Consumer Finance Litigation

A recent decision from the Southern District of Florida concerning new provisions in the Truth in Lending Act ("TILA") added by Dodd-Frank has the potential to shake up the already turbulent case law concerning Section 1641(f)(2) TILA. Section 1641(f)(2) prohibits a loan servicer from failing to disclose the address and telephone number of the owner or master servicer of a mortgage to the borrower upon request. Foreclosure defense counsel has seized upon the statute as a means to gain leverage in foreclosure actions by sending requests for information to loan servicers and quickly suing for technical violations in the responses. The Southern District of Florida has been ground zero for this sort of litigation, with approximately 75 actions filed under Section 1641(f)(2) since the provision became effective. Due to the haphazard nature of TILA's amendment and reamendment, there is some question as to who if anyone, is liable under § 1640 for a technical violation of § 1641(f)(2) by a loan servicer. See Holcomb v. Fed. Home Loan Mortg. Corp., 2011 WL 5080324 (S.D. Fla. November 26, 2011) (TILA does not provide for civil liability of a loan servicer or the owner of the loan for a violation of Section 1641(f)(2)); Kievman v. Fed. Nat. Mortg. Ass'n, 2012 WL 5378036, --- F. Supp. 2d --- (S.D. Fla. 2012)(following Holcomb); but see Khan v. Bank of New York Mellon, 849 F. Supp. 2d 1377 (S.D. Fla. 2012) (original decision holds that the owner of a loan may be vicariously liable through agency principals for its servicers violation of Section 1641(f)(2)). What constitutes a violation of the act is also the subject of debate. See e.g. Kissinger v. Wells Fargo Bank, N.A., 888 F. Supp. 2d 1309 (S.D. Fla. 2012) (failure to use the precise phrase "master servicer" is not a violation where the master servicer relationship is otherwise meaningfully disclosed). The recent decision on a motion to dismiss in Guillaume v. Fed Nat. Mortg. Ass'n., 12-cv-80625 (S.D. Fla. March 11, 2013), adds an entirely new dimension to the already splintered case law in the Southern District of Florida concerning Section 1641(f)(2). In Guillaume, Judge Ryskamp notes that while Congress intended Section 1641(f)(2) to facilitate meaningful disclosure of information needed by borrowers to assert their rights under TILA, the provision has instead been used by plaintiff's lawyers to "spawn a cottage industry of lawsuit farming by sending requests for information, and without further inquiry, suing creditors and servicers for technical violations of the statute." Id. at 5. The Court notes that this strategy is "particularly effecting when the same lawyers bringing suit under TILA are also defending their clients in parallel foreclosure proceedings, as a creditor faced with such claims may opt to discontinue foreclosure and modify a loan in exchange for dismissal of the TILA action." Id. The Court notes that while Congress included a provision for statutory damages in TILA, "where such claims exceed the scope of Congress's intent, the Court may deny relief." Id. The Court finds that "the invocation of this doctrine is necessary to promote Congress's intent and safeguard TILA from manipulative practices of plaintiff's attorneys attempting to pervert its effect." Id. Specifically, the Court notes that permitting the Plaintiff's counsel to "capitalize on alleged defects in response to a request for information sent ... while foreclosure proceeding were pending between the parties is not in keeping with the spirit and purpose of TILA as a framework for meaningful disclosure and consumer protection." Id. at 6. Thus, while the majority of opinions dealing with Section 1641(f)(2) deal with the minutia of the request and response, Guillaume opens the door for Defendants to assert a bigger picture defense concerning the propriety of the request in light of certain circumstances, most notably active foreclosure litigation between the parties, and to assert that such facts put the request outside the scope intended by Congress, thus neutralizing a cause of action for any purported technical violations in the response. 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.