FYI: FTC Settles Mortgage Lending Discrimination Case for $1.5M

The Federal Trade Commission reached a $1.5 Million settlement with a mortgage lender and its owner as to charges that the lender illegally charged Latino consumers higher prices for mortgage loans than non-Latino white consumers, which could not be explained by the applicants' credit characteristics or underwriting risk.

 

Copies of the FTC's complaint, and the Stipulated Final Judgment and Order For Permanent Injunction and Other Equitable Relief, are available at:
http://www.ftc.gov/os/caselist/0623061/index.shtm

 

The FTC filed a complaint in the U.S. District Court for the Central District of California on May 7, 2009, alleging that Golden Empire Mortgage, Inc. and Howard D. Kootstra violated the Equal Credit Opportunity Act. According to the FTC, the defendants allegedly gave loan officers and branch managers wide discretion to charge some borrowers, in addition to the risk-based price, "overages" through higher interest rates and higher up-front charges.  The FTC alleged that the defendants then paid loan officers a percentage of the overages as a commission, failed to monitor whether Latino consumers were paying higher overages than non-Latino white borrowers.

 

The settlement order imposes a $5.5 million judgment that will be suspended when $1.5 million has been paid for consumer redress. The full judgment will become due immediately if the defendants are found to have misrepresented their financial condition.  It also permanently prohibits Golden Empire and Kootstra from discriminating on the basis of national origin in credit transactions, or otherwise failing to comply with the Equal Credit Opportunity Act and its implementing Regulation B.

 

In addition, the settlement order also requires Golden Empire to implement a policy that restricts loan originators' pricing discretion, a fair lending monitoring program, a program to ensure the accuracy and completeness of their data, and employee training programs. The pricing policy and fair lending monitoring program set forth in the settlement order are intended to facilitate order enforcement in this case.

 

In its press release, the FTC stated:  "The extent to which other lenders should use the same methodology in monitoring ECOA compliance will depend on the facts and circumstances of each lender. An appropriate monitoring program requires an examination of a lender's policies, business model and business necessities and should include statistical analyses that consider, as warranted by the lender's particular circumstances, various information such as loan characteristics, geographic variations and other relevant factors."

 

 

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
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FYI: FTC Issues Proposed Mortgage Advertising Rules

The Federal Trade Commission issued a proposed rule would prohibit all material misrepresentations in advertising about consumer mortgages, allow civil penalties, and allow enforcement by the states.

 

The Federal Register Notice is available at:
http://www.ftc.gov/os/fedreg/2010/september/100922mortgageadvertising.pdf

 

The proposed rule lists 19 examples of misrepresentations about fees, costs, obligations, and other aspects of credit that would be violations.  However, the proposed rule does not include any advertising disclosure requirements.

 

The proposed rule would apply to:  (1) mortgage lenders, brokers, and servicers;  (2) real estate agents and brokers;  (3) advertising agencies;  (4) home builders;  (5) lead generators;  (6) rate aggregators; and  (7) other entities under the FTC's jurisdiction.

 

As you may recall, currently under the FTC Act, the Commission may bring actions against those under its jurisdiction who engage in deceptive mortgage advertising, and seek injunctive relief against them. Under the proposed rule, the FTC would be able to bring actions against violators to seek civil penalties in addition to injunctions. The proposed rule would also allow the states to bring actions for civil penalties for violations of the rule.

 

The FTC is seeking comments about the proposed rule's costs and benefits, including whether any alternatives would adequately protect consumers at a lower cost.  The FTC seeks public input on whether there are advertising disclosures that the Commission should include in the rule. The FTC also seeks public comment on whether the rule should include a provision that prohibits persons from providing substantial assistance to those who violate the rule.

 

The Notice of Proposed Rulemaking has a 45-day public comment period ending November 15, 2010. 

 

 

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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FYI: 8th Cir Says CAFA's "Local Controversy" Exception Determined by All Putative Classes Pled, Not by Separate Class Counts

The United States Court of Appeals for the Eighth Circuit recently held that, for the purposes of the local-controversy exception to the Class Action Fairness Act of 2005 ("CAFA"), a plaintiff class includes all of the class members in the class action as a whole, and not by separate class counts.

 

A copy of the opinion is available at: http://www.ca8.uscourts.gov/opndir/10/09/102635P.pdf

 

Borrower filed a class action in Missouri state court against Independent Processing, LLC ("Independent"), a residential mortgage documents processor, and Provident Funding Associates, LP ("Provident"), a residential mortgage provider.  Borrower alleged that Provident and Independent violated state law when they charged "broker processing fees" and "administrative fees" in residential mortgage financing transactions.

 

Provident removed the case to federal court pursuant to CAFA, but the District Court granted the Borrower's motion to remand the case back to state court based on an the local-controversy exception to CAFA, 28 U.S.C. § 1332(d)(4)(A).  The Eighth Circuit granted Provident's appeal and vacated and remanded the case to the district court.

 

The Court first held that the lower court erred by resolving any doubt regarding the applicability of the local-controversy exception in favor of the Borrower.  Once "CAFA's initial jurisdictional requirements have been established by the party seeking removal…the burden shifts to the party seeking remand to establish that one of CAFA's express jurisdictional exceptions applies."  Accordingly, "the District Court should resolve any doubt about the applicability of CAFA's local-controversy exception against [Borrower], the party who seeks remand and the party who bears the burden of establishing that the exception applies."
 
The Court next addressed the local-controversy exception under CAFA, which requires a federal district court to decline to exercise jurisdiction over a class action when, among other things, "an in-state defendant — in this case, Independent — is a so-called 'significant' defendant, one 'from whom significant relief is sought by members of the plaintiff class' and one 'whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class.'" 28 U.S.C. §1332(d)(4)(A)(i)(II)(aa) and (bb).

 

In this case, Borrower asserted two state-law claims against Independent and two identical state-law claims against Provident on behalf of two separate putative classes, seeking separate certification of the two separate putative classes.  The district court "analyzed the significant defendant issue separately for each class defined" by the Borrower and, "not surprisingly, concluded that with respect to Counts I and II, each of which defined a class and asserted claims against Independent alone, Independent was a significant defendant. Thus the court ruled that the local-controversy exception applied and the case had to be remanded."

 

The Eighth Circuit rejected the lower court's analysis and, seeking to effectuate the purpose of CAFA, reasoned that "'class'" is defined under CAFA as 'all of the class members in a class action.' 28 U.S.C. § 1332(d)(1)(A).  Therefore, "'the plaintiff class' described in §1332(d)(4)(A)(i)(II)(aa) and 'the proposed plaintiff class' described in §1332(d)(4)(A)(i)(II)(bb) include all of the class members in the class action as a whole."  "It follows, then, that whether an in-state defendant is a significant defendant for purposes of the local-controversy exception must be determined by considering the claims of "all of the class members in [the] class action" and not by considering the claims of class members on a class-by-class basis." 

 

The Court cited Kaufman v. Allstate N.J. Ins. Co., 561 F.3d 144, 157 (3d Cir. 2009), with approval.  In that case, the Court stated that under the "significant basis" element of the local-controversy exception, the "local defendant's alleged conduct must be an important ground for the asserted claims in view of the alleged conduct of all of the Defendants."  The Eight Circuit further reasoned that the lower court's reading of the "local-controversy exception would allow class-action plaintiffs to avoid federal jurisdiction under CAFA simply by pleading their claims against an in-state defendant as separate counts on behalf of a separate class."

 

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: Cal App Says Putative Insured Entitled to Title Ins Coverage Due to Reasonable Reliance on Preliminary Title Report

The Court of Appeal for the State of California, First District, recently held that a putative insured is entitled to title insurance coverage where the preliminary title report provided could cause them to reasonably believe that they had purchased title insurance coverage of a specified parcel.

A copy of the opinion is available at: http://www.courtinfo.ca.gov/opinions/documents/A124730.PDF

Plaintiff borrowers ostensibly purchased property identified by two tax assessor parcel identification numbers.  Defendant title company provided a preliminary report that repeatedly referred to both parcels and that also included a map describing both parcels and a metes and bounds description of the covered property.  The legal description of the insured property referred to only one parcel, which matched the deed, and it was this description that was incorporated into the title insurance policy.  Plaintiffs later discovered that they did not own both parcels and made a claim under the policy, which was denied by Defendant on the basis that the legal description did include the second parcel.  The trial court awarded summary judgment in favor of the defendant.  The Appellate Court reversed.

In reaching its ruling, the Court first examined fifty-year-old precedent set in Lagomarsino v. San Jose Title Ins. Co., 178 Cal. App. 2d 455, 465 (1960), which holds that where a title insurer is attempting to avoid liability based on ambiguity in the legal description of real property, "'[t]he ambiguity should be resolved in favor of the insured'" and that "[t]he function of the title company is to give the insured the protection which he reasonably had a right to expect," because "[t]he risk of a proper description was assumed by the [title] company, and it should bear the responsibility for the mistake." (Id. at p. 465).

The Court considered the underlying facts at length in reaching its ruling, noting first that the preliminary title report provided to the plaintiffs was an offer to insure a given parcel.  This offer provided detailed information regarding the subject parcel within its coverage description and also included both a map and arrow depicting the subject parcel.  A legal description, which excluded the subject parcel, was also provided, but as that was a surveyor's metes and bounds description, the Court ruled, it would have been ambiguous to a layperson.  Thus, the Court concluded, "[p]laintiffs could have reasonably expected, under the circumstances, that they were buying a title insurance policy on [the subject parcel]."

The Court then referred to White v. Western Title Ins. Co., 40 Cal.3 d 870, 881 (1985) in further clarifying its ruling, noting that although "the provisions of [a] policy 'must be construed so as to give the insured the protection which he reasonably had a right to expect'," that an insured is only entitled to coverage based on their objectively reasonable expectation.  A property owner unable to speak English, for example, would not be able to claim that a coverage description was ambiguous after failing to obtain a translation of documents provided.

The Court also considered, but discounted, the title insurer's argument that a claim for breach of insurance contract would have been outside a two-year statute of limitations provided under California law, noting that "the operative date is the date of discovery of the loss, not the date when discovery would have been possible."

 

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: Dodd-Frank "Designated Transfer Date" is July 21, 2011

The Secretary of the Treasury designated July 21, 2011, as the "designated transfer date" pursuant to Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203 (July 21, 2010), also sometimes called the "Consumer Financial Protection Action of 2010" or "Dodd-Frank."

 

The Federal Register Notice for this announcement is available at:

http://edocket.access.gpo.gov/2010/2010-23487.htm

 

As you may recall, on this ``designated transfer date,'' certain authorities will transfer from other agencies to the new Consumer Financial Protection Bureau ("CFPB"), and the CFPB will be able to exercise certain additional, new authorities under the CFPA/Dood-Frank and other laws.

 

For example, and among other things, on and following the "designated transfer date":

 

-  The "consumer financial protection functions" of HUD, the federal banking regulators, and the FTC will be housed in or otherwise subject to the CFPB;

 

-  The new preemption provisions of Subtitle D tof Title X he CFPA/Dodd-Frank will become effective;

 

-  The substantive changes to a number of federal consumer lending laws Title IV (such as the new TILA and RESPA changes) will become effective, or will have their effective dates triggered;

 

-  The CFPB's authority to prohibit unfair, deceptive, or abusive acts and practices becomes effective.

 

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

 

NOTICE:  We do not send unsolicited emails.  If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention.  Thank you.

 

Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com