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SUPREME COURT SETTLES TILA $1,000 DAMAGE CAP ISSUE

The United States Supreme Court has resolved a conflict between the circuits as to whether the Truth in Lending Act “caps” statutory damages in individual actions at $1,000. The Court held today that previous amendments to the damages provision had not repealed the cap and that damages available under TILA were limited to $1,000.

Koons Buick Pontiac GMC, Inc. v. Nigh, is a case that began with a tortuous story of motor vehicle financing at a dealership in which three different retail installment sale contracts were signed by the buyer before an assignee could be found and ended in repossession of both the newly purchased and traded vehicles. The United States District Court for the Eastern District of Virginia granted summary judgment to Koons Buick on several claims, but preserved for trial Nigh’s TILA claim of inaccurate disclosure of a car alarm that Nigh did not request or receive. At trial, a jury awarded Nigh $24,192.80 for his TILA claim (twice the amount of the finance charge).

On appeal, Koons Buick argued that the district court erred in allowing statutory damages of twice the finance charge in connection with the transaction because Section 1640(a)(2)(A) of TILA caps statutory damages in all individual actions at $1,000. The United States Court of Appeals for the Fourth Circuit disagreed, however, pointing out that section 1640(a)(2)(A) was amended in 1995 to add subsection (iii), as follows:

[A]ny [TILA violator] is liable to such person in an amount equal to the sum of . . . (2)(A)(i) in the case of an individual action twice the amount of any finance charge in connection with the transaction, (ii) in the case of an individual action relating to a consumer lease under part E of this subchapter, 25 per centum of the total amount of monthly payments under the lease, except that the liability under this subparagraph shall not be less than $100 nor greater than $1,000, or (iii) in the case of an individual action relating to a credit transaction not under an open end credit plan that is secured by real property or a dwelling, not less than $200 or greater than $2,000[.]

15 U.S.C. § 1640(a)(2)(A) (emphasis added). The Fourth Circuit held that regardless whether Congress intended to alter the statutory cap or there was a drafting error, “[a]s a consequence of the 1995 amendment, the damages that may be awarded under subparagraph (i) are now simply ‘twice the amount of any finance charge in connection with the transaction,’” and thus the district court’s award of damages was correct. Nigh v. Koons Buick Pontiac GMC, Inc., 319 F.3d 119, 127 (4th Cir.2003).

However, the Supreme Court reversed, overturning the $24,192.80 award to Nigh. The Supreme Court agreed that “[l]ess-than-meticulous drafting of the 1995 amendment created an ambiguity,” but found that there was “scant indication” that Congress sought to remove the $1,000 cap when it amended the recoveries available for closed-end loans secured by real property. The Court stated that “[i]t would be passing strange to read the statute to cap recovery in connection with a closed-end, real-property-secured loan at an amount substantially lower than the recovery available when a violation occurs in the context of a personal-property-secured loan or an open-end, real-property-secured loan.” Koons Buick Pontiac GMC, Inc. v. Nigh, No. 03-377 (U.S. Nov. 30, 2004).

Judy Scheiderer and Deborah Freye