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CONSUMER FINANCE HEADLINES & DEADLINES FOR OUR CLIENTS AND FRIENDS

July 16, 2004

FEDERAL ISSUES

Stricter Identity Theft Penalties Mandated . On July 15, 2004, the Identity Theft Penalty Enhancement Act was enacted as P.L. 108-275. The act creates 18 U.S.C. §1028A and imposes additional penalties on those who knowingly and unlawfully transfer, possess or use another person's identification during and in relation to certain felonies. The enhanced penalties are jail terms of 2 years (5 years if the violation occurs in connection with terrorism offenses). The law also constrains the use of concurrent terms, probation or term reduction for violations of the statute. A copy of the law can be found at: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_cong_bills&docid=f:h1731enr.txt.pdf.

OTS Announces Changes to CRA Small Institution Benchmark . The Office of Thrift Supervision ("OTS") announced on July 16, 2004 that it will issue a final rule under the Community Reinvestment Act ("CRA") to modify the "small institution" test for thrifts. The rule will increase the small institution threshold for thrifts from $250 million to $1 billion and amend the definition of "small savings association." The amendment is part of the OTS's efforts to reduce the regulatory burden for smaller institutions so that such institutions can "dedicate scarce resources in areas requiring greater attention," including compliance with the Bank Secrecy Act and implementation of anti-money laundering programs. Under the new rule, a "small savings association" is subject to a more streamlined CRA examination and reduced reporting burdens. For the complete news release, see http://www.ots.treas.gov/docs/7/77426.html.

Agencies Act on FACTA Affiliate Marketing Proposal. As previously reported on July 9, the FRB, OCC, OTS, FDIC, and NCUA issued a proposed rule on July 2, 2004 implementing the affiliate marketing provisions of the Fair and Accurate Credit Transactions Act. That rule, along with the SEC's version of the proposal, has now been published in the Federal Register. Comments on the FRB/OCC/OTS/FDIC/NCUA proposal are due by August 16, 2004 , while comments on the SEC proposal are due by August 13, 2004 . Separately, the FTC reportedly extended its comment deadline to August 16, 2004 , although that action had not been publicly announced at press time. The proposals would implement a FACTA provision allowing consumers to prevent companies from using, for marketing purposes, financial information about the consumer that the company receives from an affiliate. 69 Fed. Reg. 42502 ( July 15, 2004 ) (banking agency version, available at http://edocket.access.gpo.gov/2004/pdf/04-15950.pdf); 69 Fed. Reg. 42301 ( July 14, 2004 ) (SEC version, available at http://edocket.access.gpo.gov/2004/pdf/04-15875.pdf); 69 Fed. Reg. 33324 ( June 15, 2004 ) (FTC version, available at http://edocket.access.gpo.gov/2004/pdf/04-13481.pdf).

STATE ISSUES

California Online Privacy Protection Act Takes Effect . On July 1, 2004 , California 's Online Privacy Protection Act of 2003 became fully operative. The purpose of the Act is to regulate the confidentiality of personal consumer information obtained by any "operator," i.e., person or entity that owns a commercial internet web-site or online service that collects personal information from consumers residing in California , regardless of the location of the web-site or its operator. The Act requires any such operator to conspicuously display a privacy policy containing certain enumerated elements on its web-site or online service. The standard of liability under the Act is fairly low: a negligent and material failure to comply constitutes a violation of the Act. For more information, please see: http://www.leginfo.ca.gov/cgi-bin/postquery?bill_number=ab_68&sess=CUR&house=B&author=simitian

Michigan Introduces Spyware Legislation. S.B. 1315 was introduced by Michigan Senator Cameron Brown to address the use of spyware in Michigan . The proposed legislation goes beyond traditional notions of spyware and also would prohibit "adware" as well. The law, if passed, would provide for fines up to $10,000 and jail terms up to four years long. The bill has been referred to the Senate Energy and Technology Committee. For a copy of the bill, please visit: http://www.michiganlegislature.org/documents/2003-2004/billintroduced/senate/pdf/2004-SIB-1315.pdf.

Mississippi Department of Banking and Consumer Finance Issues Mortgage Licensing Regulations. The Mississippi Department of Banking and Consumer Finance has issued regulations enforcing the Mississippi Mortgage Consumer Protection Law, to become effective August 11, 2004 . The regulations exempt certain entities including bank and financial holding companies, banks, credit card banks, savings banks, credit unions, and their subsidiaries. The regulations contain specific registration requirements for loan originators, as well as notification requirements for changes in location, name, principal officer, and loan originators. In addition, approval is required prior to the opening of branch offices in Mississippi . The regulation can be accessed at http://www.dbcf.state.ms.us/documents/mortgage/regs04.pdf.

North Carolina Banking Commissioner Authorizes "Debt Cancellation Contracts" and "Debt Suspension Agreements." On June 2, 2004, North Carolina Banking Commissioner Joseph A. Smith issued a declaratory ruling sanctioning state-chartered commercial banks; savings banks; and savings and loan associations to legally offer "debt cancellation contracts (DCC's)" or "debt suspension agreements (DSA's)." North Carolina law neither expressly permits nor prohibits these institutions from offering DCCs or DSAs. The Commissioner relied on the fact that the Office of the Comptroller of the Currency has permitted national banks to offer DCCs and DSAs; the Office of Thrift Supervision's conclusion that federally charted savings and loan companies may legally offer DCCs and DSAs; and a North Carolina decision which held that a Bank's powers include powers "fairly incident to" those which are expressly granted in the ruling. See http://www.nccob.org/NR/rdonlyres/50C27BCF-E50D-4B75-B117-08794B91701D/0/declaratory_ruling200401.pdf

South Carolina Cautions Mortgage Brokers Against Misleading Advertisements. On June 21, the South Carolina Department of Consumer Affairs warned mortgage brokers against presenting themselves in the "guise of a lender" or otherwise "pursuing a course of misrepresentation" when making solicitations, as such conduct violates S.C. Code Ann. § 40-58-70(1).

Vermont Announces New Disclosure Requirements for Mobile Home Retail Installment Contracts. On June 30, the Vermont Department of Banking, Insurance, Securities and Health Care Administration mandated the attachment of a new disclosure to all mobile home retail installment contracts beginning July 1, 2004 . The disclosure notifies potential buyers that they may be eligible for a less expensive loan from another lender and provides contact information for agencies that maintain lists of licensed lenders. All retail sellers are required to use the model disclosure unless or until a customized form has been approved by the Department. A copy of the model disclosure is available at: www.bishca.state.vt.us/RegsBulls/bnkbulls/bul27.pdf.

COURTS

Two Casinos Pay $325,000 to FTC to Settle FCRA Employee Adverse Action Claims. According to the FTC, the two affiliated casinos rejected job applicants on the basis of their credit reports, and then failed to provide them with required notices or a copy of the report. Obtaining credit reports on prospective employees is a common practice in the financial services industry, and this settlement may signal a newly aggressive enforcement posture on the FTC's part. United States v. Imperial Palace, Inc., Civ. No. CV-S-04-0963-RLH-PAL (D. Nev., filed July 13, 2004 ); press release with links to court documents available at http://www.ftc.gov/opa/2004/07/imperial.htm.

MISCELLANY

Ken Markison Appointed to MBA's Government Affairs Department. The Mortgage Bankers Association announced the appointment of Ken Markison, formerly of HUD, to the position of senior director and regulatory counsel. Markison's previously held the position at HUD of assistant general counsel for government-sponsored enterprises (GSE's) and the Real Estate Settlement Procedures Act (RESPA). See: http://www.mortgagebankers.org/mbanewslink/issues/2004/07/14.asp#r1

FTC Bureau of Consumer Protection Director Howard Beales Will Leave the Agency. The FTC announced that Lydia Parnes, longtime Deputy Director, will serve as Acting Director following Beales' departure on August 6, 2004 . See http://www.ftc.gov/opa/2004/07/beales.htm.

© Buckley Kolar, LLP 2004. 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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