(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
HUD Announces 1-Year Moratorium on Risk-Based Premiums. On July 14, the Federal Housing Administration (FHA) began implementing its risk-based mortgage insurance premium structure for FHA loans; however, the recently-enacted Housing and Economic Recovery Act of 2008 places a 1-year moratorium on implementing such risk-based premiums, commencing October 1, 2008. This risk-based structure was established for most Title II single family mortgage insurance programs by a May 13, 2008 notice, which provided for implementation commencing on July 14, 2008. A notice released on August 24 provides directions for FHA-approved mortgagees to ensure their compliance with the moratorium that commences October 1, 2008. For a copy of the notice, please see http://portal.hud.gov/pls/portal/docs/PAG/FHA_HOME/LENDERS/LENDER_DOCUMENTS/FR-S171-N-03.PDF.
OTS Issues HELOC Account Guidance. On August 26, the Office of Thrift Supervision (OTS) issued guidance reiterating its expectation that associations will actively manage their home equity portfolios from a safety and soundness perspective, paying particular attention to long-term or interest-only payment features. The OTS guidance states that associations must follow federal laws and rules designed to protect home equity line of credit (HELOC) customers when reducing, suspending or terminating existing HELOCs. The guidance further explains that, consistent with Regulation Z, creditors may freeze or reduce a HELOC account under certain circumstances; namely, when (i) the value of the collateral declines significantly, (ii) the creditor reasonably believes the consumer will be unable to make payments due to changes in the consumer’s financial circumstances, or (iii) the consumer is in default on a material obligation. Once these circumstances cease, however, credit privileges must be reinstated. Further, the termination, suspension, reduction of a HELOC account is not treated as an adverse action under Regulation B if action is taken in compliance with Regulation Z and is due to the “inactivity, default, or delinquency” of the account or the applicant expressly agreed to a change in terms, as opposed to when the account is suspended or reduced based on a consumer report or information from others because of a material change in a consumer’s credit profile. The guidance also emphasizes Unfair and Deceptive Acts or Practices concerns in connection with all aspects of a loan transaction, including servicing and collection and advertising. Similar guidance was offered by the Federal Deposit Insurance Corporation earlier this year (reported in InfoBytes, July 3, 2008). For a copy of the guidance, please see http://files.ots.treas.gov/481121.pdf.
FFIEC Issues 2008 HMDA Guide. On August 27, the Federal Financial Institutions Examination Council (FFIEC) issued the 2008 “Guide to HMDA Reporting: Getting It Right!” to assist lenders with compliance under the Home Mortgage Disclosure Act (HMDA). Among other items, the guide outlines who must report HMDA data, as well as how to complete, submit, and disclose the data contained within the Loan/Application Register. For a copy of the FFIEC’s guide, please see http://www.ffiec.gov/hmda/pdf/2008guide.pdf.
FRB Publishes Mortgage Refinancing Guide for Consumers. On August 27, the Federal Reserve Board (FRB) made available on its website "A Consumer's Guide to Mortgage Refinancings." The guide, among other items, addresses the eligibility requirements for mortgage refinancing, discusses the costs of mortgage refinancing, and provides advice for consumers shopping for a new mortgage loan. For a copy of the FRB’s guide, please see http://www.federalreserve.gov/pubs/refinancings/refinancing.pdf.
STATE ISSUES
Florida Emergency Rule Will Bar Criminals From Mortgage Licensing. Florida Governor Charlie Crist and the state’s Cabinet, sitting as the Florida Financial Services Commission, approved an emergency rule change to ban individuals with criminal histories from obtaining licenses to work in the mortgage industry. The rule, which expands on the federal SAFE Mortgage Licensing Act of 2008 that was passed last month, prohibits the Florida Office of Financial Regulation from issuing a Florida mortgage broker, mortgage lender, correspondent lender or mortgage brokerage business license to an applicant for a specified period (ranging between 5 to 15 years) if the applicant or “relevant persons” of the applicant (i.e., officers, directors, members, partners, control persons and joint venturers) have been found or pled guilty or no contest to various felonies or misdemeanors. The rule allows for mitigating factors that could lengthen or shorten the periods of ineligibility. The emergency rule will remain in effect until regular rulemaking is completed. For the full text of the rule, please see http://www.flofr.com/Finance/Forms/ER-OFR-MS.pdf.
Maryland Amends Mortgage Lender Servicer Reporting Requirements. On August 5, the Maryland Commissioner of Financial Regulation (Commissioner) adopted amendments to a regulation pertaining to the monthly reporting requirements of Maryland Mortgage Lender licensees acting as servicers. The amended regulation changes the due date of the Maryland Mortgage Servicer Reporting Form from the 20th day of each month to the 25th day of each month, and allows the Commissioner to request information beyond the immediately-preceding month in the report. The effective date of the regulation is August 25, 2008. Notice of the amendment was published in the August 15, 2008 edition of the Maryland Register, available at http://www.dsd.state.md.us/MDRegister/3517/main_register.htm. For the Department of Labor, Licensing & Regulation’s web notice, including the text of the regulation, please see http://www.dllr.state.md.us/finance/mlemerregfinal.shtml.
Illinois Passes Bill Regarding Mortgage Foreclosure Notice Requirements. On August 14, Illinois Governor Rod Blagojevich signed H.B. 4195, a bill amending mortgage foreclosure notice requirements. The bill provides that a mortgagee must inform a mortgagor that the mortgagor has the right to remain in possession of a foreclosed property for 30 days after entry of an order of possession, unless the right to possession has been previously terminated by a court action. The bill is effective as of August 14, 2008. For a copy of the bill, please see http://www.ilga.gov/legislation/publicacts/95/PDF/095-0826.pdf
New York Banking Department Issues Industry Letter Regarding Subprime Mortgage Bill. On August 27, the New York State Banking Department issued an industry letter to mortgage bankers, brokers, servicers, and mortgage-related industry groups. The letter summarizes provisions of the mortgage lending reform bill signed into law on August 5 (reported in InfoBytes, August 8, 2008), which provides the effective dates for those provisions, and defines terms used in the law. For a copy of the industry letter, please see http://www.banking.state.ny.us/il080827.htm. For a copy of the press release regarding the industry letter, please see http://www.banking.state.ny.us/pr080827.htm.
Pennsylvania Secretary of Banking Announces Participation in NMLS. On August 27, the Pennsylvania Secretary of Banking Steve Kaplan announced that Pennsylvania will begin participating in the National Mortgage Licensing System (NMLS) this year. The announcement strongly encourages current licensees to begin transitioning existing licenses as soon as possible, and warns that licensees that fail to submit information to the NMLS by the end of the year will lose the authority to conduct mortgage business in Pennsylvania. The announcement follows an August 21 industry letter sent by the Pennsylvania Department of Banking to all licensed mortgage businesses and consumer discount companies, which details the process for licensees to transition to the NMLS. For a copy of the August 21 industry letter, please see http://www.buckleykolar.com/documents/PA_DOB_Letter.pdf. For a copy of the August 27 announcement, please see http://www.banking.state.pa.us/banking/lib/banking/news_and_events/rls-bank-nmls-082708.pdf.
Massachusetts Launches Online Reverse Mortgage Information Resource. On August 15, the Massachusetts Office of Consumer Affairs and Business Regulation announced the launch of a website to provide information to reverse mortgage consumers. The website, http://www.mass.gov/reversemortgage, provides information for prospective borrowers, a list of approved reverse mortgage lenders and loan programs, industry guidance on reverse mortgages, and links to other pertinent websites. For a copy of the press release, please see http://www.mass.gov/?pageID=ocapressrelease&L=1&L0=Home&sid=Eoca&b=pressrelease&f=080815_revmort&csid=Eoca.
COURTS
Indiana AG Sues Countrywide. On August 25, the Indiana Attorney General filed suit against Countrywide Financial Corporation and Countrywide Home Loans, Inc. (Countrywide) for alleged violations of the state’s Home Loan Practices Act and Deceptive Consumer Sales Act. The suit alleges that Countrywide (i) provided financial incentive for employees and loan brokers acting as agents to sell loans with potentially risky features, (ii) made deceptive or misleading representations or omissions on loan terms and charges including, but not limited to, the interest rate of loans, the presence or mechanics of the adjustable rate feature of the loans and the interest rate or material costs of the loans, (iii) misled borrowers about the presence, significance and/or meaning of a prepayment penalty or the time period in which a pre payment penalty would apply, and (iv) inflated or fabricated a borrower’s income on a loan application allowing a borrower to be approved for loans he would have failed to qualify for otherwise. The suit requests civil penalties of up to $15,000 per violation as well as investigative costs and consumer restitution. This suit joins recent suits filed against Countrywide by the Attorneys General of California, Connecticut, Florida, Illinois, and West Virginia. For a copy of the complaint, please see http://www.indianaconsumer.com/pub/CountrywideFileStamped.pdf.
Sixth Circuit Court of Appeals Holds That OTS Preemption Extends to Exclusive Agents of Federal Savings Banks. On August 22, the Court of Appeals for the Sixth Circuit reversed a decision by an Ohio federal district court stating that federal law did not preempt the application of the Ohio Mortgage Broker Act (the Broker Act) to the exclusive agents of a federal savings bank. State Farm Bank, FSB v. Reardon, No. 05-00268 (6th Cir. Aug. 22, 2008). State Farm Bank, FSB (State Farm), a federal savings association, offered mortgage products in Ohio through independent, exclusive insurance agents who were not licensed under the Broker Act. When the Superintendent of the Ohio Division of Financial Institutions (Superintendent) refused to exempt the agents from compliance with the Broker Act, State Farm filed suit seeking relief, arguing that the application of the Broker Act was preempted by federal law, and thus did not apply to the bank’s exclusive agents. The district court disagreed, declining to follow the analysis employed in State Farm Bank, F.S.B. v. Burke, 445 F. Supp. 2d 207 (D. Conn. 2006), a case which held that federal law preempted the application of a Connecticut law similar to the Broker Act to the bank’s exclusive agents (reported in InfoBytes, June 23, 2006). State Farm appealed, arguing that the Home Owners’ Loan Act and Office of Thrift Supervision (OTS) regulations preempt the application of the Broker Act to the exclusive agents of a bank because they do not distinguish between the mortgage-related activities conducted by the bank itself, its officers and employees, its subsidiaries, or, as in this case, its exclusive agents. The Sixth Circuit agreed, holding that the district court’s view of preemption was “overly narrow.” The court noted that, to the contrary, the language of the regulations suggests a much broader coverage of activities than just those of the bank, its employees, and subsidiaries. The court also cited the U.S. Supreme Court decision in Watters v. Wachovia Bank, N.A., 127 S. Ct. 1559 (U.S. 2007) (reported in InfoBytes Special Alert, April 17, 2007) as standing for the proposition that “when considering whether a state law is preempted by federal banking law, the courts should focus on whether the state law is regulating ‘the exercise of a national bank’s power’ not on whether the entity exercising that power is the bank itself.” The court further held the Broker Act fell within the categories of activities expressly preempted by the OTS regulations, reasoning that “it is somewhat difficult for us to comprehend how a law that requires State Farm Bank to either forgo mortgage lending in Ohio or radically alter its business model does not ‘prevent or significantly interfere’ with the ability of a federal savings association to exercise its powers free from state obstruction.” The court reversed the district court’s decision, and remanded for summary judgment in favor of State Farm. In dicta, the court noted that the recently-enacted Housing and Economic Recovery Act of 2008 (HERA) might subject exclusive agents of a bank to state regulation, however, HERA did not moot this appeal because Ohio has not yet enacted legislation in order to comply with HERA. For a copy of the opinion, please see http://www.buckleykolar.com/documents/State_Farm_v_Reardon.pdf.
Ninth Circuit Affirms Dismissal of Bankruptcy Trustee’s TILA Claim. On August 22, the Ninth Circuit Court of Appeals affirmed a bankruptcy court opinion that a bankruptcy trustee was not entitled to statutory or actual damages under the Truth-in-Lending Act (TILA) for disclosure errors. McDonald v. Checks-N-Advance, Inc., No. 06-17243, 2008 U.S. App. LEXIS 18023 (9th Cir. Aug. 22, 2008). The debtor alleged that when he received a “pay-day loan,” the finance charge, annual percentage rate, amount financed, and total of payments were not conspicuously displayed, and the disclosures were not made before consummation, in violation of TILA. After the debtor filed for bankruptcy, the bankruptcy trustee filed claims on his behalf arising under TILA, seeking statutory and actual damages. The court held that, although TILA permits statutory damages for violating a number of the statute’s provisions, statutory damages are not available either for violations of the disclosure timing provision (12 U.S.C. § 1638), barring some exceptions, nor for the conspicuous display requirement (12 U.S.C. § 1632(a)), because that requirement works in conjunction with, and has no force without, the disclosure timing rule of § 1638. Further, the bankruptcy trustee could not be granted actual damages because she failed to show detrimental reliance. The court also rejected a claim for costs and attorney’s fees under Nevada law. For a copy of the opinion, please see http://www.buckleykolar.com/documents/McDonald_v_Checks.pdf.
Pennsylvania Federal Court Declines to Vacate FACTA Credit-Card Truncation Settlement. On August 18, the U.S. District Court for the Western District of Pennsylvania declined to vacate a Fair and Accurate Credit Transactions Act (FACTA) credit-card truncation settlement that was entered into before Congress enacted legislation that holds that such claims have no standing. Hughes v. InMotion Entertainment, No. 07cv1299, 2008 WL 3889725 (W.D. Pa. Aug. 18, 2008). The plaintiff alleged, in her own right and on behalf of a putative class, that the defendant willfully violated FACTA by printing the expiration date of her debit or credit card on a receipt dated September 14, 2007. The plaintiff and defendant reached a settlement in the case, and a court granted preliminary approval of the settlement agreement. The defendant subsequently moved to vacate the settlement agreement on the grounds that the plaintiff no longer has standing as a result of Congress’s amendment of the truncation cause of action under FACTA, which clarified that any person who printed an expiration date on any receipt between December 4, 2004, and June 3, 2008, was not in willful noncompliance with FACTA by reason of printing such expiration date on the receipt. The court, however, declined to vacate the settlement agreement, holding that it is binding and enforceable under general principles of contract interpretation. The court further reasoned that, because the settlement agreement unambiguously provides that the defendant denies all wrongdoing, it cannot be interpreted that the settlement was based on the defendant’s willful noncompliance with FACTA. With regard to the defendant’s standing argument, the court held that the issue of standing is assessed at the commencement of the suit, which the plaintiff had. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Hughs_v_InMotion.pdf.
Second Circuit Court of Appeals Affirms No “Material Misstatement or Omission” in Annuity Case. On August 15, the Second Circuit Court of Appeals affirmed the dismissal of a claim arising under the Securities Exchange Act Section 10(b), reasoning that there was no element of “material misstatement or omission” in a booklet provided to an annuity customer. Muller-Paisner v. TIAA, No. 06-4307 (2nd Cir. Aug. 15, 2008). The defendants commercially advertised insurance products and investment options which they claimed assisted customers in purchasing the best investment option available. The decedent purchased a fixed annuity without a guarantee period for approximately $1.2 million from the defendant, for which the decedent would have recovered the purchase price after approximately 12 years. At the time of the purchase, the decedent had advanced emphysema and died after collecting only six months of payments totaling $48,000. Subsequently, the plaintiff, an executrix of the estate of the decedent, brought claims against the defendant for breach of fiduciary duty and negligent misrepresentation, in addition to claims for fraud arising under common law and the Securities Exchange Act Section 10(b). In the claims of fraud, the plaintiff argued that a booklet mailed to the decedent prior to finalizing her purchase constituted a “material misstatement or omission” because it suggested that annuity payments would survive her death when they did not. The court disagreed, holding that the claim did not meet the heightened pleading standard of a "material misstatement or omission" under Federal Rule of Civil Procedure 9(b) or the Private Securities Litigation Reform Act of 1995. The court reasoned that a reasonable investor would not interpret a portion of the booklet stating that designated beneficiaries could be re-designated as modifying an earlier statement in the booklet stating that payments cease upon the death of the customer. As a result, the court affirmed the dismissal of the two fraud claims. The court, however, reversed the dismissal of claims regarding breach of fiduciary duty and negligence, reasoning that “a fiduciary duty may arise in the context of a commercial transaction upon a requisite showing of trust and confidence.” For a copy of the summary order, please see http://www.ca2.uscourts.gov:8080/isysnative/RDpcT3BpbnNcU1VNXDA2LTQzMDdfc28ucGRm/06-4307_so.pdf.
Ohio County Court of Common Pleas Rejects A Data Breach Alone Constitutes an Injury. On August 19, the Court of Common Pleas in Cuyahoga County, Ohio affirmed that a data breach alone does not constitute a concrete injury that is actual or imminent. Levine v. DSW Inc., No. 586371 (Ohio Ct. C.P. Aug. 19, 2008). In 2005, the defendant, DSW, Inc. (DSW), announced that the credit card information of customers at its stores from mid-November 2004 through mid-February 2005 had been stolen. The plaintiffs, customers of DSW during this period, brought suit alleging breach of contract, wanton and reckless misconduct, and breach of fiduciary duty, in addition to state law claims arising under the Ohio Consumer Sales Practices Act. DSW argued, and the court agreed, that the plaintiffs lacked standing to sue because they suffered no injury from the data breach – that is, there was no injury-in-fact, and therefore no standing to sue. The court rejected plaintiff’s analogies to cases brought for the tort of unauthorized disclosure of nonpublic medical information, stating that the privacy interest in medical records is much higher than that of credit card information and that the unauthorized knowledge of medical information, even without an additional action, causes injury because the information is inherently private. It also held inapplicable comparisons to cases alleging the right to privacy from the government’s unauthorized disclosure of social security numbers. The court also agreed that the plaintiffs did not allege a cognizable injury under Ohio law, citing several state and federal court decisions in support of the proposition that “allegations of increased credit monitoring and increased risks of fraud or identity theft are insufficient to show an actual injury or damages.” Consequently, the court granted summary judgment to DSW. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Levine_v_DSW.pdf.
FIRM NEWS
Margo Tank will be a featured speaker at the New York State Bar Association’s Business Law Fall Meeting on 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.
Jeff Naimon will be facilitating the MBA Regulatory Compliance ConferenceRoundtable entitled “Miscellaneous Regulatory Concerns: RESPA and TILA Issues (including Right of Rescission)” on September 15 at4PM ET.
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.
Joe Kolar spoke regarding the impact of the recently enacted Housing and Economic Recovery Act of 2008 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 the Housing and Economic Recovery Act of 2008 on a webinar sponsored by the American Financial Services Association on August 14.
John Kromer participated in the “Industry Issues” panel at the American Association of Residential Mortgage Regulators’ annual meeting in Minneapolis, Minnesota on August 19-22.
Jon Jerison was 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.
HUD Announces 1-Year Moratorium on Risk-Based Premiums. On July 14, the Federal Housing Administration (FHA) began implementing its risk-based mortgage insurance premium structure for FHA loans; however, the recently-enacted Housing and Economic Recovery Act of 2008 places a 1-year moratorium on implementing such risk-based premiums, commencing October 1, 2008. This risk-based structure was established for most Title II single family mortgage insurance programs by a May 13, 2008 notice, which provided for implementation commencing on July 14, 2008. A notice released on August 24 provides directions for FHA-approved mortgagees to ensure their compliance with the moratorium that commences October 1, 2008. For a copy of the notice, please see http://portal.hud.gov/pls/portal/docs/PAG/FHA_HOME/LENDERS/LENDER_DOCUMENTS/FR-S171-N-03.PDF.
OTS Issues HELOC Account Guidance. On August 26, the Office of Thrift Supervision (OTS) issued guidance reiterating its expectation that associations will actively manage their home equity portfolios from a safety and soundness perspective, paying particular attention to long-term or interest-only payment features. The OTS guidance states that associations must follow federal laws and rules designed to protect home equity line of credit (HELOC) customers when reducing, suspending or terminating existing HELOCs. The guidance further explains that, consistent with Regulation Z, creditors may freeze or reduce a HELOC account under certain circumstances; namely, when (i) the value of the collateral declines significantly, (ii) the creditor reasonably believes the consumer will be unable to make payments due to changes in the consumer’s financial circumstances, or (iii) the consumer is in default on a material obligation. Once these circumstances cease, however, credit privileges must be reinstated. Further, the termination, suspension, reduction of a HELOC account is not treated as an adverse action under Regulation B if action is taken in compliance with Regulation Z and is due to the “inactivity, default, or delinquency” of the account or the applicant expressly agreed to a change in terms, as opposed to when the account is suspended or reduced based on a consumer report or information from others because of a material change in a consumer’s credit profile. The guidance also emphasizes Unfair and Deceptive Acts or Practices concerns in connection with all aspects of a loan transaction, including servicing and collection and advertising. Similar guidance was offered by the Federal Deposit Insurance Corporation earlier this year (reported in InfoBytes, July 3, 2008). For a copy of the guidance, please see http://files.ots.treas.gov/481121.pdf.
FFIEC Issues 2008 HMDA Guide. On August 27, the Federal Financial Institutions Examination Council (FFIEC) issued the 2008 “Guide to HMDA Reporting: Getting It Right!” to assist lenders with compliance under the Home Mortgage Disclosure Act (HMDA). Among other items, the guide outlines who must report HMDA data, as well as how to complete, submit, and disclose the data contained within the Loan/Application Register. For a copy of the FFIEC’s guide, please see http://www.ffiec.gov/hmda/pdf/2008guide.pdf.
FRB Publishes Mortgage Refinancing Guide for Consumers. On August 27, the Federal Reserve Board (FRB) made available on its website "A Consumer's Guide to Mortgage Refinancings." The guide, among other items, addresses the eligibility requirements for mortgage refinancing, discusses the costs of mortgage refinancing, and provides advice for consumers shopping for a new mortgage loan. For a copy of the FRB’s guide, please see http://www.federalreserve.gov/pubs/refinancings/refinancing.pdf.
Florida Emergency Rule Will Bar Criminals From Mortgage Licensing. Florida Governor Charlie Crist and the state’s Cabinet, sitting as the Florida Financial Services Commission, approved an emergency rule change to ban individuals with criminal histories from obtaining licenses to work in the mortgage industry. The rule, which expands on the federal SAFE Mortgage Licensing Act of 2008 that was passed last month, prohibits the Florida Office of Financial Regulation from issuing a Florida mortgage broker, mortgage lender, correspondent lender or mortgage brokerage business license to an applicant for a specified period (ranging between 5 to 15 years) if the applicant or “relevant persons” of the applicant (i.e., officers, directors, members, partners, control persons and joint venturers) have been found or pled guilty or no contest to various felonies or misdemeanors. The rule allows for mitigating factors that could lengthen or shorten the periods of ineligibility. The emergency rule will remain in effect until regular rulemaking is completed. For the full text of the rule, please see http://www.flofr.com/Finance/Forms/ER-OFR-MS.pdf.
Maryland Amends Mortgage Lender Servicer Reporting Requirements. On August 5, the Maryland Commissioner of Financial Regulation (Commissioner) adopted amendments to a regulation pertaining to the monthly reporting requirements of Maryland Mortgage Lender licensees acting as servicers. The amended regulation changes the due date of the Maryland Mortgage Servicer Reporting Form from the 20th day of each month to the 25th day of each month, and allows the Commissioner to request information beyond the immediately-preceding month in the report. The effective date of the regulation is August 25, 2008. Notice of the amendment was published in the August 15, 2008 edition of the Maryland Register, available at http://www.dsd.state.md.us/MDRegister/3517/main_register.htm. For the Department of Labor, Licensing & Regulation’s web notice, including the text of the regulation, please see http://www.dllr.state.md.us/finance/mlemerregfinal.shtml.
Illinois Passes Bill Regarding Mortgage Foreclosure Notice Requirements. On August 14, Illinois Governor Rod Blagojevich signed H.B. 4195, a bill amending mortgage foreclosure notice requirements. The bill provides that a mortgagee must inform a mortgagor that the mortgagor has the right to remain in possession of a foreclosed property for 30 days after entry of an order of possession, unless the right to possession has been previously terminated by a court action. The bill is effective as of August 14, 2008. For a copy of the bill, please see http://www.ilga.gov/legislation/publicacts/95/PDF/095-0826.pdf
New York Banking Department Issues Industry Letter Regarding Subprime Mortgage Bill. On August 27, the New York State Banking Department issued an industry letter to mortgage bankers, brokers, servicers, and mortgage-related industry groups. The letter summarizes provisions of the mortgage lending reform bill signed into law on August 5 (reported in InfoBytes, August 8, 2008), which provides the effective dates for those provisions, and defines terms used in the law. For a copy of the industry letter, please see http://www.banking.state.ny.us/il080827.htm. For a copy of the press release regarding the industry letter, please see http://www.banking.state.ny.us/pr080827.htm.
Pennsylvania Secretary of Banking Announces Participation in NMLS. On August 27, the Pennsylvania Secretary of Banking Steve Kaplan announced that Pennsylvania will begin participating in the National Mortgage Licensing System (NMLS) this year. The announcement strongly encourages current licensees to begin transitioning existing licenses as soon as possible, and warns that licensees that fail to submit information to the NMLS by the end of the year will lose the authority to conduct mortgage business in Pennsylvania. The announcement follows an August 21 industry letter sent by the Pennsylvania Department of Banking to all licensed mortgage businesses and consumer discount companies, which details the process for licensees to transition to the NMLS. For a copy of the August 21 industry letter, please see http://www.buckleykolar.com/documents/PA_DOB_Letter.pdf. For a copy of the August 27 announcement, please see http://www.banking.state.pa.us/banking/lib/banking/news_and_events/rls-bank-nmls-082708.pdf.
Massachusetts Launches Online Reverse Mortgage Information Resource. On August 15, the Massachusetts Office of Consumer Affairs and Business Regulation announced the launch of a website to provide information to reverse mortgage consumers. The website, http://www.mass.gov/reversemortgage, provides information for prospective borrowers, a list of approved reverse mortgage lenders and loan programs, industry guidance on reverse mortgages, and links to other pertinent websites. For a copy of the press release, please see http://www.mass.gov/?pageID=ocapressrelease&L=1&L0=Home&sid=Eoca&b=pressrelease&f=080815_revmort&csid=Eoca.
Indiana AG Sues Countrywide. On August 25, the Indiana Attorney General filed suit against Countrywide Financial Corporation and Countrywide Home Loans, Inc. (Countrywide) for alleged violations of the state’s Home Loan Practices Act and Deceptive Consumer Sales Act. The suit alleges that Countrywide (i) provided financial incentive for employees and loan brokers acting as agents to sell loans with potentially risky features, (ii) made deceptive or misleading representations or omissions on loan terms and charges including, but not limited to, the interest rate of loans, the presence or mechanics of the adjustable rate feature of the loans and the interest rate or material costs of the loans, (iii) misled borrowers about the presence, significance and/or meaning of a prepayment penalty or the time period in which a pre payment penalty would apply, and (iv) inflated or fabricated a borrower’s income on a loan application allowing a borrower to be approved for loans he would have failed to qualify for otherwise. The suit requests civil penalties of up to $15,000 per violation as well as investigative costs and consumer restitution. This suit joins recent suits filed against Countrywide by the Attorneys General of California, Connecticut, Florida, Illinois, and West Virginia. For a copy of the complaint, please see http://www.indianaconsumer.com/pub/CountrywideFileStamped.pdf.
Ninth Circuit Affirms Dismissal of Bankruptcy Trustee’s TILA Claim. On August 22, the Ninth Circuit Court of Appeals affirmed a bankruptcy court opinion that a bankruptcy trustee was not entitled to statutory or actual damages under the Truth-in-Lending Act (TILA) for disclosure errors. McDonald v. Checks-N-Advance, Inc., No. 06-17243, 2008 U.S. App. LEXIS 18023 (9th Cir. Aug. 22, 2008). The debtor alleged that when he received a “pay-day loan,” the finance charge, annual percentage rate, amount financed, and total of payments were not conspicuously displayed, and the disclosures were not made before consummation, in violation of TILA. After the debtor filed for bankruptcy, the bankruptcy trustee filed claims on his behalf arising under TILA, seeking statutory and actual damages. The court held that, although TILA permits statutory damages for violating a number of the statute’s provisions, statutory damages are not available either for violations of the disclosure timing provision (12 U.S.C. § 1638), barring some exceptions, nor for the conspicuous display requirement (12 U.S.C. § 1632(a)), because that requirement works in conjunction with, and has no force without, the disclosure timing rule of § 1638. Further, the bankruptcy trustee could not be granted actual damages because she failed to show detrimental reliance. The court also rejected a claim for costs and attorney’s fees under Nevada law. For a copy of the opinion, please see http://www.buckleykolar.com/documents/McDonald_v_Checks.pdf.
Sixth Circuit Court of Appeals Holds That OTS Preemption Extends to Exclusive Agents of Federal Savings Banks. On August 22, the Court of Appeals for the Sixth Circuit reversed a decision by an Ohio federal district court stating that federal law did not preempt the application of the Ohio Mortgage Broker Act (the Broker Act) to the exclusive agents of a federal savings bank. State Farm Bank, FSB v. Reardon, No. 05-00268 (6th Cir. Aug. 22, 2008). State Farm Bank, FSB (State Farm), a federal savings association, offered mortgage products in Ohio through independent, exclusive insurance agents who were not licensed under the Broker Act. When the Superintendent of the Ohio Division of Financial Institutions (Superintendent) refused to exempt the agents from compliance with the Broker Act, State Farm filed suit seeking relief, arguing that the application of the Broker Act was preempted by federal law, and thus did not apply to the bank’s exclusive agents. The district court disagreed, declining to follow the analysis employed in State Farm Bank, F.S.B. v. Burke, 445 F. Supp. 2d 207 (D. Conn. 2006), a case which held that federal law preempted the application of a Connecticut law similar to the Broker Act to the bank’s exclusive agents (reported in InfoBytes, June 23, 2006). State Farm appealed, arguing that the Home Owners’ Loan Act and Office of Thrift Supervision (OTS) regulations preempt the application of the Broker Act to the exclusive agents of a bank because they do not distinguish between the mortgage-related activities conducted by the bank itself, its officers and employees, its subsidiaries, or, as in this case, its exclusive agents. The Sixth Circuit agreed, holding that the district court’s view of preemption was “overly narrow.” The court noted that, to the contrary, the language of the regulations suggests a much broader coverage of activities than just those of the bank, its employees, and subsidiaries. The court also cited the U.S. Supreme Court decision in Watters v. Wachovia Bank, N.A., 127 S. Ct. 1559 (U.S. 2007) (reported in InfoBytes Special Alert, April 17, 2007) as standing for the proposition that “when considering whether a state law is preempted by federal banking law, the courts should focus on whether the state law is regulating ‘the exercise of a national bank’s power’ not on whether the entity exercising that power is the bank itself.” The court further held the Broker Act fell within the categories of activities expressly preempted by the OTS regulations, reasoning that “it is somewhat difficult for us to comprehend how a law that requires State Farm Bank to either forgo mortgage lending in Ohio or radically alter its business model does not ‘prevent or significantly interfere’ with the ability of a federal savings association to exercise its powers free from state obstruction.” The court reversed the district court’s decision, and remanded for summary judgment in favor of State Farm. In dicta, the court noted that the recently-enacted Housing and Economic Recovery Act of 2008 (HERA) might subject exclusive agents of a bank to state regulation, however, HERA did not moot this appeal because Ohio has not yet enacted legislation in order to comply with HERA. For a copy of the opinion, please see http://www.buckleykolar.com/documents/State_Farm_v_Reardon.pdf.
Pennsylvania Federal Court Declines to Vacate FACTA Credit-Card Truncation Settlement. On August 18, the U.S. District Court for the Western District of Pennsylvania declined to vacate a Fair and Accurate Credit Transactions Act (FACTA) credit-card truncation settlement that was entered into before Congress enacted legislation that holds that such claims have no standing. Hughes v. InMotion Entertainment, No. 07cv1299, 2008 WL 3889725 (W.D. Pa. Aug. 18, 2008). The plaintiff alleged, in her own right and on behalf of a putative class, that the defendant willfully violated FACTA by printing the expiration date of her debit or credit card on a receipt dated September 14, 2007. The plaintiff and defendant reached a settlement in the case, and a court granted preliminary approval of the settlement agreement. The defendant subsequently moved to vacate the settlement agreement on the grounds that the plaintiff no longer has standing as a result of Congress’s amendment of the truncation cause of action under FACTA, which clarified that any person who printed an expiration date on any receipt between December 4, 2004, and June 3, 2008, was not in willful noncompliance with FACTA by reason of printing such expiration date on the receipt. The court, however, declined to vacate the settlement agreement, holding that it is binding and enforceable under general principles of contract interpretation. The court further reasoned that, because the settlement agreement unambiguously provides that the defendant denies all wrongdoing, it cannot be interpreted that the settlement was based on the defendant’s willful noncompliance with FACTA. With regard to the defendant’s standing argument, the court held that the issue of standing is assessed at the commencement of the suit, which the plaintiff had. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Hughs_v_InMotion.pdf.
Ohio County Court of Common Pleas Rejects A Data Breach Alone Constitutes an Injury. On August 19, the Court of Common Pleas in Cuyahoga County, Ohio affirmed that a data breach alone does not constitute a concrete injury that is actual or imminent. Levine v. DSW Inc., No. 586371 (Ohio Ct. C.P. Aug. 19, 2008). In 2005, the defendant, DSW, Inc. (DSW), announced that the credit card information of customers at its stores from mid-November 2004 through mid-February 2005 had been stolen. The plaintiffs, customers of DSW during this period, brought suit alleging breach of contract, wanton and reckless misconduct, and breach of fiduciary duty, in addition to state law claims arising under the Ohio Consumer Sales Practices Act. DSW argued, and the court agreed, that the plaintiffs lacked standing to sue because they suffered no injury from the data breach – that is, there was no injury-in-fact, and therefore no standing to sue. The court rejected plaintiff’s analogies to cases brought for the tort of unauthorized disclosure of nonpublic medical information, stating that the privacy interest in medical records is much higher than that of credit card information and that the unauthorized knowledge of medical information, even without an additional action, causes injury because the information is inherently private. It also held inapplicable comparisons to cases alleging the right to privacy from the government’s unauthorized disclosure of social security numbers. The court also agreed that the plaintiffs did not allege a cognizable injury under Ohio law, citing several state and federal court decisions in support of the proposition that “allegations of increased credit monitoring and increased risks of fraud or identity theft are insufficient to show an actual injury or damages.” Consequently, the court granted summary judgment to DSW. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Levine_v_DSW.pdf.
Second Circuit Court of Appeals Affirms No “Material Misstatement or Omission” in Annuity Case. On August 15, the Second Circuit Court of Appeals affirmed the dismissal of a claim arising under the Securities Exchange Act Section 10(b), reasoning that there was no element of “material misstatement or omission” in a booklet provided to an annuity customer. Muller-Paisner v. TIAA, No. 06-4307 (2nd Cir. Aug. 15, 2008). The defendants commercially advertised insurance products and investment options which they claimed assisted customers in purchasing the best investment option available. The decedent purchased a fixed annuity without a guarantee period for approximately $1.2 million from the defendant, for which the decedent would have recovered the purchase price after approximately 12 years. At the time of the purchase, the decedent had advanced emphysema and died after collecting only six months of payments totaling $48,000. Subsequently, the plaintiff, an executrix of the estate of the decedent, brought claims against the defendant for breach of fiduciary duty and negligent misrepresentation, in addition to claims for fraud arising under common law and the Securities Exchange Act Section 10(b). In the claims of fraud, the plaintiff argued that a booklet mailed to the decedent prior to finalizing her purchase constituted a “material misstatement or omission” because it suggested that annuity payments would survive her death when they did not. The court disagreed, holding that the claim did not meet the heightened pleading standard of a "material misstatement or omission" under Federal Rule of Civil Procedure 9(b) or the Private Securities Litigation Reform Act of 1995. The court reasoned that a reasonable investor would not interpret a portion of the booklet stating that designated beneficiaries could be re-designated as modifying an earlier statement in the booklet stating that payments cease upon the death of the customer. As a result, the court affirmed the dismissal of the two fraud claims. The court, however, reversed the dismissal of claims regarding breach of fiduciary duty and negligence, reasoning that “a fiduciary duty may arise in the context of a commercial transaction upon a requisite showing of trust and confidence.” For a copy of the summary order, please see http://www.ca2.uscourts.gov:8080/isysnative/RDpcT3BpbnNcU1VNXDA2LTQzMDdfc28ucGRm/06-4307_so.pdf.
Indiana AG Sues Countrywide. On August 25, the Indiana Attorney General filed suit against Countrywide Financial Corporation and Countrywide Home Loans, Inc. (Countrywide) for alleged violations of the state’s Home Loan Practices Act and Deceptive Consumer Sales Act. The suit alleges that Countrywide (i) provided financial incentive for employees and loan brokers acting as agents to sell loans with potentially risky features, (ii) made deceptive or misleading representations or omissions on loan terms and charges including, but not limited to, the interest rate of loans, the presence or mechanics of the adjustable rate feature of the loans and the interest rate or material costs of the loans, (iii) misled borrowers about the presence, significance and/or meaning of a prepayment penalty or the time period in which a pre payment penalty would apply, and (iv) inflated or fabricated a borrower’s income on a loan application allowing a borrower to be approved for loans he would have failed to qualify for otherwise. The suit requests civil penalties of up to $15,000 per violation as well as investigative costs and consumer restitution. This suit joins recent suits filed against Countrywide by the Attorneys General of California, Connecticut, Florida, Illinois, and West Virginia. For a copy of the complaint, please see http://www.indianaconsumer.com/pub/CountrywideFileStamped.pdf.
Sixth Circuit Court of Appeals Holds That OTS Preemption Extends to Exclusive Agents of Federal Savings Banks. On August 22, the Court of Appeals for the Sixth Circuit reversed a decision by an Ohio federal district court stating that federal law did not preempt the application of the Ohio Mortgage Broker Act (the Broker Act) to the exclusive agents of a federal savings bank. State Farm Bank, FSB v. Reardon, No. 05-00268 (6th Cir. Aug. 22, 2008). State Farm Bank, FSB (State Farm), a federal savings association, offered mortgage products in Ohio through independent, exclusive insurance agents who were not licensed under the Broker Act. When the Superintendent of the Ohio Division of Financial Institutions (Superintendent) refused to exempt the agents from compliance with the Broker Act, State Farm filed suit seeking relief, arguing that the application of the Broker Act was preempted by federal law, and thus did not apply to the bank’s exclusive agents. The district court disagreed, declining to follow the analysis employed in State Farm Bank, F.S.B. v. Burke, 445 F. Supp. 2d 207 (D. Conn. 2006), a case which held that federal law preempted the application of a Connecticut law similar to the Broker Act to the bank’s exclusive agents (reported in InfoBytes, June 23, 2006). State Farm appealed, arguing that the Home Owners’ Loan Act and Office of Thrift Supervision (OTS) regulations preempt the application of the Broker Act to the exclusive agents of a bank because they do not distinguish between the mortgage-related activities conducted by the bank itself, its officers and employees, its subsidiaries, or, as in this case, its exclusive agents. The Sixth Circuit agreed, holding that the district court’s view of preemption was “overly narrow.” The court noted that, to the contrary, the language of the regulations suggests a much broader coverage of activities than just those of the bank, its employees, and subsidiaries. The court also cited the U.S. Supreme Court decision in Watters v. Wachovia Bank, N.A., 127 S. Ct. 1559 (U.S. 2007) (reported in InfoBytes Special Alert, April 17, 2007) as standing for the proposition that “when considering whether a state law is preempted by federal banking law, the courts should focus on whether the state law is regulating ‘the exercise of a national bank’s power’ not on whether the entity exercising that power is the bank itself.” The court further held the Broker Act fell within the categories of activities expressly preempted by the OTS regulations, reasoning that “it is somewhat difficult for us to comprehend how a law that requires State Farm Bank to either forgo mortgage lending in Ohio or radically alter its business model does not ‘prevent or significantly interfere’ with the ability of a federal savings association to exercise its powers free from state obstruction.” The court reversed the district court’s decision, and remanded for summary judgment in favor of State Farm. In dicta, the court noted that the recently-enacted Housing and Economic Recovery Act of 2008 (HERA) might subject exclusive agents of a bank to state regulation, however, HERA did not moot this appeal because Ohio has not yet enacted legislation in order to comply with HERA. For a copy of the opinion, please see http://www.buckleykolar.com/documents/State_Farm_v_Reardon.pdf.
Ninth Circuit Affirms Dismissal of Bankruptcy Trustee’s TILA Claim. On August 22, the Ninth Circuit Court of Appeals affirmed a bankruptcy court opinion that a bankruptcy trustee was not entitled to statutory or actual damages under the Truth-in-Lending Act (TILA) for disclosure errors. McDonald v. Checks-N-Advance, Inc., No. 06-17243, 2008 U.S. App. LEXIS 18023 (9th Cir. Aug. 22, 2008). The debtor alleged that when he received a “pay-day loan,” the finance charge, annual percentage rate, amount financed, and total of payments were not conspicuously displayed, and the disclosures were not made before consummation, in violation of TILA. After the debtor filed for bankruptcy, the bankruptcy trustee filed claims on his behalf arising under TILA, seeking statutory and actual damages. The court held that, although TILA permits statutory damages for violating a number of the statute’s provisions, statutory damages are not available either for violations of the disclosure timing provision (12 U.S.C. § 1638), barring some exceptions, nor for the conspicuous display requirement (12 U.S.C. § 1632(a)), because that requirement works in conjunction with, and has no force without, the disclosure timing rule of § 1638. Further, the bankruptcy trustee could not be granted actual damages because she failed to show detrimental reliance. The court also rejected a claim for costs and attorney’s fees under Nevada law. For a copy of the opinion, please see http://www.buckleykolar.com/documents/McDonald_v_Checks.pdf.
Pennsylvania Federal Court Declines to Vacate FACTA Credit-Card Truncation Settlement. On August 18, the U.S. District Court for the Western District of Pennsylvania declined to vacate a Fair and Accurate Credit Transactions Act (FACTA) credit-card truncation settlement that was entered into before Congress enacted legislation that holds that such claims have no standing. Hughes v. InMotion Entertainment, No. 07cv1299, 2008 WL 3889725 (W.D. Pa. Aug. 18, 2008). The plaintiff alleged, in her own right and on behalf of a putative class, that the defendant willfully violated FACTA by printing the expiration date of her debit or credit card on a receipt dated September 14, 2007. The plaintiff and defendant reached a settlement in the case, and a court granted preliminary approval of the settlement agreement. The defendant subsequently moved to vacate the settlement agreement on the grounds that the plaintiff no longer has standing as a result of Congress’s amendment of the truncation cause of action under FACTA, which clarified that any person who printed an expiration date on any receipt between December 4, 2004, and June 3, 2008, was not in willful noncompliance with FACTA by reason of printing such expiration date on the receipt. The court, however, declined to vacate the settlement agreement, holding that it is binding and enforceable under general principles of contract interpretation. The court further reasoned that, because the settlement agreement unambiguously provides that the defendant denies all wrongdoing, it cannot be interpreted that the settlement was based on the defendant’s willful noncompliance with FACTA. With regard to the defendant’s standing argument, the court held that the issue of standing is assessed at the commencement of the suit, which the plaintiff had. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Hughs_v_InMotion.pdf.
Second Circuit Court of Appeals Affirms No “Material Misstatement or Omission” in Annuity Case. On August 15, the Second Circuit Court of Appeals affirmed the dismissal of a claim arising under the Securities Exchange Act Section 10(b), reasoning that there was no element of “material misstatement or omission” in a booklet provided to an annuity customer. Muller-Paisner v. TIAA, No. 06-4307 (2nd Cir. Aug. 15, 2008). The defendants commercially advertised insurance products and investment options which they claimed assisted customers in purchasing the best investment option available. The decedent purchased a fixed annuity without a guarantee period for approximately $1.2 million from the defendant, for which the decedent would have recovered the purchase price after approximately 12 years. At the time of the purchase, the decedent had advanced emphysema and died after collecting only six months of payments totaling $48,000. Subsequently, the plaintiff, an executrix of the estate of the decedent, brought claims against the defendant for breach of fiduciary duty and negligent misrepresentation, in addition to claims for fraud arising under common law and the Securities Exchange Act Section 10(b). In the claims of fraud, the plaintiff argued that a booklet mailed to the decedent prior to finalizing her purchase constituted a “material misstatement or omission” because it suggested that annuity payments would survive her death when they did not. The court disagreed, holding that the claim did not meet the heightened pleading standard of a "material misstatement or omission" under Federal Rule of Civil Procedure 9(b) or the Private Securities Litigation Reform Act of 1995. The court reasoned that a reasonable investor would not interpret a portion of the booklet stating that designated beneficiaries could be re-designated as modifying an earlier statement in the booklet stating that payments cease upon the death of the customer. As a result, the court affirmed the dismissal of the two fraud claims. The court, however, reversed the dismissal of claims regarding breach of fiduciary duty and negligence, reasoning that “a fiduciary duty may arise in the context of a commercial transaction upon a requisite showing of trust and confidence.” For a copy of the summary order, please see http://www.ca2.uscourts.gov:8080/isysnative/RDpcT3BpbnNcU1VNXDA2LTQzMDdfc28ucGRm/06-4307_so.pdf.
Ohio County Court of Common Pleas Rejects A Data Breach Alone Constitutes an Injury. On August 19, the Court of Common Pleas in Cuyahoga County, Ohio affirmed that a data breach alone does not constitute a concrete injury that is actual or imminent. Levine v. DSW Inc., No. 586371 (Ohio Ct. C.P. Aug. 19, 2008). In 2005, the defendant, DSW, Inc. (DSW), announced that the credit card information of customers at its stores from mid-November 2004 through mid-February 2005 had been stolen. The plaintiffs, customers of DSW during this period, brought suit alleging breach of contract, wanton and reckless misconduct, and breach of fiduciary duty, in addition to state law claims arising under the Ohio Consumer Sales Practices Act. DSW argued, and the court agreed, that the plaintiffs lacked standing to sue because they suffered no injury from the data breach – that is, there was no injury-in-fact, and therefore no standing to sue. The court rejected plaintiff’s analogies to cases brought for the tort of unauthorized disclosure of nonpublic medical information, stating that the privacy interest in medical records is much higher than that of credit card information and that the unauthorized knowledge of medical information, even without an additional action, causes injury because the information is inherently private. It also held inapplicable comparisons to cases alleging the right to privacy from the government’s unauthorized disclosure of social security numbers. The court also agreed that the plaintiffs did not allege a cognizable injury under Ohio law, citing several state and federal court decisions in support of the proposition that “allegations of increased credit monitoring and increased risks of fraud or identity theft are insufficient to show an actual injury or damages.” Consequently, the court granted summary judgment to DSW. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Levine_v_DSW.pdf.
Pennsylvania Federal Court Declines to Vacate FACTA Credit-Card Truncation Settlement. On August 18, the U.S. District Court for the Western District of Pennsylvania declined to vacate a Fair and Accurate Credit Transactions Act (FACTA) credit-card truncation settlement that was entered into before Congress enacted legislation that holds that such claims have no standing. Hughes v. InMotion Entertainment, No. 07cv1299, 2008 WL 3889725 (W.D. Pa. Aug. 18, 2008). The plaintiff alleged, in her own right and on behalf of a putative class, that the defendant willfully violated FACTA by printing the expiration date of her debit or credit card on a receipt dated September 14, 2007. The plaintiff and defendant reached a settlement in the case, and a court granted preliminary approval of the settlement agreement. The defendant subsequently moved to vacate the settlement agreement on the grounds that the plaintiff no longer has standing as a result of Congress’s amendment of the truncation cause of action under FACTA, which clarified that any person who printed an expiration date on any receipt between December 4, 2004, and June 3, 2008, was not in willful noncompliance with FACTA by reason of printing such expiration date on the receipt. The court, however, declined to vacate the settlement agreement, holding that it is binding and enforceable under general principles of contract interpretation. The court further reasoned that, because the settlement agreement unambiguously provides that the defendant denies all wrongdoing, it cannot be interpreted that the settlement was based on the defendant’s willful noncompliance with FACTA. With regard to the defendant’s standing argument, the court held that the issue of standing is assessed at the commencement of the suit, which the plaintiff had. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Hughs_v_InMotion.pdf.
Ohio County Court of Common Pleas Rejects A Data Breach Alone Constitutes an Injury. On August 19, the Court of Common Pleas in Cuyahoga County, Ohio affirmed that a data breach alone does not constitute a concrete injury that is actual or imminent. Levine v. DSW Inc., No. 586371 (Ohio Ct. C.P. Aug. 19, 2008). In 2005, the defendant, DSW, Inc. (DSW), announced that the credit card information of customers at its stores from mid-November 2004 through mid-February 2005 had been stolen. The plaintiffs, customers of DSW during this period, brought suit alleging breach of contract, wanton and reckless misconduct, and breach of fiduciary duty, in addition to state law claims arising under the Ohio Consumer Sales Practices Act. DSW argued, and the court agreed, that the plaintiffs lacked standing to sue because they suffered no injury from the data breach – that is, there was no injury-in-fact, and therefore no standing to sue. The court rejected plaintiff’s analogies to cases brought for the tort of unauthorized disclosure of nonpublic medical information, stating that the privacy interest in medical records is much higher than that of credit card information and that the unauthorized knowledge of medical information, even without an additional action, causes injury because the information is inherently private. It also held inapplicable comparisons to cases alleging the right to privacy from the government’s unauthorized disclosure of social security numbers. The court also agreed that the plaintiffs did not allege a cognizable injury under Ohio law, citing several state and federal court decisions in support of the proposition that “allegations of increased credit monitoring and increased risks of fraud or identity theft are insufficient to show an actual injury or damages.” Consequently, the court granted summary judgment to DSW. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Levine_v_DSW.pdf.
Pennsylvania Federal Court Declines to Vacate FACTA Credit-Card Truncation Settlement. On August 18, the U.S. District Court for the Western District of Pennsylvania declined to vacate a Fair and Accurate Credit Transactions Act (FACTA) credit-card truncation settlement that was entered into before Congress enacted legislation that holds that such claims have no standing. Hughes v. InMotion Entertainment, No. 07cv1299, 2008 WL 3889725 (W.D. Pa. Aug. 18, 2008). The plaintiff alleged, in her own right and on behalf of a putative class, that the defendant willfully violated FACTA by printing the expiration date of her debit or credit card on a receipt dated September 14, 2007. The plaintiff and defendant reached a settlement in the case, and a court granted preliminary approval of the settlement agreement. The defendant subsequently moved to vacate the settlement agreement on the grounds that the plaintiff no longer has standing as a result of Congress’s amendment of the truncation cause of action under FACTA, which clarified that any person who printed an expiration date on any receipt between December 4, 2004, and June 3, 2008, was not in willful noncompliance with FACTA by reason of printing such expiration date on the receipt. The court, however, declined to vacate the settlement agreement, holding that it is binding and enforceable under general principles of contract interpretation. The court further reasoned that, because the settlement agreement unambiguously provides that the defendant denies all wrongdoing, it cannot be interpreted that the settlement was based on the defendant’s willful noncompliance with FACTA. With regard to the defendant’s standing argument, the court held that the issue of standing is assessed at the commencement of the suit, which the plaintiff had. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Hughs_v_InMotion.pdf.
Ohio County Court of Common Pleas Rejects A Data Breach Alone Constitutes an Injury. On August 19, the Court of Common Pleas in Cuyahoga County, Ohio affirmed that a data breach alone does not constitute a concrete injury that is actual or imminent. Levine v. DSW Inc., No. 586371 (Ohio Ct. C.P. Aug. 19, 2008). In 2005, the defendant, DSW, Inc. (DSW), announced that the credit card information of customers at its stores from mid-November 2004 through mid-February 2005 had been stolen. The plaintiffs, customers of DSW during this period, brought suit alleging breach of contract, wanton and reckless misconduct, and breach of fiduciary duty, in addition to state law claims arising under the Ohio Consumer Sales Practices Act. DSW argued, and the court agreed, that the plaintiffs lacked standing to sue because they suffered no injury from the data breach – that is, there was no injury-in-fact, and therefore no standing to sue. The court rejected plaintiff’s analogies to cases brought for the tort of unauthorized disclosure of nonpublic medical information, stating that the privacy interest in medical records is much higher than that of credit card information and that the unauthorized knowledge of medical information, even without an additional action, causes injury because the information is inherently private. It also held inapplicable comparisons to cases alleging the right to privacy from the government’s unauthorized disclosure of social security numbers. The court also agreed that the plaintiffs did not allege a cognizable injury under Ohio law, citing several state and federal court decisions in support of the proposition that “allegations of increased credit monitoring and increased risks of fraud or identity theft are insufficient to show an actual injury or damages.” Consequently, the court granted summary judgment to DSW. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Levine_v_DSW.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.
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 © 2009 Buckley Kolar LLP. All rights reserved