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On July 1, California SB 1461, a bill that amends the advertising rules for companies licensed with the California Department of Real Estate, becomes effective. The bill applies to all residential and commercial mortgage companies licensed with the California Department of Real Estate. Pursuant to the bill, such entities must disclose the applicable license number on certain solicitations intended to be the “first point of contact” with consumers (e.g., business cards, stationary, and other materials designed to solicit the creation of a professional relationship between the licensee and a consumer). The bill clarifies that “first point of contact” excludes electronic media or print advertisements and “for sale” signs.
Several states recently amended applicable state law to reflect compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). Texas, Connecticut, Nevada, and South Carolina all enacted legislation that implements the SAFE Act by providing for the licensing of all mortgage loan originators under the Nationwide Mortgage Licensing System. In addition to technical amendments, the bills prescribe loan originator requirements relating to licensing, prior and continuing education, testing, minimum net worth, and surety bond coverage. Connecticut SB 948 also, among other things, requires lenders to enter into a previously optional foreclosure mediation program with borrowers after July 1, 2009. Unless the mediation period is not required, is unavailable, has expired, or has been otherwise terminated, no judgment of strict foreclosure or foreclosure by sale can be entered prior to July 1, 2010. Most provisions of Connecticut SB 948 become effective July 31, 2009, with licensure required by April 1, 2010. South Carolina SB 673 becomes effective January 1, 2010, except that the definition of “mortgage loan originator” does not include an individual servicing a mortgage loan until July 31, 2011. Texas HB 10 becomes effective September 1, 2009. Nevada AB 523 became effective June 8, 2009, with licensure required by October 1, 2009.
Arizona, Delaware, and Hawaii each recently passed bills reflecting compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008, which requires states to implement a sufficient regulatory system for licensing and supervising mortgage loan originators. Arizona HB 2143, Delaware SB 73, and Hawaii SB 1218 (which was enacted over the veto of Hawaii Governor Linda Lingle) each require mortgage loan originators to (i) submit to fingerprinting for the purpose of a criminal history background check, (ii) complete at least twenty hours of pre-licensing education, (iii) receive a passing score on a qualified written test developed by the Nationwide Mortgage Licensing System, and (iv) complete at least eight hours of annual continuing education. Arizona HB 2143 also amends certain definitions and exemptions applicable to the licensing of mortgage loan originators. Licensure under all three bills is required as early as July 31, 2010.
On June 29, Pennsylvania Governor Edward G. Rendell signed SB 170 and HB 985 to amend Pennsylvania mortgage law. SB 170 prohibits a mortgage broker or mortgage originator from being or designating the sole recipient of communications from a lender or servicer to a consumer. HB 985 prohibits mortgage companies from bringing a cause of action for damages against employees who report illegal activity or take part in an investigation, hearing or inquiry against the company. Both bills become effective August 28, 2009.
On June 26, Oregon Governor Ted Kulongoski signed H.B. 2188, a bill that amends the Oregon Mortgage Lender Law. Under the new law, mortgage bankers, mortgage brokers, and loan originators may not negotiate or make, or offer to negotiate or make, a negative amortization loan without regard to the borrower’s repayment ability at the time the loan is made. Also, under the new law, mortgage bankers, mortgage brokers, and loan originators that advertise or otherwise solicit business and conduct transactions substantially in a language other than English are required to provide the borrower with certain materials in the language in which the parties conducted the transaction.
California Court Holds Class Action Waiver with Opt-Out Provision in Cardholder Agreement Unenforceable
On June 19, the California Court of Appeals held that a class action waiver with an opt-out provision contained in an arbitration provision of a cardholder agreement is procedurally unconscionable. Duran v. Discover Bank, No. B203338, 2009 WL 1709569 (Cal. Ct. App. Jun. 19, 2009). Previously in this case, the lower court held that the class action waiver in the defendant bank’s credit card agreement was unconscionable, and therefore unenforceable, under California law. On appeal, the defendant challenged the finding of procedural unconscionability, arguing that (i) the contract was not a contract of adhesion because the contract contained an opt-out provision, and (ii) Delaware law, not California law, should govern the dispute. The court first held that opt-out provisions do not automatically render contracts nonadhesive under California law. The court reasoned that a class action waiver might not sufficiently explain the disadvantages of the arbitration agreement compared to litigation, thus potentially preventing a consumer from making an “authentic informed choice” about whether to opt-out. In this case, the court found that the agreement did not sufficiently explain (i) the disadvantages of consenting to the arbitration and class waiver provisions, (ii) the costs of arbitration, and (iii) the “practical consequences” of a class action waiver. In addition, the court held that California law governed the dispute, reasoning that, even though Delaware has a substantial relationship to the dispute and class action waivers are enforceable under Delaware law, (i) the enforcement of the waiver would “contravene a fundamental policy of California,” and (ii) California has a materially greater interest than Delaware as to the enforceability of the class action waiver at issue. As a result, the court affirmed the lower court’s finding that the class action waiver provision of the agreement was procedurally unconscionable under California law.
On June 9, Massachusetts Attorney General Martha Coakley announced a $10 million settlement agreement with Fremont Investment & Loan and its parent Fremont General Corporation (Fremont) to resolve a lawsuit against the lender. The lawsuit, first filed in 2007, alleged that Fremont engaged in unfair and deceptive loan origination and sales conduct, and that it made risky loans that it knew were designed to fail. As part of the settlement, Fremont agreed not to foreclose upon loans deemed “unfair” without certain protections for borrowers and not to originate “unfair” loans in Massachusetts. The settlement makes permanent the protections against foreclosure of “presumptively unfair” loans, which Massachusetts courts had previously enforced against Fremont (reported in Special Alert Mass Supreme Court Upholds Fremont Preliminary Injunction).
On June 2, Maine Governor John Baldacci signed into law an Act making it an illegal and unfair trade practice for a person or company “to knowingly collect or receive health-related information or personal information for marketing purposes from a minor without first obtaining verifiable parental consent of that minor’s parent or legal guardian.” Maine PUBLIC Law, Chapter 230 LD 1183, Item 1. Under the law, persons and entities cannot collect a minor’s (i) first name, or first initial, and last name, (ii) home or other address, (iii) social security number, (iv) driver’s license number or state identification number, and/or (v) any additional related personally identifiable information. Such personal information, however, may be obtained with “verifiable parental consent,” which is defined as “any reasonable effort” to ensure that a parent or guardian authorizes and receives notice of the collection, use and/or disclosure of the minor’s personal information. The law carries civil penalties of between $10,000 and $20,000 for an initial violation and at least $20,000 for subsequent violations.
Washington Governor Christine Gregoire recently signed a bill, SB 5810, prohibiting trustees, beneficiaries, or authorized agents from filing a notice of default until at least 30 days after contacting the borrower or attempting with due diligence to contact the borrower. The new contact requirements apply only to deeds of trust made from January 1, 2003, to December 31, 2007 that are recorded against owner-occupied residential real property. Under the new law, a trustee or beneficiary must contact or diligently attempt to contact the borrower by letter and by telephone in order to assess the borrower’s financial ability to pay the debt secured by the deed of trust and explore options for the borrower to avoid foreclosure. Any notice of default subsequently filed must include a declaration stating that contact was made or diligently attempted. In addition, the new law requires trustees, prior to recording a notice of sale with respect to residential real property, to have proof that the beneficiary is the owner of any promissory note or other obligation secured by the deed of trust. Lastly, the new law provides that a tenant or subtenant in possession of a residential real property at the time the property is sold in foreclosure must be given sixty days’ written notice to vacate before the tenant or subtenant may be removed from the property. The bill becomes effective July 26, 2009. The provisions regarding contact with a borrower in default are set to expire on December 31, 2012
Oregon Governor Ted Kulongoski recently signed two bills, H.B. 2191 and S.B. 628, pertaining to loan modifications and foreclosures. H.B. 2191 expands Oregon law regulating debt consolidation companies to include the regulation of “debt management services” – including services in connection with loan modifications. Under H.B. 2191, a debt management service is any activity done for consideration where a person (i) receives or offers to receive funds from a consumer for the purpose of distributing the funds among the consumer’s creditors in full or partial payment of the consumer’s debts, (ii) improves or offers to improve a consumer’s credit record, credit history or credit rating, (iii) modifies or offers to modify the terms and conditions of an existing loan or obligation, or (iv) obtains or attempts to obtain a concession from a creditor including, but not limited to, a reduction in the principal, interest, penalties or fees associated with a debt. Among other requirements, debt management service providers must (i) register with the Oregon Department of Consumer and Business Services, (ii) post a surety bond of at least $10,000, and (iii) adhere to certain fee limitations. S.B. 628 requires mortgage creditors to send borrowers a notice whenever a trustee records a notice of default on property subject to a residential trust deed. The required notice must include a form that a borrower may use to request a loan modification. Additionally, S.B. 628 provides the borrower with up to 30 days from when the trustee signs a notice of default to request a loan modification, during which time the trustee cannot initiate foreclosure proceedings. If the borrower opts to pursue a loan modification, the creditor has up to 45 days to approve or deny the request and cannot initiate foreclosure proceedings until a final decision has been made regarding the modification request. Both bills became effective immediately on passage. However, S.B. 628’s loan modification provisions become effective September 29, 2009 and are scheduled for repeal January 2, 2012.
- Jonice Gray Tucker to discuss “Updates on Artificial Intelligence Regulations - the U.S. and EU” at the American Bar Association Busines Law Section Meeting
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- APPROVED Webcast: California debt collection license requirement: Overview and analysis
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting
- Jeffrey P. Naimon to discuss “Regulators are gearing up: Are you ready?” at HousingWire Annual
- Amanda R. Lawrence and Elizabeth E. McGinn discuss “U.S. state privacy legislation – Are you compliant?” at the Privacy+Security Forum
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker and Kari K. Hall to discuss “Consumer Protection Priorities in the Biden Administration and Beyond" at the SWABC and TBA 2021 Legal Conference
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Jeffrey P. Naimon to discuss "Truth in lending” at the American Bar Association National Institute on Consumer Financial Services Basics
- John R. Coleman and Amanda R. Lawrence to discuss “Consumer financial services government enforcement actions – The CFPB and beyond” at the Government Investigations & Civil Litigation Institute Annual Meeting
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Jonice Gray Tucker to discuss “Regulators always ring twice: Responding to a government request” at ALM Legalweek