InfoBytes, June 12, 2009
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Banking
- Consumer Finance
- Securities
- Litigation
- E-Financial Services
- Privacy/Data Security
- Credit Cards
Federal Issues
Treasury Issues Interim Final Rule Regarding Executive Compensation, Corporate Governance for TARP Recipients. On June 10, the U.S. Department of the Treasury issued an interim final rule regarding guidance on the executive compensation and corporate governance provisions of Emergency Economic Stabilization Act of 2008 applicable to entities that have received financial assistance under the Troubled Asset Relief Program (TARP). Among other things, the interim final rule (i) limits executive compensation for certain executives and highly compensated employees at companies receiving TARP funds, (ii) appoints Kenneth R. Feinberg as the Special Master for TARP Executive Compensation (the so-called "pay czar") to review compensation plans at firms receiving "exceptional" assistance, (iii) implements and expands proposals such as required risk analysis of compensation, luxury expenditure policies, and "say on pay" requirements, and (iv) sets additional compensation and governance standards to improve accountability and disclosure. The interim final rule becomes effective 60 days after being published in the Federal Register. For a copy of the press release, please see http://www.financialstability.gov/latest/tg_0609b2009.html. For a copy of the interim final rule, please see http://www.financialstability.gov/docs/EC_IFR_FR_web60909.pdf.
Federal Banking Agencies and FTC Issue Final Rules on FACTA Furnisher Requirements. The federal banking agencies (the Office of the Comptroller of the Currency; the Board of Governors of the Federal Reserve System; the Federal Deposit Insurance Corporation; the Office of Thrift Supervision; and the National Credit Union Administration) and Federal Trade Commission recently approved for publication in the Federal Register final rules and guidelines that implement section 312 of the Fair and Accurate Credit Transactions Act of 2003 (FACTA). The final rules (i) provide guidelines for use by furnishers of consumer credit information regarding the accuracy and integrity of the information furnished to consumer reporting agencies, (ii) require furnishers to establish reasonable policies and procedures for implementing the guidelines, and (iii) implement a provision of FACTA that allows consumers to directly dispute inaccurate consumer report information. Additionally, an advance notice of proposed rulemaking has been issued to determine (i) under what circumstances a furnisher would be expected to provide an account opening date to a consumer reporting agency to promote the integrity of the information, and (ii) whether furnishers should be expected to provide any other types of information to a consumer reporting agency to promote integrity. For a copy of the final rules and guidelines, please see http://www.occ.treas.gov/ftp/release/2009-64a.pdf. For a copy of the advanced notice of proposed rulemaking, please see http://www.occ.treas.gov/ftp/release/2009-64b.pdf.
Federal Banking Agencies and FTC Release FAQ Regarding Red Flags, Card Issuers’ and Address Discrepancy Rules. On June 11, the federal banking agencies and the Federal Trade Commission issued a joint FAQ regarding the “Red Flags and Address Discrepancy Rules” that implement sections of FACTA. The “Red Flags Rules” requires financial institutions and creditors to develop and implement written identity theft programs. The “Card Issuers’ Rules” and the “Address Discrepancy Rules” require issuers of credit and debit cards to assess the validity of notifications of changes of address. The FAQ elaborates supplemental information to the final rules and explains how select provisions of the rulemaking apply to certain situations. The FAQ explains, for example, which types of entities and accounts are covered and how to establish and administer an Identity Theft Prevention Program. For a copy of the FAQ, please see http://www.ftc.gov/os/2009/06/090611redflagsfaq.pdf.
FTC Announces Filing of Civil Action Against Mortgage Foreclosure Rescue Company. On June 10, the Federal Trade Commission (FTC) announced that it has filed a temporary restraining order in a California federal court alleging that a mortgage foreclosure rescue and loan modification service provider violated a 2001 court order. The FTC initially alleged that the company, among other things, did not provide loan modification services, as advertised, and falsely claimed that it would provide experienced real estate attorneys to assist and represent consumers. The FTC’s temporary restraining order filing alleges that Bryan D’Antonio and three companies he controls, The Rodis Law Group Inc., America’s Law Group Inc., and The Financial Group Inc., doing business as Tax Relief ASAP, violated a 2001 stipulated final judgment by telemarketing and misrepresenting material facts about goods or services. The FTC seeks, among other things, to permanently ban the defendants from selling mortgage products or services and to halt the unauthorized activity. For a copy of the press release, please see http://www.ftc.gov/opa/2009/06/medicalcapital.shtm. For a copy of the temporary restraining order, please see http://www.ftc.gov/os/caselist/x000001/090610dmctro.pdf.
Senator Dodd Indicates Support for New Consumer Protection Agency to Regulate Credit, Bank Products. On June 11, Senator Christopher J. Dodd announced his support for an independent consumer protection agency to regulate credit and bank products. Among other things, the agency would (i) have “broad” regulatory and enforcement authority over credit and bank products, (ii) protect consumers from predatory lending practices, and (iii) have a seat on a proposed systemic risk council. The proposed agency would take over the consumer protection rulemaking authority currently held by the Board of Governors of the Federal Reserve System. This concept has been championed by Professor Elizabeth Warren, currently the chair of the Congressional Oversight Panel that was established to provide additional review over Treasury and regulatory reform. For a copy of Senator Dodd’s press release, please see http://dodd.senate.gov/?q=node/5015.
Comptroller Dugan Calls for Additional Regulation of Reverse Mortgages. On June 8, Comptroller of the Currency Dugan spoke at a meeting of the American Bankers Association regarding reverse mortgages. Comptroller Dugan stressed that regulatory agencies should ensure that pending interagency guidance regarding reverse mortgages will provide adequate protections for consumers. In this regard, Comptroller Dugan suggested that “more definitive regulatory standards,” beyond mere guidance, may be required. The Office of Comptroller of the Currency (OCC) will implement existing regulations and develop new guidelines to ensure that borrowers are not, among other things, forced to purchase an annuity or life insurance policy as a condition to obtaining a reverse mortgage. Finally, Comptroller Dugan stated that the U.S. Department of Housing and Urban Development should address the lack of escrow requirements for home equity conversion mortgages. For a copy of the speech, please see http://www.occ.treas.gov/ftp/release/2009-61.htm.
Federal Banking Agencies Make Available 2009 List of Distressed, Underserved Geographies. On June 8, the federal banking agencies released the “2009 List of Middle-Income Nonmetropolitan Distressed or Underserved Geographies.” The geographies reflect local economic conditions, including indications of unemployment, poverty, and population changes. Revitalization or stabilization activities in communities on the list receive Community Reinvestment Act consideration as “community development.” For a copy of the press release, please see http://www.occ.treas.gov/ftp/release/2009-62.htm. For a copy of the source information and methodology, please see http://www.ffiec.gov/cra/pdf/sourcelist2009.pdf. For a copy of the list, please see http://www.ffiec.gov/cra/pdf/2009distressedorunderservedtracts_508.pdf.
Treasury Issues Statement Regarding Executive Compensation. On June 10, the U.S. Department of the Treasury issued a statement regarding executive compensation. The statement endorses proposed "say on pay" legislation that would give the Securities and Exchange Commission (SEC) authority to require companies to give shareholders a non-binding vote on executive compensation packages. The statement also contemplates granting the SEC authority to ensure that compensation committees are more independent by requiring compensation committees to adhere to standards similar to those of audit committees under the Sarbanes-Oxley Act of 2002. For a copy of the "say on pay" fact sheet, please see http://www.treas.gov/press/releases/reports/fact_sheet_say%20on%20pay.pdf. For a copy of the fact sheet regarding the proposed changes to compensation committees, please see http://www.treas.gov/press/releases/reports/fact_sheet_indepcompcmte.pdf.
State Issues
Massachusetts Attorney General Settles with Lender for $10 Million. On June 9, Massachusetts Attorney General Martha Coakley announced a $10 million settlement agreement with Fremont Investment & Loan and its parent Fremont General Corporation (Fremont) to resolve a lawsuit against the lender. The lawsuit, first filed in 2007, alleged that Fremont engaged in unfair and deceptive loan origination and sales conduct, and that it made risky loans that it knew were designed to fail. As part of the settlement, Fremont agreed not to foreclose upon loans deemed “unfair” without certain protections for borrowers and not to originate “unfair” loans in Massachusetts. The settlement makes permanent the protections against foreclosure of “presumptively unfair” loans, which Massachusetts courts had previously enforced against Fremont (reported in InfoBytes Special Alert, Dec. 9, 2008). For a copy of the settlement agreement, please see http://www.mass.gov/Cago/docs/press/2009_06_09_fremont_consent_judgment.pdf.
New York Attorney General to Sue Foreclosure Rescue Service Company; Subpoenas Fourteen Others. On June 9, New York Attorney General Andrew M. Cuomo announced his intention to sue American Modification Agency, Inc. and its owner in connection with the company’s mortgage foreclosure rescue service business. According to Attorney General Cuomo, the company (i) charged illegal up-front fees, (ii) used misleading advertising that suggested that the company was fully licensed and included unsubstantiated claims of previous success, (iii) failed to provide contracts including a required notice of right to cancel, and (iv) failed to provide Spanish-speaking consumers with Spanish contracts, as required by New York law. Attorney General Cuomo has also has also served subpoenas on fourteen other loan modification companies as part of an ongoing investigation into mortgage foreclosure rescue companies. For a copy of the press release, please see http://www.oag.state.ny.us/media_center/2009/june/june9a_09.html.
South Carolina Supreme Court Issues Order Requiring Notice of Applicability of Home Affordable Modification Program in Foreclosure Actions. On May 22, the Chief Justice of the Supreme Court of South Carolina issued an administrative order requiring residential mortgage loan servicers to confirm, prior to the closing of any foreclosure action, whether or not the borrower is eligible for a loan modification under the Home Affordable Modification Program (HMP). For foreclosure actions filed after May 4, 2009, servicers are required to address HMP eligibility in the complaint commencing the foreclosure action. For foreclosure actions that were pending on May 4, 2009, servicers were required to file and serve an affidavit regarding HMP eligibility by May 15, 2009, in line with a temporary restraining order that was previously-issued by the court. The administrative order identifies specific guidelines for, among other things, when (i) the HMP process has not resulted in a modification, (ii) the HMP process has not yet been completed, and (iii) it is determined that a loan is not subject to modification under the HMP. For a copy of the administrative order, please see http://www.sccourts.org/whatsnew/displaywhatsnew.cfm?indexID=532.
Nevada Passes Legislation Regarding Mortgage Foreclosure; Requires Licensure of Foreclosure, Loan Modification Consultants. Recently, Nevada Governor James A. Gibbons acted on four bills (AB 149, AB 151, AB 152, and AB 486) relating to mortgage foreclosure. Signed on May 29 and phasing into place by July 1, 2009, AB 152 requires certain foreclosure consultants, loan modification consultants, and others to register and be licensed as mortgage brokers or agents. Signed on May 29 and effective July 1, 2009, AB 149 concerns foreclosure mediation and will allow homeowners in default to request a mediation hearing with their lender and no further action may be taken to exercise the power of sale until the completion of the mediation. Also signed on May 29 and effective upon the governor’s signature, AB 151 requires mortgage brokers to include their license number on each loan secured by a lien on real property. Among other things, the bill also details applicable fines and penalties associated with failing to properly disclose a license number as directed. Finally, AB 486, effective October 1, 2009, became law without the Governor’s signature on May 26. This bill allows a party to a loan contract to void the contract if a person engaged in the escrow business or as a mortgage broker, mortgage agent or mortgage banker is operating without a proper license. The bill designates a $50,000 administrative fine against such unlicensed parties, and also authorizes parties to bring civil suits against unlicensed parties in certain circumstances. For a copy of AB 152, please see http://www.leg.state.nv.us/75th2009/Bills/AB/AB152_EN.pdf. For a copy of AB 149, please see http://www.leg.state.nv.us/75th2009/Bills/AB/AB149_EN.pdf. For a copy of AB 151, please see http://www.leg.state.nv.us/75th2009/Bills/AB/AB151_EN.pdf. For a copy of AB 486, please see http://www.leg.state.nv.us/75th2009/Bills/AB/AB486_EN.pdf.
Nevada Law Requires Businesses to Encrypt Personal Information; Compliance with PCI Data Security Standard. On May 29, Nevada Governor James A. Gibbons signed SB 227, a bill that requires Nevada data collectors to encrypt “personal information” that is moved or electronically transferred to an outside party. If such encryption is in place, a company is shielded from liability resulting from a data breach, except in cases of gross negligence or intentional misconduct. The bill further requires data collectors that accept debit or credit cards to comply with the current Payment Card Industry Data Security Standard. The bill becomes effective January 1, 2010. For a copy of the bill, please see http://www.leg.state.nv.us/75th2009/Bills/SB/SB227_EN.pdf.
Massachusetts Regulator Issues Cease and Desist Orders. On June 4, the Massachusetts Division of Banks announced it has recently closed the operations of three licensees in addition to issuing 87 cease and desist orders against licensed mortgage lenders and mortgage brokers. The companies allegedly failed to provide financial statements and evidence of a surety bond in connection with a March 31, 2009 deadline. The cease and desist orders prohibit the companies from accepting new applications and require the companies to place all pending applications with a qualified lender or broker at no expense to the consumer. For a copy of the press release, please see http://www.buckleysandler.com/MA_June_4_2009.pdf.
Courts
Sixth Circuit Holds Tolling for EFTA Claims Starts When First Transfer Takes Place. On June 2, the U.S. Court of Appeals for the Sixth Circuit, in a case of first impression, held that an Electronic Funds Transfer Act (EFTA) violation occurs when the first transfer of funds in violation of the EFTA takes place, not when the transfer is “arranged.” Wike v. Vertrue, Inc., No. 08-5905, 2009 WL 1515407 (6th Cir. June 2, 2009). In Wike, the defendant telemarketer sold the plaintiff a discount club membership over the telephone. Funds were transferred from the plaintiff’s bank account on a recurring monthly basis via the plaintiff’s debit card number voluntarily provided by the consumer during the call, but without providing the EFTA-required written preauthorization. In holding that tolling of the statute of limitations period begins when the transfer takes place, the court reasoned (i) the key provision of the statute “speaks of preauthorized ‘transfers,’ not efforts to arrange them,” (ii) generally, “the statute of limitations begins to run ‘when the plaintiff has a complete and present cause of action’ and thus ‘can file suit and obtain relief,’” and (iii) “the practicalities of these transactions support this interpretation,” i.e., “[h]ow can a consumer learn of a noncompliant transfer—and know that the time for protecting her rights is running—until the transfer takes place.” For a copy of the opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/09a0194p-06.pdf.
New Jersey Federal Court Dismisses RESPA Fee-Splitting Claim. On June 5, the U.S. District Court for the District of New Jersey held that defendants did not violate of Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) by charging a settlement fee for which no services were performed. Tubbs v. North American Title Agency, Inc., CIV NO. 08-3178, 2009 WL 157677 (D.N.J. June 5, 2009). The plaintiff creditors had two mortgage loans with Wachovia. When they refinanced the loans, the HUD-1A reflected a fee from North American Title Agency (Title Agency) in the amount of $150 for “Release Recording Fees: Release” for the two mortgages. However, Wachovia, not the Title Agency, actually prepared and recorded the release. For its services, Wachovia charged a fee of $80 per mortgage at closing, which included the $40 per mortgage recording fee, additional fees for the payoff statement, and other miscellaneous items. The plaintiffs claimed that the Title Agency’s fee constituted an illegal “mark-up” of the recording fees. However, the court agreed with the Title Agency that it did not actually split a fee for the same service with any third party, and that the fees charged by Wachovia and the Title Agency were not for the same settlement service. In response to the plaintiffs’ allegations, the defendants pointed to the New Jersey Land Title Insurance Rating Bureau’s Manual of Rates and Charges, which provides that a title insurer “shall charge $75.00 for each mortgage to be satisfied, inclusive of recording fees.” The court reasoned that, based on the manual, the Title Agency should have deducted the amount of the recording fees from its fees, and charged a total of $70 rather than $150, since Wachovia charged plaintiffs the recording fee. Nonetheless, the court observed that “all this demonstrates is that, if anything, Title Agency overcharged Plaintiffs, not that they marked up Wachovia’s fee, or split payment with Wachovia for services Title Agency did not perform.” In ruling that plaintiffs failed to state a claim under RESPA, the court cited Santiago v. GMAC Mortgage Group, Inc., 417 F.3d 384 (3d Cir. 2005) for the proposition that such an overcharge is not a violation of RESPA. For a copy of the opinion, please see http://www.buckleysandler.com/Tubbs_v_N_American.pdf.
Florida Court Holds No TILA Disclosures Required for Spouse with No Ownership Interest. On June 2, the District Court of Appeal of the State of Florida (Fourth District) held that a spouse who did not sign the note to a mortgage was not a consumer with an “ownership interest” for the purposes of the Truth in Lending Act (TILA) and, thus, was not required to be provided with TILA disclosures at the time of the mortgage loan. Gancedo v. Caprio, No. 4D08-1735 (Fla. 4th DCA June 3, 2009). In Gancedo, the defendants, a husband and wife, obtained a mortgage loan from the plaintiffs. Both defendants executed the mortgage; however, only the husband signed the note. The husband then defaulted on the note and mortgage and the lender filed for foreclosure. The wife argued that she had a right to cancel the mortgage transaction within three years because she was not provided with the required TILA disclosures when she executed the mortgage. In holding that the wife was not a consumer with an “ownership interest” for the purposes of TILA, and thus was not required to be given such disclosures, the court first rejected the argument that the defendants were “tenants by the entireties” because the wife’s name was not on the deed. The court also reasoned that a “post-nuptial agreement” merely contemplated a future conveyance of the property interest, and did not immediately create an “ownership interest.” As a result, the court of appeals reversed the lower court’s granting of summary judgment in favor of the defendants. For a copy of the opinion, please see http://www.4dca.org/opinions/June%202009/06-03-09/4D08-1735.op.pdf.
Illinois Federal Court Holds Creditor Had No Permissible Purpose Under FCRA to Access a Consumer Report for a Closed Account. On June 4, the U.S. District Court for the Northern District of Illinois held that a creditor had no permissible purpose under the Fair Credit Reporting Act (FCRA) to access a consumer report for a closed account. Pulliam v. American Express Travel Related Services Co. Inc., Case No. 08 C 6690, 2009 WL 1586012 (N.D. Ill. June 4, 2009). In Pulliam, the creditor obtained a judgment against a consumer in connection with a past-due balance on an account. After a settlement regarding the judgment was paid by the plaintiff, the creditor accessed the plaintiff’s consumer report. The consumer subsequently filed suit, alleging, among other things, that the defendant did so without a “permissible purpose.” The creditor countered that it had a right under FCRA to access the report because the consumer previously had an account with it. In denying the creditor’s motion for summary judgment on this claim, the court reasoned that, while the creditor’s argument might pertain to whether the creditor’s action was “objectively unreasonable” under § 1681n, subjecting the creditor to statutory damages of $100 to $1000 per violation, it was inapplicable to whether the creditor had a “permissible purpose” under § 1681b. The court also denied the creditor’s motion for summary judgment regarding a claim under § 1681s-2(b) of FCRA. The court, however, dismissed the consumer’s remaining claims under the Fair Debt Collection Practices Act and §1681s-2(a) of FCRA, as well as state law claims of fraud, breach of contract, and intentional interference with prospective economic advantage. For a copy of the opinion, please see http://www.buckleysandler.com/Pulliam_v_Am_Ex_Travel.pdf.
Pennsylvania Court Holds “Mailbox” Rule Inapplicable to Email Communication. On May 11, the Commonwealth Court of Pennsylvania held that, under a regulation stating that email transmissions are deemed filed when received, the common law “mailbox” rule is not applicable to email communications. Roman-Hutchinson v. Unemployment Compensation Board of Review, No. 08-2112 (Pa. Commw. Ct., May 11, 2009). In Roman-Hutchinson, the plaintiff appealed a denial of unemployment compensation to the Pennsylvania Department of Labor and Industry by submitting the appeal by email prior to the due date. However, the email was not received until after the deadline, and, consequently, the appeal was dismissed. The plaintiff appealed the dismissal and argued that, under the “mailbox” rule, the appeal was submitted on time because it was submitted to the correct email address before the deadline. In holding that the “mailbox” rule does not apply to such emails, the court looked to a Pennsylvania Department of Labor and Industry regulation providing that email transmissions are deemed filed when received. The court noted that the regulation contemplated a situation in which an email might not be received timely by an addressee; the regulation clearly stated that the risk of an untimely filing in this situation was placed on the claimant. As a result, the court affirmed the dismissal of the appeal. For a copy of the opinion, please see http://www.buckleysandler.com/Roman-Hutchinson.pdf.
Firm News
Andrea Lee Negroni will deliver a 1-hour audio conference on foreclosure rescue scams, how they work and government efforts to prevent them (including recent enforcement actions), on June 30 at 2pm through Sheshunoff/A.S. Pratt Audio Conferences. The audio conference will be followed by a 30-minute Q&A session (by phone). To register, call 512 472 2244 or see http://www.sheshunoff.com/audio/.
Comments by Andrew Sandler along with a reference to BuckleySandler were included in an article published by Reuters. For a copy of the article, please see http://www.reuters.com/article/domesticNews/idUSTRE5546ZC20090605.
Jeff Naimon spoke on June 7 and June 8 at the American Bankers Association Regulatory Compliance Conference in Orlando, Florida on the “New Mortgage Transaction” panel.
Margo Tank spoke in an audio conference series entitled "Building Effective Electronic Records and Electronic Records Management Systems: Navigating the Legal Traps" on June 10.
Mortgages
Comptroller Dugan Calls for Additional Regulation of Reverse Mortgages. On June 8, Comptroller of the Currency Dugan spoke at a meeting of the American Bankers Association regarding reverse mortgages. Comptroller Dugan stressed that regulatory agencies should ensure that pending interagency guidance regarding reverse mortgages will provide adequate protections for consumers. In this regard, Comptroller Dugan suggested that “more definitive regulatory standards,” beyond mere guidance, may be required. The Office of Comptroller of the Currency (OCC) will implement existing regulations and develop new guidelines to ensure that borrowers are not, among other things, forced to purchase an annuity or life insurance policy as a condition to obtaining a reverse mortgage. Finally, Comptroller Dugan stated that the U.S. Department of Housing and Urban Development should address the lack of escrow requirements for home equity conversion mortgages. For a copy of the speech, please see http://www.occ.treas.gov/ftp/release/2009-61.htm.
Massachusetts Attorney General Settles with Lender for $10 Million. On June 9, Massachusetts Attorney General Martha Coakley announced a $10 million settlement agreement with Fremont Investment & Loan and its parent Fremont General Corporation (Fremont) to resolve a lawsuit against the lender. The lawsuit, first filed in 2007, alleged that Fremont engaged in unfair and deceptive loan origination and sales conduct, and that it made risky loans that it knew were designed to fail. As part of the settlement, Fremont agreed not to foreclose upon loans deemed “unfair” without certain protections for borrowers and not to originate “unfair” loans in Massachusetts. The settlement makes permanent the protections against foreclosure of “presumptively unfair” loans, which Massachusetts courts had previously enforced against Fremont (reported in InfoBytes Special Alert, Dec. 9, 2008). For a copy of the settlement agreement, please see http://www.mass.gov/Cago/docs/press/2009_06_09_fremont_consent_judgment.pdf.
New York Attorney General to Sue Foreclosure Rescue Service Company; Subpoenas Fourteen Others. On June 9, New York Attorney General Andrew M. Cuomo announced his intention to sue American Modification Agency, Inc. and its owner in connection with the company’s mortgage foreclosure rescue service business. According to Attorney General Cuomo, the company (i) charged illegal up-front fees, (ii) used misleading advertising that suggested that the company was fully licensed and included unsubstantiated claims of previous success, (iii) failed to provide contracts including a required notice of right to cancel, and (iv) failed to provide Spanish-speaking consumers with Spanish contracts, as required by New York law. Attorney General Cuomo has also has also served subpoenas on fourteen other loan modification companies as part of an ongoing investigation into mortgage foreclosure rescue companies. For a copy of the press release, please see http://www.oag.state.ny.us/media_center/2009/june/june9a_09.html.
South Carolina Supreme Court Issues Order Requiring Notice of Applicability of Home Affordable Modification Program in Foreclosure Actions. On May 22, the Chief Justice of the Supreme Court of South Carolina issued an administrative order requiring residential mortgage loan servicers to confirm, prior to the closing of any foreclosure action, whether or not the borrower is eligible for a loan modification under the Home Affordable Modification Program (HMP). For foreclosure actions filed after May 4, 2009, servicers are required to address HMP eligibility in the complaint commencing the foreclosure action. For foreclosure actions that were pending on May 4, 2009, servicers were required to file and serve an affidavit regarding HMP eligibility by May 15, 2009, in line with a temporary restraining order that was previously-issued by the court. The administrative order identifies specific guidelines for, among other things, when (i) the HMP process has not resulted in a modification, (ii) the HMP process has not yet been completed, and (iii) it is determined that a loan is not subject to modification under the HMP. For a copy of the administrative order, please see http://www.sccourts.org/whatsnew/displaywhatsnew.cfm?indexID=532.
Nevada Passes Legislation Regarding Mortgage Foreclosure; Requires Licensure of Foreclosure, Loan Modification Consultants. Recently, Nevada Governor James A. Gibbons acted on four bills (AB 149, AB 151, AB 152, and AB 486) relating to mortgage foreclosure. Signed on May 29 and phasing into place by July 1, 2009, AB 152 requires certain foreclosure consultants, loan modification consultants, and others to register and be licensed as mortgage brokers or agents. Signed on May 29 and effective July 1, 2009, AB 149 concerns foreclosure mediation and will allow homeowners in default to request a mediation hearing with their lender and no further action may be taken to exercise the power of sale until the completion of the mediation. Also signed on May 29 and effective upon the governor’s signature, AB 151 requires mortgage brokers to include their license number on each loan secured by a lien on real property. Among other things, the bill also details applicable fines and penalties associated with failing to properly disclose a license number as directed. Finally, AB 486, effective October 1, 2009, became law without the Governor’s signature on May 26. This bill allows a party to a loan contract to void the contract if a person engaged in the escrow business or as a mortgage broker, mortgage agent or mortgage banker is operating without a proper license. The bill designates a $50,000 administrative fine against such unlicensed parties, and also authorizes parties to bring civil suits against unlicensed parties in certain circumstances. For a copy of AB 152, please see http://www.leg.state.nv.us/75th2009/Bills/AB/AB152_EN.pdf. For a copy of AB 149, please see http://www.leg.state.nv.us/75th2009/Bills/AB/AB149_EN.pdf. For a copy of AB 151, please see http://www.leg.state.nv.us/75th2009/Bills/AB/AB151_EN.pdf. For a copy of AB 486, please see http://www.leg.state.nv.us/75th2009/Bills/AB/AB486_EN.pdf.
Massachusetts Regulator Issues Cease and Desist Orders. On June 4, the Massachusetts Division of Banks announced it has recently closed the operations of three licensees in addition to issuing 87 cease and desist orders against licensed mortgage lenders and mortgage brokers. The companies allegedly failed to provide financial statements and evidence of a surety bond in connection with a March 31, 2009 deadline. The cease and desist orders prohibit the companies from accepting new applications and require the companies to place all pending applications with a qualified lender or broker at no expense to the consumer. For a copy of the press release, please see http://www.buckleysandler.com/MA_June_4_2009.pdf.
New Jersey Federal Court Dismisses RESPA Fee-Splitting Claim. On June 5, the U.S. District Court for the District of New Jersey held that defendants did not violate of Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) by charging a settlement fee for which no services were performed. Tubbs v. North American Title Agency, Inc., CIV NO. 08-3178, 2009 WL 157677 (D.N.J. June 5, 2009). The plaintiff creditors had two mortgage loans with Wachovia. When they refinanced the loans, the HUD-1A reflected a fee from North American Title Agency (Title Agency) in the amount of $150 for “Release Recording Fees: Release” for the two mortgages. However, Wachovia, not the Title Agency, actually prepared and recorded the release. For its services, Wachovia charged a fee of $80 per mortgage at closing, which included the $40 per mortgage recording fee, additional fees for the payoff statement, and other miscellaneous items. The plaintiffs claimed that the Title Agency’s fee constituted an illegal “mark-up” of the recording fees. However, the court agreed with the Title Agency that it did not actually split a fee for the same service with any third party, and that the fees charged by Wachovia and the Title Agency were not for the same settlement service. In response to the plaintiffs’ allegations, the defendants pointed to the New Jersey Land Title Insurance Rating Bureau’s Manual of Rates and Charges, which provides that a title insurer “shall charge $75.00 for each mortgage to be satisfied, inclusive of recording fees.” The court reasoned that, based on the manual, the Title Agency should have deducted the amount of the recording fees from its fees, and charged a total of $70 rather than $150, since Wachovia charged plaintiffs the recording fee. Nonetheless, the court observed that “all this demonstrates is that, if anything, Title Agency overcharged Plaintiffs, not that they marked up Wachovia’s fee, or split payment with Wachovia for services Title Agency did not perform.” In ruling that plaintiffs failed to state a claim under RESPA, the court cited Santiago v. GMAC Mortgage Group, Inc., 417 F.3d 384 (3d Cir. 2005) for the proposition that such an overcharge is not a violation of RESPA. For a copy of the opinion, please see http://www.buckleysandler.com/Tubbs_v_N_American.pdf.
Florida Court Holds No TILA Disclosures Required for Spouse with No Ownership Interest. On June 2, the District Court of Appeal of the State of Florida (Fourth District) held that a spouse who did not sign the note to a mortgage was not a consumer with an “ownership interest” for the purposes of the Truth in Lending Act (TILA) and, thus, was not required to be provided with TILA disclosures at the time of the mortgage loan. Gancedo v. Caprio, No. 4D08-1735 (Fla. 4th DCA June 3, 2009). In Gancedo, the defendants, a husband and wife, obtained a mortgage loan from the plaintiffs. Both defendants executed the mortgage; however, only the husband signed the note. The husband then defaulted on the note and mortgage and the lender filed for foreclosure. The wife argued that she had a right to cancel the mortgage transaction within three years because she was not provided with the required TILA disclosures when she executed the mortgage. In holding that the wife was not a consumer with an “ownership interest” for the purposes of TILA, and thus was not required to be given such disclosures, the court first rejected the argument that the defendants were “tenants by the entireties” because the wife’s name was not on the deed. The court also reasoned that a “post-nuptial agreement” merely contemplated a future conveyance of the property interest, and did not immediately create an “ownership interest.” As a result, the court of appeals reversed the lower court’s granting of summary judgment in favor of the defendants. For a copy of the opinion, please see http://www.4dca.org/opinions/June%202009/06-03-09/4D08-1735.op.pdf.
Banking
Treasury Issues Interim Final Rule Regarding Executive Compensation, Corporate Governance for TARP Recipients. On June 10, the U.S. Department of the Treasury issued an interim final rule regarding guidance on the executive compensation and corporate governance provisions of Emergency Economic Stabilization Act of 2008 applicable to entities that have received financial assistance under the Troubled Asset Relief Program (TARP). Among other things, the interim final rule (i) limits executive compensation for certain executives and highly compensated employees at companies receiving TARP funds, (ii) appoints Kenneth R. Feinberg as the Special Master for TARP Executive Compensation (the so-called "pay czar") to review compensation plans at firms receiving "exceptional" assistance, (iii) implements and expands proposals such as required risk analysis of compensation, luxury expenditure policies, and "say on pay" requirements, and (iv) sets additional compensation and governance standards to improve accountability and disclosure. The interim final rule becomes effective 60 days after being published in the Federal Register. For a copy of the press release, please see http://www.financialstability.gov/latest/tg_0609b2009.html. For a copy of the interim final rule, please see http://www.financialstability.gov/docs/EC_IFR_FR_web60909.pdf.
Federal Banking Agencies and FTC Issue Final Rules on FACTA Furnisher Requirements. The federal banking agencies (the Office of the Comptroller of the Currency; the Board of Governors of the Federal Reserve System; the Federal Deposit Insurance Corporation; the Office of Thrift Supervision; and the National Credit Union Administration) and Federal Trade Commission recently approved for publication in the Federal Register final rules and guidelines that implement section 312 of the Fair and Accurate Credit Transactions Act of 2003 (FACTA). The final rules (i) provide guidelines for use by furnishers of consumer credit information regarding the accuracy and integrity of the information furnished to consumer reporting agencies, (ii) require furnishers to establish reasonable policies and procedures for implementing the guidelines, and (iii) implement a provision of FACTA that allows consumers to directly dispute inaccurate consumer report information. Additionally, an advance notice of proposed rulemaking has been issued to determine (i) under what circumstances a furnisher would be expected to provide an account opening date to a consumer reporting agency to promote the integrity of the information, and (ii) whether furnishers should be expected to provide any other types of information to a consumer reporting agency to promote integrity. For a copy of the final rules and guidelines, please see http://www.occ.treas.gov/ftp/release/2009-64a.pdf. For a copy of the advanced notice of proposed rulemaking, please see http://www.occ.treas.gov/ftp/release/2009-64b.pdf.
Federal Banking Agencies and FTC Release FAQ Regarding Red Flags, Card Issuers’ and Address Discrepancy Rules. On June 11, the federal banking agencies and the Federal Trade Commission issued a joint FAQ regarding the “Red Flags and Address Discrepancy Rules” that implement sections of FACTA. The “Red Flags Rules” requires financial institutions and creditors to develop and implement written identity theft programs. The “Card Issuers’ Rules” and the “Address Discrepancy Rules” require issuers of credit and debit cards to assess the validity of notifications of changes of address. The FAQ elaborates supplemental information to the final rules and explains how select provisions of the rulemaking apply to certain situations. The FAQ explains, for example, which types of entities and accounts are covered and how to establish and administer an Identity Theft Prevention Program. For a copy of the FAQ, please see http://www.ftc.gov/os/2009/06/090611redflagsfaq.pdf.
Senator Dodd Indicates Support for New Consumer Protection Agency to Regulate Credit, Bank Products. On June 11, Senator Christopher J. Dodd announced his support for an independent consumer protection agency to regulate credit and bank products. Among other things, the agency would (i) have “broad” regulatory and enforcement authority over credit and bank products, (ii) protect consumers from predatory lending practices, and (iii) have a seat on a proposed systemic risk council. The proposed agency would take over the consumer protection rulemaking authority currently held by the Board of Governors of the Federal Reserve System. This concept has been championed by Professor Elizabeth Warren, currently the chair of the Congressional Oversight Panel that was established to provide additional review over Treasury and regulatory reform. For a copy of Senator Dodd’s press release, please see http://dodd.senate.gov/?q=node/5015.
Federal Banking Agencies Make Available 2009 List of Distressed, Underserved Geographies. On June 8, the federal banking agencies released the “2009 List of Middle-Income Nonmetropolitan Distressed or Underserved Geographies.” The geographies reflect local economic conditions, including indications of unemployment, poverty, and population changes. Revitalization or stabilization activities in communities on the list receive Community Reinvestment Act consideration as “community development.” For a copy of the press release, please see http://www.occ.treas.gov/ftp/release/2009-62.htm. For a copy of the source information and methodology, please see http://www.ffiec.gov/cra/pdf/sourcelist2009.pdf. For a copy of the list, please see http://www.ffiec.gov/cra/pdf/2009distressedorunderservedtracts_508.pdf.
Treasury Issues Statement Regarding Executive Compensation. On June 10, the U.S. Department of the Treasury issued a statement regarding executive compensation. The statement endorses proposed "say on pay" legislation that would give the Securities and Exchange Commission (SEC) authority to require companies to give shareholders a non-binding vote on executive compensation packages. The statement also contemplates granting the SEC authority to ensure that compensation committees are more independent by requiring compensation committees to adhere to standards similar to those of audit committees under the Sarbanes-Oxley Act of 2002. For a copy of the "say on pay" fact sheet, please see http://www.treas.gov/press/releases/reports/fact_sheet_say%20on%20pay.pdf. For a copy of the fact sheet regarding the proposed changes to compensation committees, please see http://www.treas.gov/press/releases/reports/fact_sheet_indepcompcmte.pdf.
Sixth Circuit Holds Tolling for EFTA Claims Starts When First Transfer Takes Place. On June 2, the U.S. Court of Appeals for the Sixth Circuit, in a case of first impression, held that an Electronic Funds Transfer Act (EFTA) violation occurs when the first transfer of funds in violation of the EFTA takes place, not when the transfer is “arranged.” Wike v. Vertrue, Inc., No. 08-5905, 2009 WL 1515407 (6th Cir. June 2, 2009). In Wike, the defendant telemarketer sold the plaintiff a discount club membership over the telephone. Funds were transferred from the plaintiff’s bank account on a recurring monthly basis via the plaintiff’s debit card number voluntarily provided by the consumer during the call, but without providing the EFTA-required written preauthorization. In holding that tolling of the statute of limitations period begins when the transfer takes place, the court reasoned (i) the key provision of the statute “speaks of preauthorized ‘transfers,’ not efforts to arrange them,” (ii) generally, “the statute of limitations begins to run ‘when the plaintiff has a complete and present cause of action’ and thus ‘can file suit and obtain relief,’” and (iii) “the practicalities of these transactions support this interpretation,” i.e., “[h]ow can a consumer learn of a noncompliant transfer—and know that the time for protecting her rights is running—until the transfer takes place.” For a copy of the opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/09a0194p-06.pdf.
Consumer Finance
Federal Banking Agencies and FTC Issue Final Rules on FACTA Furnisher Requirements. The federal banking agencies (the Office of the Comptroller of the Currency; the Board of Governors of the Federal Reserve System; the Federal Deposit Insurance Corporation; the Office of Thrift Supervision; and the National Credit Union Administration) and Federal Trade Commission recently approved for publication in the Federal Register final rules and guidelines that implement section 312 of the Fair and Accurate Credit Transactions Act of 2003 (FACTA). The final rules (i) provide guidelines for use by furnishers of consumer credit information regarding the accuracy and integrity of the information furnished to consumer reporting agencies, (ii) require furnishers to establish reasonable policies and procedures for implementing the guidelines, and (iii) implement a provision of FACTA that allows consumers to directly dispute inaccurate consumer report information. Additionally, an advance notice of proposed rulemaking has been issued to determine (i) under what circumstances a furnisher would be expected to provide an account opening date to a consumer reporting agency to promote the integrity of the information, and (ii) whether furnishers should be expected to provide any other types of information to a consumer reporting agency to promote integrity. For a copy of the final rules and guidelines, please see http://www.occ.treas.gov/ftp/release/2009-64a.pdf. For a copy of the advanced notice of proposed rulemaking, please see http://www.occ.treas.gov/ftp/release/2009-64b.pdf.
Federal Banking Agencies and FTC Release FAQ Regarding Red Flags, Card Issuers’ and Address Discrepancy Rules. On June 11, the federal banking agencies and the Federal Trade Commission issued a joint FAQ regarding the “Red Flags and Address Discrepancy Rules” that implement sections of FACTA. The “Red Flags Rules” requires financial institutions and creditors to develop and implement written identity theft programs. The “Card Issuers’ Rules” and the “Address Discrepancy Rules” require issuers of credit and debit cards to assess the validity of notifications of changes of address. The FAQ elaborates supplemental information to the final rules and explains how select provisions of the rulemaking apply to certain situations. The FAQ explains, for example, which types of entities and accounts are covered and how to establish and administer an Identity Theft Prevention Program. For a copy of the FAQ, please see http://www.ftc.gov/os/2009/06/090611redflagsfaq.pdf.
FTC Announces Filing of Civil Action Against Mortgage Foreclosure Rescue Company. On June 10, the Federal Trade Commission (FTC) announced that it has filed a temporary restraining order in a California federal court alleging that a mortgage foreclosure rescue and loan modification service provider violated a 2001 court order. The FTC initially alleged that the company, among other things, did not provide loan modification services, as advertised, and falsely claimed that it would provide experienced real estate attorneys to assist and represent consumers. The FTC’s temporary restraining order filing alleges that Bryan D’Antonio and three companies he controls, The Rodis Law Group Inc., America’s Law Group Inc., and The Financial Group Inc., doing business as Tax Relief ASAP, violated a 2001 stipulated final judgment by telemarketing and misrepresenting material facts about goods or services. The FTC seeks, among other things, to permanently ban the defendants from selling mortgage products or services and to halt the unauthorized activity. For a copy of the press release, please see http://www.ftc.gov/opa/2009/06/medicalcapital.shtm. For a copy of the temporary restraining order, please see http://www.ftc.gov/os/caselist/x000001/090610dmctro.pdf.
Illinois Federal Court Holds Creditor Had No Permissible Purpose Under FCRA to Access a Consumer Report for a Closed Account. On June 4, the U.S. District Court for the Northern District of Illinois held that a creditor had no permissible purpose under the Fair Credit Reporting Act (FCRA) to access a consumer report for a closed account. Pulliam v. American Express Travel Related Services Co. Inc., Case No. 08 C 6690, 2009 WL 1586012 (N.D. Ill. June 4, 2009). In Pulliam, the creditor obtained a judgment against a consumer in connection with a past-due balance on an account. After a settlement regarding the judgment was paid by the plaintiff, the creditor accessed the plaintiff’s consumer report. The consumer subsequently filed suit, alleging, among other things, that the defendant did so without a “permissible purpose.” The creditor countered that it had a right under FCRA to access the report because the consumer previously had an account with it. In denying the creditor’s motion for summary judgment on this claim, the court reasoned that, while the creditor’s argument might pertain to whether the creditor’s action was “objectively unreasonable” under § 1681n, subjecting the creditor to statutory damages of $100 to $1000 per violation, it was inapplicable to whether the creditor had a “permissible purpose” under § 1681b. The court also denied the creditor’s motion for summary judgment regarding a claim under § 1681s-2(b) of FCRA. The court, however, dismissed the consumer’s remaining claims under the Fair Debt Collection Practices Act and §1681s-2(a) of FCRA, as well as state law claims of fraud, breach of contract, and intentional interference with prospective economic advantage. For a copy of the opinion, please see http://www.buckleysandler.com/Pulliam_v_Am_Ex_Travel.pdf.
Securities
Treasury Issues Statement Regarding Executive Compensation. On June 10, the U.S. Department of the Treasury issued a statement regarding executive compensation. The statement endorses proposed "say on pay" legislation that would give the Securities and Exchange Commission (SEC) authority to require companies to give shareholders a non-binding vote on executive compensation packages. The statement also contemplates granting the SEC authority to ensure that compensation committees are more independent by requiring compensation committees to adhere to standards similar to those of audit committees under the Sarbanes-Oxley Act of 2002. For a copy of the "say on pay" fact sheet, please see http://www.treas.gov/press/releases/reports/fact_sheet_say%20on%20pay.pdf. For a copy of the fact sheet regarding the proposed changes to compensation committees, please see http://www.treas.gov/press/releases/reports/fact_sheet_indepcompcmte.pdf.
Litigation
Sixth Circuit Holds Tolling for EFTA Claims Starts When First Transfer Takes Place. On June 2, the U.S. Court of Appeals for the Sixth Circuit, in a case of first impression, held that an Electronic Funds Transfer Act (EFTA) violation occurs when the first transfer of funds in violation of the EFTA takes place, not when the transfer is “arranged.” Wike v. Vertrue, Inc., No. 08-5905, 2009 WL 1515407 (6th Cir. June 2, 2009). In Wike, the defendant telemarketer sold the plaintiff a discount club membership over the telephone. Funds were transferred from the plaintiff’s bank account on a recurring monthly basis via the plaintiff’s debit card number voluntarily provided by the consumer during the call, but without providing the EFTA-required written preauthorization. In holding that tolling of the statute of limitations period begins when the transfer takes place, the court reasoned (i) the key provision of the statute “speaks of preauthorized ‘transfers,’ not efforts to arrange them,” (ii) generally, “the statute of limitations begins to run ‘when the plaintiff has a complete and present cause of action’ and thus ‘can file suit and obtain relief,’” and (iii) “the practicalities of these transactions support this interpretation,” i.e., “[h]ow can a consumer learn of a noncompliant transfer—and know that the time for protecting her rights is running—until the transfer takes place.” For a copy of the opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/09a0194p-06.pdf.
New Jersey Federal Court Dismisses RESPA Fee-Splitting Claim. On June 5, the U.S. District Court for the District of New Jersey held that defendants did not violate of Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) by charging a settlement fee for which no services were performed. Tubbs v. North American Title Agency, Inc., CIV NO. 08-3178, 2009 WL 157677 (D.N.J. June 5, 2009). The plaintiff creditors had two mortgage loans with Wachovia. When they refinanced the loans, the HUD-1A reflected a fee from North American Title Agency (Title Agency) in the amount of $150 for “Release Recording Fees: Release” for the two mortgages. However, Wachovia, not the Title Agency, actually prepared and recorded the release. For its services, Wachovia charged a fee of $80 per mortgage at closing, which included the $40 per mortgage recording fee, additional fees for the payoff statement, and other miscellaneous items. The plaintiffs claimed that the Title Agency’s fee constituted an illegal “mark-up” of the recording fees. However, the court agreed with the Title Agency that it did not actually split a fee for the same service with any third party, and that the fees charged by Wachovia and the Title Agency were not for the same settlement service. In response to the plaintiffs’ allegations, the defendants pointed to the New Jersey Land Title Insurance Rating Bureau’s Manual of Rates and Charges, which provides that a title insurer “shall charge $75.00 for each mortgage to be satisfied, inclusive of recording fees.” The court reasoned that, based on the manual, the Title Agency should have deducted the amount of the recording fees from its fees, and charged a total of $70 rather than $150, since Wachovia charged plaintiffs the recording fee. Nonetheless, the court observed that “all this demonstrates is that, if anything, Title Agency overcharged Plaintiffs, not that they marked up Wachovia’s fee, or split payment with Wachovia for services Title Agency did not perform.” In ruling that plaintiffs failed to state a claim under RESPA, the court cited Santiago v. GMAC Mortgage Group, Inc., 417 F.3d 384 (3d Cir. 2005) for the proposition that such an overcharge is not a violation of RESPA. For a copy of the opinion, please see http://www.buckleysandler.com/Tubbs_v_N_American.pdf.
Florida Court Holds No TILA Disclosures Required for Spouse with No Ownership Interest. On June 2, the District Court of Appeal of the State of Florida (Fourth District) held that a spouse who did not sign the note to a mortgage was not a consumer with an “ownership interest” for the purposes of the Truth in Lending Act (TILA) and, thus, was not required to be provided with TILA disclosures at the time of the mortgage loan. Gancedo v. Caprio, No. 4D08-1735 (Fla. 4th DCA June 3, 2009). In Gancedo, the defendants, a husband and wife, obtained a mortgage loan from the plaintiffs. Both defendants executed the mortgage; however, only the husband signed the note. The husband then defaulted on the note and mortgage and the lender filed for foreclosure. The wife argued that she had a right to cancel the mortgage transaction within three years because she was not provided with the required TILA disclosures when she executed the mortgage. In holding that the wife was not a consumer with an “ownership interest” for the purposes of TILA, and thus was not required to be given such disclosures, the court first rejected the argument that the defendants were “tenants by the entireties” because the wife’s name was not on the deed. The court also reasoned that a “post-nuptial agreement” merely contemplated a future conveyance of the property interest, and did not immediately create an “ownership interest.” As a result, the court of appeals reversed the lower court’s granting of summary judgment in favor of the defendants. For a copy of the opinion, please see http://www.4dca.org/opinions/June%202009/06-03-09/4D08-1735.op.pdf.
Illinois Federal Court Holds Creditor Had No Permissible Purpose Under FCRA to Access a Consumer Report for a Closed Account. On June 4, the U.S. District Court for the Northern District of Illinois held that a creditor had no permissible purpose under the Fair Credit Reporting Act (FCRA) to access a consumer report for a closed account. Pulliam v. American Express Travel Related Services Co. Inc., Case No. 08 C 6690, 2009 WL 1586012 (N.D. Ill. June 4, 2009). In Pulliam, the creditor obtained a judgment against a consumer in connection with a past-due balance on an account. After a settlement regarding the judgment was paid by the plaintiff, the creditor accessed the plaintiff’s consumer report. The consumer subsequently filed suit, alleging, among other things, that the defendant did so without a “permissible purpose.” The creditor countered that it had a right under FCRA to access the report because the consumer previously had an account with it. In denying the creditor’s motion for summary judgment on this claim, the court reasoned that, while the creditor’s argument might pertain to whether the creditor’s action was “objectively unreasonable” under § 1681n, subjecting the creditor to statutory damages of $100 to $1000 per violation, it was inapplicable to whether the creditor had a “permissible purpose” under § 1681b. The court also denied the creditor’s motion for summary judgment regarding a claim under § 1681s-2(b) of FCRA. The court, however, dismissed the consumer’s remaining claims under the Fair Debt Collection Practices Act and §1681s-2(a) of FCRA, as well as state law claims of fraud, breach of contract, and intentional interference with prospective economic advantage. For a copy of the opinion, please see http://www.buckleysandler.com/Pulliam_v_Am_Ex_Travel.pdf.
Pennsylvania Court Holds “Mailbox” Rule Inapplicable to Email Communication. On May 11, the Commonwealth Court of Pennsylvania held that, under a regulation stating that email transmissions are deemed filed when received, the common law “mailbox” rule is not applicable to email communications. Roman-Hutchinson v. Unemployment Compensation Board of Review, No. 08-2112 (Pa. Commw. Ct., May 11, 2009). In Roman-Hutchinson, the plaintiff appealed a denial of unemployment compensation to the Pennsylvania Department of Labor and Industry by submitting the appeal by email prior to the due date. However, the email was not received until after the deadline, and, consequently, the appeal was dismissed. The plaintiff appealed the dismissal and argued that, under the “mailbox” rule, the appeal was submitted on time because it was submitted to the correct email address before the deadline. In holding that the “mailbox” rule does not apply to such emails, the court looked to a Pennsylvania Department of Labor and Industry regulation providing that email transmissions are deemed filed when received. The court noted that the regulation contemplated a situation in which an email might not be received timely by an addressee; the regulation clearly stated that the risk of an untimely filing in this situation was placed on the claimant. As a result, the court affirmed the dismissal of the appeal. For a copy of the opinion, please see http://www.buckleysandler.com/Roman-Hutchinson.pdf.
E-Financial Services
Nevada Law Requires Businesses to Encrypt Personal Information; Compliance with PCI Data Security Standard. On May 29, Nevada Governor James A. Gibbons signed SB 227, a bill that requires Nevada data collectors to encrypt “personal information” that is moved or electronically transferred to an outside party. If such encryption is in place, a company is shielded from liability resulting from a data breach, except in cases of gross negligence or intentional misconduct. The bill further requires data collectors that accept debit or credit cards to comply with the current Payment Card Industry Data Security Standard. The bill becomes effective January 1, 2010. For a copy of the bill, please see http://www.leg.state.nv.us/75th2009/Bills/SB/SB227_EN.pdf.
Pennsylvania Court Holds “Mailbox” Rule Inapplicable to Email Communication. On May 11, the Commonwealth Court of Pennsylvania held that, under a regulation stating that email transmissions are deemed filed when received, the common law “mailbox” rule is not applicable to email communications. Roman-Hutchinson v. Unemployment Compensation Board of Review, No. 08-2112 (Pa. Commw. Ct., May 11, 2009). In Roman-Hutchinson, the plaintiff appealed a denial of unemployment compensation to the Pennsylvania Department of Labor and Industry by submitting the appeal by email prior to the due date. However, the email was not received until after the deadline, and, consequently, the appeal was dismissed. The plaintiff appealed the dismissal and argued that, under the “mailbox” rule, the appeal was submitted on time because it was submitted to the correct email address before the deadline. In holding that the “mailbox” rule does not apply to such emails, the court looked to a Pennsylvania Department of Labor and Industry regulation providing that email transmissions are deemed filed when received. The court noted that the regulation contemplated a situation in which an email might not be received timely by an addressee; the regulation clearly stated that the risk of an untimely filing in this situation was placed on the claimant. As a result, the court affirmed the dismissal of the appeal. For a copy of the opinion, please see http://www.buckleysandler.com/Roman-Hutchinson.pdf.
Privacy/Data Security
Federal Banking Agencies and FTC Issue Final Rules on FACTA Furnisher Requirements. The federal banking agencies (the Office of the Comptroller of the Currency; the Board of Governors of the Federal Reserve System; the Federal Deposit Insurance Corporation; the Office of Thrift Supervision; and the National Credit Union Administration) and Federal Trade Commission recently approved for publication in the Federal Register final rules and guidelines that implement section 312 of the Fair and Accurate Credit Transactions Act of 2003 (FACTA). The final rules (i) provide guidelines for use by furnishers of consumer credit information regarding the accuracy and integrity of the information furnished to consumer reporting agencies, (ii) require furnishers to establish reasonable policies and procedures for implementing the guidelines, and (iii) implement a provision of FACTA that allows consumers to directly dispute inaccurate consumer report information. Additionally, an advance notice of proposed rulemaking has been issued to determine (i) under what circumstances a furnisher would be expected to provide an account opening date to a consumer reporting agency to promote the integrity of the information, and (ii) whether furnishers should be expected to provide any other types of information to a consumer reporting agency to promote integrity. For a copy of the final rules and guidelines, please see http://www.occ.treas.gov/ftp/release/2009-64a.pdf. For a copy of the advanced notice of proposed rulemaking, please see http://www.occ.treas.gov/ftp/release/2009-64b.pdf.
Federal Banking Agencies and FTC Release FAQ Regarding Red Flags, Card Issuers’ and Address Discrepancy Rules. On June 11, the federal banking agencies and the Federal Trade Commission issued a joint FAQ regarding the “Red Flags and Address Discrepancy Rules” that implement sections of FACTA. The “Red Flags Rules” requires financial institutions and creditors to develop and implement written identity theft programs. The “Card Issuers’ Rules” and the “Address Discrepancy Rules” require issuers of credit and debit cards to assess the validity of notifications of changes of address. The FAQ elaborates supplemental information to the final rules and explains how select provisions of the rulemaking apply to certain situations. The FAQ explains, for example, which types of entities and accounts are covered and how to establish and administer an Identity Theft Prevention Program. For a copy of the FAQ, please see http://www.ftc.gov/os/2009/06/090611redflagsfaq.pdf.
Nevada Law Requires Businesses to Encrypt Personal Information; Compliance with PCI Data Security Standard. On May 29, Nevada Governor James A. Gibbons signed SB 227, a bill that requires Nevada data collectors to encrypt “personal information” that is moved or electronically transferred to an outside party. If such encryption is in place, a company is shielded from liability resulting from a data breach, except in cases of gross negligence or intentional misconduct. The bill further requires data collectors that accept debit or credit cards to comply with the current Payment Card Industry Data Security Standard. The bill becomes effective January 1, 2010. For a copy of the bill, please see http://www.leg.state.nv.us/75th2009/Bills/SB/SB227_EN.pdf.
Illinois Federal Court Holds Creditor Had No Permissible Purpose Under FCRA to Access a Consumer Report for a Closed Account. On June 4, the U.S. District Court for the Northern District of Illinois held that a creditor had no permissible purpose under the Fair Credit Reporting Act (FCRA) to access a consumer report for a closed account. Pulliam v. American Express Travel Related Services Co. Inc., Case No. 08 C 6690, 2009 WL 1586012 (N.D. Ill. June 4, 2009). In Pulliam, the creditor obtained a judgment against a consumer in connection with a past-due balance on an account. After a settlement regarding the judgment was paid by the plaintiff, the creditor accessed the plaintiff’s consumer report. The consumer subsequently filed suit, alleging, among other things, that the defendant did so without a “permissible purpose.” The creditor countered that it had a right under FCRA to access the report because the consumer previously had an account with it. In denying the creditor’s motion for summary judgment on this claim, the court reasoned that, while the creditor’s argument might pertain to whether the creditor’s action was “objectively unreasonable” under § 1681n, subjecting the creditor to statutory damages of $100 to $1000 per violation, it was inapplicable to whether the creditor had a “permissible purpose” under § 1681b. The court also denied the creditor’s motion for summary judgment regarding a claim under § 1681s-2(b) of FCRA. The court, however, dismissed the consumer’s remaining claims under the Fair Debt Collection Practices Act and §1681s-2(a) of FCRA, as well as state law claims of fraud, breach of contract, and intentional interference with prospective economic advantage. For a copy of the opinion, please see http://www.buckleysandler.com/Pulliam_v_Am_Ex_Travel.pdf.
Credit Cards
Nevada Law Requires Businesses to Encrypt Personal Information; Compliance with PCI Data Security Standard. On May 29, Nevada Governor James A. Gibbons signed SB 227, a bill that requires Nevada data collectors to encrypt “personal information” that is moved or electronically transferred to an outside party. If such encryption is in place, a company is shielded from liability resulting from a data breach, except in cases of gross negligence or intentional misconduct. The bill further requires data collectors that accept debit or credit cards to comply with the current Payment Card Industry Data Security Standard. The bill becomes effective January 1, 2010. For a copy of the bill, please see http://www.leg.state.nv.us/75th2009/Bills/SB/SB227_EN.pdf.