Ruling on an issue of first impression at the Circuit Court level, the Eleventh Circuit recently refused in Evanto v. Federal National Mortgage Association to impose Federal Truth in Lending Act (TILA) liability on assignees for a servicer’s alleged failure to provide a requested payoff balance to a borrower.
In the post Dodd-Frank world, a mere mention of assignee liability strikes fear in the hearts of many financial services providers—likely as a fear of the unknown reach of certain new laws. Yet certain things haven’t changed—including the fundamental precept of assignee liability. Clear directive from the courts on core TILA issues will surely calm hearts and minds. If only for a minute.
Evanto revolved around the intersection of a number of TILA provisions. The first requires a creditor or servicer of a home loan to provide a borrower a payoff balance “within a reasonable time, but in no case more than 7 business days, after the receipt of a written request for such balance from or on behalf of the borrower” (15 USC § 1639g). If a creditor or servicer fails to comply with this requirement, it can be held liable under TILA.
Second, when a creditor or servicer assigns its interest to a second party, the second party may also be liable under TILA, but the statute limits the scope of that liability. Specifically, two elements must be present to establish TILA assignee liability: (1) the violation must be “apparent on the face of the disclosure statement,” and (2) the assignment must be voluntary (these are found in the statute at 15 USC Sections 1641(e)(1)(A) and (B)).
The determinative question for TILA assignee liability in Evanto was whether failure to provide a payoff balance statement was “apparent on the face of the disclosure statement.” For the Court, the answer was a resounding “no” because: “A disclosure statement is a document provided before the extension of credit that sets out the terms of the loan. But a payoff balance can be provided only after a loan has been made and contains the amount yet to be repaid. There is no way that the failure to provide a payoff balance can appear on the face of the disclosure statement.” The Court rejected borrower’s attempt to characterize this outcome as a “loophole” that required some form of judicial solution.
Given the relatively clear language of TILA with regard to the assignee liability and the generally understood meaning of a “disclosure statement”—the Court cited, as evidence in its opinion, a CFPB TILA Bulletin—the opinion is perhaps not a huge surprise. Nevertheless, the Court’s refusal to further extend the reach of TILA represents a victory for the financial services community.