Two of the four Truth in Lending Act disclosure claims raised in a class action failed because the consumer who filed the suit would not have suffered any concrete injury from a TILA violation, the U.S. Court of Appeals for the Second Circuit has decided. The consumer’s other two claims failed to describe a TILA violation, the court said in affirming a pretrial judgment in favor of a credit-card issuing bank (Strubel v. Comenity Bank, Nov. 23, 2016, Raggi, R.).
The consumer was complaining about disclosures provided to her by Comenity Bank when she opened a Victoria’s Secret-branded credit card. According to the consumer, the bank violated 15 U.S.C. §1637(a)(7) because its disclosures were not substantially similar to those specified by Model Form G-3(A). Specifically, she asserted the bank did not clearly disclose that:
- cardholders who wanted to stop payment under an automatic plan needed to satisfy certain obligations;
- the bank was obligated, as part of the error resolution process, to advise the consumer of any corrections made during the 30-day acknowledgment term;
- some consumer rights applied only to disputed purchases for which full payment had not been made and did not apply to cash advances or checks that drew against the credit card account; and
- consumers who were not satisfied with a purchase paid for using the card had to contact the bank either in writing or electronically.
Injury and standing. The bank raised the issue of the consumer’s constitutional standing to sue for the first time as part of defending against her appeal. Since constitutional standing is an aspect of a federal court’s subject matter jurisdiction, the appellate court was required to consider it. The consumer did not have constitutional standing to raise two of her claims, the court decided.
Article III of the Constitution gives federal courts jurisdiction over cases and controversies, and showing a case or controversy requires a person to demonstrate an injury in fact that arises from the challenged conduct. An essential part of a consumer’s injury in fact is a concrete or particularized injury, the court said. The need for an injury that is both concrete and particularized was emphasized in the Supreme Court’s recent Spokeo, Inc. v. Robins decision (discussed at Banking and Finance Law Daily, May 16, 2016).
No concrete injury. The consumer could not demonstrate even a risk of a concrete injury arising from two of the violations she claimed, the court said. That meant the court had no jurisdiction over them.
The consumer had not enrolled in any automatic payment plan—in fact, Comenity had not offered such a plan while she held the credit card, the court pointed out. That being the case, an inadequate disclosure about such a plan could not have given rise to any risk arising from the consumer’s uninformed use of credit, the harm that TILA was intended to address.
Any failure by the bank to disclose clearly its obligation to describe corrections made shortly after a claim of error was made would have been a "bare procedural violation" that did not show the material risk of harm to the consumer that could be a concrete injury, the court continued. The consumer had never made any error claims, so her ability to deal with an error could not have been affected. If there were an error, it would not have affected the consumer’s use of credit.
Injury could exist. On the other hand, the other two claimed violations would have posed a risk of concrete injury, according to the court. Inadequate disclosures that some rights applied only to disputed purchases for which full payment had not been made and that a consumer who was dissatisfied with a purchase paid for using the card had to contact the bank either in writing or electronically related to the consumer’s ability to make informed decisions on how to use credit.
A consumer who was not notified of these obligations might be less likely to satisfy them, the court explained. That could cause the consumer to lose rights that TILA was intended to protect.
No violation described. After rejecting the bank’s argument that consumers have no right to statutory damages for violations of Reg. Z—Truth in Lending (12 CFR Part 1026)—as opposed to violations of TILA—the court decided that the claims which survived the standing challenge failed to describe violations.
According to the consumer, Comenity omitted from its disclosures about unsatisfactory purchases two paragraphs that were included in Model Form G-3(A). These paragraphs limited a consumer’s protections to purchases made using the credit card and to any unpaid amounts. However, any variation was small enough that the bank’s disclosures remained substantially similar to the model form, the court said. A creditor that provided disclosures that met the "substantially similar" standard was protected by Reg. Z’s model form safe harbor.
Failing to disclose that consumers who were not satisfied with a purchase paid for using the card had to contact the bank either in writing or electronically was not a violation, the court said, because neither TILA nor Reg. Z imposed that requirement. Moreover, even if Model Form G-3(A) added a restriction about the type of communication, that particular disclosure was among those described as optional. Failing to give an optional disclosure cannot amount to a violation, the court said.
The case is No. 15-528-cv.
Attorneys: Brian Lewis Bromberg (Bromberg Law Office, P.C.) and Harley J. Schnall (Law Office of Harley J. Schnall) for Abigail Strubel. Martin C. Bryce (Ballard Spahr LLP) for Comenity Bank. Mary McLeod, Consumer Financial Protection Bureau, amicus curiae.
Companies: Comenity Bank; Victoria’s Secret
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