InfoBytes, March 23, 2012 - A Weekly In-depth review of news & developments in the financial services industry.

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Federal Issues

FDIC Approves Proposed Rule to Amend Large Bank Pricing Assessment System. On March 20, the FDIC approved for publication a proposed rule to amend the large bank pricing assessment system to include revised definitions of nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans. A February 2011 FDIC rule, among other things, eliminated risk categories and the use of long-term debt issuer ratings and instead adopted scorecards that combine CAMELS ratings and certain forward-looking measures to assess risk posed by an institution to the FDIC insurance fund. One of the financial ratios used in the scorecards involves higher-risk assets, defined as the sum of construction and land development loans, leveraged loans, subprime loans, and nontraditional mortgage loans. The February rule used existing interagency guidance to define nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans, but refined the definitions to minimize reporting discrepancies. A subsequent FDIC notice added a requirement that covered institutions include nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans data in their Call Reports. However, institutions generally do not maintain data on those loans consistent with the definitions in the February rule, and therefore were not able comply with the reporting requirements. The proposed rule extensively revises these definitions to allow large banks to report the information needed to conduct the assessments.

FDIC Approves Proposed Rule Regarding Enforcement of Subsidiary and Affiliate Contracts. On March 20, the FDIC approved for publication a proposed rule to implement new authorities granted by the Dodd-Frank Act that permit the FDIC, as receiver for a financial company whose failure would pose a significant risk to financial stability, to enforce certain contracts of subsidiaries and affiliates of the covered company. This proposed rule would include contracts that purport to terminate, accelerate, or provide for other remedies based on the insolvency, financial condition, or receivership of the covered company, so long as the FDIC complies with statutory requirements. The proposed rule would apply broadly to all contracts and make clear that the FDIC's authority as receiver effectively preserves contractual relationships of subsidiaries and affiliates during the liquidation process.

FDIC Warns Bank Directors and Officers Regarding Copying and Removal of Institution Information. On March 19, the FDIC issued Financial Institution Letter FIL-14-2012, which warns bank directors and officers that financial institution records belong exclusively to the institution, and supervisory records are the property of the FDIC. As such, directors and officers of failing institutions who make and remove copies of institution and supervisory records for "personal use" in preparing for anticipated litigation or enforcement activity (i) are breaching their fiduciary duty, (ii) are engaging in an unsafe and unsound banking practice, and (iii) may be violating the institution's information security program. Personal use includes use by directors or officers to defend themselves against administrative, civil, and criminal proceedings or lawsuits based on actions taken in their official capacity. The Financial Institution Letter also reminds outside counsel to financial institutions that their legal and ethical obligations are only to the institution, and not to an institution's directors or officers. The FDIC threatens bank directors and officers, and outside counsel with legal action for knowing or reckless violations of law or breach of fiduciary duty. In 2011, in a case in which the FDIC sued a law firm for having accepted copies of bank records from a bank prior to its closing to preserve for the defense of bank directors, BuckleySandler prepared an amicus brief for the American Association of Bank Directors asserting the right of bank directors to have free access to bank records that they need to defend themselves against administrative, civil, and criminal proceedings or suits.

CFPB Submits First Annual FDCPA Report to Congress. On March 20, the CFPB submitted to Congress its first annual report on the administration and enforcement of the Fair Debt Collections Practices Act (FDCPA). The CFPB inherited the annual reporting function as part of the Dodd-Frank Act's transfer to the CFPB of the primary regulatory responsibility for the FDCPA. Prior to this report, the FTC prepared the annual report, and this year it submitted a letter to the CFPB detailing its efforts under the FDCPA. The report, as informed by the FTC letter, provides (i) a brief background on the FDCPA, (ii) a summary of consumer complaints about the debt collection industry, (iii) a description of the CFPB's FDCPA supervision authority, including its rulemaking to expand that authority by defining "larger participant" nonbanks, (iv) an outline of recent FTC and CFPB enforcement activity and amicus briefs filed against entities engaged in debt collection, including ongoing non-public investigations of debt collection practices, and (v) each regulator's FDCPA-related research and policy initiatives.

FTC Releases Survey on Consumer Reporting Agencies and FACTA. On March 12, the FTC released the results of a survey conducted to gauge consumer experiences in dealing with consumer reporting agencies (CRAs) following an identity theft. While the survey indicates that the majority of consumers were satisfied with their experiences, many consumers were unaware of their rights under the Fair and Accurate Credit Transactions Act (FACTA) before contacting a CRA. In response to concerns raised by consumers in the survey, the report recommends that (i) CRAs make it easier for consumers to reach a live person and (ii) the CFPB use its examination and rulemaking authority, and the FTC employ its enforcement authority, to address CRAs' practice of attempting to sell identity theft products to consumers reporting identify thefts.

HUD Issues Guidance Regarding Occupied Conveyance Procedures. On March 16, HUD issued Mortgagee Letter 2012-6 to provide updated guidance for complying with the Protecting Tenants at Foreclosure Act of 2009 (PTFA). The Mortgagee Letter revises the information required in a Notice to Occupant of Pending Acquisition and provides updated sample letters and forms. The Mortgagee Letter also provides guidance regarding (i) "reasonable diligence" in obtaining possession of the property under PTFA, (ii) rent collection under bona fide leases and tenancies, and (iii) reimbursement for preservation and protection costs due to PTFA compliance.

Fannie Mae Reminds Servicers About Documentation Request Limits. On March 21, Fannie Mae issued a notice reminding servicers that in processing a borrower request for a foreclosure prevention alternative evaluation, servicers may only request limited documentation from a borrower. Specifically, a servicer may only request (i) a completed Uniform Borrower Assistance Form (Form 710), (ii) income documentation as outlined in Form 710 based on income type, (iii) hardship documentation as outlined in Form 710 based on hardship type, and (iv) a Short Form Request for Individual Tax Return Transcript (IRS Form 4506T-EZ) or a Request for Transcript of Tax Return (IRS Form 4506-T) signed by the borrower. Servicer requests for additional documentation are limited only to instances in which the servicer must reconcile inconsistencies in the documentation provided by the borrower, but such instances should be rare. Further, servicers may not request federal income tax returns unless the borrower is self-employed or the borrower has rental income, as outlined in Form 710.

Freddie Mac Publishes Revisions to Selling Requirements. On March 15, Freddie Mac published Single-Family Seller/Servicer Guide Bulletin 2012-8, which (i) updates mortgage eligibility and credit underwriting requirements Borrower Funds and Mortgage Credit Certificates for Borrower qualification, (ii) revises Forms 16SF and 1107SF regarding warehouse lender agreements and facilities, (iii) eliminates certain requirements for document custodians on Form 1034A, and (iv) updates certain delivery requirements under the Uniform Loan Delivery Dataset and clarifies delivery requirements for certain refinances under HARP.

FHFA IG Releases Results of Three Reviews. On March 22, the Office of Inspector General for the Federal Housing Finance Agency (FHFA IG) released the results of the following audit and surveys: (i) an audit of Fannie Mae's single-family underwriting standards, (ii) a survey of FHFA's oversight of the charitable activities of Fannie Mae and Freddie Mac, and (iii) a survey of FHFA's oversight of Fannie Mae's and Freddie Mac's expenses related to the 2011 Mortgage Bankers Association Convention. The FHFA IG found that FHFA's oversight of Fannie Mae's underwriting is limited, so FHFA should strengthen and formalize its processes for reviewing underwriting standards and variances. With regard to charitable contributions, the FHFA IG found that there is no need to conduct further evaluations because these contributions are scheduled to end by 2015. Similarly, the FHFA IG concluded that FHFA's new directive on conference sponsorships and expenditures for food will be sufficient if properly implemented.

State Issues

Arizona Alters Financial Institution and Loan Originator Licensing Provisions. On March 16, Arizona enacted Senate Bill 1014 which make changes to fees and definitions affecting financial institutions. The new law sets a maximum fee of $250 that the Department of Financial Institutions (DFI) can charge to change the licensee name on a financial institution or enterprise license. The law tightens an exception to the definition of "loan originator" such that loan originators that originate five or fewer mortgage loans per calendar year are exempt only if the source of the prospective financing also makes five or fewer mortgage loans per calendar year. The new law now requires the Superintendent of the DFI to deny a license from an individual who (i) has been convicted of, pled guilty to, or pled no lo contere to a felony seven years prior to the application, (ii) has been convicted of, pled guilty to, or pled no lo contere to a felony involving fraud, dishonesty, a breach of trust, or money laundering at any time, or (iii) lacks the responsibility, experience, or competency to adequately serve the public. These changes take effect 90 days after the state legislature adjourns this year, which it is expected to do on or around April 17, 2012.

Wyoming Prohibits Private Transfer Fees. On March 15, Wyoming enacted House Bill 0025, which ends the use of private transfer fee obligations for a specified period. Pursuant to the law, new private transfer fee obligations-which require the payment of a fee upon the subsequent transfer of a real property-entered into between April 1, 2012 and July 1, 2014 are not enforceable against subsequent owners, purchasers, or mortgagees. To enforce a private transfer fee obligation created prior to April 1, 2012, the payee must record a notice in the county clerk's office where the property is located. However, the law contains no prohibition of enforcement of private transfer fees absent the required recording. This law became effective March 15, 2012.

Utah Limits Time for Deficiency Actions Following a Short Sale. On March 8, Utah enacted Senate Bill 42 to limit the time within which lenders can bring an action to recover a deficiency following a short sale. Lenders now have only three months following a short sale to file a deficiency action against a borrower to recover the balance of the debt. Prior to passage of SB 42, lenders had six years to bring such actions. This law became effective March 8, 2012.

Washington Expands Servicemember Protections. On March 7, Washington Governor Christine Gregoire signed Senate Bill 5627 which expands protection for members of the state National Guard. The law expands the definition of "military service" to include servicemembers called to service by the governor for more than thirty consecutive days. This change is designed to provide National Guard members activated by the governor the same protections already provided under state law to servicemembers called to federal service by the President or the Secretary of Defense. This law becomes effective June 7, 2012.

Courts

Eighth Circuit Limits Reach of FDCPA. On March 16, the U.S. Court of Appeals for the Eighth Circuit rejected a lawsuit under the Fair Debt Collection Practices Act (FDCPA) that was premised on pleadings filed in an unsuccessful state court collection action. Hemmingsen v. Messerli & Kramer, P.A., No. 11-20292012 WL 878654 (8th Cir. Mar. 16, 2012). Plaintiff debtor successfully defended against a collection lawsuit in state court and thereafter commenced an FDCPA action for harassment, false or misleading representations in the state court action, and unfair practices. The claims were based upon defendant debt collection counsel's summary judgment motion and supporting affidavit; the factual allegations in these documents were deemed unsupportable by the state court when it dismissed the collection lawsuit. A federal district court dismissed the FDCPA action on the ground that representations in the motion and affidavit in the collection action were made to the state court, and not to the plaintiff as required by the FDCPA. On appeal, the Eighth Circuit rejected this broad FDCPA defense and instead embraced a "case-by-case" approach. The court held that these particular FDCPA claims failed because evidence introduced in federal court provided some factual support for the pleadings filed in the state court action.

WSJ's Price-Change Clause Allows Company to Spin Off Barron's with Additional Charges. On March 12, the U.S. District Court for the Southern District of New York ruled that Dow Jones & Company Inc. did not engage in unfair business practices or breach its contract with customers when it spun off Barron's and added an additional fee for continued access to the publication. Lebowitz v. Dow Jones & Co. Inc., No. 06-2198, 2012 WL 795525 (S.D.N.Y. Mar. 12, 2012). The Wall Street Journal Online subscriber agreement stated that Dow Jones could change or add charges by giving its customers advance notice. Dow Jones notified customers in December 2005 that as of January 2006 it would charge separately for online access to the Wall Street Journal and Barron's, thereby requiring existing customers to pay an additional fee for access to both. Dow Jones announced the change using pop-ups on its Wall Street Journal and Barron's sites, which the court held was sufficient notice under the contract. The court also held that Dow Jones's right change the price did not make the contract illusory.

Facebook's Forum-Selection Clause Enforceable Against Plaintiff Minors. On March 8, the U.S. District Court for the Southern District of Illinois ruled that minors who used Facebook are bound by the forum-selection clause contained in the website's terms of service, to which they agreed when they signed up for Facebook. E.K.D. v. Facebook Inc., No. 11-461 (S.D. Ill. Mar. 8, 2012). The plaintiffs, a group of minors suing Facebook for improperly using their images in advertising, argued that because they were minors when they signed up, the forum selection clause could not be enforced. The court rejected this argument, holding that under California contract law the minor plaintiffs could not void the forum selection because they continued to use and benefit from Facebook after agreeing to the terms of service. The court further held that transferring the case to the Northern District of California would not unduly burden the plaintiffs and was permitted by 28 U.S.C § 1404.

California State Court Blocks Eviction Based on PTFA 90-Day Notice Requirement. On March 7, the Superior Court of California, County of Los Angeles, granted a tenant's motion under the Protecting Tenants at Foreclosure Act (PTFA) to quash a summons and complaint seeking eviction. PNMAC Mortgage v. Stanko, No. 11U04495 (Cal. Sup. Ct. Mar. 7, 2012). After purchasing the property at foreclosure sale, the plaintiff served the tenant with a three day notice to pay rent or quit as required by California state law. In response, the tenant moved to quash, arguing that the plaintiff was required to provide a minimum 90-day notice to quit under the PTFA. The court agreed with the plaintiff that (i) after foreclosure a tenant has an ongoing duty to pay rent, and (ii) the tenant's failure to pay rent during the remaining lease period provides the new owner the right to evict the tenant. However, the new owner was nevertheless required to first provide the tenant with a 90-day notice to vacate under the federal PTFA. Even if the tenant has stopped paying rent entirely, the court held that the PTFA unequivocally requires that the tenant receive the minimum 90-day notice; after those 90 days, the plaintiff may seek eviction, awarding of back rent, and holdover payments for the 90-day period.

Firm News

BuckleySandler LLP will be hosting a complimentary webinar entitled "The Consumer Financial Protection Bureau: A Recap of Activities To Date and Predictions for Actions Ahead" on Tuesday, April 17, 2012 from 2:00 PM - 3:15 PM ET. In this webinar, BuckleySandler attorneys Jeff Naimon, Jonice Gray Tucker, and Lori Sommerfield will recap the CFPB's recent activities and provide guidance for institutions which are regulated by the CFPB. The webinar will include discussion of issues related to the protection of confidential data provided by institutions in examination, enforcement, and other contexts as well as bills currently pending in Congress to provide greater assurances to the industry that privileged information will not be further disclosed by the CFPB.

Registration required. This webinar is open to all financial services companies and others subject to CFPB oversight. Please no outside law firms, government agency personnel, consulting firms, or media. After registering and being approved, you will receive a confirmation email containing instructions for joining the webinar. Click here to register: https://www1.gotomeeting.com/register/149905752

Andrew Sandler will moderate a panel at the American Conference Institute's 8th National Forum on Residential Mortgage Litigation and Regulatory Enforcement on March 29, 2012 in Washington, DC. The panel is titled, "Complying With and Responding to New and Emerging Federal and State Enforcement Actions."

David Baris will be speaking at the 2012 Virginia Bank Directors Symposium on March 29, 2012 in Tysons Corner, Virginia. Mr. Baris will discuss how bank directors can minimize their risk of personal liability.

David Baris will be speaking at the NACD/AABD Bank Director Workshop on April 12, 2012 in Fort Lauderdale, Florida. The topic of the presentation is "Bank Director Liability and Practical Steps to Minimize It."

Donna Wilson will be moderating a panel entitled "BANKS UNDER SIEGE: The Civil, Criminal, Regulatory and Insurance Fallout from Mortgage Foreclosures and Bank Failures" at the ABA Section of Litigation annual meeting in Washington DC, April 18-21, 2012.

David Krakoff will be speaking at ACI's 27th National Conference on the Foreign Corrupt Practices Act in New York, NY on April 17, 2012. Mr. Krakoff's session will focus on defending executives in FCPA investigations.

James Parkinson will be speaking at a PLI program seminar entitled "Foreign Corrupt Practices Act 2012" in San Francisco, California on April 17, 2012 and in New York, New York on May 4, 2012.

Andrew Sandler will be speaking at the 2012 Marquis National Compliance Conference in Fort Worth, Texas on April 18, 2012. Mr. Sandler's session will cover the view from Washington, DC on CRA, HMDA, and Fair Lending.

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.

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."

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

Mortgages

HUD Issues Guidance Regarding Occupied Conveyance Procedures. On March 16, HUD issued Mortgagee Letter 2012-6 to provide updated guidance for complying with the Protecting Tenants at Foreclosure Act of 2009 (PTFA). The Mortgagee Letter revises the information required in a Notice to Occupant of Pending Acquisition and provides updated sample letters and forms. The Mortgagee Letter also provides guidance regarding (i) "reasonable diligence" in obtaining possession of the property under PTFA, (ii) rent collection under bona fide leases and tenancies, and (iii) reimbursement for preservation and protection costs due to PTFA compliance.

Fannie Mae Reminds Servicers About Documentation Request Limits. On March 21, Fannie Mae issued a notice reminding servicers that in processing a borrower request for a foreclosure prevention alternative evaluation, servicers may only request limited documentation from a borrower. Specifically, a servicer may only request (i) a completed Uniform Borrower Assistance Form (Form 710), (ii) income documentation as outlined in Form 710 based on income type, (iii) hardship documentation as outlined in Form 710 based on hardship type, and (iv) a Short Form Request for Individual Tax Return Transcript (IRS Form 4506T-EZ) or a Request for Transcript of Tax Return (IRS Form 4506-T) signed by the borrower. Servicer requests for additional documentation are limited only to instances in which the servicer must reconcile inconsistencies in the documentation provided by the borrower, but such instances should be rare. Further, servicers may not request federal income tax returns unless the borrower is self-employed or the borrower has rental income, as outlined in Form 710.

Freddie Mac Publishes Revisions to Selling Requirements. On March 15, Freddie Mac published Single-Family Seller/Servicer Guide Bulletin 2012-8, which (i) updates mortgage eligibility and credit underwriting requirements Borrower Funds and Mortgage Credit Certificates for Borrower qualification, (ii) revises Forms 16SF and 1107SF regarding warehouse lender agreements and facilities, (iii) eliminates certain requirements for document custodians on Form 1034A, and (iv) updates certain delivery requirements under the Uniform Loan Delivery Dataset and clarifies delivery requirements for certain refinances under HARP.

FHFA IG Releases Results of Three Reviews. On March 22, the Office of Inspector General for the Federal Housing Finance Agency (FHFA IG) released the results of the following audit and surveys: (i) an audit of Fannie Mae's single-family underwriting standards, (ii) a survey of FHFA's oversight of the charitable activities of Fannie Mae and Freddie Mac, and (iii) a survey of FHFA's oversight of Fannie Mae's and Freddie Mac's expenses related to the 2011 Mortgage Bankers Association Convention. The FHFA IG found that FHFA's oversight of Fannie Mae's underwriting is limited, so FHFA should strengthen and formalize its processes for reviewing underwriting standards and variances. With regard to charitable contributions, the FHFA IG found that there is no need to conduct further evaluations because these contributions are scheduled to end by 2015. Similarly, the FHFA IG concluded that FHFA's new directive on conference sponsorships and expenditures for food will be sufficient if properly implemented.

Arizona Alters Financial Institution and Loan Originator Licensing Provisions. On March 16, Arizona enacted Senate Bill 1014, which make changes to fees and definitions affecting financial institutions. The new law sets a maximum fee of $250 that the Department of Financial Institutions (DFI) can charge to change the licensee name on a financial institution or enterprise license. The law tightens an exception to the definition of "loan originator" such that loan originators that originate five or fewer mortgage loans per calendar year are exempt only if the source of the prospective financing also makes five or fewer mortgage loans per calendar year. The new law now requires the Superintendent of the DFI to deny a license from an individual who (i) has been convicted of, pled guilty to, or pled no lo contere to a felony seven years prior to the application, (ii) has been convicted of, pled guilty to, or pled no lo contere to a felony involving fraud, dishonesty, a breach of trust, or money laundering at any time, or (iii) lacks the responsibility, experience, or competency to adequately serve the public. These changes take effect 90 days after the state legislature adjourns this year, which it is expected to do on or around April 17, 2012.

Wyoming Prohibits Private Transfer Fees. On March 15, Wyoming enacted House Bill 0025, which ends the use of private transfer fee obligations for a specified period. Pursuant to the law, new private transfer fee obligations-which require the payment of a fee upon the subsequent transfer of a real property-entered into between April 1, 2012 and July 1, 2014 are not enforceable against subsequent owners, purchasers, or mortgagees. To enforce a private transfer fee obligation created prior to April 1, 2012, the payee must record a notice in the county clerk's office where the property is located. However, the law contains no prohibition of enforcement of private transfer fees absent the required recording. This law became effective March 15, 2012.

Utah Limits Time for Deficiency Actions Following a Short Sale. On March 8, Utah enacted Senate Bill 42 to limit the time within which lenders can bring an action to recover a deficiency following a short sale. Lenders now have only three months following a short sale to file a deficiency action against a borrower to recover the balance of the debt. Prior to passage of SB 42, lenders had six years to bring such actions. This law became effective March 8, 2012.

Washington Expands Servicemember Protections. On March 7, Washington Governor Christine Gregoire signed Senate Bill 5627 which expands protection for members of the state National Guard. The law expands the definition of "military service" to include servicemembers called to service by the governor for more than thirty consecutive days. This change is designed to provide National Guard members activated by the governor the same protections already provided under state law to servicemembers called to federal service by the President or the Secretary of Defense. This law becomes effective June 7, 2012.

Banking

FDIC Approves Proposed Rule to Amend Large Bank Pricing Assessment System. On March 20, the FDIC approved for publication a proposed rule to amend the large bank pricing assessment system to include revised definitions of nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans. A February 2011 FDIC rule, among other things, eliminated risk categories and the use of long-term debt issuer ratings and instead adopted scorecards that combine CAMELS ratings and certain forward-looking measures to assess risk posed by an institution to the FDIC insurance fund. One of the financial ratios used in the scorecards involves higher-risk assets, defined as the sum of construction and land development loans, leveraged loans, subprime loans, and nontraditional mortgage loans. The February rule used existing interagency guidance to define nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans, but refined the definitions to minimize reporting discrepancies. A subsequent FDIC notice added a requirement that covered institutions include nontraditional mortgage loans, subprime consumer loans, and leveraged commercial loans data in their Call Reports. However, institutions generally do not maintain data on those loans consistent with the definitions in the February rule, and therefore were not able comply with the reporting requirements. The proposed rule extensively revises these definitions to allow large banks to report the information needed to conduct the assessments.

FDIC Approves Proposed Rule Regarding Enforcement of Subsidiary and Affiliate Contracts. On March 20, the FDIC approved for publication a proposed rule to implement new authorities granted by the Dodd-Frank Act that permit the FDIC, as receiver for a financial company whose failure would pose a significant risk to financial stability, to enforce certain contracts of subsidiaries and affiliates of the covered company. This proposed rule would include contracts that purport to terminate, accelerate, or provide for other remedies based on the insolvency, financial condition, or receivership of the covered company, so long as the FDIC complies with statutory requirements. The proposed rule would apply broadly to all contracts and make clear that the FDIC's authority as receiver effectively preserves contractual relationships of subsidiaries and affiliates during the liquidation process.

FDIC Warns Bank Directors and Officers Regarding Copying and Removal of Institution Information. On March 19, the FDIC issued Financial Institution Letter FIL-14-2012, which warns bank directors and officers that financial institution records belong exclusively to the institution, and supervisory records are the property of the FDIC. As such, directors and officers of failing institutions who make and remove copies of institution and supervisory records for "personal use" in preparing for anticipated litigation or enforcement activity (i) are breaching their fiduciary duty, (ii) are engaging in an unsafe and unsound banking practice, and (iii) may be violating the institution's information security program. Personal use includes use by directors or officers to defend themselves against administrative, civil, and criminal proceedings or lawsuits based on actions taken in their official capacity. The Financial Institution Letter also reminds outside counsel to financial institutions that their legal and ethical obligations are only to the institution, and not to an institution's directors or officers. The FDIC threatens bank directors and officers, and outside counsel with legal action for knowing or reckless violations of law or breach of fiduciary duty. In 2011, in a case in which the FDIC sued a law firm for having accepted copies of bank records from a bank prior to its closing to preserve for the defense of bank directors, BuckleySandler prepared an amicus brief for the American Association of Bank Directors asserting the right of bank directors to have free access to bank records that they need to defend themselves against administrative, civil, and criminal proceedings or suits.

Consumer Finance

CFPB Submits First Annual FDCPA Report to Congress. On March 20, the CFPB submitted to Congress its first annual report on the administration and enforcement of the Fair Debt Collections Practices Act (FDCPA). The CFPB inherited the annual reporting function as part of the Dodd-Frank Act's transfer to the CFPB of the primary regulatory responsibility for the FDCPA. Prior to this report, the FTC prepared the annual report, and this year it submitted a letter to the CFPB detailing its efforts under the FDCPA. The report, as informed by the FTC letter, provides (i) a brief background on the FDCPA, (ii) a summary of consumer complaints about the debt collection industry, (iii) a description of the CFPB's FDCPA supervision authority, including its rulemaking to expand that authority by defining "larger participant" nonbanks, (iv) an outline of recent FTC and CFPB enforcement activity and amicus briefs filed against entities engaged in debt collection, including ongoing non-public investigations of debt collection practices, and (v) each regulator's FDCPA-related research and policy initiatives.

FTC Releases Survey on Consumer Reporting Agencies and FACTA. On March 12, the FTC released the results of a survey conducted to gauge consumer experiences in dealing with consumer reporting agencies (CRAs) following an identity theft. While the survey indicates that the majority of consumers were satisfied with their experiences, many consumers were unaware of their rights under the Fair and Accurate Credit Transactions Act (FACTA) before contacting a CRA. In response to concerns raised by consumers in the survey, the report recommends that (i) CRAs make it easier for consumers to reach a live person and (ii) the CFPB use its examination and rulemaking authority, and the FTC employ its enforcement authority, to address CRAs' practice of attempting to sell identity theft products to consumers reporting identify thefts.

Eighth Circuit Limits Reach of FDCPA. On March 16, the U.S. Court of Appeals for the Eighth Circuit rejected a lawsuit under the Fair Debt Collection Practices Act (FDCPA) that was premised on pleadings filed in an unsuccessful state court collection action. Hemmingsen v. Messerli & Kramer, P.A., No. 11-2029, 2012 WL 878654 (8th Cir. Mar. 16, 2012). Plaintiff debtor successfully defended against a collection lawsuit in state court and thereafter commenced an FDCPA action for harassment, false or misleading representations in the state court action, and unfair practices. The claims were based upon defendant debt collection counsel's summary judgment motion and supporting affidavit; the factual allegations in these documents were deemed unsupportable by the state court when it dismissed the collection lawsuit. A federal district court dismissed the FDCPA action on the ground that representations in the motion and affidavit in the collection action were made to the state court, and not to the plaintiff as required by the FDCPA. On appeal, the Eighth Circuit rejected this broad FDCPA defense and instead embraced a "case-by-case" approach. The court held that these particular FDCPA claims failed because evidence introduced in federal court provided some factual support for the pleadings filed in the state court action.

E-Commerce

WSJ's Price-Change Clause Allows Company to Spin Off Barron's with Additional Charges. On March 12, the U.S. District Court for the Southern District of New York ruled that Dow Jones & Company Inc. did not engage in unfair business practices or breach its contract with customers when it spun off Barron's and added an additional fee for continued access to the publication. Lebowitz v. Dow Jones & Co. Inc., No. 06-2198, 2012 WL 795525 (S.D.N.Y. Mar. 12, 2012). The Wall Street Journal Online subscriber agreement stated that Dow Jones could change or add charges by giving its customers advance notice. Dow Jones notified customers in December 2005 that as of January 2006 it would charge separately for online access to the Wall Street Journal and Barron's, thereby requiring existing customers to pay an additional fee for access to both. Dow Jones announced the change using pop-ups on its Wall Street Journal and Barron's sites, which the court held was sufficient notice under the contract. The court also held that Dow Jones's right change the price did not make the contract illusory.

Facebook's Forum-Selection Clause Enforceable Against Plaintiff Minors. On March 8, the U.S. District Court for the Southern District of Illinois ruled that minors who used Facebook are bound by the forum-selection clause contained in the website's terms of service, to which they agreed when they signed up for Facebook. E.K.D. v. Facebook Inc., No. 11-461 (S.D. Ill. Mar. 8, 2012). The plaintiffs, a group of minors suing Facebook for improperly using their images in advertising, argued that because they were minors when they signed up, the forum selection clause could not be enforced. The court rejected this argument, holding that under California contract law the minor plaintiffs could not void the forum selection because they continued to use and benefit from Facebook after agreeing to the terms of service. The court further held that transferring the case to the Northern District of California would not unduly burden the plaintiffs and was permitted by 28 U.S.C § 1404.

Privacy/Data Security

FTC Releases Survey on Consumer Reporting Agencies and FACTA. On March 12, the FTC released the results of a survey conducted to gauge consumer experiences in dealing with consumer reporting agencies (CRAs) following an identity theft. While the survey indicates that the majority of consumers were satisfied with their experiences, many consumers were unaware of their rights under the Fair and Accurate Credit Transactions Act (FACTA) before contacting a CRA. In response to concerns raised by consumers in the survey, the report recommends that (i) CRAs make it easier for consumers to reach a live person and (ii) the CFPB use its examination and rulemaking authority, and the FTC employ its enforcement authority, to address CRAs' practice of attempting to sell identity theft products to consumers reporting identify thefts.

 

Published In: Administrative Agency Updates, General Business Updates, Finance & Banking Updates, Privacy Updates, Commercial 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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