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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
Stimulus Plan Includes FHA Modernization, Conforming Limit Increase. On January 24, the Bush Administration, House, and Senate announced they had agreed on an economic stimulus package, which will (i) “modernize” the Federal Housing Administration (FHA), (ii) increase the size of loans eligible for FHA insurance, and (iii) increase the conforming loan limit – the maximum size for loans that can be bought by the Government Sponsored Enterprises (GSEs – including Fannie Mae and Freddie Mac). During a press conference announcing the agreement, Secretary of the Treasury Hank Paulson mentioned the FHA modernization bills recently passed by the House and Senate (H.R. 1852 and S. 2338 reported in InfoBytes Sept. 21, 2007 and Dec. 14, 2007, respectively) and stated that FHA modernization had been included in the agreement because “we need that legislation done.” Secretary Paulson also mentioned that the agreement included temporary rises in the loan limits for GSEs, but regarding this measure added “although I understand it, I didn't support it” and that GSE reform legislation was “essential.” James Lockhart, Director of the Office of Federal Housing Enterprise Oversight (OFHEO – the GSEs’ regulator) issued a press release seconding Secretary Paulson’s concerns, stating that “the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform.” GSE reform legislation (H.R. 1427) was passed by the House last spring, but no such legislation has yet been passed by the Senate. News sources report that legislation implementing the stimulus agreement will bypass the committee process. Text of the legislation is not yet available, but a broad White House summary of the agreement can be found at http://www.whitehouse.gov/news/releases/2008/01/20080124-4.html.
Web Marketers Pay $2.2 Million Settlement for Billing Practices. On January 24, the Federal Trade Commission (FTC) announced that it had reached a settlement with several online marketers accused of charging unauthorized fees in connection with the targeted sales of prepaid debit cards to subprime borrowers. It was alleged that the companies imposed a $159.95 “application” fee, despite the fact no such fee was ever disclosed to the consumer and some advertisements had suggested there were no fees of any kind. In addition to $2.2 million that the companies must pay the FTC for ‘consumer redress,’ they are also enjoined from certain specific marketing and billing practices. For a copy of the complaint, settlement, and official FTC press announcement, please see http://www.ftc.gov/os/caselist/0623125/index.shtm.
STATE ISSUES
High Cost, Subprime, and Nontraditional Lending Legislation Introduced in California. On January 23, California Assemblyman Ted Lieu (D – 53rd Dist.), together with 34 co-sponsors, introduced the Subprime Lending Reform Act (AB 1830). If enacted, this legislation would among other things (i) impose restrictions on “subprime loans” defined to be those with an APR 3% greater than the Treasury bill rate for firsts, 5% for subordinate lien loans, (ii) impose restrictions on “nontraditional mortgages” as defined in the federal banking agencies’ Interagency Guidance on Non-traditional Mortgages (reported in InfoBytes, Sept. 29, 2006), and (iii) prohibit brokers from receiving yield spread premiums in connection with high cost loans and certain subprime and nontraditional loans. The bill would create a category of “high-cost” loans (rather than the current label of “covered” loans), defined as those with an APR greater than 8% on first and 10% on subordinate lien loans, which would be prohibited from having features such as negative amortization or default penalty rates. For more information on the status of this bill, please see http://www.leginfo.ca.gov/cgi-bin/caasm/postquery?bill_number=ab_1830&sess=CUR&house=A.
Colorado Clarifies Broker Licensure Trigger. On January 7, the Colorado Division of Real Estate issued a position statement seeking to resolve “uncertainty… in the market place regarding who is required to be licensed.” Significantly, the guidance specifies that “persons who directly supervise individuals that negotiate, originate, or offer or attempt to negotiate or originate for a borrower, and for a commission or other thing of value, a residential mortgage loan to be consummated and funded by a mortgage lender” must become individually licensed as mortgage brokers. The Division goes on clarify that persons performing only administrative tasks are not required be individually licensed as mortgage brokers. The position statement defines administrative tasks to include: (i) receipt, collection, distribution, and analysis of information common for the processing or underwriting of a mortgage; and (ii) communicating with a consumer to obtain the information necessary for the processing or underwriting of a loan, to the extent that such communication does not include offering or negotiating loan rates or terms, or counseling consumers about rates or terms. For a copy of the position statement, please see http://www.dora.state.co.us/Real-estate/rulemaking/MB/PS_Licensing_Required.pdf.
Twenty Charged in New Jersey Home Equity Scheme. On January 18, the U.S. Department of Justice announced that it had brought charges against twenty mortgage brokers and borrowers in a $20 million dollar alleged fraud wherein brokers obtained multiple home equity lines of credit (HELOCs) with distinct lenders on individual properties. In one instance mentioned in the indictment, one borrower was able obtain $2,137,000 in credit from nine different banks secured by $300,000 in equity in a single property. According to the press release, “at least” 16 lenders were victims of the fraud. Thus far, seven of the defendants have pled guilty. For more information, please see http://www.usdoj.gov/usao/nj/press/press/files/pdffiles/amg0118%20rel.pdf.
Maine Rulemaking Following “Emergency” Change to Lending Law. On January 17, the Maine Bureau of Financial Institutions and Bureau of Consumer Credit Protection released a new net benefit disclosure in connection with a recent emergency amendment (LD 2125 reported in InfoBytes Jan. 11, 2008) to that state’s anti-predatory lending law passed last summer (reported in InfoBytes June 15, 2007). The new “Reasonable, Tangible Net Benefit Disclosure Form” incorporates the changes of the recent amendment. The new form specifies that it is only required for “subprime” loans as defined by the statue, whereas it was previously required for all loans. The amendment, passed January 8, was effective retroactively to January 1, 2008. For a copy of the new form, please see http://www.maine.gov/pfr/consumercredit/advisory_rulings/AR114.doc.
COURTS
National Bank Act Preempts California’s “Convenience Check” Disclosure Requirements. The Ninth Circuit refused to overturn a district court decision holding that the National Bank Act (NBA) preempts disclosure requirements under section 1748.9 of California’s Civil Code with respect to national banks. Rose v. Chase Bank USA, N.A., No. 05-56850 (9th Cir. Jan. 23, 2008). That section of the Civil Code requires credit card issuers that extend credit through the use of “convenience checks” to provide certain disclosures to the cardholder. The plaintiffs brought the action on behalf of an ostensible class of California holders of credit cards issued by Chase and alleged that Chase had sent them “convenience checks” without including such disclosures. According to the plaintiffs, Chase’s failure to provide the disclosures constituted an “unlawful” business practice under California’s Unfair Competition Law (UCL). The plaintiffs also claimed that, regardless of whether Chase’s actions violated section 1748.9, Chase violated the UCL by: (i) committing a “fraudulent” business practice, or engaging in “deceptive or misleading advertising”; and (ii) committing an “unfair” business practice. According to the court, Chase extended credit using the “convenience checks” pursuant to its power under the NBA to loan money on personal security, and “[w]here, as here, Congress has explicitly granted a power to a national bank without any indication that Congress intended for that power to be subject to local restriction, Congress is presumed to have intended to preempt state laws such as [section 1748.9].” Concluding that all of the plaintiffs’ claims on appeal were predicated on a violation of section 1748.9, the court upheld the district court’s holding that the claims were preempted by the NBA. A copy of the opinion is available at http://www.ca9.uscourts.gov/ca9/newopinions.nsf/.
Circuit Court Holds That Cost-Spreading Arrangement Does Not Violate RESPA. The Court of Appeals for the Eleventh Circuit held that a mortgage lender and its affiliate did not violate the Real Estate Settlement Procedures Act (RESPA) when they entered into a cost-spreading arrangement for credit report fees. Krupa v. Landsafe, Inc., No. 07-10061 (11th Cir. Jan. 22, 2008). In this case, Countrywide received nearly all of its consumer credit reports for loan applicants from its affiliate Landsafe. Prior to 2002, Landsafe charged Countrywide $25 for each credit report. Countrywide passed the $25 cost on to each borrower who obtained a loan from Countrywide, but Countrywide absorbed the cost for applicants that did not ultimately obtain a loan from Countrywide. In August 2002, Countrywide asked Landsafe to alter its policy so that Landsafe would charge a $35 credit report fee for each loan that closed with Countrywide and nothing for a report related to a loan that did not close. The new policy was revenue-neutral to Landsafe, and Countrywide no longer had to absorb the cost for loans that did not close. The plaintiffs claimed that by charging the $35 fee Countrywide and Landsafe violated RESPA’s anti-kickback section 8(a) and anti-markup section 8(b) provisions. The district court granted summary judgment against the plaintiffs in both claims, and the Eleventh Circuit affirmed. The circuit court stated that there was no forbidden kickback in this case because there was no change in the volume of business referred to Landsafe by Countrywide. The court also found that there was no markup because the fee was charged for a service actually rendered, and Countrywide retained no portion of the fee. For a copy of the opinion, please see http://www.ca11.uscourts.gov/opinions/ops/200710061.pdf.
Court Reduces Attorney's Fees in Settlement of "Meritless" Firm-Offer Case. Stating that the question presented was determining a "reasonable attorney's fee for a virtually worthless settlement of a meritless case" alleging a violation of the "firm offer of credit" provision of the Fair Credit Reporting Act (FCRA), the U.S. District Court for the Northern District of California reduced the attorney’s fees from the $1.5 million requested by class counsel to $331,875. Yeagley v. Wells Fargo & Co., No. 05-03403, 2008 WL 171083 (N.D. Ca. Jan. 18, 2008). As part of the settlement, each class member received a brochure regarding credit reports and the FCRA and the opportunity to check a box on the brochure to receive a telephone call from Wells Fargo to discuss an offer of a $50 rebate on a new mortgage loan. Those who submitted a timely claim form also received two free tri-merged credit reports with a FICO score. The court noted that the settlement offered little value to the class, citing an extraordinarily low response rate to the free credit report offer and the lack of any tangible benefit of the $50 rebate on a mortgage. The court also noted that the plaintiff's case was very weak due to the vast amount of precedent rejecting the plaintiff's firm-offer claim and the unlikelihood that the plaintiff could prove a willful violation of FCRA. The court rejected the plaintiff's attempts to base its attorney's fee award on the greatest possible amount of the recovery – i.e., if all 3.8 million class members made a claim for a free tri-merged credit report – noting that to accept counsel's argument would encourage needless lawsuits where the value of the distribution to the class is minimal, and to award counsel the same fee regardless of the claim participation rate would reduce the incentive for class counsel to create a settlement that addresses the needs of the class. Instead, the court determined the settlement’s value to the class (i.e., the value of the “common fund”) based on the number of credit reports actually requested by the settlement deadline, added $500,000 for the FCRA brochure, and adopted a 25% benchmark "percentage of the recovery" amount for the award of fees. The court rejected a lodestar fee calculation, which would have resulted in a fee award of almost $1 million, on the ground that such a fee would be too high given the actual value of the settlement to class members. For a copy of this decision, please contact .
FIRM NEWS
Matthew Previn will be speaking at the American Conference Institute’s conference on Consumer Finance Class Actions and Litigation held January 29-30 in New York City. Mr. Previn will be participating in a panel entitled “Responding to Government Investigations and Enforcement – While Minimizing Potential for Follow-On Litigation,” which will discuss topics including (i) recent federal enforcement activity, (ii) issues currently subject to regulatory investigations, (iii) requirements to disclose investigations by regulators, (iv) structuring settlements to prevent follow-on litigations, and (v) techniques to prevent enforcement actions from spawning civil litigation. In addition, Mr. Previn will co-lead with Pat Cipollone of Kirkland & Ellis a post-conference workshop entitled “Managing Government Investigations - Boot Camp for Consumer Finance Counsel.” For more information, or to register, please see http://www.americanconference.com/finance/consfinlit.htm.
Margo Tank will be speaking in a webinar entitled “Evidence Requirements for Electronic Signatures & Records” on January 30, from 2:00 PM – 3:00 PM ET. The seminar will focus on (i) the legal holdings on the validity of electronic signatures and records, (ii) comparing the reliability of electronic records and signatures to their paper counterparts, (iii) methods to ensure the enforceability of online transactions, and (iv) assessing the most reliable types of e-signatures. For more information, or to register, please see http://www.silanis.com/resource-center/webcasts/01302008_Buckley/2008/evidence-requirements-for-electronic-signatures.html.
Jon Jerison and Kirk Jensen will present an audio conference entitled “For All Mortgage Lenders: Dealing with the Fallout from the Current Lending Crisis” on February 6, 2008, from 1:00 PM – 2:30 PM ET. The topics discussed will include the Federal Reserve Board’s pending HOEPA consumer protection rules and Senate Banking Committee Chairman Christopher Dodd’s recently introduced “Home Ownership Preservation and Protection Act” (reported in InfoBytes Dec. 21, 2007 and InfoBytes Dec. 14, 2007 respectively). The conference will be followed by a thirty minute interactive Q&A session with Mr. Jerison and Mr. Jensen. For more information, or to register, please see http://www.aspratt.com/store/77B.php.
Jeff Naimon, together with Rod Alba of Washington Consulting Associates, gave a presentation on January 25 regarding the Federal Reserve Board's recently proposed HOEPA rule to a group of participants in the Federal Home Loan Bank MPF Program.
Stimulus Plan Includes FHA Modernization, Conforming Limit Increase. On January 24, the Bush Administration, House, and Senate announced they had agreed on an economic stimulus package, which will (i) “modernize” the Federal Housing Administration (FHA), (ii) increase the size of loans eligible for FHA insurance, and (iii) increase the conforming loan limit – the maximum size for loans that can be bought by the Government Sponsored Enterprises (GSEs – including Fannie Mae and Freddie Mac). During a press conference announcing the agreement, Secretary of the Treasury Hank Paulson mentioned the FHA modernization bills recently passed by the House and Senate (H.R. 1852 and S. 2338 reported in InfoBytes Sept. 21, 2007 and Dec. 14, 2007, respectively) and stated that FHA modernization had been included in the agreement because “we need that legislation done.” Secretary Paulson also mentioned that the agreement included temporary rises in the loan limits for GSEs, but regarding this measure added “although I understand it, I didn't support it” and that GSE reform legislation was “essential.” James Lockhart, Director of the Office of Federal Housing Enterprise Oversight (OFHEO – the GSEs’ regulator) issued a press release seconding Secretary Paulson’s concerns, stating that “the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform.” GSE reform legislation (H.R. 1427) was passed by the House last spring, but no such legislation has yet been passed by the Senate. News sources report that legislation implementing the stimulus agreement will bypass the committee process. Text of the legislation is not yet available, but a broad White House summary of the agreement can be found at http://www.whitehouse.gov/news/releases/2008/01/20080124-4.html.
National Bank Act Preempts California’s “Convenience Check” Disclosure Requirements. The Ninth Circuit refused to overturn a district court decision holding that the National Bank Act (NBA) preempts disclosure requirements under section 1748.9 of California’s Civil Code with respect to national banks. Rose v. Chase Bank USA, N.A., No. 05-56850 (9th Cir. Jan. 23, 2008). That section of the Civil Code requires credit card issuers that extend credit through the use of “convenience checks” to provide certain disclosures to the cardholder. The plaintiffs brought the action on behalf of an ostensible class of California holders of credit cards issued by Chase and alleged that Chase had sent them “convenience checks” without including such disclosures. According to the plaintiffs, Chase’s failure to provide the disclosures constituted an “unlawful” business practice under California’s Unfair Competition Law (UCL). The plaintiffs also claimed that, regardless of whether Chase’s actions violated section 1748.9, Chase violated the UCL by: (i) committing a “fraudulent” business practice, or engaging in “deceptive or misleading advertising”; and (ii) committing an “unfair” business practice. According to the court, Chase extended credit using the “convenience checks” pursuant to its power under the NBA to loan money on personal security, and “[w]here, as here, Congress has explicitly granted a power to a national bank without any indication that Congress intended for that power to be subject to local restriction, Congress is presumed to have intended to preempt state laws such as [section 1748.9].” Concluding that all of the plaintiffs’ claims on appeal were predicated on a violation of section 1748.9, the court upheld the district court’s holding that the claims were preempted by the NBA. A copy of the opinion is available at http://www.ca9.uscourts.gov/ca9/newopinions.nsf/.
Circuit Court Holds That Cost-Spreading Arrangement Does Not Violate RESPA. The Court of Appeals for the Eleventh Circuit held that a mortgage lender and its affiliate did not violate the Real Estate Settlement Procedures Act (RESPA) when they entered into a cost-spreading arrangement for credit report fees. Krupa v. Landsafe, Inc., No. 07-10061 (11th Cir. Jan. 22, 2008). In this case, Countrywide received nearly all of its consumer credit reports for loan applicants from its affiliate Landsafe. Prior to 2002, Landsafe charged Countrywide $25 for each credit report. Countrywide passed the $25 cost on to each borrower who obtained a loan from Countrywide, but Countrywide absorbed the cost for applicants that did not ultimately obtain a loan from Countrywide. In August 2002, Countrywide asked Landsafe to alter its policy so that Landsafe would charge a $35 credit report fee for each loan that closed with Countrywide and nothing for a report related to a loan that did not close. The new policy was revenue-neutral to Landsafe, and Countrywide no longer had to absorb the cost for loans that did not close. The plaintiffs claimed that by charging the $35 fee Countrywide and Landsafe violated RESPA’s anti-kickback section 8(a) and anti-markup section 8(b) provisions. The district court granted summary judgment against the plaintiffs in both claims, and the Eleventh Circuit affirmed. The circuit court stated that there was no forbidden kickback in this case because there was no change in the volume of business referred to Landsafe by Countrywide. The court also found that there was no markup because the fee was charged for a service actually rendered, and Countrywide retained no portion of the fee. For a copy of the opinion, please see http://www.ca11.uscourts.gov/opinions/ops/200710061.pdf.
High Cost, Subprime, and Nontraditional Lending Legislation Introduced in California. On January 23, California Assemblyman Ted Lieu (D – 53rd Dist.), together with 34 co-sponsors, introduced the Subprime Lending Reform Act (AB 1830). If enacted, this legislation would among other things (i) impose restrictions on “subprime loans” defined to be those with an APR 3% greater than the Treasury bill rate for firsts, 5% for subordinate lien loans, (ii) impose restrictions on “nontraditional mortgages” as defined in the federal banking agencies’ Interagency Guidance on Non-traditional Mortgages (reported in InfoBytes, Sept. 29, 2006), and (iii) prohibit brokers from receiving yield spread premiums in connection with high cost loans and certain subprime and nontraditional loans. The bill would create a category of “high-cost” loans (rather than the current label of “covered” loans), defined as those with an APR greater than 8% on first and 10% on subordinate lien loans, which would be prohibited from having features such as negative amortization or default penalty rates. For more information on the status of this bill, please see http://www.leginfo.ca.gov/cgi-bin/caasm/postquery?bill_number=ab_1830&sess=CUR&house=A.
Colorado Clarifies Broker Licensure Trigger. On January 7, the Colorado Division of Real Estate issued a position statement seeking to resolve “uncertainty… in the market place regarding who is required to be licensed.” Significantly, the guidance specifies that “persons who directly supervise individuals that negotiate, originate, or offer or attempt to negotiate or originate for a borrower, and for a commission or other thing of value, a residential mortgage loan to be consummated and funded by a mortgage lender” must become individually licensed as mortgage brokers. The Division goes on clarify that persons performing only administrative tasks are not required be individually licensed as mortgage brokers. The position statement defines administrative tasks to include: (i) receipt, collection, distribution, and analysis of information common for the processing or underwriting of a mortgage; and (ii) communicating with a consumer to obtain the information necessary for the processing or underwriting of a loan, to the extent that such communication does not include offering or negotiating loan rates or terms, or counseling consumers about rates or terms. For a copy of the position statement, please see http://www.dora.state.co.us/Real-estate/rulemaking/MB/PS_Licensing_Required.pdf.
Twenty Charged in New Jersey Home Equity Scheme. On January 18, the U.S. Department of Justice announced that it had brought charges against twenty mortgage brokers and borrowers in a $20 million dollar alleged fraud wherein brokers obtained multiple home equity lines of credit (HELOCs) with distinct lenders on individual properties. In one instance mentioned in the indictment, one borrower was able obtain $2,137,000 in credit from nine different banks secured by $300,000 in equity in a single property. According to the press release, “at least” 16 lenders were victims of the fraud. Thus far, seven of the defendants have pled guilty. For more information, please see http://www.usdoj.gov/usao/nj/press/press/files/pdffiles/amg0118%20rel.pdf.
Maine Rulemaking Following “Emergency” Change to Lending Law. On January 17, the Maine Bureau of Financial Institutions and Bureau of Consumer Credit Protection released a new net benefit disclosure in connection with a recent emergency amendment (LD 2125 reported in InfoBytes Jan. 11, 2008) to that state’s anti-predatory lending law passed last summer (reported in InfoBytes June 15, 2007). The new “Reasonable, Tangible Net Benefit Disclosure Form” incorporates the changes of the recent amendment. The new form specifies that it is only required for “subprime” loans as defined by the statue, whereas it was previously required for all loans. The amendment, passed January 8, was effective retroactively to January 1, 2008. For a copy of the new form, please see http://www.maine.gov/pfr/consumercredit/advisory_rulings/AR114.doc.
Court Reduces Attorney's Fees in Settlement of "Meritless" Firm-Offer Case. Stating that the question presented was determining a "reasonable attorney's fee for a virtually worthless settlement of a meritless case" alleging a violation of the "firm offer of credit" provision of the Fair Credit Reporting Act (FCRA), the U.S. District Court for the Northern District of California reduced the attorney’s fees from the $1.5 million requested by class counsel to $331,875. Yeagley v. Wells Fargo & Co., No. 05-03403, 2008 WL 171083 (N.D. Ca. Jan. 18, 2008). As part of the settlement, each class member received a brochure regarding credit reports and the FCRA and the opportunity to check a box on the brochure to receive a telephone call from Wells Fargo to discuss an offer of a $50 rebate on a new mortgage loan. Those who submitted a timely claim form also received two free tri-merged credit reports with a FICO score. The court noted that the settlement offered little value to the class, citing an extraordinarily low response rate to the free credit report offer and the lack of any tangible benefit of the $50 rebate on a mortgage. The court also noted that the plaintiff's case was very weak due to the vast amount of precedent rejecting the plaintiff's firm-offer claim and the unlikelihood that the plaintiff could prove a willful violation of FCRA. The court rejected the plaintiff's attempts to base its attorney's fee award on the greatest possible amount of the recovery – i.e., if all 3.8 million class members made a claim for a free tri-merged credit report – noting that to accept counsel's argument would encourage needless lawsuits where the value of the distribution to the class is minimal, and to award counsel the same fee regardless of the claim participation rate would reduce the incentive for class counsel to create a settlement that addresses the needs of the class. Instead, the court determined the settlement’s value to the class (i.e., the value of the “common fund”) based on the number of credit reports actually requested by the settlement deadline, added $500,000 for the FCRA brochure, and adopted a 25% benchmark "percentage of the recovery" amount for the award of fees. The court rejected a lodestar fee calculation, which would have resulted in a fee award of almost $1 million, on the ground that such a fee would be too high given the actual value of the settlement to class members. For a copy of this decision, please contact .
National Bank Act Preempts California’s “Convenience Check” Disclosure Requirements. The Ninth Circuit refused to overturn a district court decision holding that the National Bank Act (NBA) preempts disclosure requirements under section 1748.9 of California’s Civil Code with respect to national banks. Rose v. Chase Bank USA, N.A., No. 05-56850 (9th Cir. Jan. 23, 2008). That section of the Civil Code requires credit card issuers that extend credit through the use of “convenience checks” to provide certain disclosures to the cardholder. The plaintiffs brought the action on behalf of an ostensible class of California holders of credit cards issued by Chase and alleged that Chase had sent them “convenience checks” without including such disclosures. According to the plaintiffs, Chase’s failure to provide the disclosures constituted an “unlawful” business practice under California’s Unfair Competition Law (UCL). The plaintiffs also claimed that, regardless of whether Chase’s actions violated section 1748.9, Chase violated the UCL by: (i) committing a “fraudulent” business practice, or engaging in “deceptive or misleading advertising”; and (ii) committing an “unfair” business practice. According to the court, Chase extended credit using the “convenience checks” pursuant to its power under the NBA to loan money on personal security, and “[w]here, as here, Congress has explicitly granted a power to a national bank without any indication that Congress intended for that power to be subject to local restriction, Congress is presumed to have intended to preempt state laws such as [section 1748.9].” Concluding that all of the plaintiffs’ claims on appeal were predicated on a violation of section 1748.9, the court upheld the district court’s holding that the claims were preempted by the NBA. A copy of the opinion is available at http://www.ca9.uscourts.gov/ca9/newopinions.nsf/.
Web Marketers Pay $2.2 Million Settlement for Billing Practices. On January 24, the Federal Trade Commission (FTC) announced that it had reached a settlement with several online marketers accused of charging unauthorized fees in connection with the targeted sales of prepaid debit cards to subprime borrowers. It was alleged that the companies imposed a $159.95 “application” fee, despite the fact no such fee was ever disclosed to the consumer and some advertisements had suggested there were no fees of any kind. In addition to $2.2 million that the companies must pay the FTC for ‘consumer redress,’ they are also enjoined from certain specific marketing and billing practices. For a copy of the complaint, settlement, and official FTC press announcement, please see http://www.ftc.gov/os/caselist/0623125/index.shtm.
National Bank Act Preempts California’s “Convenience Check” Disclosure Requirements. The Ninth Circuit refused to overturn a district court decision holding that the National Bank Act (NBA) preempts disclosure requirements under section 1748.9 of California’s Civil Code with respect to national banks. Rose v. Chase Bank USA, N.A., No. 05-56850 (9th Cir. Jan. 23, 2008). That section of the Civil Code requires credit card issuers that extend credit through the use of “convenience checks” to provide certain disclosures to the cardholder. The plaintiffs brought the action on behalf of an ostensible class of California holders of credit cards issued by Chase and alleged that Chase had sent them “convenience checks” without including such disclosures. According to the plaintiffs, Chase’s failure to provide the disclosures constituted an “unlawful” business practice under California’s Unfair Competition Law (UCL). The plaintiffs also claimed that, regardless of whether Chase’s actions violated section 1748.9, Chase violated the UCL by: (i) committing a “fraudulent” business practice, or engaging in “deceptive or misleading advertising”; and (ii) committing an “unfair” business practice. According to the court, Chase extended credit using the “convenience checks” pursuant to its power under the NBA to loan money on personal security, and “[w]here, as here, Congress has explicitly granted a power to a national bank without any indication that Congress intended for that power to be subject to local restriction, Congress is presumed to have intended to preempt state laws such as [section 1748.9].” Concluding that all of the plaintiffs’ claims on appeal were predicated on a violation of section 1748.9, the court upheld the district court’s holding that the claims were preempted by the NBA. A copy of the opinion is available at http://www.ca9.uscourts.gov/ca9/newopinions.nsf/.
Circuit Court Holds That Cost-Spreading Arrangement Does Not Violate RESPA. The Court of Appeals for the Eleventh Circuit held that a mortgage lender and its affiliate did not violate the Real Estate Settlement Procedures Act (RESPA) when they entered into a cost-spreading arrangement for credit report fees. Krupa v. Landsafe, Inc., No. 07-10061 (11th Cir. Jan. 22, 2008). In this case, Countrywide received nearly all of its consumer credit reports for loan applicants from its affiliate Landsafe. Prior to 2002, Landsafe charged Countrywide $25 for each credit report. Countrywide passed the $25 cost on to each borrower who obtained a loan from Countrywide, but Countrywide absorbed the cost for applicants that did not ultimately obtain a loan from Countrywide. In August 2002, Countrywide asked Landsafe to alter its policy so that Landsafe would charge a $35 credit report fee for each loan that closed with Countrywide and nothing for a report related to a loan that did not close. The new policy was revenue-neutral to Landsafe, and Countrywide no longer had to absorb the cost for loans that did not close. The plaintiffs claimed that by charging the $35 fee Countrywide and Landsafe violated RESPA’s anti-kickback section 8(a) and anti-markup section 8(b) provisions. The district court granted summary judgment against the plaintiffs in both claims, and the Eleventh Circuit affirmed. The circuit court stated that there was no forbidden kickback in this case because there was no change in the volume of business referred to Landsafe by Countrywide. The court also found that there was no markup because the fee was charged for a service actually rendered, and Countrywide retained no portion of the fee. For a copy of the opinion, please see http://www.ca11.uscourts.gov/opinions/ops/200710061.pdf.
Court Reduces Attorney's Fees in Settlement of "Meritless" Firm-Offer Case. Stating that the question presented was determining a "reasonable attorney's fee for a virtually worthless settlement of a meritless case" alleging a violation of the "firm offer of credit" provision of the Fair Credit Reporting Act (FCRA), the U.S. District Court for the Northern District of California reduced the attorney’s fees from the $1.5 million requested by class counsel to $331,875. Yeagley v. Wells Fargo & Co., No. 05-03403, 2008 WL 171083 (N.D. Ca. Jan. 18, 2008). As part of the settlement, each class member received a brochure regarding credit reports and the FCRA and the opportunity to check a box on the brochure to receive a telephone call from Wells Fargo to discuss an offer of a $50 rebate on a new mortgage loan. Those who submitted a timely claim form also received two free tri-merged credit reports with a FICO score. The court noted that the settlement offered little value to the class, citing an extraordinarily low response rate to the free credit report offer and the lack of any tangible benefit of the $50 rebate on a mortgage. The court also noted that the plaintiff's case was very weak due to the vast amount of precedent rejecting the plaintiff's firm-offer claim and the unlikelihood that the plaintiff could prove a willful violation of FCRA. The court rejected the plaintiff's attempts to base its attorney's fee award on the greatest possible amount of the recovery – i.e., if all 3.8 million class members made a claim for a free tri-merged credit report – noting that to accept counsel's argument would encourage needless lawsuits where the value of the distribution to the class is minimal, and to award counsel the same fee regardless of the claim participation rate would reduce the incentive for class counsel to create a settlement that addresses the needs of the class. Instead, the court determined the settlement’s value to the class (i.e., the value of the “common fund”) based on the number of credit reports actually requested by the settlement deadline, added $500,000 for the FCRA brochure, and adopted a 25% benchmark "percentage of the recovery" amount for the award of fees. The court rejected a lodestar fee calculation, which would have resulted in a fee award of almost $1 million, on the ground that such a fee would be too high given the actual value of the settlement to class members. For a copy of this decision, please contact .
Web Marketers Pay $2.2 Million Settlement for Billing Practices. On January 24, the Federal Trade Commission (FTC) announced that it had reached a settlement with several online marketers accused of charging unauthorized fees in connection with the targeted sales of prepaid debit cards to subprime borrowers. It was alleged that the companies imposed a $159.95 “application” fee, despite the fact no such fee was ever disclosed to the consumer and some advertisements had suggested there were no fees of any kind. In addition to $2.2 million that the companies must pay the FTC for ‘consumer redress,’ they are also enjoined from certain specific marketing and billing practices. For a copy of the complaint, settlement, and official FTC press announcement, please see http://www.ftc.gov/os/caselist/0623125/index.shtm.
Court Reduces Attorney's Fees in Settlement of "Meritless" Firm-Offer Case. Stating that the question presented was determining a "reasonable attorney's fee for a virtually worthless settlement of a meritless case" alleging a violation of the "firm offer of credit" provision of the Fair Credit Reporting Act (FCRA), the U.S. District Court for the Northern District of California reduced the attorney’s fees from the $1.5 million requested by class counsel to $331,875. Yeagley v. Wells Fargo & Co., No. 05-03403, 2008 WL 171083 (N.D. Ca. Jan. 18, 2008). As part of the settlement, each class member received a brochure regarding credit reports and the FCRA and the opportunity to check a box on the brochure to receive a telephone call from Wells Fargo to discuss an offer of a $50 rebate on a new mortgage loan. Those who submitted a timely claim form also received two free tri-merged credit reports with a FICO score. The court noted that the settlement offered little value to the class, citing an extraordinarily low response rate to the free credit report offer and the lack of any tangible benefit of the $50 rebate on a mortgage. The court also noted that the plaintiff's case was very weak due to the vast amount of precedent rejecting the plaintiff's firm-offer claim and the unlikelihood that the plaintiff could prove a willful violation of FCRA. The court rejected the plaintiff's attempts to base its attorney's fee award on the greatest possible amount of the recovery – i.e., if all 3.8 million class members made a claim for a free tri-merged credit report – noting that to accept counsel's argument would encourage needless lawsuits where the value of the distribution to the class is minimal, and to award counsel the same fee regardless of the claim participation rate would reduce the incentive for class counsel to create a settlement that addresses the needs of the class. Instead, the court determined the settlement’s value to the class (i.e., the value of the “common fund”) based on the number of credit reports actually requested by the settlement deadline, added $500,000 for the FCRA brochure, and adopted a 25% benchmark "percentage of the recovery" amount for the award of fees. The court rejected a lodestar fee calculation, which would have resulted in a fee award of almost $1 million, on the ground that such a fee would be too high given the actual value of the settlement to class members. For a copy of this decision, please contact .
National Bank Act Preempts California’s “Convenience Check” Disclosure Requirements. The Ninth Circuit refused to overturn a district court decision holding that the National Bank Act (NBA) preempts disclosure requirements under section 1748.9 of California’s Civil Code with respect to national banks. Rose v. Chase Bank USA, N.A., No. 05-56850 (9th Cir. Jan. 23, 2008). That section of the Civil Code requires credit card issuers that extend credit through the use of “convenience checks” to provide certain disclosures to the cardholder. The plaintiffs brought the action on behalf of an ostensible class of California holders of credit cards issued by Chase and alleged that Chase had sent them “convenience checks” without including such disclosures. According to the plaintiffs, Chase’s failure to provide the disclosures constituted an “unlawful” business practice under California’s Unfair Competition Law (UCL). The plaintiffs also claimed that, regardless of whether Chase’s actions violated section 1748.9, Chase violated the UCL by: (i) committing a “fraudulent” business practice, or engaging in “deceptive or misleading advertising”; and (ii) committing an “unfair” business practice. According to the court, Chase extended credit using the “convenience checks” pursuant to its power under the NBA to loan money on personal security, and “[w]here, as here, Congress has explicitly granted a power to a national bank without any indication that Congress intended for that power to be subject to local restriction, Congress is presumed to have intended to preempt state laws such as [section 1748.9].” Concluding that all of the plaintiffs’ claims on appeal were predicated on a violation of section 1748.9, the court upheld the district court’s holding that the claims were preempted by the NBA. A copy of the opinion is available at http://www.ca9.uscourts.gov/ca9/newopinions.nsf/.
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