California Supreme Court Revives UCL Claims Based on TISA

In Rose v. Bank of America, the California Supreme Court revived plaintiff's claims of unlawful business practices under California's Unfair Competition Law (Bus. & Prof. Code §§ 17200, et seq., “UCL”) premised on alleged violations of the Truth in Savings Act (12 U.S.C. §§ 4301, et seq., “TISA”), even though Congress repealed the private right of action for TISA claims in 2001.

The Rose plaintiffs alleged that Bank of America failed to properly notify them of increased fees on their deposit accounts, in violation of TISA. They brought a single cause of action under the UCL, alleging unlawful and unfair business practices arising out of the alleged TISA violations. The trial court sustained Bank of America’s demurrer to the complaint, holding that Congress intended to bar a TISA private action and that the UCL cannot be used to plead around an absolute bar to relief.  Plaintiff appealed.  The Court of Appeal affirmed the trial court, stating that Congress’ express repeal of a private right of action to enforce TISA precludes an indirect suit through the UCL. 

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Court Rejects Citi Settlement with S.E.C.

The U.S. district court for the Southern District of New York last week rejected a $285 million proposed settlement between the Securities & Exchange Commission and Citigroup Global Markets.  The case involves a $1 billion mortgage debt deal that Citigroup sold in early 2007.  The S.E.C. alleged that Citigroup’s marketing materials materially mislead investors by failing to disclose that Citigroup “exercised significant influence” over the selection of assets and retained short positions in the assets it helped to select. 

In the proposed deal, the parties agreed to a consent judgment with no admissions of fact or liability, and included Citigroup’s payment of $285 million dollars to the S.E.C.  The payment consisted of the return of the $160 million Citigroup profited from the 2007 deal, $30 million of interest, and a $95 million civil penalty.  As part of the settlement, Citigroup also consented to injunctive relief enforced by the Court for the next three (3) years.

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Court of Appeal Rejects UCL Action Based on Alleged TISA Violation

In Rose v. Bank of America, N.A. (2nd App. Dist., No. B230859, Nov. 21, 2011), the California Court of Appeal held that California's Unfair Competition Law (Bus. & Prof. Code §§ 17200, et seq., “UCL”) cannot be used to redress violations of the federal Truth in Savings Act (12 U.S.C. §§ 4301, et seq., “TISA”).  Although TISA originally included a “private attorney general” provision allowing private plaintiffs to sue banks for alleged TISA violations, a sunset clause repealed the private right of action in 2001.

The Rose plaintiffs alleged that Bank of America failed to properly notify them of increased fees on their deposit accounts, in violation of TISA. They brought a single cause of action under the UCL, alleging unlawful and unfair business practices arising out of the alleged TISA violations. The trial court sustained Bank of America’s demurrer to the complaint, holding that Congress intended to bar a TISA private action and that the UCL cannot be used to plead around an absolute bar to relief.  Plaintiff appealed.

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CFPB Proposes Scope of Non-Bank Supervision

The new Consumer Financial Protection Bureau has issued a Notice and Request for Comment on the proposed scope of its Dodd-Frank supervisory authority for certain non-depository institutions. The CFPB's Notice outlines potential criteria for defining the scope of this supervisory authority and  identifies six potential other markets that CFPB may supervise: (1) debt collection; (2) consumer reporting; (3) consumer credit and related activities; (4) money transmitting; (5) check cashing and related activities; (6) prepaid cards; and (7) debt relief services.

Section 1024 of Dodd-Frank grants supervisory authority to the CFPB for "covered persons" in the residential mortgage, private education lending, and payday lending markets. In other markets, CFPB would have supervisory authority only over a "larger participant."  Dodd-Frank assigned CFPB the task of issuing a rule on or before July 21, 2012, to identify these other markets and to define "larger participant."

CFPB seeks public comment on the criteria and threshold to define a "larger participant" and on the data to be used in measuring these criteria. CFPB also seeks public comment on the consideration of whether the six "other markets" should be included in the initial rule and/or whether additional markets should be included. 

Here Comes the Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau has a new website, and is making significant personnel additions, creating its internal structure, and otherwise preparing for the commencement of its official authority in July.  The CFPB is also blogging, tweeting, facebooking, youtubing, and hiring.

Among many other things, the CFPB's website defines the scope of its "Core Functions" as follows:

* Conduct rule-making, supervision, and enforcement for Federal consumer financial protection laws;
* Restrict unfair, deceptive, or abusive acts or practices;
* Create a center to take consumer complaints;
* Promote financial education;
* Research consumer behavior;
* Monitor financial markets for new risks to consumers; and
* Enforce laws that outlaw discrimination and other unfair treatment in consumer finance.

In December, the U.S. Treasury announced the creation of a new Consumer Inquiry and Complaint database, to be maintained by the CFPB, to track, collect, analyze, and refer consumer inquiries and complaints about consumer financial products and services, scheduled to take effect today.  The CFPB has also announced the creation of a future Consumer Response Center to receive consumer complaints and inquiries related to consumer financial services.

FDIC Finalizes Rule on IOLTA Accounts

The Federal Deposit Insurance Company (FDIC) approved a final rule including Interest on Lawyer Trust Accounts (IOLTAs) in the temporary unlimited deposit coverage added by an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The FDIC's final rule provides that funds held in IOLTA accounts are fully insured without limit from December 31, 2010, through December 31, 2012, in addition to coverage provided by the institution for other accounts.

(Still) Tracking Financial Regulatory Reform

As the scope and content of the Dodd-Frank Wall Street Reform and Consumer Protection Act is shaped in the regulatory process, follow the latest developments on the Federal Reserve's website tracking financial regulatory reform.  The Fed is publicly reporting on meetings will taking place between the Board and the public--representatives of bank organizations, consumer groups, trade associations, researchers and academics on regulatory reform issues, including systemic risk, derivatives trading, interchange fees, and consumer financial protection, and related proposals for comment.

The Fed is also reporting on current and future milestones in the regulatory process.  Among other significant events, the Fed, OTS, Office of the Comptroller of the Currency, and FDIC will issue a joint report to Congress and the Inspectors General of the participating agencies on the agencies' plans to implement the transfer of OTS authorities by March 2011.

"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.

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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.

House Passes Consumer Financial Protection Agency Act

On December 11, 2009, the U.S. House of Representatives passed the “Wall Street Reform and Consumer Protection Act of 2009,” H.R. 4173. This sweeping legislation—a combination of several bills, including a modified version of the Consumer Financial Protection Agency Act, formerly HR 3126—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.

Title IV of the Act (sections 4001 – 4901) provides for the creation of a Consumer Financial Protection Agency (section 4101 – 4703), a new, independent federal agency to oversee virtually every aspect of consumer financial services, including mortgages, credit cards, debit cards, car loans, gift cards, credit reporting agencies, debt collectors, and financial advisers. Certain merchants, such as auto dealers and pawnbrokers, would be exempted.

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Financial Regulatory Reform Moves Out of Committee

The House Financial Services Committee on Thursday voted to approve the Consumer Financial Protection Agency Act, HR 3126. 

The legislation is changing in significant ways as it moves through the legislative process.  Among the revisions from the administration's original plan, the Committee's approved version would vest authority over the proposed Consumer Financial Protection Agency in a single director, as opposed to a 5-member board.  The approved version of the legislation also includes a compromise on federal preemption, which permits the federal regulator to preempt state consumer financial protection laws only after a written finding that the state law “prevents or significantly interferes” with a federally regulated bank or thrift’s exercise of its powers.

Powers of the Proposed Consumer Financial Protection Agency

Subpart F, sections 161 through 166, of the Consumer Financial Protection Agency Act of 2009 (HR 3126, July 8, 2009) provides for the transfer of broad areas of power to regulate consumer financial protection functions from a variety of federal agencies and the Federal Reserve to the proposed Consumer Financial Protection Agency.

In general, the CFPA would have the authority and accountability to supervise, examine, and enforce consumer financial protection laws, including mortgages, credit cards, student loans, auto loans, payday loans, and more. The Act would transfer functions and personnel to the new CFPA and provide for interim powers for the Secretary of Treasury pending the establishment of the CFPA and the completion of the transfer of powers and people.

Financial Regulatory Reform Moving Forward

Legislation for federal financial regulatory reform, introduced by the Obama administration in June, is moving forward through the legislative process.  Treasury Secretary Geithner testified before the House Financial Services Committee on September 23.

The proposed financial regulatory reform legislation in the U.S. House is the Consumer Financial Protection Agency Act of 2009 in the House (HR 3126).  The Financial Services Committee has issued a section-by-section summary of the proposed legislation as well as a September 25 discussion draft.

Track the progress of the legislation at the administration's Financial Stability website.

California Supreme Court Draws Setoff Boundary

The California Supreme Court has refused to extend an earlier holding prohibiting a bank from setting off customer debts using funds in a deposit account from public benefits.  In Miller v. Bank of America, NT and SA, the Court held that Bank of America could setoff overdraft fees and fees for insufficient funds "(NSF") charged to a checking account with funds in the account, regardless of whether those funds came from public benefits.

In Miller, plaintiff received Social Security Supplemental Security Income ("SSI") payments by direct deposit into a Bank of America checking account.  In 1998, the Bank inadvertently credited his checking account, then reversed the credit to correct its error.  The reversal of the credit caused plaintiff's account to have a negative balance, which depleted his SSI benefits payments for that month.  Separately, plaintiff occasionally overdrew his account, and the Bank paid the overdraft and NSF charges, at least in part, with his SSI funds on deposit.  Plaintiff filed a putative class action complaint against the Bank, alleging the Bank could not set off these charges with funds in his account from public benefits.

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Tracking the Proposed Financial Regulatory Changes

Last week, President Obama announced sweeping proposed changes in federal financial regulation.  U.S. Treasury Secretary Timothy Geithner and Director of the National Economic Council Lawrence Summers wrote an op-ed piece describing the new regulatory structure, called "A New Foundation: Rebuilding Financial Supervision and Regulation."

The Final Report of the proposed comprehensive plan has five stated goals: (1) to promote robust supervision and regulation of financial firms; (2) to establish comprehensive supervision of financial markets; (3) to protect consumers and investors from financial abuse; (4) to provide the government tools to manage the financial crisis; and (5) to raise international regulatory standards and to improve international cooperation.

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Fed Issues Final New Credit Card Rules

The Federal Reserve yesterday issued a press release and highlights detailing its final rules revising regulation AA, revising regulation DD, and revising regulation Z.  The new rules 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 new rules 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 revised regulation AA and regulation Z take effect on July 1, 2010.  The revised regulation DD takes effect on January 1, 2010.  Separately, the Fed seeks public comment on proposed amendments to Regulation E governing electronic funds transfers.

The Office of Thrift Supervision also announced and detailed the similar new rules for its regulated entities, as did the National Credit Union Administration.

FTC "Red Flags Rule" Enforcement Begins in May 2009

The Federal Trade Commission announced that it would suspend its enforcement of its new "Identify Theft Red Flags Rule," 16 CFR 681.2, until May 1, 2009, allowing subject institutions additional time to prepare for compliance with the new identity theft rules and regulations.  FTC enforcement was previously expected to begin November 1, 2008, and the FTC announcement does not affect other federal agencies' enforcement of the original deadline.

The FTC has issued some guidance on complying with the rule, promulgated pursuant to the 2003 Fair and Accurate Credit Transactions Act ("FACTA").  Generally, the rule requires financial institutions and creditors to develop and implement written identify theft prevention programs for "covered accounts."  Specifically, institutions "must provide for the identification, detection, and response to patterns, practices, or specific activities–known as 'red flags'–that could indicate identity theft."  The FTC has also issued details related to its enforcement policy.

Resources for Tracking the Evolution of Banking

The recent myriad decisions and revisions related to the Troubled Asset Relief Program ("TARP") mean that banking regulations, and banks themselves, are changing daily.  Here's how to keep up with the evolving government regulations. 

The Federal Reserve publishes a current list of orders on bank applications, including financial institutions applying to become bank holding companies.  The Fed also publishes regular updates on the status of TARP.  The Treasury Department's website includes resources on the Emergency Economic Stabilization Act as well as a link to Secretary Paulson's November 18, 2008, testimony before Congress and New York Times Op-Ed on "Fighting the Financial Crisis, One Challenge at a Time."

Comment Period Closes on Credit Card and Overdraft Rules

The comment period has closed for the Federal Reserve's sweeping proposed rule changes for credit cards and overdrafts.  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 Federal Reserve reports receiving an unprecedented number of comments on these proposed regulations.  The Fed received nearly 50,000 comments on the proposed revisions to Regulation AA alone.  On a parallel track, the "Credit Cardholders Bill of Rights Act of 2008" (H.R. 5244), which would amend Truth in Lending Act to include new restrictions on billing and practices related to credit cards, is moving to the floor of the House.

Fed Issues Revised Consumer Compliance Handbook

The Federal Reserve's Division of Consumer and Community Affairs released its updated and revised Consumer Compliance Handbook.  The Handbook, intended to provide comprehensive background information on federal consumer compliance statutes and regulations to Federal Reserve examiners, is a critical resource for compliance personnel at any financial institution.  The Handbook contains comprehensive resources and background information regarding regulations and statutes on deposits, credit, fair lending, the Community Reinvestment Act, and other applicable laws. 

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.

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."