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Financial Services Law Insights and Observations


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  • Federal District Court in Florida Lacks Jurisdiction Over TILA and RESPA Claims After State Court Foreclosure Judgment


    On April 2, the U.S. District Court for the Middle District of Florida dismissed an action brought by a borrower against her mortgage lender alleging violations of TILA and RESPA and seeking a declaratory judgment that the lender holds no interest in the property. Chipman v. US Bank, N.A., No. 10-cv-483, 2012 WL 1093144 (M.D. Fla. April 2, 2012). The borrower brought the pro se action alleging that a forensic audit revealed certain TILA violations. Upon discovering those violations, the borrower submitted two Qualified Written Requests, at least one of which was not acknowledged by the lender in the time frame established by RESPA. The borrower brought suit seeking a recession of the loan. The court dismissed the case, taking judicial notice of a final foreclosure judgment in state court and holding that the Rooker-Feldman doctrine applies. Applying that doctrine, the court found that it is precluded from reviewing the state court final foreclosure judgment because (i) the parties to the two actions are the same, (ii) the state court ruling was a final judgment on the merits, and (iii) the borrower could have raised the TILA and RESPA claims in the state court action.

    Foreclosure TILA RESPA

  • Fannie Mae Provides Guidance Regarding Chicago Vacant Property Ordinance and Payment of Homeowners' Association Dues and Condo Assessments


    On April 11, Fannie Mae published Servicing Guide Lender Letter LL-2012-04, which follows up on a previous notice regarding the City of Chicago’s (the City) vacant property ordinance. Effective May 1, 2012, servicers will be required to submit expense reimbursement requests using the Cash Disbursement Request and updated expense designations for all expenses related to the ordinance that are not otherwise required by the Servicing Guide. The Letter attaches a list of the expense designations. Fannie Mae reminds servicers that payments to the City in connection with the ordinance must be made “under protest” by sending a written communication to the City with the registration fee. Further, (i) all ordinance-related expenses must be submitted to Fannie Mae within 10 business days of the date they are paid by the servicer, (ii) ordinance-related expenses incurred from November 19, 2011 through April 30, 2012 must be submitted for reimbursement using the new expense categories no later than May 31, 2012, (iii) servicers will not be reimbursed for any penalties, fines, expenses or interest assessed by the City for failure to comply with the ordinance, and (iv) servicers must submit a request for pre-approval for ordinance expenses that exceed the allowable limits on or after May 1, 2012. Also on April 11, Fannie Mae published Servicing Guide Announcement SVC-2012-05 to provide guidance regarding payment of homeowners’ association (HOA) dues and condo assessments. Effective July 1, 2012, servicers must ensure that any priority liens for delinquent HOA dues and assessments on acquired properties are cleared immediately, but no later than 30 days, after the foreclosure sale or acceptance of a deed-in-lieu of foreclosure. The Announcement also revises the reimbursement policy to align with the amount a servicer must pay to protect the lien position and ensure properties are clear of any liens for HOA dues and condo assessments. The Announcement further reminds servicers of their responsibility to continue (i) advancing funds to pay HOA dues and property taxes as they become due following a foreclosure sale and (ii) performing certain property management duties.

    Fannie Mae Mortgage Servicing

  • West Virginia Revises Mortgage and Consumer Lending Statutes

    Consumer Finance

    West Virginia recently enacted several bills to amend statutes related to mortgage licensing and servicing and consumer lender licensing. House Bill 4271 was enacted March 30 and takes effect June 8, 2012. It amends existing reporting requirements for licensed residential mortgage lenders and brokers to direct lenders and brokers to submit reports through the Nationwide Mortgage Licensing System and Registry (NMLS) for periods established by the NMLS. The law allows the Commissioner of the Division of Banking to require direct reporting, preserves the confidentiality of the reports, and alters certain public reporting obligations of the Commissioner. Also enacted on March 30, House Bill 4274, authorizes the Commissioner of the Division of Banking to fine regulated consumer lenders required to be licensed up to $2,000 for violating applicable statutory and regulatory requirements. Each day that a consumer lender engages in covered conduct without being licensed is considered a separate violation subject to a separate fine. This change takes effect June 7, 2012. On April 2, effectively retroactive to January 1, 2012, Senate Bill 551 creates an exemption to mortgage loan limitations to allow for modification or refinancing loans made between January 1, 2012 and January 15, 2015 as part of the federal Home Affordable Modification Program or any other federal or state program or litigation settlement.

    Mortgage Licensing HAMP / HARP NMLS

  • Eleventh Circuit Reverses Dismissal of FDCPA Claim Involving MERS


    On March 30, the Eleventh Circuit Court of Appeals reversed the dismissal of a FDCPA claim stemming from a communication to the plaintiff that erroneously identified MERS Corp. as the plaintiff’s creditor.  Shoup v. McCurdy & Candler LLC, No. 10-14619, 2012 WL 1071196 (11th Cir. Mar. 30, 2012). The plaintiff obtained a mortgage from America Wholesale Lender.  MERS was the grantee acting as the lender’s nominee under the mortgage contract.  After the plaintiff defaulted, MERS’s law firm sent an initial communication letter described as an attempt to collect a debt and identifying MERS as the “creditor on the above referenced loan.”  The mortgagee filed suit under the FDCPA, alleging that MERS is not a creditor and that by falsely stating so, the law firm committed a FDCPA violation.  The district court granted the defendant law firm’s 12(b)(6) motion to dismiss, concluding that MERS was a creditor and that even if it was not, the purported violation was harmless.  In its reversal, the Eleventh Circuit reasoned that the FDCPA makes clear that (i) “any false representation” in the collection of a debt is a violation of the statute, (ii) a “creditor” under the statute would not include MERS in this instance, because MERS was not owed a debt, and (iii) any failure to comply with the law subjects the violator to actual and statutory damages.

    FDCPA Mortgage Servicing

  • Federal District Court Holds Allegations of Failure to Protect Data Insufficient to Support Stored Communications Act Claim


    Last month, the U.S. District Court for the Northern District of Illinois held that a company’s failure to protect personal information does not violate the Stored Communications Act (SCA) because the company did not knowingly divulge the personal information. Worix v. MedAssets Inc., No. 11-8088, 2012 WL 787210 (N.D. Ill. Mar. 8, 2012). In this case, a computer hard drive belonging to the defendant, a firm that provides financial services for health care providers and as such handles the personal and confidential information of individuals, was stolen. The plaintiff, one of the individuals whose personal information was stored on the hard drive, alleged on behalf of a putative class that the defendant violated the SCA when it failed to adequately secure the protected personal information. The court held that the plaintiff could only support allegations that the defendant knowingly failed to protect the data and  the plaintiff failed to offer the proof required by the SCA that the defendant knowingly divulged protected information. The court also dismissed the plaintiff’s common law negligence claims and statutory fraud claims, holding that the plaintiff failed to allege actual damages when claiming an increased risk of identity theft and monitoring costs.

    Privacy/Cyber Risk & Data Security

  • Fair Housing Groups File First REO Complaint


    Last week we posted about plans by the National Fair Housing Alliance and certain of its member organizations to file administrative complaints and/or lawsuits against multiple financial institutions for alleged discriminatory practices with regard to real estate owned (REO) properties in violation of the Fair Housing Act. Yesterday, the first such complaint was filed with the Department of Housing and Urban Development. The filing triggers a process through which HUD will now conduct its own investigation of the issues presented. The complaint is based on an NFHA report released earlier this month, which overlooks key considerations with regard to servicer management of REO properties. In announcing this complaint, NFHA indicated another will be filed next week. Servicers should expect several additional complaints in the coming weeks and months.

    Mortgage Servicing Fair Housing

  • Federal Court Approves Multi-Party Mortgage Servicing Settlement


    On April 5, the U.S. District Court for the District of Columbia approved the consent orders that comprise the previously announced settlement of various government probes, including investigations and inquiries by numerous federal regulators and 49 state Attorneys General, into alleged mortgage-related violations by five large mortgage servicers.

    Mortgage Servicing State Attorney General

  • Federal District Court Enforces Arbitration Clause Included in Clickwrap Terms


    On March 26, the U.S. District Court for the Northern District of Illinois required arbitration of a dispute regarding alleged overcharging by an Internet service provider (ISP) because the consumer had agreed to an arbitration provision included in the ISP’s clickwrap terms of service. Sherman v. AT&T Inc., No. 11-C-5857, 2012 WL 1021823 (N.D.Ill. Mar. 26, 2012). The court held that the plaintiff’s assent to the terms during the online activation process constituted acceptance of those terms, regardless of when he believed the contract was formed. To activate his Internet service, the plaintiff was required to confirm through an online process that he had read and agreed to the ISP’s terms of service. The activation and confirmation page included a link to the terms of service, which included an agreement to arbitrate all disputes. The plaintiff argued (i) that his contract with the ISP was formed during a phone call with an ISP customer service agent pursuant to which he ordered the service, prior to the online activation process, and therefore the terms of service do not apply, and (ii) the terms were not expressly incorporated into the broader conditions of his contract and were procedurally unconscionable. The district court granted the ISP’s motion to compel arbitration of the plaintiff’s allegation (made on behalf of a putative class) that the ISP systematically overcharged consumers for residential Internet service by advertising promotional plans while actually charging standard rates..  The court reasoned that vendors may enclose the full legal terms with their products rather than reciting them prior to purchase, for practical purposes, even if the full terms are not delivered until after the consumer’s order and payment. The court also held that the terms were not procedurally unconscionable, as they were not difficult to find, read or understand, and the plaintiff had a full and fair opportunity to review the terms prior to activation.


  • FTC Announces First Actions Against Auto Loan Modification Schemes

    Consumer Finance

    On April 4, the FTC released complaints filed recently against two operations allegedly engaged in deceptive auto loan modification schemes. According to the FTC, the two companies and several related individuals instructed consumers to stop paying their auto loans and promised to lower their monthly payments in exchange for up-front payment of fees, but then did not provide promised refunds when they failed to obtain car loan modifications. The FTC complaints detail the companies’ Internet and other marketing efforts and alleged false promises of lower monthly payments and money-back guarantees. These are the first auto loan modification cases filed by the FTC, which has been actively pursuing allegations of similar mortgage loan modification schemes. Concurrent with these announced cases, the FTC released an alert for consumers seeking assistance in managing their auto loans. The FTC also recently closed out a year of seeking public input on consumer protection issues that arise in auto sales, financing, and leasing.

    FTC Auto Finance

  • FTC Files Case Against Tribe-Affiliated Payday Lenders

    Consumer Finance

    On April 2, the FTC announced that it filed a complaint in the United States District Court for the District of Nevada against a payday lending operation that allegedly charged undisclosed and inflated fees, and collected on loans illegally by threatening borrowers with arrest and lawsuits.  The FTC alleges that the operation, consisting of numerous defendants including three Internet-based lending companies, seven related companies and numerous individuals (i) violated the FTC Act by making misrepresentations and false threats, (ii) violated TILA by failing to accurately disclose APR and other loan terms, and (iii) violated the Electronic Fund Transfer Act by requiring consumers to preauthorize electronic fund transfers from their accounts. According to the FTC, the defendants have claimed in state court that they are immune from legal action because of their affiliation with Native American tribes. The FTC argues that notwithstanding any such affiliation, the defendants are still subject to federal law. This is the second time in seven months that the FTC has brought suit against a payday lender that has used a tribal affiliation defense against actions by state authorities.

    FTC Payday Lending


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