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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Free Web Seminar –
Subprime Mortgage Litigation and Enforcement Action Update
Thursday, April 3 at 12 PM EDT (9:00 AM PDT)
Members of Buckley Kolar's Litigation and Enforcement Defense team, including Matthew Previn and Kirk Jensen, along with Jeff Nielsen of Navigant Consulting, Inc., will conduct a 75 minute discussion and be available to answer questions on major litigation and enforcement developments, including:
- Massachusetts v. Fremont Investment & Loan, in which a state court recently granted the Commonwealth of Massachusetts’ motion for a preliminary injunction barring foreclosures of loans made by Fremont that the court held are “presumptively unfair.” This case is now on appeal but raises significant issues regarding potential liability for lenders and assignees for loans that did not violate consumer credit laws but are nonetheless being challenged as being structurally unfair.
- Recent Trends in Subprime Mortgage Litigation Cases – Jeff Nielsen will discuss the trends that are emerging in cases filed against various industry participants, with a focus on the emerging areas of greatest potential risk and liability to the industry.
- Fair Lending – A spate of fair lending cases have been filed against dozens of mortgage companies, often based on conclusions drawn from HMDA data.
- Servicing Litigation – A growing number of cases and enforcement actions are challenging long standing practices of mortgage servicers with respect to collections and foreclosure actions.
To Register for the Webinar, Please Go to:
https://meetingvisuals.webex.com/meetingvisuals/j.php?ED=103801442&RG=1
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
OFHEO, Fannie Mae and Freddie Mac Announce Initiative to Increase Market Liquidity. To support growth and further restore market liquidity, the Office of Federal Housing Enterprise Oversight (OFHEO) announced that it would begin to permit a significant portion of the GSEs’ 30 percent OFHEO-directed capital surplus to be invested in mortgages and MBS. As a key part of this initiative, both companies announced that they will begin the process to raise significant capital. The initiative is expected to provide up to $200 billion of immediate liquidity to the mortgage-backed securities market. OFHEO. OFHEO estimates that Fannie Mae’s and Freddie Mac’s existing capabilities, combined with this new initiative and the release of the portfolio caps announced in February, should allow the GSEs to purchase or guarantee about $2 trillion in mortgages this year. This capacity will permit them to do more in the jumbo temporary conforming market, subprime refinancing and loan modifications areas. See the announcement at http://www.ofheo.gov/newsroom.aspx?ID=422&q1=1&q2=None.
GSEs Set Period for Comments on Appraisal Code of Conduct. Comments on the Home Valuation Code of Conduct, announced on March 3rd by OFHEO, New York Attorney General Andrew Cuomo and Fannie Mae and Freddie Mac (reported in InfoBytes, March 7, 2008) may now be made directly to Fannie Mae and Freddie Mac. The comment period established by the GSEs is for 45 days, ending on April 30th. OFHEO will be reviewing the submitted comments. Comments may be sent as provided below: For Freddie Mac: Comments should be submitted through the online form on the Enterprise’s website at http://www.freddiemac.com/singlefamily/home_valuation.html. Hard copy, written comments may also be submitted by regular mail or express delivery to the following address: Home Valuation Code of Conduct Response Attn: Senior Vice President, Credit Risk Oversight Freddie Mac 1551 Park Run Drive, Mail Stop D2Z McLean, VA 22102-3110 For Fannie Mae: Comments should be submitted through the online comment form at https://www.efanniemae.com/go/appraisalcomment.jsp or, for additional information and the comment form, use https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/index.jsp.
OCC Issues Interim Final Rule to Add Provision to Lending Limits Regulation. The Office of the Comptroller of the Currency (OCC) issued an interim final rule to add a provision to its 12 C.F.R. part 32 lending limits regulation that will address temporary funding arrangements in emergency situations. In general, 12 U.S.C. § 84 and the OCC’s implementing regulations, 12 C.F.R. part 32, permit a national bank to make loans in an amount up to 15 percent of its unimpaired capital and surplus to a single borrower. A national bank also may extend credit up to an additional 10 percent of unimpaired capital and surplus to the same borrower if the amount of the loan that exceeds the 15 percent limit is secured by certain types of collateral. The interim final rule adds a new part 32.8 that will enable the OCC to establish a special lending limit for loans and extensions of credit that the OCC determines are essential to address an emergency situation (such as critical financial markets stability), will be of short duration, will be reduced in amount in a timeframe and manner acceptable to the OCC, and do not present unacceptable risk to the lending national bank. In granting approval for a special temporary lending limit, the OCC would impose supervisory oversight and reporting measures that it determines are appropriate. This interim rule became effective March 20, 2008. Comments on the added provision must be received by April 21, 2008. For a copy of the Federal Register report on this new provision, please see http://a257.g.akamaitech.net/7/257/2422/01jan20081800/edocket.access.gpo.gov/2008/pdf/E8-5724.pdf.
Online Advertiser Pays $2.9 Million to Settle FTC CAN-SPAM Violation Charges. Online advertiser ValueClick, Inc. has agreed to pay a $2.9 million civil penalty to settle Federal Trade Commission (FTC) charges that its electronic advertising claims and e-mails were deceptive and violated the CAN-SPAM Act. This is the largest settlement in a case based on the CAN-SPAM Act, enacted in 2003. The FTC also charged that ValueClick and its subsidiaries failed to secure consumers’ sensitive financial information, despite their claims to do so. The settlement agreement, (i) requires ValueClick to clearly and conspicuously disclose the costs and obligations consumers must incur to receive the products it advertises as “free,” (ii) bars future violations of the CAN-SPAM Act, (iii) bars deceptive claims about the security of consumer information collected at ValueClick’s and its subsidiaries’ websites, and (iv) requires ValueClick and its subsidiaries to establish and maintain a comprehensive security program, and obtain independent third-party assessments of their programs, for 20 years. This is the FTC’s third case targeting the use of deceptive promises of free merchandise by Internet-based “lead generation” operations, and the Commission’s 18th case challenging data security practices by a company handling sensitive consumer information. For a copy of the FTC press release, please see http://www.ftc.gov/opa/2008/03/vc.shtm.
STATE ISSUES
Florida AG Warns of Timeshare Fraud. On March 13, 2008, Florida Attorney General Bill McCollum issued a consumer advisory regarding fraud in connection with vacation packages and other travel-related services. The advisory specifically warns Florida residents and guests about, among other things, fraud associated with vacation timeshares. The Attorney General warned consumers in the market to purchase or sell a timeshare to: (i) be wary of sellers demanding same day purchases; (ii) carefully read all contracts to determine their cancellation rights; (iii) be skeptical of claims about the resale market; (iv) question up-front fees and determine whether salespeople are licensed real estate brokers; and (v) consider all options when it comes to resale, such as selling “by owner” and advertising in various publications. For a full copy of this consumer alert, please see http://myfloridalegal.com/NewsBrie.nsf/OL/VHER-7CPPCU.
Arkansas Attorney General Orders Licensed Payday Lenders to Stop Lending. On March 19, the Arkansas Attorney General ordered all payday lenders operating in Arkansas to cease their lending practices immediately, void any and all current and past-due obligations of their borrowers, and refrain from any collection activities related to these type loans. A failure to do so will likely result in the filing of a lawsuit by the Attorney General. The Attorney General defines “payday” lending as short term loans that charge interest in amounts that vastly exceed the usury limit imposed by the Constitution of the State of Arkansas. For a copy of the press release, please see http://ag.arkansas.gov/newsroom/index.php?do:newsDetail=1&news_id=156.
COURTS
Eleventh Circuit Holds that Subsection 8(b) of RESPA Does Not Govern Excessive Fees. On March 20, a U.S. Court of Appeals for the Eleventh Circuit held that subsection 8(b) of RESPA does not govern excessive fees because it is not a price control provision. Friedman v. Market Street Mortgage Corp., 05-13820 (11th Cir., March 20, 2008). According to the court, subsection 8(b) prohibits the charging of fees “other than for services actually performed.” In this case, the plaintiffs alleged that the defendant lender charged a fee that was excessive in relation to services or goods actually rendered, in violation of subsection 8(b). The plaintiffs argued that their position was supported by a Statement of Policy issued by HUD in 2001, concluding that a settlement service provider may be liable under subsection 8(b) and its implementing regulation “when it charges a fee that exceeds the reasonable value of goods, facilities, or services provided.” Rejecting this position, the court held that nothing in the language of subsection 8(b) authorizes courts to divide a charge into what they or others deem to be its reasonable and unreasonable components. The court, citing to Krzalic v. Republic Title Co., 314 F.3d 875 (7th Cir. 2002), reasoned that, because the language is clear and unambiguous, “there is not enough play in the statutory joints to allow HUD to impose its own ‘interpretation.’” The court further reasoned that viewing section 8 as a means of targeting abusive practices, not as a means of setting broad-ranging price controls, is consistent with the legislative history of RESPA. As such, the court remanded the case to the district court with instructions to dismiss the plaintiffs’ complaint with prejudice. For a copy of the opinion, please see http://www.ca11.uscourts.gov/opinions/ops/200513820.pdf.
Craigslist Not Liable For Discriminatory User Postings. The Seventh Circuit this week affirmed summary judgment in favor of defendant craigslist in Chicago Lawyers’ Committee for Civil Rights Under Law, Inc. v. craigslist, Inc., No. 07-1101 (7th Cir., March 14, 2008). As previously reported in the January 19, 2007 issue of InfoBytes, the appeal arose from the Chicago Lawyers’ Committee for Civil Rights Under Law’s claim that craigslist should be liable under the Fair Housing Act for discriminatory content posted on its website by landlords and sellers of housing. Craigslist argued successfully before the district court that Section 230(c) of the Communications Decency Act (CDA) effectively immunized craigslist – a provider “of an interactive computer service” – against claims that seek to treat it as the publisher or speaker of actionable content. In an opinion authored by Chief Judge Easterbrook, a three-judge panel of the Seventh Circuit affirmed the lower court’s decision. Careful to point out that Section 230(c) does not provide “immunity” per se, the Panel explained that “[w]hat [CDA] §230(c)(1) says is that an online information system must not ‘be treated as the publisher or speaker of any information provided by someone else. Yet only in a capacity as publisher could craigslist be liable under [the FHA]. It is not the author of the ads and could not be treated as the ‘speaker’ of the posters’ words, given §230(a)(1).” The Chief Judge also noted that this result would still allow for FHA enforcement, as the “remarkably candid postings on craigslist” would allow the plaintiff to target, investigate and report potential discriminatory sellers or landlords. For a copy of the opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=rss_sho&shofile=07-1101_021.pdf.
First Circuit Affirms Summary Judgment in Firm Offer Case. On March 19, a U.S. Court of Appeals for the First Circuit affirmed the decision of a district court, holding that an offer of credit meets the statutory definition of a “firm offer of credit” under the Fair Credit Reporting Act (FCRA) so long as the creditor will not deny credit to the consumer if the consumer meets the creditor’s pre-selection criteria. Sullivan v. Greenwood Credit Union, 2008 WL 726135, No. 07-23354 (1st Cir., March 19, 2008). FCRA permits the unconsented-to use of credit information only for specific purposes, one of which is the extending of a “firm offer of credit.” In this case, the plaintiff consumer claimed that the letter he received from the defendant is not a “firm offer of credit” because it “is lacking crucial terms for it to be an offer,” and “is so vague and lacking in terms as not to constitute an offer capable of acceptance.” The plaintiff pointed to the Seventh Circuit case of Cole v. U.S. Capital, 389 F.3d 719 (7th Cir. 2004) (reported in InfoBytes, Dec. 3, 2004) to support his argument, which found a mailing not to constitute a firm offer of credit when the mailing purportedly offered a $300 credit line towards the purchase of an automobile but did not include specific credit terms. In affirming the decision of the district court to grant summary judgment for the defendant, the First Circuit held that an offer of credit meets the statutory definition of a “firm offer of credit” so long as the creditor will not deny credit to the consumer if the consumer meets the creditor’s pre-selection criteria. The court further held that the term “firm offer of credit” does not require the offeror to include additional terms other than the pre-selection criteria. Lastly, the court distinguished Cole, noting that Cole’s objective was to separate bona fide offers of credit from advertisements for products and services. Here, the court held, the issue is not whether there is a bona fide offer of credit, but rather, whether there is a bona fide offer of credit. In holding that there was in fact a bona fide firm offer of credit that did not violate FCRA, the First Circuit affirmed the decision of the district court. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/SullivanvGreenwoodCreditUnion.pdf.
California Court Affirms Denial of Class Certification in Underwriters’ Overtime Pay Suit. The California Court of Appeal has affirmed a lower court’s denial of class certification in a case where underwriters were seeking damages for their employer’s failure to pay overtime, give them meal and rest breaks, and give them itemized wage statements. Creese v. Washington Mutual Bank, No. B193931 (Cal. Ct. App., Mar. 12, 2008). In this case, the underwriters claimed that the bank intentionally classified them as administrative employees, which made the underwriters exempt from the relevant labor laws. The underwriters claimed that they were not administrative employees because they were employed in a production capacity, and because they did not exercise discretion or independent judgment. Therefore, they should have been subject to the state labor laws available to nonexempt employees, which would have required the bank to provide meal and rest breaks, overtime pay, and itemized wage statements (among other things). The trial court, finding that common questions did not predominate as to whether the underwriters did, in fact, exercise discretion and independent judgment, denied class certification. The appellate court, noting that the approximately 600 underwriters in the proposed class worked in 40 different locations, affirmed the holding that common issues do not predominate the case. The appeals court noted that “the trial court identified the exercise of discretion and independent judgment as the most substantial issue, and that it would necessitate a series of mini-trials to resolve.” For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/CreesevWashingtonMutualBank.pdf.
Federal District Court: FCRA Willfulness Involves Jury Questions. A U.S. District Court for the District of Oklahoma stated that a determination of whether the insurer willfully violated FCRA’s adverse action requirement “involve[s] at least some matters triable as of right to a jury.” In re Farmers Insurance Co., Inc. FCRA Litigation, 2008 WL 687085, No. CIV-03-158-F (W.D. Okla. Mar. 10, 2008). In this case, the court had already decided that the notice provided by the insurer did not comply with the FCRA adverse action requirement, but noted that other issues remained in the case, including whether the insurer acted willfully. The court acknowledged the holding in the Supreme Court’s Safeco case (reported in InfoBytes Special Alert, June 4, 2007) that a defendant cannot be liable for a willful violation of FCRA (which triggers statutory damages of $100-$1000) per violation) if its erroneous interpretation of FCRA was not objectively unreasonable. But the district court, following the lead of the U.S. Court of Appeals for the Third Circuit in Whitfield v. Radian Guaranty, Inc., 501 F.3d 262, 270-71 (3rd Cir. 2007) cert. pending, 76 U.S.L.W. 3374 (2007) (reported in InfoBytes, August 31, 2007), indicated its tentative conclusion that there must be evidence in the record to support its claim that it reasonably believed it was in compliance and that some issues related to willfulness must be decided by a jury. See InfoBytes, February 1, 2008, for a discussion of the amicus brief file by five major trade groups in support of the petition for certiorari, for which Buckley Kolar LLP served as lead counsel. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/InreFarmersInsuranceCo.pdf.
Class Certification Granted in FCRA Truncation Case. On March 7, a federal district court in Illinois granted class certification in a case where a merchant printed a receipt that included a credit card expiration date in violation of the Fair Credit Reporting Act (FCRA) as amended by the Fair and Accurate Credit Transactions Act of 2003. Redmon v. Uncle Julio's of Illinois, Inc., 2008 WL 656075, No. 07-2350 (N.D. Ill. Mar. 7, 2008). In this case, the consumer claimed that Uncle Julio's Hacienda violated the FCRA when it produced a computer-generated credit card receipt that included the card's expiration date, and sought class certification. The court granted certification, finding that the four prerequisites of Rule 23(a) of the Federal Rules of Civil Procedure were present: (1) the class was sufficient in numerosity that individual joinder was impracticable; (2) that the class members shared commonality of law or fact; (3) there was typicality of the claims and defenses for the class members; and (4) the plaintiff would adequately represent the class. In coming to its decision, the court also rejected Uncle Julio's argument that certification should be denied because the disparity between the actual harm incurred by consumers and the “immense” damages ($100-$1000 per violation for willful acts) was too great, stating that reducing an unnecessarily large damage award is "more palatable" than rejecting class certification because a defendant “violated the rights of too many individuals.” For a copy of the decision, please see http://www.buckleykolar.com/publications/documents/RedmonvUncleJuliosofIllinois.pdf.
Court Distinguishes Safeco in FCRA Truncation Case. On March 12, a U.S. District Court for the District of Kansas denied summary judgment to an airline in a putative class action in which the consumer alleged that the airline violated the FCRA credit-card truncation provision by providing receipts that included credit card expiration information. Ramirez v. Midwest Airlines, Inc., 2008 WL 682438, No. 07-2173-JWL (D. Kan. Mar. 12, 2008). The court held that: (i) the consumer had standing to sue, even though there was no suggestion that the plaintiff had been the victim of credit card fraud or identity theft, because she suffered a concrete injury-in-fact when the defendant violated her legal right to receive a receipt that omitted her credit card expiration date; (ii) the airline’s argument that the consumer cannot recover statutory damages without showing actual damages is unsupported by the unambiguous language of 15 U.S.C. § 1681n (allowing damages for willful violations of FCRA); and (iii) the defendant’s argument that the potential for very high statutory damages in a class action would violate due process was premature. With respect to whether the airline could have acted willfully, the court held that the airline misinterpreted the U.S. Supreme Court’s decision in Safeco Ins. Co. of Am. v. Burr, 127 S.Ct. 2201 (2007) (reported in InfoBytes Special Alert, June 4, 2007), and that the Safeco Court did not suggest that the “‘risk of harm’ standard from tort law is incorporated in the FCRA.” With respect to the issue of whether the statute was ambiguous, the court further distinguished Safeco, stating that this case “is not like Safeco which involved an ambiguity in the meaning of the term ‘increase’ in § 1681a(k)(1)(B)(I). Here, the applicable statute -- § 1681c(g) – sets out its requirements in plain language and is not susceptible to conflicting interpretations.” For a copy of this opinion, please see http://www.buckleykolar.com/publications/documents/RamirezvMidwestAirlines.pdf.
FCRA Preempts California State Law Claims Alleging False Credit Reporting. On March 12, a federal district court in California held that the Fair Credit Reporting Act (FCRA) preempted a consumer’s claims under state law that a debt purchaser had falsely reported that she was delinquent on a debt that belonged to another person. Johnson v. JP Morgan Chase Bank, 2008 WL 681427, No. CV-F-008-0081 (E.D. Cal. Mar. 12, 2008). According to the consumer, the defendant, Unifund CCR Partners, a distressed debt buyer, brought a debt collection action against her to collect a disputed debt that was not hers. Unifund also allegedly made false reports to credit reporting agencies, despite the plaintiff’s initial dispute of the debt. Unifund sought to dismiss the consumer’s suit, arguing (among other things) that FCRA preempted her state law claims, including claims for defamation, fraudulent and negligent misrepresentation, violations of California’s Unfair Competition Law, and intentional infliction of emotional distress. The consumer argued that FCRA preemption did not apply to the defamation claim, because Unifund provided false information with malice. According to the court, however, this exception to the general rule that FCRA preempts state law defamation claims is triggered only if the credit information is disclosed pursuant to specific provisions of FCRA that were not implicated in this case. The court held that the remaining claims were also preempted because the plaintiff did not “meaningfully” oppose Unifund’s preemption argument. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/JohnsonvJPMorganChaseBank.pdf.
MISCELLANY
Fannie Mae Contributes SMART Document Validation Patent to MISMO. MISMO, the not-for-profit data standards subsidiary of the Mortgage Bankers Association, and Fannie Mae announced that Fannie Mae has contributed a new patent, the “SMART Document” validation method, to MISMO so that it may be used by the real estate finance industry on a royalty-free basis. The SMART Document specification was originally licensed to MISMO in 2002 by Fannie Mae, then developed and released as an open industry standard for electronic documents. The new patent, which was granted to Fannie Mae in November, 2007, defines processes for validating the VIEW and DATA sections of a SMART document with automated systems. Additionally, the processes can enable "lights-out" post-closing and certification, two critical elements within the automated transaction process. The patent number is US 7,299,408. For more information, please see http://www.mortgagebankers.org/NewsandMedia/PressCenter/60990.htm.
FIRM NEWS
Grant Mitchell will be speaking in a webinar entitled, “RESPA Radio: Eye on Reform – Title Focus” on March 27th from 2:00 PM – 4:00 PM ET. The seminar will focus on the U.S. Department of Housing and Urban Development’s new proposal to reform the Real Estate Settlement Procedures Act (RESPA) regulations. The panel will look at what exactly the proposal says and how it will impact businesses. For more information or to register for the webinar, please see http://www.octoberradio.com.
Margo Tank will be speaking at the American Land Title Association’s 2008 Tech Forum being held April 12th – 15th in Las Vegas, NV. The panel is titled “eEvidence and Legal Issues.” For a complete list of the sessions and speakers, visit www.alta.org/meetings/techforum. For registration information, please see www.alta.org/meetings/techforum/register.
Robert Serino will be speaking at the National Institute on Banking Law II: Risk as the Centerpiece of Bank Regulation seminar being held May 8-9 in Chicago, Ill. Mr. Serino’s speech is entitled, “Anti-money Laundering and Bank Secrecy.” For more information or to register, please see www.abanet.org/cle/programs/n08bla1.html.
Jeremiah Buckley, Margo Tank and Lane Macalester will be speaking at the Managing Electronic Records Conference on May 19-21st in Chicago, Ill. Their panel entitled, “Legal Considerations for Conducting Business Electronically: Practical Guidance,” will focus on how the Electronic Signatures and Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA) now make it possible to present and store information and to sign agreements electronically in circumstances where, in the past, paper documents and wet signatures would have been required. Mr. Buckley, Ms. Tank, and Ms. Macalester will discuss the new challenges presented and provide practical guidance to the industry. For more information or to register, please visit www.merconference.com.
Joseph Kolar and Grant Mitchell presented a webinar on the “Release of Proposed RESPA Reform Regulation by HUD," on March 19th, 2008. Mr. Kolar and Mr. Mitchell discussed HUD's proposed sweeping changes in RESPA’s Good Faith Estimate of mortgage terms and settlement costs, the new “closing script” required by the rule, as well as changes involving volume discounts and average-cost pricing, and the tightening of rules affecting builder’s offering incentives to homebuyers conditioned on use of an affiliated lender. To view a copy of the webinar presentation materials, please see http://www.buckleykolar.com/publications/. Also, the audio recording of the webinar will be available early next week.
Jeffrey Naimon spoke at the Law Seminars International “Subprime Lending Crisis” conference, which was held on March 18 and 19 at the New York Marriott Marquis Time Square Hotel. Mr. Naimon spoke about liability exposure of lenders and servicers to loan purchasers and investors.
Lee Negroni was recently profiled as a West Key Author by Thompson/West. Ms. Negroni, who has been a West author since 1989, talks about her practice, the struggles and blessings of her life as a writer and where she sees that the practice of law has come and is headed. To read the full profile, please see http://west.thomson.com/keyauthors/.
OFHEO, Fannie Mae and Freddie Mac Announce Initiative to Increase Market Liquidity. To support growth and further restore market liquidity, the Office of Federal Housing Enterprise Oversight (OFHEO) announced that it would begin to permit a significant portion of the GSEs’ 30 percent OFHEO-directed capital surplus to be invested in mortgages and MBS. As a key part of this initiative, both companies announced that they will begin the process to raise significant capital. The initiative is expected to provide up to $200 billion of immediate liquidity to the mortgage-backed securities market. OFHEO. OFHEO estimates that Fannie Mae’s and Freddie Mac’s existing capabilities, combined with this new initiative and the release of the portfolio caps announced in February, should allow the GSEs to purchase or guarantee about $2 trillion in mortgages this year. This capacity will permit them to do more in the jumbo temporary conforming market, subprime refinancing and loan modifications areas. See the announcement at http://www.ofheo.gov/newsroom.aspx?ID=422&q1=1&q2=None.
GSEs Set Period for Comments on Appraisal Code of Conduct. Comments on the Home Valuation Code of Conduct, announced on March 3rd by OFHEO, New York Attorney General Andrew Cuomo and Fannie Mae and Freddie Mac (reported in InfoBytes, March 7, 2008) may now be made directly to Fannie Mae and Freddie Mac. The comment period established by the GSEs is for 45 days, ending on April 30th. OFHEO will be reviewing the submitted comments. Comments may be sent as provided below: For Freddie Mac: Comments should be submitted through the online form on the Enterprise’s website at http://www.freddiemac.com/singlefamily/home_valuation.html. Hard copy, written comments may also be submitted by regular mail or express delivery to the following address: Home Valuation Code of Conduct Response Attn: Senior Vice President, Credit Risk Oversight Freddie Mac 1551 Park Run Drive, Mail Stop D2Z McLean, VA 22102-3110 For Fannie Mae: Comments should be submitted through the online comment form at https://www.efanniemae.com/go/appraisalcomment.jsp or, for additional information and the comment form, use https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/index.jsp.
Florida AG Warns of Timeshare Fraud. On March 13, 2008, Florida Attorney General Bill McCollum issued a consumer advisory regarding fraud in connection with vacation packages and other travel-related services. The advisory specifically warns Florida residents and guests about, among other things, fraud associated with vacation timeshares. The Attorney General warned consumers in the market to purchase or sell a timeshare to: (i) be wary of sellers demanding same day purchases; (ii) carefully read all contracts to determine their cancellation rights; (iii) be skeptical of claims about the resale market; (iv) question up-front fees and determine whether salespeople are licensed real estate brokers; and (v) consider all options when it comes to resale, such as selling “by owner” and advertising in various publications. For a full copy of this consumer alert, please see http://myfloridalegal.com/NewsBrie.nsf/OL/VHER-7CPPCU.
Eleventh Circuit Holds that Subsection 8(b) of RESPA Does Not Govern Excessive Fees. On March 20, a U.S. Court of Appeals for the Eleventh Circuit held that subsection 8(b) of RESPA does not govern excessive fees because it is not a price control provision. Friedman v. Market Street Mortgage Corp., 05-13820 (11th Cir., March 20, 2008). According to the court, subsection 8(b) prohibits the charging of fees “other than for services actually performed.” In this case, the plaintiffs alleged that the defendant lender charged a fee that was excessive in relation to services or goods actually rendered, in violation of subsection 8(b). The plaintiffs argued that their position was supported by a Statement of Policy issued by HUD in 2001, concluding that a settlement service provider may be liable under subsection 8(b) and its implementing regulation “when it charges a fee that exceeds the reasonable value of goods, facilities, or services provided.” Rejecting this position, the court held that nothing in the language of subsection 8(b) authorizes courts to divide a charge into what they or others deem to be its reasonable and unreasonable components. The court, citing to Krzalic v. Republic Title Co., 314 F.3d 875 (7th Cir. 2002), reasoned that, because the language is clear and unambiguous, “there is not enough play in the statutory joints to allow HUD to impose its own ‘interpretation.’” The court further reasoned that viewing section 8 as a means of targeting abusive practices, not as a means of setting broad-ranging price controls, is consistent with the legislative history of RESPA. As such, the court remanded the case to the district court with instructions to dismiss the plaintiffs’ complaint with prejudice. For a copy of the opinion, please see http://www.ca11.uscourts.gov/opinions/ops/200513820.pdf.
Craigslist Not Liable For Discriminatory User Postings. The Seventh Circuit this week affirmed summary judgment in favor of defendant craigslist in Chicago Lawyers’ Committee for Civil Rights Under Law, Inc. v. craigslist, Inc., No. 07-1101 (7th Cir., March 14, 2008). As previously reported in the January 19, 2007 issue of InfoBytes, the appeal arose from the Chicago Lawyers’ Committee for Civil Rights Under Law’s claim that craigslist should be liable under the Fair Housing Act for discriminatory content posted on its website by landlords and sellers of housing. Craigslist argued successfully before the district court that Section 230(c) of the Communications Decency Act (CDA) effectively immunized craigslist – a provider “of an interactive computer service” – against claims that seek to treat it as the publisher or speaker of actionable content. In an opinion authored by Chief Judge Easterbrook, a three-judge panel of the Seventh Circuit affirmed the lower court’s decision. Careful to point out that Section 230(c) does not provide “immunity” per se, the Panel explained that “[w]hat [CDA] §230(c)(1) says is that an online information system must not ‘be treated as the publisher or speaker of any information provided by someone else. Yet only in a capacity as publisher could craigslist be liable under [the FHA]. It is not the author of the ads and could not be treated as the ‘speaker’ of the posters’ words, given §230(a)(1).” The Chief Judge also noted that this result would still allow for FHA enforcement, as the “remarkably candid postings on craigslist” would allow the plaintiff to target, investigate and report potential discriminatory sellers or landlords. For a copy of the opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=rss_sho&shofile=07-1101_021.pdf.
OCC Issues Interim Final Rule to Add Provision to Lending Limits Regulation. The Office of the Comptroller of the Currency (OCC) issued an interim final rule to add a provision to its 12 C.F.R. part 32 lending limits regulation that will address temporary funding arrangements in emergency situations. In general, 12 U.S.C. § 84 and the OCC’s implementing regulations, 12 C.F.R. part 32, permit a national bank to make loans in an amount up to 15 percent of its unimpaired capital and surplus to a single borrower. A national bank also may extend credit up to an additional 10 percent of unimpaired capital and surplus to the same borrower if the amount of the loan that exceeds the 15 percent limit is secured by certain types of collateral. The interim final rule adds a new part 32.8 that will enable the OCC to establish a special lending limit for loans and extensions of credit that the OCC determines are essential to address an emergency situation (such as critical financial markets stability), will be of short duration, will be reduced in amount in a timeframe and manner acceptable to the OCC, and do not present unacceptable risk to the lending national bank. In granting approval for a special temporary lending limit, the OCC would impose supervisory oversight and reporting measures that it determines are appropriate. This interim rule became effective March 20, 2008. Comments on the added provision must be received by April 21, 2008. For a copy of the Federal Register report on this new provision, please see http://a257.g.akamaitech.net/7/257/2422/01jan20081800/edocket.access.gpo.gov/2008/pdf/E8-5724.pdf.
California Court Affirms Denial of Class Certification in Underwriters’ Overtime Pay Suit. The California Court of Appeal has affirmed a lower court’s denial of class certification in a case where underwriters were seeking damages for their employer’s failure to pay overtime, give them meal and rest breaks, and give them itemized wage statements. Creese v. Washington Mutual Bank, No. B193931 (Cal. Ct. App., Mar. 12, 2008). In this case, the underwriters claimed that the bank intentionally classified them as administrative employees, which made the underwriters exempt from the relevant labor laws. The underwriters claimed that they were not administrative employees because they were employed in a production capacity, and because they did not exercise discretion or independent judgment. Therefore, they should have been subject to the state labor laws available to nonexempt employees, which would have required the bank to provide meal and rest breaks, overtime pay, and itemized wage statements (among other things). The trial court, finding that common questions did not predominate as to whether the underwriters did, in fact, exercise discretion and independent judgment, denied class certification. The appellate court, noting that the approximately 600 underwriters in the proposed class worked in 40 different locations, affirmed the holding that common issues do not predominate the case. The appeals court noted that “the trial court identified the exercise of discretion and independent judgment as the most substantial issue, and that it would necessitate a series of mini-trials to resolve.” For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/CreesevWashingtonMutualBank.pdf.
Arkansas Attorney General Orders Licensed Payday Lenders to Stop Lending. On March 19, the Arkansas Attorney General ordered all payday lenders operating in Arkansas to cease their lending practices immediately, void any and all current and past-due obligations of their borrowers, and refrain from any collection activities related to these type loans. A failure to do so will likely result in the filing of a lawsuit by the Attorney General. The Attorney General defines “payday” lending as short term loans that charge interest in amounts that vastly exceed the usury limit imposed by the Constitution of the State of Arkansas. For a copy of the press release, please see http://ag.arkansas.gov/newsroom/index.php?do:newsDetail=1&news_id=156.
First Circuit Affirms Summary Judgment in Firm Offer Case. On March 19, a U.S. Court of Appeals for the First Circuit affirmed the decision of a district court, holding that an offer of credit meets the statutory definition of a “firm offer of credit” under the Fair Credit Reporting Act (FCRA) so long as the creditor will not deny credit to the consumer if the consumer meets the creditor’s pre-selection criteria. Sullivan v. Greenwood Credit Union, 2008 WL 726135, No. 07-23354 (1st Cir., March 19, 2008). FCRA permits the unconsented-to use of credit information only for specific purposes, one of which is the extending of a “firm offer of credit.” In this case, the plaintiff consumer claimed that the letter he received from the defendant is not a “firm offer of credit” because it “is lacking crucial terms for it to be an offer,” and “is so vague and lacking in terms as not to constitute an offer capable of acceptance.” The plaintiff pointed to the Seventh Circuit case of Cole v. U.S. Capital, 389 F.3d 719 (7th Cir. 2004) (reported in InfoBytes, Dec. 3, 2004) to support his argument, which found a mailing not to constitute a firm offer of credit when the mailing purportedly offered a $300 credit line towards the purchase of an automobile but did not include specific credit terms. In affirming the decision of the district court to grant summary judgment for the defendant, the First Circuit held that an offer of credit meets the statutory definition of a “firm offer of credit” so long as the creditor will not deny credit to the consumer if the consumer meets the creditor’s pre-selection criteria. The court further held that the term “firm offer of credit” does not require the offeror to include additional terms other than the pre-selection criteria. Lastly, the court distinguished Cole, noting that Cole’s objective was to separate bona fide offers of credit from advertisements for products and services. Here, the court held, the issue is not whether there is a bona fide offer of credit, but rather, whether there is a bona fide offer of credit. In holding that there was in fact a bona fide firm offer of credit that did not violate FCRA, the First Circuit affirmed the decision of the district court. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/SullivanvGreenwoodCreditUnion.pdf.
FCRA Preempts California State Law Claims Alleging False Credit Reporting. On March 12, a federal district court in California held that the Fair Credit Reporting Act (FCRA) preempted a consumer’s claims under state law that a debt purchaser had falsely reported that she was delinquent on a debt that belonged to another person. Johnson v. JP Morgan Chase Bank, 2008 WL 681427, No. CV-F-008-0081 (E.D. Cal. Mar. 12, 2008). According to the consumer, the defendant, Unifund CCR Partners, a distressed debt buyer, brought a debt collection action against her to collect a disputed debt that was not hers. Unifund also allegedly made false reports to credit reporting agencies, despite the plaintiff’s initial dispute of the debt. Unifund sought to dismiss the consumer’s suit, arguing (among other things) that FCRA preempted her state law claims, including claims for defamation, fraudulent and negligent misrepresentation, violations of California’s Unfair Competition Law, and intentional infliction of emotional distress. The consumer argued that FCRA preemption did not apply to the defamation claim, because Unifund provided false information with malice. According to the court, however, this exception to the general rule that FCRA preempts state law defamation claims is triggered only if the credit information is disclosed pursuant to specific provisions of FCRA that were not implicated in this case. The court held that the remaining claims were also preempted because the plaintiff did not “meaningfully” oppose Unifund’s preemption argument. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/JohnsonvJPMorganChaseBank.pdf.
Eleventh Circuit Holds that Subsection 8(b) of RESPA Does Not Govern Excessive Fees. On March 20, a U.S. Court of Appeals for the Eleventh Circuit held that subsection 8(b) of RESPA does not govern excessive fees because it is not a price control provision. Friedman v. Market Street Mortgage Corp., 05-13820 (11th Cir., March 20, 2008). According to the court, subsection 8(b) prohibits the charging of fees “other than for services actually performed.” In this case, the plaintiffs alleged that the defendant lender charged a fee that was excessive in relation to services or goods actually rendered, in violation of subsection 8(b). The plaintiffs argued that their position was supported by a Statement of Policy issued by HUD in 2001, concluding that a settlement service provider may be liable under subsection 8(b) and its implementing regulation “when it charges a fee that exceeds the reasonable value of goods, facilities, or services provided.” Rejecting this position, the court held that nothing in the language of subsection 8(b) authorizes courts to divide a charge into what they or others deem to be its reasonable and unreasonable components. The court, citing to Krzalic v. Republic Title Co., 314 F.3d 875 (7th Cir. 2002), reasoned that, because the language is clear and unambiguous, “there is not enough play in the statutory joints to allow HUD to impose its own ‘interpretation.’” The court further reasoned that viewing section 8 as a means of targeting abusive practices, not as a means of setting broad-ranging price controls, is consistent with the legislative history of RESPA. As such, the court remanded the case to the district court with instructions to dismiss the plaintiffs’ complaint with prejudice. For a copy of the opinion, please see http://www.ca11.uscourts.gov/opinions/ops/200513820.pdf.
Craigslist Not Liable For Discriminatory User Postings. The Seventh Circuit this week affirmed summary judgment in favor of defendant craigslist in Chicago Lawyers’ Committee for Civil Rights Under Law, Inc. v. craigslist, Inc., No. 07-1101 (7th Cir., March 14, 2008). As previously reported in the January 19, 2007 issue of InfoBytes, the appeal arose from the Chicago Lawyers’ Committee for Civil Rights Under Law’s claim that craigslist should be liable under the Fair Housing Act for discriminatory content posted on its website by landlords and sellers of housing. Craigslist argued successfully before the district court that Section 230(c) of the Communications Decency Act (CDA) effectively immunized craigslist – a provider “of an interactive computer service” – against claims that seek to treat it as the publisher or speaker of actionable content. In an opinion authored by Chief Judge Easterbrook, a three-judge panel of the Seventh Circuit affirmed the lower court’s decision. Careful to point out that Section 230(c) does not provide “immunity” per se, the Panel explained that “[w]hat [CDA] §230(c)(1) says is that an online information system must not ‘be treated as the publisher or speaker of any information provided by someone else. Yet only in a capacity as publisher could craigslist be liable under [the FHA]. It is not the author of the ads and could not be treated as the ‘speaker’ of the posters’ words, given §230(a)(1).” The Chief Judge also noted that this result would still allow for FHA enforcement, as the “remarkably candid postings on craigslist” would allow the plaintiff to target, investigate and report potential discriminatory sellers or landlords. For a copy of the opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=rss_sho&shofile=07-1101_021.pdf.
First Circuit Affirms Summary Judgment in Firm Offer Case. On March 19, a U.S. Court of Appeals for the First Circuit affirmed the decision of a district court, holding that an offer of credit meets the statutory definition of a “firm offer of credit” under the Fair Credit Reporting Act (FCRA) so long as the creditor will not deny credit to the consumer if the consumer meets the creditor’s pre-selection criteria. Sullivan v. Greenwood Credit Union, 2008 WL 726135, No. 07-23354 (1st Cir., March 19, 2008). FCRA permits the unconsented-to use of credit information only for specific purposes, one of which is the extending of a “firm offer of credit.” In this case, the plaintiff consumer claimed that the letter he received from the defendant is not a “firm offer of credit” because it “is lacking crucial terms for it to be an offer,” and “is so vague and lacking in terms as not to constitute an offer capable of acceptance.” The plaintiff pointed to the Seventh Circuit case of Cole v. U.S. Capital, 389 F.3d 719 (7th Cir. 2004) (reported in InfoBytes, Dec. 3, 2004) to support his argument, which found a mailing not to constitute a firm offer of credit when the mailing purportedly offered a $300 credit line towards the purchase of an automobile but did not include specific credit terms. In affirming the decision of the district court to grant summary judgment for the defendant, the First Circuit held that an offer of credit meets the statutory definition of a “firm offer of credit” so long as the creditor will not deny credit to the consumer if the consumer meets the creditor’s pre-selection criteria. The court further held that the term “firm offer of credit” does not require the offeror to include additional terms other than the pre-selection criteria. Lastly, the court distinguished Cole, noting that Cole’s objective was to separate bona fide offers of credit from advertisements for products and services. Here, the court held, the issue is not whether there is a bona fide offer of credit, but rather, whether there is a bona fide offer of credit. In holding that there was in fact a bona fide firm offer of credit that did not violate FCRA, the First Circuit affirmed the decision of the district court. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/SullivanvGreenwoodCreditUnion.pdf.
California Court Affirms Denial of Class Certification in Underwriters’ Overtime Pay Suit. The California Court of Appeal has affirmed a lower court’s denial of class certification in a case where underwriters were seeking damages for their employer’s failure to pay overtime, give them meal and rest breaks, and give them itemized wage statements. Creese v. Washington Mutual Bank, No. B193931 (Cal. Ct. App., Mar. 12, 2008). In this case, the underwriters claimed that the bank intentionally classified them as administrative employees, which made the underwriters exempt from the relevant labor laws. The underwriters claimed that they were not administrative employees because they were employed in a production capacity, and because they did not exercise discretion or independent judgment. Therefore, they should have been subject to the state labor laws available to nonexempt employees, which would have required the bank to provide meal and rest breaks, overtime pay, and itemized wage statements (among other things). The trial court, finding that common questions did not predominate as to whether the underwriters did, in fact, exercise discretion and independent judgment, denied class certification. The appellate court, noting that the approximately 600 underwriters in the proposed class worked in 40 different locations, affirmed the holding that common issues do not predominate the case. The appeals court noted that “the trial court identified the exercise of discretion and independent judgment as the most substantial issue, and that it would necessitate a series of mini-trials to resolve.” For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/CreesevWashingtonMutualBank.pdf.
Federal District Court: FCRA Willfulness Involves Jury Questions. The U.S. District Court for the District of Oklahoma stated that a determination of whether the insurer willfully violated FCRA’s adverse action requirement “involve[s] at least some matters triable as of right to a jury.” In re Farmers Insurance Co., Inc. FCRA Litigation, 2008 WL 687085, No. CIV-03-158-F (W.D. Okla. Mar. 10, 2008). In this case, the court had already decided that the notice provided by the insurer did not comply with the FCRA adverse action requirement, but noted that other issues remained in the case, including whether the insurer acted willfully. The court acknowledged the holding in the Supreme Court’s Safeco case (reported in InfoBytes Special Alert, June 4, 2007) that a defendant cannot be liable for a willful violation of FCRA (which triggers statutory damages of $100-$1000) per violation) if its erroneous interpretation of FCRA was not objectively unreasonable. But the district court, following the lead of the U.S. Court of Appeals for the Third Circuit in Whitfield v. Radian Guaranty, Inc., 501 F.3d 262, 270-71 (3rd Cir. 2007) cert. pending, 76 U.S.L.W. 3374 (2007) (reported in InfoBytes, August 31, 2007), indicated its tentative conclusion that there must be evidence in the record to support its claim that it reasonably believed it was in compliance and that some issues related to willfulness must be decided by a jury. See InfoBytes, February 1, 2008, for a discussion of the amicus brief file by five major trade groups in support of the petition for certiorari, for which Buckley Kolar LLP served as lead counsel. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/InreFarmersInsuranceCo.pdf.
Class Certification Granted in FCRA Truncation Case. On March 7, a federal district court in Illinois granted class certification in a case where a merchant printed a receipt that included a credit card expiration date in violation of the Fair Credit Reporting Act (FCRA) as amended by the Fair and Accurate Credit Transactions Act of 2003. Redmon v. Uncle Julio's of Illinois, Inc., 2008 WL 656075, No. 07-2350 (N.D. Ill. Mar. 7, 2008). In this case, the consumer claimed that Uncle Julio's Hacienda violated the FCRA when it produced a computer-generated credit card receipt that included the card's expiration date, and sought class certification. The court granted certification, finding that the four prerequisites of Rule 23(a) of the Federal Rules of Civil Procedure were present: (1) the class was sufficient in numerosity that individual joinder was impracticable; (2) that the class members shared commonality of law or fact; (3) there was typicality of the claims and defenses for the class members; and (4) the plaintiff would adequately represent the class. In coming to its decision, the court also rejected Uncle Julio's argument that certification should be denied because the disparity between the actual harm incurred by consumers and the “immense” damages ($100-$1000 per violation for willful acts) was too great, stating that reducing an unnecessarily large damage award is "more palatable" than rejecting class certification because a defendant “violated the rights of too many individuals.” For a copy of the decision, please see http://www.buckleykolar.com/publications/documents/RedmonvUncleJuliosofIllinois.pdf.
Court Distinguishes Safeco in FCRA Truncation Case. On March 12, a U.S. District Court for the District of Kansas denied summary judgment to an airline in a putative class action in which the consumer alleged that the airline violated the FCRA credit-card truncation provision by providing receipts that included credit card expiration information. Ramirez v. Midwest Airlines, Inc., 2008 WL 682438, No. 07-2173-JWL (D. Kan. Mar. 12, 2008). The court held that: (i) the consumer had standing to sue, even though there was no suggestion that the plaintiff had been the victim of credit card fraud or identity theft, because she suffered a concrete injury-in-fact when the defendant violated her legal right to receive a receipt that omitted her credit card expiration date; (ii) the airline’s argument that the consumer cannot recover statutory damages without showing actual damages is unsupported by the unambiguous language of 15 U.S.C. § 1681n (allowing damages for willful violations of FCRA); and (iii) the defendant’s argument that the potential for very high statutory damages in a class action would violate due process was premature. With respect to whether the airline could have acted willfully, the court held that the airline misinterpreted the U.S. Supreme Court’s decision in Safeco Ins. Co. of Am. v. Burr, 127 S.Ct. 2201 (2007) (reported in InfoBytes Special Alert, June 4, 2007), and that the Safeco Court did not suggest that the “‘risk of harm’ standard from tort law is incorporated in the FCRA.” With respect to the issue of whether the statute was ambiguous, the court further distinguished Safeco, stating that this case “is not like Safeco which involved an ambiguity in the meaning of the term ‘increase’ in § 1681a(k)(1)(B)(I). Here, the applicable statute -- § 1681c(g) – sets out its requirements in plain language and is not susceptible to conflicting interpretations.” For a copy of this opinion, please see http://www.buckleykolar.com/publications/documents/RamirezvMidwestAirlines.pdf.
FCRA Preempts California State Law Claims Alleging False Credit Reporting. On March 12, a federal district court in California held that the Fair Credit Reporting Act (FCRA) preempted a consumer’s claims under state law that a debt purchaser had falsely reported that she was delinquent on a debt that belonged to another person. Johnson v. JP Morgan Chase Bank, 2008 WL 681427, No. CV-F-008-0081 (E.D. Cal. Mar. 12, 2008). According to the consumer, the defendant, Unifund CCR Partners, a distressed debt buyer, brought a debt collection action against her to collect a disputed debt that was not hers. Unifund also allegedly made false reports to credit reporting agencies, despite the plaintiff’s initial dispute of the debt. Unifund sought to dismiss the consumer’s suit, arguing (among other things) that FCRA preempted her state law claims, including claims for defamation, fraudulent and negligent misrepresentation, violations of California’s Unfair Competition Law, and intentional infliction of emotional distress. The consumer argued that FCRA preemption did not apply to the defamation claim, because Unifund provided false information with malice. According to the court, however, this exception to the general rule that FCRA preempts state law defamation claims is triggered only if the credit information is disclosed pursuant to specific provisions of FCRA that were not implicated in this case. The court held that the remaining claims were also preempted because the plaintiff did not “meaningfully” oppose Unifund’s preemption argument. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/JohnsonvJPMorganChaseBank.pdf.
Federal District Court: FCRA Willfulness Involves Jury Questions. A U.S. District Court for the District of Oklahoma stated that a determination of whether the insurer willfully violated FCRA’s adverse action requirement “involve[s] at least some matters triable as of right to a jury.” In re Farmers Insurance Co., Inc. FCRA Litigation, 2008 WL 687085, No. CIV-03-158-F (W.D. Okla. Mar. 10, 2008). In this case, the court had already decided that the notice provided by the insurer did not comply with the FCRA adverse action requirement, but noted that other issues remained in the case, including whether the insurer acted willfully. The court acknowledged the holding in the Supreme Court’s Safeco case (reported in InfoBytes Special Alert, June 4, 2007) that a defendant cannot be liable for a willful violation of FCRA (which triggers statutory damages of $100-$1000) per violation) if its erroneous interpretation of FCRA was not objectively unreasonable. But the district court, following the lead of the U.S. Court of Appeals for the Third Circuit in Whitfield v. Radian Guaranty, Inc., 501 F.3d 262, 270-71 (3rd Cir. 2007) cert. pending, 76 U.S.L.W. 3374 (2007) (reported in InfoBytes, August 31, 2007), indicated its tentative conclusion that there must be evidence in the record to support its claim that it reasonably believed it was in compliance and that some issues related to willfulness must be decided by a jury. See InfoBytes, February 1, 2008, for a discussion of the amicus brief file by five major trade groups in support of the petition for certiorari, for which Buckley Kolar LLP served as lead counsel. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/InreFarmersInsuranceCo.pdf.
Fannie Mae Contributes SMART Document Validation Patent to MISMO. MISMO, the not-for-profit data standards subsidiary of the Mortgage Bankers Association, and Fannie Mae announced that Fannie Mae has contributed a new patent, the “SMART Document” validation method, to MISMO so that it may be used by the real estate finance industry on a royalty-free basis. The SMART Document specification was originally licensed to MISMO in 2002 by Fannie Mae, then developed and released as an open industry standard for electronic documents. The new patent, which was granted to Fannie Mae in November, 2007, defines processes for validating the VIEW and DATA sections of a SMART document with automated systems. Additionally, the processes can enable "lights-out" post-closing and certification, two critical elements within the automated transaction process. The patent number is US 7,299,408. For more information, please see http://www.mortgagebankers.org/NewsandMedia/PressCenter/60990.htm.
Online Advertiser Pays $2.9 Million to Settle FTC CAN-SPAM Violation Charges. Online advertiser ValueClick, Inc. has agreed to pay a $2.9 million civil penalty to settle Federal Trade Commission (FTC) charges that its electronic advertising claims and e-mails were deceptive and violated the CAN-SPAM Act. This is the largest settlement in a case based on the CAN-SPAM Act, enacted in 2003. The FTC also charged that ValueClick and its subsidiaries failed to secure consumers’ sensitive financial information, despite their claims to do so. The settlement agreement, (i) requires ValueClick to clearly and conspicuously disclose the costs and obligations consumers must incur to receive the products it advertises as “free,” (ii) bars future violations of the CAN-SPAM Act, (iii) bars deceptive claims about the security of consumer information collected at ValueClick’s and its subsidiaries’ websites, and (iv) requires ValueClick and its subsidiaries to establish and maintain a comprehensive security program, and obtain independent third-party assessments of their programs, for 20 years. This is the FTC’s third case targeting the use of deceptive promises of free merchandise by Internet-based “lead generation” operations, and the Commission’s 18th case challenging data security practices by a company handling sensitive consumer information. For a copy of the FTC press release, please see http://www.ftc.gov/opa/2008/03/vc.shtm.
Class Certification Granted in FCRA Truncation Case. On March 7, a federal district court in Illinois granted class certification in a case where a merchant printed a receipt that included a credit card expiration date in violation of the Fair Credit Reporting Act (FCRA) as amended by the Fair and Accurate Credit Transactions Act of 2003. Redmon v. Uncle Julio's of Illinois, Inc., 2008 WL 656075, No. 07-2350 (N.D. Ill. Mar. 7, 2008). In this case, the consumer claimed that Uncle Julio's Hacienda violated the FCRA when it produced a computer-generated credit card receipt that included the card's expiration date, and sought class certification. The court granted certification, finding that the four prerequisites of Rule 23(a) of the Federal Rules of Civil Procedure were present: (1) the class was sufficient in numerosity that individual joinder was impracticable; (2) that the class members shared commonality of law or fact; (3) there was typicality of the claims and defenses for the class members; and (4) the plaintiff would adequately represent the class. In coming to its decision, the court also rejected Uncle Julio's argument that certification should be denied because the disparity between the actual harm incurred by consumers and the “immense” damages ($100-$1000 per violation for willful acts) was too great, stating that reducing an unnecessarily large damage award is "more palatable" than rejecting class certification because a defendant “violated the rights of too many individuals.” For a copy of the decision, please see http://www.buckleykolar.com/publications/documents/RedmonvUncleJuliosofIllinois.pdf.
Court Distinguishes Safeco in FCRA Truncation Case. On March 12, a U.S. District Court for the District of Kansas denied summary judgment to an airline in a putative class action in which the consumer alleged that the airline violated the FCRA credit-card truncation provision by providing receipts that included credit card expiration information. Ramirez v. Midwest Airlines, Inc., 2008 WL 682438, No. 07-2173-JWL (D. Kan. Mar. 12, 2008). The court held that: (i) the consumer had standing to sue, even though there was no suggestion that the plaintiff had been the victim of credit card fraud or identity theft, because she suffered a concrete injury-in-fact when the defendant violated her legal right to receive a receipt that omitted her credit card expiration date; (ii) the airline’s argument that the consumer cannot recover statutory damages without showing actual damages is unsupported by the unambiguous language of 15 U.S.C. § 1681n (allowing damages for willful violations of FCRA); and (iii) the defendant’s argument that the potential for very high statutory damages in a class action would violate due process was premature. With respect to whether the airline could have acted willfully, the court held that the airline misinterpreted the U.S. Supreme Court’s decision in Safeco Ins. Co. of Am. v. Burr, 127 S.Ct. 2201 (2007) (reported in InfoBytes Special Alert, June 4, 2007), and that the Safeco Court did not suggest that the “‘risk of harm’ standard from tort law is incorporated in the FCRA.” With respect to the issue of whether the statute was ambiguous, the court further distinguished Safeco, stating that this case “is not like Safeco which involved an ambiguity in the meaning of the term ‘increase’ in § 1681a(k)(1)(B)(I). Here, the applicable statute -- § 1681c(g) – sets out its requirements in plain language and is not susceptible to conflicting interpretations.” For a copy of this opinion, please see http://www.buckleykolar.com/publications/documents/RamirezvMidwestAirlines.pdf.
Class Certification Granted in FCRA Truncation Case. On March 7, a federal district court in Illinois granted class certification in a case where a merchant printed a receipt that included a credit card expiration date in violation of the Fair Credit Reporting Act (FCRA) as amended by the Fair and Accurate Credit Transactions Act of 2003. Redmon v. Uncle Julio's of Illinois, Inc., 2008 WL 656075, No. 07-2350 (N.D. Ill. Mar. 7, 2008). In this case, the consumer claimed that Uncle Julio's Hacienda violated the FCRA when it produced a computer-generated credit card receipt that included the card's expiration date, and sought class certification. The court granted certification, finding that the four prerequisites of Rule 23(a) of the Federal Rules of Civil Procedure were present: (1) the class was sufficient in numerosity that individual joinder was impracticable; (2) that the class members shared commonality of law or fact; (3) there was typicality of the claims and defenses for the class members; and (4) the plaintiff would adequately represent the class. In coming to its decision, the court also rejected Uncle Julio's argument that certification should be denied because the disparity between the actual harm incurred by consumers and the “immense” damages ($100-$1000 per violation for willful acts) was too great, stating that reducing an unnecessarily large damage award is "more palatable" than rejecting class certification because a defendant “violated the rights of too many individuals.” For a copy of the decision, please see http://www.buckleykolar.com/publications/documents/RedmonvUncleJuliosofIllinois.pdf.
Court Distinguishes Safeco in FCRA Truncation Case. On March 12, a U.S. District Court for the District of Kansas denied summary judgment to an airline in a putative class action in which the consumer alleged that the airline violated the FCRA credit-card truncation provision by providing receipts that included credit card expiration information. Ramirez v. Midwest Airlines, Inc., 2008 WL 682438, No. 07-2173-JWL (D. Kan. Mar. 12, 2008). The court held that: (i) the consumer had standing to sue, even though there was no suggestion that the plaintiff had been the victim of credit card fraud or identity theft, because she suffered a concrete injury-in-fact when the defendant violated her legal right to receive a receipt that omitted her credit card expiration date; (ii) the airline’s argument that the consumer cannot recover statutory damages without showing actual damages is unsupported by the unambiguous language of 15 U.S.C. § 1681n (allowing damages for willful violations of FCRA); and (iii) the defendant’s argument that the potential for very high statutory damages in a class action would violate due process was premature. With respect to whether the airline could have acted willfully, the court held that the airline misinterpreted the U.S. Supreme Court’s decision in Safeco Ins. Co. of Am. v. Burr, 127 S.Ct. 2201 (2007) (reported in InfoBytes Special Alert, June 4, 2007), and that the Safeco Court did not suggest that the “‘risk of harm’ standard from tort law is incorporated in the FCRA.” With respect to the issue of whether the statute was ambiguous, the court further distinguished Safeco, stating that this case “is not like Safeco which involved an ambiguity in the meaning of the term ‘increase’ in § 1681a(k)(1)(B)(I). Here, the applicable statute -- § 1681c(g) – sets out its requirements in plain language and is not susceptible to conflicting interpretations.” For a copy of this opinion, please see http://www.buckleykolar.com/publications/documents/RamirezvMidwestAirlines.pdf.
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