Fourth Circuit increases potential TIL liability

A recent decision from the U.S. Fourth Circuit Court of Appeals in Richmond, Va., greatly increases the potential civil liability for credit unions and other lenders under the Truth in Lending (TIL) Act.

In the case of Nigh v. Koons Buick Pontiac, the Fourth Circuit ruled that a 1995 change to TIL Section 130 by Congress changed the civil liability for consumer loans. According to the court, the previous $1,000 limit no longer applies to the consumer loan liability clause, which provides for liability of twice the amount of finance charges involved in the transaction. Therefore, the liability for consumer loans is simply double the amount of finance charges.

In the Nigh case, Koons, an automobile dealer, was held liable for more than $24,000, whereas under the pre-1995 version of the act Koons' liability wouldn't have exceeded $1,000. As a result of this decision, credit unions and other lenders in the jurisdiction of the Fourth Circuit (Maryland, North Carolina, South Carolina, Virginia, and West Virginia) face greatly increased liability.

In addition, it would seem that liability outside the Fourth Circuit (elsewhere in the U.S.) would be the same as it now is in the Fourth Circuit, because a literal interpretation of Section 130 also would lead to the conclusion that civil liability is twice the amount of finance charges.

CUNA is investigating whether to ask Congress to change the TIL language to correct what appears to be an unintended consequence.

For more information, see "Truth in Lending/ Latest Developments" under "Compliance" in CUNA's e-Guide to Federal Laws and Regulations at www.cuna.org.

By Michael McLain

Senior compliance counsel

CUNA & Affiliates

Copyright Credit Union National Association, Inc. May 2003
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