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InfoBytes

CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

FEDERAL ISSUES

Federal Banking Agencies Issue Final CRE Guidance.  On December 6, three federal banking agencies (the FDIC, the Federal Reserve, and the OCC) issued final guidance on commercial real estate (CRE) concentration risk management outlining how such concentrations can be identified and managed.  Last January, the agencies issued proposed guidance on the topic that would have imposed heightened risk management policies for banks holding CRE loans relative to capital, beyond specific thresholds (see the January 13th issue of InfoBytes).  Among many changes from the proposed guidance, the final guidance states that institutions exceeding these thresholds “may be identified for further supervisory analysis,” rather than requiring them to implement “heightened risk management practices.”  To view the guidance, see http://www.fdic.gov/news/news/press/2006/pr06114a.html.

Countrywide Enters Into Fair Lending Agreement With New York Attorney General.  On December 5, Countrywide Home Loans, Inc. announced that it had entered into an agreement with the New York Attorney General (NYAG) regarding fair lending.  As part of the agreement, Countrywide will develop a comprehensive Consumer Education Program (CEP) that will inform consumers, at no cost, about the home buying and mortgage application process.  The CEP will focus on minority communities in New York, and will include seminars in communities with significant minority populations, bi-lingual printed materials, and a no-cost telephone counseling service.  The CEP will not involve the promotion or sale of Countrywide’s own products.  The agreement also provides for monitoring and analysis of discretionary pricing models to prevent pricing disparities based on race or ethnicity.  A copy of Countrywide’s press release is available at http://about.countrywide.com/PressRelease/PressRelease.aspx?rid=939285.  A copy of the agreement is available at http://www.oag.state.ny.us/press/2006/dec/Countrywide%20Assurance%20 Final%20Signed%20PDF.pdf. 

Frank, Gillmor, and 105 Other Congressmen Call for Extension of the ILC Freeze.  On December 7, Rep. Barney Frank (D – Mass.), Rep. Paul Gillmor (R – Ohio), and 105 other members of Congress sent a joint letter to the FDIC calling for an extension of the moratorium on applications for insurance by industrial loan companies (ILCs) currently set to end January 31, 2007 (first reported in the July 28th edition of InfoBytes).  The letter, as had been speculated (see the November 3rd edition of InfoBytes), calls for an extension of “at least an additional six months” in order to give Congress “an opportunity to act on this important public policy issue.”  Rep. Frank will take over the chairmanship of the House Committee on Financial Services in the next session.  A copy of the letter can be found at http://www.house.gov/banking_democrats/FDICILCMoratorium2ndLetter120706.pdf.

Spitzer Forces Four Insurers to End Contingent Commissions to Agents and Brokers. New York Attorney General Eliot Spitzer has notified four large insurance companies that they can no longer provide contingent commissions to agents and brokers that sell consumer insurance products, including automobile and homeowners policies. The four insurers—ACE, AIG, St. Paul Travelers, and Zurich—entered into settlement agreements earlier this year to resolve charges of bid rigging and other alleged conduct related to contingent commissions. The AG’s investigation began in 2004 and found that the insurers were paying commissions to agents and brokers, resulting in brokers and agents encouraging consumers to purchase excess insurance. The terms of the settlement call for the insurers to alter their compensation structure for brokers and agents for any type of insurance where more than 65% of the insurance is sold by companies that do not pay contingent commissions. More information about the settlement is available at http://www.oag.state.ny.us/press/2006/nov/nov30a_06.html.

FRB Releases Interim Rule Revising Regulation O.  On December 6, the Federal Reserve Board (FRB) announced an interim rule implementing section 601 of the Financial Services Regulatory Relief Act of 2006 passed this September (see the October 6th issue of InfoBytes for more details).  The proposed rule would reduce disclosure requirements in connection with Regulation O.  For more details, see http://www.federalreserve.gov/boarddocs/press/bcreg/2006/200612062/default.htm.

Survey Finds Corporate Counsel Not Prepared for New Electronic Discovery Rules.  A survey conducted by LexisNexis at the October meeting of the Association of Corporate Counsel found that only seven percent of corporate attorneys consider their companies prepared for the changes to civil litigation and discovery that created by recent amendments to the Federal Rules of Civil Procedure.  The new rules, which went into effect on December 1, cover the treatment of electronically stored information during discovery and the early stages of litigation (more detail can be found in the InfoBytes’ December 7th Special Alert).  Please contact for more information about the survey. 

Defense Department Requests Comments on Extension of Consumer Credit Section of Defense Bill.  The Department of Defense (DOD) issued a notice in the Federal Register requesting comment on a new provision restricting certain terms in the extension of credit to Service members and their dependents implemented in the John Warner National Defense Authorization Act for Fiscal Year 2007.  As reported in the October 20th edition of InfoBytes, this section imposes a 36% annual percentage rate (APR) usury limit and other restrictions on consumer credit (except for residential mortgages and secured purchase-money loans for cars and other personal property) extended to members of the military, reserves, and National Guard on full-time active duty, as well as their dependents.  The DOD notice specifically requests comment to "ensure the protections included in the statute do not create unintended limitations on Service members and their families obtaining favorable credit products."  Comments are due February 5, 2007.  See Pub. L. No. 109-364, Section 670 for the text of the statute, and the October 20 issue of InfoBytes for an expanded article on the potential effects of the provision.

FDIC Releases Basel “1-A” Proposal and Extends Basel “II” Comment Period.  On December 5, the Federal Deposit Insurance Corporation (FDIC) announced a proposed rule for a capital reserve requirement alternative to the proposed Basel II system (see the September 8th issue of InfoBytes), which would be available to “all banks except the largest and most complex.”  Among other differences, the alternative system would refine the existing risk weighting scheme, but would not require internal models as complex as those of Basel II.  The comment period for Basel II has been extended to end at the same time as that of Basel 1-A, which will close 90 days after the announcement of the proposed rule is published in the Federal Register.  For more information, see http://www.fdic.gov/news/news/press/2006/pr06112.html. 

Frank Proposes FHA Risk-Based Rates and Higher Insurance Limits.  In public remarks made November 29, Rep. Barney Frank (D – Mass.) proposed lifting FHA lending limits to finance risk-based premiums.  Rep. Frank, who will become chairman of the House Financial Services Committee in the coming session, also expressed his interest in enacting federal anti-predatory lending legislation.

COURTS

U.S. District Court Suggests That “Firm Offer” Need Not Specify Minimum Credit Line.  In Forrest v. Universal Savings Bank F.A., No. 06-C-445, 2006 WL 3486913 (E.D. Wis. Dec. 1, 2006), a bank sent a solicitation offering a credit card.  The letter stated that the consumer would be eligible for a free computer if she transferred $5,000 of qualifying balances to the card and maintained a balance of $3,500 for at least eighteen months.  The letter also stated that the consumer was eligible for a credit line of up to $15,000 and that the card’s features included no annual fee and a 10.99% variable APR.  The U.S. magistrate judge hearing the case stated that a FCRA “firm offer” does not require that any minimum credit amount be stated in the initial mailer and that the offer of credit “had value as an extension of credit,” and was not simply an attempt to sell the computer by collecting fees on the credit-card account.  The impact of the court’s opinion may be diminished, however, because the court also noted that, based on the mention of the $5,000 balance transfer, “a consumer could reasonably infer that $5,000 was the minimum amount Universal was offering,” which arguably conflicts with the court’s statement that FCRA does not require a statement of the minimum amount.  Please contact for a copy of the opinion.

Listing Amount Past Due Without Listing Total Balance Comports With FDCPA.  In a recent case alleging Fair Debt Collection Practices Act (FDCPA) violations, the defendant debt collector was awarded summary judgment.  In Barnes v. Advanced Call Center Technologies, LLC, No. 05-CV-774 (E.D. Wisc.), plaintiffs sued the debt collector – which was collecting outstanding credit card debt – alleging that the description of the amount of the debt and a statement that collection activity would cease upon payment of that amount were deceptive.  While the collection notice referred to the amount past due, plaintiffs argued that the notice should have referred to the total balance owed.  The Court disagreed, finding that the reference to the amount past due to the exclusion of the total amount owed was exactly what the FDCPA required.  Indeed, plaintiffs’ approach would have been more likely to confuse a debtor as to what was the actual amount past due.  Plaintiffs next argued that the statement that collection activity would cease upon payment of the amount past due was deceptive because of the remaining obligation to pay the total balance owed.  The Court found this argument no more persuasive than the first, holding the statement to be entirely true.  Plaintiffs may have remained obligated to pay the entire amount of their debts, but the remaining obligation was not the subject of the present collection activity, nor was such collection activity inevitable.  As Judge Goodstein summarized, “[t]he mere possibility of a future default and collection activity resuming does not affect the truth of the statement that collection activity would stop upon the payment of the current amount due.”  For a copy of this decision, please contact .

CAMCO Pays $1 Million to Settle Charges with FTC Over Debt Collection Practices.  On December 5, 2006 the FTC announced that Capital Acquisitions and Management Corp. (CAMCO) and affiliates will pay $1 Million to the FTC to settle charges that their collection practices violated federal law.  The company also will be barred from engaging in any future debt collection activities.  CAMCO allegedly threatened and harassed thousands of consumers to get them to pay old, unenforceable debts or debts they did not owe.  Importantly, the FTC did not allege that collecting time-barred debts by itself violates the FDCPA (see the December 10, 2004 issue of InfoBytes for more details).  More information may be obtained at: http://www.ftc.gov/opa/2006/12/camco.htm. 

FTC Approves Final Consent Orders in Real Estate Competition Cases.  The Federal Trade Commission (FTC) has approved final consent orders in the following cases involving alleged anticompetitive real estate practices (i) Williamsburg Area Association of Realtors, Inc., (ii) Monmouth County Association of Realtors, (iii) Northern New England Real Estate Network, Inc., (iv) Realtors Association of Northeast Wisconsin, Inc., and (v) Information and Real Estate Services, LLC.  As reported in the October 13, 2006 edition of InfoBytes, the foregoing real estate groups allegedly adopted rules or policies blocking nontraditional, less-than-full-service listings from being transmitted by MLSs to popular real estate websites.  The final consent orders can be found at http://www.ftc.gov/opa/2006/12/fyi0677.htm.         

ChoicePoint Data Security Breach Does Not Violate FCRA.  The U.S. District Court for the Central District of California recently dismissed a class action arising from a data breach suit.  Harrington v. ChoicePoint Inc., CV 05-01294 MRP (C.D. Cal. Oct. 11, 2006).  In this case, the plaintiffs alleged that defendant had, among other things, violated the Fair Credit Reporting Act (FCRA) when criminals gained access to its service.  Ruling on defendant’s motion to dismiss, the court held that FCRA was not violated because: 1) the information was not “communicated” to another party (i.e., the criminals); and 2) the information accessed by the criminals did not meet the seven-point “content” test for classification as a “consumer report” under FCRA.  Please contact to obtain a copy of the Court’s decision.

CAN-SPAM Act Preempts Oklahoma Anti-Spam Act, Does Not Prohibit E-mails Containing “Immaterial Errors.”  The U.S. Court of Appeals for the Fourth Circuit recently examined Oklahoma’s anti-spam statute and determined that it was preempted by the CAN-SPAM Act to the extent that it prohibits erroneous, but not materially false or misleading, e-mails.  Omega World Travel, Inc. v. Mummagraphics, Inc., No. 05-2080 (4th Cir. Nov. 17, 2006).  The plaintiff, Mummagraphics, alleged that Omega World Travel violated Oklahoma’s anti-spam statute that prohibits, among other things, e-mails containing “false, malicious, or misleading information which purposely or negligently injures a person.”  Although it did not precisely interpret the Oklahoma statute, the court found that the claims regarding “immaterial errors” were preempted.  Moreover, the court held that the defendant did not violate CAN-SPAM, even though it sent unsolicited commercial e-mail messages that contained a non-functional e-mail address in the “From” header line, because the inaccuracies did “not make the headers ‘materially false or materially misleading.’”  To obtain a copy of the opinion, go to http://pacer.ca4.uscourts.gov/opinion.pdf/052080.P.pdf.

STATE ISSUES

Maine Office of Consumer Credit Regulation Issues Predatory Lending Report and Recommends Changes in Mortgage Law. On December 8, Director of Consumer Credit William N. Lund announced that the Office of Consumer Credit Regulation (OCCR) will recommend changes to Maine lending law to protect consumers from predatory loans.  In a report entitled “Legislative Proposals to Address Predatory Lending Practices in Maine,” the OCCR recommends redefining the term “high-rate, high-fee loan” to include any loan whose total fees and points exceeds 5% of the amount financed. Under current law, consumer protections applicable to high-rate loans are not triggered until points and fees exceed 8%.  The proposed consumer protections include caps on late fees, required consideration of borrowers’ repayment abilities, and prepayment penalty limits.  The report also recommends, among other things, prohibitions on assisting consumers to falsify information on loan applications, increased regulation of “rate locks,” and requirements that lenders use good-faith efforts to close loans before lock-ins expire.  A bill implementing the recommendations accompanied the report and will likely be considered by the Maine legislature in 2007.  Both the report and the proposed bill are posted on OCCR’s website, www.Credit.Maine.gov. For the press release on this issue, see http://www.maine.gov/tools/whatsnew/index.php?topic=CCR-PressReleases&id=26818&v=Default.

Pennsylvania Governor Signs Bills to Limit SSN Disclosure and Allow Credit Freezes.  On November 29, 2006, the Governor of Pennsylvania signed into law the Social Security Privacy Act (H.B. 2134) and the Credit Reporting Agency Law (S.B. 180).  H.B. 2134 will allow individuals to decline to provide their social security number when seeking a professional, occupational or recreational license from the state of Pennsylvania.  As a substitute, the individual may provide their driver’s license number or non-driver’s identification number in lieu of their social security number.  S.B. 180 will permit consumers to request that a security freeze be placed on their credit report for up to seven years.  While the security freeze is active, the credit reporting agency may not release the consumer’s credit report without prior authorization from the individual.  After receipt of a request to freeze an account, the credit reporting agency will have five days to place the security freeze, and 10 days to issue an identification number to the consumer.

For the full text of H.B. 2134 and S.B. 180 please see http://www.legis.state.pa.us/cfdocs/billinfo/billinfo.cfm?syear=2005&sind=0&body= S&type=B&BN=0180 and http://www.legis.state.pa.us/cfdocs/billinfo/billinfo.cfm?syear=2005&sind=0&body= H&type=B&BN=2134.

MISCELLANY

FTC Issues Second Interim FACTA Report.  On December 5, the Federal Trade Commission (FTC) released an interim report setting forth the findings of a pilot study into the accuracy of credit report information.  The report – the second of five interim reports required by the Fair and Accurate Credit Transactions Act (FACTA) – also proposed a follow up study to address certain methodological problems with the first study.  The pilot study, described in the first interim report, selected 30 consumers who worked with credit experts to identify and correct “non-trivial” mistakes in their credit reports.  The report identified consumer follow through with the dispute process as a major hurdle to developing a comprehensive program to enhance credit report accuracy.  Moreover, the report noted that a future study would require the participation of consumers with a wider range of credit scores, acknowledging that the consumers selected for the first study possessed relatively high credit scores.  Through these studies, the FTC holes to develop a workable nationwide survey of credit reports to identify and correct credit report errors.  For more information, see http://www.ftc.gov/opa/2006/12/fyi0679.htm.

FDIC Issues for Comment Guidelines on Small-Dollar Loan Products.  The Federal Deposit Insurance Corporation (FDIC) has issued draft guidelines encouraging banks to offer small-dollar loan products. The guidelines seek to raise awareness among state non-member banks that some institutions have found ways to offer small-dollar loans products in a cost-effective manner that are still responsive to customer needs.  Banks are encouraged to offer products with “affordable, reasonable interest rate with no or low fees; payments that pay down the principal balance of the loan; and a savings component incorporated into the loans.”  The guidance suggests that an institution providing these loans in a manner consistent with the guidelines may receive favorable consideration under the Community Reinvestment Act (CRA).  Comments on the guidelines will be accepted for a time period of 60 days.  For the full text of the guidelines see http://www.fdic.gov/news/news/press/2006/pr06107a.html.

FinCEN Report Finds SARs Related to Commercial Real Estate on the Rise.  On December 5, the Financial Crimes Enforcement Network (FinCEN) released a report documenting a significant rise in Suspicious Activity Reports (SARs) associated with Commercial Real Estate transactions.  The increase, beginning in 2003, “closely tracks similar trends” found by FinCEN in residential mortgage fraud.  To view the report, go to http://www.fincen.gov/LaunderingCRE.html.

HUD Releases Performance And Accountability Report.  The Department of Housing and Urban Development (HUD) issued its Performance and Accountability Report for 2006, including information about HUD’s management, performance and finances.  Among other things, the Report describes and analyzes HUD’s efforts to increase homeownership opportunities, presenting data on homebuyers and home purchasing incentive programs (Goal H).  The Report also describes HUD’s experience responding to consumer RESPA complaints (Objective H3) and “fight[ing] practices that permit predatory lending” (Objective H4).  A copy of the Performance and Accountability Report (2006) can be found at http://www.hud.gov/offices/cfo/reports/2006/2006par.pdf.

FIRM NEWS

Thank you to all who participated in today's web-based seminar, "Defending Fair Lending Allegations," hosted by Buckley Kolar.  The webinar was moderated by Dr. Ann Schnare of Corporate Risk Advisors LLC and presented by Joseph Lynyak of Buckley Kolar and Dr. Timothy Savage of ERS Group.  The presentation slides and related documents are available on our website at http://www.buckleykolar.com/publications/. 

 

Jeff Naimon spoke on a panel entitled "Compliance, Due Diligence & Quality Assurance" at the SourceMedia Secondary Market Conference in New York City on December 6.  For more information about this conference, see http://www.sourcemediaconferences.com/conferences/SMC06/index.html. 

 

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© Buckley Kolar, LLP 2006. 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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