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Banking and Finance Law Daily Wrap Up, CONSUMER CREDIT—4th Cir.: While TILA applies to home equity lines of credit, RESPA does not, (Aug 15, 2024)

Law Firms Mentioned:Borison Firm LLC | Orrick, Herrington & Sutcliffe, LLP
Organizations Mentioned:American Bankers Association | Borison Firm, LLC | Consumer Financial Protection Bureau | National City Bank | Orrick Herrington | PNC Bank, N.A.

By Joe Cox, J.D.

The federal appellate court’s decision partially affirmed and partially reversed the trial court, which had found neither statute applied to a HELOC.

The U.S. Court of Appeals for the Fourth Circuit has partially affirmed and partially reversed ...

By Joe Cox, J.D.

The federal appellate court’s decision partially affirmed and partially reversed the trial court, which had found neither statute applied to a HELOC.

The U.S. Court of Appeals for the Fourth Circuit has partially affirmed and partially reversed a federal trial court, ruling that one consumer protection statute did apply and one did not apply to a home equity line of credit (HELOC). The court ruled that the Truth in Lending Act (TILA) does apply to HELOCs, but that because of a Consumer Financial Protection Bureau (CFPB) exemption, the Real Estate Settlement Procedures Act (RESPA) does not similarly apply to HELOCs (Lyons v. PNC Bank, N.A., No. 22-1943 (4th Cir. Aug. 14, 2024)).

Previously, the federal district court in Baltimore, Maryland had found that neither statute applied to a HELOC.

Facts of the case. William Lyons opened a HELOC account with National City Bank, under which he received a credit card that he could use to obtain cash advances or make purchases using HELOC loan funds. PNC Bank subsequently purchased National City. Lyons subsequently opened three deposit accounts with PNC. In September 2019, PNC withdrew about $1,400 from Lyons's deposit accounts to cover an outstanding payment on his HELOC loan. PNC did not notify Lyons, and when Lyons protested, PNC argued it was entitled to make the withdrawals. Another $1,600 withdrawal was made by PNC in February 2020.

Lyons then sued PNC for interest he would have earned as well as violations of the TILA and RESPA, with resulting damages. PNC ultimately moved for judgment on the pleadings. The trial court found in PNC's favor in regard to both statutes. The trial court held that TILA's offset provision did not apply to HELOCs and thus PNC could withdraw those funds. Secondly, the court held that the RESPA disclosure and notice requirements did not apply to HELOCs because of a CFPB exemption.

Appellate review. Lyons appealed that ruling. The CFPB filed an amicus brief, arguing that the trial court erred on the TILA issue but not on the RESPA issue (see Banking and Finance Law Daily, Dec. 1, 2022). The American Bankers Association also filed an amicus brief, supporting the trial court's ruling on both matters.

TILA issues. Under the Truth in Lending Act, credit card issuers were prohibited from taking any action to offset the cardholder's indebtedness against funds held on deposit unless otherwise authorized by the cardholder. While the 2009 revision of the TILA by the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) expressly exempted HELOCs from consideration, this did not in any way negate the offset provision.

The key to interpreting the offset provision is whether a HELOC was a "credit card plan." It is a term of art not defined in the statute, and the appellate court ultimately found that a HELOC where credit is accessed by a credit card did qualify as a "credit card plan" within the scope of the TILA. In its ruling, the appellate court indicated that the trial court had misconstrued "credit card plan" and had also read the CARD Act limitations erroneously to exclude HELOCs from TILA protection.

RESPA issues. That said, the appellate court then did affirm the trial court's ruling that the RESPA claims were invalid due to the CFPB exemption. Specifically, while RESPA applies to federally related mortgage loans, the CFPB, via Regulation X, excluded open-end lines of credit from the definition of a mortgage loan.

The appellate court deflected Lyons's argument that the CFPB lacked authority to make this determination and affirmed the trial court.

Dissenting opinion. Judge Henry Floyd wrote a separate dissenting opinion in which he asserted that the federal district court should be affirmed on both grounds. Floyd maintained that the majority’s finding that a HELOC with a credit card attached constituted a "credit card plan" was misstating congressional intent.

Judge Floyd noted that HELOCs did not exist when the TILA was created, and that Congress's frequent differentiation between credit cards and HELOCs showed an intention that they be treated differently. He disagreed with the interpretation that any type of credit involving a credit card should be treated as a "credit card plan" for statutory purposes.

The case is No. 22-1943.

Judge: Gregory, R.

Attorneys: Scott C. Borison (Borison Firm LLC) for William T. Lyons. Brian W. Bartholomay (Orrick, Herrington & Sutcliffe, LLP) for PNC Bank, N.A.

Companies: American Bankers Association; National City Bank; PNC Bank, N.A.

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