Consumer Financial Services Alert - January 27, 2009 January 27, 2009
In This Issue

FFIEC Issues Guidance on Remote Deposit Capture Programs

The FFIEC issued risk management guidance on remote deposit capture programs. The guidance concludes that banks offering remote deposit capture programs should (1) have sound risk management and mitigation systems in place and require adequate risk management at their customers’ locations; (2) identify the types and levels of related risk exposure prior to implementing the program and periodically thereafter; (3) develop comprehensive contracts that clearly identify the roles, responsibilities, and liabilities of all parties in the process to minimize exposure to legal and compliance risks; (4) implement appropriate technology and process controls at both the bank and customer locations to address operational risk; (5) implement risk measurement and monitoring systems, and require customers to do the same; and (6) consider insurance coverage. Click here for the guidance.

Federal Appeals Court Dismisses TILA Claim but Allows State Law Unfair Business Practices Claim on Theory That Intent to Act Inconsistently with TILA Disclosures Is Actionable

The Ninth Circuit held that a credit card issuer’s alleged intent to act inconsistently with its Truth in Lending Act disclosures does not state a claim under TILA, but does state a claim under California’s Unfair Competition Law and False Advertising Law. Plaintiff alleged that he was promised a preferred rate on a credit card balance transfer. He alleged that the bank’s disclosures and actions violated TILA and state law when the disclosures informed plaintiff that prior late payments would preclude his receiving the preferred rate, but where the bank was alleged to have known about plaintiff’s own late payments before extending the preferred rate offer. Disagreeing with the Third Circuit, the Court held that a creditor’s undisclosed intent to act inconsistently with its disclosures was irrelevant to the sufficiency of the disclosures and therefore not a basis for a TILA claim. The Court found that the same alleged undisclosed intent, however, could state a claim under the Unfair Competition Law and False Advertising Law and that the Unfair Competition Law’s safe harbor against liability for disclosures compliant with TILA does not extend to knowing disclosure violations. Click here for a copy of Hauk v. JP Morgan Chase Bank, N.A., No. 06-56846 (9th Cir. Jan. 23, 2009).

Federal Appeals Court Rules that Plaintiff Has Standing to Bring RESPA Claim Absent a Concrete Injury

In what appears to be the first Federal Circuit Court opinion on this issue, the Sixth Circuit ruled that a plaintiff has a statutorily-authorized private right of action under the Real Estate Settlement Procedures Act and constitutional standing to sue despite failing to allege that he was over-charged for any settlement service or otherwise had been demonstratively injured. Plaintiff brought a RESPA claim alleging that the title company was improperly splitting fees with other service providers in exchange for referrals. Plaintiff never alleged that he was over-charged for the services at issue, but instead claimed that he was harmed by the lack of impartiality of the settlement service referral given the relationship between the various providers. The Court held that RESPA’s text, legislative history and regulatory scheme supports a private right of action even in the absence of an overcharge or other concrete injury. The Court also held that the injury in fact test for standing was satisfied by the “deprivation of a right conferred by RESPA . . . the right to receive referral services untainted by kickbacks or fee splitting.” The Court likened the injury to those suffered by “testers” under the Fair Housing Act who have the right to receive “truthful information concerning the availability of housing” even if they “fully expect to receive false information and have no intention of buying or renting a home.” Click here for a copy of Carter v. Welles-Bowen Realty, Inc., No. 07-3965 (6th Cir. Jan. 23, 2009).

Supreme Court Agrees to Hear National Bank Act Preemption Case

The Supreme Court agreed to hear the appeal of the Clearinghouse v. Cuomo decision from the Second Circuit. As reported in the December 4, 2007 Alert, the Second Circuit held in that case that the OCC’s exclusive visitorial powers promulgated under National Bank Act regulations preempted and precluded the New York Attorney General’s attempts to investigate and enforce state law housing discrimination claims. The Second Circuit found the OCC’s conclusion that national banks cannot be investigated and sued by the Attorney General regarding the business of banking was properly afforded Chevron deference, as it was not “manifestly contrary” to the National Bank Act. The Supreme Court accepted the case to determine the scope of the OCC’s visitorial powers, on the questions of whether the regulations are entitled to judicial deference under Chevron and invalid because they are inconsistent with the authoritative construction of the National Bank Act by the Supreme Court in First National Bank in St. Louis v. Missouri, 263 U.S. 640 (1924).Click here for a copy of the Supreme Court’s order accepting review of the case.