In Johnson v. Wells Fargo Home Mortgage, Inc., the Ninth Circuit addressed issues regarding a district court’s review of an arbitration award, as well as the substantive merits of the plaintiff’s Real Estate Settlement Procedures Act (“RESPA”) claims. 2011 WL 505016 (9th Cir. Feb. 15, 2011). The plaintiff, Wes Johnson, brought suit against Wells Fargo Home Mortgage, Inc. (“Wells Fargo”) alleging, inter alia, claims for violation of RESPA for Wells Fargo’s improper reporting to credit reporting agencies of Johnson’s delinquencies on two mortgage loans, which he secured as part of his business of purchasing undervalued properties and then refurbishing, renting, and selling them. The parties stipulated to binding arbitration. The arbitrator found in favor of Johnson awarding him damages. Wells Fargo then moved the district court to vacate the award. The district court directed that the appeal of the award should be heard directly by the appellate court, and without reviewing the award, confirmed it.
Tag Archives: Regulation Z
Supreme Court Watch: Chase Bank v. McCoy
Posted in Truth in Lending ActToday, the United States Supreme Court invited the Solicitor General to file a brief expressing the Government’s position on Chase Bank USA, N.A.’s (“Chase”) cert petition with the following question presented:
When a creditor increases the periodic rate on a credit card account in response to a cardholder default, pursuant to a default rate term that was disclosed in the contract governing the account, does Regulation Z, 12 C.F.R. § 226.9(c), require the creditor to provide the cardholder with a change-in-terms notice even though the contractual terms governing the account have not changed?
The Ninth Circuit held that Regulation Z requires Chase to issue a notice, even though the new rates were based on consumer default. Judge Cudahy, sitting by designation from the Seventh Circuit, dissented.
Even though a decision in this case will likely not have a great impact on future cases because of the Credit CARD Act, it will have definitely impact many current pending cases. We will keep you apprised as to whether the Supreme Court grants the cert petition.
Federal Reserve Issues Credit Card Act Regulations
Posted in Credit CARD ActThe Federal Reserve Board issued final rules yesterday amending Regulation Z and implementing certain provisions of the Credit Card Accountability and Disclosure Act of 2009. Most of the rules are effective February 22, 2010. A couple are already in place. The final rules are more than 1500 pages long counting the commentary, but are summarized in the Fed’s press release. Click here to see the release. These are the 15 high points:
Third Circuit Joins Other Circuits, Holding That A Plaintiff Must Prove Detrimental Reliance To Recover Actual Damages For TILA Disclosure Violation
Posted in Truth in Lending ActIn 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).
Home Equity Line of Credit Reduction Cases on the Rise
Posted in Truth in Lending ActThere have been a number of lawsuits throughout the country this past year arguing that lenders have unlawfully suspended or reduced home equity lines of credit (“HELOCs”). Although the theory underlying these cases find its genesis in the recent declines in the real estate market, one court has already permitted a claim to proceed.
Under the Truth in Lending Act (“TILA”) and Regulation Z, a creditor may suspend or reduce a HELOC if “the value of the consumer’s principal dwelling which secures any outstanding balance is significantly less than the original appraisal value of the dwelling.” 15 USC 1647(c)(2)(B). The Commentary to Regulation Z provides that what constitutes a “significant decline” will “vary according to individual circumstances.” Commentary, cmt. 5b(f)(3)(vi)(6). The Commentary then states that there has been a significant decline ”if the value of the dwelling declines such that the initial difference between the credit limit and the available equity (based on the property’s appraised value for purposes of the plan) is reduced by fifty percent . . . .” The Commentary provides an example of a fifty percent decline:
For example, assume that a house with a first mortgage of $50,000 is appraised at $100,000 and the credit limit is $30,000. The difference between the credit limit and the available equity is $20,000, half of which is $10,000. The creditor could prohibit further advances or reduce the credit limit if the value of the property declines from $100,000 to $90,000.
Creditors, however, are not required to obtain an appraisal before suspending credit. Therefore, many creditors are using automated valuation models (“AVMs”) to assess whether a significant decline has occurred.
First Circuit Affirms Dismissal Of TILA Claim Based On End-Of-Month APR Increase; Circuit Split Remains
Posted in Truth in Lending ActThe First Circuit Court of Appeals has affirmed the District Court of Massachusetts dismissal of a putative class action raising claims under the Truth in Lending Act (TILA) and Massachusetts unfair or deceptive trade practices law. In Shaner v. Chase Bank USA, NA, the named plaintiff (Shaner) claimed that, as a result of her own default, Chase twice increased her annual percentage rate (APR) at the beginning of the billing cycles without notice prior to the first date the APR was applied. The notice was on Shaner’s billing statement, was consistent with Chase’s credit card agreement with Shaner, and stated that “[t]he new APR and promotional rate expiration reflected on this statement is a result of a late payment on your account.”