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InfoBytes

CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

September 8 , 2006

FEDERAL ISSUES

2005 HMDA Data and FRB Report Released. On September 8, 2006, the Federal Financial Institutions Examination Council (FFIEC) announced that the data collected from financial institutions for the year 2005 pursuant to the Home Mortgage Disclosure Act (HMDA) is available to the public. This is the second year that such data has been collected and published. Generally, HMDA requires mortgage lenders to collect data about their lending activities and report the data annually to their respective regulators. The data collected and reported pursuant to HMDA includes (i) information on the borrower, such as race, gender, ethnicity and income level; (ii) information on the loan, such as whether the loan was originated or denied, pricing, whether the loan is subject to the Home Ownership and Equity Protection Act (HOEPA) and whether the loan is secured or unsecured; and (iii) information on the property itself, such as the location by census tract and type of loan. HMDA data, in conjunction with other information, is used by federal banking agencies when evaluating compliance with fair lending laws, both for supervision and enforcement purposes.

In conjunction with the release of the 2005 data, the Federal Reserve Board (FRB) today published a lengthy report from the Division of Research and Statistics summarizing and analyzing the 2005 data. Initial reaction to the report by industry commentators suggests that the authors reflect an increased understanding of the complexities of the data and potential use of the data. In particular, the report specifically noted that the spread between short-term interest rates and long-term interest rates flattened significantly, which had a material impact on the data, including on the number of loans exceeding the higher-price loan thresholds set in Regulation C as well as on the gap in loan-pricing outcomes among groups of borrowers. It is also clear that consumer groups, and potentially government agencies, will use a comparison of the 2005 and 2004 data in analyzing the lending practices of the reporting institutions.

The HMDA data may be ordered from the FFIEC website at http://www.ffiec.gov/hmda/default.htm. The FRB report is available at http://www.federalreserve.gov/.

Federal Banking Agencies Request Comment on Risk-Based Capital Requirements. On September 5, 2006, the FRB, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC) and Office of Thrift Supervision (OTS) announced they will seek public comment on a notice of proposed rulemaking that would implement the Basel II Capital Accord issued in 2004. The proposed rules address risk-based capital requirements in the U.S. that are mandatory for large, internationally active banking organizations and optional for others. The agencies also request comment on proposed revisions refining market risk capital rules in use since 1997 pertaining to the requirement that certain banking organizations calculate a capital requirement for the general market risk of covered positions and the specific risk of covered debt and equity positions. More information may be obtained at http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20060905/default.htm.

Eligibility For NOW Accounts Clarified. The FRB issued a legal opinion that clarifies whether a single member limited liability company (SMLLC) may maintain a NOW account under Regulation D. A NOW account authorizes depository institutions to “offer interest-bearing checking accounts to individuals, certain nonprofit organizations, and domestic governmental units.” The opinion letter concludes that a SMLLC is not eligible to maintain a NOW account unless it is operated primarily for religious, philanthropic, charitable, educational, political, or similar purposes and is nonprofit. For the full text of the legal opinion, see http://www.federalreserve.gov/boarddocs/legalint/federalreserveact/2006/20060823.pdf.

OCC Issues Guidance to National Banks and Examiners on Managing the Risks of Automated Clearing House Activity. On September 1, 2006, the OCC outlined the key components of an effective Automated Clearing House (ACH) risk management program in a Bulletin (OCC Bulletin 2006-39) issued to all national banks, federal regulatory agencies, and examiners. The publication, which replaces an earlier Bulletin (OCC Bulletin 2002-2), is intended to supplement the guidance on ACH activities contained in the FFIEC IT Examination Handbook on Retail Payment Systems as well as the National Automated Clearinghouse Operating Rules. The Bulletin addresses the variety of risks to which national banks are exposed when originating, receiving, or processing ACH transactions, or outsourcing these activities to a third party, and provides guidance on developing and implementing an effective risk management program. A full copy of the Bulletin is available at http://www.occ.treas.gov/.

OTS Publishes New Guidance Regarding Community Reinvestment Act. On September 5, 2006, the OTS published guidance regarding the Community Reinvestment Act (CRA). The guidance consists of Interagency Questions and Answers (Q&A) pertaining to OTS's revised definition of "community development" and certain other provisions of the CRA rule that are common to the OTS, the OCC, the FRB, and the FDIC. The new interagency guidance, which became effective upon publication in the Federal Register, can be found at http://www.ots.treas.gov/docs/7/73316.pdf.

Federal Agencies Seek Comments on Survey of Information Sharing Practices with Affiliates. The Federal Trade Commission (FTC), the federal banking agencies, and the National Credit Union Association (NCUA) are undertaking a survey on information sharing practices by financial institutions, creditors, and users of consumer credit information. The Fair and Accurate Credit Transaction Act (FACTA) requires “regular studies of the consumer information sharing practices by financial institutions and other persons that are creditors or users of consumer reports with their affiliates.” The agencies are seeking public comments on, among other things, (i) whether the information collection is necessary for the proper performance of the agencies’ functions, including whether the information has practical utility; (ii) the accuracy of the agencies’ estimates of the burden of the information-collection process; (iii) ways to enhance the quality, utility, and clarity of the information to be collected; and (iv) ways to minimize the burden of information collection, including the use of automated collection techniques and methods. Notice of the survey was published in the Federal Register on August 31, 2006. Full text of the notice is available at http://www.ftc.gov/os/2006/08/060831factasurvey.pdf.

Interim Final Rule on Regulation E Published in Federal Register. As described in the August 25 issue of InfoBytes, the FRB requests comment on an interim final rule that will provide clarification on Regulation E’s requirements with regard to the electronic collection of service and insufficient fund fees by merchants and other payees as well as consumer notice requirements for electronic check conversion transactions. The interim final rule was published in the August 30, 2006 Federal Register. Comments are due no later than September 29, 2006. Full text of the notice is available at http://www.federalreserve.gov/boarddocs/press/bcreg/2006/20060824/default.htm.

Ginnie Mae Launches E-Notification. On September 1, 2006, the Government National Mortgage Association (Ginnie Mae) launched its e-Notification program, which allows Ginnie Mae to communicate electronically with its business partner investors and document custodians. The system is intended to replace the issuance of notices via fax or mail, and registration is mandatory. E-Notification will provide a variety of notices, including those pertaining to pool processing functions, payment functions, securities transfers functions, and notifications regarding new guidance or changes to Ginnie Mae’s MBS Guide or other documentation. For more information, please see Memo APM 06-06 at http://www.ginniemae.gov/apm/apm_pdf/06-06.pdf and Memo APM 06-30 at http://www.ginniemae.gov/apm/apm_pdf/06-03.pdf.

COURTS/ENFORCEMENT

HUD Settles RESPA Cases Against New England Attorney and Property Appraisal Firm. On September 6, 2006, the Department of Housing and Urban Development (HUD) announced settlements in two cases totaling nearly $20,000. The announcement followed an agreement announced last November involving allegations that 1-800-East-West Mortgage Company (East-West) requested and/or received kickbacks for the referral of settlement service business. The first settlement involved HUD, the FDIC and a Boston area real estate closing attorney who allegedly violated the Real Estate Settlement Procedures Act (RESPA). According to HUD, the closing attorney paid for tickets to a Boston Red Sox game, a New England Patriots event and upscale restaurant gift certificates for East-West and its employees to promote referrals of loan closings. HUD also entered into a second agreement with Grasso Appraisal Services, a real estate appraisal company, in connection with kickbacks allegedly paid to East-West. In this case, HUD determined that Grasso paid kickbacks to East-West and its employees in the form of restaurant gift certificates. To view HUD’s press release, see

http://www.hud.gov/news/release.cfm?content=pr06-106.cfm. To view the settlement agreements, see http://www.hud.gov/offices/hsg/sfh/res/resetagr.cfm.

FTC Accepts Consent Order Against Card Processor in Security Breach Case. As previously reported, the FTC sought public comment on a proposed settlement in its data security case against CardSystems Solutions, Inc. (CardSystems). The FTC’s complaint alleged that CardSystems, a credit card processor, violated the FTC Act by failing to “employ reasonable and appropriate security measures” and allowing a computer hacker to obtain credit card authorization data from the company. In this case, a national bank and Visa U.S.A. asked the FTC to order consumer redress, with the bank specifically requesting redress to issuing banks that suffered losses as a result of the alleged security breach. The FTC declined to do so, noting that the company faces millions of dollars in private liability for losses related to the breach. The FTC rejected Visa’s request that it impose civil penalties on the processor because it lacks the authority to do so based on the allegations in the complaint. The FTC also noted that it has “recommended that Congress consider whether companies that hold sensitive consumer data, for whatever purpose, should be required to take reasonable measures to ensure its safety.” The documents in the case are available at http://www.ftc.gov/os/caselist/0523148/0523148.htm.

Another Court in the Northern District of Illinois Certified a FCRA "Firm Offer" Class Action. In Pavone v. Aegis Lending Corp., No. 05 C 5129, 2006 WL 2536632 (N.D. Ill. Aug. 31, 2006), the court followed other courts in holding that common issues of fact predominate over any differences among consumers in determining whether a prescreened solicitation complies with the Fair Credit Reporting Act’s (FCRA) “firm offer” requirement. For that and other reasons, class certification was held appropriate. The court, citing the “four corners” language in Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006) stated that “[n]otice constitutes a firm offer of credit under the FCRA.” Therefore, it certified a class consisting of the residents of DuPage and Cook Counties, Illinois, who received approximately 53,000 mailers. In contrast to the Murray v. GMAC court, however, the court suggested that it might accept a settlement significantly below the minimum of $100 per violation for willful violations of FCRA – $5.3 million in this relatively small case, assuming that each mailer is viewed as a separate violation – stating that the plaintiff and his counsel should be aware of the court’s authority to reduce a damage award. For a copy of this opinion, please contact .

Arizona Settles Charges Against Western Union Financial Services, Inc. The Arizona Department of Financial Institutions (the “Department”) recently announced that Western Union Financial Services, Inc. (Western Union) agreed to pay the State of Arizona $3 million in connection with violations of state and federal laws concerning illegal immigration and money laundering. In addition, Western Union agreed to terminate or suspend its relationships with various agents and will donate to the Arizona Fraudulent Identification Task Force, as well as contribute matching funds to a federally mandated study of state contracting. This settlement stems from the Department’s determination that, among other things, Western Union and its agents at some locations were obtaining hard-to-read or unusable information on the identity of senders and receivers of transmissions. The case was an action against the company’s money transmitter license. For a copy of the consent order, see http://www.azdfi.gov/Final/Forms/Western%20Union%20Consent%20Order.pdf.

STATE ISSUES

Colorado's Division of Real Estate Publishes Licensing Form for Mortgage Brokers. Mortgage brokers must be licensed by the Colorado Division of Real Estate beginning January 1, 2007. The licensing forms have been posted on the website of the Division of Real Estate at http://www.dora.state.co.us/Real-Estate/mb/Index.htm. Applications will be accepted beginning October 1, 2006. The Division of Real Estate is warning potential applicants to apply early because the background investigation may take as long as three months. The registration fee for a license is $200, and a $25,000 surety bond is required. Applicants must also provide fingerprints.

Governor Schwarzenegger Signs Reverse Mortgage Bill to Protect Senior Citizens. On September 5, 2006, California Governor Schwarzenegger signed Senate Bill 1609, a bill aimed at protecting senior citizens from improper lending practices. SB 1609 will require that senior citizens receive counseling from HUD-approved agencies before the lender may accept an application or assess any fees in association with the reverse mortgage loan. In addition, the bill will require the reverse mortgage lender to provide loan documentation in a foreign language if the loan was initially negotiated in a foreign language. For the full text of the press release, see http://gov.ca.gov/index.php?/text/press-release/3761/.

New York Extends Length of Time for Advances on Credit Line Mortgages. On August 16, 2006, the Governor of New York signed Senate Bill 8272, a law extending the length of time during which future advances can be made on a credit line mortgage. Future advances can be made up to 25 years from the date of recording, to the same extent and with the same lien priority as if those future advances had been made at the time of recording. The law previously permitted advances within 20 years of recording. SB 8272 takes effect immediately. For the text of the bill see http://assembly.state.ny.us/leg/?bn=S08272&sh=t.

MISCELLANY

Frederic S. Mishkin Sworn in as Member of the Board of Governors of the FRB. On Tuesday, September 5, 2006 Chairman Bernanke of the FRB administered the oath of office to Frederic S. Mishkin, the newest member of the Board of Governors. Governor Mishkin’s term will end on January 31, 2014. The FRB press release, including a link to a professional biography of Mr. Mishkin, is available at http://www.federalreserve.gov/boarddocs/press/other/2006/20060905/default.htm.

C. Lee Peeler Will Vacate Post as Deputy Director of the Board of Consumer Protection at the FTC. FTC Chairman Deborah Platt Majoras announced on August 28, 2006 that C. Lee Peeler, Deputy Director of the Board of Consumer Protection, will leave the FTC after more than 30 years of service. Peeler will become president of the National Advertising Review Council and Executive Vice President for National Advertising and Self-Regulation of the Council of Better Business Bureaus. The official press release is available at http://www.ftc.gov/opa/2006/08/peeler.htm.

NAHB and NAACP Issue Minority Housing Report. The National Association of Home Builders (NAHB) and the National Association for the Advancement of Colored People (NAACP) recently issued a joint report (“Building on a Dream”) on the state of minority housing opportunity in the United States. According to the report, although there is a higher percentage of African American homeowners today than ever before, significant racial disparities persist in home ownership and affordable housing opportunity. The report recommends policies to eliminate predatory lending practices and prevent racial discrimination through increased enforcement of Fair Housing laws. The NAHB and NAACP intend to review annually steps taken by the organizations to implement the report’s policy goals. For a copy of the report, see http://www.nahb.org/publication_details.aspx?publicationID=2858.

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.

Jeremiah Buckley, Joseph Kolar, and Andrea Lee Negroni spoke at the Mortgage Bankers Association's Regulatory Compliance Conference, which was held September 6-8, 2006 in Washington DC. Presentation materials are available at http://www.buckleykolar.com/news/ under the heading “Firm News.” Inadvertently, a licensing chart for mortgage bankers that was included among the materials for Ms. Negroni’s presentation was published in draft form in the MBA Conference Notebook. A final version can be found at http://www.buckleykolar.com/news/.

Robert Serino will be speaking at the National Institute on Banking Law II on September 21-22 in Chicago. To learn more or register, go to http://www.abanet.org/cle/programs/n06bla1.html.

© 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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