InfoBytes, January 23, 2009
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Miscellany
- Mortgages
- Consumer Finance
- Litigation
- E-Financial Services
- Privacy/Data Security
Federal Issues
FTC Files Complaint Against Mortgage Broker. On December 30, the Federal Trade Commission (FTC) filed charges against a Nevada mortgage broker for allegedly violating the Fair Credit Reporting Act (FCRA), the FTC Act, and the FTC’s rule regarding Disposal of Consumer Report Information and Records (the FTC’s Disposal Rule). According to the complaint, the defendant discarded personal consumer information – including credit reports, mortgage applications, bank statements, tax returns, and photocopies of credit cards and drivers’ licenses – in an unsecure dumpster. In violation of the FTC’s Disposal Rule and FCRA, the defendant allegedly failed to take “reasonable” measures to protect the discarded information. According to the complaint, the defendant did not (i) implement and monitor “reasonable” policies and procedures designed to prevent unauthorized access to consumer credit reports, (ii) ensure that those transporting documents for disposal are “qualified” and have appropriate training, (iii) alert and suggest precautions for those transporting documents for disposal regarding the contents of the documents, (iv) oversee the transport of disposed documents, or (v) confirm that the disposed documents could not be “practicably” read or reconstructed. For a copy of the press release, please see http://www.ftc.gov/opa/2009/01/navone.shtm. For a copy of the complaint, please see http://www.ftc.gov/os/caselist/0723067/090121navonecmpt.pdf.
Congressman Meek Proposes Nationwide Mortgage Fraud Task Force. On January 14, Representative Kendrick B. Meek (D-FL) introduced the Nationwide Mortgage Fraud Task Force Act of 2009 (H.R. 529), a bill that would establish a Nationwide Mortgage Fraud Task Force (Task Force) under the Department of Justice. Under the bill, the Task Force would (i) establish coordinating entities, and solicit the voluntary participation of law enforcement and prosecutorial agencies in such entities, (ii) organize initiatives to address mortgage fraud, including the enforcement of state mortgage fraud (and related federal and state) laws, (iii) provide training to law enforcement and prosecutorial agencies regarding mortgage fraud, (iv) collect and disseminate data regarding mortgage fraud, specifically data regarding mortgage fraud investigations and prosecutions, and (v) perform other necessary functions, as determined by the U.S. Attorney General, to assist with mortgage fraud detection, prevention, and response. For a copy of the press release, please see http://kendrickmeek.house.gov/apps/list/press/fl17_meek/pr_090115b.shtml. For a copy of the bill, please see http://www.thomas.gov/cgi-bin/query/z?c111:H.R.529.
HUD Issues Mortgagee Letter Regarding Project Lifeline, FHA Foreclosure Timeframes. On January 16, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2009-05 to clarify how a mortgage servicer may participate in Project Lifeline without running afoul of HUD’s rules regarding the timeframe for foreclosure. Under Project Lifeline, servicers that are members of the HOPE NOW Alliance send monthly letters to certain seriously delinquent borrowers offering to pause foreclosure proceedings for 30 days. In order to meet Federal Housing Authority (FHA) foreclosure timelines, HUD will allow a 30-day extension for foreclosure proceedings paused under Project Lifeline, provided that the servicer satisfies a number of conditions related to the targeted, direct mail campaign and to the borrower’s ultimate inability to stave off the foreclosure. This extension also applies to non-HOPE NOW Alliance members that satisfy all applicable requirements. The extension is applicable to loans that were 90 or more days delinquent as of February 12, 2008, for which the FHA receives an eligible claim on or before December 31, 2009. For a copy of the letter, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-05ml.doc.
FTC Announces Payment of Bear Stearns Settlement. On January 23, the Federal Trade Commission announced that it has dispersed almost $28 million to consumers in connection with a September 2008 settlement with The Bear Stearns Companies, LLC and its subsidiary EMC Mortgage Corporation regarding alleged unlawful mortgage loan servicing practices (reported in InfoBytes, Sept. 12, 2008). For a copy of the press release, please see http://www.ftc.gov/opa/2009/01/emc.shtm.
State Issues
Nevada Regulator Proposes Revisions to Mortgage Banking Regulations. On December 31, the Nevada Commissioner of Mortgage Lending (Commissioner) proposed revisions to Nevada mortgage banking regulations. Among other things, the regulations would (i) require the reporting of “insider loans,” as defined by the regulations, and prohibit the lending limit for insider loans from exceeding the greater amount of 25% of the total dollar amount of the outstanding balances of funded loans which were made or arranged by the mortgage banker, or 100% of the mortgage banker’s reported net worth, (ii) require the Commissioner to approve any “material” change in ownership or control of a mortgage broker, and require the submission of an application for approval of a change of ownership or control no later than 30 days before the proposed change, and (iii) allow mortgage bankers to electronically reproduce and store the required records for completed mortgage transactions, provided that a hard copy is accessible for one year after the closing date of the loan. For a copy of the proposed regulation, please see http://www.leg.state.nv.us/Register/2008Register/R053-08RP1.pdf.
Tennessee Attorney General Reaches Settlement with Countrywide. On January 22, Tennessee Attorney General Bob Cooper announced a settlement with Countrywide Financial Corporation (Countrywide) regarding alleged predatory lending practices. Under the terms of the settlement, Countrywide will (i) suspend foreclosures for certain loans and provide loan modifications for eligible borrowers, (ii) curtail or refrain from offering certain “subprime” loans in Tennessee, (iii) provide assistance to borrowers who do not quality for a loan modification through a relocation assistance program, (iv) provide assistance for eligible borrowers through a foreclosure relief fund, and (v) waive default/delinquency fees and prepayment penalties for eligible borrowers. For a copy of the press release, please see http://www.tennessee.gov/attorneygeneral/press/2009/story/PR6.pdf. For a copy of additional documents, please see http://www.tennessee.gov/attorneygeneral/cases/countrywide/countrywide.html.
Courts
California Federal Court Holds Arbitration Clause in Online Account “Clickwrap” Agreement Enforceable. On December 29, the U.S. District Court for the Central District of California upheld an arbitration clause contained in an online account agreement, finding that the customer agreed to the terms when opening her account. Guadagno v. E*Trade Bank, No. CV 08-03628, 2008 WL 5479062 (C.D. Cal. Dec. 29, 2008). In Guadagno, the plaintiff opened an account with E*Trade Bank (E*Trade) through which she authorized E*Trade to withdraw money from her account to pay her bills via check or electronic payment. The plaintiff then filed a putative class action challenging E*Trade’s practice of withdrawing the funds for bill payment three days in advance of paying the creditor, thereby depriving account holders of accrued interest for those three days. E*Trade moved to compel arbitration based on the arbitration clause contained in the online account agreement, to which the customer assented to via a “clickwrap” agreement – in this case, by checking a box that affirmed she read the agreement. The court found that both the governing law provision and the arbitration clause were enforceable against the customer’s claims, holding that a party may be bound by a “clickwrap” agreement, whether or not she actually reads the terms, if its terms are clear and acceptance is unambiguous. In this case, the court found that the arbitration clause was clear and conspicuous, and that the plaintiff’s agreement to the terms was unambiguous. In addition, the court refused to find that the arbitration clause was unconscionable, noting the ability of the plaintiff to opt out of the arbitration clause within 60 days and the ability to share the costs of arbitration. For a copy of the opinion, please see http://www.buckleykolar.com/Guadagno_v_E_Trade.pdf.
Massachusetts Federal Court Finds Late Fee Provision Does Not Create Grace Period. On January 7, the U.S. District Court for the District of Massachusetts granted the defendant lender’s motion to dismiss a putative nationwide class action, finding that a provision allowing the defendant to charge a late fee if the minimum payment on a home equity line of credit (HELOC) was not received within 10 days did not create a “grace period” during which the HELOC could not be terminated or accelerated. Cunningham v. National City Bank, No. 08:10936, 2009 WL 69325 (D. Mass. Jan. 7, 2009). In Cunningham, the consumer plaintiffs took out a HELOC with the defendant lender; the lender set out the terms of the HELOC in an "Equity Reserve Agreement." The plaintiffs alleged that the defendant breached the agreement, as well as violated the Truth in Lending Act (TILA) and Massachusetts consumer protection law, by terminating the HELOC and accelerating the outstanding balance due when the plaintiffs made a payment after the due date. The agreement provided, among other things, that the lender could terminate and accelerate the outstanding balance due if the plaintiffs breached a material obligation – in this case, failing to make a timely payment. However, the plaintiffs argued that a separate clause of the agreement, which allowed the defendant to charge a late fee if the defendant did not receive the minimum payment within 10 days of the due date, created a 10-day “grace period” during which the HELOC could not be terminated or accelerated. The court found that the agreement was “unambiguous" and that the late fee provision merely contemplated fees that the lender could assess following a late payment if the lender did not chose to terminate the HELOC. Thus, the lender had the right to terminate the plaintiffs’ HELOC, and there was no breach of contract or violation of TILA or state consumer protection law. For a copy of the opinion, please see http://www.buckleykolar.com/Cunningham_v_National.pdf.
Massachusetts Federal Court Holds FCRA Claim Requires Affirmative Showing of Inaccuracy. On January 13, the U.S. District Court for the District of Massachusetts dismissed Fair Credit Reporting Act (FCRA) claims arising from the reporting of a disputed debt because the plaintiff failed to identify any information that could have been uncovered that would have “cast doubt on the accuracy of the credit report.” Chiang v. Verizon New England Inc., No. 1:06-cv-12144, 2009 WL 102707 (D. Mass Jan. 13, 2009). The plaintiff in this case disputed unpaid telephone service bills with the defendant, a telephone service provider; the defendant subsequently reported the debt to several credit reporting agencies. The plaintiff then sued the defendant, alleging, among other things, that the provider violated § 1681s-2(b) of FCRA by failing to conduct a “reasonable” investigation of his dispute of the debts that the provider reported to credit reporting agencies. Ruling on a motion for summary judgment filed by the defendant, the court held that a private right of action exists to bring claims under § 1681s-2(b) for the failure to conduct such a reasonable investigation. Although the court found that a jury could have concluded that the defendant did not conduct a reasonable investigation, the court granted the defendant’s motion because the plaintiff failed to affirmatively identify any information that the defendant could have uncovered – had it engaged in a reasonable investigation – that “cast doubt on the accuracy of the disputed credit report.” The plaintiff did not provide any information, other than his uncorroborated statements, to evidence that the reported information was inaccurate. Acknowledging that FCRA does not explicitly require “actual” inaccuracy, the court found the requirement to be “inherent in the statute,” as FCRA was intended to protect consumers from the dissemination of inaccurate credit information. For a copy of the opinion, please see http://www.buckleykolar.com/Chiang_v_Verizon.pdf.
Seventh Circuit Holds TILA Provision Limiting Right to Rescind Not Jurisdictional. On December 24, the U.S. Court of Appeals for the Seventh Circuit reversed the District Court’s dismissal of a Truth in Lending Act (TILA) claim, holding that the District Court had subject matter jurisdiction over the claim Doss v. Clearwater Title Co., No. 07-2400, 2008 WL 5377683 (7th Cir. Dec. 24, 2008). The plaintiff alleged that the defendants committed various TILA and state law violations in the course of a home mortgage refinancing, and he sought to rescind the refinance loan. The defendants argued that the plaintiff had sold the property securing the loan, attaching an alleged copy of the deed of sale to their motion to dismiss. Although the plaintiff claimed that the deed was a forgery, the District Court took judicial notice of the deed and dismissed the lawsuit, reasoning that the plaintiff’s right to rescind under TILA had expired pursuant to 15 U.S.C. § 1635(f). On appeal, the defendants argued that the District Court lacked subject matter jurisdiction over the TILA claims due to the alleged sale of the property. But the Seventh Circuit found that “there is nothing jurisdictional about § 1635(f)’s period of repose, which is “merely a precondition to a substantive right to relief.” Furthermore, according to the court, the issue on appeal was not whether the alleged sale constituted a jurisdictional bar, but whether there was a sale at all – and the defendants conceded that both the District Court and the Seventh Circuit had jurisdiction to address this question. The Seventh Circuit also held that the district court was not entitled to rely on the deed of sale attached to the defendants’ 12(b)(6) motion, and that the deed was not a proper subject for judicial notice. For a copy of the opinion, please see http://www.buckleykolar.com/Doss_v_Clearwater.pdf.
Firm News
Matthew Previn will speak on a panel of in-house counsel at the ACI Consumer Finance Class Actions and Litigation Conference in New York City on Jan. 27-28. The panel topic will be “Preventing and Managing Consumer Finance Litigation.”
John Kromer moderated a panel entitled “The New Frontier of Housing Finance” at the ABA’s Committee on Consumer Financial Services Winter Meeting in Scottsdale, Arizona on January 12.
Jeff Naimon and Grant Mitchell presented a teleconference with Rod Alba for the American Bankers Association regarding the recent RESPA reform rule on December 17.
Miscellany
NIST Issues Guidance Regarding Protecting Personal Data. On January 13, the National Institute of Standards and Technology, an agency of the U.S. Department of Commerce, issued for comment draft guidance regarding the protection of personally identifiable information (PII). Among other things, the guidance suggests organizations (i) identify PII that they maintain, and assess the degree of impact that may result from a potential breach (ii) when possible, minimize the collection of PII, (iii) develop PII confidentiality protection measures, and (iv) develop plans for handling data security breaches. Comments on the draft guidance are due by March 13, 2009. For a copy of the draft guidance, please see http://csrc.nist.gov/publications/drafts/800-122/Draft-SP800-122.pdf.
Mortgages
FTC Files Complaint Against Mortgage Broker. On December 30, the Federal Trade Commission (FTC) filed charges against a Nevada mortgage broker for allegedly violating the Fair Credit Reporting Act (FCRA), the FTC Act, and the FTC’s rule regarding Disposal of Consumer Report Information and Records (the FTC’s Disposal Rule). According to the complaint, the defendant discarded personal consumer information – including credit reports, mortgage applications, bank statements, tax returns, and photocopies of credit cards and drivers’ licenses – in an unsecure dumpster. In violation of the FTC’s Disposal Rule and FCRA, the defendant allegedly failed to take “reasonable” measures to protect the discarded information. According to the complaint, the defendant did not (i) implement and monitor “reasonable” policies and procedures designed to prevent unauthorized access to consumer credit reports, (ii) ensure that those transporting documents for disposal are “qualified” and have appropriate training, (iii) alert and suggest precautions for those transporting documents for disposal regarding the contents of the documents, (iv) oversee the transport of disposed documents, or (v) confirm that the disposed documents could not be “practicably” read or reconstructed. For a copy of the press release, please see http://www.ftc.gov/opa/2009/01/navone.shtm. For a copy of the complaint, please see http://www.ftc.gov/os/caselist/0723067/090121navonecmpt.pdf.
Congressman Meek Proposes Nationwide Mortgage Fraud Task Force. On January 14, Representative Kendrick B. Meek (D-FL) introduced the Nationwide Mortgage Fraud Task Force Act of 2009 (H.R. 529), a bill that would establish a Nationwide Mortgage Fraud Task Force (Task Force) under the Department of Justice. Under the bill, the Task Force would (i) establish coordinating entities, and solicit the voluntary participation of law enforcement and prosecutorial agencies in such entities, (ii) organize initiatives to address mortgage fraud, including the enforcement of state mortgage fraud (and related federal and state) laws, (iii) provide training to law enforcement and prosecutorial agencies regarding mortgage fraud, (iv) collect and disseminate data regarding mortgage fraud, specifically data regarding mortgage fraud investigations and prosecutions, and (v) perform other necessary functions, as determined by the U.S. Attorney General, to assist with mortgage fraud detection, prevention, and response. For a copy of the press release, please see http://kendrickmeek.house.gov/apps/list/press/fl17_meek/pr_090115b.shtml. For a copy of the bill, please see http://www.thomas.gov/cgi-bin/query/z?c111:H.R.529.
HUD Issues Mortgagee Letter Regarding Project Lifeline, FHA Foreclosure Timeframes. On January 16, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2009-05 to clarify how a mortgage servicer may participate in Project Lifeline without running afoul of HUD’s rules regarding the timeframe for foreclosure. Under Project Lifeline, servicers that are members of the HOPE NOW Alliance send monthly letters to certain seriously delinquent borrowers offering to pause foreclosure proceedings for 30 days. In order to meet Federal Housing Authority (FHA) foreclosure timelines, HUD will allow a 30-day extension for foreclosure proceedings paused under Project Lifeline, provided that the servicer satisfies a number of conditions related to the targeted, direct mail campaign and to the borrower’s ultimate inability to stave off the foreclosure. This extension also applies to non-HOPE NOW Alliance members that satisfy all applicable requirements. The extension is applicable to loans that were 90 or more days delinquent as of February 12, 2008, for which the FHA receives an eligible claim on or before December 31, 2009. For a copy of the letter, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-05ml.doc.
FTC Announces Payment of Bear Stearns Settlement. On January 23, the Federal Trade Commission announced that it has dispersed almost $28 million to consumers in connection with a September 2008 settlement with The Bear Stearns Companies, LLC and its subsidiary EMC Mortgage Corporation regarding alleged unlawful mortgage loan servicing practices (reported in InfoBytes, Sept. 12, 2008). For a copy of the press release, please see http://www.ftc.gov/opa/2009/01/emc.shtm.
Nevada Regulator Proposes Revisions to Mortgage Banking Regulations. On December 31, the Nevada Commissioner of Mortgage Lending (Commissioner) proposed revisions to Nevada mortgage banking regulations. Among other things, the regulations would (i) require the reporting of “insider loans,” as defined by the regulations, and prohibit the lending limit for insider loans from exceeding the greater amount of 25% of the total dollar amount of the outstanding balances of funded loans which were made or arranged by the mortgage banker, or 100% of the mortgage banker’s reported net worth, (ii) require the Commissioner to approve any “material” change in ownership or control of a mortgage broker, and require the submission of an application for approval of a change of ownership or control no later than 30 days before the proposed change, and (iii) allow mortgage bankers to electronically reproduce and store the required records for completed mortgage transactions, provided that a hard copy is accessible for one year after the closing date of the loan. For a copy of the proposed regulation, please see http://www.leg.state.nv.us/Register/2008Register/R053-08RP1.pdf.
Tennessee Attorney General Reaches Settlement with Countrywide. On January 22, Tennessee Attorney General Bob Cooper announced a settlement with Countrywide Financial Corporation (Countrywide) regarding alleged predatory lending practices. Under the terms of the settlement, Countrywide will (i) suspend foreclosures for certain loans and provide loan modifications for eligible borrowers, (ii) curtail or refrain from offering certain “subprime” loans in Tennessee, (iii) provide assistance to borrowers who do not quality for a loan modification through a relocation assistance program, (iv) provide assistance for eligible borrowers through a foreclosure relief fund, and (v) waive default/delinquency fees and prepayment penalties for eligible borrowers. For a copy of the press release, please see http://www.tennessee.gov/attorneygeneral/press/2009/story/PR6.pdf. For a copy of additional documents, please see http://www.tennessee.gov/attorneygeneral/cases/countrywide/countrywide.html.
Massachusetts Federal Court Finds Late Fee Provision Does Not Create Grace Period. On January 7, the U.S. District Court for the District of Massachusetts granted the defendant lender’s motion to dismiss a putative nationwide class action, finding that a provision allowing the defendant to charge a late fee if the minimum payment on a home equity line of credit (HELOC) was not received within 10 days did not create a “grace period” during which the HELOC could not be terminated or accelerated. Cunningham v. National City Bank, No. 08:10936, 2009 WL 69325 (D. Mass. Jan. 7, 2009). In Cunningham, the consumer plaintiffs took out a HELOC with the defendant lender; the lender set out the terms of the HELOC in an "Equity Reserve Agreement." The plaintiffs alleged that the defendant breached the agreement, as well as violated the Truth in Lending Act (TILA) and Massachusetts consumer protection law, by terminating the HELOC and accelerating the outstanding balance due when the plaintiffs made a payment after the due date. The agreement provided, among other things, that the lender could terminate and accelerate the outstanding balance due if the plaintiffs breached a material obligation – in this case, failing to make a timely payment. However, the plaintiffs argued that a separate clause of the agreement, which allowed the defendant to charge a late fee if the defendant did not receive the minimum payment within 10 days of the due date, created a 10-day “grace period” during which the HELOC could not be terminated or accelerated. The court found that the agreement was “unambiguous" and that the late fee provision merely contemplated fees that the lender could assess following a late payment if the lender did not chose to terminate the HELOC. Thus, the lender had the right to terminate the plaintiffs’ HELOC, and there was no breach of contract or violation of TILA or state consumer protection law. For a copy of the opinion, please see http://www.buckleykolar.com/Cunningham_v_National.pdf.
Seventh Circuit Holds TILA Provision Limiting Right to Rescind Not Jurisdictional. On December 24, the U.S. Court of Appeals for the Seventh Circuit reversed the District Court’s dismissal of a Truth in Lending Act (TILA) claim, holding that the District Court had subject matter jurisdiction over the claim Doss v. Clearwater Title Co., No. 07-2400, 2008 WL 5377683 (7th Cir. Dec. 24, 2008). The plaintiff alleged that the defendants committed various TILA and state law violations in the course of a home mortgage refinancing, and he sought to rescind the refinance loan. The defendants argued that the plaintiff had sold the property securing the loan, attaching an alleged copy of the deed of sale to their motion to dismiss. Although the plaintiff claimed that the deed was a forgery, the District Court took judicial notice of the deed and dismissed the lawsuit, reasoning that the plaintiff’s right to rescind under TILA had expired pursuant to 15 U.S.C. § 1635(f). On appeal, the defendants argued that the District Court lacked subject matter jurisdiction over the TILA claims due to the alleged sale of the property. But the Seventh Circuit found that “there is nothing jurisdictional about § 1635(f)’s period of repose, which is “merely a precondition to a substantive right to relief.” Furthermore, according to the court, the issue on appeal was not whether the alleged sale constituted a jurisdictional bar, but whether there was a sale at all – and the defendants conceded that both the District Court and the Seventh Circuit had jurisdiction to address this question. The Seventh Circuit also held that the district court was not entitled to rely on the deed of sale attached to the defendants’ 12(b)(6) motion, and that the deed was not a proper subject for judicial notice. For a copy of the opinion, please see http://www.buckleykolar.com/Doss_v_Clearwater.pdf.
Consumer Finance
FTC Files Complaint Against Mortgage Broker. On December 30, the Federal Trade Commission (FTC) filed charges against a Nevada mortgage broker for allegedly violating the Fair Credit Reporting Act (FCRA), the FTC Act, and the FTC’s rule regarding Disposal of Consumer Report Information and Records (the FTC’s Disposal Rule). According to the complaint, the defendant discarded personal consumer information – including credit reports, mortgage applications, bank statements, tax returns, and photocopies of credit cards and drivers’ licenses – in an unsecure dumpster. In violation of the FTC’s Disposal Rule and FCRA, the defendant allegedly failed to take “reasonable” measures to protect the discarded information. According to the complaint, the defendant did not (i) implement and monitor “reasonable” policies and procedures designed to prevent unauthorized access to consumer credit reports, (ii) ensure that those transporting documents for disposal are “qualified” and have appropriate training, (iii) alert and suggest precautions for those transporting documents for disposal regarding the contents of the documents, (iv) oversee the transport of disposed documents, or (v) confirm that the disposed documents could not be “practicably” read or reconstructed. For a copy of the press release, please see http://www.ftc.gov/opa/2009/01/navone.shtm. For a copy of the complaint, please see http://www.ftc.gov/os/caselist/0723067/090121navonecmpt.pdf.
Massachusetts Federal Court Holds FCRA Claim Requires Affirmative Showing of Inaccuracy. On January 13, the U.S. District Court for the District of Massachusetts dismissed Fair Credit Reporting Act (FCRA) claims arising from the reporting of a disputed debt because the plaintiff failed to identify any information that could have been uncovered that would have “cast doubt on the accuracy of the credit report.” Chiang v. Verizon New England Inc., No. 1:06-cv-12144, 2009 WL 102707 (D. Mass Jan. 13, 2009). The plaintiff in this case disputed unpaid telephone service bills with the defendant, a telephone service provider; the defendant subsequently reported the debt to several credit reporting agencies. The plaintiff then sued the defendant, alleging, among other things, that the provider violated § 1681s-2(b) of FCRA by failing to conduct a “reasonable” investigation of his dispute of the debts that the provider reported to credit reporting agencies. Ruling on a motion for summary judgment filed by the defendant, the court held that a private right of action exists to bring claims under § 1681s-2(b) for the failure to conduct such a reasonable investigation. Although the court found that a jury could have concluded that the defendant did not conduct a reasonable investigation, the court granted the defendant’s motion because the plaintiff failed to affirmatively identify any information that the defendant could have uncovered – had it engaged in a reasonable investigation – that “cast doubt on the accuracy of the disputed credit report.” The plaintiff did not provide any information, other than his uncorroborated statements, to evidence that the reported information was inaccurate. Acknowledging that FCRA does not explicitly require “actual” inaccuracy, the court found the requirement to be “inherent in the statute,” as FCRA was intended to protect consumers from the dissemination of inaccurate credit information. For a copy of the opinion, please see http://www.buckleykolar.com/Chiang_v_Verizon.pdf.
Litigation
California Federal Court Holds Arbitration Clause in Online Account “Clickwrap” Agreement Enforceable. On December 29, the U.S. District Court for the Central District of California upheld an arbitration clause contained in an online account agreement, finding that the customer agreed to the terms when opening her account. Guadagno v. E*Trade Bank, No. CV 08-03628, 2008 WL 5479062 (C.D. Cal. Dec. 29, 2008). In Guadagno, the plaintiff opened an account with E*Trade Bank (E*Trade) through which she authorized E*Trade to withdraw money from her account to pay her bills via check or electronic payment. The plaintiff then filed a putative class action challenging E*Trade’s practice of withdrawing the funds for bill payment three days in advance of paying the creditor, thereby depriving account holders of accrued interest for those three days. E*Trade moved to compel arbitration based on the arbitration clause contained in the online account agreement, to which the customer assented to via a “clickwrap” agreement – in this case, by checking a box that affirmed she read the agreement. The court found that both the governing law provision and the arbitration clause were enforceable against the customer’s claims, holding that a party may be bound by a “clickwrap” agreement, whether or not she actually reads the terms, if its terms are clear and acceptance is unambiguous. In this case, the court found that the arbitration clause was clear and conspicuous, and that the plaintiff’s agreement to the terms was unambiguous. In addition, the court refused to find that the arbitration clause was unconscionable, noting the ability of the plaintiff to opt out of the arbitration clause within 60 days and the ability to share the costs of arbitration. For a copy of the opinion, please see http://www.buckleykolar.com/Guadagno_v_E_Trade.pdf.
Massachusetts Federal Court Finds Late Fee Provision Does Not Create Grace Period. On January 7, the U.S. District Court for the District of Massachusetts granted the defendant lender’s motion to dismiss a putative nationwide class action, finding that a provision allowing the defendant to charge a late fee if the minimum payment on a home equity line of credit (HELOC) was not received within 10 days did not create a “grace period” during which the HELOC could not be terminated or accelerated. Cunningham v. National City Bank, No. 08:10936, 2009 WL 69325 (D. Mass. Jan. 7, 2009). In Cunningham, the consumer plaintiffs took out a HELOC with the defendant lender; the lender set out the terms of the HELOC in an "Equity Reserve Agreement." The plaintiffs alleged that the defendant breached the agreement, as well as violated the Truth in Lending Act (TILA) and Massachusetts consumer protection law, by terminating the HELOC and accelerating the outstanding balance due when the plaintiffs made a payment after the due date. The agreement provided, among other things, that the lender could terminate and accelerate the outstanding balance due if the plaintiffs breached a material obligation – in this case, failing to make a timely payment. However, the plaintiffs argued that a separate clause of the agreement, which allowed the defendant to charge a late fee if the defendant did not receive the minimum payment within 10 days of the due date, created a 10-day “grace period” during which the HELOC could not be terminated or accelerated. The court found that the agreement was “unambiguous" and that the late fee provision merely contemplated fees that the lender could assess following a late payment if the lender did not chose to terminate the HELOC. Thus, the lender had the right to terminate the plaintiffs’ HELOC, and there was no breach of contract or violation of TILA or state consumer protection law. For a copy of the opinion, please see http://www.buckleykolar.com/Cunningham_v_National.pdf.
Massachusetts Federal Court Holds FCRA Claim Requires Affirmative Showing of Inaccuracy. On January 13, the U.S. District Court for the District of Massachusetts dismissed Fair Credit Reporting Act (FCRA) claims arising from the reporting of a disputed debt because the plaintiff failed to identify any information that could have been uncovered that would have “cast doubt on the accuracy of the credit report.” Chiang v. Verizon New England Inc., No. 1:06-cv-12144, 2009 WL 102707 (D. Mass Jan. 13, 2009). The plaintiff in this case disputed unpaid telephone service bills with the defendant, a telephone service provider; the defendant subsequently reported the debt to several credit reporting agencies. The plaintiff then sued the defendant, alleging, among other things, that the provider violated § 1681s-2(b) of FCRA by failing to conduct a “reasonable” investigation of his dispute of the debts that the provider reported to credit reporting agencies. Ruling on a motion for summary judgment filed by the defendant, the court held that a private right of action exists to bring claims under § 1681s-2(b) for the failure to conduct such a reasonable investigation. Although the court found that a jury could have concluded that the defendant did not conduct a reasonable investigation, the court granted the defendant’s motion because the plaintiff failed to affirmatively identify any information that the defendant could have uncovered – had it engaged in a reasonable investigation – that “cast doubt on the accuracy of the disputed credit report.” The plaintiff did not provide any information, other than his uncorroborated statements, to evidence that the reported information was inaccurate. Acknowledging that FCRA does not explicitly require “actual” inaccuracy, the court found the requirement to be “inherent in the statute,” as FCRA was intended to protect consumers from the dissemination of inaccurate credit information. For a copy of the opinion, please see http://www.buckleykolar.com/Chiang_v_Verizon.pdf.
Seventh Circuit Holds TILA Provision Limiting Right to Rescind Not Jurisdictional. On December 24, the U.S. Court of Appeals for the Seventh Circuit reversed the District Court’s dismissal of a Truth in Lending Act (TILA) claim, holding that the District Court had subject matter jurisdiction over the claim. Doss v. Clearwater Title Co., No. 07-2400, 2008 WL 5377683 (7th Cir. Dec. 24, 2008). The plaintiff alleged that the defendants committed various TILA and state law violations in the course of a home mortgage refinancing, and he sought to rescind the refinance loan. The defendants argued that the plaintiff had sold the property securing the loan, attaching an alleged copy of the deed of sale to their motion to dismiss. Although the plaintiff claimed that the deed was a forgery, the District Court took judicial notice of the deed and dismissed the lawsuit, reasoning that the plaintiff’s right to rescind under TILA had expired pursuant to 15 U.S.C. § 1635(f). On appeal, the defendants argued that the District Court lacked subject matter jurisdiction over the TILA claims due to the alleged sale of the property. But the Seventh Circuit found that “there is nothing jurisdictional about § 1635(f)’s period of repose, which is “merely a precondition to a substantive right to relief.” Furthermore, according to the court, the issue on appeal was not whether the alleged sale constituted a jurisdictional bar, but whether there was a sale at all – and the defendants conceded that both the District Court and the Seventh Circuit had jurisdiction to address this question. The Seventh Circuit also held that the district court was not entitled to rely on the deed of sale attached to the defendants’ 12(b)(6) motion, and that the deed was not a proper subject for judicial notice. For a copy of the opinion, please see http://www.buckleykolar.com/Doss_v_Clearwater.pdf.
E-Financial Services
Nevada Regulator Proposes Revisions to Mortgage Banking Regulations. On December 31, the Nevada Commissioner of Mortgage Lending (Commissioner) proposed revisions to Nevada mortgage banking regulations. Among other things, the regulations would (i) require the reporting of “insider loans,” as defined by the regulations, and prohibit the lending limit for insider loans from exceeding the greater amount of 25% of the total dollar amount of the outstanding balances of funded loans which were made or arranged by the mortgage banker, or 100% of the mortgage banker’s reported net worth, (ii) require the Commissioner to approve any “material” change in ownership or control of a mortgage broker, and require the submission of an application for approval of a change of ownership or control no later than 30 days before the proposed change, and (iii) allow mortgage bankers to electronically reproduce and store the required records for completed mortgage transactions, provided that a hard copy is accessible for one year after the closing date of the loan. For a copy of the proposed regulation, please see http://www.leg.state.nv.us/Register/2008Register/R053-08RP1.pdf.
California Federal Court Holds Arbitration Clause in Online Account “Clickwrap” Agreement Enforceable. On December 29, the U.S. District Court for the Central District of California upheld an arbitration clause contained in an online account agreement, finding that the customer agreed to the terms when opening her account. Guadagno v. E*Trade Bank, No. CV 08-03628, 2008 WL 5479062 (C.D. Cal. Dec. 29, 2008). In Guadagno, the plaintiff opened an account with E*Trade Bank (E*Trade) through which she authorized E*Trade to withdraw money from her account to pay her bills via check or electronic payment. The plaintiff then filed a putative class action challenging E*Trade’s practice of withdrawing the funds for bill payment three days in advance of paying the creditor, thereby depriving account holders of accrued interest for those three days. E*Trade moved to compel arbitration based on the arbitration clause contained in the online account agreement, to which the customer assented to via a “clickwrap” agreement – in this case, by checking a box that affirmed she read the agreement. The court found that both the governing law provision and the arbitration clause were enforceable against the customer’s claims, holding that a party may be bound by a “clickwrap” agreement, whether or not she actually reads the terms, if its terms are clear and acceptance is unambiguous. In this case, the court found that the arbitration clause was clear and conspicuous, and that the plaintiff’s agreement to the terms was unambiguous. In addition, the court refused to find that the arbitration clause was unconscionable, noting the ability of the plaintiff to opt out of the arbitration clause within 60 days and the ability to share the costs of arbitration. For a copy of the opinion, please see http://www.buckleykolar.com/Guadagno_v_E_Trade.pdf.
NIST Issues Guidance Regarding Protecting Personal Data. On January 13, the National Institute of Standards and Technology, an agency of the U.S. Department of Commerce, issued for comment draft guidance regarding the protection of personally identifiable information (PII). Among other things, the guidance suggests organizations (i) identify PII that they maintain, and assess the degree of impact that may result from a potential breach (ii) when possible, minimize the collection of PII, (iii) develop PII confidentiality protection measures, and (iv) develop plans for handling data security breaches. Comments on the draft guidance are due by March 13, 2009. For a copy of the draft guidance, please see http://csrc.nist.gov/publications/drafts/800-122/Draft-SP800-122.pdf.
Privacy/Data Security
FTC Files Complaint Against Mortgage Broker. On December 30, the Federal Trade Commission (FTC) filed charges against a Nevada mortgage broker for allegedly violating the Fair Credit Reporting Act (FCRA), the FTC Act, and the FTC’s rule regarding Disposal of Consumer Report Information and Records (the FTC’s Disposal Rule). According to the complaint, the defendant discarded personal consumer information – including credit reports, mortgage applications, bank statements, tax returns, and photocopies of credit cards and drivers’ licenses – in an unsecure dumpster. In violation of the FTC’s Disposal Rule and FCRA, the defendant allegedly failed to take “reasonable” measures to protect the discarded information. According to the complaint, the defendant did not (i) implement and monitor “reasonable” policies and procedures designed to prevent unauthorized access to consumer credit reports, (ii) ensure that those transporting documents for disposal are “qualified” and have appropriate training, (iii) alert and suggest precautions for those transporting documents for disposal regarding the contents of the documents, (iv) oversee the transport of disposed documents, or (v) confirm that the disposed documents could not be “practicably” read or reconstructed. For a copy of the press release, please see http://www.ftc.gov/opa/2009/01/navone.shtm. For a copy of the complaint, please see http://www.ftc.gov/os/caselist/0723067/090121navonecmpt.pdf.
Massachusetts Federal Court Holds FCRA Claim Requires Affirmative Showing of Inaccuracy. On January 13, the U.S. District Court for the District of Massachusetts dismissed Fair Credit Reporting Act (FCRA) claims arising from the reporting of a disputed debt because the plaintiff failed to identify any information that could have been uncovered that would have “cast doubt on the accuracy of the credit report.” Chiang v. Verizon New England Inc., No. 1:06-cv-12144, 2009 WL 102707 (D. Mass Jan. 13, 2009). The plaintiff in this case disputed unpaid telephone service bills with the defendant, a telephone service provider; the defendant subsequently reported the debt to several credit reporting agencies. The plaintiff then sued the defendant, alleging, among other things, that the provider violated § 1681s-2(b) of FCRA by failing to conduct a “reasonable” investigation of his dispute of the debts that the provider reported to credit reporting agencies. Ruling on a motion for summary judgment filed by the defendant, the court held that a private right of action exists to bring claims under § 1681s-2(b) for the failure to conduct such a reasonable investigation. Although the court found that a jury could have concluded that the defendant did not conduct a reasonable investigation, the court granted the defendant’s motion because the plaintiff failed to affirmatively identify any information that the defendant could have uncovered – had it engaged in a reasonable investigation – that “cast doubt on the accuracy of the disputed credit report.” The plaintiff did not provide any information, other than his uncorroborated statements, to evidence that the reported information was inaccurate. Acknowledging that FCRA does not explicitly require “actual” inaccuracy, the court found the requirement to be “inherent in the statute,” as FCRA was intended to protect consumers from the dissemination of inaccurate credit information. For a copy of the opinion, please see http://www.buckleykolar.com/Chiang_v_Verizon.pdf.
NIST Issues Guidance Regarding Protecting Personal Data. On January 13, the National Institute of Standards and Technology, an agency of the U.S. Department of Commerce, issued for comment draft guidance regarding the protection of personally identifiable information (PII). Among other things, the guidance suggests organizations (i) identify PII that they maintain, and assess the degree of impact that may result from a potential breach (ii) when possible, minimize the collection of PII, (iii) develop PII confidentiality protection measures, and (iv) develop plans for handling data security breaches. Comments on the draft guidance are due by March 13, 2009. For a copy of the draft guidance, please see http://csrc.nist.gov/publications/drafts/800-122/Draft-SP800-122.pdf.