The U.S. Court of Appeals for the Second Circuit recently rejected an interpretation of Spokeo that would preclude all violations of statutorily mandated procedures from qualifying as concrete injuries supporting standing.

In so ruling, the Court held that some violations of statutorily mandated procedures might entail the concrete injury necessary for standing where Congress conferred the procedural right to protect a plaintiff’s concrete interests, and where the procedural violation presents a material “risk of real harm” to that underlying concrete interest.

A copy of the opinion in Strubel v. Comenity Bank is available at: Link to Opinion.

As you may recall, TILA requires that credit card issuers provide credit card holders with a disclosure of the protection provided to an obligor and the creditor’s responsibilities relating to billing errors and unsatisfactory purchases. See 15 U.S.C. § 1637(a)(7).

Regulation Z states that a creditor must provide a consumer to whom it issues a credit card with a statement that described the consumer’s rights and the creditor’s responsibilities under §§ 1026.12(c) and 1026.13 and that is substantially similar to the statement found in Model Form G–3(A).

The “substantially similar” requirement strives to implement statutory § 1637(a)(7)’s mandate for a creditor statement “in a form prescribed” by Bureau regulations consistently with statutory § 1604(b)’s admonition that “nothing in this subchapter may be construed to require a creditor to use any such model form.” See 12 C.F.R. § 1026.6(b)(5)(iii).

The formal staff interpretation states that “creditors may make certain changes in the format or content of the forms and clauses and may delete any disclosures that are inapplicable to a transaction or a plan without losing the Act’s protection from liability,” provided the changes are not “so extensive as to affect the substance, clarity, or meaningful sequence of the forms and clauses.” 12 C.F.R. pt. 1026, supp. I, pt. 5, apps. G & H(1). Formatting changes, however, “may not be made” to Model Form G–3(A). Id.

The credit card obligor initiated a putative class action against the bank that issued her a credit card, seeking statutory damages under the TILA, alleging that the bank failed to clearly disclose that:

(1) cardholders wishing to stop payment on an automatic payment plan had to satisfy certain obligations;

(2) the bank was statutorily obliged not only to acknowledge billing error claims within 30 days of receipt but also to advise of any corrections made during that time;

(3) certain identified rights pertained only to disputed credit card purchases for which full payment had not yet been made, and did not apply to cash advances or checks that accessed credit card accounts; and

(4) consumers dissatisfied with a credit card purchase had to contact the bank in writing or electronically.

After the trial court awarded summary judgment in favor of the bank, the obligor appealed, arguing that the trial court erred in concluding that she failed, as a matter of law, to demonstrate that four billing-rights disclosures made to her by the bank in connection with the obligor’s opening of a credit card account violated the TILA.

The bank argued for the first time on appeal that the obligor could not maintain her TILA claims because she lacked constitutional standing. Although the bank challenged the obligor’s standing for the first time on appeal, because standing is necessary to the Second Circuit’s jurisdiction, it was obliged to decide the question of standing at the outset.

The Second Circuit rejected the bank’s argument, and concluded that the obligor satisfied the legal-interest requirement of injury in fact as to two of her claims.

In reaching its conclusion, the Second Circuit noted that to satisfy the “irreducible constitutional minimum” of Article III standing, a plaintiff must demonstrate (1) “injury in fact,” (2) a “causal connection” between that injury and the complained-of conduct, and (3) a likelihood “that the injury will be redressed by a favorable decision.”

The Second Circuit also relied on the recent Supreme Court of the United States’ ruling in Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1548, 194 L. Ed. 2d 635 (2016), which clarified that injury to a legal interest must be “concrete” as well as “particularized” to satisfy the injury-in-fact element of standing.

As you may recall, in Spokeo, the Supreme Court stated that a plaintiff cannot allege a bare statutory procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement for standing. To be “concrete,” an injury “must actually exist,” that is, it must be “real, and not abstract.” See Spokeo, Inc. v. Robins, 136 S. Ct. at 1549. However, although tangible harms are most easily recognized as concrete injuries, the Supreme Court acknowledged that some intangible harms can also qualify as such. See id. at 1549.

The Second Circuit observed that by enacting 15 U.S.C. § 1637(a)(7), Congress statutorily conferred legal interests on consumers by obligating creditors to make specified disclosures, nevertheless, the obligor only had standing to sue if she could allege concrete and particularized injury to those interests.

The bank argued that the obligor necessarily lacked standing because her TILA notice claims alleged only “a bare procedural violation,” with no showing of ensuing adverse consequences.

The Second Circuit disagreed, explaining that it did not interpret Spokeo to preclude violations of statutorily mandated procedures from qualifying as concrete injuries supporting standing, concluding that some violations of statutorily mandated procedures might entail the concrete injury necessary for standing where Congress conferred the procedural right to protect a plaintiff’s concrete interests and where the procedural violation presents a material “risk of real harm” to that concrete interest. See Spokeo, at 1549.

The Court explained that, to determine whether a procedural violation manifests injury in fact, a court must consider whether Congress conferred the procedural right in order to protect an individual’s concrete interests. Only a “person who has been accorded a procedural right to protect his concrete interests can assert that right without meeting all the normal standards for redressability and immediacy.” See Lujan, 504 U.S. at 572 n.7.

On the other hand, the Second Circuit held, where Congress has accorded procedural rights to protect a concrete interest, a plaintiff may still fail to demonstrate concrete injury where violation of the procedure at issue presents no material risk of harm to that underlying interest. Id.

Applying these principles, the Second Circuit concluded that two of the obligor’s disclosure challenges demonstrated concrete and particularized injury: those pertaining to required notice that (1) certain identified consumer rights pertain only to disputed credit card purchases not yet paid in full, and (2) a consumer dissatisfied with a credit card purchase must contact the creditor in writing or electronically.

The Second Circuit explained that the disclosure requirements serve to protect a consumer’s concrete interest in avoiding the uninformed use of credit, by requiring a creditor to notify a consumer, when he opens a credit account, of how the consumer’s own actions can affect his rights with respect to credit transactions.

According to the Court, a consumer who is not given notice of his obligations is likely not to satisfy them and, thereby, unwittingly to lose the very credit rights that the law affords him. For that reason, the Second Circuit held that a creditor’s alleged violation of each notice requirement, by itself, gives rise to a “risk of real harm” to the consumer’s concrete interest in the informed use of credit. See Spokeo, Inc. v. Robins, 136 S. Ct. at 1549.

Because she alleged such procedural violations, the Court held that the obligor was not required to allege any additional harm to demonstrate the concrete injury necessary for standing. As to these two claims, the Second Circuit explained that the obligor sued to vindicate interests particular to her — specifically, access to disclosures of her own obligations –as a person to whom credit is being extended, preliminary to making use of that credit consistent with TILA rights.

The Court held that the failure to provide such required disclosure of consumer obligations thus affected the obligor in a personal and individual way, and her suit was not a vehicle for the vindication of the value interests of concerned bystanders or the public at large.

The bank argued that the obligor’s injury was not particularized because it was not distinct from that sustained by other members of the putative class.

The Second Circuit rejected the bank’s argument because particularity requires that one sustain a grievance distinct from the body politic, not a grievance unique from that of any identifiable group of persons. The Court noted that the bank’s urged interpretation of particularized injury would render class actions inherently incompatible with Article III.

Because the obligor had sufficiently alleged that she was at a risk of concrete and particularized harm from these two challenged disclosures, the Second Circuit rejected the bank’s standing challenge to these two TILA claims.

The Court then turned its attention to the obligor’s notice pertaining to billing-error claims under automatic payment plans.

The obligor asserted that the bank violated statutory § 1637(a)(7) by failing to disclose a consumer’s obligation to provide a creditor with timely notice to stop automatic payment of a disputed charge.

The Second Circuit disagreed, noting that the obligor could not show that the bank’s failure to provide such notice to her risked concrete injury because it was undisputed that the bank did not offer an automatic payment plan at the time the obligor held the credit card at issue.

Additionally, the Court held that the obligor did not introduce any evidence that she agreed to an automatic payment plan. Thus, again relying on Spokeo, the Second Circuit held that she could not establish that the bank’s failure to make this disclosure created a “material risk of harm” — or, indeed, any risk of harm at all — to her interest in avoiding the uninformed use of credit.

The obligor argued that the bank’s assertion that it did not offer an automatic payment at the relevant time was (1) an affirmative defense not raised in its answer, (2) unsupported by facts proffered by the bank, and (3) not dispositive of the obligor’s challenge because the bank did not state that it lacked the ability to debit automatically.

The Second Circuit rejected these arguments because the obligor did not dispute the bank’s assertion that it did not offer an automatic payment plan on the credit card that the obligor held, and the obligor failed otherwise to carry her burden to proffer evidence sufficient to manifest concrete injury. Citing Lujan, the Court noted that the party invoking federal jurisdiction bears the burden of establishing elements of standing. Thus, the Second Circuit concluded that the obligor’s automatic-payment-plan-notice TILA claim was properly dismissed.

The obligor had also sued the bank for failing clearly to advise her of its obligation not only to acknowledge a reported billing error within 30 days of the consumer’s communication, but also to tell her, at the same time, if the error has already been corrected.

For purposes of determining the obligor’s standing, the Court assumed that the bank’s notice failed clearly to report its response obligation in circumstances where it had corrected a noticed billing error within 30 days of receiving consumer notification, but nevertheless concluded that such a bare procedural violation did not create the material risk of harm necessary to demonstrate concrete injury.

The Second Circuit concluded that the bare procedural violation alleged by the obligor presented an insufficient risk of harm to satisfy the concrete injury requirement of standing, particularly where, as here, a plaintiff fails to show either (1) that the creditor’s challenged notice caused her to alter her credit behavior from what it would have been upon proper notice, or (2) that, upon reported billing error, the creditor failed to honor its statutory response obligations to consumers.

The Court explained that the creditor-response obligations that are the subject of the required notice arise only if a consumer reports a billing error, and the obligor never had reason to report any billing error in her credit card statements. Thus, the Second Circuit held she did not — and could not — claim concrete injury because the challenged notice denied her information that she actually needed to deal with the bank regarding a billing error.

Additionally, the Court observed that it was not apparent that the challenged disclosure would have an effect on consumers generally, in contrast to the procedural violations where defective notices about a consumer’s own obligations could raise a sufficient degree of real risk that the unaware consumer would not meet those obligations, with ensuing harm to, if not loss of, rights under credit agreements.

The Second Circuit took care to note that its conclusion that the obligor lacked standing to sue for this particular bare procedural violation did not mean that creditors can ignore Congress’s mandate to provide consumers the requisite notices — including the correction notice creditors will have to provide in their 30-day responses to reported billing errors, observing that a consumer who sustains actual harm from a defective notice can still sue under § 1640 for damages and that the CFPB may initiate its own enforcement proceedings. See 12 U.S.C. §§ 5481(14), 5562.

Accordingly, the Second Circuit held that this disclosure challenge was also properly dismissed for lack of jurisdiction.

To pursue the disclosure challenges for which the Court identified standing, the obligor had to show that, contrary to the district court’s ruling, she introduced sufficient evidence to preclude summary judgment in favor of the bank.

The bank argued that, to the extent the obligor’s disclosure challenges relied on notice requirements established by Regulation Z and Model Form G–3(A), 15 U.S.C. § 1640 did not afford her any statutory action.

The Second Circuit disagreed, noting that § 1640(a) provides an action for statutory damages for failing to comply with the requirements of certain specified statutory provisions, including § 1637(a)(7), which requires a creditor to disclose in a form prescribed by regulations of the Bureau of the protections provided to a consumer and the responsibilities imposed on a creditor by §§ 1666 and 1666i, 15 U.S.C. § 1637(a)(7).

The bank nevertheless argued that district courts in the Second Circuit have held that statutory damages are not available for violations of Regulation Z alone, and the notion that statutory damages can be imposed on the theory that Regulation Z “implements” TILA, where TILA itself has not been violated, has been rejected by courts in the Second Circuit.

The Second Circuit found the bank’s cited cases to be factually distinguishable because they rejected statutory damages claims for violations of parts of Regulation Z that did not implement one of the statutory provisions of the TILA enumerated in § 1640(a). By contrast, the Court held, the obligor here sought statutory damages for the bank’s failure to properly disclose the protections of §§ 1666 and 1666i, the TILA provisions expressly enumerated in § 1637(a)(7), which in turn is expressly enforceable through statutory damages under § 1640(a).

The Court observed that neither the TILA nor case precedent supported the bank’s efforts to segregate a statute from its implementing regulations. See 15 U.S.C. § 1602(z). Instead, the Second Circuit held that the law treats a statute and its implementing regulations as one. See Global Crossing Telecomms., Inc. v. Metrophones Telecomms., Inc., 550 U.S. 45, 54, 127 S. Ct. 1513, 167 L. Ed. 2d 422 (2007) (“Insofar as the statute’s language is concerned, to violate a regulation that lawfully implements the statute’s requirements is to violate the statute.”).

The Court emphasized that such segregation would be particularly unwarranted — likely, in the Court’s view, impossible — here because § 1637(a)(7) does not simply require a creditor to disclose the protection and responsibilities specified in §§ 1666 and 1666i. The Second Circuit noted that, by its terms, the statute requires a creditor to make such disclosure in a form prescribed by regulations of the Bureau, and the plain language of § 1637(a)(7) indicates that the disclosure requirement imposed therein can only be understood by reference to the form prescribed by regulations. See 15 U.S.C. § 1637(a)(7).

Thus, the Second Circuit held that because Congress mandated that § 1637(a)(7) disclosures be in a form prescribed by regulations, the obligor could sue for statutory damages under § 1640(a) for a violation of § 1637(a)(7) that relies on Model Form G–3(A), as prescribed by Regulation Z.

Having concluded that the obligor had standing to assert her disclosure claims, the Court then considered the obligor’s argument that the district court erred in concluding that her disclosure challenges failed as a matter of law.

The obligor contended that the bank violated § 1637(a)(7) by departing from the Model Form in notifying her that § 1666i(a) affords claims and defenses only with respect to unsatisfactory purchases made with credit cards — not purchases made with cash advances or checks acquired by credit card — and that § 1666i(b) limits protection to amounts still due on the purchase.

The obligor specifically faulted the bank for omitting from its notice the Model Form’s second and third numbered paragraphs, which reiterate limitations to credit card transactions and amounts outstanding.

The Second Circuit rejected the obligor’s argument, agreeing with the trial court that the billing-rights notice was “substantially similar” to Model Form G–3(A) and, thus, failed as a matter of law to demonstrate a violation of § 1637(a)(7).

The Court noted that the model forms were promulgated pursuant to 15 U.S.C. § 1604(b), which specifically states that “nothing in this subchapter may be construed to require a creditor to use any such model form.” See 15 U.S.C. § 1604(b).

Additionally, the Court explained that 15 U.S.C. § 1604(b) creates a “safe harbor” from liability, because it states that a creditor “shall be deemed to be in compliance with the disclosure provisions of this subchapter with respect to other than numerical disclosures” if the creditor (1) uses the appropriate model form, or (2) uses the model form, changing it (A) to delete information not required by the applicable law, or (B) to re-arrange the format if, by doing so, the creditor “does not affect the substance, clarity, or meaningful sequence of the disclosure.” See 15 U.S.C. § 1604(b).

The Second Circuit further explained that when Regulation Z implemented § 1637(a)(7)’s mandate consistent with § 1604(b), it provided a model form — Model Form G–3(A) — and acknowledged that a creditor can satisfy its statutory obligation by providing a consumer with a statement of billing rights that is “substantially similar” to that model form: creditors may make certain changes to model forms “without losing the Act’s protection from liability,” citing, as examples, the deletion of inapplicable disclosures or the rearrangement of the sequences of disclosures. See 12 C.F.R. § 1026.6(b)(5)(iii); 12 C.F.R. pt. 1026, supp. I, pt. 5, apps. G & H, G(3)(i).

The obligor urged the Court to construe these examples as defining the outer perimeter of a statement qualifying as “substantially similar” to Model Form G-3(A). To the extent the bank’s statement included further changes from the model form, the obligor argued that the Court could not conclude that her challenge failed as a matter of law.

The Second Circuit again disagreed, noting that the two cited examples were not the only permissible changes identified in the staff interpretation. See id. at apps. G & H(1).

The Court explained that Regulation Z, like TILA itself, recognizes that statements seeking to comply with § 1637(a)(7) can fall into three categories: (1) those that “shall be deemed to be in compliance” because they use the model form or depart from that form only in specifically approved ways, (2) those that can be in compliance if “substantially similar” to the model form, and (3) those that cannot be deemed compliant because they deviate substantively from the model form.

The Second Circuit held that the bank’s disclosure statement did not fall within the first category because a safe harbor is available only for the deletion of disclosures that are inapplicable to the transaction at issue, not for the deletion of disclosures that are applicable but possibly redundant.

Thus, the Court considered whether, as the district court had concluded, the challenged disclosure could be deemed “substantially similar” as a matter of law. The Court noted that TILA “does not require perfect disclosure, but only disclosure which clearly reveals to consumers the cost of credit.”

The Second Circuit concluded that the obligor’s challenge to the bank’s disclosure of “purchase” and “outstanding balance” limitations on consumer rights to dispute unsatisfactory credit card purchases failed as a matter of law because the disclosure was substantially similar to the relevant part of Model Form G–3(A).

The obligor argued that the bank violated § 1637(a)(7) by failing to advise her that a consumer must report an unsatisfactory purchase to a creditor in writing.

The Second Circuit rejected the obligor’s argument because, while § 1637(a)(7) requires a creditor to disclose the protections and obligations of 15 U.S.C. § 1666i — which pertain to unsatisfactory credit card purchases — “in a form prescribed by regulations of the Bureau,” nothing in § 1666i conditions the protections on a consumer giving written notice.

The obligor argued that Model Form G–3(A), which requires a creditor to advise the consumer to contact the creditor in writing or electronically” if dissatisfied with the purchase provided such a limitation. See 12 C.F.R. pt. 1026, app. G–3(A).

The Court, without deciding whether Model Form G–3(A) could impose a written notice limitation on § 1666i protections, held that because the model form language is explicitly optional, the bank could not be found to have violated statutory § 1637(a)(7) by failing to include such language in its own disclosure.

Accordingly, the Second Circuit held that summary judgment was correctly entered in favor of the bank on the obligor’s written-notice challenge.

Although the Court recognized the obligor’s standing to sue the bank for alleged violation of § 1637(a)(7) in giving inadequate notice of (1) limitations on rights pertaining to credit card purchases, and (2) a writing requirement to challenge unsatisfactory purchases, the Second Circuit concluded that these disclosure challenges failed on the merits and, accordingly, affirmed the award of summary judgment to the bank on these challenges.

To summarize, the Second Circuit concluded as follows:

  1. Because alleged defects in the bank’s notice of consumer rights with respect to (a) limitations on rights in the event of unsatisfactory credit card purchases, and (b) requirement of written notice of unsatisfactory purchases could cause consumers unwittingly not to satisfy their own obligations and thereby to lose their rights, the alleged defects raised a sufficient degree of the risk of real harm necessary to concrete injury and Article III standing.
  1. Because the obligor failed to demonstrate sufficient risk of harm to a concrete TILA interest from the bank’s alleged failure to give notice about (a) time limitations applicable to automatic payment plans and (b) the obligation to acknowledge a reported billing error within 30 days if the error had already been corrected, she lacked standing to pursue these bare procedural violations and, thus, the Court dismissed these TILA claims for lack of jurisdiction.
  1. The bank’s notice that certain TILA protections applied only to unsatisfactory credit card purchases that were not paid in full is substantially similar to Model Form G–3(A) and, therefore, cannot as a matter of law demonstrate a violation of 15 U.S.C. § 1637(a)(7).
  1. Because neither the TILA nor its implementing regulations require unsatisfactory purchases to be reported in writing, the bank’s alleged failure to disclose such a requirement could not support a § 1637(a)(7) claim.

Accordingly, the Court dismissed the obligor’s appeal and affirmed the award of summary judgment. It also affirmed the termination of the motion for class certification as moot.