), the bank’s interpretation “was not objectively unreasonable, and, therefore, it did not act willfully and cannot be held liable for statutory damages of $100-$1000 per violation. For a full copy of this opinion, please contact .
9th Circuit Holds Circumstantial Evidence May Prove ID Theft Proximate Harm. On November 20, the U.S. Court of Appeals for the 9th Circuit held in an unpublished opinion that circumstantial evidence of a causal relationship in the context of identity fraud may be sufficient to prove proximate harm. Stollenwerk, et al. v. Tri-West Health Care Alliance, No. 05-16990, (9th Cir. Nov. 20, 2007). In this case, the plaintiff’s personal information was stolen during a burglary at the Tri-West Health Care Alliance headquarters. The plaintiff soon thereafter became the victim of six identity fraud incidents. The plaintiff then sued the health care company for negligence. In reversing the district court’s decision to grant summary judgment, the Ninth Circuit held that it is reasonable to infer under the facts of the case that the burglary was related to the subsequent identity theft. The court held that the connection need not be proven by direct evidence since it is a matter of common knowledge from which a jury could reasonably draw inferences regarding its probative value in establishing causation. The court reasoned that, in order to survive summary judgment, the plaintiff need not show that the theft was the sole cause of the identity fraud incidents, only that it was, more likely than not, a substantial factor in bringing about the result, and a factor without which the injury would not have occurred. Citing Wisener v. State of Arizona, 598 P.2d 511, 513 (Ariz. 1979), Robertson v. Sixpense Inns of Am., Inc., 789 P.2d 1040, 1047 (Ariz. 1990). Here, the plaintiff provided evidence that (i) the identity fraud began shortly after the theft of his personal information, (ii) the kind of information stolen was the same kind needed to commit the identity fraud at issue, (iii) he had not previously suffered any such incidents of identity fraud, and (iv) he did not transmit personal information over the internet and he shreded all mail containing personal information, thereby eliminating other possible avenues by which thieves could have obtained the plaintiff’s personal information. The court held that the combination of such circumstantial evidence and common knowledge may provide a basis from which the causal sequence may be inferred, and as such, is a question reserved for the jury. For a copy of the unpublished opinion in Stollenwerk, please see http://www.ca9.uscourts.gov/coa/memdispo.nsf/pdfview/112007/$File/05-16990.PDF.
Court Denies Settlement Company Summary Judgment in Broker Fraud Case. On November 26, a federal district court dismissed a consumer’s claim of per se violations by a settlement company arising from an alleged case of broker fraud under the Virginia Consumer Protection Act (VCPA), but the court denied summary judgment on claims that the defendant “willfully” violated the VCPA and common law fraud and conspiracy. Stith v. Thorne, 2007 WL 4246097 (E.D. Va. Nov. 26, 2007). As reported in the June 22 issue of InfoBytes, the plaintiff alleged that she was the victim of a scheme perpetrated by two mortgage brokers designed to defraud her of the equity in her home. Both parties moved for summary judgment on all claims. The court granted summary judgment for the defendant holding that the VCPA does not have a “catch all” provision that covers violations of the state’s Consumer Real Estate Settlement Protection Act and Mortgage Lender and Broker Act. However, the court denied motions to dismiss on all other claims, holding that the issues of the propriety of blank Forfeit of Proceeds Documents, whether there were any pre-existing agreements, whether the HUD-1 Settlement Agreement was disclosed to the plaintiff, and whether the plaintiff understood the amount of equity in her home were disputes of material fact that could demonstrate a “willful” violation of the VCPA or common law fraud and conspiracy. For a copy of this decision, please contact .
FCRA Credit Dispute “Reasonable Procedures” Claim Sent to Jury. A U.S. District Court denied summary judgment to a credit reporting agency on the consumer’s claim that the agency failed to follow reasonable procedures and that this failure was shown by the inaccuracies in the reports the agency issued about the consumer. Perez v. Trans Union, LLC, Civ. Act. No. 06-3357, 2007 WL 4197417 (E.D.Pa. Nov. 7, 2007).The consumer purchased a car from the Popular Ford dealership and requested the dealership’s assistance in obtaining financing. Popular Ford obtained credit reports on the consumer from one of the defendants, First Advantage Credco. Credco compiled the reports of three credit bureaus, and passed on to Popular Ford the incorrect information it had received to the effect that consumer was deceased and had no credit score. Five banks denied the consumer a loan based on the incorrect reports. Eventually, the consumer obtained a loan from Ford Motor Credit at a rate higher than he thought he should have received given his credit record. The inaccuracy was not corrected until a year and a half later, and then only after the consumer wrote to the bureaus requesting a correction. The consumer filed suit claiming that Credco, among others, violated the Fair Credit Reporting Act (FCRA). In particular, the consumer claimed that Credco negligently and/or willfully violated the “reasonable procedures” standard under FCRA § 1681e(b). The court ruled that the consumer had “presented sufficient evidence” to survive summary judgment, citing Philbin v. Trans Union Corp., 101 F.3d 957, 965 (3d Cir. 1996). The court ruled that “the question left for the trier of fact is whether Credco reasonably ought to have appreciated, under the circumstances presented, that there was a material inaccuracy such that a duty arose upon it to do something to correct it or not make a report.” For a copy of the court’s decision in Perez, please contact .
District Court Certifies FACTA Credit Card Receipt Truncation Class. A federal district court has granted class certification to consumers in a lawsuit alleging violations of the Fair and Accurate Credit Transactions Act (FACTA) for printing too much credit card information on receipts, despite the defendant’s argument that the minimum penalties would be disproportionately high. Halperin v. InterPark Inc., No. 07 C 2161. 2007 WL 4219419 (N.D. Ill. Nov. 29, 2007). In this case, the named consumer plaintiff received a credit card receipt from an automated payment machine at a parking garage operated by the defendant InterPark. The consumer alleges that the receipt contained the last four digits of his card number and the card’s expiration date in violation of FACTA, which amends the Fair Credit Reporting Act (FCRA) to prohibit printing the expiration date or more than five credit card digits. InterPark opposed class certification arguing, among other things, that class actions were an unsuitable method of adjudicating FACTA suits because of the large class size and the catastrophic impact of the statute’s $100-per-willful-violation minimum damages. The court rejected this argument, quoting from Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006) that “it is not appropriate to use procedural devices to undermine laws of which a judge disapproves.” (Murray v. GMAC is discussed in the January 20, 2006 issue of InfoBytes.) For a copy of the opinion in Halperin, please contact .
Firm News
Jon Jerison and Kirk Jensen will present an A.S. Pratt audio conference on “Lessons for All Mortgage Lenders: Recovering from the Fallout from the Subprime Lending Crisis,” on Tuesday, December 18, 2007 at 1:00 PM – 2:30 PM ET. For more information, see http://aspratt.com/store/20B.php.
Joseph Lynyak III will be presenting at the Pennsylvania Bar Institute’s “Banking and Consumer Financial Services Law Update” on December 13th in Philadelphia. He will be giving a talk entitled “Recent Developments Regarding Fair Lending Laws.” For more information, to order materials, or to register, please see http://www.legalspan.com/pbi/calendar.asp?UGUID=&ItemID=20070613-150226-82130.
Mortgages
Administration Reaches Loan Modification Agreement with Lenders. On December 6, President George W. Bush announced an agreement with a consortium of lenders and servicers to provide an interest rate freeze to certain qualifying subprime borrowers, with specific types of loans, facing interest rate resets. The group of lenders, referred to as the HOPE NOW alliance, has agreed to offer borrowers a five year freeze in their initial rate if they, among other things, (i) hold a first adjustable-rate mortgage with a introductory fixed rate lasting three years or less, (ii) do not meet criteria suggesting an ability to refinance, (iii) have a loan-to-value ratio of more than 96%, (iv) do not qualify to refinance under the FHASecure initiative (covered in the August 31st issue of InfoBytes), (v) have a FICO score below 660 that has not improved significantly since the loan’s origination, and (vi) are not more than 30 days late on their loan payments. Under the plan, servicers are expected to contact borrowers in advance of their resets. A similar plan was recently implemented with certain major servicers by the Governor of California (reported in the November 30th issue of InfoBytes). In announcing the agreement, President Bush also called on Congress to pass FHA modernization currently stalled in the Senate (most recently reported in the November 16th issue of InfoBytes). To view text of the President’s announcement, and see a summary fact sheet of the Administrations foreclosure initiatives, please see http://www.whitehouse.gov/news/releases/2007/12/20071206-9.html.
2nd Cir. Affirms OCC Preemption, Holds Fair Housing Act Claim Not Ripe. On December 4, the Second Circuit Court of Appeals, in a divided opinion, affirmed a district court’s ruling that enjoined the New York Attorney General from investigating the real estate lending practices of several national banks and their operating subsidiaries based on the preemptive authority of regulations promulgated by the Office of the Comptroller of the Currency (OCC). The Clearing House Ass’n v. Cuomo, No. 05-5996, 2007 WL 4233358 (2nd Cir., Dec. 4, 2007). In this case, the New York Attorney General began investigating several national banks and their operating subsidiaries for evidence of discrimination in their real estate lending practices. The OCC and the Clearing House Association sued for declaratory and injunctive relief against the Attorney General, alleging that the investigation was an impermissible visitation upon national banks prohibited by the National Bank Act and corresponding OCC regulations, which limit such visitation to the province of the OCC. The district court agreed and enjoined the Attorney General from investigating the banks. In this appeal, the Second Circuit affirmed nearly all of the lower court’s rulings. Specifically, the Second Circuit rejected the Attorney General’s appeals for the court to find that there is a presumption against the preemption granted by the OCC regulations and that a clear statement from Congress is unnecessary to demonstrate Congress’ intent to allow the regulations to reach “the outer limits” of Congress’ power. In addition, the court examined and rejected the Attorney General’s argument that the OCC’s regulations should not enjoy Chevron deference, instead holding that the regulations were within the scope of the OCC’s authority and were a reasonable interpretation of the National Bank Act, and therefore the district court did not err in deferring to the OCC. With regards to the final claim by the Attorney General, that even if he is precluded from enforcing state law against the national banks, he may still bring an action to enforce the federal Fair Housing Act, the Second Circuit vacated the holding by the district court. Stating “we are neither sure of the exact harm that might be alleged nor of the relief that might be sought,” the Second Circuit vacated on the grounds that the district court lacked jurisdiction to rule on this claim due to lack of ripeness. The court did note in dicta that “both Congress and the Supreme Court have made clear that the standing to sue under the FHA is extraordinarily permissive.” The district court’s opinion in The Clearing House Ass’n v. Spitzer, No. 05-5629-cv (S.D.N.Y., July 29, 2005) was reported in the Aug 5, 2005 issue of InfoBytes. For a copy of the circuit court’s opinion in Clearing House Ass’n v. Cuomo, please contact .
House Committee Holds Hearing on Loan Modification Legislation. On December 6, the House Financial Services Committee held a hearing entitled “Accelerating Loan Modifications, Improving Foreclosure Prevention and Enhancing Enforcement.” The hearing focused on proposals to improve loan modifications that could help borrowers at risk of foreclosure to keep their homes. In addition to loan modification, the hearing also addressed the “Emergency Mortgage Loan Modification Act of 2007” (H.R. 4178) which, if enacted, would protect servicers and banks from shareholder suits if they pursued loan workout arrangements with troubled borrowers, as well as an amendment to H.R. 3915 (reported in the November 16th issue of InfoBytes) that would add civil money penalties for repeated violations of certain standards. Senior figures in the FDIC, OTS, OCC, and FRB, as well as from private industry and consumer advocacy groups all testified. For a transcript of remarks, as well as video, from this hearing, please see http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht120607.shtml.
Colorado Proposes Further Mortgage Broker Rules. The Colorado Division of Real Estate recently published proposed rules that would prohibit brokers from recommending or inducing a borrower into a transaction that included certain prepayment penalties provisions. Pursuant to new amendments to the Mortgage Broker Licensing Act (reported in the June 15th issue of InfoBytes), mortgage brokers have a duty of good faith and fair dealing which includes recommending only those loans that have a “reasonable, tangible net benefit” for the borrower. The proposed rule would make clear that a mortgage transaction would not have a “reasonable, tangible net benefit” for a borrower if it contains prepayment penalties that extend beyond the adjustment date for a teaser rate, interest rate, or payment rate of the loan, and if the transaction includes such a provision, it will be presumed that the broker breached its duty of good faith and fair dealing. In conjunction with this rule, the Division also proposed several other rules affecting mortgage brokers, including (i) establishing that brokers have a duty to provide documentation to the Division for purposes of investigations, (ii) clarifying the requirements for maintaining contact information and other information necessary for licensing, and (iii) clarifying the requirement that mortgage brokers have contracts with borrowers and mortgage lenders that include the entire agreement between the parties. The division will be holding hearings on the proposed rules on January 8, 2008. All the rules, if finalized, would be effective on March 1, 2008. To view the proposed rules, please see http://www.dora.state.co.us/real-estate/rulemaking/Upcoming/jan82008.pdf.
Maine Releases Final Net Tangible Benefit, Ability to Pay Rule. On December 4, the Maine Department of Professional and Financial Regulation released final rules outlining the “reasonable, tangible net benefit” and “ability to pay” standards for that state’s anti-predatory lending law passed this summer (reported in the June 15th issue of InfoBytes). The final rule does not precisely define “reasonable, tangible net benefit,” but it does outline a non-exclusive list of factors the creditor should consider when assessing the presence of such a benefit. The factors include (i) whether the borrower’s fully amortized payment is lower than the total of all monthly obligations being financed, (ii) whether there is any “beneficial” change to the borrower in the amortization period, (iii) whether the borrower receives a reasonable amount of cash in excess of the costs and fees, (iv) whether there is a reduction in the interest rate,(v) whether the loan moves the borrower from an adjustable to fixed-rate mortgage, and (vi) whether the refinancing responds to a bona fide personal need, as reasonably determined by the borrower or a court of competent jurisdiction. The new rules specify that the existence of one factor may be sufficient to show a reasonable, tangible net benefit. The rule also outlines a disclosure that the broker must make to the borrower outlining the factors in determining the presence of a tangible net benefit, and requires the broker to explain its analysis to the borrower. Finally, the rule specifies that a completed and signed form is evidence of compliance with the tangible net benefit requirement. Regarding the “ability to pay,” the final rule specifies that brokers must document in writing the borrower’s (i) income, noting that a broker may not disregard indications that statements are inaccurate or incomplete, (ii) credit history, (iii) current obligations, including secured and unsecured loans, (iv) employment status, (v) debt-to-income ratio including principal, income, taxes and insurance, and (vi) other resources including existing equity. The rule requires the borrower’s ability to pay to be assessed at the loan’s fully indexed amortizing rate, and consider any balance increase due to negative amortization. When determining the borrower’s income, the rule requires the broker (or a designated third party) to review tax returns, payroll receipts, or bank records, or “reasonable alternatives” such as “statements from investment advisors, broker-dealers, and others in a fiduciary relationship with the borrower.” Both rules shall apply to any loan application received after December 31, 2007. For a copy of the rule, and a discussion of the public comments, please see http://www.maine.gov/tools/whatsnew/index.php?topic=CCR-PressReleases&id=46534.
Court Denies Settlement Company Summary Judgment in Broker Fraud Case. On November 26, a federal district court dismissed a consumer’s claim of per se violations by a settlement company arising from an alleged case of broker fraud under the Virginia Consumer Protection Act (VCPA), but the court denied summary judgment on claims that the defendant “willfully” violated the VCPA and common law fraud and conspiracy. Stith v. Thorne, 2007 WL 4246097 (E.D. Va. Nov. 26, 2007). As reported in the June 22 issue of InfoBytes, the plaintiff alleged that she was the victim of a scheme perpetrated by two mortgage brokers designed to defraud her of the equity in her home. Both parties moved for summary judgment on all claims. The court granted summary judgment for the defendant holding that the VCPA does not have a “catch all” provision that covers violations of the state’s Consumer Real Estate Settlement Protection Act and Mortgage Lender and Broker Act. However, the court denied motions to dismiss on all other claims, holding that the issues of the propriety of blank Forfeit of Proceeds Documents, whether there were any pre-existing agreements, whether the HUD-1 Settlement Agreement was disclosed to the plaintiff, and whether the plaintiff understood the amount of equity in her home were disputes of material fact that could demonstrate a “willful” violation of the VCPA or common law fraud and conspiracy. For a copy of this decision, please contact .
Court Rules FCRA Firm Offer Need Not Specify Interest Rates for All Loan Amounts. A federal district court recently ruled that a mortgage solicitation letter offering a clear range of credit, and enumerating additional charges, but only providing a range of interest rates on loans above a certain loan amount threshold, qualifies as a “firm offer of credit” under the Fair Credit Reporting Act (FCRA). Wojtczak v. Chase Bank USA, N.A. No. 06-987 2007 WL 4232995 (E.D.Wis., Nov. 27, 2007). In this case a consumer received a letter offering a 30-year fixed-rate refinance mortgage of any amount between $15,000 and $149,999 and specifying a rate of between 8.4% and 13.58% on loans between $100,000 and $149,999. The consumer then brought a class action alleging that, by failing to provide an interest rate on loans between $15,000 and $99,999, the lender had not provided a firm offer of credit and willfully violated FCRA. In granting the lender’s motion to dismiss, the court considered the three prongs of analysis outlined in Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004, reported in the December 17, 2004 issue of InfoBytes): (i) whether the offer will be honored, (ii) whether the material terms are adequately disclosed, and (iii) whether offer is of any substantial value. The court found no reason to question that the offer would be honored, satisfying the first prong. The inclusion of so many aspects of the offer, together with the provision of a toll-free number to answer further questions, met the second prong to the court’s approval. And the court found the third prong was met by the clearly stated, and substantial, range of credit being offered, in contrast to the mere $300 underlying the ruling in Cole. The court also ruled that any violation of FCRA in this case would not be “willful,” and thus do not qualify for statutory damages, as the lender’s reading of the law was not “objectively unreasonable.” (See Safeco Ins. Co. of Am. v. Burr, 127 S.Ct. 2201 (2007) reported in the June 4th InfoBytes Special Alert.) For a copy of this opinion, please contact .
OTS Holds Forum on Housing. On December 3, the Office of Thrift Supervision (OTS) held its National Housing Forum, where the panels discussed topics in the mortgage banking market. Among the topics were discussions on the current risks in the home mortgage market, the outlook for the U.S. housing market and its impact on financial institutions, and consumer protection issues in housing finance. The speakers included representatives from housing regulators, industry, and consumer advocacy groups. For the conference’s agenda, list of attendees, and video record, please see http://www.ots.treas.gov/resultsort.cfm?catNumber=296&dl=135&edit=1
Banking
Administration Reaches Loan Modification Agreement with Lenders. On December 6, President George W. Bush announced an agreement with a consortium of lenders and servicers to provide an interest rate freeze to certain qualifying subprime borrowers, with specific types of loans, facing interest rate resets. The group of lenders, referred to as the HOPE NOW alliance, has agreed to offer borrowers a five year freeze in their initial rate if they, among other things, (i) hold a first adjustable-rate mortgage with a introductory fixed rate lasting three years or less, (ii) do not meet criteria suggesting an ability to refinance, (iii) have a loan-to-value ratio of more than 96%, (iv) do not qualify to refinance under the FHASecure initiative (covered in the August 31st issue of InfoBytes), (v) have a FICO score below 660 that has not improved significantly since the loan’s origination, and (vi) are not more than 30 days late on their loan payments. Under the plan, servicers are expected to contact borrowers in advance of their resets. A similar plan was recently implemented with certain major servicers by the Governor of California (reported in the November 30th issue of InfoBytes). In announcing the agreement, President Bush also called on Congress to pass FHA modernization currently stalled in the Senate (most recently reported in the November 16th issue of InfoBytes). To view text of the President’s announcement, and see a summary fact sheet of the Administrations foreclosure initiatives, please see http://www.whitehouse.gov/news/releases/2007/12/20071206-9.html.
2nd Cir. Affirms OCC Preemption, Holds Fair Housing Act Claim Not Ripe. On December 4, the Second Circuit Court of Appeals, in a divided opinion, affirmed a district court’s ruling that enjoined the New York Attorney General from investigating the real estate lending practices of several national banks and their operating subsidiaries based on the preemptive authority of regulations promulgated by the Office of the Comptroller of the Currency (OCC). The Clearing House Ass’n v. Cuomo, No. 05-5996, 2007 WL 4233358 (2nd Cir., Dec. 4, 2007). In this case, the New York Attorney General began investigating several national banks and their operating subsidiaries for evidence of discrimination in their real estate lending practices. The OCC and the Clearing House Association sued for declaratory and injunctive relief against the Attorney General, alleging that the investigation was an impermissible visitation upon national banks prohibited by the National Bank Act and corresponding OCC regulations, which limit such visitation to the province of the OCC. The district court agreed and enjoined the Attorney General from investigating the banks. In this appeal, the Second Circuit affirmed nearly all of the lower court’s rulings. Specifically, the Second Circuit rejected the Attorney General’s appeals for the court to find that there is a presumption against the preemption granted by the OCC regulations and that a clear statement from Congress is unnecessary to demonstrate Congress’ intent to allow the regulations to reach “the outer limits” of Congress’ power. In addition, the court examined and rejected the Attorney General’s argument that the OCC’s regulations should not enjoy Chevron deference, instead holding that the regulations were within the scope of the OCC’s authority and were a reasonable interpretation of the National Bank Act, and therefore the district court did not err in deferring to the OCC. With regards to the final claim by the Attorney General, that even if he is precluded from enforcing state law against the national banks, he may still bring an action to enforce the federal Fair Housing Act, the Second Circuit vacated the holding by the district court. Stating “we are neither sure of the exact harm that might be alleged nor of the relief that might be sought,” the Second Circuit vacated on the grounds that the district court lacked jurisdiction to rule on this claim due to lack of ripeness. The court did note in dicta that “both Congress and the Supreme Court have made clear that the standing to sue under the FHA is extraordinarily permissive.” The district court’s opinion in The Clearing House Ass’n v. Spitzer, No. 05-5629-cv (S.D.N.Y., July 29, 2005) was reported in the Aug 5, 2005 issue of InfoBytes. For a copy of the circuit court’s opinion in Clearing House Ass’n v. Cuomo, please contact .
House Committee Holds Hearing on Loan Modification Legislation. On December 6, the House Financial Services Committee held a hearing entitled “Accelerating Loan Modifications, Improving Foreclosure Prevention and Enhancing Enforcement.” The hearing focused on proposals to improve loan modifications that could help borrowers at risk of foreclosure to keep their homes. In addition to loan modification, the hearing also addressed the “Emergency Mortgage Loan Modification Act of 2007” (H.R. 4178) which, if enacted, would protect servicers and banks from shareholder suits if they pursued loan workout arrangements with troubled borrowers, as well as an amendment to H.R. 3915 (reported in the November 16th issue of InfoBytes) that would add civil money penalties for repeated violations of certain standards. Senior figures in the FDIC, OTS, OCC, and FRB, as well as from private industry and consumer advocacy groups all testified. For a transcript of remarks, as well as video, from this hearing, please see http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht120607.shtml.
OTS Holds Forum on Housing. On December 3, the Office of Thrift Supervision (OTS) held its National Housing Forum, where the panels discussed topics in the mortgage banking market. Among the topics were discussions on the current risks in the home mortgage market, the outlook for the U.S. housing market and its impact on financial institutions, and consumer protection issues in housing finance. The speakers included representatives from housing regulators, industry, and consumer advocacy groups. For the conference’s agenda, list of attendees, and video record, please see http://www.ots.treas.gov/resultsort.cfm?catNumber=296&dl=135&edit=1
Final Basel II Rules Published in the Federal Register. On December 7, the Federal Register published the final interagency rules on the Basel II Capital Accords capital retention framework (previously reported in the November 2nd issue of InfoBytes). The rule, as published, is available at http://edocket.access.gpo.gov/2007/pdf/07-5729.pdf.
FCRA Credit Dispute “Reasonable Procedures” Claim Sent to Jury. A U.S. District Court denied summary judgment to a credit reporting agency on the consumer’s claim that the agency failed to follow reasonable procedures and that this failure was shown by the inaccuracies in the reports the agency issued about the consumer. Perez v. Trans Union, LLC, Civ. Act. No. 06-3357, 2007 WL 4197417 (E.D.Pa. Nov. 7, 2007).The consumer purchased a car from the Popular Ford dealership and requested the dealership’s assistance in obtaining financing. Popular Ford obtained credit reports on the consumer from one of the defendants, First Advantage Credco. Credco compiled the reports of three credit bureaus, and passed on to Popular Ford the incorrect information it had received to the effect that consumer was deceased and had no credit score. Five banks denied the consumer a loan based on the incorrect reports. Eventually, the consumer obtained a loan from Ford Motor Credit at a rate higher than he thought he should have received given his credit record. The inaccuracy was not corrected until a year and a half later, and then only after the consumer wrote to the bureaus requesting a correction. The consumer filed suit claiming that Credco, among others, violated the Fair Credit Reporting Act (FCRA). In particular, the consumer claimed that Credco negligently and/or willfully violated the “reasonable procedures” standard under FCRA § 1681e(b). The court ruled that the consumer had “presented sufficient evidence” to survive summary judgment, citing Philbin v. Trans Union Corp., 101 F.3d 957, 965 (3d Cir. 1996). The court ruled that “the question left for the trier of fact is whether Credco reasonably ought to have appreciated, under the circumstances presented, that there was a material inaccuracy such that a duty arose upon it to do something to correct it or not make a report.” For a copy of the court’s decision in Perez, please contact .
Consumer Finance
District Court Certifies FACTA Credit Card Receipt Truncation Class. A federal district court has granted class certification to consumers in a lawsuit alleging violations of the Fair and Accurate Credit Transactions Act (FACTA) for printing too much credit card information on receipts, despite the defendant’s argument that the minimum penalties would be disproportionately high. Halperin v. InterPark Inc., No. 07 C 2161. 2007 WL 4219419 (N.D. Ill. Nov. 29, 2007). In this case, the named consumer plaintiff received a credit card receipt from an automated payment machine at a parking garage operated by the defendant InterPark. The consumer alleges that the receipt contained the last four digits of his card number and the card’s expiration date in violation of FACTA, which amends the Fair Credit Reporting Act (FCRA) to prohibit printing the expiration date or more than five credit card digits. InterPark opposed class certification arguing, among other things, that class actions were an unsuitable method of adjudicating FACTA suits because of the large class size and the catastrophic impact of the statute’s $100-per-willful-violation minimum damages. The court rejected this argument, quoting from Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006) that “it is not appropriate to use procedural devices to undermine laws of which a judge disapproves.” (Murray v. GMAC is discussed in the January 20, 2006 issue of InfoBytes.) For a copy of the opinion in Halperin, please contact .
Securities
Administration Reaches Loan Modification Agreement with Lenders. On December 6, President George W. Bush announced an agreement with a consortium of lenders and servicers to provide an interest rate freeze to certain qualifying subprime borrowers, with specific types of loans, facing interest rate resets. The group of lenders, referred to as the HOPE NOW alliance, has agreed to offer borrowers a five year freeze in their initial rate if they, among other things, (i) hold a first adjustable-rate mortgage with a introductory fixed rate lasting three years or less, (ii) do not meet criteria suggesting an ability to refinance, (iii) have a loan-to-value ratio of more than 96%, (iv) do not qualify to refinance under the FHASecure initiative (covered in the August 31st issue of InfoBytes), (v) have a FICO score below 660 that has not improved significantly since the loan’s origination, and (vi) are not more than 30 days late on their loan payments. Under the plan, servicers are expected to contact borrowers in advance of their resets. A similar plan was recently implemented with certain major servicers by the Governor of California (reported in the November 30th issue of InfoBytes). In announcing the agreement, President Bush also called on Congress to pass FHA modernization currently stalled in the Senate (most recently reported in the November 16th issue of InfoBytes). To view text of the President’s announcement, and see a summary fact sheet of the Administrations foreclosure initiatives, please see http://www.whitehouse.gov/news/releases/2007/12/20071206-9.html.
House Committee Holds Hearing on Loan Modification Legislation. On December 6, the House Financial Services Committee held a hearing entitled “Accelerating Loan Modifications, Improving Foreclosure Prevention and Enhancing Enforcement.” The hearing focused on proposals to improve loan modifications that could help borrowers at risk of foreclosure to keep their homes. In addition to loan modification, the hearing also addressed the “Emergency Mortgage Loan Modification Act of 2007” (H.R. 4178) which, if enacted, would protect servicers and banks from shareholder suits if they pursued loan workout arrangements with troubled borrowers, as well as an amendment to H.R. 3915 (reported in the November 16th issue of InfoBytes) that would add civil money penalties for repeated violations of certain standards. Senior figures in the FDIC, OTS, OCC, and FRB, as well as from private industry and consumer advocacy groups all testified. For a transcript of remarks, as well as video, from this hearing, please see http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht120607.shtml.
Insurance
FCRA Insurance Adverse Action Does Not Occur before Consumer Is Billed at Higher Rate. On November 29, a federal district court ruled that adverse action notification under the Fair Credit Reporting Act (FCRA) is “not triggered until the increased charge was actually billed” to the consumer. In re Farmers Insurance Co. Inc. FCRA Litigation, No. 03-158, 2007 WL 4215833 (W.D. Okla. Nov. 29, 2007). In this case, a consumer brought a class action suit against a home insurer alleging a failure to provide notice of adverse action as required by FCRA. The insurer had provided the consumer with notification required by state law that it would be increasing his premium by more than 50% sixty days in advance of the change, and the action was based in part on information in a credit report. The consumer found an alternative insurance provider, and discontinued his policy before the new rate was billed. In holding that adverse action does not take place until the consumer is actually billed at a higher rate, the court cited several opinions, including the holding in Obabueki v. I.B.M. Corp., 145 F.Supp.2d 371, 391-92 (S.D.N.Y. 2001), that “a preliminary internal decision to rescind an offer of unemployment” does not constitute adverse action. For a copy of In re Farmers Insurance Co., please contact .
Litigation
2nd Cir. Affirms OCC Preemption, Holds Fair Housing Act Claim Not Ripe. On December 4, the Second Circuit Court of Appeals, in a divided opinion, affirmed a district court’s ruling that enjoined the New York Attorney General from investigating the real estate lending practices of several national banks and their operating subsidiaries based on the preemptive authority of regulations promulgated by the Office of the Comptroller of the Currency (OCC). The Clearing House Ass’n v. Cuomo, No. 05-5996, 2007 WL 4233358 (2nd Cir., Dec. 4, 2007). In this case, the New York Attorney General began investigating several national banks and their operating subsidiaries for evidence of discrimination in their real estate lending practices. The OCC and the Clearing House Association sued for declaratory and injunctive relief against the Attorney General, alleging that the investigation was an impermissible visitation upon national banks prohibited by the National Bank Act and corresponding OCC regulations, which limit such visitation to the province of the OCC. The district court agreed and enjoined the Attorney General from investigating the banks. In this appeal, the Second Circuit affirmed nearly all of the lower court’s rulings. Specifically, the Second Circuit rejected the Attorney General’s appeals for the court to find that there is a presumption against the preemption granted by the OCC regulations and that a clear statement from Congress is unnecessary to demonstrate Congress’ intent to allow the regulations to reach “the outer limits” of Congress’ power. In addition, the court examined and rejected the Attorney General’s argument that the OCC’s regulations should not enjoy Chevron deference, instead holding that the regulations were within the scope of the OCC’s authority and were a reasonable interpretation of the National Bank Act, and therefore the district court did not err in deferring to the OCC. With regards to the final claim by the Attorney General, that even if he is precluded from enforcing state law against the national banks, he may still bring an action to enforce the federal Fair Housing Act, the Second Circuit vacated the holding by the district court. Stating “we are neither sure of the exact harm that might be alleged nor of the relief that might be sought,” the Second Circuit vacated on the grounds that the district court lacked jurisdiction to rule on this claim due to lack of ripeness. The court did note in dicta that “both Congress and the Supreme Court have made clear that the standing to sue under the FHA is extraordinarily permissive.” The district court’s opinion in The Clearing House Ass’n v. Spitzer, No. 05-5629-cv (S.D.N.Y., July 29, 2005) was reported in the Aug 5, 2005 issue of InfoBytes. For a copy of the circuit court’s opinion in Clearing House Ass’n v. Cuomo, please contact .
Federal Court Finds FCRA Preempts Injunctive Relief Under State Law. On November 15, the Eastern District of Texas found that the Fair Credit Reporting Act (FCRA) preempts injunctive relief under state law and dismissed a consumer’s claim for injunctive relief against a credit reporting agency. Smith v. Equifax Info. Servs., LLC, No. 2:07-CV-227-DF, 2007 WL 4225761 (E.D. Tex. Nov. 15, 2007). The consumer, a victim of identity theft, sued a lessor that leased property to the person who stole the consumer’s identity, as well as the three national credit reporting agencies for generating and providing false credit reports, under FCRA. The consumer sought damages and attorney fees, as well as injunctive relief that would require that the defendants reinvestigate and correct the consumer’s credit reports and credit history. One of the national credit reporting agencies brought a partial motion to dismiss the claim for injunctive relief, arguing that a private litigant does not have a right to injunctive relief against a consumer reporting agency under FCRA. The court held that Congress vested the power to obtain injunctive relief solely with the FTC, and that any state law claim that would provide injunctive relief to a private litigant would frustrate Congress’ purpose and conflict with FCRA. The court distinguished a previous case, Campbell v. Baldwin, because the holding in that case was that the Eleventh Amendment was not a bar to injunctive relief under the FCRA and the case dealt with the “duty of furnishers of information” and not credit reporting agencies. Similarly, 15 U.S.C. § 1681t(b)(1)(F), which preempts state laws regarding furnishers, was inapplicable because the claim at issue was raised against a consumer reporting agency and not a furnisher. In addition, another FCRA provision, 15 U.S.C. § 1681h(e), which partially preempts state defamation and similar laws, was irrelevant for the purpose of deciding whether a private litigant is precluded from injunctive relief. For a copy of this opinion, please e-mail .
FCRA Insurance Adverse Action Does Not Occur before Consumer Is Billed at Higher Rate. On November 29, a federal district court ruled that adverse action notification under the Fair Credit Reporting Act (FCRA) is “not triggered until the increased charge was actually billed” to the consumer. In re Farmers Insurance Co. Inc. FCRA Litigation, No. 03-158, 2007 WL 4215833 (W.D. Okla. Nov. 29, 2007). In this case, a consumer brought a class action suit against a home insurer alleging a failure to provide notice of adverse action as required by FCRA. The insurer had provided the consumer with notification required by state law that it would be increasing his premium by more than 50% sixty days in advance of the change, and the action was based in part on information in a credit report. The consumer found an alternative insurance provider, and discontinued his policy before the new rate was billed. In holding that adverse action does not take place until the consumer is actually billed at a higher rate, the court cited several opinions, including the holding in Obabueki v. I.B.M. Corp., 145 F.Supp.2d 371, 391-92 (S.D.N.Y. 2001), that “a preliminary internal decision to rescind an offer of unemployment” does not constitute adverse action. For a copy of In re Farmers Insurance Co., please contact .
Court Rules FCRA Firm Offer Need Not Specify Interest Rates for All Loan Amounts. A federal district court recently ruled that a mortgage solicitation letter offering a clear range of credit, and enumerating additional charges, but only providing a range of interest rates on loans above a certain loan amount threshold, qualifies as a “firm offer of credit” under the Fair Credit Reporting Act (FCRA). Wojtczak v. Chase Bank USA, N.A. No. 06-987 2007 WL 4232995 (E.D.Wis., Nov. 27, 2007). In this case a consumer received a letter offering a 30-year fixed-rate refinance mortgage of any amount between $15,000 and $149,999 and specifying a rate of between 8.4% and 13.58% on loans between $100,000 and $149,999. The consumer then brought a class action alleging that, by failing to provide an interest rate on loans between $15,000 and $99,999, the lender had not provided a firm offer of credit and willfully violated FCRA. In granting the lender’s motion to dismiss, the court considered the three prongs of analysis outlined in Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004, reported in the December 17, 2004 issue of InfoBytes): (i) whether the offer will be honored, (ii) whether the material terms are adequately disclosed, and (iii) whether offer is of any substantial value. The court found no reason to question that the offer would be honored, satisfying the first prong. The inclusion of so many aspects of the offer, together with the provision of a toll-free number to answer further questions, met the second prong to the court’s approval. And the court found the third prong was met by the clearly stated, and substantial, range of credit being offered, in contrast to the mere $300 underlying the ruling in Cole. The court also ruled that any violation of FCRA in this case would not be “willful,” and thus do not qualify for statutory damages, as the lender’s reading of the law was not “objectively unreasonable.” (See Safeco Ins. Co. of Am. v. Burr, 127 S.Ct. 2201 (2007) reported in the June 4th InfoBytes Special Alert.) For a copy of this opinion, please contact .
Court Finds “Firm Offer” in Platinum Credit Card Mailer. On November 28, a federal district court in Wisconsin dismissed a Fair Credit Reporting Act (FCRA) claim that a credit card mailer was not a “firm offer.” Johnson v. Juniper Bank, 2007 WL 4219431 (E.D. Wis. Nov. 28, 2007). The consumer received a “platinum” credit card mailer which did not include the minimum line of credit; instead it provided a toll free number to call for that information. The consumer argued that the exclusion of the minimum line of credit rendered the mailer a “sham” and not a firm offer, and therefore the bank did not have a permissible purpose to access her credit report. The court held, however, that the mailer was a “firm offer” under the FCRA. Following Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004, reported in the December 17, 2004 issue of InfoBytes), to determine whether there was a firm offer the court considered (i) whether it appeared likely the offer would be honored, (ii) whether the material terms were adequately disclosed, and (iii) whether the amount of credit was minimal or subject to so many limitations that it was of little value. The court found that the terms in the mailer combined with the toll free number were sufficient to meet each factor. The court also held that even if it was wrong and the mailer was not a valid firm offer, its violation was not “willful” because many courts have held the FCRA does not require a statement of the minimum line of credit. Therefore, under the interpretation of willfulness as used in FCRA announced by the Supreme Court in Safeco Insurance Co. v. Burr, 127 S. Ct. 2201 (June 4, 2007, reported in the the June 4th InfoBytes Special Alert.), the bank’s interpretation “was not objectively unreasonable, and, therefore, it did not act willfully and cannot be held liable for statutory damages of $100-$1000 per violation. For a full copy of this opinion, please contact .
9th Circuit Holds Circumstantial Evidence May Prove ID Theft Proximate Harm. On November 20, the U.S. Court of Appeals for the 9th Circuit held in an unpublished opinion that circumstantial evidence of a causal relationship in the context of identity fraud may be sufficient to prove proximate harm. Stollenwerk, et al. v. Tri-West Health Care Alliance, No. 05-16990, (9th Cir. Nov. 20, 2007). In this case, the plaintiff’s personal information was stolen during a burglary at the Tri-West Health Care Alliance headquarters. The plaintiff soon thereafter became the victim of six identity fraud incidents. The plaintiff then sued the health care company for negligence. In reversing the district court’s decision to grant summary judgment, the Ninth Circuit held that it is reasonable to infer under the facts of the case that the burglary was related to the subsequent identity theft. The court held that the connection need not be proven by direct evidence since it is a matter of common knowledge from which a jury could reasonably draw inferences regarding its probative value in establishing causation. The court reasoned that, in order to survive summary judgment, the plaintiff need not show that the theft was the sole cause of the identity fraud incidents, only that it was, more likely than not, a substantial factor in bringing about the result, and a factor without which the injury would not have occurred. Citing Wisener v. State of Arizona, 598 P.2d 511, 513 (Ariz. 1979), Robertson v. Sixpense Inns of Am., Inc., 789 P.2d 1040, 1047 (Ariz. 1990). Here, the plaintiff provided evidence that (i) the identity fraud began shortly after the theft of his personal information, (ii) the kind of information stolen was the same kind needed to commit the identity fraud at issue, (iii) he had not previously suffered any such incidents of identity fraud, and (iv) he did not transmit personal information over the internet and he shreded all mail containing personal information, thereby eliminating other possible avenues by which thieves could have obtained the plaintiff’s personal information. The court held that the combination of such circumstantial evidence and common knowledge may provide a basis from which the causal sequence may be inferred, and as such, is a question reserved for the jury. For a copy of the unpublished opinion in Stollenwerk, please see http://www.ca9.uscourts.gov/coa/memdispo.nsf/pdfview/112007/$File/05-16990.PDF.
Court Denies Settlement Company Summary Judgment in Broker Fraud Case. On November 26, a federal district court dismissed a consumer’s claim of per se violations by a settlement company arising from an alleged case of broker fraud under the Virginia Consumer Protection Act (VCPA), but the court denied summary judgment on claims that the defendant “willfully” violated the VCPA and common law fraud and conspiracy. Stith v. Thorne, 2007 WL 4246097 (E.D. Va. Nov. 26, 2007). As reported in the June 22 issue of InfoBytes, the plaintiff alleged that she was the victim of a scheme perpetrated by two mortgage brokers designed to defraud her of the equity in her home. Both parties moved for summary judgment on all claims. The court granted summary judgment for the defendant holding that the VCPA does not have a “catch all” provision that covers violations of the state’s Consumer Real Estate Settlement Protection Act and Mortgage Lender and Broker Act. However, the court denied motions to dismiss on all other claims, holding that the issues of the propriety of blank Forfeit of Proceeds Documents, whether there were any pre-existing agreements, whether the HUD-1 Settlement Agreement was disclosed to the plaintiff, and whether the plaintiff understood the amount of equity in her home were disputes of material fact that could demonstrate a “willful” violation of the VCPA or common law fraud and conspiracy. For a copy of this decision, please contact .
FCRA Credit Dispute “Reasonable Procedures” Claim Sent to Jury. A U.S. District Court denied summary judgment to a credit reporting agency on the consumer’s claim that the agency failed to follow reasonable procedures and that this failure was shown by the inaccuracies in the reports the agency issued about the consumer. Perez v. Trans Union, LLC, Civ. Act. No. 06-3357, 2007 WL 4197417 (E.D.Pa. Nov. 7, 2007).The consumer purchased a car from the Popular Ford dealership and requested the dealership’s assistance in obtaining financing. Popular Ford obtained credit reports on the consumer from one of the defendants, First Advantage Credco. Credco compiled the reports of three credit bureaus, and passed on to Popular Ford the incorrect information it had received to the effect that consumer was deceased and had no credit score. Five banks denied the consumer a loan based on the incorrect reports. Eventually, the consumer obtained a loan from Ford Motor Credit at a rate higher than he thought he should have received given his credit record. The inaccuracy was not corrected until a year and a half later, and then only after the consumer wrote to the bureaus requesting a correction. The consumer filed suit claiming that Credco, among others, violated the Fair Credit Reporting Act (FCRA). In particular, the consumer claimed that Credco negligently and/or willfully violated the “reasonable procedures” standard under FCRA § 1681e(b). The court ruled that the consumer had “presented sufficient evidence” to survive summary judgment, citing Philbin v. Trans Union Corp., 101 F.3d 957, 965 (3d Cir. 1996). The court ruled that “the question left for the trier of fact is whether Credco reasonably ought to have appreciated, under the circumstances presented, that there was a material inaccuracy such that a duty arose upon it to do something to correct it or not make a report.” For a copy of the court’s decision in Perez, please contact .
District Court Certifies FACTA Credit Card Receipt Truncation Class. A federal district court has granted class certification to consumers in a lawsuit alleging violations of the Fair and Accurate Credit Transactions Act (FACTA) for printing too much credit card information on receipts, despite the defendant’s argument that the minimum penalties would be disproportionately high. Halperin v. InterPark Inc., No. 07 C 2161. 2007 WL 4219419 (N.D. Ill. Nov. 29, 2007). In this case, the named consumer plaintiff received a credit card receipt from an automated payment machine at a parking garage operated by the defendant InterPark. The consumer alleges that the receipt contained the last four digits of his card number and the card’s expiration date in violation of FACTA, which amends the Fair Credit Reporting Act (FCRA) to prohibit printing the expiration date or more than five credit card digits. InterPark opposed class certification arguing, among other things, that class actions were an unsuitable method of adjudicating FACTA suits because of the large class size and the catastrophic impact of the statute’s $100-per-willful-violation minimum damages. The court rejected this argument, quoting from Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006) that “it is not appropriate to use procedural devices to undermine laws of which a judge disapproves.” (Murray v. GMAC is discussed in the January 20, 2006 issue of InfoBytes.) For a copy of the opinion in Halperin, please contact .
E-Financial Services
9th Circuit Holds Circumstantial Evidence May Prove ID Theft Proximate Harm. On November 20, the U.S. Court of Appeals for the 9th Circuit held in an unpublished opinion that circumstantial evidence of a causal relationship in the context of identity fraud may be sufficient to prove proximate harm. Stollenwerk, et al. v. Tri-West Health Care Alliance, No. 05-16990, (9th Cir. Nov. 20, 2007). In this case, the plaintiff’s personal information was stolen during a burglary at the Tri-West Health Care Alliance headquarters. The plaintiff soon thereafter became the victim of six identity fraud incidents. The plaintiff then sued the health care company for negligence. In reversing the district court’s decision to grant summary judgment, the Ninth Circuit held that it is reasonable to infer under the facts of the case that the burglary was related to the subsequent identity theft. The court held that the connection need not be proven by direct evidence since it is a matter of common knowledge from which a jury could reasonably draw inferences regarding its probative value in establishing causation. The court reasoned that, in order to survive summary judgment, the plaintiff need not show that the theft was the sole cause of the identity fraud incidents, only that it was, more likely than not, a substantial factor in bringing about the result, and a factor without which the injury would not have occurred. Citing Wisener v. State of Arizona, 598 P.2d 511, 513 (Ariz. 1979), Robertson v. Sixpense Inns of Am., Inc., 789 P.2d 1040, 1047 (Ariz. 1990). Here, the plaintiff provided evidence that (i) the identity fraud began shortly after the theft of his personal information, (ii) the kind of information stolen was the same kind needed to commit the identity fraud at issue, (iii) he had not previously suffered any such incidents of identity fraud, and (iv) he did not transmit personal information over the internet and he shreded all mail containing personal information, thereby eliminating other possible avenues by which thieves could have obtained the plaintiff’s personal information. The court held that the combination of such circumstantial evidence and common knowledge may provide a basis from which the causal sequence may be inferred, and as such, is a question reserved for the jury. For a copy of the unpublished opinion in Stollenwerk, please see http://www.ca9.uscourts.gov/coa/memdispo.nsf/pdfview/112007/$File/05-16990.PDF.
Privacy/Data Security
9th Circuit Holds Circumstantial Evidence May Prove ID Theft Proximate Harm. On November 20, the U.S. Court of Appeals for the 9th Circuit held in an unpublished opinion that circumstantial evidence of a causal relationship in the context of identity fraud may be sufficient to prove proximate harm. Stollenwerk, et al. v. Tri-West Health Care Alliance, No. 05-16990, (9th Cir. Nov. 20, 2007). In this case, the plaintiff’s personal information was stolen during a burglary at the Tri-West Health Care Alliance headquarters. The plaintiff soon thereafter became the victim of six identity fraud incidents. The plaintiff then sued the health care company for negligence. In reversing the district court’s decision to grant summary judgment, the Ninth Circuit held that it is reasonable to infer under the facts of the case that the burglary was related to the subsequent identity theft. The court held that the connection need not be proven by direct evidence since it is a matter of common knowledge from which a jury could reasonably draw inferences regarding its probative value in establishing causation. The court reasoned that, in order to survive summary judgment, the plaintiff need not show that the theft was the sole cause of the identity fraud incidents, only that it was, more likely than not, a substantial factor in bringing about the result, and a factor without which the injury would not have occurred. Citing Wisener v. State of Arizona, 598 P.2d 511, 513 (Ariz. 1979), Robertson v. Sixpense Inns of Am., Inc., 789 P.2d 1040, 1047 (Ariz. 1990). Here, the plaintiff provided evidence that (i) the identity fraud began shortly after the theft of his personal information, (ii) the kind of information stolen was the same kind needed to commit the identity fraud at issue, (iii) he had not previously suffered any such incidents of identity fraud, and (iv) he did not transmit personal information over the internet and he shreded all mail containing personal information, thereby eliminating other possible avenues by which thieves could have obtained the plaintiff’s personal information. The court held that the combination of such circumstantial evidence and common knowledge may provide a basis from which the causal sequence may be inferred, and as such, is a question reserved for the jury. For a copy of the unpublished opinion in Stollenwerk, please see http://www.ca9.uscourts.gov/coa/memdispo.nsf/pdfview/112007/$File/05-16990.PDF.
Federal Court Finds FCRA Preempts Injunctive Relief Under State Law. On November 15, the Eastern District of Texas found that the Fair Credit Reporting Act (FCRA) preempts injunctive relief under state law and dismissed a consumer’s claim for injunctive relief against a credit reporting agency. Smith v. Equifax Info. Servs., LLC, No. 2:07-CV-227-DF, 2007 WL 4225761 (E.D. Tex. Nov. 15, 2007). The consumer, a victim of identity theft, sued a lessor that leased property to the person who stole the consumer’s identity, as well as the three national credit reporting agencies for generating and providing false credit reports, under FCRA. The consumer sought damages and attorney fees, as well as injunctive relief that would require that the defendants reinvestigate and correct the consumer’s credit reports and credit history. One of the national credit reporting agencies brought a partial motion to dismiss the claim for injunctive relief, arguing that a private litigant does not have a right to injunctive relief against a consumer reporting agency under FCRA. The court held that Congress vested the power to obtain injunctive relief solely with the FTC, and that any state law claim that would provide injunctive relief to a private litigant would frustrate Congress’ purpose and conflict with FCRA. The court distinguished a previous case, Campbell v. Baldwin, because the holding in that case was that the Eleventh Amendment was not a bar to injunctive relief under the FCRA and the case dealt with the “duty of furnishers of information” and not credit reporting agencies. Similarly, 15 U.S.C. § 1681t(b)(1)(F), which preempts state laws regarding furnishers, was inapplicable because the claim at issue was raised against a consumer reporting agency and not a furnisher. In addition, another FCRA provision, 15 U.S.C. § 1681h(e), which partially preempts state defamation and similar laws, was irrelevant for the purpose of deciding whether a private litigant is precluded from injunctive relief. For a copy of this opinion, please e-mail .
FCRA Insurance Adverse Action Does Not Occur before Consumer Is Billed at Higher Rate. On November 29, a federal district court ruled that adverse action notification under the Fair Credit Reporting Act (FCRA) is “not triggered until the increased charge was actually billed” to the consumer. In re Farmers Insurance Co. Inc. FCRA Litigation, No. 03-158, 2007 WL 4215833 (W.D. Okla. Nov. 29, 2007). In this case, a consumer brought a class action suit against a home insurer alleging a failure to provide notice of adverse action as required by FCRA. The insurer had provided the consumer with notification required by state law that it would be increasing his premium by more than 50% sixty days in advance of the change, and the action was based in part on information in a credit report. The consumer found an alternative insurance provider, and discontinued his policy before the new rate was billed. In holding that adverse action does not take place until the consumer is actually billed at a higher rate, the court cited several opinions, including the holding in Obabueki v. I.B.M. Corp., 145 F.Supp.2d 371, 391-92 (S.D.N.Y. 2001), that “a preliminary internal decision to rescind an offer of unemployment” does not constitute adverse action. For a copy of In re Farmers Insurance Co., please contact .
FCRA Credit Dispute “Reasonable Procedures” Claim Sent to Jury. A U.S. District Court denied summary judgment to a credit reporting agency on the consumer’s claim that the agency failed to follow reasonable procedures and that this failure was shown by the inaccuracies in the reports the agency issued about the consumer. Perez v. Trans Union, LLC, Civ. Act. No. 06-3357, 2007 WL 4197417 (E.D.Pa. Nov. 7, 2007).The consumer purchased a car from the Popular Ford dealership and requested the dealership’s assistance in obtaining financing. Popular Ford obtained credit reports on the consumer from one of the defendants, First Advantage Credco. Credco compiled the reports of three credit bureaus, and passed on to Popular Ford the incorrect information it had received to the effect that consumer was deceased and had no credit score. Five banks denied the consumer a loan based on the incorrect reports. Eventually, the consumer obtained a loan from Ford Motor Credit at a rate higher than he thought he should have received given his credit record. The inaccuracy was not corrected until a year and a half later, and then only after the consumer wrote to the bureaus requesting a correction. The consumer filed suit claiming that Credco, among others, violated the Fair Credit Reporting Act (FCRA). In particular, the consumer claimed that Credco negligently and/or willfully violated the “reasonable procedures” standard under FCRA § 1681e(b). The court ruled that the consumer had “presented sufficient evidence” to survive summary judgment, citing Philbin v. Trans Union Corp., 101 F.3d 957, 965 (3d Cir. 1996). The court ruled that “the question left for the trier of fact is whether Credco reasonably ought to have appreciated, under the circumstances presented, that there was a material inaccuracy such that a duty arose upon it to do something to correct it or not make a report.” For a copy of the court’s decision in Perez, please contact .
Court Rules FCRA Firm Offer Need Not Specify Interest Rates for All Loan Amounts. A federal district court recently ruled that a mortgage solicitation letter offering a clear range of credit, and enumerating additional charges, but only providing a range of interest rates on loans above a certain loan amount threshold, qualifies as a “firm offer of credit” under the Fair Credit Reporting Act (FCRA). Wojtczak v. Chase Bank USA, N.A. No. 06-987 2007 WL 4232995 (E.D.Wis., Nov. 27, 2007). In this case a consumer received a letter offering a 30-year fixed-rate refinance mortgage of any amount between $15,000 and $149,999 and specifying a rate of between 8.4% and 13.58% on loans between $100,000 and $149,999. The consumer then brought a class action alleging that, by failing to provide an interest rate on loans between $15,000 and $99,999, the lender had not provided a firm offer of credit and willfully violated FCRA. In granting the lender’s motion to dismiss, the court considered the three prongs of analysis outlined in Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004, reported in the December 17, 2004 issue of InfoBytes): (i) whether the offer will be honored, (ii) whether the material terms are adequately disclosed, and (iii) whether offer is of any substantial value. The court found no reason to question that the offer would be honored, satisfying the first prong. The inclusion of so many aspects of the offer, together with the provision of a toll-free number to answer further questions, met the second prong to the court’s approval. And the court found the third prong was met by the clearly stated, and substantial, range of credit being offered, in contrast to the mere $300 underlying the ruling in Cole. The court also ruled that any violation of FCRA in this case would not be “willful,” and thus do not qualify for statutory damages, as the lender’s reading of the law was not “objectively unreasonable.” (See Safeco Ins. Co. of Am. v. Burr, 127 S.Ct. 2201 (2007) reported in the June 4th InfoBytes Special Alert.) For a copy of this opinion, please contact .
Court Finds “Firm Offer” in Platinum Credit Card Mailer. On November 28, a federal district court in Wisconsin dismissed a Fair Credit Reporting Act (FCRA) claim that a credit card mailer was not a “firm offer.” Johnson v. Juniper Bank, 2007 WL 4219431 (E.D. Wis. Nov. 28, 2007). The consumer received a “platinum” credit card mailer which did not include the minimum line of credit; instead it provided a toll free number to call for that information. The consumer argued that the exclusion of the minimum line of credit rendered the mailer a “sham” and not a firm offer, and therefore the bank did not have a permissible purpose to access her credit report. The court held, however, that the mailer was a “firm offer” under the FCRA. Following Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004, reported in the December 17, 2004 issue of InfoBytes), to determine whether there was a firm offer the court considered (i) whether it appeared likely the offer would be honored, (ii) whether the material terms were adequately disclosed, and (iii) whether the amount of credit was minimal or subject to so many limitations that it was of little value. The court found that the terms in the mailer combined with the toll free number were sufficient to meet each factor. The court also held that even if it was wrong and the mailer was not a valid firm offer, its violation was not “willful” because many courts have held the FCRA does not require a statement of the minimum line of credit. Therefore, under the interpretation of willfulness as used in FCRA announced by the Supreme Court in Safeco Insurance Co. v. Burr, 127 S. Ct. 2201 (June 4, 2007, reported in the the June 4th InfoBytes Special Alert.), the bank’s interpretation “was not objectively unreasonable, and, therefore, it did not act willfully and cannot be held liable for statutory damages of $100-$1000 per violation. For a full copy of this opinion, please contact .
Credit Cards
Senate Panel Holds Hearing on Credit Card Rate Increase Practices. On December 4, the Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Governmental Affairs held a hearing examining interest rate increase practices of credit card issuers. The first panel featured three cardholders whose interest rates on their credit card accounts increased even though they had made timely payments above the minimum payment on their accounts every month. Generally, these cardholders were “re-priced” due to events unrelated to their accounts, such as a decrease in the cardholder’s FICO score. Responding to such rate increase practices, Senator Carl Levin (D-MI), chairman of the subcommittee, stated that “if a person meets their credit card obligations to a credit card issuer and pays their bills on time, it is simply unfair for that credit card issuer to raise their interest rates.” Senator Levin also described the practice of applying the increased rate retroactively to existing balances as “equally offensive." In conjunction with the subcommittee’s investigation into credit card practices, Senator Levin has cosponsored S. 1395, the "Stop Unfair Practices in Credit Cards Act of 2007” (reported in the May 25th issue of InfoBytes). Among other things, this bill would set restrictions on interest rate increases. The legislation is still pending in the Senate Banking Committee. For more information on this hearing, please see http://hsgac.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=509.
Court Finds “Firm Offer” in Platinum Credit Card Mailer. On November 28, a federal district court in Wisconsin dismissed a Fair Credit Reporting Act (FCRA) claim that a credit card mailer was not a “firm offer.” Johnson v. Juniper Bank, 2007 WL 4219431 (E.D. Wis. Nov. 28, 2007). The consumer received a “platinum” credit card mailer which did not include the minimum line of credit; instead it provided a toll free number to call for that information. The consumer argued that the exclusion of the minimum line of credit rendered the mailer a “sham” and not a firm offer, and therefore the bank did not have a permissible purpose to access her credit report. The court held, however, that the mailer was a “firm offer” under the FCRA. Following Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004, reported in the December 17, 2004 issue of InfoBytes), to determine whether there was a firm offer the court considered (i) whether it appeared likely the offer would be honored, (ii) whether the material terms were adequately disclosed, and (iii) whether the amount of credit was minimal or subject to so many limitations that it was of little value. The court found that the terms in the mailer combined with the toll free number were sufficient to meet each factor. The court also held that even if it was wrong and the mailer was not a valid firm offer, its violation was not “willful” because many courts have held the FCRA does not require a statement of the minimum line of credit. Therefore, under the interpretation of willfulness as used in FCRA announced by the Supreme Court in Safeco Insurance Co. v. Burr, 127 S. Ct. 2201 (June 4, 2007, reported in the the June 4th InfoBytes Special Alert.), the bank’s interpretation “was not objectively unreasonable, and, therefore, it did not act willfully and cannot be held liable for statutory damages of $100-$1000 per violation. For a full copy of this opinion, please contact .