On November 30, 2004, the Supreme Court rendered its decision in Koons Buick Pontiac GMC, Inc. v. Nigh, resolving a split between Circuit Courts regarding the maximum recovery permitted by the Federal Truth in Lending Act’s civil-liability provision in an action against a creditor for a loan secured by personal property. The Seventh Circuit had held that the Act capped a plaintiff’s recovery at $1,000. In Koons Buick, however, the Fourth Circuit held that a plaintiff suing his creditor on a loan secured by personal property was not limited to the statutory cap of $1,000, but could recover damages in the amount of twice the finance charge. In an 8 to 1 decision, the Supreme Court reversed the Fourth Circuit and held that under the Act, the maximum recovery for a loan secured by personal property is $1,000.
As originally drafted in 1968, the Act capped a plaintiff’s recovery at $1,000. However, subsequent amendments to the Act in 1995 introduced an ambiguity with regard to whether Congress intended to retain the $1,000 cap in actions that involve loans secured by personal property, such as the loan at issue in Koons Buick. The plaintiff had sought to purchase a used truck from Koons Buick, and had completed a loan application for the truck. Koons Buick had submitted the application, but was unable to get approval for the loan. The dealership revised the loan application, but was still unable to get the loan approved. After signing a third loan application the plaintiff noticed that the sales contract included a charge for a car alarm that he "neither requested, agreed to accept, nor received." The plaintiff returned the truck without making any payments on it, and filed his lawsuit against Koons Buick alleging, among other claims, a violation of the Act. The plaintiff demanded damages equal to twice the finance charge, an amount equal to $24,192.80.
The District Court held that damages were not capped at $1,000, and a divided panel of the Fourth Circuit Court of Appeals affirmed. Although the Supreme Court noted that that the "less-than meticulous drafting" of the 1995 amendments had created an ambiguity, it reversed on the ground that it found no indication in the legislative history of the amendments to the Act "that Congress … sought to remove the $1,000 cap on loans secured by personal property." The decision is an important victory for lenders, who may now exhale.
This article does not constitute legal or other professional advice or services by JORDEN BURT LLP and/or its attorneys.
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