InfoBytes, October 23, 2009
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Miscellany
- Mortgages
- Banking
- Consumer Finance
- Litigation
- Privacy/Data Security
- Credit Cards
Federal Issues
HUD Issues Mortgagee Letter on Appraisal Performance Standards and Sanctions. On October 19, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 09-41 to remind its approved mortgagees and appraisers about Federal Housing Administration (FHA) appraisal performance standards, enforcement standards, and sanctions. According to the letter, whenever performing their services, FHA appraisers are expected to comply with both FHA appraisal reporting and Uniform Standards of Professional Appraisal Practice requirements. If FHA staff uncovers a violation of these standards during a compliance review, then HUD may impose any of several sanctions, depending on the severity of the violation, including (i) FHA administrative appraiser roster actions, (ii) FHA administrative appraiser roster sanctions, (iii) civil sanctions, and (iv) criminal sanctions. The letter also reminds mortgagees that they can be held responsible for the quality and accuracy of an FHA appraisal if they had reason to believe that there were problems with the integrity, accuracy, and thoroughness of the appraisal. For a copy of the letter, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-41ml.doc.
HUD Updates HOPE for Homeowners Program Guidance. On October 20, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 09-43 to update its comprehensive guidance on the HOPE for Homeowners Program in light of recent legislative amendments to the program. The letter is effective for endorsements on or after January 1, 2010, and updates, among other things, requirements pertaining to borrower eligibility, appraisal standards, mortgage insurance premiums, loan-to-value and debt-to-income ratios, and loan documentation. The letter also sets forth new requirements applicable to pre-closing review test cases. The HOPE for Homeowners Program is generally effective for endorsements on or before September 30, 2011. For a copy of the letter, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-43ml.doc.
HUD Issues Mortgagee Letter Addressing Sub-Servicing of FHA Loans. On October 19, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 09-42 to remind mortgagees and servicers of their responsibilities in connection with the use of sub-servicers for loans insured by the Federal Housing Administration (FHA). In the letter, HUD notes that it has recognized an increased demand for mortgage loan servicers to hire sub-servicers, especially to assist in the processing of requests from defaulted borrowers. The letter emphasizes that only FHA-approved mortgagees may engage in servicing or sub-servicing activities in connection with FHA-insured loans, and that the loan holding mortgagees and servicing mortgagees are responsible for supervising the sub-servicer, as well as for ensuring that the sub-servicer is an FHA-approved mortgagee. HUD also cautions mortgagees and servicers from working with illegitimate foreclosure avoidance “counselors,” stating that “FHA-approved mortgagees and mortgage servicers must not assist in legitimizing the services of those individuals that prey on distressed mortgagors.” For a copy of the letter, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-42ml.doc.
HUD Revises FAQs on Revised RESPA Rule. On October 23, the U.S. Department of Housing and Urban Development (HUD) again revised its “Frequently Asked Questions” regarding its 2008 amendments to Regulation X, the Real Estate Settlement Procedures Act’s (RESPA) implementing regulation. For a copy of the revised FAQs, please see http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf.
DOJ Announces Lawsuit for Fair Housing Act Violations. On October 16, the U.S. Department of Justice (DOJ) announced that it has filed a lawsuit in the U.S. District Court for the District of South Dakota against TK Properties LLC, a mortgage lender, for allegedly violating the Fair Housing Act by discriminating on the basis of race. The lawsuit also names the officer and two employees of TK Properties LLC as defendants. According to the DOJ’s complaint, the defendants engaged in a pattern or practice of discrimination by creating a “hostile housing environment” for one African-American family and two white families at an apartment complex in South Dakota. The suit seeks a court order (i) declaring that the defendants’ actions violate the Fair Housing Act, (ii) prohibiting the defendants from engaging in future discrimination, (iii) awarding monetary damages, and (iv) assessing a civil penalty. For a copy of the press release, please see http://www.usdoj.gov/opa/pr/2009/October/09-crt-1117.html. For a copy of the complaint, please e-mail .
U.S. Attorneys File Suit against Mortgage Lender for Alleged Violations of HUD, FHA Requirements. On October 20, U.S. Attorneys filed a complaint against Ideal Mortgage Bankers, Ltd. d/b/a Lend America and its Executive Vice President, Michael Ashley, in the U.S. District Court for the Eastern District of New York, alleging that the company violated the Federal Housing Administration’s (FHA) origination and underwriting requirements applicable to HUD-approved lenders. Among other things, the complaint asserts that the company falsely certified to HUD that certain borrowers met HUD’s lending requirements for mortgage loans insured by the FHA when the company was aware that the borrowers did not in fact meet such requirements. Four of the company’s underwriters have been notified that HUD has suspended and/or proposed debarments for their actions related to the alleged violations. The U.S. Attorneys filed a motion for a temporary restraining order to prevent the company from originating any new FHA-insured mortgages until a civil fraud injunction could be obtained, but the motion was denied by the court on October 21. A preliminary injunction hearing has not yet been scheduled. For a copy of HUD’s press release, please see http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2009/HUDNo.09-205. For a copy of the Department of Justice’s press release, please see http://www.usdoj.gov/usao/nye/pr/2009/2009oct20.html. For a copy of the complaint, please see http://www.buckleysandler.com/U_S_%20v_%20Lend%20America.pdf.
FDIC Issues Final Rule to Establish Emergency Guarantee Facility. On October 20, the Federal Deposit Insurance Corporation (FDIC) issued a final rule to establish a limited emergency guarantee facility in order to provide an organized phase-out of its Debt Guarantee Program (DGP), which is set to expire on October 31, 2009. The emergency guarantee facility will exist for six months. The FDIC will approve use of the emergency guarantee facility on a case-by-case basis, and only to “entities that demonstrate an inability to issue non-guaranteed debt to replace maturing senior unsecured debt as a result of market disruptions or other circumstances beyond their control.” Senior unsecured debt issuances approved under the emergency guarantee facility will be guaranteed by the FDIC through the debt’s mandatory conversion date, the stated maturity date, or December 31, 2012, whichever is earliest, and will be subject to a participation fee, the amount of which will be, at a minimum, 300 basis points. The rule becomes effective upon being published in the Federal Register. For a copy of the final rule, please see http://www.fdic.gov/news/board/Oct098.pdf.
Treasury Announces $284 Million in Recovery Act Funding for California Affordable Housing. On October 23, the U.S. Department of the Treasury (Treasury) announced that California will receive $284 million in American Recovery and Reinvestment Act (Recovery Act) funding intended to promote state development of affordable housing. According to the Treasury, since the initiation of the Recovery Act program in May 2009, $3.1 billion in payments for affordable housing projects have been awarded to state housing authorities. The program is open to additional state applications through 2010. For a copy of the press release, please see http://www.treas.gov/press/releases/tg331.htm.
Treasury Announces HFA Initiative to Assist LMI Borrowers Purchase or Rent Homes. On October 19, the U.S. Department of the Treasury (Treasury) announced an initiative developed in conjunction with the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Finance Agency (FHFA), the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac) to expand the resources available to local housing finance agencies (HFAs) that supply housing assistance to low and moderate income borrowers. The new initiative will consist of two programs, the New Issue Bond Program (NIBP) and the Temporary Credit and Liquidity Program (TCLP). The NIBP will provide temporary financing for HFAs to issue new mortgage revenue bonds that Fannie Mae and Freddie Mac will securitize and sell to Treasury. The TCLP will create credit and liquidity facilities meant to reduce the costs of maintaining existing financing for HFAs. Treasury will backstop these credit and liquidity facilities by purchasing an interest in them. For HFAs to gain access to either program, they must pay a fee that is initially designed to cover only Treasury’s implementation costs, but which will increase over time in order to encourage HFAs to find private sector financing. According to Treasury, HFAs seeking to participate in the initiative should work with Treasury, Fannie Mae, and Freddie Mac, to develop a program participation request indicating the HFA’s desired level of participation in either program. For a copy of the press release, please see http://www.treas.gov/press/releases/tg323.htm.
FTC Settles Allegations against Consumer Data Broker for Failure to Safeguard Consumers’ Sensitive Information. On October 14, the Federal Trade Commission (FTC) announced a settlement with ChoicePoint, Inc. (ChoicePoint), a consumer data broker that allegedly failed to comply with a 2006 court order requiring it to implement “a comprehensive information security program protecting consumers’ sensitive information.” According to the FTC’s press release, ChoicePoint’s failure to comply with the court order facilitated a 2008 data breach that put 13,750 people at risk of identity theft. Pursuant to a modified court order, ChoicePoint must now, on a bi-monthly basis for two years, provide the FTC with detailed information regarding how it is protecting the breached database, as well as certain other databases and records containing personal information. The modified court order also extends the record-keeping and monitoring requirements of the 2006 court order, and gives the FTC the right to request up to two additional biennial assessments of ChoicePoint’s security program. Finally, the modified court order requires ChoicePoint to pay a $275,000 fine. For a copy of the press release, please see http://www.ftc.gov/opa/2009/10/choicepoint.shtm. For a copy of the settlement, please see http://www.ftc.gov/os/caselist/choicepoint/091019choicepointstiporder.pdf.
Company to Pay $18 Million to Settle FTC Charges That It Violated FTC Act, Telemarketing Sales Rule. On October 20, MoneyGram International, Inc. (MoneyGram) agreed to settle Federal Trade Commission (FTC) charges that it knowingly permitted fraudulent telemarketers in the U.S. and Canada to wire more than $84 million from U.S. customers. According to the FTC’s complaint, MoneyGram violated the FTC Act and the FTC’s Telemarketing Sales Rule because it helped these telemarketers, even though it was aware that the telemarketers were or could be committing a federal crime. The FTC pointed out that MoneyGram ignored warnings by law enforcement officials and by its own employees that widespread fraud was being conducted over its network. The settlement requires MoneyGram to (i) provide a clear and conspicuous fraud warning on the front of all its money transfer forms, (ii) conduct background checks on agents, (iii) educate and train employees about consumer fraud, (iv) monitor agent activity, (v) discipline non-compliant agents, (vi) develop and maintain a system for receiving consumer complaints and data, and provide that information to the FTC upon request, and (vii) take “all reasonable steps” to identify agents that are involved in fraud, including reviewing accounts for unusual or suspicious activity. The settlement also requires MoneyGram to pay an $18 million fine to the FTC for consumer redress. For a copy of the press release, please see http://www.ftc.gov/opa/2009/10/moneygram.shtm. For a copy of the settlement, please see http://www.ftc.gov/os/caselist/0623187/091020moneygramstip.pdf.
FTC Settles with Company Charged with Violating COPPA, FTC Act. On October 20, Iconix Brand Group, Inc. (Iconix) settled charges filed against it by the Federal Trade Commission (FTC) for allegedly violating the Children’s Online Privacy Protection Act (COPPA) and the FTC Act. According to the FTC’s complaint, Iconix violated COPPA by obtaining and storing the personal identifying information of approximately 1,000 children without first obtaining their parents’ consent. Iconix also violated the FTC Act by making false representations in its privacy policy, including that it would not attempt to collect personal information from children without parental consent and that it would delete any personal identifying information posted by children. Among other things, the FTC-Iconix settlement requires Iconix to pay a $250,000 fine and to delete any outstanding information that it has obtained in violation of COPPA. For a copy of the press release, please see http://www.ftc.gov/opa/2009/10/iconix.shtm. For a copy of the settlement, please see http://www.ftc.gov/os/caselist/0923032/091020Iconixsonsentorder.pdf.
House Bill Creates New Exclusions From Red Flags Rule “Creditor” Definition. On October 20, the U.S. House of Representatives passed a bill that would amend the Fair Credit Reporting Act (FCRA) to create new exclusions from the definition of “creditor” appearing under the Federal Trade Commission’s (FTC) Red Flags Rule. Pursuant to the bill, legal, health care, and accounting businesses with twenty or fewer employees would be excluded from the definition of “creditor.” In addition, the bill would require the FTC to develop a process by which a business that does not meet any of the foregoing exclusions from the definition of “creditor” could apply for an exclusion, where such business (i) knows all of their customers or clients individually, (ii) only performs services in our around the residences of their customers, or (iii) has not experienced any incidents of identify theft, provided that identity theft is rare for a business of that type. The FTC is set to enforce the Red Flags Rule on November 1, 2009. For a copy of the bill, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h3763eh.txt.pdf.
Senator Dodd Introduces Checking Account Overdraft Legislation. On October 19, Senator Christopher J. Dodd (D-CT) introduced S.1799, the Fairness and Accountability in Receiving (FAIR) Overdraft Coverage Act, a bill pertaining to checking account overdraft fees. Among other things, the FAIR Overdraft Coverage Act would (i) require a customer’s consent before they are enrolled in an overdraft protection program for ATM and debit card transactions, (ii) prohibit charging more than one overdraft coverage fee per month, or more than six overdraft coverage fees per year, (iii) require fees be proportional to the cost of processing the overdraft, (iv) prevent manipulation of the order in which transactions are posted, so as to maximize fees, (v) require that a customer be warned if they are about to complete a transaction that will overdraw their account, and permit the customer to cancel the transaction in such a case. For a copy of the press release, please see http://banking.senate.gov/public/index.cfm?FuseAction=Newsroom.PressReleases&ContentRecord_id=6e805e29-00f7-ed2d-3369-6e08534623bf&IsPrint=1. For a copy of the bill, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:s1799is.txt.pdf.
Financial Services Committee Passes Bill to Expedite Credit CARD Act Enforcement Date. On October 22, the House Financial Services Committee unanimously passed H.R. 3639, the Expedited CARD Reform for Consumers Act of 2009. The bill would expedite the effective date for the remaining provisions of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 that become effective February 22, 2010. Under the bill, the new effective date for these provisions would be December 1, 2009. For a copy of the press release, please see http://www.house.gov/apps/list/press/financialsvcs_dem/presscc_102209.shtml. For a copy of the bill, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h3639ih.txt.pdf.
State Issues
California Enacts Law Prohibiting Up-Front Fees for Foreclosure Relief Services. On October 11, California Governor Arnold Schwarzenegger signed into law S.B. 94, a bill that, until January 1, 2013, prohibits any person who offers to perform residential mortgage loan modifications or other forms of mortgage loan forbearance for compensation paid by a borrower from (i) demanding or receiving any pre-performance compensation, (ii) requiring any security as collateral for final compensation, or (iii) taking a power of attorney from a borrower. A violation of these prohibitions constitutes a misdemeanor or is subject to specified fines. The new law does not apply to certain actions taken by a person who offers loan modification or other loan forbearance services for a loan owned or serviced by that person, including, but not limited to, collecting principal, interest, or other charges under the terms of a loan before the loan is modified, including charges to establish a new payment schedule for a non-delinquent loan. The new law also requires any person who offers to perform residential mortgage loan modifications or other forms of mortgage loan forbearance, as specified, for compensation paid by a borrower, to provide a specified 14-point bold type statement regarding loan modification fees, and makes a violation of this prohibition a misdemeanor or subject to specified fines. Lastly, the new law adds to the California Finance Lenders Law a prohibition on making a materially false or misleading statement or representation to a borrower about the terms or conditions of that borrower’s loan, when making or brokering a loan. The new law became effective immediately upon signing. For a copy of S.B. 94, please see http://www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0051-0100/sb_94_bill_20091011_chaptered.pdf.
Oregon Regulator Issues Proposed Mortgage Lending Administrative Rules. The Oregon Department of Consumer and Business Services (Department) recently issued several proposed administrative rules relating to mortgage lending. One of these proposed rules seeks the permanent adoption of temporary rules that (i) require the foreclosure notice form created by HB 3630 to include specific provisions relating to loan modifications, and (ii) require recipients of the foreclosure notice form to provide specific information in the loan modification section of the notice. The Department also issued a proposed rule adopting mortgage banker, mortgage broker, and mortgage loan originator license fees. This proposed rule seeks to raise fees for the initial issuance and renewal of mortgage banker and mortgage broker licenses. In addition, the proposed rule would establish a fee for issuing and renewing a mortgage loan originator license. The Department will hold a hearing regarding this proposed rule on November 16, 2009. Further, both proposed rules are open for public comment until November 20, 2009. For the full text of the proposed administrative rules, please see http://dfcs.oregon.gov/rules_statutes/new_legislation/441-860-0101.pdf and http://dfcs.oregon.gov/rules_statutes/new_legislation/441-505-3046.pdf.
Courts
Eighth Circuit Holds Credit Card Arbitration Agreement Not Unconscionable under Missouri Law. On October 6, the Eighth Circuit held that an arbitration provision and a class action waiver in a credit card agreement were not unconscionable under Missouri law. Cicle v. Chase Bank USA, No. 08-1362, 2009 WL 3172157 (8th Cir. Oct. 6, 2009). In Cicle, a credit card borrower brought a class action lawsuit against the defendant bank for increasing her credit card APR from 7.99% to 25.99% after a credit reporting agency reported her as past due on an unrelated account. The district court found the consumer’s arbitration agreement for the credit card to be unconscionable under Missouri law and the bank appealed. The Eighth Circuit held that the arbitration agreement was neither procedurally nor substantively unconscionable. The borrower argued that the agreement—which the bank amended in 2005—was a “negative option, ‘an offer that is deemed to be accepted by a failure to respond,’ and therefore unconscionable.” According to the court, however, the borrower declined the “ample opportunity” to opt out by continuing to use the credit card. With respect to substantive unconscionability, the court disagreed with the district court’s conclusion that the class-action waiver and the cost-sharing provisions within the arbitration agreement were unconscionable. In this regard, the court found that the agreement provided an exception to binding arbitration by allowing the borrower to file her claim individually in small claims court, and that the cost-sharing and cost-shifting provisions in the agreement saved it from being unconscionable on its face. For a copy of the opinion, please see http://www.buckleysandler.com/Cicle_v_Chase.pdf.
California Federal Court Rules on the Availability of Private Rights of Action for FCRA, CCRA, and Defamation Cases. On September 22, the U.S. District Court for the Eastern District of California ruled that a plaintiff does not have a private right of action under the Fair Credit Reporting Act (FCRA) to sue for violations of FCRA’s adverse action provisions, but that a plaintiff may still have a private right of action with regard to certain other California Consumer Credit Reporting Agencies Act (CCCRA) and defamation claims. Banga v. Allstate Insurance Co., No. CIV S-08-1518, 2009 WL 3073925 (E.D. Cal. Sept. 22, 2009). In Banga, the plaintiff filed a lawsuit against the defendant, the underwriter of the plaintiff’s homeowner’s insurance policy, after the defendant allegedly inaccurately reported to credit reporting agencies (CRAs) that the plaintiff had filed two fire claims in 2005, and then increased the plaintiff’s annual homeowner’s insurance premium. Among other things, the plaintiff alleged that this course of action (i) violated FCRA’s adverse action provisions, (ii) violated the CCCRA’s provisions regarding the furnishing of false information, and (iii) constituted common law defamation.
The court evaluated each of the plaintiff’s claims in the context of a motion to dismiss filed by the defendant and a motion for leave to file a second amended complaint filed by the plaintiff. With respect to the plaintiff’s claims that the defendant violated FCRA’s adverse action provisions by furnishing inaccurate credit information concerning the plaintiff to CRAs and by failing to notify the plaintiff of the adverse action, the court held that the plain language of FCRA expressly reserves the right to enforce FCRA’s adverse action provisions to state and federal agencies. However, the court explained that FCRA does provide a private right of action with respect to § 1681-2(b), which sets forth a furnisher of information’s duty to reinvestigate disputed information upon receipt of a notice of dispute from a CRA. Accordingly, the court dismissed each of the plaintiff’s FCRA claims, with the exception of the plaintiff’s claim stated pursuant to § 1681s-2(b).
Additionally, the court did not dismiss the plaintiff’s claim that the defendant violated the CCCRA by providing information concerning the plaintiff to CRAs that the defendant knew or should have known was inaccurate, holding that FCRA does not preempt a plaintiff’s private right of action to enforce the CCCRA. However, the court dismissed the plaintiff’s claim that the defendant violated the CCCRA by failing to notify her that it had reported negative information to CRAs, noting that the defendant, as an insurance company, was expressly exempt from the requirement. Finally, the court found that the plaintiff’s allegation of defamation with malice overcame FCRA’s qualified preemption of state law defamation claims. For a copy of the opinion, please see http://www.buckleysandler.com/Banga_v_Allstate.pdf.
Massachusetts Land Court Judge Reaffirms That Foreclosing Lenders Must Be Assigned Mortgage Prior to Notice of Foreclosure. On October 14, a Massachusetts Land Court Judge, in response to a motion to vacate, reaffirmed his prior ruling that foreclosing lenders in Massachusetts must possess a valid assignment of a mortgage in recordable form before publishing or mailing a notice of foreclosure. U.S. Bank Nat’l Assoc. v. Ibanez, No. 08 MISC 384283, 2009 WL 3297551 (Mass. Land Ct. Oct. 14, 2009). In Ibanez, the plaintiffs, foreclosing lenders acting as trustees for securitized trusts, petitioned the court to validate certain foreclosure sales of residential property located in Massachusetts for which they had acted as both the foreclosing party and the only bidder. In each case, the plaintiffs did not hold the mortgage in recordable form at the time of notice and sale, but, instead, obtained a back-dated assignment of the mortgage following the sale. The court dismissed the plaintiffs’ cases, holding that the back-dated assignments were invalid, and that the plaintiffs’ failure to possess assignments in recordable form that were executed before the notices of sale meant that they were not mortgage holders when they issued the notices of foreclosure, as required under Massachusetts law. The court expressed its view that if “industry standards and practices” arising from placing mortgages in securitizations meant that the mortgage would not be assigned prior to a notice of foreclosure, then the lenders should seek to have the Massachusetts legislature change the law. The court further noted that Massachusetts has not adopted the position that the mortgage “follows the note.” Rather, in Massachusetts, a note holder only has the right to bring an action to have the corresponding mortgage assigned to it. For a copy of the opinion, please see http://www.buckleysandler.com/Ibanez.pdf.
Ninth Circuit Issues Amended Opinion on FCRA “Reasonable” Investigation Requirement. On October 21, the U.S. Court of Appeals for the Ninth Circuit issued an amended opinion reiterating that a furnisher receiving notice of a dispute from a credit reporting agency (CRA) under the Fair Credit Reporting Act (FCRA) is required to conduct a “reasonable” investigation into the consumer’s dispute. Gorman v. Wolpoff & Abramson, LLP, No. 06-17226, 2009 WL 3365928 (9th Cir. Oct. 21, 2009). In a lawsuit stemming from a disputed credit card charge, the plaintiff sued the defendants—a bank and a law firm that conducted its debt collection—for various violations of FCRA and state law, alleging that the bank did not conduct a sufficient investigation after being notified by the CRAs that the charges were being disputed. The bank argued that, because the statute only requires “an investigation” into the disputed charge, any investigation will suffice. In its previous opinion, the court held that the bank’s investigation was reasonable under FCRA (reported in InfoBytes, Jan.16, 2009). The amended opinion, which was issued in conjunction with the court’s denial of petitions for a panel rehearing and a rehearing en banc, continued to hold that an “investigation” requires more than just a “cursory or sloppy review of the dispute,” otherwise furnishers could escape their duty to investigate “by merely rubber-stamping their earlier submissions, even where circumstances demanded a more thorough inquiry.” The amended opinion, however, deleted the court’s previous statement that “the reasonableness of the furnisher’s investigation is measured by its response to the specific information provided by the CRA in the notice of dispute,” holding that “[t]he pertinent question is thus whether the furnisher’s procedures were reasonable in light of what it learned about the nature of the dispute from the description in the CRA’s notice of dispute.” Additionally, the amended opinion remained consistent in its conclusion that the defendant’s investigation in this case was reasonable in light of the scant, vague, and/or inaccurate information provided in the CRA’s notice of dispute, among other reasons.
The amended opinion also addressed the argument raised by the defendant in connection with the petition for rehearing en banc that private enforcement of California Civil Code section 1785.25(a) is preempted because it is inconsistent with the purpose of the FCRA. The court held that, even if this argument had not been waived by failure to raise it timely, Congress intended FCRA to exempt the state law claim from FCRA’s preemption provision. Ultimately, however, the court held that the preemption issue was moot because, even assuming that plaintiff’s state law claim were not preempted by FCRA, the plaintiff had not introduced sufficient evidence to survive summary judgment on the claim. For a copy of the opinion, please see http://www.ca9.uscourts.gov/datastore/opinions/2009/10/20/06-17226.pdf.
Firm News
Andrew Sandler will be speaking at the District of Columbia Bar’s program entitled “Is the proposed Consumer Financial Protection Agency the appropriate remedy for consumers of financial products?" on October 27 in Washington, DC.
Joe Kolar presented a webcast seminar to members of the Federal Home Loan Bank of Chicago on the new Truth in Lending and RESPA Rules on September 22.
Kirk Jensen and Clint Rockwell participated in a West LegalWorks webcast entitled “Underwater World: The Rippling Effect of California’s Foreclosure Crisis” on September 23.
Margo Tank spoke at the Electronic Signature and Records Association (ESRA) Annual Meeting on September 23 on the Mortgage Disclosure Improvement Act requirements and the impact on the electronic delivery of disclosures under the new rules. She also discussed the proposed FHA Electronic Signature Guidelines.
Andrea Mitchell spoke on a panel regarding new closed-end credit rules under Regulation Z for Women in Housing and Finance on September 30.
Andrew Sandler and Jeff Naimon spoke at the 2009 CRA and Fair Lending Colloquium October 4-7 in New Orleans. Andrew Sandler spoke on Regulatory Reform, and Jeff Naimon spoke on Navigating a HMDA Data Analysis.
Andrew Sandler spoke on October 6 at the Financial Access Roundtable Discussion with Bankers and Regulators, sponsored by Louisiana Appleseed, on a Latino Outreach Roundtable regarding Latino immigrant access to banks.
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.
Miscellany
OTS to Host RESPA Rules Telephone Information Session. On November 3, the Office of Thrift Supervision (OTS) will host a telephone information session regarding the new Real Estate Settlement Procedures Act (RESPA) rules promulgated by the U.S. Department of Housing and Urban Development. The OTS will answer questions from listeners during the call, and the session will be held from 2-3:30 pm EST. For a copy of the press release, please see http://www.ots.treas.gov/index.cfm?p=Events&Date=03-Nov-09.
Mortgages
HUD Issues Mortgagee Letter on Appraisal Performance Standards and Sanctions. On October 19, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 09-41 to remind its approved mortgagees and appraisers about Federal Housing Administration (FHA) appraisal performance standards, enforcement standards, and sanctions. According to the letter, whenever performing their services, FHA appraisers are expected to comply with both FHA appraisal reporting and Uniform Standards of Professional Appraisal Practice requirements. If FHA staff uncovers a violation of these standards during a compliance review, then HUD may impose any of several sanctions, depending on the severity of the violation, including (i) FHA administrative appraiser roster actions, (ii) FHA administrative appraiser roster sanctions, (iii) civil sanctions, and (iv) criminal sanctions. The letter also reminds mortgagees that they can be held responsible for the quality and accuracy of an FHA appraisal if they had reason to believe that there were problems with the integrity, accuracy, and thoroughness of the appraisal. For a copy of the letter, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-41ml.doc.
HUD Updates HOPE for Homeowners Program Guidance. On October 20, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 09-43 to update its comprehensive guidance on the HOPE for Homeowners Program in light of recent legislative amendments to the program. The letter is effective for endorsements on or after January 1, 2010, and updates, among other things, requirements pertaining to borrower eligibility, appraisal standards, mortgage insurance premiums, loan-to-value and debt-to-income ratios, and loan documentation. The letter also sets forth new requirements applicable to pre-closing review test cases. The HOPE for Homeowners Program is generally effective for endorsements on or before September 30, 2011. For a copy of the letter, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-43ml.doc.
HUD Issues Mortgagee Letter Addressing Sub-Servicing of FHA Loans. On October 19, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 09-42 to remind mortgagees and servicers of their responsibilities in connection with the use of sub-servicers for loans insured by the Federal Housing Administration (FHA). In the letter, HUD notes that it has recognized an increased demand for mortgage loan servicers to hire sub-servicers, especially to assist in the processing of requests from defaulted borrowers. The letter emphasizes that only FHA-approved mortgagees may engage in servicing or sub-servicing activities in connection with FHA-insured loans, and that the loan holding mortgagees and servicing mortgagees are responsible for supervising the sub-servicer, as well as for ensuring that the sub-servicer is an FHA-approved mortgagee. HUD also cautions mortgagees and servicers from working with illegitimate foreclosure avoidance “counselors,” stating that “FHA-approved mortgagees and mortgage servicers must not assist in legitimizing the services of those individuals that prey on distressed mortgagors.” For a copy of the letter, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-42ml.doc.
HUD Revises FAQs on Revised RESPA Rule. On October 23, the U.S. Department of Housing and Urban Development (HUD) again revised its “Frequently Asked Questions” regarding its 2008 amendments to Regulation X, the Real Estate Settlement Procedures Act’s (RESPA) implementing regulation. For a copy of the revised FAQs, please see http://www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf.
U.S. Attorneys File Suit against Mortgage Lender for Alleged Violations of HUD, FHA Requirements. On October 20, U.S. Attorneys filed a complaint against Ideal Mortgage Bankers, Ltd. d/b/a Lend America and its Executive Vice President, Michael Ashley, in the U.S. District Court for the Eastern District of New York, alleging that the company violated the Federal Housing Administration’s (FHA) origination and underwriting requirements applicable to HUD-approved lenders. Among other things, the complaint asserts that the company falsely certified to HUD that certain borrowers met HUD’s lending requirements for mortgage loans insured by the FHA when the company was aware that the borrowers did not in fact meet such requirements. Four of the company’s underwriters have been notified that HUD has suspended and/or proposed debarments for their actions related to the alleged violations. The U.S. Attorneys filed a motion for a temporary restraining order to prevent the company from originating any new FHA-insured mortgages until a civil fraud injunction could be obtained, but the motion was denied by the court on October 21. A preliminary injunction hearing has not yet been scheduled. For a copy of HUD’s press release, please see http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2009/HUDNo.09-205. For a copy of the Department of Justice’s press release, please see http://www.usdoj.gov/usao/nye/pr/2009/2009oct20.html. For a copy of the complaint, please see http://www.buckleysandler.com/U_S_%20v_%20Lend%20America.pdf.
California Enacts Law Prohibiting Up-Front Fees for Foreclosure Relief Services. On October 11, California Governor Arnold Schwarzenegger signed into law S.B. 94, a bill that, until January 1, 2013, prohibits any person who offers to perform residential mortgage loan modifications or other forms of mortgage loan forbearance for compensation paid by a borrower from (i) demanding or receiving any pre-performance compensation, (ii) requiring any security as collateral for final compensation, or (iii) taking a power of attorney from a borrower. A violation of these prohibitions constitutes a misdemeanor or is subject to specified fines. The new law does not apply to certain actions taken by a person who offers loan modification or other loan forbearance services for a loan owned or serviced by that person, including, but not limited to, collecting principal, interest, or other charges under the terms of a loan before the loan is modified, including charges to establish a new payment schedule for a non-delinquent loan. The new law also requires any person who offers to perform residential mortgage loan modifications or other forms of mortgage loan forbearance, as specified, for compensation paid by a borrower, to provide a specified 14-point bold type statement regarding loan modification fees, and makes a violation of this prohibition a misdemeanor or subject to specified fines. Lastly, the new law adds to the California Finance Lenders Law a prohibition on making a materially false or misleading statement or representation to a borrower about the terms or conditions of that borrower’s loan, when making or brokering a loan. The new law became effective immediately upon signing. For a copy of S.B. 94, please see http://www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0051-0100/sb_94_bill_20091011_chaptered.pdf.
Oregon Regulator Issues Proposed Mortgage Lending Administrative Rules. The Oregon Department of Consumer and Business Services (Department) recently issued several proposed administrative rules relating to mortgage lending. One of these proposed rules seeks the permanent adoption of temporary rules that (i) require the foreclosure notice form created by HB 3630 to include specific provisions relating to loan modifications, and (ii) require recipients of the foreclosure notice form to provide specific information in the loan modification section of the notice. The Department also issued a proposed rule adopting mortgage banker, mortgage broker, and mortgage loan originator license fees. This proposed rule seeks to raise fees for the initial issuance and renewal of mortgage banker and mortgage broker licenses. In addition, the proposed rule would establish a fee for issuing and renewing a mortgage loan originator license. The Department will hold a hearing regarding this proposed rule on November 16, 2009. Further, both proposed rules are open for public comment until November 20, 2009. For the full text of the proposed administrative rules, please see http://dfcs.oregon.gov/rules_statutes/new_legislation/441-860-0101.pdf and http://dfcs.oregon.gov/rules_statutes/new_legislation/441-505-3046.pdf.
Massachusetts Land Court Judge Reaffirms That Foreclosing Lenders Must Be Assigned Mortgage Prior to Notice of Foreclosure. On October 14, a Massachusetts Land Court Judge, in response to a motion to vacate, reaffirmed his prior ruling that foreclosing lenders in Massachusetts must possess a valid assignment of a mortgage in recordable form before publishing or mailing a notice of foreclosure. U.S. Bank Nat’l Assoc. v. Ibanez, No. 08 MISC 384283, 2009 WL 3297551 (Mass. Land Ct. Oct. 14, 2009). In Ibanez, the plaintiffs, foreclosing lenders acting as trustees for securitized trusts, petitioned the court to validate certain foreclosure sales of residential property located in Massachusetts for which they had acted as both the foreclosing party and the only bidder. In each case, the plaintiffs did not hold the mortgage in recordable form at the time of notice and sale, but, instead, obtained a back-dated assignment of the mortgage following the sale. The court dismissed the plaintiffs’ cases, holding that the back-dated assignments were invalid, and that the plaintiffs’ failure to possess assignments in recordable form that were executed before the notices of sale meant that they were not mortgage holders when they issued the notices of foreclosure, as required under Massachusetts law. The court expressed its view that if “industry standards and practices” arising from placing mortgages in securitizations meant that the mortgage would not be assigned prior to a notice of foreclosure, then the lenders should seek to have the Massachusetts legislature change the law. The court further noted that Massachusetts has not adopted the position that the mortgage “follows the note.” Rather, in Massachusetts, a note holder only has the right to bring an action to have the corresponding mortgage assigned to it. For a copy of the opinion, please see http://www.buckleysandler.com/Ibanez.pdf.
Banking
FDIC Issues Final Rule to Establish Emergency Guarantee Facility. On October 20, the Federal Deposit Insurance Corporation (FDIC) issued a final rule to establish a limited emergency guarantee facility in order to provide an organized phase-out of its Debt Guarantee Program (DGP), which is set to expire on October 31, 2009. The emergency guarantee facility will exist for six months. The FDIC will approve use of the emergency guarantee facility on a case-by-case basis, and only to “entities that demonstrate an inability to issue non-guaranteed debt to replace maturing senior unsecured debt as a result of market disruptions or other circumstances beyond their control.” Senior unsecured debt issuances approved under the emergency guarantee facility will be guaranteed by the FDIC through the debt’s mandatory conversion date, the stated maturity date, or December 31, 2012, whichever is earliest, and will be subject to a participation fee, the amount of which will be, at a minimum, 300 basis points. The rule becomes effective upon being published in the Federal Register. For a copy of the final rule, please see http://www.fdic.gov/news/board/Oct098.pdf.
OTS to Host RESPA Rules Telephone Information Session. On November 3, the Office of Thrift Supervision (OTS) will host a telephone information session regarding the new Real Estate Settlement Procedures Act (RESPA) rules promulgated by the U.S. Department of Housing and Urban Development. The OTS will answer questions from listeners during the call, and the session will be held from 2-3:30 pm EST. For a copy of the press release, please see http://www.ots.treas.gov/index.cfm?p=Events&Date=03-Nov-09.
Consumer Finance
Senator Dodd Introduces Checking Account Overdraft Legislation. On October 19, Senator Christopher J. Dodd (D-CT) introduced S.1799, the Fairness and Accountability in Receiving (FAIR) Overdraft Coverage Act, a bill pertaining to checking account overdraft fees. Among other things, the FAIR Overdraft Coverage Act would (i) require a customer’s consent before they are enrolled in an overdraft protection program for ATM and debit card transactions, (ii) prohibit charging more than one overdraft coverage fee per month, or more than six overdraft coverage fees per year, (iii) require fees be proportional to the cost of processing the overdraft, (iv) prevent manipulation of the order in which transactions are posted, so as to maximize fees, (v) require that a customer be warned if they are about to complete a transaction that will overdraw their account, and permit the customer to cancel the transaction in such a case. For a copy of the press release, please see http://banking.senate.gov/public/index.cfm?FuseAction=Newsroom.PressReleases&ContentRecord_id=6e805e29-00f7-ed2d-3369-6e08534623bf&IsPrint=1. For a copy of the bill, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:s1799is.txt.pdf.
California Federal Court Rules on the Availability of Private Rights of Action for FCRA, CCRA, and Defamation Cases. On September 22, the U.S. District Court for the Eastern District of California ruled that a plaintiff does not have a private right of action under the Fair Credit Reporting Act (FCRA) to sue for violations of FCRA’s adverse action provisions, but that a plaintiff may still have a private right of action with regard to certain other California Consumer Credit Reporting Agencies Act (CCCRA) and defamation claims. Banga v. Allstate Insurance Co., No. CIV S-08-1518, 2009 WL 3073925 (E.D. Cal. Sept. 22, 2009). In Banga, the plaintiff filed a lawsuit against the defendant, the underwriter of the plaintiff’s homeowner’s insurance policy, after the defendant allegedly inaccurately reported to credit reporting agencies (CRAs) that the plaintiff had filed two fire claims in 2005, and then increased the plaintiff’s annual homeowner’s insurance premium. Among other things, the plaintiff alleged that this course of action (i) violated FCRA’s adverse action provisions, (ii) violated the CCCRA’s provisions regarding the furnishing of false information, and (iii) constituted common law defamation.
The court evaluated each of the plaintiff’s claims in the context of a motion to dismiss filed by the defendant and a motion for leave to file a second amended complaint filed by the plaintiff. With respect to the plaintiff’s claims that the defendant violated FCRA’s adverse action provisions by furnishing inaccurate credit information concerning the plaintiff to CRAs and by failing to notify the plaintiff of the adverse action, the court held that the plain language of FCRA expressly reserves the right to enforce FCRA’s adverse action provisions to state and federal agencies. However, the court explained that FCRA does provide a private right of action with respect to § 1681-2(b), which sets forth a furnisher of information’s duty to reinvestigate disputed information upon receipt of a notice of dispute from a CRA. Accordingly, the court dismissed each of the plaintiff’s FCRA claims, with the exception of the plaintiff’s claim stated pursuant to § 1681s-2(b).
Additionally, the court did not dismiss the plaintiff’s claim that the defendant violated the CCCRA by providing information concerning the plaintiff to CRAs that the defendant knew or should have known was inaccurate, holding that FCRA does not preempt a plaintiff’s private right of action to enforce the CCCRA. However, the court dismissed the plaintiff’s claim that the defendant violated the CCCRA by failing to notify her that it had reported negative information to CRAs, noting that the defendant, as an insurance company, was expressly exempt from the requirement. Finally, the court found that the plaintiff’s allegation of defamation with malice overcame FCRA’s qualified preemption of state law defamation claims. For a copy of the opinion, please see http://www.buckleysandler.com/Banga_v_Allstate.pdf.
Ninth Circuit Issues Amended Opinion on FCRA “Reasonable” Investigation Requirement. On October 21, the U.S. Court of Appeals for the Ninth Circuit issued an amended opinion reiterating that a furnisher receiving notice of a dispute from a credit reporting agency (CRA) under the Fair Credit Reporting Act (FCRA) is required to conduct a “reasonable” investigation into the consumer’s dispute. Gorman v. Wolpoff & Abramson, LLP, No. 06-17226, 2009 WL 3365928 (9th Cir. Oct. 21, 2009). In a lawsuit stemming from a disputed credit card charge, the plaintiff sued the defendants-a bank and a law firm that conducted its debt collection-for various violations of FCRA and state law, alleging that the bank did not conduct a sufficient investigation after being notified by the CRAs that the charges were being disputed. The bank argued that, because the statute only requires “an investigation” into the disputed charge, any investigation will suffice. In its previous opinion, the court held that the bank’s investigation was reasonable under FCRA (reported in InfoBytes, Jan.16, 2009). The amended opinion, which was issued in conjunction with the court’s denial of petitions for a panel rehearing and a rehearing en banc, continued to hold that an “investigation” requires more than just a “cursory or sloppy review of the dispute,” otherwise furnishers could escape their duty to investigate “by merely rubber-stamping their earlier submissions, even where circumstances demanded a more thorough inquiry.” The amended opinion, however, deleted the court’s previous statement that “the reasonableness of the furnisher’s investigation is measured by its response to the specific information provided by the CRA in the notice of dispute,” holding that “[t]he pertinent question is thus whether the furnisher’s procedures were reasonable in light of what it learned about the nature of the dispute from the description in the CRA’s notice of dispute.” Additionally, the amended opinion remained consistent in its conclusion that the defendant’s investigation in this case was reasonable in light of the scant, vague, and/or inaccurate information provided in the CRA’s notice of dispute, among other reasons.
The amended opinion also addressed the argument raised by the defendant in connection with the petition for rehearing en banc that private enforcement of California Civil Code section 1785.25(a) is preempted because it is inconsistent with the purpose of the FCRA. The court held that, even if this argument had not been waived by failure to raise it timely, Congress intended FCRA to exempt the state law claim from FCRA’s preemption provision. Ultimately, however, the court held that the preemption issue was moot because, even assuming that plaintiff’s state law claim were not preempted by FCRA, the plaintiff had not introduced sufficient evidence to survive summary judgment on the claim. For a copy of the opinion, please see http://www.ca9.uscourts.gov/datastore/opinions/2009/10/20/06-17226.pdf.
Litigation
DOJ Announces Lawsuit for Fair Housing Act Violations. On October 16, the U.S. Department of Justice (DOJ) announced that it has filed a lawsuit in the U.S. District Court for the District of South Dakota against TK Properties LLC, a mortgage lender, for allegedly violating the Fair Housing Act by discriminating on the basis of race. The lawsuit also names the officer and two employees of TK Properties LLC as defendants. According to the DOJ’s complaint, the defendants engaged in a pattern or practice of discrimination by creating a “hostile housing environment” for one African-American family and two white families at an apartment complex in South Dakota. The suit seeks a court order (i) declaring that the defendants’ actions violate the Fair Housing Act, (ii) prohibiting the defendants from engaging in future discrimination, (iii) awarding monetary damages, and (iv) assessing a civil penalty. For a copy of the press release, please see http://www.usdoj.gov/opa/pr/2009/October/09-crt-1117.html. For a copy of the complaint, please e-mail .
U.S. Attorneys File Suit against Mortgage Lender for Alleged Violations of HUD, FHA Requirements. On October 20, U.S. Attorneys filed a complaint against Ideal Mortgage Bankers, Ltd. d/b/a Lend America and its Executive Vice President, Michael Ashley, in the U.S. District Court for the Eastern District of New York, alleging that the company violated the Federal Housing Administration’s (FHA) origination and underwriting requirements applicable to HUD-approved lenders. Among other things, the complaint asserts that the company falsely certified to HUD that certain borrowers met HUD’s lending requirements for mortgage loans insured by the FHA when the company was aware that the borrowers did not in fact meet such requirements. Four of the company’s underwriters have been notified that HUD has suspended and/or proposed debarments for their actions related to the alleged violations. The U.S. Attorneys filed a motion for a temporary restraining order to prevent the company from originating any new FHA-insured mortgages until a civil fraud injunction could be obtained, but the motion was denied by the court on October 21. A preliminary injunction hearing has not yet been scheduled. For a copy of HUD’s press release, please see http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2009/HUDNo.09-205. For a copy of the Department of Justice’s press release, please see http://www.usdoj.gov/usao/nye/pr/2009/2009oct20.html. For a copy of the complaint, please see http://www.buckleysandler.com/U_S_%20v_%20Lend%20America.pdf.
Eighth Circuit Holds Credit Card Arbitration Agreement Not Unconscionable under Missouri Law. On October 6, the Eighth Circuit held that an arbitration provision and a class action waiver in a credit card agreement were not unconscionable under Missouri law. Cicle v. Chase Bank USA, No. 08-1362, 2009 WL 3172157 (8th Cir. Oct. 6, 2009). In Cicle, a credit card borrower brought a class action lawsuit against the defendant bank for increasing her credit card APR from 7.99% to 25.99% after a credit reporting agency reported her as past due on an unrelated account. The district court found the consumer’s arbitration agreement for the credit card to be unconscionable under Missouri law and the bank appealed. The Eighth Circuit held that the arbitration agreement was neither procedurally nor substantively unconscionable. The borrower argued that the agreement-which the bank amended in 2005-was a “negative option, ‘an offer that is deemed to be accepted by a failure to respond,’ and therefore unconscionable.” According to the court, however, the borrower declined the “ample opportunity” to opt out by continuing to use the credit card. With respect to substantive unconscionability, the court disagreed with the district court’s conclusion that the class-action waiver and the cost-sharing provisions within the arbitration agreement were unconscionable. In this regard, the court found that the agreement provided an exception to binding arbitration by allowing the borrower to file her claim individually in small claims court, and that the cost-sharing and cost-shifting provisions in the agreement saved it from being unconscionable on its face. For a copy of the opinion, please see http://www.buckleysandler.com/Cicle_v_Chase.pdf.
California Federal Court Rules on the Availability of Private Rights of Action for FCRA, CCRA, and Defamation Cases. On September 22, the U.S. District Court for the Eastern District of California ruled that a plaintiff does not have a private right of action under the Fair Credit Reporting Act (FCRA) to sue for violations of FCRA’s adverse action provisions, but that a plaintiff may still have a private right of action with regard to certain other California Consumer Credit Reporting Agencies Act (CCCRA) and defamation claims. Banga v. Allstate Insurance Co., No. CIV S-08-1518, 2009 WL 3073925 (E.D. Cal. Sept. 22, 2009). In Banga, the plaintiff filed a lawsuit against the defendant, the underwriter of the plaintiff’s homeowner’s insurance policy, after the defendant allegedly inaccurately reported to credit reporting agencies (CRAs) that the plaintiff had filed two fire claims in 2005, and then increased the plaintiff’s annual homeowner’s insurance premium. Among other things, the plaintiff alleged that this course of action (i) violated FCRA’s adverse action provisions, (ii) violated the CCCRA’s provisions regarding the furnishing of false information, and (iii) constituted common law defamation.
The court evaluated each of the plaintiff’s claims in the context of a motion to dismiss filed by the defendant and a motion for leave to file a second amended complaint filed by the plaintiff. With respect to the plaintiff’s claims that the defendant violated FCRA’s adverse action provisions by furnishing inaccurate credit information concerning the plaintiff to CRAs and by failing to notify the plaintiff of the adverse action, the court held that the plain language of FCRA expressly reserves the right to enforce FCRA’s adverse action provisions to state and federal agencies. However, the court explained that FCRA does provide a private right of action with respect to § 1681-2(b), which sets forth a furnisher of information’s duty to reinvestigate disputed information upon receipt of a notice of dispute from a CRA. Accordingly, the court dismissed each of the plaintiff’s FCRA claims, with the exception of the plaintiff’s claim stated pursuant to § 1681s-2(b).
Additionally, the court did not dismiss the plaintiff’s claim that the defendant violated the CCCRA by providing information concerning the plaintiff to CRAs that the defendant knew or should have known was inaccurate, holding that FCRA does not preempt a plaintiff’s private right of action to enforce the CCCRA. However, the court dismissed the plaintiff’s claim that the defendant violated the CCCRA by failing to notify her that it had reported negative information to CRAs, noting that the defendant, as an insurance company, was expressly exempt from the requirement. Finally, the court found that the plaintiff’s allegation of defamation with malice overcame FCRA’s qualified preemption of state law defamation claims. For a copy of the opinion, please see http://www.buckleysandler.com/Banga_v_Allstate.pdf.
Massachusetts Land Court Judge Reaffirms That Foreclosing Lenders Must Be Assigned Mortgage Prior to Notice of Foreclosure. On October 14, a Massachusetts Land Court Judge, in response to a motion to vacate, reaffirmed his prior ruling that foreclosing lenders in Massachusetts must possess a valid assignment of a mortgage in recordable form before publishing or mailing a notice of foreclosure. U.S. Bank Nat’l Assoc. v. Ibanez, No. 08 MISC 384283, 2009 WL 3297551 (Mass. Land Ct. Oct. 14, 2009). In Ibanez, the plaintiffs, foreclosing lenders acting as trustees for securitized trusts, petitioned the court to validate certain foreclosure sales of residential property located in Massachusetts for which they had acted as both the foreclosing party and the only bidder. In each case, the plaintiffs did not hold the mortgage in recordable form at the time of notice and sale, but, instead, obtained a back-dated assignment of the mortgage following the sale. The court dismissed the plaintiffs’ cases, holding that the back-dated assignments were invalid, and that the plaintiffs’ failure to possess assignments in recordable form that were executed before the notices of sale meant that they were not mortgage holders when they issued the notices of foreclosure, as required under Massachusetts law. The court expressed its view that if “industry standards and practices” arising from placing mortgages in securitizations meant that the mortgage would not be assigned prior to a notice of foreclosure, then the lenders should seek to have the Massachusetts legislature change the law. The court further noted that Massachusetts has not adopted the position that the mortgage “follows the note.” Rather, in Massachusetts, a note holder only has the right to bring an action to have the corresponding mortgage assigned to it. For a copy of the opinion, please see http://www.buckleysandler.com/Ibanez.pdf.
Ninth Circuit Issues Amended Opinion on FCRA “Reasonable” Investigation Requirement. On October 21, the U.S. Court of Appeals for the Ninth Circuit issued an amended opinion reiterating that a furnisher receiving notice of a dispute from a credit reporting agency (CRA) under the Fair Credit Reporting Act (FCRA) is required to conduct a “reasonable” investigation into the consumer’s dispute. Gorman v. Wolpoff & Abramson, LLP, No. 06-17226, 2009 WL 3365928 (9th Cir. Oct. 21, 2009). In a lawsuit stemming from a disputed credit card charge, the plaintiff sued the defendants-a bank and a law firm that conducted its debt collection-for various violations of FCRA and state law, alleging that the bank did not conduct a sufficient investigation after being notified by the CRAs that the charges were being disputed. The bank argued that, because the statute only requires “an investigation” into the disputed charge, any investigation will suffice. In its previous opinion, the court held that the bank’s investigation was reasonable under FCRA (reported in InfoBytes, Jan.16, 2009). The amended opinion, which was issued in conjunction with the court’s denial of petitions for a panel rehearing and a rehearing en banc, continued to hold that an “investigation” requires more than just a “cursory or sloppy review of the dispute,” otherwise furnishers could escape their duty to investigate “by merely rubber-stamping their earlier submissions, even where circumstances demanded a more thorough inquiry.” The amended opinion, however, deleted the court’s previous statement that “the reasonableness of the furnisher’s investigation is measured by its response to the specific information provided by the CRA in the notice of dispute,” holding that “[t]he pertinent question is thus whether the furnisher’s procedures were reasonable in light of what it learned about the nature of the dispute from the description in the CRA’s notice of dispute.” Additionally, the amended opinion remained consistent in its conclusion that the defendant’s investigation in this case was reasonable in light of the scant, vague, and/or inaccurate information provided in the CRA’s notice of dispute, among other reasons.
The amended opinion also addressed the argument raised by the defendant in connection with the petition for rehearing en banc that private enforcement of California Civil Code section 1785.25(a) is preempted because it is inconsistent with the purpose of the FCRA. The court held that, even if this argument had not been waived by failure to raise it timely, Congress intended FCRA to exempt the state law claim from FCRA’s preemption provision. Ultimately, however, the court held that the preemption issue was moot because, even assuming that plaintiff’s state law claim were not preempted by FCRA, the plaintiff had not introduced sufficient evidence to survive summary judgment on the claim. For a copy of the opinion, please see http://www.ca9.uscourts.gov/datastore/opinions/2009/10/20/06-17226.pdf.
Privacy/Data Security
FTC Settles Allegations against Consumer Data Broker for Failure to Safeguard Consumers’ Sensitive Information. On October 14, the Federal Trade Commission (FTC) announced a settlement with ChoicePoint, Inc. (ChoicePoint), a consumer data broker that allegedly failed to comply with a 2006 court order requiring it to implement “a comprehensive information security program protecting consumers’ sensitive information.” According to the FTC’s press release, ChoicePoint’s failure to comply with the court order facilitated a 2008 data breach that put 13,750 people at risk of identity theft. Pursuant to a modified court order, ChoicePoint must now, on a bi-monthly basis for two years, provide the FTC with detailed information regarding how it is protecting the breached database, as well as certain other databases and records containing personal information. The modified court order also extends the record-keeping and monitoring requirements of the 2006 court order, and gives the FTC the right to request up to two additional biennial assessments of ChoicePoint’s security program. Finally, the modified court order requires ChoicePoint to pay a $275,000 fine. For a copy of the press release, please see http://www.ftc.gov/opa/2009/10/choicepoint.shtm. For a copy of the settlement, please see http://www.ftc.gov/os/caselist/choicepoint/091019choicepointstiporder.pdf.
Company to Pay $18 Million to Settle FTC Charges That It Violated FTC Act, Telemarketing Sales Rule. On October 20, MoneyGram International, Inc. (MoneyGram) agreed to settle Federal Trade Commission (FTC) charges that it knowingly permitted fraudulent telemarketers in the U.S. and Canada to wire more than $84 million from U.S. customers. According to the FTC’s complaint, MoneyGram violated the FTC Act and the FTC’s Telemarketing Sales Rule because it helped these telemarketers, even though it was aware that the telemarketers were or could be committing a federal crime. The FTC pointed out that MoneyGram ignored warnings by law enforcement officials and by its own employees that widespread fraud was being conducted over its network. The settlement requires MoneyGram to (i) provide a clear and conspicuous fraud warning on the front of all its money transfer forms, (ii) conduct background checks on agents, (iii) educate and train employees about consumer fraud, (iv) monitor agent activity, (v) discipline non-compliant agents, (vi) develop and maintain a system for receiving consumer complaints and data, and provide that information to the FTC upon request, and (vii) take “all reasonable steps” to identify agents that are involved in fraud, including reviewing accounts for unusual or suspicious activity. The settlement also requires MoneyGram to pay an $18 million fine to the FTC for consumer redress. For a copy of the press release, please see http://www.ftc.gov/opa/2009/10/moneygram.shtm. For a copy of the settlement, please see http://www.ftc.gov/os/caselist/0623187/091020moneygramstip.pdf.
FTC Settles with Company Charged with Violating COPPA, FTC Act. On October 20, Iconix Brand Group, Inc. (Iconix) settled charges filed against it by the Federal Trade Commission (FTC) for allegedly violating the Children’s Online Privacy Protection Act (COPPA) and the FTC Act. According to the FTC’s complaint, Iconix violated COPPA by obtaining and storing the personal identifying information of approximately 1,000 children without first obtaining their parents’ consent. Iconix also violated the FTC Act by making false representations in its privacy policy, including that it would not attempt to collect personal information from children without parental consent and that it would delete any personal identifying information posted by children. Among other things, the FTC-Iconix settlement requires Iconix to pay a $250,000 fine and to delete any outstanding information that it has obtained in violation of COPPA. For a copy of the press release, please see http://www.ftc.gov/opa/2009/10/iconix.shtm. For a copy of the settlement, please see http://www.ftc.gov/os/caselist/0923032/091020Iconixsonsentorder.pdf.
House Bill Creates New Exclusions From Red Flags Rule “Creditor” Definition. On October 20, the U.S. House of Representatives passed a bill that would amend the Fair Credit Reporting Act (FCRA) to create new exclusions from the definition of “creditor” appearing under the Federal Trade Commission’s (FTC) Red Flags Rule. Pursuant to the bill, legal, health care, and accounting businesses with twenty or fewer employees would be excluded from the definition of “creditor.” In addition, the bill would require the FTC to develop a process by which a business that does not meet any of the foregoing exclusions from the definition of “creditor” could apply for an exclusion, where such business (i) knows all of their customers or clients individually, (ii) only performs services in our around the residences of their customers, or (iii) has not experienced any incidents of identify theft, provided that identity theft is rare for a business of that type. The FTC is set to enforce the Red Flags Rule on November 1, 2009. For a copy of the bill, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h3763eh.txt.pdf.
Credit Cards
Financial Services Committee Passes Bill to Expedite Credit CARD Act Enforcement Date. On October 22, the House Financial Services Committee unanimously passed H.R. 3639, the Expedited CARD Reform for Consumers Act of 2009. The bill would expedite the effective date for the remaining provisions of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 that become effective February 22, 2010. Under the bill, the new effective date for these provisions would be December 1, 2009. For a copy of the press release, please see http://www.house.gov/apps/list/press/financialsvcs_dem/presscc_102209.shtml. For a copy of the bill, please see http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h3639ih.txt.pdf.
Eighth Circuit Holds Credit Card Arbitration Agreement Not Unconscionable under Missouri Law. On October 6, the Eighth Circuit held that an arbitration provision and a class action waiver in a credit card agreement were not unconscionable under Missouri law. Cicle v. Chase Bank USA, No. 08-1362, 2009 WL 3172157 (8th Cir. Oct. 6, 2009). In Cicle, a credit card borrower brought a class action lawsuit against the defendant bank for increasing her credit card APR from 7.99% to 25.99% after a credit reporting agency reported her as past due on an unrelated account. The district court found the consumer’s arbitration agreement for the credit card to be unconscionable under Missouri law and the bank appealed. The Eighth Circuit held that the arbitration agreement was neither procedurally nor substantively unconscionable. The borrower argued that the agreement—which the bank amended in 2005—was a “negative option, ‘an offer that is deemed to be accepted by a failure to respond,’ and therefore unconscionable.” According to the court, however, the borrower declined the “ample opportunity” to opt out by continuing to use the credit card. With respect to substantive unconscionability, the court disagreed with the district court’s conclusion that the class-action waiver and the cost-sharing provisions within the arbitration agreement were unconscionable. In this regard, the court found that the agreement provided an exception to binding arbitration by allowing the borrower to file her claim individually in small claims court, and that the cost-sharing and cost-shifting provisions in the agreement saved it from being unconscionable on its face. For a copy of the opinion, please see http://www.buckleysandler.com/Cicle_v_Chase.pdf.