Alert

District Court Dismisses Truth in Lending and Regulation Z Action Against Corporate Executives

September 25, 2024

On September 13, 2024, the United States Court for the District of Massachusetts dismissed a pro se litigant’s claims against four executives of a bank for alleged violations of the Truth in Lending Act (TILA) and certain provisions of Regulation Z, 12 C.F.R. §§ 226.22, 1026.5 after Plaintiff alleges that he was inaccurately charged more than the Annual Percentage Rate (APR) reflected in a promissory note.

Factual Background

On or about June 6, 2020, bank executives were sued after Plaintiff received a loan in the amount of $23,135.68 used to purchase a 2010 Toyota Tacoma. The Retail Installment Sales Contract (RISC) Plaintiff signed set a 60-month payment schedule with an APR of 15.66%.

In his complaint, Plaintiff alleges that the four named bank executives violated Regulation Z because of a discrepancy in his March 7, 2023 payment that purportedly reflected a 90.11% APR, which was beyond the one-eighth of a percentage point margin of error allowed under § 226.22. Plaintiff further alleged that the “complete terms and conditions” of his vehicle loan were “not entirely realized and considered” by Plaintiff before he signed the RISC in June 2020.

After removing the complaint from state court, the four executives moved to dismiss Plaintiff’s complaint under Rule 12(b)(6) on the grounds, inter alia, that they were neither “creditors” nor parties to the RISC and, therefore, could not be held liable under TILA or Regulation Z.

Analysis

The court agreed with Defendants and held that none of them met the definition of “creditor” under either TILA or the parallel definition in Regulation Z in that none of them “(1) regularly extend[ed] consumer credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required” and were not the parties (2) “to whom the debt arising from the consumer transaction [was] initially payable” (internal citation omitted).

The court found that Plaintiff failed to allege sufficient facts to show that each of the Defendants were the parties who had extended the consumer credit to Plaintiff and were not the parties to whom the debt was payable. Further, the court reasoned that even though Defendants were employees of the financial institution that had extended the financing to Plaintiff, Defendants did not “fall under the plain language of the definition of ‘creditor’ under [] TILA and Regulation Z.”

The Takeaway

Defendants’ removal of Plaintiff’s action likely waived any personal jurisdiction defense Defendants would have had. However, had Plaintiff’s case been originally filed in federal court, Defendants easily could have moved for dismissal for a lack of personal jurisdiction as it was clear from the RISC alone that Defendants lacked the necessary minimum contacts to be haled into court by Plaintiff. In matters where their executives are directly named, financial institutions will often move for dismissal for a lack of personal jurisdiction, as a simple personal jurisdiction motion to dismiss can save preparation hours in preparing a motion to dismiss under Fed. R. Civ. P. 12(b)(6).

This item also appeared in the ABA Business Law Section’s September 2024 in Brief: Business Regulation & Regulated Industries.