Skip to main content

Search

Truth in Lending: 6.8.5.2 Timing of the Notice

The creditor is required to give the notice of penalty rate imposition at least forty-five days prior to the effective date of the increase.1920 However, the notice must be given after the occurrence of the event that triggered the penalty rate, i.e., the default, delinquency, or other violation of the account agreement.1921 Thus, creditors are not permitted to send general, boilerplate notices to all consumers reminding them of the conditions that may give rise to a penalty rate.

Truth in Lending: 6.8.5.3 Format of the Notice

In general, the penalty rate notice must be clear and conspicuous.1923 If the penalty rate notice is included on or with a periodic statement, creditors are required to use a table format similar to the credit card application/solicitation table and account-opening table.1924 This table must be on the front of any page of the periodic statement.1925

Truth in Lending: 6.8.5.4.2 Penalty rates applied to an outstanding balance where no minimum payment made within sixty days

For credit cards under an open-end (not home-secured) consumer credit plan, a penalty rate cannot be applied to an outstanding or “protected”1931 balance unless the consumer fails to make the minimum payment within sixty days.1932 In such cases, the issuer must disclose the right to reinstatement for six months of on-time payments,1933 i.e., that the increased rate will cease to apply to transactions that occurred prior to or within fourteen

Truth in Lending: 6.8.5.5 Penalty Rate Notices for Over-the-Limit Transactions

If a creditor imposes a penalty rate because the consumer exceeded the credit limit on an account, the creditor need not provide a notice if the creditor had earlier provided a notice of the reduction in the credit limit.1935 This notice must have been provided at least forty-five days in advance of imposing the penalty rate and must include the following disclosures:1936

Truth in Lending: 6.8.6.1.1 General

For credit cards, card issuers must provide cardholders with written notice of the renewal before the scheduled renewal date of the credit or charge card account in two circumstances:1941

Truth in Lending: 6.8.6.1.2 Delayed notice

Previously, TILA permitted the issuer to delay a renewal notice until the mailing or delivery date of the periodic statement on which the renewal fee is first billed, if the card issuer also provided the cardholder notice that the cardholder has at least thirty days to avoid paying the fee.1950 The Credit CARD Act deleted this provision,1951 and the corresponding Regulation Z provision was also deleted.1952

Truth in Lending: 6.8.6.2 Contents

The renewal notice must provide disclosures of the items under Regulation Z § 1026.60(b)(1)–(7) (solicitations and applications disclosures)1953 that would apply if the account were renewed.1954 These items include: all APRs; fees for issuance or availability of credit; fixed finance charge or minimum interest charge; transaction charges; grace period; and for charge cards, the due and payable statement.

Truth in Lending: 6.8.6.3 Notification on Periodic Statements

The renewal notice disclosures may be provided on or with a periodic statement, or in a separate mailing.1963 If the disclosures under this section are provided in whole or in part on the back of a periodic statement, the card issuer must include on the front of the statement a reference to those disclosures, for example, along the lines of “see reverse side for important information” or “upon annual renewal of your card see the reverse side for disclosures about the cost of your card and the actions you may take.” This latter disclosure ne

Truth in Lending: 6.8.7.1 General

Credit card issuers that offer credit insurance (typically, life, disability, and unemployment insurance) on the outstanding balance on an account are required to make certain disclosures to their insured consumer cardholders if the card issuers change insurance providers.1966 The card issuer is responsible for the disclosures, although the insurance provider or another third party acting as the agent of the card issuer may give the disclosures.1967

Truth in Lending: 6.8.7.5 Preemption of State Law

TILA specifically provides that none of its disclosure requirements about changes in insurance coverage shall be construed as superseding any provision of state law which is applicable to the regulation of insurance.1982

Truth in Lending: 10.9.6.2 1995 Amendments and Tolerances

The use of rescission as a foreclosure defense has proven so valuable in protecting consumers that in enacting the 1995 amendments to TILA which, on the whole, were not consumer-friendly, Congress carved it out for special rules of benefit to borrowers.

Truth in Lending: 10.9.6.3 TILA Monetary Damage Claims in Foreclosures; Distinguished from Rescission Claims

In a few states, such as Pennsylvania, there is a dispute about whether counterclaims for money damages can be raised in a foreclosure case, although the better-reasoned cases permit it.1530 In any event, those cases which do not allow TILA monetary damages are not applicable to rescission claims. The rescission claim, instead, is a defense by which the consumer challenges the validity of the security interest which is the basis for the creditor’s foreclosure action.

Truth in Lending: 10.9.7.1 General Reasons to Choose Bankruptcy

The consumer has the option of enforcing the rescission right in federal district, state, or bankruptcy court.1533 Of course, the relative advantages and disadvantages of federal court, state court, and bankruptcy court vary from jurisdiction to jurisdiction. The usual considerations which go into forum selection are equally applicable here, such as the precedent in the jurisdiction and the judges’ relative understanding of the issues.

Truth in Lending: 10.9.7.2 Choosing Between Chapter 7 and 13: Preserving the Home from Unsecured Creditors

In general, consumers with viable rescission claims should consider a chapter 13 bankruptcy rather than a chapter 7.1544 In a chapter 13, the rescission claim remains the borrower’s, not the estate’s, while the claim passes to the estate in a chapter 7 plan.1545 A chapter 7 bankruptcy trustee has the authority, with court approval, to settle the rescission claim.1546 There have been reports of chapter 7 trustees unilaterally exercising

Truth in Lending: 10.9.7.3 Mechanics of Raising a Rescission Claim in Bankruptcy

If time permits, it is best to send the rescission notice prior to filing the bankruptcy case. Upon filing, the right to rescind passes to the trustee (although in a chapter 13 bankruptcy the debtor’s postpetition exercise of the right is also effective).1550 Sending the rescission notice before filing the bankruptcy petition makes it unnecessary to untangle the question of who has authority to send it.

Truth in Lending: 10.9.7.4 Timing Issues of Raising a Rescission Claim in Bankruptcy

Timing issues can arise if the feasibility of a chapter 13 plan depends on the outcome of an adversary proceeding seeking rescission or actual or statutory damages. In one case,1558 the debtor did not have enough income to fund the chapter 13 plan unless his adversary proceeding was successful. The confirmation hearing occurred before the adversary proceeding could be resolved. The court refused to allow the debtor to continue to benefit from the automatic stay while litigating the adversary claims, and dismissed the chapter 13 case.

Truth in Lending: 10.9.8.2 Settlement Strategy

Outlining a specific settlement proposal in conjunction with or even prior to sending a rescission letter extends the olive branch to the lender.1582 One example of such a proposal would be a recast loan to bring it in line with current market rates. This would produce the same effect as a refinancing with a new mortgage and note, but without the attendant cost and complication. The lender would still obtain the same profit, or perhaps a greater profit than it would if the consumer were to refinance the existing loan at a market rate.

Truth in Lending: 10.9.9 Exercising Rescission Rights in a Class Action

Where a creditor systematically engages in conduct which would give its borrowers a right to rescind, the question arises whether a class action can be maintained. In some circuits, courts may allow certification of a rescission class where the request for relief is carefully crafted so that it does not seek to exercise the class members’ rescission rights. For example, the suit might seek declaratory relief to clarify the class members’ entitlement to rescission.