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The U.S. District Court for the Northern District of California recently ruled that the federal Controlling Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act) does not preempt California’s Deceptive Commercial Email statute (the Code). Asis Internet Servs. v. Consumerbargaingiveaways, LLC, No. C 08-04856, 2009 WL 1035538 (N.D. Cal. Apr. 17, 2009). In this case, the plaintiffs sued email advertising companies for violating § 17529.5 of the Code, alleging that the companies sent emails containing (i) third-party domain names without the permission of the third party; (ii) falsified, misrepresented, or forged header information; and (iii) subject lines that would likely mislead a recipient about a material fact regarding the message’s contents. The defendants moved to dismiss the case on grounds that that § 7707(b)(1) of the CAN-SPAM Act preempted the plaintiffs’ claims. Section 7707(b)(1) of the CAN-SPAM Act preempts any state statute, regulation, or rule that expressly regulates the use of electronic mail to send commercial messages, unless the statute, regulation, or rule prohibits “falsity or deception.” The defendants interpreted the phrase “falsity or deception” to mean that the plaintiffs needed to plead fraud in order to make a valid claim under the California Code. The court disagreed, finding that the defendants’ interpretation conflicted with the statute’s plain meaning. According to the court, the phrase must have a broader meaning than simply fraud, because if Congress had meant for it to mean only fraud, it simply would have used the word fraud. The court concluded that the phrase encompasses general false advertising wrongs in addition to fraudulent claims. As a result, the court held that the plaintiffs sufficiently pled false advertising and the court denied the defendants’ motion to dismiss the § 17529.5 claims.
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); namely, (i) on April 22, Nebraska Governor Dave Heineman signed LB 328, (ii) on April 15, Iowa Governor Chet Culver signed SF 355, (iii) on April 15, Mississippi Governor Haley Barbour signed SB 2983, (iv) on April 14, Maryland Governor Martin O’Malley signed SB 269, (v) on April 17, Washington Governor Christine Gregoire signed HB 1621, (vi) on April 3, Idaho Governor Butch Otter signed HB 169, (vii) on March 12, Wyoming Governor Dave Freudenthal signed HB 169, and (viii) on February 19, Wisconsin Governor Jim Doyle signed SB 62 (an omnibus bill containing provisions regarding the SAFE Act). The bills implement the mandate of 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 regarding, among other things, licensing, prior and continuing education, testing, minimum net worth, and surety bonds. Most of the bills become effective July 1, 2009, except (i) Nebraska LB 328 (effective July 31, 2009), (ii) Washington HB 1621 (effective July 1, 2010, with certain provisions becoming effective January 1, 2010), (iii) Mississippi SB 2983 (effective July 31, 2009), and (iv) Wisconsin SB 62 (effective January 1, 2010).
On April 10, Delaware Governor Jack Markell signed HB 19, a bill amending the Delaware General Corporation Law. In addition to technical amendments, the amendments authorize, but do not require (i) corporate bylaws to include stockholder nominees to the board in the corporation’s proxy solicitation materials; this provision also authorizes certain stockholder preconditions to such access (e.g., a minimum level of stock ownership), (ii) the corporation to reimburse stockholder expenses incurred in soliciting proxies for the election of directors, subject to conditions that may also be imposed by the bylaws, (iii) separate record dates for determining stockholders entitled to notice of and to vote at a meeting. The bill further (i) clarifies that, when the record date for determining stockholders entitled to vote is set less then ten days before the date of the meeting, the list of stockholders must reflect those stockholders as of the tenth day before the meeting date, (ii) prohibits the corporation from retroactively eliminating advancement or indemnification rights provided by a charter or bylaw provision, and (iii) grants the Delaware Court of Chancery subject matter jurisdiction, in limited circumstances, to remove a director convicted of a felony or found by judgment to have committed a breach of loyalty to the corporation if the director did not act in good faith and if judicial removal is necessary to avoid irreparable harm to the corporation. The bill becomes effective August 1, 2009.
On April 9, North Dakota Governor John Hoeven signed SB 2160, a bill amending North Dakota mortgage law. The bill outlines permissible and maximum charges and permissible payment installments by licensees. In addition, the bill reflects compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 by providing for the licensing of all mortgage loan originators under the Nationwide Mortgage Licensing System. In this regard, the bill proscribes requirements regarding, among other things, licensing, pre-and continuing education, testing, minimum net worth, and surety bonds. The bill also provides for investigation and examination authority and outlines prohibited acts and practices. Most provisions of the bill become effective August 1, 2009.
On April 6, New Mexico Governor Bill Richardson signed into law SB 342, the “New Mexico Mortgage Loan Originator Licensing Act” (the Act). The Act implements the mandate of the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) by providing for the licensing of all mortgage loan originators under the Nationwide Mortgage Licensing System. In addition, the act imposes a host of new requirements on loan originators, including background checks, surety bonds, testing and education requirements, fiduciary duties, and examination requirements. The Act also amends portions of the Mortgage Loan Company Act and the Home Loan Protection Act. Notably, the Act will require mortgage loan companies to become licensed (rather than merely registered) and to designate a qualified manager to oversee operations in New Mexico. The effective date for most provisions of the Act is July 31, 2009, but the mortgage loan originator licensing provisions become effective July 31, 2010.
On April 5, Illinois Governor Pat Quinn signed SB 2513, an omnibus bill containing provisions requiring mortgage lenders to notify borrowers in default for 30 days or more of the borrower’s right to seek housing counseling, which will provide a 30-day grace period during which the mortgage lender may not initiate foreclosure proceedings. The bill does not apply to borrowers who have sought relief under any bankruptcy law. Counseling will be either free or cost a very small amount that will not create a hardship for the borrower, and will be provided by non-profit housing counseling agencies that are both HUD approved and recognized by the Illinois Department of Financial and Professional Regulation. Counseling will aim to result in a “sustainable workout loan plan” (Plan) approved by both the mortgage lender and the counselor to permit the lender to remain in a home. The Plan may include, but is not limited to (i) temporary suspension of payments, (ii) lengthened loan term, (iii) lowered or frozen interest rate, (iv) principal write down, (v) repayment plan to pay the existing loan in full, (vi) deferred payments, or (vii) refinancing into a new, affordable loan. The Plan must be agreed upon in writing by both the lender and borrower, and it will remain in effect so long as the mortgagor is compliant with its terms. The bill is effective immediately.
On April 3, the U.S. Court of Appeals for the First Circuit upheld the denial of a plaintiff’s state law claims in a case involving default interest charged on a credit card. Yeomalakis v. Federal Deposit Insurance Corporation, No. 08-1444, 2009 WL 884936 (1st Cir. Apr. 3, 2009). The plaintiff’s credit card issuer, Washington Mutual Bank (WaMu), charged an increased annual percentage rate (APR) on unpaid credit card balances on accounts where the holder defaulted. The increased rate was charged as of the first day of the billing cycle in which the default occurred. James Yeomalakis brought suit against WaMu to challenge this practice. The plaintiff claimed that WAMU (i) imposed an illegal penalty by retroactively increasing the APR and (ii) engaged in unfair and deceptive acts and practices in violation of Mass. Gen. Law ch. 93A, § 2, alleging that the retroactive increases were unfair and had not been adequately disclosed. The district court granted WaMu’s motion to dismiss the claims on the basis that both counts were preempted by the Home Owners’ Loan Act of 1933 (HOLA) and various regulations promulgated under HOLA, based on preemption of state interest rates (which includes penalties) and disclosures. On appeal, the plaintiff failed to make any plausible arguments as to why the penalty claim would not be preempted, and, further, the plaintiff provided no clear chapter 93A claim that would avoid preemption. The court of appeals indicated that the plaintiff could have alleged state contractual claims (that the card agreement did not permit the “retroactive” increase in APR) and/or state fraud claims, which may not be preempted by HOLA. However, the court pointed out that it is not the job of the court to provide arguments for a party that has not provided them, and the court upheld the lower court’s dismissal of the claims.
On April 1, Arkansas Governor Mike Beebe signed HB 1881, a bill that amends the Arkansas Fair Mortgage Lending Act. In general, the bill amends the Act’s definitions, surety bond requirements, license application procedures, reporting requirements, prohibited activities, and penalties. Specifically, the bill revises the statutory definition of “mortgage loan” to mean “a loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, reverse mortgage, or other equivalent consensual security interest encumbering” either (i) a “dwelling,” as defined by the Truth in Lending Act or (ii) residential real estate that is constructed or intended to be constructed as a dwelling. The bill also removes a licensing exemption for persons who only broker, make, or service nonresidential mortgage loans. Regarding licensee duties, the bill requires the inclusion of the full name, address, and telephone number of the licensee in all solicitations and advertisements. The bill also requires the unique identifier of a person soliciting or originating a mortgage loan to be clearly shown on all mortgage loan application forms, solicitations, advertisements, business cards, websites, and related documents.
On March 31, the U.S. District Court for the District of Minnesota dismissed a putative state-wide class action involving claims of breach of contract, unlawful and deceptive trade practices, breach of fiduciary duties, and unjust enrichment against a residential mortgage lender. Weller v. Accredited Home Lenders, Inc., No. 08-2798 (D. Minn. March 31, 2009). In support of these claims, the plaintiffs alleged, among other things, that (i) the defendant failed to provide them with a statutory disclaimer indicating that they were not plaintiffs’ agent, (ii) the defendant failed to notify them that they qualified for a lower rate of interest than the rate they were charged, and (iii) the defendant was liable for the closing agent’s failure to provide certain disclosures. The court granted the defendant’s motion to dismiss. The court rejected the plaintiffs’ breach of fiduciary duty claim, holding that the failure to provide the “non-agency disclosure” required by Minnesota law “does not, on its own, make a residential mortgage originator a fiduciary as a matter of law.” The court also rejected the plaintiffs’ unlawful and deceptive trade practices (UDAP) claims, holding that the plaintiffs failed to plead alleged misrepresentations with the specificity required by F.R.C.P. Rule 9(b). Allowing plaintiffs 30 days to file an amended complaint to re-plead their UDAP claims, the court provided the plaintiffs with guidance on the types of allegations that would survive future dismissal. For example, to satisfy the Minnesota statute on which they relied, rather than merely allege that they were charged a higher rate of interest than they qualified for, the plaintiffs would have to allege that they were placed in a lower “investment grade,” and specify the grade in which they were placed and the grade they should have received. The court also reminded the plaintiffs that, if they were to successfully level claims against the defendant about the closing agent’s alleged failure to provide certain disclosures, they would have to allege with specificity how the closing agent was the defendant’s agent (such as by citing provisions of the Lender’s Instructions). BuckleySandler LLP represented defendant Accredited Home Lenders, Inc. in this action.
On March 27, Kansas Governor Kathleen Sebelius signed SB 240, a bill that amends Kansas state mortgage law to reflect compliance with the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) and to impose requirements regarding the protection of personal consumer financial information. The bill implements the mandate of the SAFE Act by providing for the licensing of all mortgage loan originators under the Nationwide Mortgage Licensing System. The bill also prohibits certain conduct, including (i) earning a fee or commission through “best efforts” to obtain a loan when no loan is actually obtained, (ii) the solicitation, advertisement, or entering into a contract for specific rates, points, or other financing terms that are not actually available at the time of the offer, and (iii) making any payment, threat or promise to influence to any person in connection with a residential mortgage loan, including an appraiser. The bill further provides for data security measures to protect against the potential misuse of personal consumer financial information. To this effect, (i) every licensee and any assignee or servicer of a consumer credit transaction, and every person required to file notification, must have written policies and procedures “reasonably designed” to protect against the misuse of personal information, (ii) before discontinuing business, a licensee must arrange for the keeping of required books and records for a specified period, and (iii) any records required to be retained may be electronically preserved. Such electronic records must (i) permit “immediate” location of the record, (ii) be able to be copied, printed, or faxed, and (iii) be maintained using policies and procedures to “reasonably safeguard” the records from loss or alteration. The bill becomes effective upon its publication in the Kansas Statute Book.
- Daniel R. Alonso to moderate an interactive roundtable at the Latin Lawyer and GIR Connect: Anti-Corruption & Investigations Conference
- APPROVED Checkpoint Webcast: You have license renewal questions, we have answers
- 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
- Daniel R. Alonso to discuss anti-money-laundering at FELABAN Spanish-language webinar “Perspective for banks: LAFT, FINCEN, OFAC, Cryptocurrency”
- Daniel R. Alonso to discuss "What’s new in BSA/AML compliance?" at the Institute of International Bankers Regulatory Compliance Seminar
- Jon David D. Langlois to discuss "Regulatory update: What you need to know under the new boss; It won’t be the same as the old boss" at the IMN Residential Mortgage Service Rights Forum (East)
- Benjamin B. Klubes to discuss “Creating a Fantastic Workplace Culture”
- 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