FEBRUARY 2004

New Truth-in-Lending Case
Before the Supreme Court

On January 20, the Supreme Court agreed to review a decision by the U.S. Court of Appeals for the Fourth Circuit (Richmond, VA). In Koons Buick Pontiac GMC, Inc. v. Bradley Nigh, the Supreme Court will consider if, as affirmed by the Appeals Court, language that set a $1,000 cap on damages awarded for violations of the federal Truth in Lending Act (TILA) was removed by a 1995 congressional amendment to the law.

Nigh filed a lawsuit against the Virginia auto dealer in 2000 and was awarded $24,192.80 under TILA—twice the finance charges that Nigh would have paid under the disputed auto contract. The Appeals Court upheld the award to Nigh finding that when Congress doubled to $2,000 the penalty cap (for disclosure violations under TILA) for mortgage loans subject to the Home Ownership and Equity Protection Act of 1994, it had effectively removed the $1,000 cap. The ambiguity arises from language inserted in the 1995 amendment to TILA "...in the paragraph dealing with the damage cap that might be interpreted to mean that consumers could collect either penalties of as much as $1,000, or twice the amount of the finance charge...." Prior to the amendment, the penalty section of the law read: "...twice the amount of the finance charge in connection with the transaction, except that the liability under this paragraph shall not be less than $100 nor greater than $1,000."

An amicus brief filed by the American Bankers Association, et al., asserts that Congress never intended to remove the penalty cap. Lenders are concerned that if the Appeals Court decision is not overturned, it would pave the way for an increase in lawsuits and penalty awards. Arguments in the case are expected to begin in October.