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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
House Bill Would Prohibit Foreclosure without “Reasonable” Loss Mitigation. News sources have reported that Rep. Maxine Waters (D – CA) has drafted a bill (not yet introduced) that would amend the Real Estate Settlement Procedures Act (RESPA) to, in part, require servicers to engage in “loss mitigation activities” before foreclosing on a mortgage. The bill would amend RESPA to require servicers to “engage in loss mitigation activities that are reasonable for the purpose of providing an alternative to foreclosure.” The draft text of the bill would also prohibit initiating foreclosure proceedings if the “mortgagee or servicer has at any time failed to comply” with the new duty to engage in reasonable loss mitigation activities or if the servicer had a pending response to "qualified written request" for information from the borrower. Presumably, if the draft bill were to become law, defaulting borrowers could use these provisions to greatly delay or prevent foreclosure. Although the draft bill specifies the use of common loss mitigation techniques, it gives no guidance as to how the servicer could know when a "reasonable" effort had been made. The bill would also require detailed disclosures to the Treasury Department regarding the servicer’s loss mitigation efforts. For a copy of the draft bill, contact Jeff Naimon at or .
Majority Leader Introduces Foreclosure Prevention Act. On February 14, Senate Majority Leader Harry Reid (D – NV), together with several other Senators, announced a bill entitled the Foreclosure Prevention Act of 2008 (number not yet assigned) which would provide funds to refinance troubled loans, increase foreclosure counseling, and simplify mandatory disclosures. As announced, the bill would also include a bankruptcy “cram down” provision to allow bankruptcy courts to modify mortgages, and would require a Truth-in-Lending Act disclosure at least seven days prior to closing that would state the mortgage terms and the maximum potential monthly payment. Full text of this bill is not yet available, but Sen. Reid’s press release can be found at http://reid.senate.gov/newsroom/record.cfm?id=293017&.
Dugan Calls for Amendment to CRA, Raises Question of Extension to Non-Banks. On February 12, Comptroller of the Currency John Dugan gave a speech calling for changes to the Community Reinvestment Act (CRA) to broaden the communities eligible for public welfare investments to include those harmed by the foreclosure crisis. The Financial Services Regulatory Relief Act altered the CRA, narrowing banks’ authority to invest in “the public welfare” by requiring such investments to benefit “primarily low- and moderate-income communities” (see InfoBytes, Oct. 27, 2006). According to Comptroller Dugan, under these new standards “national banks are effectively prohibited from making direct equity investments to help foreclosure-plagued urban and suburban middle-income areas – even if the effect of such investments would be to help low- and moderate-income neighborhoods as well.” In addition to an amendment to the CRA, Comptroller Dugan also called for, “if the other regulators agree,” a revision to of the CRA’s implementing regulations to broaden the definition of “community development” to include credit for underserved and distressed middle-income rural areas. Interestingly, he also raised the issue of whether CRA obligations ought to be extended to non-bank financial institutions. For the full text of the Comptroller’s speech to the National Association of Affordable Housing Lenders, please see http://www.occ.treas.gov/ftp/release/2008-14a.pdf.
SEC Shortens Holding Period For Public Resale of Restricted Securities. On February 15, amendments to SEC Rule 144 went into effect which, among other things, shorten the holding period from one year to six months before a public resale of unregistered or other “restricted” securities is permitted. The reduced holding period applies only to resales of restricted securities of issuers required to file annual and other periodic reports with the SEC under the Securities Exchange Act. Resales of restricted securities of non-reporting issuers are still subject to a one-year holding period under Rule 144. In the case of restricted securities of reporting issuers, non-affiliates may resell after six months so long as the issuer is current in its SEC filings, and may resell after one year without any restrictions. Prior to the amendment, unrestricted resales by a non-affiliate were impermissible until the lapse of a two-year holding period. The shortened holding periods do not apply to issuers that are shell companies. Affiliates of reporting issuers, such as officers, directors and controlling stockholders, may now also resell after six months, but those resales continue to be subject to the pre-amendment conditions: (i) the issuer must be current with its SEC filings; (ii) the resale is subject to a volume limitation restriction; (iii) the resale of equity securities must be through an unsolicited broker’s transaction; and (iv) a Form 144 must be filed with the SEC. The adopting release, describing these amendments to Rule 144 is found at: http://www.sec.gov/rules/final/2007/33-8869.pdf.
Spitzer Blames OCC Preemption for Poor Enforcement, Dugan Responds. On February 14, during testimony before the House Financial Services Committee, New York Governor Elliot Spitzer (D) accused the Bush Administration, and the Office of the Comptroller of the Currency (OCC) of using National Bank Act preemption of state law to prevent “any effective [mortgage lender] regulation at the local level.” Gov. Spitzer went on to say that “the OCC acted to preempt State efforts to halt predatory practices but did little to address these serious problems. The OCC was more than happy to allow the problem to grow and the bubble to inflate.” Comptroller of the Currency John Dugan replied swiftly by issuing a press release calling the governor’s accusations “just plain wrong.” Comptroller Dugan pointed out that national banks “originated just 10% of subprime loans in 2006, when underwriting standards were weakest, and delinquency rates on those loans are well below the national average” and reminding Governor Spitzer that the vast majority of the problems originated with state-regulated lenders. Last December, the United States Court of Appeals for the Second Circuit handed down an opinion in The Clearing House Ass’n v. Cuomo, a case opened by Gov. Spitzer when he was Attorney General of New York, reaffirming that state enforcement authority is preempted regarding the real estate lending practices of national banks (reported in InfoBytes, Dec. 7, 2007). Comptroller Dugan’s press release can be found at http://www.occ.treas.gov/ftp/release/2008-16.htm.
STATE ISSUES
Alaska Proposes Mortgage Lender, Loan Originator Rules. On February 12, the Alaska Department of Commerce published a notice proposing rules implementing the Mortgage Lending Regulation Act, requiring licensure of mortgage lenders, brokers, and loan originators. The act was passed last summer, but does not go into effect until July 1, 2008 (reported in InfoBytes, July 20, 2007). The proposed rules cover (i) lender and broker licensing obligations and procedures, (ii) loan originator licensure and education requirements, (iii) record retention format and requirements for regulated entities, (iv) outlines specific deceptive advertising practices, and (v) enforcement powers and procedures of the Department of Commerce. It also details applicable fees for licensure, registration, and renewals. Comments on the proposal are due by March 14, 2008. Full text of the rules can be found at http://www.commerce.state.ak.us/occ/pub/MTG0208.pdf.
NH Passes Bill Capping APR for Title Loan and Payday Lenders. On February 14, the New Hampshire Senate passed a bill (HB267) limiting the interest rate that title loan lenders and payday lenders may charge, capping it at an APR of 36%. As amended by the Senate, HB267 prohibits title loan and payday lenders from making loans to borrowers who have an outstanding title or payday loan, or who have had an outstanding title or payday loan within the previous 60 days. In its preamble, HB267 states that some New Hampshire title loan lenders and payday lenders are charging interest rates up to 350% and 1,000%, respectively. If passed as amended by the House, HB267 would go into effect on January 1, 2009. For the text of the bill, please see http://www.gencourt.state.nh.us/legislation/2008/HB0267.html.
COURTS
DC Circuit Vacates OCC’s Final Decision and Orders against Grant Thornton. On February 8, the United States Court of Appeals for the District of Columbia Circuit vacated the December 7, 2006 final decision and orders (the “Final Decision and Orders”) of the Office of the Comptroller of the Currency (OCC) against the accounting firm of Grant Thornton, LLP, for its audit of the failed First National Bank of Keystone. Grant Thornton, LLP v. Office of the Comptroller of the Currency, No. 07-1003, (D.C. Cir., Feb. 8, 2008). On March 5, 2004, the OCC had brought an administrative proceeding against Grant Thornton based on alleged violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). In the proceeding, the OCC had charged that (i) Grant Thornton was an Institution Affiliated Party (IAP) for purposes of FIRREA when it was brought in as an external auditor to conduct a targeted audit of the bank, and (ii) the firm’s failure to identify the major fraud that led directly to the insolvency of the bank was an unsafe and unsound practice. Under the statute, in order for an independent contractor (including any attorney, appraiser, or accountant) to be considered to be an IAP the agency must show that the contractor acted “knowingly or recklessly” and that the unsafe and unsound practice is likely to cause more than a minimal financial loss or significant adverse effect on the bank. 12 USC 1813(u)(4). The Administrative Law Judge (ALJ) recommended to the Comptroller that the charges be dismissed because she found that Grant Thornton had not acted recklessly. However, the Comptroller rejected the findings of the ALJ and issued the Final Decision and Orders, which included a $300,000 penalty order and a cease and desist order against Grant Thornton requiring compliance with a multitude of conditions prior to conducting audits of depository institutions. On appeal by the accounting firm, the appeals court first held that it would not give deference to the OCC’s interpretation of its enforcement powers under FIRREA because the other banking agencies also administer the act. The court found that the Final Decision and Orders rested on the theory that recklessly conducting a non-GAAS audit constituted participation in an “unsafe or unsound practice in conducting the business or affairs of the bank.” The court concluded that it did not constitute an unsafe or unsound practice because this “outside look” into a bank’s activity was not a “practice” of the bank. The court even went on to state, although not necessary for the decision, that: “we are certain that an external auditor whose sole role is to verify a bank’s books cannot be said to be engaging in a ‘banking practice.’” In the concurring opinion, one Circuit Judge disagreed with the majority’s “vacillating assessment of the audit Grant Thornton conducted” and spelled out in detail why the audit was a failure. She concluded however that based on the limited involvement of the firm as a whole, the OCC could not bring the action against it. She noted that the Congressional report makes it clear that “Congress did not intend FIRREA to be used to levy a firm-wide penalty against an IAP unless most or many of the managing partners or senior officers of the entity have participated in some way in the egregious misconduct.” She concluded that the failure of the audit was the result of only two individuals and the OCC had failed to show that it was caused by any systemic problem in the firm. For a copy of this opinion, please see http://pacer.cadc.uscourts.gov/docs/common/opinions/200802/07-1003a.pdf.
Arbitration Clause with Class Action Waiver Not Unconscionable. A federal court in Illinois granted a motion to compel arbitration in a putative consumer class action, despite plaintiff’s argument that the arbitration clause was unconscionable. Harris v. DirecTV Group, Inc., No. 07-C-3650 (N.D. Ill., opinion issued February 5, 2008). The consumer brought a putative class action against DirecTV, alleging that it violated the Fair and Accurate Transactions Act (FACTA) amendment to the Fair Credit Reporting Act (FCRA), by printing more than the last five digits of the credit card number and/or the expiration date on a computer-generated online store receipt. DirecTV moved to compel arbitration on the basis of an arbitration clause, which included a class action waiver, in its Customer Agreement. The court granted the motion, rejecting the consumer’s argument that the arbitration clause and class action waiver were unconscionable. Specifically, the court found that the arbitration clause was not procedurally unconscionable because the consumer was aware of the terms of the contract, which were clearly stated. Nor did the court find the arbitration clause substantively unconscionable, as the fees and costs associated with arbitration were fully disclosed and limited, the remedies made available to the consumer were the same as would have been available in litigation, and the consumer was not bound by a confidentiality clause. Furthermore, the class action waiver portion of the clause was not substantively unconscionable because the consumer was entitled to pursue statutory damages and attorneys’ fees and costs, which had the potential to make the plaintiff “whole.” For a copy of this decision, please see http://www.buckleykolar.com/publications/documents/HarrisvDirecTVGroupInc.pdf
Federal Court Dismisses FDCPA and FCRA Claims. On February 7, a U.S. District Court for the Middle District of Louisiana issued an opinion on the motion to dismiss filed by defendant Credit Bureau Collection Service, Inc. (CBCS) in connection with the plaintiff’s claims under the Fair Debt Collections Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA). Wagner v. Bellsouth Telecommunications, Inc., Civ. Act. No. 07-604-RET-SCR, 2008 WL 348784 (M.D.La). The court granted all but one of CBCS’s motions to dismiss. The plaintiff alleged that the defendant violated the FDCPA by failing to properly provide verification of the debt it was trying to collect, and by inaccurately reporting the delinquency date of the debt to a consumer reporting agency. The court dismissed the debt verification allegation for having been brought beyond the FDCPA's one-year statute of limitations but not the inaccurate reporting allegation, holding that the plaintiff’s complaint as a whole contains sufficient facts to state a claim under FDCPA § 1692e(2)(A). The plaintiff also alleged a violation of the Fair Credit Reporting Act, for reporting two different delinquency dates to credit bureaus for the same account. The court dismissed the FCRA claim, reasoning that the complaint failed to allege any facts that the defendant is a consumer reporting agency or that the defendant engages in any credit reporting agency activities. Moreover, the court upheld the limitations in FCRA that violations of Section 1681s-2 can be enforced only by the federal agencies and state officials specified in § 1681s. For a copy of this decision, please see http://www.buckleykolar.com/publications/documents/WagnervBellsouthCommunicationsInc.pdf.
FIRM NEWS
Jeffrey Naimon was quoted in the February 13 issue of the American Banker, in an article entitled “Foreclosure Bill Would Mandate Mitigation,” discussing the implications of the RESPA amendments recently proposed by Rep. Maxine Waters (D – CA) (reported above). Mr. Naimon called the bill “a nightmare. This bill would have dramatic negative effects on the United States’ mortgage and residential property market.”
Jeff Naimon, together with Rod Alba of Washington Consulting Associates, gave 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.
House Bill Would Prohibit Foreclosure without “Reasonable” Loss Mitigation. News sources have reported that Rep. Maxine Waters (D – CA) has drafted a bill (not yet introduced) that would amend the Real Estate Settlement Procedures Act (RESPA) to, in part, require servicers to engage in “loss mitigation activities” before foreclosing on a mortgage. The bill would amend RESPA to require servicers to “engage in loss mitigation activities that are reasonable for the purpose of providing an alternative to foreclosure.” The draft text of the bill would also prohibit initiating foreclosure proceedings if the “mortgagee or servicer has at any time failed to comply” with the new duty to engage in reasonable loss mitigation activities or if the servicer had a pending response to "qualified written request" for information from the borrower. Presumably, if the draft bill were to become law, defaulting borrowers could use these provisions to greatly delay or prevent foreclosure. Although the draft bill specifies the use of common loss mitigation techniques, it gives no guidance as to how the servicer could know when a "reasonable" effort had been made. The bill would also require detailed disclosures to the Treasury Department regarding the servicer’s loss mitigation efforts. For a copy of the draft bill, contact Jeff Naimon at or .
Majority Leader Introduces Foreclosure Prevention Act. On February 14, Senate Majority Leader Harry Reid (D – NV), together with several other Senators, announced a bill entitled the Foreclosure Prevention Act of 2008 (number not yet assigned) which would provide funds to refinance troubled loans, increase foreclosure counseling, and simplify mandatory disclosures. As announced, the bill would also include a bankruptcy “cram down” provision to allow bankruptcy courts to modify mortgages, and would require a Truth-in-Lending Act disclosure at least seven days prior to closing that would state the mortgage terms and the maximum potential monthly payment. Full text of this bill is not yet available, but Sen. Reid’s press release can be found at http://reid.senate.gov/newsroom/record.cfm?id=293017&.
DC Circuit Vacates OCC’s Final Decision and Orders against Grant Thornton. On February 8, the United States Court of Appeals for the District of Columbia Circuit vacated the December 7, 2006 final decision and orders (the “Final Decision and Orders”) of the Office of the Comptroller of the Currency (OCC) against the accounting firm of Grant Thornton, LLP, for its audit of the failed First National Bank of Keystone. Grant Thornton, LLP v. Office of the Comptroller of the Currency, No. 07-1003, (D.C. Cir., Feb. 8, 2008). On March 5, 2004, the OCC had brought an administrative proceeding against Grant Thornton based on alleged violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). In the proceeding, the OCC had charged that (i) Grant Thornton was an Institution Affiliated Party (IAP) for purposes of FIRREA when it was brought in as an external auditor to conduct a targeted audit of the bank, and (ii) the firm’s failure to identify the major fraud that led directly to the insolvency of the bank was an unsafe and unsound practice. Under the statute, in order for an independent contractor (including any attorney, appraiser, or accountant) to be considered to be an IAP the agency must show that the contractor acted “knowingly or recklessly” and that the unsafe and unsound practice is likely to cause more than a minimal financial loss or significant adverse effect on the bank. 12 USC 1813(u)(4). The Administrative Law Judge (ALJ) recommended to the Comptroller that the charges be dismissed because she found that Grant Thornton had not acted recklessly. However, the Comptroller rejected the findings of the ALJ and issued the Final Decision and Orders, which included a $300,000 penalty order and a cease and desist order against Grant Thornton requiring compliance with a multitude of conditions prior to conducting audits of depository institutions. On appeal by the accounting firm, the appeals court first held that it would not give deference to the OCC’s interpretation of its enforcement powers under FIRREA because the other banking agencies also administer the act. The court found that the Final Decision and Orders rested on the theory that recklessly conducting a non-GAAS audit constituted participation in an “unsafe or unsound practice in conducting the business or affairs of the bank.” The court concluded that it did not constitute an unsafe or unsound practice because this “outside look” into a bank’s activity was not a “practice” of the bank. The court even went on to state, although not necessary for the decision, that: “we are certain that an external auditor whose sole role is to verify a bank’s books cannot be said to be engaging in a ‘banking practice.’” In the concurring opinion, one Circuit Judge disagreed with the majority’s “vacillating assessment of the audit Grant Thornton conducted” and spelled out in detail why the audit was a failure. She concluded however that based on the limited involvement of the firm as a whole, the OCC could not bring the action against it. She noted that the Congressional report makes it clear that “Congress did not intend FIRREA to be used to levy a firm-wide penalty against an IAP unless most or many of the managing partners or senior officers of the entity have participated in some way in the egregious misconduct.” She concluded that the failure of the audit was the result of only two individuals and the OCC had failed to show that it was caused by any systemic problem in the firm. For a copy of this opinion, please see http://pacer.cadc.uscourts.gov/docs/common/opinions/200802/07-1003a.pdf.
Dugan Calls for Amendment to CRA, Raises Question of Extension to Non-Banks. On February 12, Comptroller of the Currency John Dugan gave a speech calling for changes to the Community Reinvestment Act (CRA) to broaden the communities eligible for public welfare investments to include those harmed by the foreclosure crisis. The Financial Services Regulatory Relief Act altered the CRA, narrowing banks’ authority to invest in “the public welfare” by requiring such investments to benefit “primarily low- and moderate-income communities” (see InfoBytes, Oct. 27, 2006). According to Comptroller Dugan, under these new standards “national banks are effectively prohibited from making direct equity investments to help foreclosure-plagued urban and suburban middle-income areas – even if the effect of such investments would be to help low- and moderate-income neighborhoods as well.” In addition to an amendment to the CRA, Comptroller Dugan also called for, “if the other regulators agree,” a revision to of the CRA’s implementing regulations to broaden the definition of “community development” to include credit for underserved and distressed middle-income rural areas. Interestingly, he also raised the issue of whether CRA obligations ought to be extended to non-bank financial institutions. For the full text of the Comptroller’s speech to the National Association of Affordable Housing Lenders, please see http://www.occ.treas.gov/ftp/release/2008-14a.pdf.
Spitzer Blames OCC Preemption for Poor Enforcement, Dugan Responds. On February 14, during testimony before the House Financial Services Committee, New York Governor Elliot Spitzer (D) accused the Bush Administration, and the Office of the Comptroller of the Currency (OCC) of using National Bank Act preemption of state law to prevent “any effective [mortgage lender] regulation at the local level.” Gov. Spitzer went on to say that “the OCC acted to preempt State efforts to halt predatory practices but did little to address these serious problems. The OCC was more than happy to allow the problem to grow and the bubble to inflate.” Comptroller of the Currency John Dugan replied swiftly by issuing a press release calling the governor’s accusations “just plain wrong.” Comptroller Dugan pointed out that national banks “originated just 10% of subprime loans in 2006, when underwriting standards were weakest, and delinquency rates on those loans are well below the national average” and reminding Governor Spitzer that the vast majority of the problems originated with state-regulated lenders. Last December, the United States Court of Appeals for the Second Circuit handed down an opinion in The Clearing House Ass’n v. Cuomo, a case opened by Gov. Spitzer when he was Attorney General of New York, reaffirming that state enforcement authority is preempted regarding the real estate lending practices of national banks (reported in InfoBytes, Dec. 7, 2007). Comptroller Dugan’s press release can be found at http://www.occ.treas.gov/ftp/release/2008-16.htm.
SEC Shortens Holding Period For Public Resale of Restricted Securities. On February 15, amendments to SEC Rule 144 went into effect which, among other things, shorten the holding period from one year to six months before a public resale of unregistered or other “restricted” securities is permitted. The reduced holding period applies only to resales of restricted securities of issuers required to file annual and other periodic reports with the SEC under the Securities Exchange Act. Resales of restricted securities of non-reporting issuers are still subject to a one-year holding period under Rule 144. In the case of restricted securities of reporting issuers, non-affiliates may resell after six months so long as the issuer is current in its SEC filings, and may resell after one year without any restrictions. Prior to the amendment, unrestricted resales by a non-affiliate were impermissible until the lapse of a two-year holding period. The shortened holding periods do not apply to issuers that are shell companies. Affiliates of reporting issuers, such as officers, directors and controlling stockholders, may now also resell after six months, but those resales continue to be subject to the pre-amendment conditions: (i) the issuer must be current with its SEC filings; (ii) the resale is subject to a volume limitation restriction; (iii) the resale of equity securities must be through an unsolicited broker’s transaction; and (iv) a Form 144 must be filed with the SEC. The adopting release, describing these amendments to Rule 144 is found at: http://www.sec.gov/rules/final/2007/33-8869.pdf.
DC Circuit Vacates OCC’s Final Decision and Orders against Grant Thornton. On February 8, the United States Court of Appeals for the District of Columbia Circuit vacated the December 7, 2006 final decision and orders (the “Final Decision and Orders”) of the Office of the Comptroller of the Currency (OCC) against the accounting firm of Grant Thornton, LLP, for its audit of the failed First National Bank of Keystone. Grant Thornton, LLP v. Office of the Comptroller of the Currency, No. 07-1003, (D.C. Cir., Feb. 8, 2008). On March 5, 2004, the OCC had brought an administrative proceeding against Grant Thornton based on alleged violations of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). In the proceeding, the OCC had charged that (i) Grant Thornton was an Institution Affiliated Party (IAP) for purposes of FIRREA when it was brought in as an external auditor to conduct a targeted audit of the bank, and (ii) the firm’s failure to identify the major fraud that led directly to the insolvency of the bank was an unsafe and unsound practice. Under the statute, in order for an independent contractor (including any attorney, appraiser, or accountant) to be considered to be an IAP the agency must show that the contractor acted “knowingly or recklessly” and that the unsafe and unsound practice is likely to cause more than a minimal financial loss or significant adverse effect on the bank. 12 USC 1813(u)(4). The Administrative Law Judge (ALJ) recommended to the Comptroller that the charges be dismissed because she found that Grant Thornton had not acted recklessly. However, the Comptroller rejected the findings of the ALJ and issued the Final Decision and Orders, which included a $300,000 penalty order and a cease and desist order against Grant Thornton requiring compliance with a multitude of conditions prior to conducting audits of depository institutions. On appeal by the accounting firm, the appeals court first held that it would not give deference to the OCC’s interpretation of its enforcement powers under FIRREA because the other banking agencies also administer the act. The court found that the Final Decision and Orders rested on the theory that recklessly conducting a non-GAAS audit constituted participation in an “unsafe or unsound practice in conducting the business or affairs of the bank.” The court concluded that it did not constitute an unsafe or unsound practice because this “outside look” into a bank’s activity was not a “practice” of the bank. The court even went on to state, although not necessary for the decision, that: “we are certain that an external auditor whose sole role is to verify a bank’s books cannot be said to be engaging in a ‘banking practice.’” In the concurring opinion, one Circuit Judge disagreed with the majority’s “vacillating assessment of the audit Grant Thornton conducted” and spelled out in detail why the audit was a failure. She concluded however that based on the limited involvement of the firm as a whole, the OCC could not bring the action against it. She noted that the Congressional report makes it clear that “Congress did not intend FIRREA to be used to levy a firm-wide penalty against an IAP unless most or many of the managing partners or senior officers of the entity have participated in some way in the egregious misconduct.” She concluded that the failure of the audit was the result of only two individuals and the OCC had failed to show that it was caused by any systemic problem in the firm. For a copy of this opinion, please see http://pacer.cadc.uscourts.gov/docs/common/opinions/200802/07-1003a.pdf.
Arbitration Clause with Class Action Waiver Not Unconscionable. A federal court in Illinois granted a motion to compel arbitration in a putative consumer class action, despite plaintiff’s argument that the arbitration clause was unconscionable. Harris v. DirecTV Group, Inc., No. 07-C-3650 (N.D. Ill., opinion issued February 5, 2008). The consumer brought a putative class action against DirecTV, alleging that it violated the Fair and Accurate Transactions Act (FACTA) amendment to the Fair Credit Reporting Act (FCRA), by printing more than the last five digits of the credit card number and/or the expiration date on a computer-generated online store receipt. DirecTV moved to compel arbitration on the basis of an arbitration clause, which included a class action waiver, in its Customer Agreement. The court granted the motion, rejecting the consumer’s argument that the arbitration clause and class action waiver were unconscionable. Specifically, the court found that the arbitration clause was not procedurally unconscionable because the consumer was aware of the terms of the contract, which were clearly stated. Nor did the court find the arbitration clause substantively unconscionable, as the fees and costs associated with arbitration were fully disclosed and limited, the remedies made available to the consumer were the same as would have been available in litigation, and the consumer was not bound by a confidentiality clause. Furthermore, the class action waiver portion of the clause was not substantively unconscionable because the consumer was entitled to pursue statutory damages and attorneys’ fees and costs, which had the potential to make the plaintiff “whole.” For a copy of this decision, please see http://www.buckleykolar.com/publications/documents/HarrisvDirecTVGroupInc.pdf
Federal Court Dismisses FDCPA and FCRA Claims. On February 7, a U.S. District Court for the Middle District of Louisiana issued an opinion on the motion to dismiss filed by defendant Credit Bureau Collection Service, Inc. (CBCS) in connection with the plaintiff’s claims under the Fair Debt Collections Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA). Wagner v. Bellsouth Telecommunications, Inc., Civ. Act. No. 07-604-RET-SCR, 2008 WL 348784 (M.D.La). The court granted all but one of CBCS’s motions to dismiss. The plaintiff alleged that the defendant violated the FDCPA by failing to properly provide verification of the debt it was trying to collect, and by inaccurately reporting the delinquency date of the debt to a consumer reporting agency. The court dismissed the debt verification allegation for having been brought beyond the FDCPA's one-year statute of limitations but not the inaccurate reporting allegation, holding that the plaintiff’s complaint as a whole contains sufficient facts to state a claim under FDCPA § 1692e(2)(A). The plaintiff also alleged a violation of the Fair Credit Reporting Act, for reporting two different delinquency dates to credit bureaus for the same account. The court dismissed the FCRA claim, reasoning that the complaint failed to allege any facts that the defendant is a consumer reporting agency or that the defendant engages in any credit reporting agency activities. Moreover, the court upheld the limitations in FCRA that violations of Section 1681s-2 can be enforced only by the federal agencies and state officials specified in § 1681s. For a copy of this decision, please see http://www.buckleykolar.com/publications/documents/WagnervBellsouthCommunicationsInc.pdf.
Arbitration Clause with Class Action Waiver Not Unconscionable. A federal court in Illinois granted a motion to compel arbitration in a putative consumer class action, despite plaintiff’s argument that the arbitration clause was unconscionable. Harris v. DirecTV Group, Inc., No. 07-C-3650 (N.D. Ill., opinion issued February 5, 2008). The consumer brought a putative class action against DirecTV, alleging that it violated the Fair and Accurate Transactions Act (FACTA) amendment to the Fair Credit Reporting Act (FCRA), by printing more than the last five digits of the credit card number and/or the expiration date on a computer-generated online store receipt. DirecTV moved to compel arbitration on the basis of an arbitration clause, which included a class action waiver, in its Customer Agreement. The court granted the motion, rejecting the consumer’s argument that the arbitration clause and class action waiver were unconscionable. Specifically, the court found that the arbitration clause was not procedurally unconscionable because the consumer was aware of the terms of the contract, which were clearly stated. Nor did the court find the arbitration clause substantively unconscionable, as the fees and costs associated with arbitration were fully disclosed and limited, the remedies made available to the consumer were the same as would have been available in litigation, and the consumer was not bound by a confidentiality clause. Furthermore, the class action waiver portion of the clause was not substantively unconscionable because the consumer was entitled to pursue statutory damages and attorneys’ fees and costs, which had the potential to make the plaintiff “whole.” For a copy of this decision, please see http://www.buckleykolar.com/publications/documents/HarrisvDirecTVGroupInc.pdf
Federal Court Dismisses FDCPA and FCRA Claims. On February 7, a U.S. District Court for the Middle District of Louisiana issued an opinion on the motion to dismiss filed by defendant Credit Bureau Collection Service, Inc. (CBCS) in connection with the plaintiff’s claims under the Fair Debt Collections Practices Act (FDCPA) and the Fair Credit Reporting Act (FCRA). Wagner v. Bellsouth Telecommunications, Inc., Civ. Act. No. 07-604-RET-SCR, 2008 WL 348784 (M.D.La). The court granted all but one of CBCS’s motions to dismiss. The plaintiff alleged that the defendant violated the FDCPA by failing to properly provide verification of the debt it was trying to collect, and by inaccurately reporting the delinquency date of the debt to a consumer reporting agency. The court dismissed the debt verification allegation for having been brought beyond the FDCPA's one-year statute of limitations but not the inaccurate reporting allegation, holding that the plaintiff’s complaint as a whole contains sufficient facts to state a claim under FDCPA § 1692e(2)(A). The plaintiff also alleged a violation of the Fair Credit Reporting Act, for reporting two different delinquency dates to credit bureaus for the same account. The court dismissed the FCRA claim, reasoning that the complaint failed to allege any facts that the defendant is a consumer reporting agency or that the defendant engages in any credit reporting agency activities. Moreover, the court upheld the limitations in FCRA that violations of Section 1681s-2 can be enforced only by the federal agencies and state officials specified in § 1681s. For a copy of this decision, please see http://www.buckleykolar.com/publications/documents/WagnervBellsouthCommunicationsInc.pdf.
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