CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2004 No.14
September 10, 2004

Vol 2004 No. 14 September 10, 2004

CBA-Supported Bank Name Bill Passed

With CBA's strong support, a new law was passed in California aimed at deceptive uses of a lender's name, logo, or tagline in advertisements and solicitations. SB 1150, which adds Chapter 4, Division 6 to the Business and Professions Code (commencing with Section 14700),1 is directed at, among other things, the all too common practice by certain companies of plumbing county recorders' offices for newly recorded home loans, copying customers' contact and loan information, and usurping lenders' name and logo, all in the course of soliciting the consumers for related services. The practice has resulted in consumers' distrust and anger against their own lenders, and has been cited on numerous occasions in public testimony at the local and state levels as reasons to pass stricter financial privacy legislation.

1) Unless otherwise noted, all citations are to the Business & Professions Code.

The unauthorized use of another entity's name for business advantage is already illegal under state and federal intellectual property laws, such as the federal Latham Act (15 U.S.C section 1051 et seq.) and Business & Professions Code section 14320. But the available remedies are inadequate to curb them, and regulatory authorities, such as the Department of Real Estate, have not taken effective actions against perpetrators. SB 1150 gives aggrieved lenders practical tools to stop these illegal practices by authorizing them to recover damages, easing the process of obtaining injunctive relief, and permitting them to recover costs and attorneys fees in a successful action against violators.

SB 1150 prohibits three kinds of acts, described in new Sections 14701(a), 14701(b), and 14702.

1. Direct solicitations to a lender's customers. Section 14701(a). A person may not include a lender's name, trade name, logo, or tagline in a written solicitation for financial services directed to "a consumer who has obtained a loan from the lender" without the lender's consent. No consent is required if the solicitation "clearly and conspicuously" states that the marketer is not sponsored by or affiliated with the lender, and the solicitation is not authorized by the lender, identifying the lender by name.

The mandatory statement must be located close to "the first and the most prominent use or uses" of the identifying information or logo, and it must be printed in at least the same font size. The location requirement applies even if the identifying information or logo is located on an envelope or appears through an envelope window.

"Financial services" means products or services that are considered to be "financial in nature" within the meaning of 12 U.S.C. Section 1843(k), the same laundry list used to define a financial institution within the privacy provisions of the Gramm-Leach-Bliley Act. A writing could refer to materials sent by regular or electronic mail. "Lender" is defined to include a bank, savings and loan association, savings bank, credit union, industrial bank, or any "other lender licensed to make loans in California," and includes any subsidiary or an affiliate of a covered lender.

Exception to Section 14701(a). Section 14703 states that it is not a violation for a person to use a lender's name, trade name, logo, or tagline without the statement described above (and presumably without the lender's consent) for an advertisement or solicitation where the use is exclusively part of a comparison of similar products or services, and the person clearly and conspicuously identifies itself. This exception 2 would protect, as an example, a side by side comparison of product terms of the sender and the recipient's lender. The rationale is that, because the sender is required to identify itself, the consumer is less likely to be confused. Use is also permitted if the use otherwise constitutes "nominative fair use.3"

2)The anomaly of this "exception" is that, as drafted, it is broader than the rule itself. Section 14701(a) applies to a written solicitation for financial services directed at a specific borrower. Section 14703 applies more broadly to an advertisement or solicitation (not necessarily in writing) for any product or service, not just defined financial services.
3)The doctrine of nominative fair use was articulated in New Kids on the Block v. News America Publishing, 971 F.2d 302 (9th Cir. 1992) where two newspapers were running telephone polls asking readers to vote for their favorite "New Kid" (referring to the singing group, New Kids on the Block) and were subsequently sued for trademark infringement. The Ninth Circuit found the papers' use permissible under the newly created "nominative fair use" doctrine that applied where the defendant was using the plaintiff's trademark to refer to the plaintiff's product. The defense insulates a commercial defendant if three requirements are met: the product or service in question must be one not readily identifiable without use of the trademark; only so much of the mark or marks may be used as is reasonably necessary to identify the product or service; and the defendant must do nothing that would, in conjunction with the mark, suggest sponsorship or endorsement by the trademark holder. This doctrine is seen as a departure from trademark law because it displaces the traditional "likelihood of confusion" analysis and focuses mostly on whether the defendant did anything to suggest an endorsement.

2. Lender's name in advertising. Section 14701(b). A person may not use a lender's name or a similar name in any solicitation for financial services directed at consumers if doing so could "cause a reasonable person to be confused, mistaken, or deceived initially or otherwise" regarding the lender's (1) sponsorship, affiliation, connection, or association with the person using the name; or (2) approval or endorsement of the person or the person's products or services.

This provision is intended to help lenders stop trademark violations in any kind of medium, including broadcast and other general advertising.
This standard contrasts with trademark law, which requires proof of a "likelihood" of confusion and which, according to the legislative analysis, often requires lengthy and expensive surveys to be presented in court. In an action for injunction under section 14701(b), an affidavit evidencing a consumer being confused, mistaken, or deceived is prima facie evidence of damage and injury to the plaintiff.

3. Loan number or amount. Section 14702. A person may not include a consumer's loan number or loan amount, even if that information is publicly available, in a solicitation for any products or services without the consent of the consumer. No consent is required if the solicitation clearly and conspicuously states (when applicable) that the person is not sponsored by or affiliated with the lender, the solicitation is not authorized by the lender, and the consumer's loan information was not provided by the lender. The same statement location requirements applicable to Section 14701(a) apply here.

This prohibition applies to any form of solicitation, not just written. And it applies to solicitations for any products or services, not just defined financial services.

Enforcement. SB 1150 includes a number of provisions intended to facilitate an injured party to enjoin an offending practice. In an action for injunction under an alleged violation of Section 14701(a) (marketing directly to a borrower) or Section 14702 (using loan number or amount) above, it is not necessary to allege or prove actual damage. Irreparable harm and interim harm to the plaintiff are presumed if the required statement is not present in a covered solicitation. This is intended to facilitate securing a temporary restraining order or preliminary injunction pending the action without having to submit evidence quantifying the harm.

In addition to injunctive relief, an aggrieved lender may also sue for actual damages under SB 1150. In any action, the prevailing party may, in the court's discretion, recover costs and attorney's fees.

Finally, although one of the overt purposes of SB 1150 is to assist lenders to stop trademark violations, the law specifically provides that it is not to be interpreted to alter or modify trade name and trademark laws. This law applies only to protected lenders, as defined, in the situations described.

SB 1150 is effective January 1, 2005. If you have any questions, you may direct them to Maurine Padden, SVP/Director of State Government Relations, who is the lead lobbyist on the bill, at mpadden@calbankers.com.