InfoBytes, October 17, 2008
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Banking
- Consumer Finance
- Securities
- Litigation
- E-Financial Services
- Privacy/Data Security
Federal Issues
Treasury Announces TARP Capital Purchase Program. On October 14, the U.S. Department of the Treasury (Treasury) announced the Troubled Asset Relief Program Capital Purchase Program (Program). Under the voluntary program, the Treasury will purchase up to $250 billion of senior preferred shares of a qualifying company pursuant to the program’s senior preferred terms. These shares will qualify as Tier 1 capital. Companies must elect to participate in the program prior to November 14, 2008, and eligibility will be determined after the Treasury consults with the appropriate federal banking agency. Participating companies must adopt the Treasury’s standards for executive compensation and corporate governance while the Treasury holds equity in the company. On October 14, the Federal Reserve Board announced the adoption of an interim final rule that will allow bank holding companies to include in their Tier 1 capital, without restriction, the senior perpetual preferred stock issued to the Treasury under the Program. For a copy of the press release, please see http://www.treas.gov/press/releases/hp1207.htm. For a copy of the summary of senior preferred terms, please see http://www.treas.gov/press/releases/reports/document5hp1207.pdf. For a copy of the Federal Register notice, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20081016a1.pdf.
Buckley Kolar has had discussions with federal banking agencies regarding the application process, and these matters are being handled by the agencies on an expedited basis. For more information, readers may contact Bob Serino at 202-349-8053. At an appropriate time, Buckley Kolar will be offering a Teleseminar to subscribers and clients to answer questions on the application process.
Treasury Provides Corporate Governance Guidelines for Banks Participating in New Programs. On October 14, the U.S. Department of the Treasury (Treasury) announced new executive compensation and corporate governance guidelines that must be adhered to by companies participating in new Treasury programs aimed at stabilizing the economy and increasing capital to banks and financial institutions. The guidelines apply to participants of (i) the Troubled Asset Auction Program, in which the Treasury purchases troubled real-estate assets, (ii) the Capital Purchase Program, in which the Treasury increases capital to banks by purchasing bank stock, and (iii) the Programs for Systemically Significant Failing Institutions, in which the Treasury will direct support to failing banks on a case-by-case basis. Under the new guidelines, golden parachutes for current executives will be limited, strictly defined, and prohibited for new executive employees; tax deductions will be restricted, and, in some cases banned, for the payment of executive compensation or golden parachutes. Further, under the new guidelines, some financial institutions must reduce bonuses paid to executives based on company earnings or gains. For a copy of the press release, please see http://www.treas.gov/press/releases/2008101495019994.htm.
Treasury Seeks Comments on Development of TARP. On October 16, the U.S. Department of the Treasury (Treasury) requested interested parties to comment on questions regarding the guarantee provisions of the Troubled Asset Relief Program. Among other issues, the requested comments concern (i) whether the program should insure both whole loans and individual mortgage backed securities, (ii) whether the payout should be equal to principal and interest at the time the asset was created or some other value, (iii) what events should trigger a payout under the guarantee, and (iv) what factors should be used to determined an asset’s eligibility for the guarantee program. Comments are due on or before October 28, 2008. For a copy of the Federal Register notice, please see http://edocket.access.gpo.gov/2008/pdf/E8-24686.pdf.
OCC Issues Bulletin Regarding New FCRA Examination Procedures. On October 15, the Office of the Comptroller of the Currency (OCC) issued OCC Bulletin 2008-28, a bulletin announcing additional examination procedures for rules addressing affiliate marketing, identity-theft red flags, and address discrepancies. The new procedures replace and supplement OCC Bulletin 2006-49 and address three sections of the Fair Credit Reporting Act: (i) § 624, which pertains to affiliate marketing and opt-out notices to limit solicitations and has been added to Module 2, (ii) §605(h), which covers the duties of users of credit reports regarding address discrepancies and has been inserted into Module 4, and (iii) § 615(e), which relates to both duties regarding the detection, prevention, and mitigation of identity theft and duties of card issuers regarding changes of address and has been placed in Module 5. The mandatory compliance date for § 624 is October 1, 2008, while the mandatory compliance date for §§ 605(h) and 615(e) is November 1, 2008. For a copy of the press release, please see http://www.occ.gov/ftp/bulletin/2008-28.html. For a copy of the bulletin, please see http://www.occ.gov/ftp/bulletin/2008-28a.pdf.
FDIC Invokes Systemic Risk Exception to Establish Temporary Liquidity Program. On October 14, the Federal Deposit Insurance Corporation (FDIC) announced that it has invoked the systemic risk exception of the FDIC Improvement Act of 1991 to establish a Temporary Liquidity Guarantee Program (Program). The Program guarantees most new debt issued by banks and provides full coverage of non-interest-bearing deposit-transaction accounts, regardless of dollar amount. The Program will apply to all newly-issued senior unsecured debt issued on or before June 30, 2009, including promissory notes, commercial paper, inter-bank funding, and any unsecured portion of secured debt. Coverage will terminate on June 30, 2012, even if the maturity of the debt exceeds that date. The Program will also apply to all funds in non-interest-bearing transaction deposit accounts held by FDIC-insured banks, guaranteeing full coverage (without an upper limit on amount) through the end of 2009. Participants will be charged a 75-basis point fee to protect their new debt issues, and a 10-basis-point surcharge will be added to a participating institution’s current insurance assessment in order to fully cover the non-interest-bearing deposit-transaction accounts. For a copy of the FDIC’s press release, please see http://www.fdic.gov/news/news/press/2008/pr08100b.html.
Fed Issues Supervisory Guidance for Consolidated Supervision, Compliance Risk Management. On October 16, the Federal Reserve Board (Fed) issued a supervisory guidance regarding consolidated supervision of bank holding companies and the combined U.S. operations of foreign banking operations, and another regarding compliance risk management. The consolidated supervision and assessment guidance states that the Fed will use a risk-focused approach through the continuous monitoring of activities, discovery reviews and testing of organizations. The type and amount of information required from each organization will vary depending on certain factors, such as the organization’s legal entity and regulatory structure. The compliance risk management guidance addresses four areas of concern: (i) the need for organizations to implement a firmwide approach to compliance risk management and oversight, (ii) the independence of compliance staff, (iii) compliance monitoring and testing, and (iv) the responsibilities of boards of directors and senior management regarding compliance risk management and oversight. For a copy of the press release, please see
http://www.federalreserve.gov/newsevents/press/bcreg/20081016a.htm. For the guidance on consolidated supervision, please see
http://www.federalreserve.gov/boarddocs/srletters/2008/SR0809.htm, and for the guidance on compliance risk management, please see http://www.federalreserve.gov/boarddocs/srletters/2008/SR0808.htm.
OTS Approves Rebuttals Filed by Merrill Lynch’s Largest Shareholder. On September 24, the Office of Thrift Supervision (OTS) accepted a Rebuttal of Control (Rebuttal) filed by Temasek Holdings Ltd. (Temasek). Temasek filed the Rebuttal as a result of its desire to purchase up to 25% of the common stock of Merrill Lynch & Co., Inc. (Merrill Lynch), the holding company for Merrill Lynch Bank & Trust Co., FSB (Merrill Lynch Bank), an OTS-regulated savings association. OTS regulations require the acquirer of more than 10% of any class of voting stock of a savings association to submit a Rebuttal of Control to show that it will not – or will not seek to – directly or indirectly acquire control of the savings association. In accepting the Rebuttal of Control, the OTS stated that it was convinced that Temasek was purchasing the common stock solely for investment purposes. The OTS also accepted a Rebuttal of Concerted Action stating that a management official within Temasek would not be “acting in concert” with Temasek to control Merrill Lynch. For a copy of the approval, please see http://files.ots.treas.gov/680028.pdf.
State Issues
Maryland Proposes Regulations to Implement Recordation, Foreclosure Provisions of Bills. On October 10, the Maryland Commissioner of Financial Regulation proposed two regulations to implement the recordation and foreclosure provisions of two bills passed on April 3 (reported in InfoBytes, Apr. 4, 2008). The proposed regulations provide the formatting requirements necessary to record the required mortgage lender and mortgage originator licensing information on the mortgage or instrument securing the loan on residential property. The proposed regulations also provide the formatting requirements for the notice of intent to foreclose and the notice that action has commenced which secured parties must provide to both the mortgagor/grantor and the record owner. Comments on the proposed regulations must be received by November 10, 2008. For a copy of the proposed regulations, please see http://www.dllr.state.md.us/finance/mlpropreg.shtml.
Maryland Issues Advisory Notice Regarding Loss Mitigation Counseling, Foreclosure Prevention. On September 24, the Maryland Commissioner of Financial Regulation (Commissioner) issued an advisory notice summarizing the applicability of the Protection of Homeowners in Foreclosure Act (PHIFA) to consumers, as well as individuals involved in loss mitigation consulting, foreclosure prevention and similar services. The advisory is in response to the Commissioner’s observance of increased advertising and activities by these loss mitigation and foreclosure prevention businesses. The advisory summarizes several provisions of the PHIFA, including (i) limitations on foreclosure consultants accepting upfront fees, (ii) definitions of "foreclosure consultant" and other pertinent terms, and (iii) criminal and civil penalties under the Act. The Commissioner strongly urges individuals providing loss mitigation consulting, foreclosure prevention or similar services to review PHIFA to assure compliance. For a copy of the advisory, please see http://www.dllr.state.md.us/finance/advisories/advisory9-08.htm.
Illinois Issues Conditional Renewal of Countrywide’s Mortgage License. On October 16, the Illinois Department of Financial and Professional Regulation announced that it will conditionally renew Countrywide Home Loans, Inc.’s (Countrywide) license in order to allow Countrywide to comply with the multi-state agreement signed last week between it and 11 states Attorneys General (reported in InfoBytes, Oct. 10, 2008). The conditional renewal will allow Countrywide to restructure loans for families that previously held loans with Countrywide; however, the conditional renewal will not allow Countrywide to offer new mortgages. For a copy of the press release, please see http://www.idfpr.com/NEWSRLS/10162008HCountrywideHomeLoansRelease.asp.
Courts
Tenth Circuit Affirms TILA Claim Time-Barred, Not Equitably Tolled. On October 9, the U.S. Tenth Circuit Court of Appeals held that claims arising under the Truth in Lending Act (TILA) against Wells Fargo Bank, N.A. (Wells Fargo) were time-barred and could not be equitably tolled because “repeating an error was not a continuing TILA violation.” Heil v. Wells Fargo Bank, N.A., No. 07-4224, 2008 WL 4516685 (10th Cir. Oct. 9, 2008). In this case, the borrower plaintiffs obtained a mortgage loan from Wells Fargo. In 2001, the plaintiffs paid property taxes to Wells Fargo that were not owed. In 2003, the plaintiffs became aware that Wells Fargo (i) failed to apply a loan payment they had made in 2001, (ii) began foreclosure proceedings against them as a result of its failure to apply the payment, and (iii) failed to credit the improperly paid taxes or the fees that it had wrongfully imposed. The plaintiffs then filed suit, alleging state law claims and claims arising under TILA. The district court dismissed the TILA claim, concluding that it was barred by the statute of limitations. On appeal, the plaintiffs argued that the district court construed their claims too narrowly by finding that the alleged TILA violation did not include Wells Fargo’s ongoing failure to credit the improperly charged fees. According to the Tenth Circuit, however, the district court held that “repeating an error was not a continuing TILA violation. “ Accordingly, the court affirmed the decision that the action was time-barred and could not be equitably tolled. The court also held that the district court did not abuse its discretion in dismissing the plaintiffs’ supplemental state law claims. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Heil_v_Wells.pdf.
New York Federal Court Denies State Law Challenges to “Trigger Leads”. On September 30, the U.S. District Court for the Western District of New York ruled that the Fair Credit Reporting Act (FCRA) preempts state law challenges to the credit bureaus’ practice of selling “trigger leads” to lenders. Premium Mortgage Corp. v. Equifax Information Services, LLC, et al., No. 07-CV-6349, 2008 WL 4507613 (W.D.N.Y. Sept. 30, 2008). The plaintiff, a mortgage lender, requested consumer credit reports from the defendants, four credit bureau reporting agencies. The plaintiff alleged that the credit bureaus sold the “trigger lead,” that is, the notification generated when a credit report request indicates that the consumer has recently applied for a mortgage loan, to the plaintiff’s competitors for the purpose of soliciting mortgage lending business. Claiming that the practice of selling “trigger leads” violates New York state law, the plaintiff filed suit, alleging that the defendants violated both their contractual duties to keep that information confidential, and their common law duties to act in good faith by selling the plaintiff’s confidential and proprietary information. The court rejected the plaintiff’s claims, holding that § 1681b(c) of FCRA permits credit bureaus to provide prescreened consumer reports to lenders for target marketing purposes. Since FCRA permits the practice, the court held that FCRA’s preemption provision, § 1681t(a), preempts any state law restricting a credit bureau’s ability to provide prescreened consumer reports, such as trigger leads. As a result, the court dismissed the claims. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Premium_Mortgage_v_Equifax.pdf.
Iowa Federal Court Orders Spamming Defendants to Pay $236.5 Million. On October 1, the U.S. District Court for the Southern District of Iowa entered an order against two defendants for sending unsolicited bulk e-mail, or spam e-mail, that (i) did not contain information identifying the sender or the transmission path of the e-mail and (ii) did not provide a readily identifiable e-mail address to which the recipient could send a request to opt-out of further e-mails in violation of the Iowa Anti-Spamming and Anti-Spoofing Act (Act). Kramer v. Perez, No. 3:04cv0153, 2008 WL 4417290 (S.D. Iowa Oct. 1, 2008). In this case, the defendants allegedly sent several million business marketing spam e-mails to the plaintiff, the operator of an Internet service provider. The plaintiff subsequently traced the spam e-mails back to the defendants. The defendants denied responsibility; however, they were unable to prove their defense because documents relevant to their defense were destroyed prior to trial. The Act permitted the plaintiff to recover $10 for each spam e-mail proved to have been sent by the defendants, for a total of $236.5 million. The court denied the plaintiff’s claims for actual damages - time lost blocking spam e-mails and for the customers that he lost due to the spam e-mails – because the evidence supporting the claims were “impermissibly speculative” to support an award. For a copy of the order, please see http://www.buckleykolar.com/documents/CIS_Internet.pdf.
Ohio Federal Court Grants Defendant’s Motion for Summary Judgment in CAN-SPAM Preemption Case. On September 24, the U.S. District Court for the Southern District of Ohio granted a defendant’s motion for summary judgment, holding that the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act preempted the plaintiff’s Ohio Electronic Mail Advertising Act (EMAA) claim because the plaintiff failed to show that his claims were based on falsity or deception. Ferron v. Echostar Satellite, LLC, et al., No. 2:06-cv-00453, 2008 WL 4377309 (S.D. Ohio Sept. 24, 2008). The consumer plaintiff alleged that the defendant, a satellite television provider, violated the EMAA by transmitting email advertisements with false and deceptive email-sender names and addresses. The defendant moved for summary judgment, arguing that the EMAA claim was preempted by the federal CAN-SPAM Act. The CAN-SPAM Act preemption provision states that the Act “supersedes any statute, regulation, or rule of a State … that expressly regulates the use of electronic mail to send commercial messages, except to the extent that any such statute, regulation, or rule prohibits falsity or deception….” Citing Omega World Travel, Inc. v. Mummagraphics, Inc. 469 F.3d 348 (4th Cir. 2006), the court held that the CAN-SPAM Act standard does not reach emails which contain mere isolated errors, but instead requires a showing of intentional and misleading falsity. Because the plaintiff was unable to provide any evidence that the EMAA claim was based on falsity or deception, the court granted summary judgment in favor of the defendant. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Ferron_v_Echostar.pdf.
Firm News
Jerry Buckley and Jeff Naimon will be speakers at the upcoming Community Reinvestment Act & Fair Lending Colloquium Conference taking place October 26-29 in Orlando, Florida. Jerry will speak on the panel entitled “Identifying Trends and Potential Regulatory Concerns.” Jeff will speak on the panel entitled “Analyzing Your CRA and Fair Lending Risks During Mergers and Acquisitions.” For more information about this conference, see http://www.cracolloquium.com/index.html.
Grant Mitchell will be a featured speaker at the annual RESPRO Fall Seminar in New Orleans, Louisiana from November 5 - 7. His presentation will be concentrated on various RESPA issues. For additional information about this seminar please click here.
Jerry Buckley and Margo Tank will be conducting a panel discussion on electronic-related legal and regulatory issues at the Electronic Signature and Records Association (ESRA) Second Annual Conference: E-Signatures ’08: Business, Legal and Technology Trends on November 12 and 13 in Washington, DC. This year, the ESRA conference will analyze a remarkably wide range of industries currently employing e-signature and electronic record technologies to improve business processes, including financial services, consumer products, banking, insurance, construction, equipment financing, government systems & services (civilian & military), cable television, mortgages and notarization. For more information on the conference and to register online, go to: http://www.esignrecords.org/events/
Margo Tank was a featured speaker at the New York State Bar Association’s Business Law Fall Meeting on September 12 in Newport, Rhode Island. Ms. Tank’s presentation was entitled “Electronic Signatures – What Does a Business Lawyer Need to Know?”
Matthew Previn presented in a panel discussion entitled “Litigation and Enforcement Update” at the Mortgage Bankers Association’s Regulatory Compliance Conference in Washington D.C. on September 15.
Jonathan Jerison participated in two events at the Mortgage Bankers Association’s Regulatory Compliance Conference in Washington, D.C. on September 15 and 16.
Jeff Naimon facilitated a roundtable discussion entitled “Miscellaneous Regulatory Concerns: RESPA and TILA Issues (including Right of Rescission)” at the Mortgage Bankers Association’s Regulatory Compliance Conference Roundtable on September 15.
Margo Tank was featured in a panel discussion on eLegal Issues at the Mortgage Bankers Association’s Document Management & Custody Conference on September 23 in Charlotte, North Carolina.
Jeff Naimon moderated a panel entitled “Ensuring Your Practices Keep Pace with Emerging Legislative and Regulatory Initiatives” at the American Conference Institute’s 5th National Forum on Preventing, Detecting And Resolving Mortgage Fraud on September 23 in Phoenix, Arizona.
Joe Kolar participated in an audio presentation on the Housing and Economic Recovery Act of 2008 (HERA) sponsored by the American Bar Association on September 25.
Clint Rockwell presented on topics related to recent state and federal mortgage lending developments at the American Financial Services Association’s State Government Affairs Forum / NACCA Annual Meeting on October 2 in Beverly Hills, California.
Colgate Selden presented on topics related to RESPA compliance at the Maryland Association of Mortgage Brokers Continuing Education Forum on October 8.
Mortgages
OCC Issues Bulletin Regarding New FCRA Examination Procedures. On October 15, the Office of the Comptroller of the Currency (OCC) issued OCC Bulletin 2008-28, a bulletin announcing additional examination procedures for rules addressing affiliate marketing, identity-theft red flags, and address discrepancies. The new procedures replace and supplement OCC Bulletin 2006-49 and address three sections of the Fair Credit Reporting Act: (i) § 624, which pertains to affiliate marketing and opt-out notices to limit solicitations and has been added to Module 2, (ii) §605(h), which covers the duties of users of credit reports regarding address discrepancies and has been inserted into Module 4, and (iii) § 615(e), which relates to both duties regarding the detection, prevention, and mitigation of identity theft and duties of card issuers regarding changes of address and has been placed in Module 5. The mandatory compliance date for § 624 is October 1, 2008, while the mandatory compliance date for §§ 605(h) and 615(e) is November 1, 2008. For a copy of the press release, please see http://www.occ.gov/ftp/bulletin/2008-28.html. For a copy of the bulletin, please see http://www.occ.gov/ftp/bulletin/2008-28a.pdf.
Maryland Proposes Regulations to Implement Recordation, Foreclosure Provisions of Bills. On October 10, the Maryland Commissioner of Financial Regulation proposed two regulations to implement the recordation and foreclosure provisions of two bills passed on April 3 (reported in InfoBytes, Apr. 4, 2008). The proposed regulations provide the formatting requirements necessary to record the required mortgage lender and mortgage originator licensing information on the mortgage or instrument securing the loan on residential property. The proposed regulations also provide the formatting requirements for the notice of intent to foreclose and the notice that action has commenced which secured parties must provide to both the mortgagor/grantor and the record owner. Comments on the proposed regulations must be received by November 10, 2008. For a copy of the proposed regulations, please see http://www.dllr.state.md.us/finance/mlpropreg.shtml.
Maryland Issues Advisory Notice Regarding Loss Mitigation Counseling, Foreclosure Prevention. On September 24, the Maryland Commissioner of Financial Regulation (Commissioner) issued an advisory notice summarizing the applicability of the Protection of Homeowners in Foreclosure Act (PHIFA) to consumers, as well as individuals involved in loss mitigation consulting, foreclosure prevention and similar services. The advisory is in response to the Commissioner’s observance of increased advertising and activities by these loss mitigation and foreclosure prevention businesses. The advisory summarizes several provisions of the PHIFA, including (i) limitations on foreclosure consultants accepting upfront fees, (ii) definitions of "foreclosure consultant" and other pertinent terms, and (iii) criminal and civil penalties under the Act. The Commissioner strongly urges individuals providing loss mitigation consulting, foreclosure prevention or similar services to review PHIFA to assure compliance. For a copy of the advisory, please see http://www.dllr.state.md.us/finance/advisories/advisory9-08.htm.
Illinois Issues Conditional Renewal of Countrywide’s Mortgage License. On October 16, the Illinois Department of Financial and Professional Regulation announced that it will conditionally renew Countrywide Home Loans, Inc.’s (Countrywide) license in order to allow Countrywide to comply with the multi-state agreement signed last week between it and 11 states Attorneys General (reported in InfoBytes, Oct. 10, 2008). The conditional renewal will allow Countrywide to restructure loans for families that previously held loans with Countrywide; however, the conditional renewal will not allow Countrywide to offer new mortgages. For a copy of the press release, please see http://www.idfpr.com/NEWSRLS/10162008HCountrywideHomeLoansRelease.asp.
Tenth Circuit Affirms TILA Claim Time-Barred, Not Equitably Tolled. On October 9, the U.S. Tenth Circuit Court of Appeals held that claims arising under the Truth in Lending Act (TILA) against Wells Fargo Bank, N.A. (Wells Fargo) were time-barred and could not be equitably tolled because “repeating an error was not a continuing TILA violation.” Heil v. Wells Fargo Bank, N.A., No. 07-4224, 2008 WL 4516685 (10th Cir. Oct. 9, 2008). In this case, the borrower plaintiffs obtained a mortgage loan from Wells Fargo. In 2001, the plaintiffs paid property taxes to Wells Fargo that were not owed. In 2003, the plaintiffs became aware that Wells Fargo (i) failed to apply a loan payment they had made in 2001, (ii) began foreclosure proceedings against them as a result of its failure to apply the payment, and (iii) failed to credit the improperly paid taxes or the fees that it had wrongfully imposed. The plaintiffs then filed suit, alleging state law claims and claims arising under TILA. The district court dismissed the TILA claim, concluding that it was barred by the statute of limitations. On appeal, the plaintiffs argued that the district court construed their claims too narrowly by finding that the alleged TILA violation did not include Wells Fargo’s ongoing failure to credit the improperly charged fees. According to the Tenth Circuit, however, the district court held that “repeating an error was not a continuing TILA violation. “ Accordingly, the court affirmed the decision that the action was time-barred and could not be equitably tolled. The court also held that the district court did not abuse its discretion in dismissing the plaintiffs’ supplemental state law claims. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Heil_v_Wells.pdf.
Banking
Treasury Announces TARP Capital Purchase Program. On October 14, the U.S. Department of the Treasury (Treasury) announced the Troubled Asset Relief Program Capital Purchase Program (Program). Under the voluntary program, the Treasury will purchase up to $250 billion of senior preferred shares of a qualifying company pursuant to the program’s senior preferred terms. These shares will qualify as Tier 1 capital. Companies must elect to participate in the program prior to November 14, 2008, and eligibility will be determined after the Treasury consults with the appropriate federal banking agency. Participating companies must adopt the Treasury’s standards for executive compensation and corporate governance while the Treasury holds equity in the company. On October 14, the Federal Reserve Board announced the adoption of an interim final rule that will allow bank holding companies to include in their Tier 1 capital, without restriction, the senior perpetual preferred stock issued by the Treasury under the Program. For a copy of the press release, please see http://www.treas.gov/press/releases/hp1207.htm. For a copy of the summary of senior preferred terms, please see http://www.treas.gov/press/releases/reports/document5hp1207.pdf. For a copy of the Federal Register notice, please see http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20081016a1.pdf.
Buckley Kolar has had discussions with federal banking agencies regarding the application process, and these matters are being handled by the agencies on an expedited basis For more information, readers may contact Bob Serino at 202-349-8053. At an appropriate time, Buckley Kolar will be offering a Teleseminar to subscribers and clients to answer questions on the application process.
Treasury Provides Corporate Governance Guidelines for Banks Participating in New Programs. On October 14, the U.S. Department of the Treasury (Treasury) announced new executive compensation and corporate governance guidelines that must be adhered to by companies participating in new Treasury programs aimed at stabilizing the economy and increasing capital to banks and financial institutions. The guidelines apply to participants of (i) the Troubled Asset Auction Program, in which the Treasury purchases troubled real-estate assets, (ii) the Capital Purchase Program, in which the Treasury increases capital to banks by purchasing bank stock, and (iii) the Programs for Systemically Significant Failing Institutions, in which the Treasury will direct support to failing banks on a case-by-case basis. Under the new guidelines, golden parachutes for current executives will be limited, strictly defined, and prohibited for new executive employees; tax deductions will be restricted, and, in some cases banned, for the payment of executive compensation or golden parachutes. Further, under the new guidelines, some financial institutions must reduce bonuses paid to executives based on company earnings or gains. For a copy of the press release, please see http://www.treas.gov/press/releases/2008101495019994.htm.
Treasury Seeks Comments on Development of TARP. On October 16, the U.S. Department of the Treasury (Treasury) requested interested parties to comment on questions regarding the guarantee provisions of the Troubled Asset Relief Program. Among other issues, the requested comments concern (i) whether the program should insure both whole loans and individual mortgage backed securities, (ii) whether the payout should be equal to principal and interest at the time the asset was created or some other value, (iii) what events should trigger a payout under the guarantee, and (iv) what factors should be used to determined an asset’s eligibility for the guarantee program. Comments are due on or before October 28, 2008. For a copy of the Federal Register notice, please see http://edocket.access.gpo.gov/2008/pdf/E8-24686.pdf.
FDIC Invokes Systemic Risk Exception to Establish Temporary Liquidity Program. On October 14, the Federal Deposit Insurance Corporation (FDIC) announced that it has invoked the systemic risk exception of the FDIC Improvement Act of 1991 to establish a Temporary Liquidity Guarantee Program (Program). The Program guarantees most new debt issued by banks and provides full coverage of non-interest-bearing deposit-transaction accounts, regardless of dollar amount. The Program will apply to all newly-issued senior unsecured debt issued on or before June 30, 2009, including promissory notes, commercial paper, inter-bank funding, and any unsecured portion of secured debt. Coverage will terminate on June 30, 2012, even if the maturity of the debt exceeds that date. The Program will also apply to all funds in non-interest-bearing transaction deposit accounts held by FDIC-insured banks, guaranteeing full coverage (without an upper limit on amount) through the end of 2009. Participants will be charged a 75-basis point fee to protect their new debt issues, and a 10-basis-point surcharge will be added to a participating institution’s current insurance assessment in order to fully cover the non-interest-bearing deposit-transaction accounts. For a copy of the FDIC’s press release, please see http://www.fdic.gov/news/news/press/2008/pr08100b.html.
Fed Issues Supervisory Guidance for Consolidated Supervision, Compliance Risk Management. On October 16, the Federal Reserve Board (Fed) issued a supervisory guidance regarding consolidated supervision of bank holding companies and the combined U.S. operations of foreign banking operations, and another regarding compliance risk management. The consolidated supervision and assessment guidance states that the Fed will use a risk-focused approach through the continuous monitoring of activities, discovery reviews and testing of organizations. The type and amount of information required from each organization will vary depending on certain factors, such as the organization’s legal entity and regulatory structure. The compliance risk management guidance addresses four areas of concern: (i) the need for organizations to implement a firmwide approach to compliance risk management and oversight, (ii) the independence of compliance staff, (iii) compliance monitoring and testing, and (iv) the responsibilities of boards of directors and senior management regarding compliance risk management and oversight. For a copy of the press release, please see
http://www.federalreserve.gov/newsevents/press/bcreg/20081016a.htm. For the guidance on consolidated supervision, please see
http://www.federalreserve.gov/boarddocs/srletters/2008/SR0809.htm, and for the guidance on compliance risk management, please see http://www.federalreserve.gov/boarddocs/srletters/2008/SR0808.htm.
OTS Approves Rebuttals Filed by Merrill Lynch’s Largest Shareholder. On September 24, the Office of Thrift Supervision (OTS) accepted a Rebuttal of Control (Rebuttal) filed by Temasek Holdings Ltd. (Temasek). Temasek filed the Rebuttal as a result of its desire to purchase up to 25% of the common stock of Merrill Lynch & Co., Inc. (Merrill Lynch), the holding company for Merrill Lynch Bank & Trust Co., FSB (Merrill Lynch Bank), an OTS-regulated savings association. OTS regulations require the acquirer of more than 10% of any class of voting stock of a savings association to submit a Rebuttal of Control to show that it will not – or will not seek to – directly or indirectly acquire control of the savings association. In accepting the Rebuttal of Control, the OTS stated that it was convinced that Temasek was purchasing the common stock solely for investment purposes. The OTS also accepted a Rebuttal of Concerted Action stating that a management official within Temasek would not be “acting in concert” with Temasek to control Merrill Lynch. For a copy of the approval, please see http://files.ots.treas.gov/680028.pdf.
Consumer Finance
New York Federal Court Denies State Law Challenges to “Trigger Leads”. On September 30, the U.S. District Court for the Western District of New York ruled that the Fair Credit Reporting Act (FCRA) preempts state law challenges to the credit bureaus’ practice of selling “trigger leads” to lenders. Premium Mortgage Corp. v. Equifax Information Services, LLC, et al., No. 07-CV-6349, 2008 WL 4507613 (W.D.N.Y. Sept. 30, 2008). The plaintiff, a mortgage lender, requested consumer credit reports from the defendants, four credit bureau reporting agencies. The plaintiff alleged that the credit bureaus sold the “trigger lead,” that is, the notification generated when a credit report request indicates that the consumer has recently applied for a mortgage loan, to the plaintiff’s competitors for the purpose of soliciting mortgage lending business. Claiming that the practice of selling “trigger leads” violates New York state law, the plaintiff filed suit, alleging that the defendants violated both their contractual duties to keep that information confidential, and their common law duties to act in good faith by selling the plaintiff’s confidential and proprietary information. The court rejected the plaintiff’s claims, holding that § 1681b(c) of FCRA permits credit bureaus to provide prescreened consumer reports to lenders for target marketing purposes. Since FCRA permits the practice, the court held that FCRA’s preemption provision, § 1681t(a), preempts any state law restricting a credit bureau’s ability to provide prescreened consumer reports, such as trigger leads. As a result, the court dismissed the claims. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Premium_Mortgage_v_Equifax.pdf.
Securities
OTS Approves Rebuttals Filed by Merrill Lynch’s Largest Shareholder. On September 24, the Office of Thrift Supervision (OTS) accepted a Rebuttal of Control (Rebuttal) filed by Temasek Holdings Ltd. (Temasek). Temasek filed the Rebuttal as a result of its desire to purchase up to 25% of the common stock of Merrill Lynch & Co., Inc. (Merrill Lynch), the holding company for Merrill Lynch Bank & Trust Co., FSB (Merrill Lynch Bank), an OTS-regulated savings association. OTS regulations require the acquirer of more than 10% of any class of voting stock of a savings association to submit a Rebuttal of Control to show that it will not – or will not seek to – directly or indirectly acquire control of the savings association. In accepting the Rebuttal of Control, the OTS stated that it was convinced that Temasek was purchasing the common stock solely for investment purposes. The OTS also accepted a Rebuttal of Concerted Action stating that a management official within Temasek would not be “acting in concert” with Temasek to control Merrill Lynch. For a copy of the approval, please see http://files.ots.treas.gov/680028.pdf.
Litigation
Tenth Circuit Affirms TILA Claim Time-Barred, Not Equitably Tolled. On October 9, the U.S. Tenth Circuit Court of Appeals held that claims arising under the Truth in Lending Act (TILA) against Wells Fargo Bank, N.A. (Wells Fargo) were time-barred and could not be equitably tolled because “repeating an error was not a continuing TILA violation.” Heil v. Wells Fargo Bank, N.A., No. 07-4224, 2008 WL 4516685 (10th Cir. Oct. 9, 2008). In this case, the borrower plaintiffs obtained a mortgage loan from Wells Fargo. In 2001, the plaintiffs paid property taxes to Wells Fargo that were not owed. In 2003, the plaintiffs became aware that Wells Fargo (i) failed to apply a loan payment they had made in 2001, (ii) began foreclosure proceedings against them as a result of its failure to apply the payment, and (iii) failed to credit the improperly paid taxes or the fees that it had wrongfully imposed. The plaintiffs then filed suit, alleging state law claims and claims arising under TILA. The district court dismissed the TILA claim, concluding that it was barred by the statute of limitations. On appeal, the plaintiffs argued that the district court construed their claims too narrowly by finding that the alleged TILA violation did not include Wells Fargo’s ongoing failure to credit the improperly charged fees. According to the Tenth Circuit, however, the district court held that “repeating an error was not a continuing TILA violation. “ Accordingly, the court affirmed the decision that the action was time-barred and could not be equitably tolled. The court also held that the district court did not abuse its discretion in dismissing the plaintiffs’ supplemental state law claims. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Heil_v_Wells.pdf.
New York Federal Court Denies State Law Challenges to “Trigger Leads”. On September 30, the U.S. District Court for the Western District of New York ruled that the Fair Credit Reporting Act (FCRA) preempts state law challenges to the credit bureaus’ practice of selling “trigger leads” to lenders. Premium Mortgage Corp. v. Equifax Information Services, LLC, et al., No. 07-CV-6349, 2008 WL 4507613 (W.D.N.Y. Sept. 30, 2008). The plaintiff, a mortgage lender, requested consumer credit reports from the defendants, four credit bureau reporting agencies. The plaintiff alleged that the credit bureaus sold the “trigger lead,” that is, the notification generated when a credit report request indicates that the consumer has recently applied for a mortgage loan, to the plaintiff’s competitors for the purpose of soliciting mortgage lending business. Claiming that the practice of selling “trigger leads” violates New York state law, the plaintiff filed suit, alleging that the defendants violated both their contractual duties to keep that information confidential, and their common law duties to act in good faith by selling the plaintiff’s confidential and proprietary information. The court rejected the plaintiff’s claims, holding that § 1681b(c) of FCRA permits credit bureaus to provide prescreened consumer reports to lenders for target marketing purposes. Since FCRA permits the practice, the court held that FCRA’s preemption provision, § 1681t(a), preempts any state law restricting a credit bureau’s ability to provide prescreened consumer reports, such as trigger leads. As a result, the court dismissed the claims. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Premium_Mortgage_v_Equifax.pdf.
Iowa Federal Court Orders Spamming Defendants to Pay $236.5 Million. On October 1, the U.S. District Court for the Southern District of Iowa entered an order against two defendants for sending unsolicited bulk e-mail, or spam e-mail, that (i) did not contain information identifying the sender or the transmission path of the e-mail and (ii) did not provide a readily identifiable e-mail address to which the recipient could send a request to opt-out of further e-mails in violation of the Iowa Anti-Spamming and Anti-Spoofing Act (Act). Kramer v. Perez, No. 3:04cv0153, 2008 WL 4417290 (S.D. Iowa Oct. 1, 2008). In this case, the defendants allegedly sent several million business marketing spam e-mails to the plaintiff, the operator of an Internet service provider. The plaintiff subsequently traced the spam e-mails back to the defendants. The defendants denied responsibility; however, they were unable to prove their defense because documents relevant to their defense were destroyed prior to trial. The Act permitted the plaintiff to recover $10 for each spam e-mail proved to have been sent by the defendants, for a total of $236.5 million. The court denied the plaintiff’s claims for actual damages - time lost blocking spam e-mails and for the customers that he lost due to the spam e-mails – because the evidence supporting the claims were “impermissibly speculative” to support an award. For a copy of the order, please see http://www.buckleykolar.com/documents/CIS_Internet.pdf.
Ohio Federal Court Grants Defendant’s Motion for Summary Judgment in CAN-SPAM Preemption Case. On September 24, the U.S. District Court for the Southern District of Ohio granted a defendant’s motion for summary judgment, holding that the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act preempted the plaintiff’s Ohio Electronic Mail Advertising Act (EMAA) claim because the plaintiff failed to show that his claims were based on falsity or deception. Ferron v. Echostar Satellite, LLC, et al., No. 2:06-cv-00453, 2008 WL 4377309 (S.D. Ohio Sept. 24, 2008). The consumer plaintiff alleged that the defendant, a satellite television provider, violated the EMAA by transmitting email advertisements with false and deceptive email-sender names and addresses. The defendant moved for summary judgment, arguing that the EMAA claim was preempted by the federal CAN-SPAM Act. The CAN-SPAM Act preemption provision states that the Act “supersedes any statute, regulation, or rule of a State … that expressly regulates the use of electronic mail to send commercial messages, except to the extent that any such statute, regulation, or rule prohibits falsity or deception….” Citing Omega World Travel, Inc. v. Mummagraphics, Inc. 469 F.3d 348 (4th Cir. 2006), the court held that the CAN-SPAM Act standard does not reach emails which contain mere isolated errors, but instead requires a showing of intentional and misleading falsity. Because the plaintiff was unable to provide any evidence that the EMAA claim was based on falsity or deception, the court granted summary judgment in favor of the defendant. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Ferron_v_Echostar.pdf.
E-Financial Services
Iowa Federal Court Orders Spamming Defendants to Pay $236.5 Million. On October 1, the U.S. District Court for the Southern District of Iowa entered an order against two defendants for sending unsolicited bulk e-mail, or spam e-mail, that (i) did not contain information identifying the sender or the transmission path of the e-mail and (ii) did not provide a readily identifiable e-mail address to which the recipient could send a request to opt-out of further e-mails in violation of the Iowa Anti-Spamming and Anti-Spoofing Act (Act). Kramer v. Perez, No. 3:04cv0153, 2008 WL 4417290 (S.D. Iowa Oct. 1, 2008). In this case, the defendants allegedly sent several million business marketing spam e-mails to the plaintiff, the operator of an Internet service provider. The plaintiff subsequently traced the spam e-mails back to the defendants. The defendants denied responsibility; however, they were unable to prove their defense because documents relevant to their defense were destroyed prior to trial. The Act permitted the plaintiff to recover $10 for each spam e-mail proved to have been sent by the defendants, for a total of $236.5 million. The court denied the plaintiff’s claims for actual damages - time lost blocking spam e-mails and for the customers that he lost due to the spam e-mails – because the evidence supporting the claims were “impermissibly speculative” to support an award. For a copy of the order, please see http://www.buckleykolar.com/documents/CIS_Internet.pdf.
Ohio Federal Court Grants Defendant’s Motion for Summary Judgment in CAN-SPAM Preemption Case. On September 24, the U.S. District Court for the Southern District of Ohio granted a defendant’s motion for summary judgment, holding that the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act preempted the plaintiff’s Ohio Electronic Mail Advertising Act (EMAA) claim because the plaintiff failed to show that his claims were based on falsity or deception. Ferron v. Echostar Satellite, LLC, et al., No. 2:06-cv-00453, 2008 WL 4377309 (S.D. Ohio Sept. 24, 2008). The consumer plaintiff alleged that the defendant, a satellite television provider, violated the EMAA by transmitting email advertisements with false and deceptive email-sender names and addresses. The defendant moved for summary judgment, arguing that the EMAA claim was preempted by the federal CAN-SPAM Act. The CAN-SPAM Act preemption provision states that the Act “supersedes any statute, regulation, or rule of a State … that expressly regulates the use of electronic mail to send commercial messages, except to the extent that any such statute, regulation, or rule prohibits falsity or deception….” Citing Omega World Travel, Inc. v. Mummagraphics, Inc. 469 F.3d 348 (4th Cir. 2006), the court held that the CAN-SPAM Act standard does not reach emails which contain mere isolated errors, but instead requires a showing of intentional and misleading falsity. Because the plaintiff was unable to provide any evidence that the EMAA claim was based on falsity or deception, the court granted summary judgment in favor of the defendant. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Ferron_v_Echostar.pdf.
Privacy/Data Security
New York Federal Court Denies State Law Challenges to “Trigger Leads”. On September 30, the U.S. District Court for the Western District of New York ruled that the Fair Credit Reporting Act (FCRA) preempts state law challenges to the credit bureaus’ practice of selling “trigger leads” to lenders. Premium Mortgage Corp. v. Equifax Information Services, LLC, et al., No. 07-CV-6349, 2008 WL 4507613 (W.D.N.Y. Sept. 30, 2008). The plaintiff, a mortgage lender, requested consumer credit reports from the defendants, four credit bureau reporting agencies. The plaintiff alleged that the credit bureaus sold the “trigger lead,” that is, the notification generated when a credit report request indicates that the consumer has recently applied for a mortgage loan, to the plaintiff’s competitors for the purpose of soliciting mortgage lending business. Claiming that the practice of selling “trigger leads” violates New York state law, the plaintiff filed suit, alleging that the defendants violated both their contractual duties to keep that information confidential, and their common law duties to act in good faith by selling the plaintiff’s confidential and proprietary information. The court rejected the plaintiff’s claims, holding that § 1681b(c) of FCRA permits credit bureaus to provide prescreened consumer reports to lenders for target marketing purposes. Since FCRA permits the practice, the court held that FCRA’s preemption provision, § 1681t(a), preempts any state law restricting a credit bureau’s ability to provide prescreened consumer reports, such as trigger leads. As a result, the court dismissed the claims. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Premium_Mortgage_v_Equifax.pdf.