InfoBytes, October 24, 2008
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Banking
- Consumer Finance
- Litigation
- E-Financial Services
- Privacy/Data Security
Federal Issues
FTC Delays Enforcement of Red Flags Rule. On October 22, the Federal Trade Commission (FTC) announced that the deadline for compliance with its “Red Flags” rule will be extended by six months, until May 1, 2009, to give creditors and financial institutions more time to implement their written identity theft programs. The FTC noted that many industries and entities were uncertain of the applicability of the FTC’s Red Flags rule to industries and entities not traditionally subject to other FTC rules. The action does not affect the November 1, 2008 deadline for compliance by creditors and financial institutions that are subject to the Red Flags rules issued by the federal banking agencies and the National Credit Union Administration (NCUA). Unless the other agencies delay the effective dates of their rules, entities that are under FTC jurisdiction but provide services to entities under banking agency or NCUA jurisdiction will still have to develop Red Flags programs by the November 1 deadline. The FTC also noted that its address discrepancy rule, which applies to all users of consumer reports, and its change-of-address rule, which applies to card issuers, will go into effect as scheduled on November 1, 2008. For a copy of the press release, please see http://www.ftc.gov/opa/2008/10/redflags.shtm. For a copy of the Enforcement Policy, please see http://www.ftc.gov/os/2008/10/081022idtheftredflagsrule.pdf.
Treasury, Federal Bank and Thrift Regulatory Agencies Issue Application for the Treasury Capital Purchase Program. On October 20, the U.S. Department of the Treasury (Treasury) and the primary federal banking and thrift regulatory agencies issued an application form with additional guidelines for United States financial institutions to use when applying for the Treasury’s Capital Purchase Program (reported in InfoBytes Special Alert, Oct. 20, 2008). Under this program, eligible institutions will be able to sell equity interests to the Treasury in amounts equal to a minimum of one percent (1%) of the total risk-weighted assets and to a maximum of the lesser of an amount equal to three percent (3%) of the institution’s total risk-weighted assets or $25 billion, as calculated from the latest quarterly supervisory report filed by the institution. To be eligible to participate, an applicant must comply with (i) terms and conditions, currently available at http://www.treas.gov/press/releases/reports/document5hp1207.pdf, (ii) an agreement of detailed investment terms, representations and warranties to be contained in an “Investment Agreement,” and (iii) associated documents to be published on the Treasury website. The application must be submitted by November 14, 2008. For a copy of the application and guidelines, please see http://www.treas.gov/press/releases/reports/applicationguidelines.pdf. Additional information can be obtained through discussions with Bob Serino of Buckley Kolar at 202-349-8053, or via email at .
FDIC Issues Rule Implementing Temporary Liquidity Guarantee Program. On October 23, the Federal Deposit Insurance Corporation (FDIC) issued an interim rule regarding the Temporary Liquidity Guarantee Program (TLGP). The interim rule states that all eligible institutions are automatically enrolled in the program for the first 30 days at no cost. Eligible entities generally include any FDIC-insured depository institution, any U.S. bank holding company, including financial holding companies, and certain U.S. savings and loan holding companies. Organizations that do not wish to participate in the TLGP must opt out by 11:59 p.m. on November 12, 2008. After that time, the FDIC will charge participating entities fees for coverage. The Debt Guarantee Program of the TLGP will guarantee newly-issued senior unsecured debt of participating organizations, within a certain limit, issued between October 14, 2008 and June 30, 2009. For debts maturing beyond June 30, 2009, the guarantee will remain in effect until June 30, 2012. The Transaction Account Guarantee Program of the TLGP will provide full coverage for non-interest bearing transaction deposit accounts, regardless of dollar amount, until December 31, 2009. The interim rule includes a provision for some otherwise ineligible holding companies or affiliates that issue debt for the benefit of an insured institution or eligible holding company to apply for the TLGP on a case-by-case basis. The rule is effective immediately, and comments will be taken for a 15-day period. For a copy of the interim rule, please see http://www.fdic.gov/news/board/TLGPreg.pdf.
Fed Approves Revision to Regulation C to Improve HMDA Data Reporting. On October 20, the Federal Reserve Board (Fed) approved final amendments to Regulation C that revise the rules regarding the reporting of price information for higher-priced mortgage loans. These amendments intend to collect more accurate and useful information under the Home Mortgage Disclosure Act. Under Regulation C’s current provisions, lenders must collect and report the rate spread between the annual percentage rate (APR) on a mortgage loan and the yield on Treasury securities if the spread is greater than 3 percentage points for a first-lien mortgage loan, or 5 points on a subordinate-lien loan. Under the revised rule, lenders must collect and report the rate spread between the loan’s APR and an “average prime offer rate” if the spread meets or exceeds 1.5 percentage points for a first-lien loan, or 3.5 points for a subordinate-lien loan. The average prime offer rate is a survey-based estimate of APRs currently offered on prime mortgages of a comparable type. The Fed will publish average prime offer rates based on the Primary Mortgage Market Survey currently published by Freddie Mac. The final rule will become effective October 1, 2009. For a copy of the Federal Register notice, please see http://edocket.access.gpo.gov/2008/pdf/E8-25320.pdf.
HUD Requires Mortgagees to Use FHA Loss Mitigation During Bankruptcy. On October 17, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2008-32 (ML 08-32), announcing that mortgagees must, upon receipt of notice of a bankruptcy filing, (i) send information to a debtor’s counsel indicating that loss mitigation may be available, and (ii) provide instructions sufficient to facilitate workout discussions, including documentation requirements, time-frames, and servicer contact information. The provisions are effective immediately. ML 08-32 supersedes the guidance regarding mortgagors in bankruptcy provided in Mortgagee Letter 2000-05, which generally prohibited mortgagees from offering loss mitigation to a borrower in bankruptcy. Mortgagees may now offer appropriate loss mitigation options through the debtor’s counsel prior to discharge or dismissal without requiring relief from the automatic stay and, in the case of a Chapter 7 bankruptcy, without requiring re-affirmation of the debt. All loss mitigation actions must be approved by the Bankruptcy Court prior to final execution. For a copy of ML 08-32, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-32ml.doc.
FDIC Simplifies Deposit Insurance Coverage Rules for Servicers. On October 10, the Federal Deposit Insurance Corporation (FDIC) issued an interim final rule applicable to mortgage servicer accounts at FDIC-insured depository institutions. The interim final rule provides coverage to lenders (or investors) as a collective group based on the cumulative amount of the borrowers’ payments of principal and interest into the account. Previously, mortgage servicer accounts comprised of borrower principal and interest payments were insured based on the ownership interest of each lender (or investor) in the account. The FDIC hopes the new rule will, in part, pay deposit insurance more quickly to affected mortgage servicers. The interim final rule is effective immediately. For a copy of the rule, please see http://www.fdic.gov/news/board/08oct10interimrule.pdf.
OCC Bulletin Discuses Obtaining Consent to Issue Covered Bonds. On October 20, the Office of the Comptroller of the Currency (OCC) issued a bulletin describing what national banks must do to obtain the OCC’s consent to issue covered bonds pursuant to the terms of the Federal Deposit Insurance Corporation’s (FDIC) covered bond policy statement, which was published on July 28, 2008. The FDIC policy statement discusses how covered bonds should be handled when the issuing insured depository institution is placed into FDIC receivership or conservatorship. The FDIC’s statement includes a provision that expedited access to collateral pledged for covered bonds must be available only if a covered bond is issued with the consent of an institution’s primary federal regulator. In response to the FDIC’s provision, the OCC bulletin provides that a national bank intending to issue covered bonds must first notify its examiner-in-charge (EIC), as well as describe to its EIC how its proposed covered bond program will comply with the FDIC policy statement. If the OCC consents to the program, it will issue a written supervisory no-objection. For a copy of the bulletin, please see http://www.occ.gov/ftp/bulletin/2008-29.html.
FTC Files Complaints Against Credit Repair Organizations. On October 23, the Federal Trade Commission (FTC) announced that, along with 24 state agencies, it had filed actions against 33 credit repair organizations for allegedly violating the FTC Act and the Credit Repair Organizations Act (CROA). The FTC alleges that the companies made false and misleading statements when they claimed that they could remove negative information from consumers’ credit reports, even if that information was accurate and timely. Further, the FTC alleges that the agencies violated the CROA by charging advance fees in connection with credit repair services. The FTC seeks to (i) halt the defendants’ allegedly unlawful business practices, (ii) prohibit further violations, and (iii) mandate consumer redress and disgorge the credit repair organizations’ profits from these activities. For a copy of the press release, please see http://www.ftc.gov/opa/2008/10/opcleansweep.shtm.
Fed Adjusts Formula Determining Interest Rate Paid on Excess Balances. On October 22, the Federal Reserve Board announced that it will alter the formula used to determine the interest rate paid on excess balances to depository institutions. Under the new formula, the rate on excess balances will be set equal to the lowest Federal Open Market Committee (FOMC) target rate in effect during the reserve maintenance period less 35 basis points. Previously, the rate on excess balances was the lowest federal funds rate target established by the FOMC in effect during the reserve maintenance period minus 75 basis points. The new formula applies to maintenance periods beginning October 23, 2008. For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/monetary/20081022a.htm.
Fed Facility Will Buy Short-Term Debt to Increase Liquidity. On October 21, the Federal Reserve Board (Fed) announced the creation of the Money Market Investor Funding Facility (MMIFF) to help increase liquidity in the short-term debt market. Under the MMIFF, private sector special purpose vehicles (PSVPs) will receive senior secured funding from the Federal Reserve Bank of New York to purchase specific eligible assets. The PSVPs will initially include U.S. money market mutual funds and may expand to include other U.S. money market investors. Eligible assets will include U.S. dollar-denominated certificates of deposit and commercial paper issued by highly-rated financial institutions maturing within 90 days. The PSVPs must cease purchasing assets and begin the “wind down” process on April 30, 2009, unless the Fed opts to extend the MMIFF. Notice of a start date for the MMIFF is forthcoming. For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/monetary/20081021a.htm.
Identity Theft Task Force Publishes Report Examining Strategic Plan Implementation. On October 21, the Federal Trade Commission (FTC) and Attorney General Michael B. Mukasey announced the release of a report examining the implementation of the President’s Identity Theft Task Force’s Strategic Plan (Plan). Beginning in April 2007, federal agencies, working with the public, private and non-profit sector, began implementing the Plan’s 31 recommendations in an attempt to (i) prevent identity theft, (ii) assist consumers with both detecting and recovering from identity theft, and (iii) increase the investigation, prosecution, and punishment of identity thieves. Among other actions, the report reveals that (i) to prevent identity theft, agencies have taken measures to eliminate the unnecessary use of Social Security Numbers, (ii) to assist consumers in both detecting and recovering from identity theft, task force members trained victim assistance counselors and provided grants to victim assistance organizations, and (iii) to increase the investigation, prosecution, and punishment of identity thieves, task force members increased information sharing and provided identity theft training seminars. For a copy of the report, please see http://www.ftc.gov/os/2008/10/081021taskforcereport.pdf.
FHFA Issues Second Quarter Mortgage Metrics Report. On October 22, the Federal Housing Finance Agency (FHFA) announced the release of its "Mortgage Metrics Report" for the second quarter of 2008. The report evidences significant performance data for 30.6 million first-lien residential mortgages serviced on behalf of Fannie Mae and Freddie Mac. The report includes information for all loss mitigation actions in connection with these mortgages, including forbearance plans, short sales, deeds in lieu, assumptions, and charge-offs in lieu of foreclosure. Among other items, the report evidences that the loss mitigation performance ratio for prime mortgages decreased from 43.7% in the first quarter of 2008 to 37.2% in the second quarter of 2008. The next quarterly report is scheduled to be released November 30, 2008. For a copy of the press release, please see http://www.ofheo.gov/media/news%20releases/Q2MortgageMetricsReport102208release.pdf. For a copy of the report, please see http://www.ofheo.gov/media/metricsreports/MetricsReport102208.pdf.
State Issues
California Department of Corporation Issues Notice in Connection with SB 1137. On October 20, the California Department of Corporations issued a notice reminding lenders of changes in the California Civil Code that took effect in September following the passage of SB 1137 (reported in InfoBytes, July 11, 2008).The notice summarizes the provisions of SB 1137, including the requirement for a mortgagee to contact or attempt to contact borrowers, in person or by phone, at least 30 days prior to issuing a default notice. For a copy of the notice, please see http://www.corp.ca.gov/Commissioner/Notices/pdf/SB1137_Notice2Lenders.pdf.
Florida AG Files Complaints Against Debt Relief Services Companies. On October 15, Florida Attorney General Bill McCollum announced actions against five companies offering debt relief services. The complaints allege violations of Florida’s Deceptive and Unfair Trade Practices Act, as well as laws regulating telephone solicitations, telemarketing, credit counseling organizations, and credit service organizations. The complaints generally allege the charging of illegal advance fees, the failure to provide consumers with written contracts and refunds, and misrepresentation regarding the services provided. For a copy of the press release, please see http://myfloridalegal.com/newsrel.nsf/newsreleases/BD3AB29E6DDAF150852574E3004DFACD.
Courts
Eleventh Circuit Holds Title Insurer Not Liable for Excessive Fees Under RESPA. On October 20, the U.S. Eleventh Circuit Court of Appeals affirmed the dismissal of a case against a title insurance company, holding that an “unearned” or “unreasonable” fee did not violate the Real Estate Settlement Procedures Act (RESPA) because the title insurance policy services were actually performed. Hazewood v. Foundation Financial Group, LLC, et al., No. 08-11511, 2008 WL 4636483 (11th Cir. Oct. 20, 2008). In this case, the plaintiff obtained a mortgage loan from one of the defendants; additional defendants acted as settlement agents for the plaintiff in closing the loan; a final defendant, through its agent, issued the plaintiff a title insurance policy. Among other claims, the plaintiff argued that the title insurance company charged a fee “other than for services performed” in violation of Section 8 of RESPA when the company charged a premium in excess of the rate it filed with the Alabama Insurance Commissioner. The district court dismissed the claim, and the appeals court affirmed, reasoning that RESPA provides a remedy only when fees are charged in exchange for no services at all, and not when a fee is “excessive.” The court relied upon its decision in Friedman v. Market Street Mortg. Corp., 520 F.3d 1289 (11th Cir. 2008), which held that a plaintiff must allege that no services at all were rendered in exchange for a fee to violate RESPA. The court rejected the argument that, although part of the fee was for services performed, the portion of the premium that exceeded the filed rate constituted an “unearned” and “unreasonable” fee separable from the “earned” and “reasonable” portion of the fee. The Court also affirmed the dismissal of various state law claims, including unjust enrichment. The court issued the opinion as an unpublished opinion. For a copy of the opinion, http://www.ca11.uscourts.gov/unpub/ops/200811511.pdf.
Washington Federal Court Holds Title Insurer Not Liable for Overcharge Under RESPA. On October 10, the U.S. District Court for the Western District of Washington held that an “excessive” premium for a lender title insurance policy did not violate Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) because the title insurance policy services were actually performed. Kingsberry v. Chicago Title Insurance Co., No. C07-5706, 2008 WL 4566688 (W.D. Wash. Oct. 10, 2008). In this case, the plaintiff obtained a mortgage loan from the defendant. At closing, the lender required the plaintiff to purchase a lender title policy, which the defendant issued. The defendant also issued a lender title policy in connection with the subsequent refinancing of the loan. The borrower claimed that, because the second lender title policy was issued in connection with a refinance, the defendant, Chicago Title Insurance Company (Chicago Title), was required to sell insurance at a discounted rate in accordance with the rates it filed with the Washington Insurance Commissioner. The plaintiff then filed suit, arguing that Chicago Title and the title agent that issued the policy split the revenue from the insurance, and by charging more than the discounted premium rates, Chicago Title charged “a fee that was ‘not for services actually furnished or performed’” in violation of Section 8(b) of RESPA. The court disagreed, holding that, “[s]o long as some work is performed by the recipient of the fee, or any portion thereof, RESPA Section 8(b) does not impose liability.” The court did not give deference to the Department of Housing and Urban Development’s 2001 policy statement, which asserts the agency’s view that Section 8(b) prohibits settlement service providers from charging excessive fees. Instead, the court held that “Section 8(b) is not a price control statute” and that splitting a fee for services rendered into “reasonable” and “unreasonable” or “earned’ and “unearned” portions would be contrary to legislative intent. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Kingsberry_v_Chicago_Title.pdf.
Ohio Bankruptcy Court Permits TILA and RESPA Damages Claims Under Recoupment Exception. On September 2, a bankruptcy court in Ohio rejected a statute of limitations defense to claims arising under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), finding that a debtor’s TILA and RESPA damages claims were in the “nature of recoupment.” Wentz v. Saxon Mortgage, Adv. No. 08-3053, 2008 Bankr. Lexis 2528 (Bankr. S.D. Ohio Sept. 2, 2008). In this case, the defendant, a creditor mortgage lender, filed a proof of claim in the debtor’s Chapter 13 bankruptcy proceedings. The debtor then filed an adversary proceeding alleging violations of TILA and RESPA in connection with the origination of two loans by the defendant. The creditor moved to dismiss the damages portions of debtor’s claims on the basis that the claims were time-barred by TILA and RESPA’s one-year statutes of limitations. The bankruptcy court denied the motion, finding that, because debtor’s TILA damages claims were raised in response to the creditor’s proof of claim, those claims were “in the nature of recoupment” exempted from the statute of limitations by 15 U.S.C. § 1640(e). While acknowledging that “RESPA does not explicitly authorize actions by way of recoupment,” the court allowed the debtor to use RESPA “defensively” against creditor’s proof of claim. The court also held that debtor could pursue claims for attorneys’ fees under both TILA and RESPA as part of recoupment damages. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Wentz.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/
Mortgages
FTC Delays Enforcement of Red Flags Rule. On October 22, the Federal Trade Commission (FTC) announced that the deadline for compliance with its “Red Flags” rule will be extended by six months, until May 1, 2009, to give creditors and financial institutions more time to implement their written identity theft programs. The FTC noted that many industries and entities were uncertain of the applicability of the FTC’s Red Flags rule to industries and entities not traditionally subject to other FTC rules. The action does not affect the November 1, 2008 deadline for compliance by creditors and financial institutions that are subject to the Red Flags rules issued by the federal banking agencies and the National Credit Union Administration (NCUA). Unless the other agencies delay the effective dates of their rules, entities that are under FTC jurisdiction but provide services to entities under banking agency or NCUA jurisdiction will still have to develop Red Flags programs by the November 1 deadline. The FTC also noted that its address discrepancy rule, which applies to all users of consumer reports, and its change-of-address rule, which applies to card issuers, will go into effect as scheduled on November 1, 2008. For a copy of the press release, please see http://www.ftc.gov/opa/2008/10/redflags.shtm. For a copy of the Enforcement Policy, please see http://www.ftc.gov/os/2008/10/081022idtheftredflagsrule.pdf.
Fed Approves Revision to Regulation C to Improve HMDA Data Reporting. On October 20, the Federal Reserve Board (Fed) approved final amendments to Regulation C that revise the rules regarding the reporting of price information for higher-priced mortgage loans. These amendments intend to collect more accurate and useful information under the Home Mortgage Disclosure Act. Under Regulation C’s current provisions, lenders must collect and report the rate spread between the annual percentage rate (APR) on a mortgage loan and the yield on Treasury securities if the spread is greater than 3 percentage points for a first-lien mortgage loan, or 5 points on a subordinate-lien loan. Under the revised rule, lenders must collect and report the rate spread between the loan’s APR and an “average prime offer rate” if the spread meets or exceeds 1.5 percentage points for a first-lien loan, or 3.5 points for a subordinate-lien loan. The average prime offer rate is a survey-based estimate of APRs currently offered on prime mortgages of a comparable type. The Fed will publish average prime offer rates based on the Primary Mortgage Market Survey currently published by Freddie Mac. The final rule will become effective October 1, 2009. For a copy of the Federal Register notice, please see http://edocket.access.gpo.gov/2008/pdf/E8-25320.pdf.
HUD Requires Mortgagees to Use FHA Loss Mitigation During Bankruptcy. On October 17, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2008-32 (ML 08-32), announcing that mortgagees must, upon receipt of notice of a bankruptcy filing, (i) send information to a debtor’s counsel indicating that loss mitigation may be available, and (ii) provide instructions sufficient to facilitate workout discussions, including documentation requirements, time-frames, and servicer contact information. The provisions are effective immediately. ML 08-32 supersedes the guidance regarding mortgagors in bankruptcy provided in Mortgagee Letter 2000-05, which generally prohibited mortgagees from offering loss mitigation to a borrower in bankruptcy. Mortgagees may now offer appropriate loss mitigation options through the debtor’s counsel prior to discharge or dismissal without requiring relief from the automatic stay and, in the case of a Chapter 7 bankruptcy, without requiring re-affirmation of the debt. All loss mitigation actions must be approved by the Bankruptcy Court prior to final execution. For a copy of ML 08-32, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-32ml.doc.
FDIC Simplifies Deposit Insurance Coverage Rules for Servicers. On October 10, the Federal Deposit Insurance Corporation (FDIC) issued an interim final rule applicable to mortgage servicer accounts at FDIC-insured depository institutions. The interim final rule provides coverage to lenders (or investors) as a collective group based on the cumulative amount of the borrowers’ payments of principal and interest into the account. Previously, mortgage servicer accounts comprised of borrower principal and interest payments were insured based on the ownership interest of each lender (or investor) in the account. The FDIC hopes the new rule will, in part, pay deposit insurance more quickly to affected mortgage servicers. The interim final rule is effective immediately. For a copy of the rule, please see http://www.fdic.gov/news/board/08oct10interimrule.pdf.
FHFA Issues Second Quarter Mortgage Metrics Report. On October 22, the Federal Housing Finance Agency (FHFA) announced the release of its "Mortgage Metrics Report" for the second quarter of 2008. The report evidences significant performance data for 30.6 million first-lien residential mortgages serviced on behalf of Fannie Mae and Freddie Mac. The report includes information for all loss mitigation actions in connection with these mortgages, including forbearance plans, short sales, deeds in lieu, assumptions, and charge-offs in lieu of foreclosure. Among other items, the report evidences that the loss mitigation performance ratio for prime mortgages decreased from 43.7% in the first quarter of 2008 to 37.2% in the second quarter of 2008. The next quarterly report is scheduled to be released November 30, 2008. For a copy of the press release, please see http://www.ofheo.gov/media/news%20releases/Q2MortgageMetricsReport102208release.pdf. For a copy of the report, please see http://www.ofheo.gov/media/metricsreports/MetricsReport102208.pdf.
California Department of Corporation Issues Notice in Connection with SB 1137. On October 20, the California Department of Corporations issued a notice reminding lenders of changes in the California Civil Code that took effect in September following the passage of SB 1137 (reported in InfoBytes, July 11, 2008).The notice summarizes the provisions of SB 1137, including the requirement for a mortgagee to contact or attempt to contact borrowers, in person or by phone, at least 30 days prior to issuing a default notice. For a copy of the notice, please see http://www.corp.ca.gov/Commissioner/Notices/pdf/SB1137_Notice2Lenders.pdf.
Eleventh Circuit Holds Title Insurer Not Liable for Excessive Fees Under RESPA. On October 20, the U.S. Eleventh Circuit Court of Appeals affirmed the dismissal of a case against a title insurance company, holding that an “unearned” or “unreasonable” fee did not violate the Real Estate Settlement Procedures Act (RESPA) because the title insurance policy services were actually performed. Hazewood v. Foundation Financial Group, LLC, et al., No. 08-11511, 2008 WL 4636483 (11th Cir. Oct. 20, 2008). In this case, the plaintiff obtained a mortgage loan from one of the defendants; additional defendants acted as settlement agents for the plaintiff in closing the loan; a final defendant, through its agent, issued the plaintiff a title insurance policy. Among other claims, the plaintiff argued that the title insurance company charged a fee “other than for services performed” in violation of Section 8 of RESPA when the company charged a premium in excess of the rate it filed with the Alabama Insurance Commissioner. The district court dismissed the claim, and the appeals court affirmed, reasoning that RESPA provides a remedy only when fees are charged in exchange for no services at all, and not when a fee is “excessive.” The court relied upon its decision in Friedman v. Market Street Mortg. Corp., 520 F.3d 1289 (11th Cir. 2008), which held that a plaintiff must allege that no services at all were rendered in exchange for a fee to violate RESPA. The court rejected the argument that, although part of the fee was for services performed, the portion of the premium that exceeded the filed rate constituted an “unearned” and “unreasonable” fee separable from the “earned” and “reasonable” portion of the fee. The Court also affirmed the dismissal of various state law claims, including unjust enrichment. The court issued the opinion as an unpublished opinion. For a copy of the opinion, http://www.ca11.uscourts.gov/unpub/ops/200811511.pdf.
Washington Federal Court Holds Title Insurer Not Liable for Overcharge Under RESPA. On October 10, the U.S. District Court for the Western District of Washington held that an “excessive” premium for a lender title insurance policy did not violate Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) because the title insurance policy services were actually performed. Kingsberry v. Chicago Title Insurance Co., No. C07-5706, 2008 WL 4566688 (W.D. Wash. Oct. 10, 2008). In this case, the plaintiff obtained a mortgage loan from the defendant. At closing, the lender required the plaintiff to purchase a lender title policy, which the defendant issued. The defendant also issued a lender title policy in connection with the subsequent refinancing of the loan. The borrower claimed that, because the second lender title policy was issued in connection with a refinance, the defendant, Chicago Title Insurance Company (Chicago Title), was required to sell insurance at a discounted rate in accordance with the rates it filed with the Washington Insurance Commissioner. The plaintiff then filed suit, arguing that Chicago Title and the title agent that issued the policy split the revenue from the insurance, and by charging more than the discounted premium rates, Chicago Title charged “a fee that was ‘not for services actually furnished or performed’” in violation of Section 8(b) of RESPA. The court disagreed, holding that, “[s]o long as some work is performed by the recipient of the fee, or any portion thereof, RESPA Section 8(b) does not impose liability.” The court did not give deference to the Department of Housing and Urban Development’s 2001 policy statement, which asserts the agency’s view that Section 8(b) prohibits settlement service providers from charging excessive fees. Instead, the court held that “Section 8(b) is not a price control statute” and that splitting a fee for services rendered into “reasonable” and “unreasonable” or “earned’ and “unearned” portions would be contrary to legislative intent. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Kingsberry_v_Chicago_Title.pdf.
Ohio Bankruptcy Court Permits TILA and RESPA Damages Claims Under Recoupment Exception. On September 2, a bankruptcy court in Ohio rejected a statute of limitations defense to claims arising under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), finding that a debtor’s TILA and RESPA damages claims were in the “nature of recoupment.” Wentz v. Saxon Mortgage, Adv. No. 08-3053, 2008 Bankr. Lexis 2528 (Bankr. S.D. Ohio Sept. 2, 2008). In this case, the defendant, a creditor mortgage lender, filed a proof of claim in the debtor’s Chapter 13 bankruptcy proceedings. The debtor then filed an adversary proceeding alleging violations of TILA and RESPA in connection with the origination of two loans by the defendant. The creditor moved to dismiss the damages portions of debtor’s claims on the basis that the claims were time-barred by TILA and RESPA’s one-year statutes of limitations. The bankruptcy court denied the motion, finding that, because debtor’s TILA damages claims were raised in response to the creditor’s proof of claim, those claims were “in the nature of recoupment” exempted from the statute of limitations by 15 U.S.C. § 1640(e). While acknowledging that “RESPA does not explicitly authorize actions by way of recoupment,” the court allowed the debtor to use RESPA “defensively” against creditor’s proof of claim. The court also held that debtor could pursue claims for attorneys’ fees under both TILA and RESPA as part of recoupment damages. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Wentz.pdf.
Banking
FTC Delays Enforcement of Red Flags Rule. On October 22, the Federal Trade Commission (FTC) announced that the deadline for compliance with its “Red Flags” rule will be extended by six months, until May 1, 2009, to give creditors and financial institutions more time to implement their written identity theft programs. The FTC noted that many industries and entities were uncertain of the applicability of the FTC’s Red Flags rule to industries and entities not traditionally subject to other FTC rules. The action does not affect the November 1, 2008 deadline for compliance by creditors and financial institutions that are subject to the Red Flags rules issued by the federal banking agencies and the National Credit Union Administration (NCUA). Unless the other agencies delay the effective dates of their rules, entities that are under FTC jurisdiction but provide services to entities under banking agency or NCUA jurisdiction will still have to develop Red Flags programs by the November 1 deadline. The FTC also noted that its address discrepancy rule, which applies to all users of consumer reports, and its change-of-address rule, which applies to card issuers, will go into effect as scheduled on November 1, 2008. For a copy of the press release, please see http://www.ftc.gov/opa/2008/10/redflags.shtm. For a copy of the Enforcement Policy, please see http://www.ftc.gov/os/2008/10/081022idtheftredflagsrule.pdf.
Treasury, Federal Bank and Thrift Regulatory Agencies Issue Application for the Treasury Capital Purchase Program. On October 20, the U.S. Department of the Treasury (Treasury) and the primary federal banking and thrift regulatory agencies issued an application form with additional guidelines for United States financial institutions to use when applying for the Treasury’s Capital Purchase Program (reported in InfoBytes Special Alert, Oct. 20, 2008). Under this program, eligible institutions will be able to sell equity interests to the Treasury in amounts equal to a minimum of one percent (1%) of the total risk-weighted assets and to a maximum of the lesser of an amount equal to three percent (3%) of the institution’s total risk-weighted assets or $25 billion, as calculated from the latest quarterly supervisory report filed by the institution. To be eligible to participate, an applicant must comply with (i) terms and conditions, currently available at http://www.treas.gov/press/releases/reports/document5hp1207.pdf, (ii) an agreement of detailed investment terms, representations and warranties to be contained in an “Investment Agreement,” and (iii) associated documents to be published on the Treasury website. The application must be submitted by November 14, 2008. For a copy of the application and guidelines, please see http://www.treas.gov/press/releases/reports/applicationguidelines.pdf. Additional information can be obtained through discussions with Bob Serino of Buckley Kolar at 202-349-8053, or via email at .
FDIC Issues Rule Implementing Temporary Liquidity Guarantee Program. On October 23, the Federal Deposit Insurance Corporation (FDIC) issued an interim rule regarding the Temporary Liquidity Guarantee Program (TLGP). The interim rule states that all eligible institutions are automatically enrolled in the program for the first 30 days at no cost. Eligible entities generally include any FDIC-insured depository institution, any U.S. bank holding company, including financial holding companies, and certain U.S. savings and loan holding companies. Organizations that do not wish to participate in the TLGP must opt out by 11:59 p.m. on November 12, 2008. After that time, the FDIC will charge participating entities fees for coverage. The Debt Guarantee Program of the TLGP will guarantee newly-issued senior unsecured debt of participating organizations, within a certain limit, issued between October 14, 2008 and June 30, 2009. For debts maturing beyond June 30, 2009, the guarantee will remain in effect until June 30, 2012. The Transaction Account Guarantee Program of the TLGP will provide full coverage for non-interest bearing transaction deposit accounts, regardless of dollar amount, until December 31, 2009. The interim rule includes a provision for some otherwise ineligible holding companies or affiliates that issue debt for the benefit of an insured institution or eligible holding company to apply for the TLGP on a case-by-case basis. The rule is effective immediately, and comments will be taken for a 15-day period. For a copy of the interim rule, please see http://www.fdic.gov/news/board/TLGPreg.pdf.
FDIC Simplifies Deposit Insurance Coverage Rules for Servicers. On October 10, the Federal Deposit Insurance Corporation (FDIC) issued an interim final rule applicable to mortgage servicer accounts at FDIC-insured depository institutions. The interim final rule provides coverage to lenders (or investors) as a collective group based on the cumulative amount of the borrowers’ payments of principal and interest into the account. Previously, mortgage servicer accounts comprised of borrower principal and interest payments were insured based on the ownership interest of each lender (or investor) in the account. The FDIC hopes the new rule will, in part, pay deposit insurance more quickly to affected mortgage servicers. The interim final rule is effective immediately. For a copy of the rule, please see http://www.fdic.gov/news/board/08oct10interimrule.pdf.
OCC Bulletin Discuses Obtaining Consent to Issue Covered Bonds. On October 20, the Office of the Comptroller of the Currency (OCC) issued a bulletin describing what national banks must do to obtain the OCC’s consent to issue covered bonds pursuant to the terms of the Federal Deposit Insurance Corporation’s (FDIC) covered bond policy statement, which was published on July 28, 2008. The FDIC policy statement discusses how covered bonds should be handled when the issuing insured depository institution is placed into FDIC receivership or conservatorship. The FDIC’s statement includes a provision that expedited access to collateral pledged for covered bonds must be available only if a covered bond is issued with the consent of an institution’s primary federal regulator. In response to the FDIC’s provision, the OCC bulletin provides that a national bank intending to issue covered bonds must first notify its examiner-in-charge (EIC), as well as describe to its EIC how its proposed covered bond program will comply with the FDIC policy statement. If the OCC consents to the program, it will issue a written supervisory no-objection. For a copy of the bulletin, please see http://www.occ.gov/ftp/bulletin/2008-29.html.
Fed Adjusts Formula Determining Interest Rate Paid on Excess Balances. On October 22, the Federal Reserve Board announced that it will alter the formula used to determine the interest rate paid on excess balances to depository institutions. Under the new formula, the rate on excess balances will be set equal to the lowest Federal Open Market Committee (FOMC) target rate in effect during the reserve maintenance period less 35 basis points. Previously, the rate on excess balances was the lowest federal funds rate target established by the FOMC in effect during the reserve maintenance period minus 75 basis points. The new formula applies to maintenance periods beginning October 23, 2008. For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/monetary/20081022a.htm.
Fed Facility Will Buy Short-Term Debt to Increase Liquidity. On October 21, the Federal Reserve Board (Fed) announced the creation of the Money Market Investor Funding Facility (MMIFF) to help increase liquidity in the short-term debt market. Under the MMIFF, private sector special purpose vehicles (PSVPs) will receive senior secured funding from the Federal Reserve Bank of New York to purchase specific eligible assets. The PSVPs will initially include U.S. money market mutual funds and may expand to include other U.S. money market investors. Eligible assets will include U.S. dollar-denominated certificates of deposit and commercial paper issued by highly-rated financial institutions maturing within 90 days. The PSVPs must cease purchasing assets and begin the “wind down” process on April 30, 2009, unless the Fed opts to extend the MMIFF. Notice of a start date for the MMIFF is forthcoming. For a copy of the press release, please see http://www.federalreserve.gov/newsevents/press/monetary/20081021a.htm.
Consumer Finance
FTC Delays Enforcement of Red Flags Rule. On October 22, the Federal Trade Commission (FTC) announced that the deadline for compliance with its “Red Flags” rule will be extended by six months, until May 1, 2009, to give creditors and financial institutions more time to implement their written identity theft programs. The FTC noted that many industries and entities were uncertain of the applicability of the FTC’s Red Flags rule to industries and entities not traditionally subject to other FTC rules. The action does not affect the November 1, 2008 deadline for compliance by creditors and financial institutions that are subject to the Red Flags rules issued by the federal banking agencies and the National Credit Union Administration (NCUA). Unless the other agencies delay the effective dates of their rules, entities that are under FTC jurisdiction but provide services to entities under banking agency or NCUA jurisdiction will still have to develop Red Flags programs by the November 1 deadline. The FTC also noted that its address discrepancy rule, which applies to all users of consumer reports, and its change-of-address rule, which applies to card issuers, will go into effect as scheduled on November 1, 2008. For a copy of the press release, please see http://www.ftc.gov/opa/2008/10/redflags.shtm. For a copy of the Enforcement Policy, please see http://www.ftc.gov/os/2008/10/081022idtheftredflagsrule.pdf.
FTC Files Complaints Against Credit Repair Organizations. On October 23, the Federal Trade Commission (FTC) announced that, along with 24 state agencies, it had filed actions against 33 credit repair organizations for allegedly violating the FTC Act and the Credit Repair Organizations Act (CROA). The FTC alleges that the companies made false and misleading statements when they claimed that they could remove negative information from consumers’ credit reports, even if that information was accurate and timely. Further, the FTC alleges that the agencies violated the CROA by charging advance fees in connection with credit repair services. The FTC seeks to (i) halt the defendants’ allegedly unlawful business practices, (ii) prohibit further violations, and (iii) mandate consumer redress and disgorge the credit repair organizations’ profits from these activities. For a copy of the press release, please see http://www.ftc.gov/opa/2008/10/opcleansweep.shtm.
Identity Theft Task Force Publishes Report Examining Strategic Plan Implementation. On October 21, the Federal Trade Commission (FTC) and Attorney General Michael B. Mukasey announced the release of a report examining the implementation of the President’s Identity Theft Task Force’s Strategic Plan (Plan). Beginning in April 2007, federal agencies, working with the public, private and non-profit sector, began implementing the Plan’s 31 recommendations in an attempt to (i) prevent identity theft, (ii) assist consumers with both detecting and recovering from identity theft, and (iii) increase the investigation, prosecution, and punishment of identity thieves. Among other actions, the report reveals that (i) to prevent identity theft, agencies have taken measures to eliminate the unnecessary use of Social Security Numbers, (ii) to assist consumers in both detecting and recovering from identity theft, task force members trained victim assistance counselors and provided grants to victim assistance organizations, and (iii) to increase the investigation, prosecution, and punishment of identity thieves, task force members increased information sharing and provided identity theft training seminars. For a copy of the report, please see http://www.ftc.gov/os/2008/10/081021taskforcereport.pdf.
Florida AG Files Complaints Against Debt Relief Services Companies. On October 15, Florida Attorney General Bill McCollum announced actions against five companies offering debt relief services. The complaints allege violations of Florida’s Deceptive and Unfair Trade Practices Act, as well as laws regulating telephone solicitations, telemarketing, credit counseling organizations, and credit service organizations. The complaints generally allege the charging of illegal advance fees, the failure to provide consumers with written contracts and refunds, and misrepresentation regarding the services provided. For a copy of the press release, please see http://myfloridalegal.com/newsrel.nsf/newsreleases/BD3AB29E6DDAF150852574E3004DFACD.
Litigation
Eleventh Circuit Holds Title Insurer Not Liable for Excessive Fees Under RESPA. On October 20, the U.S. Eleventh Circuit Court of Appeals affirmed the dismissal of a case against a title insurance company, holding that an “unearned” or “unreasonable” fee did not violate the Real Estate Settlement Procedures Act (RESPA) because the title insurance policy services were actually performed. Hazewood v. Foundation Financial Group, LLC, et al., No. 08-11511, 2008 WL 4636483 (11th Cir. Oct. 20, 2008). In this case, the plaintiff obtained a mortgage loan from one of the defendants; additional defendants acted as settlement agents for the plaintiff in closing the loan; a final defendant, through its agent, issued the plaintiff a title insurance policy. Among other claims, the plaintiff argued that the title insurance company charged a fee “other than for services performed” in violation of Section 8 of RESPA when the company charged a premium in excess of the rate it filed with the Alabama Insurance Commissioner. The district court dismissed the claim, and the appeals court affirmed, reasoning that RESPA provides a remedy only when fees are charged in exchange for no services at all, and not when a fee is “excessive.” The court relied upon its decision in Friedman v. Market Street Mortg. Corp., 520 F.3d 1289 (11th Cir. 2008), which held that a plaintiff must allege that no services at all were rendered in exchange for a fee to violate RESPA. The court rejected the argument that, although part of the fee was for services performed, the portion of the premium that exceeded the filed rate constituted an “unearned” and “unreasonable” fee separable from the “earned” and “reasonable” portion of the fee. The Court also affirmed the dismissal of various state law claims, including unjust enrichment. The court issued the opinion as an unpublished opinion. For a copy of the opinion, http://www.ca11.uscourts.gov/unpub/ops/200811511.pdf.
Washington Federal Court Holds Title Insurer Not Liable for Overcharge Under RESPA. On October 10, the U.S. District Court for the Western District of Washington held that an “excessive” premium for a lender title insurance policy did not violate Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) because the title insurance policy services were actually performed. Kingsberry v. Chicago Title Insurance Co., No. C07-5706, 2008 WL 4566688 (W.D. Wash. Oct. 10, 2008). In this case, the plaintiff obtained a mortgage loan from the defendant. At closing, the lender required the plaintiff to purchase a lender title policy, which the defendant issued. The defendant also issued a lender title policy in connection with the subsequent refinancing of the loan. The borrower claimed that, because the second lender title policy was issued in connection with a refinance, the defendant, Chicago Title Insurance Company (Chicago Title), was required to sell insurance at a discounted rate in accordance with the rates it filed with the Washington Insurance Commissioner. The plaintiff then filed suit, arguing that Chicago Title and the title agent that issued the policy split the revenue from the insurance, and by charging more than the discounted premium rates, Chicago Title charged “a fee that was ‘not for services actually furnished or performed’” in violation of Section 8(b) of RESPA. The court disagreed, holding that, “[s]o long as some work is performed by the recipient of the fee, or any portion thereof, RESPA Section 8(b) does not impose liability.” The court did not give deference to the Department of Housing and Urban Development’s 2001 policy statement, which asserts the agency’s view that Section 8(b) prohibits settlement service providers from charging excessive fees. Instead, the court held that “Section 8(b) is not a price control statute” and that splitting a fee for services rendered into “reasonable” and “unreasonable” or “earned’ and “unearned” portions would be contrary to legislative intent. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Kingsberry_v_Chicago_Title.pdf.
Ohio Bankruptcy Court Permits TILA and RESPA Damages Claims Under Recoupment Exception. On September 2, a bankruptcy court in Ohio rejected a statute of limitations defense to claims arising under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA), finding that a debtor’s TILA and RESPA damages claims were in the “nature of recoupment.” Wentz v. Saxon Mortgage, Adv. No. 08-3053, 2008 Bankr. Lexis 2528 (Bankr. S.D. Ohio Sept. 2, 2008). In this case, the defendant, a creditor mortgage lender, filed a proof of claim in the debtor’s Chapter 13 bankruptcy proceedings. The debtor then filed an adversary proceeding alleging violations of TILA and RESPA in connection with the origination of two loans by the defendant. The creditor moved to dismiss the damages portions of debtor’s claims on the basis that the claims were time-barred by TILA and RESPA’s one-year statutes of limitations. The bankruptcy court denied the motion, finding that, because debtor’s TILA damages claims were raised in response to the creditor’s proof of claim, those claims were “in the nature of recoupment” exempted from the statute of limitations by 15 U.S.C. § 1640(e). While acknowledging that “RESPA does not explicitly authorize actions by way of recoupment,” the court allowed the debtor to use RESPA “defensively” against creditor’s proof of claim. The court also held that debtor could pursue claims for attorneys’ fees under both TILA and RESPA as part of recoupment damages. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Wentz.pdf.
E-Financial Services
Identity Theft Task Force Publishes Report Examining Strategic Plan Implementation. On October 21, the Federal Trade Commission (FTC) and Attorney General Michael B. Mukasey announced the release of a report examining the implementation of the President’s Identity Theft Task Force’s Strategic Plan (Plan). Beginning in April 2007, federal agencies, working with the public, private and non-profit sector, began implementing the Plan’s 31 recommendations in an attempt to (i) prevent identity theft, (ii) assist consumers with both detecting and recovering from identity theft, and (iii) increase the investigation, prosecution, and punishment of identity thieves. Among other actions, the report reveals that (i) to prevent identity theft, agencies have taken measures to eliminate the unnecessary use of Social Security Numbers, (ii) to assist consumers in both detecting and recovering from identity theft, task force members trained victim assistance counselors and provided grants to victim assistance organizations, and (iii) to increase the investigation, prosecution, and punishment of identity thieves, task force members increased information sharing and provided identity theft training seminars. For a copy of the report, please see http://www.ftc.gov/os/2008/10/081021taskforcereport.pdf.
Privacy/Data Security
Identity Theft Task Force Publishes Report Examining Strategic Plan Implementation. On October 21, the Federal Trade Commission (FTC) and Attorney General Michael B. Mukasey announced the release of a report examining the implementation of the President’s Identity Theft Task Force’s Strategic Plan (Plan). Beginning in April 2007, federal agencies, working with the public, private and non-profit sector, began implementing the Plan’s 31 recommendations in an attempt to (i) prevent identity theft, (ii) assist consumers with both detecting and recovering from identity theft, and (iii) increase the investigation, prosecution, and punishment of identity thieves. Among other actions, the report reveals that (i) to prevent identity theft, agencies have taken measures to eliminate the unnecessary use of Social Security Numbers, (ii) to assist consumers in both detecting and recovering from identity theft, task force members trained victim assistance counselors and provided grants to victim assistance organizations, and (iii) to increase the investigation, prosecution, and punishment of identity thieves, task force members increased information sharing and provided identity theft training seminars. For a copy of the report, please see http://www.ftc.gov/os/2008/10/081021taskforcereport.pdf.