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On January 5, the FTC announced that Upromise had agreed to settle charges that its collection of consumers’ personal information was deceptive and an unfair practice, and that the collection violated federal law. Upromise’s website offered consumers a “TurboSaver Toolbar” download with a “Personalized Offers” feature to tailor savings opportunities to the consumer. The FTC alleged that the feature collected and transmitted, without encryption, the names of websites consumers visited, which links they clicked on, and information entered into webpages such as search terms, user names, and passwords. According to the FTC, the information collected also included credit card and financial account numbers, security codes and expiration dates, and Social Security numbers. Upromise’s privacy statement, however, stated that (i) the toolbar would only infrequently and inadvertently collect personal identifying information, (ii) personal information would be removed before the data was transmitted, and (iii) Upromise automatically encrypts users’ sensitive information. The proposed settlement requires in part that Upromise (i) destroy data collected, (ii) update its disclosures, (iii) notify consumers regarding the type of information collected and how to disable the toolbar, and (iv) obtain a biennial independent audit for the next twenty years. The proposed settlement is open for public comment through February 6.
On January 5, the U.S. District Court for the District of Rhode Island judge responsible for handling “hundreds” of cases related to mortgage servicing and foreclosure practices appointed Merrill Sherman as special master to assist with resolution of the backlog of pending cases. In re Mortgage Foreclosure Cases, Misc. No. 11-mc-88-M-LDA (D.R.I. Jan. 5, 2012). Under the order, Ms. Sherman, formerly the President and CEO of Bancorp Rhode Island, Inc., has authority to, among other things, (i) order parties to meet and engage in settlement negotiations, (ii) order production of information to facilitate negotiations, and (iii) establish certain other procedural mechanisms to support discussions. The special master also may, among other things, make recommendations for court action to facilitate settlement or better manage the litigation.
On January 11, the CFPB took its first action to implement its nonbank supervision program by releasing the procedures it will use in examining all bank and nonbank mortgage originators. The Mortgage Origination Examination Procedures describe the types of information examiners will collect to (i) evaluate policies and procedures, (ii) assess compliance with applicable consumer financial services law, and (iii) identify risks to consumers throughout the mortgage origination process. CFPB mortgage origination exams will focus on specific products and will cover one or more of the following modules: (i) company business model; (ii) advertising and marketing; (iii) loan disclosures and terms; (iv) underwriting, appraisals, and originator compensation; (v) closing; (vi) fair lending; and (vii) privacy. These newly released procedures are an extension of the Supervision and Examination Manual the CFPB released in October 2011 (see BuckleySandler Special Alert, October 17, 2011).
On January 10, the U.S. Supreme Court ruled (8-1) that the Credit Repair Organizations Act (CROA) does not override the Federal Arbitration Act’s (FAA) broad requirement that arbitration agreements be enforced according to their terms. CompuCredit Corp. v. Greenwood, No. 10-948, 2012 WL 43514 (Jan. 10, 2012). This case involves a proposed class of consumers alleging CompuCredit violated the CROA when it marketed and provided a no-deposit credit card to consumers with poor credit and then charged fees against the credit limit. CompuCredit sought to compel arbitration to enforce the terms of the card agreement, which mandated individual arbitration of disputes. The district court and Ninth Circuit both sided with the proposed class, finding the arbitration clause in conflict with the CROA’s “right to sue” provision and therefore void. On appeal, the consumer respondents urged the Supreme Court to follow the Ninth Circuit and hold that because the CROA requires a disclosure that a consumer has the right to sue a violating credit repair organization, and because the CROA prohibits waiver of any right given under the CROA, the right to file suit cannot be waived by an arbitration agreement. The Supreme Court rejected the Ninth Circuit’s line of reasoning and reversed, holding instead that (i) the FAA establishes a liberal policy requiring enforcement of arbitration agreements according to their terms, (ii) the CROA is silent on arbitration and its disclosure provisions do not create a right to sue that overrides the broad FAA mandate, and (iii) Congress could have specifically prohibited arbitration provisions in the CROA.
On January 7, Federal Reserve Board (FRB) Governor Sarah Bloom Raskin, in a speech to the Association of American Law Schools, reviewed the status of federal banking regulators’ enforcement responses to what she characterized as the "foreclosure crisis". Governor Raskin described the enforcement actions brought last year by the FRB and other banking regulators against mortgage servicers as “only a start in a comprehensive enforcement response to the foreclosure crisis” and provided a reminder that anticipated monetary penalties for alleged deficient servicing and foreclosure practices are still to come. Further, Governor Raskin identified strong enforcement as a necessary incentive to developing an improved mortgage servicing model.
On January 6, the Illinois Department of Financial and Professional Regulations published amendments to regulations governing mortgage originator licensing. The amendments, which are effective immediately, include an increase in certain fees paid by mortgage loan originators to cover costs incurred by the Department in providing current services. Other amendments include those to (i) reestablish and update license reporting provisions, including through the use of the Nationwide Mortgage Licensing System and Registry, to implement state-law changes required by the federal SAFE Mortgage Licensing Act; (ii) require submission of a purchasing activity report; and (iii) establish a new standard for payment processing by servicers. The purchasing activity report requires annual reporting of (i) the names of originating entities, (ii) dollar amounts for each loan by property address, (iii) dollar amount of Illinois loans contained in a multi-state property portfolio, and (iv) total dollar amount for all Illinois loans purchased.
On January 6, Freddie Mac published Bulletin 2012-2, which allows servicers to offer eligible borrowers a short-term unemployment forbearance period, and the possibility of an extended unemployment forbearance period, if needed. On January 11, Fannie Mae followed with Servicer Guide Announcement SVC-2012-01, implementing a substantially similar program. Under the new programs, servicers may suspend or reduce an eligible borrower’s mortgage payments for a period of six months. With approval from Freddie Mac or Fannie Mae, respectively, servicers also may extend the six-month forbearance period for up to an additional six months, provided that the period does not extend beyond a date that would cause the delinquency to exceed twelve months. Further, following an unemployment forbearance period, a borrower may be re-evaluated for a new Home Affordable Modification Program (HAMP) or non-HAMP trial-period plan if the borrower was complying with the terms of the existing trial plan before obtaining unemployment forbearance. Under the Freddie Mac program, servicers must incorporate unemployment forbearance into their operations by February 1, 2012, but servicers have until March 1, 2012 to comply under the Fannie Mae program.
On January 3, the U.S. District Court for the Western District of Washington denied an Internet service provider’s (ISP) motion to compel arbitration, holding in part that the ISP’s terms of service agreement containing the arbitration clause was not reasonably conspicuous. Kwan v. Clearwire Corp., No. C09-1392JLR, 2012 WL 32380 (W.D. Wash. Jan. 3, 2012). In this case, plaintiffs filed suit on behalf of a putative class against an ISP and its debt-collection vendors for violations of federal and state consumer-protection laws based on the defendants’ repeated attempts to collect payments the ISP claimed it was due under mobile Internet service contracts. The ISP moved to compel arbitration, asserting (i) that its customers are required to acknowledge and agree to certain terms of service, including an agreement to arbitrate disputes, before using the ISP’s services (i.e., a so-called “clickwrap agreement”); and (ii) that the ISP sent to customers order-confirmation e-mails that also included a link to the terms of service (i.e., a so-called “browsewrap agreement”).
Relying on the Second Circuit’s analysis in Specht v. Netscape Comms. Corp., 605 F.3d 17 (2nd Cir. 2002), the court identified as the central issue whether the consumer had notice of and access to the terms and conditions of the contract prior to the conduct that allegedly indicated the consumer’s assent. With regard to the confirmation e-mail, the court found that the e-mail did not contain a direct link to the terms of service but rather a link to the ISP’s homepage that provided subsequent links to the terms of service. Further, the link that was provided in the confirmation e-mail did not appear until the third page of the e-mail. Thus, the court held that access to the terms of service did not constitute sufficient or reasonably conspicuous notice of those terms. However, the court also held that the consumers’ acceptance of terms through the clickwrap agreement would have bound them to the terms of service and the arbitration clause, but that issues of fact exist as to whether the named plaintiffs actually clicked to accept the terms. The court deferred resolution of those issues for a factual hearing, as well as a decision on whether a consumer who specifically declines to accept the terms of service is still bound by those terms by virtue of simply accessing the terms of service.
On January 6, the U.S. District Court for the Western District of Oklahoma dismissed the majority of claims brought by two borrowers seeking to represent a class of borrowers against Bank of America Corporation, Bank of America N.A., and BAC Home Loans Servicing, LP (collectively BAC) for alleged wrongful foreclosure practices. Risener v. Bank of Am. Corp., No. 10-1110 (W.D. Okla. Jan 6, 2012). In this case, the borrowers claim that after their original servicer ceased operations, their loan servicing was assigned to BAC and their loan was inaccurately recorded as being in default. According to the borrowers, multiple attempts to prove that the borrowers were not in default were ignored by the defendants. Further, according to the borrowers, BAC Home Loans Servicing, LP, continued to send default notices and threatened to foreclose, refused to verify the borrowers’ default status, and reported false information about borrowers to credit reporting agencies.
As such, the borrowers allege that defendants (i) violated the Fair Debt Collections Practices Act (FDCPA) by using false, deceptive, or misleading representations in the collection of debts and by failing to provide certain required notices; and (ii) violated the Fair Credit Reporting Act (FCRA) by providing false information to credit reporting agencies and by failing to investigate the disputed default loan status. Agreeing with a recent Georgia decision involving a similar fact pattern, the court held that because the borrowers allege their loan was not in default, BAC could not have been “debt collectors” subject to the FDCPA, because the FDCPA requires a loan to be “in default”, not “allegedly in default.” Further, the borrowers do not allege that Bank of America Corporation or Bank of America, N.A. ever attempted to collect a debt and, therefore, regardless of their status as a debt collector, cannot be found in violation of the FDCPA. With regard to the borrowers’ FCRA claims, the court held that the FCRA does not include a cause of action for the act of providing false information but that borrowers’ claims that BAC Home Loans Servicing failed to investigate were sufficiently supported by the allegations in the complaint and therefore could proceed.
- Buckley Webcast: Tips for this year’s FHA annual recertification and what the shutdown means
- Jessica L. Pollet to discuss "Your career is impacting your life..." at the Ark Group Women Legal Conference
- Melissa Klimkiewicz to discuss "RESPA-compliant marketing" at NEXT
- Daniel P. Stipano to provide "Update on AML/SAR reporting and enforcement" at an Mortgage Bankers Association webinar
- Daniel P. Stipano to discuss "Dynamic customer due diligence and beneficial ownership from KYC to ongoing CDD and the new rule implementation" at the Puerto Rican Symposium of Anti-Money Laundering
- Jon David D. Langlois to discuss "Successors in interest updates" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference