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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
General Counsel for HUD Issues RESPA Informal Opinions. On August 6, the Department of Housing and Urban Development (HUD) responded to questions regarding real estate agent compensation under the Real Estate Settlement Procedures Act (RESPA) posed by the National Association of Realtors. These responses do not represent a rule, regulation or interpretation by HUD but, instead, serve as informal guidance. HUD responded that, (i) real estate agents cannot be compensated as loan originators if they do not provide loan origination services or provide only nominal loan origination services, such as merely collecting an application, (ii) lenders may compensate real estate agents who are bona fide employees of the lender for referral activities, (iii) whether an employee is “bona fide” will be determined by the actual work performed, specifically whether the work is “actual, necessary, and distinct” from which the services the employee provides in another capacity, (iv) a real estate agent affiliated with a lender must comply with RESPA regardless of whether the real estate brokerage is affiliated with the lender, and (v) accelerated payment of compensation and charitable donations in exchange for referrals are “things of value” under Section 8(a) of RESPA. For a copy of the General Counsel’s responses, please see http://www.buckleykolar.com/documents/HUDRESPAQA080608.pdf.
Freddie Mac Will Stop Buying New York Subprime Loans. On August 12, Freddie Mac announced that, due to New York’s enactment last week of a bill (reported in InfoBytes, Aug. 8, 2008) regarding subprime mortgage loans, it will stop buying “subprime home loans,” as defined by the new law, secured by property in New York with note dates on or after September 1, 2008, the effective date of most provisions of the new law. The New York bill, in part, requires mandatory settlement conferences and the providing of pre-foreclosure notices. Freddie Mac indicated that the bill holds mortgage buyers, such as itself, liable for unforeseeable risks. For a copy of the Freddie Mac announcement, please contact .
OTS Issues Q&A on Permissible Savings Association Activities. On August 5, the Office of Thrift Supervision (OTS) responded to questions from a savings association regarding a discount program offered to consumers through a third-party vendor. The discount program would provide services such as roadside assistance, emergency reimbursement, and car rental and lodging discounts. The financial institution would retain a portion of the membership fee as compensation. The OTS responded that: (i) these activities are permissible under the Home Owners Loan Act (HOLA), (ii) there was no legal issue with accepting a percentage of the program fee as compensation, and (iii) the savings association should not use its logo on the membership card because that may mislead consumers. The OTS also reminded the savings association to provide clear disclosures to consumers and information about the performance of the program to the OTS for safety and soundness purposes. For a copy of this Q&A, please see http://files.ots.treas.gov/5604101.pdf.
Settlement Gives HUD Authority to Seek Permanent Injunctions, Disgorgement of Profits for RESPA Violations. On August 8, the U.S. Department of Housing and Urban Development (HUD) settled a Real Estate Settlement Procedures Act (RESPA) lawsuit against a natural hazard reporting company and a real estate brokerage in California. The settlement reflects a ruling by the judge in the case that HUD has the authority to seek permanent injunctions and disgorgement of illegal profits from companies that collect referral fees—or “kickbacks”—in violation of RESPA. In the lawsuit, HUD alleged that the natural hazard reporting company, Property I.D. Corporation, had paid illegal kickbacks to real estate brokers for referral of customers to Property I.D. As part of the settlement, payment of a combined $35 million award in a related private class action lawsuit will satisfy HUD’s demand that the companies disgorge illegal profits. For copies of the settlement agreements, please see http://www.hud.gov/offices/hsg/sfh/res/pidagreement.pdf and http://www.hud.gov/offices/hsg/sfh/res/realogy.pdf.
STATE ISSUES
West Virginia AG Sues Countrywide. On August 12, West Virginia Attorney General Darrell McGraw filed suit against Countrywide Financial Corporation, several of its affiliates, and chief executive officer (Countrywide), alleging that Countrywide made loans to West Virginia consumers containing “unaffordable” and “unconscionable” terms. The suit is one of several suits recently initiated by state Attorneys General against Countrywide. The Attorney General’s press release alleges that Countrywide induced consumers with “teaser rates” that later reset at an unaffordable rate, and that Countrywide offered down payment loans with balloon payments nearly that of the original amount borrowed. As of publication, a complete copy of the West Virginia Attorney General’s suit was not available. For a copy of the West Virginia Attorney General’s press release, please see http://www.wvago.gov/press.cfm?ID=443&fx=more.
Oregon Takes Enforcement Action Against Four Mortgage Brokers. On August 13, the Oregon Department of Consumer and Business Services (the Department), through the Division of Finance and Corporate Securities (DFCS), took enforcement action against four mortgage companies for allegedly violating state mortgage lending laws. DFCS revoked the lending licenses of two of the companies for fraudulent behavior and banned their owners from working in the mortgage lending industry. The DFCS issued cease-and-desist orders for violations such as failure to supervise and engaging in unethical practices against the remaining two companies. The DFCS also assessed fines against the four companies and their principals in amounts ranging from $2,500 to $90,000. In 2008, the Department has revoked five mortgage lending licenses and has issued 30 enforcement orders, and the Department is currently managing more than 60 mortgage lending investigations. For a copy of the Department news release, please see http://www.oregon.gov/DCBS/docs/news_releases/2008/nr_8_13_08.pdf.
Kentucky Establishes Foreclosure Counseling Center. On August 11, Kentucky Governor Steve Beshear announced the creation of the Kentucky Homeownership Protection Center. The Kentucky Homeownership Protection Center provides free counseling to Kentucky homeowners in default or facing default. In addition to counseling, through a partnership with Legal Aid, qualifying individuals will be eligible for additional assistance. The Kentucky Homeownership Protection Center is part of H.B. 552, a comprehensive bill impacting mortgage brokers and lenders, which was signed on April 24, 2008 (reported in InfoBytes, Apr. 25, 2008). For a copy of the Kentucky Governor’s press release, please see http://governor.ky.gov/pressrelease.htm?PostingGUID=%7B16B58FDB-4930-4065-AE76-78B9FE7659FA%7D.
COURTS
Massachusetts Federal Court Holds Cardmember Agreement With Retroactive Assessment of Interest Upon Default Permissible Under TILA. On August 8, the United States District Court for the District of Massachusetts granted a defendant credit card company’s motion to dismiss, finding that the consumer plaintiff failed to state a claim upon which relief could be granted with respect to her claims that the Cardmember Agreement at issue violated the Truth in Lending Act (TILA), Massachusetts consumer protection statute, and common law by providing for retroactive assessment of interest in the event of the consumer’s default. Shaner v. Chase Bank, USA, N.A., No. 07-11766 (D. Ma. Aug. 8, 2008). The court noted that other courts have held that the provision at issue – giving the first notice of a rate increase in the periodic statement for the cycle – is permissible under TILA and that, although the comments to TILA are ambiguous as to whether this provision is permissible, the Federal Reserve Board has taken the position that it is permitted under existing TILA regulations. Because the plaintiff’s TILA claim failed, her Massachusetts consumer protection claim also failed because it was based on violation of TILA. In addition, the plaintiff’s claim that the retroactive assessment of interest amounted to a “penalty” under common law failed because this provision was lawful in the State where the defendant is located (Delaware) and the National Bank Act prevents it from being made unlawful in any other state. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Shaner_v_Chase.pdf.
Eleventh Circuit Holds That Rollover Financing Is Part of Lender’s PMSI. On August 7, the Eleventh Circuit held that the financing of negative equity into a new automobile loan becomes part of the lenders’ purchase money security interest (PMSI), which is not subject to cramdown in a bankruptcy proceeding. Dean v. Nuvell Financial Services Corp., No. 07-14163 (11th Cir. Aug. 7, 2008). The debtor purchased a new motor vehicle while he still owed money on his trade-in vehicle. The original lender rolled this “negative equity” into the loan for the new vehicle. The debtor subsequently filed for bankruptcy protection and proposed to pay, as part of the Chapter 13 payment plan, only the value of the new vehicle at that time. The creditor objected, claiming that it was entitled to the full amount of its claim as a secured creditor. The Eleventh Circuit held that, based on the 2005 amendments to the bankruptcy code, a PMSI such as the one in this case is not subject to bifurcation into a secured and unsecured claim (or “cramdown”) and that the creditor, despite being undersecured, was entitled to the present value of the entire claim with post-petition interest. For a copy of the opinion, see http://www.ca11.uscourts.gov/opinions/ops/200714163.pdf.
Wisconsin Bankruptcy Court Orders Credit Report Corrections. On July 31, the U.S. Bankruptcy Court for the Eastern District of Wisconsin ordered a Credit Union to correct inaccurate reports submitted to credit reporting agencies (CRAs) in accordance with a confirmation order in a dispute arising under section 13 of the Bankrupcty Code, not the Fair Credit Reporting Act (FCRA). In re Luedtke, No. 02-35082, 2008 WL 2952530 (Bankr. E.D. Wis. July 31, 2008). The University of Wisconsin-Oshkosh Credit Union (OCU) assented to a confirmation order reducing the plaintiff debtor’s loan balance pursuant to a Chapter 13 bankruptcy plan. The plaintiff made timely payments pursuant to the bankruptcy plan. Subsequently, the OCU reported to CRAs the original amount of the loan prior to the confirmation order; the OCU also reported to CRAs that the plaintiff was 120 days late on payments. The plaintiff sought relief under the section 13 of the Bankruptcy Code, requesting that the OCU report the debt amount as modified by the confirmation order, as well report that all payments were current. The court held that affirmative reports to CRAs containing incorrect information violated the confirmation order and ordered the OCU to cause the removal of the disputed information within 60 days. In ruling, the court noted that the plaintiff did not utilize a potential remedy under FCRA, but reasoned that the Bankruptcy Code was, nonetheless, applicable law. For a copy of the opinion, please see http://www.buckleykolar.com/documents/In_re_Luedtke.pdf.
Illinois Federal Court Employs “Value” Test to Dismiss FCRA “Firm Offer” Claim. On August 5, a federal court dismissed a consumer plaintiff’s claim arising under the Fair Credit Reporting Act (FCRA), holding that a catalog mailing accompanied by an offer of credit meets the “value” test for a firm offer. Townsend v. The Swiss Colony, Inc., No. 06-C-550, 2008 WL 3009916 (E.D. Ill. Aug. 5, 2008). The defendants prescreened mailings, a catalog accompanied by an offer of credit, by sending names “rented” from third parties to credit bureaus to obtain credit information. The plaintiff alleged that this prescreening violated FCRA because it was an unauthorized access of credit information for marketing purposes. The court disagreed, relying upon the “value” test developed in Perry v. First Nat’l Bank, 459 F.3d 816 (7th Cir. 2006) (reported in InfoBytes, August 25, 2006), to determine that the offer was of sufficient “value” for FCRA purposes because the offer had utility for some consumers. The court, however, did not oppose its reasoning to the holding in Murray v. New Cingular Wireless, 523 F.3d 719 (7th Cir. 2008), which rejected a determination of “value” for pure offers of credit. The court also rejected a claim arising under the Truth in Lending Act that the defendants issued a credit card without a request or application from the plaintiff, holding that a code number which allowed the defendants to track offers to specific consumers did not constitute an active credit account number. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Townsend_v_Swiss_Colony.pdf.
Virginia Federal Court Holds that ECOA Complaint Must Allege Discrimination on Specified Prohibited Basis. On August 4, the U.S. District Court for the Eastern District of Virginia granted a motion to dismiss, holding that a complaint for violation of the Equal Credit Opportunity Act (ECOA) must allege discrimination on a specified prohibited basis. Wright v. SunTrust Bank, et al., No. 1:08cv568, 2008 WL 3106884 (E.D. Va. Aug. 4, 2008). ECOA provides, at 15 U.S.C. § 1691(a)(1)-(3), that it is unlawful for a creditor to discriminate against an applicant on the basis of, among other things, race, color, religion, national origin, sex or marital status, or age. In this case, the plaintiff alleged that the defendant creditor violated ECOA by basing its decision to deny him credit on factors other than his creditworthiness. The defendant creditor moved to dismiss for failure to state an ECOA claim. The court granted the motion, finding that the plaintiff’s complaint did not allege that the defendant creditor denied his credit application based on one of the reasons enumerated in ECOA, 15 U.S.C. § 1691(a)(1)-(3). For a copy of the opinion, please see http://www.buckleykolar.com/documents/Wright_v_Sun_Trust.pdf.
Ninth Circuit Rejects FDCPA Bona Fide Error Defense By Debt Collector. Recently, the United States Court of Appeals for the Ninth Circuit affirmed that a debt collector could not use the “bona fide error” affirmative defense provided by the Fair Debt Collection Practices Act (FDCPA), rejecting arguments that the defendant “reasonably relied” upon the reported debt and that the defendant adequately showed that there were procedures “reasonably adapted” to avoid errors. Reichert v. National Credit Systems, Inc., No. 06-11503 (9th Cir. 2008). The plaintiff signed a residential lease which the plaintiff ended prematurely. The lease contained a provision for “Attorney’s Fees,” which allowed for legal fees required to enforce the lease to be awarded to the prevailing party. Under this provision, the lessor claimed that the plaintiff had a debt in the amount of $1,899.20, which the lessor then assigned to the defendant. After the plaintiff disputed the debt and requested the verification of the debt, the lessor directed the defendant to add a $225 fee to the debt in connection with the verification letter. The plaintiff claimed that the $225 fee charge was not expressly authorized by the lease and that the attempt to collect it was in violation of the FDCPA. In response, the defendant argued that its attempted collection of the $225 fee was a “bona fide error” under the FDCPA because (i) the defendant justifiably relied upon the lessor’s representations in the past and (ii) the defendant had procedures “reasonably adapted” to avoid errors. The court disagreed, reasoning that past performance does not establish a reasonable reliance for future transactions, and that a conclusory declaration that the defendant maintained adequate procedures did not substantively evidence procedures “reasonably adapted” to avoid errors. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Reichert_v_NCS.pdf.
Pennsylvania Federal Court Affirms FDCPA Statute of Limitations Interpretation. A Pennsylvania district court recently affirmed a defendant’s motion to dismiss claims arising under, in part, the Fair Debt Collection Practices Act (FDCPA), holding that the statute of limitations for a claim arising under the FDCPA begins to run at the time of an alleged action, and not when the plaintiff receives notice of an alleged action. Shivone v. Washington Mutual Bank, F.A., et al., No. 07-CV-1038 (E.D. Pa. Aug. 5, 2008. The plaintiff had a mortgage which was subsequently assigned to the defendant Washington Mutual Bank, FA (“WaMu”). After co-defendants filed a mortgage foreclosure against the plaintiff, the plaintiff alleged violations of, among other items, the FDCPA. The court, reasoning through cases that followed Agosta v. InoVision, Inc., No. 02-806 (E.D. Pa. Dec. 16, 2003), held that the statute of limitations for a claim arising under the FDCPA begins to run at the time of an alleged action. As a result, the plaintiff’s claim under the FDCPA was time-barred because the alleged action occurred more than a year prior to the plaintiff’s suit. The court also dismissed torts claims, as well as claims arising under the Unfair Trade Practices and Consumer Protection Act and the Pennsylvania Fair Credit Extension Uniformity Act. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Shivone_v_WaMu.pdf.
FIRM NEWS
Joe Kolar spoke regarding the impact of the recently enacted Housing and Economic Recovery Act of 2008 (HERA) at the Consumer Financial Services Committee’s section of the American Bar Association on August 10 in New York City.
Joe Kolar spoke on compliance aspects of the recently finalized Truth in Lending Act rules at an audio conference sponsored by October Research on August 13.
Joe Kolar and Jeff Naimon discussed the impact of HERA at a webinar sponsored by the American Financial Services Association on August 14.
John Kromer will participate in the “Industry Issues” panel at the American Association of Residential Mortgage Regulators’ annual meeting in Minneapolis, Minnesota on August 19-22.
Jon Jerison will be the featured speaker on a Pratt audio conference entitled “Between a Rock and a Hard Place: Managing HELOCs in the Current Environment” on August 26 at 1PM ET. For more information, please see http://www.aspratt.com/store/06H.php.
Margo Tank will be a featured speaker at the New York State Bar Association’s Business Law Fall Meeting on Friday, September 12. Ms. Tank’s presentation will be entitled “Electronic Signatures – What Does a Business Lawyer Need to Know?” Click here for additional information on this meeting.
Margo Tank will be featured in a panel discussion on eLegal Issues at the Mortgage Bankers Association’s Document Management & Custody Conference entitled “Setting the Pace,” on September 23. This conference is tailored for both new and experienced document custodians, as well as anyone who may be involved in any aspect of the post-closing process, loan delivery, document control and/or servicing issues. Click here for additional information on this conference.
General Counsel for HUD Issues RESPA Informal Opinions. On August 6, the Department of Housing and Urban Development (HUD) responded to questions regarding real estate agent compensation under the Real Estate Settlement Procedures Act (RESPA) posed by the National Association of Realtors. These responses do not represent a rule, regulation or interpretation by HUD but, instead, serve as informal guidance. HUD responded that, (i) real estate agents cannot be compensated as loan originators if they do not provide loan origination services or provide only nominal loan origination services, such as merely collecting an application, (ii) lenders may compensate real estate agents who are bona fide employees of the lender for referral activities, (iii) whether an employee is “bona fide” will be determined by the actual work performed, specifically whether the work is “actual, necessary, and distinct” from which the services the employee provides in another capacity, (iv) a real estate agent affiliated with a lender must comply with RESPA regardless of whether the real estate brokerage is affiliated with the lender, and (v) accelerated payment of compensation and charitable donations in exchange for referrals are “things of value” under Section 8(a) of RESPA. For a copy of the General Counsel’s responses, please see http://www.buckleykolar.com/documents/HUDRESPAQA080608.pdf.
Freddie Mac Will Stop Buying New York Subprime Loans. On August 12, Freddie Mac announced that, due to New York’s enactment last week of a bill (reported in InfoBytes, Aug. 8, 2008) regarding subprime mortgage loans, it will stop buying “subprime home loans,” as defined by the new law, secured by property in New York with note dates on or after September 1, 2008, the effective date of most provisions of the new law. The New York bill, in part, requires mandatory settlement conferences and the providing of pre-foreclosure notices. Freddie Mac indicated that the bill holds mortgage buyers, such as itself, liable for unforeseeable risks. For a copy of the Freddie Mac announcement, please contact .
Settlement Gives HUD Authority to Seek Permanent Injunctions, Disgorgement of Profits for RESPA Violations. On August 8, the U.S. Department of Housing and Urban Development (HUD) settled a Real Estate Settlement Procedures Act (RESPA) lawsuit against a natural hazard reporting company and a real estate brokerage in California. The settlement reflects a ruling by the judge in the case that HUD has the authority to seek permanent injunctions and disgorgement of illegal profits from companies that collect referral fees—or “kickbacks”—in violation of RESPA. In the lawsuit, HUD alleged that the natural hazard reporting company, Property I.D. Corporation, had paid illegal kickbacks to real estate brokers for referral of customers to Property I.D. As part of the settlement, payment of a combined $35 million award in a related private class action lawsuit will satisfy HUD’s demand that the companies disgorge illegal profits. For copies of the settlement agreements, please see http://www.hud.gov/offices/hsg/sfh/res/pidagreement.pdf and http://www.hud.gov/offices/hsg/sfh/res/realogy.pdf.
West Virginia AG Sues Countrywide. On August 12, West Virginia Attorney General Darrell McGraw filed suit against Countrywide Financial Corporation, several of its affiliates, and chief executive officer (Countrywide), alleging that Countrywide made loans to West Virginia consumers containing “unaffordable” and “unconscionable” terms. The suit is one of several suits recently initiated by state Attorneys General against Countrywide. The Attorney General’s press release alleges that Countrywide induced consumers with “teaser rates” that later reset at an unaffordable rate, and that Countrywide offered down payment loans with balloon payments nearly that of the original amount borrowed. As of publication, a complete copy of the West Virginia Attorney General’s suit was not available. For a copy of the West Virginia Attorney General’s press release, please see http://www.wvago.gov/press.cfm?ID=443&fx=more.
Oregon Takes Enforcement Action Against Four Mortgage Brokers. On August 13, the Oregon Department of Consumer and Business Services (the Department), through the Division of Finance and Corporate Securities (DFCS), took enforcement action against four mortgage companies for allegedly violating state mortgage lending laws. DFCS revoked the lending licenses of two of the companies for fraudulent behavior and banned their owners from working in the mortgage lending industry. The DFCS issued cease-and-desist orders for violations such as failure to supervise and engaging in unethical practices against the remaining two companies. The DFCS also assessed fines against the four companies and their principals in amounts ranging from $2,500 to $90,000. In 2008, the Department has revoked five mortgage lending licenses and has issued 30 enforcement orders, and the Department is currently managing more than 60 mortgage lending investigations. For a copy of the Department news release, please see http://www.oregon.gov/DCBS/docs/news_releases/2008/nr_8_13_08.pdf.
Kentucky Establishes Foreclosure Counseling Center. On August 11, Kentucky Governor Steve Beshear announced the creation of the Kentucky Homeownership Protection Center. The Kentucky Homeownership Protection Center provides free counseling to Kentucky homeowners in default or facing default. In addition to counseling, through a partnership with Legal Aid, qualifying individuals will be eligible for additional assistance. The Kentucky Homeownership Protection Center is part of H.B. 552, a comprehensive bill impacting mortgage brokers and lenders, which was signed on April 24, 2008 (reported in InfoBytes, Apr. 25, 2008). For a copy of the Kentucky Governor’s press release, please see http://governor.ky.gov/pressrelease.htm?PostingGUID=%7B16B58FDB-4930-4065-AE76-78B9FE7659FA%7D.
Virginia Federal Court Holds that ECOA Complaint Must Allege Discrimination on Specified Prohibited Basis. On August 4, the U.S. District Court for the Eastern District of Virginia granted a motion to dismiss, holding that a complaint for violation of the Equal Credit Opportunity Act (ECOA) must allege discrimination on a specified prohibited basis. Wright v. SunTrust Bank, et al., No. 1:08cv568, 2008 WL 3106884 (E.D. Va. Aug. 4, 2008). ECOA provides, at 15 U.S.C. § 1691(a)(1)-(3), that it is unlawful for a creditor to discriminate against an applicant on the basis of, among other things, race, color, religion, national origin, sex or marital status, or age. In this case, the plaintiff alleged that the defendant creditor violated ECOA by basing its decision to deny him credit on factors other than his creditworthiness. The defendant creditor moved to dismiss for failure to state an ECOA claim. The court granted the motion, finding that the plaintiff’s complaint did not allege that the defendant creditor denied his credit application based on one of the reasons enumerated in ECOA, 15 U.S.C. § 1691(a)(1)-(3). For a copy of the opinion, please see http://www.buckleykolar.com/documents/Wright_v_Sun_Trust.pdf.
Pennsylvania Federal Court Affirms FDCPA Statute of Limitations Interpretation. A Pennsylvania district court recently affirmed a defendant’s motion to dismiss claims arising under, in part, the Fair Debt Collection Practices Act (FDCPA), holding that the statute of limitations for a claim arising under the FDCPA begins to run at the time of an alleged action, and not when the plaintiff receives notice of an alleged action. Shivone v. Washington Mutual Bank, F.A., et al., No. 07-CV-1038 (E.D. Pa. Aug. 5, 2008. The plaintiff had a mortgage which was subsequently assigned to the defendant Washington Mutual Bank, FA (“WaMu”). After co-defendants filed a mortgage foreclosure against the plaintiff, the plaintiff alleged violations of, among other items, the FDCPA. The court, reasoning through cases that followed Agosta v. InoVision, Inc., No. 02-806 (E.D. Pa. Dec. 16, 2003), held that the statute of limitations for a claim arising under the FDCPA begins to run at the time of an alleged action. As a result, the plaintiff’s claim under the FDCPA was time-barred because the alleged action occurred more than a year prior to the plaintiff’s suit. The court also dismissed torts claims, as well as claims arising under the Unfair Trade Practices and Consumer Protection Act and the Pennsylvania Fair Credit Extension Uniformity Act. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Shivone_v_WaMu.pdf.
OTS Issues Q&A on Permissible Savings Association Activities. On August 5, the Office of Thrift Supervision (OTS) responded to questions from a savings association regarding a discount program offered to consumers through a third-party vendor. The discount program would provide services such as roadside assistance, emergency reimbursement, and car rental and lodging discounts. The financial institution would retain a portion of the membership fee as compensation. The OTS responded that: (i) these activities are permissible under the Home Owners Loan Act (HOLA), (ii) there was no legal issue with accepting a percentage of the program fee as compensation, and (iii) the savings association should not use its logo on the membership card because that may mislead consumers. The OTS also reminded the savings association to provide clear disclosures to consumers and information about the performance of the program to the OTS for safety and soundness purposes. For a copy of this Q&A, please see http://files.ots.treas.gov/5604101.pdf.
Eleventh Circuit Holds That Rollover Financing Is Part of Lender’s PMSI. On August 7, the Eleventh Circuit held that the financing of negative equity into a new automobile loan becomes part of the lenders’ purchase money security interest (PMSI), which is not subject to cramdown in a bankruptcy proceeding. Dean v. Nuvell Financial Services Corp., No. 07-14163 (11th Cir. Aug. 7, 2008). The debtor purchased a new motor vehicle while he still owed money on his trade-in vehicle. The original lender rolled this “negative equity” into the loan for the new vehicle. The debtor subsequently filed for bankruptcy protection and proposed to pay, as part of the Chapter 13 payment plan, only the value of the new vehicle at that time. The creditor objected, claiming that it was entitled to the full amount of its claim as a secured creditor. The Eleventh Circuit held that, based on the 2005 amendments to the bankruptcy code, a PMSI such as the one in this case is not subject to bifurcation into a secured and unsecured claim (or “cramdown”) and that the creditor, despite being undersecured, was entitled to the present value of the entire claim with post-petition interest. For a copy of the opinion, see http://www.ca11.uscourts.gov/opinions/ops/200714163.pdf.
Wisconsin Bankruptcy Court Orders Credit Report Corrections. On July 31, the U.S. Bankruptcy Court for the Eastern District of Wisconsin ordered a Credit Union to correct inaccurate reports submitted to credit reporting agencies (CRAs) in accordance with a confirmation order in a dispute arising under section 13 of the Bankrupcty Code, not the Fair Credit Reporting Act (FCRA). In re Luedtke, No. 02-35082, 2008 WL 2952530 (Bankr. E.D. Wis. July 31, 2008). The University of Wisconsin-Oshkosh Credit Union (OCU) assented to a confirmation order reducing the plaintiff debtor’s loan balance pursuant to a Chapter 13 bankruptcy plan. The plaintiff made timely payments pursuant to the bankruptcy plan. Subsequently, the OCU reported to CRAs the original amount of the loan prior to the confirmation order; the OCU also reported to CRAs that the plaintiff was 120 days late on payments. The plaintiff sought relief under the section 13 of the Bankruptcy Code, requesting that the OCU report the debt amount as modified by the confirmation order, as well report that all payments were current. The court held that affirmative reports to CRAs containing incorrect information violated the confirmation order and ordered the OCU to cause the removal of the disputed information within 60 days. In ruling, the court noted that the plaintiff did not utilize a potential remedy under FCRA, but reasoned that the Bankruptcy Code was, nonetheless, applicable law. For a copy of the opinion, please see http://www.buckleykolar.com/documents/In_re_Luedtke.pdf.
Illinois Federal Court Employs “Value” Test to Dismiss FCRA “Firm Offer” Claim. On August 5, a federal court dismissed a consumer plaintiff’s claim arising under the Fair Credit Reporting Act (FCRA), holding that a catalog mailing accompanied by an offer of credit meets the “value” test for a firm offer. Townsend v. The Swiss Colony, Inc., No. 06-C-550, 2008 WL 3009916 (E.D. Ill. Aug. 5, 2008). The defendants prescreened mailings, a catalog accompanied by an offer of credit, by sending names “rented” from third parties to credit bureaus to obtain credit information. The plaintiff alleged that this prescreening violated FCRA because it was an unauthorized access of credit information for marketing purposes. The court disagreed, relying upon the “value” test developed in Perry v. First Nat’l Bank, 459 F.3d 816 (7th Cir. 2006) (reported in InfoBytes, August 25, 2006), to determine that the offer was of sufficient “value” for FCRA purposes because the offer had utility for some consumers. The court, however, did not oppose its reasoning to the holding in Murray v. New Cingular Wireless, 523 F.3d 719 (7th Cir. 2008), which rejected a determination of “value” for pure offers of credit. The court also rejected a claim arising under the Truth in Lending Act that the defendants issued a credit card without a request or application from the plaintiff, holding that a code number which allowed the defendants to track offers to specific consumers did not constitute an active credit account number. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Townsend_v_Swiss_Colony.pdf.
Ninth Circuit Rejects FDCPA Bona Fide Error Defense By Debt Collector. Recently, the United States Court of Appeals for the Ninth Circuit affirmed that a debt collector could not use the “bona fide error” affirmative defense provided by the Fair Debt Collection Practices Act (FDCPA), rejecting arguments that the defendant “reasonably relied” upon the reported debt and that the defendant adequately showed that there were procedures “reasonably adapted” to avoid errors. Reichert v. National Credit Systems, Inc., No. 06-11503 (9th Cir. 2008). The plaintiff signed a residential lease which the plaintiff ended prematurely. The lease contained a provision for “Attorney’s Fees,” which allowed for legal fees required to enforce the lease to be awarded to the prevailing party. Under this provision, the lessor claimed that the plaintiff had a debt in the amount of $1,899.20, which the lessor then assigned to the defendant. After the plaintiff disputed the debt and requested the verification of the debt, the lessor directed the defendant to add a $225 fee to the debt in connection with the verification letter. The plaintiff claimed that the $225 fee charge was not expressly authorized by the lease and that the attempt to collect it was in violation of the FDCPA. In response, the defendant argued that its attempted collection of the $225 fee was a “bona fide error” under the FDCPA because (i) the defendant justifiably relied upon the lessor’s representations in the past and (ii) the defendant had procedures “reasonably adapted” to avoid errors. The court disagreed, reasoning that past performance does not establish a reasonable reliance for future transactions, and that a conclusory declaration that the defendant maintained adequate procedures did not substantively evidence procedures “reasonably adapted” to avoid errors. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Reichert_v_NCS.pdf.
Massachusetts Federal Court Holds Cardmember Agreement With Retroactive Assessment of Interest Upon Default Permissible Under TILA. On August 8, the United States District Court for the District of Massachusetts granted a defendant credit card company’s motion to dismiss, finding that the consumer plaintiff failed to state a claim upon which relief could be granted with respect to her claims that the Cardmember Agreement at issue violated the Truth in Lending Act (TILA), Massachusetts consumer protection statute, and common law by providing for retroactive assessment of interest in the event of the consumer’s default. Shaner v. Chase Bank, USA, N.A., No. 07-11766 (D. Ma. Aug. 8, 2008). The court noted that other courts have held that the provision at issue – giving the first notice of a rate increase in the periodic statement for the cycle – is permissible under TILA and that, although the comments to TILA are ambiguous as to whether this provision is permissible, the Federal Reserve Board has taken the position that it is permitted under existing TILA regulations. Because the plaintiff’s TILA claim failed, her Massachusetts consumer protection claim also failed because it was based on violation of TILA. In addition, the plaintiff’s claim that the retroactive assessment of interest amounted to a “penalty” under common law failed because this provision was lawful in the State where the defendant is located (Delaware) and the National Bank Act prevents it from being made unlawful in any other state. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Shaner_v_Chase.pdf.
Eleventh Circuit Holds That Rollover Financing Is Part of Lender’s PMSI. On August 7, the Eleventh Circuit held that the financing of negative equity into a new automobile loan becomes part of the lenders’ purchase money security interest (PMSI), which is not subject to cramdown in a bankruptcy proceeding. Dean v. Nuvell Financial Services Corp., No. 07-14163 (11th Cir. Aug. 7, 2008). The debtor purchased a new motor vehicle while he still owed money on his trade-in vehicle. The original lender rolled this “negative equity” into the loan for the new vehicle. The debtor subsequently filed for bankruptcy protection and proposed to pay, as part of the Chapter 13 payment plan, only the value of the new vehicle at that time. The creditor objected, claiming that it was entitled to the full amount of its claim as a secured creditor. The Eleventh Circuit held that, based on the 2005 amendments to the bankruptcy code, a PMSI such as the one in this case is not subject to bifurcation into a secured and unsecured claim (or “cramdown”) and that the creditor, despite being undersecured, was entitled to the present value of the entire claim with post-petition interest. For a copy of the opinion, see http://www.ca11.uscourts.gov/opinions/ops/200714163.pdf.
Wisconsin Bankruptcy Court Orders Credit Report Corrections. On July 31, the U.S. Bankruptcy Court for the Eastern District of Wisconsin ordered a Credit Union to correct inaccurate reports submitted to credit reporting agencies (CRAs) in accordance with a confirmation order in a dispute arising under section 13 of the Bankrupcty Code, not the Fair Credit Reporting Act (FCRA). In re Luedtke, No. 02-35082, 2008 WL 2952530 (Bankr. E.D. Wis. July 31, 2008). The University of Wisconsin-Oshkosh Credit Union (OCU) assented to a confirmation order reducing the plaintiff debtor’s loan balance pursuant to a Chapter 13 bankruptcy plan. The plaintiff made timely payments pursuant to the bankruptcy plan. Subsequently, the OCU reported to CRAs the original amount of the loan prior to the confirmation order; the OCU also reported to CRAs that the plaintiff was 120 days late on payments. The plaintiff sought relief under the section 13 of the Bankruptcy Code, requesting that the OCU report the debt amount as modified by the confirmation order, as well report that all payments were current. The court held that affirmative reports to CRAs containing incorrect information violated the confirmation order and ordered the OCU to cause the removal of the disputed information within 60 days. In ruling, the court noted that the plaintiff did not utilize a potential remedy under FCRA, but reasoned that the Bankruptcy Code was, nonetheless, applicable law. For a copy of the opinion, please see http://www.buckleykolar.com/documents/In_re_Luedtke.pdf.
Illinois Federal Court Employs “Value” Test to Dismiss FCRA “Firm Offer” Claim. On August 5, a federal court dismissed a consumer plaintiff’s claim arising under the Fair Credit Reporting Act (FCRA), holding that a catalog mailing accompanied by an offer of credit meets the “value” test for a firm offer. Townsend v. The Swiss Colony, Inc., No. 06-C-550, 2008 WL 3009916 (E.D. Ill. Aug. 5, 2008). The defendants prescreened mailings, a catalog accompanied by an offer of credit, by sending names “rented” from third parties to credit bureaus to obtain credit information. The plaintiff alleged that this prescreening violated FCRA because it was an unauthorized access of credit information for marketing purposes. The court disagreed, relying upon the “value” test developed in Perry v. First Nat’l Bank, 459 F.3d 816 (7th Cir. 2006) (reported in InfoBytes, August 25, 2006), to determine that the offer was of sufficient “value” for FCRA purposes because the offer had utility for some consumers. The court, however, did not oppose its reasoning to the holding in Murray v. New Cingular Wireless, 523 F.3d 719 (7th Cir. 2008), which rejected a determination of “value” for pure offers of credit. The court also rejected a claim arising under the Truth in Lending Act that the defendants issued a credit card without a request or application from the plaintiff, holding that a code number which allowed the defendants to track offers to specific consumers did not constitute an active credit account number. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Townsend_v_Swiss_Colony.pdf.
Virginia Federal Court Holds that ECOA Complaint Must Allege Discrimination on Specified Prohibited Basis. On August 4, the U.S. District Court for the Eastern District of Virginia granted a motion to dismiss, holding that a complaint for violation of the Equal Credit Opportunity Act (ECOA) must allege discrimination on a specified prohibited basis. Wright v. SunTrust Bank, et al., No. 1:08cv568, 2008 WL 3106884 (E.D. Va. Aug. 4, 2008). ECOA provides, at 15 U.S.C. § 1691(a)(1)-(3), that it is unlawful for a creditor to discriminate against an applicant on the basis of, among other things, race, color, religion, national origin, sex or marital status, or age. In this case, the plaintiff alleged that the defendant creditor violated ECOA by basing its decision to deny him credit on factors other than his creditworthiness. The defendant creditor moved to dismiss for failure to state an ECOA claim. The court granted the motion, finding that the plaintiff’s complaint did not allege that the defendant creditor denied his credit application based on one of the reasons enumerated in ECOA, 15 U.S.C. § 1691(a)(1)-(3). For a copy of the opinion, please see http://www.buckleykolar.com/documents/Wright_v_Sun_Trust.pdf.
Ninth Circuit Rejects FDCPA Bona Fide Error Defense By Debt Collector. Recently, the United States Court of Appeals for the Ninth Circuit affirmed that a debt collector could not use the “bona fide error” affirmative defense provided by the Fair Debt Collection Practices Act (FDCPA), rejecting arguments that the defendant “reasonably relied” upon the reported debt and that the defendant adequately showed that there were procedures “reasonably adapted” to avoid errors. Reichert v. National Credit Systems, Inc., No. 06-11503 (9th Cir. 2008). The plaintiff signed a residential lease which the plaintiff ended prematurely. The lease contained a provision for “Attorney’s Fees,” which allowed for legal fees required to enforce the lease to be awarded to the prevailing party. Under this provision, the lessor claimed that the plaintiff had a debt in the amount of $1,899.20, which the lessor then assigned to the defendant. After the plaintiff disputed the debt and requested the verification of the debt, the lessor directed the defendant to add a $225 fee to the debt in connection with the verification letter. The plaintiff claimed that the $225 fee charge was not expressly authorized by the lease and that the attempt to collect it was in violation of the FDCPA. In response, the defendant argued that its attempted collection of the $225 fee was a “bona fide error” under the FDCPA because (i) the defendant justifiably relied upon the lessor’s representations in the past and (ii) the defendant had procedures “reasonably adapted” to avoid errors. The court disagreed, reasoning that past performance does not establish a reasonable reliance for future transactions, and that a conclusory declaration that the defendant maintained adequate procedures did not substantively evidence procedures “reasonably adapted” to avoid errors. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Reichert_v_NCS.pdf.
Pennsylvania Federal Court Affirms FDCPA Statute of Limitations Interpretation. A Pennsylvania district court recently affirmed a defendant’s motion to dismiss claims arising under, in part, the Fair Debt Collection Practices Act (FDCPA), holding that the statute of limitations for a claim arising under the FDCPA begins to run at the time of an alleged action, and not when the plaintiff receives notice of an alleged action. Shivone v. Washington Mutual Bank, F.A., et al., No. 07-CV-1038 (E.D. Pa. Aug. 5, 2008. The plaintiff had a mortgage which was subsequently assigned to the defendant Washington Mutual Bank, FA (“WaMu”). After co-defendants filed a mortgage foreclosure against the plaintiff, the plaintiff alleged violations of, among other items, the FDCPA. The court, reasoning through cases that followed Agosta v. InoVision, Inc., No. 02-806 (E.D. Pa. Dec. 16, 2003), held that the statute of limitations for a claim arising under the FDCPA begins to run at the time of an alleged action. As a result, the plaintiff’s claim under the FDCPA was time-barred because the alleged action occurred more than a year prior to the plaintiff’s suit. The court also dismissed torts claims, as well as claims arising under the Unfair Trade Practices and Consumer Protection Act and the Pennsylvania Fair Credit Extension Uniformity Act. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Shivone_v_WaMu.pdf.
Massachusetts Federal Court Holds Cardmember Agreement With Retroactive Assessment of Interest Upon Default Permissible Under TILA. On August 8, the United States District Court for the District of Massachusetts granted a defendant credit card company’s motion to dismiss, finding that the consumer plaintiff failed to state a claim upon which relief could be granted with respect to her claims that the Cardmember Agreement at issue violated the Truth in Lending Act (TILA), Massachusetts consumer protection statute, and common law by providing for retroactive assessment of interest in the event of the consumer’s default. Shaner v. Chase Bank, USA, N.A., No. 07-11766 (D. Ma. Aug. 8, 2008). The court noted that other courts have held that the provision at issue – giving the first notice of a rate increase in the periodic statement for the cycle – is permissible under TILA and that, although the comments to TILA are ambiguous as to whether this provision is permissible, the Federal Reserve Board has taken the position that it is permitted under existing TILA regulations. Because the plaintiff’s TILA claim failed, her Massachusetts consumer protection claim also failed because it was based on violation of TILA. In addition, the plaintiff’s claim that the retroactive assessment of interest amounted to a “penalty” under common law failed because this provision was lawful in the State where the defendant is located (Delaware) and the National Bank Act prevents it from being made unlawful in any other state. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Shaner_v_Chase.pdf.
Massachusetts Federal Court Holds Cardmember Agreement With Retroactive Assessment of Interest Upon Default Permissible Under TILA. On August 8, the United States District Court for the District of Massachusetts granted a defendant credit card company’s motion to dismiss, finding that the consumer plaintiff failed to state a claim upon which relief could be granted with respect to her claims that the Cardmember Agreement at issue violated the Truth in Lending Act (TILA), Massachusetts consumer protection statute, and common law by providing for retroactive assessment of interest in the event of the consumer’s default. Shaner v. Chase Bank, USA, N.A., No. 07-11766 (D. Ma. Aug. 8, 2008). The court noted that other courts have held that the provision at issue – giving the first notice of a rate increase in the periodic statement for the cycle – is permissible under TILA and that, although the comments to TILA are ambiguous as to whether this provision is permissible, the Federal Reserve Board has taken the position that it is permitted under existing TILA regulations. Because the plaintiff’s TILA claim failed, her Massachusetts consumer protection claim also failed because it was based on violation of TILA. In addition, the plaintiff’s claim that the retroactive assessment of interest amounted to a “penalty” under common law failed because this provision was lawful in the State where the defendant is located (Delaware) and the National Bank Act prevents it from being made unlawful in any other state. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Shaner_v_Chase.pdf.
© Buckley Kolar, LLP 2005. INFOBYTES is not intended as legal advice to any person or firm. It is provided as a client service and information contained herein is drawn from various public sources, including other publications.
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