Erring on the Side of Caution

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					4                                                                                                     The Counselor
                                                                                                                   Summer 2009
                                                                                                                                                                                                                                                 5
                                                                                                                                                                               Continued from page 3

                                                                                                                                                                               Getting a Grip on Identity Theft

   Jennifer M. Miller and Kelly B. Roney                                                                                                                                       requires that a business in the State of Nevada shall not
  Erring on the Side of Caution                                                                                                                                                transfer any personal information of a customer through
                                                                                                                                                                               an electronic transmission, other than a fax, to a person
  Responding to Qualified Written Requests under RESPA                                                                                                                         outside of the secure system of the business unless the
                                                                                                                                                                               business uses encryption to ensure the security of the elec-
  The Real Estate Settlement Practices      concerning the reasons the borrower         account is correct, and specific contact                                               tronic transmission. The Nevada Law defines encryption
  Act of 1974 (RESPA) represents a          believes his account is wrong, or pro-      information of an individual, office                                                   broadly to mean “any protective or disruptive measure,
  response by Congress to perceived         vide details to the servicer regarding      or department that can provide assis-                                                  including, without limitation, cryptography, enciphering,
  abuses in the real estate settlement      “other information sought by the bor-       tance to the borrower; or 3) conduct-                                                  encoding or a computer contaminant, to prevent access,
  process and an attempt to protect         rower.” RESPA makes clear that even         ing an investigation and providing the                                                 make the information unusable or disrupt the use of the
  consumers from unnecessarily high         this “other information” must relate        borrower with a written explanation                                                    network.” As a result of the passage of the Nevada Law,
  settlement charges resulting from         to the servicing of the loan in order to    or clarification that explains why the                                                 any business that operates in that state is obligated to en-
  those abuses. One of the three gen-       classify the inquiry as a qualified writ-   requested information is unavailable                                                   crypt all of its customers’ personal information when it
  eral requirements imposed on mort-        ten request. Servicing can be loosely       or cannot be obtained, and the spe-                                                    will be sent electronically, unless the transmission is by fax.
  gage servicers under RESPA is a           defined as receiving any payments           cific contact information of an indi-
  requirement to respond to written         from the borrower due under the loan.       vidual, office or department that can                                                  Massachusetts
  inquiries from the borrower. In order                                                 provide assistance to the borrower.        Jennifer M. Miller                          On Sept. 19, 2008, the OCABR issued the comprehensive
  to elicit the mandated response from      Servicers have begun to receive writ-                                                  Jenny practices in the area of Litiga-      Massachusetts Regulations, which require businesses that
  the mortgage servicer, however, the       ten requests containing more than just      Most, if not all, cases interpreting       tion at Sirote. She received her J.D.       own, license, store or maintain personal information of
                                                                                                                                   from Indiana University School of Law       Massachusetts residents to create a comprehensive, written
  borrower’s inquiry must be a qualified    inquiries into the servicing of the loan;   violations of RESPA deal with the          in 2008. Jenny received her M.A. in         information security program and establish and maintain
  written request under the RESPA stat-     many requests also demand documenta-        failure to respond within a timely man-    2003 and her B.A. in 2001 from the          a computer security system. The Massachusetts Regula-
  ute. When a mortgage servicer receives    tion and details regarding the mortgage     ner or to determine whether written        University   of   Alabama-Birmingham.       tions apply to all businesses that possess personal informa-
                                            application process and origination of      or oral communication between the                                                      tion about a Massachusetts resident even if the business is
                                            the loan, as well as other demands that     borrower and servicer constitutes a                                                    not located in the state. The effective date for compliance
   “Because RESPA is a remedial             do not appear related to the servicing      qualified written request. The courts                                                  with the Massachusetts Regulations was originally set for
                                            of the loan. While some requests, or        have failed thus far to substantively                                                  Jan. 1, 2009, but has been pushed back until Jan. 1, 2010.
     act that is designed to protect        portions of the requests, may certainly     address whether a servicer is required

     consumers, erring on the side
                                            contain legitimate servicing inqui-
                                            ries, these especially lengthy written
                                                                                        to respond to inquiries contained in an
                                                                                        otherwise legitimate qualified written     Kelly B. Roney                              Each company's security program will be evaluated on a
                                                                                                                                                                               case by case basis taking into consideration: 1) the size,
                                            requests appear to be a tactic borrowers    request that do not relate to the ser-     Kelly practices in the areas of Corporate   scope and type of business of the company obligated
                                                                                                                                   and Real Estate Law as well as Busi-
     of caution in situations where         use to effectively forestall an impend-     vicing of the loan. For example, it has    ness and Financial Services. She re-        to safeguard the personal information under such com-
                                            ing foreclosure. These delays, however,     been held that merely providing pay-       ceived her J.D. from The University of      prehensive information security program; 2) the amount
     a servicer is faced with a lengthy     can be very costly and time consum-         off quotes containing an itemization       Alabama School of Law in 2008               of resources available to the company; 3) the amount of
                                            ing for servicers, who typically must       of charges to the account, but provid-     and her B.S. in Finance from The            stored data; and 4) the need for security and confidential-
     inquiry that is purported to           postpone the foreclosure proceedings        ing no explanation of each charge, will    University of Alabama in 2001.              ity of both consumer and employee information. It is
                                            and incur additional legal fees in order    not constitute a sufficient response to                                                also important to note that the obligations imposed by
     be a qualified written request         to adequately address the requests          a legitimate qualified written request.                                                the Massachusetts Regulation include the responsibility to
                                            and reschedule the foreclosure sale.                                                                                               ensure that third-party service providers that do business
     is probably the best response.”                                                    Because RESPA is a remedial act that                                                   with a covered entity are applying security measures at
                                            Servicers are required to address a         is designed to protect consumers, err-                                                 least as stringent as those required of the covered entity.

  a qualified written request, RESPA
                                            qualified written request, by provid-
                                            ing acknowledgement of receipt of
                                                                                        ing on the side of caution in situa-
                                                                                        tions where a servicer is faced with
                                                                                                                                   R. Michael Murphy                           Conclusion
                                                                                                                                   Mike practices in the area of               The emerging legal trend is clear. Regulators are placing in-
  sets forth specific statutory require-    the borrower’s correspondence within        a lengthy inquiry that is purported
  ments Beardsley
Robin J.that the servicer must com-         20 days, and taking certain substan-        to be a qualified written request is
                                                                                                                                   Corporate Law. He received his J.D.         creasing obligations on businesses to provide security for
                                                                                                                                   from   Vanderbilt University  School
  ply with in responding to the request,    tive actions within 60 days of receipt      probably the best response Servicers       of Law in 2007 and his B.A.
                                                                                                                                                                               sensitive data. The multi-state scope of many companies
                                                                                                                                                                               and the nature of electronic commerce may effectively
  or face penalties for noncompliance.      of a qualified written request, includ-     must be sure, however, that any such       from Vanderbilt University in 2004.
                                                                                                                                                                               make laws like those of Massachusetts applicable nation-
                                            ing: 1) making appropriate corrections      response meets the statutory require-                                                  wide. If a company is not currently subject to a legal ob-
  A qualified written request is a writ-    to the borrower’s account; 2) conduct-      ments set forth in RESPA, as a failure                                                 ligation to implement information security procedures, it
  ten correspondence that contains or       ing an investigation and providing the      to do so could leave the servicer sub-                                                 probably will be in the near future. Businesses that collect
  enables the servicer to identify the      borrower with a written explanation         ject to the variety of penalties avail-                                                personal information of customers or employees should
  name and account of the borrower.         or clarification, including the reasons     able to borrowers under RESPA.                                                         be aware of these requirements and consider taking
  It must also either include a statement   the servicer believes the borrower’s                                                                                               steps to implement an information security program.

				
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