InfoBytes, September 12, 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
FHFA Places Fannie, Freddie into Conservatorship. On September 7, the Federal Housing Finance Agency (FHFA) announced that it has placed the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) into conservatorship. According to the FHFA, the action responded to concerns about the companies’ ability to raise and maintain sufficient capital “to absorb further losses while supporting new business activity.” Fannie Mae and Freddie Mac combined have $5.4 trillion in guaranteed mortgage-backed securities (MBS) and debt outstanding. To address systemic risk, Fannie Mae and Freddie Mac will be allowed to grow their guarantee MBS books without limits and continue to purchase replacement securities for their portfolios through the end of 2009. Beginning in 2010, their portfolios will begin to be “gradually reduced at the rate of 10% per year, largely through natural run off, eventually stabilizing at a lower, less risky size.” Existing contracts with either Fannie Mae or Freddie Mac will remain in effect. Fannie Mae and Freddie Mac will also enter into a financing and investing arrangement with the U.S. Treasury to provide the companies with access to liquidity and to help stabilize financial markets. According to a statement by U.S. Treasury Secretary Henry Paulson on September 7, the Treasury entered into “Senior Preferred Stock Purchase Agreements” with Fannie Mae and Freddie Mac to ensure that each company maintains a positive net worth and will purchase the companies’ MBS in order to improve mortgage affordability. Mr. Paulson also announced the creation of a new secured lending credit facility, which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and will serve as an “ultimate liquidity backstop.” Under these agreements, the Treasury will immediately receive $1 billion of senior preferred stock in each entity and warrants for the purchase of 79.9% of each entity’s common stock at a nominal price. If the FHFA determines that the liabilities of either Fannie Mae or Freddie Mac have exceeded its assets, the Treasury will contribute cash capital in an amount equal to the difference between liabilities and assets, and an amount equal to each contribution will be added to the senior preferred stock held by the Treasury. The Treasury may invest up to $100 billion in each company under this plan. The agreements are intended to protect the senior debt, the subordinated debt, and MBS of the companies while the common stock and preferred shareholders “will bear any losses ahead of the government.” In conjunction with the FHFA and Treasury announcements, federal banking regulators issued a joint notice on September 7 reminding depository institutions that any net unrealized losses on common or preferred shares in Fannie Mae or Freddie Mac are deducted from regulatory capital. For a copy of the FHFA’s announcements, please see http://www.buckleykolar.com/documents/FHFAStatement9708.pdf and http://www.ofheo.gov/newsroom.aspx?ID=459&q1=0&q2=0. For a copy of Secretary Paulson’s statement, which includes links to the Fannie Mae and Freddie Mac Senior Preferred Stock Purchase Agreements, please see http://www.treas.gov/press/releases/hp1129.htm. For a copy of the federal banking agencies’ joint press release, please see http://www.occ.treas.gov/ftp/release/2008-102.htm.
Bear Stearns, EMC Mortgage Reach $28 Million Settlement with FTC. On September 9, the Bear Stearns Companies LLC and its subsidiary EMC Mortgage Corporation agreed to pay $28 million to settle Federal Trade Commission (FTC) charges that they engaged in unlawful practices when servicing consumers’ home mortgage loans. The FTC alleged that the companies misrepresented the amounts borrowers owed, charged unauthorized fees, such as late fees, property inspection fees, and loan modification fees, and engaged in unlawful and abusive collection practices. Without admitting to any of the allegations made by the FTC, the companies agreed to a settlement that (i) requires the companies to pay $28 million to redress consumers, (ii) bars the companies from misrepresenting any loan terms, such as amounts due, (iii) requires the companies to possess and rely upon competent and reliable evidence to support claims made to consumers about their loans, (iv) bars the companies from charging unauthorized fees, and places specific limits on property inspection fees even if they are authorized by the contract, (v) prohibits the companies from initiating a foreclosure action, or charging any foreclosure fees, unless they have reviewed all available records to verify that the consumer is in material default, confirmed that the defendants have not subjected the consumer to any illegal practices, and investigated and resolved any consumer disputes, and (vi) prohibits the companies from violating the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Truth in Lending Act (TILA). For a copy of the court order, please see http://www.ftc.gov/os/caselist/0623031/080909emcmortgstipfinljdgmnt.pdf.
Comptroller Dugan Discusses Fair Lending. On September 9, Comptroller of the Currency, John C. Dugan, emphasized the importance of fair lending at the Office of the Comptroller of the Currency (OCC) Fair Lending Conference in New Orleans, LA. Comptroller Dugan stated that the OCC may amend its fair lending screening process as applied to “the largest national banks” to examine factors such as loan-to-value ratios, credit scores, and debt service ratios. These factors are not currently part of Home Mortgage Disclosure Act (HMDA) data. Comptroller Dugan urged banks not to lose focus on fair lending practices by integrating fair lending into new product design and modification decisions, to perform a thorough self-assessment of fair lending risk, and to make fair lending part of a bank’s “institutional culture.” For a copy of the press release, please see http://www.occ.gov/ftp/release/2008-103.htm.
FFIEC Releases 2007 HMDA Data. On September 10, the Federal Financial Institutions Examination Council (FFIEC) released 2007 data for mortgage transactions covered by the Home Mortgage Disclosure Act (HMDA). The information covers 26.2 million actions for the year 2007, and includes information regarding disclosure statements, aggregate data for “metropolitan statistical areas,” nationwide summary statistics regarding lending patterns, and the Loan Application Register. On September 11, the Federal Reserve Board published the draft of a forthcoming Federal Reserve Bulletin article regarding the data. For a copy of the article draft, please see http://www.federalreserve.gov/pubs/bulletin/2008/pdf/hmda07draft.pdf. For a copy of the 2007 HMDA data, please see http://www.ffiec.gov/hmda/hmdaproducts.htm#LAR_TS.
OCC, OTS Release Mortgage Metrics Report for Second Quarter of 2008. On September 12, the Office of the Comptroller of the Currency (OCC) and Office of Thrift Supervision (OTS) issued a joint report regarding the performance of outstanding first lien mortgages. The “OCC and OTS Mortgage Metrics Report” reflects that there was a greater increase in actions by national banks and thrifts, intended to prevent foreclosures, than in actions for new foreclosure proceedings in the second quarter of this year. The report also found that (i) new loss mitigation actions (loan modifications and payment plans) relative to new foreclosures averaged more than 87 percent during the second quarter, about 12 percentage points higher than during the first quarter, (ii) more than 9 out of 10 mortgages remained current while credit quality declined during the quarter across all risk categories, and (iii) there were increases in early stage delinquencies (30-59 days past due) and seriously delinquent mortgages (60 or more days past due, or loans to bankrupt borrowers who are 30 or more days past due). The agencies collected data from the nine national banks and five savings associations with the largest mortgage servicing portfolios using a standard reporting framework for tracking mortgage delinquencies, loss mitigation actions, and foreclosures. For a copy of the report, please see http://www.occ.gov/ftp/release/2008-105a.pdf.
FTC Files Complaint Against Credit Repair Marketers. On September 10, the Federal Trade Commission (FTC) issued a press release announcing that it filed a complaint in the U.S. District Court for the Eastern District of Texas against two credit repair marketers for violating the FTC Act and the Credit Repair Organizations Act (CROA). The complaint alleges that the defendants, who maintain the website www.lhcreditrepair.com, falsely promised to permanently remove derogatory information from consumers’ credit reports, even if the information was accurate and not obsolete.In violation of the CROA, the defendants allegedly required advance payment from consumers for credit repair services and failed to include in their consumer contract a full and detailed description of the services to be performed, including all guarantees of performance and an estimate of the date by which the services would be performed. The complaint further alleges that the defendants violated the CROA by failing to provide the “Consumer Credit File Rights Under State and Federal Law” before contracts were signed, and for failing to include a conspicuous statement regarding the consumer’s right to cancel the contract.For a copy of the press release, please see http://www.ftc.gov/opa/2008/09/lhcr.shtm.
FTC Approves Settlement Agreement with Two Payday Loan Lead Generators. On September 5, the Federal Trade Commission (FTC) announced that it approved final consent orders in matters concerning two payday loan lead generators, We Give Loans, Inc. and Aliyah Associates, LLC d/b/a American Advance. The companies advertised payday loans on their web sites and collected information from visitors to later sell to payday loan lenders. Earlier this year, the FTC filed a complaint alleging that the companies failed to disclose the annual percentage rate (APR) for their payday loans in advertisements in violation of the Truth in Lending Act (TILA) and Regulation Z (reported in InfoBytes, June 27, 2008).The final consent orders contain provisions to ensure future compliance with TILA and Regulation Z. Specifically, the companies are required to include in all future payday loan advertisements the amount or percentage of the down payment, the terms of repayment, and the annual percentage rate, using that term or the abbreviation “APR.” For copies of the final consent orders, please see http://www.ftc.gov/os/caselist/0723205/080905wgldo.pdf and http://www.ftc.gov/os/caselist/0723206/080905aliyahdo.pdf.
FTC Announces Payments Distributed in Consumer Settlement. On September 10, the Federal Trade Commission (FTC) announced that the FTC returned approximately $12.7 million this week in connection with a consumer settlement. The settlement, initially announced on January 9, 2006 (reported in InfoBytes, January 13, 2006), against Andris Pukke, founder of AmeriDebt, Inc. and DebtWorks, Inc., is the result of the largest deceptive credit counseling case ever brought by the FTC. For a copy of the press release, please see http://www.ftc.gov/opa/2008/09/ameridebt.shtm.
U.S Treasury Creates Backstop Lending Facility for Federal Home Loan Banks. On September 7, the Federal Home Loan Banks (FHLB) Office of Finance announced that the U.S. Treasury is creating a backstop lending facility for the Federal Home Loan Banks under the authority of the Housing and Economic Recovery Act of 2008 (reported in InfoBytes, August 1, 2008). Borrowings under the facility will be secured by FHLB assets, including loans to FHLB members and government sponsored enterprise mortgage-backed securities. For a copy of the press release, please see http://www.fhlb-of.com/analysis/pressframedyn.html?source=fhlbankofstatement090708.pdf.
OTS Announces E-Filing System. On September 9, the Office of Thrift Supervision (OTS) announced the creation of an e-filing system, which allows for certain documents to be electronically filed online. The system currently allows for the filing of branch closings, capital distribution notices, notifications of charter and bylaw changes, transactional website notices, and extensions of time for meeting regulatory conditions. The OTS plans to enhance and expand the system in the future to allow entities to electronically file additional documents. For a copy of the press release, please see http://files.ots.treas.gov/25277.pdf. To access the OTS’s e-filing system, please see http://www.ots.treas.gov/?p=EFiling.
State Issues
Massachusetts Regulation Implements Standards for Compliance with Massachusetts Credit Needs. On September 5, regulations intended to carry out the Mortgage Lender Community Investment (MLCI) purposes of M.G.L. c. 255E, § 1, the Massachusetts “Licensing of Certain Mortgage Lenders and Brokers Law,” became effective. The MCLI requires the evaluation of mortgage lenders in connection with the “mortgage credit needs” of Massachusetts neighborhoods and individuals, specifically those of low- and moderate-income, consistent with the safe and sound operation of the mortgage lender. The regulation, which applies to mortgage lenders licensed under the statute that made 50 or more residential mortgage loans in the previous year, establishes performance tests, standards for evaluation, and ratings to be assigned when evaluating each mortgage lender’s record.The regulation requires the Massachusetts Commissioner of Banks to examine a licensed lender for compliance with the new requirements and to issue a public rating of the lender’s performance. A lender’s performance rating may be taken into consideration in a license renewal application or other application to the Massachusetts Division of Banks. For the full text of the regulation, please see http://www.mass.gov/Eoca/docs/dob/209cmr54.pdf.
Nevada Law Requiring Encryption for Personal Customer Information Becomes Effective October 1. On October 1, provisions of a bill requiring businesses in Nevada to encrypt personal customer data become effective. The bill, S.B. 347, amended various provisions of Nevada law regarding personal identifying information. In part, the bill mandates encryption for a person’s first name or first initial and surname in combination with (i) a social security or employer identification number, (ii) a driver’s license or other identification number, or (iii) a financial account or card number accompanied with its code or password. The bill does not provide for any specific encryption standard. For a copy of the bill, please see http://www.leg.state.nv.us/73rd/bills/SB/SB347_EN.pdf.
New York Awards Home Ownership Assistance and Foreclosure Counseling Grants. On September 10, New York Governor David A. Paterson announced the awarding of over $4 million in grants to facilitate homeownership assistance and foreclosure prevention counseling, advocacy, and legal services. The grants came from the New York State Division of Housing and Community Renewal and the New York Banking Department and were awarded to various non-profit agencies. For a copy of the press release, please see http://www.banking.state.ny.us/pr080910.htm.
Courts
Fourth Circuit Affirms Summary Judgment for Car Dealership in TILA Case. In a recent case, the Fourth Circuit Court of Appeals upheld a grant of summary judgment against plaintiffs who alleged violations of the Truth in Lending Act (TILA), including its “form and timing” provisions. Tripp v. Charlie Falk’s Auto Wholesale Inc., No. 01-2134, 2008 WL 3992464 (4th Cir. Aug. 29, 2008). In this case, the plaintiffs bought a car, which would then be financed by a third party, from the defendants, an automobile dealership. The parties consummated the transaction with several documents, including Truth-in-Lending Disclosures and a “Seller’s Right to Cancel,” a document that entitled the dealership to void the sale if the financing company declined to finance the purchase. Subsequently, the financing company rejected the financing and the plaintiffs returned the vehicle to the dealership. The plaintiffs brought suit in federal court, alleging violations of TILA, the Federal Odometer Act (FOA), and state law. The District Court granted summary judgment to the defendants regarding the federal claims and dismissed the remaining state law claims for lack of jurisdiction. On appeal, the Fourth Circuit affirmed. The plaintiffs contended that the dealership violated TILA by (i) failing to provide the TILA disclosures in a form they could keep prior to consummation of the transaction, (ii) failing to designate a processing fee as a “finance charge,” and (iii) failing to identify the credit disclosures as “estimates.” Addressing the first claim, the Fourth Circuit held that the defendants met the requirement to provide disclosures “in a form that the consumer may keep” when it provided the disclosures to the plaintiffs for them to review before they signed, and then gave the plaintiffs a copy after the deal was completed. Noting an illustration in Regulation Z, the Fourth Circuit stated that “nothing in the statute or the case law requires actual, physical possession of the documents to satisfy [TILA].” Regarding the second TILA charge, the court held that the processing fee was not a “finance charge” subject to TILA disclosure requirements for finance charges because the plaintiffs did not provide proof that the processing fee was waived for customers who paid in cash. Finally, the plaintiffs argued that the credit disclosures were only “estimates” because the approval of the credit contract did not occur at consummation and was contingent upon the financing arrangement. The Fourth Circuit disagreed, reasoning that the disclosed rate was a “set rate” and that the disclosed terms would have been binding contractual terms had the financing been approved. Consequently, the Fourth Circuit upheld the grant of summary judgment to the defendants (including additional claims implicating the FOA) and the dismissal of the remaining state law claims. The court issued the opinion as an unpublished opinion; for a copy of the opinion, please see http://www.buckleykolar.com/documents/Tripp_v_Charlie_Falk.pdf.
Sixth Circuit Holds Stating A Fee “May” Be Charged Is Sufficient Under EFTA. On August 22, the U.S. Court of Appeals for the Sixth Circuit held that an automated teller machine’s (ATM) on-screen display of the term “may,” coupled with the more definite requirement that a user press “yes” to accept a fee to continue the transaction, puts a user on sufficient notice, pursuant the Electronic Funds Transfer Act (EFTA), that a fee will be incurred. Clemmer v. Key Bank National Assoc., No. 07-3936, 2008 WL 3876200 (6th Cir. Aug. 22, 2008). One of EFTA’s provisions requires that operators of ATMs provide notice of fees charged to consumers. In this case, the plaintiff argued that the defendant violated the EFTA by failing to provide sufficient notice of fees charged to consumers by including in an ATM’s on-screen notice that a consumer “may” be charged a fee when, in fact, a fee “will” be charged. Affirming the opinion of the district court, the Sixth Circuit held that, by stating that the plaintiff may be charged a fee, and then requiring the acceptance of the fee in order to complete the transaction, the defendant effectively notified the plaintiff that it would charge him a fee for the transaction. The court explained that neither the EFTA nor its implementing regulation requires any particular language to be used on an ATM screen, nor do they provide a model message. For a copy of the opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/08a0309p-06.pdf.
Target Corp., National Federation of the Blind Announce Settlement Regarding Inaccessibility of Website by the Legally Blind. On August 27, Target Corp. and the National Federation of the Blind (NFB) announced a proposed class action settlement in a case in which the NFB alleged that www.target.com, a retail website, was not accessible to the legally blind. National Federation of the Blind v. Target Corp., No. 06-1802 (N.D. Cal. Aug. 27, 2008). The NFB filed suit against the defendant, Target Corp., citing claims arising under the Americans with Disabilities Act and state law on the basis that legally blind individuals were “denied access to the enjoyment of goods and services offered in Target stores.” The settlement details, in part, that the defendant will pay $6 million for claims by the class members, and that it will fund the NFB’s monitoring of the website to insure future accessibility by the legally blind. A fairness hearing on the proposed settlement will be held January 9, 2009. For a copy of the proposed settlement agreement, please see http://www.buckleykolar.com/documents/Target_Settlement.pdf.
Eighth Circuit Holds Bankruptcy Attorneys Are “Debt Relief Agencies” Under BAPCP. On September 4, the U.S. Court of Appeals for the Eight Circuit held that, under a plain reading of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) amendments to the Bankruptcy Code, “attorneys who provide ‘bankruptcy assistance’ to ‘assisted persons’ are unambiguously included in the definition of ‘debt relief agencies.’” Milavetz, Gallop & Milavetz, P.A. v. United States, No. 07-2405, 2008 WL 4068448 (8th Cir. Sept. 4, 2008). The plaintiffs sought declaratory judgment that certain provisions of the BAPCPA did not apply to attorneys and law firms, arguing that the definition of “debt relief agency” in the BAPCPA does not explicitly refer to attorneys, but does refer to “bankruptcy petition preparers,” a definition which excludes attorneys. The court disagreed, referencing, among other items, legislative history in support of the proposition that it was Congress’s intent to include attorneys in the definition of “debt relief agency.” The plaintiffs also argued that § 526(a)(4) of the BAPCPA was unconstitutional as applicable to attorneys. The court held that this provision, which prohibits “debt relief agencies from advising any assisted person to incur any additional debt in contemplation of bankruptcy,” is unconstitutional as applied to attorneys because it is “not narrowly tailored, nor narrowly and necessarily limited, to restrict only that speech that the government has an interest in restricting.” The court further reasoned that § 526(a)(4) prevents attorneys from “fulfilling their duty to clients to give them appropriate and beneficial advice not otherwise prohibited” by applicable law.However, the court applied the rational basis review standard to determine that advertising disclosure restrictions applicable to debt relief agencies are constitutional because they prevent “the deception of consumer debtors, as the disclosure requirements are directed precisely at the problem targeted by Congress: ensuring that persons who advertise bankruptcy-related services to the general public make clear that their services do in fact involve filing for bankruptcy.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/Milavetz_v_USA.PDF.
New Jersey Superior Court Holds Social Security Numbers in Realty Documents Cannot Be Released Under Public Records Act. On August 22, the Superior Court of New Jersey held that the release of recorded realty documents which contained social security numbers accompanied by name, addresses, and other information could not be compelled pursuant to the New Jersey Open Public Records Act (OPRA). Burnett v. County of Bergen, No. A-2002-06T2 (N.J. Super. Ct. App. Div. Aug. 22, 2008). The plaintiff requested the documents in connection with compiling a land record database for New Jersey properties. The County Clerk stated that social security numbers contained in the documents needed to be redacted, the cost for which exceeded $460,000. The plaintiff filed suit, arguing that the complete realty documents are required to be accessible pursuant to the OPRA. The trial court held that the right of access did not extend to social security numbers contained within the documents, even though the records were accessible under OPRA and common law. The Appellate Division agreed, citing, among other authorities, legislative history for the OPRA, the decision in Doe v. Poritz, 142 N.J. 1 (N.J. 1995), and the persuasive authority of other state decisions in similar suits, in reasoning that protection exists “for New Jersey citizens from wholesale disclosure of [social security numbers] through OPRA requests for masses of recorded realty documents.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/Burnett_v_Bergen.pdf.
Firm News
Matthew Previn will be presenting in a panel discussion entitled “Litigation and Enforcement Update” at the Mortgage Bankers Association’s Regulatory Compliance Conference in Washington D.C. on September 15. Click here for additional information about this conference.
Jonathan Jerison will be participating in two events at the Mortgage Bankers Association’s Regulatory Compliance Conference in Washington, D.C. on September 15 & 16:
- “Compliance in Key Areas including Data Security, Privacy and Identity, FCRA, FACTA and Mortgage Fraud,” on Monday, September 15; and
- FCRA/FACTA and Other Hot Topics on Tuesday, September 16.
Click here for additional information about this conference.
Jeff Naimon will be facilitating a roundtable at the Mortgage Bankers Association’s Regulatory Compliance ConferenceRoundtable entitled “Miscellaneous Regulatory Concerns: RESPA and TILA Issues (including Right of Rescission)” on September 15.
Margo Tank will be featured in a panel discussion on eLegal Issues at the Mortgage Bankers Association’s Document Management & Custody Conference on September 23 in Charlotte, North Carolina. Click here for additional information on this conference.
Jeff Naimon will be moderating a panel entitled “Ensuring Your Practices Keep Pace with Emerging Legislative and Regulatory Initiatives” at the American Conference Institute’s 5th National Forum on Preventing, Detecting And Resolving Mortgage Fraud on September 23 in Phoenix, Arizona. For a copy of the conference brochure, please see http://www.buckleykolar.com/documents/ACI_Fraud_Conference_Brochure.pdf.
Clint Rockwell will be presenting on topics related to recent state and federal mortgage lending developments at the American Financial Services Association’s State Government Affairs Forum / NACCA Annual Meeting on October 2 in Beverly Hills, California. Click here for additional information about this conference.
Jerry Buckley will be a featured speaker at the upcoming Corporate Risk Advisors & Fair Lending Colloquium Conference taking place October 27 in Orlando, Florida. The topic being discussed by his panel is entitled “Identifying Trends and Potential Regulatory Concerns.”
Margo Tank was a featured speaker at the New York State Bar Association’s Business Law Fall Meeting on September 12 in Newport, Rhode Island. Ms. Tank’s presentation was entitled “Electronic Signatures – What Does a Business Lawyer Need to Know?”
Jonathan Jerison was the featured speaker of a Pratt audio conference entitled “Between a Rock and a Hard Place: Managing HELOCs in the Current Environment” on August 26.
Jeff Naimon participated in the American Bankers Association Telephone Briefing entitled “Is Your Bank Ready for Regulation Z?” on September 3, discussing the Federal Reserve Board’s recently adopted HOEPA rule.
MISCELLANY
X9 Reviews Motor Vehicle Retail Sale and Lease Electronic Contracting Standard. On September 10, X9 alerted its members that the Motor Vehicle Retail Sale and Lease Electronic Contracting standard is up for its five year review. The standard pertains, in part, to the signature capture for Electronic Chattel Paper.
Mortgages
FHFA Places Fannie, Freddie into Conservatorship. On September 7, the Federal Housing Finance Agency (FHFA) announced that it has placed the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) into conservatorship. According to the FHFA, the action responded to concerns about the companies’ ability to raise and maintain sufficient capital “to absorb further losses while supporting new business activity.” Fannie Mae and Freddie Mac combined have $5.4 trillion in guaranteed mortgage-backed securities (MBS) and debt outstanding. To address systemic risk, Fannie Mae and Freddie Mac will be allowed to grow their guarantee MBS books without limits and continue to purchase replacement securities for their portfolios through the end of 2009. Beginning in 2010, their portfolios will begin to be “gradually reduced at the rate of 10% per year, largely through natural run off, eventually stabilizing at a lower, less risky size.” Existing contracts with either Fannie Mae or Freddie Mac will remain in effect. Fannie Mae and Freddie Mac will also enter into a financing and investing arrangement with the U.S. Treasury to provide the companies with access to liquidity and to help stabilize financial markets. According to a statement by U.S. Treasury Secretary Henry Paulson on September 7, the Treasury entered into “Senior Preferred Stock Purchase Agreements” with Fannie Mae and Freddie Mac to ensure that each company maintains a positive net worth and will purchase the companies’ MBS in order to improve mortgage affordability. Mr. Paulson also announced the creation of a new secured lending credit facility, which will be available to Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and will serve as an “ultimate liquidity backstop.” Under these agreements, the Treasury will immediately receive $1 billion of senior preferred stock in each entity and warrants for the purchase of 79.9% of each entity’s common stock at a nominal price. If the FHFA determines that the liabilities of either Fannie Mae or Freddie Mac have exceeded its assets, the Treasury will contribute cash capital in an amount equal to the difference between liabilities and assets, and an amount equal to each contribution will be added to the senior preferred stock held by the Treasury. The Treasury may invest up to $100 billion in each company under this plan. The agreements are intended to protect the senior debt, the subordinated debt, and MBS of the companies while the common stock and preferred shareholders “will bear any losses ahead of the government.” In conjunction with the FHFA and Treasury announcements, federal banking regulators issued a joint notice on September 7 reminding depository institutions that any net unrealized losses on common or preferred shares in Fannie Mae or Freddie Mac are deducted from regulatory capital. For a copy of the FHFA’s announcements, please see http://www.buckleykolar.com/documents/FHFAStatement9708.pdf and http://www.ofheo.gov/newsroom.aspx?ID=459&q1=0&q2=0. For a copy of Secretary Paulson’s statement, which includes links to the Fannie Mae and Freddie Mac Senior Preferred Stock Purchase Agreements, please see http://www.treas.gov/press/releases/hp1129.htm. For a copy of the federal banking agencies’ joint press release, please see http://www.occ.treas.gov/ftp/release/2008-102.htm.
Bear Stearns, EMC Mortgage Reach $28 Million Settlement with FTC. On September 9, the Bear Stearns Companies LLC and its subsidiary EMC Mortgage Corporation agreed to pay $28 million to settle Federal Trade Commission (FTC) charges that they engaged in unlawful practices when servicing consumers’ home mortgage loans. The FTC alleged that the companies misrepresented the amounts borrowers owed, charged unauthorized fees, such as late fees, property inspection fees, and loan modification fees, and engaged in unlawful and abusive collection practices. Without admitting to any of the allegations made by the FTC, the companies agreed to a settlement that (i) requires the companies to pay $28 million to redress consumers, (ii) bars the companies from misrepresenting any loan terms, such as amounts due, (iii) requires the companies to possess and rely upon competent and reliable evidence to support claims made to consumers about their loans, (iv) bars the companies from charging unauthorized fees, and places specific limits on property inspection fees even if they are authorized by the contract, (v) prohibits the companies from initiating a foreclosure action, or charging any foreclosure fees, unless they have reviewed all available records to verify that the consumer is in material default, confirmed that the defendants have not subjected the consumer to any illegal practices, and investigated and resolved any consumer disputes, and (vi) prohibits the companies from violating the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), and the Truth in Lending Act (TILA). For a copy of the court order, please see http://www.ftc.gov/os/caselist/0623031/080909emcmortgstipfinljdgmnt.pdf.
Comptroller Dugan Discusses Fair Lending. On September 9, Comptroller of the Currency, John C. Dugan, emphasized the importance of fair lending at the Office of the Comptroller of the Currency (OCC) Fair Lending Conference in New Orleans, LA. Comptroller Dugan stated that the OCC may amend its fair lending screening process as applied to “the largest national banks” to examine factors such as loan-to-value ratios, credit scores, and debt service ratios. These factors are not currently part of Home Mortgage Disclosure Act (HMDA) data. Comptroller Dugan urged banks not to lose focus on fair lending practices by integrating fair lending into new product design and modification decisions, to perform a thorough self-assessment of fair lending risk, and to make fair lending part of a bank’s “institutional culture.” For a copy of the press release, please see http://www.occ.gov/ftp/release/2008-103.htm.
FFIEC Releases 2007 HMDA Data. On September 10, the Federal Financial Institutions Examination Council (FFIEC) released 2007 data for mortgage transactions covered by the Home Mortgage Disclosure Act (HMDA). The information covers 26.2 million actions for the year 2007, and includes information regarding disclosure statements, aggregate data for “metropolitan statistical areas,” nationwide summary statistics regarding lending patterns, and the Loan Application Register. On September 11, the Federal Reserve Board published the draft of a forthcoming Federal Reserve Bulletin article regarding the data. For a copy of the article draft, please see http://www.federalreserve.gov/pubs/bulletin/2008/pdf/hmda07draft.pdf. For a copy of the 2007 HMDA data, please see http://www.ffiec.gov/hmda/hmdaproducts.htm#LAR_TS.
OCC, OTS Release Mortgage Metrics Report for Second Quarter of 2008. On September 12, the Office of the Comptroller of the Currency (OCC) and Office of Thrift Supervision (OTS) issued a joint report regarding the performance of outstanding first lien mortgages. The “OCC and OTS Mortgage Metrics Report” reflects that there was a greater increase in actions by national banks and thrifts, intended to prevent foreclosures, than in actions for new foreclosure proceedings in the second quarter of this year. The report also found that (i) new loss mitigation actions (loan modifications and payment plans) relative to new foreclosures averaged more than 87 percent during the second quarter, about 12 percentage points higher than during the first quarter, (ii) more than 9 out of 10 mortgages remained current while credit quality declined during the quarter across all risk categories, and (iii) there were increases in early stage delinquencies (30-59 days past due) and seriously delinquent mortgages (60 or more days past due, or loans to bankrupt borrowers who are 30 or more days past due). The agencies collected data from the nine national banks and five savings associations with the largest mortgage servicing portfolios using a standard reporting framework for tracking mortgage delinquencies, loss mitigation actions, and foreclosures. For a copy of the report, please see http://www.occ.gov/ftp/release/2008-105a.pdf.
Massachusetts Regulation Implements Standards for Compliance with Massachusetts Credit Needs. On September 5, regulations intended to carry out the Mortgage Lender Community Investment (MLCI) purposes of M.G.L. c. 255E, § 1, the Massachusetts “Licensing of Certain Mortgage Lenders and Brokers Law,” became effective. The MCLI requires the evaluation of mortgage lenders in connection with the “mortgage credit needs” of Massachusetts neighborhoods and individuals, specifically those of low- and moderate-income, consistent with the safe and sound operation of the mortgage lender. The regulation, which applies to mortgage lenders licensed under the statute that made 50 or more residential mortgage loans in the previous year, establishes performance tests, standards for evaluation, and ratings to be assigned when evaluating each mortgage lender’s record.The regulation requires the Massachusetts Commissioner of Banks to examine a licensed lender for compliance with the new requirements and to issue a public rating of the lender’s performance. A lender’s performance rating may be taken into consideration in a license renewal application or other application to the Massachusetts Division of Banks. For the full text of the regulation, please see http://www.mass.gov/Eoca/docs/dob/209cmr54.pdf.
New York Awards Home Ownership Assistance and Foreclosure Counseling Grants. On September 10, New York Governor David A. Paterson announced the awarding of over $4 million in grants to facilitate homeownership assistance and foreclosure prevention counseling, advocacy, and legal services. The grants came from the New York State Division of Housing and Community Renewal and the New York Banking Department and were awarded to various non-profit agencies. For a copy of the press release, please see http://www.banking.state.ny.us/pr080910.htm.
Fourth Circuit Affirms Summary Judgment for Car Dealership in TILA Case. In a recent case, the Fourth Circuit Court of Appeals upheld a grant of summary judgment against plaintiffs who alleged violations of the Truth in Lending Act (TILA), including its “form and timing” provisions. Tripp v. Charlie Falk’s Auto Wholesale Inc., No. 01-2134, 2008 WL 3992464 (4th Cir. Aug. 29, 2008). In this case, the plaintiffs bought a car, which would then be financed by a third party, from the defendants, an automobile dealership. The parties consummated the transaction with several documents, including Truth-in-Lending Disclosures and a “Seller’s Right to Cancel,” a document that entitled the dealership to void the sale if the financing company declined to finance the purchase. Subsequently, the financing company rejected the financing and the plaintiffs returned the vehicle to the dealership. The plaintiffs brought suit in federal court, alleging violations of TILA, the Federal Odometer Act (FOA), and state law. The District Court granted summary judgment to the defendants regarding the federal claims and dismissed the remaining state law claims for lack of jurisdiction. On appeal, the Fourth Circuit affirmed. The plaintiffs contended that the dealership violated TILA by (i) failing to provide the TILA disclosures in a form they could keep prior to consummation of the transaction, (ii) failing to designate a processing fee as a “finance charge,” and (iii) failing to identify the credit disclosures as “estimates.” Addressing the first claim, the Fourth Circuit held that the defendants met the requirement to provide disclosures “in a form that the consumer may keep” when it provided the disclosures to the plaintiffs for them to review before they signed, and then gave the plaintiffs a copy after the deal was completed. Noting an illustration in Regulation Z, the Fourth Circuit stated that “nothing in the statute or the case law requires actual, physical possession of the documents to satisfy [TILA].” Regarding the second TILA charge, the court held that the processing fee was not a “finance charge” subject to TILA disclosure requirements for finance charges because the plaintiffs did not provide proof that the processing fee was waived for customers who paid in cash. Finally, the plaintiffs argued that the credit disclosures were only “estimates” because the approval of the credit contract did not occur at consummation and was contingent upon the financing arrangement. The Fourth Circuit disagreed, reasoning that the disclosed rate was a “set rate” and that the disclosed terms would have been binding contractual terms had the financing been approved. Consequently, the Fourth Circuit upheld the grant of summary judgment to the defendants (including additional claims implicating the FOA) and the dismissal of the remaining state law claims. The court issued the opinion as an unpublished opinion; for a copy of the opinion, please see http://www.buckleykolar.com/documents/Tripp_v_Charlie_Falk.pdf.
Banking
OCC, OTS Release Mortgage Metrics Report for Second Quarter of 2008. On September 12, the Office of the Comptroller of the Currency (OCC) and Office of Thrift Supervision (OTS) issued a joint report regarding the performance of outstanding first lien mortgages. The “OCC and OTS Mortgage Metrics Report” reflects that there was a greater increase in actions by national banks and thrifts, intended to prevent foreclosures, than in actions for new foreclosure proceedings in the second quarter of this year. The report also found that (i) new loss mitigation actions (loan modifications and payment plans) relative to new foreclosures averaged more than 87 percent during the second quarter, about 12 percentage points higher than during the first quarter, (ii) more than 9 out of 10 mortgages remained current while credit quality declined during the quarter across all risk categories, and (iii) there were increases in early stage delinquencies (30-59 days past due) and seriously delinquent mortgages (60 or more days past due, or loans to bankrupt borrowers who are 30 or more days past due). The agencies collected data from the nine national banks and five savings associations with the largest mortgage servicing portfolios using a standard reporting framework for tracking mortgage delinquencies, loss mitigation actions, and foreclosures. For a copy of the report, please see http://www.occ.gov/ftp/release/2008-105a.pdf.
U.S Treasury Creates Backstop Lending Facility for Federal Home Loan Banks. On September 7, the Federal Home Loan Banks (FHLB) Office of Finance announced that the U.S. Treasury is creating a backstop lending facility for the Federal Home Loan Banks under the authority of the Housing and Economic Recovery Act of 2008 (reported in InfoBytes, August 1, 2008). Borrowings under the facility will be secured by FHLB assets, including loans to FHLB members and government sponsored enterprise mortgage-backed securities. For a copy of the press release, please see http://www.fhlb-of.com/analysis/pressframedyn.html?source=fhlbankofstatement090708.pdf.
OTS Announces E-Filing System. On September 9, the Office of Thrift Supervision (OTS) announced the creation of an e-filing system, which allows for certain documents to be electronically filed online. The system currently allows for the filing of branch closings, capital distribution notices, notifications of charter and bylaw changes, transactional website notices, and extensions of time for meeting regulatory conditions. The OTS plans to enhance and expand the system in the future to allow entities to electronically file additional documents. For a copy of the press release, please see http://files.ots.treas.gov/25277.pdf. To access the OTS’s e-filing system, please see http://www.ots.treas.gov/?p=EFiling.
Sixth Circuit Holds Stating A Fee “May” Be Charged Is Sufficient Under EFTA. On August 22, the U.S. Court of Appeals for the Sixth Circuit held that an automated teller machine’s (ATM) on-screen display of the term “may,” coupled with the more definite requirement that a user press “yes” to accept a fee to continue the transaction, puts a user on sufficient notice, pursuant the Electronic Funds Transfer Act (EFTA), that a fee will be incurred. Clemmer v. Key Bank National Assoc., No. 07-3936, 2008 WL 3876200 (6th Cir. Aug. 22, 2008). One of EFTA’s provisions requires that operators of ATMs provide notice of fees charged to consumers. In this case, the plaintiff argued that the defendant violated the EFTA by failing to provide sufficient notice of fees charged to consumers by including in an ATM’s on-screen notice that a consumer “may” be charged a fee when, in fact, a fee “will” be charged. Affirming the opinion of the district court, the Sixth Circuit held that, by stating that the plaintiff may be charged a fee, and then requiring the acceptance of the fee in order to complete the transaction, the defendant effectively notified the plaintiff that it would charge him a fee for the transaction. The court explained that neither the EFTA nor its implementing regulation requires any particular language to be used on an ATM screen, nor do they provide a model message. For a copy of the opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/08a0309p-06.pdf.
Consumer Finance
FTC Files Complaint Against Credit Repair Marketers. On September 10, the Federal Trade Commission (FTC) issued a press release announcing that it filed a complaint in the U.S. District Court for the Eastern District of Texas against two credit repair marketers for violating the FTC Act and the Credit Repair Organizations Act (CROA). The complaint alleges that the defendants, who maintain the website www.lhcreditrepair.com, falsely promised to permanently remove derogatory information from consumers’ credit reports, even if the information was accurate and not obsolete.In violation of the CROA, the defendants allegedly required advance payment from consumers for credit repair services and failed to include in their consumer contract a full and detailed description of the services to be performed, including all guarantees of performance and an estimate of the date by which the services would be performed. The complaint further alleges that the defendants violated the CROA by failing to provide the “Consumer Credit File Rights Under State and Federal Law” before contracts were signed, and for failing to include a conspicuous statement regarding the consumer’s right to cancel the contract.For a copy of the press release, please see http://www.ftc.gov/opa/2008/09/lhcr.shtm.
FTC Approves Settlement Agreement with Two Payday Loan Lead Generators. On September 5, the Federal Trade Commission (FTC) announced that it approved final consent orders in matters concerning two payday loan lead generators, We Give Loans, Inc. and Aliyah Associates, LLC d/b/a American Advance. The companies advertised payday loans on their web sites and collected information from visitors to later sell to payday loan lenders. Earlier this year, the FTC filed a complaint alleging that the companies failed to disclose the annual percentage rate (APR) for their payday loans in advertisements in violation of the Truth in Lending Act (TILA) and Regulation Z (reported in InfoBytes, June 27, 2008).The final consent orders contain provisions to ensure future compliance with TILA and Regulation Z. Specifically, the companies are required to include in all future payday loan advertisements the amount or percentage of the down payment, the terms of repayment, and the annual percentage rate, using that term or the abbreviation “APR.” For copies of the final consent orders, please see http://www.ftc.gov/os/caselist/0723205/080905wgldo.pdf and http://www.ftc.gov/os/caselist/0723206/080905aliyahdo.pdf.
FTC Announces Payments Distributed in Consumer Settlement. On September 10, the Federal Trade Commission (FTC) announced that the FTC returned approximately $12.7 million this week in connection with a consumer settlement. The settlement, initially announced on January 9, 2006 (reported in InfoBytes, January 13, 2006), against Andris Pukke, founder of AmeriDebt, Inc. and DebtWorks, Inc., is the result of the largest deceptive credit counseling case ever brought by the FTC. For a copy of the press release, please see http://www.ftc.gov/opa/2008/09/ameridebt.shtm.
Nevada Law Requiring Encryption for Personal Customer Information Becomes Effective October 1. On October 1, provisions of a bill requiring businesses in Nevada to encrypt personal customer data become effective. The bill, S.B. 347, amended various provisions of Nevada law regarding personal identifying information. In part, the bill mandates encryption for a person’s first name or first initial and surname in combination with (i) a social security or employer identification number, (ii) a driver’s license or other identification number, or (iii) a financial account or card number accompanied with its code or password. The bill does not provide for any specific encryption standard. For a copy of the bill, please see http://www.leg.state.nv.us/73rd/bills/SB/SB347_EN.pdf.
Eighth Circuit Holds Bankruptcy Attorneys Are “Debt Relief Agencies” Under BAPCP. On September 4, the U.S. Court of Appeals for the Eight Circuit held that, under a plain reading of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) amendments to the Bankruptcy Code, “attorneys who provide ‘bankruptcy assistance’ to ‘assisted persons’ are unambiguously included in the definition of ‘debt relief agencies.’” Milavetz, Gallop & Milavetz, P.A. v. United States, No. 07-2405, 2008 WL 4068448 (8th Cir. Sept. 4, 2008). The plaintiffs sought declaratory judgment that certain provisions of the BAPCPA did not apply to attorneys and law firms, arguing that the definition of “debt relief agency” in the BAPCPA does not explicitly refer to attorneys, but does refer to “bankruptcy petition preparers,” a definition which excludes attorneys. The court disagreed, referencing, among other items, legislative history in support of the proposition that it was Congress’s intent to include attorneys in the definition of “debt relief agency.” The plaintiffs also argued that § 526(a)(4) of the BAPCPA was unconstitutional as applicable to attorneys. The court held that this provision, which prohibits “debt relief agencies from advising any assisted person to incur any additional debt in contemplation of bankruptcy,” is unconstitutional as applied to attorneys because it is “not narrowly tailored, nor narrowly and necessarily limited, to restrict only that speech that the government has an interest in restricting.” The court further reasoned that § 526(a)(4) prevents attorneys from “fulfilling their duty to clients to give them appropriate and beneficial advice not otherwise prohibited” by applicable law.However, the court applied the rational basis review standard to determine that advertising disclosure restrictions applicable to debt relief agencies are constitutional because they prevent “the deception of consumer debtors, as the disclosure requirements are directed precisely at the problem targeted by Congress: ensuring that persons who advertise bankruptcy-related services to the general public make clear that their services do in fact involve filing for bankruptcy.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/Milavetz_v_USA.PDF.
New Jersey Superior Court Holds Social Security Numbers in Realty Documents Cannot Be Released Under Public Records Act. On August 22, the Superior Court of New Jersey held that the release of recorded realty documents which contained social security numbers accompanied by name, addresses, and other information could not be compelled pursuant to the New Jersey Open Public Records Act (OPRA). Burnett v. County of Bergen, No. A-2002-06T2 (N.J. Super. Ct. App. Div. Aug. 22, 2008). The plaintiff requested the documents in connection with compiling a land record database for New Jersey properties. The County Clerk stated that social security numbers contained in the documents needed to be redacted, the cost for which exceeded $460,000. The plaintiff filed suit, arguing that the complete realty documents are required to be accessible pursuant to the OPRA. The trial court held that the right of access did not extend to social security numbers contained within the documents, even though the records were accessible under OPRA and common law. The Appellate Division agreed, citing, among other authorities, legislative history for the OPRA, the decision in Doe v. Poritz, 142 N.J. 1 (N.J. 1995), and the persuasive authority of other state decisions in similar suits, in reasoning that protection exists “for New Jersey citizens from wholesale disclosure of [social security numbers] through OPRA requests for masses of recorded realty documents.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/Burnett_v_Bergen.pdf.
Litigation
Fourth Circuit Affirms Summary Judgment for Car Dealership in TILA Case. In a recent case, the Fourth Circuit Court of Appeals upheld a grant of summary judgment against plaintiffs who alleged violations of the Truth in Lending Act (TILA), including its “form and timing” provisions. Tripp v. Charlie Falk’s Auto Wholesale Inc., No. 01-2134, 2008 WL 3992464 (4th Cir. Aug. 29, 2008). In this case, the plaintiffs bought a car, which would then be financed by a third party, from the defendants, an automobile dealership. The parties consummated the transaction with several documents, including Truth-in-Lending Disclosures and a “Seller’s Right to Cancel,” a document that entitled the dealership to void the sale if the financing company declined to finance the purchase. Subsequently, the financing company rejected the financing and the plaintiffs returned the vehicle to the dealership. The plaintiffs brought suit in federal court, alleging violations of TILA, the Federal Odometer Act (FOA), and state law. The District Court granted summary judgment to the defendants regarding the federal claims and dismissed the remaining state law claims for lack of jurisdiction. On appeal, the Fourth Circuit affirmed. The plaintiffs contended that the dealership violated TILA by (i) failing to provide the TILA disclosures in a form they could keep prior to consummation of the transaction, (ii) failing to designate a processing fee as a “finance charge,” and (iii) failing to identify the credit disclosures as “estimates.” Addressing the first claim, the Fourth Circuit held that the defendants met the requirement to provide disclosures “in a form that the consumer may keep” when it provided the disclosures to the plaintiffs for them to review before they signed, and then gave the plaintiffs a copy after the deal was completed. Noting an illustration in Regulation Z, the Fourth Circuit stated that “nothing in the statute or the case law requires actual, physical possession of the documents to satisfy [TILA].” Regarding the second TILA charge, the court held that the processing fee was not a “finance charge” subject to TILA disclosure requirements for finance charges because the plaintiffs did not provide proof that the processing fee was waived for customers who paid in cash. Finally, the plaintiffs argued that the credit disclosures were only “estimates” because the approval of the credit contract did not occur at consummation and was contingent upon the financing arrangement. The Fourth Circuit disagreed, reasoning that the disclosed rate was a “set rate” and that the disclosed terms would have been binding contractual terms had the financing been approved. Consequently, the Fourth Circuit upheld the grant of summary judgment to the defendants (including additional claims implicating the FOA) and the dismissal of the remaining state law claims. The court issued the opinion as an unpublished opinion; for a copy of the opinion, please see http://www.buckleykolar.com/documents/Tripp_v_Charlie_Falk.pdf.
Sixth Circuit Holds Stating A Fee “May” Be Charged Is Sufficient Under EFTA. On August 22, the U.S. Court of Appeals for the Sixth Circuit held that an automated teller machine’s (ATM) on-screen display of the term “may,” coupled with the more definite requirement that a user press “yes” to accept a fee to continue the transaction, puts a user on sufficient notice, pursuant the Electronic Funds Transfer Act (EFTA), that a fee will be incurred. Clemmer v. Key Bank National Assoc., No. 07-3936, 2008 WL 3876200 (6th Cir. Aug. 22, 2008). One of EFTA’s provisions requires that operators of ATMs provide notice of fees charged to consumers. In this case, the plaintiff argued that the defendant violated the EFTA by failing to provide sufficient notice of fees charged to consumers by including in an ATM’s on-screen notice that a consumer “may” be charged a fee when, in fact, a fee “will” be charged. Affirming the opinion of the district court, the Sixth Circuit held that, by stating that the plaintiff may be charged a fee, and then requiring the acceptance of the fee in order to complete the transaction, the defendant effectively notified the plaintiff that it would charge him a fee for the transaction. The court explained that neither the EFTA nor its implementing regulation requires any particular language to be used on an ATM screen, nor do they provide a model message. For a copy of the opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/08a0309p-06.pdf.
Target Corp., National Federation of the Blind Announce Settlement Regarding Inaccessibility of Website by the Legally Blind. On August 27, Target Corp. and the National Federation of the Blind (NFB) announced a proposed class action settlement in a case in which the NFB alleged that www.target.com, a retail website, was not accessible to the legally blind. National Federation of the Blind v. Target Corp., No. 06-1802 (N.D. Cal. Aug. 27, 2008). The NFB filed suit against the defendant, Target Corp., citing claims arising under the Americans with Disabilities Act and state law on the basis that legally blind individuals were “denied access to the enjoyment of goods and services offered in Target stores.” The settlement details, in part, that the defendant will pay $6 million for claims by the class members, and that it will fund the NFB’s monitoring of the website to insure future accessibility by the legally blind. A fairness hearing on the proposed settlement will be held January 9, 2009. For a copy of the proposed settlement agreement, please see http://www.buckleykolar.com/documents/Target_Settlement.pdf.
Eighth Circuit Holds Bankruptcy Attorneys Are “Debt Relief Agencies” Under BAPCP. On September 4, the U.S. Court of Appeals for the Eight Circuit held that, under a plain reading of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) amendments to the Bankruptcy Code, “attorneys who provide ‘bankruptcy assistance’ to ‘assisted persons’ are unambiguously included in the definition of ‘debt relief agencies.’” Milavetz, Gallop & Milavetz, P.A. v. United States, No. 07-2405, 2008 WL 4068448 (8th Cir. Sept. 4, 2008). The plaintiffs sought declaratory judgment that certain provisions of the BAPCPA did not apply to attorneys and law firms, arguing that the definition of “debt relief agency” in the BAPCPA does not explicitly refer to attorneys, but does refer to “bankruptcy petition preparers,” a definition which excludes attorneys. The court disagreed, referencing, among other items, legislative history in support of the proposition that it was Congress’s intent to include attorneys in the definition of “debt relief agency.” The plaintiffs also argued that § 526(a)(4) of the BAPCPA was unconstitutional as applicable to attorneys. The court held that this provision, which prohibits “debt relief agencies from advising any assisted person to incur any additional debt in contemplation of bankruptcy,” is unconstitutional as applied to attorneys because it is “not narrowly tailored, nor narrowly and necessarily limited, to restrict only that speech that the government has an interest in restricting.” The court further reasoned that § 526(a)(4) prevents attorneys from “fulfilling their duty to clients to give them appropriate and beneficial advice not otherwise prohibited” by applicable law.However, the court applied the rational basis review standard to determine that advertising disclosure restrictions applicable to debt relief agencies are constitutional because they prevent “the deception of consumer debtors, as the disclosure requirements are directed precisely at the problem targeted by Congress: ensuring that persons who advertise bankruptcy-related services to the general public make clear that their services do in fact involve filing for bankruptcy.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/Milavetz_v_USA.PDF.
New Jersey Superior Court Holds Social Security Numbers in Realty Documents Cannot Be Released Under Public Records Act. On August 22, the Superior Court of New Jersey held that the release of recorded realty documents which contained social security numbers accompanied by name, addresses, and other information could not be compelled pursuant to the New Jersey Open Public Records Act (OPRA). Burnett v. County of Bergen, No. A-2002-06T2 (N.J. Super. Ct. App. Div. Aug. 22, 2008). The plaintiff requested the documents in connection with compiling a land record database for New Jersey properties. The County Clerk stated that social security numbers contained in the documents needed to be redacted, the cost for which exceeded $460,000. The plaintiff filed suit, arguing that the complete realty documents are required to be accessible pursuant to the OPRA. The trial court held that the right of access did not extend to social security numbers contained within the documents, even though the records were accessible under OPRA and common law. The Appellate Division agreed, citing, among other authorities, legislative history for the OPRA, the decision in Doe v. Poritz, 142 N.J. 1 (N.J. 1995), and the persuasive authority of other state decisions in similar suits, in reasoning that protection exists “for New Jersey citizens from wholesale disclosure of [social security numbers] through OPRA requests for masses of recorded realty documents.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/Burnett_v_Bergen.pdf.
E-Financial Services
FTC Files Complaint Against Credit Repair Marketers. On September 10, the Federal Trade Commission (FTC) issued a press release announcing that it filed a complaint in the U.S. District Court for the Eastern District of Texas against two credit repair marketers for violating the FTC Act and the Credit Repair Organizations Act (CROA). The complaint alleges that the defendants, who maintain the website www.lhcreditrepair.com, falsely promised to permanently remove derogatory information from consumers’ credit reports, even if the information was accurate and not obsolete.In violation of the CROA, the defendants allegedly required advance payment from consumers for credit repair services and failed to include in their consumer contract a full and detailed description of the services to be performed, including all guarantees of performance and an estimate of the date by which the services would be performed. The complaint further alleges that the defendants violated the CROA by failing to provide the “Consumer Credit File Rights Under State and Federal Law” before contracts were signed, and for failing to include a conspicuous statement regarding the consumer’s right to cancel the contract.For a copy of the press release, please see http://www.ftc.gov/opa/2008/09/lhcr.shtm.
FTC Approves Settlement Agreement with Two Payday Loan Lead Generators. On September 5, the Federal Trade Commission (FTC) announced that it approved final consent orders in matters concerning two payday loan lead generators, We Give Loans, Inc. and Aliyah Associates, LLC d/b/a American Advance. The companies advertised payday loans on their web sites and collected information from visitors to later sell to payday loan lenders. Earlier this year, the FTC filed a complaint alleging that the companies failed to disclose the annual percentage rate (APR) for their payday loans in advertisements in violation of the Truth in Lending Act (TILA) and Regulation Z (reported in InfoBytes, June 27, 2008).The final consent orders contain provisions to ensure future compliance with TILA and Regulation Z. Specifically, the companies are required to include in all future payday loan advertisements the amount or percentage of the down payment, the terms of repayment, and the annual percentage rate, using that term or the abbreviation “APR.” For copies of the final consent orders, please see http://www.ftc.gov/os/caselist/0723205/080905wgldo.pdf and http://www.ftc.gov/os/caselist/0723206/080905aliyahdo.pdf.
FTC Announces Payments Distributed in Consumer Settlement. On September 10, the Federal Trade Commission (FTC) announced that the FTC returned approximately $12.7 million this week in connection with a consumer settlement. The settlement, initially announced on January 9, 2006 (reported in InfoBytes, January 13, 2006), against Andris Pukke, founder of AmeriDebt, Inc. and DebtWorks, Inc., is the result of the largest deceptive credit counseling case ever brought by the FTC. For a copy of the press release, please see http://www.ftc.gov/opa/2008/09/ameridebt.shtm.
Nevada Law Requiring Encryption for Personal Customer Information Becomes Effective October 1. On October 1, provisions of a bill requiring businesses in Nevada to encrypt personal customer data become effective. The bill, S.B. 347, amended various provisions of Nevada law regarding personal identifying information. In part, the bill mandates encryption for a person’s first name or first initial and surname in combination with (i) a social security or employer identification number, (ii) a driver’s license or other identification number, or (iii) a financial account or card number accompanied with its code or password. The bill does not provide for any specific encryption standard. For a copy of the bill, please see http://www.leg.state.nv.us/73rd/bills/SB/SB347_EN.pdf.
Sixth Circuit Holds Stating A Fee “May” Be Charged Is Sufficient Under EFTA. On August 22, the U.S. Court of Appeals for the Sixth Circuit held that an automated teller machine’s (ATM) on-screen display of the term “may,” coupled with the more definite requirement that a user press “yes” to accept a fee to continue the transaction, puts a user on sufficient notice, pursuant the Electronic Funds Transfer Act (EFTA), that a fee will be incurred. Clemmer v. Key Bank National Assoc., No. 07-3936, 2008 WL 3876200 (6th Cir. Aug. 22, 2008). One of EFTA’s provisions requires that operators of ATMs provide notice of fees charged to consumers. In this case, the plaintiff argued that the defendant violated the EFTA by failing to provide sufficient notice of fees charged to consumers by including in an ATM’s on-screen notice that a consumer “may” be charged a fee when, in fact, a fee “will” be charged. Affirming the opinion of the district court, the Sixth Circuit held that, by stating that the plaintiff may be charged a fee, and then requiring the acceptance of the fee in order to complete the transaction, the defendant effectively notified the plaintiff that it would charge him a fee for the transaction. The court explained that neither the EFTA nor its implementing regulation requires any particular language to be used on an ATM screen, nor do they provide a model message. For a copy of the opinion, please see http://www.ca6.uscourts.gov/opinions.pdf/08a0309p-06.pdf.
Target Corp., National Federation of the Blind Announce Settlement Regarding Inaccessibility of Website by the Legally Blind. On August 27, Target Corp. and the National Federation of the Blind (NFB) announced a proposed class action settlement in a case in which the NFB alleged that www.target.com, a retail website, was not accessible to the legally blind. National Federation of the Blind v. Target Corp., No. 06-1802 (N.D. Cal. Aug. 27, 2008). The NFB filed suit against the defendant, Target Corp., citing claims arising under the Americans with Disabilities Act and state law on the basis that legally blind individuals were “denied access to the enjoyment of goods and services offered in Target stores.” The settlement details, in part, that the defendant will pay $6 million for claims by the class members, and that it will fund the NFB’s monitoring of the website to insure future accessibility by the legally blind. A fairness hearing on the proposed settlement will be held January 9, 2009. For a copy of the proposed settlement agreement, please see http://www.buckleykolar.com/documents/Target_Settlement.pdf.
X9 Reviews Motor Vehicle Retail Sale and Lease Electronic Contracting Standard. On September 10, X9 alerted its members that the Motor Vehicle Retail Sale and Lease Electronic Contracting standard is up for its five year review. The standard pertains, in part, to the signature capture for Electronic Chattel Paper.
Privacy/Data Security
Nevada Law Requiring Encryption for Personal Customer Information Becomes Effective October 1. On October 1, provisions of a bill requiring businesses in Nevada to encrypt personal customer data become effective. The bill, S.B. 347, amended various provisions of Nevada law regarding personal identifying information. In part, the bill mandates encryption for a person’s first name or first initial and surname in combination with (i) a social security or employer identification number, (ii) a driver’s license or other identification number, or (iii) a financial account or card number accompanied with its code or password. The bill does not provide for any specific encryption standard. For a copy of the bill, please see http://www.leg.state.nv.us/73rd/bills/SB/SB347_EN.pdf.
New Jersey Superior Court Holds Social Security Numbers in Realty Documents Cannot Be Released Under Public Records Act. On August 22, the Superior Court of New Jersey held that the release of recorded realty documents which contained social security numbers accompanied by name, addresses, and other information could not be compelled pursuant to the New Jersey Open Public Records Act (OPRA). Burnett v. County of Bergen, No. A-2002-06T2 (N.J. Super. Ct. App. Div. Aug. 22, 2008). The plaintiff requested the documents in connection with compiling a land record database for New Jersey properties. The County Clerk stated that social security numbers contained in the documents needed to be redacted, the cost for which exceeded $460,000. The plaintiff filed suit, arguing that the complete realty documents are required to be accessible pursuant to the OPRA. The trial court held that the right of access did not extend to social security numbers contained within the documents, even though the records were accessible under OPRA and common law. The Appellate Division agreed, citing, among other authorities, legislative history for the OPRA, the decision in Doe v. Poritz, 142 N.J. 1 (N.J. 1995), and the persuasive authority of other state decisions in similar suits, in reasoning that protection exists “for New Jersey citizens from wholesale disclosure of [social security numbers] through OPRA requests for masses of recorded realty documents.” For a copy of the opinion, please see http://www.buckleykolar.com/documents/Burnett_v_Bergen.pdf.