Consumer Financial Services Alert - August 25, 2009

On August 13th, HUD published FAQs on its 2008 amendment of Regulation X, the Real Estate Settlement Procedure Act’s implementing regulation. The FAQs cover many provisions of the amendment, including when a loan originator must provide a GFE, expiration of the GFE, providing a list of settlement service providers, the changed circumstances re-delivery rule, and completing the GFE and HUD-1/1A. HUD issued revised FAQs on August 19th. Click here for the revised FAQs.

The closely-watched data security regulations issued by the Massachusetts Office of Consumer Affairs and Business Regulation were once again revised by the agency. The regulations, applicable to those possessing personal information of state residents, impose significant data security requirements. As part of the most recent revision, the effective date of the regulations has been changed to March 1, 2010. The agency also issued new FAQs about the regulations and announced that an additional public hearing on the regulations will be held on September 22, 2009. Most notably, the revised version of the regulations and FAQs provide some additional flexibility in the use of security technology, including encryption, and state that the required comprehensive information security program must be “appropriate” to the size, scope and type of business, the amount of resources and data, and the need for security and confidentiality of the data. The revised regulations are described in greater detail in a recent Goodwin Procter Client Alert. Click here for the revised regulations and here for the Client Alert.

A federal court in Alabama recently dismissed for lack of standing claims brought by the City of Birmingham against various lenders, including Countrywide and CitiGroup, alleging “reverse redlining.” The city claimed the lenders improperly placed minority borrowers in subprime mortgage loans, which allegedly harmed the city in the form of increased foreclosures, decreased property values, reduced property tax revenues, and increased public spending on crime prevention. The court granted the lenders’ motion to dismiss, finding that the city could only connect the alleged lending practices to its claimed injuries with “a series of speculative inferences.” The court noted that “a myriad of factors” other than the allegedly improper lending practices may have caused the city’s alleged injuries, such as rising unemployment in the region and the general weakening of the economy. The court held that the city’s claimed injuries were so “tenuously connected” to the challenged lending practices that the city lacked standing to bring suit. Goodwin Procter partners Jim McGarry and Tom Hefferon represented Countrywide. Click here for City of Birmingham v. Citigroup Inc., et al., Case No. CV-09-BE-467-S (N.D. Ala. Aug. 19, 2009).

The Seventh Circuit recently overturned the dismissal of a class action alleging violations of the Fair Debt Collection Practices Act and ordered the district court to enter judgment in favor of the plaintiffs. Defendants allegedly sent a collection letter to plaintiffs accompanied by a notice stating that defendants could share information collected from plaintiffs with third parties, unless plaintiffs affirmatively opted-out. Plaintiffs argued that the notice was improper because it made a false and misleading statement in connection with the collection of a debt, as FDCPA prohibits debt collectors from sharing non-public information without explicit consent. The district court granted summary judgment for the defendants. The Seventh Circuit reversed, holding that whether a communication is sent “in connection with” an attempt to collect a debt is a question of objective fact. The Court determined that the notice was misleading on its face, thus mandating summary judgment in favor of plaintiffs. The Seventh Circuit also rejected the defendants’ bona fide error defense based on a misunderstanding of FDCPA. Since the defendants failed to obtain any opinion from an attorney or the appropriate governmental agency, the Court found that the defendants had failed to establish that they had sufficient procedures in place to prevent the occurrence of such errors. Click here for Ruth v. Triumph Partnerships, Case No. 08-3458 (7th Cir. August 17, 2009).