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CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Due to technical difficulties during yesterday’s webinar on the Federal Reserve Board’s final rule amending home mortgage provisions of Regulation Z, Buckley Kolar lawyers will host a second webinar on Thursday, July 24, 2008 at 1PM EST to discuss the provisions and the implications for mortgage lenders. To register a site, please e-mail us at .
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FEDERAL ISSUES
FRB Issues Final Rule to Amend Home Mortgage Provisions of Regulation Z. On July 14, the Federal Reserve Board (FRB) issued a final rule addressing numerous practices that have been widespread in both the prime and subprime markets (reported in InfoBytes Special Alert, July 14, 2008). The rule (i) creates a new category of "higher-priced mortgage loans," intended to capture all closed-end subprime loans, subject to new requirements, (ii) imposes new appraisal and servicing requirements related to closed-end mortgages secured by a consumer's principal dwelling, and (iii) imposes new advertising requirements related to all mortgage loans. Compliance with most provisions of the final rule is mandatory for all mortgage loan applications received on or after October 1, 2009 and for mortgage servicing starting on that date regardless of when the loan was originated. For a copy of the Federal Register Notice that includes the final rule and official Federal Reserve staff commentary, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20080714a1.pdf. As noted above, Buckley Kolar will host a second webinar on Thursday, July 24, 2008 at 1PM EST to discuss the provisions and the implications for mortgage lenders. To register a site, please e-mail us at . The PowerPoint presentation summary for the webinar is available at http://www.buckleykolar.com/documents/HOEPARulePresentation.pdf.
Treasury Secretary Paulson Issues Statement on Initiatives for Fannie Mae and Freddie Mac. On July 13, United States Department of Treasury (Treasury) Secretary Henry Paulson issued a statement regarding Fannie Mae and Freddie Mac (GSEs). The statement announces a plan in conjunction with the President, Congress, the Federal Reserve, and other agencies that will temporarily increase the Treasury lines of credit available to the GSEs, as well as allow the Treasury to purchase equity in either GSE as needed. The plan further grants the Federal Reserve Board a role in the regulatory reform process as it relates to setting capital requirements and related issues. For a copy of the press release, please see http://www.treas.gov/press/releases/hp1079.htm.
OTS Closes IndyMac Bank, FDIC Named Conservator. On July 11, the Office of Thrift Supervision (OTS) closed IndyMac Bank (IndyMac) after determining IndyMac was unable to meet depositors’ demands and thereby operating in an “unsafe and unsound condition.” On July 14, IndyMac Federal Bank, FSB, which is run by the FDIC, succeeded IndyMac. The FDIC, as conservator of IndyMac, transferred insured deposits and substantially all of IndyMac’s assets to the FSB, and insured depositors and borrowers of IndyMac automatically became customers of the FSB. Loan customers will continue to make loan payments as before. IndyMac is the largest OTS-regulated thrift ever to fail. For a copy of the press release from the OTS, please see http://www.ots.treas.gov/docs/7/778029.html. For a copy of the press release from the FDIC, please see http://www.fdic.gov/news/news/press/2008/pr08056.html.
FDIC Issues Policy Statement on Covered Bonds. On July 15, the Federal Deposit Insurance Corporation (FDIC) issued a final policy statement (Policy Statement) detailing the agency’s procedures for covered bonds in conservatorship or receivership. The Policy Statement is an attempt to facilitate the development of the U.S. covered bond market, which remains a relatively new market in the U.S., by providing bondholders expedited access to collateral should the FDIC decide not to continue covered bonds after a bank failure. The Policy Statement defines a covered bond as (i) “a debt obligation of a [depository institution] with a term greater than one year and no more than thirty years which is secured by perfected security interests on assets held and owned by the [depository institution] consisting of eligible mortgages,” or (ii) “AAA-rated mortgage-backed securities secured by eligible mortgages if for no more than ten percent of the collateral for any covered bond issuance or series.” Cash and United States Treasury and agency securities may be substituted for the initial collateral as necessary to prudently manage the cover pool. Further, the FDIC, as conservator or receiver, consents that (i) if 10 days after written notice from a covered obligee that the bond is in default and the FDIC fails to pay damages, the obligee may exercise its contractual rights, (ii) if 10 days after written notice that the FDIC repudiates the covered bond and fails to pay damages, the obligee may exercise its contractual rights, and (iii) the liability of the conservator or receiver shall be limited to the par value of the bonds and any contractual interest accrued to the appointment of the conservator or receiver. For a copy of this policy statement, please see http://www.fdic.gov/news/news/press/2008/pr08060a.html.
American Securitization Forum Releases New Guidelines on ARM Loan Foreclosures and Loss Avoidance. On July 8, the American Securitization Forum issued an updated “Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans.” This release supersedes the prior December 6, 2007 release endorsed by President Bush, Treasury Secretary Henry Paulson and federal bank regulators. The Framework is intended to provide relief to troubled borrowers in the form of loan modifications and workouts and will facilitate servicers in streamlining the evaluation of such borrowers’ subprime adjustable rate mortgage portfolios. According to the new release, certain borrowers could be eligible for loan modifications that would freeze their interest rates at the current payment rate for five years if they meet specified criteria including, (i) the subject property is an owner-occupied primary residence, (ii) they are current on their loans, but cannot refinance because they have been previously delinquent, have little or no equity in their homes, or have poor credit scores, and (iii) they have payments that would increase by more than 10 percent due to an adjustable rate mortgage. For a copy of the complete document, please see http://www.americansecuritization.com/uploadedFiles/ASFStreamlinedFramework7.8.08.pdf.
FRB Streamlines De Novo Bank Membership Applications. On July 10, the Federal Reserve Board Division of Banking Supervision and Regulation (Division) issued letter SR 09-5 describing steps the Division is taking to streamline the application process for de novo bank membership applications. The steps include (i) allowing organizers to file simultaneously with filing the Interagency Charter and Federal Deposit Insurance Application form with the state banking agency and the Federal Deposit Insurance Corporation (FDIC), (ii) increasing coordination with the FDIC and the state banking agency to avoid duplicate information requests, and (iii) encouraging applicants to submit certain “name-check” process information for use by the Federal Reserve simultaneously when submitting the same to the banking agency. For a copy of the letter, please see http://www.federalreserve.gov/boarddocs/srletters/2008/SR0805.htm.
STATE ISSUES
Delaware Enacts Electronic Notary Law. Delaware Governor Ruth Ann Minner recently signed S.B. 246, a bill authorizing the appointment of electronic notaries. The bill permits the Governor to appoint resident and non-resident electronic notaries who maintain an office or regular place of business in Delaware. In addition, the Governor may appoint non-residents who are attorneys or employees of financial institutions that demonstrate a reasonable need to be a Delaware electronic notary. The bill also specifies the form of the electronically reproducible seal to be used by electronic notaries and amends the fee schedule for notary services and commissions to include fees related to electronic notarizations. The bill takes effect February 1, 2009. For a copy of the bill, please see http://www.buckleykolar.com/documents/DE_246.pdf.
Arizona Governor Signs Bills Requiring Loan Originator Licensure, Changing Renewal Date for Licensees. On July 7, Arizona Governor Janet Napolitano signed two bills, S.B. 1028 and S.B. 1029, requiring the licensure of loan originators and amending renewal dates for existing Mortgage Banker and Mortgage Broker licensees, respectively. S.B. 1028 (reported InfoBytes for July 3, 2008) sets forth education and exam requirements necessary to license loan originators. The bill does not require loan originators to become licensed until January 1, 2010. S.B. 1029 establishes an annual renewal date of December 31st for Mortgage Banker and Mortgage Broker licensees. For a copy of S.B. 1028, please see http://www.azleg.gov/legtext/48leg/2r/bills/sb1028h.pdf. For a copy of S.B. 1029, please see http://www.azleg.gov/legtext/48leg/2r/bills/sb1029h.pdf.
Louisiana Passes Bill Authorizing Fees In Connection With The NMLS. On July 15, Louisiana bill S.B. 252 became law without the signature of Governor Bobby Jindal. The bill allows for the collection of fees in connection with Louisiana’s forthcoming participation in the Nationwide Mortgage Licensing System (NMLS). Louisiana is scheduled to begin accepting electronic submissions through NMLS on August 1, 2008. For a copy of the bill, please see http://www.legis.state.la.us/billdata/streamdocument.asp?did=505460. For more information on the NMLS, please see http://www.stateregulatoryregistry.org/NMLS.
Pennsylvania Bill Restricts Property Insurance Coverage. On July 4, Pennsylvania Governor Edward Rendell signed H.B. 2428, which prohibits lenders from requiring borrowers to obtain property insurance coverage that exceeds the replacement value of the buildings on the land securing a loan. Further, the bill prohibits lenders from requiring borrowers to insure the value of the land. The bill is effective immediately. For a copy of the bill, please see http://www.buckleykolar.com/documents/PA_2428.pdf.
New York Restricts The Enforcement of Due-On-Sale Clauses By Lenders. On July 7, the New York State legislature passed New York Assembly Bill 251, which restricts the ability of a lender to enforce a due-on-sale clause regarding real property loans secured by certain residential real property. The bill restricts a lenders option under a due-on-sale clause upon (i) granting a leasehold interest of three years or less not containing an option to purchase, (ii) transfers resulting from a decree of a dissolution of marriage, (iii) transfers to a relative, spouse or children resulting from the death of a borrower, (iv) transfer on the death of a joint tenant or tenant by the entirety, (v) transfer into an inter-vivos trust where the borrower is and remains a beneficiary . The bill is effective as of July 7, 2008. For a copy of the bill, please see http://assembly.state.ny.us/leg/?bn=A00251&sh=t.
COURTS
Alabama Federal Court Denies Motions to Dismiss RESPA Section 8(b) Claims. On July 8, in a putative class action, the United States District Court for the Southern District of Alabama denied the defendant title company and lender’s motions to dismiss claims that the consumer plaintiff brought under Section 8(b) of the Real Estate Settlement Procedures Act (RESPA). Mallory v. GMS Funding, LLC, No. 07-0680-WS-C (S.D. Ala. July 8, 2008). Section 8(b) prohibits splitting charges for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. The plaintiff’s amended complaint challenged eight fees, each under a separate line item on the HUD-1 settlement statement, charged by the title company and lender defendants. The plaintiff’s allegation was not that the title company and the lender performed no work with respect to the eight challenged charges, but rather that they were fully compensated for all such services on other line items on the HUD-1 settlement statement, leaving nothing (beyond third-party costs) to be compensated on the eight challenged lines. Quoting Friedman v. Market Street Mortgage Corp., 530 F.3d 1289, 1291 (11th Cir. 2008), the court noted that “‘Subsection 8(b) does not apply to settlement fees that are alleged to be excessive,’” rather, it “‘requires a plaintiff to allege that no services were rendered in exchange for a settlement fee.’” However, finding, among other things, that Friedman did not address the ramifications of the plaintiff’s allegation that the title company and lender were fully compensated on other line items, the court denied the motions to dismiss, while granting the title company’s motion to the extent that its amended complaint purported to re-assert a claim regarding title insurance that the court previously dismissed. For a copy of the decision, please see http://www.buckleykolar.com/documents/Mallory_v_GMS.pdf.
West Virginia Federal Court Rules Federal Law Preempts State Common Law Claim of Unconscionability Against National Bank. In a recent case, a West Virginia federal court upheld a national bank’s preemption defense against a borrower’s claim that various lending practices and terms were unconscionable under state contract law. Watkins v. Wells Fargo Home Mortgage, No. 08-0132 (S.D. W. Va. June 19, 2008). Here, the borrower sued Wells Fargo Home Mortgage (Wells Fargo) for several causes of action (both class and individual), stating that certain terms of her loan, such as the loan to value ratio and the terms of credit and fees, were unconscionable. The plaintiff agreed that Wells Fargo was a national bank subject to federal law, but argued that national banks are still subject to the contract principles of unconscionability, which are not preempted by the National Bank Act (NBA) and corresponding regulations of the Office of the Comptroller of the Currency (OCC). The court disagreed, stating that the complaints relate to the real estate lending practices regulated by the OCC, which specifically provide that national banks may deal in adjustable rate loans without regard to state limitations. Because Congress intended for the NBA to occupy the field with respect to regulating national banks’ practices in real estate lending, and because a state unconscionability law purporting to regulate the lending activities of national banks would conflict with OCC regulations and the NBA, the court held that the plaintiff’s claims that her loan was an unconscionable contract is preempted. However, on a separate claim that Wells Fargo engaged in a joint venture with an appraiser to inflate the value of plaintiff’s home which fraudulently induced her into accepting the loan, the court held that preemption does not apply because the joint venture, methods of appraisal, and inducement to contract are not part of the core business of national banks’ real estate lending activities. For a copy of the decision, please see http://www.buckleykolar.com/documents/Watkins_v_Wells_Fargo.pdf.
Nevada Federal Court Questions Legality of Credit Notation on Non-Filing Spouse. On July 7, a federal district court in Nevada ruled that the plaintiff’s claim raised material issues of fact regarding the legality of her bank’s action under the Fair Credit Reporting Act (FCRA) in placing negative notations on her credit report. Smith v. Ohio Savings Bank, F.S.B., No. 2:05-cv-1236-LDG-RJJ, 2008 WL 2704719 (D.Nev. July 7, 2008). Diana Owen Smith had purchased an automobile in her name only and financed it with Ohio Savings Bank. The title of the vehicle was in her name, and she was the only borrower signing the loan agreement. Subsequently, her husband filed a Chapter 13 Bankruptcy petition. In his petition, he listed the plaintiff as a spouse and listed her vehicle as an exempt asset. In doing so, the plaintiff’s husband obtained the benefits of a community stay and co-debtor filing. Although Ms. Smith was not a party to the bankruptcy petition, Ohio Savings Bank reported to the credit reporting agencies (CRAs) that her loan agreement was included in bankruptcy and her credit report profile should include a notation to that effect. The bank claimed that “it is common industry practice, in community property states such as Nevada, to place a bankruptcy notation on the file of a non-filing spouse, because the debt is presumed to be communal.” However, the bank’s policies and procedures provide that no bankruptcy notation should be made for a non-filing spouse. When the plaintiff contested the notation, the bank conducted a review of the account but added the notation “paid or paying as agreed,” without removing the bankruptcy notation. After the plaintiff filed her complaint in court, the bank removed the bankruptcy notation from the credit report profile. In her claim, plaintiff alleged that the defendant “violated FCRA § 1681s-2 by intentionally or negligently reporting inaccurate information to a CRA, and by failing to investigate and correct inaccurate information once placed on notice by a consumer.” Both parties filed for summary judgment. The court denied the defendant’s motion, finding that there were genuine issues of material fact regarding the accuracy of the credit report notations and the reasonableness of the bank’s investigative procedures. The court also found that, although a community property presumption may exist, the furnisher of credit information is not excused as a matter of law from providing misleading information or failing to conduct a reasonable investigation. The court similarly denied the plaintiff’s motion because of the existence of issues of fact. For a copy of the opinion, see http://www.buckleykolar.com/documents/Smith_v_Ohio_Savings_Bank.pdf.
Florida Federal Court Finds Internet Receipts Are Not Subject to FACTA Truncation Requirements. In a recent decision, a Florida federal court held that the truncation requirements under the Fair and Accurate Credit Transaction Act (FACTA) are not violated if more than the last five digits of a credit card number are e-mailed on a receipt provided to the cardholder at the point of sale or transaction because an e-mail transmission is not considered “printed.” Grabein v. Jupiterimages Corp., No. 07-22288 (S.D. Fla. July 7, 2008). In this case, an online merchant e-mailed the purchaser a receipt that included six numbers of the purchaser’s debit card (the first two digits and the last four digits of the card number). The court determined that because the merchant did not “print” the receipt, but instead sent an e-mail confirmation receipt to the purchaser, the FACTA truncation requirements do not apply. The court looked to the plain meaning of the term “print” and reasoned that, in order for FACTA to apply, a paper receipt must be provided to a customer at the point of sale. Moreover, the court pointed out that there is “no tangible ‘point of sale or transaction’ with respect to e-commerce,” and that, “[c]onsequently, internet receipts are not subject to the FACTA truncation requirements” (emphasis added). For copy of the decision, please see http://www.buckleykolar.com/documents/Grabein_v_Jupiterimages.pdf.
California Federal Court Denies Claims Preempted By HOLA and TILA. In a recent case, a federal district court in California dismissed a borrower’s claims under California’s Unfair Competition Law (UCL), finding that the Truth in Lending Act (TILA) and the Home Owners’ Loan Act of 1933 (HOLA) preempted these claims, but did not dismiss general contracts claims under HOLA. Nava v VirtualBank et al., No. 2:08-CV-00069 (E.D. Ca. July 16, 2008). The case arose when the defendants sold the plaintiff an adjustable-rate mortgage (ARM) with an initial interest rate subject to increase after a period of time. The plaintiff argued that he was deprived of the benefit of the initial rate, which increased “immediately and significantly,” and that the loan would result in negative amortization and loss of equity if the plaintiff adhered to the payment schedule detailed in the loan’s disclosure statement after the rate increase. The court held that several claims were preempted by federal law, namely, (i) relying heavily on the analysis from Silvas v. E*Trade Mort. Corp., 514 F.3d 1001 (9th Cir. 2008), HOLA preempts the plaintiff’s fraudulent business practices claim because the claim is based upon improper disclosures relating to the terms of credit, which fall under HOLA (the court rejected the plaintiff’s argument that these claims arise from a state law of “general application” and distinguished its reasoning from Reyes v. Downey Savings and Loan Ass’n, F.A., 541 F. Supp. 2d 1108 (C.D. Cal. 2008) and Mandrigues v. World Savings, Inc., No. C 07-04497 JF, 2008 WL 1701948 (N.D. Cal. 2008) where preemption was not applied), (ii) TILA preempts the plaintiff’s UCL claim based upon a violation of TILA because the claims were based on the terms of credit of the loan and disclosure of such terms, which fall under TILA and not state law. In addition, the court found that applying the UCL in this matter could affect the statute of limitations and damages available under TILA, and (iii) HOLA preempts the plaintiff’s claim under the California Financial Code because deciding the claim would necessarily impose requirements on the terms of credit and loan-related fees, which fall specifically under HOLA. Similarly, the court also held that claims based upon “fraudulent omission” were also specific to terms of credit and thus preempted by TILA. The court failed to dismiss the plaintiff’s claims under general contracts principles, reasoning that, because these claims would not impose requirements regarding lending practices, they were not preempted. For a copy of the decision, please see http://www.buckleykolar.com/documents/Nava_v_Virtualbank.pdf.
Mississippi Federal Court States Pleading Requirements For FCRA Complaint. On July 10, a federal district court in Mississippi denied defendant’s motion to dismiss a claim arising under the Fair Credit Reporting Act (FCRA) and clarified pleading requirements for such a claim. Zimmerman v. Bank of America, No. 1:07CV294 (E.D. Miss. 2008). Plaintiff alleged Bank of America continued to incorrectly report the existence of an account in plaintiff’s name, even after plaintiff enlisted the services of a credit reporting agency to investigate the account. Bank of America moved for a motion to dismiss based on the fact that plaintiff’s complaint failed to state prerequisites necessary for liability under FCRA. Specifically, the complaint failed to allege that the bank received notice from the credit reporting agency. The court agreed that a FCRA complaint must plead that a defendant received notice from a consumer reporting agency regarding inaccurate information, as well as upon which section of the FCRA the claim is based. While these facts were omitted from the pleadings, the court granted the plaintiff’s leave to amend the complaint indicating it would be unduly burdensome to the plaintiff, economically inefficient for both parties and a waste of judicial resources to dismiss the case. However, the court indicated that failure to file an amended complaint in a timely manner will “ripen” a motion to dismiss. For a copy of the decision, please see http://www.buckleykolar.com/documents/Zimmerman_v_Bank_of_America.pdf.
FIRM NEWS
Buckley Kolar lawyers will host a webinar on Thursday, July 24, 2008 at 1PM EST to discuss the provisions of the Federal Reserve Board’s final rule amending home mortgage provisions of Regulation Z and its implications for mortgage lenders. To register a site, please e-mail us at . The PowerPoint presentation summary for the webinar is available at http://www.buckleykolar.com/documents/HOEPARulePresentation.pdf.
FRB Issues Final Rule to Amend Home Mortgage Provisions of Regulation Z. On July 14, the Federal Reserve Board (FRB) issued a final rule addressing numerous practices that have been widespread in both the prime and subprime markets (reported in InfoBytes Special Alert, July 14, 2008). The rule (i) creates a new category of "higher-priced mortgage loans," intended to capture all closed-end subprime loans, subject to new requirements, (ii) imposes new appraisal and servicing requirements related to closed-end mortgages secured by a consumer's principal dwelling, and (iii) imposes new advertising requirements related to all mortgage loans. Compliance with most provisions of the final rule is mandatory for all mortgage loan applications received on or after October 1, 2009 and for mortgage servicing starting on that date regardless of when the loan was originated. For a copy of the Federal Register Notice that includes the final rule and official Federal Reserve staff commentary, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20080714a1.pdf. As noted above, Buckley Kolar will host a second webinar on Thursday, July 24, 2008 at 1PM EST to discuss the provisions and the implications for mortgage lenders. To register a site, please e-mail us at . The PowerPoint presentation summary for the webinar is available at http://www.buckleykolar.com/documents/HOEPARulePresentation.pdf.
Treasury Secretary Paulson Issues Statement on Initiatives for Fannie Mae and Freddie Mac. On July 13, United States Department of Treasury (Treasury) Secretary Henry Paulson issued a statement regarding Fannie Mae and Freddie Mac (GSEs). The statement announces a plan in conjunction with the President, Congress, the Federal Reserve, and other agencies that will temporarily increase the Treasury lines of credit available to the GSEs, as well as allow the Treasury to purchase equity in either GSE as needed. The plan further grants the Federal Reserve Board a role in the regulatory reform process as it relates to setting capital requirements and related issues. For a copy of the press release, please see http://www.treas.gov/press/releases/hp1079.htm.
FDIC Issues Policy Statement on Covered Bonds. On July 15, the Federal Deposit Insurance Corporation (FDIC) issued a final policy statement (Policy Statement) detailing the agency’s procedures for covered bonds in conservatorship or receivership. The Policy Statement is an attempt to facilitate the development of the U.S. covered bond market, which remains a relatively new market in the U.S., by providing bondholders expedited access to collateral should the FDIC decide not to continue covered bonds after a bank failure. The Policy Statement defines a covered bond as (i) “a debt obligation of a [depository institution] with a term greater than one year and no more than thirty years which is secured by perfected security interests on assets held and owned by the [depository institution] consisting of eligible mortgages,” or (ii) “AAA-rated mortgage-backed securities secured by eligible mortgages if for no more than ten percent of the collateral for any covered bond issuance or series.” Cash and United States Treasury and agency securities may be substituted for the initial collateral as necessary to prudently manage the cover pool. Further, the FDIC, as conservator or receiver, consents that (i) if 10 days after written notice from a covered obligee that the bond is in default and the FDIC fails to pay damages, the obligee may exercise its contractual rights, (ii) if 10 days after written notice that the FDIC repudiates the covered bond and fails to pay damages, the obligee may exercise its contractual rights, and (iii) the liability of the conservator or receiver shall be limited to the par value of the bonds and any contractual interest accrued to the appointment of the conservator or receiver. For a copy of this policy statement, please see http://www.fdic.gov/news/news/press/2008/pr08060a.html.
American Securitization Forum Releases New Guidelines on ARM Loan Foreclosures and Loss Avoidance. On July 8, the American Securitization Forum issued an updated “Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans.” This release supersedes the prior December 6, 2007 release endorsed by President Bush, Treasury Secretary Henry Paulson and federal bank regulators. The Framework is intended to provide relief to troubled borrowers in the form of loan modifications and workouts and will facilitate servicers in streamlining the evaluation of such borrowers’ subprime adjustable rate mortgage portfolios. According to the new release, certain borrowers could be eligible for loan modifications that would freeze their interest rates at the current payment rate for five years if they meet specified criteria including, (i) the subject property is an owner-occupied primary residence, (ii) they are current on their loans, but cannot refinance because they have been previously delinquent, have little or no equity in their homes, or have poor credit scores, and (iii) they have payments that would increase by more than 10 percent due to an adjustable rate mortgage. For a copy of the complete document, please see http://www.americansecuritization.com/uploadedFiles/ASFStreamlinedFramework7.8.08.pdf.
Arizona Governor Signs Bills Requiring Loan Originator Licensure, Changing Renewal Date for Licensees. On July 7, Arizona Governor Janet Napolitano signed two bills, S.B. 1028 and S.B. 1029, requiring the licensure of loan originators and amending renewal dates for existing Mortgage Banker and Mortgage Broker licensees, respectively. S.B. 1028 (reported InfoBytes for July 3, 2008) sets forth education and exam requirements necessary to license loan originators. The bill does not require loan originators to become licensed until January 1, 2010. S.B. 1029 establishes an annual renewal date of December 31st for Mortgage Banker and Mortgage Broker licensees. For a copy of S.B. 1028, please see http://www.azleg.gov/legtext/48leg/2r/bills/sb1028h.pdf. For a copy of S.B. 1029, please see http://www.azleg.gov/legtext/48leg/2r/bills/sb1029h.pdf.
Louisiana Passes Bill Authorizing Fees In Connection With The NMLS. On July 15, Louisiana bill S.B. 252 became law without the signature of Governor Bobby Jindal. The bill allows for the collection of fees in connection with Louisiana’s forthcoming participation in the Nationwide Mortgage Licensing System (NMLS). Louisiana is scheduled to begin accepting electronic submissions through NMLS on August 1, 2008. For a copy of the bill, please see http://www.legis.state.la.us/billdata/streamdocument.asp?did=505460. For more information on the NMLS, please see http://www.stateregulatoryregistry.org/NMLS.
New York Restricts The Enforcement of Due-On-Sale Clauses By Lenders. On July 7, the New York State legislature passed New York Assembly Bill 251, which restricts the ability of a lender to enforce a due-on-sale clause regarding real property loans secured by certain residential real property. The bill restricts a lenders option under a due-on-sale clause upon (i) granting a leasehold interest of three years or less not containing an option to purchase, (ii) transfers resulting from a decree of a dissolution of marriage, (iii) transfers to a relative, spouse or children resulting from the death of a borrower, (iv) transfer on the death of a joint tenant or tenant by the entirety, (v) transfer into an inter-vivos trust where the borrower is and remains a beneficiary . The bill is effective as of July 7, 2008. For a copy of the bill, please see http://assembly.state.ny.us/leg/?bn=A00251&sh=t.
Alabama Federal Court Denies Motions to Dismiss RESPA Section 8(b) Claims. On July 8, in a putative class action, the United States District Court for the Southern District of Alabama denied the defendant title company and lender’s motions to dismiss claims that the consumer plaintiff brought under Section 8(b) of the Real Estate Settlement Procedures Act (RESPA). Mallory v. GMS Funding, LLC, No. 07-0680-WS-C (S.D. Ala. July 8, 2008). Section 8(b) prohibits splitting charges for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. The plaintiff’s amended complaint challenged eight fees, each under a separate line item on the HUD-1 settlement statement, charged by the title company and lender defendants. The plaintiff’s allegation was not that the title company and the lender performed no work with respect to the eight challenged charges, but rather that they were fully compensated for all such services on other line items on the HUD-1 settlement statement, leaving nothing (beyond third-party costs) to be compensated on the eight challenged lines. Quoting Friedman v. Market Street Mortgage Corp., 530 F.3d 1289, 1291 (11th Cir. 2008), the court noted that “‘Subsection 8(b) does not apply to settlement fees that are alleged to be excessive,’” rather, it “‘requires a plaintiff to allege that no services were rendered in exchange for a settlement fee.’” However, finding, among other things, that Friedman did not address the ramifications of the plaintiff’s allegation that the title company and lender were fully compensated on other line items, the court denied the motions to dismiss, while granting the title company’s motion to the extent that its amended complaint purported to re-assert a claim regarding title insurance that the court previously dismissed. For a copy of the decision, please see http://www.buckleykolar.com/documents/Mallory_v_GMS.pdf.
California Federal Court Denies Claims Preempted By HOLA and TILA. In a recent case, a federal district court in California dismissed a borrower’s claims under California’s Unfair Competition Law (UCL), finding that the Truth in Lending Act (TILA) and the Home Owners’ Loan Act of 1933 (HOLA) preempted these claims, but did not dismiss general contracts claims under HOLA. Nava v VirtualBank et al., No. 2:08-CV-00069 (E.D. Ca. July 16, 2008). The case arose when the defendants sold the plaintiff an adjustable-rate mortgage (ARM) with an initial interest rate subject to increase after a period of time. The plaintiff argued that he was deprived of the benefit of the initial rate, which increased “immediately and significantly,” and that the loan would result in negative amortization and loss of equity if the plaintiff adhered to the payment schedule detailed in the loan’s disclosure statement after the rate increase. The court held that several claims were preempted by federal law, namely, (i) relying heavily on the analysis from Silvas v. E*Trade Mort. Corp., 514 F.3d 1001 (9th Cir. 2008), HOLA preempts the plaintiff’s fraudulent business practices claim because the claim is based upon improper disclosures relating to the terms of credit, which fall under HOLA (the court rejected the plaintiff’s argument that these claims arise from a state law of “general application” and distinguished its reasoning from Reyes v. Downey Savings and Loan Ass’n, F.A., 541 F. Supp. 2d 1108 (C.D. Cal. 2008) and Mandrigues v. World Savings, Inc., No. C 07-04497 JF, 2008 WL 1701948 (N.D. Cal. 2008) where preemption was not applied), (ii) TILA preempts the plaintiff’s UCL claim based upon a violation of TILA because the claims were based on the terms of credit of the loan and disclosure of such terms, which fall under TILA and not state law. In addition, the court found that applying the UCL in this matter could affect the statute of limitations and damages available under TILA, and (iii) HOLA preempts the plaintiff’s claim under the California Financial Code because deciding the claim would necessarily impose requirements on the terms of credit and loan-related fees, which fall specifically under HOLA. Similarly, the court also held that claims based upon “fraudulent omission” were also specific to terms of credit and thus preempted by TILA. The court failed to dismiss the plaintiff’s claims under general contracts principles, reasoning that, because these claims would not impose requirements regarding lending practices, they were not preempted. For a copy of the decision, please see http://www.buckleykolar.com/documents/Nava_v_Virtualbank.pdf.
OTS Closes IndyMac Bank, FDIC Named Conservator. On July 11, the Office of Thrift Supervision (OTS) closed IndyMac Bank (IndyMac) after determining IndyMac was unable to meet depositors’ demands and thereby operating in an “unsafe and unsound condition.” On July 14, IndyMac Federal Bank, FSB, which is run by the FDIC, succeeded IndyMac. The FDIC, as conservator of IndyMac, transferred insured deposits and substantially all of IndyMac’s assets to the FSB, and insured depositors and borrowers of IndyMac automatically became customers of the FSB. Loan customers will continue to make loan payments as before. IndyMac is the largest OTS-regulated thrift ever to fail. For a copy of the press release from the OTS, please see http://www.ots.treas.gov/docs/7/778029.html. For a copy of the press release from the FDIC, please see http://www.fdic.gov/news/news/press/2008/pr08056.html.
FDIC Issues Policy Statement on Covered Bonds. On July 15, the Federal Deposit Insurance Corporation (FDIC) issued a final policy statement (Policy Statement) detailing the agency’s procedures for covered bonds in conservatorship or receivership. The Policy Statement is an attempt to facilitate the development of the U.S. covered bond market, which remains a relatively new market in the U.S., by providing bondholders expedited access to collateral should the FDIC decide not to continue covered bonds after a bank failure. The Policy Statement defines a covered bond as (i) “a debt obligation of a [depository institution] with a term greater than one year and no more than thirty years which is secured by perfected security interests on assets held and owned by the [depository institution] consisting of eligible mortgages,” or (ii) “AAA-rated mortgage-backed securities secured by eligible mortgages if for no more than ten percent of the collateral for any covered bond issuance or series.” Cash and United States Treasury and agency securities may be substituted for the initial collateral as necessary to prudently manage the cover pool. Further, the FDIC, as conservator or receiver, consents that (i) if 10 days after written notice from a covered obligee that the bond is in default and the FDIC fails to pay damages, the obligee may exercise its contractual rights, (ii) if 10 days after written notice that the FDIC repudiates the covered bond and fails to pay damages, the obligee may exercise its contractual rights, and (iii) the liability of the conservator or receiver shall be limited to the par value of the bonds and any contractual interest accrued to the appointment of the conservator or receiver. For a copy of this policy statement, please see http://www.fdic.gov/news/news/press/2008/pr08060a.html.
FRB Streamlines De Novo Bank Membership Applications. On July 10, the Federal Reserve Board Division of Banking Supervision and Regulation (Division) issued letter SR 09-5 describing steps the Division is taking to streamline the application process for de novo bank membership applications. The steps include (i) allowing organizers to file simultaneously with filing the Interagency Charter and Federal Deposit Insurance Application form with the state banking agency and the Federal Deposit Insurance Corporation (FDIC), (ii) increasing coordination with the FDIC and the state banking agency to avoid duplicate information requests, and (iii) encouraging applicants to submit certain “name-check” process information for use by the Federal Reserve simultaneously when submitting the same to the banking agency. For a copy of the letter, please see http://www.federalreserve.gov/boarddocs/srletters/2008/SR0805.htm.
West Virginia Federal Court Rules Federal Law Preempts State Common Law Claim of Unconscionability Against National Bank. In a recent case, a West Virginia federal court upheld a national bank’s preemption defense against a borrower’s claim that various lending practices and terms were unconscionable under state contract law. Watkins v. Wells Fargo Home Mortgage, No. 08-0132 (S.D. W. Va. June 19, 2008). Here, the borrower sued Wells Fargo Home Mortgage (Wells Fargo) for several causes of action (both class and individual), stating that certain terms of her loan, such as the loan to value ratio and the terms of credit and fees, were unconscionable. The plaintiff agreed that Wells Fargo was a national bank subject to federal law, but argued that national banks are still subject to the contract principles of unconscionability, which are not preempted by the National Bank Act (NBA) and corresponding regulations of the Office of the Comptroller of the Currency (OCC). The court disagreed, stating that the complaints relate to the real estate lending practices regulated by the OCC, which specifically provide that national banks may deal in adjustable rate loans without regard to state limitations. Because Congress intended for the NBA to occupy the field with respect to regulating national banks’ practices in real estate lending, and because a state unconscionability law purporting to regulate the lending activities of national banks would conflict with OCC regulations and the NBA, the court held that the plaintiff’s claims that her loan was an unconscionable contract is preempted. However, on a separate claim that Wells Fargo engaged in a joint venture with an appraiser to inflate the value of plaintiff’s home which fraudulently induced her into accepting the loan, the court held that preemption does not apply because the joint venture, methods of appraisal, and inducement to contract are not part of the core business of national banks’ real estate lending activities. For a copy of the decision, please see http://www.buckleykolar.com/documents/Watkins_v_Wells_Fargo.pdf.
Nevada Federal Court Questions Legality of Credit Notation on Non-Filing Spouse. On July 7, a federal district court in Nevada ruled that the plaintiff’s claim raised material issues of fact regarding the legality of her bank’s action under the Fair Credit Reporting Act (FCRA) in placing negative notations on her credit report. Smith v. Ohio Savings Bank, F.S.B., No. 2:05-cv-1236-LDG-RJJ, 2008 WL 2704719 (D.Nev. July 7, 2008). Diana Owen Smith had purchased an automobile in her name only and financed it with Ohio Savings Bank. The title of the vehicle was in her name, and she was the only borrower signing the loan agreement. Subsequently, her husband filed a Chapter 13 Bankruptcy petition. In his petition, he listed the plaintiff as a spouse and listed her vehicle as an exempt asset. In doing so, the plaintiff’s husband obtained the benefits of a community stay and co-debtor filing. Although Ms. Smith was not a party to the bankruptcy petition, Ohio Savings Bank reported to the credit reporting agencies (CRAs) that her loan agreement was included in bankruptcy and her credit report profile should include a notation to that effect. The bank claimed that “it is common industry practice, in community property states such as Nevada, to place a bankruptcy notation on the file of a non-filing spouse, because the debt is presumed to be communal.” However, the bank’s policies and procedures provide that no bankruptcy notation should be made for a non-filing spouse. When the plaintiff contested the notation, the bank conducted a review of the account but added the notation “paid or paying as agreed,” without removing the bankruptcy notation. After the plaintiff filed her complaint in court, the bank removed the bankruptcy notation from the credit report profile. In her claim, plaintiff alleged that the defendant “violated FCRA § 1681s-2 by intentionally or negligently reporting inaccurate information to a CRA, and by failing to investigate and correct inaccurate information once placed on notice by a consumer.” Both parties filed for summary judgment. The court denied the defendant’s motion, finding that there were genuine issues of material fact regarding the accuracy of the credit report notations and the reasonableness of the bank’s investigative procedures. The court also found that, although a community property presumption may exist, the furnisher of credit information is not excused as a matter of law from providing misleading information or failing to conduct a reasonable investigation. The court similarly denied the plaintiff’s motion because of the existence of issues of fact. For a copy of the opinion, see http://www.buckleykolar.com/documents/Smith_v_Ohio_Savings_Bank.pdf.
Florida Federal Court Finds Internet Receipts Are Not Subject to FACTA Truncation Requirements. In a recent decision, a Florida federal court held that the truncation requirements under the Fair and Accurate Credit Transaction Act (FACTA) are not violated if more than the last five digits osf a credit card number are e-mailed on a receipt provided to the cardholder at the point of sale or transaction because an e-mail transmission is not considered “printed.” Grabein v. Jupiterimages Corp., No. 07-22288 (S.D. Fla. July 7, 2008). In this case, an online merchant e-mailed the purchaser a receipt that included six numbers of the purchaser’s debit card (the first two digits and the last four digits of the card number). The court determined that because the merchant did not “print” the receipt, but instead sent an e-mail confirmation receipt to the purchaser, the FACTA truncation requirements do not apply. The court looked to the plain meaning of the term “print” and reasoned that, in order for FACTA to apply, a paper receipt must be provided to a customer at the point of sale. Moreover, the court pointed out that there is “no tangible ‘point of sale or transaction’ with respect to e-commerce,” and that, “[c]onsequently, internet receipts are not subject to the FACTA truncation requirements” (emphasis added). For copy of the decision, please see http://www.buckleykolar.com/documents/Grabein_v_Jupiterimages.pdf.
Mississippi Federal Court States Pleading Requirements For FCRA Complaint. On July 10, a federal district court in Mississippi denied defendant’s motion to dismiss a claim arising under the Fair Credit Reporting Act (FCRA) and clarified pleading requirements for such a claim. Zimmerman v. Bank of America, No. 1:07CV294 (E.D. Miss. 2008). Plaintiff alleged Bank of America continued to incorrectly report the existence of an account in plaintiff’s name, even after plaintiff enlisted the services of a credit reporting agency to investigate the account. Bank of America moved for a motion to dismiss based on the fact that plaintiff’s complaint failed to state prerequisites necessary for liability under FCRA. Specifically, the complaint failed to allege that the bank received notice from the credit reporting agency. The court agreed that a FCRA complaint must plead that a defendant received notice from a consumer reporting agency regarding inaccurate information, as well as upon which section of the FCRA the claim is based. While these facts were omitted from the pleadings, the court granted the plaintiff’s leave to amend the complaint indicating it would be unduly burdensome to the plaintiff, economically inefficient for both parties and a waste of judicial resources to dismiss the case. However, the court indicated that failure to file an amended complaint in a timely manner will “ripen” a motion to dismiss. For a copy of the decision, please see http://www.buckleykolar.com/documents/Zimmerman_v_Bank_of_America.pdf.
American Securitization Forum Releases New Guidelines on ARM Loan Foreclosures and Loss Avoidance. On July 8, the American Securitization Forum issued an updated “Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans.” This release supersedes the prior December 6, 2007 release endorsed by President Bush, Treasury Secretary Henry Paulson and federal bank regulators. The Framework is intended to provide relief to troubled borrowers in the form of loan modifications and workouts and will facilitate servicers in streamlining the evaluation of such borrowers’ subprime adjustable rate mortgage portfolios. According to the new release, certain borrowers could be eligible for loan modifications that would freeze their interest rates at the current payment rate for five years if they meet specified criteria including, (i) the subject property is an owner-occupied primary residence, (ii) they are current on their loans, but cannot refinance because they have been previously delinquent, have little or no equity in their homes, or have poor credit scores, and (iii) they have payments that would increase by more than 10 percent due to an adjustable rate mortgage. For a copy of the complete document, please see http://www.americansecuritization.com/uploadedFiles/ASFStreamlinedFramework7.8.08.pdf .
Alabama Federal Court Denies Motions to Dismiss RESPA Section 8(b) Claims. On July 8, in a putative class action, the United States District Court for the Southern District of Alabama denied the defendant title company and lender’s motions to dismiss claims that the consumer plaintiff brought under Section 8(b) of the Real Estate Settlement Procedures Act (RESPA). Mallory v. GMS Funding, LLC, No. 07-0680-WS-C (S.D. Ala. July 8, 2008). Section 8(b) prohibits splitting charges for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. The plaintiff’s amended complaint challenged eight fees, each under a separate line item on the HUD-1 settlement statement, charged by the title company and lender defendants. The plaintiff’s allegation was not that the title company and the lender performed no work with respect to the eight challenged charges, but rather that they were fully compensated for all such services on other line items on the HUD-1 settlement statement, leaving nothing (beyond third-party costs) to be compensated on the eight challenged lines. Quoting Friedman v. Market Street Mortgage Corp., 530 F.3d 1289, 1291 (11th Cir. 2008), the court noted that “‘Subsection 8(b) does not apply to settlement fees that are alleged to be excessive,’” rather, it “‘requires a plaintiff to allege that no services were rendered in exchange for a settlement fee.’” However, finding, among other things, that Friedman did not address the ramifications of the plaintiff’s allegation that the title company and lender were fully compensated on other line items, the court denied the motions to dismiss, while granting the title company’s motion to the extent that its amended complaint purported to re-assert a claim regarding title insurance that the court previously dismissed. For a copy of the decision, please see http://www.buckleykolar.com/documents/Mallory_v_GMS.pdf.
West Virginia Federal Court Rules Federal Law Preempts State Common Law Claim of Unconscionability Against National Bank. In a recent case, a West Virginia federal court upheld a national bank’s preemption defense against a borrower’s claim that various lending practices and terms were unconscionable under state contract law. Watkins v. Wells Fargo Home Mortgage, No. 08-0132 (S.D. W. Va. June 19, 2008). Here, the borrower sued Wells Fargo Home Mortgage (Wells Fargo) for several causes of action (both class and individual), stating that certain terms of her loan, such as the loan to value ratio and the terms of credit and fees, were unconscionable. The plaintiff agreed that Wells Fargo was a national bank subject to federal law, but argued that national banks are still subject to the contract principles of unconscionability, which are not preempted by the National Bank Act (NBA) and corresponding regulations of the Office of the Comptroller of the Currency (OCC). The court disagreed, stating that the complaints relate to the real estate lending practices regulated by the OCC, which specifically provide that national banks may deal in adjustable rate loans without regard to state limitations. Because Congress intended for the NBA to occupy the field with respect to regulating national banks’ practices in real estate lending, and because a state unconscionability law purporting to regulate the lending activities of national banks would conflict with OCC regulations and the NBA, the court held that the plaintiff’s claims that her loan was an unconscionable contract is preempted. However, on a separate claim that Wells Fargo engaged in a joint venture with an appraiser to inflate the value of plaintiff’s home which fraudulently induced her into accepting the loan, the court held that preemption does not apply because the joint venture, methods of appraisal, and inducement to contract are not part of the core business of national banks’ real estate lending activities. For a copy of the decision, please see http://www.buckleykolar.com/documents/Watkins_v_Wells_Fargo.pdf.
Nevada Federal Court Questions Legality of Credit Notation on Non-Filing Spouse. On July 7, a federal district court in Nevada ruled that the plaintiff’s claim raised material issues of fact regarding the legality of her bank’s action under the Fair Credit Reporting Act (FCRA) in placing negative notations on her credit report. Smith v. Ohio Savings Bank, F.S.B., No. 2:05-cv-1236-LDG-RJJ, 2008 WL 2704719 (D.Nev. July 7, 2008). Diana Owen Smith had purchased an automobile in her name only and financed it with Ohio Savings Bank. The title of the vehicle was in her name, and she was the only borrower signing the loan agreement. Subsequently, her husband filed a Chapter 13 Bankruptcy petition. In his petition, he listed the plaintiff as a spouse and listed her vehicle as an exempt asset. In doing so, the plaintiff’s husband obtained the benefits of a community stay and co-debtor filing. Although Ms. Smith was not a party to the bankruptcy petition, Ohio Savings Bank reported to the credit reporting agencies (CRAs) that her loan agreement was included in bankruptcy and her credit report profile should include a notation to that effect. The bank claimed that “it is common industry practice, in community property states such as Nevada, to place a bankruptcy notation on the file of a non-filing spouse, because the debt is presumed to be communal.” However, the bank’s policies and procedures provide that no bankruptcy notation should be made for a non-filing spouse. When the plaintiff contested the notation, the bank conducted a review of the account but added the notation “paid or paying as agreed,” without removing the bankruptcy notation. After the plaintiff filed her complaint in court, the bank removed the bankruptcy notation from the credit report profile. In her claim, plaintiff alleged that the defendant “violated FCRA § 1681s-2 by intentionally or negligently reporting inaccurate information to a CRA, and by failing to investigate and correct inaccurate information once placed on notice by a consumer.” Both parties filed for summary judgment. The court denied the defendant’s motion, finding that there were genuine issues of material fact regarding the accuracy of the credit report notations and the reasonableness of the bank’s investigative procedures. The court also found that, although a community property presumption may exist, the furnisher of credit information is not excused as a matter of law from providing misleading information or failing to conduct a reasonable investigation. The court similarly denied the plaintiff’s motion because of the existence of issues of fact. For a copy of the opinion, see http://www.buckleykolar.com/documents/Smith_v_Ohio_Savings_Bank.pdf.
Florida Federal Court Finds Internet Receipts Are Not Subject to FACTA Truncation Requirements. In a recent decision, a Florida federal court held that the truncation requirements under the Fair and Accurate Credit Transaction Act (FACTA) are not violated if more than the last five digits of a credit card number are e-mailed on a receipt provided to the cardholder at the point of sale or transaction because an e-mail transmission is not considered “printed.” Grabein v. Jupiterimages Corp., No. 07-22288 (S.D. Fla. July 7, 2008). In this case, an online merchant e-mailed the purchaser a receipt that included six numbers of the purchaser’s debit card (the first two digits and the last four digits of the card number). The court determined that because the merchant did not “print” the receipt, but instead sent an e-mail confirmation receipt to the purchaser, the FACTA truncation requirements do not apply. The court looked to the plain meaning of the term “print” and reasoned that, in order for FACTA to apply, a paper receipt must be provided to a customer at the point of sale. Moreover, the court pointed out that there is “no tangible ‘point of sale or transaction’ with respect to e-commerce,” and that, “[c]onsequently, internet receipts are not subject to the FACTA truncation requirements” (emphasis added). For copy of the decision, please see http://www.buckleykolar.com/documents/Grabein_v_Jupiterimages.pdf.
California Federal Court Denies Claims Preempted By HOLA and TILA. In a recent case, a federal district court in California dismissed a borrower’s claims under California’s Unfair Competition Law (UCL), finding that the Truth in Lending Act (TILA) and the Home Owners’ Loan Act of 1933 (HOLA) preempted these claims, but did not dismiss general contracts claims under HOLA. Nava v VirtualBank et al., No. 2:08-CV-00069 (E.D. Ca. July 16, 2008). The case arose when the defendants sold the plaintiff an adjustable-rate mortgage (ARM) with an initial interest rate subject to increase after a period of time. The plaintiff argued that he was deprived of the benefit of the initial rate, which increased “immediately and significantly,” and that the loan would result in negative amortization and loss of equity if the plaintiff adhered to the payment schedule detailed in the loan’s disclosure statement after the rate increase. The court held that several claims were preempted by federal law, namely, (i) relying heavily on the analysis from Silvas v. E*Trade Mort. Corp., 514 F.3d 1001 (9th Cir. 2008), HOLA preempts the plaintiff’s fraudulent business practices claim because the claim is based upon improper disclosures relating to the terms of credit, which fall under HOLA (the court rejected the plaintiff’s argument that these claims arise from a state law of “general application” and distinguished its reasoning from Reyes v. Downey Savings and Loan Ass’n, F.A., 541 F. Supp. 2d 1108 (C.D. Cal. 2008) and Mandrigues v. World Savings, Inc., No. C 07-04497 JF, 2008 WL 1701948 (N.D. Cal. 2008) where preemption was not applied), (ii) TILA preempts the plaintiff’s UCL claim based upon a violation of TILA because the claims were based on the terms of credit of the loan and disclosure of such terms, which fall under TILA and not state law. In addition, the court found that applying the UCL in this matter could affect the statute of limitations and damages available under TILA, and (iii) HOLA preempts the plaintiff’s claim under the California Financial Code because deciding the claim would necessarily impose requirements on the terms of credit and loan-related fees, which fall specifically under HOLA. Similarly, the court also held that claims based upon “fraudulent omission” were also specific to terms of credit and thus preempted by TILA. The court failed to dismiss the plaintiff’s claims under general contracts principles, reasoning that, because these claims would not impose requirements regarding lending practices, they were not preempted. For a copy of the decision, please see http://www.buckleykolar.com/documents/Nava_v_Virtualbank.pdf.
Mississippi Federal Court States Pleading Requirements For FCRA Complaint. On July 10, a federal district court in Mississippi denied defendant’s motion to dismiss a claim arising under the Fair Credit Reporting Act (FCRA) and clarified pleading requirements for such a claim. Zimmerman v. Bank of America, No. 1:07CV294 (E.D. Miss. 2008). Plaintiff alleged Bank of America continued to incorrectly report the existence of an account in plaintiff’s name, even after plaintiff enlisted the services of a credit reporting agency to investigate the account. Bank of America moved for a motion to dismiss based on the fact that plaintiff’s complaint failed to state prerequisites necessary for liability under FCRA. Specifically, the complaint failed to allege that the bank received notice from the credit reporting agency. The court agreed that a FCRA complaint must plead that a defendant received notice from a consumer reporting agency regarding inaccurate information, as well as upon which section of the FCRA the claim is based. While these facts were omitted from the pleadings, the court granted the plaintiff’s leave to amend the complaint indicating it would be unduly burdensome to the plaintiff, economically inefficient for both parties and a waste of judicial resources to dismiss the case. However, the court indicated that failure to file an amended complaint in a timely manner will “ripen” a motion to dismiss. For a copy of the decision, please see http://www.buckleykolar.com/documents/Zimmerman_v_Bank_of_America.pdf.
Pennsylvania Bill Restricts Property Insurance Coverage. On July 4, Pennsylvania Governor Edward Rendell signed H.B. 2428, which prohibits lenders from requiring borrowers to obtain property insurance coverage that exceeds the replacement value of the buildings on the land securing a loan. Further, the bill prohibits lenders from requiring borrowers to insure the value of the land. The bill is effective immediately. For a copy of the bill, please see http://www.buckleykolar.com/documents/PA_2428.pdf.
Delaware Enacts Electronic Notary Law. Delaware Governor Ruth Ann Minner recently signed S.B. 246, a bill authorizing the appointment of electronic notaries. The bill permits the Governor to appoint resident and non-resident electronic notaries who maintain an office or regular place of business in Delaware. In addition, the Governor may appoint non-residents who are attorneys or employees of financial institutions that demonstrate a reasonable need to be a Delaware electronic notary. The bill also specifies the form of the electronically reproducible seal to be used by electronic notaries and amends the fee schedule for notary services and commissions to include fees related to electronic notarizations. The bill takes effect February 1, 2009. For a copy of the bill, please see http://www.buckleykolar.com/documents/DE_246.pdf.
Florida Federal Court Finds Internet Receipts Are Not Subject to FACTA Truncation Requirements. In a recent decision, a Florida federal court held that the truncation requirements under the Fair and Accurate Credit Transaction Act (FACTA) are not violated if more than the last five digits of a credit card number are e-mailed on a receipt provided to the cardholder at the point of sale or transaction because an e-mail transmission is not considered “printed.” Grabein v. Jupiterimages Corp., No. 07-22288 (S.D. Fla. July 7, 2008). In this case, an online merchant e-mailed the purchaser a receipt that included six numbers of the purchaser’s debit card (the first two digits and the last four digits of the card number). The court determined that because the merchant did not “print” the receipt, but instead sent an e-mail confirmation receipt to the purchaser, the FACTA truncation requirements do not apply. The court looked to the plain meaning of the term “print” and reasoned that, in order for FACTA to apply, a paper receipt must be provided to a customer at the point of sale. Moreover, the court pointed out that there is “no tangible ‘point of sale or transaction’ with respect to e-commerce,” and that, “[c]onsequently, internet receipts are not subject to the FACTA truncation requirements” (emphasis added). For copy of the decision, please see http://www.buckleykolar.com/documents/Grabein_v_Jupiterimages.pdf.
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