InfoBytes, May 8, 2009
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Banking
- Consumer Finance
- Litigation
- E-Financial Services
- Privacy/Data Security
Federal Issues
House Passes Anti-Predatory Lending Bill. On May 7, the U.S. House of Representatives passed, by a 300-114 vote, HR 1728, the “Mortgage Reform and Anti-Predatory Lending Act.” The bill would amend the Truth in Lending Act by, among other things, (i) requiring that originators 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 that the loan meets the requirements of the foregoing “duty of care” standards, subject to a “presumption” of compliance for certain low-risk “qualified mortgages,” and (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. For an in-depth overview of the bill, please see InfoBytes, May 1, 2009.
Fed Finalizes Rules for Mortgage-Loan Disclosures Under Regulation Z. On May 8, the Federal Reserve Board (Fed) announced finalized rules that modify the disclosure requirements for mortgage loans under Regulation Z (Truth in Lending). These revised provisions implement the Mortgage Disclosure Improvement Act (MDIA), which was enacted as part of the Housing and Economic Recovery Act of 2008 (reported in InfoBytes, Aug. 1, 2008). The MDIA broadens and expands on the amendments to Regulation Z adopted by the Fed last summer (reported in InfoBytes Special Alert, July 14, 2008). Under the MDIA and the regulations just adopted by the Fed, creditors must give “early disclosures,” including a good faith estimate of costs, within three business days after receipt of an application and before any fees (except credit report fees) are collected. The MDIA broadened this early disclosure requirement beyond the Fed’s pending rule to include loans secured by dwellings other than the borrower’s principal residence. The rules also implement the MDIA requirements that creditors must provide early disclosures at least seven business days before consummation of the loan, and that creditors must provide revised disclosures and wait an additional three business days to close the loan if the APR initially disclosed changes beyond a specified tolerance. The rules allow a consumer to waive this waiting period in the case of a bona fide emergency. The new disclosure requirements become effective July 30, 2009. The other amendments to Regulation Z adopted by the Board last summer become effective October 1, 2009. The final rules will be published in the Federal Register shortly. For a copy of the Federal Reserve Board’s press release, please see http://www.federalreserve.gov/newsevents/press/bcreg/20090508a.htm, and for a copy of the full Federal Register text, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090508a1.pdf.
Fed Releases Bank Stress Test Results. On May 7, the Federal Reserve Board (Fed) released the results of the Supervisory Capital Assessment Program, which assessed 19 of the largest U.S. bank holding companies to determine how much of an additional capital buffer, if any, each institution required to ensure that it maintains sufficient capital if the economy “weakens more than expected.” Institutions that must augment their capital will have a month to design a detailed plan, subject to supervisory approval, which must then be implemented by early November 2009. For a copy of the overview of the results, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090507a1.pdf.
FDIC Creates New Unit, Issues Guide to Help Consumers with Loans at Failed Institutions. On May 5, the Federal Deposit Insurance Corporation (FDIC) announced the creation of a new unit within the Office of the Ombudsman dedicated to assisting customers with issues arising from loans provided by a failed bank. Though the existing Division of Resolutions and Receiverships will retain primary responsibility for transitioning consumers to new banking institutions, the new unit will provide an additional venue where consumers can pose questions and address concerns about the bank failure. The FDIC also announced a new guide for borrowers entitled "A Borrower’s Guide to an FDIC Insured Bank Failure." The guide addresses a range of issues from general explanations about the FDIC’s process of dealing with bank failure to specific guidance on how consumers can seek loan modifications, additional funding, or additional borrower assistance. For a copy of the press release, please see http://www.fdic.gov/news/news/press/2009/pr09065.html.
FTC Testifies on Improving Data Security, Settles Claims Against Mortgage Lender for Alleged Privacy Violations. On May 5, the Acting Director of the Bureau of Consumer Protection, Eileen Harrington, testified before the House Energy and Commerce Committee on the Federal Trade Commission’s (FTC) efforts to promote data security. Specifically, her testimony focused on actions that the FTC has taken to protect consumer information on peer-to peer (P2P) networks. These actions include (i) litigating P2P file sharing violations, (ii) working with P2P software developers to set industry best practices for file sharing, and (iii) reaching out to consumers through workshops, reports, and alerts. Additionally, the Acting Director’s testimony announced the FTC’s support of two bills, the Informed P2P User Act (HR 1319) and the Data Accountability and Trust Act (HR 2221). The Informed P2P User Act would require P2P software companies to disclose to consumers the types of files they share and to obtain a consumer’s consent before sharing such files. The Data Accountability and Trust Act would require companies to implement reasonable data security policies and procedures and to notify consumers whenever their data security is compromised, and would grant the FTC authority to seek civil penalties for violations of its provisions. Acting Director Harrington’s testimony also discussed a recent settlement reached with James B. Nutter & Company, a residential mortgage lender and servicer, which allegedly violated the FTC’s Safeguards Rule and Privacy Rule by failing to maintain sensitive consumer information properly and by failing to provide accurate privacy notices. As part of the settlement, the company agreed to implement a “comprehensive” data security program that is independently audited biannually for the next 10 years. For a copy of the press release, please see http://www.ftc.gov/opa/2009/05/peer2peer.shtm.
FTC Testimony Centers on Efforts to Combat Mortgage Modification and Foreclosure Rescue Scams. On May 6, Associate Director of the FTC’s Division of Financial Practices, Peggy Twohig, testified before the U.S. House Subcommittee on Housing and Community Opportunity of the Committee on Financial Services regarding the FTC’s efforts to confront mortgage modification and foreclosure rescue scams. According to the testimony, the FTC has pursued eleven cases involving such scams in a little over one year. In many of these cases, the defendants engaged in deceptive techniques to market their mortgage relief services, such as misrepresenting that they were affiliated with a government entity. Additionally, the testimony noted that the FTC has been working with government, non-profit, and mortgage industry partners to educate consumers about how to avoid becoming a victim of mortgage relief scams. Finally, the FTC recommended that Congress bolster the FTC’s consumer protection efforts by, among other things, authorizing the FTC to obtain civil damages for financial services-related unfair and deceptive acts and practices. For a copy of the press release, please see http://www.ftc.gov/opa/2009/05/4closurescam.shtm.
FTC Settles TILA, HOEPA Charges Against Foreclosure Rescue Providers. On May 4, the Federal Trade Commission (FTC) settled charges against two individuals who allegedly violated the Home Ownership and Equity Protection Act (HOEPA), the Truth in Lending Act (TILA), and the FTC Act when offering high-cost, short-term loans secured by an additional mortgage on the homes of borrowers. The individuals allegedly violated HOEPA by (i) extending credit without regard to the repayment ability of the borrower, (ii) requiring balloon payments after six months, (iii) providing negatively amortized loans that caused consumers to owe more at the end of the loan than at the beginning, and (iv) failing to make required disclosures. The individuals allegedly violated TILA by failing to make required, timely written disclosures and violated TILA and the FTC Act by understating the loans’ annual percent rate (APR) and finance charges. Among other things, the settlements (i) impose monetary judgments of nearly $3 million each (ii) bar the individuals from trying to collect payments for any credit-related product sold by them (or any of the additional defendants to the charges), and from disclosing or benefitting from consumers’ personal information obtained by any of the defendants, (iii) require the prompt investigation of consumer complaints, the monitoring of sales personnel, and taking corrective action when sales personnel engage in conduct prohibited by the orders regarding any business owned or managed by the individuals, and (iv) allow the FTC to monitor the individuals’ business practices. For a copy of the press release, please see http://www.ftc.gov/opa/2009/05/rescue.shtm.
FTC Obtains Preliminary Injunction Against Mortgage Loan Modification, Foreclosure Rescue Service Companies. On April 24, the U.S. District Court for the Northern District of Illinois issued a preliminary injunction on behalf of the FTC against several mortgage loan modification and foreclosure rescue service companies. According to the FTC’s allegations, the Federal Loan Modification Law Center, LLP, Anz & Associates, PLC, Legal Turn, Inc., and Federal Loan Modification, LLC falsely represented that they would obtain a mortgage loan modification or stop foreclosure in most cases and that they were “part of, affiliated with, or endorsed by” the U.S. government or a government program. For a copy of the press release, please see http://www.ftc.gov/opa/2009/05/ladentistry.shtm.
FinCEN Issues Guidance on Currency Transaction Reporting Exemptions. On April 27, the Finance Crimes Enforcement Network (FinCEN) provided guidance on when banks may exempt customers from currency transaction reporting requirements that are triggered whenever a customer makes a transaction in currency of more than $10,000 that is routed by, through, or to that bank. According to the guidance, a bank may exempt certain customers from this requirement if, among other things, no more than 50% of the customer’s annual gross revenues come from an ineligible business activity where a customer engages in multiple business activities. When making this determination, FinCEN’s guidance states that banks should apply their due diligence policies, procedures, and processes. However, additional procedures may be required, including (i) requiring the customer to complete a self-certification statement/letter signed by the customer containing credible information regarding its annual gross revenues, (ii) reviewing a customer’s audited financial statements, and/or (iii) reviewing filed tax returns, unaudited financial statements, or documents relating to a bank’s lending relationship with the customer. Once a bank determines that a customer qualifies for an exemption, information used to establish that exemption must be reviewed and verified by the bank at least once a year. For a copy of the guidance, please see http://www.fincen.gov/statutes_regs/guidance/pdf/fin-2009-g001.pdf.
Fed Expands Eligible Collateral Under TALF. On May 1, the Federal Reserve Board (Fed) announced that commercial mortgage-backed securities and securities backed by insurance premium finance loans will be eligible collateral under the Term Asset-Backed Securities Loan Facility (TALF), effective June 2009. The Fed also authorized TALF loans with maturities of five years (all TALF loans currently have maturities of three years). For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/monetary/20090501a.htm.
State Issues
Indiana Governor Signs Law Relating to Residential Mortgage Lending Practices. On April 30, Indiana Governor Mitch Daniels signed HB 1176, a bill that, among other things, (i) disallows a creditor from contracting for or charging a borrower a prepayment fee or penalty for an adjustable interest rate residential mortgage loan closing after June 30, 2009, (ii) restricts and sets forth penalties regarding “corrupting” or “improperly influencing” real estate appraisers, (iii) requires a new notice to be provided to a prospective borrower no later than three business days after the creditor’s receipt of the borrower’s mortgage loan application, (iv) imposes record requirements for foreclosure consultants, and (v) outlines violations in connection with credit service organizations and mortgage rescue protection fraud. The bill becomes effective July 1, 2009. For a copy of the bill, please see http://www.in.gov/legislative/bills/2009/HE/HE1176.1.html.
Georgia, New Jersey Implement SAFE Act. On May 4, New Jersey Governor Jon Corzine signed AB 3816, the “New Jersey Residential Mortgage Lending Act,” and, on April 29, Georgia Governor Sonny Perdue signed HB 312. The bills reflect compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) by providing for the licensing of all mortgage loan originators under the Nationwide Mortgage Licensing System. In addition to technical amendments, the bills prescribe loan originator requirements regarding, among other things, licensing, prior and continuing education, testing, minimum net worth, and surety bonds. Georgia HB 312 becomes effective July 1, 2009; most provisions of New Jersey AB 3816 become effective immediately, with remaining sections taking effect July 31, 2010. For a copy of Georgia HB 312, please see http://www.legis.ga.gov/legis/2009_10/pdf/hb312.pdf; for a copy of the public law for New Jersey AB 3816, please see http://www.njleg.state.nj.us/2008/Bills/AL09/53_.PDF.
Courts
Ninth Circuit Holds Collection of Non-Judgment Debt Not Initiated by Consumer Not a Permissible Purpose Under FCRA. On April 30, the U.S. Court of Appeals for the Ninth Circuit held that a transaction in which the consumer does not seek credit and that does not involve a judgment debt does not constitute a permissible purpose to access a consumer credit report under the Fair Credit Reporting Act (FCRA). Pintos v. Pacific Creditors Ass’n, Nos. 04-17485, 04-17558, 2009 WL 1151800 (9th Cir. Apr. 30, 2009). In Pintos, the defendant debt collector purchased plaintiff’s consumer credit report from a credit reporting agency (CRA) claiming the right to view the report under FCRA, as it was “in connection with a credit transaction,” although the debt was incurred in connection with an unpaid towing fee. Withdrawing and superseding its 2007 opinion (reported in InfoBytes, Sept. 28, 2007), Pintos v. Pacific Creditors Ass’n, 504 F.3d 792 (9th Cir. 2007) (holding that “credit” for purposes of FCRA could only be sought voluntarily “by a creditor” and that an involuntary debt, as incurred by the plaintiff, could not be a “credit transaction”), the Ninth Circuit held that, “[b]ecause the current case involves neither a transaction for which [the plaintiff] sought credit nor the collection of a judgment debt,” the collection agency did not have a permissible purpose under FCRA to obtain the credit report. Further, addressing the CRA’s argument that it had a “blanket certification” from the debt collector only to seek reports for “permissible purposes,” and thus should be free from liability, the Ninth Circuit held that the CRA had an “independent obligation to verify the certification and determine that no reasonable grounds exist for suspecting impermissible use.” The court of appeals remanded the case to the district court for further proceedings regarding the defendants’ liability. For a copy of this opinion, please see http://www.ca9.uscourts.gov/datastore/opinions/2009/04/30/0417485.pdf.
Sixth Circuit Holds That TCPA Damages are Available on a Per-Call Basis Only. On April 9, the U.S. Court of Appeals for the Sixth Circuit held that a consumer may recover for violations of the Telephone Consumer Protection Act (TCPA) that occur during the first telephone call from a defendant, and that statutory damages under the TCPA are available on a per-call basis only, and not a per-violation basis. Charvat v. GVN Michigan, Inc., No. 08-3282 (6th Cir. Apr. 9, 2009). In Charvat, plaintiff alleged that defendant committed 186 violations of the TCPA, the Ohio Consumer Sales Practices Act, and various other Ohio statutes and regulations. The violations were based on ten phone calls to the plaintiff that the plaintiff alleged contained numerous violations of these statutes and regulations. In ruling on the defendant’s motion for partial summary judgment, the district court found that the TCPA limits damages to one award per call after the first call. The Sixth Circuit, however, held that the requirement of being a “person who has received more than one telephone call” under the TCPA is merely a threshold requirement that permits recovery for subsequent calls. The Sixth Circuit also held, affirming the decision of the district court, that the TCPA unambiguously allows for statutory damages on only a per-call basis, reasoning that the phrase “each such violation” refers to each “telephone call…in violation of the regulations.” As a result, the plaintiff did not meet the amount-in controversy requirement for diversity jurisdiction, and the court affirmed the dismissal of the claim for lack of subject-matter jurisdiction. For a copy of this opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/09a0142p-06.pdf.
California Federal Court Holds “Artful Pleading” of Preempted State Law Claims Does Not Defeat Removal. On April 6, the U.S. District Court for the Central District of California held in two cases that a plaintiff may not defeat removal of a federal claim by “artfully pleading” it as a state claim. Salgado v. Downey Savings & Loan Assoc., No. CV 09-1771, 2009 WL 960777 (C.D. Cal. Apr. 6, 2009); Sartain v. Aurora Loan Servs., LLC, No. CV 09-1789, 2009 WL 950946 (C.D. Cal. Apr. 6, 2009). In both Salgado and Sartain, the plaintiffs alleged that they were entitled to rescission of their home refinancing loans from the defendants because the defendants, among other things, failed to disclose the effects of the yield spread premium on the note rate, monthly payments, and finance charges. The defendant in each case removed the action to federal court, arguing that, although the plaintiffs’ claims were purportedly brought under California state law, the plaintiffs were actually pleading a violation of the Truth in Lending Act (TILA). Upholding the removal, the court applied the “artful pleading” rule – which prohibits a plaintiff from defeating removal of a federal claim by “artfully pleading” it as a state claim – because the state law claims, which were premised upon violations of TILA, were preempted by federal law. For a copy of the Salgado opinion, please see http://www.buckleysandler.com/Salgado_v_Downey.pdf; for a copy of the Sartain opinion, please see http://www.buckleysandler.com/Sartain_v_Aurora.pdf.
New Jersey Court Refuses to Take Judicial Notice of Wikipedia Entry. On April 17, the New Jersey Superior Court, Appellate Division, held that judicial notice cannot be taken for a Wikipedia online encyclopedia entry because the information could be “reasonably questioned” and because the entry at issue settled a question of “material” fact regarding the plaintiff’s standing. Palisades Collection, L.L.C. v. Graubard, No. A-1338-07T3 (Sup. Ct. N.J. App. Div. Apr. 17, 2009). In this case, the defendant disputed whether the plaintiff debt collection agency had standing to sue him for a more than $30,000 credit card delinquency. At trial, the plaintiff submitted a Wikipedia entry to evidence that the original owner of the defendant’s account was subsequently acquired by another entity; this entity then sold the debt to the plaintiff. The Appellate Division found that the lower court could not take judicial notice of the Wikipedia entry in this case because the information (i) established a “material” fact not appropriate for judicial notice, and (ii) “impermissibly settled” the question of the plaintiff’s standing. The court further noted that, because anyone can alter a Wikipedia entry, “[s]uch a malleable source of information is inherently unreliable, and clearly not one ‘whose accuracy cannot be reasonably questioned.’” For a copy of the opinion, please see http://lawlibrary.rutgers.edu/decisions/appellate/a1338-07.opn.html.
Firm News
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.
Andy Sandler spoke at the MBA’s Legal Issues Conference Roundtable on Class Action and Enforcement Issues in Chicago on May 4. He also spoke at ZC Sterling’s Executive Round Table Conference in Asheville, NC on Legal and Regulatory issues on May 6.
Andrea Mitchell spoke at the 23rd Annual Payment Card Institute in Arlington as part of a workshop on Regulatory Enforcement and Litigation on May 4.
Joe Kolar spoke at the MBA’s Legal Issues and Regulatory Compliance Conference in Chicago on May 4, addressing recent regulatory and legislative developments.
Jeff Naimon spoke at the MBA’s Legal Issues and Regulatory Compliance Conference in Chicago on May 4-6; his session was entitled “Bankruptcy and Cram Down Legislation.”
Margo Tank spoke at the MBA’s Legal Issues and Regulatory Compliance Conference in Chicago May 3-6. Her session was entitled “Update on Legal Issues in Mortgage Technology.”
Clint Rockwell spoke at the NACA Examiner’s School on RESPA and federal legislative developments in San Antonio, TX on May 7.
Mortgages
House Passes Anti-Predatory Lending Bill. On May 7, the U.S. House of Representatives passed, by a 300-114 vote, HR 1728, the “Mortgage Reform and Anti-Predatory Lending Act.” The bill would amend the Truth in Lending Act by, among other things, (i) requiring that originators 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 that the loan meets the requirements of the foregoing “duty of care” standards, subject to a “presumption” of compliance for certain low-risk “qualified mortgages,” and (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. For an in-depth overview of the bill, please see InfoBytes, May 1, 2009.
Fed Finalizes Rules for Mortgage-Loan Disclosures Under Regulation Z. On May 8, the Federal Reserve Board (Fed) announced finalized rules that modify the disclosure requirements for mortgage loans under Regulation Z (Truth in Lending). These revised provisions implement the Mortgage Disclosure Improvement Act (MDIA), which was enacted as part of the Housing and Economic Recovery Act of 2008 (reported in InfoBytes, Aug. 1, 2008). The MDIA broadens and expands on the amendments to Regulation Z adopted by the Fed last summer (reported in InfoBytes Special Alert, July 14, 2008). Under the MDIA and the regulations just adopted by the Fed, creditors must give “early disclosures,” including a good faith estimate of costs, within three business days after receipt of an application and before any fees (except credit report fees) are collected. The MDIA broadened this early disclosure requirement beyond the Fed’s pending rule to include loans secured by dwellings other than the borrower’s principal residence. The rules also implement the MDIA requirements that creditors must provide early disclosures at least seven business days before consummation of the loan, and that creditors must provide revised disclosures and wait an additional three business days to close the loan if the APR initially disclosed changes beyond a specified tolerance. The rules allow a consumer to waive this waiting period in the case of a bona fide emergency. The new disclosure requirements become effective July 30, 2009. The other amendments to Regulation Z adopted by the Board last summer become effective October 1, 2009. The final rules will be published in the Federal Register shortly. For a copy of the Federal Reserve Board’s press release, please see http://www.federalreserve.gov/newsevents/press/bcreg/20090508a.htm, and for a copy of the full Federal Register text, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090508a1.pdf.
FTC Testifies on Improving Data Security, Settles Claims Against Mortgage Lender for Alleged Privacy Violations. On May 5, the Acting Director of the Bureau of Consumer Protection, Eileen Harrington, testified before the House Energy and Commerce Committee on the Federal Trade Commission’s (FTC) efforts to promote data security. Specifically, her testimony focused on actions that the FTC has taken to protect consumer information on peer-to peer (P2P) networks. These actions include (i) litigating P2P file sharing violations, (ii) working with P2P software developers to set industry best practices for file sharing, and (iii) reaching out to consumers through workshops, reports, and alerts. Additionally, the Acting Director’s testimony announced the FTC’s support of two bills, the Informed P2P User Act (HR 1319) and the Data Accountability and Trust Act (HR 2221). The Informed P2P User Act would require P2P software companies to disclose to consumers the types of files they share and to obtain a consumer’s consent before sharing such files. The Data Accountability and Trust Act would require companies to implement reasonable data security policies and procedures and to notify consumers whenever their data security is compromised, and would grant the FTC authority to seek civil penalties for violations of its provisions. Acting Director Harrington’s testimony also discussed a recent settlement reached with James B. Nutter & Company, a residential mortgage lender and servicer, which allegedly violated the FTC’s Safeguards Rule and Privacy Rule by failing to maintain sensitive consumer information properly and by failing to provide accurate privacy notices. As part of the settlement, the company agreed to implement a “comprehensive” data security program that is independently audited biannually for the next 10 years. For a copy of the press release, please see http://www.ftc.gov/opa/2009/05/peer2peer.shtm.
FTC Testimony Centers on Efforts to Combat Mortgage Modification and Foreclosure Rescue Scams. On May 6, Associate Director of the FTC’s Division of Financial Practices, Peggy Twohig, testified before the U.S. House Subcommittee on Housing and Community Opportunity of the Committee on Financial Services regarding the FTC’s efforts to confront mortgage modification and foreclosure rescue scams. According to the testimony, the FTC has pursued eleven cases involving such scams in a little over one year. In many of these cases, the defendants engaged in deceptive techniques to market their mortgage relief services, such as misrepresenting that they were affiliated with a government entity. Additionally, the testimony noted that the FTC has been working with government, non-profit, and mortgage industry partners to educate consumers about how to avoid becoming a victim of mortgage relief scams. Finally, the FTC recommended that Congress bolster the FTC’s consumer protection efforts by, among other things, authorizing the FTC to obtain civil damages for financial services-related unfair and deceptive acts and practices. For a copy of the press release, please see http://www.ftc.gov/opa/2009/05/4closurescam.shtm.
FTC Settles TILA, HOEPA Charges Against Foreclosure Rescue Providers. On May 4, the Federal Trade Commission (FTC) settled charges against two individuals who allegedly violated the Home Ownership and Equity Protection Act (HOEPA), the Truth in Lending Act (TILA), and the FTC Act when offering high-cost, short-term loans secured by an additional mortgage on the homes of borrowers. The individuals allegedly violated HOEPA by (i) extending credit without regard to the repayment ability of the borrower, (ii) requiring balloon payments after six months, (iii) providing negatively amortized loans that caused consumers to owe more at the end of the loan than at the beginning, and (iv) failing to make required disclosures. The individuals allegedly violated TILA by failing to make required, timely written disclosures and violated TILA and the FTC Act by understating the loans’ annual percent rate (APR) and finance charges. Among other things, the settlements (i) impose monetary judgments of nearly $3 million each (ii) bar the individuals from trying to collect payments for any credit-related product sold by them (or any of the additional defendants to the charges), and from disclosing or benefitting from consumers’ personal information obtained by any of the defendants, (iii) require the prompt investigation of consumer complaints, the monitoring of sales personnel, and taking corrective action when sales personnel engage in conduct prohibited by the orders regarding any business owned or managed by the individuals, and (iv) allow the FTC to monitor the individuals’ business practices. For a copy of the press release, please see http://www.ftc.gov/opa/2009/05/rescue.shtm.
FTC Obtains Preliminary Injunction Against Mortgage Loan Modification, Foreclosure Rescue Service Companies. On April 24, the U.S. District Court for the Northern District of Illinois issued a preliminary injunction on behalf of the FTC against several mortgage loan modification and foreclosure rescue service companies. According to the FTC’s allegations, the Federal Loan Modification Law Center, LLP, Anz & Associates, PLC, Legal Turn, Inc., and Federal Loan Modification, LLC falsely represented that they would obtain a mortgage loan modification or stop foreclosure in most cases and that they were “part of, affiliated with, or endorsed by” the U.S. government or a government program. For a copy of the press release, please see http://www.ftc.gov/opa/2009/05/ladentistry.shtm.
Indiana Governor Signs Law Relating to Residential Mortgage Lending Practices. On April 30, Indiana Governor Mitch Daniels signed HB 1176, a bill that, among other things, (i) disallows a creditor from contracting for or charging a borrower a prepayment fee or penalty for an adjustable interest rate residential mortgage loan closing after June 30, 2009, (ii) restricts and sets forth penalties regarding “corrupting” or “improperly influencing” real estate appraisers, (iii) requires a new notice to be provided to a prospective borrower no later than three business days after the creditor’s receipt of the borrower’s mortgage loan application, (iv) imposes record requirements for foreclosure consultants, and (v) outlines violations in connection with credit service organizations and mortgage rescue protection fraud. The bill becomes effective July 1, 2009. For a copy of the bill, please see http://www.in.gov/legislative/bills/2009/HE/HE1176.1.html.
Georgia, New Jersey Implement SAFE Act. On May 4, New Jersey Governor Jon Corzine signed AB 3816, the “New Jersey Residential Mortgage Lending Act,” and, on April 29, Georgia Governor Sonny Perdue signed HB 312. The bills reflect compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) by providing for the licensing of all mortgage loan originators under the Nationwide Mortgage Licensing System. In addition to technical amendments, the bills prescribe loan originator requirements regarding, among other things, licensing, prior and continuing education, testing, minimum net worth, and surety bonds. Georgia HB 312 becomes effective July 1, 2009; most provisions of New Jersey AB 3816 become effective immediately, with remaining sections taking effect July 31, 2010. For a copy of Georgia HB 312, please see http://www.legis.ga.gov/legis/2009_10/pdf/hb312.pdf; for a copy of the public law for New Jersey AB 3816, please see http://www.njleg.state.nj.us/2008/Bills/AL09/53_.PDF.
California Federal Court Holds “Artful Pleading” of Preempted State Law Claims Does Not Defeat Removal. On April 6, the U.S. District Court for the Central District of California held in two cases that a plaintiff may not defeat removal of a federal claim by “artfully pleading” it as a state claim. Salgado v. Downey Savings & Loan Assoc., No. CV 09-1771, 2009 WL 960777 (C.D. Cal. Apr. 6, 2009); Sartain v. Aurora Loan Servs., LLC, No. CV 09-1789, 2009 WL 950946 (C.D. Cal. Apr. 6, 2009). In both Salgado and Sartain, the plaintiffs alleged that they were entitled to rescission of their home refinancing loans from the defendants because the defendants, among other things, failed to disclose the effects of the yield spread premium on the note rate, monthly payments, and finance charges. The defendant in each case removed the action to federal court, arguing that, although the plaintiffs’ claims were purportedly brought under California state law, the plaintiffs were actually pleading a violation of the Truth in Lending Act (TILA). Upholding the removal, the court applied the “artful pleading” rule – which prohibits a plaintiff from defeating removal of a federal claim by “artfully pleading” it as a state claim – because the state law claims, which were premised upon violations of TILA, were preempted by federal law. For a copy of the Salgado opinion, please see http://www.buckleysandler.com/Salgado_v_Downey.pdf; for a copy of the Sartain opinion, please see http://www.buckleysandler.com/Sartain_v_Aurora.pdf.
Banking
Fed Releases Bank Stress Test Results. On May 7, the Federal Reserve Board (Fed) released the results of the Supervisory Capital Assessment Program, which assessed 19 of the largest U.S. bank holding companies to determine how much of an additional capital buffer, if any, each institution required to ensure that it maintains sufficient capital if the economy “weakens more than expected.” Institutions that must augment their capital will have a month to design a detailed plan, subject to supervisory approval, which must then be implemented by early November 2009. For a copy of the overview of the results, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090507a1.pdf.
FDIC Creates New Unit, Issues Guide to Help Consumers with Loans at Failed Institutions. On May 5, the Federal Deposit Insurance Corporation (FDIC) announced the creation of a new unit within the Office of the Ombudsman dedicated to assisting customers with issues arising from loans provided by a failed bank. Though the existing Division of Resolutions and Receiverships will retain primary responsibility for transitioning consumers to new banking institutions, the new unit will provide an additional venue where consumers can pose questions and address concerns about the bank failure. The FDIC also announced a new guide for borrowers entitled "A Borrower’s Guide to an FDIC Insured Bank Failure." The guide addresses a range of issues from general explanations about the FDIC’s process of dealing with bank failure to specific guidance on how consumers can seek loan modifications, additional funding, or additional borrower assistance. For a copy of the press release, please see http://www.fdic.gov/news/news/press/2009/pr09065.html.
FinCEN Issues Guidance on Currency Transaction Reporting Exemptions. On April 27, the Finance Crimes Enforcement Network (FinCEN) provided guidance on when banks may exempt customers from currency transaction reporting requirements that are triggered whenever a customer makes a transaction in currency of more than $10,000 that is routed by, through, or to that bank. According to the guidance, a bank may exempt certain customers from this requirement if, among other things, no more than 50% of the customer’s annual gross revenues come from an ineligible business activity where a customer engages in multiple business activities. When making this determination, FinCEN’s guidance states that banks should apply their due diligence policies, procedures, and processes. However, additional procedures may be required, including (i) requiring the customer to complete a self-certification statement/letter signed by the customer containing credible information regarding its annual gross revenues, (ii) reviewing a customer’s audited financial statements, and/or (iii) reviewing filed tax returns, unaudited financial statements, or documents relating to a bank’s lending relationship with the customer. Once a bank determines that a customer qualifies for an exemption, information used to establish that exemption must be reviewed and verified by the bank at least once a year. For a copy of the guidance, please see http://www.fincen.gov/statutes_regs/guidance/pdf/fin-2009-g001.pdf.
Consumer Finance
FTC Testifies on Improving Data Security, Settles Claims Against Mortgage Lender for Alleged Privacy Violations. On May 5, the Acting Director of the Bureau of Consumer Protection, Eileen Harrington, testified before the House Energy and Commerce Committee on the Federal Trade Commission’s (FTC) efforts to promote data security. Specifically, her testimony focused on actions that the FTC has taken to protect consumer information on peer-to peer (P2P) networks. These actions include (i) litigating P2P file sharing violations, (ii) working with P2P software developers to set industry best practices for file sharing, and (iii) reaching out to consumers through workshops, reports, and alerts. Additionally, the Acting Director’s testimony announced the FTC’s support of two bills, the Informed P2P User Act (HR 1319) and the Data Accountability and Trust Act (HR 2221). The Informed P2P User Act would require P2P software companies to disclose to consumers the types of files they share and to obtain a consumer’s consent before sharing such files. The Data Accountability and Trust Act would require companies to implement reasonable data security policies and procedures and to notify consumers whenever their data security is compromised, and would grant the FTC authority to seek civil penalties for violations of its provisions. Acting Director Harrington’s testimony also discussed a recent settlement reached with James B. Nutter & Company, a residential mortgage lender and servicer, which allegedly violated the FTC’s Safeguards Rule and Privacy Rule by failing to maintain sensitive consumer information properly and by failing to provide accurate privacy notices. As part of the settlement, the company agreed to implement a “comprehensive” data security program that is independently audited biannually for the next 10 years. For a copy of the press release, please see http://www.ftc.gov/opa/2009/05/peer2peer.shtm.
FTC Testimony Centers on Efforts to Combat Mortgage Modification and Foreclosure Rescue Scams. On May 6, Associate Director of the FTC’s Division of Financial Practices, Peggy Twohig, testified before the U.S. House Subcommittee on Housing and Community Opportunity of the Committee on Financial Services regarding the FTC’s efforts to confront mortgage modification and foreclosure rescue scams. According to the testimony, the FTC has pursued eleven cases involving such scams in a little over one year. In many of these cases, the defendants engaged in deceptive techniques to market their mortgage relief services, such as misrepresenting that they were affiliated with a government entity. Additionally, the testimony noted that the FTC has been working with government, non-profit, and mortgage industry partners to educate consumers about how to avoid becoming a victim of mortgage relief scams. Finally, the FTC recommended that Congress bolster the FTC’s consumer protection efforts by, among other things, authorizing the FTC to obtain civil damages for financial services-related unfair and deceptive acts and practices. For a copy of the press release, please see http://www.ftc.gov/opa/2009/05/4closurescam.shtm.
FTC Settles TILA, HOEPA Charges Against Foreclosure Rescue Providers. On May 4, the Federal Trade Commission (FTC) settled charges against two individuals who allegedly violated the Home Ownership and Equity Protection Act (HOEPA), the Truth in Lending Act (TILA), and the FTC Act when offering high-cost, short-term loans secured by an additional mortgage on the homes of borrowers. The individuals allegedly violated HOEPA by (i) extending credit without regard to the repayment ability of the borrower, (ii) requiring balloon payments after six months, (iii) providing negatively amortized loans that caused consumers to owe more at the end of the loan than at the beginning, and (iv) failing to make required disclosures. The individuals allegedly violated TILA by failing to make required, timely written disclosures and violated TILA and the FTC Act by understating the loans’ annual percent rate (APR) and finance charges. Among other things, the settlements (i) impose monetary judgments of nearly $3 million each (ii) bar the individuals from trying to collect payments for any credit-related product sold by them (or any of the additional defendants to the charges), and from disclosing or benefitting from consumers’ personal information obtained by any of the defendants, (iii) require the prompt investigation of consumer complaints, the monitoring of sales personnel, and taking corrective action when sales personnel engage in conduct prohibited by the orders regarding any business owned or managed by the individuals, and (iv) allow the FTC to monitor the individuals’ business practices. For a copy of the press release, please see http://www.ftc.gov/opa/2009/05/rescue.shtm.
FTC Obtains Preliminary Injunction Against Mortgage Loan Modification, Foreclosure Rescue Service Companies. On April 24, the U.S. District Court for the Northern District of Illinois issued a preliminary injunction on behalf of the FTC against several mortgage loan modification and foreclosure rescue service companies. According to the FTC’s allegations, the Federal Loan Modification Law Center, LLP, Anz & Associates, PLC, Legal Turn, Inc., and Federal Loan Modification, LLC falsely represented that they would obtain a mortgage loan modification or stop foreclosure in most cases and that they were “part of, affiliated with, or endorsed by” the U.S. government or a government program. For a copy of the press release, please see http://www.ftc.gov/opa/2009/05/ladentistry.shtm.
Ninth Circuit Holds Collection of Non-Judgment Debt Not Initiated by Consumer Not a Permissible Purpose Under FCRA. On April 30, the U.S. Court of Appeals for the Ninth Circuit held that a transaction in which the consumer does not seek credit and that does not involve a judgment debt does not constitute a permissible purpose to access a consumer credit report under the Fair Credit Reporting Act (FCRA). Pintos v. Pacific Creditors Ass’n, Nos. 04-17485, 04-17558, 2009 WL 1151800 (9th Cir. Apr. 30, 2009). In Pintos, the defendant debt collector purchased plaintiff’s consumer credit report from a credit reporting agency (CRA) claiming the right to view the report under FCRA, as it was “in connection with a credit transaction,” although the debt was incurred in connection with an unpaid towing fee. Withdrawing and superseding its 2007 opinion (reported in InfoBytes, Sept. 28, 2007), Pintos v. Pacific Creditors Ass’n, 504 F.3d 792 (9th Cir. 2007) (holding that “credit” for purposes of FCRA could only be sought voluntarily “by a creditor” and that an involuntary debt, as incurred by the plaintiff, could not be a “credit transaction”), the Ninth Circuit held that, “[b]ecause the current case involves neither a transaction for which [the plaintiff] sought credit nor the collection of a judgment debt,” the collection agency did not have a permissible purpose under FCRA to obtain the credit report. Further, addressing the CRA’s argument that it had a “blanket certification” from the debt collector only to seek reports for “permissible purposes,” and thus should be free from liability, the Ninth Circuit held that the CRA had an “independent obligation to verify the certification and determine that no reasonable grounds exist for suspecting impermissible use.” The court of appeals remanded the case to the district court for further proceedings regarding the defendants’ liability. For a copy of this opinion, please see http://www.ca9.uscourts.gov/datastore/opinions/2009/04/30/0417485.pdf.
Sixth Circuit Holds That TCPA Damages are Available on a Per-Call Basis Only. On April 9, the U.S. Court of Appeals for the Sixth Circuit held that a consumer may recover for violations of the Telephone Consumer Protection Act (TCPA) that occur during the first telephone call from a defendant, and that statutory damages under the TCPA are available on a per-call basis only, and not a per-violation basis. Charvat v. GVN Michigan, Inc., No. 08-3282 (6th Cir. Apr. 9, 2009). In Charvat, plaintiff alleged that defendant committed 186 violations of the TCPA, the Ohio Consumer Sales Practices Act, and various other Ohio statutes and regulations. The violations were based on ten phone calls to the plaintiff that the plaintiff alleged contained numerous violations of these statutes and regulations. In ruling on the defendant’s motion for partial summary judgment, the district court found that the TCPA limits damages to one award per call after the first call. The Sixth Circuit, however, held that the requirement of being a “person who has received more than one telephone call” under the TCPA is merely a threshold requirement that permits recovery for subsequent calls. The Sixth Circuit also held, affirming the decision of the district court, that the TCPA unambiguously allows for statutory damages on only a per-call basis, reasoning that the phrase “each such violation” refers to each “telephone call…in violation of the regulations.” As a result, the plaintiff did not meet the amount-in controversy requirement for diversity jurisdiction, and the court affirmed the dismissal of the claim for lack of subject-matter jurisdiction. For a copy of this opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/09a0142p-06.pdf.
Litigation
Ninth Circuit Holds Collection of Non-Judgment Debt Not Initiated by Consumer Not a Permissible Purpose Under FCRA. On April 30, the U.S. Court of Appeals for the Ninth Circuit held that a transaction in which the consumer does not seek credit and that does not involve a judgment debt does not constitute a permissible purpose to access a consumer credit report under the Fair Credit Reporting Act (FCRA). Pintos v. Pacific Creditors Ass’n, Nos. 04-17485, 04-17558, 2009 WL 1151800 (9th Cir. Apr. 30, 2009). In Pintos, the defendant debt collector purchased plaintiff’s consumer credit report from a credit reporting agency (CRA) claiming the right to view the report under FCRA, as it was “in connection with a credit transaction,” although the debt was incurred in connection with an unpaid towing fee. Withdrawing and superseding its 2007 opinion (reported in InfoBytes, Sept. 28, 2007), Pintos v. Pacific Creditors Ass’n, 504 F.3d 792 (9th Cir. 2007) (holding that “credit” for purposes of FCRA could only be sought voluntarily “by a creditor” and that an involuntary debt, as incurred by the plaintiff, could not be a “credit transaction”), the Ninth Circuit held that, “[b]ecause the current case involves neither a transaction for which [the plaintiff] sought credit nor the collection of a judgment debt,” the collection agency did not have a permissible purpose under FCRA to obtain the credit report. Further, addressing the CRA’s argument that it had a “blanket certification” from the debt collector only to seek reports for “permissible purposes,” and thus should be free from liability, the Ninth Circuit held that the CRA had an “independent obligation to verify the certification and determine that no reasonable grounds exist for suspecting impermissible use.” The court of appeals remanded the case to the district court for further proceedings regarding the defendants’ liability. For a copy of this opinion, please see http://www.ca9.uscourts.gov/datastore/opinions/2009/04/30/0417485.pdf.
Sixth Circuit Holds That TCPA Damages are Available on a Per-Call Basis Only. On April 9, the U.S. Court of Appeals for the Sixth Circuit held that a consumer may recover for violations of the Telephone Consumer Protection Act (TCPA) that occur during the first telephone call from a defendant, and that statutory damages under the TCPA are available on a per-call basis only, and not a per-violation basis. Charvat v. GVN Michigan, Inc., No. 08-3282 (6th Cir. Apr. 9, 2009). In Charvat, plaintiff alleged that defendant committed 186 violations of the TCPA, the Ohio Consumer Sales Practices Act, and various other Ohio statutes and regulations. The violations were based on ten phone calls to the plaintiff that the plaintiff alleged contained numerous violations of these statutes and regulations. In ruling on the defendant’s motion for partial summary judgment, the district court found that the TCPA limits damages to one award per call after the first call. The Sixth Circuit, however, held that the requirement of being a “person who has received more than one telephone call” under the TCPA is merely a threshold requirement that permits recovery for subsequent calls. The Sixth Circuit also held, affirming the decision of the district court, that the TCPA unambiguously allows for statutory damages on only a per-call basis, reasoning that the phrase “each such violation” refers to each “telephone call…in violation of the regulations.” As a result, the plaintiff did not meet the amount-in controversy requirement for diversity jurisdiction, and the court affirmed the dismissal of the claim for lack of subject-matter jurisdiction. For a copy of this opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/09a0142p-06.pdf.
California Federal Court Holds “Artful Pleading” of Preempted State Law Claims Does Not Defeat Removal. On April 6, the U.S. District Court for the Central District of California held in two cases that a plaintiff may not defeat removal of a federal claim by “artfully pleading” it as a state claim. Salgado v. Downey Savings & Loan Assoc., No. CV 09-1771, 2009 WL 960777 (C.D. Cal. Apr. 6, 2009); Sartain v. Aurora Loan Servs., LLC, No. CV 09-1789, 2009 WL 950946 (C.D. Cal. Apr. 6, 2009). In both Salgado and Sartain, the plaintiffs alleged that they were entitled to rescission of their home refinancing loans from the defendants because the defendants, among other things, failed to disclose the effects of the yield spread premium on the note rate, monthly payments, and finance charges. The defendant in each case removed the action to federal court, arguing that, although the plaintiffs’ claims were purportedly brought under California state law, the plaintiffs were actually pleading a violation of the Truth in Lending Act (TILA). Upholding the removal, the court applied the “artful pleading” rule – which prohibits a plaintiff from defeating removal of a federal claim by “artfully pleading” it as a state claim – because the state law claims, which were premised upon violations of TILA, were preempted by federal law. For a copy of the Salgado opinion, please see http://www.buckleysandler.com/Salgado_v_Downey.pdf; for a copy of the Sartain opinion, please see http://www.buckleysandler.com/Sartain_v_Aurora.pdf.
New Jersey Court Refuses to Take Judicial Notice of Wikipedia Entry. On April 17, the New Jersey Superior Court, Appellate Division, held that judicial notice cannot be taken for a Wikipedia online encyclopedia entry because the information could be “reasonably questioned” and because the entry at issue settled a question of “material” fact regarding the plaintiff’s standing. Palisades Collection, L.L.C. v. Graubard, No. A-1338-07T3 (Sup. Ct. N.J. App. Div. Apr. 17, 2009). In this case, the defendant disputed whether the plaintiff debt collection agency had standing to sue him for a more than $30,000 credit card delinquency. At trial, the plaintiff submitted a Wikipedia entry to evidence that the original owner of the defendant’s account was subsequently acquired by another entity; this entity then sold the debt to the plaintiff. The Appellate Division found that the lower court could not take judicial notice of the Wikipedia entry in this case because the information (i) established a “material” fact not appropriate for judicial notice, and (ii) “impermissibly settled” the question of the plaintiff’s standing. The court further noted that, because anyone can alter a Wikipedia entry, “[s]uch a malleable source of information is inherently unreliable, and clearly not one ‘whose accuracy cannot be reasonably questioned.’” For a copy of the opinion, please see http://lawlibrary.rutgers.edu/decisions/appellate/a1338-07.opn.html.
E-Financial Services
FTC Testifies on Improving Data Security, Settles Claims Against Mortgage Lender for Alleged Privacy Violations. On May 5, the Acting Director of the Bureau of Consumer Protection, Eileen Harrington, testified before the House Energy and Commerce Committee on the Federal Trade Commission’s (FTC) efforts to promote data security. Specifically, her testimony focused on actions that the FTC has taken to protect consumer information on peer-to peer (P2P) networks. These actions include (i) litigating P2P file sharing violations, (ii) working with P2P software developers to set industry best practices for file sharing, and (iii) reaching out to consumers through workshops, reports, and alerts. Additionally, the Acting Director’s testimony announced the FTC’s support of two bills, the Informed P2P User Act (HR 1319) and the Data Accountability and Trust Act (HR 2221). The Informed P2P User Act would require P2P software companies to disclose to consumers the types of files they share and to obtain a consumer’s consent before sharing such files. The Data Accountability and Trust Act would require companies to implement reasonable data security policies and procedures and to notify consumers whenever their data security is compromised, and would grant the FTC authority to seek civil penalties for violations of its provisions. Acting Director Harrington’s testimony also discussed a recent settlement reached with James B. Nutter & Company, a residential mortgage lender and servicer, which allegedly violated the FTC’s Safeguards Rule and Privacy Rule by failing to maintain sensitive consumer information properly and by failing to provide accurate privacy notices. As part of the settlement, the company agreed to implement a “comprehensive” data security program that is independently audited biannually for the next 10 years. For a copy of the press release, please see http://www.ftc.gov/opa/2009/05/peer2peer.shtm.
New Jersey Court Refuses to Take Judicial Notice of Wikipedia Entry. On April 17, the New Jersey Superior Court, Appellate Division, held that judicial notice cannot be taken for a Wikipedia online encyclopedia entry because the information could be “reasonably questioned” and because the entry at issue settled a question of “material” fact regarding the plaintiff’s standing. Palisades Collection, L.L.C. v. Graubard, No. A-1338-07T3 (Sup. Ct. N.J. App. Div. Apr. 17, 2009). In this case, the defendant disputed whether the plaintiff debt collection agency had standing to sue him for a more than $30,000 credit card delinquency. At trial, the plaintiff submitted a Wikipedia entry to evidence that the original owner of the defendant’s account was subsequently acquired by another entity; this entity then sold the debt to the plaintiff. The Appellate Division found that the lower court could not take judicial notice of the Wikipedia entry in this case because the information (i) established a “material” fact not appropriate for judicial notice, and (ii) “impermissibly settled” the question of the plaintiff’s standing. The court further noted that, because anyone can alter a Wikipedia entry, “[s]uch a malleable source of information is inherently unreliable, and clearly not one ‘whose accuracy cannot be reasonably questioned.’” For a copy of the opinion, please see http://lawlibrary.rutgers.edu/decisions/appellate/a1338-07.opn.html.
Privacy/Data Security
FTC Testifies on Improving Data Security, Settles Claims Against Mortgage Lender for Alleged Privacy Violations. On May 5, the Acting Director of the Bureau of Consumer Protection, Eileen Harrington, testified before the House Energy and Commerce Committee on the Federal Trade Commission’s (FTC) efforts to promote data security. Specifically, her testimony focused on actions that the FTC has taken to protect consumer information on peer-to peer (P2P) networks. These actions include (i) litigating P2P file sharing violations, (ii) working with P2P software developers to set industry best practices for file sharing, and (iii) reaching out to consumers through workshops, reports, and alerts. Additionally, the Acting Director’s testimony announced the FTC’s support of two bills, the Informed P2P User Act (HR 1319) and the Data Accountability and Trust Act (HR 2221). The Informed P2P User Act would require P2P software companies to disclose to consumers the types of files they share and to obtain a consumer’s consent before sharing such files. The Data Accountability and Trust Act would require companies to implement reasonable data security policies and procedures and to notify consumers whenever their data security is compromised, and would grant the FTC authority to seek civil penalties for violations of its provisions. Acting Director Harrington’s testimony also discussed a recent settlement reached with James B. Nutter & Company, a residential mortgage lender and servicer, which allegedly violated the FTC’s Safeguards Rule and Privacy Rule by failing to maintain sensitive consumer information properly and by failing to provide accurate privacy notices. As part of the settlement, the company agreed to implement a “comprehensive” data security program that is independently audited biannually for the next 10 years. For a copy of the press release, please see http://www.ftc.gov/opa/2009/05/peer2peer.shtm.