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Truth in Lending: 12.3.5.2 Relationship Between § 1640(k) and § 1641

Where there is a conflict between the direct assignee liability imposed under section 1640(k) and the assignee limitations in section 1641, the provisions in section 1640(k) control. Congress made this clear by providing for assignee liability under section 1640(k) “[n]otwithstanding any other provision of law.” Even without this clear directive, however, standard canons of statutory interpretation mandate the priority of section 1640(k) over section 1641.

Truth in Lending: 12.3.6 Involuntary Assignments

TILA provides that, except in real-estate-secured transactions, consumers can press TILA monetary claims not apparent from the face of the disclosure statement whenever there has been an “involuntary” assignment such as might occur through a creditor’s bankruptcy.474 One TILA commentator points out, however, that this result is the precise opposite of the rule under pre-Simplification TILA and suggests that it is the result of an error in the rewording of the statute rather than a deliberate legislative reversal of the rule.

Truth in Lending: 12.3.7 Servicer Liability

A servicer is not considered an assignee (or a creditor) for purposes of TILA liability unless it is or was the owner of the obligation and did not take the assignment “solely for administrative convenience.”479 Acting like a holder of the loan will not overcome this provision.480 But a servicer may be estopped from denying ownership of the note in some circumstances.481 In Meyer v.

Truth in Lending: 12.3.8 Assignees of HOEPA Obligations

Assignees of loans covered by HOEPA489 may be liable, up to the amount of the debt, for “all claims and defenses”—not just ones arising under TILA—which could have been asserted against the original creditor. Only if the lender can prove that it did not know the debt was subject to HOEPA, and further that a “reasonable person, exercising due diligence” could not have known from the transaction documents that it was, will it be protected from this expanded liability.

Truth in Lending: 12.3.9 Series of Assignments

Sometimes an obligation is assigned and re-assigned to a series of assignees. Since TILA provides that “any civil action . . . which may be brought against a creditor may be maintained against any assignee of such creditor” if the violation is apparent on the face of the documents,490 it appears that the action may be maintained against any one or more of a series of assignees, and all are liable if the violation is apparent on the face of the documents.

Truth in Lending: 12.3.10 Effect of Written Acknowledgment of Receipt in Suits Against Assignees

Except in a transaction subject to the right to rescind, innocent assignees are entitled to an irrebuttable presumption of delivery of disclosures where there is a written acknowledgment of receipt.496 If the assignee knew when it acquired the debt that there was no delivery, it is not entitled to this irrebuttable presumption.497 In cases involving rescission, written acknowledgment of receipt creates no more than a rebuttable presumption of delivery.498

Truth in Lending: 12.3.11 Effect of FTC Holder Rule and HOEPA Assignee Liability Provision

The Federal Trade Commission’s Trade Regulation Rule Concerning the Preservation of Defenses (hereinafter FTC Holder Rule) abrogates holder-in-due-course protection for assignees of consumer credit contracts.499 The FTC Holder Rule requires credit sellers to include in their consumer credit contracts a clause that subjects the holder to “all claims and defenses” that the debtor could assert against the original credit seller.

Truth in Lending: 12.4.1 Overview

The Truth in Lending Act creates nine defenses that a creditor may raise to avoid TILA liability. The first six of these special statutory defenses are:

Truth in Lending: 12.4.2.1 History and Scope of the Defense

TILA provides that creditors and lessors are not liable for acts done or omitted in good faith in conformity with any rule, regulation, or interpretation issued by the Consumer Financial Protection Bureau (CFPB) or the Federal Reserve Board (FRB) even if it is subsequently changed or held invalid.517 This narrow defense was created in 1974518 after a recommendation by the FRB,519 which was originally tasked with implementing TILA.

Truth in Lending: 12.4.2.2 Elements of the Defense

Whether a creditor acted in good faith is a question of fact, which cannot be determined on the pleadings.544 The Fifth Circuit has said that the good faith defense “should ordinarily be pleaded specially and proved.”545 Creditors are not liable if they rely in good faith on a provision described in section 1640(f) that a court later declares invalid.546 But the good faith defense does not apply to provisions that were invalidated prior to a credit

Truth in Lending: 12.4.3 Use of Model Forms

Creditors are also deemed to be in compliance with the disclosure requirements if they use the appropriate model forms or clauses558 promulgated as part of Regulation Z.559 There are important limitations on the model forms defense: it does not apply to numerical disclosures;560 the creditor must have selected the model form “appropriate” to the transaction;561 and, though deletions or changes may be

Truth in Lending: 12.4.4.1 Introduction; Scope

TILA’s “bona fide error” defense protects a creditor or assignee from liability where it “shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.”569 The defense, sometimes called the clerical error defense, does not include errors of legal judgment.570

Truth in Lending: 12.4.4.2 Burden of Proof

TILA explicitly requires creditors to prove the bona fide error defense “by a preponderance of the evidence.”579 Consumers need not prove bad faith on the part of creditors in order to prevail.580

The creditor has the burden of establishing each of the three necessary elements of the bona fide error defense, each of which is discussed separately in the sections that follow.

Truth in Lending: 12.4.4.3 Unintentional Error

To satisfy the bona fide error defense, the creditor must show that the error was unintentional. The lack of intent goes not to an intent to violate TILA, but rather to an intent to do the “voluntary, deliberate acts and omissions” that may be the subject of a TILA violation.590 Thus, the bona fide error defense will not be available where the creditor had the intention to do the act or omission that resulted in an error, even if it had no intent to violate TILA.

Truth in Lending: 12.4.4.5 Maintenance of Procedures

Once a creditor demonstrates that the error was unintentional and falls within the statutory category of bona fide errors, the creditor must then show that it maintained adequate procedures to avoid making such errors.

Truth in Lending: 12.4.5 Faulty Calculation Tool Defense

One narrow defense, applicable only to erroneous disclosure of the finance charge or annual percentage rate, is a creation of Regulation Z, not the statute. This “faulty calculation tool” defense639 is distinct from the bona fide error640 and correction of error641 defenses. A creditor may claim the faulty calculation tool defense if the creditor meets three conditions.

Truth in Lending: 12.4.6.1 Introduction; Scope

TILA and Regulation Z have several provisions that eliminate liability for violations if a violation is corrected. The applicable provision and the scope of the defense depend on the nature of the error and when it is corrected.

Truth in Lending: 12.4.6.2 Determining Whether Corrections Are Timely

Both the regulation and statute allow sixty days in which to correct an error and thereby avoid TILA liability. Under the statutory provision, the sixty days begin upon discovery of the error pursuant to notice from an enforcement agency or through a creditor’s own procedure.653 In contrast, the right to make corrections upon discovery does not apply to clerical errors under Regulation Z’s provision.

Truth in Lending: 12.4.6.3 Not All Errors Are Correctable

The regulation permitting correction of clerical errors allows only a narrow range of errors to be corrected. An error is considered clerical only if it does not affect a numerical disclosure or any of the requirements for the loan estimate or final, closing disclosure.664 The official interpretation of the regulation gives examples of errors that will and will not be considered clerical.

Truth in Lending: 12.4.6.4 Correction and Notification Efforts Must Be Sufficient

When correcting an error under the statutory provision, the creditor must notify the consumer of the error.677 It is not enough to provide a correct disclosure form without also providing notice that corrections are being made.678 The creditor must prove that it notified the consumer of the error and corrected it.679 The creditor’s notice must be explicit and specific, detailing the precise form of the error.68

Truth in Lending: 12.4.7 Refunds Related to Good-Faith Analysis

Regulation Z requires creditors to provide a good faith estimate of the closing costs anticipated for the transaction (called a “loan estimate” after August 2015).695 If the final charge imposed on the consumer exceeds the estimate by more than permitted by the regulations, the creditor is liable for violating the Act.

Truth in Lending: 12.4.8 Effect of Subsequent Occurrence

There is no TILA violation when properly disclosed information becomes inaccurate because of actions subsequent to the delivery of the disclosures.699 The official interpretations give as an example a creditor’s post-consummation provision of insurance coverage for the collateral, charging the premium to the consumer, where the consumer fails to fulfill a commitment to keep the collateral insured.700