InfoBytes, October 31, 2008
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Topics in this issue:
- Federal Issues
- State Issues
- Courts
- Firm News
- Mortgages
- Banking
- Consumer Finance
- Litigation
- Privacy/Data Security
Federal Issues
HUD Issues HECM for Purchase Program Guidance. On October 20, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2008-33 (ML 08-33) to address the Home Equity Conversion Mortgage (HECM) for Purchase Program. The Housing and Economic Recovery Act (HERA) allows HECM mortgagors to purchase a new principal residence with HECM loan proceeds. Section 2122(a)(9) of HERA amends section 255 of the National Housing Act to authorize HUD to insure HECMs used for the purchase of a 1-4 family dwelling unit. Accordingly, eligible mortgagors now have the opportunity to purchase a principal residence with HECM loan proceeds. HUD requires lenders to ensure that (i) the property, when used as collateral for the HECM, will serve as the principal residence of the HECM mortgagor, (ii) construction is complete and a certificate of occupancy or its equivalent has been issued, and (iii) any construction loan financing for the property is satisfied and (iv) the HECM liens will be in a first and second lien position and, at the time of closing, there are no other liens against the property. For a copy of ML 08-33, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-33ml.doc.
Banking Agencies Issue Statement Regarding Capital Impact of Fannie, Freddie Losses. On October 24, the federal banking agencies issued an interagency statement regarding the tax relief provisions of the Emergency Economic Stabilization Act of 2008 (EESA). Section 301 of EESA provides for tax relief for financial institutions by treating losses in the sale of the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) preferred stock as ordinary losses, rather than capital losses, for federal tax purposes. The statement permits financial institutions to adjust the tax effects associated with the sale of Fannie Mae and Freddie Mac preferred stock as if Section 301 of EESA had been enacted in the third quarter of 2008, and reminds financial institutions to continue to follow generally accepted accounting principles for the purposes of third quarter regulatory report balance sheets and income statements. The statement includes detailed appendices to assist different types of banking organizations with reporting the effect of the change in the tax treatment of such losses, and also allows banking organizations that have already filed their regulatory reports for the third quarter of 2008 to submit amended regulatory reports. For a copy of the statement, please see http://www.occ.gov/ftp/bulletin/2008-31a.pdf.
Fannie Mae Reintroduces Home-Buyer Education, Counseling Requirements. On October 28, the Federal National Mortgage Association (Fannie Mae) issued Fannie Mae Announcement 08-25 to reinstate a requirement for home-buyer education and counseling. The requirement applies to first-time home-buyers seeking Fannie Mae MyCommunityMortgage loans and to borrowers relying solely on nontraditional credit to qualify for a Fannie Mae mortgage. Such buyers and borrowers must be educated and counseled on the home-buying and mortgage-financing process, and must be provided additional support if they cannot make mortgage payments. Education and counseling must be provided by an independent third-party and must meet, or be comparable to, standards set by the National Industry Standards for Homeownership Education and Counseling. For a copy of the announcement, please see https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0825.pdf.
OCC Releases New Guidance Regarding the Servicemembers Civil Relief Act. On October 24, the Office of the Comptroller of the Currency (OCC) released OCC Bulletin 2008-30, a bulletin providing general information about the Servicemembers Civil Relief Act (SCRA). The bulletin reminds national banks that the SCRA, which limits the rights and remedies available to creditors when dealing with members of the armed services and, in some cases, their dependents, requires creditors to forgive any interest in excess of 6% per year on any obligation or liability that a servicemember incurred prior to entering into military service. Creditors must maintain this rate reduction for the servicemember’s entire military career and, in the case of mortgages and similar obligations, for an additional year after the end of service. Additionally, the bulletin reminds banks of other provisions of the SCRA, including, (i) for mortgages and other similar obligations entered into by a servicemember before military service, creditors cannot initiate foreclosure proceedings until nine months after the end of military service, (ii) creditors cannot terminate any installment contract entered into before or during military service, (iii) creditors may not repossess any property under an installment contract or lease by a servicemember without a court order, (iv) servicemembers may terminate residential and commercial vehicle leases if he or she entered into military service after executing the lease, or executed the lease while in military service but subsequently received orders for a permanent change of station. Servicemembers may waive many of their rights under the SCRA in writing during or after service. For a copy of the bulletin, please see http://www.occ.gov/ftp/bulletin/2008-30.html.
Ginnie Mae Announces New Procedures for Monitoring Loan Data Submitted by Issuers. On October 28, the Government National Mortgage Association (Ginnie Mae) announced a new review process and electronic notice system to ensure that all Ginnie Mae mortgages are insured or guaranteed. Currently issuers report only loan level data to Ginnie Mae. That data is then compared to corresponding data provided by the Federal Housing Administration (FHA), the Department of Veterans Affairs, or the USDA Rural Development. Under the newly-announced system, mortgages with non-matching information will be issued monthly notifications via the Ginnie Mae e-Access website. Issuers will be responsible for monitoring and promptly resolving such data errors. Newly-originated pools of FHA mortgages will be reviewed monthly for non-matching loans in these pools, while evaluations of mortgages older than six months will not begin until December 2008. Beginning November 2008, Ginnie Mae will evaluate loans in pools that appear “terminated,” a designation for loans that are likely uninsured or have serious data errors. For a copy of the announcement, please see http://www.ginniemae.gov/apm/apm_pdf/08-21.pdf.
Senate Testimony Focuses on Recent Efforts to Stabilize Financial Markets. On October 23, Neel Kashkari, Interim Assistant Secretary for Financial Stability, and Sheila Bair, Chairman of the Federal Deposit Insurance Corporation (FDIC), testified before the Senate Committee on Banking, Housing and Urban Affairs regarding recent responses to turmoil in the financial system. Mr. Kashkari’s testimony provided an update on the new programs implemented by the U.S. Department of the Treasury through its authorities granted under the Emergency Economic Stabilization Act of 2008. Ms. Bair’s testimony focused on recent actions taken by the FDIC to restore confidence in financial institutions and to reduce foreclosures. For a copy of the testimonies, please see
http://www.buckleykolar.com/documents/Kashkari_102308.pdf and http://www.buckleykolar.com/documents/Blair_102308.pdf.
State Issues
Maryland Commissioner of Financial Regulation Adopts Changes to Mortgage Regulations. On October 15, the Maryland Commissioner of Financial Regulation (Commissioner) adopted changes to its regulations governing the mortgage industry (COMAR §§ 09.03.06, 09.03.09, and 09.03.10). With regard to mortgage lenders, the new rules (i) require licensees to maintain records of foreclosure actions they commence, (ii) require licensees to include on an instrument securing a mortgage loan the name and license number of the licensee and the name and license number of the mortgage originator that originated the loan, (iii) impose a duty of good faith and fair dealing on licensees, (iv) require licensees to disclose the risks and features of “higher-priced” and “nontraditional” mortgage loans in promotional and marketing materials and communications, and require lender licensees that offer “higher-priced” and “nontraditional” mortgage loans to adopt certain risk management practices and control systems for these products, and (v) require lenders and credit grantors subject to the regulatory authority of the Commissioner to make disclosures to borrowers in connection with mortgage loans that have a balloon payment, don’t have an escrow account for payment of taxes and insurance, or have mandatory, binding arbitration provisions. With regard to mortgage originators, the new rules impose a duty of good faith and fair dealing on licensees. With regard to all persons subject to the regulatory authority of the Commissioner, with certain exceptions, the new rules impose a duty to report to the Commissioner acts, or suspected acts, of fraud, theft, or forgery committed by the regulated person or certain individuals related to the regulated person and to report to the Commissioner any felony convictions or misdemeanor convictions for fraud or theft of the regulated person or certain persons related to the regulated person. The changes become effective November 3, 2008. For a copy of the rules as initially proposed, which, according to the Commissioner, were adopted with unsubstantial changes, please see http://www.dsd.state.md.us/MDRegister/3518/main_register.htm.
California Department of Corporations Releases Mortgage Servicers Survey Results. On October 27, the California Department of Corporations made available its “Mortgage Servicers Survey” results for the third quarter of 2008. Among other items, the survey reveals that 14,060 loan modifications occurred in California in September, the highest number of reported loan modifications in California since reporting began in November 2007. The survey also reports 13,186 foreclosure sales in September 2008, the lowest number of reported foreclosures in California since April 2008. For a copy of the press release, please see http://www.corp.ca.gov/press/news/SPL/ServicerSurvey0808.pdf. For a copy of the survey, please see http://www.corp.ca.gov/press/news/spl/LLMS0808.pdf.
Courts
Eleventh Circuit Holds TILA Does Not Permit Private Injunctive Relief; Reverses $22 Million Class Action Judgment. On October 28, the U.S. Court of Appeals for the Eleventh Circuit vacated the certification of an injunctive relief class, holding that private injunctive or other equitable relief is not available under the Truth in Lending Act (TILA). Christ v. Beneficial Corp., Nos. 06-14828, 07-10246, 2008 WL 4716751 (11th Cir. Oct. 28, 2008). In this case, the plaintiff borrower brought a nationwide class action against his lender and affiliated corporations, alleging that the defendants violated TILA by listing a fee for non-filing insurance (NFI) in the “Amount Charged” column rather than the “Finance Charge” column of the TILA disclosure. The plaintiff argued that the NFI premium was not for “insurance,” and, alternatively, that even if the NFI premium was for insurance, it was not for non-filing insurance. The district court certified a nationwide Rule 23(b)(2) injunctive class, granted summary judgment to the class, and awarded injunctive relief and over $22 million in restitution and disgorgement. The Eleventh Circuit, however, vacated the class certification and award. According to the court, while TILA provides a comprehensive statutory scheme of remedies that neither includes or excludes injunctive or other equitable relief to private parties, “we do not expect Congress to ‘expressly preclude’ remedies,” and, therefore, private injunctive or other equitable relief is not available. “ “Far from effectuating the declaration regarding the underlying TILA cause of action,” the injunction and award of over $22 million as restitution or disgorgement of fees “circumvented the express remedies provided by Congress in this context: actual damages (which [plaintiff] conceded he could not prove) or statutory damages (which [plaintiff] waived).” Because injunctive relief is not available under TILA, the court held that class certification under Rule 23(b)(2) (the injunctive relief class) was improper. For a copy of the opinion, please see http://www.ca11.uscourts.gov/opinions/ops/200614828.pdf.
Buckley Kolar Wins TILA Disclosure Case. On October 24, a U.S. District Court for the Southern District of Alabama granted summary judgment in favor of Accredited Home Lenders, Inc. (AHL), dismissing the borrower plaintiffs’ putative Truth in Lending Act (TILA) class action. Buckley Kolar represented AHL in this case. Edwards v. Accredited Home Lenders, Inc., 1:07-cv-00160 (S.D. Ala. Oct. 24, 2008). The plaintiffs in Edwards alleged that AHL violated TILA by failing to include two fees allegedly marked-up by third parties in the finance charge portion of the Truth in Lending (TIL) disclosure. On behalf of AHL, Buckley Kolar argued that (i) lenders may exclude third-party mark-ups from the TIL disclosure without violating TILA and (ii) even if they could not, the disclosures themselves fell within TILA’s tolerance for accuracy. The court found that the fees were within TILA’s tolerance for accuracy, and therefore should be treated as accurate for the purposes of TILA. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Edwards_v_Accredited.pdf.
California Federal Court Holds Plaintiff’s FACTA Claim Ineligible for Class Certification. On October 24, the U.S. District Court for the Central District of California denied a renewed motion for class certification in a case arising under an alleged violation of the Fair and Accurate Credit Transactions Act (FACTA). Bateman v. American Multi-Cinema, Inc., No. 2:07-cv-0171, 2008 WL 4684146 (C.D. Cal. Oct. 24, 2008). The plaintiff in Bateman alleged that the defendant violated FACTA by printing the last five digits of a credit or debit card number and the expiration date of a credit or debit card on its receipts. The plaintiff argued that class certification was appropriate because the recent passage of a Congressional amendment to FACTA, H.R. 4008, reflected “Congressional approval of class actions based upon the printing of extraneous credit card numbers.” The court disagreed, reasoning that both the legislative intent and public policy concerns motivating H.R. 4008 were to permit class action certification only when the plaintiff could show “actual” harm to potential class members. In this regard, the court rejected the plaintiff’s argument that an increased risk of identity theft constituted actual harm. In denying class certification, the court emphasized that the plaintiff failed to meet the superiority requirement because the defendant’s potential statutory liability was disproportionate to any harm suffered by either the plaintiff or the potential class members. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Bateman_v_American.pdf.
Illinois Federal Court Dismisses Fair Debt Collection Practices Act Claims. On October 20, the U.S. District Court for the Northern District of Illinois granted summary judgment in favor of a debt collector for claims arising under the Fair Debt Collection Practices Act (FDCPA). Gros v. Midland Credit Management, Inc., No. 06-C-5510, 2008 WL 4671717 (N.D. Ill. Oct. 20, 2008). In Gros, the defendant attempted to collect a debt that it had purchased from a creditor, unaware that an Illinois state court previously ruled that the plaintiff owed no debt to the creditor. The plaintiff then sued, alleging various FDCPA and state law violations. Regarding the FDCPA violations, the plaintiff first alleged that the defendant falsely represented the character, amount, and legal status of the debt. The court dismissed this claim, reasoning that the plaintiff failed to prove that an “unsophisticated” consumer would have construed the defendant’s communications as falsely implying that the debt was still payable. Second, the plaintiff alleged that the defendant represented that the nonpayment of the debt would result in the plaintiff’s arrest or imprisonment, or the seizure, garnishment, attachment, or sale of his property and wages. However, the court found insufficient extrinsic evidence to support this claim. Finally, the court rejected a claim brought under § 1692f for lack of extrinsic evidence. Citing precedent, the court reasoned that the plaintiff’s own reaction to the collection of the debt was insufficient to support a finding that the debt collection was unfair or unconscionable. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Gros_v_Midland.pdf.
Firm News
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.
Sara Emley will be speaking at the Investment Advisers Association Compliance Workshop in Atlanta, Georgia on November 6. Her topics include business continuity and the Form ADV proposal.
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, D.C. 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/.
Jerry Buckley and Kirk Jensen were speakers at the Community Reinvestment Act & Fair Lending Colloquium Conference October 26-29 in Orlando, Florida. Jerry spoke on the panel entitled “Identifying Trends and Potential Regulatory Concerns.” Kirk spoke on the panel entitled “Analyzing Your CRA and Fair Lending Risks During Mergers and Acquisitions.”
Mortgages
Buckley Kolar Wins TILA Disclosure Case. On October 24, a U.S. District Court for the Southern District of Alabama granted summary judgment in favor of Accredited Home Lenders, Inc. (AHL), dismissing the borrower plaintiffs’ putative Truth in Lending Act (TILA) class action. Buckley Kolar represented AHL in this case. Edwards v. Accredited Home Lenders, Inc., 1:07-cv-00160 (S.D. Ala. Oct. 24, 2008). The plaintiffs in Edwards alleged that AHL violated TILA by failing to include two fees allegedly marked-up by third parties in the finance charge portion of the Truth in Lending (TIL) disclosure. On behalf of AHL, Buckley Kolar argued that (i) lenders may exclude third-party mark-ups from the TIL disclosure without violating TILA and (ii) even if they could not, the disclosures themselves fell within TILA’s tolerance for accuracy. The court found that the fees were within TILA’s tolerance for accuracy, and therefore should be treated as accurate for the purposes of TILA. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Edwards_v_Accredited.pdf.
HUD Issues HECM for Purchase Program Guidance. On October 20, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2008-33 (ML 08-33) to address the Home Equity Conversion Mortgage (HECM) for Purchase Program. The Housing and Economic Recovery Act (HERA) allows HECM mortgagors to purchase a new principal residence with HECM loan proceeds. Section 2122(a)(9) of HERA amends section 255 of the National Housing Act to authorize HUD to insure HECMs used for the purchase of a 1-4 family dwelling unit. Accordingly, eligible mortgagors now have the opportunity to purchase a principal residence with HECM loan proceeds. HUD requires lenders to ensure that (i) the property, when used as collateral for the HECM, will serve as the principal residence of the HECM mortgagor, (ii) construction is complete and a certificate of occupancy or its equivalent has been issued, and (iii) any construction loan financing for the property is satisfied and (iv) the HECM liens will be in a first and second lien position and, at the time of closing, there are no other liens against the property. For a copy of ML 08-33, please see http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-33ml.doc.
Fannie Mae Reintroduces Home-Buyer Education, Counseling Requirements. On October 28, the Federal National Mortgage Association (Fannie Mae) issued Fannie Mae Announcement 08-25 to reinstate a requirement for home-buyer education and counseling. The requirement applies to first-time home-buyers seeking Fannie Mae MyCommunityMortgage loans and to borrowers relying solely on nontraditional credit to qualify for a Fannie Mae mortgage. Such buyers and borrowers must be educated and counseled on the home-buying and mortgage-financing process, and must be provided additional support if they cannot make mortgage payments. Education and counseling must be provided by an independent third-party and must meet, or be comparable to, standards set by the National Industry Standards for Homeownership Education and Counseling. For a copy of the announcement, please see https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0825.pdf.
OCC Releases New Guidance Regarding the Servicemembers Civil Relief Act. On October 24, the Office of the Comptroller of the Currency (OCC) released OCC Bulletin 2008-30, a bulletin providing general information about the Servicemembers Civil Relief Act (SCRA). The bulletin reminds national banks that the SCRA, which limits the rights and remedies available to creditors when dealing with members of the armed services and, in some cases, their dependents, requires creditors to forgive any interest in excess of 6% per year on any obligation or liability that a servicemember incurred prior to entering into military service. Creditors must maintain this rate reduction for the servicemember’s entire military career and, in the case of mortgages and similar obligations, for an additional year after the end of service. Additionally, the bulletin reminds banks of other provisions of the SCRA, including, (i) for mortgages and other similar obligations entered into by a servicemember before military service, creditors cannot initiate foreclosure proceedings until nine months after the end of military service, (ii) creditors cannot terminate any installment contract entered into before or during military service, (iii) creditors may not repossess any property under an installment contract or lease by a servicemember without a court order, (iv) servicemembers may terminate residential and commercial vehicle leases if he or she entered into military service after executing the lease, or executed the lease while in military service but subsequently received orders for a permanent change of station. Servicemembers may waive many of their rights under the SCRA in writing during or after service. For a copy of the bulletin, please see http://www.occ.gov/ftp/bulletin/2008-30.html.
Ginnie Mae Announces New Procedures for Monitoring Loan Data Submitted by Issuers. On October 28, the Government National Mortgage Association (Ginnie Mae) announced a new review process and electronic notice system to ensure that all Ginnie Mae mortgages are insured or guaranteed. Currently issuers report only loan level data to Ginnie Mae. That data is then compared to corresponding data provided by the Federal Housing Administration (FHA), the Department of Veterans Affairs, or the USDA Rural Development. Under the newly-announced system, mortgages with non-matching information will be issued monthly notifications via the Ginnie Mae e-Access website. Issuers will be responsible for monitoring and promptly resolving such data errors. Newly-originated pools of FHA mortgages will be reviewed monthly for non-matching loans in these pools, while evaluations of mortgages older than six months will not begin until December 2008. Beginning November 2008, Ginnie Mae will evaluate loans in pools that appear “terminated,” a designation for loans that are likely uninsured or have serious data errors. For a copy of the announcement, please see http://www.ginniemae.gov/apm/apm_pdf/08-21.pdf.
Maryland Commissioner of Financial Regulation Adopts Changes to Mortgage Regulations. On October 15, the Maryland Commissioner of Financial Regulation (Commissioner) adopted changes to its regulations governing the mortgage industry (COMAR §§ 09.03.06, 09.03.09, and 09.03.10). With regard to mortgage lenders, the new rules (i) require licensees to maintain records of foreclosure actions they commence, (ii) require licensees to include on an instrument securing a mortgage loan the name and license number of the licensee and the name and license number of the mortgage originator that originated the loan, (iii) impose a duty of good faith and fair dealing on licensees, (iv) require licensees to disclose the risks and features of “higher-priced” and “nontraditional” mortgage loans in promotional and marketing materials and communications, and require lender licensees that offer “higher-priced” and “nontraditional” mortgage loans to adopt certain risk management practices and control systems for these products, and (v) require lenders and credit grantors subject to the regulatory authority of the Commissioner to make disclosures to borrowers in connection with mortgage loans that have a balloon payment, don’t have an escrow account for payment of taxes and insurance, or have mandatory, binding arbitration provisions. With regard to mortgage originators, the new rules impose a duty of good faith and fair dealing on licensees. With regard to all persons subject to the regulatory authority of the Commissioner, with certain exceptions, the new rules impose a duty to report to the Commissioner acts, or suspected acts, of fraud, theft, or forgery committed by the regulated person or certain individuals related to the regulated person and to report to the Commissioner any felony convictions or misdemeanor convictions for fraud or theft of the regulated person or certain persons related to the regulated person. The changes become effective November 3, 2008. For a copy of the rules as initially proposed, which, according to the Commissioner, were adopted with unsubstantial changes, please see http://www.dsd.state.md.us/MDRegister/3518/main_register.htm.
California Department of Corporations Releases Mortgage Servicers Survey Results. On October 27, the California Department of Corporations made available its “Mortgage Servicers Survey” results for the third quarter of 2008. Among other items, the survey reveals that 14,060 loan modifications occurred in California in September, the highest number of reported loan modifications in California since reporting began in November 2007. The survey also reported 13,186 foreclosure sales in September 2008, the lowest number of reported foreclosures in California since April 2008. For a copy of the press release, please see http://www.corp.ca.gov/press/news/SPL/ServicerSurvey0808.pdf. For a copy of the survey, please see http://www.corp.ca.gov/press/news/spl/LLMS0808.pdf.
Eleventh Circuit Holds TILA Does Not Permit Private Injunctive Relief; Reverses $22 Million Class Action Judgment. On October 28, the U.S. Court of Appeals for the Eleventh Circuit vacated the certification of an injunctive relief class, holding that private injunctive or other equitable relief is not available under the Truth in Lending Act (TILA). Christ v. Beneficial Corp., Nos. 06-14828, 07-10246, 2008 WL 4716751 (11th Cir. Oct. 28, 2008). In this case, the plaintiff borrower brought a nationwide class action against his lender and affiliated corporations, alleging that the defendants violated TILA by listing a fee for non-filing insurance (NFI) in the “Amount Charged” column rather than the “Finance Charge” column of the TILA disclosure. The plaintiff argued that the NFI premium was not for “insurance,” and, alternatively, that even if the NFI premium was for insurance, it was not for non-filing insurance. The district court certified a nationwide Rule 23(b)(2) injunctive class, granted summary judgment to the class, and awarded injunctive relief and over $22 million in restitution and disgorgement. The Eleventh Circuit, however, vacated the class certification and award. According to the court, while TILA provides a comprehensive statutory scheme of remedies that neither includes or excludes injunctive or other equitable relief to private parties, “we do not expect Congress to ‘expressly preclude’ remedies,” and, therefore, private injunctive or other equitable relief is not available. “ “Far from effectuating the declaration regarding the underlying TILA cause of action,” the injunction and award of over $22 million as restitution or disgorgement of fees “circumvented the express remedies provided by Congress in this context: actual damages (which [plaintiff] conceded he could not prove) or statutory damages (which [plaintiff] waived).” Because injunctive relief is not available under TILA, the court held that class certification under Rule 23(b)(2) (the injunctive relief class) was improper. For a copy of the opinion, please see http://www.ca11.uscourts.gov/opinions/ops/200614828.pdf.
Banking
Banking Agencies Issue Statement Regarding Capital Impact of Fannie, Freddie Losses. On October 24, the federal banking agencies issued an interagency statement regarding the tax relief provisions of the Emergency Economic Stabilization Act of 2008 (EESA). Section 301 of EESA provides for tax relief for financial institutions by treating losses in the sale of the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) preferred stock as ordinary losses, rather than capital losses, for federal tax purposes. The statement permits financial institutions to adjust the tax effects associated with the sale of Fannie Mae and Freddie Mac preferred stock as if Section 301 of EESA had been enacted in the third quarter of 2008, and reminds financial institutions to continue to follow generally accepted accounting principles for the purposes of third quarter regulatory report balance sheets and income statements. The statement includes detailed appendices to assist different types of banking organizations with reporting the effect of the change in the tax treatment of such losses, and also allows banking organizations that have already filed their regulatory reports for the third quarter of 2008 to submit amended regulatory reports. For a copy of the statement, please see http://www.occ.gov/ftp/bulletin/2008-31a.pdf.
OCC Releases New Guidance Regarding the Servicemembers Civil Relief Act. On October 24, the Office of the Comptroller of the Currency (OCC) released OCC Bulletin 2008-30, a bulletin providing general information about the Servicemembers Civil Relief Act (SCRA). The bulletin reminds national banks that the SCRA, which limits the rights and remedies available to creditors when dealing with members of the armed services and, in some cases, their dependents, requires creditors to forgive any interest in excess of 6% per year on any obligation or liability that a servicemember incurred prior to entering into military service. Creditors must maintain this rate reduction for the servicemember’s entire military career and, in the case of mortgages and similar obligations, for an additional year after the end of service. Additionally, the bulletin reminds banks of other provisions of the SCRA, including, (i) for mortgages and other similar obligations entered into by a servicemember before military service, creditors cannot initiate foreclosure proceedings until nine months after the end of military service, (ii) creditors cannot terminate any installment contract entered into before or during military service, (iii) creditors may not repossess any property under an installment contract or lease by a servicemember without a court order, (iv) servicemembers may terminate residential and commercial vehicle leases if he or she entered into military service after executing the lease, or executed the lease while in military service but subsequently received orders for a permanent change of station. Servicemembers may waive many of their rights under the SCRA in writing during or after service. For a copy of the bulletin, please see http://www.occ.gov/ftp/bulletin/2008-30.html.
Senate Testimony Focuses on Recent Efforts to Stabilize Financial Markets. On October 23, Neel Kashkari, Interim Assistant Secretary for Financial Stability, and Sheila Bair, Chairman of the Federal Deposit Insurance Corporation (FDIC), testified before the Senate Committee on Banking, Housing and Urban Affairs regarding recent responses to turmoil in the financial system. Mr. Kashkari’s testimony provided an update on the new programs implemented by the U.S. Department of the Treasury through its authorities granted under the Emergency Economic Stabilization Act of 2008. Ms. Bair’s testimony focused on recent actions taken by the FDIC to restore confidence in financial institutions and to reduce foreclosures. For a copy of the testimonies, please see
http://www.buckleykolar.com/documents/Kashkari_102308.pdf and http://www.buckleykolar.com/documents/Blair_102308.pdf.
Consumer Finance
OCC Releases New Guidance Regarding the Servicemembers Civil Relief Act. On October 24, the Office of the Comptroller of the Currency (OCC) released OCC Bulletin 2008-30, a bulletin providing general information about the Servicemembers Civil Relief Act (SCRA). The bulletin reminds national banks that the SCRA, which limits the rights and remedies available to creditors when dealing with members of the armed services and, in some cases, their dependents, requires creditors to forgive any interest in excess of 6% per year on any obligation or liability that a servicemember incurred prior to entering into military service. Creditors must maintain this rate reduction for the servicemember’s entire military career and, in the case of mortgages and similar obligations, for an additional year after the end of service. Additionally, the bulletin reminds banks of other provisions of the SCRA, including, (i) for mortgages and other similar obligations entered into by a servicemember before military service, creditors cannot initiate foreclosure proceedings until nine months after the end of military service, (ii) creditors cannot terminate any installment contract entered into before or during military service, (iii) creditors may not repossess any property under an installment contract or lease by a servicemember without a court order, (iv) servicemembers may terminate residential and commercial vehicle leases if he or she entered into military service after executing the lease, or executed the lease while in military service but subsequently received orders for a permanent change of station. Servicemembers may waive many of their rights under the SCRA in writing during or after service. For a copy of the bulletin, please see http://www.occ.gov/ftp/bulletin/2008-30.html.
California Federal Court Holds Plaintiff’s FACTA Claim Ineligible for Class Certification. On October 24, the U.S. District Court for the Central District of California denied a renewed motion for class certification in a case arising under an alleged violation of the Fair and Accurate Credit Transactions Act (FACTA). Bateman v. American Multi-Cinema, Inc., No. 2:07-cv-0171, 2008 WL 4684146 (C.D. Cal. Oct. 24, 2008). The plaintiff in Bateman alleged that the defendant violated FACTA by printing the last five digits of a credit or debit card number and the expiration date of a credit or debit card on its receipts. The plaintiff argued that class certification was appropriate because the recent passage of a Congressional amendment to FACTA, H.R. 4008, reflected “Congressional approval of class actions based upon the printing of extraneous credit card numbers.” The court disagreed, reasoning that both the legislative intent and public policy concerns motivating H.R. 4008 were to permit class action certification only when the plaintiff could show “actual” harm to potential class members. In this regard, the court rejected the plaintiff’s argument that an increased risk of identity theft constituted actual harm. In denying class certification, the court emphasized that the plaintiff failed to meet the superiority requirement because the defendant’s potential statutory liability was disproportionate to any harm suffered by either the plaintiff or the potential class members. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Bateman_v_American.pdf.
Illinois Federal Court Dismisses Fair Debt Collection Practices Act Claims. On October 20, the U.S. District Court for the Northern District of Illinois granted summary judgment in favor of a debt collector for claims arising under the Fair Debt Collection Practices Act (FDCPA). Gros v. Midland Credit Management, Inc., No. 06-C-5510, 2008 WL 4671717 (N.D. Ill. Oct. 20, 2008). In Gros, the defendant attempted to collect a debt that it had purchased from a creditor, unaware that an Illinois state court previously ruled that the plaintiff owed no debt to the creditor. The plaintiff then sued, alleging various FDCPA and state law violations. Regarding the FDCPA violations, the plaintiff first alleged that the defendant falsely represented the character, amount, and legal status of the debt. The court dismissed this claim, reasoning that the plaintiff failed to prove that an “unsophisticated” consumer would have construed the defendant’s communications as falsely implying that the debt was still payable. Second, the plaintiff alleged that the defendant represented that the nonpayment of the debt would result in the plaintiff’s arrest or imprisonment, or the seizure, garnishment, attachment, or sale of his property and wages. However, the court found insufficient extrinsic evidence to support this claim. Finally, the court rejected a claim brought under § 1692f for lack of extrinsic evidence. Citing precedent, the court reasoned that the plaintiff’s own reaction to the collection of the debt was insufficient to support a finding that the debt collection was unfair or unconscionable. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Gros_v_Midland.pdf.
Litigation
Eleventh Circuit Holds TILA Does Not Permit Private Injunctive Relief; Reverses $22 Million Class Action Judgment. On October 28, the U.S. Court of Appeals for the Eleventh Circuit vacated the certification of an injunctive relief class, holding that private injunctive or other equitable relief is not available under the Truth in Lending Act (TILA). Christ v. Beneficial Corp., Nos. 06-14828, 07-10246, 2008 WL 4716751 (11th Cir. Oct. 28, 2008). In this case, the plaintiff borrower brought a nationwide class action against his lender and affiliated corporations, alleging that the defendants violated TILA by listing a fee for non-filing insurance (NFI) in the “Amount Charged” column rather than the “Finance Charge” column of the TILA disclosure. The plaintiff argued that the NFI premium was not for “insurance,” and, alternatively, that even if the NFI premium was for insurance, it was not for non-filing insurance. The district court certified a nationwide Rule 23(b)(2) injunctive class, granted summary judgment to the class, and awarded injunctive relief and over $22 million in restitution and disgorgement. The Eleventh Circuit, however, vacated the class certification and award. According to the court, while TILA provides a comprehensive statutory scheme of remedies that neither includes or excludes injunctive or other equitable relief to private parties, “we do not expect Congress to ‘expressly preclude’ remedies,” and, therefore, private injunctive or other equitable relief is not available. “ “Far from effectuating the declaration regarding the underlying TILA cause of action,” the injunction and award of over $22 million as restitution or disgorgement of fees “circumvented the express remedies provided by Congress in this context: actual damages (which [plaintiff] conceded he could not prove) or statutory damages (which [plaintiff] waived).” Because injunctive relief is not available under TILA, the court held that class certification under Rule 23(b)(2) (the injunctive relief class) was improper. For a copy of the opinion, please see http://www.ca11.uscourts.gov/opinions/ops/200614828.pdf.
Buckley Kolar Wins TILA Disclosure Case. On October 24, a U.S. District Court for the Southern District of Alabama granted summary judgment in favor of Accredited Home Lenders, Inc. (AHL), dismissing the borrower plaintiffs’ putative Truth in Lending Act (TILA) class action. Buckley Kolar represented AHL in this case. Edwards v. Accredited Home Lenders, Inc., 1:07-cv-00160 (S.D. Ala. Oct. 24, 2008). The plaintiffs in Edwards alleged that AHL violated TILA by failing to include two fees allegedly marked-up by third parties in the finance charge portion of the Truth in Lending (TIL) disclosure. On behalf of AHL, Buckley Kolar argued that (i) lenders may exclude third-party mark-ups from the TIL disclosure without violating TILA and (ii) even if they could not, the disclosures themselves fell within TILA’s tolerance for accuracy. The court found that the fees were within TILA’s tolerance for accuracy, and therefore should be treated as accurate for the purposes of TILA. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Edwards_v_Accredited.pdf.
California Federal Court Holds Plaintiff’s FACTA Claim Ineligible for Class Certification. On October 24, the U.S. District Court for the Central District of California denied a renewed motion for class certification in a case arising under an alleged violation of the Fair and Accurate Credit Transactions Act (FACTA). Bateman v. American Multi-Cinema, Inc., No. 2:07-cv-0171, 2008 WL 4684146 (C.D. Cal. Oct. 24, 2008). The plaintiff in Bateman alleged that the defendant violated FACTA by printing the last five digits of a credit or debit card number and the expiration date of a credit or debit card on its receipts. The plaintiff argued that class certification was appropriate because the recent passage of a Congressional amendment to FACTA, H.R. 4008, reflected “Congressional approval of class actions based upon the printing of extraneous credit card numbers.” The court disagreed, reasoning that both the legislative intent and public policy concerns motivating H.R. 4008 were to permit class action certification only when the plaintiff could show “actual” harm to potential class members. In this regard, the court rejected the plaintiff’s argument that an increased risk of identity theft constituted actual harm. In denying class certification, the court emphasized that the plaintiff failed to meet the superiority requirement because the defendant’s potential statutory liability was disproportionate to any harm suffered by either the plaintiff or the potential class members. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Bateman_v_American.pdf.
Illinois Federal Court Dismisses Fair Debt Collection Practices Act Claims. On October 20, the U.S. District Court for the Northern District of Illinois granted summary judgment in favor of a debt collector for claims arising under the Fair Debt Collection Practices Act (FDCPA). Gros v. Midland Credit Management, Inc., No. 06-C-5510, 2008 WL 4671717 (N.D. Ill. Oct. 20, 2008). In Gros, the defendant attempted to collect a debt that it had purchased from a creditor, unaware that an Illinois state court previously ruled that the plaintiff owed no debt to the creditor. The plaintiff then sued, alleging various FDCPA and state law violations. Regarding the FDCPA violations, the plaintiff first alleged that the defendant falsely represented the character, amount, and legal status of the debt. The court dismissed this claim, reasoning that the plaintiff failed to prove that an “unsophisticated” consumer would have construed the defendant’s communications as falsely implying that the debt was still payable. Second, the plaintiff alleged that the defendant represented that the nonpayment of the debt would result in the plaintiff’s arrest or imprisonment, or the seizure, garnishment, attachment, or sale of his property and wages. However, the court found insufficient extrinsic evidence to support this claim. Finally, the court rejected a claim brought under § 1692f for lack of extrinsic evidence. Citing precedent, the court reasoned that the plaintiff’s own reaction to the collection of the debt was insufficient to support a finding that the debt collection was unfair or unconscionable. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Gros_v_Midland.pdf.
Privacy/Data Security
California Federal Court Holds Plaintiff’s FACTA Claim Ineligible for Class Certification. On October 24, the U.S. District Court for the Central District of California denied a renewed motion for class certification in a case arising under an alleged violation of the Fair and Accurate Credit Transactions Act (FACTA). Bateman v. American Multi-Cinema, Inc., No. 2:07-cv-0171, 2008 WL 4684146 (C.D. Cal. Oct. 24, 2008). The plaintiff in Bateman alleged that the defendant violated FACTA by printing the last five digits of a credit or debit card number and the expiration date of a credit or debit card on its receipts. The plaintiff argued that class certification was appropriate because the recent passage of a Congressional amendment to FACTA, H.R. 4008, reflected “Congressional approval of class actions based upon the printing of extraneous credit card numbers.” The court disagreed, reasoning that both the legislative intent and public policy concerns motivating H.R. 4008 were to permit class action certification only when the plaintiff could show “actual” harm to potential class members. In this regard, the court rejected the plaintiff’s argument that an increased risk of identity theft constituted actual harm. In denying class certification, the court emphasized that the plaintiff failed to meet the superiority requirement because the defendant’s potential statutory liability was disproportionate to any harm suffered by either the plaintiff or the potential class members. For a copy of the opinion, please see http://www.buckleykolar.com/documents/Bateman_v_American.pdf.