FEDERAL AUTHORITY FOR STATE ENFORCEMENT OF FEDERAL TRUTH IN LENDING AND MORTGAGE REGULATIONS
Buried in the federal Omnibus Appropriations Act of 2009, over 400 pages in length, is a provision expressly granting to states the authority to bring civil actions on behalf of state residents to enforce the Truth in Lending Act and any mortgage loan rules adopted by the Federal Trade Commission.
The same provision, Section 626, instructs the FTC to initiate a rulemaking proceeding for mortgage loans. This provision gives the FTC open-ended rulemaking authority regarding mortgage lending.
The new law provides that state attorney generals may recover reasonable costs and attorney fees from lenders and related parties in successful actions. The law does not specify who is a related party. Does this included servicers or company officials or others?
As state officials frequently have a limited understanding of Truth in Lending, this new law will likely result in numerous actions against lenders based on inconsistent and mistaken interpretations of federal law. It also may create a body of inconsistent case law interpreting Truth in Lending.
The new provision leaves many questions unanswered, including whether state entities other than state attorneys general may bring such actions and what capacity must the state allege to maintain such an action. The statute initially provides that the state, “as parens patriae, may bring a civil action on behalf of its residents” and later refers to the attorney general of a state prevailing in a civil action in the provision on attorney fees. The new law does not address whether such actions are to be brought as class actions or individual actions or if both are permitted. The Truth in Lending Act provides for actual and statutory damages with minimum and maximum amounts for individual and class actions. The new law does not specify whether penalties awarded by the court are to be paid to the individual consumer or to the state in actions brought by the state. In short, Section 626 is a case study in inartful drafting, ambiguous language and future litigation nightmares.
Congress has been approached by industry representatives to remove this last minute granting of authority to the states. However, consumer advocates support the new power given to states and have contacted congressional leaders expressing their support of the new law. This is an example of congressional malpractice at its worst.
Please let us now if you have any questions.
- Elizabeth Anstaett and Darrell Dreher