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InfoBytes

CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

Topics – Covered This Week (Click to View)

Mortgages

Banking

Consumer Finance

Litigation

E-Financial Services

Privacy / Data Security

Credit Cards

FEDERAL ISSUES

FTC Warns That Certain Mortgage Advertisements May Violate TILA.  On September 11, the Federal Trade Commission (FTC) announced that it had sent warning letters to more than 200 mortgage brokers and bankers, as well as media outlets, that certain advertisements for mortgages are “potentially deceptive or in violation of the Truth in Lending Act (TILA).”  As an example of a potentially unacceptable advertisement, the FTC press release cites an advertisement for an adjustable rate mortgage that “touts” the teaser rate, but does not “adequately” disclose (i) that the advertised rate is the “payment rate” and is not the “interest rate,” (ii) the low rate is only for a short period, and (iii) the loan’s APR.  In a sample letter to a mortgage company that the FTC identified as running suspect advertisements, the FTC states “we have not determined whether your company is in violation of the law” but… “by sending you this notice, we do not waive the right of the Commission to take action against you.”  In a sample letter to a media outlet, the FTC notes its ongoing effort to provide “the media with guidance on how to spot ads that violate the law” so that they can be pulled.  For more information, please see http://www.ftc.gov/opa/2007/09/mortsurf.shtm.

HMDA Data for 2006, FRB Report Released.  On September 12, the Federal Reserve Board’s (FRB) chief fair lending economists released their analysis of the 2006 Home Mortgage Disclosure Act (HMDA) data.  The 2006 data covers 2006 mortgage lending activity -- i.e., applications for loans, loan originations, and purchases of loans -- in connection with 8,886 financial institutions subject to HMDA in metropolitan statistical areas (MSAs) throughout the nation. Covered institutions include, but are not limited to, banks, savings associations, credit unions, and independent state licensed mortgage companies.  Among several other topics, the report notes that refinancing actually fell 12% in 2006 from the previous year, and speculates that a weakening real estate market “likely diminished the attractiveness of refinancing, or the borrower’s ability to refinance.”  Unlike the September 2006 report describing the 2005 data, there was not a big leap in “higher priced” loans that exceed the HMDA reporting rate threshold.  However, the report’s final pages appear to create a correlation between higher priced loans and loan performance – i.e., geographic areas with similar economic factors but with more higher-priced loans have a higher foreclosure rate than ones with fewer subprime loans.  To learn more about the FRB’s analysis of the 2006 HMDA, please see http://www.ffiec.gov/hmcrpr/hm091207.htm.

House Financial Services Committee to Markup FCRA, UDAP Legislation.  The House Financial Services Committee announced that it has scheduled a markup for September 18, 2007, at 10:00 a.m., of various bills, including legislation to “require rapid implementation of guidelines and regulations” under the Fair Credit Reporting Act (FCRA).  The bills require that the FTC issue final rules and guidelines within 90 days of enactment relating to the accuracy of information furnished to consumer reporting agencies and the consumer’s right to dispute certain items of information directly with the furnisher.  The other federal agencies would be required to issue final rules that are the same or substantially similar to the FTC’s rules, and file reports explaining any differences, within 30 days of the FTC action.  Another bill seeks to extend the power to enforce the prohibition against unfair and deceptive acts or practices in the FTC Act to all of the federal banking agencies. 

House Financial Services Committee to Hold Foreclosure Hearing.  The House Financial Services Committee has announced a hearing on September 20, 2007, regarding “Legislative and Regulatory Options for Minimizing and Mitigating Mortgage Foreclosures.”  Witnesses will include Treasury Secretary Henry Paulson, HUD Secretary Alphonso Jackson, Federal Reserve Chairman Ben Bernanke, consumer advocates, and industry representatives.  A copy of the Committee’s press release announcing the hearing is available at http://www.house.gov/apps/list/press/financialsvcs_dem/press091307.shtml.

STATE ISSUES

California Legislature Passes Bill to Apply Federal Guidance to Non-Bank Lenders.  On September 6, the California legislature passed Senate Bill 385 which, if signed into law, would require the Commissioner of Financial Institutions, the Commissioner of Real Estate and the Commissioner of Corporations, in relevant part, to apply the following to all state-regulated institutions under their purview and would authorize the Commissioners to issue emergency and final regulations for clarification purposes in connection with the following:  (i) the Interagency Guidance on Nontraditional mortgage Product Risks issued in September 2006 by the federal banking agencies, (ii) the November 2006 nontraditional mortgage product risks guidance issued by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR); (iii) the June 2007 Statement on Subprime Mortgage Lending, issued by the federal banking agencies; and (iv) the July 2007 Statement on Subprime Mortgage Lending issued by the CSBS, AARMR, and the National Association of Consumer Credit Administrators  (for more information regarding these publications, see the September 29, 2006, November 17, 2006, and July 20, 2007 issues of InfoBytes).  The bill includes the legislature’s finding that the nontraditional mortgage product risk guidance covers “all residential mortgage loan products that allow borrowers to defer repayment of principal or interest, including all interest-only products and negative amortization mortgages.”  The nontraditional mortgage product risk guidance under the bill does not cover reverse mortgages or home equity lines of credit, other than simultaneous second-lien loans.  The bill further provides that the subprime mortgage lending statements apply to adjustable-rate mortgage products that “are typically offered to subprime borrowers and that have the potential for payment shock.”  The bill was sent to Governor Schwarzenegger on September 12.  For more information on this bill, please see http://info.sen.ca.gov/cgi-bin/postquery?bill_number=sb_385&sess=CUR&house=B&site=sen.

Nevada Regulator Clarifies New Home Loan Amendments.  On September 12, the Nevada Mortgage Lending Division issued a letter clarifying disclosure obligations for mortgage instruments under recent amendments to Nevada law (see AB 440 from the current session).  Under the new amendments, which take effect October 1, 2007, the definition of “home loans” in NRS § 598D.040 is expanded to cover all mortgage loans which involve real property located in Nevada, whereas previously it only referred to mortgages that triggered the heightened disclosure requirements of the federal Home Ownership and Equity Protection Act (HOEPA).  However, a portion of the Nevada high cost home loan law that was not affected by the recent amendments, § 598D.130, requires mortgage instruments to state that the “home loan” in question is “subject” to the provisions of HOEPA.  According to the Division’s letter, some Nevada mortgage licensees expressed concerns they would be required to imprint on mortgage instruments that the mortgages in question were subject to HOEPA.  In its letter, the Division states that it “believes the correct reading of § NRS 598D.130” is that it only applies if a loan “(i) meets the definition of home loan under § 598D.040” and (ii) is “a home loan subject to HOEPA.”  The letter further provides that “until such time as the legislature amends the above statutory language, or the Attorney General or the Legislative Counsel Bureau issue contrary opinions” the Division will examine mortgage licensees according to this interpretation.  To view the letter, please see http://www.mld.nv.gov/Documents/2007-09-12-MLD-Letter-AB440.pdf.

Ohio Foreclosure Task Force Releases Report.  On September 10, the Ohio Foreclosure Prevention Task Force, established by Governor Ted Strickland to respond to Ohio’s increasing rate of foreclosure, published its “Final Report” and announced policy recommendations in response to the crisis.  The task force, which consisted of government officials, financial industry members, and consumer advocates, set forth 27 specific recommendations grouped under seven categories.  These categories are as follows: (i) encourage borrowers to get help early, (ii) expand housing counseling and intervention services, (iii) work with lenders and servicers to maximize alternatives to foreclosure, (iv) provide options for homeowners to refinance or restructure their mortgages, (v) improve Ohio’s foreclosure process, (vi) strengthen protections for homeowners, and (vii) help communities recover from the aftermath of foreclosure.  For more information on the report and the related recommendations, please see http://www.com.state.oh.us/press/display.asp?ID=1166.

COURTS

Court Grants Class Certification in FCRA Claims Against H&R Block. In a recent consolidated pretrial proceeding, a district court granted motions by three groups seeking class certification for Fair Credit Reporting Act (FCRA) claims against H&R Block Mortgage Corporation (HRBMC).  In re H&R Block Mortgage Corporation, No. 2:06-MD-230 2007 WL 2323111 (N.D. Ind. August 8, 2007).  The plaintiffs allege that they received a credit solicitation mailing from HRBMC informing them that they had been pre-approved for a mortgage loan.  The plaintiffs claim that HRBMC’s mailings did not constitute a “firm offer of credit” within the meaning of 15 U.S.C. § 1681b, and that HRBMC’s access to their credit reports without their consent therefore violates the FCRA.  The plaintiffs seek statutory damages, on behalf of themselves and the classes, of not less than $100 and not more than $1,000 for each violation by HRBMC pursuant to § 1681n.  HRBMC argued that a class action suit is not the “superior” method for litigating the “firm offer” issue because the potential statutory damages could put the company out of business.  HRBMC faces statutory damages of nearly $19 million if the minimum of $100 per class member/violation is awarded, and over $187 million in potential liability if the maximum $1,000 per class member/violation is awarded.  The court dismissed this argument stating that “the reason that damages can be substantial…lies in the legislative decision to authorize awards as high as $1,000 per person, combined with [HRBMC’s] decision to obtain the credit scores.”  The court also rejected HRBMC’s argument that whether the mailing constituted a “firm offer of credit” is an individual inquiry requiring a consumer-by-consumer evaluation.  The court followed precedent from Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006) (covered in the January 20, 2006 issue of InfoBytes), holding that whether a “firm offer of credit” has in fact been made is a class issue.  Moreover, the court held that “if it turns out that any class members have unique claims, they will be given the opportunity to opt out from the case.”  The court found that the plaintiffs met the class certification requirements under FRCP Rule 23, and that “a class action is the best way to resolve the claims of the purported class.”  Please contact for a copy of this decision.

Fee for Non-Attorneys Completing Loan Documents an Unauthorized Practice of Law.  In a recent case, the Missouri Supreme Court decided that a bank violated the state statute prohibiting the unauthorized practice of law when it charged document preparation fees for employees filling out loan document forms.  Eisel v. Midwest BankCentre, No. SC88167 (Mo. 2007)  The subject statute states that the "law business" includes "assisting in the drawing for a valuable consideration of any paper, document or instrument affecting or relating to secular rights... ."  In a bench trial on stipulated facts, the trial court agreed with the plaintiff class and awarded treble damages.  On appeal, the Missouri Supreme Court affirmed.  The Court rejected the bank's arguments that (i) because the bank maintained a financial stake in the outcome of the contract or loan, it did not engage in the practice of law, and (ii) that because the plaintiffs voluntarily paid the document preparation fees, they were not entitled to recover under the voluntary payment doctrine.  The Court also found unconvincing the bank's arguments that the statute conflicts with the activities that the judiciary -- the ultimate arbiter on the definition of the practice of law in the state -- considered to be authorized.  The court surveyed similar instances in which it found activities that constituted the unauthorized practice of law, such as requiring attorney supervision for drawing, preparing or assisting in the preparation of trust workbooks and trusts, and prohibiting trust companies from charging a fee for document preparation for closing services, and determined that the lower court's ruling was not inconsistent with those precedents.  For a copy of the opinion, please see http://www.courts.mo.gov/Courts/PubOpinions.nsf/.

Mailing not Required to Spell Out Specific Terms to Be Deemed "Firm Offer" under FCRA.  On a motion for summary judgment, the U.S. District Court for the Southern District of Texas in Villagran v. Freeway Ford, Ltd., 2007 U.S. Dist. Lexis 66596 (Sept. 10, 2007), found that the Defendants did not violate FCRA by accessing the Plaintiffs' credit reports.  The Court followed the 5th Circuit's approach in Kennedy v. Chase Manhattan Bank USA, NA, 369 F.3d 833 (5th Cir. 2004), stating that FCRA only "requires that the defendant make an offer of credit that will be honored if the consumer meets the preestablished criteria." The court further stated that neither "FCRA nor the Fifth Circuit's interpretation of the Act requires that an offer include specific information as to interest rates, repayment period, or similar terms, to enable a consumer to determine whether the offer is of 'some value.'"  The mailing to the Plaintiff offered a $27,525 auto loan that would be made if the Plaintiff, after responding to the offer, continued to meet the criteria used in the selection process.  The court found that the offer also had value even though it stated that the recipient's income and employment must be verified, the recipient's and spouse's credit must be reviewed and the equity position in the collateral must be analyzed prior to final loan approval.  The court also denied the plaintiff's motion for class certification.  For a copy of the opinion, e-mail .

Lender Not Liable For Alleged Fraudulent Statement of Mortgage Broker.  The Supreme Court of Texas recently overturned a decision allowing fraud claims against a mortgage lender to proceed because of a lack of evidence that a mortgage broker had authority to commit the lender to the transaction.  Gaines et al. v. Kelly, No. 05-1092 (Tex., Aug. 24, 2007).  The alleged broker in Gaines introduced the plaintiff to the lender and subsequently transmitted information and application materials between the parties, at one point telling plaintiff that the loan was “a done deal.”  When the loan failed to fund because plaintiff could not show proof of ownership of the property in question, plaintiff sued the lender for fraud on the basis of the statements of the broker.  The trial court, citing a lack of evidence of an agency relationship between the broker and lender, granted summary judgment to the lender.  An intermediate court of appeals reversed, holding that there was enough evidence of some type of agency relationship between the broker and lender.  On further appeal, the Texas Supreme Court reversed and reinstated the trial court’s decision.  It held that while there was some evidence that the broker was the lender’s agent for purposes of exchanging information or “acting as a middleman,” there was no evidence attributable to the lender that broker was lender’s agent for purposes of negotiating or committing to a loan.  According to the Court, “[b]ecause an agent’s authority is presumed to be co-extensive with the business entrusted to his care, it includes only those contracts and acts incidental to the management of the particular business with which he is entrusted.”  For a copy of this opinion, please see http://www.supreme.courts.state.tx.us/Historical/2007/aug/051092.pdf.

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 was quoted in an American Banker article entitled “Usury Preemption Upheld for Loans Sold to Collectors” on September 13.  The article discussed Munoz v. Pipestone Financial (covered in the September 7th issue of InfoBytes) regarding the applicability of National Bank Act usury preemption to loans originated by national banks but assigned to non-banks.  Mr. Jerison was quoted explaining the implications of the ruling.

Robert Serino was quoted in an article in the September 10th issue of the BNA Banking Report on issues of National Bank Act preemption of state regulatory authority.  In the article, entitled “Bankers Await Second Circuit Ruling on New York Probe of Loan Practices,” Mr. Serino said that an attempt by the New York Attorney General to examine the records of a national bank would likely be struck down by the Second Circuit.  “I think it will confirm Watters [v. Wachovia] and the position that the agency has taken, which is that enforcement of national banks is done by the OCC, and not state attorney generals.”

Joseph Lynyak will be speaking at the Mortgage Banker’s Association’s Regulatory Compliance Conference in Washington, DC on September 23rd.  Mr. Lynyak will be speaking on fair lending and HMDA compliance issues.  To learn more or register, please go to http://events.mortgagebankers.org/regcomp2007/register.

Joseph Lynyak will also be speaking at the ACI's Subprime Lending Litigation & Regulatory Enforcement Conference in Washington, DC on September 27th.  Mr. Lynyak will be speaking on a panel entitled “Redlining and Reverse Redlining: Proactive Defenses and Preventive Measures.”  To learn more or register, please see https://www.americanconference.com/Finance/subprimelit.htm.

Robert Serino will be speaking at the American Bar Association’s National Institute on Banking Law II in Chicago on September 27th and 28th.  Mr. Serino will be lecturing on Anti-Money Laundering and Bank Secrecy.  For more information or to register, please see http://www.abanet.org/cle/programs/n07bla1.html.

Margo Tank, Lane Macalester and Judy VanDusen will be speaking at the ARMA International Annual Conference being held from October 7 - 10 in Baltimore.  They will appear on a panel entitled "Emerging Electronic Record Standards in Financial Services."  The panel will review legal considerations and strategies for implementing effective electronic record management policies and procedures.

Jeffery Naimon will be speaking at the ACI’s conference on Responsible Mortgage Lending in Las Vegas, November 14-16.  Mr. Naimon will be presenting a workshop entitled “Mortgage Regulation Primer: Rules, Restrictions and Requirements for State Regulated and Federally Chartered Mortgage Lenders.”  For more information about the conference, or to register, please see https://webserv.c5groupinc.com/www_secure/conf_details.php?conf=4850&view=ovrv.

MORTGAGES

FTC Warns That Certain Mortgage Advertisements May Violate TILA.  On September 11, the Federal Trade Commission (FTC) announced that it had sent warning letters to more than 200 mortgage brokers and bankers, as well as media outlets, that certain advertisements for mortgages are “potentially deceptive or in violation of the Truth in Lending Act (TILA).”  As an example of a potentially unacceptable advertisement, the FTC press release cites an advertisement for an adjustable rate mortgage that “touts” the teaser rate, but does not “adequately” disclose (i) that the advertised rate is the “payment rate” and is not the “interest rate,” (ii) the low rate is only for a short period, and (iii) the loan’s APR.  In a sample letter to a mortgage company that the FTC identified as running suspect advertisements, the FTC states “we have not determined whether your company is in violation of the law” but… “by sending you this notice, we do not waive the right of the Commission to take action against you.”  In a sample letter to a media outlet, the FTC notes its ongoing effort to provide “the media with guidance on how to spot ads that violate the law” so that they can be pulled.  For more information, please see http://www.ftc.gov/opa/2007/09/mortsurf.shtm.

HMDA Data for 2006, FRB Report Released.  On September 12, the Federal Reserve Board’s (FRB) chief fair lending economists released their analysis of the 2006 Home Mortgage Disclosure Act (HMDA) data.  The 2006 data covers 2006 mortgage lending activity -- i.e., applications for loans, loan originations, and purchases of loans -- in connection with 8,886 financial institutions subject to HMDA in metropolitan statistical areas (MSAs) throughout the nation. Covered institutions include, but are not limited to, banks, savings associations, credit unions, and independent state licensed mortgage companies.  Among several other topics, the report notes that refinancing actually fell 12% in 2006 from the previous year, and speculates that a weakening real estate market “likely diminished the attractiveness of refinancing, or the borrower’s ability to refinance.”  Unlike the September 2006 report describing the 2005 data, there was not a big leap in “higher priced” loans that exceed the HMDA reporting rate threshold.  However, the report’s final pages appear to create a correlation between higher priced loans and loan performance – i.e., geographic areas with similar economic factors but with more higher-priced loans have a higher foreclosure rate than ones with fewer subprime loans.  To learn more about the FRB’s analysis of the 2006 HMDA, please see http://www.ffiec.gov/hmcrpr/hm091207.htm.

California Legislature Passes Bill to Apply Federal Guidance to Non-Bank Lenders.  On September 6, the California legislature passed Senate Bill 385 which, if signed into law, would require the Commissioner of Financial Institutions, the Commissioner of Real Estate and the Commissioner of Corporations, in relevant part, to apply the following to all state-regulated institutions under their purview and would authorize the Commissioners to issue emergency and final regulations for clarification purposes in connection with the following:  (i) the Interagency Guidance on Nontraditional mortgage Product Risks issued in September 2006 by the federal banking agencies, (ii) the November 2006 nontraditional mortgage product risks guidance issued by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR); (iii) the June 2007 Statement on Subprime Mortgage Lending, issued by the federal banking agencies; and (iv) the July 2007 Statement on Subprime Mortgage Lending issued by the CSBS, AARMR, and the National Association of Consumer Credit Administrators  (for more information regarding these publications, see the September 29, 2006, November 17, 2006, and July 20, 2007 issues of InfoBytes).  The bill includes the legislature’s finding that the nontraditional mortgage product risk guidance covers “all residential mortgage loan products that allow borrowers to defer repayment of principal or interest, including all interest-only products and negative amortization mortgages.”  The nontraditional mortgage product risk guidance under the bill does not cover reverse mortgages or home equity lines of credit, other than simultaneous second-lien loans.  The bill further provides that the subprime mortgage lending statements apply to adjustable-rate mortgage products that “are typically offered to subprime borrowers and that have the potential for payment shock.”  The bill was sent to Governor Schwarzenegger on September 12.  For more information on this bill, please see http://info.sen.ca.gov/cgi-bin/postquery?bill_number=sb_385&sess=CUR&house=B&site=sen.

Court Grants Class Certification in FCRA Claims Against H&R Block. In a recent consolidated pretrial proceeding, a district court granted motions by three groups seeking class certification for Fair Credit Reporting Act (FCRA) claims against H&R Block Mortgage Corporation (HRBMC).  In re H&R Block Mortgage Corporation, No. 2:06-MD-230 2007 WL 2323111 (N.D. Ind. August 8, 2007).  The plaintiffs allege that they received a credit solicitation mailing from HRBMC informing them that they had been pre-approved for a mortgage loan.  The plaintiffs claim that HRBMC’s mailings did not constitute a “firm offer of credit” within the meaning of 15 U.S.C. § 1681b, and that HRBMC’s access to their credit reports without their consent therefore violates the FCRA.  The plaintiffs seek statutory damages, on behalf of themselves and the classes, of not less than $100 and not more than $1,000 for each violation by HRBMC pursuant to § 1681n.  HRBMC argued that a class action suit is not the “superior” method for litigating the “firm offer” issue because the potential statutory damages could put the company out of business.  HRBMC faces statutory damages of nearly $19 million if the minimum of $100 per class member/violation is awarded, and over $187 million in potential liability if the maximum $1,000 per class member/violation is awarded.  The court dismissed this argument stating that “the reason that damages can be substantial…lies in the legislative decision to authorize awards as high as $1,000 per person, combined with [HRBMC’s] decision to obtain the credit scores.”  The court also rejected HRBMC’s argument that whether the mailing constituted a “firm offer of credit” is an individual inquiry requiring a consumer-by-consumer evaluation.  The court followed precedent from Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006) (covered in the January 20, 2006 issue of InfoBytes), holding that whether a “firm offer of credit” has in fact been made is a class issue.  Moreover, the court held that “if it turns out that any class members have unique claims, they will be given the opportunity to opt out from the case.”  The court found that the plaintiffs met the class certification requirements under FRCP Rule 23, and that “a class action is the best way to resolve the claims of the purported class.”  Please contact for a copy of this decision.

Fee for Non-Attorneys Completing Loan Documents an Unauthorized Practice of Law.  In a recent case, the Missouri Supreme Court decided that a bank violated the state statute prohibiting the unauthorized practice of law when it charged document preparation fees for employees filling out loan document forms.  Eisel v. Midwest BankCentre, No. SC88167 (Mo. 2007)  The subject statute states that the "law business" includes "assisting in the drawing for a valuable consideration of any paper, document or instrument affecting or relating to secular rights... ."  In a bench trial on stipulated facts, the trial court agreed with the plaintiff class and awarded treble damages.  On appeal, the Missouri Supreme Court affirmed.  The Court rejected the bank's arguments that (i) because the bank maintained a financial stake in the outcome of the contract or loan, it did not engage in the practice of law, and (ii) that because the plaintiffs voluntarily paid the document preparation fees, they were not entitled to recover under the voluntary payment doctrine.  The Court also found unconvincing the bank's arguments that the statute conflicts with the activities that the judiciary -- the ultimate arbiter on the definition of the practice of law in the state -- considered to be authorized.  The court surveyed similar instances in which it found activities that constituted the unauthorized practice of law, such as requiring attorney supervision for drawing, preparing or assisting in the preparation of trust workbooks and trusts, and prohibiting trust companies from charging a fee for document preparation for closing services, and determined that the lower court's ruling was not inconsistent with those precedents.  For a copy of the opinion, please see http://www.courts.mo.gov/Courts/PubOpinions.nsf/.

Lender Not Liable For Alleged Fraudulent Statement of Mortgage Broker.  The Supreme Court of Texas recently overturned a decision allowing fraud claims against a mortgage lender to proceed because of a lack of evidence that a mortgage broker had authority to commit the lender to the transaction.  Gaines et al. v. Kelly, No. 05-1092 (Tex., Aug. 24, 2007).  The alleged broker in Gaines introduced the plaintiff to the lender and subsequently transmitted information and application materials between the parties, at one point telling plaintiff that the loan was “a done deal.”  When the loan failed to fund because plaintiff could not show proof of ownership of the property in question, plaintiff sued the lender for fraud on the basis of the statements of the broker.  The trial court, citing a lack of evidence of an agency relationship between the broker and lender, granted summary judgment to the lender.  An intermediate court of appeals reversed, holding that there was enough evidence of some type of agency relationship between the broker and lender.  On further appeal, the Texas Supreme Court reversed and reinstated the trial court’s decision.  It held that while there was some evidence that the broker was the lender’s agent for purposes of exchanging information or “acting as a middleman,” there was no evidence attributable to the lender that broker was lender’s agent for purposes of negotiating or committing to a loan.  According to the Court, “[b]ecause an agent’s authority is presumed to be co-extensive with the business entrusted to his care, it includes only those contracts and acts incidental to the management of the particular business with which he is entrusted.”  For a copy of this opinion, please see http://www.supreme.courts.state.tx.us/Historical/2007/aug/051092.pdf.

Nevada Regulator Clarifies New Home Loan Amendments.  On September 12, the Nevada Mortgage Lending Division issued a letter clarifying disclosure obligations for mortgage instruments under recent amendments to Nevada law (see AB 440 from the current session).  Under the new amendments, which take effect October 1, 2007, the definition of “home loans” in NRS § 598D.040 is expanded to cover all mortgage loans which involve real property located in Nevada, whereas previously it only referred to mortgages that triggered the heightened disclosure requirements of the federal Home Ownership and Equity Protection Act (HOEPA).  However, a portion of the Nevada high cost home loan law that was not affected by the recent amendments, § 598D.130, requires mortgage instruments to state that the “home loan” in question is “subject” to the provisions of HOEPA.  According to the Division’s letter, some Nevada mortgage licensees expressed concerns they would be required to imprint on mortgage instruments that the mortgages in question were subject to HOEPA.  In its letter, the Division states that it “believes the correct reading of § NRS 598D.130” is that it only applies if a loan “(i) meets the definition of home loan under § 598D.040” and (ii) is “a home loan subject to HOEPA.”  The letter further provides that “until such time as the legislature amends the above statutory language, or the Attorney General or the Legislative Counsel Bureau issue contrary opinions” the Division will examine mortgage licensees according to this interpretation.  To view the letter, please see http://www.mld.nv.gov/Documents/2007-09-12-MLD-Letter-AB440.pdf.

House Financial Services Committee to Hold Foreclosure Hearing.  The House Financial Services Committee has announced a hearing on September 20, 2007, regarding “Legislative and Regulatory Options for Minimizing and Mitigating Mortgage Foreclosures.”  Witnesses will include Treasury Secretary Henry Paulson, HUD Secretary Alphonso Jackson, Federal Reserve Chairman Ben Bernanke, consumer advocates, and industry representatives.  A copy of the Committee’s press release announcing the hearing is available at http://www.house.gov/apps/list/press/financialsvcs_dem/press091307.shtml.

Ohio Foreclosure Task Force Releases Report.  On September 10, the Ohio Foreclosure Prevention Task Force, established by Governor Ted Strickland to respond to Ohio’s increasing rate of foreclosure, published its “Final Report” and announced policy recommendations in response to the crisis.  The task force, which consisted of government officials, financial industry members, and consumer advocates, set forth 27 specific recommendations grouped under seven categories.  These categories are as follows: (i) encourage borrowers to get help early, (ii) expand housing counseling and intervention services, (iii) work with lenders and servicers to maximize alternatives to foreclosure, (iv) provide options for homeowners to refinance or restructure their mortgages, (v) improve Ohio’s foreclosure process, (vi) strengthen protections for homeowners, and (vii) help communities recover from the aftermath of foreclosure.  For more information on the report and the related recommendations, please see http://www.com.state.oh.us/press/display.asp?ID=1166.

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BANKING

House Financial Services Committee to Markup FCRA, UDAP Legislation.  The House Financial Services Committee announced that it has scheduled a markup for September 18, 2007, at 10:00 a.m., of various bills, including legislation to “require rapid implementation of guidelines and regulations” under the Fair Credit Reporting Act (FCRA).  The bills require that the FTC issue final rules and guidelines within 90 days of enactment relating to the accuracy of information furnished to consumer reporting agencies and the consumer’s right to dispute certain items of information directly with the furnisher.  The other federal agencies would be required to issue final rules that are the same or substantially similar to the FTC’s rules, and file reports explaining any differences, within 30 days of the FTC action.  Another bill seeks to extend the power to enforce the prohibition against unfair and deceptive acts or practices in the FTC Act to all of the federal banking agencies. 

Fee for Non-Attorneys Completing Loan Documents an Unauthorized Practice of Law.  In a recent case, the Missouri Supreme Court decided that a bank violated the state statute prohibiting the unauthorized practice of law when it charged document preparation fees for employees filling out loan document forms.  Eisel v. Midwest BankCentre, No. SC88167 (Mo. 2007)  The subject statute states that the "law business" includes "assisting in the drawing for a valuable consideration of any paper, document or instrument affecting or relating to secular rights... ."  In a bench trial on stipulated facts, the trial court agreed with the plaintiff class and awarded treble damages.  On appeal, the Missouri Supreme Court affirmed.  The Court rejected the bank's arguments that (i) because the bank maintained a financial stake in the outcome of the contract or loan, it did not engage in the practice of law, and (ii) that because the plaintiffs voluntarily paid the document preparation fees, they were not entitled to recover under the voluntary payment doctrine.  The Court also found unconvincing the bank's arguments that the statute conflicts with the activities that the judiciary -- the ultimate arbiter on the definition of the practice of law in the state -- considered to be authorized.  The court surveyed similar instances in which it found activities that constituted the unauthorized practice of law, such as requiring attorney supervision for drawing, preparing or assisting in the preparation of trust workbooks and trusts, and prohibiting trust companies from charging a fee for document preparation for closing services, and determined that the lower court's ruling was not inconsistent with those precedents.  For a copy of the opinion, please see http://www.courts.mo.gov/Courts/PubOpinions.nsf/.

Lender Not Liable For Alleged Fraudulent Statement of Mortgage Broker.  The Supreme Court of Texas recently overturned a decision allowing fraud claims against a mortgage lender to proceed because of a lack of evidence that a mortgage broker had authority to commit the lender to the transaction.  Gaines et al. v. Kelly, No. 05-1092 (Tex., Aug. 24, 2007).  The alleged broker in Gaines introduced the plaintiff to the lender and subsequently transmitted information and application materials between the parties, at one point telling plaintiff that the loan was “a done deal.”  When the loan failed to fund because plaintiff could not show proof of ownership of the property in question, plaintiff sued the lender for fraud on the basis of the statements of the broker.  The trial court, citing a lack of evidence of an agency relationship between the broker and lender, granted summary judgment to the lender.  An intermediate court of appeals reversed, holding that there was enough evidence of some type of agency relationship between the broker and lender.  On further appeal, the Texas Supreme Court reversed and reinstated the trial court’s decision.  It held that while there was some evidence that the broker was the lender’s agent for purposes of exchanging information or “acting as a middleman,” there was no evidence attributable to the lender that broker was lender’s agent for purposes of negotiating or committing to a loan.  According to the Court, “[b]ecause an agent’s authority is presumed to be co-extensive with the business entrusted to his care, it includes only those contracts and acts incidental to the management of the particular business with which he is entrusted.”  For a copy of this opinion, please see http://www.supreme.courts.state.tx.us/Historical/2007/aug/051092.pdf.

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CONSUMER FINANCE

House Financial Services Committee to Markup FCRA, UDAP Legislation.  The House Financial Services Committee announced that it has scheduled a markup for September 18, 2007, at 10:00 a.m., of various bills, including legislation to “require rapid implementation of guidelines and regulations” under the Fair Credit Reporting Act (FCRA).  The bills require that the FTC issue final rules and guidelines within 90 days of enactment relating to the accuracy of information furnished to consumer reporting agencies and the consumer’s right to dispute certain items of information directly with the furnisher.  The other federal agencies would be required to issue final rules that are the same or substantially similar to the FTC’s rules, and file reports explaining any differences, within 30 days of the FTC action.  Another bill seeks to extend the power to enforce the prohibition against unfair and deceptive acts or practices in the FTC Act to all of the federal banking agencies. 

Court Grants Class Certification in FCRA Claims Against H&R Block. In a recent consolidated pretrial proceeding, a district court granted motions by three groups seeking class certification for Fair Credit Reporting Act (FCRA) claims against H&R Block Mortgage Corporation (HRBMC).  In re H&R Block Mortgage Corporation, No. 2:06-MD-230 2007 WL 2323111 (N.D. Ind. August 8, 2007).  The plaintiffs allege that they received a credit solicitation mailing from HRBMC informing them that they had been pre-approved for a mortgage loan.  The plaintiffs claim that HRBMC’s mailings did not constitute a “firm offer of credit” within the meaning of 15 U.S.C. § 1681b, and that HRBMC’s access to their credit reports without their consent therefore violates the FCRA.  The plaintiffs seek statutory damages, on behalf of themselves and the classes, of not less than $100 and not more than $1,000 for each violation by HRBMC pursuant to § 1681n.  HRBMC argued that a class action suit is not the “superior” method for litigating the “firm offer” issue because the potential statutory damages could put the company out of business.  HRBMC faces statutory damages of nearly $19 million if the minimum of $100 per class member/violation is awarded, and over $187 million in potential liability if the maximum $1,000 per class member/violation is awarded.  The court dismissed this argument stating that “the reason that damages can be substantial…lies in the legislative decision to authorize awards as high as $1,000 per person, combined with [HRBMC’s] decision to obtain the credit scores.”  The court also rejected HRBMC’s argument that whether the mailing constituted a “firm offer of credit” is an individual inquiry requiring a consumer-by-consumer evaluation.  The court followed precedent from Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006) (covered in the January 20, 2006 issue of InfoBytes), holding that whether a “firm offer of credit” has in fact been made is a class issue.  Moreover, the court held that “if it turns out that any class members have unique claims, they will be given the opportunity to opt out from the case.”  The court found that the plaintiffs met the class certification requirements under FRCP Rule 23, and that “a class action is the best way to resolve the claims of the purported class.”  Please contact for a copy of this decision.

Mailing not Required to Spell Out Specific Terms to Be Deemed "Firm Offer" under FCRA.  On a motion for summary judgment, the U.S. District Court for the Southern District of Texas in Villagran v. Freeway Ford, Ltd., 2007 U.S. Dist. Lexis 66596 (Sept. 10, 2007), found that the Defendants did not violate FCRA by accessing the Plaintiffs' credit reports.  The Court followed the 5th Circuit's approach in Kennedy v. Chase Manhattan Bank USA, NA, 369 F.3d 833 (5th Cir. 2004), stating that FCRA only "requires that the defendant make an offer of credit that will be honored if the consumer meets the preestablished criteria." The court further stated that neither "FCRA nor the Fifth Circuit's interpretation of the Act requires that an offer include specific information as to interest rates, repayment period, or similar terms, to enable a consumer to determine whether the offer is of 'some value.'"  The mailing to the Plaintiff offered a $27,525 auto loan that would be made if the Plaintiff, after responding to the offer, continued to meet the criteria used in the selection process.  The court found that the offer also had value even though it stated that the recipient's income and employment must be verified, the recipient's and spouse's credit must be reviewed and the equity position in the collateral must be analyzed prior to final loan approval.  The court also denied the plaintiff's motion for class certification.  For a copy of the opinion, e-mail .

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LITIGATION

Court Grants Class Certification in FCRA Claims Against H&R Block. In a recent consolidated pretrial proceeding, a district court granted motions by three groups seeking class certification for Fair Credit Reporting Act (FCRA) claims against H&R Block Mortgage Corporation (HRBMC).  In re H&R Block Mortgage Corporation, No. 2:06-MD-230 2007 WL 2323111 (N.D. Ind. August 8, 2007).  The plaintiffs allege that they received a credit solicitation mailing from HRBMC informing them that they had been pre-approved for a mortgage loan.  The plaintiffs claim that HRBMC’s mailings did not constitute a “firm offer of credit” within the meaning of 15 U.S.C. § 1681b, and that HRBMC’s access to their credit reports without their consent therefore violates the FCRA.  The plaintiffs seek statutory damages, on behalf of themselves and the classes, of not less than $100 and not more than $1,000 for each violation by HRBMC pursuant to § 1681n.  HRBMC argued that a class action suit is not the “superior” method for litigating the “firm offer” issue because the potential statutory damages could put the company out of business.  HRBMC faces statutory damages of nearly $19 million if the minimum of $100 per class member/violation is awarded, and over $187 million in potential liability if the maximum $1,000 per class member/violation is awarded.  The court dismissed this argument stating that “the reason that damages can be substantial…lies in the legislative decision to authorize awards as high as $1,000 per person, combined with [HRBMC’s] decision to obtain the credit scores.”  The court also rejected HRBMC’s argument that whether the mailing constituted a “firm offer of credit” is an individual inquiry requiring a consumer-by-consumer evaluation.  The court followed precedent from Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006) (covered in the January 20, 2006 issue of InfoBytes), holding that whether a “firm offer of credit” has in fact been made is a class issue.  Moreover, the court held that “if it turns out that any class members have unique claims, they will be given the opportunity to opt out from the case.”  The court found that the plaintiffs met the class certification requirements under FRCP Rule 23, and that “a class action is the best way to resolve the claims of the purported class.”  Please contact for a copy of this decision.

Fee for Non-Attorneys Completing Loan Documents an Unauthorized Practice of Law.  In a recent case, the Missouri Supreme Court decided that a bank violated the state statute prohibiting the unauthorized practice of law when it charged document preparation fees for employees filling out loan document forms.  Eisel v. Midwest BankCentre, No. SC88167 (Mo. 2007)  The subject statute states that the "law business" includes "assisting in the drawing for a valuable consideration of any paper, document or instrument affecting or relating to secular rights... ."  In a bench trial on stipulated facts, the trial court agreed with the plaintiff class and awarded treble damages.  On appeal, the Missouri Supreme Court affirmed.  The Court rejected the bank's arguments that (i) because the bank maintained a financial stake in the outcome of the contract or loan, it did not engage in the practice of law, and (ii) that because the plaintiffs voluntarily paid the document preparation fees, they were not entitled to recover under the voluntary payment doctrine.  The Court also found unconvincing the bank's arguments that the statute conflicts with the activities that the judiciary -- the ultimate arbiter on the definition of the practice of law in the state -- considered to be authorized.  The court surveyed similar instances in which it found activities that constituted the unauthorized practice of law, such as requiring attorney supervision for drawing, preparing or assisting in the preparation of trust workbooks and trusts, and prohibiting trust companies from charging a fee for document preparation for closing services, and determined that the lower court's ruling was not inconsistent with those precedents.  For a copy of the opinion, please see http://www.courts.mo.gov/Courts/PubOpinions.nsf/.

Mailing not Required to Spell Out Specific Terms to Be Deemed "Firm Offer" under FCRA.  On a motion for summary judgment, the U.S. District Court for the Southern District of Texas in Villagran v. Freeway Ford, Ltd., 2007 U.S. Dist. Lexis 66596 (Sept. 10, 2007), found that the Defendants did not violate FCRA by accessing the Plaintiffs' credit reports.  The Court followed the 5th Circuit's approach in Kennedy v. Chase Manhattan Bank USA, NA, 369 F.3d 833 (5th Cir. 2004), stating that FCRA only "requires that the defendant make an offer of credit that will be honored if the consumer meets the preestablished criteria." The court further stated that neither "FCRA nor the Fifth Circuit's interpretation of the Act requires that an offer include specific information as to interest rates, repayment period, or similar terms, to enable a consumer to determine whether the offer is of 'some value.'"  The mailing to the Plaintiff offered a $27,525 auto loan that would be made if the Plaintiff, after responding to the offer, continued to meet the criteria used in the selection process.  The court found that the offer also had value even though it stated that the recipient's income and employment must be verified, the recipient's and spouse's credit must be reviewed and the equity position in the collateral must be analyzed prior to final loan approval.  The court also denied the plaintiff's motion for class certification.  For a copy of the opinion, e-mail .

Lender Not Liable For Alleged Fraudulent Statement of Mortgage Broker.  The Supreme Court of Texas recently overturned a decision allowing fraud claims against a mortgage lender to proceed because of a lack of evidence that a mortgage broker had authority to commit the lender to the transaction.  Gaines et al. v. Kelly, No. 05-1092 (Tex., Aug. 24, 2007).  The alleged broker in Gaines introduced the plaintiff to the lender and subsequently transmitted information and application materials between the parties, at one point telling plaintiff that the loan was “a done deal.”  When the loan failed to fund because plaintiff could not show proof of ownership of the property in question, plaintiff sued the lender for fraud on the basis of the statements of the broker.  The trial court, citing a lack of evidence of an agency relationship between the broker and lender, granted summary judgment to the lender.  An intermediate court of appeals reversed, holding that there was enough evidence of some type of agency relationship between the broker and lender.  On further appeal, the Texas Supreme Court reversed and reinstated the trial court’s decision.  It held that while there was some evidence that the broker was the lender’s agent for purposes of exchanging information or “acting as a middleman,” there was no evidence attributable to the lender that broker was lender’s agent for purposes of negotiating or committing to a loan.  According to the Court, “[b]ecause an agent’s authority is presumed to be co-extensive with the business entrusted to his care, it includes only those contracts and acts incidental to the management of the particular business with which he is entrusted.”  For a copy of this opinion, please see http://www.supreme.courts.state.tx.us/Historical/2007/aug/051092.pdf.

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E-FINANCIAL SERVICES

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.

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PRIVACY / DATA SECURITY

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.

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CREDIT CARDS

House Financial Services Committee to Markup FCRA, UDAP Legislation.  The House Financial Services Committee announced that it has scheduled a markup for September 18, 2007, at 10:00 a.m., of various bills, including legislation to “require rapid implementation of guidelines and regulations” under the Fair Credit Reporting Act (FCRA).  The bills require that the FTC issue final rules and guidelines within 90 days of enactment relating to the accuracy of information furnished to consumer reporting agencies and the consumer’s right to dispute certain items of information directly with the furnisher.  The other federal agencies would be required to issue final rules that are the same or substantially similar to the FTC’s rules, and file reports explaining any differences, within 30 days of the FTC action.  Another bill seeks to extend the power to enforce the prohibition against unfair and deceptive acts or practices in the FTC Act to all of the federal banking agencies. 

Court Grants Class Certification in FCRA Claims Against H&R Block. In a recent consolidated pretrial proceeding, a district court granted motions by three groups seeking class certification for Fair Credit Reporting Act (FCRA) claims against H&R Block Mortgage Corporation (HRBMC).  In re H&R Block Mortgage Corporation, No. 2:06-MD-230 2007 WL 2323111 (N.D. Ind. August 8, 2007).  The plaintiffs allege that they received a credit solicitation mailing from HRBMC informing them that they had been pre-approved for a mortgage loan.  The plaintiffs claim that HRBMC’s mailings did not constitute a “firm offer of credit” within the meaning of 15 U.S.C. § 1681b, and that HRBMC’s access to their credit reports without their consent therefore violates the FCRA.  The plaintiffs seek statutory damages, on behalf of themselves and the classes, of not less than $100 and not more than $1,000 for each violation by HRBMC pursuant to § 1681n.  HRBMC argued that a class action suit is not the “superior” method for litigating the “firm offer” issue because the potential statutory damages could put the company out of business.  HRBMC faces statutory damages of nearly $19 million if the minimum of $100 per class member/violation is awarded, and over $187 million in potential liability if the maximum $1,000 per class member/violation is awarded.  The court dismissed this argument stating that “the reason that damages can be substantial…lies in the legislative decision to authorize awards as high as $1,000 per person, combined with [HRBMC’s] decision to obtain the credit scores.”  The court also rejected HRBMC’s argument that whether the mailing constituted a “firm offer of credit” is an individual inquiry requiring a consumer-by-consumer evaluation.  The court followed precedent from Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006) (covered in the January 20, 2006 issue of InfoBytes), holding that whether a “firm offer of credit” has in fact been made is a class issue.  Moreover, the court held that “if it turns out that any class members have unique claims, they will be given the opportunity to opt out from the case.”  The court found that the plaintiffs met the class certification requirements under FRCP Rule 23, and that “a class action is the best way to resolve the claims of the purported class.”  Please contact for a copy of this decision.

Mailing not Required to Spell Out Specific Terms to Be Deemed "Firm Offer" under FCRA.  On a motion for summary judgment, the U.S. District Court for the Southern District of Texas in Villagran v. Freeway Ford, Ltd., 2007 U.S. Dist. Lexis 66596 (Sept. 10, 2007), found that the Defendants did not violate FCRA by accessing the Plaintiffs' credit reports.  The Court followed the 5th Circuit's approach in Kennedy v. Chase Manhattan Bank USA, NA, 369 F.3d 833 (5th Cir. 2004), stating that FCRA only "requires that the defendant make an offer of credit that will be honored if the consumer meets the preestablished criteria." The court further stated that neither "FCRA nor the Fifth Circuit's interpretation of the Act requires that an offer include specific information as to interest rates, repayment period, or similar terms, to enable a consumer to determine whether the offer is of 'some value.'"  The mailing to the Plaintiff offered a $27,525 auto loan that would be made if the Plaintiff, after responding to the offer, continued to meet the criteria used in the selection process.  The court found that the offer also had value even though it stated that the recipient's income and employment must be verified, the recipient's and spouse's credit must be reviewed and the equity position in the collateral must be analyzed prior to final loan approval.  The court also denied the plaintiff's motion for class certification.  For a copy of the opinion, e-mail .

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