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CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
OFHEO Lifts Caps on GSE Portfolios. On February 27, James Lockhart, Director of the Office of Federal Enterprise Oversight, announced that the caps on the portfolios of the government sponsored enterprises (GSEs, Fannie Mae and Freddie Mac) would be lifted on March 1. This follows months of increasing political pressure to remove the restrictions in response to the subprime crisis (most recently reported in InfoBytes, Nov. 16, 2007). The caps on the growth of the GSEs’ investment portfolios were imposed by enforcement consent order in the wake of the 2004 accounting scandal over concern regarding the GSEs’ thin capital positions. Mr. Lockhart said that the caps were being lifted in “recognition of the progress being made by both companies, as indicated by the timely release of… audited financial statements” for the first time in years. While both of the GSEs will no longer be subject to explicit portfolio growth restrictions, the heightened capital retention requirements under the consent order have not been lifted. According to Lockhart, OFHEO will discuss with each of the GSEs “the gradual decreasing of the current… capital requirement” as OFHEO comes nearer to lifting the consent orders. For a copy of the official OFHEO press release, please see http://www.ofheo.gov/newsroom.aspx?ID=416&q1=1&q2=None.
OTS Opines State Laws Preempted without OTS Ruling. On February 20, the Office of Thrift Supervision (OTS) issued an opinion letter reiterating that state laws preempted by the Home Owners’ Loan Act (HOLA) and OTS regulations are preempted without OTS action. The letter, issued in connection with discussions between Standard & Poor’s and the OTS, notes that several opinion letters have been issued discussing the preemption of specific state predatory lending laws (available here). However, it points out that these letters were in response to specific requests from federal savings associations. The letter states that “[b]ecause OTS already addressed several state predatory lending laws in agency opinions, it has not seen fit to issue additional, largely duplicative opinions addressing substantially similar laws of other jurisdictions…. OTS continues to provide oral guidance to regulated institutions about the application of state predatory lending laws and may issue further legal opinions… should the need arise.” For a copy of this opinion letter, please see http://www.ots.treas.gov/docs/5/560409.pdf.
HUD Announces FHASecure Has Provided 100,000 Refinances. On February 26, Housing and Urban Development (HUD) Secretary Alphonso Jackson issued a press release stating that FHASecure, a program created this summer to respond to the subprime crisis, has now provided assistance to more than 100,000 homeowners. FHASecure (first covered in InfoBytes, Aug. 31, 2007) provides FHA-insured refinance mortgages to borrowers who have: (i) a history of on-time payments prior to the teaser rate reset, (ii) an interest rate that has or will reset between June 2005 and December 2009, (iii) three percent cash or equity in the home, (iv) a sustained history of employment, and (v) sufficient income to make the mortgage payment. According to Secretary Jackson, FHASecure is providing loans to borrowers at a rate of 500 per day, and has reduced recipient borrowers’ monthly payments by an average of $400. When announcing the FHASecure program, the Bush Administration estimated that it would ultimately provide FHA-insured refinance mortgages to 240,000 borrowers. For a copy of the official HUD press release, please see http://www.hud.gov/news/release.cfm?content=pr08-024.cfm.
OCC Bulletin Warns Banks Not Look to FEMA Regarding Flood Insurance Status. On February 25, the Office of the Comptroller of the Currency (OCC) issued a bulletin reminding national banks not to attempt to determine a property’s flood hazard status using any source other than the Community Status Book (CSB). According to the bulletin, the OCC has become aware of some companies providing flood determinations based solely on data from the Federal Emergency Management Agency’s (FEMA). The bulletin states that “FEMA has indicated that the CSB is the final authority for community status information” and warns national banks to examine third-party vendors’ methods to ensure the correct information is being used for flood determinations. For a copy of this bulletin, please see http://www.occ.treas.gov/ftp/bulletin/2008-4.html.
OCC Releases Handbook on Leveraged Lending Risk Management. On February 29, the Office of the Comptroller of the Currency (OCC) released a booklet entitled “Leveraged Lending” which, in addition to an overview of the “fundamentals” of the topic, provides guidance on underwriting and risk management. The booklet also includes information on the OCC’s “expanded” examination procedures with regard to leverage lending risk. For a copy of the booklet, please see http://www.occ.treas.gov/Handbook/LeveragedLending.pdf.
STATE ISSUES
DC Regulator Releases New Mortgage Disclosure Form. On February 28, the District of Columbia’s Department of Insurance, Securities and Banking released a new disclosure form to be used in connection with the Mortgage Disclosure Amendment Act of 2007, which recently went into effect (see InfoBytes, Nov. 30, 2007). Guidance issued with the form stated that additional clarification was needed “for compliance with the Act because certain terms were missing.” The new form reinterprets the Act’s monthly payment calculation definitions to include repayments of principal. For a copy of the bulletin and disclosure form, please see http://disr.dc.gov/disr/lib/disr/pdf/bulletin_on_mortgage_disclosure_amendment_act_of_2007_-__final_2-28-08.pdf.
COURTS
Mass. Court Bars Foreclosure of “Presumptively Unfair” Mortgages. A Massachusetts State court recently granted Massachusetts Attorney General Martha Coakley’s motion for a preliminary injunction against Fremont Investment & Loan, barring Fremont from initiating or advancing foreclosures on mortgage loans that the Court deemed “presumptively unfair loans” unless certain conditions are met. Mass. v. Fremont Investment & Loan, No. 07-4373, (Mass. Dist. Ct. Feb. 25, 2008). The court granted an injunction with respect to foreclosure of “presumptively unfair loans,” which it defined as having the following four characteristics: (i) the loan is an adjustable rate mortgage (ARM) with an introductory period of three years or less (generally, a 2/28 or 3/27 ARM); (ii) the loan has an introductory or ‘teaser’ rate for the initial period that is at least 3 percent lower than the fully indexed rate; (iii) the borrower has a debt-to-income ratio that would have exceeded 50 percent if the lender’s underwriters had measured the debt, not by the debt due under the teaser rate, but by the debt due under the fully indexed rate; and (iv) the loan-to-value ratio is 100 percent or the loan carries a substantial prepayment penalty or a prepayment penalty that extends beyond the introductory period. For a more in-depth discussion of this case, please see InfoBytes Special Alert, Feb. 27, 2008. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/FremontInjunction.pdf.
Dicta Muses FCRA Statutory Damages May Require Actual Damages. In a recent case, the Federal 8th Circuit Court of Appeals ruled that an alleged credit reporting error by Wells Fargo was not willful under the Fair Credit Reporting Act (FCRA). Dowell v. Wells Fargo Bank, NA, No. 07-1529, (8th Cir. Feb. 28, 2008). However, in reasoning upon which the opinion did not rely, the court also suggested that a “reasonable reading of [FCRA] could still require proof of actual damages but simply substitute statutory rather than actual damages for the purpose of calculating the damage award.” In this suit, the borrower plaintiffs alleged willful violations of FCRA, violations of the Iowa Debt Collection Practices Act, and common law defamation for Wells Fargo’s failure to accurately report the number of loans the borrowers had outstanding. The federal district court granted summary judgment to Wells Fargo on all these claims, respectively, due to (i) the failure to show the existence of actual damages and the inability to hold the defendants liable for actions prior to the receipt of complaints, (ii) the absence of evidence as to the existence of “nefarious actions” to collect on the debts, and (iii) preemption of state defamation law by FCRA. The circuit court upheld summary judgments on the state-law claims based on the district court’s “well-reasoned judgment.” However, the circuit court expressed concern over the district court’s reasoning on FCRA, because the act provides statutory damages “as an alternative” to actual damages. The 8th Circuit noted that “it does not necessarily follow from the cited language that statutory damages are available where a plaintiff fails to prove actual damages.” The court suggested that statutory damages may be available as a “substitute” for actual damages, but not in the absence of them. Ultimately, the circuit court decided that it “need not delve into this issue of statutory construction in the present case… and we decline to do so. Statutory damages are not available in any event without a showing of willfulness, and our review of the record convinces us that the plaintiffs failed to present sufficient evidence of willfulness to avoid summary judgment.” A copy of this decision can be found at http://www.ca8.uscourts.gov/opndir/08/02/071529P.pdf.
Court Rules FCRA Credit Card Redaction Requirements Apply to E-Transactions. In a recent case, a Florida federal district court judge rejected a defendant's motion to dismiss claims that it violated the Fair Credit Reporting Act (FCRA) prohibition against printing certain customer information on transaction receipts. Grabein v. 1-800-FLOWERS.COM, Inc., No. 07-22235, 2008 U.S. Dist. LEXIS 11757 (S.D. Fla. Jan. 29, 2008). Specifically, the plaintiff alleged that 1-800-Flowers violated 15 USC 1681c(g) by printing the expiration date of his credit/debit card on an electronically transmitted receipt stemming from his online purchase of flowers. In the motion to dismiss, 1-800-Flowers argued that the statute only applies to transactions where the seller prints the receipt for the consumer, and only applies to transactions at a specific "point of sale" -- meaning a physical brick and mortar location rather than an online transaction. The court rejected both arguments. First, because "print" was not defined in the statute, the court reviewed the plain meaning of the word "print" and determined that it includes electronically-transmitted information. The court also took into account the underlying purpose of the FCRA (and specifically, of the Fair and Accurate Credit Transactions Act, which enacted this particular provision), which necessitates including online transactions within the statute's reach. For the same reason, the court also rejected the "point of sale" argument, stating that the term "point of sale" should not be read to exlude online transactions just because a consumer's computer is physically removed from the presence of the seller. An alternative holding "would undermine Congress's legislative aim of preventing identity theft." Finally, the court rejected the defendant's argument that the statute is unconstitutionally vague. For a copy of this decision, please see http://www.buckleykolar.com/publications/documents/Grabeinv.1-800-FLOWERS.pdf.
U.S. District Court Denies Motion for Summary Judgment in FACTA Case. A U.S. District Court for the Central District of California recently denied a motion for summary judgment in a Fair and Accurate Credit Transactions Act (FACTA) case on grounds that the “willfulness” of the defendant’s conduct is a question for the jury and cannot be decided on summary judgment. Edwards v. Toys “R” Us, et al., 527 F.Supp.2d 1197 (2007). In this case, the plaintiffs alleged that the defendant, Toys “R” Us, willfully violated FACTA by printing more than the last five digits of consumers’ credit card numbers on its customer receipts. The defendant argued that willfulness cannot be imputed to Toys “R” Us because the decision to include more than the last five digits of consumers’ credit card numbers on customer receipts was made and implemented by an independent contractor employed by the defendant to implement upgrades to its cash register software. The defendant asserted that a corporation’s scienter depends on the mental state of its directors and officers, and that a corporation cannot be found to have acted willfully if the actions in question were those of an unauthorized third party. The court noted, however, that corporations can be vicariously liable for FACTA violations committed by their employees, and that without vicarious liability it would be very difficult to hold a corporation liable under the statute. Given the facts of the case, the court held that a reasonable jury could find that the independent contractor was acting as an agent for the defendant for vicarious liability purposes. The defendant also asserted that its violation was inadvertent—i.e., not willful—and that, once discovered, it was remedied immediately. The court, citing Safeco Ins. Co. of America v. Burr, noted that, with regard to FACTA violations, willfulness covers not only knowing violations, but reckless ones as well. The court further noted that a company subject to FACTA acts in reckless disregard of the statute if the company creates an “unjustifiable risk” that it will violate the statute. Based on this standard, and reasoning that willfulness under FACTA is generally a question of fact for the jury, the court concluded that triable issues of fact remain, and that this issue cannot be decided on summary judgment. For a copy of this opinion, please contact .
Sole Member of Collection Agency LLC Subject to Individual Liability under FDCPA. On February 26, the Sixth Circuit Court of Appeals held that a sole member of a collection agency LLC may be subject to individual liability for violations of the Fair Debt Collection Practices Act (FDCPA). Kistner v. Law Offices of Michael P. Margelefsky, LLC, No. 07-3134, 2008 WL 495345 (6th Cir. Feb. 26, 2008). The plaintiff brought the lawsuit after receiving an allegedly deceptive collection letter from The Law Offices of Michael P. Margelefsky, LLC, which was printed on the LLC’s letterhead, and contained a block signature declaring that the letter was sent by an “Account Representative.” Margelefsky, the sole member of the LLC, argued that he should not be held individually liable because either (i) he did not have any involvement with the collection letter that was sent to the plaintiff, or (ii) he was not individually liable for the actions of the LLC. The court, however, disagreed, holding that “subjecting the sole member of an LLC to individual liability for violations of the FDCPA ... require[s] proof that the individual is a ‘debt collector,’ but does not require piercing of the corporate veil.” According to the court, because the facts showed that Margelefsky was “regularly engaged, directly and indirectly, in the collection of debts,” he was a “debt collector” subject to individual liability under the FDCPA. The court also concluded that the issue of whether the collection letter was deceptive and misleading under the FDCPA – by giving the impression that it was from an attorney when this was not the case (as Margelefsky admitted that he was not personally involved in sending the letter) – was a question of fact, to be decided by a jury. For a copy of the opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/08a0091p-06.pdf.
FIRM NEWS
John Kromer was quoted in a February 29th post on the Mortgage Law Central discussing a recent decision by a Massachusetts court to enjoin Fremont Investment & Loan from foreclosing on subprime mortgages deemed “structurally unfair.” The posting, entitled “Mass. Judge halts foreclosures on ‘unfair’ loans,” cites Buckley Kolar LLP as saying, “the ruling bars Fremont from initiating or advancing foreclosures on mortgage loans that the Court deemed ‘presumptively unfair loans’ unless certain conditions are met.” Mr. Kromer is quoted as saying, “If this precedent-setting decision holds up, it could have a widespread effect on other states, and potentially, all subprime loans.” He added, “The court didn’t say Fremont acted unreasonably in filing foreclosures, but the loan itself was presumptively unfair.”
Mass. Court Bars Foreclosure of “Presumptively Unfair” Mortgages. A Massachusetts State court recently granted Massachusetts Attorney General Martha Coakley’s motion for a preliminary injunction against Fremont Investment & Loan, barring Fremont from initiating or advancing foreclosures on mortgage loans that the Court deemed “presumptively unfair loans” unless certain conditions are met. Mass. v. Fremont Investment & Loan, No. 07-4373, (Mass. Dist. Ct. Feb. 25, 2008). The court granted an injunction with respect to foreclosure of “presumptively unfair loans,” which it defined as having the following four characteristics: (i) the loan is an adjustable rate mortgage (ARM) with an introductory period of three years or less (generally, a 2/28 or 3/27 ARM); (ii) the loan has an introductory or ‘teaser’ rate for the initial period that is at least 3 percent lower than the fully indexed rate; (iii) the borrower has a debt-to-income ratio that would have exceeded 50 percent if the lender’s underwriters had measured the debt, not by the debt due under the teaser rate, but by the debt due under the fully indexed rate; and (iv) the loan-to-value ratio is 100 percent or the loan carries a substantial prepayment penalty or a prepayment penalty that extends beyond the introductory period. For a more in-depth discussion of this case, please see InfoBytes Special Alert, Feb. 27, 2008. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/FremontInjunction.pdf.
OFHEO Lifts Caps on GSE Portfolios. On February 27, James Lockhart, Director of the Office of Federal Enterprise Oversight, announced that the caps on the portfolios of the government sponsored enterprises (GSEs, Fannie Mae and Freddie Mac) would be lifted on March 1. This follows months of increasing political pressure to remove the restrictions in response to the subprime crisis (most recently reported in InfoBytes, Nov. 16, 2007). The caps on the growth of the GSEs’ investment portfolios were imposed by enforcement consent order in the wake of the 2004 accounting scandal over concern regarding the GSEs’ thin capital positions. Mr. Lockhart said that the caps were being lifted in “recognition of the progress being made by both companies, as indicated by the timely release of… audited financial statements” for the first time in years. While both of the GSEs will no longer be subject to explicit portfolio growth restrictions, the heightened capital retention requirements under the consent order have not been lifted. According to Lockhart, OFHEO will discuss with each of the GSEs “the gradual decreasing of the current… capital requirement” as OFHEO comes nearer to lifting the consent orders. For a copy of the official OFHEO press release, please see http://www.ofheo.gov/newsroom.aspx?ID=416&q1=1&q2=None.
OTS Opines State Laws Preempted without OTS Ruling. On February 20, the Office of Thrift Supervision (OTS) issued an opinion letter reiterating that state laws preempted by the Home Owners’ Loan Act (HOLA) and OTS regulations are preempted without OTS action. The letter, issued in connection with discussions between Standard & Poor’s and the OTS, notes that several opinion letters have been issued discussing the preemption of specific state predatory lending laws (available here). However, it points out that these letters were in response to specific requests from federal savings associations. The letter states that “[b]ecause OTS already addressed several state predatory lending laws in agency opinions, it has not seen fit to issue additional, largely duplicative opinions addressing substantially similar laws of other jurisdictions…. OTS continues to provide oral guidance to regulated institutions about the application of state predatory lending laws and may issue further legal opinions… should the need arise.” For a copy of this opinion letter, please see http://www.ots.treas.gov/docs/5/560409.pdf.
DC Regulator Releases New Mortgage Disclosure Form. On February 28, the District of Columbia’s Department of Insurance, Securities and Banking released a new disclosure form to be used in connection with the Mortgage Disclosure Amendment Act of 2007, which recently went into effect (see InfoBytes, Nov. 30, 2007). Guidance issued with the form stated that additional clarification was needed “for compliance with the Act because certain terms were missing.” The new form reinterprets the Act’s monthly payment calculation definitions to include repayments of principal. For a copy of the bulletin and disclosure form, please see http://disr.dc.gov/disr/lib/disr/pdf/bulletin_on_mortgage_disclosure_amendment_act_of_2007_-__final_2-28-08.pdf.
HUD Announces FHASecure Has Provided 100,000 Refinances. On February 26, Housing and Urban Development (HUD) Secretary Alphonso Jackson issued a press release stating that FHASecure, a program created this summer to respond to the subprime crisis, has now provided assistance to more than 100,000 homeowners. FHASecure (first covered in InfoBytes, Aug. 31, 2007 provides FHA-insured refinance mortgages to borrowers who have: (i) a history of on-time payments prior to the teaser rate reset, (ii) an interest rate that has or will reset between June 2005 and December 2009, (iii) three percent cash or equity in the home, (iv) a sustained history of employment, and (v) sufficient income to make the mortgage payment. According to Secretary Jackson, FHASecure is providing loans to borrowers at a rate of 500 per day, and has reduced recipient borrowers’ monthly payments by an average of $400. When announcing the FHASecure program, the Bush Administration estimated that it would ultimately provide FHA-insured refinance mortgages to 240,000 borrowers. For a copy of the official HUD press release, please see http://www.hud.gov/news/release.cfm?content=pr08-024.cfm.
OCC Bulletin Warns Banks Not Look to FEMA Regarding Flood Insurance Status. On February 25, the Office of the Comptroller of the Currency (OCC) issued a bulletin reminding national banks not to attempt to determine a property’s flood hazard status using any source other than the Community Status Book (CSB). According to the bulletin, the OCC has become aware of some companies providing flood determinations based solely on data from the Federal Emergency Management Agency’s (FEMA). The bulletin states that “FEMA has indicated that the CSB is the final authority for community status information” and warns national banks to examine third-party vendors’ methods to ensure the correct information is being used for flood determinations. For a copy of this bulletin, please see http://www.occ.treas.gov/ftp/bulletin/2008-4.html.
OTS Opines State Laws Preempted without OTS Ruling. On February 20, the Office of Thrift Supervision (OTS) issued an opinion letter reiterating that state laws preempted by the Home Owners’ Loan Act (HOLA) and OTS regulations are preempted without OTS action. The letter, issued in connection with discussions between Standard & Poor’s and the OTS, notes that several opinion letters have been issued discussing the preemption of specific state predatory lending laws (available here). However, it points out that these letters were in response to specific requests from federal savings associations. The letter states that “[b]ecause OTS already addressed several state predatory lending laws in agency opinions, it has not seen fit to issue additional, largely duplicative opinions addressing substantially similar laws of other jurisdictions…. OTS continues to provide oral guidance to regulated institutions about the application of state predatory lending laws and may issue further legal opinions… should the need arise.” For a copy of this opinion letter, please see http://www.ots.treas.gov/docs/5/560409.pdf.
OCC Bulletin Warns Banks Not Look to FEMA Regarding Flood Insurance Status. On February 25, the Office of the Comptroller of the Currency (OCC) issued a bulletin reminding national banks not to attempt to determine a property’s flood hazard status using any source other than the Community Status Book (CSB). According to the bulletin, the OCC has become aware of some companies providing flood determinations based solely on data from the Federal Emergency Management Agency’s (FEMA). The bulletin states that “FEMA has indicated that the CSB is the final authority for community status information” and warns national banks to examine third-party vendors’ methods to ensure the correct information is being used for flood determinations. For a copy of this bulletin, please see http://www.occ.treas.gov/ftp/bulletin/2008-4.html.
OCC Releases Handbook on Leveraged Lending Risk Management. On February 29, the Office of the Comptroller of the Currency (OCC) released a booklet entitled “Leveraged Lending” which, in addition to an overview of the “fundamentals” of the topic, provides guidance on underwriting and risk management. The booklet also includes information on the OCC’s “expanded” examination procedures with regard to leverage lending risk. For a copy of the booklet, please see http://www.occ.treas.gov/Handbook/LeveragedLending.pdf.
Dicta Muses FCRA Statutory Damages May Require Actual Damages. In a recent case, the Federal 8th Circuit Court of Appeals ruled that an alleged credit reporting error by Wells Fargo was not willful under the Fair Credit Reporting Act (FCRA). Dowell v. Wells Fargo Bank, NA, No. 07-1529, (8th Cir. Feb. 28, 2008). However, in reasoning upon which the opinion did not rely, the court also suggested that a “reasonable reading of [FCRA] could still require proof of actual damages but simply substitute statutory rather than actual damages for the purpose of calculating the damage award.” In this suit, the borrower plaintiffs alleged willful violations of FCRA, violations of the Iowa Debt Collection Practices Act, and common law defamation for Wells Fargo’s failure to accurately report the number of loans the borrowers had outstanding. The federal district court granted summary judgment to Wells Fargo on all these claims, respectively, due to (i) the failure to show the existence of actual damages and the inability to hold the defendants liable for actions prior to the receipt of complaints, (ii) the absence of evidence as to the existence of “nefarious actions” to collect on the debts, and (iii) preemption of state defamation law by FCRA. The circuit court upheld summary judgments on the state-law claims based on the district court’s “well-reasoned judgment.” However, the circuit court expressed concern over the district court’s reasoning on FCRA, because the act provides statutory damages “as an alternative” to actual damages. The 8th Circuit noted that “it does not necessarily follow from the cited language that statutory damages are available where a plaintiff fails to prove actual damages.” The court suggested that statutory damages may be available as a “substitute” for actual damages, but not in the absence of them. Ultimately, the circuit court decided that it “need not delve into this issue of statutory construction in the present case… and we decline to do so. Statutory damages are not available in any event without a showing of willfulness, and our review of the record convinces us that the plaintiffs failed to present sufficient evidence of willfulness to avoid summary judgment.” A copy of this decision can be found at http://www.ca8.uscourts.gov/opndir/08/02/071529P.pdf.
Sole Member of Collection Agency LLC Subject to Individual Liability under FDCPA. On February 26, the Sixth Circuit Court of Appeals held that a sole member of a collection agency LLC may be subject to individual liability for violations of the Fair Debt Collection Practices Act (FDCPA). Kistner v. Law Offices of Michael P. Margelefsky, LLC, No. 07-3134, 2008 WL 495345 (6th Cir. Feb. 26, 2008). The plaintiff brought the lawsuit after receiving an allegedly deceptive collection letter from The Law Offices of Michael P. Margelefsky, LLC, which was printed on the LLC’s letterhead, and contained a block signature declaring that the letter was sent by an “Account Representative.” Margelefsky, the sole member of the LLC, argued that he should not be held individually liable because either (i) he did not have any involvement with the collection letter that was sent to the plaintiff, or (ii) he was not individually liable for the actions of the LLC. The court, however, disagreed, holding that “subjecting the sole member of an LLC to individual liability for violations of the FDCPA ... require[s] proof that the individual is a ‘debt collector,’ but does not require piercing of the corporate veil.” According to the court, because the facts showed that Margelefsky was “regularly engaged, directly and indirectly, in the collection of debts,” he was a “debt collector” subject to individual liability under the FDCPA. The court also concluded that the issue of whether the collection letter was deceptive and misleading under the FDCPA – by giving the impression that it was from an attorney when this was not the case (as Margelefsky admitted that he was not personally involved in sending the letter) – was a question of fact, to be decided by a jury. For a copy of the opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/08a0091p-06.pdf.
Mass. Court Bars Foreclosure of “Presumptively Unfair” Mortgages. A Massachusetts State court recently granted Massachusetts Attorney General Martha Coakley’s motion for a preliminary injunction against Fremont Investment & Loan, barring Fremont from initiating or advancing foreclosures on mortgage loans that the Court deemed “presumptively unfair loans” unless certain conditions are met. Mass. v. Fremont Investment & Loan, No. 07-4373, (Mass. Dist. Ct. Feb. 25, 2008). The court granted an injunction with respect to foreclosure of “presumptively unfair loans,” which it defined as having the following four characteristics: (i) the loan is an adjustable rate mortgage (ARM) with an introductory period of three years or less (generally, a 2/28 or 3/27 ARM); (ii) the loan has an introductory or ‘teaser’ rate for the initial period that is at least 3 percent lower than the fully indexed rate; (iii) the borrower has a debt-to-income ratio that would have exceeded 50 percent if the lender’s underwriters had measured the debt, not by the debt due under the teaser rate, but by the debt due under the fully indexed rate; and (iv) the loan-to-value ratio is 100 percent or the loan carries a substantial prepayment penalty or a prepayment penalty that extends beyond the introductory period. For a more in-depth discussion of this case, please see InfoBytes Special Alert, Feb. 27, 2008. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/FremontInjunction.pdf.
Dicta Muses FCRA Statutory Damages May Require Actual Damages. In a recent case, the Federal 8th Circuit Court of Appeals ruled that an alleged credit reporting error by Wells Fargo was not willful under the Fair Credit Reporting Act (FCRA). Dowell v. Wells Fargo Bank, NA, No. 07-1529, (8th Cir. Feb. 28, 2008). However, in reasoning upon which the opinion did not rely, the court also suggested that a “reasonable reading of [FCRA] could still require proof of actual damages but simply substitute statutory rather than actual damages for the purpose of calculating the damage award.” In this suit, the borrower plaintiffs alleged willful violations of FCRA, violations of the Iowa Debt Collection Practices Act, and common law defamation for Wells Fargo’s failure to accurately report the number of loans the borrowers had outstanding. The federal district court granted summary judgment to Wells Fargo on all these claims, respectively, due to (i) the failure to show the existence of actual damages and the inability to hold the defendants liable for actions prior to the receipt of complaints, (ii) the absence of evidence as to the existence of “nefarious actions” to collect on the debts, and (iii) preemption of state defamation law by FCRA. The circuit court upheld summary judgments on the state-law claims based on the district court’s “well-reasoned judgment.” However, the circuit court expressed concern over the district court’s reasoning on FCRA, because the act provides statutory damages “as an alternative” to actual damages. The 8th Circuit noted that “it does not necessarily follow from the cited language that statutory damages are available where a plaintiff fails to prove actual damages.” The court suggested that statutory damages may be available as a “substitute” for actual damages, but not in the absence of them. Ultimately, the circuit court decided that it “need not delve into this issue of statutory construction in the present case… and we decline to do so. Statutory damages are not available in any event without a showing of willfulness, and our review of the record convinces us that the plaintiffs failed to present sufficient evidence of willfulness to avoid summary judgment.” A copy of this decision can be found at http://www.ca8.uscourts.gov/opndir/08/02/071529P.pdf.
Court Rules FCRA Credit Card Redaction Requirements Apply to E-Transactions. In a recent case, a Florida federal district court judge rejected a defendant's motion to dismiss claims that it violated the Fair Credit Reporting Act (FCRA) prohibition against printing certain customer information on transaction receipts. Grabein v. 1-800-FLOWERS.COM, Inc., No. 07-22235, 2008 U.S. Dist. LEXIS 11757 (S.D. Fla. Jan. 29, 2008). Specifically, the plaintiff alleged that 1-800-Flowers violated 15 USC 1681c(g) by printing the expiration date of his credit/debit card on an electronically transmitted receipt stemming from his online purchase of flowers. In the motion to dismiss, 1-800-Flowers argued that the statute only applies to transactions where the seller prints the receipt for the consumer, and only applies to transactions at a specific "point of sale" -- meaning a physical brick and mortar location rather than an online transaction. The court rejected both arguments. First, because "print" was not defined in the statute, the court reviewed the plain meaning of the word "print" and determined that it includes electronically-transmitted information. The court also took into account the underlying purpose of the FCRA (and specifically, of the Fair and Accurate Credit Transactions Act, which enacted this particular provision), which necessitates including online transactions within the statute's reach. For the same reason, the court also rejected the "point of sale" argument, stating that the term "point of sale" should not be read to exlude online transactions just because a consumer's computer is physically removed from the presence of the seller. An alternative holding "would undermine Congress's legislative aim of preventing identity theft." Finally, the court rejected the defendant's argument that the statute is unconstitutionally vague. For a copy of this decision, please see http://www.buckleykolar.com/publications/documents/Grabeinv.1-800-FLOWERS.pdf.
U.S. District Court Denies Motion for Summary Judgment in FACTA Case. A U.S. District Court for the Central District of California recently denied a motion for summary judgment in a Fair and Accurate Credit Transactions Act (FACTA) case on grounds that the “willfulness” of the defendant’s conduct is a question for the jury and cannot be decided on summary judgment. Edwards v. Toys “R” Us, et al., 527 F.Supp.2d 1197 (2007). In this case, the plaintiffs alleged that the defendant, Toys “R” Us, willfully violated FACTA by printing more than the last five digits of consumers’ credit card numbers on its customer receipts. The defendant argued that willfulness cannot be imputed to Toys “R” Us because the decision to include more than the last five digits of consumers’ credit card numbers on customer receipts was made and implemented by an independent contractor employed by the defendant to implement upgrades to its cash register software. The defendant asserted that a corporation’s scienter depends on the mental state of its directors and officers, and that a corporation cannot be found to have acted willfully if the actions in question were those of an unauthorized third party. The court noted, however, that corporations can be vicariously liable for FACTA violations committed by their employees, and that without vicarious liability it would be very difficult to hold a corporation liable under the statute. Given the facts of the case, the court held that a reasonable jury could find that the independent contractor was acting as an agent for the defendant for vicarious liability purposes. The defendant also asserted that its violation was inadvertent—i.e., not willful—and that, once discovered, it was remedied immediately. The court, citing Safeco Ins. Co. of America v. Burr, noted that, with regard to FACTA violations, willfulness covers not only knowing violations, but reckless ones as well. The court further noted that a company subject to FACTA acts in reckless disregard of the statute if the company creates an “unjustifiable risk” that it will violate the statute. Based on this standard, and reasoning that willfulness under FACTA is generally a question of fact for the jury, the court concluded that triable issues of fact remain, and that this issue cannot be decided on summary judgment. For a copy of this opinion, please contact .
Sole Member of Collection Agency LLC Subject to Individual Liability under FDCPA. On February 26, the Sixth Circuit Court of Appeals held that a sole member of a collection agency LLC may be subject to individual liability for violations of the Fair Debt Collection Practices Act (FDCPA). Kistner v. Law Offices of Michael P. Margelefsky, LLC, No. 07-3134, 2008 WL 495345 (6th Cir. Feb. 26, 2008). The plaintiff brought the lawsuit after receiving an allegedly deceptive collection letter from The Law Offices of Michael P. Margelefsky, LLC, which was printed on the LLC’s letterhead, and contained a block signature declaring that the letter was sent by an “Account Representative.” Margelefsky, the sole member of the LLC, argued that he should not be held individually liable because either (i) he did not have any involvement with the collection letter that was sent to the plaintiff, or (ii) he was not individually liable for the actions of the LLC. The court, however, disagreed, holding that “subjecting the sole member of an LLC to individual liability for violations of the FDCPA ... require[s] proof that the individual is a ‘debt collector,’ but does not require piercing of the corporate veil.” According to the court, because the facts showed that Margelefsky was “regularly engaged, directly and indirectly, in the collection of debts,” he was a “debt collector” subject to individual liability under the FDCPA. The court also concluded that the issue of whether the collection letter was deceptive and misleading under the FDCPA – by giving the impression that it was from an attorney when this was not the case (as Margelefsky admitted that he was not personally involved in sending the letter) – was a question of fact, to be decided by a jury. For a copy of the opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/08a0091p-06.pdf.
Court Rules FCRA Credit Card Redaction Requirements Apply to E-Transactions. In a recent case, a Florida federal district court judge rejected a defendant's motion to dismiss claims that it violated the Fair Credit Reporting Act (FCRA) prohibition against printing certain customer information on transaction receipts. Grabein v. 1-800-FLOWERS.COM, Inc., No. 07-22235, 2008 U.S. Dist. LEXIS 11757 (S.D. Fla. Jan. 29, 2008). Specifically, the plaintiff alleged that 1-800-Flowers violated 15 USC 1681c(g) by printing the expiration date of his credit/debit card on an electronically transmitted receipt stemming from his online purchase of flowers. In the motion to dismiss, 1-800-Flowers argued that the statute only applies to transactions where the seller prints the receipt for the consumer, and only applies to transactions at a specific "point of sale" -- meaning a physical brick and mortar location rather than an online transaction. The court rejected both arguments. First, because "print" was not defined in the statute, the court reviewed the plain meaning of the word "print" and determined that it includes electronically-transmitted information. The court also took into account the underlying purpose of the FCRA (and specifically, of the Fair and Accurate Credit Transactions Act, which enacted this particular provision), which necessitates including online transactions within the statute's reach. For the same reason, the court also rejected the "point of sale" argument, stating that the term "point of sale" should not be read to exlude online transactions just because a consumer's computer is physically removed from the presence of the seller. An alternative holding "would undermine Congress's legislative aim of preventing identity theft." Finally, the court rejected the defendant's argument that the statute is unconstitutionally vague. For a copy of this decision, please see http://www.buckleykolar.com/publications/documents/Grabeinv.1-800-FLOWERS.pdf.
Dicta Muses FCRA Statutory Damages May Require Actual Damages. In a recent case, the Federal 8th Circuit Court of Appeals ruled that an alleged credit reporting error by Wells Fargo was not willful under the Fair Credit Reporting Act (FCRA). Dowell v. Wells Fargo Bank, NA, No. 07-1529, (8th Cir. Feb. 28, 2008). However, in reasoning upon which the opinion did not rely, the court also suggested that a “reasonable reading of [FCRA] could still require proof of actual damages but simply substitute statutory rather than actual damages for the purpose of calculating the damage award.” In this suit, the borrower plaintiffs alleged willful violations of FCRA, violations of the Iowa Debt Collection Practices Act, and common law defamation for Wells Fargo’s failure to accurately report the number of loans the borrowers had outstanding. The federal district court granted summary judgment to Wells Fargo on all these claims, respectively, due to (i) the failure to show the existence of actual damages and the inability to hold the defendants liable for actions prior to the receipt of complaints, (ii) the absence of evidence as to the existence of “nefarious actions” to collect on the debts, and (iii) preemption of state defamation law by FCRA. The circuit court upheld summary judgments on the state-law claims based on the district court’s “well-reasoned judgment.” However, the circuit court expressed concern over the district court’s reasoning on FCRA, because the act provides statutory damages “as an alternative” to actual damages. The 8th Circuit noted that “it does not necessarily follow from the cited language that statutory damages are available where a plaintiff fails to prove actual damages.” The court suggested that statutory damages may be available as a “substitute” for actual damages, but not in the absence of them. Ultimately, the circuit court decided that it “need not delve into this issue of statutory construction in the present case… and we decline to do so. Statutory damages are not available in any event without a showing of willfulness, and our review of the record convinces us that the plaintiffs failed to present sufficient evidence of willfulness to avoid summary judgment.” A copy of this decision can be found at http://www.ca8.uscourts.gov/opndir/08/02/071529P.pdf.
Court Rules FCRA Credit Card Redaction Requirements Apply to E-Transactions. In a recent case, a Florida federal district court judge rejected a defendant's motion to dismiss claims that it violated the Fair Credit Reporting Act (FCRA) prohibition against printing certain customer information on transaction receipts. Grabein v. 1-800-FLOWERS.COM, Inc., No. 07-22235, 2008 U.S. Dist. LEXIS 11757 (S.D. Fla. Jan. 29, 2008). Specifically, the plaintiff alleged that 1-800-Flowers violated 15 USC 1681c(g) by printing the expiration date of his credit/debit card on an electronically transmitted receipt stemming from his online purchase of flowers. In the motion to dismiss, 1-800-Flowers argued that the statute only applies to transactions where the seller prints the receipt for the consumer, and only applies to transactions at a specific "point of sale" -- meaning a physical brick and mortar location rather than an online transaction. The court rejected both arguments. First, because "print" was not defined in the statute, the court reviewed the plain meaning of the word "print" and determined that it includes electronically-transmitted information. The court also took into account the underlying purpose of the FCRA (and specifically, of the Fair and Accurate Credit Transactions Act, which enacted this particular provision), which necessitates including online transactions within the statute's reach. For the same reason, the court also rejected the "point of sale" argument, stating that the term "point of sale" should not be read to exlude online transactions just because a consumer's computer is physically removed from the presence of the seller. An alternative holding "would undermine Congress's legislative aim of preventing identity theft." Finally, the court rejected the defendant's argument that the statute is unconstitutionally vague. For a copy of this decision, please see http://www.buckleykolar.com/publications/documents/Grabeinv.1-800-FLOWERS.pdf.
U.S. District Court Denies Motion for Summary Judgment in FACTA Case. A U.S. District Court for the Central District of California recently denied a motion for summary judgment in a Fair and Accurate Credit Transactions Act (FACTA) case on grounds that the “willfulness” of the defendant’s conduct is a question for the jury and cannot be decided on summary judgment. Edwards v. Toys “R” Us, et al., 527 F.Supp.2d 1197 (2007). In this case, the plaintiffs alleged that the defendant, Toys “R” Us, willfully violated FACTA by printing more than the last five digits of consumers’ credit card numbers on its customer receipts. The defendant argued that willfulness cannot be imputed to Toys “R” Us because the decision to include more than the last five digits of consumers’ credit card numbers on customer receipts was made and implemented by an independent contractor employed by the defendant to implement upgrades to its cash register software. The defendant asserted that a corporation’s scienter depends on the mental state of its directors and officers, and that a corporation cannot be found to have acted willfully if the actions in question were those of an unauthorized third party. The court noted, however, that corporations can be vicariously liable for FACTA violations committed by their employees, and that without vicarious liability it would be very difficult to hold a corporation liable under the statute. Given the facts of the case, the court held that a reasonable jury could find that the independent contractor was acting as an agent for the defendant for vicarious liability purposes. The defendant also asserted that its violation was inadvertent—i.e., not willful—and that, once discovered, it was remedied immediately. The court, citing Safeco Ins. Co. of America v. Burr, noted that, with regard to FACTA violations, willfulness covers not only knowing violations, but reckless ones as well. The court further noted that a company subject to FACTA acts in reckless disregard of the statute if the company creates an “unjustifiable risk” that it will violate the statute. Based on this standard, and reasoning that willfulness under FACTA is generally a question of fact for the jury, the court concluded that triable issues of fact remain, and that this issue cannot be decided on summary judgment. For a copy of this opinion, please contact .
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