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.
Comment Period Closes on Credit Card and Overdraft Rules
The comment period has closed for the Federal Reserve's sweeping proposed rule changes for credit cards and overdrafts. The proposed revisions to Regulation AA, revisions to Regulation DD, and revisions to Regulation Z seek to redefine "unfair or deceptive acts or practices" in connection with credit card accounts and overdraft protection services.
The Federal Reserve reports receiving an unprecedented number of comments on these proposed regulations. The Fed received nearly 50,000 comments on the proposed revisions to Regulation AA alone. On a parallel track, the "Credit Cardholders Bill of Rights Act of 2008" (H.R. 5244), which would amend Truth in Lending Act to include new restrictions on billing and practices related to credit cards, is moving to the floor of the House.
Fed Issues Final Version of New Mortgage Rule
The new rule, most provisions of which will be effective October 1, 2009, creates a new category of mortgage loans called "higher-priced loans" (determined by reference to an index published by the Fed) to target subprime mortgages. The rule also contains additional regulations applicable to all mortgages.
Specifically, for mortgages in the category of "higher-priced loans," the rule provides:
- lenders must assess a borrower's ability to repay the loan from income and assets other than the home's value, taking into account the highest scheduled payment in the first seven years of the loan;
- lenders must not rely on unverified income or assets to determine repayment ability;
- lenders must not impose prepayment penalties if the loan payment can change in the first four years of the loan, and prepayment penalties are limited to two years; and
- lenders must establish an escrow account for taxes and insurance for first-lien loans.
- lenders must credit a payment the date it is received, must provide a payoff statement within a reasonable time, and must not capitalize late fees;
- lenders and brokers must not coerce an appraiser to misrepresent the value of a home; and
- lenders must provide a good faith estimate of loan costs, including a schedule of payments, within 3 days of an application.
Fed's Credit Card and Overdraft Rules in Comment Period
The proposed changes would significantly alter the current regulations governing card issuers' payment billing cycles, allocation of payments, interest rate increases, security deposits and fees, credit card holds, and firm offers of credit. The revised rules would also make significant changes to overdraft protection linked to deposit accounts, including imposing an opt-out provision, eliminating overdraft charges resulting from debit holds, and changing required overdraft fee disclosures.
The American Bankers Association issued a public comment on the proposed rule changes on May 2, 2008, citing its concerns about a resulting "reduction in credit availability at the very time the Fed is working to increase access to credit in the marketplace."
