As a consumer, you may not have carefully scrutinized the disclosure statements that accompanied your credit card accounts. As a credit issuer, however, you ignore the details of your disclosure statements at your peril. A recent federal district court decision in Taub v. Big M Inc., No. 09 Civ 10592 (S.D.N.Y. June 23, 2010), found that the disclosures contained in a retail store credit agreement violated the Truth in Lending Act, 15 U.S.C. § 1601, et seq. (“TILA”), and its implementing regulation, 12 C.F.R. § 226 (“Regulation Z”). As a result, the court denied the defendant’s motion to dismiss the class action complaint. Notably, the Taub plaintiff and her lawyers have filed at least one other class action complaint asserting TILA violations against another credit card issuer. See Taub v. Department Stores National Bank, No. 08-cv-01596 (S.D.N.Y.).
TILA and Regulation Z’s Requirements
TILA was enacted in 1968 as Title 1 of the Consumer Credit Protection Act. As amended, TILA and Regulation Z provide consumers of credit with certain rights and require certain disclosures of those rights by credit issuers. In the case of credit or charge card accounts, the disclosures that a credit issuer must make are set forth in a model disclosure form entitled Model Form G-3(A), which can be found in appendix G to Regulation Z, 12 C.F.R. § 226. While credit card issuers are not required to use the exact model form, the disclosures must be “substantially similar to the statement found in Model Form G-3(A).” 12 C.F.R. § 226.6(b)(5)(iii).
In March 2009, plaintiff Hindy Taub opened a credit account with defendant Big M Inc., a women’s discount clothing store that does business under the name Annie Sez. In connection with that account, Big M provided Taub a document entitled “Annie Sez Retail Installment Credit Agreement,” which contained a “Billing Rights Summary.” The Billing Rights Summary described the rights afforded to Big M consumers who dispute a charge on their credit card.
Plaintiff Taub alleged that the Billing Rights Summary provided by Big M omitted at least part of two sections contained in Model Form G-3(A). The first section, entitled “Your Rights and Our Responsibilities After We Receive Your Written Notice,” informs the consumer that, among other obligations, the credit issuer must acknowledge receipt of a written billing inquiry within 30 days, and must respond to the inquiry within 90 days.
The second section, entitled “Special Rule for Credit Card Purchases,” informs the consumer that he “may have the right not to pay the remaining amount due on the property or services” for a disputed charge. The model form sets forth two limitations on this right: (1) the contested purchase must have been made in the consumer’s home state or within 100 miles of his mailing address, and (2) the purchase price must have been more than $50.
Defendant Big M’s Motion to Dismiss
In its motion to dismiss, defendant Big M asserted that it should be relieved of liability because its Billing Rights Summary extended greater rights to card holders than those contained in Model Form G-3(A) and, therefore, placed greater burdens on Big M than required by federal law.
Big M responded to the allegation that it had not disclosed the legal time periods for it to respond to a written billing inquiry by asserting that, unlike the model form, its Billing Rights Summary did not require that a billing inquiry be in writing, thereby broadening the rights of consumers. With respect to plaintiff’s allegation that it had omitted the section from the model form entitled “Special Rule for Credit Card Purchases,” Big M pointed to corresponding language in its Billing Rights Summary that had the same title and very similar language. The difference was that Big M’s disclosure excluded the limitations contained in the model form, that is, that the purchase must have been made (1) within 100 miles of, or in the same state as, the consumer’s mailing address, and (2) have a price of more than $50. Big M argued that, because it did not include these limitations in the Billing Rights Summary, the rights it granted its card holders were in fact broader than those granted by Model Form G-3(A).
The Court’s Opinion
The court rejected Big M’s arguments on both factual and legal grounds. As a factual matter, it found no evidence that the defendant had actually extended to its card holders more generous terms than those set forth in the model form. The court noted that the form of installment credit agreement that Big M submitted with its motion was silent on the subject of billing errors and disputes, other than the challenged disclosures contained at the bottom. The court implicitly rejected Big M’s argument that the absence in the Billing Rights Summary of certain express limitations on the rights of its card holders was evidence that those limitations were not applied in practice.
More importantly, the court rejected as a matter of law any link between the terms of a credit agreement and the disclosures required by TILA, reasoning that the terms of the credit agreement were irrelevant to rights available under the law. “The disclosures mandated by [TILA and Regulation Z] pertain to a consumer’s rights and obligations under TILA, and are thus necessary regardless of the consumer’s rights and obligations under her agreement with the creditor . . . [they] are independent of any additional rights the consumer may have pursuant to her agreement with the creditor.”
Taub’s strict interpretation of the requirement that consumer credit disclosures be “substantially similar” to those in Model G-3(A) sounds a cautionary note to credit issuers. Regardless of the actual terms of the credit agreement, disclosures that vary substantively from the model form render credit issuers vulnerable to class action suits. Perhaps it is time to revisit that disclosure statement.