9th Circuit Confirms Limits to TILA Statutory Damages
The Ninth Circuit this week confirmed some limits to the recovery of statutory damages under the Truth in Lending Act ("TILA") and Regulation Z. In McDonald v. Checks-N-Advance, Inc. (In Re Ferrell), the Ninth Circuit held that a consumer may not recover statutory damages for violations of the credit disclosure requirements in 15 U.S.C. 1638(b)(1) or 15 U.S.C. 1632(a).
In McDonald, consumer Bobby Ferrell, Jr., borrowed $300 from Checks-N-Advance in 2002. Ferrell defaulted on the loan, and filed for Chapter 13 bankruptcy in 2003. Chapter 13 Trustee Kathleen McDonald, not the creditor, filed a proof of claim for the unpaid loan, then initiated an adversary proceeding to deny the claim. The Trustee's complaint alleged violations of TILA credit disclosures, including 15 U.S.C. 1638(b) and 15 U.S.C. 1632(a), as well as violations of Nevada state consumer loan law.
The creditor did not respond to the Trustee's complaint. The bankruptcy court entered a default judgment in favor of the Trustee and held that the creditor had violated 15 U.S.C. 1638(b)(1), 15 U.S.C. 1632(a), and Regulation Z. The bankruptcy court denied the Trustee any recovery of statutory damages, however, and denied actual damages as well as the Trustee's state law claim. The Trustee appealed to the bankruptcy appellate panel, which affirmed. The Trustee then appealed to the Ninth Circuit.
The Ninth Circuit affirmed, holding that a consumer may not recover statutory damages under 15 U.S.C. 1638(b)(1) or under 15 U.S.C. 1632(a) because the list of exceptions to statutory damages enumerated in 15 U.S.C. 1640(a) encompasses 15 U.S.C. 1638(b)(1) and its corresponding regulation 12 C.F.R. 226.17(b), as well as 15 U.S.C. 1632(a).
The Court also held that the Trustee had failed to show any actual damages in connection with the alleged TILA violations, because the Trustee failed to demonstrate detrimental reliance: that, absent the violations, the borrower "would either have secured a better interest rate elsewhere, or foregone the loan completely." Separately, the Court held that the Trustee's Nevada state law claim was properly denied because she failed to plead the applicable statute with specificity.
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