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Consumer Banking and Payments Law: 7.2.17.4 Application of State Law to Credit on Prepaid Cards

Some payday lenders have attempted to use prepaid cards issued by banks to evade state usury and payday loan laws.

Because prepaid cards with credit features are typically issued by a bank, there might be preemption issues with regard to the application of state laws.802 But state laws may still apply to any non-bank parties involved in the transaction, as agents of national banks and federal savings associations are not entitled to preemption.803

Mortgage Lending: 13.8.11.2 Overview of Requirements for Electronic Notes

“Provisions of both E-Sign and UETA create an alternative scheme preserving the incidents of negotiability in an electronic environment while requiring the information to be stored, reproduced and processed in electronic media.”420 The alternative scheme applies to transferable records, which would be notes under UCC Article 3 if the electronic records were in writing.421 Transferable records can be signed electronically.422

Mortgage Lending: 13.8.11.4 Was the Transferable Record Created, Stored, and Assigned in Compliance with Control-Related Requirements?

The lender or assignee also must maintain “control” of the transferable record. “Control” in the electronic world substitutes for “possession” in the paper world.436 “A person has control of a transferable record if a system employed for evidencing the transfer of interests in the transferable record reliably establishes that person as the person to which the transferable record was issued or transferred.”437

Mortgage Lending: 13.8.11.5 Can the Person Claiming Control Provide “Reasonable Proof” of Its Claim?

If a person attempts to enforce the note, the obligor can request that they provide proof of compliance with E-Sign section 7021 or UETA section 16, whichever applies—in other words, “reasonable proof” that they are in control of the transferable record.450 The proof can include “access to the authoritative copy of the transferable record and related business records sufficient to review the terms of the transferable record and to establish the identity of the person having control of the transferable record.”

Mortgage Lending: 13.8.11.6 Does the Person Controlling the Record Meet the UCC Holder-in-Due-Course Requirements?

When a person legally controls a transferable record, that person is a holder and then can seek holder-in-due-course status if it acquired the note for value, in good faith, and without notice of a host of things delineated in UCC § 3-302, including notice of the debtor’s default on the note.454 In other words, the person who controls a transferable record must satisfy the same requirements to be a holder in due course as a holder of a paper note.455 This is because UCC Article 3’s holder-in

Mortgage Lending: 13.8.13 Defenses That Can Be Raised Against a Holder in Due Course

Even if an instrument meets all the requirements of a negotiable instrument, and even if the holder meets the requirements for being a holder in due course or otherwise acquires the rights of a holder in due course, the holder is still subject to some defenses. UCC § 3-305 provides that a holder in due course takes an instrument free from all defenses except:

Mortgage Lending: 13.9.2.1 Scope

The Truth in Lending Act (TILA), as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), effectively prohibits forced arbitration of disputes involving closed-end loans secured by a dwelling and open-end loans secured by a consumer’s principal dwelling.489 TILA defines a residential mortgage loan as “a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained against the

Fair Credit Reporting: 5.1 Introduction

The Fair Credit Reporting Act (FCRA) prohibits certain information from being included in a consumer report and places restrictions on the inclusion of other information. The most significant restriction is the prohibition on reporting obsolete information, discussed in § 5.2, infra.

Fair Credit Reporting: 5.2.1.1 Generally; Summary of Restrictions

The FCRA prohibits reporting of obsolete adverse information.1 Congress did not want to burden consumers who demonstrated improved credit performances with old adverse information in current consumer reports.2 As a result, most adverse information more than seven years old may not be reported, with the following exceptions:

Fair Credit Reporting: 5.2.3.1.1 Structure of the FCRA obsolescence scheme

The FCRA sets out various time periods for determining if information is obsolete. All applicable dates relate to the occurrence of events involving adverse information; the date the CRA acquired the adverse information is irrelevant.46 Thus, a CRA generally can only report a defaulted loan for two years if it received information about the loan five years after the default.

Fair Credit Reporting: 5.2.3.2.2 Metro 2 and the date of “first” delinquency

The standard automated data reporting format created by the credit reporting industry, known as Metro 2,75 refers to the date of commencement of the obsolescence period as the “Date of First Delinquency.” This is the same date which the FCRA requires furnishers to provide in order to establish the start of the obsolescence period.76 The Metro 2 Manual contains several discussions of how to calculate this date.77

Fair Credit Reporting: 5.2.3.3 The Catchall: “Any Other” Adverse Item

As a general rule, any adverse item (other than criminal conviction records and the five types of information specifically listed in the statute) cannot antedate the report by more than seven years.101 This rule applies to information about delinquent loans other than those placed for collection or charged to profit and loss.102

Fair Credit Reporting: 5.2.3.4.1 The 180-day rule

Accounts placed for collection and charged to profit and loss are subject to a slightly different seven-year rule.112 Seven years are counted from the date that the delinquency begins, and then the information can be reported for an extra 180 days.113 If an account is placed for collection, charged to profit or loss, or subjected to similar action, more than 180 days after the preceding delinquency, the debt still may only be included in consumer reports for seven years and 180 days from the beg

Fair Credit Reporting: 5.2.3.4.2 Effect of subsequent events

The FCRA’s requirement that the period of obsolescence run from 180 days after the first delinquency is intended to establish a single date certain for calculation of the obsolescence period.128 Subsequent events, such as the creditor’s sale of the charged off account or a partial payment by the consumer, do not alter the obsolescence period.129

Fair Credit Reporting: 5.2.3.5.1 “Re-aging”

Problems frequently arise when a debt collector furnishes information to a CRA.150 Debt collectors commonly report the date they received the account or assignment from the creditor as the initial date of delinquency, even though the creditor has almost certainly placed the debt for in-house collection or charged off the debt months or even years earlier.151 Debt collectors also will sometimes report a new date of last activity if the consumer acknowledges the debt or even enquires about it.

Fair Credit Reporting: 5.2.3.5.2 Debt collectors must use creditor’s date of account delinquency

The FCRA provides specific rules regarding how debt collectors should designate the date to ensure that the date of delinquency precedes the date the creditor placed the account for collection.164 These rules provide that the debt collector must use the date of delinquency used by the original creditor, if the creditor reported a date to a CRA.165 If the creditor did not report a date of delinquency to a CRA, the collector must establish and follow reasonable procedures to obtain the date of del