Are you tired of all of the letters inviting you to refinance your home mortgage?#160 Have you ever been shocked and a little angry when you receive such a letter and see the name of your lending institution, your account number and the amount owed on your mortgage?#160 You are not the only one that was upset.#160 The financial institutions carrying consumer mortgages grew increasingly upset as a number of customers refinanced.#160 They also grew tired of explaining to irate customers who believed the bank had disclosed private financial information that the information was publicly available.#160 So, in an attempt to deal with the situation, the banking industry in California, literally, wrote its own law.

SB 1150, which was passed by the California Legislature in 2004 and became effective January 1, 2005, places significant restrictions on the use of names, trade names, logos and taglines of lending intuitions as well as consumer loan information. The bill adds to California Business and Professions Code sections 14700 through 14704.#160

The new statutes prohibit the use of the name, trade name, logo, or tagline of a lender in a direct mail advertisement for financial services that is sent to#160 a consumer who has obtained a loan from the lender without the consent of the lender, unless the advertisement clearly and conspicuously states that the party is not sponsored by or affiliated with the lender and that the advertisement is not authorized by the lender, which must then identify by name.#160 This statement must be made in close proximity to, and in the same or larger font size as, the first and the most prominent use or uses of the name, trade name, logo, or tagline in the solicitation, including on an envelope or through an envelope window containing the advertisement.

The new statutes also prohibit the use of a consumer’s loan number or loan amount, whether or not publicly available, in a solicitation for services or products without the consent of the consumer, unless the solicitation clearly and conspicuously states, when applicable, that the party is not sponsored by or affiliated with the lender and that the solicitation is not authorized by the lender, and states that the consumer’s loan information was not provided by that lender.#160 This statement shall be made in close proximity to, and in the same or larger font as, the first and the most prominent use or uses of the consumer’s loan information in the solicitation, including on an envelope or through an envelope window containing the solicitation.

In addition to the above, the new statutes prohibit the use of use the name of a lender or a name that is similar to that of a lender in a solicitation for financial services if that use could cause a reasonable person to be confused, mistaken, or deceived initially or otherwise as to either (a) the lender’s sponsorship, affiliation, connection, or association with the sender; or (b) the lender’s approval or endorsement of the sender.#160 The above “could cause” confusion standard differs from the traditional “likelihood of confusion” standard under both the Lanham Act and California‘s chapter of the Business and Professions Code that addresses Trademark Law.

This statute poses a number of problems.#160 First, it proposes a new standard for judging consumer confusion without giving the court guidance.#160 The courts have a well developed test for determining whether there is a likelihood of confusion in a trademark case; here they have nothing to guide them.#160 In addition, the new statute does not provide a mechanism for dealing with marks that lack distinctiveness and thus otherwise would not be entitled to a great deal of trademark protection.#160 For example, a financial institution could rename itself “The Bank” and then use B&P Code �� 14700 et al to prevent other financial institutions from using the words “The Bank” because it could cause confusion.#160

The new statute makes it rather easy for a financial institution that believes another lender is using a mark that could cause confusion to obtain an injunction.#160 The aggrieved bank is not required to show actual damages in order to obtain an injunction as irreparable harm and interim harm are presumed.#160 In addition to injunctive relief, an aggrieved bank would be entitled to recover actual damages, if any, as well as reasonable attorney’s fees.

Although the new law lessens the burden for bringing what otherwise could be considered a trademark action, it does attempt to preserve some fair use elements.#160 The new statutes provide that it is not a violation to use the name, trade name, logo, or tagline of a lender without the disclaimer statement described above in comparison advertising or in a manner that otherwise constitutes nominative fair use.

There have not yet been any lawsuits brought under this new law.#160 However, given the competitive nature of the home mortgage industry, it is only a matter of time.

Scott Hervey is a shareholder with Weintraub Genshlea Chediak Tobin & Tobin Sproul.#160 Scott represents clients in numerous industries on intellectual property matters and issues concerning the Internet in both transactions and litigation.#160