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Topics – Covered This Week (Click to View)
FEDERAL ISSUES
HUD Settles With Home Builder and Title Insurer on RESPA Violations. On April 12, the Department of Housing and Urban Development (HUD) announced it had reached settlement agreements with a home builder and a title insurance company for alleged RESPA violations. Specifically, HUD claimed that the title insurer provided the home builder with money to cover expenditures related to the home builder's marketing expenses in exchange for the referral of settlement service business, a scheme that violates RESPA's anti-kickback and referral prohibitions. This settlement is consistent with recent comments by HUD enforcement staff that they are further scrutinizing marketing arrangements. As a result of the settlements, the two companies will pay restitution and cease the practices. To view the settlement agreements, please see http://www.hud.gov/offices/hsg/sfh/res/resetagr.cfm.
DOD Issues Proposed Rule for Extension of Credit to Service Members. This week the Department of Defense (DOD) published a proposed regulation implementing a 36% usury ceiling on consumer credit products offered to members of the military and their dependents. In the proposed rule, DOD defined the term "consumer credit" very narrowly to include only payday loans, vehicle title loans, and tax refund anticipation loans, thereby limiting the coverage of the restrictions to only those credit products. This narrow definition reflects the concerns raised by industry and trade associations to DOD about potential unintended consequences – such as a restriction of credit availability to service members and their dependents – if the rule were applied too broadly. Among the other restrictions in the proposed regulations are additional disclosure requirements and a prohibition of mandatory arbitration for those products. The regulations implement a provision in the John Warner National Defense Authorization Act for Fiscal Year 2007. Comment letters are due on June 11. Limitations on Terms of Consumer Credit Extended to Service Members and Dependents, 72 Fed. Reg. 18,157 (Apr. 11, 2007). For a copy of the proposed rule, please contact .
HMDA Data for 2006 Released. On April 12, the federal bank agencies (FRB, FDIC, NCUA, OCC, and OTS) together with the Department of Housing and Urban Development (HUD) jointly announced the release of data gathered under the Home Mortgage Disclosure Act (HMDA) for the calendar year 2006. Summary statistical reports by lender and an aggregate report for each Metropolitan Statistical Area are to be published in September. To see the official press release, see http://www.federalreserve.gov/boarddocs/press/bcreg/2007/20070412/default.htm.
House Financial Services Committee Plans Hearings on Foreclosures and FHA Reform. On April 17, the House Financial Services Committee will hold a hearing on possible responses to the current rise in mortgage foreclosures. On April 19 the Committee will hold a hearing on the proposed Expanding American Home Ownership Act (H.R. 1852), referred to the Committee on March 29, and related issues about Federal Housing Authority (FHA) reform. For more information about H.R. 1852, see the March 30th issue of InfoBytes or the press release on the Committee on Financial Services website at http://www.house.gov/apps/list/press/financialsvcs_dem/press033007.shtml. Additional information about the hearings is available on the Committee’s website at http://financialservices.house.gov/hearings_all.shtml.
Senator Schumer Proposes Federal Subprime Bailout. On April 11, Senator Chuck Schumer (D – N.Y.), Chairman of the Joint Economic Committee (JEC), suggested a temporary foreclosure pause and a government bailout to assist ailing subprime borrowers. Senator Schumer and two other members of the Senate Banking Committee also suggested several legislative steps, among them a federal “suitability standard” and stronger federal anti-predatory lending laws, to help combat the rash of foreclosures afflicting the subprime market. The announcement accompanied the release of a JEC report on fighting subprime foreclosures. The report suggested, among other things, that preventing foreclosures – at a cost of roughly $3,300 per household – is far cheaper than the cost of foreclosure to the government and lenders, estimated at $80,000 per foreclosure. To read a copy of the Senators’ announcement, go to http://jec.senate.gov/Documents/Releases/subprimerelease04112007.pdf. The report in full can be found at http://jec.senate.gov/Documents/Reports/subprime11apr2007revised.pdf.
OTS Considers Revising the CORE Rating System Used for SLHCs. On April 9, the OTS published proposed changes to the current risk profile supervisory rating system (CORE – Capital, Organization Structure, Relationship, and Earnings) used for Savings and Loan Holding Companies (SLHC). The proposed new rating system would rename the “Relationship” factor to “Risk Management” and focus more on risk management and internal controls. The Organizational Structure factor has been structured to address a new list of risks and potential issues. The Capital and Earnings components would remain largely unchanged. The new rating system would evaluate all four factors, and provide a composite final rating, using a five-point numeric scale similar to UFIRS and CAMELS. Comments are due June 8, 2007. To read the notice as it appeared in the Federal Register, see http://www.ots.treas.gov/docs/7/73343.pdf.
Colorado Credit Union Notifies Members of Potential Data Breach. On April 11, the National Credit Union Administration (NCUA) announced that New Horizons Community Credit Union was notifying all its members of a potential breach of confidential member loan information. An un-recovered stolen laptop containing the information on nearly half of the credit union’s 19,500 members was cited as the reason for the notification. To date, there have been no reports that the information has been misused. However, the credit union is informing its members of which among them has been put at risk, as well as providing free credit reports, credit report monitoring, and information through a toll-free hotline. The credit union notified the NCUA and the Colorado Division of Financial Services of the stolen computer on April 3. The official NCUA press release is available at http://www.ncua.gov/news/press_releases/2007/MR07-0411.htm.
STATE ISSUES
New Mexico Law Permits Electronic Recording of Real Property Documents. New Mexico Governor Bill Richardson recently signed into law a bill (S.B. 201) that permits real property documents to be electronically recorded. Under the new law, the Uniform Real Property Electronic Recording Act, effective July 1, 2007, any document required to be in writing may be submitted as an electronic document, provided that the electronic version satisfies the requirements of the Act. Another provision of the new law allows for an electronic signature to satisfy a requirement that a document be signed. Notarizations, acknowledgements, verifications, etc. may also be satisfied by electronic signature. County clerks will continue to accept paper documents, but are now authorized to convert paper documents into electronic form. To view the final version of the bill, please visit http://legis.state.nm.us/Sessions/07%20Regular/final/SB0201.pdf.
Tennessee Allows Credit Card State Banks to Be Owned by Money Transmitters, Issue Debit Cards. A Tennessee bill (S.B. 1871) recently signed into law provides that a licensed money transmitter having its principal place of business in Tennessee for at least five consecutive years and a net worth of at least $25 million may now organize, own, and control a credit card state bank. The new law also permits credit card state banks to engage in debit operations. Until now, credit card state banks had been limited to credit card operations and making loans. To view the law, designated as Public Act 07-006, please visit: http://tennessee.gov/sos/acts/105/pub/pc0006.pdf.
Rhode Island Finalizes Regulations for Home Loan Protection Act. After substantial delays, on April 11, the Rhode Island Department of Business Regulation issued final regulations to implement the Rhode Island Home Loan Protection Act. The Act prohibits several common predatory practices, including loan “flipping,” recommending default, and accelerating loan payments at the sole discretion of the lender. The Department issued emergency implementing regulations in December of 2006, but when faced with the withdrawal of many lenders from doing business in the state due to concerns about complying with the law, the Department repeatedly delayed enforcement of these regulations (reported most recently in the March 30th issue of InfoBytes). These final regulations make some changes from the emergency regulations, including: (i) only requiring evidence of “a verifiable invoice or substantially similar document for Bona Fide and Reasonable fees” under the Act, (ii) changing the timing mandates for providing disclosure forms HLPA 1 and HLPA 2 to three days to comport with other federally required disclosure timelines, and (iii) allowing for optical imaging of stored records. The regulations are effective on May 1, 2007, but enforcement is delayed until June 1, 2007. For the full text of Banking Regulation 3 please see http://www.dbr.state.ri.us/rules/.
COURTS
FCRA Punitive Damages Claim Proceeds. A California federal court denied a defendant’s motion to dismiss in a putative class action alleging that the defendant violated a provision of the Fair Credit Reporting Act (FCRA) that prevents merchants from printing more than the last five digits or the expiration date of a debit or credit card number on receipts. In Pirian v. In-N-Out Burgers, Case No. SA-CV-06-1251 (C.D. Cal., opinion issued April 5, 2007), plaintiffs alleged that defendant violated the FCRA provision by printing more than the last five digits of a card number and/or the card’s expiration dates on class members’ receipts. Defendant moved to dismiss, arguing among other things that the FCRA requirement was vague, that plaintiffs failed to allege actual damages, and that FCRA’s uncapped statutory damages provision – which provides for $100 to $1,000 per violation – exceeds constitutional limits. The Court rejected each argument. The Court stated that FCRA’s prohibition on the printing of more than the last five digits of a card number and the printing of the expiration date is quite clear. Furthermore, FCRA expressly permits statutory damages whether or not plaintiffs have suffered actual damages. Moreover, the Court rejected as premature defendant’s argument that the potential statutory damages were excessive. The Court noted that the proper juncture to evaluate whether the actual award of statutory damages was constitutionally excessive would be after a class was certified and damages were assessed. For a copy of this opinion, please contact .
FCRA “Firm Offer” Putative Class Action Dismissed. In Zawacki v. Goal Financial, LLC, No. 06-C-6167 (N.D. Ill. April 10, 2007, an Illinois federal judge dismissed a FCRA “firm offer” putative class action complaint alleging that defendant’s mailer offering to consolidate plaintiff’s student loans was not a firm offer of credit within the meaning of FCRA because the offer did not include certain of the loan terms, rendering it valueless. The Court analyzed whether the mailer included a “firm offer” using the three factors set forth in Cole v. U.S. Capital Inc., 389 F.3d 719, 727-28 (7th Cir. 2004): (i) whether it appears likely that the offer would be honored; (ii) whether the material terms of the offer are adequately disclosed; and (iii) whether the amount of credit being offered is minimal or subject to so many limitations that it is of little value. The first factor was satisfied in favor of defendant, as the offer itself stated that it would be honored if the recipient satisfied certain clearly enumerated conditions. With respect to the second and third factors, the Court held that the offer adequately disclosed its material terms – the amount, duration and interest rate of the offered product – for recipients like plaintiff, who were in their student loan grace period. Likewise, for recipients in their student loan grace period, the amount of credit offered – at least $15,000 – was not minimal. While concerned that the offer “neglects to provide any terms to any recipient outside of the loan grace period,” the Court noted that the named plaintiff had not alleged that she was such a recipient. Moreover, the Court held that the offer incorporated by reference the loan term limits set forth in the Higher Education Act, thereby satisfying the second and third Cole factors. Accordingly, the Court held that the mailer was a “firm offer of credit” under FCRA, and dismissed plaintiff’s claims. For a copy of this opinion, please contact .
Internet Activities Emanating from Foreign Jurisdictions Can Form the Basis of Personal Jurisdiction, Even in the Absence of “Minimum Contacts.” The U.S. District Court for the Western District of Virginia recently determined that a court could exercise personal jurisdiction over a business that operates a foreign website even if the foreign company did not have sufficient “minimum contacts” with the court’s jurisdiction to support a traditional claim of personal jurisdiction under the International Shoe personal jurisdiction test. Silver Ring Splint Co. v. Digisplint, Inc., No. 3:06-CV-00065 (W.D. Va. Apr. 5, 2007). This case involved copyright infringement, trade dress infringement and unfair trade practices claims by a Virginia company against a Canadian company. The plaintiff sued in Federal court in Virginia, but the defendant claimed that court could not exercise personal jurisdiction because defendant did not have sufficient contacts with the state to support such jurisdiction. The court agreed that the defendant’s known activities, which included maintaining a website that is available to Virginians, completing one sale in Virginia, distributing of information at trade shows in the U.S. and commercial emails to the U.S. (including possibly to Virginians) and evidencing “a continued willingness to do business with Virginians” did not constitute sufficient contacts to meet the traditional test of personal jurisdiction enunciated in the International Shoe decision. Nevertheless, the court noted that it could exercise personal jurisdiction over defendant if the plaintiff could show that it had properly served defendant and that: (i) the case involved issues arising under Federal law; (ii) the defendant had adequate minimum contacts with the U.S. at large; and (iii) that there were inadequate contacts with any single state to support jurisdiction in those courts. Recognizing that plaintiff would not have access to the requisite information needed to fairly adjudicate the claim, the court assigned the defendant with the burden of production on its contacts with other U.S. jurisdictions, but left the plaintiff with the burden of persuasion on all other matters. Please contact for a copy of the court’s order.
Court Denies Class Certification in Firm Offer Case Based on Inadequacy of Named Plaintiff. In Forrest v. Shenandoah Valley National Bank, No. 06-C-11, 2007 WL 1029503 (E.D. Wis. Mar. 28, 2007), the plaintiff alleged that the lender failed to comply with the FCRA’s requirement that a prescreened credit solicitation consist of a “firm offer” of credit. In analyzing whether class certification was appropriate, the court interpreted the reference to the “four corners” of the offer in Murray v. GMAC Mortgage as requiring that the initial mailer include the material terms of the offer, and, therefore, found that the “commonality” requirement for class action certification was met because the sufficiency of the offer could be determined by examining the mailer. It also found that the numerosity and typicality requirements were met, as well as the requirement for adequate legal representation of the class, but declined to certify the class because the plaintiff, who appeared unaware in a deposition that she had filed this and 11 other “firm-offer” lawsuits, was viewed as incapable of adequately representing the interests of the class. For a copy of this opinion, please contact .
Court Partially Grants, Partially Denies Class Certification in Firm Offer Case. In In re Ocean Bank, No. 06 C 3515, 2007 WL 1063042 (N.D. Ill. April 9, 2007), in which the plaintiffs were seeking class certification in three of four consolidated FCRA firm-offer cases, the court also found that the commonality, numerosity, and typicality requirements were met for all of the cases based on Murray v. GMAC Mortgage. But it rejected named plaintiffs in two of the cases, based on the inadequacy of the individual as a class representative. The court denied class certification in the Phillips case because the plaintiff had ceded authority to agree to a settlement to her attorneys, although it made it clear that it would grant certification if her retainer agreement were amended to correct that problem. It also rejected plaintiff Forrest because of her lack of interest in this and other cases in which she is a plaintiff, including Forrest v. Shenandoah Valley National Bank, discussed above. In that matter, however, the court granted class certification because it found that Ms. Forrest’s husband, Bernal, was an adequate class representative. For a copy of this opinion please contact .
Subprime Lender Settles FCRA Class Action Suit. On March 23, Defendants New Century Mortgage Corporation and Home123 Corporation settled a class action lawsuit in which the plaintiffs alleged that mailers soliciting subprime first-mortgages violated the FCRA because they did not rise to the level of a "firm offer." Under the terms of the settlement, the defendants will provide $300,000 to compensate the class members and their attorneys, without admitting a violation of the FCRA. For a more detailed discussion of the case, please see the March 23 edition of InfoBytes. See Bonner v. Home123 Corp., No. 2:05-CV-146, 2007 WL 118447 (N.D. Ind. Mar. 23, 2007). For a copy of the Notice of Settlement, please contact .
Louisiana Court Finds Claims Against Bank, but not Bank Holding Company, Constitute Impermissible Collateral Attacks Against an Agency Determination. The Louisiana Court of Appeals for the Fourth Circuit recently concluded that letters issued by the OCC as a result of an examination that found that certain bank officer employment contracts were unlawful under the National Banking Act and needed to be rescinded constitutes an agency determination. As such, bringing a case in court against Hibernia Bank constitutes an impermissible collateral attack against an agency determination. The Court noted that the more appropriate course would be for the plaintiffs to seek a declaration regarding the appropriateness of the determinations from a federal court or the OCC. At the same time, the Court also concluded that the claims against the Bank Holding Company did not constitute an impermissible collateral attack because the National Banking Act is inapplicable to the Bank Holding Company and state law is not preempted by the Bank Holding Company Act with respect to employment practices of the bank holding company. Doe v. ABC Corp., 2007 La. App. Lexis 189 (La.App. Fourth Cir. Jan. 24, 2007). For a copy of this opinion please contact .
MISCELLANY
Nonprofit Broker Announces $1 Billion Program to Fight Subprime Foreclosures. On April 11, the Neighborhood Assistance Corporation of America (NACA), a nonprofit home ownership advocacy group, announced a one billion dollar program to refinance at-risk subprime borrowers out of their current loans into 30-year fixed-rate mortgages at below-market interest rates without any origination fees. Loans in the program will be financed and owned by Bank of America Corp. and Citigroup Inc., loans will be brokered and underwritten by NACA. In the written announcement, Bruce Marks, CEO of NACA, is quoted saying “committing One Billion dollars on NACA’s incredible mortgage terms sends a message to the victims that there is hope.” To read the NACA press release, see http://www.naca.com/content/press/articles/PressRelease_2007_04_11.pdf.
FIRM NEWS
Jerry Buckley and John Kromer will be participating in a webcast seminar entitled “Legal Issues Associated with Managing Subprime Mortgage Portfolios” offered on April 27th through West Legalworks. The seminar will address several topics on legal compliance with a focus on “legislative and regulatory proposals to impose stricter underwriting standards or ban certain loan products.” To read more or register, go to http://westlegaledcenter.com/program_guide/course_detail.jsf? courseId=5220934&sc_cid=LWEmail_13
Jeff 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, together with Ann Schnare of Corporate Risk Advisors, 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.
Jerry Buckley spoke at the IACCM conference in New Orleans on Thursday April 12th regarding Contracting in an Electronic Age.
Margo Tank spoke in a Web seminar entitled “The Impact of Going Paperless: A 90-minute Roadmap to Developing a Paperless Process” on April 12. The seminar addressed the legal and technical challenges and benefits of electronic transactions.
HUD Settles With Home Builder and Title Insurer on RESPA Violations. On April 12, the Department of Housing and Urban Development (HUD) announced it had reached settlement agreements with a home builder and a title insurance company for alleged RESPA violations. Specifically, HUD claimed that the title insurer provided the home builder with money to cover expenditures related to the home builder's marketing expenses in exchange for the referral of settlement service business, a scheme that violates RESPA's anti-kickback and referral prohibitions. As a result of the settlements, the two companies will pay restitution and cease the practices. To view the settlement agreements, please see http://www.hud.gov/offices/hsg/sfh/res/resetagr.cfm.
HMDA Data for 2006 Released. On April 12, the federal bank agencies (FRB, FDIC, NCUA, OCC, and OTS) together with the Department of Housing and Urban Development (HUD) jointly announced the release of data gathered under the Home Mortgage Disclosure Act (HMDA) for the calendar year 2006. Summary statistical reports by lender and an aggregate report for each Metropolitan Statistical Area are to be published in September. To see the official press release, see http://www.federalreserve.gov/boarddocs/press/bcreg/2007/20070412/default.htm.
House Financial Services Committee Plans Hearings on Foreclosures and FHA Reform. On April 17, the House Financial Services Committee will hold a hearing on possible responses to the current rise in mortgage foreclosures. On April 19 the Committee will hold a hearing on the proposed Expanding American Home Ownership Act (H.R. 1852), referred to the Committee on March 29, and related issues about Federal Housing Authority (FHA) reform. For more information about H.R. 1852, see the March 30th issue of InfoBytes or the press release on the Committee on Financial Services website at http://www.house.gov/apps/list/press/financialsvcs_dem/press033007.shtml. Additional information about the hearings is available on the Committee’s website at http://financialservices.house.gov/hearings_all.shtml.
Senator Schumer Proposes Federal Subprime Bailout. On April 11, Senator Chuck Schumer (D – N.Y.), Chairman of the Joint Economic Committee (JEC), suggested a temporary foreclosure pause and a government bailout to assist ailing subprime borrowers. Senator Schumer and two other members of the Senate Banking Committee also suggested several legislative steps, among them a federal “suitability standard” and stronger federal anti-predatory lending laws, to help combat the rash of foreclosures afflicting the subprime market. The announcement accompanied the release of a JEC report on fighting subprime foreclosures. The report suggested, among other things, that preventing foreclosures – at a cost of roughly $3,300 per household – is far cheaper than the cost of foreclosure to the government and lenders, estimated at $80,000 per foreclosure. To read a copy of the Senators’ announcement, go to http://jec.senate.gov/Documents/Releases/subprimerelease04112007.pdf. The report in full can be found at http://jec.senate.gov/Documents/Reports/subprime11apr2007revised.pdf.
Rhode Island Finalizes Regulations for Home Loan Protection Act. After substantial delays, on April 11, the Rhode Island Department of Business Regulation issued final regulations to implement the Rhode Island Home Loan Protection Act. The Act prohibits several common predatory practices, including loan “flipping,” recommending default, and accelerating loan payments at the sole discretion of the lender. The Department issued emergency implementing regulations in December of 2006, but when faced with the withdrawal of many lenders from doing business in the state due to concerns about complying with the law, the Department repeatedly delayed enforcement of these regulations (reported most recently in the March 30th issue of InfoBytes). These final regulations make some changes from the emergency regulations, including: (i) only requiring evidence of “a verifiable invoice or substantially similar document for Bona Fide and Reasonable fees” under the Act, (ii) changing the timing mandates for providing disclosure forms HLPA 1 and HLPA 2 to three days to comport with other federally required disclosure timelines, and (iii) allowing for optical imaging of stored records. The regulations are effective on May 1, 2007, but enforcement is delayed until June 1, 2007. For the full text of Banking Regulation 3 please see http://www.dbr.state.ri.us/rules/.
Nonprofit Broker Announces $1 Billion Program to Fight Subprime Foreclosures. On April 11, the Neighborhood Assistance Corporation of America (NACA), a nonprofit home ownership advocacy group, announced a one billion dollar program to refinance at-risk subprime borrowers out of their current loans into 30-year fixed-rate mortgages at below-market interest rates without any origination fees. Loans in the program will be financed and owned by Bank of America Corp. and Citigroup Inc., loans will be brokered and underwritten by NACA. In the written announcement, Bruce Marks, CEO of NACA, is quoted saying “committing One Billion dollars on NACA’s incredible mortgage terms sends a message to the victims that there is hope.” To read the NACA press release, see http://www.naca.com/content/press/articles/PressRelease_2007_04_11.pdf.
Subprime Lender Settles FCRA Class Action Suit. On March 23, Defendants New Century Mortgage Corporation and Home123 Corporation settled a class action lawsuit in which the plaintiffs alleged that mailers soliciting subprime first-mortgages violated the FCRA because they did not rise to the level of a "firm offer." Under the terms of the settlement, the defendants will provide $300,000 to compensate the class members and their attorneys, without admitting a violation of the FCRA. For a more detailed discussion of the case, please see the March 23 edition of InfoBytes. See Bonner v. Home123 Corp., No. 2:05-CV-146, 2007 WL 118447 (N.D. Ind. Mar. 23, 2007). For a copy of the Notice of Settlement, please contact .
HMDA Data for 2006 Released. On April 12, the federal bank agencies (FRB, FDIC, NCUA, OCC, and OTS) together with the Department of Housing and Urban Development (HUD) jointly announced the release of data gathered under the Home Mortgage Disclosure Act (HMDA) for the calendar year 2006. Summary statistical reports by lender and an aggregate report for each Metropolitan Statistical Area are to be published in September. To see the official press release, see http://www.federalreserve.gov/boarddocs/press/bcreg/2007/20070412/default.htm.
OTS Considers Revising the CORE Rating System Used for SLHCs. On April 9, the OTS published proposed changes to the current risk profile supervisory rating system (CORE – Capital, Organization Structure, Relationship, and Earnings) used for Savings and Loan Holding Companies (SLHC). The proposed new rating system would rename the “Relationship” factor to “Risk Management” and focus more on risk management and internal controls. The Organizational Structure factor has been structured to address a new list of risks and potential issues. The Capital and Earnings components would remain largely unchanged. The new rating system would evaluate all four factors, and provide a composite final rating, using a five-point numeric scale similar to UFIRS and CAMELS. Comments are due June 8, 2007. To read the notice as it appeared in the Federal Register, see http://www.ots.treas.gov/docs/7/73343.pdf.
Colorado Credit Union Notifies Members of Potential Data Breach. On April 11, the National Credit Union Administration (NCUA) announced that New Horizons Community Credit Union was notifying all its members of a potential breach of confidential member loan information. An un-recovered stolen laptop containing the information on nearly half of the credit union’s 19,500 members was cited as the reason for the notification. To date, there have been no reports that the information has been misused. However, the credit union is informing its members of which among them has been put at risk, as well as providing free credit reports, credit report monitoring, and information through a toll-free hotline. The credit union notified the NCUA and the Colorado Division of Financial Services of the stolen computer on April 3. The official NCUA press release is available at http://www.ncua.gov/news/press_releases/2007/MR07-0411.htm.
Tennessee Allows Credit Card State Banks to Be Owned by Money Transmitters, Issue Debit Cards. A Tennessee bill (S.B. 1871) recently signed into law provides that a licensed money transmitter having its principal place of business in Tennessee for at least five consecutive years and a net worth of at least $25 million may now organize, own, and control a credit card state bank. The new law also permits credit card state banks to engage in debit operations. Until now, credit card state banks had been limited to credit card operations and making loans. To view the law, designated as Public Act 07-006, please visit: http://tennessee.gov/sos/acts/105/pub/pc0006.pdf.
Louisiana Court Finds Claims Against Bank, but not Bank Holding Company, Constitute Impermissible Collateral Attacks Against an Agency Determination. The Louisiana Court of Appeals for the Fourth Circuit recently concluded that letters issued by the OCC as a result of an examination that found that certain bank officer employment contracts were unlawful under the National Banking Act and needed to be rescinded constitutes an agency determination. As such, bringing a case in court against Hibernia Bank constitutes an impermissible collateral attack against an agency determination. The Court noted that the more appropriate course would be for the plaintiffs to seek a declaration regarding the appropriateness of the determinations from a federal court or the OCC. At the same time, the Court also concluded that the claims against the Bank Holding Company did not constitute an impermissible collateral attack because the National Banking Act is inapplicable to the Bank Holding Company and state law is not preempted by the Bank Holding Company Act with respect to employment practices of the bank holding company. Doe v. ABC Corp., 2007 La. App. Lexis 189 (La.App. Fourth Cir. Jan. 24, 2007). For a copy of this opinion please contact .
Court Denies Class Certification in Firm Offer Case Based on Inadequacy of Named Plaintiff. In Forrest v. Shenandoah Valley National Bank, No. 06-C-11, 2007 WL 1029503 (E.D. Wis. Mar. 28, 2007), the plaintiff alleged that the lender failed to comply with the FCRA’s requirement that a prescreened credit solicitation consist of a “firm offer” of credit. In analyzing whether class certification was appropriate, the court interpreted the reference to the “four corners” of the offer in Murray v. GMAC Mortgage as requiring that the initial mailer include the material terms of the offer, and, therefore, found that the “commonality” requirement for class action certification was met because the sufficiency of the offer could be determined by examining the mailer. It also found that the numerosity and typicality requirements were met, as well as the requirement for adequate legal representation of the class, but declined to certify the class because the plaintiff, who appeared unaware in a deposition that she had filed this and 11 other “firm-offer” lawsuits, was viewed as incapable of adequately representing the interests of the class. For a copy of this opinion, please contact .
Court Partially Grants, Partially Denies Class Certification in Firm Offer Case. In In re Ocean Bank, No. 06 C 3515, 2007 WL 1063042 (N.D. Ill. April 9, 2007), in which the plaintiffs were seeking class certification in three of four consolidated FCRA firm-offer cases, the court also found that the commonality, numerosity, and typicality requirements were met for all of the cases based on Murray v. GMAC Mortgage. But it rejected named plaintiffs in two of the cases, based on the inadequacy of the individual as a class representative. The court denied class certification in the Phillips case because the plaintiff had ceded authority to agree to a settlement to her attorneys, although it made it clear that it would grant certification if her retainer agreement were amended to correct that problem. It also rejected plaintiff Forrest because of her lack of interest in this and other cases in which she is a plaintiff, including Forrest v. Shenandoah Valley National Bank, discussed above. In that matter, however, the court granted class certification because it found that Ms. Forrest’s husband, Bernal, was an adequate class representative. For a copy of this opinion please contact .
DOD Issues Proposed Rule for Extension of Credit to Service Members. This week the Department of Defense (DOD) published a proposed regulation implementing a 36% usury ceiling on consumer credit products offered to members of the military and their dependents. In the proposed rule, DOD defined the term "consumer credit" very narrowly to include only payday loans, vehicle title loans, and tax refund anticipation loans, thereby limiting the coverage of the restrictions to only those credit products. This narrow definition reflects the concerns raised by industry and trade associations to DOD about potential unintended consequences – such as a restriction of credit availability to service members and their dependents – if the rule were applied too broadly. Among the other restrictions in the proposed regulations are additional disclosure requirements and a prohibition of mandatory arbitration for those products. The regulations implement a provision in the John Warner National Defense Authorization Act for Fiscal Year 2007. Comment letters are due on June 11. Limitations on Terms of Consumer Credit Extended to Service Members and Dependents, 72 Fed. Reg. 18,157 (Apr. 11, 2007). For a copy of the proposed rule, please contact .
FCRA Punitive Damages Claim Proceeds. A California federal court denied a defendant’s motion to dismiss in a putative class action alleging that the defendant violated a provision of the Fair Credit Reporting Act (FCRA) that prevents merchants from printing more than the last five digits or the expiration date of a debit or credit card number on receipts. In Pirian v. In-N-Out Burgers, Case No. SA-CV-06-1251 (C.D. Cal., opinion issued April 5, 2007), plaintiffs alleged that defendant violated the FCRA provision by printing more than the last five digits of a card number and/or the card’s expiration dates on class members’ receipts. Defendant moved to dismiss, arguing among other things that the FCRA requirement was vague, that plaintiffs failed to allege actual damages, and that FCRA’s uncapped statutory damages provision – which provides for $100 to $1,000 per violation – exceeds constitutional limits. The Court rejected each argument. The Court stated that FCRA’s prohibition on the printing of more than the last five digits of a card number and the printing of the expiration date is quite clear. Furthermore, FCRA expressly permits statutory damages whether or not plaintiffs have suffered actual damages. Moreover, the Court rejected as premature defendant’s argument that the potential statutory damages were excessive. The Court noted that the proper juncture to evaluate whether the actual award of statutory damages was constitutionally excessive would be after a class was certified and damages were assessed. For a copy of this opinion, please contact .
FCRA “Firm Offer” Putative Class Action Dismissed. In Zawacki v. Goal Financial, LLC, No. 06-C-6167 (N.D. Ill. April 10, 2007, an Illinois federal judge dismissed a FCRA “firm offer” putative class action complaint alleging that defendant’s mailer offering to consolidate plaintiff’s student loans was not a firm offer of credit within the meaning of FCRA because the offer did not include certain of the loan terms, rendering it valueless. The Court analyzed whether the mailer included a “firm offer” using the three factors set forth in Cole v. U.S. Capital Inc., 389 F.3d 719, 727-28 (7th Cir. 2004): (i) whether it appears likely that the offer would be honored; (ii) whether the material terms of the offer are adequately disclosed; and (iii) whether the amount of credit being offered is minimal or subject to so many limitations that it is of little value. The first factor was satisfied in favor of defendant, as the offer itself stated that it would be honored if the recipient satisfied certain clearly enumerated conditions. With respect to the second and third factors, the Court held that the offer adequately disclosed its material terms – the amount, duration and interest rate of the offered product – for recipients like plaintiff, who were in their student loan grace period. Likewise, for recipients in their student loan grace period, the amount of credit offered – at least $15,000 – was not minimal. While concerned that the offer “neglects to provide any terms to any recipient outside of the loan grace period,” the Court noted that the named plaintiff had not alleged that she was such a recipient. Moreover, the Court held that the offer incorporated by reference the loan term limits set forth in the Higher Education Act, thereby satisfying the second and third Cole factors. Accordingly, the Court held that the mailer was a “firm offer of credit” under FCRA, and dismissed plaintiff’s claims. For a copy of this opinion, please contact .
Tennessee Allows Credit Card State Banks to Be Owned by Money Transmitters, Issue Debit Cards. A Tennessee bill (S.B. 1871) recently signed into law provides that a licensed money transmitter having its principal place of business in Tennessee for at least five consecutive years and a net worth of at least $25 million may now organize, own, and control a credit card state bank. The new law also permits credit card state banks to engage in debit operations. Until now, credit card state banks had been limited to credit card operations and making loans. To view the law, designated as Public Act 07-006, please visit: http://tennessee.gov/sos/acts/105/pub/pc0006.pdf.
FCRA Punitive Damages Claim Proceeds. A California federal court denied a defendant’s motion to dismiss in a putative class action alleging that the defendant violated a provision of the Fair Credit Reporting Act (FCRA) that prevents merchants from printing more than the last five digits or the expiration date of a debit or credit card number on receipts. In Pirian v. In-N-Out Burgers, Case No. SA-CV-06-1251 (C.D. Cal., opinion issued April 5, 2007), plaintiffs alleged that defendant violated the FCRA provision by printing more than the last five digits of a card number and/or the card’s expiration dates on class members’ receipts. Defendant moved to dismiss, arguing among other things that the FCRA requirement was vague, that plaintiffs failed to allege actual damages, and that FCRA’s uncapped statutory damages provision – which provides for $100 to $1,000 per violation – exceeds constitutional limits. The Court rejected each argument. The Court stated that FCRA’s prohibition on the printing of more than the last five digits of a card number and the printing of the expiration date is quite clear. Furthermore, FCRA expressly permits statutory damages whether or not plaintiffs have suffered actual damages. Moreover, the Court rejected as premature defendant’s argument that the potential statutory damages were excessive. The Court noted that the proper juncture to evaluate whether the actual award of statutory damages was constitutionally excessive would be after a class was certified and damages were assessed. For a copy of this opinion, please contact .
FCRA “Firm Offer” Putative Class Action Dismissed. In Zawacki v. Goal Financial, LLC, No. 06-C-6167 (N.D. Ill. April 10, 2007, an Illinois federal judge dismissed a FCRA “firm offer” putative class action complaint alleging that defendant’s mailer offering to consolidate plaintiff’s student loans was not a firm offer of credit within the meaning of FCRA because the offer did not include certain of the loan terms, rendering it valueless. The Court analyzed whether the mailer included a “firm offer” using the three factors set forth in Cole v. U.S. Capital Inc., 389 F.3d 719, 727-28 (7th Cir. 2004): (i) whether it appears likely that the offer would be honored; (ii) whether the material terms of the offer are adequately disclosed; and (iii) whether the amount of credit being offered is minimal or subject to so many limitations that it is of little value. The first factor was satisfied in favor of defendant, as the offer itself stated that it would be honored if the recipient satisfied certain clearly enumerated conditions. With respect to the second and third factors, the Court held that the offer adequately disclosed its material terms – the amount, duration and interest rate of the offered product – for recipients like plaintiff, who were in their student loan grace period. Likewise, for recipients in their student loan grace period, the amount of credit offered – at least $15,000 – was not minimal. While concerned that the offer “neglects to provide any terms to any recipient outside of the loan grace period,” the Court noted that the named plaintiff had not alleged that she was such a recipient. Moreover, the Court held that the offer incorporated by reference the loan term limits set forth in the Higher Education Act, thereby satisfying the second and third Cole factors. Accordingly, the Court held that the mailer was a “firm offer of credit” under FCRA, and dismissed plaintiff’s claims. For a copy of this opinion, please contact .
Internet Activities Emanating from Foreign Jurisdictions Can Form the Basis of Personal Jurisdiction, Even in the Absence of “Minimum Contacts.” The U.S. District Court for the Western District of Virginia recently determined that a court could exercise personal jurisdiction over a business that operates a foreign website even if the foreign company did not have sufficient “minimum contacts” with the court’s jurisdiction to support a traditional claim of personal jurisdiction under the International Shoe personal jurisdiction test. Silver Ring Splint Co. v. Digisplint, Inc., No. 3:06-CV-00065 (W.D. Va. Apr. 5, 2007). This case involved copyright infringement, trade dress infringement and unfair trade practices claims by a Virginia company against a Canadian company. The plaintiff sued in Federal court in Virginia, but the defendant claimed that court could not exercise personal jurisdiction because defendant did not have sufficient contacts with the state to support such jurisdiction. The court agreed that the defendant’s known activities, which included maintaining a website that is available to Virginians, completing one sale in Virginia, distributing of information at trade shows in the U.S. and commercial emails to the U.S. (including possibly to Virginians) and evidencing “a continued willingness to do business with Virginians” did not constitute sufficient contacts to meet the traditional test of personal jurisdiction enunciated in the International Shoe decision. Nevertheless, the court noted that it could exercise personal jurisdiction over defendant if the plaintiff could show that it had properly served defendant and that: (i) the case involved issues arising under Federal law; (ii) the defendant had adequate minimum contacts with the U.S. at large; and (iii) that there were inadequate contacts with any single state to support jurisdiction in those courts. Recognizing that plaintiff would not have access to the requisite information needed to fairly adjudicate the claim, the court assigned the defendant with the burden of production on its contacts with other U.S. jurisdictions, but left the plaintiff with the burden of persuasion on all other matters. Please contact for a copy of the court’s order.
Court Denies Class Certification in Firm Offer Case Based on Inadequacy of Named Plaintiff. In Forrest v. Shenandoah Valley National Bank, No. 06-C-11, 2007 WL 1029503 (E.D. Wis. Mar. 28, 2007), the plaintiff alleged that the lender failed to comply with the FCRA’s requirement that a prescreened credit solicitation consist of a “firm offer” of credit. In analyzing whether class certification was appropriate, the court interpreted the reference to the “four corners” of the offer in Murray v. GMAC Mortgage as requiring that the initial mailer include the material terms of the offer, and, therefore, found that the “commonality” requirement for class action certification was met because the sufficiency of the offer could be determined by examining the mailer. It also found that the numerosity and typicality requirements were met, as well as the requirement for adequate legal representation of the class, but declined to certify the class because the plaintiff, who appeared unaware in a deposition that she had filed this and 11 other “firm-offer” lawsuits, was viewed as incapable of adequately representing the interests of the class. For a copy of this opinion, please contact .
Court Partially Grants, Partially Denies Class Certification in Firm Offer Case. In In re Ocean Bank, No. 06 C 3515, 2007 WL 1063042 (N.D. Ill. April 9, 2007), in which the plaintiffs were seeking class certification in three of four consolidated FCRA firm-offer cases, the court also found that the commonality, numerosity, and typicality requirements were met for all of the cases based on Murray v. GMAC Mortgage. But it rejected named plaintiffs in two of the cases, based on the inadequacy of the individual as a class representative. The court denied class certification in the Phillips case because the plaintiff had ceded authority to agree to a settlement to her attorneys, although it made it clear that it would grant certification if her retainer agreement were amended to correct that problem. It also rejected plaintiff Forrest because of her lack of interest in this and other cases in which she is a plaintiff, including Forrest v. Shenandoah Valley National Bank, discussed above. In that matter, however, the court granted class certification because it found that Ms. Forrest’s husband, Bernal, was an adequate class representative. For a copy of this opinion please contact .
Subprime Lender Settles FCRA Class Action Suit. On March 23, Defendants New Century Mortgage Corporation and Home123 Corporation settled a class action lawsuit in which the plaintiffs alleged that mailers soliciting subprime first-mortgages violated the FCRA because they did not rise to the level of a "firm offer." Under the terms of the settlement, the defendants will provide $300,000 to compensate the class members and their attorneys, without admitting a violation of the FCRA. For a more detailed discussion of the case, please see the March 23 edition of InfoBytes. See Bonner v. Home123 Corp., No. 2:05-CV-146, 2007 WL 118447 (N.D. Ind. Mar. 23, 2007). For a copy of the Notice of Settlement, please contact .
Louisiana Court Finds Claims Against Bank, but not Bank Holding Company, Constitute Impermissible Collateral Attacks Against an Agency Determination. The Louisiana Court of Appeals for the Fourth Circuit recently concluded that letters issued by the OCC as a result of an examination that found that certain bank officer employment contracts were unlawful under the National Banking Act and needed to be rescinded constitutes an agency determination. As such, bringing a case in court against Hibernia Bank constitutes an impermissible collateral attack against an agency determination. The Court noted that the more appropriate course would be for the plaintiffs to seek a declaration regarding the appropriateness of the determinations from a federal court or the OCC. At the same time, the Court also concluded that the claims against the Bank Holding Company did not constitute an impermissible collateral attack because the National Banking Act is inapplicable to the Bank Holding Company and state law is not preempted by the Bank Holding Company Act with respect to employment practices of the bank holding company. Doe v. ABC Corp., 2007 La. App. Lexis 189 (La.App. Fourth Cir. Jan. 24, 2007). For a copy of this opinion please contact .
New Mexico Law Permits Electronic Recording of Real Property Documents. New Mexico Governor Bill Richardson recently signed into law a bill (S.B. 201) that permits real property documents to be electronically recorded. Under the new law, the Uniform Real Property Electronic Recording Act, effective July 1, 2007, any document required to be in writing may be submitted as an electronic document, provided that the electronic version satisfies the requirements of the Act. Another provision of the new law allows for an electronic signature to satisfy a requirement that a document be signed. Notarizations, acknowledgements, verifications, etc. may also be satisfied by electronic signature. County clerks will continue to accept paper documents, but are now authorized to convert paper documents into electronic form. To view the final version of the bill, please visit http://legis.state.nm.us/Sessions/07%20Regular/final/SB0201.pdf.
Internet Activities Emanating from Foreign Jurisdictions Can Form the Basis of Personal Jurisdiction, Even in the Absence of “Minimum Contacts.” The U.S. District Court for the Western District of Virginia recently determined that a court could exercise personal jurisdiction over a business that operates a foreign website even if the foreign company did not have sufficient “minimum contacts” with the court’s jurisdiction to support a traditional claim of personal jurisdiction under the International Shoe personal jurisdiction test. Silver Ring Splint Co. v. Digisplint, Inc., No. 3:06-CV-00065 (W.D. Va. Apr. 5, 2007). This case involved copyright infringement, trade dress infringement and unfair trade practices claims by a Virginia company against a Canadian company. The plaintiff sued in Federal court in Virginia, but the defendant claimed that court could not exercise personal jurisdiction because defendant did not have sufficient contacts with the state to support such jurisdiction. The court agreed that the defendant’s known activities, which included maintaining a website that is available to Virginians, completing one sale in Virginia, distributing of information at trade shows in the U.S. and commercial emails to the U.S. (including possibly to Virginians) and evidencing “a continued willingness to do business with Virginians” did not constitute sufficient contacts to meet the traditional test of personal jurisdiction enunciated in the International Shoe decision. Nevertheless, the court noted that it could exercise personal jurisdiction over defendant if the plaintiff could show that it had properly served defendant and that: (i) the case involved issues arising under Federal law; (ii) the defendant had adequate minimum contacts with the U.S. at large; and (iii) that there were inadequate contacts with any single state to support jurisdiction in those courts. Recognizing that plaintiff would not have access to the requisite information needed to fairly adjudicate the claim, the court assigned the defendant with the burden of production on its contacts with other U.S. jurisdictions, but left the plaintiff with the burden of persuasion on all other matters. Please contact for a copy of the court’s order.
Colorado Credit Union Notifies Members of Potential Data Breach. On April 11, the National Credit Union Administration (NCUA) announced that New Horizons Community Credit Union was notifying all its members of a potential breach of confidential member loan information. An un-recovered stolen laptop containing the information on nearly half of the credit union’s 19,500 members was cited as the reason for the notification. To date, there have been no reports that the information has been misused. However, the credit union is informing its members of which among them has been put at risk, as well as providing free credit reports, credit report monitoring, and information through a toll-free hotline. The credit union notified the NCUA and the Colorado Division of Financial Services of the stolen computer on April 3. The official NCUA press release is available at http://www.ncua.gov/news/press_releases/2007/MR07-0411.htm.
Tennessee Allows Credit Card State Banks to Be Owned by Money Transmitters, Issue Debit Cards. A Tennessee bill (S.B. 1871) recently signed into law provides that a licensed money transmitter having its principal place of business in Tennessee for at least five consecutive years and a net worth of at least $25 million may now organize, own, and control a credit card state bank. The new law also permits credit card state banks to engage in debit operations. Until now, credit card state banks had been limited to credit card operations and making loans. To view the law, designated as Public Act 07-006, please visit: http://tennessee.gov/sos/acts/105/pub/pc0006.pdf.
© 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.