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InfoBytes

CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

July 14, 2006

FEDERAL ISSUES

FTC Charges Realtors' Organization with Anti-Competitive Internet Practices. On July 13, the Federal Trade Commission (FTC) charged that the Austin Board of Realtors (ABOR) violated federal antitrust laws by allegedly preventing non-traditional Multiple Listing Service (MLS) listings from being transmitted to certain publicly-available websites, such as “Realtor.com.” According to the FTC, Exclusive Agency Listings (EALs)—which allow a property owner to purchase only a portion of a brokerage's services at discount rates—were blocked from public websites pursuant to an ABOR rule adopted in February 2005. The FTC alleges excluding real estate brokers offering unbundled, discount services in central Texas constitutes an unlawful restraint on competition under Section 5 of the FTC Act. The FTC has issued a proposed consent order requiring access to public websites for EALs and other lawful listing agreements, and cooperation with brokers who offer or accept them. The order will be available for public comment until August 11, 2006, after which the FTC will vote on whether to make the order final. For the FTC press release, see http://www.ftc.gov/opa/2006/07/austinboard.htm. For a copy of the consent order and other relevant information, see http://www.ftc.gov/os/caselist/0510219/0510219.htm.

HUD Announces Increased Emergency Funding for Louisiana and Mississippi. On July 10, Housing and Urban Development (HUD) Secretary Alphonso Jackson announced that HUD will dedicate $3 billion dollars to the state of Mississippi to help homeowners rebuild after Hurricane Katrina. This is the first step in HUD’s Community Development Block Grant program announced in April that will channel a total of $5 billion to the area. Secretary Jackson’s announcement means that many Mississippi homeowners will soon receive up to $150,000 for reconstruction costs. The following day, HUD Deputy Secretary Roy A. Bernardi and Chairman Donald E. Powell, the Federal Coordinate for Gulf Coast Rebuilding, announced that HUD will release an additional $4.2 billion in emergency funding to Louisiana to aid the state in its recovery effort. This allocation is in addition to the $6.2 billion that HUD dedicated to Louisiana in January. For the full text of the HUD press releases announcing additional aid to Mississippi and Louisiana, please see http://www.hud.gov/news/release.cfm?content=pr06-078.cfm and http://www.hud.gov/news/release.cfm?content=pr06-079.cfm.

BANKS

SEC Publishes Concept Release Concerning Management Reports on Internal Control over Financial Reporting. On July 11, the Securities and Exchange Commission (SEC) published a concept release in anticipation of guidance concerning reports on internal control over financial reporting. In the release, the SEC solicits views on the management assessment process to ensure that guidance on its rules that implement section 404 of the Sarbanes-Oxley Act address the needs and concerns of public companies consistent with the protection of investors. The SEC anticipates that the guidance will be in the form of a rule, and will address at least the following areas: (1) Risk and control identification – identification of risks to reliable financial reporting and design of appropriate internal controls that address those risks; (2) Management’s evaluation – overall objective of the evaluation procedures; methods or approaches available to management to gather evidence to support its assessment; and factors management should consider to determine the nature, timing and extent of its evaluation procedures; and (3) Documentation – development and maintenance of an appropriate amount of evidential matter in connection with the assessment process. The SEC seeks comment on these, and other areas. The deadline for submission of comments is 60 days after publication of the release in the Federal Register. The release is available on the SEC’s website at http://www.sec.gov/rules/concept/2006/34-54122.pdf.

Tighter Regulation of Industrial Loan Companies Considered. On July 10, legislation was introduced in the House of Representatives that would amend the Federal Deposit Insurance Act to require regulation of industrial bank holding companies. Among other things, the proposed legislation (H.R. 5746) would prohibit commercial firms (firms who obtain at least 15% of revenues from non-financial activities) from becoming industrial bank holding companies, and would subject all industrial bank holding companies to heightened examination and reporting requirements, similar to the requirements placed on bank holding companies. However, H.R. 5746 would not limit the powers of the industrial loan companies (ILCs) themselves. In connection with the proposed legislation, the House Subcommittee on Financial Institutions and Consumer Credit held a hearing on this issue on July 12. Scott Alvarez, General Counsel for the Board of Governors of the Federal Reserve, testified before the Subcommittee on the need for tighter regulation of industrial loan companies. According to Mr. Alvarez, the current laws governing ILCs are inadequate because they do not provide the type of enterprise-wide supervision that is applied to other financial institutions. As a result, he asserted that ILC holding companies are able to engage in commercial activity that potentially puts the ILC at risk, most notably maintaining a lesser amount of capital or becoming excessively leveraged. Text of the bill can be found by searching at http://thomas.loc.gov/. Mr. Alverez’s testimony can be read at http://www.federalreserve.gov/boarddocs/testimony/2006/20060712/default.htm.

FDIC Proposes Risk-Based Insurance Payment System. On July 11, the Federal Deposits Insurance Corporation (FDIC) proposed for public comment two rules governing deposit insurance assessments. The first regulation would more closely tie the premium for deposit insurance to the risks banks pose. The FDIC could also adjust premium rates upon the revenue needs of the insurance fund. The second proposal would continue to set the designated reserve ratio for the fund at 1.25 percent of estimated insured deposits. Comments are due by August 16, 2006. The two proposals may be found at http://www.fdic.gov/news/news/press/2006/pr06070a.pdf and http://www.fdic.gov/news/news/press/2006/pr06070b.pdf.

SEC to Conduct Seniors Summit to Protect Elder Americans from Investment Fraud. On July 17, 2006, the SEC will hold it’s first ever Seniors Summit in an effort to develop and coordinate efforts to protect older Americans from investment fraud and abusive sales practices. In addition, the summit will unveil a study exploring why the elderly are targets of fraud crimes. The Summit will be open to the public, but prior registration and photo identification are necessary to attend. For details, please see: http://www.sec.gov/news/press/2006/2006-109.htm.

COURTS

Court Resolves Issues with Respect to New Limitations on California Unfair Competition Law. On July 11, a California appellate court ruled on a number of issues concerning the effect of Proposition 64, which was intended to limit the scope of California's Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 (UCL). The court held that, in a UCL class action, all class members must have suffered "injury in fact," which must be sufficiently consistent across the class to satisfy the typicality requirement to which UCL class actions are now subject. The court also held that the class members' injury must have been the result of the fraudulent business practice or false advertisement complained of. As a result, the court concluded that Proposition 64 abolished the "likely to deceive" standard for UCL deception cases. While the facts of this case concern claims of misrepresentations in connection with the marketing and sale of Listerine mouthwash, the legal principles it enunciates should apply to all types of UCL class action litigation. Pfizer v. Superior Court of Los Angeles County, B188106 (Cal. App., July 11, 2006). For a copy of the opinion, see http://www.courtinfo.ca.gov/opinions/documents/B188106.DOC.

Filing of Debt Collection Lawsuit Without Immediate Means of Proving Debt Does Not Violate FDCPA According to Sixth Circuit. On July 6, the Sixth Circuit upheld the dismissal of a Complaint alleging that a debt collector violated the Fair Debt Collection Practices Act (FDCPA) by filing a lawsuit to collect a debt from a consumer without having the means of proving the debt at the time of filing. On appeal, the plaintiff asserted that the debt collector purchased defaulted debt in batches, but did not obtain: 1) any payment history or other documentary proof demonstrating the amount of the debt allegedly owed by the plaintiff; or 2) the chain of ownership of the alleged debt. According to the plaintiff, by filing a collection lawsuit without having immediate means of proving that the plaintiff owed the specified debt to the debt collector, the debt collector engaged in unlawful harassment and deceptive debt collection practices under sections 1692d and 1692e(10) of the FDCPA. The Sixth Circuit disagreed, holding that the FDCPA was not violated, because the single filing of a debt collection lawsuit does not constitute an abusive tactic under the FDCPA, and, by filing the lawsuit, the debt collector did not implicitly represent that it “had in hand the means to prove” its claims. Harvey v. Great Seneca Fin. Corp., No. 05-3970, 2006 WL 1836066 (6th Cir. July 6, 2006). For a copy of the opinion, please email .

Illinois Court Holds That OCC Interpretation Entitled to Deference in Preemption Analysis. On July 5, 2006, the Appellate Court of Illinois (Fifth District) in Kronemeyer v. U.S. Bank N.A., 5-05-0374, held that the OCC’s interpretation of its own regulation controls when determining whether a federal regulation preempts state law. The Circuit Court of Madison County refused to dismiss a putative class action challenging the assessment of a check-cashing fee to non-account-holding payees. The Appellate Court reversed. The Appellate Court noted that an OCC regulation, 12 C.F.R. § 7.4002(a), allows national banks to “charge its customers non-interest charges and fees.” The court also noted that the OCC has issued three interpretive letters clarifying that the term “customer” in this rule includes any person who presents a check for payment. The court held that the OCC’s interpretation of its rule was entitled to deference and is controlling. Because national banks are authorized by federal regulation to assess check-cashing fees on non-account-holding payees, the court held that conflicting state law is preempted. A copy of the court’s opinion is available at http://www.state.il.us/COURT/Opinions/AppellateCourt/2006/5thDistrict/July/Html/5050374.htm.

Judge Grants Preliminary Injunction Extension Against Enforcement of County Predatory Lending Bill. A Maryland judge has extended a preliminary injunction preventing enforcement of Montgomery County Bill No. 36-04, a law that would expand the categories of lending activities that constitute "discriminatory" practices and increase the amount of damages that can be awarded in cases brought in front of the Commission on Human Rights. (See InfoBytes for February 10, 2006; InfoBytes March 7, 2006; and InfoBytes March 10, 2006 for earlier stories regarding this ordinance.) The plaintiffs, a financial services trade association and mortgage lenders doing business in the county, sought and were granted preliminary injunction in March, in part on the grounds that the bill interferes with the state's statutory scheme to regulate lending. On July 6, the judge extended the preliminary injunction until the court is able to rule on a permanent injunction. American Financial Services Association, et al v. Montgomery County, No. 269105-V (Md. Cir. Ct. Jul. 6, 2006).

Sixth Circuit Comments on Tennessee Consumer Protection Law. On June 27, 2006, the Sixth Circuit of the U.S. Court of Appeals issued an unpublished opinion rejecting a homeowner’s claim under the Tennessee Consumer Protection Act (TCPA) but warned lenders about ambiguous terms in mortgage agreements. After a borrower allegedly failed to pay three Default Forbearance Agreements (DFA), a bank foreclosed on the borrower’s home. The borrower, in turn, claimed that the bank’s failure to state a sum certain for the “regular payment” amount constituted a breach of the DFA. The Sixth Circuit held that the borrower first breached the DFA by failing to make his monthly payments in full. However, in dicta the court noted that a lender's failure to specify each particular payment due instead of generally combining all such payments into a total sum as a “regular payment” could be deemed a deceptive practice under the TCPA. Hinton v. Wachovia Bank, N.A., No. 05-5750 (6th Cir. June 27, 2006). For a copy of the opinion, please email .

Unsophisticated Debtor Standard Applied to FDCPA Claims. On July 7, 2006, the Seventh Circuit of the U.S. Court of Appeals overturned the U.S. District Court for the Northern District of Illinois's grant of a motion to dismiss a claim that a collection letter violated the FDCPA. The plaintiff alleged that the collection letter: (1) used "false, deceptive, or misleading representations;" (2) was an attempt to disgrace the plaintiff; and (3) employed unfair or unconscionable means to collect the debt. The Seventh Circuit found that the "unsophisticated debtor" standard is the appropriate standard for the first and third claims. However, the Court indicated that such an analysis is difficult to undertake in the context of a motion to dismiss and, as a result, such claims will often survive a Rule 12(b)(6) motion. Moreover, the Court declined to follow the FTC's standard for "unfair or unconscionable" claims. McMillan v. Collection Professionals, Inc., No. 05-2745 (7th Cir. July 7, 2006). For a copy of the opinion, please go to http://www.ca7.uscourts.gov/tmp/UL0XUDIB.pdf.

FIRM NEWS

On July 27th, Buckley Kolar attorney Margo Tank will sit on a panel entitled “The Increasing Reality of E-Signatures.” The panel will discuss, through e-Radio, business and legal matters regarding the use of e-signatures. To read more about this panel, see http://www.octoberresearch.com/seminars/eradio/.

On July 10th Margo Tank was quoted in an article in Inman News entitled “Paperless Transactions Fast, Economical – and Rare.” The article is part one of a series addressing the future of paperless technology’s integration into today’s marketplace and can be accessed electronically, but only by subscribers, on the Inman News website http://www.inman.com/default.aspx.

On July 13th, Buckley Kolar attorney Robert Serino spoke at the conference “BITS Anti-Money Laundering Forum: Bridging the Gap between Legislation and Implementation.” Mr. Serino sat on the panel “Creating, Renewing, and Refreshing Enterprise-Wide Anti-Money Laundering Policies.”

© 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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