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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
Senate, House Pass Stimulus Bill with FHA, GSE Cap Raises. On February 7, the Senate followed quickly by the House passed an amended version of “Recovery Rebates and Economic Stimulus for the American People Act” (H.R. 5140) that included temporary increases on the size of loans eligible for purchase by the government sponsored enterprises (GSEs – Fannie Mae and Freddie Mac) and for insurance by the Federal Housing Administration (FHA). The Senate, setting aside a competing bill, amended the version passed by the House to include payments to senior citizens and disabled veterans, without altering the original FHA and GSE provisions (see InfoBytes, Feb. 1, 2008). As passed, the bill will (i) increase caps on mortgages in “high-cost” areas eligible for FHA insurance to 125% of the regional median home price and (ii) grant HUD the discretionary authority to increase the limit by another $100,000 beyond that. The bill would also increase the GSEs conforming loan limit to 125% of the regional median home price so long as it does not exceed 175% of the previous limit. Also on February 7, James Lockhart, Director of the Office of Federal Housing Enterprise Oversight, testified before the Senate Banking Committee on the need for GSE reform legislation, and the risks created by the temporary loan increases. H.R. 5140 now awaits the signature of President Bush, who has expressed support for, or at least acceptance of, the Senate’s modifications. For more information on this bill, please see http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.5140:.
Senate Passes Bill Making Do-Not-Call List Permanent. On February 6, the Senate passed the “Do-Not-Call Improvement Act” (H.R. 3541) which, if enacted, would remove the Do Not Call registry’s five-year re-registration requirement. The Senate did not amend the bill as passed by the House late last year (reported in InfoBytes, Dec. 21, 2007). In a press release, Federal Trade Commission Chairman Deborah Majoras expressed her support, stating that “the legislation announced today will enable us to continue to [protect consumers] efficiently.” The bill now awaits the President’s signature. For more information on this bill, please see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:h.r.03541:.
Federal Broker Licensing Bill Introduced in Senate. On February 6 Sen. Dianne Feinstein (D – Cal.), together with cosponsor Mel Martinez (R – Fl.), introduced the “S.A.F.E. Mortgage Licensing Act” (S. 2595) which, if enacted, would establish a federal licensing requirement for loan originators. The federal licensing system, overseen by the Secretary of Housing and Urban Development, would be required of all loan originators not holding a suitable state license. The bill takes care to specify that it does not preempt state law “to the extent that such State law provides greater protection to consumers.” S. 2595 has been sent to the Senate Banking Committee. More information about the bill is available at http://thomas.loc.gov/cgi-bin/bdquery/z?d110:s.2595:.
OTS Approves Hedge Fund Rebuttal of Control. On January 15, the Office of Thrift Supervision (OTS) approved a rebuttal of control filed by the Citadel Group, a hedge fund, allowing it to purchase up to 25% of E*TRADE Financial Corporation’s stock and become one of its two greatest shareholders without being deemed to have acquired “control” of a savings association under OTS regulations. Under the Home Owner’s Loan Act (HOLA), any company that “directly or indirectly controls” an OTS-regulated savings association is a “savings and loan holding company” and can be regulated. OTS regulations deem any party that holds 10% of a savings association’s stock and being one of the two largest shareholders as a controlling party; this determination, however, is “subject to rebuttal.” In approving the rebuttal, the OTS noted that Citadel “represents that it will acquire E*TRADE shares for investment purposes only, and not for the purpose… of changing or influencing control of E*TRADE.” With the filing, Citadel and E*TRADE also submitted a draft Rebuttal of Control Agreement which altered the standard rebuttal agreement language to specify that Citadel would not seek or accept “material” non-public information from E*TRADE. While the standard agreement prohibits the party rebutting control from seeking or accepting any non-public information, the OTS approved it reasoning that “provided the information is not material, it should not enable [Citadel] to influence or control E*TRADE.” It should be noted that if Citadel were to acquire more than 25% of any class of voting stock of E*TRADE, it would no longer be able to rebut its “controlling” status. For a copy of the OTS’s ruling, please see http://www.ots.treas.gov/docs/6/680001.pdf
FRB Proposes Relaxed Regs on Pass-Through Accounts and Savings Deposits. On February 7, the Federal Reserve Board (FRB) requested public comment on proposed amendments to Regulations D and I to eliminate restrictions on “pass-through” accounts and relax the rules regarding transfers from savings deposits. The first amendment implements the provisions of the Financial Services Regulatory Relief Act of 2006, allowing member banks to hold “pass-through” accounts, which allow financial institutions to maintain an account with the Federal Reserve through a Federal Reserve Bank or a member institution. Previously, member banks were statutorily prohibited from using “pass-through” accounts. The second amendment eliminates the “six-three distinction” in savings deposit regulations. Previously, six “convenient” transfers could be made from a savings deposit per month, only three of which could be made through check, debit card, or similar order. The new rule would allow six “convenient” transfers per month regardless of method. The proposed rules also make clarifying amendments to the definition of the terms “time deposit” and “vault cash” and other editorial changes. Comments are due within 45 days. For a full copy of the proposed rule, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20080207a1.pdf.
STATE ISSUES
Massachusetts Issues FAQs on Licensing Law. The Massachusetts Division of Banks recently released answers to frequently asked questions (FAQs) regarding recent changes to that state’s mortgage lending laws and regulations (most recently reported in InfoBytes Dec. 21, 2007). The FAQs discuss, in part, recently established (i) loan originator licensing provisions, (ii) 90-day Right to Cure for residential mortgages, and (iii) requirement to provide counseling to subprime borrowers. To view the FAQs in full, please see http://www.mass.gov/dob.
Oklahoma Bill Requires Interest Accrual on Escrow Accounts. On January 31, H.B. 2594 was introduced into the Oklahoma House of Representatives which, if enacted, would require lenders to pay interest “of not less than 50%” of the one-year Treasury bill rate, accruing daily, on escrow accounts for mortgage borrowers. Under the bill, dividends and interest could not be reduced by maintenance fees for the escrow account. H.B. 2594 has been referred to the Economic Development and Financial Services Committee. For full text of the bill, please see http://webserver1.lsb.state.ok.us/2007-08HB/HB2594_int.rtf.
COURTS
Supreme Court Requests a Response to Petition in Whitfield. On February 5, the Supreme Court requested a response to a petition for certiorari in Whitfield v. Radian Guaranty, Inc. No. 07-834 (U.S.) (most recently reported in InfoBytes, Feb. 1, 2008). Radian, a mortgage insurer, has appealed a Third Circuit ruling that “willfulness” under the Fair Credit Reporting Act is a subjective standard requiring factual development. On January 28, five major financial services trade associations (Consumer Mortgage Coalition, American Financial Services Association, Consumer Bankers Association, Mortgage Bankers Association, and the Financial Services Roundtable), with Buckley Kolar serving as lead counsel, filed an amicus brief in support of the petitioners. Buckley Kolar attorneys Jeremiah Buckley, Matthew Previn, Jonathan Jerison, and Kirk Jensen participated in drafting and filing this brief. The Court’s request for a response greatly increases the chance it will choose to hear the case. For the Supreme Court’s docket for this case, please see http://www.supremecourtus.gov/docket/07-834.htm.
State Sovereign Immunity Not Extended to Bad Check Diversion Program Provider. The Ninth Circuit recently held that state sovereign immunity does not extend to a private corporation that has contracted with a district attorney to run a bad check diversion program. Del Campo v. Kennedy, No. 07-15048 (9th Cir. Feb. 6, 2008). Under California law, it is unlawful to willfully write a check with knowledge that insufficient funds are available and with intent to defraud. Pursuant to a contract with the Santa Clara County District Attorney, American Corrective Counseling Services (ACCS) administered a bad check diversion program under which potential defendants could avoid prosecution by providing restitution to the victim of the bad check, completing a course, and paying applicable collection fees. After receiving notices from ACCS in connection with a bounced check, the plaintiff in the case sued ACCS, alleging, among other things, violations of the federal Fair Debt Collection Practices Act (FDCPA). ACCS claimed sovereign immunity, but the district court held that the diversion program was a county program, and therefore ACCS’s involvement in the program was not a “central function of the state government.” On appeal, ACCS argued that, as the DA acted in his state capacity with respect to the program, ACCS was an arm of the state entitled to state sovereign immunity. The Ninth Circuit, however, disagreed, concluding that “state sovereign immunity does not extend to private entities.” A copy of the opinion can be found at http://www.ca9.uscourts.gov/ca9/newopinions.nsf/.
Federal Court Denies FACTA Class Certification. A U.S. District Court for the Central District of California recently denied, without prejudice, a plaintiff consumer’s motion for class certification on the grounds that the plaintiff failed to show that a class action would be the superior method of redressing the claims. Blanco v. CEC Entm’t Concepts L.P., No. CV 07-0559 GPS (JWJx), 2008 WL 239658 (C.D. Cal., Jan. 10, 2008). The plaintiff, on behalf of herself and others similarly situated, alleged that the defendants willfully and knowingly violated the Fair Credit Reporting Act (FCRA), as amended by the Fair and Accurate Credit Transactions Act (FACTA), by printing “Prohibited Information” on receipts; i.e., printing (i) more than the last five digits of credit or debit card numbers on receipts; or (ii) expiration dates on receipts. The court characterized the plaintiffs’ cases as “a class action for a technical violation of FACTA – one of at least a dozen such actions filed in this district alone.” It found that the Plaintiff had not adequately demonstrated that a class action was superior to other methods for the fair and efficient adjudication of the controversy because (i) the potential damages at issue were grossly disproportionate to the alleged harm, as the plaintiff alleged no actual harm to herself or the class; and (ii) FACTA’s provision for recovery of attorneys fees and punitive damages made individual litigation a viable alternative means of resolving the dispute. The court denied the plaintiff’s motion for class certification without prejudice because currently pending before the Ninth Circuit was an appeal of a denial of a nearly identical motion for class certification based on failure to meet the superiority requirement. For a copy of this opinion, please see http://www.buckleykolar.com/publications/documents/BlancovCEC.pdf.
Court Strikes Down Arbitration Clause in Loan Agreement. The North Carolina Supreme Court recently held that an arbitration clause in a loan agreement was unconscionable. Tillman v. Commercial Credit Loans, Inc., No. 360A06 (N.C. Jan. 25, 2008). Borrower plaintiffs alleged that defendants violated the North Carolina Unfair and Deceptive Trade Practices Act by not disclosing that the single premium credit insurance contained in the loan agreement was optional. The loan agreement contained an arbitration clause; the trial court denied the defendants’ motion to compel arbitration based on its conclusion that the arbitration clause contained in plaintiffs’ loan agreements is unconscionable and unenforceable, but the court of appeals reversed the trial court’s order. The North Carolina Supreme Court in turn reversed the court of appeals, finding that the standard of proof for both the procedural and substantive unconscionability required to find a contract unconscionable had been met. The court found procedural unconscionability because the plaintiffs were “rushed through” the loan closings without mention of the credit insurance or arbitration provisions. The court also found substantive unconscionability because the arbitration clause: (i) shifted the costs to the loser, possibly making the expense “prohibitively high”; (ii) exempted foreclosure proceedings and other claims that might be favorable to the borrower; (iii) and prohibited joinder and class actions. The court concluded that, “taken together, the oppressive and one-sided substantive provisions… and the inequality of bargaining power between the parties rendered the arbitration clause unconscionable,” and therefore unenforceable. The dissent argued that the majority ignored the relevance of the Federal Arbitration Act (FAA) and failed to distinguish between challenges to loan agreements and arbitration clauses contained therein. For a full copy of this opinion, please see http://www.aoc.state.nc.us/www/public/sc/dsheets/360-06-1.htm.
U.S. District Court Denies Motion to Dismiss in FACTA Truncation Case. A U.S. District Court for the District of Nevada recently denied a defendant’s motion to dismiss a plaintiff’s complaint alleging violations of the Fair and Accurate Credit Transactions Act (FACTA) amendments to the Fair Credit Reporting Act, but the court also denied the plaintiff’s request for injunctive relief. Ramirez v. MGM Mirage, Inc., No. 2:07CV-00326-PMP-PAL (D. Nev. Dec. 3, 2007). In this case, the plaintiff alleged that the defendant willfully violated FACTA by providing credit card receipts that included more than the last five digits of the card number and/or the card’s expiration date. The plaintiff sought statutory damages, punitive damages, and injunctive relief. The defendant moved to dismiss, alleging that (i) the plaintiff lacked standing because there was no cognizable injury, (ii) the plaintiff was not entitled to statutory or punitive damages because she had not suffered any actual damages, (iii) awarding punitive damages would violate due process, and (iv) the defendant could not willfully violate the statute because the statute is vague and ambiguous. The court held that, based on the statutory language in FACTA, receiving a receipt with the proscribed information on it is sufficient injury to confer standing. The court also rejected the defendant’s motion with regard to statutory and punitive damages, holding that, at this point in the litigation, the plaintiff’s claims plausibly supported a claim of willfulness, based on the Supreme Court’s holding in Safeco Ins. Co. of Am. v. Burr, 127 S.Ct. 2201 (2007); a plaintiff may be awarded statutory and punitive damages if the violation is willful, even in the absence of actual damages. The court further held that the defendant’s motion to strike punitive damages on due process grounds was premature, reasoning that unless and until actual punitive damages are awarded, no basis exists to determine whether such an award is excessive in violation of due process. The court also found that the statute was neither vague nor ambiguous, thus the defendant could have violated it willfully. The court, however, ruled against the plaintiff’s request for injunctive relief, finding that FACTA does not grant a private right to pursue an injunction. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/RamirezvMGMMirage.pdf.
FIRM NEWS
Jeff Naimon, together with Rod Alba of Washington Consulting Associates, will give a presentation on February 12 regarding the Federal Reserve Board's recently proposed HOEPA rule (reported in InfoBytes Dec. 21, 2007) to a group of participants in the Federal Home Loan Bank MPF Program.
Jon Jerison and Kirk Jensen presented an audio conference entitled “For All Mortgage Lenders: Dealing with the Fallout from the Current Lending Crisis” on February 6. The topics discussed included 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). For more information, please see http://www.aspratt.com/store/77B.php.
Supreme Court Requests a Response to Petition in Whitfield. On February 5, the Supreme Court requested a response to a petition for certiorari in Whitfield v. Radian Guaranty, Inc. No. 07-834 (U.S.) (most recently reported in InfoBytes, Feb. 1, 2008). Radian, a mortgage insurer, has appealed a Third Circuit ruling that “willfulness” under the Fair Credit Reporting Act is a subjective standard requiring factual development. On January 28, five major financial services trade associations (Consumer Mortgage Coalition, American Financial Services Association, Consumer Bankers Association, Mortgage Bankers Association, and the Financial Services Roundtable), with Buckley Kolar serving as lead counsel, filed an amicus brief in support of the petitioners. Buckley Kolar attorneys Jeremiah Buckley, Matthew Previn, Jonathan Jerison, and Kirk Jensen participated in drafting and filing this brief. The Court’s request for a response greatly increases the chance it will choose to hear the case. For the Supreme Court’s docket for this case, please see http://www.supremecourtus.gov/docket/07-834.htm.
Senate, House Pass Stimulus Bill with FHA, GSE Cap Raises. On February 7, the Senate followed quickly by the House passed an amended version of “Recovery Rebates and Economic Stimulus for the American People Act” (H.R. 5140) that included temporary increases on the size of loans eligible for purchase by the government sponsored enterprises (GSEs – Fannie Mae and Freddie Mac) and for insurance by the Federal Housing Administration (FHA). The Senate, setting aside a competing bill, amended the version passed by the House to include payments to senior citizens and disabled veterans, without altering the original FHA and GSE provisions (see InfoBytes, Feb. 1, 2008). As passed, the bill will (i) increase caps on mortgages in “high-cost” areas eligible for FHA insurance to 125% of the regional median home price and (ii) grant HUD the discretionary authority to increase the limit by another $100,000 beyond that. The bill would also increase the GSEs conforming loan limit to 125% of the regional median home price so long as it does not exceed 175% of the previous limit. Also on February 7, James Lockhart, Director of the Office of Federal Housing Enterprise Oversight, testified before the Senate Banking Committee on the need for GSE reform legislation, and the risks created by the temporary loan increases. H.R. 5140 now awaits the signature of President Bush, who has expressed support for, or at least acceptance of, the Senate’s modifications. For more information on this bill, please see http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.5140:.
Massachusetts Issues FAQs on Licensing Law. The Massachusetts Division of Banks recently released answers to frequently asked questions (FAQs) regarding recent changes to that state’s mortgage lending laws and regulations (most recently reported in InfoBytes Dec. 21, 2007). The FAQs discuss, in part, recently established (i) loan originator licensing provisions, (ii) 90-day Right to Cure for residential mortgages, and (iii) requirement to provide counseling to subprime borrowers. To view the FAQs in full, please see http://www.mass.gov/dob.
Federal Broker Licensing Bill Introduced in Senate. On February 6 Sen. Dianne Feinstein (D – Cal.), together with cosponsor Mel Martinez (R – Fl.), introduced the “S.A.F.E. Mortgage Licensing Act” (S. 2595) which, if enacted, would establish a federal licensing requirement for loan originators. The federal licensing system, overseen by the Secretary of Housing and Urban Development, would be required of all loan originators not holding a suitable state license. The bill takes care to specify that it does not preempt state law “to the extent that such State law provides greater protection to consumers.” S. 2595 has been sent to the Senate Banking Committee. More information about the bill is available at http://thomas.loc.gov/cgi-bin/bdquery/z?d110:s.2595:.
Oklahoma Bill Requires Interest Accrual on Escrow Accounts. On January 31, H.B. 2594 was introduced into the Oklahoma House of Representatives which, if enacted, would require lenders to pay interest “of not less than 50%” of the one-year Treasury bill rate, accruing daily, on escrow accounts for mortgage borrowers. Under the bill, dividends and interest could not be reduced by maintenance fees for the escrow account. H.B. 2594 has been referred to the Economic Development and Financial Services Committee. For full text of the bill, please see http://webserver1.lsb.state.ok.us/2007-08HB/HB2594_int.rtf.
OTS Approves Hedge Fund Rebuttal of Control. On January 15, the Office of Thrift Supervision (OTS) approved a rebuttal of control filed by the Citadel Group, a hedge fund, allowing it to purchase up to 25% of E*TRADE Financial Corporation’s stock and become one of its two greatest shareholders without being deemed to have acquired “control” of a savings association under OTS regulations. Under the Home Owner’s Loan Act (HOLA), any company that “directly or indirectly controls” an OTS-regulated savings association is a “savings and loan holding company” and can be regulated. OTS regulations deem any party that holds 10% of a savings association’s stock and being one of the two largest shareholders as a controlling party; this determination, however, is “subject to rebuttal.” In approving the rebuttal, the OTS noted that Citadel “represents that it will acquire E*TRADE shares for investment purposes only, and not for the purpose… of changing or influencing control of E*TRADE.” With the filing, Citadel and E*TRADE also submitted a draft Rebuttal of Control Agreement which altered the standard rebuttal agreement language to specify that Citadel would not seek or accept “material” non-public information from E*TRADE. While the standard agreement prohibits the party rebutting control from seeking or accepting any non-public information, the OTS approved it reasoning that “provided the information is not material, it should not enable [Citadel] to influence or control E*TRADE.” It should be noted that if Citadel were to acquire more than 25% of any class of voting stock of E*TRADE, it would no longer be able to rebut its “controlling” status. For a copy of the OTS’s ruling, please see http://www.ots.treas.gov/docs/6/680001.pdf
FRB Proposes Relaxed Regs on Pass-Through Accounts and Savings Deposits. On February 7, the Federal Reserve Board (FRB) requested public comment on proposed amendments to Regulations D and I to eliminate restrictions on “pass-through” accounts and relax the rules regarding transfers from savings deposits. The first amendment implements the provisions of the Financial Services Regulatory Relief Act of 2006, allowing member banks to hold “pass-through” accounts, which allow financial institutions to maintain an account with the Federal Reserve through a Federal Reserve Bank or a member institution. Previously, member banks were statutorily prohibited from using “pass-through” accounts. The second amendment eliminates the “six-three distinction” in savings deposit regulations. Previously, six “convenient” transfers could be made from a savings deposit per month, only three of which could be made through check, debit card, or similar order. The new rule would allow six “convenient” transfers per month regardless of method. The proposed rules also make clarifying amendments to the definition of the terms “time deposit” and “vault cash” and other editorial changes. Comments are due within 45 days. For a full copy of the proposed rule, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20080207a1.pdf.
State Sovereign Immunity Not Extended to Bad Check Diversion Program Provider. The Ninth Circuit recently held that state sovereign immunity does not extend to a private corporation that has contracted with a district attorney to run a bad check diversion program. Del Campo v. Kennedy, No. 07-15048 (9th Cir. Feb. 6, 2008). Under California law, it is unlawful to willfully write a check with knowledge that insufficient funds are available and with intent to defraud. Pursuant to a contract with the Santa Clara County District Attorney, American Corrective Counseling Services (ACCS) administered a bad check diversion program under which potential defendants could avoid prosecution by providing restitution to the victim of the bad check, completing a course, and paying applicable collection fees. After receiving notices from ACCS in connection with a bounced check, the plaintiff in the case sued ACCS, alleging, among other things, violations of the federal Fair Debt Collection Practices Act (FDCPA). ACCS claimed sovereign immunity, but the district court held that the diversion program was a county program, and therefore ACCS’s involvement in the program was not a “central function of the state government.” On appeal, ACCS argued that, as the DA acted in his state capacity with respect to the program, ACCS was an arm of the state entitled to state sovereign immunity. The Ninth Circuit, however, disagreed, concluding that “state sovereign immunity does not extend to private entities.” A copy of the opinion can be found at http://www.ca9.uscourts.gov/ca9/newopinions.nsf/.
Supreme Court Requests a Response to Petition in Whitfield. On February 5, the Supreme Court requested a response to a petition for certiorari in Whitfield v. Radian Guaranty, Inc. No. 07-834 (U.S.) (most recently reported in InfoBytes, Feb. 1, 2008). Radian, a mortgage insurer, has appealed a Third Circuit ruling that “willfulness” under the Fair Credit Reporting Act is a subjective standard requiring factual development. On January 28, five major financial services trade associations (Consumer Mortgage Coalition, American Financial Services Association, Consumer Bankers Association, Mortgage Bankers Association, and the Financial Services Roundtable), with Buckley Kolar serving as lead counsel, filed an amicus brief in support of the petitioners. Buckley Kolar attorneys Jeremiah Buckley, Matthew Previn, Jonathan Jerison, and Kirk Jensen participated in drafting and filing this brief. The Court’s request for a response greatly increases the chance it will choose to hear the case. For the Supreme Court’s docket for this case, please see http://www.supremecourtus.gov/docket/07-834.htm.
State Sovereign Immunity Not Extended to Bad Check Diversion Program Provider. The Ninth Circuit recently held that state sovereign immunity does not extend to a private corporation that has contracted with a district attorney to run a bad check diversion program. Del Campo v. Kennedy, No. 07-15048 (9th Cir. Feb. 6, 2008). Under California law, it is unlawful to willfully write a check with knowledge that insufficient funds are available and with intent to defraud. Pursuant to a contract with the Santa Clara County District Attorney, American Corrective Counseling Services (ACCS) administered a bad check diversion program under which potential defendants could avoid prosecution by providing restitution to the victim of the bad check, completing a course, and paying applicable collection fees. After receiving notices from ACCS in connection with a bounced check, the plaintiff in the case sued ACCS, alleging, among other things, violations of the federal Fair Debt Collection Practices Act (FDCPA). ACCS claimed sovereign immunity, but the district court held that the diversion program was a county program, and therefore ACCS’s involvement in the program was not a “central function of the state government.” On appeal, ACCS argued that, as the DA acted in his state capacity with respect to the program, ACCS was an arm of the state entitled to state sovereign immunity. The Ninth Circuit, however, disagreed, concluding that “state sovereign immunity does not extend to private entities.” A copy of the opinion can be found at http://www.ca9.uscourts.gov/ca9/newopinions.nsf/.
Federal Court Denies FACTA Class Certification. A U.S. District Court for the Central District of California recently denied, without prejudice, a plaintiff consumer’s motion for class certification on the grounds that the plaintiff failed to show that a class action would be the superior method of redressing the claims. Blanco v. CEC Entm’t Concepts L.P., No. CV 07-0559 GPS (JWJx), 2008 WL 239658 (C.D. Cal., Jan. 10, 2008). The plaintiff, on behalf of herself and others similarly situated, alleged that the defendants willfully and knowingly violated the Fair Credit Reporting Act (FCRA), as amended by the Fair and Accurate Credit Transactions Act (FACTA), by printing “Prohibited Information” on receipts; i.e., printing (i) more than the last five digits of credit or debit card numbers on receipts; or (ii) expiration dates on receipts. The court characterized the plaintiffs’ cases as “a class action for a technical violation of FACTA – one of at least a dozen such actions filed in this district alone.” It found that the Plaintiff had not adequately demonstrated that a class action was superior to other methods for the fair and efficient adjudication of the controversy because (i) the potential damages at issue were grossly disproportionate to the alleged harm, as the plaintiff alleged no actual harm to herself or the class; and (ii) FACTA’s provision for recovery of attorneys fees and punitive damages made individual litigation a viable alternative means of resolving the dispute. The court denied the plaintiff’s motion for class certification without prejudice because currently pending before the Ninth Circuit was an appeal of a denial of a nearly identical motion for class certification based on failure to meet the superiority requirement. For a copy of this opinion, please see http://www.buckleykolar.com/publications/documents/BlancovCEC.pdf.
Court Strikes Down Arbitration Clause in Loan Agreement. The North Carolina Supreme Court recently held that an arbitration clause in a loan agreement was unconscionable. Tillman v. Commercial Credit Loans, Inc., No. 360A06 (N.C. Jan. 25, 2008). Borrower plaintiffs alleged that defendants violated the North Carolina Unfair and Deceptive Trade Practices Act by not disclosing that the single premium credit insurance contained in the loan agreement was optional. The loan agreement contained an arbitration clause; the trial court denied the defendants’ motion to compel arbitration based on its conclusion that the arbitration clause contained in plaintiffs’ loan agreements is unconscionable and unenforceable, but the court of appeals reversed the trial court’s order. The North Carolina Supreme Court in turn reversed the court of appeals, finding that the standard of proof for both the procedural and substantive unconscionability required to find a contract unconscionable had been met. The court found procedural unconscionability because the plaintiffs were “rushed through” the loan closings without mention of the credit insurance or arbitration provisions. The court also found substantive unconscionability because the arbitration clause: (i) shifted the costs to the loser, possibly making the expense “prohibitively high”; (ii) exempted foreclosure proceedings and other claims that might be favorable to the borrower; (iii) and prohibited joinder and class actions. The court concluded that, “taken together, the oppressive and one-sided substantive provisions… and the inequality of bargaining power between the parties rendered the arbitration clause unconscionable,” and therefore unenforceable. The dissent argued that the majority ignored the relevance of the Federal Arbitration Act (FAA) and failed to distinguish between challenges to loan agreements and arbitration clauses contained therein. For a full copy of this opinion, please see http://www.aoc.state.nc.us/www/public/sc/dsheets/360-06-1.htm.
U.S. District Court Denies Motion to Dismiss in FACTA Truncation Case. A U.S. District Court for the District of Nevada recently denied a defendant’s motion to dismiss a plaintiff’s complaint alleging violations of the Fair and Accurate Credit Transactions Act (FACTA) amendments to the Fair Credit Reporting Act, but the court also denied the plaintiff’s request for injunctive relief. Ramirez v. MGM Mirage, Inc., No. 2:07CV-00326-PMP-PAL (D. Nev. Dec. 3, 2007). In this case, the plaintiff alleged that the defendant willfully violated FACTA by providing credit card receipts that included more than the last five digits of the card number and/or the card’s expiration date. The plaintiff sought statutory damages, punitive damages, and injunctive relief. The defendant moved to dismiss, alleging that (i) the plaintiff lacked standing because there was no cognizable injury, (ii) the plaintiff was not entitled to statutory or punitive damages because she had not suffered any actual damages, (iii) awarding punitive damages would violate due process, and (iv) the defendant could not willfully violate the statute because the statute is vague and ambiguous. The court held that, based on the statutory language in FACTA, receiving a receipt with the proscribed information on it is sufficient injury to confer standing. The court also rejected the defendant’s motion with regard to statutory and punitive damages, holding that, at this point in the litigation, the plaintiff’s claims plausibly supported a claim of willfulness, based on the Supreme Court’s holding in Safeco Ins. Co. of Am. v. Burr, 127 S.Ct. 2201 (2007); a plaintiff may be awarded statutory and punitive damages if the violation is willful, even in the absence of actual damages. The court further held that the defendant’s motion to strike punitive damages on due process grounds was premature, reasoning that unless and until actual punitive damages are awarded, no basis exists to determine whether such an award is excessive in violation of due process. The court also found that the statute was neither vague nor ambiguous, thus the defendant could have violated it willfully. The court, however, ruled against the plaintiff’s request for injunctive relief, finding that FACTA does not grant a private right to pursue an injunction. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/RamirezvMGMMirage.pdf.
Supreme Court Requests a Response to Petition in Whitfield. On February 5, the Supreme Court requested a response to a petition for certiorari in Whitfield v. Radian Guaranty, Inc. No. 07-834 (U.S.) (most recently reported in InfoBytes, Feb. 1, 2008). Radian, a mortgage insurer, has appealed a Third Circuit ruling that “willfulness” under the Fair Credit Reporting Act is a subjective standard requiring factual development. On January 28, five major financial services trade associations (Consumer Mortgage Coalition, American Financial Services Association, Consumer Bankers Association, Mortgage Bankers Association, and the Financial Services Roundtable), with Buckley Kolar serving as lead counsel, filed an amicus brief in support of the petitioners. Buckley Kolar attorneys Jeremiah Buckley, Matthew Previn, Jonathan Jerison, and Kirk Jensen participated in drafting and filing this brief. The Court’s request for a response greatly increases the chance it will choose to hear the case. For the Supreme Court’s docket for this case, please see http://www.supremecourtus.gov/docket/07-834.htm.
Senate Passes Bill Making Do-Not-Call List Permanent. On February 6, the Senate passed the “Do-Not-Call Improvement Act” (H.R. 3541) which, if enacted, would remove the Do Not Call registry’s five-year re-registration requirement. The Senate did not amend the bill as passed by the House late last year (reported in InfoBytes, Dec. 21, 2007). In a press release, Federal Trade Commission Chairman Deborah Majoras expressed her support, stating that “the legislation announced today will enable us to continue to [protect consumers] efficiently.” The bill now awaits the President’s signature. For more information on this bill, please see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:h.r.03541:.
State Sovereign Immunity Not Extended to Bad Check Diversion Program Provider. The Ninth Circuit recently held that state sovereign immunity does not extend to a private corporation that has contracted with a district attorney to run a bad check diversion program. Del Campo v. Kennedy, No. 07-15048 (9th Cir. Feb. 6, 2008). Under California law, it is unlawful to willfully write a check with knowledge that insufficient funds are available and with intent to defraud. Pursuant to a contract with the Santa Clara County District Attorney, American Corrective Counseling Services (ACCS) administered a bad check diversion program under which potential defendants could avoid prosecution by providing restitution to the victim of the bad check, completing a course, and paying applicable collection fees. After receiving notices from ACCS in connection with a bounced check, the plaintiff in the case sued ACCS, alleging, among other things, violations of the federal Fair Debt Collection Practices Act (FDCPA). ACCS claimed sovereign immunity, but the district court held that the diversion program was a county program, and therefore ACCS’s involvement in the program was not a “central function of the state government.” On appeal, ACCS argued that, as the DA acted in his state capacity with respect to the program, ACCS was an arm of the state entitled to state sovereign immunity. The Ninth Circuit, however, disagreed, concluding that “state sovereign immunity does not extend to private entities.” A copy of the opinion can be found at http://www.ca9.uscourts.gov/ca9/newopinions.nsf/.
Federal Court Denies FACTA Class Certification. A U.S. District Court for the Central District of California recently denied, without prejudice, a plaintiff consumer’s motion for class certification on the grounds that the plaintiff failed to show that a class action would be the superior method of redressing the claims. Blanco v. CEC Entm’t Concepts L.P., No. CV 07-0559 GPS (JWJx), 2008 WL 239658 (C.D. Cal., Jan. 10, 2008). The plaintiff, on behalf of herself and others similarly situated, alleged that the defendants willfully and knowingly violated the Fair Credit Reporting Act (FCRA), as amended by the Fair and Accurate Credit Transactions Act (FACTA), by printing “Prohibited Information” on receipts; i.e., printing (i) more than the last five digits of credit or debit card numbers on receipts; or (ii) expiration dates on receipts. The court characterized the plaintiffs’ cases as “a class action for a technical violation of FACTA – one of at least a dozen such actions filed in this district alone.” It found that the Plaintiff had not adequately demonstrated that a class action was superior to other methods for the fair and efficient adjudication of the controversy because (i) the potential damages at issue were grossly disproportionate to the alleged harm, as the plaintiff alleged no actual harm to herself or the class; and (ii) FACTA’s provision for recovery of attorneys fees and punitive damages made individual litigation a viable alternative means of resolving the dispute. The court denied the plaintiff’s motion for class certification without prejudice because currently pending before the Ninth Circuit was an appeal of a denial of a nearly identical motion for class certification based on failure to meet the superiority requirement. For a copy of this opinion, please see http://www.buckleykolar.com/publications/documents/BlancovCEC.pdf.
U.S. District Court Denies Motion to Dismiss in FACTA Truncation Case. A U.S. District Court for the District of Nevada recently denied a defendant’s motion to dismiss a plaintiff’s complaint alleging violations of the Fair and Accurate Credit Transactions Act (FACTA) amendments to the Fair Credit Reporting Act, but the court also denied the plaintiff’s request for injunctive relief. Ramirez v. MGM Mirage, Inc., No. 2:07CV-00326-PMP-PAL (D. Nev. Dec. 3, 2007). In this case, the plaintiff alleged that the defendant willfully violated FACTA by providing credit card receipts that included more than the last five digits of the card number and/or the card’s expiration date. The plaintiff sought statutory damages, punitive damages, and injunctive relief. The defendant moved to dismiss, alleging that (i) the plaintiff lacked standing because there was no cognizable injury, (ii) the plaintiff was not entitled to statutory or punitive damages because she had not suffered any actual damages, (iii) awarding punitive damages would violate due process, and (iv) the defendant could not willfully violate the statute because the statute is vague and ambiguous. The court held that, based on the statutory language in FACTA, receiving a receipt with the proscribed information on it is sufficient injury to confer standing. The court also rejected the defendant’s motion with regard to statutory and punitive damages, holding that, at this point in the litigation, the plaintiff’s claims plausibly supported a claim of willfulness, based on the Supreme Court’s holding in Safeco Ins. Co. of Am. v. Burr, 127 S.Ct. 2201 (2007); a plaintiff may be awarded statutory and punitive damages if the violation is willful, even in the absence of actual damages. The court further held that the defendant’s motion to strike punitive damages on due process grounds was premature, reasoning that unless and until actual punitive damages are awarded, no basis exists to determine whether such an award is excessive in violation of due process. The court also found that the statute was neither vague nor ambiguous, thus the defendant could have violated it willfully. The court, however, ruled against the plaintiff’s request for injunctive relief, finding that FACTA does not grant a private right to pursue an injunction. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/RamirezvMGMMirage.pdf.
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