InfoBytes, August 22, 2008
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Banking
- Consumer Finance
- Litigation
- E-Financial Services
- Privacy/Data Security
Federal Issues
FTC Issues Final Telemarketing Sales Rule Amendments Regarding Prerecorded Calls. On August 19, the Federal Trade Commission (FTC) announced two amendments to the Telemarketing Sales Rule (TSR). One will bar telemarketing calls that deliver prerecorded messages, unless the seller has previously obtained the recipient’s signed, written agreement to receive such calls. This amendment permits sellers to obtain the required permission for prerecorded message sales calls from a consumer in any manner permitted by the Electronic Signatures In Global and National Commerce Act (E-SIGN Act). It also requires that sellers and telemarketers provide, at the outset of all prerecorded messages, an automated keypress or voice-activated interactive opt-out mechanism so that consumers can opt out from a live telemarketing call. The other technical amendment modifies the TSR’s method of calculating the maximum permissible level of “call abandonment,” in which a person answers the telemarketer call but is not connected with a live salesperson. The current three percent permissible abandonment rate will remain in place, but will permit it to be calculated over a 30-day period, rather than on a daily basis as is now the case. The provision requiring permission from consumers to receive such calls will become effective September 1, 2009. The provision requiring that all prerecorded telemarketing calls provide an automated interactive opt-out mechanism will become effective on December 1, 2008. The amendment modifying the method for measuring the maximum allowable rate of call abandonment will become effective on October 1, 2008. For a copy of the amendments, please see http://www.ftc.gov/os/2008/08/R411001tsrfrn.pdf.
FHA Announces Changes to Loss Mitigation Program. On August 14, the Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2008-21 (ML 08-21) addressing several changes to its Loss Mitigation Program that it believes will strengthen both the Loan Modification and Partial Claim Initiatives. ML 08-21 reminds mortgagees that, while the changes are designed to address borrowers who are facing serious defaults, most delinquencies can and should be resolved through early intervention. Mortgagees are reminded of the critical importance of early and constructive contact with delinquent borrowers and the requirement to notify borrowers of the availability of default counseling by HUD-approved counseling agencies. ML 08-21 provisions became effective August 14. They include the following changes: (i) with respect to Loan Modifications, mortgagees may use the Treasury 10-year constant maturity yield as a basis for establishing the maximum interest rate plus a 200 basis point margin for loan modifications; (ii) HUD now allows legal fees and foreclosure costs related to canceled foreclosure action to be incorporated into either the Loan Modification or the Partial Claim subject to specified requirements; and (iii) when establishing a loan modification, it is acceptable for the mortgagees to include all payments due including an additional month in the loan modification to allow the borrower time before making the first payment. For a copy of ML 08-21, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-21ml.doc.
FDIC Issues Newsletter to Address Common Consumer Questions. On August 21, the Federal Deposit Insurance Corporation (FDIC) issued the Summer 2008 FDIC Consumer News publication to provide answers to common questions regarding deposit insurance and bank failures. The issue addresses whether deposits are fully protected and what happens if a bank fails. Other articles in the Summer 2008 issue of the quarterly consumer newsletter explain what to do if a home equity line of credit has been reduced or frozen, how to avoid phone and fax fraud, and options for saving the environment as bank customers save and borrow money. For a copy of the Summer 2008 issue of the FDIC Consumer News, please see http://www.fdic.gov/consumers/consumer/news/cnsum08/summer_08_color.pdf.
FDIC Implements Loan Modification Program for Distressed IndyMac Mortgage Loans. On August 20, the Federal Deposit Insurance Corporation (FDIC) announced that IndyMac Federal Bank, FSB will implement a new program to modify troubled mortgages. The program is intended to achieve affordable and sustainable mortgage payments for borrowers and increase the value of distressed mortgages by rehabilitating them into performing loans. Under the new program, eligible mortgages would be modified into sustainable mortgages permanently capped at the current Freddie Mac survey rate for conforming mortgages. Modifications would be designed to achieve sustainable payments at a 38 percent DTI ratio of principal, interest, taxes and insurance. To reach this metric for affordable payments, modifications could adopt a combination of interest rate reductions, extended amortization, and principal forbearance. Interest rate reductions below the current Freddie Mac survey rate may be made for a period of five years where such reductions are necessary to achieve a 38 percent DTI, and the reduced rate is consistent with maximizing net present value. For these loans, after five years, the interest rate would increase by no more than one percent per year until it is capped at the Freddie Mac survey rate where it would remain for the balance of the loan term. Other modification features could be combined with an interest rate reduction, as necessary and consistent with maximizing the value of the mortgage, to achieve sustainable payments. For more information on IndyMac’s new loan modification program, please see http://www.fdic.gov/consumers/loans/modification/indymac.html.
State Issues
North Carolina Passes Bills Banning YSPs, Requiring Pre-Foreclosure Notice, and Requiring Servicer Licensing. On August 17, 2008, North Carolina Governor Mike Easley signed three bills aimed at reducing foreclosures in the state. House Bill 2188 (effective October 1, 2008) broadens the points and fees trigger on the state’s high-cost home loan law. Previously, “points and fees” included only fees “payable by the borrower at or before loan closing.” The revised definition includes all fees payable after closing as well. The bill also amends the Rate Spread Home Loan Law to effectively prohibit the payment of a yield spread premium on rate spread home loans. House Bill 2463 amends the Mortgage Lending Act to require the licensure of mortgage loan servicers, effective January 1, 2009. House Bill 2623 enacts the Emergency Program to Reduce Home Foreclosures Act. This act requires the delivery of a pre-foreclosure notice at least 45 days prior to the filing a foreclosure of a “subprime loan.” This act becomes effective November 1, 2008, and it expires October 31, 2010. For a copy of House Bills 2188, 2463, and 2623, please see http://www.buckleykolar.com/documents/N.C.H.B.2188.pdf, http://www.buckleykolar.com/documents/N.C.H.B.2463.pdf, and http://www.buckleykolar.com/documents/N.C.H.B.2623.pdf, respectively.
Illinois Governor Signs H.B. 4611 Expanding on Proposals Permitted for State Deposits. On August 15, Illinois Governor Rod Blagojevich signed H.B. 4611. This bill allows the Illinois State Treasurer to accept proposals from eligible institutions that provide for interest earnings on deposits of state funds to be held in a separate account. These funds can then be used by the State Treasurer to secure up to 10% of home loans to Illinois citizens refinancing a home where the participating financial institution would not ordinarily offer the borrower a home loan under the institution’s prevailing credit standards. The bill also changes the definition of a home loan to include loans in which the principal amount of the loan does not exceed the conforming loan size limit as established by Freddie Mac. Previously, the principal amount of the loan could not exceed 50% of the conforming loan size limit. This bill took effect immediately. For a copy of the bill, please see http://www.buckleykolar.com/documents/ILH.B.4611.pdf.
California Legislature Votes to Toughen Spam Law. On August 12, the California State Assembly passed a bill, A.B. 2950, amending the state’s spam law. If enacted, the bill would define “header information” making it unlawful to advertise in a commercial e-mail advertisement sent from California or to a California e-mail address if the e-mail contains or is accompanied by the third party’s e-mail address without the permission of the third party. The bill would also authorize a district attorney or a city attorney to bring an action under the spam law. The bill would further provide that venue would be appropriate in any county in which the recipient of the commercial e-mail message resides. The bill would impose a statute of limitations of three years. The bill had already cleared the State Senate and awaits the governor’s signature for enactment. For a copy of the bill, please see http://www.buckleykolar.com/documents/CAA.B.2950.pdf.
Virginia Regulations Require Background Checks for New Hires, and Initial and Continuing Education. The Virginia State Corporation Commission recently issued amendments to regulations (10 Va. Admin. Code 5-160-10 et seq.) implementing the Mortgage Lender and Broker Act. Among other things, the new regulations: (i) require licensees to conduct background checks prior to hiring any persons that will have access to personal identifying or financial information relating to any consumer; (ii) prohibit licensees from hiring an individual who has been convicted of a felony or a misdemeanor involving fraud, misrepresentation, or deceit, without obtaining prior approval from the Commission of the Bureau of Financial Institutions; (iii) make licensees responsible for providing initial and continuing education, as specified in the amendments, to “covered employees”; and (iv) specify penalties for failing to provide required education to “covered employees.” The new regulations became effective on August 10, 2008. For more information, please see www.scc.virginia.gov/.
Washington Amends Consumer Loan Act Rules. The Washington Department of Financial Institutions recently amended rules (Wash. Admin. Code 208-620-260 et seq.) implementing the Washington Consumer Loan Act. Among the changes, the rules amend the minimum and maximum surety bond amount required for licensing, expand on advertising restrictions, and clarify certain notice and reporting procedures. The amended rules are effective as of August 22, 2008. For a copy of the amended regulations, please see http://www.dfi.wa.gov/cs/pdf/rulemaking/consumer_loan_adopted_language.pdf.
Courts
Ninth Circuit Finds Source of Down Payment Material to HUD’s Decision Whether to Insure Loans. The U.S. Court of Appeals for the Ninth Circuit affirmed the convictions of two defendant home building business owners, finding that the Department of Housing and Urban Development (“HUD”) has always prohibited direct gifts from sellers, and that a reasonable juror could have concluded that the source of a borrower’s down payment is material to HUD’s decision whether to insure a loan. U.S. v. Peterson, No. 07-50120 (9th Cir. Aug. 13, 2008). In the 1990s, the defendants subsidized down payments to home buyers and then submitted misleading gift letters to HUD, falsely stating that a family member or friend of the buyer had provided the money for the down payment. Under HUD’s rules, a buyer could receive the down payment as a gift from friends, relatives, or non-profit housing assistance organization, but sellers of the property were not permitted to make direct gifts to the buyer. At trial, the government’s expert testified that HUD would not insure a loan if the case binder contained a false gift letter and that HUD “need[s] to know who the donor is and . . . the relationship between the donor and the buyer, and how much the gift was for, and how the money was transferred and where it was from.” Based on HUD’s rules and the government’s expert’s testimony, the court found that a reasonable juror could have concluded that the source of a down payment was material to HUD in deciding whether to insure a loan. The court also affirmed the district court’s $1.26 million order of restitution, finding that, despite the multiple links in the causal chain, the defendants proximately caused losses to HUD on forty-three loans that HUD would not have insured if it had known the gift letters provided were false. For a copy of this decision, please see http://www.buckleykolar.com/documents/USAv.Peterson.pdf.
Texas Appellate Court Holds for Mortgage Lender in “Home Equity Loan” Case. On August 8, the Texas Court of Appeals (Dallas) held that, with respect to claims alleging violations of Texas’ constitutional limitation on the principal amount of “home equity loans” secured by a homestead, the statute of limitations begins to run on the date of loan closing. See Rivera v. Countrywide Home Loans, Inc., No. 05-07-00962-CV, 2008 WL 3196646 (Tex. App. Aug. 8, 2008). The Texas Constitution protects homesteads from forced sale for the repayment of debts, except with respect to “home equity loans” in a principal amount not exceeding 80% of the fair market value of the homestead. The plaintiff mortgage loan borrowers sued Countrywide for violating the 80% restriction after discovering a review appraisal in their loan documents that concluded that the appraised value of their home was overstated. Countrywide argued that the suit was time barred under the 4-year statute of limitations, and it was granted summary judgment by the trial court. On appeal, the borrowers argued, among other things, that their cause of action accrued on the date of the final installment or payment on the loan, or, in the event of foreclosure, the date of acceleration on the note. However, the Court of Appeals disagreed, reasoning that “a borrower could sue a lender for a constitutional violation of the eighty percent cap . . . the day after closing on the loan.” The court therefore concluded that the cause of action accrued on the date of closing. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Rivera_v_Countrywide.pdf.
Eleventh Circuit Holds that Anti-Bifurcation Amendment Protects Against “Cramdown” of Negative Equity. The Eleventh Circuit Court of Appeals recently held that the negative equity of a trade-in vehicle is properly included in the amount protected from the “cramdown” of secured claims in a Chapter 13 bankruptcy filing. Graupner v. Nuvell Credit Corp., No. 07-13657 (11th Cir. Aug. 6, 2008). In this case, as part of a new car purchase, the debtor financed the transaction and included in the total amount financed the negative equity from the used car he traded in. Within a year, the debtor filed for Chapter 13 bankruptcy protection, and Nuvell (to whom the installment contract was assigned) filed its secured proof of claim in an amount that covered the total amount financed, including the negative equity of the trade-in. Prior to 2005, one of the three possible treatments of the secured claim was that the debtor could “bifurcate” the claim into a reduced secured portion equal to the present value of the collateral and an unsecured portion equal to the excess of the claim, and then for the secured part, keep the property over the objection of the creditor and provide the creditor with payments over the life of the plan that eventually equal the present value of the collateral – called “cramdown.” However, the 2005 amendments to the bankruptcy code included a new provision excluding certain claims from the cramdown option. Specifically, cramdown is not available where (i) the creditor has a “purchase money security interest”; (ii) the debt was incurred within 910 days before the bankruptcy filing; (iii) the collateral for the debt is a motor vehicle; and (iv) the vehicle was acquired for the personal use of the debtor. Here, the creditor sought to enforce the cramdown exclusion, but the debtor argued that the creditor did not hold a “purchase money security interest” in the vehicle by virtue of the inclusion of the negative equity of the trade-in. The Eleventh Circuit, on an issue of first impression for a federal appeals court, reviewed the divergent case law, and sided with the line of cases that held that a creditor’s purchase money security interest includes all the components of a new vehicle purchase, including any financing of negative equity of a trade-in. The court noted that the transaction would not have occurred without financing of the negative equity, and therefore it should be considered “debt for the money required to make the purchase” and not “antecedent debt” that should be excluded. The Court found support in both the Commentary to Section 9-103 of the Uniform Commercial Code (for analysis on the meaning of “purchase money”) and in the legislative intent of the 2005 Amendments (which clearly intended to protect creditors from cramdown “abuse”). Consequently, the Eleventh Circuit upheld the decision by the Bankruptcy Court preventing the debtor from using the cramdown option for the secured claim on his vehicle. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Graupnerv.NuvellCreditCorp.pdf.
Tenth Circuit Holds that Employer Termination Reports Not Regulated By FCRA. On August 19, the U.S. Court of Appeals for the Tenth Circuit held that employer termination reports are not “consumer reports” regulated by the Fair Credit Reporting Act (FCRA). Owner-Operator Independent Drivers Association, Inc. v. USIS Commercial Services, Inc., No. 06-1430, 2008 WL 3844752 (10th Cir. Aug. 19, 2008). In this case, the plaintiffs alleged that the defendant violated FCRA by procuring and disseminating Termination Record Forms (TRFs)—obtained from past employers after an employee’s employment is terminated—to motor carriers regarding individuals’ employment and driving history, without proper notice and authorization. FCRA regulates the distribution of “consumer reports” and sets out certain procedures and standards with which consumer reporting agencies must comply when preparing consumer reports. FCRA includes in its definition of a “consumer report” any communication bearing on a consumer’s character, general reputation, personal characteristics, or mode of living” which is used to establish eligibility for “employment purposes.” 15 U.S.C. § 1681a(d)(1). The statute, however, under a section titled “exclusions,” explains “the term ‘consumer report’ does not include . . . any . . . report containing information solely as to transactions or experiences between the consumer and the person making the report.” The plaintiffs argued that this exclusion does not apply because the TRFs routinely refer to interactions that cannot be categorized as solely between drivers and their former employers. The Tenth Circuit, in affirming the district court judgment, held that the TRFs are not regulated by FCRA because they are not “consumer reports.” The court noted that it is not necessary that the experience be exclusively between the employer and the employee; rather, the exclusion applies to any first-hand experiences. The court reasoned that, because the former employers are asked questions in the TRF that pertain only to their first-hand knowledge gained by employing the consumers, the TRFs do not constitute “consumer reports” as defined by FCRA and are therefore not regulated by the statute. For a copy of the opinion, please see http://www.buckleykolar.com/documents/OOIDAv.UsisCommServs.pdf.
California Federal Court Denies Motion to Dismiss Under CAN-SPAM. On July 30, the United States District Court for the Northern District of California denied a motion to dismiss in a case brought by internet service providers (ISP) pursuant to the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM), 15 U.S.C. § 7704. ASIS Internet Services v. Active Response Group, No. 07-cv-6211 (N.D. Cal. July 30, 2008). The court held that the plaintiffs were not required to show that specific e-mails caused significant monetary or technological issues in order to survive a motion to dismiss. Rather, the court found that the plaintiffs simply need to show that it “has suffered ISP-specific harms, such as . . . network problems or increased costs . . . and has carried unlawful spam over its facilities.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/AsisInternetServsv.ActiveResponseGroup.pdf.
Firm News
Joe Kolar spoke regarding the impact of the recently enacted Housing and Economic Recovery Act of 2008 at the Consumer Financial Services Committee’s section of the American Bar Association on August 10 in New York City.
Joe Kolar spoke on compliance aspects of the recently finalized Truth in Lending Act rules at an audio conference sponsored by October Research on August 13.
Joe Kolar and Jeff Naimon discussed the impact of the Housing and Economic Recovery Act of 2008 on a webinar sponsored by the American Financial Services Association on August 14.
John Kromer participated in the “Industry Issues” panel at the American Association of Residential Mortgage Regulators’ annual meeting in Minneapolis, Minnesota on August 19-22.
Jon Jerison will be the featured speaker on a Pratt audio conference entitled “Between a Rock and a Hard Place: Managing HELOCs in the Current Environment” on August 26 at 1PM ET. For more information, please see http://www.aspratt.com/store/06H.php.
Margo Tank will be a featured speaker at the New York State Bar Association’s Business Law Fall Meeting on Friday, September 12. Ms. Tank’s presentation will be entitled “Electronic Signatures – What Does a Business Lawyer Need to Know?” Click here for additional information on this meeting.
Margo Tank will be featured in a panel discussion on “eLegal Issues” at the Mortgage Bankers Association’s Document Management & Custody Conference entitled “Setting the Pace,” on September 23. This conference is tailored for both new and experienced document custodians, as well as anyone who may be involved in any aspect of the post-closing process, loan delivery, document control and/or servicing issues. Click here for additional information on this conference.
Mortgages
FHA Announces Changes to Loss Mitigation Program. On August 14, the Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2008-21 (ML 08-21) addressing several changes to its Loss Mitigation Program that it believes will strengthen both the Loan Modification and Partial Claim Initiatives. ML 08-21 reminds mortgagees that, while the changes are designed to address borrowers who are facing serious defaults, most delinquencies can and should be resolved through early intervention. Mortgagees are reminded of the critical importance of early and constructive contact with delinquent borrowers and the requirement to notify borrowers of the availability of default counseling by HUD-approved counseling agencies. ML 08-21 provisions became effective August 14. They include the following changes: (i) with respect to Loan Modifications, mortgagees may use the Treasury 10-year constant maturity yield as a basis for establishing the maximum interest rate plus a 200 basis point margin for loan modifications; (ii) HUD now allows legal fees and foreclosure costs related to canceled foreclosure action to be incorporated into either the Loan Modification or the Partial Claim subject to specified requirements; and (iii) when establishing a loan modification, it is acceptable for the mortgagees to include all payments due including an additional month in the loan modification to allow the borrower time before making the first payment. For a copy of ML 08-21, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-21ml.doc.
FDIC Implements Loan Modification Program for Distressed IndyMac Mortgage Loans. On August 20, the Federal Deposit Insurance Corporation (FDIC) announced that IndyMac Federal Bank, FSB will implement a new program to modify troubled mortgages. The program is intended to achieve affordable and sustainable mortgage payments for borrowers and increase the value of distressed mortgages by rehabilitating them into performing loans. Under the new program, eligible mortgages would be modified into sustainable mortgages permanently capped at the current Freddie Mac survey rate for conforming mortgages. Modifications would be designed to achieve sustainable payments at a 38 percent DTI ratio of principal, interest, taxes and insurance. To reach this metric for affordable payments, modifications could adopt a combination of interest rate reductions, extended amortization, and principal forbearance. Interest rate reductions below the current Freddie Mac survey rate may be made for a period of five years where such reductions are necessary to achieve a 38 percent DTI, and the reduced rate is consistent with maximizing net present value. For these loans, after five years, the interest rate would increase by no more than one percent per year until it is capped at the Freddie Mac survey rate where it would remain for the balance of the loan term. Other modification features could be combined with an interest rate reduction, as necessary and consistent with maximizing the value of the mortgage, to achieve sustainable payments. For more information on IndyMac’s new loan modification program, please see http://www.fdic.gov/consumers/loans/modification/indymac.html.
North Carolina Passes Bills Banning YSPs, Requiring Pre-Foreclosure Notice, and Requiring Servicer Licensing. On August 17, 2008, North Carolina Governor Mike Easley signed three bills aimed at reducing foreclosures in the state. House Bill 2188 (effective October 1, 2008) broadens the points and fees trigger on the state’s high-cost home loan law. Previously, “points and fees” included only fees “payable by the borrower at or before loan closing.” The revised definition includes all fees payable after closing as well. The bill also amends the Rate Spread Home Loan Law to effectively prohibit the payment of a yield spread premium on rate spread home loans. House Bill 2463 amends the Mortgage Lending Act to require the licensure of mortgage loan servicers, effective January 1, 2009. House Bill 2623 enacts the Emergency Program to Reduce Home Foreclosures Act. This act requires the delivery of a pre-foreclosure notice at least 45 days prior to the filing a foreclosure of a “subprime loan.” This act becomes effective November 1, 2008, and it expires October 31, 2010. For a copy of House Bills 2188, 2463, and 2623, please see http://www.buckleykolar.com/documents/N.C.H.B.2188.pdf, http://www.buckleykolar.com/documents/N.C.H.B.2463.pdf, and http://www.buckleykolar.com/documents/N.C.H.B.2623.pdf, respectively.
Virginia Regulations Require Background Checks for New Hires, and Initial and Continuing Education. The Virginia State Corporation Commission recently issued amendments to regulations (10 Va. Admin. Code 5-160-10 et seq.) implementing the Mortgage Lender and Broker Act. Among other things, the new regulations: (i) require licensees to conduct background checks prior to hiring any persons that will have access to personal identifying or financial information relating to any consumer; (ii) prohibit licensees from hiring an individual who has been convicted of a felony or a misdemeanor involving fraud, misrepresentation, or deceit, without obtaining prior approval from the Commission of the Bureau of Financial Institutions; (iii) make licensees responsible for providing initial and continuing education, as specified in the amendments, to “covered employees”; and (iv) specify penalties for failing to provide required education to “covered employees.” The new regulations became effective on August 10, 2008. For more information, please see www.scc.virginia.gov/.
Washington Amends Consumer Loan Act Rules. The Washington Department of Financial Institutions recently amended rules (Wash. Admin. Code 208-620-260 et seq.) implementing the Washington Consumer Loan Act. Among the changes, the rules amend the minimum and maximum surety bond amount required for licensing, expand on advertising restrictions, and clarify certain notice and reporting procedures. The amended rules are effective as of August 22, 2008. For a copy of the amended regulations, please see http://www.dfi.wa.gov/cs/pdf/rulemaking/consumer_loan_adopted_language.pdf.
Ninth Circuit Finds Source of Down Payment Material to HUD’s Decision Whether to Insure Loans. The U.S. Court of Appeals for the Ninth Circuit affirmed the convictions of two defendant home building business owners, finding that the Department of Housing and Urban Development (“HUD”) has always prohibited direct gifts from sellers, and that a reasonable juror could have concluded that the source of a borrower’s down payment is material to HUD’s decision whether to insure a loan. U.S. v. Peterson, No. 07-50120 (9th Cir. Aug. 13, 2008). In the 1990s, the defendants subsidized down payments to home buyers and then submitted misleading gift letters to HUD, falsely stating that a family member or friend of the buyer had provided the money for the down payment. Under HUD’s rules, a buyer could receive the down payment as a gift from friends, relatives, or non-profit housing assistance organization, but sellers of the property were not permitted to make direct gifts to the buyer. At trial, the government’s expert testified that HUD would not insure a loan if the case binder contained a false gift letter and that HUD “need[s] to know who the donor is and . . . the relationship between the donor and the buyer, and how much the gift was for, and how the money was transferred and where it was from.” Based on HUD’s rules and the government’s expert’s testimony, the court found that a reasonable juror could have concluded that the source of a down payment was material to HUD in deciding whether to insure a loan. The court also affirmed the district court’s $1.26 million order of restitution, finding that, despite the multiple links in the causal chain, the defendants proximately caused losses to HUD on forty-three loans that HUD would not have insured if it had known the gift letters provided were false. For a copy of this decision, please see http://www.buckleykolar.com/documents/USAv.Peterson.pdf.
Texas Appellate Court Holds for Mortgage Lender in “Home Equity Loan” Case. On August 8, the Texas Court of Appeals (Dallas) held that, with respect to claims alleging violations of Texas’ constitutional limitation on the principal amount of “home equity loans” secured by a homestead, the statute of limitations begins to run on the date of loan closing. See Rivera v. Countrywide Home Loans, Inc., No. 05-07-00962-CV, 2008 WL 3196646 (Tex. App. Aug. 8, 2008). The Texas Constitution protects homesteads from forced sale for the repayment of debts, except with respect to “home equity loans” in a principal amount not exceeding 80% of the fair market value of the homestead. The plaintiff mortgage loan borrowers sued Countrywide for violating the 80% restriction after discovering a review appraisal in their loan documents that concluded that the appraised value of their home was overstated. Countrywide argued that the suit was time barred under the 4-year statute of limitations, and it was granted summary judgment by the trial court. On appeal, the borrowers argued, among other things, that their cause of action accrued on the date of the final installment or payment on the loan, or, in the event of foreclosure, the date of acceleration on the note. However, the Court of Appeals disagreed, reasoning that “a borrower could sue a lender for a constitutional violation of the eighty percent cap . . . the day after closing on the loan.” The court therefore concluded that the cause of action accrued on the date of closing. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Rivera_v_Countrywide.pdf.
Banking
FDIC Issues Newsletter to Address Common Consumer Questions. On August 21, the Federal Deposit Insurance Corporation (FDIC) issued the Summer 2008 FDIC Consumer News publication to provide answers to common questions regarding deposit insurance and bank failures. The issue addresses whether deposits are fully protected and what happens if a bank fails. Other articles in the Summer 2008 issue of the quarterly consumer newsletter explain what to do if a home equity line of credit has been reduced or frozen, how to avoid phone and fax fraud, and options for saving the environment as bank customers save and borrow money. For a copy of the Summer 2008 issue of the FDIC Consumer News, please see http://www.fdic.gov/consumers/consumer/news/cnsum08/summer_08_color.pdf.
FDIC Implements Loan Modification Program for Distressed IndyMac Mortgage Loans. On August 20, the Federal Deposit Insurance Corporation (FDIC) announced that IndyMac Federal Bank, FSB will implement a new program to modify troubled mortgages. The program is intended to achieve affordable and sustainable mortgage payments for borrowers and increase the value of distressed mortgages by rehabilitating them into performing loans. Under the new program, eligible mortgages would be modified into sustainable mortgages permanently capped at the current Freddie Mac survey rate for conforming mortgages. Modifications would be designed to achieve sustainable payments at a 38 percent DTI ratio of principal, interest, taxes and insurance. To reach this metric for affordable payments, modifications could adopt a combination of interest rate reductions, extended amortization, and principal forbearance. Interest rate reductions below the current Freddie Mac survey rate may be made for a period of five years where such reductions are necessary to achieve a 38 percent DTI, and the reduced rate is consistent with maximizing net present value. For these loans, after five years, the interest rate would increase by no more than one percent per year until it is capped at the Freddie Mac survey rate where it would remain for the balance of the loan term. Other modification features could be combined with an interest rate reduction, as necessary and consistent with maximizing the value of the mortgage, to achieve sustainable payments. For more information on IndyMac’s new loan modification program, please see http://www.fdic.gov/consumers/loans/modification/indymac.html.
Illinois Governor Signs H.B. 4611 Expanding on Proposals Permitted for State Deposits. On August 15, Illinois Governor Rod Blagojevich signed H.B. 4611. This bill allows the Illinois State Treasurer to accept proposals from eligible institutions that provide for interest earnings on deposits of state funds to be held in a separate account. These funds can then be used by the State Treasurer to secure up to 10% of home loans to Illinois citizens refinancing a home where the participating financial institution would not ordinarily offer the borrower a home loan under the institution’s prevailing credit standards. The bill also changes the definition of a home loan to include loans in which the principal amount of the loan does not exceed the conforming loan size limit as established by Freddie Mac. Previously, the principal amount of the loan could not exceed 50% of the conforming loan size limit. This bill took effect immediately. For a copy of the bill, please see http://www.buckleykolar.com/documents/ILH.B.4611.pdf.
Consumer Finance
Washington Amends Consumer Loan Act Rules. The Washington Department of Financial Institutions recently amended rules (Wash. Admin. Code 208-620-260 et seq.) implementing the Washington Consumer Loan Act. Among the changes, the rules amend the minimum and maximum surety bond amount required for licensing, expand on advertising restrictions, and clarify certain notice and reporting procedures. The amended rules are effective as of August 22, 2008. For a copy of the amended regulations, please see http://www.dfi.wa.gov/cs/pdf/rulemaking/consumer_loan_adopted_language.pdf.
Eleventh Circuit Holds that Anti-Bifurcation Amendment Protects Against “Cramdown” of Negative Equity. The Eleventh Circuit Court of Appeals recently held that the negative equity of a trade-in vehicle is properly included in the amount protected from the “cramdown” of secured claims in a Chapter 13 bankruptcy filing. Graupner v. Nuvell Credit Corp., No. 07-13657 (11th Cir. Aug. 6, 2008). In this case, as part of a new car purchase, the debtor financed the transaction and included in the total amount financed the negative equity from the used car he traded in. Within a year, the debtor filed for Chapter 13 bankruptcy protection, and Nuvell (to whom the installment contract was assigned) filed its secured proof of claim in an amount that covered the total amount financed, including the negative equity of the trade-in. Prior to 2005, one of the three possible treatments of the secured claim was that the debtor could “bifurcate” the claim into a reduced secured portion equal to the present value of the collateral and an unsecured portion equal to the excess of the claim, and then for the secured part, keep the property over the objection of the creditor and provide the creditor with payments over the life of the plan that eventually equal the present value of the collateral – called “cramdown.” However, the 2005 amendments to the bankruptcy code included a new provision excluding certain claims from the cramdown option. Specifically, cramdown is not available where (i) the creditor has a “purchase money security interest”; (ii) the debt was incurred within 910 days before the bankruptcy filing; (iii) the collateral for the debt is a motor vehicle; and (iv) the vehicle was acquired for the personal use of the debtor. Here, the creditor sought to enforce the cramdown exclusion, but the debtor argued that the creditor did not hold a “purchase money security interest” in the vehicle by virtue of the inclusion of the negative equity of the trade-in. The Eleventh Circuit, on an issue of first impression for a federal appeals court, reviewed the divergent case law, and sided with the line of cases that held that a creditor’s purchase money security interest includes all the components of a new vehicle purchase, including any financing of negative equity of a trade-in. The court noted that the transaction would not have occurred without financing of the negative equity, and therefore it should be considered “debt for the money required to make the purchase” and not “antecedent debt” that should be excluded. The Court found support in both the Commentary to Section 9-103 of the Uniform Commercial Code (for analysis on the meaning of “purchase money”) and in the legislative intent of the 2005 Amendments (which clearly intended to protect creditors from cramdown “abuse”). Consequently, the Eleventh Circuit upheld the decision by the Bankruptcy Court preventing the debtor from using the cramdown option for the secured claim on his vehicle. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Graupnerv.NuvellCreditCorp.pdf.
Tenth Circuit Holds that Employer Termination Reports Not Regulated By FCRA. On August 19, the U.S. Court of Appeals for the Tenth Circuit held that employer termination reports are not “consumer reports” regulated by the Fair Credit Reporting Act (FCRA). Owner-Operator Independent Drivers Association, Inc. v. USIS Commercial Services, Inc., No. 06-1430, 2008 WL 3844752 (10th Cir. Aug. 19, 2008). In this case, the plaintiffs alleged that the defendant violated FCRA by procuring and disseminating Termination Record Forms (TRFs)—obtained from past employers after an employee’s employment is terminated—to motor carriers regarding individuals’ employment and driving history, without proper notice and authorization. FCRA regulates the distribution of “consumer reports” and sets out certain procedures and standards with which consumer reporting agencies must comply when preparing consumer reports. FCRA includes in its definition of a “consumer report” any communication bearing on a consumer’s character, general reputation, personal characteristics, or mode of living” which is used to establish eligibility for “employment purposes.” 15 U.S.C. § 1681a(d)(1). The statute, however, under a section titled “exclusions,” explains “the term ‘consumer report’ does not include . . . any . . . report containing information solely as to transactions or experiences between the consumer and the person making the report.” The plaintiffs argued that this exclusion does not apply because the TRFs routinely refer to interactions that cannot be categorized as solely between drivers and their former employers. The Tenth Circuit, in affirming the district court judgment, held that the TRFs are not regulated by FCRA because they are not “consumer reports.” The court noted that it is not necessary that the experience be exclusively between the employer and the employee; rather, the exclusion applies to any first-hand experiences. The court reasoned that, because the former employers are asked questions in the TRF that pertain only to their first-hand knowledge gained by employing the consumers, the TRFs do not constitute “consumer reports” as defined by FCRA and are therefore not regulated by the statute. For a copy of the opinion, please see http://www.buckleykolar.com/documents/OOIDAv.UsisCommServs.pdf.
Litigation
Ninth Circuit Finds Source of Down Payment Material to HUD’s Decision Whether to Insure Loans. The U.S. Court of Appeals for the Ninth Circuit affirmed the convictions of two defendant home building business owners, finding that the Department of Housing and Urban Development (“HUD”) has always prohibited direct gifts from sellers, and that a reasonable juror could have concluded that the source of a borrower’s down payment is material to HUD’s decision whether to insure a loan. U.S. v. Peterson, No. 07-50120 (9th Cir. Aug. 13, 2008). In the 1990s, the defendants subsidized down payments to home buyers and then submitted misleading gift letters to HUD, falsely stating that a family member or friend of the buyer had provided the money for the down payment. Under HUD’s rules, a buyer could receive the down payment as a gift from friends, relatives, or non-profit housing assistance organization, but sellers of the property were not permitted to make direct gifts to the buyer. At trial, the government’s expert testified that HUD would not insure a loan if the case binder contained a false gift letter and that HUD “need[s] to know who the donor is and . . . the relationship between the donor and the buyer, and how much the gift was for, and how the money was transferred and where it was from.” Based on HUD’s rules and the government’s expert’s testimony, the court found that a reasonable juror could have concluded that the source of a down payment was material to HUD in deciding whether to insure a loan. The court also affirmed the district court’s $1.26 million order of restitution, finding that, despite the multiple links in the causal chain, the defendants proximately caused losses to HUD on forty-three loans that HUD would not have insured if it had known the gift letters provided were false. For a copy of this decision, please see http://www.buckleykolar.com/documents/USAv.Peterson.pdf.
Texas Appellate Court Holds for Mortgage Lender in “Home Equity Loan” Case. On August 8, the Texas Court of Appeals (Dallas) held that, with respect to claims alleging violations of Texas’ constitutional limitation on the principal amount of “home equity loans” secured by a homestead, the statute of limitations begins to run on the date of loan closing. See Rivera v. Countrywide Home Loans, Inc., No. 05-07-00962-CV, 2008 WL 3196646 (Tex. App. Aug. 8, 2008). The Texas Constitution protects homesteads from forced sale for the repayment of debts, except with respect to “home equity loans” in a principal amount not exceeding 80% of the fair market value of the homestead. The plaintiff mortgage loan borrowers sued Countrywide for violating the 80% restriction after discovering a review appraisal in their loan documents that concluded that the appraised value of their home was overstated. Countrywide argued that the suit was time barred under the 4-year statute of limitations, and it was granted summary judgment by the trial court. On appeal, the borrowers argued, among other things, that their cause of action accrued on the date of the final installment or payment on the loan, or, in the event of foreclosure, the date of acceleration on the note. However, the Court of Appeals disagreed, reasoning that “a borrower could sue a lender for a constitutional violation of the eighty percent cap . . . the day after closing on the loan.” The court therefore concluded that the cause of action accrued on the date of closing. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Rivera_v_Countrywide.pdf.
Eleventh Circuit Holds that Anti-Bifurcation Amendment Protects Against “Cramdown” of Negative Equity. The Eleventh Circuit Court of Appeals recently held that the negative equity of a trade-in vehicle is properly included in the amount protected from the “cramdown” of secured claims in a Chapter 13 bankruptcy filing. Graupner v. Nuvell Credit Corp., No. 07-13657 (11th Cir. Aug. 6, 2008). In this case, as part of a new car purchase, the debtor financed the transaction and included in the total amount financed the negative equity from the used car he traded in. Within a year, the debtor filed for Chapter 13 bankruptcy protection, and Nuvell (to whom the installment contract was assigned) filed its secured proof of claim in an amount that covered the total amount financed, including the negative equity of the trade-in. Prior to 2005, one of the three possible treatments of the secured claim was that the debtor could “bifurcate” the claim into a reduced secured portion equal to the present value of the collateral and an unsecured portion equal to the excess of the claim, and then for the secured part, keep the property over the objection of the creditor and provide the creditor with payments over the life of the plan that eventually equal the present value of the collateral – called “cramdown.” However, the 2005 amendments to the bankruptcy code included a new provision excluding certain claims from the cramdown option. Specifically, cramdown is not available where (i) the creditor has a “purchase money security interest”; (ii) the debt was incurred within 910 days before the bankruptcy filing; (iii) the collateral for the debt is a motor vehicle; and (iv) the vehicle was acquired for the personal use of the debtor. Here, the creditor sought to enforce the cramdown exclusion, but the debtor argued that the creditor did not hold a “purchase money security interest” in the vehicle by virtue of the inclusion of the negative equity of the trade-in. The Eleventh Circuit, on an issue of first impression for a federal appeals court, reviewed the divergent case law, and sided with the line of cases that held that a creditor’s purchase money security interest includes all the components of a new vehicle purchase, including any financing of negative equity of a trade-in. The court noted that the transaction would not have occurred without financing of the negative equity, and therefore it should be considered “debt for the money required to make the purchase” and not “antecedent debt” that should be excluded. The Court found support in both the Commentary to Section 9-103 of the Uniform Commercial Code (for analysis on the meaning of “purchase money”) and in the legislative intent of the 2005 Amendments (which clearly intended to protect creditors from cramdown “abuse”). Consequently, the Eleventh Circuit upheld the decision by the Bankruptcy Court preventing the debtor from using the cramdown option for the secured claim on his vehicle. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Graupnerv.NuvellCreditCorp.pdf.
Tenth Circuit Holds that Employer Termination Reports Not Regulated By FCRA. On August 19, the U.S. Court of Appeals for the Tenth Circuit held that employer termination reports are not “consumer reports” regulated by the Fair Credit Reporting Act (FCRA). Owner-Operator Independent Drivers Association, Inc. v. USIS Commercial Services, Inc., No. 06-1430, 2008 WL 3844752 (10th Cir. Aug. 19, 2008). In this case, the plaintiffs alleged that the defendant violated FCRA by procuring and disseminating Termination Record Forms (TRFs)—obtained from past employers after an employee’s employment is terminated—to motor carriers regarding individuals’ employment and driving history, without proper notice and authorization. FCRA regulates the distribution of “consumer reports” and sets out certain procedures and standards with which consumer reporting agencies must comply when preparing consumer reports. FCRA includes in its definition of a “consumer report” any communication bearing on a consumer’s character, general reputation, personal characteristics, or mode of living” which is used to establish eligibility for “employment purposes.” 15 U.S.C. § 1681a(d)(1). The statute, however, under a section titled “exclusions,” explains “the term ‘consumer report’ does not include . . . any . . . report containing information solely as to transactions or experiences between the consumer and the person making the report.” The plaintiffs argued that this exclusion does not apply because the TRFs routinely refer to interactions that cannot be categorized as solely between drivers and their former employers. The Tenth Circuit, in affirming the district court judgment, held that the TRFs are not regulated by FCRA because they are not “consumer reports.” The court noted that it is not necessary that the experience be exclusively between the employer and the employee; rather, the exclusion applies to any first-hand experiences. The court reasoned that, because the former employers are asked questions in the TRF that pertain only to their first-hand knowledge gained by employing the consumers, the TRFs do not constitute “consumer reports” as defined by FCRA and are therefore not regulated by the statute. For a copy of the opinion, please see http://www.buckleykolar.com/documents/OOIDAv.UsisCommServs.pdf.
California Federal Court Denies Motion to Dismiss Under CAN-SPAM. On July 30, the United States District Court for the Northern District of California denied a motion to dismiss in a case brought by internet service providers (ISP) pursuant to the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM), 15 U.S.C. § 7704. ASIS Internet Services v. Active Response Group, No. 07-cv-6211 (N.D. Cal. July 30, 2008). The court held that the plaintiffs were not required to show that specific e-mails caused significant monetary or technological issues in order to survive a motion to dismiss. Rather, the court found that the plaintiffs simply need to show that it “has suffered ISP-specific harms, such as . . . network problems or increased costs . . . and has carried unlawful spam over its facilities.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/AsisInternetServsv.ActiveResponseGroup.pdf.
E-Financial Services
FTC Issues Final Telemarketing Sales Rule Amendments Regarding Prerecorded Calls. On August 19, the Federal Trade Commission (FTC) announced two amendments to the Telemarketing Sales Rule (TSR). One will bar telemarketing calls that deliver prerecorded messages, unless the seller has previously obtained the recipient’s signed, written agreement to receive such calls. This amendment permits sellers to obtain the required permission for prerecorded message sales calls from a consumer in any manner permitted by the Electronic Signatures In Global and National Commerce Act (E-SIGN Act). It also requires that sellers and telemarketers provide, at the outset of all prerecorded messages, an automated keypress or voice-activated interactive opt-out mechanism so that consumers can opt out from a live telemarketing call. The other technical amendment modifies the TSR’s method of calculating the maximum permissible level of “call abandonment,” in which a person answers the telemarketer call but is not connected with a live salesperson. The current three percent permissible abandonment rate will remain in place, but will permit it to be calculated over a 30-day period, rather than on a daily basis as is now the case. The provision requiring permission from consumers to receive such calls will become effective September 1, 2009. The provision requiring that all prerecorded telemarketing calls provide an automated interactive opt-out mechanism will become effective on December 1, 2008. The amendment modifying the method for measuring the maximum allowable rate of call abandonment will become effective on October 1, 2008. For a copy of the amendments, please see http://www.ftc.gov/os/2008/08/R411001tsrfrn.pdf.
FDIC Issues Newsletter to Address Common Consumer Questions. On August 21, the Federal Deposit Insurance Corporation (FDIC) issued the Summer 2008 FDIC Consumer News publication to provide answers to common questions regarding deposit insurance and bank failures. The issue addresses whether deposits are fully protected and what happens if a bank fails. Other articles in the Summer 2008 issue of the quarterly consumer newsletter explain what to do if a home equity line of credit has been reduced or frozen, how to avoid phone and fax fraud, and options for saving the environment as bank customers save and borrow money. For a copy of the Summer 2008 issue of the FDIC Consumer News, please see http://www.fdic.gov/consumers/consumer/news/cnsum08/summer_08_color.pdf.
Privacy/Data Security
FTC Issues Final Telemarketing Sales Rule Amendments Regarding Prerecorded Calls. On August 19, the Federal Trade Commission (FTC) announced two amendments to the Telemarketing Sales Rule (TSR). One will bar telemarketing calls that deliver prerecorded messages, unless the seller has previously obtained the recipient’s signed, written agreement to receive such calls. This amendment permits sellers to obtain the required permission for prerecorded message sales calls from a consumer in any manner permitted by the Electronic Signatures In Global and National Commerce Act (E-SIGN Act). It also requires that sellers and telemarketers provide, at the outset of all prerecorded messages, an automated keypress or voice-activated interactive opt-out mechanism so that consumers can opt out from a live telemarketing call. The other technical amendment modifies the TSR’s method of calculating the maximum permissible level of “call abandonment,” in which a person answers the telemarketer call but is not connected with a live salesperson. The current three percent permissible abandonment rate will remain in place, but will permit it to be calculated over a 30-day period, rather than on a daily basis as is now the case. The provision requiring permission from consumers to receive such calls will become effective September 1, 2009. The provision requiring that all prerecorded telemarketing calls provide an automated interactive opt-out mechanism will become effective on December 1, 2008. The amendment modifying the method for measuring the maximum allowable rate of call abandonment will become effective on October 1, 2008. For a copy of the amendments, please see http://www.ftc.gov/os/2008/08/R411001tsrfrn.pdf.
FDIC Issues Newsletter to Address Common Consumer Questions. On August 21, the Federal Deposit Insurance Corporation (FDIC) issued the Summer 2008 FDIC Consumer News publication to provide answers to common questions regarding deposit insurance and bank failures. The issue addresses whether deposits are fully protected and what happens if a bank fails. Other articles in the Summer 2008 issue of the quarterly consumer newsletter explain what to do if a home equity line of credit has been reduced or frozen, how to avoid phone and fax fraud, and options for saving the environment as bank customers save and borrow money. For a copy of the Summer 2008 issue of the FDIC Consumer News, please see http://www.fdic.gov/consumers/consumer/news/cnsum08/summer_08_color.pdf.
California Legislature Votes to Toughen Spam Law. On August 12, the California State Assembly passed a bill, A.B. 2950, amending the state’s spam law. If enacted, the bill would define “header information” making it unlawful to advertise in a commercial e-mail advertisement sent from California or to a California e-mail address if the e-mail contains or is accompanied by the third party’s e-mail address without the permission of the third party. The bill would also authorize a district attorney or a city attorney to bring an action under the spam law. The bill would further provide that venue would be appropriate in any county in which the recipient of the commercial e-mail message resides. The bill would impose a statute of limitations of three years. The bill had already cleared the State Senate and awaits the governor’s signature for enactment. For a copy of the bill, please see http://www.buckleykolar.com/documents/CAA.B.2950.pdf.
Tenth Circuit Holds that Employer Termination Reports Not Regulated By FCRA. On August 19, the U.S. Court of Appeals for the Tenth Circuit held that employer termination reports are not “consumer reports” regulated by the Fair Credit Reporting Act (FCRA). Owner-Operator Independent Drivers Association, Inc. v. USIS Commercial Services, Inc., No. 06-1430, 2008 WL 3844752 (10th Cir. Aug. 19, 2008). In this case, the plaintiffs alleged that the defendant violated FCRA by procuring and disseminating Termination Record Forms (TRFs)—obtained from past employers after an employee’s employment is terminated—to motor carriers regarding individuals’ employment and driving history, without proper notice and authorization. FCRA regulates the distribution of “consumer reports” and sets out certain procedures and standards with which consumer reporting agencies must comply when preparing consumer reports. FCRA includes in its definition of a “consumer report” any communication bearing on a consumer’s character, general reputation, personal characteristics, or mode of living” which is used to establish eligibility for “employment purposes.” 15 U.S.C. § 1681a(d)(1). The statute, however, under a section titled “exclusions,” explains “the term ‘consumer report’ does not include . . . any . . . report containing information solely as to transactions or experiences between the consumer and the person making the report.” The plaintiffs argued that this exclusion does not apply because the TRFs routinely refer to interactions that cannot be categorized as solely between drivers and their former employers. The Tenth Circuit, in affirming the district court judgment, held that the TRFs are not regulated by FCRA because they are not “consumer reports.” The court noted that it is not necessary that the experience be exclusively between the employer and the employee; rather, the exclusion applies to any first-hand experiences. The court reasoned that, because the former employers are asked questions in the TRF that pertain only to their first-hand knowledge gained by employing the consumers, the TRFs do not constitute “consumer reports” as defined by FCRA and are therefore not regulated by the statute. For a copy of the opinion, please see http://www.buckleykolar.com/documents/OOIDAv.UsisCommServs.pdf.
California Federal Court Denies Motion to Dismiss Under CAN-SPAM. On July 30, the United States District Court for the Northern District of California denied a motion to dismiss in a case brought by internet service providers (ISP) pursuant to the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 (CAN-SPAM), 15 U.S.C. § 7704. ASIS Internet Services v. Active Response Group, No. 07-cv-6211 (N.D. Cal. July 30, 2008). The court held that the plaintiffs were not required to show that specific e-mails caused significant monetary or technological issues in order to survive a motion to dismiss. Rather, the court found that the plaintiffs simply need to show that it “has suffered ISP-specific harms, such as . . . network problems or increased costs . . . and has carried unlawful spam over its facilities.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/AsisInternetServsv.ActiveResponseGroup.pdf.