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CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

FEDERAL ISSUES

Banking Agencies Issue FACTA Interim Final Rules on Medical Information. FACTA amends FCRA to impose new limits on a credit bureau’s ability to furnish, and a lender’s ability to use, information related to a consumer’s medical condition. For example, the law generally prohibits credit bureaus from reporting information about an individual’s payment history with a medical provider unless the report does not indicate the nature of the medical service. FACTA also requires the banking agencies and the National Credit Union Administration to create exceptions to this rule as “necessary and appropriate to protect legitimate operational, transactional, risk, consumer, and other needs.” On June 6, 2005, those agencies issued interim final rules under that provision. Most significantly, the Federal Reserve Board interim final rule recasts many of the proposed “exceptions” as interpretations of FCRA, which allows the rules to apply to all creditors (not just those regulated by one of the agencies). The Federal Trade Commission had requested this change because it has narrower power than the banking agencies and NCUA to provide exceptions. Among other things, the rules allow the use of medical information that is also financial information typically considered in credit underwriting and specify the circumstances in which creditors may share medically-related information among affiliates. The rules will go into effect 270 days after publication in the Federal Register. Comments will be due 30 days after publication. A copy of the interim final rules may be obtained at: http://www.federalreserve.gov/boarddocs/press/bcreg/2005/20050606/attachment.pdf.

Anti-Money Laundering Program Rules for Dealers in Precious Metals and Stones. The Treasury Department's Financial Crimes Enforcement Network (FinCEN) has issued an Interim Final Rule creating a requirement for dealers in precious metals and stones to develop and implement anti-money laundering (AML) programs. The substance of the rule is virtually identical to comparable AML program requirements that have already been imposed on banks, securities broker-dealers, money services businesses and mutual funds. An institution under an AML program obligation must undertake a risk assessment of its business lines and customer base, draft an AML policy, obtain the approval of its board of directors and senior management, train personnel, undertake regular audits of the effectiveness of its policy, and regularly reevaluate its risk assessment to determine what changes, if any, need to be made to its policy. See http://www.fincen.gov/antimoneylaundering060905.pdf for details of the latest Rule.

FHA to Validate Borrower Social Security Numbers. Beginning June 18, 2005, the Federal Housing Administration (FHA) will verify social security numbers for consistency with borrower names and dates of birth in order to reduce incidents of identity theft and fraud in single-family mortgage insurance programs. This new verification service will be provided at no extra cost to the mortgage lender, but is only available for the purpose of processing FHA loans. For more information, see the FHA’s letter to mortgagees at http://www.hudclips.org/sub_nonhud/cgi/pdfforms/05-27ml.doc.

FDIC Launches Hispanic Media Campaign. On June 9, 2005, the Federal Deposit Insurance Corporation (FDIC) announced the launch of its summer-long campaign to raise awareness of the importance of financial education in Hispanic communities. The campaign will promote the FDIC’s free Money Smart financial education curriculum, which is available in a classroom, CD-ROM, or online version. The program is designed to teach adults the basics of banking, and includes components on bank services, credit, budgeting, savings, credit cards, loans, and home ownership. For more information, see http://www.fdic.gov/news/news/press/2005/pr5405.html.

Federal Reserve’s Consumer Advisory Council To Discuss the Truth in Lending Act. The FRB announced last week that the Consumer Advisory Council will have an open meeting on June 23, 2005 to discuss the Truth in Lending Act (TILA) amendments to the new bankruptcy legislation and other issues related to Regulation Z. Other meeting topics will include information security and the Community Reinvestment Act. For more information see http://www.federalreserve.gov/boarddocs/press/other/2005/20050603/.

Federal Banking Regulators Testify Before House Financial Services Subcommittee on Reducing Regulatory Burden. This week federal banking regulators testified before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit. For the full text of the regulators testimony, see: http://www.occ.gov/ftp/release/2005-57b.pdf; http://www.federalreserve.gov/boarddocs/testimony/2005/20050609/default.htm; http://www.ots.treas.gov/docs/8/87105.pdf.

Proposed Federal Legislation Addresses Personal Data Security Breach Notifications. Legislation is currently being drafted by, among other legislators, Reps. Deborah Pryce, R-OH, and Michael Castle, R-Del. that aims to protect consumers in the event of a breach of “sensitive nonpublic personally identifiable information.” The bill, which would amend the FCRA also requires the data holders to notify banks and other “critical” third parties about such security lapses. For a copy of the draft legislation, email .

STATE ISSUES

Illinois Predatory Lending Database Pilot Program Bill Sent to Governor. On June 8, 2005, Illinois HB 4050 was sent to the Governor’s office for signature. The bill amends the Residential Real Property Disclosure Act by establishing a “Predatory Lending Database Pilot Program” in Cook County, Illinois. The bill requires mortgage brokers and originators to, among other things, pay for a potential borrower’s credit counseling if the state determines the consumer should undergo such counseling. The bill also expands on previously required disclosure requirements and requires that detailed information be submitted to the state’s database for monitoring. To view the enrolled version of the bill, see http://www.ilga.gov/legislation/94/HB/PDF/09400HB4050lv.pdf.

Wisconsin Department of Financial Institutions Adopts Rules Affecting Mortgage Bankers, Mortgage Brokers and Loan Originators. The Wisconsin Department of Financial Institutions has adopted rules requiring all new loan originator applicants to take a written examination when registering with the Department of Financial Institutions, and requiring all registered loan originators seeking to renew their licenses on or after July 1, 2007 to complete a specific number of education hours. In addition, mortgage broker agreements must include all terms and conditions, a list of services to be provided, and a disclosure of all application and mortgage broker fees. The Department is currently working on an informational package that will outline the new legislation and Department policies. For more information, email .

COURTS

AFSA v. City of Toledo Predatory Lending Opinion Issued. On June 10, 2005, the Court of Appeals of Ohio, Sixth Appellate District issued its opinion in American Financial Services Assoc. v. City of Toledo, Ct. of App. No. L-04-1214 (Ct. of App., 6th Dist. of Ohio June 10, 2005). The appellate court overturned the lower court's determination that Toledo's anti-predatory lending law violates Ohio's state predatory lending law. The appellate court (in an analysis similar to the court in American Financial Services Assoc. v. City of Cleveland) found that certain provisions of the ordinance were preempted by the state law and severed only those provisions, including the private right of action. The court additionally found that a provision "prohibiting lenders from steering a borrower to a loan product materially detrimental to the interests of the borrower" and another provision requiring mortgage counseling from an agency approved by the city of Toledo were void for vagueness. Finally, the court found that its ruling conflicts with the ruling in Dayton v. Ohio, 15 7 Ohio App. 3d 736 and certified the question for review by the Ohio Supreme Court involving whether the municipal predatory lending law conflicts with the state predatory lending law where the municipal law would prohibit conduct the state law would allow. In response to today's opinion, the American Financial Services Association (AFSA) noted that the issues in this case are essentially the same as those in American Financial Services Assoc. v. City of Cleveland already on appeal to the Ohio Supreme Court. The opinion can be accessed at http://www.co.lucas.oh.us/Appeals/DecisionsPDF/2205.pdf. AFSA's statement regarding the opinion can be found at: http://www.afsaonline.org/news/docs/ToledoDecisionStatementJune2005.doc.

Federal District Court Certifies Its Holding On FCRA Reporting Requirements for Immediate Appeal. Alabama consumers brought an action against Equifax Information Services LLC (Equifax) for publishing false credit information on consumer reports. The complaint alleged that Equifax violated FCRA when it provided Plaintiffs with brief summary reports of its reinvestigation instead of new full file consumer reports. Plaintiffs argued that this reporting procedure forced them to pay Equifax for their new consumer reports (to which they were entitled free of charge) in order to ensure that Equifax had removed the false information. On February 4, 2005, the U.S. District Court for the Northern District of Alabama held that FCRA requires full file disclosure on the part of a consumer reporting agency following a reinvestigation. Noting the substantial ground for difference of opinion regarding the issue, the Court certified its holding for immediate appeal to the U.S. Court of Appeals for the 11th Circuit. Nunnally v. Equifax Information Services LLC, 366 F.Supp.2d 1119 (Feb. 4, 2004) For a copy of the case and syllabus, email .

Debt Collection Letters Sent by Law Firms Without Attorney Review Violates the Fair Debt Collection Practices Act. On May 10, 2005, the U.S. District Court for the Eastern District of New York held that law firms that send debt collection letters on behalf of debt collection agencies violate the FDCPA when those letters are automatically generated without individualized attorney review of the facts of the case. Reade-Alvarez v. Eltman, Eltman & Cooper, P.C., No. 04-CV-2195-ILG (E.D.N.Y. 2005). The court found that sending form letters on firm letterhead to collect debts violated the FDCPA because it created an impression that attorneys had reviewed the matter and were familiar with the case, when in fact there had been no attorney review. The FDCPA requires “some degree of attorney involvement” in the letter, “including direct control or supervision of the process through which the letter is sent.” The court, however, dismissed as not actionable under the FDCPA plaintiffs’ claim that the use of form letters amounted to the unauthorized practice of law by the debt collection agency as the firm’s “alter ego.”

New York Appellate Court Holds Lender Liable for “Disguised” Payday Loans. On May 5, 2005, the New York Supreme Court, Appellate Division, 3rd Department, in People of New York v. JAG NY, LLC d/b/a N.Y. Catalog Sales, et al. (No. 97440) (N.Y. App. Div. 05/05/05), held that the defendant was issuing illegal payday loans disguised as sales of gift certificates for catalog merchandise. The customers were permitted to write checks in excess of the cost of the gift certificates in an amount up to $500, with the assurance that the checks would not be cashed until the customer’s next payday. As a result of this opinion, JAG’s outstanding loans with interest rates that exceed legal limits are null and void. For a copy of the opinion see: http://decisions.courts.state.ny.us/ad3/Decisions/2005/97440.pdf.

FCRA Preempts Private Actions Under California Fair Credit Law. On May 4, 2005, the U.S. District Court for the Northern District of California held that there is no private right of action through either state or federal law to enforce the obligations imposed by FCRA. Those obligations must be enforced by federal and state officials. Although California state law grants a private right of action against furnishing information to any credit reporting agency if it is known or should be known that the information is incomplete or inaccurate, the court held that this was preempted by FCRA section 1681t(b). In addition, there is no private right of action under FCRA section 1681s-2 which prohibits the reporting of erroneous information, imposes a duty to correct and update information and imposes a duty to provide notice of a consumer’s dispute. However, the Court held that all provisions of FCRA generally can be privately enforced if there is a willful or negligent violation. Gorman v. Wolpoff & Abramson, LLP, 2005 WL 1138649 (N.D.Cal. May 4, 2005).

Court Rules Use of Attorney Name Must Signify Attorney Involvement Under FDCPA. On April 27, 2005, the United States District Court for Connecticut ruled in favor of a consumer who brought action against an attorney working in a law firm that specialized in consumer debt collections alleging violations of the Fair Debt Collection Practices Act (FDCPA). The consumer received a collection letter bearing a facsimile copy of the defendant’s signature, as well as the defendant attorney’s name appearing in the return address field of the letter. The consumer sued the attorney for violating the FDCPA by making false and misleading representations that the letter was from the attorney, because the attorney had not reviewed the consumer’s account and had little any involvement in the process of sending the letter. In granting summary judgment in favor of the plaintiff, the judge in the case stated in part, “[A]t a minimum, the use of an attorney’s signature implies… that the attorney signing the letter formed an opinion about how to manage the case of the debtor to whom the letter was sent.” Goins v. Brandon, No. 3:02-CV-01537 (D. Con. Apr. 27, 2005).

Bankruptcy Court Rules Lenders May Assign Loans During Three-Day Rescission Period under TILA. The U.S. Bankruptcy Court for the Northern District of Georgia ruled on March 29, 2005 that assignment of a note and a deed on the day of closing does not trigger the extended three year rescission period of the TILA so long as loan proceeds are not disbursed within that three day period. The Court also held that assignment does not terminate the right of rescission under TILA against the original lender as a matter of law; if proof of a TILA violation is shown at trial, the Court will reach the issue of whether a rescission remedy can be fashioned. See Thompson v. Saxon Mortgage, Inc. (In re Cleveland Louis Thompson) Case No. 02-81376 (Bankr. N.D. Ga. Mar. 29, 2005) available at http://www.ganb.uscourts.gov/judges/opn/opnjdgeall.php.

MISCELLANY

President Nominates Congressman Chris Cox to be SEC Chairman. On June 2, 2005, President Bush nominated Congressman Chris Cox for the position of Securities and Exchange Commission (“SEC”) Chairman, a post left vacant by the resignation of current SEC Chairman Bill Donaldson. The President praised Congressman Cox as “a champion of the free enterprise system” and said Cox’s mission would be “to continue to strengthen public trust in our markets so the American economy can continue to grow and create jobs.” For a copy of the President’s and Congressman Cox’s remarks, see http://www.whitehouse.gov/news/releases/2005/06/20050602-4.html.

OCC to Hold HMDA Seminar. On June 23, 2005, the OCC will host a web and telephone seminar titled “The Home Mortgage Disclosure Act: A Regulatory Perspective on Challenges and
Opportunities.” For more information and to register, see www.occ.treas.gov/bankereducation.htm.

FIRM NEWS

On June 9, 2005, Jeff Naimon spoke on state antipredatory lending laws at the MBA's Non-Prime Lending and Alternative Products Conference in Washington, DC. For a copy of his presentation, “State and Local Developments-Illinois and Montgomery County: The Next Frontier” see http://www.buckleykolar.com/news/.

On June 14 and 15, 2005, Jon Jerison will be speaking at the American Conference Institute's HMDA conference (Preparing for the Emerging Litigation and Enforcement Challenges of the New Requirements Under HMDA) at the Westin Embassy Row Hotel, Washington DC. Jon will participate on two panels: (i) Consumer Advocate Perspective: Working with the Lending Industry for Common Solutions; and (ii) Establishing and Implementing an Internal HMDA Compliance Program. For registration information, contact ACI at www.AmericanConference.com/hmda (conference code 776L05-WAS).

On June 16, 2005, Jerry Buckley and Margo Tank will be speaking on SPeRS at the MBA e-Mortgage Workshop in San Francisco, CA. For more information, see http://www.campusmba.org/index.cfm?STRING=content.cfm?section=254.

On June 28, 2005, Jerry Buckley will be speaking on the “E-Commerce and Variable Insurance Products” panel at the National Association of Variable Annuity’s 2005 Compliance and Regulatory Affairs Conference in Washington, DC. For more information, see http://www.navanet.org/conf/NAVA-1PRELIM-June%2005.pdf.

On July 12-13, 2005, Jerry Buckley and Margo Tank will be speaking at the SPeRS/MISMO Workshop in Washington, DC. For more information, see http://www.campusmba.org/index.cfm?STRING=content.cfm?section=899.

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© Buckley Kolar, LLP 2005. 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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