Thursday, August 19, 2010

FYI: 9th Cir Says No Mandatory Arbitration of CROA Claims, Splits w/ 3rd and 11th Cirs

The U.S. Court of Appeals for the Ninth Circuit recently affirmed the district court's holding that a mandatory arbitration clause in a credit card agreement was void, holding that the federal Credit Repair Organization Act ("CROA"), 15 U.S.C. § 1679, et seq., prohibits provisions that purport to waive a consumer's right to sue in court for CROA violations.  In so doing, the Ninth Circuit created a conflict with opinions from the Third and Eleventh Circuits. 

A copy of the opinion is available at:
http://www.ca9.uscourts.gov/datastore/opinions/2010/08/17/09-15906.pdf

This class action lawsuit arose from a credit card marketed and provided to consumers with low or weak credit scores by defendant credit providers.  The consumer plaintiffs each applied for and received the credit cards, and were charged certain fees in connection with the issuance of the cards.  Before receiving the credit card, the consumers received an "Acceptance Certificate" which included a mandatory arbitration clause.  The consumers then brought this action in federal court, alleging that defendants' actions related to the credit cards violated the CROA and California's Unfair Competition Law.  Defendants moved to compel arbitration of the CROA claims.  The district court denied defendants' arbitration request, holding that that the arbitration clause was "invalid and void under the CROA's prohibition of the waiver of a consumer's right to sue in court."  This appeal followed.

The Ninth Circuit agreed with the district court's decision to deny the defendants' motion to compel arbitration and in so doing, employed its "usual methodology in statutory construction," starting with the plain language of the statute.  The court focused specifically on:  (a) the right provided for in the CROA for a consumer to "sue a credit repair organization;" and (b) the non-waiver provision of the CROA, which provides that any waiver of, among other things, the "right to sue," is to be treated as void and unenforceable.  Based its reading of the plain language of the statute, and an analysis of the plain and ordinary meanings of the terms "sue" and "arbitrate," the court held that the right to sue contained in the CROA "means what it says.  The statute does not provide a right to 'some form of dispute resolution.'"

The Court disagreed with each of defendants' counter-arguments based on: (a) a claim that the "right to sue" is merely a "simplified" shorthand for "right to bring a claim;" and (b) a claim that the statute's use of the term "any other person" contained in the waiver clause intended arbitrators to be able to decide CROA claims.  Further, the Court noted that its decision is in conflict with the Third and Eleventh Circuits, ultimately ruling that it was nevertheless "unpersuaded by the reasoning of those cases," which discuss the explicit language focused upon by the Ninth Circuit creating a "right to sue" with footnotes only.  The Court also held that the Supreme Court cases cited in those opinions are distinguishable from the specific situation presented in CROA cases. 
Let me know if you have any questions.  Thanks.
 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

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Wednesday, August 18, 2010

FYI: FFIEC Issues Reverse Mortgage Guidance

The Federal Financial Institutions Examination Council (FFIEC) recently released guidance on reverse mortgage products.  A copy of the guidance is available at:
 
The federal banking regulators' guidance emphasizes the consumer protection concerns raised by reverse mortgages and the importance of financial institutions mitigating the compliance and reputation risks associated with these products.  The guidance also addresses the general features of reverse mortgage products and relevant legal requirements and consumer protection concerns raised by reverse mortgages.  It focuses on the need for banks, thrifts, and credit unions to provide clear and balanced information to consumers about the risks and benefits of these products.
 
According to the guidance, this information should be provided while consumers are making decisions about these products and should address the specific matters listed in the guidance, including informing consumers of available alternatives to reverse mortgages. The guidance also states that institutions should take steps to avoid any appearance of a conflict of interest and requires that consumers receive qualified independent counseling. In addition, the guidance addresses related policies, procedures, internal controls, and third-party risk management.

The guidance will be effective 60 days after publication in the Federal Register, which is expected shortly.

Let me know if you have any questions.  Thanks.
 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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FYI: FRB Issues Proposed Rule to Implement Dodd-Frank Act Escrow Account Requirements for Certain Jumbo Loans

The Federal Reserve issued a proposal to revise the escrow account requirements for higher-priced, first-lien jumbo mortgages.  A copy of the FRB's proposal is available at:
 
The FRB's proposal would implement provisions of the Dodd-Frank Act that require an increase in the annual percentage rate threshold used to determine whether a mortgage lender is required to establish an escrow account for property taxes and insurance for first-lien jumbo mortgages.
 
As you may recall, current FRB "higher-cost loan" rules require creditors to establish escrow accounts for first-lien loans if a loan's APR is 1.5 percentage points or more above the applicable prime offer rate.  Under the Dodd-Frank Act, the escrow requirement will apply for first-lien jumbo loans only if the loan's APR is 2.5 percentage points or more above the applicable prime offer rate.  The APR threshold for non-first-lien and non-jumbo loans remains unchanged.
 
This proposal has a 30-day comment period, which is expected to begin shortly and after publication of the proposal in the Federal Register.
 
Let me know if you have any questions.  Thanks.
 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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Monday, August 16, 2010

FYI: Cal App Says Brws Failed to State Claim for "Fraudulent Loan Qualification," No Civ Code 2923.5 Claim w/o Showing of Prejudice

A California appellate court recently held, among other things, that borrower plaintiffs may not sustain a claim for fraudulent misrepresentation against a lender based solely on an allegation that the lender "falsely determined" that plaintiffs qualified for a loan.  The court based its decision on its holding that a representation that a borrower qualifies for a loan is not the same as a representation that a borrower can afford a loan, and that the plaintiffs' allegations ignored "the nature of the lender-borrower relationship." 

A copy of the opinion is available at:  http://www.courtinfo.ca.gov/opinions/documents/A125212.PDF

Plaintiffs borrowed money from a commercial mortgage lender to refinance certain real property.  At closing, plaintiffs signed a loan application wherein their stated total income was substantially greater than the actual income information they had provided to the lender.  A home equity line of credit was also extended to plaintiffs as part of the refinance transaction.  Plaintiffs defaulted on the payments, the lender moved to foreclose and the plaintiffs filed this action, asserting, among other things, fraudulent misrepresentation or fraudulent concealment.  The trial court sustained defendants' demurrer for failure to state a cause of action without leave to amend, and this appeal followed.

On appeal, the court addressed only four of the plaintiffs' thirteen original counts, holding that all other claims were deemed abandoned for failure to mention them in plaintiffs' filings.  As to the remaining four counts, the appellate court held that plaintiffs could not amend their complaint to state a cause of action for:  (1) fraudulent misrepresentation or fraudulent concealment;  (2) voiding and canceling the deed;  (3) violation of Civil Code Section 2923.5; or  (4) voiding the notice of default and notice of trustee's sale.

As to plaintiffs' fraudulent misrepresentation count, based on allegations that defendants falsely represented that plaintiffs could afford the payments in the loan documents, the court held that there is a distinction between (1) representing that a borrower qualifies for a loan and (2) representing that a borrower can afford a loan.  The court ultimately ruled that plaintiffs "could not rely upon [lender's] knowingly false determination that they qualified for the loans as a determination by [the lender] that they could afford the loans," noting specifically that "a lender owes no duty of care to the [borrowers] in approving their loan" and "a commercial lender pursues its own economic interests in lending money."  The court also held that plaintiffs' claim for fraudulent concealment failed and could not be amended because plaintiffs "failed to sufficiently allege a fiduciary duty" by the lender to disclose any allegedly concealed fact. 

The court also held that plaintiffs could not amend their complaint to state a cause of action under California Civil Code Section 2923.5, because they failed to allege that they suffered any prejudice as a result of any deficiency in the beneficiary declaration.

Finally, the court held that plaintiffs could not amend their complaint to state a cause of action to void and cancel the deed of trust or to void and cancel the notice of default and notice of trustee's sale because they failed to sufficiently allege that the deed was void for fraud in the execution in that the borrowers failed to demonstrate any special circumstance that would establish a fiduciary duty by the lender in its dealings with plaintiffs.

Let me know if you have any questions.  Thanks.
 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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