InfoBytes, April 20, 2012 - A Weekly In-depth review of news & developments in the financial services industry.

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Topics In This Issue:

 

Sign Up Is Easy!; Federal Issues; State Issues; Courts; Miscellany; Firm News; Mortgages; Banking; Consumer Finance; Litigation; E-Commerce

Federal Issues 

CFPB Puts Consumer Lenders on Notice Regarding Discriminatory Practices. On April 18, the CFPB put consumer lenders on notice that it "will use all available legal avenues, including disparate impact, to pursue lenders whose practices discriminate against consumers." The CFPB intends to employ disparate impact when examining auto lenders, credit card issuers, student lenders, mortgage lenders, and other providers of consumer credit, allowing the CFPB to claim an institution has engaged in discriminatory lending based on the effects and not the intent of the lending practices. Concurrent with the announcement, the CFPB published Bulletin 2012-04 to specifically reaffirm its commitment to applying disparate impact when conducting supervision and examination under the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B. In support of this application, the CFPB cites what it refers to as the "consensus approach" outlined by a 1994 interagency Policy Statement on Discrimination in Lending, which notes court findings that discriminatory lending in violation of ECOA can be established through (i) overt evidence of discrimination, (ii) evidence of disparate treatment, and (iii) evidence of disparate impact. The CFPB also argues that the ECOA legislative history, as characterized in the original Regulation B adopted by the Federal Reserve Board, supports application of the disparate impact doctrine.

NFHA Files Second REO Administrative Complaint. On April 17, the National Fair Housing Alliance and certain of its member organizations (collectively NFHA) filed an administrative complaint with the Department of Housing and Urban Development alleging discriminatory practices with regard to real estate owned (REO) properties in violation of the Fair Housing Act. This is the second of several complaints and lawsuits the NFHA is expected to file with regard to these alleged practices.

CFPB Clarifies Transitional Licensing for Mortgage Loan Originators. On April 19, the CFPB issued Bulletin 2012-05 to clarify issues related to the transitional licensing of mortgage loan originators under the SAFE Act and Regulation H. According to the Bulletin, (i) states are allowed to provide a transitional license to an individual with a valid license from another state, but (ii) states are prohibited from providing a transitional license for a registered loan originator who leaves a federally regulated financial institution to act as a loan originator while pursuing a state license.

CFPB Files Briefs in Three TILA Actions. On April 13, the CFPB filed amicus briefs in TILA cases pending in the Third, Fourth, and Eighth Circuits. As it did previously in a brief filed in the Tenth Circuit, the CPFB argued that borrowers who do not receive the material disclosures required by TILA are not required to file suit within the three-year rescission period. Rather, the CFPB argues that a borrower can rescind the transaction as long as they provide notice to the lender of the cancellation within three years of consummation.

IRS Finalizes New Reporting Requirement for U.S. Banks. On April 19, the Internal Revenue Service published a final rule that requires U.S. banks to report annually the deposit interest paid to nonresident alien account holders. The reporting requirement will apply to interest payments made on or after January 1, 2013. The IRS is intending to collect this information to help combat offshore tax evasion by (i) ensuring that the IRS can exchange information with other jurisdictions, (ii) supporting implementation of the Foreign Account Tax Compliance Act, and (iii) making it more difficult for U.S. taxpayers to falsely claim to be nonresidents in order to avoid taxes on deposit interest income. To address concerns about the confidential treatment of collected information, the final rule limits the IRS's exchange of the reported information to those countries with which the U.S. has an exchange-of-information agreement. The IRS believes that those agreements contain legal limitations and administrative safeguards to ensure confidential treatment of the information.

FHFA Calls for Streamlined Short Sales, Freddie Mac Updates Short Sale Requirements. On April 17, the FHFA directed Fannie Mae and Freddie Mac to develop procedures for streamlining short sales, deeds-in-lieu and deeds-for-lease in order to avoid foreclosures. Under the new Fannie Mae and Freddie Mac policies, servicers will be required to (i) review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer and a complete borrower response package, (ii) provide weekly status updates to the borrower if the short sale offer is still under review after 30 calendar days, and (iii) make and communicate final decisions to the borrower within 60 calendar days of receipt of the offer and complete borrower response package.

Also on April 17, Freddie Mac issued Servicing Guide Bulletin 2012-09, which clarifies existing requirements and adds new minimum requirements for communication timelines for Home Affordable Foreclosure Alternatives Short Sales and short sales processed under Guide Chapter B65. Servicers are encouraged to begin implementing the new requirements as soon as possible, but must do so for all new borrower evaluations conducted on or after June 15, 2012.

State Issues

CSBS and NMLS Issue New Forms for Expanded Use of Registry. On April 16, the Conference of State Bank Supervisors (CSBS) and the National Mortgage License and Registry System (NMLS) issued new licensing forms to support the CSBS's previously announced plans to expand the use of NMLS to include nonbank, non-mortgage financial service providers. With the issuance of the new forms, the NMLS announced that 11 states have committed to requiring non-mortgage financial services institutions to begin using the NMLS this year, with Washington, Vermont, and Rhode Island as the most recent to provide transition plans. The other states include the District of Columbia, Idaho, Louisiana, Maryland, Massachusetts, New Hampshire, Oklahoma, Tennessee, and Pennsylvania.

Nebraska Expands NMLS Use and Alters Mortgage Licensing. On April 5, Nebraska enacted Legislative Bill 965 to require and provide for the transition of the state's manual licensing of installment loan companies to licensing through the NMLS. This change will take effect beginning January 2013. The law also amends the Residential Mortgage Licensing Act to, among other things (i) update and add certain exemptions for mortgage banker and mortgage loan originator licensing requirements, and (ii) adjust the powers of the Department of Banking and Finance to administer the mortgage banker and loan originator licensing process.

Kentucky Enacts Numerous Bills Impacting Mortgages and Vehicle Finance. On April 11, Kentucky Governor Steve Beshear signed several bills impacting consumer lending. House Bill 417 makes a variety of amendments impacting motor vehicle installment contracts, including, among other things, (i) altering the form and required content of retail installment contracts, (ii) adjusting the permissible delinquency and collection charge on an installment in arrears for a period of 10 or more days, (iii) creating a safe harbor for retail installment contracts that satisfy the requirements of the Truth in Lending Act, and (iv) making various amendments regarding retail installment sales that are precomputed.

House Bill 62 and House Bill 396 relate to foreclosures. The former requires a mortgage holder to file a deed in lieu of foreclosure with the county clerk within 45 days of the instrument's execution and allows for a penalty in the form of a violation of law for any mortgage holder who fails to do so. The bill also exempts filing deeds in lieu of foreclosures from the state's transfer tax on property as well as the voluntary surrender under a mortgage in lieu of a foreclosure proceeding. The latter relates to an expedited sale mechanism for foreclosures involving vacant and abandoned real property and amends the offense of defrauding a secured creditor to add situations where collateral is intentionally damaged.

Finally, House Bill 409, among other things, exempts from most laws and regulations applicable to mortgage loan companies and brokers persons other than natural persons that originate four or fewer mortgage loans per year and do not hold themselves out to be primarily in the mortgage loan business, while House Bill 533 prohibits private transfer fees.

Oregon Establishes Foreclosure Mediation Process. On April 11, Oregon established a foreclosure mediation process when it enacted Senate Bill 1552. The law requires that a beneficiary (i) enter into mediation with a grantor for the purpose of negotiating a foreclosure avoidance measure and (ii) notify a grantor if they are not eligible for any foreclosure avoidance measure or if the grantor has not complied with the terms of a foreclosure avoidance measure. The new law details the form for notices required under the new process and establishes potential penalties for a beneficiary failing to comply with the new procedures.The bill took effect on April 11, with most of the new requirements becoming operative 91 days after the effective date.

Maryland Alters Mortgage Licensing Exemptions, Expands Commissioner's Enforcement Power. On April 10, Maryland enacted Senate Bill 302, which removes the mortgage licensing exemption for a person who makes three or fewer mortgage loans per calendar year and brokers no more than one mortgage loan per calendar year. The law also expands the authority of the Commissioner of Financial Regulation to investigate and enforce state law with regard to a subsidiary or affiliate of an institution over which the Commissioner has jurisdiction. The law becomes effective on January 1, 2013.

Colorado Amends Foreclosure Law. On April 12, Colorado passed a law amending administrative procedures under its foreclosure law. Pursuant to Senate Bill 30, effective September 1, 2012 counties must (i) notify a homeowner during the foreclosure process that they may be due money if excess funds are obtained through the sale of their foreclosed property, (ii) attempt to locate the homeowner and notify them of excess funds obtained from the public auction of their foreclosed property, and (iii) turn excess funds over to the state treasurer if the homeowner cannot be located. The state will hold the funds in perpetuity, allowing a homeowner to claim the funds at any time. Under existing law, counties are not required to conduct any initial outreach and can retain for themselves any money not claimed within five years of the sale.

Courts

Eleventh Circuit Holds No Private Right of Action Under HAMP.   On April 19, the U.S. Court of Appeals for the Eleventh Circuit held that there is no implied private right of action under the federal Home Affordable Modification Program (HAMP).

Miller v. Chase Home Financing, LLC, No. 11-15166 (11th Cir. Apr. 19, 2012). In this case, the servicer agreed to enter into a temporary modification of the borrower's mortgage under HAMP, but later notified the borrower that it would not extend a permanent modification. The borrower alleged that the servicer failed to comply with its obligations under HAMP and sued the servicer claiming (i) breach of contract, (ii) breach of implied covenant of food faith and fair dealing, and (iii) promissory estoppel. The district court dismissed the case because (i) HAMP does not provide an express or implied private right of action and (ii) the claims otherwise fail as a matter of law. On appeal, the court upheld the district court dismissal, holding, without oral argument, that there is no discernable legislative intent to create a private right of action and noting that such a right would contravene the purpose of HAMP as servicers fearing litigation would limit their participation in the program. Last month, the Seventh Circuit held that a plaintiff bringing claims against a servicer based on similar fact pattern could maintain a suit against the servicer. That case is distinguishable, however, because while the borrower was not able to state a cause of action for a breach of HAMP directly, the borrower properly pled claims for breach of contract and promissory estoppel based on the servicer's promise to offer a permanent modification. In that case the Seventh Circuit also held that the borrower sufficiently pled fraudulent misrepresentation and state statutory fraud claims, and that those claims were not preempted by federal law.

Tenth Circuit Finds Emails Provide Sufficient Evidence of a Contract. On April 12, the U.S. Court of Appeals for the Tenth Circuit held that a series of emails taken as a whole provided sufficient evidence that the parties intended to form a contract. Republic Bank, Inc. v. West Penn Allegheny Health Sys., Inc., No 10-4145, 2012 WL 1223933 (10th Cir. Apr. 12, 2012). In this case, a Utah bank that acquired certain medical equipment after a borrower defaulted on an equipment lease identified a hospital as a potential buyer. The hospital subsequently made an offer via email to purchase certain pieces of equipment. A bank representative accepted the offer, also by email, and subsequently agreed to prepare a written agreement. Eventually the hospital informed the bank that it would not be able to make the purchase and the bank was forced to auction the equipment. The bank then sued the hospital for breach of contract. The court applied the Uniform Commercial Code to uphold the district court's ruling that a contract had been formed and breached. The UCC standard relies on "objective, observable manifestations of intent to contract." Evidence of intent requires a signed writing that need only contain the essential terms of the agreement. In this case, an email from the hospital offering to purchase the items and an email from the bank accepting that offer, combined with multiple, subsequent references to a binding agreement by the bank that the hospital did not refute, as a whole, provided sufficient evidence of a contract.

Nevada Supreme Court Rules on Admissibility of Text Messages. On April 5, the Nevada Supreme Court held that a lower court abused its discretion when it admitted text messages absent sufficient evidence corroborating the identity of the sender. Rodriguez v. Nevada, No. 56413, 2012 WL 1136437 (Nev. Apr. 5, 2012). The defendant was found guilty in trial court of multiple counts related to an attack on a woman in her home. On appeal he argued that the trial court erred in overruling an objection to the admission of 12 text messages because the state failed to authenticate the messages and the messages constituted inadmissible hearsay. The Nevada Supreme Court held that it is essential that the identity of the author of the text message be established through the use of corroborating evidence. In this case, although the state established that the victim's cell phone was stolen during the attack, and that the defendant was in possession of the cell phone prior to being arrested, the state did not offer any evidence that the defendant authored 10 of the 12 messages. Two messages were admissible and were not hearsay because in those instances, the state was able to offer bus surveillance video of the defendant using the phone at the time the two messages were sent. Despite the erroneous admission of the other 10 text messages, however, the Nevada Supreme Court held that the error was harmless.

Suit Challenging Charges for Minors' In-App iTunes Purchases Survives Motion to Dismiss. On March 31, the U.S. District Court for the Northern District of California denied, in large part, a motion to dismiss claims brought by parents of children who made in-app purchases from the parents' iTunes accounts. In re Apple In-App Purchase Litigation, No. 11-1758, 2012 WL 1123548 (N.D. Cal. Mar. 31, 2012). The parent plaintiffs sued Apple on behalf of a putative class claiming that apps provided by Apple and advertised as free allowed children, without the parents' knowledge, to make in-app purchases of online game supplies during a 15-minute window following the parent's initial account authentication. The parents alleged that each purchase by a minor under these circumstances constituted separate, voidable contracts with Apple that may be disaffirmed by a parent or guardian. Apple countered that the only contracts at issue are those between it and the iTunes account holders, and the terms and conditions of those contracts provide that account holders are "solely responsible for maintaining the confidentiality and security of [their] Account and for all activities that occur on or through [their] Account." In denying the motion to dismiss, the court held that the complaint can not be dismissed as a matter of law because Apple offered no case law to support its contention that the terms and conditions constitute a relational contract that governs each subsequent transaction. Further, the court allowed to proceed (i) claims under California's Consumer Legal Remedies Act because allegations that Apple omitted material facts to induce minors into buying additional gaming products were actionable, and (ii) Unfair Competition Law claims because plaintiffs alleged all three prongs of the UCL, properly pleading that Apple's actions were unlawful, unfair, and fraudulent business acts or practices.

Miscellany

Financial Stability Board Publishes Mortgage Underwriting Principles. On April 18, the Financial Stability Board (FSB), an international group comprised of representatives from all G-20 member countries and the European Commission, published principles for sound residential mortgage underwriting practices. The principles are intended to provide minimum acceptable standards to achieve: (i) effective verification of income and other financial information; (ii) reasonable debt service coverage; (iii) appropriate loan-to-value ratios; (iv) effective collateral management; and (v) prudent use of mortgage insurance. The FSB did not attempt to set detailed international standards, but rather established a framework to limit the risks posed by mortgage markets to global financial stability. The report also sets out an implementation framework and describes tools that can be used to monitor and supervise implementation.

Firm News

Join Us in Los Angeles, CA for the 2012 CFPB and Top Regulatory and Enforcement Issues Conference, hosted by BuckleySandler LLP.

2012 Topics Include:

  • CFPB Regulatory Initiatives
  • CFPB and AG Enforcement Agenda
  • Anatomy of a CFPB Examination/Enforcement Action and State Involvement
  • The CFPB's Fair Lending Agenda for Auto, Private Student Lenders, and Non-Secured Consumer Lending
  • Loan Originator and Sales Force Compensation
  • Fair Lending Enforcement: Consent Orders, Enforcement Actions, and Settlements
  • Return of the Secondary Market and New Risks
  • Latest Privacy Litigation and Emerging Issues

When: Tuesday, April 24, 2012

Where: Jonathan Club Beach in Santa Monica, CA.

To register, contact Ann Grozman (agrozman@buckleysandler.com).

Join Us! 2012 Fair Lending Today Conference on Compliance, Regulatory and Litigation Issues and the CFPB in Today's Changing Enforcement Environment, hosted by BuckleySandler LLP.

2012 Panel Topics Include:

  • Overview: A New Agency Emerges
  • The Justice Department and Fair Lending: Disparate Impact Escapes Potential Elimination in Magner
  • Mortgage Servicing Developments: The AG/DOJ Settlement, the CFPB, and Ongoing Enforcement
  • Anatomy of a CFPB Enforcement Action
  • The CFPB's Fair Lending Agenda for Auto, Private Student Lenders, and Non-Secured Lending
  • New CFPB Enforcement Priorities for Credit Cards
  • Fair and Responsible Banking Risk Management Update

When: Monday, April 30, 2012

Where: The Fairmont Hotel in Washington, DC

Registration required. This conference is open to all financial services companies and others subject to CFPB oversight. Please no outside law firms, government agency personnel, consultant firms or media. For more information visit www.fairlendingtoday.com or contact fairlending@buckleysandler.com.

The STAGE Network will be hosting a webinar entitled "The Financial Fraud Enforcement Task Force - Insights and Guidance," which will examine the Financial Fraud Enforcement Task Force (FFETF), with a focus on its recently formed Residential Mortgage-Backed Securities (RMBS) Working Group. The webinar will include a discussion of anticipated actions by both the Task Force and by the RMBS Working Group, and how to proactively prepare for them. The discussion will be moderated by Bradley J. Bondi of Cadwalader, Wickersham & Taft LLP and Jeremiah S. Buckley of BuckleySandler LLP. Additional participants will be announced.

When: April 27, 2012 at 2:30 - 3:30 pm (ET)

Registration required. Click here to register.

David Krakoff will be speaking at the ALI-ABA Environmental Crimes Conference in Washington, DC on April 26, 2012. Mr. Krakoff's session will discuss the key issues at the outset of an environmental criminal action.

Jonice Gray Tucker and Amanda Raines will be participating in a D.C. Bar Women Litigators' Committee panel entitled, "Women Litigators: What We Do Right" on April 26, 2012 in Washington, D.C. The panel will discuss those characteristics that female litigators have which make them effective and persuasive advocates.

Benjamin Klubes and Jonice Gray Tucker will be speaking at The Financial Services Roundtable's Spring Meeting of the Lawyers Council on May, 3, 2012, in a session entitled "Litigation & Enforcement Update."

Andrea Mitchell will serve as a faculty panelist at the 26th Annual Payment Card Institute Conference in Arlington, VA on May 3, 2012. Ms. Mitchell's panel will discuss litigation trends in today's changing payment card industry with topics including CFPB state Attorneys General investigations, enforcement efforts, new developments in arbitration, antitrust issues, FACTA and CARD Act litigations, and payment protection/debt cancellation and other ancillary product cases.

Benjamin Saul will be speaking at the 24th Annual Card Forum & Expo on May 10, 2012 in Orlando, FL. Mr. Saul's session is entitled "Impact of Changes in the Consumer Compliance Regulatory Landscape."

James Parkinson will be speaking at a PLI program seminar entitled "Foreign Corrupt Practices Act 2012" in New York, New York on May 4, 2012.

Andrew Sandler and Jonice Gray Tucker will be participating in an American Bar Association webinar focusing on the Federal-State Mortgage Servicing Settlement on May 15, 2012.

Andrew Sandler, Benjamin Klubes, Jeff Naimon, Benjamin Saul, and Margo Tank will be speaking at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference in Palm Springs, CA on May 20, 2012. Mr. Klubes will provide updates on developments in both regulatory and litigation matters in the use of various privileges. Mr. Saul's session will provide an overview and update of the Fair Credit Reporting Act (FCRA), Fair Housing Act, Equal Credit Opportunity Act (ECOA) and Home Mortgage Disclosure Act (HMDA) requirements including recent proposed and final changes.

Jonathan Cannon will be speaking at the Predictive Methods Conference in Dana Point, CA on June 4, 2012 in a session entitled "The Dodd-Frank Act: Understanding its Impact on the Mortgage Industry."

Andrew Sandler will be speaking at the American Bankers Association's Regulatory Compliance Conference in Orlando, Florida on Monday, June 11, 2012. Mr. Sandler's session is entitled: "Hot Topics in Fair Lending."

Mortgages

NFHA Files Second REO Administrative Complaint. On April 17, the National Fair Housing Alliance and certain of its member organizations (collectively NFHA) filed an administrative complaint with the Department of Housing and Urban Development alleging discriminatory practices with regard to real estate owned (REO) properties in violation of the Fair Housing Act. This is the second of several complaints and lawsuits the NFHA is expected to file with regard to these alleged practices.

CFPB Clarifies Transitional Licensing for Mortgage Loan Originators. On April 19, the CFPB issued Bulletin 2012-05 to clarify issues related to the transitional licensing of mortgage loan originators under the SAFE Act and Regulation H. According to the Bulletin, (i) states are allowed to provide a transitional license to an individual with a valid license from another state, but (ii) states are prohibited from providing a transitional license for a registered loan originator who leaves a federally regulated financial institution to act as a loan originator while pursuing a state license.

CFPB Files Briefs in Three TILA Actions. On April 13, the CFPB filed amicus briefs in TILA cases pending in the Third, Fourth, and Eighth Circuits. As it did previously in a brief filed in the Tenth Circuit, the CPFB argued that borrowers who do not receive the material disclosures required by TILA are not required to file suit within the three-year rescission period. Rather, the CFPB argues that a borrower can rescind the transaction as long as they provide notice to the lender of the cancellation within three years of consummation.

FHFA Calls for Streamlined Short Sales, Freddie Mac Updates Short Sale Requirements. On April 17, the FHFA directed Fannie Mae and Freddie Mac to develop procedures for streamlining short sales, deeds-in-lieu and deeds-for-lease in order to avoid foreclosures. Under the new Fannie Mae and Freddie Mac policies, servicers will be required to (i) review and respond to requests for short sales within 30 calendar days from receipt of a short sale offer and a complete borrower response package, (ii) provide weekly status updates to the borrower if the short sale offer is still under review after 30 calendar days, and (iii) make and communicate final decisions to the borrower within 60 calendar days of receipt of the offer and complete borrower response package.

Also on April 17, Freddie Mac issued Servicing Guide Bulletin 2012-09, which clarifies existing requirements and adds new minimum requirements for communication timelines for Home Affordable Foreclosure Alternatives Short Sales and short sales processed under Guide Chapter B65. Servicers are encouraged to begin implementing the new requirements as soon as possible, but must do so for all new borrower evaluations conducted on or after June 15, 2012.

Financial Stability Board Publishes Mortgage Underwriting Principles. On April 18, the Financial Stability Board (FSB), an international group comprised of representatives from all G-20 member countries and the European Commission, published principles for sound residential mortgage underwriting practices. The principles are intended to provide minimum acceptable standards to achieve: (i) effective verification of income and other financial information; (ii) reasonable debt service coverage; (iii) appropriate loan-to-value ratios; (iv) effective collateral management; and (v) prudent use of mortgage insurance. The FSB did not attempt to set detailed international standards, but rather established a framework to limit the risks posed by mortgage markets to global financial stability. The report also sets out an implementation framework and describes tools that can be used to monitor and supervise implementation.

Nebraska Expands NMLS Use and Alters Mortgage Licensing. On April 5, Nebraska enacted Legislative Bill 965 to require and provide for the transition of the state's manual licensing of installment loan companies to licensing through the NMLS. This change will take effect beginning January 2013. The law also amends the Residential Mortgage Licensing Act to, among other things (i) update and add certain exemptions for mortgage banker and mortgage loan originator licensing requirements, and (ii) adjust the powers of the Department of Banking and Finance to administer the mortgage banker and loan originator licensing process.

Kentucky Enacts Numerous Bills Impacting Mortgages and Vehicle Finance. On April 11, Kentucky Governor Steve Beshear signed several bills impacting consumer lending. House Bill 417 makes a variety of amendments impacting motor vehicle installment contracts, including, among other things, (i) altering the form and required content of retail installment contracts, (ii) adjusting the permissible delinquency and collection charge on an installment in arrears for a period of 10 or more days, (iii) creating a safe harbor for retail installment contracts that satisfy the requirements of the Truth in Lending Act, and (iv) making various amendments regarding retail installment sales that are precomputed.

House Bill 62 and House Bill 396 relate to foreclosures. The former requires a mortgage holder to file a deed in lieu of foreclosure with the county clerk within 45 days of the instrument's execution and allows for a penalty in the form of a violation of law for any mortgage holder who fails to do so. The bill also exempts filing deeds in lieu of foreclosures from the state's transfer tax on property as well as the voluntary surrender under a mortgage in lieu of a foreclosure proceeding. The latter relates to an expedited sale mechanism for foreclosures involving vacant and abandoned real property and amends the offense of defrauding a secured creditor to add situations where collateral is intentionally damaged.

Finally, House Bill 409, among other things, exempts from most laws and regulations applicable to mortgage loan companies and brokers persons other than natural persons that originate four or fewer mortgage loans per year and do not hold themselves out to be primarily in the mortgage loan business, while House Bill 533 prohibits private transfer fees.

Oregon Establishes Foreclosure Mediation Process. On April 11, Oregon established a foreclosure mediation process when it enacted Senate Bill 1552. The law requires that a beneficiary (i) enter into mediation with a grantor for the purpose of negotiating a foreclosure avoidance measure and (ii) notify a grantor if they are not eligible for any foreclosure avoidance measure or if the grantor has not complied with the terms of a foreclosure avoidance measure. The new law details the form for notices required under the new process and establishes potential penalties for a beneficiary failing to comply with the new procedures.The bill took effect on April 11, with most of the new requirements becoming operative 91 days after the effective date.

Maryland Alters Mortgage Licensing Exemptions, Expands Commissioner's Enforcement Power. On April 10, Maryland enacted Senate Bill 302, which removes the mortgage licensing exemption for a person who makes three or fewer mortgage loans per calendar year and brokers no more than one mortgage loan per calendar year. The law also expands the authority of the Commissioner of Financial Regulation to investigate and enforce state law with regard to a subsidiary or affiliate of an institution over which the Commissioner has jurisdiction. The law becomes effective on January 1, 2013.

Colorado Amends Foreclosure Law. On April 12, Colorado passed a law amending administrative procedures under its foreclosure law. Pursuant to Senate Bill 30, effective September 1, 2012 counties must (i) notify a homeowner during the foreclosure process that they may be due money if excess funds are obtained through the sale of their foreclosed property, (ii) attempt to locate the homeowner and notify them of excess funds obtained from the public auction of their foreclosed property, and (iii) turn excess funds over to the state treasurer if the homeowner cannot be located. The state will hold the funds in perpetuity, allowing a homeowner to claim the funds at any time. Under existing law, counties are not required to conduct any initial outreach and can retain for themselves any money not claimed within five years of the sale.

Eleventh Circuit Holds No Private Right of Action Under HAMP. On April 19, the U.S. Court of Appeals for the Eleventh Circuit held that there is no implied private right of action under the federal Home Affordable Modification Program (HAMP). Miller v. Chase Home Financing, LLC, No. 11-15166 (11th Cir. Apr. 19, 2012). In this case, the servicer agreed to enter into a temporary modification of the borrower's mortgage under HAMP, but later notified the borrower that it would not extend a permanent modification. The borrower alleged that the servicer failed to comply with its obligations under HAMP and sued the servicer claiming (i) breach of contract, (ii) breach of implied covenant of food faith and fair dealing, and (iii) promissory estoppel. The district court dismissed the case because (i) HAMP does not provide an express or implied private right of action and (ii) the claims otherwise fail as a matter of law. On appeal, the court upheld the district court dismissal, holding, without oral argument, that there is no discernable legislative intent to create a private right of action and noting that such a right would contravene the purpose of HAMP as servicers fearing litigation would limit their participation in the program. Last month, the Seventh Circuit held that a plaintiff bringing claims against a servicer based on similar fact pattern could maintain a suit against the servicer. That case is distinguishable, however, because while the borrower was not able to state a cause of action for a breach of HAMP directly, the borrower properly pled claims for breach of contract and promissory estoppel based on the servicer's promise to offer a permanent modification. In that case the Seventh Circuit also held that the borrower sufficiently pled fraudulent misrepresentation and state statutory fraud claims, and that those claims were not preempted by federal law.

Banking

IRS Finalizes New Reporting Requirement for U.S. Banks. On April 19, the Internal Revenue Service published a final rule that requires U.S. banks to report annually the deposit interest paid to nonresident alien account holders. The reporting requirement will apply to interest payments made on or after January 1, 2013. The IRS is intending to collect this information to help combat offshore tax evasion by (i) ensuring that the IRS can exchange information with other jurisdictions, (ii) supporting implementation of the Foreign Account Tax Compliance Act, and (iii) making it more difficult for U.S. taxpayers to falsely claim to be nonresidents in order to avoid taxes on deposit interest income. To address concerns about the confidential treatment of collected information, the final rule limits the IRS's exchange of the reported information to those countries with which the U.S. has an exchange-of-information agreement. The IRS believes that those agreements contain legal limitations and administrative safeguards to ensure confidential treatment of the information.

Consumer Finance

CFPB Puts Consumer Lenders on Notice Regarding Discriminatory Practices. On April 18, the CFPB put consumer lenders on notice that it "will use all available legal avenues, including disparate impact, to pursue lenders whose practices discriminate against consumers." The CFPB intends to employ disparate impact when examining auto lenders, credit card issuers, student lenders, mortgage lenders, and other providers of consumer credit, allowing the CFPB to claim an institution has engaged in discriminatory lending based on the effects and not the intent of the lending practices. Concurrent with the announcement, the CFPB published Bulletin 2012-04 to specifically reaffirm its commitment to applying disparate impact when conducting supervision and examination under the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B. In support of this application, the CFPB cites what it refers to as the "consensus approach" outlined by a 1994 interagency Policy Statement on Discrimination in Lending, which notes court findings that discriminatory lending in violation of ECOA can be established through (i) overt evidence of discrimination, (ii) evidence of disparate treatment, and (iii) evidence of disparate impact. The CFPB also argues that the ECOA legislative history, as characterized in the original Regulation B adopted by the Federal Reserve Board, supports application of the disparate impact doctrine.

CSBS and NMLS Issue New Forms for Expanded Use of Registry. On April 16, the Conference of State Bank Supervisors (CSBS) and the National Mortgage License and Registry System (NMLS) issued new licensing forms to support the CSBS's previously announced plans to expand the use of NMLS to include nonbank, non-mortgage financial service providers. With the issuance of the new forms, the NMLS announced that 11 states have committed to requiring non-mortgage financial services institutions to begin using the NMLS this year, with Washington, Vermont, and Rhode Island as the most recent to provide transition plans. The other states include the District of Columbia, Idaho, Louisiana, Maryland, Massachusetts, New Hampshire, Oklahoma, Tennessee, and Pennsylvania.

Nebraska Expands NMLS Use and Alters Mortgage Licensing. On April 5, Nebraska enacted Legislative Bill 965 to require and provide for the transition of the state's manual licensing of installment loan companies to licensing through the NMLS. This change will take effect beginning January 2013. The law also amends the Residential Mortgage Licensing Act to, among other things (i) update and add certain exemptions for mortgage banker and mortgage loan originator licensing requirements, and (ii) adjust the powers of the Department of Banking and Finance to administer the mortgage banker and loan originator licensing process.

Litigation

Nevada Supreme Court Rules on Admissibility of Text Messages. On April 5, the Nevada Supreme Court held that a lower court abused its discretion when it admitted text messages absent sufficient evidence corroborating the identity of the sender.

Rodriguez v. Nevada, No. 56413, 2012 WL 1136437 (Nev. Apr. 5, 2012). The defendant was found guilty in trial court of multiple counts related to an attack on a woman in her home. On appeal he argued that the trial court erred in overruling an objection to the admission of 12 text messages because the state failed to authenticate the messages and the messages constituted inadmissible hearsay. The Nevada Supreme Court held that it is essential that the identity of the author of the text message be established through the use of corroborating evidence. In this case, although the state established that the victim's cell phone was stolen during the attack, and that the defendant was in possession of the cell phone prior to being arrested, the state did not offer any evidence that the defendant authored 10 of the 12 messages. Two messages were admissible and were not hearsay because in those instances, the state was able to offer bus surveillance video of the defendant using the phone at the time the two messages were sent. Despite the erroneous admission of the other 10 text messages, however, the Nevada Supreme Court held that the error was harmless.

E-Commerce

Tenth Circuit Finds Emails Provide Sufficient Evidence of a Contract. On April 12, the U.S. Court of Appeals for the Tenth Circuit held that a series of emails taken as a whole provided sufficient evidence that the parties intended to form a contract.

Republic Bank, Inc. v. West Penn Allegheny Health Sys., Inc., No 10-4145, 2012 WL 1223933 (10th Cir. Apr. 12, 2012). In this case, a Utah bank that acquired certain medical equipment after a borrower defaulted on an equipment lease identified a hospital as a potential buyer. The hospital subsequently made an offer via email to purchase certain pieces of equipment. A bank representative accepted the offer, also by email, and subsequently agreed to prepare a written agreement. Eventually the hospital informed the bank that it would not be able to make the purchase and the bank was forced to auction the equipment. The bank then sued the hospital for breach of contract. The court applied the Uniform Commercial Code to uphold the district court's ruling that a contract had been formed and breached. The UCC standard relies on "objective, observable manifestations of intent to contract." Evidence of intent requires a signed writing that need only contain the essential terms of the agreement. In this case, an email from the hospital offering to purchase the items and an email from the bank accepting that offer, combined with multiple, subsequent references to a binding agreement by the bank that the hospital did not refute, as a whole, provided sufficient evidence of a contract.

Suit Challenging Charges for Minors' In-App iTunes Purchases Survives Motion to Dismiss. On March 31, the U.S. District Court for the Northern District of California denied, in large part, a motion to dismiss claims brought by parents of children who made in-app purchases from the parents' iTunes accounts. In re Apple In-App Purchase Litigation, No. 11-1758, 2012 WL 1123548 (N.D. Cal. Mar. 31, 2012). The parent plaintiffs sued Apple on behalf of a putative class claiming that apps provided by Apple and advertised as free allowed children, without the parents' knowledge, to make in-app purchases of online game supplies during a 15-minute window following the parent's initial account authentication. The parents alleged that each purchase by a minor under these circumstances constituted separate, voidable contracts with Apple that may be disaffirmed by a parent or guardian. Apple countered that the only contracts at issue are those between it and the iTunes account holders, and the terms and conditions of those contracts provide that account holders are "solely responsible for maintaining the confidentiality and security of [their] Account and for all activities that occur on or through [their] Account." In denying the motion to dismiss, the court held that the complaint can not be dismissed as a matter of law because Apple offered no case law to support its contention that the terms and conditions constitute a relational contract that governs each subsequent transaction. Further, the court allowed to proceed (i) claims under California's Consumer Legal Remedies Act because allegations that Apple omitted material facts to induce minors into buying additional gaming products were actionable, and (ii) Unfair Competition Law claims because plaintiffs alleged all three prongs of the UCL, properly pleading that Apple's actions were unlawful, unfair, and fraudulent business acts or practices.

 

Published In: Administrative Agency Updates, General Business Updates, Consumer Protection Updates, Finance & Banking Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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