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InfoBytes

CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

FEDERAL ISSUES

Final Rule Revising CRA Regulations Published. On August 2, 2005, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Board of Governors of the Federal Reserve System (Board) published a joint final rule revising their Community Reinvestment Act (CRA) regulations. The joint final rule takes effect on September 1, 2005. The joint final rule addresses regulatory burden imposed on small banks with an asset size between $250 million and $1 billion by exempting them from CRA loan data collection and reporting obligations. It also exempts such banks from the large bank lending, investment, and service tests, and makes them eligible for evaluation under the small bank lending test and a flexible new community development test. Holding company affiliation is no longer a factor in determining which CRA evaluation standards apply to a bank. In addition, the joint final rule revises the term ‘‘community development’’ to include activities to revitalize and stabilize distressed or underserved rural areas and designated disaster areas. Finally, it adopts without change the amendments to the regulations to address the impact on a bank’s CRA rating of evidence of discrimination or other credit practices that violate an applicable law, rule, or regulation. To view the final rule in its entirety see http://www.occ.treas.gov/fr/fedregister/70fr44256.pdf.

FDIC Proposes Deposit Insurance Rules for Stored-Value Cards. Under the proposed rule, which would apply to stored-value cards and other “nontraditional access mechanisms,” the depositor of the funds (such as a retail merchant that issues a gift card) would generally be considered the insured depositor for deposit insurance purposes. However, cardholders would be insured individually on a “pass-through” basis if (1) the depository institution’s records indicate that the depositor is not the owner of the funds, and (2) records maintained by either the institution or the depositor show the identities of the cardholders. This proposal is a revision, in response to comments, of a previous proposed rule issued in April 2004. Comments are due by November 7, 2005. The Federal Register notice is available at http://www.fdic.gov/news/news/financial/2005/fil8305a.pdf.

Federal Banking Agencies Request Comments Under 1996 Economic Growth and Regulatory Paperwork Reduction Act. The OCC, the Board, FDIC, and OTS are reviewing regulations to identify outdated, unnecessary, or unduly burdensome regulatory requirements pursuant to the Economic Growth and Regulatory Paperwork Reduction Act. Comments are due within 90 days after publication of the notice in the Federal Register on August 11. This round of reviews focuses on Bank Operations; Directors, Officers, and Employees; and Rules of Procedure. In particular, the review will explore whether statutory changes are called for in any of the areas under consideration and whether existing rules include provisions that are no longer needed to serve their original purposes. The agencies will also review adverse effects of current rules on competition and compliance costs and whether rules are inconsistent, redundant, or poorly worded. For more information see http://www.egrpra.gov/fedregnotice08112005.html.

COURTS

Maryland’s Highest Court Rules that State Restrictions on Mortgage Broker Fees are Not Preempted by DIDMCA. On August 9, the Court of Appeals of Maryland ruled in Sweeney v. Savings First Mortgage LLC, Md. Ct. App., No. 148, that Maryland’s Finder’s Fee Law—limiting fees charged by mortgage brokers to 8% of the amount of the loan—is not preempted by Section 501(a)(1) of the Depository Institutions Deregulation and Monetary Control Act, 12 U.S.C. § 735f-7a (DIDMCA) because DIDMCA does not preempt state restrictions for brokers, only lenders. In its decision, the Court concluded that “[m]ortgage brokers are outside the reach that Congress intended for the federal statute. For that reason, we find that the Finder’s Fee Law is not preempted by DIDMCA.” Because Savings First Mortgage acted as a mortgage broker in the loan transaction at issue, and was not the creditor, the court found that it could not rely on federal preemption of the Finder’s Fee Law by DIDMCA. This decision is the second of two recent decisions to reject federal preemption of state statutes under DIDMCA—the other recent case was Wells Fargo Bank N.A. v. Boutris. Under that case, the 9th Circuit found that DIDMCA did not preempt California’s per diem loan-interest statute because the statute did not “expressly limit the rate or amount of interest” as prohibited in DIDMCA’s preemption section. (see past edition of InfoBytes at http://www.buckleykolar.com/publications/InfoBytes081905.html). To view the Sweeney decision in its entirety, see http://www.courts.state.md.us/opinions/coa/2005/148a04.pdf.

Court Finds Congress Eliminated Private Right of Action under FCRA. In Murray v. Cross Country Bank, Case 1:05-cv-01252, the United States District Court for the Northern District of Illinois ruled that Congress meant what it said when, in the FACT Act, it enacted Section 615(h)(8) of FCRA, which provides, “Section 617 and 618 of this title [providing civil liability for FCRA violations] shall not apply to any failure to comply with this section.” The Court found that the reference to “this section” meant all of Section 615 (which sets out the requirements on users of consumer reports, including the requirement to provide adverse action notices), not just to Subsection 615(h), as the plaintiff argued. The plaintiff’s suit was therefore barred and defendant’s motion to dismiss was granted. We understand that this significant decision, which represents a blow to plaintiffs’ attempts to bring class action suits based on failure to provide adverse action notices, is being appealed to the Seventh Circuit Court of Appeals.

Court Presumes Delivery of Notice Via Email Can Be Presumed by Sending Email. In American Boat Co., Inc. v. United States, No. 04-3388 (8th Cir. Aug. 16, 2005), the United States Court of Appeals for the Eighth Circuit held that e-mail notices can be presumed to have been delivered in the absence of reliable contrary evidence. This controversy revolved around a court clerk’s automated notification system, which had been created to provide parties with notices that orders had been filed, and for other purposes. Although the court found that e-mail systems are generally reliable and that finders of fact may generally presume that items sent by such systems are in fact delivered, the court decided that there was sufficient evidence to warrant a hearing as to whether the e-mail actually was received by the proper parties. A copy of the decision can be found at http://caselaw.lp.findlaw.com/data2/circs/8th/043388p.pdf.

Illinois Court Holds that eContract Contains Hyperlinked Terms. On August 12, 2005, an Illinois appellate court held that terms and conditions that are presented to a consumer via hyperlink are included within the contract between the consumer and vendor. The court analogized the hyperlinked screens to the pages of a paper contract, and noted that the hyperlink’s blue text and placement made it conspicuous to the consumers. Hubbert v. Dell Corp., No. 5-03-0643 (Ill. App. Ct., 5th Dist. Aug. 12, 2005). For a copy of the decision see http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=il&vol=app/2005/5030643&invol=3.

NY Court Holds that Privacy Policy Can Be Part of eContract. On August 1, 2005, the United States District Court for the Eastern District of New York (“EDNY”) held that a privacy policy provided on a company’s website via a hyperlink can constitute part of the contract between the website’s owner and its customers. In re JetBlue, No. 1:04-md-01587-CBA-RML (E.D.N.Y. Aug. 1, 2005), JetBlue had argued that its privacy policy was a standalone document and therefore was not included in the Contract of Carriage when a customer purchased an airline ticket from its website. The court held that a Privacy Policy could, in fact, be part of such an agreement. A copy of the decision is not currently available on the EDNY’s website.

MISCELLANY

Wachovia Will No Longer Communicate Account Information Via E-Mail. In an effort to improve the security of its customers’ sensitive information, Wachovia announced on August 16, 2005 that it will no longer request or communicate account information using e-mail. The bank is notifying online customers that it will only communicate sensitive account information through a secure message center. Customers will be notified via e-mail when there are messages concerning their account, but the e-mail will not contain an active link to view sensitive information. Wachovia has implemented this measure as a response to the increase in “phishing attacks,” online schemes that typically involve an e-mail or pop-up that encourages customers to visit phone bank websites in an attempt to fraudulently gather the customer’s personal information. To read Wachovia’s press release see http://www.wachovia.com/inside/page/0,,134_307^1227,00.html.

FIRM NEWS

In the August 2005 issue of Mortgage Banking Magazine, Jeff Naimon is quoted on state predatory lending laws in an article titled “Underperformance and Oversight.”  For more information, see www.mortgagebankingmagazine.com.

John Kromer, Lee Negroni and Clint Rockwell presented an “Update on Federal and State Laws” at the American Association of Residential Mortgage Regulator's annual conference in Portland, Oregon, August 21 to 24.  For a copy of the updates, click the following links “State Mortgage Lending Laws 2005 Update” and “Federal Issues 2005 Update.”  Both updates are also available at http://www.buckleykolar.com/news/

© 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:

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