(202) 349-8000
1250 24 th St NW · Suite 700 · Washington D.C. 20037
www.buckleykolar.com
InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
Federal Agencies Propose Illustrations for Subprime Statement. On August 14, the federal banking agencies and the National Credit Union Association (OCC, FRB, FDIC, OTS, and NCUA) issued proposed illustrations for adjustable rate mortgages (ARMs) in connection with their Final Statement on Subprime Mortgage Lending (reported in the June 29th issue of InfoBytes). The proposed illustrations include a fact sheet entitled “Important Facts About Your Adjustable Rate Mortgage” and a table comparing the monthly payments for ARMs and fixed-rate mortgages at different times in the life of the loan and under different market conditions. The fact sheet includes explanations of (i) teaser rates, (ii) the inclusion or exclusion of taxes and insurance payments in mortgages, (iii) prepayment penalties, (iv) balloon payments, and (v) the premium paid by borrowers for low documentation loans. For more information, see the joint banking agencies’ press release at http://www.fdic.gov/news/news/press/2007/pr07068.html.
SEC Reaches Fraud Settlement with Non-Conforming Mortgage Purchaser. On August 7, the Securities and Exchange Commission (SEC) announced an $8.5 million settlement with First BanCorp over allegations of misrepresenting transactions involving “non-conforming” residential mortgages. In its complaint, the SEC alleged that First BanCorp, a bank holding company based in Puerto Rico and listed on the New York Stock Exchange, had concealed oral agreements with Doral First Financial Corporation to extend recourse provisions from the contractual 24-month period to the full life of the mortgage. In the SEC’s view, this did not constitute a true sale under generally accepted accounting principles, and last year, the SEC entered into a settlement agreement on this issue with Doral First Financial. The First BanCorp settlement, in which First BanCorp neither admits nor denies wrongdoing, also enjoins the company from violating specific antifraud, reporting, and internal control provisions of federal securities laws. For more information, see http://www.sec.gov/news/press/2007/2007-161.htm.
FRB Submits Report on Credit Scoring to Congress. The FRB recently published a “Report to the Congress on Credit Scoring and Its Effects on the Availability and Affordability of Credit.” The report covers a variety of topics on credit scoring, finding that characteristics used in scoring models “do not serve as substitutes, or proxies, for race, ethnicity, or sex.” The report did find that some indicators used in credit scoring served as proxies for age, giving younger consumers higher scores. However, according to the report, removing the characteristics with an age proxy-effect would deprive the models of a “strong predictive” indicator. The report concluded that credit scoring “likely has contributed to improved credit availability and affordability. . . . There is no compelling evidence, however, that any particular demographic group has experienced markedly greater changes in credit availability or affordability than other groups due to credit scoring.” To read the report in full, see http://www.federalreserve.gov/boarddocs/RptCongress/creditscore/creditscore.pdf.
Freddie Mac Offers 90-Day Commitment to Buy Alt-A Mortgages. On August 14, Freddie Mac announced it would be providing a “90-day forward commitment capability, on a negotiated basis, to experienced lenders with credit terms that will accommodate a majority of the fixed and adjustable rate Alt-A products.” The commitment to buy more Alt-A mortgages comes after OFHEO declined to alter the portfolio caps on Fannie Mae and Freddie Mac. Following Sen. Schumer’s (D – NY) letter to OFHEO last week calling for a lift in the portfolio cap, House Financial Services Committee Chairman Barney Frank (D – MA) and Rep. Gary Miller (R – CA) have called on the Senate to raise the conforming loan limit to expand Fannie and Freddie’s role in the market. To read Freddie Mac’s official press release, see http://www.freddiemac.com/news/archives/singlefamily/2007/20070814_advisory.html.
STATE ISSUES
Massachusetts Enacts Data Breach Notice and Credit Freeze Law. On August 2, Massachusetts Governor Deval Patrick signed into law House Bill 4144, which requires businesses and government agencies to issue notice of any breaches of unencrypted personal information and gives citizens the right to a freeze of their credit records. The notification requirement includes no “risk of harm” language, unlike many similar state laws. Among other things, notices of breached data must be provided in writing or by e-mail if the notice is consistent with E-SIGN (15 U.S.C.A. 7001(c)), unless the production of written notices would exceed $250,000 or the number of affected residents exceeds 500,000, in which case “substitute” methods are permitted. Substitute notice can include e-mail, clear and conspicuous posting of the notice on the home page of the agency’s website, and publication in or broadcast through a medium that provides notice throughout the state. The new law also establishes guidelines on the methods of destroying personal information, imposing civil money penalties of up to $100 per customer affected on businesses failing to meet them. Text of the law can be found at http://www.mass.gov/legis/bills/house/185/ht04pdf/ht04144.pdf.
COURTS
Court Dismisses FCRA Firm Offer of Insurance Claim. On August 9, the U.S. District Court for the Eastern District of Pennsylvania dismissed a consumer’s “firm offer of insurance” claim under the Fair Credit Reporting Act (FCRA). Gelman v. State Farm Mutual Automobile Insurance Co., No. 06-5118, 2007 WL 2306578 (E.D. Pa. Aug. 9, 2007). The consumer, relying on Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004) (discussed in the December 17, 2004, issue of InfoBytes), argued that State Farm willfully violated the FCRA by sending a solicitation that was not a firm offer because it was “without value” and did not set out the material terms of the offer of insurance. The court rejected the “expansive meaning of firm offer of insurance” urged by the consumer, noting that there is “no basis in the statutory text” for the “sufficient value” and “material terms” standards of Cole. In addition, the court noted that Cole and the other case law cited by the consumer supporting his argument all related to firm offers of credit, not insurance, and stated that “absent any judicial or administrative authority addressing a firm offer in the insurance context [it would not] depart from the plain language of FCRA.” The court also joined all but one of the courts that have addressed the issue in holding that the private right of action for the consumer’s claims that the FCRA prescreening disclosures (under 15 U.S.C. § 1681m(d)) were not clear and conspicuous was repealed by the Fair and Accurate Credit Transactions Act of 2003. For a copy of the Gelman opinion, please contact .
Fraudulent Broker Fee Not Included in HOEPA “Points and Fees” Calculation. On August 14, the Seventh Circuit found that Equicredit, a mortgage lender defendant, was not required to provide Home Ownership and Equity Protection Act (HOEPA) disclosures because the plaintiffs’ loan did not constitute a “high-cost” loan. Cunningham v. Nationscredit Fin. Servs. Corp., No. 06-2250, 2007 U.S. App. LEXIS 19274 (7th Cir. Aug. 14, 2007). Total points and fees disclosed on plaintiffs’ HUD-1 settlement statement represented 7.97 percent of the plaintiffs’ loan amount, which fell short of the 8 percent required to trigger HOEPA disclosures. However, at the direction of a loan officer employed by the plaintiffs’ mortgage broker, the settlement statement also included a $10,500 payment to a sham entity; the loan officer deposited this payment into his personal account. Plaintiffs argued that, given the loan officer’s receipt of the $10,500 payment, the payment should be considered a disguised mortgage broker fee, and thus should be included in the total points and fees paid to a mortgage broker. Such inclusion of the $10,500 payment would trigger the 8 percent HOEPA disclosure requirement. However, noting that the plaintiffs confirmed the accuracy of the description of how loan proceeds were to be distributed by signing the settlement statement, the Seventh Circuit rejected plaintiffs’ argument and affirmed the district court’s grant of summary judgment to Equicredit on this claim. The opinion is available at http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=06-2250_023.pdf.
Safeco "Reckless Disregard" Standard Applied in FCRA Firm Offer Ruling. On August 6, 2007, the U.S. District Court for the Eastern District of Wisconsin, relying on the test in Perry v. First Nat'l Bank, 459 F.3d 816 (7th Cir. 2006) (reported in the October 21, 2005 issue of InfoBytes), determined that a fact finder could conclude that an unsolicited offer disclosing (i) an example of recent interest rates offered to borrowers and (ii) a list of loan programs and a guarantee of unspecified credit, provides no value to the normal consumer and accordingly would not constitute a "firm offer" of credit under FCRA. Bernal v. American Money Centers, Inc., 2007 WL 2288066 (E.D. Wis. Aug. 6, 2007). On the question of whether the plaintiffs were eligible for statutory damages if the defendant "willfully" violated FCRA, the court applied the "reckless disregard" standard recently adopted by the U.S. Supreme Court in Safeco Ins. Co. of Am. V. Burr, 127 S.Ct. 2201 (2007). The court pointed out that because the defendant had no system for tracking particular offers, which would allow the defendant to treat recipients of offers better than those credit applicants who did not receive an offer and did not have their credit accessed, a fact finder could conclude the defendant "displayed a reckless disregard for consumers' rights to privacy under the FCRA." Consequently, the court denied the defendant's motion for summary judgment. For a copy of this opinion, please contact .
District Court Dismisses Suit Seeking “Firm Offer” Class Certification. The U.S. District Court for the District of Massachusetts dismissed another FCRA “firm offer” suit in which consumers were seeking class certification. Sullivan v. Greenwood Credit Union, No. 06-11369-JLT, 2001 WL 2309866 (D. Mass. Aug. 13, 2007). In this case, the named plaintiff brought suit on behalf of two million consumers whose consumer credit reports were accessed by defendant Greenwood. Greenwood mailed a letter to the consumers, stating that they were “pre-approved” for a home loan. Greenwood admitted that the purpose of the letter was to solicit the consumers to contact Greenwood to discuss loan products, not necessarily to offer a specific loan product. The plaintiff alleged that the letter was not a “firm offer of credit,” since the letter did not contain any specific terms, and that each consumer was entitled to $1000 in statutory damages. The court, while noting that the “arguments that lenders should be required to disclose more information carry some intuitive appeal,” rejected the plaintiff’s contention and granted summary judgment in favor of the defendant. The court joined another court in the same judicial district in Dixon v. Shamrock Financial Corp., 482 F. Supp. 2d 172 (D. Mass. Apr. 20, 2007) (discussed in the April 27, 2007, issue of InfoBytes) in taking a narrow view of the Seventh Circuit’s holding in Cole v. U.S. Capital Inc., 389 F.3d 719 (7th Cir. 2004) (discussed in the December 17, 2004 issue of InfoBytes) and concluded that the letter was a valid firm offer of credit. The court noted, “[I]f the letter assures the consumer that he is guaranteed to receive credit if he meets certain conditions, and there is no evidence that the letter is a sham intended to lure recipients into something other than a bone fide credit transaction, the letter is a firm offer of credit under FCRA.” For a copy of the opinion, please contact .
No FCRA Violation Where Dealer Accesses Credit Report to Help Consumer Find Financing. In a recent decision, a Florida federal district court dismissed a plaintiff's claims that a car dealership violated FCRA when it accessed her credit report to determine whether a third party lender would finance her car purchase. Jones v. TT of Longwood, Inc., No. 06-651, 2007 WL 2298020 (M.D. Fla. Aug. 7, 2007). In this case, the consumer visited the dealership to purchase a new car, and as part of the arrangement signed a retail installment sales contract, a bailment agreement, and a purchase offer contract. The bailment agreement allowed the plaintiff to drive the car off the lot, but pending credit approval of the buyer, the vehicle remained the property of the dealer. Shortly thereafter, the plaintiff's financing application was rejected and plaintiff was required to return the vehicle. The plaintiff alleged that the defendant violated FCRA because it was not a creditor and obtained her credit report solely "for purposes of satisfying its curiosity instead of for the purpose of extending credit." The court disagreed, stating that where a prospective buyer signs a retail installment sales contract that includes a clear statement that the dealer may assign the financing to a third party lender, there is no FCRA violation for accessing the consumer's credit report. In addition, citing informal FTC staff opinions and statements in the Congressional Record, the court stated that obtaining a credit report in connection with a new business transaction in order to determine the consumer's eligibility is a permissible purpose under the FCRA, even when the financing may be done by a third party. The court also rejected the consumer’s Truth in Lending Act and state law claims. For a copy of the decision, please contact .
Letter Lacking Certain Loan Terms Still A “Firm Offer”; Cole Followed. A federal court in Missouri dismissed a putative FCRA class action, holding that the terms included in the lender’s offer of credit had enough value to constitute a “firm offer.” Poehl v. Countrywide Home Loans, Inc., No 06-CV-928 (E.D. Mo., opinion issued Aug. 7, 2007). The plaintiff’s class action complaint alleged that defendant accessed his credit report without his consent in order to issue two “prescreened” loan promotion letters. The letters contained a pre-approved minimum loan amount of $50,000 along with a description of certain restrictions and conditions. The defendants moved for judgment on the pleadings, arguing that the offer constituted a permissible “firm offer of credit” under the FCRA. The plaintiff countered that the letter was not a “firm offer” because it lacked certain crucial loan terms, such as rate and loan term. The court disagreed with plaintiff, stating that “[i]f Congress had wanted the FCRA to require that loan amounts, interest rates, or payback times be specified in a ‘firm offer,’ it could have done so.” Instead, the court stated that it was adopting the Seventh Circuit’s “some value” test (see Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004), discussed in the December 17, 2004 issue of InfoBytes), finding that the letters were “firm offers” because a reasonable consumer would consider the offer of an absolute minimum loan amount of $50,000 to be of “some value.” Accordingly, the court dismissed plaintiff’s claims. For a copy of this decision, please contact .
California Court of Appeal Upholds Punitive Damage Award against Credit Union. On August 2, the Court of Appeal of California held that the “sue-and-be-sued” clause in the Federal Credit Union Act, 12 U.S.C. § 1757(2), created a presumption that the government waived the immunity of credit unions from punitive damages. McGee v. Tucoemas Fed. Credit Union, 2007 Cal. App. LEXIS 1281 (Cal. App. 2007). The court rejected the appellant’s argument that under Matter of Sparkman, 703 F.2d 1097 (9th Cir. 1983) federal financial institutions were not subject to liability for punitive damages absent an express waiver of such immunity. The court found that Matter of Sparkman was inconsistent with the Supreme Court’s ruling in FDIC v. Meyer, 510 U.S. 471 (1994). Under FDIC v. Meyer, the Supreme Court stated that agencies authorized to “sue and be sued” are presumed to have fully waived immunity from punitive damages, unless they can show that they fall under an established exemption. Since the appellant could not demonstrate that it fell under an applicable exemption, the court upheld the lower court’s award of punitive damages. For a copy of the opinion, please contact .
MISCELLANY
ESRA to Hold Conference on E-Signatures. The Electronic Signatures & Records Association (ESRA) will hold a conference entitled “Getting E-Signatures Right: Key Business, Technology, and Legal Developments” on November 13-14, 2007 in Washington, DC. Some of the conference topics include (i) success of the ESIGN Act, (ii) long term retention of electronically signed records, (iii) various industry sector case studies and (iv) key trends. Congressman Jay Inslee (D – WA) will be among the speakers, as well as Jeremiah Buckley and Margo Tank of Buckley Kolar, LLP. To learn more about the conference go to http://www.esignrecords.org/events/ESRA-announcement081507.pdf.
FIRM NEWS
Jon Jerison gave a presentation in an A.S. Pratt Audio Conference Series on the Fair Credit Reporting Act: Laws and Regulations for Obtaining Consumer Credit Reports on August 14, 2007. To obtain access to a CD of the presentation, click on http://www.aspratt.com/store/X47.php.
Federal Agencies Propose Illustrations for Subprime Statement. On August 14, the federal banking agencies and the National Credit Union Association (OCC, FRB, FDIC, OTS, and NCUA) issued proposed illustrations for adjustable rate mortgages (ARMs) in connection with their Final Statement on Subprime Mortgage Lending (reported in the June 29th issue of InfoBytes). The proposed illustrations include a fact sheet entitled “Important Facts About Your Adjustable Rate Mortgage” and a table comparing the monthly payments for ARMs and fixed-rate mortgages at different times in the life of the loan and under different market conditions. The fact sheet includes explanations of (i) teaser rates, (ii) the inclusion or exclusion of taxes and insurance payments in mortgages, (iii) prepayment penalties, (iv) balloon payments, and (v) the premium paid by borrowers for low documentation loans. For more information, see the joint banking agencies’ press release at http://www.fdic.gov/news/news/press/2007/pr07068.html.
Freddie Mac Offers 90-Day Commitment to Buy Alt-A Mortgages. On August 14, Freddie Mac announced it would be providing a “90-day forward commitment capability, on a negotiated basis, to experienced lenders with credit terms that will accommodate a majority of the fixed and adjustable rate Alt-A products.” The commitment to buy more Alt-A mortgages comes after OFHEO declined to alter the portfolio caps on Fannie Mae and Freddie Mac. Following Sen. Schumer’s (D – NY) letter to OFHEO last week calling for a lift in the portfolio cap, House Financial Services Committee Chairman Barney Frank (D – MA) and Rep. Gary Miller (R – CA) have called on the Senate to raise the conforming loan limit to expand Fannie and Freddie’s role in the market. To read Freddie Mac’s official press release, see http://www.freddiemac.com/news/archives/singlefamily/2007/20070814_advisory.html.
Fraudulent Broker Fee Not Included in HOEPA “Points and Fees” Calculation. On August 14, the Seventh Circuit found that Equicredit, a mortgage lender defendant, was not required to provide Home Ownership and Equity Protection Act (HOEPA) disclosures because the plaintiffs’ loan did not constitute a “high-cost” loan. Cunningham v. Nationscredit Fin. Servs. Corp., No. 06-2250, 2007 U.S. App. LEXIS 19274 (7th Cir. Aug. 14, 2007). Total points and fees disclosed on plaintiffs’ HUD-1 settlement statement represented 7.97 percent of the plaintiffs’ loan amount, which fell short of the 8 percent required to trigger HOEPA disclosures. However, at the direction of a loan officer employed by the plaintiffs’ mortgage broker, the settlement statement also included a $10,500 payment to a sham entity; the loan officer deposited this payment into his personal account. Plaintiffs argued that, given the loan officer’s receipt of the $10,500 payment, the payment should be considered a disguised mortgage broker fee, and thus should be included in the total points and fees paid to a mortgage broker. Such inclusion of the $10,500 payment would trigger the 8 percent HOEPA disclosure requirement. However, noting that the plaintiffs confirmed the accuracy of the description of how loan proceeds were to be distributed by signing the settlement statement, the Seventh Circuit rejected plaintiffs’ argument and affirmed the district court’s grant of summary judgment to Equicredit on this claim. The opinion is available at http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=06-2250_023.pdf.
Safeco "Reckless Disregard" Standard Applied in FCRA Firm Offer Ruling. On August 6, 2007, the U.S. District Court for the Eastern District of Wisconsin, relying on the test in Perry v. First Nat'l Bank, 459 F.3d 816 (7th Cir. 2006) (reported in the October 21, 2005 issue of InfoBytes), determined that a fact finder could conclude that an unsolicited offer disclosing (i) an example of recent interest rates offered to borrowers and (ii) a list of loan programs and a guarantee of unspecified credit, provides no value to the normal consumer and accordingly would not constitute a "firm offer" of credit under FCRA. Bernal v. American Money Centers, Inc., 2007 WL 2288066 (E.D. Wis. Aug. 6, 2007). On the question of whether the plaintiffs were eligible for statutory damages if the defendant "willfully" violated FCRA, the court applied the "reckless disregard" standard recently adopted by the U.S. Supreme Court in Safeco Ins. Co. of Am. V. Burr, 127 S.Ct. 2201 (2007). The court pointed out that because the defendant had no system for tracking particular offers, which would allow the defendant to treat recipients of offers better than those credit applicants who did not receive an offer and did not have their credit accessed, a fact finder could conclude the defendant "displayed a reckless disregard for consumers' rights to privacy under the FCRA." Consequently, the court denied the defendant's motion for summary judgment. For a copy of this opinion, please contact .
Letter Lacking Certain Loan Terms Still A “Firm Offer”; Cole Followed. A federal court in Missouri dismissed a putative FCRA class action, holding that the terms included in the lender’s offer of credit had enough value to constitute a “firm offer.” Poehl v. Countrywide Home Loans, Inc., No 06-CV-928 (E.D. Mo., opinion issued Aug. 7, 2007). The plaintiff’s class action complaint alleged that defendant accessed his credit report without his consent in order to issue two “prescreened” loan promotion letters. The letters contained a pre-approved minimum loan amount of $50,000 along with a description of certain restrictions and conditions. The defendants moved for judgment on the pleadings, arguing that the offer constituted a permissible “firm offer of credit” under the FCRA. The plaintiff countered that the letter was not a “firm offer” because it lacked certain crucial loan terms, such as rate and loan term. The court disagreed with plaintiff, stating that “[i]f Congress had wanted the FCRA to require that loan amounts, interest rates, or payback times be specified in a ‘firm offer,’ it could have done so.” Instead, the court stated that it was adopting the Seventh Circuit’s “some value” test (see Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004), discussed in the December 17, 2004 issue of InfoBytes), finding that the letters were “firm offers” because a reasonable consumer would consider the offer of an absolute minimum loan amount of $50,000 to be of “some value.” Accordingly, the court dismissed plaintiff’s claims. For a copy of this decision, please contact .
District Court Dismisses Suit Seeking “Firm Offer” Class Certification. The U.S. District Court for the District of Massachusetts dismissed another FCRA “firm offer” suit in which consumers were seeking class certification. Sullivan v. Greenwood Credit Union, No. 06-11369-JLT, 2001 WL 2309866 (D. Mass. Aug. 13, 2007). In this case, the named plaintiff brought suit on behalf of two million consumers whose consumer credit reports were accessed by defendant Greenwood. Greenwood mailed a letter to the consumers, stating that they were “pre-approved” for a home loan. Greenwood admitted that the purpose of the letter was to solicit the consumers to contact Greenwood to discuss loan products, not necessarily to offer a specific loan product. The plaintiff alleged that the letter was not a “firm offer of credit,” since the letter did not contain any specific terms, and that each consumer was entitled to $1000 in statutory damages. The court, while noting that the “arguments that lenders should be required to disclose more information carry some intuitive appeal,” rejected the plaintiff’s contention and granted summary judgment in favor of the defendant. The court joined another court in the same judicial district in Dixon v. Shamrock Financial Corp., 482 F. Supp. 2d 172 (D. Mass. Apr. 20, 2007) (discussed in the April 27, 2007, issue of InfoBytes) in taking a narrow view of the Seventh Circuit’s holding in Cole v. U.S. Capital Inc., 389 F.3d 719 (7th Cir. 2004) (discussed in the December 17, 2004 issue of InfoBytes) and concluded that the letter was a valid firm offer of credit. The court noted, “[I]f the letter assures the consumer that he is guaranteed to receive credit if he meets certain conditions, and there is no evidence that the letter is a sham intended to lure recipients into something other than a bone fide credit transaction, the letter is a firm offer of credit under FCRA.” For a copy of the opinion, please contact .
FRB Submits Report on Credit Scoring to Congress. The FRB recently published a “Report to the Congress on Credit Scoring and Its Effects on the Availability and Affordability of Credit.” The report covers a variety of topics on credit scoring, finding that characteristics used in scoring models “do not serve as substitutes, or proxies, for race, ethnicity, or sex.” The report did find that some indicators used in credit scoring served as proxies for age, giving younger consumers higher scores. However, according to the report, removing the characteristics with an age proxy-effect would deprive the models of a “strong predictive” indicator. The report concluded that credit scoring “likely has contributed to improved credit availability and affordability. . . . There is no compelling evidence, however, that any particular demographic group has experienced markedly greater changes in credit availability or affordability than other groups due to credit scoring.” To read the report in full, see http://www.federalreserve.gov/boarddocs/RptCongress/creditscore/creditscore.pdf.
SEC Reaches Fraud Settlement with Non-Conforming Mortgage Purchaser. On August 7, the Securities and Exchange Commission (SEC) announced an $8.5 million settlement with First BanCorp over allegations of misrepresenting transactions involving “non-conforming” residential mortgages. In its complaint, the SEC alleged that First BanCorp, a bank holding company based in Puerto Rico and listed on the New York Stock Exchange, had concealed oral agreements with Doral First Financial Corporation to extend recourse provisions from the contractual 24-month period to the full life of the mortgage. In the SEC’s view, this did not constitute a true sale under generally accepted accounting principles, and last year, the SEC entered into a settlement agreement on this issue with Doral First Financial. The First BanCorp settlement, in which First BanCorp neither admits nor denies wrongdoing, also enjoins the company from violating specific antifraud, reporting, and internal control provisions of federal securities laws. For more information, see http://www.sec.gov/news/press/2007/2007-161.htm.
California Court of Appeal Upholds Punitive Damage Award against Credit Union. On August 2, the Court of Appeal of California held that the “sue-and-be-sued” clause in the Federal Credit Union Act, 12 U.S.C. § 1757(2), created a presumption that the government waived the immunity of credit unions from punitive damages. McGee v. Tucoemas Fed. Credit Union, 2007 Cal. App. LEXIS 1281 (Cal. App. 2007). The court rejected the appellant’s argument that under Matter of Sparkman, 703 F.2d 1097 (9th Cir. 1983) federal financial institutions were not subject to liability for punitive damages absent an express waiver of such immunity. The court found that Matter of Sparkman was inconsistent with the Supreme Court’s ruling in FDIC v. Meyer, 510 U.S. 471 (1994). Under FDIC v. Meyer, the Supreme Court stated that agencies authorized to “sue and be sued” are presumed to have fully waived immunity from punitive damages, unless they can show that they fall under an established exemption. Since the appellant could not demonstrate that it fell under an applicable exemption, the court upheld the lower court’s award of punitive damages. For a copy of the opinion, please contact .
District Court Dismisses Suit Seeking “Firm Offer” Class Certification. The U.S. District Court for the District of Massachusetts dismissed another FCRA “firm offer” suit in which consumers were seeking class certification. Sullivan v. Greenwood Credit Union, No. 06-11369-JLT, 2001 WL 2309866 (D. Mass. Aug. 13, 2007). In this case, the named plaintiff brought suit on behalf of two million consumers whose consumer credit reports were accessed by defendant Greenwood. Greenwood mailed a letter to the consumers, stating that they were “pre-approved” for a home loan. Greenwood admitted that the purpose of the letter was to solicit the consumers to contact Greenwood to discuss loan products, not necessarily to offer a specific loan product. The plaintiff alleged that the letter was not a “firm offer of credit,” since the letter did not contain any specific terms, and that each consumer was entitled to $1000 in statutory damages. The court, while noting that the “arguments that lenders should be required to disclose more information carry some intuitive appeal,” rejected the plaintiff’s contention and granted summary judgment in favor of the defendant. The court joined another court in the same judicial district in Dixon v. Shamrock Financial Corp., 482 F. Supp. 2d 172 (D. Mass. Apr. 20, 2007) (discussed in the April 27, 2007, issue of InfoBytes) in taking a narrow view of the Seventh Circuit’s holding in Cole v. U.S. Capital Inc., 389 F.3d 719 (7th Cir. 2004) (discussed in the December 17, 2004 issue of InfoBytes) and concluded that the letter was a valid firm offer of credit. The court noted, “[I]f the letter assures the consumer that he is guaranteed to receive credit if he meets certain conditions, and there is no evidence that the letter is a sham intended to lure recipients into something other than a bone fide credit transaction, the letter is a firm offer of credit under FCRA.” For a copy of the opinion, please contact .
No FCRA Violation Where Dealer Accesses Credit Report to Help Consumer Find Financing. In a recent decision, a Florida federal district court dismissed a plaintiff's claims that a car dealership violated FCRA when it accessed her credit report to determine whether a third party lender would finance her car purchase. Jones v. TT of Longwood, Inc., No. 06-651, 2007 WL 2298020 (M.D. Fla. Aug. 7, 2007). In this case, the consumer visited the dealership to purchase a new car, and as part of the arrangement signed a retail installment sales contract, a bailment agreement, and a purchase offer contract. The bailment agreement allowed the plaintiff to drive the car off the lot, but pending credit approval of the buyer, the vehicle remained the property of the dealer. Shortly thereafter, the plaintiff's financing application was rejected and plaintiff was required to return the vehicle. The plaintiff alleged that the defendant violated FCRA because it was not a creditor and obtained her credit report solely "for purposes of satisfying its curiosity instead of for the purpose of extending credit." The court disagreed, stating that where a prospective buyer signs a retail installment sales contract that includes a clear statement that the dealer may assign the financing to a third party lender, there is no FCRA violation for accessing the consumer's credit report. In addition, citing informal FTC staff opinions and statements in the Congressional Record, the court stated that obtaining a credit report in connection with a new business transaction in order to determine the consumer's eligibility is a permissible purpose under the FCRA, even when the financing may be done by a third party. The court also rejected the consumer’s Truth in Lending Act and state law claims. For a copy of the decision, please contact .
Safeco "Reckless Disregard" Standard Applied in FCRA Firm Offer Ruling. On August 6, 2007, the U.S. District Court for the Eastern District of Wisconsin, relying on the test in Perry v. First Nat'l Bank, 459 F.3d 816 (7th Cir. 2006) (reported in the October 21, 2005 issue of InfoBytes), determined that a fact finder could conclude that an unsolicited offer disclosing (i) an example of recent interest rates offered to borrowers and (ii) a list of loan programs and a guarantee of unspecified credit, provides no value to the normal consumer and accordingly would not constitute a "firm offer" of credit under FCRA. Bernal v. American Money Centers, Inc., 2007 WL 2288066 (E.D. Wis. Aug. 6, 2007). On the question of whether the plaintiffs were eligible for statutory damages if the defendant "willfully" violated FCRA, the court applied the "reckless disregard" standard recently adopted by the U.S. Supreme Court in Safeco Ins. Co. of Am. V. Burr, 127 S.Ct. 2201 (2007). The court pointed out that because the defendant had no system for tracking particular offers, which would allow the defendant to treat recipients of offers better than those credit applicants who did not receive an offer and did not have their credit accessed, a fact finder could conclude the defendant "displayed a reckless disregard for consumers' rights to privacy under the FCRA." Consequently, the court denied the defendant's motion for summary judgment. For a copy of this opinion, please contact .
Letter Lacking Certain Loan Terms Still A “Firm Offer”; Cole Followed. A federal court in Missouri dismissed a putative FCRA class action, holding that the terms included in the lender’s offer of credit had enough value to constitute a “firm offer.” Poehl v. Countrywide Home Loans, Inc., No 06-CV-928 (E.D. Mo., opinion issued Aug. 7, 2007). The plaintiff’s class action complaint alleged that defendant accessed his credit report without his consent in order to issue two “prescreened” loan promotion letters. The letters contained a pre-approved minimum loan amount of $50,000 along with a description of certain restrictions and conditions. The defendants moved for judgment on the pleadings, arguing that the offer constituted a permissible “firm offer of credit” under the FCRA. The plaintiff countered that the letter was not a “firm offer” because it lacked certain crucial loan terms, such as rate and loan term. The court disagreed with plaintiff, stating that “[i]f Congress had wanted the FCRA to require that loan amounts, interest rates, or payback times be specified in a ‘firm offer,’ it could have done so.” Instead, the court stated that it was adopting the Seventh Circuit’s “some value” test (see Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004), discussed in the December 17, 2004 issue of InfoBytes), finding that the letters were “firm offers” because a reasonable consumer would consider the offer of an absolute minimum loan amount of $50,000 to be of “some value.” Accordingly, the court dismissed plaintiff’s claims. For a copy of this decision, please contact .
FRB Submits Report on Credit Scoring to Congress. The FRB recently published a “Report to the Congress on Credit Scoring and Its Effects on the Availability and Affordability of Credit.” The report covers a variety of topics on credit scoring, finding that characteristics used in scoring models “do not serve as substitutes, or proxies, for race, ethnicity, or sex.” The report did find that some indicators used in credit scoring served as proxies for age, giving younger consumers higher scores. However, according to the report, removing the characteristics with an age proxy-effect would deprive the models of a “strong predictive” indicator. The report concluded that credit scoring “likely has contributed to improved credit availability and affordability. . . . There is no compelling evidence, however, that any particular demographic group has experienced markedly greater changes in credit availability or affordability than other groups due to credit scoring.” To read the report in full, see http://www.federalreserve.gov/boarddocs/RptCongress/creditscore/creditscore.pdf.
SEC Reaches Fraud Settlement with Non-Conforming Mortgage Purchaser. On August 7, the Securities and Exchange Commission (SEC) announced an $8.5 million settlement with First BanCorp over allegations of misrepresenting transactions involving “non-conforming” residential mortgages. In its complaint, the SEC alleged that First BanCorp, a bank holding company based in Puerto Rico and listed on the New York Stock Exchange, had concealed oral agreements with Doral First Financial Corporation to extend recourse provisions from the contractual 24-month period to the full life of the mortgage. In the SEC’s view, this did not constitute a true sale under generally accepted accounting principles, and last year, the SEC entered into a settlement agreement on this issue with Doral First Financial. The First BanCorp settlement, in which First BanCorp neither admits nor denies wrongdoing, also enjoins the company from violating specific antifraud, reporting, and internal control provisions of federal securities laws. For more information, see http://www.sec.gov/news/press/2007/2007-161.htm.
Court Dismisses FCRA Firm Offer of Insurance Claim. On August 9, the U.S. District Court for the Eastern District of Pennsylvania dismissed a consumer’s “firm offer of insurance” claim under the Fair Credit Reporting Act (FCRA). Gelman v. State Farm Mutual Automobile Insurance Co., No. 06-5118, 2007 WL 2306578 (E.D. Pa. Aug. 9, 2007). The consumer, relying on Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004) (discussed in the December 17, 2004, issue of InfoBytes), argued that State Farm willfully violated the FCRA by sending a solicitation that was not a firm offer because it was “without value” and did not set out the material terms of the offer of insurance. The court rejected the “expansive meaning of firm offer of insurance” urged by the consumer, noting that there is “no basis in the statutory text” for the “sufficient value” and “material terms” standards of Cole. In addition, the court noted that Cole and the other case law cited by the consumer supporting his argument all related to firm offers of credit, not insurance, and stated that “absent any judicial or administrative authority addressing a firm offer in the insurance context [it would not] depart from the plain language of FCRA.” The court also joined all but one of the courts that have addressed the issue in holding that the private right of action for the consumer’s claims that the FCRA prescreening disclosures (under 15 U.S.C. § 1681m(d)) were not clear and conspicuous was repealed by the Fair and Accurate Credit Transactions Act of 2003. For a copy of the Gelman opinion, please contact .
Fraudulent Broker Fee Not Included in HOEPA “Points and Fees” Calculation. On August 14, the Seventh Circuit found that Equicredit, a mortgage lender defendant, was not required to provide Home Ownership and Equity Protection Act (HOEPA) disclosures because the plaintiffs’ loan did not constitute a “high-cost” loan. Cunningham v. Nationscredit Fin. Servs. Corp., No. 06-2250, 2007 U.S. App. LEXIS 19274 (7th Cir. Aug. 14, 2007). Total points and fees disclosed on plaintiffs’ HUD-1 settlement statement represented 7.97 percent of the plaintiffs’ loan amount, which fell short of the 8 percent required to trigger HOEPA disclosures. However, at the direction of a loan officer employed by the plaintiffs’ mortgage broker, the settlement statement also included a $10,500 payment to a sham entity; the loan officer deposited this payment into his personal account. Plaintiffs argued that, given the loan officer’s receipt of the $10,500 payment, the payment should be considered a disguised mortgage broker fee, and thus should be included in the total points and fees paid to a mortgage broker. Such inclusion of the $10,500 payment would trigger the 8 percent HOEPA disclosure requirement. However, noting that the plaintiffs confirmed the accuracy of the description of how loan proceeds were to be distributed by signing the settlement statement, the Seventh Circuit rejected plaintiffs’ argument and affirmed the district court’s grant of summary judgment to Equicredit on this claim. The opinion is available at http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=06-2250_023.pdf.
Safeco "Reckless Disregard" Standard Applied in FCRA Firm Offer Ruling. On August 6, 2007, the U.S. District Court for the Eastern District of Wisconsin, relying on the test in Perry v. First Nat'l Bank, 459 F.3d 816 (7th Cir. 2006) (reported in the October 21, 2005 issue of InfoBytes), determined that a fact finder could conclude that an unsolicited offer disclosing (i) an example of recent interest rates offered to borrowers and (ii) a list of loan programs and a guarantee of unspecified credit, provides no value to the normal consumer and accordingly would not constitute a "firm offer" of credit under FCRA. Bernal v. American Money Centers, Inc., 2007 WL 2288066 (E.D. Wis. Aug. 6, 2007). On the question of whether the plaintiffs were eligible for statutory damages if the defendant "willfully" violated FCRA, the court applied the "reckless disregard" standard recently adopted by the U.S. Supreme Court in Safeco Ins. Co. of Am. V. Burr, 127 S.Ct. 2201 (2007). The court pointed out that because the defendant had no system for tracking particular offers, which would allow the defendant to treat recipients of offers better than those credit applicants who did not receive an offer and did not have their credit accessed, a fact finder could conclude the defendant "displayed a reckless disregard for consumers' rights to privacy under the FCRA." Consequently, the court denied the defendant's motion for summary judgment. For a copy of this opinion, please contact .
District Court Dismisses Suit Seeking “Firm Offer” Class Certification. The U.S. District Court for the District of Massachusetts dismissed another FCRA “firm offer” suit in which consumers were seeking class certification. Sullivan v. Greenwood Credit Union, No. 06-11369-JLT, 2001 WL 2309866 (D. Mass. Aug. 13, 2007). In this case, the named plaintiff brought suit on behalf of two million consumers whose consumer credit reports were accessed by defendant Greenwood. Greenwood mailed a letter to the consumers, stating that they were “pre-approved” for a home loan. Greenwood admitted that the purpose of the letter was to solicit the consumers to contact Greenwood to discuss loan products, not necessarily to offer a specific loan product. The plaintiff alleged that the letter was not a “firm offer of credit,” since the letter did not contain any specific terms, and that each consumer was entitled to $1000 in statutory damages. The court, while noting that the “arguments that lenders should be required to disclose more information carry some intuitive appeal,” rejected the plaintiff’s contention and granted summary judgment in favor of the defendant. The court joined another court in the same judicial district in Dixon v. Shamrock Financial Corp., 482 F. Supp. 2d 172 (D. Mass. Apr. 20, 2007) (discussed in the April 27, 2007, issue of InfoBytes) in taking a narrow view of the Seventh Circuit’s holding in Cole v. U.S. Capital Inc., 389 F.3d 719 (7th Cir. 2004) (discussed in the December 17, 2004 issue of InfoBytes) and concluded that the letter was a valid firm offer of credit. The court noted, “[I]f the letter assures the consumer that he is guaranteed to receive credit if he meets certain conditions, and there is no evidence that the letter is a sham intended to lure recipients into something other than a bone fide credit transaction, the letter is a firm offer of credit under FCRA.” For a copy of the opinion, please contact .
No FCRA Violation Where Dealer Accesses Credit Report to Help Consumer Find Financing. In a recent decision, a Florida federal district court dismissed a plaintiff's claims that a car dealership violated FCRA when it accessed her credit report to determine whether a third party lender would finance her car purchase. Jones v. TT of Longwood, Inc., No. 06-651, 2007 WL 2298020 (M.D. Fla. Aug. 7, 2007). In this case, the consumer visited the dealership to purchase a new car, and as part of the arrangement signed a retail installment sales contract, a bailment agreement, and a purchase offer contract. The bailment agreement allowed the plaintiff to drive the car off the lot, but pending credit approval of the buyer, the vehicle remained the property of the dealer. Shortly thereafter, the plaintiff's financing application was rejected and plaintiff was required to return the vehicle. The plaintiff alleged that the defendant violated FCRA because it was not a creditor and obtained her credit report solely "for purposes of satisfying its curiosity instead of for the purpose of extending credit." The court disagreed, stating that where a prospective buyer signs a retail installment sales contract that includes a clear statement that the dealer may assign the financing to a third party lender, there is no FCRA violation for accessing the consumer's credit report. In addition, citing informal FTC staff opinions and statements in the Congressional Record, the court stated that obtaining a credit report in connection with a new business transaction in order to determine the consumer's eligibility is a permissible purpose under the FCRA, even when the financing may be done by a third party. The court also rejected the consumer’s Truth in Lending Act and state law claims. For a copy of the decision, please contact .
Letter Lacking Certain Loan Terms Still A “Firm Offer”; Cole Followed. A federal court in Missouri dismissed a putative FCRA class action, holding that the terms included in the lender’s offer of credit had enough value to constitute a “firm offer.” Poehl v. Countrywide Home Loans, Inc., No 06-CV-928 (E.D. Mo., opinion issued Aug. 7, 2007). The plaintiff’s class action complaint alleged that defendant accessed his credit report without his consent in order to issue two “prescreened” loan promotion letters. The letters contained a pre-approved minimum loan amount of $50,000 along with a description of certain restrictions and conditions. The defendants moved for judgment on the pleadings, arguing that the offer constituted a permissible “firm offer of credit” under the FCRA. The plaintiff countered that the letter was not a “firm offer” because it lacked certain crucial loan terms, such as rate and loan term. The court disagreed with plaintiff, stating that “[i]f Congress had wanted the FCRA to require that loan amounts, interest rates, or payback times be specified in a ‘firm offer,’ it could have done so.” Instead, the court stated that it was adopting the Seventh Circuit’s “some value” test (see Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004), discussed in the December 17, 2004 issue of InfoBytes), finding that the letters were “firm offers” because a reasonable consumer would consider the offer of an absolute minimum loan amount of $50,000 to be of “some value.” Accordingly, the court dismissed plaintiff’s claims. For a copy of this decision, please contact .
California Court of Appeal Upholds Punitive Damage Award against Credit Union. On August 2, the Court of Appeal of California held that the “sue-and-be-sued” clause in the Federal Credit Union Act, 12 U.S.C. § 1757(2), created a presumption that the government waived the immunity of credit unions from punitive damages. McGee v. Tucoemas Fed. Credit Union, 2007 Cal. App. LEXIS 1281 (Cal. App. 2007). The court rejected the appellant’s argument that under Matter of Sparkman, 703 F.2d 1097 (9th Cir. 1983) federal financial institutions were not subject to liability for punitive damages absent an express waiver of such immunity. The court found that Matter of Sparkman was inconsistent with the Supreme Court’s ruling in FDIC v. Meyer, 510 U.S. 471 (1994). Under FDIC v. Meyer, the Supreme Court stated that agencies authorized to “sue and be sued” are presumed to have fully waived immunity from punitive damages, unless they can show that they fall under an established exemption. Since the appellant could not demonstrate that it fell under an applicable exemption, the court upheld the lower court’s award of punitive damages. For a copy of the opinion, please contact .
Court Dismisses FCRA Firm Offer of Insurance Claim. On August 9, the U.S. District Court for the Eastern District of Pennsylvania dismissed a consumer’s “firm offer of insurance” claim under the Fair Credit Reporting Act (FCRA). Gelman v. State Farm Mutual Automobile Insurance Co., No. 06-5118, 2007 WL 2306578 (E.D. Pa. Aug. 9, 2007). The consumer, relying on Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004) (discussed in the December 17, 2004, issue of InfoBytes), argued that State Farm willfully violated the FCRA by sending a solicitation that was not a firm offer because it was “without value” and did not set out the material terms of the offer of insurance. The court rejected the “expansive meaning of firm offer of insurance” urged by the consumer, noting that there is “no basis in the statutory text” for the “sufficient value” and “material terms” standards of Cole. In addition, the court noted that Cole and the other case law cited by the consumer supporting his argument all related to firm offers of credit, not insurance, and stated that “absent any judicial or administrative authority addressing a firm offer in the insurance context [it would not] depart from the plain language of FCRA.” The court also joined all but one of the courts that have addressed the issue in holding that the private right of action for the consumer’s claims that the FCRA prescreening disclosures (under 15 U.S.C. § 1681m(d)) were not clear and conspicuous was repealed by the Fair and Accurate Credit Transactions Act of 2003. For a copy of the Gelman opinion, please contact .
ESRA to Hold Conference on E-Signatures. The Electronic Signatures & Records Association (ESRA) will hold a conference entitled “Getting E-Signatures Right: Key Business, Technology, and Legal Developments” on November 13-14, 2007 in Washington, DC. Some of the conference topics include (i) success of the ESIGN Act, (ii) long term retention of electronically signed records, (iii) various industry sector case studies and (iv) key trends. Congressman Jay Inslee (D – WA) will be among the speakers, as well as Jeremiah Buckley and Margo Tank of Buckley Kolar, LLP. To learn more about the conference go to http://www.esignrecords.org/events/ESRA-announcement081507.pdf.
Massachusetts Enacts Data Breach Notice and Credit Freeze Law. On August 2, Massachusetts Governor Deval Patrick signed into law House Bill 4144, which requires businesses and government agencies to issue notice of any breaches of unencrypted personal information and gives citizens the right to a freeze of their credit records. The notification requirement includes no “risk of harm” language, unlike many similar state laws. Among other things, notices of breached data must be provided in writing or by e-mail if the notice is consistent with E-SIGN (15 U.S.C.A. 7001(c)), unless the production of written notices would exceed $250,000 or the number of affected residents exceeds 500,000, in which case “substitute” methods are permitted. Substitute notice can include e-mail, clear and conspicuous posting of the notice on the home page of the agency’s website, and publication in or broadcast through a medium that provides notice throughout the state. The new law also establishes guidelines on the methods of destroying personal information, imposing civil money penalties of up to $100 per customer affected on businesses failing to meet them. Text of the law can be found at http://www.mass.gov/legis/bills/house/185/ht04pdf/ht04144.pdf.
Massachusetts Enacts Data Breach Notice and Credit Freeze Law. On August 2, Massachusetts Governor Deval Patrick signed into law House Bill 4144, which requires businesses and government agencies to issue notice of any breaches of unencrypted personal information and gives citizens the right to a freeze of their credit records. The notification requirement includes no “risk of harm” language, unlike many similar state laws. Among other things, notices of breached data must be provided in writing or by e-mail if the notice is consistent with E-SIGN (15 U.S.C.A. 7001(c)), unless the production of written notices would exceed $250,000 or the number of affected residents exceeds 500,000, in which case “substitute” methods are permitted. Substitute notice can include e-mail, clear and conspicuous posting of the notice on the home page of the agency’s website, and publication in or broadcast through a medium that provides notice throughout the state. The new law also establishes guidelines on the methods of destroying personal information, imposing civil money penalties of up to $100 per customer affected on businesses failing to meet them. Text of the law can be found at http://www.mass.gov/legis/bills/house/185/ht04pdf/ht04144.pdf.
ESRA to Hold Conference on E-Signatures. The Electronic Signatures & Records Association (ESRA) will hold a conference entitled “Getting E-Signatures Right: Key Business, Technology, and Legal Developments” on November 13-14, 2007 in Washington, DC. Some of the conference topics include (i) success of the ESIGN Act, (ii) long term retention of electronically signed records, (iii) various industry sector case studies and (iv) key trends. Congressman Jay Inslee (D – WA) will be among the speakers, as well as Jeremiah Buckley and Margo Tank of Buckley Kolar, LLP. To learn more about the conference go to http://www.esignrecords.org/events/ESRA-announcement081507.pdf.
FRB Submits Report on Credit Scoring to Congress. The FRB recently published a “Report to the Congress on Credit Scoring and Its Effects on the Availability and Affordability of Credit.” The report covers a variety of topics on credit scoring, finding that characteristics used in scoring models “do not serve as substitutes, or proxies, for race, ethnicity, or sex.” The report did find that some indicators used in credit scoring served as proxies for age, giving younger consumers higher scores. However, according to the report, removing the characteristics with an age proxy-effect would deprive the models of a “strong predictive” indicator. The report concluded that credit scoring “likely has contributed to improved credit availability and affordability. . . . There is no compelling evidence, however, that any particular demographic group has experienced markedly greater changes in credit availability or affordability than other groups due to credit scoring.” To read the report in full, see http://www.federalreserve.gov/boarddocs/RptCongress/creditscore/creditscore.pdf.
Safeco "Reckless Disregard" Standard Applied in FCRA Firm Offer Ruling. On August 6, 2007, the U.S. District Court for the Eastern District of Wisconsin, relying on the test in Perry v. First Nat'l Bank, 459 F.3d 816 (7th Cir. 2006) (reported in the October 21, 2005 issue of InfoBytes), determined that a fact finder could conclude that an unsolicited offer disclosing (i) an example of recent interest rates offered to borrowers and (ii) a list of loan programs and a guarantee of unspecified credit, provides no value to the normal consumer and accordingly would not constitute a "firm offer" of credit under FCRA. Bernal v. American Money Centers, Inc., 2007 WL 2288066 (E.D. Wis. Aug. 6, 2007). On the question of whether the plaintiffs were eligible for statutory damages if the defendant "willfully" violated FCRA, the court applied the "reckless disregard" standard recently adopted by the U.S. Supreme Court in Safeco Ins. Co. of Am. V. Burr, 127 S.Ct. 2201 (2007). The court pointed out that because the defendant had no system for tracking particular offers, which would allow the defendant to treat recipients of offers better than those credit applicants who did not receive an offer and did not have their credit accessed, a fact finder could conclude the defendant "displayed a reckless disregard for consumers' rights to privacy under the FCRA." Consequently, the court denied the defendant's motion for summary judgment. For a copy of this opinion, please contact .
Letter Lacking Certain Loan Terms Still A “Firm Offer”; Cole Followed. A federal court in Missouri dismissed a putative FCRA class action, holding that the terms included in the lender’s offer of credit had enough value to constitute a “firm offer.” Poehl v. Countrywide Home Loans, Inc., No 06-CV-928 (E.D. Mo., opinion issued Aug. 7, 2007). The plaintiff’s class action complaint alleged that defendant accessed his credit report without his consent in order to issue two “prescreened” loan promotion letters. The letters contained a pre-approved minimum loan amount of $50,000 along with a description of certain restrictions and conditions. The defendants moved for judgment on the pleadings, arguing that the offer constituted a permissible “firm offer of credit” under the FCRA. The plaintiff countered that the letter was not a “firm offer” because it lacked certain crucial loan terms, such as rate and loan term. The court disagreed with plaintiff, stating that “[i]f Congress had wanted the FCRA to require that loan amounts, interest rates, or payback times be specified in a ‘firm offer,’ it could have done so.” Instead, the court stated that it was adopting the Seventh Circuit’s “some value” test (see Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004), discussed in the December 17, 2004 issue of InfoBytes), finding that the letters were “firm offers” because a reasonable consumer would consider the offer of an absolute minimum loan amount of $50,000 to be of “some value.” Accordingly, the court dismissed plaintiff’s claims. For a copy of this decision, please contact .
© 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.
We welcome reader comments and suggestions regarding issues or items of interest to be covered in future editions of InfoBytes. Email:
For back issues of INFOBYTES (or other Buckley Kolar LLP publications), visit http://www.buckleykolar.com/publications.
Copyright © 2008 Buckley Kolar LLP. All rights reserved