Skip to main content

Search

Truth in Lending: 11.7.10.5.3 Are creditors liable for the actions of servicers?

The application of principal-agent liability to servicer violations of TILA has been addressed most frequently in the context of section 1641(f)(2), which requires servicers to respond to homeowner inquiries as to the owner or master servicer of the loan.1110 Congress amended section 1640(a) in 2009 to create a private right of action for violations of section 1641(f).1111 Because creditors have no direct responsibilities of their own under section 1641(f), many courts have interpreted t

Truth in Lending: 11.7.10.5.4 Are assignees liable for servicers’ violations?

The same logic that requires creditors to be held liable for servicers’ violations applies with equal force to an assignee’s violations.1115 In an era where the vast majority of loans are sold after origination, and servicing violations of TILA may occur at any point in the loan’s life, assignee liability for servicer violations of TILA is necessary to give full effect to TILA’s provisions.

Truth in Lending: 11.9.1 Background

The Truth in Lending Act explicitly provides for class action relief, comprised of actual damages, statutory damages, and attorney fees.1132 Many Truth in Lending Act violations are unusually well-suited to class action treatment. Violations are often apparent on the face of the written documents and typically are identical for each class member. Proof of reliance, intent, or actual injury is unnecessary in many cases. Statutory damages are available so that individual actual damages need not be proven.

Truth in Lending: 11.9.2.1 General

This subsection concentrates on certifying TILA class actions in federal court. Many states have adopted the federal class action rules of procedure, but attorneys bringing state court TILA class actions in other states will have to follow their own state’s rules instead. This subsection should be read in conjunction with another National Consumer Law Center publication, Consumer Class Actions,1154 which provides additional assistance on class certification issues.

Truth in Lending: 11.10.6 Appeals of Attorney Fee Awards

An attorney fee award alone may be appealed if the TILA action is successful.1567 The right to a statutory attorney fee award is solely that of the client, not of the attorney, although in some circumstances the court may order the fee award paid directly to the attorney.1568 The client may assign the fee award to the attorney,1569 and the attorney may have standing to appeal a fee award decision, particularly where the attorney is a su

Truth in Lending: 11.10.7 Interim Fees

In protracted litigation, creditors may slowly deplete the resources of the consumer’s attorneys by requiring the expenditure of numerous hours that may not be compensated, if at all, until after the termination of the litigation.

Truth in Lending: 11.10.8 Apportionment of Award Among Defendants

Courts may apportion the fee award among several defendants to ensure that a single defendant is not liable for fees greater than those incurred to litigate the case against that defendant.1579 Where a plaintiff does not prevail against all of the defendants, a fee award for work pertaining to all of the defendants is nonetheless appropriate where the factual and legal bases are related.1580 If some but not all the defendants settle, the ultimate fee award entered by the court may be red

Truth in Lending: 11.11.1 Practical Significance

Whether a party to a Truth in Lending action may demand a jury trial as a matter of right is an issue that has been litigated only infrequently,1582 but emerging case law suggests that at least with respect to damages, a jury trial should be available. The paucity of decisions on this question may reflect the fact that TILA complaints historically tend to challenge the adequacy of written disclosures.

Truth in Lending: 11.11.2 Constitutional and Statutory Requirements

TILA does not specify whether jury trials are available in TILA actions.1587 This question is academic if there is a right to a jury trial under the Seventh Amendment to the U.S. Constitution,1588 which guarantees the right of trial by jury “in suits at common law” where the amount in controversy exceeds twenty dollars, but which, by implication, provides no such assurance in suits that would have been tried in equity courts.

Truth in Lending: 11.12.1 An Overview of Federal Agency Enforcement

The responsibility for government enforcement of the Truth in Lending Act was reshuffled by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (hereinafter the Dodd-Frank Act), which created the Consumer Financial Protection Bureau.1602 The relevant provisions took effect on July 21, 2011.

Truth in Lending: 11.12.2 Where the Creditor Has Filed Bankruptcy

A government action against a creditor for TILA violations will face additional hurdles where the creditor has filed bankruptcy.1630 Because the creditor, upon filing bankruptcy, obtains an automatic stay of all litigation against it in other forums, the government will be able to bring a separate action in federal district court only if the agency’s action falls within the regulatory and police powers exception to the automatic stay.1631

Truth in Lending: Introduction

This appendix contains two sample rescission notices. The first, Appendix D.1, is an example of a relatively bare-bones TILA rescission notice, which is all that the statute requires.1 Some practitioners prefer to provide the creditor with much more information. The second, Appendix D.2, is an example of a rescission notice in a foreclosure rescue scam case. In this type of case, it is recommended to give the rescuer some explanation as to why the sale is in fact a loan covered by TILA.

Truth in Lending: D.1 Sample TILA Rescission Notice

VIA FIRST CLASS MAIL AND CERTIFIED MAIL,

RETURN RECEIPT REQUESTED

No. XXXXXXXXXXXXX

[Date]

Ben Benny

Benny’s Mortgage Company

Suite 130, Monterey Building

102 West Broadway

Tucson, Arizona 85701

RE: Homeowner, Mitchell and Martha

Account No. 00000000000

Transaction between Homeowners and Benny’s Mortgage Company dated November 12, 2014, involving a loan and mortgage secured by residential property at [address]

Dear Mr. Benny:

Truth in Lending: D.2 Sample TILA Rescission Notice in Foreclosure Rescue Scam Case

VIA FIRST CLASS MAIL AND CERTIFIED MAIL,

RETURN RECEIPT REQUESTED

No. XXXXXXXXXXXXX

[Date]

Ben Benny

Benny’s Homesavers, Inc.

123 Scammers Row

Gotcha, US 66666

RE: Smith, John and Mary

Account No. 123456

Transaction between Homeowners and Benny’s Homesavers, Inc. dated November 12, 2014, involving a sale-and-leaseback transaction involving residential property at [address]

Dear Mr. Benny:

Truth in Lending: 11.9.2.2 Numerosity

To certify a class action, the court must find that the class is so numerous that joinder is impractical.1166 TILA class actions are usually based on systematic errors in standard form contracts or company practices that affect hundreds of consumers. Since numerosity is only an issue for classes with substantially fewer than a hundred members (TILA actions have been certified with just thirty-three members),1167 numerosity is rarely an issue in TILA class litigation.

Truth in Lending: 11.9.2.3 Commonality

The court must also find that the case involves questions of law or fact common to the class.1173 Usually, the TILA violation will involve an error in a standard form disclosure common to the whole class, and the commonality requirement is easily met.1174 However, attorneys should be aware of a general trend toward heightening the standard for finding commonality. This is exemplified by Wal-Mart Stores, Inc. v.

Truth in Lending: 11.9.2.4 Typicality

The claims of the class representatives, i.e., the named plaintiff(s), must be typical of the claims of the other class members.1188 The named TILA class representative usually alleges that the creditor used a common practice affecting her and all class members; typicality should present no difficulty in such a case.1189 However, the typicality requirement may not be met if the named plaintiff is subject to unique defenses which threaten to become the focus of the litigation.

Truth in Lending: 11.9.2.5.1 General

The named plaintiffs must fairly and adequately protect the interests of the class they represent.1192 This requirement is met where the class representative has no interests antagonistic to the other class members,1193 has a sufficient interest in the outcome of the litigation,1194 and is represented by a qualified, experienced attorney.1195 Even where there may be a fundamental confl

Truth in Lending: 11.9.2.5.2 Named plaintiff may be in default on credit contract

Creditors may argue that the named plaintiff in a TILA class action is not an adequate representative where that individual has defaulted in the credit transaction and thus may be subject to a counterclaim or might attempt to use the class action device for leverage to alleviate her default status.1198 However, as one TILA commentator, Professor Rohner, has noted, this line of argument is specious: “The fact of default has nothing to do with liability for inadequate disclosures for preconsummation activities.

Truth in Lending: 11.9.2.5.3 Cost of notifying the class

In a class action seeking damages, the class representative must pay the cost of notifying the class members when a class is certified and in the event of a proposed settlement or judgment. This notice explains the existence of the lawsuit and gives class members the ability to opt out.1203 The defendant may try to defeat class certification by arguing that the named plaintiff does not have the financial ability to proceed with the case and therefore is an inadequate class representative.

Truth in Lending: 11.9.2.6 Class Actions for Injunctive or Declaratory Relief

A class action may be certified under Rule 23(b)(2) if it meets the Rule 23(a) requirements of numerosity, commonality, typicality, and adequacy of representation, and in addition, the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive or corresponding declaratory relief with respect to the class as a whole.

Truth in Lending: 11.9.2.7.1 Common questions must predominate

If the class action seeks damages, common questions of law or fact must predominate over individual issues.1210 In the typical TILA class action, this requirement is met because the alleged TILA violation is the same for each consumer, making issues of law and fact the same for all class members.1211 If there are special issues that affect some members of the class, they will usually not predominate, or can be resolved by creating subclasses.1212

Truth in Lending: 11.9.2.7.2 Superiority

To be certified under Rule 23(b)(3), a class action must, in addition to meeting the requirements of Rule 23(a), be superior to other available methods for the fair and efficient adjudication of the controversy. The court must consider:

Truth in Lending: 11.9.3.1 General

The relief available in a TILA class action is actual damages1253 plus attorney fees1254 plus statutory damages in “such amount as the court may allow,” but no more than the lesser of $500,000 (increased to $1 million by the Dodd-Frank Act1255) or one percent of the creditor’s net worth.1256 As with an individual action, statutory damages are only available for certain TILA violations,