InfoBytes, December 18, 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
House Passes Data Breach Notification Bill. On December 8, the House of Representatives passed the “Data Accountability and Trust Act” (H.R. 2221), which would create federal data breach notification and information security requirements for businesses that possess data containing personal information. Under the bill, businesses that own or possess personal information in electronic form would need to notify affected individuals and the Federal Trade Commission (FTC) following a data security breach. The bill also sets forth data breach notification requirements for certain third-party agents and service providers. In addition, H.R. 2221 requires the FTC to promulgate regulations requiring businesses that own or possess personal information to implement information security policies and procedures. It also sets forth provisions applicable to “information brokers,” including provisions requiring procedures “to assure the maximum possible accuracy” of collected information. The bill would preempt state information security laws and would apply only to those persons and entities over which the FTC has authority pursuant to section 5(a)(2) of the Federal Trade Commission Act. In addition to FTC enforcement, H.R. 2221 provides for enforcement by state attorneys general and would impose a $5 million maximum civil penalty for each violation of the information security requirements, including the information broker provisions, and a $5 million maximum civil penalty for all violations of the data breach notification requirements resulting from a single breach of security. For a copy of H.R. 2221, please see: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h2221rh.txt.pdf.
FDIC Proposes Amendments to Securitization Safe Harbor. On December 15, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) approved issuance of an Advance Notice of Proposed Rulemaking (ANPR) treatment by the FDIC, as receiver or conservator of an insured depository institution, of financial assets transferred by the institution in connection with a securitization or participation after March 31, 2010. The FDIC is seeking to change such treatment in light of the June 2009 changes to FAS 166 and 167, which will result in most securitizations no longer meeting the off-balance sheet standards for sale treatment. The ANPR builds on the FDIC’s November, 2009 Interim Final Rule. The ANPR seeks comment for forty-five (45) days on a range of issues that are implicated by proposed standards for a safe harbor for participations and securitizations issued after March 31, 2010. For a copy of the ANPR, please see: http://www.fdic.gov/news/board/DEC152009no5.pdf.
HUD Releases New Home-Buying Handbook in Anticipation of New RESPA Rules. On December 15, the U.S. Department of Housing and Urban Development released a new consumer handbook covering issues ranging from settlement costs to lessons regarding the purchase of various loan products. The handbook is meant to apply to purchase-money transactions, not to refinancings and has been released in anticipation of the new Real Estate and Settlement Procedures Act rules set to take effect January 1, 2010. For a copy of the handbook, please see: http://portal.hud.gov/portal/page/portal/HUD/documents/Settlement%20Booklet%20December%2015%20REVISED.pdf.
State Issues
Connecticut Attorney General Challenges Credit Card Interest Rate and Fee Increases by Major Financial Institutions. On December 14, Connecticut Attorney General Richard Blumenthal sent a letter to 11 major financial institutions demanding that they reverse any credit card interest rate and fee increases made since January of this year. Blumenthal accused these institutions of attempting to evade rate restrictions contained in the federal Credit Card Accountability Responsibility and Disclosure Act (CARD Act) by raising consumer credit card interest rates and fees in anticipation of the Act’s February 2010 effective date. In his letter, Blumenthal called for the institutions to roll back their credit card interest rates and fees to their January 2009 levels and to provide his office with detailed information to justify the increases. If the financial institutions refuse to comply with his requests, Blumenthal has threatened to lobby federal authorities for stricter regulations and tougher enforcement of the CARD Act. For a copy of the Attorney General’s press release, please see http://www.ct.gov/ag/cwp/view.asp?Q=452202&A=3673.
Courts
Sixth Circuit Finds State Debt Collection Laws Not Preempted by National Bank Act. On December 14, the U.S. Court of Appeals for the Sixth Circuit, in a plaintiff-garnishors’ lawsuit alleging a defendant bank had improperly garnished funds to satisfy certain service fees, affirmed the dismissal of plaintiffs’ claims (2-1) and held: (i) the National Bank Act ("NBA") does not preempt general state debt collection laws, including laws regulating banks’ rights to collect debts, but (ii) on the other hand, the NBA’s grant of authority to banks to charge and collect fees preempted plaintiffs’ specific state-based conversion claim. See Read Monroe Retail, Inc. v. RBS Citizens, N.A., No. 07-4263 (6th Cir. Dec. 14, 2009). The Court also vacated the district court’s characterization of service fees as setoffs, further holding that the doctrine of setoff "applies only when banks use customers’ funds to satisfy an ‘independent contract’ and external debt to the bank." In dissent, the minority argued that the garnishment law at issue was one of general applicability that only incidentally affects national banks and thus, the NBA should not preempt plaintiffs’ claims. For a copy of the opinion, please see: http://www.buckleysandler.com/Monroe_v_RBS_Citizens.pdf.
Fifth Circuit Decertifies Class in RESPA Section 8(b) Case. On December 9, the U.S. Court of Appeals for the Fifth Circuit reversed the certification of a class of consumers with respect to the defendants’ alleged violations of the Real Estate Settlement Procedures Act (RESPA), although the court left intact the class certification of the plaintiffs’ state-law claims. Mims v. Stewart Title Guaranty Co., No. 09-10127, 2009 WL 4642631 (5th Cir. Dec. 9, 2009). In Mims, the plaintiff consumers refinanced their mortgage loans and obtained title insurance from defendant Stewart Title. The plaintiffs alleged that Stewart Title failed to provide the consumers with the rate discount required under Texas law for certain reissued title insurance policies. The plaintiffs alleged that Stewart Title’s failure to provide the reissue rate discount and splitting the excess charges between the insurer and its agents violated the prohibition in section 8(b) of RESPA regarding kickbacks and referral fees. The district court certified a class on the RESPA claims, as well as various state law claims. The circuit court reversed the certification of the class on the RESPA claims, finding that the district court abused its discretion “because the district court’s liability model for violations of RESPA § 8(b) requires an inquiry into the facts of each individual class member’s title insurance transaction.” The circuit court remanded the case to determine whether the district court should continue to exercise jurisdiction over the state-law claims. For a copy of the opinion, please see: http://www.buckleysandler.com/Mims_v_STG.pdf.
Third Circuit Upholds Arbitration Clause in Car Title Loan Dispute. Recently, the U.S. Court of Appeals for the Third Circuit further defined the extent to which low-income borrowers may have access to legal remedies that were waived in executing short-term loan contracts. In Kaneff v. Delaware Title Loans, No. 08-1007 (3d Cir. Nov. 24, 2009), the court enforced a mandatory arbitration provision in a car title loan contract against a Pennsylvania resident who claimed to have received a car title loan in violation of Delaware usury laws. Plaintiff borrowed $500 for a term of one month at an annual interest rate of 300.01%. In receiving Using a multi-step process to analyze choice of law issues, the Third Circuit determined that Pennsylvania had a greater interest in the case and applied that state’s law. However, the Court concluded that the arbitration provision itself was not unconscionable under Pennsylvania law and sent the dispute to arbitration. For a copy of the opinion, please see: http://www.buckleysandler.com/Kaneff_v_DTL.pdf.
Maryland Court Permits FCRA Claims Challenging Accuracy of Employment History Report to Survive Motion to Dismiss. On December 3, the U.S. District Court for the District of Maryland held that FCRA claims based on an allegedly false employment history report could survive a motion to dismiss. Schelhaus v. Sears, No. 1:09-cv-01145-JFM (D. Md. Dec. 3, 2009). The case arose when defendant, Sears, terminated the plaintiff for providing employee discounts to customers in violation of Sears’ discount program. Sears subsequently reported the termination to HireRight Solutions, Inc. (“HireRight”), an agency conducting a background check on the plaintiff for his prospective employer, describing the reason for termination as “award fraud.” Plaintiff sued both Sears and HireRight for this report, alleging that it violated the Fair Credit Reporting Act (FCRA). Specifically, plaintiff alleged that HireRight failed to follow reasonable procedures to assure the accuracy of the report and that Sears (i) failed to conduct an investigation into the veracity of the conclusion that he committed award fraud, (ii) failed to provide HireRight with information supporting its report, (iii) failed to amend its initial report of award fraud. Both Sears and HireRight moved to dismiss these claims based on a hand written statement that the plaintiff provided to Sear’s security team on the day he was terminated where he admits to violating the store’s discount policy. However, the court found this evidence insufficient to support the motion to dismiss because the statement indicated that the plaintiff may have acted with managerial knowledge and supervision. Additionally, the court noted that neither defendant provided a definition of “award fraud” or indicated how Plaintiff’s conduct amounted to a violation of company policy and fraud. As a result, the court declined to grant the defendants’ motions to dismiss plaintiff’s FCRA claims. For a copy of the opinion, please see: http://www.buckleysandler.com/Schelhaus_v_Sears.pdf.
Illinois District Court Holds Assignee, Not Servicer Potentially Liable for Lender’s TILA Violations. On December 7, the U.S. District Court for the Northern District of Illinois granted a defendant servicer’s motion to dismiss and granted in part and denied in part a defendant assignee’s motion to dismiss in a case in which the plaintiff borrowers alleged that the defendants violated the Truth in Lending Act (TILA) in connection with the origination of plaintiffs’ mortgage loan and the handling of the plaintiffs’ subsequent request to rescind the loan. Garcia v. HSBC Bank USA, N.A., No. 09-CV-1369, 2009 WL 4730961 (N.D. Ill. Dec. 7, 2009). In Garcia, the plaintiffs sued the defendants for the lender’s failure to provide certain material disclosures required by TILA and for failing to properly rescind the loan upon receipt of the plaintiffs’ request to do so. The court granted the defendant servicer’s motion to dismiss after determining that the imposition of liability for any TILA violations would be inappropriate, considering that the defendant was a servicer and had never obtained an ownership interest in the loan. Additionally, the court granted the defendant assignee’s motion to dismiss with regard to the plaintiffs’ disclosure violation claims, finding that such claims were time-barred because the plaintiffs failed to bring them within one year of the closing of the loan. However, the court denied the defendant assignee’s motion to dismiss with regard to the plaintiffs’ claims for damages stemming from the defendants’ alleged failure to rescind the loan. In doing so, the court explained that such claims were not time-barred because “the violation occurs not when the loan is consummated, but rather 20 days after receipt of the consumer’s notice of rescission.” Finally, the court held that the defendant assignee could be held liable for the lender’s alleged TILA violations, because some of these violations were apparent on the face of the loan documents. For a copy of the opinion and order, please see: http://www.buckleysandler.com/Garcia_v_HSBC.pdf.
Illinois District Court Dismisses FACTA Violation Claim Based on Email Order Confirmation. On December 2, the U.S. District Court for the Northern District of Illinois granted defendant’s motion to dismiss a complaint alleging violations of 15 U.S.C. § 1681c(g) of the Fair and Accurate Credit Transactions Act (FACTA), holding that an email order confirmation was not an “electronically printed” receipt nor was it provided “at the point of sale or transaction,” and thus, not entitled to FACTA protection. Shlahtichman v. 1-800 Contacts, Inc., Case No. 1:09cv04032 (N.D. Ill. Dec. 2, 1009). Plaintiff alleged that he purchased contact lenses over the internet from defendant 1-800 Contacts using a credit card. After making the purchase, he received a computer-generated receipt via email, which displayed the expiration date of his credit card. The court noted that “most” courts that have examined the question of whether an email order confirmation is considered an electronically printed receipt have found that the term “print” is not commonly understood to apply to a display on a computer screen, and thus does not apply to email confirmations. The court also cited other opinions holding that § 1681c(g) as a whole contemplates “in-store transactions” and that there is no tangible “point of sale or transaction” with respect to e-commerce. For a copy of the opinion, please see: http://www.buckleysandler.com/Shlahtichman_v_Contacts.pdf.
Firm News
Andrew Sandler has been selected to receive a Good Apple Award at the Louisiana Appleseed’s Good Apple Gala for his vision aimed at expanding access to financial institutions for Latino immigrants and his leadership in bringing together Louisiana banks and Federal banking regulators to discuss barriers to access and solutions.
Louisiana Appleseed is part of a nationwide nonprofit organization that uncovers and corrects injustices and barriers to opportunity through legal, legislative and market-based structural reform. Working with its extensive pro bono network, Louisiana Appleseed identifies, researches, and analyzes social injustices in order to make specific recommendations and advocate for effective solutions to deep-seated structural problems.
The Gala will be held Thursday, January 21, 2010 at Basin St. Station in New Orleans.
For more information about Louisiana Appleseed, please visit their website - http://louisiana.appleseednetwork.org/.
Jerry Buckley, Ben Klubes, Andrew Sandler, and Jonice Gray Tucker were recently included in the Washingtonian magazine’s annual lawyers’ edition. Jonice Gray Tucker is featured in an article about making partner. Jerry Buckley, Ben Klubes, and Andrew Sandler are recognized as top financial services lawyers in Washington, DC. BuckleySandler LLP is the only firm to have more than two lawyers included in the Washingtonian’s list of top financial services lawyers.
Jonathan Cannon spoke at the New Jersey Bankers Association’s Mortgage Lending Conference on December 3 regarding RESPA and TILA Regulatory Changes.
Clint Rockwell spoke at the CMBA’s Legislative, Regulatory, Quality Assurance & Compliance Conference on December 7 in Huntington Beach, CA regarding Federal Developments.
Mortgages
HUD Releases New Home-Buying Handbook in Anticipation of New RESPA Rules. On December 15, the U.S. Department of Housing and Urban Development released a new consumer handbook covering issues ranging from settlement costs to lessons regarding the purchase of various loan products. The handbook is meant to apply to purchase-money transactions, not to refinancings and has been released in anticipation of the new Real Estate and Settlement Procedures Act rules set to take effect January 1, 2010. For a copy of the handbook, please see: http://portal.hud.gov/portal/page/portal/HUD/documents/Settlement%20Booklet%20December%2015%20REVISED.pdf.
Fifth Circuit Decertifies Class in RESPA Section 8(b) Case. On December 9, the U.S. Court of Appeals for the Fifth Circuit reversed the certification of a class of consumers with respect to the defendants’ alleged violations of the Real Estate Settlement Procedures Act (RESPA), although the court left intact the class certification of the plaintiffs’ state-law claims. Mims v. Stewart Title Guaranty Co., No. 09-10127, 2009 WL 4642631 (5th Cir. Dec. 9, 2009). In Mims, the plaintiff consumers refinanced their mortgage loans and obtained title insurance from defendant Stewart Title. The plaintiffs alleged that Stewart Title failed to provide the consumers with the rate discount required under Texas law for certain reissued title insurance policies. The plaintiffs alleged that Stewart Title’s failure to provide the reissue rate discount and splitting the excess charges between the insurer and its agents violated the prohibition in section 8(b) of RESPA regarding kickbacks and referral fees. The district court certified a class on the RESPA claims, as well as various state law claims. The circuit court reversed the certification of the class on the RESPA claims, finding that the district court abused its discretion “because the district court’s liability model for violations of RESPA § 8(b) requires an inquiry into the facts of each individual class member’s title insurance transaction.” The circuit court remanded the case to determine whether the district court should continue to exercise jurisdiction over the state-law claims. For a copy of the opinion, please see: http://www.buckleysandler.com/Mims_v_STG.pdf.
Illinois District Court Holds Assignee, Not Servicer Potentially Liable for Lender’s TILA Violations. On December 7, the U.S. District Court for the Northern District of Illinois granted a defendant servicer’s motion to dismiss and granted in part and denied in part a defendant assignee’s motion to dismiss in a case in which the plaintiff borrowers alleged that the defendants violated the Truth in Lending Act (TILA) in connection with the origination of plaintiffs’ mortgage loan and the handling of the plaintiffs’ subsequent request to rescind the loan. Garcia v. HSBC Bank USA, N.A., No. 09-CV-1369, 2009 WL 4730961 (N.D. Ill. Dec. 7, 2009). In Garcia, the plaintiffs sued the defendants for the lender’s failure to provide certain material disclosures required by TILA and for failing to properly rescind the loan upon receipt of the plaintiffs’ request to do so. The court granted the defendant servicer’s motion to dismiss after determining that the imposition of liability for any TILA violations would be inappropriate, considering that the defendant was a servicer and had never obtained an ownership interest in the loan. Additionally, the court granted the defendant assignee’s motion to dismiss with regard to the plaintiffs’ disclosure violation claims, finding that such claims were time-barred because the plaintiffs failed to bring them within one year of the closing of the loan. However, the court denied the defendant assignee’s motion to dismiss with regard to the plaintiffs’ claims for damages stemming from the defendants’ alleged failure to rescind the loan. In doing so, the court explained that such claims were not time-barred because “the violation occurs not when the loan is consummated, but rather 20 days after receipt of the consumer’s notice of rescission.” Finally, the court held that the defendant assignee could be held liable for the lender’s alleged TILA violations, because some of these violations were apparent on the face of the loan documents. For a copy of the opinion and order, please see: http://www.buckleysandler.com/Garcia_v_HSBC.pdf.
FDIC Proposes Amendments to Securitization Safe Harbor. On December 15, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) approved issuance of an Advance Notice of Proposed Rulemaking (ANPR) treatment by the FDIC, as receiver or conservator of an insured depository institution, of financial assets transferred by the institution in connection with a securitization or participation after March 31, 2010. The FDIC is seeking to change such treatment in light of the June 2009 changes to FAS 166 and 167, which will result in most securitizations no longer meeting the off-balance sheet standards for sale treatment. The ANPR builds on the FDIC’s November, 2009 Interim Final Rule. The ANPR seeks comment for forty-five (45) days on a range of issues that are implicated by proposed standards for a safe harbor for participations and securitizations issued after March 31, 2010. For a copy of the ANPR, please see: http://www.fdic.gov/news/board/DEC152009no5.pdf.
Consumer Finance
Third Circuit Upholds Arbitration Clause in Car Title Loan Dispute. Recently, the U.S. Court of Appeals for the Third Circuit further defined the extent to which low-income borrowers may have access to legal remedies that were waived in executing short-term loan contracts. In Kaneff v. Delaware Title Loans, No. 08-1007 (3d Cir. Nov. 24, 2009), the court enforced a mandatory arbitration provision in a car title loan contract against a Pennsylvania resident who claimed to have received a car title loan in violation of Delaware usury laws. Plaintiff borrowed $500 for a term of one month at an annual interest rate of 300.01%. In receiving Using a multi-step process to analyze choice of law issues, the Third Circuit determined that Pennsylvania had a greater interest in the case and applied that state’s law. However, the Court concluded that the arbitration provision itself was not unconscionable under Pennsylvania law and sent the dispute to arbitration. For a copy of the opinion, please see: http://www.buckleysandler.com/Kaneff_v_DTL.pdf.
Litigation
Sixth Circuit Finds State Debt Collection Laws Not Preempted by National Bank Act. On December 14, the U.S. Court of Appeals for the Sixth Circuit, in a plaintiff-garnishors’ lawsuit alleging a defendant bank had improperly garnished funds to satisfy certain service fees, affirmed the dismissal of plaintiffs’ claims (2-1) and held: (i) the National Bank Act ("NBA") does not preempt general state debt collection laws, including laws regulating banks’ rights to collect debts, but (ii) on the other hand, the NBA’s grant of authority to banks to charge and collect fees preempted plaintiffs’ specific state-based conversion claim. See Read Monroe Retail, Inc. v. RBS Citizens, N.A., No. 07-4263 (6th Cir. Dec. 14, 2009). The Court also vacated the district court’s characterization of service fees as setoffs, further holding that the doctrine of setoff "applies only when banks use customers’ funds to satisfy an ‘independent contract’ and external debt to the bank." In dissent, the minority argued that the garnishment law at issue was one of general applicability that only incidentally affects national banks and thus, the NBA should not preempt plaintiffs’ claims. For a copy of the opinion, please see: http://www.buckleysandler.com/Monroe_v_RBS_Citizens.pdf.
Fifth Circuit Decertifies Class in RESPA Section 8(b) Case. On December 9, the U.S. Court of Appeals for the Fifth Circuit reversed the certification of a class of consumers with respect to the defendants’ alleged violations of the Real Estate Settlement Procedures Act (RESPA), although the court left intact the class certification of the plaintiffs’ state-law claims. Mims v. Stewart Title Guaranty Co., No. 09-10127, 2009 WL 4642631 (5th Cir. Dec. 9, 2009). In Mims, the plaintiff consumers refinanced their mortgage loans and obtained title insurance from defendant Stewart Title. The plaintiffs alleged that Stewart Title failed to provide the consumers with the rate discount required under Texas law for certain reissued title insurance policies. The plaintiffs alleged that Stewart Title’s failure to provide the reissue rate discount and splitting the excess charges between the insurer and its agents violated the prohibition in section 8(b) of RESPA regarding kickbacks and referral fees. The district court certified a class on the RESPA claims, as well as various state law claims. The circuit court reversed the certification of the class on the RESPA claims, finding that the district court abused its discretion “because the district court’s liability model for violations of RESPA § 8(b) requires an inquiry into the facts of each individual class member’s title insurance transaction.” The circuit court remanded the case to determine whether the district court should continue to exercise jurisdiction over the state-law claims. For a copy of the opinion, please see: http://www.buckleysandler.com/Mims_v_STG.pdf.
Third Circuit Upholds Arbitration Clause in Car Title Loan Dispute. Recently, the U.S. Court of Appeals for the Third Circuit further defined the extent to which low-income borrowers may have access to legal remedies that were waived in executing short-term loan contracts. In Kaneff v. Delaware Title Loans, No. 08-1007 (3d Cir. Nov. 24, 2009), the court enforced a mandatory arbitration provision in a car title loan contract against a Pennsylvania resident who claimed to have received a car title loan in violation of Delaware usury laws. Plaintiff borrowed $500 for a term of one month at an annual interest rate of 300.01%. In receiving Using a multi-step process to analyze choice of law issues, the Third Circuit determined that Pennsylvania had a greater interest in the case and applied that state’s law. However, the Court concluded that the arbitration provision itself was not unconscionable under Pennsylvania law and sent the dispute to arbitration. For a copy of the opinion, please see: http://www.buckleysandler.com/Kaneff_v_DTL.pdf.
Maryland Court Permits FCRA Claims Challenging Accuracy of Employment History Report to Survive Motion to Dismiss. On December 3, the U.S. District Court for the District of Maryland held that FCRA claims based on an allegedly false employment history report could survive a motion to dismiss. Schelhaus v. Sears, No. 1:09-cv-01145-JFM (D. Md. Dec. 3, 2009). The case arose when defendant, Sears, terminated the plaintiff for providing employee discounts to customers in violation of Sears’ discount program. Sears subsequently reported the termination to HireRight Solutions, Inc. (“HireRight”), an agency conducting a background check on the plaintiff for his prospective employer, describing the reason for termination as “award fraud.” Plaintiff sued both Sears and HireRight for this report, alleging that it violated the Fair Credit Reporting Act (FCRA). Specifically, plaintiff alleged that HireRight failed to follow reasonable procedures to assure the accuracy of the report and that Sears (i) failed to conduct an investigation into the veracity of the conclusion that he committed award fraud, (ii) failed to provide HireRight with information supporting its report, (iii) failed to amend its initial report of award fraud. Both Sears and HireRight moved to dismiss these claims based on a hand written statement that the plaintiff provided to Sear’s security team on the day he was terminated where he admits to violating the store’s discount policy. However, the court found this evidence insufficient to support the motion to dismiss because the statement indicated that the plaintiff may have acted with managerial knowledge and supervision. Additionally, the court noted that neither defendant provided a definition of “award fraud” or indicated how Plaintiff’s conduct amounted to a violation of company policy and fraud. As a result, the court declined to grant the defendants’ motions to dismiss plaintiff’s FCRA claims. For a copy of the opinion, please see: http://www.buckleysandler.com/Schelhaus_v_Sears.pdf.
Illinois District Court Holds Assignee, Not Servicer Potentially Liable for Lender’s TILA Violations. On December 7, the U.S. District Court for the Northern District of Illinois granted a defendant servicer’s motion to dismiss and granted in part and denied in part a defendant assignee’s motion to dismiss in a case in which the plaintiff borrowers alleged that the defendants violated the Truth in Lending Act (TILA) in connection with the origination of plaintiffs’ mortgage loan and the handling of the plaintiffs’ subsequent request to rescind the loan. Garcia v. HSBC Bank USA, N.A., No. 09-CV-1369, 2009 WL 4730961 (N.D. Ill. Dec. 7, 2009). In Garcia, the plaintiffs sued the defendants for the lender’s failure to provide certain material disclosures required by TILA and for failing to properly rescind the loan upon receipt of the plaintiffs’ request to do so. The court granted the defendant servicer’s motion to dismiss after determining that the imposition of liability for any TILA violations would be inappropriate, considering that the defendant was a servicer and had never obtained an ownership interest in the loan. Additionally, the court granted the defendant assignee’s motion to dismiss with regard to the plaintiffs’ disclosure violation claims, finding that such claims were time-barred because the plaintiffs failed to bring them within one year of the closing of the loan. However, the court denied the defendant assignee’s motion to dismiss with regard to the plaintiffs’ claims for damages stemming from the defendants’ alleged failure to rescind the loan. In doing so, the court explained that such claims were not time-barred because “the violation occurs not when the loan is consummated, but rather 20 days after receipt of the consumer’s notice of rescission.” Finally, the court held that the defendant assignee could be held liable for the lender’s alleged TILA violations, because some of these violations were apparent on the face of the loan documents. For a copy of the opinion and order, please see: http://www.buckleysandler.com/Garcia_v_HSBC.pdf.
Illinois District Court Dismisses FACTA Violation Claim Based on Email Order Confirmation. On December 2, the U.S. District Court for the Northern District of Illinois granted defendant’s motion to dismiss a complaint alleging violations of 15 U.S.C. § 1681c(g) of the Fair and Accurate Credit Transactions Act (FACTA), holding that an email order confirmation was not an “electronically printed” receipt nor was it provided “at the point of sale or transaction,” and thus, not entitled to FACTA protection. Shlahtichman v. 1-800 Contacts, Inc., Case No. 1:09cv04032 (N.D. Ill. Dec. 2, 1009). Plaintiff alleged that he purchased contact lenses over the internet from defendant 1-800 Contacts using a credit card. After making the purchase, he received a computer-generated receipt via email, which displayed the expiration date of his credit card. The court noted that “most” courts that have examined the question of whether an email order confirmation is considered an electronically printed receipt have found that the term “print” is not commonly understood to apply to a display on a computer screen, and thus does not apply to email confirmations. The court also cited other opinions holding that § 1681c(g) as a whole contemplates “in-store transactions” and that there is no tangible “point of sale or transaction” with respect to e-commerce. For a copy of the opinion, please see: http://www.buckleysandler.com/Shlahtichman_v_Contacts.pdf.
E-Financial Services
Illinois District Court Dismisses FACTA Violation Claim Based on Email Order Confirmation. On December 2, the U.S. District Court for the Northern District of Illinois granted defendant’s motion to dismiss a complaint alleging violations of 15 U.S.C. § 1681c(g) of the Fair and Accurate Credit Transactions Act (FACTA), holding that an email order confirmation was not an “electronically printed” receipt nor was it provided “at the point of sale or transaction,” and thus, not entitled to FACTA protection. Shlahtichman v. 1-800 Contacts, Inc., Case No. 1:09cv04032 (N.D. Ill. Dec. 2, 1009). Plaintiff alleged that he purchased contact lenses over the internet from defendant 1-800 Contacts using a credit card. After making the purchase, he received a computer-generated receipt via email, which displayed the expiration date of his credit card. The court noted that “most” courts that have examined the question of whether an email order confirmation is considered an electronically printed receipt have found that the term “print” is not commonly understood to apply to a display on a computer screen, and thus does not apply to email confirmations. The court also cited other opinions holding that § 1681c(g) as a whole contemplates “in-store transactions” and that there is no tangible “point of sale or transaction” with respect to e-commerce. For a copy of the opinion, please see: http://www.buckleysandler.com/Shlahtichman_v_Contacts.pdf.
Privacy/Data Security
House Passes Data Breach Notification Bill. On December 8, the House of Representatives passed the “Data Accountability and Trust Act” (H.R. 2221), which would create federal data breach notification and information security requirements for businesses that possess data containing personal information. Under the bill, businesses that own or possess personal information in electronic form would need to notify affected individuals and the Federal Trade Commission (FTC) following a data security breach. The bill also sets forth data breach notification requirements for certain third-party agents and service providers. In addition, H.R. 2221 requires the FTC to promulgate regulations requiring businesses that own or possess personal information to implement information security policies and procedures. It also sets forth provisions applicable to “information brokers,” including provisions requiring procedures “to assure the maximum possible accuracy” of collected information. The bill would preempt state information security laws and would apply only to those persons and entities over which the FTC has authority pursuant to section 5(a)(2) of the Federal Trade Commission Act. In addition to FTC enforcement, H.R. 2221 provides for enforcement by state attorneys general and would impose a $5 million maximum civil penalty for each violation of the information security requirements, including the information broker provisions, and a $5 million maximum civil penalty for all violations of the data breach notification requirements resulting from a single breach of security. For a copy of H.R. 2221, please see: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h2221rh.txt.pdf.
Credit Cards
Connecticut Attorney General Challenges Credit Card Interest Rate and Fee Increases by Major Financial Institutions. On December 14, Connecticut Attorney General Richard Blumenthal sent a letter to 11 major financial institutions demanding that they reverse any credit card interest rate and fee increases made since January of this year. Blumenthal accused these institutions of attempting to evade rate restrictions contained in the federal Credit Card Accountability Responsibility and Disclosure Act (CARD Act) by raising consumer credit card interest rates and fees in anticipation of the Act’s February 2010 effective date. In his letter, Blumenthal called for the institutions to roll back their credit card interest rates and fees to their January 2009 levels and to provide his office with detailed information to justify the increases. If the financial institutions refuse to comply with his requests, Blumenthal has threatened to lobby federal authorities for stricter regulations and tougher enforcement of the CARD Act. For a copy of the Attorney General’s press release, please see http://www.ct.gov/ag/cwp/view.asp?Q=452202&A=3673.