InfoBytes, March 14, 2008

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Federal Issues

FEDERAL ISSUES

Long Anticipated Proposed RESPA Reform Rule Published Today. The proposed rule, entitled, “RESPA: HUD’s Proposed Rule to Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs” primarily seeks to improve advance disclosure of firm and accurate settlement costs on page one of the Good Faith Estimate (GFE) in all Real Estate Settlement Procedures Act (RESPA) covered transactions via a “GFE application.” If adopted, the proposed rule also will:

  • Create a GFE form and facilitate required comparison between the GFE and the HUD-1/HUD-1A at closing to better ensure compliance with newly created tolerance limitations restricting the differences between estimated and actual costs of settlement services.
  • Not distinctly identify yield spread premiums (YSPs) in the GFE. Instead, YSPs will be included on the GFE in the origination charge.
  • At settlement, require that borrowers are read and provided with a copy of a “closing script” (the RESPA Miranda) explaining the final loan terms and settlement costs.
  • Address discounts by clarifying HUD’s current regulations and explaining when RESPA permits certain pricing mechanisms, such as volume discounts and average cost pricing, that benefit consumers.
  • Amend the definition of “required use” to include incentives for the use of a particular service provider (i.e., builder or home seller discounts for the use of an affiliated lender).
  • Clarify and update escrow account requirements and mortgage servicing transfer provisions.
  • Make clear that all RESPA disclosures may be provided to consumers in electronic form, so long as the consumer consents to receive such disclosures in electronic form and the other specific conditions of ESIGN are met. The proposed rule also will permit documents required to be retained under RESPA to be retained in electronic format, so long as the ESIGN requirements for document retention are met.

The proposed rule does not include the packaging or bundling stipulations that proved controversial in the 2002 and 2005 proposed rules. The proposed rule provides a 12-month transition period for compliance once finalized. If the proposed rule is adopted, HUD estimates that consumers will save on average $518 to $670 per transaction. Comments on the proposed rule are due on May 13, 2008.

HUD also announces in the proposed rule that it plans to seek legislative amendments to RESPA to obtain more enforcement authority, including civil money penalty authority and the ability to further amend current disclosures. HUD will seek civil money penalty authority for violations of RESPA Sections 4, 5, 6, 7, 8, 9 and 10 (provision of uniform settlement statement; GFE and special information booklet; servicing; prohibition against kickbacks, referral fees and unearned fees; title insurance and escrow accounts). HUD will also seek authority for HUD and state regulators to seek injunctive and equitable relief for violations of RESPA. Other proposed legislative initiatives include requiring delivery of the HUD-1 settlement statement three days prior to closing, and creating a uniform and expanded statute of limitations applicable to governmental and private actions under RESPA.

For a copy of the proposed rule, please see http://edocket.access.gpo.gov/2008/pdf/08-1015.pdf.

Buckley Kolar attorneys Joseph Kolar and Grant Mitchell will lead a detailed one-hour discussion of the proposed rule and will be available to answer questions regarding HUD’s new RESPA reform initiative and its prospect for final adoption. The discussion will take place on Wednesday, March 19 at 12:00 EST. For more information about this free web seminar, please see https://meetingvisuals.webex.com/meetingvisuals/j.php?ED=103801362&RG=1.

Administration Recommends Market Reforms in Wake of Foreclosure Crisis. On March 13, the U.S. Treasury, the Federal Reserve, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) released a joint policy statement proposing market and regulatory changes to the mortgage securitization process from origination to mortgage-related derivatives valuation. Among the several major changes to the mortgage and financial industries proposed were (i) requiring “strong nationwide licensing standards for mortgage brokers,” (ii) regulatory steps to encourage asset managers to “develop an independent view of the risk characteristics” of mortgage backed financial instruments, and (iii) reform to the ratings process used by the credit ratings agencies, including requiring the underwriters of asset backed securities to “represent the level and scope of due diligence performed on the underlying securities.” When discussing the mortgage origination process, the guidance recommended that state regulators (i) adopt the Nationwide Mortgage Licensing System (NMLS, most recently reported in InfoBytes, Nov. 16, 2007) (ii) adopt federal guidance on nontraditional and subprime mortgages, and (iii) better coordinate enforcement with other state and federal agencies. It also calls on the Federal Reserve to implement final rules under the Home Ownership and Equity Protection Act (HOEPA) “once appropriate account has been taken of feedback received” during the comment period on recent proposed rules (reported in InfoBytes, Dec. 21, 2007). For the official Treasury press release, please see http://www.treasury.gov/press/releases/hp871.htm.

Frank Announces New Economic, Mortgage and Housing Rescue Proposal. House Financial Services Committee Chairman Barney Frank today announced new legislation to stem the significant rise in mortgage foreclosures by allowing the Federal Housing Administration to insure and guarantee refinanced mortgages that have been significantly written down by mortgage holders and lenders. The Program would permit the FHA to provide up to $300 billion in new guarantees that would help to refinance at-risk borrowers into viable mortgages. In exchange for the acceptance of a substantial write-down of principal, the existing lender or mortgage holder would receive a short payment from the proceeds of a new FHA loan if the restructured loan would result in terms that the borrower can reasonably be expected to pay. The existing lender or mortgage holder will have a cash payment and no further credit exposure to the borrower. Under the program, a borrower or existing loan servicer of an eligible loan would contact an FHA-approved lender, who would determine the size of a loan that would be consistent with the requirements of the program and that the borrower could reasonably repay. If the current lender or mortgage holder agrees to a write-down that is sufficient to meet the requirements of the program and make the new loan affordable, the FHA-lender will pay off the discounted existing mortgage. In addition to a first lien, the program gives the government a soft second lien to help defer the government’s costs and prevent unjust enrichment (e.g., borrower flipping). When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any profits (e.g., from 100 percent in year one to 20 percent in year five and 0 thereafter). After year five only the 3 percent exit fee will apply. The bill would also provide for a “bulk refinance” facility, under which lenders seeking FHA approval could offer bulk loan refinancing. Finally, the bill would provide $10 billion in loans and grants to states for the purchase and rehabilitation of vacant, foreclosed homes. For a copy of the Discussion Draft of the bill, please see http://www.house.gov/apps/list/press/financialsvcs_dem/frank_158_xml.pdf.

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State Issues

Wyoming Amends Residential Mortgage Practices Act. Wyoming recently enacted a bill amending the Wyoming Residential Mortgage Practices Act. Among other things, the Act requires licensees to undergo background investigations, revises the exemptions section of the Act, and repeals certain application and disclosure requirements. The Act also modifies licensing expiration dates, surety bond requirements, disclosure requirements, allowable fees, license expiration and renewal dates, and conditions under which a license may be suspended or revoked. Lastly, the Act authorizes the commissioner to participate in the national mortgage licensing system. The bill was signed by the Wyoming Governor on March 12, and becomes effective July 1, 2008. For a copy of the new law, please see http://legisweb.state.wy.us/2008/Introduced/SF0044.pdf.

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Courts

Defaulted Debt Purchaser Not Required to Obtain NYC Collection Agency License. On March 5, a federal district court in New York held that a defaulted debt purchaser was not required to obtain a New York City collection agency license to be a plaintiff in a debt collection suit. See Kuhne v. Cohen & Slamowitz, LLP, 2008 WL 608607, No. 07 Civ. 1364(HB) (S.D.N.Y. Mar. 5, 2008). Midland Funding NCC-2 Corp., a purchaser of defaulted consumer debts, was a plaintiff in an action to recover a debt it owned from a consumer. Subsequently, the consumer sued Midland, alleging that the debt collection suit violated the federal Fair Debt Collection Practices Act (FDCPA) and New York state law because Midland did not have a New York City collection agency license. The court held that Midland did not require a license, reasoning that, with respect to the consumer’s debt, Midland’s licensed affiliate carried out all debt collection activities, and Midland’s legal counsel – also a licensed collection agency – prosecuted the debt collection suit. According to the court, “[t]o require [Midland] to be licensed, when it had no direct contact with the consumer, would run afoul of the purpose of the New York City licensing statute and the FDCPA, which are aimed at preventing abusive collection practices.” The court therefore granted Midland’s motion for summary judgment. For a copy of the opinion, please see http://www.buckleykolar.com/documents/KuhnevCohenSlamowitzLLP.pdf.

Court Refuses to Apply Discovery Rule Tolling to TILA Claim. A federal court in New York followed the lead of every Circuit Court of Appeals to decide the issue, ruling that the one-year statute of limitations in the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq., begins to run on claims arising from open-ended loans when the first finance charge is imposed. McAnaney v. Astoria Fin. Corp., 2008 WL 222524, No. 04-CV-1101 (E.D.N.Y., Jan. 25, 2008). The plaintiffs brought their TILA claims as a class action, alleging that the defendant financial institutions charged unauthorized fees when the plaintiffs satisfied their loans. Having previously certified a class of similarly-situated borrowers, the court granted summary judgment against the representative plaintiffs on statute of limitations grounds. The plaintiffs moved for reconsideration, arguing that the court incorrectly applied the limitations test for closed-end loans to their claims, which were based on open-ended home equity loans. Even though it was the plaintiffs who had consistently characterized their loans as “closed-ended,” the court agreed to reconsider the summary judgment decision. Nonetheless, the court found that the representative plaintiffs’ claims were time-barred, rejecting their argument that the “discovery rule” should apply to the limitations period for open-ended lines of credit; that is, the limitations period should begin to run only when the borrower has notice of the TILA violation. Instead, the Court followed the overwhelming majority of cases that calculate the TILA one-year limitations period for open-ended lines of credit from the date that the first finance charge is imposed. In the case of the representative plaintiffs, the first finance charge was imposed about a month after the loan closed and over 21 months before the plaintiffs filed suit. The court also held that the representative plaintiffs’ claims would be time-barred even if the discovery rule controlled, as the defendants disclosed the fact that they might be charging the fees at issue when the loan closed, and therefore the plaintiffs were on notice of their claims then. For a copy of this opinion, please see http://www.buckleykolar.com/documents/McAnaneyvAstoriaFinancialCorp.pdf.

Federal District Court Certifies Class in FACTA Case. In a case brought under the Fair Credit Reporting Act (FCRA), as amended by the Fair and Accurate Credit Transactions Act (FACTA), a federal district court certified a class consisting of “all persons in Illinois to whom United Retail provided an electronically printed receipt at the point of sale or transaction, in a transaction occurring after December 4, 2006, which receipt displays either (a) more than the last five digits of the persons credit card or debit number, and/or (b) the expiration date of the person’s credit or debit card.” Matthews v. United Retail, Inc., 2008 WL 618960, No. 07-C-2487 (N.D. Ill. Mar. 5, 2008). The consumer plaintiff alleges that United Retail unlawfully printed more than the last five digits of the card number and/or the expiration date on receipts provided to debit and credit card holders transacting business with United Retail, in willful violation of the FCRA, as amended by the FACTA. Finding that Rule 23’s elements were satisfied, the court certified the proposed class. Citing Murray v. GMAC Mortgage Corp., 434 F.3d 948, 953 (7th Cir. 2006) (reported in InfoBytes, Jan. 20, 2006), the court found that the class counsel satisfied the adequacy standard with respect to all proposed class members – including those who suffered “actual damages” – even though the plaintiff only sought statutory damages. It reasoned that requiring class counsel to seek actual damages for each individual class member would be unmanageable due to the likely small value of the individual class members’ actual damages, and class members with individual claims could opt out of the class to pursue their claims. Quoting Murray, the court further found that “FACTA claims are especially well-suited to resolution in a class action where, as here, ‘potential recovery is too slight to support individual suits, but injury is substantial in the aggregate.’” The court noted that the potential for a very large damage award does not affect its Rule 23 analysis, as unconstitutionally excessive damages awards may be reduced after a class has been certified. Finally, the fact that United Retail was now in compliance with the FACTA requirements and that it did not benefit from its alleged violations, did not negate that the plaintiff had properly move for class certification. For a copy of this decision, please see http://www.buckleykolar.com/documents/MatthewsvUnitedRetail.pdf.

Appellate Court Affirms Legitimacy of Lender’s Interest Calculation Method. The California Court of Appeal has affirmed a lower court’s holding that the defendant’s practice of charging interest in equal monthly portions, even when the number of days in a month varies, is permissible. Puentes v. Wells Fargo Home Mortgage, Inc., No. D049800 (Cal. Ct. App., Feb. 28, 2008). In this case, the plaintiff borrowers received a fixed-rate mortgage loan from defendant Wells Fargo Home Mortgage in mid-August 2002. The plaintiffs, on March 14, 2003 (only seven months after origination), prepaid the principal balance. Pursuant to the terms of the loan documents, Wells Fargo charged the borrowers for 30.4 days of interest in February 2003, based on its practice of dividing the year into equal “unit-periods.” The borrowers sued under California’s Unfair Competition Law (UCL), claiming that Wells Fargo violated the UCL by charging a fictional 30.4-day month (which resulted in these borrowers being charged for 182.4 days of interest, even though only 181 days had passed since consummation), while the UCL requires per-diem interest calculations for all 365 days of a year. The trial court granted summary judgment in favor of Wells Fargo, and the appellate court affirmed. The court noted that Regulation Z requires all months to be considered equal, and the court emphasized that the UCL precludes action on a practice that is clearly permitted under another law. Further, the court noted that, under certain circumstances, the plaintiffs would have been under-charged for interest (such as if they paid off their loan at the end of January). The court also noted that, based on the expert and industry statements in the record, Wells Fargo’s practice is used by approximately 99% of mortgage lenders and facilitates secondary-market transactions. For a copy of this opinion, please see http://www.buckleykolar.com/documents/PuentesvWellsFargoHomeMortgage.pdf.

Mortgage Servicer Not a Debt Collector Under FDCPA. A U.S. magistrate judge in Ohio ruled that a mortgage servicer did not violate the Fair Debt Collection Practices Act (FDCPA) when it took steps to collect past-due payments for a mortgage it was servicing. Martin v. Select Portfolio Serving Holding Corp., 2008 WL 618788, No. 05-273 (S.D. Ohio Mar. 3, 2008). In this case, the plaintiffs claimed that Select Portfolio Servicing (SPS) violated the FDCPA in several ways, including using false or deceptive representations in collecting a debt and making repeated, harassing phone calls. First, the court noted that SPS was not a “debt collector” for purposes of the FDCPA because (i) mortgage servicers who do not own a loan, but service the loan, are treated as “creditors” and not “debt collectors”; (ii) if the servicer acquires the debt, so long as the debt was assigned for servicing before the loan went into default, the servicer is not a “debt collector”; (iii) SPS did not treat the loan as a debt in default when it was acquired; and (iv) self-identification as a debt-collector and statements such as “this is an attempt to collect a debt” did not make SPS a debt collector under the FDCPA. In addition, the court found that, even if SPS were a debt collector subject to the FDCPA, there was insufficient evidence to support granting relief under the FDCPA. Specifically, the court held that there is no actionable claim for fraud under the FDCPA just because SPS failed to timely record the mortgage assignment, and the plaintiffs failed to show evidence sufficient to find that SPS’s collection practices were abusive. For a copy of this case, please see http://www.buckleykolar.com/documents/MartinvSelectPortfolioServicingHoldingCorp.pdf.

Federal Court Certifies FCRA Firm Offer Class. A federal district court in the Seventh Circuit recently certified a class in a Fair Credit Reporting Act (FCRA) case in which the plaintiffs have alleged that a lender failed to provide consumers with a “firm offer of credit” within the meaning of FCRA after accessing their credit reports without their consent. Stawski v. Secured Funding Corp., 2008 WL 647024, No. 06-0918 (E.D. Wis. Mar. 6, 2008). The court deemed the defendant to have admitted all of the allegations in the plaintiff’s complaint because it found the defendant in default. The consumer plaintiffs moved to certify a class including all persons residing in Milwaukee County, Wisconsin, who had their consumer credit reports accessed by Secured Funding, the lender, for the purpose of sending the solicitation letter attached to the plaintiff’s complaint. The court found that the class met Rule 23’s requirements for class certification. In finding that the questions of law or fact common to the members of the class predominated over any questions effecting only individual members, the court noted that “[w]hen determining whether the mailing constitutes a ‘firm offer of credit,’ the court need look no further than the terms and conditions in the mailing itself, whether the terms offered in the mailing have sufficient value to the recipients to justify the creditor accessing their consumer credit report, and whether the terms were honored when recipients accepted the offer.” After noting that the mass-mailing solicitations likely did not vary substantially from borrower to borrower, the court quoted Murray v. GMAC Mortg. Corp., 434 F.3d 948 (7th Cir. 2006) (reported in InfoBytes, Jan. 20, 2006), which stated that class actions were appropriate when “the potential recovery is too slight to support individual suits, but injury is substantial in aggregate.” For a copy of this opinion, please see http://www.buckleykolar.com/documents/StawskivSecuredFundingCorp.pdf.

Builder’s Lender Affiliate Agrees to Civil Fines, Restitution and Improved Lending Practices. Recently, the North Carolina Commissioner of Banks issued a Consent Order implementing a settlement agreement entered into between the Commissioner and Ryland Mortgage Company. Ryland Mortgage was charged with allowing unlicensed loan officers to originate loans and charging loan fees in excess of those permitted under North Carolina law. In his March 4 News Release, the Commissioner stated that, although “[b]uilders commonly provide an incentive to the buyer if the buyer gets a loan from the builders’ affiliated mortgage company,” sometimes the builder recoups the cost of the incentives indirectly through increased mortgage costs. In the Agreement, Ryland Mortgage did not admit any wrong-doing, but it agreed to pay the Commissioner civil fines of $161,000, to pay $8500 for investigative costs and expenses of the Commissioner, and to pay restitution to North Carolina homeowners in the amount of $220,851. Ryland further agreed to implement improved lending practices, including, among other things, the following: (i) charge rates and fees that do not exceed general mortgage industry standards; (ii) offer incentives for using Ryland Mortgage that are true discounts from the market price of the home; (iii) provide disclosure to applicants that reflects the specific discount offered for use of the Ryland Mortgage, separate from disclosures of other discounts and incentives; (iv) use at least three different, unaffiliated appraisers in each Ryland Homes development. For a copy of the Settlement Agreement and Consent Order, see http://www.buckleykolar.com/documents/InreRylandMortgageCompany.pdf.

Plaintiff Without Actual Monetary Damages Has Standing to Assert Claim Under FACTA. On March 4, a federal district court denied a defendant’s motion to dismiss in which the defendant claimed that the plaintiff lacked standing to assert claims under the Fair and Accurate Credit Transactions Act (FACTA), a part of the Fair Credit Reporting Act (FCRA), because the plaintiff had not suffered identity theft, and therefore no “injury in fact”. Miller v. Sunoco, Inc., Civ. No. 07-1456, 2008 WL 623806 (E.D. Pa. Mar. 4, 2008). The Plaintiff used his Visa card to purchase gas from the defendant, and the defendant provided a receipt that included the last four digits of the plaintiff’s credit card, as well as its expiration date. The Plaintiff alleges that this was a deliberate and willful violation of FACTA’s “truncation requirements,” which provide that “no person that accepts credit cards or debit cards for the transaction of business shall print more than the last 5 digits of a card number or the expiration date upon any receipt provided to the cardholder at the point of the sale transaction.” The defendant moved to dismiss the case, claiming that the plaintiff lacked standing because he did not suffer an “injury in fact” (i.e., actual monetary damages). The court held that a plaintiff does not need to demonstrate actual monetary damages if a statute conferring a private right of action has been violated. Because FACTA provides consumers a private right of action for willful non-compliance with its requirements, and FACTA “has created an unambiguous legal right to electronically printed receipts that truncate the consumer’s credit card number information,” the court found that the plaintiff had stated facts sufficient to confer standing. In response to the defendant’s claim that the amended compliant failed to allege that the defendant’s violation of FACTA was “knowing or reckless,” the court also found that the plaintiff had pled sufficient facts to preclude dismissal. Finally, the court dismissed the plaintiff’s request for injunctive relief, holding that the right to seek injunctive relief under the FCRA is reserved to the Federal Trade Commission. For a copy of this opinion, please see http://www.buckleykolar.com/documents/MillervSunoco.pdf.

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Firm News

Robert Serino was quoted in a March 13th article in the New York Times discussing suspicious financial transactions made by former New York Gov. Elliott Spitzer last July. Mr. Serino was quoted in the article, entitled, “Spitzer Fall Began with Bank Reports,” as saying, “As part of the ‘know your customer’ requirements, banks must assess their clients’ financial patterns and set guidelines to ensure that an alarm is sounded if there are unusual transactions.” He went on to say, “The idea is that if somehow a customer who usually deposits $3,000 a week starts depositing $300,000 into his account daily, that would be kicked out and looked at. Banks could certainly decide that a politician’s risk rate is higher and thus have a higher level of due diligence set for someone like Spitzer.” Mr. Serino explained that the requirement to report such large transactions applies only to currency transactions – “the coin and paper money of the United States” – not to wire transactions of the sort that Mr. Spitzer allegedly made.

Margo Tank will be speaking at the American Land Title Association’s 2008 Tech Forum being held April 12th – 15th in Las Vegas, NV. The panel is titled “eEvidence and Legal Issues.” For a complete list of the sessions and speakers, visit www.alta.org/meetings/techforum. For registration information, please see www.alta.org/meetings/techforum/register.

Jeffrey Naimon spoke at the Mortgage Bankers Association “Subprime and Alternative Product” conference last week in Chicago on legal considerations in portfolio and company acquisitions. Mr. Naimon will also be speaking at the Law Seminars International “Subprime Lending Crisis” conference on March 18-19 at the New York Marriott Marquis Time Square Hotel. Mr. Naimon will be speaking on liability exposure of lenders and servicers to loan purchasers and investors.

Grant Mitchell will be speaking in a webinar entitled, “RESPA Radio: Eye on Reform – Title Focus” on March 27th from 2:00 PM – 4:00 PM ET. The seminar will focus on the U.S. Department of Housing and Urban Development’s new proposal to reform the Real Estate Settlement Procedures Act (RESPA). The panel will look at what exactly the proposal says and how it will impact businesses. For more information or to register for the webinar, please see http://www.octoberradio.com.

Lee Negroni was recently profiled as a West Key Author by Thompson/West. Ms. Negroni, who has been a West author since 1989, talks about her practice, the struggles and blessings of her life as a writer and where she sees that the practice of law has come and is headed. To read the full profile, please see http://west.thomson.com/keyauthors/.

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Mortgages

Long Anticipated Proposed RESPA Reform Rule Published Today. The proposed rule, entitled, “RESPA: HUD’s Proposed Rule to Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs” primarily seeks to improve advance disclosure of firm and accurate settlement costs on page one of the Good Faith Estimate (GFE) in all Real Estate Settlement Procedures Act (RESPA) covered transactions via a “GFE application.” If adopted, the proposed rule also will:

  • Create a GFE form and facilitate required comparison between the GFE and the HUD-1/HUD-1A at closing to better ensure compliance with newly created tolerance limitations restricting the differences between estimated and actual costs of settlement services.
  • Not distinctly identify yield spread premiums (YSPs) in the GFE. Instead, YSPs will be included on the GFE in the origination charge.
  • At settlement, require that borrowers are read and provided with a copy of a “closing script” (the RESPA Miranda) explaining the final loan terms and settlement costs.
  • Address discounts by clarifying HUD’s current regulations and explaining when RESPA permits certain pricing mechanisms, such as volume discounts and average cost pricing, that benefit consumers.
  • Amend the definition of “required use” to include incentives for the use of a particular service provider (i.e., builder or home seller discounts for the use of an affiliated lender).
  • Clarify and update escrow account requirements and mortgage servicing transfer provisions.
  • Make clear that all RESPA disclosures may be provided to consumers in electronic form, so long as the consumer consents to receive such disclosures in electronic form and the other specific conditions of ESIGN are met. The proposed rule also will permit documents required to be retained under RESPA to be retained in electronic format, so long as the ESIGN requirements for document retention are met.

The proposed rule does not include the packaging or bundling stipulations that proved controversial in the 2002 and 2005 proposed rules. The proposed rule provides a 12-month transition period for compliance once finalized. If the proposed rule is adopted, HUD estimates that consumers will save on average $518 to $670 per transaction. Comments on the proposed rule are due on May 13, 2008.

HUD also announces in the proposed rule that it plans to seek legislative amendments to RESPA to obtain more enforcement authority, including civil money penalty authority and the ability to further amend current disclosures. HUD will seek civil money penalty authority for violations of RESPA Sections 4, 5, 6, 7, 8, 9 and 10 (provision of uniform settlement statement; GFE and special information booklet; servicing; prohibition against kickbacks, referral fees and unearned fees; title insurance and escrow accounts). HUD will also seek authority for HUD and state regulators to seek injunctive and equitable relief for violations of RESPA. Other proposed legislative initiatives include requiring delivery of the HUD-1 settlement statement three days prior to closing, and creating a uniform and expanded statute of limitations applicable to governmental and private actions under RESPA.

For a copy of the proposed rule, please see http://edocket.access.gpo.gov/2008/pdf/08-1015.pdf.

Buckley Kolar attorneys Joseph Kolar and Grant Mitchell will lead a detailed one-hour discussion of the proposed rule and will be available to answer questions regarding HUD’s new RESPA reform initiative and its prospect for final adoption. The discussion will take place on Wednesday, March 19 at 12:00 EST. For more information about this free web seminar, please see https://meetingvisuals.webex.com/meetingvisuals/j.php?ED=103801362&RG=1.

Administration Recommends Market Reforms in Wake of Foreclosure Crisis. On March 13, the U.S. Treasury, the Federal Reserve, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) released a joint policy statement proposing market and regulatory changes to the mortgage securitization process from origination to mortgage-related derivatives valuation. Among the several major changes to the mortgage and financial industries proposed were (i) requiring “strong nationwide licensing standards for mortgage brokers,” (ii) regulatory steps to encourage asset managers to “develop an independent view of the risk characteristics” of mortgage backed financial instruments, and (iii) reform to the ratings process used by the credit ratings agencies, including requiring the underwriters of asset backed securities to “represent the level and scope of due diligence performed on the underlying securities.” When discussing the mortgage origination process, the guidance recommended that state regulators (i) adopt the Nationwide Mortgage Licensing System (NMLS, most recently reported in InfoBytes, Nov. 16, 2007) (ii) adopt federal guidance on nontraditional and subprime mortgages, and (iii) better coordinate enforcement with other state and federal agencies. It also calls on the Federal Reserve to implement final rules under the Home Ownership and Equity Protection Act (HOEPA) “once appropriate account has been taken of feedback received” during the comment period on recent proposed rules (reported in InfoBytes, Dec. 21, 2007). For the official Treasury press release, please see http://www.treasury.gov/press/releases/hp871.htm.

Frank Announces New Economic, Mortgage and Housing Rescue Proposal. House Financial Services Committee Chairman Barney Frank today announced new legislation to stem the significant rise in mortgage foreclosures by allowing the Federal Housing Administration to insure and guarantee refinanced mortgages that have been significantly written down by mortgage holders and lenders. The Program would permit the FHA to provide up to $300 billion in new guarantees that would help to refinance at-risk borrowers into viable mortgages. In exchange for the acceptance of a substantial write-down of principal, the existing lender or mortgage holder would receive a short payment from the proceeds of a new FHA loan if the restructured loan would result in terms that the borrower can reasonably be expected to pay. The existing lender or mortgage holder will have a cash payment and no further credit exposure to the borrower. Under the program, a borrower or existing loan servicer of an eligible loan would contact an FHA-approved lender, who would determine the size of a loan that would be consistent with the requirements of the program and that the borrower could reasonably repay. If the current lender or mortgage holder agrees to a write-down that is sufficient to meet the requirements of the program and make the new loan affordable, the FHA-lender will pay off the discounted existing mortgage. In addition to a first lien, the program gives the government a soft second lien to help defer the government’s costs and prevent unjust enrichment (e.g., borrower flipping). When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any profits (e.g., from 100 percent in year one to 20 percent in year five and 0 thereafter). After year five only the 3 percent exit fee will apply. The bill would also provide for a “bulk refinance” facility, under which lenders seeking FHA approval could offer bulk loan refinancing. Finally, the bill would provide $10 billion in loans and grants to states for the purchase and rehabilitation of vacant, foreclosed homes. For a copy of the Discussion Draft of the bill, please see http://www.house.gov/apps/list/press/financialsvcs_dem/frank_158_xml.pdf.

Wyoming Amends Residential Mortgage Practices Act. Wyoming recently enacted a bill amending the Wyoming Residential Mortgage Practices Act. Among other things, the Act requires licensees to undergo background investigations, revises the exemptions section of the Act, and repeals certain application and disclosure requirements. The Act also modifies licensing expiration dates, surety bond requirements, disclosure requirements, allowable fees, license expiration and renewal dates, and conditions under which a license may be suspended or revoked. Lastly, the Act authorizes the commissioner to participate in the national mortgage licensing system. The bill was signed by the Wyoming Governor on March 12, and becomes effective July 1, 2008. For a copy of the new law, please see http://legisweb.state.wy.us/2008/Introduced/SF0044.pdf.

Court Refuses to Apply Discovery Rule Tolling to TILA Claim. A federal court in New York followed the lead of every Circuit Court of Appeals to decide the issue, ruling that the one-year statute of limitations in the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq., begins to run on claims arising from open-ended loans when the first finance charge is imposed. McAnaney v. Astoria Fin. Corp., 2008 WL 222524, No. 04-CV-1101 (E.D.N.Y., Jan. 25, 2008). The plaintiffs brought their TILA claims as a class action, alleging that the defendant financial institutions charged unauthorized fees when the plaintiffs satisfied their loans. Having previously certified a class of similarly-situated borrowers, the court granted summary judgment against the representative plaintiffs on statute of limitations grounds. The plaintiffs moved for reconsideration, arguing that the court incorrectly applied the limitations test for closed-end loans to their claims, which were based on open-ended home equity loans. Even though it was the plaintiffs who had consistently characterized their loans as “closed-ended,” the court agreed to reconsider the summary judgment decision. Nonetheless, the court found that the representative plaintiffs’ claims were time-barred, rejecting their argument that the “discovery rule” should apply to the limitations period for open-ended lines of credit; that is, the limitations period should begin to run only when the borrower has notice of the TILA violation. Instead, the Court followed the overwhelming majority of cases that calculate the TILA one-year limitations period for open-ended lines of credit from the date that the first finance charge is imposed. In the case of the representative plaintiffs, the first finance charge was imposed about a month after the loan closed and over 21 months before the plaintiffs filed suit. The court also held that the representative plaintiffs’ claims would be time-barred even if the discovery rule controlled, as the defendants disclosed the fact that they might be charging the fees at issue when the loan closed, and therefore the plaintiffs were on notice of their claims then. For a copy of this opinion, please see http://www.buckleykolar.com/documents/McAnaneyvAstoriaFinancialCorp.pdf.

Appellate Court Affirms Legitimacy of Lender’s Interest Calculation Method. The California Court of Appeal has affirmed a lower court’s holding that the defendant’s practice of charging interest in equal monthly portions, even when the number of days in a month varies, is permissible. Puentes v. Wells Fargo Home Mortgage, Inc., No. D049800 (Cal. Ct. App., Feb. 28, 2008). In this case, the plaintiff borrowers received a fixed-rate mortgage loan from defendant Wells Fargo Home Mortgage in mid-August 2002. The plaintiffs, on March 14, 2003 (only seven months after origination), prepaid the principal balance. Pursuant to the terms of the loan documents, Wells Fargo charged the borrowers for 30.4 days of interest in February 2003, based on its practice of dividing the year into equal “unit-periods.” The borrowers sued under California’s Unfair Competition Law (UCL), claiming that Wells Fargo violated the UCL by charging a fictional 30.4-day month (which resulted in these borrowers being charged for 182.4 days of interest, even though only 181 days had passed since consummation), while the UCL requires per-diem interest calculations for all 365 days of a year. The trial court granted summary judgment in favor of Wells Fargo, and the appellate court affirmed. The court noted that Regulation Z requires all months to be considered equal, and the court emphasized that the UCL precludes action on a practice that is clearly permitted under another law. Further, the court noted that, under certain circumstances, the plaintiffs would have been under-charged for interest (such as if they paid off their loan at the end of January). The court also noted that, based on the expert and industry statements in the record, Wells Fargo’s practice is used by approximately 99% of mortgage lenders and facilitates secondary-market transactions. For a copy of this opinion, please see http://www.buckleykolar.com/documents/PuentesvWellsFargoHomeMortgage.pdf.

Mortgage Servicer Not a Debt Collector Under FDCPA. A U.S. magistrate judge in Ohio ruled that a mortgage servicer did not violate the Fair Debt Collection Practices Act (FDCPA) when it took steps to collect past-due payments for a mortgage it was servicing. Martin v. Select Portfolio Serving Holding Corp., 2008 WL 618788, No. 05-273 (S.D. Ohio Mar. 3, 2008). In this case, the plaintiffs claimed that Select Portfolio Servicing (SPS) violated the FDCPA in several ways, including using false or deceptive representations in collecting a debt and making repeated, harassing phone calls. First, the court noted that SPS was not a “debt collector” for purposes of the FDCPA because (i) mortgage servicers who do not own a loan, but service the loan, are treated as “creditors” and not “debt collectors”; (ii) if the servicer acquires the debt, so long as the debt was assigned for servicing before the loan went into default, the servicer is not a “debt collector”; (iii) SPS did not treat the loan as a debt in default when it was acquired; and (iv) self-identification as a debt-collector and statements such as “this is an attempt to collect a debt” did not make SPS a debt collector under the FDCPA. In addition, the court found that, even if SPS were a debt collector subject to the FDCPA, there was insufficient evidence to support granting relief under the FDCPA. Specifically, the court held that there is no actionable claim for fraud under the FDCPA just because SPS failed to timely record the mortgage assignment, and the plaintiffs failed to show evidence sufficient to find that SPS’s collection practices were abusive. For a copy of this case, please see http://www.buckleykolar.com/documents/MartinvSelectPortfolioServicingHoldingCorp.pdf.

Builder’s Lender Affiliate Agrees to Civil Fines, Restitution and Improved Lending Practices. Recently, the North Carolina Commissioner of Banks issued a Consent Order implementing a settlement agreement entered into between the Commissioner and Ryland Mortgage Company. Ryland Mortgage was charged with allowing unlicensed loan officers to originate loans and charging loan fees in excess of those permitted under North Carolina law. In his March 4 News Release, the Commissioner stated that, although “[b]uilders commonly provide an incentive to the buyer if the buyer gets a loan from the builders’ affiliated mortgage company,” sometimes the builder recoups the cost of the incentives indirectly through increased mortgage costs. In the Agreement, Ryland Mortgage did not admit any wrong-doing, but it agreed to pay the Commissioner civil fines of $161,000, to pay $8500 for investigative costs and expenses of the Commissioner, and to pay restitution to North Carolina homeowners in the amount of $220,851. Ryland further agreed to implement improved lending practices, including, among other things, the following: (i) charge rates and fees that do not exceed general mortgage industry standards; (ii) offer incentives for using Ryland Mortgage that are true discounts from the market price of the home; (iii) provide disclosure to applicants that reflects the specific discount offered for use of the Ryland Mortgage, separate from disclosures of other discounts and incentives; (iv) use at least three different, unaffiliated appraisers in each Ryland Homes development. For a copy of the Settlement Agreement and Consent Order, see http://www.buckleykolar.com/documents/InreRylandMortgageCompany.pdf.

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Banking

Administration Recommends Market Reforms in Wake of Foreclosure Crisis. On March 13, the U.S. Treasury, the Federal Reserve, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) released a joint policy statement proposing market and regulatory changes to the mortgage securitization process from origination to mortgage-related derivatives valuation. Among the several major changes to the mortgage and financial industries proposed were (i) requiring “strong nationwide licensing standards for mortgage brokers,” (ii) regulatory steps to encourage asset managers to “develop an independent view of the risk characteristics” of mortgage backed financial instruments, and (iii) reform to the ratings process used by the credit ratings agencies, including requiring the underwriters of asset backed securities to “represent the level and scope of due diligence performed on the underlying securities.” When discussing the mortgage origination process, the guidance recommended that state regulators (i) adopt the Nationwide Mortgage Licensing System (NMLS, most recently reported in InfoBytes, Nov. 16, 2007) (ii) adopt federal guidance on nontraditional and subprime mortgages, and (iii) better coordinate enforcement with other state and federal agencies. It also calls on the Federal Reserve to implement final rules under the Home Ownership and Equity Protection Act (HOEPA) “once appropriate account has been taken of feedback received” during the comment period on recent proposed rules (reported in InfoBytes, Dec. 21, 2007). For the official Treasury press release, please see http://www.treasury.gov/press/releases/hp871.htm.

Frank Announces New Economic, Mortgage and Housing Rescue Proposal. House Financial Services Committee Chairman Barney Frank today announced new legislation to stem the significant rise in mortgage foreclosures by allowing the Federal Housing Administration to insure and guarantee refinanced mortgages that have been significantly written down by mortgage holders and lenders. The Program would permit the FHA to provide up to $300 billion in new guarantees that would help to refinance at-risk borrowers into viable mortgages. In exchange for the acceptance of a substantial write-down of principal, the existing lender or mortgage holder would receive a short payment from the proceeds of a new FHA loan if the restructured loan would result in terms that the borrower can reasonably be expected to pay. The existing lender or mortgage holder will have a cash payment and no further credit exposure to the borrower. Under the program, a borrower or existing loan servicer of an eligible loan would contact an FHA-approved lender, who would determine the size of a loan that would be consistent with the requirements of the program and that the borrower could reasonably repay. If the current lender or mortgage holder agrees to a write-down that is sufficient to meet the requirements of the program and make the new loan affordable, the FHA-lender will pay off the discounted existing mortgage. In addition to a first lien, the program gives the government a soft second lien to help defer the government’s costs and prevent unjust enrichment (e.g., borrower flipping). When the borrower sells the home or refinances the loan, the borrower will pay from any profits the higher of (1) an ongoing exit fee equal to 3 percent of the original FHA loan balance; or (2) a declining percentage of any profits (e.g., from 100 percent in year one to 20 percent in year five and 0 thereafter). After year five only the 3 percent exit fee will apply. The bill would also provide for a “bulk refinance” facility, under which lenders seeking FHA approval could offer bulk loan refinancing. Finally, the bill would provide $10 billion in loans and grants to states for the purchase and rehabilitation of vacant, foreclosed homes. For a copy of the Discussion Draft of the bill, please see http://www.house.gov/apps/list/press/financialsvcs_dem/frank_158_xml.pdf.

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Consumer Finance

Federal Court Certifies FCRA Firm Offer Class. A federal district court in the Seventh Circuit recently certified a class in a Fair Credit Reporting Act (FCRA) case in which the plaintiffs have alleged that a lender failed to provide consumers with a “firm offer of credit” within the meaning of FCRA after accessing their credit reports without their consent. Stawski v. Secured Funding Corp., 2008 WL 647024, No. 06-0918 (E.D. Wis. Mar. 6, 2008). The court deemed the defendant to have admitted all of the allegations in the plaintiff’s complaint because it found the defendant in default. The consumer plaintiffs moved to certify a class including all persons residing in Milwaukee County, Wisconsin, who had their consumer credit reports accessed by Secured Funding, the lender, for the purpose of sending the solicitation letter attached to the plaintiff’s complaint. The court found that the class met Rule 23’s requirements for class certification. In finding that the questions of law or fact common to the members of the class predominated over any questions effecting only individual members, the court noted that “[w]hen determining whether the mailing constitutes a ‘firm offer of credit,’ the court need look no further than the terms and conditions in the mailing itself, whether the terms offered in the mailing have sufficient value to the recipients to justify the creditor accessing their consumer credit report, and whether the terms were honored when recipients accepted the offer.” After noting that the mass-mailing solicitations likely did not vary substantially from borrower to borrower, the court quoted Murray v. GMAC Mortg. Corp., 434 F.3d 948 (7th Cir. 2006) (reported in InfoBytes, Jan. 20, 2006), which stated that class actions were appropriate when “the potential recovery is too slight to support individual suits, but injury is substantial in aggregate.” For a copy of this opinion, please see http://www.buckleykolar.com/documents/StawskivSecuredFundingCorp.pdf.

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Litigation

Defaulted Debt Purchaser Not Required to Obtain NYC Collection Agency License. On March 5, a federal district court in New York held that a defaulted debt purchaser was not required to obtain a New York City collection agency license to be a plaintiff in a debt collection suit. See Kuhne v. Cohen & Slamowitz, LLP, 2008 WL 608607, No. 07 Civ. 1364(HB) (S.D.N.Y. Mar. 5, 2008). Midland Funding NCC-2 Corp., a purchaser of defaulted consumer debts, was a plaintiff in an action to recover a debt it owned from a consumer. Subsequently, the consumer sued Midland, alleging that the debt collection suit violated the federal Fair Debt Collection Practices Act (FDCPA) and New York state law because Midland did not have a New York City collection agency license. The court held that Midland did not require a license, reasoning that, with respect to the consumer’s debt, Midland’s licensed affiliate carried out all debt collection activities, and Midland’s legal counsel – also a licensed collection agency – prosecuted the debt collection suit. According to the court, “[t]o require [Midland] to be licensed, when it had no direct contact with the consumer, would run afoul of the purpose of the New York City licensing statute and the FDCPA, which are aimed at preventing abusive collection practices.” The court therefore granted Midland’s motion for summary judgment. For a copy of the opinion, please see http://www.buckleykolar.com/documents/KuhnevCohenSlamowitzLLP.pdf.

Court Refuses to Apply Discovery Rule Tolling to TILA Claim. A federal court in New York followed the lead of every Circuit Court of Appeals to decide the issue, ruling that the one-year statute of limitations in the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq., begins to run on claims arising from open-ended loans when the first finance charge is imposed. McAnaney v. Astoria Fin. Corp., 2008 WL 222524, No. 04-CV-1101 (E.D.N.Y., Jan. 25, 2008). The plaintiffs brought their TILA claims as a class action, alleging that the defendant financial institutions charged unauthorized fees when the plaintiffs satisfied their loans. Having previously certified a class of similarly-situated borrowers, the court granted summary judgment against the representative plaintiffs on statute of limitations grounds. The plaintiffs moved for reconsideration, arguing that the court incorrectly applied the limitations test for closed-end loans to their claims, which were based on open-ended home equity loans. Even though it was the plaintiffs who had consistently characterized their loans as “closed-ended,” the court agreed to reconsider the summary judgment decision. Nonetheless, the court found that the representative plaintiffs’ claims were time-barred, rejecting their argument that the “discovery rule” should apply to the limitations period for open-ended lines of credit; that is, the limitations period should begin to run only when the borrower has notice of the TILA violation. Instead, the Court followed the overwhelming majority of cases that calculate the TILA one-year limitations period for open-ended lines of credit from the date that the first finance charge is imposed. In the case of the representative plaintiffs, the first finance charge was imposed about a month after the loan closed and over 21 months before the plaintiffs filed suit. The court also held that the representative plaintiffs’ claims would be time-barred even if the discovery rule controlled, as the defendants disclosed the fact that they might be charging the fees at issue when the loan closed, and therefore the plaintiffs were on notice of their claims then. For a copy of this opinion, please see http://www.buckleykolar.com/documents/McAnaneyvAstoriaFinancialCorp.pdf.

Federal District Court Certifies Class in FACTA Case. In a case brought under the Fair Credit Reporting Act (FCRA), as amended by the Fair and Accurate Credit Transactions Act (FACTA), a federal district court certified a class consisting of “all persons in Illinois to whom United Retail provided an electronically printed receipt at the point of sale or transaction, in a transaction occurring after December 4, 2006, which receipt displays either (a) more than the last five digits of the persons credit card or debit number, and/or (b) the expiration date of the person’s credit or debit card.” Matthews v. United Retail, Inc., 2008 WL 618960, No. 07-C-2487 (N.D. Ill. Mar. 5, 2008). The consumer plaintiff alleges that United Retail unlawfully printed more than the last five digits of the card number and/or the expiration date on receipts provided to debit and credit card holders transacting business with United Retail, in willful violation of the FCRA, as amended by the FACTA. Finding that Rule 23’s elements were satisfied, the court certified the proposed class. Citing Murray v. GMAC Mortgage Corp., 434 F.3d 948, 953 (7th Cir. 2006) (reported in InfoBytes, Jan. 20, 2006), the court found that the class counsel satisfied the adequacy standard with respect to all proposed class members – including those who suffered “actual damages” – even though the plaintiff only sought statutory damages. It reasoned that requiring class counsel to seek actual damages for each individual class member would be unmanageable due to the likely small value of the individual class members’ actual damages, and class members with individual claims could opt out of the class to pursue their claims. Quoting Murray, the court further found that “FACTA claims are especially well-suited to resolution in a class action where, as here, ‘potential recovery is too slight to support individual suits, but injury is substantial in the aggregate.’” The court noted that the potential for a very large damage award does not affect its Rule 23 analysis, as unconstitutionally excessive damages awards may be reduced after a class has been certified. Finally, the fact that United Retail was now in compliance with the FACTA requirements and that it did not benefit from its alleged violations, did not negate that the plaintiff had properly move for class certification. For a copy of this decision, please see http://www.buckleykolar.com/documents/MatthewsvUnitedRetail.pdf.

Appellate Court Affirms Legitimacy of Lender’s Interest Calculation Method. The California Court of Appeal has affirmed a lower court’s holding that the defendant’s practice of charging interest in equal monthly portions, even when the number of days in a month varies, is permissible. Puentes v. Wells Fargo Home Mortgage, Inc., No. D049800 (Cal. Ct. App., Feb. 28, 2008). In this case, the plaintiff borrowers received a fixed-rate mortgage loan from defendant Wells Fargo Home Mortgage in mid-August 2002. The plaintiffs, on March 14, 2003 (only seven months after origination), prepaid the principal balance. Pursuant to the terms of the loan documents, Wells Fargo charged the borrowers for 30.4 days of interest in February 2003, based on its practice of dividing the year into equal “unit-periods.” The borrowers sued under California’s Unfair Competition Law (UCL), claiming that Wells Fargo violated the UCL by charging a fictional 30.4-day month (which resulted in these borrowers being charged for 182.4 days of interest, even though only 181 days had passed since consummation), while the UCL requires per-diem interest calculations for all 365 days of a year. The trial court granted summary judgment in favor of Wells Fargo, and the appellate court affirmed. The court noted that Regulation Z requires all months to be considered equal, and the court emphasized that the UCL precludes action on a practice that is clearly permitted under another law. Further, the court noted that, under certain circumstances, the plaintiffs would have been under-charged for interest (such as if they paid off their loan at the end of January). The court also noted that, based on the expert and industry statements in the record, Wells Fargo’s practice is used by approximately 99% of mortgage lenders and facilitates secondary-market transactions. For a copy of this opinion, please see http://www.buckleykolar.com/documents/PuentesvWellsFargoHomeMortgage.pdf.

Mortgage Servicer Not a Debt Collector Under FDCPA. A U.S. magistrate judge in Ohio ruled that a mortgage servicer did not violate the Fair Debt Collection Practices Act (FDCPA) when it took steps to collect past-due payments for a mortgage it was servicing. Martin v. Select Portfolio Serving Holding Corp., 2008 WL 618788, No. 05-273 (S.D. Ohio Mar. 3, 2008). In this case, the plaintiffs claimed that Select Portfolio Servicing (SPS) violated the FDCPA in several ways, including using false or deceptive representations in collecting a debt and making repeated, harassing phone calls. First, the court noted that SPS was not a “debt collector” for purposes of the FDCPA because (i) mortgage servicers who do not own a loan, but service the loan, are treated as “creditors” and not “debt collectors”; (ii) if the servicer acquires the debt, so long as the debt was assigned for servicing before the loan went into default, the servicer is not a “debt collector”; (iii) SPS did not treat the loan as a debt in default when it was acquired; and (iv) self-identification as a debt-collector and statements such as “this is an attempt to collect a debt” did not make SPS a debt collector under the FDCPA. In addition, the court found that, even if SPS were a debt collector subject to the FDCPA, there was insufficient evidence to support granting relief under the FDCPA. Specifically, the court held that there is no actionable claim for fraud under the FDCPA just because SPS failed to timely record the mortgage assignment, and the plaintiffs failed to show evidence sufficient to find that SPS’s collection practices were abusive. For a copy of this case, please see http://www.buckleykolar.com/documents/MartinvSelectPortfolioServicingHoldingCorp.pdf.

Federal Court Certifies FCRA Firm Offer Class. A federal district court in the Seventh Circuit recently certified a class in a Fair Credit Reporting Act (FCRA) case in which the plaintiffs have alleged that a lender failed to provide consumers with a “firm offer of credit” within the meaning of FCRA after accessing their credit reports without their consent. Stawski v. Secured Funding Corp., 2008 WL 647024, No. 06-0918 (E.D. Wis. Mar. 6, 2008). The court deemed the defendant to have admitted all of the allegations in the plaintiff’s complaint because it found the defendant in default. The consumer plaintiffs moved to certify a class including all persons residing in Milwaukee County, Wisconsin, who had their consumer credit reports accessed by Secured Funding, the lender, for the purpose of sending the solicitation letter attached to the plaintiff’s complaint. The court found that the class met Rule 23’s requirements for class certification. In finding that the questions of law or fact common to the members of the class predominated over any questions effecting only individual members, the court noted that “[w]hen determining whether the mailing constitutes a ‘firm offer of credit,’ the court need look no further than the terms and conditions in the mailing itself, whether the terms offered in the mailing have sufficient value to the recipients to justify the creditor accessing their consumer credit report, and whether the terms were honored when recipients accepted the offer.” After noting that the mass-mailing solicitations likely did not vary substantially from borrower to borrower, the court quoted Murray v. GMAC Mortg. Corp., 434 F.3d 948 (7th Cir. 2006) (reported in InfoBytes, Jan. 20, 2006), which stated that class actions were appropriate when “the potential recovery is too slight to support individual suits, but injury is substantial in aggregate.” For a copy of this opinion, please see http://www.buckleykolar.com/documents/StawskivSecuredFundingCorp.pdf.

Builder’s Lender Affiliate Agrees to Civil Fines, Restitution and Improved Lending Practices. Recently, the North Carolina Commissioner of Banks issued a Consent Order implementing a settlement agreement entered into between the Commissioner and Ryland Mortgage Company. Ryland Mortgage was charged with allowing unlicensed loan officers to originate loans and charging loan fees in excess of those permitted under North Carolina law. In his March 4 News Release, the Commissioner stated that, although “[b]uilders commonly provide an incentive to the buyer if the buyer gets a loan from the builders’ affiliated mortgage company,” sometimes the builder recoups the cost of the incentives indirectly through increased mortgage costs. In the Agreement, Ryland Mortgage did not admit any wrong-doing, but it agreed to pay the Commissioner civil fines of $161,000, to pay $8500 for investigative costs and expenses of the Commissioner, and to pay restitution to North Carolina homeowners in the amount of $220,851. Ryland further agreed to implement improved lending practices, including, among other things, the following: (i) charge rates and fees that do not exceed general mortgage industry standards; (ii) offer incentives for using Ryland Mortgage that are true discounts from the market price of the home; (iii) provide disclosure to applicants that reflects the specific discount offered for use of the Ryland Mortgage, separate from disclosures of other discounts and incentives; (iv) use at least three different, unaffiliated appraisers in each Ryland Homes development. For a copy of the Settlement Agreement and Consent Order, see http://www.buckleykolar.com/documents/InreRylandMortgageCompany.pdf.

Plaintiff Without Actual Monetary Damages Has Standing to Assert Claim Under FACTA. On March 4, a federal district court denied a defendant’s motion to dismiss in which the defendant claimed that the plaintiff lacked standing to assert claims under the Fair and Accurate Credit Transactions Act (FACTA), a part of the Fair Credit Reporting Act (FCRA), because the plaintiff had not suffered identity theft, and therefore no “injury in fact”. Miller v. Sunoco, Inc., Civ. No. 07-1456, 2008 WL 623806 (E.D. Pa. Mar. 4, 2008). The Plaintiff used his Visa card to purchase gas from the defendant, and the defendant provided a receipt that included the last four digits of the plaintiff’s credit card, as well as its expiration date. The Plaintiff alleges that this was a deliberate and willful violation of FACTA’s “truncation requirements,” which provide that “no person that accepts credit cards or debit cards for the transaction of business shall print more than the last 5 digits of a card number or the expiration date upon any receipt provided to the cardholder at the point of the sale transaction.” The defendant moved to dismiss the case, claiming that the plaintiff lacked standing because he did not suffer an “injury in fact” (i.e., actual monetary damages). The court held that a plaintiff does not need to demonstrate actual monetary damages if a statute conferring a private right of action has been violated. Because FACTA provides consumers a private right of action for willful non-compliance with its requirements, and FACTA “has created an unambiguous legal right to electronically printed receipts that truncate the consumer’s credit card number information,” the court found that the plaintiff had stated facts sufficient to confer standing. In response to the defendant’s claim that the amended compliant failed to allege that the defendant’s violation of FACTA was “knowing or reckless,” the court also found that the plaintiff had pled sufficient facts to preclude dismissal. Finally, the court dismissed the plaintiff’s request for injunctive relief, holding that the right to seek injunctive relief under the FCRA is reserved to the Federal Trade Commission. For a copy of this opinion, please see http://www.buckleykolar.com/documents/MillervSunoco.pdf.

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E-Financial Services

Federal District Court Certifies Class in FACTA Case. In a case brought under the Fair Credit Reporting Act (FCRA), as amended by the Fair and Accurate Credit Transactions Act (FACTA), a federal district court certified a class consisting of “all persons in Illinois to whom United Retail provided an electronically printed receipt at the point of sale or transaction, in a transaction occurring after December 4, 2006, which receipt displays either (a) more than the last five digits of the persons credit card or debit number, and/or (b) the expiration date of the person’s credit or debit card.” Matthews v. United Retail, Inc., 2008 WL 618960, No. 07-C-2487 (N.D. Ill. Mar. 5, 2008). The consumer plaintiff alleges that United Retail unlawfully printed more than the last five digits of the card number and/or the expiration date on receipts provided to debit and credit card holders transacting business with United Retail, in willful violation of the FCRA, as amended by the FACTA. Finding that Rule 23’s elements were satisfied, the court certified the proposed class. Citing Murray v. GMAC Mortgage Corp., 434 F.3d 948, 953 (7th Cir. 2006) (reported in InfoBytes, Jan. 20, 2006), the court found that the class counsel satisfied the adequacy standard with respect to all proposed class members – including those who suffered “actual damages” – even though the plaintiff only sought statutory damages. It reasoned that requiring class counsel to seek actual damages for each individual class member would be unmanageable due to the likely small value of the individual class members’ actual damages, and class members with individual claims could opt out of the class to pursue their claims. Quoting Murray, the court further found that “FACTA claims are especially well-suited to resolution in a class action where, as here, ‘potential recovery is too slight to support individual suits, but injury is substantial in the aggregate.’” The court noted that the potential for a very large damage award does not affect its Rule 23 analysis, as unconstitutionally excessive damages awards may be reduced after a class has been certified. Finally, the fact that United Retail was now in compliance with the FACTA requirements and that it did not benefit from its alleged violations, did not negate that the plaintiff had properly move for class certification. For a copy of this decision, please see http://www.buckleykolar.com/documents/MatthewsvUnitedRetail.pdf.

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Privacy/Data Security

Federal District Court Certifies Class in FACTA Case. In a case brought under the Fair Credit Reporting Act (FCRA), as amended by the Fair and Accurate Credit Transactions Act (FACTA), a federal district court certified a class consisting of “all persons in Illinois to whom United Retail provided an electronically printed receipt at the point of sale or transaction, in a transaction occurring after December 4, 2006, which receipt displays either (a) more than the last five digits of the persons credit card or debit number, and/or (b) the expiration date of the person’s credit or debit card.” Matthews v. United Retail, Inc., 2008 WL 618960, No. 07-C-2487 (N.D. Ill. Mar. 5, 2008). The consumer plaintiff alleges that United Retail unlawfully printed more than the last five digits of the card number and/or the expiration date on receipts provided to debit and credit card holders transacting business with United Retail, in willful violation of the FCRA, as amended by the FACTA. Finding that Rule 23’s elements were satisfied, the court certified the proposed class. Citing Murray v. GMAC Mortgage Corp., 434 F.3d 948, 953 (7th Cir. 2006) (reported in InfoBytes, Jan. 20, 2006), the court found that the class counsel satisfied the adequacy standard with respect to all proposed class members – including those who suffered “actual damages” – even though the plaintiff only sought statutory damages. It reasoned that requiring class counsel to seek actual damages for each individual class member would be unmanageable due to the likely small value of the individual class members’ actual damages, and class members with individual claims could opt out of the class to pursue their claims. Quoting Murray, the court further found that “FACTA claims are especially well-suited to resolution in a class action where, as here, ‘potential recovery is too slight to support individual suits, but injury is substantial in the aggregate.’” The court noted that the potential for a very large damage award does not affect its Rule 23 analysis, as unconstitutionally excessive damages awards may be reduced after a class has been certified. Finally, the fact that United Retail was now in compliance with the FACTA requirements and that it did not benefit from its alleged violations, did not negate that the plaintiff had properly move for class certification. For a copy of this decision, please see http://www.buckleykolar.com/documents/MatthewsvUnitedRetail.pdf.

Federal Court Certifies FCRA Firm Offer Class. A federal district court in the Seventh Circuit recently certified a class in a Fair Credit Reporting Act (FCRA) case in which the plaintiffs have alleged that a lender failed to provide consumers with a “firm offer of credit” within the meaning of FCRA after accessing their credit reports without their consent. Stawski v. Secured Funding Corp., 2008 WL 647024, No. 06-0918 (E.D. Wis. Mar. 6, 2008). The court deemed the defendant to have admitted all of the allegations in the plaintiff’s complaint because it found the defendant in default. The consumer plaintiffs moved to certify a class including all persons residing in Milwaukee County, Wisconsin, who had their consumer credit reports accessed by Secured Funding, the lender, for the purpose of sending the solicitation letter attached to the plaintiff’s complaint. The court found that the class met Rule 23’s requirements for class certification. In finding that the questions of law or fact common to the members of the class predominated over any questions effecting only individual members, the court noted that “[w]hen determining whether the mailing constitutes a ‘firm offer of credit,’ the court need look no further than the terms and conditions in the mailing itself, whether the terms offered in the mailing have sufficient value to the recipients to justify the creditor accessing their consumer credit report, and whether the terms were honored when recipients accepted the offer.” After noting that the mass-mailing solicitations likely did not vary substantially from borrower to borrower, the court quoted Murray v. GMAC Mortg. Corp., 434 F.3d 948 (7th Cir. 2006) (reported in InfoBytes, Jan. 20, 2006), which stated that class actions were appropriate when “the potential recovery is too slight to support individual suits, but injury is substantial in aggregate.” For a copy of this opinion, please see http://www.buckleykolar.com/documents/StawskivSecuredFundingCorp.pdf.

Plaintiff Without Actual Monetary Damages Has Standing to Assert Claim Under FACTA. On March 4, a federal district court denied a defendant’s motion to dismiss in which the defendant claimed that the plaintiff lacked standing to assert claims under the Fair and Accurate Credit Transactions Act (FACTA), a part of the Fair Credit Reporting Act (FCRA), because the plaintiff had not suffered identity theft, and therefore no “injury in fact”. Miller v. Sunoco, Inc., Civ. No. 07-1456, 2008 WL 623806 (E.D. Pa. Mar. 4, 2008). The Plaintiff used his Visa card to purchase gas from the defendant, and the defendant provided a receipt that included the last four digits of the plaintiff’s credit card, as well as its expiration date. The Plaintiff alleges that this was a deliberate and willful violation of FACTA’s “truncation requirements,” which provide that “no person that accepts credit cards or debit cards for the transaction of business shall print more than the last 5 digits of a card number or the expiration date upon any receipt provided to the cardholder at the point of the sale transaction.” The defendant moved to dismiss the case, claiming that the plaintiff lacked standing because he did not suffer an “injury in fact” (i.e., actual monetary damages). The court held that a plaintiff does not need to demonstrate actual monetary damages if a statute conferring a private right of action has been violated. Because FACTA provides consumers a private right of action for willful non-compliance with its requirements, and FACTA “has created an unambiguous legal right to electronically printed receipts that truncate the consumer’s credit card number information,” the court found that the plaintiff had stated facts sufficient to confer standing. In response to the defendant’s claim that the amended compliant failed to allege that the defendant’s violation of FACTA was “knowing or reckless,” the court also found that the plaintiff had pled sufficient facts to preclude dismissal. Finally, the court dismissed the plaintiff’s request for injunctive relief, holding that the right to seek injunctive relief under the FCRA is reserved to the Federal Trade Commission. For a copy of this opinion, please see http://www.buckleykolar.com/documents/MillervSunoco.pdf.

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