Consumer Compliance Outlook: First Quarter 2014

On the Docket: Recent Federal Court Opinions


Ninth Circuit rules that a 2009 TILA amendment requiring notice to a borrower when a residential mortgage loan is transferred does not apply retroactively. Talaie v. Wells Fargo Bank, N.A., PDF 808 F.3d 410 (9th Cir. 2015). In 2009, Congress amended the TILA to require that, when a residential mortgage loan is sold, transferred, or assigned, the creditor that is the new owner or assignee must provide notice, in writing, to the borrower within 30 days. 15 U.S.C. §1641(g). The statute allows borrowers to sue for up to $4,000 in statutory damages in individual claims and up to $1 million in statutory damages in a class-action lawsuit along with actual damages, costs, and attorney’s fees. In this class-action lawsuit, the plaintiffs alleged that U.S. Bank violated this provision by not providing notice for mortgage loans that Wells Fargo Bank transferred to U.S. Bank in 2006. The issue in the case was whether §1641(g) applied retroactively to loans transferred before the 2009 TILA amendment was enacted.

The court explained that the Supreme Court has ruled that retroactive application of statutes is “disfavored” and that this presumption can only be overcome where Congress has expressed a clear and unambiguous intent to apply a law retroactively. The court examined the text of the amendment and its legislative history and found no evidence that Congress intended for it to apply to loans whose ownership was transferred before it was enacted. The court also noted that it would have been impossible for creditors to comply with §1641(g) in connection with loans transferred more than a month before the statute was enacted, given that notice must be provided within 30 days of the transfer. Accordingly, noting that its holding was consistent with various other district court decisions interpreting §1641(g), the court affirmed the lower court’s dismissal of the case.

Eleventh Circuit holds that a loan secured by a lien on a fixture was not subject to rescission because it did not create a security interest in the borrowers’ principal dwelling. Lankhorst v. Independent Savings Plan Company, PDF 787 F.3d 1100 (11th Cir. 2015). The plaintiffs financed the purchase of a water treatment system for their primary residence based, in part, on the defendant seller’s representation of a low interest rate. After discovering that the rate was 17.99 percent, the plaintiffs filed suit, alleging that the creditor violated the TILA by not allowing for a three-business-day rescission period, required by §1635(a) of the TILA for certain principal dwelling-secured loans, and by not providing examples of minimum payments and the maximum repayment period, as required by §1637a(a)(9) of the TILA, for loans secured by a consumer’s principal dwelling. The district court granted summary judgment for the defendant on the grounds that the applicable credit agreement did not convey a security interest in the plaintiffs’ residence.

On appeal, the Eleventh Circuit affirmed, indicating that the right of rescission only applies to certain credit transactions secured by a consumer’s principal dwelling. The credit agreement here solely created a purchase money security interest in any purchases that the plaintiffs made on the account; because the financing was only used to purchase the water system, it did not create a security interest in the plaintiffs’ residence. The plaintiffs argued that the credit agreement indicated that a judgment obtained in the event of default would create a valid, enforceable lien against the plaintiffs’ residence. However, the Eleventh Circuit found that, rather than establishing that the defendant had taken a security interest in the plaintiffs’ residence, the credit agreement was clear that such a lien would be the product of a judgment after default via operation of state law and not the terms of the credit agreement: “it is not the Credit Agreement or UCC financing statement itself, but the judgment against the debtor, that gives rise to the potential lien against the home. The Florida statute converts a judgment to a lien against real property independent of this (or any) contract.” Accordingly, the Eleventh Circuit affirmed the district court’s ruling that the defendant did not take the necessary security interest in the plaintiffs’ residence to allow them to obtain the TILA protections that they sought.


Court dismisses SCRA lawsuit for a loan obtained during active duty military service. Hall v. Springleaf Financial Services, Inc. PDF --- F.Supp.3d ---- 2015 WL 7175789 (S.D. Miss. Nov. 13, 2015). The SCRA provides certain protections to servicemembers (and, in some cases, spouses, dependents, and other persons subject to the obligations of service members) on active duty military service, including a 6 percent cap on the interest rate for the duration of active duty military service that can be applied to debts incurred before that military service. 50 U.S.C. Appx. §527. The plaintiff, a captain in the Mississippi Army National Guard, entered active duty military service pursuant to a U.S. Army order beginning on October 10, 2012, and ending on October 9, 2013. On September 26, 2013, his active duty was extended to July 6, 2014, with the amended orders indicating an end date of September 30, 2013, for his original orders. On June 24, 2013, he obtained a loan from the defendant lender with an annual percentage rate of 34.37 percent. He subsequently requested that the lender reduce the rate to 6 percent pursuant to §527 of the SCRA. When the lender refused, he filed a lawsuit alleging a violation of §527. The court found that §527 solely applied to obligations or liabilities incurred before a servicemember enters active duty military service. Although the plaintiff’s original tour of duty was extended after he secured the loan, this did not change the court’s analysis because the statute indicates that a period of military service ends when a member is released from (or dies during) military duty, and the plaintiff was not released until July 6, 2014. The court found that he was not released from his active duty military service on September 30, 2013; rather, he was solely released from his original orders but remained on active duty. In other words, no ensuing new period of active duty began after the loan was extended. Accordingly, §527 did not apply. The court granted summary judgment on behalf of the lender.


Supreme Court to decide whether allegations of a willful FCRA violation in the absence of actual harm is sufficient to confer Article III standing. Robins v. Spokeo, Inc., PDF 742 F.3d 409 (9th Cir. 2014), cert. granted, 135 S. Ct. 1892 (2015). Under Article III of the Constitution, only persons suffering an actual or imminent concrete and particularized injury in fact that resulted from a defendant’s conduct, and which can likely be redressed by a favorable decision, have standing to invoke the jurisdiction of the federal courts. There is a circuit split among federal appeals courts regarding whether a plaintiff who cannot prove actual or imminent harm from a federal law violation satisfies this standing requirement when a federal law provides for statutory damages (predetermined damages that must be paid if the plaintiff establishes a violation). Certain federal consumer protection laws allow for statutory damages in addition to actual damages that may be difficult for plaintiffs to demonstrate in some cases. The plaintiff alleged that Spokeo, an information-gathering website that offers various options for finding information about people, willfully violated the FCRA by including inaccurate personal information on its website that could potentially adversely affect his employment prospects as well as his ability to obtain credit and insurance. For willful violations, the FCRA allows statutory damages of up to $1,000 per violation, 15 U.S.C. §1681n(a); the plaintiff only sought such statutory damages. The district court dismissed the lawsuit for lack of standing on the grounds that the plaintiff did not allege an injury in fact and that any injuries that he did allege were not caused by the defendant’s actions.

On appeal, the Ninth Circuit reversed the district court’s dismissal of the matter and remanded the case for further proceedings consistent with its decision. Specifically, the Ninth Circuit determined that it was not necessary for the plaintiff to prove any actual harm: “When, as here, the statutory cause of action does not require proof of actual damages, a plaintiff can suffer a violation of the statutory right without suffering actual damages.” Moreover, the court found that the plaintiff’s alleged violation of his statutory rights created by the FCRA satisfied Article III’s injury in fact requirement and that the plaintiff adequately pleaded causation and redressability. The Supreme Court agreed to hear the defendant’s appeal — and determine whether Congress may confer Article III standing upon a plaintiff who suffers no actual harm — during its current term.

Update: On May 16, 2016, as Outlook went to press, the Supreme Court issued a decision in this case, remanding it back to the Ninth Circuit for further consideration in light of the court’s opinion. Outlook will discuss the opinion in the next issue. The decision is available online. PDF