The Ninth Circuit held, in a matter of first impression, that a trust created by an individual for tax and estate tax planning purposes does not lose all state and federal consumer disclosure protections when it seeks to finance repairs to a personal residence for the trust beneficiary, rather than for the trustee herself; instead, the loan transaction remains a “consumer credit transaction” under TILA, RESPA and California’s Rosenthal Fair Debt Collection Practices Act. Gillian, Trustee of Lou Easter Ross Revocable Trust v. Levine, — F.3d — (9th Cir. 2020), 2020 WL 1861977 (4/14/2020).

Acting in her capacity as trustee of a trust created by her dead sister, the plaintiff obtained a loan to make repairs to a personal residence occupied by her sister’s daughter. The district court held, on a motion to dismiss, that because the plaintiff borrower did not intend to live in the house, the loan was not a consumer credit transaction, which TILA defines as a loan extended to a natural person “primarily for personal, family or household purposes.” Both TILA and RESPA are inapplicable to “credit transactions involving extensions of credit primarily for business, commercial, or agricultural purposes.” The Rosenthal Act similarly applies to debt “due or owing from a natural person by reason of a consumer credit transaction,” which it defines identically to TILA.

The Ninth Circuit relied on the CFPB’s Official Staff Commentary to Regulation Z, because pursuant to its own precedent, the Commentary is “controlling unless demonstrably irrational.” The Commentary’s guidance is that credit extended for consumer purposes to certain trusts, including those created for tax or estate planning purposes, “is considered to be credit extended to a natural person rather than credit extended to an organization.” Because the trust in this case was for the benefit of the niece and the loan was sought to enable the niece to continue to live in the trust property, the loan was for “personal, family or household purposes” and qualified as a “consumer credit transaction.”

The takeaways from this case: under the Commentary to Reg Z, substance prevails over form, the disclosure statutes are to be liberally construed, and family ties bind.