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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
OFHEO issues Guidance on Conforming Loan Limits. On March 26, the Office of Federal Housing Enterprise Oversight (OFHEO), which oversees Fannie Mae and Freddie Mac, issued final guidance (the Guidance) concerning the conforming loan limit calculations for purchases of loans by Fannie Mae and Freddie Mac. According to the Guidance, OFHEO will use the October-to-October Monthly Interest Rate Survey (MIRS) results issued by the Federal Housing Finance Board (FHFB), which provides the change in the national average one-family house price during the previous twelve-month period, as the basis for calculating the conforming loan limits. The Guidance also provides that if the October MIRS survey data indicate a decline in the average house price from the previous October, the conforming loan limit for the next year will not be decreased below the current $417,000 level. The Guidance does not affect the temporary increase in conforming loan limits provided in the Recovery Rebates and Economic Stimulus for the American People Act of 2008. For a copy of the guidance, please see http://www.ofheo.gov/media/guidance/CLLGuidanceFR32608.pdf.
FTC: Providing Settlement Options Information Not a Per Se Violation of FDCPA. On March 19, the Federal Trade Commission (FTC) published an advisory opinion (the Advisory Opinion) stating that it is not a per se Fair Debt Collection Practices Act (FDCPA) violation for a debt collector to provide information about settlement options to consumers in foreclosure proceedings. The FTC was asked to opine on: (1) whether providing a consumer with information concerning settlement options that would avoid foreclosure, either in conjunction with or after sending the "validation notice," violates the FDCPA § 809(a); and (2) whether providing a consumer with information on settlement options would constitute a false, misleading, or deceptive act or practice in violation of FDCPA § 807. In response to the first inquiry, the Advisory Opinion concluded that the FDCPA § 809(a) does not prohibit debt collectors from adding language to the validation notice, and as such, does not prohibit debt collectors from presenting information regarding settlement options, regardless of whether such information is presented in conjunction with or subsequent to the validation notice. However, while it is not a per se violation to provide such information, this conclusion "does not prevent a fact-based finding that a specific communication violates the Act if it overshadows or is inconsistent with the disclosures of the consumer's right to dispute the debt within 30 days." Similarly, in response to the second inquiry, the Advisory Opinion concluded that presenting settlement option information is not a per se false, misleading or deceptive act in violation of FDCPA § 807, but that individual communications may be found, after a specific, fact-based inquiry, to constitute a false, misleading or deceptive act or practice in violation of the FDCPA. For a copy of the Advisory Opinion, please see http://www.ftc.gov/os/2008/03/P084801fdcpa.pdf.
Agencies Release Proposed Revisions to Flood Insurance Q&A’s. In a joint press release on March 21, the federal bank, thrift, credit union and Farm Credit System regulatory agencies requested comments on its revised Interagency Questions and Answers Regarding Flood Insurance (Q&A’s). Most notably, the agencies are proposing new Q&A’s on the subjects of second-lien mortgages, the imposition of civil money penalties and loan syndications/participations. The agencies are proposing new revisions to the Q&A’s to assist financial institutions understand and meet their responsibilities under federal flood insurance legislation and to increase consumer awareness of federal flood insurance regulations. Comments on the proposed revisions are due May 20, 2008. For the full text of the revised Q&A’s please see http://www.occ.gov/ftp/release/2008-32a.pdf. For a copy of the Federal Register notice, please see http://edocket.access.gpo.gov/2008/pdf/E8-5787.pdf.
FTC Releases Fair Debt Collection Practices Act Report to Congress. On March 21, the Federal Trade Commission (FTC) released the 2008 Annual Report to Congress on the Fair Debt Collection Practices Act (FDCPA). The report details the FTC’s 2007 efforts to curtail deceptive and abusive debt collection practices and limit illegal debt collection practices. Specifically, the report presents an overview of the FTC’s efforts by summarizing (i) consumer complaints the FTC received, (ii) the FTC’s enforcement actions and procedures, and (iii) consumer and industry education initiatives. The FTC issued the report in accordance with section 815 of the FDCPA, which requires the FTC to report annually to Congress concerning the administration of the FDCPA. For a copy of the report, please see http://www.ftc.gov/os/2008/03/P084802fdcpareport.pdf.
Rep. Barney Frank Calls For Increased Financial Services Regulation. In a speech on March 20, Rep. Barney Frank (D-MA), the Chairman of the House Financial Services Committee, called for Congress to take a number of actions designed to increase regulation of the financial services industry. First, Representative Frank urged Congress to consider establishing a Financial Services Risk Regulator who would be responsible for assessing risks in the financial market and to act to limit risky practices or to protect the integrity of the financial system when necessary. Second, Rep. Frank urged Congress to consolidate the regulatory system designed to monitor the financial services industry to eliminate duplicative oversight. Finally, Rep. Frank urged Congress to pass legislation he introduced that would address ways to stem rising foreclosures throughout the states. For a copy of the press release, please see http://www.house.gov/apps/list/press/financialsvcs_dem/press0320082.shtml.
FHFB Raises MBS Purchase Limit for Federal Home Loan Banks. On March 24, the Federal Housing Finance Board (FHFB) voted to authorize the Federal Home Loan Banks to temporarily increase their purchases of mortgage-backed securities (MBS) from Fannie Mae and Freddie Mac from its current investment authority of 300 percent of capital to 600 percent of capital. As a condition to making a purchase under the increased limit, an FHLBank must notify the FHFB prior to its first acquisition under the expanded authority, and also must include in its notice a description of risk management principles underlying its purchase. Furthermore, the securities underlying the purchase must be backed by mortgages that were originated consistent with recent regulatory guidance on nontraditional and subprime mortgage lending. For a copy of the press release announcing the vote, please see http://www.fhfb.gov/GetFile.aspx?FileID=6713.
FTC Settles Actions For Failure to Adequately Secure Consumers’ Data. Discount retailer TJX and data brokers Reed Elsevier and Seisint have agreed to settle charges that each engaged in practices that failed to provide reasonable and appropriate security for sensitive consumer information. The FTC complaint alleged that TJX failed to use reasonable and appropriate security measures to prevent unauthorized access to personal information, such as consumers’ credit and debit card numbers, on its computer networks. The complaint against Reed Elsevier and Seisint alleged that, among other security failures, they allowed customers to use easy-to-guess passwords to access their electronic databases, which contained sensitive consumer information such as drivers license numbers and Social Security numbers. The settlements will require that the companies implement comprehensive information security programs and obtain audits by independent third-party security professionals every other year for 20 years. The settlements require the information security programs to contain administrative, technical, and physical safeguards appropriate to each company’s size, the nature of its activities, and the sensitivity of the personal information it collects. The independent third-party auditors will be required to certify that the companies’ security programs meet or exceed the requirements of the FTC’s orders and are operating with sufficient effectiveness to provide reasonable assurance that the security of consumers’ personal information is being protected. The settlements also contain bookkeeping and record keeping provisions to allow the agency to monitor compliance with its orders. For a copy of the settlement agreement, please see http://www.ftc.gov/os/caselist/0523094/080327agreement.pdf.
STATE ISSUES
Washington Enacts Mortgage Lending Legislation. The Governor of Washington signed into law three bills affecting residential mortgage lending in the state. The first bill, SB 6471, removes a licensing exemption in the Consumer Loan Act (CLA) that permitted lenders who were exempt from the Mortgage Broker Practices Act (MBPA) and who did not lend above the 12 percent interest rate threshold requiring licensure under the CLA to avoid licensing altogether. The bill removes the 12 percent interest threshold, requiring those mortgage lenders currently exempt from the MBPA to be licensed under the CLA. The second bill, SB 2770, adopts several new requirements for mortgage lenders. Specifically, the bill prohibits making a residential mortgage loan unless a disclosure summary of all material terms on a separate sheet of paper has been provided to the borrower within 3 days of receiving a loan application, and within 3 days of changing a material term before closing the loan. The bill also, among other things: (1) prohibits prepayment penalties and negative amortization under certain circumstances; (2) prohibits loan "steering"; (3) criminalizes the use of fraud, misrepresentation, or other misleading acts or omissions in connection with making, brokering or obtaining a residential mortgage loan; and (4) criminalizes mortgage fraud. Finally, the Governor signed SB 6381, which creates a fiduciary relationship between a mortgage broker and the borrower. Under the new bill, a broker must act in the borrower's best interest and in the utmost good faith, but is not required to obtain access to a loan product that is not available at the time of the transaction with the borrower. The broker may still collect a fee so long as the fee is disclosed to the borrower in advance to rendering the services. Each bill is effective June 12, 2008. For a copy of SB 6471, please see http://apps.leg.wa.gov/documents/billdocs/2007-08/Pdf/Bills/Senate%20Passed%20Legislature/6471.PL.pdf. For a copy of SB 2770, please see http://apps.leg.wa.gov/documents/billdocs/2007-08/Pdf/Bills/House%20Passed%20Legislature/2770-S.PL.pdf. For a copy of SB 6381, please see http://apps.leg.wa.gov/documents/billdocs/2007-08/Pdf/Bills/Senate%20Passed%20Legislature/6381.PL.pdf.
Michigan Sends Suite of Bills to Governor To Amend Mortgage Law. On March 25, four bills amending the Mortgage Brokers, Lenders, and Servicers Licensing Act (the “Act”) were presented to the governor for signing. SB 828 would add or revise various definitions, including the following terms: "loan officer," "loan officer registrant," "originate," "register," "control person," and "person." SB 831 would amend the Act to include references to a “loan officer registrant” and to a “loan officer” registration in various provisions of the Act. SB 832 would amend the Act to prohibit a loan officer registrant from, among other things, engaging in fraud, deceit, or material misrepresentation in connection with any transaction governed by the Act, or intentionally, or due to gross or wanton negligence, repeatedly failing to provide borrowers with any material disclosures or information required by law. Lastly, SB 833 would, among other things, amend the Act to revise the criminal penalty for an owner, partner, member, officer, trustee, employee, agent, broker, or other person, or a representative acting on the person's authority, who willfully or intentionally engages in certain acts specified in the bill. Further, it would increase the fine for a violation of the Act from a maximum of up to $5,000 to a maximum of up to $15,000, and would reduce the maximum time of imprisonment from up to three years to up to one year. The penalty also would apply to a person who acted as a loan officer in Michigan without a loan officer registration required under the Act. For a copy of the foregoing bills, please see http://www.legislature.mi.gov/(S(3vksbq45mowrfi55syrbzp45))/mileg.aspx?page=Bills.
COURTS
Fremont Appeals Preliminary Injunction on Foreclosures. On March 26, Fremont Investment & Loan filed a petition with the Massachusetts Appeals Court to reverse a Massachusetts Superior Court order granting the Massachusetts Attorney General’s request for a preliminary injunction on foreclosures of loans the lower court deemed presumptively unfair (the lower court order was reported in InfoBytes Special Alert, Feb. 27, 2008). The preliminary injunction requires Fremont to submit such loans to the Massachusetts Attorney General for review prior to advancement or initiation of foreclosure proceedings on such loans and, where the Commonwealth does not consent, to obtain court permission to proceed. In support of Fremont’s appeal, two groups of trade associations submitted amicus briefs. The brief submitted by the American Financial Services Association, the Consumer Mortgage Coalition, the Housing Policy Council of the Financial Services Roundtable, and the Mortgage Bankers Association, filed by Buckley Kolar LLP, discussed the potential impact the lower court order could have on Massachusetts consumers and the Massachusetts mortgage market (for a copy of this brief, please see Amicus Brief filed by Buckley Kolar). The other amicus brief, submitted by the Securities Industry and Financial Markets Association (SIFMA) and the American Securitization Forum (ASF), described the implications of the lower court order on secondary markets. Prior to the filing of these briefs, Fremont announced the sale of certain servicing rights to a third party, and the Massachusetts Attorney General filed another motion in the trial court seeking to block any servicing transfer unless the transferee agreed to be bound by the preliminary injunction. For a copy of the parties’ briefs or the SIFMA/ASF amicus brief, please contact either Mathew Previn or Kirk Jensen.
Fourth Circuit: Mortgage Broker Not A “Creditor” Under TILA. A U.S. Court of Appeals for the Fourth Circuit recently affirmed a district court’s finding that a mortgage broker is not a “creditor” under Section 1602(f) of the Truth in Lending Act (“TILA”). Cetto v. LaSalle Bank, N.A. et al., No. 06-1720 (4th Cir., Feb. 29, 2008). In Cetto, plaintiffs attempted to rescind their loan arguing that they were not provided with “high-cost” mortgage disclosures. They contended that theirs was a “high-cost” loan because the title search and title binder fees they paid at closing should have been included in the “points and fees” analysis because those fees were charged by an affiliate of the mortgage broker, which plaintiffs argued was a “creditor” under TILA. The Fourth Circuit disagreed, holding that Section 1602(f) unambiguously defines “’creditor’ to refer ‘only to a person who both (1) regularly extends . . . consumer credit . . . and (2) is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness . . . .’” The Court rejected plaintiffs’ argument, based on the last sentence of subsection (f), that the broker should be considered a “creditor” because it originated unrelated high-cost loans in the past. According to the Court, such a construction “would so extend the class of ‘creditors’ as effectively to include any participant in a loan transaction who has ever made one or two high-cost loans in the past,” and would also eliminate the second requirement of the definition, that the creditor is the person to whom the debt is initially payable. The Court found that plaintiffs’ interpretation not only was contradicted by the unambiguous language of Section 1602(f), but by TILA’s interpretive regulation, Reg. Z, which explicitly excludes mortgage brokers from the definition of “creditor,” and by common sense. The Court rejected plaintiffs’ arguments that Reg. Z was an invalid interpretation of Section 1602(f), holding that Reg. Z’s interpretation of “creditor” “is, if not the correct one, certainly a permissible one.” For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/CettovLaSalleBankNationalAssoc.pdf.
New Jersey Refund Anticipation Loan Act Preempted by NBA, Court Holds. A federal district court in New Jersey has held that criminal penalties imposed by the New Jersey’s Refund Anticipation Loan Act (the RAL Act) are preempted by the National Bank Act (NBA), as applied to national banks and to their third-party tax preparation agents. Pacific Capital Bank, N.A. v. Milgram, No 08-0223, 2008 U.S. Dist. Lexis 19639 (D.N.J. Mar. 12, 2008). In this case, the state of New Jersey was defending the RAL Act, which is scheduled to become effective April 1. 2008. The plaintiff, Pacific Capital, sued, claiming that the RAL Act was preempted by NBA for both the bank and its third-party tax preparers. Conceding that most of the RAL Act, including the civil penalties and the interest rate cap, was preempted, the State contended that the criminal penalties were not. The court, in granting the bank’s motion for summary judgment, found that (1) the NBA preemption extended to the criminal penalties; and (2) the preemption extends to third-party agents, which are permitted for national banks under the NBA. The court also noted that, to hold otherwise “would invite state legislatures to import criminal sanctions into statutes that would otherwise be preempted by the NBA. Such end-run around the NBA would render the federal preemption doctrine in this context meaningless.” For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/PacificCapitalBankvMilgram.pdf.
Debt Collector Did Not Violate FCRA Furnisher Requirements. On March 17, a federal district court in Alabama held that a debt collector did not violate the Fair Credit Reporting Act (FCRA) after receiving notice of a disputed debt from a consumer. Bosarge v. T-Mobile USA, Inc., 2008 WL 725017, No. 07-0012-CG-C (S.D. Ala. March 17, 2008). According to the court, FCRA does not impose a duty on furnishers of credit information to follow up with a credit reporting agency unless the credit reporting agency, not the consumer, notifies the furnisher of a dispute. In addition, the court held that FCRA does not provide a federal private right of action for violations of section 1681s-2(a), which requires furnishers to provide accurate information. Finally, the court concluded that FCRA preempted the consumer’s state law claims alleging libel and “negligent and wanton” conduct for reporting his account as delinquent to the major credit reporting agencies. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/BosargevT-MobileUSA.pdf.
Limited Attorney-Client Privilege Waiver Did Not Justify Discovery on Matters Not at Issue in Case. In ruling on a motion to strike certain testimony, the U.S. District Court for the Northern District of Indiana found that the defendant’s limited waiver of attorney-client privilege for an “advice of counsel” defense in connection with the mailers at issue in the case did not justify discovery on other mailers or compliance reviews involving Fair Credit Reporting Act (FCRA) provisions not at issue in the lawsuit. In re H&R Block Mortgage Corp., Prescreening Litigation, No. 2:06-MD-230, 2008 WL 747564 (N.D. Ind. Mar. 18, 2008). The plaintiffs argued that if the defendant relied upon the advice of its counsel as a defense, the plaintiffs were entitled to testimony on counsel’s legal review and the advice he provided to the defendant with respect to whether the defendant’s mailers complied with the “clear and conspicuous” disclosure requirements of FCRA – a provision not at issue in the litigation – as well as counsel’s opinions regarding the defendant’s prescreened mailers other than those at issue in the case. Noting that “a waiver of attorney-client privilege is limited to the subject matter implicated by the defense raised,” the court rejected the argument that the “subject matter” should include any potential violation of FCRA. Consequently, the court refused to grant discovery on the other mailers or compliance reviews involving unrelated FCRA provisions such as the “clear and conspicuous” disclosure requirements. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/InreHRBlockMortgageCorp.pdf.
FIRM NEWS
Margo Tank will be speaking at the American Land Title Association's 2008 Tech Forum being held April 12-15 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 19-21 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 19. 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/.
Grant Mitchell spoke in a webinar entitled, "RESPA Radio: Eye on Reform - Title Focus" on March 27. The seminar focused on the U.S. Department of Housing and Urban Development's new proposal to reform the Real Estate Settlement Procedures Act (RESPA) regulations.
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 issues Guidance on Conforming Loan Limits. On March 26, the Office of Federal Housing Enterprise Oversight (OFHEO), which oversees Fannie Mae and Freddie Mac, issued final guidance (the Guidance) concerning the conforming loan limit calculations for purchases of loans by Fannie Mae and Freddie Mac. According to the Guidance, OFHEO will use the October-to-October Monthly Interest Rate Survey (MIRS) results issued by the Federal Housing Finance Board (FHFB), which provides the change in the national average one-family house price during the previous twelve-month period, as the basis for calculating the conforming loan limits. The Guidance also provides that if the October MIRS survey data indicate a decline in the average house price from the previous October, the conforming loan limit for the next year will not be decreased below the current $417,000 level. The Guidance does not affect the temporary increase in conforming loan limits provided in the Recovery Rebates and Economic Stimulus for the American People Act of 2008. For a copy of the guidance, please see http://www.ofheo.gov/media/guidance/CLLGuidanceFR32608.pdf.
FTC: Providing Settlement Options Information Not a Per Se Violation of FDCPA. On March 19, the Federal Trade Commission (FTC) published an advisory opinion (the Advisory Opinion) stating that it is not a per se Fair Debt Collection Practices Act (FDCPA) violation for a debt collector to provide information about settlement options to consumers in foreclosure proceedings. The FTC was asked to opine on: (1) whether providing a consumer with information concerning settlement options that would avoid foreclosure, either in conjunction with or after sending the "validation notice," violates the FDCPA § 809(a); and (2) whether providing a consumer with information on settlement options would constitute a false, misleading, or deceptive act or practice in violation of FDCPA § 807. In response to the first inquiry, the Advisory Opinion concluded that the FDCPA § 809(a) does not prohibit debt collectors from adding language to the validation notice, and as such, does not prohibit debt collectors from presenting information regarding settlement options, regardless of whether such information is presented in conjunction with or subsequent to the validation notice. However, while it is not a per se violation to provide such information, this conclusion "does not prevent a fact-based finding that a specific communication violates the Act if it overshadows or is inconsistent with the disclosures of the consumer's right to dispute the debt within 30 days." Similarly, in response to the second inquiry, the Advisory Opinion concluded that presenting settlement option information is not a per se false, misleading or deceptive act in violation of FDCPA § 807, but that individual communications may be found, after a specific, fact-based inquiry, to constitute a false, misleading or deceptive act or practice in violation of the FDCPA. For a copy of the Advisory Opinion, please see http://www.ftc.gov/os/2008/03/P084801fdcpa.pdf.
FTC Releases Fair Debt Collection Practices Act Report to Congress. On March 21, the Federal Trade Commission (FTC) released the 2008 Annual Report to Congress on the Fair Debt Collection Practices Act (FDCPA). The report details the FTC’s 2007 efforts to curtail deceptive and abusive debt collection practices and limit illegal debt collection practices. Specifically, the report presents an overview of the FTC’s efforts by summarizing (i) consumer complaints the FTC received, (ii) the FTC’s enforcement actions and procedures, and (iii) consumer and industry education initiatives. The FTC issued the report in accordance with section 815 of the FDCPA, which requires the FTC to report annually to Congress concerning the administration of the FDCPA. For a copy of the report, please see http://www.ftc.gov/os/2008/03/P084802fdcpareport.pdf.
Washington Enacts Mortgage Lending Legislation. The Governor of Washington signed into law three bills affecting residential mortgage lending in the state. The first bill, SB 6471, removes a licensing exemption in the Consumer Loan Act (CLA) that permitted lenders who were exempt from the Mortgage Broker Practices Act (MBPA) and who did not lend above the 12 percent interest rate threshold requiring licensure under the CLA to avoid licensing altogether. The bill removes the 12 percent interest threshold, requiring those mortgage lenders currently exempt from the MBPA to be licensed under the CLA. The second bill, SB 2770, adopts several new requirements for mortgage lenders. Specifically, the bill prohibits making a residential mortgage loan unless a disclosure summary of all material terms on a separate sheet of paper has been provided to the borrower within 3 days of receiving a loan application, and within 3 days of changing a material term before closing the loan. The bill also, among other things: (1) prohibits prepayment penalties and negative amortization under certain circumstances; (2) prohibits loan "steering"; (3) criminalizes the use of fraud, misrepresentation, or other misleading acts or omissions in connection with making, brokering or obtaining a residential mortgage loan; and (4) criminalizes mortgage fraud. Finally, the Governor signed SB 6381, which creates a fiduciary relationship between a mortgage broker and the borrower. Under the new bill, a broker must act in the borrower's best interest and in the utmost good faith, but is not required to obtain access to a loan product that is not available at the time of the transaction with the borrower. The broker may still collect a fee so long as the fee is disclosed to the borrower in advance to rendering the services. Each bill is effective June 12, 2008. For a copy of SB 6471, please see http://apps.leg.wa.gov/documents/billdocs/2007-08/Pdf/Bills/Senate%20Passed%20Legislature/6471.PL.pdf. For a copy of SB 2770, please see http://apps.leg.wa.gov/documents/billdocs/2007-08/Pdf/Bills/House%20Passed%20Legislature/2770-S.PL.pdf. For a copy of SB 6381, please see http://apps.leg.wa.gov/documents/billdocs/2007-08/Pdf/Bills/Senate%20Passed%20Legislature/6381.PL.pdf.
Michigan Sends Suite of Bills to Governor To Amend Mortgage Law. On March 25, four bills amending the Mortgage Brokers, Lenders, and Servicers Licensing Act (the “Act”) were presented to the governor for signing. SB 828 would add or revise various definitions, including the following terms: "loan officer," "loan officer registrant," "originate," "register," "control person," and "person." SB 831 would amend the Act to include references to a “loan officer registrant” and to a “loan officer” registration in various provisions of the Act. SB 832 would amend the Act to prohibit a loan officer registrant from, among other things, engaging in fraud, deceit, or material misrepresentation in connection with any transaction governed by the Act, or intentionally, or due to gross or wanton negligence, repeatedly failing to provide borrowers with any material disclosures or information required by law. Lastly, SB 833 would, among other things, amend the Act to revise the criminal penalty for an owner, partner, member, officer, trustee, employee, agent, broker, or other person, or a representative acting on the person's authority, who willfully or intentionally engages in certain acts specified in the bill. Further, it would increase the fine for a violation of the Act from a maximum of up to $5,000 to a maximum of up to $15,000, and would reduce the maximum time of imprisonment from up to three years to up to one year. The penalty also would apply to a person who acted as a loan officer in Michigan without a loan officer registration required under the Act. For a copy of the foregoing bills, please see http://www.legislature.mi.gov/(S(3vksbq45mowrfi55syrbzp45))/mileg.aspx?page=Bills.
Fremont Appeals Preliminary Injunction on Foreclosures. On March 26, Fremont Investment & Loan filed a petition with the Massachusetts Appeals Court to reverse a Massachusetts Superior Court order granting the Massachusetts Attorney General’s request for a preliminary injunction on foreclosures of loans the lower court deemed presumptively unfair (the lower court order was reported in InfoBytes Special Alert, Feb. 27, 2008). The preliminary injunction requires Fremont to submit such loans to the Massachusetts Attorney General for review prior to advancement or initiation of foreclosure proceedings on such loans and, where the Commonwealth does not consent, to obtain court permission to proceed. In support of Fremont’s appeal, two groups of trade associations submitted amicus briefs. The brief submitted by the American Financial Services Association, the Consumer Mortgage Coalition, the Housing Policy Council of the Financial Services Roundtable, and the Mortgage Bankers Association, filed by Buckley Kolar LLP, discussed the potential impact the lower court order could have on Massachusetts consumers and the Massachusetts mortgage market (for a copy of this brief, please see Amicus Brief filed by Buckley Kolar). The other amicus brief, submitted by the Securities Industry and Financial Markets Association (SIFMA) and the American Securitization Forum (ASF), described the implications of the lower court order on secondary markets. Prior to the filing of these briefs, Fremont announced the sale of certain servicing rights to a third party, and the Massachusetts Attorney General filed another motion in the trial court seeking to block any servicing transfer unless the transferee agreed to be bound by the preliminary injunction. For a copy of the parties’ briefs or the SIFMA/ASF amicus brief, please contact either Mathew Previn or Kirk Jensen.
Fourth Circuit: Mortgage Broker Not A “Creditor” Under TILA. A U.S. Court of Appeals for the Fourth Circuit recently affirmed a district court’s finding that a mortgage broker is not a “creditor” under Section 1602(f) of the Truth in Lending Act (“TILA”). Cetto v. LaSalle Bank, N.A. et al., No. 06-1720 (4th Cir., Feb. 29, 2008). In Cetto, plaintiffs attempted to rescind their loan arguing that they were not provided with “high-cost” mortgage disclosures. They contended that theirs was a “high-cost” loan because the title search and title binder fees they paid at closing should have been included in the “points and fees” analysis because those fees were charged by an affiliate of the mortgage broker, which plaintiffs argued was a “creditor” under TILA. The Fourth Circuit disagreed, holding that Section 1602(f) unambiguously defines “’creditor’ to refer ‘only to a person who both (1) regularly extends . . . consumer credit . . . and (2) is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness . . . .’” The Court rejected plaintiffs’ argument, based on the last sentence of subsection (f), that the broker should be considered a “creditor” because it originated unrelated high-cost loans in the past. According to the Court, such a construction “would so extend the class of ‘creditors’ as effectively to include any participant in a loan transaction who has ever made one or two high-cost loans in the past,” and would also eliminate the second requirement of the definition, that the creditor is the person to whom the debt is initially payable. The Court found that plaintiffs’ interpretation not only was contradicted by the unambiguous language of Section 1602(f), but by TILA’s interpretive regulation, Reg. Z, which explicitly excludes mortgage brokers from the definition of “creditor,” and by common sense. The Court rejected plaintiffs’ arguments that Reg. Z was an invalid interpretation of Section 1602(f), holding that Reg. Z’s interpretation of “creditor” “is, if not the correct one, certainly a permissible one.” For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/CettovLaSalleBankNationalAssoc.pdf.
Rep. Barney Frank Calls For Increased Financial Services Regulation. In a speech on March 20, Rep. Barney Frank (D-MA), the Chairman of the House Financial Services Committee, called for Congress to take a number of actions designed to increase regulation of the financial services industry. First, Representative Frank urged Congress to consider establishing a Financial Services Risk Regulator who would be responsible for assessing risks in the financial market and to act to limit risky practices or to protect the integrity of the financial system when necessary. Second, Rep. Frank urged Congress to consolidate the regulatory system designed to monitor the financial services industry to eliminate duplicative oversight. Finally, Rep. Frank urged Congress to pass legislation he introduced that would address ways to stem rising foreclosures throughout the states. For a copy of the press release, please see http://www.house.gov/apps/list/press/financialsvcs_dem/press0320082.shtml.
FHFB Raises MBS Purchase Limit for Federal Home Loan Banks. On March 24, the Federal Housing Finance Board (FHFB) voted to authorize the Federal Home Loan Banks to temporarily increase their purchases of mortgage-backed securities (MBS) from Fannie Mae and Freddie Mac from its current investment authority of 300 percent of capital to 600 percent of capital. As a condition to making a purchase under the increased limit, an FHLBank must notify the FHFB prior to its first acquisition under the expanded authority, and also must include in its notice a description of risk management principles underlying its purchase. Furthermore, the securities underlying the purchase must be backed by mortgages that were originated consistent with recent regulatory guidance on nontraditional and subprime mortgage lending. For a copy of the press release announcing the vote, please see http://www.fhfb.gov/GetFile.aspx?FileID=6713.
New Jersey Refund Anticipation Loan Act Preempted by NBA, Court Holds. A federal district court in New Jersey has held that criminal penalties imposed by the New Jersey’s Refund Anticipation Loan Act (the RAL Act) are preempted by the National Bank Act (NBA), as applied to national banks and to their third-party tax preparation agents. Pacific Capital Bank, N.A. v. Milgram, No 08-0223, 2008 U.S. Dist. Lexis 19639 (D.N.J. Mar. 12, 2008). In this case, the state of New Jersey was defending the RAL Act, which is scheduled to become effective April 1. 2008. The plaintiff, Pacific Capital, sued, claiming that the RAL Act was preempted by NBA for both the bank and its third-party tax preparers. Conceding that most of the RAL Act, including the civil penalties and the interest rate cap, was preempted, the State contended that the criminal penalties were not. The court, in granting the bank’s motion for summary judgment, found that (1) the NBA preemption extended to the criminal penalties; and (2) the preemption extends to third-party agents, which are permitted for national banks under the NBA. The court also noted that, to hold otherwise “would invite state legislatures to import criminal sanctions into statutes that would otherwise be preempted by the NBA. Such end-run around the NBA would render the federal preemption doctrine in this context meaningless.” For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/PacificCapitalBankvMilgram.pdf.
FHFB Raises MBS Purchase Limit for Federal Home Loan Banks. On March 24, the Federal Housing Finance Board (FHFB) voted to authorize the Federal Home Loan Banks to temporarily increase their purchases of mortgage-backed securities (MBS) from Fannie Mae and Freddie Mac from its current investment authority of 300 percent of capital to 600 percent of capital. As a condition to making a purchase under the increased limit, an FHLBank must notify the FHFB prior to its first acquisition under the expanded authority, and also must include in its notice a description of risk management principles underlying its purchase. Furthermore, the securities underlying the purchase must be backed by mortgages that were originated consistent with recent regulatory guidance on nontraditional and subprime mortgage lending. For a copy of the press release announcing the vote, please see http://www.fhfb.gov/GetFile.aspx?FileID=6713.
Fremont Appeals Preliminary Injunction on Foreclosures. On March 26, Fremont Investment & Loan filed a petition with the Massachusetts Appeals Court to reverse a Massachusetts Superior Court order granting the Massachusetts Attorney General’s request for a preliminary injunction on foreclosures of loans the lower court deemed presumptively unfair (the lower court order was reported in InfoBytes Special Alert, Feb. 27, 2008). The preliminary injunction requires Fremont to submit such loans to the Massachusetts Attorney General for review prior to advancement or initiation of foreclosure proceedings on such loans and, where the Commonwealth does not consent, to obtain court permission to proceed. In support of Fremont’s appeal, two groups of trade associations submitted amicus briefs. The brief submitted by the American Financial Services Association, the Consumer Mortgage Coalition, the Housing Policy Council of the Financial Services Roundtable, and the Mortgage Bankers Association, filed by Buckley Kolar LLP, discussed the potential impact the lower court order could have on Massachusetts consumers and the Massachusetts mortgage market (for a copy of this brief, please see Amicus Brief filed by Buckley Kolar). The other amicus brief, submitted by the Securities Industry and Financial Markets Association (SIFMA) and the American Securitization Forum (ASF), described the implications of the lower court order on secondary markets. Prior to the filing of these briefs, Fremont announced the sale of certain servicing rights to a third party, and the Massachusetts Attorney General filed another motion in the trial court seeking to block any servicing transfer unless the transferee agreed to be bound by the preliminary injunction. For a copy of the parties’ briefs or the SIFMA/ASF amicus brief, please contact either Mathew Previn or Kirk Jensen.
Fourth Circuit: Mortgage Broker Not A “Creditor” Under TILA. A U.S. Court of Appeals for the Fourth Circuit recently affirmed a district court’s finding that a mortgage broker is not a “creditor” under Section 1602(f) of the Truth in Lending Act (“TILA”). Cetto v. LaSalle Bank, N.A. et al., No. 06-1720 (4th Cir., Feb. 29, 2008). In Cetto, plaintiffs attempted to rescind their loan arguing that they were not provided with “high-cost” mortgage disclosures. They contended that theirs was a “high-cost” loan because the title search and title binder fees they paid at closing should have been included in the “points and fees” analysis because those fees were charged by an affiliate of the mortgage broker, which plaintiffs argued was a “creditor” under TILA. The Fourth Circuit disagreed, holding that Section 1602(f) unambiguously defines “’creditor’ to refer ‘only to a person who both (1) regularly extends . . . consumer credit . . . and (2) is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness . . . .’” The Court rejected plaintiffs’ argument, based on the last sentence of subsection (f), that the broker should be considered a “creditor” because it originated unrelated high-cost loans in the past. According to the Court, such a construction “would so extend the class of ‘creditors’ as effectively to include any participant in a loan transaction who has ever made one or two high-cost loans in the past,” and would also eliminate the second requirement of the definition, that the creditor is the person to whom the debt is initially payable. The Court found that plaintiffs’ interpretation not only was contradicted by the unambiguous language of Section 1602(f), but by TILA’s interpretive regulation, Reg. Z, which explicitly excludes mortgage brokers from the definition of “creditor,” and by common sense. The Court rejected plaintiffs’ arguments that Reg. Z was an invalid interpretation of Section 1602(f), holding that Reg. Z’s interpretation of “creditor” “is, if not the correct one, certainly a permissible one.” For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/CettovLaSalleBankNationalAssoc.pdf.
New Jersey Refund Anticipation Loan Act Preempted by NBA, Court Holds. A federal district court in New Jersey has held that criminal penalties imposed by the New Jersey’s Refund Anticipation Loan Act (the RAL Act) are preempted by the National Bank Act (NBA), as applied to national banks and to their third-party tax preparation agents. Pacific Capital Bank, N.A. v. Milgram, No 08-0223, 2008 U.S. Dist. Lexis 19639 (D.N.J. Mar. 12, 2008). In this case, the state of New Jersey was defending the RAL Act, which is scheduled to become effective April 1. 2008. The plaintiff, Pacific Capital, sued, claiming that the RAL Act was preempted by NBA for both the bank and its third-party tax preparers. Conceding that most of the RAL Act, including the civil penalties and the interest rate cap, was preempted, the State contended that the criminal penalties were not. The court, in granting the bank’s motion for summary judgment, found that (1) the NBA preemption extended to the criminal penalties; and (2) the preemption extends to third-party agents, which are permitted for national banks under the NBA. The court also noted that, to hold otherwise “would invite state legislatures to import criminal sanctions into statutes that would otherwise be preempted by the NBA. Such end-run around the NBA would render the federal preemption doctrine in this context meaningless.” For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/PacificCapitalBankvMilgram.pdf.
Debt Collector Did Not Violate FCRA Furnisher Requirements. On March 17, a federal district court in Alabama held that a debt collector did not violate the Fair Credit Reporting Act (FCRA) after receiving notice of a disputed debt from a consumer. Bosarge v. T-Mobile USA, Inc., 2008 WL 725017, No. 07-0012-CG-C (S.D. Ala. March 17, 2008). According to the court, FCRA does not impose a duty on furnishers of credit information to follow up with a credit reporting agency unless the credit reporting agency, not the consumer, notifies the furnisher of a dispute. In addition, the court held that FCRA does not provide a federal private right of action for violations of section 1681s-2(a), which requires furnishers to provide accurate information. Finally, the court concluded that FCRA preempted the consumer’s state law claims alleging libel and “negligent and wanton” conduct for reporting his account as delinquent to the major credit reporting agencies. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/BosargevT-MobileUSA.pdf.
Limited Attorney-Client Privilege Waiver Did Not Justify Discovery on Matters Not at Issue in Case. In ruling on a motion to strike certain testimony, the U.S. District Court for the Northern District of Indiana found that the defendant’s limited waiver of attorney-client privilege for an “advice of counsel” defense in connection with the mailers at issue in the case did not justify discovery on other mailers or compliance reviews involving Fair Credit Reporting Act (FCRA) provisions not at issue in the lawsuit. In re H&R Block Mortgage Corp., Prescreening Litigation, No. 2:06-MD-230, 2008 WL 747564 (N.D. Ind. Mar. 18, 2008). The plaintiffs argued that if the defendant relied upon the advice of its counsel as a defense, the plaintiffs were entitled to testimony on counsel’s legal review and the advice he provided to the defendant with respect to whether the defendant’s mailers complied with the “clear and conspicuous” disclosure requirements of FCRA – a provision not at issue in the litigation – as well as counsel’s opinions regarding the defendant’s prescreened mailers other than those at issue in the case. Noting that “a waiver of attorney-client privilege is limited to the subject matter implicated by the defense raised,” the court rejected the argument that the “subject matter” should include any potential violation of FCRA. Consequently, the court refused to grant discovery on the other mailers or compliance reviews involving unrelated FCRA provisions such as the “clear and conspicuous” disclosure requirements. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/InreHRBlockMortgageCorp.pdf.
Agencies Release Proposed Revisions to Flood Insurance Q&A’s. In a joint press release on March 21, the federal bank, thrift, credit union and Farm Credit System regulatory agencies requested comments on its revised Interagency Questions and Answers Regarding Flood Insurance (Q&A’s). Most notably, the agencies are proposing new Q&A’s on the subjects of second-lien mortgages, the imposition of civil money penalties and loan syndications/participations. The agencies are proposing new revisions to the Q&A’s to assist financial institutions understand and meet their responsibilities under federal flood insurance legislation and to increase consumer awareness of federal flood insurance regulations. Comments on the proposed revisions are due May 20, 2008. For the full text of the revised Q&A’s please see http://www.occ.gov/ftp/release/2008-32a.pdf. For a copy of the Federal Register notice, please see http://edocket.access.gpo.gov/2008/pdf/E8-5787.pdf.
FTC Settles Actions For Failure to Adequately Secure Consumers’ Data. Discount retailer TJX and data brokers Reed Elsevier and Seisint have agreed to settle charges that each engaged in practices that failed to provide reasonable and appropriate security for sensitive consumer information. The FTC complaint alleged that TJX failed to use reasonable and appropriate security measures to prevent unauthorized access to personal information, such as consumers’ credit and debit card numbers, on its computer networks. The complaint against Reed Elsevier and Seisint alleged that, among other security failures, they allowed customers to use easy-to-guess passwords to access their electronic databases, which contained sensitive consumer information such as drivers license numbers and Social Security numbers. The settlements will require that the companies implement comprehensive information security programs and obtain audits by independent third-party security professionals every other year for 20 years. The settlements require the information security programs to contain administrative, technical, and physical safeguards appropriate to each company’s size, the nature of its activities, and the sensitivity of the personal information it collects. The independent third-party auditors will be required to certify that the companies’ security programs meet or exceed the requirements of the FTC’s orders and are operating with sufficient effectiveness to provide reasonable assurance that the security of consumers’ personal information is being protected. The settlements also contain bookkeeping and record keeping provisions to allow the agency to monitor compliance with its orders. For a copy of the settlement agreement, please see http://www.ftc.gov/os/caselist/0523094/080327agreement.pdf.
Debt Collector Did Not Violate FCRA Furnisher Requirements. On March 17, a federal district court in Alabama held that a debt collector did not violate the Fair Credit Reporting Act (FCRA) after receiving notice of a disputed debt from a consumer. Bosarge v. T-Mobile USA, Inc., 2008 WL 725017, No. 07-0012-CG-C (S.D. Ala. March 17, 2008). According to the court, FCRA does not impose a duty on furnishers of credit information to follow up with a credit reporting agency unless the credit reporting agency, not the consumer, notifies the furnisher of a dispute. In addition, the court held that FCRA does not provide a federal private right of action for violations of section 1681s-2(a), which requires furnishers to provide accurate information. Finally, the court concluded that FCRA preempted the consumer’s state law claims alleging libel and “negligent and wanton” conduct for reporting his account as delinquent to the major credit reporting agencies. For a copy of the opinion, please see http://www.buckleykolar.com/publications/documents/BosargevT-MobileUSA.pdf.
FTC Settles Actions For Failure to Adequately Secure Consumers’ Data. Discount retailer TJX and data brokers Reed Elsevier and Seisint have agreed to settle charges that each engaged in practices that failed to provide reasonable and appropriate security for sensitive consumer information. The FTC complaint alleged that TJX failed to use reasonable and appropriate security measures to prevent unauthorized access to personal information, such as consumers’ credit and debit card numbers, on its computer networks. The complaint against Reed Elsevier and Seisint alleged that, among other security failures, they allowed customers to use easy-to-guess passwords to access their electronic databases, which contained sensitive consumer information such as drivers license numbers and Social Security numbers. The settlements will require that the companies implement comprehensive information security programs and obtain audits by independent third-party security professionals every other year for 20 years. The settlements require the information security programs to contain administrative, technical, and physical safeguards appropriate to each company’s size, the nature of its activities, and the sensitivity of the personal information it collects. The independent third-party auditors will be required to certify that the companies’ security programs meet or exceed the requirements of the FTC’s orders and are operating with sufficient effectiveness to provide reasonable assurance that the security of consumers’ personal information is being protected. The settlements also contain bookkeeping and record keeping provisions to allow the agency to monitor compliance with its orders. For a copy of the settlement agreement, please see http://www.ftc.gov/os/caselist/0523094/080327agreement.pdf.
FTC Settles Actions For Failure to Adequately Secure Consumers’ Data. Discount retailer TJX and data brokers Reed Elsevier and Seisint have agreed to settle charges that each engaged in practices that failed to provide reasonable and appropriate security for sensitive consumer information. The FTC complaint alleged that TJX failed to use reasonable and appropriate security measures to prevent unauthorized access to personal information, such as consumers’ credit and debit card numbers, on its computer networks. The complaint against Reed Elsevier and Seisint alleged that, among other security failures, they allowed customers to use easy-to-guess passwords to access their electronic databases, which contained sensitive consumer information such as drivers license numbers and Social Security numbers. The settlements will require that the companies implement comprehensive information security programs and obtain audits by independent third-party security professionals every other year for 20 years. The settlements require the information security programs to contain administrative, technical, and physical safeguards appropriate to each company’s size, the nature of its activities, and the sensitivity of the personal information it collects. The independent third-party auditors will be required to certify that the companies’ security programs meet or exceed the requirements of the FTC’s orders and are operating with sufficient effectiveness to provide reasonable assurance that the security of consumers’ personal information is being protected. The settlements also contain bookkeeping and record keeping provisions to allow the agency to monitor compliance with its orders. For a copy of the settlement agreement, please see http://www.ftc.gov/os/caselist/0523094/080327agreement.pdf.
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