Consumer Compliance Outlook
On the Docket: Recent Federal Court Opinions
REGULATION Z - TRUTH IN LENDING ACT (TILA)
Court rules on "clear and conspicuous" disclosure standard. Barrer v. Chase Bank USA, N.A. 566 F.3d 883 (9th Cir. 2009). Chase raised the APR on plaintiffs' credit card account from 8.99 to 24.24 percent. The plaintiffs filed a class action suit alleging that Chase violated the Truth in Lending Act (TILA) and Regulation Z by failing to disclose in the account-opening agreement that, in addition to rate increases imposed for events of default specified in the agreement, Chase could also increase the rate because of adverse information in the consumer's credit report. In this case, the rate increase was based on credit report information indicating that the cardholder had recently opened a number of other revolving accounts and maintained high balances on those accounts. The district court granted Chase's motion to dismiss and the plaintiffs filed this appeal. The Ninth Circuit held that, contrary to the plaintiffs' claim, Chase was not required to disclose its risk-based pricing policies. According to the court, it was sufficient that Chase disclosed that it was reserving the right to change the account terms and increase the rate for any reason without limitation, and that Chase implemented the increase by sending notice of the new rate to the consumer before it became effective. The Ninth Circuit also ruled, however, that the plaintiffs had stated a valid legal claim because, as a matter of law, Chase could not show that the change-in-terms provision in its credit agreement satisfied the "clear and conspicuous" requirement in Regulation Z. The court stated that the change-in-terms provision was "buried too deeply in the fine print" of the agreement for a reasonable cardholder to realize that the provision existed.
Technical TILA violation does not trigger rescission. Melfi v. WMC Mortgage Corporation , 568 F.3d 309 (1st Cir. 2009). The First Circuit affirmed the dismissal of a rescission claim based on a technical violation in the creditor's rescission notice to the borrower. Section 226.23(b)(1)(v) of Regulation Z requires creditors to disclose in the rescission notice the date on which the rescission period expires. The creditor used the Federal Reserve Board's rescission model form but neglected to fill in the blank spaces for the transaction date and the rescission period expiration date. The creditor stamped the transaction date on the top of the notice but did not designate it as the transaction date. The borrower argued that the loan was subject to rescission because the creditor failed to provide the transaction and rescission expiration dates. The First Circuit rejected this argument, finding that "technical deficiencies do not matter if the borrower receives a notice that effectively gives him notice as to the final date for rescission and has the three full days to act. Our test is whether any reasonable person, in reading the form provided in this case, would so understand it. Here, the omitted dates made no difference."
FAIR CREDIT REPORTING ACT (FCRA)
Damages and attorney's fees for failing to correct errors in credit report. Robinson v. Equifax Information Services, LLC , 560 F.3d 235 (4th Cir. 2009). The Fourth Circuit affirmed a damage award of $200,000 against Equifax for numerous violations of the FCRA because it repeatedly failed to correct information in a consumer's credit report. The plaintiff was a victim of identity theft who contacted Equifax to correct errors in her credit report. Because Equifax repeatedly placed incorrect information in the plaintiff's credit report for several years, she was unable to obtain credit from 2003 to 2006. The plaintiff spent several hundred hours trying to correct the mistakes and experienced headaches, sleeplessness, and hair loss because of the distress and her inability to obtain credit. The Fourth Circuit affirmed the amount of the damages award based on the plaintiff's loss of opportunities in the home mortgage market, emotional stress, and loss of income from missing approximately 300 hours of work in order to address Equifax's errors. However, the court reversed the award of $268,652.25 in attorney's fees because the plaintiff failed to offer evidence of the prevailing market rates for attorney's fees. The court remanded the case so that the trial court could receive evidence about market rates and recalculate the amount of awarded attorney's fees accordingly.
REGULATION X — REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA)
Court rejects RESPA title insurance markup claim. Hancock v. Chicago Title Ins. Co. , 2009 U.S. Dist. Lexis 59015 (N.D. Tex. July 9, 2009). This class-action lawsuit alleged that by charging more for a reissue title insurance policy than allowed by Texas law, a title insurer violated §8(b) of RESPA because the excess charges were not for services actually performed. Texas law sets the rate title insurance companies can charge for title insurance and requires discounts for policies for a refinanced mortgage (known as a reissue policy). The insurer did not provide the plaintiffs the discount for their reissue policy and instead split the entire premium with its title agents. Section 8 of RESPA prohibits kickbacks, referral fees, and unearned fees in connection with real estate settlement services. The court determined that the insurer did not violate §8(b) because RESPA is not a price-control statute and does not impose liability for overcharges as long as services are provided. Because it was undisputed that both the title insurer and its agents performed title insurance services, the court dismissed the RESPA §8(b) claim.
State officials can enforce nonpreempted state law against national banks. Cuomo v. Clearing House Association, L.L.C. , 129 S.Ct. 2710 (2009).The U.S. Supreme Court struck down a preemption regulation of the Office of the Comptroller of the Currency (OCC) that prohibited state officials from enforcing nonpreempted state laws against national banks. The regulation implemented the preemption provision in §484(a) of the National Bank Act (NBA). The New York attorney general (NYAG) began investigating whether national banks were violating New York's fair lending laws, which the NBA does not preempt, after the release of data under the Home Mortgage Disclosure Act in 2005 showing that African-American and Hispanic borrowers had a significantly higher percentage of higher-cost loans than white borrowers. The NYAG sent informal requests to several national banks for loan information in lieu of a formal subpoena. In response, the OCC and the Clearing House Association obtained an injunction in a New York federal district court halting the investigation based on the OCC's preemption regulation, 12 C.F.R. §7.4(a)(2)(iv), which prevents state officials from enforcing state or federal laws against national banks for activities permitted under the NBA. A divided panel of the Second Circuit affirmed the district court's injunction in Clearing House Association, L.L.C. v. Cuomo, 510 F.3d 105 (2d Cir. 2007). The Supreme Court reversed, holding that the preemption provision in the NBA is limited to bank supervision and oversight functions by the OCC and does not preempt judicial enforcement proceedings by state officials of nonpreempted state law. However, the court imposed an important restriction on state officials: Enforcement can be conducted only through judicial proceedings. This was designed to "prevent 'fishing expeditions' or an undirected rummaging through bank books and records for evidence of some unknown wrongdoing."