Consumer Financial Services Alert - May 20, 2008

Under a joint proposed rule issued by the FRB and the FTC implementing Section 311 of the Fair and Accurate Credit Transactions Act of 2003, a lender would be required to provide a consumer with a risk-based pricing notice when, based on the consumer’s credit report, the lender offers credit to the consumer on terms less favorable than the terms it offers to other consumers. The proposal would apply, with certain exceptions, to all lenders that engage in risk-based pricing. The proposal calls for a risk-based pricing notice to be provided, generally, to the consumer after the terms of credit have been set, but before the consumer becomes contractually obligated on the credit transaction. The proposal provides a number of different approaches that lenders may use to identify the consumers to whom they must provide risk-based pricing notices. In addition, the proposal includes certain exceptions to the notice requirement. The most significant of the exceptions permits lenders, in lieu of providing a risk-based pricing notice to those consumers who receive less favorable terms, to provide all of their consumers with their credit scores and explanatory information. Comments on the proposal must be received by August 18^th. Click here for a copy of the proposal.

The Fourth Circuit has affirmed a jury verdict of $1,000 in statutory damages and $80,000 in punitive damages in a suit under the Fair Credit Reporting Act involving the accuracy of information furnished to a consumer reporting agency. The plaintiff disputed with Trans Union the status of an automobile loan listed on his credit report that he had obtained from BB&T. In response to an inquiry from Trans Union, BB&T reported the loan as delinquent, but did not report that the consumer also had disputed the loan status. The Fourth Circuit rejected BB&T's argument that a furnisher need not report defenses raised by a consumer when responding to a reporting agency's notice that a consumer had disputed a debt. The Court also affirmed the jury's punitive damages award, finding that BB&T had intentionally failed to update its reporting to reflect the plaintiff's ongoing dispute, that its conduct made the plaintiff more financially vulnerable, and that the disparity between the statutory and punitive awards was neither excessive nor arbitrary, and was needed to deter similar future conduct. Click here for a copy of Saunders v. Branch Banking and Trust Company a/Virginia, No. 07-1108 (4^th  Cir. May 14, 2008).

HUD announced that it has extended the public comment period for its recently proposed RESPA rule from March 13^th to June 12^th.

A New York trial court in Kings County recently issued a ruling requiring a lender to prove that its loan was not racially discriminatory before it will allow foreclosure proceedings to continue. In a case involving a military officer from Brooklyn with a loan carrying an interest rate of 9.5%, the court held that a mortgage loan to a minority borrower from a minority neighborhood with an interest rate greater than 9% is presumptively discriminatory (based on the HMDA definition of "higher priced loan"). The court expressly shifted the burden of proof in this case, requiring the lender seeking foreclosure to demonstrate that the loan was not the product of unlawful discrimination or face dismissal of the foreclosure proceeding. Although procedurally this ruling is not binding on other cases, it will likely be the basis for similar attempts to forestall foreclosure in New York and elsewhere, and otherwise be cited in fair lending lawsuits across the country. Click here for a copy of M & T Mortgage Corp. v. Foy, No. 4439/2005 (N.Y. Sup. Ct. May 1, 2008).

The FTC approved a new rule under the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003. The rule is intended to clarify the Act’s requirements. The rule addresses four topics: (1) an e-mail recipient cannot be required to pay a fee, provide information other than his or her e-mail address and opt-out preferences, or take any steps other than sending a reply e-mail message or visiting a single Internet webpage to opt-out of receiving future e-mail from a sender; (2) the definition of “sender” was modified to make it easier to determine which of multiple parties advertising in a single e-mail message is responsible for complying with the Act’s opt-out requirements; (3) a “sender” of commercial e-mail can include an accurately-registered post office box or private mailbox established under United States Postal Service regulations to satisfy the Act’s requirement that a commercial e-mail display a “valid physical postal address”; and (4) a definition of the term “person” was added to clarify that the Act’s obligations are not limited to natural persons. Click here for a copy of the rule.