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InfoBytes

CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

July 28, 2006

FEDERAL ISSUES

House Passes Bill to Modernize Federal Housing Administration. On July 25, the U.S. House of Representatives passed "The Expanding American Homeownership Act” (H.R. 5121), which promises to modernize the Federal Housing Administration (FHA) for the purpose of responding to the “needs of today’s low and moderate-income homebuyers who need a helping hand.” As passed by the House, the bill would, in part , (i) eliminate the current statutory three percent minimum down payment, (ii) create a new, risk-based insurance premium structure for FHA that would match the premium amount with the credit profile of the borrower (i.e., FHA would have the flexibility to charge a lower premium for low-risk borrowers, and to charge higher-risk borrowers a slightly higher premium), and (iii) increase and simplify FHA’s loan limits – FHA’s loan limit in high-cost areas would rise from 87 to 100 percent of the GSE conforming loan limit and in lower-cost areas from 48 to 65 percent of the conforming loan limit. The following day, the bill was referred to the Senate’s Committee on Banking, Housing, and Urban Affairs. To view the Department of Housing and Urban Development press release please see http://www.hud.gov/news/release.cfm?content=pr06-088.cfm. To view the bill as passed by the House, please see http://thomas.loc.gov/cgi-bin/bdquery/z?d109:h.r.5121:.

Senate Appropriations Panel Continues Ban on Bank Real Estate Brokerage. The Senate Appropriations Committee adopted an appropriations rider, sponsored by Banking Committee Chairman Richard Shelby (R-AL), that would continue the current prohibition on finalizing the Federal Reserve Board/Treasury proposal to allow bank financial subsidiaries to engage in real estate activities. The measure, H.R. 5576, must be approved by the Senate and reconciled with House legislation in order to go into effect. S. Rep. 293-109, the Appropriations Committee report on the bill is available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_cong_reports&docid=f:sr293.109.pdf.

FCC's Junk Fax Rules Effective August 1st. The Federal Communications Commission (FCC) announced on July 27 that its rules implementing the Junk Fax Prevention Act of 2005 (which Act amended the Telephone Consumer Protection Act of 1991) will become effective on August 1, 2006. The final rules were published on May 3 of this year, and have been awaiting approval of the information collections they require by the Office of Management and Budget (OMB), which was granted on July 19. These new rules amend existing rules to expressly recognize a limited "established business relationship" exemption from the prohibition on sending unsolicited fax advertisements. The new rules also (i) require a "clear and conspicuous" opt-out notice on the first page of all unsolicited fax advertisements (including those based on an "established business relationship" or "prior express invitation or permission"), (ii) define "clear and conspicuous," and (iii) set forth specific requirements for such notice and the opt-out mechanism. The FCC's announcement of the effective date is available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-06-1530A1.pdf.

FTC Testifies on Online Real Estate Brokerage Restrictions. On July 25, the Federal Trade Commission (FTC) testified before the House Subcommittee on Housing and Community Opportunity on barriers to competition in the real estate brokerage industry. The testimony describes how many real estate professionals have incorporated the Internet into their business models, which has resulted in greater competition and consumer choice. According to the FTC, however, the growth of “alternative brokerage models” has been accompanied by anticompetitive practices, including actions by private real estate broker associations to disadvantage brokers providing non-traditional brokerage services. The testimony discusses the FTC’s role in challenging such anticompetitive practices, including the FTC’s recent settlement with the Austin Board of Realtors (reported in the July 14, 2006 edition of InfoBytes). For more information, see http://www.ftc.gov/opa/2006/07/recompetition.htm. A copy of the FTC’s testimony can be found at http://www.ftc.gov/os/2006/07/CompetitionintheRealEstate%20BrokerageIndustry %20estimony%20ouse07252006.pdf.

SEC Will Not Require Registration For Employee Stock Sale and Repurchase Plans. In a No-Action letter granted on June 22, the Securities and Exchange Commission (SEC) provided assurances that it will not recommend enforcement action be taken against businesses which implement a stock sale and repurchase program for its employees that do not register the company, its directors, or administrators of the plan as a broker-dealer under Section 15(b) of the Securities Exchange Act of 1934. The no-action response requested by Professional Project Services, Inc. d/b/a Pro2Serve, a Tennessee company, also received a concurrence from the SEC’s Division of Corporation Finance. In the Commission’s no-action letter, the Staff noted its primary considerations were the fact that employee sale and repurchase plans are designed to qualify as a compensatory benefit plan within the meaning of Rule 701 of the Securities Act of 1933, the company’s stock is not registered under Section 12 of the Securities Exchange Act of 1934 and is not publicly traded. Conditions on the Commission’s relief from the registration requirement include, (i) any stock sold or repurchased must only occur between eligible participants, whereas Committee members appointed to administer the plan cannot purchase or sell under the plan while serving on the Committee, (ii) the fixed stock price must be obtained from an independent third party engaged by the company for valuation, and (iii) neither the company nor the directors and administrators of the plan will be allowed to receive compensation or fees for the transaction. Important implications to this release will be an added liquidity to existing common stock owners desiring to sell stock, with more opportunities to sell, while also giving those inside the company a greater prospect for obtaining stock from the company. The no-action letter is available at http://www.sec.gov/divisions/marketreg/mr-noaction/pps062206.pdf.

FFIEC Releases Revised BSA/AML Examination Manual. On July 28, the Federal Financial Institutions Examination Council (FFIEC) released a revised version of its Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual. To read the revised manual, please see http://www.ffiec.gov/pdf/bsa_aml_examination_manual2006.pdf.

BANKS

FDIC Freezes New Industrial Loan Applications. On July 28, the Board of Directors of the Federal Deposits Insurance Corporation (FDIC) voted to impose a six-month moratorium on applications for deposit insurance, as well as notices of change of control, by Industrial Loan Companies (ILCs). This moratorium includes all pending applications and notices. The FDIC will also not make any final decisions on pending matters during the moratorium, which will expire on January 31, 2007. To view the Notice, please see http://www.fdic.gov/news/news/press/2006/pr06073a.html.

NCUA Proposes Mortgage Investment Rule. On July 26, the National Credit Union Administration (NCUA) proposed a rule to allow federal credit unions to enter repurchase transactions of first-lien mortgages, including mortgages of non-members. The proposal would set the following requirements for any investment: (i) must be no more than 25% of credit union’s net worth, (ii) the bond must have a long-term rating no lower than A-, (iii) the credit union must perform daily market assessments of bond’s worth, (iv) the maximum term is 30 days, and (v) the transactions must be conducted under a tri-party custodial agreement. Comments are due by September 25, 2006. A copy of the proposed rule may be found at http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/pdf/E6-11908.pdf.

COURTS

Limitation on California Unfair Competition Law Applies to Pending Cases; Amendment to Keep Cases Alive is Possible. In two recent cases, the California Supreme Court has clarified the scope of Proposition 64, which limited Cal. Bus. & Prof. Code § 17200, the Unfair Competition Law (UCL), by requiring that a plaintiff have standing to sue – i.e., have been injured in fact and suffered personal or monetary damage – before being allowed to bring an action. In one case, the Court held that this standing limitation applies to UCL cases that were pending when Proposition 64 was passed (November 2, 2004), as well as cases initiated thereafter. In the second case, the Court held that it was not prohibited as a matter of law for the plaintiffs in a UCL case that would be dismissed for lack of standing as a result of Proposition 64 to amend their complaint to name a plaintiff who had suffered an injury in fact. Californians for Disabled Rights v. Mervyns, 2006 Cal. LEXIS 8774, available at http://www.courtinfo.ca.gov/opinions/documents/S131798.PDF; Branick v. Downey Savings and Loan Association, 2006 Cal. LEXIS 8775, available at http://www.courtinfo.ca.gov/opinions/documents/S132433.PDF.

Court Declines to Dismiss "Firm Offer" Case That Alleged Only Statutory Damages. On June 29, the U.S. District Court for the Eastern District of Pennsylvania declined to dismiss a putative class action case in which the consumer alleged that the lender violated the FCRA firm offer requirement. The court rejected the lender’s claim that a complaint must allege actual as well as statutory damages. The lender’s motion to dismiss did not address whether the consumer had properly alleged a “firm offer” violation. The court also joined almost all courts that have considered the issue in holding that the Fair and Accurate Credit Transactions Act of 2003 (FACTA) repealed the private right of action for failure to provide proper disclosures and notices under Section 615 of FCRA, although it dismissed the complaint with leave to amend if the consumer received the complaint before FACTA went into effect. Finally, the court held that private parties cannot obtain injunctive relief under FCRA. Miller v. CoreStar Financial Group, No. 05-5133, 2006 WL 1876584 (E.D. Pa. June 29, 2006). Please contact for a copy of the opinion.

eBay Not a Debt Collector or Consumer Reporting Agency. On July 10, the U.S. Court of Appeals for the Seventh Circuit held that online auction website eBay was neither a "debt collector" for purposes of the Fair Debt Collection Practices Act (FDCPA) nor a "consumer reporting agency" for purposes of the Fair Credit Reporting Act (FCRA). The plaintiff was an active eBay user who bought and sold goods on the site, but who prompted enough complaints posted on eBay's "Feedback Forum" that eBay suspended his accounts until he reimbursed the people complaining about his actions. The court held that eBay, by merely refusing to do business with him, and taking no effort to actually collect a debt, did not meet the definition of "debt collector," leaving eBay outside the reach of FDCPA. The plaintiff also claimed that the "Feedback Forum" violates the FCRA because it contained false and misleading comments. The Court stated that the Forum is not a consumer report, in part because it only identifies subjects by their eBay usernames and also because the information in the Forum relates to a commercial activity not a consumer activity. Consequently, eBay cannot be a consumer reporting agency. McCready v. eBay et al., No. 05-2450, 2006 U.S. App. LEXIS 17101 (7th Cir. 2006). The opinion can be found at http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=05-2450_013.pdf

STATE ISSUES

Cook County Predatory Lending Database Will Go On-line on September 1st. The Illinois Department of Financial and Professional Regulation announced that the pilot predatory lending program in Cook County will go into effect on September 1, 2006. Under the program, loans in some Cook County zip codes that meet “high-risk” criteria will be entered into a database and credit counseling will be mandatory for those loans. The pilot program will be in effect for four years. For a copy of the Illinois Register notice announcing the program, see http://www.idfpr.com/Forms/Memo/072706DeclarationofInception.pdf.

Rhode Island Amends Reverse Mortgage Laws. On July 14, Rhode Island House Bill 7237 became effective, modifying Rhode Island’s reverse mortgage rules. Previously, Rhode Island prohibited reverse mortgages that provided payments for more than ten years and required that payments from an annuity purchased in connection with the reverse mortgage be used to pay interest on the mortgage. The law removes the ten-year restriction and provides that annuity payments “may” be used to pay interest on the mortgage loan. Under the new law, the principal on a reverse mortgage generally becomes due upon default or maturity of the loan. When part of the mortgage proceeds are used to purchase an annuity from which interest payments will be made, the principal is due upon maturity of the loan, default, or the closing of the borrower’s estate. Bill 7237 is effective immediately. For text of bill, please see http://www.rilin.state.ri.us/Billtext/BillText06/HouseText06/H7237Aaa.pdf.

MISCELLANY

Federal Reserve Board Issues Transcript of HOEPA Hearings. The Federal Reserve Board released a transcript of its June 7, 2006, Home Ownership and Equity Protection Act hearings held in Chicago, Illinois. The hearings were broken into three panels, which focused on (i) the impact of federal and state predatory lending laws and developments in subprime lending (consumer and industry perspectives), (ii) the impact of federal and state predatory lending laws and developments in subprime lending (researcher and analyst perspectives), and (iii) sustainable homeownership (consumer education). For the full text of the transcript and details on the hearings agenda, please see

http://www.federalreserve.gov/events/publichearings/hoepa/2006/20060607/default.htm.

FDIC Reports on Future of Bank Credit Quality. The Federal Deposit Insurance Corporation’s (FDIC) Summer 2006 “FDIC Outlook” released on July 24, 2006 reports on the prospects for bank credit quality in the coming years. The report analyzes trends in the credit cycle and concludes that loan performance remains strong in three central areas – mortgage lending, commercial and industrial lending and commercial real estate – but notes that credit quality may have reached its peak. The FDIC report states that, with interest-only mortgages and pay-option mortgages becoming increasingly common, “there are concerns about increased risk taking on the part of lenders and borrowers.” For the full text of the report, please see http://www.fdic.gov/bank/analytical/regional/ro20062q/na/t2q2006.pdf.

FIRM NEWS

Buckley Kolar Files Trade Association Amicus Brief in Louisiana Supreme Court Regarding Due-On-Sale Clauses. On July 27, Buckley Kolar filed an amicus brief in the Louisiana Supreme Court in Levine v. First National Bank of Commerce on behalf of the American Financial Services Association, America’s Community Bankers, the Consumer Bankers Association, the Consumer Mortgage Coalition, the Housing Policy Council of the Financial Services Roundtable, and the Mortgage Bankers Association. The brief urges the Louisiana Supreme Court to reverse the Court of Appeal’s decision that a due-on sale clause is not triggered by the borrower’s execution of a bond for deed with a third party. Please contact for a copy of the brief.

On July 27, Buckley Kolar LLP partner Margo Tank participated in an online “e-Radio” panel entitled “The Increasing Reality of E-Signatures.” The panel discussed business and legal matters related to the use of e-signatures.

© 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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