InfoBytes, May 2, 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
- Credit Cards
Federal Issues
House Committee Passes FHA Housing Stabilization and Homeownership Retention Act. On May 1, the House Financial Services Committee approved the FHA Housing Stabilization and Homeownership Retention Act (H.R. 5830) (first reported in InfoBytes, April 18, 2008) by a bipartisan vote of 46 to 21. The legislation, authored by Committee Chairman Barney Frank, would expand the FHA program to help refinance at-risk borrowers into viable mortgages. This voluntary program would permit the FHA to provide up to $300 billion in new guarantees. In exchange for the acceptance of a substantial write-down of principal, the existing lender who chooses to participate would receive a “short payment” (i.e., a payment for less than the outstanding balance as payment in full) from the proceeds of a new FHA-guaranteed loan if the new loan would have terms that the borrower can reasonably be expected to pay and the borrower agrees to share future home appreciation with the government. 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 would pay off the discounted existing mortgage. The program would run for 2 years, with flexibility for additional 6 month extensions not to exceed 2 more years. The program will be overseen by a “Refinance Program Oversight Board” consisting of Treasury Secretary, the HUD Secretary, and Chairman of the Federal Reserve. H.R. 5830 would also (i) require the Federal Reserve Board to conduct a study on the need for an auction or bulk refinancing mechanism, (ii) authorize $210 million dollars for foreclosure counseling, (iii) establish within HUD an Office of Housing Counseling that will conduct activities relating to homeownership and rental housing counseling; (iv) authorize appropriations of $31.25 million to hire additional FBI agents and Department of Justice prosecutors to combat mortgage fraud, and $750,000 to support FBI interagency task forces in the areas with the 15 highest concentrations of mortgage fraud, (v) require enhanced appraisal standards and appraiser independence, and (vi) increase conforming loan limits for VA loans. The legislation now moves to the full House for consideration. For a copy of the bill, please contact .
FRB, OTS, and NCUA Announce Joint Proposed UDAP Rule for Credit Cards and Overdraft Fees. On May 2, the Federal Reserve Board (FRB), the Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA) issued a joint proposed rule prohibiting certain credit card and overdraft service practices as unfair and deceptive acts or practices. For credit cards, the rule would prohibit: (i) treating a payment as late unless consumers have been provided with a reasonable amount of time to make payment; (ii) allocating any amounts paid in excess of the minimum payment in a manner that is not fair to consumers; (iii) increasing the annual percentage rate on an outstanding balance unless certain exceptions apply (for example, if a variable rate increases as a result of the index, or a promotional rate has expired); (iv) assessing a fee if a consumer exceeds the credit limit on an account solely due to a hold placed on the available credit – unless the amount of the transaction would also have exceeded the credit limit; (v) “double cycle billing”—computing finance charges on outstanding balances based on balances in the current billing cycle as well as preceding billing cycles; (vi) charging to the credit card account fees or security deposits for the issuance or availability of credit if those fees or deposits utilize the majority of the available credit on the account; and (vii) failing to disclose in a firm offer of credit the factors that determine whether a consumer will qualify for the most favorable APR and credit limit. For overdraft protection, the rule would disallow overdraft fees (i) unless institutions provide a consumer with the right to opt out of having overdrafts paid by the institution, or (ii) if the overdraft is caused solely by a hold on funds that exceeds the actual purchase amount of the transaction, unless this purchase amount would have also caused the overdraft. Upon publication in the Federal Register, the joint proposed rules will be open for public comment for 75 days. For a copy of the FRB, OTS and NCUA press releases, please see http://www.federalreserve.gov/newsevents/press/bcreg/20080502a.htm, http://www.ots.treas.gov/docs/7/778014.html, and http://www.ncua.gov/news/press_releases/2008/MR08-0501.html, respectively.
Dodd Proposes Comprehensive Credit Card Bill. On April 30, Senator Christopher Dodd (D-CT) introduced the Credit Card Accountability, Responsibility and Disclosure Act (the CARD Act), in order to reform the credit card industry. The bill would: (i) increase the authority of the federal agencies to prescribe regulations for credit card issuers; (ii) prohibit “any-time, any-reason” increases in interest rate and terms; (iii) mandate the application of monthly payments in a manner benefiting consumers; (iv) ban double-cycle billing and require efficient crediting of accounts; (v) disallow charging interest on late and over-limit fees and prohibit charging certain fees, such as multiple over-limit fees; (vi) require enhanced disclosures to consumers; and (vii) limit credit card offers to individuals under the age of 21. For a summary of this bill’s provisions, please see http://banking.senate.gov/public/_files/OnePageSummary.pdf.
FTC Testifies Before Senate Committee Regarding Subprime Mortgage Issues. On April 29, the Federal Trade Commission (FTC) testified before a subcommittee of the United States Senate Committee on Commerce, Science, and Transportation. The FTC discussed its work with regard to subprime mortgages, including several lawsuits and actions against subprime mortgage lenders and investigations of more than a dozen mortgage companies for issues relating to deceptive mortgage advertisements. The FTC also indicated that it was focusing on foreclosure rescue scams in order to aid in protecting consumers. For a copy of the FTC press release, please see http://www.ftc.gov/opa/2008/04/subprime.shtm.
FTC Seeks Injunctive Relief Against Foreclosure Solutions, LLC. On April 29, the Federal Trade Commission (FTC) filed a complaint against Foreclosure Solutions, LLC, seeking an injunction and other relief from the company to prevent it from advertising or selling mortgage foreclosure rescue services. The complaint alleges that Foreclosure Solutions, LLC and its owner advertised and sold these services and then failed to provide much, if any, relief to consumers who purchased the services. The complaint alleges that these activities constitute a violation of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices that affect commerce. For a copy of the FTC complaint, please see http://www.ftc.gov/os/caselist/0723131/080428complaint.pdf.
State Issues
Massachusetts Law Requires 90-Day Moratorium on Foreclosures. On May 1, a provision of Massachusetts H.B. 4387 takes effect (enacted as Chapter 206 of the Acts of 2007, effective November 29, 2007), establishing a 90-day right to cure a default on residential mortgage loans. The bill prohibits mortgagees or mortgage holders from proceeding with a foreclosure until at least 90 days after the date a written notice is given by the mortgagee to the mortgagor. The previous law required only 30 days notice. This new requirement applies to all mortgages of residential real property located in Massachusetts consisting of a 1-4 household dwelling occupied in whole or in part by the mortgagor and which secures a loan before, on, or after November 29, 2007. H.B. 4387 also creates a licensing requirement for mortgage loan originators engaged in residential mortgage loan origination in Massachusetts. The mortgage loan originator licensing requirement goes into effect on July 1, 2008. For a copy of the bill, please see http://www.mass.gov/legis/laws/seslaw07/sl070206.htm.
Ohio Adopts Regulations for Second Mortgage Loans Act. The Ohio Division of Financial Institutions has adopted new regulations regarding the Second Mortgage Loans Act. The rules clarify definitions under the act, modify the record keeping requirements for licensees, create restrictions and requirements on loan origination activities, provide for ongoing disclosure requirements by licensees, and create requirements regarding foreclosure and loss mitigation. The rules become effective on July 1, 2008. For a copy of the new rules, please contact .
Virginia Governor Approves Bills Regarding Mortgage Lending and Servicing. On April 23, Virginia Governor Timothy Kaine signed two bills to amend the Mortgage Lender and Broker Act and to address rising foreclosures. The first bill, H.B. 1487, amends the Mortgage Lender and Broker Act in a number of ways. Some of the changes include (i) removing the requirement that mortgage loans subject to the Lender and Broker Act be owner-occupied, (ii) requiring criminal background checks for certain employees of a license applicant, (iii) requiring licensees to conduct background checks on certain employees, and (iv) requiring that licensees ensure that their employees are properly educated regarding state and federal mortgage lending laws and regulations. The second bill, S.B. 797, requires “high-risk” mortgage lenders or servicers to provide written notice of an intent to accelerate the loan balance. This notice must be sent 10 business days prior to sending a notice of acceleration. If borrowers, prior to acceleration, indicate that they wish to avoid foreclosure, the lender or servicer must give a 30-day forbearance period. Both bills are effective July 1, 2008. For more information on these bills, please see http://leg1.state.va.us/cgi-bin/legp504.exe?ses=081&typ=bil&val=hb1487 and http://leg1.state.va.us/cgi-bin/legp504.exe?ses=081&typ=bil&val=SB797.
Tennessee Governor Approves Bill To Amend Residential Lending, Brokerage and Servicing Act. On April 29, Tennessee Governor Phil Bredesen signed S.B. 4160 to amend and add various provisions to the Tennessee Residential Lending, Brokerage and Servicing Act of 1988. Among other things, the new law: (i) requires applicants for a license as a mortgage lender, mortgage loan broker, mortgage loan servicer, or mortgage loan originator to complete an educational training course; (ii) authorizes the Tennessee Commissioner of Financial Institutions to require continuing education of licensees and registrants as a condition of license and registration; (iii) requires criminal background checks for mortgage lender, mortgage loan broker, mortgage loan servicer, or mortgage loan originator applicants, and for registered mortgage loan originators seeking to continue registration; (iv) authorizes the Commissioner to suspend or revoke any mortgage loan originator registration certificate if the Commissioner finds, after notice and hearing, that the mortgage loan originator engaged in certain prohibited activities, such as accepting fees at closing that were not disclosed; and (v) authorizes the Commissioner to participate in the establishment and implementation of a multi-state automated licensing system. Provisions of the new law that provide for promulgating rules and regulations became effective on April 29. Most other provisions become effective January 1, 2009. For the full text of S.B. 4160, please see http://www.legislature.state.tn.us/bills/currentga/BILL/SB4160.pdf.
Minnesota Governor Approves Bill Amending Mortgage Lending Definitions, Record Keeping Requirements. On April 25, Minnesota Governor Tim Pawlenty signed S.F. 3214. This bill expands the definition of “residential mortgage loan” under the Residential Mortgage Originator and Servicer Licensing Act (the “Act"), removing the stipulation that a “residential mortgage loan” includes only loans “made primarily for personal, family, or household use.” The bill expands the Act to include commercial loans secured by 1-4 family residential real estate. The bill also expands the definition of “residential real estate” to include non-owner-occupied property, and extends certain record-retention requirements from 26 to 60 months. The bill becomes effective on August 1, 2008. For a copy of the text of the bill, please see https://www.revisor.leg.state.mn.us/bin/bldbill.php?bill=S3214.1.html&session=ls85.
Minnesota Governor Approves Bill on Borrower Repayment Ability Analysis. On April 25, Minnesota Governor Tim Pawlenty signed S.F. 3154. This bill details the manner in which mortgage originators may evaluate a borrower’s ability to repay a loan. Specifically, mortgage originators may evaluate such ability to repay by verifying such factors as, among others, (i) current and expected income, (ii) current and expected cash flow, (iii) current financial obligations, (iv) employment status, (v) property taxes and insurance, (vi) debt-to-income ratio, and (vii) and credit scores. The bill becomes effective August 1, 2008. For a copy of the bill, please see https://www.revisor.leg.state.mn.us/bin/bldbill.php?bill=S3154.0.html&session=ls85.
Massachusetts Proposes Regulatory Bulletin Regarding Satisfactory Credit History for Licensure. The Massachusetts Division of Banks recently released proposed Regulatory Bulletin 5.2-102, which provides guidelines on the proper use of an applicant’s personal financial history in determining whether the applicant meets the financial responsibility requirement for obtaining a particular license. The proposed guidelines, which apply to every license the Division supervises, including mortgage lenders and mortgage originators, would be used during the Division’s review of individual licensees as well as the control persons and branch managers of an applicant company. Implementation of the Bulletin will require every qualifying individual to submit a credit report, current within 30 days of the application date, to the Division. The proposed guidelines will assist Division staff in determining how to treat particular elements in an individual’s credit report, like adverse credit information, when determining the financial responsibility of the individual. The Bulletin encourages potential applicants to use the guidelines to assess the sufficiency of their financial history in connection with the financial responsibility requirement. The Division is accepting comments on the proposed Bulletin until May 23, 2008. For a copy of the full text of the Bulletin, please see http://www.buckleykolar.com/documents/MARegBulletin52-102.pdf.
Ohio Division of Financial Institutions Issues Letter Regarding Electronic Payment Fees. The Ohio Division of Financial Institutions recently issued a letter, Mortgage Brokers & Lenders Letter 2008-3 (April 11, 2008), regarding the permissibility of electronic payment (speed pay) fees. The letter states that a mortgage lender may charge a speed pay fee if (a) the speed pay service is optional and is offered on an as needed basis; (b) speed pay is not the exclusive product for obtaining electronic or other speed payments and the consumer is informed of such; and (c) the fee is charged in lieu of a late fee and in an amount that is the lesser of the statutory late fee or $10. The letter requires registrants and licensees to review their procedures to ensure compliance with the current state law prohibiting additional fees as it relates to providing and collecting fees for electronic and other speed pay options and requires registrants and licensees to adjust their policies and practices accordingly to conform to the letter. The letter also serves to remind mortgage lenders that they are required to act in good faith and fair dealing when they present loan products and financing options to consumer borrowers. For a copy of the Mortgage Brokers & Lenders Letter 2008-3, please see http://www.com.state.oh.us/dfi/pub/cnfn_letter2008-3.pdf.
Washington Attorney General Settles Suit Against Foreclosure Rescue Company. On April 21, the Washington State Attorney General’s Office announced a settlement agreement with Foreclosure Assistance Solutions, LLC (FAS) in connection with claims of violating the state’s Consumer Protection Act, Credit Services Organization Act and Commercial Telephone Solicitation Act. Attorney General Rob McKenna alleged that FAS used coercive tactics to pressure consumers into paying for a service they really couldn’t afford and then doing little or nothing to actually help those consumers save their homes. According to the state’s complaint, FAS sent letters and postcards to consumers whose homes were in foreclosure instructing the consumers to call the company for help. Homeowners who paid for the service, which ranged from $1,200 to $1,500, were then presented with a contract that prohibited them from contacting the mortgage lender. In settling the state’s claims, FAS did not admit to any wrongdoing but agreed to pay $78,125 in restitution to Washington consumers, which represents a partial refund of the amount paid by consumers expecting their homes to be saved from foreclosure, as well as $20,000 in attorney fees. The restitution will be paid to approximately 200 consumers, who will receive $300-$500 each. The settlement also includes injunctive provisions limiting how the company does business, should it offer services again in the future, as well as an additional $100,000 in civil penalties for failure to comply with the agreement. For a copy of the consent decree, please see http://www.buckleykolar.com/documents/WAConsentDecree.pdf.
Courts
FCRA Furnisher Lawsuit Dismissed. A federal court in Utah dismissed a borrower’s Fair Credit Reporting Act (FCRA) claim, finding that the credit card company had no duty to investigate and correct erroneous information contained on a credit report unless it receives notice of a dispute from one of the credit reporting agencies (CRA). Greene v. Capital One Bank, 2008 WL 1858882, No. 2:07-cv-687-TS (D. Utah April 23, 2008). This lawsuit stemmed from the settlement of a credit card debt. According to the allegations in the complaint, some time after the settlement the borrower learned that the bank was erroneously reporting a write-off of the settled debt. The borrower allegedly contacted both the CRAs and the bank to dispute the report. A CRA responded that the bank had verified the information reported. The borrower sued in small claims court for breach of contract and defamation, obtaining a default judgment against the bank. After the borrower was subsequently denied auto financing, he brought FCRA and common law defamation claims against the bank, which moved to dismiss both claims. The court agreed with the bank on the FCRA claim, finding that the borrower failed to allege that the bank received notice of the dispute from a CRA – the statutory trigger for the duty to investigate and correct erroneous reporting. Furthermore, even if the borrower had included such an allegation, the breach alleged by the borrower had already been resolved by the small claims court default judgment. The court allowed the defamation claim to proceed, however, albeit in state court, finding that the borrower properly alleged “willful or malicious intent to injure,” which would remove such a claim from the preemption afforded by FCRA. For a copy of the opinion, please see http://www.buckleykolar.com/documents/GreenvCapitalOneBank.pdf.
Chapter 13 Debtor Granted Standing to Sue. The U.S. Court of Appeals for the Tenth Circuit recently held that a debtor who files for bankruptcy under Chapter 13 has standing to sue for a Fair Debt Collections Practices Act (FDCPA) claim. Smith v. Rockett, No. 06-6331 (10th Cir. Apr. 11, 2008). The district court had dismissed the FDCPA claim holding that only the bankruptcy trustee has standing to sue on behalf of the estate, as in Chapter 7 proceedings. However, the Tenth Circuit, agreeing with the four circuit courts that have considered this issue, reversed the district court’s ruling. In holding that a Chapter 13 debtor has standing to bring claims in his or her own name on behalf of the bankruptcy estate, the court found that in a Chapter 13 case, unlike a Chapter 7 case, the debtor remains in possession of the estate, the duties of a Chapter 13 trustee differ from those of a Chapter 7 trustee, and a Chapter 13 debtor has many of the same rights and powers as a Chapter 7 trustee. The court further indicated that the Chapter 13 debtor’s standing to sue is supported by the legislative history of Chapter 13. However, the court did note that the underlying bankruptcy claim was dismissed with prejudice soon after her complaint was filed in this case. While the defendants claimed that the dismissal of the bankruptcy case precluded any further bankruptcy proceedings, the court stated that this issue should be considered by the bankruptcy court on remand. In remanding the case to the bankruptcy court, the Tenth Circuit stated that “the bankruptcy court should determine whether it would be permissible and appropriate to reopen Plaintiff’s bankruptcy case.” The court also noted that the bankruptcy court may determine “whether sanctions would be appropriate for Plaintiff’s alleged failure to disclose these causes of action in her bankruptcy schedule.” Finally, the court stated that if the bankruptcy court determines that it should not reopen the case, the district court should determine whether the plaintiff permanently lost her causes of action because of her failure to properly list them on the bankruptcy schedule. For a copy of this decision, please see http://www.buckleykolar.com/documents/SmithvRockett.pdf.
Court Dismisses FDCPA, FCRA, and RESPA Claims Against Mortgage Servicer. On April 22, a federal district court in Pennsylvania dismissed several claims brought by a borrower against a mortgage servicer. See Jones v. Select Portfolio Servicing, Inc., 2008 WL 1820935, No. 08-972 (E.D. Pa. Apr. 22, 2008). The borrower alleged that a payoff statement sent to her by the servicer “included charges for various unknown or improperly identified items,” and that the servicer failed to adequately explain these charges. The borrower brought a class action complaint against the servicer, alleging (among other things) that the servicer violated the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Real Estate Settlement Procedures Act (RESPA). According to the court, the borrower failed to state a FDCPA claim because she did not allege that the loan was in default at the time the servicer began servicing it (i.e., that the servicer was a “debt collector”). The FCRA claim – alleging violations of FCRA’s furnisher requirements – failed because the complaint did not allege that the borrower “disputed any information to the credit reporting agency, or that [the servicer] received notice of any such dispute.” Finally, regarding the allegation that the servicer violated RESPA’s servicing requirements, the complaint acknowledged that the servicer complied with its obligations to timely respond to the borrower’s written request for information. In addition, the complaint failed to allege any specific damage suffered by the borrower. The borrower’s breach of contract claim, however, survived the motion to dismiss. For a copy of the opinion, please see http://www.buckleykolar.com/documents/JonesvSelectPortfolioServicing.pdf.
California Banks Not Liable to a Non-Customer for Identity Theft. On April 24, the California Second Appellate District, District One, held that a bank could not be held liable to a non-customer for identity theft perpetrated in the non-customer’s name. Rodriguez v. Bank of the West, et al., B198553 (Cal. Ct. App. Apr. 24, 2008). The case involved an attorney, Stephen Rodriguez, whose office manager opened accounts in Mr. Rodriquez’s name at two California banks. The office manager then used those accounts to misappropriate client funds and to engage in fraudulent activity using Mr. Rodriguez’s personal information. Mr. Rodriguez sued the office manager and both banks, claiming that he was a “putative customer” of the banks. The court explained that because Mr. Rodriguez was not an actual customer and thus did not have contractual relationships with the banks, he could not sue them for negligence since the banks owed no duty of care to Mr. Rodriguez. For a copy of the opinion, please see http://www.buckleykolar.com/documents/RodriguezvBankoftheWest.pdf.
Court Approves Settlement of FACTA Truncation Class Action Case. On April 22, a federal district court in Pennsylvania approved the proposed settlement of a case arising under the “truncation” requirements of the Fair and Accurate Credit Transactions Act (FACTA). Palamara v. Kings Family Restaurants, 2008 WL 1818453, No. 07-317 (W.D. Pa. Apr. 22, 2008). The defendant restaurant printed on its receipts the expiration dates of customer credit and debit cards in violation of FACTA. The parties agreed to mediation and eventually to settle the claims. Under the terms of the settlement, the plaintiffs—none of whom suffered any actual monetary injury as a result of the violation—may claim coupons for free food at the restaurant (each plaintiff could choose one out of four different coupons for items from the menu, each valued at about $4.50), and class counsel will receive $75,000. Following prior court of appeals’ jurisprudence, the court used a list of factors to determine the reasonableness of both the proposed settlement and the proposed attorney fee award, and found both to be fair and reasonable. For a copy of this case, please see http://www.buckleykolar.com/documents/PalamaravKingsFamilyRestaurants.pdf.
Bankruptcy Court Sanctions Law Firms and Lenders With Fines for False Claims. On April 29, a Federal Bankruptcy Court for the District of Massachusetts sanctioned two law firms, Buchalter Nemer and Ablitt & Charlton, and a name partner, Robert Charlton, a total of $150,000 for incorrectly claiming that their client, Ameriquest, owned a mortgage that had in fact been reassigned at least twice. The heavy fines were ordered after the court found that one of the law firm’s had information in a client file that contradicted this claim. The court also imposed $500,000 in sanctions against two lenders, Ameriquest and Wells Fargo, concerning a rule to show cause in connection with the case. Although two associates also signed documents saying that Ameriquest owned the mortgage at issue, they were not fined. The judge, however, warned that in the future, the court expects associates to be cognizant of and fulfill their responsibilities under Federal Rule of Bankruptcy 9011. For a copy of the court order, please contact .
Firm News
Joseph Kolar, Jeffrey Naimon, and Margo Tank spoke at the Mortgage Bankers Association’s Legal Issues and Regulatory Compliance Conference held April 28-May 1 in Carlsbad, California. Mr. Kolar spoke on a panel entitled, “Conversations with Key Industry and Advocacy Leaders – Where Do We think the Regulatory Industry is Headed and How We Should Prepare.” Mr. Naimon’s speech was entitled, “The Rise and Fall (Hopefully) of the Disparate Impact Theory of Fair Lending Liability.” Ms. Tank’s speech was entitled, “Legal Issues in Mortgage Technology.” For more conference information, please see http://events.mortgagebankers.org/legalissues2008/default.html.
Christa Southworth wrote an article for the May issue of Mortgage Banking Magazine. The article is entitled, “No Assignment, No Foreclosure?” For more information, please see http://www.mortgagebankingmagazine.com.
Richard DiSalvo will moderate a workshop at the Annual Payment Card Institute May 6, in Arlington, Virginia. The workshop is entitled, “Solicitation Dos and Don’ts.” For more information, please see http://www.eeiconferences.com/pmtcard.htm.
Bob Serino will be speaking at the National Institute on Banking Law II: Risk as the Centerpiece of Bank Regulation seminar being held May 8-9 in Chicago, Illinois. Mr. Serino’s speech is entitled, “Anti-money Laundering and Bank Secrecy.” For more information or to register, please see www.abanet.org/cle/programs/n08bla1.html.
Jerry Buckley, Margo Tank, and Lane Macalester will be speaking at the Managing Electronic Records (MER) Conference on May 19-21 in Chicago, Illinois. Their panel entitled, “Legal Considerations for Conducting Business Electronically: Practical Guidance,” will focus on how the Electronic Signatures and Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA) now make it possible to present and store information and to sign agreements electronically in circumstances where, in the past, paper documents and wet signatures would have been required. Mr. Buckley, Ms. Tank, and Ms. Macalester will discuss the new challenges presented and provide practical guidance to the industry. For more information or to register, please visit www.merconference.com.
Joseph Kolar will be speaking at the Mealey’s Subprime Mortgage Litigation & Insurance Coverage Conference on June 20 in Washington, DC. Mr. Kolar’s presentation is entitled, “The New Structure of the Mortgage Lending Industry.” For more information or to register, please see http://bookstore.lexis.com/bookstore/product/69880t.html.
Mortgages
House Committee Passes FHA Housing Stabilization and Homeownership Retention Act. On May 1, the House Financial Services Committee approved the FHA Housing Stabilization and Homeownership Retention Act (H.R. 5830) (first reported in InfoBytes, April 18, 2008) by a bipartisan vote of 46 to 21. The legislation, authored by Committee Chairman Barney Frank, would expand the FHA program to help refinance at-risk borrowers into viable mortgages. This voluntary program would permit the FHA to provide up to $300 billion in new guarantees. In exchange for the acceptance of a substantial write-down of principal, the existing lender who chooses to participate would receive a “short payment” (i.e., a payment for less than the outstanding balance as payment in full) from the proceeds of a new FHA-guaranteed loan if the new loan would have terms that the borrower can reasonably be expected to pay and the borrower agrees to share future home appreciation with the government. 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 would pay off the discounted existing mortgage. The program would run for 2 years, with flexibility for additional 6 month extensions not to exceed 2 more years. The program will be overseen by a “Refinance Program Oversight Board” consisting of Treasury Secretary, the HUD Secretary, and Chairman of the Federal Reserve. H.R. 5830 would also (i) require the Federal Reserve Board to conduct a study on the need for an auction or bulk refinancing mechanism, (ii) authorize $210 million dollars for foreclosure counseling, (iii) establish within HUD an Office of Housing Counseling that will conduct activities relating to homeownership and rental housing counseling; (iv) authorize appropriations of $31.25 million to hire additional FBI agents and Department of Justice prosecutors to combat mortgage fraud, and $750,000 to support FBI interagency task forces in the areas with the 15 highest concentrations of mortgage fraud, (v) require enhanced appraisal standards and appraiser independence, and (vi) increase conforming loan limits for VA loans. The legislation now moves to the full House for consideration. For a copy of the bill, please contact .
FTC Testifies Before Senate Committee Regarding Subprime Mortgage Issues. On April 29, the Federal Trade Commission (FTC) testified before a subcommittee of the United States Senate Committee on Commerce, Science, and Transportation. The FTC discussed its work with regard to subprime mortgages, including several lawsuits and actions against subprime mortgage lenders and investigations of more than a dozen mortgage companies for issues relating to deceptive mortgage advertisements. The FTC also indicated that it was focusing on foreclosure rescue scams in order to aid in protecting consumers. For a copy of the FTC press release, please see http://www.ftc.gov/opa/2008/04/subprime.shtm.
FTC Seeks Injunctive Relief Against Foreclosure Solutions, LLC. On April 29, the Federal Trade Commission (FTC) filed a complaint against Foreclosure Solutions, LLC, seeking an injunction and other relief from the company to prevent it from advertising or selling mortgage foreclosure rescue services. The complaint alleges that Foreclosure Solutions, LLC and its owner advertised and sold these services and then failed to provide much, if any, relief to consumers who purchased the services. The complaint alleges that these activities constitute a violation of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices that affect commerce. For a copy of the FTC complaint, please see http://www.ftc.gov/os/caselist/0723131/080428complaint.pdf.
Massachusetts Law Requires 90-Day Moratorium on Foreclosures. On May 1, a provision of Massachusetts H.B. 4387 takes effect (enacted as Chapter 206 of the Acts of 2007, effective November 29, 2007), establishing a 90-day right to cure a default on residential mortgage loans. The bill prohibits mortgagees or mortgage holders from proceeding with a foreclosure until at least 90 days after the date a written notice is given by the mortgagee to the mortgagor. The previous law required only 30 days notice. This new requirement applies to all mortgages of residential real property located in Massachusetts consisting of a 1-4 household dwelling occupied in whole or in part by the mortgagor and which secures a loan before, on, or after November 29, 2007. H.B. 4387 also creates a licensing requirement for mortgage loan originators engaged in residential mortgage loan origination in Massachusetts. The mortgage loan originator licensing requirement goes into effect on July 1, 2008. For a copy of the bill, please see http://www.mass.gov/legis/laws/seslaw07/sl070206.htm.
Ohio Adopts Regulations for Second Mortgage Loans Act. The Ohio Division of Financial Institutions has adopted new regulations regarding the Second Mortgage Loans Act. The rules clarify definitions under the act, modify the record keeping requirements for licensees, create restrictions and requirements on loan origination activities, provide for ongoing disclosure requirements by licensees, and create requirements regarding foreclosure and loss mitigation. The rules become effective on July 1, 2008. For a copy of the new rules, please contact .
Virginia Governor Approves Bills Regarding Mortgage Lending and Servicing. On April 23, Virginia Governor Timothy Kaine signed two bills to amend the Mortgage Lender and Broker Act and to address rising foreclosures. The first bill, H.B. 1487, amends the Mortgage Lender and Broker Act in a number of ways. Some of the changes include (i) removing the requirement that mortgage loans subject to the Lender and Broker Act be owner-occupied, (ii) requiring criminal background checks for certain employees of a license applicant, (iii) requiring licensees to conduct background checks on certain employees, and (iv) requiring that licensees ensure that their employees are properly educated regarding state and federal mortgage lending laws and regulations. The second bill, S.B. 797, requires “high-risk” mortgage lenders or servicers to provide written notice of an intent to accelerate the loan balance. This notice must be sent 10 business days prior to sending a notice of acceleration. If borrowers, prior to acceleration, indicate that they wish to avoid foreclosure, the lender or servicer must give a 30-day forbearance period. Both bills are effective July 1, 2008. For more information on these bills, please see http://leg1.state.va.us/cgi-bin/legp504.exe?ses=081&typ=bil&val=hb1487 and http://leg1.state.va.us/cgi-bin/legp504.exe?ses=081&typ=bil&val=SB797.
Tennessee Governor Approves Bill To Amend Residential Lending, Brokerage and Servicing Act. On April 29, Tennessee Governor Phil Bredesen signed S.B. 4160 to amend and add various provisions to the Tennessee Residential Lending, Brokerage and Servicing Act of 1988. Among other things, the new law: (i) requires applicants for a license as a mortgage lender, mortgage loan broker, mortgage loan servicer, or mortgage loan originator to complete an educational training course; (ii) authorizes the Tennessee Commissioner of Financial Institutions to require continuing education of licensees and registrants as a condition of license and registration; (iii) requires criminal background checks for mortgage lender, mortgage loan broker, mortgage loan servicer, or mortgage loan originator applicants, and for registered mortgage loan originators seeking to continue registration; (iv) authorizes the Commissioner to suspend or revoke any mortgage loan originator registration certificate if the Commissioner finds, after notice and hearing, that the mortgage loan originator engaged in certain prohibited activities, such as accepting fees at closing that were not disclosed; and (v) authorizes the Commissioner to participate in the establishment and implementation of a multi-state automated licensing system. Provisions of the new law that provide for promulgating rules and regulations became effective on April 29. Most other provisions become effective January 1, 2009. For the full text of S.B. 4160, please see http://www.legislature.state.tn.us/bills/currentga/BILL/SB4160.pdf.
Minnesota Governor Approves Bill Amending Mortgage Lending Definitions, Record Keeping Requirements. On April 25, Minnesota Governor Tim Pawlenty signed S.F. 3214. This bill expands the definition of “residential mortgage loan” under the Residential Mortgage Originator and Servicer Licensing Act (the “Act"), removing the stipulation that a “residential mortgage loan” includes only loans “made primarily for personal, family, or household use.” The bill expands the Act to include commercial loans secured by 1-4 family residential real estate. The bill also expands the definition of “residential real estate” to include non-owner-occupied property, and extends certain record-retention requirements from 26 to 60 months. The bill becomes effective on August 1, 2008. For a copy of the text of the bill, please see https://www.revisor.leg.state.mn.us/bin/bldbill.php?bill=S3214.1.html&session=ls85.
Minnesota Governor Approves Bill on Borrower Repayment Ability Analysis. On April 25, Minnesota Governor Tim Pawlenty signed S.F. 3154. This bill details the manner in which mortgage originators may evaluate a borrower’s ability to repay a loan. Specifically, mortgage originators may evaluate such ability to repay by verifying such factors as, among others, (i) current and expected income, (ii) current and expected cash flow, (iii) current financial obligations, (iv) employment status, (v) property taxes and insurance, (vi) debt-to-income ratio, and (vii) and credit scores. The bill becomes effective August 1, 2008. For a copy of the bill, please see https://www.revisor.leg.state.mn.us/bin/bldbill.php?bill=S3154.0.html&session=ls85.
Massachusetts Proposes Regulatory Bulletin Regarding Satisfactory Credit History for Licensure. The Massachusetts Division of Banks recently released proposed Regulatory Bulletin 5.2-102, which provides guidelines on the proper use of an applicant’s personal financial history in determining whether the applicant meets the financial responsibility requirement for obtaining a particular license. The proposed guidelines, which apply to every license the Division supervises, including mortgage lenders and mortgage originators, would be used during the Division’s review of individual licensees as well as the control persons and branch managers of an applicant company. Implementation of the Bulletin will require every qualifying individual to submit a credit report, current within 30 days of the application date, to the Division. The proposed guidelines will assist Division staff in determining how to treat particular elements in an individual’s credit report, like adverse credit information, when determining the financial responsibility of the individual. The Bulletin encourages potential applicants to use the guidelines to assess the sufficiency of their financial history in connection with the financial responsibility requirement. The Division is accepting comments on the proposed Bulletin until May 23, 2008. For a copy of the full text of the Bulletin, please see http://www.buckleykolar.com/documents/MARegBulletin52-102.pdf.
Ohio Division of Financial Institutions Issues Letter Regarding Electronic Payment Fees. The Ohio Division of Financial Institutions recently issued a letter, Mortgage Brokers & Lenders Letter 2008-3 (April 11, 2008), regarding the permissibility of electronic payment (speed pay) fees. The letter states that a mortgage lender may charge a speed pay fee if (a) the speed pay service is optional and is offered on an as needed basis; (b) speed pay is not the exclusive product for obtaining electronic or other speed payments and the consumer is informed of such; and (c) the fee is charged in lieu of a late fee and in an amount that is the lesser of the statutory late fee or $10. The letter requires registrants and licensees to review their procedures to ensure compliance with the current state law prohibiting additional fees as it relates to providing and collecting fees for electronic and other speed pay options and requires registrants and licensees to adjust their policies and practices accordingly to conform to the letter. The letter also serves to remind mortgage lenders that they are required to act in good faith and fair dealing when they present loan products and financing options to consumer borrowers. For a copy of the Mortgage Brokers & Lenders Letter 2008-3, please see http://www.com.state.oh.us/dfi/pub/cnfn_letter2008-3.pdf.
Washington Attorney General Settles Suit Against Foreclosure Rescue Company. On April 21, the Washington State Attorney General’s Office announced a settlement agreement with Foreclosure Assistance Solutions, LLC (FAS) in connection with claims of violating the state’s Consumer Protection Act, Credit Services Organization Act and Commercial Telephone Solicitation Act. Attorney General Rob McKenna alleged that FAS used coercive tactics to pressure consumers into paying for a service they really couldn’t afford and then doing little or nothing to actually help those consumers save their homes. According to the state’s complaint, FAS sent letters and postcards to consumers whose homes were in foreclosure instructing the consumers to call the company for help. Homeowners who paid for the service, which ranged from $1,200 to $1,500, were then presented with a contract that prohibited them from contacting the mortgage lender. In settling the state’s claims, FAS did not admit to any wrongdoing but agreed to pay $78,125 in restitution to Washington consumers, which represents a partial refund of the amount paid by consumers expecting their homes to be saved from foreclosure, as well as $20,000 in attorney fees. The restitution will be paid to approximately 200 consumers, who will receive $300-$500 each. The settlement also includes injunctive provisions limiting how the company does business, should it offer services again in the future, as well as an additional $100,000 in civil penalties for failure to comply with the agreement. For a copy of the consent decree, please see http://www.buckleykolar.com/documents/WAConsentDecree.pdf.
Chapter 13 Debtor Granted Standing to Sue. The U.S. Court of Appeals for the Tenth Circuit recently held that a debtor who files for bankruptcy under Chapter 13 has standing to sue for a Fair Debt Collections Practices Act (FDCPA) claim. Smith v. Rockett, No. 06-6331 (10th Cir. Apr. 11, 2008). The district court had dismissed the FDCPA claim holding that only the bankruptcy trustee has standing to sue on behalf of the estate, as in Chapter 7 proceedings. However, the Tenth Circuit, agreeing with the four circuit courts that have considered this issue, reversed the district court’s ruling. In holding that a Chapter 13 debtor has standing to bring claims in his or her own name on behalf of the bankruptcy estate, the court found that in a Chapter 13 case, unlike a Chapter 7 case, the debtor remains in possession of the estate, the duties of a Chapter 13 trustee differ from those of a Chapter 7 trustee, and a Chapter 13 debtor has many of the same rights and powers as a Chapter 7 trustee. The court further indicated that the Chapter 13 debtor’s standing to sue is supported by the legislative history of Chapter 13. However, the court did note that the underlying bankruptcy claim was dismissed with prejudice soon after her complaint was filed in this case. While the defendants claimed that the dismissal of the bankruptcy case precluded any further bankruptcy proceedings, the court stated that this issue should be considered by the bankruptcy court on remand. In remanding the case to the bankruptcy court, the Tenth Circuit stated that “the bankruptcy court should determine whether it would be permissible and appropriate to reopen Plaintiff’s bankruptcy case.” The court also noted that the bankruptcy court may determine “whether sanctions would be appropriate for Plaintiff’s alleged failure to disclose these causes of action in her bankruptcy schedule.” Finally, the court stated that if the bankruptcy court determines that it should not reopen the case, the district court should determine whether the plaintiff permanently lost her causes of action because of her failure to properly list them on the bankruptcy schedule. For a copy of this decision, please see http://www.buckleykolar.com/documents/SmithvRockett.pdf.
Court Dismisses FDCPA, FCRA, and RESPA Claims Against Mortgage Servicer. On April 22, a federal district court in Pennsylvania dismissed several claims brought by a borrower against a mortgage servicer. See Jones v. Select Portfolio Servicing, Inc., 2008 WL 1820935, No. 08-972 (E.D. Pa. Apr. 22, 2008). The borrower alleged that a payoff statement sent to her by the servicer “included charges for various unknown or improperly identified items,” and that the servicer failed to adequately explain these charges. The borrower brought a class action complaint against the servicer, alleging (among other things) that the servicer violated the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Real Estate Settlement Procedures Act (RESPA). According to the court, the borrower failed to state a FDCPA claim because she did not allege that the loan was in default at the time the servicer began servicing it (i.e., that the servicer was a “debt collector”). The FCRA claim – alleging violations of FCRA’s furnisher requirements – failed because the complaint did not allege that the borrower “disputed any information to the credit reporting agency, or that [the servicer] received notice of any such dispute.” Finally, regarding the allegation that the servicer violated RESPA’s servicing requirements, the complaint acknowledged that the servicer complied with its obligations to timely respond to the borrower’s written request for information. In addition, the complaint failed to allege any specific damage suffered by the borrower. The borrower’s breach of contract claim, however, survived the motion to dismiss. For a copy of the opinion, please see http://www.buckleykolar.com/documents/JonesvSelectPortfolioServicing.pdf.
Bankruptcy Court Sanctions Law Firms and Lenders With Fines for False Claims. On April 29, a Federal Bankruptcy Court for the District of Massachusetts sanctioned two law firms, Buchalter Nemer and Ablitt & Charlton, and a name partner, Robert Charlton, a total of $150,000 for incorrectly claiming that their client, Ameriquest, owned a mortgage that had in fact been reassigned at least twice. The heavy fines were ordered after the court found that one of the law firm’s had information in a client file that contradicted this claim. The court also imposed $500,000 in sanctions against two lenders, Ameriquest and Wells Fargo, concerning a rule to show cause in connection with the case. Although two associates also signed documents saying that Ameriquest owned the mortgage at issue, they were not fined. The judge, however, warned that in the future, the court expects associates to be cognizant of and fulfill their responsibilities under Federal Rule of Bankruptcy 9011. For a copy of the court order, please contact .
Banking
California Banks Not Liable to a Non-Customer for Identity Theft. On April 24, the California Second Appellate District, District One, held that a bank could not be held liable to a non-customer for identity theft perpetrated in the non-customer’s name. Rodriguez v. Bank of the West, et al., B198553 (Cal. Ct. App. Apr. 24, 2008). The case involved an attorney, Stephen Rodriguez, whose office manager opened accounts in Mr. Rodriquez’s name at two California banks. The office manager then used those accounts to misappropriate client funds and to engage in fraudulent activity using Mr. Rodriguez’s personal information. Mr. Rodriguez sued the office manager and both banks, claiming that he was a “putative customer” of the banks. The court explained that because Mr. Rodriguez was not an actual customer and thus did not have contractual relationships with the banks, he could not sue them for negligence since the banks owed no duty of care to Mr. Rodriguez. For a copy of the opinion, please see http://www.buckleykolar.com/documents/RodriguezvBankoftheWest.pdf.
Consumer Finance
FRB, OTS, and NCUA Announce Joint Proposed UDAP Rule for Credit Cards and Overdraft Fees. On May 2, the Federal Reserve Board (FRB), the Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA) issued a joint proposed rule prohibiting certain credit card and overdraft service practices as unfair and deceptive acts or practices. For credit cards, the rule would prohibit: (i) treating a payment as late unless consumers have been provided with a reasonable amount of time to make payment; (ii) allocating any amounts paid in excess of the minimum payment in a manner that is not fair to consumers; (iii) increasing the annual percentage rate on an outstanding balance unless certain exceptions apply (for example, if a variable rate increases as a result of the index, or a promotional rate has expired); (iv) assessing a fee if a consumer exceeds the credit limit on an account solely due to a hold placed on the available credit – unless the amount of the transaction would also have exceeded the credit limit; (v) “double cycle billing”—computing finance charges on outstanding balances based on balances in the current billing cycle as well as preceding billing cycles; (vi) charging to the credit card account fees or security deposits for the issuance or availability of credit if those fees or deposits utilize the majority of the available credit on the account; and (vii) failing to disclose in a firm offer of credit the factors that determine whether a consumer will qualify for the most favorable APR and credit limit. For overdraft protection, the rule would disallow overdraft fees (i) unless institutions provide a consumer with the right to opt out of having overdrafts paid by the institution, or (ii) if the overdraft is caused solely by a hold on funds that exceeds the actual purchase amount of the transaction, unless this purchase amount would have also caused the overdraft. Upon publication in the Federal Register, the joint proposed rules will be open for public comment for 75 days. For a copy of the FRB, OTS and NCUA press releases, please see http://www.federalreserve.gov/newsevents/press/bcreg/20080502a.htm, http://www.ots.treas.gov/docs/7/778014.html, and http://www.ncua.gov/news/press_releases/2008/MR08-0501.html, respectively.
Dodd Proposes Comprehensive Credit Card Bill. On April 30, Senator Christopher Dodd (D-CT) introduced the Credit Card Accountability, Responsibility and Disclosure Act (the CARD Act), in order to reform the credit card industry. The bill would: (i) increase the authority of the federal agencies to prescribe regulations for credit card issuers; (ii) prohibit “any-time, any-reason” increases in interest rate and terms; (iii) mandate the application of monthly payments in a manner benefiting consumers; (iv) ban double-cycle billing and require efficient crediting of accounts; (v) disallow charging interest on late and over-limit fees and prohibit charging certain fees, such as multiple over-limit fees; (vi) require enhanced disclosures to consumers; and (vii) limit credit card offers to individuals under the age of 21. For a summary of this bill’s provisions, please see http://banking.senate.gov/public/_files/OnePageSummary.pdf.
Litigation
FCRA Furnisher Lawsuit Dismissed. A federal court in Utah dismissed a borrower’s Fair Credit Reporting Act (FCRA) claim, finding that the credit card company had no duty to investigate and correct erroneous information contained on a credit report unless it receives notice of a dispute from one of the credit reporting agencies (CRA). Greene v. Capital One Bank, 2008 WL 1858882, No. 2:07-cv-687-TS (D. Utah April 23, 2008). This lawsuit stemmed from the settlement of a credit card debt. According to the allegations in the complaint, some time after the settlement the borrower learned that the bank was erroneously reporting a write-off of the settled debt. The borrower allegedly contacted both the CRAs and the bank to dispute the report. A CRA responded that the bank had verified the information reported. The borrower sued in small claims court for breach of contract and defamation, obtaining a default judgment against the bank. After the borrower was subsequently denied auto financing, he brought FCRA and common law defamation claims against the bank, which moved to dismiss both claims. The court agreed with the bank on the FCRA claim, finding that the borrower failed to allege that the bank received notice of the dispute from a CRA – the statutory trigger for the duty to investigate and correct erroneous reporting. Furthermore, even if the borrower had included such an allegation, the breach alleged by the borrower had already been resolved by the small claims court default judgment. The court allowed the defamation claim to proceed, however, albeit in state court, finding that the borrower properly alleged “willful or malicious intent to injure,” which would remove such a claim from the preemption afforded by FCRA. For a copy of the opinion, please see http://www.buckleykolar.com/documents/GreenvCapitalOneBank.pdf.
Chapter 13 Debtor Granted Standing to Sue. The U.S. Court of Appeals for the Tenth Circuit recently held that a debtor who files for bankruptcy under Chapter 13 has standing to sue for a Fair Debt Collections Practices Act (FDCPA) claim. Smith v. Rockett, No. 06-6331 (10th Cir. Apr. 11, 2008). The district court had dismissed the FDCPA claim holding that only the bankruptcy trustee has standing to sue on behalf of the estate, as in Chapter 7 proceedings. However, the Tenth Circuit, agreeing with the four circuit courts that have considered this issue, reversed the district court’s ruling. In holding that a Chapter 13 debtor has standing to bring claims in his or her own name on behalf of the bankruptcy estate, the court found that in a Chapter 13 case, unlike a Chapter 7 case, the debtor remains in possession of the estate, the duties of a Chapter 13 trustee differ from those of a Chapter 7 trustee, and a Chapter 13 debtor has many of the same rights and powers as a Chapter 7 trustee. The court further indicated that the Chapter 13 debtor’s standing to sue is supported by the legislative history of Chapter 13. However, the court did note that the underlying bankruptcy claim was dismissed with prejudice soon after her complaint was filed in this case. While the defendants claimed that the dismissal of the bankruptcy case precluded any further bankruptcy proceedings, the court stated that this issue should be considered by the bankruptcy court on remand. In remanding the case to the bankruptcy court, the Tenth Circuit stated that “the bankruptcy court should determine whether it would be permissible and appropriate to reopen Plaintiff’s bankruptcy case.” The court also noted that the bankruptcy court may determine “whether sanctions would be appropriate for Plaintiff’s alleged failure to disclose these causes of action in her bankruptcy schedule.” Finally, the court stated that if the bankruptcy court determines that it should not reopen the case, the district court should determine whether the plaintiff permanently lost her causes of action because of her failure to properly list them on the bankruptcy schedule. For a copy of this decision, please see http://www.buckleykolar.com/documents/SmithvRockett.pdf.
Court Dismisses FDCPA, FCRA, and RESPA Claims Against Mortgage Servicer. On April 22, a federal district court in Pennsylvania dismissed several claims brought by a borrower against a mortgage servicer. See Jones v. Select Portfolio Servicing, Inc., 2008 WL 1820935, No. 08-972 (E.D. Pa. Apr. 22, 2008). The borrower alleged that a payoff statement sent to her by the servicer “included charges for various unknown or improperly identified items,” and that the servicer failed to adequately explain these charges. The borrower brought a class action complaint against the servicer, alleging (among other things) that the servicer violated the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Real Estate Settlement Procedures Act (RESPA). According to the court, the borrower failed to state a FDCPA claim because she did not allege that the loan was in default at the time the servicer began servicing it (i.e., that the servicer was a “debt collector”). The FCRA claim – alleging violations of FCRA’s furnisher requirements – failed because the complaint did not allege that the borrower “disputed any information to the credit reporting agency, or that [the servicer] received notice of any such dispute.” Finally, regarding the allegation that the servicer violated RESPA’s servicing requirements, the complaint acknowledged that the servicer complied with its obligations to timely respond to the borrower’s written request for information. In addition, the complaint failed to allege any specific damage suffered by the borrower. The borrower’s breach of contract claim, however, survived the motion to dismiss. For a copy of the opinion, please see http://www.buckleykolar.com/documents/JonesvSelectPortfolioServicing.pdf.
California Banks Not Liable to a Non-Customer for Identity Theft. On April 24, the California Second Appellate District, District One, held that a bank could not be held liable to a non-customer for identity theft perpetrated in the non-customer’s name. Rodriguez v. Bank of the West, et al., B198553 (Cal. Ct. App. Apr. 24, 2008). The case involved an attorney, Stephen Rodriguez, whose office manager opened accounts in Mr. Rodriquez’s name at two California banks. The office manager then used those accounts to misappropriate client funds and to engage in fraudulent activity using Mr. Rodriguez’s personal information. Mr. Rodriguez sued the office manager and both banks, claiming that he was a “putative customer” of the banks. The court explained that because Mr. Rodriguez was not an actual customer and thus did not have contractual relationships with the banks, he could not sue them for negligence since the banks owed no duty of care to Mr. Rodriguez. For a copy of the opinion, please see http://www.buckleykolar.com/documents/RodriguezvBankoftheWest.pdf.
Court Approves Settlement of FACTA Truncation Class Action Case. On April 22, a federal district court in Pennsylvania approved the proposed settlement of a case arising under the “truncation” requirements of the Fair and Accurate Credit Transactions Act (FACTA). Palamara v. Kings Family Restaurants, 2008 WL 1818453, No. 07-317 (W.D. Pa. Apr. 22, 2008). The defendant restaurant printed on its receipts the expiration dates of customer credit and debit cards in violation of FACTA. The parties agreed to mediation and eventually to settle the claims. Under the terms of the settlement, the plaintiffs—none of whom suffered any actual monetary injury as a result of the violation—may claim coupons for free food at the restaurant (each plaintiff could choose one out of four different coupons for items from the menu, each valued at about $4.50), and class counsel will receive $75,000. Following prior court of appeals’ jurisprudence, the court used a list of factors to determine the reasonableness of both the proposed settlement and the proposed attorney fee award, and found both to be fair and reasonable. For a copy of this case, please see http://www.buckleykolar.com/documents/PalamaravKingsFamilyRestaurants.pdf.
Bankruptcy Court Sanctions Law Firms and Lenders With Fines for False Claims. On April 29, a Federal Bankruptcy Court for the District of Massachusetts sanctioned two law firms, Buchalter Nemer and Ablitt & Charlton, and a name partner, Robert Charlton, a total of $150,000 for incorrectly claiming that their client, Ameriquest, owned a mortgage that had in fact been reassigned at least twice. The heavy fines were ordered after the court found that one of the law firm’s had information in a client file that contradicted this claim. The court also imposed $500,000 in sanctions against two lenders, Ameriquest and Wells Fargo, concerning a rule to show cause in connection with the case. Although two associates also signed documents saying that Ameriquest owned the mortgage at issue, they were not fined. The judge, however, warned that in the future, the court expects associates to be cognizant of and fulfill their responsibilities under Federal Rule of Bankruptcy 9011. For a copy of the court order, please contact .
E-Financial Services
FRB, OTS, and NCUA Announce Joint Proposed UDAP Rule for Credit Cards and Overdraft Fees. On May 2, the Federal Reserve Board (FRB), the Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA) issued a joint proposed rule prohibiting certain credit card and overdraft service practices as unfair and deceptive acts or practices. For credit cards, the rule would prohibit: (i) treating a payment as late unless consumers have been provided with a reasonable amount of time to make payment; (ii) allocating any amounts paid in excess of the minimum payment in a manner that is not fair to consumers; (iii) increasing the annual percentage rate on an outstanding balance unless certain exceptions apply (for example, if a variable rate increases as a result of the index, or a promotional rate has expired); (iv) assessing a fee if a consumer exceeds the credit limit on an account solely due to a hold placed on the available credit – unless the amount of the transaction would also have exceeded the credit limit; (v) “double cycle billing”—computing finance charges on outstanding balances based on balances in the current billing cycle as well as preceding billing cycles; (vi) charging to the credit card account fees or security deposits for the issuance or availability of credit if those fees or deposits utilize the majority of the available credit on the account; and (vii) failing to disclose in a firm offer of credit the factors that determine whether a consumer will qualify for the most favorable APR and credit limit. For overdraft protection, the rule would disallow overdraft fees (i) unless institutions provide a consumer with the right to opt out of having overdrafts paid by the institution, or (ii) if the overdraft is caused solely by a hold on funds that exceeds the actual purchase amount of the transaction, unless this purchase amount would have also caused the overdraft. Upon publication in the Federal Register, the joint proposed rules will be open for public comment for 75 days. For a copy of the FRB, OTS and NCUA press releases, please see http://www.federalreserve.gov/newsevents/press/bcreg/20080502a.htm, http://www.ots.treas.gov/docs/7/778014.html, and http://www.ncua.gov/news/press_releases/2008/MR08-0501.html, respectively.
Dodd Proposes Comprehensive Credit Card Bill. On April 30, Senator Christopher Dodd (D-CT) introduced the Credit Card Accountability, Responsibility and Disclosure Act (the CARD Act), in order to reform the credit card industry. The bill would: (i) increase the authority of the federal agencies to prescribe regulations for credit card issuers; (ii) prohibit “any-time, any-reason” increases in interest rate and terms; (iii) mandate the application of monthly payments in a manner benefiting consumers; (iv) ban double-cycle billing and require efficient crediting of accounts; (v) disallow charging interest on late and over-limit fees and prohibit charging certain fees, such as multiple over-limit fees; (vi) require enhanced disclosures to consumers; and (vii) limit credit card offers to individuals under the age of 21. For a summary of this bill’s provisions, please see http://banking.senate.gov/public/_files/OnePageSummary.pdf.
Ohio Division of Financial Institutions Issues Letter Regarding Electronic Payment Fees. The Ohio Division of Financial Institutions recently issued a letter, Mortgage Brokers & Lenders Letter 2008-3 (April 11, 2008), regarding the permissibility of electronic payment (speed pay) fees. The letter states that a mortgage lender may charge a speed pay fee if (a) the speed pay service is optional and is offered on an as needed basis; (b) speed pay is not the exclusive product for obtaining electronic or other speed payments and the consumer is informed of such; and (c) the fee is charged in lieu of a late fee and in an amount that is the lesser of the statutory late fee or $10. The letter requires registrants and licensees to review their procedures to ensure compliance with the current state law prohibiting additional fees as it relates to providing and collecting fees for electronic and other speed pay options and requires registrants and licensees to adjust their policies and practices accordingly to conform to the letter. The letter also serves to remind mortgage lenders that they are required to act in good faith and fair dealing when they present loan products and financing options to consumer borrowers. For a copy of the Mortgage Brokers & Lenders Letter 2008-3, please see http://www.com.state.oh.us/dfi/pub/cnfn_letter2008-3.pdf.
Court Approves Settlement of FACTA Truncation Class Action Case. On April 22, a federal district court in Pennsylvania approved the proposed settlement of a case arising under the “truncation” requirements of the Fair and Accurate Credit Transactions Act (FACTA). Palamara v. Kings Family Restaurants, 2008 WL 1818453, No. 07-317 (W.D. Pa. Apr. 22, 2008). The defendant restaurant printed on its receipts the expiration dates of customer credit and debit cards in violation of FACTA. The parties agreed to mediation and eventually to settle the claims. Under the terms of the settlement, the plaintiffs—none of whom suffered any actual monetary injury as a result of the violation—may claim coupons for free food at the restaurant (each plaintiff could choose one out of four different coupons for items from the menu, each valued at about $4.50), and class counsel will receive $75,000. Following prior court of appeals’ jurisprudence, the court used a list of factors to determine the reasonableness of both the proposed settlement and the proposed attorney fee award, and found both to be fair and reasonable. For a copy of this case, please see http://www.buckleykolar.com/documents/PalamaravKingsFamilyRestaurants.pdf.
Privacy/Data Security
Court Approves Settlement of FACTA Truncation Class Action Case. On April 22, a federal district court in Pennsylvania approved the proposed settlement of a case arising under the “truncation” requirements of the Fair and Accurate Credit Transactions Act (FACTA). Palamara v. Kings Family Restaurants, 2008 WL 1818453, No. 07-317 (W.D. Pa. Apr. 22, 2008). The defendant restaurant printed on its receipts the expiration dates of customer credit and debit cards in violation of FACTA. The parties agreed to mediation and eventually to settle the claims. Under the terms of the settlement, the plaintiffs—none of whom suffered any actual monetary injury as a result of the violation—may claim coupons for free food at the restaurant (each plaintiff could choose one out of four different coupons for items from the menu, each valued at about $4.50), and class counsel will receive $75,000. Following prior court of appeals’ jurisprudence, the court used a list of factors to determine the reasonableness of both the proposed settlement and the proposed attorney fee award, and found both to be fair and reasonable. For a copy of this case, please see http://www.buckleykolar.com/documents/PalamaravKingsFamilyRestaurants.pdf.
Credit Cards
FRB, OTS, and NCUA Announce Joint Proposed UDAP Rule for Credit Cards and Overdraft Fees. On May 2, the Federal Reserve Board (FRB), the Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA) issued a joint proposed rule prohibiting certain credit card and overdraft service practices as unfair and deceptive acts or practices. For credit cards, the rule would prohibit: (i) treating a payment as late unless consumers have been provided with a reasonable amount of time to make payment; (ii) allocating any amounts paid in excess of the minimum payment in a manner that is not fair to consumers; (iii) increasing the annual percentage rate on an outstanding balance unless certain exceptions apply (for example, if a variable rate increases as a result of the index, or a promotional rate has expired); (iv) assessing a fee if a consumer exceeds the credit limit on an account solely due to a hold placed on the available credit – unless the amount of the transaction would also have exceeded the credit limit; (v) “double cycle billing”—computing finance charges on outstanding balances based on balances in the current billing cycle as well as preceding billing cycles; (vi) charging to the credit card account fees or security deposits for the issuance or availability of credit if those fees or deposits utilize the majority of the available credit on the account; and (vii) failing to disclose in a firm offer of credit the factors that determine whether a consumer will qualify for the most favorable APR and credit limit. For overdraft protection, the rule would disallow overdraft fees (i) unless institutions provide a consumer with the right to opt out of having overdrafts paid by the institution, or (ii) if the overdraft is caused solely by a hold on funds that exceeds the actual purchase amount of the transaction, unless this purchase amount would have also caused the overdraft. Upon publication in the Federal Register, the joint proposed rules will be open for public comment for 75 days. For a copy of the FRB, OTS and NCUA press releases, please see http://www.federalreserve.gov/newsevents/press/bcreg/20080502a.htm, http://www.ots.treas.gov/docs/7/778014.html, and http://www.ncua.gov/news/press_releases/2008/MR08-0501.html, respectively.
Dodd Proposes Comprehensive Credit Card Bill. On April 30, Senator Christopher Dodd (D-CT) introduced the Credit Card Accountability, Responsibility and Disclosure Act (the CARD Act), in order to reform the credit card industry. The bill would: (i) increase the authority of the federal agencies to prescribe regulations for credit card issuers; (ii) prohibit “any-time, any-reason” increases in interest rate and terms; (iii) mandate the application of monthly payments in a manner benefiting consumers; (iv) ban double-cycle billing and require efficient crediting of accounts; (v) disallow charging interest on late and over-limit fees and prohibit charging certain fees, such as multiple over-limit fees; (vi) require enhanced disclosures to consumers; and (vii) limit credit card offers to individuals under the age of 21. For a summary of this bill’s provisions, please see http://banking.senate.gov/public/_files/OnePageSummary.pdf.
FCRA Furnisher Lawsuit Dismissed. A federal court in Utah dismissed a borrower’s Fair Credit Reporting Act (FCRA) claim, finding that the credit card company had no duty to investigate and correct erroneous information contained on a credit report unless it receives notice of a dispute from one of the credit reporting agencies (CRA). Greene v. Capital One Bank, 2008 WL 1858882, No. 2:07-cv-687-TS (D. Utah April 23, 2008). This lawsuit stemmed from the settlement of a credit card debt. According to the allegations in the complaint, some time after the settlement the borrower learned that the bank was erroneously reporting a write-off of the settled debt. The borrower allegedly contacted both the CRAs and the bank to dispute the report. A CRA responded that the bank had verified the information reported. The borrower sued in small claims court for breach of contract and defamation, obtaining a default judgment against the bank. After the borrower was subsequently denied auto financing, he brought FCRA and common law defamation claims against the bank, which moved to dismiss both claims. The court agreed with the bank on the FCRA claim, finding that the borrower failed to allege that the bank received notice of the dispute from a CRA – the statutory trigger for the duty to investigate and correct erroneous reporting. Furthermore, even if the borrower had included such an allegation, the breach alleged by the borrower had already been resolved by the small claims court default judgment. The court allowed the defamation claim to proceed, however, albeit in state court, finding that the borrower properly alleged “willful or malicious intent to injure,” which would remove such a claim from the preemption afforded by FCRA. For a copy of the opinion, please see http://www.buckleykolar.com/documents/GreenvCapitalOneBank.pdf.
Court Approves Settlement of FACTA Truncation Class Action Case. On April 22, a federal district court in Pennsylvania approved the proposed settlement of a case arising under the “truncation” requirements of the Fair and Accurate Credit Transactions Act (FACTA). Palamara v. Kings Family Restaurants, 2008 WL 1818453, No. 07-317 (W.D. Pa. Apr. 22, 2008). The defendant restaurant printed on its receipts the expiration dates of customer credit and debit cards in violation of FACTA. The parties agreed to mediation and eventually to settle the claims. Under the terms of the settlement, the plaintiffs—none of whom suffered any actual monetary injury as a result of the violation—may claim coupons for free food at the restaurant (each plaintiff could choose one out of four different coupons for items from the menu, each valued at about $4.50), and class counsel will receive $75,000. Following prior court of appeals’ jurisprudence, the court used a list of factors to determine the reasonableness of both the proposed settlement and the proposed attorney fee award, and found both to be fair and reasonable. For a copy of this case, please see http://www.buckleykolar.com/documents/PalamaravKingsFamilyRestaurants.pdf.