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CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
FRB to Hold Public Hearings on the Home Equity Lending Market under HOEPA. On June 14, the Federal Reserve Board (FRB) will hold a public hearing to examine how the FRB can use its rulemaking authority under section 129(1)(2) of the Home Ownership and Equity Protection Act (HOEPA) to address abusive lending practices while preserving incentives for lenders to provide credit to borrowers. The topics to be discussed are (i) prepayment penalties, (ii) escrow accounts for taxes and insurance on subprime loans, (iii) "stated income" or "low doc" loans, and (iv) consideration of a borrower's ability to repay a loan. Specifically, the FRB will consider the following questions: (i) if prepayment penalties were restricted or prohibited, how would it affect consumers and the type and terms of credit offered?, (ii) should escrows for taxes and insurance be required for subprime mortgage loans and if so, should consumers be permitted to “opt out” of escrows?, (iii) should stated income or low doc loans be prohibited for certain loans, such as loans to subprime borrowers or higher-risk loans?, and (iv) should lenders be required to underwrite all loans based on the fully-indexed rate and fully amortizing payments? The FRB is inviting the public to comment on the issues either at the hearing or in writing by August 15, 2007. For copy of the FRB’s notice regarding the hearing, please see http://www.federalreserve.gov/boarddocs/press/bcreg/2007/20070529/attachment.pdf.
Federal Agencies Issue Illustrations of Consumer Information for Nontraditional Mortgage Products. On May 31, the federal bank, thrift, and credit union regulatory agencies made available illustrations that correspond with the consumer protection portion of the Interagency Guidance on Nontraditional Mortgage Product Risks adopted by the agencies on October 4, 2006. As in the proposal, the illustrations are generic and need not reflect the actual loan made to the consumer. One form discusses features of some nontraditional mortgage products such as lack of amortization or negative amortization and prepayment penalties. Another form presents a chart of the impact of different interest-rate scenarios on a traditional fixed mortgage, an interest-only loan, and a payment-option loan. A third form is for use in monthly statements on payment-option loans; it shows the differing impact of making a fully-amortizing, interest-only, and minimum payment. There is no requirement that institutions use the illustrations. To view the final illustrations, please see http://www.federalreserve.gov/boarddocs/press/bcreg/2007/20070531/attachment.pdf.
OMB Orders Federal Agencies to Notify Individuals of Privacy Breaches. On May 22, the Office of Management and Budget (OMB) issued a memorandum requiring all federal agencies, within 120 days, to implement policies on notifying individuals in the event of a breach of their personal information by the federal government, for both electronic and paper breaches. Additionally, the memorandum requires agencies to develop a plan within 18 months to eliminate their unnecessary collection and use of personally identifiable information, including social security numbers. The memorandum does not mandate a particular standard for when breach notification is required, but rather allows agencies the flexibility to determine the circumstances under which that agency will require notice. Agencies will also be required to develop and implement rules of behavior concerning the handling of personal information by agency employees. The memorandum can be found at http://www.whitehouse.gov/omb/memoranda/fy2007/m07-16.pdf.
FRB Reduces Insider-Lending Reporting. On May 25, the FRB adopted amendments to its Regulation O, implementing section 601 of the Financial Services Regulatory Relief Act of 2006, which removed several statutory reporting requirements for certain types of extensions of credit to insiders and to insiders of corresponding banks. The FRB had previously implemented the amendments through an interim rule. The FRB noted that this rule does not change the substantive restrictions on loans by depository institutions to their executive officers and principal shareholders. For the FRB’s press release, please see http://www.federalreserve.gov/boarddocs/press/bcreg/2007/200705292/default.htm.
FTC Alert Reminds Businesses to Truncate Credit and Debit Card Information on Receipts. Recently, the Federal Trade Commission (FTC) issued an alert to remind businesses that electronically processed credit and debit card receipts may only include the last five digits of the card number and may not include the expiration date of the card. As noted below and in recent previous issues of InfoBytes, failure to comply with the truncation requirement, which was added to the Fair Credit Reporting Act (FCRA) by the Fair and Accurate Credit Transactions Act of 2003 (FACTA), has recently been the subject of a number of putative class-action lawsuits under FCRA.
To view the alert, entitled "Slip Showing?," please see http://www.ftc.gov/bcp/edu/pubs/business/alerts/alt007.shtm.
STATE ISSUES
Minnesota Governor Signs Bill Making Businesses Liable to Financial Institutions for Data Breaches. On May 21, Minnesota Governor Tim Pawlenty signed into law H.F. 1758, a bill allowing financial institutions to sue businesses for damages caused by credit or debit card data breaches. The bill places limits on the amount of time that businesses can hold a customer’s credit and debit card information. Under the bill, businesses cannot retain credit card data beyond the time necessary to authorize a customer’s transaction. For debit card transactions, businesses may keep a customer’s data up to 48 hours. If a business retains credit and debit card data beyond the permitted period and the data is subsequently breached, then financial institutions may sue the offending business for their resulting damages. The data retention portion of the bill takes effect on August 1, 2007 and businesses will have one year to adjust to the new regulation before financial institutions gain the right to sue. For the official text of the bill, please see http://www.revisor.leg.state.mn.us/bin/bldbill.php?bill=H1758.4.html&session=ls85.
Maryland Governor Signs Data Breach Notice Bills. On May 17, Maryland Governor Martin O’Malley signed two identical bills called the Personal Information Protection Act. (H.B. 208 and S.B. 194). The bills, among other things, require businesses to notify citizens if their personal information, electronic or paper, is breached. The bill also set forth requirements for data security and property data destruction for companies doing business in the state. The law will take effect on January 1, 2008. Full text of the bills can be found at http://mlis.state.md.us/2007RS/bills/hb/hb0208e.pdf and http://mlis.state.md.us/2007RS/bills/sb/sb0194e.pdf.
Montana Amends Mortgage Broker and Loan Originator Licensing Act and Establishes the Residential Mortgage Lender Licensing Act. On May 16, Montana Governor Brian Schweitzer signed into law S.B. 92, amending the Montana Mortgage Broker and Loan Originator Licensing Act. The amendment, among other items, eliminates various exceptions to the state’s experience and examination licensing requirements for mortgage brokers and loan originators. The amendment also restricts individual mortgage broker licensees from working concurrently for more than one entity. Earlier this month, Governor Schweitzer signed into law H.B. 69, the Montana Residential Mortgage Lender Licensing Act. The Act requires non-exempt persons making residential mortgage loans to obtain a license from the Department of Administration. The Act also greatly expands the power of the Department, granting it authority to create rules, conduct investigations, issue cease and desist orders, take disciplinary action, and seek injunctive relief in state court. Finally, the Act establishes civil and criminal penalties for violations of any of its provisions.
COURTS
Mailings Constitute Firm Offers Under FCRA Despite Failure to Specify Amount of Credit Offered. On May 22, the U.S. District Court for the Eastern District of Wisconsin held that a bank’s pre-approved credit card mailings constituted “firm offers of credit” under FCRA despite the fact that the mailings did not specify a minimum line of credit. Price v. Capital One Bank, 2007 WL 1521525, No. 05-C-0947 (E.D. Wis. May 22, 2007). The mailings offered Visas and MasterCards, which offers, according to the court, were “widely accepted.” The mailings stated that the recipients had been pre-approved for a 0% APR on everything they bought for the next six months, a 14.9% variable APR following the introductory period, and no balance transfer fees. The interest rate computation method during the introductory period and thereafter was also provided. The amount of credit offered, however, was not specified in the mailings. According to the court, because there was “no ambiguity whether the defendant’s mailings offered lines of credit,” and the mailings included “sufficient terms to convey that the offer had value for consumers,” the mailings qualified as “firm offers of credit” under the FCRA. For a copy of the opinion, please contact .
2nd Circuit: KPMG Need Not Advance Defense Costs for Indicted Partners, Employees. On May 23, the Second Circuit Court of Appeals vacated, for lack of jurisdiction, orders entered by a federal district court that had directed the accounting firm of KPMG, LLP to honor express or implied contractual obligations to pay legal fees of certain of its partners and employees charged with promoting illegal tax shelters. Stein v. KPMG, LLP, 2007 WL 1487822, No. 06-4358-cv (2d Cir. May 23, 2007). The district judge conducting the criminal proceedings had held that the individual defendants’ constitutional rights had been violated because KPMG’s refusal to provide defense costs was caused by the improper policy adopted by the Department of Justice (the so-called “Thompson Memorandum”), which deemed a firm’s voluntary payment of legal expenses to “wrongdoing agents” a factor favoring prosecution of the firm. Without reaching the merits of this contention, the court ruled that “the proceeding challenged on this appeal – a state law contract action against a non-party within a federal criminal proceeding – is well outside the subject matter jurisdiction conferred by Congress on the federal courts.” Earlier, the Justice Department had issued a superseding memorandum where the policy set forth in the Thompson Memorandum was withdrawn. A copy of the decision can be found at http://www.findlaw.com/casecode/courts/2nd.html.
Court Declines to Reopen Bankruptcy Case Based on Incomplete Credit Report. A U.S. bankruptcy court recently denied a debtor’s motion to reopen his case due to a creditor reporting a discharged debt as “charged off.” In re Jones, 2007 WL 1160420, No. 01-80412 (Bankr. E.D. Va. Apr. 17, 2007). In this case, the consumer debtor claimed that the creditor, Justice FCU, violated the discharge injunction by engaging in an act to collect a debt by reporting the debt as charged off instead of discharged in bankruptcy. The creditor reported the debt as charged off in bankruptcy, but only the debtor’s Equifax credit report, not its Experian credit report, showed the proper explanation. Since the creditor only reviewed Equifax reports, it did not know of the reporting error. As soon as it learned of the error, as a result of the debtor filing his motion, the creditor corrected the report. Finding that “the debtor here has failed to offer anything more than mere speculation that Justice FCU, by reporting a discharged debt to Experian, did so for the purpose of collecting on the debt” and that “there is no relief that could be accorded the debtor,” the court refused to reopen the case. The court was not asked to address any FCRA issues, and, even so, “the evidence would at most support a finding of failure to take appropriate care in verifying the reporting of the discharged debt” under the FCRA. For a copy of the decision, please contact .
District Court Allows Private Action for Failure to Truncate Credit Card Number. On May 3, the U.S. District Court for the Central District of California denied a defendant’s motion to dismiss a putative class action lawsuit alleging violations of the credit-card truncation requirements added to FCRA by FACTA. Arcilla v. Adidas Promotional Retail Operations, Inc., 2007 WL 1498334, No. CV07-0211 (C.D. Cal. May 3, 2007). In this case, the plaintiff, Arcilla, on behalf of the putative class, claimed that Adidas, in its retail stores, printed credit card receipts containing the expiration date of the customers’ cards. FCRA prohibits the willful printing of “more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.” Adidas made four arguments in its motion to dismiss, all of which the court summarily rejected: (i) the FCRA provision is vague and ambiguous, (ii) the damages sought would be unconstitutionally excessive and violate due process, (iii) the statutory damages sought would violate principles of tort law, and (iv) the punitive damages sought were improper since no actual harm was alleged. The court found Adidas’ arguments without merit, stating that (i) its claim that the provision is vague “border[s] on the absurd,” (ii) its claim that damages would be unconstitutional “rests on a flawed premise” that the plaintiff had not alleged actual harm, when he had done so; (iii) its claim that the statutory damages violate tort law principles “rests on a premise that is fatally flawed” because tort law principles do not apply to statutory damages cases, and (iv) its claim regarding punitive damages “misapplies the guideposts” of the State Farm/BMW rulings by the Supreme Court. For a copy of the decision, please contact .
Another District Court Also Allows Private Action in FCRA truncation case. Previously, another judge in the U.S. District Court for the Central District of California had also allowed a plaintiff’s case to proceed, where the plaintiff alleged that the defendant had violated the FCRA by printing transaction receipts that contained more information than permitted by FCRA, as amended by the FACTA. Aeschbacher v. California Pizza Kitchen, Inc., 2007 WL 1500853, CV 07-215 (C.D. Cal. Apr. 3, 2007). In the case, plaintiff had raised several arguments, including that the FCRA did not provide a private cause of action for violations of the transaction receipt contents provision, that the provision was vague, and that the statute violated due process. Acting in response to a motion to dismiss, the court disagreed with the defendant on all arguments and allowed the plaintiff’s case to proceed, holding that the FCRA did provide for a private right of action, the statute’s requirements were clear, and that the statute did not violate the due process clause. For a copy of the opinion, please contact .
Defendant in Frivolous FCRA Case May Sue For Reasonable Costs, Attorneys' Fees. In O'Connor v. Trans Union, LLC, 2007 WL 150899 (E.D. Mich. May 24, 2007) the plaintiff brought an action against Trans Union and two other defendants alleging various violations of the Fair Credit Reporting Act (FCRA). Trans Union prevailed on its motion for summary judgment and subsequently filed a motion against the plaintiff and the plaintiff's two successive attorneys, Parker and Bramledge, to recover attorneys' fees under FCRA, and the federal judicial rules under 28 U.S.C. §1927. In his opinion for the U.S. District Court for the Eastern District of Michigan, the judge explained the rules for awarding attorneys' fees under FCRA and Title 28. Under FCRA, if a pleading or motion filed in connection with an action under the FCRA was filed in bad faith or for purposes of harassment, the court will award reasonable attorneys' fees to the prevailing party. Title 28 provides that if an attorney multiplies the proceedings in any case unreasonably and vexatiously, the court may require the attorney to personally pay the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct. The judge noted that the Sixth Circuit "has construed 'unreasonably and vexatiously' to include conduct where 'an attorney knows or reasonably should know that a claim pursued is frivolous, or that his or her litigation tactics will needlessly obstruct the litigation of non-frivolous claims. While the judge ruled that Trans Union was not entitled to attorneys' fees due to any actions by the plaintiff’s current attorney, Bramledge, the court stated that "Plaintiff, Parker [the previous attorney] or both might be found to bear responsibility [for not abandoning the case against Trans Union in the early stages]." The judge referred the remaining issues to a magistrate judge for a recommendation "as to whether Parker, Plaintiff or both should be required to pay all or some portion of Trans Union's attorney fees under the authority cited by Trans Union in its motion." For a copy of this opinion, please contact .
FIRM NEWS
Jeff Naimon and Kirk Jensen will be speaking at the American Conference Institute's upcoming seminar "Preventing, Defending and Resolving Consumer Credit Litigation" taking place on June 5-6, 2007 in New York. Mr. Naimon will be on the RESPA panel and Mr. Jensen will be speaking on arbitration. For more information, or to register, go to http://www.americanconference.com/Litigation/creditlit.htm.
Jerry Buckley and Matthew Previn, on May 31, participated in a webcast entitled “Subprime Mortgage Lending: Managing Legal and Enforcement Risks” offered through West LegalWorks. The 90-minute discussion, second of a three part series on the subprime mortgage market, discussed regulatory changes and litigation challenges posed by the growing wave of defaults by subprime borrowers. Among the topics discussed were (i) recent developments in litigation involving subprime mortgages, (ii) regulatory response to subprime distress, and (iii) bankruptcy issues arising in the subprime context. Mr. Buckley and Mr. Kromer also spoke in the first installment of the series entitled “Legal Issues Associated with Managing Subprime Mortgage Portfolios.”
Jerry Buckley and Joe Kolar, on May 30, participated in an American Banker Association Telephone Seminar with HUD RESPA Enforcement and Regulatory senior officials Peter Race and Gary Cunningham on “RESPA Compliance and Enforcement: Dealing with the Challenges.” John Rasmus of the ABA moderated the panel.
FRB to Hold Public Hearings on the Home Equity Lending Market under HOEPA. On June 14, the Federal Reserve Board (FRB) will hold a public hearing to examine how the FRB can use its rulemaking authority under section 129(1)(2) of the Home Ownership and Equity Protection Act (HOEPA) to address abusive lending practices while preserving incentives for lenders to provide credit to borrowers. The topics to be discussed are (i) prepayment penalties, (ii) escrow accounts for taxes and insurance on subprime loans, (iii) "stated income" or "low doc" loans, and (iv) consideration of a borrower's ability to repay a loan. Specifically, the FRB will consider the following questions: (i) if prepayment penalties were restricted or prohibited, how would it affect consumers and the type and terms of credit offered?, (ii) should escrows for taxes and insurance be required for subprime mortgage loans and if so, should consumers be permitted to “opt out” of escrows?, (iii) should stated income or low doc loans be prohibited for certain loans, such as loans to subprime borrowers or higher-risk loans?, and (iv) should lenders be required to underwrite all loans based on the fully-indexed rate and fully amortizing payments? The FRB is inviting the public to comment on the issues either at the hearing or in writing by August 15, 2007. For copy of the FRB’s notice regarding the hearing, please see http://www.federalreserve.gov/boarddocs/press/bcreg/2007/20070529/attachment.pdf.
Federal Agencies Issue Illustrations of Consumer Information for Nontraditional Mortgage Products. On May 31, the federal bank, thrift, and credit union regulatory agencies made available illustrations that correspond with the consumer protection portion of the Interagency Guidance on Nontraditional Mortgage Product Risks adopted by the agencies on October 4, 2006. As in the proposal, the illustrations are generic and need not reflect the actual loan made to the consumer. One form discusses features of some nontraditional mortgage products such as lack of amortization or negative amortization and prepayment penalties. Another form presents a chart of the impact of different interest-rate scenarios on a traditional fixed mortgage, an interest-only loan, and a payment-option loan. A third form is for use in monthly statements on payment-option loans; it shows the differing impact of making a fully-amortizing, interest-only, and minimum payment. There is no requirement that institutions use the illustrations. To view the final illustrations, please see http://www.federalreserve.gov/boarddocs/press/bcreg/2007/20070531/attachment.pdf.
Montana Amends Mortgage Broker and Loan Originator Licensing Act and Establishes the Residential Mortgage Lender Licensing Act. On May 16, Montana Governor Brian Schweitzer signed into law S.B. 92, amending the Montana Mortgage Broker and Loan Originator Licensing Act. The amendment, among other items, eliminates various exceptions to the state’s experience and examination licensing requirements for mortgage brokers and loan originators. The amendment also restricts individual mortgage broker licensees from working concurrently for more than one entity. Earlier this month, Governor Schweitzer signed into law H.B. 69, the Montana Residential Mortgage Lender Licensing Act. The Act requires non-exempt persons making residential mortgage loans to obtain a license from the Department of Administration. The Act also greatly expands the power of the Department, granting it authority to create rules, conduct investigations, issue cease and desist orders, take disciplinary action, and seek injunctive relief in state court. Finally, the Act establishes civil and criminal penalties for violations of any of its provisions.
FRB Reduces Insider-Lending Reporting. On May 25, the FRB adopted amendments to its Regulation O, implementing section 601 of the Financial Services Regulatory Relief Act of 2006, which removed several statutory reporting requirements for certain types of extensions of credit to insiders and to insiders of corresponding banks. The FRB had previously implemented the amendments through an interim rule. The FRB noted that this rule does not change the substantive restrictions on loans by depository institutions to their executive officers and principal shareholders. For the FRB’s press release, please see http://www.federalreserve.gov/boarddocs/press/bcreg/2007/200705292/default.htm.
Court Declines to Reopen Bankruptcy Case Based on Incomplete Credit Report. A U.S. bankruptcy court recently denied a debtor’s motion to reopen his case due to a creditor reporting a discharged debt as “charged off.” In re Jones, 2007 WL 1160420, No. 01-80412 (Bankr. E.D. Va. Apr. 17, 2007). In this case, the consumer debtor claimed that the creditor, Justice FCU, violated the discharge injunction by engaging in an act to collect a debt by reporting the debt as charged off instead of discharged in bankruptcy. The creditor reported the debt as charged off in bankruptcy, but only the debtor’s Equifax credit report, not its Experian credit report, showed the proper explanation. Since the creditor only reviewed Equifax reports, it did not know of the reporting error. As soon as it learned of the error, as a result of the debtor filing his motion, the creditor corrected the report. Finding that “the debtor here has failed to offer anything more than mere speculation that Justice FCU, by reporting a discharged debt to Experian, did so for the purpose of collecting on the debt” and that “there is no relief that could be accorded the debtor,” the court refused to reopen the case. The court was not asked to address any FCRA issues, and, even so, “the evidence would at most support a finding of failure to take appropriate care in verifying the reporting of the discharged debt” under the FCRA. For a copy of the decision, please contact .
2nd Circuit: KPMG Need Not Advance Defense Costs for Indicted Partners, Employees. On May 23, the Second Circuit Court of Appeals vacated, for lack of jurisdiction, orders entered by a federal district court that had directed the accounting firm of KPMG, LLP to honor express or implied contractual obligations to pay legal fees of certain of its partners and employees charged with promoting illegal tax shelters. Stein v. KPMG, LLP, 2007 WL 1487822, No. 06-4358-cv (2d Cir. May 23, 2007). The district judge conducting the criminal proceedings had held that the individual defendants’ constitutional rights had been violated because KPMG’s refusal to provide defense costs was caused by the improper policy adopted by the Department of Justice (the so-called “Thompson Memorandum”), which deemed a firm’s voluntary payment of legal expenses to “wrongdoing agents” a factor favoring prosecution of the firm. Without reaching the merits of this contention, the court ruled that “the proceeding challenged on this appeal – a state law contract action against a non-party within a federal criminal proceeding – is well outside the subject matter jurisdiction conferred by Congress on the federal courts.” Earlier, the Justice Department had issued a superseding memorandum where the policy set forth in the Thompson Memorandum was withdrawn. A copy of the decision can be found at http://www.findlaw.com/casecode/courts/2nd.html.
Defendant in Frivolous FCRA Case May Sue For Reasonable Costs, Attorneys' Fees. In O'Connor v. Trans Union, LLC, 2007 WL 150899 (E.D. Mich. May 24, 2007) the plaintiff brought an action against Trans Union and two other defendants alleging various violations of the Fair Credit Reporting Act (FCRA). Trans Union prevailed on its motion for summary judgment and subsequently filed a motion against the plaintiff and the plaintiff's two successive attorneys, Parker and Bramledge, to recover attorneys' fees under FCRA, and the federal judicial rules under 28 U.S.C. §1927. In his opinion for the U.S. District Court for the Eastern District of Michigan, the judge explained the rules for awarding attorneys' fees under FCRA and Title 28. Under FCRA, if a pleading or motion filed in connection with an action under the FCRA was filed in bad faith or for purposes of harassment, the court will award reasonable attorneys' fees to the prevailing party. Title 28 provides that if an attorney multiplies the proceedings in any case unreasonably and vexatiously, the court may require the attorney to personally pay the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct. The judge noted that the Sixth Circuit "has construed 'unreasonably and vexatiously' to include conduct where 'an attorney knows or reasonably should know that a claim pursued is frivolous, or that his or her litigation tactics will needlessly obstruct the litigation of non-frivolous claims. While the judge ruled that Trans Union was not entitled to attorneys' fees due to any actions by the plaintiff’s current attorney, Bramledge, the court stated that "Plaintiff, Parker [the previous attorney] or both might be found to bear responsibility [for not abandoning the case against Trans Union in the early stages]." The judge referred the remaining issues to a magistrate judge for a recommendation "as to whether Parker, Plaintiff or both should be required to pay all or some portion of Trans Union's attorney fees under the authority cited by Trans Union in its motion." For a copy of this opinion, please contact .
OMB Orders Federal Agencies to Notify Individuals of Privacy Breaches. On May 22, the Office of Management and Budget (OMB) issued a memorandum requiring all federal agencies, within 120 days, to implement policies on notifying individuals in the event of a breach of their personal information by the federal government, for both electronic and paper breaches. Additionally, the memorandum requires agencies to develop a plan within 18 months to eliminate their unnecessary collection and use of personally identifiable information, including social security numbers. The memorandum does not mandate a particular standard for when breach notification is required, but rather allows agencies the flexibility to determine the circumstances under which that agency will require notice. Agencies will also be required to develop and implement rules of behavior concerning the handling of personal information by agency employees. The memorandum can be found at http://www.whitehouse.gov/omb/memoranda/fy2007/m07-16.pdf.
FTC Alert Reminds Businesses to Truncate Credit and Debit Card Information on Receipts. Recently, the Federal Trade Commission (FTC) issued an alert to remind businesses that electronically processed credit and debit card receipts may only include the last five digits of the card number and may not include the expiration date of the card. As noted below and in recent previous issues of InfoBytes, failure to comply with the truncation requirement, which was added to the Fair Credit Reporting Act (FCRA) by the Fair and Accurate Credit Transactions Act of 2003 (FACTA), has recently been the subject of a number of putative class-action lawsuits under FCRA.
To view the alert, entitled "Slip Showing?," please see http://www.ftc.gov/bcp/edu/pubs/business/alerts/alt007.shtm.
Minnesota Governor Signs Bill Making Businesses Liable to Financial Institutions for Data Breaches. On May 21, Minnesota Governor Tim Pawlenty signed into law H.F. 1758, a bill allowing financial institutions to sue businesses for damages caused by credit or debit card data breaches. The bill places limits on the amount of time that businesses can hold a customer’s credit and debit card information. Under the bill, businesses cannot retain credit card data beyond the time necessary to authorize a customer’s transaction. For debit card transactions, businesses may keep a customer’s data up to 48 hours. If a business retains credit and debit card data beyond the permitted period and the data is subsequently breached, then financial institutions may sue the offending business for their resulting damages. The data retention portion of the bill takes effect on August 1, 2007 and businesses will have one year to adjust to the new regulation before financial institutions gain the right to sue. For the official text of the bill, please see http://www.revisor.leg.state.mn.us/bin/bldbill.php?bill=H1758.4.html&session=ls85.
Maryland Governor Signs Data Breach Notice Bills. On May 17, Maryland Governor Martin O’Malley signed two identical bills called the Personal Information Protection Act. (H.B. 208 and S.B. 194). The bills, among other things, require businesses to notify citizens if their personal information, electronic or paper, is breached. The bill also set forth requirements for data security and property data destruction for companies doing business in the state. The law will take effect on January 1, 2008. Full text of the bills can be found at http://mlis.state.md.us/2007RS/bills/hb/hb0208e.pdf and http://mlis.state.md.us/2007RS/bills/sb/sb0194e.pdf.
District Court Allows Private Action for Failure to Truncate Credit Card Number. On May 3, the U.S. District Court for the Central District of California denied a defendant’s motion to dismiss a putative class action lawsuit alleging violations of the credit-card truncation requirements added to FCRA by FACTA. Arcilla v. Adidas Promotional Retail Operations, Inc., 2007 WL 1498334, No. CV07-0211 (C.D. Cal. May 3, 2007). In this case, the plaintiff, Arcilla, on behalf of the putative class, claimed that Adidas, in its retail stores, printed credit card receipts containing the expiration date of the customers’ cards. FCRA prohibits the willful printing of “more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.” Adidas made four arguments in its motion to dismiss, all of which the court summarily rejected: (i) the FCRA provision is vague and ambiguous, (ii) the damages sought would be unconstitutionally excessive and violate due process, (iii) the statutory damages sought would violate principles of tort law, and (iv) the punitive damages sought were improper since no actual harm was alleged. The court found Adidas’ arguments without merit, stating that (i) its claim that the provision is vague “border[s] on the absurd,” (ii) its claim that damages would be unconstitutional “rests on a flawed premise” that the plaintiff had not alleged actual harm, when he had done so; (iii) its claim that the statutory damages violate tort law principles “rests on a premise that is fatally flawed” because tort law principles do not apply to statutory damages cases, and (iv) its claim regarding punitive damages “misapplies the guideposts” of the State Farm/BMW rulings by the Supreme Court. For a copy of the decision, please contact .
Another District Court Also Allows Private Action in FCRA truncation case. Previously, another judge in the U.S. District Court for the Central District of California had also allowed a plaintiff’s case to proceed, where the plaintiff alleged that the defendant had violated the FCRA by printing transaction receipts that contained more information than permitted by FCRA, as amended by the FACTA. Aeschbacher v. California Pizza Kitchen, Inc., 2007 WL 1500853, CV 07-215 (C.D. Cal. Apr. 3, 2007). In the case, plaintiff had raised several arguments, including that the FCRA did not provide a private cause of action for violations of the transaction receipt contents provision, that the provision was vague, and that the statute violated due process. Acting in response to a motion to dismiss, the court disagreed with the defendant on all arguments and allowed the plaintiff’s case to proceed, holding that the FCRA did provide for a private right of action, the statute’s requirements were clear, and that the statute did not violate the due process clause. For a copy of the opinion, please contact .
Mailings Constitute Firm Offers Under FCRA Despite Failure to Specify Amount of Credit Offered. On May 22, the U.S. District Court for the Eastern District of Wisconsin held that a bank’s pre-approved credit card mailings constituted “firm offers of credit” under FCRA despite the fact that the mailings did not specify a minimum line of credit. Price v. Capital One Bank, 2007 WL 1521525, No. 05-C-0947 (E.D. Wis. May 22, 2007). The mailings offered Visas and MasterCards, which offers, according to the court, were “widely accepted.” The mailings stated that the recipients had been pre-approved for a 0% APR on everything they bought for the next six months, a 14.9% variable APR following the introductory period, and no balance transfer fees. The interest rate computation method during the introductory period and thereafter was also provided. The amount of credit offered, however, was not specified in the mailings. According to the court, because there was “no ambiguity whether the defendant’s mailings offered lines of credit,” and the mailings included “sufficient terms to convey that the offer had value for consumers,” the mailings qualified as “firm offers of credit” under the FCRA. For a copy of the opinion, please contact .
© Buckley Kolar, LLP 2005. INFOBYTES is not intended as legal advice to any person or firm. It is provided as a client service and information contained herein is drawn from various public sources, including other publications.
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