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InfoBytes

CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

September 23 , 2005

FEDERAL ISSUES

Federal Responses to Hurricane Katrina

Working Group to Address Financial Industry Issues after Katrina. On September 19, 2005, the Federal Financial Institutions Examination Council (“FFIEC”) announced the formation of an interagency working group to enhance the agencies’ responses to issues facing the industry after Hurricane Katrina. The group is composed of senior level supervision officials from each member agency and the FFIEC's State Liaison Committee, and will attempt to provide institutions with clear, timely and consistent information on issues of concern. More information on the working group may be obtained at http://www.ffiec.gov/press/pr091905.htm.

U.S. Treasury Updates Guidance on Cashing Checks Issued To Katrina Victims. On September 14, 2005, the U.S. Department of the Treasury (“Treasury”) issued a “Special Notice for Depository Institutions” to help address identity verification problems encountered by depository institutions in connection with cashing Treasury checks for victims of Hurricane Katrina. The notice clarifies Treasury’s check reclamation policy, discusses check security features, and provides a toll-free helpline number that will enable Social Security and Supplemental Security Income check recipients to arrange for direct deposit. For more information, see http://www.frbservices.org/Treasury/pdf/TRSOSpecialKatrinaNotice.pdf

FTC Warns Emails Seeking Hurricane Relief Donations May Be Spam. The Federal Trade Commission (“FTC”) issued a Consumer Alert warning that unsolicited e-mails requesting donations for victims of hurricane Katrina may be spam. The FTC advised consumers to avoid replying to unsolicited emails, clicking on links contained in such emails, and cutting and pasting any enclosed links into their individual internet browsers. The FTC also warned consumers against giving out personal or financial information, including Social Security numbers, credit card or bank account numbers, to any solicitors. The advisory can be found at http://www.ftc.gov/opa/2005/09/katrinaspamci.htm.

Other Federal Issues

Prudential Settles RESPA Case Brought by HUD. On September 20, 2005, the Department of Housing and Urban Development (“HUD”) announced that it had entered into a settlement with Prudential Locations LLC (“Prudential”), a Hawaii-based real estate broker, for violations of RESPA, under which Prudential agreed to pay a $48,000 fine. A HUD investigation found that Prudential gave gifts, including foreign trips and restaurant gift certificates, to real estate brokers who referred more than $1,000,000 of loan business to Prudential's affiliated mortgage lender. The investigation also found that Prudential paid for a drawing for a free three-year car lease, but restricted eligibility for the drawing to real estate brokers who referred more than $1,000,000 of loan business to Prudential's affiliated mortgage lender. In announcing the settlement, Brian Montgomery, the Assistant Secretary for Housing-Federal Housing Commissioner, reminded the industry that "when you award prizes based on the amount of business any sales agent refers, you're going to violate the spirit and the letter of RESPA." Prudential did not admit to any violation of RESPA. Announcement: http://www.hud.gov/news/release.cfm?content=pr05-127.cfm. Settlement: http://www.hud.gov/offices/hsg/sfh/res/prudential.pdf.

Court Order Ends FTC Case Against “Do Not Call” Fraudsters. A default judgment entered by a United States District Court concludes a Federal Trade Commission (“FTC”) action against several defendants accused of fraudulently promising to enroll consumers in the Federal Communications Commission’s (“FCC”) Do Not Call (“DNC”) Registry. According to the FTC complaint, the defendants allegedly called consumers and offered to list them on the FCC Registry and to promote a service that supposedly would stop unwanted telemarketing calls. The FCC did not have a call list in place at the time these calls were made. In addition, the defendants frequently billed the consumers’ credit cards or debited their accounts even though they did not agree to buy the service. The final order bans the defendants from engaging in future telemarketing activity and imposes a fine of $672,000 for harm done to consumers. See http://www.ftc.gov/opa/2005/09/tpa.htm.

HHS Extends Expiration Date of Interim Rule on HIPAA Civil Money Penalties. On September 14, 2005, the Department of Health and Human Services ("HHS") announced that it is extending the expiration date of the interim final rule regarding civil money penalties for violations of the Health Insurance Portability and Accountability Act ("HIPAA"). The interim final rule adopted rules of procedure for HHS to impose civil money penalties for violations of the standards and requirements adopted by HHS under HIPAA. The expiration date of subpart E of these rules has been extended from September 16, 2005, to March 16, 2006, to allow HHS to complete its final rulemaking. A copy of the federal register announcement is available at http://a257.g.akamaitech.net/7/257/2422/01jan20051800/edocket.access.gpo.gov/2005/05-18254.htm.

SEC Extends Compliance Date for Bank Brokerage Registration. The Securities and Exchange Commission recently announced that it extended the time for banks to comply with certain broker registration requirements promulgated in the Gramm-Leach-Bliley Act. The compliance date, which previously was September 30, 2005, has been extended by one year to September 30, 2006. For more information, see http://www.sec.gov/news/press/2005-130.htm.

STATE ISSUES

North Carolina Adopts URPERA. On September 13, 2005, North Carolina’s governor signed S671, its enactment of the Uniform Real Property Electronic Recording Act (“URPERA”). The act allows for the recordation of electronic records and provides for electronic notarizations. A copy of the legislation can be obtained at http://www.ncleg.net/Sessions/2005/Bills/Senate/PDF/S671v7.pdf.

COURTS

Illinois Supreme Court Renders Decision in U.S. Bank N.A. v. Clark. On September 22, 2005, the Illinois Supreme Court reversed a 2004 Illinois Appellate Court decision holding, among other things, that the Depository Institutions Deregulation and Monetary Control Act of 1980 (“DIDMCA”) preempts the Illinois Interest Act’s points and fees limitations. For a detailed discussion of the case, see the InfoBytes Special Alert for September 23, 2005.

Northern District of Illinois Again Holds That Solicitation Must Contain Full “Firm Offer”. In Murray v. Sunrise Chevrolet, Inc., 2005 WL 2284245 (N.D. Ill. Sept. 15, 2005) the U.S. District Court for the Northern District of Illinois declined to dismiss a claim that an automobile dealer did not comply with the Fair Credit Reporting Act’s “firm offer” requirement for credit bureau prescreenings when its offer letter did not include all the material terms of an offer of auto financing, such as “the rate of interest charged, the method of computing interest, the length of the repayment period, and any other limitations of the offer.” Courts in the Northern District of Illinois are divided on the prescreening issue; as reported last week, another district court dismissed a similar case in Murray v. Household Bank (SB), N.A., 2005 WL 2211900 (N.D. Ill. Sept. 12, 2005) (see InfoBytes, Sept. 16, 2005, available at http://www.buckleykolar.com/publications/InfoBytes091605.html).

Condo Association Has No Right to Surplus Proceeds of Sale Resulting from Foreclosure of Second Mortgage. A Florida appeals court considered the claim of a condominium association that applied for (and received) excess sales proceeds following foreclosure of a second mortgage on the unit. The condominium association filed its lien for unpaid assessments prior to the foreclosure of the second mortgage. The second mortgagee's foreclosure complaint named the association as a defendant, but the association was dismissed because its lien was superior to the second mortgage. The court explained the rationale for dismissal of the association: "the general rule is that persons holding mortgages or liens prior to the mortgage under foreclosure are neither necessary nor proper parties to the action." Because the foreclosure of the second mortgage did not terminate the association's lien, the association could not receive the surplus sales proceeds. Instead, the association is required to foreclose its lien for assessments in an action against the purchaser at the foreclosure sale. Succinctly put, the decision holds that "senior lienors have no lien claim to a surplus produced by the foreclosure of a junior mortgage."

Garcia v. Stewart, 906 So.2d 1117 (Fl. App., 5/25/05, rehearing denied, 7/27/05).

Seventh Circuit Examines If An Email Can Constitute a Contract. In PFT Roberson, Inc. v. Volvo Trucks North America, Inc., Nos. 04-3100, 04-3232, 04-3841 and 04-3877, the United States Court of Appeals for the Seventh Circuit analyzed whether an email that identified items that negotiating parties had “come to agreement on” was sufficient to create a binding contract. The court determined that, in this instance, it would be incorrect to interpret the email as an executed contract because its text and the surrounding circumstances indicated that it merely confirmed which points in an ongoing negotiation had been resolved. However, the Seventh Circuit did not hold that an email could never form a binding agreement. A copy of the decision can be found at http://caselaw.lp.findlaw.com/data2/circs/7th/043100p.pdf.

MISCELLANY

John G. Walsh Named OCC’s Chief of Staff. The Comptroller of the Currency recently named John G. Walsh as his new Chief of Staff and Public Affairs, beginning on October 17, 2005. Mr. Walsh previously served at the Group of Thirty, the Senate Banking Committee, the U.S. Department of Treasury, and the Office of Management and Budget. Mr. Walsh replaces Mark A. Nishan, who has served as Chief of Staff since 1999. For more information see http://www.occ.treas.gov/toolkit/newsrelease.aspx?Doc=1L5HLRQC.xml.

FIRM NEWS

On Friday, September 23, 2005, an article written by Joe Kolar entitled “HMDA Data Should Spur Financial Literacy Efforts” was published in the American Banker. In the article, Mr. Kolar discusses, among other things, what the new HMDA data really tells us and how the data can be used beneficially. For a copy of the article, see www.americanbanker.com.

This week, Jacob Thiessen and Jeff Naimon served as faculty in the CampusMBA "Advanced Regulatory Compliance Institute" in Atlanta. At the conference, Jeff Naimon spoke about recent developments in Truth in Lending and RESPA, and Jacob Thiessen spoke about Anti-Money Laundering.

On September 28, 2005, Joe Kolar will be speaking at the 16th Annual Real Estate and Relocation Leadership Conference in New York on the importance of compliance in mortgage lending.

On October 7, 2005, Andrea Lee Negroni will make a presentation at the Compliance Technologies “Mortgage Lending Industry Diversity Conference” at the Crystal Gateway Marriott Hotel, on the subject of language barriers and accent discrimination and their role in the marketing of mortgage products to Asian-Americans and Hispanics. To register for the October 6-7 conference, go to http://mortgageindustrydiversity.com/registration.htm#confreg.

On November 3-4, 2005, Jerry Buckley, Margo Tank and Frank Supik will be speaking at the SPeRS/MISMO Workshop in Washington, DC. CampusMBA is hosting the workshop. For more information, see “Classroom-Based Courses” at http://www.campusmba.org.

On November 30-December 2, 2005, Margo Tank will be speaking at MBA’s Legal Issues in Mortgage Technology Conference, November 30 – December 2, in San Diego, California. For more information, see http://events.mortgagebankers.org/legaltech2005/default.html.

© Buckley Kolar, LLP 2005. INFOBYTES is not intended as legal advice to any person or firm. It is provided as a client service and information contained herein is drawn from various public sources, including other publications.

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