InfoBytes, April 24, 2009
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Banking
- Consumer Finance
- Litigation
- E-Financial Services
- Privacy/Data Security
- Credit Cards
Federal Issues
SIGTARP Requires Officers of TARP Recipients to Certify the Accuracy of Compensation Documentation. The Office of Special Inspector General for Troubled Asset Relief Program (SIGTARP) is requiring officials of financial institutions that have received TARP funds to certify as to the accuracy of reports and documents detailing the use of the funds and compliance with the compensation limitations. Reports and statements submitted are subject to Federal laws.
The SIGTARP recently completed the initial stage of its first audit of TARP fund recipients. Beginning on February 5, 2009, SIGTARP sent letters to the 364 TARP recipients that had received funds as of January 31, 2009, requiring them to provide within 30 days (i) details regarding their use and planned use of funds; plans for compliance with executive compensation requirements associated with the funds, (ii) copies of supporting documents, and (iii) certifications from senior executive officers subject to the false statement statutes, attesting to the accuracy of statements, representations, and supporting documents. It is expected that any institution receiving government funds will be subject to similar reporting responsibilities. It is noted that SIGTARP is required by September 1 to provide a report to Congress detailing how TARP recipients have used the funds.
Since the end of January, scores of additional institutions have received TARP funds. Recipients of any future letters regarding the use of funds must be mindful of the history and congressional pressure surrounding the audit and the applicability of various federal statutes relative to representations to the government. Senator Grassley sent a letter to Treasury Secretary Paulson and Attorney General Mukasey on November 17, 2008, urging use of the False Claims Act (FCA), 31 U.S.C. § 3729 et. seq., against TARP recipients. On January 22, 2009, SIGTARP Barofsky sent a letter to Senator Grassley, notifying him of the above-described inquiry letters to TARP fund recipients.
For a copy of the SIGTARP quarterly report, which contains a copy of the demand letter at Appendix L, please see http://www.sigtarp.gov/reports/congress/2009/April2009_Quarterly_Report_to_Congress.pdf.
Federal Agencies Propose Clarifications to Credit Card Rules. On April 21, the Federal Reserve Board (Fed), the Office of Thrift Supervision, and the National Credit Union Administration (collectively, the Agencies) proposed clarifications to aspects of their December 2008 final rules under the Federal Trade Commission Act (FTC Act) prohibiting certain credit card practices (reported in InfoBytes, Dec. 19, 2008). The Fed also proposed clarifications to its December 2008 final rule under the Truth in Lending Act (TILA) amending Regulation Z (also reported in InfoBytes, Dec. 19, 2008), which is intended to improve the disclosures consumers receive in connection with credit card accounts and other revolving credit plans. The new proposals are intended to facilitate compliance with the December 2008 final rules without reducing protections for consumers. They would address areas of uncertainty and make technical corrections intended to facilitate compliance with the rules on or before the July 1, 2010 effective date. In particular, the proposals would provide that (i) the key protections in the final rules would continue to apply to balances on a consumer credit card account when the account is closed or acquired by a different institution, or when the balances are transferred to another account issued by the same institution; and (ii) institutions and retailers may continue to offer deferred interest and similar programs, but these programs are subject to all of the protections in the final rules. Comments on the proposals must be submitted within 30 days after publication in the Federal Register. For a copy of the proposals, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090421a1.pdf and http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090421a2.pdf.
Fannie Mae Modifies Home Affordable Modification Program Guidance. On April 21, Fannie Mae amended Announcement 09-05 (now known as Announcement 09-05R). The revised announcement provides additional policy clarifications and instructions regarding the Home Affordable Modification Program (HMP). Among other things, the announcement imposes four new requirements on servicers. First, for any borrower that seeks modification and completes a hardship affidavit, a servicer must request and report data on that borrower’s race, ethnicity, and sex. Second, a servicer must evaluate any borrower seeking modification, but not yet 30 days delinquent, by using Fannie Mae’s “imminent default screen.” To be eligible for a modification under the screen, borrowers must have a debt coverage ratio of less than 1.20. Next, servicers must retain (i) all documents and information received during the process of determining borrower eligibility, (ii) all records of borrower solicitations or borrower-initiated inquiries regarding the HMP, (iii) all documents and information related to the monthly payments during and after the trial period as well as the incentive payment calculations, and (iv) if the borrower loses good standing, all documents relating to other foreclosure prevention alternatives offered to the borrower. Finally, a servicer must meet reporting requirements established by Fannie Mae and the U.S. Department of the Treasury (Treasury). The Treasury has selected Freddie Mac to serve as its Compliance Agent for the HMP, allowing Freddie Mac to conduct independent compliance assessments on all servicers. For a copy of the announcement, please see https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0905.pdf.
Freddie Mac Bulletin Announces Changes to Home Affordable Modification Program Requirements. On April 21, Freddie Mac issued bulletin 2009-10 to all Freddie Mac servicers announcing changes to eligibility and underwriting requirements for the Home Affordable Modification Program (HMP). A number of the changes align Freddie Mac’s requirements with the guidance provided by the U.S. Department of Treasury in its supplemental directive 09-01 regarding the adoption and implementation of the HMP for mortgage loans other than those owned, securitized, or guaranteed by Freddie Mac or Fannie Mae. Among other things, the bulletin announces (i) new criteria for determining imminent default in cases where the borrower is either current or less than 31 days past due on their mortgage, (ii) the introduction of a calculator to be used by servicers for performing the required net present value test, (iii) revisions to the requirements for verifying certain expenses that must be included in the borrower’s monthly total debt payment-to-income ratio calculation, and (iv) additional guidance on HMP incentive payments to borrowers and servicers. For a copy of the bulletin, please see http://www.freddiemac.com/sell/guide/bulletins/pdf/bll0910.pdf.
OCC Warns of Foreclosure Avoidance Scams. On April 21, the Office of Comptroller of the Currency (OCC) issued a Consumer Advisory, OCC Consumer Tips for Avoiding Mortgage Modification Scams and Foreclosure Rescue Scams, CA 2009-1 (April 21, 2009), warning consumers of foreclosure avoidance and mortgage modification scams and suggesting ways homeowners can protect themselves. In the advisory, the OCC explains that, because mortgage companies publicly announce foreclosures, several mortgage foreclosure scams have become prevalent. The warning discusses common types of scams, such as foreclosure “rescue” and refinance fraud, fake “government” modification programs, lease-back/rent-to-buy schemes, and debt-elimination scams. The advisory suggests consumers verify the credentials of any person claiming to have the ability to negotiate or eliminate mortgage loans, remain in contact with the consumer’s mortgage lender and/or servicer, and demand a written and signed contract between the debtor and any person claiming to provide modification services. For a copy of the advisory notice, please see http://www.occ.gov/ftp/ADVISORY/2009-1.pdf.
State Issues
Additional States Implement SAFE Act. Several states recently amended applicable state law to reflect compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act); namely, (i) on April 22, Nebraska Governor Dave Heineman signed LB 328, (ii) on April 15, Iowa Governor Chet Culver signed SF 355, (iii) on April 15, Mississippi Governor Haley Barbour signed SB 2983, (iv) on April 14, Maryland Governor Martin O’Malley signed SB 269, (v) on April 17, Washington Governor Christine Gregoire signed HB 1621, (vi) on April 3, Idaho Governor Butch Otter signed HB 169, (vii) on March 12, Wyoming Governor Dave Freudenthal signed HB 169, and (viii) on February 19, Wisconsin Governor Jim Doyle signed SB 62 (an omnibus bill containing provisions regarding the SAFE Act). The bills implement the mandate of the SAFE Act by providing for the licensing of all mortgage loan originators under the Nationwide Mortgage Licensing System. In addition to technical amendments, the bills prescribe loan originator requirements regarding, among other things, licensing, prior and continuing education, testing, minimum net worth, and surety bonds. Most of the bills become effective July 1, 2009, except (i) Nebraska LB 328 (effective July 31, 2009), (ii) Washington HB 1621 (effective July 1, 2010, with certain provisions becoming effective January 1, 2010), (iii) Mississippi SB 2983 (effective July 31, 2009), and (iv) Wisconsin SB 62 (effective January 1, 2010). For a copy of Nebraska LB 328, please see http://www.buckleysandler.com/NE_LB_328_2009.pdf; for a copy of Iowa SF 355, please see http://www.buckleysandler.com/IA_SF_355_2009.pdf; for a copy of Mississippi SB 2983, please see http://www.buckleysandler.com/MS_SB_2983_2009.pdf; for a copy of Maryland SB 2983, please see http://www.buckleysandler.com/MD_SB_269_2009.pdf; for a copy of Washington HB 1621, please see http://www.buckleysandler.com/WA_HB1621_2009.pdf; for a copy of Idaho HB 169, please see http://www.buckleysandler.com/ID_HB169_2009.pdf; for a copy of Wyoming HB 169, please see http://www.buckleysandler.com/WY_HB_169_2009.pdf; and for a copy of Wisconsin SB 62, please see http://www.legis.state.wi.us/2009/data/SB-62.pdf.
California Regulator Makes Available Foreclosure Prevention Act Draft Regulations, Report Form for Comment. On April 21, the California Department of Corporations (the Department) made available draft regulations and a reporting form in connection with the California Foreclosure Prevention Act (the Act). The Act grants an additional 90 days (in addition to the period already provided) before a mortgage servicer can file a “Notice of Sale” to allow borrowers to work out a loan modification. Further, the Act imposes a reporting requirement on servicers regarding loan modification data. The Act exempts mortgage loan servicers that have implemented a “comprehensive loan modification program” from providing the additional 90 day extension. An entity seeking this exemption is temporarily exempted upon submitting an application (which has not yet been made available) to the Department. On February 20, 2009, Governor Arnold Schwarzenegger signed the Act (SB 7). Comments on the draft regulations and reporting form are due by May 9, 2009. The anticipated effective date of the Act is June 15, 2009. For a copy of the draft regulations, including a draft of the mortgage servicer exemption application, please see http://www.corp.ca.gov/OLP/pdf/rm/ForeclosurePreventionDraftRegs.pdf. For a copy of the proposed reporting form, please see http://www.corp.ca.gov/OLP/pdf/rm/ForeclosureSurvey.xls. For a copy of SB 7, please see http://www.buckleysandler.com/CA_SB_7_2009.pdf.
Courts
Seventh Circuit Reaffirms That Retroactive Penalty Rate Did Not Violate TILA, Rejects Contrary Ninth Circuit Decision. On April 24, the U.S. Court of Appeals for the Seventh Circuit reaffirmed its earlier holding in Swanson v. Bank of America, N.A. (reported in InfoBytes, Mar. 20, 2009) that retroactive penalty rates do not violate the Truth in Lending Act (TILA) and Regulation Z where the card agreement authorizes the rate. Swanson v. Bank of America, N.A., No. 08-3322, 2009 WL 1098756 (7th Cir. Apr. 24, 2009). After the Seventh Circuit reached its decision, but while the opinion was at the printer, the Ninth Circuit reached the opposite conclusion in McCoy v. Chase Manhattan Bank, USA, N.A. (reported inInfoBytes, Mar. 27, 2009). The plaintiff in Swanson petitioned for a rehearing, urging the Seventh Circuit to follow the Ninth Circuit and resolve what the plaintiff argued was a split among the circuits. The Seventh Circuit denied the plaintiff’s petition for rehearing, noting that every previous court to have considered the issue reached the same conclusion the Seventh Circuit did in Swanson. The Seventh Circuit also noted that the Ninth Circuit’s decision in McCoy conflicted with the Ninth Circuit’s earlier opinion in Evans v. Chase Bank USA, N.A., No. 06-15212, 2008 WL 467801 (9th Cir. Feb. 22, 2008). Thus, the Seventh Circuit observed, McCoy did not create a split among the circuits, but rather a split among the judges of the Ninth Circuit. The Seventh Circuit also noted that a new regulation, scheduled to take effect on July 1, 2010, will resolve the issue. The Seventh Circuit also explained that, even if the plaintiff’s federal claims did not fail, her state law claim would fail because Delaware law “permits banks to change interest rates in ways allowed by contract.” For a copy of the opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=08-3322_003.pdf.
Alabama Federal Court Holds Realty Firm Violated RESPA by Charging Unearned Fees to More Than 30,000 Customers. On April 20, the U.S. District Court for the Northern District of Alabama entered a judgment on behalf of a class-action plaintiff and more than 30,000 class members who were charged a real-estate settlement fee for which no services were performed, in violation of the Real Estate Settlement Procedures Act (RESPA). Busby v. JRHBW Realty, Inc., No. 2:04-CV-2799 (N.D. Ala. Apr. 20, 2009). In this long-running litigation, the named plaintiff Busby purchased a home and, in addition to paying a real estate brokerage commission, was charged an Administrative Brokerage Commission Fee (ABC Fee) of $149 at closing. Busby filed suit on behalf of herself and all others who were charged an ABC Fee, alleging that the fee violated RESPA as a fee charged for unperformed services. The district court initially denied her motion for class certification, finding that individual factual issues predominated the class. The Eleventh Circuit in January 2008 reversed the denial of class certification, holding that “a simple binary determination of ‘any services’ or ‘no services’ is all that need be done” (reported in InfoBytes, Jan. 18, 2008). In this most recent opinion, the district court noted that no specific services were performed in exchange for the ABC Fee, that the fee’s purpose was to cover the defendant’s overhead, and that no benefit was provided to consumers in exchange for the fee. Therefore, the court entered judgment in favor of Busby and the class members who had been charged the ABC Fee. For a copy of the opinion, please see http://www.buckleysandler.com/Busby_v_JRHBW.pdf.
Massachusetts Federal Court Holds Real Estate Conveyancing Does Not Constitute Unauthorized Practice of Law. On April 13, the U.S. District Court for the District of Massachusetts rejected a local bar association’s attempt to prevent a multi-state real estate settlement services provider from providing real estate conveyancing services under the theory that such activity constitutes the unauthorized practice of law. The Real Estate Bar Ass’n for Mass., Inc. v. National Real Estate Info. Servs., No. 07-10224 (D. Mass. Apr. 13, 2009). In this case, the plaintiff sought a declaratory judgment that the defendant’s real estate conveyancing—including examination of legal title, resolution of any clouds on title, preparing closing documents, performing the closing, and recordation of title, as well as defendant’s practice of performing “notary closings” and issuing title insurance—constituted the unauthorized practice of law. According to the plaintiff, “each step [in the conveyance process] was an “interconnected series of activities that must be performed in order to convey the various legal interests in the real estate,” and therefore constituted the practice of law. The district court “declined to adopt [plaintiff’s] novel construction of the practice of law as encompassing all the interconnected steps of a real estate conveyance,” and looked to each step in the conveyance process independently to determine whether it constituted the practice of law. Relying on decisions from the Massachusetts Supreme Judicial Court, the court held that individual steps such as conducting a title search, preparing closing documents, and issuing title insurance did not independently constitute the practice of law. With respect to the plaintiff’s “notary closing” argument, the court agreed that a licensed attorney was expected to have “at least some involvement with the closing,” but also held that plaintiff failed to present evidence that defendant—which hired Massachusetts attorneys to conduct its closings—engaged in the unauthorized practice of law at closing. In granting the defendant’s motion for summary judgment, the court found that plaintiff’s interpretation of what constitutes the unauthorized practice of law would violate the Dormant Commerce Clause. For a copy of the opinion, please see http://www.buckleysandler.com/Real_Estate_Bar_v_National.pdf.
Virginia Federal Court Holds Emotional Distress Claims Are Actual Damages Under RESPA, FDCPA. On April 14, the U.S. District Court for the Eastern District of Virginia held that claims for emotional distress are “actual damages” under both the Real Estate Settlement Procedures Act (RESPA) and the Fair Debt Collection Practices Act (FDCPA). Carter v. Countrywide Home Loans, No. 3:07CV651, 2009 WL 1010851 (E.D. Va. Apr. 14, 2009). In Carter, the plaintiffs alleged that the defendant lender failed to properly credit payments that they had made towards a mortgage loan. The plaintiffs subsequently filed suit against the lender and the substitute trustee of the foreclosed property, alleging, among other things, claims for economic loss and emotional distress under RESPA and the FDCPA. The defendants argued that the plaintiffs failed to present evidence to substantiate the claims and moved for summary judgment. In denying the motions, the court held that RESPA and the FDCPA permit claims for emotional distress as claims for actual damages, and the court determined that such a determination entailed issues of fact inappropriate for summary judgment. Regarding the claim under RESPA, the court, noting a split in persuasive precedent, agreed with decisions interpreting RESPA broadly as a remedial consumer protection statute whose actual damages provision includes possible recovery for emotional distress. Regarding the claim under the FDCPA, the court looked to persuasive precedent interpreting the actual damages provisions of the FDCPA and RESPA as being “essentially identical” and to Federal Trade Commission Commentary to find that emotional distress constitutes actual damages for the purpose of the FDCPA. For a copy of the opinion, please see http://www.buckleysandler.com/Carter_v_CHL.pdf.
Florida Federal Court Holds E-Mail Order Confirmation Not Subject to FACTA. On April 16, the U.S. District Court for the Southern District of Florida held that e-mail order confirmations are not "printed," and, thus, are not subject to the requirements of the Fair and Accurate Credit Transactions Act (FACTA). Turner v. Ticket Animal, LLC, No. 08-61038, 2009 WL 1035241 (S.D. Fla. Apr. 16, 2009). In this case, the plaintiff made a transaction using the defendant’s website. The plaintiff argued that the defendant violated FACTA because the e-mail order confirmation included the plaintiff’s credit card expiration date. The court disagreed, holding that an e-mail order confirmation is not “printed.” Following several recent decisions, the court held that the plain language meaning of "print" supported interpreting “to print” as “to imprint onto paper or some other tangible surface.” As a result, the court dismissed the claim. For a copy of the opinion, please see http://www.buckleysandler.com/Turner_v_Ticket.pdf.
Texas Federal Court Holds Online Arbitration Provision Illusory. On April 15, the U.S. District Court for the Northern District of Texas held that an arbitration clause posted by the defendant, Blockbuster, for its online movie rental website was illusory and unenforceable. Harris v. Blockbuster Inc., No. 09-00217, 2009 WL 1011732 (N.D. Tex. Apr. 15, 2009). In this case, the plaintiff challenged the arbitration clause found in the Terms and Conditions of Blockbuster Online. Users. The court found that, as a precondition to joining, customers are required to click on a box certifying that they have read and agree to the Terms and Conditions. When Blockbuster sought to enforce the arbitration provision in a dispute with the plaintiff, the plaintiff challenged the arbitration provision found in the Terms and Conditions as illusory, and the court agreed. Specifically, the court held that the ability of Blockbuster to unilaterally modify or terminate the agreement simply by posting such modification to the website, without an express limitation preventing application of those modifications to disputes arising before those terms were modified, rendered it illusory. As such, the court denied Blockbuster’s motion to compel arbitration. For a copy of the opinion, please see http://www.buckleysandler.com/Harris_v_Blockbuster.pdf.
Delaware Federal Court Holds FCRA “Reasonable Investigation” Provision Provides a Private Right of Action. On April 13, the U.S. District Court for the District of Delaware held that the Fair Credit Reporting Act (FCRA) provides a private right of action for failure to conduct a reasonable investigation after notice from a consumer reporting agency under FCRA’s “reasonable investigation” requirement (15 U.S.C. § 1681s-2(b)) . Calloway v. Green Tree Servicing, LLC, Civ. No. 08-552, 2009 WL 981120 (D. Del. Apr. 13, 2009). The plaintiffs in this case alleged that their mortgage servicer furnished erroneous information related to their mortgage to credit reporting agencies and that, even after the plaintiffs requested the credit reporting agencies to work with the servicer to correct the error, the servicer failed to make corrections or cease furnishing the erroneous information. The servicer claimed that FCRA does not provide a private right of action against information furnishers, and it preempts defamation claims that fail to properly allege malice or willfulness. According to the court, “[t]here is ... no provision removing 15 U.S.C. § 1681s-2(b) from the scope of the FCRA’s private right of action” and, consequently, the plaintiffs could bring a claim against the servicer for failure to conduct a reasonable investigation. In addition, the court concluded that the complaint, “read generously,” made out a defamation claim under Delaware law and sufficiently alleged malice or intent to injure, to avoid preemption by FCRA. For a copy of the opinion, please seehttp://www.buckleysandler.com/Calloway_v_Green_Tree.pdf">http://www.buckleysandler.com/Calloway_v_Green_Tree.pdf.
Firm News
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?.”
Jonice Gray Tucker will be speaking at the American Bar Association’s Litigation Section Annual Conference being held in Atlanta, Georgia on April 30.
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.
Sara Emley was a panelist on a webcast sponsored by the Investment Adviser Association on April 21. Her panel was entitled “Compliance Programs for Smaller Advisers: Best Practices for COOs.”
Mortgages
Fannie Mae Modifies Home Affordable Modification Program Guidance. On April 21, Fannie Mae amended Announcement 09-05 (now known as Announcement 09-05R). The revised announcement provides additional policy clarifications and instructions regarding the Home Affordable Modification Program (HMP). Among other things, the announcement imposes four new requirements on servicers. First, for any borrower that seeks modification and completes a hardship affidavit, a servicer must request and report data on that borrower’s race, ethnicity, and sex. Second, a servicer must evaluate any borrower seeking modification, but not yet 30 days delinquent, by using Fannie Mae’s “imminent default screen.” To be eligible for a modification under the screen, borrowers must have a debt coverage ratio of less than 1.20. Next, servicers must retain (i) all documents and information received during the process of determining borrower eligibility, (ii) all records of borrower solicitations or borrower-initiated inquiries regarding the HMP, (iii) all documents and information related to the monthly payments during and after the trial period as well as the incentive payment calculations, and (iv) if the borrower loses good standing, all documents relating to other foreclosure prevention alternatives offered to the borrower. Finally, a servicer must meet reporting requirements established by Fannie Mae and the U.S. Department of the Treasury (Treasury). The Treasury has selected Freddie Mac to serve as its Compliance Agent for the HMP, allowing Freddie Mac to conduct independent compliance assessments on all servicers. For a copy of the announcement, please see https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0905.pdf.
Freddie Mac Bulletin Announces Changes to Home Affordable Modification Program Requirements. On April 21, Freddie Mac issued bulletin 2009-10 to all Freddie Mac servicers announcing changes to eligibility and underwriting requirements for the Home Affordable Modification Program (HMP). A number of the changes align Freddie Mac’s requirements with the guidance provided by the U.S. Department of Treasury in its supplemental directive 09-01 regarding the adoption and implementation of the HMP for mortgage loans other than those owned, securitized, or guaranteed by Freddie Mac or Fannie Mae. Among other things, the bulletin announces (i) new criteria for determining imminent default in cases where the borrower is either current or less than 31 days past due on their mortgage, (ii) the introduction of a calculator to be used by servicers for performing the required net present value test, (iii) revisions to the requirements for verifying certain expenses that must be included in the borrower’s monthly total debt payment-to-income ratio calculation, and (iv) additional guidance on HMP incentive payments to borrowers and servicers. For a copy of the bulletin, please see http://www.freddiemac.com/sell/guide/bulletins/pdf/bll0910.pdf.
OCC Warns of Foreclosure Avoidance Scams. On April 21, the Office of Comptroller of the Currency (OCC) issued a Consumer Advisory, OCC Consumer Tips for Avoiding Mortgage Modification Scams and Foreclosure Rescue Scams, CA 2009-1 (April 21, 2009), warning consumers of foreclosure avoidance and mortgage modification scams and suggesting ways homeowners can protect themselves. In the advisory, the OCC explains that, because mortgage companies publicly announce foreclosures, several mortgage foreclosure scams have become prevalent. The warning discusses common types of scams, such as foreclosure “rescue” and refinance fraud, fake “government” modification programs, lease-back/rent-to-buy schemes, and debt-elimination scams. The advisory suggests consumers verify the credentials of any person claiming to have the ability to negotiate or eliminate mortgage loans, remain in contact with the consumer’s mortgage lender and/or servicer, and demand a written and signed contract between the debtor and any person claiming to provide modification services. For a copy of the advisory notice, please see http://www.occ.gov/ftp/ADVISORY/2009-1.pdf.
Additional States Implement SAFE Act. Several states recently amended applicable state law to reflect compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act); namely, (i) on April 22, Nebraska Governor Dave Heineman signed LB 328, (ii) on April 15, Iowa Governor Chet Culver signed SF 355, (iii) on April 15, Mississippi Governor Haley Barbour signed SB 2983, (iv) on April 14, Maryland Governor Martin O’Malley signed SB 269, (v) on April 17, Washington Governor Christine Gregoire signed HB 1621, (vi) on April 3, Idaho Governor Butch Otter signed HB 169, (vii) on March 12, Wyoming Governor Dave Freudenthal signed HB 169, and (viii) on February 19, Wisconsin Governor Jim Doyle signed SB 62 (an omnibus bill containing provisions regarding the SAFE Act). The bills implement the mandate of the SAFE Act by providing for the licensing of all mortgage loan originators under the Nationwide Mortgage Licensing System. In addition to technical amendments, the bills prescribe loan originator requirements regarding, among other things, licensing, prior and continuing education, testing, minimum net worth, and surety bonds. Most of the bills become effective July 1, 2009, except (i) Nebraska LB 328 (effective July 31, 2009), (ii) Washington HB 1621 (effective July 1, 2010, with certain provisions becoming effective January 1, 2010), (iii) Mississippi SB 2983 (effective July 31, 2009), and (iv) Wisconsin SB 62 (effective January 1, 2010). For a copy of Nebraska LB 328, please see http://www.buckleysandler.com/NE_LB_328_2009.pdf; for a copy of Iowa SF 355, please see http://www.buckleysandler.com/IA_SF_355_2009.pdf; for a copy of Mississippi SB 2983, please see http://www.buckleysandler.com/MS_SB_2983_2009.pdf; for a copy of Maryland SB 2983, please see http://www.buckleysandler.com/MD_SB_269_2009.pdf; for a copy of Washington HB 1621, please see http://www.buckleysandler.com/WA_HB1621_2009.pdf; for a copy of Idaho HB 169, please see http://www.buckleysandler.com/ID_HB169_2009.pdf; for a copy of Wyoming HB 169, please see http://www.buckleysandler.com/WY_HB_169_2009.pdf; and for a copy of Wisconsin SB 62, please see http://www.legis.state.wi.us/2009/data/SB-62.pdf.
California Regulator Makes Available Foreclosure Prevention Act Draft Regulations, Report Form for Comment. On April 21, the California Department of Corporations (the Department) made available draft regulations and a reporting form in connection with the California Foreclosure Prevention Act (the Act). The Act grants an additional 90 days (in addition to the period already provided) before a mortgage servicer can file a “Notice of Sale” to allow borrowers to work out a loan modification. Further, the Act imposes a reporting requirement on servicers regarding loan modification data. The Act exempts mortgage loan servicers that have implemented a “comprehensive loan modification program” from providing the additional 90 day extension. An entity seeking this exemption is temporarily exempted upon submitting an application (which has not yet been made available) to the Department. On February 20, 2009, Governor Arnold Schwarzenegger signed the Act (SB 7). Comments on the draft regulations and reporting form are due by May 9, 2009. The anticipated effective date of the Act is June 15, 2009. For a copy of the draft regulations, including a draft of the mortgage servicer exemption application, please see http://www.corp.ca.gov/OLP/pdf/rm/ForeclosurePreventionDraftRegs.pdf. For a copy of the proposed reporting form, please see http://www.corp.ca.gov/OLP/pdf/rm/ForeclosureSurvey.xls. For a copy of SB 7, please see http://www.buckleysandler.com/CA_SB_7_2009.pdf.
Alabama Federal Court Holds Realty Firm Violated RESPA by Charging Unearned Fees to More Than 30,000 Customers. On April 20, the U.S. District Court for the Northern District of Alabama entered a judgment on behalf of a class-action plaintiff and more than 30,000 class members who were charged a real-estate settlement fee for which no services were performed, in violation of the Real Estate Settlement Procedures Act (RESPA). Busby v. JRHBW Realty, Inc., No. 2:04-CV-2799 (N.D. Ala. Apr. 20, 2009). In this long-running litigation, the named plaintiff Busby purchased a home and, in addition to paying a real estate brokerage commission, was charged an Administrative Brokerage Commission Fee (ABC Fee) of $149 at closing. Busby filed suit on behalf of herself and all others who were charged an ABC Fee, alleging that the fee violated RESPA as a fee charged for unperformed services. The district court initially denied her motion for class certification, finding that individual factual issues predominated the class. The Eleventh Circuit in January 2008 reversed the denial of class certification, holding that “a simple binary determination of ‘any services’ or ‘no services’ is all that need be done” (reported in InfoBytes, Jan. 18, 2008). In this most recent opinion, the district court noted that no specific services were performed in exchange for the ABC Fee, that the fee’s purpose was to cover the defendant’s overhead, and that no benefit was provided to consumers in exchange for the fee. Therefore, the court entered judgment in favor of Busby and the class members who had been charged the ABC Fee. For a copy of the opinion, please see http://www.buckleysandler.com/Busby_v_JRHBW.pdf.
Massachusetts Federal Court Holds Real Estate Conveyancing Does Not Constitute Unauthorized Practice of Law. On April 13, the U.S. District Court for the District of Massachusetts rejected a local bar association’s attempt to prevent a multi-state real estate settlement services provider from providing real estate conveyancing services under the theory that such activity constitutes the unauthorized practice of law. The Real Estate Bar Ass’n for Mass., Inc. v. National Real Estate Info. Servs., No. 07-10224 (D. Mass. Apr. 13, 2009). In this case, the plaintiff sought a declaratory judgment that the defendant’s real estate conveyancing—including examination of legal title, resolution of any clouds on title, preparing closing documents, performing the closing, and recordation of title, as well as defendant’s practice of performing “notary closings” and issuing title insurance—constituted the unauthorized practice of law. According to the plaintiff, “each step [in the conveyance process] was an “interconnected series of activities that must be performed in order to convey the various legal interests in the real estate,” and therefore constituted the practice of law. The district court “declined to adopt [plaintiff’s] novel construction of the practice of law as encompassing all the interconnected steps of a real estate conveyance,” and looked to each step in the conveyance process independently to determine whether it constituted the practice of law. Relying on decisions from the Massachusetts Supreme Judicial Court, the court held that individual steps such as conducting a title search, preparing closing documents, and issuing title insurance did not independently constitute the practice of law. With respect to the plaintiff’s “notary closing” argument, the court agreed that a licensed attorney was expected to have “at least some involvement with the closing,” but also held that plaintiff failed to present evidence that defendant—which hired Massachusetts attorneys to conduct its closings—engaged in the unauthorized practice of law at closing. In granting the defendant’s motion for summary judgment, the court found that plaintiff’s interpretation of what constitutes the unauthorized practice of law would violate the Dormant Commerce Clause. For a copy of the opinion, please see http://www.buckleysandler.com/Real_Estate_Bar_v_National.pdf.
Virginia Federal Court Holds Emotional Distress Claims Are Actual Damages Under RESPA, FDCPA. On April 14, the U.S. District Court for the Eastern District of Virginia held that claims for emotional distress are “actual damages” under both the Real Estate Settlement Procedures Act (RESPA) and the Fair Debt Collection Practices Act (FDCPA). Carter v. Countrywide Home Loans, No. 3:07CV651, 2009 WL 1010851 (E.D. Va. Apr. 14, 2009). In Carter, the plaintiffs alleged that the defendant lender failed to properly credit payments that they had made towards a mortgage loan. The plaintiffs subsequently filed suit against the lender and the substitute trustee of the foreclosed property, alleging, among other things, claims for economic loss and emotional distress under RESPA and the FDCPA. The defendants argued that the plaintiffs failed to present evidence to substantiate the claims and moved for summary judgment. In denying the motions, the court held that RESPA and the FDCPA permit claims for emotional distress as claims for actual damages, and the court determined that such a determination entailed issues of fact inappropriate for summary judgment. Regarding the claim under RESPA, the court, noting a split in persuasive precedent, agreed with decisions interpreting RESPA broadly as a remedial consumer protection statute whose actual damages provision includes possible recovery for emotional distress. Regarding the claim under the FDCPA, the court looked to persuasive precedent interpreting the actual damages provisions of the FDCPA and RESPA as being “essentially identical” and to Federal Trade Commission Commentary to find that emotional distress constitutes actual damages for the purpose of the FDCPA. For a copy of the opinion, please see http://www.buckleysandler.com/Carter_v_CHL.pdf.
Banking
SIGTARP Requires Officers of TARP Recipients to Certify the Accuracy of Compensation Documentation. The Office of Special Inspector General for Troubled Asset Relief Program (SIGTARP) is requiring officials of financial institutions that have received TARP funds to certify as to the accuracy of reports and documents detailing the use of the funds and compliance with the compensation limitations. Reports and statements submitted are subject to Federal laws.
The SIGTARP recently completed the initial stage of its first audit of TARP fund recipients. Beginning on February 5, 2009, SIGTARP sent letters to the 364 TARP recipients that had received funds as of January 31, 2009, requiring them to provide within 30 days (i) details regarding their use and planned use of funds; plans for compliance with executive compensation requirements associated with the funds, (ii) copies of supporting documents, and (iii) certifications from senior executive officers subject to the false statement statutes, attesting to the accuracy of statements, representations, and supporting documents. It is expected that any institution receiving government funds will be subject to similar reporting responsibilities. It is noted that SIGTARP is required by September 1 to provide a report to Congress detailing how TARP recipients have used the funds.
Since the end of January, scores of additional institutions have received TARP funds. Recipients of any future letters regarding the use of funds must be mindful of the history and congressional pressure surrounding the audit and the applicability of various federal statutes relative to representations to the government. Senator Grassley sent a letter to Treasury Secretary Paulson and Attorney General Mukasey on November 17, 2008, urging use of the False Claims Act (FCA), 31 U.S.C. § 3729 et. seq., against TARP recipients. On January 22, 2009, SIGTARP Barofsky sent a letter to Senator Grassley, notifying him of the above-described inquiry letters to TARP fund recipients.
For a copy of the SIGTARP quarterly report, which contains a copy of the demand letter at Appendix L, please see http://www.sigtarp.gov/reports/congress/2009/April2009_Quarterly_Report_to_Congress.pdf.
Consumer Finance
Federal Agencies Propose Clarifications to Credit Card Rules. On April 21, the Federal Reserve Board (Fed), the Office of Thrift Supervision, and the National Credit Union Administration (collectively, the Agencies) proposed clarifications to aspects of their December 2008 final rules under the Federal Trade Commission Act (FTC Act) prohibiting certain credit card practices (reported in InfoBytes, Dec. 19, 2008). The Fed also proposed clarifications to its December 2008 final rule under the Truth in Lending Act (TILA) amending Regulation Z (also reported in InfoBytes, Dec. 19, 2008), which is intended to improve the disclosures consumers receive in connection with credit card accounts and other revolving credit plans. The new proposals are intended to facilitate compliance with the December 2008 final rules without reducing protections for consumers. They would address areas of uncertainty and make technical corrections intended to facilitate compliance with the rules on or before the July 1, 2010 effective date. In particular, the proposals would provide that (i) the key protections in the final rules would continue to apply to balances on a consumer credit card account when the account is closed or acquired by a different institution, or when the balances are transferred to another account issued by the same institution; and (ii) institutions and retailers may continue to offer deferred interest and similar programs, but these programs are subject to all of the protections in the final rules. Comments on the proposals must be submitted within 30 days after publication in the Federal Register. For a copy of the proposals, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090421a1.pdf and
http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090421a2.pdf.
Virginia Federal Court Holds Emotional Distress Claims Are Actual Damages Under RESPA, FDCPA. On April 14, the U.S. District Court for the Eastern District of Virginia held that claims for emotional distress are “actual damages” under both the Real Estate Settlement Procedures Act (RESPA) and the Fair Debt Collection Practices Act (FDCPA). Carter v. Countrywide Home Loans, No. 3:07CV651, 2009 WL 1010851 (E.D. Va. Apr. 14, 2009). In Carter, the plaintiffs alleged that the defendant lender failed to properly credit payments that they had made towards a mortgage loan. The plaintiffs subsequently filed suit against the lender and the substitute trustee of the foreclosed property, alleging, among other things, claims for economic loss and emotional distress under RESPA and the FDCPA. The defendants argued that the plaintiffs failed to present evidence to substantiate the claims and moved for summary judgment. In denying the motions, the court held that RESPA and the FDCPA permit claims for emotional distress as claims for actual damages, and the court determined that such a determination entailed issues of fact inappropriate for summary judgment. Regarding the claim under RESPA, the court, noting a split in persuasive precedent, agreed with decisions interpreting RESPA broadly as a remedial consumer protection statute whose actual damages provision includes possible recovery for emotional distress. Regarding the claim under the FDCPA, the court looked to persuasive precedent interpreting the actual damages provisions of the FDCPA and RESPA as being “essentially identical” and to Federal Trade Commission Commentary to find that emotional distress constitutes actual damages for the purpose of the FDCPA. For a copy of the opinion, please see http://www.buckleysandler.com/Carter_v_CHL.pdf.
Florida Federal Court Holds E-Mail Order Confirmation Not Subject to FACTA. On April 16, the U.S. District Court for the Southern District of Florida held that e-mail order confirmations are not "printed," and, thus, are not subject to the requirements of the Fair and Accurate Credit Transactions Act (FACTA). Turner v. Ticket Animal, LLC, No. 08-61038, 2009 WL 1035241 (S.D. Fla. Apr. 16, 2009). In this case, the plaintiff made a transaction using the defendant’s website. The plaintiff argued that the defendant violated FACTA because the e-mail order confirmation included the plaintiff’s credit card expiration date. The court disagreed, holding that an e-mail order confirmation is not “printed.” Following several recent decisions, the court held that the plain language meaning of "print" supported interpreting “to print” as “to imprint onto paper or some other tangible surface.” As a result, the court dismissed the claim. For a copy of the opinion, please see http://www.buckleysandler.com/Turner_v_Ticket.pdf.
Delaware Federal Court Holds FCRA “Reasonable Investigation” Provision Provides a Private Right of Action. On April 13, the U.S. District Court for the District of Delaware held that the Fair Credit Reporting Act (FCRA) provides a private right of action for failure to conduct a reasonable investigation after notice from a consumer reporting agency under FCRA’s “reasonable investigation” requirement (15 U.S.C. § 1681s-2(b)) . Calloway v. Green Tree Servicing, LLC, Civ. No. 08-552, 2009 WL 981120 (D. Del. Apr. 13, 2009). The plaintiffs in this case alleged that their mortgage servicer furnished erroneous information related to their mortgage to credit reporting agencies and that, even after the plaintiffs requested the credit reporting agencies to work with the servicer to correct the error, the servicer failed to make corrections or cease furnishing the erroneous information. The servicer claimed that FCRA does not provide a private right of action against information furnishers, and it preempts defamation claims that fail to properly allege malice or willfulness. According to the court, “[t]here is ... no provision removing 15 U.S.C. § 1681s-2(b) from the scope of the FCRA’s private right of action” and, consequently, the plaintiffs could bring a claim against the servicer for failure to conduct a reasonable investigation. In addition, the court concluded that the complaint, “read generously,” made out a defamation claim under Delaware law and sufficiently alleged malice or intent to injure, to avoid preemption by FCRA. For a copy of the opinion, please see http://www.buckleysandler.com/Calloway_v_Green_Tree.pdf.
Litigation
Seventh Circuit Reaffirms That Retroactive Penalty Rate Did Not Violate TILA, Rejects Contrary Ninth Circuit Decision. On April 24, the U.S. Court of Appeals for the Seventh Circuit reaffirmed its earlier holding in Swanson v. Bank of America, N.A. (reported in InfoBytes, Mar. 20, 2009) that retroactive penalty rates do not violate the Truth in Lending Act (TILA) and Regulation Z where the card agreement authorizes the rate. Swanson v. Bank of America, N.A., No. 08-3322, 2009 WL 1098756 (7th Cir. Apr. 24, 2009). After the Seventh Circuit reached its decision, but while the opinion was at the printer, the Ninth Circuit reached the opposite conclusion in McCoy v. Chase Manhattan Bank, USA, N.A. (reported in InfoBytes, Mar. 27, 2009). The plaintiff in Swanson petitioned for a rehearing, urging the Seventh Circuit to follow the Ninth Circuit and resolve what the plaintiff argued was a split among the circuits. The Seventh Circuit denied the plaintiff’s petition for rehearing, noting that every previous court to have considered the issue reached the same conclusion the Seventh Circuit did in Swanson. The Seventh Circuit also noted that the Ninth Circuit’s decision in McCoy conflicted with the Ninth Circuit’s earlier opinion in Evans v. Chase Bank USA, N.A., No. 06-15212, 2008 WL 467801 (9th Cir. Feb. 22, 2008). Thus, the Seventh Circuit observed, McCoy did not create a split among the circuits, but rather a split among the judges of the Ninth Circuit. The Seventh Circuit also noted that a new regulation, scheduled to take effect on July 1, 2010, will resolve the issue. The Seventh Circuit also explained that, even if the plaintiff’s federal claims did not fail, her state law claim would fail because Delaware law “permits banks to change interest rates in ways allowed by contract.” For a copy of the opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=08-3322_003.pdf.
Alabama Federal Court Holds Realty Firm Violated RESPA by Charging Unearned Fees to More Than 30,000 Customers. On April 20, the U.S. District Court for the Northern District of Alabama entered a judgment on behalf of a class-action plaintiff and more than 30,000 class members who were charged a real-estate settlement fee for which no services were performed, in violation of the Real Estate Settlement Procedures Act (RESPA). Busby v. JRHBW Realty, Inc., No. 2:04-CV-2799 (N.D. Ala. Apr. 20, 2009). In this long-running litigation, the named plaintiff Busby purchased a home and, in addition to paying a real estate brokerage commission, was charged an Administrative Brokerage Commission Fee (ABC Fee) of $149 at closing. Busby filed suit on behalf of herself and all others who were charged an ABC Fee, alleging that the fee violated RESPA as a fee charged for unperformed services. The district court initially denied her motion for class certification, finding that individual factual issues predominated the class. The Eleventh Circuit in January 2008 reversed the denial of class certification, holding that “a simple binary determination of ‘any services’ or ‘no services’ is all that need be done” (reported in InfoBytes, Jan. 18, 2008). In this most recent opinion, the district court noted that no specific services were performed in exchange for the ABC Fee, that the fee’s purpose was to cover the defendant’s overhead, and that no benefit was provided to consumers in exchange for the fee. Therefore, the court entered judgment in favor of Busby and the class members who had been charged the ABC Fee. For a copy of the opinion, please see http://www.buckleysandler.com/Busby_v_JRHBW.pdf.
Massachusetts Federal Court Holds Real Estate Conveyancing Does Not Constitute Unauthorized Practice of Law. On April 13, the U.S. District Court for the District of Massachusetts rejected a local bar association’s attempt to prevent a multi-state real estate settlement services provider from providing real estate conveyancing services under the theory that such activity constitutes the unauthorized practice of law. The Real Estate Bar Ass’n for Mass., Inc. v. National Real Estate Info. Servs., No. 07-10224 (D. Mass. Apr. 13, 2009). In this case, the plaintiff sought a declaratory judgment that the defendant’s real estate conveyancing—including examination of legal title, resolution of any clouds on title, preparing closing documents, performing the closing, and recordation of title, as well as defendant’s practice of performing “notary closings” and issuing title insurance—constituted the unauthorized practice of law. According to the plaintiff, “each step [in the conveyance process] was an “interconnected series of activities that must be performed in order to convey the various legal interests in the real estate,” and therefore constituted the practice of law. The district court “declined to adopt [plaintiff’s] novel construction of the practice of law as encompassing all the interconnected steps of a real estate conveyance,” and looked to each step in the conveyance process independently to determine whether it constituted the practice of law. Relying on decisions from the Massachusetts Supreme Judicial Court, the court held that individual steps such as conducting a title search, preparing closing documents, and issuing title insurance did not independently constitute the practice of law. With respect to the plaintiff’s “notary closing” argument, the court agreed that a licensed attorney was expected to have “at least some involvement with the closing,” but also held that plaintiff failed to present evidence that defendant—which hired Massachusetts attorneys to conduct its closings—engaged in the unauthorized practice of law at closing. In granting the defendant’s motion for summary judgment, the court found that plaintiff’s interpretation of what constitutes the unauthorized practice of law would violate the Dormant Commerce Clause. For a copy of the opinion, please see http://www.buckleysandler.com/Real_Estate_Bar_v_National.pdf.
Virginia Federal Court Holds Emotional Distress Claims Are Actual Damages Under RESPA, FDCPA. On April 14, the U.S. District Court for the Eastern District of Virginia held that claims for emotional distress are “actual damages” under both the Real Estate Settlement Procedures Act (RESPA) and the Fair Debt Collection Practices Act (FDCPA). Carter v. Countrywide Home Loans, No. 3:07CV651, 2009 WL 1010851 (E.D. Va. Apr. 14, 2009). In Carter, the plaintiffs alleged that the defendant lender failed to properly credit payments that they had made towards a mortgage loan. The plaintiffs subsequently filed suit against the lender and the substitute trustee of the foreclosed property, alleging, among other things, claims for economic loss and emotional distress under RESPA and the FDCPA. The defendants argued that the plaintiffs failed to present evidence to substantiate the claims and moved for summary judgment. In denying the motions, the court held that RESPA and the FDCPA permit claims for emotional distress as claims for actual damages, and the court determined that such a determination entailed issues of fact inappropriate for summary judgment. Regarding the claim under RESPA, the court, noting a split in persuasive precedent, agreed with decisions interpreting RESPA broadly as a remedial consumer protection statute whose actual damages provision includes possible recovery for emotional distress. Regarding the claim under the FDCPA, the court looked to persuasive precedent interpreting the actual damages provisions of the FDCPA and RESPA as being “essentially identical” and to Federal Trade Commission Commentary to find that emotional distress constitutes actual damages for the purpose of the FDCPA. For a copy of the opinion, please see http://www.buckleysandler.com/Carter_v_CHL.pdf.
Florida Federal Court Holds E-Mail Order Confirmation Not Subject to FACTA. On April 16, the U.S. District Court for the Southern District of Florida held that e-mail order confirmations are not "printed," and, thus, are not subject to the requirements of the Fair and Accurate Credit Transactions Act (FACTA). Turner v. Ticket Animal, LLC, No. 08-61038, 2009 WL 1035241 (S.D. Fla. Apr. 16, 2009). In this case, the plaintiff made a transaction using the defendant’s website. The plaintiff argued that the defendant violated FACTA because the e-mail order confirmation included the plaintiff’s credit card expiration date. The court disagreed, holding that an e-mail order confirmation is not “printed.” Following several recent decisions, the court held that the plain language meaning of "print" supported interpreting “to print” as “to imprint onto paper or some other tangible surface.” As a result, the court dismissed the claim. For a copy of the opinion, please see http://www.buckleysandler.com/Turner_v_Ticket.pdf.
Texas Federal Court Holds Online Arbitration Provision Illusory. On April 15, the U.S. District Court for the Northern District of Texas held that an arbitration clause posted by the defendant, Blockbuster, for its online movie rental website was illusory and unenforceable. Harris v. Blockbuster Inc., No. 09-00217, 2009 WL 1011732 (N.D. Tex. Apr. 15, 2009). In this case, the plaintiff challenged the arbitration clause found in the Terms and Conditions of Blockbuster Online. Users. The court found that, as a precondition to joining, customers are required to click on a box certifying that they have read and agree to the Terms and Conditions. When Blockbuster sought to enforce the arbitration provision in a dispute with the plaintiff, the plaintiff challenged the arbitration provision found in the Terms and Conditions as illusory, and the court agreed. Specifically, the court held that the ability of Blockbuster to unilaterally modify or terminate the agreement simply by posting such modification to the website, without an express limitation preventing application of those modifications to disputes arising before those terms were modified, rendered it illusory. As such, the court denied Blockbuster’s motion to compel arbitration. For a copy of the opinion, please see http://www.buckleysandler.com/Harris_v_Blockbuster.pdf.
Delaware Federal Court Holds FCRA “Reasonable Investigation” Provision Provides a Private Right of Action. On April 13, the U.S. District Court for the District of Delaware held that the Fair Credit Reporting Act (FCRA) provides a private right of action for failure to conduct a reasonable investigation after notice from a consumer reporting agency under FCRA’s “reasonable investigation” requirement (15 U.S.C. § 1681s-2(b)) . Calloway v. Green Tree Servicing, LLC, Civ. No. 08-552, 2009 WL 981120 (D. Del. Apr. 13, 2009). The plaintiffs in this case alleged that their mortgage servicer furnished erroneous information related to their mortgage to credit reporting agencies and that, even after the plaintiffs requested the credit reporting agencies to work with the servicer to correct the error, the servicer failed to make corrections or cease furnishing the erroneous information. The servicer claimed that FCRA does not provide a private right of action against information furnishers, and it preempts defamation claims that fail to properly allege malice or willfulness. According to the court, “[t]here is ... no provision removing 15 U.S.C. § 1681s-2(b) from the scope of the FCRA’s private right of action” and, consequently, the plaintiffs could bring a claim against the servicer for failure to conduct a reasonable investigation. In addition, the court concluded that the complaint, “read generously,” made out a defamation claim under Delaware law and sufficiently alleged malice or intent to injure, to avoid preemption by FCRA. For a copy of the opinion, please see http://www.buckleysandler.com/Calloway_v_Green_Tree.pdf.">http://www.buckleysandler.com/Calloway_v_Green_Tree.pdf.
E-Financial Services
Florida Federal Court Holds E-Mail Order Confirmation Not Subject to FACTA. On April 16, the U.S. District Court for the Southern District of Florida held that e-mail order confirmations are not "printed," and, thus, are not subject to the requirements of the Fair and Accurate Credit Transactions Act (FACTA). Turner v. Ticket Animal, LLC, No. 08-61038, 2009 WL 1035241 (S.D. Fla. Apr. 16, 2009). In this case, the plaintiff made a transaction using the defendant’s website. The plaintiff argued that the defendant violated FACTA because the e-mail order confirmation included the plaintiff’s credit card expiration date. The court disagreed, holding that an e-mail order confirmation is not “printed.” Following several recent decisions, the court held that the plain language meaning of "print" supported interpreting “to print” as “to imprint onto paper or some other tangible surface.” As a result, the court dismissed the claim. For a copy of the opinion, please see http://www.buckleysandler.com/Turner_v_Ticket.pdf.
Texas Federal Court Holds Online Arbitration Provision Illusory. On April 15, the U.S. District Court for the Northern District of Texas held that an arbitration clause posted by the defendant, Blockbuster, for its online movie rental website was illusory and unenforceable. Harris v. Blockbuster Inc., No. 09-00217, 2009 WL 1011732 (N.D. Tex. Apr. 15, 2009). In this case, the plaintiff challenged the arbitration clause found in the Terms and Conditions of Blockbuster Online. Users. The court found that, as a precondition to joining, customers are required to click on a box certifying that they have read and agree to the Terms and Conditions. When Blockbuster sought to enforce the arbitration provision in a dispute with the plaintiff, the plaintiff challenged the arbitration provision found in the Terms and Conditions as illusory, and the court agreed. Specifically, the court held that the ability of Blockbuster to unilaterally modify or terminate the agreement simply by posting such modification to the website, without an express limitation preventing application of those modifications to disputes arising before those terms were modified, rendered it illusory. As such, the court denied Blockbuster’s motion to compel arbitration. For a copy of the opinion, please see http://www.buckleysandler.com/Harris_v_Blockbuster.pdf.
Privacy/Data Security
Florida Federal Court Holds E-Mail Order Confirmation Not Subject to FACTA. On April 16, the U.S. District Court for the Southern District of Florida held that e-mail order confirmations are not "printed," and, thus, are not subject to the requirements of the Fair and Accurate Credit Transactions Act (FACTA). Turner v. Ticket Animal, LLC, No. 08-61038, 2009 WL 1035241 (S.D. Fla. Apr. 16, 2009). In this case, the plaintiff made a transaction using the defendant’s website. The plaintiff argued that the defendant violated FACTA because the e-mail order confirmation included the plaintiff’s credit card expiration date. The court disagreed, holding that an e-mail order confirmation is not “printed.” Following several recent decisions, the court held that the plain language meaning of "print" supported interpreting “to print” as “to imprint onto paper or some other tangible surface.” As a result, the court dismissed the claim. For a copy of the opinion, please see http://www.buckleysandler.com/Turner_v_Ticket.pdf.
Credit Cards
Federal Agencies Propose Clarifications to Credit Card Rules. On April 21, the Federal Reserve Board (Fed), the Office of Thrift Supervision, and the National Credit Union Administration (collectively, the Agencies) proposed clarifications to aspects of their December 2008 final rules under the Federal Trade Commission Act (FTC Act) prohibiting certain credit card practices (reported in InfoBytes, Dec. 19, 2008). The Fed also proposed clarifications to its December 2008 final rule under the Truth in Lending Act (TILA) amending Regulation Z (also reported in InfoBytes, Dec. 19, 2008), which is intended to improve the disclosures consumers receive in connection with credit card accounts and other revolving credit plans. The new proposals are intended to facilitate compliance with the December 2008 final rules without reducing protections for consumers. They would address areas of uncertainty and make technical corrections intended to facilitate compliance with the rules on or before the July 1, 2010 effective date. In particular, the proposals would provide that (i) the key protections in the final rules would continue to apply to balances on a consumer credit card account when the account is closed or acquired by a different institution, or when the balances are transferred to another account issued by the same institution; and (ii) institutions and retailers may continue to offer deferred interest and similar programs, but these programs are subject to all of the protections in the final rules. Comments on the proposals must be submitted within 30 days after publication in the Federal Register. For a copy of the proposals, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090421a1.pdf and
http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090421a2.pdf.
Seventh Circuit Reaffirms That Retroactive Penalty Rate Did Not Violate TILA, Rejects Contrary Ninth Circuit Decision. On April 24, the U.S. Court of Appeals for the Seventh Circuit reaffirmed its earlier holding in Swanson v. Bank of America, N.A. (reported in InfoBytes, Mar. 20, 2009) that retroactive penalty rates do not violate the Truth in Lending Act (TILA) and Regulation Z where the card agreement authorizes the rate. Swanson v. Bank of America, N.A., No. 08-3322, 2009 WL 1098756 (7th Cir. Apr. 24, 2009). After the Seventh Circuit reached its decision, but while the opinion was at the printer, the Ninth Circuit reached the opposite conclusion in McCoy v. Chase Manhattan Bank, USA, N.A. (reported in InfoBytes, Mar. 27, 2009). The plaintiff in Swanson petitioned for a rehearing, urging the Seventh Circuit to follow the Ninth Circuit and resolve what the plaintiff argued was a split among the circuits. The Seventh Circuit denied the plaintiff’s petition for rehearing, noting that every previous court to have considered the issue reached the same conclusion the Seventh Circuit did in Swanson. The Seventh Circuit also noted that the Ninth Circuit’s decision in McCoy conflicted with the Ninth Circuit’s earlier opinion in Evans v. Chase Bank USA, N.A., No. 06-15212, 2008 WL 467801 (9th Cir. Feb. 22, 2008). Thus, the Seventh Circuit observed, McCoy did not create a split among the circuits, but rather a split among the judges of the Ninth Circuit. The Seventh Circuit also noted that a new regulation, scheduled to take effect on July 1, 2010, will resolve the issue. The Seventh Circuit also explained that, even if the plaintiff’s federal claims did not fail, her state law claim would fail because Delaware law “permits banks to change interest rates in ways allowed by contract.” For a copy of the opinion, please see http://www.ca7.uscourts.gov/fdocs/docs.fwx?submit=showbr&shofile=08-3322_003.pdf.
Florida Federal Court Holds E-Mail Order Confirmation Not Subject to FACTA. On April 16, the U.S. District Court for the Southern District of Florida held that e-mail order confirmations are not "printed," and, thus, are not subject to the requirements of the Fair and Accurate Credit Transactions Act (FACTA). Turner v. Ticket Animal, LLC, No. 08-61038, 2009 WL 1035241 (S.D. Fla. Apr. 16, 2009). In this case, the plaintiff made a transaction using the defendant’s website. The plaintiff argued that the defendant violated FACTA because the e-mail order confirmation included the plaintiff’s credit card expiration date. The court disagreed, holding that an e-mail order confirmation is not “printed.” Following several recent decisions, the court held that the plain language meaning of "print" supported interpreting “to print” as “to imprint onto paper or some other tangible surface.” As a result, the court dismissed the claim. For a copy of the opinion, please see http://www.buckleysandler.com/Turner_v_Ticket.pdf.