• Supreme Court: TILA Caps Damage Recoveries at $1,000
  • March 1, 2005 | Author: Angelo A. Stio
  • Law Firm: Pepper Hamilton LLP - Princeton Office
  • On November 30, 2004, the U.S. Supreme Court brought much-needed clarification to the civil liability damage provision in the Truth in Lending Act (TILA), holding that TILA contained a $1,000 statutory damage cap on recoveries relating to loans secured by personal property and recoveries on consumer leases.

    The Court's ruling in Koons Buick Pontiac GMC, Inc. v. Nigh, 125 S.Ct. 460 (2004) settles a split among the circuit courts of appeals over just what Congress intended when it amended the TILA civil liability damages provision in 1995. The ruling also was warmly greeted by the consumer finance industry. The American Bankers Association, for example, had warned in an amicus brief that if the Court ruled differently, its members could be on the hook for as much as $2.9 billion a year in increased damage awards on auto loans alone.

    The specific issue in Koons was whether Congress's 1995 amendments to the TILA civil liability damage provision effectively removed the $1,000 damage cap on loans secured by personal property. Before 1995, TILA provided for statutory damages equal to twice the finance charge in connection with the loan transaction, with the minimum recovery not less than $100 and the maximum not greater than $1,000. The pre-1995 TILA civil liability damage provision provided for the following damage recoveries:

    "(2)(A)(i) in the case of an individual action twice the amount of any finance charge in connection with the transaction, or (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 ...." Pub. L. 94-240, §4(2), 90 Stat. 260, codified in 15 U.S.C. §1640(a) (1976 ed.).

    In 1995, however, Congress amended TILA's civil liability damage provision by adding a new clause at the end of §1640(a)(2)(A). This new clause, clause (iii), set a $200 floor and a $2,000 ceiling on statutory damage recoveries relating to closed-end loans secured by real property or a dwelling. The post-1995 TILA statutory damage provision provided 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 that $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 Seventh Circuit, in Strange v. Monogram Credit Card Bank of Ga., 129 F. 3d 943 (1997), held that the $1,000 statutory damage cap in §1640(a)(2)(A)(i) and (ii) remained unchanged by the addition of clause (iii). In 2000, an Eastern District of Virginia court held that the 1995 TILA amendments removed the damage floor and ceiling relating to consumer loans secured by personal property (§1640(a)(2)(A)(i)) and the Fourth Circuit affirmed. The Supreme Court subsequently granted certiorari to resolve the division between the Seventh and Fourth Circuits.

    Relying on statute drafting manuals and the absence of any legislative history evidencing an intent to remove the damage caps, the Court ruled, 8-1, that the $1,000 damage cap remained in place after the 1995 TILA amendment. The Court noted that even though "less than meticulous" drafting of the 1995 civil liability damage provision amendment created an ambiguity, there is no canon against using common sense in construing laws as saying what they obviously mean. The Court noted that it would be anomalous to read TILA in a way that allows unlimited recoveries on consumer loans secured by personal property, but caps damage recoveries on much larger mortgage loans at $2,000.

    In the consumer finance industry, the Koons decision provides a welcome degree of certainty by keeping in place the statutory damage scheme that Congress established when it enacted TILA in 1968. Had the Supreme Court decided differently, banks and consumer finance companies would be exposed to uncertain damage recoveries that could be as much as double the finance charges on consumer loans.