TILA RESCISSION: Who Pays the Money?

The menu of items that are due to the borrower as a condition precedent to making a claim for repayment is expansive and frankly in many cases is equivalent or nearly equivalent to the total amount of the principal claimed as loan repayment. 

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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While everyone is resisting the idea of enforcing rescission, some are asking the right questions. Here is the answer.

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The rescission is effective on the date of mailing. The lender must comply within 20 days from date of notification. Compliance means (1) return of cancelled note (2) release of the encumbrance on record in tech county records and (3) return of all money paid by the borrower, directly or indirectly with certain minor exceptions.

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The answer to the question of how much is due is that there needs to be an accounting because the statute 15 USC §1635 requires the return of all money paid by the “borrower”, directly or indirectly.

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The fact that the fee or compensation or “profit” was not disclosed to the borrower does not remove it from the list of the charges paid by or on behalf of the borrower nor the liability to pay it to the borrower once rescission is effective (i.e., upon notice — mailing).

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This leads to some interesting issues that will need to be dragged out of the “lender”, including all the other “lenders” going back to the original transaction. Most of the money received as compensation by third parties was not disclosed to the borrower, hence the need for an accounting. Many of the charges were slipped in to the loan without the borrower’s knowledge or consent. This brings in possible violations of the FDCPA, the FTCA and the “little FTC” acts passed by individual states.

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The menu of items that are due to the borrower as a condition precedent to making a claim for repayment is expansive and frankly in many cases is equivalent or nearly equivalent to the total amount of the principal claimed as loan repayment. 

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And that in turn brings up the most interesting question of all: who is liable to return those fees, compensation and finance charges? You can be sure that once the accounting is ordered by a court there will be scrambling amongst the players in the “Securitization” market. The whole point of masking their scheme was to avoid liability for this sort of thing. Hence the obfuscation of the actual creditor or lender. And this is one of many break points where the securitization players will start sniping at each other rather than the borrower.

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Nobody wants to hand all that money that was “earned” through the hard work of chicanery. And nobody wants to assert that they are the actual creditor since that would be an admission against interest that they had been misrepresenting the true creditor all along. And it would be waiving the 5th Amendment right against self incrimination for criminal charges.

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In any event, here are the REG Z rules on what constitutes a finance charge, which by the way, means that they should ALL have been been disclosed without exception.

§226.4   Finance charge.

(a) Definition. The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.

(1) Charges by third parties. The finance charge includes fees and amounts charged by someone other than the creditor, unless otherwise excluded under this section, if the creditor:

(i) Requires the use of a third party as a condition of or an incident to the extension of credit, even if the consumer can choose the third party; or

(ii) Retains a portion of the third-party charge, to the extent of the portion retained.

(2) Special rule; closing agent charges. Fees charged by a third party that conducts the loan closing (such as a settlement agent, attorney, or escrow or title company) are finance charges only if the creditor—

(i) Requires the particular services for which the consumer is charged;

(ii) Requires the imposition of the charge; or

(iii) Retains a portion of the third-party charge, to the extent of the portion retained.

(3) Special rule; mortgage broker fees. Fees charged by a mortgage broker (including fees paid by the consumer directly to the broker or to the creditor for delivery to the broker) are finance charges even if the creditor does not require the consumer to use a mortgage broker and even if the creditor does not retain any portion of the charge.

(b) Examples of finance charges. The finance charge includes the following types of charges, except for charges specifically excluded by paragraphs (c) through (e) of this section:

(1) Interest, time price differential, and any amount payable under an add-on or discount system of additional charges.

(2) Service, transaction, activity, and carrying charges, including any charge imposed on a checking or other transaction account to the extent that the charge exceeds the charge for a similar account without a credit feature.

(3) Points, loan fees, assumption fees, finder’s fees, and similar charges.

(4) Appraisal, investigation, and credit report fees.

(5) Premiums or other charges for any guarantee or insurance protecting the creditor against the consumer’s default or other credit loss.

(6) Charges imposed on a creditor by another person for purchasing or accepting a consumer’s obligation, if the consumer is required to pay the charges in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation.

(7) Premiums or other charges for credit life, accident, health, or loss-of-income insurance, written in connection with a credit transaction.

(8) Premiums or other charges for insurance against loss of or damage to property, or against liability arising out of the ownership or use of property, written in connection with a credit transaction.

(9) Discounts for the purpose of inducing payment by a means other than the use of credit.

(10) Charges or premiums paid for debt cancellation or debt suspension coverage written in connection with a credit transaction, whether or not the coverage is insurance under applicable law.

FDUTPA:”Per Se” Violations of Deceptive or Unfair trade Practices Under Federal or State Law

a per se violation of TILA or any other Federal or State law makes the act also per se violations of the FTC act, (and the applicable little FTC acts passed in various states). Florida is used here as an example. 

Get a consult! 202-838-6345

https://www.vcita.com/v/lendinglies to schedule CONSULT, leave message or make payments.
 
THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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Anyone who has done even the most cursory research knows that a pattern of behavior in which the name of the creditor or lender is withheld is a “per se” predatory loan. While Judges don’t care whether the borrower knows the actual lender, clearly Congress, the U.S. Supreme Court and the executive branch DO care ( and so their state counterparts); the courts are required to follow the law not create it by inaction or action contrary to the express wording of statutes. As we have discussed this will be shortly revealed as the rescission cases go back to SCOTUS which has already ruled unanimously that there is nothing wrong with the rescission statute, it clearly states the procedures and nothing unconstitutional about its process or effect.
 
Pretender lenders are rushing as many cases to forced sale through foreclosure because their days are numbered in which they can continue to do so. One reason is that their violations of Federal and State statutes prohibiting unfair trade practices are violations per se and another is that their violations are still prosecutable even if they are not on some list somewhere in some statute or group of cases interpreting deceptive trade and lending practices. 
 
For along time, it has been known, accepted and understood that withholding the name of the actual lender as a matter of practice makes each such loan and each such practice “predatory per se” under Reg Z of the Federal truth in Lending Act. The purpose of this article is to suggest that a per se violation of TILA or any other Federal or State law makes the act also per se violations of the FTC act, (and the applicable little FTC acts passed in various states). Florida is used here as an example. 
 
While the recognition that the alleged loan transaction was by definition unto itself predatory, there has been no attempt or agreement to arrive at any consequences that should befall the “ pretender lender” violator because TILA has enforcement provisions and self executing punishment like TILA rescission but it does not specifically provide an easy route to assessing substantial damages by way of disgorgement, which probably cannot be barred by the defense of the statute of limitations. 
 
If a loan is predatory per se under Reg Z as a table funded loan then it is hard to imagine how that act of “lending” would not also be a per se violation of the FTCA and, in Florida, the FDUTPA 501.204 et seq. A table funded loan by definition withholds the identity of the true lender. Table funded loans were not only part of the pattern and practice of creating illusions they called “loans” but became industry standard.
 
 It is neither an exaggeration nor over-reaching to say that table funded loans that were predatory per se became industry practice from around 2001 through the present. In other words it became industry standard to violate the Federal Truth in Lending Act, the FTC Act, and the state versions of the FTC act (in Florida §501.204 et seq). As we have seen with construction defect lawsuits starting back in the 1970’s, the fact that it became custom and practice to violate the the local building codes does not in any way raise a valid defense to violating those codes. 
 
This would fall under the Florida FDUTPA category of “Per Se by Description. “ It doesn’t matter whether the judge “feels” that some bank or “lender” or “servicer” might be hurt. That question has been decided by the Federal legislative branch, the Federal Executive Branch and the Federal Judicial branch as enunciated by the highest court in the land. Under the powers vested in the Federal government laws were passed in which the Federal government pre-empted or restricted state action in circumstances where ordinary consumers were fooled by deceptive practices. And the test is whether the least sophisticated and most gullible consumer was tricked and hurt by the trick. The same line of thought applies to state laws like the little FTC act in Florida.
 
Once the violation becomes a per se violation, the question is not whether there is injury but rather how much should be awarded to the consumer as a punishment to the violator and as a means to settle the score with the consumer. This calls for disgorgement which is not considered to be “damages” since it is described as merely preventing the violator from keeping ill-gotten gains. Attorneys fees and court costs are almost always provided by the Federal and state FTC statutes. The violations under the FDCPA may be barred by the expiration of a statute of limitations but the per se violations of the of the FDCPA and its equivalent state statutes probably is a trigger for declaring the FDCPA violation a per se violation which in turn triggers the rest of the applicable statutes for disgorgement of ill-gotten gains. 
 
Per Se by Description
The reference in §501.203(3)(a) and (c) to FDUTPA violations based on FTC or FDUTPA rules, or “[a]ny law, statute, rule, regulation, or ordinance” can further be interpreted as a formal acknowledgment of violations of a second type of per se violation which occurs when a rule, statute, or ordinance is violated, and the rule, statute, or other ordinance expressly describes unfair, deceptive, or unconscionable conduct, without necessarily referring expressly to FDUTPA.
 
Rules Adopted by the FTC
Pursuant to the FTC act, the FTC has adopted rules which describe unfair or deceptive acts in several contexts, and which appear in 16 C.F.R. ch. 1, subch. D, entitled “Trade Regulation Rules.” Some of the more well known of these include the FTC rules governing door-to-door sales,16 franchises,17 holders in due course,18 negative option sales plans,19 funeral industry practices,20 and mail or telephone order sales.21 According to the definition of “violation of this part,” in §501.203(3)(a) a violation of FDUTPA can occur when federal administrative rules promulgated by the Federal Trade Commission pursuant to the FTC act are violated. Along these lines, the 11th Circuit has confirmed that §501.203(3)(a) of FDUTPA creates a private cause of action for violation of an FTC rule even though none exists under federal law.22
 
[Whether  or not the facts alleged by the consumer are sufficient for rescission, damages remain available under the FTC act and little FTC acts in various states. The damages extend up to and including all money paid by the debtor. And according to recent case law following a long prior tradition, the statute of limitations does not apply to petitioners for disgorgement of ill-gotten gains.  16 CFR 433 — Preservation of consumer claims and defenses, unfair or deceptive acts or practices]

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Much of the material for this article has been inspired by the following article:
Florida Bar Journal May, 2002, Volume LXXVI, No. 5 Page 62 by Mark S. Fistos. “Per Se Violations of Florida Deceptive and Unfair Practices Act §501.204(1)”
Relevant passages quoted:
 
FDUTPA broadly declares in §501.204(1) that “[u]nfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce” are unlawful. By design, FDUTPA does not contain a definition or “laundry list” of just which acts can be “deceptive,” “unfair,” or “unconscionable.” No specific rule or regulation is required to find conduct unfair or deceptive under the statute.1
 
There is, however, an entire body of state and federal rules, ordinances, and statutes which serves to identify specific acts that constitute automatic violations of FDUTPA’s broad proscription in §501.204(1). These rules, ordinances, and statutes, if violated, constitute “per se” violations of FDUTPA, and could automatically expose parties to actual damages, injunctions, and civil penalties up to $15,000 per violation. An assessment of potential per se FDUTPA violations, therefore, should play a part in any commercial law practice, and is imperative for any lawyer bringing or defending against a claim for deceptive or unfair trade practices.
 
Approaches to FDUTPA Liability
There are two basic approaches to analyzing FDUTPA liability: one is to determine whether an act or practice in trade or commerce violates broadly worded standards relating to unfairness, deception, unconscionable acts or practices, or unfair methods of competition; a second is to assess whether conduct in trade or commerce constitutes a per se violation.2
FDUTPA tracks the broad language of the Federal Trade Commission Act (FTC act)3and declares “[u]nfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce” to be unlawful. Subsection 501.204(2) of FDUTPA in turn provides that “due consideration and great weight” be given interpretations by federal courts and the Federal Trade Commission of what constitutes unfairness and deception.
 
Based on FTC interpretations and federal case law dating from the 1960s, Florida courts have adopted and applied in various contexts a broadly worded standard of unfairness under which a practice is unfair, “if it offends public policy and is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.”4

Categories of Per Se Violations

The rules, regulations, ordinances, and statutes referenced in the above-quoted §501.203(3) refer to sources which may serve as a basis for a per se FDUTPA violation. These sources can be broken down into three categories:
1) Per se violations whereby a statute, ordinance, or rule expressly refers to FDUTPA and provides a violation thereof to be a violation of FDUTPA; [per se by reference]
2) Per se violations whereby a statute, ordinance, or rule expressly describes deceptive, unconscionable, or unfair conduct without referring expressly to FDUTPA and when violated constitutes a per se violation of FDUTPA; [per se by description] and
3) Per se violations whereby a court, in the absence of any such reference or description, construes a statute, ordinance, or rule to be a per se violation of FDUTPA.
 
Examples from Footnotes: Fla. Stat. §§210.185(5) (cigarette distribution), 320.03(1) (DHSMV agents), 320.27(2) (vehicle dealer licensing), 624.125(2) (service agreements), 681.111 (lemon law), 501.97(2) (location advertising), 400.464(4)(b) (home health agencies), 400.93(6)(b) (home medical equipment providers), 483.305(3) (multiphasic health testing centers), 496.416 (charitable contributions), 501.160(3) (price gouging), 501.0579 (weight loss centers), 501.34 (aftermarket crash parts), 509.511 (campground memberships), 559.934 (sellers of travel), 624.129(4) (location and recovery services), 817.62(3)(c) (credit card factoring);Code of Ordinances, City of Ft. Walton Beach, Florida §23-145(a) (title loans).
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