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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
FDIC Extends and Refines ILC Freeze; Legislation Reintroduced. On January 31, the Federal Deposit Insurance Corporation (FDIC) Board approved an extension of the moratorium on applications for insurance, or change of control, of industrial loan companies (ILCs) for one year. The extension will only apply to ILCs owned by “commercial companies.” The Board also approved proposed rules to tighten application scrutiny for ILCs owned by financial companies not otherwise subject to “federal consolidated bank supervision.” The official notice of the extended moratorium and the proposed rule have not yet been published in the Federal Register, but draft versions are available at http://www.fdic.gov/news/board/notice31jan2007.html.
On January 29, a bill to restrict ILC ownership (H.R. 698) was introduced into the House of Representatives. The bill, which counts Financial Services Committee Chairman Barney Frank (D – Mass.) among its 35 sponsors, would prevent any company that derives more than 15% of its revenue from non-financial activities from owning an ILC. Similar legislation was proposed in the 109th Congress, but never reached the floor. For more information on the bill, see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:h.r.00698:.
Legislation Introduced to Exclude Banks from Real Estate Brokerage. On January 26, Senator Hilary Clinton (D – N.Y.) introduced a bill (S. 413), bearing the names of 14 cosponsors, which would “prohibit financial holding companies and national banks from engaging, directly or indirectly, in real estate brokerage.” If enacted, the bill would preclude the Federal Reserve Board (FRB) from defining real estate brokerage activity or real estate management as “an activity that is financial in nature” – a reference to the criteria used in the Gramm-Leach-Bliley Act. A similar bill (H.R. 111), with 117 sponsors, was introduced into the House by Representative Paul Kanjorski (D – Penn.) earlier in January. This follows protracted efforts by Congress to prevent the FRB from establishing regulations to define real estate brokerage as a “financial activity” (see the July 28, 2006 issue of InfoBytes). For more information on the status of Senator Clinton’s bill, see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:s.00413:.
Senate Hears Testimony on Credit Cards; Legislation Expected. On January 25, the Senate Banking Committee held a hearing entitled, “Examining the Billing, Marketing, and Disclosure Practices of the Credit Card Industry, and Their Impact on Consumers.” The Committee heard testimony from representatives of card issuers and from consumer advocates regarding specific credit card lending practices. Chairman Christopher Dodd (D – Conn.) specified a few concerns that he believed the Committee should examine, including the rise in consumer debt and credit cards' role in that trend, the increase and targeting of card solicitations, the amount, type and disclosure of certain fees, and double-cycle billing, universal default, and the methodology of penalty rates. Several Committee members indicated that legislation to regulate specific credit card practices would be forthcoming. To view the full text of the testimony and member statements, please see http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=246.
NCUA Issues Guidance on Automated Collateral Valuation Methods. On January 26, the National Credit Union Administration (NCUA) issued a release reiterating that credit unions may use automated valuation methods (AVMs) to evaluate the real property securing smaller mortgage loans of $250,000 or less. Although AVMs may be used in the lending process, each valuation must be reviewed by an individual such as a loan officer employee with knowledge, training and experience in the local real estate market. This release references OGC Opinion 06-1219 that was issued this week to clarify regulatory requirements pertaining to the use of AVMs. A copy of the release may be obtained at http://www.ncua.gov/news/press_releases/2007/MR07-0126.htm.
OCC and Mississippi Banking Department to Share Consumer Complaint Information. On January 26, 2007 the Office of the Comptroller of the Currency (OCC) and the Mississippi Department of Banking and Consumer Finance announced the signing of a Memorandum of Understanding (MOU) providing for the transfer of consumer complaint information between the two agencies. Recognizing that a consumer often does not know whether a bank is monitored by a state or federal regulatory agency, the MOU provides procedures to ensure that consumer complaints are directed to the correct agency so they can be addressed in a timely and efficient manner. The press release is available on the OCC website at http://www.occ.gov/ftp/release/2007-8.htm.
COURTS
First Circuit Reverses TILA Rescission Class Certification. A unanimous panel of the First Circuit Court of Appeals reversed a lower court’s decision to certify a class of residential loan borrowers who might potentially be eligible for rescissionary relief under the Truth in Lending Act (TILA) and its Massachusetts’ counterpart. McKenna v. First Horizon Home Loan Corp., No. 06-8018 (1st Cir. Jan. 29, 2007). In McKenna (previously reported in the May 5, 2006 issue of InfoBytes), plaintiffs, on behalf of themselves and a class of similarly situated Massachusetts borrowers, contended that First Horizon allegedly provided them with defective notices of their TILA rights to rescind. Plaintiffs sought a declaration that the subject loans were rescindable at any time up to three years after the closing of the loan. Adopting recommendations by a magistrate judge, on April 3, 2006 the District Court certified the class and stipulated that those class members who elected to rescind would be entitled to seek reimbursement of amounts paid, statutory damages and attorneys’ fees. The First Circuit reversed, holding that Congress did not intend to allow TILA rescission suits – whether direct or declaratory – to receive class-action treatment. The First Circuit found it significant that Congress expressly capped TILA damages liability, and therefore could not have meant “the sky to be the limit” with respect to the rescission remedy for the same underlying violation. The personal nature of the rescission remedy also was important to the Court, which stated that “[t]he highly individualized character of this process and the range of variations that may occur render rescission largely incompatible with a sensible deployment of the class-action mechanism.” Moreover, the First Circuit questioned the very need for rescission class actions, noting TILA’s other “significant incentives for creditor compliance.” Importantly, the fact that plaintiffs were seeking a declaration that the loans are rescindable – as opposed to an order rescinding the loans – made no difference to the Appellate Court. “In the final analysis, the professed distinction between a suit for a declaratory judgment that rescission is possible and a suit for rescission simpliciter elevates form over substance.” Buckley Kolar filed a brief in the case on behalf of Amici Curiae the American Bankers Association, American Financial Services Association, America’s Community Bankers, the Consumer Bankers Association, the Consumer Mortgage Coalition, the Housing Policy Council of the Financial Services Roundtable, and the Mortgage Bankers Association. For a copy of this opinion, go to http://www.ca1.uscourts.gov/pdf.opinions/06-8018-01A.pdf.
Court Upholds FCRA “Firm Offer” That Specified Range of Rates and Amounts. The U.S. District Court for the Eastern District of Missouri held that the lender in a prescreened solicitation complied with the Fair Credit Reporting Act (FCRA) “firm offer” requirement when the mailer began with the statement that “You are prequalified* for a Line of Credit . . . with a credit line up to $25,000 . . . and a variable APR as low as 7.99%,” but a footnote indicated that the credit line could range from $500 to $25,000 and the annual percentage rate could range from 7.99%-17.99%, with a default rate of 29.99%. Stating that “Congress carefully crafted its definition of ‘firm offer’ and chose not to require that the lender specify particular loan terms,” the court held that “so long as there is some value to the consumer so that the offer is not a sham or mere solicitation, then the absence of interest rates and other terms does not prevent the offer from being a ‘firm offer of credit.’” The court noted that the offer letter included a number of terms, and although it did not “contain exact credit terms,” it did show that the minimum offer would be a credit line of $500, which, according to the court, has sufficient value to meet the FCRA firm-offer requirement. Therefore, it dismissed the case for failure to state a claim. Klutho v. GE Money Bank, No. 4:06CV1319, 2007 WL 162291 (E.D. Mo. Jan. 17, 2007). For a copy of this decision, contact .
New York AG Announces Adware Settlements with Advertisers that Use Online Ad Suppliers. On January 29, New York Attorney General Andrew Cuomo announced that Priceline.com Inc., Travelocity.com LP, and Cingular Wireless LLC had agreed to pay fines and adopt business-practice reforms to settle an investigation into allegations of deceptive use of adware programs. This settlement marks the first successful bid by law enforcement authorities against advertisers to hold them responsible for how their ads are displayed through adware. The investigation originally was initiated against adware vendor Direct Revenue for installation of adware in consumers’ computers without notice or consent; however, the state expanded the charges to cover Priceline, Travelocity, and Cingular, who are clients of Direct Revenue. In addition to requiring the advertisers to overhaul their use of adware services, the agreements also call for a $30,000 fine against Travelocity and $35,000 fines against Priceline and Cingular to cover penalties and investigative costs. Please write to to receive a copy of the case. For the Attorney General’s press release, go to http://www.oag.state.ny.us/press/2007/jan/jan29b_07.html.
Federal District Court Refuses To Award Attorneys’ Fees To Defendant In Dismissed CAN-SPAM Act Lawsuit. In Phillips v. Worldwide Internet Solutions, Inc., No. C 05-5125 (N.D. Cal. Jan. 22, 2007), plaintiff’s Complaint under the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act) was dismissed for lack of personal jurisdiction. Defendant then sought to recover attorneys’ fees pursuant to a CAN-SPAM Act provision that gives the court discretion to require any party to reimburse the other party’s costs, including reasonable attorneys’ fees. The Court denied the request, however, adopting the report and recommendations of the magistrate judge. The magistrate’s report determined that, where the dismissal was not based on the merits of plaintiff’s claims, and where there was no evidence that the suit was frivolous or “ill-motivated,” an award of attorneys’ fees was not appropriate. For a copy of this decision, please contact .
STATE ISSUES
Rhode Island Extends High-Cost Home Loan Regulation Enforcement Date. On January 22, the Rhode Island Department of Business Regulation issued a notice extending the enforcement date for certain provisions of its high-cost home loan emergency regulation (Banking Regulation 3). The emergency regulation implements Rhode Island’s Home Loan Protection Act, which took effect on December 31 (see the January 5th issue of InfoBytes). Section 7 of the regulation provides that the Department will not take any enforcement actions “on said regulatory requirements for any issues related to the use of disclosures prior to February 1, 2007.” This date has now been extended to March 1, 2007. The extension of the enforcement date follows the suspension of lending in Rhode Island by several out-of-state mortgage lenders. The Department will hold a hearing, preceded by a 30-day comment period, on the proposed final regulation on a date yet to be determined. For a copy of the Department’s notice, see http://www.dbr.state.ri.us/documents/rules/banking_securities/Notice_ re_Home_Loan_Protection_Act.pdf.
Oregon Toughens Regulations on Mortgage Lenders. The Oregon Department of Consumer and Business Services, Division of Finance and Corporate Securities, has promulgated new regulations applicable to mortgage lenders, which became effective on January 17, 2007. The regulations, among other provisions, impose education requirements on mortgage professionals and mandate increased supervision of loan originators by mortgage lenders. The Division also adopted best practices guidelines that are based on the federal regulators’ Interagency Guidance on Nontraditional Mortgage Product Risks (see the September 29, 2006 and November 17, 2006 issues of InfoBytes for details). Other changes include provisions for posting online the mortgage companies that are found to have violated Oregon mortgage laws and that were the subject of an enforcement action. The Division also plans increased outreach to lenders and to borrowers facing foreclosure. For more information, and to view a complete copy of the regulations, see http://www.dfcs.oregon.gov/ml/ml_requirements_strengthened.html.
Colorado Bill Prohibits Financial Institutions near Affiliated Commercial Business. The Colorado Senate recently approved a bill (S.B. 40) that seeks to block retailers like Wal-Mart and Home Depot from opening their own banks in their stores in Colorado. Under the bill, a financial institution could not establish or maintain its principal office, certain other offices, or a branch within 1.5 miles of property owned, leased, or controlled by "an affiliate that engages in commercial activities." To view the bill, please visit http://www.leg.state.co.us/Clics/Clics2007A/csl.nsf/fsbillcont3/ D768EF9F58392F1187257251007B27B6?Open&file=040_ren.pdf.
North Carolina Electronic Notary Act Rules Become Effective. On January 1, rules implementing the North Carolina Electronic Notary Act (N.C. Gen. Stat. § 10B-100 et seq.) went into effect. The rules, as approved by the North Carolina Secretary of State, can be found at http://www.sosnc.com/ENotaryRules121506.pdf.
MISCELLANY
MBA Publishes Paper on Suitability Standard. On January 29, the Mortgage Bankers Association announced the release of a policy paper entitled Suitability – Don't Turn Back the Clock on Fair Lending and Homeownership Gains. The paper discusses the consequences of imposing a "suitability standard" similar to that used in the securities industry on the mortgage lending industry. Buckley Kolar attorneys Jeremiah Buckley, Frederic Spindel, Jon David Langlois and Anastasia Davis provided legal assistance in the preparation of this paper. For a copy of the Mortgage Bankers Association press release and the policy paper, please see http://www.mortgagebankers.org/NewsandMedia/PressCenter/48134.htm.
OFHEO Director Says He Will Push for GSE Reform Legislation. On February 1, James Lockhart, Director of the Office of Federal Housing Enterprise Oversight (OFHEO), spoke on the future of Government Sponsored Enterprise (GSE) reform. In his speech, Director Lockhart said that legislation granting more supervisory authority to OFHEO “simply must get across the goal line this year.” The GSEs (Fannie Mae and Freddie Mac) still present, according to Director Lockhart, “large market, credit, and operational risks which could infect other financial institutions and markets.” Director Lockhart also indicated that OFHEO will continue to strengthen oversight under its existing statutory authority, and work towards the implementation of the non-traditional mortgage guidance among the GSEs (see the December 15, 2006 issue of InfoBytes). For the text of Director Lockhart’s speech, see http://www.ofheo.gov/media/pdf/NAAHL020107both.pdf.
FTC Issues Annual Financial Acts Enforcement Report to Federal Reserve. The Federal Trade Commission (FTC) filed its annual report regarding enforcement activities in 2006. The report covers actions under the Truth in Lending Act (TILA), Equal Credit Opportunity Act (ECOA), the Electronic Fund Transfer Act (EFTA) and the Consumer Leasing Act (CLA). A copy of the entire report can be found at http://www.ftc.gov/os/2007/01/070126_2006rpttofedreservbrd_text.pdf.
FDIC Released a Revised Compliance Examination Handbook. The Federal Deposit Insurance Corporation (FDIC) recently revised the Compliance Examination Handbook. The new version includes updates as of June 2006 for compliance and Community Reinvestment Act (CRA) examinations. The handbook was last revised in 1999. It now presents material in a way that reflects the risk-focused compliance examination process. The handbook is available on the FDIC’s website at http://www.fdic.gov/regulations/compliance/handbook/index.html.
OFHEO Publishes Supervision Handbook. On January 26, the OFHEO announced the release of the agency’s Supervision Handbook. The Handbook outlines examination criteria and procedures. It can be found at http://www.ofheo.gov/media/pdf/SupervisionHandbookJanuary262007.pdf.
FIRM NEWS
Andrea “Lee” Negroni and Joe Lynyak will be speaking at two 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 will attend 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 issues in the area of business process outsourcing (BPO) for U.S. and India-based financial institution clients. During her 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. Interested persons 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 will be giving an audio conference entitled “Best Practices in BSA and AML Compliance” on February 6th. Mr. Serino will address several topics on establishing and maintaining a Bank Secrecy Act (BSA) compliant anti-money laundering (AML) system. To learn more or register, go to http://www.rmahq.org/RMA/EventInfoandRegistration/RegisterforandFindEvent/ default?EID=3025267&CID=RMAUDIO
Christopher Witeck will be speaking at American Conference Institute’s Issuer and Investor Forum on Mortgage Backed Securities, being held April 12 & 13 in New York. Mr. Witeck will be conducting a workshop entitled “Advanced Strategies for Negotiating Loan Purchase Agreements.” For more information, see http://americanconference.com/mbs.htm.
First Circuit Reverses TILA Rescission Class Certification. A unanimous panel of the First Circuit Court of Appeals reversed a lower court’s decision to certify a class of residential loan borrowers who might potentially be eligible for rescissionary relief under the Truth in Lending Act (TILA) and its Massachusetts’ counterpart. McKenna v. First Horizon Home Loan Corp., No. 06-8018 (1st Cir. Jan. 29, 2007). In McKenna (previously reported in the May 5, 2006 issue of InfoBytes), plaintiffs, on behalf of themselves and a class of similarly situated Massachusetts borrowers, contended that First Horizon allegedly provided them with defective notices of their TILA rights to rescind. Plaintiffs sought a declaration that the subject loans were rescindable at any time up to three years after the closing of the loan. Adopting recommendations by a magistrate judge, on April 3, 2006 the District Court certified the class and stipulated that those class members who elected to rescind would be entitled to seek reimbursement of amounts paid, statutory damages and attorneys’ fees. The First Circuit reversed, holding that Congress did not intend to allow TILA rescission suits – whether direct or declaratory – to receive class-action treatment. The First Circuit found it significant that Congress expressly capped TILA damages liability, and therefore could not have meant “the sky to be the limit” with respect to the rescission remedy for the same underlying violation. The personal nature of the rescission remedy also was important to the Court, which stated that “[t]he highly individualized character of this process and the range of variations that may occur render rescission largely incompatible with a sensible deployment of the class-action mechanism.” Moreover, the First Circuit questioned the very need for rescission class actions, noting TILA’s other “significant incentives for creditor compliance.” Importantly, the fact that plaintiffs were seeking a declaration that the loans are rescindable – as opposed to an order rescinding the loans – made no difference to the Appellate Court. “In the final analysis, the professed distinction between a suit for a declaratory judgment that rescission is possible and a suit for rescission simpliciter elevates form over substance.” Buckley Kolar filed a brief in the case on behalf of Amici Curiae the American Bankers Association, American Financial Services Association, America’s Community Bankers, the Consumer Bankers Association, the Consumer Mortgage Coalition, the Housing Policy Council of the Financial Services Roundtable, and the Mortgage Bankers Association. For a copy of this opinion, go to http://www.ca1.uscourts.gov/pdf.opinions/06-8018-01A.pdf.
Rhode Island Extends High-Cost Home Loan Regulation Enforcement Date. On January 22, the Rhode Island Department of Business Regulation issued a notice extending the enforcement date for certain provisions of its high-cost home loan emergency regulation (Banking Regulation 3). The emergency regulation implements Rhode Island’s Home Loan Protection Act, which took effect on December 31 (see the January 5th issue of InfoBytes). Section 7 of the regulation provides that the Department will not take any enforcement actions “on said regulatory requirements for any issues related to the use of disclosures prior to February 1, 2007.” This date has now been extended to March 1, 2007. The extension of the enforcement date follows the suspension of lending in Rhode Island by several out-of-state mortgage lenders. The Department will hold a hearing, preceded by a 30-day comment period, on the proposed final regulation on a date yet to be determined. For a copy of the Department’s notice, see http://www.dbr.state.ri.us/documents/rules/banking_securities/Notice_ re_Home_Loan_Protection_Act.pdf.
Legislation Introduced to Exclude Banks from Real Estate Brokerage. On January 26, Senator Hilary Clinton (D – N.Y.) introduced a bill (S. 413), bearing the names of 14 cosponsors, which would “prohibit financial holding companies and national banks from engaging, directly or indirectly, in real estate brokerage.” If enacted, the bill would preclude the Federal Reserve Board (FRB) from defining real estate brokerage activity or real estate management as “an activity that is financial in nature” – a reference to the criteria used in the Gramm-Leach-Bliley Act. A similar bill (H.R. 111), with 117 sponsors, was introduced into the House by Representative Paul Kanjorski (D – Penn.) earlier in January. This follows protracted efforts by Congress to prevent the FRB from establishing regulations to define real estate brokerage as a “financial activity” (see the July 28, 2006 issue of InfoBytes). For more information on the status of Senator Clinton’s bill, see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:s.00413:.
Oregon Toughens Regulations on Mortgage Lenders. The Oregon Department of Consumer and Business Services, Division of Finance and Corporate Securities, has promulgated new regulations applicable to mortgage lenders, which became effective on January 17, 2007. The regulations, among other provisions, impose education requirements on mortgage professionals and mandate increased supervision of loan originators by mortgage lenders. The Division also adopted best practices guidelines that are based on the federal regulators’ Interagency Guidance on Nontraditional Mortgage Product Risks (see the September 29, 2006 and November 17, 2006 issues of InfoBytes for details). Other changes include provisions for posting online the mortgage companies that are found to have violated Oregon mortgage laws and that were the subject of an enforcement action. The Division also plans increased outreach to lenders and to borrowers facing foreclosure. For more information, and to view a complete copy of the regulations, see http://www.dfcs.oregon.gov/ml/ml_requirements_strengthened.html.
MBA Publishes Paper on Suitability Standard. On January 29, the Mortgage Bankers Association announced the release of a policy paper entitled Suitability – Don't Turn Back the Clock on Fair Lending and Homeownership Gains. The paper discusses the consequences of imposing a "suitability standard" similar to that used in the securities industry on the mortgage lending industry. Buckley Kolar attorneys Jeremiah Buckley, Frederic Spindel, Jon David Langlois and Anastasia Davis provided legal assistance in the preparation of this paper. For a copy of the Mortgage Bankers Association press release and the policy paper, please see http://www.mortgagebankers.org/NewsandMedia/PressCenter/48134.htm.
OFHEO Director Says He Will Push for GSE Reform Legislation. On February 1, James Lockhart, Director of the Office of Federal Housing Enterprise Oversight (OFHEO), spoke on the future of Government Sponsored Enterprise (GSE) reform. In his speech, Director Lockhart said that legislation granting more supervisory authority to OFHEO “simply must get across the goal line this year.” The GSEs (Fannie Mae and Freddie Mac) still present, according to Director Lockhart, “large market, credit, and operational risks which could infect other financial institutions and markets.” Director Lockhart also indicated that OFHEO will continue to strengthen oversight under its existing statutory authority, and work towards the implementation of the non-traditional mortgage guidance among the GSEs (see the December 15, 2006 issue of InfoBytes). For the text of Director Lockhart’s speech, see http://www.ofheo.gov/media/pdf/NAAHL020107both.pdf.
NCUA Issues Guidance on Automated Collateral Valuation Methods. On January 26, the National Credit Union Administration (NCUA) issued a release reiterating that credit unions may use automated valuation methods (AVMs) to evaluate the real property securing smaller mortgage loans of $250,000 or less. Although AVMs may be used in the lending process, each valuation must be reviewed by an individual such as a loan officer employee with knowledge, training and experience in the local real estate market. This release references OGC Opinion 06-1219 that was issued this week to clarify regulatory requirements pertaining to the use of AVMs. A copy of the release may be obtained at http://www.ncua.gov/news/press_releases/2007/MR07-0126.htm.
North Carolina Electronic Notary Act Rules Become Effective. On January 1, rules implementing the North Carolina Electronic Notary Act (N.C. Gen. Stat. § 10B-100 et seq.) went into effect. The rules, as approved by the North Carolina Secretary of State, can be found at http://www.sosnc.com/ENotaryRules121506.pdf.
FTC Issues Annual Financial Acts Enforcement Report to Federal Reserve. The Federal Trade Commission (FTC) filed its annual report regarding enforcement activities in 2006. The report covers actions under the Truth in Lending Act (TILA), Equal Credit Opportunity Act (ECOA), the Electronic Fund Transfer Act (EFTA) and the Consumer Leasing Act (CLA). A copy of the entire report can be found at http://www.ftc.gov/os/2007/01/070126_2006rpttofedreservbrd_text.pdf.
FDIC Released a Revised Compliance Examination Handbook. The Federal Deposit Insurance Corporation (FDIC) recently revised the Compliance Examination Handbook. The new version includes updates as of June 2006 for compliance and Community Reinvestment Act (CRA) examinations. The handbook was last revised in 1999. It now presents material in a way that reflects the risk-focused compliance examination process. The handbook is available on the FDIC’s website at http://www.fdic.gov/regulations/compliance/handbook/index.html.
OFHEO Publishes Supervision Handbook. On January 26, the OFHEO announced the release of the agency’s Supervision Handbook. The Handbook outlines examination criteria and procedures. It can be found at http://www.ofheo.gov/media/pdf/SupervisionHandbookJanuary262007.pdf.
FDIC Extends and Refines ILC Freeze; Legislation Reintroduced. On January 31, the Federal Deposit Insurance Corporation (FDIC) Board approved an extension of the moratorium on applications for insurance, or change of control, of industrial loan companies (ILCs) for one year. The extension will only apply to ILCs owned by “commercial companies.” The Board also approved proposed rules to tighten application scrutiny for ILCs owned by financial companies not otherwise subject to “federal consolidated bank supervision.” The official notice of the extended moratorium and the proposed rule have not yet been published in the Federal Register, but draft versions are available at http://www.fdic.gov/news/board/notice31jan2007.html.
On January 29, a bill to restrict ILC ownership (H.R. 698) was introduced into the House of Representatives. The bill, which counts Financial Services Committee Chairman Barney Frank (D – Mass.) among its 35 sponsors, would prevent any company that derives more than 15% of its revenue from non-financial activities from owning an ILC. Similar legislation was proposed in the 109th Congress, but never reached the floor. For more information on the bill, see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:h.r.00698:.
Colorado Bill Prohibits Financial Institutions near Affiliated Commercial Business. The Colorado Senate recently approved a bill (S.B. 40) that seeks to block retailers like Wal-Mart and Home Depot from opening their own banks in their stores in Colorado. Under the bill, a financial institution could not establish or maintain its principal office, certain other offices, or a branch within 1.5 miles of property owned, leased, or controlled by "an affiliate that engages in commercial activities." To view the bill, please visit http://www.leg.state.co.us/Clics/Clics2007A/csl.nsf/fsbillcont3/ D768EF9F58392F1187257251007B27B6?Open&file=040_ren.pdf.
Legislation Introduced to Exclude Banks from Real Estate Brokerage. On January 26, Senator Hilary Clinton (D – N.Y.) introduced a bill (S. 413), bearing the names of 14 cosponsors, which would “prohibit financial holding companies and national banks from engaging, directly or indirectly, in real estate brokerage.” If enacted, the bill would preclude the Federal Reserve Board (FRB) from defining real estate brokerage activity or real estate management as “an activity that is financial in nature” – a reference to the criteria used in the Gramm-Leach-Bliley Act. A similar bill (H.R. 111), with 117 sponsors, was introduced into the House by Representative Paul Kanjorski (D – Penn.) earlier in January. This follows protracted efforts by Congress to prevent the FRB from establishing regulations to define real estate brokerage as a “financial activity” (see the July 28, 2006 issue of InfoBytes). For more information on the status of Senator Clinton’s bill, see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:s.00413:.
NCUA Issues Guidance on Automated Collateral Valuation Methods. On January 26, the National Credit Union Administration (NCUA) issued a release reiterating that credit unions may use automated valuation methods (AVMs) to evaluate the real property securing smaller mortgage loans of $250,000 or less. Although AVMs may be used in the lending process, each valuation must be reviewed by an individual such as a loan officer employee with knowledge, training and experience in the local real estate market. This release references OGC Opinion 06-1219 that was issued this week to clarify regulatory requirements pertaining to the use of AVMs. A copy of the release may be obtained at http://www.ncua.gov/news/press_releases/2007/MR07-0126.htm.
OCC and Mississippi Banking Department to Share Consumer Complaint Information. On January 26, 2007 the Office of the Comptroller of the Currency (OCC) and the Mississippi Department of Banking and Consumer Finance announced the signing of a Memorandum of Understanding (MOU) providing for the transfer of consumer complaint information between the two agencies. Recognizing that a consumer often does not know whether a bank is monitored by a state or federal regulatory agency, the MOU provides procedures to ensure that consumer complaints are directed to the correct agency so they can be addressed in a timely and efficient manner. The press release is available on the OCC website at http://www.occ.gov/ftp/release/2007-8.htm.
Senate Hears Testimony on Credit Cards; Legislation Expected. On January 25, the Senate Banking Committee held a hearing entitled, “Examining the Billing, Marketing, and Disclosure Practices of the Credit Card Industry, and Their Impact on Consumers.” The Committee heard testimony from representatives of card issuers and from consumer advocates regarding specific credit card lending practices. Chairman Christopher Dodd (D – Conn.) specified a few concerns that he believed the Committee should examine, including the rise in consumer debt and credit cards' role in that trend, the increase and targeting of card solicitations, the amount, type and disclosure of certain fees, and double-cycle billing, universal default, and the methodology of penalty rates. Several Committee members indicated that legislation to regulate specific credit card practices would be forthcoming. To view the full text of the testimony and member statements, please see http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=246.
FTC Issues Annual Financial Acts Enforcement Report to Federal Reserve. The Federal Trade Commission (FTC) filed its annual report regarding enforcement activities in 2006. The report covers actions under the Truth in Lending Act (TILA), Equal Credit Opportunity Act (ECOA), the Electronic Fund Transfer Act (EFTA) and the Consumer Leasing Act (CLA). A copy of the entire report can be found at http://www.ftc.gov/os/2007/01/070126_2006rpttofedreservbrd_text.pdf.
FDIC Released a Revised Compliance Examination Handbook. The Federal Deposit Insurance Corporation (FDIC) recently revised the Compliance Examination Handbook. The new version includes updates as of June 2006 for compliance and Community Reinvestment Act (CRA) examinations. The handbook was last revised in 1999. It now presents material in a way that reflects the risk-focused compliance examination process. The handbook is available on the FDIC’s website at http://www.fdic.gov/regulations/compliance/handbook/index.html.
Court Upholds FCRA “Firm Offer” That Specified Range of Rates and Amounts. The U.S. District Court for the Eastern District of Missouri held that the lender in a prescreened solicitation complied with the Fair Credit Reporting Act (FCRA) “firm offer” requirement when the mailer began with the statement that “You are prequalified* for a Line of Credit . . . with a credit line up to $25,000 . . . and a variable APR as low as 7.99%,” but a footnote indicated that the credit line could range from $500 to $25,000 and the annual percentage rate could range from 7.99%-17.99%, with a default rate of 29.99%. Stating that “Congress carefully crafted its definition of ‘firm offer’ and chose not to require that the lender specify particular loan terms,” the court held that “so long as there is some value to the consumer so that the offer is not a sham or mere solicitation, then the absence of interest rates and other terms does not prevent the offer from being a ‘firm offer of credit.’” The court noted that the offer letter included a number of terms, and although it did not “contain exact credit terms,” it did show that the minimum offer would be a credit line of $500, which, according to the court, has sufficient value to meet the FCRA firm-offer requirement. Therefore, it dismissed the case for failure to state a claim. Klutho v. GE Money Bank, No. 4:06CV1319, 2007 WL 162291 (E.D. Mo. Jan. 17, 2007). For a copy of this decision, contact .
Senate Hears Testimony on Credit Cards; Legislation Expected. On January 25, the Senate Banking Committee held a hearing entitled, “Examining the Billing, Marketing, and Disclosure Practices of the Credit Card Industry, and Their Impact on Consumers.” The Committee heard testimony from representatives of card issuers and from consumer advocates regarding specific credit card lending practices. Chairman Christopher Dodd (D – Conn.) specified a few concerns that he believed the Committee should examine, including the rise in consumer debt and credit cards' role in that trend, the increase and targeting of card solicitations, the amount, type and disclosure of certain fees, and double-cycle billing, universal default, and the methodology of penalty rates. Several Committee members indicated that legislation to regulate specific credit card practices would be forthcoming. To view the full text of the testimony and member statements, please see http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=246.
FTC Issues Annual Financial Acts Enforcement Report to Federal Reserve. The Federal Trade Commission (FTC) filed its annual report regarding enforcement activities in 2006. The report covers actions under the Truth in Lending Act (TILA), Equal Credit Opportunity Act (ECOA), the Electronic Fund Transfer Act (EFTA) and the Consumer Leasing Act (CLA). A copy of the entire report can be found at http://www.ftc.gov/os/2007/01/070126_2006rpttofedreservbrd_text.pdf.
First Circuit Reverses TILA Rescission Class Certification. A unanimous panel of the First Circuit Court of Appeals reversed a lower court’s decision to certify a class of residential loan borrowers who might potentially be eligible for rescissionary relief under the Truth in Lending Act (TILA) and its Massachusetts’ counterpart. McKenna v. First Horizon Home Loan Corp., No. 06-8018 (1st Cir. Jan. 29, 2007). In McKenna (previously reported in the May 5, 2006 issue of InfoBytes), plaintiffs, on behalf of themselves and a class of similarly situated Massachusetts borrowers, contended that First Horizon allegedly provided them with defective notices of their TILA rights to rescind. Plaintiffs sought a declaration that the subject loans were rescindable at any time up to three years after the closing of the loan. Adopting recommendations by a magistrate judge, on April 3, 2006 the District Court certified the class and stipulated that those class members who elected to rescind would be entitled to seek reimbursement of amounts paid, statutory damages and attorneys’ fees. The First Circuit reversed, holding that Congress did not intend to allow TILA rescission suits – whether direct or declaratory – to receive class-action treatment. The First Circuit found it significant that Congress expressly capped TILA damages liability, and therefore could not have meant “the sky to be the limit” with respect to the rescission remedy for the same underlying violation. The personal nature of the rescission remedy also was important to the Court, which stated that “[t]he highly individualized character of this process and the range of variations that may occur render rescission largely incompatible with a sensible deployment of the class-action mechanism.” Moreover, the First Circuit questioned the very need for rescission class actions, noting TILA’s other “significant incentives for creditor compliance.” Importantly, the fact that plaintiffs were seeking a declaration that the loans are rescindable – as opposed to an order rescinding the loans – made no difference to the Appellate Court. “In the final analysis, the professed distinction between a suit for a declaratory judgment that rescission is possible and a suit for rescission simpliciter elevates form over substance.” Buckley Kolar filed a brief in the case on behalf of Amici Curiae the American Bankers Association, American Financial Services Association, America’s Community Bankers, the Consumer Bankers Association, the Consumer Mortgage Coalition, the Housing Policy Council of the Financial Services Roundtable, and the Mortgage Bankers Association. For a copy of this opinion, go to http://www.ca1.uscourts.gov/pdf.opinions/06-8018-01A.pdf.
Court Upholds FCRA “Firm Offer” That Specified Range of Rates and Amounts. The U.S. District Court for the Eastern District of Missouri held that the lender in a prescreened solicitation complied with the Fair Credit Reporting Act (FCRA) “firm offer” requirement when the mailer began with the statement that “You are prequalified* for a Line of Credit . . . with a credit line up to $25,000 . . . and a variable APR as low as 7.99%,” but a footnote indicated that the credit line could range from $500 to $25,000 and the annual percentage rate could range from 7.99%-17.99%, with a default rate of 29.99%. Stating that “Congress carefully crafted its definition of ‘firm offer’ and chose not to require that the lender specify particular loan terms,” the court held that “so long as there is some value to the consumer so that the offer is not a sham or mere solicitation, then the absence of interest rates and other terms does not prevent the offer from being a ‘firm offer of credit.’” The court noted that the offer letter included a number of terms, and although it did not “contain exact credit terms,” it did show that the minimum offer would be a credit line of $500, which, according to the court, has sufficient value to meet the FCRA firm-offer requirement. Therefore, it dismissed the case for failure to state a claim. Klutho v. GE Money Bank, No. 4:06CV1319, 2007 WL 162291 (E.D. Mo. Jan. 17, 2007). For a copy of this decision, contact .
New York AG Announces Adware Settlements with Advertisers that Use Online Ad Suppliers. On January 29, New York Attorney General Andrew Cuomo announced that Priceline.com Inc., Travelocity.com LP, and Cingular Wireless LLC had agreed to pay fines and adopt business-practice reforms to settle an investigation into allegations of deceptive use of adware programs. This settlement marks the first successful bid by law enforcement authorities against advertisers to hold them responsible for how their ads are displayed through adware. The investigation originally was initiated against adware vendor Direct Revenue for installation of adware in consumers’ computers without notice or consent; however, the state expanded the charges to cover Priceline, Travelocity, and Cingular, who are clients of Direct Revenue. In addition to requiring the advertisers to overhaul their use of adware services, the agreements also call for a $30,000 fine against Travelocity and $35,000 fines against Priceline and Cingular to cover penalties and investigative costs. Please write to to receive a copy of the case. For the Attorney General’s press release, go to http://www.oag.state.ny.us/press/2007/jan/jan29b_07.html.
Federal District Court Refuses To Award Attorneys’ Fees To Defendant In Dismissed CAN-SPAM Act Lawsuit. In Phillips v. Worldwide Internet Solutions, Inc., No. C 05-5125 (N.D. Cal. Jan. 22, 2007), plaintiff’s Complaint under the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act) was dismissed for lack of personal jurisdiction. Defendant then sought to recover attorneys’ fees pursuant to a CAN-SPAM Act provision that gives the court discretion to require any party to reimburse the other party’s costs, including reasonable attorneys’ fees. The Court denied the request, however, adopting the report and recommendations of the magistrate judge. The magistrate’s report determined that, where the dismissal was not based on the merits of plaintiff’s claims, and where there was no evidence that the suit was frivolous or “ill-motivated,” an award of attorneys’ fees was not appropriate. For a copy of this decision, please contact .
New York AG Announces Adware Settlements with Advertisers that Use Online Ad Suppliers. On January 29, New York Attorney General Andrew Cuomo announced that Priceline.com Inc., Travelocity.com LP, and Cingular Wireless LLC had agreed to pay fines and adopt business-practice reforms to settle an investigation into allegations of deceptive use of adware programs. This settlement marks the first successful bid by law enforcement authorities against advertisers to hold them responsible for how their ads are displayed through adware. The investigation originally was initiated against adware vendor Direct Revenue for installation of adware in consumers’ computers without notice or consent; however, the state expanded the charges to cover Priceline, Travelocity, and Cingular, who are clients of Direct Revenue. In addition to requiring the advertisers to overhaul their use of adware services, the agreements also call for a $30,000 fine against Travelocity and $35,000 fines against Priceline and Cingular to cover penalties and investigative costs. Please write to to receive a copy of the case. For the Attorney General’s press release, go to http://www.oag.state.ny.us/press/2007/jan/jan29b_07.html.
Federal District Court Refuses To Award Attorneys’ Fees To Defendant In Dismissed CAN-SPAM Act Lawsuit. In Phillips v. Worldwide Internet Solutions, Inc., No. C 05-5125 (N.D. Cal. Jan. 22, 2007), plaintiff’s Complaint under the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM Act) was dismissed for lack of personal jurisdiction. Defendant then sought to recover attorneys’ fees pursuant to a CAN-SPAM Act provision that gives the court discretion to require any party to reimburse the other party’s costs, including reasonable attorneys’ fees. The Court denied the request, however, adopting the report and recommendations of the magistrate judge. The magistrate’s report determined that, where the dismissal was not based on the merits of plaintiff’s claims, and where there was no evidence that the suit was frivolous or “ill-motivated,” an award of attorneys’ fees was not appropriate. For a copy of this decision, please contact .
FTC Issues Annual Financial Acts Enforcement Report to Federal Reserve. The Federal Trade Commission (FTC) filed its annual report regarding enforcement activities in 2006. The report covers actions under the Truth in Lending Act (TILA), Equal Credit Opportunity Act (ECOA), the Electronic Fund Transfer Act (EFTA) and the Consumer Leasing Act (CLA). A copy of the entire report can be found at http://www.ftc.gov/os/2007/01/070126_2006rpttofedreservbrd_text.pdf.
Senate Hears Testimony on Credit Cards; Legislation Expected. On January 25, the Senate Banking Committee held a hearing entitled, “Examining the Billing, Marketing, and Disclosure Practices of the Credit Card Industry, and Their Impact on Consumers.” The Committee heard testimony from representatives of card issuers and from consumer advocates regarding specific credit card lending practices. Chairman Christopher Dodd (D – Conn.) specified a few concerns that he believed the Committee should examine, including the rise in consumer debt and credit cards' role in that trend, the increase and targeting of card solicitations, the amount, type and disclosure of certain fees, and double-cycle billing, universal default, and the methodology of penalty rates. Several Committee members indicated that legislation to regulate specific credit card practices would be forthcoming. To view the full text of the testimony and member statements, please see http://banking.senate.gov/index.cfm?Fuseaction=Hearings.Detail&HearingID=246.
Court Upholds FCRA “Firm Offer” That Specified Range of Rates and Amounts. The U.S. District Court for the Eastern District of Missouri held that the lender in a prescreened solicitation complied with the Fair Credit Reporting Act (FCRA) “firm offer” requirement when the mailer began with the statement that “You are prequalified* for a Line of Credit . . . with a credit line up to $25,000 . . . and a variable APR as low as 7.99%,” but a footnote indicated that the credit line could range from $500 to $25,000 and the annual percentage rate could range from 7.99%-17.99%, with a default rate of 29.99%. Stating that “Congress carefully crafted its definition of ‘firm offer’ and chose not to require that the lender specify particular loan terms,” the court held that “so long as there is some value to the consumer so that the offer is not a sham or mere solicitation, then the absence of interest rates and other terms does not prevent the offer from being a ‘firm offer of credit.’” The court noted that the offer letter included a number of terms, and although it did not “contain exact credit terms,” it did show that the minimum offer would be a credit line of $500, which, according to the court, has sufficient value to meet the FCRA firm-offer requirement. Therefore, it dismissed the case for failure to state a claim. Klutho v. GE Money Bank, No. 4:06CV1319, 2007 WL 162291 (E.D. Mo. Jan. 17, 2007). For a copy of this decision, contact .
FDIC Extends and Refines ILC Freeze; Legislation Reintroduced. On January 31, the Federal Deposit Insurance Corporation (FDIC) Board approved an extension of the moratorium on applications for insurance, or change of control, of industrial loan companies (ILCs) for one year. The extension will only apply to ILCs owned by “commercial companies.” The Board also approved proposed rules to tighten application scrutiny for ILCs owned by financial companies not otherwise subject to “federal consolidated bank supervision.” The official notice of the extended moratorium and the proposed rule have not yet been published in the Federal Register, but draft versions are available at http://www.fdic.gov/news/board/notice31jan2007.html.
On January 29, a bill to restrict ILC ownership (H.R. 698) was introduced into the House of Representatives. The bill, which counts Financial Services Committee Chairman Barney Frank (D – Mass.) among its 35 sponsors, would prevent any company that derives more than 15% of its revenue from non-financial activities from owning an ILC. Similar legislation was proposed in the 109th Congress, but never reached the floor. For more information on the bill, see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:h.r.00698:.
FTC Issues Annual Financial Acts Enforcement Report to Federal Reserve. The Federal Trade Commission (FTC) filed its annual report regarding enforcement activities in 2006. The report covers actions under the Truth in Lending Act (TILA), Equal Credit Opportunity Act (ECOA), the Electronic Fund Transfer Act (EFTA) and the Consumer Leasing Act (CLA). A copy of the entire report can be found at http://www.ftc.gov/os/2007/01/070126_2006rpttofedreservbrd_text.pdf.
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