InfoBytes, June 20, 2008
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Miscellany
- Mortgages
- Banking
- Consumer Finance
- Litigation
- E-Financial Services
- Privacy/Data Security
Federal Issues
HUD Issues Mortgagee Letter on Risk-Based Premiums for FHA Mortgage Insurance. On June 11, the Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2008-16 (ML 08-16), which addresses risk-based premiums for Federal Housing Administration (FHA) mortgage insurance. On July 14, 2008, the FHA will implement risk-based premiums on one- to four-unit single family mortgages. ML 08-16 states that the premium will be based solely on the prospective borrower’s credit bureau score and the loan-to-value ratio. The upfront mortgage insurance premium will range, for loan terms greater than 15 years, from 1.25 percent of the loan amount for lower-risk borrowers to 2.25 percent for riskier borrowers. ML 08-16 provides matrices that establish the mortgage insurance premiums for FHA single family mortgages for borrowers with varying degrees of risk. For borrowers refinancing delinquent non-FHA adjustable rate mortgages, the upfront mortgage insurance premium is set at 2.25 percent of the base loan amount regardless of the loan to value ratio. For a copy of the Mortgagee Letter, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/08-16ml.doc
HUD Proposes Rule for Late Request for Endorsement of Mortgages for FHA Insurance. On June 9, HUD proposed a rule for public comment that would provide standards for establishing an acceptable payment history when a mortgage is submitted for FHA insurance more than 60 days after closing. Currently, HUD regulations provide that when a mortgage is submitted for insurance more than 60 days after closing, it must show an “acceptable payment history,” but the regulations are silent as to what constitutes an acceptable payment history. In the past, HUD issued two Mortgagee Letters (Mortgagee Letter 2004-14 and 2005-23) providing general guidance for determining an “acceptable payment history.” At this time, under the rule, HUD proposes to include the three factors outlined in Mortgagee Letter 2004-14, which include, among others, providing a certification of six consecutive payments made prior to and/or within the calendar month due if any previous payments under the loan have been made after the month due. In addition, the proposed rule requires the submission of a payment history or ledger in determining an “acceptable payment history.” The proposed rule will be open for public comment until August 8, 2008. For a copy of the rule, please see http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?position=all&page=32632&dbname=2008_register
HOPE NOW Adopts Guidelines to Speed Help to Homeowners Facing Foreclosure. On June 17, HOPE NOW, the industry alliance of mortgage lenders, servicers, investors, and counselors, announced that its servicer members have agreed to a uniform set of procedures and guidelines that are designed to speed help to homeowners facing foreclosure. The guidelines attempt to ensure that no homeowner loses the opportunity to keep his or her home, when (i) the homeowner experiences financial hardship, (ii) the homeowner has applied for and submitted information necessary to be considered and potentially approved for a loss mitigation option, and (iii) the homeowner has the basic financial ability to afford his or her home. The guidelines establish a common set of principles on the possible foreclosure prevention alternatives including loan modifications, repayment plans, partial claims, and temporarily suspending the need to make monthly payments. The agreement also includes guidance for dealing with second mortgages and short sales. For a copy of the HOPE NOW mortgage servicing guidelines, please see http://www.hopenow.com/upload/misc/files/Mortgage%20Servicing%20Guidelines.pdf.
FTC Staff Files Comments on Proposed Amendments to RESPA Regulations. On June 16, the Federal Trade Commission (FTC) announced the filing of comments to HUD regarding HUD’s March 14, 2008 proposed amendments to RESPA regulations (reported in InfoBytes, March 14, 2008). In comments prepared by the Bureau of Consumer Protection, Bureau of Economics, and Office of Policy Planning, the FTC staff states that some of the proposed modifications could help consumers better understand and compare loan terms and closing costs. However, the FTC staff believes that some of them also may have the unintended consequence of further complicating the already complex mortgage process. The FTC staff believes consumers would benefit most if the federal government commenced a comprehensive effort to reform federal mortgage disclosures. In addition, FTC staff recommends that HUD reconsider its proposed expansion of the definition of “required use” of services that affiliated businesses provide. The FTC staff believes that the expanded definition could deprive customers of the lower prices that can result from bundling related services. For a copy of the FTC comment, please see http://www.ftc.gov/os/2008/06/V080012respa.pdf.
FTC, California Office of Privacy Protection to Host Workshop on Protecting Privacy. On August 13, The FTC and the California Office of Privacy Protection will co-host a half-day public workshop in Los Angeles, CA, featuring business, legal, government, and privacy experts who will provide practical guidance on data security, privacy, best practices for developing an appropriate data security program, and responding to data breaches and other privacy and security problems. The workshop is in response to a recommendation by President Bush’s Identity Theft Task Force to help small businesses and others in the business community understand the importance of securing personal information and protecting the privacy of consumers and employees through safeguarding information, preventing and reporting data breaches, and assisting identity theft victims. The workshop is free and open to the public and will be held at the Ronald Reagan State Building beginning at 9:30 a.m. For more information on this workshop, please see http://www.ftc.gov/bcp/workshops/infosecurity/index.shtml.
State Issues
Hawaii Amends Non-Judicial Foreclosure Laws. On June 3, Hawaii Governor Linda Lingle signed S.B. 2454, which amends Hawaii non-judicial foreclosure laws. Under the new law, any mortgagee that forecloses under a power of sale must now be represented by an attorney who is licensed to practice law in Hawaii and is physically located in Hawaii. In addition, the new law requires the foreclosing mortgagee or attorney to provide information regarding the foreclosure, such as the amount required to cure the default, to entitled parties upon request. The new law became effective on June 3. For a copy of the bill, please see http://www.buckleykolar.com/documents/HISB2454.pdf.
Massachusetts Adopts Regulations for New Mortgage Loan Originator Law. The Massachusetts Division of Banks recently adopted implementing regulations to establish procedures and requirements for licensing under its new mortgage loan originator law. Under the new regulations, loan originator applicants are required to submit documentation of their financial responsibility, character and fitness and proof of completion of pre-licensing coursework. In addition, under the new regulations, a loan originator must disclose his/her mortgage loan originator license number in writing to all potential borrowers and residential mortgage loan applicants at the time a fee is paid or when a mortgage loan application is accepted. The implementing regulations became effective on May 30, 2008. For the full text of the new regulations please see http://www.mass.gov/Eoca/docs/dob/cmr41053008.pdf.
Connecticut Governor Signs Two Data Protection Bills. On June 10 and 12, Connecticut Governor M. Jodi Rell signed H.B. 5658 and H.B. 5701, respectively, which both create data protection laws. H.B. 5658 requires persons in possession of others’ personal data to safeguard the information from third parties and destroy the data before disposal. Also, it requires businesses that collect Social Security numbers to establish a privacy protection policy to: (i) protect the confidentiality of the Social Security numbers, (ii) prohibit unlawful disclosure of Social Security numbers, and (iii) limit access to Social Security numbers. Willful violations of this law are punishable with fines up to $500,000.
H.B. 5701 eliminates the requirement that Social Security numbers of parents appear on live birth and fetal death certificates. H.B. 5701 also prohibits state agencies from disclosing Social Security numbers in public records unless required by law. Both bills become effective on October 1. For a copy of H.B. 5658 and H.B. 5701, please see http://www.cga.ct.gov/2008/ACT/Pa/pdf/2008PA-00167-R00HB-05658-PA.pdf and http://www.cga.ct.gov/2008/ACT/Pa/pdf/2008PA-00184-R00HB-05701-PA.pdf, respectively.
Oklahoma Adopts Uniform Real Property Electronic Recording Act. On June 2, Oklahoma Governor Brad Henry signed Uniform Real Property Electronic Recording Act (H.B. 2587), which authorizes electronic signatures and recording in real property transactions. Pursuant to the new law, if a law requires, as a condition for recording, that a document be signed, or that a document be an original, be on paper or another tangible medium, or be in writing, the requirement is satisfied by an electronic signature or by an electronic document, respectively. The new law also authorizes the county clerk to accept electronic payment of any fee the county clerk is authorized to collect. The bill becomes effective on November 1, 2008. For a copy of the bill, please see http://www.buckleykolar.com/documents/OKHB2587.pdf.
New Mexico Enacts Regulations Governing the Performance of Electronic Notorial Acts. The New Mexico Secretary of State has issued new rules establishing the standards, guidelines and procedures for notaries public performing electronic notorial acts. The rules apply to three types of notarial acts, namely acknowledgements, jurats and oaths or affirmations. Under the new rules, notaries public must register with the Secretary of State in order to engage in electronic notarial acts. In addition, the rules prescribe the form and manner of performing electronic notarial acts. Finally, the rules have a “physical appearance requirement” that prohibits a notary public from performing an electronic act if the document signer does not appear in person before the notary public at the time of notarization. The rules became effective on May 30. For the full text of the new rules, please see http://www.nmcpr.state.nm.us/nmregister/xix/xix10/12.9.2.pdf.
Courts
First Circuit Holds that Slight TILA Disclosure Violation Does Not Extend a Borrower’s Right of Rescission. On June 10, the U.S. District Court for the District of Alabama held that a borrower’s right of rescission does not extend from three days to three years where a mortgage company’s disclosure forms were “imperfect as to technical aspects” as established under the federal Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 et seq. McMillian et. al. v. Bedford Home Loans, Inc., No. 07-0773 (D. Ala. June 10, 2008). Ordinarily, a borrower’s TILA recession right extends only “until midnight of the third day following the consummation of the transaction.” In this case, the plaintiffs claimed that defects in their TILA disclosures rendered the disclosures inadequate, thus extending the right of recession period from three days to three years. The court held that while the TILA disclosures that the defendant gave the plaintiffs were imperfect, the disclosures that were provided gave the plaintiffs sufficiently “clear and conspicuous notice” of their rescission rights sufficient to meet the requirements under TILA. For a copy of the opinion, please see http://www.buckleykolar.com/documents/McMillianvAMCMortgageServices.pdf.
Investigative Report on Employee’s Drug Use Deemed not a “Consumer Report.” On June 5, the U.S. District Court for the Western District of Kentucky ruled against the plaintiffs on their Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq., claim against their employer, Ford Motor Company (Ford). Ford conducted an undercover drug investigation at one of its plants using a third-party investigative firm, North American Security Solutions, Inc. (NASS). Warinner v. North American Security Solutions, Inc., 2008 WL 2355727, Civ. Action No. 3:05-CV-244-S (W.D.Ky. June 5, 2008). NASS placed several investigators posing as Ford employees at the plant, and subsequently NASS reported to Ford on the drug use of various employees. Ford terminated the employees, and 21 of those terminated filed a complaint against Ford alleging numerous causes of action, including violations of FCRA. The plaintiffs based their FCRA claim on the requirement that consumer reporting agencies use reasonable procedures to guarantee maximum possible accuracy in their “consumer report.” However, the court determined that the investigative reports prepared by NASS contained information solely as to transactions and experiences between the employees and NASS and were thus not “consumer reports.” 15 U.S.C. § 1681a(d)(2)(A)(i). The court also refuted the plaintiffs’ claim that the “reports prepared by the Investigators were ‘consumer reports’ based on FTC Chairman Robert Pitofsky’s letter stating that reports made by law firms and investigative firms who regularly conduct investigations of alleged workplace misconduct by employees are likely to be ‘consumer reports’ within the meaning of FCRA.” Notwithstanding that statement, in this case the court found that the reports “fall squarely within the transactions and experiences exception, and are, therefore, excluded from the definition of ‘consumer reports’ and the coverage of the FCRA.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/WarinnervNorthAmericanSecuritySolutions.pdf.
Eighth Circuit Rejects “Value” Test, Upholds FCRA Firm Offers. In the consolidated appeal of two Fair Credit Reporting Act (FCRA) firm-offer cases, the U.S. Court of Appeals for the Eighth Circuit rejected arguments that the common-law definition of an “offer” applies to the FCRA requirement that a prescreened solicitation consist of a “firm offer” of credit and that the offered credit must have some “value” to the consumer. Poehl v. Countrywide Home Loans, Inc., – F. 3d –, 2008 WL 2445966 (8th Cir. June 19, 2008). In both cases, one against a mortgage lender and the other against an automobile finance company, the mailers contained some information about the terms of the loan, including the minimum loan amount and some other details, but neither lender provided details about the terms, duration, or interest rate of the loan in the mailer. The district courts in both cases had granted both defendants’ motions for judgment on the pleadings on the grounds that the solicitation offered “some value” to the consumer, and, therefore, were valid firm offers. See the discussion of the district court opinions in InfoBytes, August 17, 2007 (Poehl v. Countrywide Home Loans, Inc., No 06-CV-928 (E.D. Mo., opinion issued Aug. 7, 2007)) and InfoBytes, August 31, 2007 (Ludditt-Poehl v. Capital One Auto Finance, Inc., No. 06-888, 2007 WL 2428044 (E.D. Mo. Aug. 2, 2007)). The Eighth Circuit rejected the “value” test, noting that it was based on the opinion of the Seventh Circuit in Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004), which the Seventh Circuit significantly narrowed in its recent opinion in Murray v. New Cingular Wireless Services, Inc., – F. 3d –, 2008 WL 1701839 (7th Cir. Apr. 14, 2008) (reported in InfoBytes, April 18, 2008). The Eighth Circuit court stated that a solicitation “meets the statutory definition so long as the creditor will not deny credit to the consumer if the consumer meets the creditor’s pre-selection criteria,” and that “[t]he statutory definition contemplates additional communication between the creditor and the consumer that prevents an immediate acceptance of the offer.” Citing the decision of the U.S. Court of Appeals in Sullivan v. Greenwood, 2008 WL 726135, No. 07-23354 (1st Cir., Mar. 19, 2008) (reported in InfoBytes, Mar. 21, 2008), the court noted that the subsequent conditions permitted by the statute “would be antithetical to the common law understanding of an ‘offer’ as an immediately-acceptable set of terms, [and that, therefore,] reliance on common law notions of an ‘offer’ within the statutory definition is misplaced in this statutory scheme.” The court also rejected the argument that the mailer must contain the material terms of the loan, noting that the extensive disclosure requirements of the Truth in Lending Act—which, like FCRA, is part of the Consumer Credit Protection Act—indicate that Congress intended for TILA to be the vehicle for disclosure requirements. For a copy of the decision, please contact .
Court Holds FRCA Does Not Preempt State Tort Claims. On June 4, the U.S. District Court for the Eastern District of Kentucky held that the Fair Credit Reporting Act’s (FCRA) preemption provision at 15 USC 1681t(b)(1)(F) only preempts claims arising under state statutes, and does not preempt common law claims. Marcum v. GLA Collection Company, Inc., No. 07-370, 2008 WL 2338068 (E.D. Ky. June 4, 2008). In this case, the plaintiffs sued a medical office for a number of claims resulting from a disputed medical bill that was eventually noted on the plaintiff’s credit report. The plaintiffs alleged violations of the FCRA and common law defamation, among other claims. The defendant moved to dismiss the state law defamation claim, arguing that the claim is preempted by FCRA. The court took notice of two competing provisions in FCRA that both relate to preemption of state laws. Whereas the section cited by defendants, 15 USC 1681t(b)(1)(F), prohibits all state claims against furnishers of information, 15 USC 1681h(e) permits state tort claims against furnishers of information. The court held that 1681t(b)(1)(F) would be read to only preempt state claims against furnishers brought under state statutes. Because the claim was a tort claim, and not a statutory claim, the court held that the claim was not preempted and denied the motion to dismiss the plaintiff’s state claims. For a copy of the decision, please see http://www.buckleykolar.com/documents/MarcumvGLACollectionCompany.pdf.
Court Dismisses Borrower’s Discrimination Claims. On June 10, a federal district court dismissed a “redlining” claim under the Fair Housing Act (FHA), Equal Credit Opportunity Act (ECOA), and the Civil Rights Act (CRA) raised by predominantly African-American businesses and churches against a lender. JAT, Inc., v. Nat. City Bank of the Midwest, No. 06-11937 (E.D. Mich. June 10, 2008). The prospective borrowers alleged that they were denied credit because of the lender’s policy against making commercial loans to African-American owned businesses in the City of Detroit. First, the court outlined the four factors to establish a circumstantial prima facie case of discrimination: (i) the plaintiffs were a member of a protected class, (ii) the plaintiffs applied for and were denied a loan, (iii) the loan application was rejected despite its qualifications, and (iv) the lender continued to approve loan applications with qualification similar to those of the plaintiff. The court held that the borrowers provided no evidence that their applications were otherwise qualified or that the lender approved loan applications with similar qualifications. Further, the court denied expert testimony on a “pattern and practice” of discrimination because “pattern and practice” evidence is limited to “class actions or suits by the government” and is not available to individual plaintiffs. For a copy of this decision, please see http://www.buckleykolar.com/documents/JATIncvNatCityBankoftheMidwest.pdf.
Court Finds Increased Risk of Identity Theft Does Not Constitute Actual Injury Under Louisiana Negligence Law. On June 5, the United States District Court for the Eastern District of Louisiana granted summary judgment to a defendant in two data security breach class actions where it was undisputed that no personal data had been compromised and the plaintiffs had failed to offer evidence that any third party had gained access to the data. Melancon v. Louisiana Office of Student Financial Assistance, Nos. 07-7712, 07-9158, 2008 WL 2355753 (E.D. La. June 5, 2008). The putative class actions arose when a truck operated by the defendant lost backup media belonging to the Louisiana Office of Student Financial Assistance. This media included personal information on individuals participating in or considered for participation in programs for financial assistance and certain scholarship programs of higher education. Following Ponder v. Pfizer, Inc., 522 F.Supp.2d 793 (M.D. La. 2007), in which the Middle District of Louisiana found that allegations of mere emotional disturbance were insufficient to prevail on a negligence claim, the court found that “the mere possibility that personal information may be at increased risk does not constitute actual injury sufficient to maintain a claim for negligence under the current state of Louisiana law.” The court further noted that, it was “undisputed that no personal data had been compromised and Plaintiffs have failed to offer evidence that any third party has gained access to the data,” and as such, the plaintiffs’ claims were “purely speculative rather than asserting any actual, cognizable losses.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/MelanconvLAOfficeofStudentFinAssistance.pdf.
Firm News
Joseph Kolar spoke at the Mealey’s Subprime Mortgage Litigation & Insurance Coverage Conference on June 20 in Washington, DC. Mr. Kolar’s presentation was on “The New Structure of the Mortgage Lending Industry.” For more information on the conference, please see http://bookstore.lexis.com/bookstore/product/69880t.html.
Richard DiSalvo spoke at the American Conference Institute’s conference on Prepaid Card Compliance in Washington, D.C. on June 17. Mr. DiSalvo discussed the escheatment of stored value and other prepaid cards. For more information, please see http://www.americanconference.com/prepaidcard.htm.
Miscellany
Fremont General Corp. Files for Chapter 11 Relief. On June 18, Fremont General Corporation (FGC) announced that the California Department of Financial Institutions and the FDIC have given approval to CapitolSource Inc. to acquire a substantial portion of FGC’s assets, including all of Fremont Investment and Loan’s (FGC’s wholly-owned bank subsidiary) branches. In connection with such regulatory approvals, FGC filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The filing was made on June 18 in the United States Bankruptcy Court for the Central District of California. According to the FGC press release, FGC intends to file a motion with the Bankruptcy Court for its approval to complete the acquisition of Fremont Investment and Loan’s assets and deposits by CapitalSource in accordance with federal bankruptcy laws, which will be required to complete the transaction. For a copy of the FGC press release, please see http://media.corporate-ir.net/media_files/irol/10/106265/6_18_08.pdf.
Mortgages
HUD Issues Mortgagee Letter on Risk-Based Premiums for FHA Mortgage Insurance. On June 11, the Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2008-16 (ML 08-16), which addresses risk-based premiums for Federal Housing Administration (FHA) mortgage insurance. On July 14, 2008, the FHA will implement risk-based premiums on one- to four-unit single family mortgages. ML 08-16 states that the premium will be based solely on the prospective borrower’s credit bureau score and the loan-to-value ratio. The upfront mortgage insurance premium will range, for loan terms greater than 15 years, from 1.25 percent of the loan amount for lower-risk borrowers to 2.25 percent for riskier borrowers. ML 08-16 provides matrices that establish the mortgage insurance premiums for FHA single family mortgages for borrowers with varying degrees of risk. For borrowers refinancing delinquent non-FHA adjustable rate mortgages, the upfront mortgage insurance premium is set at 2.25 percent of the base loan amount regardless of the loan to value ratio. For a copy of the Mortgagee Letter, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/08-16ml.doc
HUD Proposes Rule for Late Request for Endorsement of Mortgages for FHA Insurance. On June 9, HUD proposed a rule for public comment that would provide standards for establishing an acceptable payment history when a mortgage is submitted for FHA insurance more than 60 days after closing. Currently, HUD regulations provide that when a mortgage is submitted for insurance more than 60 days after closing, it must show an “acceptable payment history,” but the regulations are silent as to what constitutes an acceptable payment history. In the past, HUD issued two Mortgagee Letters (Mortgagee Letter 2004-14 and 2005-23) providing general guidance for determining an “acceptable payment history.” At this time, under the rule, HUD proposes to include the three factors outlined in Mortgagee Letter 2004-14, which include, among others, providing a certification of six consecutive payments made prior to and/or within the calendar month due if any previous payments under the loan have been made after the month due. In addition, the proposed rule requires the submission of a payment history or ledger in determining an “acceptable payment history.” The proposed rule will be open for public comment until August 8, 2008. For a copy of the rule, please see http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?position=all&page=32632&dbname=2008_register
HOPE NOW Adopts Guidelines to Speed Help to Homeowners Facing Foreclosure. On June 17, HOPE NOW, the industry alliance of mortgage lenders, servicers, investors, and counselors, announced that its servicer members have agreed to a uniform set of procedures and guidelines that are designed to speed help to homeowners facing foreclosure. The guidelines attempt to ensure that no homeowner loses the opportunity to keep his or her home, when (i) the homeowner experiences financial hardship, (ii) the homeowner has applied for and submitted information necessary to be considered and potentially approved for a loss mitigation option, and (iii) the homeowner has the basic financial ability to afford his or her home. The guidelines establish a common set of principles on the possible foreclosure prevention alternatives including loan modifications, repayment plans, partial claims, and temporarily suspending the need to make monthly payments. The agreement also includes guidance for dealing with second mortgages and short sales. For a copy of the HOPE NOW mortgage servicing guidelines, please see http://www.hopenow.com/upload/misc/files/Mortgage%20Servicing%20Guidelines.pdf.
FTC Staff Files Comments on Proposed Amendments to RESPA Regulations. On June 16, the Federal Trade Commission (FTC) announced the filing of comments to HUD regarding HUD’s March 14, 2008 proposed amendments to RESPA regulations (reported in InfoBytes, March 14, 2008). In comments prepared by the Bureau of Consumer Protection, Bureau of Economics, and Office of Policy Planning, the FTC staff states that some of the proposed modifications could help consumers better understand and compare loan terms and closing costs. However, the FTC staff believes that some of them also may have the unintended consequence of further complicating the already complex mortgage process. The FTC staff believes consumers would benefit most if the federal government commenced a comprehensive effort to reform federal mortgage disclosures. In addition, FTC staff recommends that HUD reconsider its proposed expansion of the definition of “required use” of services that affiliated businesses provide. The FTC staff believes that the expanded definition could deprive customers of the lower prices that can result from bundling related services. For a copy of the FTC comment, please see http://www.ftc.gov/os/2008/06/V080012respa.pdf.
Hawaii Amends Non-Judicial Foreclosure Laws. On June 3, Hawaii Governor Linda Lingle signed S.B. 2454, which amends Hawaii non-judicial foreclosure laws. Under the new law, any mortgagee that forecloses under a power of sale must now be represented by an attorney who is licensed to practice law in Hawaii and is physically located in Hawaii. In addition, the new law requires the foreclosing mortgagee or attorney to provide information regarding the foreclosure, such as the amount required to cure the default, to entitled parties upon request. The new law became effective on June 3. For a copy of the bill, please see http://www.buckleykolar.com/documents/HISB2454.pdf.
Massachusetts Adopts Regulations for New Mortgage Loan Originator Law. The Massachusetts Division of Banks recently adopted implementing regulations to establish procedures and requirements for licensing under its new mortgage loan originator law. Under the new regulations, loan originator applicants are required to submit documentation of their financial responsibility, character and fitness and proof of completion of pre-licensing coursework. In addition, under the new regulations, a loan originator must disclose his/her mortgage loan originator license number in writing to all potential borrowers and residential mortgage loan applicants at the time a fee is paid or when a mortgage loan application is accepted. The implementing regulations became effective on May 30, 2008. For the full text of the new regulations please see http://www.mass.gov/Eoca/docs/dob/cmr41053008.pdf.
Oklahoma Adopts Uniform Real Property Electronic Recording Act. On June 2, Oklahoma Governor Brad Henry signed Uniform Real Property Electronic Recording Act (H.B. 2587), which authorizes electronic signatures and recording in real property transactions. Pursuant to the new law, if a law requires, as a condition for recording, that a document be signed, or that a document be an original, be on paper or another tangible medium, or be in writing, the requirement is satisfied by an electronic signature or by an electronic document, respectively. The new law also authorizes the county clerk to accept electronic payment of any fee the county clerk is authorized to collect. The bill becomes effective on November 1, 2008. For a copy of the bill, please see http://www.buckleykolar.com/documents/OKHB2587.pdf.
First Circuit Holds that Slight TILA Disclosure Violation Does Not Extend a Borrower’s Right of Rescission. On June 10, the U.S. District Court for the District of Alabama held that a borrower’s right of rescission does not extend from three days to three years where a mortgage company’s disclosure forms were “imperfect as to technical aspects” as established under the federal Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 et seq. McMillian et. al. v. Bedford Home Loans, Inc., No. 07-0773 (D. Ala. June 10, 2008). Ordinarily, a borrower’s TILA recession right extends only “until midnight of the third day following the consummation of the transaction.” In this case, the plaintiffs claimed that defects in their TILA disclosures rendered the disclosures inadequate, thus extending the right of recession period from three days to three years. The court held that while the TILA disclosures that the defendant gave the plaintiffs were imperfect, the disclosures that were provided gave the plaintiffs sufficiently “clear and conspicuous notice” of their rescission rights sufficient to meet the requirements under TILA. For a copy of the opinion, please see http://www.buckleykolar.com/documents/McMillianvAMCMortgageServices.pdf.
Court Dismisses Borrower’s Discrimination Claims. On June 10, a federal district court dismissed a “redlining” claim under the Fair Housing Act (FHA), Equal Credit Opportunity Act (ECOA), and the Civil Rights Act (CRA) raised by predominantly African-American businesses and churches against a lender. JAT, Inc., v. Nat. City Bank of the Midwest, No. 06-11937 (E.D. Mich. June 10, 2008). The prospective borrowers alleged that they were denied credit because of the lender’s policy against making commercial loans to African-American owned businesses in the City of Detroit. First, the court outlined the four factors to establish a circumstantial prima facie case of discrimination: (i) the plaintiffs were a member of a protected class, (ii) the plaintiffs applied for and were denied a loan, (iii) the loan application was rejected despite its qualifications, and (iv) the lender continued to approve loan applications with qualification similar to those of the plaintiff. The court held that the borrowers provided no evidence that their applications were otherwise qualified or that the lender approved loan applications with similar qualifications. Further, the court denied expert testimony on a “pattern and practice” of discrimination because “pattern and practice” evidence is limited to “class actions or suits by the government” and is not available to individual plaintiffs. For a copy of this decision, please see http://www.buckleykolar.com/documents/JATIncvNatCityBankoftheMidwest.pdf.
Banking
Fremont General Corp. Files for Chapter 11 Relief. On June 18, Fremont General Corporation (FGC) announced that the California Department of Financial Institutions and the FDIC have given approval to CapitolSource Inc. to acquire a substantial portion of FGC’s assets, including all of Fremont Investment and Loan’s (FGC’s wholly-owned bank subsidiary) branches. In connection with such regulatory approvals, FGC filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The filing was made on June 18 in the United States Bankruptcy Court for the Central District of California. According to the FGC press release, FGC intends to file a motion with the Bankruptcy Court for its approval to complete the acquisition of Fremont Investment and Loan’s assets and deposits by CapitalSource in accordance with federal bankruptcy laws, which will be required to complete the transaction. For a copy of the FGC press release, please see http://media.corporate-ir.net/media_files/irol/10/106265/6_18_08.pdf.
Consumer Finance
Investigative Report on Employee’s Drug Use Deemed not a “Consumer Report.” On June 5, the U.S. District Court for the Western District of Kentucky ruled against the plaintiffs on their Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq., claim against their employer, Ford Motor Company (Ford). Ford conducted an undercover drug investigation at one of its plants using a third-party investigative firm, North American Security Solutions, Inc. (NASS). Warinner v. North American Security Solutions, Inc., 2008 WL 2355727, Civ. Action No. 3:05-CV-244-S (W.D.Ky. June 5, 2008). NASS placed several investigators posing as Ford employees at the plant, and subsequently NASS reported to Ford on the drug use of various employees. Ford terminated the employees, and 21 of those terminated filed a complaint against Ford alleging numerous causes of action, including violations of FCRA. The plaintiffs based their FCRA claim on the requirement that consumer reporting agencies use reasonable procedures to guarantee maximum possible accuracy in their “consumer report.” However, the court determined that the investigative reports prepared by NASS contained information solely as to transactions and experiences between the employees and NASS and were thus not “consumer reports.” 15 U.S.C. § 1681a(d)(2)(A)(i). The court also refuted the plaintiffs’ claim that the “reports prepared by the Investigators were ‘consumer reports’ based on FTC Chairman Robert Pitofsky’s letter stating that reports made by law firms and investigative firms who regularly conduct investigations of alleged workplace misconduct by employees are likely to be ‘consumer reports’ within the meaning of FCRA.” Notwithstanding that statement, in this case the court found that the reports “fall squarely within the transactions and experiences exception, and are, therefore, excluded from the definition of ‘consumer reports’ and the coverage of the FCRA.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/WarinnervNorthAmericanSecuritySolutions.pdf.
Eighth Circuit Rejects “Value” Test, Upholds FCRA Firm Offers. In the consolidated appeal of two Fair Credit Reporting Act (FCRA) firm-offer cases, the U.S. Court of Appeals for the Eighth Circuit rejected arguments that the common-law definition of an “offer” applies to the FCRA requirement that a prescreened solicitation consist of a “firm offer” of credit and that the offered credit must have some “value” to the consumer. Poehl v. Countrywide Home Loans, Inc., – F. 3d –, 2008 WL 2445966 (8th Cir. June 19, 2008). In both cases, one against a mortgage lender and the other against an automobile finance company, the mailers contained some information about the terms of the loan, including the minimum loan amount and some other details, but neither lender provided details about the terms, duration, or interest rate of the loan in the mailer. The district courts in both cases had granted both defendants’ motions for judgment on the pleadings on the grounds that the solicitation offered “some value” to the consumer, and, therefore, were valid firm offers. See the discussion of the district court opinions in InfoBytes, August 17, 2007 (Poehl v. Countrywide Home Loans, Inc., No 06-CV-928 (E.D. Mo., opinion issued Aug. 7, 2007)) and InfoBytes, August 31, 2007 (Ludditt-Poehl v. Capital One Auto Finance, Inc., No. 06-888, 2007 WL 2428044 (E.D. Mo. Aug. 2, 2007)). The Eighth Circuit rejected the “value” test, noting that it was based on the opinion of the Seventh Circuit in Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004), which the Seventh Circuit significantly narrowed in its recent opinion in Murray v. New Cingular Wireless Services, Inc., – F. 3d –, 2008 WL 1701839 (7th Cir. Apr. 14, 2008) (reported in InfoBytes, April 18, 2008). The Eighth Circuit court stated that a solicitation “meets the statutory definition so long as the creditor will not deny credit to the consumer if the consumer meets the creditor’s pre-selection criteria,” and that “[t]he statutory definition contemplates additional communication between the creditor and the consumer that prevents an immediate acceptance of the offer.” Citing the decision of the U.S. Court of Appeals in Sullivan v. Greenwood, 2008 WL 726135, No. 07-23354 (1st Cir., Mar. 19, 2008) (reported in InfoBytes, Mar. 21, 2008), the court noted that the subsequent conditions permitted by the statute “would be antithetical to the common law understanding of an ‘offer’ as an immediately-acceptable set of terms, [and that, therefore,] reliance on common law notions of an ‘offer’ within the statutory definition is misplaced in this statutory scheme.” The court also rejected the argument that the mailer must contain the material terms of the loan, noting that the extensive disclosure requirements of the Truth in Lending Act—which, like FCRA, is part of the Consumer Credit Protection Act—indicate that Congress intended for TILA to be the vehicle for disclosure requirements. For a copy of the decision, please contact .
Court Holds FRCA Does Not Preempt State Tort Claims. On June 4, the U.S. District Court for the Eastern District of Kentucky held that the Fair Credit Reporting Act’s (FCRA) preemption provision at 15 USC 1681t(b)(1)(F) only preempts claims arising under state statutes, and does not preempt common law claims. Marcum v. GLA Collection Company, Inc., No. 07-370, 2008 WL 2338068 (E.D. Ky. June 4, 2008). In this case, the plaintiffs sued a medical office for a number of claims resulting from a disputed medical bill that was eventually noted on the plaintiff’s credit report. The plaintiffs alleged violations of the FCRA and common law defamation, among other claims. The defendant moved to dismiss the state law defamation claim, arguing that the claim is preempted by FCRA. The court took notice of two competing provisions in FCRA that both relate to preemption of state laws. Whereas the section cited by defendants, 15 USC 1681t(b)(1)(F), prohibits all state claims against furnishers of information, 15 USC 1681h(e) permits state tort claims against furnishers of information. The court held that 1681t(b)(1)(F) would be read to only preempt state claims against furnishers brought under state statutes. Because the claim was a tort claim, and not a statutory claim, the court held that the claim was not preempted and denied the motion to dismiss the plaintiff’s state claims. For a copy of the decision, please see http://www.buckleykolar.com/documents/MarcumvGLACollectionCompany.pdf.
Litigation
First Circuit Holds that Slight TILA Disclosure Violation Does Not Extend a Borrower’s Right of Rescission. On June 10, the U.S. District Court for the District of Alabama held that a borrower’s right of rescission does not extend from three days to three years where a mortgage company’s disclosure forms were “imperfect as to technical aspects” as established under the federal Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 et seq. McMillian et. al. v. Bedford Home Loans, Inc., No. 07-0773 (D. Ala. June 10, 2008). Ordinarily, a borrower’s TILA recession right extends only “until midnight of the third day following the consummation of the transaction.” In this case, the plaintiffs claimed that defects in their TILA disclosures rendered the disclosures inadequate, thus extending the right of recession period from three days to three years. The court held that while the TILA disclosures that the defendant gave the plaintiffs were imperfect, the disclosures that were provided gave the plaintiffs sufficiently “clear and conspicuous notice” of their rescission rights sufficient to meet the requirements under TILA. For a copy of the opinion, please see http://www.buckleykolar.com/documents/McMillianvAMCMortgageServices.pdf.
Investigative Report on Employee’s Drug Use Deemed not a “Consumer Report.” On June 5, the U.S. District Court for the Western District of Kentucky ruled against the plaintiffs on their Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq., claim against their employer, Ford Motor Company (Ford). Ford conducted an undercover drug investigation at one of its plants using a third-party investigative firm, North American Security Solutions, Inc. (NASS). Warinner v. North American Security Solutions, Inc., 2008 WL 2355727, Civ. Action No. 3:05-CV-244-S (W.D.Ky. June 5, 2008). NASS placed several investigators posing as Ford employees at the plant, and subsequently NASS reported to Ford on the drug use of various employees. Ford terminated the employees, and 21 of those terminated filed a complaint against Ford alleging numerous causes of action, including violations of FCRA. The plaintiffs based their FCRA claim on the requirement that consumer reporting agencies use reasonable procedures to guarantee maximum possible accuracy in their “consumer report.” However, the court determined that the investigative reports prepared by NASS contained information solely as to transactions and experiences between the employees and NASS and were thus not “consumer reports.” 15 U.S.C. § 1681a(d)(2)(A)(i). The court also refuted the plaintiffs’ claim that the “reports prepared by the Investigators were ‘consumer reports’ based on FTC Chairman Robert Pitofsky’s letter stating that reports made by law firms and investigative firms who regularly conduct investigations of alleged workplace misconduct by employees are likely to be ‘consumer reports’ within the meaning of FCRA.” Notwithstanding that statement, in this case the court found that the reports “fall squarely within the transactions and experiences exception, and are, therefore, excluded from the definition of ‘consumer reports’ and the coverage of the FCRA.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/WarinnervNorthAmericanSecuritySolutions.pdf.
Eighth Circuit Rejects “Value” Test, Upholds FCRA Firm Offers. In the consolidated appeal of two Fair Credit Reporting Act (FCRA) firm-offer cases, the U.S. Court of Appeals for the Eighth Circuit rejected arguments that the common-law definition of an “offer” applies to the FCRA requirement that a prescreened solicitation consist of a “firm offer” of credit and that the offered credit must have some “value” to the consumer. Poehl v. Countrywide Home Loans, Inc., – F. 3d –, 2008 WL 2445966 (8th Cir. June 19, 2008). In both cases, one against a mortgage lender and the other against an automobile finance company, the mailers contained some information about the terms of the loan, including the minimum loan amount and some other details, but neither lender provided details about the terms, duration, or interest rate of the loan in the mailer. The district courts in both cases had granted both defendants’ motions for judgment on the pleadings on the grounds that the solicitation offered “some value” to the consumer, and, therefore, were valid firm offers. See the discussion of the district court opinions in InfoBytes, August 17, 2007 (Poehl v. Countrywide Home Loans, Inc., No 06-CV-928 (E.D. Mo., opinion issued Aug. 7, 2007)) and InfoBytes, August 31, 2007 (Ludditt-Poehl v. Capital One Auto Finance, Inc., No. 06-888, 2007 WL 2428044 (E.D. Mo. Aug. 2, 2007)). The Eighth Circuit rejected the “value” test, noting that it was based on the opinion of the Seventh Circuit in Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004), which the Seventh Circuit significantly narrowed in its recent opinion in Murray v. New Cingular Wireless Services, Inc., – F. 3d –, 2008 WL 1701839 (7th Cir. Apr. 14, 2008) (reported in InfoBytes, April 18, 2008). The Eighth Circuit court stated that a solicitation “meets the statutory definition so long as the creditor will not deny credit to the consumer if the consumer meets the creditor’s pre-selection criteria,” and that “[t]he statutory definition contemplates additional communication between the creditor and the consumer that prevents an immediate acceptance of the offer.” Citing the decision of the U.S. Court of Appeals in Sullivan v. Greenwood, 2008 WL 726135, No. 07-23354 (1st Cir., Mar. 19, 2008) (reported in InfoBytes, Mar. 21, 2008), the court noted that the subsequent conditions permitted by the statute “would be antithetical to the common law understanding of an ‘offer’ as an immediately-acceptable set of terms, [and that, therefore,] reliance on common law notions of an ‘offer’ within the statutory definition is misplaced in this statutory scheme.” The court also rejected the argument that the mailer must contain the material terms of the loan, noting that the extensive disclosure requirements of the Truth in Lending Act—which, like FCRA, is part of the Consumer Credit Protection Act—indicate that Congress intended for TILA to be the vehicle for disclosure requirements. For a copy of the decision, please contact .
Court Holds FRCA Does Not Preempt State Tort Claims. On June 4, the U.S. District Court for the Eastern District of Kentucky held that the Fair Credit Reporting Act’s (FCRA) preemption provision at 15 USC 1681t(b)(1)(F) only preempts claims arising under state statutes, and does not preempt common law claims. Marcum v. GLA Collection Company, Inc., No. 07-370, 2008 WL 2338068 (E.D. Ky. June 4, 2008). In this case, the plaintiffs sued a medical office for a number of claims resulting from a disputed medical bill that was eventually noted on the plaintiff’s credit report. The plaintiffs alleged violations of the FCRA and common law defamation, among other claims. The defendant moved to dismiss the state law defamation claim, arguing that the claim is preempted by FCRA. The court took notice of two competing provisions in FCRA that both relate to preemption of state laws. Whereas the section cited by defendants, 15 USC 1681t(b)(1)(F), prohibits all state claims against furnishers of information, 15 USC 1681h(e) permits state tort claims against furnishers of information. The court held that 1681t(b)(1)(F) would be read to only preempt state claims against furnishers brought under state statutes. Because the claim was a tort claim, and not a statutory claim, the court held that the claim was not preempted and denied the motion to dismiss the plaintiff’s state claims. For a copy of the decision, please see http://www.buckleykolar.com/documents/MarcumvGLACollectionCompany.pdf.
Court Dismisses Borrower’s Discrimination Claims. On June 10, a federal district court dismissed a “redlining” claim under the Fair Housing Act (FHA), Equal Credit Opportunity Act (ECOA), and the Civil Rights Act (CRA) raised by predominantly African-American businesses and churches against a lender. JAT, Inc., v. Nat. City Bank of the Midwest, No. 06-11937 (E.D. Mich. June 10, 2008). The prospective borrowers alleged that they were denied credit because of the lender’s policy against making commercial loans to African-American owned businesses in the City of Detroit. First, the court outlined the four factors to establish a circumstantial prima facie case of discrimination: (i) the plaintiffs were a member of a protected class, (ii) the plaintiffs applied for and were denied a loan, (iii) the loan application was rejected despite its qualifications, and (iv) the lender continued to approve loan applications with qualification similar to those of the plaintiff. The court held that the borrowers provided no evidence that their applications were otherwise qualified or that the lender approved loan applications with similar qualifications. Further, the court denied expert testimony on a “pattern and practice” of discrimination because “pattern and practice” evidence is limited to “class actions or suits by the government” and is not available to individual plaintiffs. For a copy of this decision, please see http://www.buckleykolar.com/documents/JATIncvNatCityBankoftheMidwest.pdf.
Court Finds Increased Risk of Identity Theft Does Not Constitute Actual Injury Under Louisiana Negligence Law. On June 5, the United States District Court for the Eastern District of Louisiana granted summary judgment to a defendant in two data security breach class actions where it was undisputed that no personal data had been compromised and the plaintiffs had failed to offer evidence that any third party had gained access to the data. Melancon v. Louisiana Office of Student Financial Assistance, Nos. 07-7712, 07-9158, 2008 WL 2355753 (E.D. La. June 5, 2008). The putative class actions arose when a truck operated by the defendant lost backup media belonging to the Louisiana Office of Student Financial Assistance. This media included personal information on individuals participating in or considered for participation in programs for financial assistance and certain scholarship programs of higher education. Following Ponder v. Pfizer, Inc., 522 F.Supp.2d 793 (M.D. La. 2007), in which the Middle District of Louisiana found that allegations of mere emotional disturbance were insufficient to prevail on a negligence claim, the court found that “the mere possibility that personal information may be at increased risk does not constitute actual injury sufficient to maintain a claim for negligence under the current state of Louisiana law.” The court further noted that, it was “undisputed that no personal data had been compromised and Plaintiffs have failed to offer evidence that any third party has gained access to the data,” and as such, the plaintiffs’ claims were “purely speculative rather than asserting any actual, cognizable losses.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/MelanconvLAOfficeofStudentFinAssistance.pdf.
E-Financial Services
Oklahoma Adopts Uniform Real Property Electronic Recording Act. On June 2, Oklahoma Governor Brad Henry signed Uniform Real Property Electronic Recording Act (H.B. 2587), which authorizes electronic signatures and recording in real property transactions. Pursuant to the new law, if a law requires, as a condition for recording, that a document be signed, or that a document be an original, be on paper or another tangible medium, or be in writing, the requirement is satisfied by an electronic signature or by an electronic document, respectively. The new law also authorizes the county clerk to accept electronic payment of any fee the county clerk is authorized to collect. The bill becomes effective on November 1, 2008. For a copy of the bill, please see http://www.buckleykolar.com/documents/OKHB2587.pdf.
New Mexico Enacts Regulations Governing the Performance of Electronic Notorial Acts. The New Mexico Secretary of State has issued new rules establishing the standards, guidelines and procedures for notaries public performing electronic notorial acts. The rules apply to three types of notarial acts, namely acknowledgements, jurats and oaths or affirmations. Under the new rules, notaries public must register with the Secretary of State in order to engage in electronic notarial acts. In addition, the rules prescribe the form and manner of performing electronic notarial acts. Finally, the rules have a “physical appearance requirement” that prohibits a notary public from performing an electronic act if the document signer does not appear in person before the notary public at the time of notarization. The rules became effective on May 30. For the full text of the new rules, please see http://www.nmcpr.state.nm.us/nmregister/xix/xix10/12.9.2.pdf.
Privacy/Data Security
FTC, California Office of Privacy Protection to Host Workshop on Protecting Privacy. On August 13, The FTC and the California Office of Privacy Protection will co-host a half-day public workshop in Los Angeles, CA, featuring business, legal, government, and privacy experts who will provide practical guidance on data security, privacy, best practices for developing an appropriate data security program, and responding to data breaches and other privacy and security problems. The workshop is in response to a recommendation by President Bush’s Identity Theft Task Force to help small businesses and others in the business community understand the importance of securing personal information and protecting the privacy of consumers and employees through safeguarding information, preventing and reporting data breaches, and assisting identity theft victims. The workshop is free and open to the public and will be held at the Ronald Reagan State Building beginning at 9:30 a.m. For more information on this workshop, please see http://www.ftc.gov/bcp/workshops/infosecurity/index.shtml.
Connecticut Governor Signs Two Data Protection Bills. On June 10 and 12, Connecticut Governor M. Jodi Rell signed H.B. 5658 and H.B. 5701, respectively, which both create data protection laws. H.B. 5658 requires persons in possession of others’ personal data to safeguard the information from third parties and destroy the data before disposal. Also, it requires businesses that collect Social Security numbers to establish a privacy protection policy to: (i) protect the confidentiality of the Social Security numbers, (ii) prohibit unlawful disclosure of Social Security numbers, and (iii) limit access to Social Security numbers. Willful violations of this law are punishable with fines up to $500,000.
H.B. 5701 eliminates the requirement that Social Security numbers of parents appear on live birth and fetal death certificates. H.B. 5701 also prohibits state agencies from disclosing Social Security numbers in public records unless required by law. Both bills become effective on October 1. For a copy of H.B. 5658 and H.B. 5701, please see http://www.cga.ct.gov/2008/ACT/Pa/pdf/2008PA-00167-R00HB-05658-PA.pdf and http://www.cga.ct.gov/2008/ACT/Pa/pdf/2008PA-00184-R00HB-05701-PA.pdf, respectively.
Investigative Report on Employee’s Drug Use Deemed not a “Consumer Report.” On June 5, the U.S. District Court for the Western District of Kentucky ruled against the plaintiffs on their Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq., claim against their employer, Ford Motor Company (Ford). Ford conducted an undercover drug investigation at one of its plants using a third-party investigative firm, North American Security Solutions, Inc. (NASS). Warinner v. North American Security Solutions, Inc., 2008 WL 2355727, Civ. Action No. 3:05-CV-244-S (W.D.Ky. June 5, 2008). NASS placed several investigators posing as Ford employees at the plant, and subsequently NASS reported to Ford on the drug use of various employees. Ford terminated the employees, and 21 of those terminated filed a complaint against Ford alleging numerous causes of action, including violations of FCRA. The plaintiffs based their FCRA claim on the requirement that consumer reporting agencies use reasonable procedures to guarantee maximum possible accuracy in their “consumer report.” However, the court determined that the investigative reports prepared by NASS contained information solely as to transactions and experiences between the employees and NASS and were thus not “consumer reports.” 15 U.S.C. § 1681a(d)(2)(A)(i). The court also refuted the plaintiffs’ claim that the “reports prepared by the Investigators were ‘consumer reports’ based on FTC Chairman Robert Pitofsky’s letter stating that reports made by law firms and investigative firms who regularly conduct investigations of alleged workplace misconduct by employees are likely to be ‘consumer reports’ within the meaning of FCRA.” Notwithstanding that statement, in this case the court found that the reports “fall squarely within the transactions and experiences exception, and are, therefore, excluded from the definition of ‘consumer reports’ and the coverage of the FCRA.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/WarinnervNorthAmericanSecuritySolutions.pdf.
Court Finds Increased Risk of Identity Theft Does Not Constitute Actual Injury Under Louisiana Negligence Law. On June 5, the United States District Court for the Eastern District of Louisiana granted summary judgment to a defendant in two data security breach class actions where it was undisputed that no personal data had been compromised and the plaintiffs had failed to offer evidence that any third party had gained access to the data. Melancon v. Louisiana Office of Student Financial Assistance, Nos. 07-7712, 07-9158, 2008 WL 2355753 (E.D. La. June 5, 2008). The putative class actions arose when a truck operated by the defendant lost backup media belonging to the Louisiana Office of Student Financial Assistance. This media included personal information on individuals participating in or considered for participation in programs for financial assistance and certain scholarship programs of higher education. Following Ponder v. Pfizer, Inc., 522 F.Supp.2d 793 (M.D. La. 2007), in which the Middle District of Louisiana found that allegations of mere emotional disturbance were insufficient to prevail on a negligence claim, the court found that “the mere possibility that personal information may be at increased risk does not constitute actual injury sufficient to maintain a claim for negligence under the current state of Louisiana law.” The court further noted that, it was “undisputed that no personal data had been compromised and Plaintiffs have failed to offer evidence that any third party has gained access to the data,” and as such, the plaintiffs’ claims were “purely speculative rather than asserting any actual, cognizable losses.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/MelanconvLAOfficeofStudentFinAssistance.pdf.