Financial Services Litigation & Investigation Monitor : Financial Services Lawyer & Attorney : Perkins Coie Law Firm : Government Investigations, Class Actions

On the final day of its term, the U.S. Supreme Court dismissed First American Financial Corp. v. Edwards, a purported class action case brought by borrowers under the Real Estate Settlement Procedures Act (RESPA).   The dismissal leaves in tact a Ninth Circuit decision holding that a plaintiff may sue under RESPA even if the plaintiff suffered no direct harm from the violation.  The Supreme Court heard oral arguments in the case on November 28.  But on Thursday June 28, it issued a one-sentence opinion reversing its decision to take the case and allowing the 9th Circuit ruling to stand. “The writ of certiorari is dismissed as improvidently granted,” the court stated.

Read the Perkins Coie Update: Unexpected Dismissal by Supreme Court Leaves Ninth Circuit Decision Holding that Violation of a Statutory Right, Without Actual Damage, Confers Article III Standing.

Read more at The Washington Post.

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On June 20, 2011, the United States Supreme Court  agreed to hear a case brought under the Real Estate Settlement Procedures Act (RESPA) that could have widespread implications for consumer claims under RESPA, TILA and similar regulations. 

In First American Financial Corp. v. Edwards, the Supreme Court will review whether awarding treble damages to a borrower under RESPA's anti-kickback provisions, without proof of an actual injury (e.g., an overcharge because of the kickback), violates the "injury in fact" requirement included in Article 3 of the constitution.  RESPA provides that a person who is charged for a settlement service that violates RESPA's anti-kickback provisions is entitled to three times the amount of any charge paid.  There is no requirement that the borrower prove the charge is excessive or injurious to the borrower.  The Ninth Circuit decision under review held that Article 3's injury-in-fact requirement is not violated "[b]ecause the statutory text [of RESPA] does not limit liability to instances in which a plaintiff is overcharged..." for services that violate RESPA.

RESPA and TILA claims are a common source of litigation against lenders and servicing companies.  If the Supreme Court determines that proof of an actual injury is required, the decision could sharply curtail the number of such claims because of the frequent difficulty borrowers have showing actual damages caused by the purported violations.

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Full Opinion.

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September 22, 2010 - The Treasury Department has released a sample 4-page form that will replace mortgage disclosure requirements of the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA). The proposed form can be found here.

Improving mortgage disclosures is a priority of the new Consumer Financial Protection Bureau.  "Moving quickly to improve mortgage disclosures is one in a series of concrete steps we're taking to implement the historic consumer protections included in the Dodd-Frank financial reform law," said Secretary Geithner in a press release.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the newly created CFPB is responsible for combining and simplifying two overlapping mortgage disclosure forms that TILA and RESPA require lenders to provide to applicants.  TILA and RESPA disclosures have been the source of a tremendous amount of litigation, particularly since the mortgage-melt down, where borrowers facing foreclosure have asserted various TILA and RESPA violations for damages or to rescind the loan.
 

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September 21, 2010 - The Obama administration designated July 21, 2011 as the date the Consumer Financial Protection Bureau (CFPB) will take over enforcement of federal consumer protection laws, including TILA and RESPA, that impact mortgage bankers.  The announcement was included in a Federal Registry Notice.  

Effective July 21, 2011, the CFPB will have full authority to prescribe rules or issue orders pursuant to any federal consumer financial law (as defined in the Dodd-Frank Act); officially receive staff transfers from the other agencies; and take over supervision responsibility of depository institutions with assets in excess of $10 billion.  The Federal Register Notice also states that, prior to July 21, 2011, the CFPB will begin conducting research on consumer financial products and services, develop its nationwide consumer complaint response center, and begin to plan implementation of its risk-based supervision of non-depository covered persons. The CFPB is planning a roundtable discussion to begin the process of merging Truth-in-Lending (TILA) and Real Estate Settlement Procedures Act (RESPA) disclosures.

The implementation of the CFPB will usher in a new era in consumer finance regulation and enforcement.  The broad CFPB authority will allow it to both write regulations and enforce those regulations in connection with consumer lending, including residental mortgage lending. 

On September 17, 2010, President Obama appointed Elizabeth Warren as Assistant to the President and Special Adviser to the Secretary of the Treasury.  Warren is expected to play a key role within the administration in organizing the CFPB.  In annoucing Warren's new role, President Obama stated "[t]he Consumer Financial Protection Bureau will crack down on the abusive practices of unscrupulous mortgage lenders [and] reinforce the new credit card law we passed banning unfair rate hikes."

Read more about Warren's appointment:  http://www.nytimes.com/2010/09/16/business/16consumer.html?_r=1&scp=2&sq=elizabeth%20warren&st=cse

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