InfoBytes, January 9, 2009

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Federal Issues

HUD to Delay Implementation of Recently-Promulgated RESPA Final Rule. According to reports, the U.S. Department of Housing and Urban Development (HUD) will announce a 90-day delay regarding the implementation of the portions of the recently-promulgated Real Estate Settlement Procedures Act Final Rule set to become effective January 16, 2009. In particular, this will delay effectiveness of the controversial new definition of “required use.” This new definition would effectively prohibit non-settlement service providers from providing discounts to consumers for using settlement service provider affiliates. The delay is reportedly in response to the National Association of Home Builder’s (NAHB) lawsuit against HUD, which was filed on December 22, 2008. For a copy of the NAHB complaint, please see http://www.buckleykolar.com/documents/NAHB_v_HUD_Complaint_(12-28-2008).pdf.  On December 19, the National Association of Mortgage Brokers filed a separate lawsuit against HUD regarding the Final Rule (reported in InfoBytes, Dec. 19, 2008).

Representative Frank Introduces TARP Reform Bill. On January 9, Representative Barney Frank (D-MA) introduced the “TARP Reform and Accountability Act of 2009” (H.R. 384). The bill amends the Troubled Assets Relief Program (TARP) provisions of the Emergency Economic Stabilization Act of 2008. The bill would require the U.S. Department of the Treasury (Treasury) Secretary to develop a foreclosure prevention and mitigation plan that commits up to $100 billion, but no less than $40 billion, toward the plan. The plan would need to be developed and approved by the Financial Stability Oversight Board by March 15, 2009, and the Treasury Secretary would be required to begin committing TARP funds to implement the plan no later than April 1, 2009. The programs under the plan would be required to apply only to owner-occupied residences, and would be required to leverage private capital to the maximum extent possible consistent with maximizing prevention of foreclosures. The plan would also be required to use one, or a combination of more than one, of the following program alternatives: (i) a guarantee program for qualifying loan modifications under a systematic plan, which may be delegated to the Federal Deposit Insurance Corporation (FDIC) or other contractor, (ii) bringing costs of Hope for Homeowner (H4H) loans down, either through coverage of fees, purchasing H4H mortgages to ensure affordable rates, or both, (iii) a program for loans to pay down second lien mortgages that are impeding a loan modification subject to any write-down by existing lender the Treasury may require, (iv) servicer incentives/assistance - payments to servicers in connection with implementation of qualifying loan modifications, and/or (v) purchase of whole loans for the purpose of modifying or refinancing the loans (with authorization to delegate to FDIC). The bill would also authorize the use of TARP funds for automobile manufacturers and other uses, such as consumer loans and commercial real estate loans. In addition, the bill would require greater oversight and reporting requirements along with greater restrictions on executive compensation. The bill also expands the H4H program, requires the Treasury to develop a home buyer stimulus program, and permanently increases the FDIC deposit insurance limits. For a copy of the bill, please see http://www.house.gov/apps/list/press/financialsvcs_dem/hr384.pdf.

Federal Banking Regulators Issue Final Community Reinvestment Act Q&As. On January 6, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision published their final “Interagency Questions and Answers Regarding Community Reinvestment,” adopting new Q&As and revising several others. Among other things, the Q&As encourage financial institutions to participate in foreclosure prevention programs that have the objective of providing affordable home loan modifications. Additionally, the federal banking regulators are proposing a new Q&A that would provide examples of how an institution can determine that the community services it provides are targeted to low- and moderate-income individuals. The regulators also propose to revise two existing Q&As to allow pro rata consideration in certain circumstances for an activity that provides affordable housing targeted to low-or moderate income individuals. Comments on the proposed Q&As are due by March 9, 2009. For more information, please see http://www.federalreserve.gov/newsevents/press/bcreg/20090106a.htm.  

HUD Eliminates Settlement Option for Mortgagees that Fail to Renew FHA Approval. On January 6, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2009-01, announcing that it will no longer permit mortgagees that fail to comply with annual FHA-approval renewal requirements to settle the matter prior to consideration by the Mortgagee Review Board. The Mortgagee Letter rescinds paragraph 4-9 of HUD Handbook 4060.1, REV-2, which allowed mortgagees that had not met the annual renewal requirements to settle the violation with HUD by paying a $1,000 fee. HUD is eliminating this process “to bring more mortgagees into compliance with [its] statutory and regulatory mandates,” and to prevent conflicts with its recently revised Mortgagee Review Board regulations. According to HUD, “any failure of a mortgagee or a lender to comply with annual renewal of FHA-approval requirements may be referred to the Mortgagee Review Board.” Mortgagees that receive a Notice of Violation for failure to renew must now appeal the Notice pursuant to 24 C.F.R. Part 25. A mortgagee, however, may still cure the violation, which will be taken into consideration by the Board. The Mortgagee Letter is effective immediately. For a copy of 2009-1, please see www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-01ml.doc.  

HUD Issues Mortgagee Letter Regarding Pre-Foreclosure Sale Loss Mitigation Program. On December 24, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2008-43 (ML 08-43) to address the Pre-Foreclosure Sale Program (PFS Program) and to remind mortgagees of the relief available to FHA borrowers who are default with FHA-insured mortgages. The PFS Program loss mitigation option allows a borrower in default to sell his or her home at fair market value and to use the proceeds to satisfy the mortgage debt, even if the proceeds are less than the amount owed. The new letter has consolidated and updated the requirements of the PFS Program in order to address current issues faced by borrowers and to allow more borrowers access to the program. For a copy of ML 08-43, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-43ml.doc. 

HUD Issues Supplemental Guidance Regarding Hope for Homeowners Program. On January 6, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2009-3 (ML 09-03), which describes procedures for originating and servicing FHA-insured mortgages authorized under the HOPE for Homeowners (H4H) Program. The new letter incorporates changes to the H4H Program made by the Emergency Economic Stabilization Act of 2008 (EESA) by supplementing and modifying Mortgagee Letters 2008-29 and 2008-30 in three ways. First, the letter gives lenders additional flexibility in calculating a borrower’s debt-to-income ratio (DTI) in adjustable rate mortgage transactions. Second, the letter allows lenders to provide qualifying borrowers with mortgages that have terms between 30 and 40 years. However, in order for the loan to qualify for a securitization pool, the term must be either 30 or 40 years. Third, the letter expands the types of properties eligible under the program to include two-, three- and four-unit properties, provided that the borrower occupies one of the units as a primary residence. The letter also modifies previous program requirements. For a copy of ML 09-03, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-03ml.doc.  

FTC Settles with Mortgage Companies Regarding Deceptive Loan Advertising Charges. On January 8, the Federal Trade Commission (FTC) announced settlements with three home loan advertisers for failing to disclose key loan terms in mortgage loan solicitations. The mailers represented that borrowers could receive mortgage loans at the terms prominently stated. However, the solicitations allegedly violated Section 5 of the FTC Act by failing to disclose, or failing to disclose adequately, that the advertised low monthly payment amounts and low rates apply only for a limited time, after which they will increase, and that the advertised payment amounts and rates did not include the interest owed each month, with the interest added to the total loan balance. The FTC also charged the mortgage advertisers with violating the Truth in Lending Act (TILA) and its Regulation Z by stating periodic payment amounts but failing to disclose clearly and conspicuously the repayment terms, the annual percentage rate (APR), and that the APR could be increased during the loan period. The consent orders bar the mortgage companies from advertising a rate lower than the rate at which interest is accruing. The companies are also barred from making any representation about the monthly payment amount unless they disclose the limitations on the advertised low monthly payment amount. In addition, the respondents may not state a rate of finance charge without clearly and conspicuously stating the rate as an APR; and, if the rate is a simple annual rate, stating it in conjunction with, but not more conspicuously than, the APR. For a copy of the press release, please see http://www.ftc.gov/opa/2009/01/anm.shtm.

FTC Increases Civil Money Penalties. On January 9, the Federal Trade Commission (FTC) announced adjustments to civil money penalty amounts within its jurisdiction. The FTC increased the civil money penalty for violations for unfair or deceptive acts or practices from $11,000 to $16,000. The FTC increased the penalty for violations of the Fair Credit Reporting Act from $2,500 to $3,500. For a copy of Federal Register notice, please see http://edocket.access.gpo.gov/2009/pdf/E9-210.pdf.

FTC Settles with Foreclosure Rescue Service for False Representations. On January 8, the Federal Trade Commission (FTC) settled with a mortgage foreclosure rescue company for making false representations to consumers. The company claimed that, for a $1,200 fee, they would stop foreclosure proceedings and save consumers’ homes. Under the settlement terms, the FTC barred the foreclosure rescue service from falsely representing (i) that any home mortgage foreclosure can or will be stopped, postponed, or prevented, (ii) an ability to help all consumers, regardless of their individual circumstances, (iii) the likelihood that foreclosure can or will be stopped, postponed, or prevented, (iv) the degree of past success of any such efforts, (v) the number of satisfied customers or customer complaints, (vi) the terms of any refund or guarantee, (vii) the likelihood that a consumer will receive a full or partial refund if a foreclosure is not stopped, postponed, or prevented, (viii) any approval, endorsement, or rating by the Better Business Bureau or any other consumer advocacy or consumer protection association, (ix) any fact material to a consumer’s decision to purchase any mortgage foreclosure rescue service, and (x) any material fact in connection with marketing any good or service. Further, the FTC barred the company from disclosing or benefitting from personal information obtained from anyone in connection with marketing mortgage foreclosure rescue services. The settlement imposes a judgment of $1,178,920. However, all but $8,320.84 of the judgment is suspended based on the company’s inability to pay. For a copy of the press release, please see http://www.ftc.gov/opa/2009/01/mfs.shtm. For a copy of the settlement, please see http://www.ftc.gov/os/caselist/0823021/090108mfsorder.pdf.

State Attorneys General Request Amendments to Bankruptcy Code. On January 9, in a letter to the leadership of the United States Congress, the attorneys general (AGs) from twenty-three states and the District of Columbia requested that Congress amend the Bankruptcy Code to permit courts to modify mortgage debts on primary residences. The AGs noted that a number of lenders and servicers are unwilling to engage in voluntary loan modifications. In addition, the AGs noted that recent data indicates that these voluntary modifications, when made, are beginning to fail and suggested that court-ordered modifications would have better success for preventing foreclosures. For a copy of the letter sent to the House of Representatives leadership, please see http://www.buckleykolar.com/AG_House.pdf. For a copy of the letter sent to the Senate leadership, please see http://www.buckleykolar.com/AG_Senate.pdf.

DOJ Announces Expansion of President’s Corporate Fraud Task Force. On January 6, the U.S. Department of Justice announced that the President’s Corporate Fraud Task Force has been expanded to include the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Reserve, the Department of Housing and Urban Development, and the Special Inspector General for the Troubled Asset Relief Program. The new member agencies will assist with preventing mortgage and securitization fraud. For a copy of the press release, please see http://www.usdoj.gov/opa/pr/2009/January/09-odag-003.html.  

Fed Announces Changes to MMIFF. On January 7, the Federal Reserve Board (Fed) announced two changes to the Money Market Investor Funding Facility (MMIFF). The Fed expanded the set of institutions eligible to participate in the MMIFF to include additional money market investors, such as U.S.-based securities-lending cash-collateral reinvestment funds, portfolios, and accounts, as well as U.S.-based investment funds that operate similar to money market mutual funds. In addition, the Fed authorized the adjustment of several of the economic parameters of the MMIFF, including the minimum yield on assets eligible for sale to the MMIFF. For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/monetary/20090107a.htm.

Treasury Issues December TARP Report. On January 6, the U.S. Department of the Treasury (Treasury) issued a report to Congress regarding the Troubled Asset Relief Program (TARP). As of December 31, 2008, Treasury has invested $177 billion through the Capital Purchase Program. In addition, it has committed an addition $10 million with a deferred settlement date. The report further discusses the (i) Capital Purchase Program, (ii) Automotive Industry Financing Program, (iii) Targeted Investment Program, (iv) Asset Guarantee Program, and (v) Term Asset-Backed Securities Loan Facility. For a copy of the report, please see http://www.treasury.gov/initiatives/eesa/docs/105Report_010609.pdf.

 

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State Issues

New Jersey Governor Signs Mortgage Stabilization and Relief Act. On January 9, New Jersey Governor Jon Corzine signed into law the Mortgage Stabilization and Relief Act (Act), which will heavily promote loan modifications and refinancing for properties that are in immediate danger of foreclosure. Under the Act, the New Jersey Housing and Mortgage Finance Agency (HMFA), the administering body, will offer second mortgage loans that do not carry monthly payments to eligible borrowers with first mortgage loans in imminent danger of foreclosure. In order to be eligible for this program, a homeowner’s income may not exceed 120% of the area’s median household income or the HMFA’s income limits, which vary by county. In an effort to combat the rising foreclosure rates in New Jersey, the program will offer eligible borrowers a mortgage stabilization loan of up to $25,000 to match the lender’s contribution, and the lender must agree to write the mortgage down to the current value of the home. In addition, homeowners accepted into the program must participate in agency-approved financial counseling and must repay both the state and lender assistance loans upon sale of the property. For a copy of the press release, please see http://www.state.nj.us/governor/news/news/2008/approved/20090109a.html.

Pennsylvania Issues Final Regulation Regarding Proper Conduct of Licensees in the Mortgage Loan Business. On December 20, the Pennsylvania Department of Banking issued a final regulation regarding the proper conduct of licensees lending and brokering in the mortgage loan business under the Pennsylvania Mortgage Act (7 Pa.C.S. §§ 6101--6153) and the Pennsylvania Consumer Discount Company Act (7 P. S. §§ 6201--6219). Among other requirements, the provisions of the final rule address (i) the prohibition of false or misleading advertising, (ii) a new required disclosure detailing the terms of the offered loan, (iii) a requirement for licensees to perform an ability to repay analysis when offering loan products, and (iv) the prohibition of certain loan transaction practices. The final regulation was published in the December 20, 2008 Pennsylvania Bulletin. For a copy of the final regulation, please see http://www.pabulletin.com/secure/data/vol38/38-51/2285.html.

New York Attorney General Settles Mortgage Broker Discrimination Suit, Files Additional Discrimination Suit. On January 5, New York Attorney General Andrew M. Cuomo announced agreements with two mortgage brokerage companies following an investigation into whether the companies discriminated against minority customers. Under the terms of the agreements, the companies, HCI Mortgage and Consumer One Mortgage, will collectively pay $665,000 in restitution to certain minority borrowers who were alleged to have been charged significantly higher broker fees than similarly-situated white borrowers. The companies must also adopt standard fee schedules and report to the New York Attorney General’s office to ensure compliance. In addition, Mr. Cuomo filed an additional suit against a third company, U.S. Capital Funding, which allegedly engaged in similar discriminatory practices, but did not agree to the settlement terms. For a copy of the agreements and the complaint, please see http://www.oag.state.ny.us/media_center/2009/jan/jan5a_09.html.

Kentucky Attorney General Settles Predatory Lending Claims Against Countrywide. On January 5, the Kentucky Office of the Attorney General announced that it approved a settlement with Countrywide Financial Corporation (Countrywide) resolving allegations that Countrywide’s loan origination and servicing businesses employed unfair and deceptive practices. As part of the settlement, Countrywide agreed to reserve $1.64 million from its $150 million foreclosure relief fund to restructure loans for eligible Kentucky borrowers facing foreclosure. The Attorney General anticipates that the settlement will assist approximately 2,500 borrowers and will result in restructuring over $262 million of debt. In addition to establishing the fund, Countrywide agreed to (i) suspend foreclosure sales on loans likely to qualify for loan modification until borrower eligibility is determined, (ii) establish an early identification and contact program for troubled borrowers, (iii) discontinue option adjustable rate mortgages and “low-documentation,” or “no-documentation” loans, (iv) establish a nationwide $8.5 million Foreclosure Relief Fund for certain subprime or option adjustable rate mortgage (ARM) borrowers who lost their homes to foreclosure, (v) establish a fund to assist borrowers who do not qualify for loan modification, (vi) waive loan modification and late fees, and (vii) waive prepayment penalties on subprime and option ARM loans. For a copy of the press release, please see http://migration.kentucky.gov/Newsroom/ag/countrywidesettlement.html.

 

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Courts

Fourth Circuit Holds Title Insurance Purchased by Seller’s Agent Does Not Violate RESPA. On December 3, the U.S. Circuit Court of Appeals for the Fourth Circuit, in an unpublished opinion, held that Section 9 of the Real Estate Settlement Procedures Act (RESPA) does not prohibit a property seller’s agent from purchasing a title insurance policy for the buyer from a particular title insurance company. Hopkins v. Horizon Management Services, Inc., No. 07-1965, 2008 WL 5080983 (4th Cir. Dec. 3, 2008). In Hopkins, the purchaser acquired “real estate owned” property held by Deutsche Bank through a marketing and sales agent. The contract signed by the purchaser stated that the agent would select the title and closing agent. In the addendum to the contract, the agent agreed to pay the premium for the owner’s title insurance policy, regardless of whether the purchaser requested an owner’s policy. At closing, the policy was purchased from the agent’s chosen title insurance issuer. The plaintiff claimed that the addendum she signed resulted in the agent “indirectly requiring her to purchase title insurance from a particular title company in violation of Section 9.” Section 9, as stated by the court, prohibits “requiring the purchaser of real estate to buy title insurance from a particular title company.” In arriving at its decision, the court concluded that the agent “paid for the owner’s policy,” which defeated any claim that the purchaser “was required to purchase this title insurance ‘from any particular title company.’” The court rejected interpreting “purchase” to mean “obtain possession” rather than “pay for.” In dicta, the court noted that a requirement for the plaintiff to pay further money to obtain the owner’s insurance might constitute “purchasing” part of the policy. The plaintiff also argued that the agent’s choice of the title agent and owner’s policy indirectly required her to use a particular title company for the purchase of the lender’s title policy. The court noted that the fact that the plaintiff “paid less for a lender’s policy purchased from the company already providing owner’s insurance may be an economic benefit, but it is not a ‘requirement’ and thus does not come within the language of Section 9.” For a copy of the opinion, please see http://www.buckleykolar.com/Hopkins_v_Horizon.pdf.

Oregon Federal Court Finds FCRA Statutory Damages Provision Not Unconstitutional. On December 12, the U.S. District Court for the District of Oregon held that the Fair Credit Reporting Act’s (FCRA) statutory damages provision is not unconstitutionally void for vagueness. Ashby v. Farmers Ins. Co. of Oregon, No. 01-Cv-1446, 2008 WL 5424025 (D. Or. Dec. 12, 2008). The plaintiffs in Ashby alleged that the defendants either failed to send or sent inadequate adverse-action notices to new insurance and/or renewal applicants whose premiums increased as a result of information in their credit reports. The court previously certified the case as a class action in October 2004, and the current decision arose from the court’s request for jury instructions to help the jury determine whether defendants willfully violated FCRA and, if so, the appropriate amount of statutory violations to be awarded. In response, the defendants argued that FCRA’s statutory damages provision is unconstitutional under the Fifth Amendment. As an initial matter, the defendants argued that the provision is void for vagueness because it provides a range of damages awards without identifying factors to guide the fact-finder in setting the amount. The defendants also argued that, if the degree of willfulness is the primary factor the jury considers in setting damages, then the defendants would be subjected to double punishment—first, when determining the class members’ right to statutory damages, and again when determining the amount of damages within the statutory range. In addition, the defendants argued that a class-wide aggregate statutory-damage award could be so excessive and disproportionate to any harm suffered by each class member such that it would violate due process. The court rejected both arguments. First, the court held that FCRA’s statutory damages provision was not unconstitutionally vague. Citing two recent cases from the Southern District of Florida, the court held that the provision would allow a reasonable jury to affix the proper amount of damages within the statutorily provided range, and that “the mere possibility of a punitive damages award does not render the statute void.” Next, the court found that FCRA’s statutory damages provision did not subject defendants to the possibility of unconstitutional double punishment: “There is no double punishment because the plaintiffs are not seeking punitive damages for the same conduct that gives rise to statutory damages.” Finally, the court rejected as untimely defendants’ argument that FCRA’s statutory damages could lead to the imposition of an unconstitutionally excessive award. The court preferred to await the jury’s actual decision, and at that time decide whether the award, if any, is excessive. For a copy of the opinion, please see http://www.buckleykolar.com/Ashby_v_Farmers.pdf.

Michigan Federal Court Finds FCRA Preempts Breach of Contract Claim. On December 17, the U.S. District Court for the Eastern District of Michigan held that the Fair Credit Reporting Act (FCRA) preempted a breach of contract claim based on reporting the payment history of a mortgage to credit bureaus. Munson v. Countrywide Home Loans, Inc., No. 08-13244, 2008 WL 5381866 (E.D. Mich. Dec. 17, 2008). In Munson, the borrower plaintiffs sued their lender, lender’s employees, servicer, mortgage broker, broker’s employee, and home appraiser alleging various federal and state law claims related to the mortgage and foreclosure on their home. In one of the plaintiffs’ breach of contract theories, the plaintiffs argued that the lender breached its contract with the plaintiffs by erroneously submitting their account to the credit bureaus as 60 days late, despite the fact that payment had been made. The plaintiffs argued that other lenders refused to refinance the loan as a result. The court noted that, although there is considerable dispute about the application and extent of FCRA preemption provisions, when a state law imposes distinct duties with respect to the subject matter regulated by § 1681s-2 of FCRA, FCRA preempts that state law. The court found that this particular breach of contract theory was founded solely on the lender’s actions in reporting the plaintiffs’ payment history, and that the reporting of credit information is regulated by § 1681s-2. As a result, the court found that FCRA preempted this breach of contract claim. The court further rejected the plaintiffs’ additional claims and dismissed the suit in its entirety against all defendants. For a copy of the opinion, please see http://www.buckleykolar.com/Munson_v_Countrywide.pdf.

California Federal Court Holds Clickwrap Agreement May Be Enforceable Against All Users, Not Just Customers. On December 15, the U.S. District Court for the Northern District of California held that an online “clickwrap agreement” could be enforceable against any party agreeing to its terms, and not just to customers of the company. Oracle Corp. v. SAP AG, No. 07-1658 (N.D. Cal. Dec. 15, 2008). In Oracle, Oracle sued SAP AG, as well as various affiliates and subsidiaries, for allegedly stealing and illegally using computer software developed, owned and licensed by Oracle and its subsidiaries and affiliates in order to interface with PeopleSoft software. SAP, intending to offer customer support and maintenance services for PeopleSoft customers, purchased TomorrowNow, a company founded by a group of former PeopleSoft software engineers. Oracle alleged that TomorrowNow illegally accessed PeopleSoft’s software and illegally downloaded the software products from Oracle’s password-protected customer support website. Oracle filed suit, alleging numerous causes of action, including breach of contract, intentional interference with prospective business, and negligent interference with prospective business. In the amended complaint, Oracle alleged that defendants breached the “Customer Connection Terms of Use, the Special Terms of Use, the SAR legal restrictions and/or the Legal Download Agreement,” which were agreed to when SAP accessed and downloaded the relevant software and support materials from Oracle’s website. Oracle contended that each of these agreements was a valid “clickwrap” agreement. SAP argued that each of those agreements only contemplates Oracle customers as parties to the contract; therefore, because Oracle did not allege that the defendants were customers, they cannot be considered a party to the clickwrap agreements. Oracle responded that the only way to access the software is to repeatedly click “I Agree” to the various terms and contracts, meaning SAP agreed to the enforceable terms of the contracts. The court held that Oracle stated a claim for breach of contract, noting that “many courts have found clickwrap agreements to be enforceable,” and denied the motion to dismiss that particular claim. For a copy of the opinion, please see http://www.buckleykolar.com/Oracle_v_SAP.pdf.

Ohio State Court Grants Writ of Mandamus Compelling County Board to Recover, Produce Electronic Public Records. On December 9, the Supreme Court of Ohio held that emails of public officials unlawfully deleted are still public records that can be produced for inspection under Ohio’s Public Records Act (Act). State ex rel. Toledo Blade Co. v. Seneca Cty. Bd. of Commrs., No. 2007-1694 (Ohio Dec. 9, 2008). In this case, the realtor defendant sought to obtain information about a courthouse renovation project by requesting access to all publicly available emails sent or received by members of the Seneca County Board of Commissioners (the Board) since 2006. The defendant considered the Board’s response inadequate because certain documents contained large time gaps between email chains. Subsequently, two commissioners admitted to deleting the missing emails. To obtain those emails, the defendant filed a writ of mandamus to compel the Board to recover the content of the deleted records and make them available for inspection and copying. The Board stipulated that the emails were “public records” pursuant to the Act. The court determined that the Act compelled the Board to recover and to produce the deleted emails because the emails were recoverable and, hence, not “destroyed.” The court also determined that the plaintiff was entitled to the deleted emails because the Board’s records retention policy was “unreasonable.” As a result, the court granted the request for a writ of mandamus, and found that the Board was responsible for the costs of recovering the deleted emails. For a copy of the opinion, please see http://www.buckleykolar.com/Toledo_Blade_v_Seneca.pdf.

California State Court Holds Zip Codes Not “Personal Identifying Information” Under California Credit Card Act. On December 19, the California Court of Appeals, Fourth District, Division One ruled that a consumer’s zip code is not “personal identification information” under California’s Song-Beverly Credit Card Act (Act). Party City Corp. v. Superior Court, --- Cal.Rptr.3d ----, 2008 WL 5264023 (Cal. App. Dec. 19, 2008). In Party City, the plaintiff filed a putative class action suit against the defendant for requesting and recording her five-digit zip code before completing a credit card transaction. The Act prohibits requesting and recording "personal identification information" in connection with a credit card payment, and the plaintiff argued that her zip code constituted "personal identification information," in violation of the Act. The court found that the plain language meaning of “personal identifying information,” as well as related federal regulatory definitions and legislative history supported a finding that zip codes are not personal identifying information. For a copy of the opinion, please see http://www.buckleykolar.com/Party_City_v_SC_SD.pdf.

Florida Federal Court Holds Internet Payment Confirmations Not Subject to FACTA. On December 9, the U.S. District Court for the Southern District of Florida held that on-screen internet payment confirmations are not "printed," and, thus, are not subject to the requirements of the Fair and Accurate Credit Transactions Act (FACTA). Smith v. Zazzle.com, Inc., No. 08-22371 (S.D. Fla. Dec 9, 2008). In Smith, the plaintiff made a transaction using the defendant’s website. The plaintiff argued that the defendant violated FACTA because the on-screen purchase confirmation included the plaintiff’s credit card expiration date. The court disagreed, holding that an on-screen purchase confirmation is not “printed.” Following several recent decisions, the court held that the plain language meaning of "print," as well as other language in FACTA, supported interpreting “print” as meaning imprinting on "paper or another tangible surface." As a result, the court dismissed the claim. For a copy of the opinion, please see http://www.buckleykolar.com/Smith_v_Zazzle.pdf.

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Firm News

John Kromer will moderate 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.

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.”

Clint Rockwell spoke on RESPA and Appraisals at the California Mortgage Bankers Association Conference in Anaheim, CA on December 8.

Joe Kolar made a presentation with HUD officials in an online webinar sponsored by the Consumer Bankers Association discussing the RESPA rule on December 9.

Jonathan Jerison was a speaker for a "Compliance Tune-Up" presented by the Regulatory Risk Monitor on December 9.

Jeff Naimon and Grant Mitchell presented a teleconference with Rod Alba for the American Bankers Association regarding the new RESPA Reform rule on December 17.

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Mortgages

HUD to Delay Implementation of Recently-Promulgated RESPA Final Rule. According to reports, the U.S. Department of Housing and Urban Development (HUD) will announce a 90-day delay regarding the implementation of the portions of the recently-promulgated Real Estate Settlement Procedures Act Final Rule set to become effective January 16, 2009. In particular, this will delay effectiveness of the controversial new definition of “required use.” This new definition would effectively prohibit non-settlement service providers from providing discounts to consumers for using settlement service provider affiliates. The delay is reportedly in response to the National Association of Home Builder’s (NAHB) lawsuit against HUD, which was filed on December 22, 2008. For a copy of the NAHB complaint, please see http://www.buckleykolar.com/documents/NAHB_v_HUD_Complaint_(12-28-2008).pdf. On December 19, the National Association of Mortgage Brokers filed a separate lawsuit against HUD regarding the Final Rule (reported in InfoBytes, Dec. 19, 2008).

Representative Frank Introduces TARP Reform Bill. On January 9, Representative Barney Frank (D-MA) introduced the “TARP Reform and Accountability Act of 2009” (H.R. 384). The bill amends the Troubled Assets Relief Program (TARP) provisions of the Emergency Economic Stabilization Act of 2008. The bill would require the U.S. Department of the Treasury (Treasury) Secretary to develop a foreclosure prevention and mitigation plan that commits up to $100 billion, but no less than $40 billion, toward the plan. The plan would need to be developed and approved by the Financial Stability Oversight Board by March 15, 2009, and the Treasury Secretary would be required to begin committing TARP funds to implement the plan no later than April 1, 2009. The programs under the plan would be required to apply only to owner-occupied residences, and would be required to leverage private capital to the maximum extent possible consistent with maximizing prevention of foreclosures. The plan would also be required to use one, or a combination of more than one, of the following program alternatives: (i) a guarantee program for qualifying loan modifications under a systematic plan, which may be delegated to the Federal Deposit Insurance Corporation (FDIC) or other contractor, (ii) bringing costs of Hope for Homeowner (H4H) loans down, either through coverage of fees, purchasing H4H mortgages to ensure affordable rates, or both, (iii) a program for loans to pay down second lien mortgages that are impeding a loan modification subject to any write-down by existing lender the Treasury may require, (iv) servicer incentives/assistance - payments to servicers in connection with implementation of qualifying loan modifications, and/or (v) purchase of whole loans for the purpose of modifying or refinancing the loans (with authorization to delegate to FDIC). The bill would also authorize the use of TARP funds for automobile manufacturers and other uses, such as consumer loans and commercial real estate loans. In addition, the bill would require greater oversight and reporting requirements along with greater restrictions on executive compensation. The bill also expands the H4H program, requires the Treasury to develop a home buyer stimulus program, and permanently increases the FDIC deposit insurance limits. For a copy of the bill, please see http://www.house.gov/apps/list/press/financialsvcs_dem/hr384.pdf.

Federal Banking Regulators Issue Final Community Reinvestment Act Q&As. On January 6, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision published their final “Interagency Questions and Answers Regarding Community Reinvestment,” adopting new Q&As and revising several others. Among other things, the Q&As encourage financial institutions to participate in foreclosure prevention programs that have the objective of providing affordable home loan modifications. Additionally, the federal banking regulators are proposing a new Q&A that would provide examples of how an institution can determine that the community services it provides are targeted to low- and moderate-income individuals. The regulators also propose to revise two existing Q&As to allow pro rata consideration in certain circumstances for an activity that provides affordable housing targeted to low-or moderate income individuals. Comments on the proposed Q&As are due by March 9, 2009. For more information, please see http://www.federalreserve.gov/newsevents/press/bcreg/20090106a.htm.  

HUD Eliminates Settlement Option for Mortgagees that Fail to Renew FHA Approval. On January 6, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2009-01, announcing that it will no longer permit mortgagees that fail to comply with annual FHA-approval renewal requirements to settle the matter prior to consideration by the Mortgagee Review Board. The Mortgagee Letter rescinds paragraph 4-9 of HUD Handbook 4060.1, REV-2, which allowed mortgagees that had not met the annual renewal requirements to settle the violation with HUD by paying a $1,000 fee. HUD is eliminating this process “to bring more mortgagees into compliance with [its] statutory and regulatory mandates,” and to prevent conflicts with its recently revised Mortgagee Review Board regulations. According to HUD, “any failure of a mortgagee or a lender to comply with annual renewal of FHA-approval requirements may be referred to the Mortgagee Review Board.” Mortgagees that receive a Notice of Violation for failure to renew must now appeal the Notice pursuant to 24 C.F.R. Part 25. A mortgagee, however, may still cure the violation, which will be taken into consideration by the Board. The Mortgagee Letter is effective immediately. For a copy of 2009-1, please see www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-01ml.doc.  

HUD Issues Mortgagee Letter Regarding Pre-Foreclosure Sale Loss Mitigation Program. On December 24, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2008-43 (ML 08-43) to address the Pre-Foreclosure Sale Program (PFS Program) and to remind mortgagees of the relief available to FHA borrowers who are default with FHA-insured mortgages. The PFS Program loss mitigation option allows a borrower in default to sell his or her home at fair market value and to use the proceeds to satisfy the mortgage debt, even if the proceeds are less than the amount owed. The new letter has consolidated and updated the requirements of the PFS Program in order to address current issues faced by borrowers and to allow more borrowers access to the program. For a copy of ML 08-43, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-43ml.doc.  

HUD Issues Supplemental Guidance Regarding Hope for Homeowners Program. On January 6, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2009-3 (ML 09-03), which describes procedures for originating and servicing FHA-insured mortgages authorized under the HOPE for Homeowners (H4H) Program. The new letter incorporates changes to the H4H Program made by the Emergency Economic Stabilization Act of 2008 (EESA) by supplementing and modifying Mortgagee Letters 2008-29 and 2008-30 in three ways. First, the letter gives lenders additional flexibility in calculating a borrower’s debt-to-income ratio (DTI) in adjustable rate mortgage transactions. Second, the letter allows lenders to provide qualifying borrowers with mortgages that have terms between 30 and 40 years. However, in order for the loan to qualify for a securitization pool, the term must be either 30 or 40 years. Third, the letter expands the types of properties eligible under the program to include two-, three- and four-unit properties, provided that the borrower occupies one of the units as a primary residence. The letter also modifies previous program requirements. For a copy of ML 09-03, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-03ml.doc.  

FTC Settles with Mortgage Companies Regarding Deceptive Loan Advertising Charges. On January 8, the Federal Trade Commission (FTC) announced settlements with three home loan advertisers for failing to disclose key loan terms in mortgage loan solicitations. The mailers represented that borrowers could receive mortgage loans at the terms prominently stated. However, the solicitations allegedly violated Section 5 of the FTC Act by failing to disclose, or failing to disclose adequately, that the advertised low monthly payment amounts and low rates apply only for a limited time, after which they will increase, and that the advertised payment amounts and rates did not include the interest owed each month, with the interest added to the total loan balance. The FTC also charged the mortgage advertisers with violating the Truth in Lending Act (TILA) and its Regulation Z by stating periodic payment amounts but failing to disclose clearly and conspicuously the repayment terms, the annual percentage rate (APR), and that the APR could be increased during the loan period. The consent orders bar the mortgage companies from advertising a rate lower than the rate at which interest is accruing. The companies are also barred from making any representation about the monthly payment amount unless they disclose the limitations on the advertised low monthly payment amount. In addition, the respondents may not state a rate of finance charge without clearly and conspicuously stating the rate as an APR; and, if the rate is a simple annual rate, stating it in conjunction with, but not more conspicuously than, the APR. For a copy of the press release, please see http://www.ftc.gov/opa/2009/01/anm.shtm.

FTC Settles with Foreclosure Rescue Service for False Representations. On January 8, the Federal Trade Commission (FTC) settled with a mortgage foreclosure rescue company for making false representations to consumers. The company claimed that, for a $1,200 fee, they would stop foreclosure proceedings and save consumers’ homes. Under the settlement terms, the FTC barred the foreclosure rescue service from falsely representing (i) that any home mortgage foreclosure can or will be stopped, postponed, or prevented, (ii) an ability to help all consumers, regardless of their individual circumstances, (iii) the likelihood that foreclosure can or will be stopped, postponed, or prevented, (iv) the degree of past success of any such efforts, (v) the number of satisfied customers or customer complaints, (vi) the terms of any refund or guarantee, (vii) the likelihood that a consumer will receive a full or partial refund if a foreclosure is not stopped, postponed, or prevented, (viii) any approval, endorsement, or rating by the Better Business Bureau or any other consumer advocacy or consumer protection association, (ix) any fact material to a consumer’s decision to purchase any mortgage foreclosure rescue service, and (x) any material fact in connection with marketing any good or service. Further, the FTC barred the company from disclosing or benefitting from personal information obtained from anyone in connection with marketing mortgage foreclosure rescue services. The settlement imposes a judgment of $1,178,920. However, all but $8,320.84 of the judgment is suspended based on the company’s inability to pay. For a copy of the press release, please see http://www.ftc.gov/opa/2009/01/mfs.shtm. For a copy of the settlement, please see http://www.ftc.gov/os/caselist/0823021/090108mfsorder.pdf.

State Attorneys General Request Amendments to Bankruptcy Code. On January 9, in a letter to the leadership of the United States Congress, the attorneys general (AGs) from twenty-three states and the District of Columbia requested that Congress amend the Bankruptcy Code to permit courts to modify mortgage debts on primary residences. The AGs noted that a number of lenders and servicers are unwilling to engage in voluntary loan modifications. In addition, the AGs noted that recent data indicates that these voluntary modifications, when made, are beginning to fail and suggested that court-ordered modifications would have better success for preventing foreclosures. For a copy of the letter sent to the House of Representatives leadership, please see http://www.buckleykolar.com/AG_House.pdf. For a copy of the letter sent to the Senate leadership, please see http://www.buckleykolar.com/AG_Senate.pdf.

DOJ Announces Expansion of President’s Corporate Fraud Task Force. On January 6, the U.S. Department of Justice announced that the President’s Corporate Fraud Task Force has been expanded to include the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Reserve, the Department of Housing and Urban Development, and the Special Inspector General for the Troubled Asset Relief Program. The new member agencies will assist with preventing mortgage and securitization fraud. For a copy of the press release, please see http://www.usdoj.gov/opa/pr/2009/January/09-odag-003.html.  

New Jersey Governor Signs Mortgage Stabilization and Relief Act. On January 9, New Jersey Governor Jon Corzine signed into law the Mortgage Stabilization and Relief Act (Act), which will heavily promote loan modifications and refinancing for properties that are in immediate danger of foreclosure. Under the Act, the New Jersey Housing and Mortgage Finance Agency (HMFA), the administering body, will offer second mortgage loans that do not carry monthly payments to eligible borrowers with first mortgage loans in imminent danger of foreclosure. In order to be eligible for this program, a homeowner’s income may not exceed 120% of the area’s median household income or the HMFA’s income limits, which vary by county. In an effort to combat the rising foreclosure rates in New Jersey, the program will offer eligible borrowers a mortgage stabilization loan of up to $25,000 to match the lender’s contribution, and the lender must agree to write the mortgage down to the current value of the home. In addition, homeowners accepted into the program must participate in agency-approved financial counseling and must repay both the state and lender assistance loans upon sale of the property. For a copy of the press release, please see http://www.state.nj.us/governor/news/news/2008/approved/20090109a.html.

Pennsylvania Issues Final Regulation Regarding Proper Conduct of Licensees in the Mortgage Loan Business. On December 20, the Pennsylvania Department of Banking issued a final regulation regarding the proper conduct of licensees lending and brokering in the mortgage loan business under the Pennsylvania Mortgage Act (7 Pa.C.S. §§ 6101--6153) and the Pennsylvania Consumer Discount Company Act (7 P. S. §§ 6201--6219). Among other requirements, the provisions of the final rule address (i) the prohibition of false or misleading advertising, (ii) a new required disclosure detailing the terms of the offered loan, (iii) a requirement for licensees to perform an ability to repay analysis when offering loan products, and (iv) the prohibition of certain loan transaction practices. The final regulation was published in the December 20, 2008 Pennsylvania Bulletin. For a copy of the final regulation, please see http://www.pabulletin.com/secure/data/vol38/38-51/2285.html.

New York Attorney General Settles Mortgage Broker Discrimination Suit, Files Additional Discrimination Suit. On January 5, New York Attorney General Andrew M. Cuomo announced agreements with two mortgage brokerage companies following an investigation into whether the companies discriminated against minority customers. Under the terms of the agreements, the companies, HCI Mortgage and Consumer One Mortgage, will collectively pay $665,000 in restitution to certain minority borrowers who were alleged to have been charged significantly higher broker fees than similarly-situated white borrowers. The companies must also adopt standard fee schedules and report to the New York Attorney General’s office to ensure compliance. In addition, Mr. Cuomo filed an additional suit against a third company, U.S. Capital Funding, which allegedly engaged in similar discriminatory practices, but did not agree to the settlement terms. For a copy of the agreements and the complaint, please see http://www.oag.state.ny.us/media_center/2009/jan/jan5a_09.html.

Kentucky Attorney General Settles Predatory Lending Claims Against Countrywide. On January 5, the Kentucky Office of the Attorney General announced that it approved a settlement with Countrywide Financial Corporation (Countrywide) resolving allegations that Countrywide’s loan origination and servicing businesses employed unfair and deceptive practices. As part of the settlement, Countrywide agreed to reserve $1.64 million from its $150 million foreclosure relief fund to restructure loans for eligible Kentucky borrowers facing foreclosure. The Attorney General anticipates that the settlement will assist approximately 2,500 borrowers and will result in restructuring over $262 million of debt. In addition to establishing the fund, Countrywide agreed to (i) suspend foreclosure sales on loans likely to qualify for loan modification until borrower eligibility is determined, (ii) establish an early identification and contact program for troubled borrowers, (iii) discontinue option adjustable rate mortgages and “low-documentation,” or “no-documentation” loans, (iv) establish a nationwide $8.5 million Foreclosure Relief Fund for certain subprime or option adjustable rate mortgage (ARM) borrowers who lost their homes to foreclosure, (v) establish a fund to assist borrowers who do not qualify for loan modification, (vi) waive loan modification and late fees, and (vii) waive prepayment penalties on subprime and option ARM loans. For a copy of the press release, please see http://migration.kentucky.gov/Newsroom/ag/countrywidesettlement.html.

Fourth Circuit Holds Title Insurance Purchased by Seller’s Agent Does Not Violate RESPA. On December 3, the U.S. Circuit Court of Appeals for the Fourth Circuit, in an unpublished opinion, held that Section 9 of the Real Estate Settlement Procedures Act (RESPA) does not prohibit a property seller’s agent from purchasing a title insurance policy for the buyer from a particular title insurance company. Hopkins v. Horizon Management Services, Inc., No. 07-1965, 2008 WL 5080983 (4th Cir. Dec. 3, 2008). In Hopkins, the purchaser acquired “real estate owned” property held by Deutsche Bank through a marketing and sales agent. The contract signed by the purchaser stated that the agent would select the title and closing agent. In the addendum to the contract, the agent agreed to pay the premium for the owner’s title insurance policy, regardless of whether the purchaser requested an owner’s policy. At closing, the policy was purchased from the agent’s chosen title insurance issuer. The plaintiff claimed that the addendum she signed resulted in the agent “indirectly requiring her to purchase title insurance from a particular title company in violation of Section 9.” Section 9, as stated by the court, prohibits “requiring the purchaser of real estate to buy title insurance from a particular title company.” In arriving at its decision, the court concluded that the agent “paid for the owner’s policy,” which defeated any claim that the purchaser “was required to purchase this title insurance ‘from any particular title company.’” The court rejected interpreting “purchase” to mean “obtain possession” rather than “pay for.” In dicta, the court noted that a requirement for the plaintiff to pay further money to obtain the owner’s insurance might constitute “purchasing” part of the policy. The plaintiff also argued that the agent’s choice of the title agent and owner’s policy indirectly required her to use a particular title company for the purchase of the lender’s title policy. The court noted that the fact that the plaintiff “paid less for a lender’s policy purchased from the company already providing owner’s insurance may be an economic benefit, but it is not a ‘requirement’ and thus does not come within the language of Section 9.” For a copy of the opinion, please see http://www.buckleykolar.com/Hopkins_v_Horizon.pdf.

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Banking

Federal Banking Regulators Issue Final Community Reinvestment Act Q&As. On January 6, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision published their final “Interagency Questions and Answers Regarding Community Reinvestment,” adopting new Q&As and revising several others. Among other things, the Q&As encourage financial institutions to participate in foreclosure prevention programs that have the objective of providing affordable home loan modifications. Additionally, the federal banking regulators are proposing a new Q&A that would provide examples of how an institution can determine that the community services it provides are targeted to low- and moderate-income individuals. The regulators also propose to revise two existing Q&As to allow pro rata consideration in certain circumstances for an activity that provides affordable housing targeted to low-or moderate income individuals. Comments on the proposed Q&As are due by March 9, 2009. For more information, please see http://www.federalreserve.gov/newsevents/press/bcreg/20090106a.htm.  

DOJ Announces Expansion of President’s Corporate Fraud Task Force. On January 6, the U.S. Department of Justice announced that the President’s Corporate Fraud Task Force has been expanded to include the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Reserve, the Department of Housing and Urban Development, and the Special Inspector General for the Troubled Asset Relief Program. The new member agencies will assist with preventing mortgage and securitization fraud. For a copy of the press release, please see http://www.usdoj.gov/opa/pr/2009/January/09-odag-003.html.  

Fed Announces Changes to MMIFF. On January 7, the Federal Reserve Board (Fed) announced two changes to the Money Market Investor Funding Facility (MMIFF). The Fed expanded the set of institutions eligible to participate in the MMIFF to include additional money market investors, such as U.S.-based securities-lending cash-collateral reinvestment funds, portfolios, and accounts, as well as U.S.-based investment funds that operate similar to money market mutual funds. In addition, the Fed authorized the adjustment of several of the economic parameters of the MMIFF, including the minimum yield on assets eligible for sale to the MMIFF. For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/monetary/20090107a.htm.

Treasury Issues December TARP Report. On January 6, the U.S. Department of the Treasury (Treasury) issued a report to Congress regarding the Troubled Asset Relief Program (TARP). As of December 31, 2008, Treasury has invested $177 billion through the Capital Purchase Program. In addition, it has committed an addition $10 million with a deferred settlement date. The report further discusses the (i) Capital Purchase Program, (ii) Automotive Industry Financing Program,(iii) Targeted Investment Program, (iv) Asset Guarantee Program, and (v) Term Asset-Backed Securities Loan Facility. For a copy of the report, please see http://www.treasury.gov/initiatives/eesa/docs/105Report_010609.pdf.

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Consumer Finance

FTC Increases Civil Money Penalties. On January 9, the Federal Trade Commission (FTC) announced adjustments to civil money penalty amounts within its jurisdiction. The FTC increased the civil money penalty for violations for unfair or deceptive acts or practices from $11,000 to $16,000. The FTC increased the penalty for violations of the Fair Credit Reporting Act from $2,500 to $3,500. For a copy of Federal Register notice, please see http://edocket.access.gpo.gov/2009/pdf/E9-210.pdf.

Oregon Federal Court Finds FCRA Statutory Damages Provision Not Unconstitutional. On December 12, the U.S. District Court for the District of Oregon held that the Fair Credit Reporting Act’s (FCRA) statutory damages provision is not unconstitutionally void for vagueness. Ashby v. Farmers Ins. Co. of Oregon, No. 01-Cv-1446, 2008 WL 5424025 (D. Or. Dec. 12, 2008). The plaintiffs in Ashby alleged that the defendants either failed to send or sent inadequate adverse-action notices to new insurance and/or renewal applicants whose premiums increased as a result of information in their credit reports. The court previously certified the case as a class action in October 2004, and the current decision arose from the court’s request for jury instructions to help the jury determine whether defendants willfully violated FCRA and, if so, the appropriate amount of statutory violations to be awarded. In response, the defendants argued that FCRA’s statutory damages provision is unconstitutional under the Fifth Amendment. As an initial matter, the defendants argued that the provision is void for vagueness because it provides a range of damages awards without identifying factors to guide the fact-finder in setting the amount. The defendants also argued that, if the degree of willfulness is the primary factor the jury considers in setting damages, then the defendants would be subjected to double punishment—first, when determining the class members’ right to statutory damages, and again when determining the amount of damages within the statutory range. In addition, the defendants argued that a class-wide aggregate statutory-damage award could be so excessive and disproportionate to any harm suffered by each class member such that it would violate due process. The court rejected both arguments. First, the court held that FCRA’s statutory damages provision was not unconstitutionally vague. Citing two recent cases from the Southern District of Florida, the court held that the provision would allow a reasonable jury to affix the proper amount of damages within the statutorily provided range, and that “the mere possibility of a punitive damages award does not render the statute void.” Next, the court found that FCRA’s statutory damages provision did not subject defendants to the possibility of unconstitutional double punishment: “There is no double punishment because the plaintiffs are not seeking punitive damages for the same conduct that gives rise to statutory damages.” Finally, the court rejected as untimely defendants’ argument that FCRA’s statutory damages could lead to the imposition of an unconstitutionally excessive award. The court preferred to await the jury’s actual decision, and at that time decide whether the award, if any, is excessive. For a copy of the opinion, please see http://www.buckleykolar.com/Ashby_v_Farmers.pdf.

Michigan Federal Court Finds FCRA Preempts Breach of Contract Claim. On December 17, the U.S. District Court for the Eastern District of Michigan held that the Fair Credit Reporting Act (FCRA) preempted a breach of contract claim based on reporting the payment history of a mortgage to credit bureaus. Munson v. Countrywide Home Loans, Inc., No. 08-13244, 2008 WL 5381866 (E.D. Mich. Dec. 17, 2008). In Munson, the borrower plaintiffs sued their lender, lender’s employees, servicer, mortgage broker, broker’s employee, and home appraiser alleging various federal and state law claims related to the mortgage and foreclosure on their home. In one of the plaintiffs’ breach of contract theories, the plaintiffs argued that the lender breached its contract with the plaintiffs by erroneously submitting their account to the credit bureaus as 60 days late, despite the fact that payment had been made. The plaintiffs argued that other lenders refused to refinance the loan as a result. The court noted that, although there is considerable dispute about the application and extent of FCRA preemption provisions, when a state law imposes distinct duties with respect to the subject matter regulated by § 1681s-2 of FCRA, FCRA preempts that state law. The court found that this particular breach of contract theory was founded solely on the lender’s actions in reporting the plaintiffs’ payment history, and that the reporting of credit information is regulated by § 1681s-2. As a result, the court found that FCRA preempted this breach of contract claim. The court further rejected the plaintiffs’ additional claims and dismissed the suit in its entirety against all defendants. For a copy of the opinion, please see http://www.buckleykolar.com/Munson_v_Countrywide.pdf.

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Litigation

Fourth Circuit Holds Title Insurance Purchased by Seller’s Agent Does Not Violate RESPA. On December 3, the U.S. Circuit Court of Appeals for the Fourth Circuit, in an unpublished opinion, held that Section 9 of the Real Estate Settlement Procedures Act (RESPA) does not prohibit a property seller’s agent from purchasing a title insurance policy for the buyer from a particular title insurance company. Hopkins v. Horizon Management Services, Inc., No. 07-1965, 2008 WL 5080983 (4th Cir. Dec. 3, 2008). In Hopkins, the purchaser acquired “real estate owned” property held by Deutsche Bank through a marketing and sales agent. The contract signed by the purchaser stated that the agent would select the title and closing agent. In the addendum to the contract, the agent agreed to pay the premium for the owner’s title insurance policy, regardless of whether the purchaser requested an owner’s policy. At closing, the policy was purchased from the agent’s chosen title insurance issuer. The plaintiff claimed that the addendum she signed resulted in the agent “indirectly requiring her to purchase title insurance from a particular title company in violation of Section 9.” Section 9, as stated by the court, prohibits “requiring the purchaser of real estate to buy title insurance from a particular title company.” In arriving at its decision, the court concluded that the agent “paid for the owner’s policy,” which defeated any claim that the purchaser “was required to purchase this title insurance ‘from any particular title company.’” The court rejected interpreting “purchase” to mean “obtain possession” rather than “pay for.” In dicta, the court noted that a requirement for the plaintiff to pay further money to obtain the owner’s insurance might constitute “purchasing” part of the policy. The plaintiff also argued that the agent’s choice of the title agent and owner’s policy indirectly required her to use a particular title company for the purchase of the lender’s title policy. The court noted that the fact that the plaintiff “paid less for a lender’s policy purchased from the company already providing owner’s insurance may be an economic benefit, but it is not a ‘requirement’ and thus does not come within the language of Section 9.” For a copy of the opinion, please see http://www.buckleykolar.com/Hopkins_v_Horizon.pdf.

Oregon Federal Court Finds FCRA Statutory Damages Provision Not Unconstitutional. On December 12, the U.S. District Court for the District of Oregon held that the Fair Credit Reporting Act’s (FCRA) statutory damages provision is not unconstitutionally void for vagueness. Ashby v. Farmers Ins. Co. of Oregon, No. 01-Cv-1446, 2008 WL 5424025 (D. Or. Dec. 12, 2008). The plaintiffs in Ashby alleged that the defendants either failed to send or sent inadequate adverse-action notices to new insurance and/or renewal applicants whose premiums increased as a result of information in their credit reports. The court previously certified the case as a class action in October 2004, and the current decision arose from the court’s request for jury instructions to help the jury determine whether defendants willfully violated FCRA and, if so, the appropriate amount of statutory violations to be awarded. In response, the defendants argued that FCRA’s statutory damages provision is unconstitutional under the Fifth Amendment. As an initial matter, the defendants argued that the provision is void for vagueness because it provides a range of damages awards without identifying factors to guide the fact-finder in setting the amount. The defendants also argued that, if the degree of willfulness is the primary factor the jury considers in setting damages, then the defendants would be subjected to double punishment—first, when determining the class members’ right to statutory damages, and again when determining the amount of damages within the statutory range. In addition, the defendants argued that a class-wide aggregate statutory-damage award could be so excessive and disproportionate to any harm suffered by each class member such that it would violate due process. The court rejected both arguments. First, the court held that FCRA’s statutory damages provision was not unconstitutionally vague. Citing two recent cases from the Southern District of Florida, the court held that the provision would allow a reasonable jury to affix the proper amount of damages within the statutorily provided range, and that “the mere possibility of a punitive damages award does not render the statute void.” Next, the court found that FCRA’s statutory damages provision did not subject defendants to the possibility of unconstitutional double punishment: “There is no double punishment because the plaintiffs are not seeking punitive damages for the same conduct that gives rise to statutory damages.” Finally, the court rejected as untimely defendants’ argument that FCRA’s statutory damages could lead to the imposition of an unconstitutionally excessive award. The court preferred to await the jury’s actual decision, and at that time decide whether the award, if any, is excessive. For a copy of the opinion, please see http://www.buckleykolar.com/Ashby_v_Farmers.pdf.

Michigan Federal Court Finds FCRA Preempts Breach of Contract Claim. On December 17, the U.S. District Court for the Eastern District of Michigan held that the Fair Credit Reporting Act (FCRA) preempted a breach of contract claim based on reporting the payment history of a mortgage to credit bureaus. Munson v. Countrywide Home Loans, Inc., No. 08-13244, 2008 WL 5381866 (E.D. Mich. Dec. 17, 2008). In Munson, the borrower plaintiffs sued their lender, lender’s employees, servicer, mortgage broker, broker’s employee, and home appraiser alleging various federal and state law claims related to the mortgage and foreclosure on their home. In one of the plaintiffs’ breach of contract theories, the plaintiffs argued that the lender breached its contract with the plaintiffs by erroneously submitting their account to the credit bureaus as 60 days late, despite the fact that payment had been made. The plaintiffs argued that other lenders refused to refinance the loan as a result. The court noted that, although there is considerable dispute about the application and extent of FCRA preemption provisions, when a state law imposes distinct duties with respect to the subject matter regulated by § 1681s-2 of FCRA, FCRA preempts that state law. The court found that this particular breach of contract theory was founded solely on the lender’s actions in reporting the plaintiffs’ payment history, and that the reporting of credit information is regulated by § 1681s-2. As a result, the court found that FCRA preempted this breach of contract claim. The court further rejected the plaintiffs’ additional claims and dismissed the suit in its entirety against all defendants. For a copy of the opinion, please see http://www.buckleykolar.com/Munson_v_Countrywide.pdf.

California Federal Court Holds Clickwrap Agreement May Be Enforceable Against All Users, Not Just Customers. On December 15, the U.S. District Court for the Northern District of California held that an online “clickwrap agreement” could be enforceable against any party agreeing to its terms, and not just to customers of the company. Oracle Corp. v. SAP AG, No. 07-1658 (N.D. Cal. Dec. 15, 2008). In Oracle, Oracle sued SAP AG, as well as various affiliates and subsidiaries, for allegedly stealing and illegally using computer software developed, owned and licensed by Oracle and its subsidiaries and affiliates in order to interface with PeopleSoft software. SAP, intending to offer customer support and maintenance services for PeopleSoft customers, purchased TomorrowNow, a company founded by a group of former PeopleSoft software engineers. Oracle alleged that TomorrowNow illegally accessed PeopleSoft’s software and illegally downloaded the software products from Oracle’s password-protected customer support website. Oracle filed suit, alleging numerous causes of action, including breach of contract, intentional interference with prospective business, and negligent interference with prospective business. In the amended complaint, Oracle alleged that defendants breached the “Customer Connection Terms of Use, the Special Terms of Use, the SAR legal restrictions and/or the Legal Download Agreement,” which were agreed to when SAP accessed and downloaded the relevant software and support materials from Oracle’s website. Oracle contended that each of these agreements was a valid “clickwrap” agreement. SAP argued that each of those agreements only contemplates Oracle customers as parties to the contract; therefore, because Oracle did not allege that the defendants were customers, they cannot be considered a party to the clickwrap agreements. Oracle responded that the only way to access the software is to repeatedly click “I Agree” to the various terms and contracts, meaning SAP agreed to the enforceable terms of the contracts. The court held that Oracle stated a claim for breach of contract, noting that “many courts have found clickwrap agreements to be enforceable,” and denied the motion to dismiss that particular claim. For a copy of the opinion, please see http://www.buckleykolar.com/Oracle_v_SAP.pdf.

Ohio State Court Grants Writ of Mandamus Compelling County Board to Recover, Produce Electronic Public Records. On December 9, the Supreme Court of Ohio held that emails of public officials unlawfully deleted are still public records that can be produced for inspection under Ohio’s Public Records Act (Act). State ex rel. Toledo Blade Co. v. Seneca Cty. Bd. of Commrs., No. 2007-1694 (Ohio Dec. 9, 2008). In this case, the realtor defendant sought to obtain information about a courthouse renovation project by requesting access to all publicly available emails sent or received by members of the Seneca County Board of Commissioners (the Board) since 2006. The defendant considered the Board’s response inadequate because certain documents contained large time gaps between email chains. Subsequently, two commissioners admitted to deleting the missing emails. To obtain those emails, the defendant filed a writ of mandamus to compel the Board to recover the content of the deleted records and make them available for inspection and copying. The Board stipulated that the emails were “public records” pursuant to the Act. The court determined that the Act compelled the Board to recover and to produce the deleted emails because the emails were recoverable and, hence, not “destroyed.” The court also determined that the plaintiff was entitled to the deleted emails because the Board’s records retention policy was “unreasonable.” As a result, the court granted the request for a writ of mandamus, and found that the Board was responsible for the costs of recovering the deleted emails. For a copy of the opinion, please see http://www.buckleykolar.com/Toledo_Blade_v_Seneca.pdf.

California State Court Holds Zip Codes Not “Personal Identifying Information” Under California Credit Card Act. On December 19, the California Court of Appeals, Fourth District, Division One ruled that a consumer’s zip code is not “personal identification information” under California’s Song-Beverly Credit Card Act (Act). Party City Corp. v. Superior Court, --- Cal.Rptr.3d ----, 2008 WL 5264023 (Cal. App. Dec. 19, 2008). In Party City, the plaintiff filed a putative class action suit against the defendant for requesting and recording her five-digit zip code before completing a credit card transaction. The Act prohibits requesting and recording "personal identification information" in connection with a credit card payment, and the plaintiff argued that her zip code constituted "personal identification information," in violation of the Act. The court found that the plain language meaning of “personal identifying information,” as well as related federal regulatory definitions and legislative history supported a finding that zip codes are not personal identifying information. For a copy of the opinion, please see http://www.buckleykolar.com/Party_City_v_SC_SD.pdf.

Florida Federal Court Holds Internet Payment Confirmations Not Subject to FACTA. On December 9, the U.S. District Court for the Southern District of Florida held that on-screen internet payment confirmations are not "printed," and, thus, are not subject to the requirements of the Fair and Accurate Credit Transactions Act (FACTA). Smith v. Zazzle.com, Inc., No. 08-22371 (S.D. Fla. Dec 9, 2008). In Smith, the plaintiff made a transaction using the defendant’s website. The plaintiff argued that the defendant violated FACTA because the on-screen purchase confirmation included the plaintiff’s credit card expiration date. The court disagreed, holding that an on-screen purchase confirmation is not “printed.” Following several recent decisions, the court held that the plain language meaning of "print," as well as other language in FACTA, supported interpreting “print” as meaning imprinting on "paper or another tangible surface." As a result, the court dismissed the claim. For a copy of the opinion, please see http://www.buckleykolar.com/Smith_v_Zazzle.pdf.

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E-Financial Services

California Federal Court Holds Clickwrap Agreement May Be Enforceable Against All Users, Not Just Customers. On December 15, the U.S. District Court for the Northern District of California held that an online “clickwrap agreement” could be enforceable against any party agreeing to its terms, and not just to customers of the company. Oracle Corp. v. SAP AG, No. 07-1658 (N.D. Cal. Dec. 15, 2008). In Oracle, Oracle sued SAP AG, as well as various affiliates and subsidiaries, for allegedly stealing and illegally using computer software developed, owned and licensed by Oracle and its subsidiaries and affiliates in order to interface with PeopleSoft software. SAP, intending to offer customer support and maintenance services for PeopleSoft customers, purchased TomorrowNow, a company founded by a group of former PeopleSoft software engineers. Oracle alleged that TomorrowNow illegally accessed PeopleSoft’s software and illegally downloaded the software products from Oracle’s password-protected customer support website. Oracle filed suit, alleging numerous causes of action, including breach of contract, intentional interference with prospective business, and negligent interference with prospective business. In the amended complaint, Oracle alleged that defendants breached the “Customer Connection Terms of Use, the Special Terms of Use, the SAR legal restrictions and/or the Legal Download Agreement,” which were agreed to when SAP accessed and downloaded the relevant software and support materials from Oracle’s website. Oracle contended that each of these agreements was a valid “clickwrap” agreement. SAP argued that each of those agreements only contemplates Oracle customers as parties to the contract; therefore, because Oracle did not allege that the defendants were customers, they cannot be considered a party to the clickwrap agreements. Oracle responded that the only way to access the software is to repeatedly click “I Agree” to the various terms and contracts, meaning SAP agreed to the enforceable terms of the contracts. The court held that Oracle stated a claim for breach of contract, noting that “many courts have found clickwrap agreements to be enforceable,” and denied the motion to dismiss that particular claim. For a copy of the opinion, please see http://www.buckleykolar.com/Oracle_v_SAP.pdf.

Ohio State Court Grants Writ of Mandamus Compelling County Board to Recover, Produce Electronic Public Records. On December 9, the Supreme Court of Ohio held that emails of public officials unlawfully deleted are still public records that can be produced for inspection under Ohio’s Public Records Act (Act). State ex rel. Toledo Blade Co. v. Seneca Cty. Bd. of Commrs., No. 2007-1694 (Ohio Dec. 9, 2008). In this case, the realtor defendant sought to obtain information about a courthouse renovation project by requesting access to all publicly available emails sent or received by members of the Seneca County Board of Commissioners (the Board) since 2006. The defendant considered the Board’s response inadequate because certain documents contained large time gaps between email chains. Subsequently, two commissioners admitted to deleting the missing emails. To obtain those emails, the defendant filed a writ of mandamus to compel the Board to recover the content of the deleted records and make them available for inspection and copying. The Board stipulated that the emails were “public records” pursuant to the Act. The court determined that the Act compelled the Board to recover and to produce the deleted emails because the emails were recoverable and, hence, not “destroyed.” The court also determined that the plaintiff was entitled to the deleted emails because the Board’s records retention policy was “unreasonable.” As a result, the court granted the request for a writ of mandamus, and found that the Board was responsible for the costs of recovering the deleted emails. For a copy of the opinion, please see http://www.buckleykolar.com/Toledo_Blade_v_Seneca.pdf.

California State Court Holds Zip Codes Not “Personal Identifying Information” Under California Credit Card Act. On December 19, the California Court of Appeals, Fourth District, Division One ruled that a consumer’s zip code is not “personal identification information” under California’s Song-Beverly Credit Card Act (Act). Party City Corp. v. Superior Court, --- Cal.Rptr.3d ----, 2008 WL 5264023 (Cal. App. Dec. 19, 2008). In Party City, the plaintiff filed a putative class action suit against the defendant for requesting and recording her five-digit zip code before completing a credit card transaction. The Act prohibits requesting and recording "personal identification information" in connection with a credit card payment, and the plaintiff argued that her zip code constituted "personal identification information," in violation of the Act. The court found that the plain language meaning of “personal identifying information,” as well as related federal regulatory definitions and legislative history supported a finding that zip codes are not personal identifying information. For a copy of the opinion, please see http://www.buckleykolar.com/Party_City_v_SC_SD.pdf.

Florida Federal Court Holds Internet Payment Confirmations Not Subject to FACTA. On December 9, the U.S. District Court for the Southern District of Florida held that on-screen internet payment confirmations are not "printed," and, thus, are not subject to the requirements of the Fair and Accurate Credit Transactions Act (FACTA). Smith v. Zazzle.com, Inc., No. 08-22371 (S.D. Fla. Dec 9, 2008). In Smith, the plaintiff made a transaction using the defendant’s website. The plaintiff argued that the defendant violated FACTA because the on-screen purchase confirmation included the plaintiff’s credit card expiration date. The court disagreed, holding that an on-screen purchase confirmation is not “printed.” Following several recent decisions, the court held that the plain language meaning of "print," as well as other language in FACTA, supported interpreting “print” as meaning imprinting on "paper or another tangible surface." As a result, the court dismissed the claim. For a copy of the opinion, please see http://www.buckleykolar.com/Smith_v_Zazzle.pdf.

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Privacy/Data Security

California State Court Holds Zip Codes Not “Personal Identifying Information” Under California Credit Card Act. On December 19, the California Court of Appeals, Fourth District, Division One ruled that a consumer’s zip code is not “personal identification information” under California’s Song-Beverly Credit Card Act (Act). Party City Corp. v. Superior Court, --- Cal.Rptr.3d ----, 2008 WL 5264023 (Cal. App. Dec. 19, 2008). In Party City, the plaintiff filed a putative class action suit against the defendant for requesting and recording her five-digit zip code before completing a credit card transaction. The Act prohibits requesting and recording "personal identification information" in connection with a credit card payment, and the plaintiff argued that her zip code constituted "personal identification information," in violation of the Act. The court found that the plain language meaning of “personal identifying information,” as well as related federal regulatory definitions and legislative history supported a finding that zip codes are not personal identifying information. For a copy of the opinion, please see http://www.buckleykolar.com/Party_City_v_SC_SD.pdf.

Florida Federal Court Holds Internet Payment Confirmations Not Subject to FACTA. On December 9, the U.S. District Court for the Southern District of Florida held that on-screen internet payment confirmations are not "printed," and, thus, are not subject to the requirements of the Fair and Accurate Credit Transactions Act (FACTA). Smith v. Zazzle.com, Inc., No. 08-22371 (S.D. Fla. Dec 9, 2008). In Smith, the plaintiff made a transaction using the defendant’s website. The plaintiff argued that the defendant violated FACTA because the on-screen purchase confirmation included the plaintiff’s credit card expiration date. The court disagreed, holding that an on-screen purchase confirmation is not “printed.” Following several recent decisions, the court held that the plain language meaning of "print," as well as other language in FACTA, supported interpreting “print” as meaning imprinting on "paper or another tangible surface." As a result, the court dismissed the claim. For a copy of the opinion, please see http://www.buckleykolar.com/Smith_v_Zazzle.pdf.

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Credit Cards

California State Court Holds Zip Codes Not “Personal Identifying Information” Under California Credit Card Act. On December 19, the California Court of Appeals, Fourth District, Division One ruled that a consumer’s zip code is not “personal identification information” under California’s Song-Beverly Credit Card Act (Act). Party City Corp. v. Superior Court, --- Cal.Rptr.3d ----, 2008 WL 5264023 (Cal. App. Dec. 19, 2008). In Party City, the plaintiff filed a putative class action suit against the defendant for requesting and recording her five-digit zip code before completing a credit card transaction. The Act prohibits requesting and recording "personal identification information" in connection with a credit card payment, and the plaintiff argued that her zip code constituted "personal identification information," in violation of the Act. The court found that the plain language meaning of “personal identifying information,” as well as related federal regulatory definitions and legislative history supported a finding that zip codes are not personal identifying information. For a copy of the opinion, please see http://www.buckleykolar.com/Party_City_v_SC_SD.pdf.

Florida Federal Court Holds Internet Payment Confirmations Not Subject to FACTA. On December 9, the U.S. District Court for the Southern District of Florida held that on-screen internet payment confirmations are not "printed," and, thus, are not subject to the requirements of the Fair and Accurate Credit Transactions Act (FACTA). Smith v. Zazzle.com, Inc., No. 08-22371 (S.D. Fla. Dec 9, 2008). In Smith, the plaintiff made a transaction using the defendant’s website. The plaintiff argued that the defendant violated FACTA because the on-screen purchase confirmation included the plaintiff’s credit card expiration date. The court disagreed, holding that an on-screen purchase confirmation is not “printed.” Following several recent decisions, the court held that the plain language meaning of "print," as well as other language in FACTA, supported interpreting “print” as meaning imprinting on "paper or another tangible surface." As a result, the court dismissed the claim. For a copy of the opinion, please see http://www.buckleykolar.com/Smith_v_Zazzle.pdf.

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