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InfoBytes

CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

April 21, 2006

FEDERAL ISSUES

FTC Releases Annual Report on Fair Debt Collection Practices. The Federal Trade Commission (FTC) released the 28th Annual Report to Congress on the Fair Debt Collection Practices Act (FDCPA). The Report summarizes the administrative and enforcement actions taken under the FDCPA in 2005. Specifically, it provides details concerning consumer complaints received by the FTC, as well as a summary of the FTC’s enforcement actions. Further, the Report provides details concerning its education initiatives and reaffirms various recommendations for amendments to the FDCPA. The Report is available at http://www.ftc.gov/os/2006/04/P0648042006FDCPAReport.pdf.

FRB Reduces Reporting Requirements of Examinations of Government Securities Activities. On April 14, 2006 the Board of Governors of the Federal Reserve System (FRB) issued Supervisory Letter SR 06-8 on the reporting requirements of examinations of government securities activities. Effective immediately, the FRB is withdrawing AD 91-26 which previously required Reserve Banks to file a report with FRB staff for every government securities broker of government securities dealer examination, and every review of individual government securities custodial activities. In addition, Form 1468, the mechanism with which reporting under AD 91-26 was done, has been eliminated. As of result of this reduction in reporting requirements Reserve Banks will only be required to report to FRB staff findings from examinations of government securities broker or dealer operations of state member banks, branches, or agencies subject to Federal Reserve oversight. The rationale for the action is: “Because Treasury’s custody rules have remained unchanged for over a decade and bank compliance with these rules has been generally satisfactory, it is no longer necessary for Reserve Banks to furnish separately to Board staff the results of reviews solely on custodial activities of depository institutions subject to Federal Reserve Supervision.” For a copy of the letter, see http://www.federalreserve.gov/boarddocs/srletters/2006/SR0608.htm.

Comptroller Expresses Concern About Option ARMs and Similar Types of Mortgages. On April 20, 2006, Comptroller of the Currency John Dugan, speaking before the Greenlining Institute in Los Angeles, discussed payment-option ARMs and other mortgage products which have the potential for significant increases in monthly payments. The Comptroller identified these nontraditional products as a market-driven response to historically low housing affordability and affirmed their appropriateness if properly underwritten and accompanied by meaningful disclosures. In addition, he strongly endorsed the recently proposed requirement that such loans only be made if the applicant can demonstrate a capacity to make all required monthly payments on the loan -- including after a payment increase -- under reasonably foreseeable circumstances. The Comptroller also reaffirmed that consumers should really understand the loan products they obtain. In this context, he not only endorsed changes in disclosure content and timing, but also praised homeownership counseling and delinquency counseling, particularly by community-based organizations, as ways of educating borrowers about appropriate and responsible uses of mortgage credit. For a summary of the remarks, see http://www.occ.treas.gov/toolkit/newsrelease.aspx?Doc=ZL7ERCCB.xml. For the text of the remarks, see http://www.occ.treas.gov/ftp/release/2006-48a.pdf.

FTC Orders Lifetime Ban on Telemarketing for Repeat Scammer. On April 18, 2006, the FTC announced an order against a repeat telemarketing offender, banning him for life from engaging in telemarketing. The FTC had charged two companies and their owner with selling fraudulent bartender and mystery shopper certification programs. In addition to the ban, the owner was fined $115,00 and forced to turn over his Porsche to the FTC. To view the official Press Release and the Stipulated Order, see http://www.ftc.gov/os/caselist/abi/abi.htm.

Consumer Financial Protection Forum Announced by Treasury Department. On March 9, 2006, the Treasury Department had the first meeting of the Consumer Financial Protection Forum, which will involve participants in the federal banking area, FTC regulators, and representatives from state supervisory organizations. The group will focus on information sharing and identify trends and problems at financial institutions that relate to consumer protection. The Form will consider how consumer complaints are handled at the various government regulatory agencies and make recommendations for improvement in the consumer complaint-handling process. The Forum will meet periodically to discuss consumer issues in the financial services industry. See the Treasury Press Release at http://www.ustreas.gov/press/releases/js4101.htm.

STATE ISSUES

Colorado Bill to Register Mortgage Brokers Advances. Colorado is one of the two states that does not currently require residential mortgage brokers to be licensed, but that may change soon. H.B. 1161 (the Mortgage Broker Registration Act) has passed the Colorado House and is now in the Senate. It would require residential mortgage brokers to be registered with the Colorado Division of Real Estate, beginning January 1, 2007. Mortgage bankers and FHA mortgagees, among others, would not be subject to registration. Brokers would have to maintain $25,000 bonds and brokering a loan which unlicensed would be a misdemeanor. See http://www.leg.state.co.us/clics2006a/csl.nsf/fsbillcont.

Mortgage Rescue Fraud Act Pending in Illinois. On April 10, 2006, the Illinois Senate passed S.B. 2349, which would create the Illinois Mortgage Rescue Fraud Act, a consumer protection bill designed to curb deceptive “mortgage rescue” practices. The measure is expected to be signed by Governor Blagojevich, and targets mortgage rescue schemes involving “distressed properties” (properties that are foreclosed upon or at risk of loss, or whose owner is more than 90 days delinquent on any loan secured by the property.) The bill targets two principal types of rescue schemes. The first involves “distressed property consultants,” a category that includes a wide variety of persons and institutions that offer services related to assisting homeowners by negotiating with creditors, etc. The second category, distressed property purchasers, are those who acquire the deeds of distressed properties while allowing the former homeowners to continue occupying the property for rent. The bill contains numerous provisions related to mortgage “rescues”, including (i) new mandated contractual provisions, (ii) creation of a new right of the homeowner to cancel contracts up to five business days following execution, (iii) a provision requiring the rescuer to purchase the home for at least 82% of the fair market value (and without any additional fees), and (iv) provisions regarding rental agreements executed by distressed property purchasers that require the purchaser to verify the homeowner’s ability to make rental payments as well as allowing the previous homeowner to cancel the rental agreement at any time. The bill makes it a crime to engage in mortgage rescue fraud. If signed by the Governor, the legislation would take effect January 1, 2007. To view the full text of the legislation, search for S.B. 2349 at http://www.ilga.gov/legislation/.

Lenders Prohibited From Disclosing Loan Amount to Appraisers Under Kansas Law. Kansas enacted legislation (H.B. 2735) prohibiting lenders from disclosing the amount of a proposed real estate loan, or the preferred or required value of any real estate intended to secure such loan, to an appraiser. The prohibition applies to any “lender” as defined under the Kansas Personal and Real Property Code, including any person making a mortgage loan secured by residential property. Additionally, H.B. 2735 expands the Kansas Uniform Consumer Credit Code’s definition of “appraised value” of real estate. The new law takes effect on July 1, 2006. For a copy of H.B. 2735, see http://www.kslegislature.org/bills/2006/2735.pdf.

Maine Department of Professional and Financial Regulation Advises Against Licensing of Commercial Leasing Agents as Real Estate Brokers. The Maine law was amended in 1988 to remove the requirement that commercial leasing agents be licensed as real estate brokers (although the Department’s report indicates that in 45 states, such agents are licensed as real estate brokers). After reviewing input from real estate brokers and others in connection with a sunset review of L.D. 1525, Section 28 of the Maine Real Estate Law, the Department decided not to recommend that the licensing requirement for commercial leasing agents be reinstated. See the full report at http://mainegov-images.informe.org/pfr/.

Nevada Mortgage Lending Division Fines Unlicensed Mortgage Companies. A review of the website of the Nevada Department of Business Industry/Mortgage Lending Division, indicates that several mortgage companies have been fined in the range of $5,000 to $30,000 during 2006 for conducting unlicensed business in Nevada, failing to maintain proper records, and failing to supervise their mortgage agents. See the schedule disciplinary orders at http://www.mld.nv.gov/Documents/LCB%20report%20July%202005%.

Pennsylvania Department of Banking to Offer Online License Renewals. From May 1 to June 30, license renewal forms will be available online at the Department of Banking website, http://www.banking.state.pa.us/banking/site/default.asp. A reminder indicates that renewals should be filed by May 26 to ensure processing for a timely renewal.

COURTS

Bank Does Not Owe Fiduciary Duty to Ordinary Borrowers; May Not be Liable for Loan Officer Misuse of Prospective Customer Data. The Ohio Supreme Court recently held: (a) that a bank does not have a fiduciary duty to a prospective borrower with whom it deals at arm’s length; and (b) that an employer is not liable for its employee’s tortious acts if the employee is not acting within the scope of his employment when he commits those acts. In Groob v. KeyBank, 108 Ohio St. 3d 348, 2006 Ohio 1189 (Mar. 29, 2006), the plaintiffs presented confidential information to the bank’s loan officer to obtain funds to purchase a business. The loan officer used the information to purchase the business for herself. The court determined that KeyBank and the plaintiffs dealt with each other at arm’s length (and that the bank therefore did not have—or breach—a fiduciary obligation to the plaintiffs); and that the loan officer’s actions were taken for her own benefit and did not benefit KeyBank. Accordingly, the loan officer’s actions were beyond the scope of her employment and KeyBank was not liable for them. The opinion is at http://caselaw.lp.findlaw.com/data2/ohiostatecases/2006/2006-ohio-1189.pdf.

Sixth Circuit Holds Refinancing Does Not Extinguish a Borrower’s Right to Rescind under TILA. The United States Court of Appeals for the Sixth Circuit ruled that under the Truth in Lending Act (TILA), refinancing does not nullify a borrower's right to rescind a loan. William and Sandra Barrett purchased their home in 1989 and refinanced their loan twice through from Bank One. Eventually they refinanced with another lender and Bank One released its security interest in the Barretts’ home. Two years later the Barretts sued to rescind both Bank One refinance loans, arguing that Bank One violated TILA’s disclosure requirements. The United States District Court for the Eastern District of Kentucky dismissed the Barretts’ claim on the ground that refinancing extinguished the statutory right to rescind because there was no security interest left for the defendant to release. The Sixth Circuit reversed, finding that the right to rescind encompasses more than the right to cancel the security interest in the property -- it extends to the entire transaction which permits the borrower to recover certain loan-related fees. Further, refinancing is not among the trigger events that extinguish a borrower’s right to rescind under Regulation Z. Barrett et al. v. JP Morgan Chase Bank, No. 05-5035/5146 (6th Cir. April 18, 2006). For a copy of the case, see http://www.ca6.uscourts.gov/opinions.pdf/06a0137p-06.pdf.

Series of E-mails Could Constitute Contract for the Purchase of Land. The U.S. District Court for the Western District of Arkansas recently addressed the question of whether a series of e-mails could constitute a contract for the sale of land. In Brantley v. Wilson, 5:05-cv-05093 (Feb. 22, 2006), the parties negotiated the sale of a 37-acre parcel of land via e-mail. The parties discussed the terms of sale in the e-mails, including the sales price and allocation of closing costs, and placed their names at the bottom of their respective messages. The landowners then decided not to sell. The plaintiffs then sued to obtain the property. The plaintiffs alleged that the e-mail stream constituted a contract that was signed by placing their typed signatures at the bottom of their messages. In response, the landowners moved for summary judgment on several grounds, including: (i) that the e-mails were merely contract negotiations, not a final contract; and (ii) that the e-mails could not satisfy Arkansas’ statute of frauds. The court denied summary judgment, noting that the Uniform Electronic Transactions Act (UETA) could allow the e-mails to satisfy the statute of frauds and that a reasonable jury could review the e-mails and determine that they collectively constituted an executed agreement. Please contact Buckley Kolar to obtain a copy of the decision.

MISCELLANY

OCC Publishes Spanish-Language Consumer Materials. The OCC released Spanish-language materials explaining the agency's consumer assistance programs. Spanish-speaking consumers can learn how the OCC can answer their questions and help resolve complaints about national banks and their subsidiaries. The brochure advises consumers to first attempt to work out the problem with the bank involved. The OCC has Spanish-speaking Customer Assistance Specialists available if the consumer is unable to work out the problem with the bank. The English-language equivalent of the new brochure is available at: http://www.occ.gov/customer.pdf.

HUD Secretary Urges Affordable Housing in California. HUD Secretary Alphonso Jackson is urging California’s government officials to make housing more affordable for teachers, nurses, police and fire department employees. Jackson’s comments were made in Simi Valley, at the beginning of a 30-city tour promoting "Healthy Homes for Healthy Kids."

FIRM NEWS

Buckley Kolar is pleased to announce that Joseph T. Lynyak III, formerly of Reed Smith LLP, has joined the Firm as a Partner. Mr. Lynyak brings an extensive banking and consumer finance practice, including deep experience in bank enforcement matters. Mr. Lynyak is an expert in California and federal law issues pertaining to all aspects of banking and consumer finance. He will be relocating from California to Washington, D.C. to join the Firm. For more information, see http://www.buckleykolar.com/news/ (press release).

Joe Kolar and Joe Lynyak co-chaired a HMDA Forum at the ABA Spring Meeting in Tampa, Florida on April 6, 2006. A copy of Joe Kolar's presentation on the history and evolution of HMDA is available at http://www.buckleykolar.com/news/documents/Kolar_HMDA_ppt_4_5_061.ppt.

Joe Kolar and Jerry Buckley will be speaking at the MBA's Legal Issues Conference in Palm Desert, California, which will be held on April 30 - May 3, 2006. Jerry Buckley will be speaking about FCRA and FACTA and Joe Kolar will be speaking on Federal Regulatory Developments. For a copy of the conference brochure, including registration information, see http://www.mortgagebankers.org/files/conferences/pdf/M2602076_brochure.pdf.

Margo Tank will be speaking on electronic signature and record issues at the Association of Insurance Compliance Professionals’ Heartland Chapter’s Education Day in Des Moines, Iowa on On April 28, 2006.

Andrea Lee Negroni will co-chair (with Ines Montes of Wells Fargo as co-chair) a conference on Delivering Financial Services to Underserved and Ethnic Markets in New York on May 22-24, 2006. The conference is sponsored by the American Conference Institute to help financial service providers gain insight into traditionally underserved market segments. Clients of Buckley Kolar and recipients of Buckley Kolar's InfoBytes are offered a $200 discount on conference registration fees by mentioning code 881L06.S, during registration. Register by calling 888-224-2480 or online at www.americanconference.com/FSI.

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

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