South Carolina Lawyer
Vol. 12, No. 5, Pg. 18.
The Two Faces of Truth-In Lending
18The Two Faces of Truth--In LendingBy Phillip S. Porter20To legal aid attorneys, bankruptcy debtor's attorneys and some consumer credit specialists, Truth in Lending claims are often the last chance to raise claims on behalf of debtors in over their heads. To creditors and their attorneys, the Act can signify a ticket into court, often federal court, when a debtor has run out of excuses for not paying a consumer debt, a ticket that likewise gives that debtor a shot at statutory damages and attorney's fees.
The concept of TILA is simple enough. It is primarily a disclosure statute, requiring that consumer creditors disclose salient terms of credit transactions in uniform terminology so that consumers can shop credit terms and compare apples to apples. Previously, creditors were free to disclose credit terms that often varied from creditor to creditor and transaction to transaction. TILA also provides certain substantive provisions as well, such as rescission rights for certain mortgage loans and certain restrictions on high rate mortgages under the Home Owners Equity Protection Act. This article, however, is not a primer on TILA, but it points out certain discrepancies in the approaches taken between the federal act and the South Carolina Consumer Protection Code as it incorporates the federal act.
South Carolina has a unique perspective in that TILA is for some purposes incorporated into the South Carolina Consumer Protection Code. S.C. Code Ann. §§ 37-2-301, -3-301 and -6-104 (2). Some states have no incorporation of TILA into state consumer credit statutes and thereby no dual state and federal enforcement of the Act. Others-including Maine and Oklahoma, states with versions of the Uniform Consumer Credit Code similar to South Carolina's-incorporate TILA and provide for those states to opt out of federal enforcement of the Act by proving that they enforce it no less rigorously than the federal agencies. They promulgate regulations each year to ensure that the state law incorporates any changes made from year to year in the Act. Me. Rev. Stat. Ann. tit. 9A §§ 8-101 through 8-109 (1997 and Supp. 2000); Okla. Stat. Ann. tit. 14-A §§ 2-301 through -313, 3-301 through-312 and 6-104 (1997 and Supp. 2000).
Lawyers in South Carolina casually speak in terms of TILA being incorporated into the Consumer Protection Code, but the notion that the Act is a template or mirror image placed in the South Carolina statute is less than accurate for all purposes. The primary "incorporation" is set forth in S.C. Code Ann. §§ 37-2-301 and -3-301, which are identical, and read as follows:
A person upon whom the federal Truth in Lending Act imposes duties or obligations shall make or give to the consumer the disclosures, information and notices required of him by that act and in all respects comply with that act.
Thus, clearly, there is a state mandate to make the required disclosures. Nevertheless, subsequent amendments to both statutes lead to the conclusion that the state Truth in Lending Act does not coincide with the federal Truth in Lending Act in all particulars. To understand this seeming anomaly of a state TILA, it is necessary to review a bit of the history of the TILA and the Consumer Protection Code.
TILA was passed in 1968 for reasons of uniform disclosure mentioned above and to foster competitive pressures on credit transactions as a result of uniform disclosures. 15 U.S.C.§ 1602 (1970). As with any statute featuring fee shifting provisions and statutory penalties for violations, it attracted attention of practitioners. Impoverished or overextended debtors often found defenses in incorrect disclosures. This led to a level of outrage on the part of creditors who claimed that the Act was arcane; that allegations of violations were "hyper-technical" and did not relate to actual harm to the debtor; and that the typical consumer did not heed the disclosures when shopping for credit sufficiently to justify the impositions of the Act.
Meanwhile, also in 1968, the National Conference of Commissioners on Uniform State Laws drafted the 1968 Text of the Uniform Consumer Credit Code. Prefatory Note, Uniform Consumer Credit Code, 1968 Act, [7 (Part II) U. L. A.] 476 (1997). It was adopted with TILA in mind and was designed to dovetail with and complement that Act, at least for any state that has not adopted its stand alone version of a Truth in Lending statute in order to be exempted by the Federal Reserve Board. Id. at 480, 481. With additions from the later adopted 1974 UCCC Text and additional modifications adopted by the General Assembly, South Carolina adopted the UCCC in 1974 by Act 1241 and named it the South Carolina Consumer Protection Code. H. Haynsworth and K. Smith, The South Carolina Consumer ProtectionCode with Comments (S.C. Bar C.L.E. Div., 3d ed. 1996) at 1.
The two acts evolved over the ensuing years. Creditors' complaints found receptive ears in Congress. With the enactment of the Truth in Lending Simplification and Reform Act of 1980 (TILSRA), Congress retrenched some of the features deemed most objectionable by creditors. Under the prior version, statutory penalties (measured by doubling the finance charge, but not to be less than $100 nor more than $1,000) and attorney's fees were recoverable for any violation, no matter how
21"technical" and no matter how tenuous any claim of actual harm. Section 130, TILA, (a) [15 U. S. C. § 1640 (a) (1976)1.
TILSRA made the statutory penalties available to claimants only for failure to disclose or incorrect disclosure of only the "material" or most significant and informative disclosures. 15 U.S.C. §§ 1638 (a) and 1640 (a) (1980). For example, under the previous version of TILA, the disclosure of a late charge on a closed end transaction that was one cent in excess of the actual or statutorily allowed late charge would support a claim for statutory penalties. See 15 U.S.C. §§ 1639 (a) (7) and 1640 (a) (2) (A) (i) (1976). Under TILSRA, while the late charge is still a required disclosure, the incorrect disclosure of a late charge, or even the utter failure to disclose it, does not give rise to the statutory damages. 15 U.S.C.§§ 1638 (a) (10) and 1640 (a) (1980).
Other areas in which TILSRA amended TILA to reduce potential creditor liability were assignee liability and disclosure violations necessary to enable the debtor to rescind certain real estate or home secured transactions. These will be discussed below with regard to the potential variations in substantive rights between TILA and the Consumer Protection Code.
THE CONSUMER PROTECTION CODE
To understand the differences between TILA and the Act as...