Consumer Finance Litigation

In Zevon v. Department Stores Nat'l Bank, No. 12 Civ 7799(PAC), 2013 WL 5903024 (S.D.N.Y. Nov. 4, 2013), the U.S. District Court for the Southern District of New York recently held that the increased statutory cap on class action damages under the Truth-in-Lending Act ("TILA") became effective January 21, 2013, rather than upon the Dodd-Frank's enactment. Plaintiff Marcy Zevon filed suit against Department Stores National Bank ("DSNB") alleging DSNB violated TILA and Regulation Z by failing to include the full text of Regulation Z's model billing rights notice in monthly statements sent to Macy's credit card holders. DSNB moved to dismiss or, in the alternative, strike Plaintiff's request for $1,000,000 in statutory damages. DSNB first argued that Plaintiff's complaint should be dismissed because even if DSNB did violate Regulation Z's requirements for short-form notices, plaintiff was not entitled to statutory damages for that violation because short-form notices are only mentioned in Regulation Z, and not in any of the provisions of 15 U.S.C. § 1640(a) governing damages under TILA. Although noting that "[c]ourts routinely disallow statutory damages for violations of TILA provisions that are not enumerated in Section 1640(a)," the Court rejected DSNB's argument. 2013 WL 5903024 at 3. Specifically, the Court held that "if a violated provision [of Regulation Z] was promulgated pursuant to an enumerated statute" an award of statutory damages would be appropriate. Id. Section 1637(a)(7) of TILA requires creditors to provide "[a] statement, in a form prescribed by regulations of the Bureau." Although not originally contemplated by the statute, the CFPB "had the authority to make an 'adjustment' designed to 'effectuate the purposes of TILA' and did so in providing for this alternative form." Id. Thus, the Court held that because the violated provision, 12 C.F.R. § 1026.9(a), was promulgated pursuant to 15 U.S.C. § 1637(a)(7), a provision enumerated in 15 U.S.C. § 1640(a), statutory damages were available for its violation. Id. at 4. Finding that damages were potentially available, the Court turned to the extent of those damages. As part of the Dodd-Frank Act, Congress increased the ceiling for statutory damages in class actions under TILA from $500,000 to $1,000,000. DSNB argued, however, that the increased cap should not apply because it was not effective until January 21, 2013, more than three months after Plaintiff filed her Complaint. In response, Plaintiff argued that the increased cap should be considered effective as of the day after the Dodd-Frank Act was enacted, or July 22, 2010. Finding the text of the Act ambiguous regarding the proper effective date, the Court considered the Dodd-Frank's legislative history, specifically the testimony of Senator Chris Dodd explaining that "[i]t is the intention of the conferees that provisions in title XIV that do not require regulations become effective no later than 18 months after the designated transfer to the CFPB." 2013 WL 5903024 at 5. Thus, the Court held that "the new ceiling went into effect on January 21, 2013" and did not apply retroactively. Because Plaintiff brought her Complaint before the $1,000,000 statutory cap was in place, the Court found "she is not entitled to its benefit." Id. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.