CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2000 No.25 December 2, 2004

Vol 2004 No.25 December 2, 2004

Supreme Court Clarifies TILA Statutory Damage Limit

The United States Supreme Court, in Koons Buick Pontiac GMC, Inc. v. Nigh, has resolved conflicting federal circuit court interpretations of 15 U.S.C. §1640(a)(2)(A) of the Truth in Lending Act (TILA), which sets forth the maximum damages available for violations in a non-real estate consumer finance transaction. The Court held that the statutory damage limit is twice the amount of the finance charge, but not greater than $1,000.

The Facts. In this case, Bradley Nigh attempted to purchase a vehicle from a Buick dealer through a retail installment sales contract. The dealer could not find a lender to purchase an assignment of the payments owed under the contract and consequently restructured the deal to require a larger down payment. Nigh signed a new retail installment sales contract and, once again, the dealer was unable to find a willing lender. Nigh ultimately signed, under protest, a third retail installment sales contract.

Nigh later discovered that a reason financing could not be secured was because the second contract included an improperly documented charge of $965 for a car alarm that he had not requested, agreed to accept, or received. He returned the vehicle and then sued the dealer for, among other things, a TILA violation.

The Law. When first enacted in 1968, TILA authorized statutory damages for any violation in connection with a "consumer credit transaction" of twice the amount of the finance charge, "except that liability under this paragraph shall not be less than $100 nor greater than $1,000." That $100/$1,000 bracket has existed through amendments to TILA made in 1974, 1976, and 1995. After the 1995 amendment, 15 U.S.C. §1640(a)(2)(A) reads as follows:

"(2)(A)(i) in the case of an individual action twice the amount of any finance charge in connection with the transaction, (ii) in the case of an individual action relating to a consumer lease ... 25 per centum of the total amount of monthly payments under the lease, except that the liability under this subparagraph shall not be less than $100 nor greater than $1,000, or (iii) in the case of an individual action relating to a credit transaction not under an open end credit plan that is secured by real property or a dwelling, not less than $200 or greater than $2,000 . . .."

The Resolution. The dispute centers on poor Congressional drafting during the 1995 amendment that resulted in the $100/$1000 bracket appearing in clause (ii) in a manner that suggests the limits apply only to consumer lease transactions. Prior to the 1995 amendment, federal courts had consistently held that the bracket applied to all consumer financing transactions, whether lease or loan.

Both the federal District Court in the case and the Fourth Circuit Court of Appeals held that the 1995 amendment removed the $1,000 cap on recoveries involving loans secured by personal property. Therefore, Nigh recovered $24,192.80, which is twice the amount of finance charges under the transaction, but over the cap of $1000. This result conflicts with the 1997 Seventh Circuit case of Strange v. Monogram Credit Card Bank of Ga., 129 F. 3d 943, which held that the limit still applies to non-real estate consumer finance transactions.

Resolving the different results in the circuit courts, the Supreme Court noted that there was scant evidence that Congress, despite its poor drafting, intended with the 1995 amendments to scale back the application of the original limit, except with respect to transactions covered in clause (iii) relating to closed-end loans secured by real property or a dwelling. Use of the term "subparagraph" in (ii) refers to the entirety of §1640(a)(2)(A), consistent with both House and Senate statutory drafting conventions, and not only to clause (ii). The Court held that the 1995 amendment left unaltered the original limit for TILA violations involving personal property loans.

The case was closely watched by both consumer groups and lenders because of the potential for heightened liability resulting from disclosure errors. The case may be viewed at http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=000&invol=03-377

The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice. Please consult with your counsel for more detailed information applicable to your institution.