InfoBytes, August 7, 2009
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Consumer Finance
- Litigation
- E-Financial Services
- Privacy/Data Security
- Credit Cards
Federal Issues
Administration Releases Servicer Performance Report for Loan Modification Program. On August 4, the Obama Administration released its first monthly Servicer Performance Report in connection with the federal Making Home Affordable (MHA) loan modification program. According to the Administration, servicer performance in the program has been "uneven," and the Administration has requested servicers to increase participation in the program to a cumulative 500,000 trial modifications started by November 1, 2009; this increase would double the performance of the initial five months of the program. The Administration and members of Congress have recently made several attempts to increase participation in the MHA. On July 9, Treasury Secretary Geithner and Housing and Urban Development Secretary Donovan wrote to CEOs of participating servicers to improve performance in the MHA. On July 10, Representatives Barney Frank (D-MA) and Christopher J. Dodd (D-CT) sent a joint letter to the heads of the federal banking regulatory agencies to request an inquiry into subordinate–lien loans being carried on the balance sheets of mortgage servicers in order to increase participation in the MHA (reported in InfoBytes, July 17, 2009). On July 28, several Senior Administration Officials conducted a face-to-face meeting with servicer executives. The Administration has also asked Freddie Mac to develop a "second look" process to audit MHA modification applications that have previously been declined. For a copy of the press release, please see http://www.treas.gov/press/releases/tg252.htm. For a copy of the report, please see http://www.treas.gov/press/releases/docs/MHA_public_report.pdf.
FFIEC Releases Statement to Stress “Responsible” Loss Mitigation Activities. On August 6, the members of the Federal Financial Institutions Examination Council released a statement to reiterate support for financial institutions to continue “responsible” loss mitigation activities. In particular, the statement indicates that servicers of first and subordinate liens on the same property should pursue loan modifications where appropriate, regardless of the potential negative impact on one or more of the other liens. Specifically, ownership interest in the subordinate lien cannot be a consideration when deciding whether a loan modification is appropriate – that is, where the modification would produce a greater anticipated recovery on that loan than not modifying the loan. Finally, the statement reminds servicers that they have an obligation to act in the best interests of the owners or investors of the loans that they service, and to act in accordance with the terms of the servicing contract. According to the statement, if a servicer fails to modify a subordinate lien loan that would allow for a greater recovery to investors, regardless of the effect on the first lien loan, the servicer may breach its obligations to the owner/investor. For a copy of the statement, please see http://www.ffiec.gov/press/pr080609.htm.
FDIC Issues Letter on Allowance for Loan and Lease Losses for Junior Lien Loans. On August 3, the Federal Deposit Insurance Corporation (FDIC) issued a Financial Institution Letter discussing the need for financial institutions to review and adjust allowances at least quarterly for loan and lease losses (ALLL) with respect to a group of loans with similar risk characteristics. According to the FDIC, institutions should consider “historical loss experience and changes in trends, conditions, and other relevant factors” in the current economic environment when making ALLL determinations. The FDIC notes that, in regard to junior liens on 1-4 family residential properties, adjusting ALLL determinations might impact loss mitigation activity - including refinancing and loan modifications under the Making Home Affordable plan. The FDIC further notes that delaying the recognition of estimated credit losses on such junior lien loans might result in non-compliance with U.S. Generally Accepted Accounting Principles. For a copy of the announcement, please see http://www.fdic.gov/news/news/financial/2009/fil09043a.html.
FDIC Financial Institution Letter Addresses CCARD Compliance. On July 30, the Federal Deposit Insurance Corporation (FDIC) issued a Financial Institution Letter regarding the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CCARD). The letter highlights several provisions of CCARD requiring the compliance of FDIC-supervised entities. First, the payment due date for all open-end credit accounts offered by creditors must be the same day each month and creditors must deliver periodic statements for such accounts at least 21 days before the due date. Second, creditors must give 45-days notice if the creditor will significantly change the terms (e.g., an increase in the Annual Percentage Rate (APR) or the right to cancel the account) of a credit card account. This notice must inform the consumer of the right to cancel the account before such a change becomes effective. A consumer exercising the right to close or cancel such an account is not an event of default and cannot trigger the imposition of any other penalty or fee. Finally, under the “look-back” provision of CCARD, increases in credit card APRs after January 1, 2009 must be reviewed at least once every six months to assess whether factors contributing to the APR increase have changed. According to the letter, the FDIC expects its supervised institutions to demonstrate “regular meaningful progress” to prepare for full compliance with this provision and to adopt “reasonable methodologies” for determining rate changes and adequate procedures to review accounts. The guidance follows similar recent statements by the Office of the Comptroller of the Currency (reported in InfoBytes, July 24, 2009), the Federal Reserve Board, and the Office of Thrift Supervision (reported in InfoBytes, July 17, 2009). For a copy of the letter, please see http://www.fdic.gov/news/news/financial/2009/fil09044.pdf.
Data Security Bill Introduced in U.S. Senate. On July 22, Senator Patrick Leahy (D-VT) introduced S. 1490, the “Personal Data Privacy and Security Act of 2009.” If enacted, the bill would require certain entities to develop and implement administrative, technical, and physical safeguards to protect the security of sensitive personally identifiable information, as well as impose notification requirements in connection with a security breach of such information. The provision requiring the safeguarding of information, however, would not apply to financial institutions subject to compliance with the Gramm-Leach-Bliley Act that are also subject to state or federal examination or compliance. Among other things, the bill would also establish an Office of Federal Identity Protection within the Federal Trade Commission that would principally be responsible for assisting consumers to access the remedies that are available to them under federal and state law and restore the accuracy of their personally identifiable information that was stolen or compromised. For a copy of the bill, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:s1490is.txt.pdf.
Fed Issues Publication for Consumers Discussing HELOCs. On August 6, the Federal Reserve Board (Fed) issued "5 Tips for Dealing with a Home Equity Line Freeze or Reduction," a publication for consumers regarding home equity lines of credit (HELOCs). The publication urges consumers to (i) read notices from a lender regarding the status of a HELOC, (ii) establish contact with a lender regarding questions or concerns, (iii) learn why a lender froze or reduced a HELOC, and (iv) ask a lender to have a frozen or reduced HELOC reinstated. The publication notes that a HELOC may be reinstated when the conditions resulting in the freeze or reduction no longer exist, however, lenders may charge a fee to reinstate a HELOC. For a copy of the publication, please see http://www.federalreserve.gov/pubs/heloctips/heloctips.pdf.
FTC Issues Consumer Alert Regarding Rights of Surviving Relatives Under FDCPA. On July 31, the Federal Trade Commission (FTC) issued a consumer alert – ” Paying the Debts of a Deceased Relative: Who Is Responsible?” – to clarify the rights of surviving relatives in connection with the collection of the debt of a deceased relative. According to the FTC, a surviving relative is generally not responsible for the debt of a deceased relative. Moreover, pursuant to the Fair Debt Collection Practices Act, (i) a debt collector is prohibited from disclosing such a debt to anyone other than the deceased’s spouse, parent (if the relative is a minor child), or guardian, and (ii) a written request can be made to the debt collector to cease an attempt to collect such a debt. For a copy of the consumer alert, please see http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt159.pdf.
State Issues
Additional States Pass SAFE Act Legislation. Recently, Illinois, Massachusetts, Michigan, New Hampshire, Ohio, Oregon, and Rhode Island joined the list of states that have enacted legislation to effect the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008. Illinois HB 4011, Massachusetts SB 452, Michigan SB 462, New Hampshire HB 610, Ohio HB 1, Oregon HB 2189, and Rhode Island SB 461 all require mortgage loan originators to, among other things, register with the Nationwide Mortgage Licensing System (NMLS), complete pre-license testing and education, submit to fingerprinting for the purpose of a criminal history background check, and pass a qualified written exam developed by the NMLS. The Ohio, Oregon, and New Hampshire bills also amend certain statutory definitions and requirements applicable to mortgage lenders and mortgage brokers. Illinois HB 4011, Massachusetts SB 452 and Michigan SB 462 both became effective July 31, 2009, with the mortgage loan originator licensing provisions of each taking effect on July 31, 2010, or July 31, 2011, depending on certain factors. New Hampshire SB 610 and Oregon HB 2189, including the mortgage loan originator licensing provisions of each bill, became effective July 31, 2009. Rhode Island SB 461 became effective July 16, 2009, with the mortgage loan originator licensing provisions of the bill taking effect on July 31, 2009, or July 31, 2010, depending on whether the mortgage loan originator was actively licensed prior to the bill’s effective date. The relevant portion of Ohio HB 1 is effective January 1, 2010. For a copy of Illinois HB 4011, please see http://www.ilga.gov/legislation/publicacts/96/PDF/096-0112.pdf. For a copy of Massachusetts SB 452, please see http://www.mass.gov/legis/bills/senate/186/st00pdf/st00452.pdf. For a copy of Michigan SB 462, please see http://www.legislature.mi.gov/documents/2009-2010/billenrolled/Senate/pdf/2009-SNB-0462.pdf. For a copy of New Hampshire HB 610, please see http://www.gencourt.state.nh.us/legislation/2009/HB0610.html. For the relevant portion of Ohio HB 1, please see http://www.buckleysandler.com/OH_HB1_2009.pdf. For a copy of Oregon HB 2189, please see http://www.leg.state.or.us/09reg/measpdf/hb2100.dir/hb2189.b.pdf. For a copy of Rhode Island SB 461, please see http://www.rilin.state.ri.us/BillText09/SenateText09/S0461A.pdf.
North Carolina Governor Signs Legislation to Protect Victims of Identity Theft. On July 27, North Carolina Governor Beverly Perdue signed SB 1017, an Act enhancing protections available to victims of identity theft. In general, the Act creates new legal obligations for credit reporting agencies (CRAs), creditors, businesses, and credit monitoring services. Under the Act, CRAs must notify a North Carolina consumer that requests a security freeze that such consumer must make separate, individual requests to CRAs regarding a security freeze because a freeze can only be placed on the files of the CRA to which the consumer directs a request. Additionally, the Act mandates that CRAs lower their response times to a consumer’s request to add or remove a freeze. Specifically, for written requests, CRAs must add or remove a freeze within three days. For electronic or telephonic requests, CRAs must add a freeze within 24 hours and must remove a freeze within 15 minutes. With respect to creditors, the Act prohibits any communication about a debt to a CRA during the pendency of a consumer’s application for an award from the North Carolina Crime Victims Compensation Fund. The Act also requires credit monitoring services to notify consumers that they have the right to one free credit report per year before charging the consumer a fee to obtain or monitor the consumer’s credit report on behalf of the consumer. The Act becomes effective October 1, 2009. For a copy of the Act, please see http://www.ncleg.net/Sessions/2009/Bills/Senate/PDF/S1017v7.pdf.
Illinois Governor Signs Legislation Relating to Residential Property Foreclosures. On July 31, Illinois Governor Pat Quinn signed two bills (HB 3863 and HB 153) amending the Illinois Code of Civil Procedure in connection with residential property foreclosures. Among other things, HB 3863 requires certain entities - such as lenders acting in the capacity of a mortgagee in possession of REO - to (i) make a good faith effort to ascertain the identities and addresses of all known occupants of the property, and (ii) notify known occupants that such property has been acquired, as well as provide information about the new ownership and occupants’ rights. HB 3863 becomes effective 90 days after July 31. For a foreclosure action filed on or before the effective date of the amendments, the relevant entities will have an additional 60 days to comply with the new provisions. HB 153 requires any deed executed pursuant to the Mortgage Foreclosure Act (or similar judgment vesting title by a consent foreclosure) to state the grantee’s or mortgagee’s name, the name of a contact person, street and mailing address, and telephone number. HB 153 became effective July 31. For the full text of HB 3863, please see http://www.ilga.gov/legislation/publicacts/96/PDF/096-0111.pdf. For the full text of HB 153, please see http://www.ilga.gov/legislation/publicacts/96/PDF/096-0110.pdf.
Maine Bans Collecting Data of Minors for Marketing Purposes Without Parental Consent. On June 2, Maine Governor John Baldacci signed into law an Act making it an illegal and unfair trade practice for a person or company “to knowingly collect or receive health-related information or personal information for marketing purposes from a minor without first obtaining verifiable parental consent of that minor’s parent or legal guardian.” Maine PUBLIC Law, Chapter 230 LD 1183, Item 1. Under the law, persons and entities cannot collect a minor’s (i) first name, or first initial, and last name, (ii) home or other address, (iii) social security number, (iv) driver’s license number or state identification number, and/or (v) any additional related personally identifiable information. Such personal information, however, may be obtained with “verifiable parental consent,” which is defined as “any reasonable effort” to ensure that a parent or guardian authorizes and receives notice of the collection, use and/or disclosure of the minor’s personal information. The law carries civil penalties of between $10,000 and $20,000 for an initial violation and at least $20,000 for subsequent violations. For a copy of the bill, please see http://www.mainelegislature.org/legis/bills/bills_124th/chappdfs/PUBLIC230.pdf.
Courts
Tenth Circuit Rejects Cramdown Attempt; Holds PMSI Includes Negative Equity. On August 3, the U.S. Court of Appeals for the Tenth Circuit affirmed the Bankruptcy Court for the District of Kansas’s ruling that an auto finance creditor’s purchase-money security interest (PMSI) included the financing of negative equity from a trade-in vehicle, and thus rejected the debtors’ attempt to "cramdown" their claim. In re Ford, No. 08-3192, 2009 WL 2358365 (10th Cir. Aug. 3, 2009). In this case, the debtors traded in a vehicle in which they held "negative equity" (i.e., the amount owed on the trade-in vehicle exceeded the value of that vehicle) in conjunction with financing a new vehicle purchase. The amount financed to purchase the new vehicle included the "negative equity" from the trade-in vehicle. Several months after purchasing the new vehicle, the debtors filed for Chapter 13 bankruptcy protection. The debtors sought to "cramdown" their Chapter 13 plan by bifurcating the creditor’s claim into (i) a secured portion, and (ii) an unsecured portion (the negative equity from the trade-in vehicle), and the creditor objected to this proposed treatment of its security interest. The bankruptcy judge sustained the creditor’s objection, relying on the "hanging paragraph" of Section 1325(a) of the U.S. Bankruptcy Code, which excludes certain bankruptcy claims from "cramdown" when the creditor has a PMSI. On appeal, the Tenth Circuit recognized a split among the courts regarding whether negative equity is considered a component of the creditor’s PMSI, and relied on the Kansas Uniform Commercial Code’s definition of PMSI to determine that “the expense incurred in retiring the lien on a trade-in vehicle … is an ‘expense [] incurred in connection with acquiring rights’ in the new [vehicle],” and thus constitutes PMSI under Kansas law. One judge on the three-judge panel dissented, holding that negative equity is not included in PMSI because it is “neither ‘all or part of the price of’ a new car, nor ‘value given to enable the debtor to acquire rights in or use of’ a new car,” and therefore it is not protected from bifurcation and “cramdown” under the hanging paragraph. For a copy of the opinion, please see http://www.ca10.uscourts.gov/opinions/08/08-3192.pdf.
Ninth Circuit Holds Time-Barred FDCPA Claims Subject to Discovery Rule. On August 4, the U.S. Court of Appeals for the Ninth Circuit held that the statute of limitations for Fair Debt Collection Practices Act (FDCPA) claims may be tolled by applying the discovery rule doctrine. Mangum v. Action Collection Service, Inc., No. 08-35191, 2009 WL 2367157 (9th Cir. Aug. 4, 2009). In Mangum, the debtor plaintiff sued a debt collector under, among other statutes, the FDCPA, alleging that the debt collector improperly disclosed her debt information to her employer, which allegedly led to her termination. The debt collector argued that the debtor’s claims were barred by the FDCPA’s one-year statute of limitations because the disclosure allegedly occurred more than one year before the filing of the lawsuit. The debtor sought application of the “discovery rule” because she “discovered” – and only could have discovered - the disclosure one year after filing the lawsuit, and therefore her FDCPA claims were timely. Finding that the FDCPA’s one year time-bar was “jurisdictional,” and therefore not subject to the discovery rule, the district court dismissed the debtor’s FDCPA claims. The Court of Appeals for the Ninth Circuit reversed. According to the court of appeals, while the section of FDCPA that includes the one-year limitation period is titled “Jurisdiction,” “[n]othing in the structure of [the section] tells us that the time limitation was also a jurisdictional limitation.” Applying the presumption that statutory time limits are not jurisdictional, the court of appeals concluded that the FDCPA statute of limitations is subject to the discovery rule. In response to the debt collector’s reliance on TRW Inc. v. Andrews, 534 US 19, 33 (U.S. 2001), in which the U.S. Supreme Court reversed a decision of the Ninth Circuit applying the discovery rule to cases under the Fair Credit Reporting Act (FCRA), the court limited Andrews to FCRA cases, stating “[w]e simply cannot declare that the [discovery] rule is inapplicable in a case like this one.” Applying the discovery rule to Mangum, the Ninth Circuit found that the debtor’s FDCPA claims were not time-barred because the first time that she discovered (or could have discovered) that the debt collector disclosed her debt information was within the one year statute of limitations period. For a copy of the opinion, please see http://www.ca9.uscourts.gov/datastore/opinions/2009/08/04/08-35191.pdf.
Hawaii Federal Court Holds Production of Background Materials in HUD Investigation Shielded by FOIA. On July 27, the U.S. District Court for the District of Hawaii granted summary judgment in favor of the Department of Housing and Urban Development (HUD), finding that HUD may rely on an exemption from the Freedom of Information Act (FOIA) to shield certain information in a case involving allegations of violations of the Real Estate Settlement Procedures Act (RESPA). Prudential Locations LLC v. U.S. Department of Housing and Urban Development, Civ. No. 09-00128, 2009 WL 2243780 (D. Haw. July 27, 2009). In this case, HUD began an investigation into Prudential Locations LLC (an independently owned and operated franchise of The Prudential Real Estate Affiliates, Inc.) for alleged violations of RESPA. The company requested background materials from HUD related to the investigation. In select materials that HUD turned over, some information was redacted, including information identifying the complaining party. The company sued HUD to reveal the information, claiming that the public should know who is influencing government action and that the complaints were allegedly malicious and anti-competitive. HUD, relying on FOIA’s privacy exemption, claimed that it was not obligated to turn over the information. The court granted summary judgment to HUD, finding that disclosure of the redacted information would be a “clearly unwarranted invasion of personal privacy.” For a copy of the opinion, please see http://www.buckleysandler.com/Prudential_v_HUD.pdf.
New Hampshire Federal Court Holds FCRA Not Violated Where Inaccuracy Could Not Have Been Uncovered. On July 29, the U.S. District Court for the District of New Hampshire held that Trans Union did not violate its “reinvestigation” duty under § 611(a) of the Fair Credit Reporting Act (FCRA) where a reasonable reinvestigation into the plaintiff’s account could not have uncovered the alleged inaccuracy. Cornock v. Trans Union LLC, No. 07-cv-391, 2009 WL 2252886 (D.N.H. July 29, 2009). In Cornock, the consumer plaintiff alleged that Trans Union continued listing an outstanding MBNA credit card account in his credit report after notifying Trans Union that the account had been opened in his name by his wife without his knowledge or authorization. The consumer’s letters to Trans Union did not mention that MBNA had obtained an arbitration award against him in which the arbitrator ruled that the plaintiff was liable for the debt. After successfully defending enforcement of the award, the plaintiff sued Trans Union, claiming that the credit bureau had failed to perform a reasonable reinvestigation of the debt, as required by FCRA. Quoting the First Circuit’s opinion in DeAndrade v. Trans Union LLC, 523 F.3d 61 (1st Cir. 2008), the court explained that the “‘decisive inquiry’” was “‘whether the defendant credit bureau could have uncovered the inaccuracy if it had reasonably investigated the matter.’” According to the court, even if Trans Union had investigated beyond the creditor’s verification, any reasonable reinvestigation would, at the time, have turned up the facially valid arbitration award affirming the validity of the debt. The court reasoned that, “[w]hile the illegitimacy of the award may have been fairly obvious, . . . DeAndrade teaches that the FCRA imposes no obligation on consumer reporting agencies to resolve ‘questions that can only be resolved by a court of law.’” Thus, the court granted Trans Union’s motion for summary judgment. For a copy of the opinion, please see http://www.buckleysandler.com/Cornock_v_Trans_Union.pdf.
Firm News
Jonice Gray Tucker will be giving 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 will be speaking 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. See http://www.aarmr.org for additional information.
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 go here.
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.
Mortgages
Administration Releases Servicer Performance Report for Loan Modification Program. On August 4, the Obama Administration released its first monthly Servicer Performance Report in connection with the federal Making Home Affordable (MHA) loan modification program. According to the Administration, servicer performance in the program has been "uneven," and the Administration has requested servicers to increase participation in the program to a cumulative 500,000 trial modifications started by November 1, 2009; this increase would double the performance of the initial five months of the program. The Administration and members of Congress have recently made several attempts to increase participation in the MHA. On July 9, Treasury Secretary Geithner and Housing and Urban Development Secretary Donovan wrote to CEOs of participating servicers to improve performance in the MHA. On July 10, Representatives Barney Frank (D-MA) and Christopher J. Dodd (D-CT) sent a joint letter to the heads of the federal banking regulatory agencies to request an inquiry into subordinate–lien loans being carried on the balance sheets of mortgage servicers in order to increase participation in the MHA (reported in InfoBytes, July 17, 2009). On July 28, several Senior Administration Officials conducted a face-to-face meeting with servicer executives. The Administration has also asked Freddie Mac to develop a "second look" process to audit MHA modification applications that have previously been declined. For a copy of the press release, please see http://www.treas.gov/press/releases/tg252.htm. For a copy of the report, please see http://www.treas.gov/press/releases/docs/MHA_public_report.pdf.
FFIEC Releases Statement to Stress “Responsible” Loss Mitigation Activities. On August 6, the members of the Federal Financial Institutions Examination Council released a statement to reiterate support for financial institutions to continue “responsible” loss mitigation activities. In particular, the statement indicates that servicers of first and subordinate liens on the same property should pursue loan modifications where appropriate, regardless of the potential negative impact on one or more of the other liens. Specifically, ownership interest in the subordinate lien cannot be a consideration when deciding whether a loan modification is appropriate – that is, where the modification would produce a greater anticipated recovery on that loan than not modifying the loan. Finally, the statement reminds servicers that they have an obligation to act in the best interests of the owners or investors of the loans that they service, and to act in accordance with the terms of the servicing contract. According to the statement, if a servicer fails to modify a subordinate lien loan that would allow for a greater recovery to investors, regardless of the effect on the first lien loan, the servicer may breach its obligations to the owner/investor. For a copy of the statement, please see http://www.ffiec.gov/press/pr080609.htm.
FDIC Issues Letter on Allowance for Loan and Lease Losses for Junior Lien Loans. On August 3, the Federal Deposit Insurance Corporation (FDIC) issued a Financial Institution Letter discussing the need for financial institutions to review and adjust allowances at least quarterly for loan and lease losses (ALLL) with respect to a group of loans with similar risk characteristics. According to the FDIC, institutions should consider “historical loss experience and changes in trends, conditions, and other relevant factors” in the current economic environment when making ALLL determinations. The FDIC notes that, in regard to junior liens on 1-4 family residential properties, adjusting ALLL determinations might impact loss mitigation activity - including refinancing and loan modifications under the Making Home Affordable plan. The FDIC further notes that delaying the recognition of estimated credit losses on such junior lien loans might result in non-compliance with U.S. Generally Accepted Accounting Principles. For a copy of the announcement, please see http://www.fdic.gov/news/news/financial/2009/fil09043a.html.
Additional States Pass SAFE Act Legislation. Recently, Illinois, Massachusetts, Michigan, New Hampshire, Ohio, Oregon, and Rhode Island joined the list of states that have enacted legislation to effect the requirements of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008. Illinois HB 4011, Massachusetts SB 452, Michigan SB 462, New Hampshire HB 610, Ohio HB 1, Oregon HB 2189, and Rhode Island SB 461 all require mortgage loan originators to, among other things, register with the Nationwide Mortgage Licensing System (NMLS), complete pre-license testing and education, submit to fingerprinting for the purpose of a criminal history background check, and pass a qualified written exam developed by the NMLS. The Ohio, Oregon, and New Hampshire bills also amend certain statutory definitions and requirements applicable to mortgage lenders and mortgage brokers. Illinois HB 4011, Massachusetts SB 452 and Michigan SB 462 both became effective July 31, 2009, with the mortgage loan originator licensing provisions of each taking effect on July 31, 2010, or July 31, 2011, depending on certain factors. New Hampshire SB 610 and Oregon HB 2189, including the mortgage loan originator licensing provisions of each bill, became effective July 31, 2009. Rhode Island SB 461 became effective July 16, 2009, with the mortgage loan originator licensing provisions of the bill taking effect on July 31, 2009, or July 31, 2010, depending on whether the mortgage loan originator was actively licensed prior to the bill’s effective date. The relevant portion of Ohio HB 1 is effective January 1, 2010. For a copy of Illinois HB 4011, please see http://www.ilga.gov/legislation/publicacts/96/PDF/096-0112.pdf. For a copy of Massachusetts SB 452, please see http://www.mass.gov/legis/bills/senate/186/st00pdf/st00452.pdf. For a copy of Michigan SB 462, please see http://www.legislature.mi.gov/documents/2009-2010/billenrolled/Senate/pdf/2009-SNB-0462.pdf. For a copy of New Hampshire HB 610, please see http://www.gencourt.state.nh.us/legislation/2009/HB0610.html. For the relevant portion of Ohio HB 1, please see http://www.buckleysandler.com/OH_HB1_2009.pdf. For a copy of Oregon HB 2189, please see http://www.leg.state.or.us/09reg/measpdf/hb2100.dir/hb2189.b.pdf. For a copy of Rhode Island SB 461, please see http://www.rilin.state.ri.us/BillText09/SenateText09/S0461A.pdf.
Illinois Governor Signs Legislation Relating to Residential Property Foreclosures. On July 31, Illinois Governor Pat Quinn signed two bills (HB 3863 and HB 153) amending the Illinois Code of Civil Procedure in connection with residential property foreclosures. Among other things, HB 3863 requires certain entities - such as lenders acting in the capacity of a mortgagee in possession of REO - to (i) make a good faith effort to ascertain the identities and addresses of all known occupants of the property, and (ii) notify known occupants that such property has been acquired, as well as provide information about the new ownership and occupants’ rights. HB 3863 becomes effective 90 days after July 31. For a foreclosure action filed on or before the effective date of the amendments, the relevant entities will have an additional 60 days to comply with the new provisions. HB 153 requires any deed executed pursuant to the Mortgage Foreclosure Act (or similar judgment vesting title by a consent foreclosure) to state the grantee’s or mortgagee’s name, the name of a contact person, street and mailing address, and telephone number. HB 153 became effective July 31. For the full text of HB 3863, please see http://www.ilga.gov/legislation/publicacts/96/PDF/096-0111.pdf. For the full text of HB 153, please see http://www.ilga.gov/legislation/publicacts/96/PDF/096-0110.pdf.
Hawaii Federal Court Holds Production of Background Materials in HUD Investigation Shielded by FOIA. On July 27, the U.S. District Court for the District of Hawaii granted summary judgment in favor of the Department of Housing and Urban Development (HUD), finding that HUD may rely on an exemption from the Freedom of Information Act (FOIA) to shield certain information in a case involving allegations of violations of the Real Estate Settlement Procedures Act (RESPA). Prudential Locations LLC v. U.S. Department of Housing and Urban Development, Civ. No. 09-00128, 2009 WL 2243780 (D. Haw. July 27, 2009). In this case, HUD began an investigation into Prudential Locations LLC (an independently owned and operated franchise of The Prudential Real Estate Affiliates, Inc.) for alleged violations of RESPA. The company requested background materials from HUD related to the investigation. In select materials that HUD turned over, some information was redacted, including information identifying the complaining party. The company sued HUD to reveal the information, claiming that the public should know who is influencing government action and that the complaints were allegedly malicious and anti-competitive. HUD, relying on FOIA’s privacy exemption, claimed that it was not obligated to turn over the information. The court granted summary judgment to HUD, finding that disclosure of the redacted information would be a “clearly unwarranted invasion of personal privacy.” For a copy of the opinion, please see http://www.buckleysandler.com/Prudential_v_HUD.pdf.
Consumer Finance
Fed Issues Publication for Consumers Discussing HELOCs. On August 6, the Federal Reserve Board (Fed) issued "5 Tips for Dealing with a Home Equity Line Freeze or Reduction," a publication for consumers regarding home equity lines of credit (HELOCs). The publication urges consumers to (i) read notices from a lender regarding the status of a HELOC, (ii) establish contact with a lender regarding questions or concerns, (iii) learn why a lender froze or reduced a HELOC, and (iv) ask a lender to have a frozen or reduced HELOC reinstated. The publication notes that a HELOC may be reinstated when the conditions resulting in the freeze or reduction no longer exist, however, lenders may charge a fee to reinstate a HELOC. For a copy of the publication, please see http://www.federalreserve.gov/pubs/heloctips/heloctips.pdf.
FTC Issues Consumer Alert Regarding Rights of Surviving Relatives Under FDCPA. On July 31, the Federal Trade Commission (FTC) issued a consumer alert – ” Paying the Debts of a Deceased Relative: Who Is Responsible?” – to clarify the rights of surviving relatives in connection with the collection of the debt of a deceased relative. According to the FTC, a surviving relative is generally not responsible for the debt of a deceased relative. Moreover, pursuant to the Fair Debt Collection Practices Act, (i) a debt collector is prohibited from disclosing such a debt to anyone other than the deceased’s spouse, parent (if the relative is a minor child), or guardian, and (ii) a written request can be made to the debt collector to cease an attempt to collect such a debt. For a copy of the consumer alert, please see http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt159.pdf.
Tenth Circuit Rejects Cramdown Attempt; Holds PMSI Includes Negative Equity. On August 3, the U.S. Court of Appeals for the Tenth Circuit affirmed the Bankruptcy Court for the District of Kansas’s ruling that an auto finance creditor’s purchase-money security interest (PMSI) included the financing of negative equity from a trade-in vehicle, and thus rejected the debtors’ attempt to "cramdown" their claim. In re Ford, No. 08-3192, 2009 WL 2358365 (10th Cir. Aug. 3, 2009). In this case, the debtors traded in a vehicle in which they held "negative equity" (i.e., the amount owed on the trade-in vehicle exceeded the value of that vehicle) in conjunction with financing a new vehicle purchase. The amount financed to purchase the new vehicle included the "negative equity" from the trade-in vehicle. Several months after purchasing the new vehicle, the debtors filed for Chapter 13 bankruptcy protection. The debtors sought to "cramdown" their Chapter 13 plan by bifurcating the creditor’s claim into (i) a secured portion, and (ii) an unsecured portion (the negative equity from the trade-in vehicle), and the creditor objected to this proposed treatment of its security interest. The bankruptcy judge sustained the creditor’s objection, relying on the "hanging paragraph" of Section 1325(a) of the U.S. Bankruptcy Code, which excludes certain bankruptcy claims from "cramdown" when the creditor has a PMSI. On appeal, the Tenth Circuit recognized a split among the courts regarding whether negative equity is considered a component of the creditor’s PMSI, and relied on the Kansas Uniform Commercial Code’s definition of PMSI to determine that “the expense incurred in retiring the lien on a trade-in vehicle … is an ‘expense [] incurred in connection with acquiring rights’ in the new [vehicle],” and thus constitutes PMSI under Kansas law. One judge on the three-judge panel dissented, holding that negative equity is not included in PMSI because it is “neither ‘all or part of the price of’ a new car, nor ‘value given to enable the debtor to acquire rights in or use of’ a new car,” and therefore it is not protected from bifurcation and “cramdown” under the hanging paragraph. For a copy of the opinion, please see http://www.ca10.uscourts.gov/opinions/08/08-3192.pdf.
Ninth Circuit Holds Time-Barred FDCPA Claims Subject to Discovery Rule. On August 4, the U.S. Court of Appeals for the Ninth Circuit held that the statute of limitations for Fair Debt Collection Practices Act (FDCPA) claims may be tolled by applying the discovery rule doctrine. Mangum v. Action Collection Service, Inc., No. 08-35191, 2009 WL 2367157 (9th Cir. Aug. 4, 2009). In Mangum, the debtor plaintiff sued a debt collector under, among other statutes, the FDCPA, alleging that the debt collector improperly disclosed her debt information to her employer, which allegedly led to her termination. The debt collector argued that the debtor’s claims were barred by the FDCPA’s one-year statute of limitations because the disclosure allegedly occurred more than one year before the filing of the lawsuit. The debtor sought application of the “discovery rule” because she “discovered” – and only could have discovered - the disclosure one year after filing the lawsuit, and therefore her FDCPA claims were timely. Finding that the FDCPA’s one year time-bar was “jurisdictional,” and therefore not subject to the discovery rule, the district court dismissed the debtor’s FDCPA claims. The Court of Appeals for the Ninth Circuit reversed. According to the court of appeals, while the section of FDCPA that includes the one-year limitation period is titled “Jurisdiction,” “[n]othing in the structure of [the section] tells us that the time limitation was also a jurisdictional limitation.” Applying the presumption that statutory time limits are not jurisdictional, the court of appeals concluded that the FDCPA statute of limitations is subject to the discovery rule. In response to the debt collector’s reliance on TRW Inc. v. Andrews, 534 US 19, 33 (U.S. 2001), in which the U.S. Supreme Court reversed a decision of the Ninth Circuit applying the discovery rule to cases under the Fair Credit Reporting Act (FCRA), the court limited Andrews to FCRA cases, stating “[w]e simply cannot declare that the [discovery] rule is inapplicable in a case like this one.” Applying the discovery rule to Mangum, the Ninth Circuit found that the debtor’s FDCPA claims were not time-barred because the first time that she discovered (or could have discovered) that the debt collector disclosed her debt information was within the one year statute of limitations period. For a copy of the opinion, please see http://www.ca9.uscourts.gov/datastore/opinions/2009/08/04/08-35191.pdf.
New Hampshire Federal Court Holds FCRA Not Violated Where Inaccuracy Could Not Have Been Uncovered. On July 29, the U.S. District Court for the District of New Hampshire held that Trans Union did not violate its “reinvestigation” duty under § 611(a) of the Fair Credit Reporting Act (FCRA) where a reasonable reinvestigation into the plaintiff’s account could not have uncovered the alleged inaccuracy. Cornock v. Trans Union LLC, No. 07-cv-391, 2009 WL 2252886 (D.N.H. July 29, 2009). In Cornock, the consumer plaintiff alleged that Trans Union continued listing an outstanding MBNA credit card account in his credit report after notifying Trans Union that the account had been opened in his name by his wife without his knowledge or authorization. The consumer’s letters to Trans Union did not mention that MBNA had obtained an arbitration award against him in which the arbitrator ruled that the plaintiff was liable for the debt. After successfully defending enforcement of the award, the plaintiff sued Trans Union, claiming that the credit bureau had failed to perform a reasonable reinvestigation of the debt, as required by FCRA. Quoting the First Circuit’s opinion in DeAndrade v. Trans Union LLC, 523 F.3d 61 (1st Cir. 2008), the court explained that the “‘decisive inquiry’” was “‘whether the defendant credit bureau could have uncovered the inaccuracy if it had reasonably investigated the matter.’” According to the court, even if Trans Union had investigated beyond the creditor’s verification, any reasonable reinvestigation would, at the time, have turned up the facially valid arbitration award affirming the validity of the debt. The court reasoned that, “[w]hile the illegitimacy of the award may have been fairly obvious, . . . DeAndrade teaches that the FCRA imposes no obligation on consumer reporting agencies to resolve ‘questions that can only be resolved by a court of law.’” Thus, the court granted Trans Union’s motion for summary judgment. For a copy of the opinion, please see http://www.buckleysandler.com/Cornock_v_Trans_Union.pdf.
Litigation
Tenth Circuit Rejects Cramdown Attempt; Holds PMSI Includes Negative Equity. On August 3, the U.S. Court of Appeals for the Tenth Circuit affirmed the Bankruptcy Court for the District of Kansas’s ruling that an auto finance creditor’s purchase-money security interest (PMSI) included the financing of negative equity from a trade-in vehicle, and thus rejected the debtors’ attempt to "cramdown" their claim. In re Ford, No. 08-3192, 2009 WL 2358365 (10th Cir. Aug. 3, 2009). In this case, the debtors traded in a vehicle in which they held "negative equity" (i.e., the amount owed on the trade-in vehicle exceeded the value of that vehicle) in conjunction with financing a new vehicle purchase. The amount financed to purchase the new vehicle included the "negative equity" from the trade-in vehicle. Several months after purchasing the new vehicle, the debtors filed for Chapter 13 bankruptcy protection. The debtors sought to "cramdown" their Chapter 13 plan by bifurcating the creditor’s claim into (i) a secured portion, and (ii) an unsecured portion (the negative equity from the trade-in vehicle), and the creditor objected to this proposed treatment of its security interest. The bankruptcy judge sustained the creditor’s objection, relying on the "hanging paragraph" of Section 1325(a) of the U.S. Bankruptcy Code, which excludes certain bankruptcy claims from "cramdown" when the creditor has a PMSI. On appeal, the Tenth Circuit recognized a split among the courts regarding whether negative equity is considered a component of the creditor’s PMSI, and relied on the Kansas Uniform Commercial Code’s definition of PMSI to determine that “the expense incurred in retiring the lien on a trade-in vehicle … is an ‘expense [] incurred in connection with acquiring rights’ in the new [vehicle],” and thus constitutes PMSI under Kansas law. One judge on the three-judge panel dissented, holding that negative equity is not included in PMSI because it is “neither ‘all or part of the price of’ a new car, nor ‘value given to enable the debtor to acquire rights in or use of’ a new car,” and therefore it is not protected from bifurcation and “cramdown” under the hanging paragraph. For a copy of the opinion, please see http://www.ca10.uscourts.gov/opinions/08/08-3192.pdf.
Ninth Circuit Holds Time-Barred FDCPA Claims Subject to Discovery Rule. On August 4, the U.S. Court of Appeals for the Ninth Circuit held that the statute of limitations for Fair Debt Collection Practices Act (FDCPA) claims may be tolled by applying the discovery rule doctrine. Mangum v. Action Collection Service, Inc., No. 08-35191, 2009 WL 2367157 (9th Cir. Aug. 4, 2009). In Mangum, the debtor plaintiff sued a debt collector under, among other statutes, the FDCPA, alleging that the debt collector improperly disclosed her debt information to her employer, which allegedly led to her termination. The debt collector argued that the debtor’s claims were barred by the FDCPA’s one-year statute of limitations because the disclosure allegedly occurred more than one year before the filing of the lawsuit. The debtor sought application of the “discovery rule” because she “discovered” – and only could have discovered - the disclosure one year after filing the lawsuit, and therefore her FDCPA claims were timely. Finding that the FDCPA’s one year time-bar was “jurisdictional,” and therefore not subject to the discovery rule, the district court dismissed the debtor’s FDCPA claims. The Court of Appeals for the Ninth Circuit reversed. According to the court of appeals, while the section of FDCPA that includes the one-year limitation period is titled “Jurisdiction,” “[n]othing in the structure of [the section] tells us that the time limitation was also a jurisdictional limitation.” Applying the presumption that statutory time limits are not jurisdictional, the court of appeals concluded that the FDCPA statute of limitations is subject to the discovery rule. In response to the debt collector’s reliance on TRW Inc. v. Andrews, 534 US 19, 33 (U.S. 2001), in which the U.S. Supreme Court reversed a decision of the Ninth Circuit applying the discovery rule to cases under the Fair Credit Reporting Act (FCRA), the court limited Andrews to FCRA cases, stating “[w]e simply cannot declare that the [discovery] rule is inapplicable in a case like this one.” Applying the discovery rule to Mangum, the Ninth Circuit found that the debtor’s FDCPA claims were not time-barred because the first time that she discovered (or could have discovered) that the debt collector disclosed her debt information was within the one year statute of limitations period. For a copy of the opinion, please see http://www.ca9.uscourts.gov/datastore/opinions/2009/08/04/08-35191.pdf.
Hawaii Federal Court Holds Production of Background Materials in HUD Investigation Shielded by FOIA. On July 27, the U.S. District Court for the District of Hawaii granted summary judgment in favor of the Department of Housing and Urban Development (HUD), finding that HUD may rely on an exemption from the Freedom of Information Act (FOIA) to shield certain information in a case involving allegations of violations of the Real Estate Settlement Procedures Act (RESPA). Prudential Locations LLC v. U.S. Department of Housing and Urban Development, Civ. No. 09-00128, 2009 WL 2243780 (D. Haw. July 27, 2009). In this case, HUD began an investigation into Prudential Locations LLC (an independently owned and operated franchise of The Prudential Real Estate Affiliates, Inc.) for alleged violations of RESPA. The company requested background materials from HUD related to the investigation. In select materials that HUD turned over, some information was redacted, including information identifying the complaining party. The company sued HUD to reveal the information, claiming that the public should know who is influencing government action and that the complaints were allegedly malicious and anti-competitive. HUD, relying on FOIA’s privacy exemption, claimed that it was not obligated to turn over the information. The court granted summary judgment to HUD, finding that disclosure of the redacted information would be a “clearly unwarranted invasion of personal privacy.” For a copy of the opinion, please see http://www.buckleysandler.com/Prudential_v_HUD.pdf.
New Hampshire Federal Court Holds FCRA Not Violated Where Inaccuracy Could Not Have Been Uncovered. On July 29, the U.S. District Court for the District of New Hampshire held that Trans Union did not violate its “reinvestigation” duty under § 611(a) of the Fair Credit Reporting Act (FCRA) where a reasonable reinvestigation into the plaintiff’s account could not have uncovered the alleged inaccuracy. Cornock v. Trans Union LLC, No. 07-cv-391, 2009 WL 2252886 (D.N.H. July 29, 2009). In Cornock, the consumer plaintiff alleged that Trans Union continued listing an outstanding MBNA credit card account in his credit report after notifying Trans Union that the account had been opened in his name by his wife without his knowledge or authorization. The consumer’s letters to Trans Union did not mention that MBNA had obtained an arbitration award against him in which the arbitrator ruled that the plaintiff was liable for the debt. After successfully defending enforcement of the award, the plaintiff sued Trans Union, claiming that the credit bureau had failed to perform a reasonable reinvestigation of the debt, as required by FCRA. Quoting the First Circuit’s opinion in DeAndrade v. Trans Union LLC, 523 F.3d 61 (1st Cir. 2008), the court explained that the “‘decisive inquiry’” was “‘whether the defendant credit bureau could have uncovered the inaccuracy if it had reasonably investigated the matter.’” According to the court, even if Trans Union had investigated beyond the creditor’s verification, any reasonable reinvestigation would, at the time, have turned up the facially valid arbitration award affirming the validity of the debt. The court reasoned that, “[w]hile the illegitimacy of the award may have been fairly obvious, . . . DeAndrade teaches that the FCRA imposes no obligation on consumer reporting agencies to resolve ‘questions that can only be resolved by a court of law.’” Thus, the court granted Trans Union’s motion for summary judgment. For a copy of the opinion, please see http://www.buckleysandler.com/Cornock_v_Trans_Union.pdf.
E-Financial Services
Data Security Bill Introduced in U.S. Senate. On July 22, Senator Patrick Leahy (D-VT) introduced S. 1490, the “Personal Data Privacy and Security Act of 2009.” If enacted, the bill would require certain entities to develop and implement administrative, technical, and physical safeguards to protect the security of sensitive personally identifiable information, as well as impose notification requirements in connection with a security breach of such information. The provision requiring the safeguarding of information, however, would not apply to financial institutions subject to compliance with the Gramm-Leach-Bliley Act that are also subject to state or federal examination or compliance. Among other things, the bill would also establish an Office of Federal Identity Protection within the Federal Trade Commission that would principally be responsible for assisting consumers to access the remedies that are available to them under federal and state law and restore the accuracy of their personally identifiable information that was stolen or compromised. For a copy of the bill, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:s1490is.txt.pdf.
Privacy/Data Security
Data Security Bill Introduced in U.S. Senate. On July 22, Senator Patrick Leahy (D-VT) introduced S. 1490, the “Personal Data Privacy and Security Act of 2009.” If enacted, the bill would require certain entities to develop and implement administrative, technical, and physical safeguards to protect the security of sensitive personally identifiable information, as well as impose notification requirements in connection with a security breach of such information. The provision requiring the safeguarding of information, however, would not apply to financial institutions subject to compliance with the Gramm-Leach-Bliley Act that are also subject to state or federal examination or compliance. Among other things, the bill would also establish an Office of Federal Identity Protection within the Federal Trade Commission that would principally be responsible for assisting consumers to access the remedies that are available to them under federal and state law and restore the accuracy of their personally identifiable information that was stolen or compromised. For a copy of the bill, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:s1490is.txt.pdf.
North Carolina Governor Signs Legislation to Protect Victims of Identity Theft. On July 27, North Carolina Governor Beverly Perdue signed SB 1017, an Act enhancing protections available to victims of identity theft. In general, the Act creates new legal obligations for credit reporting agencies (CRAs), creditors, businesses, and credit monitoring services. Under the Act, CRAs must notify a North Carolina consumer that requests a security freeze that such consumer must make separate, individual requests to CRAs regarding a security freeze because a freeze can only be placed on the files of the CRA to which the consumer directs a request. Additionally, the Act mandates that CRAs lower their response times to a consumer’s request to add or remove a freeze. Specifically, for written requests, CRAs must add or remove a freeze within three days. For electronic or telephonic requests, CRAs must add a freeze within 24 hours and must remove a freeze within 15 minutes. With respect to creditors, the Act prohibits any communication about a debt to a CRA during the pendency of a consumer’s application for an award from the North Carolina Crime Victims Compensation Fund. The Act also requires credit monitoring services to notify consumers that they have the right to one free credit report per year before charging the consumer a fee to obtain or monitor the consumer’s credit report on behalf of the consumer. The Act becomes effective October 1, 2009. For a copy of the Act, please see http://www.ncleg.net/Sessions/2009/Bills/Senate/PDF/S1017v7.pdf.
Maine Bans Collecting Data of Minors for Marketing Purposes Without Parental Consent. On June 2, Maine Governor John Baldacci signed into law an Act making it an illegal and unfair trade practice for a person or company “to knowingly collect or receive health-related information or personal information for marketing purposes from a minor without first obtaining verifiable parental consent of that minor’s parent or legal guardian.” Maine PUBLIC Law, Chapter 230 LD 1183, Item 1. Under the law, persons and entities cannot collect a minor’s (i) first name, or first initial, and last name, (ii) home or other address, (iii) social security number, (iv) driver’s license number or state identification number, and/or (v) any additional related personally identifiable information. Such personal information, however, may be obtained with “verifiable parental consent,” which is defined as “any reasonable effort” to ensure that a parent or guardian authorizes and receives notice of the collection, use and/or disclosure of the minor’s personal information. The law carries civil penalties of between $10,000 and $20,000 for an initial violation and at least $20,000 for subsequent violations. For a copy of the bill, please see http://www.mainelegislature.org/legis/bills/bills_124th/chappdfs/PUBLIC230.pdf.
Credit Cards
FDIC Financial Institution Letter Addresses CCARD Compliance. On July 30, the Federal Deposit Insurance Corporation (FDIC) issued a Financial Institution Letter regarding the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CCARD). The letter highlights several provisions of CCARD requiring the compliance of FDIC-supervised entities. First, the payment due date for all open-end credit accounts offered by creditors must be the same day each month and creditors must deliver periodic statements for such accounts at least 21 days before the due date. Second, creditors must give 45-days notice if the creditor will significantly change the terms (e.g., an increase in the Annual Percentage Rate (APR) or the right to cancel the account) of a credit card account. This notice must inform the consumer of the right to cancel the account before such a change becomes effective. A consumer exercising the right to close or cancel such an account is not an event of default and cannot trigger the imposition of any other penalty or fee. Finally, under the “look-back” provision of CCARD, increases in credit card APRs after January 1, 2009 must be reviewed at least once every six months to assess whether factors contributing to the APR increase have changed. According to the letter, the FDIC expects its supervised institutions to demonstrate “regular meaningful progress” to prepare for full compliance with this provision and to adopt “reasonable methodologies” for determining rate changes and adequate procedures to review accounts. The guidance follows similar recent statements by the Office of the Comptroller of the Currency (reported in InfoBytes, July 24, 2009), the Federal Reserve Board, and the Office of Thrift Supervision (reported in InfoBytes, July 17, 2009). For a copy of the letter, please see http://www.fdic.gov/news/news/financial/2009/fil09044.pdf.