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Consumer Credit Regulation: 2.4.9 Unjust Enrichment

Unjust enrichment is a theory of legal liability based not on contract or statute, but upon equity and justice. Thus, a person who has been unjustly enriched at the expense of another is required to make restitution to the other.

Consumer Credit Regulation: 2.4.10 Contract Claims

In some circumstances, a breach of contract claim can provide reasonably useful remedies for lender overreaching. Breach of contract claims have the advantage of likely avoiding federal preemption.675 Contract claims also avoid the scope issues that can make UDAP and other statutory claims inapplicable to certain lenders. Contract claims are often suitable for class action treatment, as lenders are likely to use form contracts with identical clauses for large groups of consumers.

Consumer Credit Regulation: 2.4.11.1 Nature of the Duty

The duty of good faith and fair dealing between parties to a contract is based both in common law678 and the UCC.679 Unlike unconscionability, which is ordinarily determined by looking at contract terms at the time the contract was made, the duty of good faith is imposed on parties to an existing contract “to prohibit improper behavior in the performance and enforcement” of that contract.680 For example, a bank’s decision to reorder charges posted

Consumer Credit Regulation: 2.4.11.2 Remedies for Violation of Duty of Good Faith

Since the duty of good faith is an implied contract term, most jurisdictions allow a contract claim for violation of this duty.695 Tort liability may require a showing of some special relationship, beyond that of lender and customer, such as special circumstances giving rise to a fiduciary or quasi-fiduciary relationship or other indicia of a heightened duty.696

Consumer Credit Regulation: 2.4.12.2 Estoppel

The elements of an estoppel claim include that the party estopped must have engaged in conduct which amounted to a false representation or concealment of material facts, must have had an intention that such conduct would be acted upon by the other party, and must have known the real facts.

Consumer Credit Regulation: 2.4.12.3 Conversion

Conversion is the wrongful exercise of dominion over personal property.717 As a general rule, conversion involves a specific chattel rather than money.718 However, courts have recognized an exception to this rule where money is specifically identifiable and subject to an obligation to be returned or treated in a particular manner.

Consumer Credit Regulation: 2.1 Introduction

This chapter provides an overview of federal and state laws that apply to non-mortgage consumer credit. The application of these laws to particular types of credit transactions is analyzed in more detail in later chapters.

Consumer Credit Regulation: 2.2.1 Regulation of Federal Depository Institutions

The National Bank Act allows national banks to abide by either a federal interest rate ceiling or their home state’s ceiling, which they can export to other states. Supreme Court case law and the Office of the Comptroller of the Currency (OCC) regulations define “interest” broadly for purposes of rate exportation, allowing national banks to export a wide variety of fees and charges. The statutory scheme for federal savings associations is similar and they are now also regulated by the OCC.

Consumer Credit Regulation: 2.2.2.1 Disclosure and Substantive Protections for Non-Mortgage Lending

The federal Truth in Lending Act (TILA)6 was adopted in 1968. TILA requires creditors to give consumers a standardized disclosure statement before a closed-end transaction is consummated.7 Among other disclosures, this statement must contain the “Amount Financed,” which is the amount of money of which the consumer will have actual use, the “Finance Charge,” which is the total dollar cost of the credit, and the “Annual Percentage Rate” (APR), which expresses the cost of the credit on a yearly basis.

Consumer Credit Regulation: 2.2.2.3 Relationship Between TILA and State Law

TILA preempts state disclosure laws only to the extent they are inconsistent with TILA’s requirements.29 In general, TILA does not preempt or alter state usury ceilings or other cost caps, nor does it affect the way that interest rates are calculated for the purposes of state usury law.30 Indeed, many consumer credit contracts currently state two interest rates—one on the contract or note, which is calculated as required or permitted by state law, and one on the TILA disclosure statement, which cont

Consumer Credit Regulation: 2.2.3 Federal Rebate Statute

The federal rebate statute was adopted in 1992 to address the failure of some creditors to make proper rebates of unearned interest when a consumer credit transaction was prepaid, refinanced, or accelerated. It requires that unearned interest be rebated. In addition, for transactions with terms longer than sixty-one months, it requires that a method at least as favorable to the consumer as the actuarial method be used to calculate the rebate.

Consumer Credit Regulation: 2.2.5.2 Consumers Protected by the MLA

The MLA covers consumer credit that is extended to an individual who, at the time he or she becomes obligated, is an active-duty member of the military or the dependent of an active-duty member.60 Being on active duty is defined as being on active duty on a call or order that does not specify a period of thirty days or less.61 Active duty includes Active Guard and Reserve duty.62

Consumer Credit Regulation: 2.2.5.3 Creditor Identification of Those Covered by the MLA

A creditor with thousands or even millions of accounts must identify which customers are covered by the Act, because the MLA provides protections that other consumers do not enjoy. The DoD regulations allow creditors to use any method to assess whether a consumer is a covered borrower,69 but the creditor is liable if it fails to identify a covered person and fails to offer that person MLA protections.

Consumer Credit Regulation: 2.2.5.4 Covered Creditors

With three exceptions described below, the MLA applies to “creditors,” defined as persons engaged in the business of extending consumer credit or assignees of such persons.79 Thus, unlike the Truth in Lending Act, MLA provisions always apply to assignees.

Consumer Credit Regulation: 2.2.5.5 Covered Consumer Credit

DoD regulations in effect prior to October 2016, limited covered consumer credit just to three forms of consumer credit—payday, auto title, and refund anticipation loans. The old DoD regulations defined each of those forms of credit and some creditors sought to evade the MLA by offering credit that fell just outside those definitions.