(202) 349-8000
1250 24 th St NW · Suite 700 · Washington D.C. 20037
www.buckleykolar.com
InfoBytes
CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS
Topics – Covered This Week (Click to View)
FEDERAL ISSUES
House Committee Passes Amended Federal Predatory Lending Bill. On November 6, the House Financial Services Committee passed the Mortgage Reform and Anti-Predatory Lending Act (H.R. 3915, covered in the October 26th issue of InfoBytes) by a vote of 45 to 19. Several provisions of the bill were significantly altered by a Manager’s Amendment proposed on November 5. The amended bill would (i) impose a duty of care and a duty to disclose on originators, (ii) require licensing and registration of loan originators if not provided for by states, (iii) prohibit yield spread premiums and other forms of incentive compensation, (iv) impose a “net tangible benefit” standard for refinancing of residential mortgage loans, (v) create an obligation to consider the borrower’s “reasonable” ability to repay, (vi) expand the availability of rescission as a remedy in civil actions, (vii) lower the thresholds for loans to be covered by the Home Ownership and Equity Protection Act (HOEPA), and numerous other provisions. On November 5, Rep. Spencer Bachus (R-AL) issued a memorandum announcing that he would support the manager’s amendment and encouraged his Republican colleagues to consider supporting it. The bill went to mark-up on November 6 and was amended several times before being passed. Committee Chairman Barney Frank (D-MA) announced that the bill will be scheduled for full House floor consideration on November 13 or 14. The Financial Service’s Committee press release, as well as links summaries of the amended bill, can be found at http://www.house.gov/apps/list/press/financialsvcs_dem/press110607.shtml. Details of the bill’s mark-up, as well as copies of amendments, can be found at http://www.house.gov/apps/list/speech/financialsvcs_dem/ht110607.shtml.
Bernanke Calls for FHA Reform, Higher GSE Loan Caps. On November 8, in testimony before the Joint Economic Committee, Federal Reserve Board (FRB) Chairman Ben Bernanke, in a departure from custom, advocated specific mortgage and housing policy changes to help protect the broader economy from the effects of the housing and credit market downturn. In his opening remarks, Chairman Bernanke advocated the “modernization” of the Federal Housing Administration (FHA) to improve federal assistance to low- and moderate-income homebuyers. He advocated legislative action (i) raising the maximum size for loans eligible fore FHA mortgage insurance, (ii) improving FHA / private sector cooperation in aiding refinances to subprime borrowers facing rate resets, (iii) permit loans with variable maturities or shared appreciation, and (iv) risk-based insurance premium pricing. During questions, Chairman Bernanke went on to say that he would support a plan to raise the conforming loan limit, the maximum size for loans purchased by the GSEs, temporarily to $1,000,000. He also suggested that such loans could be insured, in exchange from premiums from the GSE, by the federal government which could “act as guarantor” for the loans. Senator Charles Schumer (D – NY), who has long advocated a rise in the conforming loan limits, said he would try to insert such measures into legislation already before the Congress. For a copy of Mr. Bernanke’s prepared remarks, please see http://www.federalreserve.gov/newsevents/testimony/bernanke20071108a.htm.
New DoE Rule for Use of Electronically-Signed Student Loan Promissory Notes. On November 1, the U.S. Department of Education (DoE) published a final rule amending its regulations governing the Federal Perkins Loan and Federal Family Education Loan (FFEL) programs. 72 Fed. Reg. 61,960 (Nov. 1, 2007). Among the many changes made by the Final Rule are new regulations to support the DoE's efforts to enforce defaulted electronically-signed Perkins Loans or FFEL master promissory notes (MPNs) that are assigned to the Department. Current regulations do not include any requirements for institutions and lenders participating in these loan programs to create and maintain a record of their electronic signature process for promissory notes and MPNs. The Final Rule requires an institution to create and maintain a certification regarding the creation and maintenance of any electronically-signed loan or MPN. An institution or the holder of a loan must retain an original of an electronically-signed Perkins Loan or FFEL MPN (and all associated loan records) for three years after all loans on the MPN are satisfied. In addition, institutions that assigned a Perkins Loan or FFEL loans would be required to cooperate in all matters necessary to enforce an assigned loan that was electronically signed, including providing testimony to ensure the admission of electronic records in legal proceedings and providing the certification regarding the creation and maintenance of the electronically-signed promissory notes. Furthermore, institutions must respond to requests for information from the DoE within ten business days. The regulations are effective July 1, 2008. Text of the regulation can be found at http://www.ed.gov/legislation/FedRegister/finrule/2007-4/110107a.html.
FTC, DOJ Reach Settlement with Lenders over Do Not Call Violations. On November 7, the Department of Justice (DOJ) announced that, acting at the request of the Federal Trade Commission (FTC), it had entered into settlement agreements incurring a combined total of $7.7 million in civil penalties over alleged violations of the National Do Not Call (DNC) Registry. Among the six companies were two mortgage lenders. One lender was accused of using third-party lead-generators who enticed consumers to provide their contact information. Reasoning that the consumers had sought out the lender, the FTC argued that the lender had not established a business relationship with consumers, and therefore could not legally contact them if they were on the DNC list. Under the settlement agreement, the lender is not allowed to initiate contact with potential customers found through lead generators unless the lead generator had, within the prior three months “clearly and conspicuously” notified the consumer (i) that they may be contacted by telephone by another party, (ii) of the maximum number of sellers who may call, and (iii), if possible, inform the consumer of the identity of the sellers who may call. For more information, please see the official FTC press release at http://www.ftc.gov/opa/2007/11/dncpress.shtm.
FACTA Red Flag Rules Published in the Federal Register. On November 9, the Federal Register published joint financial regulatory agency rule-making in connection with the Fair and Accurate Credit Transactions Act’s (FACTA’s) red flag and address discrepancy provisions. These rules were reported in the October 16th InfoBytes Special Alert. For the rules as published, please see http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/pdf/07-5453.pdf.
STATE ISSUES
OFHEO Expresses Concern over NYAG Subpoenas of GSEs. On November 6, New York Attorney General (NYAG) Andrew Cuomo sent a subpoena to Fannie Mae and a subpoena to Freddie Mac, demanding they take steps to examine all appraisals supporting mortgages purchased from Washington Mutual, Inc. (WaMu) or cease purchasing or securitizing loans purchased from WaMu. This step comes in connection with complaints released last week by the NYAG accusing appraisal companies of inflating real estate appraisals for WaMu, allegedly at the lender’s request. Arguing that this practice may have harmed the government sponsored enterprises’ (GSEs) shareholders, and that some of these investors were New York residents or institutions, the NYAG claimed power to subpoena the federally-chartered and regulated GSEs under New York law. In the subpoenas, AG Cuomo notes that the GSEs “may also have an interest in inflating (or at least in not questioning) the value of the pooled loans… [because] the higher the value of the loans close, the greater the value for which the securities are sold on the secondary market.” On November 8, Office of Federal Housing Enterprise Oversight (OFHEO) Director James Lockhart III sent a letter expressing concern over these subpoenas to AG Cuomo. First, Director Lockhart noted that “you and your staff may not fully understand” that mortgage backed securities issued by the GSEs are also insured by them, and that the GSEs “retain the credit risk on the underlying mortgages” behind the securities they issue and have “no economic incentive to knowingly purchase and guarantee mortgages with inflated appraisals.” Director Lockhart then went on to express “disappointment” that the NYAG’s office did not contact OFHEO before or after issuing subpoenas to the GSEs, despite the fact that OFHEO is the federal safety and soundness regulator for the federally chartered companies. Further, Director Lockhart enumerated “some issues we believe need to be discussed” which included demands that the federally-regulated GSEs “cease doing business with a major federally-chartered bank” unless certain conditions are met. For the NYAG’s press release, please see http://www.oag.state.ny.us/press/2007/nov/nov7a_07.html.
Texas Amends Constitutional Provisions Governing Home Equity Loans. On November 6, Texas voters voted to amend the Texas Constitution, through passage of Proposition 8, to clarify certain Constitutional provisions relating to the making of home equity loans and use of home equity loan proceeds. The provisions of Proposition 8 amend the Constitution to reflect the following: (i) whether property is designated for agricultural use, which makes the property ineligible to secure a home equity loan, is determined as of the date of the loan closing; (ii) the “application” that begins the 12-day waiting period before a home equity loan may close must be the “loan application”; (iii) in addition to receiving a final itemized disclosure of actual fees, points, interest, costs, and charges that will be charged at closing, the borrower must also receive a copy of the loan application at least one business day before the home equity loan may close; (iv) the one-year waiting period between home equity loans secured by the same homestead property may be waived at the borrower’s request in the case of a declared emergency applicable to the area where the homestead property securing the loans is located; (v) a borrower may sign a loan document that has blanks left to be filled in if the blanks do not relate to substantive terms of the home equity loan agreement; (vi) at the time the home equity loan is made, the borrower must receive a copy of the final loan application and all executed documents signed by the borrower at closing related to the loan, and those documents may be provided by a person other than the lender; and (vii) a borrower may not use an unsolicited preprinted check to obtain an advance on a home equity line of credit. To view text of the amendments, please see http://www.capitol.state.tx.us/tlodocs/80R/billtext/pdf/HJ00072F.pdf.
COURTS
Overcharge Not Required for Injury Under RESPA. On October 11, a federal district court in California held that a plaintiff in a lawsuit alleging violations of RESPA’s anti-kickback provisions “need not have suffered an overcharge to invoke the protection of RESPA.” Edwards v. First American Corp., 2:07-cv-03796 (C.D. Cal. Oct. 11, 2007). The plaintiff sought to obtain title insurance in connection with a home purchase, and her settlement agent referred her to First American Title Insurance Corporation for that purpose. According to the plaintiff, First American violated RESPA by entering into agreements with various title agencies in which it paid large sums of money in exchange for exclusive referral arrangements with such title agencies. First American argued that the plaintiff did not suffer an injury and therefore lacked standing to bring the suit—as the cost of title insurance in Ohio is regulated so that all insurance providers charge the same price. After analyzing RESPA’s legislative history, the court concluded that, by amending RESPA’s damages provision to make violators liable for three times the amount of “any charge paid” for a settlement service, “Congress created a right to be free from referral-tainted settlement services.” Therefore, according to the court, if the plaintiff could prove her claim, a statutory injury fairly traceable to the defendants’ actions would exist despite the lack of an overcharge. For a copy of the opinion, please contact .
Motion Filed in FCRA Case Pending “Willfulness” Petition with Supreme Court. On October 26, Radian Guaranty filed a motion to stay proceedings with the U.S. District Court for the Eastern District of Pennsylvania, pending a response by the United States Supreme Court to Radian’s petition for certiorari on the issue of whether it could have willfully violated FCRA when it did not provide an adverse action notice to borrowers who accepted a loan with a higher-than-normal mortgage insurance rate. The case is on remand from the U.S. Court of Appeals for the Third Circuit, which held that FCRA requires a mortgage insurer to provide an adverse action notice when the rate charged for mortgage insurance is higher than the best available, and directed the district court to treat the question of whether the mortgage insurer violated FCRA willfully as a factual, rather than legal, question (reported in the August 30, 2007 issue of InfoBytes). FCRA provides for statutory damages of $100-$1,000 for willful violations but only actual damages for negligent violations. Radian is seeking certiorari on the basis of the U.S. Supreme Court’s holding in Safeco Insurance Co. of America v. Burr, 127 S. Ct. 2201 (2007) (reported in the June 4th InfoBytes Special Alert). In Safeco, the Supreme Court held that an insurance company’s interpretation that FCRA does not require an insurance company to send an adverse action notice to an initial applicant who is issued insurance at a higher rate than the best available, although wrong, was not “objectively unreasonable” at the time of the transaction, and, therefore, could not be “willful” under FCRA. Radian indicates in its motion to stay the Whitfield proceeding that it will argue before the Supreme Court that the Third Circuit’s holding in Whitfield is “irreconcilable” with Safeco because the Third Circuit held that willfulness was a factual question, while the Supreme Court held in Safeco that, at the time of the Safeco transaction, the violation of FCRA was not willful as a matter of law. This issue has implications beyond adverse action in insurance transactions because defendants in other FCRA actions have been arguing that they did not act willfully, based on the Safeco precedent. For a copy of the case please contact .
Credit Repair Organization’s Involvement in Credit Dispute Defeats Plaintiff's Class Action. A federal court in Philadelphia denied plaintiff’s motion for class certification, finding that, because a credit repair organization (CRO) prepared his dispute for him, he was not a proper representative plaintiff. Klotz v. Trans Union, LLC, No. 05-4580 (E.D. Pa. July 3, 2007). Plaintiff, by way of a letter prepared by a CRO, disputed certain items on his credit report. Trans Union allegedly refused to investigate whether those items were accurate, stating in a letter that it had no obligation to investigate disputes prepared by third parties and that, in its experience, CROs regularly disputed accurate information. Plaintiff brought a Fair Credit Reporting Act (FCRA) claim on behalf of himself and others who received a similar letter refusing to investigate. The court denied plaintiff’s motion, however, finding that because plaintiff had submitted the dispute through a CRO he would be subject to unique issues as to whether the dispute was submitted “directly” – as required by FCRA – and whether the dispute was presumptively frivolous. Accordingly, plaintiff's claims were not typical of the class claims, he was not an adequate representative of the class, and individual issues specific to plaintiff would predominate over class issues. The court also found that a class action was not a superior method for adjudicating plaintiff’s claims, in part for the reasons stated, but also because FCRA’s punitive damages and attorneys’ fees provisions for prevailing parties “dispel the notion that a class action is the only way to adjudicate the lawfulness of the defendant’s practices.” For a copy of this opinion, please contact .
Court Addresses Applicability of RESPA, FCRA, and FDCPA to Investor Loan. On October 29, 2007, the U.S. District Court for the District of Nevada issued a ruling involving the applicability of the Fair Credit Reporting Act (FCRA), Real Estate Settlement Procedures Act (RESPA), and Fair Debt Collection Practices Act (FDCPA) to a transaction involving an investor in residential rental properties. Johnson v. Wells Fargo Home Mortgage, Inc., No. 3:05-CV-0321-RAM, 2007 WL 3226153, slip op. (D. Nev. Oct. 29, 2007). The investor claimed that the lender erroneously reported the plaintiff’s real property mortgage loans delinquent to the credit reporting agencies, which resulted in the investor being precluded from acquiring mortgage loans and refinancing existing loans, being forced to pay higher interest rates on mortgages and lines of credit, and having existing lines of credit reduced or cancelled. The court denied summary judgment to the lender on the FCRA claim. It agreed with the lender that the investor “may not recover under the FCRA for losses resulting from the use of a credit report obtained solely for a commercial transaction,” but noted that, although the lender reported the information in connection with commercial loans, the information could later appear reports in connection with applications for credit to be used for personal purposes. The court granted summary judgment for the lender on the RESPA claim, finding that, although the loans at issue were “federally related mortgage loans,” the fact that the loans were secured by rental properties that were never owner-occupied made them “business purpose loans,” which are exempt from RESPA. The court also granted summary judgment to the lender on the FDCPA claim, finding that, even though the plaintiff claimed his debts were for “retirement planning” and as such were consumer in nature, given that the plaintiff owned over one hundred properties in multiple states, and had never used the properties at issue as his personal residence or for any other personal, family, or household purpose, the debt was business in nature, and not consumer in nature. In addition, the court found that the defendant was a creditor, not a debt collector, under FDCPA, given that there were no allegations which would indicate that it was a third person collecting or attempting to collect a debt. The court also granted summary judgment to the lender on a state-law negligence claim, holding that FCRA (the only claim still in the case) preempted the plaintiff’s negligence claim because the plaintiff’s FCRA claims did not allege “willful” violations. For a copy of this opinion, please contact .
Court Approves FACTA Settlement for 8% of Minimum Damages. On October 23, a federal district court approved a settlement in a Fair and Accurate Credit Transaction Act (FACTA) credit card truncation class action suit in which class members only received $8 in “discount-from-purchase certificates,” despite the statute’s minimum $100-per-wilfull-violation penalty. Klingensmith v. Max & Erma’s Restaurants, Inc., No. 7-0318 2007 WL 3118505 (W.D. Pa. Oct. 23, 2007). The suit alleged failure to redact credit card expiration dates and all but five digits of the card number from transaction receipts for a class estimated to be as large as 225,000. For each violation found to be “willful” under the Fair Credit Reporting Act (FCRA, which FACTA amends), the statute provides for damages of not less than $100 and not more than $1,000 (15 U.S.C. § 1681(n)(a)). According to the court, after examining the facts of the case, the plaintiff’s counsel found that the defendant’s “non-compliance presented significantly credible and persuasive evidence that [the] violations were not willful” and were therefore could not be remedied with statutory damages. The plaintiff, therefore, agreed to a negotiated settlement requiring the defendant (i) enter into a Consent Decree to remain compliant with FACTA, (ii) disseminate 225,000 "vouchers" consisting of two $4.00 “discount-from-purchase certificates,” (iii) provide 500 additional vouchers to charity, (iv) pay the class representative an “incentive award” of $2,500, and (v) pay $110,000 in attorneys’ fees. Note that this follows a ruling by the Seventh Circuit in Murray v. GMAC that it would reject a settlement under FCRA providing class members with only 1% of minimum damages (reported in the January 20, 2006 issue of InfoBytes). For a copy of the opinion in Klingensmith, 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
Joe Lynyak will speak at the International Quality and Productivity Center's (IQPC) 3rd Conference on Securities Litigation in NYC on November 14, 2007. He is copresenting in a workshop on Exploring Strategies in Subprime Mortgage Markets. To learn more about this event, or register, please see http://www.iqpc.com/cgi-bin/templates/genevent.html?event=14168&topic=672.
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.
Margo Tank will be speaking on a panel titled Key Legal requirements for the Mortgage Industry at the MBA's Legal Issues in Mortgage Technology Conference 2007 November 28th and 29th in San Diego, California. To learn more or register, http://events.mortgagebankers.org/email/57679.html.
Margo Tank spoke on a panel titled Electronic Signatures and Private Education Loans at the National Council of Higher Education Loan Programs (NCHELP) Fall Training Conference on November 4 - 7, 2007 in Atlanta, Georgia. To learn more, please see http://www.nchelp.org/conferences/event_detail.cfm?id=124.
House Committee Passes Amended Federal Predatory Lending Bill. On November 6, the House Financial Services Committee passed the Mortgage Reform and Anti-Predatory Lending Act (H.R. 3915, covered in the October 26th issue of InfoBytes) by a vote of 45 to 19. Several provisions of the bill were significantly altered by a Manager’s Amendment proposed on November 5. The amended bill would (i) impose a duty of care and a duty to disclose on originators, (ii) require licensing and registration of loan originators if not provided for by states, (iii) prohibit yield spread premiums and other forms of incentive compensation, (iv) impose a “net tangible benefit” standard for refinancing of residential mortgage loans, (v) create an obligation to consider the borrower’s “reasonable” ability to repay, (vi) expand the availability of rescission as a remedy in civil actions, (vii) lower the thresholds for loans to be covered by the Home Ownership and Equity Protection Act (HOEPA), and numerous other provisions. On November 5, Rep. Spencer Bachus (R-AL) issued a memorandum announcing that he would support the manager’s amendment and encouraged his Republican colleagues to consider supporting it. The bill went to mark-up on November 6 and was amended several times before being passed. Committee Chairman Barney Frank (D-MA) announced that the bill will be scheduled for full House floor consideration on November 13 or 14. The Financial Service’s Committee press release, as well as links summaries of the amended bill, can be found at http://www.house.gov/apps/list/press/financialsvcs_dem/press110607.shtml. Details of the bill’s mark-up, as well as copies of amendments, can be found at http://www.house.gov/apps/list/speech/financialsvcs_dem/ht110607.shtml.
Overcharge Not Required for Injury Under RESPA. On October 11, a federal district court in California held that a plaintiff in a lawsuit alleging violations of RESPA’s anti-kickback provisions “need not have suffered an overcharge to invoke the protection of RESPA.” Edwards v. First American Corp., 2:07-cv-03796 (C.D. Cal. Oct. 11, 2007). The plaintiff sought to obtain title insurance in connection with a home purchase, and her settlement agent referred her to First American Title Insurance Corporation for that purpose. According to the plaintiff, First American violated RESPA by entering into agreements with various title agencies in which it paid large sums of money in exchange for exclusive referral arrangements with such title agencies. First American argued that the plaintiff did not suffer an injury and therefore lacked standing to bring the suit—as the cost of title insurance in Ohio is regulated so that all insurance providers charge the same price. After analyzing RESPA’s legislative history, the court concluded that, by amending RESPA’s damages provision to make violators liable for three times the amount of “any charge paid” for a settlement service, “Congress created a right to be free from referral-tainted settlement services.” Therefore, according to the court, if the plaintiff could prove her claim, a statutory injury fairly traceable to the defendants’ actions would exist despite the lack of an overcharge. For a copy of the opinion, please contact .
OFHEO Expresses Concern over NYAG Subpoenas of GSEs. On November 6, New York Attorney General (NYAG) Andrew Cuomo sent a subpoena to Fannie Mae and a subpoena to Freddie Mac, demanding they take steps to examine all appraisals supporting mortgages purchased from Washington Mutual, Inc. (WaMu) or cease purchasing or securitizing loans purchased from WaMu. This step comes in connection with complaints released last week by the NYAG accusing appraisal companies of inflating real estate appraisals for WaMu, allegedly at the lender’s request. Arguing that this practice may have harmed the government sponsored enterprises’ (GSEs) shareholders, and that some of these investors were New York residents or institutions, the NYAG claimed power to subpoena the federally-chartered and regulated GSEs under New York law. In the subpoenas, AG Cuomo notes that the GSEs “may also have an interest in inflating (or at least in not questioning) the value of the pooled loans… [because] the higher the value of the loans close, the greater the value for which the securities are sold on the secondary market.” On November 8, Office of Federal Housing Enterprise Oversight (OFHEO) Director James Lockhart III sent a letter expressing concern over these subpoenas to AG Cuomo. First, Director Lockhart noted that “you and your staff may not fully understand” that mortgage backed securities issued by the GSEs are also insured by them, and that the GSEs “retain the credit risk on the underlying mortgages” behind the securities they issue and have “no economic incentive to knowingly purchase and guarantee mortgages with inflated appraisals.” Director Lockhart then went on to express “disappointment” that the NYAG’s office did not contact OFHEO before or after issuing subpoenas to the GSEs, despite the fact that OFHEO is the federal safety and soundness regulator for the federally chartered companies. Further, Director Lockhart enumerated “some issues we believe need to be discussed” which included demands that the federally-regulated GSEs “cease doing business with a major federally-chartered bank” unless certain conditions are met. For the NYAG’s press release, please see http://www.oag.state.ny.us/press/2007/nov/nov7a_07.html.
Bernanke Calls for FHA Reform, Higher GSE Loan Caps. On November 8, in testimony before the Joint Economic Committee, Federal Reserve Board (FRB) Chairman Ben Bernanke, in a departure from custom, advocated specific mortgage and housing policy changes to help protect the broader economy from the effects of the housing and credit market downturn. In his opening remarks, Chairman Bernanke advocated the “modernization” of the Federal Housing Administration (FHA) to improve federal assistance to low- and moderate-income homebuyers. He advocated legislative action (i) raising the maximum size for loans eligible fore FHA mortgage insurance, (ii) improving FHA / private sector cooperation in aiding refinances to subprime borrowers facing rate resets, (iii) permit loans with variable maturities or shared appreciation, and (iv) risk-based insurance premium pricing. During questions, Chairman Bernanke went on to say that he would support a plan to raise the conforming loan limit, the maximum size for loans purchased by the GSEs, temporarily to $1,000,000. He also suggested that such loans could be insured, in exchange from premiums from the GSE, by the federal government which could “act as guarantor” for the loans. Senator Charles Schumer (D – NY), who has long advocated a rise in the conforming loan limits, said he would try to insert such measures into legislation already before the Congress. For a copy of Mr. Bernanke’s prepared remarks, please see http://www.federalreserve.gov/newsevents/testimony/bernanke20071108a.htm.
Texas Amends Constitutional Provisions Governing Home Equity Loans. On November 6, Texas voters voted to amend the Texas Constitution, through passage of Proposition 8, to clarify certain Constitutional provisions relating to the making of home equity loans and use of home equity loan proceeds. The provisions of Proposition 8 amend the Constitution to reflect the following: (i) whether property is designated for agricultural use, which makes the property ineligible to secure a home equity loan, is determined as of the date of the loan closing; (ii) the “application” that begins the 12-day waiting period before a home equity loan may close must be the “loan application”; (iii) in addition to receiving a final itemized disclosure of actual fees, points, interest, costs, and charges that will be charged at closing, the borrower must also receive a copy of the loan application at least one business day before the home equity loan may close; (iv) the one-year waiting period between home equity loans secured by the same homestead property may be waived at the borrower’s request in the case of a declared emergency applicable to the area where the homestead property securing the loans is located; (v) a borrower may sign a loan document that has blanks left to be filled in if the blanks do not relate to substantive terms of the home equity loan agreement; (vi) at the time the home equity loan is made, the borrower must receive a copy of the final loan application and all executed documents signed by the borrower at closing related to the loan, and those documents may be provided by a person other than the lender; and (vii) a borrower may not use an unsolicited preprinted check to obtain an advance on a home equity line of credit. To view text of the amendments, please see http://www.capitol.state.tx.us/tlodocs/80R/billtext/pdf/HJ00072F.pdf.
Motion Filed in FCRA Case Pending “Willfulness” Petition with Supreme Court. On October 26, Radian Guaranty filed a motion to stay proceedings with the U.S. District Court for the Eastern District of Pennsylvania, pending a response by the United States Supreme Court to Radian’s petition for certiorari on the issue of whether it could have willfully violated FCRA when it did not provide an adverse action notice to borrowers who accepted a loan with a higher-than-normal mortgage insurance rate. The case is on remand from the U.S. Court of Appeals for the Third Circuit, which held that FCRA requires a mortgage insurer to provide an adverse action notice when the rate charged for mortgage insurance is higher than the best available, and directed the district court to treat the question of whether the mortgage insurer violated FCRA willfully as a factual, rather than legal, question (reported in the August 30, 2007 issue of InfoBytes). FCRA provides for statutory damages of $100-$1,000 for willful violations but only actual damages for negligent violations. Radian is seeking certiorari on the basis of the U.S. Supreme Court’s holding in Safeco Insurance Co. of America v. Burr, 127 S. Ct. 2201 (2007) (reported in the June 4th InfoBytes Special Alert). In Safeco, the Supreme Court held that an insurance company’s interpretation that FCRA does not require an insurance company to send an adverse action notice to an initial applicant who is issued insurance at a higher rate than the best available, although wrong, was not “objectively unreasonable” at the time of the transaction, and, therefore, could not be “willful” under FCRA. Radian indicates in its motion to stay the Whitfield proceeding that it will argue before the Supreme Court that the Third Circuit’s holding in Whitfield is “irreconcilable” with Safeco because the Third Circuit held that willfulness was a factual question, while the Supreme Court held in Safeco that, at the time of the Safeco transaction, the violation of FCRA was not willful as a matter of law. This issue has implications beyond adverse action in insurance transactions because defendants in other FCRA actions have been arguing that they did not act willfully, based on the Safeco precedent. For a copy of the case please contact .
Court Addresses Applicability of RESPA, FCRA, and FDCPA to Investor Loan. On October 29, 2007, the U.S. District Court for the District of Nevada issued a ruling involving the applicability of the Fair Credit Reporting Act (FCRA), Real Estate Settlement Procedures Act (RESPA), and Fair Debt Collection Practices Act (FDCPA) to a transaction involving an investor in residential rental properties. Johnson v. Wells Fargo Home Mortgage, Inc., No. 3:05-CV-0321-RAM, 2007 WL 3226153, slip op. (D. Nev. Oct. 29, 2007). The investor claimed that the lender erroneously reported the plaintiff’s real property mortgage loans delinquent to the credit reporting agencies, which resulted in the investor being precluded from acquiring mortgage loans and refinancing existing loans, being forced to pay higher interest rates on mortgages and lines of credit, and having existing lines of credit reduced or cancelled. The court denied summary judgment to the lender on the FCRA claim. It agreed with the lender that the investor “may not recover under the FCRA for losses resulting from the use of a credit report obtained solely for a commercial transaction,” but noted that, although the lender reported the information in connection with commercial loans, the information could later appear reports in connection with applications for credit to be used for personal purposes. The court granted summary judgment for the lender on the RESPA claim, finding that, although the loans at issue were “federally related mortgage loans,” the fact that the loans were secured by rental properties that were never owner-occupied made them “business purpose loans,” which are exempt from RESPA. The court also granted summary judgment to the lender on the FDCPA claim, finding that, even though the plaintiff claimed his debts were for “retirement planning” and as such were consumer in nature, given that the plaintiff owned over one hundred properties in multiple states, and had never used the properties at issue as his personal residence or for any other personal, family, or household purpose, the debt was business in nature, and not consumer in nature. In addition, the court found that the defendant was a creditor, not a debt collector, under FDCPA, given that there were no allegations which would indicate that it was a third person collecting or attempting to collect a debt. The court also granted summary judgment to the lender on a state-law negligence claim, holding that FCRA (the only claim still in the case) preempted the plaintiff’s negligence claim because the plaintiff’s FCRA claims did not allege “willful” violations. For a copy of this opinion, please contact .
FTC, DOJ Reach Settlement with Lenders over Do Not Call Violations. On November 7, the Department of Justice (DOJ) announced that, acting at the request of the Federal Trade Commission (FTC), it had entered into settlement agreements incurring a combined total of $7.7 million in civil penalties over alleged violations of the National Do Not Call (DNC) Registry. Among the six companies were two mortgage lenders. One lender was accused of using third-party lead-generators who enticed consumers to provide their contact information. Reasoning that the consumers had sought out the lender, the FTC argued that the lender had not established a business relationship with consumers, and therefore could not legally contact them if they were on the DNC list. Under the settlement agreement, the lender is not allowed to initiate contact with potential customers found through lead generators unless the lead generator had, within the prior three months “clearly and conspicuously” notified the consumer (i) that they may be contacted by telephone by another party, (ii) of the maximum number of sellers who may call, and (iii), if possible, inform the consumer of the identity of the sellers who may call. For more information, please see the official FTC press release at http://www.ftc.gov/opa/2007/11/dncpress.shtm.
FACTA Red Flag Rules Published in the Federal Register. On November 9, the Federal Register published joint financial regulatory agency rule-making in connection with the Fair and Accurate Credit Transactions Act’s (FACTA’s) red flag and address discrepancy provisions. These rules were reported in the October 16th InfoBytes Special Alert. For the rules as published, please see http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/pdf/07-5453.pdf.
Credit Repair Organization’s Involvement in Credit Dispute Defeats Plaintiff's Class Action. A federal court in Philadelphia denied plaintiff’s motion for class certification, finding that, because a credit repair organization (CRO) prepared his dispute for him, he was not a proper representative plaintiff. Klotz v. Trans Union, LLC, No. 05-4580 (E.D. Pa. July 3, 2007). Plaintiff, by way of a letter prepared by a CRO, disputed certain items on his credit report. Trans Union allegedly refused to investigate whether those items were accurate, stating in a letter that it had no obligation to investigate disputes prepared by third parties and that, in its experience, CROs regularly disputed accurate information. Plaintiff brought a Fair Credit Reporting Act (FCRA) claim on behalf of himself and others who received a similar letter refusing to investigate. The court denied plaintiff’s motion, however, finding that because plaintiff had submitted the dispute through a CRO he would be subject to unique issues as to whether the dispute was submitted “directly” – as required by FCRA – and whether the dispute was presumptively frivolous. Accordingly, plaintiff's claims were not typical of the class claims, he was not an adequate representative of the class, and individual issues specific to plaintiff would predominate over class issues. The court also found that a class action was not a superior method for adjudicating plaintiff’s claims, in part for the reasons stated, but also because FCRA’s punitive damages and attorneys’ fees provisions for prevailing parties “dispel the notion that a class action is the only way to adjudicate the lawfulness of the defendant’s practices.” For a copy of this opinion, please contact .
New DoE Rule for Use of Electronically-Signed Student Loan Promissory Notes. On November 1, the U.S. Department of Education (DoE) published a final rule amending its regulations governing the Federal Perkins Loan and Federal Family Education Loan (FFEL) programs. 72 Fed. Reg. 61,960 (Nov. 1, 2007). Among the many changes made by the Final Rule are new regulations to support the DoE's efforts to enforce defaulted electronically-signed Perkins Loans or FFEL master promissory notes (MPNs) that are assigned to the Department. Current regulations do not include any requirements for institutions and lenders participating in these loan programs to create and maintain a record of their electronic signature process for promissory notes and MPNs. The Final Rule requires an institution to create and maintain a certification regarding the creation and maintenance of any electronically-signed loan or MPN. An institution or the holder of a loan must retain an original of an electronically-signed Perkins Loan or FFEL MPN (and all associated loan records) for three years after all loans on the MPN are satisfied. In addition, institutions that assigned a Perkins Loan or FFEL loans would be required to cooperate in all matters necessary to enforce an assigned loan that was electronically signed, including providing testimony to ensure the admission of electronic records in legal proceedings and providing the certification regarding the creation and maintenance of the electronically-signed promissory notes. Furthermore, institutions must respond to requests for information from the DoE within ten business days. The regulations are effective July 1, 2008. Text of the regulation can be found at http://www.ed.gov/legislation/FedRegister/finrule/2007-4/110107a.html.
Court Approves FACTA Settlement for 8% of Minimum Damages. On October 23, a federal district court approved a settlement in a Fair and Accurate Credit Transaction Act (FACTA) credit card truncation class action suit in which class members only received $8 in “discount-from-purchase certificates,” despite the statute’s minimum $100-per-wilfull-violation penalty. Klingensmith v. Max & Erma’s Restaurants, Inc., No. 7-0318 2007 WL 3118505 (W.D. Pa. Oct. 23, 2007). The suit alleged failure to redact credit card expiration dates and all but five digits of the card number from transaction receipts for a class estimated to be as large as 225,000. For each violation found to be “willful” under the Fair Credit Reporting Act (FCRA, which FACTA amends), the statute provides for damages of not less than $100 and not more than $1,000 (15 U.S.C. § 1681(n)(a)). According to the court, after examining the facts of the case, the plaintiff’s counsel found that the defendant’s “non-compliance presented significantly credible and persuasive evidence that [the] violations were not willful” and were therefore could not be remedied with statutory damages. The plaintiff, therefore, agreed to a negotiated settlement requiring the defendant (i) enter into a Consent Decree to remain compliant with FACTA, (ii) disseminate 225,000 "vouchers" consisting of two $4.00 “discount-from-purchase certificates,” (iii) provide 500 additional vouchers to charity, (iv) pay the class representative an “incentive award” of $2,500, and (v) pay $110,000 in attorneys’ fees. Note that this follows a ruling by the Seventh Circuit in Murray v. GMAC that it would reject a settlement under FCRA providing class members with only 1% of minimum damages (reported in the January 20, 2006 issue of InfoBytes). For a copy of the opinion in Klingensmith, please contact .
Texas Amends Constitutional Provisions Governing Home Equity Loans. On November 6, Texas voters voted to amend the Texas Constitution, through passage of Proposition 8, to clarify certain Constitutional provisions relating to the making of home equity loans and use of home equity loan proceeds. The provisions of Proposition 8 amend the Constitution to reflect the following: (i) whether property is designated for agricultural use, which makes the property ineligible to secure a home equity loan, is determined as of the date of the loan closing; (ii) the “application” that begins the 12-day waiting period before a home equity loan may close must be the “loan application”; (iii) in addition to receiving a final itemized disclosure of actual fees, points, interest, costs, and charges that will be charged at closing, the borrower must also receive a copy of the loan application at least one business day before the home equity loan may close; (iv) the one-year waiting period between home equity loans secured by the same homestead property may be waived at the borrower’s request in the case of a declared emergency applicable to the area where the homestead property securing the loans is located; (v) a borrower may sign a loan document that has blanks left to be filled in if the blanks do not relate to substantive terms of the home equity loan agreement; (vi) at the time the home equity loan is made, the borrower must receive a copy of the final loan application and all executed documents signed by the borrower at closing related to the loan, and those documents may be provided by a person other than the lender; and (vii) a borrower may not use an unsolicited preprinted check to obtain an advance on a home equity line of credit. To view text of the amendments, please see http://www.capitol.state.tx.us/tlodocs/80R/billtext/pdf/HJ00072F.pdf.
Overcharge Not Required for Injury Under RESPA. On October 11, a federal district court in California held that a plaintiff in a lawsuit alleging violations of RESPA’s anti-kickback provisions “need not have suffered an overcharge to invoke the protection of RESPA.” Edwards v. First American Corp., 2:07-cv-03796 (C.D. Cal. Oct. 11, 2007). The plaintiff sought to obtain title insurance in connection with a home purchase, and her settlement agent referred her to First American Title Insurance Corporation for that purpose. According to the plaintiff, First American violated RESPA by entering into agreements with various title agencies in which it paid large sums of money in exchange for exclusive referral arrangements with such title agencies. First American argued that the plaintiff did not suffer an injury and therefore lacked standing to bring the suit—as the cost of title insurance in Ohio is regulated so that all insurance providers charge the same price. After analyzing RESPA’s legislative history, the court concluded that, by amending RESPA’s damages provision to make violators liable for three times the amount of “any charge paid” for a settlement service, “Congress created a right to be free from referral-tainted settlement services.” Therefore, according to the court, if the plaintiff could prove her claim, a statutory injury fairly traceable to the defendants’ actions would exist despite the lack of an overcharge. For a copy of the opinion, please contact .
Motion Filed in FCRA Case Pending “Willfulness” Petition with Supreme Court. On October 26, Radian Guaranty filed a motion to stay proceedings with the U.S. District Court for the Eastern District of Pennsylvania, pending a response by the United States Supreme Court to Radian’s petition for certiorari on the issue of whether it could have willfully violated FCRA when it did not provide an adverse action notice to borrowers who accepted a loan with a higher-than-normal mortgage insurance rate. The case is on remand from the U.S. Court of Appeals for the Third Circuit, which held that FCRA requires a mortgage insurer to provide an adverse action notice when the rate charged for mortgage insurance is higher than the best available, and directed the district court to treat the question of whether the mortgage insurer violated FCRA willfully as a factual, rather than legal, question (reported in the August 30, 2007 issue of InfoBytes). FCRA provides for statutory damages of $100-$1,000 for willful violations but only actual damages for negligent violations. Radian is seeking certiorari on the basis of the U.S. Supreme Court’s holding in Safeco Insurance Co. of America v. Burr, 127 S. Ct. 2201 (2007) (reported in the June 4th InfoBytes Special Alert). In Safeco, the Supreme Court held that an insurance company’s interpretation that FCRA does not require an insurance company to send an adverse action notice to an initial applicant who is issued insurance at a higher rate than the best available, although wrong, was not “objectively unreasonable” at the time of the transaction, and, therefore, could not be “willful” under FCRA. Radian indicates in its motion to stay the Whitfield proceeding that it will argue before the Supreme Court that the Third Circuit’s holding in Whitfield is “irreconcilable” with Safeco because the Third Circuit held that willfulness was a factual question, while the Supreme Court held in Safeco that, at the time of the Safeco transaction, the violation of FCRA was not willful as a matter of law. This issue has implications beyond adverse action in insurance transactions because defendants in other FCRA actions have been arguing that they did not act willfully, based on the Safeco precedent. For a copy of the case please contact .
Credit Repair Organization’s Involvement in Credit Dispute Defeats Plaintiff's Class Action. A federal court in Philadelphia denied plaintiff’s motion for class certification, finding that, because a credit repair organization (CRO) prepared his dispute for him, he was not a proper representative plaintiff. Klotz v. Trans Union, LLC, No. 05-4580 (E.D. Pa. July 3, 2007). Plaintiff, by way of a letter prepared by a CRO, disputed certain items on his credit report. Trans Union allegedly refused to investigate whether those items were accurate, stating in a letter that it had no obligation to investigate disputes prepared by third parties and that, in its experience, CROs regularly disputed accurate information. Plaintiff brought a Fair Credit Reporting Act (FCRA) claim on behalf of himself and others who received a similar letter refusing to investigate. The court denied plaintiff’s motion, however, finding that because plaintiff had submitted the dispute through a CRO he would be subject to unique issues as to whether the dispute was submitted “directly” – as required by FCRA – and whether the dispute was presumptively frivolous. Accordingly, plaintiff's claims were not typical of the class claims, he was not an adequate representative of the class, and individual issues specific to plaintiff would predominate over class issues. The court also found that a class action was not a superior method for adjudicating plaintiff’s claims, in part for the reasons stated, but also because FCRA’s punitive damages and attorneys’ fees provisions for prevailing parties “dispel the notion that a class action is the only way to adjudicate the lawfulness of the defendant’s practices.” For a copy of this opinion, please contact .
Court Addresses Applicability of RESPA, FCRA, and FDCPA to Investor Loan. On October 29, 2007, the U.S. District Court for the District of Nevada issued a ruling involving the applicability of the Fair Credit Reporting Act (FCRA), Real Estate Settlement Procedures Act (RESPA), and Fair Debt Collection Practices Act (FDCPA) to a transaction involving an investor in residential rental properties. Johnson v. Wells Fargo Home Mortgage, Inc., No. 3:05-CV-0321-RAM, 2007 WL 3226153, slip op. (D. Nev. Oct. 29, 2007). The investor claimed that the lender erroneously reported the plaintiff’s real property mortgage loans delinquent to the credit reporting agencies, which resulted in the investor being precluded from acquiring mortgage loans and refinancing existing loans, being forced to pay higher interest rates on mortgages and lines of credit, and having existing lines of credit reduced or cancelled. The court denied summary judgment to the lender on the FCRA claim. It agreed with the lender that the investor “may not recover under the FCRA for losses resulting from the use of a credit report obtained solely for a commercial transaction,” but noted that, although the lender reported the information in connection with commercial loans, the information could later appear reports in connection with applications for credit to be used for personal purposes. The court granted summary judgment for the lender on the RESPA claim, finding that, although the loans at issue were “federally related mortgage loans,” the fact that the loans were secured by rental properties that were never owner-occupied made them “business purpose loans,” which are exempt from RESPA. The court also granted summary judgment to the lender on the FDCPA claim, finding that, even though the plaintiff claimed his debts were for “retirement planning” and as such were consumer in nature, given that the plaintiff owned over one hundred properties in multiple states, and had never used the properties at issue as his personal residence or for any other personal, family, or household purpose, the debt was business in nature, and not consumer in nature. In addition, the court found that the defendant was a creditor, not a debt collector, under FDCPA, given that there were no allegations which would indicate that it was a third person collecting or attempting to collect a debt. The court also granted summary judgment to the lender on a state-law negligence claim, holding that FCRA (the only claim still in the case) preempted the plaintiff’s negligence claim because the plaintiff’s FCRA claims did not allege “willful” violations. For a copy of this opinion, please contact .
Court Approves FACTA Settlement for 8% of Minimum Damages. On October 23, a federal district court approved a settlement in a Fair and Accurate Credit Transaction Act (FACTA) credit card truncation class action suit in which class members only received $8 in “discount-from-purchase certificates,” despite the statute’s minimum $100-per-wilfull-violation penalty. Klingensmith v. Max & Erma’s Restaurants, Inc., No. 7-0318 2007 WL 3118505 (W.D. Pa. Oct. 23, 2007). The suit alleged failure to redact credit card expiration dates and all but five digits of the card number from transaction receipts for a class estimated to be as large as 225,000. For each violation found to be “willful” under the Fair Credit Reporting Act (FCRA, which FACTA amends), the statute provides for damages of not less than $100 and not more than $1,000 (15 U.S.C. § 1681(n)(a)). According to the court, after examining the facts of the case, the plaintiff’s counsel found that the defendant’s “non-compliance presented significantly credible and persuasive evidence that [the] violations were not willful” and were therefore could not be remedied with statutory damages. The plaintiff, therefore, agreed to a negotiated settlement requiring the defendant (i) enter into a Consent Decree to remain compliant with FACTA, (ii) disseminate 225,000 "vouchers" consisting of two $4.00 “discount-from-purchase certificates,” (iii) provide 500 additional vouchers to charity, (iv) pay the class representative an “incentive award” of $2,500, and (v) pay $110,000 in attorneys’ fees. Note that this follows a ruling by the Seventh Circuit in Murray v. GMAC that it would reject a settlement under FCRA providing class members with only 1% of minimum damages (reported in the January 20, 2006 issue of InfoBytes). For a copy of the opinion in Klingensmith, please contact .
New DoE Rule for Use of Electronically-Signed Student Loan Promissory Notes. On November 1, the U.S. Department of Education (DoE) published a final rule amending its regulations governing the Federal Perkins Loan and Federal Family Education Loan (FFEL) programs. 72 Fed. Reg. 61,960 (Nov. 1, 2007). Among the many changes made by the Final Rule are new regulations to support the DoE's efforts to enforce defaulted electronically-signed Perkins Loans or FFEL master promissory notes (MPNs) that are assigned to the Department. Current regulations do not include any requirements for institutions and lenders participating in these loan programs to create and maintain a record of their electronic signature process for promissory notes and MPNs. The Final Rule requires an institution to create and maintain a certification regarding the creation and maintenance of any electronically-signed loan or MPN. An institution or the holder of a loan must retain an original of an electronically-signed Perkins Loan or FFEL MPN (and all associated loan records) for three years after all loans on the MPN are satisfied. In addition, institutions that assigned a Perkins Loan or FFEL loans would be required to cooperate in all matters necessary to enforce an assigned loan that was electronically signed, including providing testimony to ensure the admission of electronic records in legal proceedings and providing the certification regarding the creation and maintenance of the electronically-signed promissory notes. Furthermore, institutions must respond to requests for information from the DoE within ten business days. The regulations are effective July 1, 2008. Text of the regulation can be found at http://www.ed.gov/legislation/FedRegister/finrule/2007-4/110107a.html.
FTC, DOJ Reach Settlement with Lenders over Do Not Call Violations. On November 7, the Department of Justice (DOJ) announced that, acting at the request of the Federal Trade Commission (FTC), it had entered into settlement agreements incurring a combined total of $7.7 million in civil penalties over alleged violations of the National Do Not Call (DNC) Registry. Among the six companies were two mortgage lenders. One lender was accused of using third-party lead-generators who enticed consumers to provide their contact information. Reasoning that the consumers had sought out the lender, the FTC argued that the lender had not established a business relationship with consumers, and therefore could not legally contact them if they were on the DNC list. Under the settlement agreement, the lender is not allowed to initiate contact with potential customers found through lead generators unless the lead generator had, within the prior three months “clearly and conspicuously” notified the consumer (i) that they may be contacted by telephone by another party, (ii) of the maximum number of sellers who may call, and (iii), if possible, inform the consumer of the identity of the sellers who may call. For more information, please see the official FTC press release at http://www.ftc.gov/opa/2007/11/dncpress.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.
FTC, DOJ Reach Settlement with Lenders over Do Not Call Violations. On November 7, the Department of Justice (DOJ) announced that, acting at the request of the Federal Trade Commission (FTC), it had entered into settlement agreements incurring a combined total of $7.7 million in civil penalties over alleged violations of the National Do Not Call (DNC) Registry. Among the six companies were two mortgage lenders. One lender was accused of using third-party lead-generators who enticed consumers to provide their contact information. Reasoning that the consumers had sought out the lender, the FTC argued that the lender had not established a business relationship with consumers, and therefore could not legally contact them if they were on the DNC list. Under the settlement agreement, the lender is not allowed to initiate contact with potential customers found through lead generators unless the lead generator had, within the prior three months “clearly and conspicuously” notified the consumer (i) that they may be contacted by telephone by another party, (ii) of the maximum number of sellers who may call, and (iii), if possible, inform the consumer of the identity of the sellers who may call. For more information, please see the official FTC press release at http://www.ftc.gov/opa/2007/11/dncpress.shtm.
Court Approves FACTA Settlement for 8% of Minimum Damages. On October 23, a federal district court approved a settlement in a Fair and Accurate Credit Transaction Act (FACTA) credit card truncation class action suit in which class members only received $8 in “discount-from-purchase certificates,” despite the statute’s minimum $100-per-wilfull-violation penalty. Klingensmith v. Max & Erma’s Restaurants, Inc., No. 7-0318 2007 WL 3118505 (W.D. Pa. Oct. 23, 2007). The suit alleged failure to redact credit card expiration dates and all but five digits of the card number from transaction receipts for a class estimated to be as large as 225,000. For each violation found to be “willful” under the Fair Credit Reporting Act (FCRA, which FACTA amends), the statute provides for damages of not less than $100 and not more than $1,000 (15 U.S.C. § 1681(n)(a)). According to the court, after examining the facts of the case, the plaintiff’s counsel found that the defendant’s “non-compliance presented significantly credible and persuasive evidence that [the] violations were not willful” and were therefore could not be remedied with statutory damages. The plaintiff, therefore, agreed to a negotiated settlement requiring the defendant (i) enter into a Consent Decree to remain compliant with FACTA, (ii) disseminate 225,000 "vouchers" consisting of two $4.00 “discount-from-purchase certificates,” (iii) provide 500 additional vouchers to charity, (iv) pay the class representative an “incentive award” of $2,500, and (v) pay $110,000 in attorneys’ fees. Note that this follows a ruling by the Seventh Circuit in Murray v. GMAC that it would reject a settlement under FCRA providing class members with only 1% of minimum damages (reported in the January 20, 2006 issue of InfoBytes). For a copy of the opinion in Klingensmith, 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.
© Buckley Kolar, LLP 2005. INFOBYTES is not intended as legal advice to any person or firm. It is provided as a client service and information contained herein is drawn from various public sources, including other publications.
We welcome reader comments and suggestions regarding issues or items of interest to be covered in future editions of InfoBytes. Email:
For back issues of INFOBYTES (or other Buckley Kolar LLP publications), visit http://www.buckleykolar.com/publications.
Copyright © 2008 Buckley Kolar LLP. All rights reserved