Federal Issues

Treasury Announces President’s Intention to Propose Financial Crisis Responsibility Fee. On January 14, the U.S. Department of the Treasury (Treasury) announced President Obama’s intention to issue a proposal to levy a “Financial Crisis Responsibility Fee” (the Fee) on the largest and most highly-leveraged Wall Street firms to reimburse taxpayers for the cost of the Troubled Asset Relief Program (TARP). While the exact terms of the proposal will be released in conjunction with the President’s budget, according to Treasury’s statement the Fee would apply to banks and thrifts, broker-dealers, insurance and other companies that owned insured depository institutions with greater than $50 billion in consolidated assets, including both domestic and U.S. subsidiaries of foreign firms. The Fee would be assessed at approximately 15 basis points of covered liabilities per year, exempting Federal Deposit Insurance Corporation-assessed deposits and insurance policy reserves. The Fee would go into effect on June 30, 2010 and remain in place for 10 years, or until the taxpayers are paid back in full for TARP. InfoBytes will report on the details of the final proposal when it becomes available. For a copy of the press release, please see http://www.treas.gov/press/releases/tg506.htm.

HUD Investigates Companies with High Mortgage Insurance Claim Rates. On January 12, the Office of the Inspector General (OIG) for the U.S. Department of Housing and Urban Development (HUD) served subpoenas on 15 mortgage companies that had higher than average rates of mortgage default and insurance claims. The subpoenas demand that the companies provide documents and data related to failed loans covered by the Federal Housing Administration (FHA) mortgage insurance fund. The investigations are part of a new push by HUD and FHA to focus on risk management and to hold lenders accountable for the high rates of defaults and claims. The investigations also represent a new approach by the OIG to scrutinize the policies of corporate offices rather than the actions of individual branch offices. If the probes uncover abuses, HUD may proceed against the companies with administrative sanctions, such as suspensions, limited denial of participation, debarment, and civil monetary penalties, or refer the matters to the Department of Justice for civil and criminal legal action. For a copy of HUD’s press release announcing the investigations, please see http://1.usa.gov/7xFYbe.

DOJ Announces Creation of Fair Lending Unit. On January 14, Assistant United States Attorney General Thomas Perez announced the creation of a new fair lending enforcement unit within the Civil Rights Division of the U.S. Department of Justice (DOJ) (reported in InfoBytes Special Alert, Jan. 14, 2010). The new unit was established in connection with an initiative by the Obama administration to enhance scrutiny of the lending practices of financial institutions and bolster enforcement of fair lending laws. The DOJ currently is involved in at least 38 fair lending investigations, and this figure is expected to substantially increase with creation of this new unit. New investigations are likely to focus on redlining, where minority borrowers allegedly are denied access to loans, and "reverse” redlining, where, in general, lenders allegedly discriminate against a protected class of borrowers – such as a members of a racial or ethnic minority group – by offering such borrowers loans on less favorable terms than similarly situated borrowers who were not members of a protected class. For a copy of the announcement, please see 
http://bit.ly/qkTpHQ.

FDIC Rulemaking Would Tie Deposit Insurance Assessments to Employee Compensation. On January 12, the Federal Deposit Insurance Corporation (FDIC) Board of Directors voted (3-2) to issue an advance notice of proposed rulemaking (ANPR) to explore tying deposit insurance assessments to risks posed by certain employee compensation programs. The FDIC’s overarching goal is not to limit compensation, but rather to align employee performance with the long-term interests of the financial institution and its stakeholders, including the FDIC. The ANPR suggests that preferred compensation plans could include (i) compensating employees engaged in riskier activities with restricted, non-discounted company stock, (ii) clawback provisions in stock-option awards that would account for the outcome of risks taken in earlier periods, and (iii) greater controls on compensation committees, e.g., the use of independent directors and independent compensation professionals. However, the FDIC seeks comment on a wide array of compensation-related issues. In response to the FDIC’s ANPR, Comptroller of the Currency Dugan and Office of Thrift Supervision Chairman Bowman issued statements opposing the issuance of the ANPR. Comptroller Dugan specifically noted (i) a concern with increasing regulatory burden, especially for smaller institutions, (ii) that the ANPR is premature because of pending legislation and the Federal Reserve Board’s employee compensation proposal, and (iii) that the FDIC has not sufficiently stated its legislative authority for the action. For a copy of the ANPR, please see http://www.fdic.gov/news/board/2010Jan12ANPR.pdf. For a copy of Comptroller Dugan’s statement, please see http://occ.treas.gov/ftp/release/2010-3a.pdf.

Federal Reserve Board Finalizes Credit Card Regulations. On January 12, the Federal Reserve Board (the Board) approved a final rule that amends Regulation Z to implement the provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act). The final rule imposes various new requirements on the issuance of open-end credit, including credit cards. Specifically, the rule (i) restricts a card issuer’ ability to increase interest rates on new and existing accounts, (ii) prohibits an issuer from opening a new account unless the issuer has considered the ability of the consumer to make the required payments, (iii) restricts the ability to issue cards to consumers under the age of 21 without an approved co-signature, or to market cards to students, (iv) prohibits the ability to charge overlimit fees without consumer consent, (v) restricts the manner in which an issuer may allocate payments to avoid practices that maximize interest charges, and (vi) bans the “two-cycle” billing method to impose interest charges. The final rule continues the Board’s staged implementation of the provisions of the Credit CARD Act. The provisions of the rule that are requirements stemming from the Credit CARD Act become effective February 22, 2010. For summaries of Credit CARD Act interim rules, please see InfoBytes, July 17, 2009 and InfoBytes, Oct. 2, 2009. For a copy of the Board’s final rule and press release, please see 
http://www.federalreserve.gov/newsevents/press/bcreg/20100112a.htm.  

VA Issues Guidance on How to Disclose Fees and Charges on VA-Guaranteed Home Loans in Wake of New RESPA Rule. On January 7, the Department of Veteran’s Affairs (VA) issued a circular explaining how to disclose fees and charges in light of changes made to the Real Estate Settlement Procedures Act’s (RESPA’s) implementing Regulation X—such changes became generally effective on January 1, 2010. Under current VA regulations, lenders may charge only a 1% origination fee plus reasonable and customary itemized fees. Before the new RESPA rule went into effect, the HUD-1 Settlement Statement contained separate lines on which the origination fee and itemized charges were disclosed. However, under the new RESPA rule, the HUD-1 no longer contains separate lines for the origination fee and itemized charges; rather, it provides a new line called “Our Origination Charge” that combines the origination fee and the itemized charges. Since the VA wants lenders to continue disclosing these fees and charges separately, lenders must either (i) itemize the charges in the available 800-series lines of the HUD-1 to the left of the column, or (ii) if there is insufficient space on the HUD-1, provide a separate origination fees statement. If opting to provide a separate origination fees statement, a lender must ensure that it indicates the purpose and amount of each charge and also ensure that the statement is signed and dated by the borrower. Lenders must comply with this new procedure by May 1, 2010. In addition, effective immediately, the VA no longer requires lenders to provide the Interest Rate and Discount Disclosure Statement on VA-guaranteed loans where such loans are processed using the new Good Faith Estimate and HUD-1. For a copy of the VA’s guidance, please see 
http://www.homeloans.va.gov/circulars/26_10_1.pdf.

SEC Enforcement Division Announces New Unit Chiefs And Cooperation Initiatives. On January 13, the U.S. Securities and Exchange Commission’s (SEC) Enforcement Division announced the new Unit Chiefs of its national specialized units and also unveiled new tools to encourage cooperation by individuals and companies involved in SEC investigative and enforcement actions. The Unit Chiefs are as follows: Bruce Karpati and Robert B. Kaplan, as co-Chiefs of the Asset Management Unit; Daniel M. Hawke, Market Abuse Unit; Kenneth R. Lench, Structured and New Products Unit, Cheryl J. Scarboro, Foreign Corrupt Practices Unit; and Elaine C. Greenberg, Municipal Securities and Public Pension Unit. Thomas A. Sporkin has also been named chief for the new Office of Market Intelligence. Additionally, to encourage cooperation in investigative and enforcement actions, the SEC’s Enforcement Manual was revised to include a new section titled “Fostering Cooperation.” The new tools include cooperation agreements, deferred prosecution agreements, non-prosecution agreements, and streamlined process for submitting witness immunity requests to the DOJ. Moreover, the SEC has recently implemented formal guidelines to evaluate the cooperation of individuals and companies. For a copy of the press releases, please see 
http://www.sec.gov/news/press/2010/2010-5.htm and http://www.sec.gov/news/press/2010/2010-6.htm.

HUD, Alaska Regulator Settle RESPA Claims with Title Insurance Company for $155K. The U.S. Department of Housing and Urban Development (HUD) and the Alaska Division of Insurance (Alaska DOI) have announced a legal settlement with Alyeska Title Guaranty Agency regarding alleged violations of the Real Estate Settlement Procedures Act (RESPA). HUD and the Alaska DOI alleged that Alyeska violated RESPA’s prohibition on rebates when it allegedly paid a sham employee for referring consumers to the title company. Specifically, HUD and the Alaska DOI contended that, since at least 2003, Alyeska maintained a sham employment arrangement with Kirk Wickersham, owner of FSBO System, Inc. (FSBO), in which Alyeska employed Wickersham as a “title marketer” that marketed Alyeska’s title services to FSBO. However, the regulators alleged that Wickersham was paid a percentage of Alyeska’s title insurance premiums in exchange for referrals he made to Alyeska, without providing any actual services. Under the settlement, Alyeska agreed to cease the disputed employment arrangement and to pay fines of up to $155,000 to the U.S. government and to the Alaska DOI. For a copy of the settlement agreement, please see http://www.hud.gov/offices/hsg/ramh/res/alyeska.pdf. For a copy of HUD’s press release, please see http://1.usa.gov/5vwSSi.

FinCEN Issues CIP Guidance Regarding State-Run Address Confidentiality Programs. On January 12, the Financial Crimes Enforcement Network (FinCEN) publicly released guidance drafted in November 2009 regarding customer identification program (CIP) requirements as they relate to state-run address confidentiality programs (ACPs). Under the rules implementing the Bank Secrecy Act (BSA), financial institutions must document a customer’s residential or business street address. If a customer does not have a residential or business street address, the customer may provide the residential or business street address of the customer’s next of kin or another contact individual. These BSA rules potentially conflict with state-run ACPs because the BSA rules prevent financial institutions from using post office boxes (P.O. Boxes) to satisfy the CIP requirements, while the state-run ACPs maintain P.O. Boxes through which program participants receive their mail and which state ACP rules dictate must be accepted as the participant’s address. To resolve the conflict between its CIP requirements and state-run ACPs, FinCEN now recognizes the street addresses of ACP sponsoring agencies as addresses that satisfy CIP requirements. For a copy of the FinCEN guidance, please see http://www.fincen.gov/statutes_regs/guidance/pdf/fin-2009-r003.pdf.

State Issues

California Loan Modification Business Surrenders License. On December 29, the California Department of Real Estate announced the license surrender of Whitfield Financial Services Inc. (Whitfield), a California loan modification company that allegedly, among other things, illegally collected advance fees in connection with its loan modification services. Following an administrative hearing, Whitfield agreed to surrender its license; however, the company and its principal admitted no wrongdoing in connection with the allegations. For a copy of the press release, please see here.

Courts

Nevada Federal Court Denies Defendants’ Motion to Dismiss in Credit Card ”Debt-Elimination” Scheme Dispute. On January 8, the U.S. District Court for the District of Nevada denied two motions to dismiss a lawsuit filed by Chase Bank USA, N.A. (Chase) against certain entities and individuals for allegedly perpetrating various "debt-elimination" schemes. Chase Bank USA, N.A. v. NAES, Inc., No. 2:07-CV-975 (D.Nev. Jan. 8, 2010). Chase’s complaint, filed initially in 2007 and amended in 2009, alleged that these entities (and their principal officers) advised consumers to (i) file false claims of credit card billing errors using form documents provided by the defendants, (ii) extend the processing of those claims by submitting additional form documents, and (iii) file allegedly meritless lawsuits using form pleadings, form discovery requests and form motions provided by the defendants. In denying the motions to dismiss filed by the defendant “debt-elimination” company and its principal, the court rejected the defendant’s claims that (i) the court lacked personal jurisdiction, (ii) venue was improper, (iii) the complaint failed to state a claim for lack of "specificity," and (iv) the court lacked subject matter jurisdiction because the amount in controversy requirement was not met. For a copy of the opinion, please see here.

Second Circuit Affirms Debt Collectors Violated FDCPA by Commencing Lawsuit During Validation Period without Explaining Impact of Lawsuit on Validation Notice. On January 13, the U.S. Court of Appeals for the Second Circuit affirmed a district court decision that debt collectors violate the Fair Debt Collection Practices Act (FDCPA) by commencing a collection lawsuit against a debtor before the FDCPA 30-day debt validation period has expired without informing the debtor that commencement of the lawsuit does not affect the information contained in the debt validation notice provided to the debtor. Ellis v. Solomon and Solomon, P.C., No. 09-1247-cv, 2010 WL 104570 (2nd Cir. Jan. 13, 2010). In Ellis, the defendant debt collectors mailed a debt validation notice to the plaintiff debtor in connection with a balance that the plaintiff allegedly owed on her credit card. Two weeks later, the defendants filed a summons and complaint in a collection action against the plaintiff. The plaintiff sued the defendants for violation of numerous provisions of the FDCPA in their attempts to collect the alleged debt. Applying the FDCPA’s controlling “least sophisticated consumer” standard, the court determined that the defendants’ collection activities overshadowed or were inconsistent with the validation notice and, therefore, violated the FDCPA. The court stated that a debt collector choosing to commence a collection action prior to the end of the 30-day validation period must provide notice to the debtor that the commencement of the lawsuit does not trump the validation notice. For a copy of the opinion, please see here.

Ninth Circuit Holds Non-Material Representations Not Actionable under FDCPA. On January 13, the U.S. Court of Appeals for the Ninth Circuit held that false but non-material representations that are not likely to mislead the least sophisticated consumer do not violate the Fair Debt Collection Practices Act (FDCPA). Donohue v. Quick Collect, Inc., No. 09-35183, 2010 WL 103653 (9th Cir. Jan. 13, 2010). In Donohue, the defendant collection service sought a judgment against the plaintiff debtor for, among other amounts, “the sum of $270.99, together with interest thereon of 12% per annum . . . in the amount of $32.89.” The plaintiff debtor subsequently filed a class-action lawsuit against the collection service, alleging, in addition to state law claims, that the collection service violated the FDCPA by (i) charging a usurious rate of interest by demanding interest in excess of 12%, and (ii) using false, deceptive or misleading statements in connection with collecting a debt by identifying the $32.89 as “interest [on the principal] of 12% per annum,“ when the $32.89 actually was comprised of both finance charges and post-assignment interest. As to the first FDCPA claim, while Washington law prohibits charging more than 12% annual interest “for the loan or forbearance of any money, goods, or things in action,” the court determined that Donohue’s calculation that he had been charged interest in excess of 12% was based on his assertion that he could not be charged interest for the 90 day “grace period” during which no payment was due. The court determined that, because there was no contractual obligation for the debtor to “refrain, during a given period of time, from requiring the borrower or debtor to pay a loan or debt then due and payable,” there was no forbearance by the debtor and, thus, no violation of Washington law by the collection service. To resolve the second FDCPA claim, the court determined that “non-material representations [that] are not likely to mislead the least sophisticated consumer … are not actionable under” Sections 1692e or 1692f of the FDCPA. The court noted that this interpretation of the FDCPA comported with decisions from the Sixth and Seventh Circuits. Applying this standard, the court found that the statement at issue – mislabeling $32.89 as 12% interest, when $32.89 actually included both interest and pre-assignment finance charges – was not materially false and, thus, did not violate the FDCPA. For a copy of the opinion, please see 
http://www.ca9.uscourts.gov/datastore/opinions/2010/01/13/09-35183.pdf.

California Federal Court Holds HOLA Does Not Completely Preempt State Law Claims. The U.S. District Court for the Central District of California recently held that state law claims brought against a loan servicer were not preempted by the Home Owners’ Loan Act (HOLA) and regulations promulgated thereunder by the Office of Thrift Supervision (OTS). Bartolome v. Homefield Financial, Inc., No. CV 09-7258, 2009 WL 4907050 (C.D. Cal. Dec. 11, 2009). The plaintiff in Bartolome alleged that defendants violated numerous state and federal laws in connection with her mortgage loan transaction. The defendant, a wholly-owned subsidiary of a national savings association, moved to dismiss the complaint because certain claims were time-barred while others were preempted completely by HOLA. The court granted the defendant’s motion to dismiss the time-barred federal law claims, which the plaintiff failed to oppose, but disagreed that the state law claims were preempted completely by HOLA. Characterizing complete preemption as “a rarity,” the court held that, “[t]he ‘dispositive question’ for complete preemption is not simply whether HOLA preempts state law by occupying a field of regulation. The issue is whether HOLA provides ‘the exclusive cause of action’ for the claims asserted by Plaintiff.” Finding that HOLA did not provide the exclusive cause of action for the plaintiff’s state law claims, the court refused to dismiss these claims or to retain subject matter jurisdiction over them, and instead held that they be re-noticed to the state court. For a copy of the opinion, please see here.

Michigan Federal Court Denies Motion For Judgment as a Matter of Law on FCRA Claim. On January 7, the U.S. District Court for the Western District of Michigan found that plaintiff consumers did not establish that a defendant furnisher of credit information’s failure to report that a debt was disputed was "materially misleading," and, thus, the furnisher did not violate the Fair Credit Reporting Act (FCRA). Gamby v. Equifax Info. Servs., LLC, No. 06-11020, 2010 WL 46946 (W.D. Mich. Jan. 7, 2010). In Gamby, the consumers alleged, among other things, that the furnisher violated FCRA by (i) failing to conduct an investigation into the completeness and accuracy of information furnished to the credit reporting agencies, and (ii) failing to inform the credit reporting agencies that the information was disputed. After a jury returned a verdict in favor of the furnisher, the consumers filed a motion for judgment as a matter of law. The court held that, because the furnisher verified the consumer’s date of birth, address and social security number, the furnisher conducted a “reasonable investigation,” and, thus, complied with the investigation requirements under FCRA. Regarding the consumers’ second allegation, the court held that a furnisher cannot be held liable simply for failing to report that a debt is disputed. The court followed the reasoning of Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1146 (9th Cir. 2009) (reported in InfoBytes, Oct. 23, 2009), holding that a furnisher’s failure to report a meritless dispute is unlikely to be "materially misleading," and, as such, does not violate FCRA. The court reasoned that the consumer could not convince the jury that the omission of the dispute was misleading, and noted that the jury’s decision cannot be characterized as unreasonable when it finds that the dispute is not meritorious. As such, the court denied the consumers’ motion to hold as a matter of law that the defendant violated its obligation to reasonably investigate the disputed information and report the information as disputed. For a copy of the opinion, please see here.

Firm News

Andrew Sandler has been selected to receive a Good Apple Award at the Louisiana Appleseed’s Good Apple Gala for his vision aimed at expanding access to financial institutions for Latino immigrants and his leadership in bringing together Louisiana banks and Federal banking regulators to discuss barriers to access and solutions.

Louisiana Appleseed is part of a nationwide nonprofit organization that uncovers and corrects injustices and barriers to opportunity through legal, legislative and market-based structural reform. Working with its extensive pro bono network, Louisiana Appleseed identifies, researches, and analyzes social injustices in order to make specific recommendations and advocate for effective solutions to deep-seated structural problems.

The Gala will be held Thursday, January 21, 2010 at Basin St. Station in New Orleans.

For more information about Louisiana Appleseed, please visit their website - http://louisiana.appleseednetwork.org/.

Sara Emley will speak at the Investment Adviser Association/ACA Insight 2010 Adviser Compliance Forum on February 25 in Arlington, VA. Her topic is “Current Hot Topics for Manager with Individual Clients.”

Kirk Jensen spoke on January 9 at the winter meeting of the Consumer Financial Services Committee of the American Bar Association’s Business Law Section in Park City, Utah. He will be giving a presentation entitled: "Consumer Financial Protection Agency: Past, Present and Future." Kirk has also been named chair of the Residential Real Estate Subcommittee of the ABA Litigation Section’s Real Estate Litigation Committee.

Jeff Naimon spoke on January 10 at the winter meeting of the Consumer Financial Services Committee of the American Bar Association’s Business Law Section in Park City, Utah on Truth in Lending Act case law developments.

Jeff Naimon spoke on January 12 in an American Bankers Association Telephone Briefing “RESPA and TILA Compliance in the NEW Mortgage World.”

Joe Kolar spoke to member institutions of the Federal Home Loan Bank of Chicago on the new RESPA and TILA rules on January 13.

Mortgages

HUD Investigates Companies with High Mortgage Insurance Claim Rates. On January 12, the Office of the Inspector General (OIG) for the U.S. Department of Housing and Urban Development (HUD) served subpoenas on 15 mortgage companies that had higher than average rates of mortgage default and insurance claims. The subpoenas demand that the companies provide documents and data related to failed loans covered by the Federal Housing Administration (FHA) mortgage insurance fund. The investigations are part of a new push by HUD and FHA to focus on risk management and to hold lenders accountable for the high rates of defaults and claims. The investigations also represent a new approach by the OIG to scrutinize the policies of corporate offices rather than the actions of individual branch offices. If the probes uncover abuses, HUD may proceed against the companies with administrative sanctions, such as suspensions, limited denial of participation, debarment, and civil monetary penalties, or refer the matters to the Department of Justice for civil and criminal legal action. For a copy of HUD’s press release announcing the investigations, please see http://1.usa.gov/7xFYbe.

DOJ Announces Creation of Fair Lending Unit. On January 14, Assistant United States Attorney General Thomas Perez announced the creation of a new fair lending enforcement unit within the Civil Rights Division of the U.S. Department of Justice (DOJ) (reported in InfoBytes Special Alert, Jan. 14, 2010). The new unit was established in connection with an initiative by the Obama administration to enhance scrutiny of the lending practices of financial institutions and bolster enforcement of fair lending laws. The DOJ currently is involved in at least 38 fair lending investigations, and this figure is expected to substantially increase with creation of this new unit. New investigations are likely to focus on redlining, where minority borrowers allegedly are denied access to loans, and "reverse” redlining, where, in general, lenders allegedly discriminate against a protected class of borrowers – such as a members of a racial or ethnic minority group – by offering such borrowers loans on less favorable terms than similarly situated borrowers who were not members of a protected class. For a copy of the announcement, please see http://bit.ly/qkTpHQ.

VA Issues Guidance on How to Disclose Fees and Charges on VA-Guaranteed Home Loans in Wake of New RESPA Rule. On January 7, the Department of Veteran’s Affairs (VA) issued a circular explaining how to disclose fees and charges in light of changes made to the Real Estate Settlement Procedures Act’s (RESPA’s) implementing Regulation X—such changes became generally effective on January 1, 2010. Under current VA regulations, lenders may charge only a 1% origination fee plus reasonable and customary itemized fees. Before the new RESPA rule went into effect, the HUD-1 Settlement Statement contained separate lines on which the origination fee and itemized charges were disclosed. However, under the new RESPA rule, the HUD-1 no longer contains separate lines for the origination fee and itemized charges; rather, it provides a new line called “Our Origination Charge” that combines the origination fee and the itemized charges. Since the VA wants lenders to continue disclosing these fees and charges separately, lenders must either (i) itemize the charges in the available 800-series lines of the HUD-1 to the left of the column, or (ii) if there is insufficient space on the HUD-1, provide a separate origination fees statement. If opting to provide a separate origination fees statement, a lender must ensure that it indicates the purpose and amount of each charge and also ensure that the statement is signed and dated by the borrower. Lenders must comply with this new procedure by May 1, 2010. In addition, effective immediately, the VA no longer requires lenders to provide the Interest Rate and Discount Disclosure Statement on VA-guaranteed loans where such loans are processed using the new Good Faith Estimate and HUD-1. For a copy of the VA’s guidance, please see here.

HUD, Alaska Regulator Settle RESPA Claims with Title Insurance Company for $155K. The U.S. Department of Housing and Urban Development (HUD) and the Alaska Division of Insurance (Alaska DOI) have announced a legal settlement with Alyeska Title Guaranty Agency regarding alleged violations of the Real Estate Settlement Procedures Act (RESPA). HUD and the Alaska DOI alleged that Alyeska violated RESPA’s prohibition on rebates when it allegedly paid a sham employee for referring consumers to the title company. Specifically, HUD and the Alaska DOI contended that, since at least 2003, Alyeska maintained a sham employment arrangement with Kirk Wickersham, owner of FSBO System, Inc. (FSBO), in which Alyeska employed Wickersham as a “title marketer” that marketed Alyeska’s title services to FSBO. However, the regulators alleged that Wickersham was paid a percentage of Alyeska’s title insurance premiums in exchange for referrals he made to Alyeska, without providing any actual services. Under the settlement, Alyeska agreed to cease the disputed employment arrangement and to pay fines of up to $155,000 to the U.S. government and to the Alaska DOI. For a copy of the settlement agreement, please see here. For a copy of HUD’s press release, please see http://1.usa.gov/5vwSSi.

California Loan Modification Business Surrenders License. On December 29, the California Department of Real Estate announced the license surrender of Whitfield Financial Services Inc. (Whitfield), a California loan modification company that allegedly, among other things, illegally collected advance fees in connection with its loan modification services. Following an administrative hearing, Whitfield agreed to surrender its license; however, the company and its principal admitted no wrongdoing in connection with the allegations. For a copy of the press release, please see 
http://www.dre.ca.gov/pdf_docs/DRENews_ReleaseWhitfieldSurrender122909.pdf.

Banking

Treasury Announces President’s Intention to Propose Financial Crisis Responsibility Fee. On January 14, the U.S. Department of the Treasury (Treasury) announced President Obama’s intention to issue a proposal to levy a “Financial Crisis Responsibility Fee” (the Fee) on the largest and most highly-leveraged Wall Street firms to reimburse taxpayers for the cost of the Troubled Asset Relief Program (TARP). While the exact terms of the proposal will be released in conjunction with the President’s budget, according to Treasury’s statement the Fee would apply to banks and thrifts, broker-dealers, insurance and other companies that owned insured depository institutions with greater than $50 billion in consolidated assets, including both domestic and U.S. subsidiaries of foreign firms. The Fee would be assessed at approximately 15 basis points of covered liabilities per year, exempting Federal Deposit Insurance Corporation-assessed deposits and insurance policy reserves. The Fee would go into effect on June 30, 2010 and remain in place for 10 years, or until the taxpayers are paid back in full for TARP. InfoBytes will report on the details of the final proposal when it becomes available. For a copy of the press release, please see http://www.treas.gov/press/releases/tg506.htm.

FDIC Rulemaking Would Tie Deposit Insurance Assessments to Employee Compensation. On January 12, the Federal Deposit Insurance Corporation (FDIC) Board of Directors voted (3-2) to issue an advance notice of proposed rulemaking (ANPR) to explore tying deposit insurance assessments to risks posed by certain employee compensation programs. The FDIC’s overarching goal is not to limit compensation, but rather to align employee performance with the long-term interests of the financial institution and its stakeholders, including the FDIC. The ANPR suggests that preferred compensation plans could include (i) compensating employees engaged in riskier activities with restricted, non-discounted company stock, (ii) clawback provisions in stock-option awards that would account for the outcome of risks taken in earlier periods, and (iii) greater controls on compensation committees, e.g., the use of independent directors and independent compensation professionals. However, the FDIC seeks comment on a wide array of compensation-related issues. In response to the FDIC’s ANPR, Comptroller of the Currency Dugan and Office of Thrift Supervision Chairman Bowman issued statements opposing the issuance of the ANPR. Comptroller Dugan specifically noted (i) a concern with increasing regulatory burden, especially for smaller institutions, (ii) that the ANPR is premature because of pending legislation and the Federal Reserve Board’s employee compensation proposal, and (iii) that the FDIC has not sufficiently stated its legislative authority for the action. For a copy of the ANPR, please see 
http://www.fdic.gov/news/board/2010Jan12ANPR.pdf. For a copy of Comptroller Dugan’s statement, please see http://occ.treas.gov/ftp/release/2010-3a.pdf.

Federal Reserve Board Finalizes Credit Card Regulations. On January 12, the Federal Reserve Board (the Board) approved a final rule that amends Regulation Z to implement the provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act). The final rule imposes various new requirements on the issuance of open-end credit, including credit cards. Specifically, the rule (i) restricts a card issuer’ ability to increase interest rates on new and existing accounts, (ii) prohibits an issuer from opening a new account unless the issuer has considered the ability of the consumer to make the required payments, (iii) restricts the ability to issue cards to consumers under the age of 21 without an approved co-signature, or to market cards to students, (iv) prohibits the ability to charge overlimit fees without consumer consent, (v) restricts the manner in which an issuer may allocate payments to avoid practices that maximize interest charges, and (vi) bans the “two-cycle” billing method to impose interest charges. The final rule continues the Board’s staged implementation of the provisions of the Credit CARD Act. The provisions of the rule that are requirements stemming from the Credit CARD Act become effective February 22, 2010. For summaries of Credit CARD Act interim rules, please see InfoBytes, July 17, 2009 and InfoBytes, Oct. 2, 2009. For a copy of the Board’s final rule and press release, please see here.  

FinCEN Issues CIP Guidance Regarding State-Run Address Confidentiality Programs. On January 12, the Financial Crimes Enforcement Network (FinCEN) publicly released guidance drafted in November 2009 regarding customer identification program (CIP) requirements as they relate to state-run address confidentiality programs (ACPs). Under the rules implementing the Bank Secrecy Act (BSA), financial institutions must document a customer’s residential or business street address. If a customer does not have a residential or business street address, the customer may provide the residential or business street address of the customer’s next of kin or another contact individual. These BSA rules potentially conflict with state-run ACPs because the BSA rules prevent financial institutions from using post office boxes (P.O. Boxes) to satisfy the CIP requirements, while the state-run ACPs maintain P.O. Boxes through which program participants receive their mail and which state ACP rules dictate must be accepted as the participant’s address. To resolve the conflict between its CIP requirements and state-run ACPs, FinCEN now recognizes the street addresses of ACP sponsoring agencies as addresses that satisfy CIP requirements. For a copy of the FinCEN guidance, please see here.

Nevada Federal Court Denies Defendants’ Motion to Dismiss in Credit Card ”Debt-Elimination” Scheme Dispute. On January 8, the U.S. District Court for the District of Nevada denied two motions to dismiss a lawsuit filed by Chase Bank USA, N.A. (Chase) against certain entities and individuals for allegedly perpetrating various "debt-elimination" schemes. Chase Bank USA, N.A. v. NAES, Inc., No. 2:07-CV-975 (D.Nev. Jan. 8, 2010). Chase’s complaint, filed initially in 2007 and amended in 2009, alleged that these entities (and their principal officers) advised consumers to (i) file false claims of credit card billing errors using form documents provided by the defendants, (ii) extend the processing of those claims by submitting additional form documents, and (iii) file allegedly meritless lawsuits using form pleadings, form discovery requests and form motions provided by the defendants. In denying the motions to dismiss filed by the defendant “debt-elimination” company and its principal, the court rejected the defendant’s claims that (i) the court lacked personal jurisdiction, (ii) venue was improper, (iii) the complaint failed to state a claim for lack of "specificity," and (iv) the court lacked subject matter jurisdiction because the amount in controversy requirement was not met. For a copy of the opinion, please see here.

Consumer Finance

Federal Reserve Board Finalizes Credit Card Regulations. On January 12, the Federal Reserve Board (the Board) approved a final rule that amends Regulation Z to implement the provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act). The final rule imposes various new requirements on the issuance of open-end credit, including credit cards. Specifically, the rule (i) restricts a card issuer’ ability to increase interest rates on new and existing accounts, (ii) prohibits an issuer from opening a new account unless the issuer has considered the ability of the consumer to make the required payments, (iii) restricts the ability to issue cards to consumers under the age of 21 without an approved co-signature, or to market cards to students, (iv) prohibits the ability to charge overlimit fees without consumer consent, (v) restricts the manner in which an issuer may allocate payments to avoid practices that maximize interest charges, and (vi) bans the “two-cycle” billing method to impose interest charges. The final rule continues the Board’s staged implementation of the provisions of the Credit CARD Act. The provisions of the rule that are requirements stemming from the Credit CARD Act become effective February 22, 2010. For summaries of Credit CARD Act interim rules, please see InfoBytes, July 17, 2009 and InfoBytes, Oct. 2, 2009. For a copy of the Board’s final rule and press release, please see 
http://www.federalreserve.gov/newsevents/press/bcreg/20100112a.htm.

Second Circuit Affirms Debt Collectors Violated FDCPA by Commencing Lawsuit During Validation Period without Explaining Impact of Lawsuit on Validation Notice. On January 13, the U.S. Court of Appeals for the Second Circuit affirmed a district court decision that debt collectors violate the Fair Debt Collection Practices Act (FDCPA) by commencing a collection lawsuit against a debtor before the FDCPA 30-day debt validation period has expired without informing the debtor that commencement of the lawsuit does not affect the information contained in the debt validation notice provided to the debtor. Ellis v. Solomon and Solomon, P.C., No. 09-1247-cv, 2010 WL 104570 (2nd Cir. Jan. 13, 2010). In Ellis, the defendant debt collectors mailed a debt validation notice to the plaintiff debtor in connection with a balance that the plaintiff allegedly owed on her credit card. Two weeks later, the defendants filed a summons and complaint in a collection action against the plaintiff. The plaintiff sued the defendants for violation of numerous provisions of the FDCPA in their attempts to collect the alleged debt. Applying the FDCPA’s controlling “least sophisticated consumer” standard, the court determined that the defendants’ collection activities overshadowed or were inconsistent with the validation notice and, therefore, violated the FDCPA. The court stated that a debt collector choosing to commence a collection action prior to the end of the 30-day validation period must provide notice to the debtor that the commencement of the lawsuit does not trump the validation notice. For a copy of the opinion, please see here.

Ninth Circuit Holds Non-Material Representations Not Actionable under FDCPA. January 13, the U.S. Court of Appeals for the Ninth Circuit held that false but non-material representations that are not likely to mislead the least sophisticated consumer do not violate the Fair Debt Collection Practices Act (FDCPA). Donohue v. Quick Collect, Inc., No. 09-35183, 2010 WL 103653 (9th Cir. Jan. 13, 2010). InDonohue, the defendant collection service sought a judgment against the plaintiff debtor for, among other amounts, “the sum of $270.99, together with interest thereon of 12% per annum . . . in the amount of $32.89.” The plaintiff debtor subsequently filed a class-action lawsuit against the collection service, alleging, in addition to state law claims, that the collection service violated the FDCPA by (i) charging a usurious rate of interest by demanding interest in excess of 12%, and (ii) using false, deceptive or misleading statements in connection with collecting a debt by identifying the $32.89 as “interest [on the principal] of 12% per annum,“ when the $32.89 actually was comprised of both finance charges and post-assignment interest. As to the first FDCPA claim, while Washington law prohibits charging more than 12% annual interest “for the loan or forbearance of any money, goods, or things in action,” the court determined that Donohue’s calculation that he had been charged interest in excess of 12% was based on his assertion that he could not be charged interest for the 90 day “grace period” during which no payment was due. The court determined that, because there was no contractual obligation for the debtor to “refrain, during a given period of time, from requiring the borrower or debtor to pay a loan or debt then due and payable,” there was no forbearance by the debtor and, thus, no violation of Washington law by the collection service. To resolve the second FDCPA claim, the court determined that “non-material representations [that] are not likely to mislead the least sophisticated consumer … are not actionable under” Sections 1692e or 1692f of the FDCPA. The court noted that this interpretation of the FDCPA comported with decisions from the Sixth and Seventh Circuits. Applying this standard, the court found that the statement at issue – mislabeling $32.89 as 12% interest, when $32.89 actually included both interest and pre-assignment finance charges – was not materially false and, thus, did not violate the FDCPA. For a copy of the opinion, please see here.

California Federal Court Holds HOLA Does Not Completely Preempt State Law Claims. The U.S. District Court for the Central District of California recently held that state law claims brought against a loan servicer were not preempted by the Home Owners’ Loan Act (HOLA) and regulations promulgated thereunder by the Office of Thrift Supervision (OTS). Bartolome v. Homefield Financial, Inc., No. CV 09-7258, 2009 WL 4907050 (C.D. Cal. Dec. 11, 2009). The plaintiff in Bartolome alleged that defendants violated numerous state and federal laws in connection with her mortgage loan transaction. The defendant, a wholly-owned subsidiary of a national savings association, moved to dismiss the complaint because certain claims were time-barred while others were preempted completely by HOLA. The court granted the defendant’s motion to dismiss the time-barred federal law claims, which the plaintiff failed to oppose, but disagreed that the state law claims were preempted completely by HOLA. Characterizing complete preemption as “a rarity,” the court held that, “[t]he ‘dispositive question’ for complete preemption is not simply whether HOLA preempts state law by occupying a field of regulation. The issue is whether HOLA provides ‘the exclusive cause of action’ for the claims asserted by Plaintiff.” Finding that HOLA did not provide the exclusive cause of action for the plaintiff’s state law claims, the court refused to dismiss these claims or to retain subject matter jurisdiction over them, and instead held that they be re-noticed to the state court. For a copy of the opinion, please see here.

Michigan Federal Court Denies Motion For Judgment as a Matter of Law on FCRA Claim. On January 7, the U.S. District Court for the Western District of Michigan found that plaintiff consumers did not establish that a defendant furnisher of credit information’s failure to report that a debt was disputed was "materially misleading," and, thus, the furnisher did not violate the Fair Credit Reporting Act (FCRA). Gamby v. Equifax Info. Servs., LLC, No. 06-11020, 2010 WL 46946 (W.D. Mich. Jan. 7, 2010). In Gamby, the consumers alleged, among other things, that the furnisher violated FCRA by (i) failing to conduct an investigation into the completeness and accuracy of information furnished to the credit reporting agencies, and (ii) failing to inform the credit reporting agencies that the information was disputed. After a jury returned a verdict in favor of the furnisher, the consumers filed a motion for judgment as a matter of law. The court held that, because the furnisher verified the consumer’s date of birth, address and social security number, the furnisher conducted a “reasonable investigation,” and, thus, complied with the investigation requirements under FCRA. Regarding the consumers’ second allegation, the court held that a furnisher cannot be held liable simply for failing to report that a debt is disputed. The court followed the reasoning of Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1146 (9th Cir. 2009) (reported in InfoBytes, Oct. 23, 2009), holding that a furnisher’s failure to report a meritless dispute is unlikely to be "materially misleading," and, as such, does not violate FCRA. The court reasoned that the consumer could not convince the jury that the omission of the dispute was misleading, and noted that the jury’s decision cannot be characterized as unreasonable when it finds that the dispute is not meritorious. As such, the court denied the consumers’ motion to hold as a matter of law that the defendant violated its obligation to reasonably investigate the disputed information and report the information as disputed. For a copy of the opinion, please see here.

Securities

SEC Enforcement Division Announces New Unit Chiefs And Cooperation Initiatives. On January 13, the U.S. Securities and Exchange Commission’s (SEC) Enforcement Division announced the new Unit Chiefs of its national specialized units and also unveiled new tools to encourage cooperation by individuals and companies involved in SEC investigative and enforcement actions. The Unit Chiefs are as follows: Bruce Karpati and Robert B. Kaplan, as co-Chiefs of the Asset Management Unit; Daniel M. Hawke, Market Abuse Unit; Kenneth R. Lench, Structured and New Products Unit, Cheryl J. Scarboro, Foreign Corrupt Practices Unit; and Elaine C. Greenberg, Municipal Securities and Public Pension Unit. Thomas A. Sporkin has also been named chief for the new Office of Market Intelligence. Additionally, to encourage cooperation in investigative and enforcement actions, the SEC’s Enforcement Manual was revised to include a new section titled “Fostering Cooperation.” The new tools include cooperation agreements, deferred prosecution agreements, non-prosecution agreements, and streamlined process for submitting witness immunity requests to the DOJ. Moreover, the SEC has recently implemented formal guidelines to evaluate the cooperation of individuals and companies. For a copy of the press releases, please see http://1.usa.gov/5eiZJg and http://1.usa.gov/6RpcB3.

Insurance

HUD, Alaska Regulator Settle RESPA Claims with Title Insurance Company for $155K. The U.S. Department of Housing and Urban Development (HUD) and the Alaska Division of Insurance (Alaska DOI) have announced a legal settlement with Alyeska Title Guaranty Agency regarding alleged violations of the Real Estate Settlement Procedures Act (RESPA). HUD and the Alaska DOI alleged that Alyeska violated RESPA’s prohibition on rebates when it allegedly paid a sham employee for referring consumers to the title company. Specifically, HUD and the Alaska DOI contended that, since at least 2003, Alyeska maintained a sham employment arrangement with Kirk Wickersham, owner of FSBO System, Inc. (FSBO), in which Alyeska employed Wickersham as a “title marketer” that marketed Alyeska’s title services to FSBO. However, the regulators alleged that Wickersham was paid a percentage of Alyeska’s title insurance premiums in exchange for referrals he made to Alyeska, without providing any actual services. Under the settlement, Alyeska agreed to cease the disputed employment arrangement and to pay fines of up to $155,000 to the U.S. government and to the Alaska DOI. For a copy of the settlement agreement, please see http://1.usa.gov/qaYkPmFor a copy of HUD’s press release, please see here.

Litigation

Nevada Federal Court Denies Defendants’ Motion to Dismiss in Credit Card ”Debt-Elimination” Scheme Dispute. On January 8, the U.S. District Court for the District of Nevada denied two motions to dismiss a lawsuit filed by Chase Bank USA, N.A. (Chase) against certain entities and individuals for allegedly perpetrating various "debt-elimination" schemes. Chase Bank USA, N.A. v. NAES, Inc., No. 2:07-CV-975 (D.Nev. Jan. 8, 2010). Chase’s complaint, filed initially in 2007 and amended in 2009, alleged that these entities (and their principal officers) advised consumers to (i) file false claims of credit card billing errors using form documents provided by the defendants, (ii) extend the processing of those claims by submitting additional form documents, and (iii) file allegedly meritless lawsuits using form pleadings, form discovery requests and form motions provided by the defendants. In denying the motions to dismiss filed by the defendant “debt-elimination” company and its principal, the court rejected the defendant’s claims that (i) the court lacked personal jurisdiction, (ii) venue was improper, (iii) the complaint failed to state a claim for lack of "specificity," and (iv) the court lacked subject matter jurisdiction because the amount in controversy requirement was not met. For a copy of the opinion, please see here.

Second Circuit Affirms Debt Collectors Violated FDCPA by Commencing Lawsuit During Validation Period without Explaining Impact of Lawsuit on Validation Notice. On January 13, the U.S. Court of Appeals for the Second Circuit affirmed a district court decision that debt collectors violate the Fair Debt Collection Practices Act (FDCPA) by commencing a collection lawsuit against a debtor before the FDCPA 30-day debt validation period has expired without informing the debtor that commencement of the lawsuit does not affect the information contained in the debt validation notice provided to the debtor. Ellis v. Solomon and Solomon, P.C., No. 09-1247-cv, 2010 WL 104570 (2nd Cir. Jan. 13, 2010). In Ellis, the defendant debt collectors mailed a debt validation notice to the plaintiff debtor in connection with a balance that the plaintiff allegedly owed on her credit card. Two weeks later, the defendants filed a summons and complaint in a collection action against the plaintiff. The plaintiff sued the defendants for violation of numerous provisions of the FDCPA in their attempts to collect the alleged debt. Applying the FDCPA’s controlling “least sophisticated consumer” standard, the court determined that the defendants’ collection activities overshadowed or were inconsistent with the validation notice and, therefore, violated the FDCPA. The court stated that a debt collector choosing to commence a collection action prior to the end of the 30-day validation period must provide notice to the debtor that the commencement of the lawsuit does not trump the validation notice. For a copy of the opinion, please see here.

Ninth Circuit Holds Non-Material Representations Not Actionable under FDCPA. January 13, the U.S. Court of Appeals for the Ninth Circuit held that false but non-material representations that are not likely to mislead the least sophisticated consumer do not violate the Fair Debt Collection Practices Act (FDCPA). Donohue v. Quick Collect, Inc., No. 09-35183, 2010 WL 103653 (9th Cir. Jan. 13, 2010). InDonohue, the defendant collection service sought a judgment against the plaintiff debtor for, among other amounts, “the sum of $270.99, together with interest thereon of 12% per annum . . . in the amount of $32.89.” The plaintiff debtor subsequently filed a class-action lawsuit against the collection service, alleging, in addition to state law claims, that the collection service violated the FDCPA by (i) charging a usurious rate of interest by demanding interest in excess of 12%, and (ii) using false, deceptive or misleading statements in connection with collecting a debt by identifying the $32.89 as “interest [on the principal] of 12% per annum,“ when the $32.89 actually was comprised of both finance charges and post-assignment interest. As to the first FDCPA claim, while Washington law prohibits charging more than 12% annual interest “for the loan or forbearance of any money, goods, or things in action,” the court determined that Donohue’s calculation that he had been charged interest in excess of 12% was based on his assertion that he could not be charged interest for the 90 day “grace period” during which no payment was due. The court determined that, because there was no contractual obligation for the debtor to “refrain, during a given period of time, from requiring the borrower or debtor to pay a loan or debt then due and payable,” there was no forbearance by the debtor and, thus, no violation of Washington law by the collection service. To resolve the second FDCPA claim, the court determined that “non-material representations [that] are not likely to mislead the least sophisticated consumer … are not actionable under” Sections 1692e or 1692f of the FDCPA. The court noted that this interpretation of the FDCPA comported with decisions from the Sixth and Seventh Circuits. Applying this standard, the court found that the statement at issue – mislabeling $32.89 as 12% interest, when $32.89 actually included both interest and pre-assignment finance charges – was not materially false and, thus, did not violate the FDCPA. For a copy of the opinion, please see http://www.ca9.uscourts.gov/datastore/opinions/2010/01/13/09-35183.pdf.

California Federal Court Holds HOLA Does Not Completely Preempt State Law Claims. The U.S. District Court for the Central District of California recently held that state law claims brought against a loan servicer were not preempted by the Home Owners’ Loan Act (HOLA) and regulations promulgated thereunder by the Office of Thrift Supervision (OTS). Bartolome v. Homefield Financial, Inc., No. CV 09-7258, 2009 WL 4907050 (C.D. Cal. Dec. 11, 2009). The plaintiff in Bartolome alleged that defendants violated numerous state and federal laws in connection with her mortgage loan transaction. The defendant, a wholly-owned subsidiary of a national savings association, moved to dismiss the complaint because certain claims were time-barred while others were preempted completely by HOLA. The court granted the defendant’s motion to dismiss the time-barred federal law claims, which the plaintiff failed to oppose, but disagreed that the state law claims were preempted completely by HOLA. Characterizing complete preemption as “a rarity,” the court held that, “[t]he ‘dispositive question’ for complete preemption is not simply whether HOLA preempts state law by occupying a field of regulation. The issue is whether HOLA provides ‘the exclusive cause of action’ for the claims asserted by Plaintiff.” Finding that HOLA did not provide the exclusive cause of action for the plaintiff’s state law claims, the court refused to dismiss these claims or to retain subject matter jurisdiction over them, and instead held that they be re-noticed to the state court. For a copy of the opinion, please see here.

Michigan Federal Court Denies Motion For Judgment as a Matter of Law on FCRA Claim. On January 7, the U.S. District Court for the Western District of Michigan found that plaintiff consumers did not establish that a defendant furnisher of credit information’s failure to report that a debt was disputed was "materially misleading," and, thus, the furnisher did not violate the Fair Credit Reporting Act (FCRA). Gamby v. Equifax Info. Servs., LLC, No. 06-11020, 2010 WL 46946 (W.D. Mich. Jan. 7, 2010). In Gamby, the consumers alleged, among other things, that the furnisher violated FCRA by (i) failing to conduct an investigation into the completeness and accuracy of information furnished to the credit reporting agencies, and (ii) failing to inform the credit reporting agencies that the information was disputed. After a jury returned a verdict in favor of the furnisher, the consumers filed a motion for judgment as a matter of law. The court held that, because the furnisher verified the consumer’s date of birth, address and social security number, the furnisher conducted a “reasonable investigation,” and, thus, complied with the investigation requirements under FCRA. Regarding the consumers’ second allegation, the court held that a furnisher cannot be held liable simply for failing to report that a debt is disputed. The court followed the reasoning of Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1146 (9th Cir. 2009) (reported in InfoBytes, Oct. 23, 2009), holding that a furnisher’s failure to report a meritless dispute is unlikely to be "materially misleading," and, as such, does not violate FCRA. The court reasoned that the consumer could not convince the jury that the omission of the dispute was misleading, and noted that the jury’s decision cannot be characterized as unreasonable when it finds that the dispute is not meritorious. As such, the court denied the consumers’ motion to hold as a matter of law that the defendant violated its obligation to reasonably investigate the disputed information and report the information as disputed. For a copy of the opinion, please see here.

Privacy/Data Security

Michigan Federal Court Denies Motion For Judgment as a Matter of Law on FCRA Claim. On January 7, the U.S. District Court for the Western District of Michigan found that plaintiff consumers did not establish that a defendant furnisher of credit information’s failure to report that a debt was disputed was "materially misleading," and, thus, the furnisher did not violate the Fair Credit Reporting Act (FCRA). Gamby v. Equifax Info. Servs., LLC, No. 06-11020, 2010 WL 46946 (W.D. Mich. Jan. 7, 2010). In Gamby, the consumers alleged, among other things, that the furnisher violated FCRA by (i) failing to conduct an investigation into the completeness and accuracy of information furnished to the credit reporting agencies, and (ii) failing to inform the credit reporting agencies that the information was disputed. After a jury returned a verdict in favor of the furnisher, the consumers filed a motion for judgment as a matter of law. The court held that, because the furnisher verified the consumer’s date of birth, address and social security number, the furnisher conducted a “reasonable investigation,” and, thus, complied with the investigation requirements under FCRA. Regarding the consumers’ second allegation, the court held that a furnisher cannot be held liable simply for failing to report that a debt is disputed. The court followed the reasoning of Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1146 (9th Cir. 2009) (reported in InfoBytes, Oct. 23, 2009), holding that a furnisher’s failure to report a meritless dispute is unlikely to be "materially misleading," and, as such, does not violate FCRA. The court reasoned that the consumer could not convince the jury that the omission of the dispute was misleading, and noted that the jury’s decision cannot be characterized as unreasonable when it finds that the dispute is not meritorious. As such, the court denied the consumers’ motion to hold as a matter of law that the defendant violated its obligation to reasonably investigate the disputed information and report the information as disputed. For a copy of the opinion, please see here.

Credit Cards

Federal Reserve Board Finalizes Credit Card Regulations. On January 12, the Federal Reserve Board (the Board) approved a final rule that amends Regulation Z to implement the provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act). The final rule imposes various new requirements on the issuance of open-end credit, including credit cards. Specifically, the rule (i) restricts a card issuer’ ability to increase interest rates on new and existing accounts, (ii) prohibits an issuer from opening a new account unless the issuer has considered the ability of the consumer to make the required payments, (iii) restricts the ability to issue cards to consumers under the age of 21 without an approved co-signature, or to market cards to students, (iv) prohibits the ability to charge overlimit fees without consumer consent, (v) restricts the manner in which an issuer may allocate payments to avoid practices that maximize interest charges, and (vi) bans the “two-cycle” billing method to impose interest charges. The final rule continues the Board’s staged implementation of the provisions of the Credit CARD Act. The provisions of the rule that are requirements stemming from the Credit CARD Act become effective February 22, 2010. For summaries of Credit CARD Act interim rules, please see InfoBytes, July 17, 2009 and InfoBytes, Oct. 2, 2009. For a copy of the Board’s final rule and press release, please see http://www.federalreserve.gov/newsevents/press/bcreg/20100112a.htm.  

Nevada Federal Court Denies Defendants’ Motion to Dismiss in Credit Card ”Debt-Elimination” Scheme Dispute. On January 8, the U.S. District Court for the District of Nevada denied two motions to dismiss a lawsuit filed by Chase Bank USA, N.A. (Chase) against certain entities and individuals for allegedly perpetrating various "debt-elimination" schemes. Chase Bank USA, N.A. v. NAES, Inc., No. 2:07-CV-975 (D.Nev. Jan. 8, 2010). Chase’s complaint, filed initially in 2007 and amended in 2009, alleged that these entities (and their principal officers) advised consumers to (i) file false claims of credit card billing errors using form documents provided by the defendants, (ii) extend the processing of those claims by submitting additional form documents, and (iii) file allegedly meritless lawsuits using form pleadings, form discovery requests and form motions provided by the defendants. In denying the motions to dismiss filed by the defendant “debt-elimination” company and its principal, the court rejected the defendant’s claims that (i) the court lacked personal jurisdiction, (ii) venue was improper, (iii) the complaint failed to state a claim for lack of "specificity," and (iv) the court lacked subject matter jurisdiction because the amount in controversy requirement was not met. For a copy of the opinion, please see here.