Supreme Court Hears Auto Dealer TILA Case Important Decision Could Affect Entire Consumer Credit Industry

Supreme Court Hears Auto Dealer TILA Case Important Decision Could Affect Entire Consumer Credit Industry

Attorneys representing an area franchised new auto dealer and a disgruntled customer squared off last Tuesday in a case before the U.S. Supreme Court that could affect how the federal government regulates the $2 trillion consumer credit industry.

At issue in the case, Koons Buick Pontiac GMC Inc. v. Nigh, No. 03-377, is how much money consumers are entitled to recover when a jury finds that a dealer has violated the federal Truth in Lending Act (TILA). TILA provides a cause of action in favor of borrowers against consumer lenders for recovery of statutory damages, without any showing of actual harm or culpable intent, as well as any actual damages which may have been suffered.

Bradley C. Nigh, who was awarded more than $24,000 in statutory damages from the dealer for a violation of TILA (and over $26,000 in attorneyês fees) connected to the purchase of a used truck, maintains that TILA authorizes damages up to double the finance charges. The dealer maintains the statutory damage award should be capped at $1,000.

The controversy began last year when a three-judge panel of the U.S. Court of Appeals for the 4th Circuit in Richmond, VA ruled 2 to 1 that TILAês section setting out civil penalties applied a statutory damages provision for the return of two times the finance charges, instead of a cap of $1,000, which has been relied upon by the courts since TILA was enacted in 1968 and has been the measure of TILA damages by the courts even after Congress amended TILA in 1995 to add a higher minimum/maximum provision for real estate finance transactions. But the court said a clause in TILA that capped damages under –this subparagraph” at $1,000 referred only to disputes over consumer leases, not to auto purchases.

–A Chicago-based federal appeals court reached the opposite conclusion in 1997, so the 4th Circuit ruling created a legal contradiction that the Supreme Court must sort out,” according to The Washington Post. –The case may now hinge on how the Supreme Court chooses to interpret a single word — the meaning of •subparagraphê in the Truth in Lending Act,” said The Post.

In his argument to the Supreme Court, defense lawyer Donald B. Ayer, representing Koons Buick Pontiac GMC Inc., told the court that it is –utterly clear” from the context and history of the law that Congress intended to set a $1,000 cap on how much consumers could win as statutory damages in addition to any actual damages by suing for alleged violations of TILA by car dealers and that it used the term –subparagraph” to lump such cases together with others subject to the cap.

This argument was supported by amicus curiae briefs filed by NADA, WANADA, MNCTDA, and VADA, as well as banking and credit card associations, that maintain that the TILA damages awarded by the lower court and affirmed on appeal are wrong and should be reversed.

Plaintiffês lawyer Hugo Blankingship, representing Nigh, contended that the damage cap applies only to a much narrower range of cases, and that lenders should be subject to statutory damages equal to twice the finance charges.

Attorney George Masson of Hamilton and Hamilton, LLP, representing WANADA, attended the Supreme Court hearing last Tuesday and reported the court appeared to split along philosophical lines. –Ironically, conservative Justice Antonin Scalia with his strict constructionist or textual view of the law would appear to interpret TILA in a manner which probably will favor the plaintiff in this case,” he said. –On balance, however, I thought the dealerês legal team made a convincing presentation which hopefully will result in the correct decision, namely, that the $1000 cap continues to apply in TILA cases.”

Those seeking a reversal of the lower courtsê decisions, including WANADA, argue that the ruling, if allowed to stand, will significantly reduce the availability of consumer credit, and larger awards will result in more lawsuits that will increase costs to dealers for liability insurance and legal fees that will be passed on to consumers in the form of higher interest rates and tougher loan terms.

NADA argued in its brief that a win for Nigh would result in –huge windfalls to a few consumers involved in credit transactions where unintentional, technical violations of TILA occur.”

If the Supreme Court upholds the Fourth Circuit decision, the only way to correct the potentially ruinous interpretation of TILA damages would be for Congress to go back and amend the law yet again.

A decision is expected by July.