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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
Indiana Bank to Pay $100,000 to Settle Discriminatory Lending Complaint. On June 2, the Department of Housing and Urban Development (HUD) negotiated a $100,000 settlement of a fair housing complaint filed against First Indiana Bank, NA. by the National Community Reinvestment Coalition (NCRC). The NCRC complaint alleged that First Indiana violated the Fair Housing Act by refusing to make loans on row houses or on property valued under $100,000. NCRC argued that because such housing is more heavily concentrated in Hispanic and African American neighborhoods, First Indiana had engaged in discriminatory lending practices. As part of the settlement, First Indiana agreed to, among other things, (i) pay $100,000 to the NCRC, (ii) adopt procedures whereby denied loan applications are reviewed a second time, and (iii) not “unlawfully” exclude row homes or properties of a certain minimum value from eligibility for loan products. To view the HUD press release, please visit http://www.hud.gov/news/release.cfm?content=pr07-080.cfm. To view the settlement agreement, please visit http://www.hud.gov/offices/fheo/enforcement/FIBNCRC-Agreement.pdf.
OFHEO Announces Proposed Guidance on Conforming Loan Limit Calculations. On June 20, the Office of Federal Housing Enterprise Oversight (OFHEO) announced that it is soliciting public comment on proposed Guidance on Conforming Loan Limit Calculations which establishes the maximum size limit for loans that Fannie Mae and Freddie Mac may purchase, as provided in their charters. The revisions come, in part, as a response to OFHEO’s deferral of decreasing the loan limit, which is linked to nation-wide housing prices in 2007, despite a net decline in home prices in 2006. The decrease, which is now to be incorporated into the 2008 conforming loan limit, has raised several issues regarding how the limit should be computed. Specifically, OFHEO is seeking comment on “how the limit should decline, rounding of dollar amounts, deferral of loan limit declines for the later of one year or until they reach at least a cumulative one percent (1%) level, ‘grandfathering’ of qualified conforming loans and a number of procedural matters set forth in the guidance.” For a copy of the proposed guidance, please see http://www.ofheo.gov/media/pdf/confloanlimguidance62007.pdf.
FinCEN Releases Guidance Regarding Law Enforcement Access to BSA Records. On June 13, the Financial Crimes Enforcement Network (FinCEN) released guidance on what documentation in connection with suspicious activity reports (SARs) under the Bank Secrecy Act (BSA) financial institutions are required to disclose to law enforcement agencies. Specifically, the guidance clarifies (i) the BSA requirement that financial institutions provide SAR supporting documentation in response to requests by FinCEN and appropriate law enforcement or supervisory agencies, (ii) what constitutes “supporting documentation” under SAR regulations, and (iii) when legal process is required for disclosure of supporting documentation. On the same day, FinCEN also released guidance on procedures by which a law enforcement agency can request an account remain open, despite suspicious activity. Both issuances can be found at http://www.fincen.gov/reg_guidance.html.
CSBS Releases Model Disclosure Form. On June 14, North Carolina Deputy Commissioner of Banks Mark Pearce released a model consumer disclosure form developed by the Conference of State Bank Supervisors (CSBS) at a public hearing before the Board of Governors of the Federal Reserve System (FRB). Developed for the FRB’s HOEPA hearings in Washington DC (reported in the June 15 issue of InfoBytes), the proposal was released “to advance public dialogue on disclosures and to propel federal and state policy coordination.” With the disclosure, the CSBS hoped to provide a format to communicate clear, meaningful disclosure for consumers in the home mortgage market. The CSBS also strongly encourages that the borrower be required to sign the disclosure because “many investigations have found that essential disclosures were never provided to borrowers, although produced for the regulator as file documentation.” To view the model disclosure, see http://www.csbs.org/AM/Template.cfm?Section=Home&Template= /CM/ContentDisplay.cfm&ContentFileID=2564.
OTS Issues Illustrations for Non-Traditional Mortgage Guidance. On June 18, the Office of Thrift Supervision (OTS) published final guidance regarding consumer information disclosures required by the recent interagency guidance on non-traditional mortgages (reported in the September 29, 2006 issue of InfoBytes). The model disclosures, or “illustrations,” explain several basic non-traditional mortgage concepts and present a payment schedule that provides for multiple rate options. The illustrations can be found at http://www.ots.treas.gov/docs/4/480963.pdf.
FDIC Issues Final Guidelines on Small-Dollar Loan Products. On June 17, the Federal Deposit Insurance Corporation (FDIC) issued final guidelines to state non-member banks for a two-year Small-Dollar Loan Pilot Program (reported in the December 8, 2006 issue of InfoBytes). The program encourages banks to offer and promote affordable closed- and open-end loan products of up to $1,000, at “affordable” interest rates of no more than 36%, with low or no fees, and payment schemes focusing on principal reduction, in exchange for “favorable consideration” when evaluating an institution’s Community Reinvestment Act (CRA) performance. Additionally, lenders are encouraged to include a savings component with the loan package to promote regular saving by borrowers and use it as a platform for bettering the financial education of borrowers. The FDIC intends to study this program to produce “best practices” for the benefit of other institutions. Banks hoping to join in the pilot program must seek approval from the FDIC, which is expected to announce a final list of participants this fall. For the complete guidelines, please see http://www.fdic.gov/news/news/press/2007/pr07052a.html.
House Education and Labor Committee Clears College Aid Bill. On June 13, the House Education and Labor Committee passed the “College Cost Reduction Act of 2007” (H.R. 2669) which, among other things, would impose a graduated decrease on interest rates for certain student loans paid by borrowers. Under the act, rates would decline incrementally from 6.8% to 3.4% over the next five years. To offset the reduced borrower payments, H.R. 2669 would (i) decrease rates paid by the government to lenders, (ii) reduce the portion of certain student loans insured by the government, (iii) remove a reduced reporting exemption for lenders with “exceptional performance,” (iv) double loan fees for certain loans, and (v) reduce the retention reward for collection agencies. In addition, H.R. 2669 would create a loan forgiveness program for individuals that undertake careers in areas of national need. H.R. 2669 would also establish an income-based repayment program for individuals undergoing economic hardship, allowing for student loan forgiveness after 20 years. Details of the bill, now sent to the floor of the House, can be found at http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.2669:.
House Finance Committee Sends Letter to SEC Regarding FAS 140. On June 15, several members of the House Financial Services Committee sent a letter to Securities and Exchange Commission (SEC) Chairman Christopher Cox requesting clarification of the FAS 140 accounting standard with regard to the modification of mortgage loans. The letter claimed that FAS 140, which addresses the securitization and certain other transfers of financial assets, is ambiguous with regard to the circumstances under which a securitized loan can be modified, causing some lenders not to make modifications to at risk or defaulting loans for fear of SEC action. The letter asks Cox to issue a clear statement on whether FAS 140 allows a loan held in trust to be modified when default is reasonably foreseeable or whether it can be modified only once a delinquency or default has already occurred. A full text of the letter may be found at http://www.house.gov/apps/list/press/financialsvcs_dem/ 061507_frank_letter_to_cox_re_fas_140.pdf.
House Finance Committee Hearings Focus on Pending FACTA Regulations. On June 19, the House Financial Services Committee held hearings regarding consumers’ ability to dispute credit ratings under existing law. Several lawmakers focused on why the Fair and Accurate Credit Transactions Act (FACTA) requirements on the credit reporting agencies to investigate consumer complaints has not yet received implementing regulations from the FRB or the Federal Trade Commission. For more information on the hearing, see http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht061907.shtml.
STATE ISSUES
State Regulators Creating a Self-Reported Database of Enforcement Actions Against Mortgage Companies. The American Association of Residential Mortgage Regulations (AARMR) announced today that it has created a new page on its website, entitled “Member Enforcement Actions”, where state regulators may post enforcement actions taken against mortgage companies. It is believed that making enforcement actions public will help to protect consumers and facilitate the flow of information between mortgage regulators. A link to the enforcement action past can be accessed at http://www.aarmr.org/page13.htm (there are currently no posted enforcement actions).
Colorado’s Revised Foreclosure Law’s Effective Date Postponed. On June 1, the Governor of Colorado signed H.B. 1157 into law, postponing the effective date of H.B. 1387 (reported in the June 23, 2006 issue of InfoBytes), which overhauls Colorado's foreclosure procedures, until January 1, 2008. H.B. 1387 was originally scheduled to take effect on July 1, 2007. Most notably, the new foreclosure procedures will remove the borrower’s right of redemption following a foreclosure sale, while providing longer period of time accorded to borrowers to cure default prior to the sale. For text of H.B. 1157, please see http://www.leg.state.co.us/.
COURTS
Court Rejects Claim Employers Not Liable for Employees Not Under Supervision. In Stith v. Thorne, et al., 2007 WL 1586324, No. 3:06 CV 240 (E.D. Va., May 29, 2007), a federal district court held that a jury may consider whether a mortgage brokerage company is liable for the fraudulent actions of mortgage brokers allegedly not under its direct supervision. The plaintiff alleged that she was the victim of a scheme perpetrated by two mortgage brokers working for a mortgage brokerage, Prestige, designed to defraud her of the equity in her home and brought suit for violations of the Virginia Wet Settlement Act and the federal Real Estate Settlement Procedures Act (RESPA). Prestige filed a motion for summary judgment, arguing that (i) there was a lack of an employer-employee relationship between it and accused mortgage brokers; and (ii) even if such a relationship existed, mortgage brokers acted outside the scope of their employment. The court found that an employer-employee relationship existed because Prestige, even though it exercised little oversight over its brokers, did retain the ultimate control over their employment. Additionally, the court held that enough question of fact remained regarding whether the scheme fell within the scope of their duties as mortgage brokers that the claim should survive a motion for summary judgment and be heard by a factfinder. The court granted summary judgment on the other claims to the settlement company and the funder of the loan because it found no evidence that either had any knowledge of the allegedly fraudulent payments, much less an "agreement or understanding" for the illegal payment. Likewise, claims against the purchaser were dismissed because no evidence existed of its knowledge of improper actions. To view a copy of this opinion, please contact .
Sending Mortgage Package into Forum State Subjects Creditor to Personal Jurisdiction. A federal district court in Alabama has rejected a creditor’s motion to dismiss for lack of personal jurisdiction, finding that the creditor’s act of sending a loan package into the state is sufficient to establish minimum contacts. Brannon v. Finance America, LLC, 483 F.Supp.2d 1136 (M.D. Ala., Feb. 15, 2007). In this recently published case, Mr. and Mrs. Brannon, the plaintiffs, submitted an online application to refinance their mortgage. The defendant, Bridge Capital Corporation, sent an offer letter to the plaintiffs, providing specific conditions they would have to meet in order to refinance. Attached to the letter was a loan package, specifying the loans to be refinanced and projecting the Brannons’ monthly savings. The plaintiffs, alleging that the defendants suppressed or misrepresented the terms of the refinance transaction, sued under the Fair Credit Reporting Act (FCRA) and the Truth in Lending Act (TILA). The defendants challenged the personal jurisdiction of the court, alleging that they did not purposefully avail themselves of Alabama law. The court found that the defendant (i) designed its product specifically for the Alabama market, (ii) advertised its products and solicited business in Alabama, (iii) focused its activity on residents of that state, and (iv) knew that its business activities would have definite and predictable effects on residents of that state. Thus, the court concluded, “[i]t is clear from the evidence presented here that the mortgage offer establishes minimum contacts under this standard.” For a copy of the opinion, please contact .
Auto Loan Mailer Constitutes “Firm Offer” Despite Lack of Certain Material Terms. On June 11, a federal district court in Michigan dismissed a complaint alleging that Capital One Auto Finance, Inc. willfully violated FCRA by accessing consumers’ credit reports in order to send automobile loan mailers that did not constitute “firm offers of credit.” See Phinn v. Capital One Auto Finance, Inc., No. 07-CV-10940-DT, 2007 WL 1675282 (E.D. Mich. June 11, 2007). The mailer at issue offered “up to $25,000 in auto financing,” and specified that the offer was not guaranteed if the prospective borrower did not meet certain criteria. According to the plaintiff, the mailer did not constitute a “firm offer” because it did not contain a range of the essential terms relating to the amounts offered, interest rates and terms of repayment, and because the defendant limited the offer’s acceptance to three days. The court disagreed, holding that FCRA does not require that all the material terms be disclosed in the offer; it only requires that the offer be honored if the recipient meets the relevant criteria. The court also noted that—even if the plaintiff had presented some authority in support of his argument—the court would have found as a matter of law that three days was a sufficient amount of time to hold open an offer of automobile credit. Finally, the court was not persuaded by the plaintiff’s attempt to distinguish the facts of the case from cases involving mortgage loan offers (which supported the defendant’s position), stating that “similar considerations also apply in the context of automobile loans, where the specific terms of the loan may vary depending on the exact amount borrowed, the type of car purchased, the consumer’s current income, and the duration of the loan.” For a copy of the decision, please contact .
CDA Not a Jurisdictional Limitation, But a Defense to Liability. A federal court in Tennessee held that the Communication Decency Act’s (CDA) so-called immunity provision (47 U.S.C. § 230(c)) did not deprive it from exercising personal jurisdiction over defendants. Energy Automation Systems, Inc. v. Xcentric Ventures, LLC et al., Case No. 3:06-1079 (M.D. Tenn., opinion filed May 25, 2007). The defendants – owners of a website that displays reports of alleged “rip off” or “bad business” practices – moved to dismiss a complaint that included defamation claims, arguing that the court lacked jurisdiction to hear the claims, in part, based on the immunity provided to publishers under the CDA. The court rejected that argument, stating that CDA immunity is a defense to liability – an issue to be taken up by a fact finder after additional discovery takes place – not a limitation on the jurisdictional reach of the court. Accordingly, the court turned to the “sliding scale” test delineated in Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 890 (6th Cir. 2002), to determine whether the defendants’ website was sufficiently interactive with residents of Tennessee to subject the defendants to jurisdiction in Tennessee. Under the sliding scale test, whether a defendant subjects itself to the jurisdiction of a state depends on the degree that the website is interactive with residents of that state. According to the Energy Automation Court, the defendants’ website was sufficiently interactive to implicate jurisdiction: it enabled users in any state to, among other things, submit, categorize and search for reports, recommended tactics for consumer complaints, offered to organize lawsuits and marketed a book authored by one of the defendants. For a copy of this decision, please contact .
CAN-SPAM Allows Injunctive Relief When Party Intends to Initiate E-mail; Knowledge of Violation not Required. On June 8, the U.S. District Court for the Western District of Washington denied plaintiffs’motions for summary judgment, but determined that a company violates the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM or the “Act”) when it intentionally induces another to send commercial e-mails in contravention of CAN-SPAM’s requirements, even if it is unaware that the other party is violating the Act’s provisions. U.S. v. Impulse Media Group, Inc., CV05-1285RSL (W.D. Wash. June 8, 2007). In this case, Impulse entered into agreements with a third party to send e-mails on its behalf. Notwithstanding the agreement between Impluse and the third party, the third party sent e-mails that violated CAN-SPAM. In denying summary judgment, the Court stated that the plaintiff must first demonstrate that defendant intentionally induced its affiliates to send commercial e-mails. Please contact to obtain a copy of the court’s Order.
FIRM NEWS
Andrea Lee Negroni spoke on the subject of "mortgage brokers as agents of borrowers and lenders" on June 20, 2007 at the annual convention of the National Association of Mortgage Brokers in Seattle, Washington.
Robert Serino was quoted by the American Banker in a June 21st article entitled “Paulson to Offer Plan to Ease AML Regulation” regarding the significance of Treasury Secretary Paulson’s role in a conference held today at FinCEN. Mr. Serino said that it is “in itself… a significant step to show [his] support of the agency. If the secretary is putting his weight behind a regulatory reduction, then that's very positive, because what the boss wants can flow down to the other agencies.”
Indiana Bank to Pay $100,000 to Settle Discriminatory Lending Complaint. On June 2, the Department of Housing and Urban Development (HUD) negotiated a $100,000 settlement of a fair housing complaint filed against First Indiana Bank, NA. by the National Community Reinvestment Coalition (NCRC). The NCRC complaint alleged that First Indiana violated the Fair Housing Act by refusing to make loans on row houses or on property valued under $100,000. NCRC argued that because such housing is more heavily concentrated in Hispanic and African American neighborhoods, First Indiana had engaged in discriminatory lending practices. As part of the settlement, First Indiana agreed to, among other things: (i) pay $100,000 to the NCRC, (ii) adopt procedures whereby denied loan applications are reviewed a second time, and (iii) not “unlawfully” exclude row homes or properties of a certain minimum value from eligibility for loan products. To view the HUD press release, please visit http://www.hud.gov/news/release.cfm?content=pr07-080.cfm. To view the settlement agreement, please visit http://www.hud.gov/offices/fheo/enforcement/FIBNCRC-Agreement.pdf.
OFHEO Announces Proposed Guidance on Conforming Loan Limit Calculations. On June 20, the Office of Federal Housing Enterprise Oversight (OFHEO) announced that it is soliciting public comment on proposed Guidance on Conforming Loan Limit Calculations which establishes the maximum size limit for loans that Fannie Mae and Freddie Mac may purchase, as provided in their charters. The revisions come, in part, as a response to OFHEO’s deferral of decreasing the loan limit, which is linked to nation-wide housing prices in 2007, despite a net decline in home prices in 2006. The decrease, which is now to be incorporated into the 2008 conforming loan limit, has raised several issues regarding how the limit should be computed. Specifically, OFHEO is seeking comment on “how the limit should decline, rounding of dollar amounts, deferral of loan limit declines for the later of one year or until they reach at least a cumulative one percent (1%) level, ‘grandfathering’ of qualified conforming loans and a number of procedural matters set forth in the guidance.” For a copy of the proposed guidance, please see http://www.ofheo.gov/media/pdf/confloanlimguidance62007.pdf.
Court Rejects Claim Employers Not Liable for Employees Not Under Supervision. In Stith v. Thorne, et al., 2007 WL 1586324, No. 3:06 CV 240 (E.D. Va., May 29, 2007), a federal district court held that a jury may consider whether a mortgage brokerage company is liable for the fraudulent actions of mortgage brokers allegedly not under its direct supervision. The plaintiff alleged that she was the victim of a scheme perpetrated by two mortgage brokers working for a mortgage brokerage, Prestige, designed to defraud her of the equity in her home and brought suit for violations of the Virginia Wet Settlement Act and the federal Real Estate Settlement Procedures Act (RESPA). Prestige filed a motion for summary judgment, arguing that (i) there was a lack of an employer-employee relationship between it and accused mortgage brokers; and (ii) even if such a relationship existed, mortgage brokers acted outside the scope of their employment. The court found that an employer-employee relationship existed because Prestige, even though it exercised little oversight over its brokers, did retain the ultimate control over their employment. Additionally, the court held that enough question of fact remained regarding whether the scheme fell within the scope of their duties as mortgage brokers that the claim should survive a motion for summary judgment and be heard by a factfinder. The court granted summary judgment on the other claims to the settlement company and the funder of the loan because it found no evidence that either had any knowledge of the allegedly fraudulent payments, much less an "agreement or understanding" for the illegal payment. Likewise, claims against the purchaser were dismissed because no evidence existed of its knowledge of improper actions. To view a copy of this opinion, please contact .
Sending Mortgage Package into Forum State Subjects Creditor to Personal Jurisdiction. A federal district court in Alabama has rejected a creditor’s motion to dismiss for lack of personal jurisdiction, finding that the creditor’s act of sending a loan package into the state is sufficient to establish minimum contacts. Brannon v. Finance America, LLC, 483 F.Supp.2d 1136 (M.D. Ala., Feb. 15, 2007). In this recently published case, Mr. and Mrs. Brannon, the plaintiffs, submitted an online application to refinance their mortgage. The defendant, Bridge Capital Corporation, sent an offer letter to the plaintiffs, providing specific conditions they would have to meet in order to refinance. Attached to the letter was a loan package, specifying the loans to be refinanced and projecting the Brannons’ monthly savings. The plaintiffs, alleging that the defendants suppressed or misrepresented the terms of the refinance transaction, sued under the Fair Credit Reporting Act (FCRA) and the Truth in Lending Act (TILA). The defendants challenged the personal jurisdiction of the court, alleging that they did not purposefully avail themselves of Alabama law. The court found that the defendant (i) designed its product specifically for the Alabama market, (ii) advertised its products and solicited business in Alabama, (iii) focused its activity on residents of that state, and (iv) knew that its business activities would have definite and predictable effects on residents of that state. Thus, the court concluded, “[i]t is clear from the evidence presented here that the mortgage offer establishes minimum contacts under this standard.” For a copy of the opinion, please contact .
CSBS Releases Model Disclosure Form. On June 14, North Carolina Deputy Commissioner of Banks Mark Pearce released a model consumer disclosure form developed by the Conference of State Bank Supervisors (CSBS) at a public hearing before the Board of Governors of the Federal Reserve System (FRB). Developed for the FRB’s HOEPA hearings in Washington DC (reported in the June 15 issue of InfoBytes), the proposal was released “to advance public dialogue on disclosures and to propel federal and state policy coordination.” With the disclosure, the CSBS hoped to provide a format to communicate clear, meaningful disclosure for consumers in the home mortgage market. The CSBS also strongly encourages that the borrower be required to sign the disclosure because “many investigations have found that essential disclosures were never provided to borrowers, although produced for the regulator as file documentation.” To view the model disclosure, see http://www.csbs.org/AM/Template.cfm?Section=Home&Template= /CM/ContentDisplay.cfm&ContentFileID=2564.
OTS Issues Illustrations for Non-Traditional Mortgage Guidance. On June 18, the Office of Thrift Supervision (OTS) published final guidance regarding consumer information disclosures required by the recent interagency guidance on non-traditional mortgages (reported in the September 29, 2006 issue of InfoBytes). The model disclosures, or “illustrations,” explain several basic non-traditional mortgage concepts and present a payment schedule that provides for multiple rate options. The illustrations can be found at http://www.ots.treas.gov/docs/4/480963.pdf.
House Finance Committee Sends Letter to SEC Regarding FAS 140. On June 15, several members of the House Financial Services Committee sent a letter to Securities and Exchange Commission (SEC) Chairman Christopher Cox requesting clarification of the FAS 140 accounting standard with regard to the modification of mortgage loans. The letter claimed that FAS 140, which addresses the securitization and certain other transfers of financial assets, is ambiguous with regard to the circumstances under which a securitized loan can be modified, causing some lenders not to make modifications to at risk or defaulting loans for fear of SEC action. The letter asks Cox to issue a clear statement on whether FAS 140 allows a loan held in trust to be modified when default is reasonably foreseeable or whether it can be modified only once a delinquency or default has already occurred. A full text of the letter may be found at http://www.house.gov/apps/list/press/financialsvcs_dem/ 061507_frank_letter_to_cox_re_fas_140.pdf.
State Regulators Creating a Self-Reported Database of Enforcement Actions Against Mortgage Companies. The American Association of Residential Mortgage Regulations (AARMR) announced today that it has created a new page on its website, entitled “Member Enforcement Actions”, where state regulators may post enforcement actions taken against mortgage companies. It is believed that making enforcement actions public will help to protect consumers and facilitate the flow of information between mortgage regulators. A link to the enforcement action past can be accessed at http://www.aarmr.org/page13.htm (there are currently no posted enforcement actions).
Colorado’s Revised Foreclosure Law’s Effective Date Postponed. On June 1, the Governor of Colorado signed H.B. 1157 into law, postponing the effective date of H.B. 1387 (reported in the June 23, 2006 issue of InfoBytes), which overhauls Colorado's foreclosure procedures, until January 1, 2008. H.B. 1387 was originally scheduled to take effect on July 1, 2007. Most notably, the new foreclosure procedures will remove the borrower’s right of redemption following a foreclosure sale, while providing longer period of time accorded to borrowers to cure default prior to the sale. For text of H.B. 1157, please see http://www.leg.state.co.us/.
Indiana Bank to Pay $100,000 to Settle Discriminatory Lending Complaint. On June 2, the Department of Housing and Urban Development (HUD) negotiated a $100,000 settlement of a fair housing complaint filed against First Indiana Bank, NA. by the National Community Reinvestment Coalition (NCRC). The NCRC complaint alleged that First Indiana violated the Fair Housing Act by refusing to make loans on row houses or on property valued under $100,000. NCRC argued that because such housing is more heavily concentrated in Hispanic and African American neighborhoods, First Indiana had engaged in discriminatory lending practices. As part of the settlement, First Indiana agreed to, among other things: (i) pay $100,000 to the NCRC, (ii) adopt procedures whereby denied loan applications are reviewed a second time, and (iii) not “unlawfully” exclude row homes or properties of a certain minimum value from eligibility for loan products. To view the HUD press release, please visit http://www.hud.gov/news/release.cfm?content=pr07-080.cfm. To view the settlement agreement, please visit http://www.hud.gov/offices/fheo/enforcement/FIBNCRC-Agreement.pdf.
FinCEN Releases Guidance Regarding Law Enforcement Access to BSA Records. On June 13, the Financial Crimes Enforcement Network (FinCEN) released guidance on what documentation in connection with suspicious activity reports (SARs) under the Bank Secrecy Act (BSA) financial institutions are required to disclose to law enforcement agencies. Specifically, the guidance clarifies (i) the BSA requirement that financial institutions provide SAR supporting documentation in response to requests by FinCEN and appropriate law enforcement or supervisory agencies; (ii) what constitutes “supporting documentation” under SAR regulations; and (iii) when legal process is required for disclosure of supporting documentation. On the same day, FinCEN also released guidance on procedures by which a law enforcement agency can request an account remain open, despite suspicious activity. Both issuances can be found at http://www.fincen.gov/reg_guidance.html.
CSBS Releases Model Disclosure Form. On June 14, North Carolina Deputy Commissioner of Banks Mark Pearce released a model consumer disclosure form developed by the Conference of State Bank Supervisors (CSBS) at a public hearing before the Board of Governors of the Federal Reserve System (FRB). Developed for the FRB’s HOEPA hearings in Washington DC (reported in the June 15 issue of InfoBytes), the proposal was released “to advance public dialogue on disclosures and to propel federal and state policy coordination.” With the disclosure, the CSBS hoped to provide a format to communicate clear, meaningful disclosure for consumers in the home mortgage market. The CSBS also strongly encourages that the borrower be required to sign the disclosure because “many investigations have found that essential disclosures were never provided to borrowers, although produced for the regulator as file documentation.” To view the model disclosure, see http://www.csbs.org/AM/Template.cfm?Section=Home&Template= /CM/ContentDisplay.cfm&ContentFileID=2564.
OTS Issues Illustrations for Non-Traditional Mortgage Guidance. On June 18, the Office of Thrift Supervision (OTS) published final guidance regarding consumer information disclosures required by the recent interagency guidance on non-traditional mortgages (reported in the September 29, 2006 issue of InfoBytes). The model disclosures, or “illustrations,” explain several basic non-traditional mortgage concepts and present a payment schedule that provides for multiple rate options. The illustrations can be found at http://www.ots.treas.gov/docs/4/480963.pdf.
FDIC Issues Final Guidelines on Small-Dollar Loan Products. On June 17, the Federal Deposit Insurance Corporation (FDIC) issued final guidelines to state non-member banks for a two-year Small-Dollar Loan Pilot Program (reported in the December 8, 2006 issue of InfoBytes). The program encourages banks to offer and promote affordable closed- and open-end loan products of up to $1,000, at “affordable” interest rates of no more than 36%, with low or no fees, and payment schemes focusing on principal reduction, in exchange for “favorable consideration” when evaluating an institution’s Community Reinvestment Act (CRA) performance. Additionally, lenders are encouraged to include a savings component with the loan package to promote regular saving by borrowers and use it as a platform for bettering the financial education of borrowers. The FDIC intends to study this program to produce “best practices” for the benefit of other institutions. Banks hoping to join in the pilot program must seek approval from the FDIC, which is expected to announce a final list of participants this fall. For the complete guidelines, please see http://www.fdic.gov/news/news/press/2007/pr07052a.html.
Auto Loan Mailer Constitutes “Firm Offer” Despite Lack of Certain Material Terms. On June 11, a federal district court in Michigan dismissed a complaint alleging that Capital One Auto Finance, Inc. willfully violated FCRA by accessing consumers’ credit reports in order to send automobile loan mailers that did not constitute “firm offers of credit.” See Phinn v. Capital One Auto Finance, Inc., No. 07-CV-10940-DT, 2007 WL 1675282 (E.D. Mich. June 11, 2007). The mailer at issue offered “up to $25,000 in auto financing,” and specified that the offer was not guaranteed if the prospective borrower did not meet certain criteria. According to the plaintiff, the mailer did not constitute a “firm offer” because it did not contain a range of the essential terms relating to the amounts offered, interest rates and terms of repayment, and because the defendant limited the offer’s acceptance to three days. The court disagreed, holding that FCRA does not require that all the material terms be disclosed in the offer; it only requires that the offer be honored if the recipient meets the relevant criteria. The court also noted that—even if the plaintiff had presented some authority in support of his argument—the court would have found as a matter of law that three days was a sufficient amount of time to hold open an offer of automobile credit. Finally, the court was not persuaded by the plaintiff’s attempt to distinguish the facts of the case from cases involving mortgage loan offers (which supported the defendant’s position), stating that “similar considerations also apply in the context of automobile loans, where the specific terms of the loan may vary depending on the exact amount borrowed, the type of car purchased, the consumer’s current income, and the duration of the loan.” For a copy of the decision, please contact .
FDIC Issues Final Guidelines on Small-Dollar Loan Products. On June 17, the Federal Deposit Insurance Corporation (FDIC) issued final guidelines to state non-member banks for a two-year Small-Dollar Loan Pilot Program (reported in the December 8, 2006 issue of InfoBytes). The program encourages banks to offer and promote affordable closed- and open-end loan products of up to $1,000, at “affordable” interest rates of no more than 36%, with low or no fees, and payment schemes focusing on principal reduction, in exchange for “favorable consideration” when evaluating an institution’s Community Reinvestment Act (CRA) performance. Additionally, lenders are encouraged to include a savings component with the loan package to promote regular saving by borrowers and use it as a platform for bettering the financial education of borrowers. The FDIC intends to study this program to produce “best practices” for the benefit of other institutions. Banks hoping to join in the pilot program must seek approval from the FDIC, which is expected to announce a final list of participants this fall. For the complete guidelines, please see http://www.fdic.gov/news/news/press/2007/pr07052a.html.
House Education and Labor Committee Clears College Aid Bill. On June 13, the House Education and Labor Committee passed the “College Cost Reduction Act of 2007” (H.R. 2669) which, among other things, would impose a graduated decrease on interest rates for certain student loans paid by borrowers. Under the act, rates would decline incrementally from 6.8% to 3.4% over the next five years. To offset the reduced borrower payments, H.R. 2669 would (i) decrease rates paid by the government to lenders, (ii) reduce the portion of certain student loans insured by the government, (iii) remove a reduced reporting exemption for lenders with “exceptional performance,” (iv) double loan fees for certain loans, and (v) reduce the retention reward for collection agencies. In addition, H.R. 2669 would create a loan forgiveness program for individuals that undertake careers in areas of national need. H.R. 2669 would also establish an income-based repayment program for individuals undergoing economic hardship, allowing for student loan forgiveness after 20 years. Details of the bill, now sent to the floor of the House, can be found at http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.2669:.
House Finance Committee Hearings Focus on Pending FACTA Regulations. On June 19, the House Financial Services Committee held hearings regarding consumers’ ability to dispute credit ratings under existing law. Several lawmakers focused on why the Fair and Accurate Credit Transactions Act (FACTA) requirements on the credit reporting agencies to investigate consumer complaints has not yet received implementing regulations from the FRB or the Federal Trade Commission. For more information on the hearing, see http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht061907.shtml.
House Finance Committee Sends Letter to SEC Regarding FAS 140. On June 15, several members of the House Financial Services Committee sent a letter to Securities and Exchange Commission (SEC) Chairman Christopher Cox requesting clarification of the FAS 140 accounting standard with regard to the modification of mortgage loans. The letter claimed that FAS 140, which addresses the securitization and certain other transfers of financial assets, is ambiguous with regard to the circumstances under which a securitized loan can be modified, causing some lenders not to make modifications to at risk or defaulting loans for fear of SEC action. The letter asks Cox to issue a clear statement on whether FAS 140 allows a loan held in trust to be modified when default is reasonably foreseeable or whether it can be modified only once a delinquency or default has already occurred. A full text of the letter may be found at http://www.house.gov/apps/list/press/financialsvcs_dem/ 061507_frank_letter_to_cox_re_fas_140.pdf.
Court Rejects Claim Employers Not Liable for Employees Not Under Supervision. In Stith v. Thorne, et al., 2007 WL 1586324, No. 3:06 CV 240 (E.D. Va., May 29, 2007), a federal district court held that a jury may consider whether a mortgage brokerage company is liable for the fraudulent actions of mortgage brokers allegedly not under its direct supervision. The plaintiff alleged that she was the victim of a scheme perpetrated by two mortgage brokers working for a mortgage brokerage, Prestige, designed to defraud her of the equity in her home and brought suit for violations of the Virginia Wet Settlement Act and the federal Real Estate Settlement Procedures Act (RESPA). Prestige filed a motion for summary judgment, arguing that (i) there was a lack of an employer-employee relationship between it and accused mortgage brokers; and (ii) even if such a relationship existed, mortgage brokers acted outside the scope of their employment. The court found that an employer-employee relationship existed because Prestige, even though it exercised little oversight over its brokers, did retain the ultimate control over their employment. Additionally, the court held that enough question of fact remained regarding whether the scheme fell within the scope of their duties as mortgage brokers that the claim should survive a motion for summary judgment and be heard by a factfinder. The court granted summary judgment on the other claims to the settlement company and the funder of the loan because it found no evidence that either had any knowledge of the allegedly fraudulent payments, much less an "agreement or understanding" for the illegal payment. Likewise, claims against the purchaser were dismissed because no evidence existed of its knowledge of improper actions. To view a copy of this opinion, please contact .
Sending Mortgage Package into Forum State Subjects Creditor to Personal Jurisdiction. A federal district court in Alabama has rejected a creditor’s motion to dismiss for lack of personal jurisdiction, finding that the creditor’s act of sending a loan package into the state is sufficient to establish minimum contacts. Brannon v. Finance America, LLC, 483 F.Supp.2d 1136 (M.D. Ala., Feb. 15, 2007). In this recently published case, Mr. and Mrs. Brannon, the plaintiffs, submitted an online application to refinance their mortgage. The defendant, Bridge Capital Corporation, sent an offer letter to the plaintiffs, providing specific conditions they would have to meet in order to refinance. Attached to the letter was a loan package, specifying the loans to be refinanced and projecting the Brannons’ monthly savings. The plaintiffs, alleging that the defendants suppressed or misrepresented the terms of the refinance transaction, sued under the Fair Credit Reporting Act (FCRA) and the Truth in Lending Act (TILA). The defendants challenged the personal jurisdiction of the court, alleging that they did not purposefully avail themselves of Alabama law. The court found that the defendant (i) designed its product specifically for the Alabama market, (ii) advertised its products and solicited business in Alabama, (iii) focused its activity on residents of that state, and (iv) knew that its business activities would have definite and predictable effects on residents of that state. Thus, the court concluded, “[i]t is clear from the evidence presented here that the mortgage offer establishes minimum contacts under this standard.” For a copy of the opinion, please contact .
Auto Loan Mailer Constitutes “Firm Offer” Despite Lack of Certain Material Terms. On June 11, a federal district court in Michigan dismissed a complaint alleging that Capital One Auto Finance, Inc. willfully violated FCRA by accessing consumers’ credit reports in order to send automobile loan mailers that did not constitute “firm offers of credit.” See Phinn v. Capital One Auto Finance, Inc., No. 07-CV-10940-DT, 2007 WL 1675282 (E.D. Mich. June 11, 2007). The mailer at issue offered “up to $25,000 in auto financing,” and specified that the offer was not guaranteed if the prospective borrower did not meet certain criteria. According to the plaintiff, the mailer did not constitute a “firm offer” because it did not contain a range of the essential terms relating to the amounts offered, interest rates and terms of repayment, and because the defendant limited the offer’s acceptance to three days. The court disagreed, holding that FCRA does not require that all the material terms be disclosed in the offer; it only requires that the offer be honored if the recipient meets the relevant criteria. The court also noted that—even if the plaintiff had presented some authority in support of his argument—the court would have found as a matter of law that three days was a sufficient amount of time to hold open an offer of automobile credit. Finally, the court was not persuaded by the plaintiff’s attempt to distinguish the facts of the case from cases involving mortgage loan offers (which supported the defendant’s position), stating that “similar considerations also apply in the context of automobile loans, where the specific terms of the loan may vary depending on the exact amount borrowed, the type of car purchased, the consumer’s current income, and the duration of the loan.” For a copy of the decision, please contact .
CDA Not a Jurisdictional Limitation, But a Defense to Liability. A federal court in Tennessee held that the Communication Decency Act’s (CDA) so-called immunity provision (47 U.S.C. § 230(c)) did not deprive it from exercising personal jurisdiction over defendants. Energy Automation Systems, Inc. v. Xcentric Ventures, LLC et al., Case No. 3:06-1079 (M.D. Tenn., opinion filed May 25, 2007). The defendants – owners of a website that displays reports of alleged “rip off” or “bad business” practices – moved to dismiss a complaint that included defamation claims, arguing that the court lacked jurisdiction to hear the claims, in part, based on the immunity provided to publishers under the CDA. The court rejected that argument, stating that CDA immunity is a defense to liability – an issue to be taken up by a fact finder after additional discovery takes place – not a limitation on the jurisdictional reach of the court. Accordingly, the court turned to the “sliding scale” test delineated in Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 890 (6th Cir. 2002), to determine whether the defendants’ website was sufficiently interactive with residents of Tennessee to subject the defendants to jurisdiction in Tennessee. Under the sliding scale test, whether a defendant subjects itself to the jurisdiction of a state depends on the degree that the website is interactive with residents of that state. According to the Energy Automation Court, the defendants’ website was sufficiently interactive to implicate jurisdiction: it enabled users in any state to, among other things, submit, categorize and search for reports, recommended tactics for consumer complaints, offered to organize lawsuits and marketed a book authored by one of the defendants. For a copy of this decision, please contact .
CAN-SPAM Allows Injunctive Relief When Party Intends to Initiate E-mail; Knowledge of Violation not Required. On June 8, the U.S. District Court for the Western District of Washington denied plaintiffs’motions for summary judgment, but determined that a company violates the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM or the “Act”) when it intentionally induces another to send commercial e-mails in contravention of CAN-SPAM’s requirements, even if it is unaware that the other party is violating the Act’s provisions. U.S. v. Impulse Media Group, Inc., CV05-1285RSL (W.D. Wash. June 8, 2007). In this case, Impulse entered into agreements with a third party to send e-mails on its behalf. Notwithstanding the agreement between Impluse and the third party, the third party sent e-mails that violated CAN-SPAM. In denying summary judgment, the Court stated that the plaintiff must first demonstrate that defendant intentionally induced its affiliates to send commercial e-mails. Please contact to obtain a copy of the court’s Order.
CDA Not a Jurisdictional Limitation, But a Defense to Liability. A federal court in Tennessee held that the Communication Decency Act’s (CDA) so-called immunity provision (47 U.S.C. § 230(c)) did not deprive it from exercising personal jurisdiction over defendants. Energy Automation Systems, Inc. v. Xcentric Ventures, LLC et al., Case No. 3:06-1079 (M.D. Tenn., opinion filed May 25, 2007). The defendants – owners of a website that displays reports of alleged “rip off” or “bad business” practices – moved to dismiss a complaint that included defamation claims, arguing that the court lacked jurisdiction to hear the claims, in part, based on the immunity provided to publishers under the CDA. The court rejected that argument, stating that CDA immunity is a defense to liability – an issue to be taken up by a fact finder after additional discovery takes place – not a limitation on the jurisdictional reach of the court. Accordingly, the court turned to the “sliding scale” test delineated in Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 890 (6th Cir. 2002), to determine whether the defendants’ website was sufficiently interactive with residents of Tennessee to subject the defendants to jurisdiction in Tennessee. Under the sliding scale test, whether a defendant subjects itself to the jurisdiction of a state depends on the degree that the website is interactive with residents of that state. According to the Energy Automation Court, the defendants’ website was sufficiently interactive to implicate jurisdiction: it enabled users in any state to, among other things, submit, categorize and search for reports, recommended tactics for consumer complaints, offered to organize lawsuits and marketed a book authored by one of the defendants. For a copy of this decision, please contact .
CAN-SPAM Allows Injunctive Relief When Party Intends to Initiate E-mail; Knowledge of Violation not Required. On June 8, the U.S. District Court for the Western District of Washington denied plaintiffs’motions for summary judgment, but determined that a company violates the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM or the “Act”) when it intentionally induces another to send commercial e-mails in contravention of CAN-SPAM’s requirements, even if it is unaware that the other party is violating the Act’s provisions. U.S. v. Impulse Media Group, Inc., CV05-1285RSL (W.D. Wash. June 8, 2007). In this case, Impulse entered into agreements with a third party to send e-mails on its behalf. Notwithstanding the agreement between Impluse and the third party, the third party sent e-mails that violated CAN-SPAM. In denying summary judgment, the Court stated that the plaintiff must first demonstrate that defendant intentionally induced its affiliates to send commercial e-mails. Please contact to obtain a copy of the court’s Order.
House Finance Committee Hearings Focus on Pending FACTA Regulations. On June 19, the House Financial Services Committee held hearings regarding consumers’ ability to dispute credit ratings under existing law. Several lawmakers focused on why the Fair and Accurate Credit Transactions Act (FACTA) requirements on the credit reporting agencies to investigate consumer complaints has not yet received implementing regulations from the FRB or the Federal Trade Commission. For more information on the hearing, see http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht061907.shtml.
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