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Topics – Covered This Week (Click to View)
FEDERAL ISSUES
Bush Budget Calls for New GSE Regulator, Risk-Based FHA Insurance Pricing. On February 5, the White House released its proposed budget for FY 2008, which included several significant changes to federal housing policy. Major items include (i) a call for a “new strengthened GSE [Government Sponsored Enterprise] regulator,” into which the Office of Federal Housing Enterprise oversight would be merged, and which would be funded by “mandatory assessments” on the GSEs, (ii) a proposed risk-based pricing structure for Federal Housing Administration (FHA) mortgage insurance, as well as the combination of all FHA insurance programs into a common fund and a removal of the cap on federally insured Home Equity Conversion Mortgages, and (iii) a proposed increase on permissible administrative fees charged in connection with Ginnie Mae mortgage-security guarantees. For details about the Administration’s Department of Housing and Urban Development proposed budget, see http://www.whitehouse.gov/omb/budget/fy2008/pdf/appendix/hud.pdf.
SEC Proposes Rules Regarding Nationally Recognized Statistical Rating Organizations. The Securities and Exchange Commission (SEC) has proposed rules to implement provisions of the Credit Rating Agency Reform Act of 2006. The Credit Rating Agency Reform Act, among other things, provides authority for the SEC to implement registration, recordkeeping, financial reporting and oversight rules designed to ensure that nationally recognized statistical rating organizations (NRSROs) conduct their activities with integrity and impartiality. The proposed rules would require NRSROs to: (i) apply to the SEC for registration as an NRSRO and, if approved, provide updated information when certain information provided becomes materially inaccurate and provide an annual certification on proposed a Form NRSRO; (ii) make and retain certain records relating to the business of issuing and maintaining credit ratings; (iii) furnish to the SEC, on a confidential basis, annual financial statements audited by an independent public accountant; (iv) have procedures designed to prevent the dissemination of confidential information, prevent employees of the NRSRO from trading on material nonpublic information, and prevent the misuse of information relating to a pending credit rating action; and (v) disclose and manage certain conflicts of interest that arise in the normal course of engaging in the business of issuing credit ratings. The proposed rules also would prohibit NRSROs from engaging in certain acts or practices relating to the issuance of credit ratings that the SEC has determined to be unfair, coercive or abusive. Comments on the proposed rules must be received by March 12, 2007. The full text of the proposed rules is available at http://www.sec.gov/rules/proposed/2007/34-55231.pdf.
OTS Publishes Several Guides for Consumer Protection Week. The Office of Thrift Supervision (OTS) declared February 5th through 9th its “consumer protection week” to draw attention to several issues in consumer education and financial literacy. Topics highlighted in recent OTS press releases include (i) a Consumer Fact Sheet on Gift Cards explaining critical gift card features and how to determine them, (ii) a Consumer Complaint Brochure informing consumers how to direct and resolve complaints, (iii) and informational releases regarding Adjustable Rate Mortgages and Credit Report Monitoring. To view all of this week’s OTS press releases, go to http://www.ots.treas.gov/pagehtml.cfm?catNumber=31.
HUD Adjusts Civil Money Penalties for Inflation. On February 6, the Department of Housing and Urban Development (HUD) printed a final rule in the Federal Register increasing the size of permissible civil money penalties to compensate for inflation. The amendments increase the permissible penalties for, among other things, certain non-compliance violations or fraud under the Real Estate Settlement and Procedures Act, regarding Fair Housing Administration mortgage insurance, or by Ginnie Mae issuers and custodians. The rule, effective immediately, can be found at 72 Fed. Reg. 5586.
COURTS
California Appellate Court Holds That Class Actions Not Allowed for Rescission under TILA. In a case of first impression in California state courts, the California Court of Appeals in LaLiberte v. Pacific Mercantile Bank, No. G036235 (Calif. Ct. App., Jan. 25, 2007), ruled that the Truth in Lending Act (TILA) does not allow class actions for rescission. In the case, the named plaintiff and more than 100 others sued Pacific Mercantile Bank alleging that the lender failed to disclose certain closing fees. The plaintiff borrowers sought to rescind their refinanced loans under section 1635 of TILA, which would have cost Pacific Mercantile more than $37 million in lost loan security. The court barred the class action, stating "We agree with those courts that hold rescission under TILA is a personal remedy not suitable for class treatment." The court also noted that certain sections of TILA had been amended to allow for class actions, but that section 1635 was not one of those sections. A copy of the opinion is available at http://www.courtinfo.ca.gov/opinions/documents/G036235.PDF.
District Court Allows Discovery of Actual Damages in FCRA Statutory Damages Case. In ruling on a discovery motion in In re H&R Block Mortgage Corp., Prescreening Litigation, No. 2:06-MD-230, 2007 WL 325351 (N.D. Ind. Jan. 30, 2007), a Fair Credit Reporting Act (FCRA) “firm offer” case alleging use of credit reports for an impermissible purpose, the U.S. District Court for the Northern District of Indiana joined most other courts in holding that a plaintiff need not demonstrate actual damages in order to obtain statutory damages of $100-$1000 per FCRA violation. (Plaintiffs in FCRA class-action cases generally do not allege actual damages because an actual damages claim would require an individualized determination of damages, which usually prevents certification of a class.) The court went on, however, to grant the lender’s motion to compel discovery of whether the consumer sustained any actual damages, noting that actual damages may be relevant to determining the amount of punitive damages, which the plaintiff was seeking. For a copy of the In re H&R Block opinion, please contact .
California Appellate Court Upholds Federal Thrift Preemption of Prepayment Penalty Claim. Last week, the California Court of Appeals in Weiss v. Washington Mutual Bank, No. B187834 (Cal. Ct. App. Jan. 29, 2007), rejected on preemption grounds a lawsuit challenging the prepayment penalty formula of a federal savings and loan association. In Weiss, the plaintiff prepaid two separate loans that totaled nearly $4 million, incurred a prepayment penalty of about ten percent between the two loans, and sued for fraud and unfair and deceptive business practices, among other claims, stating that it was his understanding that the penalty would be no more than two percent. The lender, Washington Mutual, moved for judgment on the grounds that the claim is preempted by the Home Owners' Loan Act (HOLA) and its implementing regulations. The Weiss court agreed with the lender, relying on 12 C.F.R § 560.2, which specifically lists prepayment penalties as a type of state law preempted by HOLA, as well as a number of cases upholding preemption of prepayment penalty laws in California. Because prepayment penalties are specifically enumerated in the regulations as preempted, the court rejected the claim that prepayment penalties are exempt from preemption because they only incidentally affect lending operations or are otherwise inconsistent with HOLA. In addition, the Weiss court rejected a request by the California Attorney General, as amicus curiae, to allow the plaintiff to enforce California's unfair competition law. The court stated that the case law relied upon by the attorney general was inapposite because it did not consider the express exemptions listed in the regulation, and that relevant case law that does consider 12 C.F.R. § 560.2 upholds the preemption conclusion. For a copy of the Weiss opinion, please contact .
Third Circuit Holds That Mortgage Servicer is FDCPA “Debt Collector” for Loans in Default When Acquired. In an unpublished opinion, the U.S. Court of Appeals for the Third Circuit held in Oppong v. First Union Mortgage Corp., No. 06-1388, 2007 WL 216061 (3d Cir. Jan. 26, 2007) (unpublished), that a mortgage servicer was a “debt collector” for purposes of the Fair Debt Collection Practices Act (FDCPA) as to a loan that was in foreclosure when the servicer acquired the servicing rights. Servicers are exempt from the definition of a “debt collector” as to debts that are not in default when the servicer acquires them. The court rejected the servicer’s argument that it did not “regularly” collect defaulted debts because collecting debts was a very small proportion of its business compared to originating mortgages, stating that it is the absolute volume of debt-collection activities that determines whether an entity regularly collects debts, not the proportion that those activities represent of the entity’s business. For a copy of the Oppong opinion, see http://www.ca3.uscourts.gov/opinarch/061388np.pdf.
Overhead Expenses Paid for by Borrowers to Cover Costs Associated with Potential Borrowers Not a RESPA §8 Violation. Plaintiffs argued that an arrangement under which Landsafe Credit, Inc., a credit reporting service, charged Countrywide Home Loans, Inc. a flat $35 credit report fee for credit reports provided in transactions that resulted in a closed loan, but did not charge Countrywide any fee directly for credit reports provided for transactions that did not close, constituted a referral or kickback scheme in violation of §8(a) of the Real Estate Settlement Procedures Act (RESPA). Price v. Landsafe Credit, Inc. and Countrywide Home Loans, Inc., No. CIV.A.CV205-156, 2006 WL 3791391 (S.D.Ga. Dec. 22, 2006). Plaintiffs asserted that Landsafe and Countrywide were motivated to adopt this pricing structure after a class action settlement relating to credit report charges. Ruling on a motion for summary judgment filed by Defendants, the court determined that the cost of investigating potential borrowers' creditworthiness is a necessary overhead business expense and that it is not unlawful under RESPA to pass along this expense to creditworthy borrowers who secure loans with Countrywide. The court also noted that according to expert testimony, the $35 fee is reasonably related to the value of the services furnished. For a copy of this decision please contact .
Seventh Circuit Will Hear Appeal in Andrews v. Chevy Chase Bank. On January 31, the U.S. Court of Appeals for the Seventh Circuit agreed to hear an interlocutory appeal of the TiLA class rescission certification in Andrews v. Chevy Chase Bank, FSB, Case No. 05-C-0454 (E.D. Wisc., January 16, 2007). (See the January 19th issue of InfoBytes for more details.) The District Court judge hearing the case has agreed to suspend proceedings pending the appeal’s outcome. Please contact for copies of these opinions.
Collection Notice Did Not Violate Automatic Stay Where Lender Had No Knowledge of Borrower’s Bankruptcy Proceeding. On January 5, the United States Bankruptcy Court for the District of Connecticut, ruling on a motion for summary judgment in In re Leslie, No. 05-24110, 06-2015, 2007 WL 80806 (Bankr. D. Conn. Jan. 5, 2007), concluded that a lender did not violate the automatic stay in a Chapter 7 bankruptcy proceeding by sending a collection notice to a mortgage loan borrower, where the lender had no knowledge of the borrower’s bankruptcy filing. Additionally, because the automatic stay does not protect the bankruptcy estate from “legal actions taken within the bankruptcy court,” the court concluded that the lender did not violate the stay by filing a motion for relief from the stay so that it could foreclose on the mortgage. In the case, the borrower also asserted that, because various investors had provided funding for the mortgage loan, the lender was not the holder of the note and, by attempting to bring an action on the note, had engaged in the unauthorized practice of law. According to the court, however, whether the loan funds were provided by other investors was not material to the issue of whether the lender was the holder of the note entitled to enforce it. For a copy of the opinion in In re Leslie, please contact .
Oregon Appellate Court Holds Arbitration Provision Unconscionable. In Vasquez-Lopez v. Beneficial Oregon, Inc., Appeal No. A125270 (Or. Ct. App., opinion filed January 31, 2007), the Oregon Court of Appeals affirmed a lower court ruling that an arbitration clause that prohibited class actions and required cost sharing was unconscionable. In the case, borrowers who neither read nor spoke English sued their lender for fraudulently inducing them to enter into a refinancing transaction. They alleged that one of defendant’s employees, who interpreted the loan documents for them, misrepresented the terms of those documents. The defendant lender moved to compel arbitration on the basis of an arbitration rider that, among other things, required both parties to share the cost of the arbitration equally, prohibited both parties from bringing or joining a class action, and required that any arbitral award be kept confidential. Finding the arbitration agreement unconscionable, the trial court denied defendant’s motion. In the ensuing trial, the defendant was found liable for over $500,000 in compensatory and punitive damages, and nearly $200,000 in attorneys’ fees. The Oregon Court of Appeals affirmed in Vasquez-Lopez court affirmed, holding the arbitration rider to be both procedurally and substantively unconscionable. According to the court, the rider was procedurally unconscionable because it was a contract of adhesion reflecting the parties unequal bargaining power. Even if the borrowers had been able to bargain for better terms, the court reasoned, they were dissuaded by the misrepresentations made by the defendant’s employee. The court also held that the class action ban and the cost sharing provision rendered the rider substantively unconscionable. Although the class action bar purported to apply equally to both parties, the court concluded that it effectively prohibited only borrowers from bringing claims to vindicate their rights. The court could not conceive of the lender bringing a class action against one of its borrowers. Likewise, the court viewed the facially-equal cost sharing provision as unconscionable because the costs to the borrowers associated with arbitration far surpassed costs that would have been associated with bringing a similar action in court. The appellate court disagreed with the trial court with respect to its view on the confidentiality provision, however. Where the trial court viewed the confidentiality provision as unfairly benefiting the “repeat player” lender, the appellate court found it permissible because it only applied to the disclosure of the amount of any award, not the facts, procedure or results of the arbitration. The appellate court also affirmed the trial court’s decision to declare the entire arbitration rider unenforceable instead of severing the offending sections from the rest of the rider. The appellate court said that severance would likely have been appropriate also, but choosing unenforceability was not an abuse of discretion. For a copy of the appellate opinion in Vasquez-Lopez, see http://www.publications.ojd.state.or.us/A125270.htm.
NASD Fines Banc of America Investment Services $3 Million for AML Non-Compliance. On January 31, the National Association of Securities Dealers (NASD) announced a $3 million fine against Banc of America Investment Services (BAI) for failing to follow suspicious activity report (SAR) procedures. NASD found that, while BAI had developed an anti-money laundering (AML) program to monitor accounts conducting international wire transfers, BAI failed to follow that program with respect to 34 accounts affiliated with a single family. From August 2003 to October 2004, despite repeated requests from companies associated with the transactions, BAI did not “require the names of the beneficial owners [of the accounts] and never restricted activities in the accounts.” In the official NASD press release, it is noted that “BAI neither admitted nor denied the findings.” The NASD press release on this matter can be found at http://www.nasd.com/PressRoom/NewsReleases/2007NewsReleases/NASDW_018404.
Business Parties Must Agree to Use Electronic Signatures. A New York court recently determined that New York’s electronic signature law and the Electronic Signatures in Global and National Commerce Act (ESIGN) did not require an insurance company to accept electronic signatures on forms submitted by a doctor’s office that sought reimbursement for claims filed. DWP Pain Free Med. P.C. v. Progressive Northeastern Ins. Co., 2006 N.Y. Slip Op 26531 (Dist. Ct. of Suffolk County, Third District, Dec. 7, 2006). In DWP, the medical provider’s office submitted medical claims to the defendant, some of which were executed by electronic signatures. The defendant’s policies indicated that it would only accept “original signatures” and explicitly stated that it would reject documents signed by electronic signatures. The plaintiff alleged that both state and federal electronic signature law required the defendant to accept electronic signatures because they are the legal equivalent of wet ink signatures. The court rejected this argument, citing a New York Attorney General Opinion that concluded that neither New York’s electronic signature law, nor ESIGN, requires the acceptance of electronic records and signatures. Please contact for a copy of this decision.
District Court Rules that ERISA Documents Can Be "Furnished" By Providing Website Links. In Beal v. Barnes Healthcare of Florida, No. 3:05-cv-689 (M.D. Fla., Jan. 25, 2007), the United States District Court for the Middle District of Florida has ruled that the Employee Retirement Income Security Act (ERISA) requirement that employees be "furnished" with certain information can be satisfied by providing a web address through which to obtain necessary documents. Under ERISA, 29 U.S.C. §§ 1001 et seq., a health insurance administrator must "furnish" health plan participants a Summary Plan Description (SPD) of their benefits. Id. at §1021(a), 1022(a). In Beal, the court held that a plaintiff who knew that an SPD was available online and had in fact seen it online had been "furnished" with it, even though she had never been given it in hard copy. "Providing information as to where to obtain the document, i.e. website, ... and providing the ability to obtain the document, i.e., access to a computer and the Internet, meets the requirements of the statute," the court said. For a copy of the Beal opinion please contact .
STATE ISSUES
Rhode Island Again Extends Home Loan Protection Act Regulations Effective Date. On February 8, the Rhode Island Department for Business Regulation announced it would again move back the “effective date” of regulations implementing the Rhode Island Home Loan Protection Act from March 1, 2007 to April 1, 2007. The effective date of the regulations, originally December 31, 2006, has already been delayed once after the abruptly announced and implemented regulations caused lenders to halt activity over compliance concerns. See the January 5th and February 2nd issues of InfoBytes for more details. To read the latest Department of Business Regulation notice, go to http://www.dbr.state.ri.us/documents/rules/banking_securities/Notice _re_Home_Loan_Protection_Act.pdf.
Montana Proposes Anti-Predatory Lending Law. An anti-predatory lending bill, H.B. 538, was recently introduced into the Montana House of Representatives. If enacted into law, the bill, entitled the “Homeowners Protection Act,” would parallel several similar state anti-predatory lending laws. Among the bill’s many provisions are (i) prohibitions against making a loan that does not have a “reasonable, tangible benefit to the borrower considering all the circumstances,” (ii) establishing a definition for, and regulation of, “high-cost mortgage loans,” and (iii) a private right of action for violations of the act. H.B. 538 is currently in committee. To track the status of this bill, use the search tool provided at http://laws.leg.mt.gov/pls/laws07/law0203w$.startup.
Proposed Legislation in Connecticut Addresses Disclosure of Referral Fees. The Connecticut legislature is considering a bill, H.B. 5344, which would require mortgage brokers and real estate agents to provide at closing a disclosure that no referral fee or compensation of any kind has been given or received for mortgage services. If enacted, the bill would mandate the promulgation of regulations to implement such a requirement. Under the bill, mortgage or real estate broker license revocation would be the penalty for failure to provide such disclosure. To view the text of the proposed bill, please visit http://www.cga.ct.gov/2007/TOB/H/2007HB-05344-R00-HB.htm.
MISCELLANY
FRB Governor Bies Resigns. Governor Susan Schmidt Bies of the Federal Reserve Board (FRB) today announced her resignation effective March 30, 2007. Governor Bies has been a prominent public voice in several issues in risk management and capital reserve standards. To read the official FRB press release on this resignation, see http://www.federalreserve.gov/boarddocs/press/other/2007/20070209/default.htm.
FIRM NEWS
Andrea “Lee” Negroni and Joe Lynyak spoke at two Thomson/West users’ conferences in Los Angeles and Santa Ana, California on February 6th and 7th, 2007. They discussed topics in residential and commercial mortgage lending, data security and consumer financial privacy laws, fair lending, firm offers of credit and FCRA, and RESPA enforcement.
Andrea “Lee” Negroni will this month attend the Third Annual International Conference of the Information Technology Law Association in Bangalore, India. She and Buckley Kolar partner John Kromer have been assisting clients with legal issues in the area of business process outsourcing (BPO) for U.S. and India-based financial institution clients. During her trip, Lee will be available to lead discussion groups and present seminars on regulatory issues implicated by BPO in the fields of consumer loan application processing, loan servicing, consumer data privacy and similar subjects, in the cities of Bangalore, Mumbai (Bombay) and Delhi between February 13 and 25, 2007. Interested persons may contact Lee at or by phone at 202-349-8032. During her trip, Lee will post a periodic "Blog from Bangalore" on the Buckley Kolar website.
Robert Serino gave an audio conference entitled “Best Practices in BSA and AML Compliance” on February 6th. Mr. Serino addressed several topics on establishing and maintaining a Bank Secrecy Act (BSA) compliant anti-money laundering (AML) system.
Christopher Witeck will be speaking at American Conference Institute’s Issuer and Investor Forum on Mortgage Backed Securities, being held April 12 & 13 in New York. Mr. Witeck will be conducting a workshop entitled “Advanced Strategies for Negotiating Loan Purchase Agreements.” For more information, see http://americanconference.com/mbs.htm.
California Appellate Court Holds That Class Actions Not Allowed for Rescission under TILA. In a case of first impression in California state courts, the California Court of Appeals in LaLiberte v. Pacific Mercantile Bank, No. G036235 (Calif. Ct. App., Jan. 25, 2007), ruled that the Truth in Lending Act (TILA) does not allow class actions for rescission. In the case, the named plaintiff and more than 100 others sued Pacific Mercantile Bank alleging that the lender failed to disclose certain closing fees. The plaintiff borrowers sought to rescind their refinanced loans under section 1635 of TILA, which would have cost Pacific Mercantile more than $37 million in lost loan security. The court barred the class action, stating "We agree with those courts that hold rescission under TILA is a personal remedy not suitable for class treatment." The court also noted that certain sections of TILA had been amended to allow for class actions, but that section 1635 was not one of those sections. A copy of the opinion is available at http://www.courtinfo.ca.gov/opinions/documents/G036235.PDF.
District Court Allows Discovery of Actual Damages in FCRA Statutory Damages Case. In ruling on a discovery motion in In re H&R Block Mortgage Corp., Prescreening Litigation, No. 2:06-MD-230, 2007 WL 325351 (N.D. Ind. Jan. 30, 2007), a Fair Credit Reporting Act (FCRA) “firm offer” case alleging use of credit reports for an impermissible purpose, the U.S. District Court for the Northern District of Indiana joined most other courts in holding that a plaintiff need not demonstrate actual damages in order to obtain statutory damages of $100-$1000 per FCRA violation. (Plaintiffs in FCRA class-action cases generally do not allege actual damages because an actual damages claim would require an individualized determination of damages, which usually prevents certification of a class.) The court went on, however, to grant the lender’s motion to compel discovery of whether the consumer sustained any actual damages, noting that actual damages may be relevant to determining the amount of punitive damages, which the plaintiff was seeking. For a copy of the In re H&R Block opinion, please contact .
Overhead Expenses Paid for by Borrowers to Cover Costs Associated with Potential Borrowers Not a RESPA §8 Violation. Plaintiffs argued that an arrangement under which Landsafe Credit, Inc., a credit reporting service, charged Countrywide Home Loans, Inc. a flat $35 credit report fee for credit reports provided in transactions that resulted in a closed loan, but did not charge Countrywide any fee directly for credit reports provided for transactions that did not close, constituted a referral or kickback scheme in violation of §8(a) of the Real Estate Settlement Procedures Act (RESPA). Price v. Landsafe Credit, Inc. and Countrywide Home Loans, Inc., No. CIV.A.CV205-156, 2006 WL 3791391 (S.D.Ga. Dec. 22, 2006). Plaintiffs asserted that Landsafe and Countrywide were motivated to adopt this pricing structure after a class action settlement relating to credit report charges. Ruling on a motion for summary judgment filed by Defendants, the court determined that the cost of investigating potential borrowers' creditworthiness is a necessary overhead business expense and that it is not unlawful under RESPA to pass along this expense to creditworthy borrowers who secure loans with Countrywide. The court also noted that according to expert testimony, the $35 fee is reasonably related to the value of the services furnished. For a copy of this decision please contact .
Third Circuit Holds That Mortgage Servicer is FDCPA “Debt Collector” for Loans in Default When Acquired. In an unpublished opinion, the U.S. Court of Appeals for the Third Circuit held in Oppong v. First Union Mortgage Corp., No. 06-1388, 2007 WL 216061 (3d Cir. Jan. 26, 2007) (unpublished), that a mortgage servicer was a “debt collector” for purposes of the Fair Debt Collection Practices Act (FDCPA) as to a loan that was in foreclosure when the servicer acquired the servicing rights. Servicers are exempt from the definition of a “debt collector” as to debts that are not in default when the servicer acquires them. The court rejected the servicer’s argument that it did not “regularly” collect defaulted debts because collecting debts was a very small proportion of its business compared to originating mortgages, stating that it is the absolute volume of debt-collection activities that determines whether an entity regularly collects debts, not the proportion that those activities represent of the entity’s business. For a copy of the Oppong opinion, see http://www.ca3.uscourts.gov/opinarch/061388np.pdf.
Bush Budget Calls for New GSE Regulator, Risk-Based FHA Insurance Pricing. On February 5, the White House released its proposed budget for FY 2008, which included several significant changes to federal housing policy. Major items include (i) a call for a “new strengthened GSE [Government Sponsored Enterprise] regulator,” into which the Office of Federal Housing Enterprise oversight would be merged, and which would be funded by “mandatory assessments” on the GSEs, (ii) a proposed risk-based pricing structure for Federal Housing Administration (FHA) mortgage insurance, as well as the combination of all FHA insurance programs into a common fund and a removal of the cap on federally insured Home Equity Conversion Mortgages, and (iii) a proposed increase on permissible administrative fees charged in connection with Ginnie Mae mortgage-security guarantees. For details about the Administration’s Department of Housing and Urban Development proposed budget, see http://www.whitehouse.gov/omb/budget/fy2008/pdf/appendix/hud.pdf.
Seventh Circuit Will Hear Appeal in Andrews v. Chevy Chase Bank. On January 31, the U.S. Court of Appeals for the Seventh Circuit agreed to hear an interlocutory appeal of the TiLA class rescission certification in Andrews v. Chevy Chase Bank, FSB, Case No. 05-C-0454 (E.D. Wisc., January 16, 2007). (See the January 19th issue of InfoBytes for more details.) The District Court judge hearing the case has agreed to suspend proceedings pending the appeal’s outcome. Please contact for copies of these opinions.
Collection Notice Did Not Violate Automatic Stay Where Lender Had No Knowledge of Borrower’s Bankruptcy Proceeding. On January 5, the United States Bankruptcy Court for the District of Connecticut, ruling on a motion for summary judgment in In re Leslie, No. 05-24110, 06-2015, 2007 WL 80806 (Bankr. D. Conn. Jan. 5, 2007), concluded that a lender did not violate the automatic stay in a Chapter 7 bankruptcy proceeding by sending a collection notice to a mortgage loan borrower, where the lender had no knowledge of the borrower’s bankruptcy filing. Additionally, because the automatic stay does not protect the bankruptcy estate from “legal actions taken within the bankruptcy court,” the court concluded that the lender did not violate the stay by filing a motion for relief from the stay so that it could foreclose on the mortgage. In the case, the borrower also asserted that, because various investors had provided funding for the mortgage loan, the lender was not the holder of the note and, by attempting to bring an action on the note, had engaged in the unauthorized practice of law. According to the court, however, whether the loan funds were provided by other investors was not material to the issue of whether the lender was the holder of the note entitled to enforce it. For a copy of the opinion in In re Leslie, please contact .
Oregon Appellate Court Holds Arbitration Provision Unconscionable. In Vasquez-Lopez v. Beneficial Oregon, Inc., Appeal No. A125270 (Or. Ct. App., opinion filed January 31, 2007), the Oregon Court of Appeals affirmed a lower court ruling that an arbitration clause that prohibited class actions and required cost sharing was unconscionable. In the case, borrowers who neither read nor spoke English sued their lender for fraudulently inducing them to enter into a refinancing transaction. They alleged that one of defendant’s employees, who interpreted the loan documents for them, misrepresented the terms of those documents. The defendant lender moved to compel arbitration on the basis of an arbitration rider that, among other things, required both parties to share the cost of the arbitration equally, prohibited both parties from bringing or joining a class action, and required that any arbitral award be kept confidential. Finding the arbitration agreement unconscionable, the trial court denied defendant’s motion. In the ensuing trial, the defendant was found liable for over $500,000 in compensatory and punitive damages, and nearly $200,000 in attorneys’ fees. The Oregon Court of Appeals affirmed in Vasquez-Lopez court affirmed, holding the arbitration rider to be both procedurally and substantively unconscionable. According to the court, the rider was procedurally unconscionable because it was a contract of adhesion reflecting the parties unequal bargaining power. Even if the borrowers had been able to bargain for better terms, the court reasoned, they were dissuaded by the misrepresentations made by the defendant’s employee. The court also held that the class action ban and the cost sharing provision rendered the rider substantively unconscionable. Although the class action bar purported to apply equally to both parties, the court concluded that it effectively prohibited only borrowers from bringing claims to vindicate their rights. The court could not conceive of the lender bringing a class action against one of its borrowers. Likewise, the court viewed the facially-equal cost sharing provision as unconscionable because the costs to the borrowers associated with arbitration far surpassed costs that would have been associated with bringing a similar action in court. The appellate court disagreed with the trial court with respect to its view on the confidentiality provision, however. Where the trial court viewed the confidentiality provision as unfairly benefiting the “repeat player” lender, the appellate court found it permissible because it only applied to the disclosure of the amount of any award, not the facts, procedure or results of the arbitration. The appellate court also affirmed the trial court’s decision to declare the entire arbitration rider unenforceable instead of severing the offending sections from the rest of the rider. The appellate court said that severance would likely have been appropriate also, but choosing unenforceability was not an abuse of discretion. For a copy of the appellate opinion in Vasquez-Lopez, see http://www.publications.ojd.state.or.us/A125270.htm.
Rhode Island Again Extends Home Loan Protection Act Regulations Effective Date. On February 8, the Rhode Island Department for Business Regulation announced it would again move back the “effective date” of regulations implementing the Rhode Island Home Loan Protection Act from March 1, 2007 to April 1, 2007. The effective date of the regulations, originally December 31, 2006, has already been delayed once after the abruptly announced and implemented regulations caused lenders to halt activity over compliance concerns. See the January 5th and February 2nd issues of InfoBytes for more details. To read the latest Department of Business Regulation notice, go to http://www.dbr.state.ri.us/documents/rules/banking_securities/Notice _re_Home_Loan_Protection_Act.pdf.
Montana Proposes Anti-Predatory Lending Law. An anti-predatory lending bill, H.B. 538, was recently introduced into the Montana House of Representatives. If enacted into law, the bill, entitled the “Homeowners Protection Act,” would parallel several similar state anti-predatory lending laws. Among the bill’s many provisions are (i) prohibitions against making a loan that does not have a “reasonable, tangible benefit to the borrower considering all the circumstances,” (ii) establishing a definition for, and regulation of, “high-cost mortgage loans,” and (iii) a private right of action for violations of the act. H.B. 538 is currently in committee. To track the status of this bill, use the search tool provided at http://laws.leg.mt.gov/pls/laws07/law0203w$.startup.
Proposed Legislation in Connecticut Addresses Disclosure of Referral Fees. The Connecticut legislature is considering a bill, H.B. 5344, which would require mortgage brokers and real estate agents to provide at closing a disclosure that no referral fee or compensation of any kind has been given or received for mortgage services. If enacted, the bill would mandate the promulgation of regulations to implement such a requirement. Under the bill, mortgage or real estate broker license revocation would be the penalty for failure to provide such disclosure. To view the text of the proposed bill, please visit http://www.cga.ct.gov/2007/TOB/H/2007HB-05344-R00-HB.htm.
OTS Publishes Several Guides for Consumer Protection Week. The Office of Thrift Supervision (OTS) declared February 5th through 9th its “consumer protection week” to draw attention to several issues in consumer education and financial literacy. Topics highlighted in recent OTS press releases include (i) a Consumer Fact Sheet on Gift Cards explaining critical gift card features and how to determine them, (ii) a Consumer Complaint Brochure informing consumers how to direct and resolve complaints, (iii) and informational releases regarding Adjustable Rate Mortgages and Credit Report Monitoring. To view all of this week’s OTS press releases, go to http://www.ots.treas.gov/pagehtml.cfm?catNumber=31.
California Appellate Court Upholds Federal Thrift Preemption of Prepayment Penalty Claim. Last week, the California Court of Appeals in Weiss v. Washington Mutual Bank, No. B187834 (Cal. Ct. App. Jan. 29, 2007), rejected on preemption grounds a lawsuit challenging the prepayment penalty formula of a federal savings and loan association. In Weiss, the plaintiff prepaid two separate loans that totaled nearly $4 million, incurred a prepayment penalty of about ten percent between the two loans, and sued for fraud and unfair and deceptive business practices, among other claims, stating that it was his understanding that the penalty would be no more than two percent. The lender, Washington Mutual, moved for judgment on the grounds that the claim is preempted by the Home Owners' Loan Act (HOLA) and its implementing regulations. The Weiss court agreed with the lender, relying on 12 C.F.R § 560.2, which specifically lists prepayment penalties as a type of state law preempted by HOLA, as well as a number of cases upholding preemption of prepayment penalty laws in California. Because prepayment penalties are specifically enumerated in the regulations as preempted, the court rejected the claim that prepayment penalties are exempt from preemption because they only incidentally affect lending operations or are otherwise inconsistent with HOLA. In addition, the Weiss court rejected a request by the California Attorney General, as amicus curiae, to allow the plaintiff to enforce California's unfair competition law. The court stated that the case law relied upon by the attorney general was inapposite because it did not consider the express exemptions listed in the regulation, and that relevant case law that does consider 12 C.F.R. § 560.2 upholds the preemption conclusion. For a copy of the Weiss opinion, please contact .
NASD Fines Banc of America Investment Services $3 Million for AML Non-Compliance. On January 31, the National Association of Securities Dealers (NASD) announced a $3 million fine against Banc of America Investment Services (BAI) for failing to follow suspicious activity report (SAR) procedures. NASD found that, while BAI had developed an anti-money laundering (AML) program to monitor accounts conducting international wire transfers, BAI failed to follow that program with respect to 34 accounts affiliated with a single family. From August 2003 to October 2004, despite repeated requests from companies associated with the transactions, BAI did not “require the names of the beneficial owners [of the accounts] and never restricted activities in the accounts.” In the official NASD press release, it is noted that “BAI neither admitted nor denied the findings.” The NASD press release on this matter can be found at http://www.nasd.com/PressRoom/NewsReleases/2007NewsReleases/NASDW_018404.
OTS Publishes Several Guides for Consumer Protection Week. The Office of Thrift Supervision (OTS) declared February 5th through 9th its “consumer protection week” to draw attention to several issues in consumer education and financial literacy. Topics highlighted in recent OTS press releases include (i) a Consumer Fact Sheet on Gift Cards explaining critical gift card features and how to determine them, (ii) a Consumer Complaint Brochure informing consumers how to direct and resolve complaints, (iii) and informational releases regarding Adjustable Rate Mortgages and Credit Report Monitoring. To view all of this week’s OTS press releases, go to http://www.ots.treas.gov/pagehtml.cfm?catNumber=31.
FRB Governor Bies Resigns. Governor Susan Schmidt Bies of the Federal Reserve Board (FRB) today announced her resignation effective March 30, 2007. Governor Bies has been a prominent public voice in several issues in risk management and capital reserve standards. To read the official FRB press release on this resignation, see http://www.federalreserve.gov/boarddocs/press/other/2007/20070209/default.htm.
California Appellate Court Holds That Class Actions Not Allowed for Rescission under TILA. In a case of first impression in California state courts, the California Court of Appeals in LaLiberte v. Pacific Mercantile Bank, No. G036235 (Calif. Ct. App., Jan. 25, 2007), ruled that the Truth in Lending Act (TILA) does not allow class actions for rescission. In the case, the named plaintiff and more than 100 others sued Pacific Mercantile Bank alleging that the lender failed to disclose certain closing fees. The plaintiff borrowers sought to rescind their refinanced loans under section 1635 of TILA, which would have cost Pacific Mercantile more than $37 million in lost loan security. The court barred the class action, stating "We agree with those courts that hold rescission under TILA is a personal remedy not suitable for class treatment." The court also noted that certain sections of TILA had been amended to allow for class actions, but that section 1635 was not one of those sections. A copy of the opinion is available at http://www.courtinfo.ca.gov/opinions/documents/G036235.PDF.
District Court Allows Discovery of Actual Damages in FCRA Statutory Damages Case. In ruling on a discovery motion in In re H&R Block Mortgage Corp., Prescreening Litigation, No. 2:06-MD-230, 2007 WL 325351 (N.D. Ind. Jan. 30, 2007), a Fair Credit Reporting Act (FCRA) “firm offer” case alleging use of credit reports for an impermissible purpose, the U.S. District Court for the Northern District of Indiana joined most other courts in holding that a plaintiff need not demonstrate actual damages in order to obtain statutory damages of $100-$1000 per FCRA violation. (Plaintiffs in FCRA class-action cases generally do not allege actual damages because an actual damages claim would require an individualized determination of damages, which usually prevents certification of a class.) The court went on, however, to grant the lender’s motion to compel discovery of whether the consumer sustained any actual damages, noting that actual damages may be relevant to determining the amount of punitive damages, which the plaintiff was seeking. For a copy of the In re H&R Block opinion, please contact .
California Appellate Court Upholds Federal Thrift Preemption of Prepayment Penalty Claim. Last week, the California Court of Appeals in Weiss v. Washington Mutual Bank, No. B187834 (Cal. Ct. App. Jan. 29, 2007), rejected on preemption grounds a lawsuit challenging the prepayment penalty formula of a federal savings and loan association. In Weiss, the plaintiff prepaid two separate loans that totaled nearly $4 million, incurred a prepayment penalty of about ten percent between the two loans, and sued for fraud and unfair and deceptive business practices, among other claims, stating that it was his understanding that the penalty would be no more than two percent. The lender, Washington Mutual, moved for judgment on the grounds that the claim is preempted by the Home Owners' Loan Act (HOLA) and its implementing regulations. The Weiss court agreed with the lender, relying on 12 C.F.R § 560.2, which specifically lists prepayment penalties as a type of state law preempted by HOLA, as well as a number of cases upholding preemption of prepayment penalty laws in California. Because prepayment penalties are specifically enumerated in the regulations as preempted, the court rejected the claim that prepayment penalties are exempt from preemption because they only incidentally affect lending operations or are otherwise inconsistent with HOLA. In addition, the Weiss court rejected a request by the California Attorney General, as amicus curiae, to allow the plaintiff to enforce California's unfair competition law. The court stated that the case law relied upon by the attorney general was inapposite because it did not consider the express exemptions listed in the regulation, and that relevant case law that does consider 12 C.F.R. § 560.2 upholds the preemption conclusion. For a copy of the Weiss opinion, please contact .
Third Circuit Holds That Mortgage Servicer is FDCPA “Debt Collector” for Loans in Default When Acquired. In an unpublished opinion, the U.S. Court of Appeals for the Third Circuit held in Oppong v. First Union Mortgage Corp., No. 06-1388, 2007 WL 216061 (3d Cir. Jan. 26, 2007) (unpublished), that a mortgage servicer was a “debt collector” for purposes of the Fair Debt Collection Practices Act (FDCPA) as to a loan that was in foreclosure when the servicer acquired the servicing rights. Servicers are exempt from the definition of a “debt collector” as to debts that are not in default when the servicer acquires them. The court rejected the servicer’s argument that it did not “regularly” collect defaulted debts because collecting debts was a very small proportion of its business compared to originating mortgages, stating that it is the absolute volume of debt-collection activities that determines whether an entity regularly collects debts, not the proportion that those activities represent of the entity’s business. For a copy of the Oppong opinion, see http://www.ca3.uscourts.gov/opinarch/061388np.pdf.
Overhead Expenses Paid for by Borrowers to Cover Costs Associated with Potential Borrowers Not a RESPA §8 Violation. Plaintiffs argued that an arrangement under which Landsafe Credit, Inc., a credit reporting service, charged Countrywide Home Loans, Inc. a flat $35 credit report fee for credit reports provided in transactions that resulted in a closed loan, but did not charge Countrywide any fee directly for credit reports provided for transactions that did not close, constituted a referral or kickback scheme in violation of §8(a) of the Real Estate Settlement Procedures Act (RESPA). Price v. Landsafe Credit, Inc. and Countrywide Home Loans, Inc., No. CIV.A.CV205-156, 2006 WL 3791391 (S.D.Ga. Dec. 22, 2006). Plaintiffs asserted that Landsafe and Countrywide were motivated to adopt this pricing structure after a class action settlement relating to credit report charges. Ruling on a motion for summary judgment filed by Defendants, the court determined that the cost of investigating potential borrowers' creditworthiness is a necessary overhead business expense and that it is not unlawful under RESPA to pass along this expense to creditworthy borrowers who secure loans with Countrywide. The court also noted that according to expert testimony, the $35 fee is reasonably related to the value of the services furnished. For a copy of this decision please contact .
Seventh Circuit Will Hear Appeal in Andrews v. Chevy Chase Bank. On January 31, the U.S. Court of Appeals for the Seventh Circuit agreed to hear an interlocutory appeal of the TiLA class rescission certification in Andrews v. Chevy Chase Bank, FSB, Case No. 05-C-0454 (E.D. Wisc., January 16, 2007). (See the January 19th issue of InfoBytes for more details.) The District Court judge hearing the case has agreed to suspend proceedings pending the appeal’s outcome. Please contact for copies of these opinions.
Collection Notice Did Not Violate Automatic Stay Where Lender Had No Knowledge of Borrower’s Bankruptcy Proceeding. On January 5, the United States Bankruptcy Court for the District of Connecticut, ruling on a motion for summary judgment in In re Leslie, No. 05-24110, 06-2015, 2007 WL 80806 (Bankr. D. Conn. Jan. 5, 2007), concluded that a lender did not violate the automatic stay in a Chapter 7 bankruptcy proceeding by sending a collection notice to a mortgage loan borrower, where the lender had no knowledge of the borrower’s bankruptcy filing. Additionally, because the automatic stay does not protect the bankruptcy estate from “legal actions taken within the bankruptcy court,” the court concluded that the lender did not violate the stay by filing a motion for relief from the stay so that it could foreclose on the mortgage. In the case, the borrower also asserted that, because various investors had provided funding for the mortgage loan, the lender was not the holder of the note and, by attempting to bring an action on the note, had engaged in the unauthorized practice of law. According to the court, however, whether the loan funds were provided by other investors was not material to the issue of whether the lender was the holder of the note entitled to enforce it. For a copy of the opinion in In re Leslie, please contact .
Oregon Appellate Court Holds Arbitration Provision Unconscionable. In Vasquez-Lopez v. Beneficial Oregon, Inc., Appeal No. A125270 (Or. Ct. App., opinion filed January 31, 2007), the Oregon Court of Appeals affirmed a lower court ruling that an arbitration clause that prohibited class actions and required cost sharing was unconscionable. In the case, borrowers who neither read nor spoke English sued their lender for fraudulently inducing them to enter into a refinancing transaction. They alleged that one of defendant’s employees, who interpreted the loan documents for them, misrepresented the terms of those documents. The defendant lender moved to compel arbitration on the basis of an arbitration rider that, among other things, required both parties to share the cost of the arbitration equally, prohibited both parties from bringing or joining a class action, and required that any arbitral award be kept confidential. Finding the arbitration agreement unconscionable, the trial court denied defendant’s motion. In the ensuing trial, the defendant was found liable for over $500,000 in compensatory and punitive damages, and nearly $200,000 in attorneys’ fees. The Oregon Court of Appeals affirmed in Vasquez-Lopez court affirmed, holding the arbitration rider to be both procedurally and substantively unconscionable. According to the court, the rider was procedurally unconscionable because it was a contract of adhesion reflecting the parties unequal bargaining power. Even if the borrowers had been able to bargain for better terms, the court reasoned, they were dissuaded by the misrepresentations made by the defendant’s employee. The court also held that the class action ban and the cost sharing provision rendered the rider substantively unconscionable. Although the class action bar purported to apply equally to both parties, the court concluded that it effectively prohibited only borrowers from bringing claims to vindicate their rights. The court could not conceive of the lender bringing a class action against one of its borrowers. Likewise, the court viewed the facially-equal cost sharing provision as unconscionable because the costs to the borrowers associated with arbitration far surpassed costs that would have been associated with bringing a similar action in court. The appellate court disagreed with the trial court with respect to its view on the confidentiality provision, however. Where the trial court viewed the confidentiality provision as unfairly benefiting the “repeat player” lender, the appellate court found it permissible because it only applied to the disclosure of the amount of any award, not the facts, procedure or results of the arbitration. The appellate court also affirmed the trial court’s decision to declare the entire arbitration rider unenforceable instead of severing the offending sections from the rest of the rider. The appellate court said that severance would likely have been appropriate also, but choosing unenforceability was not an abuse of discretion. For a copy of the appellate opinion in Vasquez-Lopez, see http://www.publications.ojd.state.or.us/A125270.htm.
NASD Fines Banc of America Investment Services $3 Million for AML Non-Compliance. On January 31, the National Association of Securities Dealers (NASD) announced a $3 million fine against Banc of America Investment Services (BAI) for failing to follow suspicious activity report (SAR) procedures. NASD found that, while BAI had developed an anti-money laundering (AML) program to monitor accounts conducting international wire transfers, BAI failed to follow that program with respect to 34 accounts affiliated with a single family. From August 2003 to October 2004, despite repeated requests from companies associated with the transactions, BAI did not “require the names of the beneficial owners [of the accounts] and never restricted activities in the accounts.” In the official NASD press release, it is noted that “BAI neither admitted nor denied the findings.” The NASD press release on this matter can be found at http://www.nasd.com/PressRoom/NewsReleases/2007NewsReleases/NASDW_018404.
Business Parties Must Agree to Use Electronic Signatures. A New York court recently determined that New York’s electronic signature law and the Electronic Signatures in Global and National Commerce Act (ESIGN) did not require an insurance company to accept electronic signatures on forms submitted by a doctor’s office that sought reimbursement for claims filed. DWP Pain Free Med. P.C. v. Progressive Northeastern Ins. Co., 2006 N.Y. Slip Op 26531 (Dist. Ct. of Suffolk County, Third District, Dec. 7, 2006). In DWP, the medical provider’s office submitted medical claims to the defendant, some of which were executed by electronic signatures. The defendant’s policies indicated that it would only accept “original signatures” and explicitly stated that it would reject documents signed by electronic signatures. The plaintiff alleged that both state and federal electronic signature law required the defendant to accept electronic signatures because they are the legal equivalent of wet ink signatures. The court rejected this argument, citing a New York Attorney General Opinion that concluded that neither New York’s electronic signature law, nor ESIGN, requires the acceptance of electronic records and signatures. Please contact for a copy of this decision.
District Court Rules that ERISA Documents Can Be "Furnished" By Providing Website Links. In Beal v. Barnes Healthcare of Florida, No. 3:05-cv-689 (M.D. Fla., Jan. 25, 2007), the United States District Court for the Middle District of Florida has ruled that the Employee Retirement Income Security Act (ERISA) requirement that employees be "furnished" with certain information can be satisfied by providing a web address through which to obtain necessary documents. Under ERISA, 29 U.S.C. §§ 1001 et seq., a health insurance administrator must "furnish" health plan participants a Summary Plan Description (SPD) of their benefits. Id. at §1021(a), 1022(a). In Beal, the court held that a plaintiff who knew that an SPD was available online and had in fact seen it online had been "furnished" with it, even though she had never been given it in hard copy. "Providing information as to where to obtain the document, i.e. website, ... and providing the ability to obtain the document, i.e., access to a computer and the Internet, meets the requirements of the statute," the court said. For a copy of the Beal opinion please contact .
SEC Proposes Rules Regarding Nationally Recognized Statistical Rating Organizations. The Securities and Exchange Commission (SEC) has proposed rules to implement provisions of the Credit Rating Agency Reform Act of 2006. The Credit Rating Agency Reform Act, among other things, provides authority for the SEC to implement registration, recordkeeping, financial reporting and oversight rules designed to ensure that nationally recognized statistical rating organizations (NRSROs) conduct their activities with integrity and impartiality. The proposed rules would require NRSROs to: (i) apply to the SEC for registration as an NRSRO and, if approved, provide updated information when certain information provided becomes materially inaccurate and provide an annual certification on proposed a Form NRSRO; (ii) make and retain certain records relating to the business of issuing and maintaining credit ratings; (iii) furnish to the SEC, on a confidential basis, annual financial statements audited by an independent public accountant; (iv) have procedures designed to prevent the dissemination of confidential information, prevent employees of the NRSRO from trading on material nonpublic information, and prevent the misuse of information relating to a pending credit rating action; and (v) disclose and manage certain conflicts of interest that arise in the normal course of engaging in the business of issuing credit ratings. The proposed rules also would prohibit NRSROs from engaging in certain acts or practices relating to the issuance of credit ratings that the SEC has determined to be unfair, coercive or abusive. Comments on the proposed rules must be received by March 12, 2007. The full text of the proposed rules is available at http://www.sec.gov/rules/proposed/2007/34-55231.pdf.
NASD Fines Banc of America Investment Services $3 Million for AML Non-Compliance. On January 31, the National Association of Securities Dealers (NASD) announced a $3 million fine against Banc of America Investment Services (BAI) for failing to follow suspicious activity report (SAR) procedures. NASD found that, while BAI had developed an anti-money laundering (AML) program to monitor accounts conducting international wire transfers, BAI failed to follow that program with respect to 34 accounts affiliated with a single family. From August 2003 to October 2004, despite repeated requests from companies associated with the transactions, BAI did not “require the names of the beneficial owners [of the accounts] and never restricted activities in the accounts.” In the official NASD press release, it is noted that “BAI neither admitted nor denied the findings.” The NASD press release on this matter can be found at http://www.nasd.com/PressRoom/NewsReleases/2007NewsReleases/NASDW_018404.
Business Parties Must Agree to Use Electronic Signatures. A New York court recently determined that New York’s electronic signature law and the Electronic Signatures in Global and National Commerce Act (ESIGN) did not require an insurance company to accept electronic signatures on forms submitted by a doctor’s office that sought reimbursement for claims filed. DWP Pain Free Med. P.C. v. Progressive Northeastern Ins. Co., 2006 N.Y. Slip Op 26531 (Dist. Ct. of Suffolk County, Third District, Dec. 7, 2006). In DWP, the medical provider’s office submitted medical claims to the defendant, some of which were executed by electronic signatures. The defendant’s policies indicated that it would only accept “original signatures” and explicitly stated that it would reject documents signed by electronic signatures. The plaintiff alleged that both state and federal electronic signature law required the defendant to accept electronic signatures because they are the legal equivalent of wet ink signatures. The court rejected this argument, citing a New York Attorney General Opinion that concluded that neither New York’s electronic signature law, nor ESIGN, requires the acceptance of electronic records and signatures. Please contact for a copy of this decision.
District Court Rules that ERISA Documents Can Be "Furnished" By Providing Website Links. In Beal v. Barnes Healthcare of Florida, No. 3:05-cv-689 (M.D. Fla., Jan. 25, 2007), the United States District Court for the Middle District of Florida has ruled that the Employee Retirement Income Security Act (ERISA) requirement that employees be "furnished" with certain information can be satisfied by providing a web address through which to obtain necessary documents. Under ERISA, 29 U.S.C. §§ 1001 et seq., a health insurance administrator must "furnish" health plan participants a Summary Plan Description (SPD) of their benefits. Id. at §1021(a), 1022(a). In Beal, the court held that a plaintiff who knew that an SPD was available online and had in fact seen it online had been "furnished" with it, even though she had never been given it in hard copy. "Providing information as to where to obtain the document, i.e. website, ... and providing the ability to obtain the document, i.e., access to a computer and the Internet, meets the requirements of the statute," the court said. For a copy of the Beal opinion please contact .
© Buckley Kolar, LLP 2005. INFOBYTES is not intended as legal advice to any person or firm. It is provided as a client service and information contained herein is drawn from various public sources, including other publications.