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CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
House Passes Bill to Limit Suits for Failure to Remove Credit Card Expiration Dates from Receipts. On May 13, the House passed the Credit and Debit Card Receipt Clarification Act (H.R. 4008), which would limit lawsuits against merchants based on the failure to remove card expiration dates from card receipts, but only if the failure occurred prior to the enactment of the bill. As explained in an extended preamble to the bill, the Fair and Accurate Credit Transactions Act (FACTA) amended the Fair Credit Reporting Act (FCRA) to require, among other things, that merchants remove all but the last five digits of card account numbers as well as card expiration dates from card receipts. However, publicity regarding account number truncation overwhelmed the requirement regarding the removal of card expiration dates, which resulted in the inadvertent failure of many merchants to remove card expiration dates from card receipts by the compliance deadline established by FACTA. This, in turn, has led to hundreds of lawsuits against merchants for that failure, even though consumers are generally not subject to identity theft or other harm by the printing of expiration dates on card receipts without full account numbers. Accordingly, H.R. 4008 provides that it is not a willful violation of the FCRA for a merchant to fail to remove an expiration date from a card receipt through the date H.R. 4008 is enacted, provided the merchant has properly truncated the account number. This would take the sting out of most of the pending lawsuits, which expose merchants to statutory damages of up to $1,000 per willful violation of the FCRA. See 15 U.S.C. § 1681n (FCRA § 616). Pursuant to the bill, a merchant could still be liable for a negligent violation of the FCRA for failure to remove the card expiration date from a card receipt as of the original FACTA compliance deadline. However, to recover for such a violation, a consumer would need to prove that he or she suffered actual damages as a result of the violation. See 15 U.S.C. § 1681o (FCRA § 617). For a copy of the bill, please see http://www.buckleykolar.com/documents/HR4008.pdf.
Senate Passes Flood Insurance Reform and Modernization Act. On May 13, the U.S. Senate passed the Flood Insurance Reform and Modernization Act (S. 2284, incorporated into H.R. 3121) by a vote of 92 to 6. The bill, among other things, would: (i) amend the National Flood Insurance Act of 1968 to extend the national flood insurance program though fiscal year 2013; (ii) instruct FEMA to issue final regulations establishing revised definitions of special flood hazard areas, including residual risk areas, and would subject such areas to mandatory flood insurance purchase requirements; (iii) declare that the U.S. Treasury Secretary relinquishes the right to any repayment of loans to FEMA, subject to specified conditions, to the extent such borrowed sums were used to fund the payment of flood insurance claims resulting from the hurricanes of 2005; (iv) direct the Secretary of Homeland Security, the FEMA Director, the Director of the Office of Management and Budget, and the heads of specified federal agencies to coordinate and share data on flood risk determination and geospatial data and to report to Congress a proposed budget for agencies working on flood risk determination data and digital elevation models; (v) amend the Real Estate Settlement Procedures Act to require that certain public information booklets include the availability of federal flood insurance; and (vi) establish in FEMA the Office of the Flood Insurance Advocate to assist insureds in resolving problems with FEMA, and provide for appointment of regional flood insurance advocates, as well as temporary state or local offices following a flood event. For a copy of H.R. 3121 as passed in the Senate, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h3121eas.txt.pdf.
Fannie Mae Announces Single National Down Payment Policy. On May 16, Fannie Mae announced a new, national policy on down payment requirements for conventional, conforming mortgages the company will purchase or guarantee. Starting June 1, 2008, Fannie Mae will accept up to 97 percent loan-to-value ratios for conventional, conforming mortgages processed through its Desktop Underwriter automated underwriting system, and 95 percent loan-to-value ratios for loans underwritten outside of its Desktop Underwriter, in all geographic locations in the United States. The new national down payment policy will supersede the policy the company adopted in December 2007 that required higher down payments in markets where home prices are declining. The new national down payment requirements of 3 or 5 percent will apply to loans for purchase of single-family, primary residences. Down payment requirements will vary for other occupancy, property and transaction types. For a copy of the Fannie Mae press release, please contact .
FTC Approves New Rule Provisions Under the CAN-SPAM Act. On May 12, the Federal Trade Commission (FTC) announced its approval of four new rule provisions under the Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM). The new rule provisions address four topics: (i) an e-mail recipient cannot be required to pay a fee, provide information other than his or her e-mail address and opt-out preferences, or take any steps other than sending a reply e-mail message or visiting a single Internet Web page to opt out of receiving future e-mail from a sender; (ii) the definition of “sender” was modified to make it easier to determine which of multiple parties advertising in a single e-mail message is responsible for complying with the Act’s opt-out requirements; (iii) “sender” of commercial e-mail can include an accurately-registered post office box or private mailbox established under United States Postal Service regulations to satisfy the Act’s requirement that a commercial e-mail display a “valid physical postal address”; and (iv) a definition of the term “person” was added to clarify that CAN-SPAM’s obligations are not limited to natural persons. The new rule provisions are a follow-up to a Notice of Proposed Rulemaking and Advance Notice of Proposed Rulemaking on these and other CAN-SPAM topics that the FTC published on May 12, 2005 and March 11, 2004, respectively. For a copy of the Federal Register notice, please see http://www.ftc.gov/os/2008/05/R411008frn.pdf.
FTC Conducting Forum on Consumer Information in Mortgage Market. On May 29, the Federal Trade Commission (FTC) will host a conference entitled, “Protecting Consumers in the Mortgage Market: An Economic Assessment of Information Regulation, Mortgage Choice, and Mortgage Outcomes.” The purpose of this conference is to highlight and assess the role of consumer information in the current mortgage crisis from an economic perspective. Experts from several relevant specialties, including real estate finance and economics, consumer behavior, and information regulation, will be brought together to examine how consumer information, and information regulation, affects consumer choices, mortgage outcomes, and consumer welfare. For more information on the conference, or to register, please see http://www.ftc.gov/be/workshops/mortgage/index.shtml.
FTC to Host Town Hall Meeting on Contactless Payment Methods. On May 12, the Federal Trade Commission announced that it intends to co-host a one-day town hall meeting for the general public on consumer protection issues raised by contactless payment devices. Contactless payment devices, such as smart cards and key toggles, use new radio frequency identification (“RFID”) technology to allow consumers to purchase small dollar items by holding the devices near readers. Among other things, the town hall meeting is intended to address security and privacy threats associated with the new RFID technology and any emerging technology that may continue to shape the contactless payment marketplace. The public is invited to recommend other topics for discussion and submit advance written comments as well. The town hall meeting is scheduled for July 24, 2008 at the University of Washington Law School in Seattle, Washington. For more information, please see http://www.ftc.gov/opa/2008/05/payonthego.shtm.
FinCEN Report Identifies Money Laundering Methods in Residential Real Estate Industry. On May 1, the Financial Crimes Enforcement Network (FinCEN) released a report entitled “Suspected Money Laundering in the Residential Real Estate Industry: An Assessment Based Upon Suspicious Activity Report Filing Analysis,” identifying money laundering methods used via residential real property transactions. In contrast to criminals seeking to profit by committing mortgage fraud, those who seek to launder money through residential real estate generally intend to make timely payments and seek to make their transactions appear as unremarkable as possible in order to disguise the source of their funds. Money launderers were found to use many techniques, including: structuring large transactions into smaller amounts in order to evade detection; using “straw buyers” to front for the true purchaser; and fraudulent documentation. In some cases, laundering money through residential real estate was found to support tax evasion, fraud, and identity theft. The report is intended to help raise awareness of the vulnerability and assist financial institutions to better recognize risk and thus provide better information to law enforcement in order to combat criminal activity. For a copy of the report, please see http://www.fincen.gov/news_room/rp/files/MLR_Real_Estate_Industry_SAR_web.pdf.
SEC Proposes Rule to Require Electronic Interactive Data Tags on Financial Disclosures. On May 14, the U.S. Securities & Exchange Commission (SEC) voted unanimously to propose a rule that would require public companies to use new technology to expedite the way investors get important information on public companies. The new technology utilizes electronic interactive data tags that uniquely identify individual items in a company’s financial statements so the tagged information can be easily searched on the Internet, downloaded into spreadsheets, reorganized in databases and put to any number of other comparative and analytical uses by investors, analysts, and journalists. Under the new rules, the largest public companies using U.S. Generally Accepted Accounting Principles (“US GAAP”) with a worldwide public float over $5 billion (approximately the 500 largest companies) would be required to make financial disclosures using interactive data for fiscal periods ending late 2008, with the remaining U.S. GAAP companies providing disclosure in this format over the following two years. Public comment on the proposed rule should be received by the SEC no later than 60 days after its publication in the Federal Register. As on May 16, the text of the proposed rule has not yet become available. For a copy of the SEC press release, please see http://www.sec.gov/news/press/2008/2008-85.htm. For more information on interactive data, please see http://www.sec.gov/spotlight/xbrl.shtml.
OTS Issues Consumer Complaint Guide. On May 12, the Office of Thrift Supervision (OTS) issued a Consumer Complaint Guide explaining how it can help consumers resolve complaints with OTS-regulated institutions. The Guide instructs consumers to address all complaints initially with the consumer affairs department or senior management of the institution. If that is unsuccessful, the Guide advises consumers to send OTS a written complaint describing the problem in detail and providing relevant name, address, account number, and like information about the consumer and the institution along with copies of relevant correspondence or documents. The Guide states that the OTS will then send the consumer an acknowledgement letter with a case number and, within 60 days, will provide the consumer with a written response explaining whether violations of consumer protection laws occurred and, if so, what corrective action the OTS ordered the institution to undertake. The Guide reminds consumers that the OTS cannot resolve contractual complaints or discretionary policies that are not regulated by federal law or regulation. For a copy of this Guide, please see http://www.ots.treas.gov/docs/4/480924.pdf.
STATE ISSUES
North Carolina Mortgage Lending Rules Revised to Enhance Surety Bond and Records Requirements. On April 1, several amendments to the rules implementing the North Carolina Mortgage Lending Act went into effect. Among other changes, licensees with surety bonds are now required to ensure that the full amount of the surety bond is in effect at all times. If there is a claim against the bond, licensees have 30 days to reinstate the bond to the level required by statute. Failure to maintain the bond as required could result in the immediate suspension of licensure. In addition, the rules require that licensees report any claim against the surety bond to the Commissioner of Banks within ten business days of receiving notice of the claim. The rules also state that a mortgage broker or mortgage banker will be deemed to have ceased operations if it has failed to originate a mortgage loan in the prior calendar year, resulting in a suspension of its license by the Commissioner of Banks pending receipt of reasonable evidence of an intent to restart operations. Finally, the amended rules require that licensed mortgage brokers or bankers must maintain a current listing of all mortgage applications. The list must contain the following information: (i) customer’s name; (ii) current address; (iii) telephone number; (iv) all prepaid loan fees submitted by the customer; (v) the amount of the loan; (vi) a brief description of the loan, including the loan term, rate, type, and priority; (vii) address of the mortgage property; (viii) application status; and (ix) expected closing date. For a copy of the amended rules, please see http://www.buckleykolar.com/documents/NCRegulations.pdf.
Illinois Anti-Predatory Lending Database Registration for Mortgage Brokers, Loan Officers. On May 15, Illinois began registration of mortgage brokers and loan officers on the Anti-Predatory Lending Database. The Anti-Predatory Lending Database Program, pursuant to Public Act 95-0691, will become operational on July 1, 2008. In order to record any mortgage against Cook County property, a Certificate of Compliance or Certificate of Exemption must be attached to the mortgage. Property located outside of Cook County is not subject to the act. A mortgage broker or loan originator that takes a loan application will be required to enter certain information into the database. The database will first determine whether the property is exempt. If it is not exempt, the database will then determine if it will be necessary for the borrower(s) to obtain counseling. If counseling is not required, the loan may proceed to closing. If counseling is required, the borrower(s) will be notified and given a list of all participating counseling agencies. The act aims to reduce predatory lending practices by assisting the borrower in understanding the terms and conditions of the loan for which he or she has applied. The act does not prohibit any type of loan. For more information regarding mortgage broker and loan originator registration, please see http://www.obre.state.il.us/RESFIN/NEWS/SB1167RegistrationBrokers.pdf.
Ohio Attorney General Marc Dann Resigns. Ohio Attorney General Marc Dann has resigned, effective May 14, 2008. Dann was elected in 2006. He resigned under the threat of impeachment, supported by Governor Ted Strickland, after admitting that he had had an extramarital affair with a subordinate in his office. His resignation also comes amid allegations of sexual harassment against other members of his staff. Until Governor Strickland appoints a successor, First Assistant Attorney General Tom Winters, will act as the interim Ohio Attorney General. To view the Ohio Attorney General’s Office internal news release, please see http://www.ag.state.oh.us/press/08/05/pr080514.pdf.
Connecticut Governor Signs Bill Authorizing Electronic Signatures and Recording. On May 12, Connecticut Governor Jodi Rell signed the Uniform Real Property Electronic Recording Act (H.B. 5535), which authorizes electronic signatures and recording in real property transactions. Under the new law, if a law requires, as a condition for recording, that a document be signed, or that a document be an original, be on paper or another tangible medium, or be in writing, the requirement is satisfied by an electronic signature or electronic document, respectively. The new law also authorizes electronic payment of any fee or tax that a town clerk is authorized to collect. Lastly, the new law creates a Real Property Electronic Recording Advisory Committee to advise the state librarian about adopting, amending, and repealing regulations under the new law. The new law becomes effective October 1, 2009. For a copy of the bill, please see http://www.buckleykolar.com/documents/CTHB5535.pdf.
Iowa Enacts Security Breach Law. On May 9, Iowa Governor Chester Culver signed a bill (S.F. 2308) requiring that consumers be notified when a security breach of personal information occurs. If a security breach occurs, businesses are required to notify consumers of the breach “in the most expeditious manner possible” so long as it does not interfere with a law enforcement investigation. Businesses are also required to determine the scope of the breach and restore the security of the data. Notification may be made through: (i) written notice to the last available address the person has in the person's records; (ii) electronic notice if the customary method of communication with the consumer is by electronic means or is consistent with the provisions regarding electronic records and signatures set forth in the Iowa and the federal ESIGN Act; or (iii) substitute notice, if the cost of providing notice would exceed two hundred fifty thousand dollars, if the affected class of consumers to be notified exceeds three hundred fifty thousand persons, or if the person does not have sufficient contact information to provide notice. The notice must include (i) a description of the breach of security, (ii) the approximate date of the breach of security, (iii) the type of personal information obtained as a result of the breach of security, (iv) contact information for consumer reporting agencies, (v) advice to the consumer to report suspected incidents of identity theft to local law enforcement or the attorney general. Notification is not required if there is no reasonable likelihood of financial harm. A violation of this new law will be subject to enforcement by the attorney general. Lastly, the new law authorizes a committee to study the likelihood of security breaches in government agencies. The law becomes effective July 1, 2008. For a copy of S.F. 2308, please see http://www.buckleykolar.com/documents/IASF2308.pdf.
COURTS
District Court Declines to Dismiss Shareholder Derivative and Class-Action Suit Against Countrywide. On May 14, a U.S. District Court for the Central District of California declined to dismiss a shareholder derivative and class-action suit against Countrywide directors and officers. In re Countrywide Financial Corp. Derivative Litigation, CV-07-06923 (C.D. Cal. May 14, 2008). The court found that the plaintiffs’ allegations met the scienter requirement for maintaining a claim under the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4 et seq., by creating an inference that the individual defendants misled the public with regard to the rigor of Countrywide’s loan origination process, the quality of its loans, and its financial situation—even as they realized that Countrywide had virtually abandoned its own loan underwriting practices. The complaint, filed by several investors against 14 Countrywide directors and officers, alleges that Countrywide shifted its strategy of originating traditional fixed-rate home loans to borrowers with “prime” credit scores to originating non-traditional loans to risky borrowers without getting assurance of their credit-worthiness, thereby increasing the company’s credit risk and allowing the company to report artificially inflated income levels. For a copy of the decision, please see http://www.buckleykolar.com/documents/InreCountrywide.pdf.
Foreclosing Lender Has Burden to Show High-Priced Loans Non-Discriminatory. On May 1, the New York Supreme Court of Kings County held that a mortgage granted to a minority buyer for the purchase of property in a minority area which carries an interest rate that exceeds nine percent creates a rebuttable presumption of discriminatory practice. M&T Mortgage Corp. v. Foy, 2008 NY Slip Op 28166, (N.Y. Sup. Ct. May 1, 2008). In this case, the plaintiff mortgage lender moved to foreclose on Maj. Jahn K. Foy, who had fallen behind on payments on a 30-year mortgage with a nine and one half percent interest rate while on active duty. The court stated that, if the lender fails to demonstrate by a fair preponderance of the evidence that a HMDA-defined “higher priced loan” was not discriminatory, the foreclosure proceeding will be dismissed and the lender left to pursue remedies at law. The court noted that a lender may rebut such a presumption by offering evidence that the loan was originated for non-discriminatory economic reasons. For a copy of the opinion, please contact .
RESPA “Required Use” Case Against Homebuilder Dismissed. A federal district court has dismissed a proposed class action lawsuit in which the named plaintiffs claimed that a homebuilder engaged in “economic coercion” by allegedly requiring the plaintiffs to use the homebuilder’s affiliated mortgage company in violation of the Real Estate Settlement Procedures Act (RESPA). Yeatman v. D.R. Horton, Inc., 2008 U.S. Dist. LEXIS 33446, No. 407CV081 (S.D. Ga. Apr. 23. 2008). In this case, the named plaintiffs agreed to purchase a home from defendant D.R. Horton using D.R. Horton’s affiliated mortgage company. The purchase agreement provided that D.R. Horton would pay some of the closing costs if the plaintiffs used the affiliate, but the agreement also informed the plaintiffs that using the affiliate was optional. The plaintiffs claimed that D.R. Horton engaged in illegal “tying” by requiring the use of the affiliate. The court rejected the plaintiffs’ claims, noting that RESPA’s “required use” prohibition applies only when the use of a particular service is mandatory, not optional. The court also emphasized that RESPA allows homebuilders to offer legitimate discounts for the use of an affiliated service provider, while preventing the homebuilder from artificially inflating the cost of the home if the affiliated company is not used. For a copy of the opinion, please see http://www.buckleykolar.com/documents/YeatmanvDRHorton.pdf.
Fourth Circuit Affirms FCRA Verdict. On May 14, the U.S. Court of Appeals for the Fourth Circuit held that a creditor who reported a debt to a consumer reporting agency without noting that the debt was disputed violated the Fair Credit Reporting Act (FCRA). Saunders v. Branch Banking and Trust Co. of Virginia, 2008 WL 2042620, No. 07-1108 (4th Cir. May 14, 2008). In this case, a creditor bank failed to record a car loan and failed to provide the consumer with an account number for, and instructions on how to pay, the loan despite repeated efforts by the consumer to alert the creditor to these omissions. The creditor then demanded the payment of late fees for the period that the creditor had failed to recognize the loan. After the consumer refused to pay the late fees, the creditor repossessed the car. The creditor then reported the car loan as a “charge-off” despite the fact that the borrower disputed the late fees and penalties. The consumer brought a claim under FCRA that the creditor was furnishing inaccurate information. After trial, a jury awarded the consumer compensatory damages of $1,000 and punitive damages of $80,000 for violations of FCRA. On appeal, the court affirmed the jury’s verdict. Citing Dalton v. Capital Associated Indus., Inc., 257 F.3d 409 (4th Cir. 2001), the court held that the FCRA requires more than technical accuracy, and the creditor’s failure to note that the debt was disputed was substantially misleading. For a copy of this decision, please see http://www.buckleykolar.com/documents/SaundersvBranchBankingandTrust.pdf.
Court Rules FCRA Claims Are Not Barred by the Statute of Limitations. The U.S. District Court for the Eastern District of Virginia ruled that claims against a lender for violations of the Fair Credit Reporting Act (FCRA) in an identity theft case were not barred by the FCRA’s statute of limitations. Broccuto v. Experian Information Solutions Inc., 2008 WL 1969222, No. 3:07CV782-HEH (E.D. Va. May 6, 2008). Under that statute, claims against furnishers of information must be brought by the earlier of two years after the plaintiff discovers the FCRA violation or five years from the date of the violation itself. See 15 U.S.C. § 1681p. In this case, the plaintiff discovered the theft of her identity in 2003 and began to seek corrective action at that time, resulting in the lender’s argument that the consumer’s claim was barred by the “two years from discovery” prong of the statute of limitations. The court rejected that argument and ruled that the creditor’s alleged failure to take corrective actions requested by the consumer in 2006 and 2007 were separate violations of the FCRA and therefore not barred by that prong of the statute of limitations. For a copy of the opinion, please see http://www.buckleykolar.com/documents/BroccutovExperian.pdf.
District Court Refuses to Grant Lender Summary Judgment in QWR Case under RESPA. On May 2, 2008, the U.S. District Court for the Southern District of Florida rejected a lender’s motion for summary judgment in a case involving alleged violations of the qualified written request (QWR) requirement under Section 6(e)(1)(A) of the Real Estate Settlement Procedures Act (RESPA) and the related prohibition under Section 6(e)(3) of RESPA against negative credit reporting within 60 days of the receipt of a QWR. McLean v. GMAC Mortg. Corp., 2008 WL 1956285 (S.D.Fla. May 2, 2008).In this case, the lender notified the borrowers that their monthly mortgage payments would increase from $1,674.84 to $3,923.60. In response, the borrowers sent a QWR seeking an explanation on four (4) points: (i) the payment increase; (ii) the delinquency accrual date; (iii) the amounts due as late fees, and (iv) why the lender did not provide late payment notices to the borrowers earlier than it did. The lender answered the borrower’s request with a cryptic statement that they should “disregard any payment information . . . [and that] [t]he payments w[ould] not be adjusted due to the current status of the account.” The court ruled that the lender’s response raised a genuine issue of material fact regarding whether or not it was sufficiently responsive to the QWR to satisfy RESPA. In rejecting the lender’s summary judgment motion on the Section 6(e)(3) negative credit reporting claim, the court ruled that it was not necessary for the borrower to show economic damage to sustain such a claim.. For a copy of the court’s ruling, please see http://www.buckleykolar.com/documents/McLeanvGMAC.pdf.
FIRM NEWS
Jerry Buckley, Margo Tank, and Lane Macalester will be speaking at the Managing Electronic Records (MER) Conference on May 19-21 in Chicago, Illinois. Their panel entitled, "Legal Considerations for Conducting Business Electronically: Practical Guidance," will focus on how the Electronic Signatures and Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA) now make it possible to present and store information and to sign agreements electronically in circumstances where, in the past, paper documents and wet signatures would have been required. Mr. Buckley, Ms. Tank, and Ms. Macalester will discuss the new challenges presented and provide practical guidance to the industry. For more information or to register, please visit www.merconference.com.
Joseph Kolar will be speaking at the Mealey’s Subprime Mortgage Litigation & Insurance Coverage Conference on June 20 in Washington, DC. Mr. Kolar’s presentation is entitled, “The New Structure of the Mortgage Lending Industry.” For more information or to register, please see http://bookstore.lexis.com/bookstore/product/69880t.html.
Fannie Mae Announces Single National Down Payment Policy. On May 16, Fannie Mae announced a new, national policy on down payment requirements for conventional, conforming mortgages the company will purchase or guarantee. Starting June 1, 2008, Fannie Mae will accept up to 97 percent loan-to-value ratios for conventional, conforming mortgages processed through its Desktop Underwriter automated underwriting system, and 95 percent loan-to-value ratios for loans underwritten outside of its Desktop Underwriter, in all geographic locations in the United States. The new national down payment policy will supersede the policy the company adopted in December 2007 that required higher down payments in markets where home prices are declining. The new national down payment requirements of 3 or 5 percent will apply to loans for purchase of single-family, primary residences. Down payment requirements will vary for other occupancy, property and transaction types. For a copy of the Fannie Mae press release, please contact .
FTC Conducting Forum on Consumer Information in Mortgage Market. On May 29, the Federal Trade Commission (FTC) will host a conference entitled, “Protecting Consumers in the Mortgage Market: An Economic Assessment of Information Regulation, Mortgage Choice, and Mortgage Outcomes.” The purpose of this conference is to highlight and assess the role of consumer information in the current mortgage crisis from an economic perspective. Experts from several relevant specialties, including real estate finance and economics, consumer behavior, and information regulation, will be brought together to examine how consumer information, and information regulation, affects consumer choices, mortgage outcomes, and consumer welfare. For more information on the conference, or to register, please see http://www.ftc.gov/be/workshops/mortgage/index.shtml.
FinCEN Report Identifies Money Laundering Methods in Residential Real Estate Industry. On May 1, the Financial Crimes Enforcement Network (FinCEN) released a report entitled “Suspected Money Laundering in the Residential Real Estate Industry: An Assessment Based Upon Suspicious Activity Report Filing Analysis,” identifying money laundering methods used via residential real property transactions. In contrast to criminals seeking to profit by committing mortgage fraud, those who seek to launder money through residential real estate generally intend to make timely payments and seek to make their transactions appear as unremarkable as possible in order to disguise the source of their funds. Money launderers were found to use many techniques, including: structuring large transactions into smaller amounts in order to evade detection; using “straw buyers” to front for the true purchaser; and fraudulent documentation. In some cases, laundering money through residential real estate was found to support tax evasion, fraud, and identity theft. The report is intended to help raise awareness of the vulnerability and assist financial institutions to better recognize risk and thus provide better information to law enforcement in order to combat criminal activity. For a copy of the report, please see http://www.fincen.gov/news_room/rp/files/MLR_Real_Estate_Industry_SAR_web.pdf.
North Carolina Mortgage Lending Rules Revised to Enhance Surety Bond and Records Requirements. On April 1, several amendments to the rules implementing the North Carolina Mortgage Lending Act went into effect. Among other changes, licensees with surety bonds are now required to ensure that the full amount of the surety bond is in effect at all times. If there is a claim against the bond, licensees have 30 days to reinstate the bond to the level required by statute. Failure to maintain the bond as required could result in the immediate suspension of licensure. In addition, the rules require that licensees report any claim against the surety bond to the Commissioner of Banks within ten business days of receiving notice of the claim. The rules also state that a mortgage broker or mortgage banker will be deemed to have ceased operations if it has failed to originate a mortgage loan in the prior calendar year, resulting in a suspension of its license by the Commissioner of Banks pending receipt of reasonable evidence of an intent to restart operations. Finally, the amended rules require that licensed mortgage brokers or bankers must maintain a current listing of all mortgage applications. The list must contain the following information: (i) customer’s name; (ii) current address; (iii) telephone number; (iv) all prepaid loan fees submitted by the customer; (v) the amount of the loan; (vi) a brief description of the loan, including the loan term, rate, type, and priority; (vii) address of the mortgage property; (viii) application status; and (ix) expected closing date. For a copy of the amended rules, please see http://www.buckleykolar.com/documents/NCRegulations.pdf.
Illinois Anti-Predatory Lending Database Registration for Mortgage Brokers, Loan Officers. On May 15, Illinois began registration of mortgage brokers and loan officers on the Anti-Predatory Lending Database. The Anti-Predatory Lending Database Program, pursuant to Public Act 95-0691, will become operational on July 1, 2008. In order to record any mortgage against Cook County property, a Certificate of Compliance or Certificate of Exemption must be attached to the mortgage. Property located outside of Cook County is not subject to the act. A mortgage broker or loan originator that takes a loan application will be required to enter certain information into the database. The database will first determine whether the property is exempt. If it is not exempt, the database will then determine if it will be necessary for the borrower(s) to obtain counseling. If counseling is not required, the loan may proceed to closing. If counseling is required, the borrower(s) will be notified and given a list of all participating counseling agencies. The act aims to reduce predatory lending practices by assisting the borrower in understanding the terms and conditions of the loan for which he or she has applied. The act does not prohibit any type of loan. For more information regarding mortgage broker and loan originator registration, please see http://www.obre.state.il.us/RESFIN/NEWS/SB1167RegistrationBrokers.pdf.
Connecticut Governor Signs Bill Authorizing Electronic Signatures and Recording. On May 12, Connecticut Governor Jodi Rell signed the Uniform Real Property Electronic Recording Act (H.B. 5535), which authorizes electronic signatures and recording in real property transactions. Under the new law, if a law requires, as a condition for recording, that a document be signed, or that a document be an original, be on paper or another tangible medium, or be in writing, the requirement is satisfied by an electronic signature or electronic document, respectively. The new law also authorizes electronic payment of any fee or tax that a town clerk is authorized to collect. Lastly, the new law creates a Real Property Electronic Recording Advisory Committee to advise the state librarian about adopting, amending, and repealing regulations under the new law. The new law becomes effective October 1, 2009. For a copy of the bill, please see http://www.buckleykolar.com/documents/CTHB5535.pdf.
District Court Declines to Dismiss Shareholder Derivative and Class-Action Suit Against Countrywide. On May 14, a U.S. District Court for the Central District of California declined to dismiss a shareholder derivative and class-action suit against Countrywide directors and officers. In re Countrywide Financial Corp. Derivative Litigation, CV-07-06923 (C.D. Cal. May 14, 2008). The court found that the plaintiffs’ allegations met the scienter requirement for maintaining a claim under the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4 et seq., by creating an inference that the individual defendants misled the public with regard to the rigor of Countrywide’s loan origination process, the quality of its loans, and its financial situation—even as they realized that Countrywide had virtually abandoned its own loan underwriting practices. The complaint, filed by several investors against 14 Countrywide directors and officers, alleges that Countrywide shifted its strategy of originating traditional fixed-rate home loans to borrowers with “prime” credit scores to originating non-traditional loans to risky borrowers without getting assurance of their credit-worthiness, thereby increasing the company’s credit risk and allowing the company to report artificially inflated income levels. For a copy of the decision, please see http://www.buckleykolar.com/documents/InreCountrywide.pdf.
Foreclosing Lender Has Burden to Show High-Priced Loans Non-Discriminatory. On May 1, the New York Supreme Court of Kings County held that a mortgage granted to a minority buyer for the purchase of property in a minority area which carries an interest rate that exceeds nine percent creates a rebuttable presumption of discriminatory practice. M&T Mortgage Corp. v. Foy, 2008 NY Slip Op 28166, (N.Y. Sup. Ct. May 1, 2008). In this case, the plaintiff mortgage lender moved to foreclose on Maj. Jahn K. Foy, who had fallen behind on payments on a 30-year mortgage with a nine and one half percent interest rate while on active duty. The court stated that, if the lender fails to demonstrate by a fair preponderance of the evidence that a HMDA-defined “higher priced loan” was not discriminatory, the foreclosure proceeding will be dismissed and the lender left to pursue remedies at law. The court noted that a lender may rebut such a presumption by offering evidence that the loan was originated for non-discriminatory economic reasons. For a copy of the opinion, please contact .
RESPA “Required Use” Case Against Homebuilder Dismissed. A federal district court has dismissed a proposed class action lawsuit in which the named plaintiffs claimed that a homebuilder engaged in “economic coercion” by allegedly requiring the plaintiffs to use the homebuilder’s affiliated mortgage company in violation of the Real Estate Settlement Procedures Act (RESPA). Yeatman v. D.R. Horton, Inc., 2008 U.S. Dist. LEXIS 33446, No. 407CV081 (S.D. Ga. Apr. 23. 2008). In this case, the named plaintiffs agreed to purchase a home from defendant D.R. Horton using D.R. Horton’s affiliated mortgage company. The purchase agreement provided that D.R. Horton would pay some of the closing costs if the plaintiffs used the affiliate, but the agreement also informed the plaintiffs that using the affiliate was optional. The plaintiffs claimed that D.R. Horton engaged in illegal “tying” by requiring the use of the affiliate. The court rejected the plaintiffs’ claims, noting that RESPA’s “required use” prohibition applies only when the use of a particular service is mandatory, not optional. The court also emphasized that RESPA allows homebuilders to offer legitimate discounts for the use of an affiliated service provider, while preventing the homebuilder from artificially inflating the cost of the home if the affiliated company is not used. For a copy of the opinion, please see http://www.buckleykolar.com/documents/YeatmanvDRHorton.pdf.
District Court Refuses to Grant Lender Summary Judgment in QWR Case under RESPA. On May 2, 2008, the U.S. District Court for the Southern District of Florida rejected a lender’s motion for summary judgment in a case involving alleged violations of the qualified written request (QWR) requirement under Section 6(e)(1)(A) of the Real Estate Settlement Procedures Act (RESPA) and the related prohibition under Section 6(e)(3) of RESPA against negative credit reporting within 60 days of receipt of a QWR. McLean v. GMAC Mortg. Corp., 2008 WL 1956285 (S.D.Fla. May 2, 2008). In this case, the lender notified the borrowers that their monthly mortgage payments would increase from $1,674.84 to $3,923.60. In response, the borrowers sent a QWR seeking an explanation on four (4) points: (i) the payment increase; (ii) the delinquency accrual date; (iii) the amounts due as late fees, and (iv) why the lender did not provide late payment notices to the borrowers earlier than it did. The lender answered the borrower’s request with a cryptic statement that they should “disregard any payment information . . . [and that] [t]he payments w[ould] not be adjusted due to the current status of the account.” The court ruled that the lender’s response raised a genuine issue of material fact regarding whether or not it was sufficiently responsive to the QWR to satisfy RESPA. In rejecting the lender’s summary judgment motion on the Section 6(e)(3) negative credit reporting claim, the court ruled that it was not necessary for the borrower to show economic damage to sustain such a claim. For a copy of the court’s ruling, please see http://www.buckleykolar.com/documents/McLeanvGMAC.pdf.
FinCEN Report Identifies Money Laundering Methods in Residential Real Estate Industry. On May 1, the Financial Crimes Enforcement Network (FinCEN) released a report entitled “Suspected Money Laundering in the Residential Real Estate Industry: An Assessment Based Upon Suspicious Activity Report Filing Analysis,” identifying money laundering methods used via residential real property transactions. In contrast to criminals seeking to profit by committing mortgage fraud, those who seek to launder money through residential real estate generally intend to make timely payments and seek to make their transactions appear as unremarkable as possible in order to disguise the source of their funds. Money launderers were found to use many techniques, including: structuring large transactions into smaller amounts in order to evade detection; using “straw buyers” to front for the true purchaser; and fraudulent documentation. In some cases, laundering money through residential real estate was found to support tax evasion, fraud, and identity theft. The report is intended to help raise awareness of the vulnerability and assist financial institutions to better recognize risk and thus provide better information to law enforcement in order to combat criminal activity. For a copy of the report, please see http://www.fincen.gov/news_room/rp/files/MLR_Real_Estate_Industry_SAR_web.pdf.
OTS Issues Consumer Complaint Guide. On May 12, the Office of Thrift Supervision (OTS) issued a Consumer Complaint Guide explaining how it can help consumers resolve complaints with OTS-regulated institutions. The Guide instructs consumers to address all complaints initially with the consumer affairs department or senior management of the institution. If that is unsuccessful, the Guide advises consumers to send OTS a written complaint describing the problem in detail and providing relevant name, address, account number, and like information about the consumer and the institution along with copies of relevant correspondence or documents. The Guide states that the OTS will then send the consumer an acknowledgement letter with a case number and, within 60 days, will provide the consumer with a written response explaining whether violations of consumer protection laws occurred and, if so, what corrective action the OTS ordered the institution to undertake. The Guide reminds consumers that the OTS cannot resolve contractual complaints or discretionary policies that are not regulated by federal law or regulation. For a copy of this Guide, please see http://www.ots.treas.gov/docs/4/480924.pdf.
Ohio Attorney General Marc Dann Resigns. Ohio Attorney General Marc Dann has resigned, effective May 14, 2008. Dann was elected in 2006. He resigned under the threat of impeachment, supported by Governor Ted Strickland, after admitting that he had had an extramarital affair with a subordinate in his office. His resignation also comes amid allegations of sexual harassment against other members of his staff. Until Governor Strickland appoints a successor, First Assistant Attorney General Tom Winters, will act as the interim Ohio Attorney General. To view the Ohio Attorney General’s Office internal news release, please see http://www.ag.state.oh.us/press/08/05/pr080514.pdf.
Fourth Circuit Affirms FCRA Verdict. On May 14, the U.S. Court of Appeals for the Fourth Circuit held that a creditor who reported a debt to a consumer reporting agency without noting that the debt was disputed violated the Fair Credit Reporting Act (FCRA). Saunders v. Branch Banking and Trust Co. of Virginia, 2008 WL 2042620, No. 07-1108 (4th Cir. May 14, 2008). In this case, a creditor bank failed to record a car loan and failed to provide the consumer with an account number for, and instructions on how to pay, the loan despite repeated efforts by the consumer to alert the creditor to these omissions. The creditor then demanded the payment of late fees for the period that the creditor had failed to recognize the loan. After the consumer refused to pay the late fees, the creditor repossessed the car. The creditor then reported the car loan as a “charge-off” despite the fact that the borrower disputed the late fees and penalties. The consumer brought a claim under FCRA that the creditor was furnishing inaccurate information. After trial, a jury awarded the consumer compensatory damages of $1,000 and punitive damages of $80,000 for violations of FCRA. On appeal, the court affirmed the jury’s verdict. Citing Dalton v. Capital Associated Indus., Inc., 257 F.3d 409 (4th Cir. 2001), the court held that the FCRA requires more than technical accuracy, and the creditor’s failure to note that the debt was disputed was substantially misleading. For a copy of this decision, please see http://www.buckleykolar.com/documents/SaundersvBranchBankingandTrust.pdf.
Fourth Circuit Affirms FCRA Verdict. On May 14, the U.S. Court of Appeals for the Fourth Circuit held that a creditor who reported a debt to a consumer reporting agency without noting that the debt was disputed violated the Fair Credit Reporting Act (FCRA). Saunders v. Branch Banking and Trust Co. of Virginia, 2008 WL 2042620, No. 07-1108 (4th Cir. May 14, 2008). In this case, a creditor bank failed to record a car loan and failed to provide the consumer with an account number for, and instructions on how to pay, the loan despite repeated efforts by the consumer to alert the creditor to these omissions. The creditor then demanded the payment of late fees for the period that the creditor had failed to recognize the loan. After the consumer refused to pay the late fees, the creditor repossessed the car. The creditor then reported the car loan as a “charge-off” despite the fact that the borrower disputed the late fees and penalties. The consumer brought a claim under FCRA that the creditor was furnishing inaccurate information. After trial, a jury awarded the consumer compensatory damages of $1,000 and punitive damages of $80,000 for violations of FCRA. On appeal, the court affirmed the jury’s verdict. Citing Dalton v. Capital Associated Indus., Inc., 257 F.3d 409 (4th Cir. 2001), the court held that the FCRA requires more than technical accuracy, and the creditor’s failure to note that the debt was disputed was substantially misleading. For a copy of this decision, please see http://www.buckleykolar.com/documents/SaundersvBranchBankingandTrust.pdf.
Court Rules FCRA Claims Are Not Barred by the Statute of Limitations. The U.S. District Court for the Eastern District of Virginia ruled that claims against a lender for violations of the Fair Credit Reporting Act (FCRA) in an identity theft case were not barred by the FCRA’s statute of limitations. Broccuto v. Experian Information Solutions Inc., 2008 WL 1969222, No. 3:07CV782-HEH (E.D. Va. May 6, 2008). Under that statute, claims against furnishers of information must be brought by the earlier of two years after the plaintiff discovers the FCRA violation or five years from the date of the violation itself. See 15 U.S.C. § 1681p. In this case, the plaintiff discovered the theft of her identity in 2003 and began to seek corrective action at that time, resulting in the lender’s argument that the consumer’s claim was barred by the “two years from discovery” prong of the statute of limitations. The court rejected that argument and ruled that the creditor’s alleged failure to take corrective actions requested by the consumer in 2006 and 2007 were separate violations of the FCRA and therefore not barred by that prong of the statute of limitations. For a copy of the opinion, please see http://www.buckleykolar.com/documents/BroccutovExperian.pdf.
SEC Proposes Rule to Require Electronic Interactive Data Tags on Financial Disclosures. On May 14, the U.S. Securities & Exchange Commission (SEC) voted unanimously to propose a rule that would require public companies to use new technology to expedite the way investors get important information on public companies. The new technology utilizes electronic interactive data tags that uniquely identify individual items in a company’s financial statements so the tagged information can be easily searched on the Internet, downloaded into spreadsheets, reorganized in databases and put to any number of other comparative and analytical uses by investors, analysts, and journalists. Under the new rules, the largest public companies using U.S. Generally Accepted Accounting Principles (“US GAAP”) with a worldwide public float over $5 billion (approximately the 500 largest companies) would be required to make financial disclosures using interactive data for fiscal periods ending late 2008, with the remaining U.S. GAAP companies providing disclosure in this format over the following two years. Public comment on the proposed rule should be received by the SEC no later than 60 days after its publication in the Federal Register. As on May 16, the text of the proposed rule has not yet become available. For a copy of the SEC press release, please see http://www.sec.gov/news/press/2008/2008-85.htm . For more information on interactive data, please see http://www.sec.gov/spotlight/xbrl.shtml .
District Court Declines to Dismiss Shareholder Derivative and Class-Action Suit Against Countrywide. On May 14, a U.S. District Court for the Central District of California declined to dismiss a shareholder derivative and class-action suit against Countrywide directors and officers. In re Countrywide Financial Corp. Derivative Litigation, CV-07-06923 (C.D. Cal. May 14, 2008). The court found that the plaintiffs’ allegations met the scienter requirement for maintaining a claim under the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4 et seq., by creating an inference that the individual defendants misled the public with regard to the rigor of Countrywide’s loan origination process, the quality of its loans, and its financial situation—even as they realized that Countrywide had virtually abandoned its own loan underwriting practices. The complaint, filed by several investors against 14 Countrywide directors and officers, alleges that Countrywide shifted its strategy of originating traditional fixed-rate home loans to borrowers with “prime” credit scores to originating non-traditional loans to risky borrowers without getting assurance of their credit-worthiness, thereby increasing the company’s credit risk and allowing the company to report artificially inflated income levels. For a copy of the decision, please see http://www.buckleykolar.com/documents/InreCountrywide.pdf .
District Court Declines to Dismiss Shareholder Derivative and Class-Action Suit Against Countrywide. On May 14, a U.S. District Court for the Central District of California declined to dismiss a shareholder derivative and class-action suit against Countrywide directors and officers. In re Countrywide Financial Corp. Derivative Litigation, CV-07-06923 (C.D. Cal. May 14, 2008). The court found that the plaintiffs’ allegations met the scienter requirement for maintaining a claim under the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4 et seq., by creating an inference that the individual defendants misled the public with regard to the rigor of Countrywide’s loan origination process, the quality of its loans, and its financial situation—even as they realized that Countrywide had virtually abandoned its own loan underwriting practices. The complaint, filed by several investors against 14 Countrywide directors and officers, alleges that Countrywide shifted its strategy of originating traditional fixed-rate home loans to borrowers with “prime” credit scores to originating non-traditional loans to risky borrowers without getting assurance of their credit-worthiness, thereby increasing the company’s credit risk and allowing the company to report artificially inflated income levels. For a copy of the decision, please see http://www.buckleykolar.com/documents/InreCountrywide.pdf.
Foreclosing Lender Has Burden to Show High-Priced Loans Non-Discriminatory. On May 1, the New York Supreme Court of Kings County held that a mortgage granted to a minority buyer for the purchase of property in a minority area which carries an interest rate that exceeds nine percent creates a rebuttable presumption of discriminatory practice. M&T Mortgage Corp. v. Foy, 2008 NY Slip Op 28166, (N.Y. Sup. Ct. May 1, 2008). In this case, the plaintiff mortgage lender moved to foreclose on Maj. Jahn K. Foy, who had fallen behind on payments on a 30-year mortgage with a nine and one half percent interest rate while on active duty. The court stated that, if the lender fails to demonstrate by a fair preponderance of the evidence that a HMDA-defined “higher priced loan” was not discriminatory, the foreclosure proceeding will be dismissed and the lender left to pursue remedies at law. The court noted that a lender may rebut such a presumption by offering evidence that the loan was originated for non-discriminatory economic reasons. For a copy of the opinion, please contact .
RESPA “Required Use” Case Against Homebuilder Dismissed. A federal district court has dismissed a proposed class action lawsuit in which the named plaintiffs claimed that a homebuilder engaged in “economic coercion” by allegedly requiring the plaintiffs to use the homebuilder’s affiliated mortgage company in violation of the Real Estate Settlement Procedures Act (RESPA). Yeatman v. D.R. Horton, Inc., 2008 U.S. Dist. LEXIS 33446, No. 407CV081 (S.D. Ga. Apr. 23. 2008). In this case, the named plaintiffs agreed to purchase a home from defendant D.R. Horton using D.R. Horton’s affiliated mortgage company. The purchase agreement provided that D.R. Horton would pay some of the closing costs if the plaintiffs used the affiliate, but the agreement also informed the plaintiffs that using the affiliate was optional. The plaintiffs claimed that D.R. Horton engaged in illegal “tying” by requiring the use of the affiliate. The court rejected the plaintiffs’ claims, noting that RESPA’s “required use” prohibition applies only when the use of a particular service is mandatory, not optional. The court also emphasized that RESPA allows homebuilders to offer legitimate discounts for the use of an affiliated service provider, while preventing the homebuilder from artificially inflating the cost of the home if the affiliated company is not used. For a copy of the opinion, please see http://www.buckleykolar.com/documents/YeatmanvDRHorton.pdf.
Fourth Circuit Affirms FCRA Verdict. On May 14, the U.S. Court of Appeals for the Fourth Circuit held that a creditor who reported a debt to a consumer reporting agency without noting that the debt was disputed violated the Fair Credit Reporting Act (FCRA). Saunders v. Branch Banking and Trust Co. of Virginia, 2008 WL 2042620, No. 07-1108 (4th Cir. May 14, 2008). In this case, a creditor bank failed to record a car loan and failed to provide the consumer with an account number for, and instructions on how to pay, the loan despite repeated efforts by the consumer to alert the creditor to these omissions. The creditor then demanded the payment of late fees for the period that the creditor had failed to recognize the loan. After the consumer refused to pay the late fees, the creditor repossessed the car. The creditor then reported the car loan as a “charge-off” despite the fact that the borrower disputed the late fees and penalties. The consumer brought a claim under FCRA that the creditor was furnishing inaccurate information. After trial, a jury awarded the consumer compensatory damages of $1,000 and punitive damages of $80,000 for violations of FCRA. On appeal, the court affirmed the jury’s verdict. Citing Dalton v. Capital Associated Indus., Inc., 257 F.3d 409 (4th Cir. 2001), the court held that the FCRA requires more than technical accuracy, and the creditor’s failure to note that the debt was disputed was substantially misleading. For a copy of this decision, please see http://www.buckleykolar.com/documents/SaundersvBranchBankingandTrust.pdf.
Court Rules FCRA Claims Are Not Barred by the Statute of Limitations. The U.S. District Court for the Eastern District of Virginia ruled that claims against a lender for violations of the Fair Credit Reporting Act (FCRA) in an identity theft case were not barred by the FCRA’s statute of limitations. Broccuto v. Experian Information Solutions Inc., 2008 WL 1969222, No. 3:07CV782-HEH (E.D. Va. May 6, 2008). Under that statute, claims against furnishers of information must be brought by the earlier of two years after the plaintiff discovers the FCRA violation or five years from the date of the violation itself. See 15 U.S.C. § 1681p. In this case, the plaintiff discovered the theft of her identity in 2003 and began to seek corrective action at that time, resulting in the lender’s argument that the consumer’s claim was barred by the “two years from discovery” prong of the statute of limitations. The court rejected that argument and ruled that the creditor’s alleged failure to take corrective actions requested by the consumer in 2006 and 2007 were separate violations of the FCRA and therefore not barred by that prong of the statute of limitations. For a copy of the opinion, please see http://www.buckleykolar.com/documents/BroccutovExperian.pdf.
District Court Refuses to Grant Lender Summary Judgment in QWR Case under RESPA. On May 2, 2008, the U.S. District Court for the Southern District of Florida rejected a lender’s motion for summary judgment in a case involving alleged violations of the qualified written request (QWR) requirement under Section 6(e)(1)(A) of the Real Estate Settlement Procedures Act (RESPA) and the related prohibition under Section 6(e)(3) of RESPA against negative credit reporting within 60 days of receipt of a QWR. McLean v. GMAC Mortg. Corp., 2008 WL 1956285 (S.D.Fla. May 2, 2008). In this case, the lender notified the borrowers that their monthly mortgage payments would increase from $1,674.84 to $3,923.60. In response, the borrowers sent a QWR seeking an explanation on four (4) points: (i) the payment increase; (ii) the delinquency accrual date; (iii) the amounts due as late fees, and (iv) why the lender did not provide late payment notices to the borrowers earlier than it did. The lender answered the borrower’s request with a cryptic statement that they should “disregard any payment information . . . [and that] [t]he payments w[ould] not be adjusted due to the current status of the account.” The court ruled that the lender’s response raised a genuine issue of material fact regarding whether or not it was sufficiently responsive to the QWR to satisfy RESPA. In rejecting the lender’s summary judgment motion on the Section 6(e)(3) negative credit reporting claim, the court ruled that it was not necessary for the borrower to show economic damage to sustain such a claim. For a copy of the court’s ruling, please see http://www.buckleykolar.com/documents/McLeanvGMAC.pdf.
Senate Passes Flood Insurance Reform and Modernization Act. On May 13, the U.S. Senate passed the Flood Insurance Reform and Modernization Act (S. 2284, incorporated into H.R. 3121) by a vote of 92 to 6. The bill, among other things, would: (i) amend the National Flood Insurance Act of 1968 to extend the national flood insurance program though fiscal year 2013; (ii) instruct FEMA to issue final regulations establishing revised definitions of special flood hazard areas, including residual risk areas, and would subject such areas to mandatory flood insurance purchase requirements; (iii) declare that the U.S. Treasury Secretary relinquishes the right to any repayment of loans to FEMA, subject to specified conditions, to the extent such borrowed sums were used to fund the payment of flood insurance claims resulting from the hurricanes of 2005; (iv) direct the Secretary of Homeland Security, the FEMA Director, the Director of the Office of Management and Budget, and the heads of specified federal agencies to coordinate and share data on flood risk determination and geospatial data and to report to Congress a proposed budget for agencies working on flood risk determination data and digital elevation models; (v) amend the Real Estate Settlement Procedures Act to require that certain public information booklets include the availability of federal flood insurance; and (vi) establish in FEMA the Office of the Flood Insurance Advocate to assist insureds in resolving problems with FEMA, and provide for appointment of regional flood insurance advocates, as well as temporary state or local offices following a flood event. For a copy of H.R. 3121 as passed in the Senate, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_bills&docid=f:h3121eas.txt.pdf.
FTC to Host Town Hall Meeting on Contactless Payment Methods. On May 12, the Federal Trade Commission announced that it intends to co-host a one-day town hall meeting for the general public on consumer protection issues raised by contactless payment devices. Contactless payment devices, such as smart cards and key toggles, use new radio frequency identification (“RFID”) technology to allow consumers to purchase small dollar items by holding the devices near readers. Among other things, the town hall meeting is intended to address security and privacy threats associated with the new RFID technology and any emerging technology that may continue to shape the contactless payment marketplace. The public is invited to recommend other topics for discussion and submit advance written comments as well. The town hall meeting is scheduled for July 24, 2008 at the University of Washington Law School in Seattle, Washington. For more information, please see http://www.ftc.gov/opa/2008/05/payonthego.shtm.
Connecticut Governor Signs Bill Authorizing Electronic Signatures and Recording. On May 12, Connecticut Governor Jodi Rell signed the Uniform Real Property Electronic Recording Act (H.B. 5535), which authorizes electronic signatures and recording in real property transactions. Under the new law, if a law requires, as a condition for recording, that a document be signed, or that a document be an original, be on paper or another tangible medium, or be in writing, the requirement is satisfied by an electronic signature or electronic document, respectively. The new law also authorizes electronic payment of any fee or tax that a town clerk is authorized to collect. Lastly, the new law creates a Real Property Electronic Recording Advisory Committee to advise the state librarian about adopting, amending, and repealing regulations under the new law. The new law becomes effective October 1, 2009. For a copy of the bill, please see http://www.buckleykolar.com/documents/CTHB5535.pdf.
House Passes Bill to Limit Suits for Failure to Remove Credit Card Expiration Dates from Receipts. On May 13, the House passed the Credit and Debit Card Receipt Clarification Act (H.R. 4008), which would limit lawsuits against merchants based on the failure to remove card expiration dates from card receipts, but only if the failure occurred prior to the enactment of the bill. As explained in an extended preamble to the bill, the Fair and Accurate Credit Transactions Act (FACTA) amended the Fair Credit Reporting Act (FCRA) to require, among other things, that merchants remove all but the last five digits of card account numbers as well as card expiration dates from card receipts. However, publicity regarding account number truncation overwhelmed the requirement regarding the removal of card expiration dates, which resulted in the inadvertent failure of many merchants to remove card expiration dates from card receipts by the compliance deadline established by FACTA. This, in turn, has led to hundreds of lawsuits against merchants for that failure, even though consumers are generally not subject to identity theft or other harm by the printing of expiration dates on card receipts without full account numbers. Accordingly, H.R. 4008 provides that it is not a willful violation of the FCRA for a merchant to fail to remove an expiration date from a card receipt through the date H.R. 4008 is enacted, provided the merchant has properly truncated the account number. This would take the sting out of most of the pending lawsuits, which expose merchants to statutory damages of up to $1,000 per willful violation of the FCRA. See 15 U.S.C. § 1681n (FCRA § 616). Pursuant to the bill, a merchant could still be liable for a negligent violation of the FCRA for failure to remove the card expiration date from a card receipt as of the original FACTA compliance deadline. However, to recover for such a violation, a consumer would need to prove that he or she suffered actual damages as a result of the violation. See 15 U.S.C. § 1681o (FCRA § 617). For a copy of the bill, please see http://www.buckleykolar.com/documents/HR4008.pdf.
FTC Approves New Rule Provisions Under the CAN-SPAM Act. On May 12, the Federal Trade Commission (FTC) announced its approval of four new rule provisions under the Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM). The new rule provisions address four topics: (i) an e-mail recipient cannot be required to pay a fee, provide information other than his or her e-mail address and opt-out preferences, or take any steps other than sending a reply e-mail message or visiting a single Internet Web page to opt out of receiving future e-mail from a sender; (ii) the definition of “sender” was modified to make it easier to determine which of multiple parties advertising in a single e-mail message is responsible for complying with the Act’s opt-out requirements; (iii) “sender” of commercial e-mail can include an accurately-registered post office box or private mailbox established under United States Postal Service regulations to satisfy the Act’s requirement that a commercial e-mail display a “valid physical postal address”; and (iv) a definition of the term “person” was added to clarify that CAN-SPAM’s obligations are not limited to natural persons. The new rule provisions are a follow-up to a Notice of Proposed Rulemaking and Advance Notice of Proposed Rulemaking on these and other CAN-SPAM topics that the FTC published on May 12, 2005 and March 11, 2004, respectively. For a copy of the Federal Register notice, please see http://www.ftc.gov/os/2008/05/R411008frn.pdf.
Iowa Enacts Security Breach Law. On May 9, Iowa Governor Chester Culver signed a bill (S.F. 2308) requiring that consumers be notified when a security breach of personal information occurs. If a security breach occurs, businesses are required to notify consumers of the breach “in the most expeditious manner possible” so long as it does not interfere with a law enforcement investigation. Businesses are also required to determine the scope of the breach and restore the security of the data. Notification may be made through: (i) written notice to the last available address the person has in the person's records; (ii) electronic notice if the customary method of communication with the consumer is by electronic means or is consistent with the provisions regarding electronic records and signatures set forth in the Iowa and the federal ESIGN Act; or (iii) substitute notice, if the cost of providing notice would exceed two hundred fifty thousand dollars, if the affected class of consumers to be notified exceeds three hundred fifty thousand persons, or if the person does not have sufficient contact information to provide notice. The notice must include (i) a description of the breach of security, (ii) the approximate date of the breach of security, (iii) the type of personal information obtained as a result of the breach of security, (iv) contact information for consumer reporting agencies, (v) advice to the consumer to report suspected incidents of identity theft to local law enforcement or the attorney general. Notification is not required if there is no reasonable likelihood of financial harm. A violation of this new law will be subject to enforcement by the attorney general. Lastly, the new law authorizes a committee to study the likelihood of security breaches in government agencies. The law becomes effective July 1, 2008. For a copy of S.F. 2308, please see http://www.buckleykolar.com/documents/IASF2308.pdf.
House Passes Bill to Limit Suits for Failure to Remove Credit Card Expiration Dates from Receipts. On May 13, the House passed the Credit and Debit Card Receipt Clarification Act (H.R. 4008), which would limit lawsuits against merchants based on the failure to remove card expiration dates from card receipts, but only if the failure occurred prior to the enactment of the bill. As explained in an extended preamble to the bill, the Fair and Accurate Credit Transactions Act (FACTA) amended the Fair Credit Reporting Act (FCRA) to require, among other things, that merchants remove all but the last five digits of card account numbers as well as card expiration dates from card receipts. However, publicity regarding account number truncation overwhelmed the requirement regarding the removal of card expiration dates, which resulted in the inadvertent failure of many merchants to remove card expiration dates from card receipts by the compliance deadline established by FACTA. This, in turn, has led to hundreds of lawsuits against merchants for that failure, even though consumers are generally not subject to identity theft or other harm by the printing of expiration dates on card receipts without full account numbers. Accordingly, H.R. 4008 provides that it is not a willful violation of the FCRA for a merchant to fail to remove an expiration date from a card receipt through the date H.R. 4008 is enacted, provided the merchant has properly truncated the account number. This would take the sting out of most of the pending lawsuits, which expose merchants to statutory damages of up to $1,000 per willful violation of the FCRA. See 15 U.S.C. § 1681n (FCRA § 616). Pursuant to the bill, a merchant could still be liable for a negligent violation of the FCRA for failure to remove the card expiration date from a card receipt as of the original FACTA compliance deadline. However, to recover for such a violation, a consumer would need to prove that he or she suffered actual damages as a result of the violation. See 15 U.S.C. § 1681o (FCRA § 617). For a copy of the bill, please see http://www.buckleykolar.com/documents/HR4008.pdf.
House Passes Bill to Limit Suits for Failure to Remove Credit Card Expiration Dates from Receipts. On May 13, the House passed the Credit and Debit Card Receipt Clarification Act (H.R. 4008), which would limit lawsuits against merchants based on the failure to remove card expiration dates from card receipts, but only if the failure occurred prior to the enactment of the bill. As explained in an extended preamble to the bill, the Fair and Accurate Credit Transactions Act (FACTA) amended the Fair Credit Reporting Act (FCRA) to require, among other things, that merchants remove all but the last five digits of card account numbers as well as card expiration dates from card receipts. However, publicity regarding account number truncation overwhelmed the requirement regarding the removal of card expiration dates, which resulted in the inadvertent failure of many merchants to remove card expiration dates from card receipts by the compliance deadline established by FACTA. This, in turn, has led to hundreds of lawsuits against merchants for that failure, even though consumers are generally not subject to identity theft or other harm by the printing of expiration dates on card receipts without full account numbers. Accordingly, H.R. 4008 provides that it is not a willful violation of the FCRA for a merchant to fail to remove an expiration date from a card receipt through the date H.R. 4008 is enacted, provided the merchant has properly truncated the account number. This would take the sting out of most of the pending lawsuits, which expose merchants to statutory damages of up to $1,000 per willful violation of the FCRA. See 15 U.S.C. § 1681n (FCRA § 616). Pursuant to the bill, a merchant could still be liable for a negligent violation of the FCRA for failure to remove the card expiration date from a card receipt as of the original FACTA compliance deadline. However, to recover for such a violation, a consumer would need to prove that he or she suffered actual damages as a result of the violation. See 15 U.S.C. § 1681o (FCRA § 617). For a copy of the bill, please see http://www.buckleykolar.com/documents/HR4008.pdf.
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