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Truth in Lending: 12.2.5.4 Servicemembers Civil Relief Act

The federal Servicemembers Civil Relief Act (formerly the Soldiers’ and Sailors’ Civil Relief Act) tolls the statute of limitations while a member of the military is on active duty.268 The period of active duty is not included in computing the statute of limitations.269 This rule applies whether a suit is brought by or against the service member.270

Truth in Lending: 12.2.5.6 Continuing Wrongs

Two more equitable doctrines can extend the limitations period for misconduct that is ongoing or repeating, rather than having an identifiable end date: the continuing violation doctrine and the theory of continuous accrual.275 Under the first, the cause of action does not accrue until the misconduct ends. Under the second, the plaintiff can recover for harm that occurs within the limitation period but not for older, related acts of misconduct.276

Truth in Lending: 12.2.6.2 Nature of Recoupment and Related Pleading Requirements

Recoupment is a common law doctrine that permits a defendant to raise claims defensively that arise out of the same transaction.293 When recoupment is allowed, TILA violations occurring more than one year previously may be raised against a creditor’s action to collect on the debt.294 Most courts hold that recoupment is only available as a defense to a creditor’s claim and cannot be asserted as part of an affirmative suit by the consumer.295

Truth in Lending: 12.2.6.3 State Law

Most creditor actions against consumers are filed in state court. The TILA provisions regarding recoupment expressly defer to the states. Thus, state law will decide whether a consumer’s TILA claim may be raised as a recoupment defense.

Truth in Lending: 12.2.6.5.1 Availability of recoupment in bankruptcy after the limitation period has run

Bankruptcy can be an important forum for raising recoupment claims, particularly when state law allows the creditor to collect on the debt outside of a judicial action. For example, where a creditor is seeking to collect through self-help repossession or nonjudicial foreclosure, there is no existing legal proceeding in which the consumer could file a recoupment claim.319 In such cases, this strategic advantage may contribute to making a recommendation in favor of bankruptcy.

Truth in Lending: 12.2.6.5.2.1 Bankruptcy schedules

When recoupment is expected to be raised in bankruptcy, it is a good idea to mark the claim in the schedules as “disputed.” Careful practice may also require listing the availability of a recoupment claim as an asset and exempting it at a nominal valuation if an exemption is available.323 Caution is advised, however, as some courts have viewed the debtor as acting affirmatively rather than defensively and thus denied recoupment where debtors have described the creditor’s claim as disputed.324

Truth in Lending: 12.2.6.5.2.2 Procedural and strategic choices

There are three procedural ways to raise a recoupment claim in bankruptcy: filing an adversary proceeding objecting to a proof of claim, filing a simple objection to a proof of claim, or filing a proof of claim on behalf of the creditor.325 Which one is appropriate depends on whether the creditor has filed a proof of claim and the state of the law in the court in which the bankruptcy case is heard.

Truth in Lending: 12.3.1 Overview

TILA imposes liability for damages upon “any creditor” who violates the Act.342 “Creditor” is defined as the party to whom an obligation is initially payable.343 But it is very common for the original creditor to transfer the obligation to another entity after consummation.344 For example, a consumer who buys a car may sign a retail installment contract at the dealership, with the obligation initially payable at the dealership.

Truth in Lending: 12.3.2.3 Real-Property-Secured Transactions: Identifying and Evaluating the Relevant Documents

For real-estate-secured transactions, the statute makes assignees liable for claims that are “apparent on the face of the disclosure statement.”389 A violation is apparent if the disclosure can be determined to be incomplete or inaccurate by a comparison among the “disclosure statement provided in connection with such transaction” and “any itemization of the amount financed, the note, or any other disclosure of disbursements.”390 These special provisions for real-property-secured transa

Truth in Lending: 12.3.2.4 Types of Violations That Are Apparent on the Face of the Documents

Whether a violation is apparent on the face of the documents is an objective standard.397 The assignee’s degree of sophistication is irrelevant.398 The assignee is required to compare the assigned documents to each other.399 Missing information in the contract documents may also put the assignee on notice that the TILA disclosures are not accurate.400 One court held that the creditor did not have to r

Truth in Lending: 12.3.3 Right of Rescission Against Assignees

A consumer may exercise the right of rescission against an assignee whenever the consumer would have been able to exercise that right against the original creditor.454 This is true whether or not the TILA violation on which rescission is based was apparent on the face of the disclosure statement.