InfoBytes, April 17, 2009
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Banking
- Consumer Finance
- Litigation
- Privacy/Data Security
- Credit Cards
Federal Issues
SEC Reopens Comment Period for Optional Model Privacy Form. On April 15, the Securities and Exchange Commission (SEC) reopened for comment amendments to privacy provisions of the Gramm-Leach-Bliley Act (implemented by Regulation S-P) that would create a “safe harbor” model form that financial institutions may utilize to satisfy required disclosures in privacy notices (the initial notice was reported in InfoBytes, Mar. 27, 2007). The SEC reopened the comment period to provide individuals an opportunity to comment on additional quantitative consumer testing of proposed models. The SEC must receive comments by May 20, 2009. For a copy of the Federal Register notice, please see http://www.sec.gov/rules/proposed/2009/34-59769.pdf. The results of the qualitative consumer testing are available at http://www.sec.gov/comments/s7-09-07/s70907-21.htm.
IRS Issues Notice, Revenue Procedure Regarding Home Affordable Modification Program. On April 10, the Internal Revenue Service (IRS) issued Notice 2009-36 and Revenue Procedure 2009-23, both of which discuss the tax implications for real estate mortgage investment conduits (REMICs) participating in the Home Affordable Modification Program (HAMP). Notice 2009-36 resolves the question of whether the restrictions contained in § 860G of the Internal Revenue Code (IRC) apply to REMICs participating in HAMP. Under § 860G of the tax code, any money contributed to a REMIC after its initial startup period is taxed at 100%, unless the contribution falls under one of the section’s exceptions. Notice 2009-36 provides that a payment made to a REMIC under HAMP, even if the payment does not fall under one of § 860G’s express exemptions, is completely exempt from the 100% tax. The regulations are expected to be effective for payments made after March 4, 2009. Similarly, Revenue Procedure 2009-23 describes situations in which the IRS will not challenge the status of a REMIC or other securitization vehicle based on a loan modification made under HAMP. According to the ruling, the IRS will not (i) challenge a securitization vehicle’s qualification as a REMIC on the grounds that the modifications are not among the exceptions listed in § 1.860G-2(b)(3), (ii) contend that the modifications are prohibited transactions under § 860F(a)(2) on the grounds that the modifications result in one or more dispositions of qualified mortgages and that the dispositions are not among the exceptions listed in § 860F(a)(2)(A)(i)-(iv), (iii) challenge a securitization vehicle’s classification as a trust under § 301.7701-4(c) on the grounds that the modifications manifest a power to vary the investment of the certificate holders, or (iv) challenge a securitization vehicle’s qualification as a REMIC on the grounds that the modifications result in a deemed reissuance of the REMIC regular interests. Like Notice 2009-36, Revenue Procedure 2009-23 is retroactive to March 4, 2009. For a copy of Notice 2009-36, please see http://www.irs.gov/pub/irs-drop/n-09-36.pdf; for a copy of Revenue Procedure 2009-23, please see http://www.irs.gov/pub/irs-drop/rp-09-23.pdf.
DIRECTV, Comcast Settle Alleged Do Not Call Violations with the FTC. On April 16, DIRECTV and Comcast settled separate claims by the Federal Trade Commission (FTC) that each company had violated the Do Not Call provisions of the Telemarketing Sales Rule (TSR) by contacting consumers who made company-specific Do Not Call requests. Allegedly, DIRECTV violated the TSR, as well as a 2005 federal court order, by having one of its telemarketers make more than a million prerecorded phone calls. These calls, specifically directed at consumers on DIRECTV’’s Do Not Call list (i.e., consumers who had previously asked DIRECTV not to call them again), prompted call recipients to “press one” to remove themselves from the company’s Do Not Call list. In a separate enforcement action, the FTC also charged Comcast with violating the TRS by contacting customers on its Do Not Call list. The FTC alleged that Comcast had failed to employ a TSR-compliant Do Not Call program that would have identified TSR violations at its internal call centers and promptly correct them. As a result, Comcast telemarketers made more 900,000 calls to consumers that violated the TSR. As part of their settlements, DIRECTV and Comcast will enter into a consent decree barring the company from violating the TSR in the future. In addition, DIRECTV and Comcast agreed to pay civil money penalties of $2.31 million and $900,000 respectively. For a copy of the FTC’s press release, please see http://www.ftc.gov/opa/2009/04/directv.shtm. For a copy of the complaints, please see http://www.ftc.gov/os/2009/04/index.shtm#16.
OTS Releases Foreclosure Rescue Scams Consumer Brochure. On April 14, the Office of Thrift Supervision released a brochure for homeowners entitled "Foreclosure Rescue Scams: How to Avoid Becoming a Victim." The guide identifies three common foreclosure rescue scams, namely (i) “phantom help,” in which no services are provided, or services that homeowners could have easily handled are provided at exorbitant fees, (ii) “bailout,” in which a homeowner surrenders title under the premise of buying the house back at a future date, but then becomes unable to do so, and (iii) “bait and switch,” in which homeowners are fraudulently induced to transfer ownership of a home while retaining repayment obligations. The guide also provides examples of how foreclosure scams work and how homeowners can avoid becoming a victim of a foreclosure scam. For a copy of the brochure, please see http://files.ots.treas.gov/482037.pdf.
Treasury Releases Capital Purchase Program Term Sheet for Non-Holding Company Mutual Banks. On April 14, the U.S. Department of the Treasury released a term sheet for use by mutual banks or savings associations applying for the Capital Purchase Program that do not have holding companies. Applications are due to the applicant’s relevant federal banking agency by May 14, 2009. For a copy of the term sheet, please see http://www.financialstability.gov/docs/CPP/CPP%20Term%20Sheet%20-%20Mutual%20Banks.pdf.
FTC Chairman Appoints Consumer Protection Director. On April 14, the Federal Trade Commission (FTC) announced that FTC Chairman Jon Leibowitz has appointed his senior staff members, including David Vladeck, the former director of Public Citizen Litigation Group, as Director of the Bureau of Consumer Protection. For a copy of the press release, please see http://www.ftc.gov/opa/2009/04/seniorstaff.shtm.
State Issues
Delaware Amends Delaware General Corporation Law. On April 10, Delaware Governor Jack Markell signed HB 19, a bill amending the Delaware General Corporation Law. In addition to technical amendments, the amendments authorize, but do not require (i) corporate bylaws to include stockholder nominees to the board in the corporation’s proxy solicitation materials; this provision also authorizes certain stockholder preconditions to such access (e.g., a minimum level of stock ownership), (ii) the corporation to reimburse stockholder expenses incurred in soliciting proxies for the election of directors, subject to conditions that may also be imposed by the bylaws, (iii) separate record dates for determining stockholders entitled to notice of and to vote at a meeting. The bill further (i) clarifies that, when the record date for determining stockholders entitled to vote is set less then ten days before the date of the meeting, the list of stockholders must reflect those stockholders as of the tenth day before the meeting date, (ii) prohibits the corporation from retroactively eliminating advancement or indemnification rights provided by a charter or bylaw provision, and (iii) grants the Delaware Court of Chancery subject matter jurisdiction, in limited circumstances, to remove a director convicted of a felony or found by judgment to have committed a breach of loyalty to the corporation if the director did not act in good faith and if judicial removal is necessary to avoid irreparable harm to the corporation. The bill becomes effective August 1, 2009. For a copy of the bill, please see http://www.buckleysandler.com/DE_HB_19_2009.pdf.
Illinois Law Requires Notice of Right to Seek Foreclosure Counseling; Creates 30-Day Grace Period. On April 5, Illinois Governor Pat Quinn signed SB 2513, an omnibus bill containing provisions requiring mortgage lenders to notify borrowers in default for 30 days or more of the borrower’s right to seek housing counseling, which will provide a 30-day grace period during which the mortgage lender may not initiate foreclosure proceedings. The bill does not apply to borrowers who have sought relief under any bankruptcy law. Counseling will be either free or cost a very small amount that will not create a hardship for the borrower, and will be provided by non-profit housing counseling agencies that are both HUD approved and recognized by the Illinois Department of Financial and Professional Regulation. Counseling will aim to result in a “sustainable workout loan plan” (Plan) approved by both the mortgage lender and the counselor to permit the lender to remain in a home. The Plan may include, but is not limited to (i) temporary suspension of payments, (ii) lengthened loan term, (iii) lowered or frozen interest rate, (iv) principal write down, (v) repayment plan to pay the existing loan in full, (vi) deferred payments, or (vii) refinancing into a new, affordable loan. The Plan must be agreed upon in writing by both the lender and borrower, and it will remain in effect so long as the mortgagor is compliant with its terms. The bill is effective immediately. For the relevant portion of the bill, please see http://www.buckleysandler.com/IL_SB_2513_2009.pdf.
Washington Regulator Issues Interpretive Statement Regarding Loan Modification Services. On April 10, the Washington Department of Financial Institutions, Division of Consumer Services issued an interpretive statement asserting that loan modification service providers are acting as mortgage brokers or loan originators pursuant to the Washington Mortgage Broker Practices Act and the Washington Consumer Loan Act, and thus may require licensure. Because loan modification includes taking the borrower’s name, monthly income, social security number, property address, estimate of the value of property, and/or any other information necessary to provide loan modification or negotiation of loan terms, the statement concludes that perform loan modification services act as mortgage brokers and/or loan originators. Further, while the Mortgage Broker Practices Act generally does not allow upfront fees, a licensee performing a loan modification may charge such fees. When charging upfront fees, a loan modification service provider must supply the borrower with a fee agreement that includes specific fee and activity information. For a copy of the model fee agreement, please see http://www.dfi.wa.gov/cs/pdf/fee-agreement-loan-modification.pdf. For a copy of the interpretive statement, please see http://www.dfi.wa.gov/cs/interpretive_statements/mortgage/IS-2009-01.pdf.
California Bill Amending Solicitation Disclosures Becomes Effective on July 1. On July 1, California SB 1461, a bill that amends the advertising rules for companies licensed with the California Department of Real Estate, becomes effective. The bill applies to all residential and commercial mortgage companies licensed with the California Department of Real Estate. Pursuant to the bill, such entities must disclose the applicable license number on certain solicitations intended to be the “first point of contact” with consumers (e.g., business cards, stationary, and other materials designed to solicit the creation of a professional relationship between the licensee and a consumer). The bill clarifies that “first point of contact” excludes electronic media or print advertisements and “for sale” signs. For a copy of the bill, please see http://www.buckleysandler.com/CA_SB_1461_2009.pdf.
North Dakota Amends State Mortgage Law. On April 9, North Dakota Governor John Hoeven signed SB 2160, a bill amending North Dakota mortgage law. The bill outlines permissible and maximum charges and permissible payment installments by licensees. In addition, the bill reflects compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 by providing for the licensing of all mortgage loan originators under the Nationwide Mortgage Licensing System. In this regard, the bill proscribes requirements regarding, among other things, licensing, pre-and continuing education, testing, minimum net worth, and surety bonds. The bill also provides for investigation and examination authority and outlines prohibited acts and practices. Most provisions of the bill become effective August 1, 2009. For a copy of the bill, please see http://www.buckleysandler.com/ND_SB_2160_2009.pdf.
Courts
California Federal Court Holds CROA Bars Enforcement of Arbitration Agreement. On April 1, the U.S. District Court for the Northern District of California held that the Credit Repair Organization Act (CROA) precludes a consumer’s waiver of their right to sue contained in an arbitration clause. Greenwood v. CompuCredit Corporation, No. C 08-04878, 2009 WL 902323 (N.D. Cal. Apr. 1, 2009). The plaintiffs in Greenwood sued their credit card marketer and issuer on behalf of a putative nationwide class, alleging that fees and charges added to their subprime credit card balances violated the CROA and California’s Unfair Competition Law. The defendants moved to compel arbitration based on arbitration clauses contained in the terms of the plaintiffs’ credit card agreements. The court rejected the motion, finding that the CROA expressly prohibits waiving “any right of the consumer,” which includes the “right to sue a credit repair organization that violates” CROA. The court’s holding is in accord with federal court decisions out of the Northern District of Texas and the Northern District of Alabama, and conflicts with decisions out of the Third Circuit Court of Appeals and the Western District of Michigan. For a copy of the opinion, please see http://www.buckleysandler.com/Greenwood_v_Compucredit.pdf.
Colorado Federal Court Finds FCRA Does Not Preempt State “Outrageous Conduct” Claim. On March 31, the U.S. District Court for the District of Colorado held that a state law claim of “outrageous conduct” is not preempted by the Fair Credit Reporting Act (FCRA), Llewellyn v. Shearson Fin. Network, Inc., No. 08-cv-00179, 2009 WL 890705 (D. Colo. Mar. 31, 2009). In Llewellyn, a mortgage lender allegedly failed to record a mortgage payment made by the plaintiff because an agent of the lender “converted the funds to his own use.” The servicer of the loan consequently submitted late payment reports to various credit reporting agencies regarding the debt. The plaintiff filed suit, alleging violations of the Fair Debt Collections Practices Act (FDCPA), FCRA, and a claim of “outrageous conduct” under Colorado state law. The court upheld the plaintiff’s state law claim of “outrageous conduct,” finding that the claim was not preempted by FCRA. The court reasoned, among other things, that the claim fell within FCRA’s exemption for “false information furnished with malice or willful intent to injure.” The court further reasoned that the defendants’ alleged conduct may have been sufficiently outrageous to support the claim. However, the court dismissed the plaintiff’s claim that the servicer and its agent violated FCRA by failing to reasonably investigate the dispute because the dispute was made by the borrower and not by a credit reporting agency. Further, the court rejected the defendant’s claim that it was not a “debt collector” subject to the FDCPA, and thus denied the defendant’s motion to dismiss the FDCPA claim. For a copy of the opinion, please see http://www.buckleysandler.com/Llewellyn_v_Shearson.pdf.
Wisconsin Federal Court Grants Summary Judgment in FCRA Case. On April 6, the U.S. District Court for the Western District of Wisconsin granted summary judgment for a credit reporting agency in a suit alleging negligent and willful violations of the Fair Credit Reporting Act (FCRA). Konter v. CSC Credit Services, Inc., No. 08-CV-159, 2009 WL 921174 (W.D. Wis. Apr. 6, 2009). In Konter, the plaintiff claimed that the defendant negligently and willfully violated FCRA by failing to properly investigate and remove errors on the plaintiff’s credit report. The defendant moved for summary judgment on the grounds that (i) its actions did not “actually harm” plaintiff, which precludes the plaintiff’s negligent violation claim, and (ii) its actions were not willful violations of FCRA. The court found that there were no “actual damages” because the plaintiff produced no evidence that he was denied credit, received higher interest rates, or incurred any pecuniary injury, as a result of the inaccurate credit report. The court also noted that the plaintiff cannot recover for any denial of credit or adverse credit decisions he suffered before he notified the credit agency about the disputed information. With respect to the plaintiff’s claims for damages for humiliation and emotional distress, the court held that the plaintiff offered no proof that the defendant transmitted the embarrassing information to third parties, and, thus, could not recover for the humiliation he allegedly suffered. With respect to other emotional distress, the court held that the plaintiff failed to provide evidence that (i) reasonably and sufficiently explained the circumstance of the injury, (ii) was not merely conclusory, and (iii) established causality between the violation of the statute to the alleged harm. Lastly, regarding claims for willful violations of FCRA, the court concluded that, because the defendant’s action did not rise to the level of knowing, intentional or reckless disregard of FCRA, a reasonable jury could not find that the defendant acted in willful noncompliance with FCRA. As such, the court granted summary judgment on both the negligent and willful FCRA violation claims in favor of the credit reporting agency. For a copy of the opinion, please see http://www.buckleysandler.com/Konter_v_CSC.pdf.
Firm News
Sara Emley will be a panelist on a webcast sponsored by the Investment Adviser Association on April 21. Her panel is entitled “Compliance Programs for Smaller Advisers: Best Practices for COOs.”
Margo Tank will be speaking at the MBA Government Housing and Loan Production Conference in Washington, DC on April 28 on a panel titled “The Next Generation of Operations - What’s In It for Me?”
Margo Tank will also be speaking at the MBA’s Legal Issues and Regulatory Compliance Conference being held in Chicago, IL from May 3 – 6. Her session is entitled “Update on Legal Issues in Mortgage Technology.”
Andy Sandler spoke at the Securities Industry & Financial Markets Association’s Annual Seminar held in Phoenix, Arizona on March 24 - 28.
Jerry Buckley was quoted in the March 31 issue of American Banker. The featured article is entitled “Mortgage Bill Could Push Lenders Out.”
Andy Sandler spoke in New York City on April 1 at the American Conference Institute’s Advanced Forum on Financial Institutions Insurance.
Jeff Naimon and Grant Mitchell spoke about the new RESPA rule at the Annual RESPRO Conference on April 7.
Jon Jerison presented at an audio conference on April 9, “The HELOC Balancing Act – Consumer Laws and Agency Guidance.” The conference was sponsored by AS Pratt.
Mortgages
IRS Issues Notice, Revenue Procedure Regarding Home Affordable Modification Program. On April 10, the Internal Revenue Service (IRS) issued Notice 2009-36 and Revenue Procedure 2009-23, both of which discuss the tax implications for real estate mortgage investment conduits (REMICs) participating in the Home Affordable Modification Program (HAMP). Notice 2009-36 resolves the question of whether the restrictions contained in § 860G of the Internal Revenue Code (IRC) apply to REMICs participating in HAMP. Under § 860G of the tax code, any money contributed to a REMIC after its initial startup period is taxed at 100%, unless the contribution falls under one of the section’s exceptions. Notice 2009-36 provides that a payment made to a REMIC under HAMP, even if the payment does not fall under one of § 860G’s express exemptions, is completely exempt from the 100% tax. The regulations are expected to be effective for payments made after March 4, 2009. Similarly, Revenue Procedure 2009-23 describes situations in which the IRS will not challenge the status of a REMIC or other securitization vehicle based on a loan modification made under HAMP. According to the ruling, the IRS will not (i) challenge a securitization vehicle’s qualification as a REMIC on the grounds that the modifications are not among the exceptions listed in § 1.860G-2(b)(3), (ii) contend that the modifications are prohibited transactions under § 860F(a)(2) on the grounds that the modifications result in one or more dispositions of qualified mortgages and that the dispositions are not among the exceptions listed in § 860F(a)(2)(A)(i)-(iv), (iii) challenge a securitization vehicle’s classification as a trust under § 301.7701-4(c) on the grounds that the modifications manifest a power to vary the investment of the certificate holders, or (iv) challenge a securitization vehicle’s qualification as a REMIC on the grounds that the modifications result in a deemed reissuance of the REMIC regular interests. Like Notice 2009-36, Revenue Procedure 2009-23 is retroactive to March 4, 2009. For a copy of Notice 2009-36, please see http://www.irs.gov/pub/irs-drop/n-09-36.pdf; for a copy of Revenue Procedure 2009-23, please see http://www.irs.gov/pub/irs-drop/rp-09-23.pdf.
OTS Releases Foreclosure Rescue Scams Consumer Brochure. On April 14, the Office of Thrift Supervision released a brochure for homeowners entitled "Foreclosure Rescue Scams: How to Avoid Becoming a Victim." The guide identifies three common foreclosure rescue scams, namely (i) “phantom help,” in which no services are provided, or services that homeowners could have easily handled are provided at exorbitant fees, (ii) “bailout,” in which a homeowner surrenders title under the premise of buying the house back at a future date, but then becomes unable to do so, and (iii) “bait and switch,” in which homeowners are fraudulently induced to transfer ownership of a home while retaining repayment obligations. The guide also provides examples of how foreclosure scams work and how homeowners can avoid becoming a victim of a foreclosure scam. For a copy of the brochure, please see http://files.ots.treas.gov/482037.pdf.
Illinois Law Requires Notice of Right to Seek Foreclosure Counseling; Creates 30-Day Grace Period. On April 5, Illinois Governor Pat Quinn signed SB 2513, an omnibus bill containing provisions requiring mortgage lenders to notify borrowers in default for 30 days or more of the borrower’s right to seek housing counseling, which will provide a 30-day grace period during which the mortgage lender may not initiate foreclosure proceedings. The bill does not apply to borrowers who have sought relief under any bankruptcy law. Counseling will be either free or cost a very small amount that will not create a hardship for the borrower, and will be provided by non-profit housing counseling agencies that are both HUD approved and recognized by the Illinois Department of Financial and Professional Regulation. Counseling will aim to result in a “sustainable workout loan plan” (Plan) approved by both the mortgage lender and the counselor to permit the lender to remain in a home. The Plan may include, but is not limited to (i) temporary suspension of payments, (ii) lengthened loan term, (iii) lowered or frozen interest rate, (iv) principal write down, (v) repayment plan to pay the existing loan in full, (vi) deferred payments, or (vii) refinancing into a new, affordable loan. The Plan must be agreed upon in writing by both the lender and borrower, and it will remain in effect so long as the mortgagor is compliant with its terms. The bill is effective immediately. For the relevant portion of the bill, please see http://www.buckleysandler.com/IL_SB_2513_2009.pdf.
Washington Regulator Issues Interpretive Statement Regarding Loan Modification Services. On April 10, the Washington Department of Financial Institutions, Division of Consumer Services issued an interpretive statement asserting that loan modification service providers are acting as mortgage brokers or loan originators pursuant to the Washington Mortgage Broker Practices Act and the Washington Consumer Loan Act, and thus may require licensure. Because loan modification includes taking the borrower’s name, monthly income, social security number, property address, estimate of the value of property, and/or any other information necessary to provide loan modification or negotiation of loan terms, the statement concludes that perform loan modification services act as mortgage brokers and/or loan originators. Further, while the Mortgage Broker Practices Act generally does not allow upfront fees, a licensee performing a loan modification may charge such fees. When charging upfront fees, a loan modification service provider must supply the borrower with a fee agreement that includes specific fee and activity information. For a copy of the model fee agreement, please see http://www.dfi.wa.gov/cs/pdf/fee-agreement-loan-modification.pdf. For a copy of the interpretive statement, please see http://www.dfi.wa.gov/cs/interpretive_statements/mortgage/IS-2009-01.pdf.
California Bill Amending Solicitation Disclosures Becomes Effective on July 1. On July 1, California SB 1461, a bill that amends the advertising rules for companies licensed with the California Department of Real Estate, becomes effective. The bill applies to all residential and commercial mortgage companies licensed with the California Department of Real Estate. Pursuant to the bill, such entities must disclose the applicable license number on certain solicitations intended to be the “first point of contact” with consumers (e.g., business cards, stationary, and other materials designed to solicit the creation of a professional relationship between the licensee and a consumer). The bill clarifies that “first point of contact” excludes electronic media or print advertisements and “for sale” signs. For a copy of the bill, please see http://www.buckleysandler.com/CA_SB_1461_2009.pdf.
North Dakota Amends State Mortgage Law. On April 9, North Dakota Governor John Hoeven signed SB 2160, a bill amending North Dakota mortgage law. The bill outlines permissible and maximum charges and permissible payment installments by licensees. In addition, the bill reflects compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 by providing for the licensing of all mortgage loan originators under the Nationwide Mortgage Licensing System. In this regard, the bill proscribes requirements regarding, among other things, licensing, pre-and continuing education, testing, minimum net worth, and surety bonds. The bill also provides for investigation and examination authority and outlines prohibited acts and practices. Most provisions of the bill become effective August 1, 2009. For a copy of the bill, please see http://www.buckleysandler.com/ND_SB_2160_2009.pdf.
Banking
Treasury Releases Capital Purchase Program Term Sheet for Non-Holding Company Mutual Banks. On April 14, the U.S. Department of the Treasury released a term sheet for use by mutual banks or savings associations applying for the Capital Purchase Program that do not have holding companies. Applications are due to the applicant’s relevant federal banking agency by May 14, 2009. For a copy of the term sheet, please see http://www.financialstability.gov/docs/CPP/CPP%20Term%20Sheet%20-%20Mutual%20Banks.pdf.
Consumer Finance
FTC Chairman Appoints Consumer Protection Director. On April 14, the Federal Trade Commission (FTC) announced that FTC Chairman Jon Leibowitz has appointed his senior staff members, including David Vladeck, the former director of Public Citizen Litigation Group, as Director of the Bureau of Consumer Protection. For a copy of the press release, please see http://www.ftc.gov/opa/2009/04/seniorstaff.shtm.
Colorado Federal Court Finds FCRA Does Not Preempt State “Outrageous Conduct” Claim. On March 31, the U.S. District Court for the District of Colorado held that a state law claim of “outrageous conduct” is not preempted by the Fair Credit Reporting Act (FCRA), Llewellyn v. Shearson Fin. Network, Inc., No. 08-cv-00179, 2009 WL 890705 (D. Colo. Mar. 31, 2009). In Llewellyn, a mortgage lender allegedly failed to record a mortgage payment made by the plaintiff because an agent of the lender “converted the funds to his own use.” The servicer of the loan consequently submitted late payment reports to various credit reporting agencies regarding the debt. The plaintiff filed suit, alleging violations of the Fair Debt Collections Practices Act (FDCPA), FCRA, and a claim of “outrageous conduct” under Colorado state law. The court upheld the plaintiff’s state law claim of “outrageous conduct,” finding that the claim was not preempted by the FCRA. The court reasoned, among other things, that the claim fell within FCRA’s exemption for “false information furnished with malice or willful intent to injure.” The court further reasoned that the defendants’ alleged conduct may have been sufficiently outrageous to support the claim. However, the court dismissed the plaintiff’s claim that the servicer and its agent violated FCRA by failing to reasonably investigate the dispute because the dispute was made by the borrower and not by a credit reporting agency. Further, the court rejected the defendant’s claim that it was not a “debt collector” subject to the FDCPA, and thus denied the defendant’s motion to dismiss the FDCPA claim. For a copy of the opinion, please see http://www.buckleysandler.com/Llewellyn_v_Shearson.pdf.
Wisconsin Federal Court Grants Summary Judgment in FCRA Case. On April 6, the U.S. District Court for the Western District of Wisconsin granted summary judgment for a credit reporting agency in a suit alleging negligent and willful violations of the Fair Credit Reporting Act (FCRA). Konter v. CSC Credit Services, Inc., No. 08-CV-159, 2009 WL 921174 (W.D. Wis. Apr. 6, 2009). In Konter, the plaintiff claimed that the defendant negligently and willfully violated FCRA by failing to properly investigate and remove errors on the plaintiff’s credit report. The defendant moved for summary judgment on the grounds that (i) its actions did not “actually harm” plaintiff, which precludes the plaintiff’s negligent violation claim, and (ii) its actions were not willful violations of FCRA. The court found that there were no “actual damages” because the plaintiff produced no evidence that he was denied credit, received higher interest rates, or incurred any pecuniary injury, as a result of the inaccurate credit report. The court also noted that the plaintiff cannot recover for any denial of credit or adverse credit decisions he suffered before he notified the credit agency about the disputed information. With respect to the plaintiff’s claims for damages for humiliation and emotional distress, the court held that the plaintiff offered no proof that the defendant transmitted the embarrassing information to third parties, and, thus, could not recover for the humiliation he allegedly suffered. With respect to other emotional distress, the court held that the plaintiff failed to provide evidence that (i) reasonably and sufficiently explained the circumstance of the injury, (ii) was not merely conclusory, and (iii) established causality between the violation of the statute to the alleged harm. Lastly, regarding claims for willful violations of FCRA, the court concluded that, because the defendant’s action did not rise to the level of knowing, intentional or reckless disregard of FCRA, a reasonable jury could not find that the defendant acted in willful noncompliance with FCRA. As such, the court granted summary judgment on both the negligent and willful FCRA violation claims in favor of the credit reporting agency. For a copy of the opinion, please see http://www.buckleysandler.com/Konter_v_CSC.pdf.
Litigation
California Federal Court Holds CROA Bars Enforcement of Arbitration Agreement. On April 1, the U.S. District Court for the Northern District of California held that the Credit Repair Organization Act (CROA) precludes a consumer’s waiver of their right to sue contained in an arbitration clause. Greenwood v. CompuCredit Corporation, No. C 08-04878, 2009 WL 902323 (N.D. Cal. Apr. 1, 2009). The plaintiffs in Greenwood sued their credit card marketer and issuer on behalf of a putative nationwide class, alleging that fees and charges added to their subprime credit card balances violated the CROA and California’s Unfair Competition Law. The defendants moved to compel arbitration based on arbitration clauses contained in the terms of the plaintiffs’ credit card agreements. The court rejected the motion, finding that the CROA expressly prohibits waiving “any right of the consumer,” which includes the “right to sue a credit repair organization that violates” CROA. The court’s holding is in accord with federal court decisions out of the Northern District of Texas and the Northern District of Alabama, and conflicts with decisions out of the Third Circuit Court of Appeals and the Western District of Michigan. For a copy of the opinion, please see http://www.buckleysandler.com/Greenwood_v_Compucredit.pdf.
Colorado Federal Court Finds FCRA Does Not Preempt State “Outrageous Conduct” Claim. On March 31, the U.S. District Court for the District of Colorado held that a state law claim of “outrageous conduct” is not preempted by the Fair Credit Reporting Act (FCRA), Llewellyn v. Shearson Fin. Network, Inc., No. 08-cv-00179, 2009 WL 890705 (D. Colo. Mar. 31, 2009). In Llewellyn, a mortgage lender allegedly failed to record a mortgage payment made by the plaintiff because an agent of the lender “converted the funds to his own use.” The servicer of the loan consequently submitted late payment reports to various credit reporting agencies regarding the debt. The plaintiff filed suit, alleging violations of the Fair Debt Collections Practices Act (FDCPA), FCRA, and a claim of “outrageous conduct” under Colorado state law. The court upheld the plaintiff’s state law claim of “outrageous conduct,” finding that the claim was not preempted by FCRA. The court reasoned, among other things, that the claim fell within FCRA’s exemption for “false information furnished with malice or willful intent to injure.” The court further reasoned that the defendants’ alleged conduct may have been sufficiently outrageous to support the claim. However, the court dismissed the plaintiff’s claim that the servicer and its agent violated FCRA by failing to reasonably investigate the dispute because the dispute was made by the borrower and not by a credit reporting agency. Further, the court rejected the defendant’s claim that it was not a “debt collector” subject to the FDCPA, and thus denied the defendant’s motion to dismiss the FDCPA claim. For a copy of the opinion, please see http://www.buckleysandler.com/Llewellyn_v_Shearson.pdf.
Wisconsin Federal Court Grants Summary Judgment in FCRA Case. On April 6, the U.S. District Court for the Western District of Wisconsin granted summary judgment for a credit reporting agency in a suit alleging negligent and willful violations of the Fair Credit Reporting Act (FCRA). Konter v. CSC Credit Services, Inc., No. 08-CV-159, 2009 WL 921174 (W.D. Wis. Apr. 6, 2009). In Konter, the plaintiff claimed that the defendant negligently and willfully violated FCRA by failing to properly investigate and remove errors on the plaintiff’s credit report. The defendant moved for summary judgment on the grounds that (i) its actions did not “actually harm” plaintiff, which precludes the plaintiff’s negligent violation claim, and (ii) its actions were not willful violations of FCRA. The court found that there were no “actual damages” because the plaintiff produced no evidence that he was denied credit, received higher interest rates, or incurred any pecuniary injury, as a result of the inaccurate credit report. The court also noted that the plaintiff cannot recover for any denial of credit or adverse credit decisions he suffered before he notified the credit agency about the disputed information. With respect to the plaintiff’s claims for damages for humiliation and emotional distress, the court held that the plaintiff offered no proof that the defendant transmitted the embarrassing information to third parties, and, thus, could not recover for the humiliation he allegedly suffered. With respect to other emotional distress, the court held that the plaintiff failed to provide evidence that (i) reasonably and sufficiently explained the circumstance of the injury, (ii) was not merely conclusory, and (iii) established causality between the violation of the statute to the alleged harm. Lastly, regarding claims for willful violations of FCRA, the court concluded that, because the defendant’s action did not rise to the level of knowing, intentional or reckless disregard of FCRA, a reasonable jury could not find that the defendant acted in willful noncompliance with FCRA. As such, the court granted summary judgment on both the negligent and willful FCRA violation claims in favor of the credit reporting agency. For a copy of the opinion, please see http://www.buckleysandler.com/Konter_v_CSC.pdf.
Privacy/Data Security
SEC Reopens Comment Period for Optional Model Privacy Form. On April 15, the Securities and Exchange Commission (SEC) reopened for comment amendments to privacy provisions of the Gramm-Leach-Bliley Act (implemented by Regulation S-P) that would create a “safe harbor” model form that financial institutions may utilize to satisfy required disclosures in privacy notices (the initial notice was reported in InfoBytes, Mar. 27, 2007). The SEC reopened the comment period to provide individuals an opportunity to comment on additional quantitative consumer testing of proposed models. The SEC must receive comments by May 20, 2009. For a copy of the Federal Register notice, please see http://www.sec.gov/rules/proposed/2009/34-59769.pdf. The results of the qualitative consumer testing are available at http://www.sec.gov/comments/s7-09-07/s70907-21.htm.
DIRECTV, Comcast Settle Alleged Do Not Call Violations with the FTC. On April 16, DIRECTV and Comcast settled separate claims by the Federal Trade Commission (FTC) that each company had violated the Do Not Call provisions of the Telemarketing Sales Rule (TSR) by contacting consumers who made company-specific Do Not Call requests. Allegedly, DIRECTV violated the TSR, as well as a 2005 federal court order, by having one of its telemarketers make more than a million prerecorded phone calls. These calls, specifically directed at consumers on DIRECTV’’s Do Not Call list (i.e., consumers who had previously asked DIRECTV not to call them again), prompted call recipients to “press one” to remove themselves from the company’s Do Not Call list. In a separate enforcement action, the FTC also charged Comcast with violating the TRS by contacting customers on its Do Not Call list. The FTC alleged that Comcast had failed to employ a TSR-compliant Do Not Call program that would have identified TSR violations at its internal call centers and promptly correct them. As a result, Comcast telemarketers made more 900,000 calls to consumers that violated the TSR. As part of their settlements, DIRECTV and Comcast will enter into a consent decree barring the company from violating the TSR in the future. In addition, DIRECTV and Comcast agreed to pay civil money penalties of $2.31 million and $900,000 respectively. For a copy of the FTC’s press release, please see http://www.ftc.gov/opa/2009/04/directv.shtm. For a copy of the complaints, please see http://www.ftc.gov/os/2009/04/index.shtm#16.
Colorado Federal Court Finds FCRA Does Not Preempt State “Outrageous Conduct” Claim. On March 31, the U.S. District Court for the District of Colorado held that a state law claim of “outrageous conduct” is not preempted by the Fair Credit Reporting Act (FCRA), Llewellyn v. Shearson Fin. Network, Inc., No. 08-cv-00179, 2009 WL 890705 (D. Colo. Mar. 31, 2009). In Llewellyn, a mortgage lender allegedly failed to record a mortgage payment made by the plaintiff because an agent of the lender “converted the funds to his own use.” The servicer of the loan consequently submitted late payment reports to various credit reporting agencies regarding the debt. The plaintiff filed suit, alleging violations of the Fair Debt Collections Practices Act (FDCPA), FCRA, and a claim of “outrageous conduct” under Colorado state law. The court upheld the plaintiff’s state law claim of “outrageous conduct,” finding that the claim was not preempted by FCRA. The court reasoned, among other things, that the claim fell within FCRA’s exemption for “false information furnished with malice or willful intent to injure.” The court further reasoned that the defendants’ alleged conduct may have been sufficiently outrageous to support the claim. However, the court dismissed the plaintiff’s claim that the servicer and its agent violated FCRA by failing to reasonably investigate the dispute because the dispute was made by the borrower and not by a credit reporting agency. Further, the court rejected the defendant’s claim that it was not a “debt collector” subject to the FDCPA, and thus denied the defendant’s motion to dismiss the FDCPA claim. For a copy of the opinion, please see http://www.buckleysandler.com/Llewellyn_v_Shearson.pdf.
Wisconsin Federal Court Grants Summary Judgment in FCRA Case. On April 6, the U.S. District Court for the Western District of Wisconsin granted summary judgment for a credit reporting agency in a suit alleging negligent and willful violations of the Fair Credit Reporting Act (FCRA). Konter v. CSC Credit Services, Inc., No. 08-CV-159, 2009 WL 921174 (W.D. Wis. Apr. 6, 2009). In Konter, the plaintiff claimed that the defendant negligently and willfully violated FCRA by failing to properly investigate and remove errors on the plaintiff’s credit report. The defendant moved for summary judgment on the grounds that (i) its actions did not “actually harm” plaintiff, which precludes the plaintiff’s negligent violation claim, and (ii) its actions were not willful violations of FCRA. The court found that there were no “actual damages” because the plaintiff produced no evidence that he was denied credit, received higher interest rates, or incurred any pecuniary injury, as a result of the inaccurate credit report. The court also noted that the plaintiff cannot recover for any denial of credit or adverse credit decisions he suffered before he notified the credit agency about the disputed information. With respect to the plaintiff’s claims for damages for humiliation and emotional distress, the court held that the plaintiff offered no proof that the defendant transmitted the embarrassing information to third parties, and, thus, could not recover for the humiliation he allegedly suffered. With respect to other emotional distress, the court held that the plaintiff failed to provide evidence that (i) reasonably and sufficiently explained the circumstance of the injury, (ii) was not merely conclusory, and (iii) established causality between the violation of the statute to the alleged harm. Lastly, regarding claims for willful violations of FCRA, the court concluded that, because the defendant’s action did not rise to the level of knowing, intentional or reckless disregard of FCRA, a reasonable jury could not find that the defendant acted in willful noncompliance with FCRA. As such, the court granted summary judgment on both the negligent and willful FCRA violation claims in favor of the credit reporting agency. For a copy of the opinion, please see http://www.buckleysandler.com/Konter_v_CSC.pdf.
Credit Cards
California Federal Court Holds CROA Bars Enforcement of Arbitration Agreement. On April 1, the U.S. District Court for the Northern District of California held that the Credit Repair Organization Act (CROA) precludes a consumer’s waiver of their right to sue contained in an arbitration clause. Greenwood v. CompuCredit Corporation, No. C 08-04878, 2009 WL 902323 (N.D. Cal. Apr. 1, 2009). The plaintiffs in Greenwood sued their credit card marketer and issuer on behalf of a putative nationwide class, alleging that fees and charges added to their subprime credit card balances violated the CROA and California’s Unfair Competition Law. The defendants moved to compel arbitration based on arbitration clauses contained in the terms of the plaintiffs’ credit card agreements. The court rejected the motion, finding that the CROA expressly prohibits waiving “any right of the consumer,” which includes the “right to sue a credit repair organization that violates” CROA. The court’s holding is in accord with federal court decisions out of the Northern District of Texas and the Northern District of Alabama, and conflicts with decisions out of the Third Circuit Court of Appeals and the Western District of Michigan. For a copy of the opinion, please see http://www.buckleysandler.com/Greenwood_v_Compucredit.pdf.