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Truth in Lending: 8.7 TILA Damages and Rescission Are Available for HELOC Violations

Statutory damages, actual damages, and attorney fees are available for violations of TILA’s disclosure requirements, to the extent the disclosures are mandated by 15 U.S.C. § 1637a.510 To the extent the disclosures are mandated under the general open-end credit rules under 15 U.S.C. § 1637, the analysis is more complicated. Actual damages and attorney fees are still available, but the availability of statutory damages depends on which provision of section 1637 requires the disclosure at issue.

Truth in Lending: 8.8.1 Overview

Reverse mortgages are non-recourse loans intended to allow older homeowners to convert the equity in their homes into cash, while deferring repayment.513 The loan principal in a reverse mortgage may be advanced as a lump-sum, in monthly payments, as a line of credit, or a combination of these options. Unlike a “forward” mortgage, a reverse mortgage borrower is not expected to repay the principal or interest until maturity.

Truth in Lending: 8.8.3.1 Overview

In addition to any required disclosures for open-end and closed-end mortgages,534 reverse mortgage creditors must also disclose the total annual loan cost (TALC) rate.

Truth in Lending: 8.8.3.2 Calculating the TALC Rate

Before jumping into the weeds of calculating the total annual loan cost (TALC) rate, carefully review the description of the TALC rate in the previous section. Appendix K to Regulation Z is an important guide as to the nuts and bolts of the calculation. Also, the Federal Reserve Bank of New York published a friendlier description in its compliance newsletter.546 This subsection is a summary of that article. Determining the TALC rate requires some standard assumptions that make things easier:

Truth in Lending: 8.8.4 Other Reverse Mortgage Disclosures

In addition to the TALC rate, reverse mortgage creditors must provide a notice saying the consumer is not required to complete the transaction merely because the consumer received the disclosures or signed a loan application.556 Creditors must also provide an explanation of the TALC rate table and an itemized list of the loan terms, charges, age of the youngest borrower, and the appraised value of the property.557 These disclosures must be in a form substantially similar to the model form in Reg

Truth in Lending: 8.8.5 Reverse Mortgage Remedies

Failure to comply with Regulation Z’s requirements for reverse mortgages, may subject creditors to civil liability under TILA, including the remedy of rescission.561 Regulation Z does not provide an accuracy tolerance for TALC rate disclosures, as it does for APR disclosures, so the smallest variation from the actual rate should be a violation, triggering actual and statutory damages.562

Truth in Lending: 12.1 Introduction

Several defenses against TILA actions are available to creditors. The defenses apply, for the most part, to both open-end and closed-end credit transactions.

Truth in Lending: 12.2.1 Generally and Private Suits

The Truth in Lending Act (TILA) provides separate limitations periods for private suits and actions by government entities. The limitations period for government actions is discussed in the next section. Most private actions for civil liability under TILA must be filed within one year after the date of the violation.6 A small number of other provisions carry a three-year limitations period.7 The date of the violation depends on the requirements of the statute.

Truth in Lending: 12.2.3.1 General

The limitations period for filing suit under TILA begins the day after the occurrence triggering the running of the period.40 This is consistent with Federal Rule of Civil Procedure 6(a).41 The period ends one year later for most claims and three years later for others, as provided in section 1640(e). Thus, for example, where a violation occurred on April 1, 2020, a complaint must be filed no later than April 1, 2021.

Truth in Lending: 12.2.3.2 Violations Involving Closed-End Credit

Many (but not all) closed-end credit disclosures and other obligations are required before consummation,51 so a violation of those duties will run from the date of consummation itself.52 If a disclosure required before consummation is never made, the consummation date remains the triggering date.53 Consummation occurs when the consumer is contractually obligated to the loan under state law, i.e., when the creditor extends the credit and the cons

Truth in Lending: 12.2.3.3.2 Fair Credit Billing Act violations

The limitations period may not begin to run until a later time for some Fair Credit Billing Act (FCBA)85 violations. The Fair Credit Billing Act is part of the Truth in Lending Act to which the one-year statute of limitations generally applies. When a consumer sends a notice of a billing error, FCBA provides that the creditor:

Truth in Lending: 12.2.3.4.2 Suits for damages related to rescission

Beyond the question of enforcing a valid rescission, the failure to rescind in response to a valid request violates TILA and entitles the consumer to damages.101 The deadline is one year after the creditor fails to respond.102 Because the creditor has twenty days to respond to a valid rescission notice, a cause of action accrues at the end of that twenty-day period, and the limitations period expires a year later.103

Truth in Lending: 12.2.3.4.3 Does a rescission claim extend the limitations period for underlying disclosure violations?

Section 1635(g) provides: “In any action in which it is determined that a creditor has violated this section, in addition to rescission the court may award relief under section 1640 of this title for violations of this chapter not relating to the right to rescind.” One decision suggests that this provision means that, if a claim for rescission is timely because it was exercised within the three-year period set by section 1635(f), then the consumer can also seek damages for disclosure violations even if they would normally be barred by the one-year statute of limitations.

Truth in Lending: 12.2.3.5 Repeat Transactions and Continuing Violations

Some extensions of credit are set up to create repeat transactions. In payday loans, for example, borrowers often enter into a new agreement or provide a new check to be held with each rollover.111 Each rollover may be a separate failure to disclose, starting a new one-year period for filing suit.112 Auto pawn transactions may be set up in the same way.113

Truth in Lending: 12.2.4.1 Overview

Sometimes, at first glance, the basic rules for calculating a limitations period138 suggest that it may be too late to file a claim. But that should not end the analysis. There are a number of legal concepts or doctrines that can affect when a limitations period begins to run or is tolled. This section discusses the most commonly litigated ones raised in the TILA context: equitable tolling, equitable estoppel, fraudulent concealment, and the discovery rule.

Truth in Lending: 12.2.4.2 The Discovery Rule and Fraudulent Concealment

Chronologically, the first question to ask is when the limitations period starts to run. Generally, a cause of action accrues and the statute of limitations starts to run at the same time—when the plaintiff is injured—even if the plaintiff does not know about the injury.142 But there may be an equitable exception to this principle depending on when the consumer discovered relevant facts and the reason for any delay.

Truth in Lending: 12.2.4.3.2 Due diligence requirement

The plaintiff must exercise due diligence in order for a court to equitably toll the statute of limitation.179 Whether the plaintiff exercised due diligence is a question of fact.180 Many decisions hold that the consumer must exercise diligence to uncover TILA violations181 and must act promptly upon discovering the violations.182 A consumer, however, need not do a full-blown investigation to adequate

Truth in Lending: 12.2.4.4 Equitable Estoppel

Equitable estoppel is another doctrine that gives a plaintiff more time to file a suit. But, in contrast to equitable tolling, it applies when the statute of limitations has expired: It estops, or bars, the defendant from asserting the expired limitations period as a defense.197