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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Happy New Year and welcome to the new format of InfoBytes. You may now view the week’s news that is most relevant to you and your business by clicking on the topic headings below. Or, simply scroll down to see all of the week’s key legal developments in the financial services sector. We welcome your thoughts on the new layout—you may e-mail us at . Thank you from all of us at Buckley Kolar LLP.
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
FRB and OTS Revise CHARM Handbook. On December 26, the Federal Reserve Board (FRB) and the Office of Thrift Supervision (OTS) announced the publication of a revised Consumer Handbook on Adjustable-Rate Mortgages (CHARM). The handbook, or an equivalent, must be provided to any applicant applying for an adjustable-rate mortgage under Regulation Z, which implements the Truth in Lending Act. In its new form, the CHARM booklet addresses in greater depth the topics of interest-only and payment option structures due to the “growing use of nontraditional mortgage products.” The new handbook may be used immediately, but will not be mandatory until October 1, 2007. To read the press release, and view the new booklet, go to http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20061226/default.htm.
Federal Agencies Issue Final Guidance on Complex Structured Transaction Risk. Today, five federal regulatory agencies (the FRB, SEC, FDIC, OCC and OTS) issued joint guidance on “sound practices” regarding the risks of “Complex Structured Financial Transactions” (CSFTs). The final statement notes that “most structured finance transactions, such as standard public mortgage-backed securities transactions [and] public securitizations of retail credit cards” will “typically” not be considered CSFTs. The self-ascribed “principles-based” guidance sets out methods to identify, document, and manage CSFT risk. To view the joint agency press release, as well as the guidance, go to http://www.federalreserve.gov/BoardDocs/Press/bcreg/2007/20070105/default.htm.
FRB Announces 2007 Asset Thresholds for CRA and HMDA. At the end of December, the Federal Reserve Board (FRB) announced an adjustment to the asset-size exemption from the Home Mortgage Disclosure Act (HMDA) and the Community Reinvestment Act (CRA) regulations. A depository institution with assets less than $36 million on December 31, 2006, will not be required to collect HMDA data in 2007. For the purpose of CRA, effective January 1, 2007 a “small bank” will be one that had assets less than $1.033 billion as of December 31 of either 2005 or 2006. An “intermediate small bank” will be a small bank holding between $258 million and $1.033 billion at the end of both 2005 and 2006. To view the press release and the Federal Register entry for the HMDA threshold, see http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20061229/default.htm. For the same regarding the CRA threshold, see http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20061227/default.htm.
Banking Agencies Publish Request for Comments on Basel 1A. On December 26, the federal banking agencies (FRB, FDIC, OCC, and OTS) published notices of proposed rulemaking and request for comments in connection with the “Basel IA” capital requirements (for more information, see the December 8 issue of InfoBytes). To view these notices see http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/pdf/06-9738.pdf and http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/pdf/06-9736.pdf.
Identity Theft Task Force Seeks Public Comment on Recommendations. The Federal Identity Theft Task Force, a joint effort among 17 federal agencies and departments, recently announced that it is seeking public comment on several proposals to combat identity theft. These proposals closely track interim recommendations proposed by the task force last fall (see the September 22nd issue of InfoBytes for details). Comments are due January 19. To view the topics for which comments are being solicited, as well as detailed instructions on submitting comments, go to http://www.usdoj.gov/ittf/docs/issues_summary.pdf.
FDIC Publishes Primer on Managing Data Security Breaches. The FDIC, in its winter 2006 edition of Supervisory Insights, has published an article entitled “Incident Response Programs: Don’t Get Caught Without One”, an introduction to managing data security breaches in depository institutions. The publication outlines basic principals and best practices on how to prepare an “incident response program” and on meeting the requirements of the 2005 federal banking agency guidance on data security (see FIL-27-2005). The article can be found at http://www.fdic.gov/regulations/examinations/supervisory/insights/siwin06/article01_incident.html.
COURTS
District Court Holds FCRA “Firm Offer” Violation Not Willful. The U.S. District Court for the Northern District of Indiana held that, although a bank violated the Fair Credit Reporting Act (FCRA) “firm offer” requirement, its violation was not “willful,” and, therefore, the bank was not liable for statutory damages of $100-$1000. In Bruce v. Keybank N.A., No. 2:05-CV-330, 2006 WL 3743749 (N.D. Ind. Dec. 15, 2006), the bank sent a mailer indicating that the consumer had been “’pre-selected’ to receive a ‘home equity line of credit with a minimum amount of $10,000.’” The letter included some terms of the loan, such as the maximum loan-to-value ratio, the annual percentage rate, and the lack of application fees, private mortgage insurance, or prepayment penalties, but omitted other terms the court regarded as material, “such as the length of loan, how the loan is to be repaid, how the interest will be compounded, or any fees associated with the loan.” The court stated that a “lack of material terms is not necessarily dispositive [but] is a factor that weighs against the finding of a ‘firm offer of credit,’” but held, as a matter of law, that the mailer was not a “firm offer” because the mailer stated that the “[a]ctual rates, fees and terms [were] subject to change without notice.” The court held, quoting the Cole v. U.S. Capital case of the U.S. Court of Appeals for the Seventh Circuit, that the fact that the offer was subject to change without notice made it “so onerous as to deprive [it] of any appreciable value.” But the court went on to hold that the bank had not violated FCRA willfully because its compliance officer had not intended to violate the law. The court applied the test for willfulness under FCRA of the Seventh Circuit, which, according to the court, requires that “the defendant knew his conduct was unlawful,” rather than the less stringent test adopted by the Ninth Circuit in the Reynolds case that is now before the Supreme Court. The plaintiff had only sought statutory damages, which requires a showing of willfulness; therefore, the court dismissed the complaint. Because the court is in the Seventh Circuit, which is the source of most of the firm-offer litigation, this holding, if upheld, would dramatically reduce lenders’ exposure in the ongoing litigation. Please contact for a copy of this decision.
$50 Million Settlement Approved in Driver’s Privacy Class Action. The Federal District Court of Southern Florida recently approved a $50 million settlement in a class action lawsuit asserting that a bank’s purchase of driver license information violated the federal Driver’s Privacy Protection Act (DPPA). Kehoe v. Fidelity Federal Bank and Trust, Case No. 03-CV-80593 (S.D. Fla.). Under the DPPA – which provides for the greater of actual damages or liquidated damages of up to $2,500 per violation – persons must consent to the sharing of their driver’s license information. Under the terms of the settlement, in which the bank admits no liability, $40 million dollars is to go to the settlement class whose driver’s license information was provided to the bank by the Florida DMV. The class attorneys will receive $10 million in fees, plus costs, while the named plaintiffs will receive between $3,000 and $10,000 in “incentive awards.” The settlement follows the Eleventh Circuit reversal of summary judgment in favor of the bank based on the plaintiffs’ lack of actual damages (see http://www.ca11.uscourts.gov/opinions/ops/200413306.pdf for a copy of the 11th Circuit opinion). For a copy of the District Court’s opinion, please contact .
State Court Uniform Rules for Electronic Discovery Proposed by NCCUSL. The National Conference of Commissioners on Uniform State Laws (NCCUSL) recently published a draft of proposed uniform state court rules governing the discovery of electronically stored information (ESI) which largely track the new e-discovery amendments to the Federal Rules of Civil Procedure (FRCP) that became effective on December 1, 2006. The FRCP e-discovery amendments, which were approved without comment or dissent by the United States Supreme Court in April 2006, concern the discovery of ESI, the term which the FRCP has adopted to refer to any information stored on computer hard drives, databases, email servers, voicemail systems, Blackberries, PDAs, or any other electronic medium (see the December 1, 2006 InfoBytes Special Alert for more details). NCCUSL's draft proposal, though originally framed as statutory amendments, currently exists as a set of judicial rules that are scheduled to be voted on for final approval at NCCUSL’s annual meeting in August 2007. To view the draft of proposed uniform state court rules, please go to http://www.law.upenn.edu/bll/ulc/udoera/2006postdraftnovember.htm.
Federal and State Agencies Settle Alleged BSA Violations with a Florida Bank. On December 27, the Financial Crimes Enforcement Network (FinCEN), the Federal Deposit Insurance Corporation (FDIC), and the Florida Office of Financial Regulation (FLOFR) entered into “consent agreements” with Beach Bank, a Florida-chartered state bank, over allegations of failing to comply with requirements of the Bank Secrecy Act (BSA). FinCEN accused the bank of not adequately filing suspicious activities reports and of not taking proper steps to identify “high risk” accounts. Without admitting wrongdoing, Beach Bank agreed to pay $800,000 in civil money penalties. To view the FinCEN press release and see copies of the agreements, see http://www.fincen.gov/beachbankrelease.html.
STATE ISSUES
State of Rhode Island, City of Providence Act on Predatory Lending Measures. In order to implement the recently enacted Rhode Island Home Loan Protection Act (RIHLP Act) by its effective date of December 31, 2006, the Rhode Island Division of Banking promulgated Emergency Banking Regulation 3. As noted in the July 7, 2006 edition of Infobytes, the Act, among other things, prohibits certain practices in making home loans and high-cost home loans and also requires lenders to verify the ability of the borrower to repay the loan prior to making a high-cost home loan. The Emergency Regulation sets forth procedures, interpretations and clarifications to ensure compliance with the Act. In particular, the Emergency Regulation includes additional definitions, includes record-keeping and mandatory disclosure requirements for lenders, and includes an Appendix that provides sample forms for the required disclosures. The Emergency Regulation is effective from December 31, 2006 until April 30, 2007, by which time a permanent regulation is expected. The Act is codified at R.I. Gen Laws 34-25.2-1 et seq. More information on the Emergency Regulation is available at http://www.dbr.state.ri.us/news/.
In an unrelated action, the City Council of Providence, Rhode Island passed an amended ordinance referencing the RIHLP Act. In June 2006, the Council passed an Ordinance addressing certain "predatory" lending practices that included certain definitions that differed from those provided in the Act. In addition, the original ordinance stated, among other things, that licensed home repair contractors in the city cannot receive funds directly from a home equity loan, and that deceptive practices and consumer fraud that may result in a foreclosure can carry a fine of up to $10,000 plus restitution to the victim. The amended ordinance deleted those clauses, and deleted all of the definitions included in the original ordinance save the definition of "predatory lender," instead incorporating the definitions from the Act. The amended ordinance also included a new definition of "predatory loan" that ties to violations of the Act rather than its own list of practices. The amended ordinance is effective retroactively to July 11, 2006.
MISCELLANY
OFHEO Classifies Freddie and Fannie as “Adequately Capitalized,” Revises Earlier Fannie Classifications. On December 28, the Office of Federal Housing Enterprise Oversight (OFHEO) announced that Freddie Mac and Fannie Mae had been found to possess “adequate” capital as of September 30, 2006. However, OFHEO revised its capital assessment for Fannie Mae for 2002, 2003, and 2004 in light of Fannie Mae’s recent restatement of its financial filings for 2004 with the Securities and Exchange Commission. Fannie Mae’s recorded status was changed to “significantly undercapitalized” for the fourth quarter in both 2002 and 2003. OFHEO’s evaluation for the most recent year was based on estimates provided by Freddie and Fannie, and not information released to shareholders. In related news, Freddie Mac announced a net loss of $550 million for the third quarter of 2006, and expects continued losses for the fourth quarter. In the same period a year prior, Freddie Mac posted a profit of $880 million. To view the press release regarding the capitalization of Fannie Mae, see http://www.ofheo.gov/media/pdf/capclassfnm3q06.pdf. For that of Freddie Mac, see http://www.ofheo.gov/media/pdf/capclassfre3q06.pdf. For Freddie Mac’s third quarter market update, go to http://www.freddiemac.com/news/archives/investors/2007/mktupdate_010507.html.
Ownit Files for Bankruptcy. On December 28, Ownit Mortgage Solutions, Inc. filed for Chapter 11 bankruptcy protection. According to its filings, Ownit owes its creditors more than $170 million, mostly in the form of repurchase obligations on failing loans, and holds one to ten million dollars in assets. The Economist reported that Ownit was, at the time it stopped making loans in early December, the 17th largest subprime lender in the United States.
FDIC Appoints New General Counsel. On January 3, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) unanimously approved the appointment of Sara Kelsey to the position of General Counsel. Acting General Counsel Douglas Jones will return to his former post as Senior Deputy General Counsel of the legal division. Ms. Kelsey was previously General Counsel and Deputy Superintendent of the New York State Banking Department. To view the FDIC press release go to http://www.fdic.gov/news/news/press/2007/pr07002.html.
FIRM NEWS
Joe Kolar and Jon Jerison will be participating in the American Bar Association’s Committee on Consumer Financial Services Winter Meeting, from January 6 to January 9 in Dana Point, California. Mr. Kolar will be chairing the “General Counsel’s Panel” which will include several General Counsel’s from major mortgage companies discussing key issues in RESPA and housing finance for 2007. Mr. Jerison will be speaking before the Subcommittee on Truth in Lending. For more information, see http://www.abanet.org/dch/committee.cfm?com=CL230000.
Andrea "Lee" Negroni and Joe Lynyak will be speaking at two Thomson/West user's conferences in Los Angeles and Santa Ana, California on February 6-7, 2007. Lee is a West Key Author and author of Residential Mortgage Lending: State Regulation Manual, and Residential Mortgage Lending: Brokers, both published by Thomson/West and available on Westlaw. Joe is a partner at Buckley Kolar and California bar member. The attorneys will discuss residential and commercial mortgage lending, data security and consumer financial privacy laws, fair lending, firm offers of credit and FCRA, and RESPA enforcement, before an audience of mortgage company compliance and legal personnel, real estate brokers, homebuilders, and title company representatives.
District Court Holds FCRA “Firm Offer” Violation Not Willful. The U.S. District Court for the Northern District of Indiana held that, although a bank violated the Fair Credit Reporting Act (FCRA) “firm offer” requirement, its violation was not “willful,” and, therefore, the bank was not liable for statutory damages of $100-$1000. In Bruce v. Keybank N.A., No. 2:05-CV-330, 2006 WL 3743749 (N.D. Ind. Dec. 15, 2006), the bank sent a mailer indicating that the consumer had been “’pre-selected’ to receive a ‘home equity line of credit with a minimum amount of $10,000.’” The letter included some terms of the loan, such as the maximum loan-to-value ratio, the annual percentage rate, and the lack of application fees, private mortgage insurance, or prepayment penalties, but omitted other terms the court regarded as material, “such as the length of loan, how the loan is to be repaid, how the interest will be compounded, or any fees associated with the loan.” The court stated that a “lack of material terms is not necessarily dispositive [but] is a factor that weighs against the finding of a ‘firm offer of credit,’” but held, as a matter of law, that the mailer was not a “firm offer” because the mailer stated that the “[a]ctual rates, fees and terms [were] subject to change without notice.” The court held, quoting the Cole v. U.S. Capital case of the U.S. Court of Appeals for the Seventh Circuit, that the fact that the offer was subject to change without notice made it “so onerous as to deprive [it] of any appreciable value.” But the court went on to hold that the bank had not violated FCRA willfully because its compliance officer had not intended to violate the law. The court applied the test for willfulness under FCRA of the Seventh Circuit, which, according to the court, requires that “the defendant knew his conduct was unlawful,” rather than the less stringent test adopted by the Ninth Circuit in the Reynolds case that is now before the Supreme Court. The plaintiff had only sought statutory damages, which requires a showing of willfulness; therefore, the court dismissed the complaint. Because the court is in the Seventh Circuit, which is the source of most of the firm-offer litigation, this holding, if upheld, would dramatically reduce lenders’ exposure in the ongoing litigation. Please contact for a copy of this decision.
FRB and OTS Revise CHARM Handbook. On December 26, the Federal Reserve Board (FRB) and the Office of Thrift Supervision (OTS) announced the publication of a revised Consumer Handbook on Adjustable-Rate Mortgages (CHARM). The booklet, or an equivalent, must be provided to any applicant applying for an adjustable-rate mortgage under Regulation Z, which implements the Truth in Lending Act. In its new form, the CHARM booklet addresses in greater depth the topics of interest-only and payment option structures due to the “growing use of nontraditional mortgage products.” The new handbook may be used immediately, but will not be mandatory until October 1, 2007. To read the press release, and view the new booklet, go to http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20061226/default.htm.
State of Rhode Island, City of Providence Act on Predatory Lending Measures. In order to implement the recently enacted Rhode Island Home Loan Protection Act (RIHLP Act) by its effective date of December 31, 2006, the Rhode Island Division of Banking promulgated Emergency Banking Regulation 3. As noted in the July 7, 2006 edition of Infobytes, the Act, among other things, prohibits certain practices in making home loans and high-cost home loans and also requires lenders to verify the ability of the borrower to repay the loan prior to making a high-cost home loan. The Emergency Regulation sets forth procedures, interpretations and clarifications to ensure compliance with the Act. In particular, the Emergency Regulation includes additional definitions, includes record-keeping and mandatory disclosure requirements for lenders, and includes an Appendix that provides sample forms for the required disclosures. The Emergency Regulation is effective from December 31, 2006 until April 30, 2007, by which time a permanent regulation is expected. The Act is codified at R.I. Gen Laws 34-25.2-1 et seq. More information on the Emergency Regulation is available at http://www.dbr.state.ri.us/news/.
In an unrelated action, the City Council of Providence, Rhode Island passed an amended ordinance referencing the RIHLP Act. In June 2006, the Council passed an Ordinance addressing certain "predatory" lending practices that included certain definitions that differed from those provided in the Act. In addition, the original ordinance stated, among other things, that licensed home repair contractors in the city cannot receive funds directly from a home equity loan, and that deceptive practices and consumer fraud that may result in a foreclosure can carry a fine of up to $10,000 plus restitution to the victim. The amended ordinance deleted those clauses, and deleted all of the definitions included in the original ordinance save the definition of "predatory lender," instead incorporating the definitions from the Act. The amended ordinance also included a new definition of "predatory loan" that ties to violations of the Act rather than its own list of practices. The amended ordinance is effective retroactively to July 11, 2006.
FRB Announces 2007 Asset Thresholds for CRA and HMDA. At the end of December, the Federal Reserve Board (FRB) announced an adjustment to the asset-size exemption from the Home Mortgage Disclosure Act (HMDA) and the Community Reinvestment Act (CRA) regulations. A depository institution with assets less than $36 million on December 31, 2006, will not be required to collect HMDA data in 2007. For the purpose of CRA, effective January 1, 2007 a “small bank” will be one that had assets less than $1.033 billion as of December 31 of either 2005 or 2006. An “intermediate small bank” will be a small bank holding between $258 million and $1.033 billion at the end of both 2005 and 2006. To view the press release and the Federal Register entry for the HMDA threshold, see http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20061229/default.htm. For the same regarding the CRA threshold, see http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20061227/default.htm.
OFHEO Classifies Freddie and Fannie as “Adequately Capitalized,” Revises Earlier Fannie Classifications. On December 28, the Office of Federal Housing Enterprise Oversight (OFHEO) announced that Freddie Mac and Fannie Mae had been found to possess “adequate” capital as of September 30, 2006. However, OFHEO revised its capital assessment for Fannie Mae for 2002, 2003, and 2004 in light of Fannie Mae’s recent restatement of its financial filings for 2004 with the Securities and Exchange Commission. Fannie Mae’s recorded status was changed to “significantly undercapitalized” for the fourth quarter in both 2002 and 2003. OFHEO’s evaluation for the most recent year was based on estimates provided by Freddie and Fannie, and not information released to shareholders. In related news, Freddie Mac announced a net loss of $550 million for the third quarter of 2006, and expects continued losses for the fourth quarter. In the same period a year prior, Freddie Mac posted a profit of $880 million. To view the press release regarding the capitalization of Fannie Mae, see http://www.ofheo.gov/media/pdf/capclassfnm3q06.pdf. For that of Freddie Mac, see http://www.ofheo.gov/media/pdf/capclassfre3q06.pdf. For Freddie Mac’s third quarter market update, go to http://www.freddiemac.com/news/archives/investors/2007/mktupdate_010507.html.
Ownit Files for Bankruptcy. On December 28, Ownit Mortgage Solutions, Inc. filed for Chapter 11 bankruptcy protection. According to its filings, Ownit owes its creditors more than $170 million, mostly in the form of repurchase obligations on failing loans, and holds one to ten million dollars in assets. The Economist reported that Ownit was, at the time it stopped making loans in early December, the 17th largest subprime lender in the United States.
Federal Agencies Issue Final Guidance on Complex Structured Transaction Risk. Today, five federal regulatory agencies (the FRB, SEC, FDIC, OCC and OTS) issued joint guidance on “sound practices” regarding the risks of “Complex Structured Financial Transactions” (CSFTs). The final statement notes that “most structured finance transactions, such as standard public mortgage-backed securities transactions [and] public securitizations of retail credit cards” will “typically” not be considered CSFTs. The self-ascribed “principles-based” guidance sets out methods to identify, document, and manage CSFT risk. To view the joint agency press release, as well as the guidance, go to http://www.federalreserve.gov/BoardDocs/Press/bcreg/2007/20070105/default.htm.
FRB Announces 2007 Asset Thresholds for CRA and HMDA. At the end of December, the Federal Reserve Board (FRB) announced an adjustment to the asset-size exemption from the Home Mortgage Disclosure Act (HMDA) and the Community Reinvestment Act (CRA) regulations. A depository institution with assets less than $36 million on December 31, 2006, will not be required to collect HMDA data in 2007. For the purpose of CRA, effective January 1, 2007 a “small bank” will be one that had assets less than $1.033 billion as of December 31 of either 2005 or 2006. An “intermediate small bank” will be a small bank holding between $258 million and $1.033 billion at the end of both 2005 and 2006. To view the press release and the Federal Register entry for the HMDA threshold, see http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20061229/default.htm. For the same regarding the CRA threshold, see http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20061227/default.htm.
Banking Agencies Publish Request for Comments on Basel 1A. On December 26, the federal banking agencies (FRB, FDIC, OCC, and OTS) published notices of proposed rulemaking and request for comments in connection with the “Basel IA” capital requirements (for more information, see the December 8 issue of InfoBytes). To view these notices see http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/pdf/06-9738.pdf and http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/pdf/06-9736.pdf.
FDIC Publishes Primer on Managing Data Security Breaches. The FDIC, in its winter 2006 edition of Supervisory Insights, has published an article entitled “Incident Response Programs: Don’t Get Caught Without One”, an introduction to managing data security breaches in depository institutions. The publication outlines basic principals and best practices on how to prepare an “incident response program” and on meeting the requirements of the 2005 federal banking agency guidance on data security (see FIL-27-2005). The article can be found at http://www.fdic.gov/regulations/examinations/supervisory/insights/siwin06/article01_incident.html.
Federal and State Agencies Settle Alleged BSA Violations with a Florida Bank. On December 27, the Financial Crimes Enforcement Network (FinCEN), the Federal Deposit Insurance Corporation (FDIC), and the Florida Office of Financial Regulation (FLOFR) entered into “consent agreements” with Beach Bank, a Florida-chartered state bank, over allegations of failing to comply with requirements of the Bank Secrecy Act (BSA). FinCEN accused the bank of not adequately filing suspicious activities reports and of not taking proper steps to identify “high risk” accounts. Without admitting wrongdoing, Beach Bank agreed to pay $800,000 in civil money penalties. To view the FinCEN press release and see copies of the agreements, see http://www.fincen.gov/beachbankrelease.html.
FDIC Appoints New General Counsel. On January 3, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) unanimously approved the appointment of Sara Kelsey to the position of General Counsel. Acting General Counsel Douglas Jones will return to his former post as Senior Deputy General Counsel of the legal division. Ms. Kelsey was previously General Counsel and Deputy Superintendent of the New York State Banking Department. To view the FDIC press release go to http://www.fdic.gov/news/news/press/2007/pr07002.html.
State Court Uniform Rules for Electronic Discovery Proposed by NCCUSL. The National Conference of Commissioners on Uniform State Laws (NCCUSL) recently published a draft of proposed uniform state court rules governing the discovery of electronically stored information (ESI) which largely track the new e-discovery amendments to the Federal Rules of Civil Procedure (FRCP) that became effective on December 1, 2006. The FRCP e-discovery amendments, which were approved without comment or dissent by the United States Supreme Court in April 2006, concern the discovery of ESI, the term which the FRCP has adopted to refer to any information stored on computer hard drives, databases, email servers, voicemail systems, Blackberries, PDAs, or any other electronic medium (see the December 1, 2006 InfoBytes Special Alert for more details). NCCUSL's draft proposal, though originally framed as statutory amendments, currently exists as a set of judicial rules that are scheduled to be voted on for final approval at NCCUSL’s annual meeting in August 2007. To view the draft of proposed uniform state court rules, please go to http://www.law.upenn.edu/bll/ulc/udoera/2006postdraftnovember.htm.
District Court Holds FCRA “Firm Offer” Violation Not Willful. The U.S. District Court for the Northern District of Indiana held that, although a bank violated the Fair Credit Reporting Act (FCRA) “firm offer” requirement, its violation was not “willful,” and, therefore, the bank was not liable for statutory damages of $100-$1000. In Bruce v. Keybank N.A., No. 2:05-CV-330, 2006 WL 3743749 (N.D. Ind. Dec. 15, 2006), the bank sent a mailer indicating that the consumer had been “’pre-selected’ to receive a ‘home equity line of credit with a minimum amount of $10,000.’” The letter included some terms of the loan, such as the maximum loan-to-value ratio, the annual percentage rate, and the lack of application fees, private mortgage insurance, or prepayment penalties, but omitted other terms the court regarded as material, “such as the length of loan, how the loan is to be repaid, how the interest will be compounded, or any fees associated with the loan.” The court stated that a “lack of material terms is not necessarily dispositive [but] is a factor that weighs against the finding of a ‘firm offer of credit,’” but held, as a matter of law, that the mailer was not a “firm offer” because the mailer stated that the “[a]ctual rates, fees and terms [were] subject to change without notice.” The court held, quoting the Cole v. U.S. Capital case of the U.S. Court of Appeals for the Seventh Circuit, that the fact that the offer was subject to change without notice made it “so onerous as to deprive [it] of any appreciable value.” But the court went on to hold that the bank had not violated FCRA willfully because its compliance officer had not intended to violate the law. The court applied the test for willfulness under FCRA of the Seventh Circuit, which, according to the court, requires that “the defendant knew his conduct was unlawful,” rather than the less stringent test adopted by the Ninth Circuit in the Reynolds case that is now before the Supreme Court. The plaintiff had only sought statutory damages, which requires a showing of willfulness; therefore, the court dismissed the complaint. Because the court is in the Seventh Circuit, which is the source of most of the firm-offer litigation, this holding, if upheld, would dramatically reduce lenders’ exposure in the ongoing litigation. Please contact for a copy of this decision.
$50 Million Settlement Approved in Driver’s Privacy Class Action. The Federal District Court of Southern Florida recently approved a $50 million settlement in a class action lawsuit asserting that a bank’s purchase of driver license information violated the federal Driver’s Privacy Protection Act (DPPA). Kehoe v. Fidelity Federal Bank and Trust, Case No. 03-CV-80593 (S.D. Fla.). Under the DPPA – which provides for the greater of actual damages or liquidated damages of up to $2,500 per violation – persons must consent to the sharing of their driver’s license information. Under the terms of the settlement, in which the bank admits no liability, $40 million dollars is to go to the settlement class whose driver’s license information was provided to the bank by the Florida DMV. The class attorneys will receive $10 million in fees, plus costs, while the named plaintiffs will receive between $3,000 and $10,000 in “incentive awards.” The settlement follows the Eleventh Circuit reversal of summary judgment in favor of the bank based on the plaintiffs’ lack of actual damages (see http://www.ca11.uscourts.gov/opinions/ops/200413306.pdf for a copy of the 11th Circuit opinion). For a copy of the District Court’s opinion, please contact .
Federal Agencies Issue Final Guidance on Complex Structured Transaction Risk. Today, five federal regulatory agencies (the FRB, SEC, FDIC, OCC and OTS) issued joint guidance on “sound practices” regarding the risks of “Complex Structured Financial Transactions” (CSFTs). The final statement notes that “most structured finance transactions, such as standard public mortgage-backed securities transactions [and] public securitizations of retail credit cards” will “typically” not be considered CSFTs. The self-ascribed “principles-based” guidance sets out methods to identify, document, and manage CSFT risk. To view the joint agency press release, as well as the guidance, go to http://www.federalreserve.gov/BoardDocs/Press/bcreg/2007/20070105/default.htm.
District Court Holds FCRA “Firm Offer” Violation Not Willful. The U.S. District Court for the Northern District of Indiana held that, although a bank violated the Fair Credit Reporting Act (FCRA) “firm offer” requirement, its violation was not “willful,” and, therefore, the bank was not liable for statutory damages of $100-$1000. In Bruce v. Keybank N.A., No. 2:05-CV-330, 2006 WL 3743749 (N.D. Ind. Dec. 15, 2006), the bank sent a mailer indicating that the consumer had been “’pre-selected’ to receive a ‘home equity line of credit with a minimum amount of $10,000.’” The letter included some terms of the loan, such as the maximum loan-to-value ratio, the annual percentage rate, and the lack of application fees, private mortgage insurance, or prepayment penalties, but omitted other terms the court regarded as material, “such as the length of loan, how the loan is to be repaid, how the interest will be compounded, or any fees associated with the loan.” The court stated that a “lack of material terms is not necessarily dispositive [but] is a factor that weighs against the finding of a ‘firm offer of credit,’” but held, as a matter of law, that the mailer was not a “firm offer” because the mailer stated that the “[a]ctual rates, fees and terms [were] subject to change without notice.” The court held, quoting the Cole v. U.S. Capital case of the U.S. Court of Appeals for the Seventh Circuit, that the fact that the offer was subject to change without notice made it “so onerous as to deprive [it] of any appreciable value.” But the court went on to hold that the bank had not violated FCRA willfully because its compliance officer had not intended to violate the law. The court applied the test for willfulness under FCRA of the Seventh Circuit, which, according to the court, requires that “the defendant knew his conduct was unlawful,” rather than the less stringent test adopted by the Ninth Circuit in the Reynolds case that is now before the Supreme Court. The plaintiff had only sought statutory damages, which requires a showing of willfulness; therefore, the court dismissed the complaint. Because the court is in the Seventh Circuit, which is the source of most of the firm-offer litigation, this holding, if upheld, would dramatically reduce lenders’ exposure in the ongoing litigation. Please contact for a copy of this decision.
Identity Theft Task Force Seeks Public Comment on Recommendations. The Federal Identity Theft Task Force, a joint effort among 17 federal agencies and departments, recently announced that it is seeking public comment on several proposals to combat identity theft. These proposals closely track interim recommendations proposed by the task force last fall (see the September 22nd issue of InfoBytes for details). Comments are due January 19. To view the topics for which comments are being solicited, as well as detailed instructions on submitting comments, go to http://www.usdoj.gov/ittf/docs/issues_summary.pdf.
State Court Uniform Rules for Electronic Discovery Proposed by NCCUSL. The National Conference of Commissioners on Uniform State Laws (NCCUSL) recently published a draft of proposed uniform state court rules governing the discovery of electronically stored information (ESI) which largely track the new e-discovery amendments to the Federal Rules of Civil Procedure (FRCP) that became effective on December 1, 2006. The FRCP e-discovery amendments, which were approved without comment or dissent by the United States Supreme Court in April 2006, concern the discovery of ESI, the term which the FRCP has adopted to refer to any information stored on computer hard drives, databases, email servers, voicemail systems, Blackberries, PDAs, or any other electronic medium (see the December 1, 2006 InfoBytes Special Alert for more details). NCCUSL's draft proposal, though originally framed as statutory amendments, currently exists as a set of judicial rules that are scheduled to be voted on for final approval at NCCUSL’s annual meeting in August 2007. To view the draft of proposed uniform state court rules, please go to http://www.law.upenn.edu/bll/ulc/udoera/2006postdraftnovember.htm.
FDIC Publishes Primer on Managing Data Security Breaches. The FDIC, in its winter 2006 edition of Supervisory Insights, has published an article entitled “Incident Response Programs: Don’t Get Caught Without One”, an introduction to managing data security breaches in depository institutions. The publication outlines basic principals and best practices on how to prepare an “incident response program” and on meeting the requirements of the 2005 federal banking agency guidance on data security (see FIL-27-2005). The article can be found at http://www.fdic.gov/regulations/examinations/supervisory/insights/siwin06/article01_incident.html.
$50 Million Settlement Approved in Driver’s Privacy Class Action. The Federal District Court of Southern Florida recently approved a $50 million settlement in a class action lawsuit asserting that a bank’s purchase of driver license information violated the federal Driver’s Privacy Protection Act (DPPA). Kehoe v. Fidelity Federal Bank and Trust, Case No. 03-CV-80593 (S.D. Fla.). Under the DPPA – which provides for the greater of actual damages or liquidated damages of up to $2,500 for violations – persons must consent to the sharing of their driver’s license information. Under the terms of the settlement, in which the bank admits no liability, $40 million dollars is to go to the settlement class whose driver’s license information was provided to the bank by the Florida DMV. The class attorneys will receive $10 million in fees, plus costs, while the named plaintiffs will receive between $3,000 and $10,000 in “incentive awards.” The settlement follows the Eleventh Circuit reversal of summary judgment in favor of the bank based on the plaintiffs’ lack of actual damages (see http://www.ca11.uscourts.gov/opinions/ops/200413306.pdf for a copy of the 11th Circuit opinion). For a copy of the District Court’s opinion, please contact .
Identity Theft Task Force Seeks Public Comment on Recommendations. The Federal Identity Theft Task Force, a joint effort among 17 federal agencies and departments, recently announced that it is seeking public comment on several proposals to combat identity theft. These proposals closely track interim recommendations proposed by the task force last fall (see the September 22nd issue of InfoBytes for details). Comments are due January 19. To view the topics for which comments are being solicited, as well as detailed instructions on submitting comments, go to http://www.usdoj.gov/ittf/docs/issues_summary.pdf.
FDIC Publishes Primer on Managing Data Security Breaches. The FDIC, in its winter 2006 edition of Supervisory Insights, has published an article entitled “Incident Response Programs: Don’t Get Caught Without One”, an introduction to managing data security breaches in depository institutions. The publication outlines basic principals and best practices on how to prepare an “incident response program” and on meeting the requirements of the 2005 federal banking agency guidance on data security (see FIL-27-2005). The article can be found at http://www.fdic.gov/regulations/examinations/supervisory/insights/siwin06/article01_incident.html.
District Court Holds FCRA “Firm Offer” Violation Not Willful. The U.S. District Court for the Northern District of Indiana held that, although a bank violated the Fair Credit Reporting Act (FCRA) “firm offer” requirement, its violation was not “willful,” and, therefore, the bank was not liable for statutory damages of $100-$1000. In Bruce v. Keybank N.A., No. 2:05-CV-330, 2006 WL 3743749 (N.D. Ind. Dec. 15, 2006), the bank sent a mailer indicating that the consumer had been “’pre-selected’ to receive a ‘home equity line of credit with a minimum amount of $10,000.’” The letter included some terms of the loan, such as the maximum loan-to-value ratio, the annual percentage rate, and the lack of application fees, private mortgage insurance, or prepayment penalties, but omitted other terms the court regarded as material, “such as the length of loan, how the loan is to be repaid, how the interest will be compounded, or any fees associated with the loan.” The court stated that a “lack of material terms is not necessarily dispositive [but] is a factor that weighs against the finding of a ‘firm offer of credit,’” but held, as a matter of law, that the mailer was not a “firm offer” because the mailer stated that the “[a]ctual rates, fees and terms [were] subject to change without notice.” The court held, quoting the Cole v. U.S. Capital case of the U.S. Court of Appeals for the Seventh Circuit, that the fact that the offer was subject to change without notice made it “so onerous as to deprive [it] of any appreciable value.” But the court went on to hold that the bank had not violated FCRA willfully because its compliance officer had not intended to violate the law. The court applied the test for willfulness under FCRA of the Seventh Circuit, which, according to the court, requires that “the defendant knew his conduct was unlawful,” rather than the less stringent test adopted by the Ninth Circuit in the Reynolds case that is now before the Supreme Court. The plaintiff had only sought statutory damages, which requires a showing of willfulness; therefore, the court dismissed the complaint. Because the court is in the Seventh Circuit, which is the source of most of the firm-offer litigation, this holding, if upheld, would dramatically reduce lenders’ exposure in the ongoing litigation. Please contact for a copy of this decision.
Federal Agencies Issue Final Guidance on Complex Structured Transaction Risk. Today, five federal regulatory agencies (the FRB, SEC, FDIC, OCC and OTS) issued joint guidance on “sound practices” regarding the risks of “Complex Structured Financial Transactions” (CSFTs). The final statement notes that “most structured finance transactions, such as standard public mortgage-backed securities transactions [and] public securitizations of retail credit cards” will “typically” not be considered CSFTs. The self-ascribed “principles-based” guidance sets out methods to identify, document, and manage CSFT risk. To view the joint agency press release, as well as the guidance, go to http://www.federalreserve.gov/BoardDocs/Press/bcreg/2007/20070105/default.htm.
$50 Million Settlement Approved in Driver’s Privacy Class Action. The Federal District Court of Southern Florida recently approved a $50 million settlement in a class action lawsuit asserting that a bank’s purchase of driver license information violated the federal Driver’s Privacy Protection Act (DPPA). Kehoe v. Fidelity Federal Bank and Trust, Case No. 03-CV-80593 (S.D. Fla.). Under the DPPA – which provides for the greater of actual damages or liquidated damages of up to $2,500 per violation – persons must consent to the sharing of their driver’s license information. Under the terms of the settlement, in which the bank admits no liability, $40 million dollars is to go to the settlement class whose driver’s license information was provided to the bank by the Florida DMV. The class attorneys will receive $10 million in fees, plus costs, while the named plaintiffs will receive between $3,000 and $10,000 in “incentive awards.” The settlement follows the Eleventh Circuit reversal of summary judgment in favor of the bank based on the plaintiffs’ lack of actual damages (see http://www.ca11.uscourts.gov/opinions/ops/200413306.pdf for a copy of the 11th Circuit opinion). For a copy of the District Court’s opinion, please contact .
FDIC Appoints New General Counsel. On January 3, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) unanimously approved the appointment of Sara Kelsey to the position of General Counsel. Acting General Counsel Douglas Jones will return to his former post as Senior Deputy General Counsel of the legal division. Ms. Kelsey was previously General Counsel and Deputy Superintendent of the New York State Banking Department. To view the FDIC press release go to http://www.fdic.gov/news/news/press/2007/pr07002.html.
© Buckley Kolar, LLP 2007. 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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