Penalties for violating the Truth in Lending Act

QUESTION 
What are the penalties for violating the Truth in Lending Act? 

ANSWER 

While there are actually criminal provisions that set forth penalties for willful violations of TILA, such as a fine of up to $5000, one year in prison, or both [15 USC § 1611(3), 2006], most violations are associated with civil monetary penalties. Creditor liability is extensive in TILA and covers a wide range of potential violations, and may include any actual damage sustained by a person as a result of the creditor’s failure to comply with this statute.

Covered transactions include home equity plans, open-end transactions, closed-end transactions secured by real property or dwelling, consumer leases, HOEPA transactions, appraiser independence, and UDAAP.

The following is the range of civil monetary penalties [15 USC § 1640(a), 2006]:

• In the case of an individual action: twice the amount of any finance charge in connection with the transaction.
• In the case of an individual action relating to certain consumer leases: 25% of the total amount of monthly payments under the lease, minimum $200, and maximum $2,000.
• In the case of an individual action relating to an open-end consumer credit plan that is not secured by real property or a dwelling: twice the amount of any finance charge in connection with the transaction, minimum $500, and maximum $5,000 – which could be even higher where a violation is evinced by an established pattern or practice of such failures.
• In the case of an individual action relating to a closed-end transaction secured by real property or a dwelling: either minimum $400, and maximum $4,000, or, in the case of a class action, such amount as the court may allow, no minimum per each member of the class, and the total recovery in any class action (or series of class actions) arising out of the same failure to comply by the same creditor may not be more than the lesser of $1,000,000 or 1% of the net worth of the creditor.
• In the case of a failure to comply with many TILA requirements set forth in certain sections of Regulation Z: an amount equal to the sum of all finance charges and fees paid by the consumer, unless the creditor demonstrates that the failure to comply is not material.

Any of the foregoing, where rescission applies, in a prevailing action the costs of the action itself is included, together with a reasonable attorney’s fee (viz., determined by the court); and, in the case of a failure to comply, an amount equal to the sum of all finance charges and fees paid by the consumer, unless the creditor demonstrates that the failure to comply is not material.

In determining the amount of award in any class action, the following relevant factors, among other things, are considered by the court: the amount of any actual damages awarded, the frequency and persistence of failures of compliance by the creditor, the resources of the creditor, the number of persons adversely affected, and the extent to which the creditor’s failure of compliance was intentional.

Regarding appraiser independence, certain violations lead to civil monetary penalties of up to $10,000 per day for each day a first violation continues, and $20,000 for all subsequent violations. [Pub. L. 111-203, 7/21/10, Sub F, 1472 § 129E(k)]

With respect to UDAAP, the Federal Trade Commission sets forth rules concerning unfair or deceptive acts or practices [15 USC § 57a, Section 18, FTC Act]. Violations of UDAAP are treated through various sections of TILA. [PUB. L. 111–8, 3/11/09, Omnibus Appropriations Act, Division D, Title VI, § 626(b)(D)] Under the FTC Act, civil monetary penalty for each UDAAP violation may reach to $16,000. [15 USC § 45(m), 2006; 16 CFR §§ 1.98(d) and (e), 2010 (Title 16, Ch. I, Sub A, Part 1, Sub L § 1.98]

Civil monetary penalties for violations of HOEPA are substantial. The authority to promulgate HOEPA rules [TILA § 129(1)(2)] is the same authority pertaining to loan originator compensation and higher-priced mortgage loans. In the case of HOEPA violations, penalties are equal to the sum of all finance charges and fees paid by the consumer, permitting only for an exception where the creditor demonstrates that the compliance failure is not material. [15 USC § 1640(a), 2006]

Jonathan Foxx
President and Managing Director
Lenders Compliance Group