InfoBytes, April 4, 2008

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Federal Issues

U.S. Treasury Department Releases Blueprint to Restructure Financial Regulatory Structure. On March 31, the U.S. Treasury Department released its “Blueprint for a Modernized Financial Regulatory Structure” setting forth short-, intermediate-, and long-term recommendations for reform of the U.S. financial regulatory structure.

The short-term recommendations include improvements to regulatory coordination and oversight that regulators can make quickly. One such short-term recommendation is the creation of a new system to regulate the mortgage origination process, involving three components. First, the Treasury recommends the creation of a new federal commission, the Mortgage Origination Commission (MOC), to evaluate, rate, and report on the adequacy of each state’s system for licensing and regulating participants in the mortgage origination process. The Treasury recommends that federal legislation set forth (or provide authority for the MOC to develop) uniform minimum licensing qualification standards for state mortgage market participant licensing systems. Second, the Treasury recommends that the Federal Reserve continue to write regulations implementing national mortgage lending laws. Third, the Treasury recommends clarification and enhancement of the enforcement authority over these laws.

Intermediate-term recommendations set forth in the Blueprint focus on eliminating some of the duplication in the existing regulatory system, and offer ways to modernize the regulatory structure for certain financial services sectors within the current framework. Recommendations include transitioning the federal thrift charter to a national bank charter over a two-year period. To this end, the Treasury recommends the merger of the OCC and the OTS during this period. Additional intermediate recommendations include (i) creating an optional federal charter for insurance, similar to the current dual chartering system for banking, to encourage a more competitive U.S. insurance industry, (ii) rationalizing direct federal supervision of state-chartered banks, (iii) unifying oversight of futures and securities by merging the SEC and CFTC and their regulatory philosophies, and (iv) harmonizing the regulation and oversight of broker-dealers and investment advisers offering similar services to retail investors.

The long-term recommendation in the Blueprint is to create an entirely new regulatory structure using an objectives-based approach for optimal regulation. Such objectives-based approach is designed to address particular market failures by focusing on three key goals: (i) market stability regulation to address overall conditions of financial market stability, (ii) prudential financial regulation to address issues of limited market discipline caused by government guarantees, and (iii) business conduct regulation (linked to consumer protection regulation) to address standards for business practices. Pursuant to the Blueprint, three distinct regulators would focus exclusively on financial institutions: a market stability regulator (i.e., the Federal Reserve), a new prudential financial regulator (roles of the OCC, OTS and NCUA), and a new business conduct regulator (most roles of the CFTC and SEC, and some roles of bank regulators). The Federal Reserve’s new role as the market stability regulator would replace the Fed’s more limited, traditional role as the supervisor of financial holding companies, bank holding companies, and certain state-chartered banks and would give it the ability to monitor risks across the financial system. For a copy of the Blueprint for a Modernized Financial Regulatory Structure, please see http://www.treas.gov/press/releases/reports/Blueprint.pdf.

Federal Agencies Issue Final Rules and Guidelines on Identity Theft “Red Flags.” On April 1, 2008, the OCC, Federal Reserve Board, FDIC, OTS, NCUA and FTC (the Agencies) jointly issued final rules and guidelines implementing section 114 of the Fair and Accurate Credit Transactions Act (FACTA) and final rules implementing section 315 of the FACTA. The rules implementing section 114 require each financial institution or creditor to develop and implement a written Identity Theft Prevention Program (Program) to detect, prevent, and mitigate identity theft in connection with the opening of certain accounts or certain existing accounts. The guidelines include a supplement that identifies 26 patterns, practices, and specific forms of activity that are “red flags” signaling possible identity theft. The rules implementing section 114 also require credit and debit card issuers to assess the validity of notifications of changes of address under certain circumstances. Additionally, the Agencies are issuing joint rules under section 315 that provide guidance regarding reasonable policies and procedures that a user of consumer reports must employ when a consumer reporting agency sends the user a notice of address discrepancy. Compliance is mandatory on November 1, 2008. For a copy of the Federal Register notice, please see http://www.ots.treas.gov/docs/4/481019.pdf.

HUD Secretary Jackson Announces Resignation. On March 31, U.S. Secretary of Housing and Urban Development Alphonso Jackson announced he will resign from his position effective April 18, 2008, citing personal and family matters. Secretary Jackson oversaw HUD’s $37 billion budget and led the Bush Administration’s efforts on Capitol Hill to modernize the Federal Housing Administration. Other highlights of Jackson’s tenure include helping to assemble a private-sector group called the HOPE NOW Alliance to assist struggling homeowners to stay in their homes. For a copy of the HUD press release, please see http://www.hud.gov/news/release.cfm?content=pr08-046.cfm.

MISMO and PRIA Publish IPR Disclosure Draft of Business Requirements Document. On March 28, the Mortgage Bankers Association not-for-profit data standards subsidiary, MISMO, and the Property Records Industry Association (PRIA) released the IPR (Intellectual Property Rights) Disclosure Draft of a Business Requirements Document, which describes the requirements for eRecording in common electronic document formats such as Adobe Intelligent Document Format, esigned PDF, and Microsoft Word with embedded XML. The 30 day-IPR Disclosure draft is the first joint publication of MISMO and PRIA since forming an alliance in November 2005 with the objective to exchange and incorporate their respective standards for use within commercial and residential electronic mortgage transactions. The document states six major goals: (i) preparing electronic documents; (ii) uploading or transmitting electronic instruments; (iii) executing recordable electronic instruments; (iv) delivering recordable instruments electronically; (v) eRecording electronic instruments including fee and payment information; and (vi) enabling the return of eRecorded (or rejected) electronic instruments to the eClosing platforms, or the retrieval by the eClosing platforms of eRecorded (or rejected) electronic instruments. For a copy of the Mortgage Bankers Association press release, please see http://www.mortgagebankers.org/NewsandMedia/PressCenter/61179.htm.

ABA Testifies Against Proposed Internet Gambling Rule Before Congress. On April 2, 2008, Wayne Abernathy testified on behalf of the American Bankers Association (ABA) before the Subcommittee on Domestic and International Monetary Policy of the House Committee on Financial Services regarding the Federal Reserve Board’s and the Department of Treasury’s proposed rule implementing the Unlawful Internet Gambling Enforcement Act (UIGEA). The Prohibition on Funding of Unlawful Internet Gambling (reported in InfoBytes, Oct. 12, 2007) would require banks with direct commercial relationships to Internet gambling businesses to block ACH, check, and wire transfers involving unlawful transactions. The ABA objected to this proposed rule on the grounds that (i) the payment system is not an effective or appropriate enforcement tool, (ii) neither the law nor the proposed rule adequately defines “unlawful Internet gambling,” and (iii) the cross-border payments that are not subject to U.S. law are nearly impossible to identify or prevent. The ABA testimony concluded that this proposed rule would both damage the efficiency of the payment system and fail to stop illegal Internet gambling. For a copy of this testimony, please see http://www.buckleykolar.com/documents/Abernathytestimony4.2.08.pdf.

FTC: Registering Cell Phones on Do Not Call Registry Unnecessary. On April 1, the Federal Trade Commission (FTC) issued a press release reiterating that it is not necessary for consumers to register cell phone numbers on the National Do Not Call Registry to be protected from most telemarketing calls to cell phones. Despite recent claims made in e-mails circulating on the Internet, consumers should not be concerned that their cell phone numbers will be released to telemarketers in the near future. Also, although the telecommunications industry has considered creating a wireless 411 directory, the list would not be made available to telemarketers and consumers would have to “opt-in” to have their cell phone number included in the directory. For a copy of the FTC’s press release, please see http://www.ftc.gov/opa/2008/04/dnc.shtm.

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State Issues

Florida Amends Mortgage Broker and Lender Rules. The Florida Office of Financial Regulation, Division of Finance has adopted new administrative rules addressing issues such as (i) the licensing and regulation of mortgage brokers, (ii) mortgage broker business, and (iii) mortgage lenders. The adopted rules were promulgated in response to statutory changes adopted in 2007 (see the July 6, 2007 issue of InfoBytes). The final rules were published in the March 21, 2008 Florida Administrative Weekly and became affective on March 23, 2008. For a copy of the final rules, see https://www.flrules.org/gateway/chapterhome.asp?chapter=69v-40.

Idaho Exempts Mortgage Lender Licensees from Regulated Lenders Act. The state of Idaho passed H.B. 449 on March 31. This bill provides a licensing exemption from the Regulated Lenders Act for any entity licensed under the Idaho Residential Mortgage Practices Act. However, the exemption is not absolute—it extends only to the Mortgage Practices Act licensee’s mortgage lending activities. H.B. 449 will be effective on July 1, 2008. A copy of the bill is available at http://www3.state.id.us/oasis/H0449.html.

Indiana Amends, Adopts Mortgage Lending Laws. Indiana has adopted a bill that contains extensive provisions relating to mortgage lending practices, real estate appraisals, and other single family residential mortgage transactions. Act No. 1359, signed by the governor on March 24, adds and amends sections of the Indiana statutes related to loan brokerage licensing, principal manager registration, criminal history requirements for licensees, and record retention (among other things). The act also authorizes participation in the national multistate licensing system. A copy of Act No. 1359 is available at http://www.in.gov/legislative/bills/2008/HE/HE1359.1.html. Another bill, S.B. 89, with even more substantial changes to Indiana lending law, is currently working its way through the legislature. A copy of the bill is available at http://www.in.gov/apps/lsa/session/billwatch/billinfo?year=2008&session=1&request=getBill&docno=89.

Maryland Enacts Foreclosure, Mortgage Fraud Legislation. Maryland, on April 3, enacted two emergency bills, which became effective immediately. H.B. 361 seeks to provide additional protections to distressed homeowners. The bill addresses foreclosure, with provisions regulating foreclosure consultants and foreclosure rescue transactions. The bill also creates additional provisions regarding the sale or transfer of a “residence in default.” A link to the bill is available at http://mlis.state.md.us/2008rs/billfile/HB0361.htm. H.B. 360 enacts the Mortgage Fraud Protection Act, which criminalizes mortgage fraud. A link to the bill is available at http://mlis.state.md.us/2008rs/billfile/HB0360.htm.

Utah Adopts Mortgage Fraud Act. The Utah legislature enacted the Mortgage Fraud Act, Senate Bill 134, which creates a crime of mortgage fraud. This act requires the attorney general to hire a dedicated mortgage fraud prosecutor, a paralegal, and two investigators whose primary responsibilities are investigating and prosecuting mortgage fraud. The act also provides that a violation of the Mortgage Fraud Act results in an automatic revocation of a real estate broker or agent license, of a real estate appraiser license, or of a residential mortgage lender license. This act also inserts the crime of mortgage fraud as an illegal activity under the Pattern of Illegal Activity Act. A copy of the act is available at http://se10.utahsenate.org/perl/bb/bb_docdisplay.pl?SB0134S02_text%22.

Wisconsin Bill Removing Commercial Loans from Licensing Act Presented to Governor. On April 3, the Wisconsin Legislature presented Senate Bill 517 to the governor for signature. This bill amends the definition of “loan” under the Mortgage Bankers, Loan Originators and Mortgage Brokers Act. Currently, a “loan” is broadly defined and includes loans made for commercial purposes. The bill proposes to narrow the definition of “loan” to mean “a loan for personal, family, or household purposes that is secured by a lien or mortgage, or equivalent security interest, on real property [consisting of 1 to 4 dwelling units, including individual condominium units] located in this state.” A copy of the bill is available at http://www.legis.state.wi.us/2007/data/acts/07enSB0517.pdf.

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Courts

Court Holds That “Loan Origination Fee” May Include Separately Disclosed Charges. In a case of first impression, a Maryland federal court held that the Maryland Secondary Mortgage Loan Law (the SMLL) permits lenders to charge a variety of fees arising from the origination of a secondary mortgage loan, not just a single “loan origination fee.” Hafford v. Equity One, Inc., No. AW-07-1633; Cabrejas v.  Accredited Home Lenders, Inc., No. AW-06-0975 (D. Md. March 31, 2008). Buckley Kolar LLP represented Accredited Home Lenders, Inc. in the Cabrejas lawsuit. In these companion putative class actions, the plaintiffs claimed that the lenders violated the SMLL by charging fees other than a single fee denominated “loan origination fee” to cover the costs associated with underwriting, closing, and otherwise originating the loan.) The SMLL allows lenders to charge a “loan origination fee” of less than 10%, and it was undisputed that the total amount of fees charged to each plaintiff was far below this statutory cap. Although finding the SMLL to be ambiguous as to whether it limits lender compensation to a single “loan origination fee” or permits the collection of a variety of separately labeled fees related to the origination of the loan, the court rejected what it described as plaintiffs’ “narrow and technical interpretation” of the SMLL. First, the court determined that the main objective of the SMLL was to establish a statutory cap on the amount charged to Maryland consumers on second mortgage loans, not to dictate fee nomenclature. Next, the court concluded that the common meaning of the term “loan origination fee” in the mortgage industry was not limited to a single fee, but rather it is understood to mean a series of fees covering the costs associated with originating the loan. Finally, the court found that plaintiffs’ interpretation of the SMLL conflicted with a lender’s responsibilities under RESPA, “unreasonably and illogically requir[ing] Defendants to lump together all of the fees, denote those fees as a single ‘loan origination fee,’ and…rob borrowers of the protection of being informed of the exact costs involved.” For a copy of the joint opinion, please see http://www.buckleykolar.com/documents/CabrejasvAccreditedHomeLenders.pdf.

Fourth Circuit Holds that Board Ratification of Termination is Sufficient for NBA Preemption. On April 1, a U.S. Court of Appeals for the Fourth Circuit held that a board’s ratification of an officer’s termination is sufficient to invoke the preemptive effect of the National Bank Act’s (NBA) at-pleasure provision. Schweikert v. Bank of America, N.A., No. 06-2137 (4th Cir., Apr. 1, 2008). Section 24(Fifth) of the NBA provides that a national bank’s “board of directors” has the power to “dismiss [] officers…at pleasure.” In this case, the plaintiff brought an action against the defendant national bank (Bank) in state court alleging wrongful discharge. The Bank removed the matter to federal court and moved to dismiss on the ground that the claim is preempted by the “at-pleasure” provision of the NBA. To invoke the protection of the at-pleasure provision, a national bank’s board of directors must take action to dismiss a bank officer. The plaintiff argued that his wrongful discharge claim was not preempted because (i) he was not an “officer” of the Bank within the meaning of the NBA, and (ii) he was not dismissed by the “board” because the decision was made by his supervisor and was only ratified by the board. The Fourth Circuit disagreed with plaintiff. First, the court held that the plaintiff was an “officer” of the bank because the plaintiff was a senior vice president of the Bank, which is an officer title of the Bank and was created as provided for in the Bank’s bylaws. Second, the court held that the plaintiff was dismissed by the board because a board’s ratification of an officer’s termination is “sufficient to invoke the preemptive effect of the [NBA’s] at-pleasure provision.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/SchweikertvBankofAmerica.pdf.

Material Terms Not Always Required for Firm Offer under FCRA, Court Holds. On March 27, a federal district court in Rhode Island dismissed a class action complaint alleging that Calusa Investments, LLC violated the Fair Credit Reporting Act (FCRA) by obtaining the plaintiff’s credit information without extending a “firm offer of credit.” Dixon v. Calusa Investments, LLC, No. 06-442-T, 2008 WL 821607 (D.R.I. Mar. 27, 2008). In this case, Calusa sent the plaintiff three mailers informing her that she was eligible to obtain a debt consolidation loan. The mailers did not contain specific terms for any proposed loan but stated that any loan would be conditioned on the plaintiff’s credit information meeting the criteria used to select her to receive the mailers. The plaintiff argued that the mailers did not constitute a firm offer under FCRA because they lacked material terms such as the interest rate or repayment term, and that the mailers failed to disclose a guaranteed minimum loan amount (instead, the mailers listed “example” information for a $265,625 loan). According to the court, this case was indistinguishable from Sullivan v. Greenwood Credit Union (reported in InfoBytes, March 21, 2008), in which the First Circuit held that an offer of credit meets FCRA’s definition of “firm offer of credit” so long as the creditor will not deny credit to a consumer who meets the creditor’s pre-selection criteria. The court therefore granted Calusa’s motion to dismiss. See For a copy of the opinion, please see http://www.buckleykolar.com/documents/DixonvCalusaInvestments.pdf.

Court Affirms FCRA Class Settlement Agreement, Citing Weakness of Willfulness Case. The Eleventh Circuit Court of Appeals, in an appeal of a Fair Credit Reporting Act (FCRA) class action settlement, has affirmed the settlement award for class members but has remanded the decision for a more detailed explanation on the attorneys’ fees award. Dikeman v. Progressive Express Ins. Co., 2008 WL 786618, No. 07-10547 (11th Cir., Mar. 26, 2008). In this case, the district court approved an agreement settling charges that an insurance company willfully violated the FCRA provisions requiring “adverse action” notices. In this settlement agreement, the class members would receive free credit reports and potentially would receive premium credits on their insurance, but the class members would not receive any statutory damage awards. The settlement also awarded $3 million to class counsel for attorneys’ fees. Objecting members of the class appealed, arguing that the district court abused its discretion in approving the settlement, primarily because (1) the settlement did not award class members monetary relief, which the statute allows for willful violations, and (2) the attorney’s fees were improper given the low value of the settlement. In reviewing the district court’s decision, the court affirmed the holding approving the settlement terms but vacated the holding regarding adequacy of attorneys’ fees. Specifically, the court found that the record supported the district court’s reasoning that willfulness—a necessary element in awarding statutory damages—would be difficult to prove, and therefore the district court did not abuse its discretion in accepting the settlement terms. The court remanded the case for a detailed explanation on the reasonableness of the attorneys’ fees award. For a copy of the opinion, please see http://www.buckleykolar.com/documents/DikemanvProgressiveExpressInsuranceCompany.pdf.

Additional Complaints About the Same Allegedly Inaccurate Information Do Not Restart FCRA Limitations Clock. On March 25, the U.S. District Court for the Southern District of Georgia held that the statute of limitations period on a Fair Credit Reporting Act (FCRA) claim ran from the defendant’s response to the consumer’s initial complaint to the credit reporting agencies and did not restart with each additional complaint the consumer made. Blackwell v. Capital One Bank, No. 606CV066, 2008 WL 793476 (S.D. Ga. Mar. 25, 2008). The consumer plaintiff alleged that the defendant violated the FCRA by (i) failing to provide accurate and truthful information to credit reporting agencies, and (ii) failing to investigate the accuracy of that information after receiving notice of a customer dispute. The court dismissed the consumer’s claim for failure to provide accurate information because there is no private right of action to enforce that duty. The court dismissed the consumer’s claim for failing to investigate on statute of limitations grounds. From December 2003 to March 2006, the consumer filed three complaints with the credit reporting agencies relating to the same allegedly inaccurate information, and the defendant timely responded to each complaint. The consumer argued, based on the holding in Larson v. Ford Credit, 2007 WL 1875989 (D. Minn. 2007) (reported in InfoBytes, July 6, 2007), that each subsequently submitted complaint started a new statute of limitations period for FCRA purposes. The defendant argued, based on the holding in Bittick v. Experian Info. Solutions, Inc., 419 F.Supp.2d 917 (N.D. Tex. 2006), that additional complaints regarding the same allegedly inaccurate information cannot restart the limitations clock. The court agreed with the reasoning in Bittick, and noted that “[t]o allow [the consumer’s] claims to go forward based upon the subsequently submitted complaints would allow plaintiffs to indefinitely extend the limitations period and render it a nullity.” For a copy of this decision, please see http://www.buckleykolar.com/documents/BlackwellvCapitalOneBank.pdf.

State Court Holds that FACTA Preempts State Truncation Statute. On March 31, the Ohio Court of Appeals held that the truncation requirement added to the Fair Credit Reporting Act (FCRA) by the Fair and Accurate Credit Transactions Act (FACTA) preempts state truncation statutes, but only if the FACTA provision was in effect at the time the violation occurred. Ferron v. RadioShack Corp., 2008 WL 852620, No. 07AP-567 (Ohio App., Mar. 31, 2008). In this case, the consumer claimed that Radio Shack violated Ohio’s truncation statute by providing receipts to the plaintiff in September and October of 2005 that contained the expiration date of the plaintiff’s debit card. The Ohio statute prohibits merchants from printing expiration dates on electronically printed receipts. However, 15 U.S.C. § 1681c(g), the provision added by FACTA, preempts any state law imposing a requirement or prohibition concerning credit or debit card truncation. Specifically, § 1681c(g) requires cash registers or machines that electronically print receipts for credit or debit card transactions and first put into use on or after January 1, 2005 to comply with the truncation requirements immediately; those machines in use before January 1, 2005, were required to comply with the truncation requirements by December 4, 2006. The court held that a federal provision does not regulate its subject matter and, consequently, does not preempt state law, until the federal provision becomes effective. Because there was no information on the record regarding when the Radio Shack terminals at issue were first put to use, the court remanded the matter to the trial court to answer that question and resolve the preemption issue. For a copy of the opinion, please see http://www.sconet.state.oh.us/rod/docs/pdf/10/2008/2008-ohio-1511.pdf.

Federal Court Denies Consumer Reporting Agencies’ Motion for Summary Judgment. On March 24, 2008, a federal district court allowed a consumer’s Fair Credit Reporting Act (FCRA) claim to go to a jury against two consumer reporting agencies. Miller v. Wells Fargo & Co., 2008 WL 793683, No. 3:05-CV-42-S (W.D. Ky. Mar. 24, 2008). The consumer plaintiffs alleged that Wells Fargo incorrectly reported a bankruptcy filing in their loan account to Trans Union, Equifax, and other reporting agencies. Wells Fargo sent a Universal Data Form (UDF) to the agencies correcting the error, but the bankruptcy notation reappeared on the consumer’s credit report. The consumer claimed that many of their loan applications were denied or credit was offered on less favorable terms because of this error. The court held that in order to maintain a FCRA claim against a consumer reporting agency for reporting inaccurate information, the consumer must show (i) inaccurate information was included in the consumer’s credit report, (ii) the inaccuracy was due to the agency’s failure to follow reasonable procedures to assure maximum possible accuracy, (iii) the consumer suffered injury, and (iv) the consumer’s injury was caused by the inclusion of the inaccurate entry. The court held that a jury could find that the reporting agencies failed to assure maximum possible accuracy by allowing the bankruptcy notation to reappear on the credit report after receiving the UDF. The claims for failing to respond to a consumer dispute properly could also go forward because the consumers provided sufficient evidence to show that the reporting agencies failed to reinvestigate. But the court dismissed a claim based upon the failure of a reinvestigation to prevent the reappearance of the bankruptcy notation was dismissed because the reporting agency did not conduct a reinvestigation. The court also held that the consumer’s allegations of denied credit or less favorable credit terms were sufficient evidence of injury under the FCRA. Finally, while the credit reporting agencies were not entitled to qualified immunity because there was a factual dispute as to whether they acted willfully, the court dismissed state law claims of defamation, invasion of privacy, outrage, and deceptive acts. For a copy of this decision, please see http://www.buckleykolar.com/documents/MillervWellsFargoCo2.pdf.

Ninth Circuit Denies Petition for Rehearing in Suit Involving Reporting Agency’s “Reasonable Procedures.” On March 27, the Court of Appeals for the Ninth Circuit denied the defendant reporting agency’s petition for rehearing or rehearing en banc in connection with the court’s earlier decision that the agency’s dispute investigation did not show “reasonable procedures” to ensure accuracy, as required by the Fair Credit Reporting Act (FCRA). Dennis v. Beh-1, LLC, 2008 WL 795378 (9th Cir., Mar. 27, 2008). In the underlying case, a lawsuit against the consumer plaintiff was settled and the parties agreed that no judgment would be entered, but the consumer’s credit report incorrectly stated that a “civil claim judgment” had been entered against the consumer. In the suit against the reporting agency, the plaintiff alleged that the reporting agency incorrectly interpreted court documents acquired during its investigation, which showed that no judgment had been entered. In denying defendant’s motion for rehearing, the court amended its previous opinion, which it issued on September 25, 2007 (covered in InfoBytes, May 11, 2007 and InfoBytes, Sept. 28, 2007) and explained its reasons for denying the motion for rehearing, which include, among other things, defendant’s failure to defend the “reasonableness of its reinvestigation” and its “negligently” failing to reinvestigate. For a copy of this decision, please see http://www.buckleykolar.com/documents/DennisvBEH_1.pdf.

Credit Card that Sells Off Debt Not “Claimant” under California Identity Theft Law. The U.S. Court of Appeals for the Ninth Circuit recently affirmed a district court’s finding that a credit card company that had sold off a disputed claim for collection is not a “claimant” under the California Identity Theft Law. Satey v. JPMorgan Chase & Co., 2008 WL 834446, No. 06-56370 (9th Cir., Mar. 31, 2008). In June 2002, the consumer plaintiff Satey contacted Chase to dispute a charge on his Chase credit card, which, after investigation, Chase concluded was a legitimate charge. Chase reported the account as delinquent to the credit bureaus when Satey failed to make a payment, and, in 2003, Chase sold off the debt to another entity for collection. Satey alleged that Chase violated the California Identity Theft Law due to its improper credit reporting practices, improper investigation, and improper sale of a disputed account. The district court held that FCRA preempted the consumer’s claims under the California Identify Theft Law. On appeal, the Ninth Circuit declined to express an opinion on the preemption issue, but it nonetheless affirmed the district court’s holding that Chase was not a “claimant” because the law “reflects a present tense interest in a debt or attempt to collect” a debt. It held that Chase had not been a “claimant” on the consumer’s loan since 2003, when it sold the loan to a debt collector, and the court stated that “we cannot construe ‘claimant’ to include a person who had an interest in a disputed debt at some point in the past, but who no longer retains the interest at the time suit is filed.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/SateyvJPMorganChase.pdf.

Motion for Summary Judgment for Alleged FCRA Violations is Denied. The U.S. District Court for the Western District of Kentucky has denied nearly all of a lender’s motion for summary judgment in an action alleging violation of the Fair Credit Reporting Act (FCRA) and various state statutory and common law schemes. Miller v. Wells Fargo & Company, Civ. Action No. 3:05-CV-42-S, 208 WL 793676 (W.D.Ky. Mar. 24, 2008). This case involved the repeated inaccurate reporting in a consumer’s credit history that he had filed bankruptcy. Over the course of several years, the consumer requested that Wells Fargo and the credit reporting agencies remove the inaccurate report, but the bankruptcy continued to be removed then re-inserted in his credit reports. The consumer plaintiff alleged that Wells Fargo breached its duties, as a furnisher of information to consumer reporting agencies, to properly investigate disputed information and correct any inaccuracies uncovered by the investigation by reporting them to the credit agencies, in violation of FCRA. The court noted that “genuine issues of material fact exist as to whether Wells Fargo’s efforts to comply with its [FCRA] duties were reasonable,” and it denied summary judgment on the claim of negligence under the FCRA. In addition, the court denied summary judgment on the claim of willful noncompliance under FCRA, stating that a jury could conclude that Wells Fargo’s re-reporting the bankruptcy despite its numerous assurances that it had removed the notation constituted a conscious disregard for the Millers’ rights. Regarding the state law claims, Wells Fargo argued that they are preempted by FCRA. The court granted Wells Fargo’s motion with respect to the state statutory claims but denied it with respect to those claims where a jury could find the requisite malice or willful intent. For a copy of the opinion, please see http://www.buckleykolar.com/documents/MillervWellsFargoCo1.pdf

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Firm News

Margo Tank will be speaking at the American Land Title Association’s 2008 Tech Forum being held April 12-15 in Las Vegas, NV. The panel is titled “eEvidence and Legal Issues.” For a complete list of the sessions and speakers, visit www.alta.org/meetings/techforum. For registration information, please see www.alta.org/meetings/techforum/register.

Jon Jerison will be the featured speaker on an A.S. Pratt audio conference series entitled, “Fair Credit Reporting Act Developments: How They Affect Your Institution,” on April 24 from 1-2:30p.m. EST. Mr. Jerison will review current developments under the Fair Credit Reporting Act, how these developments affect institutions and how they can avoid penalties. For more information or to register, please see http://www.aspratt.com/store/15D.php.

Robert Serino will be speaking at the National Institute on Banking Law II: Risk as the Centerpiece of Bank Regulation seminar being held May 8-9 in Chicago, Ill. Mr. Serino’s speech is entitled, “Anti-money Laundering and Bank Secrecy.” For more information or to register, please see www.abanet.org/cle/programs/n08bla1.html.

Jeremiah Buckley, Margo Tank and Lane Macalester will be speaking at the Managing Electronic Records Conference on May 19-21 in Chicago, Ill. Their panel entitled, “Legal Considerations for Conducting Business Electronically: Practical Guidance,” will focus on how the Electronic Signatures and Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA) now make it possible to present and store information and to sign agreements electronically in circumstances where, in the past, paper documents and wet signatures would have been required. Mr. Buckley, Ms. Tank, and Ms. Macalester will discuss the new challenges presented and provide practical guidance to the industry. For more information or to register, please visit www.merconference.com.

Joseph Kolar will be speaking at the Mealey’s Subprim e Mortgage Litigation & Insurance Coverage Conference on June 20 in Washington, DC. Mr. Kolar’s presentation is entitled, “The New Structure of the Mortgage Lending Industry,” and will discuss a smaller mortgage origination market, the economic impact on home building and home ownership and his experiences representing Bank of America and Countrywide. For more information or to register, please see http://bookstore.lexis.com/bookstore/product/69880t.html.

Matthew Previn and Jeffrey Naimon presented a webinar entitled “Subprime Mortgage Litigation and Enforcement Action Update,” on April 3. Mr. Previn and Mr. Naimon discussed the meltdown of the subprime mortgage market and the ensuing credit crunch which has brought an onslaught of litigation against all sectors of the mortgage industry. Mr. Previn and Mr. Naimon also addressed increased scrutiny of mortgage brokers, lenders, servicers, and insurers by federal and state government agencies. Mr. Previn and Mr. Naimon, along with Jeff Nielsen of Navigant Consulting, Inc., also covered major litigation and enforcement developments. For a copy of the Power Point presentations, please see http://www.buckleykolar.com/documents/SubprimeMortgageLitigationWebinar04032008.pdf.  The audio portion of the presentation can be heard here.

Grant Mitchell spoke at the RESPRO Conference entitled ”Capitalizing on the Value of Your Affiliated Businesses,” in Washington, DC on April 2. The subject of his presentation was Joint Venture rules under RESPA. For more information, please see http://www.respro.org/index.aspx?sectionid=242.

Joseph Kolar and Grant Mitchell presented a webinar on the “Release of Proposed RESPA Reform Regulation by HUD,” on March 19. Mr. Kolar and Mr. Mitchell discussed HUD’s proposed sweeping changes in RESPA’s Good Faith Estimate of mortgage terms and settlement costs, the new “closing script” required by the rule, as well as changes involving volume discounts and average-cost pricing, and the tightening of rules affecting builder’s offering incentives to homebuyers conditioned on use of an affiliated lender. To view a copy of the webinar materials and listen to the audio presentation, please see http://www.buckleykolar.com/publications/.

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Mortgages

U.S. Treasury Department Releases Blueprint to Restructure Financial Regulatory Structure. On March 31, the U.S. Treasury Department released its “Blueprint for a Modernized Financial Regulatory Structure” setting forth short-, intermediate-, and long-term recommendations for reform of the U.S. financial regulatory structure.

The short-term recommendations include improvements to regulatory coordination and oversight that regulators can make quickly. One such short-term recommendation is the creation of a new system to regulate the mortgage origination process, involving three components. First, the Treasury recommends the creation of a new federal commission, the Mortgage Origination Commission (MOC), to evaluate, rate, and report on the adequacy of each state’s system for licensing and regulating participants in the mortgage origination process. The Treasury recommends that federal legislation set forth (or provide authority for the MOC to develop) uniform minimum licensing qualification standards for state mortgage market participant licensing systems. Second, the Treasury recommends that the Federal Reserve continue to write regulations implementing national mortgage lending laws. Third, the Treasury recommends clarification and enhancement of the enforcement authority over these laws.

Intermediate-term recommendations set forth in the Blueprint focus on eliminating some of the duplication in the existing regulatory system, and offer ways to modernize the regulatory structure for certain financial services sectors within the current framework. Recommendations include transitioning the federal thrift charter to a national bank charter over a two-year period. To this end, the Treasury recommends the merger of the OCC and the OTS during this period. Additional intermediate recommendations include (i) creating an optional federal charter for insurance, similar to the current dual chartering system for banking, to encourage a more competitive U.S. insurance industry, (ii) rationalizing direct federal supervision of state-chartered banks, (iii) unifying oversight of futures and securities by merging the SEC and CFTC and their regulatory philosophies, and (iv) harmonizing the regulation and oversight of broker-dealers and investment advisers offering similar services to retail investors.

The long-term recommendation in the Blueprint is to create an entirely new regulatory structure using an objectives-based approach for optimal regulation. Such objectives-based approach is designed to address particular market failures by focusing on three key goals: (i) market stability regulation to address overall conditions of financial market stability, (ii) prudential financial regulation to address issues of limited market discipline caused by government guarantees, and (iii) business conduct regulation (linked to consumer protection regulation) to address standards for business practices. Pursuant to the Blueprint, three distinct regulators would focus exclusively on financial institutions: a market stability regulator (i.e., the Federal Reserve), a new prudential financial regulator (roles of the OCC, OTS and NCUA), and a new business conduct regulator (most roles of the CFTC and SEC, and some roles of bank regulators). The Federal Reserve’s new role as the market stability regulator would replace the Fed’s more limited, traditional role as the supervisor of financial holding companies, bank holding companies, and certain state-chartered banks and would give it the ability to monitor risks across the financial system. For a copy of the Blueprint for a Modernized Financial Regulatory Structure, please see http://www.treas.gov/press/releases/reports/Blueprint.pdf.

HUD Secretary Jackson Announces Resignation. On March 31, U.S. Secretary of Housing and Urban Development Alphonso Jackson announced he will resign from his position effective April 18, 2008, citing personal and family matters. Secretary Jackson oversaw HUD’s $37 billion budget and led the Bush Administration’s efforts on Capitol Hill to modernize the Federal Housing Administration. Other highlights of Jackson’s tenure include helping to assemble a private-sector group called the HOPE NOW Alliance to assist struggling homeowners to stay in their homes. For a copy of the HUD press release, please see http://www.hud.gov/news/release.cfm?content=pr08-046.cfm.

Florida Amends Mortgage Broker and Lender Rules. The Florida Office of Financial Regulation, Division of Finance has adopted new administrative rules addressing issues such as (i) the licensing and regulation of mortgage brokers, (ii) mortgage broker business, and (iii) mortgage lenders. The adopted rules were promulgated in response to statutory changes adopted in 2007 (see the July 6, 2007 issue of InfoBytes). The final rules were published in the March 21, 2008 Florida Administrative Weekly and became affective on March 23, 2008. For a copy of the final rules, see https://www.flrules.org/gateway/chapterhome.asp?chapter=69v-40.

Idaho Exempts Mortgage Lender Licensees from Regulated Lenders Act. The state of Idaho passed H.B. 449 on March 31. This bill provides a licensing exemption from the Regulated Lenders Act for any entity licensed under the Idaho Residential Mortgage Practices Act. However, the exemption is not absolute—it extends only to the Mortgage Practices Act licensee’s mortgage lending activities. H.B. 449 will be effective on July 1, 2008. A copy of the bill is available at http://www3.state.id.us/oasis/H0449.html.

Indiana Amends, Adopts Mortgage Lending Laws. Indiana has adopted a bill that contains extensive provisions relating to mortgage lending practices, real estate appraisals, and other single family residential mortgage transactions. Act No. 1359, signed by the governor on March 24, adds and amends sections of the Indiana statutes related to loan brokerage licensing, principal manager registration, criminal history requirements for licensees, and record retention (among other things). The act also authorizes participation in the national multistate licensing system. A copy of Act No. 1359 is available at http://www.in.gov/legislative/bills/2008/HE/HE1359.1.html. Another bill, S.B. 89, with even more substantial changes to Indiana lending law, is currently working its way through the legislature. A copy of the bill is available at http://www.in.gov/apps/lsa/session/billwatch/billinfo?year=2008&session=1&request=getBill&docno=89.

Maryland Enacts Foreclosure, Mortgage Fraud Legislation. Maryland, on April 3, enacted two emergency bills, which became effective immediately. H.B. 361 seeks to provide additional protections to distressed homeowners. The bill addresses foreclosure, with provisions regulating foreclosure consultants and foreclosure rescue transactions. The bill also creates additional provisions regarding the sale or transfer of a “residence in default.” A link to the bill is available at http://mlis.state.md.us/2008rs/billfile/HB0361.htm. H.B. 360 enacts the Mortgage Fraud Protection Act, which criminalizes mortgage fraud. A link to the bill is available at http://mlis.state.md.us/2008rs/billfile/HB0360.htm.

Utah Adopts Mortgage Fraud Act. The Utah legislature enacted the Mortgage Fraud Act, Senate Bill 134, which creates a crime of mortgage fraud. This act requires the attorney general to hire a dedicated mortgage fraud prosecutor, a paralegal, and two investigators whose primary responsibilities are investigating and prosecuting mortgage fraud. The act also provides that a violation of the Mortgage Fraud Act results in an automatic revocation of a real estate broker or agent license, of a real estate appraiser license, or of a residential mortgage lender license. This act also inserts the crime of mortgage fraud as an illegal activity under the Pattern of Illegal Activity Act. A copy of the act is available at http://se10.utahsenate.org/perl/bb/bb_docdisplay.pl?SB0134S02_text%22.

Wisconsin Bill Removing Commercial Loans from Licensing Act Presented to Governor. On April 3, the Wisconsin Legislature presented Senate Bill 517 to the governor for signature. This bill amends the definition of “loan” under the Mortgage Bankers, Loan Originators and Mortgage Brokers Act. Currently, a “loan” is broadly defined and includes loans made for commercial purposes. The bill proposes to narrow the definition of “loan” to mean “a loan for personal, family, or household purposes that is secured by a lien or mortgage, or equivalent security interest, on real property [consisting of 1 to 4 dwelling units, including individual condominium units] located in this state.” A copy of the bill is available at http://www.legis.state.wi.us/2007/data/acts/07enSB0517.pdf.

Court Holds That “Loan Origination Fee” May Include Separately Disclosed Charges. In a case of first impression, a Maryland federal court held that the Maryland Secondary Mortgage Loan Law (the SMLL) permits lenders to charge a variety of fees arising from the origination of a secondary mortgage loan, not just a single “loan origination fee.” Hafford v. Equity One, Inc., No. AW-07-1633; Cabrejas v.  Accredited Home Lenders, Inc., No. AW-06-0975 (D. Md. March 31, 2008). Buckley Kolar LLP represented Accredited Home Lenders, Inc. in the Cabrejas lawsuit. In these companion putative class actions, the plaintiffs claimed that the lenders violated the SMLL by charging fees other than a single fee denominated “loan origination fee” to cover the costs associated with underwriting, closing, and otherwise originating the loan.) The SMLL allows lenders to charge a “loan origination fee” of less than 10%, and it was undisputed that the total amount of fees charged to each plaintiff was far below this statutory cap. Although finding the SMLL to be ambiguous as to whether it limits lender compensation to a single “loan origination fee” or permits the collection of a variety of separately labeled fees related to the origination of the loan, the court rejected what it described as plaintiffs’ “narrow and technical interpretation” of the SMLL. First, the court determined that the main objective of the SMLL was to establish a statutory cap on the amount charged to Maryland consumers on second mortgage loans, not to dictate fee nomenclature. Next, the court concluded that the common meaning of the term “loan origination fee” in the mortgage industry was not limited to a single fee, but rather it is understood to mean a series of fees covering the costs associated with originating the loan. Finally, the court found that plaintiffs’ interpretation of the SMLL conflicted with a lender’s responsibilities under RESPA, “unreasonably and illogically requir[ing] Defendants to lump together all of the fees, denote those fees as a single ‘loan origination fee,’ and…rob borrowers of the protection of being informed of the exact costs involved.” For a copy of the joint opinion, please see http://www.buckleykolar.com/documents/CabrejasvAccreditedHomeLenders.pdf.

Federal Court Denies Consumer Reporting Agencies’ Motion for Summary Judgment. On March 24, 2008, a federal district court allowed a consumer’s Fair Credit Reporting Act (FCRA) claim to go to a jury against two consumer reporting agencies. Miller v. Wells Fargo & Co., 2008 WL 793683, No. 3:05-CV-42-S (W.D. Ky. Mar. 24, 2008). The consumer plaintiffs alleged that Wells Fargo incorrectly reported a bankruptcy filing in their loan account to Trans Union, Equifax, and other reporting agencies. Wells Fargo sent a Universal Data Form (UDF) to the agencies correcting the error, but the bankruptcy notation reappeared on the consumer’s credit report. The consumer claimed that many of their loan applications were denied or credit was offered on less favorable terms because of this error. The court held that in order to maintain a FCRA claim against a consumer reporting agency for reporting inaccurate information, the consumer must show (i) inaccurate information was included in the consumer’s credit report, (ii) the inaccuracy was due to the agency’s failure to follow reasonable procedures to assure maximum possible accuracy, (iii) the consumer suffered injury, and (iv) the consumer’s injury was caused by the inclusion of the inaccurate entry. The court held that a jury could find that the reporting agencies failed to assure maximum possible accuracy by allowing the bankruptcy notation to reappear on the credit report after receiving the UDF. The claims for failing to respond to a consumer dispute properly could also go forward because the consumers provided sufficient evidence to show that the reporting agencies failed to reinvestigate. But the court dismissed a claim based upon the failure of a reinvestigation to prevent the reappearance of the bankruptcy notation was dismissed because the reporting agency did not conduct a reinvestigation. The court also held that the consumer’s allegations of denied credit or less favorable credit terms were sufficient evidence of injury under the FCRA. Finally, while the credit reporting agencies were not entitled to qualified immunity because there was a factual dispute as to whether they acted willfully, the court dismissed state law claims of defamation, invasion of privacy, outrage, and deceptive acts. For a copy of this decision, please see http://www.buckleykolar.com/documents/MillervWellsFargoCo2.pdf.

Motion for Summary Judgment for Alleged FCRA Violations is Denied. The U.S. District Court for the Western District of Kentucky has denied nearly all of a lender’s motion for summary judgment in an action alleging violation of the Fair Credit Reporting Act (FCRA) and various state statutory and common law schemes. Miller v. Wells Fargo & Company, Civ. Action No. 3:05-CV-42-S, 208 WL 793676 (W.D.Ky. Mar. 24, 2008). This case involved the repeated inaccurate reporting in a consumer’s credit history that he had filed bankruptcy. Over the course of several years, the consumer requested that Wells Fargo and the credit reporting agencies remove the inaccurate report, but the bankruptcy continued to be removed then re-inserted in his credit reports. The consumer plaintiff alleged that Wells Fargo breached its duties, as a furnisher of information to consumer reporting agencies, to properly investigate disputed information and correct any inaccuracies uncovered by the investigation by reporting them to the credit agencies, in violation of FCRA. The court noted that “genuine issues of material fact exist as to whether Wells Fargo’s efforts to comply with its [FCRA] duties were reasonable,” and it denied summary judgment on the claim of negligence under the FCRA. In addition, the court denied summary judgment on the claim of willful noncompliance under FCRA, stating that a jury could conclude that Wells Fargo’s re-reporting the bankruptcy despite its numerous assurances that it had removed the notation constituted a conscious disregard for the Millers’ rights. Regarding the state law claims, Wells Fargo argued that they are preempted by FCRA. The court granted Wells Fargo’s motion with respect to the state statutory claims but denied it with respect to those claims where a jury could find the requisite malice or willful intent.

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Banking

U.S. Treasury Department Releases Blueprint to Restructure Financial Regulatory Structure. On March 31, the U.S. Treasury Department released its “Blueprint for a Modernized Financial Regulatory Structure” setting forth short-, intermediate-, and long-term recommendations for reform of the U.S. financial regulatory structure.

The short-term recommendations include improvements to regulatory coordination and oversight that regulators can make quickly. One such short-term recommendation is the creation of a new system to regulate the mortgage origination process, involving three components. First, the Treasury recommends the creation of a new federal commission, the Mortgage Origination Commission (MOC), to evaluate, rate, and report on the adequacy of each state’s system for licensing and regulating participants in the mortgage origination process. The Treasury recommends that federal legislation set forth (or provide authority for the MOC to develop) uniform minimum licensing qualification standards for state mortgage market participant licensing systems. Second, the Treasury recommends that the Federal Reserve continue to write regulations implementing national mortgage lending laws. Third, the Treasury recommends clarification and enhancement of the enforcement authority over these laws.

Intermediate-term recommendations set forth in the Blueprint focus on eliminating some of the duplication in the existing regulatory system, and offer ways to modernize the regulatory structure for certain financial services sectors within the current framework. Recommendations include transitioning the federal thrift charter to a national bank charter over a two-year period. To this end, the Treasury recommends the merger of the OCC and the OTS during this period. Additional intermediate recommendations include (i) creating an optional federal charter for insurance, similar to the current dual chartering system for banking, to encourage a more competitive U.S. insurance industry, (ii) rationalizing direct federal supervision of state-chartered banks, (iii) unifying oversight of futures and securities by merging the SEC and CFTC and their regulatory philosophies, and (iv) harmonizing the regulation and oversight of broker-dealers and investment advisers offering similar services to retail investors.

The long-term recommendation in the Blueprint is to create an entirely new regulatory structure using an objectives-based approach for optimal regulation. Such objectives-based approach is designed to address particular market failures by focusing on three key goals: (i) market stability regulation to address overall conditions of financial market stability, (ii) prudential financial regulation to address issues of limited market discipline caused by government guarantees, and (iii) business conduct regulation (linked to consumer protection regulation) to address standards for business practices. Pursuant to the Blueprint, three distinct regulators would focus exclusively on financial institutions: a market stability regulator (i.e., the Federal Reserve), a new prudential financial regulator (roles of the OCC, OTS and NCUA), and a new business conduct regulator (most roles of the CFTC and SEC, and some roles of bank regulators). The Federal Reserve’s new role as the market stability regulator would replace the Fed’s more limited, traditional role as the supervisor of financial holding companies, bank holding companies, and certain state-chartered banks and would give it the ability to monitor risks across the financial system. For a copy of the Blueprint for a Modernized Financial Regulatory Structure, please see http://www.treas.gov/press/releases/reports/Blueprint.pdf.

Federal Agencies Issue Final Rules and Guidelines on Identity Theft “Red Flags.” On April 1, 2008, the OCC, Federal Reserve Board, FDIC, OTS, NCUA and FTC (the Agencies) jointly issued final rules and guidelines implementing section 114 of the Fair and Accurate Credit Transactions Act (FACTA) and final rules implementing section 315 of the FACTA. The rules implementing section 114 require each financial institution or creditor to develop and implement a written Identity Theft Prevention Program (Program) to detect, prevent, and mitigate identity theft in connection with the opening of certain accounts or certain existing accounts. The guidelines include a supplement that identifies 26 patterns, practices, and specific forms of activity that are “red flags” signaling possible identity theft. The rules implementing section 114 also require credit and debit card issuers to assess the validity of notifications of changes of address under certain circumstances. Additionally, the Agencies are issuing joint rules under section 315 that provide guidance regarding reasonable policies and procedures that a user of consumer reports must employ when a consumer reporting agency sends the user a notice of address discrepancy. Compliance is mandatory on November 1, 2008. For a copy of the Federal Register notice, please see http://www.ots.treas.gov/docs/4/481019.pdf.

ABA Testifies Against Proposed Internet Gambling Rule Before Congress. On April 2, 2008, Wayne Abernathy testified on behalf of the American Bankers Association (ABA) before the Subcommittee on Domestic and International Monetary Policy of the House Committee on Financial Services regarding the Federal Reserve Board’s and the Department of Treasury’s proposed rule implementing the Unlawful Internet Gambling Enforcement Act (UIGEA). The Prohibition on Funding of Unlawful Internet Gambling (reported in InfoBytes, Oct. 12, 2007) would require banks with direct commercial relationships to Internet gambling businesses to block ACH, check, and wire transfers involving unlawful transactions. The ABA objected to this proposed rule on the grounds that (i) the payment system is not an effective or appropriate enforcement tool, (ii) neither the law nor the proposed rule adequately defines “unlawful Internet gambling,” and (iii) the cross-border payments that are not subject to U.S. law are nearly impossible to identify or prevent. The ABA testimony concluded that this proposed rule would both damage the efficiency of the payment system and fail to stop illegal Internet gambling. For a copy of this testimony, please see http://www.buckleykolar.com/documents/Abernathytestimony4.2.08.pdf.

Fourth Circuit Holds that Board Ratification of Termination is Sufficient for NBA Preemption. On April 1, a U.S. Court of Appeals for the Fourth Circuit held that a board’s ratification of an officer’s termination is sufficient to invoke the preemptive effect of the National Bank Act’s (NBA) at-pleasure provision. Schweikert v. Bank of America, N.A., No. 06-2137 (4th Cir., Apr. 1, 2008). Section 24(Fifth) of the NBA provides that a national bank’s “board of directors” has the power to “dismiss [] officers…at pleasure.” In this case, the plaintiff brought an action against the defendant national bank (Bank) in state court alleging wrongful discharge. The Bank removed the matter to federal court and moved to dismiss on the ground that the claim is preempted by the “at-pleasure” provision of the NBA. To invoke the protection of the at-pleasure provision, a national bank’s board of directors must take action to dismiss a bank officer. The plaintiff argued that his wrongful discharge claim was not preempted because (i) he was not an “officer” of the Bank within the meaning of the NBA, and (ii) he was not dismissed by the “board” because the decision was made by his supervisor and was only ratified by the board. The Fourth Circuit disagreed with plaintiff. First, the court held that the plaintiff was an “officer” of the bank because the plaintiff was a senior vice president of the Bank, which is an officer title of the Bank and was created as provided for in the Bank’s bylaws. Second, the court held that the plaintiff was dismissed by the board because a board’s ratification of an officer’s termination is “sufficient to invoke the preemptive effect of the [NBA’s] at-pleasure provision.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/SchweikertvBankofAmerica.pdf.

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Consumer Finance

Additional Complaints About the Same Allegedly Inaccurate Information Do Not Restart FCRA Limitations Clock. On March 25, the U.S. District Court for the Southern District of Georgia held that the statute of limitations period on a Fair Credit Reporting Act (FCRA) claim ran from the defendant’s response to the consumer’s initial complaint to the credit reporting agencies and did not restart with each additional complaint the consumer made. Blackwell v.  Capital One Bank, No. 606CV066, 2008 WL 793476 (S.D. Ga. Mar. 25, 2008). The consumer plaintiff alleged that the defendant violated the FCRA by (i) failing to provide accurate and truthful information to credit reporting agencies, and (ii) failing to investigate the accuracy of that information after receiving notice of a customer dispute. The court dismissed the consumer’s claim for failure to provide accurate information because there is no private right of action to enforce that duty. The court dismissed the consumer’s claim for failing to investigate on statute of limitations grounds. From December 2003 to March 2006, the consumer filed three complaints with the credit reporting agencies relating to the same allegedly inaccurate information, and the defendant timely responded to each complaint. The consumer argued, based on the holding in Larson v. Ford Credit, 2007 WL 1875989 (D.  Minn. 2007) (reported in InfoBytes, July 6, 2007), that each subsequently submitted complaint started a new statute of limitations period for FCRA purposes. The defendant argued, based on the holding in Bittick v. Experian Info. Solutions, Inc., 419 F.Supp.2d 917 (N.D. Tex. 2006), that additional complaints regarding the same allegedly inaccurate information cannot restart the limitations clock. The court agreed with the reasoning in Bittick, and noted that “[t]o allow [the consumer’s] claims to go forward based upon the subsequently submitted complaints would allow plaintiffs to indefinitely extend the limitations period and render it a nullity.” For a copy of this decision, please see http://www.buckleykolar.com/documents/BlackwellvCapitalOneBank.pdf

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Securities

FTC:  Registering Cell Phones on Do Not Call Registry Unnecessary. On April 1, the Federal Trade Commission (FTC) issued a press release reiterating that it is not necessary for consumers to register cell phone numbers on the National Do Not Call Registry to be protected from most telemarketing calls to cell phones. Despite recent claims made in e-mails circulating on the Internet, consumers should not be concerned that their cell phone numbers will be released to telemarketers in the near future. Also, although the telecommunications industry has considered creating a wireless 411 directory, the list would not be made available to telemarketers and consumers would have to “opt-in” to have their cell phone number included in the directory. For a copy of the FTC’s press release, please see http://www.ftc.gov/opa/2008/04/dnc.shtm.

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Insurance

Court Affirms FCRA Class Settlement Agreement, Citing Weakness of Willfulness Case. The Eleventh Circuit Court of Appeals, in an appeal of a Fair Credit Reporting Act (FCRA) class action settlement, has affirmed the settlement award for class members but has remanded the decision for a more detailed explanation on the attorneys’ fees award. Dikeman v. Progressive Express Ins. Co., 2008 WL 786618, No. 07-10547 (11th Cir., Mar. 26, 2008). In this case, the district court approved an agreement settling charges that an insurance company willfully violated the FCRA provisions requiring “adverse action” notices. In this settlement agreement, the class members would receive free credit reports and potentially would receive premium credits on their insurance, but the class members would not receive any statutory damage awards. The settlement also awarded $3 million to class counsel for attorneys’ fees. Objecting members of the class appealed, arguing that the district court abused its discretion in approving the settlement, primarily because (1) the settlement did not award class members monetary relief, which the statute allows for willful violations, and (2) the attorney’s fees were improper given the low value of the settlement. In reviewing the district court’s decision, the court affirmed the holding approving the settlement terms but vacated the holding regarding adequacy of attorneys’ fees. Specifically, the court found that the record supported the district court’s reasoning that willfulness—a necessary element in awarding statutory damages—would be difficult to prove, and therefore the district court did not abuse its discretion in accepting the settlement terms. The court remanded the case for a detailed explanation on the reasonableness of the attorneys’ fees award. For a copy of the opinion, please see http://www.buckleykolar.com/documents/DikemanvProgressiveExpressInsuranceCompany.pdf.

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Litigation

Court Holds That “Loan Origination Fee” May Include Separately Disclosed Charges. In a case of first impression, a Maryland federal court held that the Maryland Secondary Mortgage Loan Law (the SMLL) permits lenders to charge a variety of fees arising from the origination of a secondary mortgage loan, not just a single “loan origination fee.” Hafford v. Equity One, Inc., No. AW-07-1633; Cabrejas v.  Accredited Home Lenders, Inc., No. AW-06-0975 (D. Md. March 31, 2008). Buckley Kolar LLP represented Accredited Home Lenders, Inc. in the Cabrejas lawsuit. In these companion putative class actions, the plaintiffs claimed that the lenders violated the SMLL by charging fees other than a single fee denominated “loan origination fee” to cover the costs associated with underwriting, closing, and otherwise originating the loan.) The SMLL allows lenders to charge a “loan origination fee” of less than 10%, and it was undisputed that the total amount of fees charged to each plaintiff was far below this statutory cap. Although finding the SMLL to be ambiguous as to whether it limits lender compensation to a single “loan origination fee” or permits the collection of a variety of separately labeled fees related to the origination of the loan, the court rejected what it described as plaintiffs’ “narrow and technical interpretation” of the SMLL. First, the court determined that the main objective of the SMLL was to establish a statutory cap on the amount charged to Maryland consumers on second mortgage loans, not to dictate fee nomenclature. Next, the court concluded that the common meaning of the term “loan origination fee” in the mortgage industry was not limited to a single fee, but rather it is understood to mean a series of fees covering the costs associated with originating the loan. Finally, the court found that plaintiffs’ interpretation of the SMLL conflicted with a lender’s responsibilities under RESPA, “unreasonably and illogically requir[ing] Defendants to lump together all of the fees, denote those fees as a single ‘loan origination fee,’ and…rob borrowers of the protection of being informed of the exact costs involved.” For a copy of the joint opinion, please see http://www.buckleykolar.com/documents/CabrejasvAccreditedHomeLenders.pdf.

Fourth Circuit Holds that Board Ratification of Termination is Sufficient for NBA Preemption. On April 1, a U.S. Court of Appeals for the Fourth Circuit held that a board’s ratification of an officer’s termination is sufficient to invoke the preemptive effect of the National Bank Act’s (NBA) at-pleasure provision. Schweikert v. Bank of America, N.A., No. 06-2137 (4th Cir., Apr. 1, 2008). Section 24(Fifth) of the NBA provides that a national bank’s “board of directors” has the power to “dismiss [] officers…at pleasure.” In this case, the plaintiff brought an action against the defendant national bank (Bank) in state court alleging wrongful discharge. The Bank removed the matter to federal court and moved to dismiss on the ground that the claim is preempted by the “at-pleasure” provision of the NBA. To invoke the protection of the at-pleasure provision, a national bank’s board of directors must take action to dismiss a bank officer. The plaintiff argued that his wrongful discharge claim was not preempted because (i) he was not an “officer” of the Bank within the meaning of the NBA, and (ii) he was not dismissed by the “board” because the decision was made by his supervisor and was only ratified by the board. The Fourth Circuit disagreed with plaintiff. First, the court held that the plaintiff was an “officer” of the bank because the plaintiff was a senior vice president of the Bank, which is an officer title of the Bank and was created as provided for in the Bank’s bylaws. Second, the court held that the plaintiff was dismissed by the board because a board’s ratification of an officer’s termination is “sufficient to invoke the preemptive effect of the [NBA’s] at-pleasure provision.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/SchweikertvBankofAmerica.pdf.

Material Terms Not Always Required for Firm Offer under FCRA, Court Holds. On March 27, a federal district court in Rhode Island dismissed a class action complaint alleging that Calusa Investments, LLC violated the Fair Credit Reporting Act (FCRA) by obtaining the plaintiff’s credit information without extending a “firm offer of credit.” Dixon v. Calusa Investments, LLC, No. 06-442-T, 2008 WL 821607 (D.R.I. Mar. 27, 2008). In this case, Calusa sent the plaintiff three mailers informing her that she was eligible to obtain a debt consolidation loan. The mailers did not contain specific terms for any proposed loan but stated that any loan would be conditioned on the plaintiff’s credit information meeting the criteria used to select her to receive the mailers. The plaintiff argued that the mailers did not constitute a firm offer under FCRA because they lacked material terms such as the interest rate or repayment term, and that the mailers failed to disclose a guaranteed minimum loan amount (instead, the mailers listed “example” information for a $265,625 loan). According to the court, this case was indistinguishable from Sullivan v. Greenwood Credit Union (reported in InfoBytes, March 21, 2008), in which the First Circuit held that an offer of credit meets FCRA’s definition of “firm offer of credit” so long as the creditor will not deny credit to a consumer who meets the creditor’s pre-selection criteria. The court therefore granted Calusa’s motion to dismiss. See For a copy of the opinion, please see http://www.buckleykolar.com/documents/DixonvCalusaInvestments.pdf.

Court Affirms FCRA Class Settlement Agreement, Citing Weakness of Willfulness Case. The Eleventh Circuit Court of Appeals, in an appeal of a Fair Credit Reporting Act (FCRA) class action settlement, has affirmed the settlement award for class members but has remanded the decision for a more detailed explanation on the attorneys’ fees award. Dikeman v. Progressive Express Ins. Co., 2008 WL 786618, No. 07-10547 (11th Cir., Mar. 26, 2008). In this case, the district court approved an agreement settling charges that an insurance company willfully violated the FCRA provisions requiring “adverse action” notices. In this settlement agreement, the class members would receive free credit reports and potentially would receive premium credits on their insurance, but the class members would not receive any statutory damage awards. The settlement also awarded $3 million to class counsel for attorneys’ fees. Objecting members of the class appealed, arguing that the district court abused its discretion in approving the settlement, primarily because (1) the settlement did not award class members monetary relief, which the statute allows for willful violations, and (2) the attorney’s fees were improper given the low value of the settlement. In reviewing the district court’s decision, the court affirmed the holding approving the settlement terms but vacated the holding regarding adequacy of attorneys’ fees. Specifically, the court found that the record supported the district court’s reasoning that willfulness—a necessary element in awarding statutory damages—would be difficult to prove, and therefore the district court did not abuse its discretion in accepting the settlement terms. The court remanded the case for a detailed explanation on the reasonableness of the attorneys’ fees award. For a copy of the opinion, please see http://www.buckleykolar.com/documents/DikemanvProgressiveExpressInsuranceCompany.pdf.

Additional Complaints About the Same Allegedly Inaccurate Information Do Not Restart FCRA Limitations Clock. On March 25, the U.S. District Court for the Southern District of Georgia held that the statute of limitations period on a Fair Credit Reporting Act (FCRA) claim ran from the defendant’s response to the consumer’s initial complaint to the credit reporting agencies and did not restart with each additional complaint the consumer made. Blackwell v. Capital One Bank, No. 606CV066, 2008 WL 793476 (S.D. Ga. Mar. 25, 2008). The consumer plaintiff alleged that the defendant violated the FCRA by (i) failing to provide accurate and truthful information to credit reporting agencies, and (ii) failing to investigate the accuracy of that information after receiving notice of a customer dispute. The court dismissed the consumer’s claim for failure to provide accurate information because there is no private right of action to enforce that duty. The court dismissed the consumer’s claim for failing to investigate on statute of limitations grounds. From December 2003 to March 2006, the consumer filed three complaints with the credit reporting agencies relating to the same allegedly inaccurate information, and the defendant timely responded to each complaint. The consumer argued, based on the holding in Larson v. Ford Credit, 2007 WL 1875989 (D. Minn. 2007) (reported in InfoBytes, July 6, 2007), that each subsequently submitted complaint started a new statute of limitations period for FCRA purposes. The defendant argued, based on the holding in Bittick v. Experian Info. Solutions, Inc., 419 F.Supp.2d 917 (N.D. Tex. 2006), that additional complaints regarding the same allegedly inaccurate information cannot restart the limitations clock. The court agreed with the reasoning in Bittick, and noted that “[t]o allow [the consumer’s] claims to go forward based upon the subsequently submitted complaints would allow plaintiffs to indefinitely extend the limitations period and render it a nullity.” For a copy of this decision, please see http://www.buckleykolar.com/documents/BlackwellvCapitalOneBank.pdf.

State Court Holds that FACTA Preempts State Truncation Statute. On March 31, the Ohio Court of Appeals held that the truncation requirement added to the Fair Credit Reporting Act (FCRA) by the Fair and Accurate Credit Transactions Act (FACTA) preempts state truncation statutes, but only if the FACTA provision was in effect at the time the violation occurred. Ferron v. RadioShack Corp., 2008 WL 852620, No. 07AP-567 (Ohio App., Mar. 31, 2008). In this case, the consumer claimed that Radio Shack violated Ohio’s truncation statute by providing receipts to the plaintiff in September and October of 2005 that contained the expiration date of the plaintiff’s debit card. The Ohio statute prohibits merchants from printing expiration dates on electronically printed receipts. However, 15 U.S.C. § 1681c(g), the provision added by FACTA, preempts any state law imposing a requirement or prohibition concerning credit or debit card truncation. Specifically, § 1681c(g) requires cash registers or machines that electronically print receipts for credit or debit card transactions and first put into use on or after January 1, 2005 to comply with the truncation requirements immediately; those machines in use before January 1, 2005, were required to comply with the truncation requirements by December 4, 2006. The court held that a federal provision does not regulate its subject matter and, consequently, does not preempt state law, until the federal provision becomes effective. Because there was no information on the record regarding when the Radio Shack terminals at issue were first put to use, the court remanded the matter to the trial court to answer that question and resolve the preemption issue. For a copy of the opinion, please see http://www.sconet.state.oh.us/rod/docs/pdf/10/2008/2008-ohio-1511.pdf.

Federal Court Denies Consumer Reporting Agencies’ Motion for Summary Judgment. On March 24, 2008, a federal district court allowed a consumer’s Fair Credit Reporting Act (FCRA) claim to go to a jury against two consumer reporting agencies. Miller v. Wells Fargo & Co., 2008 WL 793683, No. 3:05-CV-42-S (W.D. Ky. Mar. 24, 2008). The consumer plaintiffs alleged that Wells Fargo incorrectly reported a bankruptcy filing in their loan account to Trans Union, Equifax, and other reporting agencies. Wells Fargo sent a Universal Data Form (UDF) to the agencies correcting the error, but the bankruptcy notation reappeared on the consumer’s credit report. The consumer claimed that many of their loan applications were denied or credit was offered on less favorable terms because of this error. The court held that in order to maintain a FCRA claim against a consumer reporting agency for reporting inaccurate information, the consumer must show (i) inaccurate information was included in the consumer’s credit report, (ii) the inaccuracy was due to the agency’s failure to follow reasonable procedures to assure maximum possible accuracy, (iii) the consumer suffered injury, and (iv) the consumer’s injury was caused by the inclusion of the inaccurate entry. The court held that a jury could find that the reporting agencies failed to assure maximum possible accuracy by allowing the bankruptcy notation to reappear on the credit report after receiving the UDF. The claims for failing to respond to a consumer dispute properly could also go forward because the consumers provided sufficient evidence to show that the reporting agencies failed to reinvestigate. But the court dismissed a claim based upon the failure of a reinvestigation to prevent the reappearance of the bankruptcy notation was dismissed because the reporting agency did not conduct a reinvestigation. The court also held that the consumer’s allegations of denied credit or less favorable credit terms were sufficient evidence of injury under the FCRA. Finally, while the credit reporting agencies were not entitled to qualified immunity because there was a factual dispute as to whether they acted willfully, the court dismissed state law claims of defamation, invasion of privacy, outrage, and deceptive acts. For a copy of this decision, please see http://www.buckleykolar.com/documents/MillervWellsFargoCo2.pdf.

Ninth Circuit Denies Petition for Rehearing in Suit Involving Reporting Agency’s “Reasonable Procedures.” On March 27, the Court of Appeals for the Ninth Circuit denied the defendant reporting agency’s petition for rehearing or rehearing en banc in connection with the court’s earlier decision that the agency’s dispute investigation did not show “reasonable procedures” to ensure accuracy, as required by the Fair Credit Reporting Act (FCRA). Dennis v. Beh-1, LLC, 2008 WL 795378 (9th Cir., Mar. 27, 2008). In the underlying case, a lawsuit against the consumer plaintiff was settled and the parties agreed that no judgment would be entered, but the consumer’s credit report incorrectly stated that a “civil claim judgment” had been entered against the consumer. In the suit against the reporting agency, the plaintiff alleged that the reporting agency incorrectly interpreted court documents acquired during its investigation, which showed that no judgment had been entered. In denying defendant’s motion for rehearing, the court amended its previous opinion, which it issued on September 25, 2007 (covered in InfoBytes, May 11, 2007 and InfoBytes, Sept. 28, 2007) and explained its reasons for denying the motion for rehearing, which include, among other things, defendant’s failure to defend the “reasonableness of its reinvestigation” and its “negligently” failing to reinvestigate. For a copy of this decision, please see http://www.buckleykolar.com/documents/DennisvBEH_1.pdf.

Credit Card that Sells Off Debt Not “Claimant” under California Identity Theft Law. The U.S. Court of Appeals for the Ninth Circuit recently affirmed a district court’s finding that a credit card company that had sold off a disputed claim for collection is not a “claimant” under the California Identity Theft Law. Satey v. JPMorgan Chase & Co., 2008 WL 834446, No. 06-56370 (9th Cir., Mar. 31, 2008). In June 2002, the consumer plaintiff Satey contacted Chase to dispute a charge on his Chase credit card, which, after investigation, Chase concluded was a legitimate charge. Chase reported the account as delinquent to the credit bureaus when Satey failed to make a payment, and, in 2003, Chase sold off the debt to another entity for collection. Satey alleged that Chase violated the California Identity Theft Law due to its improper credit reporting practices, improper investigation, and improper sale of a disputed account. The district court held that FCRA preempted the consumer’s claims under the California Identify Theft Law. On appeal, the Ninth Circuit declined to express an opinion on the preemption issue, but it nonetheless affirmed the district court’s holding that Chase was not a “claimant” because the law “reflects a present tense interest in a debt or attempt to collect” a debt. It held that Chase had not been a “claimant” on the consumer’s loan since 2003, when it sold the loan to a debt collector, and the court stated that “we cannot construe ‘claimant’ to include a person who had an interest in a disputed debt at some point in the past, but who no longer retains the interest at the time suit is filed.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/SateyvJPMorganChase.pdf.

Motion for Summary Judgment for Alleged FCRA Violations is Denied. The U.S. District Court for the Western District of Kentucky has denied nearly all of a lender’s motion for summary judgment in an action alleging violation of the Fair Credit Reporting Act (FCRA) and various state statutory and common law schemes. Miller v. Wells Fargo & Company, Civ. Action No. 3:05-CV-42-S, 208 WL 793676 (W.D.Ky. Mar. 24, 2008). This case involved the repeated inaccurate reporting in a consumer’s credit history that he had filed bankruptcy. Over the course of several years, the consumer requested that Wells Fargo and the credit reporting agencies remove the inaccurate report, but the bankruptcy continued to be removed then re-inserted in his credit reports. The consumer plaintiff alleged that Wells Fargo breached its duties, as a furnisher of information to consumer reporting agencies, to properly investigate disputed information and correct any inaccuracies uncovered by the investigation by reporting them to the credit agencies, in violation of FCRA. The court noted that “genuine issues of material fact exist as to whether Wells Fargo’s efforts to comply with its [FCRA] duties were reasonable,” and it denied summary judgment on the claim of negligence under the FCRA. In addition, the court denied summary judgment on the claim of willful noncompliance under FCRA, stating that a jury could conclude that Wells Fargo’s re-reporting the bankruptcy despite its numerous assurances that it had removed the notation constituted a conscious disregard for the Millers’ rights. Regarding the state law claims, Wells Fargo argued that they are preempted by FCRA. The court granted Wells Fargo’s motion with respect to the state statutory claims but denied it with respect to those claims where a jury could find the requisite malice or willful intent. For a copy of the opinion, please see http://www.buckleykolar.com/documents/MillervWellsFargoCo1.pdf.

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E-Financial Services

MISMO and PRIA Publish IPR Disclosure Draft of Business Requirements Document. On March 28, the Mortgage Bankers Association not-for-profit data standards subsidiary, MISMO, and the Property Records Industry Association (PRIA) released the IPR (Intellectual Property Rights) Disclosure Draft of a Business Requirements Document, which describes the requirements for eRecording in common electronic document formats such as Adobe Intelligent Document Format, esigned PDF, and Microsoft Word with embedded XML. The 30 day-IPR Disclosure draft is the first joint publication of MISMO and PRIA since forming an alliance in November 2005 with the objective to exchange and incorporate their respective standards for use within commercial and residential electronic mortgage transactions. The document states six major goals: (i) preparing electronic documents; (ii) uploading or transmitting electronic instruments; (iii) executing recordable electronic instruments; (iv) delivering recordable instruments electronically; (v) eRecording electronic instruments including fee and payment information; and (vi) enabling the return of eRecorded (or rejected) electronic instruments to the eClosing platforms, or the retrieval by the eClosing platforms of eRecorded (or rejected) electronic instruments. For a copy of the Mortgage Bankers Association press release, please see http://www.mortgagebankers.org/NewsandMedia/PressCenter/61179.htm.

ABA Testifies Against Proposed Internet Gambling Rule Before Congress. On April 2, 2008, Wayne Abernathy testified on behalf of the American Bankers Association (ABA) before the Subcommittee on Domestic and International Monetary Policy of the House Committee on Financial Services regarding the Federal Reserve Board’s and the Department of Treasury’s proposed rule implementing the Unlawful Internet Gambling Enforcement Act (UIGEA). The Prohibition on Funding of Unlawful Internet Gambling (reported in InfoBytes, Oct. 12, 2007) would require banks with direct commercial relationships to Internet gambling businesses to block ACH, check, and wire transfers involving unlawful transactions. The ABA objected to this proposed rule on the grounds that (i) the payment system is not an effective or appropriate enforcement tool, (ii) neither the law nor the proposed rule adequately defines “unlawful Internet gambling,” and (iii) the cross-border payments that are not subject to U.S. law are nearly impossible to identify or prevent. The ABA testimony concluded that this proposed rule would both damage the efficiency of the payment system and fail to stop illegal Internet gambling. For a copy of this testimony, please see http://www.buckleykolar.com/documents/Abernathytestimony4.2.08.pdf.

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Privacy/Data Security

FTC:  Registering Cell Phones on Do Not Call Registry Unnecessary. On April 1, the Federal Trade Commission (FTC) issued a press release reiterating that it is not necessary for consumers to register cell phone numbers on the National Do Not Call Registry to be protected from most telemarketing calls to cell phones. Despite recent claims made in e-mails circulating on the Internet, consumers should not be concerned that their cell phone numbers will be released to telemarketers in the near future. Also, although the telecommunications industry has considered creating a wireless 411 directory, the list would not be made available to telemarketers and consumers would have to “opt-in” to have their cell phone number included in the directory. For a copy of the FTC’s press release, please see http://www.ftc.gov/opa/2008/04/dnc.shtm.

Material Terms Not Always Required for Firm Offer under FCRA, Court Holds. On March 27, a federal district court in Rhode Island dismissed a class action complaint alleging that Calusa Investments, LLC violated the Fair Credit Reporting Act (FCRA) by obtaining the plaintiff’s credit information without extending a “firm offer of credit.” Dixon v. Calusa Investments, LLC, No. 06-442-T, 2008 WL 821607 (D.R.I. Mar. 27, 2008). In this case, Calusa sent the plaintiff three mailers informing her that she was eligible to obtain a debt consolidation loan. The mailers did not contain specific terms for any proposed loan but stated that any loan would be conditioned on the plaintiff’s credit information meeting the criteria used to select her to receive the mailers. The plaintiff argued that the mailers did not constitute a firm offer under FCRA because they lacked material terms such as the interest rate or repayment term, and that the mailers failed to disclose a guaranteed minimum loan amount (instead, the mailers listed “example” information for a $265,625 loan). According to the court, this case was indistinguishable from Sullivan v. Greenwood Credit Union (reported in InfoBytes, March 21, 2008), in which the First Circuit held that an offer of credit meets FCRA’s definition of “firm offer of credit” so long as the creditor will not deny credit to a consumer who meets the creditor’s pre-selection criteria. The court therefore granted Calusa’s motion to dismiss. See For a copy of the opinion, please see  http://www.buckleykolar.com/documents/DixonvCalusaInvestments.pdf.

Ninth Circuit Denies Petition for Rehearing in Suit Involving Reporting Agency’s “Reasonable Procedures.” On March 27, the Court of Appeals for the Ninth Circuit denied the defendant reporting agency’s petition for rehearing or rehearing en banc in connection with the court’s earlier decision that the agency’s dispute investigation did not show “reasonable procedures” to ensure accuracy, as required by the Fair Credit Reporting Act (FCRA). Dennis v. Beh-1, LLC, 2008 WL 795378 (9th Cir., Mar. 27, 2008). In the underlying case, a lawsuit against the consumer plaintiff was settled and the parties agreed that no judgment would be entered, but the consumer’s credit report incorrectly stated that a “civil claim judgment” had been entered against the consumer. In the suit against the reporting agency, the plaintiff alleged that the reporting agency incorrectly interpreted court documents acquired during its investigation, which showed that no judgment had been entered. In denying defendant’s motion for rehearing, the court amended its previous opinion, which it issued on September 25, 2007 (covered in InfoBytes, May 11, 2007 and InfoBytes, Sept. 28, 2007) and explained its reasons for denying the motion for rehearing, which include, among other things, defendant’s failure to defend the “reasonableness of its reinvestigation” and its “negligently” failing to reinvestigate. For a copy of this decision, please see  http://www.buckleykolar.com/documents/DennisvBEH_1.pdf

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Credit Cards

State Court Holds that FACTA Preempts State Truncation Statute. On March 31, the Ohio Court of Appeals held that the truncation requirement added to the Fair Credit Reporting Act (FCRA) by the Fair and Accurate Credit Transactions Act (FACTA) preempts state truncation statutes, but only if the FACTA provision was in effect at the time the violation occurred. Ferron v. RadioShack Corp., 2008 WL 852620, No. 07AP-567 (Ohio App., Mar. 31, 2008). In this case, the consumer claimed that Radio Shack violated Ohio’s truncation statute by providing receipts to the plaintiff in September and October of 2005 that contained the expiration date of the plaintiff’s debit card. The Ohio statute prohibits merchants from printing expiration dates on electronically printed receipts. However, 15 U.S.C. § 1681c(g), the provision added by FACTA, preempts any state law imposing a requirement or prohibition concerning credit or debit card truncation. Specifically, § 1681c(g) requires cash registers or machines that electronically print receipts for credit or debit card transactions and first put into use on or after January 1, 2005 to comply with the truncation requirements immediately; those machines in use before January 1, 2005, were required to comply with the truncation requirements by December 4, 2006. The court held that a federal provision does not regulate its subject matter and, consequently, does not preempt state law, until the federal provision becomes effective. Because there was no information on the record regarding when the Radio Shack terminals at issue were first put to use, the court remanded the matter to the trial court to answer that question and resolve the preemption issue. For a copy of the opinion, please see http://www.sconet.state.oh.us/rod/docs/pdf/10/2008/2008-ohio-1511.pdf.

Credit Card that Sells Off Debt Not “Claimant” under California Identity Theft Law. The U.S. Court of Appeals for the Ninth Circuit recently affirmed a district court’s finding that a credit card company that had sold off a disputed claim for collection is not a “claimant” under the California Identity Theft Law. Satey v. JPMorgan Chase & Co., 2008 WL 834446, No. 06-56370 (9th Cir., Mar. 31, 2008). In June 2002, the consumer plaintiff Satey contacted Chase to dispute a charge on his Chase credit card, which, after investigation, Chase concluded was a legitimate charge. Chase reported the account as delinquent to the credit bureaus when Satey failed to make a payment, and, in 2003, Chase sold off the debt to another entity for collection. Satey alleged that Chase violated the California Identity Theft Law due to its improper credit reporting practices, improper investigation, and improper sale of a disputed account. The district court held that FCRA preempted the consumer’s claims under the California Identify Theft Law. On appeal, the Ninth Circuit declined to express an opinion on the preemption issue, but it nonetheless affirmed the district court’s holding that Chase was not a “claimant” because the law “reflects a present tense interest in a debt or attempt to collect” a debt. It held that Chase had not been a “claimant” on the consumer’s loan since 2003, when it sold the loan to a debt collector, and the court stated that “we cannot construe ‘claimant’ to include a person who had an interest in a disputed debt at some point in the past, but who no longer retains the interest at the time suit is filed.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/SateyvJPMorganChase.pdf.

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