FYI: Feds Maintain Risk Weight for US Securities Following S&P Downgrade

As reflected in the mainstream news media, S&P downgraded the U.S.
government's and federal agencies' long term debt rating from AAA to AA+.

The federal banking agencies released the attached announcement, stating
that for risk-based capital purposes, the risk weights for Treasury
securities and other securities issued or guaranteed by the U.S.
government, government agencies, and government-sponsored entities will
not change.

The treatment of Treasury securities and other securities issued or
guaranteed by the U.S. government, government agencies, and
government-sponsored entities under other federal banking
agency regulations, including, for example, the Federal Reserve Board's
Regulation W, will also be unaffected.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com

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FYI: Ill App Ct Rejects State-Law Usury Allegations re: "365/360" Interest Calculation

The Illinois Appellate Court for the First District recently held that
calculating interest on a 365/360 basis in accordance with the terms of
the note does not violate the Illinois Interest Act.

A copy of the opinion is available at
http://www.state.il.us/court/Opinions/AppellateCourt/2011/1stDistrict/July
/1103718.pdf.

Defendant-Appellee First Choice Bank ("the Bank") extended a loan to
plaintiff-appellant Asset Exchange II, LLC ("Asset Exchange"). The terms
of the Note provided for an initial interest rate of 8.25%, and for the
interest rate to be computed on a 365/360 basis. The Note also provided
that the borrower had read and understood all of its provisions, making
special mention of the variable interest provisions.

Asset Exchange sued the Bank, alleging that because of purported
ambiguities in the Note, calculating interest based on a 360 day year
violated the Illinois Interest Act and constituted a breach of contract
and common law fraud, among several other causes of action. The trial
court dismissed the complaint, and Asset Exchange appealed.

As you may recall, the Illinois Interest Act does not apply to loans to
corporations. Further, the Act was recently amended to provide that "a
rate or amount of interest may be lawfully computed when applying the
ratio of the annual interest rate over a year based on 360 days." 815
ILCS 205/4(5).

Because "[t]here is no dispute here that [Asset Exchange] is a corporation
within the meaning of the Illinois Interest Act," the Court had little
difficulty in holding that the Act did not apply to the loan Asset
Exchange received from the Bank. Consequently, it held that the related
counts of Asset Exchange's complaint were properly dismissed.

Further, the Court examined whether the terms of the Note would have
violated that Illinois Interest Act, if the Act were to apply. Asset
Exchange's argument rested on a provision of the Act which states that if
a contract does not provide for a time period to calculate interest, "per
annum" or "by the year" is read into the contract. "Year" is defined as
365 days. Because the interest rate in the Note was not immediately
followed by a time period for the calculation of that interest, Asset
Exchange claimed that the interest must be calculated over a period of 365
days.

The appellate court rejected this argument, on the grounds that the Note
did provide a time period for the calculation of interest. Therefore, the
Court stated that "per annum" or "by the year" must be inserted into a
contract only "if no period of time is stated in the instrument," and
observed that it and other courts applying Illinois law had found that the
365/360 method of calculating interest was not unlawful or ambiguous.

The Court next considered Asset Exchange's breach of contract and common
law fraud claims. It found that the terms of the Note were unambiguous,
and that nothing appeared in the record indicating that those terms had
been concealed from Asset Exchange. Because "it is axiomatic that a party
cannot breach a contract by complying with its terms," the Court held that
the trial court properly dismissed the breach of contract claim.

The Court used the same reasoning, in addition to the fact that the Note
was signed by "two sophisticated businessmen" who had ample opportunity to
review its terms, to hold that the trial court properly dismissed Asset
Exchange's common law fraud claim.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.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,
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Our updates are available on the internet, in searchable format, at:
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FYI: 9th Cir Holds State-Law Motor Vehicle Deficiency Notice Not Preempted by NBA

The U.S. Court of Appeals for the Ninth Circuit recently held that certain
state-law notice and disclosure requirements for collecting on
deficiencies following motor vehicle repossessions are not preempted under
the National Bank Act.

A copy of the opinion is available at:
http://www.ca9.uscourts.gov/datastore/opinions/2011/08/01/09-56679.pdf

Plaintiff car buyer sued the defendant national bank ("National Bank")
that had purchased and received the assignment of his retail installment
contract, claiming that the National Bank violated a section of
California's Rees-Levering Act, that requires certain post-repossession
notices to a defaulting auto-loan borrower prior to selling the
repossessed car.

As you may recall, under California's Rees-Levering Act, if the retail
installment contract holder fails to provide certain required notices and
disclosures following repossession of a motor vehicle, the holder is
barred from collecting any remaining deficiency after the vehicle is sold.
The plaintiff argued that because the notices he received from the
National Bank did not contain all the information required under the
relevant section of the Rees-Levering Act, the National Bank is barred
from collecting any deficiency.

The plaintiff filed his original action in California state court on
behalf of himself and a putative class of other similarly situated
California consumers. The National Bank removed the case to federal
court, and then moved to dismiss. The district court granted the National
Bank's motion to dismiss on grounds of preemption. However, the Ninth
Circuit reversed.

The National Bank argued that the Rees-Levering post-repossession notice
requirements are preempted by the National Bank Act ("NBA") and its
implementing regulations. The district court agreed, holding that the
post-repossession notices required under the Rees-Levering Act are
preempted by regulations promulgated under the NBA by which national banks
are exempt from
state laws concerning "[d]isclosure and advertising, including laws
requiring specific statements, information, or other content to be
included in credit application forms, credit solicitations,
billing statements, credit contracts, or other credit-related documents"
under 12 C.F.R. § 7.4008(d)(2)(viii)).

The Ninth Circuit held that the lower court improperly relied on an
opinion applying HOLA preemption to a similar Ohio statute, Crespo v. WFS
Financial, Inc., 580 F. Supp. 2d 614 (N.D. Ohio 2008). The appellate
court noted that, "[b]ecause the district court had already found the
Rees-Levering notices were expressly preempted under the language in 12
C.F.R. § 7.4008(d)(2)(viii), the district court refused to consider the
savings clause language in Subsection (e) [of 12 C.F.R. § 7.4008] that
explicitly saves '[r]ights to collect debts' from preemption." The
corresponding OTS savings clause, 12 C.F.R. § 560.2(c), makes no such
preemption exception.

The Ninth Circuit also rejected the National Bank's argument that it is
subject to the UCC only when a state chooses to adopt the UCC in its true
"uniform" model code structure but not when a state, such as California,
chooses to modify sections of the UCC through its legislative actions. OCC
Interpretive Letter No. 1005, 2004 WL 3465750 (June 10, 2004).

The Court held that the OCC Interpretative Letter 1005 is narrowly
tailored to answer the question of whether the uniform UCC provisions are
preempted, and explicitly does not address "non-uniform provisions that
individual states may adopt and elect to include in the body of their
state commercial code." OCC Interpretive Letter No. 1005, at n.2. Thus,
the Court held the National Bank cannot use the OCC's letter to claim that
the OCC has stated national banks are only subject to the UCC if the UCC
is adopted in an unmodified form. According to the Court, the National
Bank failed "to identify what law applies with respect to repossessions
and the notices due a borrower after a repossession when a state chooses
to adopt a nonuniform version of the UCC."

The Court also noted that the "OCC's discussion of its implementation of
Section 7.4008 makes clear that the OCC contemplated debt collection
activities but explicitly intended to save them from preemption." The
Court further rejected the National Bank's argument that its activities
were not "debt collection" under 12 C.F.R. 7.4008(e). The Court noted
that the National Bank "wishes to collect the remainder of the debt, yet
now claims that while it could act under color of state law, or at least
the uniform provisions of the UCC, in repossessing Aguayo's car, it no
longer needs to comply with state law in collecting the remaining debt
owed."

The Court further rejected the National Bank's argument that the
Rees-Levering provisions do more than "incidentally affect" the bank's
lending powers, as the Court held the activities at issue were not
"lending" activities. The Court also rejected the notion that the notices
were "disclosures" and "credit-related documents" under the terms of
Section 7.4008(d)(2)(viii).

The Court held that the Rees-Levering provision at issue "falls squarely
within the OCC savings clause." Because the Court held that the
Rees-Levering Act sections at issue are directed toward debt collection
and are therefore not preempted by the NBA, the Ninth Circuit reversed the
lower court's dismissal order in favor of the National Bank.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.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
CONFIDENTIALITY NOTICE: This communication (including any related attachments) is intended only for the person/s to whom it is addressed, and may contain confidential and/or privileged material. Any unauthorized disclosure or use is prohibited. If you received this communication in error, please contact the sender immediately, and permanently delete the communication (including any related attachments) and permanently destroy any copies.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by law.

FYI: 3rd Cir Rules in Favor of Servicer in FCRA Furnisher Liability Case

The U.S. Court of Appeals for the Third Circuit recently held that, before
a consumer may sue a furnisher under the FCRA, the consumer must first
dispute allegedly incorrect information with the consumer reporting agency
that disseminated that information. Of note, the activity at issue
occurred before July 1, 2010, and the Court did not have reason to address
the FACTA amendments on the subject.

A copy of the opinion is available at:
http://www.ca3.uscourts.gov/opinarch/094542p.pdf

Plaintiff borrower noticed that defendant Countrywide Home Loans
("Servicer") had furnished negative credit information to credit reporting
agencies in 2007 and 2008. In response, she caused the law firm in which
she was a partner, and which also occasionally functioned in a manner that
met the definition of a consumer reporting agency, to inform the Servicer
that it had furnished allegedly false information. The Servicer did not
alter the information provided.

Plaintiff brought suit, seeking recovery for various tort claims and
violations of the FCRA. The District Court ruled that a private litigant
seeking to recover against a furnisher of information under the FCRA must
first complain to a consumer reporting agency before the furnisher can
face liability, and granted summary judgment in favor of the Servicer.
Plaintiff appealed.

Affirming the lower court's ruling in favor of the Servicer, the Third
Circuit first noted that several portions of the FCRA "cannot be used by a
private individual to assert a claim… as such claims are available only to
the Government" and thus, "[t]his leaves 15 U.S.C. § 1681s-2(b) as the
only section that can be enforced by a private citizen seeking to recover
damages caused by a furnisher of information."

Further, even "this cause of action is not without limitations," as a
furnisher of information may suffer liability only "[a]fter receiving
notice… of a dispute… provided by a person to a consumer reporting
agency." The Court also specifically ruled that "[n]otice… must be given
by a consumer reporting agency, and cannot come directly from the
consumer."

Plaintiff argued that appropriate notice could be provided by any consumer
reporting agency, including, in her case, the law firm in which she was a
partner, rather than the specific agency to which the furnisher provided
information.

However, the Court rejected that contention, for two reasons.

First, looking to the text of the statute, the Third Circuit concluded
that "[t]he notice required in order to trigger the furnisher's duties…
does not come from 'any' consumer reporting agency or 'an' agency, but,
rather, must come from 'the' agency." Thus, the Court ruled, the statute
can only have been referring to the "consumer reporting agency [that]
receive[d] notice of a dispute from any consumer."

Second, the Third Circuit observed that the FCRA "sets forth a framework
under which the consumer reporting agency is the central focus of any
private litigation" such that a furnisher faces liability under FCRA only
after it has received notification that a dispute exists from the consumer
reporting agency. Allowing a consumer to "bypass this structural
framework by hiring a law firm [to provide notice] would interfere with
this congressionally chosen path for creating liability," would cause
furnishers to have to respond directly to consumers rather than to
reporting agencies, and would perversely make the consumer's ability to
bring suit dependent on whether the law firm was itself a consumer
reporting agency.

Because Plaintiff did not provide notice of the dispute to the consumer
reporting agency that reported the allegedly objectionable information,
that agency could not have given notice of the dispute to the Servicer.
Accordingly, the Court held that the defendant Servicer was not obligated
under the FCRA to undertake any investigation, and affirmed the District
Court's ruling of summary judgment in favor of the Servicer.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.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
CONFIDENTIALITY NOTICE: This communication (including any related attachments) is intended only for the person/s to whom it is addressed, and may contain confidential and/or privileged material. Any unauthorized disclosure or use is prohibited. If you received this communication in error, please contact the sender immediately, and permanently delete the communication (including any related attachments) and permanently destroy any copies.

IRS CIRCULAR 230 NOTICE: To the extent that this message or any attachment concerns tax matters, it is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed by law.