InfoBytes, August 14, 2009
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Miscellany
- Mortgages
- Banking
- Consumer Finance
- Litigation
- E-Financial Services
- Privacy/Data Security
- Credit Cards
Federal Issues
Fed Adjusts Fee-Based HOEPA Trigger to $579. On August 10, the Federal Reserve Board (Fed) announced its annual adjustment to the Home Ownership and Equity Protection Act (HOEPA) fee-based trigger. The new dollar amount for 2010—which is based on the annual percentage change reflected in the Consumer Price Index in effect on June 1, 2009—is $579. The adjustment becomes effective January 1, 2010. It does not affect the new rules for "higher-priced mortgage loans" adopted by the Fed in July 2008. For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/bcreg/20090810a.htm.
FFIEC Revises Interagency Fair Lending, Regulation Z Examination Procedures. On August 4, the Federal Financial Institutions Examination Council (FFIEC) announced revisions to the Interagency Fair Lending Examination Procedures. The new examination procedures pertain to pricing, steering, redlining, broker activity, performing examinations with small sample sizes, and data accuracy. Regarding pricing, the revised procedures expand pricing risk factors and guidance for conducting terms and conditions analyses, with specific attention to incentives such as overages, underages, and yield spread premiums. Regarding steering, the revised procedures update steering risk factors to include (i) the presence of discretion, (ii) financial incentives to place borrowers in products and features with potentially negative consequences (e.g., prepayment penalties), and (iii) disparities in products, terms, conditions, and lending channels based on a prohibited basis. Regarding redlining, the revised procedures include the examination of disparities in the number of originations of higher-priced loans (or loans with potentially negative consequences) in areas with relatively high concentrations of minority residents (i.e., “reverse redlining”). The procedures also direct examiners to assess any potential redlining risks associated with a financial institution’s selection of its CRA assessment area (i.e., the selection of a CRA assessment area that excludes areas with high concentrations of minorities). The revised procedures additionally (i) provide that broker activity should be considered when evaluating fair lending risk and compliance related to underwriting, terms and conditions, redlining and steering, (ii) encourage examiners to consult with oversight staff on possible alternative methods of comparative analysis when dealing with institutions with low lending volumes, and (iii) state that examiners generally should validate data—especially HMDA data—prior to conducting a fair lending examination. Finally, the Federal Reserve Banks are encouraged to contact the Fair Lending Enforcement Section within the Division of Consumer and Community Affairs to determine if specialized techniques would be appropriate when scoping certain focal points, including underwriting, pricing, steering, redlining, and marketing. For a copy of the press release, please see http://www.federalreserve.gov/boarddocs/caletters/2009/0906/caltr0906.htm. For a copy of the revised examination procedures, please see http://www.federalreserve.gov/boarddocs/caletters/2009/0906/09-06_attachment.pdf.
The FFIEC also recently approved interagency examination procedures for Regulation Z, which implements the Truth in Lending Act (TILA). The revisions incorporate recent amendments to TILA in connection with (i) the notification requirements under the Helping Families Save Their Homes Act of 2009 (HFSTHA), and (ii) the “early disclosure” requirements of the Mortgage Disclosure Improvement Act of 2008 (MDIA). Under the HFSTHA, assignees of mortgage loans must notify borrowers in writing of any assignment no later than 30 days after completion of the transaction. Under the MDIA, creditors must provide “early disclosures” within three business days after receipt of an application and before any fees (except credit report fees) are collected. This requirement is not limited to loans secured by the consumer’s principal residence. Creditors must wait seven business days after they provide the early disclosures before closing the loan, must provide new disclosures with a revised annual percentage rate (APR), and must wait an additional three business days before closing the loan if a change occurs that makes the APR in the early disclosures inaccurate beyond a specified tolerance. For a copy of the press release, please see http://www.federalreserve.gov/boarddocs/caletters/2009/0904/caltr0904.htm. For a copy of the revised procedures, please see http://www.federalreserve.gov/boarddocs/caletters/2009/0904/09-04_attachment.pdf.
HUD Publishes FAQs on Revised RESPA Rule. The U.S. Department of Housing and Urban Development (HUD) has published responses to “Frequently Asked Questions” regarding its 2008 amendments (fully effective January 1, 2010) to Regulation X, the Real Estate Settlement Procedures Act’s (RESPA) implementing regulation. The new guidance, presented in the form of 89 questions and answers, addresses various aspects of the revised RESPA rule, including the delivery of a written list of settlement service providers to consumers, the changed circumstances re-delivery rule, the completion of the GFE and HUD-1/1A, and the electronic delivery of required disclosures. For a copy of the FAQs, please see http://www.hud.gov/offices/hsg/ramh/res/faqfinalrev3.pdf. For a copy of the press release, please see http://www.hud.gov/news/release.cfm?content=pr09-153.cfm&CFID=21735342&CFTOKEN=67074071.
Treasury Announces Additional Incentives for HAMP Modifications. On July 31, the U.S. Department of the Treasury (Treasury) issued a Supplemental Directive for its Home Price Decline Protection (HPDP) Program—a $10 billion dollar component of the Home Affordable Modification Program (HAMP). Under the HPDP Program, servicers will receive additional incentive payments - beyond those generally available under HAMP—for modifications of loans securing properties in areas with depressed housing prices where investors are concerned prices will continue to fall. The amount of the incentive payments will be based on (i) an estimate of the cumulative projected home price decline over the next year in the local market in which the related mortgaged property is located, (ii) the unpaid principal balance of the mortgage prior to modification under HAMP, and (iii) the mark-to-market loan-to-value ratio of the mortgage loan based on the unpaid balance of the mortgage loan. Mortgage loans that are owned or guaranteed by Fannie Mae or Freddie Mac are not eligible for the HPDP incentive payments. Only HAMP loan modifications initiated after September 1, 2009 are eligible for HPDP payments. For a copy of the press release, please see http://www.financialstability.gov/latest/tg_07312009.html. For a copy of the Supplemental Directive, please see http://www.financialstability.gov/docs/press/SupplementalDirective7-31-09.pdf.
OCC Revises Examination Procedure Booklet. On August 10, the Office of the Comptroller of the Currency (OCC) revised the electronic version of the “Other Consumer Protection Laws and Regulations” booklet of the Comptroller’s Handbook. The booklet incorporates new procedures for the Servicemembers Civil Relief Act and the regulations implementing the consumer protection provisions of the John Warner National Defense Authorization Act for Fiscal Year 2007. The booklet further incorporates previously-announced revised procedures for laws including the Telephone Consumer Protection Act. For a copy of the press release, please see http://www.occ.treas.gov/ftp/bulletin/2009-27.html. For a copy of the revised booklet, please see http://www.occ.treas.gov/handbook/other.pdf.
Companies Settle FCRA Violation Allegations with FTC. On August 11, two companies agreed to settle Federal Trade Commission (FTC) allegations that the companies fired employees and failed to hire applicants without giving proper notice or providing the employee or applicant the credit report used to make the adverse decision, in violation of the Fair Credit Reporting Act (FCRA). Defendants Quality Terminal Services, LLC and Rail Terminal Services, LLC allegedly failed to provide notice and a copy of the credit report used to make an adverse employment decision, and also allegedly failed to provide the name of the credit reporting agency and a statement indicating that the agency had no control over the employment decision. The FTC fined Quality Terminal Services, LLC $53,000 and Rail Terminal Services, LLC $24,000; both companies are required to follow record-keeping and reporting guidelines and must allow the FTC to monitor compliance with the order. For a copy of the press release, please see http://www.ftc.gov/opa/2009/08/qts.shtm.
IRS Announces New Electronic Security Standards. On July 13, the Internal Revenue Service (IRS) announced six new security, privacy, and business standards in connection with the online filing of individual income tax returns. The new standards supplement the Gramm-Leach-Bliley Act and its implementing rules and regulations by requiring Authorized IRS e-file Providers that collect, transmit, process, or store taxpayer information (i) to establish minimum internet encryption standards beyond SSL protocol, (ii) to contract with an independent third-party vendor to determine compliance with Payment Card Industry Data Security Standards, (iii) to have written policies and procedures addressing privacy issues consistent with government and industry guidelines, (iv) to implement technologies to prevent bulk filings of fraudulent tax returns, (v) to register their domain name with a U.S. company accredited by the Internet Corporation for Assigned Names and Numbers, and (vi) to report security incidents to the IRS no later than the next business day. For a copy of the announcement, please see http://www.irs.gov/irb/2009-28_IRB/ar12.html.
State Issues
Oregon Passes Loan Modification, Foreclosure Legislation. Oregon Governor Ted Kulongoski recently signed two bills, H.B. 2191 and S.B. 628, pertaining to loan modifications and foreclosures. H.B. 2191 expands Oregon law regulating debt consolidation companies to include the regulation of “debt management services” – including services in connection with loan modifications. Under H.B. 2191, a debt management service is any activity done for consideration where a person (i) receives or offers to receive funds from a consumer for the purpose of distributing the funds among the consumer’s creditors in full or partial payment of the consumer’s debts, (ii) improves or offers to improve a consumer’s credit record, credit history or credit rating, (iii) modifies or offers to modify the terms and conditions of an existing loan or obligation, or (iv) obtains or attempts to obtain a concession from a creditor including, but not limited to, a reduction in the principal, interest, penalties or fees associated with a debt. Among other requirements, debt management service providers must (i) register with the Oregon Department of Consumer and Business Services, (ii) post a surety bond of at least $10,000, and (iii) adhere to certain fee limitations.
S.B. 628 requires mortgage creditors to send borrowers a notice whenever a trustee records a notice of default on property subject to a residential trust deed. The required notice must include a form that a borrower may use to request a loan modification. Additionally, S.B. 628 provides the borrower with up to 30 days from when the trustee signs a notice of default to request a loan modification, during which time the trustee cannot initiate foreclosure proceedings. If the borrower opts to pursue a loan modification, the creditor has up to 45 days to approve or deny the request and cannot initiate foreclosure proceedings until a final decision has been made regarding the modification request. Both bills became effective immediately on passage. However, S.B. 628’s loan modification provisions become effective September 29, 2009 and are scheduled for repeal January 2, 2012. For a copy H.B. 2191, please see http://www.leg.state.or.us/09reg/measpdf/hb2100.dir/hb2191.en.pdf. For a copy of S.B. 628, please see http://www.leg.state.or.us/09reg/measpdf/sb0600.dir/sb0628.en.pdf.
California AG Orders 386 Mortgage Foreclosure Consultants to Register, Post $100,000 Bond. On August 12, California Attorney General Edmund G. Brown Jr. ordered 386 mortgage foreclosure consultants to either register with the Office of the Attorney General within ten days and post a $100,000 bond or otherwise explain why they are not required to do so. Under California’s recently-enacted foreclosure consultant law, mortgage foreclosure consultants must register with the California Attorney General (reported in InfoBytes, June 5, 2009). Failure to do so may result in imprisonment for up to one year and fines ranging from $1,000 to $25,000 per violation. Attorney General Brown also ordered 27 foreclosure consultants to substantiate certain claims made by the consultants in online or direct mail advertisements, and unveiled a new website for consumers (http://ag.ca.gov/loanmod) which provides tips to avoid loan modification fraud, allows consumers to determine if a company is registered, and makes it easier to file complaints. In addition, the State Bar of California has announced that it has obtained the resignation of two lawyers and filed charges against a third lawyer allegedly involved in loan modification scams. For a copy of the California Attorney General’s press release, please see http://ag.ca.gov/newsalerts/release.php?id=1780. For a copy of the State Bar of California’s press release, please see http://www.buckleysandler.com/CA_Bar_081409.pdf.
Courts
Eighth Circuit Holds DIDMCA Does Not Preempt State Law Limits on Closing Costs and Fees. On August 7, the U.S. Court of Appeals for the Eighth Circuit held that the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) does not preempt a Missouri state law governing the types and amounts of closing costs and fees a lender may charge on second-lien residential mortgage loans. Thomas v. US Bank National Ass’n, No. 08-3302, 2009 WL 2410577 (8th Cir. Aug. 7, 2009). This case involved allegations that certain fees and costs paid in connection with mortgage loans—but not the interest rate of the loans—violated Missouri law. The 33 defendant banks—purchasers of the subject loans from federally-insured, state-chartered (and now-defunct) FirstPlus Bank – argued that DIDMCA, similar to the National Bank Act (NBA), completely preempted any state law usury claim against a national bank. The Eighth Circuit rejected the defendants’ argument. The court found that a qualifying phrase in the relevant section of DIDMCA was intended to limit its preemptive effect to conflicting state laws capping interest rates. Specifically, the court reasoned that because the interest rate allowed by Missouri law for second mortgages was higher than the interest rate set forth in DIDMCA, the federal statute did not apply. The court noted that its decision conflicts with the Fourth Circuit’s decision in Discover Bank v. Vaden, 489 F.3d 594 (4th Cir. 2007), which held that DIDMCA completely preempts state usury claims against federally-insured, state-chartered banks. The defendant national banks argued in the alternative that the NBA itself applied (and preempted state law), but the court also rejected this argument, holding that, as assignees, the defendant banks were subject to all claims that could have been brought against the originating institution. For a copy of the opinion, please see http://www.buckleysandler.com/Thomas_v_US_Bank.pdf.
Eleventh Circuit Dismisses Claims that Optional Discounts Violate RESPA, HUD Regulations. On August 3, the U.S. Court of Appeals for the Eleventh Circuit dismissed putative class action claims that the defendants, a builder and a lender, violated the Real Estate Settlement Procedures Act (RESPA) and U.S. Department of Housing and Urban Development (HUD) regulations by offering an optional discount to a borrower who used the services of a mortgage lender affiliated with a builder. Yeatman v. D.R. Horton, Inc., No. 08-12929, 2009 WL 2357092 (11th Cir. Aug. 3, 2009). In this case, the plaintiff borrowers agreed to purchase a home from a builder and used a mortgage lender affiliated with the builder to finance the purchase. The purchase agreement offered an optional closing cost discount if the borrowers used the affiliated mortgage lender. The borrowers argued the discounts and directive to use a particular mortgage lender violated RESPA and HUD regulations. The district court granted the defendants’ motion to dismiss and the Eleventh Circuit affirmed the district court’s determination that “the mere offering of an option of a discount,” does not violate RESPA, nor does it violate HUD prohibitions against requiring consumers “to use a specified service in order to buy another service or product.” In rejecting the borrowers’ claims, the court emphasized that the offering of an optional discount was not a condition of the contract. For a copy of the opinion, please see http://www.buckleysandler.com/Yeatman_v_Horton.pdf.
Virginia Federal Court Denies Rescission Relief for Technical TILA Violation. On August 10, the U.S. District Court for the Eastern District of Virginia held that equitable considerations prevented a borrower from rescinding her mortgage after the defendant lenders allegedly failed to comply with notice requirements under the Truth in Lending Act (TILA). Byron v. EMC Mortgage Corp., No. 3:09-CV-197, 2009 WL 1838993 (E.D. Va. Aug. 10, 2009). In Byron, the borrower sought to rescind a mortgage because she was allegedly provided with only one copy of the notice of the right to rescind, instead of the two copies required by TILA. The court rejected this claim, finding that equitable considerations weighed in favor of the lenders. Specifically, the court reasoned that awarding a rescission remedy to the borrower would require the lenders to return finance charges and other fees to the borrower for a relatively minor violation that caused the plaintiff no harm, especially because the lenders provided at least one copy of the notice of the right to rescind. As a result, the court granted the lenders’ motion for summary judgment. For a copy of the opinion, please see http://www.buckleysandler.com/Byron_v_EMC.pdf.
Arkansas Federal Court Finds Emotional Distress Damages Sufficient to Sustain FCRA Claim. On August 6, the U.S. District Court for the Western Division of Arkansas denied the defendants’ motion to dismiss a Fair Credit Reporting Act (FCRA) claim despite finding no evidence of damages other than emotional distress. Christensen v. Acxiom Info. Sec. Servs., Inc., No. 08-4081, 2009 WL 2424453 (W.D. Ark. Aug. 6, 2009). In Christensen, the consumer alleged that the defendants willfully and negligently violated FCRA by providing a consumer report with inaccurate information to a prospective employer that withdrew an offer of employment. The consumer alleged both actual damages and emotional distress resulting from the erroneous consumer report. The court dismissed the willful violation claim, finding that defendants did not “knowingly and intentionally” commit an act in conscious disregard for the rights of others. However, the court denied the defendants’ motions to dismiss the plaintiff’s claim for negligent violation of FCRA, concluding that a jury could decide that there was negligence. The court held that, although the job offer was withdrawn for reasons other than the erroneous consumer report, actual damages based on the consumer’s emotional distress are sufficient to sustain a FCRA claim. For a copy of the opinion, please see http://www.buckleysandler.com/Christensen_v_Acxiom.pdf.
Third Circuit Refuses to Apply Continuing Violations Doctrine to FDCPA Claims. On August 6, the U.S. Court of Appeals for the Third Circuit refused to apply the continuing violations doctrine to Fair Debt Collection Practices Act (FDCPA) claims, and thus held that the FDCPA claims against a defendant bank were time-barred. Schaffhauser v. Citibank N.A., No. 08-2275, 2009 WL 240025 (3rd Cir. Aug. 4, 2009) (per curiam). In Schaffhauser, the plaintiffs alleged that the defendant bank violated the FDCPA and Pennsylvania debt collection law when it attempt to collect on the plaintiffs’ credit card debt. The district court dismissed all claims against the bank. On appeal, the plaintiffs argued that the district court erred by finding that the FDCPA claims were time-barred, arguing that ongoing debt collection litigation qualifies as a “continuing violation” of the FDCPA. The court of appeals disagreed, refusing to apply the continuing violations doctrine to claims arising under the FDCPA and affirming the dismissal of the plaintiffs’ FDCPA claims. For a copy of the opinion, please see http://www.ca3.uscourts.gov/opinarch/082275np.pdf.
Firm News
Margo Tank will be giving an audio conference entitled “Building Effective Electronic Records and Electronic Records Management Systems: Navigating the Legal Traps” on September 10. For more information, please see http://www.alexinformation.com/store/10700909.php.
Chris Witeck will be giving a presentation at the MBA Reverse Mortgage Conference in San Diego on September 10 entitled “The HECM Challenge,” as well as moderating the “Secondary Market Update” panel on September 11. He will also be speaking on the Secondary Market panel at the MBA Regulatory Compliance Conference in Washington D.C. on September 16.
An interview of Andrew Sandler was featured in the July 21 American Banker article “Next Consumer Backlash: Arbitration.” The interview discusses the National Arbitration Forum pulling out of credit card arbitration and how this will affect the credit card industry. Andrew was also interviewed for a July 21 article by Karen Freifeld for Bloomberg regarding auction-rate securities. To view the full article, please see http://www.bloomberg.com/apps/news?pid=20601110&sid=a2mfbkO74rDI.
Jeff Naimon appeared on a Fox Business News segment on residential loan modifications on July 28.
Andrew Sandler presented at the American Bar Association’s Annual Meeting in Chicago on August 1. The title of his presentation was “Subprime Redux: Recent Developments in Subprime Enforcement and Litigation.”
Jonice Gray Tucker and Kirk Jensen spoke at the ABA’s Annual Conference on August 2 in Chicago.
Joe Kolar, Benjamin Klubes, Colgate Selden and Jonathan Cannon all spoke at the Lenders One Conference on August 3 and 4.
Jonathan Jerison was a featured speaker for the A.S. Pratt Audio Conference Series “Privacy Implications of Loss-Mitigation/FCRA” on August 6. For more information, please see http://www.aspratt.com/store/11300809.php.
Jonice Gray Tucker gave a presentation entitled “Trends in Enforcement Actions Against Mortgage Servicers and Recommended Best Practices” at the CMBA’s Loan Servicing Conference on August 10 in Las Vegas.
John Kromer spoke on a panel addressing “The Changing Standards in the Regulation of the Mortgage Industry” at the American Association of Residential Mortgage Regulator’s annual conference in Savannah, GA on August 12.
Miscellany
Financial Services Companies Revise Credit Card, Arbitration Policies. According to reports, as of this week Bank of America will no longer require customers to arbitrate disputes involving Bank of America consumer bank and credit card accounts. Additionally, American Express and Discover Financial Services are reportedly eliminating over-the-limit fees on consumer credit cards. According to reports, the change is due to a provision of the Credit Card Accountability Responsibility and Disclosure Act of 2009 that requires consumers to opt-in for over-the-limit transactions if companies impose over-the-limit fees. For more information, please email .
Mortgages
Fed Adjusts Fee-Based HOEPA Trigger to $579. On August 10, the Federal Reserve Board (Fed) announced its annual adjustment to the Home Ownership and Equity Protection Act (HOEPA) fee-based trigger. The new dollar amount for 2010—which is based on the annual percentage change reflected in the Consumer Price Index in effect on June 1, 2009—is $579. The adjustment becomes effective January 1, 2010. It does not affect the new rules for "higher-priced mortgage loans" adopted by the Fed in July 2008. For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/bcreg/20090810a.htm.
FFIEC Revises Interagency Fair Lending, Regulation Z Examination Procedures. On August 4, the Federal Financial Institutions Examination Council (FFIEC) announced revisions to the Interagency Fair Lending Examination Procedures. The new examination procedures pertain to pricing, steering, redlining, broker activity, performing examinations with small sample sizes, and data accuracy. Regarding pricing, the revised procedures expand pricing risk factors and guidance for conducting terms and conditions analyses, with specific attention to incentives such as overages, underages, and yield spread premiums. Regarding steering, the revised procedures update steering risk factors to include (i) the presence of discretion, (ii) financial incentives to place borrowers in products and features with potentially negative consequences (e.g., prepayment penalties), and (iii) disparities in products, terms, conditions, and lending channels based on a prohibited basis. Regarding redlining, the revised procedures include the examination of disparities in the number of originations of higher-priced loans (or loans with potentially negative consequences) in areas with relatively high concentrations of minority residents (i.e., “reverse redlining”). The procedures also direct examiners to assess any potential redlining risks associated with a financial institution’s selection of its CRA assessment area (i.e., the selection of a CRA assessment area that excludes areas with high concentrations of minorities). The revised procedures additionally (i) provide that broker activity should be considered when evaluating fair lending risk and compliance related to underwriting, terms and conditions, redlining and steering, (ii) encourage examiners to consult with oversight staff on possible alternative methods of comparative analysis when dealing with institutions with low lending volumes, and (iii) state that examiners generally should validate data—especially HMDA data—prior to conducting a fair lending examination. Finally, the Federal Reserve Banks are encouraged to contact the Fair Lending Enforcement Section within the Division of Consumer and Community Affairs to determine if specialized techniques would be appropriate when scoping certain focal points, including underwriting, pricing, steering, redlining, and marketing. For a copy of the press release, please see http://www.federalreserve.gov/boarddocs/caletters/2009/0906/caltr0906.htm. For a copy of the revised examination procedures, please see http://www.federalreserve.gov/boarddocs/caletters/2009/0906/09-06_attachment.pdf.
The FFIEC also recently approved interagency examination procedures for Regulation Z, which implements the Truth in Lending Act (TILA). The revisions incorporate recent amendments to TILA in connection with (i) the notification requirements under the Helping Families Save Their Homes Act of 2009 (HFSTHA), and (ii) the “early disclosure” requirements of the Mortgage Disclosure Improvement Act of 2008 (MDIA). Under the HFSTHA, assignees of mortgage loans must notify borrowers in writing of any assignment no later than 30 days after completion of the transaction. Under the MDIA, creditors must provide “early disclosures” within three business days after receipt of an application and before any fees (except credit report fees) are collected. This requirement is not limited to loans secured by the consumer’s principal residence. Creditors must wait seven business days after they provide the early disclosures before closing the loan, must provide new disclosures with a revised annual percentage rate (APR), and must wait an additional three business days before closing the loan if a change occurs that makes the APR in the early disclosures inaccurate beyond a specified tolerance. For a copy of the press release, please see http://www.federalreserve.gov/boarddocs/caletters/2009/0904/caltr0904.htm. For a copy of the revised procedures, please see http://www.federalreserve.gov/boarddocs/caletters/2009/0904/09-04_attachment.pdf.
HUD Publishes FAQs on Revised RESPA Rule. The U.S. Department of Housing and Urban Development (HUD) has published responses to “Frequently Asked Questions” regarding its 2008 amendments (fully effective January 1, 2010) to Regulation X, the Real Estate Settlement Procedures Act’s (RESPA) implementing regulation. The new guidance, presented in the form of 89 questions and answers, addresses various aspects of the revised RESPA rule, including the delivery of a written list of settlement service providers to consumers, the changed circumstances re-delivery rule, the completion of the GFE and HUD-1/1A, and the electronic delivery of required disclosures. For a copy of the FAQs, please see http://www.hud.gov/offices/hsg/ramh/res/faqfinalrev3.pdf. For a copy of the press release, please see http://www.hud.gov/news/release.cfm?content=pr09-153.cfm&CFID=21735342&CFTOKEN=67074071.
Treasury Announces Additional Incentives for HAMP Modifications. On July 31, the U.S. Department of the Treasury (Treasury) issued a Supplemental Directive for its Home Price Decline Protection (HPDP) Program—a $10 billion dollar component of the Home Affordable Modification Program (HAMP). Under the HPDP Program, servicers will receive additional incentive payments - beyond those generally available under HAMP—for modifications of loans securing properties in areas with depressed housing prices where investors are concerned prices will continue to fall. The amount of the incentive payments will be based on (i) an estimate of the cumulative projected home price decline over the next year in the local market in which the related mortgaged property is located, (ii) the unpaid principal balance of the mortgage prior to modification under HAMP, and (iii) the mark-to-market loan-to-value ratio of the mortgage loan based on the unpaid balance of the mortgage loan. Mortgage loans that are owned or guaranteed by Fannie Mae or Freddie Mac are not eligible for the HPDP incentive payments. Only HAMP loan modifications initiated after September 1, 2009 are eligible for HPDP payments. For a copy of the press release, please see http://www.financialstability.gov/latest/tg_07312009.html. For a copy of the Supplemental Directive, please see http://www.financialstability.gov/docs/press/SupplementalDirective7-31-09.pdf.
Oregon Passes Loan Modification, Foreclosure Legislation. Oregon Governor Ted Kulongoski recently signed two bills, H.B. 2191 and S.B. 628, pertaining to loan modifications and foreclosures. H.B. 2191 expands Oregon law regulating debt consolidation companies to include the regulation of “debt management services” – including services in connection with loan modifications. Under H.B. 2191, a debt management service is any activity done for consideration where a person (i) receives or offers to receive funds from a consumer for the purpose of distributing the funds among the consumer’s creditors in full or partial payment of the consumer’s debts, (ii) improves or offers to improve a consumer’s credit record, credit history or credit rating, (iii) modifies or offers to modify the terms and conditions of an existing loan or obligation, or (iv) obtains or attempts to obtain a concession from a creditor including, but not limited to, a reduction in the principal, interest, penalties or fees associated with a debt. Among other requirements, debt management service providers must (i) register with the Oregon Department of Consumer and Business Services, (ii) post a surety bond of at least $10,000, and (iii) adhere to certain fee limitations.
S.B. 628 requires mortgage creditors to send borrowers a notice whenever a trustee records a notice of default on property subject to a residential trust deed. The required notice must include a form that a borrower may use to request a loan modification. Additionally, S.B. 628 provides the borrower with up to 30 days from when the trustee signs a notice of default to request a loan modification, during which time the trustee cannot initiate foreclosure proceedings. If the borrower opts to pursue a loan modification, the creditor has up to 45 days to approve or deny the request and cannot initiate foreclosure proceedings until a final decision has been made regarding the modification request. Both bills became effective immediately on passage. However, S.B. 628’s loan modification provisions become effective September 29, 2009 and are scheduled for repeal January 2, 2012. For a copy H.B. 2191, please see http://www.leg.state.or.us/09reg/measpdf/hb2100.dir/hb2191.en.pdf. For a copy of S.B. 628, please see http://www.leg.state.or.us/09reg/measpdf/sb0600.dir/sb0628.en.pdf.
California AG Orders 386 Mortgage Foreclosure Consultants to Register, Post $100,000 Bond. On August 12, California Attorney General Edmund G. Brown Jr. ordered 386 mortgage foreclosure consultants to either register with the Office of the Attorney General within ten days and post a $100,000 bond or otherwise explain why they are not required to do so. Under California’s recently-enacted foreclosure consultant law, mortgage foreclosure consultants must register with the California Attorney General (reported in InfoBytes, June 5, 2009). Failure to do so may result in imprisonment for up to one year and fines ranging from $1,000 to $25,000 per violation. Attorney General Brown also ordered 27 foreclosure consultants to substantiate certain claims made by the consultants in online or direct mail advertisements, and unveiled a new website for consumers (http://ag.ca.gov/loanmod) which provides tips to avoid loan modification fraud, allows consumers to determine if a company is registered, and makes it easier to file complaints. In addition, the State Bar of California has announced that it has obtained the resignation of two lawyers and filed charges against a third lawyer allegedly involved in loan modification scams. For a copy of the California Attorney General’s press release, please see http://ag.ca.gov/newsalerts/release.php?id=1780. For a copy of the State Bar of California’s press release, please see http://www.buckleysandler.com/CA_Bar_081409.pdf.
Eighth Circuit Holds DIDMCA Does Not Preempt State Law Limits on Closing Costs and Fees. On August 7, the U.S. Court of Appeals for the Eighth Circuit held that the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) does not preempt a Missouri state law governing the types and amounts of closing costs and fees a lender may charge on second-lien residential mortgage loans. Thomas v. US Bank National Ass’n, No. 08-3302, 2009 WL 2410577 (8th Cir. Aug. 7, 2009). This case involved allegations that certain fees and costs paid in connection with mortgage loans—but not the interest rate of the loans—violated Missouri law. The 33 defendant banks—purchasers of the subject loans from federally-insured, state-chartered (and now-defunct) FirstPlus Bank – argued that DIDMCA, similar to the National Bank Act (NBA), completely preempted any state law usury claim against a national bank. The Eighth Circuit rejected the defendants’ argument. The court found that a qualifying phrase in the relevant section of DIDMCA was intended to limit its preemptive effect to conflicting state laws capping interest rates. Specifically, the court reasoned that because the interest rate allowed by Missouri law for second mortgages was higher than the interest rate set forth in DIDMCA, the federal statute did not apply. The court noted that its decision conflicts with the Fourth Circuit’s decision in Discover Bank v. Vaden, 489 F.3d 594 (4th Cir. 2007), which held that DIDMCA completely preempts state usury claims against federally-insured, state-chartered banks. The defendant national banks argued in the alternative that the NBA itself applied (and preempted state law), but the court also rejected this argument, holding that, as assignees, the defendant banks were subject to all claims that could have been brought against the originating institution. For a copy of the opinion, please see http://www.buckleysandler.com/Thomas_v_US_Bank.pdf.
Eleventh Circuit Dismisses Claims that Optional Discounts Violate RESPA, HUD Regulations. On August 3, the U.S. Court of Appeals for the Eleventh Circuit dismissed putative class action claims that the defendants, a builder and a lender, violated the Real Estate Settlement Procedures Act (RESPA) and U.S. Department of Housing and Urban Development (HUD) regulations by offering an optional discount to a borrower who used the services of a mortgage lender affiliated with a builder. Yeatman v. D.R. Horton, Inc., No. 08-12929, 2009 WL 2357092 (11th Cir. Aug. 3, 2009). In this case, the plaintiff borrowers agreed to purchase a home from a builder and used a mortgage lender affiliated with the builder to finance the purchase. The purchase agreement offered an optional closing cost discount if the borrowers used the affiliated mortgage lender. The borrowers argued the discounts and directive to use a particular mortgage lender violated RESPA and HUD regulations. The district court granted the defendants’ motion to dismiss and the Eleventh Circuit affirmed the district court’s determination that “the mere offering of an option of a discount,” does not violate RESPA, nor does it violate HUD prohibitions against requiring consumers “to use a specified service in order to buy another service or product.” In rejecting the borrowers’ claims, the court emphasized that the offering of an optional discount was not a condition of the contract. For a copy of the opinion, please see http://www.buckleysandler.com/Yeatman_v_Horton.pdf.
Virginia Federal Court Denies Rescission Relief for Technical TILA Violation. On August 10, the U.S. District Court for the Eastern District of Virginia held that equitable considerations prevented a borrower from rescinding her mortgage after the defendant lenders allegedly failed to comply with notice requirements under the Truth in Lending Act (TILA). Byron v. EMC Mortgage Corp., No. 3:09-CV-197, 2009 WL 1838993 (E.D. Va. Aug. 10, 2009). In Byron, the borrower sought to rescind a mortgage because she was allegedly provided with only one copy of the notice of the right to rescind, instead of the two copies required by TILA. The court rejected this claim, finding that equitable considerations weighed in favor of the lenders. Specifically, the court reasoned that awarding a rescission remedy to the borrower would require the lenders to return finance charges and other fees to the borrower for a relatively minor violation that caused the plaintiff no harm, especially because the lenders provided at least one copy of the notice of the right to rescind. As a result, the court granted the lenders’ motion for summary judgment. For a copy of the opinion, please see http://www.buckleysandler.com/Byron_v_EMC.pdf.
Banking
OCC Revises Examination Procedure Booklet. On August 10, the Office of the Comptroller of the Currency (OCC) revised the electronic version of the “Other Consumer Protection Laws and Regulations” booklet of the Comptroller’s Handbook. The booklet incorporates new procedures for the Servicemembers Civil Relief Act and the regulations implementing the consumer protection provisions of the John Warner National Defense Authorization Act for Fiscal Year 2007. The booklet further incorporates previously-announced revised procedures for laws including the Telephone Consumer Protection Act. For a copy of the press release, please see http://www.occ.treas.gov/ftp/bulletin/2009-27.html. For a copy of the revised booklet, please see http://www.occ.treas.gov/handbook/other.pdf.
Eighth Circuit Holds DIDMCA Does Not Preempt State Law Limits on Closing Costs and Fees. On August 7, the U.S. Court of Appeals for the Eighth Circuit held that the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) does not preempt a Missouri state law governing the types and amounts of closing costs and fees a lender may charge on second-lien residential mortgage loans. Thomas v. US Bank National Ass’n, No. 08-3302, 2009 WL 2410577 (8th Cir. Aug. 7, 2009). This case involved allegations that certain fees and costs paid in connection with mortgage loans—but not the interest rate of the loans—violated Missouri law. The 33 defendant banks—purchasers of the subject loans from federally-insured, state-chartered (and now-defunct) FirstPlus Bank – argued that DIDMCA, similar to the National Bank Act (NBA), completely preempted any state law usury claim against a national bank. The Eighth Circuit rejected the defendants’ argument. The court found that a qualifying phrase in the relevant section of DIDMCA was intended to limit its preemptive effect to conflicting state laws capping interest rates. Specifically, the court reasoned that because the interest rate allowed by Missouri law for second mortgages was higher than the interest rate set forth in DIDMCA, the federal statute did not apply. The court noted that its decision conflicts with the Fourth Circuit’s decision in Discover Bank v. Vaden, 489 F.3d 594 (4th Cir. 2007), which held that DIDMCA completely preempts state usury claims against federally-insured, state-chartered banks. The defendant national banks argued in the alternative that the NBA itself applied (and preempted state law), but the court also rejected this argument, holding that, as assignees, the defendant banks were subject to all claims that could have been brought against the originating institution. For a copy of the opinion, please see http://www.buckleysandler.com/Thomas_v_US_Bank.pdf.
Consumer Finance
OCC Revises Examination Procedure Booklet. On August 10, the Office of the Comptroller of the Currency (OCC) revised the electronic version of the “Other Consumer Protection Laws and Regulations” booklet of the Comptroller’s Handbook. The booklet incorporates new procedures for the Servicemembers Civil Relief Act and the regulations implementing the consumer protection provisions of the John Warner National Defense Authorization Act for Fiscal Year 2007. The booklet further incorporates previously-announced revised procedures for laws including the Telephone Consumer Protection Act. For a copy of the press release, please see http://www.occ.treas.gov/ftp/bulletin/2009-27.html. For a copy of the revised booklet, please see http://www.occ.treas.gov/handbook/other.pdf.
Companies Settle FCRA Violation Allegations with FTC. On August 11, two companies agreed to settle Federal Trade Commission (FTC) allegations that the companies fired employees and failed to hire applicants without giving proper notice or providing the employee or applicant the credit report used to make the adverse decision, in violation of the Fair Credit Reporting Act (FCRA). Defendants Quality Terminal Services, LLC and Rail Terminal Services, LLC allegedly failed to provide notice and a copy of the credit report used to make an adverse employment decision, and also allegedly failed to provide the name of the credit reporting agency and a statement indicating that the agency had no control over the employment decision. The FTC fined Quality Terminal Services, LLC $53,000 and Rail Terminal Services, LLC $24,000; both companies are required to follow record-keeping and reporting guidelines and must allow the FTC to monitor compliance with the order. For a copy of the press release, please see http://www.ftc.gov/opa/2009/08/qts.shtm.
Oregon Passes Loan Modification, Foreclosure Legislation. Oregon Governor Ted Kulongoski recently signed two bills, H.B. 2191 and S.B. 628, pertaining to loan modifications and foreclosures. H.B. 2191 expands Oregon law regulating debt consolidation companies to include the regulation of “debt management services” – including services in connection with loan modifications. Under H.B. 2191, a debt management service is any activity done for consideration where a person (i) receives or offers to receive funds from a consumer for the purpose of distributing the funds among the consumer’s creditors in full or partial payment of the consumer’s debts, (ii) improves or offers to improve a consumer’s credit record, credit history or credit rating, (iii) modifies or offers to modify the terms and conditions of an existing loan or obligation, or (iv) obtains or attempts to obtain a concession from a creditor including, but not limited to, a reduction in the principal, interest, penalties or fees associated with a debt. Among other requirements, debt management service providers must (i) register with the Oregon Department of Consumer and Business Services, (ii) post a surety bond of at least $10,000, and (iii) adhere to certain fee limitations.
S.B. 628 requires mortgage creditors to send borrowers a notice whenever a trustee records a notice of default on property subject to a residential trust deed. The required notice must include a form that a borrower may use to request a loan modification. Additionally, S.B. 628 provides the borrower with up to 30 days from when the trustee signs a notice of default to request a loan modification, during which time the trustee cannot initiate foreclosure proceedings. If the borrower opts to pursue a loan modification, the creditor has up to 45 days to approve or deny the request and cannot initiate foreclosure proceedings until a final decision has been made regarding the modification request. Both bills became effective immediately on passage. However, S.B. 628’s loan modification provisions become effective September 29, 2009 and are scheduled for repeal January 2, 2012. For a copy H.B. 2191, please see http://www.leg.state.or.us/09reg/measpdf/hb2100.dir/hb2191.en.pdf. For a copy of S.B. 628, please see http://www.leg.state.or.us/09reg/measpdf/sb0600.dir/sb0628.en.pdf.
Arkansas Federal Court Finds Emotional Distress Damages Sufficient to Sustain FCRA Claim. On August 6, the U.S. District Court for the Western Division of Arkansas denied the defendants’ motion to dismiss a Fair Credit Reporting Act (FCRA) claim despite finding no evidence of damages other than emotional distress. Christensen v. Acxiom Info. Sec. Servs., Inc., No. 08-4081, 2009 WL 2424453 (W.D. Ark. Aug. 6, 2009). In Christensen, the consumer alleged that the defendants willfully and negligently violated FCRA by providing a consumer report with inaccurate information to a prospective employer that withdrew an offer of employment. The consumer alleged both actual damages and emotional distress resulting from the erroneous consumer report. The court dismissed the willful violation claim, finding that defendants did not “knowingly and intentionally” commit an act in conscious disregard for the rights of others. However, the court denied the defendants’ motions to dismiss the plaintiff’s claim for negligent violation of FCRA, concluding that a jury could decide that there was negligence. The court held that, although the job offer was withdrawn for reasons other than the erroneous consumer report, actual damages based on the consumer’s emotional distress are sufficient to sustain a FCRA claim. For a copy of the opinion, please see http://www.buckleysandler.com/Christensen_v_Acxiom.pdf.
Third Circuit Refuses to Apply Continuing Violations Doctrine to FDCPA Claims. On August 6, the U.S. Court of Appeals for the Third Circuit refused to apply the continuing violations doctrine to Fair Debt Collection Practices Act (FDCPA) claims, and thus held that the FDCPA claims against a defendant bank were time-barred. Schaffhauser v. Citibank N.A., No. 08-2275, 2009 WL 240025 (3rd Cir. Aug. 4, 2009) (per curiam). In Schaffhauser, the plaintiffs alleged that the defendant bank violated the FDCPA and Pennsylvania debt collection law when it attempt to collect on the plaintiffs’ credit card debt. The district court dismissed all claims against the bank. On appeal, the plaintiffs argued that the district court erred by finding that the FDCPA claims were time-barred, arguing that ongoing debt collection litigation qualifies as a “continuing violation” of the FDCPA. The court of appeals disagreed, refusing to apply the continuing violations doctrine to claims arising under the FDCPA and affirming the dismissal of the plaintiffs’ FDCPA claims. For a copy of the opinion, please see http://www.ca3.uscourts.gov/opinarch/082275np.pdf.
Litigation
Eighth Circuit Holds DIDMCA Does Not Preempt State Law Limits on Closing Costs and Fees. On August 7, the U.S. Court of Appeals for the Eighth Circuit held that the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) does not preempt a Missouri state law governing the types and amounts of closing costs and fees a lender may charge on second-lien residential mortgage loans. Thomas v. US Bank National Ass’n, No. 08-3302, 2009 WL 2410577 (8th Cir. Aug. 7, 2009). This case involved allegations that certain fees and costs paid in connection with mortgage loans—but not the interest rate of the loans—violated Missouri law. The 33 defendant banks—purchasers of the subject loans from federally-insured, state-chartered (and now-defunct) FirstPlus Bank – argued that DIDMCA, similar to the National Bank Act (NBA), completely preempted any state law usury claim against a national bank. The Eighth Circuit rejected the defendants’ argument. The court found that a qualifying phrase in the relevant section of DIDMCA was intended to limit its preemptive effect to conflicting state laws capping interest rates. Specifically, the court reasoned that because the interest rate allowed by Missouri law for second mortgages was higher than the interest rate set forth in DIDMCA, the federal statute did not apply. The court noted that its decision conflicts with the Fourth Circuit’s decision in Discover Bank v. Vaden, 489 F.3d 594 (4th Cir. 2007), which held that DIDMCA completely preempts state usury claims against federally-insured, state-chartered banks. The defendant national banks argued in the alternative that the NBA itself applied (and preempted state law), but the court also rejected this argument, holding that, as assignees, the defendant banks were subject to all claims that could have been brought against the originating institution. For a copy of the opinion, please see http://www.buckleysandler.com/Thomas_v_US_Bank.pdf.
Eleventh Circuit Dismisses Claims that Optional Discounts Violate RESPA, HUD Regulations. On August 3, the U.S. Court of Appeals for the Eleventh Circuit dismissed putative class action claims that the defendants, a builder and a lender, violated the Real Estate Settlement Procedures Act (RESPA) and U.S. Department of Housing and Urban Development (HUD) regulations by offering an optional discount to a borrower who used the services of a mortgage lender affiliated with a builder. Yeatman v. D.R. Horton, Inc., No. 08-12929, 2009 WL 2357092 (11th Cir. Aug. 3, 2009). In this case, the plaintiff borrowers agreed to purchase a home from a builder and used a mortgage lender affiliated with the builder to finance the purchase. The purchase agreement offered an optional closing cost discount if the borrowers used the affiliated mortgage lender. The borrowers argued the discounts and directive to use a particular mortgage lender violated RESPA and HUD regulations. The district court granted the defendants’ motion to dismiss and the Eleventh Circuit affirmed the district court’s determination that “the mere offering of an option of a discount,” does not violate RESPA, nor does it violate HUD prohibitions against requiring consumers “to use a specified service in order to buy another service or product.” In rejecting the borrowers’ claims, the court emphasized that the offering of an optional discount was not a condition of the contract. For a copy of the opinion, please see http://www.buckleysandler.com/Yeatman_v_Horton.pdf.
Virginia Federal Court Denies Rescission Relief for Technical TILA Violation. On August 10, the U.S. District Court for the Eastern District of Virginia held that equitable considerations prevented a borrower from rescinding her mortgage after the defendant lenders allegedly failed to comply with notice requirements under the Truth in Lending Act (TILA). Byron v. EMC Mortgage Corp., No. 3:09-CV-197, 2009 WL 1838993 (E.D. Va. Aug. 10, 2009). In Byron, the borrower sought to rescind a mortgage because she was allegedly provided with only one copy of the notice of the right to rescind, instead of the two copies required by TILA. The court rejected this claim, finding that equitable considerations weighed in favor of the lenders. Specifically, the court reasoned that awarding a rescission remedy to the borrower would require the lenders to return finance charges and other fees to the borrower for a relatively minor violation that caused the plaintiff no harm, especially because the lenders provided at least one copy of the notice of the right to rescind. As a result, the court granted the lenders’ motion for summary judgment. For a copy of the opinion, please see http://www.buckleysandler.com/Byron_v_EMC.pdf.
Arkansas Federal Court Finds Emotional Distress Damages Sufficient to Sustain FCRA Claim. On August 6, the U.S. District Court for the Western Division of Arkansas denied the defendants’ motion to dismiss a Fair Credit Reporting Act (FCRA) claim despite finding no evidence of damages other than emotional distress. Christensen v. Acxiom Info. Sec. Servs., Inc., No. 08-4081, 2009 WL 2424453 (W.D. Ark. Aug. 6, 2009). In Christensen, the consumer alleged that the defendants willfully and negligently violated FCRA by providing a consumer report with inaccurate information to a prospective employer that withdrew an offer of employment. The consumer alleged both actual damages and emotional distress resulting from the erroneous consumer report. The court dismissed the willful violation claim, finding that defendants did not “knowingly and intentionally” commit an act in conscious disregard for the rights of others. However, the court denied the defendants’ motions to dismiss the plaintiff’s claim for negligent violation of FCRA, concluding that a jury could decide that there was negligence. The court held that, although the job offer was withdrawn for reasons other than the erroneous consumer report, actual damages based on the consumer’s emotional distress are sufficient to sustain a FCRA claim. For a copy of the opinion, please see http://www.buckleysandler.com/Christensen_v_Acxiom.pdf.
Third Circuit Refuses to Apply Continuing Violations Doctrine to FDCPA Claims. On August 6, the U.S. Court of Appeals for the Third Circuit refused to apply the continuing violations doctrine to Fair Debt Collection Practices Act (FDCPA) claims, and thus held that the FDCPA claims against a defendant bank were time-barred. Schaffhauser v. Citibank N.A., No. 08-2275, 2009 WL 240025 (3rd Cir. Aug. 4, 2009) (per curiam). In Schaffhauser, the plaintiffs alleged that the defendant bank violated the FDCPA and Pennsylvania debt collection law when it attempt to collect on the plaintiffs’ credit card debt. The district court dismissed all claims against the bank. On appeal, the plaintiffs argued that the district court erred by finding that the FDCPA claims were time-barred, arguing that ongoing debt collection litigation qualifies as a “continuing violation” of the FDCPA. The court of appeals disagreed, refusing to apply the continuing violations doctrine to claims arising under the FDCPA and affirming the dismissal of the plaintiffs’ FDCPA claims. For a copy of the opinion, please see http://www.ca3.uscourts.gov/opinarch/082275np.pdf.
E-Financial Services
HUD Publishes FAQs on Revised RESPA Rule. The U.S. Department of Housing and Urban Development (HUD) has published responses to “Frequently Asked Questions” regarding its 2008 amendments (fully effective January 1, 2010) to Regulation X, the Real Estate Settlement Procedures Act’s (RESPA) implementing regulation. The new guidance, presented in the form of 89 questions and answers, addresses various aspects of the revised RESPA rule, including the delivery of a written list of settlement service providers to consumers, the changed circumstances re-delivery rule, the completion of the GFE and HUD-1/1A, and the electronic delivery of required disclosures. For a copy of the FAQs, please see http://www.hud.gov/offices/hsg/ramh/res/faqfinalrev3.pdf. For a copy of the press release, please see http://www.hud.gov/news/release.cfm?content=pr09-153.cfm&CFID=21735342&CFTOKEN=67074071.
IRS Announces New Electronic Security Standards. On July 13, the Internal Revenue Service (IRS) announced six new security, privacy, and business standards in connection with the online filing of individual income tax returns. The new standards supplement the Gramm-Leach-Bliley Act and its implementing rules and regulations by requiring Authorized IRS e-file Providers that collect, transmit, process, or store taxpayer information (i) to establish minimum internet encryption standards beyond SSL protocol, (ii) to contract with an independent third-party vendor to determine compliance with Payment Card Industry Data Security Standards, (iii) to have written policies and procedures addressing privacy issues consistent with government and industry guidelines, (iv) to implement technologies to prevent bulk filings of fraudulent tax returns, (v) to register their domain name with a U.S. company accredited by the Internet Corporation for Assigned Names and Numbers, and (vi) to report security incidents to the IRS no later than the next business day. For a copy of the announcement, please see http://www.irs.gov/irb/2009-28_IRB/ar12.html.
Privacy/Data Security
Companies Settle FCRA Violation Allegations with FTC. On August 11, two companies agreed to settle Federal Trade Commission (FTC) allegations that the companies fired employees and failed to hire applicants without giving proper notice or providing the employee or applicant the credit report used to make the adverse decision, in violation of the Fair Credit Reporting Act (FCRA). Defendants Quality Terminal Services, LLC and Rail Terminal Services, LLC allegedly failed to provide notice and a copy of the credit report used to make an adverse employment decision, and also allegedly failed to provide the name of the credit reporting agency and a statement indicating that the agency had no control over the employment decision. The FTC fined Quality Terminal Services, LLC $53,000 and Rail Terminal Services, LLC $24,000; both companies are required to follow record-keeping and reporting guidelines and must allow the FTC to monitor compliance with the order. For a copy of the press release, please see http://www.ftc.gov/opa/2009/08/qts.shtm.
IRS Announces New Electronic Security Standards. On July 13, the Internal Revenue Service (IRS) announced six new security, privacy, and business standards in connection with the online filing of individual income tax returns. The new standards supplement the Gramm-Leach-Bliley Act and its implementing rules and regulations by requiring Authorized IRS e-file Providers that collect, transmit, process, or store taxpayer information (i) to establish minimum internet encryption standards beyond SSL protocol, (ii) to contract with an independent third-party vendor to determine compliance with Payment Card Industry Data Security Standards, (iii) to have written policies and procedures addressing privacy issues consistent with government and industry guidelines, (iv) to implement technologies to prevent bulk filings of fraudulent tax returns, (v) to register their domain name with a U.S. company accredited by the Internet Corporation for Assigned Names and Numbers, and (vi) to report security incidents to the IRS no later than the next business day. For a copy of the announcement, please see http://www.irs.gov/irb/2009-28_IRB/ar12.html.
Arkansas Federal Court Finds Emotional Distress Damages Sufficient to Sustain FCRA Claim. On August 6, the U.S. District Court for the Western Division of Arkansas denied the defendants’ motion to dismiss a Fair Credit Reporting Act (FCRA) claim despite finding no evidence of damages other than emotional distress. Christensen v. Acxiom Info. Sec. Servs., Inc., No. 08-4081, 2009 WL 2424453 (W.D. Ark. Aug. 6, 2009). In Christensen, the consumer alleged that the defendants willfully and negligently violated FCRA by providing a consumer report with inaccurate information to a prospective employer that withdrew an offer of employment. The consumer alleged both actual damages and emotional distress resulting from the erroneous consumer report. The court dismissed the willful violation claim, finding that defendants did not “knowingly and intentionally” commit an act in conscious disregard for the rights of others. However, the court denied the defendants’ motions to dismiss the plaintiff’s claim for negligent violation of FCRA, concluding that a jury could decide that there was negligence. The court held that, although the job offer was withdrawn for reasons other than the erroneous consumer report, actual damages based on the consumer’s emotional distress are sufficient to sustain a FCRA claim. For a copy of the opinion, please see http://www.buckleysandler.com/Christensen_v_Acxiom.pdf.
Credit Cards
Financial Services Companies Revise Credit Card, Arbitration Policies. According to reports, as of this week Bank of America will no longer require customers to arbitrate disputes involving Bank of America consumer bank and credit card accounts. Additionally, American Express and Discover Financial Services are reportedly eliminating over-the-limit fees on consumer credit cards. According to reports, the change is due to a provision of the Credit Card Accountability Responsibility and Disclosure Act of 2009 that requires consumers to opt-in for over-the-limit transactions if companies impose over-the-limit fees. For more information, please email .