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CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

January 20, 2006

FEDERAL ISSUES

National Banks Not Citizens of Each State Where Branches are Located. The U.S. Supreme Court ruled on January 17, 2006 that for the purposes of federal diversity jurisdiction, a bank is a citizen of the state in which its main office, as designated in its articles of association, is located, and not of each state in which the bank has a physical presence. This decision overturned the earlier decision by the Court of Appeals for the Fourth Circuit, which found that Wachovia Bank, a national bank chartered by the Comptroller of the Currency, could be deemed a citizen of South Carolina where the bank had branch locations, even though the bank's designated main office is located in North Carolina. The Supreme Court recognized that for federal diversity jurisdiction purposes, state banks (in corporate form) and other corporations are deemed citizens only of those states where they are incorporated and the states where they maintain their principal places of business. In construing 28 U.S.C. §1348, which governs the jurisdiction of national banks, the Court determined that Congress did not intend national banks to be deemed citizens in each state where their branches are located. Wachovia v. Schmidt, No. 04-1186 (S. Ct. Jan. 17, 2006). A copy of the opinion may be obtained at http://a257.g.akamaitech.net/7/257/2422/17jan20061050/.

OFAC Issues Enforcement Guidelines for Banking Institutions. On January 12, 2006, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) published interim final guidelines for enforcing its regulations prohibiting economic contact with countries subject to U.S. economic sanctions (including for example Iran, Myanmar, North Korea and Sudan) and individuals on the list of Specially Designated Nationals and Blocked Persons (the SDN List). The guidelines apply only to banking institutions examined under the BSA/AML Examination Manual released last summer by the Federal Financial Institutions Examination Council -- that is, the guidelines apply to national banks, federal thrifts, federal credit unions, state banks that are Federal Reserve member banks, and other state banks insured by the FDIC. The guidelines reinforce the overall messages of the Manual that (i) compliance with OFAC regulations should be integrated into a bank's overall anti-money laundering compliance, and (ii) both should be based on a thorough risk analysis by the bank, based on its own specific mix of products, services, customers and geographical concentration of business. The guidelines commit OFAC to considering a bank's violations of OFAC regulations in light of its overall compliance record, taking into account the compliance conclusions of the bank's primary regulator. The guidelines go into effect February 13, 2006, but OFAC will accept comments on the guidelines as late as March 13, 2006. For more information, see http://www.treas.gov/offices/enforcement/ofac/legal/regs/fr71_1971.pdf.

Federal Financial Regulators Announce Public Service Campaign to Help Hurricane Victims. On January 13, 2006, the federal financial regulatory agencies announced a public service campaign to aid in the financial recovery of victims of last year's hurricanes. The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA) will begin distributing the public service announcements to print and radio media outlets in areas with the highest concentrations of people affected by the hurricane. According to the agencies, customers have not been able to take advantage of assistance in the form of fee waivers, lower interest rates, extended repayment schedules, or deferral of principal or interest simply because they have not been in contact with their lenders yet. The public service announcements, which encourage borrowers to contact their lenders, are available at http://www.occ.gov/hurricane.htm. To view the press release, see http://www.federalreserve.gov/boarddocs/press/other/2006/20060113/default.htm.

OCC Issues Bulletin on Increased HMDA Asset Size Exemption Threshold. On January 12, 2006, the OCC issued a bulletin concerning the asset size exemption threshold for depository institutions which are required to report loan data under the Home Mortgage Disclosure Act (HMDA). The Federal Reserve recently increased the threshold from $34 million to $35 million, exempting institutions with assets of $35 million or less from HMDA’s data collection requirements beginning January 1, 2006. The bulletin, however, cautions that an “institution’s exemption from collecting data in 2006 does not affect its responsibility to report the data it was required to collect in 2005.” The bulletin is available at http://www.occ.treas.gov/ftp/bulletin/2006-1.doc.

COURTS

FTC: FCRA Duty to Assure Accuracy in Credit Reports Protects User of Credit Information. Far West Credit, Inc., a Utah-based credit aggregator, has agreed to pay $120,000 to settle charges that it failed to follow reasonable procedures to assure the maximum possible accuracy of the information it reported, as required by Section 607(b) of the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681e(b). The Federal Trade Commission’s (FTC) complaint alleges that Far West Credit violated Section 607(b) by providing credit reports to Keystone Mortgage and Investment Co., a home-loan originator, that included information about non-existent accounts provided by Keystone on behalf of borrowers who had insufficient credit files with the major nationwide credit bureaus. According to the complaint, the credit reports that Far West Credit provided to Keystone were used in FHA-insured mortgages that later defaulted, “resulting in losses to the FHA home loan program and, ultimately, to taxpayers.” The matter was referred to the FTC by the Department of Housing and Urban Development (HUD). The interpretation that the duty of credit bureaus to report accurately under Section 607(b) benefits persons other than consumers, such as the FHA or other users of the credit information, is novel. The industry has generally interpreted Section 607(b) and other FCRA provisions to protect only consumers, so that reporting inaccurate positive information about a consumer would not reflect a failure to follow reasonable procedures to assure maximum possible accuracy. This FTC settlement implies that a credit bureau that reports inaccurate positive information about a consumer could violate Section 607(b) and be liable to a user of the information. United States v. Far West Credit, Inc., Civ. No. 2:06-CV-00041 (TC) (D. Utah, consent decree filed Jan. 12, 2006), available at http://www.ftc.gov/os/caselist/0423185/0423185.htm.

Seventh Circuit Reinstates Class Action; Clarifies FCRA “Firm Offer” Requirement. The U.S. Court of Appeals for the Seventh Circuit reversed a district court’s denial of a consumer’s petition for class certification in a FCRA “firm offer” prescreening case, while at the same time clarifying its previous holding in the Cole v. U.S. Capital case that a “firm offer” under FCRA must have economic value. (See InfoBytes, Dec. 3, 2004, available at http://www.buckleykolar.com/publications/InfoBytes120304.html, for a discussion of the Cole case.) With respect to the class action, the appellate court disagreed with the trial court that the plaintiff was not a suitable class representative. Among other things, the Seventh Circuit disagreed with the lower court that being a “professional plaintiff” was disqualifying — it acknowledged that “the Murrays are in this big time,” but noted that, in this case, the consumer’s “decision to sue everyone who accessed [her] credit history without her consent, rather than just a few, does not injure any other potential borrower.” On the other hand, the appellate court indicated that it would have rejected a proposed settlement in which class members would receive less than one dollar each, as compared to the $100 minimum damages for a willful violation and the $3,000 that the individual plaintiff would have received. The lender had argued that the Cole decision created a new rule under which the existence of a “firm offer” must be evaluated separately for each consumer, precluding class-action treatment. The court rejected that argument, noting that that interpretation would make it impossible to conduct prescreened credit solicitations because every recipient of the solicitation could claim that the offer was worthless. It held that the offer need only be of value to the “normal consumer” and be honored by the lender to be a valid FCRA “firm offer.” Finally, the court noted in passing that the private right of action for disclosure violations was repealed by FACTA, but that the repeal was not an issue in this case because the solicitations occurred before the FACTA provision went into effect. Murray v. GMAC Mortgage Corp., — F.3d —, 2006 WL 90081 (7th Cir. 2006).

Another Court Holds That FACTA Abolished FCRA Private Right of Action. Joining two other federal districts, the U.S. District Court for the Northern District of California held that the Fair and Accurate Credit Transactions Act of 2003 (FACTA) repealed the private right of action for violations of Section 615 of the Fair Credit Reporting Act, which includes most of FCRA’s notice and disclosure provisions, including the prescreening and adverse action requirements. White v. E-Loan, Inc., — F.Supp. 2d —,2006 WL 122205 (N.D. Cal. Jan. 17, 2006), appears to be the second decision on the issue from outside of the Northern District of Illinois. (See InfoBytes, Dec. 23, 2005, available at http://www.buckleykolar.com/publications/InfoBytes122305.html, for a discussion of the first such case.) In White, the U.S. District Court for the Northern District of California dismissed the plaintiff’s claims under Section 615; the lender did not seek dismissal of the claim that the lender violated the FCRA “firm offer” requirement.

MISCELLANY

Money Laundering Threat Assessment Report Published. An interagency working group of U.S. Government Agencies, bureaus, and offices that deal with money laundering issues recently published the first government-wide analysis of money laundering in the U.S. The purpose of the Money Laundering Threat Assessment Report, otherwise known as MLTA, is to help educate policy makers, regulators, and law enforcement officials by providing details on specific money laundering methods, as well as an overview of methodology, a review of vulnerabilities, and a look at the regulatory and public policy positions on the methods. The report provides a comprehensive look into thirteen different money laundering methods ranging from well-established to more modern and innovative methods (i.e., use of the Internet) for integrating “dirty” money back into the financial system. For the complete text of the report, see http://www.treas.gov/press/releases/reports/js3077_01112005_MLTA.pdf.

FDIC holds 2006 Economic Outlook Roundtable. On Thursday, January 19, 2006, the FDIC held a roundtable at its Washington, D.C. office to analyze the U.S. economy in 2006. The panel’s discussion emphasized issues such as new inflationary pressures, rising interest rates, and the inevitable cooling off of U.S. housing markets. For the agenda and information on panel participants, see http://www.fdic.gov/news/conferences/economic_outlook/index.html.

Federal Reserve Board Publishes January 2006 Beige Book. On January 18, 2006 the Federal Reserve published the first Beige Book of 2006. The Beige Book is a compilation of information on current economic conditions gathered from reports generated by the 12 Federal Reserve Districts. The January 2006 Beige Book notes that economic expansion continued through the last several weeks of 2005 in all 12, with half of the districts characterizing their economies as "expanding moderately or modestly." In addition, the Beige Book indicated that most districts saw an increase in commercial real estate activity coupled with a decrease in residential real estate activity. While some of the hottest real estate markets, such as the San Francisco area, have cooled, the slower markets, such as Oregon and Hawaii, are continuing to see an increase in real estate activity. For a summary of the January 2006 Beige Book, see http://www.federalreserve.gov/FOMC/BeigeBook/2006/20060118/default.htm.

FIRM NEWS

On February 11, 2006, Kirk Jensen will be speaking at the 5th Annual Consumer Law and Consumer Credit Symposium at the UNC Chapel Hill School of Law on the topic of "Consumer Arbitration: For Better or For Worse." For more information, see http://www.law.unc.edu/SearchDetails.aspx?ID=494.

© Buckley Kolar, LLP 2006. 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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