InfoBytes, June 27, 2008
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Banking
- Consumer Finance
- Litigation
- E-Financial Services
- Privacy/Data Security
Federal Issues
Banking Agencies Publish 2008 Host State Loan-To-Deposit Ratios. On June 26, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency made public the host state loan-to-deposit ratios that the agencies will use to determine compliance with section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Section 109). In general, Section 109 prohibits a bank from establishing or acquiring a branch or branches outside of its home state primarily for the purpose of deposit production. Section 106 of the Gramm-Leach-Bliley Act of 1999 amended coverage of section 109 of the Interstate Act to include any branch of a bank controlled by an out-of-state bank holding company. For 2008 host state loan-to-deposit ratios, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20080626a1.pdf.
HUD Reminds Lenders of FHA Rules for Dealing with Mortgage Brokers. On June 20, Federal Housing Commissioner Brian Montgomery issued a mortgagee letter reminding lenders of various payment and service restrictions when dealing with non-FHA-approved mortgage brokers for forward mortgages. The letter makes clear that, although a borrower may engage a non FHA-approved mortgage broker for counseling services, loan origination services may not be performed by the broker and the FHA-approved mortgagee may not compensate the broker for the counseling services. Such a payment would violate RESPA’s prohibition on duplicative fees and may even be considered an illegal referral fee. To the extent a borrower receives counseling from a non-FHA-approved mortgage broker, the services must constitute “meaningful counseling” and the fees must be paid from the borrower’s own available assets and disclosed on the HUD-1. In addition, a copy of the service contract must be included in the loan file submitted for insurance endorsement. For a copy of the mortgagee letter, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/08-17ml.doc.
House Financial Services Committee Approves Money Service Business Act. On June 24, the House Financial Services Committee approved the Money Service Business Act, H.R. 4049, which revises requirements in connection with anti-money laundering programs. The bill allows for insured depository institutions maintaining accounts with a money services business to have no obligation to review the compliance of the money services business, provided that the institutions maintain on file mandatory self-certifications from the money services business. The bill further prescribes requirements for such self-certifications that are in compliance with federal anti-money laundering requirements. Provided that institutions interacting with a money services business are themselves in compliance with federal anti-money laundering requirements, the bill shields those institutions from increased liability due to the non-compliance of the money services business. Finally, the bill establishes civil and criminal penalties for both willful and non-willful violations of H.R. 4049. For a copy of the bill, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h4049ih.txt.pdf.
Payday Loan Lead Generators Settle FTC Charges. On June 24, the Federal Trade Commission (FTC) announced that two payday loan lead generators have agreed to settle FTC charges that their Internet advertising stated payday loan costs and repayment periods without disclosing annual percentage rate (APR) information as federal law requires. The settlements require the respondents to disclose APR information in similar payday loan ads in the future and to comply in all other respects with the Truth in Lending Act (TILA) and its implementing Regulation Z. Payday loans have high fees and short repayment periods, which translate to high annual rates, and they often are due on the borrower’s next payday, usually about every two weeks. The respondents, We Give Loans, Inc. and Aliyah Associates, LLC, d/b/a American Advance, are lead generators based in Minnesota and Arizona, respectively. They advertise payday loans on their Web sites and collect information from consumers through their online applications. The respondents then sell this “lead” information to lenders that ultimately offer payday loans to consumers. The TILA and Regulation Z require that those who advertise the cost of credit must disclose the APR of the loans to help consumers make better-informed decisions, including assisting them in comparison shopping among loans. According to the FTC’s complaints, the respondents stated loan costs on their Web sites – a $20 fee for a $100 loan, for example – but failed to disclose the APR. For a typical 14-day pay period, consumers who obtained payday loans advertised by We Give Loans, Inc. would pay an APR from 260 percent to 521 percent or higher, and consumers who obtained payday loans advertised by Aliyah Associates would pay an APR of 782 percent. For a copy of the agreements, please see http://www.ftc.gov/os/caselist/0723205/wglagreement.pdf and http://www.ftc.gov/os/caselist/0723206/aliyahagreement.pdf.
State Issues
New York State Courts Respond to Rising Foreclosure Filings. On June 18, New York Chief Judge Judith S. Kaye, in response to record level foreclosure filings in the New York State courts, announced a new court program to reduce the time, expense and potential losses involved in home foreclosures. The Residential Foreclosure Program will establish an early, active court presence in foreclosure cases involving owner-occupied residences to promote greater efficiency in case resolution and better outcomes for both homeowners and lenders. New York state courts will begin sending defaulting homeowners information on legal and mortgage counseling. The program calls for the creation of a new section of the court charged with helping borrowers and lenders reach speedy settlements. Lenders and homeowners will be invited to attend court-sponsored meetings on settlement possibilities. The court would encourage, but not require, a settlement conference, and lenders would still be able to foreclose. The court system will assign specially trained court personnel to preside over Foreclosure Conference Parts, with the aid of case managers who will schedule conferences and provide other support. The Foreclosure Conference Part will operate initially as a pilot project in Queens before being expanded to other areas of the state. For a copy of the New York State Unified Court System press release, please see http://www.courts.state.ny.us/press/pr2008_4.shtml.
New York Senate Passes Bill to Address Subprime Mortgage Crisis. On June 23, the New York State Senate passed legislation (S8143-A) to address the subprime mortgage crisis in New York by assisting homeowners who are facing foreclosure from losing their homes while implementing reforms designed to help prevent them from losing their homes in the future. The legislation is the result of an agreement reached between Governor David Paterson, the Senate, and the Assembly. The bill is designed to balance the government’s responsibility to provide reasonable consumer protection and the need to offer affordable credit options to New Yorkers. For a copy of the New York State Senate press release, please see http://www.buckleykolar.com/documents/NYS8143-APressRelease.pdf.
Louisiana Authorizes Free Mortgage Foreclosure Counseling. On June 16, Louisiana Governor Bobby Jindal signed S.B. 590, which authorizes the Louisiana Housing Finance Agency to provide free mortgage foreclosure counseling and education to homeowners who have defaulted or who are in danger of default. The bill became effective June 16. For a copy of the S.B. 590, please see http://www.legis.state.la.us/billdata/streamdocument.asp?did=498944.
Alaska Adopts Mortgage Lending Licensing Regulation. The Alaska Department of Commerce, Community and Economic Development (Department) recently adopted new regulations, 3 AAC 14.010 et seq., amending rules implementing Alaska’s Mortgage Lending Regulation Act. The new regulations implement new licensing and registration requirements for persons engaged in mortgage lending activities, requiring that any non-exempt person acting as a mortgage lender must be licensed and any non-exempt person acting as a small mortgage lender be registered with the state. The regulation also includes application, competency testing, and continuing education requirements on licensees and registrants. Other obligations imposed by the regulations include annual reporting, record-keeping, and supervision requirements. The regulations also enumerate a number of practices that are considered unfair or deceptive advertising or mortgage lending practices, and provide for disciplinary action taken by the Department. Finally, the regulations provide for the establishment and operation of an originator surety fund. The new regulations become effective on July 1. For a copy of the regulations, please see http://www.buckleykolar.com/documents/AK3AAC14010etseq.pdf.
Alaska Governor Signs Bill Requiring Disclosure of Security Breaches to Consumers. On June 19, Alaska Governor Sarah Palin signed into law H.B. 65, which, in pertinent part, requires both businesses and government agencies to notify Alaska residents of security breaches involving personal information. This notice is not required if there is a “reasonable likelihood” that no harm will result from the breach. The bill further: (i) allows consumers to freeze and unfreeze credit information at their discretion; (ii) restricts the sale and distribution of social security numbers; (iii) requires the complete destruction of electronic and paper records that contain personal information; (iv) allows victims of identify theft to make factual declarations of innocence; and (v) establishes guidelines for the use of credit card numbers on receipts. The law becomes effective on July 1, 2009. For a copy of H.B. 65, please see http://www.legis.state.ak.us/PDF/25/Bills/HB0065Z.PDF.
South Carolina Passes Law Governing Erroneous Mortgage Satisfactions. On June 16, South Carolina Governor Mark Sanford signed into law H.B. 3033, which establishes procedures to rescind an erroneously recorded satisfaction of a mortgage. The bill provides that filing a “document of rescission” when a satisfaction is recorded erroneously will serve to reinstate the mortgage as of the mortgage’s original filing date. The bill also provides that a creditor who erroneously or wrongfully records a document of rescission is liable to the injured person for actual damages, costs, attorney’s fees and the lesser of half of the debt secured by the mortgage or $25,000. The bill became effective immediately upon signing. For a copy of the bill, please see http://www.scstatehouse.net/sess117_2007-2008/bills/3033.htm.
Missouri Enacts Law to Penalize Mortgage Fraud. On June 11, Missouri Governor Matt Blunt approved H.B. 2188, which creates civil and criminal penalties for individuals who commit mortgage fraud. Effective as of August 28, H.B. 2188 allows various regulatory agencies within the Missouri Division of Finance to file complaints with the state’s Administrative Hearing Commission (AHC) against any person or entity licensed as a mortgage broker or lender, real estate broker, salesperson, or appraiser for violations of any one of 26 prohibited acts enumerated in the bill. Prohibited acts include, among other things, employing any scheme or artifice to defraud, making untrue statements of material fact, influencing a real estate appraisal through extortion or bribery, and paying any form of consideration in connection with a real estate closing that may be considered mortgage fraud. A finding by the AHC that a licensee has performed or attempted to perform any of the prohibited acts shall be grounds for the suspension or revocation of license, probation, or the imposition of a civil penalty of $2500 for each offense. To learn more about the Missouri Mortgage Fraud Act please see http://www.house.mo.gov/billtracking/bills081/billpdf/truly/HB2188T.PDF.
Iowa Amends Statute On Mortgage Lending Fees. Iowa Governor Chet Culver recently signed into law H.F. 2700, which revises a recent bill, H.F. 2556 (reported in InfoBytes, May 30, 2008), that limits the charges a mortgage lender may collect on a loan. Specifically, H.F. 2700 specifies that a lender may charge a borrower a loan origination or processing fee, a broker fee, or both, so long as the fees together do not exceed two percent of the loan principal. For refinances, the borrower may be charged an origination or processing fee, a broker fee, or both, which together do not exceed an amount which is a “reasonable estimate of the expenses of processing the loan assumption or refinancing” but that does not exceed one percent of the unpaid balance of the loan being refinanced. The revised section also permits lenders to charge borrowers a bona fide and reasonable settlement or closing fee. For a copy of H.F. 2700, please see http://coolice.legis.state.ia.us/Cool-ICE/default.asp?Category=BillInfo&Service=AmendPrint&ga=82&type=HF&vers=2700&amStr=eHF,2700.
Hawaii Amends Financial Institution Law. On June 19, Hawaii Governor Linda Lingle signed into law S.B. 3008, which amends a number of provisions in the state’s code of financial institutions. Among other things, the bill requires directors and executive officers of financial institutions applying to do business in Hawaii to submit to criminal background checks and empowers the Department of Commerce and Consumer Affairs to conduct criminal background checks on the officers of licensed entities. Further, the bill permits the Commissioner of Financial Institutions to examine any financial institution holding company that owns more than twenty-five percent of or indirectly controls a licensed entity. In addition, the bill clarifies that a prepayment penalty on a loan may not exceed six months of interest at the loan’s current rate. For a copy of S.B. 3008, please see http://www.capitol.hawaii.gov/session2008/bills/GM838_.pdf.
Courts
Illinois and California Attorneys General Sue Countrywide. On June 25, California Attorney General Jerry Brown sued Countrywide for violations of the state’s untrue or misleading advertising and unfair competition statutes. The complaint alleges that Countrywide attempted to increase its profits in the secondary market by (i) using deceptive practices to sell risky loans to borrowers, (ii) easing and disregarding underwriting standards (including for low- and no-documentation loans), (iii) engaging in deceptive marketing practices, (iv) creating a high pressure sales environment to sell loans by volume without regard to borrowers’ ability to repay, and (v) compensating business partner brokers at a higher rate for more profitable loans without consideration of services provided. The complaint also alleges that Countrywide did not provide borrowers sufficient information necessary to understand their loans. The complaint highlighted in particular Countrywide’s marketing and sales of pay option ARM, hybrid ARM, and Home Equity Lines of Credit (HELOC) products. Other deceptive marketing tactics alleged by the Attorney General include Countrywide lulling borrowers into believing that it was a “trusted advisor” looking out for the borrowers’ best interest, encouraging serial refinancing, and focusing borrowers’ attention on teaser rates rather than payments over the life of the loan. For a copy of the California complaint, please see http://ag.ca.gov/cms_attachments/press/pdfs/n1582_draft_cwide_complaint2.pdf.
On the same day, Illinois Attorney General Lisa Madigan brought suit against Countrywide for violations of the state’s Consumer Fraud and Deceptive Business Practices Act and the Fairness in Lending Act. The complaint alleges that Countrywide contributed to foreclosures in the Illinois housing market by utilizing unfair and deceptive (i) underwriting standards, (ii) loan products, (iii) sales techniques, and (iv) servicing practices. The complaint alleges that lax underwriting standards resulted in approving borrowers for unaffordable loans. The Attorney General alleged that reduced documentation loans, PayOption ARMS, and HELOCs were deceptively marketed and offered to borrowers who could not afford the payments. Other practices alleged by the Attorney General included underwriting mortgages based on less than the fully-indexed rate, marketing mortgages based on payments less than the payments that would be required after reset, layering risk on loans, implementing financial incentive structures for selling loan products that compromised the ability to disclose all information to borrowers, and indiscriminately selling mortgages with high loan-to-value ratios. As in the California complaint, the Illinois Attorney General focused on a number of allegedly deceptive sales techniques, such as personalized direct mailings pushing borrowers to refinance into risky products, sending emails touting complimentary loan reviews, and deceptively advertising no-closing-cost refinancing. The suit requests civil penalties, restitution to borrowers, an injunction against selling or foreclosing mortgages, and providing for rescission, modification, or reformation of the loans. For a copy of the Illinois complaint, please see http://www.illinoisattorneygeneral.gov/pressroom/2008_06/countrywide_complaint.pdf.
California Court Reverses Ruling in Favor of Purchaser That Fraudulently Upended Foreclosure Sale. A California appeals court has reversed a trial court’s disposition in a case where a purchaser of a foreclosed property fraudulently caused the transaction to fall through when the purchaser determined the purchase price was too high. Calif. Golf LLC v. Cooper, No. B195211, 163 Cal. App. 4th 1053 (Cal. App., Jun. 9, 2008). In this case, the defendants had purchased property from plaintiff California Golf at a non-judicial foreclosure sale using cashier’s checks. After deciding that they should not have purchased the property at the bid price, the defendants fraudulently convinced the bank that had issued the checks that the checks had been lost, and the bank subsequently stopped payment on the checks, effectively terminating the transaction. California Golf resold the property at a lower price at another foreclosure sale and sued for damages. The trial court had found in favor of the defendants, concluding that the trustee’s sale was effectively cancelled by the bank’s stop payment and that California Golf’s only remedy was to notice a new sale and recover its costs. The appellate court reversed, finding that the defense of election of remedies was inapplicable because the defendants in this case were not parties to a prior judicial foreclosure action on the property and because, even though the property was sold at another foreclosure sale, that subsequent sale only mitigates the damages. Further, the court found that the cashier’s checks were not “cash equivalent” for the purpose of the non-judicial foreclosure statute, and therefore, that statute and its limit on damages was not controlling. The court also overturned the trial court’s findings that (i) the criminal penalties for fraudulently cancelling the checks were an exclusive remedy and (ii) California Golf could not pursue other claims for breach of warranty and fraud. For a copy of the opinion, please see http://www.buckleykolar.com/documents/CaliforniaGolfvPerryCooper.pdf.
No Discovery Rule in Case before FACTA/FCRA. In a recent case, the plaintiffs who initially brought, but subsequently withdrew, an action under the Fair Credit Reporting Act (FCRA) in September 2003 alleging their credit report published by Equifax contained inaccurate information, renewed their FCRA action, pro se, after FCRA’s statute of limitations provision had been amended. Pinson v. Equifax Credit Information Services, Inc., No. 06-CV-162, 2008 WL 2329137 (N.D. Okla. June 2, 2008). In this case, the court concluded that the FCRA statute of limitations in effect at the time of the violation should be applied. Because the prior lawsuit was dismissed without prejudice and absent a statute to the contrary, for statute of limitations purposes the lawsuit was treated as if it were never brought. The statute of limitations in effect at the time of the alleged violations “was two years from the date on which liability arises, subject to a single discovery exception for cases involving a defendant’s willful misrepresentation of material information.” FCRA was later amended to establish a new statute of limitations providing that an action may be brought “not later than the earlier of—(1) 2 years after the date of discovery by the plaintiff of the violation that is the basis for such liability; or (2) 5 years after the date on which the violation that is the basis for such liability occurs.” The court concluded “that the amended statute of limitations cannot be retroactively applied.” As a result, claims involving alleged violations, which occurred more than 2 years prior to when the lawsuit was filed, were untimely. For a copy of the decision, please see http://www.buckleykolar.com/documents/PinsonvEquifax.pdf.
District Court Grants Partial Summary Judgment in FDCPA Case. On June 20, the United States District Court for the Southern District of Alabama denied summary judgment in favor of the defendant on several claims of violating the Fair Debt Collection Practices Act (FDCPA) for alleged abusive collection tactics. Sparks v. Phillips & Cohen Assocs., Ltd., No. 07-0477-WS-C, 2008 U.S. Dist. LEXIS 47915 (S.D. Ala. June 20, 2008). The plaintiffs alleged that the defendant’s collection specialist sought to bully a deceased debtor’s daughter into paying the deceased’s outstanding debts by, among other things, making threats, badgering the daughter’s boss at home, concealing the collection specialist’s identity, and intimidating the daughter’s boss’s daughter. With respect to the FDCPA claims, the court found that the “raison d’etre” of the collection specialist’s communications was to secure payment of the deceased debtor’s debts owed to the defendant’s clients, and as such, the defendant’s acts were in connection with collection of a debt. In addition, certain plaintiffs had adequately alleged some claims under §§ 1692d (harassing, oppressive or abusive conduct), 1692e (false or misleading representation), and 1692f (unfair practices) of the FDCPA, and as such, summary judgment was denied with respect to those claims. However, the plaintiffs had not adequately alleged and summary judgment was granted with respect to many of the plaintiff’s additional claims, including (i) the daughter’s claims under §§ 1692e and 1692f of the FDCPA, (ii) all plaintiffs’ FDCPA claims under § 1692g (validation of debts); (iii) all plaintiffs’ claims for invasion of privacy; (iv) all plaintiffs’ claims for intentional infliction of emotional distress; and (v) all plaintiffs’ claims for negligent supervision/training. For a copy of this opinion, please see http://www.buckleykolar.com/documents/SparksvPhillipsCohenAssocs.pdf.
Court Denies Motion to Dismiss Counterclaims in Mortgage Repurchase Case. On June 17, the U.S. District Court for the Southern District of Indiana denied almost in whole National City Mortgage’s motion to dismiss the counterclaims of mortgage brokers, bond companies, appraisers and real estate sellers in a mortgage repurchase case. National City Mortgage Co. v. First Investment Group et. al., 2008 U.S. Dist. LEXIS 47169 (S.D. Ind. June 17, 2008). In this case, National City demanded that Liberty Mortgage Services repurchase loans that did not conform to agreed upon standards, with specific claims that the loan brokers misrepresented borrower income, true purchases of real estate, the value of the real estate, and loan-to-value ratios. The loan origination parties counterclaimed, alleging breach of contract, negligence and constructive fraud and requesting punitive damages for the breach of contract. The court strictly interpreted Indiana’s notice pleading standard and held that the loan origination party pleadings gave National City sufficient notice of the claims. For a copy of the opinion, please see http://www.buckleykolar.com/documents/NationalCityMtgCovFirstInvGroup.pdf.
District Court Denies Motion to Dismiss RESPA Claim Brought by a Seller. On June 16, a federal district court in Alabama denied a defendant’s motion to dismiss a claim alleging a violation of the prohibition against referral fees in the Real Estate Settlement Procedures Act (RESPA). Estate of Ellison v. Class.com, Inc., 2008 U.S. Dist. LEXIS 47504 (S.D. Ala. June 16, 2008). The complaint alleged that a $295.00 “processing fee” in connection with the sale of a home by the plaintiff violated RESPA provisions regarding business referrals and splitting charges. The defendant argued that RESPA did not apply because that statute was enacted to benefit purchasers, not sellers. The court disagreed, citing a prior case that applied RESPA to both sellers and buyers, and denied the defendant’s motion to dismiss. For a copy of the opinion, please see http://www.buckleykolar.com/documents/EstateofEllisonvClasscom.pdf.
Firm News
Joseph Kolar spoke at the Mealey’s Subprime Mortgage Litigation & Insurance Coverage Conference on June 20 in Washington, DC. Mr. Kolar’s presentation was on “The New Structure of the Mortgage Lending Industry.” For more information on the conference, please see http://bookstore.lexis.com/bookstore/product/69880t.html.
Richard DiSalvo spoke at the American Conference Institute’s conference on Prepaid Card Compliance in Washington, D.C. on June 17. Mr. DiSalvo discussed the escheatment of stored value and other prepaid cards. For more information, please see http://www.americanconference.com/prepaidcard.htm.
Mortgages
HUD Reminds Lenders of FHA Rules for Dealing with Mortgage Brokers. On June 20, Federal Housing Commissioner Brian Montgomery issued a mortgagee letter reminding lenders of various payment and service restrictions when dealing with non-FHA-approved mortgage brokers for forward mortgages. The letter makes clear that, although a borrower may engage a non FHA-approved mortgage broker for counseling services, loan origination services may not be performed by the broker and the FHA-approved mortgagee may not compensate the broker for the counseling services. Such a payment would violate RESPA’s prohibition on duplicative fees and may even be considered an illegal referral fee. To the extent a borrower receives counseling from a non-FHA-approved mortgage broker, the services must constitute “meaningful counseling” and the fees must be paid from the borrower’s own available assets and disclosed on the HUD-1. In addition, a copy of the service contract must be included in the loan file submitted for insurance endorsement. For a copy of the mortgagee letter, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/08-17ml.doc.
New York State Courts Respond to Rising Foreclosure Filings. On June 18, New York Chief Judge Judith S. Kaye, in response to record level foreclosure filings in the New York State courts, announced a new court program to reduce the time, expense and potential losses involved in home foreclosures. The Residential Foreclosure Program will establish an early, active court presence in foreclosure cases involving owner-occupied residences to promote greater efficiency in case resolution and better outcomes for both homeowners and lenders. New York state courts will begin sending defaulting homeowners information on legal and mortgage counseling. The program calls for the creation of a new section of the court charged with helping borrowers and lenders reach speedy settlements. Lenders and homeowners will be invited to attend court-sponsored meetings on settlement possibilities. The court would encourage, but not require, a settlement conference, and lenders would still be able to foreclose. The court system will assign specially trained court personnel to preside over Foreclosure Conference Parts, with the aid of case managers who will schedule conferences and provide other support. The Foreclosure Conference Part will operate initially as a pilot project in Queens before being expanded to other areas of the state. For a copy of the New York State Unified Court System press release, please see http://www.courts.state.ny.us/press/pr2008_4.shtml.
New York Senate Passes Bill to Address Subprime Mortgage Crisis. On June 23, the New York State Senate passed legislation (S8143-A) to address the subprime mortgage crisis in New York by assisting homeowners who are facing foreclosure from losing their homes while implementing reforms designed to help prevent them from losing their homes in the future. The legislation is the result of an agreement reached between Governor David Paterson, the Senate, and the Assembly. The bill is designed to balance the government’s responsibility to provide reasonable consumer protection and the need to offer affordable credit options to New Yorkers. For a copy of the New York State Senate press release, please see http://www.buckleykolar.com/documents/NYS8143-APressRelease.pdf.
Louisiana Authorizes Free Mortgage Foreclosure Counseling. On June 16, Louisiana Governor Bobby Jindal signed S.B. 590, which authorizes the Louisiana Housing Finance Agency to provide free mortgage foreclosure counseling and education to homeowners who have defaulted or who are in danger of default. The bill became effective June 16. For a copy of the S.B. 590, please see http://www.legis.state.la.us/billdata/streamdocument.asp?did=498944.
Alaska Adopts Mortgage Lending Licensing Regulation. The Alaska Department of Commerce, Community and Economic Development (Department) recently adopted new regulations, 3 AAC 14.010 et seq., amending rules implementing Alaska’s Mortgage Lending Regulation Act. The new regulations implement new licensing and registration requirements for persons engaged in mortgage lending activities, requiring that any non-exempt person acting as a mortgage lender must be licensed and any non-exempt person acting as a small mortgage lender be registered with the state. The regulation also includes application, competency testing, and continuing education requirements on licensees and registrants. Other obligations imposed by the regulations include annual reporting, record-keeping, and supervision requirements. The regulations also enumerate a number of practices that are considered unfair or deceptive advertising or mortgage lending practices, and provide for disciplinary action taken by the Department. Finally, the regulations provide for the establishment and operation of an originator surety fund. The new regulations become effective on July 1. For a copy of the regulations, please see http://www.buckleykolar.com/documents/AK3AAC14010etseq.pdf.
South Carolina Passes Law Governing Erroneous Mortgage Satisfactions. On June 16, South Carolina Governor Mark Sanford signed into law H.B. 3033, which establishes procedures to rescind an erroneously recorded satisfaction of a mortgage. The bill provides that filing a “document of rescission” when a satisfaction is recorded erroneously will serve to reinstate the mortgage as of the mortgage’s original filing date. The bill also provides that a creditor who erroneously or wrongfully records a document of rescission is liable to the injured person for actual damages, costs, attorney’s fees and the lesser of half of the debt secured by the mortgage or $25,000. The bill became effective immediately upon signing. For a copy of the bill, please see http://www.scstatehouse.net/sess117_2007-2008/bills/3033.htm.
Missouri Enacts Law to Penalize Mortgage Fraud. On June 11, Missouri Governor Matt Blunt approved H.B. 2188, which creates civil and criminal penalties for individuals who commit mortgage fraud. Effective as of August 28, H.B. 2188 allows various regulatory agencies within the Missouri Division of Finance to file complaints with the state’s Administrative Hearing Commission (AHC) against any person or entity licensed as a mortgage broker or lender, real estate broker, salesperson, or appraiser for violations of any one of 26 prohibited acts enumerated in the bill. Prohibited acts include, among other things, employing any scheme or artifice to defraud, making untrue statements of material fact, influencing a real estate appraisal through extortion or bribery, and paying any form of consideration in connection with a real estate closing that may be considered mortgage fraud. A finding by the AHC that a licensee has performed or attempted to perform any of the prohibited acts shall be grounds for the suspension or revocation of license, probation, or the imposition of a civil penalty of $2500 for each offense. To learn more about the Missouri Mortgage Fraud Act please see http://www.house.mo.gov/billtracking/bills081/billpdf/truly/HB2188T.PDF.
Iowa Amends Statute On Mortgage Lending Fees. Iowa Governor Chet Culver recently signed into law H.F. 2700, which revises a recent bill, H.F. 2556 (reported in InfoBytes, May 30, 2008), that limits the charges a mortgage lender may collect on a loan. Specifically, H.F. 2700 specifies that a lender may charge a borrower a loan origination or processing fee, a broker fee, or both, so long as the fees together do not exceed two percent of the loan principal. For refinances, the borrower may be charged an origination or processing fee, a broker fee, or both, which together do not exceed an amount which is a “reasonable estimate of the expenses of processing the loan assumption or refinancing” but that does not exceed one percent of the unpaid balance of the loan being refinanced. The revised section also permits lenders to charge borrowers a bona fide and reasonable settlement or closing fee. For a copy of H.F. 2700, please see http://coolice.legis.state.ia.us/Cool-ICE/default.asp?Category=BillInfo&Service=AmendPrint&ga=82&type=HF&vers=2700&amStr=eHF,2700.
Hawaii Amends Financial Institution Law. On June 19, Hawaii Governor Linda Lingle signed into law S.B. 3008, which amends a number of provisions in the state’s code of financial institutions. Among other things, the bill requires directors and executive officers of financial institutions applying to do business in Hawaii to submit to criminal background checks and empowers the Department of Commerce and Consumer Affairs to conduct criminal background checks on the officers of licensed entities. Further, the bill permits the Commissioner of Financial Institutions to examine any financial institution holding company that owns more than twenty-five percent of or indirectly controls a licensed entity. In addition, the bill clarifies that a prepayment penalty on a loan may not exceed six months of interest at the loan’s current rate. For a copy of S.B. 3008, please see http://www.capitol.hawaii.gov/session2008/bills/GM838_.pdf.
Illinois and California Attorneys General Sue Countrywide. On June 25, California Attorney General Jerry Brown sued Countrywide for violations of the state’s untrue or misleading advertising and unfair competition statutes. The complaint alleges that Countrywide attempted to increase its profits in the secondary market by (i) using deceptive practices to sell risky loans to borrowers, (ii) easing and disregarding underwriting standards (including for low- and no-documentation loans), (iii) engaging in deceptive marketing practices, (iv) creating a high pressure sales environment to sell loans by volume without regard to borrowers’ ability to repay, and (v) compensating business partner brokers at a higher rate for more profitable loans without consideration of services provided. The complaint also alleges that Countrywide did not provide borrowers sufficient information necessary to understand their loans. The complaint highlighted in particular Countrywide’s marketing and sales of pay option ARM, hybrid ARM, and Home Equity Lines of Credit (HELOC) products. Other deceptive marketing tactics alleged by the Attorney General include Countrywide lulling borrowers into believing that it was a “trusted advisor” looking out for the borrowers’ best interest, encouraging serial refinancing, and focusing borrowers’ attention on teaser rates rather than payments over the life of the loan. For a copy of the California complaint, please see http://ag.ca.gov/cms_attachments/press/pdfs/n1582_draft_cwide_complaint2.pdf.
On the same day, Illinois Attorney General Lisa Madigan brought suit against Countrywide for violations of the state’s Consumer Fraud and Deceptive Business Practices Act and the Fairness in Lending Act. The complaint alleges that Countrywide contributed to foreclosures in the Illinois housing market by utilizing unfair and deceptive (i) underwriting standards, (ii) loan products, (iii) sales techniques, and (iv) servicing practices. The complaint alleges that lax underwriting standards resulted in approving borrowers for unaffordable loans. The Attorney General alleged that reduced documentation loans, PayOption ARMS, and HELOCs were deceptively marketed and offered to borrowers who could not afford the payments. Other practices alleged by the Attorney General included underwriting mortgages based on less than the fully-indexed rate, marketing mortgages based on payments less than the payments that would be required after reset, layering risk on loans, implementing financial incentive structures for selling loan products that compromised the ability to disclose all information to borrowers, and indiscriminately selling mortgages with high loan-to-value ratios. As in the California complaint, the Illinois Attorney General focused on a number of allegedly deceptive sales techniques, such as personalized direct mailings pushing borrowers to refinance into risky products, sending emails touting complimentary loan reviews, and deceptively advertising no-closing-cost refinancing. The suit requests civil penalties, restitution to borrowers, an injunction against selling or foreclosing mortgages, and providing for rescission, modification, or reformation of the loans. For a copy of the Illinois complaint, please see http://www.illinoisattorneygeneral.gov/pressroom/2008_06/countrywide_complaint.pdf.
California Court Reverses Ruling in Favor of Purchaser That Fraudulently Upended Foreclosure Sale. A California appeals court has reversed a trial court’s disposition in a case where a purchaser of a foreclosed property fraudulently caused the transaction to fall through when the purchaser determined the purchase price was too high. Calif. Golf LLC v. Cooper, No. B195211, 163 Cal. App. 4th 1053 (Cal. App., Jun. 9, 2008). In this case, the defendants had purchased property from plaintiff California Golf at a non-judicial foreclosure sale using cashier’s checks. After deciding that they should not have purchased the property at the bid price, the defendants fraudulently convinced the bank that had issued the checks that the checks had been lost, and the bank subsequently stopped payment on the checks, effectively terminating the transaction. California Golf resold the property at a lower price at another foreclosure sale and sued for damages. The trial court had found in favor of the defendants, concluding that the trustee’s sale was effectively cancelled by the bank’s stop payment and that California Golf’s only remedy was to notice a new sale and recover its costs. The appellate court reversed, finding that the defense of election of remedies was inapplicable because the defendants in this case were not parties to a prior judicial foreclosure action on the property and because, even though the property was sold at another foreclosure sale, that subsequent sale only mitigates the damages. Further, the court found that the cashier’s checks were not “cash equivalent” for the purpose of the non-judicial foreclosure statute, and therefore, that statute and its limit on damages was not controlling. The court also overturned the trial court’s findings that (i) the criminal penalties for fraudulently cancelling the checks were an exclusive remedy and (ii) California Golf could not pursue other claims for breach of warranty and fraud. For a copy of the opinion, please see http://www.buckleykolar.com/documents/CaliforniaGolfvPerryCooper.pdf.
Court Denies Motion to Dismiss Counterclaims in Mortgage Repurchase Case. On June 17, the U.S. District Court for the Southern District of Indiana denied almost in whole National City Mortgage’s motion to dismiss the counterclaims of mortgage brokers, bond companies, appraisers and real estate sellers in a mortgage repurchase case. National City Mortgage Co. v. First Investment Group et. al., 2008 U.S. Dist. LEXIS 47169 (S.D. Ind. June 17, 2008). In this case, National City demanded that Liberty Mortgage Services repurchase loans that did not conform to agreed upon standards, with specific claims that the loan brokers misrepresented borrower income, true purchases of real estate, the value of the real estate, and loan-to-value ratios. The loan origination parties counterclaimed, alleging breach of contract, negligence and constructive fraud and requesting punitive damages for the breach of contract. The court strictly interpreted Indiana’s notice pleading standard and held that the loan origination party pleadings gave National City sufficient notice of the claims. For a copy of the opinion, please see http://www.buckleykolar.com/documents/NationalCityMtgCovFirstInvGroup.pdf.
District Court Denies Motion to Dismiss RESPA Claim Brought by a Seller. On June 16, a federal district court in Alabama denied a defendant’s motion to dismiss a claim alleging a violation of the prohibition against referral fees in the Real Estate Settlement Procedures Act (RESPA). Estate of Ellison v. Class.com, Inc., 2008 U.S. Dist. LEXIS 47504 (S.D. Ala. June 16, 2008). The complaint alleged that a $295.00 “processing fee” in connection with the sale of a home by the plaintiff violated RESPA provisions regarding business referrals and splitting charges. The defendant argued that RESPA did not apply because that statute was enacted to benefit purchasers, not sellers. The court disagreed, citing a prior case that applied RESPA to both sellers and buyers, and denied the defendant’s motion to dismiss. For a copy of the opinion, please see http://www.buckleykolar.com/documents/EstateofEllisonvClasscom.pdf.
Banking
Banking Agencies Publish 2008 Host State Loan-To-Deposit Ratios. On June 26, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency made public the host state loan-to-deposit ratios that the agencies will use to determine compliance with section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (Section 109). In general, Section 109 prohibits a bank from establishing or acquiring a branch or branches outside of its home state primarily for the purpose of deposit production. Section 106 of the Gramm-Leach-Bliley Act of 1999 amended coverage of section 109 of the Interstate Act to include any branch of a bank controlled by an out-of-state bank holding company. For 2008 host state loan-to-deposit ratios, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20080626a1.pdf.
House Financial Services Committee Approves Money Service Business Act. On June 24, the House Financial Services Committee approved the Money Service Business Act, H.R. 4049, which revises requirements in connection with anti-money laundering programs. The bill allows for insured depository institutions maintaining accounts with a money services business to have no obligation to review the compliance of the money services business, provided that the institutions maintain on file mandatory self-certifications from the money services business. The bill further prescribes requirements for such self-certifications that are in compliance with federal anti-money laundering requirements. Provided that institutions interacting with a money services business are themselves in compliance with federal anti-money laundering requirements, the bill shields those institutions from increased liability due to the non-compliance of the money services business. Finally, the bill establishes civil and criminal penalties for both willful and non-willful violations of H.R. 4049. For a copy of the bill, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h4049ih.txt.pdf.
Consumer Finance
Payday Loan Lead Generators Settle FTC Charges. On June 24, the Federal Trade Commission (FTC) announced that two payday loan lead generators have agreed to settle FTC charges that their Internet advertising stated payday loan costs and repayment periods without disclosing annual percentage rate (APR) information as federal law requires. The settlements require the respondents to disclose APR information in similar payday loan ads in the future and to comply in all other respects with the Truth in Lending Act (TILA) and its implementing Regulation Z. Payday loans have high fees and short repayment periods, which translate to high annual rates, and they often are due on the borrower’s next payday, usually about every two weeks. The respondents, We Give Loans, Inc. and Aliyah Associates, LLC, d/b/a American Advance, are lead generators based in Minnesota and Arizona, respectively. They advertise payday loans on their Web sites and collect information from consumers through their online applications. The respondents then sell this “lead” information to lenders that ultimately offer payday loans to consumers. The TILA and Regulation Z require that those who advertise the cost of credit must disclose the APR of the loans to help consumers make better-informed decisions, including assisting them in comparison shopping among loans. According to the FTC’s complaints, the respondents stated loan costs on their Web sites – a $20 fee for a $100 loan, for example – but failed to disclose the APR. For a typical 14-day pay period, consumers who obtained payday loans advertised by We Give Loans, Inc. would pay an APR from 260 percent to 521 percent or higher, and consumers who obtained payday loans advertised by Aliyah Associates would pay an APR of 782 percent. For a copy of the agreements, please see http://www.ftc.gov/os/caselist/0723205/wglagreement.pdf and http://www.ftc.gov/os/caselist/0723206/aliyahagreement.pdf.
Alaska Governor Signs Bill Requiring Disclosure of Security Breaches to Consumers. On June 19, Alaska Governor Sarah Palin signed into law H.B. 65, which, in pertinent part, requires both businesses and government agencies to notify Alaska residents of security breaches involving personal information. This notice is not required if there is a “reasonable likelihood” that no harm will result from the breach. The bill further: (i) allows consumers to freeze and unfreeze credit information at their discretion; (ii) restricts the sale and distribution of social security numbers; (iii) requires the complete destruction of electronic and paper records that contain personal information; (iv) allows victims of identify theft to make factual declarations of innocence; and (v) establishes guidelines for the use of credit card numbers on receipts. The law becomes effective on July 1, 2009. For a copy of H.B. 65, please see http://www.legis.state.ak.us/PDF/25/Bills/HB0065Z.PDF.
No Discovery Rule in Case before FACTA/FCRA. In a recent case, the plaintiffs who initially brought, but subsequently withdrew, an action under the Fair Credit Reporting Act (FCRA) in September 2003 alleging their credit report published by Equifax contained inaccurate information, renewed their FCRA action, pro se, after FCRA’s statute of limitations provision had been amended. Pinson v. Equifax Credit Information Services, Inc., No. 06-CV-162, 2008 WL 2329137 (N.D. Okla. June 2, 2008). In this case, the court concluded that the FCRA statute of limitations in effect at the time of the violation should be applied. Because the prior lawsuit was dismissed without prejudice and absent a statute to the contrary, for statute of limitations purposes the lawsuit was treated as if it were never brought. The statute of limitations in effect at the time of the alleged violations “was two years from the date on which liability arises, subject to a single discovery exception for cases involving a defendant’s willful misrepresentation of material information.” FCRA was later amended to establish a new statute of limitations providing that an action may be brought “not later than the earlier of—(1) 2 years after the date of discovery by the plaintiff of the violation that is the basis for such liability; or (2) 5 years after the date on which the violation that is the basis for such liability occurs.” The court concluded “that the amended statute of limitations cannot be retroactively applied.” As a result, claims involving alleged violations, which occurred more than 2 years prior to when the lawsuit was filed, were untimely. For a copy of the decision, please see http://www.buckleykolar.com/documents/PinsonvEquifax.pdf.
District Court Grants Partial Summary Judgment in FDCPA Case. On June 20, the United States District Court for the Southern District of Alabama denied summary judgment in favor of the defendant on several claims of violating the Fair Debt Collection Practices Act (FDCPA) for alleged abusive collection tactics. Sparks v. Phillips & Cohen Assocs., Ltd., No. 07-0477-WS-C, 2008 U.S. Dist. LEXIS 47915 (S.D. Ala. June 20, 2008). The plaintiffs alleged that the defendant’s collection specialist sought to bully a deceased debtor’s daughter into paying the deceased’s outstanding debts by, among other things, making threats, badgering the daughter’s boss at home, concealing the collection specialist’s identity, and intimidating the daughter’s boss’s daughter. With respect to the FDCPA claims, the court found that the “raison d’etre” of the collection specialist’s communications was to secure payment of the deceased debtor’s debts owed to the defendant’s clients, and as such, the defendant’s acts were in connection with collection of a debt. In addition, certain plaintiffs had adequately alleged some claims under §§ 1692d (harassing, oppressive or abusive conduct), 1692e (false or misleading representation), and 1692f (unfair practices) of the FDCPA, and as such, summary judgment was denied with respect to those claims. However, the plaintiffs had not adequately alleged and summary judgment was granted with respect to many of the plaintiff’s additional claims, including (i) the daughter’s claims under §§ 1692e and 1692f of the FDCPA, (ii) all plaintiffs’ FDCPA claims under § 1692g (validation of debts); (iii) all plaintiffs’ claims for invasion of privacy; (iv) all plaintiffs’ claims for intentional infliction of emotional distress; and (v) all plaintiffs’ claims for negligent supervision/training. For a copy of this opinion, please see http://www.buckleykolar.com/documents/SparksvPhillipsCohenAssocs.pdf.
Litigation
Illinois and California Attorneys General Sue Countrywide. On June 25, California Attorney General Jerry Brown sued Countrywide for violations of the state’s untrue or misleading advertising and unfair competition statutes. The complaint alleges that Countrywide attempted to increase its profits in the secondary market by (i) using deceptive practices to sell risky loans to borrowers, (ii) easing and disregarding underwriting standards (including for low- and no-documentation loans), (iii) engaging in deceptive marketing practices, (iv) creating a high pressure sales environment to sell loans by volume without regard to borrowers’ ability to repay, and (v) compensating business partner brokers at a higher rate for more profitable loans without consideration of services provided. The complaint also alleges that Countrywide did not provide borrowers sufficient information necessary to understand their loans. The complaint highlighted in particular Countrywide’s marketing and sales of pay option ARM, hybrid ARM, and Home Equity Lines of Credit (HELOC) products. Other deceptive marketing tactics alleged by the Attorney General include Countrywide lulling borrowers into believing that it was a “trusted advisor” looking out for the borrowers’ best interest, encouraging serial refinancing, and focusing borrowers’ attention on teaser rates rather than payments over the life of the loan. For a copy of the California complaint, please see http://ag.ca.gov/cms_attachments/press/pdfs/n1582_draft_cwide_complaint2.pdf.
On the same day, Illinois Attorney General Lisa Madigan brought suit against Countrywide for violations of the state’s Consumer Fraud and Deceptive Business Practices Act and the Fairness in Lending Act. The complaint alleges that Countrywide contributed to foreclosures in the Illinois housing market by utilizing unfair and deceptive (i) underwriting standards, (ii) loan products, (iii) sales techniques, and (iv) servicing practices. The complaint alleges that lax underwriting standards resulted in approving borrowers for unaffordable loans. The Attorney General alleged that reduced documentation loans, PayOption ARMS, and HELOCs were deceptively marketed and offered to borrowers who could not afford the payments. Other practices alleged by the Attorney General included underwriting mortgages based on less than the fully-indexed rate, marketing mortgages based on payments less than the payments that would be required after reset, layering risk on loans, implementing financial incentive structures for selling loan products that compromised the ability to disclose all information to borrowers, and indiscriminately selling mortgages with high loan-to-value ratios. As in the California complaint, the Illinois Attorney General focused on a number of allegedly deceptive sales techniques, such as personalized direct mailings pushing borrowers to refinance into risky products, sending emails touting complimentary loan reviews, and deceptively advertising no-closing-cost refinancing. The suit requests civil penalties, restitution to borrowers, an injunction against selling or foreclosing mortgages, and providing for rescission, modification, or reformation of the loans. For a copy of the Illinois complaint, please see http://www.illinoisattorneygeneral.gov/pressroom/2008_06/countrywide_complaint.pdf.
California Court Reverses Ruling in Favor of Purchaser That Fraudulently Upended Foreclosure Sale. A California appeals court has reversed a trial court’s disposition in a case where a purchaser of a foreclosed property fraudulently caused the transaction to fall through when the purchaser determined the purchase price was too high. Calif. Golf LLC v. Cooper, No. B195211, 163 Cal. App. 4th 1053 (Cal. App., Jun. 9, 2008). In this case, the defendants had purchased property from plaintiff California Golf at a non-judicial foreclosure sale using cashier’s checks. After deciding that they should not have purchased the property at the bid price, the defendants fraudulently convinced the bank that had issued the checks that the checks had been lost, and the bank subsequently stopped payment on the checks, effectively terminating the transaction. California Golf resold the property at a lower price at another foreclosure sale and sued for damages. The trial court had found in favor of the defendants, concluding that the trustee’s sale was effectively cancelled by the bank’s stop payment and that California Golf’s only remedy was to notice a new sale and recover its costs. The appellate court reversed, finding that the defense of election of remedies was inapplicable because the defendants in this case were not parties to a prior judicial foreclosure action on the property and because, even though the property was sold at another foreclosure sale, that subsequent sale only mitigates the damages. Further, the court found that the cashier’s checks were not “cash equivalent” for the purpose of the non-judicial foreclosure statute, and therefore, that statute and its limit on damages was not controlling. The court also overturned the trial court’s findings that (i) the criminal penalties for fraudulently cancelling the checks were an exclusive remedy and (ii) California Golf could not pursue other claims for breach of warranty and fraud. For a copy of the opinion, please see http://www.buckleykolar.com/documents/CaliforniaGolfvPerryCooper.pdf.
No Discovery Rule in Case before FACTA/FCRA. In a recent case, the plaintiffs who initially brought, but subsequently withdrew, an action under the Fair Credit Reporting Act (FCRA) in September 2003 alleging their credit report published by Equifax contained inaccurate information, renewed their FCRA action, pro se, after FCRA’s statute of limitations provision had been amended. Pinson v. Equifax Credit Information Services, Inc., No. 06-CV-162, 2008 WL 2329137 (N.D. Okla. June 2, 2008). In this case, the court concluded that the FCRA statute of limitations in effect at the time of the violation should be applied. Because the prior lawsuit was dismissed without prejudice and absent a statute to the contrary, for statute of limitations purposes the lawsuit was treated as if it were never brought. The statute of limitations in effect at the time of the alleged violations “was two years from the date on which liability arises, subject to a single discovery exception for cases involving a defendant’s willful misrepresentation of material information.” FCRA was later amended to establish a new statute of limitations providing that an action may be brought “not later than the earlier of—(1) 2 years after the date of discovery by the plaintiff of the violation that is the basis for such liability; or (2) 5 years after the date on which the violation that is the basis for such liability occurs.” The court concluded “that the amended statute of limitations cannot be retroactively applied.” As a result, claims involving alleged violations, which occurred more than 2 years prior to when the lawsuit was filed, were untimely. For a copy of the decision, please see http://www.buckleykolar.com/documents/PinsonvEquifax.pdf.
District Court Grants Partial Summary Judgment in FDCPA Case. On June 20, the United States District Court for the Southern District of Alabama denied summary judgment in favor of the defendant on several claims of violating the Fair Debt Collection Practices Act (FDCPA) for alleged abusive collection tactics. Sparks v. Phillips & Cohen Assocs., Ltd., No. 07-0477-WS-C, 2008 U.S. Dist. LEXIS 47915 (S.D. Ala. June 20, 2008). The plaintiffs alleged that the defendant’s collection specialist sought to bully a deceased debtor’s daughter into paying the deceased’s outstanding debts by, among other things, making threats, badgering the daughter’s boss at home, concealing the collection specialist’s identity, and intimidating the daughter’s boss’s daughter. With respect to the FDCPA claims, the court found that the “raison d’etre” of the collection specialist’s communications was to secure payment of the deceased debtor’s debts owed to the defendant’s clients, and as such, the defendant’s acts were in connection with collection of a debt. In addition, certain plaintiffs had adequately alleged some claims under §§ 1692d (harassing, oppressive or abusive conduct), 1692e (false or misleading representation), and 1692f (unfair practices) of the FDCPA, and as such, summary judgment was denied with respect to those claims. However, the plaintiffs had not adequately alleged and summary judgment was granted with respect to many of the plaintiff’s additional claims, including (i) the daughter’s claims under §§ 1692e and 1692f of the FDCPA, (ii) all plaintiffs’ FDCPA claims under § 1692g (validation of debts); (iii) all plaintiffs’ claims for invasion of privacy; (iv) all plaintiffs’ claims for intentional infliction of emotional distress; and (v) all plaintiffs’ claims for negligent supervision/training. For a copy of this opinion, please see http://www.buckleykolar.com/documents/SparksvPhillipsCohenAssocs.pdf.
Court Denies Motion to Dismiss Counterclaims in Mortgage Repurchase Case. On June 17, the U.S. District Court for the Southern District of Indiana denied almost in whole National City Mortgage’s motion to dismiss the counterclaims of mortgage brokers, bond companies, appraisers and real estate sellers in a mortgage repurchase case. National City Mortgage Co. v. First Investment Group et. al., 2008 U.S. Dist. LEXIS 47169 (S.D. Ind. June 17, 2008). In this case, National City demanded that Liberty Mortgage Services repurchase loans that did not conform to agreed upon standards, with specific claims that the loan brokers misrepresented borrower income, true purchases of real estate, the value of the real estate, and loan-to-value ratios. The loan origination parties counterclaimed, alleging breach of contract, negligence and constructive fraud and requesting punitive damages for the breach of contract. The court strictly interpreted Indiana’s notice pleading standard and held that the loan origination party pleadings gave National City sufficient notice of the claims. For a copy of the opinion, please see http://www.buckleykolar.com/documents/NationalCityMtgCovFirstInvGroup.pdf.
District Court Denies Motion to Dismiss RESPA Claim Brought by a Seller. On June 16, a federal district court in Alabama denied a defendant’s motion to dismiss a claim alleging a violation of the prohibition against referral fees in the Real Estate Settlement Procedures Act (RESPA). Estate of Ellison v. Class.com, Inc., 2008 U.S. Dist. LEXIS 47504 (S.D. Ala. June 16, 2008). The complaint alleged that a $295.00 “processing fee” in connection with the sale of a home by the plaintiff violated RESPA provisions regarding business referrals and splitting charges. The defendant argued that RESPA did not apply because that statute was enacted to benefit purchasers, not sellers. The court disagreed, citing a prior case that applied RESPA to both sellers and buyers, and denied the defendant’s motion to dismiss. For a copy of the opinion, please see http://www.buckleykolar.com/documents/EstateofEllisonvClasscom.pdf.
E-Financial Services
Payday Loan Lead Generators Settle FTC Charges. On June 24, the Federal Trade Commission (FTC) announced that two payday loan lead generators have agreed to settle FTC charges that their Internet advertising stated payday loan costs and repayment periods without disclosing annual percentage rate (APR) information as federal law requires. The settlements require the respondents to disclose APR information in similar payday loan ads in the future and to comply in all other respects with the Truth in Lending Act (TILA) and its implementing Regulation Z. Payday loans have high fees and short repayment periods, which translate to high annual rates, and they often are due on the borrower’s next payday, usually about every two weeks. The respondents, We Give Loans, Inc. and Aliyah Associates, LLC, d/b/a American Advance, are lead generators based in Minnesota and Arizona, respectively. They advertise payday loans on their Web sites and collect information from consumers through their online applications. The respondents then sell this “lead” information to lenders that ultimately offer payday loans to consumers. The TILA and Regulation Z require that those who advertise the cost of credit must disclose the APR of the loans to help consumers make better-informed decisions, including assisting them in comparison shopping among loans. According to the FTC’s complaints, the respondents stated loan costs on their Web sites – a $20 fee for a $100 loan, for example – but failed to disclose the APR. For a typical 14-day pay period, consumers who obtained payday loans advertised by We Give Loans, Inc. would pay an APR from 260 percent to 521 percent or higher, and consumers who obtained payday loans advertised by Aliyah Associates would pay an APR of 782 percent. For a copy of the agreements, please see http://www.ftc.gov/os/caselist/0723205/wglagreement.pdf and http://www.ftc.gov/os/caselist/0723206/aliyahagreement.pdf.
Privacy/Data Security
Alaska Governor Signs Bill Requiring Disclosure of Security Breaches to Consumers. On June 19, Alaska Governor Sarah Palin signed into law H.B. 65, which, in pertinent part, requires both businesses and government agencies to notify Alaska residents of security breaches involving personal information. This notice is not required if there is a “reasonable likelihood” that no harm will result from the breach. The bill further: (i) allows consumers to freeze and unfreeze credit information at their discretion; (ii) restricts the sale and distribution of social security numbers; (iii) requires the complete destruction of electronic and paper records that contain personal information; (iv) allows victims of identify theft to make factual declarations of innocence; and (v) establishes guidelines for the use of credit card numbers on receipts. The law becomes effective on July 1, 2009. For a copy of H.B. 65, please see http://www.legis.state.ak.us/PDF/25/Bills/HB0065Z.PDF.