Collections: Equal Opportunity Act

     In a previous blog, we began a review of The Equal Opportunity Credit Act ("the ECOA" or "the Act").
     There are many potential issues that have been raised under the Act -- in the previous blog I listed the first six; listed below are five more which have been cited most frequently.
     7. Requiring certain types of life insurance before issuing a loan.
     8. Basing a credit decision on the area in which the applicant lives, such as the fact that a white applicant lived in a largely black area.
     9. Changing the terms of a credit account without notifying the borrower within 30 days and including a boiler plate notice concerning the borrower's rights under the ECOA.
     10. Asking about an applicant's intentions to have children.
     11. Asking for the applicant's title (Mr., Mrs., Ms., etc.) without stating that providing this information is optional.
     There are also many potential defenses that have been raised by lenders; listed below are those which have been cited most frequently.
     1. Voluntary signatures are okay. Although a spouse cannot be required to co-sign a note, voluntary signatures are okay. Thus, the lender can win if it can show that the spouse's signature was voluntary.
     2. One spouse was not enough. A lender can argue that the applicant's spouse did not satisfy it's credit criteria all alone, and the other spouse's assets figured into his loan decision, which is why the other spouse's signature was required.
     3. Both spouses are principals. If both spouses are principals in a business, the lender can argue that it required both of their signatures because of their business relationship rather than their marital status.
     4. Pre-1986 guarantors. ECOA regulations were expanded to include guarantors as of October 1, 1986. Courts have been split as to whether they apply to guarantors if a bank violated the Act before that date but renewed the note after it.
     5. Good Faith. A lender is not liable if it acted in good faith compliance with the Federal Reserve Board's "official staff interpretation" of the ECOA, which can be found at 12 C.F.R. §202.
     We will continue our review of the Act in a future blog.

Collections: Equal Opportunity Credit Act

     In a past blog, I announced that we would begin a multi-issue review of the Equal Opportunity Credit Act, 15 U.S.C. §1691 ("the ECOA" or "the Act").
     The ECOA was enacted in 1974 to prohibit discrimination by lenders on the basis of race, color, national origin, sex, marital status, age, religion and welfare status. The statute was originally aimed at discrimination against married women who were often denied credit unless they could get their husband's signatures. The statute, in many respects, has been taken to many illogical extremes.
     Lenders who violate the statute can be sued for actual damages, punitive damages up to $10,000, and costs and attorney's fees. Punitive damages can be awarded even if there are no actual damages, and even if the lender did not have a specific intention to discriminate. In practice, this means that the Act could be used in a counterclaim, not just a defense. In regard to a counterclaim, there is a two year statute of limitations for suits under the Act, which will usually have passed by the time a legal action by the creditor has begun. Most courts have ruled that the two year statute of limitations does not apply when the Act is raised as a defense.
     There are many potential issues that have been raised under the Act; listed below are those which have been cited most frequently.
     1. Requiring the signature of a spouse. Under federal regulations, "[A] creditor shall not require the signature of an applicant's spouse ... on any credit instrument if the applicant qualifies under the creditor's standards of creditworthiness for the amount and terms of the credit requested."(12 C.F.R. §202.7(d)(1).). There have been many cases litigated regarding this. The Virginia Supreme Court found that a bank violated the Act when a husband sought a loan for his construction company and the bank required his wife's signature as a guarantor, even though the husband was individually creditworthy, the wife had no interest in the company and was not a joint applicant, and the bank made no inquiry into her credit standing. The Court made these factual findings, but the company, ultimately, did not have assets to cover the debt. When the husband's construction company defaulted on the loan, after the husband died, the bank sought recovery from the wife and the husband's estate. When the Court found that this violated the Act, it ruled that there could be no recovery against the wife, as "Contracts executed in violation of law cannot be enforced....To deny [the wife] the right to use the ECOA violation defensively would be to enforce conduct that is forbidden by the Act." Debtor's attorneys are using this defense in foreclosure proceedings to prevent summary judgment on the foreclosure, stall for time, release a spouse from liability, and force the lender to defend against a complex and expensive federal claim.
     2. Asking for information about a spouse or former spouse, unless the applicant is relying on the spouse's income or lives in a community property state (Virginia is not - it is a Common Law state).
     3. Asking for sources of an applicant's income without saying that the applicant does not have to mention alimony or child support unless he or she wants the lender to consider it when it decides whether to extend credit.
     4. Taking race, sex or national origin into account when making a credit decision (although a bank can consider immigration status).
     5. Using statistics to judge the reliability of income from alimony, child support, pensions or welfare. Even if child support payments are statistically unreliable, a bank must consider whether the individual applicant has consistently received payments in the past.
     6. Ascribing a negative value to an applicant's age unless it relates to a "pertinent element of creditworthiness," such as the length of time the applicant has until retirement or the adequacy of security where a mortgage term exceeds the applicant's life expectancy.
     We will continue our review of the Act in future blogs.

Collections: The Fair Debt Collection Practices Act

     It is time again to review the Fair Debt Collections Practices Act (FDCPA), Title 15 U.S. §1692. This is a federal law designed to protect consumer debtors from "unscrupulous" collection activities. It defines the practices, the people who are protected, and the people who are restricted.
     The most damaging part of the act is the definition of "collector" (as only collectors are covered), and attorneys are included in the definition.
     The FDCPA requires collectors to send a demand letter thirty (30) days prior to commencing suit.  The letters must contain information including:
     1. The principal amount remaining on the debt;
     2. The name of the creditor to whom the debt is owed; and 

The specific language that follows:
     Unless you, within thirty days after you have received this notice, dispute the validity of this debt, or any portion thereof, I will assume the debt to be valid.
     If you notify me, in writing, within thirty days after you have received this notice, that the debt or any portion thereof, is disputed, I will obtain verification of the debt and mail you a copy of that verification to you.
     Upon your written request within thirty days after you have received this notice, I will provide you with the name and address of the original creditor, if different from the current creditor.
     The FDCPA further restricts the jurisdictions in which suit can be brought to the city or county in which the debtor resides. In certain circumstances, the matter can be sued upon where the debt was incurred. To eliminate the ambiguity, one idea that I always suggest is that creditors stamp ("this document executed in [name of city or county], Virginia") adjacent to the original signatures of the executed documents, prior to their execution.
     The jurisdiction restriction of the FDCPA can be the most costly provision for the creditor, as attorneys, attempting to pass on the economies of consolidating cases, may be unable to do so. Additional trips to court result in additional costs which will, in one way or another (higher percentage fees), be passed on to the creditor. Hence, a wise creditor should invest in an appropriately worded stamp for each site executing such documents.

 * * * * * * * * * *
     Check out Creditor News by viewing our website at www.lawplc.com.  In the next three editions of Creditor News we will begin a review of The Equal Opportunity Credit Act. Over the last few years debtors have been utilizing the Equal Opportunity Credit Act, 15 U.S.C. §1691 ("the ECOA" or "the Act"), to avoid adverse action against them on seemingly valid creditor suits. The litigation that has arisen gives good cause to review lending policies for ECOA compliance.

Foreclosure: Sale Price and Delays in Sale

     The trustee is under a duty to “use all reasonable diligence to obtain the best price.”
     If the trustee determines that in order to fulfill his fiduciary duty to realize the highest price for the property, a recess is necessary, he or she should recess the sale. Arguably, the recess is within the scope of the discretion afforded trustees in the conduct of the foreclosure sale. For example, if a bidder who previously advised the trustee of his interest in bidding on the property is delayed, the trustee, in his discretion, may recess the sale to a later hour on the same day to allow the bidder to attend the sale. If the trustee fails to accommodate the bidder and the property is sold for a price less than the bidder was willing to pay, the trustee may have breached his duty to “use all reasonable diligence to obtain the best price.” A decision by the trustee to recess the sale, however, should not impair the sale by making it impossible or impracticable for the bidders to appear and bid at the recessed sale.
     The postponement of a foreclosure sale to a different day is not a recess and is governed by statute. Virginia Code §55-59.1(D) provides that the trustee, in his discretion, may postpone the sale to a different day, and no new or additional “notice” must be given. Presumably, the “notice” referred to in this section is notice of the postponement. The trustee needs only to announce at the sale that it has been postponed. §55-59.2(D) provides that if the sale is postponed, the trustee must advertise the “new” sale in the same manner as the original advertisement. Read in conjunction, these sections require the trustee who postpones the foreclosure to re-advertise the sale in the same manner as the original sale was advertised. Although the secured obligation will not need to be accelerated again, all other aspects of the foreclosure must be completed. Effectively, a postponed sale is a new sale in which the trustee must complete all acts that he or she completed in the first sale.