InfoBytes, January 28, 2005
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Federal Issues
Senate Reintroduces Class Action Reform Bill. On January 24, 2005, Senator Grassley of Iowa introduced S. 5, the Class Action Fairness Act of 2005. The Senate Judiciary Committee reports that S. 5 is identical to S. 2062, which was debated but never passed in the 108th Congress. The bill would require depository institutions to inform their primary regulator of a proposed settlement of a class action within 10 days after such settlement is filed with the court. Moreover, the bill would impose limitations on the jurisdictions in which a class action could be filed, depending upon where a substantial number of the plaintiffs are located. S. 5 is not yet available through THOMAS; however, S. 2062 is available.
House Introduces Bill Regulating Collection, Disclosure and Use of Personal Information. The House recently introduced H.R. 84, which would govern the collection and dissemination of personal information. The bill would require organizations to provide notice on their websites of the collection and use of personal information. Moreover, upon an individualÂ’s request, the website or online service provider would be required to provide a description of the types of personal information collected that were sold to third parties and a reasonable means for the individual to obtain that personal information. The bill also provides for civil actions by the state attorneys general. A copy of the bill can be found at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_cong_bills&docid=f:h84ih.txt.pdf.
OCC Provides Opinion Letter Failing to Support Preemption of Massachusetts Gift Card Statute. On January 5, 2005, the OCC provided a brief letter to the parties in the Commonwealth of Massachusetts v. Simon Property Group, Inc. gift card litigation. In Simon Property, the Massachusetts Attorney General claimed that Simon Property, a mall property manager, issued gift cards with terms that violate Massachusetts statutes. Simon Property argued that Massachusetts law was preempted because, among other items, the gift cards were issued by a national bank. Based upon a review of the pleadings, the OCC provided its view that “the doctrine of complete preemption does not give the federal courts jurisdiction over those state law causes of action[.]” Moreover, the OCC stated that it did not believe that the National Bank Act or OCC Regulations 12 C.F.R. ǧ 7.4002, 7.4007, 7.4008 or 7.4009 would preempt the state’s restrictions on Simon Property’s gift card fees. See OCC letter for full details.
HUD Proposes Change in Default Reporting Period. The proposed rule would require mortgagees to report to HUD the status of FHA-insured mortgages that are 30 or more days delinquent on the last day of the month. Currently, mortgagees are required only to report FHA-insured mortgage loan delinquency for those mortgages that are in default after 60 days or that are 90 or more days delinquent, as applicable. HUD cites its need for more up-to-date information for loss mitigation monitoring purposes as the motivation for this change. This brings FHAÂ’s requirements closer to the default data reporting requirements of Fannie Mae, Freddie Mac, and those recommended by the Mortgage Bankers Association. Comments on this proposed rule are due February 22, 2005. To view the proposed rule in its entirety, please click on http://a257.g.akamaitech.net/7/257/2422/01jan20051800/edocket.access.gpo.gov/2005/pdf/05-1046.pdf.
FTC Requests Comments on Permanent Amendment to Children’s Online Privacy Protection Rule. The Federal Trade Commission (“FTC”) is currently seeking comments regarding a proposed amendment to its Children’s Online Privacy Protection Rule (the “Rule”). The amendment would preserve the Rule’s “sliding scale” mechanism, which allows website operators and online services to obtain parental consent for the collection of personal information from children for internal use through e-mail (coupled with certain additional steps), but requires more costly means if the use of such information involves third-party disclosure. According to the FTC, the sliding scale—scheduled to expire in April, 2005—provides an incentive for website operators to collect children’s personal information for internal use only, rather than for purposes involving “potentially risky” disclosure to third parties and the general public. Comments regarding the proposed amendment must be received by February 14, 2005. The FTC’s notice of proposed rulemaking can be found at http://www.access.gpo.gov/su_docs/fedreg/a050114c.html.
FTC Adopts Model Prescreening “Opt-Out” Disclosures. Implementing a FACTA provision, the FTC has issued requirements for notices to consumers who receive prescreened credit or insurance solicitations. The final rule is similar to the proposal (see InfoBytes, October 10, 2004, available at http://www.buckleykolar.com/publications/InfoBytes100104.html) in that it requires a two-part notice, with both parts emphasizing the consumer’s right to opt out of future prescreened solicitations. The “short form” notice must be on the front page of a paper solicitation or on the first web page, in a border or otherwise distinct from the surrounding text and in a type size that is larger than the type size of the main text of the solicitation but in any event at least 12 points. The longer-form notice must be in the greater of 8-point type or the type size of the solicitation. In response to comments, however, the final rule makes several adjustments to the requirements. For example, the final rule clarifies that the short-form notice must accompany the “principal promotional message” (such as a cover letter) in a paper solicitation, or be on the same web page (not necessarily the same screen) as the “principal marketing message” in an electronic message. The final rule also includes language in the long-form notice that allows creditors to disclose their collateral requirements, as required by the FCRA definition of a “firm offer,” and the language of the long-form notice has been modified to make it clearer that the consumer should contact the consumer reporting agencies, not the creditor or insurer, to opt out. The final rule, which becomes effective on August 1, 2005, has not yet been published in the Federal Register. The text is available at http://www.ftc.gov/os/2005/01/050124factafrn.pdf.
Senate Bill Introduced to Prevent Banks In Real Estate. Senator Shelby has introduced legislation that would prevent banks from engaging in real estate brokerage or management. The legislation, S. 98, is identical to a bill introduced by Sen. Shelby last session, and follows the introduction of a related bill in the House by Representatives Calvert and Kanjorski. Like the House bill, S. 98 would prevent the Federal Reserve Board from determining that real estate brokerage or real estate management activities are financial in nature, and thus permissible activities for bank holding companies. When text of the bill becomes available, it will be posted at http://www.buckleykolar.com/publications/InfoBytes012805.html.
GSE Reform Bill Introduced. Legislation that would create a new regulator for Fannie Mae, Freddie Mac and the Federal Home Loan Banks was introduced in the Senate this week. S. 190, sponsored by Senator Hagel, would create a new independent regulator for the GSEs, and would provide the regulator with receivership authority, discretion to raise capital standards, approval power over new programs and activities, and greater authority to limit compensation packages and golden parachutes, among other things. Further, the bill would require annual audits of Fannie Mae and Freddie Mac affordable housing programs to ensure compliance with their housing mission. Senator Shelby, the Chairman of the Senate Banking Committee, has stated that GSE reform is a top priority for his committee this year. When text of the bill becomes available, it will be posted at http://www.buckleykolar.com/publications/InfoBytes012805.html.
State Issues
Indiana to Clarify the “Right to Rescission” within the Newly Enacted Home Loan Practices Law. Indiana’s HB 1021(the “Bill”) has passed both houses and would retroactively amend Indiana’s newly effective home loan practices law. The purpose of the Bill is to clarify the legislature’s original intent in connection with IC 24-9-5-4, more specifically, when the federal right to rescission becomes available. As amended, the right to rescission, available to a person acting in an individual capacity as a defense against a party foreclosing on a home loan any time during the term of the loan, is only available when there has been a violation of the federal Truth in Lending Act (“TILA”). For the complete text of the amendment see http://www.ai.org/legislative/bills/2005/HB/HB1021.1.html.
Courts
State Law Requiring Escrow Interest Preempted for Federal Savings Bank. The U.S. Court of Appeals for the Second Circuit ruled that the HOLA gives the OTS ample authority for its regulations preempting state laws concerning escrow accounts. Thus, Yonkers Savings and Loan, a federal association, did not have to pay its borrowers interest on escrow accounts as required by New York law. The court also rejected the borrower’s argument that the choice of law provision in the contract required compliance with the state law. Flagg v. Yonkers Sav. and Loan Assoc., FA, 2005 WL 119867 (2nd Cir.) ( Jan. 21, 2005). See http://caselaw.lp.findlaw.com/data2/circs/2nd/041948p.pdf.
FTC Sues "Credit Repair Companies" Targeting Spanish-Speaking Consumers. On January 26, 2005, the Federal Trade Commission filed complaints in a federal district court in Florida against two companies targeting Spanish-speaking consumers with claims that the companies could improve consumers’ credit ratings: Sunshine Credit Repair, Inc. ("Sunshine") and Service Brokers Associates, Inc. The FTC alleges that both companies violated the Credit Repair Organizations Act ("CROA") by (1) charging consumers money before performing the promised services, (2) failing to provide consumers with written statements concerning their rights to dispute inaccurate information themselves and explaining the limitations of credit repair, and (3) failing to inform consumers of their right to cancel their contracts with the companies without penalty. The FTC also alleges that Sunshine violated the CROA and the FTC Act by making deceptive claims about the company’s ability to remove accurate, negative information from consumers’ credit reports. The FTC asked the court to halt the companies’ illegal business practices and award consumer redress. For a copy of the FTC’s press release on the lawsuits, see http://www.ftc.gov/opa/2005/01/sunshine.htm.
No Attorney-Client Privilege Without Legal Analysis or Advice. A New York State Judge ruled that a report conducted by the New York Stock Exchange on the investigation into former chairman Richard GrassoÂ’s compensation package is not entitled to attorney-client privilege and must be produced to the defendants Grasso and Kenneth Langone, the former head of the compensation committee. The Court had previously ordered the report to be released to the defendants subject to an unexecuted confidentiality stipulation and order, stating that because the NYSE delivered copies of the report to the New York State Attorney GeneralÂ’s Office and to the U.S. Securities Exchange Commission, attorney-client privilege was waived. After reviewing the report to determine if the document was otherwise privileged, the Court concluded that because the report contains no legal analysis or advice, but rather merely presents factual analysis and recommendations for future practices, it is not entitled to privileged status. State v. Grasso, Index No. 401620104 (N.Y. Comm. Ct. Jan. 27, 2005). The order can be found at http://portal.courts.state.ny.us/pls/portal30/CMS_DEV.DECISIONS_NDAWCASE.show_parms.
Firm News
On January 26, 2005, Buckley Kolar attorney Jacob G. Thiessen participated in a panel discussion titled "Minimizing Risks of Litigation on Privacy and Security Issues" at the American Conference InstituteÂ’s conference on Consumer Privacy and Information Security in Financial Institutions in Washington, D.C..
Buckley Kolar partner Margo Tank will be a participant at the 2005 eRecording Summit in Sacramento, California. The eRecording Summit, sponsored by the Property Records Industry Association and the Electronic Financial Services Council, will explore the latest on groundbreaking laws and regulations in the California real estate community. For an invitation, agenda, and registration form, see http://www.buckleykolar.com/Summit.htm.
Miscellany
Fitch Reports on and Predicts Effects of Title Insurance Kickback Investigations. On January 26, 2005, Fitch Ratings issued a press release in response to a report from the Colorado Department of Insurance indicating that the Department may sanction nine unidentified title insurance companies for allegedly paying kickbacks to homebuilders in exchange for business guarantees. While Fitch has not yet made any rating changes, Fitch warned that ratings could be affected if the inquiries expand significantly and are concentrated on a small number of companies. Moreover, Fitch expressed its belief that Colorado, Washington and California are currently investigating reinsurance arrangements in which title insurers cede a portion of title insurance premiums to a captive reinsurer that is at least partially owned by the settlement producer who is the source of the business. Fitch believes that those inquiries are focused on two primary issues: (i) whether there is any true risk transfer related to the reinsurance agreement; and (ii) whether the reinsurance premiums are in excess of the market rate. Under RESPA and most state statutes, it is illegal to pay referral fees to obtain title insurance business. Fitch predicts that the kickback investigations will more likely result in cease-and-desist orders, fines and penalties, rather than criminal sanctions, and that they will be the catalyst for extensive changes to industry practices, including the elimination of the types of reinsurance arrangements at issue and increased disclosure of all reinsurance arrangements. See http://www.fitchratings.com/corporate/index.cfm for Fitch’s press release.