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CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

FEDERAL ISSUES

FRB Official Testifies Before Senate Subcommittee Regarding TILA and Non-Traditional Mortgage Products. On September 20, Sandra F. Braunstein, Director of the Division of Consumer and Community Affairs for the Federal Reserve Board (FRB), testified before Senate Subcommittees on Housing and Transportation and Economic Policy regarding the applicability of disclosure requirements under the Truth in Lending Act (TILA) and Regulation Z to “alternative mortgage products,” such as option-ARMs and interest-only loans. Ms. Braunstein discussed potential revisions to Regulation Z that the FRB plans to consider, including (i) simplifying and clarifying Regulation Z’s adjustable rate mortgage disclosures to make them easier for consumers to understand and use; (ii) requiring a “worst-case” payment disclosure; (iii) requiring additional disclosures in connection with negatively amortizing loans; and (iv) changing Regulation Z’s timing requirements for transaction-specific, non-purchase loan disclosures. Ms. Braunstein’s prepared statement can be found at http://www.federalreserve.gov/boarddocs/testimony/2006/20060920/default.htm.

FTC Files Comments with FRB Regarding Home Equity Lending Market. The Federal Trade Commission (FTC) approved the filing of comments with the Federal Reserve Board (FRB) regarding issues addressed during the FRB’s recent hearings on the home equity lending market. The FTC’s comments discuss (i) unfair and deceptive practices exposed via its enforcement activities; (ii) key points raised during a May 2006 FTC workshop entitled “Protecting Consumers in the New Mortgage Marketplace,” which emphasized potential dangers to consumers resulting from the widespread availability of alternative mortgage products; and (iii) the importance of consumer choice at every level of the mortgage transaction, including strategies for providing information about the mortgage process to consumers. For more information or copies of related documents, visit http://www.ftc.gov/opa/2006/09/fyi0661.htm.

President's Identity Theft Task Force Announces Interim Recommendations. On September 19, the President’s Identity Theft Task Force (which is comprised of 17 federal agencies and departments), released preliminary recommendations to address identity theft. Among other things, the Task Force recommends that (i) the Office of Management and Budget issue a memorandum to all federal agencies on factors governing whether and how to give notice to affected individuals in the event of a breach; (ii) a standard identity theft reporting mechanism be developed for victims across jurisdictions; (iii) Congress broaden permissible restitution to identity theft victims; (iv) government agencies take steps to strengthen data security; and (v) all federal agencies publish a “routine use” for their systems of records under the Privacy Act. The Task Force will deliver a final strategic plan to the President in November. To view the press release announcing the recommendations, see http://www.ftc.gov/opa/2006/09/idtheft.htm.

MISMO Creates Draft eSigned PDF Guidelines. The Mortgage Industry Standards Maintenance Organization (MISMO) has made significant progress on drafting “implementation guidance for creating signed PDF documents using the Adobe PDF specification” (“PDF Guidance”). MISMO reviewed a draft of the PDF Guidance at MISMO’s September Trimester meeting in Colorado. Once complete, the PDF Guidance will provide assistance in developing PDF documents for eMortgage transactions, including documents that will be signed with electronic signatures. The PDF Guidance currently is slated for release in November 2006. Please contact Buckley Kolar for more information.

FHFB Approves Proposed FHLB Rating System. On September 13, the Board of Directors of the Federal Housing Finance Board (FHFB) voted to seek public comment on a proposed rating system for Federal Home Loan Banks (FHLBs). The system as proposed would assign each bank a “composite rating based on an evaluation and rating of five key components: corporate governance, market risk, credit risk, operational risk, and financial condition and performance.” The FHFB is considering implementing the rating system after January 1, 2007. The official press release can be read at http://www.fhfb.gov/GetFile.aspx?FileID=6028.

FDIC Issues Final Rule Increasing Insurance Coverage for Retirement Accounts. The Federal Deposit Insurance Corporation (FDIC) Board of Directors recently adopted a final rule increasing federal deposit insurance coverage for certain retirement plan deposits to $250,000. The final rule makes no substantive alteration to the interim rule, effective since April 1st of this year. The basic insurance limit for other deposits will remain at $100,000. The final rule’s effective date is October 12, 2006. The FDIC press release can be read at http://www.fdic.gov/news/news/financial/2006/fil06083.html.

COURTS

California Court Rules State Unfair Competition Law Not Preempted by HOLA; Finds Mark-up Violates Section 8(b) of RESPA. In reversing the lower court’s order of dismissal, a California Court of Appeal made two significant rulings affecting the mortgage industry in a case alleging that a lender illegally charged fees for underwriting, tax service, and wire transfer fees that exceeded their actual pass-through cost.  First, the court held that such a mark-up violated the Real Estate Settlement Procedures Act (RESPA), finding persuasive the Second Circuit’s position in Kruse v. Wells Fargo Home Mortgage that deference should be given to HUD’s policy statement on mark-ups where the statute did not compel a clear conclusion on the issue.  Second, the court held that California’s Unfair Competition Law (UCL) which prohibits “unlawful, unfair, or fraudulent conduct is not preempted by the Home Owner’s Loan Act (HOLA) as it applies to a federal savings bank.  The Court noted that “the state cannot dictate to the Bank how it can or cannot operate, but it can insist that, however the Bank chooses to operate, it do so free from fraud and other deceptive business practices.” Specifically, the court stated that the bank may have violated the UCL since the plaintiffs, when looking at their HUD-1 Statements, “reasonably would conclude that the fees charged were the costs [the lender] incurred in providing these services.” The lender’s fees allegedly exceeded their true costs. The court found that these practices were potentially deceptive and only incidental to banking activities, thus subject to the state law. McKell v. Washington Mutual, Inc., No. B17637, 2006 WL 2664130 (Cal. Ct. App. Sept. 19, 2006). For a copy of this opinion, please contact .

Seventh Circuit Vacates Class Action Settlement for Failure to Evaluate Fairness to Class. Recently, the Seventh Circuit Court of Appeals vacated a federal district court's approval of a settlement agreement between DHL Express and a class suing DHL for the practice of charging customers a five-pound default rate if they failed to identify the weight of their package on the shipping slip. The District Court approved a settlement that allowed each class member to submit a proof of claim form and receive pre-paid letter packages in return (worth about $13), up to 4 packages, or in the alternative receive a cash payment up to a maximum of $30. The Seventh Circuit vacated the decision, ruling that the district court abused its discretion by approving the settlement without adequately evaluating its fairness to the class. The Seventh Circuit noted in particular that the district court failed to quantify the value of the plaintiff's case, failed to quantify the value of the settlement offer to the class, and failed to attempt to quantify how many class members' claims would be void due to statute of limitations, among other things. The case was remanded for further consideration of the settlement. Synfuel Technologies, Inc. v. DHL Express (USA), Inc., 2006 U.S. App. LEXIS 23093, Nos. 05-1450, 05-1596, 05-2914, 05-3022 (7th Cir. Sept. 11, 2006). A copy of the opinion can be found at http://www.ca7.uscourts.gov/tmp/WH0QY9G9.pdf.

STATE ISSUES

Indiana Approves "Skip-a-Payment" and "On-Demand/Expedited Payment" Fees. On August 10, 2006 the Board of Indiana’s Department of Financial Institutions approved a “Skip-a-Payment” (SAP) fee and an “On-Demand/Expedited Payment” (EP) fee as additional fees which may be charged by providers of consumer credit subject to the Indiana Uniform Consumer Credit Code. The fees, however, are subject to certain conditions, which can be found at http://www.in.gov/legislative/iac/20060906-IR-750060345ONA.xml.html.

Massachusetts Law Governing Payoff and Discharge of Mortgage Loans Effective October 1. A Massachusetts bill (SB 2278), passed last April, setting forth various mortgage loan payoff and discharge requirements, will become effective October 1, 2006. Among other things, the bill imposes time limits for providing notices of payoff and discharge, as well as civil penalties for non-compliance. The bill can be found at http://www.mass.gov/legis/laws/seslaw06/sl060063.htm.

MISCELLANY

FTC and Partners to Host Hispanic Fraud Prevention Forum in New York City. The FTC and various partners at the federal, state and local levels will host a Hispanic Fraud Prevention Forum in New York City on September 27, 2006. The day-long event will bring together leaders from the Hispanic community as well as representatives from law enforcement and consumer protection agencies. The forum will focus on strategies for the prevention of consumer fraud among the Hispanic community. Panelists include FTC Chairman Deborah Platt Majoras and Teresa Santiago, Chairperson and Executive Director of the New York State Consumer Protection Board. The Forum is open to the public and free of charge. For more information or to register, visit http://www.ftc.gov/hispanicforum.

Fannie Mae Will Not Purchase "High-Cost" Loans in Arkansas and Indiana. On September 15, Fannie Mae issued Announcement 06-16 clarifying its refusal to purchase loans deemed “high cost” under Arkansas and Indiana state law (Ark. Code Ann. § 23-53-101 et. seq. and Ind. Code Ann. § 24-9-1 et. seq. respectively). While both statutes contain “safe harbor” language exempting Fannie Mae loans from their scope, Fannie Mae hopes to “promote responsible lending practices, and combat predatory lending” by refusing to purchase such loans.

FIRM NEWS

Introduction to Mortgage Lending, co-authored by Jeremiah Buckley and Andrea Lee Negroni, 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.

Margo Tank will be speaking at the Electronic Records Forum of the Securities Industry Association on October 27th in New York. The topic of her panel will be “Practicalities and Pitfalls of Electronic Records.” For more information, see http://www.sia.com/erecords06/.

Joseph Lynyak will be speaking at the ABA 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.” For more information or to register, please visit http://www.aba.com/LeadOn/default.htm.

 

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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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