In Vallies v. Sky Bank, the Third Circuit joined the First, Fifth, Eighth, Ninth, and Eleventh Circuits, holding that the Truth in Lending Act (“TILA”) requires plaintiffs to prove actual damages sustained as the result of a disclosure violation.
Plaintiff Vallies entered into a loan and security agreement with the defendant Sky Bank, which financed an automobile and a debt cancellation insurance premium, among other things, for Vallies. The insurance premium was not included in the ”finance charge,” as TILA requires, and was lumped in with a general service contract charge, rather than being itemized as a separate item. The parties settled Vallies’ statutory damages claim under TILA. The District Court subsequently certified a class for settlement purposes and approved a settlement, which did not cover Vallies’ actual damages under 15 U.S.C. § 1640(a)(1). Sky Bank moved for summary judgment, arguing that Vallies cannot recover actual damages under TILA because Vallies did not plead, and could not prove, actual reliance. The District Court granted summary judgment in favor of Sky Bank.
On appeal, Vallies acknowledged that the vast majority of available authority on the issue of detrimental reliance was against him, but argued that “the weight of that authority is wrong.” The Third Circuit disagreed, issuing a 31-page opinion (found here).
The Court noted that TILA provides for two types of compensatory damages — statutory and actual — which are treated differently under the Act. Citing Black’s Law Dictionary, the Court defined actual damages as the “amount awarded to a complainant to compensate for a proven injury or loss . . . .” Section 16040(a)(1) of TILA provides that a successful plaintiff may recover “any actual damage sustained by such person as the result of the failure” to disclose. Taken together, the Third Circuit found that TILA requires a link between the loss and the failure to disclose:
The compensatory remedy of actual damages is permitted only in cases where the violation caused the harm–where the harm was “sustained by [the consumer] as a result” of the violation. 15 U.S.C. § 1640(a)(1). Without detrimental reliance, only statutory damages are available.
The Third Circuit went on to reject various arguments that Vallies advanced regarding the legislative history of TILA, supposed textual support in other consumer statutes (e.g., ECOA, EFTA), and conflict with other decisions of the circuit. The Court concluded that:
Because we find that a showing of detrimental reliance is required to recover actual damages for a TILA disclosure violation, and Vallies neither pled nor made such showing, the grant of summary judgment was proper on the claim for actual damages.