ID on Merchandise Return Not a Violation of Song-Beverly
In Absher v. Autozone, Inc., the Second District California Court of Appeal held that a request for personal identification information in connection with a return of merchandise purchased with a credit card does not violate Civil Code §1747.08, otherwise known as the Song-Beverly Credit Card Act of 1971, which prohibits a merchant from requesting or requiring personal identification information for a credit card payment.
In Absher, plaintiff used a credit card to purchase a locking gas cap from Autozone and immediately tried to return it after he discovered in the store's parking lot that it was the wrong size for his car. Autozone's cashier swiped plaintiff's credit card and asked him to fill out a form with personal identification information, including his name, address, telephone number and signature. Plaintiff filled out the form, and two weeks later sued Autozone in a class action, alleging that Autozone violated Civil Code §1747.08(a)(3) by utilizing a form with spaces for his personal identification information. The trial court granted Autozone's motion for summary judgment. Plaintiff appealed.
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In Absher, plaintiff used a credit card to purchase a locking gas cap from Autozone and immediately tried to return it after he discovered in the store's parking lot that it was the wrong size for his car. Autozone's cashier swiped plaintiff's credit card and asked him to fill out a form with personal identification information, including his name, address, telephone number and signature. Plaintiff filled out the form, and two weeks later sued Autozone in a class action, alleging that Autozone violated Civil Code §1747.08(a)(3) by utilizing a form with spaces for his personal identification information. The trial court granted Autozone's motion for summary judgment. Plaintiff appealed.
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Sweeping Housing Bill Expected to Become Law
President Bush recently signaled that he will sign the Housing and Economic Recovery Act of 2008, H.R. 3221, which passed the Senate on July 26, 2008 after passing the House last week. Among other things, the massive aid package, aimed at shoring up the troubled housing market, includes $300 billion for homeowners to refinance their mortgages into government-backed loans through the Federal Housing Administration. An estimated 2.5 million households are facing possible foreclosures this year.
The bill also provides emergency financing capacity for mortgage titans Fannie Mae and Freddie Mac, two government-sponsored enterprises which own or guarantee nearly half the nation’s $12 trillion in outstanding home mortgage debt. The bill also creates a new regulator with expanded authority to oversee the two mortgage giants.
The final version of the bill also includes hotly contested provisions for a new low income housing tax credit, new tax exempt bonds for housing, and a new housing trust fund.
Your Scorecard For New Laws and Regulations
For those fans scoring at home, there are many revised, amended, proposed or new regulations and laws recently enacted or on deck in Sacramento and DC in consumer finance. Many more are likely to come. A summary of the most recent:
California law
• Mortgages: new foreclosure procedures are now law in Civil Code §§2923.5, 2923.6 and 2929.3 and Code of Civil Procedure §1161b.
Federal law
• Credit Cards: the 2008 Credit and Debit Card Receipt Clarification Act, now law, clairifies the Fair and Accurate Credit Transactions Act of 2003;
• Credit Cards and Deposit Accounts: "unfair or deceptive acts or practices" are refined and redefined in revisions to Regulation AA, revisions to Regulation DD, and revisions to Regulation Z;
• Mortgages: Regulation X would get a makeover in HUD's proposed rule amending the Real Estate Settlement Procedures Act;
• Arbitration: the proposed "Arbitration Fairness Act of 2007" would slice and dice the Federal Arbitration Act; the "Automobile Arbitration Fairness Act of 2008," would eviscerate pre-dispute arbitration provisions in auto sales or lease contracts.
California law
• Mortgages: new foreclosure procedures are now law in Civil Code §§2923.5, 2923.6 and 2929.3 and Code of Civil Procedure §1161b.
Federal law
• Credit Cards: the 2008 Credit and Debit Card Receipt Clarification Act, now law, clairifies the Fair and Accurate Credit Transactions Act of 2003;
• Credit Cards and Deposit Accounts: "unfair or deceptive acts or practices" are refined and redefined in revisions to Regulation AA, revisions to Regulation DD, and revisions to Regulation Z;
• Mortgages: Regulation X would get a makeover in HUD's proposed rule amending the Real Estate Settlement Procedures Act;
• Arbitration: the proposed "Arbitration Fairness Act of 2007" would slice and dice the Federal Arbitration Act; the "Automobile Arbitration Fairness Act of 2008," would eviscerate pre-dispute arbitration provisions in auto sales or lease contracts.
"Automobile Arbitration Fairness Act" Still Alive
Although certain recent decisions of the U.S. Supreme Court indicate support for the Federal Arbitration Act, 9 U.S.C. § 1 et seq., arbitration is still under attack in Congress. As noted last week, the "Arbitration Fairness Act of 2007" is still alive and moving through committee in the House of Representatives. The "Automobile Arbitration Fairness Act of 2008," which would eviscerate pre-dispute arbitration provisions in auto sales or lease contracts is also moving through committee.
The Automobile Arbitration bill provides that any "controversy arising out of a motor vehicle consumer sales or lease contract," entered after the effective date of the Act "may not be settled by arbitration unless, after such controversy arises, all the parties to such controversy agree in writing to settle such controversy by arbitration." The bill would also require any arbitration award to "include a brief, informal discussion of the factual and legal basis for the award."
The Automobile Arbitration bill provides that any "controversy arising out of a motor vehicle consumer sales or lease contract," entered after the effective date of the Act "may not be settled by arbitration unless, after such controversy arises, all the parties to such controversy agree in writing to settle such controversy by arbitration." The bill would also require any arbitration award to "include a brief, informal discussion of the factual and legal basis for the award."
Will California Courts Enforce Your Choice of Law?
In Brack v. Omni Loan Company, Ltd., the Fourth District California Court of Appeal last week held that a Nevada choice of law provision in defendant's loan agreement was not enforceable, because "the application of Nevada law would conflict with fundamental California policy" and because "California had a greater interest in the parties' transaction than Nevada."
Defendant Omni, a Nevada corporation with its principal place of business in Nevada, provided a personal loan to plaintiff borrower Joshua Brack, a nonresident member of the military stationed at California's Camp Pendleton. Omni's loan agreement contained a choice of law provision in favor of Nevada law. Brack repaid the loan in full in 2002.
In 2003, Brack filed a class action against Omni, alleging violations of the California Finance Lenders Law (Fin.Code §22000 et seq.), the Consumers Legal Remedies Act ("CLRA") (Civ. Code §1750 et seq.) and California's Unfair Competition Law (Bus. and Prof. Code §17200). After a trial on Omni's Nevada choice of law defense, the trial court entered judgment in favor of Omni. Brack moved to set aside the judgment. The trial court denied the motion and Brack appealed.
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Defendant Omni, a Nevada corporation with its principal place of business in Nevada, provided a personal loan to plaintiff borrower Joshua Brack, a nonresident member of the military stationed at California's Camp Pendleton. Omni's loan agreement contained a choice of law provision in favor of Nevada law. Brack repaid the loan in full in 2002.
In 2003, Brack filed a class action against Omni, alleging violations of the California Finance Lenders Law (Fin.Code §22000 et seq.), the Consumers Legal Remedies Act ("CLRA") (Civ. Code §1750 et seq.) and California's Unfair Competition Law (Bus. and Prof. Code §17200). After a trial on Omni's Nevada choice of law defense, the trial court entered judgment in favor of Omni. Brack moved to set aside the judgment. The trial court denied the motion and Brack appealed.
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Fed Issues Final Version of New Mortgage Rule
After several months of comments on the proposed rule released in December 2007, the Fed approved a final rule amending Regulation Z. In a press release and related rule highlights, the Fed summarized the new rule which, among other things, restricts certain mortgage lending practices defined as "unfair, abusive or deceptive," requires additional notices to mortgage borrowers, and imposes additional restrictions on mortgage lenders' advertising.
The new rule, most provisions of which will be effective October 1, 2009, creates a new category of mortgage loans called "higher-priced loans" (determined by reference to an index published by the Fed) to target subprime mortgages. The rule also contains additional regulations applicable to all mortgages.
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The new rule, most provisions of which will be effective October 1, 2009, creates a new category of mortgage loans called "higher-priced loans" (determined by reference to an index published by the Fed) to target subprime mortgages. The rule also contains additional regulations applicable to all mortgages.
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"Arbitration Fairness Act" Still Looming
The "Arbitration Fairness Act of 2007," which caused a flurry of criticism and commentary when it was introduced in July 2007, is still alive and continuing its journey through committee. The Act would amend several provisions of the Federal Arbitration Act, making sweeping changes to the enforceability of arbitration provisions.
The Act would expressly invalidate arbitration agreements—retroactively—in employment, consumer or franchise disputes and in any "dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power." Specifically, in the context of a "consumer dispute," broadly defined, the Act would make a "predispute arbitration agreement" invalid and unenforceable. Continue Reading...
The Act would expressly invalidate arbitration agreements—retroactively—in employment, consumer or franchise disputes and in any "dispute arising under any statute intended to protect civil rights or to regulate contracts or transactions between parties of unequal bargaining power." Specifically, in the context of a "consumer dispute," broadly defined, the Act would make a "predispute arbitration agreement" invalid and unenforceable. Continue Reading...
Comment Period Closes on HUD's RESPA Reform Rule
HUD issued its proposed rule amending the Real Estate Settlement Procedures Act ("RESPA") in a March 14, 2008, press release. The comment period for the rule expired on June 12, 2008, after HUD extended the original deadline 30 days to accommodate a high volume of public comment.
The new rule would significantly amend Regulation X provisions regarding required mortgage disclosures and related mortgage loan settlement procedures:
The new rule would significantly amend Regulation X provisions regarding required mortgage disclosures and related mortgage loan settlement procedures:
- requiring a new standardized Good Faith Estimate form intended to make loan comparisons easier, to simplify the summary of loan terms and charges, and to provide more accurate estimates of costs for settlement services;
- requiring additional detailed disclosures of yield spread premiums;
- requiring a revised HUD-1 Settlement Statement form;
- requiring a particular "closing script" to be read to and provided to borrowers at closing, which would vary depending on the terms of the mortgage (see, e.g., a fixed interest rate closing script).
New Law Changes California Mortgage Foreclosure Rules
As expected, California Governor Arnold Schwarzenegger last week signed California's new mortgage foreclosure bill into law, which is effective immediately and would expire in January 2013. (See SB1137). The new law adds Civil Code §§2923.5, 2923.6 and 2929.3 and Code of Civil Procedure §1161b.
Among other significant changes, the new law amends the Civil Code procedures that must be followed before a lender can issue a notice of default or notice of trustee sale in connection with residential mortgage loans made from January 1, 2003 to December 31, 2007 for owner-occupied residences. The new law also imposes civil penalties up to $1,000 per day for lenders who fail to maintain foreclosed properties and gives tenants 60 days to vacate property sold in foreclosure.
Among other significant changes, the new law amends the Civil Code procedures that must be followed before a lender can issue a notice of default or notice of trustee sale in connection with residential mortgage loans made from January 1, 2003 to December 31, 2007 for owner-occupied residences. The new law also imposes civil penalties up to $1,000 per day for lenders who fail to maintain foreclosed properties and gives tenants 60 days to vacate property sold in foreclosure.
9th Circuit Addresses FDCPA "Bona Fide Error" Defense
The Ninth Circuit this week addressed the evidence required to establish a "bona fide error" defense under the FDCPA, 15 U.S.C. 1692k(c). In Reichert v. National Credit Systems, Inc., the Court held that to establish the bona fide error defense, "a showing of 'procedures reasonably adapted to avoid any such error' must require more than a mere assertion to that effect. The procedures themselves must be explained, along with the manner in which they were adapted to avoid the error."
In Reichert, plaintiff debtor sued National Credit Systems ("NCS") in connection with its collection activities for debtor's former landlord. The debt that NCS attempted to collect included a $225 charge by the landlord's attorney for writing a letter to the debtor. The debtor alleged, among other things, that the inclusion of this charge, which was not specifically provided in the lease, violated FDCPA provision 15 U.S.C. §1692f(1). The district court granted summary judgment for the debtor. NCS appealed. Continue Reading...
In Reichert, plaintiff debtor sued National Credit Systems ("NCS") in connection with its collection activities for debtor's former landlord. The debt that NCS attempted to collect included a $225 charge by the landlord's attorney for writing a letter to the debtor. The debtor alleged, among other things, that the inclusion of this charge, which was not specifically provided in the lease, violated FDCPA provision 15 U.S.C. §1692f(1). The district court granted summary judgment for the debtor. NCS appealed. Continue Reading...
Issuance of Credit Card (Still) Not Subject to CLRA
The Fourth District California Court of Appeal reaffirmed in a published opinion that the issuance of a credit card is not subject to the California Consumers Legal Remedies Act ("CLRA") (Civ. Code § 1750 et seq.). In Ball v. FleetBoston Financial Corporation, the Court of Appeal affirmed the Superior Court's denial of plaintiff's motion for leave to amend her complaint to allege violations of the CLRA and to seek declaratory relief against card issuer FleetBoston, citing prior cases that established "the CLRA does not apply to the issuance of a credit card."
In Ball, plaintiff sued FleetBoston (later Bank of America) for a violation of California's unfair competition law, Business and Professions Code § 17200 et seq., alleging that FleetBoston's cardholder agreement was procedurally and substantively unconscionable. She later filed an amended complaint adding additional allegations of substantive unconscionability. When Ball filed her complaint and first amended complaint, she did not have a credit card account with FleetBoston. After Proposition 64 and subsequent cases confirmed that a non-cardholder had no standing to sue under 17200, Ball opened a credit card account and sought leave to amend her complaint for a second time to allege her new customer status, to allege violations of the CLRA, and to seek declaratory relief. The Superior Court denied plaintiff's motion for leave to amend. Plaintiff appealed.
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In Ball, plaintiff sued FleetBoston (later Bank of America) for a violation of California's unfair competition law, Business and Professions Code § 17200 et seq., alleging that FleetBoston's cardholder agreement was procedurally and substantively unconscionable. She later filed an amended complaint adding additional allegations of substantive unconscionability. When Ball filed her complaint and first amended complaint, she did not have a credit card account with FleetBoston. After Proposition 64 and subsequent cases confirmed that a non-cardholder had no standing to sue under 17200, Ball opened a credit card account and sought leave to amend her complaint for a second time to allege her new customer status, to allege violations of the CLRA, and to seek declaratory relief. The Superior Court denied plaintiff's motion for leave to amend. Plaintiff appealed.
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Supreme Court's Term Included Arbitration Preemption Ruling
In the Supreme Court term just completed, the Court continued its support for the preemptive power of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("FAA"). In Preston v. Ferrer, 128 S.Ct. 978 (2008), the Court held that when parties agree to arbitrate all questions under a contract, the FAA preempts state laws placing primary jurisdiction in another forum, whether that forum is a court or administrative agency.
Preston involved a fee dispute between Alex Ferrer, more commonly known as TV's "Judge Alex," and Los Angeles entertainment attorney Arnold Preston. The fee contract contained a provision providing that the parties would arbitrate “any dispute ... relating to the terms of [the contract] or the breach, validity, or legality thereof ... in accordance with the rules [of the American Arbitration Association].” The Court held that this arbitration provision preempts California law to the extent that it placed primary jurisdiction for the dispute in the California Labor Commission.
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Preston involved a fee dispute between Alex Ferrer, more commonly known as TV's "Judge Alex," and Los Angeles entertainment attorney Arnold Preston. The fee contract contained a provision providing that the parties would arbitrate “any dispute ... relating to the terms of [the contract] or the breach, validity, or legality thereof ... in accordance with the rules [of the American Arbitration Association].” The Court held that this arbitration provision preempts California law to the extent that it placed primary jurisdiction for the dispute in the California Labor Commission.
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The Bell Tolls for Some FACTA Class Actions
Since certain of its provisions became effective in December 2006, the Fair and Accurate Credit Transactions Act of 2003 ("FACTA") has spawned a torrent of class actions around the country based primarily on alleged technical violations of the new law, enacted primarily as a protection against identity theft. Many of these cases centered on technical ambiguities in the statute and related regulations that left open serious questions, like whether a merchant who properly truncated a credit card number, but failed to omit the card's expiration date, had willfully failed to comply with FACTA. (See 15 U.S.C. 1681g.)
On June 3, 2008, President Bush signed the Credit and Debit Card Receipt Clarification Act, retroactively amending the statute "to declare that any person who printed an expiration date on any receipt provided to a consumer cardholder at a point of sale (POS) or transaction between December 4, 2004, and the enactment of this Act, but otherwise complied with FCRA requirements for such receipt, shall not be in willful noncompliance by reason of printing such expiration date on it."
This revision does not remove all liability in this circumstance—a merchant may still be liable for actual damages for a negligent violation—but the amendment significantly reduces the prospect of onerous statutory penalties for a willful violation and, as a result, makes class certification in these cases less likely.
On June 3, 2008, President Bush signed the Credit and Debit Card Receipt Clarification Act, retroactively amending the statute "to declare that any person who printed an expiration date on any receipt provided to a consumer cardholder at a point of sale (POS) or transaction between December 4, 2004, and the enactment of this Act, but otherwise complied with FCRA requirements for such receipt, shall not be in willful noncompliance by reason of printing such expiration date on it."
This revision does not remove all liability in this circumstance—a merchant may still be liable for actual damages for a negligent violation—but the amendment significantly reduces the prospect of onerous statutory penalties for a willful violation and, as a result, makes class certification in these cases less likely.
New Mortgage Foreclosure Rules Expected to Become Law
California Governor Arnold Schwarzenegger said through a spokesman that he intends to sign into law, possibly as early as today, the first of what are likely to be many upcoming changes to California's mortgage foreclosure rules. The new law would amend procedures that must be followed before a lender can issue a notice of default or notice of trustee sale, would require special notice to tenants of a property on which foreclosure proceedings have begun, and would impose penalties on property owners who fail to adequately maintain foreclosed properties, among other changes.
The final version of the California Senate Bill SB 1137 passed the Senate on July 2 after passing the California assembly in late June.
The final version of the California Senate Bill SB 1137 passed the Senate on July 2 after passing the California assembly in late June.
Fed's Credit Card and Overdraft Rules in Comment Period
The comment period for the Federal Reserve's sweeping proposed rule changes for credit cards and overdrafts continues, following the Fed's press release announcing the proposed revisions on May 2, 2008. The proposed revisions to Regulation AA, revisions to Regulation DD, and revisions to Regulation Z seek to redefine "unfair or deceptive acts or practices" in connection with credit card accounts and overdraft protection services.
The proposed changes would significantly alter the current regulations governing card issuers' payment billing cycles, allocation of payments, interest rate increases, security deposits and fees, credit card holds, and firm offers of credit. The revised rules would also make significant changes to overdraft protection linked to deposit accounts, including imposing an opt-out provision, eliminating overdraft charges resulting from debit holds, and changing required overdraft fee disclosures.
The American Bankers Association issued a public comment on the proposed rule changes on May 2, 2008, citing its concerns about a resulting "reduction in credit availability at the very time the Fed is working to increase access to credit in the marketplace."
The proposed changes would significantly alter the current regulations governing card issuers' payment billing cycles, allocation of payments, interest rate increases, security deposits and fees, credit card holds, and firm offers of credit. The revised rules would also make significant changes to overdraft protection linked to deposit accounts, including imposing an opt-out provision, eliminating overdraft charges resulting from debit holds, and changing required overdraft fee disclosures.
The American Bankers Association issued a public comment on the proposed rule changes on May 2, 2008, citing its concerns about a resulting "reduction in credit availability at the very time the Fed is working to increase access to credit in the marketplace."
9th Circuit Reviews Attorney's Fees Under FDCPA
In Comacho v. Bridgeport Financial, Inc., 523 F.3d 973 (9th Cir. 2008), the Ninth Circuit issued a rare published opinion on calculating attorney's fees under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. ("FDCPA"), reversing a district court's award of fees and remanding for a recalculation. The opinion provides significant guidance on how courts are to calculate attorney's fees under the FDCPA.
In Comacho, plaintiff sued defendant Bridgeport in a putative class action alleging violation of the FDCPA. The parties settled the case shortly after the district court certified a statewide class with more than 7,000 members. As part of the settlement, Bridgeport agreed to pay "reasonable and necessary" attorney's fees to be determined by the district court if the parties could not agree (and they could not). The district court awarded plaintiff $77,069.36 of the $167,434.36 in attorney's fees she sought, and plaintiff appealed. The Ninth Circuit reversed and remanded, holding: (1) the district court failed to identify the relevant community in awarding fees; (2) the district court failed to address or determine the prevailing market rate in awarding attorney's fees; and (3) the district court abused its discretion by awarding a flat $500 award without calculating the lodestar. Continue Reading...
In Comacho, plaintiff sued defendant Bridgeport in a putative class action alleging violation of the FDCPA. The parties settled the case shortly after the district court certified a statewide class with more than 7,000 members. As part of the settlement, Bridgeport agreed to pay "reasonable and necessary" attorney's fees to be determined by the district court if the parties could not agree (and they could not). The district court awarded plaintiff $77,069.36 of the $167,434.36 in attorney's fees she sought, and plaintiff appealed. The Ninth Circuit reversed and remanded, holding: (1) the district court failed to identify the relevant community in awarding fees; (2) the district court failed to address or determine the prevailing market rate in awarding attorney's fees; and (3) the district court abused its discretion by awarding a flat $500 award without calculating the lodestar. Continue Reading...
Are You a "Debt Collector" Under California's FDCPA?
Read together, California’s Rosenthal Fair Debt Collection Practices Act (Civ. Code § 1788 et seq.) and the federal Fair Debt Collection Practices Act (15 U.S.C. 1692 et seq.) would appear to have only a few differences. But those few differences matter. Unlike the federal Fair Debt Collection Practices Act, for example, which defines "debt collector" to exclude an employee of the creditor collecting debts owed to the creditor, California’s Rosenthal Act defines “debt collector” more broadly as one who collects debts “on behalf of himself or herself or others.” (Cf. 15 U.S.C. § 1692a and Civ. Code § 1788.2.) This is a significant difference: a credit card company whose employee's collection activities may be exempt from the federal FDCPA could be held liable under California’s Rosenthal FDCPA for the same actions.
No Identity Theft Claim Against Bank That Sold Account
In Satey v. JP Morgan Chase & Co., 521 F.3d 1087 (9th Cir. 2008), the Ninth Circuit shed some light on the limitations of California’s potentially broad Identity Theft Law (Civ. Code § 1798.92-1798.97), which allows a victim of identity theft to sue a “Claimant” to recover damages, civil penalties, and attorney’s fees. Under the statute, a “Claimant” is “a person who has or purports to have a claim for money or an interest in property in connection with a transaction procured through identity theft.” (Civ. Code § 1798.93(a)). In Satey, the Court upheld summary judgment against plaintiff, holding that credit card issuer Chase was not a “Claimant” under California’s Identity Theft Law, and therefore could not be sued, because Chase had sold plaintiff’s credit card account to another company before plaintiff filed his complaint.
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