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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
HUD Raises FHA Single Family Mortgage Limits. On January 3, HUD announced an increase in the size of single-family mortgage loans eligible for insurance by the Federal Housing Administration (FHA). Mortgagee Letter 2007-01 outlines the new calculation of the loan maximum equal to 95% an area’s median home price, so long as that value is between 48% and 87% of the Freddie Mac loan limit. The calculation is applicable to loans dated endorsed for insurance on and after January 1, 2007. Mortgagee Letter 1995-27 is rescinded by Mortgagee Letter 2007-01. For the text of Mortgagee Letter 2007-1, and past Mortgagee Letters, see www.hudclips.org.
House Bill Proposed to Establish “Seasoned Customer” Transaction Exemption. It has been reported that H.R. 323 will lift currency transaction reporting requirements on “seasoned customers.” The obligation of banks to report transactions of greater than $10,000 would, under the bill’s current form, not be required with regard to customers doing business with a bank for more than 12 months. H.R. 323 was proposed by House Financial Services Committee Chairman Barney Frank (D-Mass.) and Ranking Member Spencer Bachus (R-Ala.). Its text has not yet been posted to the Library of Congress website, http://thomas.loc.gov.
HUD Proposes Rule to Establish Roster of FHA HECM Counselors. HUD recently proposed a rule to establish a roster of approved third-party counselors to be used in connection with FHA-insured Home Equity Conversion Mortgages (HECMs). Lenders would be required to use counselors on the HUD maintained roster to provide the third-party HECM counseling as required by the National Housing Act and implemented by 24 C.F.R. § 206. The proposed rule would establish an application and examination system and a process for reprimand or removal of HECM counselors. Comments are due by March 9, 2007. See 72 Fed. Reg. 896 (Jan. 8, 2007).
Federal Home Loan Banks Prohibited from Issuing Excess Stock.On December 22, 2006, the Board of Directors of the Federal Housing Finance Board adopted rule No. 2006-23 prohibitingany Federal Home Loan Bank (FHLB)with outstanding excess stock greater than 1% of its total assetsfromincreasing member excess stock by paying stock dividends or issuing new excess stock. The final rule also requiresthe FHLBs to calculate dividendsbasedonactual(not projected) earnings.For more information and the final rule, see http://www.fhfb.gov/GetFile.aspx?FileID=6189and http://www.fhfb.gov/GetFile.aspx?FileID=6199.
COURTS
Class Action Denied in RESPA Litigation. On December 19, a federal district court in Ohio denied class action status in a lawsuit alleging violations of RESPA’s anti-kickback provisions. The plaintiffs sought to represent a class of homeowners against a title company and a real estate agent, alleging that the defendants set up sham companies—which purported to operate as affiliated business arrangements under RESPA—to cover up the improper payment of referral fees. According to the plaintiffs, the sham companies earned fees despite performing little or no work. Although the court agreed with the plaintiffs on certain issues (commenting, for example, that the plaintiffs were “correct that they can prove their RESPA claim by proving the [affiliated business arrangements] are sham entities”), it ultimately declined to certify the class, concluding that the commonality element was not met as to two of plaintiffs’ four claims, the plaintiffs’ claims were not typical of the class, and the differences between the plaintiffs’ claims and the claims of the potential class members precluded the plaintiffs from adequately representing the class members’ interests. See Pettrey v. Enterprise Title Agency, Inc., No. 1:05-cv-1504, 2006 WL 3757310 (N.D. Ohio Dec. 19, 2006). For a copy of the opinion, please contact .
California AG Settles withJackson Hewittfor Marketing of Loans and Other Financial Products. On January 3, the California Attorney General entered into a settlement agreement with Jackson Hewitt, a national tax preparationcompany,to resolve allegations of violations of state and federal debt collection, unfair business practices, deceptive advertising, and privacy laws.The settlement requires the company to changethe way it advertises many of its financial products related to tax preparation, including the refund anticipation loans (RALs).The complaint alleged that the company used deceptive advertising to portray the RAL product as the customer's refund or as "money now" rather than as a loan. In addition, the company’s advertising implied that the customer wouldreceive a refund faster through the company than from the IRS.The company was also said to have violatedCalifornia and federal privacy laws by using and disclosing tax return information without prior consent, and violated the Equal Credit Opportunity Act by charging additional fees to customers receiving the Earned Income Tax Credit to obtain loans against their refunds. Jackson Hewitt will pay $5 million in restitution, civil penalties, and investigation costs.The complaint and settlement can be found at http://ag.ca.gov/newsalerts/release.php?id=1405.
Administrative Law Judge Strikes Down Florida Rule Limiting Insurers’ Use of Credit Scoring. An administrative law judge in Florida struck down a proposed state rule that attempted to limit the use of credit reports by insurers. Fla. Ins. Council Inc. v. Office of Ins. Reg. and Fin. Servs. Comm’n, Admin., Nos. 05-1012RP, 05-2803RP, 12/29/06; Fair Isaac Corp. v. Fin. Servs. Comm’n and Office of Ins. Reg., Admin., No. 06-2036RU, 12/29/06. The proposal attempted to prevent discrimination against groups with little or no credit histories by limiting the use of credit information in rate filings. Insurers would have been required under the rule to demonstrate that their rates would not have a “disproportionate effect” on consumers based on race, age, martial status, or other factors. The state argued that the rule was needed to protect groups such as religious and ethnic minorities, with limited credit histories. Insurance firms countered that credit information is a useful indicator of risk. The judge determined that the proposed rule was arbitrary and that the state insurance regulators supplied little or no guidance regarding compliance. The opinion is at http://www.doah.state.fl.us/ros/2005/05-1012.PDF.
Supreme Court to Hear FCRA Argument Next Week. Oral argument for the closely watched U.S. Supreme Court cases Safeco Insurance v. Burr and Geico v. Edo, contesting Fair Credit Reporting Act (FCRA) issues, have been scheduled for Tuesday, January 16 (see the November 17 issue of InfoBytes for more details). Since the previous mention of these cases in InfoBytes, the petitioners, Safeco Insurance and Geico, have filed reply briefs. For copies of these, or any prior briefs or decisions in these cases, contact . For the Supreme Court’s schedule of oral arguments for January, go to http://www.supremecourtus.gov/oral_arguments/hearinglists/hearinglist_jan07.pdf.
Listing of “Total Due” Along with Invitation to Call for Updated Balance Did Not Violate FDCPA. According to the facts set forth in Williams v. OSI Educational Services Inc., Case No. 06-cv-285-PJG (E.D. Wisc. Jan. 9, 2007), the defendant – a debt collector – sent the plaintiff a collection and debt validation notice that itemized the principal, interest, and fees due as of the date of the letter, described the sum of these amounts as the “Total Due,” and included the following statement: “The balance may not reflect the exact amount of interest which is accruing daily per your original agreement with your creditor. Contact us to find out your exact payout balance.” The plaintiff alleged that this letter violated the FDCPA, and brought suit on behalf of a putative class of persons who received a similar letter. The defendant moved for summary judgment, arguing that the letter clearly set forth the amount of the debt owed. The plaintiff argued that the reference to accruing interest and the solicitation to contact the collector for an “exact payout balance” rendered the amount due unclear. The Court found that the defendant’s invitation to contact it for an updated amount due did not render the amount due as of the date of the letter unclear. In granting the defendant’s motion, the Court found it significant that the language in defendant’s letter was substantially similar to the Seventh Circuit’s “safe harbor” language set forth in Miller v. McCella, 214 F.3d 872, 876 (7th Cir. 2000). Contact for a copy of the decision.
No Private Right of Action Under GLBA; Repeated Dunning Calls Do Not Constitute Intentional Infliction of Emotional Distress; No Duty to Wait for Grace Period to Run Before Initiating Collection Calls. In Peters-Mone v. Clayton Homes, Inc., et al., C.A. No. 4:06-CV-1326-TLW (D.S.C. opinion Jan. 9, 2007), the plaintiffs sued a debt collector, asserting that its dunning calls – allegedly made after the payment due date but before the end of the late charge grace period – violated state and federal statutes and common law principles. The defendant filed a motion to dismiss all the claims which was granted. Among the more significant bases for dismissal, the Court dismissed the plaintiffs’ claims under the Gramm-Leach-Bliley Act (GLBA), the FTC Act, and a South Carolina law prohibiting obscene and threatening phone calls, finding that no private right of action exists under those statutes. The Court also dismissed the plaintiffs’ negligence claims, finding no common law duty to wait for the grace period to run before calling on the debt. In addition, the Court dismissed the plaintiffs’ claims for intentional infliction of emotional distress because it determined that repeated collection calls – as many as eight a day – do not constitute the sort of extreme or outrageous conduct capable of supporting such a claim. The Court denied the plaintiffs’ implied covenant of good faith and fair dealing claim because that covenant is extinguished when the borrower defaults. Finally, the Court dismissed the plaintiffs’ breach of confidence claim on the basis that South Carolina does not consider the creditor-debtor relationship to be a fiduciary relationship. Please contact for a copy of the decision.
Automatic Dialing Systemto Send Unsolicited Text MessagesViolatesTCPA. An Arizona Court of Appeals decision holding that it is a violation of the Telephone Consumer Protection Act (TCPA) to use an automatic dialing system to send unsolicited text messages to cellular phone customers will stand, now that the United States Supreme Court has declined to review the judgment. Joffe v. Acacia Mortgage Inc., 121 P.3d 831 (Ariz. 2005).Acacia, a mortgage company,attemptedto advertise low-interest mortgages in such a manner.The Court determined that Acacia’s SMS text messages violated the TCPA’s prohibition against making"any call" to a cellular telephone using an “automatic dialing system,” because the use of the word “call” in the TCPA was intended to encompass any and all attempts to communicate by telephone, and was not limited to traditional voice communications. The SupremeCourt's denial of certiorari can be accessed at http://www.supremecourtus.gov/orders/courtorders/010807pzor.pdf.
Ninth Circuit Holds that Entire Computer Directory May Be Seized in Search for Records Described in Warrant. A recent Ninth Circuit decision permits the government to seize electronic records not described in a search warrant if they are intermingled with records that are so described. United States v. Comprehensive Drug Testing Inc., No. 05-10067, 2006 WL 3782956 (9th Cir. Dec. 27, 2006). At issue in this case waswhetherfederal agents, in exercising a warrant to seize the drug testing records of ten professional baseball players,violated the 4th Amendment by seizing a copy of a computer directory which contained the drug testing records of not only the named players, but of other professional athletes as well.
The Circuit Court reasoned that, by the terms of the warrant, the seizure of the entire directory was permissible only if an on-site search of the relevant files was impracticable (this determination was made by “law enforcement personnel trained in searching and seizing computer data”). This said, whether such a seizure was in violation of the 4th Amendment seemingly hinged on how practical it was to separate the files authorized by the warrant from those that were not. Notably, in validating the federal agents’ determination of impracticability, the circuit court’s decision deviated from its guidance in United States v. Tamura, 694 F.2d 591 (9th Cir. 1982). Tamura suggested that in order to prevent any 4thAmendment violations, intermingled documents should be sealed and held until they were approved by a judge. The circuit court further held that it was not necessary under the 4th Amendment’s concept of reasonableness for the government to conduct key-word searches of the directory in order to stay within the scope of the search warrant. The circuit court reasoned that key-word searching may not retrieve all relevant documents. Finally, to protect the privacy rights of those individuals whose files were not described in the search warrant, the circuit court held thata seized directory containing intermingled records could be reviewed post-seizure by a judge, who would then determine whether the seizure was reasonable. For a copy of the opinion, see http://www.ca9.uscourts.gov/ca9/newopinions.nsf/410347FABA0293F388257251006DF1D1 /$file/0510067.pdf?openelement.
FTC Alleges National Debt Consolidation Scheme Misleads Consumers About Costs, Benefits, Nonprofit Status.The Federal Trade Commission filed a complaint alleging that a nationwide debt consolidation business violated the FTC Act and the FTC Telemarketing Sales Rule (TSR) by illegally telemarketing to millions of consumers. The alleged violations of the FTC Act and the TSRinclude falsely claiming: nonprofit status, that the only cost for the services is a less than $49 administrative fee and/or that there is no application fee, that the services will result in a specified estimated savings, and that the services will reduce the consumer's monthly payment or total debt or improve his or her credit rating. Additionally alleged TSR violations include: failing to disclose the program's total costs, telling consumers that certain payments are refundable without disclosing all of the limitations of the program's refund policy, calling telephone numbers on the Do Not Call Registry and consumers who have stated that they do not wish to receive calls from the defendants, failing to pay the fee to access the Registry, and "abandoning calls."The FTC is seeking consumer redress, a freeze of the operation's assets, and an end to its illegal practices. The complaint was filedin the U.S. District Court for the Southern District of Florida; the defendantsareattorneyRandall L. Leshin, P.A., d/b/a Express Consolidation, Express Consolidation Inc., and Consumer Credit Consolidation Inc. and its president, Maureen A. Gaviola. For a copy of the FTC's press release and the complaint, see http://www.ftc.gov/opa/2007/01/expresscon.htm.
FTC Charges Payment Processor For Unfairly Processing Debt Transactions to Consumer Bank Accounts. On December 27, the FTC filed a complaint in U.S. District Court of Nevada against Interbill Ltd, a Nevada based payment processor, for violation of Section 5 of the FTC Act. The FTC alleges InterBill unfairly processed debt transactions to consumer’s bank accounts without the consumers’ knowledge and debited thousands of consumers’ accounts using consumer names and bank account information provided by Pharmacycards.com, a fraudulent enterprise. Prior to debiting consumers’ accounts, InterBill failed to collect information, locate physical addresses and check references for Pharmacycards.com, and failed to request or obtain proof that consumers had authorized Pharmacycards to debit their accounts. Even upon receipt of numerous complaints from consumers and banks made in connection with these transactions, as well as insufficient information provided from Pharmacycard concerning proof of customer authorization, InterBill continued processing payments. It is alleged that more than 70% of the attempted transactions were returned or refused by consumers’ banks, while more than $2.38 million was debited from consumers’ accounts.The FTC’s complaint seeks consumer redress and a permanent bar on further violations. For the complete text of the complaint, see http://www.ftc.gov/os/caselist/0423192/070108cmp0423192.pdf.
Save Mart Faces Class Action for Violating California Privacy Law. The Bakersfield Californian recently reported a lawsuit involving a class of as many as 300,000 former customers, against Save Mart Supermarkets alleging the collection of phone numbers from credit card customers in violation of state law. A San Joaquin Superior Court certified the class late last month. The suit was brought by Lindsay & Stonebarger of Sacramento – a firm that has brought several suits related to the same California consumer protection statute against major retailers. Save Mart is reported to be represented by Boutin Dentino Gibson Di Giusto & Hodell, also of Sacramento. The article can be read at http://www.bakersfield.com/137/story/92719.html.
STATE ISSUES
Ohio Governor Vetoes Damage Cap for Predatory Lending. On January 8, Ohio Governor Ted Strickland vetoed S.B. 117 which capped non-economic damages under the Ohio Sales Practices Act at $5,000 (see the June 30 and December 22, 2005 issues of InfoBytes for more details). In his veto message Governor Strickland claimed to be strengthening protections from products that may have harmed “children and others in Ohio.” The Governor, who began his term in office hours prior to the veto, has constitutional power to veto a bill within 10 days of its signing. Ohio Attorney General Marc Dann says the veto came on the tenth day, excluding Sundays, after the law was passed on December 28th, 2006. In a January 8th press release, the Attorney General stated that his office was prepared to “vigorously defend” the governor’s veto “in court if necessary.” For Governor Strickland’s press release, see http://governor.ohio.gov/News/January2007/tabid/103/Default.aspx. For Attorney General Dann’s press release, see http://www.ag.state.oh.us/press/07/01/pr070108e.asp.
DC Passes Data Security Breach Notification and Credit Report Freeze Statutes. At the end of 2006, DC passed two pieces of consumer protection legislation: (i) the Consumer Personal Information Security Breach Notification Act of 2006 (B16-810), and (ii) the Consumer Security Freeze Act of 2006 (B16-811). The Security Breach Act requires persons or entities that conduct business in the District of Columbia to notify District residents if there has been a data breach affecting data that is not secure. Notification is required regardless of whether there is a risk of harm or identity theft. If approved by Congress, the Data Breach Act will become effective on July 1, 2007. It can be accessed at http://www.dccouncil.washington.dc.us/images/00001/20061218135855.pdf.
The Security Freeze Act will provide individuals who live in the District the right to request that credit reporting agencies freeze their consumer credit reports within three days of a request. The law will require credit reporting agencies to provide internet-based methods of requesting credit freezes and temporary lifts of such freezes. If approved by Congress, the Security Freeze Act will become effective on July 1, 2007. It can be obtained at http://www.dccouncil.washington.dc.us/images/00001/20061218135957.pdf.
Michigan Enacts Data Security Breach Notification Statute. The Michigan legislature recently passed S.B. 309, amending the Michigan Identity Theft Protection Act, to require government agencies and businesses to provide notice to Michigan residents of security breaches of databases containing the resident’s unencrypted personal information. Notification may be necessary if the data is encrypted and the data encryption key also was compromised. Notification is not required if the breach has not, or is not likely to, cause identity theft or substantial loss or injury to a Michigan resident. The Michigan statute will become effective on or about July 2, 2007. See http://www.legislature.mi.gov/documents/2005-2006/billconcurred/Senate/pdf/2005-SCB-0309.pdf.
Indiana’s New Junk Fax Law Goes Into Effect. On January 1, Indiana’snew junk fax law (HEA 1280) went into effect,prohibiting the transmission of unsolicited facsimiles unless sent in connection with a pre-existing business relationship. HEA 1280 permits the state to fine a sender up to $1,500 per faxtransmitted in violation ofthe act. Fines collected will be deposited in a special account earmarked for the enforcement of HEA 1280. HEA 1280 does not regulate the transmission of non-commercial facsimiles, such as those circulated for religious or political reasons. For the full text of HEA 1280, see http://www.in.gov/legislative/bills/2006/HE/HE1280.1.html.
MISCELLANY
Federal Reserve Board Governor Speaks on Enterprise Risk Management in Mortgage Lending.In remarks to the NCUA Risk Mitigation Summit, Federal Reserve Board Governor Susan Schmidt Bies spoke on the importance of enterprise risk management for financial institutions and discussed risk management concerns specific to the mortgage lending industry, pointing out that nontraditional mortgage products and subprime mortgage lending create unique challenges for lenders. Her specific suggestions for how to mitigate these risks include the establishment of prudent underwriting standards and the provision of adequate consumer disclosures. A transcript of Ms. Bies’ remarks is on the Federal Reserve website at http://www.federalreserve.gov/boarddocs/speeches/2007/20070111/default.htm.
FIRM NEWS
Andrea “Lee” Negroni and Joe Lynyak will be speaking attwo Thomson/West users’ 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.They 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.
In February, Andrea “Lee” Negroni willattend the Third Annual International Conference of the Information Technology Law Association in Bangalore, India. She and Buckley Kolar partner John Kromer have been assisting clients with legal issuesin the area of business process outsourcing (BPO)for U.S. and India-based financial institutionclients. Duringher trip, Lee will be available to lead discussion groups and present seminars on regulatory issues implicated by BPO in the fields of consumer loan application processing, loan servicing, consumer data privacy and similar subjects, in the cities of Bangalore, Mumbai (Bombay) and Delhi between February 13 and 25, 2007. Interestedpersons may contact Lee at or by phone at 202-349-8032. During her trip, Lee will post a periodic "Blog from Bangalore" on the Buckley Kolar website.
Robert Serino was quoted by the American Banker in two articles, “Shell-Firm Scrutiny to Add Burden for Banks?”and “Defying Forecasts, SAR Filings Didn’t Spike.”The former concerns thegrowing use of domestic shell companies in money laundering activities. The articlewas predicated onCongressional hearings,and the report The Role of Domestic Shell Companies in Financial Crime and Money Laundering: Limited Liability Companies and the guidance Potential Money Laundering Risks Related to ShellCompanies,both issued bythe Department of Treasury's Financial Crimes Enforcement Network (FinCEN) in November 2006.In the latter article, Mr. Serino reported on preliminary data issued by FinCEN on the number of SARs filed during 2006.The increase in SAR filings from 2005 to 2006 was not as significant as expected (5.7% increase) considering that the increases in 2005 and 2004 were 37% and 32%, respectively.Mr. Serinoindicated that since “bank examiners are increasingly looking at the quality of SARs, not just the number a bank files," this shift "might discourage some defensive filings.”
Joe Kolar and Jon Jerison spoke last week at the American Bar Association’s Committee on Consumer Financial Services Winter Meeting. Mr. Kolar chaired the “General Counsel’s Panel” which included several General Counsels from major mortgage companies discussing key issues in RESPA and housing finance for 2007. Mr. Jerison spoke before the Subcommittee on Truth in Lending.
Class Action Denied in RESPA Litigation. On December 19, a federal district court in Ohio denied class action status in a lawsuit alleging violations of RESPA’s anti-kickback provisions. The plaintiffs sought to represent a class of homeowners against a title company and a real estate agent, alleging that the defendants set up sham companies—which purported to operate as affiliated business arrangements under RESPA—to cover up the improper payment of referral fees. According to the plaintiffs, the sham companies earned fees despite performing little or no work. Although the court agreed with the plaintiffs on certain issues (commenting, for example, that the plaintiffs were “correct that they can prove their RESPA claim by proving the [affiliated business arrangements] are sham entities”), it ultimately declined to certify the class, concluding that the commonality element was not met as to two of plaintiffs’ four claims, the plaintiffs’ claims were not typical of the class, and the differences between the plaintiffs’ claims and the claims of the potential class members precluded the plaintiffs from adequately representing the class members’ interests. See Pettrey v. Enterprise Title Agency, Inc., No. 1:05-cv-1504, 2006 WL 3757310 (N.D. Ohio Dec. 19, 2006). For a copy of the opinion, please contact .
Ohio Governor Vetoes Damage Cap for Predatory Lending. On January 8, Ohio Governor Ted Strickland vetoed S.B. 117 which capped non-economic damages under the Ohio Sales Practices Act at $5,000 (see the June 30 and December 22, 2005 issues of InfoBytes for more details). In his veto message Governor Strickland claimed to be strengthening protections from products that may have harmed “children and others in Ohio.” The governor, who began his term in office hours prior to the veto, has constitutional power to veto a bill within 10 days of its signing. Ohio Attorney General Marc Dann says the veto came on the tenth day, excluding Sundays, after the law was passed on December 28th, 2006. In a January 8th press release, AG Dann stated that his office was prepared to “vigorously defend” the governor’s veto “in court if necessary.” For Governor Strickland’s press release, see http://governor.ohio.gov/News/January2007/tabid/103/Default.aspx. For Attorney General Dann’s press release, see http://www.ag.state.oh.us/press/07/01/pr070108e.asp.
HUD Proposes Rule to Establish Roster of FHA HECM Counselors. HUD recently proposed a rule to establish a roster of approved third-party counselors to be used in connection with FHA-insured Home Equity Conversion Mortgages (HECMs). Lenders would be required to use counselors on the HUD maintained roster to provide the third-party HECM counseling as required by the National Housing Act and implemented by 24 C.F.R. § 206. The proposed rule would establish an application and examination system and a process for reprimand or removal of HECM counselors. Comments are due by March 9, 2007. See 72 Fed. Reg. 896 (Jan. 8, 2007).
HUD Raises FHA Single Family Mortgage Limits. On January 3, HUD announced an increase in the size of single-family mortgage loans eligible for insurance by the Federal Housing Administration (FHA). Mortgagee Letter 2007-01 outlines the new calculation of the loan maximum equal to 95% an area’s median home price, so long as that value is between 48% and 87% of the Freddie Mac loan limit. The calculation is applicable to loans dated endorsed for insurance on and after January 1, 2007. Mortgagee Letter 1995-27 is rescinded by Mortgagee Letter 2007-01. For the text of Mortgagee Letter 2007-1, and past Mortgagee Letters, see www.hudclips.org.
Supreme Court to Hear FCRA Argument Next Week. Oral argument for the closely watched U.S. Supreme Court cases Safeco Insurance v. Burr and Geico v. Edo, contesting Fair Credit Reporting Act (FCRA) issues, have been scheduled for Tuesday, January 16 (see the November 17 issue of InfoBytes for more details). Since the previous mention of these cases in InfoBytes, the petitioners, Safeco Insurance and Geico, have filed reply briefs. For copies of these, or any prior briefs or decisions in these cases, contact . For the Supreme Court’s schedule of oral arguments for January, go to http://www.supremecourtus.gov/oral_arguments/hearinglists/hearinglist_jan07.pdf.
Federal Reserve Board Governor Speaks on Enterprise Risk Management in Mortgage Lending.In remarks to the NCUA Risk Mitigation Summit, Federal Reserve Board Governor Susan Schmidt Bies spoke on the importance of enterprise risk management for financial institutions and discussed risk management concerns specific to the mortgage lending industry, pointing out that nontraditional mortgage products and subprime mortgage lending create unique challenges for lenders. Her specific suggestions for how to mitigate these risks include the establishment of prudent underwriting standards and the provision of adequate consumer disclosures. A transcript of Ms. Bies’s remarks is on the Federal Reserve website at http://www.federalreserve.gov/boarddocs/speeches/2007/20070111/default.htm.
House Bill Proposed to Establish “Seasoned Customer” Transaction Exemption. It has been reported that H.R. 323 will lift currency transaction reporting requirements on “seasoned customers.” The obligation of banks to report transactions of greater than $10,000 would, under the bill’s current form, not be required with regard to customers doing business with a bank for more than 12 months. H.R. 323 was proposed by House Financial Services Committee Chairman Barney Frank (D-Mass.) and Ranking Member Spencer Bachus (R-Ala.). Its text has not yet been posted to the Library of Congress website, http://thomas.loc.gov.
Federal Home Loan Banks Prohibited from Issuing Excess Stock.On December 22, 2006, the Board of Directors of the Federal Housing Finance Board adopted rule No. 2006-23 prohibitingany Federal Home Loan Bank (FHLB)with outstanding excess stock greater than 1% of its total assetsfromincreasing member excess stock by paying stock dividends or issuing new excess stock. The final rule also requiresthe FHLBs to calculate dividendsbasedonactual(not projected) earnings.For more information and the final rule, see http://www.fhfb.gov/GetFile.aspx?FileID=6189and http://www.fhfb.gov/GetFile.aspx?FileID=6199.
California AG Settles withJackson Hewittfor Marketing of Loans and Other Financial Products. On January 3, the California Attorney General entered into a settlement agreement with Jackson Hewitt, a national tax preparationcompany,to resolve allegations of violations of state and federal debt collection, unfair business practices, deceptive advertising, and privacy laws.The settlement requires the company to changethe way it advertises many of its financial products related to tax preparation, including the refund anticipation loans (RALs).The complaint alleged that the company used deceptive advertising to portray the RAL product as the customer's refund or as "money now" rather than as a loan. In addition, the company’s advertising implied that the customer wouldreceive a refund faster through the company than from the IRS.The company was also said to have violatedCalifornia and federal privacy laws by using and disclosing tax return information without prior consent, and violated the Equal Credit Opportunity Act by charging additional fees to customers receiving the Earned Income Tax Credit to obtain loans against their refunds. Jackson Hewitt will pay $5 million in restitution, civil penalties, and investigation costs.The complaint and settlement can be found at http://ag.ca.gov/newsalerts/release.php?id=1405.
Federal Reserve Board Governor Speaks on Enterprise Risk Management in Mortgage Lending.In remarks to the NCUA Risk Mitigation Summit, Federal Reserve Board Governor Susan Schmidt Bies spoke on the importance of enterprise risk management for financial institutions and discussed risk management concerns specific to the mortgage lending industry, pointing out that nontraditional mortgage products and subprime mortgage lending create unique challenges for lenders. Her specific suggestions for how to mitigate these risks include the establishment of prudent underwriting standards and the provision of adequate consumer disclosures. A transcript of Ms. Bies’ remarks is on the Federal Reserve website at http://www.federalreserve.gov/boarddocs/speeches/2007/20070111/default.htm.
Supreme Court to Hear FCRA Argument Next Week. Oral argument for the closely watched U.S. Supreme Court cases Safeco Insurance v. Burr and Geico v. Edo, contesting Fair Credit Reporting Act (FCRA) issues, have been scheduled for Tuesday, January 16 (see the November 17 issue of InfoBytes for more details). Since the previous mention of these cases in InfoBytes, the petitioners, Safeco Insurance and Geico, have filed reply briefs. For copies of these, or any prior briefs or decisions in these cases, contact . For the Supreme Court’s schedule of oral arguments for January, go to http://www.supremecourtus.gov/oral_arguments/hearinglists/hearinglist_jan07.pdf.
California AG Settles withJackson Hewittfor Marketing of Loans and Other Financial Products. On January 3, the California Attorney General entered into a settlement agreement with Jackson Hewitt, a national tax preparationcompany,to resolve allegations of violations of state and federal debt collection, unfair business practices, deceptive advertising, and privacy laws.The settlement requires the company to changethe way it advertises many of its financial products related to tax preparation, including the refund anticipation loans (RALs).The complaint alleged that the company used deceptive advertising to portray the RAL product as the customer's refund or as "money now" rather than as a loan. In addition, the company’s advertising implied that the customer wouldreceive a refund faster through the company than from the IRS.The company was also said to have violatedCalifornia and federal privacy laws by using and disclosing tax return information without prior consent, and violated the Equal Credit Opportunity Act by charging additional fees to customers receiving the Earned Income Tax Credit to obtain loans against their refunds. Jackson Hewitt will pay $5 million in restitution, civil penalties, and investigation costs.The complaint and settlement can be found at http://ag.ca.gov/newsalerts/release.php?id=1405.
Listing of “Total Due” Along with Invitation to Call for Updated Balance Did Not Violate FDCPA. According to the facts set forth in Williams v. OSI Educational Services Inc., Case No. 06-cv-285-PJG (E.D. Wisc. Jan. 9, 2007), the defendant – a debt collector – sent the plaintiff a collection and debt validation notice that itemized the principal, interest, and fees due as of the date of the letter, described the sum of these amounts as the “Total Due,” and included the following statement: “The balance may not reflect the exact amount of interest which is accruing daily per your original agreement with your creditor. Contact us to find out your exact payout balance.” The plaintiff alleged that this letter violated the FDCPA, and brought suit on behalf of a putative class of persons who received a similar letter. The defendant moved for summary judgment, arguing that the letter clearly set forth the amount of the debt owed. The plaintiff argued that the reference to accruing interest and the solicitation to contact the collector for an “exact payout balance” rendered the amount due unclear. The Court found that the defendant’s invitation to contact it for an updated amount due did not render the amount due as of the date of the letter unclear. In granting the defendant’s motion, the Court found it significant that the language in defendant’s lender was substantially similar to the Seventh Circuit’s “safe harbor” language set forth in Miller v. McCella, 214 F.3d 872, 876 (7th Cir. 2000). Contact for a copy of the decision.
No Private Right of Action Under GLBA; Repeated Dunning Calls Do Not Constitute Intentional Infliction of Emotional Distress; No Duty to Wait for Grace Period to Run Before Initiating Collection Calls. In Peters-Mone v. Clayton Homes, Inc., et al., C.A. No. 4:06-CV-1326-TLW (D.S.C. opinion Jan. 9, 2007), the plaintiffs sued a debt collector, asserting that its dunning calls – allegedly made after the payment due date but before the end of the late charge grace period – violated state and federal statutes and common law principles. The defendant filed a motion to dismiss all the claims which was granted. Among the more significant bases for dismissal, the Court dismissed the plaintiffs’ claims under the Gramm-Leach-Bliley Act (GLBA), the FTC Act, and a South Carolina law prohibiting obscene and threatening phone calls, finding that no private right of action exists under those statutes. The Court also dismissed the plaintiffs’ negligence claims, finding no common law duty to wait for the grace period to run before calling on the debt. In addition, the Court dismissed the plaintiffs’ claims for intentional infliction of emotional distress because it determined that repeated collection calls – as many as eight a day – do not constitute the sort of extreme or outrageous conduct capable of supporting such a claim. The Court denied the plaintiffs’ implied covenant of good faith and fair dealing claim because that covenant is extinguished when the borrower defaults. Finally, the Court dismissed the plaintiffs’ breach of confidence claim on the basis that South Carolina does not consider the creditor-debtor relationship to be a fiduciary relationship. Please contact for a copy of the decision.
FTC Alleges National Debt Consolidation Scheme Misleads Consumers About Costs, Benefits, Nonprofit Status.The Federal Trade Commission filed a complaint alleging that a nationwide debt consolidation business violated the FTC Act and the FTC Telemarketing Sales Rule (TSR) by illegally telemarketing to millions of consumers. The alleged violations of the FTC Act and the TSRinclude falsely claiming: nonprofit status, that the only cost for the services is a less than $49 administrative fee and/or that there is no application fee, that the services will result in a specified estimated savings, and that the services will reduce the consumer's monthly payment or total debt or improve his or her credit rating. Additionally alleged TSR violations include: failing to disclose the program's total costs, telling consumers that certain payments are refundable without disclosing all of the limitations of the program's refund policy, calling telephone numbers on the Do Not Call Registry and consumers who have stated that they do not wish to receive calls from the defendants, failing to pay the fee to access the Registry, and "abandoning calls."The FTC is seeking consumer redress, a freeze of the operation's assets, and an end to its illegal practices. The complaint was filedin the U.S. District Court for the Southern District of Florida; the defendantsareattorneyRandall L. Leshin, P.A., d/b/a Express Consolidation, Express Consolidation Inc., and Consumer Credit Consolidation Inc. and its president, Maureen A. Gaviola. For a copy of the FTC's press release and the complaint, see http://www.ftc.gov/opa/2007/01/expresscon.htm.
FTC Charges Payment Processor For Unfairly Processing Debt Transactions to Consumer Bank Accounts. On December 27, the FTC filed a complaint in U.S. District Court of Nevada against Interbill Ltd, a Nevada based payment processor, for violation of Section 5 of the FTC Act. The FTC alleges InterBill unfairly processed debt transactions to consumer’s bank accounts without the consumers’ knowledge and debited thousands of consumers’ accounts using consumer names and bank account information provided by Pharmacycards.com, a fraudulent enterprise. Prior to debiting consumers’ accounts, InterBill failed to collect information, locate physical addresses and check references for Pharmacycards.com, and failed to request or obtain proof that consumers had authorized Pharmacycards to debit their accounts. Even upon receipt of numerous complaints from consumers and banks made in connection with these transactions, as well as insufficient information provided from Pharmacycard concerning proof of customer authorization, InterBill continued processing payments. It is alleged that more than 70% of the attempted transactions were returned or refused by consumers’ banks, while more than $2.38 million was debited from consumers’ accounts.The FTC’s complaint seeks consumer redress and a permanent bar on further violations. For the complete text of the complaint, see http://www.ftc.gov/os/caselist/0423192/070108cmp0423192.pdf.
Administrative Law Judge Strikes Down Florida Rule Limiting Insurers’ Use of Credit Scoring. An administrative law judge in Florida struck down a proposed state rule that attempted to limit the use of credit reports by insurers. Fla. Ins. Council Inc. v. Office of Ins. Reg. and Fin. Servs. Comm’n, Admin., Nos. 05-1012RP, 05-2803RP, 12/29/06; Fair Isaac Corp. v. Fin. Servs. Comm’n and Office of Ins. Reg., Admin., No. 06-2036RU, 12/29/06. The proposal attempted to prevent discrimination against groups with little or no credit histories by limiting the use of credit information in rate filings. Insurers would have been required under the rule to demonstrate that their rates would not have a “disproportionate effect” on consumers based on race, age, martial status, or other factors. The state argued that the rule was needed to protect groups such as religious and ethnic minorities, with limited credit histories. Insurance firms countered that credit information is a useful indicator of risk. The judge determined that the proposed rule was arbitrary and that the state insurance regulators supplied little or no guidance regarding compliance. The opinion is at http://www.doah.state.fl.us/ros/2005/05-1012.PDF.
California AG Settles withJackson Hewittfor Marketing of Loans and Other Financial Products. On January 3, the California Attorney General entered into a settlement agreement with Jackson Hewitt, a national tax preparationcompany,to resolve allegations of violations of state and federal debt collection, unfair business practices, deceptive advertising, and privacy laws.The settlement requires the company to changethe way it advertises many of its financial products related to tax preparation, including the refund anticipation loans (RALs).The complaint alleged that the company used deceptive advertising to portray the RAL product as the customer's refund or as "money now" rather than as a loan. In addition, the company’s advertising implied that the customer wouldreceive a refund faster through the company than from the IRS.The company was also said to have violatedCalifornia and federal privacy laws by using and disclosing tax return information without prior consent, and violated the Equal Credit Opportunity Act by charging additional fees to customers receiving the Earned Income Tax Credit to obtain loans against their refunds. Jackson Hewitt will pay $5 million in restitution, civil penalties, and investigation costs.The complaint and settlement can be found at http://ag.ca.gov/newsalerts/release.php?id=1405.
Listing of “Total Due” Along with Invitation to Call for Updated Balance Did Not Violate FDCPA. According to the facts set forth in Williams v. OSI Educational Services Inc., Case No. 06-cv-285-PJG (E.D. Wisc. Jan. 9, 2007), the defendant – a debt collector – sent the plaintiff a collection and debt validation notice that itemized the principal, interest, and fees due as of the date of the letter, described the sum of these amounts as the “Total Due,” and included the following statement: “The balance may not reflect the exact amount of interest which is accruing daily per your original agreement with your creditor. Contact us to find out your exact payout balance.” The plaintiff alleged that this letter violated the FDCPA, and brought suit on behalf of a putative class of persons who received a similar letter. The defendant moved for summary judgment, arguing that the letter clearly set forth the amount of the debt owed. The plaintiff argued that the reference to accruing interest and the solicitation to contact the collector for an “exact payout balance” rendered the amount due unclear. The Court found that the defendant’s invitation to contact it for an updated amount due did not render the amount due as of the date of the letter unclear. In granting the defendant’s motion, the Court found it significant that the language in defendant’s lender was substantially similar to the Seventh Circuit’s “safe harbor” language set forth in Miller v. McCella, 214 F.3d 872, 876 (7th Cir. 2000). Contact for a copy of the decision.
No Private Right of Action Under GLBA; Repeated Dunning Calls Do Not Constitute Intentional Infliction of Emotional Distress; No Duty to Wait for Grace Period to Run Before Initiating Collection Calls. In Peters-Mone v. Clayton Homes, Inc., et al., C.A. No. 4:06-CV-1326-TLW (D.S.C. opinion Jan. 9, 2007), the plaintiffs sued a debt collector, asserting that its dunning calls – allegedly made after the payment due date but before the end of the late charge grace period – violated state and federal statutes and common law principles. The defendant filed a motion to dismiss all the claims which was granted. Among the more significant bases for dismissal, the Court dismissed the plaintiffs’ claims under the Gramm-Leach-Bliley Act (GLBA), the FTC Act, and a South Carolina law prohibiting obscene and threatening phone calls, finding that no private right of action exists under those statutes. The Court also dismissed the plaintiffs’ negligence claims, finding no common law duty to wait for the grace period to run before calling on the debt. In addition, the Court dismissed the plaintiffs’ claims for intentional infliction of emotional distress because it determined that repeated collection calls – as many as eight a day – do not constitute the sort of extreme or outrageous conduct capable of supporting such a claim. The Court denied the plaintiffs’ implied covenant of good faith and fair dealing claim because that covenant is extinguished when the borrower defaults. Finally, the Court dismissed the plaintiffs’ breach of confidence claim on the basis that South Carolina does not consider the creditor-debtor relationship to be a fiduciary relationship. Please contact for a copy of the decision.
Save Mart Faces Class Action for Violating California Privacy Law. The Bakersfield Californian recently reported a lawsuit involving a class of as many as 300,000 former customers, against Save Mart Supermarkets alleging the collection of phone numbers from credit card customers in violation of state law. A San Joaquin Superior Court certified the class late last month. The suit was brought by Lindsay & Stonebarger of Sacramento – a firm that has brought several suits related to the same California consumer protection statute against major retailers. Save Mart is reported to be represented by Boutin Dentino Gibson Di Giusto & Hodell, also of Sacramento. The article can be read at http://www.bakersfield.com/137/story/92719.html.
Administrative Law Judge Strikes Down Florida Rule Limiting Insurers’ Use of Credit Scoring. An administrative law judge in Florida struck down a proposed state rule that attempted to limit the use of credit reports by insurers. Fla. Ins. Council Inc. v. Office of Ins. Reg. and Fin. Servs. Comm’n, Admin., Nos. 05-1012RP, 05-2803RP, 12/29/06; Fair Isaac Corp. v. Fin. Servs. Comm’n and Office of Ins. Reg., Admin., No. 06-2036RU, 12/29/06. The proposal attempted to prevent discrimination against groups with little or no credit histories by limiting the use of credit information in rate filings. Insurers would have been required under the rule to demonstrate that their rates would not have a “disproportionate effect” on consumers based on race, age, martial status, or other factors. The state argued that the rule was needed to protect groups such as religious and ethnic minorities, with limited credit histories. Insurance firms countered that credit information is a useful indicator of risk. The judge determined that the proposed rule was arbitrary and that the state insurance regulators supplied little or no guidance regarding compliance. The opinion is at http://www.doah.state.fl.us/ros/2005/05-1012.PDF.
Automatic Dialing Systemto Send Unsolicited Text MessagesViolatesTCPA. An Arizona Court of Appeals decision holding that it is a violation of the Telephone Consumer Protection Act (TCPA) to use an automatic dialing system to send unsolicited text messages to cellular phone customers will stand, now that the United States Supreme Court has declined to review the judgment. Joffe v. Acacia Mortgage Inc., 121 P.3d 831 (Ariz. 2005).Acacia, a mortgage company,attemptedto advertise low-interest mortgages in such a manner.The Arizona Court of Appeals determined that Acacia’s SMS text messages violated the TCPA’s prohibition against making"any call" to a cellular telephone using an “automatic dialing system,” because the use of the word “call” in the TCPA was intended to encompass any and all attempts to communicate by telephone, and was not limited to traditional voice communications. Acacia appealed to the Supreme Court; however, the Supreme Court declined to hear the case on January 8, 2007. Please contact Buckley Kolar for a copy of the Arizona Court of Appeals’ decision.The SupremeCourt's denial of certiorari can be accessed at http://www.supremecourtus.gov/orders/courtorders/010807pzor.pdf.
DC Passes Data Security Breach Notification and Credit Report Freeze Statutes. At the end of 2006, DC passed two pieces of consumer protection legislation: (i) the Consumer Personal Information Security Breach Notification Act of 2006 (B16-810), and (ii) the Consumer Security Freeze Act of 2006 (B16-811). The Data Breach Act requires persons or entities that conduct business in the District of Columbia to notify District residents if there has been a data breach affecting data that is not secure. Notification is required regardless of whether there is a risk of harm or identity theft. If approved by Congress, the Data Breach Act will become effective on July 1, 2007. It can be accessed at http://www.dccouncil.washington.dc.us/images/00001/20061218135855.pdf.
The Credit Report Freeze Act will provide individuals who live in the District the right to request that credit reporting agencies freeze their consumer credit reports within 3 days of a request. The law will require credit reporting agencies to provide internet-based methods of requesting credit freezes and temporary lifts of such freezes. If approved by Congress, the Credit Report Freeze Act will become effective on July 1, 2007. It can be obtained at http://www.dccouncil.washington.dc.us/images/00001/20061218135957.pdf.
Michigan Enacts Data Security Breach Notification Statute. The Michigan legislature recently passed S.B. 309, amending the Michigan Identity Theft Protection Act, to require government agencies and business to provide notice to Michigan residents of security breaches of databases containing the resident’s unencrypted personal information. Notification may be necessary if the data is encrypted and the data encryption key also was compromised. Notification is not required if the breach has not, or is not likely to, cause identity theft or substantial loss or injury to a Michigan resident. The Michigan statute will become effective on or about July 2, 2007. See http://www.legislature.mi.gov/documents/2005-2006/billconcurred/Senate/pdf/2005-SCB-0309.pdf.
Ninth Circuit Holds that Entire Computer Directory May Be Seized in Search for Records Described in Warrant. A recent Ninth Circuit decision permits the government to seize electronic records not described in a search warrant if they are intermingled with records that are so described. United States v. Comprehensive Drug Testing Inc., No. 05-10067, 2006 WL 3782956 (9th Cir. Dec. 27, 2006). At issue in this case waswhetherfederal agents, in exercising a warrant to seize the drug testing records of 10 professional baseball players,violated the 4th Amendment by seizing a copy of a computer directory which contained the drug testing records of not only the named players, but of other professional athletes as well.
The circuit court reasoned that, by the terms of the warrant, the seizure of the entire directory was permissible only if an on-site search of the relevant files was impracticable (this determination was made by “law enforcement personnel trained in searching and seizing computer data”). This said, whether such a seizure was in violation of the 4th Amendment seemingly hinged on how practical it was to separate the files authorized by the warrant from those that were not. Notably, in validating the federal agents’ determination of impracticability, the circuit court’s decision deviated from its guidance in United States v. Tamura, 694 F.2d 591 (9th Cir. 1982). Tamura suggested that in order to prevent any 4thAmendment violations, intermingled documents should be sealed and held until they were approved by a judge. The circuit court further held that it was not necessary under the 4th Amendment’s concept of reasonableness for the government to conduct key-word searches of the directory in order to stay within the scope of the search warrant. The circuit court reasoned that key-word searching may not retrieve all relevant documents. Finally, to protect the privacy rights of those individuals whose files were not described in the search warrant, the circuit court held thata seized directory containing intermingled records could be reviewed post-seizure by a judge, who would then determine whether the seizure was reasonable. For a copy of the opinion, see http://www.ca9.uscourts.gov/ca9/newopinions.nsf/410347FABA0293F388257251006DF1D1 /$file/0510067.pdf?openelement.
Indiana’s New Junk Fax Law Goes Into Effect. On January 1, Indiana’snew junk fax law (HEA 1280) went into effect,prohibiting the transmission of unsolicited facsimiles unless sent in connection with a pre-existing business relationship. HEA 1280 permits the state to fine a sender up to $1,500 per faxtransmitted in violation ofthe act. Fines collected will be deposited in a special account earmarked for the enforcement of HEA 1280. HEA 1280 does not regulate the transmission of non-commercial facsimiles, such as those circulated for religious or political reasons. For the full text of HEA 1280, see http://www.in.gov/legislative/bills/2006/HE/HE1280.1.html.
DC Passes Data Security Breach Notification and Credit Report Freeze Statutes. At the end of 2006, DC passed two pieces of consumer protection legislation: (i) the Consumer Personal Information Security Breach Notification Act of 2006 (B16-810), and (ii) the Consumer Security Freeze Act of 2006 (B16-811). The Security Breach Act requires persons or entities that conduct business in the District of Columbia to notify District residents if there has been a data breach affecting data that is not secure. Notification is required regardless of whether there is a risk of harm or identity theft. If approved by Congress, the Data Breach Act will become effective on July 1, 2007. It can be accessed at http://www.dccouncil.washington.dc.us/images/00001/20061218135855.pdf.
The Security Freeze Act will provide individuals who live in the District the right to request that credit reporting agencies freeze their consumer credit reports within three days of a request. The law will require credit reporting agencies to provide internet-based methods of requesting credit freezes and temporary lifts of such freezes. If approved by Congress, the Credit Report Freeze Act will become effective on July 1, 2007. It can be obtained at http://www.dccouncil.washington.dc.us/images/00001/20061218135957.pdf.
Michigan Enacts Data Security Breach Notification Statute. The Michigan legislature recently passed S.B. 309, amending the Michigan Identity Theft Protection Act, to require government agencies and businesses to provide notice to Michigan residents of security breaches of databases containing the resident’s unencrypted personal information. Notification may be necessary if the data is encrypted and the data encryption key also was compromised. Notification is not required if the breach has not, or is not likely to, cause identity theft or substantial loss or injury to a Michigan resident. The Michigan statute will become effective on or about July 2, 2007. See http://www.legislature.mi.gov/documents/2005-2006/billconcurred/Senate/pdf/2005-SCB-0309.pdf.
Ninth Circuit Holds that Entire Computer Directory May Be Seized in Search for Records Described in Warrant. A recent Ninth Circuit decision permits the government to seize electronic records not described in a search warrant if they are intermingled with records that are so described. United States v. Comprehensive Drug Testing Inc., No. 05-10067, 2006 WL 3782956 (9th Cir. Dec. 27, 2006). At issue in this case waswhetherfederal agents, in exercising a warrant to seize the drug testing records of ten professional baseball players,violated the 4th Amendment by seizing a copy of a computer directory which contained the drug testing records of not only the named players, but of other professional athletes as well.
The Circuit Court reasoned that, by the terms of the warrant, the seizure of the entire directory was permissible only if an on-site search of the relevant files was impracticable (this determination was made by “law enforcement personnel trained in searching and seizing computer data”). This said, whether such a seizure was in violation of the 4th Amendment seemingly hinged on how practical it was to separate the files authorized by the warrant from those that were not. Notably, in validating the federal agents’ determination of impracticability, the circuit court’s decision deviated from its guidance in United States v. Tamura, 694 F.2d 591 (9th Cir. 1982). Tamura suggested that in order to prevent any 4thAmendment violations, intermingled documents should be sealed and held until they were approved by a judge. The circuit court further held that it was not necessary under the 4th Amendment’s concept of reasonableness for the government to conduct key-word searches of the directory in order to stay within the scope of the search warrant. The circuit court reasoned that key-word searching may not retrieve all relevant documents. Finally, to protect the privacy rights of those individuals whose files were not described in the search warrant, the circuit court held thata seized directory containing intermingled records could be reviewed post-seizure by a judge, who would then determine whether the seizure was reasonable. For a copy of the opinion, see http://www.ca9.uscourts.gov/ca9/newopinions.nsf/410347FABA0293F388257251006DF1D1 /$file/0510067.pdf?openelement.
Save Mart Faces Class Action for Violating California Privacy Law. The Bakersfield Californian recently reported a lawsuit involving a class of as many as 300,000 former customers, against Save Mart Supermarkets alleging the collection of phone numbers from credit card customers in violation of state law. A San Joaquin Superior Court certified the class late last month. The suit was brought by Lindsay & Stonebarger of Sacramento – a firm that has brought several suits related to the same California consumer protection statute against major retailers. Save Mart is reported to be represented by Boutin Dentino Gibson Di Giusto & Hodell, also of Sacramento. The article can be read at http://www.bakersfield.com/137/story/92719.html.
Supreme Court to Hear FCRA Argument Next Week. Oral argument for the closely watched U.S. Supreme Court cases Safeco Insurance v. Burr and Geico v. Edo, contesting Fair Credit Reporting Act (FCRA) issues, have been scheduled for Tuesday, January 16 (see the November 17 issue of InfoBytes for more details). Since the previous mention of these cases in InfoBytes, the petitioners, Safeco Insurance and Geico, have filed reply briefs. For copies of these, or any prior briefs or decisions in these cases, contact . For the Supreme Court’s schedule of oral arguments for January, go to http://www.supremecourtus.gov/oral_arguments/hearinglists/hearinglist_jan07.pdf.
Listing of “Total Due” Along with Invitation to Call for Updated Balance Did Not Violate FDCPA. According to the facts set forth in Williams v. OSI Educational Services Inc., Case No. 06-cv-285-PJG (E.D. Wisc. Jan. 9, 2007), the defendant – a debt collector – sent the plaintiff a collection and debt validation notice that itemized the principal, interest, and fees due as of the date of the letter, described the sum of these amounts as the “Total Due,” and included the following statement: “The balance may not reflect the exact amount of interest which is accruing daily per your original agreement with your creditor. Contact us to find out your exact payout balance.” The plaintiff alleged that this letter violated the FDCPA, and brought suit on behalf of a putative class of persons who received a similar letter. The defendant moved for summary judgment, arguing that the letter clearly set forth the amount of the debt owed. The plaintiff argued that the reference to accruing interest and the solicitation to contact the collector for an “exact payout balance” rendered the amount due unclear. The Court found that the defendant’s invitation to contact it for an updated amount due did not render the amount due as of the date of the letter unclear. In granting the defendant’s motion, the Court found it significant that the language in defendant’s lender was substantially similar to the Seventh Circuit’s “safe harbor” language set forth in Miller v. McCella, 214 F.3d 872, 876 (7th Cir. 2000). Contact for a copy of the decision.
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