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InfoBytes

CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

May 5, 2006

FEDERAL ISSUES

Fed to Hold Public Hearings on Home Equity Lending. On May 1, 2006, the Federal Reserve Board (the Board) invited members of the home equity lending industry, as well as consumers and consumer advocates, to participate in four public hearings to discuss the home equity lending market. The Board, which is holding the scheduled hearings under the Home Ownership and Equity Protection Act (HOEPA), plans for the hearings to address the following issues: (i) the impact of the HOEPA rules on predatory lending, as well as the impact of state predatory lending laws on subprime markets; (ii) nontraditional mortgage products; and (iii) an analysis of how consumers select lenders in the subprime market. The Board’s purpose in holding the hearings is to measure the effectiveness of the 2002 revisions to HOEPA, and gather information to assist in its review of Regulation Z. In addition, the Board will use the hearings as a tool for information gathering for the development of educational materials, and the identification of mortgage lending issues that may require additional research. Each day of hearings will consist of statements from invited speakers plus an “open mike” period at the end for comments from the general public. Written statements of any length can be submitted for the record. The first hearing is scheduled for June 7, 2006, at the Federal Reserve Bank of Chicago. Subsequent hearings are scheduled for June 9, June 16, and July 11 at the Federal Reserve Banks of Philadelphia, San Francisco, and Atlanta respectively. For more information on the Board's hearings, please see http://www.federalreserve.gov/BoardDocs/press/bcreg/2006/20060501/default.htm.

FTC Issues Notice of Proposed Rulemaking on Fees for National Do Not Call Registry. On April 28, 2006, the Federal Trade Commission (FTC) issued a notice of proposed rulemaking that would amend the Telemarketing Sales Rule to revise the fees charged for industry access to the National Do Not Call Registry. Telemarketers are currently required to renew their subscriptions to the National Do Not Call Registry once a year, and must “scrub” their call lists once every 31 days. Under the proposed new fee structure, the annual fee for each area code of data accessed would become $62, and the maximum amount charged to entities accessing 280 area codes or more would become $17,050. The proposed rulemaking would continue to allow telemarketers to obtain the first five area codes of data for free, and would still allow those entities exempt from the Registry’s requirements to obtain access at no charge. The FTC is accepting public comments on the proposed rulemaking until June 1, 2006. Pending public comment, the new fee schedule will go into effect on September 1, 2006. To view the FTC’s Federal Register notice, please see http://www.ftc.gov/os/2006/04/P034305TSRFeesNPRandRequestforPublicCommentFRNotice.pdf.

Chairman Bernanke Testifies Before Joint Economic Committee. On April 27, 2006, Federal Reserve Board Chairman Ben S. Bernanke testified before the Joint Economic Committee of the U.S. Congress about the state of the U.S. economy. Chairman Bernanke opened his testimony by recognizing that economic activity in the U.S. has decelerated due to Hurricane Katrina and a variety of other special factors. However, Chairman Bernanke then pointed to signs of strength in the U.S. economy, highlighting rebounding activity in the Gulf Coast region, an early 2006 increase in the job gains average, and the increase in consumer spending and business investment. Looking to trends in the pace of economic growth in the past three years, Chairman Bernanke concluded that economic growth will achieve a more sustainable pace as 2006 continues. Pointing to a drop in home sales from the extremes of summer 2005, and a decline in homebuilding, Chairman Bernanke suggested that the home sector will experience a favorable gradual decline, not a sharp drop in activity. Chairman Bernanke warned that inflation could become a problem if aggregate demand continues to exceed productive capacity, but he indicated that the risk of significant inflation was low due to a decrease in labor costs, increased domestic and international competition, and the Board’s commitment to price stability. Chairman Bernanke went on to discuss the monetary policy of the Federal Open Market Committee (FOMC) and methods to decrease the widening U.S. deficit. For the full text of Chairman Bernanke’s testimony, please see http://www.federalreserve.gov/BoardDocs/Testimony/2006/20060427/default.htm.

FTC Seeks to Halt Sale of Confidential Telephone Records. The Federal Trade Commission has filed complaints in federal court charging five web-based companies with violating the FTC Act by selling telephone records without approval of the telephone customer. The FTC charged the defendants with advertising the sale of these records, including information about calls made and received, by any individual. The agency asked the court to bar the practice and order defendants to give up any profits obtained through the sale of this information. For more information, please see http://www.ftc.gov/opa/2006/05/phonerecords.htm.

FTC Announces $2.4 Million Credit Counseling Settlement. Under proposed settlements, Lighthouse Credit Foundation Inc. and its co-defendants will pay more than $2.4 million in consumer redress to settle deceptive claims about their credit counseling and debt management services. The FTC charged that the defendants deceptively marketed themselves as a not-for-profit enterprise to entice financially distressed consumers to enroll in debt management plans. Consumers were solicited for Lighthouse’s debt management plans by prerecorded messages left on home answering machines stating that the consumer had been approved through “a certified non-profit nationwide program” to consolidate credit card debt before the next billing cycle at interest rates “as low as 1.5%.” Ultimately, the defendants failed to deliver on promises of personalized credit counseling and the interest rate reductions according to the FTC. For more information, please see http://www.ftc.gov/opa/2006/05/lighthouse.htm.

STATE ISSUES

New York Mortgage Fraud Ring Indicted. New York State Attorney General Eliot Spitzer and Banking Superintendent Diana L. Taylor announced last week the indictments of eight members of the “Sandella Group,” an enterprise that is charged with enterprise corruption and other felonies for its role in a multi-million dollar residential mortgage fraud scheme. The Attorney General’s office announced that it is also seeking recovery of more than $8 million from the defendants in a civil forfeiture action. Members of the Sandella Group allegedly stole millions of dollars from banks and other financial institutions by submitting false and forged documents to obtain mortgage loans. Among other things, the Sandella Group hired people to pose as buyers of real estate and submitted false employment, income and financial information and inflated appraisal reports. In a typical scenario, the Sandella Group would use a straw buyer as a front man, report a higher purchase price than the actual price, submit a false appraisal and pocket the bulk of the inflated amount. The Sandella Group would then allow the loan to go into default. If convicted on the top felony count, the defendants could face prison sentences of up to 25 years. For more information, please see http://www.oag.state.ny.us/press/2006/apr/apr25a_06.html.

Iowa Expands Mortgage Banker and Broker Act to Include Subordinate Lien Mortgage Loans. On April 11, 2006, Iowa Governor Tom Vilsack signed into law, S.F. 2353, which revises the Iowa Mortgage Bankers and Brokers Act (the Act), Iowa Code § 535B.1 et seq., to require the licensing of all persons making, originating, brokering or servicing four or more mortgage loans a year, regardless of lien position. Previously, the Act only addressed first mortgage loans, and did not include junior mortgage lien interests. Besides revisions to the Act, the Iowa legislation also has provisions relating to debt management, delayed deposit services, and industrial loans. For the complete text of the enrolled bill, please see http://coolice.legis.state.ia.us/Legislation/enrolled/SF2353.html.

HUD Approves $74 Million Alabama Hurricane Recovery Plan. On May 1, 2006, the U.S. Department of Housing and Urban Development (HUD) announced the allocation of over $74 million in Hurricane Katrina relief funds to the State of Alabama for purposes of disaster relief, long-term recovery, and restoration of infrastructure. Among other things, the funds will be used to provide affordable housing for Alabama residents in disaster impacted areas. Communities applying for housing construction support will be required to explain how they will encourage the provision of adequate, flood-resistant housing for all income groups. The recovery plan will be funded through HUD’s Community Development Block Grant program, and will be administered by the Alabama Department of Economic and Community Affairs. For more information, see http://www.hud.gov/news/release.cfm?content=pr06-047.cfm.

COURTS

Bank Unable to Recover Expenses Arising from Data Breach at BJ’s Wholesale Club. On April 13, 2006, the U.S. District Court for the Middle District of Pennsylvania ruled that a bank whose debit cards were among those affected by a data breach at BJ’s Wholesale Club, Inc. (BJ’s) could not recover its expenses from BJ’s. Banknorth v. BJ’s Wholesale Club, 2006 WL 1004543 (M.D. Pa. Apr. 13, 2006). As we previously reported in InfoBytes, BJ’s suffered a breach of customer debit card data. The security breach led to significant monetary losses for card issuers, consumer identity theft and an FTC lawsuit, which the government settled last year. Banknorth, which issued some of the compromised Visa debit cards, sued BJ’s to recover the costs of the fraudulent charges and reissuing the debit cards. Banknorth pursued expense recovery under three theories: 1) Breach of contract; 2) Negligence; and 3) Equitable Subrogation. The District Court rejected all three theories of recovery and granted BJ’s summary judgment in the case. For a copy of the decision, please contact Buckley Kolar at .

Buckley Kolar Files Trade Association Amicus Brief in First Circuit Regarding Rescission Classes. On April 27, 2006, Buckley Kolar filed an amicus brief in the U.S. Court of Appeals for the First Circuit in McKenna v. First Horizon Home Loan Corp. on behalf of the American Bankers Association, the American Financial Services Association, America’s Community Bankers, the Consumer Bankers Association, the Consumer Mortgage Coalition, the Housing Policy Council of the Financial Services Roundtable, and the Mortgage Bankers Association. The brief urges the First Circuit to reverse the district court’s order certifying a class of borrowers where plaintiffs seek a declaratory judgment that the borrowers’ loans are rescindable under the Truth in Lending Act (and its Massachusetts analog). A copy of the brief is available here.

Buckley Kolar Files Trade Association Amicus Brief in Third Circuit Regarding Adverse Action Notices for Mortgage Insurance Pricing. On May 3, 2006, Buckley Kolar filed an amicus brief in the U.S. Court of Appeals for the Third Circuit in Whitfield v. Radian Guaranty Co. on behalf of the Mortgage Insurance Companies of America, the Mortgage Bankers Association, and the Consumer Mortgage Coalition. The brief urges the Third Circuit to rule that mortgage insurance is an integral part of the mortgage credit transaction and, as such, is subject to the Fair Credit Reporting Act’s adverse action notice requirements applicable to credit transactions, rather than the requirements applicable to consumer insurance products. A copy of the brief is available here.

FIRM NEWS

Buckley Kolar is pleased to announce that Matthew P. Previn, previously Senior Counsel with HSBC Finance Corporation in Chicago, IL, has joined the Firm as a Partner. Mr. Previn represents financial institutions in all stages of high-stakes and class action litigation in federal and state courts, both at the trial and appellate level. Mr. Previn’s expertise includes cases arising under TILA, ECOA, FCRA, FDCPA and state unfair and deceptive acts and practices statutes. For more information, see http://www.buckleykolar.com/attorneys/mprevin.php.

Andrea Lee Negroni will co-chair (with Ines Montes of Wells Fargo) 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.

On April 20, 2006, Jeff Naimon spoke on Inside Mortgage Finance's Predatory Lending Audio Conference. His presentation can be found here.

On May 11, 2006, Bob Serino will be speaking at the 2006 Spring Meeting of the Financial Services Roundtable's Lawyers Council on Anti-Money Laundering Issues.

© 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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