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VOLUME 7 February 2005 | ||||||
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IMPLICATIONS OF THE LATEST UNITED STATES SUPREME COURT DECISION ON TILA DAMAGES By John C. Bobber, Esq. and Stephen Ledva, Jr., Esq.
The Truth in Lending Act (“TILA” or “Act”), 15 U.S.C. § 1601, et seq., allows statutory damages for violations of TILA which governs consumer loans not in excess of $25,000.00. There has been much debate over the last several years as to exactly what amount of damages were allowed under the Act, but the recent United States Supreme Court case of Koons Buick Pontiac GMC Inc. v. Nigh,, suggests that the split in the circuit courts, and the debate, has been put to rest.
TILA was originally enacted by Congress in 1968, and, at that time, it was clear that damages for violations of the Act were subject to twice the finance charge in connection with the transaction with a minimum recovery of $100 and a maximum recovery of $1,000. The Act has been amended three times; in 1974 when Congress allowed recovery for actual damages sustained in addition to the statutory damages (and separate statutory damages for class actions), and again in 1976 to apply truth-in-lending protections to consumer leases (setting statutory damages for individual actions relating to consumer leases to 25% of the total amount of monthly payments under the lease).
However, in 1995, Congress added a new clause to the statute allowing increased recovery for violations related to loans “secured by real property or a dwelling” (i.e., home equity loans) to a minimum of $200 and a maximum of $2,000. Congress inartfully amended the claus, exposing the statute to different interpretations.
In 1997, the Seventh Circuit Court of Appeals held that the 1995 amendment did not change the $100 minimum and the $1,000 maximum. The Court reasoned that the amendment was simply designed to allow a more generous floor and ceiling of damages for transactions involving certain secured transactions.
However, in 2000, a Virginia consumer attempted to purchase a used vehicle from a car dealership. He traded in his old vehicle and signed a buyers order and retail installment sales contract reflecting financing to be provided by the dealership. After two attempts, the dealership could not find a lender to purchase the assignment of the contract (because the contract contained an improperly documented charge) and the consumer signed a third retail installment sales contract. The consumer refused to make payments and sued under TILA. The District Court held that damages were not limited to the $1,000 cap and upheld a jury verdict to the plaintiff for twice the amount of the financing charge, more than $24,000. In 2003, the Fourth Circuit Court upheld the decision and last year, the U.S. Supreme Court granted certiorari to resolve the split in the circuits on this issue.
The Supreme Court held that the 1995 amendment did not alter the $100/$1,000 limits for TILA violations involving personal property loans. The Court interpreted the statute to find that Congress intended to raise the minimum and maximum recoveries for TILA violations on closed end loans secured by real property, but it did not intend to remove the $1,000 cap on loans secured by personal property. The Court reasoned that it was anomalous for a consumer to receive more than $24,000 in damages for a transaction involving a car loan, while a consumer could only receive $2,000 in statutory damages for misconduct involved in connection with, something arguably more important, a home mortgage.
Does this mean the end to consumer lawsuits alleging TILA violations because of the ceiling on TILA damages? Certainly not. The statute still provides remedies for actual damages, costs of the action, and attorney fees for TILA violations. Consumer groups are lobbying for the introduction of a bill which would allow double finance charge damages for willful and knowing TILA violations. Consumers can still bring actions under state consumer protection laws entitling them to awards of treble damages (three times the amount of actual damages sustained), in addition to other relief provided by state law. In fact, since the Koons v. Nigh decision, plaintiff attorneys may be encouraged to file lawsuits in more plaintiff-friendly venues in state courts relying more on state consumer protection laws, instead of pursuing, and heavily basing, their cases on TILA claims in federal court. The true implications of this decision are yet to be felt. |
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