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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
Federal Predatory Lending Bill Released in the House. On October 22, the Mortgage Reform and Anti-Predatory Lending Act (H.R. 3915) was introduced in the U.S. House of Representatives, which if enacted would make dramatic changes in the mortgage lending industry by establishing an array of protections for consumers such as imposing a duty of care and a duty to disclose on originators, requiring licensing and registration of mortgage originators if not provided for by states, and prohibiting yield spread premiums. The bill would establish, in part (i) a net tangible benefit standard for refinancing of residential mortgage loans, (ii) an obligation to consider the borrower’s ability to repay, (iii) a form of assignee liability, (iv) a prohibition of prepayment penalties on “subprime” loans, (v) a prohibition of mandatory arbitration clauses in mortgage contracts, (vi) an increase in the penalties under the Truth in Lending Act (TILA) and a lengthening of TILA’s time bar to three years, (vii) a prohibition of balloon payments on Home Ownership and Equity Protection Act (HOEPA) loans, and (viii) a prohibition extensions of HOEPA loans where the monthly payment will exceed 50% of the borrowers monthly income. Among other things, the bill would also provide a cause of action for borrowers under TILA for a mortgage originator’s failure to comply with the Act. A markup of this bill, introduced by House Financial Services Committee Chairman Barney Frank (D – MA) together with Rep. Brad Miller (D – NC) and Mel Watt (D – NC), has not yet been scheduled. In announcing the bill, Rep. Watt expressed “hope the industry will embrace the changes and allow the bill to move forward quickly.” For more on the bill, please see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:h.r.03915:.
FTC Will Not Cut Numbers from Do-Not-Call Registry until Permanence Decided. On October 23, the Federal Trade Commission (FTC) announced that it “will not drop any telephone numbers from the [National Do Not Call] Registry based on the five-year expiration period pending final Congressional or agency action on whether to make registration permanent.” The registry, established by the Telemarketing Sales Rule in 2003, is estimated to contain the land-line phone numbers of 76% of American adults. FTC Chairman Deborah Majoras said that “our experience since [creating the registry] in building, maintaining, and enforcing the registry has led the Commission to re-examine its original position on re-registration” every five years. To see the official FTC press release on this issue, please see http://www.ftc.gov/opa/2007/10/dnctestimony.shtm.
Federal Agencies Issue Final FACTA Rule on Affiliate Marketing. On October 25, the federal financial regulatory agencies (FRB, FDIC, NCUA, OCC, and OTS) released joint final rules on companies providing an “opt out” option to consumers before sharing consumer information with affiliates for marketing purposes, as required by the Fair and Accurate Credit Transactions Act (FACTA). This rule is unchanged from that presented in the October 16th InfoBytes Special Alert as approved by the Board of Directors of the FDIC. The formal release of the Red Flag Rule discussed in the Special Alert has not yet occurred. To view the Joint Press Release on the affiliate marketing rule, please see http://www.federalreserve.gov/newsevents/press/bcreg/20071025a.htm.
STATE ISSUES
Seventh Circuit Approves Implicit Minimum Balance in Firm Offer. On October 25, the U.S. Court of Appeals for the Seventh Circuit ruled that a solicitation that did not explicitly state a minimum balance can still qualify as a firm-offer of credit under the Fair Credit Reporting Act (FCRA). Forrest v. Universal Savings Bank, No. 06-c-445, — F. 3d —, 2007 WL 3102077 (7th Cir. Oct. 25, 2007). In this case, the consumer argued that the credit card issuer violated FCRA by accessing her credit report and then failing to provide her with a firm offer of credit, pointing out that the conditional terms of the solicitation letter did not explicitly state a minimum balance. The solicitation letter in Forrest offered the borrower a computer with the credit card if the borrower “transfer[ed] $5,000 of qualifying balances” and “maintained a balance of $3,500 for at least 18 months.” The letter stated that “to establish an account and be eligible for an Upfront RewardTM, you must transfer qualifying balances of at least $5,000. You may also combine qualifying balance transfers of at least $2,500 with a special account advance of up to $2,500 to bring your balances up to $5,000.” The Seventh Circuit read the letter to imply that the minimum balance of $5,000 was required not only for receiving the computer, but also for opening the account. The court also noted that “in addition, the letter provides value to the consumer through the offer of a Visa credit card; the card may be used anywhere Visa is accepted and is not restricted to the purchase of a particular product.” Therefore, the court concluded that the offer letter met the standard for a “firm offer” announced in the Seventh Circuit’s opinion in Cole v. U.S. Capital, 389 F.3d 719, 726-27 (7th Cir. 2004) (reported in the December 3, 2004 issue of InfoBytes) in that it provided “value” to the consumer. For a copy of this opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=06-4337_013.pdf.
State Gift Card Expiration Prohibition Preempted; Commerce Clause Not Violated. The U.S. Court of Appeals for the Second Circuit recently held that portions of Connecticut’s Gift Card Law (GCL) prohibiting the use of expiration dates in connection with gift cards was preempted by the National Bank Act (NBA). SPGGC, LLC v. Blumenthal, No. 05-4711 (2d Cir. Oct. 19, 2007). However, the circuit court affirmed the district court’s decision to reject arguments that (i) the GCL fee restrictions were not preempted by the NBA and (ii) enforcement of the GCL in connection with internet transactions did not violate the commerce clause. (The district court opinion was reported in the January 27, 2006 issue of Infobytes.) SPGGC, which is not a National Bank, sold gift cards and collected gift card-related fees. The cards were issued by Bank of America (BoA), a National Bank and Visa member-bank. SPGGC brought suit to stop the enforcement of the GCL, which limits certain gift card-related fees and prohibits gift card expiration. The trial court dismissed these claims. The Second Circuit upheld the trial court’s ruling that the GCL limitations on fees collected by SPGGC were not preempted because the limitation only impacted SPGGC, and did not interfere with BoA’s ability to exercise its National Bank powers. The Second Circuit, however, diverged from the district court with respect to the GCL prohibition on gift card expiration dates. The Second Circuit reasoned that, because Visa required its member banks to include expiration dates, prohibiting them prevented BoA from exercising its National Bank power to issue the gift card at all. Accordingly, enforcement of this portion of the GCL in this circumstance was preempted. The Second Circuit also affirmed the district court’s decision that SPGGC failed to state a commerce clause claim, rejecting SPGGC’s argument that, because the GCL applies to gift cards sold on the internet, it inherently regulates commerce outside Connecticut. The Second Circuit refused to adopt such a broad assertion, finding that, because SPGGC could easily identify which online purchasers were Connecticut residents, the enforcement of the GCL was not likely to have an impact on residents of other states. For a copy of this opinion, please see http://www.ca2.uscourts.gov:8080/isysquery/irl1fa6/1/05-4711-cv_opn.pdf.
Seventh Circuit Issues Wide-Ranging FDCPA Ruling. On October 23, the U.S. Court of Appeals for the Seventh Circuit issued a broad opinion on four consolidated cases addressing nine distinct issues under the Fair Debt Collection Practices Act (FDCPA). Evory v. RJM Acquisitions Funding LLC, No. 06-2130, 2007 U.S. App. Lexis 24740 (7th Cir. Oct. 23, 2007). In this opinion, written by Judge Posner, three general areas were addressed: (i) the application of the FDCPA to lawyers, (ii) the proper treatment of settlement offers under the FDCPA, and (iii) the role of motions to dismiss (under FRCP 12(c)) in deciding claims for violations of the prohibition on the use of false, deceptive, or misleading representations. The court’s holding determined the following issues: (i) If the consumer is represented by a lawyer, a debt collector must give the same written notice to the lawyer that section 1692g would require if the consumer were unrepresented and the notice had been sent directly to him; (ii) Communications to lawyers are subject to the prohibition on harassing, deceptive, and unfair practices in debt collection; (iii) The standard applicable to determining whether a representation is false, deceptive, or misleading is the same whether the representation is made to the lawyer or to his client; (iv) A settlement offer contained in a letter from the debt collector to a consumer is not lawful per se under section 1692f—i.e., a plaintiff can challenge the offer with survey evidence that shows that it is deceptive; (v) A settlement offer addressed to a lawyer, rather than to the consumer directly, is likely not actionable because it is unlikely to mislead the lawyer; (vi) A debt collector accused of violating the ban on false, deceptive, or misleading representations in making a time-limited offer when it might renew or even improve on the offer may rely on a safe harbor by including the statement "We are not obligated to renew this offer"; (vii) A plaintiff must present valid consumer survey evidence to prove that a settlement offer violates the ban on false, deceptive, or misleading representations; (viii) The determination that a representation is or is not false, deceptive, or misleading must not always be treated as a matter of law; and (ix) A claim for violations of the prohibition on the use of false, deceptive, or misleading representations may be subject to determination by the court on a motion for judgment on the pleadings under FRCP 12(c). For a copy of this opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=06-2130_034.pdf.
Willfulness Sufficiently Alleged in FACTA Case to Survive Motion to Dismiss. On October 17, an Illinois federal district court rejected a motion to dismiss, holding that the plaintiffs' complaint sufficiently alleged that the defendant willfully violated a provision of the Fair and Accurate Credit Transactions Act of 2003 (FACTA) prohibiting merchants from printing specific credit card information on its receipts. Follman v. Hospitality Plus of Carpentersville, No. 07-2934, 2007 WL 3052962 (N.D. Ill, Oct. 17, 2007). In this case, the consumers sued the merchant for printing expiration dates on receipts, alleging that the merchant willfully violated the FACTA rule. The merchant moved to dismiss, arguing that (i) the consumers did not allege sufficient facts to prove willful conduct by the merchant; and (ii) in the alternative, that because the merchant's reading of the statute was plausible, its violation was not willful. The court disagreed with both defenses and denied the motion to dismiss. Citing the recent Supreme Court decision in Safeco Ins. Co. v. Burr (discussed in the June 4th InfoBytes Special Alert) the court iterated that "willfulness" includes both knowing and reckless conduct for purposes of the Fair Credit Reporting Act. The court found that the consumers’ allegations "plausibly suggest" that the merchant willfully violated the statute because the credit card interchange organizations had informed the merchant about FACTA and required compliance with FACTA in their contracts with all merchants, and because most of the merchant's business peers were in compliance with FACTA. Consequently, the court did not require the consumers to allege the elements of recklessness. The court declined to rule on the argument that the merchant’s reading of FACTA was plausible, but in dicta stated that if it were to rule, it would "be inclined to agree with every other district court in the country" that has addressed alternative interpretations of the FACTA provision at issue. The court stated that the provision is not vague and that it would not regard the alternative interpretations of the statute that the merchant proffered as plausible, warning that "unlike in Safeco, the text of this statute is clear and open to only one reasonable interpretation." For a copy of the decision, please contact .
FACTA Claim Based on On-line Receipts Survives Motion to Dismiss. On October 10, a federal district court declined to dismiss a class action suit against Wal-Mart alleging violations of the credit card receipt truncation provisions of the Fair and Accurate Credit Transactions Act (FACTA) in online receipts. Harris v. Wal-Mart Stores, Inc., No. 07 CV 2561 (N.D. Ill. Oct. 10, 2007). The subsection of FACTA at issue imposes a limitation on the disclosure of credit and debit card information by those who accept the cards for business transactions. Specifically, the subsection prohibits the printing of receipts that contain (i) more than the last five digits of a consumer’s credit or debit card number or (ii) the expiration date of the credit or debit card. The plaintiff class representative claims that he and over 100 others received from Wal-Mart’s online store a computer-generated receipt, which displayed card expiration date information at the point of sale. Wal-Mart argued that it did not “print” the receipts in question, within the meaning of the statute, but rather displayed them on customers’ computer screens for viewing. The court ruled that Wal-Mart’s contentions went beyond the facts provided by the plaintiffs in the complaint, and that the complaint’s allegations raise the right to relief above a “speculative level.” In this regard, the court held that the allegations met the standard created by the in Bell Atlantic Corp. v. Twombly, 127 S.CT. 1955, 1968 (2007), and is therefore sufficiently plead. As such, the court denied Wal-Mart’s motion to dismiss. For discussion of a similar case regarding electronic receipt FACTA claims, please see Vasquez-Torres v. Stubhub, Inc. reported in the September 7th issue of InfoBytes. For a copy of the Harris decision, please contact .
Circuit Court Finds Representation as “Debt Collector” Alone Does Not Trigger FDCPA. On October 18, the U.S. Court of Appeals for the Seventh Circuit ruled, in an unpublished opinion, that merely using language required for “debt collectors” did not make a mortgage lender a debt collector under the Fair Debt Collection Practices Act (FDCPA). Nwoke v. Countrywide Home Loans, Inc., No. 07-2233, 2007 WL 3037118 (7th Cir., Oct. 17, 2007). In this case, the plaintiff accused a mortgage lender of incorrectly attempting to collect a debt, alleging violations of the FDCPA. The lender, which had originated and still held the loan, argued that it was a creditor collecting its own debt in its own name, and therefore did not fall under the FDCPA. The plaintiff countered that the lender had explicitly represented itself as a “debt collector” in a collection letter, and pointed out that the lender in other contexts also served as a third-party debt collector for mortgages it did not hold. The court sided with the lender, ruling that the defendant’s “statement in a single letter that it is a debt collector does not raise a genuine issue of material fact as to whether it is subject to the FDCPA for attempting to collect a debt it believed [the plaintiff] owed.” For a copy of this opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=07-2233_008.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/index.cfm.
FIRM NEWS
Lee Negroni was quoted in the October 18th Lew Sichelman’s column for Dow Jones’ MarketWatch discussing how honest errors in the HUD-1 form can override other disclosures leading up to the closing, regardless of how expensive. In his column, Mr. Sichelman was recounting the story of one bank manager selling his home to another, in which an honest mistake on the HUD-1 went unnoticed, and cost the buyer $15,000. Mr. Sichelman found Ms. Negroni “spot on” when she said “I don't think it matters whether the parties were bank presidents or plumbers. That's why there are uniform closing instruments -- so that there is no dispute on who owes what in a residential settlement.” To read this column, please see http://www.marketwatch.com/personalfinance/realestate.
Clint Rockwell will be speaking at the AFSA’s Law Committee meeting in San Diego on October 30. Mr. Rockwell’s presentation will be focused on the emerging trend toward increasing the duties owed by mortgage brokers to their borrower customers. For more information about the conference, please see http://www.afsaannualmeeting.com.
Margo Tank will be speaking on a panel titled Electronic Signatures and Private Education Loans at the National Council of Higher Education Loan Programs (NCHELP) Fall Training Conference. The Fall Training Conference will be held November 4 - 7, 2007 in Atlanta, Georgia. To learn more or register, please see http://www.nchelp.org/conferences/event_detail.cfm?id=124.
Jeff 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.
Jon Jerison will speak at an A.S. Pratt audio conference on “Recent Developments under the Fair Credit Reporting Act – Red Flags, Affiliate Marketing, and Much More,” on Thursday, November 15, 2007, from 1:00 PM-2:30 PM ET. For details, see http://www.aspratt.com/store/55A.php.
Federal Predatory Lending Bill Released in the House. On October 22, the Mortgage Reform and Anti-Predatory Lending Act (H.R. 3915) was introduced in the U.S. House of Representatives, which if enacted would make dramatic changes in the mortgage lending industry by establishing an array of protections for consumers such as imposing a duty of care and a duty to disclose on originators, requiring licensing and registration of mortgage originators if not provided for by states, and prohibiting yield spread premiums. The bill would establish, in part (i) a net tangible benefit standard for refinancing of residential mortgage loans, (ii) an obligation to consider the borrower’s ability to repay, (iii) a form of assignee liability, (iv) a prohibition of prepayment penalties on “subprime” loans, (v) a prohibition of mandatory arbitration clauses in mortgage contracts, (vi) an increase in the penalties under the Truth in Lending Act (TILA) and a lengthening of TILA’s time bar to three years, (vii) a prohibition of balloon payments on Home Ownership and Equity Protection Act (HOEPA) loans, and (viii) a prohibition extensions of HOEPA loans where the monthly payment will exceed 50% of the borrowers monthly income. Among other things, the bill would also provide a cause of action for borrowers under TILA for a mortgage originator’s failure to comply with the Act. A markup of this bill, introduced by House Financial Services Committee Chairman Barney Frank (D – MA) together with Rep. Brad Miller (D – NC) and Mel Watt (D – NC), has not yet been scheduled. In announcing the bill, Rep. Watt expressed “hope the industry will embrace the changes and allow the bill to move forward quickly.” For more on the bill, please see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:h.r.03915:.
Circuit Court Finds Representation as “Debt Collector” Alone Does Not Trigger FDCPA. On October 18, the U.S. Court of Appeals for the Seventh Circuit ruled, in an unpublished opinion, that merely using language required for “debt collectors” did not make a mortgage lender a debt collector under the Fair Debt Collection Practices Act (FDCPA). Nwoke v. Countrywide Home Loans, Inc., No. 07-2233, 2007 WL 3037118 (7th Cir., Oct. 17, 2007). In this case, the plaintiff accused a mortgage lender of incorrectly attempting to collect a debt, alleging violations of the FDCPA. The lender, which had originated and still held the loan, argued that it was a creditor collecting its own debt in its own name, and therefore did not fall under the FDCPA. The plaintiff countered that the lender had explicitly represented itself as a “debt collector” in a collection letter, and pointed out that the lender in other contexts also served as a third-party debt collector for mortgages it did not hold. The court sided with the lender, ruling that the defendant’s “statement in a single letter that it is a debt collector does not raise a genuine issue of material fact as to whether it is subject to the FDCPA for attempting to collect a debt it believed [the plaintiff] owed.” For a copy of this opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=07-2233_008.pdf.
State Gift Card Expiration Prohibition Preempted; Commerce Clause Not Violated. The U.S. Court of Appeals for the Second Circuit recently held that portions of Connecticut’s Gift Card Law (GCL) prohibiting the use of expiration dates in connection with gift cards was preempted by the National Bank Act (NBA). SPGGC, LLC v. Blumenthal, No. 05-4711 (2d Cir. Oct. 19, 2007). However, the circuit court affirmed the district court’s decision to reject arguments that (i) the GCL fee restrictions were not preempted by the NBA and (ii) enforcement of the GCL in connection with internet transactions did not violate the commerce clause. (The district court opinion was reported in the January 27, 2006 issue of Infobytes.) SPGGC, which is not a National Bank, sold gift cards and collected gift card-related fees. The cards were issued by Bank of America (BoA), a National Bank and Visa member-bank. SPGGC brought suit to stop the enforcement of the GCL, which limits certain gift card-related fees and prohibits gift card expiration. The trial court dismissed these claims. The Second Circuit upheld the trial court’s ruling that the GCL limitations on fees collected by SPGGC were not preempted because the limitation only impacted SPGGC, and did not interfere with BoA’s ability to exercise its National Bank powers. The Second Circuit, however, diverged from the district court with respect to the GCL prohibition on gift card expiration dates. The Second Circuit reasoned that, because Visa required its member banks to include expiration dates, prohibiting them prevented BoA from exercising its National Bank power to issue the gift card at all. Accordingly, enforcement of this portion of the GCL in this circumstance was preempted. The Second Circuit also affirmed the district court’s decision that SPGGC failed to state a commerce clause claim, rejecting SPGGC’s argument that, because the GCL applies to gift cards sold on the internet, it inherently regulates commerce outside Connecticut. The Second Circuit refused to adopt such a broad assertion, finding that, because SPGGC could easily identify which online purchasers were Connecticut residents, the enforcement of the GCL was not likely to have an impact on residents of other states. For a copy of this opinion, please see http://www.ca2.uscourts.gov:8080/isysquery/irl1fa6/1/05-4711-cv_opn.pdf.
Circuit Court Finds Representation as “Debt Collector” Alone Does Not Trigger FDCPA. On October 18, the U.S. Court of Appeals for the Seventh Circuit ruled, in an unpublished opinion, that merely using language required for “debt collectors” did not make a mortgage lender a debt collector under the Fair Debt Collection Practices Act (FDCPA). Nwoke v. Countrywide Home Loans, Inc., No. 07-2233, 2007 WL 3037118 (7th Cir., Oct. 17, 2007). In this case, the plaintiff accused a mortgage lender of incorrectly attempting to collect a debt, alleging violations of the FDCPA. The lender, which had originated and still held the loan, argued that it was a creditor collecting its own debt in its own name, and therefore did not fall under the FDCPA. The plaintiff countered that the lender had explicitly represented itself as a “debt collector” in a collection letter, and pointed out that the lender in other contexts also served as a third-party debt collector for mortgages it did not hold. The court sided with the lender, ruling that the defendant’s “statement in a single letter that it is a debt collector does not raise a genuine issue of material fact as to whether it is subject to the FDCPA for attempting to collect a debt it believed [the plaintiff] owed.” For a copy of this opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=07-2233_008.pdf.
Federal Predatory Lending Bill Released in the House. On October 22, the Mortgage Reform and Anti-Predatory Lending Act (H.R. 3915) was introduced in the U.S. House of Representatives, which if enacted would make dramatic changes in the mortgage lending industry by establishing an array of protections for consumers such as imposing a duty of care and a duty to disclose on originators, requiring licensing and registration of mortgage originators if not provided for by states, and prohibiting yield spread premiums. The bill would establish, in part (i) a net tangible benefit standard for refinancing of residential mortgage loans, (ii) an obligation to consider the borrower’s ability to repay, (iii) a form of assignee liability, (iv) a prohibition of prepayment penalties on “subprime” loans, (v) a prohibition of mandatory arbitration clauses in mortgage contracts, (vi) an increase in the penalties under the Truth in Lending Act (TILA) and a lengthening of TILA’s time bar to three years, (vii) a prohibition of balloon payments on Home Ownership and Equity Protection Act (HOEPA) loans, and (viii) a prohibition extensions of HOEPA loans where the monthly payment will exceed 50% of the borrowers monthly income. Among other things, the bill would also provide a cause of action for borrowers under TILA for a mortgage originator’s failure to comply with the Act. A markup of this bill, introduced by House Financial Services Committee Chairman Barney Frank (D – MA) together with Rep. Brad Miller (D – NC) and Mel Watt (D – NC), has not yet been scheduled. In announcing the bill, Rep. Watt expressed “hope the industry will embrace the changes and allow the bill to move forward quickly.” For more on the bill, please see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:h.r.03915:.
Seventh Circuit Approves Implicit Minimum Balance in Firm Offer. On October 25, the U.S. Court of Appeals for the Seventh Circuit ruled that a solicitation that did not explicitly state a minimum balance can still qualify as a firm-offer of credit under the Fair Credit Reporting Act (FCRA). Forrest v. Universal Savings Bank, No. 06-c-445, — F. 3d —, 2007 WL 3102077 (7th Cir. Oct. 25, 2007). In this case, the consumer argued that the credit card issuer violated FCRA by accessing her credit report and then failing to provide her with a firm offer of credit, pointing out that the conditional terms of the solicitation letter did not explicitly state a minimum balance. The solicitation letter in Forrest offered the borrower a computer with the credit card if the borrower “transfer[ed] $5,000 of qualifying balances” and “maintained a balance of $3,500 for at least 18 months.” The letter stated that “to establish an account and be eligible for an Upfront RewardTM, you must transfer qualifying balances of at least $5,000. You may also combine qualifying balance transfers of at least $2,500 with a special account advance of up to $2,500 to bring your balances up to $5,000.” The Seventh Circuit read the letter to imply that the minimum balance of $5,000 was required not only for receiving the computer, but also for opening the account. The court also noted that “in addition, the letter provides value to the consumer through the offer of a Visa credit card; the card may be used anywhere Visa is accepted and is not restricted to the purchase of a particular product.” Therefore, the court concluded that the offer letter met the standard for a “firm offer” announced in the Seventh Circuit’s opinion in Cole v. U.S. Capital, 389 F.3d 719, 726-27 (7th Cir. 2004) (reported in the December 3, 2004 issue of InfoBytes) in that it provided “value” to the consumer. For a copy of this opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=06-4337_013.pdf.
Seventh Circuit Issues Wide-Ranging FDCPA Ruling. On October 23, the U.S. Court of Appeals for the Seventh Circuit issued a broad opinion on four consolidated cases addressing nine distinct issues under the Fair Debt Collection Practices Act (FDCPA). Evory v. RJM Acquisitions Funding LLC, No. 06-2130, 2007 U.S. App. Lexis 24740 (7th Cir. Oct. 23, 2007). In this opinion, written by Judge Posner, three general areas were addressed: (i) the application of the FDCPA to lawyers, (ii) the proper treatment of settlement offers under the FDCPA, and (iii) the role of motions to dismiss (under FRCP 12(c)) in deciding claims for violations of the prohibition on the use of false, deceptive, or misleading representations. The court’s holding determined the following issues: (i) If the consumer is represented by a lawyer, a debt collector must give the same written notice to the lawyer that section 1692g would require if the consumer were unrepresented and the notice had been sent directly to him; (ii) Communications to lawyers are subject to the prohibition on harassing, deceptive, and unfair practices in debt collection; (iii) The standard applicable to determining whether a representation is false, deceptive, or misleading is the same whether the representation is made to the lawyer or to his client; (iv) A settlement offer contained in a letter from the debt collector to a consumer is not lawful per se under section 1692f—i.e., a plaintiff can challenge the offer with survey evidence that shows that it is deceptive; (v) A settlement offer addressed to a lawyer, rather than to the consumer directly, is likely not actionable because it is unlikely to mislead the lawyer; (vi) A debt collector accused of violating the ban on false, deceptive, or misleading representations in making a time-limited offer when it might renew or even improve on the offer may rely on a safe harbor by including the statement "We are not obligated to renew this offer"; (vii) A plaintiff must present valid consumer survey evidence to prove that a settlement offer violates the ban on false, deceptive, or misleading representations; (viii) The determination that a representation is or is not false, deceptive, or misleading must not always be treated as a matter of law; and (ix) A claim for violations of the prohibition on the use of false, deceptive, or misleading representations may be subject to determination by the court on a motion for judgment on the pleadings under FRCP 12(c). For a copy of this opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=06-2130_034.pdf.
Circuit Court Finds Representation as “Debt Collector” Alone Does Not Trigger FDCPA. On October 18, the U.S. Court of Appeals for the Seventh Circuit ruled, in an unpublished opinion, that merely using language required for “debt collectors” did not make a mortgage lender a debt collector under the Fair Debt Collection Practices Act (FDCPA). Nwoke v. Countrywide Home Loans, Inc., No. 07-2233, 2007 WL 3037118 (7th Cir., Oct. 17, 2007). In this case, the plaintiff accused a mortgage lender of incorrectly attempting to collect a debt, alleging violations of the FDCPA. The lender, which had originated and still held the loan, argued that it was a creditor collecting its own debt in its own name, and therefore did not fall under the FDCPA. The plaintiff countered that the lender had explicitly represented itself as a “debt collector” in a collection letter, and pointed out that the lender in other contexts also served as a third-party debt collector for mortgages it did not hold. The court sided with the lender, ruling that the defendant’s “statement in a single letter that it is a debt collector does not raise a genuine issue of material fact as to whether it is subject to the FDCPA for attempting to collect a debt it believed [the plaintiff] owed.” For a copy of this opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=07-2233_008.pdf.
Federal Agencies Issue Final FACTA Rule on Affiliate Marketing. On October 25, the federal financial regulatory agencies (FRB, FDIC, NCUA, OCC, and OTS) released joint final rules on companies providing an “opt out” option to consumers before sharing consumer information with affiliates for marketing purposes, as required by the Fair and Accurate Credit Transactions Act (FACTA). This rule is unchanged from that presented in the October 16th InfoBytes Special Alert as approved by the Board of Directors of the FDIC. The formal release of the Red Flag Rule discussed in the Special Alert has not yet occurred. To view the Joint Press Release on the affiliate marketing rule, please see http://www.federalreserve.gov/newsevents/press/bcreg/20071025a.htm.
Seventh Circuit Approves Implicit Minimum Balance in Firm Offer. On October 25, the U.S. Court of Appeals for the Seventh Circuit ruled that a solicitation that did not explicitly state a minimum balance can still qualify as a firm-offer of credit under the Fair Credit Reporting Act (FCRA). Forrest v. Universal Savings Bank, No. 06-c-445, — F. 3d —, 2007 WL 3102077 (7th Cir. Oct. 25, 2007). In this case, the consumer argued that the credit card issuer violated FCRA by accessing her credit report and then failing to provide her with a firm offer of credit, pointing out that the conditional terms of the solicitation letter did not explicitly state a minimum balance. The solicitation letter in Forrest offered the borrower a computer with the credit card if the borrower “transfer[ed] $5,000 of qualifying balances” and “maintained a balance of $3,500 for at least 18 months.” The letter stated that “to establish an account and be eligible for an Upfront RewardTM, you must transfer qualifying balances of at least $5,000. You may also combine qualifying balance transfers of at least $2,500 with a special account advance of up to $2,500 to bring your balances up to $5,000.” The Seventh Circuit read the letter to imply that the minimum balance of $5,000 was required not only for receiving the computer, but also for opening the account. The court also noted that “in addition, the letter provides value to the consumer through the offer of a Visa credit card; the card may be used anywhere Visa is accepted and is not restricted to the purchase of a particular product.” Therefore, the court concluded that the offer letter met the standard for a “firm offer” announced in the Seventh Circuit’s opinion in Cole v. U.S. Capital, 389 F.3d 719, 726-27 (7th Cir. 2004) (reported in the December 3, 2004 issue of InfoBytes) in that it provided “value” to the consumer. For a copy of this opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=06-4337_013.pdf.
State Gift Card Expiration Prohibition Preempted; Commerce Clause Not Violated. The U.S. Court of Appeals for the Second Circuit recently held that portions of Connecticut’s Gift Card Law (GCL) prohibiting the use of expiration dates in connection with gift cards was preempted by the National Bank Act (NBA). SPGGC, LLC v. Blumenthal, No. 05-4711 (2d Cir. Oct. 19, 2007). However, the circuit court affirmed the district court’s decision to reject arguments that (i) the GCL fee restrictions were not preempted by the NBA and (ii) enforcement of the GCL in connection with internet transactions did not violate the commerce clause. (The district court opinion was reported in the January 27, 2006 issue of Infobytes.) SPGGC, which is not a National Bank, sold gift cards and collected gift card-related fees. The cards were issued by Bank of America (BoA), a National Bank and Visa member-bank. SPGGC brought suit to stop the enforcement of the GCL, which limits certain gift card-related fees and prohibits gift card expiration. The trial court dismissed these claims. The Second Circuit upheld the trial court’s ruling that the GCL limitations on fees collected by SPGGC were not preempted because the limitation only impacted SPGGC, and did not interfere with BoA’s ability to exercise its National Bank powers. The Second Circuit, however, diverged from the district court with respect to the GCL prohibition on gift card expiration dates. The Second Circuit reasoned that, because Visa required its member banks to include expiration dates, prohibiting them prevented BoA from exercising its National Bank power to issue the gift card at all. Accordingly, enforcement of this portion of the GCL in this circumstance was preempted. The Second Circuit also affirmed the district court’s decision that SPGGC failed to state a commerce clause claim, rejecting SPGGC’s argument that, because the GCL applies to gift cards sold on the internet, it inherently regulates commerce outside Connecticut. The Second Circuit refused to adopt such a broad assertion, finding that, because SPGGC could easily identify which online purchasers were Connecticut residents, the enforcement of the GCL was not likely to have an impact on residents of other states. For a copy of this opinion, please see http://www.ca2.uscourts.gov:8080/isysquery/irl1fa6/1/05-4711-cv_opn.pdf.
Seventh Circuit Issues Wide-Ranging FDCPA Ruling. On October 23, the U.S. Court of Appeals for the Seventh Circuit issued a broad opinion on four consolidated cases addressing nine distinct issues under the Fair Debt Collection Practices Act (FDCPA). Evory v. RJM Acquisitions Funding LLC, No. 06-2130, 2007 U.S. App. Lexis 24740 (7th Cir. Oct. 23, 2007). In this opinion, written by Judge Posner, three general areas were addressed: (i) the application of the FDCPA to lawyers, (ii) the proper treatment of settlement offers under the FDCPA, and (iii) the role of motions to dismiss (under FRCP 12(c)) in deciding claims for violations of the prohibition on the use of false, deceptive, or misleading representations. The court’s holding determined the following issues: (i) If the consumer is represented by a lawyer, a debt collector must give the same written notice to the lawyer that section 1692g would require if the consumer were unrepresented and the notice had been sent directly to him; (ii) Communications to lawyers are subject to the prohibition on harassing, deceptive, and unfair practices in debt collection; (iii) The standard applicable to determining whether a representation is false, deceptive, or misleading is the same whether the representation is made to the lawyer or to his client; (iv) A settlement offer contained in a letter from the debt collector to a consumer is not lawful per se under section 1692f—i.e., a plaintiff can challenge the offer with survey evidence that shows that it is deceptive; (v) A settlement offer addressed to a lawyer, rather than to the consumer directly, is likely not actionable because it is unlikely to mislead the lawyer; (vi) A debt collector accused of violating the ban on false, deceptive, or misleading representations in making a time-limited offer when it might renew or even improve on the offer may rely on a safe harbor by including the statement "We are not obligated to renew this offer"; (vii) A plaintiff must present valid consumer survey evidence to prove that a settlement offer violates the ban on false, deceptive, or misleading representations; (viii) The determination that a representation is or is not false, deceptive, or misleading must not always be treated as a matter of law; and (ix) A claim for violations of the prohibition on the use of false, deceptive, or misleading representations may be subject to determination by the court on a motion for judgment on the pleadings under FRCP 12(c). For a copy of this opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=06-2130_034.pdf.
Willfulness Sufficiently Alleged in FACTA Case to Survive Motion to Dismiss. On October 17, an Illinois federal district court rejected a motion to dismiss, holding that the plaintiffs' complaint sufficiently alleged that the defendant willfully violated a provision of the Fair and Accurate Credit Transactions Act of 2003 (FACTA) prohibiting merchants from printing specific credit card information on its receipts. Follman v. Hospitality Plus of Carpentersville, No. 07-2934, 2007 WL 3052962 (N.D. Ill, Oct. 17, 2007). In this case, the consumers sued the merchant for printing expiration dates on receipts, alleging that the merchant willfully violated the FACTA rule. The merchant moved to dismiss, arguing that (i) the consumers did not allege sufficient facts to prove willful conduct by the merchant; and (ii) in the alternative, that because the merchant's reading of the statute was plausible, its violation was not willful. The court disagreed with both defenses and denied the motion to dismiss. Citing the recent Supreme Court decision in Safeco Ins. Co. v. Burr (discussed in the June 4th InfoBytes Special Alert) the court iterated that "willfulness" includes both knowing and reckless conduct for purposes of the Fair Credit Reporting Act. The court found that the consumers’ allegations "plausibly suggest" that the merchant willfully violated the statute because the credit card interchange organizations had informed the merchant about FACTA and required compliance with FACTA in their contracts with all merchants, and because most of the merchant's business peers were in compliance with FACTA. Consequently, the court did not require the consumers to allege the elements of recklessness. The court declined to rule on the argument that the merchant’s reading of FACTA was plausible, but in dicta stated that if it were to rule, it would "be inclined to agree with every other district court in the country" that has addressed alternative interpretations of the FACTA provision at issue. The court stated that the provision is not vague and that it would not regard the alternative interpretations of the statute that the merchant proffered as plausible, warning that "unlike in Safeco, the text of this statute is clear and open to only one reasonable interpretation." For a copy of the decision, please contact .
FACTA Claim Based on On-line Receipts Survives Motion to Dismiss. On October 10, a federal district court declined to dismiss a class action suit against Wal-Mart alleging violations of the credit card receipt truncation provisions of the Fair and Accurate Credit Transactions Act (FACTA) in online receipts. Harris v. Wal-Mart Stores, Inc., No. 07 CV 2561 (N.D. Ill. Oct. 10, 2007). The subsection of FACTA at issue imposes a limitation on the disclosure of credit and debit card information by those who accept the cards for business transactions. Specifically, the subsection prohibits the printing of receipts that contain (i) more than the last five digits of a consumer’s credit or debit card number or (ii) the expiration date of the credit or debit card. The plaintiff class representative claims that he and over 100 others received from Wal-Mart’s online store a computer-generated receipt, which displayed card expiration date information at the point of sale. Wal-Mart argued that it did not “print” the receipts in question, within the meaning of the statute, but rather displayed them on customers’ computer screens for viewing. The court ruled that Wal-Mart’s contentions went beyond the facts provided by the plaintiffs in the complaint, and that the complaint’s allegations raise the right to relief above a “speculative level.” In this regard, the court held that the allegations met the standard created by the in Bell Atlantic Corp. v. Twombly, 127 S.CT. 1955, 1968 (2007), and is therefore sufficiently plead. As such, the court denied Wal-Mart’s motion to dismiss. For discussion of a similar case regarding electronic receipt FACTA claims, please see Vasquez-Torres v. Stubhub, Inc. reported in the September 7th issue of InfoBytes. For a copy of the Harris decision, please contact .
Circuit Court Finds Representation as “Debt Collector” Alone Does Not Trigger FDCPA. On October 18, the U.S. Court of Appeals for the Seventh Circuit ruled, in an unpublished opinion, that merely using language required for “debt collectors” did not make a mortgage lender a debt collector under the Fair Debt Collection Practices Act (FDCPA). Nwoke v. Countrywide Home Loans, Inc., No. 07-2233, 2007 WL 3037118 (7th Cir., Oct. 17, 2007). In this case, the plaintiff accused a mortgage lender of incorrectly attempting to collect a debt, alleging violations of the FDCPA. The lender, which had originated and still held the loan, argued that it was a creditor collecting its own debt in its own name, and therefore did not fall under the FDCPA. The plaintiff countered that the lender had explicitly represented itself as a “debt collector” in a collection letter, and pointed out that the lender in other contexts also served as a third-party debt collector for mortgages it did not hold. The court sided with the lender, ruling that the defendant’s “statement in a single letter that it is a debt collector does not raise a genuine issue of material fact as to whether it is subject to the FDCPA for attempting to collect a debt it believed [the plaintiff] owed.” For a copy of this opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=07-2233_008.pdf.
FACTA Claim Based on On-line Receipts Survives Motion to Dismiss. On October 10, a federal district court declined to dismiss a class action suit against Wal-Mart alleging violations of the credit card receipt truncation provisions of the Fair and Accurate Credit Transactions Act (FACTA) in online receipts. Harris v. Wal-Mart Stores, Inc., No. 07 CV 2561 (N.D. Ill. Oct. 10, 2007). The subsection of FACTA at issue imposes a limitation on the disclosure of credit and debit card information by those who accept the cards for business transactions. Specifically, the subsection prohibits the printing of receipts that contain (i) more than the last five digits of a consumer’s credit or debit card number or (ii) the expiration date of the credit or debit card. The plaintiff class representative claims that he and over 100 others received from Wal-Mart’s online store a computer-generated receipt, which displayed card expiration date information at the point of sale. Wal-Mart argued that it did not “print” the receipts in question, within the meaning of the statute, but rather displayed them on customers’ computer screens for viewing. The court ruled that Wal-Mart’s contentions went beyond the facts provided by the plaintiffs in the complaint, and that the complaint’s allegations raise the right to relief above a “speculative level.” In this regard, the court held that the allegations met the standard created by the in Bell Atlantic Corp. v. Twombly, 127 S.CT. 1955, 1968 (2007), and is therefore sufficiently plead. As such, the court denied Wal-Mart’s motion to dismiss. For discussion of a similar case regarding electronic receipt FACTA claims, please see Vasquez-Torres v. Stubhub, Inc. reported in the September 7th issue of InfoBytes. For a copy of the Harris decision, please contact .
State Gift Card Expiration Prohibition Preempted; Commerce Clause Not Violated. The U.S. Court of Appeals for the Second Circuit recently held that portions of Connecticut’s Gift Card Law (GCL) prohibiting the use of expiration dates in connection with gift cards was preempted by the National Bank Act (NBA). SPGGC, LLC v. Blumenthal, No. 05-4711 (2d Cir. Oct. 19, 2007). However, the circuit court affirmed the district court’s decision to reject arguments that (i) the GCL fee restrictions were not preempted by the NBA and (ii) enforcement of the GCL in connection with internet transactions did not violate the commerce clause. (The district court opinion was reported in the January 27, 2006 issue of Infobytes.) SPGGC, which is not a National Bank, sold gift cards and collected gift card-related fees. The cards were issued by Bank of America (BoA), a National Bank and Visa member-bank. SPGGC brought suit to stop the enforcement of the GCL, which limits certain gift card-related fees and prohibits gift card expiration. The trial court dismissed these claims. The Second Circuit upheld the trial court’s ruling that the GCL limitations on fees collected by SPGGC were not preempted because the limitation only impacted SPGGC, and did not interfere with BoA’s ability to exercise its National Bank powers. The Second Circuit, however, diverged from the district court with respect to the GCL prohibition on gift card expiration dates. The Second Circuit reasoned that, because Visa required its member banks to include expiration dates, prohibiting them prevented BoA from exercising its National Bank power to issue the gift card at all. Accordingly, enforcement of this portion of the GCL in this circumstance was preempted. The Second Circuit also affirmed the district court’s decision that SPGGC failed to state a commerce clause claim, rejecting SPGGC’s argument that, because the GCL applies to gift cards sold on the internet, it inherently regulates commerce outside Connecticut. The Second Circuit refused to adopt such a broad assertion, finding that, because SPGGC could easily identify which online purchasers were Connecticut residents, the enforcement of the GCL was not likely to have an impact on residents of other states. For a copy of this opinion, please see http://www.ca2.uscourts.gov:8080/isysquery/irl1fa6/1/05-4711-cv_opn.pdf.
FTC Will Not Cut Numbers from Do-Not-Call Registry until Permanence Decided. On October 23, the Federal Trade Commission (FTC) announced that it “will not drop any telephone numbers from the [National Do Not Call] Registry based on the five-year expiration period pending final Congressional or agency action on whether to make registration permanent.” The registry, established by the Telemarketing Sales Rule in 2003, is estimated to contain the land-line phone numbers of 76% of American adults. FTC Chairman Deborah Majoras said that “our experience since [creating the registry] in building, maintaining, and enforcing the registry has led the Commission to re-examine its original position on re-registration” every five years. To see the official FTC press release on this issue, please see http://www.ftc.gov/opa/2007/10/dnctestimony.shtm.
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/index.cfm.
Willfulness Sufficiently Alleged in FACTA Case to Survive Motion to Dismiss. On October 17, an Illinois federal district court rejected a motion to dismiss, holding that the plaintiffs' complaint sufficiently alleged that the defendant willfully violated a provision of the Fair and Accurate Credit Transactions Act of 2003 (FACTA) prohibiting merchants from printing specific credit card information on its receipts. Follman v. Hospitality Plus of Carpentersville, No. 07-2934, 2007 WL 3052962 (N.D. Ill, Oct. 17, 2007). In this case, the consumers sued the merchant for printing expiration dates on receipts, alleging that the merchant willfully violated the FACTA rule. The merchant moved to dismiss, arguing that (i) the consumers did not allege sufficient facts to prove willful conduct by the merchant; and (ii) in the alternative, that because the merchant's reading of the statute was plausible, its violation was not willful. The court disagreed with both defenses and denied the motion to dismiss. Citing the recent Supreme Court decision in Safeco Ins. Co. v. Burr (discussed in the June 4th InfoBytes Special Alert) the court iterated that "willfulness" includes both knowing and reckless conduct for purposes of the Fair Credit Reporting Act. The court found that the consumers’ allegations "plausibly suggest" that the merchant willfully violated the statute because the credit card interchange organizations had informed the merchant about FACTA and required compliance with FACTA in their contracts with all merchants, and because most of the merchant's business peers were in compliance with FACTA. Consequently, the court did not require the consumers to allege the elements of recklessness. The court declined to rule on the argument that the merchant’s reading of FACTA was plausible, but in dicta stated that if it were to rule, it would "be inclined to agree with every other district court in the country" that has addressed alternative interpretations of the FACTA provision at issue. The court stated that the provision is not vague and that it would not regard the alternative interpretations of the statute that the merchant proffered as plausible, warning that "unlike in Safeco, the text of this statute is clear and open to only one reasonable interpretation." For a copy of the decision, please contact .
FACTA Claim Based on On-line Receipts Survives Motion to Dismiss. On October 10, a federal district court declined to dismiss a class action suit against Wal-Mart alleging violations of the credit card receipt truncation provisions of the Fair and Accurate Credit Transactions Act (FACTA) in online receipts. Harris v. Wal-Mart Stores, Inc., No. 07 CV 2561 (N.D. Ill. Oct. 10, 2007). The subsection of FACTA at issue imposes a limitation on the disclosure of credit and debit card information by those who accept the cards for business transactions. Specifically, the subsection prohibits the printing of receipts that contain (i) more than the last five digits of a consumer’s credit or debit card number or (ii) the expiration date of the credit or debit card. The plaintiff class representative claims that he and over 100 others received from Wal-Mart’s online store a computer-generated receipt, which displayed card expiration date information at the point of sale. Wal-Mart argued that it did not “print” the receipts in question, within the meaning of the statute, but rather displayed them on customers’ computer screens for viewing. The court ruled that Wal-Mart’s contentions went beyond the facts provided by the plaintiffs in the complaint, and that the complaint’s allegations raise the right to relief above a “speculative level.” In this regard, the court held that the allegations met the standard created by the in Bell Atlantic Corp. v. Twombly, 127 S.CT. 1955, 1968 (2007), and is therefore sufficiently plead. As such, the court denied Wal-Mart’s motion to dismiss. For discussion of a similar case regarding electronic receipt FACTA claims, please see Vasquez-Torres v. Stubhub, Inc. reported in the September 7th issue of InfoBytes. For a copy of the Harris decision, please contact .
FTC Will Not Cut Numbers from Do-Not-Call Registry until Permanence Decided. On October 23, the Federal Trade Commission (FTC) announced that it “will not drop any telephone numbers from the [National Do Not Call] Registry based on the five-year expiration period pending final Congressional or agency action on whether to make registration permanent.” The registry, established by the Telemarketing Sales Rule in 2003, is estimated to contain the land-line phone numbers of 76% of American adults. FTC Chairman Deborah Majoras said that “our experience since [creating the registry] in building, maintaining, and enforcing the registry has led the Commission to re-examine its original position on re-registration” every five years. To see the official FTC press release on this issue, please see http://www.ftc.gov/opa/2007/10/dnctestimony.shtm.
Federal Agencies Issue Final FACTA Rule on Affiliate Marketing. On October 25, the federal financial regulatory agencies (FRB, FDIC, NCUA, OCC, and OTS) released joint final rules on companies providing an “opt out” option to consumers before sharing consumer information with affiliates for marketing purposes, as required by the Fair and Accurate Credit Transactions Act (FACTA). This rule is unchanged from that presented in the October 16th InfoBytes Special Alert as approved by the Board of Directors of the FDIC. The formal release of the Red Flag Rule discussed in the Special Alert has not yet occurred. To view the Joint Press Release on the affiliate marketing rule, please see http://www.federalreserve.gov/newsevents/press/bcreg/20071025a.htm.
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/index.cfm.
Seventh Circuit Approves Implicit Minimum Balance in Firm Offer. On October 25, the U.S. Court of Appeals for the Seventh Circuit ruled that a solicitation that did not explicitly state a minimum balance can still qualify as a firm-offer of credit under the Fair Credit Reporting Act (FCRA). Forrest v. Universal Savings Bank, No. 06-c-445, — F. 3d —, 2007 WL 3102077 (7th Cir. Oct. 25, 2007). In this case, the consumer argued that the credit card issuer violated FCRA by accessing her credit report and then failing to provide her with a firm offer of credit, pointing out that the conditional terms of the solicitation letter did not explicitly state a minimum balance. The solicitation letter in Forrest offered the borrower a computer with the credit card if the borrower “transfer[ed] $5,000 of qualifying balances” and “maintained a balance of $3,500 for at least 18 months.” The letter stated that “to establish an account and be eligible for an Upfront RewardTM, you must transfer qualifying balances of at least $5,000. You may also combine qualifying balance transfers of at least $2,500 with a special account advance of up to $2,500 to bring your balances up to $5,000.” The Seventh Circuit read the letter to imply that the minimum balance of $5,000 was required not only for receiving the computer, but also for opening the account. The court also noted that “in addition, the letter provides value to the consumer through the offer of a Visa credit card; the card may be used anywhere Visa is accepted and is not restricted to the purchase of a particular product.” Therefore, the court concluded that the offer letter met the standard for a “firm offer” announced in the Seventh Circuit’s opinion in Cole v. U.S. Capital, 389 F.3d 719, 726-27 (7th Cir. 2004) (reported in the December 3, 2004 issue of InfoBytes) in that it provided “value” to the consumer. For a copy of this opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=06-4337_013.pdf.
State Gift Card Expiration Prohibition Preempted; Commerce Clause Not Violated. The U.S. Court of Appeals for the Second Circuit recently held that portions of Connecticut’s Gift Card Law (GCL) prohibiting the use of expiration dates in connection with gift cards was preempted by the National Bank Act (NBA). SPGGC, LLC v. Blumenthal, No. 05-4711 (2d Cir. Oct. 19, 2007). However, the circuit court affirmed the district court’s decision to reject arguments that (i) the GCL fee restrictions were not preempted by the NBA and (ii) enforcement of the GCL in connection with internet transactions did not violate the commerce clause. (The district court opinion was reported in the January 27, 2006 issue of Infobytes.) SPGGC, which is not a National Bank, sold gift cards and collected gift card-related fees. The cards were issued by Bank of America (BoA), a National Bank and Visa member-bank. SPGGC brought suit to stop the enforcement of the GCL, which limits certain gift card-related fees and prohibits gift card expiration. The trial court dismissed these claims. The Second Circuit upheld the trial court’s ruling that the GCL limitations on fees collected by SPGGC were not preempted because the limitation only impacted SPGGC, and did not interfere with BoA’s ability to exercise its National Bank powers. The Second Circuit, however, diverged from the district court with respect to the GCL prohibition on gift card expiration dates. The Second Circuit reasoned that, because Visa required its member banks to include expiration dates, prohibiting them prevented BoA from exercising its National Bank power to issue the gift card at all. Accordingly, enforcement of this portion of the GCL in this circumstance was preempted. The Second Circuit also affirmed the district court’s decision that SPGGC failed to state a commerce clause claim, rejecting SPGGC’s argument that, because the GCL applies to gift cards sold on the internet, it inherently regulates commerce outside Connecticut. The Second Circuit refused to adopt such a broad assertion, finding that, because SPGGC could easily identify which online purchasers were Connecticut residents, the enforcement of the GCL was not likely to have an impact on residents of other states. For a copy of this opinion, please see http://www.ca2.uscourts.gov:8080/isysquery/irl1fa6/1/05-4711-cv_opn.pdf.
Willfulness Sufficiently Alleged in FACTA Case to Survive Motion to Dismiss. On October 17, an Illinois federal district court rejected a motion to dismiss, holding that the plaintiffs' complaint sufficiently alleged that the defendant willfully violated a provision of the Fair and Accurate Credit Transactions Act of 2003 (FACTA) prohibiting merchants from printing specific credit card information on its receipts. Follman v. Hospitality Plus of Carpentersville, No. 07-2934, 2007 WL 3052962 (N.D. Ill, Oct. 17, 2007). In this case, the consumers sued the merchant for printing expiration dates on receipts, alleging that the merchant willfully violated the FACTA rule. The merchant moved to dismiss, arguing that (i) the consumers did not allege sufficient facts to prove willful conduct by the merchant; and (ii) in the alternative, that because the merchant's reading of the statute was plausible, its violation was not willful. The court disagreed with both defenses and denied the motion to dismiss. Citing the recent Supreme Court decision in Safeco Ins. Co. v. Burr (discussed in the June 4th InfoBytes Special Alert) the court iterated that "willfulness" includes both knowing and reckless conduct for purposes of the Fair Credit Reporting Act. The court found that the consumers’ allegations "plausibly suggest" that the merchant willfully violated the statute because the credit card interchange organizations had informed the merchant about FACTA and required compliance with FACTA in their contracts with all merchants, and because most of the merchant's business peers were in compliance with FACTA. Consequently, the court did not require the consumers to allege the elements of recklessness. The court declined to rule on the argument that the merchant’s reading of FACTA was plausible, but in dicta stated that if it were to rule, it would "be inclined to agree with every other district court in the country" that has addressed alternative interpretations of the FACTA provision at issue. The court stated that the provision is not vague and that it would not regard the alternative interpretations of the statute that the merchant proffered as plausible, warning that "unlike in Safeco, the text of this statute is clear and open to only one reasonable interpretation." For a copy of the decision, please contact .
FACTA Claim Based on On-line Receipts Survives Motion to Dismiss. On October 10, a federal district court declined to dismiss a class action suit against Wal-Mart alleging violations of the credit card receipt truncation provisions of the Fair and Accurate Credit Transactions Act (FACTA) in online receipts. Harris v. Wal-Mart Stores, Inc., No. 07 CV 2561 (N.D. Ill. Oct. 10, 2007). The subsection of FACTA at issue imposes a limitation on the disclosure of credit and debit card information by those who accept the cards for business transactions. Specifically, the subsection prohibits the printing of receipts that contain (i) more than the last five digits of a consumer’s credit or debit card number or (ii) the expiration date of the credit or debit card. The plaintiff class representative claims that he and over 100 others received from Wal-Mart’s online store a computer-generated receipt, which displayed card expiration date information at the point of sale. Wal-Mart argued that it did not “print” the receipts in question, within the meaning of the statute, but rather displayed them on customers’ computer screens for viewing. The court ruled that Wal-Mart’s contentions went beyond the facts provided by the plaintiffs in the complaint, and that the complaint’s allegations raise the right to relief above a “speculative level.” In this regard, the court held that the allegations met the standard created by the in Bell Atlantic Corp. v. Twombly, 127 S.CT. 1955, 1968 (2007), and is therefore sufficiently plead. As such, the court denied Wal-Mart’s motion to dismiss. For discussion of a similar case regarding electronic receipt FACTA claims, please see Vasquez-Torres v. Stubhub, Inc. reported in the September 7th issue of InfoBytes. For a copy of the Harris decision, please contact .
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