In Discover Bank v. Morgan, 363 S.W.3d 479 (Tenn. 2012), the Supreme Court held that under Tenn. Code Ann. § 47-18-109(a) of the Tennessee Consumer Protection Act ("TCPA"), actual damages are recoverable for the loss of available consumer credit due to the actions of a defendant if such damages can be proven with particularity.
In Discover Bank v. Morgan, Discover filed an action against Morgan to recover over $16,000 in credit card charges. Morgan filed an answer and counter-complaint denying any liability for the charges, alleging instead that the credit card had been issued to her deceased husband who had designated Morgan as a mere "authorized user" on the account. Morgan also alleged that Discover had previously informed her that she would not be held responsible for the account if she provided a copy of her husband's death certificate. After Morgan did so, however, Discover attempted to collect the balance from Morgan and reported her nonpayment to the credit reporting agency.
At trial, Morgan alleged that Discover's action injured her credit in a number of ways – she could no longer refinance her property as expected which would have lowered her monthly mortgage payments by at least $200 over fifteen years; her accounts were closed and her credit privileges were suspended by other companies which reduced her available credit from over $123,000 to $5,500; she was unable to open new credit accounts; the annual percentage rate on her other credit cards increased; and she could no longer purchase investment homes at the interest rate previously available to her. Morgan submitted no other evidence to support these damages.
Based upon Morgan's testimony, the trial court awarded her $117,900 for her reduction in available credit, $6,800 for additional home equity costs, $500 in additional interest expenses on her credit cards, for a total of $125,200. Finding that the TCPA applied, the trial court trebled the damages to $375,600, citing Discover's "intentional actions." Finally, the trial court awarded Morgan her attorney's fees of $4,460 for a total recovery of $380,060.
The Court of Appeals vacated the damages award and remanded the case for a new hearing on damages, holding that while a decrease in available credit warranted some measure of damages, the amount should not be calculated on a dollar-for-dollar basis. The Tennessee Supreme Court held otherwise.
The Tennessee Supreme Court began its analysis with a review of section 47-18-109(a)(1) of the TCPA which the Court noted provides a private cause of action for any "person who suffers an ascertainable loss of money or property, real, personal, or mixed, or any other article, commodity, or thing of value wherever situated . . . ." Although the TCPA does not define "ascertainable loss," it commonly appears in other
states' consumer protection laws. After surveying the interpretations of other courts, the Court concluded that Tenn. Code Ann. § 47-18-109(a)(1) does not preclude damages for loss of consumer credit.
In reviewing cases from other jurisdictions which permit a cause of action for loss of available credit, the Court adopted a three-part test necessary for recovery. First, the plaintiff must have suffered a demonstrable loss of credit. Second, the defendant must have proximately caused the loss of credit. And third, the loss of credit must have caused actual harm to the plaintiff, such as lost profits or added costs.
Accordingly, plaintiffs must show something more than mere loss of credit. Rather, plaintiffs must demonstrate how the credit they lost would have resulted in specific profits or savings, e.g., higher interest on loans; lost discounts; or inability to earn interest. As a result, plaintiffs must lay "a sufficient foundation to allow the trier of fact to make a fair and reasonable assessment of damages."
The Court determined that Morgan had not provided a sufficient foundation to assess damages. However, because this was a matter of first impression wherein the Court articulated a new test for determining damages for loss of consumer credit, the Court remanded the case to the trial court for a new hearing on damages.
As long as plaintiffs can prove a loss of credit proximately caused by the defendant, and demonstrate the specific effects of that loss, plaintiffs will have a viable cause of action for loss of credit under the Tennessee Consumer Protection Act. Considering that the Act permits treble damages, insurers should be ever mindful of this new avenue of damages for plaintiffs.
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