InfoBytes, July 10, 2009
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Banking
- Consumer Finance
- Litigation
- Privacy/Data Security
- Credit Cards
Federal Issues
Rep. Frank Introduces Legislation to Create Consumer Financial Protection Agency; FTC Testifies Regarding CFPA. On July 8, Representative Barney Frank (D-MA) introduced legislation to create a new, independent Consumer Financial Protection Agency (CFPA), a central feature of the Obama Administration’s proposal to overhaul the nation’s financial regulatory structure. The language of the proposed bill (H.R. 3126) is nearly identical to the language proposed by the Administration on June 30 (reported in BuckleySandler Regulatory Restructuring Report, Issue Four). However, unlike the Administration’s proposal, H.R. 3126 would not include the Community Reinvestment Act as one of the “enumerated consumer laws” that will transfer over to CFPA authority. For a copy of the bill, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h3126ih.txt.pdf.
Also this week, the U.S. House of Representatives Energy and Commerce Committee (the Commerce Committee) held a hearing to address how the creation of the CFPA would affect the role of the Federal Trade Commission (FTC). While members of the Commerce Committee expressed concern over the erosion of the FTC’s jurisdiction, FTC Chairman Leibowitz testified in support of the proposal, particularly provisions that would provide increased enforcement authority to the FTC. For a copy of the testimony, please see http://www.ftc.gov/os/2009/07/090708Acfpatestimony.pdf.
Agencies Issue Joint Statement on Legacy Securities and Legacy Loan Programs. On July 8, Treasury Secretary Geithner, Federal Reserve Board Chairman Bernanke, and Federal Deposit Insurance Corporation Chairman Bair issued a joint statement recapping recent developments in implementing the Legacy Loans Program (LLP) and Legacy Securities Program (LSP). The statement primarily discusses the launch of the LSP Private-Public Investment Program (PPIP), which will (i) support the market for commercial mortgage-backed securities and non-agency residential mortgage-backed securities originated prior to 2009, and (ii) encourage private capital providers to co-invest/leverage funds with the U.S. Department of Treasury (Treasury) to purchase eligible assets. The joint statement also discloses the identities of the applicants pre-qualified to participate in the program, as well as the terms by which Treasury will deal with those pre-qualified applicants. In addition, the joint statement addresses the progress made in implementing the LLP. Through the LLP, financial institutions will auction pools of real estate loans. Winning bidders can then purchase these pools with government assistance. The FDIC will begin testing the funding mechanism contemplated by the LLP by hosting an auction on a pool of receivership assets later this month (reported in InfoBytes, June 5, 2009). For a copy of the initial InfoBytes summary regarding the programs, please see InfoBytes, March 27, 2009. For a copy of the joint statement, please see http://www.financialstability.gov/latest/tg_07082009.html.
Senator Dodd Issues Letter to Protect Consumers from Credit Card Rate Increases. On July 9, Senator Christopher J. Dodd (D-CT) issued a letter to the heads of the federal banking regulatory agencies to implement and enforce the "look-back" provision of H.R. 627, the “Credit Card Accountability Responsibility Disclosure Act” (CCARD). The letter contends that, according to press reports, some credit card companies are raising interest rates on existing balances without justification before the CCARD provisions take effect and before regulations can be promulgated to enforce CCARD. Senator Dodd urged the agency heads to remind credit card companies of the “look-back” provision of CCARD, which was intended to deter card companies from arbitrarily raising rates prior to the effective date of the final Federal Reserve Board regulations designed in part to address such interest rate increase (reported in InfoBytes, Dec. 19, 2008). The “look-back” provision requires credit card companies to review, every six months, any account where the interest rate has been raised since January 1, 2009. According to the letter, the interest rate must be reduced under CCARD if (i) the cardholder has become less risky, or (ii) the circumstances that warranted the increase are no longer applicable. For a summary of CCARD, please see InfoBytes, May 22, 2009. For a copy of the letter, please see http://banking.senate.gov/public/index.cfm?FuseAction=Newsroom.PressReleases&ContentRecord_id=60677d24-085a-41f4-3ccb-314f1c9266dd.
FTC Obtains Permanent Injunction Regarding Credit Card Interest Reduction Services Company. On July 9, the Federal Trade Commission announced that an Illinois federal court issued a permanent injunction against a company that allegedly defrauded over 12,000 consumers by falsely representing that it would substantially reduce credit card interest rates and finance charges. Federal Trade Commission v. Select Personnel Management, Inc., No. 07 C 0529 (N.D. Il. May 15, 2009). The company also allegedly misrepresented that it was affiliated with the consumers’ credit card companies. In addition to the injunction, the company will (i) consent to record-keeping and compliance reporting provisions, and (ii) pay a more than $7.8 million penalty. For a copy of the press release, please see http://www.ftc.gov/opa/2009/07/spm.shtm. For a copy of the order, please see http://www.ftc.gov/os/caselist/0623215/090709spmorder.pdf.
FDIC Issues FAQ Regarding Sweep Account Disclosure Requirements. On July 6, the Federal Deposit Insurance Corporation issued a FAQ regarding the disclosure requirements for certain sweep accounts pursuant to a January 2009 final rule, "Processing of Deposit Accounts in the Event of an Insured Depository Institution Failure.” Among other things, the FAQ clarifies the types of sweep accounts subject to the disclosure requirements. The FAQ also clarifies that the required disclosures must be provided to sweep account agreements within 60 days after July 1, 2009 for those accounts in effect on July 1, 2009, and at least annually thereafter. For sweep account agreements made after July 1, 2009, the disclosures must be provided at the time the sweep account agreement is made, and at least annually thereafter. For a copy of the FAQ, please see http://www.fdic.gov/news/news/financial/2009/fil09039a.html.
State Issues
California AG Sues Over Allegedly Fraudulent Promise to Halt Foreclosures. On July 6, California Attorney General Edmund G. Brown Jr. filed suit against a foreclosure consultant and an attorney, alleging that the two fraudulently charged 2,000 homeowners with legal fees for lawsuits that promised to delay or eliminate foreclosure proceedings. The suit alleges violations of California’s credit counseling and foreclosure consultant laws, the California Business and Professions Code, and contract law for unconscionable contract terms. According to the complaint, homeowners were charged $1,800 in illegal upfront fees, at least $1,200 in monthly legal fees, and contingency fees of up to 80% of their home’s value while the attorney failed to pursue the lawsuits, often missing court appearances and filing deadlines. For a copy of the press release, please see http://ag.ca.gov/newsalerts/release.php?id=1763&. For a copy of the complaint, please see http://ag.ca.gov/cms_attachments/press/pdfs/n1763_united_first,_inc.pdf.
Missouri Governor Signs Loan Originator Registration Bill. On July 8, Missouri Governor Jay Nixon signed the “Missouri Secure and Fair Enforcement for Mortgage Licensing and Residential Mortgage Brokers Licensing Act” (the Act) (HB 382). Among other things, the Act sets forth a scheme for registering residential mortgage loan originators and substantially amends the regulations applicable to residential mortgage brokers. Under the Act, loan originators must register with the Nationwide Mortgage Licensing System (NMLS) and must satisfy new pre-licensing and continuing education requirements. For residential mortgage brokers, the Act requires licensure via the NMLS. In addition, the Act limits the number of exemptions available to licensure and modifies the method for calculating requisite surety bonds. Finally, the Act increases the amount of civil penalties from $5,000 to $25,000 per violation. The Act became effective July 8, however, the Act’s loan originator licensing provisions do not take effect until July 31, 2010. For a copy of the Act, please see http://www.house.mo.gov/billtracking/bills091/biltxt/truly/HB0382T.HTM.
Courts
California Appeals Court Rejects Class Members’ Objections to Settlement of Privacy Breach Lawsuit. On June 30, a California appellate court rejected the objections of certain class members to the settlement of a lawsuit alleging breaches of consumers’ private information. In re Consumer Privacy Cases, Nos. A120591, A120145, A120151, 2009 WL 1863730 (Cal. App. June 30, 2009). In this consolidated case, plaintiffs representing 35 million consumers had originally sued various banks alleging that the banks had improperly disclosed confidential information - including account numbers, account balances, credit limits, social security numbers, and other “sensitive” information - to third-party telemarketers and direct-mail marketers. Following the filing of a proposed settlement with one of the bank defendants, certain class members objected, claiming that (i) they were not given adequate notice of the settlement, (ii) the class representatives and counsel did not effectively represent the class, (iii) the settlement was not fair, reasonable, and adequate, and (iv) the court erred in approving attorneys‘ fees to class counsel. The appeals court rejected these objections – as it had for previous similar objections raised in 2007 - reasoning that (i) letters to class members via regular mail in addition to newspaper and internet publication provided adequate notice, (ii) the class representatives – all of whom resided in California - adequately represented the class because the class did not include non-California residents, (iii) the settlement agreement met California’s “presumption of fairness” standard, and (iv) there was no abuse of discretion by the lower court in the awarding of attorneys’ fees. For a copy of the opinion, please see http://www.buckleysandler.com/Consumer_Privacy_Cases.pdf.
New Jersey Federal Court Bars FDCPA Claim Related to Foreclosure Proceeding Under Colorado River Abstention Doctrine. On June 26, the U.S. District Court for the District of New Jersey dismissed, without prejudice, claims under the Fair Debt Collection Practices Act (FDCPA) because the claims ran parallel to issues raised in a state court foreclosure proceeding. St. Clair v. Wertzberger, No. 08-5753, 2009 WL 1873025 (D.N.J. June 26, 2009). The case arose after the defendant attorneys instituted a foreclosure action against the plaintiff borrower and obtained a default judgment. The borrower challenged the default judgment in both state and federal courts, arguing that the attorneys violated the FDCPA by filing the foreclosure action after the borrower timely disputed the validity of the debt in writing. The state court denied the borrower’s motions to vacate the judgment, holding that the motions were premature because the judgment was not yet final, reasoning that the borrower could still challenge or cure the default. Because the foreclosure proceeding was still pending in state court, the federal court held that abstention of the FDCPA claims was appropriate under the Colorado River abstention doctrine. Specifically, the court found that the FDCPA and foreclosure proceedings were “parallel” because a finding of an FDCPA violation regarding the disputed debt would (i) directly contradict the final judgment of foreclosure, (ii) “throw into turmoil the parties’ rights and obligations over plaintiff’s home and mortgage, as well as the comity between courts,” and (iii) would effectively and impermissibly constitute an injunction against the foreclosure sale. The court further reasoned that abstention was appropriate because (i) the state court had first obtained jurisdiction, (ii) the state court had jurisdiction over the property, (iii) the foreclosure action had yet to come to a final judgment, (iv) the borrower’s rights and claims could still be vindicated in the foreclosure action or through the state appellate process, and (v) a federal court ruling on the borrower’s claims “could unnecessarily cause havoc with the rulings of the state court.” As a result, the court dismissed the borrower’s FDCPA claim pending final resolution of the foreclosure proceeding. For a copy of the opinion, please see http://www.buckleysandler.com/St_Clair_v_Wertzberger.pdf.
Firm News
Jerry Buckley was recently quoted in a BankInfoSecurity.com article regarding the proposed regulatory reform by the Obama Administration. See http://www.bankinfosecurity.com/articles.php?art_id=1560 for the text of the article.
Comments by Andrew Sandler along with a reference to BuckleySandler were included in an article published by Reuters. For a copy of the article, please see http://www.reuters.com/article/domesticNews/idUSTRE5546ZC20090605.
Andrew Sandler was interviewed by the Washington Business Journal. The interview concerning Corporate Risk Advisers appeared in the June 19-25, 2009 issue.
Jeff Naimon spoke on June 7 and June 8 at the American Bankers Association Regulatory Compliance Conference in Orlando, Florida on the “New Mortgage Transaction” panel.
Margo Tank spoke in an audio conference series entitled "Building Effective Electronic Records and Electronic Records Management Systems: Navigating the Legal Traps" on June 10.
Andrea Lee Negroni delivered an audio conference on foreclosure rescue scams through Sheshunoff/A.S. Pratt Audio Conferences on June 30.
Mortgages
Missouri Governor Signs Loan Originator Registration Bill. On July 8, Missouri Governor Jay Nixon signed the “Missouri Secure and Fair Enforcement for Mortgage Licensing and Residential Mortgage Brokers Licensing Act” (the Act) (HB 382). Among other things, the Act sets forth a scheme for registering residential mortgage loan originators and substantially amends the regulations applicable to residential mortgage brokers. Under the Act, loan originators must register with the Nationwide Mortgage Licensing System (NMLS) and must satisfy new pre-licensing and continuing education requirements. For residential mortgage brokers, the Act requires licensure via the NMLS. In addition, the Act limits the number of exemptions available to licensure and modifies the method for calculating requisite surety bonds. Finally, the Act increases the amount of civil penalties from $5,000 to $25,000 per violation. The Act became effective July 8, however, the Act’s loan originator licensing provisions do not take effect until July 31, 2010. For a copy of the Act, please see http://www.house.mo.gov/billtracking/bills091/biltxt/truly/HB0382T.HTM.
New Jersey Federal Court Bars FDCPA Claim Related to Foreclosure Proceeding Under Colorado River Abstention Doctrine. On June 26, the U.S. District Court for the District of New Jersey dismissed, without prejudice, claims under the Fair Debt Collection Practices Act (FDCPA) because the claims ran parallel to issues raised in a state court foreclosure proceeding. St. Clair v. Wertzberger, No. 08-5753, 2009 WL 1873025 (D.N.J. June 26, 2009). The case arose after the defendant attorneys instituted a foreclosure action against the plaintiff borrower and obtained a default judgment. The borrower challenged the default judgment in both state and federal courts, arguing that the attorneys violated the FDCPA by filing the foreclosure action after the borrower timely disputed the validity of the debt in writing. The state court denied the borrower’s motions to vacate the judgment, holding that the motions were premature because the judgment was not yet final, reasoning that the borrower could still challenge or cure the default. Because the foreclosure proceeding was still pending in state court, the federal court held that abstention of the FDCPA claims was appropriate under the Colorado River abstention doctrine. Specifically, the court found that the FDCPA and foreclosure proceedings were “parallel” because a finding of an FDCPA violation regarding the disputed debt would (i) directly contradict the final judgment of foreclosure, (ii) “throw into turmoil the parties’ rights and obligations over plaintiff’s home and mortgage, as well as the comity between courts,” and (iii) would effectively and impermissibly constitute an injunction against the foreclosure sale. The court further reasoned that abstention was appropriate because (i) the state court had first obtained jurisdiction, (ii) the state court had jurisdiction over the property, (iii) the foreclosure action had yet to come to a final judgment, (iv) the borrower’s rights and claims could still be vindicated in the foreclosure action or through the state appellate process, and (v) a federal court ruling on the borrower’s claims “could unnecessarily cause havoc with the rulings of the state court.” As a result, the court dismissed the borrower’s FDCPA claim pending final resolution of the foreclosure proceeding. For a copy of the opinion, please see http://www.buckleysandler.com/St_Clair_v_Wertzberger.pdf.
Banking
Rep. Frank Introduces Legislation to Create Consumer Financial Protection Agency; FTC Testifies Regarding CFPA. On July 8, Representative Barney Frank (D-MA) introduced legislation to create a new, independent Consumer Financial Protection Agency (CFPA), a central feature of the Obama Administration’s proposal to overhaul the nation’s financial regulatory structure. The language of the proposed bill (H.R. 3126) is nearly identical to the language proposed by the Administration on June 30 (reported in BuckleySandler Regulatory Restructuring Report, Issue Four). However, unlike the Administration’s proposal, H.R. 3126 would not include the Community Reinvestment Act as one of the “enumerated consumer laws” that will transfer over to CFPA authority. For a copy of the bill, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h3126ih.txt.pdf.
Also this week, the U.S. House of Representatives Energy and Commerce Committee (the Commerce Committee) held a hearing to address how the creation of the CFPA would affect the role of the Federal Trade Commission (FTC). While members of the Commerce Committee expressed concern over the erosion of the FTC’s jurisdiction, FTC Chairman Leibowitz testified in support of the proposal, particularly provisions that would provide increased enforcement authority to the FTC. For a copy of the testimony, please see http://www.ftc.gov/os/2009/07/090708Acfpatestimony.pdf.
Agencies Issue Joint Statement on Legacy Securities and Legacy Loan Programs. On July 8, Treasury Secretary Geithner, Federal Reserve Board Chairman Bernanke, and Federal Deposit Insurance Corporation Chairman Bair issued a joint statement recapping recent developments in implementing the Legacy Loans Program (LLP) and Legacy Securities Program (LSP). The statement primarily discusses the launch of the LSP Private-Public Investment Program (PPIP), which will (i) support the market for commercial mortgage-backed securities and non-agency residential mortgage-backed securities originated prior to 2009, and (ii) encourage private capital providers to co-invest/leverage funds with the U.S. Department of Treasury (Treasury) to purchase eligible assets. The joint statement also discloses the identities of the applicants pre-qualified to participate in the program, as well as the terms by which Treasury will deal with those pre-qualified applicants. In addition, the joint statement addresses the progress made in implementing the LLP. Through the LLP, financial institutions will auction pools of real estate loans. Winning bidders can then purchase these pools with government assistance. The FDIC will begin testing the funding mechanism contemplated by the LLP by hosting an auction on a pool of receivership assets later this month (reported in InfoBytes, June 5, 2009). For a copy of the initial InfoBytes summary regarding the programs, please see InfoBytes, March 27, 2009. For a copy of the joint statement, please see http://www.financialstability.gov/latest/tg_07082009.html.
FDIC Issues FAQ Regarding Sweep Account Disclosure Requirements. On July 6, the Federal Deposit Insurance Corporation issued a FAQ regarding the disclosure requirements for certain sweep accounts pursuant to a January 2009 final rule, "Processing of Deposit Accounts in the Event of an Insured Depository Institution Failure.” Among other things, the FAQ clarifies the types of sweep accounts subject to the disclosure requirements. The FAQ also clarifies that the required disclosures must be provided to sweep account agreements within 60 days after July 1, 2009 for those accounts in effect on July 1, 2009, and at least annually thereafter. For sweep account agreements made after July 1, 2009, the disclosures must be provided at the time the sweep account agreement is made, and at least annually thereafter. For a copy of the FAQ, please see http://www.fdic.gov/news/news/financial/2009/fil09039a.html.
California Appeals Court Rejects Class Members’ Objections to Settlement of Privacy Breach Lawsuit. On June 30, a California appellate court rejected the objections of certain class members to the settlement of a lawsuit alleging breaches of consumers’ private information. In re Consumer Privacy Cases, Nos. A120591, A120145, A120151, 2009 WL 1863730 (Cal. App. June 30, 2009). In this consolidated case, plaintiffs representing 35 million consumers had originally sued various banks alleging that the banks had improperly disclosed confidential information - including account numbers, account balances, credit limits, social security numbers, and other “sensitive” information - to third-party telemarketers and direct-mail marketers. Following the filing of a proposed settlement with one of the bank defendants, certain class members objected, claiming that (i) they were not given adequate notice of the settlement, (ii) the class representatives and counsel did not effectively represent the class, (iii) the settlement was not fair, reasonable, and adequate, and (iv) the court erred in approving attorneys‘ fees to class counsel. The appeals court rejected these objections – as it had for previous similar objections raised in 2007 - reasoning that (i) letters to class members via regular mail in addition to newspaper and internet publication provided adequate notice, (ii) the class representatives – all of whom resided in California - adequately represented the class because the class did not include non-California residents, (iii) the settlement agreement met California’s “presumption of fairness” standard, and (iv) there was no abuse of discretion by the lower court in the awarding of attorneys’ fees. For a copy of the opinion, please see http://www.buckleysandler.com/Consumer_Privacy_Cases.pdf.
Consumer Finance
FTC Settles with Company Regarding Alleged FCRA Violations. On July 9, the Federal Trade Commission announced a proposed settlement with TALX Corporation, a subsidiary of Equifax Inc., regarding allegations that the company failed to provide required disclosures to users of their consumer reports and to furnishers of consumer report information. In violation of the Fair Credit Reporting Act (FCRA), the company allegedly did not provide (i) the “Notice to Users of Consumer Reports: Obligations of Users Under the FCRA,” which notifies users of consumer reports of their statutory obligations regarding consumer credit information, and (ii) the “Notice to Furnishers of Information: Obligations of Furnishers Under the FCRA,” which, among other things, notifies furnishers of consumer credit information of their obligations to provide accurate information, correct and update inaccurate information, and reinvestigate consumer disputes. Under the proposed settlement, the company, which denied the allegations, will (i) provide the required notices to users and furnishers, (ii) must make such notices "clear and prominent," if provided electronically, (iii) pay a civil penalty, and (iv) consent to record-keeping and compliance reporting provisions. For a copy of the press release, please see http://www.ftc.gov/opa/2009/07/talx.shtm. For a copy of the stipulated final judgment, please see http://www.ftc.gov/os/caselist/0723173/090707talxstipjdmt.pdf.
FTC Obtains Permanent Injunction Regarding Credit Card Interest Reduction Services Company. On July 9, the Federal Trade Commission announced that an Illinois federal court issued a permanent injunction against a company that allegedly defrauded over 12,000 consumers by falsely representing that it would substantially reduce credit card interest rates and finance charges. Federal Trade Commission v. Select Personnel Management, Inc., No. 07 C 0529 (N.D. Il. May 15, 2009). The company also allegedly misrepresented that it was affiliated with the consumers’ credit card companies. In addition to the injunction, the company will (i) consent to record-keeping and compliance reporting provisions, and (ii) pay a more than $7.8 million penalty. For a copy of the press release, please see http://www.ftc.gov/opa/2009/07/spm.shtm. For a copy of the order, please see http://www.ftc.gov/os/caselist/0623215/090709spmorder.pdf.
New Jersey Federal Court Bars FDCPA Claim Related to Foreclosure Proceeding Under Colorado River Abstention Doctrine. On June 26, the U.S. District Court for the District of New Jersey dismissed, without prejudice, claims under the Fair Debt Collection Practices Act (FDCPA) because the claims ran parallel to issues raised in a state court foreclosure proceeding. St. Clair v. Wertzberger, No. 08-5753, 2009 WL 1873025 (D.N.J. June 26, 2009). The case arose after the defendant attorneys instituted a foreclosure action against the plaintiff borrower and obtained a default judgment. The borrower challenged the default judgment in both state and federal courts, arguing that the attorneys violated the FDCPA by filing the foreclosure action after the borrower timely disputed the validity of the debt in writing. The state court denied the borrower’s motions to vacate the judgment, holding that the motions were premature because the judgment was not yet final, reasoning that the borrower could still challenge or cure the default. Because the foreclosure proceeding was still pending in state court, the federal court held that abstention of the FDCPA claims was appropriate under the Colorado River abstention doctrine. Specifically, the court found that the FDCPA and foreclosure proceedings were “parallel” because a finding of an FDCPA violation regarding the disputed debt would (i) directly contradict the final judgment of foreclosure, (ii) “throw into turmoil the parties’ rights and obligations over plaintiff’s home and mortgage, as well as the comity between courts,” and (iii) would effectively and impermissibly constitute an injunction against the foreclosure sale. The court further reasoned that abstention was appropriate because (i) the state court had first obtained jurisdiction, (ii) the state court had jurisdiction over the property, (iii) the foreclosure action had yet to come to a final judgment, (iv) the borrower’s rights and claims could still be vindicated in the foreclosure action or through the state appellate process, and (v) a federal court ruling on the borrower’s claims “could unnecessarily cause havoc with the rulings of the state court.” As a result, the court dismissed the borrower’s FDCPA claim pending final resolution of the foreclosure proceeding. For a copy of the opinion, please see http://www.buckleysandler.com/St_Clair_v_Wertzberger.pdf.
Litigation
California Appeals Court Rejects Class Members’ Objections to Settlement of Privacy Breach Lawsuit. On June 30, a California appellate court rejected the objections of certain class members to the settlement of a lawsuit alleging breaches of consumers’ private information. In re Consumer Privacy Cases, Nos. A120591, A120145, A120151, 2009 WL 1863730 (Cal. App. June 30, 2009). In this consolidated case, plaintiffs representing 35 million consumers had originally sued various banks alleging that the banks had improperly disclosed confidential information - including account numbers, account balances, credit limits, social security numbers, and other “sensitive” information - to third-party telemarketers and direct-mail marketers. Following the filing of a proposed settlement with one of the bank defendants, certain class members objected, claiming that (i) they were not given adequate notice of the settlement, (ii) the class representatives and counsel did not effectively represent the class, (iii) the settlement was not fair, reasonable, and adequate, and (iv) the court erred in approving attorneys‘ fees to class counsel. The appeals court rejected these objections – as it had for previous similar objections raised in 2007 - reasoning that (i) letters to class members via regular mail in addition to newspaper and internet publication provided adequate notice, (ii) the class representatives – all of whom resided in California - adequately represented the class because the class did not include non-California residents, (iii) the settlement agreement met California’s “presumption of fairness” standard, and (iv) there was no abuse of discretion by the lower court in the awarding of attorneys’ fees. For a copy of the opinion, please see http://www.buckleysandler.com/Consumer_Privacy_Cases.pdf.
New Jersey Federal Court Bars FDCPA Claim Related to Foreclosure Proceeding Under Colorado River Abstention Doctrine. On June 26, the U.S. District Court for the District of New Jersey dismissed, without prejudice, claims under the Fair Debt Collection Practices Act (FDCPA) because the claims ran parallel to issues raised in a state court foreclosure proceeding. St. Clair v. Wertzberger, No. 08-5753, 2009 WL 1873025 (D.N.J. June 26, 2009). The case arose after the defendant attorneys instituted a foreclosure action against the plaintiff borrower and obtained a default judgment. The borrower challenged the default judgment in both state and federal courts, arguing that the attorneys violated the FDCPA by filing the foreclosure action after the borrower timely disputed the validity of the debt in writing. The state court denied the borrower’s motions to vacate the judgment, holding that the motions were premature because the judgment was not yet final, reasoning that the borrower could still challenge or cure the default. Because the foreclosure proceeding was still pending in state court, the federal court held that abstention of the FDCPA claims was appropriate under the Colorado River abstention doctrine. Specifically, the court found that the FDCPA and foreclosure proceedings were “parallel” because a finding of an FDCPA violation regarding the disputed debt would (i) directly contradict the final judgment of foreclosure, (ii) “throw into turmoil the parties’ rights and obligations over plaintiff’s home and mortgage, as well as the comity between courts,” and (iii) would effectively and impermissibly constitute an injunction against the foreclosure sale. The court further reasoned that abstention was appropriate because (i) the state court had first obtained jurisdiction, (ii) the state court had jurisdiction over the property, (iii) the foreclosure action had yet to come to a final judgment, (iv) the borrower’s rights and claims could still be vindicated in the foreclosure action or through the state appellate process, and (v) a federal court ruling on the borrower’s claims “could unnecessarily cause havoc with the rulings of the state court.” As a result, the court dismissed the borrower’s FDCPA claim pending final resolution of the foreclosure proceeding. For a copy of the opinion, please see http://www.buckleysandler.com/St_Clair_v_Wertzberger.pdf.
Privacy/Data Security
FTC Settles with Company Regarding Alleged FCRA Violations. On July 9, the Federal Trade Commission announced a proposed settlement with TALX Corporation, a subsidiary of Equifax Inc., regarding allegations that the company failed to provide required disclosures to users of their consumer reports and to furnishers of consumer report information. In violation of the Fair Credit Reporting Act (FCRA), the company allegedly did not provide (i) the “Notice to Users of Consumer Reports: Obligations of Users Under the FCRA,” which notifies users of consumer reports of their statutory obligations regarding consumer credit information, and (ii) the “Notice to Furnishers of Information: Obligations of Furnishers Under the FCRA,” which, among other things, notifies furnishers of consumer credit information of their obligations to provide accurate information, correct and update inaccurate information, and reinvestigate consumer disputes. Under the proposed settlement, the company, which denied the allegations, will (i) provide the required notices to users and furnishers, (ii) must make such notices "clear and prominent," if provided electronically, (iii) pay a civil penalty, and (iv) consent to record-keeping and compliance reporting provisions. For a copy of the press release, please see http://www.ftc.gov/opa/2009/07/talx.shtm. For a copy of the stipulated final judgment, please see http://www.ftc.gov/os/caselist/0723173/090707talxstipjdmt.pdf.
California Appeals Court Rejects Class Members’ Objections to Settlement of Privacy Breach Lawsuit. On June 30, a California appellate court rejected the objections of certain class members to the settlement of a lawsuit alleging breaches of consumers’ private information. In re Consumer Privacy Cases, Nos. A120591, A120145, A120151, 2009 WL 1863730 (Cal. App. June 30, 2009). In this consolidated case, plaintiffs representing 35 million consumers had originally sued various banks alleging that the banks had improperly disclosed confidential information - including account numbers, account balances, credit limits, social security numbers, and other “sensitive” information - to third-party telemarketers and direct-mail marketers. Following the filing of a proposed settlement with one of the bank defendants, certain class members objected, claiming that (i) they were not given adequate notice of the settlement, (ii) the class representatives and counsel did not effectively represent the class, (iii) the settlement was not fair, reasonable, and adequate, and (iv) the court erred in approving attorneys‘ fees to class counsel. The appeals court rejected these objections – as it had for previous similar objections raised in 2007 - reasoning that (i) letters to class members via regular mail in addition to newspaper and internet publication provided adequate notice, (ii) the class representatives – all of whom resided in California - adequately represented the class because the class did not include non-California residents, (iii) the settlement agreement met California’s “presumption of fairness” standard, and (iv) there was no abuse of discretion by the lower court in the awarding of attorneys’ fees. For a copy of the opinion, please see http://www.buckleysandler.com/Consumer_Privacy_Cases.pdf.
Credit Cards
Senator Dodd Issues Letter to Protect Consumers from Credit Card Rate Increases. On July 9, Senator Christopher J. Dodd (D-CT) issued a letter to the heads of the federal banking regulatory agencies to implement and enforce the "look-back" provision of H.R. 627, the “Credit Card Accountability Responsibility Disclosure Act” (CCARD). The letter contends that, according to press reports, some credit card companies are raising interest rates on existing balances without justification before the CCARD provisions take effect and before regulations can be promulgated to enforce CCARD. Senator Dodd urged the agency heads to remind credit card companies of the “look-back” provision of CCARD, which was intended to deter card companies from arbitrarily raising rates prior to the effective date of the final Federal Reserve Board regulations designed in part to address such interest rate increase (reported in InfoBytes, Dec. 19, 2008). The “look-back” provision requires credit card companies to review, every six months, any account where the interest rate has been raised since January 1, 2009. According to the letter, the interest rate must be reduced under CCARD if (i) the cardholder has become less risky, or (ii) the circumstances that warranted the increase are no longer applicable. For a summary of CCARD, please see InfoBytes, May 22, 2009. For a copy of the letter, please see http://banking.senate.gov/public/index.cfm?FuseAction=Newsroom.PressReleases&ContentRecord_id=60677d24-085a-41f4-3ccb-314f1c9266dd.
FTC Obtains Permanent Injunction Regarding Credit Card Interest Reduction Services Company. On July 9, the Federal Trade Commission announced that an Illinois federal court issued a permanent injunction against a company that allegedly defrauded over 12,000 consumers by falsely representing that it would substantially reduce credit card interest rates and finance charges. Federal Trade Commission v. Select Personnel Management, Inc., No. 07 C 0529 (N.D. Il. May 15, 2009). The company also allegedly misrepresented that it was affiliated with the consumers’ credit card companies. In addition to the injunction, the company will (i) consent to record-keeping and compliance reporting provisions, and (ii) pay a more than $7.8 million penalty. For a copy of the press release, please see http://www.ftc.gov/opa/2009/07/spm.shtm. For a copy of the order, please see http://www.ftc.gov/os/caselist/0623215/090709spmorder.pdf.