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Financial Services Law Insights and Observations


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  • Ninth Circuit Holds Omission of Annual Fee in Credit Card Advertisements, Online Application Not Misleading


    On August 31, the U.S. Court of Appeals for the Ninth Circuit upheld a district court’s dismissal of a putative class action alleging that a credit card issuer and a retailer violated California law when they failed to explicitly state the card’s annual fee in advertisements. Davis v. HSBC Bank Nevada, N.A., No. 10-56488, 2012 WL 3804370 (9th Cir. Aug. 31, 2012). The cardholder applied for a credit card that offered rewards for purchases, to be used at the retailer’s stores. Neither the advertisement for the card nor the application website mentioned that the card required an annual fee. The fee was disclosed only in the “Terms and Conditions” that the cardholder acknowledged having read and accepted prior to opening the credit account. On appeal, the cardholder argued that the omission of the annual fee in the advertisements, combined with the promise of rewards, constituted false advertising because it implied that no offsetting charges would erode the rewards. The court held that the advertisement was unlikely to deceive a reasonable consumer, even though it is possible that some people could misunderstand the terms. The court also rejected the cardholder’s argument that the issuer and retailer fraudulently concealed the fee. In doing so the court drew a distinction from its earlier decision in Barrer v. Chase Bank, N.A., 566 F.3d 883 (9th Cir. 2009), in which it held that a provision granting the issuer the right to alter the cardholder’s APR was buried in fine print and therefore violated TILA’s “clear and conspicuous” requirement. The court explained that its decision in Barrer had no bearing on the cardholder’s instant common law claims. Finally, the court rejected the cardholder’s claim that the online application and advertisements violated the state’s Unfair Competition Law because the online application is protected by a federal safe harbor and the advertisements were not deceptive.

    Credit Cards TILA Class Action

  • Lender Settles TILA, UDAP Claims Over HELOC Reductions


    On August 31, a lender preliminarily settled with a class of borrowers who claimed that the bank suspended or reduced borrower home equity lines of credit (HELOCs) in violation of the Truth in Lending Act and California’s Unfair Competition Law. In Re Citibank HELOC Reduction Litig., No. 09-350 (N.D. Cal. Aug. 31, 2012). The borrowers claimed that the bank improperly utilized computerized automated valuation models (AVMs) as the basis for suspending or decreasing customer HELOCs because of the decline in the value of the underlying property. The complaint also charged that customers were injured because (i) the annual fee to maintain the HELOC was not adjusted to account for the decreased limit, and (ii) the borrowers’ credit ratings were damaged as a result of the reduced credit limit. The named plaintiff also alleged injury because he was forced to obtain a replacement home equity line, which resulted in payment of an early termination fee on the old HELOC and additional costs related to the new HELOC. Under the agreement, class members will have a right to request reinstatement of their HELOC accounts, the bank will expand the information contained in credit-line reduction notices based on collateral deterioration, and customers who incurred an early closure release fee when closing the account subsequent to the suspension or reduction may make a claim for the cash payment of $120.

    TILA Class Action HELOC

  • State Law Update: Washington Amends Consumer Loan Act and Mortgage Broker Practices Act Regulations


    Recently, the Washington State Department of Financial Institutions finalized two rulemakings to amend existing regulations and adopt new regulations under the Consumer Loan Act and the Mortgage Broker Practices Act. The final rules make numerous changes impacting mortgage and other consumer lenders, including with regard to licensing and reporting. For example, the amendments to the Consumer Loan Act regulations (i) add requirements and prohibitions relating to force-placed insurance, (ii) clarify licensing exemptions for consumer lenders and mortgage originators, and (iii) add new provisions addressing the activities of servicers and third party residential mortgage loan modification services. The amendments under the Mortgage Broker Practices Act include some of the changes made under the Consumer Loan Act and, among other things (i) revise the definition of mortgage broker, (ii) require approval from the Department for an individual to work as a designated broker for more than one licensee, and (iii) clarify application of loan originator requirements to inactive licensees. All of the changes take effect on November 1, 2012.

    Mortgage Licensing Mortgage Servicing Consumer Lending

  • OCC Names New Enforcement and Compliance Director

    Consumer Finance

    On September 5, the OCC announced the promotion of Ellen M. Warwick to Director for Enforcement and Compliance, responsible for conducting investigations, recommending administrative actions, and litigating enforcement actions. Ms. Warwick previously served as Assistant Director for Enforcement and Compliance and as Assistant Director for Litigation, among other positions with the OCC. She also has been a litigation attorney in private practice, a trial attorney with the DOJ, and a prosecutor in the Essex District Attorney’s Office of Massachusetts.

    OCC Enforcement

  • Fannie Mae Announces Miscellaneous Servicing Policy Changes


    On September 5, Fannie Mae issued Servicing Guide Announcement SVC-2012-20, which updates special investor reporting requirements to provide new guidance regarding reporting a foreclosure for a modified mortgage loan with principal forbearance. The Announcement also provides new contact information for servicers to use when a borrower or servicer of a first-lien mortgage requests information relating to a HomeSaver Advance Note.

    Fannie Mae Mortgage Servicing Servicing Guide

  • Federal Court Dismisses Fannie Mae Shareholders' Subprime Suit Against Underwriters, Allows Claims to Proceed Against Fannie Mae, Officers


    On August 30, the U.S. District Court for the Southern District of New York ruled on multiple motions to dismiss filed in four consolidated cases pending against Fannie Mae, certain former officers, and several banks, related to Fannie Mae’s exposure to certain risky mortgages. In re Fannie Mae 2008 Secs. Litig., No. 09-2013, 2012 WL 3758537 (S.D.N.Y. Aug. 30, 2012). The main class of shareholders alleges that Fannie Mae and certain of its former officers violated federal securities laws by failing to adequately disclose the company’s exposure to subprime and Alt-A mortgages. Separately, institutional investors brought their own federal securities claims, as well as state statutory and common law fraud and negligence claims against Fannie Mae, certain officers, and certain of its underwriters related to the same alleged misrepresentations. Many of the same allegations are contained in SEC enforcement actions pending against a number of the same individual defendants. In a single opinion, the court dismissed certain of the claims but allowed others to proceed. The court allowed to proceed the federal securities claims brought by the main class and two other plaintiffs against Fannie Mae and certain of its officers with regard to Fannie Mae’s subprime mortgage disclosures and risk management controls, but dismissed all state law claims, including those against Fannie Mae, certain officers, and certain underwriters. The court also dismissed in full a suit that one underwriter faced alone because the plaintiffs failed to present evidence sufficient to show the underwriter intentionally provided investors allegedly false information it received from Fannie Mae.

    Fannie Mae RMBS Subprime

  • Federal Court Dismisses Consumer Privacy Action Brought Under California's Shine the Light Act


    On August 24, the U.S. District Court for the Northern District of California dismissed a putative class action alleging that Time magazine failed to establish procedures to comply with California’s Shine the Light Act (SLA). Murray v. Time, Inc., No 12-00431, 2012 WL 3634387 (N.D. Cal. Aug. 24, 2012). The SLA requires businesses to disclose to California consumers upon request any information collected and shared with third-party direct marketers. Alternatively, businesses can adopt a policy of not sharing consumer information without first obtaining consumer consent. All businesses must make consumers aware of their SLA rights by (i) maintaining a disclosure on their website and providing contact information for consumers to make a request about information shared with direct marketers, (ii) requiring customer service agents to provide the contact information upon request, or (iii) making the contact information available at every place of business in the state. The named plaintiff contends that by the nature of its business Time only could provide the required information on its website, and that it failed to do so. The court dismissed the case, holding that the named plaintiff suffered no economic or informational injury and therefore lacked standing to pursue his claims. The court held that the plaintiff’s general allegations concerning the “inherent monetary value” of consumer data are presented without any facts regarding the value of his specific personal information and therefore could not prove any economic injury. With regard to informational injury, the court explained that the plaintiff does not claim that he was deprived any information in response to a request, but rather that he was deprived of the ability to make the request. Such a procedural violation of the SLA, the court held, does not equate to informational injury. The court allowed the plaintiff to re-plead additional facts in support of his claim, but he may not add other plaintiffs or defendants.

    Privacy/Cyber Risk & Data Security

  • FTC Issues Advertising and Privacy Guidelines for Mobile Application Developers


    On September 5, the FTC published “Marketing Your Mobile App: Get It Right from the Start,” a guide to assist mobile application developers in complying with federal advertising and privacy requirements. The Guide provides basic guidance and principles related to truthful advertising and consumer privacy protections. For example, the guide urges application developers to (i) disclose key information in advertising materials clearly and conspicuously, (ii) collect sensitive information only with user’s affirmative consent, and (iii) avoid collecting unnecessary data and ensure the security of any sensitive data that is collected.

    FTC Mobile Commerce Privacy/Cyber Risk & Data Security

  • State Law Update: Illinois Amends Collection Agency Law

    Consumer Finance

    On August 24, Illinois amended the Collection Agency Act to add certain definitions and new requirements for debt buyers. House Bill 5016 adds new definitions for (i) charge-off balance, (ii) charge-off date, (iii) current balance, and (iv) debt buyer. The bill subjects debt buyers to the Collection Agency Act generally, including statute of limitations requirements for collection actions, but exempts debt buyers from certain requirements when pursuing a debt it owns. For example, debt buyers need not maintain a trust account or surety bond. The changes take effect on January 1, 2013.

    Debt Collection

  • NACHA Proposes Guidelines for Use of QR Codes for Consumer Bill Pay


    On August 30, NACHA – The Electronic Payments Association, proposed guidelines to facilitate the use of Quick Response (QR) codes for consumer bill payments. A QR code is a type of barcode readable by a mobile device equipped with a QR application. The guidelines, developed by NACHA’s Council for Electronic Billing and Payment, seek to establish a single QR code format to serve consumer bill pay needs through a variety of channels, including a biller’s website, a financial institution’s online bill pay website site, or other aggregation bill pay websites. The proposal recommends guidelines for the QR code size and format, billing data to be included, and encoding format. NACHA has requested comment from interested parties by September 19, 2012 and expects to prepare a final version of the guidelines before the end of 2012.

    Mobile Payment Systems NACHA


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