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CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

FEDERAL ISSUES

OCC Files Suit to Prevent New York Attorney General from Disrupting Its Supervision of National Banks. On June 16, 2005, the Office of the Comptroller of Currency (“OCC”) filed suit against Eliot Spitzer, the New York Attorney General, seeking a declaratory judgment and preliminary injunction to prevent him from disrupting the OCC’s supervision processes and fair lending examination of national banks. Acting Comptroller Julie Williams stated that “The OCC is absolutely committed to assuring that the national banking system is free of lending discrimination of any sort . . . . This issue is vital and it is complex and it must not be politicized. The OCC will take whatever steps are needed to assure that the lending practices in the national banking system are reviewed thoroughly, carefully and fairly.” Ms. Williams continued: “Last month, I reached out to the Attorney General's office to discuss how we each might work in a complementary way, in the areas of our respective jurisdiction, to ensure that laws against lending discrimination are upheld . . . . The Attorney General's office has indicated that it is not interested in pursuing such a collaborative approach. Unfortunately, the Attorney General's actions undermine the OCC’s ability to effectively implement our supervisory responsibilities." In the suit, filed in the Southern District of New York, the OCC seeks to prevent Mr. Spitzer from engaging in particular activities with respect to national banks and their operating subsidiaries, including demanding, examining and inspecting their books, and instituting enforcement activities against them. The suit also seeks to prevent Mr. Spitzer “from any further infringement of the OCC’s exclusive authority over national banks.” The OCC’s statement is available at http://www.occ.treas.gov/toolkit/newsrelease.aspx?Doc=X7TTWZK4.xml.

Coalition of National Banks File Suit Against New York Attorney General to Enjoin Collection of HMDA Data. On June 16, 2005, The Clearing House, a coalition of national banks, also filed suit against New York Attorney General Eliot Spitzer to enjoin his attempts to obtain non-public information on its members’ residential loan operations. As with the OCC’s suit, the coalition asserts that the National Bank Act provides the OCC with exclusive visitorial powers over national banks, preempting the state’s ability to regulate the coalition members and precluding Mr. Spitzer’s inquiry. For a copy of the Memorandum in support of The Clearing House’s motion for a preliminary injunction and temporary restraining order, please see http://www.theclearinghouse.org/docs/000917.pdf.

Federal Banking Regulators May Issue Warning to Lenders Regarding “Risky” Loans. The Washington Post reports that the OCC is currently examining interest-only loans and payment-option adjustable-rate mortgages, due in part to their increased popularity, and may issue guidelines for lenders. Of particular concern to the OCC is the marketing of these loans and whether consumers fully understand the associated risks if interest rates rise or home values fall. For the full text of this article, see http://www.washingtonpost.com/wp- dyn/content/article/ 2005/06/16/AR2005061601466.html.

Federal Reserve Governor Bies Gives Speech on Current Regulatory Issues. On June 14, 2005, Governor Susan Schmidt Bies gave a speech to the North Carolina Bankers Association on credit risk, the Bank Secrecy Act, overdraft protection, and minimum regulatory capital requirements. In addressing credit risk, Governor Bies stated that banking supervisors are responding to indications that underwriting standards are beginning to weaken. The Federal Reserve staff is considering supervisory guidance on sound risk-management practices for commercial real estate exposures and supervisors are monitoring commercial real estate concentrations. He also noted a March proposal to change the supervisory framework for the classification of problem loans. Addressing the Bank Secrecy Act, Governor Bies said that a new uniform Bank Secrecy Act/Anti-Money Laundering Examination Manual is currently being developed and targeted for release on June 30, 2005. It will be accompanied by nationwide conference calls and regional outreach meetings. On the subject of overdraft protection, Governor Bies stated that the Federal Reserve and other federal supervisors have issued joint guidance, and that final amendments to Regulation DD likewise address overdraft protection concerns. Finally, Governor Bies discussed proposed revisions to the Basel Accord. She said any unintended competitive disparities resulting from the Basel I and Basel II regimes would be corrected through revisions to the current Basel I capital rules, which would occur at the same time as the proposed rulemaking for Basel II. This will allow the banking community to compare and comment on both proposals. She also noted that the Federal Reserve agrees with the view of the Federal Deposit Insurance Corporation (FDIC) that having a minimum leverage ratio is important. This leverage ratio would be the same under the amended Basel I framework as it would be under the Basel II framework. For a copy of these remarks, see http://www.federalreserve.gov/boarddocs/speeches/2005/20050614/default.htm.

FTC Settles Data Security Charges Against BJ’s Wholesale Club. On June 16, 2005, the FTC announced that it reached a proposed settlement with BJ’s Wholesale Club (“BJ’s”) relating to significant data breaches of BJ’s computer systems, which led to the theft of consumer information (including credit and debit card information), leading to an alleged $13 million in fraudulent charges. The FTC asserted that BJ’s had engaged in unfair business practices by failing to use readily available security measures, not encrypting consumer information, and storing consumer’s private information beyond the period mandated by bank security rules even though it did not need the information. The FTC’s proposed settlement, which is subject to public comment until July 16, 2005, does not terminate the private lawsuits that have been filed against BJ’s by banks and credit unions that were allegedly affected by BJ’s actions. For more information, including links to pleadings and related documents, please go to http://www.ftc.gov/opa/2005/06/bjswholesale.htm.

House Subcommittee Holds Hearing on “SMART Insurance Reform”. On June 16, 2005, the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises held a hearing on draft version of the Oxley-Baker SMART Act, which is designed to change state insurance regulations and create a central federal enforcement mechanism that could preempt conflicting state laws and regulations. Appearing before the subcommittee were six current and former state insurance regulators, including M. Diane Koken, Pennsylvania Insurance Commissioner, testifying as President, National Association of Insurance Commissioners (NAIC).The speakers discussed both the progress in and the hindrances to simplifying and unifying state insurance laws and regulations and how the SMART Act would impact those efforts and the industry as a whole. For a copy of the prepared testimonies, please see http://financialservices.house.gov/hearings.asp?formmode=detail&hearing=397.

House Committee on Financial Services Hears Testimony Regarding Consumer Protection and Competition in Real Estate Services. This week the House Committee on Financial Services held hearings on “Protecting Consumers and Promoting Competition in Real Estate Services.” The hearings focused on permitting national banks to offer real estate brokerage and management services, the intent of the Gramm-Leach-Bliley Act regarding such services, and consumer protection for home buyers and sellers. The hearings featured testimony by for Senator Gramm, Representative Leach and former Representative Bliley, as well as the American Bankers Association and the National Association of Realtors. For the full text of the speakers’ testimony, see http://financialservices.house.gov/hearings.asp?formmode=detail&hearing=395.

OTS Official Testifies on Regulatory Burden Relief. Acting Director of the Office of Thrift Supervision (“OTS”) Richard M. Riccobono testified before the House Subcommittee on Financial Institutions and Consumer Credit in support of efforts to reduce regulatory burden in the financial services industry. Mr. Riccobono discussed OTS’ high priority items for regulatory relief legislation, and urged the Subcommittee to relieve institutions from duplicate regulatory oversight. For the full text of Mr. Riccobono’s testimony see http://www.ots.treas.gov/docs/8/87105.pdf.

OCC Announces Nine New Enforcement Actions and Five Terminations of Existing Enforcement Actions. On June 14, 2005, the OCC announced nine new enforcement actions against national banks and individuals currently or formerly affiliated with national banks. These actions include Cease and Desist Orders, Civil Money Penalties, and Formal Agreements covering a variety of issues. At the same time, the OCC announced that it was terminating five existing enforcement actions, including three brought against Riggs Bank. For information regarding these actions or to obtain copies of documents please see: http://www.occ.treas.gov/ftp/release/2005-58.htm.

STATE ISSUES

Maryland Passes Consumer Protection Law In Connection With Social Security Numbers. On May 26, Maryland Governor Ehrlich signed H.B. 56 which will amend the Maryland Commercial Law regarding privacy of Social Security Numbers (“SSN”). The statute prohibits individuals from, among other things, posting, displaying, or printing an individual’s SSN under certain circumstances. In addition, the law contains prohibitions and exceptions related to internet transmissions and requests made in reference to an individual’s SSN. A person using an individual’s SSN in a manner prohibited under the Commercial Law will be required to either: (i) secure a release from the individual, using a specified release procedure; or (ii) discontinue the prohibited use. Violation of these provisions will constitute an unfair or deceptive trade practice under Maryland law. The law will be effective on January 1, 2006. For the complete text of the bill, see http://mlis.state.md.us/2005rs/bills/hb/hb0056e.pdf.

COURTS

Supreme Court to Decide National Bank Citizenship Issue. On June 13, 2005, the Supreme Court agreed to hear an appeal by Wachovia Corp. to decide whether the legal citizenship of a national bank is defined by the states in which it has branches or the state in which the bank is headquartered. The issue directly affects whether federal or state courts have jurisdiction over national banks. Wachovia has argued that a national bank is not a citizen of every state in which it maintains a branch. Citizenship in multiple states limits the ability of national banks to shift cases to federal courts. To view the Supreme Court’s granting of Certiorari, please see http://www.supremecourtus.gov/qp/04-01186qp.pdf.

Illinois Appellate Court Finds OTS Regulations to Preempt Illinois Interest Act. On May 12, 2005, the Appellate Court of Illinois (First District) held in Van Der Molen v. Washington Mutual Finance Inc., that OTS regulations adopted under the federal Home Owners’ Loan Act (HOLA) preempt the entire field of state lending regulations, including the prepayment penalty and variable rate requirements of the Illinois Interest Act, with respect to federal thrifts. Van Der Molen alleged that the defendant violated the Illinois Interest Act by (i) failing to properly disclose and assess a prepayment penalty, and (ii) improperly instituting a variable interest rate after the second monthly payment. The appellate court found that HOLA preempted both the prepayment and the variable rate restrictions. The court also rejected Van Der Molen’s claim that the defendant waived federal preemption by failing to comply with federal TILA disclosure requirements. To view Van der Molen v. Washington Mutual Finance Inc., 2005 WL 1123615 (Ill. App. May 12, 2005) in its entirety, please see http://www.state.il.us/court/Opinions/AppellateCourt/2005/1stDistrict/May/Html/1040400.htm.

MISCELLANY

Senate Confirms Brian D. Montgomery as Federal Housing Administration Commissioner. On June 14, 2005, the United States Senate confirmed Brian D. Montgomery as Assistant Secretary for Housing and Urban Development. In that capacity, he will sit on the Fair Housing Administration Commission. Mr. Montgomery will be sworn in and immediately begin work. Prior to being nominated by President Bush in April, Mr. Montgomery was deputy assistant to the President and director of advance. He also worked on the 2001 Presidential Inaugural Committee and the President Bush’s 2000 presidential campaign. From 1995 to 1999, he served as communication director at the Texas Department of Housing and Community Affairs and the Texas Department of Economic Development. Biographical information about Mr. Montgomery can be found at http://www.americanpresident.org/action/orgchart/administration_units/officeofcabinetaffairs A list of Senate confirmations can be found at http://www.senate.gov/pagelayout/legislative/one_item_and_teasers/nom_confc.htm.

OTS Approves Application of Mortgage Bank Holding Company to Organize Federal Savings Bank. On June 13, 2005, the OTS approved the application of CMG Financial Services to organize and acquire a federal savings bank. The new entity, CMG Bank, FSB, intends to conduct traditional thrift operations. CMG Financial Services is the holding company for CMG Mortgage, Inc. and CMG Mortgage Services, Inc. A copy of the order, explaining the transaction and conditions the OTS imposed on it, is available at http://www.ots.treas.gov/docs/6/65019.pdf.

FIRM NEWS

On June 15, 2005, Jon Jerison spoke 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 participated 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 more information, contact ACI at https://www.americanconference.com/dynamic/page52.aspx.

On June 16, 2005, Jerry Buckley and Margo Tank spoke 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, Margo Tank, Lane Macalester and Frank Supik will be speaking at the SPeRS/MISMO Workshop in Washington, DC. CampusMBA is hosting the workshop. For more information, see http://www.campusmba.org/index.cfm?STRING=content.cfm?section=899e.

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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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