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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
Rep. Maloney Proposes Credit Card “Principles.” On August 3, Representative Carolyn B. Maloney (D. – N.Y.), issued four “Gold Standard Credit Card Principles,” as well as suggestions on how they be implemented, to “help guide industry self-regulation.” The four principles are: (i) “issuers should issue credit cards on terms that the individual can repay,” (ii) “issuers should clearly explain account features, terms, and pricing at relevant times,” (iii) “issuers should provide consumers notice and choice with respect to changes in terms,” and (iv) “issuers should encourage responsible, successful credit use, especially among new credit entrants and customers with special needs.” Among the recommended means of implementing these principles are the elimination of universal default, elimination of double-cycle billing, permitting customers to lower their credit limits, and only increasing credit lines to consumers with good credit behavior and a proven ability to repay. To read further details regarding Rep. Maloney’s recommendations, please see http://maloney.house.gov/documents/financial/consumer/MaloneyCreditCardPrinciples.pdf.
FRB, FinCEN, and DOJ Impose Record AML/BSA Penalty on American Express. On August 3, the Federal Reserve Board (FRB), the Financial Crimes Enforcement Network (FinCEN), and the Department of Justice (DOJ) reached a $65 million settlement with American Express Bank International and one of its affiliates over anti-money laundering / Bank Secrecy Act (AML/BSA) compliance issues. The settlement, reported by the American Banker to be the largest ever of its kind, and accompanying Cease and Desist Orders come after alleged repeated failures “over the course of years, to adequately respond to certain supervisory findings with respect to the effectiveness of account monitoring controls to ensure compliance with the BSA.” The official FinCEN press release, as well as copies of the FRB settlement agreement and the DOJ press release, can be found at http://www.fincen.gov/aebi_joint_release.html.
FinCEN Issues Final Rule Regarding Foreign Bank Account Reporting. On August 2, the Financial Crimes Enforcement Network (FinCEN) approved final rules regarding enhanced due diligence measures for correspondent accounts maintained for foreign banks operating under an “offshore banking license.” The final rule, authorized under section 312 of the USA PATRIOT Act, is substantially similar to the “risk-based enhanced due diligence” proposed in January 2006, though among the changes is a modification of the evidentiary requirements when evaluating the strength of a foreign bank’s anti-money laundering (AML) system. Under the final rules, reporting institutions must conduct risk-based scrutiny of correspondent accounts as well as determine the identity of each owner of a correspondent foreign bank whose shares are not publicly traded. The final rule will go into effect 270 days after its publication in the Federal Register. For the official FinCEN press release on the rule, please see http://www.fincen.gov/Section_312_Enhanced_DD.html.
OTS Schedules Forum on Housing Issues. The Office of Thrift Supervision (OTS) plans to hold its second Annual National Housing Forum on December 3, 2007 in Washington, D.C. The forum will feature speakers from regulatory agencies and major mortgage industry members discussing a broad range of developing topics in the market and law. For more information, please see http://www.ots.treas.gov/docs/7/777055.html.
FTC Plans Town Hall Meeting Targeted Online Advertising. On November 1 and 2, 2007, the Federal Trade Commission (FTC) will hold a town hall meeting in Washington, D.C. on targeted online advertising practices and associated privacy issues. Citing letters from consumer privacy advocates, as well as from the State of New York, the FTC intends to focus on several online privacy topics including: (i) Is consumer data shared or sold? (ii) What security protections to companies provide consumer data they collect? (iii) Are these practices disclosed to consumers? and (iv) Can data collected for advertising be combined with personal information from other sources? For more information, please see http://www.ftc.gov/opa/2007/08/ehavioral.shtm.
SEC Anti-Fraud Rule Effective Date Set. The Securities and Exchange Commission (SEC) has adopted a rule that prohibits advisers to pooled investment vehicles from making false or misleading statements to, or otherwise defrauding, investors or prospective investors in those pooled vehicles. The rule clarifies the Commission’s ability to bring enforcement actions under the Investment Advisers Act against investment advisers who defraud investors or prospective investors in a hedge fund or other pooled investment vehicle. The rule, recently published in the Federal Register, is effective date is September 10, 2007. The final rule can be viewed on the SEC’s website at http://www.sec.gov/rules/final/2007/ia-2628.pdf.
COURTS
Undivided, Unearned Fee Constitutes Fee Splitting under § 8(b) of RESPA. On August 6, the U.S. Court of Appeals for the Second Circuit held that an unearned fee, which was not split with a third party, constituted fee splitting under the Real Estate Settlement Procedures Act (RESPA). Cohen v. JP Morgan Chase & Co., No. 06-0409-cv (2d Cir. Aug. 6, 2007). Concluding after lengthy textual analysis that RESPA § 8(b), the portion of the act addressing fee splitting, met the criteria set forth by the Supreme Court in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., the court accorded Chevron deference to HUD's interpretation that § 8(b) of RESPA applies where "one service provider charges the consumer a fee where no, nominal, or duplicative work is done." The court also held that Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d 49 (2d Cir. 2004) (see the September 17, 2004 issue of InfoBytes) is not controlling in this case because the relevant part of Kruse dealt with whether a fee exceeded the "reasonable value" of services rendered. The fee at issue in this case was a $225 "post-closing fee" charged in connection with a refinance that, the plaintiff alleges was a charge for services that were not actually performed. Because of the possible RESPA violation, the court also overturned the dismissal of the plaintiff's state UDAP claim holding that if the fee is found to be illegal, charging such a fee could be "misleading" under New York law. In ruling that a single company can violate § 8(b), the Second Circuit acknowledged that it disagrees with the Fourth, Seventh, and Eight Circuits (Haug v. Bank of Am., N.A., 317 F.3d 832, 840 (8th Cir. 2003), Krzalic v. Republic Title Co., 314 F.3d 875, 879 (7th Cir. 2002), and Boulware v. Crossland Mortgage Corp., 291 F.3d 261, 265 (4th Cir. 2002)), but asserted that it is consistent with the Eleventh Circuit (Sosa v. Chase Manhattan Mortgage Corp., 348 F.3d 979, 983 (11th Cir. 2003)). For a copy of this decision, please contact .
Court Holds That Mailed Solicitation Not a Consumer Report Under FCRA. In a recent case, a U.S. District Court in Wisconsin granted summary judgment to a defendant car dealership in a FCRA case, holding that the information list relied upon for the mailed solicitation did not qualify as a "consumer report." Reynolds v. LeMay Buick-Pontiac-GMC-Cadillac, Inc., No. 06-292, 2007 WL 2220203 (E.D. Wis., Jul. 30, 2007). Specifically, the car dealership retained a direct marketing company to create and send a mail solicitation, which in turn purchased a list of names and addresses that a third party company produced from public records at various bankruptcy courts. The plaintiff claimed that the dealership unlawfully accessed her consumer report when it created and sent the mailing. Under FCRA, a "consumer report" is "any written, oral or other communication of any information by a consumer reporting agency ... which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for credit." 15 U.S.C. § 1681a(d). The court ruled that the mailer could not violate FCRA for two reasons: (i) the mailer was not a "consumer report" because the dealership (or, for that matter, the direct marketing company or the third party who compiled the list) did not use or expect to use the information on the list for the purpose determining credit eligibility; and (ii) neither the direct marketing company, nor the third party who created the list qualified as a consumer reporting agency. For a copy of the decision, please contact .
Court Holds that Servicer Has Standing to Enforce Contract Assigned to Third Party. The Michigan Court of Appeals has reversed portions of the trial court’s rulings against defendant Ford Motor Credit Company (FMC) in a case alleging violations of the Michigan Consumer Protection Act (MCPA) and the Fair Credit Reporting Act (FCRA). Ford Motor Credit Co. v. Odom, No. 266770, 2007 WL 2214444 (Mich. App. Aug. 2, 2007). In this case the borrowers purchased a vehicle under a retail installment sales contract (RISC) with FMC. In an initial lawsuit, the borrowers claimed that the vehicle had been deemed a total loss and the odometer had been rolled back, and that these facts had not been disclosed. FMC accepted a case evaluation to pay the borrowers $1000, and a stipulation and order of dismissal was entered. Following the resolution of this lawsuit, the borrowers ceased making payments under the RISC but retained possession of the vehicle. FMC reported the unpaid RISC balance to credit reporting agencies and filed a complaint alleging violation of the RISC. The borrowers countered that (i) FMC did not have standing to file this second suit, since the RISC had been assigned to a third party, and (ii) any claim regarding the RISC was barred by res judicata. The borrowers also filed a counter-complaint, alleging that FMC violated the MCPA and the FCRA by reporting the alleged unpaid balances. The trial court rejected the res judicata claim, finding that the FCRA and MCPA claims were not ripe during the first lawsuit, since the borrowers remained current with their payments during that litigation. However, the trial court found that FMC did not have standing to sue, since it was not the real party in interest to seek the unpaid RISC balance. The appellate court reversed the trial court on the issue of standing, since Michigan case law, statutes, and the agreement with the third party all grant the right to a servicer (FMC, in this case) to enforce the underlying obligation. The appellate court also found that the trial court erred when it denied FMC’s motion for summary judgment on the MCPA, holding that the claims for alleged violations were barred by res judicata, since these claims had been resolved in the first lawsuit. The appeals court agreed, however, that the borrowers’ FCRA claims were not barred by res judicata, since these claims arose following the resolution of the first lawsuit. The appeals court emphasized that, since there were genuine issues of material fact with regard to whether RISC had been revoked, it was proper to allow those claims to continue. The court then remanded the case to the trial court for further proceedings. For a copy of the opinion, please contact .
Two Courts Find Failure to Report Credit Limit Not a FCRA Violation. On July 23, in two virtually identical cases, Agostinho v. Capital One Services, Inc, 2007 WL 2113602, No. 07-206740-CIV (S.D. Fla. July 23, 2007) and in Allen v. American Express Co., 2007 WL 2113622, No. 07-60338-CIV (S.D. Fla. July 23, 2007), the United States District Court for the Southern District of Florida held that the plaintiffs each had failed to state a claim under the Fair Credit Reporting Act (FCRA). The plaintiffs in both cases allege that the defendants violated FCRA by failing to correctly report their credit limits to credit reporting agencies (CRA) after the plaintiffs had formally disputed the information provided to the CRAs. Specifically, the plaintiffs argue that the defendants violated 15 U.S.C. § 1681s-2(b), which allows for private causes of action, by willfully failing to conduct a proper investigation and failing to notice their errors in reporting incorrect information to the CRAs. As such, the court held that these allegations were sufficient to sustain a private cause of action for a FCRA violation. For a copy of this decision, please contact .
Minnesota Statute Prohibiting Sale of Mortgage-Trigger Lists Is Preempted by FCRA. On July 30, the U.S. District Court for Minnesota granted a preliminary injunction to Consumer Data Industry Association (CDIA) against Lori Swanson, the Attorney General of the State of Minnesota, to prohibit her from enforcing a statute that forbids the sale of mortgage-trigger lists. Consumer Data Industry Association v. Swanson, No. 07-CV-3376 (PJS/JJG), 2007 WL 2219389 (D. Minn. July 30, 2007). A mortgage-trigger list is a list compiled by a consumer reporting agency of consumers who have recently applied for mortgage loans. Mortgage-trigger lists are sold by consumer reporting agencies to lenders, other than the lender to whom the consumer recently applied for a loan, for marketing purposes. The judge in this case found in favor of CDIA because Section 1681t(b) of the federal Fair Credit Reporting Act (FCRA) expressly preempts any state statutes that impose a requirement or prohibition with respect to any subject matter regulated under Section 1681b(c), which governs furnishing credit reports in connection with credit transactions that are not initiated by the consumer. In granting the preliminary injunction, the judge found it unnecessary to determine whether, as CDIA argued, mortgage-trigger lists are prescreened credit reports, which under Section 1681b(c)(1) may be sold by an agency, or, as Swanson argued, they are a record of inquiries in connection with a credit transaction that is not initiated by a consumer, the sale of which is prohibited by FCRA Section 1681b(c)(3). Either way, the court determined, the Minnesota statute is preempted by FCRA and cannot be enforced. For a copy of this opinion, please contact .
Under FACTA, Actual Damages Not Needed for Failure to Truncate Information Claim. On July 20, a federal district court in Pennsylvania ruled that a retailer’s failure to truncate credit card information on an electronically printed receipt given to a customer is actionable under the Fair and Accurate Credit Transactions Act (FACTA) regardless whether the plaintiff suffered any actual monetary damages. See Ehrheart v. Lifetime Brands, Inc., No. Civ.A. 07-1433, 2007 WL 2141979 (E.D. Pa. July 20, 2007). According to the complaint, the retailer gave the plaintiff an electronically printed purchase receipt that contained more than the last five digits of her credit card number and the expiration date of her card. The defendant argued that the plaintiff did not suffer an injury in fact and did not have standing to assert the FACTA claim, because the complaint did not allege that she suffered identity theft as a result of the defendant’s actions. The court sustained the complaint, ruling that the defendant’s alleged failure to truncate the credit card information was “an injury under FACTA,” and, “[m]oreover, [that] FACTA does not require that a plaintiff have suffered actual monetary damages in order to sue for violation of the Act.” The court also determined that the plaintiff sufficiently alleged that the violation was either knowing or reckless and, consequently, “willful” under FACTA. For a copy of the opinion, please contact .
Identity Theft Class Action Dismissed for Lack of Injury Based on Credit Monitoring Costs. Recently, the United States District Court for the Southern District of Ohio dismissed a putative identity theft class action because the plaintiff failed to present specific evidence of identity fraud, and because the cost of obtaining credit monitoring services could not be considered to amount to damages absent such specific evidence. Kahle v. Litton Loan Servicing LP, 486 F. Supp. 2d 705 (S.D. Ohio 2007). In 2005, the defendant experienced a break-in in which $60,000+ in computer equipment was stolen, including four hard drives containing personal information of almost 230,000 individuals, including the named plaintiff. The court found that there was no evidence that the personal “information was the target of the theft … that unauthorized individuals were able to access [the] information … or [that] if accessed [such information] would be used for unlawful purposes.” As such, “any injury of the Plaintiff [was] purely speculative” and the cost of credit monitoring could not be considered damages. Please contact for a copy of this decision.
Limited Electronic Service of Complaint Allowed, but Not through Affiliates. A California federal court recently allowed plaintiff to attempt service by electronic means, finding that plaintiff had adequately shown that certain e-mail addresses were reasonably calculated to reach the defendants in question. Balsam v. Angeles Technology, Inc. et al., Case No. C 06-04114 JF (HRL) (N.D. Cal., opinion filed July 17, 2007). In Balsam, plaintiff’s complaint alleged that he received unsolicited sexually explicit commercial e-mails from defendants in violation of California law. Plaintiff, however, was unable to serve the complaint by traditional means – the summonses were returned as undeliverable or as refused – and he moved to serve the complaint by e-mail. In a June 6 Order, the court agreed that California’s service rules allowed for service by e-mail, but sought further assurances that plaintiff had e-mail addresses that were reasonably calculated to reach the defendants. Plaintiff provided a number of options, including e-mail addresses associated with the defendants located at the domain name registrar’s website, e-mail addresses associated with a website affiliated with the defendant, and e-mail addresses beginning with the names “abuse@” and “postmaster@” followed by the defendants’ website address. The Court allowed service to the e-mail addresses associated with the defendants located at the domain name registrar’s website because it determined that such service was reasonably calculated to reach the defendants. The Court refused, however, to permit service to the affiliated website e-mail addresses because plaintiff failed to provide any evidence that the two websites were organized or owned by the same individuals. Nor did the court allow service by means of the “abuse@” and “postmaster@” e-mail addresses, because plaintiff failed to “show that the internet community, and in pertinent part the internet pornography community, actively checks emails with the “abuse@” and “postmaster@” email addresses.” For a copy of this decision, please contact .
FIRM NEWS
Buckley Kolar LLP welcomes Melissa Jensen and Christa Southworth to the firm. Ms. Jensen, who was a Law Clerk for Buckley Kolar, received her J.D. from George Washington University Law School, and was an Associate with Howrey LLP for three years. She is admitted to the bar in the District of Columbia and New York. Her practice will focus on consumer credit regulatory compliance, litigation and responding to government investigations.
Ms. Southworth recently received her J.D. from the American University School of Law and previously worked at ACC Capital Holdings as a Legislative Analyst. Her practice will focus on regulatory and compliance issues.
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.
Undivided, Unearned Fee Constitutes Fee Splitting under § 8(b) of RESPA. On August 6, the U.S. Court of Appeals for the Second Circuit held that an unearned fee, which was not split with a third party, constituted fee splitting under the Real Estate Settlement Procedures Act (RESPA). Cohen v. JP Morgan Chase & Co., No. 06-0409-cv (2d Cir. Aug. 6, 2007). Concluding after lengthy textual analysis that RESPA § 8(b), the portion of the act addressing fee splitting, met the criteria set forth by the Supreme Court in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., the court accorded Chevron deference to HUD's interpretation that § 8(b) of RESPA applies where "one service provider charges the consumer a fee where no, nominal, or duplicative work is done." The court also held that Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d 49 (2d Cir. 2004) (see the September 17, 2004 issue of InfoBytes) is not controlling in this case because the relevant part of Kruse dealt with whether a fee exceeded the "reasonable value" of services rendered. The fee at issue in this case was a $225 "post-closing fee" charged in connection with a refinance that, the plaintiff alleges was a charge for services that were not actually performed. Because of the possible RESPA violation, the court also overturned the dismissal of the plaintiff's state UDAP claim holding that if the fee is found to be illegal, charging such a fee could be "misleading" under New York law. In ruling that a single company can violate § 8(b), the Second Circuit acknowledged that it disagrees with the Fourth, Seventh, and Eight Circuits (Haug v. Bank of Am., N.A., 317 F.3d 832, 840 (8th Cir. 2003), Krzalic v. Republic Title Co., 314 F.3d 875, 879 (7th Cir. 2002), and Boulware v. Crossland Mortgage Corp., 291 F.3d 261, 265 (4th Cir. 2002)), but asserted that it is consistent with the Eleventh Circuit (Sosa v. Chase Manhattan Mortgage Corp., 348 F.3d 979, 983 (11th Cir. 2003)). For a copy of this decision, please contact .
Court Holds That Mailed Solicitation Not a Consumer Report Under FCRA. In a recent case, a U.S. District Court in Wisconsin granted summary judgment to a defendant car dealership in a FCRA case, holding that the information list relied upon for the mailed solicitation did not qualify as a "consumer report." Reynolds v. LeMay Buick-Pontiac-GMC-Cadillac, Inc., No. 06-292, 2007 WL 2220203 (E.D. Wis., Jul. 30, 2007). Specifically, the car dealership retained a direct marketing company to create and send a mail solicitation, which in turn purchased a list of names and addresses that a third party company produced from public records at various bankruptcy courts. The plaintiff claimed that the dealership unlawfully accessed her consumer report when it created and sent the mailing. Under FCRA, a "consumer report" is "any written, oral or other communication of any information by a consumer reporting agency ... which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for credit." 15 U.S.C. § 1681a(d). The court ruled that the mailer could not violate FCRA for two reasons: (i) the mailer was not a "consumer report" because the dealership (or, for that matter, the direct marketing company or the third party who compiled the list) did not use or expect to use the information on the list for the purpose determining credit eligibility; and (ii) neither the direct marketing company, nor the third party who created the list qualified as a consumer reporting agency. For a copy of the decision, please contact .
Minnesota Statute Prohibiting Sale of Mortgage-Trigger Lists Is Preempted by FCRA. On July 30, the U.S. District Court for Minnesota granted a preliminary injunction to Consumer Data Industry Association (CDIA) against Lori Swanson, the Attorney General of the State of Minnesota, to prohibit her from enforcing a statute that forbids the sale of mortgage-trigger lists. Consumer Data Industry Association v. Swanson, No. 07-CV-3376 (PJS/JJG), 2007 WL 2219389 (D. Minn. July 30, 2007). A mortgage-trigger list is a list compiled by a consumer reporting agency of consumers who have recently applied for mortgage loans. Mortgage-trigger lists are sold by consumer reporting agencies to lenders, other than the lender to whom the consumer recently applied for a loan, for marketing purposes. The judge in this case found in favor of CDIA because Section 1681t(b) of the federal Fair Credit Reporting Act (FCRA) expressly preempts any state statutes that impose a requirement or prohibition with respect to any subject matter regulated under Section 1681b(c), which governs furnishing credit reports in connection with credit transactions that are not initiated by the consumer. In granting the preliminary injunction, the judge found it unnecessary to determine whether, as CDIA argued, mortgage-trigger lists are prescreened credit reports, which under Section 1681b(c)(1) may be sold by an agency, or, as Swanson argued, they are a record of inquiries in connection with a credit transaction that is not initiated by a consumer, the sale of which is prohibited by FCRA Section 1681b(c)(3). Either way, the court determined, the Minnesota statute is preempted by FCRA and cannot be enforced. For a copy of this opinion, please contact .
OTS Schedules Forum on Housing Issues. The Office of Thrift Supervision (OTS) plans to hold its second Annual National Housing Forum on December 3, 2007 in Washington, D.C. The forum will feature speakers from regulatory agencies and major mortgage industry members discussing a broad range of developing topics in the market and law. For more information, please see http://www.ots.treas.gov/docs/7/777055.html.
Court Holds that Servicer Has Standing to Enforce Contract Assigned to Third Party. The Michigan Court of Appeals has reversed portions of the trial court’s rulings against defendant Ford Motor Credit Company (FMC) in a case alleging violations of the Michigan Consumer Protection Act (MCPA) and the Fair Credit Reporting Act (FCRA). Ford Motor Credit Co. v. Odom, No. 266770, 2007 WL 2214444 (Mich. App. Aug. 2, 2007). In this case the borrowers purchased a vehicle under a retail installment sales contract (RISC) with FMC. In an initial lawsuit, the borrowers claimed that the vehicle had been deemed a total loss and the odometer had been rolled back, and that these facts had not been disclosed. FMC accepted a case evaluation to pay the borrowers $1000, and a stipulation and order of dismissal was entered. Following the resolution of this lawsuit, the borrowers ceased making payments under the RISC but retained possession of the vehicle. FMC reported the unpaid RISC balance to credit reporting agencies and filed a complaint alleging violation of the RISC. The borrowers countered that (i) FMC did not have standing to file this second suit, since the RISC had been assigned to a third party, and (ii) any claim regarding the RISC was barred by res judicata. The borrowers also filed a counter-complaint, alleging that FMC violated the MCPA and the FCRA by reporting the alleged unpaid balances. The trial court rejected the res judicata claim, finding that the FCRA and MCPA claims were not ripe during the first lawsuit, since the borrowers remained current with their payments during that litigation. However, the trial court found that FMC did not have standing to sue, since it was not the real party in interest to seek the unpaid RISC balance. The appellate court reversed the trial court on the issue of standing, since Michigan case law, statutes, and the agreement with the third party all grant the right to a servicer (FMC, in this case) to enforce the underlying obligation. The appellate court also found that the trial court erred when it denied FMC’s motion for summary judgment on the MCPA, holding that the claims for alleged violations were barred by res judicata, since these claims had been resolved in the first lawsuit. The appeals court agreed, however, that the borrowers’ FCRA claims were not barred by res judicata, since these claims arose following the resolution of the first lawsuit. The appeals court emphasized that, since there were genuine issues of material fact with regard to whether RISC had been revoked, it was proper to allow those claims to continue. The court then remanded the case to the trial court for further proceedings. For a copy of the opinion, please contact .
Two Courts Find Failure to Report Credit Limit Not a FCRA Violation. On July 23, in two virtually identical cases, Agostinho v. Capital One Services, Inc, 2007 WL 2113602, No. 07-206740-CIV (S.D. Fla. July 23, 2007) and in Allen v. American Express Co., 2007 WL 2113622, No. 07-60338-CIV (S.D. Fla. July 23, 2007), the United States District Court for the Southern District of Florida held that the plaintiffs each had failed to state a claim under the Fair Credit Reporting Act (FCRA). The plaintiffs in both cases allege that the defendants violated FCRA by failing to correctly report their credit limits to credit reporting agencies (CRA) after the plaintiffs had formally disputed the information provided to the CRAs. Specifically, the plaintiffs argue that the defendants violated 15 U.S.C. § 1681s-2(b), which allows for private causes of action, by willfully failing to conduct a proper investigation and failing to notice their errors in reporting incorrect information to the CRAs. As such, the court held that these allegations were sufficient to sustain a private cause of action for a FCRA violation. For a copy of this decision, please contact .
FTC Plans Town Hall Meeting Targeted Online Advertising. On November 1 and 2, 2007, the Federal Trade Commission (FTC) will hold a town hall meeting in Washington, D.C. on targeted online advertising practices and associated privacy issues. Citing letters from consumer privacy advocates, as well as from the State of New York, the FTC intends to focus on several online privacy topics including: (i) Is consumer data shared or sold? (ii) What security protections to companies provide consumer data they collect? (iii) Are these practices disclosed to consumers? and (iv) Can data collected for advertising be combined with personal information from other sources? For more information, please see http://www.ftc.gov/opa/2007/08/ehavioral.shtm.
Court Holds That Mailed Solicitation Not a Consumer Report Under FCRA. In a recent case, a U.S. District Court in Wisconsin granted summary judgment to a defendant car dealership in a FCRA case, holding that the information list relied upon for the mailed solicitation did not qualify as a "consumer report." Reynolds v. LeMay Buick-Pontiac-GMC-Cadillac, Inc., No. 06-292, 2007 WL 2220203 (E.D. Wis., Jul. 30, 2007). Specifically, the car dealership retained a direct marketing company to create and send a mail solicitation, which in turn purchased a list of names and addresses that a third party company produced from public records at various bankruptcy courts. The plaintiff claimed that the dealership unlawfully accessed her consumer report when it created and sent the mailing. Under FCRA, a "consumer report" is "any written, oral or other communication of any information by a consumer reporting agency ... which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for credit." 15 U.S.C. § 1681a(d). The court ruled that the mailer could not violate FCRA for two reasons: (i) the mailer was not a "consumer report" because the dealership (or, for that matter, the direct marketing company or the third party who compiled the list) did not use or expect to use the information on the list for the purpose determining credit eligibility; and (ii) neither the direct marketing company, nor the third party who created the list qualified as a consumer reporting agency. For a copy of the decision, please contact .
FRB, FinCEN, and DOJ Impose Record AML/BSA Penalty on American Express. On August 3, the Federal Reserve Board (FRB), the Financial Crimes Enforcement Network (FinCEN), and the Department of Justice (DOJ) reached a $65 million settlement with American Express Bank International and one of its affiliates over anti-money laundering / Bank Secrecy Act (AML/BSA) compliance issues. The settlement, reported by the American Banker to be the largest ever of its kind, and accompanying Cease and Desist Orders come after alleged repeated failures “over the course of years, to adequately respond to certain supervisory findings with respect to the effectiveness of account monitoring controls to ensure compliance with the BSA.” The official FinCEN press release, as well as copies of the FRB settlement agreement and the DOJ press release, can be found at http://www.fincen.gov/aebi_joint_release.html.
FinCEN Issues Final Rule Regarding Foreign Bank Account Reporting. On August 2, the Financial Crimes Enforcement Network (FinCEN) approved final rules regarding enhanced due diligence measures for correspondent accounts maintained for foreign banks operating under an “offshore banking license.” The final rule, authorized under section 312 of the USA PATRIOT Act, is substantially similar to the “risk-based enhanced due diligence” proposed in January 2006, though among the changes is a modification of the evidentiary requirements when evaluating the strength of a foreign bank’s anti-money laundering (AML) system. Under the final rules, reporting institutions must conduct risk-based scrutiny of correspondent accounts as well as determine the identity of each owner of a correspondent foreign bank whose shares are not publicly traded. The final rule will go into effect 270 days after its publication in the Federal Register. For the official FinCEN press release on the rule, please see http://www.fincen.gov/Section_312_Enhanced_DD.html.
Rep. Maloney Proposes Credit Card “Principles.” On August 3, Representative Carolyn B. Maloney (D. – N.Y.), issued four “Gold Standard Credit Card Principles,” as well as suggestions on how they be implemented, to “help guide industry self-regulation.” The four principles are: (i) “issuers should issue credit cards on terms that the individual can repay,” (ii) “issuers should clearly explain account features, terms, and pricing at relevant times,” (iii) “issuers should provide consumers notice and choice with respect to changes in terms,” and (iv) “issuers should encourage responsible, successful credit use, especially among new credit entrants and customers with special needs.” Among the recommended means of implementing these principles are the elimination of universal default, elimination of double-cycle billing, permitting customers to lower their credit limits, and only increasing credit lines to consumers with good credit behavior and a proven ability to repay. To read further details regarding Rep. Maloney’s recommendations, please see http://maloney.house.gov/documents/financial/consumer/MaloneyCreditCardPrinciples.pdf.
OTS Schedules Forum on Housing Issues. The Office of Thrift Supervision (OTS) plans to hold its second Annual National Housing Forum on December 3, 2007 in Washington, D.C. The forum will feature speakers from regulatory agencies and major mortgage industry members discussing a broad range of developing topics in the market and law. For more information, please see http://www.ots.treas.gov/docs/7/777055.html.
FTC Plans Town Hall Meeting Targeted Online Advertising. On November 1 and 2, 2007, the Federal Trade Commission (FTC) will hold a town hall meeting in Washington, D.C. on targeted online advertising practices and associated privacy issues. Citing letters from consumer privacy advocates, as well as from the State of New York, the FTC intends to focus on several online privacy topics including: (i) Is consumer data shared or sold? (ii) What security protections to companies provide consumer data they collect? (iii) Are these practices disclosed to consumers? and (iv) Can data collected for advertising be combined with personal information from other sources? For more information, please see http://www.ftc.gov/opa/2007/08/ehavioral.shtm.
Court Holds that Servicer Has Standing to Enforce Contract Assigned to Third Party. The Michigan Court of Appeals has reversed portions of the trial court’s rulings against defendant Ford Motor Credit Company (FMC) in a case alleging violations of the Michigan Consumer Protection Act (MCPA) and the Fair Credit Reporting Act (FCRA). Ford Motor Credit Co. v. Odom, No. 266770, 2007 WL 2214444 (Mich. App. Aug. 2, 2007). In this case the borrowers purchased a vehicle under a retail installment sales contract (RISC) with FMC. In an initial lawsuit, the borrowers claimed that the vehicle had been deemed a total loss and the odometer had been rolled back, and that these facts had not been disclosed. FMC accepted a case evaluation to pay the borrowers $1000, and a stipulation and order of dismissal was entered. Following the resolution of this lawsuit, the borrowers ceased making payments under the RISC but retained possession of the vehicle. FMC reported the unpaid RISC balance to credit reporting agencies and filed a complaint alleging violation of the RISC. The borrowers countered that (i) FMC did not have standing to file this second suit, since the RISC had been assigned to a third party, and (ii) any claim regarding the RISC was barred by res judicata. The borrowers also filed a counter-complaint, alleging that FMC violated the MCPA and the FCRA by reporting the alleged unpaid balances. The trial court rejected the res judicata claim, finding that the FCRA and MCPA claims were not ripe during the first lawsuit, since the borrowers remained current with their payments during that litigation. However, the trial court found that FMC did not have standing to sue, since it was not the real party in interest to seek the unpaid RISC balance. The appellate court reversed the trial court on the issue of standing, since Michigan case law, statutes, and the agreement with the third party all grant the right to a servicer (FMC, in this case) to enforce the underlying obligation. The appellate court also found that the trial court erred when it denied FMC’s motion for summary judgment on the MCPA, holding that the claims for alleged violations were barred by res judicata, since these claims had been resolved in the first lawsuit. The appeals court agreed, however, that the borrowers’ FCRA claims were not barred by res judicata, since these claims arose following the resolution of the first lawsuit. The appeals court emphasized that, since there were genuine issues of material fact with regard to whether RISC had been revoked, it was proper to allow those claims to continue. The court then remanded the case to the trial court for further proceedings. For a copy of the opinion, please contact .
Two Courts Find Failure to Report Credit Limit Not a FCRA Violation. On July 23, in two virtually identical cases, Agostinho v. Capital One Services, Inc, 2007 WL 2113602, No. 07-206740-CIV (S.D. Fla. July 23, 2007) and in Allen v. American Express Co., 2007 WL 2113622, No. 07-60338-CIV (S.D. Fla. July 23, 2007), the United States District Court for the Southern District of Florida held that the plaintiffs each had failed to state a claim under the Fair Credit Reporting Act (FCRA). The plaintiffs in both cases allege that the defendants violated FCRA by failing to correctly report their credit limits to credit reporting agencies (CRA) after the plaintiffs had formally disputed the information provided to the CRAs. Specifically, the plaintiffs argue that the defendants violated 15 U.S.C. § 1681s-2(b), which allows for private causes of action, by willfully failing to conduct a proper investigation and failing to notice their errors in reporting incorrect information to the CRAs. As such, the court held that these allegations were sufficient to sustain a private cause of action for a FCRA violation. For a copy of this decision, please contact .
Rep. Maloney Proposes Credit Card “Principles.” On August 3, Representative Carolyn B. Maloney (D. – N.Y.), issued four “Gold Standard Credit Card Principles,” as well as suggestions on how they be implemented, to “help guide industry self-regulation.” The four principles are: (i) “issuers should issue credit cards on terms that the individual can repay,” (ii) “issuers should clearly explain account features, terms, and pricing at relevant times,” (iii) “issuers should provide consumers notice and choice with respect to changes in terms,” and (iv) “issuers should encourage responsible, successful credit use, especially among new credit entrants and customers with special needs.” Among the recommended means of implementing these principles are the elimination of universal default, elimination of double-cycle billing, permitting customers to lower their credit limits, and only increasing credit lines to consumers with good credit behavior and a proven ability to repay. To read further details regarding Rep. Maloney’s recommendations, please see http://maloney.house.gov/documents/financial/consumer/MaloneyCreditCardPrinciples.pdf.
SEC Anti-Fraud Rule Effective Date Set. The Securities and Exchange Commission (SEC) has adopted a rule that prohibits advisers to pooled investment vehicles from making false or misleading statements to, or otherwise defrauding, investors or prospective investors in those pooled vehicles. The rule clarifies the Commission’s ability to bring enforcement actions under the Investment Advisers Act against investment advisers who defraud investors or prospective investors in a hedge fund or other pooled investment vehicle. The rule, recently published in the Federal Register, is effective date is September 10, 2007. The final rule can be viewed on the SEC’s website at http://www.sec.gov/rules/final/2007/ia-2628.pdf.
Undivided, Unearned Fee Constitutes Fee Splitting under § 8(b) of RESPA. On August 6, the U.S. Court of Appeals for the Second Circuit held that an unearned fee, which was not split with a third party, constituted fee splitting under the Real Estate Settlement Procedures Act (RESPA). Cohen v. JP Morgan Chase & Co., No. 06-0409-cv (2d Cir. Aug. 6, 2007). Concluding after lengthy textual analysis that RESPA § 8(b), the portion of the act addressing fee splitting, met the criteria set forth by the Supreme Court in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., the court accorded Chevron deference to HUD's interpretation that § 8(b) of RESPA applies where "one service provider charges the consumer a fee where no, nominal, or duplicative work is done." The court also held that Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d 49 (2d Cir. 2004) (see the September 17, 2004 issue of InfoBytes) is not controlling in this case because the relevant part of Kruse dealt with whether a fee exceeded the "reasonable value" of services rendered. The fee at issue in this case was a $225 "post-closing fee" charged in connection with a refinance that, the plaintiff alleges was a charge for services that were not actually performed. Because of the possible RESPA violation, the court also overturned the dismissal of the plaintiff's state UDAP claim holding that if the fee is found to be illegal, charging such a fee could be "misleading" under New York law. In ruling that a single company can violate § 8(b), the Second Circuit acknowledged that it disagrees with the Fourth, Seventh, and Eight Circuits (Haug v. Bank of Am., N.A., 317 F.3d 832, 840 (8th Cir. 2003), Krzalic v. Republic Title Co., 314 F.3d 875, 879 (7th Cir. 2002), and Boulware v. Crossland Mortgage Corp., 291 F.3d 261, 265 (4th Cir. 2002)), but asserted that it is consistent with the Eleventh Circuit (Sosa v. Chase Manhattan Mortgage Corp., 348 F.3d 979, 983 (11th Cir. 2003)). For a copy of this decision, please contact .
Court Holds That Mailed Solicitation Not a Consumer Report Under FCRA. In a recent case, a U.S. District Court in Wisconsin granted summary judgment to a defendant car dealership in a FCRA case, holding that the information list relied upon for the mailed solicitation did not qualify as a "consumer report." Reynolds v. LeMay Buick-Pontiac-GMC-Cadillac, Inc., No. 06-292, 2007 WL 2220203 (E.D. Wis., Jul. 30, 2007). Specifically, the car dealership retained a direct marketing company to create and send a mail solicitation, which in turn purchased a list of names and addresses that a third party company produced from public records at various bankruptcy courts. The plaintiff claimed that the dealership unlawfully accessed her consumer report when it created and sent the mailing. Under FCRA, a "consumer report" is "any written, oral or other communication of any information by a consumer reporting agency ... which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for credit." 15 U.S.C. § 1681a(d). The court ruled that the mailer could not violate FCRA for two reasons: (i) the mailer was not a "consumer report" because the dealership (or, for that matter, the direct marketing company or the third party who compiled the list) did not use or expect to use the information on the list for the purpose determining credit eligibility; and (ii) neither the direct marketing company, nor the third party who created the list qualified as a consumer reporting agency. For a copy of the decision, please contact .
Court Holds that Servicer Has Standing to Enforce Contract Assigned to Third Party. The Michigan Court of Appeals has reversed portions of the trial court’s rulings against defendant Ford Motor Credit Company (FMC) in a case alleging violations of the Michigan Consumer Protection Act (MCPA) and the Fair Credit Reporting Act (FCRA). Ford Motor Credit Co. v. Odom, No. 266770, 2007 WL 2214444 (Mich. App. Aug. 2, 2007). In this case the borrowers purchased a vehicle under a retail installment sales contract (RISC) with FMC. In an initial lawsuit, the borrowers claimed that the vehicle had been deemed a total loss and the odometer had been rolled back, and that these facts had not been disclosed. FMC accepted a case evaluation to pay the borrowers $1000, and a stipulation and order of dismissal was entered. Following the resolution of this lawsuit, the borrowers ceased making payments under the RISC but retained possession of the vehicle. FMC reported the unpaid RISC balance to credit reporting agencies and filed a complaint alleging violation of the RISC. The borrowers countered that (i) FMC did not have standing to file this second suit, since the RISC had been assigned to a third party, and (ii) any claim regarding the RISC was barred by res judicata. The borrowers also filed a counter-complaint, alleging that FMC violated the MCPA and the FCRA by reporting the alleged unpaid balances. The trial court rejected the res judicata claim, finding that the FCRA and MCPA claims were not ripe during the first lawsuit, since the borrowers remained current with their payments during that litigation. However, the trial court found that FMC did not have standing to sue, since it was not the real party in interest to seek the unpaid RISC balance. The appellate court reversed the trial court on the issue of standing, since Michigan case law, statutes, and the agreement with the third party all grant the right to a servicer (FMC, in this case) to enforce the underlying obligation. The appellate court also found that the trial court erred when it denied FMC’s motion for summary judgment on the MCPA, holding that the claims for alleged violations were barred by res judicata, since these claims had been resolved in the first lawsuit. The appeals court agreed, however, that the borrowers’ FCRA claims were not barred by res judicata, since these claims arose following the resolution of the first lawsuit. The appeals court emphasized that, since there were genuine issues of material fact with regard to whether RISC had been revoked, it was proper to allow those claims to continue. The court then remanded the case to the trial court for further proceedings. For a copy of the opinion, please contact .
Two Courts Find Failure to Report Credit Limit Not a FCRA Violation. On July 23, in two virtually identical cases, Agostinho v. Capital One Services, Inc, 2007 WL 2113602, No. 07-206740-CIV (S.D. Fla. July 23, 2007) and in Allen v. American Express Co., 2007 WL 2113622, No. 07-60338-CIV (S.D. Fla. July 23, 2007), the United States District Court for the Southern District of Florida held that the plaintiffs each had failed to state a claim under the Fair Credit Reporting Act (FCRA). The plaintiffs in both cases allege that the defendants violated FCRA by failing to correctly report their credit limits to credit reporting agencies (CRA) after the plaintiffs had formally disputed the information provided to the CRAs. Specifically, the plaintiffs argue that the defendants violated 15 U.S.C. § 1681s-2(b), which allows for private causes of action, by willfully failing to conduct a proper investigation and failing to notice their errors in reporting incorrect information to the CRAs. As such, the court held that these allegations were sufficient to sustain a private cause of action for a FCRA violation. For a copy of this decision, please contact .
Minnesota Statute Prohibiting Sale of Mortgage-Trigger Lists Is Preempted by FCRA. On July 30, the U.S. District Court for Minnesota granted a preliminary injunction to Consumer Data Industry Association (CDIA) against Lori Swanson, the Attorney General of the State of Minnesota, to prohibit her from enforcing a statute that forbids the sale of mortgage-trigger lists. Consumer Data Industry Association v. Swanson, No. 07-CV-3376 (PJS/JJG), 2007 WL 2219389 (D. Minn. July 30, 2007). A mortgage-trigger list is a list compiled by a consumer reporting agency of consumers who have recently applied for mortgage loans. Mortgage-trigger lists are sold by consumer reporting agencies to lenders, other than the lender to whom the consumer recently applied for a loan, for marketing purposes. The judge in this case found in favor of CDIA because Section 1681t(b) of the federal Fair Credit Reporting Act (FCRA) expressly preempts any state statutes that impose a requirement or prohibition with respect to any subject matter regulated under Section 1681b(c), which governs furnishing credit reports in connection with credit transactions that are not initiated by the consumer. In granting the preliminary injunction, the judge found it unnecessary to determine whether, as CDIA argued, mortgage-trigger lists are prescreened credit reports, which under Section 1681b(c)(1) may be sold by an agency, or, as Swanson argued, they are a record of inquiries in connection with a credit transaction that is not initiated by a consumer, the sale of which is prohibited by FCRA Section 1681b(c)(3). Either way, the court determined, the Minnesota statute is preempted by FCRA and cannot be enforced. For a copy of this opinion, please contact .
Under FACTA, Actual Damages Not Needed for Failure to Truncate Information Claim. On July 20, a federal district court in Pennsylvania ruled that a retailer’s failure to truncate credit card information on an electronically printed receipt given to a customer is actionable under the Fair and Accurate Credit Transactions Act (FACTA) regardless whether the plaintiff suffered any actual monetary damages. See Ehrheart v. Lifetime Brands, Inc., No. Civ.A. 07-1433, 2007 WL 2141979 (E.D. Pa. July 20, 2007). According to the complaint, the retailer gave the plaintiff an electronically printed purchase receipt that contained more than the last five digits of her credit card number and the expiration date of her card. The defendant argued that the plaintiff did not suffer an injury in fact and did not have standing to assert the FACTA claim, because the complaint did not allege that she suffered identity theft as a result of the defendant’s actions. The court sustained the complaint, ruling that the defendant’s alleged failure to truncate the credit card information was “an injury under FACTA,” and, “[m]oreover, [that] FACTA does not require that a plaintiff have suffered actual monetary damages in order to sue for violation of the Act.” The court also determined that the plaintiff sufficiently alleged that the violation was either knowing or reckless and, consequently, “willful” under FACTA. For a copy of the opinion, please contact .
Identity Theft Class Action Dismissed for Lack of Injury Based on Credit Monitoring Costs. Recently, the United States District Court for the Southern District of Ohio dismissed a putative identity theft class action because the plaintiff failed to present specific evidence of identity fraud, and because the cost of obtaining credit monitoring services could not be considered to amount to damages absent such specific evidence. Kahle v. Litton Loan Servicing LP, 486 F. Supp. 2d 705 (S.D. Ohio 2007). In 2005, the defendant experienced a break-in in which $60,000+ in computer equipment was stolen, including four hard drives containing personal information of almost 230,000 individuals, including the named plaintiff. The court found that there was no evidence that the personal “information was the target of the theft … that unauthorized individuals were able to access [the] information … or [that] if accessed [such information] would be used for unlawful purposes.” As such, “any injury of the Plaintiff [was] purely speculative” and the cost of credit monitoring could not be considered damages. Please contact for a copy of this decision.
Limited Electronic Service of Complaint Allowed, but Not through Affiliates. A California federal court recently allowed plaintiff to attempt service by electronic means, finding that plaintiff had adequately shown that certain e-mail addresses were reasonably calculated to reach the defendants in question. Balsam v. Angeles Technology, Inc. et al., Case No. C 06-04114 JF (HRL) (N.D. Cal., opinion filed July 17, 2007). In Balsam, plaintiff’s complaint alleged that he received unsolicited sexually explicit commercial e-mails from defendants in violation of California law. Plaintiff, however, was unable to serve the complaint by traditional means – the summonses were returned as undeliverable or as refused – and he moved to serve the complaint by e-mail. In a June 6 Order, the court agreed that California’s service rules allowed for service by e-mail, but sought further assurances that plaintiff had e-mail addresses that were reasonably calculated to reach the defendants. Plaintiff provided a number of options, including e-mail addresses associated with the defendants located at the domain name registrar’s website, e-mail addresses associated with a website affiliated with the defendant, and e-mail addresses beginning with the names “abuse@” and “postmaster@” followed by the defendants’ website address. The Court allowed service to the e-mail addresses associated with the defendants located at the domain name registrar’s website because it determined that such service was reasonably calculated to reach the defendants. The Court refused, however, to permit service to the affiliated website e-mail addresses because plaintiff failed to provide any evidence that the two websites were organized or owned by the same individuals. Nor did the court allow service by means of the “abuse@” and “postmaster@” e-mail addresses, because plaintiff failed to “show that the internet community, and in pertinent part the internet pornography community, actively checks emails with the “abuse@” and “postmaster@” email addresses.” For a copy of this decision, please contact .
FTC Plans Town Hall Meeting Targeted Online Advertising. On November 1 and 2, 2007, the Federal Trade Commission (FTC) will hold a town hall meeting in Washington, D.C. on targeted online advertising practices and associated privacy issues. Citing letters from consumer privacy advocates, as well as from the State of New York, the FTC intends to focus on several online privacy topics including: (i) Is consumer data shared or sold? (ii) What security protections to companies provide consumer data they collect? (iii) Are these practices disclosed to consumers? and (iv) Can data collected for advertising be combined with personal information from other sources? For more information, please see http://www.ftc.gov/opa/2007/08/ehavioral.shtm.
Identity Theft Class Action Dismissed for Lack of Injury Based on Credit Monitoring Costs. Recently, the United States District Court for the Southern District of Ohio dismissed a putative identity theft class action because the plaintiff failed to present specific evidence of identity fraud, and because the cost of obtaining credit monitoring services could not be considered to amount to damages absent such specific evidence. Kahle v. Litton Loan Servicing LP, 486 F. Supp. 2d 705 (S.D. Ohio 2007). In 2005, the defendant experienced a break-in in which $60,000+ in computer equipment was stolen, including four hard drives containing personal information of almost 230,000 individuals, including the named plaintiff. The court found that there was no evidence that the personal “information was the target of the theft … that unauthorized individuals were able to access [the] information … or [that] if accessed [such information] would be used for unlawful purposes.” As such, “any injury of the Plaintiff [was] purely speculative” and the cost of credit monitoring could not be considered damages. Please contact for a copy of this decision.
Limited Electronic Service of Complaint Allowed, but Not through Affiliates. A California federal court recently allowed plaintiff to attempt service by electronic means, finding that plaintiff had adequately shown that certain e-mail addresses were reasonably calculated to reach the defendants in question. Balsam v. Angeles Technology, Inc. et al., Case No. C 06-04114 JF (HRL) (N.D. Cal., opinion filed July 17, 2007). In Balsam, plaintiff’s complaint alleged that he received unsolicited sexually explicit commercial e-mails from defendants in violation of California law. Plaintiff, however, was unable to serve the complaint by traditional means – the summonses were returned as undeliverable or as refused – and he moved to serve the complaint by e-mail. In a June 6 Order, the court agreed that California’s service rules allowed for service by e-mail, but sought further assurances that plaintiff had e-mail addresses that were reasonably calculated to reach the defendants. Plaintiff provided a number of options, including e-mail addresses associated with the defendants located at the domain name registrar’s website, e-mail addresses associated with a website affiliated with the defendant, and e-mail addresses beginning with the names “abuse@” and “postmaster@” followed by the defendants’ website address. The Court allowed service to the e-mail addresses associated with the defendants located at the domain name registrar’s website because it determined that such service was reasonably calculated to reach the defendants. The Court refused, however, to permit service to the affiliated website e-mail addresses because plaintiff failed to provide any evidence that the two websites were organized or owned by the same individuals. Nor did the court allow service by means of the “abuse@” and “postmaster@” e-mail addresses, because plaintiff failed to “show that the internet community, and in pertinent part the internet pornography community, actively checks emails with the “abuse@” and “postmaster@” email addresses.” For a copy of this decision, please contact .
FTC Plans Town Hall Meeting Targeted Online Advertising. On November 1 and 2, 2007, the Federal Trade Commission (FTC) will hold a town hall meeting in Washington, D.C. on targeted online advertising practices and associated privacy issues. Citing letters from consumer privacy advocates, as well as from the State of New York, the FTC intends to focus on several online privacy topics including: (i) Is consumer data shared or sold? (ii) What security protections to companies provide consumer data they collect? (iii) Are these practices disclosed to consumers? and (iv) Can data collected for advertising be combined with personal information from other sources? For more information, please see http://www.ftc.gov/opa/2007/08/ehavioral.shtm.
Identity Theft Class Action Dismissed for Lack of Injury Based on Credit Monitoring Costs. Recently, the United States District Court for the Southern District of Ohio dismissed a putative identity theft class action because the plaintiff failed to present specific evidence of identity fraud, and because the cost of obtaining credit monitoring services could not be considered to amount to damages absent such specific evidence. Kahle v. Litton Loan Servicing LP, 486 F. Supp. 2d 705 (S.D. Ohio 2007). In 2005, the defendant experienced a break-in in which $60,000+ in computer equipment was stolen, including four hard drives containing personal information of almost 230,000 individuals, including the named plaintiff. The court found that there was no evidence that the personal “information was the target of the theft … that unauthorized individuals were able to access [the] information … or [that] if accessed [such information] would be used for unlawful purposes.” As such, “any injury of the Plaintiff [was] purely speculative” and the cost of credit monitoring could not be considered damages. Please contact for a copy of this decision.
Under FACTA, Actual Damages Not Needed for Failure to Truncate Information Claim. On July 20, a federal district court in Pennsylvania ruled that a retailer’s failure to truncate credit card information on an electronically printed receipt given to a customer is actionable under the Fair and Accurate Credit Transactions Act (FACTA) regardless whether the plaintiff suffered any actual monetary damages. See Ehrheart v. Lifetime Brands, Inc., No. Civ.A. 07-1433, 2007 WL 2141979 (E.D. Pa. July 20, 2007). According to the complaint, the retailer gave the plaintiff an electronically printed purchase receipt that contained more than the last five digits of her credit card number and the expiration date of her card. The defendant argued that the plaintiff did not suffer an injury in fact and did not have standing to assert the FACTA claim, because the complaint did not allege that she suffered identity theft as a result of the defendant’s actions. The court sustained the complaint, ruling that the defendant’s alleged failure to truncate the credit card information was “an injury under FACTA,” and, “[m]oreover, [that] FACTA does not require that a plaintiff have suffered actual monetary damages in order to sue for violation of the Act.” The court also determined that the plaintiff sufficiently alleged that the violation was either knowing or reckless and, consequently, “willful” under FACTA. For a copy of the opinion, please contact .
Court Holds That Mailed Solicitation Not a Consumer Report Under FCRA. In a recent case, a U.S. District Court in Wisconsin granted summary judgment to a defendant car dealership in a FCRA case, holding that the information list relied upon for the mailed solicitation did not qualify as a "consumer report." Reynolds v. LeMay Buick-Pontiac-GMC-Cadillac, Inc., No. 06-292, 2007 WL 2220203 (E.D. Wis., Jul. 30, 2007). Specifically, the car dealership retained a direct marketing company to create and send a mail solicitation, which in turn purchased a list of names and addresses that a third party company produced from public records at various bankruptcy courts. The plaintiff claimed that the dealership unlawfully accessed her consumer report when it created and sent the mailing. Under FCRA, a "consumer report" is "any written, oral or other communication of any information by a consumer reporting agency ... which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for credit." 15 U.S.C. § 1681a(d). The court ruled that the mailer could not violate FCRA for two reasons: (i) the mailer was not a "consumer report" because the dealership (or, for that matter, the direct marketing company or the third party who compiled the list) did not use or expect to use the information on the list for the purpose determining credit eligibility; and (ii) neither the direct marketing company, nor the third party who created the list qualified as a consumer reporting agency. For a copy of the decision, please contact .
Minnesota Statute Prohibiting Sale of Mortgage-Trigger Lists Is Preempted by FCRA. On July 30, the U.S. District Court for Minnesota granted a preliminary injunction to Consumer Data Industry Association (CDIA) against Lori Swanson, the Attorney General of the State of Minnesota, to prohibit her from enforcing a statute that forbids the sale of mortgage-trigger lists. Consumer Data Industry Association v. Swanson, No. 07-CV-3376 (PJS/JJG), 2007 WL 2219389 (D. Minn. July 30, 2007). A mortgage-trigger list is a list compiled by a consumer reporting agency of consumers who have recently applied for mortgage loans. Mortgage-trigger lists are sold by consumer reporting agencies to lenders, other than the lender to whom the consumer recently applied for a loan, for marketing purposes. The judge in this case found in favor of CDIA because Section 1681t(b) of the federal Fair Credit Reporting Act (FCRA) expressly preempts any state statutes that impose a requirement or prohibition with respect to any subject matter regulated under Section 1681b(c), which governs furnishing credit reports in connection with credit transactions that are not initiated by the consumer. In granting the preliminary injunction, the judge found it unnecessary to determine whether, as CDIA argued, mortgage-trigger lists are prescreened credit reports, which under Section 1681b(c)(1) may be sold by an agency, or, as Swanson argued, they are a record of inquiries in connection with a credit transaction that is not initiated by a consumer, the sale of which is prohibited by FCRA Section 1681b(c)(3). Either way, the court determined, the Minnesota statute is preempted by FCRA and cannot be enforced. For a copy of this opinion, please contact .
Court Holds that Servicer Has Standing to Enforce Contract Assigned to Third Party. The Michigan Court of Appeals has reversed portions of the trial court’s rulings against defendant Ford Motor Credit Company (FMC) in a case alleging violations of the Michigan Consumer Protection Act (MCPA) and the Fair Credit Reporting Act (FCRA). Ford Motor Credit Co. v. Odom, No. 266770, 2007 WL 2214444 (Mich. App. Aug. 2, 2007). In this case the borrowers purchased a vehicle under a retail installment sales contract (RISC) with FMC. In an initial lawsuit, the borrowers claimed that the vehicle had been deemed a total loss and the odometer had been rolled back, and that these facts had not been disclosed. FMC accepted a case evaluation to pay the borrowers $1000, and a stipulation and order of dismissal was entered. Following the resolution of this lawsuit, the borrowers ceased making payments under the RISC but retained possession of the vehicle. FMC reported the unpaid RISC balance to credit reporting agencies and filed a complaint alleging violation of the RISC. The borrowers countered that (i) FMC did not have standing to file this second suit, since the RISC had been assigned to a third party, and (ii) any claim regarding the RISC was barred by res judicata. The borrowers also filed a counter-complaint, alleging that FMC violated the MCPA and the FCRA by reporting the alleged unpaid balances. The trial court rejected the res judicata claim, finding that the FCRA and MCPA claims were not ripe during the first lawsuit, since the borrowers remained current with their payments during that litigation. However, the trial court found that FMC did not have standing to sue, since it was not the real party in interest to seek the unpaid RISC balance. The appellate court reversed the trial court on the issue of standing, since Michigan case law, statutes, and the agreement with the third party all grant the right to a servicer (FMC, in this case) to enforce the underlying obligation. The appellate court also found that the trial court erred when it denied FMC’s motion for summary judgment on the MCPA, holding that the claims for alleged violations were barred by res judicata, since these claims had been resolved in the first lawsuit. The appeals court agreed, however, that the borrowers’ FCRA claims were not barred by res judicata, since these claims arose following the resolution of the first lawsuit. The appeals court emphasized that, since there were genuine issues of material fact with regard to whether RISC had been revoked, it was proper to allow those claims to continue. The court then remanded the case to the trial court for further proceedings. For a copy of the opinion, please contact .
Rep. Maloney Proposes Credit Card “Principles.” On August 3, Representative Carolyn B. Maloney (D. – N.Y.), issued four “Gold Standard Credit Card Principles,” as well as suggestions on how they be implemented, to “help guide industry self-regulation.” The four principles are: (i) “issuers should issue credit cards on terms that the individual can repay,” (ii) “issuers should clearly explain account features, terms, and pricing at relevant times,” (iii) “issuers should provide consumers notice and choice with respect to changes in terms,” and (iv) “issuers should encourage responsible, successful credit use, especially among new credit entrants and customers with special needs.” Among the recommended means of implementing these principles are the elimination of universal default, elimination of double-cycle billing, permitting customers to lower their credit limits, and only increasing credit lines to consumers with good credit behavior and a proven ability to repay. To read further details regarding Rep. Maloney’s recommendations, please see http://maloney.house.gov/documents/financial/consumer/MaloneyCreditCardPrinciples.pdf.
Two Courts Find Failure to Report Credit Limit Not a FCRA Violation. On July 23, in two virtually identical cases, Agostinho v. Capital One Services, Inc, 2007 WL 2113602, No. 07-206740-CIV (S.D. Fla. July 23, 2007) and in Allen v. American Express Co., 2007 WL 2113622, No. 07-60338-CIV (S.D. Fla. July 23, 2007), the United States District Court for the Southern District of Florida held that the plaintiffs each had failed to state a claim under the Fair Credit Reporting Act (FCRA). The plaintiffs in both cases allege that the defendants violated FCRA by failing to correctly report their credit limits to credit reporting agencies (CRA) after the plaintiffs had formally disputed the information provided to the CRAs. Specifically, the plaintiffs argue that the defendants violated 15 U.S.C. § 1681s-2(b), which allows for private causes of action, by willfully failing to conduct a proper investigation and failing to notice their errors in reporting incorrect information to the CRAs. As such, the court held that these allegations were sufficient to sustain a private cause of action for a FCRA violation. For a copy of this decision, please contact .
Under FACTA, Actual Damages Not Needed for Failure to Truncate Information Claim. On July 20, a federal district court in Pennsylvania ruled that a retailer’s failure to truncate credit card information on an electronically printed receipt given to a customer is actionable under the Fair and Accurate Credit Transactions Act (FACTA) regardless whether the plaintiff suffered any actual monetary damages. See Ehrheart v. Lifetime Brands, Inc., No. Civ.A. 07-1433, 2007 WL 2141979 (E.D. Pa. July 20, 2007). According to the complaint, the retailer gave the plaintiff an electronically printed purchase receipt that contained more than the last five digits of her credit card number and the expiration date of her card. The defendant argued that the plaintiff did not suffer an injury in fact and did not have standing to assert the FACTA claim, because the complaint did not allege that she suffered identity theft as a result of the defendant’s actions. The court sustained the complaint, ruling that the defendant’s alleged failure to truncate the credit card information was “an injury under FACTA,” and, “[m]oreover, [that] FACTA does not require that a plaintiff have suffered actual monetary damages in order to sue for violation of the Act.” The court also determined that the plaintiff sufficiently alleged that the violation was either knowing or reckless and, consequently, “willful” under FACTA. For a copy of the opinion, please contact .
Court Holds That Mailed Solicitation Not a Consumer Report Under FCRA. In a recent case, a U.S. District Court in Wisconsin granted summary judgment to a defendant car dealership in a FCRA case, holding that the information list relied upon for the mailed solicitation did not qualify as a "consumer report." Reynolds v. LeMay Buick-Pontiac-GMC-Cadillac, Inc., No. 06-292, 2007 WL 2220203 (E.D. Wis., Jul. 30, 2007). Specifically, the car dealership retained a direct marketing company to create and send a mail solicitation, which in turn purchased a list of names and addresses that a third party company produced from public records at various bankruptcy courts. The plaintiff claimed that the dealership unlawfully accessed her consumer report when it created and sent the mailing. Under FCRA, a "consumer report" is "any written, oral or other communication of any information by a consumer reporting agency ... which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for credit." 15 U.S.C. § 1681a(d). The court ruled that the mailer could not violate FCRA for two reasons: (i) the mailer was not a "consumer report" because the dealership (or, for that matter, the direct marketing company or the third party who compiled the list) did not use or expect to use the information on the list for the purpose determining credit eligibility; and (ii) neither the direct marketing company, nor the third party who created the list qualified as a consumer reporting agency. For a copy of the decision, please contact .
Court Holds that Servicer Has Standing to Enforce Contract Assigned to Third Party. The Michigan Court of Appeals has reversed portions of the trial court’s rulings against defendant Ford Motor Credit Company (FMC) in a case alleging violations of the Michigan Consumer Protection Act (MCPA) and the Fair Credit Reporting Act (FCRA). Ford Motor Credit Co. v. Odom, No. 266770, 2007 WL 2214444 (Mich. App. Aug. 2, 2007). In this case the borrowers purchased a vehicle under a retail installment sales contract (RISC) with FMC. In an initial lawsuit, the borrowers claimed that the vehicle had been deemed a total loss and the odometer had been rolled back, and that these facts had not been disclosed. FMC accepted a case evaluation to pay the borrowers $1000, and a stipulation and order of dismissal was entered. Following the resolution of this lawsuit, the borrowers ceased making payments under the RISC but retained possession of the vehicle. FMC reported the unpaid RISC balance to credit reporting agencies and filed a complaint alleging violation of the RISC. The borrowers countered that (i) FMC did not have standing to file this second suit, since the RISC had been assigned to a third party, and (ii) any claim regarding the RISC was barred by res judicata. The borrowers also filed a counter-complaint, alleging that FMC violated the MCPA and the FCRA by reporting the alleged unpaid balances. The trial court rejected the res judicata claim, finding that the FCRA and MCPA claims were not ripe during the first lawsuit, since the borrowers remained current with their payments during that litigation. However, the trial court found that FMC did not have standing to sue, since it was not the real party in interest to seek the unpaid RISC balance. The appellate court reversed the trial court on the issue of standing, since Michigan case law, statutes, and the agreement with the third party all grant the right to a servicer (FMC, in this case) to enforce the underlying obligation. The appellate court also found that the trial court erred when it denied FMC’s motion for summary judgment on the MCPA, holding that the claims for alleged violations were barred by res judicata, since these claims had been resolved in the first lawsuit. The appeals court agreed, however, that the borrowers’ FCRA claims were not barred by res judicata, since these claims arose following the resolution of the first lawsuit. The appeals court emphasized that, since there were genuine issues of material fact with regard to whether RISC had been revoked, it was proper to allow those claims to continue. The court then remanded the case to the trial court for further proceedings. For a copy of the opinion, please contact .
FRB, FinCEN, and DOJ Impose Record AML/BSA Penalty on American Express. On August 3, the Federal Reserve Board (FRB), the Financial Crimes Enforcement Network (FinCEN), and the Department of Justice (DOJ) reached a $65 million settlement with American Express Bank International and one of its affiliates over anti-money laundering / Bank Secrecy Act (AML/BSA) compliance issues. The settlement, reported by the American Banker to be the largest ever of its kind, and accompanying Cease and Desist Orders come after alleged repeated failures “over the course of years, to adequately respond to certain supervisory findings with respect to the effectiveness of account monitoring controls to ensure compliance with the BSA.” The official FinCEN press release, as well as copies of the FRB settlement agreement and the DOJ press release, can be found at http://www.fincen.gov/aebi_joint_release.html.
Minnesota Statute Prohibiting Sale of Mortgage-Trigger Lists Is Preempted by FCRA. On July 30, the U.S. District Court for Minnesota granted a preliminary injunction to Consumer Data Industry Association (CDIA) against Lori Swanson, the Attorney General of the State of Minnesota, to prohibit her from enforcing a statute that forbids the sale of mortgage-trigger lists. Consumer Data Industry Association v. Swanson, No. 07-CV-3376 (PJS/JJG), 2007 WL 2219389 (D. Minn. July 30, 2007). A mortgage-trigger list is a list compiled by a consumer reporting agency of consumers who have recently applied for mortgage loans. Mortgage-trigger lists are sold by consumer reporting agencies to lenders, other than the lender to whom the consumer recently applied for a loan, for marketing purposes. The judge in this case found in favor of CDIA because Section 1681t(b) of the federal Fair Credit Reporting Act (FCRA) expressly preempts any state statutes that impose a requirement or prohibition with respect to any subject matter regulated under Section 1681b(c), which governs furnishing credit reports in connection with credit transactions that are not initiated by the consumer. In granting the preliminary injunction, the judge found it unnecessary to determine whether, as CDIA argued, mortgage-trigger lists are prescreened credit reports, which under Section 1681b(c)(1) may be sold by an agency, or, as Swanson argued, they are a record of inquiries in connection with a credit transaction that is not initiated by a consumer, the sale of which is prohibited by FCRA Section 1681b(c)(3). Either way, the court determined, the Minnesota statute is preempted by FCRA and cannot be enforced. For a copy of this opinion, please contact .
FTC Plans Town Hall Meeting Targeted Online Advertising. On November 1 and 2, 2007, the Federal Trade Commission (FTC) will hold a town hall meeting in Washington, D.C. on targeted online advertising practices and associated privacy issues. Citing letters from consumer privacy advocates, as well as from the State of New York, the FTC intends to focus on several online privacy topics including: (i) Is consumer data shared or sold? (ii) What security protections to companies provide consumer data they collect? (iii) Are these practices disclosed to consumers? and (iv) Can data collected for advertising be combined with personal information from other sources? For more information, please see http://www.ftc.gov/opa/2007/08/ehavioral.shtm.
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