InfoBytes, February 19, 2010

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Federal Issues

OCC Issues Guidance on Tax-Refund-Related Products. On February 18, the Office of the Comptroller of the Currency (OCC) issued a consumer advisory and policy statement regarding tax refund related products, including refund anticipation loans (RALs). The OCC noted that RALs and similar products raise particular consumer protection, as well as safety and soundness, concerns because of their unique repayment and cost structures, coupled with banks’ reliance on third-party tax preparation services. The OCC’s guidance emphasizes the OCC’s existing positions in this area. The consumer advisory notes that consumers may pursue other, less expensive options than RALs, such as direct deposit. The policy statement notes the safety and soundness and consumer protection concerns for national banks that offer RALs and related products. The policy statement adds requirements for national banks in regard to consumer disclosures, contract terms, fees, and compliance-verification procedures. The OCC notes that it expects institutions to implement this guidance in 2010, to the extent practicable, and that the enhanced disclosures are expected to be implemented for tax refund related products in 2011. The OCC also announced that it will be running public service announcements in print and on the radio highlighting the risks of RALs and encouraging the use of direct deposit. For a copy of the OCC’s press release, please see http://www.occ.treas.gov/ftp/release/2010-15.htm. For a copy of the policy statement, please see http://www.occ.gov/ftp/bulletin/2010-7.html. For a copy of the consumer advisory, please see http://www.occ.gov/ftp/ADVISORY/2010-1.html.  

FHFA Issues New GSE Affordable Housing Goals and Reporting Requirements. On February 17 the Federal Housing Finance Agency (FHFA) proposed new affordable housing goals for Fannie Mae and Freddie Mac (the GSEs). Among other things, the proposal would (i) not grant the GSEs credit for purchases of mortgage in private-label securities, and (ii) allow the use of benchmarks keyed to overall market share, rather than specific targets, when determining if the GSEs have met the goals. Comment is due 45 days after publication in the Federal Register. For a copy of the proposal, please see http://www.fhfa.gov/webfiles/15406/2010-2011%20Enterp%20Hsng%20Goals%20to%20Fed%20Reg_Signed%20%282%29.pdf.

FinCEN Issues Trade-Based Money Laundering Advisory. On February 18 the Financial Crimes Enforcement Network (FinCEN) issued an advisory highlighting various activities potentially indicative of trade-based money laundering based on a report analyzing recent Suspicious Activity Reports (SARs). The report notes that there has been an increase in SAR filings in this area and that the activities often take place in U.S. trade with Central and South America. The advisory lists numerous red flags and requests that financial institutions use specific procedures when filing trade-based money laundering SARs. For a copy of the advisory, please see http://www.fincen.gov/statutes_regs/guidance/pdf/fin-2010-a001.pdf.

HUD Extends Comment Period for SAFE Act Minimum Standards Proposal. On February 17 the U.S. Department of Housing and Urban Development (HUD) announced it will extend the comment period for its proposal setting forth minimum standards for state laws that effect the requirements of the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) (the proposal was reported in InfoBytes, Dec. 11, 2009). The new comment period deadline is March 5, 2010. Among other things, the proposal seeks to clarify and interpret ambiguous or undefined terms contained in the SAFE Act, such as “engage in the business of a loan originator,” “take an application,” and “offering or negotiating.” For a copy of the proposal, please see http://www.buckleysandler.com/SAFE_PR_1209.pdf. For a copy of the notice, please see http://edocket.access.gpo.gov/2010/pdf/2010-3087.pdf.

FFIEC Revises White Paper on Mortgage Fraud. On February 16 the Federal Financial Institutions Examination Council (FFIEC) released a white paper entitled The Detection and Deterrence of Mortgage Fraud Against Financial Institutions: 2009 Mortgage Fraud White Paper. The publication, among other things, details numerous new and emerging mortgage fraud schemes along with the red flags associated with them and substantially revises the FFIEC’s previous white paper on mortgage fraud, which was released in February 2005. Although the white paper establishes no new examination policies or procedures and imposes no new requirements on regulated institutions, it is designed to serve as a field guide for examiners. For a copy of the FFIEC white paper, please see http://www.ffiec.gov/exam/Mtg_Fraud_wp_Feb2010.pdf.

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State Issues

Arizona Settles Anti-Money Allegations; Four States Create Anti-Money Laundering Alliance. On February 11 Arizona Attorney General Terry Goddard announced that his office entered into an agreement with Western Union to resolve allegations that the company failed to implement sufficient controls to detect and prevent cross-border money laundering. Under the settlement, Western Union agreed to (i) increase its anti-money laundering budget by an additional $19 million for its operations in Arizona, California, New Mexico, and Texas , (ii) provide $4 million in funds for an independent monitor to oversee its anti-money laundering efforts, (iii) pay $21 million to reimburse investigation costs, and (iv) contribute $50 million to the Center for State Enforcement of Antitrust and Consumer Protection Laws. The Center for State Enforcement of Antitrust and Consumer Protection Laws will use the $50 million from the settlement to establish a Southwest Border Anti-Money Laundering Alliance (the Alliance) amongst Arizona, California, New Mexico, and Texas. The Alliance will coordinate investigations and prosecutions of money laundering and provide grants to law enforcement operations targeting money laundering. For a copy of the press release, please see http://www.azag.gov/press_releases/feb/2010/Press%20Release%20-%20Western%20Union%202-11-10.html; for a copy of the Southwest Border Anti-Money Laundering Alliance governing agreement, please see http://ag.ca.gov/cms_attachments/press/pdfs/n1860_alliance_governing_agreement.pdf.

Florida Regulator Announces Administrative Charges for Unlicensed Loan Modifications. On February 18, the Commissioner of the Florida Office of Financial Regulation announced administrative charges against six entities – Foreclosure Solution Specialists, Inc., Federal Housing Assistance Program, LLC, American Eagle Loan Modification, Inc., Liberty Home Solutions, Keep Living in Your Home Inc., and Pierina Montana, P.A. – for providing loan modification services without a license. Under a new law, effective January 1, 2010, individuals and companies providing loan modification services (e.g., refinancing or adjusting interest rates) to Florida borrowers must maintain an active Florida mortgage lender, mortgage broker or correspondent mortgage lender license (reported in InfoBytes, Dec. 11, 2009). Under the law, loan modification service providers are prohibited from charging up-front fees for loan modification services. Further, unlicensed persons or entities that provide loan modification services to Florida borrowers may be subject to criminal penalties. For a copy of the press release, please see http://www.flofr.com/PressReleases/ViewMediaRelease.asp?ID=3431.

Missouri Department of Insurance Fines Title Insurance Companies. On February 11, the Missouri Department of Insurance (the Department) announced fines totaling $500,000 against four title insurance companies owned by Fidelity National Financial Group. According to the Department, a recent examination discovered that the companies (i) charged incorrect premiums and fees to consumers, and (ii) utilized insurance policies that had not been approved by the Department. In addition to the fines, the companies will correct certain business practices and issue refunds to consumers who were overcharged on fees. For a copy of the press release, please see http://insurance.mo.gov/news/2010/Missouri_Department_of_Insurance_fines_title_insurance_company_500_000.

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Courts

D.C. Federal Court Grants Injunction of FDIC Order. On February 16, the U.S. District Court for the District Court of Columbia issued an injunction against the Federal Deposit Insurance Corporation (FDIC) prohibiting it from enforcing a temporary cease and desist order against Advanta Bank, holding that the FDIC’s had exceeded its statutory authority. BuckleySandler LLP represented Advanta Bank in this dispute. Advanta Bank v. FDIC, No. 09-2423 (D.D.C. Feb. 16, 2010). The plaintiff, a well-capitalized bank whose primary activity was to hold deposits for affiliates, had been in the process of voluntary liquidation since mid-2009 after being instructed by the FDIC to liquidate and terminate deposit insurance or begin offering services to the public. The FDIC’s allegations against the bank stem from financial difficulties experienced by the bank’s indirect parent company, which declared bankruptcy in November, and by an affiliated financial institution. On December 24, the bank applied to the court for injunctive relief from a December 16 temporary cease and desist order issued by the FDIC. The court found that to support the issuance of the temporary cease and desist order, the alleged unsafe or unsound practices must be likely to cause significant dissipation of assets; alleged unsafe or unsound practices unrelated to the dissipation of assets are insufficient. The court concluded that the alleged unsafe or unsound practices were not the cause of any “dissipation” of assets, but rather that the dissipation of assets was a result of the bank complying with the FDIC’s request that the bank liquidate and terminate its deposit insurance. In its decision the court noted that financial institutions rarely avail themselves of the right to challenge a temporary order in federal court, and that federal courts rarely grant such injunctions. However, the court found that “[t]he deference due to the agency in interpreting § 1818(c) is not limitless and does not allow for the contravention of the law which gave the agency its authority.” The FDIC has appealed the decision to the Court of Appeals for the District of Columbia Circuit. The FDIC has also moved for a stay of the court’s order pending appeal and the plaintiff filed an opposition. For a copy of the opinion, please see http://www.buckleysandler.com/Advanta_v_FDIC.pdf.

Louisiana Appellate Court Holds YSP Included in HOEPA Points and Fees Test Calculation. On January 26 the Court of Appeals of Louisiana, Fifth Circuit held, among other things, that a yield spread premium (YSP) should be included in the points and fees calculation under the Home Ownership and Equity Protection Act (HOEPA). Bank of N.Y. v. Parnell, No. 09-CA-439, 2010 WL 291752 (La. Ct. App. Jan. 26, 2010). In Parnell, the plaintiff bank filed foreclosure proceedings against the defendant borrower. In defense the borrower argued that the mortgage was void—and that foreclosure on the property was, therefore, wrongful—because the bank failed to provide material disclosures required under HOEPA. The court reversed the lower court’s dismissal of the plaintiff’s HOEPA claim, agreeing with the borrower that the total amount of points and fees on the loan exceeded eight percent and, thus, triggered HOEPA’s disclosure requirements. Importantly, the court concluded that the yield spread premium (YSP) charged to the borrower should have been included in the points and fees test calculation, as it constituted “points and fees payable by [the plaintiff] at or before closing.” According to the court, a YSP, while financed over the course of a loan, should be included in the points and fees test calculation because it is, in fact, “payable” at the time of loan closing. This court decision is at variance with the Federal Reserve Board’s Regulation Z, which implements the Truth in Lending Act (including HOEPA). The court additionally affirmed the dismissal of the borrower’s RESPA claim arising out of the bank’s alleged failure to respond to the borrower’s qualified written request for an accounting. The court reasoned that because the bank was not a servicer, the bank was not liable under the servicer provisions of RESPA pertaining to qualified written requests. The court also affirmed the lower court’s dismissal of the borrower’s Louisiana Unfair Trade Practices and Consumer Protection Law (LUTPA) claim, holding that the bank was covered by LUTPA’s exemption for financial institutions subject to federal banking regulation. Finally, the court reversed the lower court’s dismissal of the borrower’s claims for damages under state law for wrongful seizure of the property and wrongful acceleration of the note. In doing so, the court emphasized that issues of material fact still existed as to whether the bank complied with contractual requirements in accelerating the sums secured by the defendant’s mortgage. For a copy of the opinion, please see http://www.buckleysandler.com/Bank_of_NY_v_Parnell.pdf.

California Federal Court Holds FCRA Preempts California State Law Claims. On February 2 the U.S. District Court for the Northern District of California held that the Fair Credit Reporting Act (FCRA) preempts certain claims under the California Consumer Credit Reporting Agencies Act (CCRAA) and the California Unfair Competition Law (UCL). Wang v. Asset Acceptance, LLC, No. 09-4794-SC, 2010 WL 409848 (N.D. Cal. Feb. 2, 2010). In Wang, the plaintiff consumer brought a putative class action against defendant debt collection agency, stating that the debt collection agency’s alleged practice of reporting debts to credit reporting agencies (CRA) without reporting that the debts are disputed or that the debts are passed their statute of limitations violates CCRAA § 1785.25(a) and UCL § 17200. The debt collection agency moved to dismiss, arguing that the consumer’s claims were preempted by FCRA. The court granted the motion in part and denied it in part. While recognizing that CCRAA § 1785.25(a) is expressly excluded from FCRA preemption, the court held that the claim was, nonetheless, preempted, because the claim should have been brought under Section 1785.25(c) of the CCRAA – prohibiting the reporting of information that is disputed by the consumer without noting that it is disputed – which does not enjoy such exclusion from FCRA preemption. With respect to the consumer’s claim that the debt collection agency failed to report information related to the debt’s statute of limitations, the court held that Section 1785.25(a) of the CCRAA does not expressly impose such a duty, and that implying such a per se duty would not be appropriate because the statute of limitations is an affirmative defense subject to waiver. However, the court held that, in the instant case, the individual the consumer had stated a claim under CCRAA § 1785.25(a) because there was evidence that the consumer had successfully relied on the statute of limitations defense in the past and that the debt collection agency was not actually pursuing his debt because of that defense. However, the court did not decide whether this claim would be a viable class claim. Finally, the court held that the consumer’s UCL § 17200 claims based on the debt collection agency’s alleged failure to report that a debt was in dispute or that a debt was past its statue of limitations are preempted by FCRA because enforcing such a claim “would impose an independent requirement or prohibition on furnishers of information to CRAs.” For a copy of the opinion, please see http://www.buckleysandler.com/Wang_v_Asset.pdf.

Alabama Federal Court Holds Reporting of Disputed Debt to Credit Reporting Agencies Constitutes “Collection Activity” Under FDCPA. On January 27, the United States District Court for the Southern District of Alabama approved a magistrate judge’s finding that failing to respond to a debt verification request and subsequently failing to notify credit reporting agencies (CRAs) that the debt was in dispute violated the Fair Debt Collection Practices Act (FDCPA). Quale v. Unifund CCR Partners, No. 09-0519, 2010 WL 338044 (S.D. Ala. Jan. 27, 2010). In Quale, defendant debt collector reported debts disputed by the plaintiff to CRAs without notifying the CRAs that the debt was in dispute. The debt collector argued that, because it ceased its collection activities after receiving the request, it did not violate the FDCPA for failing to respond to the consumer’s debt verification request. The court rejected this argument, reasoning that reporting the debt to CRAs without notifying the CRAs that the debt was in dispute constituted a “collection activity” under the FDCPA. However, the court granted the debt collector’s motion to dismiss the consumer’s Fair Credit Reporting Act (FCRA) claim, holding that FCRA does not provide a private right of action where a furnisher of information may have reported incorrect information to CRAs. The court noted that FCRA does afford a private right of action where a furnisher of information receives notice of a dispute from a consumer reporting agency and then fails to investigate the accuracy of the reported information; however, this was not alleged by the consumer in Quale. For a copy of the magistrate judge’s opinion, please see http://www.buckleysandler.com/Quale_v_Unifund_2.pdf.

California Court Holds FCRA Preempts California’s Confidentiality of Medical Information Act. On January 29, the California Court of Appeals, Second District, held that the Fair Credit Reporting Act (FCRA) preempts claims regarding the disclosure of medical information under California’s Confidentiality of Medical Information Act (CMIA). Brown v. Mortensen, No. B199793, 2010 WL 324749 (Cal. Ct. App. Jan. 29, 2010). In this case, the plaintiff disputed a medical debt with the defendant debt collector. To verify the existence of the debt, the debt collector disclosed confidential medical information to three consumer credit reporting agencies. The plaintiff subsequently filed suit, arguing that the disclosure of the records violated the CMIA. Holding that FCRA expressly preempted the claim, the court noted that FCRA “preempts state law relating to the duties of furnishers of information to consumer reporting agencies” and reasoned that, because “[the CMIA claims] are rooted in [the debt collector’s] furnishing of information to consumer reporting agencies,” FCRA preempted the consumer’s CMIA claims, regardless of the fact that the CMIA pertains to the disclosure of medical information and not to consumer reporting. In arriving at its decision, the court noted that its approach accorded with several decisions finding for preemption of state law by FCRA, including (i) Pirouzian v. SLM Corp., 396 F.Supp.2d 1124 (S.D.Cal. 2005), which held that FCRA preempted certain claims under the Rosenthal California Fair Debt Collection Practices Act (CFDCPA), (ii) Howard v. Blue Ridge Bank, 371 F.Supp.2d 1139 (N.D.Cal. 2005), which held that FCRA preempted an unfair competition claim brought under section 17200 of the California Business and Professions Code, (iii) Roybal v. Equifax, 405 F.Supp.2d 1177 (E.D.Cal. 2005), which held that FCRA preempted negligence and negligent misrepresentation claims, as well as claims for violations of section 17200 of the California Business and Professions Code, the CFDCPA, and the California Consumer Legal Remedies Act, and (iv) Sanai v. Saltz 170 Cal.App.4th 746 (Cal. Ct. App. 2009), which held that FCRA preempted claims of slander, libel, intentional and negligent interference with prospective economic advantage, intentional and negligent infliction of emotional distress, and violations of the California Consumer Credit Reporting Agencies Act. The court noted that, while the 2003 amendment to FCRA, the Fair and Accurate Credit Transactions Act (FACTA), addresses the use and sharing of medical information in connection with debt collection, the court held that those provisions did not apply in this case because the events in dispute and the filing of the complaint occurred prior to the effective date of FACTA. For a copy of the opinion, please see http://www.buckleysandler.com/Brown_v_Mortensen.pdf.

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Firm News

Clint Rockwell was recently appointed to a three-year term of membership to the Business Law Section of the State Bar of California’s Consumer Financial Services Committee.

Chris Witeck will be a participant on a panel regarding “What’s up with Ginnie Mae?” at the NRMLA Roadshow in Atlanta, GA on February 25.

Sara Emley will speak at the Investment Adviser Association/ACA Insight 2010 Adviser Compliance Forum on February 25 in Arlington, VA. Her topic is “Current Hot Topics for Managers with Individual Clients.”

David Baris will speak regarding bank director liability at the NACD/AABD Bank Director Workshop on April 14.

Jonathan Cannon was quoted in a January 22 article in RESPA News entitled “Judge Issues Another Ruling in RESPA ‘Thing of Value’ Case Involving Inflated Appraisals.”

Margo Tank presented a CLE telephone seminar entitled “Electronic Signatures and Records—What’s the Current Law?” on January 26.

Andrew Sandler spoke at the American Conference Institute’s 9th Annual Conference on Consumer Finance Class Actions & Litigation in New York City on January 27-8.

Jennifer Slagle Peck spoke at an event at American University Washington College of Law on Thursday, February 4 regarding legal careers.

John Kromer was a participant in a panel entitled "Federal Registration of Mortgage Loan Originators and NMLS" on February 10 at the 2010 NMLS User Conference in San Diego, CA.

Andrew Sandler spoke at ZC Sterling’s President’s Advisory Board in Palm Springs, CA last week, delivering a presentation regarding Industry Updates.

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Miscellany

Cyber Attack Affects Over 75,000 Computer Systems. According to reports, more than 75,000 computer systems at nearly 2,500 companies worldwide have been targeted in an online cyber attack that began in late 2008. The hackers reportedly used malicious software to obtain log-in credentials and passwords to sites, including online banking sites.

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Mortgages

FHFA Issues New GSE Affordable Housing Goals and Reporting Requirements. On February 17 the Federal Housing Finance Agency (FHFA) proposed new affordable housing goals for Fannie Mae and Freddie Mac (the GSEs). Among other things, the proposal would (i) not grant the GSEs credit for purchases of mortgage in private-label securities, and (ii) allow the use of benchmarks keyed to overall market share, rather than specific targets, when determining if the GSEs have met the goals. Comment is due 45 days after publication in the Federal Register. For a copy of the proposal, please see http://www.fhfa.gov/webfiles/15406/2010-2011%20Enterp%20Hsng%20Goals%20to%20Fed%20Reg_Signed%20%282%29.pdf.

HUD Extends Comment Period for SAFE Act Minimum Standards Proposal. On February 17 the U.S. Department of Housing and Urban Development (HUD) announced it will extend the comment period for its proposal setting forth minimum standards for state laws that effect the requirements of the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) (the proposal was reported in InfoBytes, Dec. 11, 2009). The new comment period deadline is March 5, 2010. Among other things, the proposal seeks to clarify and interpret ambiguous or undefined terms contained in the SAFE Act, such as “engage in the business of a loan originator,” “take an application,” and “offering or negotiating.” For a copy of the proposal, please see http://www.buckleysandler.com/SAFE_PR_1209.pdf. For a copy of the notice, please see http://edocket.access.gpo.gov/2010/pdf/2010-3087.pdf.

Florida Regulator Announces Administrative Charges for Unlicensed Loan Modifications. On February 18, the Commissioner of the Florida Office of Financial Regulation announced administrative charges against six entities – Foreclosure Solution Specialists, Inc., Federal Housing Assistance Program, LLC, American Eagle Loan Modification, Inc., Liberty Home Solutions, Keep Living in Your Home Inc., and Pierina Montana, P.A. – for providing loan modification services without a license. Under a new law, effective January 1, 2010, individuals and companies providing loan modification services (e.g., refinancing or adjusting interest rates) to Florida borrowers must maintain an active Florida mortgage lender, mortgage broker or correspondent mortgage lender license (reported in InfoBytes, Dec. 11, 2009). Under the law, loan modification service providers are prohibited from charging up-front fees for loan modification services. Further, unlicensed persons or entities that provide loan modification services to Florida borrowers may be subject to criminal penalties. For a copy of the press release, please see http://www.flofr.com/PressReleases/ViewMediaRelease.asp?ID=3431.

Louisiana Appellate Court Holds YSP Included in HOEPA Points and Fees Test Calculation. On January 26 the Court of Appeals of Louisiana, Fifth Circuit held, among other things, that a yield spread premium (YSP) should be included in the points and fees calculation under the Home Ownership and Equity Protection Act (HOEPA). Bank of N.Y. v. Parnell, No. 09-CA-439, 2010 WL 291752 (La. Ct. App. Jan. 26, 2010). In Parnell, the plaintiff bank filed foreclosure proceedings against the defendant borrower. In defense the borrower argued that the mortgage was void—and that foreclosure on the property was, therefore, wrongful—because the bank failed to provide material disclosures required under HOEPA. The court reversed the lower court’s dismissal of the plaintiff’s HOEPA claim, agreeing with the borrower that the total amount of points and fees on the loan exceeded eight percent and, thus, triggered HOEPA’s disclosure requirements. Importantly, the court concluded that the yield spread premium (YSP) charged to the borrower should have been included in the points and fees test calculation, as it constituted “points and fees payable by [the plaintiff] at or before closing.” According to the court, a YSP, while financed over the course of a loan, should be included in the points and fees test calculation because it is, in fact, “payable” at the time of loan closing. This court decision is at variance with the Federal Reserve Board’s Regulation Z, which implements the Truth in Lending Act (including HOEPA). The court additionally affirmed the dismissal of the borrower’s RESPA claim arising out of the bank’s alleged failure to respond to the borrower’s qualified written request for an accounting. The court reasoned that because the bank was not a servicer, the bank was not liable under the servicer provisions of RESPA pertaining to qualified written requests. The court also affirmed the lower court’s dismissal of the borrower’s Louisiana Unfair Trade Practices and Consumer Protection Law (LUTPA) claim, holding that the bank was covered by LUTPA’s exemption for financial institutions subject to federal banking regulation. Finally, the court reversed the lower court’s dismissal of the borrower’s claims for damages under state law for wrongful seizure of the property and wrongful acceleration of the note. In doing so, the court emphasized that issues of material fact still existed as to whether the bank complied with contractual requirements in accelerating the sums secured by the defendant’s mortgage. For a copy of the opinion, please see http://www.buckleysandler.com/Bank_of_NY_v_Parnell.pdf.

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Banking

OCC Issues Guidance on Tax-Refund-Related Products. On February 18, the Office of the Comptroller of the Currency (OCC) issued a consumer advisory and policy statement regarding tax refund related products, including refund anticipation loans (RALs). The OCC noted that RALs and similar products raise particular consumer protection, as well as safety and soundness, concerns because of their unique repayment and cost structures, coupled with banks’ reliance on third-party tax preparation services. The OCC’s guidance emphasizes the OCC’s existing positions in this area. The consumer advisory notes that consumers may pursue other, less expensive options than RALs, such as direct deposit. The policy statement notes the safety and soundness and consumer protection concerns for national banks that offer RALs and related products. The policy statement adds requirements for national banks in regard to consumer disclosures, contract terms, fees, and compliance-verification procedures. The OCC notes that it expects institutions to implement this guidance in 2010, to the extent practicable, and that the enhanced disclosures are expected to be implemented for tax refund related products in 2011. The OCC also announced that it will be running public service announcements in print and on the radio highlighting the risks of RALs and encouraging the use of direct deposit. For a copy of the OCC’s press release, please see http://www.occ.treas.gov/ftp/release/2010-15.htm. For a copy of the policy statement, please see http://www.occ.gov/ftp/bulletin/2010-7.html. For a copy of the consumer advisory, please see http://www.occ.gov/ftp/ADVISORY/2010-1.html.  

FinCEN Issues Trade-Based Money Laundering Advisory. On February 18 the Financial Crimes Enforcement Network (FinCEN) issued an advisory highlighting various activities potentially indicative of trade-based money laundering based on a report analyzing recent Suspicious Activity Reports (SARs). The report notes that there has been an increase in SAR filings in this area and that the activities often take place in U.S. trade with Central and South America. The advisory lists numerous red flags and requests that financial institutions use specific procedures when filing trade-based money laundering SARs. For a copy of the advisory, please see http://www.fincen.gov/statutes_regs/guidance/pdf/fin-2010-a001.pdf.

FFIEC Revises White Paper on Mortgage Fraud. On February 16 the Federal Financial Institutions Examination Council (FFIEC) released a white paper entitled The Detection and Deterrence of Mortgage Fraud Against Financial Institutions: 2009 Mortgage Fraud White Paper. The publication, among other things, details numerous new and emerging mortgage fraud schemes along with the red flags associated with them and substantially revises the FFIEC’s previous white paper on mortgage fraud, which was released in February 2005. Although the white paper establishes no new examination policies or procedures and imposes no new requirements on regulated institutions, it is designed to serve as a field guide for examiners. For a copy of the FFIEC white paper, please see http://www.ffiec.gov/exam/Mtg_Fraud_wp_Feb2010.pdf.

Arizona Settles Anti-Money Allegations; Four States Create Anti-Money Laundering Alliance. On February 11 Arizona Attorney General Terry Goddard announced that his office entered into an agreement with Western Union to resolve allegations that the company failed to implement sufficient controls to detect and prevent cross-border money laundering. Under the settlement, Western Union agreed to (i) increase its anti-money laundering budget by an additional $19 million for its operations in Arizona, California, New Mexico, and Texas , (ii) provide $4 million in funds for an independent monitor to oversee its anti-money laundering efforts, (iii) pay $21 million to reimburse investigation costs, and (iv) contribute $50 million to the Center for State Enforcement of Antitrust and Consumer Protection Laws. The Center for State Enforcement of Antitrust and Consumer Protection Laws will use the $50 million from the settlement to establish a Southwest Border Anti-Money Laundering Alliance (the Alliance) amongst Arizona, California, New Mexico, and Texas. The Alliance will coordinate investigations and prosecutions of money laundering and provide grants to law enforcement operations targeting money laundering. For a copy of the press release, please see http://www.azag.gov/press_releases/feb/2010/Press%20Release%20-%20Western%20Union%202-11-10.html; for a copy of the Southwest Border Anti-Money Laundering Alliance governing agreement, please see http://ag.ca.gov/cms_attachments/press/pdfs/n1860_alliance_governing_agreement.pdf.

D.C. Federal Court Grants Injunction of FDIC Order. On February 16, the U.S. District Court for the District Court of Columbia issued an injunction against the Federal Deposit Insurance Corporation (FDIC) prohibiting it from enforcing a temporary cease and desist order against Advanta Bank, holding that the FDIC’s had exceeded its statutory authority. BuckleySandler LLP represented Advanta Bank in this dispute. Advanta Bank v. FDIC, No. 09-2423 (D.D.C. Feb. 16, 2010). The plaintiff, a well-capitalized bank whose primary activity was to hold deposits for affiliates, had been in the process of voluntary liquidation since mid-2009 after being instructed by the FDIC to liquidate and terminate deposit insurance or begin offering services to the public. The FDIC’s allegations against the bank stem from financial difficulties experienced by the bank’s indirect parent company, which declared bankruptcy in November, and by an affiliated financial institution. On December 24, the bank applied to the court for injunctive relief from a December 16 temporary cease and desist order issued by the FDIC. The court found that to support the issuance of the temporary cease and desist order, the alleged unsafe or unsound practices must be likely to cause significant dissipation of assets; alleged unsafe or unsound practices unrelated to the dissipation of assets are insufficient. The court concluded that the alleged unsafe or unsound practices were not the cause of any “dissipation” of assets, but rather that the dissipation of assets was a result of the bank complying with the FDIC’s request that the bank liquidate and terminate its deposit insurance. In its decision the court noted that financial institutions rarely avail themselves of the right to challenge a temporary order in federal court, and that federal courts rarely grant such injunctions. However, the court found that “[t]he deference due to the agency in interpreting § 1818(c) is not limitless and does not allow for the contravention of the law which gave the agency its authority.” The FDIC has appealed the decision to the Court of Appeals for the District of Columbia Circuit. The FDIC has also moved for a stay of the court’s order pending appeal and the plaintiff filed an opposition. For a copy of the opinion, please see http://www.buckleysandler.com/Advanta_v_FDIC.pdf.

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Consumer Finance

California Federal Court Holds FCRA Preempts California State Law Claims. On February 2 the U.S. District Court for the Northern District of California held that the Fair Credit Reporting Act (FCRA) preempts certain claims under the California Consumer Credit Reporting Agencies Act (CCRAA) and the California Unfair Competition Law (UCL). Wang v. Asset Acceptance, LLC, No. 09-4794-SC, 2010 WL 409848 (N.D. Cal. Feb. 2, 2010). In Wang, the plaintiff consumer brought a putative class action against defendant debt collection agency, stating that the debt collection agency’s alleged practice of reporting debts to credit reporting agencies (CRA) without reporting that the debts are disputed or that the debts are passed their statute of limitations violates CCRAA § 1785.25(a) and UCL § 17200. The debt collection agency moved to dismiss, arguing that the consumer’s claims were preempted by FCRA. The court granted the motion in part and denied it in part. While recognizing that CCRAA § 1785.25(a) is expressly excluded from FCRA preemption, the court held that the claim was, nonetheless, preempted, because the claim should have been brought under Section 1785.25(c) of the CCRAA – prohibiting the reporting of information that is disputed by the consumer without noting that it is disputed – which does not enjoy such exclusion from FCRA preemption. With respect to the consumer’s claim that the debt collection agency failed to report information related to the debt’s statute of limitations, the court held that Section 1785.25(a) of the CCRAA does not expressly impose such a duty, and that implying such a per se duty would not be appropriate because the statute of limitations is an affirmative defense subject to waiver. However, the court held that, in the instant case, the individual the consumer had stated a claim under CCRAA § 1785.25(a) because there was evidence that the consumer had successfully relied on the statute of limitations defense in the past and that the debt collection agency was not actually pursuing his debt because of that defense. However, the court did not decide whether this claim would be a viable class claim. Finally, the court held that the consumer’s UCL § 17200 claims based on the debt collection agency’s alleged failure to report that a debt was in dispute or that a debt was past its statue of limitations are preempted by FCRA because enforcing such a claim “would impose an independent requirement or prohibition on furnishers of information to CRAs.” For a copy of the opinion, please see http://www.buckleysandler.com/Wang_v_Asset.pdf.

Alabama Federal Court Holds Reporting of Disputed Debt to Credit Reporting Agencies Constitutes “Collection Activity” Under FDCPA. On January 27, the United States District Court for the Southern District of Alabama approved a magistrate judge’s finding that failing to respond to a debt verification request and subsequently failing to notify credit reporting agencies (CRAs) that the debt was in dispute violated the Fair Debt Collection Practices Act (FDCPA). Quale v. Unifund CCR Partners, No. 09-0519, 2010 WL 338044 (S.D. Ala. Jan. 27, 2010). In Quale, defendant debt collector reported debts disputed by the plaintiff to CRAs without notifying the CRAs that the debt was in dispute. The debt collector argued that, because it ceased its collection activities after receiving the request, it did not violate the FDCPA for failing to respond to the consumer’s debt verification request. The court rejected this argument, reasoning that reporting the debt to CRAs without notifying the CRAs that the debt was in dispute constituted a “collection activity” under the FDCPA. However, the court granted the debt collector’s motion to dismiss the consumer’s Fair Credit Reporting Act (FCRA) claim, holding that FCRA does not provide a private right of action where a furnisher of information may have reported incorrect information to CRAs. The court noted that FCRA does afford a private right of action where a furnisher of information receives notice of a dispute from a consumer reporting agency and then fails to investigate the accuracy of the reported information; however, this was not alleged by the consumer in Quale. For a copy of the magistrate judge’s opinion, please see http://www.buckleysandler.com/Quale_v_Unifund_2.pdf.

California Court Holds FCRA Preempts California’s Confidentiality of Medical Information Act. On January 29, the California Court of Appeals, Second District, held that the Fair Credit Reporting Act (FCRA) preempts claims regarding the disclosure of medical information under California’s Confidentiality of Medical Information Act (CMIA). Brown v. Mortensen, No. B199793, 2010 WL 324749 (Cal. Ct. App. Jan. 29, 2010). In this case, the plaintiff disputed a medical debt with the defendant debt collector. To verify the existence of the debt, the debt collector disclosed confidential medical information to three consumer credit reporting agencies. The plaintiff subsequently filed suit, arguing that the disclosure of the records violated the CMIA. Holding that FCRA expressly preempted the claim, the court noted that FCRA “preempts state law relating to the duties of furnishers of information to consumer reporting agencies” and reasoned that, because “[the CMIA claims] are rooted in [the debt collector’s] furnishing of information to consumer reporting agencies,” FCRA preempted the consumer’s CMIA claims, regardless of the fact that the CMIA pertains to the disclosure of medical information and not to consumer reporting. In arriving at its decision, the court noted that its approach accorded with several decisions finding for preemption of state law by FCRA, including (i) Pirouzian v. SLM Corp., 396 F.Supp.2d 1124 (S.D.Cal. 2005), which held that FCRA preempted certain claims under the Rosenthal California Fair Debt Collection Practices Act (CFDCPA), (ii) Howard v. Blue Ridge Bank, 371 F.Supp.2d 1139 (N.D.Cal. 2005), which held that FCRA preempted an unfair competition claim brought under section 17200 of the California Business and Professions Code, (iii) Roybal v. Equifax, 405 F.Supp.2d 1177 (E.D.Cal. 2005), which held that FCRA preempted negligence and negligent misrepresentation claims, as well as claims for violations of section 17200 of the California Business and Professions Code, the CFDCPA, and the California Consumer Legal Remedies Act, and (iv) Sanai v. Saltz 170 Cal.App.4th 746 (Cal. Ct. App. 2009), which held that FCRA preempted claims of slander, libel, intentional and negligent interference with prospective economic advantage, intentional and negligent infliction of emotional distress, and violations of the California Consumer Credit Reporting Agencies Act. The court noted that, while the 2003 amendment to FCRA, the Fair and Accurate Credit Transactions Act (FACTA), addresses the use and sharing of medical information in connection with debt collection, the court held that those provisions did not apply in this case because the events in dispute and the filing of the complaint occurred prior to the effective date of FACTA. For a copy of the opinion, please see http://www.buckleysandler.com/Brown_v_Mortensen.pdf.

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Insurance

Missouri Department of Insurance Fines Title Insurance Companies. On February 11, the Missouri Department of Insurance (the Department) announced fines totaling $500,000 against four title insurance companies owned by Fidelity National Financial Group. According to the Department, a recent examination discovered that the companies (i) charged incorrect premiums and fees to consumers, and (ii) utilized insurance policies that had not been approved by the Department. In addition to the fines, the companies will correct certain business practices and issue refunds to consumers who were overcharged on fees. For a copy of the press release, please see http://insurance.mo.gov/news/2010/Missouri_Department_of_Insurance_fines_title_insurance_company_500_000.

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Litigation

D.C. Federal Court Grants Injunction of FDIC Order. On February 16, the U.S. District Court for the District Court of Columbia issued an injunction against the Federal Deposit Insurance Corporation (FDIC) prohibiting it from enforcing a temporary cease and desist order against Advanta Bank, holding that the FDIC’s had exceeded its statutory authority. BuckleySandler LLP represented Advanta Bank in this dispute. Advanta Bank v. FDIC, No. 09-2423 (D.D.C. Feb. 16, 2010). The plaintiff, a well-capitalized bank whose primary activity was to hold deposits for affiliates, had been in the process of voluntary liquidation since mid-2009 after being instructed by the FDIC to liquidate and terminate deposit insurance or begin offering services to the public. The FDIC’s allegations against the bank stem from financial difficulties experienced by the bank’s indirect parent company, which declared bankruptcy in November, and by an affiliated financial institution. On December 24, the bank applied to the court for injunctive relief from a December 16 temporary cease and desist order issued by the FDIC. The court found that to support the issuance of the temporary cease and desist order, the alleged unsafe or unsound practices must be likely to cause significant dissipation of assets; alleged unsafe or unsound practices unrelated to the dissipation of assets are insufficient. The court concluded that the alleged unsafe or unsound practices were not the cause of any “dissipation” of assets, but rather that the dissipation of assets was a result of the bank complying with the FDIC’s request that the bank liquidate and terminate its deposit insurance. In its decision the court noted that financial institutions rarely avail themselves of the right to challenge a temporary order in federal court, and that federal courts rarely grant such injunctions. However, the court found that “[t]he deference due to the agency in interpreting § 1818(c) is not limitless and does not allow for the contravention of the law which gave the agency its authority.” The FDIC has appealed the decision to the Court of Appeals for the District of Columbia Circuit. The FDIC has also moved for a stay of the court’s order pending appeal and the plaintiff filed an opposition. For a copy of the opinion, please see http://www.buckleysandler.com/Advanta_v_FDIC.pdf.

Louisiana Appellate Court Holds YSP Included in HOEPA Points and Fees Test Calculation. On January 26 the Court of Appeals of Louisiana, Fifth Circuit held, among other things, that a yield spread premium (YSP) should be included in the points and fees calculation under the Home Ownership and Equity Protection Act (HOEPA). Bank of N.Y. v. Parnell, No. 09-CA-439, 2010 WL 291752 (La. Ct. App. Jan. 26, 2010). In Parnell, the plaintiff bank filed foreclosure proceedings against the defendant borrower. In defense the borrower argued that the mortgage was void—and that foreclosure on the property was, therefore, wrongful—because the bank failed to provide material disclosures required under HOEPA. The court reversed the lower court’s dismissal of the plaintiff’s HOEPA claim, agreeing with the borrower that the total amount of points and fees on the loan exceeded eight percent and, thus, triggered HOEPA’s disclosure requirements. Importantly, the court concluded that the yield spread premium (YSP) charged to the borrower should have been included in the points and fees test calculation, as it constituted “points and fees payable by [the plaintiff] at or before closing.” According to the court, a YSP, while financed over the course of a loan, should be included in the points and fees test calculation because it is, in fact, “payable” at the time of loan closing. This court decision is at variance with the Federal Reserve Board’s Regulation Z, which implements the Truth in Lending Act (including HOEPA). The court additionally affirmed the dismissal of the borrower’s RESPA claim arising out of the bank’s alleged failure to respond to the borrower’s qualified written request for an accounting. The court reasoned that because the bank was not a servicer, the bank was not liable under the servicer provisions of RESPA pertaining to qualified written requests. The court also affirmed the lower court’s dismissal of the borrower’s Louisiana Unfair Trade Practices and Consumer Protection Law (LUTPA) claim, holding that the bank was covered by LUTPA’s exemption for financial institutions subject to federal banking regulation. Finally, the court reversed the lower court’s dismissal of the borrower’s claims for damages under state law for wrongful seizure of the property and wrongful acceleration of the note. In doing so, the court emphasized that issues of material fact still existed as to whether the bank complied with contractual requirements in accelerating the sums secured by the defendant’s mortgage. For a copy of the opinion, please see http://www.buckleysandler.com/Bank_of_NY_v_Parnell.pdf.

California Federal Court Holds FCRA Preempts California State Law Claims. On February 2 the U.S. District Court for the Northern District of California held that the Fair Credit Reporting Act (FCRA) preempts certain claims under the California Consumer Credit Reporting Agencies Act (CCRAA) and the California Unfair Competition Law (UCL). Wang v. Asset Acceptance, LLC, No. 09-4794-SC, 2010 WL 409848 (N.D. Cal. Feb. 2, 2010). In Wang, the plaintiff consumer brought a putative class action against defendant debt collection agency, stating that the debt collection agency’s alleged practice of reporting debts to credit reporting agencies (CRA) without reporting that the debts are disputed or that the debts are passed their statute of limitations violates CCRAA § 1785.25(a) and UCL § 17200. The debt collection agency moved to dismiss, arguing that the consumer’s claims were preempted by FCRA. The court granted the motion in part and denied it in part. While recognizing that CCRAA § 1785.25(a) is expressly excluded from FCRA preemption, the court held that the claim was, nonetheless, preempted, because the claim should have been brought under Section 1785.25(c) of the CCRAA – prohibiting the reporting of information that is disputed by the consumer without noting that it is disputed – which does not enjoy such exclusion from FCRA preemption. With respect to the consumer’s claim that the debt collection agency failed to report information related to the debt’s statute of limitations, the court held that Section 1785.25(a) of the CCRAA does not expressly impose such a duty, and that implying such a per se duty would not be appropriate because the statute of limitations is an affirmative defense subject to waiver. However, the court held that, in the instant case, the individual the consumer had stated a claim under CCRAA § 1785.25(a) because there was evidence that the consumer had successfully relied on the statute of limitations defense in the past and that the debt collection agency was not actually pursuing his debt because of that defense. However, the court did not decide whether this claim would be a viable class claim. Finally, the court held that the consumer’s UCL § 17200 claims based on the debt collection agency’s alleged failure to report that a debt was in dispute or that a debt was past its statue of limitations are preempted by FCRA because enforcing such a claim “would impose an independent requirement or prohibition on furnishers of information to CRAs.” For a copy of the opinion, please see http://www.buckleysandler.com/Wang_v_Asset.pdf.

Alabama Federal Court Holds Reporting of Disputed Debt to Credit Reporting Agencies Constitutes “Collection Activity” Under FDCPA. On January 27, the United States District Court for the Southern District of Alabama approved a magistrate judge’s finding that failing to respond to a debt verification request and subsequently failing to notify credit reporting agencies (CRAs) that the debt was in dispute violated the Fair Debt Collection Practices Act (FDCPA). Quale v. Unifund CCR Partners, No. 09-0519, 2010 WL 338044 (S.D. Ala. Jan. 27, 2010). In Quale, defendant debt collector reported debts disputed by the plaintiff to CRAs without notifying the CRAs that the debt was in dispute. The debt collector argued that, because it ceased its collection activities after receiving the request, it did not violate the FDCPA for failing to respond to the consumer’s debt verification request. The court rejected this argument, reasoning that reporting the debt to CRAs without notifying the CRAs that the debt was in dispute constituted a “collection activity” under the FDCPA. However, the court granted the debt collector’s motion to dismiss the consumer’s Fair Credit Reporting Act (FCRA) claim, holding that FCRA does not provide a private right of action where a furnisher of information may have reported incorrect information to CRAs. The court noted that FCRA does afford a private right of action where a furnisher of information receives notice of a dispute from a consumer reporting agency and then fails to investigate the accuracy of the reported information; however, this was not alleged by the consumer in Quale. For a copy of the magistrate judge’s opinion, please see http://www.buckleysandler.com/Quale_v_Unifund_2.pdf.

California Court Holds FCRA Preempts California’s Confidentiality of Medical Information Act. On January 29, the California Court of Appeals, Second District, held that the Fair Credit Reporting Act (FCRA) preempts claims regarding the disclosure of medical information under California’s Confidentiality of Medical Information Act (CMIA). Brown v. Mortensen, No. B199793, 2010 WL 324749 (Cal. Ct. App. Jan. 29, 2010). In this case, the plaintiff disputed a medical debt with the defendant debt collector. To verify the existence of the debt, the debt collector disclosed confidential medical information to three consumer credit reporting agencies. The plaintiff subsequently filed suit, arguing that the disclosure of the records violated the CMIA. Holding that FCRA expressly preempted the claim, the court noted that FCRA “preempts state law relating to the duties of furnishers of information to consumer reporting agencies” and reasoned that, because “[the CMIA claims] are rooted in [the debt collector’s] furnishing of information to consumer reporting agencies,” FCRA preempted the consumer’s CMIA claims, regardless of the fact that the CMIA pertains to the disclosure of medical information and not to consumer reporting. In arriving at its decision, the court noted that its approach accorded with several decisions finding for preemption of state law by FCRA, including (i) Pirouzian v. SLM Corp., 396 F.Supp.2d 1124 (S.D.Cal. 2005), which held that FCRA preempted certain claims under the Rosenthal California Fair Debt Collection Practices Act (CFDCPA), (ii) Howard v. Blue Ridge Bank, 371 F.Supp.2d 1139 (N.D.Cal. 2005), which held that FCRA preempted an unfair competition claim brought under section 17200 of the California Business and Professions Code, (iii) Roybal v. Equifax, 405 F.Supp.2d 1177 (E.D.Cal. 2005), which held that FCRA preempted negligence and negligent misrepresentation claims, as well as claims for violations of section 17200 of the California Business and Professions Code, the CFDCPA, and the California Consumer Legal Remedies Act, and (iv) Sanai v. Saltz 170 Cal.App.4th 746 (Cal. Ct. App. 2009), which held that FCRA preempted claims of slander, libel, intentional and negligent interference with prospective economic advantage, intentional and negligent infliction of emotional distress, and violations of the California Consumer Credit Reporting Agencies Act. The court noted that, while the 2003 amendment to FCRA, the Fair and Accurate Credit Transactions Act (FACTA), addresses the use and sharing of medical information in connection with debt collection, the court held that those provisions did not apply in this case because the events in dispute and the filing of the complaint occurred prior to the effective date of FACTA. For a copy of the opinion, please see http://www.buckleysandler.com/Brown_v_Mortensen.pdf.

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Privacy/Data Security

California Federal Court Holds FCRA Preempts California State Law Claims. On February 2 the U.S. District Court for the Northern District of California held that the Fair Credit Reporting Act (FCRA) preempts certain claims under the California Consumer Credit Reporting Agencies Act (CCRAA) and the California Unfair Competition Law (UCL). Wang v. Asset Acceptance, LLC, No. 09-4794-SC, 2010 WL 409848 (N.D. Cal. Feb. 2, 2010). In Wang, the plaintiff consumer brought a putative class action against defendant debt collection agency, stating that the debt collection agency’s alleged practice of reporting debts to credit reporting agencies (CRA) without reporting that the debts are disputed or that the debts are passed their statute of limitations violates CCRAA § 1785.25(a) and UCL § 17200. The debt collection agency moved to dismiss, arguing that the consumer’s claims were preempted by FCRA. The court granted the motion in part and denied it in part. While recognizing that CCRAA § 1785.25(a) is expressly excluded from FCRA preemption, the court held that the claim was, nonetheless, preempted, because the claim should have been brought under Section 1785.25(c) of the CCRAA – prohibiting the reporting of information that is disputed by the consumer without noting that it is disputed – which does not enjoy such exclusion from FCRA preemption. With respect to the consumer’s claim that the debt collection agency failed to report information related to the debt’s statute of limitations, the court held that Section 1785.25(a) of the CCRAA does not expressly impose such a duty, and that implying such a per se duty would not be appropriate because the statute of limitations is an affirmative defense subject to waiver. However, the court held that, in the instant case, the individual the consumer had stated a claim under CCRAA § 1785.25(a) because there was evidence that the consumer had successfully relied on the statute of limitations defense in the past and that the debt collection agency was not actually pursuing his debt because of that defense. However, the court did not decide whether this claim would be a viable class claim. Finally, the court held that the consumer’s UCL § 17200 claims based on the debt collection agency’s alleged failure to report that a debt was in dispute or that a debt was past its statue of limitations are preempted by FCRA because enforcing such a claim “would impose an independent requirement or prohibition on furnishers of information to CRAs.” For a copy of the opinion, please see http://www.buckleysandler.com/Wang_v_Asset.pdf.

Alabama Federal Court Holds Reporting of Disputed Debt to Credit Reporting Agencies Constitutes “Collection Activity” Under FDCPA. On January 27, the United States District Court for the Southern District of Alabama approved a magistrate judge’s finding that failing to respond to a debt verification request and subsequently failing to notify credit reporting agencies (CRAs) that the debt was in dispute violated the Fair Debt Collection Practices Act (FDCPA). Quale v. Unifund CCR Partners, No. 09-0519, 2010 WL 338044 (S.D. Ala. Jan. 27, 2010). In Quale, defendant debt collector reported debts disputed by the plaintiff to CRAs without notifying the CRAs that the debt was in dispute. The debt collector argued that, because it ceased its collection activities after receiving the request, it did not violate the FDCPA for failing to respond to the consumer’s debt verification request. The court rejected this argument, reasoning that reporting the debt to CRAs without notifying the CRAs that the debt was in dispute constituted a “collection activity” under the FDCPA. However, the court granted the debt collector’s motion to dismiss the consumer’s Fair Credit Reporting Act (FCRA) claim, holding that FCRA does not provide a private right of action where a furnisher of information may have reported incorrect information to CRAs. The court noted that FCRA does afford a private right of action where a furnisher of information receives notice of a dispute from a consumer reporting agency and then fails to investigate the accuracy of the reported information; however, this was not alleged by the consumer in Quale. For a copy of the magistrate judge’s opinion, please see http://www.buckleysandler.com/Quale_v_Unifund_2.pdf.

California Court Holds FCRA Preempts California’s Confidentiality of Medical Information Act. On January 29, the California Court of Appeals, Second District, held that the Fair Credit Reporting Act (FCRA) preempts claims regarding the disclosure of medical information under California’s Confidentiality of Medical Information Act (CMIA). Brown v. Mortensen, No. B199793, 2010 WL 324749 (Cal. Ct. App. Jan. 29, 2010). In this case, the plaintiff disputed a medical debt with the defendant debt collector. To verify the existence of the debt, the debt collector disclosed confidential medical information to three consumer credit reporting agencies. The plaintiff subsequently filed suit, arguing that the disclosure of the records violated the CMIA. Holding that FCRA expressly preempted the claim, the court noted that FCRA “preempts state law relating to the duties of furnishers of information to consumer reporting agencies” and reasoned that, because “[the CMIA claims] are rooted in [the debt collector’s] furnishing of information to consumer reporting agencies,” FCRA preempted the consumer’s CMIA claims, regardless of the fact that the CMIA pertains to the disclosure of medical information and not to consumer reporting. In arriving at its decision, the court noted that its approach accorded with several decisions finding for preemption of state law by FCRA, including (i) Pirouzian v. SLM Corp., 396 F.Supp.2d 1124 (S.D.Cal. 2005), which held that FCRA preempted certain claims under the Rosenthal California Fair Debt Collection Practices Act (CFDCPA), (ii) Howard v. Blue Ridge Bank, 371 F.Supp.2d 1139 (N.D.Cal. 2005), which held that FCRA preempted an unfair competition claim brought under section 17200 of the California Business and Professions Code, (iii) Roybal v. Equifax, 405 F.Supp.2d 1177 (E.D.Cal. 2005), which held that FCRA preempted negligence and negligent misrepresentation claims, as well as claims for violations of section 17200 of the California Business and Professions Code, the CFDCPA, and the California Consumer Legal Remedies Act, and (iv) Sanai v. Saltz 170 Cal.App.4th 746 (Cal. Ct. App. 2009), which held that FCRA preempted claims of slander, libel, intentional and negligent interference with prospective economic advantage, intentional and negligent infliction of emotional distress, and violations of the California Consumer Credit Reporting Agencies Act. The court noted that, while the 2003 amendment to FCRA, the Fair and Accurate Credit Transactions Act (FACTA), addresses the use and sharing of medical information in connection with debt collection, the court held that those provisions did not apply in this case because the events in dispute and the filing of the complaint occurred prior to the effective date of FACTA. For a copy of the opinion, please see http://www.buckleysandler.com/Brown_v_Mortensen.pdf.

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