QUARTERLY REPORT
Assignee Liability: Through the Minefield
By Eugene J. Ke!le.}', Jr., John L. ROI>icquct ••md Gcorgi'l Logothetis
~;"l:ene J. li:elk~ •.lr." a f'anllcr alltl C\~Chair
of ,he Lillgallo" Group "I' AnI'!ein & Lchr LLP.
Chi,·ag". "here he ha' pr:.(lI~ed ,i'K"e 19f>ti. 1·1"
area, or prne'ICe indllde hllga';"" and ,,"rll'"
rale coun,.dillg, He h", t\1('",ivc C\Ili:ricncc III
a bro:'d n"'gc of trinl, in\(.I''''g commercial
di,pn1c, and cO/"umer flllance. in ,t,"c alKl tet!-
c",,1 ...",n, thougho"l Ihe eUlln11), 1\-1r Iselley "
a gr.•dllale ,,1 ,he l:"'''<'.... II) "f Notre Dame a"d
Nonhwe'lcrn Uni"crsll)' $<:h",,1 uf L,\\ Ik i'
a member of Ihe Go\Crning Commiuee of the
Co"fer,'"ee oil COllwlIler Fillall~e La" and a
'I>caker f"r nun",n,," C""te",""" pr"j:m"". lie
has "I", lJ,.·cn all i",lnlCl(>r of 'he lilinoi' Inswllic
ofCu"!lIIl1ing Legal hlllclI!ioo. the I'nu:ti<'inl: I"""
Ins1l!1l1e. a"d the An"'rican Bar A'''''''ia1ion, Ik
h;" served a, an ad"\llr 0" IlIifa1;On a",1 daill"
for '<C\Cral pllblk enlille, and Wi""e ,",,"'~"'IC·,
279
John L. K\.pklIUd" :.I'a"ner in Ih<· I.lllg.:"'o"
Groopof AnlS'cin & Lchr tLP. Chica~o. where he
ha' pr:K'!in'd ,mee 1973. I·;, Iiligaliun npcriencc
",d"'k, ",,,,,onle,r fi'lall"c da~' :1<·lion. allii Im,1.
en' ,ro""lClIlal.nnd t,;nIllIHCI\',al (':'SC, ,n ,,,"'''',,,,,,
,tOIle and fedcml eUlln,. Mr ROP'C<J"e1 i, a g.,....dll:l'"
ofn", J"hn, l1op~i,,' Uni'c.... il} and Nonhwc,lcrn
l:nl\'C.... 'I) Seh,,,,1 of L'''' IIc' '''lie, .ilId 'p'-'ah
fr"'luell,l) "u i"ue, "I\oi''''1; <'I"',lIoner nedll
dIs" :'e\;on'. e'ideI11i:'1) priv;lege. icg.al elhin
and mhcr mane..... lie i, eo-au,hor of the two-"ol-
""'" It , ,...-", I'll "-1'1(', G, Ill,' 1',."",-" \I. I~J'
et>ntrib"tllno Ro,,'1 H& 1\-1." H__h, "'" I~ N'~" .•
and :III,h"r of ",,,,,,'roLl' an,~k, "' ,Il\" e",,,,,,",,,
Fi'l<"'re /."" QU"NCr/I' Her<m :lIId otllt"r public,,·
li'llh. lie i, a member of tho: Go'''n,,"g. Comnm.
Icc "f 1lit,; Co"lerc,".'e "n (.\I,,,,,,,,,r hna"ce l~,,,
G,..,q:i" I.ogulhelis " a Iilij:mi"n ,\",,,·,me
at Am,tc;n & uhr LLI", Chicagu office. SIl<: i,
a gr;.dll'ole of NOO1hea'H,m IlIin"i, U"I\e,-.,i,) and
[)cl':'lol llni'ersil> C"lkge "f L,,,,. The ,"'Ih"....
""prc'Cm"d deti,"dall" in /I"Id""", l'. Cil,. ell,.,.·
rolel. B""t & G!:,O, "U,. 215 F3d 8~9 (7lh Cir
200m; IIi/Iter ", \\;/lIrI('( Alii" S,lIn. 1,,<'.. I ~5
I' .~I ,)!7 (7,h Cir, 19')1'11; "'""/,/,,, IlllaiC,,',Ji,
Fi'llltH'i,,1 Serl'i,"·.', It,,' .. 2~5 F SII!'p,ld MJI
(s.n.\\ \'a. 2(l()-,); J""~i,,, ... M",umli/r \Iorl'
~lIee C".. lJI F SlIpp.1d 7J7 (:'<0 Ill. 20011;
M\. ;1 and Ir/,,.,Gret"ll< ", \' 0.1< .. /1/<'. 7'1 1', S"flp·2d
f>.'t, (LD. V". 20(M'). ""'"'If,"ed ,,' 'h" article,
I. Introduction
CotlsUlllCr CrC(tit tran~acliol1~. from
retail inQ"Jll11ent conlract, to mort-
gage,. autoillobile Ica,~,. and ("fcdil
card:,. often generale assignmenls. The
a~~ignees-those who a"ume rights
and ~Oll1e Obligation' from the original
creditors-often face a mincfield of
slate and federal laws which may lrig-
ger liability. This aniclc discusses and
 280
contrasts various liability theories which
assignees may fae<: in these situations.
II. TlLA Limitation On Assignee
Liability'
The protection conferred on assignees
by the limitation on assignee liability pro-
vision afthe Truth in LendingAct (TILA)1
is a bulwark of assignee liability law that
largely prevents consumer disputes with
the original creditors from affecting
the fights of their assignees to enforce
contractual obligations. But it may poten-
tially be undermined in several situations.
The TILA was enacted "to assure a
meaningful disclosure of credit terms so
lhat the consumer will be able to com-
pare more readily the various credit terms
available to him and avoid the uninformed
use ofcredit, and to protect the consumer
against inaccurate and unfair billing and
credit card practices.'" Significantly,
however, Congress deliberately limited
assignee liability when it amended the
TILA in the early 1980s, to provide as
foHows in 15 U.S.C. section 1641(a):
Except as otherwise specifically
provided in this subchapter, any
civil action for a violation of this
subchapter or proceeding under Sec-
tion 1607 of this title which may be
brought against a creditor may be
maintained against any assignee of
such creditor only if the violation for
which such action or proceeding is
brought is apparent on the face ofthe
disclosure statement, except where
the assignment was involuntary.
In enacting these amendments,
Congress expressed its purpose as
narrowing "considerably the potential
scope of assignee liability," to "make
compliance easier for creditors" and
I. S<:e pI..",Uy Mu. B. o.p;",. ""S"" J. Kell<,. Jr,. Jolon
s.
L. Ropieq....,.• 0><1 Cllri>topl>et N.ve». AssiS""" UtJbjHry
Urnk,the TllA . Is ,he Ct>ndu;/ "T'ktMy R<t>lly 0<a<1'. :\4
eon",..., F;n. L.Q. Rep. 242 (20001. t'Cpt';m<ttl;,' RO"M' '"
M'u..rl. T~" II' Ul<aotG' IHl6111 (2006 S"~,l.
2. IS US.C- , 1(,41(.1. TIt.A S«,..... h=in ore ",fe",need by
d,.,lo... "'!lie UnilOd S..... Code mhet ""on to ,fie A...
3. IS U,S.C. i 1601(0),
QUARTERLY REPORT
to limit civil liability for statutory pen-
alties to only significant violations. 4
Beginning in 1998, an unbroken line
of U.S. court of appeals and federal dis-
trict court decisions has recognized that
an assignee is liable for the TILA disclo-
sure violations of the creditor who origi-
nated the credit transaction only where
the violations are "apparent on the face"
of the documents assigned. S The policy
behind these decisions was succinctly
stated in [rby-Greene v. M.O.R., [nc.:
This limit on assignee liability is
sensible, as a duty to inquire be-
yond the assigned documents would
impede commerce, which depends
upon the established practice of
assigning commercial paper at a
discount to financial institutions.
In general, assignees are not in a
position to know whether a given
price was set in violation of TILA,
as assignees often are not present
at the transaction (which may have
occurred much earlier than the as-
signment), do not participate in the
negotiation, and may not be aware
of a seBer's mode of conducting
business. Assignees are in a position
to examine the documents assigned
for irregularities, and they usually
make pricing decisions based on
those documents. Thus, 15 U.S.c.
section I64I(a) "enable[sJ an as-
signee fO know with fa reasonable
degree of] certainty upon receipt
of assigned documents whether it
would be subject to possible liabil-
ity for the actions of the vendor.'~
4, Ramadon v. C!Iue Mon""... Corp.. 229 F,3<I 194.200 (3<1
Ci,. 20(0). citinl S. Rep. Nc. 96·7) {1979J . ..(>t;ntod;n 1980
U,S,(;.C,A,N.10.2.)(;.10.281.
~. Toyl'" v. Quoli', HfU"".i.loc.. l~ F.3<l689. 69S (7'h Ci,.
1993); W.lke, v. Wall..,. A,IO Sa.... Inc.. 1~5 F.ld 927, 9~
(JII, Ci,. 19'98); EHi. v. e-t>.1 _ Acce_ CO!]l.•
It\l,) EX! 703. 709 (11,h Ci·. 19'98); Creen v. I.A:vi. MO<OtS.
Inc.. 179 E34 286. 29S (S'h Ci,.). ecrt. tknlod. S20 U.S, 1020
(19\19): U.'<lerw v. e"y 0 ..,,","'. Bu ........ Ve<>. Inc.• l'4
F.ld 849. 853 (7th Ci,. 2(100): Ro,ntIIi<I". 229 F.ld ot 193:
hby.G,ee". v. M.O.R.. 100.. 79 E SUW. 2d 630. 633·).4
(B.D, va. 2QOO): K.. ~ >. AmeriCre<ll1 Fin.nci.1 s.",ie<.,
Inc.. 24S F. Supp. 2d 841. &4S (S.D.W. Yo. 20(3): Cole"","
>. G."....I MO<OtS ACC<ptO<Ce Corp.• 196 F.R.D. JIS (M.D.
Te"n. 2QOO).
Despite this firmly established law,
however, the limitation on assignee
liability is not always absolute. An as-
signee may lose the protection of sec-
tion 164I(a) when other laws intervene.
Assignees should always beware of
such "mines" lurking under the surface
of consumer credit transactions. Some
of these mines are discussed below.
III. The Mines
A. The Consumer Leasing Act
The federal Consumer Leasing
Act (CLAY was enacted in 1976 as
an amendment to the TILA. Like the
TILA, "the CLA is a disclosure rather
than a regulatory statute."s The CLA
broadens the reach of the TILA and
applies to all leases for the use of per-
sonal property having a term exceeding
four months that have a "total contrac-
tual obligation not exceeding $25,000.'>9
As it did when it passed the TILA,
Congress delegated to the Federal Re-
serve Board (FRB) the task of drafting
regulations with respect to the CLA, giv-
ing it the authority to "update and clarify
the requirements and definitions applica-
tion to lease disclosures."'o Those regula-
tions are collectively referred to as Regu-
lation M. The regulations, along with the
FRB Staff Commentary on Regulation
M, are codified at 12 C.F.R. section 213.
The FRB Staff Commentary states that
"an assignee may be a lessor for the pur-
poses of the regulation in circumstances
where the assignee has substantial in-
volvement in the lease transaction.""
Thus, the assignee can lose the protection
of the limitation on assignee liability in
section 1641 (a) where the assignee is di-
rectly involved, in certain circumstances.
The interplay between Regulation M
and section 1641(a) was brought into
1 ISUSC.tll667c1kq
8, Turne, >. C<""tOl _ Acce",an« Corp.. 180 F.Jd 451.
4~(2dCi,.199\I~
9, IS U,SC., 1661(11.
10. 1,1.' 16671(0)(1),
II 12 CFR, 213.2lhl, Sup!> I (emph.a.i' 'u""Iie<l)

sharp focus in Kennedy \/. BMW Finan-
cial ~ervices, NAil There, the plaintiff
was a lessee who had entered into a m0-
tor vehicle lease agreement with an auto
dealer which assigned the lease to BMW
Financial Services (BMW). He alleged
that lhe lease agreement was inaccurate
on several points. claiming: (I) the agree-
ment overstated the title. registration,
and license fees due on the automobile
(resulting in an increased total payment);
and (2) BMW miscalculated the excess
mileage and sales tax at lease termina-
tion. Based on these inaccuracies, the
plaintiff alleged that BMW violated the
CLA. BMW claimed that it was immune
from liability under the CLA because, as
an assignee of the original lessor. its li-
ability was limited by section 164I(a).
The Kennedy court began by exam-
ining the definition of a "lessor" under
the CLA, which is "a person who is
regularly engaging in leasing, offering
to lease, or arranging to lease under a
consumer lease."I) Regulation M, the
court pointed out, defines an arranger
of a lease as one who "has knowledge
of the lease terms and participates in the
preparation of the contract documents
required in connection with the lease."14
The FRB Staff Commentary also states
that "an assignee may be a lessor for the
purposes of the regulation in circum-
stances where the assignee has substantial
involvement in the lease trallsaclion."ls
The Kennedy court noted thill BMW's
use of section 1641(a) as a defense in the
leasing context was essentially an issue
of first impression. While the plaintiff ar-
gued that section 1641 (a) was inapplicable
in the CLA context, the court disagreed:
The CLA itself is enforced through
the larger statutory scheme ofTlLA.
15 U.S.c. [section) 1667(d) of the
CLA, discussing the civil liability
of lessors, specifically states that
12. :l6JF. $l>pp.2d 1I0CD.C.... J(lOiI
I). 15U.S.C.11667(4~
14. ~l F. S~pp.1d" 115.<fI""'i"ll 11 CFl\ f 2Il.1Chl. s~w. I,
I~. )6J F. S~pp,ld .. liS (o."pl",i, ,n 00,'""1),
QUARTERLY REPORT
the "grounds for maintenance of (a
civil] action" is provided by "[15
U.S.c. section] 1640 of [fILA}."
Section 1641, obviously, directly
follows 15 US.C. (section] 1640,
and limits what claims under the for-
mer Section may be pursued against
assignees. There is nothing to sug-
gest that, in the context ofconsumer
leases, a lessee may avail himself
of the remedies provided by TlLA
through [sectioo)1640 but ignore the
restrictions of (section] 164I(a).16
The Kennedy court went on to cite
the FRB Staff Corrunentary as support
for its holding that section 164I(a) does
not by its terms exclude lease assignees:
Nor does the staff commentary
to Regulation M, to which courts
must defer in interpreting the
CLA, suggest that lease assignees
are excluded from the protections
of (section] 164I(a). That com-
mentary says that assignees who
are substantially involved in lease
arrangements may be considered
lessors for purposes of regulation.
See 12 C.P.R. [section} 2l3.4(h),
Supp. I. That language implies
both thal it is nul mandatory for
substantially involved assignees to
be treated as such, and that assignees
less involved in lease arrangements
should not be considered lessors. 17
Having concluded that BMW could
avail itself of the section 1641(a) defense
in the lease context, the Kennedy court
then examined BMW's level of partici-
pation to determine if it merited holding
BMW liable. As to the miscalculation of
the amount due for title, registration, and
licensing, the court found that BMW was
"shielded from liability on these viola-
tions as an assignee, as BMW did oot
calculate these figures and any errors in
calculations were not apparent on the face
16. Id... 116.
28\
of the lease. "I' In reaching this conclu-
sion, the Kennedy court relied on Taylor
v. Qualily Hyundai" and emphasized
that BMW merely provided the forms
to the dealer. 1bere was no evidence of
any involvement by BMW in calculat-
ing those fees, much less any evidence
of the "substantial involvement" reo
quired by [he Commentary to trigger
assignee liability. Accordingly, because
the miscalculations were not apparent on
the face of the assigned documents, the
court held that section 1641(a) shielded
BMW from liability on that charge. 21l
As to the miscalculation of excess
mileage fees and sales tax at lease ler·
mination, however, the court found that
BMW did indeed participate at such a
level as to warrant treating it as a lessor
for Regulation M purposes. BMW "par-
ticipates in setting the mileage allowance
and excess mileage charges for vehicle
leases thaI it assumes from a dealer," and
"at the time of lease termination (when
these fees are calculated), BMW was the
only lessor."11 Nevertheless, the plaintiff's
failure to plead this claim Jed the court to
grant summary judgment dismissing it Zl
B. Credit Cards
A similar theory was advanced unsuc-
cessfully to try to circumvent the limita-
tion on assignee liability in a credit card
case, Neff v. Capital Acquisitions &
Management Co?' The plaintiffs assetled
that a purchaser of credit card debt from
the original creditor was liable under the
TILA as a "creditor" for failure to issue
monlhly billing statements. Plaintiff
Neff had fallen behind on his credit card
payments to Citibank. His account was
sold as a delinquent account to Capital
One. In 1997, a collection agency sent
Neff a leller stating that his balance was
I'. 1<1•• Ill.
20. K.-dy. J6l F. s..pp.ld .. 119.
21. 1<1.
22. /d." 120.
2l. UJ F.:ld 1111(7l11Cir. 2(03),
 282
SI,133 but that he could settle by pay-
ing $536. Neff paid that amount with a
money order marked "payment in full,"
For the next five years, Neff did not
receive any monthly billing statements.
and assumed that his Citibank debt was
satisfied. But in 2002., he received a let-
ter from Capiral Acquisitions & Manage-
ment Company (CAMeO), an assignee
of Capital One which had purchased his
account, informing him that he owed
$2.835.32. Another plaintiff in the case
was similarly situated, claiming that, al-
though. he settled his account, he received
a letter from CAMeO years later de-
manding that he satisfy a debt of $7.000.
The plaintiffs charged that by not
sending monthly billing statements,
CAMeO violated the TILA. The trial
court dismissed this claim on motion.
The Seventh Circuit U.S. Court of Ap-
peals affirmed., reasoning that the "oor
mal rule" that the assignee assumes the
duties of the assigning party does not
apply to obligations under the TfLA
because the TlLA and Regulation Z
specifically address the obligations of
assignees. Any liability would have to
be asserted within theTILAframework. 2oI
Although the Neff plaintiffs claimed
thai CAMCO was a "creditor" so as
10 avoid the application of section
1641(a), the Seventh Circuit did noc
agree. The actions of the assignee did
not bring it within the definition of
"creditor" under the TlLA since it only
purchased the credit card accounts. 2S
C. HOEPA 26
For standard mortgage transactions.
as discussed above. the assignee is liable
only for violations that are apparent on
the face of the disclosure statement, under
15 U.S.c. section 164I(a). However. this
protection of the TILA does nOl apply to
Z•. 14... IIZ1.
~. hi.
~6. oS« ~ Eu_ J. Kelley. k .. JoM L Rop;equa. and
A,.,.·Kalri"", S. OMi"at". "" 0...,..,;.... <if HOEPA. OIJ
a,."".",. S9 e-""" Fia, LQ, RqI, ZOl(ZOOSI."'/I'i.l<<I
i. R....""." M".LU. Tol"" '" W,""'" 11,G6PI (2006
SuP\l,I.
QUARTERLY REPORT
assignees of loans which come under the
Home Ownership Equity Protection Act
(HOEPA).l1The HOEPAcomes into play
if the APR on a seoond·lien loan is more
Ihan ten percentage points over the ap-
plicable U.S. Treasury security rate (the
"APR trigger") or the points and fees paid
by the consumer are more than the greater
of eight percent of the principal amount
of the loan or $400 (the "points and fees
trigger").2t If either of these tests is mel.
special disclosures must be made and a se-
ries of statutory prohibitions will apply.29
As floted. the limitation on assignee
liability under section 1641(a) of the
TILA does not apply to HOEPA loans.
Additionally. under section 164I(d). an
assignee is subject to all claims and de-
fenses that theconsumercould assert with
respect to that mortgage against thecredi-
tor "unless the assignee demonstrates. by
4
a preponderance of the evidence. that a
reasonable person exercising ordinary
due diligence. could not determine.
based on the documentation required by
this subchapter. the itemization of the
amount financed. and other disclosure
of disbursements that the mortgage" is a
mortgage subject to HOEPA. Likewise.
the consumer's right of rescission sur-
vives assignmem. and can be asserted
against any assiglll:e of lhe obligalion. JO
In Mason v. Fieldstone Mortgage
CO}I the assignee argued that it was a
holder in due course and therefore could
not be hcld liable because the plaintiff's
fraud claim was not a claim "with re-
spect to" the mortgage. Citing the "plain
language" of seclion 1641(d)(I). the
court simply stated: "I find that it is:·n
Similarly, in two other cases dealing
with assignee liability. the couns found
that the "unmistakable effect" of section
27. s... IS U.s.C.1 16011ld~
2l. ISU.s.ClltiCf!t.~TIoo_""""oo_
_ _ ...,....... n...... •...· _ ;...... _lriUU
Io.-r...
:!6.
..--_""",lw_,_s..._g_
N. IS U.S.C I 1(>]9.
:00. 1<1. t 16011«).
ll. lOOO wl.1I5a)$I9\N.O. 111.2(101)1.
)2. 1<1.01 ••.
164I(d) was to eliminate holder in due
course defenses for HOEPA mortgages.)J
More recently. in DurlUJm Y. The Loan
Store.Iru:.,3-I the court held that two suc-
cessive assignees of a HOEPA mortgage
could be held liable for the original mort-
gagee's HOEPA violations. The plaintiff
alleged that the original creditor exceeded
the HOEPA threshold and thaI inclusion
of a HOEPA Notice to Assignee made
it apparent on the face of the document
that it was subject to the HOEPA. The as-
signees therefore had no protection from
assignee liability under section 1641(a).3s
D. TheECOA
Claims of race discrimination viola-
tive of the Equal Credit Opportunity Act
(ECOA)lIi have made use of the broader
definition of "creditor'" in the ECOA,
which includes "any person who regu-
larl y extends. renews. or continues credit;
any person wllo regularly arranges for
the extension. renewal. or continuation
of credit; or any assignee 0/an original
creditor who participates in the decision
to exrend. renew, or continue credit,"JJ
to avoid the limitation on assignee li-
ability in section 164I(a) of the TlLA.
Assignees may fall within this defini-
tion by participating in the decision to
extend credit when they agree to accept
an assignment at the same time that the
originating TlLA "creditor" extends
credit. But an assignee call avoid this
trap by avoiding any such participation.
An assignee can be excluded from
the ECOA definition of "creditor" and
thereby avoid liability for discrimina-
tory acts or practices by the person
•. . . . . . . ood •. ~ Car;>.. SJ f. s."..ld 96S.
.. '''''
J).
_ (W.o. Midi. 1999J: ..... -...,.. U9 8.ll. m (6.0.
. .;..a..-. l$. "'.... J.
:l6. ISU.s.C-Hlt9I .......
37. IS U.S.c. t 169I.o(.I(........... <wppIi••Il. TlIis ,,_Una<
...r...... 10 Il$ ItIo -nwkiple cmlilOr ......- re..-
.... icIo ...
nwltiple credi.........i ,,,,,- • ..-q_ ...... i·
lOr who pouclIaas. c i'.-,... (.",.. '"" ...i l"..,.
o -cmlilCf" ........ llle £COA <-JlI P<'SSibly • c ;".- '0<
"dl'" p... "o'''l u,,1no Ih< .oI>o<q_ ..... ... ~ "*",,,ipll<d ia
,lie If3IIsa<lion ori,iftalin, d.. c.... it «)nuxl. s..."',,,, ReI" I.·
lion 8. 11 CFR t ZOl.2(/), i"jm lki"... , 01 ""'" 31.
 QUARTERLY REPORT 283

who deals directly with the consumer NOTICE between the parties, and indeed
under Regulation B only if it did not could not have been. It is part of
know or have reasonable notice of the ANY HOLDER OF THIS CON- the contract by force of law, and
original creditor's discrimination before SUMER CREDIT CONTRACf IS it must be read in light of other
it accepted the assignment.:l8 Although SUBJECfTO ALL CLAIMS AND laws that modify its reach. [cita-
this would appear on its face not too DEFENSES WHICH THE DEBT- tion omitted] We therefore reject
difficult to establish under most circum- OR COULD ASSERT AGAINST the plaintiffs' contract-based effort
stances, the "effects test" referred to in THE SELLER OF GOODS OR to side-step [section] 1641(a).44
a footnote to Regulation Bl9 has proven SERVICES OBTAINED PUR-
to be quite a (;hallenge for assignees. SUANT HERETO OR WITH 2, Holder Rule Cases Under
Many class actions have been filed THE PROCEEDS HEREOF. State Law
in recent years against deep-pocket as- RECOVERY HEREUNDER BY
signees of automobile retail installment THE DEBTOR SHALL NOT The holding in Taylor was followed
contracts, which do not even name the EXCEED AMOUNTS PAID BY in numerous other cases each time that
auto dealers who allegedly discriminated THE DEBTOR HEREUNDER. an appellate court considered the issue
against the protected classes as defen- of limitation on assignee liability un-
dants. All ofthe reported cases have now By its terms, this "Holder Notice" der TILA section 164I(a).4s However,
been settled for large amounts of fees paid would allow a consumer to assert many state court decisions which were
to the plaintiffs' attorneys, and benefits against the assignee all claims and de- decided prior to the seminal Taylor
of more dubious value to the class mem- fenses to which the Original creditor was decision applied the FTC Holder Rule
bers. Unfortunately, because they were subject. This creates a conflict between contract language without considering
settled rather than litigated to a conclu- the FTC Holder Rule, which states that the limitation on assignee liability in
sion, these cases give little guidance as an assignee is liable to the consumer, TILA section 164 I(a). For example, the
to what the ECOA requires of assignees. and TlLA section 164I(a), which pre- Alabama court in Eachen v. Scott Hous-
This subject and the ramifications cludes such liability for TILA errors not ing Systems, Inc.#' was faced with the is-
for future litigation against assignees apparent on the disclosure statement. sue of whether mobile home buyers could
are discussed at greater length in two However, this apparent conflict was sue both the mobile home manufacturer
fC(;enl artides by one of your authors. 40 firmly resolved in favor of limiting li- and the finance company to which their
ability by the line of cases considering retail installment contract was assigned
E. The FTC "Holder" Rule" the issue, starting with Taylor v. Qual- for breach of warranty. Instead of relying
ity Hyundai, Inc. 4l That case held that on section 1641(a) to defend the TILA
1. Federal Holder Rule Cases the language in the FTC IIolder Notice issues, the finance company argued that
cannot override the limitation on as- the FTC Holder Rule does not provide a
The FfC "Holder" Rule4~ requires signee liability in TILA section 164I(a): basis for making a claim directly against
that the following language be induded the assignee, but rather only applies if
in at least ten point bold type in all The plaintiffs initially argued that the plaintiff were defending a suit filed
consumer retail installment contracts: . the TILA actually has nothing to against it by the assignee. The Eachen
do with the assignee's liability court rejected this argument, holding
in these cases, because they are that the FfC Holder Notice language
bound under the terms of the con- imposed liability on the finance com-
tracts they accepted, wholly apart pany because it was a subsequent holder
:lll. 11 CFR • 201.1(1). Iu"""". 'ha;, """.'i...... C"1e<! .... from the statute ... .In our view, of the contract.·7 Similar rulings were
-multiple c<edi!¢<- ROle
however, this misconstrues the
39. 11CFR~m6(.).fOOlMl.2.
effect of the Holder Notice insofar
as it governs TlLA-based claims.

...
40. Jolm L R<:>pieqU<l.nd N.. t.an O. I..undby. APR $p/il Cit",
,\<1...... Unde, t!le £q;Hl1 C,<Ji, Opport""i", Ad: TI.. £lid
0/1';'''''7<'.6 Teonsu""" ~;~. L,O. Rep. 49 {:lOCI?), Jo'm L
RopieqU<l .nd N.lIw> O. l.<>ndhy. tko/or RaI< P,,"idflO'.....
OW> .....'i"'" Um1<' ,!Ie £COA.; Ik"" II'< R<ach<d ,I>" &01 44. Id", 69),
,,/th. Rfl<Jfi!, 61 Bus. Law. 663 (:lOCI?),
4S. WIlke< Y. W.lloee "'U", S.,... I..... ISS F.ld 927. 93S (7'h
41. 5<1. A."""",1I,0 M.rt E. 0.,;.,. Eua"'" J. Koll.y. I,.. John The Holder Notice, even Ihough CO,. Im.'EII".,Ge"".. IMolon.'u:C<ptor»oC....,. I60F..Jd
L. R.,..,...,.,,,,,.••" On".-.pheo S, N"oj>. ",<.• i6"'" U"hilir. contained within the contract, 703. 709 (11th CO,. 1991); 0""• •. L<",i, M<>to«. h", .. 179
Un4" ,I,. TIUo.' I. ,10< C<>n4,,;' TIr<",,' R...II! l><a<I~. S4 F.3d 286. 29.\ (Sth Ci,.). «". d<ni<J. S20 U.S. 1020 (1m):
Coot...""" Fin. L.O. R<p, 24~ (ZOOll). ..pri"r<d iIP Roo...... &: was not the subject of bargaining R:LrN<bn Y. au.. M.nh..,.. C",p.• 219 F,Jd 194. 199 (3d
M,uH. To"," '" LENoo"'" 11.(16141 (lOO6 Su.....). Ci,. WOO): Bal<le"", •. C;'yCheY<oIeI. Buick &0 Ceo.I"".. 214
F.Jd 849. an P'hCu. WOO): lrby.o..-. Y M.OR.. In<. 79
42. '6CFR t 4)).2. Thi, i, """""""'y c.ll<~ ,he .. HQIde.... ",I. F. Sup{>. 2d 630. 63.1':16 (E,D, VI. 20(0).
becau.. i, arr""" It>e ,iShU of hoklets k..l....,ivoces) of e<ell;'
<o<>1fKU, ..", wo> ~i<e<:l<:<l i. "..~ .. P<CVCOl'inS holde, in duo #. 630 r. S"Pf'. '62 (N,D, AI•. ,98(;),
COUlt< "at",
u""", ,lie Uunif""" Com"",,,,i.1 Code WCC).
Su.•.,., UCC If 3·:102 ..105(h). ).J06. n. 1~F.:ld669(7'hCi" 1m). 47. Id." 164-6S
 284
handed down in other state cou~ and
federal courts'"' in the yean preceeding
the Tayibrdecision. However, these cases
are called into question by the courts'
failure to consider the impact of TILA
section 164I(a), especially after Taylor.
Following the federal court deci-
sions in Taylor and numerous cases
subsequently confinning Taylor, there
still remained the issue of whether the
same rule would be applied to state law
claims. This issue was carefully
Iyzed by the Illinois Supreme Court in
an important decision, Jackson v. Soulh
Hofland Dodge, Inc. 5O In addition to fol-
lowing Taylor on the issue of whether
the limitation on assignee liability in
TILA section 164I(a) affects liability
under state laws, discussed immediately
below at Pan UtE, the Jockson court ad-
dressed whether the FTC Holder Notice
language nevertheless imposed liability
on a subsequent holder of the contract
Noting that all of the federal courts that
had addressed the issue rejected that
argument, the Jackson court likewise
found that the FTC Holder Notice lan-
guage could not impose such liability.51
Nonelheless,lhe trealment oflhe FTC
Holder Rule in subsequent cases, both
state and federal, has not always been
consistent. For ex:ample, in Alexiou
v. Brad Benson Mitsubishi,51 a fed-
eral district court followed Ramadan
in holding that the New Jersey state law
Holder Rule was·expressly preempted
by TlLA section 1641(a) and therefore
the Slate law could not be the basis
for imposing liability on an assignee
for state law claims under the New
4L S-. ~.. ~ - . _ s,-. •. Jeuop.. ....
lAloob I9I:J);~
:z.l)ll (1..a. l~
_a T.- ..
no- ........ _
NcI. " " ' 617••19 ~ m
Cl9lIl; _
1.... 560t1i0""' Jd IQ565 N.E.2oIIott(llU),.
.&t. s",. ~.._ ".",. •. _ ~ S<rvias. loe.. 951 F.
Suw 010. 1)'1).16 (IoU). Ala. 1996): ~ •• Said.
911 F. Sopp. OllJ. loI01.f1) 10. KaL 1",1; Coa •• "...-
N.._ . ~ of C"_ _ 6J} F s..w
011... 1\1161.
'0. 1971U. ld)9. 755 N.E.ld061 (2OOb
51. hi. • 53·55. 755 N.E.ld. 411-71.c~i...
69'l-'l3: Em•. 160 F.ld .. 101-09; and
51.
'"
111 F. s"PI'.2d 557 (O.N.J.lOOOl.
QUARTERLY REPORT
Jersey Consumer Fraud ACI,SJ breach of
contract, or money paid by an estate.S4
On the other hand, in Cavette v.
MasterCard Int'l, Inc.,ss a federal
district court completely ignored the
issue of federal preemption of conflict-
ing state law under the TILA. At issue
was whether the plaintiff's claim, that
MasterCard's failure to disclose its cur-
rency conversion fee violated the Ten-
nessee Consumer Protection Act,56 was in
ana~ conflict with the disclosure requirements
of the TlLA, which include no duty to
disclost:: such information. The court
found that no federal question jurisdic-
tion was present under the artful plead-
ing doctrine, and remanded the case to
state court without reviewing the TILA's
requirements for open-end credit disclo-
sures or the federal preemption issues.
In Psensky v. American Honda Fj-
tlQIl,Ce Corp.. 57 the New Jersey Superior
Court, Appellate Division, overruled
an earlier decision)lj in which a lower
court had held that while TILA sec-
tion 1641(a) applies to TILA claims,
it does not apply to claims under the
New Jersey Consumer Fraud Act" The
Psensky court held that in the absence of
an allegation that the defendant assignee
actively participated in the wrongdoing
by the original creditor, in that case
an auto dealer, the assignee's compli-
ance with the TILA was "a complete
defense to the [related] state c1aims."6O
A similar ruling was issued in Vickers
v.lnterstate Dodge, Inc." In Vickers, the
trial court had found both the original
creditor, again an auto dealer, and its
assignee liable on a claim that the dealer
,~ 14) II N.J.-.IVta.H560I-I ......
~ Jl4Sa.
CNdiI Coop.. ....
.. - .
"- 1:11 F_Soopp.2Jd '1),'19(N.0. T_1OO}~
S6. T.... CookNaH~1.1•. IOI .. _
n. m"'J.s..""'.nl.I7' ....2<I9)(lOll-SI.
!:I6. Ull (S.D.
.sa. Soou •. ~_I_CGrp..)6Jl'U.s.--.
145.')1 ....2-cl-S64 (2001).
-SIl. NJ. Sooo. "'nn, n .56:'·1 .. Hf.
TQ._. ISO FJd 01
e..-. 119 l'.:l<l M 60. )11 NJ. S"fl<'. 01231. 115 "',ld M196. c;l;ftIJ(>(;s.-. 75-S
61.
N.E.2-cl462.
SS2So.2<l1136(L4....PI','2005},
had forged the plaintiff's initials on an
option to purchase credit life insurance.
On appeal, the Louisiana Court of Ap-
peals followed Ramadan and Ale:ciou in
finding that the definition of "creditor"
and "extender of credit" under a state
statute could not extend liability to
an assignee in contravention of TILA
section 1641(a), and that the FTC
Holder Notice language in the contraci
also could not extend such liability.61
One commentator has recently recom-
mended that consumers rely on the FTC
Holder Rule language to seek redress
against both original creditors and as-
signees for any type of claim that they
may have." He advocates this since the
language in the FTC Holder Notice is
designed to make all subsequent as-
signees essentially "stand in the shoes
of the seller.'''''' However, in support he
cited onJy pre-Taylor cases and cases
involving rescission, a special circum-
stance discussed below in Part IlI.G.
He did not discuss Taylor or the cases
following it Such arguments may sway
courts that are unfamiliar with the now
well-settled rule that the TILA section
164I(a) limitation on assignee liability
trumps tbe FfC Holder Notice language.
This approach to the issue may have
influenced the court in the recent case of
Glovier v Barton Homes, lLC,65 finding
that no federal question was presented
in a situation similar to that presented
in Cayeae. The Gluy;er cast:: had bec:n
removed to federal court on the ground
that plaintiff's claim under the FTC
Holder Rule presented a claim arising
under federal law. The Glovier court
ruled that bringing breach of contract
and other state law claims against an as-
signee pursuant to the FTC Holder Notice
language did not create federal question
jurisdiction since the FTC Holder Rule
does not create a federal private righl
6l. u.• 12oIl.
6:1. Oo.vidA.SIwU. ~fTC -Hold<>-- 1I-k.60Conounoo.F...
L.Q. R<fI.)61 (2006~
64. Id.• l64.citi•• 1'fC 0'id<1...... 41 Fed. Rq.lOPl1.lOPl)
65.
(Ma, 1•• 1916).
lOO6l,1.$. 0iJI. w;.65115 (W.O. 1.4. scpo, lJ.lOO6).

of action.1It As in Cavette, the Gloviu
court gave no consideration to whether
the claims implicated me limitation on as~
signee liability in TILA section 1641(a).
Whether thai issue will be raised after
remand to state court remains to be seen.
F. State UDAP Laws67
The FTC Holder Rule cases also deal
with the question of whether a consum-
er's claims against the original creditor
are preserved or extinguished upon as-
signment of the credit inslrumell{. If Ult~
claims are preserved, and are not other-
wise preempted by federal law or barred
by state law, they can be asserted against
the assignee. If they are extinguished or
barred by the assignment, they cannot be.
Such claims may involve the question of
whether disclosures required by the TILA
have been given by the original creditor.
As discussed above, under section
164 I (a), TILA disclosure claims may
not be asserled against an assignee
unless they are "apparent on the face"
of the disclosure statement. A related
and significant question is whether the
original creditor may have done some-
thing underhanded or fraudulent that
may subject it to liability under a state
Unifonn Deceptive Acts and Practices
(UDAP) statute but which cannot be de-
termilled simply by looking at the face of
the loan documentation being assigned.
Can such claims be brought against an
assignee under the UDAP statute, or
does the limitation on assignee: liability
in TlLA section 164I(a) also absolve
an assignee of liability for such claims?
This was the most imponant question
that faced the Illinois .supreme Court in
Jackson v. South Holland Dodge, Inc."
At issue was whether an assignee could
be held liable under the Illinois Consumer
6l. .sn, ~ e..- J. Ko,JIty. J'_ MIl _
--,
~ ~u-.s-u-~ '""'*- "" Sooodo
e--..
HolJanil DodIC>' S6 Fi•. LQ. R.... 16 (1OOll.
..,.- .. - . . a IotIua. T _ .. " - , 11.06lS)
QUARTERLY REPORT
Fraud Ad" where me auto dealer assign-
or violated the TILA by failing to disclose
that it retained part ofthe price being paid
for an extended warranty instead ofenter-
ing the full amount of the purchase price
as an "amount paid to others" in the TILA
disclosure statement. This would present
a TILA violation on the part of the dealer,
but under federal circuit court of appeals
decisions, an assignee who purchased
the retail installment contract from the
dealer could not beliable under the TILA
because the violation was not apparent
on the face of the disclosure statement.
Drawing on its earlier decision in
fAnier v. Associates Finanr:e, Inc.,70 the
Jackson court found that the assignee:
fully complied with its TILA obliga.
tions by purchasing a contract that had
no TILA disclosure violations apparent
on its face." The court further found
that holding an assignee liable under the
Illinois Consumer Fraud Act where the
TILA exempted it from liability would
violate the state's public policy because:
If an assignee were liable under
the Consumer Fraud Act, though
exempted from liability under
TILA, it would impose disclosure
requirements on assignees beyond
those mandated by federal law.
This would frustrate the overarch-
ing reasons put forth by Congress
in enacting the assignee exemption,
i.e., to narrow assignee liability, to
make compliance easier for credi-
tors and to eliminate confusion as to
the responsibilities of assignees. [ci.
tation omittedl Thus, we conclude
that an assignee is not responsible
for the misrepresentations made by
the dealer to the consumer outside
of reviewing the face of me assigned
document for apparent defects. Ac-
cordingly, we will follow lAnier
and hold that compliance with the
L. It-.
69. liS IlCS Xliii ......
11. 1911.. :101 ••1-&1. m f'(L1I<l. __ anooc.",..... 1:10 f.Jol
.69I._,-'n9f.Jol.19'l.31l;Gtftow.I19f.Jol
• m-96: fllo. 160 f.Jol_ 709-10.
28S
disclosure requirements ofTILA is a
defense to the Consumer Fraud Act
claim against Chrysler in this case. n
As noted above at Part lU.E.2., this
holding in Jackson was followed in New
Jersey in Psensky v. American Honda
Finrlnce Corp./J overruling the earlier
decision in Scott v. Mayflower Home
Improvement Corp. I. The Psensky court
agreed that absent some allegation that
the assignee actively participated in
wrongdoing by the dealer that assigned
the contract to it, so that only a failure to
disclose was present, there could be no lia-
bility, adopting the rationale of Jadson. 7)
TIle same result occurred in California
in Silvas v. PTrOOe Mortgage Corp.76
In Silvas, the plaintiffs claimed that the
defendant mortgage lender failed to
rescind the transaction after receiving a
proper notice of rescission and violated
the TILA in other respects. They failed
to file suit within the one-year statute of
limitations provided by the TlLA, so
they sued only under sections 17200 and
17500 of the California Unfair Competi-
tion Law (UCL), n which had a four-year
statute. 1be rnongage lender asserted that
allowing the plaintiffs to prosecute claims
under the California statute when their
claims would be barred by the TILA
conflicted with the TILA's federal
regulatory scheme. Thus, the state law
claims should be preempted. The Silvas
court agret:d that the VCL claims could
not be brought where equivalent TlLA
claims were barred because to allow such
claims would defer to conflicting state
regulation of the defendant's activities
as to issues where federal law and bank-
ing regulations occupy the entire field. 1I
n. )7!NJ.S........ lll.!1S ... .ldl9O(200S~
14. .16J NJ. s.p'" 1.5. 13 I A.2<l 56'l (tOOl).
H.
......
311 N.J. $op'" Ill. lJI. In A.ld 290. 296. ci".1
l6. .~ I F Supp.2d III 5(S.O. Cal. 2llO6~
T1. Cal. 8ool. .. hol.CodoH Inco. lnoo.
"JI,. CPR I *..1. no.
.ll F. SIw.ld. 13:!O.Ooiooos I~ ~
~ ... kdmII_...-,._.-",,-... ~
TI~
 286
The Silvas court distinguished a recent
California state court decision, Smith v.
Wells Fargo Bank, N.A.,7'! because the
Smith court dealt with "a different,
narrower, preemption regulation, and
it also did not apply field preemption
principles. "80 Smith involved VeL claims
concerning fees for ATM and check card
overdrafts. The Silvas court stated that
Smith only involved a predicate act of
violating federal disclosure requirements,
but did "not involve or seek to impose any
state law [imitation or other state require-
ment regarding disclosure."s, The Smith
ruling therefore did not conflict with fed-
e~l regulations or implicate federal pre-
emption of the state law causes of action.
Under these cases and others, it is
clear that the limitation on assignee li-
ability in llLA section 1641(a) applies
to bar state law claims if the state law li-
ability is merely derivative of the original
creditor's wrongful act against the con-
sumer. Forexample, the lllinois Supreme
Court ruled in Zekman v. Direct American
Marketers, lnc. n that an assignee has no
derivative liability under the state UDAP
statute for the act of another person who
directly defrauded a consumer, even if the
assignee knowingly received the benefit
of the other's fraud. 33 Derivative UDAPIi-
ability has also been rejected elsewhere. S4
If, however, the assignee can be found
to have participated "directly" in the
claimed wrongdoing, a UDAP claim may
still be possible. For example, in Knapp
v. AmeriCredit Financial Services, Inc.,8s
it was alleged that the assignee's branch
manager conspired with an auto dealer
to create false documents and to hide a
finance charge in the vehicle price stated
on the retail installment contract. This
would make the assignee directly rather
19. 13SCal."~.41h 141\3. J8CaI.Rptr.3<16$3(2OOS\.
80. 421 F. SoW.24 .. 1320·21.
82. 182 111.2<1 3S9. 69S N,E.2<I ISJ (1m).
83, Id." J69.695 N.E.2d ot 159,
S4 h. ~-t:..
Ilon>e S..in;< " ..·n., Coe"". 1)3 S.W.2d 134.
1)(i{Te<. 1987); H"""y •. r....-d Mo«>rC«di, Co.• 8 S.W.3d
273. 275{Tenn. "'1'1'. (999).
85. 245 F. S0I'l'.2<1841 (S.O.W. Va. 2OO3~
QUARTERLY REPORT
than derivatively liable for a UDAPviola- G. Rescission
tion. The Knappcourt accordingly did not
dismiss the UDAP claim against the as- 1. Intr-oduction
signee, although it did dismiss the claims
brought against it under the TILA. 86 Where a plaintiff claims a right to
This issue was addressed more recent- rescind a credit transaction, the rules
ly in Cazares v. Pacific Shore Funding. 81 change. This is true in two different
The Cazares plaintiffs sued a mortgage respects. First, the FTC Holder Notice
broker and its assignees under the UCl language will be given effect against an
for TIlA and HOEPA violations, alleg- assignee where the consumer seeks to
ing that the assignees participated directly rescind the transaction after receiving
in the broker's loan transactions by dic- "little or nothing of value." Second,
tating the mortgage broker's loan tenns, mortgage borrowers are given a statutory
financing the loans issued by the broker, right to rescind which is made expressly
and paying a premium for including pre- effective against assignees under the
payment penalty provisions that violated TILA,93 Both types of rescission have
the HOEPA prohibition on such terms been the subject of substantial litigation.
in high cost mortgage loans. The court
agreed that "secondary liability cannot be 2. Consumer Received No
imposed under the UCL," but found that Value
these allegations of the assignees' direct
involvement in wrongful conduct were In the Taylor decision, the court stated
sufficient to state a claim under the VCL. sa that it was not interpreting the limitation of
The Knapp plaintiffs also asserted that assignee liability in TILA section 1641(a)
the assignee was liable for the dealer's in such a way as to make the FTC Holder
alleged violation of the West Virginia Rule a nullity. It took note of a line of
usury law. '9 Although the court found cases providing that where the consumer
that there was no usury violation,90 such a has received "little or nothing of value,"
claim could clearly have created liability there is a common law right to rescind
for both the dealer and the assignee if it the transaction. The court therefore held:
had merit, since the TILA does not pre-
empt this type of stare regulation. Under As a legally required part of every
TlLAsection 161O(a)(1),91 theTfLAonly consumer financing contract, the
preempts state laws that are "inconsistent Holder Notice continues to perfonn
with the provisions ofthe rrfLAj and then an important function even in the
only to the extent of the inconsistency." contracts between the plaintiffs and
Since the TILA docs not regulate interest their respective assignees. If the cars
rates, this is one type of state law claim turn out to be lemons and they assert
that can clearly be brought against an as- a right to withhold payment against
signee as well as the original creditor. 92 the sellers, they may also assert the
same right against the assignees. 94
This ruling followed from earlier case
law which held that the FTC Holder
Notice language allows a consumer to
17. 2006 w~ 149I(1(;(C.0. Cal. Jon.). 2(06),
pursue affirmative claims, as opposed
II. /d. at '9.
to mounting a defense, "only if the
89. W, V:l. Cod< ~H6.0.·3·'OI '''«I' seller's breach was so substantial that
90. 245 F, S0I'l'.2d at 850·51.
9L IS U.S.C. ~ 1610(.~11. S.. "I", 12CFR f 226.28(a~I).
92. F<>r. o;><u.. ;on 01 federal pm:mption 01 OIO'y I.~ wilh
=POX! ,,, ""'""1"'< l<OO;nl. _ JoII" t. Ropi<qu<! ond Eo·
30"" J. Kolle).J,__ Un,rySr.. i..,.
8",t, Ret·..., £J.<o.<k",,,,,,,,,
U"J" ,,,, 111•...,;-, I",~" A<I. 59 Coouom." Fin. LQ. Rep,
118(2005); Jolin L Ropi<qlltlan<l EoiC"" 1. Kelley.J,.. Usury 93. S.. ISU.S.Cll64I«),
R<o-;,II«I: Th, /1/;"";> $up,..,,, C""" K;~h" 1M Sa/U'k', in
Mf,"....~. L<"Ji"~. 60 COloomorfin. '-.Q. Rep. 131 (2006). 94. 150F3rI.,693.

rescission and restitution were justified
under applicable state law principles. ~
Claims for rescission outside of lhe
mortgage finance arena are unusual,
since TD...A plaintiffs typically seek only
actual or statutory damages. Occasion-
ally, a TILA claim will be coupled with
a claim under the Odometer Act. 96 For
example. the plaintiff in Irby-Greene v.
M.O.R.• /ru:. 97 claimed thal a 40,000 mile
odometer discrepancy entitled her to re-
scission and restitution. While the court
dismissed the TILA claim against the as-
signee, it did not dismiss the Odometer
Act claim, although it did cast doubt on
whether such a discrepancy could entitle
the plaintiff 10 rescission in a decision on
the merits of the case. 9I Similar rulings
have been issued in a few other cases."
3. TILA Statutory
Rescission Rights
The TILA permits a mortgage bor-
rower to rescind the transaction for three
business days after the transaction is con-
summated or delivery of the material dis-
closures required by lhe TlLA, whichever
is later. IGO If, however, the creditor fails
to provide the required disclosures or
fails to make them clearly and conspicu-
ously, as the TILA requires, the right to
rescind does not expire until three years
after the consummation of the transac-
tion or the sale of the property, whichever
occurs first. 10I A failure to comply with
these requirements can create substan-
tial difficulty for mortgage lenders.
Forexample, in Hammox v. Heartland
Home Finance, lnc.,I01. the plaintiffs
sought to rescind the mortgage loan be-
91. _ •. Las.-._UhV_.916F.s-.m.1'6).6f
tN·D.IL 1996~
96. ., u..s.c. I :mm.
91. 79F.s.w.:!d6lO(E.D.Va.2lIIlO).
99. s...e.,.c" AItI..... - . . I..... 65F.SUPfl.2dlU.
19991: Ilaa« Y. t-is Roint$ - . . 1 .....
J'iIO(w.o
:lOP.S_2d919(S.D.W.Ya.I_l.
100. 15 U.S.C f 16J5/.0'
101. 101. f 16:15(0.
t02. :lOO5 WL IIJOJ471E.O. r ...n. M'r 1.l.2(05).
QUARTERLY REPORT
cause they allegedly did not receive the
requisite two copies of the disclosure
statement. even though they had signed
a document indicating that they had re-
ceived them. 1lle court dismissed their
claim for actual and statutory damages
against the assignee because such a viola-
tion was not "apparent on the face" of the
documents that were assigned. 103 Howev-
er, since their signatures on the document
only created a "rebuttable presumption
of delivery," which they might be able
to disprove at trial, the court did not dis-
miss their rescission claim. t~ In another
case, Oscar v. Bank One,I05 signing the
disclosure statement at the loan closing
was sufficient for the court to grant sum-
mary judgment dismissing the plaintiffs'
rescission claim since it was not rebutted.
The issue of damages in connection
with a rescission claim arose again in
Belini v. Washington Mutual BanJc, F.A. 106
In that case, the plaintiffs sent the as-
signee bank a notice of rescission which
asserted that lhe mortgage was subject to
the HOEPA and that the original credi-
tor had not made the disclosures that the
HOEPA requires. When the bank failed
to return any of plaintiffs' payments or to
terminate its security interest, the plain-
tiffs sought damages for the monies that
were not returned as well as rescission.
The trial court found that the damage
claims were barred by the TILA's one-
year statute of limitations and that they
could not rescind becausc ofan exception
in the TILA with respect to their state.
The First Circuit U.S. Court of Ap-
peals reversed. It found that the one-year
statute of limitations underTILA section
1640 began to run from the "date of the
occurrence of the violation," which was
the date when the plaintiffs sent their
rescission notice, not the earlier date
when the loan closed. The plaintiffs'
claims for damages for failure to com-
ply with the rescission notice therefore
10). 1<1._'1.
lOt. /d." '2.
lOS. 2lXI(i WL 4OllS.l (liD. Po. Fell. 17. 2OO6l,
106. 412 F.3d 17{1 .. Ci<. 200.1,
287
were not barred. IOl The court also found
that there was no basis to deny plaintiffs
the right to rescind the transaction. IOI
In three recent cases, courts have
found that the statutory right to rescind,
when extended beyond the initial three-
day period by failure to make timely dis-
closures, will survive a refinancing of the
loan. An earlier case from the Ninth Cir·
cuit U.S. Court of Appeals, King v. Slat~
ofCalifornia, lOll held that rescission was
not possible when a mortgage has been
refinanced because once the mortgage
has been paid off, there is nothing left to
rescind. The Sixth Circuit U.S. Court of
Appeals took a fresh look at this issue in
Barrett v. lP Morgan Chase Bank, N.A. IIO
After noting a split in the district court
decisions subsequent to King, with some
courts following it,ll I andsomenol, I12 the
Barrett coun emphasized the mandatory
nature of the TILA requirement that the
right to rescind be disclosed in finding
that rescission rights survive refinancing:
To the extent banks wish to avoid
a three-year window for bringing
rescission claims. the Act offers
them a fail-safe way of doing so: sat-
isfy the disclosure requirements. II)
The Barrett court cautioned that there
had still been no detennination on the
merits, as to "whether the bank failed to
make the required material disclosures or
failed to disclose adequately the Barretts'
right to rescind, which are the types ofdis-
closure errors that must be present to trig-
ger the three-year right of rescissicn.'·114
107. U•• 2S.
10l. .w..n.
Ito. 445 F.3d tl4 (... Or. :lOO6~
III. s.... e.,~ __ •.Mor<.blo Mot1:pc<. Co.. 231 F. S-
2d m. 745-06(N.D.llL 200:!): e - '. ~ eo.,.
of A.eeri<:o. 2001. WLU750 _ '1 (N.D. II. 2001.~
112. s... e.... Mcl_ y.l<wio. u-.. Bonk a T..... 0... 215
Marl,.,.
1'. ... 0. 26. Xl (D. 104.... 2OO1I: Par- Y. New C.......,.
Corp.• 2001 WL n]4911.... '2 _ .. I (N.D. Ill.
:lOOll: ""lpIlus •• s..ni_. 200) WL 19641JJ _ °11 (N,D.
11l.2OOl).
Ill. t1wrtll.445F.Jd .. UI·32
114. 1<1... 882.I.........i. in onlioul).
 288
Just nine days later, the California
Coon of Appeal declined to follow the
Ninth Circuit decision in King and in-
stead followed Barretl. in Pcu:ifi.c Shore
Funding ",.l.o40.lUciting the Kingcoun's
lack of analysis and its failure to support
its decision by referring to the language
of the TILA and Regulation Z. which
contain "an enumerated list of events
thai cut off rescission rights-and do nOI
include lhe payment in full of the loan as
one of those events."ll6 The Pacific Sfwre
court also distinguished King because,
unlike Ihe facts there, the Low plaintiffs
continued to hold title subject to a se-
curity interest, so that "something does
remain to be rescinded in this case."lI7
Finally, the Seventh Circuit U.S.
Court of Appeals followed Barrell in
Handy v. Anchor Mortgage Corp. III fn
that case, the original mortgage lender
provided two conflicting forms notifying
the borrower of her righl to rescind. The
trial court dismissed the case on the basis
that either one of the forms would have
given her notice of her rescission righlS.
1be Seventh Circuit reversed because, al-
though one of the forms was the correcl
one and gave her notice that the entire
loan could be rescinded, the other form,
which was not the correct one for the
transaction, suggested thatshe could only
rescind the additional amount being refi-
nanced, $5.500 out of the entire $80,500
loan. This was legally insufficient to give
the requisite notice of right to rescind. 1I9
The court noted that "TILA does not
easily forgive 'technical'errors."llOWith
respect to the argument that because the
loan had been paid off, rescission was
not an available remedy, the court fol-
lowed Barrett because there is a right
II}. 1)1 Col""""'" lloll. ~ CaLRfI'LloI m {1(l(l6~
116. u.• 1~l..1 C,UI"""Jd. 29ll. ciIioo:I Mtl-ar. •. I.....
u."", B.._. T.... Co.. ll~ F.Il.D. l6.)1 (0. Man_
"""
117. U.• 1]5).501••2 CoUlp"_:Jd. m.
III. ~ F.:lcl 7fjl) (1th C;'_l_
119. 1<1... 164.
11<1, Id.. <"i•• (;C>Wefl ". ",nk United of T..... fSB. 10 F,ld
93', ""11"h Ci,. 199~1 (··hno<no<.... ;,;.Ii,~ ..i.n," in TlLA
<,.. s),
QUARTERLY REPORT
to rescind the lranS3Ction, not merely a
right to rescind the security interest III
On the other hand, and despite the
"technical errors" admonition in Handy,
the courts do not always show an eager-
ness to find in favor of rescission claims
where they are based on mere technicali~
ties. In Mills v. EquiCredir Corp.,ln the
plaintiffs asserted that the defendant's
use of an incorrect disclosure form was
a material misdisclosure that triggered the
extension of their right to rescind beyond
the three-day period. The Sixth Circuit
rejected this argument and affirmed
dismissal of their T1LA claims because
they received actual notice of their right
to rescind, as the TlLA requires, even if
an incorrect fonn was used. However, in
Rollins v. Drive·] ofNorfolk. ]nc., III the
court found that the FTC Holder Notice
language in the mortgage documents
formed the basis for an affirmative
claim for rescission against the assignee
even where the plaintiff failed to plead
a claim for rescission, so long as suf~
ficient facts were pleaded to justify it.
IV. Conclusion
The limitation on assignee liabil-
ity in TlLA section 164I(a) has with-
stood many attacks. It continues to
be recognized as affording broad and
meaningful protection to all assignees.
But there are exceptions, and these can
l,;reate a minefield of risks for assignees.
The CLAallows an assignee to be tainted
with the status of 3 "'essor," analogous
to the "creditor" under the TlLA, where
there has been substantial involvement
in the lease transaction. And, while
an attack on assignee protection was
rejected in an important credit card
case, the protection provided by section
164I(a) is not available where HOEPA
applies. There is potential exposure
in an ECOA sening as well, although
the parameters of the multiple creditor
Ill. /d_ .. MS-66.<~;.1 BItT.... ,.us P.ld ,,'71,
122. tn Fed.AI'!"'. 6S2(6<h Ci,.F<b.l'.lOO6).
1U :!006 U.S. DiOl, Le.i, 61191 (E.O. 'IL AUI- 19. :!006,
rule and Regulation B "effects" test
have never been settled in this context
Section 164I(a) protection has sur-
vived claims under the FTC Holder Rule
that do not involve rescission, but there
is always the danger that courts which
are not made aware of the relevant
federal case law will fail to recognize
that protection. Claims under other state
laws may also circumvent the protec-
tion. Finally, rescission claims, while
often difficult to substantiate, may have
vitality since they present yet another
exception to section 1641(a) protection.
So, assignees must walk carefully in
this minefield. Direct participation in the
original creditor's operations can and
does lead to liability. It should be avoided
wherever possible, because it may suf-
ficiently entangle the assignee to confer
assignee liability in one of the situations
discussed above. Assignees should never
take the protection from assignee liabil-
ity under section 164I(a) for granted.
FTC Postpones
Prohibition...
In the October, 2006 Notice, the
FTC made several announ<:ements relat-
ing to the issue of whether prerecorded
telemarketing calls are subject to the
Telemarketing Sales Rule's regulation
of "call abandonment" when there is an
csllblished business reJaiionship between
the selltt responsible fur the call and the
called consumer. In the October 2006 No-
tie:e, the FTC !Wed !ha£, begiDnirtg JanUill)'
2.1JXJ1, sellen would 00 Iongtt be able to
take advantage of the safe harbor allowing
prem::orded Iekmam:ting messages based
on an eSlilblished business relationship.
In the December, 2006 announce~
ment, lhe FTC swed thaI il had received
four petitions requesting Ihal the fTC
exlend the lYail.ibility dale of this safe
harbor until the FrC completes its eum:nl
rule making proceeding regarding the ose
of prerecorded telemarketing messages
based on an established busiroess relalion-
ship. The FTC granted these requesls.
 "Assignee Liability: Through the Minefield," Consumer Finance Law Quarterly
Report 261 (Vol. 61, No. 2, Summer, 2007) (with Eugene J. Kelley, Jr. and Georgia
Logothetis)

This document is republished with permission.