InfoBytes, May 1, 2009
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Consumer Finance
- Insurance
- Litigation
- E-Financial Services
- Privacy/Data Security
- Credit Cards
Federal Issues
House Committee on Financial Services Approves Anti-Predatory Lending Bill with RESPA Provision. On April 29, the U.S. House Committee on Financial Services approved, by a 49-21 vote, HR 1728, the "Mortgage Reform and Anti-Predatory Lending Act." The proposed legislation closely mirrors HR 3915, a bill that passed the House of Representatives in the 110th Congress, but not enacted. Similar to HR 3915, HR 1728 would amend the Truth in Lending Act by, among other things, (i) requiring originators to adhere to a “duty of care” to offer a range of products that are appropriate to a consumer, meaning that the consumer has a “reasonable” ability to repay a loan, and, with respect to a refinancing, the consumer receives a “net tangible benefit” from the loan, and the loan lacks “predatory characteristics,” (ii) setting forth new underwriting requirements to ensure the loan meets the requirements of the foregoing “duty of care” standards, subject to a “presumption” of compliance for certain low-risk “qualified mortgages,” (iii) disallowing yield spread premiums that correlate compensation to higher-cost terms and similar compensation structures that create conflicts of interest or reward originators that “steer” borrowers, (iv) providing for an enhanced rescission remedy for non-complying loans, subject to a cure provision, (v) revising civil penalty amounts for violations including new assignee liability rules, (vi) revising allowable penalties and fees for high-cost mortgages, and (vii) revising certain notice and disclosure requirements. A new provision of HR 1728 that was not in HR 3915 would require creditors to retain an economic interest in a “material” portion of the credit risk of each “non-qualifying mortgage” that a creditor transfers, sells, or conveys, subject to certain exceptions by the federal banking agencies. A number of amendments were adopted during the markup of HR 1728, including one that would withdraw the recently-promulgated Real Estate Settlement Procedures Act Final Rule and require a new rule to be jointly issued by the Federal Reserve Board and the U.S. Department of Housing an Urban Development within 12 months. For a copy of the press release, please see http://www.house.gov/apps/list/press/financialsvcs_dem/prss042909.shtml. For a copy of HR 1728, please see http://www.thomas.gov/cgi-bin/query/z?c111:H.R.1728.
Proposed Cram Down Amendment to Senate Bill Defeated. On April 30, the U.S. Senate voted against a proposed "cram down" amendment to S.896, the “Helping Families Save Their Homes Act of 2009,” in a 51-45 vote. The latest amendment, proposed by Senator Richard J. Durbin, would have limited the scope of allowable cram downs by, among other things, (i) limiting the size of eligible loans for judicial modification, (ii) limiting eligible loans to those issued before January 1, 2009 that have been delinquent for at least 60 days, and (iii) requiring borrowers to contact loan servicers 45 days before filing for bankruptcy. For a copy of S.896, please see http://www.thomas.gov/cgi-bin/query/z?c111:S.896:.
Obama Administration Expands Making Home Affordable Program. On April 28, the Obama Administration announced the expansion of the Making Home Affordable Program (MHA) to include a new “Second Lien Program” and to incorporate the Federal Housing Administration’s (FHA) Hope for Homeowners program. (The most-recent update regarding the MHA was reported in InfoBytes, Mar. 6, 2009). FHA’s Hope for Homeowners program requires the holder of a mortgage to accept a payoff below the current market value of the home to permit the borrower to refinance into a new FHA-guaranteed loan, thereby increasing equity in the home. Servicers are now required, when evaluating borrowers for a Home Affordable Modification, to determine eligibility for a Hope for Homeowners refinancing. If the Hope for Homeowners program is viable, the servicer must offer this option to the borrower. The Second Lien Program addresses the 1- to 1.5-million homeowners who have “at-risk” second-lien mortgages. Under this program, servicers reduce payments on second-lien mortgages automatically when a Home Affordable Modification is initiated on a first-lien mortgage, and are permitted to extinguish a second-lien mortgage for a lump sum payment. The program distinguishes and treats differently amortizing and interest-only loans. Both programs utilize “pay-for-success” payments to servicers, lenders, and borrowers, providing up-front lump sums for successful modification and then yearly payments to reward continued performance of the modified loan. For a copy of the press release, please see http://www.financialstability.gov/latest/pr04_28.html. For a copy of the fact sheet, please see http://www.financialstability.gov/docs/042809SecondLienFactSheet.pdf.
FTC Further Delays Enforcement of Red Flags Rule. On April 30, the Federal Trade Commission (FTC) announced that it will delay enforcement of its “Red Flags” rule until August 1, 2009 to give creditors and financial institutions additional time to develop and implement written identity theft prevention programs. The FTC previously delayed the implementation of the rule until May 1, 2009 (reported in InfoBytes, Oct. 24, 2008). The FTC noted that this announcement does not affect its address discrepancy rule, which applies to all users of consumer reports, and its change-of-address rule, which applies to card issuers, which became effective November 1, 2008. The FTC also announced that a template is forthcoming for entities that have a low risk of identity theft, such as businesses that know their customers personally, to assist with compliance with the rule. For a copy of the press release, please see http://www.ftc.gov/opa/2009/04/redflagsrule.shtm. For a copy of the Enforcement Policy, please see http://www.ftc.gov/os/2009/04/P095406redflagsextendedenforcement.pdf.
FTC Modifies Confidentiality Rules on Petitions to Quash. On April 27, the Federal Trade Commission announced that it had modified its rules on when a petition to quash a Civil Investigative Demand (CID), which is used in consumer protection cases or other non-adjudicative subpoena, becomes public. Under the new rule, any petition to quash or limit a CID or subpoena that includes material the petitioner considers confidential must be accompanied by a redacted version of the petition that is made public, thereby resulting in public disclosure of the investigation. Previously, companies targeted by CIDs or subpoenas — which are often extremely broad and subject to short production deadlines — would mark the entire petition confidential. Because filing the petition operates as a stay of the deadline for production, this procedure allowed companies to continue negotiating the scope of the production past the deadline without the investigation becoming public. Companies that are targeted by the FTC that are unable to negotiate a delay or modification in the CID or subpoena will now face public disclosure of the investigation at an early stage. This change was not contained in the proposed rule amendments that were published in the Federal Register, which, according to the FTC, did not generate any public comments. The amendments, which also include changes in the FTC’s rules for adjudications, will become effective when published in the Federal Register. For a copy of the press release, please see http://www.ftc.gov/opa/2009/04/part3.shtm; for a copy of the final Federal Register notice, please see http://www.ftc.gov/os/2009/04/P072104part3and4rule.pdf; and for a copy of the initial proposal for public comment, please see http://edocket.access.gpo.gov/2009/pdf/E9-296.pdf.
FTC Approves Alternate Procedure for FACTA-Required Study. On April 30, the Federal Trade Commission approved an alternative procedure for the production of customer information in connection with a study regarding the effect of credit-based insurance scores on the availability and affordability of homeowners insurance, as required by the Fair and Accurate Credit Transactions Act (FACTA). The alternative procedure allows companies to send the required data and documents with a unique identifying number in lieu of including consumers’ personally identifiable information (e.g., policyholder names, addresses, dates of birth, and Social Security numbers). According to the FTC, the alternative procedure responds to state law concerns requiring insurance companies to be responsible for such personally identifiable information. For a copy of the press release, please see http://www.ftc.gov/opa/2009/04/facta.shtm.
First Prohibition Order Entered by OCC for a Banker’s Violation of FHA, ECOA. On April 22, the Office of the Comptroller of the Currency (OCC) entered into a consent order with William W. Anderson, Jr., a former Vice President and Branch Manager of The First National Bank of Pontotoc, Pontotoc, Mississippi regarding alleged violations of the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA). Mr. Anderson allegedly discriminated against female applicants for credit and subjected female borrowers and accountholders to “severe and pervasive” sexual harassment in connection with credit and real estate-related transactions. The order permanently prohibits Mr. Anderson from participating in the affairs of any federally insured depository institution. According to the OCC, this is the first prohibition order based on a banker’s violation of the FHA and ECOA. For a copy of the press release, please see http://www.occ.treas.gov/ftp/release/2009-44.htm. For a copy of the consent order, please see http://www.occ.treas.gov/ftp/release/2009-44a.pdf.
State Issues
Massachusetts Personal Information Security Standards Effective May 1. On May 1, compliance with most security standards adopted by the Massachusetts Office of Consumer Affairs and Business Regulation is required for those who “own, license, store, or maintain” personal information. The deadline was previously extended from January 1, 2009 to May 1, 2009 (reported in InfoBytes, Nov. 21, 2008). The regulations define personal information as a first name or initial and surname in combination with (i) a social security number, (ii) a driver’s license number or other state-issued identification card number, or (iii) a financial account, credit card, or debit card number, irrespective of whether a security code, access code, personal identification number or password accompanies this information. The regulations require a “comprehensive, written information security program” applicable to records, and a separate “comprehensive, written information security program” applicable to computers. January 1, 2010 is the effective date for additional provisions that include (i) the provision for requiring written certification regarding security standards from third-party providers, and (ii) the provision for ensuring encryption of portable devices other than laptops, such as memory sticks. The Massachusetts law joins similar security requirements in Nevada, Connecticut, and California. For a copy of the FAQ, please see http://www.mass.gov/Eoca/docs/idtheft/201CMR17faqs.pdf.
Massachusetts Division of Banks Releases Industry Letter on Mortgage Loan Modification. On April 27, the Massachusetts Division of Banks (Division) published an industry letter addressing several frequently asked questions regarding mortgage loan modifications in Massachusetts. The Division determined that a broker or any third party cannot charge a modification fee on any loan where the borrower is exercising his right to cure a default, because such fees are prohibited under § 11 of Chapter 206 of the Acts of 2007 and regulation 940 CMR 25.00. In contrast, mortgage lenders can charge a fee to modify a mortgage pursuant to the authority granted them by § 63A of Chapter 183, but only if said lender is also the mortgage holder. In addition to questions concerning fees, the Division addressed whether an unlicensed individual can negotiate or assist in the process of obtaining a loan modification from a mortgage holder on behalf of a borrower. Considering the mortgage broker and/or mortgage loan originator licensing requirements of Chapters 255E and 255F of the General Laws, the Division determined that any person negotiating or assisting in the process of obtaining a loan modification must obtain the applicable broker or originator license if such assistance resulted in a refinancing. Further, the Division warned that such activity may also trigger state law regulatory requirements applicable to financial advisors, credit counseling services and credit services organizations. For a copy of the Division’s letter, please see http://www.buckleysandler.com/MA_Industry_Letter_Apr_09.pdf.
Nevada Regulator Revises Mortgage Banking Regulations to Permit Electronic Reproduction and Storage of Mortgage Records. On April 23, the Nevada Commissioner of Mortgage Lending (Commissioner) published final regulations in the Nevada Register of Administrative Regulations that, among other things, permits the Commissioner, for good cause, to allow a mortgage banker to electronically reproduce and store required records pertaining to completed mortgage transactions. The mortgage banker must retain a hard copy that is accessible by the Commissioner for one year after the closing date of the loan. For a copy of the final regulation, please see http://www.buckleysandler.com/NV_R053-08_2009.pdf.
Pennsylvania Regulator Orders Mortgage Loan Modification Companies to Cease Unlicensed Activities. On April 22, the Pennsylvania Department of Banking announced that it recently ordered four mortgage loan modification companies to cease unlicensed mortgage loan modification services in Pennsylvania. Consumer Loan Modification of Arizona, U.S. Settlement Services of Florida, and Federal Loan Modification Law Center LLC of California must comply with the orders or file appeals by the end of the month. Additionally, a consent agreement and order was reached with Nationwide Foreclosure Prevention Center, LLC of New Jersey and its owner. Pursuant to the agreement, the company (i) paid a $2,000 fine, (ii) is prohibited from engaging in the mortgage business in Pennsylvania for five years, and (iii) must refund fees collected from Pennsylvania consumers within 90 days. For a copy of the press release, please see http://www.banking.state.pa.us/banking/lib/banking/news_and_events/press_releases/2009/rls-bank-mortmod-042209.pdf.
Courts
Texas Federal Court Holds Title Insurance Overcharge Actionable Under RESPA. On April 21, the U.S. District Court for the Northern District of Texas held that charging more than the mandated amount for title insurance premiums may violate Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) if the plaintiff alleges that the excess amount was unearned and split with the title agent. Hamilton v. First American Title Company, No. 3:07-CV-1442, 2009 WL 1065165 (N.D. Tex. Apr. 21, 2009). The plaintiffs in Hamilton alleged that the defendant failed to give a title insurance reissue discount on refinance loans, as required by the Texas Department of Insurance (TDI). The plaintiffs further alleged that the defendant violated RESPA because the excess premium constituted an unearned fee that was split with the title agent. The defendant moved to dismiss, arguing that alleged “overcharges” are not actionable under RESPA § 8(b). While the court agreed that Section 8(b) “is not a price control provision,” the court denied defendant’s motion, finding that plaintiffs did not merely plead an overcharge, but “that the defendant split a fee with its agent that was not reasonably related to any services it performs.” According to the court, “if the fees the title agents received were in violation of TDI’s mandated reissue discounts, it is certainly plausible that the fees were not reasonably related to any services performed.” For a copy of the opinion, please see http://www.buckleysandler.com/Hamilton_v_First_American.pdf.
Iowa Court Holds Violation of HUD Regulations Incorporated in Mortgage Can Be Raised Defensively in Foreclosure Proceeding. On April 22, the Court of Appeals of Iowa held that a borrower mortgagor could raise a lender’s failure to comply with regulations of the Department of Housing and Urban Development (HUD) as a defense in a foreclosure proceeding if the mortgage at issue incorporates such regulations. ABN AMRO Mortgage Group, Inc. v. Tullar, No. 06-0824, 2009 WL 1066511 (Iowa Ct. App. Apr. 22, 2009). In this case, a mortgage company initiated foreclosure proceedings against the defendant borrowers. In their answer to the foreclosure petition, the borrowers argued that the mortgage company improperly initiated foreclosure proceedings under circumstances made impermissible by HUD regulations. In arriving at its decision, the court followed the Maryland Court of Appeals in Wells Fargo Home Mortgage, Inc. v. Neal (reported in InfoBytes, Mar. 16, 2007), and looked to a 1989 HUD statement of policy, to find that HUD intended failure to comply with its mandatory loss mitigation or forbearance rules to be raised as a defense in a foreclosure proceeding. However, after analyzing the facts of the instant case, the court determined that the lender “did not breach the provision of the parties’ mortgage requiring it to comply with HUD regulations.” Additionally, the court affirmed the district court’s decision to dismiss each of the defendants’ counterclaims, which included breach of contract and breach of the covenant of good faith and fair dealing, among others. For a copy of the decision, please see http://www.buckleysandler.com/ABN_v_Tullar.pdf.
Maryland Federal Court Rules that a Subscriber’s Certifications Can Satisfy FCRA’s “Reason to Believe” Standard. On April 23, the U.S. District Court for the District of Maryland granted the defendant’s motion for summary judgment, holding that a credit reporting agency (CRA) has "reason to believe" that consumer reports are being accessed for a “permissible purpose” under the Fair Credit Reporting Act (FCRA) when a subscriber makes certain certifications to the CRA. Harris v. Database Management and Marketing, No. 06-2017, 2009 WL 1097960 (D. Md. Apr. 23, 2009). This case arose after plaintiff sued a CRA for violating § 1681b of FCRA, alleging that the CRA sold his information to a subscriber without “reason to believe” that the subscriber was accessing the information for a permissible purpose. Considering cross motions for summary judgment, the court found that a CRA has “reason to believe” that consumer reports are being accessed for a permissible purpose when (i) the subscriber certifies that it would access consumer reports for permissible purposes, (ii) that its primary purpose of its business involved accessing reports for a permissible purpose, and (iii) the agency is unaware of any impermissible use by the subscriber. In this case, the subscriber met such criteria and the plaintiff could not show that the defendant was aware of any impermissible use by the subscriber. For a copy of the opinion, please see http://www.buckleysandler.com/Harris_v_DMMI.pdf.
California Federal Court Denies Equifax Summary Judgment in FCRA Case. On April 17, the U.S. District Court for the Northern District of California denied a motion by Equifax Information Services (Equifax) for summary judgment in a case involving Fair Credit Reporting Act (FCRA) claims. Saindon v. Equifax Information Services, No. C 08-01744, 2009 WL 1035351 (N.D.Cal. Apr. 17, 2009). In Saindon, the parties agreed that the plaintiff was denied credit several times and requested, but never received, a credit report from Equifax each time. Finally, after the third credit denial, the creditor – not Equifax – provided him with a copy of his report. Upon reviewing the report, the plaintiff discovered an erroneous entry, which Equifax initially removed at the plaintiff’s request, but subsequently reinstated. In its request for partial summary judgment, Equifax claimed that (i) the plaintiff’s claims were time-barred, (ii) the plaintiff did not support his claim of willful violation of FCRA (and thus was not entitled to punitive damages), and (iii) the plaintiff’s state law claims were preempted by FCRA. On the issue of the statute of limitations, the court stated that the claim would be time-barred if the plaintiff discovered the violation more than two years before he brought his case. However, the court indicated that a genuine issue of material fact existed as to when the plaintiff actually discovered the violation, and whether, if the plaintiff were shown to have “discovered” the violation earlier, his claim would be saved by “equitable tolling” based on his inability to obtain information from Equifax despite due diligence on his part. With respect to punitive damages, the court found that Equifax failed to show that its procedures were adequate to ensure accuracy of information reported, and thus there were material issues of fact concerning whether Equifax acted recklessly. Regarding preemption of state law claims by FCRA, the court ruled that there existed material issues of fact whether Equifax furnished the plaintiff’s credit report to users with malice, i.e., with reckless disregard of whether the report was true or not. For a copy of the opinion, please see http://www.buckleysandler.com/Saindon_v_Equifax.pdf.
Indiana Federal Court Holds “Willful” Violation of FACTA Allegation Sufficient to Establish Standing. On April 14, the U.S. District Court for the Northern District of Indiana dismissed the defendant’s motion to dismiss holding that an allegation of a “willful” violation of the Fair and Accurate Credit Transaction Act (FACTA) is sufficient to establish standing. Brittingham v. Cerasimo, Inc., No. 2:08-CV-216, 2009 WL 1010427 (N.D. Ind. Apr. 14, 2009). In Brittingham, the plaintiff alleged that the defendant willfully violated the truncation requirement of FACTA by printing more than the last five digits of a credit or debit card number and the expiration date of the card on a receipt. The plaintiff sought statutory damages, punitive damages, and attorneys’ fees and costs. The defendant moved to dismiss, arguing that the plaintiff lacked standing by failing to allege an actual injury. Reasoning from decisions analyzing other sections of the Fair Credit Reporting Act, the court held that an "allegation of a willful violation, rather than a claim of actual injury and damages, is sufficient [to establish standing].” For a copy of the opinion, please see http://www.buckleysandler.com/Brittingham_v_Cerasimo.pdf.
Maryland Federal Court Holds Unauthorized Users of Website Subject to Online Terms of Use Agreement. In a recent decision, the U.S. District Court for the District of Maryland denied a motion to dismiss holding that a forum selection clause in an online clickwrap agreement was enforceable against two individuals who viewed and used the password-protected content without the consent of the plaintiff. CoStar Realty Information, Inc. v. Field, No. AW-08-00663, 2009 WL 841132 (D.Md. Mar. 31, 2009). In this case, the plaintiff operated a commercial real estate website which required a paid subscription in order to access content using an individual password. Upon accessing the database, a user must consent to a “clickwrap” terms of use agreement, which includes the forum selection clause specifying venue in Maryland. The plaintiff brought suit in Maryland alleging that the defendants illegally shared and used passwords without the express written consent of the plaintiff. In response, the defendants filed, among other things, a motion to dismiss for lack of personal jurisdiction over the defendants in Maryland, arguing that none of the defendants had any contact in Maryland beyond use of the website. The plaintiff argued that the repeated use of the website, and periodic affirmative consent to the terms of use, meant that the defendants (i) availed themselves to the benefits of the contract, and (ii) were subject to personal jurisdiction in Maryland. The court agreed with the plaintiff noting ample precedent holding that online user agreements constitute valid contracts. The court also determined that, even if they were not authorized to use the passwords, by using the passwords and affirmatively assenting to the terms, the users availed themselves of the contract terms and were thus subject to the same jurisdictional requirements as the authorized user. For a copy of the opinion, please see http://www.buckleysandler.com/CoStar_v_Field.pdf.
Fourth Circuit Affirms Actual Damages, Vacates Attorneys’ Fees Award in FCRA Case. On March 16, the U.S. Court of Appeals for the Fourth Circuit affirmed the district court’s award for actual damages, but found that the plaintiff failed to meet the burden of proof to award attorneys’ fees, in a case arising under the Fair Credit Reporting Act (FCRA). Robinson v. Equifax Information Services, LLC, 560 F.3d 235 (4th Cir. Mar. 16, 2009). In this case, the plaintiff brought a FCRA action against the defendant credit reporting service for failing to correct errors on the plaintiff’s credit report. In affirming the award for actual damages, the court rejected the defendant’s argument that the plaintiff did not prove causality between the reporting inaccuracy and the alleged harms and that the actual damage award was not “excessive.” Regarding attorneys’ fees, the court of appeals held that providing billing records in addition to “Laffey Matrix” rates is not ‘satisfactory specific evidence of the prevailing market rates,’ and, thus, were insufficient to carry the burden of proof and remanded this issue to the district court to recalculate the fee award. For a copy of the opinion, please see http://isysweb.ca4.uscourts.gov/isysquery/b4d7dce7-444d-4827-b140-7a0945bf7b40/1/doc/072094.P.pdf.
Firm News
Andy Sandler will be speaking at the MBA’s Legal Issues Conference Roundtable on Class Action and Enforcement Issues in Chicago on May 4. He will also be speaking at ZC Sterling’s Executive Round Table Conference in Asheville, NC on Legal and Regulatory issues on May 6.
Joe Kolar will be speaking at the MBA’s Legal Issues and Regulatory Compliance Conference being held in Chicago on May 4, addressing recent regulatory and legislative developments.
Margo Tank will also be speaking at the MBA’s Legal Issues and Regulatory Compliance Conference in Chicago. Her session is entitled “Update on Legal Issues in Mortgage Technology.”
Clint Rockwell will be speaking at the NACA Examiner’s School on RESPA and federal legislative developments in San Antonio, TX on May 7.
Jerry Buckley was quoted in the March 31 issue of American Banker. The featured article is entitled “Mortgage Bill Could Push Lenders Out.”
Andy Sandler spoke in New York City on April 1 at the American Conference Institute’s Advanced Forum on Financial Institutions Insurance.
Jeff Naimon and Grant Mitchell spoke about the new RESPA rule at the Annual RESPRO Conference on April 7.
Jon Jerison presented at an audio conference on April 9, “The HELOC Balancing Act – Consumer Laws and Agency Guidance.” The conference was sponsored by AS Pratt.
Sara Emley was a panelist on a webcast sponsored by the Investment Adviser Association on April 21. Her panel was entitled “Compliance Programs for Smaller Advisers: Best Practices for COOs.”
Margo Tank spoke at the MBA Government Housing and Loan Production Conference in Washington, DC on April 28 on a panel titled “The Next Generation of Operations - What’s In It for Me?”
Jonice Gray Tucker spoke at the American Bar Association’s Litigation Section Annual Conference held in Atlanta, Georgia on April 30.
Mortgages
House Committee on Financial Services Approves Anti-Predatory Lending Bill with RESPA Provision. On April 29, the U.S. House Committee on Financial Services approved, by a 49-21 vote, HR 1728, the "Mortgage Reform and Anti-Predatory Lending Act." The proposed legislation closely mirrors HR 3915, a bill that passed the House of Representatives in the 110th Congress, but not enacted. Similar to HR 3915, HR 1728 would amend the Truth in Lending Act by, among other things, (i) requiring originators to adhere to a “duty of care” to offer a range of products that are appropriate to a consumer, meaning that the consumer has a “reasonable” ability to repay a loan, and, with respect to a refinancing, the consumer receives a “net tangible benefit” from the loan, and the loan lacks “predatory characteristics,” (ii) setting forth new underwriting requirements to ensure the loan meets the requirements of the foregoing “duty of care” standards, subject to a “presumption” of compliance for certain low-risk “qualified mortgages,” (iii) disallowing yield spread premiums that correlate compensation to higher-cost terms and similar compensation structures that create conflicts of interest or reward originators that “steer” borrowers, (iv) providing for an enhanced rescission remedy for non-complying loans, subject to a cure provision, (v) revising civil penalty amounts for violations including new assignee liability rules, (vi) revising allowable penalties and fees for high-cost mortgages, and (vii) revising certain notice and disclosure requirements. A new provision of HR 1728 that was not in HR 3915 would require creditors to retain an economic interest in a “material” portion of the credit risk of each “non-qualifying mortgage” that a creditor transfers, sells, or conveys, subject to certain exceptions by the federal banking agencies. A number of amendments were adopted during the markup of HR 1728, including one that would withdraw the recently-promulgated Real Estate Settlement Procedures Act Final Rule and require a new rule to be jointly issued by the Federal Reserve Board and the U.S. Department of Housing an Urban Development within 12 months. For a copy of the press release, please see http://www.house.gov/apps/list/press/financialsvcs_dem/prss042909.shtml. For a copy of HR 1728, please see http://www.thomas.gov/cgi-bin/query/z?c111:H.R.1728.
Proposed Cram Down Amendment to Senate Bill Defeated. On April 30, the U.S. Senate voted against a proposed "cram down" amendment to S.896, the “Helping Families Save Their Homes Act of 2009,” in a 51-45 vote. The latest amendment, proposed by Senator Richard J. Durbin, would have limited the scope of allowable cram downs by, among other things, (i) limiting the size of eligible loans for judicial modification, (ii) limiting eligible loans to those issued before January 1, 2009 that have been delinquent for at least 60 days, and (iii) requiring borrowers to contact loan servicers 45 days before filing for bankruptcy. For a copy of S.896, please see http://www.thomas.gov/cgi-bin/query/z?c111:S.896:.
Obama Administration Expands Making Home Affordable Program. On April 28, the Obama Administration announced the expansion of the Making Home Affordable Program (MHA) to include a new “Second Lien Program” and to incorporate the Federal Housing Administration’s (FHA) Hope for Homeowners program. (The most-recent update regarding the MHA was reported in InfoBytes, Mar. 6, 2009). FHA’s Hope for Homeowners program requires the holder of a mortgage to accept a payoff below the current market value of the home to permit the borrower to refinance into a new FHA-guaranteed loan, thereby increasing equity in the home. Servicers are now required, when evaluating borrowers for a Home Affordable Modification, to determine eligibility for a Hope for Homeowners refinancing. If the Hope for Homeowners program is viable, the servicer must offer this option to the borrower. The Second Lien Program addresses the 1- to 1.5-million homeowners who have “at-risk” second-lien mortgages. Under this program, servicers reduce payments on second-lien mortgages automatically when a Home Affordable Modification is initiated on a first-lien mortgage, and are permitted to extinguish a second-lien mortgage for a lump sum payment. The program distinguishes and treats differently amortizing and interest-only loans. Both programs utilize “pay-for-success” payments to servicers, lenders, and borrowers, providing up-front lump sums for successful modification and then yearly payments to reward continued performance of the modified loan. For a copy of the press release, please see http://www.financialstability.gov/latest/pr04_28.html. For a copy of the fact sheet, please see http://www.financialstability.gov/docs/042809SecondLienFactSheet.pdf.
Massachusetts Division of Banks Releases Industry Letter on Mortgage Loan Modification. On April 27, the Massachusetts Division of Banks (Division) published an industry letter addressing several frequently asked questions regarding mortgage loan modifications in Massachusetts. The Division determined that a broker or any third party cannot charge a modification fee on any loan where the borrower is exercising his right to cure a default, because such fees are prohibited under § 11 of Chapter 206 of the Acts of 2007 and regulation 940 CMR 25.00. In contrast, mortgage lenders can charge a fee to modify a mortgage pursuant to the authority granted them by § 63A of Chapter 183, but only if said lender is also the mortgage holder. In addition to questions concerning fees, the Division addressed whether an unlicensed individual can negotiate or assist in the process of obtaining a loan modification from a mortgage holder on behalf of a borrower. Considering the mortgage broker and/or mortgage loan originator licensing requirements of Chapters 255E and 255F of the General Laws, the Division determined that any person negotiating or assisting in the process of obtaining a loan modification must obtain the applicable broker or originator license if such assistance resulted in a refinancing. Further, the Division warned that such activity may also trigger state law regulatory requirements applicable to financial advisors, credit counseling services and credit services organizations. For a copy of the Division’s letter, please see http://www.buckleysandler.com/MA_Industry_Letter_Apr_09.pdf.
Nevada Regulator Revises Mortgage Banking Regulations to Permit Electronic Reproduction and Storage of Mortgage Records. On April 23, the Nevada Commissioner of Mortgage Lending (Commissioner) published final regulations in the Nevada Register of Administrative Regulations that, among other things, permits the Commissioner, for good cause, to allow a mortgage banker to electronically reproduce and store required records pertaining to completed mortgage transactions. The mortgage banker must retain a hard copy that is accessible by the Commissioner for one year after the closing date of the loan. For a copy of the final regulation, please see http://www.buckleysandler.com/NV_R053-08_2009.pdf.
Pennsylvania Regulator Orders Mortgage Loan Modification Companies to Cease Unlicensed Activities. On April 22, the Pennsylvania Department of Banking announced that it recently ordered four mortgage loan modification companies to cease unlicensed mortgage loan modification services in Pennsylvania. Consumer Loan Modification of Arizona, U.S. Settlement Services of Florida, and Federal Loan Modification Law Center LLC of California must comply with the orders or file appeals by the end of the month. Additionally, a consent agreement and order was reached with Nationwide Foreclosure Prevention Center, LLC of New Jersey and its owner. Pursuant to the agreement, the company (i) paid a $2,000 fine, (ii) is prohibited from engaging in the mortgage business in Pennsylvania for five years, and (iii) must refund fees collected from Pennsylvania consumers within 90 days. For a copy of the press release, please see http://www.banking.state.pa.us/banking/lib/banking/news_and_events/press_releases/2009/rls-bank-mortmod-042209.pdf.
Texas Federal Court Holds Title Insurance Overcharge Actionable Under RESPA. On April 21, the U.S. District Court for the Northern District of Texas held that charging more than the mandated amount for title insurance premiums may violate Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) if the plaintiff alleges that the excess amount was unearned and split with the title agent. Hamilton v. First American Title Company, No. 3:07-CV-1442, 2009 WL 1065165 (N.D. Tex. Apr. 21, 2009). The plaintiffs in Hamilton alleged that the defendant failed to give a title insurance reissue discount on refinance loans, as required by the Texas Department of Insurance (TDI). The plaintiffs further alleged that the defendant violated RESPA because the excess premium constituted an unearned fee that was split with the title agent. The defendant moved to dismiss, arguing that alleged “overcharges” are not actionable under RESPA § 8(b). While the court agreed that Section 8(b) “is not a price control provision,” the court denied defendant’s motion, finding that plaintiffs did not merely plead an overcharge, but “that the defendant split a fee with its agent that was not reasonably related to any services it performs.” According to the court, “if the fees the title agents received were in violation of TDI’s mandated reissue discounts, it is certainly plausible that the fees were not reasonably related to any services performed.” For a copy of the opinion, please see http://www.buckleysandler.com/Hamilton_v_First_American.pdf.
Iowa Court Holds Violation of HUD Regulations Incorporated in Mortgage Can Be Raised Defensively in Foreclosure Proceeding. On April 22, the Court of Appeals of Iowa held that a borrower mortgagor could raise a lender’s failure to comply with regulations of the Department of Housing and Urban Development (HUD) as a defense in a foreclosure proceeding if the mortgage at issue incorporates such regulations. ABN AMRO Mortgage Group, Inc. v. Tullar, No. 06-0824, 2009 WL 1066511 (Iowa Ct. App. Apr. 22, 2009). In this case, a mortgage company initiated foreclosure proceedings against the defendant borrowers. In their answer to the foreclosure petition, the borrowers argued that the mortgage company improperly initiated foreclosure proceedings under circumstances made impermissible by HUD regulations. In arriving at its decision, the court followed the Maryland Court of Appeals in Wells Fargo Home Mortgage, Inc. v. Neal (reported in InfoBytes, Mar. 16, 2007), and looked to a 1989 HUD statement of policy, to find that HUD intended failure to comply with its mandatory loss mitigation or forbearance rules to be raised as a defense in a foreclosure proceeding. However, after analyzing the facts of the instant case, the court determined that the lender “did not breach the provision of the parties’ mortgage requiring it to comply with HUD regulations.” Additionally, the court affirmed the district court’s decision to dismiss each of the defendants’ counterclaims, which included breach of contract and breach of the covenant of good faith and fair dealing, among others. For a copy of the decision, please see http://www.buckleysandler.com/ABN_v_Tullar.pdf.
Consumer Finance
FTC Further Delays Enforcement of Red Flags Rule. On April 30, the Federal Trade Commission (FTC) announced that it will delay enforcement of its “Red Flags” rule until August 1, 2009 to give creditors and financial institutions additional time to develop and implement written identity theft prevention programs. The FTC previously delayed the implementation of the rule until May 1, 2009 (reported in InfoBytes, Oct. 24, 2008). The FTC noted that this announcement does not affect its address discrepancy rule, which applies to all users of consumer reports, and its change-of-address rule, which applies to card issuers, which became effective November 1, 2008. The FTC also announced that a template is forthcoming for entities that have a low risk of identity theft, such as businesses that know their customers personally, to assist with compliance with the rule. For a copy of the press release, please see http://www.ftc.gov/opa/2009/04/redflagsrule.shtm.
For a copy of the Enforcement Policy, please see http://www.ftc.gov/os/2009/04/P095406redflagsextendedenforcement.pdf.
FTC Modifies Confidentiality Rules on Petitions to Quash. On April 27, the Federal Trade Commission announced that it had modified its rules on when a petition to quash a Civil Investigative Demand (CID), which is used in consumer protection cases or other non-adjudicative subpoena, becomes public. Under the new rule, any petition to quash or limit a CID or subpoena that includes material the petitioner considers confidential must be accompanied by a redacted version of the petition that is made public, thereby resulting in public disclosure of the investigation. Previously, companies targeted by CIDs or subpoenas — which are often extremely broad and subject to short production deadlines — would mark the entire petition confidential. Because filing the petition operates as a stay of the deadline for production, this procedure allowed companies to continue negotiating the scope of the production past the deadline without the investigation becoming public. Companies that are targeted by the FTC that are unable to negotiate a delay or modification in the CID or subpoena will now face public disclosure of the investigation at an early stage. This change was not contained in the proposed rule amendments that were published in the Federal Register, which, according to the FTC, did not generate any public comments. The amendments, which also include changes in the FTC’s rules for adjudications, will become effective when published in the Federal Register. For a copy of the press release, please see http://www.ftc.gov/opa/2009/04/part3.shtm; for a copy of the final Federal Register notice, please see http://www.ftc.gov/os/2009/04/P072104part3and4rule.pdf; and for a copy of the initial proposal for public comment, please see http://edocket.access.gpo.gov/2009/pdf/E9-296.pdf.
FTC Approves Alternate Procedure for FACTA-Required Study. On April 30, the Federal Trade Commission approved an alternative procedure for the production of customer information in connection with a study regarding the effect of credit-based insurance scores on the availability and affordability of homeowners insurance, as required by the Fair and Accurate Credit Transactions Act (FACTA). The alternative procedure allows companies to send the required data and documents with a unique identifying number in lieu of including consumers’ personally identifiable information (e.g., policyholder names, addresses, dates of birth, and Social Security numbers). According to the FTC, the alternative procedure responds to state law concerns requiring insurance companies to be responsible for such personally identifiable information. For a copy of the press release, please see http://www.ftc.gov/opa/2009/04/facta.shtm.
First Prohibition Order Entered by OCC for a Banker’s Violation of FHA, ECOA. On April 22, the Office of the Comptroller of the Currency (OCC) entered into a consent order with William W. Anderson, Jr., a former Vice President and Branch Manager of The First National Bank of Pontotoc, Pontotoc, Mississippi regarding alleged violations of the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA). Mr. Anderson allegedly discriminated against female applicants for credit and subjected female borrowers and accountholders to “severe and pervasive” sexual harassment in connection with credit and real estate-related transactions. The order permanently prohibits Mr. Anderson from participating in the affairs of any federally insured depository institution. According to the OCC, this is the first prohibition order based on a banker’s violation of the FHA and ECOA. For a copy of the press release, please see http://www.occ.treas.gov/ftp/release/2009-44.htm. For a copy of the consent order, please see http://www.occ.treas.gov/ftp/release/2009-44a.pdf.
California Federal Court Denies Equifax Summary Judgment in FCRA Case. On April 17, the U.S. District Court for the Northern District of California denied a motion by Equifax Information Services (Equifax) for summary judgment in a case involving Fair Credit Reporting Act (FCRA) claims. Saindon v. Equifax Information Services, No. C 08-01744, 2009 WL 1035351 (N.D.Cal. Apr. 17, 2009). In Saindon, the parties agreed that the plaintiff was denied credit several times and requested, but never received, a credit report from Equifax each time. Finally, after the third credit denial, the creditor – not Equifax – provided him with a copy of his report. Upon reviewing the report, the plaintiff discovered an erroneous entry, which Equifax initially removed at the plaintiff’s request, but subsequently reinstated. In its request for partial summary judgment, Equifax claimed that (i) the plaintiff’s claims were time-barred, (ii) the plaintiff did not support his claim of willful violation of FCRA (and thus was not entitled to punitive damages), and (iii) the plaintiff’s state law claims were preempted by FCRA. On the issue of the statute of limitations, the court stated that the claim would be time-barred if the plaintiff discovered the violation more than two years before he brought his case. However, the court indicated that a genuine issue of material fact existed as to when the plaintiff actually discovered the violation, and whether, if the plaintiff were shown to have “discovered” the violation earlier, his claim would be saved by “equitable tolling” based on his inability to obtain information from Equifax despite due diligence on his part. With respect to punitive damages, the court found that Equifax failed to show that its procedures were adequate to ensure accuracy of information reported, and thus there were material issues of fact concerning whether Equifax acted recklessly. Regarding preemption of state law claims by FCRA, the court ruled that there existed material issues of fact whether Equifax furnished the plaintiff’s credit report to users with malice, i.e., with reckless disregard of whether the report was true or not. For a copy of the opinion, please see http://www.buckleysandler.com/Saindon_v_Equifax.pdf.
Indiana Federal Court Holds “Willful” Violation of FACTA Allegation Sufficient to Establish Standing. On April 14, the U.S. District Court for the Northern District of Indiana dismissed the defendant’s motion to dismiss holding that an allegation of a “willful” violation of the Fair and Accurate Credit Transaction Act (FACTA) is sufficient to establish standing. Brittingham v. Cerasimo, Inc., No. 2:08-CV-216, 2009 WL 1010427 (N.D. Ind. Apr. 14, 2009). In Brittingham, the plaintiff alleged that the defendant willfully violated the truncation requirement of FACTA by printing more than the last five digits of a credit or debit card number and the expiration date of the card on a receipt. The plaintiff sought statutory damages, punitive damages, and attorneys’ fees and costs. The defendant moved to dismiss, arguing that the plaintiff lacked standing by failing to allege an actual injury. Reasoning from decisions analyzing other sections of the Fair Credit Reporting Act, the court held that an "allegation of a willful violation, rather than a claim of actual injury and damages, is sufficient [to establish standing].” For a copy of the opinion, please see http://www.buckleysandler.com/Brittingham_v_Cerasimo.pdf.
Insurance
Texas Federal Court Holds Title Insurance Overcharge Actionable Under RESPA. On April 21, the U.S. District Court for the Northern District of Texas held that charging more than the mandated amount for title insurance premiums may violate Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) if the plaintiff alleges that the excess amount was unearned and split with the title agent. Hamilton v. First American Title Company, No. 3:07-CV-1442, 2009 WL 1065165 (N.D. Tex. Apr. 21, 2009). The plaintiffs in Hamilton alleged that the defendant failed to give a title insurance reissue discount on refinance loans, as required by the Texas Department of Insurance (TDI). The plaintiffs further alleged that the defendant violated RESPA because the excess premium constituted an unearned fee that was split with the title agent. The defendant moved to dismiss, arguing that alleged “overcharges” are not actionable under RESPA § 8(b). While the court agreed that Section 8(b) “is not a price control provision,” the court denied defendant’s motion, finding that plaintiffs did not merely plead an overcharge, but “that the defendant split a fee with its agent that was not reasonably related to any services it performs.” According to the court, “if the fees the title agents received were in violation of TDI’s mandated reissue discounts, it is certainly plausible that the fees were not reasonably related to any services performed.” For a copy of the opinion, please see http://www.buckleysandler.com/Hamilton_v_First_American.pdf.
Litigation
Texas Federal Court Holds Title Insurance Overcharge Actionable Under RESPA. On April 21, the U.S. District Court for the Northern District of Texas held that charging more than the mandated amount for title insurance premiums may violate Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) if the plaintiff alleges that the excess amount was unearned and split with the title agent. Hamilton v. First American Title Company, No. 3:07-CV-1442, 2009 WL 1065165 (N.D. Tex. Apr. 21, 2009). The plaintiffs in Hamilton alleged that the defendant failed to give a title insurance reissue discount on refinance loans, as required by the Texas Department of Insurance (TDI). The plaintiffs further alleged that the defendant violated RESPA because the excess premium constituted an unearned fee that was split with the title agent. The defendant moved to dismiss, arguing that alleged “overcharges” are not actionable under RESPA § 8(b). While the court agreed that Section 8(b) “is not a price control provision,” the court denied defendant’s motion, finding that plaintiffs did not merely plead an overcharge, but “that the defendant split a fee with its agent that was not reasonably related to any services it performs.” According to the court, “if the fees the title agents received were in violation of TDI’s mandated reissue discounts, it is certainly plausible that the fees were not reasonably related to any services performed.” For a copy of the opinion, please see http://www.buckleysandler.com/Hamilton_v_First_American.pdf.
Iowa Court Holds Violation of HUD Regulations Incorporated in Mortgage Can Be Raised Defensively in Foreclosure Proceeding. On April 22, the Court of Appeals of Iowa held that a borrower mortgagor could raise a lender’s failure to comply with regulations of the Department of Housing and Urban Development (HUD) as a defense in a foreclosure proceeding if the mortgage at issue incorporates such regulations. ABN AMRO Mortgage Group, Inc. v. Tullar, No. 06-0824, 2009 WL 1066511 (Iowa Ct. App. Apr. 22, 2009). In this case, a mortgage company initiated foreclosure proceedings against the defendant borrowers. In their answer to the foreclosure petition, the borrowers argued that the mortgage company improperly initiated foreclosure proceedings under circumstances made impermissible by HUD regulations. In arriving at its decision, the court followed the Maryland Court of Appeals in Wells Fargo Home Mortgage, Inc. v. Neal (reported in InfoBytes, Mar. 16, 2007), and looked to a 1989 HUD statement of policy, to find that HUD intended failure to comply with its mandatory loss mitigation or forbearance rules to be raised as a defense in a foreclosure proceeding. However, after analyzing the facts of the instant case, the court determined that the lender “did not breach the provision of the parties’ mortgage requiring it to comply with HUD regulations.” Additionally, the court affirmed the district court’s decision to dismiss each of the defendants’ counterclaims, which included breach of contract and breach of the covenant of good faith and fair dealing, among others. For a copy of the decision, please see http://www.buckleysandler.com/ABN_v_Tullar.pdf.
Maryland Federal Court Rules that a Subscriber’s Certifications Can Satisfy FCRA’s “Reason to Believe” Standard. On April 23, the U.S. District Court for the District of Maryland granted the defendant’s motion for summary judgment, holding that a credit reporting agency (CRA) has "reason to believe" that consumer reports are being accessed for a “permissible purpose” under the Fair Credit Reporting Act (FCRA) when a subscriber makes certain certifications to the CRA. Harris v. Database Management and Marketing, No. 06-2017, 2009 WL 1097960 (D. Md. Apr. 23, 2009). This case arose after plaintiff sued a CRA for violating § 1681b of FCRA, alleging that the CRA sold his information to a subscriber without “reason to believe” that the subscriber was accessing the information for a permissible purpose. Considering cross motions for summary judgment, the court found that a CRA has “reason to believe” that consumer reports are being accessed for a permissible purpose when (i) the subscriber certifies that it would access consumer reports for permissible purposes, (ii) that its primary purpose of its business involved accessing reports for a permissible purpose, and (iii) the agency is unaware of any impermissible use by the subscriber. In this case, the subscriber met such criteria and the plaintiff could not show that the defendant was aware of any impermissible use by the subscriber. For a copy of the opinion, please see http://www.buckleysandler.com/Harris_v_DMMI.pdf.
California Federal Court Denies Equifax Summary Judgment in FCRA Case. On April 17, the U.S. District Court for the Northern District of California denied a motion by Equifax Information Services (Equifax) for summary judgment in a case involving Fair Credit Reporting Act (FCRA) claims. Saindon v. Equifax Information Services, No. C 08-01744, 2009 WL 1035351 (N.D.Cal. Apr. 17, 2009). In Saindon, the parties agreed that the plaintiff was denied credit several times and requested, but never received, a credit report from Equifax each time. Finally, after the third credit denial, the creditor – not Equifax – provided him with a copy of his report. Upon reviewing the report, the plaintiff discovered an erroneous entry, which Equifax initially removed at the plaintiff’s request, but subsequently reinstated. In its request for partial summary judgment, Equifax claimed that (i) the plaintiff’s claims were time-barred, (ii) the plaintiff did not support his claim of willful violation of FCRA (and thus was not entitled to punitive damages), and (iii) the plaintiff’s state law claims were preempted by FCRA. On the issue of the statute of limitations, the court stated that the claim would be time-barred if the plaintiff discovered the violation more than two years before he brought his case. However, the court indicated that a genuine issue of material fact existed as to when the plaintiff actually discovered the violation, and whether, if the plaintiff were shown to have “discovered” the violation earlier, his claim would be saved by “equitable tolling” based on his inability to obtain information from Equifax despite due diligence on his part. With respect to punitive damages, the court found that Equifax failed to show that its procedures were adequate to ensure accuracy of information reported, and thus there were material issues of fact concerning whether Equifax acted recklessly. Regarding preemption of state law claims by FCRA, the court ruled that there existed material issues of fact whether Equifax furnished the plaintiff’s credit report to users with malice, i.e., with reckless disregard of whether the report was true or not. For a copy of the opinion, please see http://www.buckleysandler.com/Saindon_v_Equifax.pdf.
Indiana Federal Court Holds “Willful” Violation of FACTA Allegation Sufficient to Establish Standing. On April 14, the U.S. District Court for the Northern District of Indiana dismissed the defendant’s motion to dismiss holding that an allegation of a “willful” violation of the Fair and Accurate Credit Transaction Act (FACTA) is sufficient to establish standing. Brittingham v. Cerasimo, Inc., No. 2:08-CV-216, 2009 WL 1010427 (N.D. Ind. Apr. 14, 2009). In Brittingham, the plaintiff alleged that the defendant willfully violated the truncation requirement of FACTA by printing more than the last five digits of a credit or debit card number and the expiration date of the card on a receipt. The plaintiff sought statutory damages, punitive damages, and attorneys’ fees and costs. The defendant moved to dismiss, arguing that the plaintiff lacked standing by failing to allege an actual injury. Reasoning from decisions analyzing other sections of the Fair Credit Reporting Act, the court held that an "allegation of a willful violation, rather than a claim of actual injury and damages, is sufficient [to establish standing].” For a copy of the opinion, please see http://www.buckleysandler.com/Brittingham_v_Cerasimo.pdf.
Maryland Federal Court Holds Unauthorized Users of Website Subject to Online Terms of Use Agreement. In a recent decision, the U.S. District Court for the District of Maryland denied a motion to dismiss holding that a forum selection clause in an online clickwrap agreement was enforceable against two individuals who viewed and used the password-protected content without the consent of the plaintiff. CoStar Realty Information, Inc. v. Field, No. AW-08-00663, 2009 WL 841132 (D.Md. Mar. 31, 2009). In this case, the plaintiff operated a commercial real estate website which required a paid subscription in order to access content using an individual password. Upon accessing the database, a user must consent to a “clickwrap” terms of use agreement, which includes the forum selection clause specifying venue in Maryland. The plaintiff brought suit in Maryland alleging that the defendants illegally shared and used passwords without the express written consent of the plaintiff. In response, the defendants filed, among other things, a motion to dismiss for lack of personal jurisdiction over the defendants in Maryland, arguing that none of the defendants had any contact in Maryland beyond use of the website. The plaintiff argued that the repeated use of the website, and periodic affirmative consent to the terms of use, meant that the defendants (i) availed themselves to the benefits of the contract, and (ii) were subject to personal jurisdiction in Maryland. The court agreed with the plaintiff noting ample precedent holding that online user agreements constitute valid contracts. The court also determined that, even if they were not authorized to use the passwords, by using the passwords and affirmatively assenting to the terms, the users availed themselves of the contract terms and were thus subject to the same jurisdictional requirements as the authorized user. For a copy of the opinion, please see http://www.buckleysandler.com/CoStar_v_Field.pdf.
Fourth Circuit Affirms Actual Damages, Vacates Attorneys’ Fees Award in FCRA Case. On March 16, the U.S. Court of Appeals for the Fourth Circuit affirmed the district court’s award for actual damages, but found that the plaintiff failed to meet the burden of proof to award attorneys’ fees, in a case arising under the Fair Credit Reporting Act (FCRA). Robinson v. Equifax Information Services, LLC, 560 F.3d 235 (4th Cir. Mar. 16, 2009). In this case, the plaintiff brought a FCRA action against the defendant credit reporting service for failing to correct errors on the plaintiff’s credit report. In affirming the award for actual damages, the court rejected the defendant’s argument that the plaintiff did not prove causality between the reporting inaccuracy and the alleged harms and that the actual damage award was not “excessive.” Regarding attorneys’ fees, the court of appeals held that providing billing records in addition to “Laffey Matrix” rates is not ‘satisfactory specific evidence of the prevailing market rates,’ and, thus, were insufficient to carry the burden of proof and remanded this issue to the district court to recalculate the fee award. For a copy of the opinion, please see http://isysweb.ca4.uscourts.gov/isysquery/b4d7dce7-444d-4827-b140-7a0945bf7b40/1/doc/072094.P.pdf.
E-Financial Services
Massachusetts Personal Information Security Standards Effective May 1. On May 1, compliance with most security standards adopted by the Massachusetts Office of Consumer Affairs and Business Regulation is required for those who “own, license, store, or maintain” personal information. The deadline was previously extended from January 1, 2009 to May 1, 2009 (reported in InfoBytes, Nov. 21, 2008). The regulations define personal information as a first name or initial and surname in combination with (i) a social security number, (ii) a driver’s license number or other state-issued identification card number, or (iii) a financial account, credit card, or debit card number, irrespective of whether a security code, access code, personal identification number or password accompanies this information. The regulations require a “comprehensive, written information security program” applicable to records, and a separate “comprehensive, written information security program” applicable to computers. January 1, 2010 is the effective date for additional provisions that include (i) the provision for requiring written certification regarding security standards from third-party providers, and (ii) the provision for ensuring encryption of portable devices other than laptops, such as memory sticks. The Massachusetts law joins similar security requirements in Nevada, Connecticut, and California. For a copy of the FAQ, please see http://www.mass.gov/Eoca/docs/idtheft/201CMR17faqs.pdf.
Nevada Regulator Revises Mortgage Banking Regulations to Permit Electronic Reproduction and Storage of Mortgage Records. On April 23, the Nevada Commissioner of Mortgage Lending (Commissioner) published final regulations in the Nevada Register of Administrative Regulations that, among other things, permits the Commissioner, for good cause, to allow a mortgage banker to electronically reproduce and store required records pertaining to completed mortgage transactions. The mortgage banker must retain a hard copy that is accessible by the Commissioner for one year after the closing date of the loan. For a copy of the final regulation, please see http://www.buckleysandler.com/NV_R053-08_2009.pdf.
Maryland Federal Court Holds Unauthorized Users of Website Subject to Online Terms of Use Agreement. In a recent decision, the U.S. District Court for the District of Maryland denied a motion to dismiss holding that a forum selection clause in an online clickwrap agreement was enforceable against two individuals who viewed and used the password-protected content without the consent of the plaintiff. CoStar Realty Information, Inc. v. Field, No. AW-08-00663, 2009 WL 841132 (D.Md. Mar. 31, 2009). In this case, the plaintiff operated a commercial real estate website which required a paid subscription in order to access content using an individual password. Upon accessing the database, a user must consent to a “clickwrap” terms of use agreement, which includes the forum selection clause specifying venue in Maryland. The plaintiff brought suit in Maryland alleging that the defendants illegally shared and used passwords without the express written consent of the plaintiff. In response, the defendants filed, among other things, a motion to dismiss for lack of personal jurisdiction over the defendants in Maryland, arguing that none of the defendants had any contact in Maryland beyond use of the website. The plaintiff argued that the repeated use of the website, and periodic affirmative consent to the terms of use, meant that the defendants (i) availed themselves to the benefits of the contract, and (ii) were subject to personal jurisdiction in Maryland. The court agreed with the plaintiff noting ample precedent holding that online user agreements constitute valid contracts. The court also determined that, even if they were not authorized to use the passwords, by using the passwords and affirmatively assenting to the terms, the users availed themselves of the contract terms and were thus subject to the same jurisdictional requirements as the authorized user. For a copy of the opinion, please see http://www.buckleysandler.com/CoStar_v_Field.pdf.
Privacy/Data Security
FTC Further Delays Enforcement of Red Flags Rule. On April 30, the Federal Trade Commission (FTC) announced that it will delay enforcement of its “Red Flags” rule until August 1, 2009 to give creditors and financial institutions additional time to develop and implement written identity theft prevention programs. The FTC previously delayed the implementation of the rule until May 1, 2009 (reported in InfoBytes, Oct. 24, 2008). The FTC noted that this announcement does not affect its address discrepancy rule, which applies to all users of consumer reports, and its change-of-address rule, which applies to card issuers, which became effective November 1, 2008. The FTC also announced that a template is forthcoming for entities that have a low risk of identity theft, such as businesses that know their customers personally, to assist with compliance with the rule. For a copy of the press release, please see http://www.ftc.gov/opa/2009/04/redflagsrule.shtm.
For a copy of the Enforcement Policy, please see http://www.ftc.gov/os/2009/04/P095406redflagsextendedenforcement.pdf.
FTC Approves Alternate Procedure for FACTA-Required Study. On April 30, the Federal Trade Commission approved an alternative procedure for the production of customer information in connection with a study regarding the effect of credit-based insurance scores on the availability and affordability of homeowners insurance, as required by the Fair and Accurate Credit Transactions Act (FACTA). The alternative procedure allows companies to send the required data and documents with a unique identifying number in lieu of including consumers’ personally identifiable information (e.g., policyholder names, addresses, dates of birth, and Social Security numbers). According to the FTC, the alternative procedure responds to state law concerns requiring insurance companies to be responsible for such personally identifiable information. For a copy of the press release, please see http://www.ftc.gov/opa/2009/04/facta.shtm.
Massachusetts Personal Information Security Standards Effective May 1. On May 1, compliance with most security standards adopted by the Massachusetts Office of Consumer Affairs and Business Regulation is required for those who “own, license, store, or maintain” personal information. The deadline was previously extended from January 1, 2009 to May 1, 2009 (reported in InfoBytes, Nov. 21, 2008). The regulations define personal information as a first name or initial and surname in combination with (i) a social security number, (ii) a driver’s license number or other state-issued identification card number, or (iii) a financial account, credit card, or debit card number, irrespective of whether a security code, access code, personal identification number or password accompanies this information. The regulations require a “comprehensive, written information security program” applicable to records, and a separate “comprehensive, written information security program” applicable to computers. January 1, 2010 is the effective date for additional provisions that include (i) the provision for requiring written certification regarding security standards from third-party providers, and (ii) the provision for ensuring encryption of portable devices other than laptops, such as memory sticks. The Massachusetts law joins similar security requirements in Nevada, Connecticut, and California. For a copy of the FAQ, please see http://www.mass.gov/Eoca/docs/idtheft/201CMR17faqs.pdf.
Indiana Federal Court Holds “Willful” Violation of FACTA Allegation Sufficient to Establish Standing. On April 14, the U.S. District Court for the Northern District of Indiana dismissed the defendant’s motion to dismiss holding that an allegation of a “willful” violation of the Fair and Accurate Credit Transaction Act (FACTA) is sufficient to establish standing. Brittingham v. Cerasimo, Inc., No. 2:08-CV-216, 2009 WL 1010427 (N.D. Ind. Apr. 14, 2009). In Brittingham, the plaintiff alleged that the defendant willfully violated the truncation requirement of FACTA by printing more than the last five digits of a credit or debit card number and the expiration date of the card on a receipt. The plaintiff sought statutory damages, punitive damages, and attorneys’ fees and costs. The defendant moved to dismiss, arguing that the plaintiff lacked standing by failing to allege an actual injury. Reasoning from decisions analyzing other sections of the Fair Credit Reporting Act, the court held that an "allegation of a willful violation, rather than a claim of actual injury and damages, is sufficient [to establish standing].” For a copy of the opinion, please see http://www.buckleysandler.com/Brittingham_v_Cerasimo.pdf.
Credit Cards
Indiana Federal Court Holds “Willful” Violation of FACTA Allegation Sufficient to Establish Standing. On April 14, the U.S. District Court for the Northern District of Indiana dismissed the defendant’s motion to dismiss holding that an allegation of a “willful” violation of the Fair and Accurate Credit Transaction Act (FACTA) is sufficient to establish standing. Brittingham v. Cerasimo, Inc., No. 2:08-CV-216, 2009 WL 1010427 (N.D. Ind. Apr. 14, 2009). In Brittingham, the plaintiff alleged that the defendant willfully violated the truncation requirement of FACTA by printing more than the last five digits of a credit or debit card number and the expiration date of the card on a receipt. The plaintiff sought statutory damages, punitive damages, and attorneys’ fees and costs. The defendant moved to dismiss, arguing that the plaintiff lacked standing by failing to allege an actual injury. Reasoning from decisions analyzing other sections of the Fair Credit Reporting Act, the court held that an "allegation of a willful violation, rather than a claim of actual injury and damages, is sufficient [to establish standing].” For a copy of the opinion, please see http://www.buckleysandler.com/Brittingham_v_Cerasimo.pdf.