The Banking Law
Journal
Volume 128
Number 1
January 2011
Headnote: Dodd-Frank for the New year
Steven A. Meyerowitz
1
The Dodd-Frank Act: What Community Bankers Need to
Know
Nicholas Georgiton
3
The Dodd-Frank Act and Federal Preemption of State
Consumer Protection Laws
Michael Hamburger
9
The UDAP-ification of Consumer Financial Services Law
Jeffrey P. Naimon and Kirk D. Jensen
22
An Identity in Disarray: The Federal Deposit Insurance
Corporation’s Government-Agency Status
Adam Shajnfeld
36
Financial Derivatives in the West and in Islamic Finance:
A Comparative Approach
Bashar H. Malkawi
50
Banking Briefs
Donald R. Cassling
72
2010 Index of Cases
76
2010 Index of Authors
80
2010 Index of Articles
91
Editor-in-chief
Steven A. Meyerowitz
President, Meyerowitz Communications Inc.
Board of Editors
Paul Barron
Professor of Law
Tulane Univ. School of Law
George Brandon
Partner, Squire, Sanders & Dempsey
LLP
Barkley Clark
Partner, Stinson Morrison Hecker
LLP
John F. Dolan
Professor of Law
Wayne State Univ. Law School
Stephanie E. Kalahurka
Hunton & Williams, LLP
Thomas J. Hall
Partner, Chadbourne & Parke LLP
Michael Hogan
Ashelford Management Serv. Ltd.
Mark Alan Kantor
Washington, D.C.
Satish M. Kini
Partner, Debevoise & Plimpton LLP
Paul L. Lee
Partner, Debevoise & Plimpton LLP
Jonathan R. Macey
Professor of Law
Yale Law School
Bankruptcy for Bankers
Howard Seife
Partner, Chadbourne & Parke LLP
Regional Banking Outlook
James F. Bauerle
Keevican Weiss Bauerle & Hirsch
LLC
Martin Mayer
The Brookings Institution
Directors’ Perspective
Christopher J. Zinski
Partner, Schiff Hardin LLP
Julia B. Strickland
Partner, Stroock & Stroock & Lavan
LLP
Banking Briefs
Donald R. Cassling
Partner, Quarles & Brady LLP
Marshall E. Tracht
Professor of Law
New York Law School
Intellectual Property
Stephen T. Schreiner
Partner, Goodwin Procter LLP
Stephen B. Weissman
Partner, Rivkin Radler LLP
Elizabeth C. Yen
Partner, Hudson Cook, LLP
The Banking Law Journal (ISSN 0005 5506) is published ten times a year by A.S. Pratt & Sons, 805 Fifteenth
Street, NW., Third Floor, Washington, DC 20005-2207. Application to mail at Periodicals postage rates is pending
at Washington, D.C. and at additional mailing offices. Copyright © 2011 ALEX eSOLUTIONS, INC. All rights
reserved. No part of this journal may be reproduced in any form — by microfilm, xerography, or otherwise — or
incorporated into any information retrieval system without the written permission of the copyright owner. Requests
to reproduce material contained in this publication should be addressed to A.S. Pratt & Sons, 805 Fifteenth Street,
NW., Third Floor, Washington, DC 20005-2207, fax: 703-528-1736. For subscription information and customer service, call 1-800-572-2797. Direct any editorial inquires and send any material for publication to Steven A.
Meyerowitz, Editor-in-Chief, Meyerowitz Communications Inc., 10 Crinkle Court, Northport, New York 11768,
[email protected], 631-261-9476 (phone), 631-261-3847 (fax). Material for publication is welcomed —
articles, decisions, or other items of interest to bankers, officers of financial institutions, and their attorneys. This
publication is designed to be accurate and authoritative, but neither the publisher nor the authors are rendering
legal, accounting, or other professional services in this publication. If legal or other expert advice is desired, retain the
services of an appropriate professional. The articles and columns reflect only the present considerations and views of
the authors and do not necessarily reflect those of the firms or organizations with which they are affiliated, any of the
former or present clients of the authors or their firms or organizations, or the editors or publisher.
POSTMASTER: Send address changes to The Banking Law Journal, A.S. Pratt & Sons, 805 Fifteenth Street, NW.,
Third Floor, Washington, DC 20005-2207.
The UDAP-ification of Consumer
Financial Services Law
Jeffrey P. Naimon and Kirk D. Jensen
In this article, the authors examine the “UDAP-ification” of consumer financial services law, discussing the origins and theoretical underpinnings of unfair
and deceptive acts and practices law, and then noting recent actions by federal
and state agencies to apply UDAP laws and principles in both litigation and
rulemakings.
U
ntil recently, the provision of consumer financial products and services
was governed principally by an alphabet soup of statutes and regulations (e.g., RESPA, TILA, HMDA, HOEPA, FCRA, etc.). While
compliance with these statutory and regulatory provisions presented its own
challenges, in many instances these provisions allowed financial institutions to
determine objectively whether they were in compliance. If a product or service
complied with the applicable statutory or regulatory provisions, an institution
could be reasonably confident that the product or service would not be challenged by regulators. Additionally, an institution could be reasonably confident
that the product or service would not be deemed to run afoul of laws prohibiting unfair and deceptive acts and practices (“UDAP” laws).1
In recent years, however, federal and state agencies have increasingly relied on UDAP laws to obtain results that are not supported by other statutory
or regulatory provisions — including provisions promulgated by the very
Jeffrey P. Naimon and Kirk D. Jensen are partners in the Washington, DC, office
of BuckleySandler LLP. The authors, who can be reached at [email protected] and [email protected], respectively, thank Joshua
Kotin, an associate in the firm’s Washington office, for his assistance with this
article.
22
Published in the January 2011 issue of The Banking Law Journal.
Copyright 2011 ALEXeSOLUTIONS, INC. 1-800-572-2797.
The UDAP-Ification of Consumer Financial Services Law
agencies in question. Even when the conduct and products comply with all
applicable black-letter laws, agencies have used UDAP law as a gap-filler to
penalize such conduct and products.2 Agencies have also used UDAP laws
to penalize conduct expressly authorized by the contracts between consumers
and institutions. Additionally, and with the benefit of hindsight, agencies
have used UDAP laws to penalize as unfair products that, at the time they
were offered, were generally deemed fair and beneficial to consumers. As
explained in this article, the increasing application of UDAP laws’ subjective and shifting standards to consumer financial services pose unprecedented
compliance challenges for financial institutions.
This article examines this “UDAP-ification” of consumer financial services law, first discussing the origins and theoretical underpinnings of UDAP
law, and then noting recent actions by federal and state agencies to apply
UDAP laws and principles in both litigation and rulemakings.
A Brief History of UDAP Law
The modern concept of defining and regulating unfair and deceptive acts
and practices was born in 1914 with the enactment of the original Federal
Trade Commission Act (“FTC Act”).3 In Section 5 of the FTC Act, Congress
provided that “[u]nfair methods of competition in or affecting commerce,
and unfair or deceptive acts or practices in or affecting commerce, are hereby
declared unlawful.”4 When the FTC Act was enacted, Congress was apparently aware of the potential for abuse in drafting such a broad, sweeping, and
perhaps indefinable, concept into law. To address this concern, Congress
gave only the Federal Trade Commission (“FTC”) — and not private parties
— the power to take action to stop such acts. To protect industry from being
harmed by the immensely broad yet undefined prohibition on “unfair methods of competition,” Section 5 did not authorize the FTC to seek monetary
damages. Instead, Section 5 created a procedure whereby the FTC, after
notice and an opportunity for a hearing, could issue cease and desist orders
aimed at curtailing anti-competitive practices and, if necessary, seek enforcement of such orders in court.5
The rationale behind limiting the FTC Act’s enforcement to just the
FTC was that the FTC would have the prosecutorial discretion and expertise
23
The BANKING Law Journal
to define and enforce responsibly these broad powers.6 The intent was that
prudent regulatory authority housed in a single regulator would result in the
development of a central and coherent body of precedent, which would counteract the effects of promulgating such a broad and amorphous standard.7
The United States Court of Appeals for the District of Columbia Circuit
explained the need for balance between prudent regulation and amorphous
standards in a key early UDAP case:
Inherent in the exercise of this discretion is the interplay of numerous
factors: the relative seriousness of the departure from accepted trade practices, its probable effect on the public welfare, the disruption to settled
commercial relationships that enforcement proceedings would entail,
whether action is to be taken against a single party or on an industrywide basis, the form such action should take, the most appropriate remedy, the precedential value of the rule of law sought to be established, and
host of other considerations. Above all, there is need to weigh each action
against the [Federal Trade] Commission’s broad range policy goals and to
determine its place in the overall enforcement program of the FTC.8
Recognizing that UDAP standards were broad and subjective, the FTC
attempted to provide some clarity in 1980 through a Policy Statement on
Unfairness.9 In this policy statement, the FTC explained that the factors considered in applying the prohibition against consumer unfairness were: “(1)
whether the practice injures consumers; (2) whether it violates established
public policy; (3) whether it is unethical or unscrupulous.”10 The FTC identified consumer injury as the most important of these factors.11 The FTC
explained that “[t]o justify a finding of unfairness the injury must satisfy three
tests. It must be substantial; it must not be outweighed by any countervailing
benefits to consumers or competition that the practice produces; and it must
be an injury that consumers themselves could not reasonably have avoided.”12
In 1983, the FTC attempted to provide further clarity by issuing a Policy
Statement on Deception.13 In this policy statement, the FTC explained that
the factors considered in applying the prohibition against consumer deception were: (1) whether there is “a representation, omission or practice that
is likely to mislead the consumer” under the circumstances; (2) whether the
24
The UDAP-Ification of Consumer Financial Services Law
practice is deceptive when examined “from the perspective of a consumer
acting reasonably in the circumstances;” and (3) whether the representation,
omission or practice is “material.”14 In further clarifying this standard, the
FTC explained that “to be deceptive the representation, omission or practice
must be likely to mislead reasonable consumers under the circumstances. The
test is whether the consumer’s interpretation or reaction is reasonable.”15
In part because the FTC does not have enforcement authority over
banks, the federal banking agencies have asserted their authority to enforce
Section 5 of the FTC Act with respect to the institutions over which they
have supervisory authority.16 In promulgating guidance for regulated institutions, the banking agencies have generally followed the lead of the FTC. For
example, the Federal Deposit Insurance Corporation (“FDIC”) and Federal
Reserve Board (“FRB”) in 2004 issued an interagency statement on unfair or
deceptive acts or practices that generally adopted the standards set forth in
the earlier FTC policy statements.17 The Office of the Comptroller of Currency (“OCC”) also adopted UDAP guidance similar to the FTC’s policy
statements.18
Every state has also adopted some form of UDAP law.19 While these laws
are generally modeled on Section 5 of the FTC Act, there are numerous variations. Some provide that compliance with applicable consumer protection
laws constitutes compliance with the applicable UDAP law.20 State UDAP
laws also significantly depart from Section 5 of the FTC Act in that they
generally grant private plaintiffs a right of action under the UDAP law and
permit monetary damages in addition to injunctive relief.21 Not surprisingly,
these broad and undefined UDAP laws are attractive tools to the plaintiffs’
bar.22 In many cases, however, the text of the law and/or the court interpreting the UDAP law have limited the law’s reach.23
Massachusetts v. Fremont
An important milestone in the UDAP-ification of consumer financial
services law was the lawsuit brought by the Massachusetts Attorney General
against Fremont Investment & Loan (“Fremont”).24 On July 10, 2007, Fremont entered into an agreement with the Attorney General on the subject
of foreclosure.25 Under the agreement, Fremont was required to provide 90
25
The BANKING Law Journal
days’ advance notice to the Attorney General before commencing any foreclosure proceeding. During that time, the Attorney General could contest
the foreclosure. If the Attorney General objected and the parties were unable
to resolve the objection themselves, Fremont could move forward with the
foreclosure after providing 15 days’ advance notice, during which time the
Attorney General could pursue a formal court order enjoining foreclosure.26
In accordance with the agreement, Fremont notified the Attorney General of its intention to foreclose on nearly two hundred homes.27 The Attorney
General opposed foreclosure in every case in which the borrower remained in
the home, and filed a complaint in Massachusetts state court seeking a preliminary injunction to enjoin Fremont from foreclosing on any of the subject
homes.28
In evaluating the Attorney General’s claims, the trial court rejected several
unsupported allegations of wrongdoing. First, the court concluded that Fremont was unaware of any exaggeration of borrower income in the stated-income loan applications and was, if anything, a victim of the misrepresentations.
Second, the court found that Fremont made no false representations to borrowers about the terms of their loans. And third, the court found that Fremont’s
loans did not violate existing laws when issued, nor was there any indication
that its practices (e.g., introductory “teaser rates,” high debt-to-income ratios,
and high loan-to-value ratios) were uncommon among subprime lenders.29
However, the court noted that the Massachusetts Predatory Home Loan
Practices Act (the “Act”)30 required that lenders making “high cost loans”
determine that the borrower had the ability to repay the loan. Although
Fremont’s loans did not qualify as “high cost loans” subject this Act, the court
found it significant that the Act deemed certain loans unfair even if the lender
provided a complete disclosure of loan terms and corresponding risks.31 From
this, the court reasoned that unfairness “does not rest in deception but in
the equities between the parties” and that Massachusetts lawmakers “plainly
deemed it…unfair for a lender to make a high cost home loan, quickly reap
the financial rewards from the high points, fees, or interest, and then collect
the balance of the debt by foreclosing on the borrower when, as the lender
reasonably should have foreseen, he cannot meet the scheduled payments.”32
Given the “spirit” of the Act, the court found it reasonable “to consider
whether [Fremont’s loans] fall within the ‘penumbra’ of the concept of un-
26
The UDAP-Ification of Consumer Financial Services Law
fairness reflected in the Act.”33 The court determined that Fremont could not
reasonably have believed that the borrower could repay the loans at issue, and
concluded that the loans were presumptively unfair — notwithstanding the
court’s finding that the loans complied with Massachusetts’ extensive body of
law governing such loans. The court explained:
[T]he lender reasonably should have recognized that, after the introductory period, the borrower would be unlikely to make the scheduled
mortgage payments and the loan was doomed to foreclosure unless the
fair market value of the property had increased, thereby enabling the
borrower to refinance the loan and obtain a new “teaser” rate…. Given
the fluctuations in the housing market…it is unfair for a lender to issue
a home mortgage loan secured by the borrower’s principal dwelling that
the lender reasonably expects will fall into default once the introductory
period ends unless the fair market value of the home has increased at the
close of the introductory period. To issue a home mortgage loan whose
success relies on the hope that the fair market value of the home will
increase during the introductory period is as unfair as issuing a home
mortgage loan whose success depends on the hope that the borrower’s
income will increase during that same period.34
The Fremont court acknowledged that this rule expanded the scope of
the concept of “unfairness.” But it responded that “as the mortgage market
changes, so, too, must the understanding of what lending conduct is unfair.”35
The court observed that the “increasing prevalence of mortgage-backed securities” made it possible for lenders like Fremont to turn quick profits on
high-risk loans without charging excessive interest rates, fees, and points associated with traditional “high cost loans.”36 Although the court conceded
that Fremont’s conduct “was not generally recognized in the industry to be
unfair at the time the[] loans were made,” it explained that “the meaning of
unfairness” is neither “fixed in stone” nor “limited to conduct that is unlawful under the common law or prior statutes” — instead, the court said that
unfairness is “forever evolving” so as to “reflect what we have learned to be
unfair from our experience.”37 The court concluded:
27
The BANKING Law Journal
Just because we, as a society, failed earlier to recognize that loans with
these four characteristics were generally unfair does not mean that we
should ignore their tragic consequences and fail now to recognize their
unfairness. In short, approval of loans bearing these four characteristics,
in the absence of other liquid or other easily liquidated assets or special
circumstances, was unfair before and it is unfair today, even if we were
too blind earlier to recognize its unfairness.38
The Fremont court found that the Attorney General was likely to succeed
in showing that mortgages with the four identified criteria were “structurally
unfair” and that the balance of the harms favored the government.39 Accordingly, the court ordered a preliminary injunction that effectively stripped Fremont of its ability to foreclose on the subject properties absent court approval.40
This order was subsequently upheld by Massachusetts’s highest court.41
The Fremont case demonstrates that state agencies can challenge conduct
and products that comply with every black-letter provision of state law —
and that some courts are willing not only to entertain, but also to uphold,
such challenges. Fremont also illustrates the potential retroactive application
of the resulting changes in UDAP law. Notwithstanding the court’s first-person finding that “we, as a society” believed the loans were fair at the time they
were made, the court held that the loans could be found to be presumptively
unfair after the fact.
Ohio v. Mortgage Servicers
In 2009, Ohio Attorney General Richard Cordray (“Ohio Attorney General”) filed lawsuits (“the complaints”) against three mortgage servicers alleging a variety of violations of Ohio’s state UDAP law.42 While the three complaints differ in significant respects, each contains broad, vague allegations of
UDAP law violations. For example, the complaints allege that the mortgage
servicers violated the state UDAP law through “inadequate, incompetent,
and inefficient handling of complaints, inquiries, disputes, and requests for
information and assistance.”43 Ohio law and the applicable regulatory guidance (including state and federal banking and lending statutes and regulations) had not identified or adopted standards regarding what constitutes
28
The UDAP-Ification of Consumer Financial Services Law
adequate, competent, or efficient handling of complaints in the mortgage
servicing context.
As of this writing, the Ohio Attorney General’s Office had not clarified
what would constitute “inadequate, incompetent, and inefficient” or how
such conduct would constitute an “unfair” act or practice in mortgage servicing. The complaints raise the question of whether customer service call wait
times above a certain threshold are “unfair,” and, if so, what is the threshold?
They also raise the question of whether consumer complaints must be resolved within a certain time period other than as specified in the federal Real
Estate Settlement Procedures Act (“RESPA”) and, if so, what is that time
period? Notwithstanding the lack of detail in the allegations, the Attorney
General’s complaints illustrate the new directions into which some government agencies are taking UDAP law.
The Ohio Attorney General’s public comments also illustrate the endsoriented approach towards UDAP law by some government agencies. In
announcing the complaints, the Ohio Attorney General did not allege any
specific “unfair” conduct that would violate state UDAP law. Instead, the
Ohio Attorney General criticized mortgage servicers for not “strengthen[ing]
their efforts and…making a significant difference in preventing home foreclosures.”44 He also criticized mortgage servicers for making “excuses” for
not taking more aggressive action to stop foreclosures.45 In light of the Ohio
Attorney General’s public comments, it appears that the allegations in the
complaints are that mortgage servicers acted “unfairly” by not moving more
aggressively to modify mortgage loans.46 In other words, the Ohio Attorney
General may be alleging that it is a UDAP law violation to enforce mortgage
loan documentation as written and agreed, when an enforcement official such
as the Ohio Attorney General has a policy goal — in this case, to reduce
foreclosures — for which there is no other statute or regulation to provide
a lever for achieving that goal. If so, the complaints represent a substantial
expansion of UDAP doctrine.
The HOEPA Rule
The expanded use of UDAP doctrine extends beyond the litigation and
enforcement arena. Federal agencies are also turning to UDAP law as a basis
29
The BANKING Law Journal
for rulemakings in the consumer financial services area. A noteworthy recent
example is the “FRB’s recent promulgation of rules under the Home Ownership and Equity Protection Act of 1994 (“HOEPA”).47
HOEPA authorizes the FRB to “prohibit acts or practices in connection
with – (A) mortgage loans that the FRB finds to be unfair, deceptive, or designed to evade the provisions of this section; and (B) refinancing of mortgage
loans that the FRB finds to be associated with abusive lending practices, or
that are otherwise not in the interest of the borrower.”48 Although the FRB
was granted this authority in 1994 by the enactment of HOEPA, the FRB
first exercised this authority in 2008 in response to the housing crisis.49
While the FRB’s HOEPA rulemaking is noteworthy as the FRB’s first
rulemaking based solely on its UDAP authority, it is noteworthy for additional reasons as well. Some provisions of the HOEPA rule may signal a
change in the way the FRB views “unfairness.” For example, part of the
HOEPA rule requires verification of a borrower’s income, effectively prohibiting stated-income or no-doc loans for certain loan categories.50 Whatever
the merits of this rule as a matter of public policy, this rule appears to be a
fundamental shift in the FRB’s view of what constitutes an “unfair” practice.
By making it an unfair practice for a private party to lend money without
verifying the borrower’s income, the FRB has effectively made it an unfair
practice for a lender to believe a borrower’s representations regarding his or
her income. Whatever harm may come to a borrower from misstating his or
her own income, the borrower can avoid that harm by not making such misrepresentations. Borrowers would seem easily able, and certainly reasonably
able, to avoid such harm to the extent they desire to do so. Nevertheless, the
FRB has now made such a belief in the borrower’s representations regarding
his or her own income an “unfair” practice under HOEPA.
Pre-CARD Act UDAP Regs
Recently the FRB also issued final rules (the “final rule”),51 regulating
credit card practices and credit disclosures through Regulation AA, rather
than under the Truth-in-Lending Act (“TILA”) — the source of authority for
most consumer credit card-related disclosures.52 The FRB stated in the preamble to the final rule that it was taking this approach in large part because
30
The UDAP-Ification of Consumer Financial Services Law
of Congressional testimony stating that “these practices should be prohibited
because they lead consumers to underestimate the costs of using credit cards
and that disclosure of these practices under Regulation Z is ineffective.”53
The final rule is a significant departure from the FRB’s previous standards
in several important respects. For example, prior to the final rule, Congress
had endorsed the “14-day” rule by providing that the card-issuing bank could
levy a finance charge if the statement for the billing cycle “was mailed at least
fourteen days prior to the date specified in the statement….”54 Nevertheless,
in the final rule, the FRB, using its authority under the FTC Act rather than
TILA, made this 14-day period an unfairly short time in which to make a
payment.55 The final rule provides that card-issuing banks may treat a payment as late only if the consumer was provided a reasonable amount of time
to make the payment, and then provides card-issuing banks a safe harbor for
statements mailed or delivered at least 21 days before the payment due date.56
Thus, the FRB used its UDAP authority to depart from the congressional
policy decisions codified in the applicable federal statute.57 Moreover, many
of the other practices prohibited by the final rule, including certain payment
allocations, teaser rates, speedy re-pricing, and others, were widespread, even
ubiquitous industry practices until the promulgation of the final rule. These
practices had been well known to all of the federal banking agencies for years
without comment, and were in compliance with TILA and its regulations,
but in 2009 the FRB reversed this course to prohibit them under its unfairness authority even though they were in no way a “departure from accepted
trade practices” as described by the Holloway court.58
Going Forward
Recent trends suggest that government agencies may continue to expand
the application of UDAP law and principles, and that these principles will
continue to evolve. This expansion and evolution will no doubt be profoundly impacted by actions of the new Bureau of Consumer Financial Protection,59� which not only has the authority to make rules and enforce the
array of specific consumer protection laws but also has sweeping power to
define and enforce new standards for unfair, deceptive, and abusive acts and
practices for all consumer financial activities and products.60�
31
The BANKING Law Journal
Whatever value there may be in an expandable, evolving body of UDAP
law, such a moving target will pose substantial compliance challenges for financial institutions and other creditors. Creditors therefore cannot assume that
compliance with the alphabet soup of traditional consumer laws and regulations
will safely constitute compliance with all applicable federal and state law. Creditors must also attempt to predict the future expansion and evolution of UDAP
standards in their compliance programs. This challenge is compounded both
by agencies’ increasing and creative use of UDAP law, and by the demonstrated
willingness by some agencies and courts to apply such standards retroactively to
conduct widely believed to be fair at the time of the transaction, as evidenced
by the developing body of UDAP law contained in the court opinions, attorney
general complaints, and consent decrees.
Notes
1
Some UDAP laws provide that compliance with other consumer protection laws
constitutes compliance with UDAP laws. See, e.g., Arizona Consumer Fraud Act,
Ariz. Rev. Stat. Ann. § 44-1523; Colorado Consumer Protection Act, Colo. Rev.
Stat. § 6-1-106.
2
See infra this text at notes 33-56. This is part of an overall trend in federal law
and regulation, away from an approach based on party autonomy and improved
disclosure, toward substantive regulation of contract terms, often using UDAP laws
and concepts.
3
Federal Trade Commission Act of 1914, ch. 311, 38 Stat. 717 (1914) (codified as
amended at 15 U.S.C. §§ 45 et seq.).
4
15 U.S.C. § 45(a)(1).
5
See, e.g., Holloway v. Bristol-Myers Corp., 485 F.2d 986 (D.C. Cir. 1973) (citing S.
Rep. No. 597 and H.R. Rep. No. 1142).
6
See Holloway. 485 F.2d at 991 (citing H.R. Rep. No. 533, 63d Cong., 2d Sess., at
4-6; S. Rep. No. 597, 63d Cong., 2d Sess., at 8-13; H.R. Rep. No. 1142, 63d Cong.,
2d Sess., at 18-19).
7
Id.
8
Holloway, 485 F.2d at 997. It is interesting to note the Holloway court’s embedded
assumption that a UDAP violation would be a “departure” from accepted trade
practices and that the FTC would consider whether the enforcement action would
result in commercial disruption.
9
Federal Trade Commission, Policy Statement on Unfairness (1980), appended to
32
The UDAP-Ification of Consumer Financial Services Law
Int’l Harvester Co., 104 F.T.C. 949 (1984) (“Policy Statement on Unfairness”); see
also 15 U.S.C. § 45(n) (amended 1994). The Policy Statement on Unfairness is also
available at http://www.ftc.gov/bcp/policystmt/ad-unfair.htm. For an interesting
history of the FTC Policy Statement on Unfairness, see Matthew A. Edwards, The
FTC and New Paternalism, 60 Admin. L. Rev. 323 (2008).
10
Policy Statement on Unfairness, 104 F.T.C. at 1204.
11
Id.
12
Policy Statement on Unfairness, 104 F.T.C. at 1156.
13
Federal Trade Commission, Policy Statement on Deception (1983), appended to
Cliffdale Assocs., Inc., 103 F.T.C. 110 (1984) (“Policy Statement on Deception”).
The Policy Statement on Deception is also available at http://www.ftc.gov/bcp/
policystmt/ad-decept.htm.
14
Policy Statement on Deception, 103 F.T.C. at 214.
15
Id. at 287.
16
See 15 U.S.C. § 45(a)(2) (amended 1994) (excluding from FTC supervision,
among other entities, banks, thrifts and credit unions); see also Julie L. Williams &
Michael S. Bylsma, On the Same Page: Federal Banking Agency Enforcement of the FTC
Act to Address Unfair and Deceptive Practices by Banks, 58 Bus. Law. 1243, 1244-53
(2003).
17
Board of Governors of the Federal Reserve System and Federal Deposit Insurance
Corporation, Unfair or Deceptive Acts or Practices by State-Chartered Banks (2004),
available at http://www.federalreserve.gov/boarddocs/press/bcreg/2004/20040311/
attachment.pdf.
18
Office of the Comptroller of Currency, OCC Advisory Letter 2002-3 (2002),
available at http://www.occ.treas.gov/ftp/advisory/2002-3.doc.
19
See e.g., Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. Ann. §§
42-110a-42-110q; Massachusetts Unfair Trade Practices Statute, Mass. Gen. Laws
Ann. ch. 93A, §1-11; Illinois Consumer Fraud and Deceptive Business Practices Act
815 Ill. Comp. Stat. Ann. 505/1 - 505/12.
20
See, e.g., Arizona Consumer Fraud Act, Ariz. Rev. Stat. Ann. § 44-1523; Colorado
Consumer Protection Act, Colo. Rev. Stat. § 6-1-106.
21
See, e.g., Searle Civil Justice Institute, State Consumer Protection Acts: An Empirical
Investigation of Private Litigation (Preliminary Report, Dec. 2009).
22
Id.
23
See, e.g., Brittan Comm’ns Int’l Corp. v. Southwestern Bell Tel. Co., 313 F.3d 899
(5th Cir. 2002) (limiting the scope of the “services” covered under the Texas UDAP
law); Cullen v. Inv. Strategies, Inc., 139 Or. App. 119 (1996) (holding that a mortgage
broker’s nondisclosure or misrepresentation is not actionable under UDAP if the
practice relates solely to the loan’s attributes and not the broker’s services or the cost
33
The BANKING Law Journal
of those services); Arawana Mills Co. v. United Techs. Corp., 795 F. Supp. 1238 (D.
Conn. 1992) (holding that Connecticut’s UDAP law did not apply to a lease where
the defendant was not in the business of being a lessee).
24
Press release, FDIC Issues Cease and Desist Order Against Fremont Investment &
Loan, Brea, California, and its Parents, http://www.fdic.gov/news/news/press/2007/
pr07022.html (Mar. 7, 2007).
25
Commonwealth v. Fremont Investment & Loan, 2008 Mass. Super. LEXIS 46, at 4
(Mass. Sup. Feb. 25, 2008).
26
Id.
27
Id.
28
Id.
29
Id. at 25.
30
Mass. Gen. Laws Ann. ch. 183C § 4.
31
Fremont, 2008 Mass. Super. LEXIS 46, at 28.
32
Id.
33
Id. at 29.
34
Id. at 30.
35
Id. at 38.
36
Id.
37
Id.
38
Id. at 44.
39
Id. at 35.
40
Fremont, 2008 Mass. Super. LEXIS 46, at 47.
41
Commonwealth v. Fremont Inv. & Loan, 897 N.E.2d 548, 551 (Mass. 2008).
42
The authors’ law firm represents the defendants in two of the three cases.
43
Paragraph 18 of the complaint against HomeEq Servicing, which can be found at:
http://www.ohioattorneygeneral.gov/HomEqComplaint.
44
The press release announcing the filing of the complaint can be found at: http://
www.ohioattorneygeneral.gov/Briefing-Room/News-Releases/December-2009/
Attorney-General-Cordray-Files-Suit-Against-HAMP-L.
45
Id.
46
The Ohio Attorney General subsequently participated in a coalition of state
attorneys general investigating alleged procedural errors in mortgage foreclosures
and, regarding this investigation, announced that mortgage loan servicers would be
“well advised” to engage in “loan workouts to keep people in their homes, which up
till now they’ve just paid lip service to,” rather than pursuing foreclosure of defaulted
loans. See Robbie Whelan & Ruth Simon, States to Probe Mortgage Mess, Wall
Str. J., Oct. 12, 2010, at A4. Even when servicers announced that they were filing
corrected paperwork in foreclosure actions to correct these procedural errors, the
34
The UDAP-Ification of Consumer Financial Services Law
Ohio Attorney General criticized such steps and demanded that servicers instead
modify the loans instead of continuing with the foreclosure. The Attorney General
stated that banks “would be well-served to work out a settlement with the borrowers
to modify the loans and work out payments.” Robbie Whelan, Big Banks Told Not to
‘Fix’ a Fraud, Wall Str. J., Oct 30, 2010.
47
See 73 Fed. Reg. 44522 (July 30, 2008); HOEPA, Pub. L. No. 103-325, §§
151-158, 108 Stat. 2160, 2190-98 (codified as amended in scattered sections of
15 U.S.C.A. (West 2009)); see also Catherine M. Brennan, Jeffrey P. Naimon &
Jacqueline A. Parker, Truth in Lending Update - 2010, 66 Bus. Law. --- (forthcoming
2011).
48
15 U.S.C. § 1639(l)(2).
49
73 Fed. Reg. 44522.
50
Id. at 44546.
51
Unfair or Deceptive Acts and Practices, 74 Fed. Reg. 5500 (Jan. 29, 2009).
52
15 U.S.C. §§ 1601 et. seq.
53
74 Fed. Reg. at 5500. The FRB’s approach is somewhat curious in light of TILA’s
stated purpose to “assure a meaningful disclosure of credit terms so that the consumer
will be able to…avoid the uninformed use of credit, and to protect the consumer
against…unfair…credit card practices.” 15 U.S.C. § 1601(a).
54
15 U.S.C. § 1666b (amended 2009).
55
74 Fed. Reg. 5500.
56
12 C.F.R. § 227.22 (amended 2010).
57
Subsequent to the FRB’s 2009 final rule, President Obama signed into law the
Credit Card Accountability Responsibility and Disclosure Act of 2009 (HR 627 and
S. Res. 414), Pub. L. No. 111-24 (May 22, 2009) (the “Credit CARD Act”). The
Credit CARD Act amended the TILA so that 15 U.S.C. § 1666b no longer contains
the 14-day rule, but instead provides a 21-day rule.
58
See supra notes 6-8 and accompanying text.
59
Established in the Dodd-Frank Wall Street Reform and Consumer Protection Act
(HR 4173), Pub. L. No. 111-203, 124 Stat. 1376 (July 21, 2010) (“Dodd-Frank
Act”).
60
Id. § 1031. The new law sets forth parameters for what will be considered
“abusive.” Id. at § 1031(d).
35