Consumer Compliance Outlook: First Issue 2020

On the Docket: Recent Federal Court Opinions


The Third Circuit holds that an extension of consumer credit was not subject to the TILA because the plaintiff had not signed a written agreement.

Wolfington v. Reconstructive Orthopaedic Assocs. II PC PDF External Link, 935 F.3d 187 (3rd Cir. 2019). The plaintiff agreed to undergo surgery by the Rothman Institute, for which his insurance had a $2,000 deductible. Prior to the surgery, the plaintiff’s father notified Rothman that he could not afford to pay the deductible. The parties orally agreed that the plaintiff could pay $200 initially and the balance in monthly installments. Rothman later sent the plaintiff two emails confirming this agreement. After the surgery, the plaintiff failed to make the monthly payments and filed a class- action lawsuit against Rothman alleging it extended consumer credit without providing TILA disclosures. The district court dismissed the lawsuit, holding that Rothman was not a creditor subject to Regulation Z’s requirements because a written agreement had not been executed.

On appeal, the Third Circuit affirmed the District Court’s judgment on the TILA claim. The court noted that the regulation defines a creditor as a “person who regularly extends consumer credit that is subject to a finance charge or is payable by written agreement in more than four installments. …” 12 C.F.R. §1026.2(a)(17) (emphasis added). The court found that, while the oral agreement to defer payment of the deductible in monthly installments constituted an extension of credit, the plaintiff failed to establish that it was done under a written agreement. In particular, the court cited a Federal Reserve Official Staff Interpretation, which interpreted the definition of creditor to require a written agreement “executed by the customer.” The unilateral email communications from Rothman to the plaintiff confirming the oral agreement were deemed insufficient because the plaintiff had not signed them. The plaintiff tried to dispute whether the court was required to defer to an agency interpretation of a statute it is charged with implementing. But the court found the staff interpretation was entitled to deference because it satisfied the requirements for a court to defer to an agency interpretation of its own regulations under Supreme Court precedent.

The Ninth Circuit holds that a mortgage loan to reacquire a previously owned residential property is a “residential mortgage transaction” not subject to the right of rescission.

Barnes v. Chase Home Finance, LLC. PDF External Link, 934 F.3d 901 (9th Cir. 2019). Under TILA, creditors must provide borrowers a notice of the right of rescission for credit transactions creating a security interest in the borrower’s principal dwelling. The TILA creates an exception, however, for a “residential mortgage transaction,” which is defined as a loan “to finance the acquisition or initial construction of [a consumer’s] dwelling” that is secured by that dwelling: 15 U.S.C. §1602(x); 12 C.F.R. §1026.2(a)(24). This appeal of the lower court’s decision, which granted summary judgment in favor of the defendant, involved the narrow issue of whether a mortgage loan to reacquire a property the borrower previously owned constitutes a residential mortgage transaction that is not subject to rescission.

In 1990, the plaintiff and his wife financed the purchase of their residence. The wife subsequently transferred her interest in the property to the plaintiff, and he later transferred the entire interest back to her. The couple later divorced, and the residence was awarded to the plaintiff. However, the divorce judgment required him to refinance the indebtedness on the property his wife incurred when she owned it and to pay her $100,000. The plaintiff obtained a mortgage loan from Chase for $378,250 to satisfy his wife’s loan and pay her the $100,000 as required by the divorce judgment. He later sued Chase to rescind the loan because he was not provided with a notice of the right of rescission under the TILA. The district court held that a loan to reacquire a dwelling met the definition of a residential mortgage transaction and, therefore, is not entitled to the right of rescission under the TILA and dismissed the lawsuit.

On appeal, the Ninth Circuit agreed that the statutory language in the TILA is unambiguous and that the definition of a “residential mortgage transaction”’ includes both a loan to finance and acquire a dwelling and a loan to finance and reacquire a dwelling where the prior interest was fully extinguished. The Ninth Circuit Court of Appeals therefore affirmed the district court’s summary judgment in favor of the defendant.


The Eleventh Circuit rules a financial institution potentially violated Regulation E by failing to disclose in its overdraft opt-in notice that it uses the available balance method to calculate overdraft fees.

Tims v. LGE Community Credit Union PDF External Link, 935 F.3d 1228 (11th Cir. 2019). The plaintiff opened an account with LGE Community Credit Union (LGE) and was provided with a verbatim copy of Regulation E’s model consent form (A-9) for overdraft fees. After LGE later assessed the plaintiff fees for overdrawing her account, she filed a class-action lawsuit alleging, in part, the opt-in notice did not describe LGE’s overdraft service in a “clear and readily understandable way,” as the regulation requires, because the use of the available balance method was not disclosed. This method takes into account pending transactions when determining if an account is overdrawn. The LGE notice, which used the exact language of the model form, said an overdraft occurs when there is not “enough money in your account.” The plaintiff said this language described the ledger balance method of calculating the balance, which would not have overdrawn her account had it been used. The district court granted LGE’s motion to dismiss after determining the agreements unambiguously permitted LGE to assess overdraft fees using the available balance calculation method.

On appeal, the Eleventh Circuit reversed, finding that it was ambiguous whether the model form described the available balance or ledger balance method. The court therefore found the plaintiff had a plausible claim that LGE did not describe the overdraft service in a “clear and readily understandable way.” The court also found a potential violation for not providing the plaintiff a reasonable opportunity to affirmatively consent to the overdraft services, as the regulation requires “because the notice gave her no way to know whether LGE would use the available balance or the ledger balance method to charge her overdraft fees.”

Finally, the court rejected LGE’s argument that its use of the model form protected it from liability. “The safe-harbor provision insulates financial institutions from EFTA claims based on the means by which the institution has communicated its overdraft policy. But it does not shield them for claims based on their failure to make adequate disclosures. A financial institution thus strays beyond the safe harbor when communications within its overdraft disclosure inadequately inform the consumer of the overdraft policy that the institution actually follows.” The case was remanded to the district court.


The Sixth Circuit rejects a lawsuit against a servicer in which the plaintiff was listed only on the mortgage, and not the note, because only persons personally obligated under a loan agreement have a standing under RESPA to sue.

Keen v. Helson PDF External Link, 930 F.3d 799 (6th Cir. 2019). The plaintiff and her now-deceased husband financed the purchase of a home with a loan on which only he was liable, while they were both listed on the mortgage securing the loan. When the couple divorced, the plaintiff received full title to the house. After she defaulted on the mortgage payments, the servicer foreclosed and sold the property. The plaintiff’s lawsuit alleged the servicer violated the RESPA by failing to provide her with options to avoid foreclosure when she requested them. The district court dismissed the case after concluding that only “borrowers” can sue under RESPA, and she did not sign the loan instrument.

On appeal, the Sixth Circuit affirmed, holding that RESPA only provides a cause of action to “someone who is personally obligated on a loan—i.e., someone who is actually borrowing money.” The plaintiff was not a borrower under this definition so the court affirmed the dismissal of the lawsuit. To support her position, the plaintiff pointed to, among other sources, the Bureau’s RESPA regulations, which define a “borrower” to include a “successor in interest”; namely, a “person to whom an ownership interest in a property securing a mortgage loan … is transferred from a borrower.” 12 C.F.R. §§1024.30 and .31. The court gave no weight to the Bureau regulations in this regard, however, in part because the “successor in interest” provisions went into effect after the events giving rise to the case.