Capital One 2006 Annual Report Download - page 32

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servicing of non-traditional mortgage products, including heightened loan underwriting standards. These restrictions and
requirements may adversely affect our mortgage operations.
FFIEC Account Management Guidance
On January 8, 2003, the Federal Financial Institutions Examination Council (FFIEC) released Account Management and
Loss Allowance Guidance (the Guidance). The Guidance applies to all credit lending of regulated financial institutions and
generally requires that banks properly manage several elements of their credit card lending programs, including line
assignments, over-limit practices, minimum payment and negative amortization, workout and settlement programs, and the
accounting methodology used for various assets and income items related to credit card loans.
We believe that our credit card account management and loss allowance practices are prudent and appropriate and, therefore,
consistent with the Guidance. We caution, however, that similar to the subprime Guidelines, the Guidance provides wide
discretion to bank regulatory agencies in the application of the Guidance to any particular institution and its account
management and loss allowance practices. Accordingly, under the Guidance, bank examiners could require changes in our
account management or loss allowance practices in the future, and such changes could have an adverse impact on our
financial condition or results of operation.
Regulation of Lending Activities
The activities of the Banks as consumer lenders also are subject to regulation under various federal laws, including the Truth-
in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act (the FCRA), the Community
Reinvestment Act and the Service members Civil Relief Act, as well as under various state laws. Depending on the
underlying issue and applicable law, regulators are often authorized to impose penalties for violations of these statutes and, in
certain cases, to order the Banks to compensate injured borrowers. Borrowers may also have a private right of action to bring
actions for certain violations. Federal bankruptcy and state debtor relief and collection laws also affect the ability of the
Banks to collect outstanding balances owed by borrowers. These laws plus state sales finance laws also affect the ability of
our automobile financing business to collect outstanding balances.
Privacy and Fair Credit Reporting
The Gramm-Leach-Bliley Act (GLBA) requires a financial institution to disclose its privacy policy to customers and
consumers, and requires that such customers or consumers be given a choice (through an opt-out notice) to forbid the sharing
of nonpublic personal information about them with nonaffiliated third persons, except as required or permitted under that Act
as implemented. The Corporation and the Banks have written privacy notices that are available through the web site of the
Corporation, the relevant legal entity, or both, and are delivered to customers when customer relationships begin, and
annually thereafter, in compliance with the GLBA. In accordance with the privacy notices noted above, the Corporation and
the Banks protect the security of information about their customers, educate their employees about the importance of
protecting customer privacy, and allow their customers to remove their names from the solicitation lists they use and share
with others to the extent they use or share such lists. The Corporation and the Banks require business partners with whom
they share such information to have adequate security safeguards and to abide by the redisclosure and reuse provisions of the
GLBA. To the extent that the GLBA and the FCRA require the Corporation or one or more of the Banks to provide
customers and consumers the opportunity to opt out of sharing information, then the relevant entity or entities provide such
options in the privacy notice. In addition to adopting federal requirements regarding privacy, the GLBA also permits
individual states to enact stricter laws relating to the use of customer information. To date, at least California, Vermont and
North Dakota have done so by statute, regulation or referendum, and other states may consider proposals which impose
additional requirements or restrictions on the Corporation and/or the Banks. If the federal or state regulators of the financial
subsidiaries establish further guidelines for addressing customer privacy issues, the Corporation and/or one or more of the
Banks may need to amend their privacy policies and adapt their internal procedures.
Like other lending institutions, the Banks utilize credit bureau data in their underwriting activities. Use of such data is
regulated under the FCRA on a uniform, nationwide basis, including credit reporting, prescreening, sharing of information
between affiliates, and the use of credit data. The Fair and Accurate Credit Transactions Act of 2003 (the FACT Act),
which was enacted by Congress and signed into law in December 2003, extends the federal preemption of the FCRA
permanently, although the law authorizes states to enact identity theft laws that are not inconsistent with the conduct required
by the provisions of the FACT Act. If financial institutions and credit bureaus fail to alleviate the costs and consumer
frustration associated with the growing crime of identity theft, financial institutions could face increased
legislative/regulatory and litigation risks. In addition, federal regulators are still in the process of promulgating regulations
under the FACT Act; there can be no assurance that such regulations, when enacted, will not have an adverse impact on us.