One to Watch: Chase Bank USA, NA v. McCoy
The U.S. Supreme Court has granted certiorari in Chase Bank USA, NA v. McCoy, on appeal from the 9th Circuit opinion in which the Court held that a credit card issuer's retroactive rate increase after a default requires contemporaneous notice to the consumer under the Truth in Lending Act, 15 U.S.C. §§ 1601-1615 and Regulation Z, 12 C.F.R. §226.
In McCoy, plaintiff alleged that credit card issuer Chase Manhattan Bank, USA, increased the interest rate on his card retroactively, without notice to him, after he made a late payment. Plaintiff sued Chase, alleging that the rate increase violated TILA and Delaware law. The district court dismissed plaintiff's claims with prejudice, holding Chase was not required to give notice because its cardholder agreement discloses the highest rate that could apply in the case of default. Plaintiff appealed.
Continue Reading..."Wall Street Reform and Consumer Protection Act" Is Now Law
President Obama today signed the "Wall Street Reform and Consumer Protection Act," which will bring comprehensive changes to consumer financial services, and to consumer finance litigation, including mortgages, credit cards, retail credit, debt collection, arbitration, preemption, and auto finance. See details about the changes coming, as seen by the White House, and the President's signing remarks.
Financial Regulatory Reform is (Almost) a Done Deal
The U.S. Senate voted 60-39 yesterday to pass the Wall Street Reform and Consumer Protection Act, which the White House says President Obama will sign into law next week. While consumer finance attorneys digest the massive changes coming with this comprehensive bill (in mortgages, credit cards, retail credit, debt collection, arbitration, preemption, and auto finance), the scope of the changes will likely depend on the implementing regulations, and how these regulations are interpreted by Courts.
A few things are clear now. First, the OTS is fading away. Second, consumer arbitration may be too. Third, federal preemption is likely to be more difficult to obtain in consumer finance litigation.
Conference Reaches Deal on Financial Regulatory Reform
The House-Senate Conference to reconcile financial regulatory reform reached a final agreement on the legislation on Friday. The "Dodd-Frank Wall Street Reform and Consumer Protection Act" calls for the creation of the Consumer Financial Protection Bureau, an independent agency to be housed at the Federal Reserve, with a broad mandate to regulate consumer financial services of virtually all types.
The Consumer Financial Protection Bureau will have an independent director appointed by the President and confirmed by the Senate, with an independent budget and independent rule writing, examination, and enforcement authority. The CFPB consolidates consumer protection responsibilities of the OCC, OTS, FDIC, Federal Reserve, NCUA, HUD, and the FTC. Among other things, the legislation also creates a new Office of Financial Literacy to disseminate information to consumers and a new consumer hotline for consumer questions.
Continue Reading...New Furnisher Rules Effective July 1
The new rules for furnishers of credit reporting information take effect on July 1, 2010. Subject to several exceptions, the rules implement two significant changes for furnishers.
First, the rules require furnishers to implement reasonable written policies and procedures regarding the accuracy and integrity of consumer information. Second, the rules require furnishers to conduct a reasonable investigation into disputes related to credit reporting submitted to a furnisher directly by a consumer. The Fair Credit Reporting Act rules now in place require such an investigation only after a furnisher receives notice of dispute from a credit reporting agency. Significantly, if a furnisher provides a specific correspondence address for such disputes, the furnisher need only respond to disputes submitted to that address.
Fed Issues Final Credit Card Rules
The Federal Reserve yesterday announced its final rule amending Regulation Z regarding late payment fees, interest rate changes, and other penalty fees. The final rule makes a number of significant amendments to Reg Z, including:
- Prohibits credit card issuers from charging a penalty fee of more than $25 for paying late or otherwise violating the account's terms unless the consumer has engaged in repeated violations or the issuer can show that a higher fee represents a reasonable proportion of the costs it incurs as a result of violations.
- Prohibits credit card issuers from charging penalty fees that exceed the dollar amount associated with the consumer's violation. For example, card issuers will no longer be permitted to charge a $39 fee when a consumer is late making a $20 minimum payment. Instead, the fee cannot exceed $20.
- Bans "inactivity" fees, such as fees based on the consumer's failure to use the account to make new purchases.
- Prevents issuers from charging multiple penalty fees based on a single late payment or other violation of the account terms.
- Requires issuers that have increased rates since January 1, 2009 to evaluate whether the reasons for the increase have changed and, if appropriate, to reduce the rate.
The Fed now publishes an online credit card guide for consumers and has issued a new publication with details on the credit card changes effective August 22.
Tracking the Conference on Financial Regulatory Reform
The House-Senate Conference to reconcile financial regulatory reform legislation begins today. Track the conference with the House Financial Services Committee or the Senate Banking Committee. The hearing also will be broadcast live on C-SPAN and webcast live at the House Financial Services Committee site.
9th Circuit Defines Limits to FCBA Duties
The Ninth Circuit last week defined the limitations on a credit card issuer's duties to communicate with authorized card users regarding billing disputes. In Edwards v. Wells Fargo & Co., defendant Wells Fargo issued credit cards to Hamid and Saeid Maghamfar, two brothers, who were obligors on the account. The Maghamfars later added a third person, plaintiff Paul Edwards, as an authorized user of the account, and Wells Fargo issued a card to Edwards. Edwards had numerous disputes with vendors related to transactions on the card. Wells Fargo initially communicated with Edwards about the disputes, apparently believing he was an attorney for the Maghamfars. When Wells Fargo discovered that Edwards was not an attorney, just an authorized user, it stopped communicating with him, or responding to him, regarding the disputes.
Edwards sued Wells Fargo in district court in Nevada, alleging violations of the Fair Credit Billing Act ("FCBA"), part of the Truth in Lending Act, and violations of the Nevada Unfair Consumer Practices Act. The district court granted summary judgment for Wells Fargo. Plaintiff appealed.
Continue Reading...Senate Passes Financial Regulatory Bill
The U.S. Senate yesterday passed the financial regulatory bill, S.3217, the "Restoring American Financial Stability Act." The comprehensive bill includes broad new regulation of derivatives, executive compensation, systemic risk, investor rights, mortgages, credit-rating agencies, hedge funds and private equity, insurance, and consumer financial protection.
Significantly, this Senate version of financial regulation calls for a new, quasi-independent Bureau of Consumer Financial Protection within the Federal Reserve. The House version of financial regulation, passed in December, would create an independent, free-standing Consumer Financial Protection Agency. Both the House and Senate bills would limit federal preemption of consumer finance laws in certain ways. The Senate bill includes a detailed preemption provision.
New Duties for Furnishers Under Credit Reporting Rules
Pursuant to final agency rules implementing revisions to credit reporting regulations mandated by the Fair and Accurate Credit Transactions Act of 2003 ("FACTA"), significant changes to credit reporting rules will take effect on July 1, 2010.
Subject to several exceptions, the final new credit reporting rules for furnishers require furnishers to conduct a reasonable investigation into disputes related to credit reporting submitted to a furnisher directly by a consumer. The Fair Credit Reporting Act rules now in place require such an investigation only after a furnisher receives notice of dispute from a credit reporting agency. Significantly, if a furnisher provides a specific correspondence address for such disputes, the furnisher need only respond to disputes submitted to that address.
