(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

October 13, 2006

Web Seminar – Why and How to Organize a Federal Savings Bank

Wednesday, October 25th at 12:00 PM EDT (9:00 AM PDT)

Buckley Kolar is presenting a free 45 minute Web-based seminar that will address the advantages of organizing a federal savings bank and will include a detailed explanation of the application process. Presenting the seminar will be two Buckley Kolar partners expert in the area of organizing financial institutions — Joseph Lynyak and Jeffrey Naimon. Written materials summarizing the topics to be discussed will be available as part of the presentation. To register for the seminar, please go to http://showvisuals.mshow.com/findshow.aspx?usertype=1&cobrand=128&shownumber=310009.

FEDERAL ISSUES

GAO Releases Report on Credit Card Disclosures. On October 11, the U.S. Government Accountability Office (GAO) released a lengthy report studying the disclosures provided by issuers of credit cards to consumers. The report focuses on how card fees and pricing practices have evolved and how effectively these pricing practices have been disclosed to cardholders. GAO found that disclosures have "serious weaknesses that likely reduced consumers' ability to understand the costs of using credit cards," partially because credit options and card features have become much more complex since the disclosure requirements were written. On the other hand, the report includes examples of current credit card disclosures by major issuers that were considered effective by a consulting firm contracted by the GAO. GAO recommends that the Federal Reserve Board require disclosures that more clearly emphasize those terms that affect cardholder costs most significantly, including those actions by the cardholder that would result in penalty charges or default. The full report is available online at http://www.gao.gov/new.items/d06929.pdf.

FTC Charges Real Estate Groups with Anticompetitive Conduct in Limiting Access to MLS. On October 12, the Federal Trade Commission (FTC) announced consent agreements with five groups and complaints against two others for illegal anticompetitive behavior in limiting access to multiple listing services (MLSs). According to the FTC, all of the groups adopted rules or policies aimed at home sellers who had signed non-traditional, low-cost contracts with real estate brokers. The rules blocked these less-than-full-service listings from being transmitted by the MLS to popular real estate websites. The five groups entering into consent orders operate in Colorado, New Hampshire, New Jersey, Virginia, and Wisconsin. These five have agreed to rescind or modify their rules regarding non-traditional brokerage contracts. The two groups facing charges both operate in Detroit. The complaints and consent orders are available at http://www.ftc.gov/opa/2006/10/realestatesweep.htm.

CSBS Announces Formation of National Mortgage Licensing System. On October 4, the Conference of State Bank Supervisors (CSBS) announced the creation of the State Regulatory Registry LLC (SRR). The online system, which is scheduled to go operational in January 2008, will aid state regulators in the processing of applications and also allow consumers to research the licensing status of firms and individuals. For the full text of CSBS’ announcement of the new system, please see http://www.csbs.org/AM/Template.cfm?Section=Press_Releases&Template=/CM/HTMLDisplay.cfm&ContentID=8587.

FDIC Board Approves One Time Assessment Rebate. On October 11, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) approved a regulation that will grant a one-time credit totaling $4.7 billion to insured banks and thrifts as required under the Deposit Insurance Reform Act of 2005. The credit can be used toward future assessment fees levied by the FDIC. Any institution that was in existence prior to December 31, 1996, and paid insurance assessments before that date, or a successor resulting from a merger, consolidation, or the acquisition of 90 percent of an institution's assets and deposit liabilities, will be eligible for a credit. The rule provides an administrative mechanism by which intuitions may challenge the size of the credit awarded them. The rule has not yet been published in the Federal Register. For the FDIC press release describing the rule, see http://www.fdic.gov/news/news/press/2006/pr06091.html.

COURTS

Court Declines to Bifurcate Discovery in FCRA Firm Offer Case. As previously reported in InfoBytes for September 1, 2006, the U.S. District Court for the Northern District of California has certified a class of 100,000 consumers who received a pre-screened credit solicitation in a case where the plaintiffs allege that the lender, E-LOAN, violated the Fair Credit Reporting Act (FCRA) firm-offer requirement for prescreened credit solicitations. On October 5, the court denied a motion by E-LOAN to stay all discovery related to whether any violations by E-LOAN were willful until the court decided whether E-LOAN made a valid firm offer. E-LOAN noted that, under the standard for determining a whether a violation of FCRA is willful announced by the U.S. Court of Appeals for the Ninth Circuit in the Reynolds case, a company could be required to waive attorney-client privilege in order to demonstrate that any violations were not willful, and, therefore, would not entitle the plaintiff to statutory damages of $100-$1000 per violation. See Reynolds v. Hartford Fin. Svcs. Group, 435 F.3d 1081 (9th Cir.), cert. granted sub nom. GEICO Gen. Ins. Co. v. Edo, – U.S. –, 2006 WL 2055539 (Sept. 26, 2006). The court rejected this argument and denied the motion, stating that the request was premature because E-LOAN had not yet asserted an advice of counsel defense, and that, in any case, it would be inefficient to delay discovery on the willfulness issue.

Statement that Failure to Cooperate “Could” Result in Lawsuit Can Be Deceptive under FDCPA. A debt collector sent a collection letter that stated that, if the consumer did not make arrangements to pay the debt within five days, the account “could” be forwarded to the agency’s attorney and a lawsuit “could” be filed. The consumer filed suit under the Fair Debt Collection Practices Act (FDCPA), alleging that the collector had no intention of referring the matter to an attorney or filing suit, and, therefore, it had violated the FDCPA’s prohibition against threatening “to take any action that cannot legally be taken or that is not intended to be taken.” See 15 U.S.C. § 1692e(5). The U.S. Court of Appeals for the Third Circuit held that, despite the use of “the conditional term ‘could’ as opposed to the affirmative term ‘will,’” the complaint made out a claim for an FDCPA violation because, under the “least sophisticated consumer” standard applicable to FDCPA cases, “it would be deceptive under the FDCPA for [the debt collector] to assert that it could take an action that it had no intention of taking and has never or very rarely taken before.” See Brown v. Card Service Center, – F.3d –, 2006 WL 2788476 (Sept. 29, 2006).

Murray Firm Offer Case Now Available Electronically. As reported in InfoBytes for October 6, 2006, the U.S. District Court for the Northern District of Illinois held in Murray v. HSBC Auto Finance that a mailer in a FCRA firm offer need not contain all the material terms. That opinion is now available on Lexis and Westlaw. Murray v. HSBC Auto Finance, No. 05-C-4040, 2006 U.S. Dist. LEXIS 74128, 2006 WL 2861954 (N.D. Ill. Sept. 27, 2006), notice of appeal filed, Oct. 3, 2006.

Fifth Circuit Remands SAR Disclosure Request Case, Orders OCC to Apply Its Own Standards. The United States Court of Appeals for the Fifth Circuit vacated a district court decision that would have forced the Office of the Comptroller of the Currency (OCC) to disclose a confidential Suspicious Activity Report (SAR) filing to a third party. BizCapital Bus. & Ind. Dev. Corp. v. OCC, ‑ F.3d ‑, 2006 WL 2882766 (5th Cir. Oct 11, 2006). As originally reported in the April 28, 2006 issue of Infobytes, BizCapital initially requested disclosure of the SAR because it apparently included information about another entity with whom BizCapital was engaged in civil litigation. After the OCC denied the request, BizCapital sued the agency, claiming that the OCC had not used its own balancing test when considering whether to disclose the SAR. The district court agreed and ordered that the SAR be disclosed. The Fifth Circuit agreed that the OCC should have applied the SAR disclosure balancing test required by its own regulations. The appellate court, however, did not order that the SAR be disclosed but remanded the matter to the OCC to properly consider the request for disclosure under its rules. For a copy of the Fifth Circuit decision, go to http://www.ca5.uscourts.gov/opinions/pub/06/06-30032-CV0.wpd.pdf.

FTC Settles Spanish-Language Mortgage Fraud Case. The Federal Trade Commission (FTC) announced a settlement of a mortgage fraud case stemming from business practices aimed at Spanish-language consumers. FTC v. Mortgages Para Hispanos.Com Corp., Civ. No. 4:06cv19 (D. Tex. Sept. 14, 2006). According to the FTC, the defendants, who are mortgage brokers, provided borrowers with Spanish language documents before closing that showed one set of loan terms, but required borrowers to execute English-language loan documents that contained less favorable terms. The settlement requires the defendants to pay restitution of $10,000, prohibits them from misrepresenting loan terms and from conducting their own loan closings, and requires them to provide all potential borrowers with certain disclosures in the future – in Spanish to Spanish-speaking borrowers. To view the FTC’s court filings, go to http://www.ftc.gov/os/caselist/mortgagesparahispanos/mortgagesparahispanos.htm.

MISCELLANY

FRB Governor Bies Speaks On Salient Issues In American Bank Regulation. On October 11, Federal Reserve Board (FRB) Governor Susan Schmidt Bies spoke before the British Bankers’ Association regarding significant bank supervision issues. Among other things, she discussed the risks to consumers presented by nontraditional mortgage products and noted that the FRB is committed to improving consumer information about these products, including disclosures under the Truth in Lending Act. For full text of her prepared remarks, see http://www.federalreserve.gov/boarddocs/speeches/2006/20061011/default.htm.

FIRM NEWS

Joseph Lynyak will be speaking at the American Bankers Association Banking Leaders Forum and Annual Convention, which is being held October 15 - 18, 2006 in Phoenix, Arizona. Mr. Lynyak will speak on a panel entitled "Operational and Regulatory Risk Management: Management Practices Which Increase Shareholder Value."

Margo Tank will be speaking at the Electronic Records Forum of the Securities Industry Association on October 27, 2006 in New York. Ms. Tank will speak on a panel entitled “Practicalities and Pitfalls of Electronic Records.”

Ms. Tank will be speaking at the MBA’s Legal Issues in Mortgage Technology Conference, November 15–17, 2006 at the Arizona Biltmore Hotel, Phoenix, AZ. Ms. Tank’s panel topics will include the basic legal requirements for electronic mortgage origination and lending.

Introduction to Mortgage Lending, co-authored by Andrea Lee Negroni and Jeremiah Buckley, was recently published by the American Bankers Association. This publication provides an overview of mortgage lending, covering such topics as the origination and servicing of mortgage loans, the appraisal process, the secondary mortgage market, and real estate and mortgage law. More information, including pricing and purchasing instructions, can be found at http://www.aba.com/Products/PS98_056500.htm or by contacting Ms. Negroni at Buckley Kolar.

Manley Williams will be leading a workshop entitled "Fundamentals of Marketing Law: Consumer Protection Laws for Financial Institutions" at the American Conference Institute, In New York, on October 24th, 2006.

© 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.

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.