Consumer Financial Services Alert - November 4, 2008

A California federal court entered a final judgment prohibiting California officials from enforcing sections of the California Financial Information Privacy Act governing “consumer report information” communicated among affiliate financial institutions. As reported in the September 9, 2008 CFS Alert, the Ninth Circuit ruled that the Fair Credit Reporting Act preempted affiliate sharing provisions of the California Financial Information Privacy Act, as it relates to consumer report information, but otherwise upheld the Act. The court’s final order thus enjoins California from enforcing the Act as to consumer report information. Click here for a copy of American Bankers Association, et al. v. Brown, et al., No 2:04-cv-00778 (E.D. Cal. Oct. 27, 2008).

The Eleventh Circuit vacated a class certification order and injunctive relief award, holding that injunctive and declaratory relief are not available remedies for claims brought under the Truth in Lending Act. The plaintiff alleged that his lender listed an insurance fee as part of the “amount financed” rather than “finance charge” on his TILA disclosure. The Court vacated the injunctive relief-based class certification order, holding that TILA does not confer a private injunctive relief right because Congress did not expressly provide for it in the statute. The Court also vacated the restitution award, holding that restitution is similarly unavailable for alleged disclosure violations under TILA. The Court confirmed that the only available remedies in this context are actual damages (which require proof of reliance) or statutory damages. Click here for a copy of Kenneth R. Christ, Jr. v. Beneficial Corporation, No. 06-14828 (11th Cir. Oct. 28, 2008).

The OCC issued a bulletin that provides general information about the Servicemembers Civil Relief Act. Among other things, the Act provides for interest rate adjustments on certain debts and for temporary suspension of legal proceedings that may adversely affect the rights of servicemembers during their military service. The bulletin reminds national banks that the Act requires creditors to forgive any interest in excess of 6% per year on any debts that a servicemember incurred prior to entering into the military. Creditors must maintain this rate reduction for the servicemember’s entire military career and, in the case of debts secured by a mortgage, for an additional year after the end of service. The bulletin also reminds banks of other provisions of the Act, including, (1) for debts secured by a mortgage entered into by a servicemember before entering the military, creditors may not initiate foreclosure proceedings until nine months after the end of military service, (2) creditors may not terminate any installment contract for the purchase or lease of real or personal property (including motor vehicles) entered into before or during military service, (3) creditors may not repossess any property under an installment contract entered into by a servicemember without a court order, and (4) servicemembers may terminate residential and motor vehicle leases if the servicemember entered into military service after executing the lease, or executed the lease while in military service but later received orders for a permanent change of station. Click here for the bulletin.

The FTC announced that it has suspended enforcement of its “Red Flags” rule until May 1, 2009, to give creditors and financial institutions more time to implement their written identity theft programs. In its press release, the FTC noted that some industries and entities within its jurisdiction were uncertain of the applicability of the FTC’s Red Flags rule to them, and that the delay would allow these entities to establish compliant identity theft programs. The action does not affect the November 1, 2008 deadline for compliance by creditors and financial institutions that are subject to the Red Flags rules issued by the federal banking agencies. The FTC also noted that its address discrepancy rule, which applies to all users of consumer reports, and its change-of-address rule, which applies to card issuers, has gone into effect, as scheduled, on November 1, 2008. Click here for the FTC’s press release and here for the FTC’s Red Flags enforcement policy.

The OTS issued a CEO Memorandum on procedures examiners will follow while reviewing compliance with the OTS’s Red Flags and address discrepancy rules. Click here for the memorandum.  Recently, the other federal banking agencies also issued similar examination procedures.  Click here for the FDIC’s procedures, here for the OCC’s and here for the Fed’s related supervisory letter.

The OTS issued a legal opinion concluding that a New York law prohibiting savings banks from accepting deposits from municipal organizations is preempted.  Click here for the opinion.