Consumer Financial Services Alert - May 5, 2009 May 05, 2009
In This Issue

House Passes Credit Card Legislation

The House of Representatives passed H.R. 627, a credit card bill that would restrict the ability of card issuers to factor in risk when making credit decisions, as well as prohibit double cycle billing, require customer permission before charging an over-limit fee, mandate that payments be applied to the highest-rate balances first, and require promotional rates to be offered for at least six months. The Senate is expected to vote on its credit card bill (S. 414) this month. Click here for the House Committee on Financial Services press release on the bill.

House Committee Approves Mortgage Reform Bill with RESPA Provision

The House Committee on Financial Services approved H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act, which is aimed at curbing abusive lending practices. The bill would amend the Truth in Lending Act by, among other things, requiring originators to adhere to a “duty of care” to offer a range of products that are appropriate to a borrower, meaning that the borrower has a reasonable ability to repay the loan, and, in connection with a refinancing, the borrower receives a “net tangible benefit” from the loan, and the loan lacks “predatory characteristics”. A provision of the bill would withdraw the recently-promulgated Real Estate Settlement Procedures Act final rule and require that a new rule be jointly issued by the FRB and HUD within 12 months. Click here for the House Committee on Financial Services press release on the bill.

Treasury Department Expands Making Home Affordable Program

The Treasury Department announced an expansion of the Making Home Affordable Program to include a new Second Lien Program and incorporate the FHA’s Hope for Homeowners Program. The Second Lien Program is designed to work in tandem with first lien modifications offered under the Making Home Affordable Program. Separately, Treasury announced steps to incorporate the Hope for Homeowners Program into the Making Home Affordable Program. Click here for Treasury’s press release on these initiatives, here for a Treasury fact sheet and here for Second Lien Program examples provided by Treasury.

FTC Further Delays Enforcement of Red Flags Rule

The FTC announced that it will further delay enforcement of its Red Flags Rule until August 1, 2009, giving creditors and financial institutions additional time to develop and implement written identity theft prevention programs. The FTC previously delayed implementation of the Rule until May 1, 2009. Click here for the FTC’s press release announcing the delay.

OCC Issues In-School Bank Savings Programs Report

The OCC issued a Community Developments Insights report on how banks can set up school-based bank savings programs to help students learn about saving and managing their personal finances. The report explains how school-based bank savings programs operate and describes the potential risks and benefits, including positive consideration under the Community Reinvestment Act.  Click here for the report.

Massachusetts Division of Banks Publishes Industry Letter on Mortgage Loan Modifications

The Massachusetts Division of Banks published an industry letter addressing questions regarding loan modification charges and licensure. The Division concludes that a broker or any third party cannot charge a modification fee on any mortgage loan where the borrower is exercising his or her right to cure a default. Mortgage lenders may, however, charge a modification fee, provided the lender is also the mortgage holder. The Division also concludes that any person negotiating or assisting in the process of obtaining a modification must obtain the applicable broker or originator license if such assistance results in a refinancing. The Division notes that such activity may also trigger state law regulatory requirements applicable to financial advisors, credit counseling services and credit services organizations. Click here for the letter.

California Appellate Court Refuses FDIC’s Motion to Dismiss Appeal in Light of FIRREA’s 180 Day Administrative Review Period But Orders Stay

In one of the latest rulings on the FDIC’s receivership powers in court matters, a California appellate court rejected the FDIC’s request to dismiss an appeal because the 180 day administrative remedies period under FIRREA had not yet run. In the underlying proceeding, the bank obtained summary judgment against the plaintiff, a guarantor of certain commercial loans. The FDIC was appointed receiver for the bank and moved to dismiss the plaintiff’s appeal because FIRREA’s administrative claims process had not yet run. The court held there was no legal basis to dismiss the appeal, but it stayed the appeal until such time as the administrative claims period ended, consistent with most appellate decisions on this issue. Click here for Neman v. Commercial Capital Bank, No. B208164, Cal. 2d App. Div., April 29, 2009.

California Court Grants Motion to Compel Arbitration and to Strike Class Allegations, Finding Arbitration Provision Not Unconscionable

A federal court in California granted a motion to compel arbitration and to strike class allegations in a case brought by four homeowners challenging an alleged practice by the defendant builders of reinsuring title insurance policies through a company owned by the builders. Plaintiffs’ purchase agreements contained a broad mandatory arbitration clause, which also prohibited plaintiffs from joining their claims with the claims of other homeowners. Plaintiffs nevertheless filed suit seeking to represent a nationwide class of individuals that purchased a home from one of the defendants, alleging violations of the Real Estate Settlement Procedures Act and related common law claims. On defendants’ motion, the court held the arbitration provision was neither substantively nor procedurally unconscionable, and granted defendants' motion to compel arbitration on all arbitrable claims and to strike the class allegations. Goodwin Procter partner Tom Hefferon represented the defendants. Click here for Dalie, et al. v. Pulte Home Corp., No. CIV. S-08-337 (E.D.CA, April 28, 2009).