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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
OTS Seeks Comments on UDAP Rulemaking. The Office of Thrift Supervision (OTS) issued an Advance Notice of Proposed Rulemaking (ANPR) on August 3, asking whether it should issue regulations addressing unfair and deceptive acts or practices (UDAP). The OTS noted that it has two sources of authority to issue UDAP regulations: Section 18(f)(1) of the Federal Trade Commission (FTC) Act, which gives OTS exclusive authority to issue UDAP rules applicable to savings associations, and the Home Owners’ Loan Act, which OTS says gives it the power to issue UDAP regulations that would apply, concurrently with FTC rules, to “other entities within the savings association and savings and loan holding company structure.” The OTS seeks comment on whether it should consider further rulemaking on UDAPs that would cover products and services other than consumer credit, and, if so, whether such a rule should be limited to financial products and services. It also seeks comment on whether it should consider rulemaking on UDAPs that would apply to related entities as well as the savings association itself. It asks whether it should (i) adopt FTC guidance as OTS regulations, (ii) convert its own guidance into regulations, (iii) follow the approach of the Office of the Comptroller of the Currency in issuing anti-predatory-lending guidelines, or (iv) follow the approach of the Department of Housing and Urban Development which can deny affordable-housing credit to the government-sponsored enterprises for purchases of loans with certain objectionable features. Comments on the ANPR will be due 90 days after it is published in the Federal Register. For a copy of the ANPR, see http://www.ots.treas.gov/docs/7/73373.pdf.
FTC Asks for Comments on Private Sector's Use of Social Security Numbers. The Federal Trade Commission (FTC) is currently accepting comments on the private sector's use of Social Security numbers (SSN). The goal of the FTC is to develop a comprehensive record on such uses and to evaluate their necessity, following recommendations by the President's Identity Theft Task Force (covered in the April 27th issue of InfoBytes). The general topics for comment are (i) current private sector collection and uses of the SSN, (ii) the role of the SSN as authenticator, (iii) the SSN as an internal identifier, (iv) the role of the SSN in fraud prevention, and (v) the role of the SSN in identity theft. Comments must be received by September 5, 2007. To view the specific queries and the instructions on how to submit comments, please visit http://www.ftc.gov/opa/2007/07/ssncomments.shtm.
FRB Makes Annual Adjustment to HOEPA Points & Fee Triggers. On August 1, the Federal Reserve Board (FRB) announced a final rule to raise the dollar amount of points and fees required to trigger Home Ownership and Equity Protection Act (HOEPA) requirements and restrictions to $561 or 8% of the total loan amount. The present trigger – home-secured loans with points and fees exceeding $547 or 8% of the total loan amount – remains until the new rule goes into effect on January 1, 2008. The adjustment reflects the annual percentage change in the Consumer Price Index on June 1, 2007. A copy of the rule is available at http://www.federalreserve.gov/boarddocs/press/bcreg/2007/20070801/attachment.pdf.
OTS Revises Handbook Regarding Mortgage Banking. On July 31, the Office of Thrift Supervision (OTS) published a regulatory bulletin announcing an updated and revised section of its Examination Handbook pertaining to mortgage banking. The new section, numbered 750, replaces sections 571 through 576 originally published in 1994. The new Handbook guidance went into effect immediately, and can be found at http://www.ots.treas.gov/docs/7/74836.pdf.
STATE ISSUES
AARMR and CSBS Release Model Exam Guidelines. On July 31, the American Association of Residential Mortgage Regulators (AARMR) and the Conference of State Bank Supervisors (CSBS) issued model examination guidelines for state regulators examining non-traditional and subprime mortgage lenders and brokers. The new guidelines incorporate recent CSBS and AARMR guidance on non-traditional mortgage products and subprime mortgage lending (reported in the November 17, 2006 and July 20, 2007 issues of InfoBytes, respectively). And, though the examination guidelines are “not a required standard,” they are intended to aid regulators in the implementation of new non-traditional and subprime standards, as well as improve uniformity of the regulatory burdens on regulated entities. According to the official joint AARMR and CSBS press release, “a number of states have already identified they will use the guidelines in upcoming examinations of state-licensed lenders.” For the official press release, see http://www.aarmr.org/pdf/PressRelease_July312007.pdf.
COURTS
District Court Applies Safeco Test to Find No Willful Violation of FCRA in Firm Offer Case. On July 23, a federal district court in the Northern District of Illinois applied the U.S. Supreme Court's holding in Safeco Ins. Co. of America v.Burr, 551 U.S. 1, 127 S. Ct. 2201 (June 4, 2007) to rule that a lender did not willfully violate the Fair Credit Reporting Act's (FCRA) firm offer requirement because its reading of the statute was not "objectively unreasonable." Murray v. GMAC Mortgage Corp., No. 05-01229, 2007 U.S. Dist. LEXIS 53777 (N.D. Ill, Jul. 23, 2007). (For information regarding Safeco v. Burr, please see the June 4th InfoBytes Special Alert.) In this case, the plaintiff alleged that GMAC Mortgage Corp. (GMACM) violated FCRA when it sent a mailing that was neither "clear and conspicuous" nor a "firm offer" of credit. In a ruling on the same case earlier this year (April 10th), the district court had agreed with the plaintiff that GMACM had not made a valid “firm offer” under FCRA and granted the plaintiff summary judgment and class certification. (See the April 20th issue of InfoBytes.). This followed a decision of the U.S. Court of Appeals for the Seventh Circuit that reversed the district court’s previous denial of class certification (reported in the January 20, 2006 issue of InfoBytes). In this most recent case, GMACM filed a motion to reconsider in light of the Supreme Court's decision in Safeco, in which the Supreme Court interpreted the provision of FCRA providing for civil liability for willful violations (which include both knowing and reckless violations) and requiring statutory damages of $100-$1000 per violation. In the Safeco case, the Court applied an objective standard to determining whether a violation is reckless. The district court in Murray v. GMAC interpreted the Safeco objective standard as setting forth a two-stage test for determining whether a defendant that misinterpreted FCRA acted recklessly. First, the reading of the statute must have been objectively unreasonable. Second, the party must have run "a risk of violating the law substantially greater than the risk associated with a reading that was merely careless." Applying the Safeco test, the district court found that GMACM's reading of the statute was not objectively unreasonable. It relied on three key facts: (i) that the statutory text of what constitutes a "firm offer" is "less-than-pellucid," and GMACM's reading of the text was not unreasonable; (ii) that at the time the mailers in question were created in 2004, the judicial and administrative guidance on the issue was unclear; and (iii) that other courts at the time read the statute the same way as GMACM did, meaning GMACM's reading of the statute was reasonable enough to convince a court of its accuracy. Consequently, the district court granted the motion to reconsider, granted summary judgment in favor of defendants, and denied class certification. For a copy of the court's order, please contact .
Court Holds that Contract Modification Posted to Web Site Was Ineffective without Notice. On July 18, the United States Court of Appeals for the Ninth Circuit held that a consumer was not bound by the modified terms of an agreement that was merely posted online when the consumer did not have notice of the modification. The plaintiff in Douglas v. United States District Court, No. 06-75424 (9th Cir. July 18, 2007), had entered into an agreement with America Online, Inc. for long distance telephone service. Subsequently, America Online, Inc. sold the business line to Talk America, Inc., which modified the terms of the service agreement and placed the modified agreement on its web site. The modifications included additional charges, an arbitration clause, a class-action waiver, and a choice of law provision. Talk America, Inc. did not notify the plaintiff of the modifications. The plaintiff continued using the Talk America, Inc. service for four years, having bills automatically charged to his credit card, allegedly unaware of the additional charges and other modified terms. After four years, plaintiff became aware of the additional charges and filed a class action against Talk America, Inc., alleging violations of the Federal Communications Act and various California consumer protection statutes. The federal district court granted Talk America, Inc.’s motion to compel arbitration, and the plaintiff appealed. On appeal, the Ninth Circuit held that the modifications in the service agreement were ineffective against the plaintiff because the plaintiff had not received notice of the modifications. The Court held that Talk America, Inc.’s posting of the modified agreement on its web site was insufficient. “Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side.” Because the plaintiff was not given notice of the modifications, the court deemed the modification to have been made unilaterally without the plaintiff’s consent. The court also rejected arguments that the plaintiff had assented to the modifications by using the Talk America, Inc. service for four years, holding that “such assent can only be inferred after [plaintiff] received proper notice of the proposed changes.” For a copy of the Ninth Circuit’s opinion, please see http://www.ca9.uscourts.gov/.
Claims Against MERS under Florida Debt Collection and UDAP Laws Dismissed. On July 20, a federal district court dismissed claims against Mortgage Electronic Registration Systems, Inc. (MERS), on all counts dealing with the Florida Consumer Collection Practices Act (FCCPA) and the Florida Deceptive and Unfair Trade Practices Act (FDUTPA). Trent v. Mortgage Electronic Registration Systems, Inc., No. 3:06-cv-374 (M.D. Fla. July 20, 2007). With respect to dismissing the FCCPA claim regarding the deceptive or abusive nature of pre-foreclosure notices, the court looked, in the absence of a clear state-law precedent, to prior interpretations of the federal Fair Debt Collection Practices Act to determine that foreclosure is not debt collection under the FCCPA. The court followed the reasoning of, among other decisions, Hulse v. Ocwen Federal Bank, FSB, 195 F. Supp. 2d 1188, 1204 (D.Or. 2002) stating that foreclosing on a mortgage "is distinct from the collection of the obligation to pay money . . . . Payment of funds is not the object of the foreclosure action. Rather, the lender is foreclosing its interest in the property." Moreover, communicating to borrowers that MERS is a creditor does not rise to the level of abusive or harassing conduct under the FCCPA even if use of the term "creditor" to describe MERS is technically incorrect. The plaintiff's claims under the FCCPA that MERS did not register as a collection agency or did not obtain a mortgage lending license as required also failed because the claims did not fall within the purview of § 559.72, a section permitting a private right of action. Moreover, the claims under the FDUTPA that MERS engaged in deceptive and unfair practices were also dismissed because in the mortgage contract the lender disclosed MERS's role at the time the loan was originated. In a footnote, the court also stated that even assuming MERS's practices were unfair and deceptive, the practices do not constitute trade commerce within the purview of the FDUTPA. A copy of the ruling can be obtained by emailing .
U.S. District Court Dismisses FCRA Willful Adverse Action Claim Based on Safeco. In Broessel v. Triad Guaranty Insurance Corp., No. 1:04-CV-4-M, 2007 WL 2155691 (W.D. Ky. July 25, 2007), the U.S. District Court for the Western District of Kentucky had previously held that a mortgage insurer that offered mortgage insurance at a rate that was higher than the best rate available had taken adverse action against the consumer, under the “insurance prong” of the Fair Credit Reporting Act’s definition of “adverse action.” (See the September 30, 2005 issue of InfoBytes for a discussion of the previous decision.) In the current decision, the court granted partial summary judgment to the mortgage insurer on the consumer’s claim that the insurer willfully violated FCRA when it did not provide an adverse action notice after charging a new customer a rate higher than its best rate, based on the clarification of the meaning of “willfulness” in the Supreme Court’s Safeco v. Burr decision. (For information regarding Safeco v. Burr, please see the June 4th InfoBytes Special Alert.) The court in Broessel noted that “Triad shared Safeco’s objectively reasonable, though mistaken belief, that charging a new customer higher than its best rate did not constitute an adverse action under the statute”; no court of appeals had yet considered the adverse action issue when Triad failed to provide the notice; and the Supreme Court in Safeco explicitly rejected reliance on informal staff letters as “authoritative guidance from the FTC.” Because the consumer was only seeking class certification on her willfulness claim, the court also denied class certification. For a copy of the court’s order, please contact .
Court Sustains TiLA Statutory Damages Claim Against Credit Card Issuer. On July 9, a federal district court in Illinois sustained a Truth in Lending Act (TiLA) statutory damages claim against World Financial Network National Bank in connection with a private label credit card issued by the bank. Villasenor v. American Signature, Inc., No. 06-C-5493, 2007 U.S. Dist. LEXIS 49299 (N.D. Ill. July 9, 2007). The plaintiff in the case opened the credit card account at a furniture store after observing a sign advertising “no interest til 2011” in the store window. According to the plaintiff—who purchased several items at the store using the new credit card—although the credit card disclosures provided that no interest charges would apply to the purchase if the balance were paid in full before the end of the applicable promotional period, the cash register receipt indicated that he would be required to pay a $704.64 finance charge. The plaintiff alleged that the bank had failed to disclose the increased price of goods purchased on “no interest” plans as a finance charge, in violation of TiLA. According to the court, the complaint established a plausible entitlement to statutory damages, inasmuch as it alleged that the bank violated section 1637(a) of TiLA, which requires creditors to disclose the conditions under which a finance charge may be imposed before an account is opened. The court, among other things, dismissed the plaintiff’s TiLA claim for actual damages, finding that the plaintiff had not alleged any facts suggesting detrimental reliance. For a copy of the opinion, please contact .
Fourth Amendment Does Not Protect Website Contents If Site Owner Shares Password. A federal district court recently held, on a motion to suppress evidence, that the Fourth Amendment does not protect the contents of a password-protected website if the password has been shared with a third party. U.S. v. D’Andrea, No. 06-10082-RGS (D. Mass. Jul. 20, 2007). In D’Andrea, an anonymous tipster alerted the government to the presence of evidence of possible criminal activity that the defendants had posted on a password-protected website. The tipster also provided the government with the site’s password. Government investigators used the password to access the website, which led them to later seek and obtain a search warrant for the defendants’ premises, ultimately leading to the defendants’ arrest and indictment. The defendants moved to suppress the evidence obtained from the website and the subsequent search, arguing that they had a reasonable expectation of privacy in the contents of their website because it was protected by the password. The court believed that the defendants must have shared the password with a third party, and determined that they did not have a reasonable expectation of privacy in the website as a result of the disclosure. Moreover, the court noted that the Fourth Amendment does not preclude the government from using evidence voluntarily provided to it by third parties. Accordingly, the government’s warrantless review of the website did not violate the Fourth Amendment, and the fruits of that review (i.e., the evidence obtained by the website review and subsequent search) would not be suppressed. Please contact for a copy of the court’s Memorandum and Order.
Website Under Construction Not Sufficient To Establish Jurisdiction. A Texas federal court dismissed a cybersquatting case because the website owner had not subjected himself to jurisdiction in Texas. Drive Financial Services, LP v. Ginsburg, No. 3:06-CV-1288-G (N.D. Tex., filed July 19, 2007). Plaintiff, an auto finance company, sued a California resident claiming that defendant’s domain name “www.drive.com” violated the Anti-Cybersquatting Consumer Protection Act and state and federal trademark protections. The court dismissed the complaint, however, finding that the defendant did not have sufficient contacts with Texas to justify the exercise of personal jurisdiction. In doing so, the court used the sliding scale test announced in Zippo Manufacturing Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1124 (W.D. Pa. 1997), and adopted by the Fifth Circuit in Mink v. AAAA Development LLC, 190 F.3d 333, 336 (5th Cir. 1999), to analyze whether “the level of interactivity and commercial nature of the exchange of information that occurs on the [w]ebsite” justified personal jurisdiction. According to the court, it did not. The defendant received two e-mails from Texans inquiring as to the availability of the domain name through the site which, in the court’s view, was not enough to justify specific jurisdiction over defendant. For a copy of this opinion, please contact .
Former SEC Officials Seek to Submit Supreme Court Brief in “Scheme Liability” Case. On July 16, Former SEC Chairmen Arthur Levitt and William Donaldson and former Commissioner Harvey Goldschmid sought permission from the U.S. Supreme Court to file a late “friend of the court” brief in Stoneridge Investment Partners LLC v. Scientific-Atlanta, Inc., No. 06-43, (U.S.), a case which looks at whether third parties can share direct responsibility for company fraud. The brief is in support of the position of defrauded stockholders that any person who directly or indirectly engages in a manipulative or deceptive act as part of a scheme to defraud can be a primary violator of the antifraud provisions of Rule 10b-5 under the Securities Exchange Act. In a divided 3-2 vote, the SEC had chosen to ask the U.S. Solicitor General — which files the government's briefs in Supreme Court cases — to file an amicus brief in support of the shareholders in a case to be heard by the Supreme Court this fall. However, the Solicitor General declined to file a brief on the issue. In their brief, the three former SEC officials argue that the appeals court decision in this case “immunizes non-issuers who commit securities fraud from private liability merely because they were cunning enough to avoid making a public statement.” Their brief argues that “[i]t is critical to the antifraud purposes of the federal securities laws that actors, other than issuers and their officers and directors, who actively engage in deceptive conduct – for the purpose and with the effect of creating a false statement of material fact in the disclosures of a public corporation – continue to be held liable in private actions.” Under this approach, professionals such as attorneys and accountants would be found civilly liable for indirectly assisting companies which make false statements even though they were not publicly identified as having participated in making those representations. Also, on July 30, House Financial Services Committee Chairman Barney Frank (D – MA) and Congressman John Conyers (D – MD) filed a brief along similar lines. As of today, the requests to file these briefs have not been granted. Some of the briefs filed in this case, scheduled to be argued October 9, 2007, can be found at http://www.abanet.org/publiced/preview/briefs/oct07.shtml#0643
District Court Certifies FCRA “Firm Offer” Class. A federal district court recently granted class-action status to plaintiffs in a Fair Credit Reporting Act (FCRA) “firm offer of credit.” Bernal v. Keybank, N.A., No. 06-C-8, 2007 WL 2050405 (E.D. Wis. July 11, 2007) In Bernal, the named plaintiff filed suit on behalf of all Wisconsin residents who had received a loan solicitation mailing from Keybank since November 2004. The plaintiff alleged that the violation of the FCRA was willful and sought statutory damages on behalf of all class members. The court did not address the impact of Safeco v. Burr on whether the consumer could obtain statutory damages (see discussion of Murray v. GMAC Mortgage above). For more information, please contact .
FIRM NEWS
Andrea Lee Negroni will present an update of 2006-2007 federal law developments affecting the mortgage banking industry and an overview of recent judicial decisions from around the country on mortgage lending topics, at the 18th Annual Conference of the American Association of Residential Mortgage Regulators (AARMR) in Salt Lake City, Utah, on August 20, 2007.
OTS Seeks Comments on UDAP Rulemaking. The Office of Thrift Supervision (OTS) issued an Advance Notice of Proposed Rulemaking (ANPR) on August 3, asking whether it should issue regulations addressing unfair and deceptive acts or practices (UDAP). The OTS noted that it has two sources of authority to issue UDAP regulations: Section 18(f)(1) of the Federal Trade Commission (FTC) Act, which gives OTS exclusive authority to issue UDAP rules applicable to savings associations, and the Home Owners’ Loan Act, which OTS says gives it the power to issue UDAP regulations that would apply, concurrently with FTC rules, to “other entities within the savings association and savings and loan holding company structure.” The OTS seeks comment on whether it should consider further rulemaking on UDAPs that would cover products and services other than consumer credit, and, if so, whether such a rule should be limited to financial products and services. It also seeks comment on whether it should consider rulemaking on UDAPs that would apply to related entities as well as the savings association itself. It asks whether it should (i) adopt FTC guidance as OTS regulations, (ii) convert its own guidance into regulations, (iii) follow the approach of the Office of the Comptroller of the Currency in issuing anti-predatory-lending guidelines, or (iv) follow the approach of the Department of Housing and Urban Development which can deny affordable-housing credit to the government-sponsored enterprises for purchases of loans with certain objectionable features. Comments on the ANPR will be due 90 days after it is published in the Federal Register. For a copy of the ANPR, see http://www.ots.treas.gov/docs/7/73373.pdf.
District Court Applies Safeco Test to Find No Willful Violation of FCRA in Firm Offer Case. On July 23, a federal district court in the Northern District of Illinois applied the U.S. Supreme Court's holding in Safeco Ins. Co. of America v.Burr, 551 U.S. 1, 127 S. Ct. 2201 (June 4, 2007) to rule that a lender did not willfully violate the Fair Credit Reporting Act's (FCRA) firm offer requirement because its reading of the statute was not "objectively unreasonable." Murray v. GMAC Mortgage Corp., No. 05-01229, 2007 U.S. Dist. LEXIS 53777 (N.D. Ill, Jul. 23, 2007). (For information regarding Safeco v. Burr, please see the June 4th InfoBytes Special Alert.) In this case, the plaintiff alleged that GMAC Mortgage Corp. (GMACM) violated FCRA when it sent a mailing that was neither "clear and conspicuous" nor a "firm offer" of credit. In a ruling on the same case earlier this year (April 10th), the district court had agreed with the plaintiff that GMACM had not made a valid “firm offer” under FCRA and granted the plaintiff summary judgment and class certification. (See the April 20th issue of InfoBytes.). This followed a decision of the U.S. Court of Appeals for the Seventh Circuit that reversed the district court’s previous denial of class certification (reported in the January 20, 2006 issue of InfoBytes). In this most recent case, GMACM filed a motion to reconsider in light of the Supreme Court's decision in Safeco, in which the Supreme Court interpreted the provision of FCRA providing for civil liability for willful violations (which include both knowing and reckless violations) and requiring statutory damages of $100-$1000 per violation. In the Safeco case, the Court applied an objective standard to determining whether a violation is reckless. The district court in Murray v. GMAC interpreted the Safeco objective standard as setting forth a two-stage test for determining whether a defendant that misinterpreted FCRA acted recklessly. First, the reading of the statute must have been objectively unreasonable. Second, the party must have run "a risk of violating the law substantially greater than the risk associated with a reading that was merely careless." Applying the Safeco test, the district court found that GMACM's reading of the statute was not objectively unreasonable. It relied on three key facts: (i) that the statutory text of what constitutes a "firm offer" is "less-than-pellucid," and GMACM's reading of the text was not unreasonable; (ii) that at the time the mailers in question were created in 2004, the judicial and administrative guidance on the issue was unclear; and (iii) that other courts at the time read the statute the same way as GMACM did, meaning GMACM's reading of the statute was reasonable enough to convince a court of its accuracy. Consequently, the district court granted the motion to reconsider, granted summary judgment in favor of defendants, and denied class certification. For a copy of the court's order, please contact .
Claims Against MERS under Florida Debt Collection and UDAP Laws Dismissed. On July 20, a federal district court dismissed claims against Mortgage Electronic Registration Systems, Inc. (MERS), on all counts dealing with the Florida Consumer Collection Practices Act (FCCPA) and the Florida Deceptive and Unfair Trade Practices Act (FDUTPA). Trent v. Mortgage Electronic Registration Systems, Inc., No. 3:06-cv-374 (M.D. Fla. July 20, 2007). With respect to dismissing the FCCPA claim regarding the deceptive or abusive nature of pre-foreclosure notices, the court looked, in the absence of a clear state-law precedent, to prior interpretations of the federal Fair Debt Collection Practices Act to determine that foreclosure is not debt collection under the FCCPA. The court followed the reasoning of, among other decisions, Hulse v. Ocwen Federal Bank, FSB, 195 F. Supp. 2d 1188, 1204 (D.Or. 2002) stating that foreclosing on a mortgage "is distinct from the collection of the obligation to pay money . . . . Payment of funds is not the object of the foreclosure action. Rather, the lender is foreclosing its interest in the property." Moreover, communicating to borrowers that MERS is a creditor does not rise to the level of abusive or harassing conduct under the FCCPA even if use of the term "creditor" to describe MERS is technically incorrect. The plaintiff's claims under the FCCPA that MERS did not register as a collection agency or did not obtain a mortgage lending license as required also failed because the claims did not fall within the purview of § 559.72, a section permitting a private right of action. Moreover, the claims under the FDUTPA that MERS engaged in deceptive and unfair practices were also dismissed because in the mortgage contract the lender disclosed MERS's role at the time the loan was originated. In a footnote, the court also stated that even assuming MERS's practices were unfair and deceptive, the practices do not constitute trade commerce within the purview of the FDUTPA. A copy of the ruling can be obtained by emailing .
AARMR and CSBS Release Model Exam Guidelines. On July 31, the American Association of Residential Mortgage Regulators (AARMR) and the Conference of State Bank Supervisors (CSBS) issued model examination guidelines for state regulators examining non-traditional and subprime mortgage lenders and brokers. The new guidelines incorporate recent CSBS and AARMR guidance on non-traditional mortgage products and subprime mortgage lending (reported in the November 17, 2006 and July 20, 2007 issues of InfoBytes, respectively). And, though the examination guidelines are “not a required standard,” they are intended to aid regulators in the implementation of new non-traditional and subprime standards, as well as improve uniformity of the regulatory burdens on regulated entities. According to the official joint AARMR and CSBS press release, “a number of states have already identified they will use the guidelines in upcoming examinations of state-licensed lenders.” For the official press release, see http://www.aarmr.org/pdf/PressRelease_July312007.pdf.
U.S. District Court Dismisses FCRA Willful Adverse Action Claim Based on Safeco. In Broessel v. Triad Guaranty Insurance Corp., No. 1:04-CV-4-M, 2007 WL 2155691 (W.D. Ky. July 25, 2007), the U.S. District Court for the Western District of Kentucky had previously held that a mortgage insurer that offered mortgage insurance at a rate that was higher than the best rate available had taken adverse action against the consumer, under the “insurance prong” of the Fair Credit Reporting Act’s definition of “adverse action.” (See the September 30, 2005 issue of InfoBytes for a discussion of the previous decision.) In the current decision, the court granted partial summary judgment to the mortgage insurer on the consumer’s claim that the insurer willfully violated FCRA when it did not provide an adverse action notice after charging a new customer a rate higher than its best rate, based on the clarification of the meaning of “willfulness” in the Supreme Court’s Safeco v. Burr decision. (For information regarding Safeco v. Burr, please see the June 4th InfoBytes Special Alert.) The court in Broessel noted that “Triad shared Safeco’s objectively reasonable, though mistaken belief, that charging a new customer higher than its best rate did not constitute an adverse action under the statute”; no court of appeals had yet considered the adverse action issue when Triad failed to provide the notice; and the Supreme Court in Safeco explicitly rejected reliance on informal staff letters as “authoritative guidance from the FTC.” Because the consumer was only seeking class certification on her willfulness claim, the court also denied class certification. For a copy of the court’s order, please contact .
FRB Makes Annual Adjustment to HOEPA Points & Fee Triggers. On August 1, the Federal Reserve Board (FRB) announced a final rule to raise the dollar amount of points and fees required to trigger Home Ownership and Equity Protection Act (HOEPA) requirements and restrictions to $561 or 8% of the total loan amount. The present trigger – home-secured loans with points and fees exceeding $547 or 8% of the total loan amount – remains until the new rule goes into effect on January 1, 2008. The adjustment reflects the annual percentage change in the Consumer Price Index on June 1, 2007. A copy of the rule is available at http://www.federalreserve.gov/boarddocs/press/bcreg/2007/20070801/attachment.pdf.
OTS Seeks Comments on UDAP Rulemaking. The Office of Thrift Supervision (OTS) issued an Advance Notice of Proposed Rulemaking (ANPR) on August 3, asking whether it should issue regulations addressing unfair and deceptive acts or practices (UDAP). The OTS noted that it has two sources of authority to issue UDAP regulations: Section 18(f)(1) of the Federal Trade Commission (FTC) Act, which gives OTS exclusive authority to issue UDAP rules applicable to savings associations, and the Home Owners’ Loan Act, which OTS says gives it the power to issue UDAP regulations that would apply, concurrently with FTC rules, to “other entities within the savings association and savings and loan holding company structure.” The OTS seeks comment on whether it should consider further rulemaking on UDAPs that would cover products and services other than consumer credit, and, if so, whether such a rule should be limited to financial products and services. It also seeks comment on whether it should consider rulemaking on UDAPs that would apply to related entities as well as the savings association itself. It asks whether it should (i) adopt FTC guidance as OTS regulations, (ii) convert its own guidance into regulations, (iii) follow the approach of the Office of the Comptroller of the Currency in issuing anti-predatory-lending guidelines, or (iv) follow the approach of the Department of Housing and Urban Development which can deny affordable-housing credit to the government-sponsored enterprises for purchases of loans with certain objectionable features. Comments on the ANPR will be due 90 days after it is published in the Federal Register. For a copy of the ANPR, see http://www.ots.treas.gov/docs/7/73373.pdf.
OTS Revises Handbook Regarding Mortgage Banking. On July 31, the Office of Thrift Supervision (OTS) published a regulatory bulletin announcing an updated and revised section of its Examination Handbook pertaining to mortgage banking. The new section, numbered 750, replaces sections 571 through 576 originally published in 1994. The new Handbook guidance went into effect immediately, and can be found at http://www.ots.treas.gov/docs/7/74836.pdf.
District Court Certifies FCRA “Firm Offer” Class. A federal district court recently granted class-action status to plaintiffs in a Fair Credit Reporting Act (FCRA) “firm offer of credit.” Bernal v. Keybank, N.A., No. 06-C-8, 2007 WL 2050405 (E.D. Wis. July 11, 2007) In Bernal, the named plaintiff filed suit on behalf of all Wisconsin residents who had received a loan solicitation mailing from Keybank since November 2004. The plaintiff alleged that the violation of the FCRA was willful and sought statutory damages on behalf of all class members. The court did not address the impact of Safeco v. Burr on whether the consumer could obtain statutory damages (see discussion of Murray v. GMAC Mortgage above). For more information, please contact .
Former SEC Officials Seek to Submit Supreme Court Brief in “Scheme Liability” Case. On July 16, Former SEC Chairmen Arthur Levitt and William Donaldson and former Commissioner Harvey Goldschmid sought permission from the U.S. Supreme Court to file a late “friend of the court” brief in Stoneridge Investment Partners LLC v. Scientific-Atlanta, Inc., No. 06-43, (U.S.), a case which looks at whether third parties can share direct responsibility for company fraud. The brief is in support of the position of defrauded stockholders that any person who directly or indirectly engages in a manipulative or deceptive act as part of a scheme to defraud can be a primary violator of the antifraud provisions of Rule 10b-5 under the Securities Exchange Act. In a divided 3-2 vote, the SEC had chosen to ask the U.S. Solicitor General — which files the government's briefs in Supreme Court cases — to file an amicus brief in support of the shareholders in a case to be heard by the Supreme Court this fall. However, the Solicitor General declined to file a brief on the issue. In their brief, the three former SEC officials argue that the appeals court decision in this case “immunizes non-issuers who commit securities fraud from private liability merely because they were cunning enough to avoid making a public statement.” Their brief argues that “[i]t is critical to the antifraud purposes of the federal securities laws that actors, other than issuers and their officers and directors, who actively engage in deceptive conduct – for the purpose and with the effect of creating a false statement of material fact in the disclosures of a public corporation – continue to be held liable in private actions.” Under this approach, professionals such as attorneys and accountants would be found civilly liable for indirectly assisting companies which make false statements even though they were not publicly identified as having participated in making those representations. Also, on July 30, House Financial Services Committee Chairman Barney Frank (D – MA) and Congressman John Conyers (D – MD) filed a brief along similar lines. As of today, the requests to file these briefs have not been granted. Some of the briefs filed in this case, scheduled to be argued October 9, 2007, can be found at http://www.abanet.org/publiced/preview/briefs/oct07.shtml#0643.
District Court Applies Safeco Test to Find No Willful Violation of FCRA in Firm Offer Case. On July 23, a federal district court in the Northern District of Illinois applied the U.S. Supreme Court's holding in Safeco Ins. Co. of America v.Burr, 551 U.S. 1, 127 S. Ct. 2201 (June 4, 2007) to rule that a lender did not willfully violate the Fair Credit Reporting Act's (FCRA) firm offer requirement because its reading of the statute was not "objectively unreasonable." Murray v. GMAC Mortgage Corp., No. 05-01229, 2007 U.S. Dist. LEXIS 53777 (N.D. Ill, Jul. 23, 2007). (For information regarding Safeco v. Burr, please see the June 4th InfoBytes Special Alert.) In this case, the plaintiff alleged that GMAC Mortgage Corp. (GMACM) violated FCRA when it sent a mailing that was neither "clear and conspicuous" nor a "firm offer" of credit. In a ruling on the same case earlier this year (April 10th), the district court had agreed with the plaintiff that GMACM had not made a valid “firm offer” under FCRA and granted the plaintiff summary judgment and class certification. (See the April 20th issue of InfoBytes.). This followed a decision of the U.S. Court of Appeals for the Seventh Circuit that reversed the district court’s previous denial of class certification (reported in the January 20, 2006 issue of InfoBytes). In this most recent case, GMACM filed a motion to reconsider in light of the Supreme Court's decision in Safeco, in which the Supreme Court interpreted the provision of FCRA providing for civil liability for willful violations (which include both knowing and reckless violations) and requiring statutory damages of $100-$1000 per violation. In the Safeco case, the Court applied an objective standard to determining whether a violation is reckless. The district court in Murray v. GMAC interpreted the Safeco objective standard as setting forth a two-stage test for determining whether a defendant that misinterpreted FCRA acted recklessly. First, the reading of the statute must have been objectively unreasonable. Second, the party must have run "a risk of violating the law substantially greater than the risk associated with a reading that was merely careless." Applying the Safeco test, the district court found that GMACM's reading of the statute was not objectively unreasonable. It relied on three key facts: (i) that the statutory text of what constitutes a "firm offer" is "less-than-pellucid," and GMACM's reading of the text was not unreasonable; (ii) that at the time the mailers in question were created in 2004, the judicial and administrative guidance on the issue was unclear; and (iii) that other courts at the time read the statute the same way as GMACM did, meaning GMACM's reading of the statute was reasonable enough to convince a court of its accuracy. Consequently, the district court granted the motion to reconsider, granted summary judgment in favor of defendants, and denied class certification. For a copy of the court's order, please contact .
Court Holds that Contract Modification Posted to Web Site Was Ineffective without Notice. On July 18, the United States Court of Appeals for the Ninth Circuit held that a consumer was not bound by the modified terms of an agreement that was merely posted online when the consumer did not have notice of the modification. The plaintiff in Douglas v. United States District Court, No. 06-75424 (9th Cir. July 18, 2007), had entered into an agreement with America Online, Inc. for long distance telephone service. Subsequently, America Online, Inc. sold the business line to Talk America, Inc., which modified the terms of the service agreement and placed the modified agreement on its web site. The modifications included additional charges, an arbitration clause, a class-action waiver, and a choice of law provision. Talk America, Inc. did not notify the plaintiff of the modifications. The plaintiff continued using the Talk America, Inc. service for four years, having bills automatically charged to his credit card, allegedly unaware of the additional charges and other modified terms. After four years, plaintiff became aware of the additional charges and filed a class action against Talk America, Inc., alleging violations of the Federal Communications Act and various California consumer protection statutes. The federal district court granted Talk America, Inc.’s motion to compel arbitration, and the plaintiff appealed. On appeal, the Ninth Circuit held that the modifications in the service agreement were ineffective against the plaintiff because the plaintiff had not received notice of the modifications. The Court held that Talk America, Inc.’s posting of the modified agreement on its web site was insufficient. “Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side.” Because the plaintiff was not given notice of the modifications, the court deemed the modification to have been made unilaterally without the plaintiff’s consent. The court also rejected arguments that the plaintiff had assented to the modifications by using the Talk America, Inc. service for four years, holding that “such assent can only be inferred after [plaintiff] received proper notice of the proposed changes.” For a copy of the Ninth Circuit’s opinion, please see http://www.ca9.uscourts.gov/.
Claims Against MERS under Florida Debt Collection and UDAP Laws Dismissed. On July 20, a federal district court dismissed claims against Mortgage Electronic Registration Systems, Inc. (MERS), on all counts dealing with the Florida Consumer Collection Practices Act (FCCPA) and the Florida Deceptive and Unfair Trade Practices Act (FDUTPA). Trent v. Mortgage Electronic Registration Systems, Inc., No. 3:06-cv-374 (M.D. Fla. July 20, 2007). With respect to dismissing the FCCPA claim regarding the deceptive or abusive nature of pre-foreclosure notices, the court looked, in the absence of a clear state-law precedent, to prior interpretations of the federal Fair Debt Collection Practices Act to determine that foreclosure is not debt collection under the FCCPA. The court followed the reasoning of, among other decisions, Hulse v. Ocwen Federal Bank, FSB, 195 F. Supp. 2d 1188, 1204 (D.Or. 2002) stating that foreclosing on a mortgage "is distinct from the collection of the obligation to pay money . . . . Payment of funds is not the object of the foreclosure action. Rather, the lender is foreclosing its interest in the property." Moreover, communicating to borrowers that MERS is a creditor does not rise to the level of abusive or harassing conduct under the FCCPA even if use of the term "creditor" to describe MERS is technically incorrect. The plaintiff's claims under the FCCPA that MERS did not register as a collection agency or did not obtain a mortgage lending license as required also failed because the claims did not fall within the purview of § 559.72, a section permitting a private right of action. Moreover, the claims under the FDUTPA that MERS engaged in deceptive and unfair practices were also dismissed because in the mortgage contract the lender disclosed MERS's role at the time the loan was originated. In a footnote, the court also stated that even assuming MERS's practices were unfair and deceptive, the practices do not constitute trade commerce within the purview of the FDUTPA. A copy of the ruling can be obtained by emailing .
U.S. District Court Dismisses FCRA Willful Adverse Action Claim Based on Safeco. In Broessel v. Triad Guaranty Insurance Corp., No. 1:04-CV-4-M, 2007 WL 2155691 (W.D. Ky. July 25, 2007), the U.S. District Court for the Western District of Kentucky had previously held that a mortgage insurer that offered mortgage insurance at a rate that was higher than the best rate available had taken adverse action against the consumer, under the “insurance prong” of the Fair Credit Reporting Act’s definition of “adverse action.” (See the September 30, 2005 issue of InfoBytes for a discussion of the previous decision.) In the current decision, the court granted partial summary judgment to the mortgage insurer on the consumer’s claim that the insurer willfully violated FCRA when it did not provide an adverse action notice after charging a new customer a rate higher than its best rate, based on the clarification of the meaning of “willfulness” in the Supreme Court’s Safeco v. Burr decision. (For information regarding Safeco v. Burr, please see the June 4th InfoBytes Special Alert.) The court in Broessel noted that “Triad shared Safeco’s objectively reasonable, though mistaken belief, that charging a new customer higher than its best rate did not constitute an adverse action under the statute”; no court of appeals had yet considered the adverse action issue when Triad failed to provide the notice; and the Supreme Court in Safeco explicitly rejected reliance on informal staff letters as “authoritative guidance from the FTC.” Because the consumer was only seeking class certification on her willfulness claim, the court also denied class certification. For a copy of the court’s order, please contact .
Court Sustains TiLA Statutory Damages Claim Against Credit Card Issuer. On July 9, a federal district court in Illinois sustained a Truth in Lending Act (TiLA) statutory damages claim against World Financial Network National Bank in connection with a private label credit card issued by the bank. Villasenor v. American Signature, Inc., No. 06-C-5493, 2007 U.S. Dist. LEXIS 49299 (N.D. Ill. July 9, 2007). The plaintiff in the case opened the credit card account at a furniture store after observing a sign advertising “no interest til 2011” in the store window. According to the plaintiff—who purchased several items at the store using the new credit card—although the credit card disclosures provided that no interest charges would apply to the purchase if the balance were paid in full before the end of the applicable promotional period, the cash register receipt indicated that he would be required to pay a $704.64 finance charge. The plaintiff alleged that the bank had failed to disclose the increased price of goods purchased on “no interest” plans as a finance charge, in violation of TiLA. According to the court, the complaint established a plausible entitlement to statutory damages, inasmuch as it alleged that the bank violated section 1637(a) of TiLA, which requires creditors to disclose the conditions under which a finance charge may be imposed before an account is opened. The court, among other things, dismissed the plaintiff’s TiLA claim for actual damages, finding that the plaintiff had not alleged any facts suggesting detrimental reliance. For a copy of the opinion, please contact .
Fourth Amendment Does Not Protect Website Contents If Site Owner Shares Password. A federal district court recently held, on a motion to suppress evidence, that the Fourth Amendment does not protect the contents of a password-protected website if the password has been shared with a third party. U.S. v. D’Andrea, No. 06-10082-RGS (D. Mass. Jul. 20, 2007). In D’Andrea, an anonymous tipster alerted the government to the presence of evidence of possible criminal activity that the defendants had posted on a password-protected website. The tipster also provided the government with the site’s password. Government investigators used the password to access the website, which led them to later seek and obtain a search warrant for the defendants’ premises, ultimately leading to the defendants’ arrest and indictment. The defendants moved to suppress the evidence obtained from the website and the subsequent search, arguing that they had a reasonable expectation of privacy in the contents of their website because it was protected by the password. The court believed that the defendants must have shared the password with a third party, and determined that they did not have a reasonable expectation of privacy in the website as a result of the disclosure. Moreover, the court noted that the Fourth Amendment does not preclude the government from using evidence voluntarily provided to it by third parties. Accordingly, the government’s warrantless review of the website did not violate the Fourth Amendment, and the fruits of that review (i.e., the evidence obtained by the website review and subsequent search) would not be suppressed. Please contact for a copy of the court’s Memorandum and Order.
Website Under Construction Not Sufficient To Establish Jurisdiction. A Texas federal court dismissed a cybersquatting case because the website owner had not subjected himself to jurisdiction in Texas. Drive Financial Services, LP v. Ginsburg, No. 3:06-CV-1288-G (N.D. Tex., filed July 19, 2007). Plaintiff, an auto finance company, sued a California resident claiming that defendant’s domain name “www.drive.com” violated the Anti-Cybersquatting Consumer Protection Act and state and federal trademark protections. The court dismissed the complaint, however, finding that the defendant did not have sufficient contacts with Texas to justify the exercise of personal jurisdiction. In doing so, the court used the sliding scale test announced in Zippo Manufacturing Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1124 (W.D. Pa. 1997), and adopted by the Fifth Circuit in Mink v. AAAA Development LLC, 190 F.3d 333, 336 (5th Cir. 1999), to analyze whether “the level of interactivity and commercial nature of the exchange of information that occurs on the [w]ebsite” justified personal jurisdiction. According to the court, it did not. The defendant received two e-mails from Texans inquiring as to the availability of the domain name through the site which, in the court’s view, was not enough to justify specific jurisdiction over defendant. For a copy of this opinion, please contact .
Former SEC Officials Seek to Submit Supreme Court Brief in “Scheme Liability” Case. On July 16, Former SEC Chairmen Arthur Levitt and William Donaldson and former Commissioner Harvey Goldschmid sought permission from the U.S. Supreme Court to file a late “friend of the court” brief in Stoneridge Investment Partners LLC v. Scientific-Atlanta, Inc., No. 06-43, (U.S.), a case which looks at whether third parties can share direct responsibility for company fraud. The brief is in support of the position of defrauded stockholders that any person who directly or indirectly engages in a manipulative or deceptive act as part of a scheme to defraud can be a primary violator of the antifraud provisions of Rule 10b-5 under the Securities Exchange Act. In a divided 3-2 vote, the SEC had chosen to ask the U.S. Solicitor General — which files the government's briefs in Supreme Court cases — to file an amicus brief in support of the shareholders in a case to be heard by the Supreme Court this fall. However, the Solicitor General declined to file a brief on the issue. In their brief, the three former SEC officials argue that the appeals court decision in this case “immunizes non-issuers who commit securities fraud from private liability merely because they were cunning enough to avoid making a public statement.” Their brief argues that “[i]t is critical to the antifraud purposes of the federal securities laws that actors, other than issuers and their officers and directors, who actively engage in deceptive conduct – for the purpose and with the effect of creating a false statement of material fact in the disclosures of a public corporation – continue to be held liable in private actions.” Under this approach, professionals such as attorneys and accountants would be found civilly liable for indirectly assisting companies which make false statements even though they were not publicly identified as having participated in making those representations. Also, on July 30, House Financial Services Committee Chairman Barney Frank (D – MA) and Congressman John Conyers (D – MD) filed a brief along similar lines. As of today, the requests to file these briefs have not been granted. Some of the briefs filed in this case, scheduled to be argued October 9, 2007, can be found at http://www.abanet.org/publiced/preview/briefs/oct07.shtml#0643.
District Court Certifies FCRA “Firm Offer” Class. A federal district court recently granted class-action status to plaintiffs in a Fair Credit Reporting Act (FCRA) “firm offer of credit.” Bernal v. Keybank, N.A., No. 06-C-8, 2007 WL 2050405 (E.D. Wis. July 11, 2007) In Bernal, the named plaintiff filed suit on behalf of all Wisconsin residents who had received a loan solicitation mailing from Keybank since November 2004. The plaintiff alleged that the violation of the FCRA was willful and sought statutory damages on behalf of all class members. The court did not address the impact of Safeco v. Burr on whether the consumer could obtain statutory damages (see discussion of Murray v. GMAC Mortgage above). For more information, please contact .
U.S. District Court Dismisses FCRA Willful Adverse Action Claim Based on Safeco. In Broessel v. Triad Guaranty Insurance Corp., No. 1:04-CV-4-M, 2007 WL 2155691 (W.D. Ky. July 25, 2007), the U.S. District Court for the Western District of Kentucky had previously held that a mortgage insurer that offered mortgage insurance at a rate that was higher than the best rate available had taken adverse action against the consumer, under the “insurance prong” of the Fair Credit Reporting Act’s definition of “adverse action.” (See the September 30, 2005 issue of InfoBytes for a discussion of the previous decision.) In the current decision, the court granted partial summary judgment to the mortgage insurer on the consumer’s claim that the insurer willfully violated FCRA when it did not provide an adverse action notice after charging a new customer a rate higher than its best rate, based on the clarification of the meaning of “willfulness” in the Supreme Court’s Safeco v. Burr decision. (For information regarding Safeco v. Burr, please see the June 4th InfoBytes Special Alert.) The court in Broessel noted that “Triad shared Safeco’s objectively reasonable, though mistaken belief, that charging a new customer higher than its best rate did not constitute an adverse action under the statute”; no court of appeals had yet considered the adverse action issue when Triad failed to provide the notice; and the Supreme Court in Safeco explicitly rejected reliance on informal staff letters as “authoritative guidance from the FTC.” Because the consumer was only seeking class certification on her willfulness claim, the court also denied class certification. For a copy of the court’s order, please contact .
Court Holds that Contract Modification Posted to Web Site Was Ineffective without Notice. On July 18, the United States Court of Appeals for the Ninth Circuit held that a consumer was not bound by the modified terms of an agreement that was merely posted online when the consumer did not have notice of the modification. The plaintiff in Douglas v. United States District Court, No. 06-75424 (9th Cir. July 18, 2007), had entered into an agreement with America Online, Inc. for long distance telephone service. Subsequently, America Online, Inc. sold the business line to Talk America, Inc., which modified the terms of the service agreement and placed the modified agreement on its web site. The modifications included additional charges, an arbitration clause, a class-action waiver, and a choice of law provision. Talk America, Inc. did not notify the plaintiff of the modifications. The plaintiff continued using the Talk America, Inc. service for four years, having bills automatically charged to his credit card, allegedly unaware of the additional charges and other modified terms. After four years, plaintiff became aware of the additional charges and filed a class action against Talk America, Inc., alleging violations of the Federal Communications Act and various California consumer protection statutes. The federal district court granted Talk America, Inc.’s motion to compel arbitration, and the plaintiff appealed. On appeal, the Ninth Circuit held that the modifications in the service agreement were ineffective against the plaintiff because the plaintiff had not received notice of the modifications. The Court held that Talk America, Inc.’s posting of the modified agreement on its web site was insufficient. “Parties to a contract have no obligation to check the terms on a periodic basis to learn whether they have been changed by the other side.” Because the plaintiff was not given notice of the modifications, the court deemed the modification to have been made unilaterally without the plaintiff’s consent. The court also rejected arguments that the plaintiff had assented to the modifications by using the Talk America, Inc. service for four years, holding that “such assent can only be inferred after [plaintiff] received proper notice of the proposed changes.” For a copy of the Ninth Circuit’s opinion, please see http://www.ca9.uscourts.gov/.
Claims Against MERS under Florida Debt Collection and UDAP Laws Dismissed. On July 20, a federal district court dismissed claims against Mortgage Electronic Registration Systems, Inc. (MERS), on all counts dealing with the Florida Consumer Collection Practices Act (FCCPA) and the Florida Deceptive and Unfair Trade Practices Act (FDUTPA). Trent v. Mortgage Electronic Registration Systems, Inc., No. 3:06-cv-374 (M.D. Fla. July 20, 2007). With respect to dismissing the FCCPA claim regarding the deceptive or abusive nature of pre-foreclosure notices, the court looked, in the absence of a clear state-law precedent, to prior interpretations of the federal Fair Debt Collection Practices Act to determine that foreclosure is not debt collection under the FCCPA. The court followed the reasoning of, among other decisions, Hulse v. Ocwen Federal Bank, FSB, 195 F. Supp. 2d 1188, 1204 (D.Or. 2002) stating that foreclosing on a mortgage "is distinct from the collection of the obligation to pay money . . . . Payment of funds is not the object of the foreclosure action. Rather, the lender is foreclosing its interest in the property." Moreover, communicating to borrowers that MERS is a creditor does not rise to the level of abusive or harassing conduct under the FCCPA even if use of the term "creditor" to describe MERS is technically incorrect. The plaintiff's claims under the FCCPA that MERS did not register as a collection agency or did not obtain a mortgage lending license as required also failed because the claims did not fall within the purview of § 559.72, a section permitting a private right of action. Moreover, the claims under the FDUTPA that MERS engaged in deceptive and unfair practices were also dismissed because in the mortgage contract the lender disclosed MERS's role at the time the loan was originated. In a footnote, the court also stated that even assuming MERS's practices were unfair and deceptive, the practices do not constitute trade commerce within the purview of the FDUTPA. A copy of the ruling can be obtained by emailing .
Website Under Construction Not Sufficient To Establish Jurisdiction. A Texas federal court dismissed a cybersquatting case because the website owner had not subjected himself to jurisdiction in Texas. Drive Financial Services, LP v. Ginsburg, No. 3:06-CV-1288-G (N.D. Tex., filed July 19, 2007). Plaintiff, an auto finance company, sued a California resident claiming that defendant’s domain name “www.drive.com” violated the Anti-Cybersquatting Consumer Protection Act and state and federal trademark protections. The court dismissed the complaint, however, finding that the defendant did not have sufficient contacts with Texas to justify the exercise of personal jurisdiction. In doing so, the court used the sliding scale test announced in Zippo Manufacturing Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1124 (W.D. Pa. 1997), and adopted by the Fifth Circuit in Mink v. AAAA Development LLC, 190 F.3d 333, 336 (5th Cir. 1999), to analyze whether “the level of interactivity and commercial nature of the exchange of information that occurs on the [w]ebsite” justified personal jurisdiction. According to the court, it did not. The defendant received two e-mails from Texans inquiring as to the availability of the domain name through the site which, in the court’s view, was not enough to justify specific jurisdiction over defendant. For a copy of this opinion, please contact .
FTC Asks for Comments on Private Sector's Use of Social Security Numbers. The Federal Trade Commission (FTC) is currently accepting comments on the private sector's use of Social Security numbers (SSN). The goal of the FTC is to develop a comprehensive record on such uses and to evaluate their necessity, following recommendations by the President's Identity Theft Task Force (covered in the April 27th issue of InfoBytes). The general topics for comment are (i) current private sector collection and uses of the SSN, (ii) the role of the SSN as authenticator, (iii) the SSN as an internal identifier, (iv) the role of the SSN in fraud prevention, and (v) the role of the SSN in identity theft. Comments must be received by September 5, 2007. To view the specific queries and the instructions on how to submit comments, please visit http://www.ftc.gov/opa/2007/07/ssncomments.shtm.
Fourth Amendment Does Not Protect Website Contents If Site Owner Shares Password. A federal district court recently held, on a motion to suppress evidence, that the Fourth Amendment does not protect the contents of a password-protected website if the password has been shared with a third party. U.S. v. D’Andrea, No. 06-10082-RGS (D. Mass. Jul. 20, 2007). In D’Andrea, an anonymous tipster alerted the government to the presence of evidence of possible criminal activity that the defendants had posted on a password-protected website. The tipster also provided the government with the site’s password. Government investigators used the password to access the website, which led them to later seek and obtain a search warrant for the defendants’ premises, ultimately leading to the defendants’ arrest and indictment. The defendants moved to suppress the evidence obtained from the website and the subsequent search, arguing that they had a reasonable expectation of privacy in the contents of their website because it was protected by the password. The court believed that the defendants must have shared the password with a third party, and determined that they did not have a reasonable expectation of privacy in the website as a result of the disclosure. Moreover, the court noted that the Fourth Amendment does not preclude the government from using evidence voluntarily provided to it by third parties. Accordingly, the government’s warrantless review of the website did not violate the Fourth Amendment, and the fruits of that review (i.e., the evidence obtained by the website review and subsequent search) would not be suppressed. Please contact for a copy of the court’s Memorandum and Order.
Court Sustains TiLA Statutory Damages Claim Against Credit Card Issuer. On July 9, a federal district court in Illinois sustained a Truth in Lending Act (TiLA) statutory damages claim against World Financial Network National Bank in connection with a private label credit card issued by the bank. Villasenor v. American Signature, Inc., No. 06-C-5493, 2007 U.S. Dist. LEXIS 49299 (N.D. Ill. July 9, 2007). The plaintiff in the case opened the credit card account at a furniture store after observing a sign advertising “no interest til 2011” in the store window. According to the plaintiff—who purchased several items at the store using the new credit card—although the credit card disclosures provided that no interest charges would apply to the purchase if the balance were paid in full before the end of the applicable promotional period, the cash register receipt indicated that he would be required to pay a $704.64 finance charge. The plaintiff alleged that the bank had failed to disclose the increased price of goods purchased on “no interest” plans as a finance charge, in violation of TiLA. According to the court, the complaint established a plausible entitlement to statutory damages, inasmuch as it alleged that the bank violated section 1637(a) of TiLA, which requires creditors to disclose the conditions under which a finance charge may be imposed before an account is opened. The court, among other things, dismissed the plaintiff’s TiLA claim for actual damages, finding that the plaintiff had not alleged any facts suggesting detrimental reliance. For a copy of the opinion, please contact .
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