Consumer Financial Services Alert - September 23, 2008

The Eighth Circuit affirmed an order compelling arbitration of a consumer class action challenging a defendant’s alleged failure to make Truth in Lending disclosures when providing pre-loaded, stored value cards. The plaintiff argued that the arbitration agreement was procedurally unconscionable because she had inadequate bargaining power and substantively unconscionable because it contained a class action waiver. Applying Missouri law, the Court held the agreement neither procedurally unconscionable because the arbitration clause was prominently and adequately disclosed, nor substantively unconscionable as plaintiff still maintained a claim for statutory damages and attorney’s fees in the arbitration. Click here for a copy of Pleasants v. American Express Companies, No. 07-3235 (8^th Cir. September 9, 2008).

The Second Circuit held that a Connecticut state law regulating “facilitators” of tax refund anticipation loans is preempted by the National Bank Act when the facilitators – typically tax preparers – partner with a national bank which makes the loans. The Court rejected the State’s argument that the law did not raise federal preemption concerns because it regulated only the tax preparer and not the bank. The Court held the law preempted because even if it did not directly regulate the bank, it “significantly interferes with a national bank’s ability to carry on” regulated activity – here, the amount of interest it could charge on loans. Click here for a copy of Pacific Capital Bank, N.A. v. State of Connecticut, No. 06-4149-CV (2^nd Cir. September 12, 2008).

The FFIEC released 2007 data on mortgage lending transactions covered by the Home Mortgage Disclosure Act. The data includes disclosure statements for each financial institution, aggregate data for each metropolitan statistical area, nationwide summary statistics regarding lending patterns, and the Loan Application Register. Click here for access to the data and here for a draft of the Federal Reserve Bulletin article regarding the data.

The Bear Stearns Companies LLC and its subsidiary, EMC Mortgage Corporation, agreed to pay $28 million to settle FTC charges that they engaged in unlawful practices when servicing mortgage loans. The FTC alleged that the companies misrepresented the amounts borrowers owed, charged unauthorized fees, such as late fees, property inspection fees, and loan modification fees, and engaged in unlawful and abusive collection practices. Without admitting to any of the allegations made by the FTC, the companies agreed to a settlement that (1) requires the companies to pay $28 million to redress borrowers, (2) prohibits the companies from misrepresenting any loan terms, (3) bars the companies from charging unauthorized fees, and places specific limits on property inspection fees even if they are authorized, (4) prohibits the companies from initiating a foreclosure action, or charging any foreclosure fees, unless they have reviewed all available records to verify that the borrower is in material default, confirmed that the defendants have not subjected the borrower to any illegal practices, and investigated and resolved any borrower disputes, and (5) prohibits the companies from violating the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, and the Truth in Lending Act. Click here for the FTC’s press release and access to the order.

The FFIEC released interagency examination procedures for the affiliate marketing regulation, which implements Section 624 of the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003. Click here for the procedures.