Reprinted with permission of Blank Rome Comisky & McCauley LLP "Consumer Lending/Retail Banking Update." Blank Rome is a national law firm with offices in Pennsylvania, New Jersey, Delaware, Maryland, Washington, DC and Florida and its Consumer Financial Services/Retail Banking Group provides advice and counsel to mortgage companies, banks, thrifts, real estate professionals and all others involved in residential mortgage finance and other areas of the law. For further information, contact the Group's chairman, Paul H. Schieber at 215/569-5567 or schieber@blankrome.com. http://www.blankrome.com/

Three courts have recently addressed the relationship between TILA's assignee liability provisions and the FTC's Holder-in-Due-Course Rule. The issue in the cases was whether the FTC's expansive notice provision, which permits a consumer to assert "all" claims which he or she may have against subsequent assignees, includes claims for alleged TILA violations which are not apparent on the face of the disclosure statement.

In the first two cases, Taylor v. Bob O'Connor Ford, Inc. and Taylor v. Hyundai, Inc., an Illinois federal district court and the U.S. Court of Appeals for the Seventh Circuit, respectively, held that the general language of the FTC Rule is not intended to override the express provision in TILA which limits an assignee's liability to only those cases where the TILA violations are apparent on the face of the disclosure statement. TILA specifically immunizes an assignee from violations which are not apparent from the disclosure statement and plaintiffs may not use the FTC Rule to circumvent this immunity.

In the third, somewhat stranger, case, Chandler M.V.M. Construction, Inc., a Georgia appellate court found that the FTC notice contained in a home improvement installment contract imposed potential liability on the finance company to whom the installment contract was subsequently assigned, but that a jury would have to decide whether the finance company was liable under TILA or the terms of the contract. The quirky posture of the case arose from the fact that the plaintiffs and the finance company offered as evidence two different versions of the retail installment contract at issue --- one version which disclosed the payment due dates and another version which did not. The court thus held that a jury would have to determine which contract was genuine, which, in turn, would also determine whether the finance company could be liable under TILA for a violation apparent on the face of the disclosure statement. However, the court also noted that a jury would have to consider whether the finance company was liable under the "terms of the contract" since the agreement also contained the standard FTC notice. It thus appears that the court either did not understand or ignored the interplay between the FTC notice and TILA's assignee immunity, which was recognized in both cases discussed above.