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InfoBytes

CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

March 10, 2006

FEDERAL ISSUES

OTS Preempts Montgomery Ordinance. On March 7, 2006, the Office of Thrift Supervision (OTS) issued a legal opinion concluding that federal law preempts the application to federal savings associations of certain specific provisions of Montgomery County, Maryland Ordinance 36-04, dealing with abusive lending practices. Specifically, the OTS opined that provisions of the Ordinance prohibiting the making of a loan that (1) includes the financing of single premium credit life insurance; (2) provides for excessive upfront points, excessive fees, or excessive prepayment penalties; or (3) provides compensation paid directly or indirectly to a person from any source, would impermissibly infringe on the mortgage lending activities of federal savings associations and their operating subsidiaries. In addition, although the opinion does not address other provisions of Ordinance 36-04, the OTS opined that to the extent that those provisions may be applicable to federal savings associations or their operating subsidiaries, Montgomery County may not take action against these entities. OTS has comprehensive and exclusive authority to enforce laws against federal savings associations and their operating subsidiaries. Accordingly, these entities would not be subject to the procedures for investigation and enforcement by Montgomery County. The Ordinance was due to become effective March 8, 2006. However, as reported in an InfoBytes Special Alert, on March 7, the Montgomery County Circuit Court issued a preliminary injunction against the implementation of the Ordinance. For a copy of the OTS opinion, see http://www.ots.treas.gov/docs/4/480031.pdf.

FDIC Issues Letter on Consumer Credit Protection Act and Fair Lending Prohibition Against Discrimination in Credit Transactions. On March 9, 2006, the FDIC issued a letter reminding lending institutions that the Equal Credit Opportunity Act (ECOA) and its implementing regulations prohibit discrimination in credit transactions against customers who have exercised rights under the Consumer Credit Protection Act (CCPA), which includes protections provided under the Fair Credit Reporting Act (FCRA). These rights include permitting an individual who has or may have been the subject of identify theft to place a fraud alert on consumer reports maintained by reporting agencies. Any lender who uses a consumer report containing a fraud alert must take steps to verify the identity of the person seeking credit. The lender, moreover, cannot deny credit or take any adverse actions against any such applicant because of the fraud alert. The FDIC noted, however, that it “has become aware of situations in which creditors have denied applications for credit based on the presence of fraud or active duty alerts on the applicants’ consumer reports.” To avoid an ECOA violation, the FDIC urged institutions to develop procedures for identifying applicants when they obtain consumer reports with fraud alerts. For a copy of the letter, see http://www.fdic.gov/news/news/financial/2006/fil06022.html#body

Comptroller Dugan Discusses Regulators’ Role in Rebuilding Gulf Coast. In a March 2, 2006, in a speech at the Gulf Coast Bankers Conference, Comptroller of the Currency John C. Dugan stressed that regulators are determined to help communities devastated by Hurricanes Katrina and Rita. Dugan discussed ongoing efforts of regulators to be helpful, including recently released Community Reinvestment Act (CRA) regulations that allow banks to receive CRA consideration for activities that help revitalize a designated disaster area. Dugan also stated that regulators want to facilitate partnerships between local bankers and institutions from outside the region. For a copy of Dugan’s remarks, see http://www.occ.treas.gov/ftp/release/2006-27a.pdf.

FED Chairman Bernanke Delivers Speech on Community Banking. On March 8, 2006, Federal Reserve Board Chairman Ben S. Bernanke spoke at the Independent Community Bankers of American National Convention in Las Vegas, Nevada. Bernanke noted that although community banks’ overall performance in recent years has been quite strong, the industry is facing serious challenges, most notably, the increasing geographic scope of banking activities, rapid technology changes in the banking industry and competition from nondepository institutions. To aid community banks in light of these challenges, Bernanke stated that the FED is committed to streamlining the regulatory process for community banks, and to adjusting regulator procedures to account for their special needs. For example, last year the FED issued Community Reinvestment Act rules that reduce compliance burdens on a newly created category of smaller banks with assets between $250 million and $1 billion. For the full text of Chairman Bernanke's remarks, see

http://www.federalreserve.gov/boarddocs/speeches/2006/20060308/default.htm.

HUD Issues 2006 Funding Notice. On March 8, 2006, the U.S. Department of Housing and Urban Development (HUD) issued its fiscal year 2006 “SuperNOFA” (Super Notice of Funding Availability), officially making available approximately $2.2 billion in assistance through 39 programs. The funding includes over $593 million for targeted and assisted housing programs, over $120 million for economic development programs, and $1.2 billion for “Continuum of Care” homeless assistance programs. HUD published the “General Section” of the 2006 funding notice on January 20, 2006 to give applicants ample time to prepare applications and to encourage early electronic registration. For more information, see http://www.hud.gov/news/release.cfm?content=pr06-027.cfm. A copy of the notice can be found at http://www.hud.gov/offices/adm/grants/nofa06/gensec.pdf.

STATE ISSUES

Montgomery County Proposes Amendments to Consumer Protection Ordinance. Montgomery County, Maryland has introduced amendments to its consumer protection ordinance. This bill is separate from the predatory lending ordinance that a court recently enjoined. See InfoBytes Special Alert March 7, 2006. The bill would amend the ordinance in several ways, including clarifying the ordinance’s scope, expanding the list of acts that may violate the ordinance, allowing the Office of Consumer Protection to refer complaints and violations for administrative hearings, and allowing the Office of Consumer Protection to pursue civil remedies for alleged violations. For a copy of the ordinance, see http://www.montgomerycountymd.gov/content/council/2006Bills/0603.pdf.

North Carolina Cracks Down on Three Payday Lenders. On March 1, 2006, the North Carolina Attorney General announced that the state had entered into consent agreements with three companies to require them to cease their payday loan operations. The agreements force the companies to stop making payday and other unauthorized loans in the state, to stop collecting interest and other fees on existing loans, and to pay $700,000 in total to consumer organizations. The Attorney General noted that the three payday lenders used "rent-a-charter" relationships with an out-of-state bank in order to make the loans. State law places a maximum rate of 16 percent on loans under $16,000; however, licensed consumer finance lenders can charge 36 percent on loans under $600. For more information, please see http://www.ncdoj.com/DocumentStreamerClient?directory=PressReleases.

COURTS

Timely but Defective Rescission Notice did not Extend Rescission Period. In Mills v. EquiCredit Corp., et al., No. 05-1088 (6th Cir. Feb. 24, 2006), the Appellants asserted that EquiCredit's use of an incorrect form of the rescission notice required by the Truth In Lending Act in connection with their transaction gave them the right to rescind the transaction for up to three years, instead of three days. The U.S. Circuit Court of Appeals for the Sixth Circuit disagreed, noting that although the form may not have been technically correct, it nonetheless informed Appellants of their right to cancel the loan transaction within three days. Furthermore, the Court noted that the Appellants failed to plead facts that established their right to rescind the transaction beyond the three-day rescission period. A copy of the opinion may be obtained at http://www.ca6.uscourts.gov/opinions.pdf/06a0150n-06.pdf.

Montgomery County Circuit Court Grants Preliminary Injunction on Implementation of Fair Housing Law Ordinance. As referenced in an InfoBytes Special Alert earlier this week, on March 7, 2006, Judge Michael D. Mason of the Circuit Court for Montgomery County, in the case of American Financial Services Association v. Montgomery County, MD (Civ. Action No. 269105-V), granted American Financial Services Association’s (AFSA) Motion for Preliminary Injunction, staying the implementation of Montgomery County’s discrimination ordinance (36-04) until the matter may be “finally resolved on its merits.” The next hearing in the case, which should determine whether Montgomery County’s enforcement of 36-04 should be permanently enjoined, is reportedly scheduled for July 6, 2006. For a copy of the InfoBytes Special Alert which contains more details about the Montgomery County ordinance, see InfoBytes Special Alert for March 7, 2006.

MISCELLANY

HUD Awards $5+ Million to Universities to Help Rebuild Gulf Coast. On March 6, 2006, HUD Secretary Jackson announced a new program, Universities Rebuilding America Partnership (URAP), that will grant over $5 million to 16 universities on the Gulf Coast in an effort to “tap into young, bright minds to help devastated Gulf Coast communities to rebuild.” Of the 16 universities receiving grants, nine are being awarded to schools designated as “Historically Black Colleges and Universities.” To view HUD’s press release, see http://www.hud.gov/news/release.cfm?content=pr06-025.cfm.

FIRM NEWS

On March 9, 2006, Bob Serino was quoted in an American Banker article entitled ”Ruling in AmSouth Case Offers Boards a Reprieve.” The article discusses a recent Delaware court ruling that dismissed, with prejudice, a shareholder lawsuit against present and former directors of the bank that alleged the directors breached their fiduciary duties by failing to institute sufficient internal controls to guard against violations of the bank Secrecy Act and anti-money laundering regulations. In dismissing the suit the court indicated that the complaint was devoid of facts that could tie the defendants to any of the alleged wrongdoing. The court specifically noted that: "This is not about a board's failure to carefully consider a material corporate decision that was presented to the board. This is a case where information was not reaching the board because of ineffective internal controls." The court pointed out that the "plaintiffs failed to plead any facts showing the board was ever aware that AmSouth's internal controls were inadequate, that the inadequacies would result in illegal activity and that the board chose to do nothing about problems it allegedly existed." Mr. Serino is quoted in the article stating that the dismissal of the suit "shows that the court isn't going to allow people to simply throw an allegation by FinCEN on the court to create a case." For a copy of the article, see www.americanbanker.com (subscription required). Stone,et al.v. Ritter, et al., Civil Action No. 1570-N (Del. Chanc., Jan. 26, 2006).

On March 15, 2006, Bob Serino will be speaking at the Money Laundering Alert 11th Annual International Money Laundering Conference in Hollywood, FL, the largest conference of its kind in the United States. For the benefit of InfoBytes subscribers who want to attend, Buckley Kolar has $200 Savings Vouchers available towards a discounted registration fee. If you are interested in attending and would like a Savings Voucher, please contact Sue Kilgore at (202) 349-8054. For a copy of the program brochure, which includes detailed registration information, see http://www.nxtbook.com/nxtbooks/alertglobalmedia/2006brochure/.

On March 16, 2006, Joe Kolar will be speaking on “Joint Ventures and Affiliated Business Arrangements Under RESPA” at the Old Republic National Title Insurance Company’s 2006 Annual Seminar in Columbus, OH.

On March 20, 2006, Joe Kolar will be speaking at the PLI’s 11th Annual Institute on Consumer Financial Services Litigation in New York City.

© Buckley Kolar, LLP 2006. INFOBYTES is not intended as legal advice to any person or firm. It is provided as a client service and information contained herein is drawn from various public sources, including other publications.

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