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Topics – Covered This Week (Click to View)
FEDERAL ISSUES
House Bill Introduced to Reform Federal Housing Administration. On March 29, the Expanding Homeownership Act of 2007 (H.R. 1852) was introduced in the House by sponsoring representatives Maxine Watters (D – Ca.) and Barney Frank (D – Mass.). The bill would reform the Federal Housing Administration (FHA) to increase the number of low- and moderate-income borrowers served. The bill provides for, among other things, (i) risk-based pricing of mortgage insurance, (ii) greater loan limits in high-cost housing markets, (iii) elimination of the current three percent downpayment required to secure an FHA loan, and (iv) elimination of the current cap on reverse mortgage loans. The Act also includes several provisions related to fees charged to borrowers and to loan counseling for high-risk borrowers that were not included in a similar bill that passed the House last year. The full press release is available from the House Financial Services Committee website here. To follow the progress of this bill, see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:H.R.1852:.
FTC Issues Consumer Alert on “Trigger Leads.” The FTC issued a Consumer Alert to consumers on “trigger leads” – prescreened credit reports issued to mortgage brokers or lenders after the consumer applies with one lender, which often result in many calls to the consumer from other brokers or lenders. The FTC states that it is not authorized to crack down on "trigger-lead" phone solicitations to consumers who have recently applied for mortgages. The Alert notes that trigger leads clearly benefit mortgage companies but can also benefit consumers by “highlight[ing] other available products and mak[ing] it easier to compare costs.” The Alert also explains how consumers can opt-out from future prescreened offers under the Fair Credit Reporting Act. For full text of the alert, see http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt171.htm.
SEC Staff Discusses Effect of Missing Item 1122 Assessments Pursuant to Regulation AB. On March 29, an industry group held a conference call with Securities and Exchange Commission (SEC) staff members to discuss hypothetical situations arising under Regulation AB that would affect the ability of issuers to register an asset-backed security. Under Reg AB, any party that participates in the servicing function of a loan that is part of an underlying security must provide a report of assessment of compliance with applicable servicing criteria set forth in the rule (the reports are referred to as "Item 1122" assessments). These Item 1122 assessments must be included as exhibits to the issuer's Form 10-K report. In the conference call, the industry representatives described a hypothetical situation in which a servicer failed to provide an Item 1122 assessment in breach of its obligation to do so, but otherwise the Form 10-K report would be filed timely by the issuer. The SEC staff reportedly stated that it could not make a conclusion based on the facts as described that the omission of an Item 1122 assessment would cause the issuer to be an "ineligible issuer" under Rule 405 or otherwise be ineligible to file a Form S-3 registration statement for the underlying security. The SEC staff purportedly noted that it would matter whether the issuer's attempt to comply with the requirements of Item 1122 was substantially deficient as opposed to merely incomplete. The SEC staff also apparently declined to advise whether an issuer in this circumstance could rely on Rule 12b-21, which allows omission of information that is unavailable without unreasonable effort or expense. In essence, the SEC staff noted that each situation will be unique and urged that issuers and their counsel should contact and discuss with SEC staff any potential problems arising under Regulation AB.
House Bill Introduced to Reform National Flood Insurance Program. On March 26, House Financial Services Committee Chairman Barney Frank (D – MA) and Rep. Judy Biggert (R-IL) introduced the Flood Insurance Reform and Modernization Act (H.R. 1682) to reform the National Flood Insurance Program (NFIP). According to the Financial Services Committee press release the Act will provide for, among other things, (i) an increase in flood insurance disclosures provided to consumers, (ii) updated maximum insurance coverage amounts for both residential and nonresidential properties, (iii) the elimination of federal subsidies for second homes and vacation houses, and (iv) business interruption coverage to assist small business owners in meeting financial obligations to employees and others in the event of a flood. The press release is available at http://www.house.gov/apps/list/press/financialsvcs_dem/press032707.shtml. Full text of the bill should be available shortly at http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.1682:.
Committee Moves Bill to the Floor to Reform Federal Oversight of GSEs. On March 29, the House Financial Services Committee sent the Federal Housing Finance Reform Act of 2007 (H.R. 1427), which would reform federal regulatory oversight of the government sponsored enterprises (GSEs) and Federal Home Loan Banks, to the House floor (for more details, see the March 16th issue of InfoBytes). The version of the bill passed out of committee still contains provisions establishing an affordable housing fund, a contentious measure supported by the Committee Chairman Barney Frank (D – Mass.) and opposed by Ranking Member Spencer Bachus (R – Ala.). The press release is available on House Committee on Financial Services website at http://www.house.gov/apps/list/press/financialsvcs_dem/press032907.shtml. The committee markup of this bill can be found at http://www.house.gov/apps/list/speech/financialsvcs_dem/muhr1427032807.pdf. To follow the progress of H.R. 1427, see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:H.R.1427:.
House Finance Committee Hears Testimony on Subprime and Predatory Lending and Natural Disaster Insurance. On March 27, the Subcommittee on Financial Institutions and Consumer Credit of the House Committee on Financial Services held a hearing entitled “Subprime and Predatory Mortgage Lending: New Regulatory Guidance, Current Market Conditions, and Effects on Regulated Financial Institutions.” At the hearing, committee members heard testimony from representatives from federal and state bank regulatory agencies as well as from consumer groups and trade associations. More information, including a recorded webcast, is available at http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht032707.shtml. Also on March 27, a hearing was held before the full House Committee on Financial Services on natural disaster insurance. More information and a recorded webcast are available at http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht2032707.shtml.
FTC Issues Report to Congress on the FDCPA. On March 23, the Federal Trade Commission (FTC) issued its annual report to Congress on the Fair Debt Collection Practices Act (FDCPA) for fiscal year 2006. The report summarizes the types of consumer complaints received by the FTC related to violations of the FDCPA as well as an overview of the FTC’s enforcement actions and efforts to educate consumers and the industry about the FDCPA. The full report is available at http://www.ftc.gov/reports/fdcpa07/P0748032007FDCPAReport.pdf.
STATE ISSUES
Rhode Island Again Delays Effective Date of Home Loan Protection Act Regulations. On March 28, the Rhode Island Department of Business Regulation (RIDBR) announced that it was once again pushing back the effective date of regulations implementing the Rhode Island Home Loan Protection Act. Already twice changed, the most recent announcement moves the effective date from April 1, 2007 to June 1, 2007 (most recently reported in the February 9 issue of InfoBytes). After initial delays over fears of lenders retreating from the state over compliance concerns, the RIDBR held a public hearing on March 8 to consider revisions to the regulations. The RIDBR also announced that it hopes to release a “permanent regulation” by April 10, 2007. For a copy of the RIDBR’s Banking Bulletin 2007-4 summarizing these changes, see http://www.dbr.state.ri.us/documents/news/banking/Banking_Bulletin_2007-4.pdf.
Texas Enacts New Law to Protect Social Security Numbers from Disclosure on Property Deeds. On March 28, Texas Governor Perry signed into law House Bill 2061, which amends the Texas Property Code relating to the disclosure of social security numbers on deeds or deeds of trust. The new law, which became effective upon signing, amends Texas Code § 11.008 to (i) prohibit the preparer of a deed or deed of trust from including an individual's social security number in a document presented for recording and (ii) require a disclosure regarding social security numbers or drivers’ license numbers on instruments transferring an interest in real property to or from an individual. The disclosure requirement states that natural persons may remove or strike their social security number or driver's license number from the instrument. Section 11.008 provides, however, that the validity of an instrument between the parties and the notice provided by the instrument are not affected by a party's failure to include the notice and, further, the county clerk may not reject an instrument presented for recording solely because the instrument fails to comply with this disclosure requirement. For text of this bill, see http://www.legis.state.tx.us/tlodocs/80R/billtext/html/HB02061F.htm.
New Mexico Legislature Passes Credit Freeze Bill. The New Mexico legislature recently approved a bill (S.B. 165) permitting state residents to place security freezes on their credit reports. Under the bill, reporting agencies must place a security freeze on a credit report within three business days of receiving a request. If the consumer requests that the security freeze be temporarily lifted, reporting agencies have three business days to comply (this will change to fifteen minutes after September 1, 2008). The fee to place a freeze is $10 and the fee to temporarily lift the freeze is $5. These fees do not apply to identity theft victims and residents over the age of 65. If enacted, the new law would become effective on July 1, 2007. To view the full text of the bill, as approved by the Senate, please visit http://legis.state.nm.us/Sessions/07%20Regular/bills/senate/SB0165JUS.pdf. Amendments to the bill made by the House may be viewed at http://legis.state.nm.us/lcs/_session.asp?chamber=S&type=++&number=165&Submit=Search&year=07.
COURTS
Court Upholds $80,000 FCRA Punitive Damages Award in Statutory Damages Case. In Saunders v. Equifax Information Services, 469 F. Supp. 2d 343 (E.D. Va. Jan. 8, 2007), the jury rendered judgment for a consumer who alleged that a bank defendant had willfully violated the Fair Credit Reporting Act (FCRA) by reporting inaccurate information about the consumer’s payment of an automobile loan. The jury awarded the consumer $1,000 in statutory damages and $80,000 in punitive damages. The court denied the bank’s motion to reduce the punitive damages to $4,000 (four times the amount of the statutory damages). It noted that the Supreme Court’s State Farm case requires courts to consider “three guideposts” in determining whether a punitive damages award violates the Due Process clause of the Constitution: “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.” The court in Saunders held that, despite the lack of any actual damages, a statutory damages award can justify punitive damages under FCRA. It held that the punitive damages award was not excessive in light of the bank’s “egregious” conduct, which included “failing to properly ‘book’ Saunders’ loan in violation of [the bank’s] own internal operating procedures; repeatedly denying the existence of a contractual relationship with Saunders when such a relationship in fact existed; rebuffing Saunders when he repeatedly attempted to make proper payment on his loan and then demanding full payment of the entire loan, with interest and penalties, within a few days after [the bank] finally discovered it had extended the loan; acquiring possession of the car and selling it thereafter at auction; and reporting derogatory information to the [consumer reporting agencies] without first noting that Saunders disputed the information.” The court held that the disparity between the $80,000 in punitive damages and the maximum $1,000 in statutory damages, or the maximum $2,500 available to the Federal Trade Commission in FCRA civil penalty cases, did not make the punitive damages award excessive in light of the nature of the bank’s conduct and the low ratio of the award to the bank’s net worth of $3.2 billion. For a copy of this decision please contact .
Court Holds for Lender in Case Addressing TILA’s “Tolerances for Accuracy” Provision. On March 22, a federal district court in Pennsylvania held that the Truth in Lending Act’s (TILA) “tolerances for accuracy” provision is not an affirmative defense that can be waived if not pled. In Sterten v. Option One Mortgage Corp., No. 06-651, 2007 U.S. Dist. LEXIS 21201 (E.D. Pa. March 22, 2007) the plaintiff sought to rescind her mortgage loan pursuant to TILA, arguing, in part, that certain fees in connection with the loan were not properly disclosed as finance charges. The bankruptcy court determined that the $57 discrepancy at issue was within TILA’s tolerances. In a post-verdict motion, however, the plaintiff argued that a finance charge discrepancy that falls within the scope of TILA’s “tolerances for accuracy” provision is an affirmative defense, and that the lender waived the defense by not raising it during the litigation. The bankruptcy judge agreed, declaring rescission and awarding statutory damages to the plaintiff. But on appeal, the district court explained that “a matter that merely negates an element of the plaintiff’s prima facie case is not an affirmative defense.” According to the court, TILA’s “tolerances for accuracy” provision “defines the parameters of an element of the TILA violation,” and absent a violation (and a cause of action), “no defense is necessary.” The court noted that Congress amended TILA to include the “tolerances for accuracy” provision out of concern that the mortgage industry could be subject to “‘extraordinary liability’ for minor mistakes and technical violations”; thus, holding the lender liable and rescinding the loan “based on a minor discrepancy would produce a result that Congress intended to avoid.” For a copy of the opinion, please contact .
U.S. Court of Appeals Rules Against SEC, Vacates Fee-Based Brokerage Rule. The District of Columbia Circuit Court of Appeals decided in favor of the Financial Planning Association (FPA) and against the SEC on March 30, vacating the SEC rule exempting certain broker-dealers from the fiduciary requirements of the Investment Advisers Act of 1940 (IAA) on the grounds that the SEC had exceeded its authority. Financial Planning Association v. SEC, No. 04-1242 (D.C. Cir. March 30, 2007). Under the IAA, investment advisors are required, among other things, (i) to register and to maintain records, (ii) to limit the type of contracts they enter into, and (iii) not to engage in certain types of deceptive and fraudulent transactions. Congress carved out several exemptions from the definition of "investment advisor," including the two exemptions that were at issue in this case: (i) "any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor" and (ii) "such other persons not within the intent of this paragraph, as the [SEC] may designate by rules and regulations or order." An SEC rule first proposed in 1999 exempted brokers and dealers to the requirements of the IAA where their investment advice is "(1) solely incidental to the conduct of [their] business as a broker or dealer," and (2) the broker or dealer "receives no special compensation therefor." The SEC, acting pursuant to § 202(a)(11)(F) and § 211(a) of the IAA, promulgated the final rule exempting broker-dealers when they receive "special compensation therefor." In promulgating the final rule, the SEC purported to use the exemption allowing the SEC to exempt "such other persons" in order to broaden the exemption for broker-dealers. The FPA contended that when Congress enacted the IAA, it identified the group of broker-dealers it intended to exempt and that the subsection allowing the SEC to designate "such other persons not within the intent of th[e] paragraph" was only intended to allow the SEC to exempt new groups from the IAA, not to expand the groups that Congress specifically addressed (which included broker-dealers). The Court of Appeals agreed, noting for example that the SEC only had authority to exempt "such other persons," which could not include broker-dealers since they were already accounted for by the exemption for "any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor." Thus, the broader exception created by the SEC for broker-dealers whose provision of advice is solely incidental to their brokerage services but who receive a particular kind of non-commission compensation (either a fixed fee or a fee based on the amount of assets in the customer's account) will no longer exist. However, the broker-dealers who receive commissions rather than fee-based compensation will continue to be covered under the exemption in the IAA. Circuit Judge Garland dissented, finding that the SEC did not exceed the bounds of its authority because "unlike [his] colleagues, [he] cannot derive an unambiguous meaning from the terms 'such other person' and 'within the intent of this paragraph'" and instead deferred to the SEC's reasonable interpretation of the statute. For a copy of the opinion, please see http://pacer.cadc.uscourts.gov/docs/common/opinions/200703/04-1242a.pdf.
HOLA Diversity Jurisdiction Amendments Retroactively Apply to Pending Case. In a motion for remand to the state circuit court based on a lack of diversity jurisdiction, the U.S. Federal District Court for the District of South Dakota, Southern Division determined that citizenship amendments to HOLA under Section 403 of the Financial Services Regulatory Relief Act of 2006 retroactively apply to pending cases. First Midwest Bank v. Metabank, 2007 U.S. Dist. Lexis 21016 (Mar. 23, 2007). Prior to the amendments, citizenship for diversity jurisdiction purposes with respect to federal savings associations was largely determined based on whether the Bank's activities were sufficiently "localized" to be deemed a citizen of a state. The plaintiffs argued that remand was necessary because the Bank defendant was a national citizen based on its national marketing efforts and multi-state locations making the Bank incapable of invoking diversity jurisdiction. The court stated, however, that the Amendments clarified that for federal diversity jurisdictions purposes, citizenship is based on the state in which the Bank has its home office. Please contact for a copy of the opinion.
FCRA Private Right of Action Applies to Failure to Truncate Card Number. The U.S. District Court for the Central District of California held that consumers have the right to sue a merchant that violates the FCRA requirement, added by the Fair and Accurate Credit Transactions Act of 2003, to truncate the credit or debit card number on a receipt produced by an electronic terminal. Esandari v. Ikea, No. SAC061248JVS, 2007 WL 845948 (C.D. Cal. Mar. 12, 2007). The merchant argued that the provision containing the private right of action refers to “consumers,” defined as individuals under FCRA, while the provision requiring truncation refers to “cardholders,” which may be individual consumers or entities. Without deciding whether a non-consumer entity would have a private right of action, the court held that the plaintiff, an individual consumer, did have that right and denied the merchant’s motion to dismiss.Please contact for a copy of this decision.
Federal Court Grants Class Certification in FCRA Firm Offer Case. In Krey v. Castle Motor Sales, No. C 4173, 2007 U.S. Dist. LEXIS 20880 (N.D. Ill. Mar. 21, 2007), the court granted class certification in a FCRA prescreened offer case. The court rejected the defendant automobile dealer’s argument that class disposition was inappropriate because each member of the class should be allowed to choose whether to pursue actual damages (which would require an individualized determination) or only statutory damages. Quoting the Seventh Circuit’s Murray v. GMAC opinion, the court held that liability can be determined from the “four corners” of the mailer and that, therefore, class certification was appropriate. But the court granted the motion of one of the defendants, a marketing company, for dismissal of the consumer’s claims for injunctive relief under FCRA, which the court held is unavailable, and for violations of the Illinois Consumer Fraud Act, which the court held is preempted by FCRA. Please contact for a copy of this decision.
Court Rules CAN-SPAM Does Not Preempt Utah’s “Do-Not-Email” Registry. On March 23, the U.S. District Court in Utah determined that the Federal CAN-SPAM Act does not preempt Utah’s Child Protection Registry Act. Free Speech Coalition Inc. v . Shurtleff, No. 2:05CV949DAK (D. Utah Mar. 23, 2007). The Utah act authorized Utah to create a registry service for electronic mail addresses that functions similarly to the federal Do-Not-Call lists. Utah residents can register an e-mail address on the registry. It is illegal to send a communication to a registered e-mail if it the e-mail “has the primary purpose” of advertising or promoting (i) products or services that minors cannot purchase or (ii) material that is harmful to minors. Although the plaintiffs raised several arguments, including statutory preemption and alleged Constitutional violations, the court held that the law was constitutional and was not preempted by the CAN-SPAM Act. Accordingly, the court allowed the Utah registry law and its associated registry to stand. Please contact for a copy of the court’s decision.
Cavin FCRA Firm Offer Case Printed in Official Reporter. The opinion of the U.S. District Court for the Northern District of Illinois upholding an offer as a valid firm offer under FCRA, previously reported in InfoBytes, has now been printed in the official reporter. Cavin v. Home Loan Center Inc., 469 F. Supp. 2d 561 (N.D. Ill. Jan. 10, 2007). See the January 19th issue of InfoBytes for a detailed discussion of the case.
FIRM NEWS
Kirk Jensen recently published an article entitled “Summaries of Empirical Studies and Survey Regarding How Individuals Fare in Arbitration” in the Winter, 2006 edition of the Consumer Finance Law Quarterly Report.
Jeffery Naimon will be speaking on the RESPA panel at the American Conference Institute's upcoming seminar "Preventing, Defending and Resolving Consumer Credit Litigation" taking place on June 5-6, 2007 in New York. For more information, or to register, go to http://www.americanconference.com/Litigation/creditlit.htm.
On Thursday, April 19, John Kromer and Clinton Rockwell will be speaking on a Pratt Audio Conference Series regarding non-traditional mortgage loans and federal and state agency guidance. For more information, or to register, see http://www.aspratt.com/store/V03.php.
House Bill Introduced to Reform Federal Housing Administration. On March 29, the Expanding Homeownership Act of 2007 (H.R. 1852) was introduced in the House by sponsoring representatives Maxine Watters (D – Ca.) and Barney Frank (D – Mass.). The bill would reform the Federal Housing Administration (FHA) to increase the number of low- and moderate-income borrowers served. The bill provides for, among other things, (i) risk-based pricing of mortgage insurance, (ii) greater loan limits in high-cost housing markets, (iii) elimination of the current three percent downpayment required to secure an FHA loan, and (iv) elimination of the current cap on reverse mortgage loans. The Act also includes several provisions related to fees charged to borrowers and to loan counseling for high-risk borrowers that were not included in a similar bill that passed the House last year. The full press release is available from the House Financial Services Committee website here. To follow the progress of this bill, see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:H.R.1852:.
FTC Issues Consumer Alert on “Trigger Leads.” The FTC issued a Consumer Alert to consumers on “trigger leads” – prescreened credit reports issued to mortgage brokers or lenders after the consumer applies with one lender, which often result in many calls to the consumer from other brokers or lenders. The FTC states that it is not authorized to crack down on "trigger-lead" phone solicitations to consumers who have recently applied for mortgages. The Alert notes that trigger leads clearly benefit mortgage companies but can also benefit consumers by “highlight[ing] other available products and mak[ing] it easier to compare costs.” The Alert also explains how consumers can opt-out from future prescreened offers under the Fair Credit Reporting Act. For full text of the alert, see http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt171.htm.
SEC Staff Discusses Effect of Missing Item 1122 Assessments Pursuant to Regulation AB. On March 29, an industry group held a conference call with Securities and Exchange Commission (SEC) staff members to discuss hypothetical situations arising under Regulation AB that would affect the ability of issuers to register an asset-backed security. Under Reg AB, any party that participates in the servicing function of a loan that is part of an underlying security must provide a report of assessment of compliance with applicable servicing criteria set forth in the rule (the reports are referred to as "Item 1122" assessments). These Item 1122 assessments must be included as exhibits to the issuer's Form 10-K report. In the conference call, the industry representatives described a hypothetical situation in which a servicer failed to provide an Item 1122 assessment in breach of its obligation to do so, but otherwise the Form 10-K report would be filed timely by the issuer. The SEC staff reportedly stated that it could not make a conclusion based on the facts as described that the omission of an Item 1122 assessment would cause the issuer to be an "ineligible issuer" under Rule 405 or otherwise be ineligible to file a Form S-3 registration statement for the underlying security. The SEC staff purportedly noted that it would matter whether the issuer's attempt to comply with the requirements of Item 1122 was substantially deficient as opposed to merely incomplete. The SEC staff also apparently declined to advise whether an issuer in this circumstance could rely on Rule 12b-21, which allows omission of information that is unavailable without unreasonable effort or expense. In essence, the SEC staff noted that each situation will be unique and urged that issuers and their counsel should contact and discuss with SEC staff any potential problems arising under Regulation AB.
House Bill Introduced to Reform National Flood Insurance Program. On March 26, House Financial Services Committee Chairman Barney Frank (D – MA) and Rep. Judy Biggert (R-IL) introduced the Flood Insurance Reform and Modernization Act (H.R. 1682) to reform the National Flood Insurance Program (NFIP). According to the Financial Services Committee press release the Act will provide for, among other things, (i) an increase in flood insurance disclosures provided to consumers, (ii) updated maximum insurance coverage amounts for both residential and nonresidential properties, (iii) the elimination of federal subsidies for second homes and vacation houses, and (iv) business interruption coverage to assist small business owners in meeting financial obligations to employees and others in the event of a flood. The press release is available at http://www.house.gov/apps/list/press/financialsvcs_dem/press032707.shtml. Full text of the bill should be available shortly at http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.1682:.
Rhode Island Again Delays Effective Date of Home Loan Protection Act Regulations. On March 28, the Rhode Island Department of Business Regulation (RIDBR) announced that it was once again pushing back the effective date of regulations implementing the Rhode Island Home Loan Protection Act. Already twice changed, the most recent announcement moves the effective date from April 1, 2007 to June 1, 2007 (most recently reported in the February 9 issue of InfoBytes). After initial delays over fears of lenders retreating from the state over compliance concerns, the RIDBR held a public hearing on March 8 to consider revisions to the regulations. The RIDBR also announced that it hopes to release a “permanent regulation” by April 10, 2007. For a copy of the RIDBR’s Banking Bulletin 2007-4 summarizing these changes, see http://www.dbr.state.ri.us/documents/news/banking/Banking_Bulletin_2007-4.pdf.
Court Holds for Lender in Case Addressing TILA’s “Tolerances for Accuracy” Provision. On March 22, a federal district court in Pennsylvania held that the Truth in Lending Act’s (TILA) “tolerances for accuracy” provision is not an affirmative defense that can be waived if not pled. In Sterten v. Option One Mortgage Corp., No. 06-651, 2007 U.S. Dist. LEXIS 21201 (E.D. Pa. March 22, 2007) the plaintiff sought to rescind her mortgage loan pursuant to TILA, arguing, in part, that certain fees in connection with the loan were not properly disclosed as finance charges. The bankruptcy court determined that the $57 discrepancy at issue was within TILA’s tolerances. In a post-verdict motion, however, the plaintiff argued that a finance charge discrepancy that falls within the scope of TILA’s “tolerances for accuracy” provision is an affirmative defense, and that the lender waived the defense by not raising it during the litigation. The bankruptcy judge agreed, declaring rescission and awarding statutory damages to the plaintiff. But on appeal, the district court explained that “a matter that merely negates an element of the plaintiff’s prima facie case is not an affirmative defense.” According to the court, TILA’s “tolerances for accuracy” provision “defines the parameters of an element of the TILA violation,” and absent a violation (and a cause of action), “no defense is necessary.” The court noted that Congress amended TILA to include the “tolerances for accuracy” provision out of concern that the mortgage industry could be subject to “‘extraordinary liability’ for minor mistakes and technical violations”; thus, holding the lender liable and rescinding the loan “based on a minor discrepancy would produce a result that Congress intended to avoid.” For a copy of the opinion, please contact .
Committee Moves Bill to the Floor to Reform Federal Oversight of GSEs. On March 29, the House Financial Services Committee sent the Federal Housing Finance Reform Act of 2007 (H.R. 1427), which would reform federal regulatory oversight of the government sponsored enterprises (GSEs) and Federal Home Loan Banks, to the House floor (for more details, see the March 16th issue of InfoBytes). The version of the bill passed out of committee still contains provisions establishing an affordable housing fund, a contentious measure supported by the Committee Chairman Barney Frank (D – Mass.) and opposed by Ranking Member Spencer Bachus (R – Ala.). The press release is available on House Committee on Financial Services website at http://www.house.gov/apps/list/press/financialsvcs_dem/press032907.shtml. The committee markup of this bill can be found at http://www.house.gov/apps/list/speech/financialsvcs_dem/muhr1427032807.pdf. To follow the progress of H.R. 1427, see http://thomas.loc.gov/cgi-bin/bdquery/z?d110:H.R.1427:.
House Finance Committee Hears Testimony on Subprime and Predatory Lending and Natural Disaster Insurance. On March 27, the Subcommittee on Financial Institutions and Consumer Credit of the House Committee on Financial Services held a hearing entitled “Subprime and Predatory Mortgage Lending: New Regulatory Guidance, Current Market Conditions, and Effects on Regulated Financial Institutions.” At the hearing, committee members heard testimony from representatives from federal and state bank regulatory agencies as well as from consumer groups and trade associations. More information, including a recorded webcast, is available at http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht032707.shtml. Also on March 27, a hearing was held before the full House Committee on Financial Services on natural disaster insurance. More information and a recorded webcast are available at http://www.house.gov/apps/list/hearing/financialsvcs_dem/ht2032707.shtml.
Texas Enacts New Law to Protect Social Security Numbers from Disclosure on Property Deeds. On March 28, Texas Governor Perry signed into law House Bill 2061, which amends the Texas Property Code relating to the disclosure of social security numbers on deeds or deeds of trust. The new law, which became effective upon signing, amends Texas Code § 11.008 to (i) prohibit the preparer of a deed or deed of trust from including an individual's social security number in a document presented for recording and (ii) require a disclosure regarding social security numbers or drivers’ license numbers on instruments transferring an interest in real property to or from an individual. The disclosure requirement states that natural persons may remove or strike their social security number or driver's license number from the instrument. Section 11.008 provides, however, that the validity of an instrument between the parties and the notice provided by the instrument are not affected by a party's failure to include the notice and, further, the county clerk may not reject an instrument presented for recording solely because the instrument fails to comply with this disclosure requirement. For text of this bill, see http://www.legis.state.tx.us/tlodocs/80R/billtext/html/HB02061F.htm.
Cavin FCRA Firm Offer Case Printed in Official Reporter. The opinion of the U.S. District Court for the Northern District of Illinois upholding an offer as a valid firm offer under FCRA, previously reported in InfoBytes, has now been printed in the official reporter. Cavin v. Home Loan Center Inc., 469 F. Supp. 2d 561 (N.D. Ill. Jan. 10, 2007). See the January 19th issue of InfoBytes for a detailed discussion of the case.
HOLA Diversity Jurisdiction Amendments Retroactively Apply to Pending Case. In a motion for remand to the state circuit court based on a lack of diversity jurisdiction, the U.S. Federal District Court for the District of South Dakota, Southern Division determined that citizenship amendments to HOLA under Section 403 of the Financial Services Regulatory Relief Act of 2006 retroactively apply to pending cases. First Midwest Bank v. Metabank, 2007 U.S. Dist. Lexis 21016 (Mar. 23, 2007). Prior to the amendments, citizenship for diversity jurisdiction purposes with respect to federal savings associations was largely determined based on whether the Bank's activities were sufficiently "localized" to be deemed a citizen of a state. The plaintiffs argued that remand was necessary because the Bank defendant was a national citizen based on its national marketing efforts and multi-state locations making the Bank incapable of invoking diversity jurisdiction. The court stated, however, that the Amendments clarified that for federal diversity jurisdictions purposes, citizenship is based on the state in which the Bank has its home office. Please contact for a copy of the opinion.
Court Upholds $80,000 FCRA Punitive Damages Award in Statutory Damages Case. In Saunders v. Equifax Information Services, 469 F. Supp. 2d 343 (E.D. Va. Jan. 8, 2007), the jury rendered judgment for a consumer who alleged that a bank defendant had willfully violated the Fair Credit Reporting Act (FCRA) by reporting inaccurate information about the consumer’s payment of an automobile loan. The jury awarded the consumer $1,000 in statutory damages and $80,000 in punitive damages. The court denied the bank’s motion to reduce the punitive damages to $4,000 (four times the amount of the statutory damages). It noted that the Supreme Court’s State Farm case requires courts to consider “three guideposts” in determining whether a punitive damages award violates the Due Process clause of the Constitution: “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.” The court in Saunders held that, despite the lack of any actual damages, a statutory damages award can justify punitive damages under FCRA. It held that the punitive damages award was not excessive in light of the bank’s “egregious” conduct, which included “failing to properly ‘book’ Saunders’ loan in violation of [the bank’s] own internal operating procedures; repeatedly denying the existence of a contractual relationship with Saunders when such a relationship in fact existed; rebuffing Saunders when he repeatedly attempted to make proper payment on his loan and then demanding full payment of the entire loan, with interest and penalties, within a few days after [the bank] finally discovered it had extended the loan; acquiring possession of the car and selling it thereafter at auction; and reporting derogatory information to the [consumer reporting agencies] without first noting that Saunders disputed the information.” The court held that the disparity between the $80,000 in punitive damages and the maximum $1,000 in statutory damages, or the maximum $2,500 available to the Federal Trade Commission in FCRA civil penalty cases, did not make the punitive damages award excessive in light of the nature of the bank’s conduct and the low ratio of the award to the bank’s net worth of $3.2 billion. For a copy of this decision please contact .
FCRA Private Right of Action Applies to Failure to Truncate Card Number. The U.S. District Court for the Central District of California held that consumers have the right to sue a merchant that violates the FCRA requirement, added by the Fair and Accurate Credit Transactions Act of 2003, to truncate the credit or debit card number on a receipt produced by an electronic terminal. Esandari v. Ikea, No. SAC061248JVS, 2007 WL 845948 (C.D. Cal. Mar. 12, 2007). The merchant argued that the provision containing the private right of action refers to “consumers,” defined as individuals under FCRA, while the provision requiring truncation refers to “cardholders,” which may be individual consumers or entities. Without deciding whether a non-consumer entity would have a private right of action, the court held that the plaintiff, an individual consumer, did have that right and denied the merchant’s motion to dismiss. Please contact for a copy of this decision.
Federal Court Grants Class Certification in FCRA Firm Offer Case. In Krey v. Castle Motor Sales, No. C 4173, 2007 U.S. Dist. LEXIS 20880 (N.D. Ill. Mar. 21, 2007), the court granted class certification in a FCRA prescreened offer case. The court rejected the defendant automobile dealer’s argument that class disposition was inappropriate because each member of the class should be allowed to choose whether to pursue actual damages (which would require an individualized determination) or only statutory damages. Quoting the Seventh Circuit’s Murray v. GMAC opinion, the court held that liability can be determined from the “four corners” of the mailer and that, therefore, class certification was appropriate. But the court granted the motion of one of the defendants, a marketing company, for dismissal of the consumer’s claims for injunctive relief under FCRA, which the court held is unavailable, and for violations of the Illinois Consumer Fraud Act, which the court held is preempted by FCRA. Please contact for a copy of this decision.
FTC Issues Report to Congress on the FDCPA. On March 23, the Federal Trade Commission (FTC) issued its annual report to Congress on the Fair Debt Collection Practices Act (FDCPA) for fiscal year 2006. The report summarizes the types of consumer complaints received by the FTC related to violations of the FDCPA as well as an overview of the FTC’s enforcement actions and efforts to educate consumers and the industry about the FDCPA. The full report is available at http://www.ftc.gov/reports/fdcpa07/P0748032007FDCPAReport.pdf.
Court Upholds $80,000 FCRA Punitive Damages Award in Statutory Damages Case. In Saunders v. Equifax Information Services, 469 F. Supp. 2d 343 (E.D. Va. Jan. 8, 2007), the jury rendered judgment for a consumer who alleged that a bank defendant had willfully violated the Fair Credit Reporting Act (FCRA) by reporting inaccurate information about the consumer’s payment of an automobile loan. The jury awarded the consumer $1,000 in statutory damages and $80,000 in punitive damages. The court denied the bank’s motion to reduce the punitive damages to $4,000 (four times the amount of the statutory damages). It noted that the Supreme Court’s State Farm case requires courts to consider “three guideposts” in determining whether a punitive damages award violates the Due Process clause of the Constitution: “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.” The court in Saunders held that, despite the lack of any actual damages, a statutory damages award can justify punitive damages under FCRA. It held that the punitive damages award was not excessive in light of the bank’s “egregious” conduct, which included “failing to properly ‘book’ Saunders’ loan in violation of [the bank’s] own internal operating procedures; repeatedly denying the existence of a contractual relationship with Saunders when such a relationship in fact existed; rebuffing Saunders when he repeatedly attempted to make proper payment on his loan and then demanding full payment of the entire loan, with interest and penalties, within a few days after [the bank] finally discovered it had extended the loan; acquiring possession of the car and selling it thereafter at auction; and reporting derogatory information to the [consumer reporting agencies] without first noting that Saunders disputed the information.” The court held that the disparity between the $80,000 in punitive damages and the maximum $1,000 in statutory damages, or the maximum $2,500 available to the Federal Trade Commission in FCRA civil penalty cases, did not make the punitive damages award excessive in light of the nature of the bank’s conduct and the low ratio of the award to the bank’s net worth of $3.2 billion. For a copy of this decision please contact .
Court Holds for Lender in Case Addressing TILA’s “Tolerances for Accuracy” Provision. On March 22, a federal district court in Pennsylvania held that the Truth in Lending Act’s (TILA) “tolerances for accuracy” provision is not an affirmative defense that can be waived if not pled. In Sterten v. Option One Mortgage Corp., No. 06-651, 2007 U.S. Dist. LEXIS 21201 (E.D. Pa. March 22, 2007) the plaintiff sought to rescind her mortgage loan pursuant to TILA, arguing, in part, that certain fees in connection with the loan were not properly disclosed as finance charges. The bankruptcy court determined that the $57 discrepancy at issue was within TILA’s tolerances. In a post-verdict motion, however, the plaintiff argued that a finance charge discrepancy that falls within the scope of TILA’s “tolerances for accuracy” provision is an affirmative defense, and that the lender waived the defense by not raising it during the litigation. The bankruptcy judge agreed, declaring rescission and awarding statutory damages to the plaintiff. But on appeal, the district court explained that “a matter that merely negates an element of the plaintiff’s prima facie case is not an affirmative defense.” According to the court, TILA’s “tolerances for accuracy” provision “defines the parameters of an element of the TILA violation,” and absent a violation (and a cause of action), “no defense is necessary.” The court noted that Congress amended TILA to include the “tolerances for accuracy” provision out of concern that the mortgage industry could be subject to “‘extraordinary liability’ for minor mistakes and technical violations”; thus, holding the lender liable and rescinding the loan “based on a minor discrepancy would produce a result that Congress intended to avoid.” For a copy of the opinion, please contact .
U.S. Court of Appeals Rules Against SEC, Vacates Fee-Based Brokerage Rule. The District of Columbia Circuit Court of Appeals decided in favor of the Financial Planning Association (FPA) and against the SEC on March 30, vacating the SEC rule exempting certain broker-dealers from the fiduciary requirements of the Investment Advisers Act of 1940 (IAA) on the grounds that the SEC had exceeded its authority. Financial Planning Association v. SEC, No. 04-1242 (D.C. Cir. March 30, 2007). Under the IAA, investment advisors are required, among other things, (i) to register and to maintain records, (ii) to limit the type of contracts they enter into, and (iii) not to engage in certain types of deceptive and fraudulent transactions. Congress carved out several exemptions from the definition of "investment advisor," including the two exemptions that were at issue in this case: (i) "any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor" and (ii) "such other persons not within the intent of this paragraph, as the [SEC] may designate by rules and regulations or order." An SEC rule first proposed in 1999 exempted brokers and dealers to the requirements of the IAA where their investment advice is "(1) solely incidental to the conduct of [their] business as a broker or dealer," and (2) the broker or dealer "receives no special compensation therefor." The SEC, acting pursuant to § 202(a)(11)(F) and § 211(a) of the IAA, promulgated the final rule exempting broker-dealers when they receive "special compensation therefor." In promulgating the final rule, the SEC purported to use the exemption allowing the SEC to exempt "such other persons" in order to broaden the exemption for broker-dealers. The FPA contended that when Congress enacted the IAA, it identified the group of broker-dealers it intended to exempt and that the subsection allowing the SEC to designate "such other persons not within the intent of th[e] paragraph" was only intended to allow the SEC to exempt new groups from the IAA, not to expand the groups that Congress specifically addressed (which included broker-dealers). The Court of Appeals agreed, noting for example that the SEC only had authority to exempt "such other persons," which could not include broker-dealers since they were already accounted for by the exemption for "any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor." Thus, the broader exception created by the SEC for broker-dealers whose provision of advice is solely incidental to their brokerage services but who receive a particular kind of non-commission compensation (either a fixed fee or a fee based on the amount of assets in the customer's account) will no longer exist. However, the broker-dealers who receive commissions rather than fee-based compensation will continue to be covered under the exemption in the IAA. Circuit Judge Garland dissented, finding that the SEC did not exceed the bounds of its authority because "unlike [his] colleagues, [he] cannot derive an unambiguous meaning from the terms 'such other person' and 'within the intent of this paragraph'" and instead deferred to the SEC's reasonable interpretation of the statute. For a copy of the opinion, please see http://pacer.cadc.uscourts.gov/docs/common/opinions/200703/04-1242a.pdf.
HOLA Diversity Jurisdiction Amendments Retroactively Apply to Pending Case. In a motion for remand to the state circuit court based on a lack of diversity jurisdiction, the U.S. Federal District Court for the District of South Dakota, Southern Division determined that citizenship amendments to HOLA under Section 403 of the Financial Services Regulatory Relief Act of 2006 retroactively apply to pending cases. First Midwest Bank v. Metabank, 2007 U.S. Dist. Lexis 21016 (Mar. 23, 2007). Prior to the amendments, citizenship for diversity jurisdiction purposes with respect to federal savings associations was largely determined based on whether the Bank's activities were sufficiently "localized" to be deemed a citizen of a state. The plaintiffs argued that remand was necessary because the Bank defendant was a national citizen based on its national marketing efforts and multi-state locations making the Bank incapable of invoking diversity jurisdiction. The court stated, however, that the Amendments clarified that for federal diversity jurisdictions purposes, citizenship is based on the state in which the Bank has its home office. Please contact for a copy of the opinion.
FCRA Private Right of Action Applies to Failure to Truncate Card Number. The U.S. District Court for the Central District of California held that consumers have the right to sue a merchant that violates the FCRA requirement, added by the Fair and Accurate Credit Transactions Act of 2003, to truncate the credit or debit card number on a receipt produced by an electronic terminal. Esandari v. Ikea, No. SAC061248JVS, 2007 WL 845948 (C.D. Cal. Mar. 12, 2007). The merchant argued that the provision containing the private right of action refers to “consumers,” defined as individuals under FCRA, while the provision requiring truncation refers to “cardholders,” which may be individual consumers or entities. Without deciding whether a non-consumer entity would have a private right of action, the court held that the plaintiff, an individual consumer, did have that right and denied the merchant’s motion to dismiss. Please contact for a copy of this decision.
Federal Court Grants Class Certification in FCRA Firm Offer Case. In Krey v. Castle Motor Sales, No. C 4173, 2007 U.S. Dist. LEXIS 20880 (N.D. Ill. Mar. 21, 2007), the court granted class certification in a FCRA prescreened offer case. The court rejected the defendant automobile dealer’s argument that class disposition was inappropriate because each member of the class should be allowed to choose whether to pursue actual damages (which would require an individualized determination) or only statutory damages. Quoting the Seventh Circuit’s Murray v. GMAC opinion, the court held that liability can be determined from the “four corners” of the mailer and that, therefore, class certification was appropriate. But the court granted the motion of one of the defendants, a marketing company, for dismissal of the consumer’s claims for injunctive relief under FCRA, which the court held is unavailable, and for violations of the Illinois Consumer Fraud Act, which the court held is preempted by FCRA. Please contact for a copy of this decision.
Court Rules CAN-SPAM Does Not Preempt Utah’s “Do-Not-Email” Registry. On March 23, the U.S. District Court in Utah determined that the Federal CAN-SPAM Act does not preempt Utah’s Child Protection Registry Act. Free Speech Coalition Inc. v . Shurtleff, No. 2:05CV949DAK (D. Utah Mar. 23, 2007). The Utah act authorized Utah to create a registry service for electronic mail addresses that functions similarly to the federal Do-Not-Call lists. Utah residents can register an e-mail address on the registry. It is illegal to send a communication to a registered e-mail if it the e-mail “has the primary purpose” of advertising or promoting (i) products or services that minors cannot purchase or (ii) material that is harmful to minors. Although the plaintiffs raised several arguments, including statutory preemption and alleged Constitutional violations, the court held that the law was constitutional and was not preempted by the CAN-SPAM Act. Accordingly, the court allowed the Utah registry law and its associated registry to stand. Please contact for a copy of the court’s decision.
U.S. Court of Appeals Rules Against SEC, Vacates Fee-Based Brokerage Rule. The District of Columbia Circuit Court of Appeals decided in favor of the Financial Planning Association (FPA) and against the SEC on March 30, vacating the SEC rule exempting certain broker-dealers from the fiduciary requirements of the Investment Advisers Act of 1940 (IAA) on the grounds that the SEC had exceeded its authority. Financial Planning Association v. SEC, No. 04-1242 (D.C. Cir. March 30, 2007). Under the IAA, investment advisors are required, among other things, (i) to register and to maintain records, (ii) to limit the type of contracts they enter into, and (iii) not to engage in certain types of deceptive and fraudulent transactions. Congress carved out several exemptions from the definition of "investment advisor," including the two exemptions that were at issue in this case: (i) "any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor" and (ii) "such other persons not within the intent of this paragraph, as the [SEC] may designate by rules and regulations or order." An SEC rule first proposed in 1999 exempted brokers and dealers to the requirements of the IAA where their investment advice is "(1) solely incidental to the conduct of [their] business as a broker or dealer," and (2) the broker or dealer "receives no special compensation therefor." The SEC, acting pursuant to § 202(a)(11)(F) and § 211(a) of the IAA, promulgated the final rule exempting broker-dealers when they receive "special compensation therefor." In promulgating the final rule, the SEC purported to use the exemption allowing the SEC to exempt "such other persons" in order to broaden the exemption for broker-dealers. The FPA contended that when Congress enacted the IAA, it identified the group of broker-dealers it intended to exempt and that the subsection allowing the SEC to designate "such other persons not within the intent of th[e] paragraph" was only intended to allow the SEC to exempt new groups from the IAA, not to expand the groups that Congress specifically addressed (which included broker-dealers). The Court of Appeals agreed, noting for example that the SEC only had authority to exempt "such other persons," which could not include broker-dealers since they were already accounted for by the exemption for "any broker or dealer whose performance of such services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor." Thus, the broader exception created by the SEC for broker-dealers whose provision of advice is solely incidental to their brokerage services but who receive a particular kind of non-commission compensation (either a fixed fee or a fee based on the amount of assets in the customer's account) will no longer exist. However, the broker-dealers who receive commissions rather than fee-based compensation will continue to be covered under the exemption in the IAA. Circuit Judge Garland dissented, finding that the SEC did not exceed the bounds of its authority because "unlike [his] colleagues, [he] cannot derive an unambiguous meaning from the terms 'such other person' and 'within the intent of this paragraph'" and instead deferred to the SEC's reasonable interpretation of the statute. For a copy of the opinion, please see http://pacer.cadc.uscourts.gov/docs/common/opinions/200703/04-1242a.pdf.
SEC Staff Discusses Effect of Missing Item 1122 Assessments Pursuant to Regulation AB. On March 29, an industry group held a conference call with Securities and Exchange Commission (SEC) staff members to discuss hypothetical situations arising under Regulation AB that would affect the ability of issuers to register an asset-backed security. Under Reg AB, any party that participates in the servicing function of a loan that is part of an underlying security must provide a report of assessment of compliance with applicable servicing criteria set forth in the rule (the reports are referred to as "Item 1122" assessments). These Item 1122 assessments must be included as exhibits to the issuer's Form 10-K report. In the conference call, the industry representatives described a hypothetical situation in which a servicer failed to provide an Item 1122 assessment in breach of its obligation to do so, but otherwise the Form 10-K report would be filed timely by the issuer. The SEC staff reportedly stated that it could not make a conclusion based on the facts as described that the omission of an Item 1122 assessment would cause the issuer to be an "ineligible issuer" under Rule 405 or otherwise be ineligible to file a Form S-3 registration statement for the underlying security. The SEC staff purportedly noted that it would matter whether the issuer's attempt to comply with the requirements of Item 1122 was substantially deficient as opposed to merely incomplete. The SEC staff also apparently declined to advise whether an issuer in this circumstance could rely on Rule 12b-21, which allows omission of information that is unavailable without unreasonable effort or expense. In essence, the SEC staff noted that each situation will be unique and urged that issuers and their counsel should contact and discuss with SEC staff any potential problems arising under Regulation AB.
Court Rules CAN-SPAM Does Not Preempt Utah’s “Do-Not-Email” Registry. On March 23, the U.S. District Court in Utah determined that the Federal CAN-SPAM Act does not preempt Utah’s Child Protection Registry Act. Free Speech Coalition Inc. v . Shurtleff, No. 2:05CV949DAK (D. Utah Mar. 23, 2007). The Utah act authorized Utah to create a registry service for electronic mail addresses that functions similarly to the federal Do-Not-Call lists. Utah residents can register an e-mail address on the registry. It is illegal to send a communication to a registered e-mail if it the e-mail “has the primary purpose” of advertising or promoting (i) products or services that minors cannot purchase or (ii) material that is harmful to minors. Although the plaintiffs raised several arguments, including statutory preemption and alleged Constitutional violations, the court held that the law was constitutional and was not preempted by the CAN-SPAM Act. Accordingly, the court allowed the Utah registry law and its associated registry to stand. Please contact for a copy of the court’s decision.
Texas Enacts New Law to Protect Social Security Numbers from Disclosure on Property Deeds. On March 28, Texas Governor Perry signed into law House Bill 2061, which amends the Texas Property Code relating to the disclosure of social security numbers on deeds or deeds of trust. The new law, which became effective upon signing, amends Texas Code § 11.008 to (i) prohibit the preparer of a deed or deed of trust from including an individual's social security number in a document presented for recording and (ii) require a disclosure regarding social security numbers or drivers’ license numbers on instruments transferring an interest in real property to or from an individual. The disclosure requirement states that natural persons may remove or strike their social security number or driver's license number from the instrument. Section 11.008 provides, however, that the validity of an instrument between the parties and the notice provided by the instrument are not affected by a party's failure to include the notice and, further, the county clerk may not reject an instrument presented for recording solely because the instrument fails to comply with this disclosure requirement. For text of this bill, see http://www.legis.state.tx.us/tlodocs/80R/billtext/html/HB02061F.htm.
New Mexico Legislature Passes Credit Freeze Bill. The New Mexico legislature recently approved a bill (S.B. 165) permitting state residents to place security freezes on their credit reports. Under the bill, reporting agencies must place a security freeze on a credit report within three business days of receiving a request. If the consumer requests that the security freeze be temporarily lifted, reporting agencies have three business days to comply (this will change to fifteen minutes after September 1, 2008). The fee to place a freeze is $10 and the fee to temporarily lift the freeze is $5. These fees do not apply to identity theft victims and residents over the age of 65. If enacted, the new law would become effective on July 1, 2007. To view the full text of the bill, as approved by the Senate, please visit http://legis.state.nm.us/Sessions/07%20Regular/bills/senate/SB0165JUS.pdf. Amendments to the bill made by the House may be viewed at http://legis.state.nm.us/lcs/_session.asp?chamber=S&type=++&number=165&Submit=Search&year=07.
FCRA Private Right of Action Applies to Failure to Truncate Card Number. The U.S. District Court for the Central District of California held that consumers have the right to sue a merchant that violates the FCRA requirement, added by the Fair and Accurate Credit Transactions Act of 2003, to truncate the credit or debit card number on a receipt produced by an electronic terminal. Esandari v. Ikea, No. SAC061248JVS, 2007 WL 845948 (C.D. Cal. Mar. 12, 2007). The merchant argued that the provision containing the private right of action refers to “consumers,” defined as individuals under FCRA, while the provision requiring truncation refers to “cardholders,” which may be individual consumers or entities. Without deciding whether a non-consumer entity would have a private right of action, the court held that the plaintiff, an individual consumer, did have that right and denied the merchant’s motion to dismiss. Please contact for a copy of this decision.
© 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.