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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
Senators Issue Letter to FRB Demanding Stronger HOEPA Rules. On April 23, members of the Senate Committee on Banking, Housing, and Urban Affairs including Chairman Chris Dodd (D – Conn.), issued a letter urging the Federal Reserve Board (FRB) to expand rulemaking under the Home Ownership and Equity Protection Act (HOEPA). In the letter, the senators state that rulemaking authority to preventing abusive or predatory lending practices is not merely a discretionary power of the FRB, but that “the law clearly mandates action.” The senators go on to suggest that the FRB quickly move to establish rules under the statute (i) requiring mortgage originators to evaluate a borrower’s ability to repay with a presumption that a loan creating a debt-to-income ratio of more than 50 percent “is not a sustainable loan,” (ii) designating a failure to employ escrow accounts for taxes and insurance as an unfair and deceptive practice, and (iii) restricting the use of low- and no-documentation loans. For the official press release, please see http://banking.senate.gov/index.cfm?FuseAction=PressReleases. Detail&PressRelease_id=215&Month=4&Year=2007 and for the text of the complete letter, please see http://banking.senate.gov/_files/042307_BernankeHOEPALetter.pdf.
Federal Identity Theft Task Force Releases Strategic Plan. On April 23, the President’s Identity Theft Task Force, a cooperative effort among 17 federal agencies, released Combating Identity Theft: A Strategic Plan. The plan analyzes the crime of identity theft and proposes several policy and legislative changes to help combat the problem. These policy changes include creation of national standards for safeguarding personal information and notifying consumers of data breaches, implementing a public awareness campaign, and enacting or amending legislation to further enhance prosecutors’ ability to pursue identity thieves. The plan follows interim recommendations by the Task Force last year (covered in the September 22, 2006 issue of InfoBytes). To learn more regarding the Task Force, or obtain a copy of the plan, go to http://www.idtheft.gov/.
Rep. Frank Asks GAO to Investigate Subprime Foreclosures. On April 25, Rep. Barney Frank (D. – Mass.) and Rep. Spencer Bachus (R. – Ala.), the Chairman and Ranking Member of the House Financial Services Committee, sent a letter to the General Accounting Office (GAO) requesting a report on the recent increase in defaults among residential mortgages. The congressmen requested the report examine several aspects of the issue, including (i) various qualities of borrowers that seem to indicate risk of default, such as region, or first-time homebuyer status, (ii) types of loans and lending practices associated with default, such as exotic loan products, or deceptive lending practices, and (iii) potential solutions for preventing future foreclosures, including GSE and FHA refinancing, or loan forbearance. For text of the request letter, see http://www.house.gov/apps/list/press/financialsvcs_dem/press042507b.shtml.
Department of Education Forms Task Force on Student Lending; Shuts Down Database. On April 24, Margaret Spellings, Secretary of Education, announced the formation of a Task Force on Student Lending, to develop proposals on several major issues, such as preferred lender lists, prohibited inducements, and the National Student Loan Data System (NSLDS). This follows a series of high-profile actions by New York Attorney General Andrew Cuomo against student lenders and universities regarding allegedly inappropriate incentive programs (most recently reported in the April 20th issue of InfoBytes). Attorney General Cuomo’s office this week announced several settlements with universities and student lenders, one of which was in cooperation with the Office of the Missouri Attorney General. Also, on April 17, Secretary Spellings temporarily shut down the NSLDS. This followed an April 15th letter from Senator Edward Kennedy (D. – Mass.), Chairman of the Senate Education Committee, expressing concerns that the database was being used to inappropriately gather information on student lenders and “aggressively market” towards them. Senator Kennedy later expressed his gratitude for the Secretary’s assistance. To read the press release regarding the new Task Force on Student Lending, see http://www.ed.gov/news/pressreleases/2007/04/04242007.html.
New SEC Procedure for Approval of Penalties in Corporate Enforcement Actions. The Securities and Exchange Commission (SEC) has instituted a new procedure to expedite the approval of penalties in corporate enforcement actions. According to Commission Chairman Christopher Cox, the SEC staff will be empowered to negotiate penalties within a range established by Commission guidance, and if a case is settled within that range, the settlement will be eligible for summary approval through the Commission’s seriatim procedure. The goal is to “routinize” the penalty approval process and strengthen the staff’s negotiating position during settlement. For more information see http://www.sec.gov/news/speech/2007/spch041207cc.htm.
FTC Supports Stronger Self-Regulatory Measures from NACHA. On April 25th, the Federal Trade Commission (FTC) issued a staff comment letter supporting rules proposed by the Electronic Payments Association (NACHA) to increase NACHA’s enforcement authority and strengthen risk management among financial institutions participating in the Automated Clearing House (ACH). The FTC’s letter identified two major elements of the proposed rules it supported, (i) improving enforcement by increasing fines and giving the enforcement body authority to suspend repeat offenders and (ii) allowing NACHA to set a threshold for the number of failed transactions meriting regulatory action. For further information, view the FTC's full-text comments at http://www.ftc.gov/os/opinions/070423staffcommenttonacha.pdf.
HUD Releases Determination and Policy Letters Issued to GSEs. On April 24, the Department of Housing and Urban Development (HUD) released many of its government sponsored enterprise (GSE) determination and policy letters issued to Fannie Mae and Freddie Mac since 2004. The redacted letters can now be found on HUD's newly revised GSE regulation website which now includes a new page entitled the Regulatory Reading Room. In addition to the regulatory guidance, the GSEs’ Housing Activity Reports are also now on the HUD website on the page entitled Housing Goals Information. For more information, see http://www.hud.gov/news/release.cfm?content=pr07-044.cfm.
STATE ISSUES
Minnesota Governor Signs Predatory Lending Law. On April 20, Minnesota Governor Tim Pawlenty signed H.F. 1004 establishing new anti-predatory lending provisions in that state. The new law, among other things, prohibits making a residential mortgage loan (i) without considering the borrower’s ability to pay at the fully indexed rate or (ii) that does not provide a tangible net benefit to the borrower. Among other changes, the law also expands the definition of “lender fees” to include those from a lender to a mortgage broker. The law also establishes a “duty of agency” when brokering, soliciting, placing, or negotiating a residential mortgage loan, that requires, in part, a mortgage broker to “act in the borrower’s best interest,” “not accept, give, or charge any undisclosed compensation or realize any undisclosed remuneration… that inures to the benefit of the mortgage broker on an expenditure made for the borrower,” and “account to a borrower for all the borrower’s money and property received as agent.” The law goes into effect on August 1, 2007. For the full text of H.F. 1004, see here.
Montana Sends Mortgage Banker Licensing Bill to Governor for Signature. On April 26, the Montana legislature sent House Bill 69, the “Montana Residential Mortgage Lender Licensing Act,” to the governor for his signature. The bill would prohibit any person from engaging in the business of making residential mortgage loans without first obtaining a license from the Division of Banking and Financial Institutions. Individual employees of a mortgage banker would not be required to obtain a license under this bill. Commercial lenders, financial institutions, and mortgage brokers licensed in Montana (among others) would be exempt from licensing. The bill would allow mortgage bankers to charge application fees, lock-in fees, commitment fees, and prepayment penalties. The bill would also impose advertising restrictions on mortgage bankers. If the governor signs the bill, mortgage bankers would need to obtain a license by October 1, 2008. Mortgage bankers are not currently required to obtain a license in Montana, provided that the banker does not act as a broker or engage in table funding. For a copy of the bill, see http://data.opi.mt.gov/bills/2007/billpdf/HB0069.pdf. To track the status of the bill, see the legislature’s bill tracking website.
Credit Freeze Law Adopted in Maryland. Legislation (H.B. 117 and S.B. 52) recently signed into law by the Governor of Maryland provides that Maryland residents may now place security freezes on their credit reports. Under the new law, reporting firms must comply with a request to place a freeze within five business days (this will change to three business days after July 1, 2008). If a consumer requests that the freeze be temporarily lifted for a specific credit purpose, the reporting firm must comply within three business days (this will change to 15 minutes after January 31, 2009). While identity theft victims may not be charged for these services, all others may be charged $5. To view H.B. 117 as enrolled, please visit http://mlis.state.md.us/2007RS/bills/hb/hb0117e.pdf. To view S.B. 52 as enrolled, please visit http://mlis.state.md.us/2007RS/bills/sb/sb0052e.pdf.
New Maryland Law Protects Consumers Affected By Breaches of Personal Data. Under a new law, Maryland residents are required to be notified when their unencrypted or unredacted personal information is breached and where an investigation shows that "misuse of the personal information has occurred or is reasonably likely to occur." The law defines personal information as an individual‛s name (or first initial and last name) in combination with his or her Social Security, driver‛s license, or taxpayer identification number, or financial account information in combination with access codes or passwords. A business is required to provide notification either in writing, by e-mail, or by telephone, and as soon as reasonably practicable. If the cost of providing notice exceeds $100,000, or there are more than 175,000 individuals who must be notified, it is permissible for a business to substitute notice by posting an announcement on its website and in statewide media. To view the law, please visit http://mlis.state.md.us/2007RS/bills/hb/hb0208e.pdf for H.B. 208 as enrolled or http://mlis.state.md.us/2007RS/bills/sb/sb0194e.pdf for S.B. 194 as enrolled.
South Carolina Consumer Affairs Department Releases Report on Mortgage Fraud. The South Carolina Department of Consumer Affairs recently released a report stating that South Carolina has been “directly and disproportionately targeted” for mortgage fraud. The report's focus is to increase public understanding of fraudulent business practices specific to the mortgage industry including (i) causes and effects of mortgage fraud, (ii) initiatives to curb fraudulent business practices, and (iii) tips to recognize fraud and avoid becoming a victim. The report also compares South Carolina and North Carolina Law as related to the mortgage industry, and recommends the registration of individual mortgage originators to combat fraud. For more information, full text of the report can be viewed at http://www.scconsumer.gov/licensing/mortgage_brokers/2007_mortgage_fraud_report.pdf.
Massachusetts Announces Initiatives to Address Rising Foreclosures. Massachusetts Governor Deval L. Patrick announced both immediate regulatory action and proposed legislation to assist families facing home foreclosures. The proposals, which are based on the recommendations of Massachusetts’ recent Mortgage Summit Group report, outline a comprehensive approach that, according to the Governor’s press release, “provides for greater education and information for consumers before securing a mortgage; more robust regulatory controls over brokers and lenders; a more responsive legal framework for homeowners facing foreclosure, and clear consequences for those who engage in mortgage fraud." For more information, see http://www.mass.gov/?pageID=pressreleases&agId=Agov3&prModName =gov3pressrelease&prFile=agov3_pr_070425_forclosures.xml.
COURTS
U.S. District Court in Massachusetts Approves Mailer with No Loan Details as FCRA Firm Offer. The U.S. District Court for the District of Massachusetts dismissed a complaint that a mortgage loan mailer violated the requirement of the Fair Credit Reporting Act (FCRA) that the transaction in a prescreened credit solicitation consist of a “firm offer.” Dixon v. Shamrock Financial Corp., – F. Supp. 2d –, 2007 WL 1170639 (D. Mass. Apr. 20, 2007). The mailer offered a “free consultation” with a loan officer and included the notice required by FCRA that the consumer had received a “prescreened” offer of credit, but provided no detail about loan terms. The court held that the reference to a “prescreened” offer in the letter informed the consumer that “he was guaranteed to receive [a loan] if the information in his consumer report remained accurate.” Therefore, even though the “promised consultation with [the loan officer] seem[ed] nothing more than an invitation to a high-pressure sales pitch,” and the letter “might lie on the outer rim of the permissible,” the court held that the lender had complied with FCRA. The court based its decision on its interpretation of the “four corners” test in the U.S. Court of Appeals for the Seventh Circuit’s Murray v. GMAC Mortgage opinion, which the court interpreted as “lender friendly” because it prohibited only “sham offer[s] used to pitch a product rather than extend credit.” The court rejected an interpretation of the Seventh Circuit’s Cole v. U.S. Capital case, which stated that a “firm offer” must have more than nominal value, as requiring disclosure of the loan details in the mailer. This appears to be the first reported “firm offer” case from a federal district court in the First Circuit (Maine, Massachusetts, New Hampshire, Rhode Island and Puerto Rico). For a copy of this decision, please contact .
North Carolina Court Holds that Sale of Single-Premium Credit Insurance Where Loan Term Exceeds 15 Yrs is an Unfair or Deceptive Trade Practice. On April 17, the North Carolina Court of Appeals held that, among other things, a lender’s sale of single-premium credit insurance in connection with mortgage loans with terms exceeding 15 years was an unfair or deceptive trade practice as a matter of law. Richardson v. Bank of America, N.A., No. COA06-211, 2007 WL 1119214 (N.C. Ct. App. Apr. 17, 2007). The credit insurance sold by the lender was not approved by the North Carolina Department of Insurance. The court, however, also determined that N.C. Gen. Stat. § 58-57-1 (2005)—which provides that various types of credit insurance “shall be subject to the provisions of this Article, except credit insurance written in connection with direct loans of more than 15 years’ duration”—does not authorize the sale of credit insurance on loans with terms greater than 15 years. Thus, according to the court, the sale of such insurance “could not have been approved by the Department of Insurance.” For a copy of this decision, see http://www.aoc.state.nc.us/www/public/coa/opinions/2007/pdf/060211-1.pdf.
California Supreme Court Rejects Ruling on Merits before Class Notification. In Fireside Bank v. Superior Court of Santa Clara County, S139171 (Ca., opinion filed April 16, 2007), the California Supreme Court reversed a trial court that effectively decided the merits of a plaintiff’s claim at the same time it certified plaintiff’s class and before notice of the class action was sent to potential class members. The Supreme Court reminded lower courts that, absent compelling justification, California courts should resolve class certification and notice issues before resolving the substantive merits of the case. Ordinarily, the remedy for failing to resolve class issues before merits issues would be to bar the plaintiff from pursuing class claims. In this case, however, the court decided that it would be inequitable to punish the plaintiff for the trial court’s surprise decision to resolve the merits and class issues at the same time. Accordingly, the court affirmed the trial court’s class certification decision and vacated the merits decision, to be revisited after proper notice had been issued to potential class members. For a copy of this decision, please see http://www.courtinfo.ca.gov/opinions/documents/S139171.PDF.
Arbitration Agreement Unenforceable; No Evidence That Plaintiffs Assented to New Provision. A federal district court ruled that an arbitration agreement imposed on a credit card account through a change in terms notice was unenforceable under Mississippi law due to the lack of a signature or other form of express consumer assent to the arbitration agreement. Robertson v. J.C. Penney Company, Inc., No. 2:06cv3 (S.D. Miss., opinion issued April 19, 2007). According to the court, waiving the right to submit claims to a court of law “requires more than implied consent… there must be shown an act or omission on the part of the one charged with the waiver fairly evidencing an intention permanently to surrender the right alleged to have been waived.” For a copy of this opinion, please contact .
Creditor Files Complaint Against New Century; Requests Injunction Against Sale of Loans. DB Structured Products, Inc., a subsidiary of Deutsche Bank and one of New Century’s largest creditors, filed an adversary proceeding complaint and moved for a preliminary injunction against the Chapter 11-debtor this week. DB Structured Products, Inc. v. New Century Mortgage Corporation, et al., A.P. Case No. 07-51269 (Bankr. D. De., complaint and motion filed April 25, 2007). In its complaint, DB Structured Products alleged that New Century had defaulted on the sale and servicing provisions of repurchase agreements, which required DB Structured Products to purchase certain loans from New Century’s loan origination entities and allow New Century’s loan servicing entities to service them. By way of relief, DB Structured Products requested, among other things, that the court freeze the sale of any of the loans covered by the repurchase agreements, allow DB to transfer the servicing rights of those loans to another entity, or return income derived from the servicing of the loans to DB Structured Products. This is the fourth adversary proceeding filed against New Century, the second arising from alleged default of a Repurchase Agreement, since the sub-prime lender filed for Chapter 11 bankruptcy (see the March 31st issue of InfoBytes for more details). For a copy of this opinion, please contact .
U.S Court Rules Austrian Defendant Not Subject to Personal Jurisdiction in Indiana for Web Postings on Austrian Website. On March 29, the United States District Court for the Southern District of Indiana held that an Austrian website's indirect references to Glock, Inc. does not reasonably support jurisdiction in Indiana. Glock v. Pilz, No. 4:06-cv-0072. (S.D. Ind., Mar. 29, 2007). Pilz, an Austrian Parliament member, posted a German journal entry on a website related to loose allegations that Georgia-based Glock, Inc. and Indiana-based Kiesler Police Supply were conspiring to sell more pistols in Iraq than are necessary, with the motivation of supplying a black market for weapons in Turkey. The court dismissed the defamation case, stating that "the minimal interest [Glock, Inc. has] in this case is not enough to outweigh the burden on defendants and make the exercise of personal jurisdiction reasonable." The court explained that the postings were made from Austria to an Austrian audience, and no one in Indiana subscribed to the newspaper, either online or in print. For a copy of the case, please contact .
Ownership of the Corporate Parent of Website Operator Does Not Confer Jurisdiction. On April 13, a Texas federal district court ruled that an individual owner of a company is not subject to the personal jurisdiction of a court in a state where the owner has no contacts, even if the company operates an interactive website. GoNannies, Inc. v. GoAuPair.com, Inc., Case No. 3:06-CV-0631 (N. D. Tex Apr. 13, 2007). In its suit, the plaintiff, operator of the website "www.GoNannies.com," claimed trademark infringement and cyber-squatting violations against several defendants based in Utah, including a Utah resident / individual who owned the corporate parent of a company with the registered trade name "goNANI. " This company operated an interactive website at “www.gonani.com.” The court rejected the plaintiff’s assertion that the Utah resident was subject to suit in Texas because the asserting that the Utah resident / individual owner did not operate the entity doing business as "goNANI" in any individual capacity. Because the plaintiff did not provide proof of the individuals' contacts with Texas, the Texas court held that it could not exercise personal jurisdiction over her. For a copy of the decision, please contact .
California Supreme Court Finds Three-Year Statute of Limitations for Missed Breaks Claims. In a case with implications for companies that have employees in California, the California Supreme Court has held that a three-year statute of limitations period applies to claims for wages owed as a result of missed breaks. Murphy v. Kenneth Cole Productions, Inc., S140308 (Cal. Apr. 17, 2007). In this case, Murphy, the plaintiff, was the manager in a small retail store. He worked in the store for two years and was paid a weekly salary. Due to his job responsibilities and to the volume of business in the store, he was rarely able to take uninterrupted, duty-free breaks. After he quit his job, he filed a claim for unpaid wages as a result of his working during his break periods. California law states that if an employer fails to provide an employee with a break, then the employer is liable for one additional hour of pay for each day that a break was missed. The plaintiff argued that his additional-hour claims were for wages, which, under state law, are subject to a three-year statute of limitations period. The defendant claimed that the monies sought by the plaintiff were penalties, subject to a one-year limitations period. The Supreme Court held that the claims were for wages and thus subject to the longer period, since the statute intended “first and foremost to compensate employees for their injuries.” Any employer “behavior-shaping” that resulted was “incidental,” the court found. A copy of the opinion is available at http://www.courtinfo.ca.gov/opinions/documents/S140308.DOC.
Verdict Against Settlement Agent for Breach of Fiduciary Duty Upheld on Procedural Grounds. In Chicago Title Insurance Company v. Home Loan Corporation, No. 14-04-01059-CV (Tex. App., opinion filed April 24, 2007), the court ruled that a settlement agent did not violate the Real Estate Settlement Procedures Act (RESPA) or commit fraud against a lender by failing to disclose that a portion of the seller’s proceeds would be paid to a third party, but the court upheld a verdict that this failure to disclose violated a fiduciary duty to the lender broadly and amorphously stated in jury instructions. The court held that the agent had failed to make a timely objection to the jury instructions and therefore waived its right to argue that its compliance with RESPA and the closing documents showed the absence of a fiduciary duty breach. For a copy of this opinion, please contact .
MISCELLANY
Special Notice – InfoBytes subscribers will soon receive LPO Network, a monthly free electronic newsletter published by Corporate Risk Advisors, LLC, beginning with the May 1st launch issue. LPO Network reports on developments in the legal process outsourcing industry, with perspectives of providers and users of LPO services. Corporate Risk Advisors is affiliated with Buckley Kolar, LLP and believes LPO Network will be of interest to you as a consumer or provider of legal services. You are free to forward LPO Network to others in your organization, and will find a "subscribe" and "unsubscribe" button at the end of each monthly issue. We hope you enjoy LPO Network. Questions and comments can be directed to LPO Network's editor-in-chief, Andrea Lee Negroni, at .
MBA Conference on Electronic Mortgages. The Mortgage Bankers Association (MBA) is holding an eMortgage Investor Summit on Sunday, May 20th in conjunction with the MBA Secondary Marketing Conference at the Marriott Marquis in New York City. Buckley Kolar LLP one of the sponsors of the Summit and is a participant in the eMortgage Adoption Task Force. Margo Tank will be attending for the Buckley Kolar LLP.
FIRM NEWS
The Equipment Leasing and Finance Foundation released a new report on April 16th, “Paperless Transaction: The Competitive Edge,” to help the equipment financing industry understand how to take advantage of the benefits, address the challenges and envision a future of a full paperless business process. The report was sponsored by McCue Systems and produced by Buckley Kolar LLP. For more information, and to procure a copy of the report, go to http://www.leasefoundation.org/positive/index.cfm?fuseaction=display_article&artID=7279.
Jeff Naimon will be speaking on the RESPA panel at the American Conference Institute's upcoming seminar "Preventing, Defending and Resolving Consumer Credit Litigation" taking place on June 5-6, 2007 in New York. For more information, or to register, go to http://www.americanconference.com/Litigation/creditlit.htm.
Frank Supik will speak on April 24 at the Postsecondary Electronic Standard Council’s Fourth Annual Conference on Technology and Standards in Washington, DC. Mr. Supik will speak on E-Document Requirements for Storage, Reproduction and Security. For more information, go to http://www.pesc.org/events/techstandards/fourth/.
Frank Supik will speak at the Equipment Leasing and Finance Association’s Legal Forum on May 7th in Miami, Florida. Mr. Supik will participate in a panel discussion entitled “Doing Deals in a Paperless Society (Electronic Chattel Paper). To e-Business and Beyond!” For more information or to register for the conference, go to http://www.elfaonline.org/events/2007/LF/.
Jerry Buckley and John Kromer participated in a webcast seminar entitled “Legal Issues Associated with Managing Subprime Mortgage Portfolios” on April 27th through West LegalWorks. The seminar addressed several topics on legal compliance with a focus on “legislative and regulatory proposals to impose stricter underwriting standards or ban certain loan products.”
Senators Issue Letter to FRB Demanding Stronger HOEPA Rules. On April 23, members of the Senate Committee on Banking, Housing, and Urban Affairs including Chairman Chris Dodd (D – Conn.), issued a letter urging the Federal Reserve Board (FRB) to expand rulemaking under the Home Ownership and Equity Protection Act (HOEPA). In the letter, the senators state that rulemaking authority to preventing abusive or predatory lending practices is not merely a discretionary power of the FRB, but that “the law clearly mandates action.” The senators go on to suggest that the FRB quickly move to establish rules under the statute (i) requiring mortgage originators to evaluate a borrower’s ability to repay with a presumption that a loan creating a debt-to-income ratio of more than 50 percent “is not a sustainable loan,” (ii) designating a failure to employ escrow accounts for taxes and insurance as an unfair and deceptive practice, and (iii) restricting the use of low- and no-documentation loans. For the official press release, please see http://banking.senate.gov/index.cfm?FuseAction=PressReleases. Detail&PressRelease_id=215&Month=4&Year=2007 and for the text of the complete letter, please see http://banking.senate.gov/_files/042307_BernankeHOEPALetter.pdf.
Minnesota Governor Signs Predatory Lending Law. On April 20, Minnesota Governor Tim Pawlenty signed H.F. 1004 establishing new anti-predatory lending provisions in that state. The new law, among other things, prohibits making a residential mortgage loan (i) without considering the borrower’s ability to pay at the fully indexed rate or (ii) that does not provide a tangible net benefit to the borrower. Among other changes, the law also expands the definition of “lender fees” to include those from a lender to a mortgage broker. The law also establishes a “duty of agency” when brokering, soliciting, placing, or negotiating a residential mortgage loan, that requires, in part, a mortgage broker to “act in the borrower’s best interest,” “not accept, give, or charge any undisclosed compensation or realize any undisclosed remuneration… that inures to the benefit of the mortgage broker on an expenditure made for the borrower,” and “account to a borrower for all the borrower’s money and property received as agent.” The law goes into effect on August 1, 2007. For the full text of H.F. 1004, see http://www.revisor.leg.state.mn.us/bin/getbill.php?session=ls85&number=HF1004&version=list.
Montana Sends Mortgage Banker Licensing Bill to Governor for Signature. On April 26, the Montana legislature sent House Bill 69, the “Montana Residential Mortgage Lender Licensing Act,” to the governor for his signature. The bill would prohibit any person from engaging in the business of making residential mortgage loans without first obtaining a license from the Division of Banking and Financial Institutions. Individual employees of a mortgage banker would not be required to obtain a license under this bill. Commercial lenders, financial institutions, and mortgage brokers licensed in Montana (among others) would be exempt from licensing. The bill would allow mortgage bankers to charge application fees, lock-in fees, commitment fees, and prepayment penalties. The bill would also impose advertising restrictions on mortgage bankers. If the governor signs the bill, mortgage bankers would need to obtain a license by October 1, 2008. Mortgage bankers are not currently required to obtain a license in Montana, provided that the banker does not act as a broker or engage in table funding. For a copy of the bill, see http://data.opi.mt.gov/bills/2007/billpdf/HB0069.pdf. To track the status of the bill, see the legislature’s bill tracking website.
U.S. District Court in Massachusetts Approves Mailer with No Loan Details as FCRA Firm Offer. The U.S. District Court for the District of Massachusetts dismissed a complaint that a mortgage loan mailer violated the requirement of the Fair Credit Reporting Act (FCRA) that the transaction in a prescreened credit solicitation consist of a “firm offer.” Dixon v. Shamrock Financial Corp., – F. Supp. 2d –, 2007 WL 1170639 (D. Mass. Apr. 20, 2007). The mailer offered a “free consultation” with a loan officer and included the notice required by FCRA that the consumer had received a “prescreened” offer of credit, but provided no detail about loan terms. The court held that the reference to a “prescreened” offer in the letter informed the consumer that “he was guaranteed to receive [a loan] if the information in his consumer report remained accurate.” Therefore, even though the “promised consultation with [the loan officer] seem[ed] nothing more than an invitation to a high-pressure sales pitch,” and the letter “might lie on the outer rim of the permissible,” the court held that the lender had complied with FCRA. The court based its decision on its interpretation of the “four corners” test in the U.S. Court of Appeals for the Seventh Circuit’s Murray v. GMAC Mortgage opinion, which the court interpreted as “lender friendly” because it prohibited only “sham offer[s] used to pitch a product rather than extend credit.” The court rejected an interpretation of the Seventh Circuit’s Cole v. U.S. Capital case, which stated that a “firm offer” must have more than nominal value, as requiring disclosure of the loan details in the mailer. This appears to be the first reported “firm offer” case from a federal district court in the First Circuit (Maine, Massachusetts, New Hampshire, Rhode Island and Puerto Rico). For a copy of this decision, please contact .
Credit Freeze Law Adopted in Maryland. Legislation (H.B. 117 and S.B. 52) recently signed into law by the Governor of Maryland provides that Maryland residents may now place security freezes on their credit reports. Under the new law, reporting firms must comply with a request to place a freeze within five business days (this will change to three business days after July 1, 2008). If a consumer requests that the freeze be temporarily lifted for a specific credit purpose, the reporting firm must comply within three business days (this will change to 15 minutes after January 31, 2009). While identity theft victims may not be charged for these services, all others may be charged $5. To view H.B. 117 as enrolled, please visit http://mlis.state.md.us/2007RS/bills/hb/hb0117e.pdf. To view S.B. 52 as enrolled, please visit http://mlis.state.md.us/2007RS/bills/sb/sb0052e.pdf.
Rep. Frank Asks GAO to Investigate Subprime Foreclosures. On April 25, Rep. Barney Frank (D. – Mass.) and Rep. Spencer Bachus (R. – Ala.), the Chairman and Ranking Member of the House Financial Services Committee, sent a letter to the General Accounting Office (GAO) requesting a report on the recent increase in defaults among residential mortgages. The congressmen requested the report examine several aspects of the issue, including (i) various qualities of borrowers that seem to indicate risk of default, such as region, or first-time homebuyer status, (ii) types of loans and lending practices associated with default, such as exotic loan products, or deceptive lending practices, and (iii) potential solutions for preventing future foreclosures, including GSE and FHA refinancing, or loan forbearance. For text of the request letter, see http://www.house.gov/apps/list/press/financialsvcs_dem/press042507b.shtml.
Creditor Files Complaint Against New Century; Requests Injunction Against Sale of Loans. DB Structured Products, Inc., a subsidiary of Deutsche Bank and one of New Century’s largest creditors, filed an adversary proceeding complaint and moved for a preliminary injunction against the Chapter 11-debtor this week. DB Structured Products, Inc. v. New Century Mortgage Corporation, et al., A.P. Case No. 07-51269 (Bankr. D. De., complaint and motion filed April 25, 2007). In its complaint, DB Structured Products alleged that New Century had defaulted on the sale and servicing provisions of repurchase agreements, which required DB Structured Products to purchase certain loans from New Century’s loan origination entities and allow New Century’s loan servicing entities to service them. By way of relief, DB Structured Products requested, among other things, that the court freeze the sale of any of the loans covered by the repurchase agreements, allow DB to transfer the servicing rights of those loans to another entity, or return income derived from the servicing of the loans to DB Structured Products. This is the fourth adversary proceeding filed against New Century, the second arising from alleged default of a Repurchase Agreement, since the sub-prime lender filed for Chapter 11 bankruptcy (see the March 31st issue of InfoBytes for more details). For a copy of this opinion, please contact .
HUD Releases Determination and Policy Letters Issued to GSEs. On April 24, the Department of Housing and Urban Development (HUD) released many of its government sponsored enterprise (GSE) determination and policy letters issued to Fannie Mae and Freddie Mac since 2004. The redacted letters can now be found on HUD's newly revised GSE regulation website which now includes a new page entitled the Regulatory Reading Room. In addition to the regulatory guidance, the GSEs’ Housing Activity Reports are also now on the HUD website on the page entitled Housing Goals Information. For more information, see http://www.hud.gov/news/release.cfm?content=pr07-044.cfm.
South Carolina Consumer Affairs Department Releases Report on Mortgage Fraud. The South Carolina Department of Consumer Affairs recently released a report stating that South Carolina has been “directly and disproportionately targeted” for mortgage fraud. The report's focus is to increase public understanding of fraudulent business practices specific to the mortgage industry including (i) causes and effects of mortgage fraud, (ii) initiatives to curb fraudulent business practices, and (iii) tips to recognize fraud and avoid becoming a victim. The report also compares South Carolina and North Carolina Law as related to the mortgage industry, and recommends the registration of individual mortgage originators to combat fraud. For more information, full text of the report can be viewed at http://www.scconsumer.gov/licensing/mortgage_brokers/2007_mortgage_fraud_report.pdf.
Massachusetts Announces Initiatives to Address Rising Foreclosures. Massachusetts Governor Deval L. Patrick announced both immediate regulatory action and proposed legislation to assist families facing home foreclosures. The proposals, which are based on the recommendations of Massachusetts’ recent Mortgage Summit Group report, outline a comprehensive approach that, according to the Governor’s press release, “provides for greater education and information for consumers before securing a mortgage; more robust regulatory controls over brokers and lenders; a more responsive legal framework for homeowners facing foreclosure, and clear consequences for those who engage in mortgage fraud." See http://www.mass.gov/?pageID=pressreleases&agId=Agov3&prModName =gov3pressrelease&prFile=agov3_pr_070425_forclosures.xml.
Verdict Against Settlement Agent for Breach of Fiduciary Duty Upheld on Procedural Grounds. In Chicago Title Insurance Company v. Home Loan Corporation, No. 14-04-01059-CV (Tex. App., opinion filed April 24, 2007), the court ruled that a settlement agent did not violate the Real Estate Settlement Procedures Act (RESPA) or commit fraud against a lender by failing to disclose that a portion of the seller’s proceeds would be paid to a third party, but the court upheld a verdict that this failure to disclose violated a fiduciary duty to the lender broadly and amorphously stated in jury instructions. The court held that the agent had failed to make a timely objection to the jury instructions and therefore waived its right to argue that its compliance with RESPA and the closing documents showed the absence of a fiduciary duty breach. For a copy of this opinion, please contact .
Senators Issue Letter to FRB Demanding Stronger HOEPA Rules. On April 23, members of the Senate Committee on Banking, Housing, and Urban Affairs including Chairman Chris Dodd (D – Conn.), issued a letter urging the Federal Reserve Board (FRB) to expand rulemaking under the Home Ownership and Equity Protection Act (HOEPA). In the letter, the senators state that rulemaking authority to preventing abusive or predatory lending practices is not merely a discretionary power of the FRB, but that “the law clearly mandates action.” The senators go on to suggest that the FRB quickly move to establish rules under the statute (i) requiring mortgage originators to evaluate a borrower’s ability to repay with a presumption that a loan creating a debt-to-income ratio of more than 50 percent “is not a sustainable loan,” (ii) designating a failure to employ escrow accounts for taxes and insurance as an unfair and deceptive practice, and (iii) restricting the use of low- and no-documentation loans. For the official press release, please see http://banking.senate.gov/index.cfm?FuseAction=PressReleases. Detail&PressRelease_id=215&Month=4&Year=2007 and for the text of the complete letter, please see http://banking.senate.gov/_files/042307_BernankeHOEPALetter.pdf.
Rep. Frank Asks GAO to Investigate Subprime Foreclosures. On April 25, Rep. Barney Frank (D. – Mass.) and Rep. Spencer Bachus (R. – Ala.), the Chairman and Ranking Member of the House Financial Services Committee, sent a letter to the General Accounting Office (GAO) requesting a report on the recent increase in defaults among residential mortgages. The congressmen requested the report examine several aspects of the issue, including (i) various qualities of borrowers that seem to indicate risk of default, such as region, or first-time homebuyer status, (ii) types of loans and lending practices associated with default, such as exotic loan products, or deceptive lending practices, and (iii) potential solutions for preventing future foreclosures, including GSE and FHA refinancing, or loan forbearance. For text of the request letter, see http://www.house.gov/apps/list/press/financialsvcs_dem/press042507b.shtml.
Department of Education Forms Task Force on Student Lending; Shuts Down Database. On April 24, Margaret Spellings, Secretary of Education, announced the formation of a Task Force on Student Lending, to develop proposals on several major issues, such as preferred lender lists, prohibited inducements, and the National Student Loan Data System (NSLDS). This follows a series of high-profile actions by New York Attorney General Andrew Cuomo against student lenders and universities regarding allegedly inappropriate incentive programs (most recently reported in the April 20th issue of InfoBytes). Attorney General Cuomo’s office this week announced several settlements with universities and student lenders, one of which was in cooperation with the Office of the Missouri Attorney General. Also, on April 17, Secretary Spellings temporarily shut down the NSLDS. This followed an April 15th letter from Senator Edward Kennedy (D. – Mass.), Chairman of the Senate Education Committee, expressing concerns that the database was being used to inappropriately gather information on student lenders and “aggressively market” towards them. Senator Kennedy later expressed his gratitude for the Secretary’s assistance. To read the press release regarding the new Task Force on Student Lending, see http://www.ed.gov/news/pressreleases/2007/04/04242007.html.
Credit Freeze Law Adopted in Maryland. Legislation (H.B. 117 and S.B. 52) recently signed into law by the Governor of Maryland provides that Maryland residents may now place security freezes on their credit reports. Under the new law, reporting firms must comply with a request to place a freeze within five business days (this will change to three business days after July 1, 2008). If a consumer requests that the freeze be temporarily lifted for a specific credit purpose, the reporting firm must comply within three business days (this will change to 15 minutes after January 31, 2009). While identity theft victims may not be charged for these services, all others may be charged $5. To view H.B. 117 as enrolled, please visit http://mlis.state.md.us/2007RS/bills/hb/hb0117e.pdf. To view S.B. 52 as enrolled, please visit http://mlis.state.md.us/2007RS/bills/sb/sb0052e.pdf.
FTC Supports Stronger Self-Regulatory Measures from NACHA. On April 25th, the Federal Trade Commission (FTC) issued a staff comment letter supporting rules proposed by the Electronic Payments Association (NACHA) to increase NACHA’s enforcement authority and strengthen risk management among financial institutions participating in the Automated Clearing House (ACH). The FTC’s letter identified two major elements of the proposed rules it supported, (i) improving enforcement by increasing fines and giving the enforcement body authority to suspend repeat offenders and (ii) allowing NACHA to set a threshold for the number of failed transactions meriting regulatory action. For further information, view the FTC's full-text comments at http://www.ftc.gov/os/opinions/070423staffcommenttonacha.pdf.
Department of Education Forms Task Force on Student Lending; Shuts Down Database. On April 24, Margaret Spellings, Secretary of Education, announced the formation of a Task Force on Student Lending, to develop proposals on several major issues, such as preferred lender lists, prohibited inducements, and the National Student Loan Data System (NSLDS). This follows a series of high-profile actions by New York Attorney General Andrew Cuomo against student lenders and universities regarding allegedly inappropriate incentive programs (most recently reported in the April 20th issue of InfoBytes). Attorney General Cuomo’s office this week announced several settlements with universities and student lenders, one of which was in cooperation with the Office of the Missouri Attorney General. Also, on April 17, Secretary Spellings temporarily shut down the NSLDS. This followed an April 15th letter from Senator Edward Kennedy (D. – Mass.), Chairman of the Senate Education Committee, expressing concerns that the database was being used to inappropriately gather information on student lenders and “aggressively market” towards them. Senator Kennedy later expressed his gratitude for the Secretary’s assistance. To read the press release regarding the new Task Force on Student Lending, see http://www.ed.gov/news/pressreleases/2007/04/04242007.html.
Credit Freeze Law Adopted in Maryland. Legislation (H.B. 117 and S.B. 52) recently signed into law by the Governor of Maryland provides that Maryland residents may now place security freezes on their credit reports. Under the new law, reporting firms must comply with a request to place a freeze within five business days (this will change to three business days after July 1, 2008). If a consumer requests that the freeze be temporarily lifted for a specific credit purpose, the reporting firm must comply within three business days (this will change to 15 minutes after January 31, 2009). While identity theft victims may not be charged for these services, all others may be charged $5. To view H.B. 117 as enrolled, please visit http://mlis.state.md.us/2007RS/bills/hb/hb0117e.pdf. To view S.B. 52 as enrolled, please visit http://mlis.state.md.us/2007RS/bills/sb/sb0052e.pdf.
U.S. District Court in Massachusetts Approves Mailer with No Loan Details as FCRA Firm Offer. The U.S. District Court for the District of Massachusetts dismissed a complaint that a mortgage loan mailer violated the requirement of the Fair Credit Reporting Act (FCRA) that the transaction in a prescreened credit solicitation consist of a “firm offer.” Dixon v. Shamrock Financial Corp., – F. Supp. 2d –, 2007 WL 1170639 (D. Mass. Apr. 20, 2007). The mailer offered a “free consultation” with a loan officer and included the notice required by FCRA that the consumer had received a “prescreened” offer of credit, but provided no detail about loan terms. The court held that the reference to a “prescreened” offer in the letter informed the consumer that “he was guaranteed to receive [a loan] if the information in his consumer report remained accurate.” Therefore, even though the “promised consultation with [the loan officer] seem[ed] nothing more than an invitation to a high-pressure sales pitch,” and the letter “might lie on the outer rim of the permissible,” the court held that the lender had complied with FCRA. The court based its decision on its interpretation of the “four corners” test in the U.S. Court of Appeals for the Seventh Circuit’s Murray v. GMAC Mortgage opinion, which the court interpreted as “lender friendly” because it prohibited only “sham offer[s] used to pitch a product rather than extend credit.” The court rejected an interpretation of the Seventh Circuit’s Cole v. U.S. Capital case, which stated that a “firm offer” must have more than nominal value, as requiring disclosure of the loan details in the mailer. This appears to be the first reported “firm offer” case from a federal district court in the First Circuit (Maine, Massachusetts, New Hampshire, Rhode Island and Puerto Rico). For a copy of this decision, please contact .
North Carolina Court Holds that Sale of Single-Premium Credit Insurance Where Loan Term Exceeds 15 Yrs is an Unfair or Deceptive Trade Practice. On April 17, the North Carolina Court of Appeals held that, among other things, a lender’s sale of single-premium credit insurance in connection with mortgage loans with terms exceeding 15 years was an unfair or deceptive trade practice as a matter of law. Richardson v. Bank of America, N.A., No. COA06-211, 2007 WL 1119214 (N.C. Ct. App. Apr. 17, 2007). The credit insurance sold by the lender was not approved by the North Carolina Department of Insurance. The court, however, also determined that N.C. Gen. Stat. § 58-57-1 (2005)—which provides that various types of credit insurance “shall be subject to the provisions of this Article, except credit insurance written in connection with direct loans of more than 15 years’ duration”—does not authorize the sale of credit insurance on loans with terms greater than 15 years. Thus, according to the court, the sale of such insurance “could not have been approved by the Department of Insurance.” For a copy of this decision, see http://www.aoc.state.nc.us/www/public/coa/opinions/2007/pdf/060211-1.pdf.
New SEC Procedure for Approval of Penalties in Corporate Enforcement Actions. The Securities and Exchange Commission (SEC) has instituted a new procedure to expedite the approval of penalties in corporate enforcement actions. According to Commission Chairman Christopher Cox, the SEC staff will be empowered to negotiate penalties within a range established by Commission guidance, and if a case is settled within that range, the settlement will be eligible for summary approval through the Commission’s seriatim procedure. The goal is to “routinize” the penalty approval process and strengthen the staff’s negotiating position during settlement. For more information see http://www.sec.gov/news/speech/2007/spch041207cc.htm.
U.S. District Court in Massachusetts Approves Mailer with No Loan Details as FCRA Firm Offer. The U.S. District Court for the District of Massachusetts dismissed a complaint that a mortgage loan mailer violated the requirement of the Fair Credit Reporting Act (FCRA) that the transaction in a prescreened credit solicitation consist of a “firm offer.” Dixon v. Shamrock Financial Corp., – F. Supp. 2d –, 2007 WL 1170639 (D. Mass. Apr. 20, 2007). The mailer offered a “free consultation” with a loan officer and included the notice required by FCRA that the consumer had received a “prescreened” offer of credit, but provided no detail about loan terms. The court held that the reference to a “prescreened” offer in the letter informed the consumer that “he was guaranteed to receive [a loan] if the information in his consumer report remained accurate.” Therefore, even though the “promised consultation with [the loan officer] seem[ed] nothing more than an invitation to a high-pressure sales pitch,” and the letter “might lie on the outer rim of the permissible,” the court held that the lender had complied with FCRA. The court based its decision on its interpretation of the “four corners” test in the U.S. Court of Appeals for the Seventh Circuit’s Murray v. GMAC Mortgage opinion, which the court interpreted as “lender friendly” because it prohibited only “sham offer[s] used to pitch a product rather than extend credit.” The court rejected an interpretation of the Seventh Circuit’s Cole v. U.S. Capital case, which stated that a “firm offer” must have more than nominal value, as requiring disclosure of the loan details in the mailer. This appears to be the first reported “firm offer” case from a federal district court in the First Circuit (Maine, Massachusetts, New Hampshire, Rhode Island and Puerto Rico). For a copy of this decision, please contact .
North Carolina Court Holds that Sale of Single-Premium Credit Insurance Where Loan Term Exceeds 15 Yrs is an Unfair or Deceptive Trade Practice. On April 17, the North Carolina Court of Appeals held that, among other things, a lender’s sale of single-premium credit insurance in connection with mortgage loans with terms exceeding 15 years was an unfair or deceptive trade practice as a matter of law. Richardson v. Bank of America, N.A., No. COA06-211, 2007 WL 1119214 (N.C. Ct. App. Apr. 17, 2007). The credit insurance sold by the lender was not approved by the North Carolina Department of Insurance. The court, however, also determined that N.C. Gen. Stat. § 58-57-1 (2005)—which provides that various types of credit insurance “shall be subject to the provisions of this Article, except credit insurance written in connection with direct loans of more than 15 years’ duration”—does not authorize the sale of credit insurance on loans with terms greater than 15 years. Thus, according to the court, the sale of such insurance “could not have been approved by the Department of Insurance.” For a copy of this decision, see http://www.aoc.state.nc.us/www/public/coa/opinions/2007/pdf/060211-1.pdf.
California Supreme Court Rejects Ruling on Merits before Class Notification. In Fireside Bank v. Superior Court of Santa Clara County, S139171 (Ca., opinion filed April 16, 2007), the California Supreme Court reversed a trial court that effectively decided the merits of a plaintiff’s claim at the same time it certified plaintiff’s class and before notice of the class action was sent to potential class members. The Supreme Court reminded lower courts that, absent compelling justification, California courts should resolve class certification and notice issues before resolving the substantive merits of the case. Ordinarily, the remedy for failing to resolve class issues before merits issues would be to bar the plaintiff from pursuing class claims. In this case, however, the court decided that it would be inequitable to punish the plaintiff for the trial court’s surprise decision to resolve the merits and class issues at the same time. Accordingly, the court affirmed the trial court’s class certification decision and vacated the merits decision, to be revisited after proper notice had been issued to potential class members. For a copy of this decision, please see http://www.courtinfo.ca.gov/opinions/documents/S139171.PDF.
Arbitration Agreement Unenforceable; No Evidence That Plaintiffs Assented to New Provision. A federal district court ruled that an arbitration agreement imposed on a credit card account through a change in terms notice was unenforceable under Mississippi law due to the lack of a signature or other form of express consumer assent to the arbitration agreement. Robertson v. J.C. Penney Company, Inc., No. 2:06cv3 (S.D. Miss., opinion issued April 19, 2007). According to the court, waiving the right to submit claims to a court of law “requires more than implied consent… there must be shown an act or omission on the part of the one charged with the waiver fairly evidencing an intention permanently to surrender the right alleged to have been waived.” For a copy of this opinion, please contact .
Creditor Files Complaint Against New Century; Requests Injunction Against Sale of Loans. DB Structured Products, Inc., a subsidiary of Deutsche Bank and one of New Century’s largest creditors, filed an adversary proceeding complaint and moved for a preliminary injunction against the Chapter 11-debtor this week. DB Structured Products, Inc. v. New Century Mortgage Corporation, et al., A.P. Case No. 07-51269 (Bankr. D. De., complaint and motion filed April 25, 2007). In its complaint, DB Structured Products alleged that New Century had defaulted on the sale and servicing provisions of repurchase agreements, which required DB Structured Products to purchase certain loans from New Century’s loan origination entities and allow New Century’s loan servicing entities to service them. By way of relief, DB Structured Products requested, among other things, that the court freeze the sale of any of the loans covered by the repurchase agreements, allow DB to transfer the servicing rights of those loans to another entity, or return income derived from the servicing of the loans to DB Structured Products. This is the fourth adversary proceeding filed against New Century, the second arising from alleged default of a Repurchase Agreement, since the sub-prime lender filed for Chapter 11 bankruptcy (see the March 31st issue of InfoBytes for more details). For a copy of this opinion, please contact .
U.S Court Rules Austrian Defendant Not Subject to Personal Jurisdiction in Indiana for Web Postings on Austrian Website. On March 29, the United States District Court for the Southern District of Indiana held that an Austrian website's indirect references to Glock, Inc. does not reasonably support jurisdiction in Indiana. Glock v. Pilz, No. 4:06-cv-0072. (S.D. Ind., 3/29/07). Pilz, an Austrian Parliament member, posted a German journal entry on a website related to loose allegations that Georgia-based Glock, Inc. and Indiana-based Kiesler Police Supply were conspiring to sell more pistols in Iraq than are necessary, with the motivation of supplying a black market for weapons in Turkey. The court dismissed the defamation case, stating that "the minimal interest [Glock, Inc. has] in this case is not enough to outweigh the burden on defendants and make the exercise of personal jurisdiction reasonable." The court explained that the postings were made from Austria to an Austrian audience, and no one in Indiana subscribed to the newspaper, either online or in print. For a copy of the case, please contact .
Ownership of the Corporate Parent of Website Operator Does Not Confer Jurisdiction. On April 13, a Texas federal district court ruled that an individual owner of a company is not subject to the personal jurisdiction of a court in a state where the owner has no contacts, even if the company operates an interactive website. GoNannies, Inc. v. GoAuPair.com, Inc., Case No. 3:06-CV-0631 (N. D. Tex Apr. 13, 2007). In its suit, the plaintiff, operator of the website "www.GoNannies.com," claimed trademark infringement and cyber-squatting violations against several defendants based in Utah, including a Utah resident / individual who owned the corporate parent of a company with the registered trade name "goNANI. " This company operated an interactive website at “www.gonani.com.” The court rejected the plaintiff’s assertion that the Utah resident was subject to suit in Texas because the asserting that the Utah resident / individual owner did not operate the entity doing business as "goNANI" in any individual capacity. Because the plaintiff did not provide proof of the individuals' contacts with Texas, the Texas court held that it could not exercise personal jurisdiction over her. For a copy of the decision, please contact .
California Supreme Court Finds Three-Year Statute of Limitations for Missed Breaks Claims. In a case with implications for companies that have employees in California, the California Supreme Court has held that a three-year statute of limitations period applies to claims for wages owed as a result of missed breaks. Murphy v. Kenneth Cole Productions, Inc., S140308 (Cal. Apr. 17, 2007). In this case, Murphy, the plaintiff, was the manager in a small retail store. He worked in the store for two years and was paid a weekly salary. Due to his job responsibilities and to the volume of business in the store, he was rarely able to take uninterrupted, duty-free breaks. After he quit his job, he filed a claim for unpaid wages as a result of his working during his break periods. California law states that if an employer fails to provide an employee with a break, then the employer is liable for one additional hour of pay for each day that a break was missed. The plaintiff argued that his additional-hour claims were for wages, which, under state law, are subject to a three-year statute of limitations period. The defendant claimed that the monies sought by the plaintiff were penalties, subject to a one-year limitations period. The Supreme Court held that the claims were for wages and thus subject to the longer period, since the statute intended “first and foremost to compensate employees for their injuries.” Any employer “behavior-shaping” that resulted was “incidental,” the court found. A copy of the opinion is available at http://www.courtinfo.ca.gov/opinions/documents/S140308.DOC.
Verdict Against Settlement Agent for Breach of Fiduciary Duty Upheld on Procedural Grounds. In Chicago Title Insurance Company v. Home Loan Corporation, No. 14-04-01059-CV (Tex. App., opinion filed April 24, 2007), the court ruled that a settlement agent did not violate the Real Estate Settlement Procedures Act (RESPA) or commit fraud against a lender by failing to disclose that a portion of the seller’s proceeds would be paid to a third party, but the court upheld a verdict that this failure to disclose violated a fiduciary duty to the lender broadly and amorphously stated in jury instructions. The court held that the agent had failed to make a timely objection to the jury instructions and therefore waived its right to argue that its compliance with RESPA and the closing documents showed the absence of a fiduciary duty breach. For a copy of this opinion, please contact .
North Carolina Court Holds that Sale of Single-Premium Credit Insurance Where Loan Term Exceeds 15 Yrs is an Unfair or Deceptive Trade Practice. On April 17, the North Carolina Court of Appeals held that, among other things, a lender’s sale of single-premium credit insurance in connection with mortgage loans with terms exceeding 15 years was an unfair or deceptive trade practice as a matter of law. Richardson v. Bank of America, N.A., No. COA06-211, 2007 WL 1119214 (N.C. Ct. App. Apr. 17, 2007). The credit insurance sold by the lender was not approved by the North Carolina Department of Insurance. The court, however, also determined that N.C. Gen. Stat. § 58-57-1 (2005)—which provides that various types of credit insurance “shall be subject to the provisions of this Article, except credit insurance written in connection with direct loans of more than 15 years’ duration”—does not authorize the sale of credit insurance on loans with terms greater than 15 years. Thus, according to the court, the sale of such insurance “could not have been approved by the Department of Insurance.” For a copy of this decision, see http://www.aoc.state.nc.us/www/public/coa/opinions/2007/pdf/060211-1.pdf.
Verdict Against Settlement Agent for Breach of Fiduciary Duty Upheld on Procedural Grounds. In Chicago Title Insurance Company v. Home Loan Corporation, No. 14-04-01059-CV (Tex. App., opinion filed April 24, 2007), the court ruled that a settlement agent did not violate the Real Estate Settlement Procedures Act (RESPA) or commit fraud against a lender by failing to disclose that a portion of the seller’s proceeds would be paid to a third party, but the court upheld a verdict that this failure to disclose violated a fiduciary duty to the lender broadly and amorphously stated in jury instructions. The court held that the agent had failed to make a timely objection to the jury instructions and therefore waived its right to argue that its compliance with RESPA and the closing documents showed the absence of a fiduciary duty breach. For a copy of this opinion, please contact .
FTC Supports Stronger Self-Regulatory Measures from NACHA. On April 25th, the Federal Trade Commission (FTC) issued a staff comment letter supporting rules proposed by the Electronic Payments Association (NACHA) to increase NACHA’s enforcement authority and strengthen risk management among financial institutions participating in the Automated Clearing House (ACH). The FTC’s letter identified two major elements of the proposed rules it supported, (i) improving enforcement by increasing fines and giving the enforcement body authority to suspend repeat offenders and (ii) allowing NACHA to set a threshold for the number of failed transactions meriting regulatory action. For further information, view the FTC's full-text comments at http://www.ftc.gov/os/opinions/070423staffcommenttonacha.pdf.
U.S Court Rules Austrian Defendant Not Subject to Personal Jurisdiction in Indiana for Web Postings on Austrian Website. On March 29, the United States District Court for the Southern District of Indiana held that an Austrian website's indirect references to Glock, Inc. does not reasonably support jurisdiction in Indiana. Glock v. Pilz, No. 4:06-cv-0072. (S.D. Ind., 3/29/07). Pilz, an Austrian Parliament member, posted a German journal entry on a website related to loose allegations that Georgia-based Glock, Inc. and Indiana-based Kiesler Police Supply were conspiring to sell more pistols in Iraq than are necessary, with the motivation of supplying a black market for weapons in Turkey. The court dismissed the defamation case, stating that "the minimal interest [Glock, Inc. has] in this case is not enough to outweigh the burden on defendants and make the exercise of personal jurisdiction reasonable." The court explained that the postings were made from Austria to an Austrian audience, and no one in Indiana subscribed to the newspaper, either online or in print. For a copy of the case, please contact .
Ownership of the Corporate Parent of Website Operator Does Not Confer Jurisdiction. On April 13, a Texas federal district court ruled that an individual owner of a company is not subject to the personal jurisdiction of a court in a state where the owner has no contacts, even if the company operates an interactive website. GoNannies, Inc. v. GoAuPair.com, Inc., Case No. 3:06-CV-0631 (N. D. Tex Apr. 13, 2007). In its suit, the plaintiff, operator of the website "www.GoNannies.com," claimed trademark infringement and cyber-squatting violations against several defendants based in Utah, including a Utah resident / individual who owned the corporate parent of a company with the registered trade name "goNANI. " This company operated an interactive website at “www.gonani.com.” The court rejected the plaintiff’s assertion that the Utah resident was subject to suit in Texas because the asserting that the Utah resident / individual owner did not operate the entity doing business as "goNANI" in any individual capacity. Because the plaintiff did not provide proof of the individuals' contacts with Texas, the Texas court held that it could not exercise personal jurisdiction over her. For a copy of the decision, please contact .
Federal Identity Theft Task Force Releases Strategic Plan. On April 23, the President’s Identity Theft Task Force, a cooperative effort among 17 federal agencies, released Combating Identity Theft: A Strategic Plan. The plan analyzes the crime of identity theft and proposes several policy and legislative changes to help combat the problem. These policy changes include creation of national standards for safeguarding personal information and notifying consumers of data breaches, implementing a public awareness campaign, and enacting or amending legislation to further enhance prosecutors’ ability to pursue identity thieves. The plan follows interim recommendations by the Task Force last year (covered in the September 22, 2006 issue of InfoBytes). To learn more regarding the Task Force, or obtain a copy of the plan, go to http://www.idtheft.gov/.
New Maryland Law Protects Consumers Affected By Breaches of Personal Data. Under a new law, Maryland residents are required to be notified when their unencrypted or unredacted personal information is breached and where an investigation shows that "misuse of the personal information has occurred or is reasonably likely to occur." The law defines personal information as an individual‛s name (or first initial and last name) in combination with his or her Social Security, driver‛s license, or taxpayer identification number, or financial account information in combination with access codes or passwords. A business is required to provide notification either in writing, by e-mail, or by telephone, and as soon as reasonably practicable. If the cost of providing notice exceeds $100,000, or there are more than 175,000 individuals who must be notified, it is permissible for a business to substitute notice by posting an announcement on its website and in statewide media. To view the law, please visit http://mlis.state.md.us/2007RS/bills/hb/hb0208e.pdf for H.B. 208 as enrolled or http://mlis.state.md.us/2007RS/bills/sb/sb0194e.pdf for S.B. 194 as enrolled.
Arbitration Agreement Unenforceable; No Evidence That Plaintiffs Assented to New Provision. A federal district court ruled that an arbitration agreement imposed on a credit card account through a change in terms notice was unenforceable under Mississippi law due to the lack of a signature or other form of express consumer assent to the arbitration agreement. Robertson v. J.C. Penney Company, Inc., No. 2:06cv3 (S.D. Miss., opinion issued April 19, 2007). According to the court, waiving the right to submit claims to a court of law “requires more than implied consent… there must be shown an act or omission on the part of the one charged with the waiver fairly evidencing an intention permanently to surrender the right alleged to have been waived.” For a copy of this opinion, please contact .
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