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InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
November 2, 2007
Lotstein Legal Team Joins Buckley Kolar LLP – We are very pleased to announce that Robert Lotstein, along with Grant Mitchell and Erika Jackson, all formerly of Lotstein Buckman LLP, have joined Buckley Kolar and are resident in our Washington, D.C. office. Robert and Grant have joined the firm as Senior Counsel and Erika is Director of Special Projects. Please see Firm News below for further details.
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
FRB Simplifies Electronic Disclosure Requirements. The Federal Reserve Board (FRB) amended Regulations B, E, M, Z, and DD and corresponding official staff commentary to address the timing and delivery of electronic disclosures, consistent with the requirements of the Electronic Signatures in Global and National Commerce Act (E-Sign Act). The FRB had issued interim final rules for the electronic delivery of disclosures on March 30, 2001, but those were not mandatory. A few highlights of the final amended rules include:
- Regulation B: if an application is accessed by the consumer in electronic form, the required application-related disclosures may be provided in electronic form, without regard to the consumer’s consent or other provisions of the E-Sign Act. The final regulation does not require paper disclosures for in-person electronic applications. For example, in connection with an electronic in-person credit application in a creditor’s office, the creditor could display most of the required Regulation B disclosures to the consumer on a terminal or kiosk screen.
- Regulation M: if an advertisement is accessed by consumers in electronic form, the FRB has concluded that disclosures may be provided in electronic format without increasing the risk of consumer harm.
- Regulation Z: when an application for a credit card is accessed by a consumer in electronic form, disclosures may be provided to the consumer in electronic form on or with the application.
- Regulation DD: for a deposit account advertisement accessed by the consumer in electronic form, institutions may provide the required disclosures in electronic form because the FRB believes there is no substantial risk of consumer harm. Also, in an electronic advertisement, the required disclosures need not be shown on each page where a “trigger term” appears, as long as each such page includes a cross-reference to the page where the required disclosures appear.
The mandatory compliance date for all the new amendments will be October 1, 2008. For a copy of the official press release, and links to each of the rules as they will be published in the Federal Register, please see http://www.federalreserve.gov/newsevents/press/bcreg/20071101a.htm.
Federal Agencies Release Final Red Flags Rules. On October 31, the federal financial regulatory agencies (FRB, FDIC, FTC, OCC, OTS, and NCUA) released final rules that implement the red flag requirements and address discrepancies set forth under the Fair and Accurate Credit Transactions Act (FACTA). Apart from minor changes in staff commentary, the rules are unchanged from those reported in the October 16th InfoBytes Special Alert. The mandatory compliance date for the new rule will be November 1, 2008. For more information, please see http://www.federalreserve.gov/newsevents/press/bcreg/20071031a.htm.
FTC Issues FACTA Affiliate-Marketing Rule. The Federal Trade Commission (FTC) final rule to implement the affiliate-marketing provisions of the Fair and Accurate Credit Transactions Act of 2003 (FACTA) was published in the Federal Register. Aside from some differences in the examples, the FTC version of the rule is almost identical to the rule adopted by the federal banking agencies and NCUA (see InfoBytes Special Alert for October 16, 2007). The FTC rule appears at 67 Fed. Reg. 61424 (Oct. 30, 2007).
Final Basel II Rules Released, “Standardized” Approach Not Yet Released. Today, the federal banking agencies (FRB, FDIC, OCC, and OTS) released final rules implementing the “advanced approach” to capital requirement calculations set forth in the “Basel II Accord.” The banking agencies hope to release rules creating a simpler “standardized approach” available, on an elective basis, to “non-core” banks in the first quarter of 2008. ”Core banks” are defined as those with total assets of more than $250 billion or with consolidated total on-balance-sheet foreign exposure of $10 billion or more. The final rule for the advanced approach largely follows the “implementation” outlined this summer by the banking agencies (see the July 20th issue of InfoBytes). Still in place are “transitional floor periods” limiting the rate at which capital requirements can fall under the new calculations, as presented in last year’s proposed implementation (see the September 8, 2006 issue of InfoBytes). However, the limit of a 10% aggregate reduction of required capital has been removed. In announcing the rule, FRB Chairman Ben Bernanke said “finalizing this new rule today does not mean that we are finished with Basel II implementation. Rather, it means we are moving forward to the next step in the process.“ For the official press release, and a link to the 407 page federal register notice, please see http://www.federalreserve.gov/newsevents/press/bcreg/20071102a.htm.
HUD Announces Six RESPA Captive Title Enforcement Action Settlements. On October 29, the U.S. Department of Housing and Urban Development (HUD) announced that it had reached settlement agreements with six major homebuilders on captive title reinsurance arrangements. In these cases, title insurance companies transferred a portion of the insurance premium to captive title reinsurance businesses affiliated with homebuilders who had referred business to the insurance companies. HUD alleged that these were not bona fide payments and thus constituted a violation of the Real Estate Settlement Procedures Act (RESPA). The homebuilders denied that any violation of RESPA had occurred. The total amount paid under the settlement was $1.4 million. For more information, please see http://www.hud.gov/news/release.cfm?content=pr06-162.cfm.
FTC Staff Comments on Proposed Subprime Mortgage Disclosures. On November 1, the Federal Trade Commission (FTC) staff released comments prepared for the federal banking agencies (OCC, FRB, FDIC, OTS, and NCUA) on proposed consumer disclosures in connection with subprime mortgage lending (reported in the August 17th issue of InfoBytes). While lauding the banking agencies’ efforts to create new disclosures to inform consumers, the FTC staff stated that “experience and research at the FTC indicate that consumers likely benefit more from a comprehensive review and reform of federal mortgage disclosures, including giving serious consideration to creating a single disclosure document that summarizes all of the key features and costs of a mortgage.” The FTC cited a study conducted by the agency into mortgage disclosures. After providing 400 recent mortgage consumers with disclosures about hypothetical mortgages that exceeded requirements under federal law, researchers found that the subjects could not identify critical mortgage features. For instance, half could not correctly identify the loan amount, two-thirds did not recognize the existence of a prepayment penalty, and a fifth could not identify the APR, the existence of a balloon payment, or the monthly payment. However, upon being provided a one page prototype disclosure, the rate of correct responses by a separate group of 400 consumers rose to 80% from the 61% correct answer rate of the initial group. For more information on the FTC staff’s comments, please see http://www.ftc.gov/opa/2007/11/mortgage.shtm.
FTC Releases Study on Fraud. The FTC released the results of a fraud survey on October 29. The survey showed that 30.2 million Americans were the victims of consumer fraud during a one year period. The top fraud schemes reported included fraudulent weight-loss products, foreign lottery scams, fraudulent prize promotions, fraudulent work-at-home programs, fraudulent credit card insurance, advance-fee loan scams and fraudulent credit repair scams. For more information, please see http://www.ftc.gov/opa/2007/10/fraud.shtm.
STATE ISSUES
Colorado Clarifies Mortgage Broker Contract Requirements. The Colorado Division of Real Estate published a position statement regarding mortgage broker contracts on November 2, clarifying requirements on mortgage broker contracts with lenders and with potential borrowers. Under the Colorado Mortgage Broker Licensing Act, (i) a mortgage broker must have a written correspondent or loan broker agreement with a lender before any solicitation of, or contracting with, any member of the public, and (ii) every contract between a mortgage broker and a borrower must be in writing and must contain the entire agreement of the parties. The position statement first emphasizes that a written contract between the broker and borrower is not required, but if a contract is executed, it must satisfy the statutory requirements. With regard to the written correspondent or loan broker agreement, the Division stated that mortgage brokers are in compliance if they satisfy one of the following conditions: (i) they individually have a written correspondent or loan broker agreement with a lender before any solicitation of, or contracting with, any member of the public; (ii) they are an officer, partner, member, exclusive agent, or employee of a company that has a written correspondent or loan broker agreement with a lender before any solicitation of, or contracting with, any member of the public; or (iii) they are acting as an independent contractor and maintain a contractual agreement with a company that has a written correspondent or loan broker agreement with a lender before any solicitation of, or contracting with, any member of the public. For a copy of the position statement, see http://www.dora.state.co.us/real-estate/mortgage/documents/Rules/Mortgage_Broker_Contracts.pdf.
Colorado Adopts Emergency Disclosure Rules. On October 26, the Colorado Division of Real Estate adopted an "emergency" rule, effective immediately, entitled "Mortgage Broker Disclosures" clarifying disclosures required under the recently enacted Colorado Mortgage Broker Licensing Act (reported in the June 15th issue of InfoBytes). The new rule specifies the content of the disclosure required by the state law, which portions of the requirement are satisfied by federal prescribed forms, and the level of precision required for such disclosures. Among the items to be included in the disclosure are (i) the APR, (ii) finance charge, (iii) amount financed, (iv) total amount of all payments, (v) third party costs, (vi) terms of a lock-in agreement, (vi) the amount of broker compensation, and (viii) if funds paid by the borrower are held in a trust account. The rules can be found at http://www.dora.state.co.us/real-estate/mortgage/documents/Rules/Disclosures_Lender_compensation.pdf .
COURTS
Credits for Using Affiliated Business Permitted under RESPA. On October 18, a U.S. District Court ruled that a builder offering a $10,500 credit towards settlement services only if the borrower obtained financing with a company affiliated with the builder did not violate the Real Estate Settlement Procedures Act (RESPA). Spicer v. Ryland Group, Inc., 2007 WL 3071419 (N.D. Ga. Oct. 18, 2007). The plaintiff entered into a home purchase agreement with the Ryland Group that included an Affiliated Business Arrangement (ABA) rider disclosing the Ryland Group’s relationship with Ryland Mortgage Company. The agreement also provided a “settlement credit” of up to $10,000 if the plaintiff procured financing through Ryland Mortgage Company. The plaintiff sued, arguing that under this pricing scheme, they were effectively “required to use” Ryland Mortgage in violation of RESPA. In reaching its conclusion, the court noted guidance from the Department of Housing and Urban Development advising borrowers that “while a builder cannot require you to use a mortgage company with which he is affiliated, a builder is allowed to offer you a discount if you use a specific company. Under RESPA, the builder cannot charge you more for the home if you do not use his affiliated mortgage company.” For a copy of this opinion, please contact .
District Court Decides Three FCRA Firm Offer Cases in Favor of Auto Dealers. In three separate opinions, Judge Lee H. Rosenthal of the Southern District of Texas granted summary judgment in favor of automobile dealerships in three nearly identical Fair Credit Reporting Act (FCRA) “firm offer of credit” cases. Hoffer v. Landmark Chevrolet Ltd., No. H-05-2801, 2007 WL 3125299; Hoge v. Parkway Chevrolet, Inc., No. H-05-2686, 2007 WL 3125298; Villagran v. Central Ford, Inc., No. H-05-2685, 2007 WL 3125297 (S.D. Tex. Oct. 23, 2007). In these cases, the plaintiffs each received a mailing claiming that each plaintiff had been “pre-approved” for an automobile loan, provided that certain financing conditions were satisfied. None of the plaintiffs responded to the mailings, but each sued the dealerships, claiming that the dealerships had accessed their consumer credit reports to send mailings that did not extend a “firm offer of credit,” in violation of the FCRA. Each plaintiff sued on behalf of all consumers who had received the mailings with the total number of individuals in the purported class exceeding 600,000. In granting summary judgment, the court found that each mailing constituted a firm offer of credit. The court rejected the plaintiffs’ arguments that it should adopt the Seventh Circuit’s guidance on firm offer cases, instead following the Fifth Circuit’s rulings, which require only that the defendant make an offer that will be honored if the consumer meets preestablished criteria. Also, in dicta, the court analyzed at length the plaintiffs’ claims for class certification even though there were no existing lists of the consumers who received the various mailings. For copies of the opinions, please contact .
Court Reporter’s Electronic Record Qualifies as UETA Signature. On September 7, the Kansas Court of Appeals ruled that an oral agreement recorded by a court reporter “probably” qualifies as a “written signature for purposes of the statute of frauds” under the Uniform Electronic Transactions Act (UETA). Takusagawa v. Takusagawa No. 95,508 (Kan. Ct. App. Sept. 7, 2007). In a divorce proceeding, the plaintiff argued, among other things, that an agreement transferring interests in real property orally consummated before a judge in court did not comply with the statute of frauds, which requires a “signature.” The court disagreed, citing several precedents and state laws. The court reasoned that, while it was given no evidence of what actual equipment the court reporter employed, if the method was “consistent with modern practice it would appear that the electronic capture of Mieko's oral assent that this was the agreement would satisfy the statute of frauds.” For a copy of this opinion please contact .
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
Robert Lotstein, Grant Mitchell and Erika Jackson, all formerly of Lotstein Buckman LLP, have joined Buckley Kolar and are resident in our Washington, D.C. office. Robert and Grant have joined the firm as Senior Counsel and Erika is Director of Special Projects.
Robert was previously the Managing Partner of Lotstein Buckman LLP, a Washington, D.C. law firm that served the mortgage banking industry. The Lotstein Buckman firm advised clients on federal, state and local regulatory and compliance issues and provided government relations services for clients in federal and state legislative and regulatory matters. Lotstein Buckman also developed iComply®, an online mortgage banking compliance resource that was recently acquired by Thomson North American Legal.
Grant was formerly Of Counsel at Lotstein Buckman and prior to private practice he was a Senior Attorney at the U.S. Department of Housing and Urban Development where he was principally responsible for rulemaking, statements of policy and other interpretations of the Real Estate Settlement Procedures Act. Erika had been Firm Administrator while at Lotstein Buckman.
Robert and Grant will be continuing their practice advising mortgage companies and other industry participants on legal and regulatory compliance requirements. Please see our press release for additional information regarding this important addition to our practice.
Credits for Using Affiliated Business Permitted under RESPA. On October 18, a U.S. District Court ruled that a builder offering a $10,500 credit towards settlement services only if the borrower obtained financing with a company affiliated with the builder did not violate the Real Estate Settlement Procedures Act (RESPA). Spicer v. Ryland Group, Inc., 2007 WL 3071419 (N.D. Ga. Oct. 18, 2007). The plaintiff entered into a home purchase agreement with the Ryland Group that included an Affiliated Business Arrangement (ABA) rider disclosing the Ryland Group’s relationship with Ryland Mortgage Company. The agreement also provided a “settlement credit” of up to $10,000 if the plaintiff procured financing through Ryland Mortgage Company. The plaintiff sued, arguing that under this pricing scheme, they were effectively “required to use” Ryland Mortgage in violation of RESPA. In reaching its conclusion, the court noted guidance from the Department of Housing and Urban Development advising borrowers that “while a builder cannot require you to use a mortgage company with which he is affiliated, a builder is allowed to offer you a discount if you use a specific company. Under RESPA, the builder cannot charge you more for the home if you do not use his affiliated mortgage company.” For a copy of this opinion, please contact .
FRB Simplifies Electronic Disclosure Requirements. The Federal Reserve Board (FRB) amended Regulations B, E, M, Z, and DD and corresponding official staff commentary to address the timing and delivery of electronic disclosures, consistent with the requirements of the Electronic Signatures in Global and National Commerce Act (E-Sign Act). The FRB had issued interim final rules for the electronic delivery of disclosures on March 30, 2001, but those were not mandatory. A few highlights of the final amended rules include:
- Regulation B: if an application is accessed by the consumer in electronic form, the required application-related disclosures may be provided in electronic form, without regard to the consumer’s consent or other provisions of the E-Sign Act. The final regulation does not require paper disclosures for in-person electronic applications. For example, in connection with an electronic in-person credit application in a creditor’s office, the creditor could display most of the required Regulation B disclosures to the consumer on a terminal or kiosk screen.
- Regulation M: if an advertisement is accessed by consumers in electronic form, the FRB has concluded that disclosures may be provided in electronic format without increasing the risk of consumer harm.
- Regulation Z: when an application for a credit card is accessed by a consumer in electronic form, disclosures may be provided to the consumer in electronic form on or with the application.
- Regulation DD: for a deposit account advertisement accessed by the consumer in electronic form, institutions may provide the required disclosures in electronic form because the FRB believes there is no substantial risk of consumer harm. Also, in an electronic advertisement, the required disclosures need not be shown on each page where a “trigger term” appears, as long as each such page includes a cross-reference to the page where the required disclosures appear.
The mandatory compliance date for all the new amendments will be October 1, 2008. For a copy of the official press release, and links to each of the rules as they will be published in the Federal Register, please see http://www.federalreserve.gov/newsevents/press/bcreg/20071101a.htm.
HUD Announces Six RESPA Captive Title Enforcement Action Settlements. On October 29, the U.S. Department of Housing and Urban Development (HUD) announced that it had reached settlement agreements with six major homebuilders on captive title reinsurance arrangements. In these cases, title insurance companies transferred a portion of the insurance premium to captive title reinsurance businesses affiliated with homebuilders who had referred business to the insurance companies. HUD alleged that these were not bona fide payments and thus constituted a violation of the Real Estate Settlement Procedures Act (RESPA). The homebuilders denied that any violation of RESPA had occurred. The total amount paid under the settlement was $1.4 million. For more information, please see http://www.hud.gov/news/release.cfm?content=pr06-162.cfm.
Colorado Clarifies Mortgage Broker Contract Requirements. The Colorado Division of Real Estate published a position statement regarding mortgage broker contracts on November 2, clarifying requirements on mortgage broker contracts with lenders and with potential borrowers. Under the Colorado Mortgage Broker Licensing Act, (i) a mortgage broker must have a written correspondent or loan broker agreement with a lender before any solicitation of, or contracting with, any member of the public, and (ii) every contract between a mortgage broker and a borrower must be in writing and must contain the entire agreement of the parties. The position statement first emphasizes that a written contract between the broker and borrower is not required, but if a contract is executed, it must satisfy the statutory requirements. With regard to the written correspondent or loan broker agreement, the Division stated that mortgage brokers are in compliance if they satisfy one of the following conditions: (i) they individually have a written correspondent or loan broker agreement with a lender before any solicitation of, or contracting with, any member of the public; (ii) they are an officer, partner, member, exclusive agent, or employee of a company that has a written correspondent or loan broker agreement with a lender before any solicitation of, or contracting with, any member of the public; or (iii) they are acting as an independent contractor and maintain a contractual agreement with a company that has a written correspondent or loan broker agreement with a lender before any solicitation of, or contracting with, any member of the public. For a copy of the position statement, see http://www.dora.state.co.us/real-estate/mortgage/documents/Rules/Mortgage_Broker_Contracts.pdf.
Colorado Adopts Emergency Disclosure Rules. On October 26, the Colorado Division of Real Estate adopted an "emergency" rule, effective immediately, entitled "Mortgage Broker Disclosures" clarifying disclosures required under the recently enacted Colorado Mortgage Broker Licensing Act (reported in the June 15th issue of InfoBytes). The new rule specifies the content of the disclosure required by the state law, which portions of the requirement are satisfied by federal prescribed forms, and the level of precision required for such disclosures. Among the items to be included in the disclosure are (i) the APR, (ii) finance charge, (iii) amount financed, (iv) total amount of all payments, (v) third party costs, (vi) terms of a lock-in agreement, (vi) the amount of broker compensation, and (viii) if funds paid by the borrower are held in a trust account. The rules can be found at http://www.dora.state.co.us/real-estate/mortgage/documents/Rules/Disclosures_Lender_compensation.pdf .
FTC Staff Comments on Proposed Subprime Mortgage Disclosures. On November 1, the Federal Trade Commission (FTC) staff released comments prepared for the federal banking agencies (OCC, FRB, FDIC, OTS, and NCUA) on proposed consumer disclosures in connection with subprime mortgage lending (reported in the August 17th issue of InfoBytes). While lauding the banking agencies’ efforts to create new disclosures to inform consumers, the FTC staff stated that “experience and research at the FTC indicate that consumers likely benefit more from a comprehensive review and reform of federal mortgage disclosures, including giving serious consideration to creating a single disclosure document that summarizes all of the key features and costs of a mortgage.” The FTC cited a study conducted by the agency into mortgage disclosures. After providing 400 recent mortgage consumers with disclosures about hypothetical mortgages that exceeded requirements under federal law, researchers found that the subjects could not identify critical mortgage features. For instance, half could not correctly identify the loan amount, two-thirds did not recognize the existence of a prepayment penalty, and a fifth could not identify the APR, the existence of a balloon payment, or the monthly payment. However, upon being provided a one page prototype disclosure, the rate of correct responses by a separate group of 400 consumers rose to 80% from the 61% correct answer rate of the initial group. For more information on the FTC staff’s comments, please see http://www.ftc.gov/opa/2007/11/mortgage.shtm.
FTC Issues FACTA Affiliate-Marketing Rule. The Federal Trade Commission (FTC) final rule to implement the affiliate-marketing provisions of the Fair and Accurate Credit Transactions Act of 2003 (FACTA) was published in the Federal Register. Aside from some differences in the examples, the FTC version of the rule is almost identical to the rule adopted by the federal banking agencies and NCUA (see InfoBytes Special Alert for October 16, 2007). The FTC rule appears at 67 Fed. Reg. 61424 (Oct. 30, 2007).
Final Basel II Rules Released, “Standardized” Approach Not Yet Released. Today, the federal banking agencies (FRB, FDIC, OCC, and OTS) released final rules implementing the “advanced approach” to capital requirement calculations set forth in the “Basel II Accord.” The banking agencies hope to release rules creating a simpler “standardized approach” available, on an elective basis, to “non-core” banks in the first quarter of 2008. ”Core banks” are defined as those with total assets of more than $250 billion or with consolidated total on-balance-sheet foreign exposure of $10 billion or more. The final rule for the advanced approach largely follows the “implementation” outlined this summer by the banking agencies (see the July 20th issue of InfoBytes). Still in place are “transitional floor periods” limiting the rate at which capital requirements can fall under the new calculations, as presented in last year’s proposed implementation (see the September 8, 2006 issue of InfoBytes). However, the limit of a 10% aggregate reduction of required capital has been removed. In announcing the rule, FRB Chairman Ben Bernanke said “finalizing this new rule today does not mean that we are finished with Basel II implementation. Rather, it means we are moving forward to the next step in the process.“ For the official press release, and a link to the 407 page federal register notice, please see http://www.federalreserve.gov/newsevents/press/bcreg/20071102a.htm.
Final Basel II Rules Released, “Standardized” Approach Not Yet Released. Today, the federal banking agencies (FRB, FDIC, OCC, and OTS) released final rules implementing the “advanced approach” to capital requirement calculations set forth in the “Basel II Accord.” The banking agencies hope to release rules creating a simpler “standardized approach” available, on an elective basis, to “non-core” banks in the first quarter of 2008. ”Core banks” are defined as those with total assets of more than $250 billion or with consolidated total on-balance-sheet foreign exposure of $10 billion or more. The final rule for the advanced approach largely follows the “implementation” outlined this summer by the banking agencies (see the July 20th issue of InfoBytes). Still in place are “transitional floor periods” limiting the rate at which capital requirements can fall under the new calculations, as presented in last year’s proposed implementation (see the September 8, 2006 issue of InfoBytes). However, the limit of a 10% aggregate reduction of required capital has been removed. In announcing the rule, FRB Chairman Ben Bernanke said “finalizing this new rule today does not mean that we are finished with Basel II implementation. Rather, it means we are moving forward to the next step in the process.“ For the official press release, and a link to the 407 page federal register notice, please see http://www.federalreserve.gov/newsevents/press/bcreg/20071102a.htm.
Federal Agencies Release Final Red Flags Rules. On October 31, the federal financial regulatory agencies (FRB, FDIC, FTC, OCC, OTS, and NCUA) released final rules that implement the red flag requirements and address discrepancies set forth under the Fair and Accurate Credit Transactions Act (FACTA). Apart from minor changes in staff commentary, the rules are unchanged from those reported in the October 16th InfoBytes Special Alert. The mandatory compliance date for the new rule will be November 1, 2008. For more information, please see http://www.federalreserve.gov/newsevents/press/bcreg/20071031a.htm.
FTC Issues FACTA Affiliate-Marketing Rule. The Federal Trade Commission (FTC) final rule to implement the affiliate-marketing provisions of the Fair and Accurate Credit Transactions Act of 2003 (FACTA) was published in the Federal Register. Aside from some differences in the examples, the FTC version of the rule is almost identical to the rule adopted by the federal banking agencies and NCUA (see InfoBytes Special Alert for October 16, 2007). The FTC rule appears at 67 Fed. Reg. 61424 (Oct. 30, 2007).
District Court Decides Three FCRA Firm Offer Cases in Favor of Auto Dealers. In three separate opinions, Judge Lee H. Rosenthal of the Southern District of Texas granted summary judgment in favor of automobile dealerships in three nearly identical Fair Credit Reporting Act (FCRA) “firm offer of credit” cases. Hoffer v. Landmark Chevrolet Ltd., No. H-05-2801, 2007 WL 3125299; Hoge v. Parkway Chevrolet, Inc., No. H-05-2686, 2007 WL 3125298; Villagran v. Central Ford, Inc., No. H-05-2685, 2007 WL 3125297 (S.D. Tex. Oct. 23, 2007). In these cases, the plaintiffs each received a mailing claiming that each plaintiff had been “pre-approved” for an automobile loan, provided that certain financing conditions were satisfied. None of the plaintiffs responded to the mailings, but each sued the dealerships, claiming that the dealerships had accessed their consumer credit reports to send mailings that did not extend a “firm offer of credit,” in violation of the FCRA. Each plaintiff sued on behalf of all consumers who had received the mailings with the total number of individuals in the purported class exceeding 600,000. In granting summary judgment, the court found that each mailing constituted a firm offer of credit. The court rejected the plaintiffs’ arguments that it should adopt the Seventh Circuit’s guidance on firm offer cases, instead following the Fifth Circuit’s rulings, which require only that the defendant make an offer that will be honored if the consumer meets preestablished criteria. Also, in dicta, the court analyzed at length the plaintiffs’ claims for class certification even though there were no existing lists of the consumers who received the various mailings. For copies of the opinions, please contact .
FRB Simplifies Electronic Disclosure Requirements. The Federal Reserve Board (FRB) amended Regulations B, E, M, Z, and DD and corresponding official staff commentary to address the timing and delivery of electronic disclosures, consistent with the requirements of the Electronic Signatures in Global and National Commerce Act (E-Sign Act). The FRB had issued interim final rules for the electronic delivery of disclosures on March 30, 2001, but those were not mandatory. A few highlights of the final amended rules include:
- Regulation B: if an application is accessed by the consumer in electronic form, the required application-related disclosures may be provided in electronic form, without regard to the consumer’s consent or other provisions of the E-Sign Act. The final regulation does not require paper disclosures for in-person electronic applications. For example, in connection with an electronic in-person credit application in a creditor’s office, the creditor could display most of the required Regulation B disclosures to the consumer on a terminal or kiosk screen.
- Regulation M: if an advertisement is accessed by consumers in electronic form, the FRB has concluded that disclosures may be provided in electronic format without increasing the risk of consumer harm.
- Regulation Z: when an application for a credit card is accessed by a consumer in electronic form, disclosures may be provided to the consumer in electronic form on or with the application.
- Regulation DD: for a deposit account advertisement accessed by the consumer in electronic form, institutions may provide the required disclosures in electronic form because the FRB believes there is no substantial risk of consumer harm. Also, in an electronic advertisement, the required disclosures need not be shown on each page where a “trigger term” appears, as long as each such page includes a cross-reference to the page where the required disclosures appear.
The mandatory compliance date for all the new amendments will be October 1, 2008. For a copy of the official press release, and links to each of the rules as they will be published in the Federal Register, please see http://www.federalreserve.gov/newsevents/press/bcreg/20071101a.htm.
FTC Issues FACTA Affiliate-Marketing Rule. The Federal Trade Commission (FTC) final rule to implement the affiliate-marketing provisions of the Fair and Accurate Credit Transactions Act of 2003 (FACTA) was published in the Federal Register. Aside from some differences in the examples, the FTC version of the rule is almost identical to the rule adopted by the federal banking agencies and NCUA (see InfoBytes Special Alert for October 16, 2007). The FTC rule appears at 67 Fed. Reg. 61424 (Oct. 30, 2007).
Credits for Using Affiliated Business Permitted under RESPA. On October 18, a U.S. District Court ruled that a builder offering a $10,500 credit towards settlement services only if the borrower obtained financing with a company affiliated with the builder did not violate the Real Estate Settlement Procedures Act (RESPA). Spicer v. Ryland Group, Inc., 2007 WL 3071419 (N.D. Ga. Oct. 18, 2007). The plaintiff entered into a home purchase agreement with the Ryland Group that included an Affiliated Business Arrangement (ABA) rider disclosing the Ryland Group’s relationship with Ryland Mortgage Company. The agreement also provided a “settlement credit” of up to $10,000 if the plaintiff procured financing through Ryland Mortgage Company. The plaintiff sued, arguing that under this pricing scheme, they were effectively “required to use” Ryland Mortgage in violation of RESPA. In reaching its conclusion, the court noted guidance from the Department of Housing and Urban Development advising borrowers that “while a builder cannot require you to use a mortgage company with which he is affiliated, a builder is allowed to offer you a discount if you use a specific company. Under RESPA, the builder cannot charge you more for the home if you do not use his affiliated mortgage company.” For a copy of this opinion, please contact .
District Court Decides Three FCRA Firm Offer Cases in Favor of Auto Dealers. In three separate opinions, Judge Lee H. Rosenthal of the Southern District of Texas granted summary judgment in favor of automobile dealerships in three nearly identical Fair Credit Reporting Act (FCRA) “firm offer of credit” cases. Hoffer v. Landmark Chevrolet Ltd., No. H-05-2801, 2007 WL 3125299; Hoge v. Parkway Chevrolet, Inc., No. H-05-2686, 2007 WL 3125298; Villagran v. Central Ford, Inc., No. H-05-2685, 2007 WL 3125297 (S.D. Tex. Oct. 23, 2007). In these cases, the plaintiffs each received a mailing claiming that each plaintiff had been “pre-approved” for an automobile loan, provided that certain financing conditions were satisfied. None of the plaintiffs responded to the mailings, but each sued the dealerships, claiming that the dealerships had accessed their consumer credit reports to send mailings that did not extend a “firm offer of credit,” in violation of the FCRA. Each plaintiff sued on behalf of all consumers who had received the mailings with the total number of individuals in the purported class exceeding 600,000. In granting summary judgment, the court found that each mailing constituted a firm offer of credit. The court rejected the plaintiffs’ arguments that it should adopt the Seventh Circuit’s guidance on firm offer cases, instead following the Fifth Circuit’s rulings, which require only that the defendant make an offer that will be honored if the consumer meets preestablished criteria. Also, in dicta, the court analyzed at length the plaintiffs’ claims for class certification even though there were no existing lists of the consumers who received the various mailings. For copies of the opinions, please contact .
Court Reporter’s Electronic Record Qualifies as UETA Signature. On September 7, the Kansas Court of Appeals ruled that an oral agreement recorded by a court reporter “probably” qualifies as a “written signature for purposes of the statute of frauds” under the Uniform Electronic Transactions Act (UETA). Takusagawa v. Takusagawa No. 95,508 (Kan. Ct. App. Sept. 7, 2007). In a divorce proceeding, the plaintiff argued, among other things, that an agreement transferring interests in real property orally consummated before a judge in court did not comply with the statute of frauds, which requires a “signature.” The court disagreed, citing several precedents and state laws. The court reasoned that, while it was given no evidence of what actual equipment the court reporter employed, if the method was “consistent with modern practice it would appear that the electronic capture of Mieko's oral assent that this was the agreement would satisfy the statute of frauds.” For a copy of this opinion please contact .
FRB Simplifies Electronic Disclosure Requirements. The Federal Reserve Board (FRB) amended Regulations B, E, M, Z, and DD and corresponding official staff commentary to address the timing and delivery of electronic disclosures, consistent with the requirements of the Electronic Signatures in Global and National Commerce Act (E-Sign Act). The FRB had issued interim final rules for the electronic delivery of disclosures on March 30, 2001, but those were not mandatory. A few highlights of the final amended rules include:
- Regulation B: if an application is accessed by the consumer in electronic form, the required application-related disclosures may be provided in electronic form, without regard to the consumer’s consent or other provisions of the E-Sign Act. The final regulation does not require paper disclosures for in-person electronic applications. For example, in connection with an electronic in-person credit application in a creditor’s office, the creditor could display most of the required Regulation B disclosures to the consumer on a terminal or kiosk screen.
- Regulation M: if an advertisement is accessed by consumers in electronic form, the FRB has concluded that disclosures may be provided in electronic format without increasing the risk of consumer harm.
- Regulation Z: when an application for a credit card is accessed by a consumer in electronic form, disclosures may be provided to the consumer in electronic form on or with the application.
- Regulation DD: for a deposit account advertisement accessed by the consumer in electronic form, institutions may provide the required disclosures in electronic form because the FRB believes there is no substantial risk of consumer harm. Also, in an electronic advertisement, the required disclosures need not be shown on each page where a “trigger term” appears, as long as each such page includes a cross-reference to the page where the required disclosures appear.
The mandatory compliance date for all the new amendments will be October 1, 2008. For a copy of the official press release, and links to each of the rules as they will be published in the Federal Register, please see http://www.federalreserve.gov/newsevents/press/bcreg/20071101a.htm.
Court Reporter’s Electronic Record Qualifies as UETA Signature. On September 7, the Kansas Court of Appeals ruled that an oral agreement recorded by a court reporter “probably” qualifies as a “written signature for purposes of the statute of frauds” under the Uniform Electronic Transactions Act (UETA). Takusagawa v. Takusagawa No. 95,508 (Kan. Ct. App. Sept. 7, 2007). In a divorce proceeding, the plaintiff argued, among other things, that an agreement transferring interests in real property orally consummated before a judge in court did not comply with the statute of frauds, which requires a “signature.” The court disagreed, citing several precedents and state laws. The court reasoned that, while it was given no evidence of what actual equipment the court reporter employed, if the method was “consistent with modern practice it would appear that the electronic capture of Mieko's oral assent that this was the agreement would satisfy the statute of frauds.” For a copy of this opinion please contact .
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.
Federal Agencies Release Final Red Flags Rules. On October 31, the federal financial regulatory agencies (FRB, FDIC, FTC, OCC, OTS, and NCUA) released final rules that implement the red flag requirements and address discrepancies set forth under the Fair and Accurate Credit Transactions Act (FACTA). Apart from minor changes in staff commentary, the rules are unchanged from those reported in the October 16th InfoBytes Special Alert. The mandatory compliance date for the new rule will be November 1, 2008. For more information, please see http://www.federalreserve.gov/newsevents/press/bcreg/20071031a.htm.
FTC Issues FACTA Affiliate-Marketing Rule. The Federal Trade Commission (FTC) final rule to implement the affiliate-marketing provisions of the Fair and Accurate Credit Transactions Act of 2003 (FACTA) was published in the Federal Register. Aside from some differences in the examples, the FTC version of the rule is almost identical to the rule adopted by the federal banking agencies and NCUA (see InfoBytes Special Alert for October 16, 2007). The FTC rule appears at 67 Fed. Reg. 61424 (Oct. 30, 2007).
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.
© 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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