Consumer Financial Services Alert - January 29, 2008

In the first merits decision in more than 30 putative class actions challenging so-called “payment option” loans, a California federal court granted the lender’s motion to dismiss in its entirety. Bigverdi v. Countrywide Bank FSB involved Truth in Lending Act, California Unfair Competition Law and common law challenges to payment option loans. In dismissing the claims, the court accepted all of Countrywide’s arguments for dismissal, including that (1) plaintiffs’ state law challenges to the loans were preempted under TILA, the National Bank Act and the Home Owners’ Loan Act, and (2) plaintiffs failed to state a claim for violation of the UCL. Goodwin Procter partners Tom Hefferon, David Permut and Brooks Brown represented Countrywide. Click here for a copy of Bigverdi v. Countrywide Home Loans, Inc., C.D. Cal. No. 07-3454-AHS (FMOx) (Jan. 8, 2008), and here for defendant’s briefs which amplify the grounds for the order.

The Ninth Circuit ruled that California’s disclosure requirements for “convenience checks” sent to credit card customers is preempted by the National Bank Act. In affirming the trial court’s dismissal, the Court ruled that the California provision is expressly preempted by the Act’s “incidental power” to “loan money on personal security.” Click here for a copy of Rose v. Chase Bank USA, NA, 9^th Cir. No. 05-56850, Jan. 23, 2008.

The Eleventh Circuit has held that flat fees charged to borrowers for credit reports do not violate Sections 8 of the Real Estate Settlement Procedures Act. The case at issue involved a flat fee pricing arrangement in which an affiliated credit report vendor agreed to charge the lender one flat fee for all credit reports required to underwrite a loan and to charge the flat fee only when a borrower applied for a loan. Plaintiffs alleged that the flat fee pricing arrangement violated § 8(a) of RESPA because the vendor allegedly was providing free credit reports for consumers who sought to prequalify but never applied for a loan in exchange for the referral of borrowers. Plaintiffs also alleged that the new pricing scheme constituted an illegal mark-up of their credit report fee because the flat fee contained the overhead associated with the unbilled credit reports. The Court first held that defendants’ change to a flat-fee model did not violate § 8(a)’s kickback prohibition absent an agreement between the lender and credit report provider to increase the referral of business between the two entities. The Court noted that there was no change in the amount of business that the lender referred to the provider both before and after the switch. The Court also rejected plaintiffs’ claims for violation of § 8(b) was not violated because the lender retained no portion of the fee, and the increase in price was related to services actually performed. Thus, there was no splitting of the fee and no fee charged other than for services performed. Goodwin Procter partners Tom Hefferon, David Permut and Bishop Sheehan represented the defendants in this case. Click here for a copy of Krupa v. LandSafe, Inc., No. 07-10061 (11th Cir. Jan. 22, 2008).

The Eleventh Circuit reversed the denial of class certification in a Real Estate Settlement Procedures Act Section 8(b) suit in which a plaintiff claimed the realtor defendant had charged her and the members of the putative class a brokerage fee for which no service was performed. The district court refused to certify the class on the grounds that the individualized determinations of whether the fee charged was in line with the value of the services predominated the claim. The Eleventh Circuit reversed, finding that plaintiff’s § 8(b) claim required only an examination as to whether defendant actually performed any services for the fee, not whether the fee was reasonable. Because the Court would only need to make a “simple binary determination,” common questions of law and fact could predominate, making class treatment appropriate. Click here for a copy of Busby v. JRHBW Realty, Inc., No. 06-15308 (11th Cir. Jan. 17, 2008).

Senator Chris Dodd and Representative Barney Frank recently held press conferences to announce their legislative priorities for this year. Sen. Dodd, the Senate Banking Committee Chairman, stated that passing his mortgage lending reform bill is a top priority. He said that some other committee priorities are government-sponsored enterprise reform, credit card billing and marketing practices, flood insurance reform and insurance regulation (creating an optional federal charter).

Rep. Frank, the Chairman of the House Financial Services Committee, stated that tightening rules on mortgage securitizations heads his list of committee issues. Other important issues include foreclosures (creating a government corporation to buy defaulted mortgages and foreclosed properties), credit card practices, expanding the Community Reinvestment Act to other financial services industries and money-laundering reporting reform. Click here for a copy of the Sen. Dodd’s press release.