The Banking Law JournaL

The Banking Law JournaL

Volume 128 Number 1 JaNuary 2011

Headnote: dodd-Frank For tHe new yearSteven a. meyerowitz 1

tHe dodd-Frank act: wHat community Bankers need to knowNicholas Georgiton 3

tHe dodd-Frank act and Federal PreemPtion oF state consumer Protection lawsmichael Hamburger 9

tHe udaP-iFication oF consumer Financial services lawJeffrey P. Naimon and Kirk D. Jensen 22

an identity in disarray: tHe Federal dePosit insurance corPoration’s Government-aGency statusadam Shajnfeld 36

Financial derivatives in tHe west and in islamic Finance: a comParative aPProacHbashar H. malkawi 50

BankinG BrieFsDonald r. Cassling 72

2010 index oF cases 76

2010 index oF autHors 80

2010 index oF articles 91

editor-in-cHieFSteven A. Meyerowitz

President, Meyerowitz Communications Inc.

Board oF editors

Paul BarronProfessor of LawTulane Univ. School of Law

George BrandonPartner, Squire, Sanders & Dempsey

LLP

Barkley ClarkPartner, Stinson Morrison Hecker

LLP

John F. DolanProfessor of LawWayne State Univ. Law School

Stephanie E. KalahurkaHunton & Williams, LLP

Thomas J. Hall Partner, Chadbourne & Parke LLP

Michael HoganAshelford Management Serv. Ltd.

Mark Alan KantorWashington, D.C.

Satish M. KiniPartner, Debevoise & Plimpton LLP

Paul L. LeePartner, Debevoise & Plimpton LLP

Jonathan R. Macey Professor of Law Yale Law School

Martin MayerThe Brookings Institution

Julia B. StricklandPartner, Stroock & Stroock & Lavan

LLP

Marshall E. Tracht Professor of LawNew York Law School

Stephen B. Weissman Partner, Rivkin Radler LLP

Elizabeth C. YenPartner, Hudson Cook, LLP

Bankruptcy for BankersHoward SeifePartner, Chadbourne & Parke LLP

Regional Banking OutlookJames F. BauerleKeevican Weiss Bauerle & Hirsch

LLC

Directors’ PerspectiveChristopher J. ZinskiPartner, Schiff Hardin LLP

Banking BriefsDonald R. CasslingPartner, Quarles & Brady LLP

Intellectual PropertyStephen T. SchreinerPartner, Goodwin Procter 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 custom-er 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.

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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 finan-cial 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.

Until recently, the provision of consumer financial products and services was governed principally by an alphabet soup of statutes and regula-tions (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 chal-lenged by regulators. Additionally, an institution could be reasonably confident that the product or service would not be deemed to run afoul of laws prohibit-ing unfair and deceptive acts and practices (“UDAP” laws).1 In recent years, however, federal and state agencies have increasingly re-lied 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.

Published in the January 2011 issue of The Banking Law Journal.

Copyright 2011 aleXeSoluTioNS, iNC. 1-800-572-2797.

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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’ subjec-tive and shifting standards to consumer financial services pose unprecedented compliance challenges for financial institutions. This article examines this “UDAP-ification” of consumer financial ser-vices 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 appar-ently 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 meth-ods 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 enforce-ment 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

THe baNKiNG laW JourNal

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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 coun-teract 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 prac-tices, 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 industry-wide basis, the form such action should take, the most appropriate rem-edy, 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 con-sidered 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 iden-tified 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 decep-tion were: (1) whether there is “a representation, omission or practice that is likely to mislead the consumer” under the circumstances; (2) whether the

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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 institu-tions, 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 Cur-rency (“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 varia-tions. 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 interpret-ing 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, Fre-mont entered into an agreement with the Attorney General on the subject of foreclosure.25 Under the agreement, Fremont was required to provide 90


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days’ advance notice to the Attorney General before commencing any fore-closure 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 Gener-al 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 pre-liminary 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 Fre-mont was unaware of any exaggeration of borrower income in the stated-in-come loan applications and was, if anything, a victim of the misrepresentations. Second, the court found that Fremont made no false representations to borrow-ers 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-

27


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 intro-ductory 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 se-curities” made it possible for lenders like Fremont to turn quick profits on high-risk loans without charging excessive interest rates, fees, and points as-sociated 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 unlaw-ful 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:


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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 Accord-ingly, the court ordered a preliminary injunction that effectively stripped Fre-mont 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-per-son 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 Gen-eral”) filed lawsuits (“the complaints”) against three mortgage servicers alleg-ing a variety of violations of Ohio’s state UDAP law.42 While the three com-plaints 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 guid-ance (including state and federal banking and lending statutes and regula-tions) had not identified or adopted standards regarding what constitutes

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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 servic-ing. 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 re-solved 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 govern-ment agencies are taking UDAP law. The Ohio Attorney General’s public comments also illustrate the ends-oriented 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 fore-closures.”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


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for rulemakings in the consumer financial services area. A noteworthy recent example is the “FRB’s recent promulgation of rules under the Home Owner-ship 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 de-signed 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 addi-tional 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 prohib-iting 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 mis-representations. 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 pre-amble to the final rule that it was taking this approach in large part because

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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 pay-ment 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 unfair-ness 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 pro-foundly impacted by actions of the new Bureau of Consumer Financial Pro-tection,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


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Whatever value there may be in an expandable, evolving body of UDAP law, such a moving target will pose substantial compliance challenges for finan-cial 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. Cred-itors 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.

notes1 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

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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


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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

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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).

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