Pursuant to revisions to Regulation Z, effective July 1, 2010, a creditor cannot use the term “fixed” to describe an annual percentage rate (APR) “unless the creditor also specifies a time period that the rate will be fixed and the rate will not increase during that period, or if no such time period is provided, the rate will not increase while the plan is open.” 12 C.F.R. § 226.5(a)(2)(iii). While this new regulation cannot be applied retroactively in form, the United States Court of Appeals for the Ninth Circuit recently issued a decision (Rubio v. Capital One Bank) that constitutes a retroactive application in effect, despite the court’s express denial of doing same.
Tag Archives: TILA
Fourth Circuit: TILA “Consumer Credit Transaction” Means Closed Transactions
Posted in Truth in Lending ActA-B-C. A-Always, B-Be, C-Closing. Always be closing, always be closing.
Blake, Glengarry, Glen Ross.
In David Mamet’s masterpiece, Glengarry, Glen Ross, a group of sad sack real estate salesmen are forced into a myopic focus on closing the deal by their overbearing, egomaniacal leader, Blake. Now that the the Fourth Circuit Court of Appeals has ruled that borrowers who elect not to go through with their loans before closing are not entitled to recission under the Truth in Lending Act (“TILA”), however, buyers may be the ones who need to focus on closing, at least those who might want to seek certain remedies under TILA.
In Weintraub v. Quicken Loans, Inc., the Weintraubs applied for a 30- year, fixed rate loan from Quicken Loans to refinance their townhouse. Quicken Loans provided the Weintraubs with a “Good Faith Estimate” and an “Interest Rate Disclosure (Not Locked) and Deposit Agreement.” The latter document disclosed that the interest rate was not locked and that the Weintraubs were required to pay a $500 deposit to Quicken Loans for out-of-pocket expenses. Mr. Weintraub signed the documents and paid the $500 deposit. Quicken Loans subsequently conditionally approved the loan, subject to a satisfactory home appraisal.
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.
Seventh Circuit Rejects Argument That TILA Was Violated By Coupling A Service Contract Or Extended Warranty With A Financing Agreement
Posted in Truth in Lending ActThe Seventh Circuit has affirmed the dismissal of a Truth in Lending Act (“TILA”) claim in Sales v. Urankar, et al. In Sales, the plaintiff alleged that he entered into a retail installment contract for the purchase of truck that violated TILA because it was conditioned on the plaintiff’s agreement to a service contract or extended warranty. The district court dismissed the complaint.
In the Seventh Circuit, the plaintiff relied on cases involving financing conditioned on the inclusion of insurance products or service contracts which were alleged to have violated TILA because the products and contracts were not included as part of the finance charges in the TILA disclosures. The Seventh Circuit, however, rejected the plaintiff’s analogy to that line of cases, finding that the plaintiff failed to “identify any information required by TILA that defendants failed to disclose.”
The Seventh Circuit designated the Sales decision as a “Nonprecedential Decision.” Pursuant to Federal Rule of Appellate Procedure 32.1, however, federal courts may not prohibit citation to this or other similarly designated decisions.
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.”
Third Circuit Sidesteps Strict Liaiblity Argument For “Excessive” Title Insurance Fees Under TILA
Posted in Truth in Lending ActYesterday, in In re Madera, the United States Court of Appeals for the Third Circuit rejected the appellants claim that the Truth in Lending Act (“TILA”) requires lenders to disclose title insurance fees if the amount charged is higher than the prevailing rates set forth in the Manual of Title Insurance Rating Bureau of Pennsylvania (“TIRBOP Manual”), finding that the appellants had failed to raise an issue of fact on summary judgment.