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Truth in Lending: 12.4.9 Governmental Agencies Acting as Creditors

Although technically creditors, federal, state, and local agencies and departments—with some exceptions—are not liable for any civil or criminal penalty for TILA violations.711 This governmental exemption from liability is narrowly interpreted in light of the purposes of TILA.712 One court has noted, in dicta, that injunctions may be available against governmental agencies.713

Truth in Lending: 12.4.10 Tolerances

The 1995 amendments to TILA created a number of tolerances for errors in the disclosure of the amount of the finance charge and related disclosures. The Act also provides a tolerance for the accuracy of the APR. Effective October 10, 2017, the CFPB added a new tolerance for underdisclosure of the total of payments in a closed-end mortgage transactions governed by the integrated TILA-RESPA disclosure rules.

Truth in Lending: 12.4.11 Conviction of Fraud in Obtaining Residential Mortgage Loan

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act precludes TILA liability to a residential mortgage loan obligor if the obligor or a co-obligor has been convicted of “actual fraud” in obtaining the loan.730 The term “residential mortgage loan” is a defined term that excludes open-end credit.731 The defense is inapplicable unless the creditor proves that the consumer has been convicted of fraud.732

Truth in Lending: 12.5.1 Technical Violations

Since its enactment, TILA has required an award of damages (actual in some cases, statutory in others) against a creditor who fails to comply with “any requirement,” with only a few explicit exceptions.741 This rule serves an important purpose.

Truth in Lending: 12.5.2 Consumer Not Misled by TILA Violation

It is no defense to TILA liability that the debtor was not misled by the violation or that the debtor knew about the error and was not damaged by it.767 The consumer’s degree of sophistication is irrelevant; even the most sophisticated borrowers are entitled to accurate disclosures.768 Congress knew how technical some actions were and still chose not to include a “technical violation” defense in the Simplification Act or the “Rodash fix” amendments.769

Truth in Lending: 12.5.3 Consumer Contribution to TILA Violation

TILA protects all consumers, whether they were wise or foolish in entering into the loan, and whether they have made their payment or defaulted.772 TILA was intended to create incentives to promote honest lending across the board, a result that can only be achieved by uniform penalties for violation, regardless of the borrowers’ characteristics.773

Truth in Lending: 12.5.4 Consumer’s Waiver of TILA Rights

Pre-dispute waivers of TILA claims should be viewed critically and are likely unenforceable. Though TILA confers statutory rights upon private individuals, the Act’s system of disclosures and strict liability has a distinct impact on the public interest.777

Truth in Lending: 12.5.5 Invalidity of Underlying Loan as TILA Defense

Most courts hold that it is no defense to a TILA action that the underlying loan is void as a result of usury or otherwise unenforceable under state law.796 The rationale is that TILA remedies are intended to deter noncompliance with the Act.797 Similarly, because the loan’s binding nature is not controlling, it is no defense that the contract was abandoned or cancelled post-consummation,798 or that there was a failure of performance.

Truth in Lending: 12.5.6 Retroactivity of Judicial Decisions and Amendments to Regulation Z and the Official Interpretations

Creditors often argue that a court’s TILA decision favorable to consumers should have only prospective application. However, in the federal court system, when a court applies a rule of federal law to the parties before it, that rule is the controlling interpretation of federal law and must be given full retroactive effect in all cases still open to direct review and as to all events, regardless of whether such events predate or postdate the announcement of the rule.804

Home Foreclosures: 8.4.2.3.3 The Merrill doctrine as a limitation on liability of government agency loan owners

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Special issues arise when a servicer acts on behalf of a loan owner that is a federal governmental entity. Most often, this occurs when one of the government-sponsored enterprises (GSEs), such as Fannie Mae or Freddie Mac, owns the borrower’s mortgage loan. In these situations, a court-created rule known as the Merrill doctrine may limit application of otherwise controlling agency principles.

Home Foreclosures: 8.4.2.3.3 The Merrill doctrine as a limitation on liability of government agency loan owners

DRUPAL://86E08813-2E36-4E6E-866F-BB0B656D5C39

Special issues arise when a servicer acts on behalf of a loan owner that is a federal governmental entity. Most often, this occurs when one of the government-sponsored enterprises (GSEs), such as Fannie Mae or Freddie Mac, owns the borrower’s mortgage loan. In these situations, a court-created rule known as the Merrill doctrine may limit application of otherwise controlling agency principles.

Home Foreclosures: 8.4.2.3.3 The Merrill doctrine as a limitation on liability of government agency loan owners

DRUPAL://86E08813-2E36-4E6E-866F-BB0B656D5C39

Special issues arise when a servicer acts on behalf of a loan owner that is a federal governmental entity. Most often, this occurs when one of the government-sponsored enterprises (GSEs), such as Fannie Mae or Freddie Mac, owns the borrower’s mortgage loan. In these situations, a court-created rule known as the Merrill doctrine may limit application of otherwise controlling agency principles.

Home Foreclosures: 8.4.2.3.3 The Merrill doctrine as a limitation on liability of government agency loan owners

DRUPAL://86E08813-2E36-4E6E-866F-BB0B656D5C39

Special issues arise when a servicer acts on behalf of a loan owner that is a federal governmental entity. Most often, this occurs when one of the government-sponsored enterprises (GSEs), such as Fannie Mae or Freddie Mac, owns the borrower’s mortgage loan. In these situations, a court-created rule known as the Merrill doctrine may limit application of otherwise controlling agency principles.

Truth in Lending: 12.5.7 Other Defenses Claimed by Creditors

Oral disclosure is not sufficient to comply with TILA.813 Courts have also dismissed creditors’ arguments that there should be no liability where the borrower cannot read, speak, or understand English, holding that liability under TILA does not depend on the subjective deception or misunderstanding of particular consumers.814 The holder-in-due-course doctrine does not immunize a creditor from the statutory liability that TILA imposes.815 Compliance

Truth in Lending: 12.6.1.2 Federal Jurisdiction in States Exempted from TILA

The CFPB (and its predecessor agency, the Federal Reserve Board), has exempted five states—Connecticut, Maine, Massachusetts, Oklahoma, and Wyoming—from all or part of TILA.840 Even in these states, however, consumers have the option of suing in either state or federal court, because the exemption does not extend to sections 1640 or 1641.841

Truth in Lending: 12.6.1.3 Personal Jurisdiction over Out-of-State Creditors

The Constitution allows personal jurisdiction over a creditor in a TILA case in the state where the cause of action arose (specific jurisdiction) or wherever the creditor has engaged in “continuous and systematic” conduct (general jurisdiction).846 The consumer’s home state will usually have personal jurisdiction over the creditor, as the loan generally will have been made in that state and the creditor will have a continuing relationship with the consumer there.847 Personal jurisdiction over se

Truth in Lending: 12.6.2 Removal of TILA Claims to Federal Court

TILA is one of several federal statutes providing for concurrent state and federal court jurisdiction. The weight of authority holds that a congressional grant of concurrent jurisdiction does not enable a plaintiff to pursue the federal claim in state court without being subject to removal to federal court under the general authority of 28 U.S.C.

Truth in Lending: 12.6.3.1 A Consumer’s Non-TILA Claim

Consumer TILA claims often arise out of a broader dispute with a creditor. Consequently, deceptive practices, fraud, state warranty law, and state disclosure law claims are frequently included with TILA claims. Because these other claims are frequently state claims, providing no independent basis for federal jurisdiction, consumers must depend on supplemental jurisdiction to raise them in federal court.

Truth in Lending: 12.6.3.2 A Creditor’s Collection Counterclaim

A creditor’s counterclaim on the underlying debt is a state law claim and presents no independent basis for federal jurisdiction. When a consumer has filed a TILA claim in federal court, the creditor’s counterclaim must meet the test for supplemental jurisdiction, just as a consumer’s pendent state claims must.887

Truth in Lending: 12.6.5.1 Introduction

This section analyzes several claim preclusion doctrines: res judicata (also called claim preclusion), collateral estoppel (also called issue preclusion), judicial estoppel, and the effect of acceptance of a Rule 68 offer of judgment. Even if all the requirements for application of one of these doctrines are met, however, some jurisdictions give courts equitable discretion to reach the merits of the claim.914

Truth in Lending: 12.6.5.2.1 Elements

The general rule of res judicata (sometimes called claim preclusion)916 is that when a court of competent jurisdiction has entered a valid, final judgment on the merits, the parties are bound as to every matter that was or should have been raised.917 The elements of res judicata are often stated as: (1) an identity between the parties or their privies in the prior and present suits; (2) an identity between the causes of action in the two suits; and (3) a final judgment on the merits in a court o