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On February 19, the Electronic Transactions Association’s (ETA) Mobile Payments Committee released three resources to help firms navigate emerging issues in the mobile payments market. The Committee is an industry-wide task force of representatives from credit card networks, processors, mobile network operators, developers, financial institutions, and device manufacturers. The first resource, “Best Practices and Guidelines for Mobile Payment Solutions,” addresses security, privacy and competition issues relevant to merchants, consumers, federal and state legislators, federal regulators, merchant acquirers, credit card issuers, and infrastructure providers. In the second, a white paper entitled “Beyond the Hype: Mobile Payments for Merchants,” the Committee provides a comprehensive overview of the current state of mobile payments, as well as analysis of the risks and costs for merchants to consider before deploying mobile payments solutions. Finally, the Committee issued a “Mobile Payments Glossary of Terms.”
Washington Federal Court Holds Standard Business Practices Insufficient to Support Arbitration Claim
On February 15, the U.S. District Court for the Western District of Washington held that a cable company could not force arbitration of a dispute by relying only on its standard business practices to support its claim that the plaintiff agreed to arbitrate. Permison v. Comcast Holdings Corp., No. C12-5714, 2013 WL 594304 (W.D. Wash. Feb. 15, 2013). A cable customer with accounts in Colorado and Washington sued the company alleging TCPA violations. The cable company sought to compel arbitration, claiming that “Welcome Kit” materials executed by the customer included an agreement to arbitrate. In support of its motion to compel arbitration with regard to the Colorado accounts, the cable company submitted an affidavit describing its standard business practice, which requires technicians to provide customers with the Welcome Kit, and obtain customer signatures on certain terms and conditions included in the Kit. The court held that reliance on standard business practices is insufficient. Instead, the court stated, the cable company must produce business records or testimony showing that the customer actually received the arbitration agreement and assented to its terms. The court noted that the cable company presented actual evidence with regard to the Washington account, but held that it is not clear whether that contract, and its arbitration clause, impact the customer’s TCPA claims because of imprecise pleading. The court denied the company’s motion to compel arbitration and granted the customer leave to clarify his claims. The court’s holding follows a recent 10th Circuit decision that affirmed a district court’s dismissal of claims based on unrefuted declarations submitted by a TV and internet service provider’s employees concerning its standard practices for entering into agreements provided to customers in writing by the installation technician at the time the services were installed.
House Financial Services Ranking Member Seeks Additional Information Regarding Foreclosure Review Settlements
On February 15, House Financial Services Committee Ranking Member Maxine Waters (D-CA) sent an amended set of requests to the Federal Reserve Board and the OCC regarding the recent agreements in principle to end the Independent Foreclosure Review (IFR) established by consent orders issued in April 2011. Ms. Waters asks that, in advance of finalizing the terms of the agreements, the agencies produce by March 1, 2013: (i) policies and procedures about how loan files were to be reviewed by the IFR independent consultants, and any checklists used; (ii) calls or reports from the consultants to the agencies regarding error rates of reviewed files, or errors by analysts conducting the reviews; (iii) guidelines issued by the agencies to any consultant related to interpretation of the remediation framework; (iv) correspondence between the agencies and any consultant with regard to the servicing platform identified as “Loss Mitigation Notes,” and inconsistencies between the reported availability of borrower records provided by such a program and records entered into any other part of the servicing platform; and (v) any proposed plan for future reform or modification of servicing platforms or procedures generated or submitted by any consultant to the agencies. This request follows related requests made by Ms. Waters and other Democratic lawmakers seeking details pertaining to the settlement.
On February 15, Freddie Mac issued Bulletin 2013-3, which provides a series of updates and revisions to its loss mitigation policies. The Bulletin reminds servicers of their obligations with regard to various transfers of property even where the only remaining borrower is a trust, and provides additional details about these obligations. Following Fannie Mae’s announcement last week, Freddie Mac similarly revised certain state foreclosure timelines and policies regarding compensatory fee calculations and reimbursement for property inspections. Effective for mortgages that become delinquent as of June 1, 2013, Freddie Mac will no longer provide a list of states in which servicers are required to preserve Freddie Mac’s right to pursue a deficiency. Instead, in all instances where additional attorney fees/costs will not be incurred above the approved expense limits, servicers must preserve Freddie Mac’s right to pursue a deficiency so that Freddie Mac may decide on a case-by-case basis whether to pursue the deficiency. The Bulletin also notifies servicers that Freddie Mac is eliminating a requirement announced in Bulletin 2012-17 that, for servicers participating in state modification programs, the modification include partial principal forbearance. Finally, the Bulletin also (i) revises Guide Form 710, Uniform Borrower Assistance Form, and medical hardship documentation requirement; (ii) revises requirements related to the verification of alimony, child support and separate maintenance income; (iii) expands the Freddie Mac Service Loans application process to enable servicers to obtain a property value and minimum net proceeds for borrowers being considered for a standard short sales and are less than 31 days delinquent; and (iv) updates the Guide to reflect that the Home Affordable Foreclosure Alternatives initiative is no longer an option in the loss mitigation evaluation hierarchy.
On February 15, Senate Banking Committee members Mark Warner (D-VA) and Elizabeth Warren (D-MA) sent a letter to the CFPB and the FTC following up on the agencies’ recent reports regarding the consumer reporting market. The Senators ask for the agencies’ help in “tak[ing] further action to improve consumer credit reporting,” and request that they prepare a separate report on whether the current legal framework for the regulation of credit reporting is sufficient or whether additional legislation may be needed.
First Circuit Holds Massachusetts Borrower Can Challenge the Validity of a Mortgage Assignment, but Holds the Assignment Valid
On February 15, the U.S. Court of Appeals for the First Circuit held a borrower had standing to challenge the assignment of the borrower’s mortgage under certain circumstances, even though the borrower was not a party to the assignment of the mortgage. Culhane v. Aurora Loan Servs. of Neb., 12-1285, 2013 WL 563374 (1st Cir. Feb. 15, 2013). The First Circuit reasoned that because Massachusetts law provides the borrower with the legal right to ensure any attempted foreclosure of her home was conducted lawfully, and because foreclosure is permitted without prior judicial authorization, the borrower had standing to challenge the assignment of a mortgage to the extent such a challenge was necessary to contest the foreclosing entity’s status as the mortgagee. Though MERS was named the legal owner of the mortgage in the original mortgage documents, the plaintiff alleged that MERS had no beneficial interest in the loan and, as such, had no ability to assign the mortgage to the noteholder. The First Circuit affirmed the lower court's ruling, finding the MERS assignment of the mortgage to the defendant was valid because the note and mortgage need not be held by the same entity and MERS had transferred what interest it held - bare legal title. Thus, the court determined, the defendant properly held the mortgage and possessed the authority to foreclose.
On February 14, the PCI Security Standards Council, the open global forum responsible for setting payment security standards, issued guidelines for merchants on the factors and risks they must address to protect card data when using mobile devices. The guidance addresses the three main risks associated with mobile payment transactions: account data entering the device, account data residing in the device, and account data leaving the device. The guidance also (i) provides recommended measures for merchants regarding the physical and logical security of mobile devices used for payment acceptance, and (ii) recommendations regarding the different components of the payment acceptance solution, including the hardware, software, the use of the payment acceptance solution, and the relationship with the customer. The PCI Security Standards Council also recently released guidance for securing payment card data in cloud environments, and guidance regarding security for payment transactions conducted over the Internet.
On February 14, 54 of the 55 Senators in the Democratic caucus joined a letter to President Obama supporting the nomination of Richard Cordray to lead the CFPB and expressing opposition to "efforts to weaken the CFPB through structural changes." The letter responds to a recent letter to the President from Senate Republicans reiterating their opposition to confirming any nominee as CFPB Director until the structure of the agency is changed. In responding, the Democratic Senators state that never before has a President's nominee to lead an agency been obstructed on such a basis, and point out that a supermajority of the Senate approved the structure as it exists today.
On February 1, the FTC sent a letter to the CFPB describing the FTC's debt collection-related activities over the past year. The responsibility to report to Congress each year on implementation and enforcement of the FDCPA shifted from the FTC to the CFPB last year, but given their shared authority with regard to the FDCPA, the CFPB relies on the FTC to provide information for inclusion in its annual report. The FTC letter recaps the agency's law enforcement efforts, including the filing or resolution of four actions against collectors alleged to have engaged in deceptive, unfair, or abusive conduct and the filing or resolution of three actions related to phantom debt collection. The letter also highlights outreach and policy activities, including the FTC's recent debt buyer study.
California Appeals Court Permits Borrowers' Claims against Lender Based on Auto Dealer's Alleged Breach of Installment Contract
On February 4, the California Court of Appeal, Third District, held the FTC's Holder Rule allows borrowers to assert claims against a lender assignee that they might otherwise have against the auto dealer with whom the borrowers entered the installment contract. Lafferty v. Wells Fargo Bank, No. C0678812, 2013 WL 412900 (Cal. App. Ct. Feb. 4, 2013). The borrowers stopped making payments on their motor home, disclaimed their ownership interest, and filed suit against the dealer with whom they financed the purchase of the vehicle after the dealer refused to make repairs to the vehicle. Relying upon the FTC's Holder Rule, which requires language in every consumer installment contract to state that any holder of the consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of the goods, the borrowers sued the bank to whom their loan had been assigned. After a trial court dismissed the case, the borrowers appealed. The appeals court reversed the judgment, holding that the "plain meaning of the Holder Rule allows the [borrowers] to assert claims against [the bank] they might otherwise have against [the dealer]," but limited the borrowers' recovery to the actual amounts paid under the installment contract. The appeals court declined to follow courts in other jurisdictions that looked beyond the plain meaning of the rule to assess the FTC's original intent in adopting the rule, and rejected the bank's argument that the Reese-Levering Act limits the borrowers' right to rescission of the contract. The appeals court also held that the borrowers stated causes of action against the bank under the CLRA and for negligence, but that their claim for negligent defamation of credit was preempted by the Fair Credit Reporting Act. The appeals court reversed the trial court order.