QUESTION
We maintain good disclosure procedures, but sometimes we
have a violation of TILA. The mistake is not intentional. It is systemic.
Still, what do we say to a regulator when faced with a violation that was not
in our control?
ANSWER
If a creditor (or assignee) can show by a preponderance of
evidence that the violation was unintentional and resulted from a bona fide error notwithstanding the
maintenance of procedures reasonably adapted to avoid such errors, the creditor
(or assignee) will not be held liable in a civil action for the violation.
Some examples of bona
fide errors include, but are not limited to, clerical, calculation,
computer malfunction and programming, and printing. However, an error of legal
judgment with respect to a person’s obligations under TILA is not a bona fide error. [15 USC § 1640(c)]
Regulators have a view of errors that the ancient Stoics
would appreciate. Epictetus, the great Stoic philosopher, said:
There are things which are within
our power,
and there are things which are
beyond our power.
(The Enchiridion,
by Epictetus.)
Generally, when it comes to the regulators’ perspective, ‘things
which are within our power’ are subject to higher liability and administrative
action with respect to statutory penalties and remedies than ‘things which are
beyond our power.’
Systemic errors may be controversial, given the complexity
of system maintenance over a long period of time. Depending on the type of
violation caused by this kind of TILA error, it is a good idea to notify the
supervising regulator of the event or document the corrective action. Both
responses would likely be viewed as acting in good faith.
Jonathan Foxx
President & Managing Director
Lenders Compliance Group
