InfoBytes, November 20, 2009
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Banking
- Consumer Finance
- Insurance
- Litigation
- Privacy/Data Security
Federal Issues
Fed Issues Proposed Gift Card Rules. On November 16, the Federal Reserve Board (Fed) announced proposed rules implementing the gift card provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009. The rules would amend the Fed’s Regulation E (Electronic Fund Transfers) to prohibit any person from imposing a dormancy, inactivity, or service fee for an electronic gift certificate, store gift card, or general-use prepaid card unless (i) there has been no activity on the gift certificate or gift/prepaid card within the one-year period prior to the imposition of the fee, (ii) only one such fee is assessed in a given calendar month, and (iii) disclosures regarding dormancy, inactivity, or service fees are “clearly and conspicuously” stated on the gift certificate or gift/prepaid card, and the issuer or vendor provides these disclosures to the purchaser before purchase. The proposed rules also provide that a gift certificate, store gift card, or general-use prepaid card cannot expire less than five years after the date of issuance (in the case of a gift certificate) or five years after the date of last load of funds (in the case of a store gift card or general-use prepaid card). In addition, information regarding whether funds underlying a certificate or card may expire must be “clearly and conspicuously” stated on the certificate or card and disclosed prior to purchase. Comments on the proposal must be submitted within 30 days after publication in the Federal Register. For a copy of the proposed rules, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20091116a1.pdf. For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/bcreg/20091116a.htm.
Federal Agencies Adopt Final Gramm-Leach-Bliley Model Privacy Forms. On November 17, eight federal regulatory agencies (the Board of Governors of the Federal Reserve System, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Securities and Exchange Commission) adopted a final model privacy notice form to comply with the requirements of the Gramm-Leach-Bliley Act (GLBA), as amended by the Financial Services Regulatory Relief Act of 2006 (the 2006 Amendments). The GLBA requires that institutions notify consumers about the institution’s information-sharing practices and provide consumers with the opportunity to opt out of certain information-sharing activities. The 2006 Amendments required the agencies to develop a model form to comply with the GLBA’s notification requirement. Under the rule, the use of the new model forms by a financial institution provides a “safe harbor” for compliance with the notification and disclosure provisions of the GLBA. Most provisions of the safe harbor will commence thirty days after the agencies publish the final rule in the Federal Register, and institutions must phase out older versions of the model privacy notice by January 1, 2011. For a copy of the rule, please see http://www.ftc.gov/privacy/privacyinitiatives/PrivacyModelForm_Rule.pdf. For a copy of the model privacy forms, please see http://ftc.gov/privacy/privacyinitiatives/PrivacyModelForm.pdf and http://ftc.gov/privacy/privacyinitiatives/PrivacyModelForm_NoOptOut.pdf.
Federal Interagency Financial Fraud Enforcement Task Force Announced. On November 17, representatives of the U.S. Department of the Treasury (Treasury), the U.S. Department of Housing and Urban Development (HUD), and the Securities and Exchange Commission (SEC), as well as Attorney General Eric Holder, announced the establishment of a federal interagency Financial Fraud Enforcement Task Force to strengthen efforts to combat financial crime. The U.S. Department of Justice will lead the task force and the Treasury, HUD, and the SEC will serve on its steering committee. Representatives from federal agencies, regulatory authorities and inspectors general – including HUD, the Treasury, the SEC, the Federal Trade Commission, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, the Federal Housing Finance Agency, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and the Financial Crimes Enforcement Network – will work with state and local partners (i) to investigate and prosecute “significant” financial crimes, (ii) to ensure punishment for those who perpetrate financial crimes, (iii) to address discrimination in the lending and financial markets, and (iv) to recover proceeds for victims of financial crimes. The task force replaces the Corporate Fraud Task Force established in 2002. For a copy of the press release, please see http://www.treas.gov/press/releases/tg409.htm.
HUD Revises FAQs on RESPA Rule. On November 19, the U.S. Department of Housing and Urban Development (HUD) again revised its “Frequently Asked Questions” (FAQs) regarding its 2008 amendments to Regulation X, the Real Estate Settlement Procedures Act’s implementing regulation. For a copy of the revised FAQs, please see http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf.
HUD Eliminates Second Appraisal Requirement on Certain Loans. On November 18, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2009-48 to eliminate the need for a second appraisal on high balance loans in declining markets. Specifically, the Federal Housing Administration (FHA) will no long require a second appraisal on loans – including cash-out refinances – that exceed $417,000 secured by property in declining markets. FHA will continue to require a second appraisal when a property is resold between 91 and 180 days after it was acquired and the resale price is at least 100% higher than the purchase price. For a copy of the letter, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-48ml.pdf.
FinCEN Expands Money Laundering, Suspected Terrorist Activity Information Sharing to Foreign, State, and Local Law Enforcement. On November 16, the Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking expanding the type of law enforcement agencies that can seek to obtain information under Section 314(a) of the USA PATRIOT ACT (the Act) in furtherance of their investigations into money laundering and suspected terrorist activities. Currently, only federal law enforcement may make information sharing requests under the Act. Under the proposal, certain foreign, state and local law enforcement agencies would be allowed to make information requests pursuant to the Act. Consistent with the present system, requests by law enforcement would be made through FinCEN, not to financial institutions directly. Any requesting law enforcement agency, prior to initiating a 314(a) query, would have to certify to FinCEN that (i) the matter is significant, and (ii) that the agency has been unable to locate the information sought through traditional methods of investigation and analysis. Comments on the proposal are due by December 16, 2009. For a copy of the press release, please see http://www.fincen.gov/news_room/nr/pdf/20091116.pdf. For a copy of the Federal Register notice, please see http://edocket.access.gpo.gov/2009/pdf/E9-27447.pdf.
Fed Clarifies Regulation Z’s Repayment Ability Rule for High-Priced Balloon Mortgages. On November 9, the Division of Consumer and Community Affairs of the Federal Reserve Board issued Consumer Affairs Letter 09-12 to provide answers to frequently asked questions about Regulation Z’s repayment ability rule for higher-priced balloon mortgages of less than seven years term. The rule prohibits creditors from making higher-priced mortgage loans “based on the value of the consumer’s collateral without regard to the consumer’s repayment ability as of consummation.” Among other things, the letter explains that, to comply with the rule, creditors must (i) verify the consumer’s ability to make regular monthly payments, (ii) verify that the consumer would likely be able to satisfy the balloon payment obligation by refinancing the loan or through income or assets other than the collateral, and (iii) engage in prudent underwriting by considering factors such as the loan-to-value ratio and the borrower’s debt-to-income ratio or residual income. For a copy of the letter, please see http://www.federalreserve.gov/boarddocs/caletters/2009/0912/caltr0912.htm#_ftn1.
Fed Approves Interim Rule Regarding Notice to Homeowners with Sold or Transferred Mortgages. On November 16, the Federal Reserve Board (Fed) approved an interim final rule requiring that notice be given to consumers when their mortgage loans are sold or transferred pursuant to the Helping Families Save Their Homes Act. The interim rule requires the purchaser or assignee of a mortgage loan to provide the required disclosures in writing within 30 days. Compliance with the interim final rule is optional for 60 days and the Fed has designated a 60-day public comment period for the rule. For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/bcreg/20091116b.htm. For a copy of the rule, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20091116b1.pdf.
State Issues
New York Enacts Foreclosure Legislation. On November 16, New York Governor David Patterson announced the passage of Governor’s Program Bill No. 46, which is aimed to provide protections to New York homeowners and tenants facing foreclosure. The bill expands upon SB 8143, a bill enacted in August 2008 (reported in InfoBytes, Aug. 8, 2008). The new bill, among other things, (i) requires a 90-day pre-foreclosure notice to any borrower facing foreclosure (notice currently is required only to borrowers with subprime loans), (ii) requires lenders who serve such a notice to make a filing with the New York Banking Department within three days, (iii) expands the scope of mandatory settlement conferences from subprime borrowers to all borrowers, (iv) requires that tenants receive written notice of change of ownership of a property and be permitted to remain for the longer of their lease term or 90 days, (v) requires plaintiffs who have obtained a judgment of foreclosure to maintain the foreclosed property, and (vi) prohibits brokers who perform “distressed property consulting services” from accepting upfront fees. For a copy of the press release, please see http://www.banking.state.ny.us/pr091116.htm. For a copy of the bill, please see http://www.ny.gov/governor/bills/pdf/gpb_46.pdf.
Courts
California Federal Court Holds Servicer Has No Duty Under RESPA to Investigate Borrower’s Last Known Address. On November 12, the U.S. District Court for the Eastern District of California held that a defendant servicer did not violate the Real Estate Settlement Procedures Act (RESPA) and California law by failing to investigate plaintiff borrowers’ last known address when a notice of transfer of servicing letter was returned as undeliverable. Rodriguez v. Countrywide Home Loans, 1:08cv0869, 2009 WL 3792308 (E.D. Cal. Nov. 12, 2009). In Rodriguez, the servicer sent all correspondence pertaining to the servicing of the borrowers’ loan to the address provided by the borrowers in their loan documents. However, correspondence sent to the borrowers’ provided address, in particular a notice of transfer of servicing, was returned as undeliverable. The borrowers alleged that the servicer’s failure to deliver a notice of transfer of servicing letter violated RESPA and its implementing regulations, as well as California law. The borrowers did not dispute that they failed to provide (i) an alternate mailing address in their loan documents, and (ii) a change of mailing address notification. In granting the servicer’s motion for summary judgment, the court declined to interpret RESPA and California law as imposing a duty on servicers to investigate a borrower’s mailing address by using other documentation submitted in connection with a loan (such as an address on a money order or a driver’s license). Instead, according to the court, it was the responsibility of the borrowers to comply with the servicer’s notification policies and to ensure that their loan documents were accurate at the time of execution. For a copy of the opinion, please see http://www.buckleysandler.com/documents/Rodriguez_v_CHL.pdf.
Illinois Federal Court Holds One Year Statute of Limitations Period Applicable to TILA Damages Claims. On November 18, the U.S. District Court for the Northern District of Illinois held that a one-year statute of limitations period applies to damages claims under the Truth in Lending Act (TILA). Douglas v. Wilmington Finance, Inc., No. 09 C 1370, 2009 WL 3852458 (N.D. Ill. Nov. 18, 2009). In Douglas, the plaintiff borrower alleged that the defendant lender did not mail copies of the documents from the closing of her loan until over two years after the loan was signed and sought statutory damages and rescission under TILA. Regarding the damages claim, the defendants (the original lender and the subsequent owner of the loan) argued that the borrower’s TILA claims were time-barred; however, the borrower argued that the “additional relief” provision of TILA, § 1635(g), extended the one-year statute of limitations on damage claims to three years because “for rescission the three year limitations period applies to all TILA violations.” The court rejected the borrower’s argument and granted summary judgment for the defendants, concluding that the language of the “additional relief” provision and its legislative history indicated that the provision does not alter the one-year statute of limitations applicable to TILA damage claims. The court also awarded summary judgment to the defendants regarding the rescission claim. For a copy of the opinion, please see http://www.buckleysandler.com/Douglas_v_WF.pdf.
Firm News
Jeff Naimon spoke about developments in appraisal requirements and related risks at the North Carolina Bankers Association’s Management Team Conference on October 20 in Greensboro, North Carolina.
Stephen Ambrose and Andrew Sandler spoke about Consumer Arbitration at the American Financial Services Association’s Annual Law Committee meeting on October 26 in Washington, DC.
Andrew Sandler spoke at the District of Columbia Bar regarding the proposed Consumer Financial Protection Agency on October 27 in Washington, DC.
Andrew Sandler also spoke at the 2009 Annual Conference of the International Association for Asset Recovery, in Las Vegas, NV on November 9 and 10.
Jerry Buckley participated in the 3rd Annual Leading Law Firm’s Conference in New York City on November 13.
Margo Tank spoke at the NCHELP Fall Training Conference in St. Pete Beach, Florida on November 16. She discussed electronic student lending platforms in compliance with ESIGN and the UETA.
Mortgages
Federal Interagency Financial Fraud Enforcement Task Force Announced. On November 17, representatives of the U.S. Department of the Treasury (Treasury), the U.S. Department of Housing and Urban Development (HUD), and the Securities and Exchange Commission (SEC), as well as Attorney General Eric Holder, announced the establishment of a federal interagency Financial Fraud Enforcement Task Force to strengthen efforts to combat financial crime. The U.S. Department of Justice will lead the task force and the Treasury, HUD, and the SEC will serve on its steering committee. Representatives from federal agencies, regulatory authorities and inspectors general – including HUD, the Treasury, the SEC, the Federal Trade Commission, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, the Federal Housing Finance Agency, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and the Financial Crimes Enforcement Network – will work with state and local partners (i) to investigate and prosecute “significant” financial crimes, (ii) to ensure punishment for those who perpetrate financial crimes, (iii) to address discrimination in the lending and financial markets, and (iv) to recover proceeds for victims of financial crimes. The task force replaces the Corporate Fraud Task Force established in 2002. For a copy of the press release, please see http://www.treas.gov/press/releases/tg409.htm.
HUD Revises FAQs on RESPA Rule. On November 19, the U.S. Department of Housing and Urban Development again revised its “Frequently Asked Questions” (FAQs) regarding its 2008 amendments to Regulation X, the Real Estate Settlement Procedures Act’s implementing regulation. For a copy of the revised FAQs, please see http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf.
HUD Eliminates Second Appraisal Requirement on Certain Loans. On November 18, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2009-48 to eliminate the need for a second appraisal on high balance loans in declining markets. Specifically, the Federal Housing Administration (FHA) will no long require a second appraisal on loans – including cash-out refinances – that exceed $417,000 secured by property in declining markets. FHA will continue to require a second appraisal when a property is resold between 91 and 180 days after it was acquired and the resale price is at least 100% higher than the purchase price. For a copy of the letter, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-48ml.pdf.
Fed Clarifies Regulation Z’s Repayment Ability Rule for High-Priced Balloon Mortgages. On November 9, the Division of Consumer and Community Affairs of the Federal Reserve Board issued Consumer Affairs Letter 09-12 to provide answers to frequently asked questions about Regulation Z’s repayment ability rule for higher-priced balloon mortgages of less than seven years term. The rule prohibits creditors from making higher-priced mortgage loans “based on the value of the consumer’s collateral without regard to the consumer’s repayment ability as of consummation.” Among other things, the letter explains that, to comply with the rule, creditors must (i) verify the consumer’s ability to make regular monthly payments, (ii) verify that the consumer would likely be able to satisfy the balloon payment obligation by refinancing the loan or through income or assets other than the collateral, and (iii) engage in prudent underwriting by considering factors such as the loan-to-value ratio and the borrower’s debt-to-income ratio or residual income. For a copy of the letter, please see http://www.federalreserve.gov/boarddocs/caletters/2009/0912/caltr0912.htm#_ftn1.
Fed Approves Interim Rule Regarding Notice to Homeowners with Sold or Transferred Mortgages. On November 16, the Federal Reserve Board (Fed) approved an interim final rule requiring that notice be given to consumers when their mortgage loans are sold or transferred pursuant to the Helping Families Save Their Homes Act. The interim rule requires the purchaser or assignee of a mortgage loan to provide the required disclosures in writing within 30 days. Compliance with the interim final rule is optional for 60 days and the Fed has designated a 60-day public comment period for the rule. For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/bcreg/20091116b.htm. For a copy of the rule, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20091116b1.pdf.
New York Enacts Foreclosure Legislation. On November 16, New York Governor David Patterson announced the passage of Governor’s Program Bill No. 46, which is aimed to provide protections to New York homeowners and tenants facing foreclosure. The bill expands upon SB 8143, a bill enacted in August 2008 (reported in InfoBytes, Aug. 8, 2008). The new bill, among other things, (i) requires a 90-day pre-foreclosure notice to any borrower facing foreclosure (notice currently is required only to borrowers with subprime loans), (ii) requires lenders who serve such a notice to make a filing with the New York Banking Department within three days, (iii) expands the scope of mandatory settlement conferences from subprime borrowers to all borrowers, (iv) requires that tenants receive written notice of change of ownership of a property and be permitted to remain for the longer of their lease term or 90 days, (v) requires plaintiffs who have obtained a judgment of foreclosure to maintain the foreclosed property, and (vi) prohibits brokers who perform “distressed property consulting services” from accepting upfront fees. For a copy of the press release, please see http://www.banking.state.ny.us/pr091116.htm. For a copy of the bill, please see http://www.ny.gov/governor/bills/pdf/gpb_46.pdf.
California Federal Court Holds Servicer Has No Duty Under RESPA to Investigate Borrower’s Last Known Address. On November 12, the U.S. District Court for the Eastern District of California held that a defendant servicer did not violate the Real Estate Settlement Procedures Act (RESPA) and California law by failing to investigate plaintiff borrowers’ last known address when a notice of transfer of servicing letter was returned as undeliverable. Rodriguez v. Countrywide Home Loans, 1:08cv0869, 2009 WL 3792308 (E.D. Cal. Nov. 12, 2009). In Rodriguez, the servicer sent all correspondence pertaining to the servicing of the borrowers’ loan to the address provided by the borrowers in their loan documents. However, correspondence sent to the borrowers’ provided address, in particular a notice of transfer of servicing, was returned as undeliverable. The borrowers alleged that the servicer’s failure to deliver a notice of transfer of servicing letter violated RESPA and its implementing regulations, as well as California law. The borrowers did not dispute that they failed to provide (i) an alternate mailing address in their loan documents, and (ii) a change of mailing address notification. In granting the servicer’s motion for summary judgment, the court declined to interpret RESPA and California law as imposing a duty on servicers to investigate a borrower’s mailing address by using other documentation submitted in connection with a loan (such as an address on a money order or a driver’s license). Instead, according to the court, it was the responsibility of the borrowers to comply with the servicer’s notification policies and to ensure that their loan documents were accurate at the time of execution. For a copy of the opinion, please see http://www.buckleysandler.com/documents/Rodriguez_v_CHL.pdf.
Illinois Federal Court Holds One Year Statute of Limitations Period Applicable to TILA Damages Claims. On November 18, the U.S. District Court for the Northern District of Illinois held that a one-year statute of limitations period applies to damages claims under the Truth in Lending Act (TILA). Douglas v. Wilmington Finance, Inc., No. 09 C 1370, 2009 WL 3852458 (N.D. Ill. Nov. 18, 2009). In Douglas, the plaintiff borrower alleged that the defendant lender did not mail copies of the documents from the closing of her loan until over two years after the loan was signed and sought statutory damages and rescission under TILA. Regarding the damages claim, the defendants (the original lender and the subsequent owner of the loan) argued that the borrower’s TILA claims were time-barred; however, the borrower argued that the “additional relief” provision of TILA, § 1635(g), extended the one-year statute of limitations on damage claims to three years because “for rescission the three year limitations period applies to all TILA violations.” The court rejected the borrower’s argument and granted summary judgment for the defendants, concluding that the language of the “additional relief” provision and its legislative history indicated that the provision does not alter the one-year statute of limitations applicable to TILA damage claims. The court also awarded summary judgment to the defendants regarding the rescission claim. For a copy of the opinion, please see http://www.buckleysandler.com/Douglas_v_WF.pdf.
Banking
Fed Issues Proposed Gift Card Rules. On November 16, the Federal Reserve Board (Fed) announced proposed rules implementing the gift card provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009. The rules would amend the Fed’s Regulation E (Electronic Fund Transfers) to prohibit any person from imposing a dormancy, inactivity, or service fee for an electronic gift certificate, store gift card, or general-use prepaid card unless (i) there has been no activity on the gift certificate or gift/prepaid card within the one-year period prior to the imposition of the fee, (ii) only one such fee is assessed in a given calendar month, and (iii) disclosures regarding dormancy, inactivity, or service fees are “clearly and conspicuously” stated on the gift certificate or gift/prepaid card, and the issuer or vendor provides these disclosures to the purchaser before purchase. The proposed rules also provide that a gift certificate, store gift card, or general-use prepaid card cannot expire less than five years after the date of issuance (in the case of a gift certificate) or five years after the date of last load of funds (in the case of a store gift card or general-use prepaid card). In addition, information regarding whether funds underlying a certificate or card may expire must be “clearly and conspicuously” stated on the certificate or card and disclosed prior to purchase. Comments on the proposal must be submitted within 30 days after publication in the Federal Register. For a copy of the proposed rules, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20091116a1.pdf. For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/bcreg/20091116a.htm.
Federal Interagency Financial Fraud Enforcement Task Force Announced. On November 17, representatives of the U.S. Department of the Treasury (Treasury), the U.S. Department of Housing and Urban Development (HUD), and the Securities and Exchange Commission (SEC), as well as Attorney General Eric Holder, announced the establishment of a federal interagency Financial Fraud Enforcement Task Force to strengthen efforts to combat financial crime. The U.S. Department of Justice will lead the task force and the Treasury, HUD, and the SEC will serve on its steering committee. Representatives from federal agencies, regulatory authorities and inspectors general – including HUD, the Treasury, the SEC, the Federal Trade Commission, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, the Federal Housing Finance Agency, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and the Financial Crimes Enforcement Network – will work with state and local partners (i) to investigate and prosecute “significant” financial crimes, (ii) to ensure punishment for those who perpetrate financial crimes, (iii) to address discrimination in the lending and financial markets, and (iv) to recover proceeds for victims of financial crimes. The task force replaces the Corporate Fraud Task Force established in 2002. For a copy of the press release, please see http://www.treas.gov/press/releases/tg409.htm.
Fed Clarifies Regulation Z’s Repayment Ability Rule for High-Priced Balloon Mortgages. On November 9, the Division of Consumer and Community Affairs of the Federal Reserve Board issued Consumer Affairs Letter 09-12 to provide answers to frequently asked questions about Regulation Z’s repayment ability rule for higher-priced balloon mortgages of less than seven years term. The rule prohibits creditors from making higher-priced mortgage loans “based on the value of the consumer’s collateral without regard to the consumer’s repayment ability as of consummation.” Among other things, the letter explains that, to comply with the rule, creditors must (i) verify the consumer’s ability to make regular monthly payments, (ii) verify that the consumer would likely be able to satisfy the balloon payment obligation by refinancing the loan or through income or assets other than the collateral, and (iii) engage in prudent underwriting by considering factors such as the loan-to-value ratio and the borrower’s debt-to-income ratio or residual income. For a copy of the letter, please see http://www.federalreserve.gov/boarddocs/caletters/2009/0912/caltr0912.htm#_ftn1.
Fed Approves Interim Rule Regarding Notice to Homeowners with Sold or Transferred Mortgages. On November 16, the Federal Reserve Board (Fed) approved an interim final rule requiring that notice be given to consumers when their mortgage loans are sold or transferred pursuant to the Helping Families Save Their Homes Act. The interim rule requires the purchaser or assignee of a mortgage loan to provide the required disclosures in writing within 30 days. Compliance with the interim final rule is optional for 60 days and the Fed has designated a 60-day public comment period for the rule. For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/bcreg/20091116b.htm. For a copy of the rule, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20091116b1.pdf.
Consumer Finance
Fed Issues Proposed Gift Card Rules. On November 16, the Federal Reserve Board (Fed) announced proposed rules implementing the gift card provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009. The rules would amend the Fed’s Regulation E (Electronic Fund Transfers) to prohibit any person from imposing a dormancy, inactivity, or service fee for an electronic gift certificate, store gift card, or general-use prepaid card unless (i) there has been no activity on the gift certificate or gift/prepaid card within the one-year period prior to the imposition of the fee, (ii) only one such fee is assessed in a given calendar month, and (iii) disclosures regarding dormancy, inactivity, or service fees are “clearly and conspicuously” stated on the gift certificate or gift/prepaid card, and the issuer or vendor provides these disclosures to the purchaser before purchase. The proposed rules also provide that a gift certificate, store gift card, or general-use prepaid card cannot expire less than five years after the date of issuance (in the case of a gift certificate) or five years after the date of last load of funds (in the case of a store gift card or general-use prepaid card). In addition, information regarding whether funds underlying a certificate or card may expire must be “clearly and conspicuously” stated on the certificate or card and disclosed prior to purchase. Comments on the proposal must be submitted within 30 days after publication in the Federal Register. For a copy of the proposed rules, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20091116a1.pdf. For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/bcreg/20091116a.htm.
Federal Agencies Adopt Final Gramm-Leach-Bliley Model Privacy Forms. On November 17, eight federal regulatory agencies (the Board of Governors of the Federal Reserve System, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Securities and Exchange Commission) adopted a final model privacy notice form to comply with the requirements of the Gramm-Leach-Bliley Act (GLBA), as amended by the Financial Services Regulatory Relief Act of 2006 (the 2006 Amendments). The GLBA requires that institutions notify consumers about the institution’s information-sharing practices and provide consumers with the opportunity to opt out of certain information-sharing activities. The 2006 Amendments required the agencies to develop a model form to comply with the GLBA’s notification requirement. Under the rule, the use of the new model forms by a financial institution provides a “safe harbor” for compliance with the notification and disclosure provisions of the GLBA. Most provisions of the safe harbor will commence thirty days after the agencies publish the final rule in the Federal Register, and institutions must phase out older versions of the model privacy notice by January 1, 2011. For a copy of the rule, please see http://www.ftc.gov/privacy/privacyinitiatives/PrivacyModelForm_Rule.pdf. For a copy of the model privacy forms, please see http://ftc.gov/privacy/privacyinitiatives/PrivacyModelForm.pdf and http://ftc.gov/privacy/privacyinitiatives/PrivacyModelForm_NoOptOut.pdf.
Insurance
HUD Revises FAQs on RESPA Rule. On November 19, the U.S. Department of Housing and Urban Development again revised its “Frequently Asked Questions” (FAQs) regarding its 2008 amendments to Regulation X, the Real Estate Settlement Procedures Act’s implementing regulation. For a copy of the revised FAQs, please see http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf.
Litigation
California Federal Court Holds Servicer Has No Duty Under RESPA to Investigate Borrower’s Last Known Address. On November 12, the U.S. District Court for the Eastern District of California held that a defendant servicer did not violate the Real Estate Settlement Procedures Act (RESPA) and California law by failing to investigate plaintiff borrowers’ last known address when a notice of transfer of servicing letter was returned as undeliverable. Rodriguez v. Countrywide Home Loans, 1:08cv0869, 2009 WL 3792308 (E.D. Cal. Nov. 12, 2009). In Rodriguez, the servicer sent all correspondence pertaining to the servicing of the borrowers’ loan to the address provided by the borrowers in their loan documents. However, correspondence sent to the borrowers’ provided address, in particular a notice of transfer of servicing, was returned as undeliverable. The borrowers alleged that the servicer’s failure to deliver a notice of transfer of servicing letter violated RESPA and its implementing regulations, as well as California law. The borrowers did not dispute that they failed to provide (i) an alternate mailing address in their loan documents, and (ii) a change of mailing address notification. In granting the servicer’s motion for summary judgment, the court declined to interpret RESPA and California law as imposing a duty on servicers to investigate a borrower’s mailing address by using other documentation submitted in connection with a loan (such as an address on a money order or a driver’s license). Instead, according to the court, it was the responsibility of the borrowers to comply with the servicer’s notification policies and to ensure that their loan documents were accurate at the time of execution. For a copy of the opinion, please see http://www.buckleysandler.com/documents/Rodriguez_v_CHL.pdf.
Illinois Federal Court Holds One Year Statute of Limitations Period Applicable to TILA Damages Claims. On November 18, the U.S. District Court for the Northern District of Illinois held that a one-year statute of limitations period applies to damages claims under the Truth in Lending Act (TILA). Douglas v. Wilmington Finance, Inc., No. 09 C 1370, 2009 WL 3852458 (N.D. Ill. Nov. 18, 2009). In Douglas, the plaintiff borrower alleged that the defendant lender did not mail copies of the documents from the closing of her loan until over two years after the loan was signed and sought statutory damages and rescission under TILA. Regarding the damages claim, the defendants (the original lender and the subsequent owner of the loan) argued that the borrower’s TILA claims were time-barred; however, the borrower argued that the “additional relief” provision of TILA, § 1635(g), extended the one-year statute of limitations on damage claims to three years because “for rescission the three year limitations period applies to all TILA violations.” The court rejected the borrower’s argument and granted summary judgment for the defendants, concluding that the language of the “additional relief” provision and its legislative history indicated that the provision does not alter the one-year statute of limitations applicable to TILA damage claims. The court also awarded summary judgment to the defendants regarding the rescission claim. For a copy of the opinion, please see http://www.buckleysandler.com/Douglas_v_WF.pdf.
Privacy/Data Security
Federal Agencies Adopt Final Gramm-Leach-Bliley Model Privacy Forms. On November 17, eight federal regulatory agencies (the Board of Governors of the Federal Reserve System, the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Securities and Exchange Commission) adopted a final model privacy notice form to comply with the requirements of the Gramm-Leach-Bliley Act (GLBA), as amended by the Financial Services Regulatory Relief Act of 2006 (the 2006 Amendments). The GLBA requires that institutions notify consumers about the institution’s information-sharing practices and provide consumers with the opportunity to opt out of certain information-sharing activities. The 2006 Amendments required the agencies to develop a model form to comply with the GLBA’s notification requirement. Under the rule, the use of the new model forms by a financial institution provides a “safe harbor” for compliance with the notification and disclosure provisions of the GLBA. Most provisions of the safe harbor will commence thirty days after the agencies publish the final rule in the Federal Register, and institutions must phase out older versions of the model privacy notice by January 1, 2011. For a copy of the rule, please see http://www.ftc.gov/privacy/privacyinitiatives/PrivacyModelForm_Rule.pdf. For a copy of the model privacy forms, please see http://ftc.gov/privacy/privacyinitiatives/PrivacyModelForm.pdf and http://ftc.gov/privacy/privacyinitiatives/PrivacyModelForm_NoOptOut.pdf.