Consumer Financial Services Alert - February 12, 2008

The Ninth Circuit ruled that the Home Owners’ Loan Act preempts California state law claims challenging lock-in fees. Plaintiffs paid the lender a $400 lock-in fee at application, but then rescinded the loan within 3 days under the Truth in Lending Act. Plaintiffs brought a class action lawsuit, claiming that the lender violated TILA by not returning the lock-in fee in response to the rescission. Plaintiffs did not sue under TILA, however, instead bringing their claims under California’s Unfair Competition Law, alleging that the lock-in policy was unlawful, unfair and deceptive under the various prongs of the UCL.

In affirming the district court, the Ninth Circuit ruled that the OTS’s broad field preemption regulations, promulgated under HOLA’s authority, preempted plaintiffs’ lawsuit. The Court found the UCL provisions at issue, as applied to plaintiffs’ claims, were all within the scope of the regulation’s list of specifically preempted state laws. It followed the OTS’ methodology for preemption analysis – finding that because the laws were within the scope of the list of state laws preempted, there was no need to even consider whether the field preemption “incidental affects” exceptions applied. Click here for a copy of Silvas v. E*Trade Mortgage Corp., No. 06-55556 (9th Cir., Jan. 30, 2008).

House Financial Institutions Subcommittee Chairman Carolyn Maloney introduced a credit card reform bill (H.R. 5244) that, among other things, would allow cardholders to opt-out of rate increases; prohibit retroactive rate increases on existing balances; prevent “universal default” rate increases, ban the two-cycle method of calculating finance charges; require statements be mailed 25 days before due dates; and require payments to be allocated proportionately among balances with different rates. Click here for a copy of the bill and here for a summary of the bill.

The Massachusetts Division of Banks published FAQs regarding recent changes to Massachusetts’ mortgage lending laws. The FAQs cover (1) loan originator licensing requirements, (2) the 90-day cure period for mortgage loans in default, (3) subprime borrower counseling, and (4) Community Reinvestment Act requirements for licensed mortgage lenders. Click here for a copy of the FAQs.

The FRB requested public comment on proposed changes to Regulations D and I. Only two of the proposals are intended to represent substantive changes to existing law, while the others are principally clarifications. The first proposed substantive change would amend Regulation D to implement Section 603 of the Financial Services Regulatory Relief Act of 2006 by authorizing member banks of the Federal Reserve System to enter into pass-through arrangements. Previously, member banks were statutorily prohibited from passing required reserve balances through a correspondent institution. The second proposed substantive change would eliminate the provision in the “savings deposit” definition of Regulation D limiting certain kinds of transfers from savings deposits to not more than 3 per month. As a result, all transfers and withdrawals from a savings deposit would be subject to the same limitation of not more than 6 per month. The remaining proposed changes, intended as clarifications, would reorganize the provisions relating to deposit reporting and the calculation and maintenance of required reserves, clarify the definitions of “time deposit” and “vault cash,” and make other minor editorial changes.

The public comment period ends 45 days after publication of the proposal in the Federal Register, which is expected shortly. Click here for a copy of the proposal.