Schnall v. Amboy Natl Bank

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit
1-29-2002
Schnall v. Amboy Natl Bank
Precedential or Non-Precedential:
Docket 1-1502
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Filed January 28, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-1502
MARTIN SCHNALL, individually and on behalf
of all others Similarly Situated, Appellant
v.
AMBOY NATIONAL BANK
On Appeal From the United States District Court
For the District of New Jersey
(D.C. Civ. No. 99-cv-04908)
District Judge: Honorable Katharine S. Hayden
Argued: November 6, 2001
Before: BECKER, Chief Judge, McKEE and
RENDELL Circuit Judges.
(Filed: January 28, 2002)
STUART A. BLANDER, ESQUIRE
(ARGUED)
Alan A. Heller, Esquire
Heller, Horowitz & Feit, P.C.
292 Madison Avenue
New York, NY 10017
ABE RAPPAPORT, ESQUIRE
David Kessler & Associates, L.L.C.
1373 Broad Street
Clifton, NJ 07013
Counsel for Appellant
DENNIS T. KEARNEY, ESQUIRE
(ARGUED)
HELEN A. NAU, ESQUIRE
Pitney, Hardin, Kipp & Szuch, LLP
P.O. Box 1945
Morristown, NJ 07962-1945
Counsel for Appellee
DOLORES S. SMITH, ESQUIRE
Director
Board of Governors of the Federal
Reserve System
Division of Consumer and
Community Affairs
Washington, DC 20551
Counsel for Amicus Curiae at the
Invitation of the Court
OPINION OF THE COURT
BECKER, Chief Judge.
In this putative class action, plaintiff Martin Schnall
alleges that the newspaper advertisements and account
disclosures of defendant Amboy National Bank ("the Bank")
violated the Truth in Savings Act ("TISA"), 12 U.S.C.
SS 4301-13, and regulations promulgated by the Federal
Reserve Board pursuant to the Act. In particular, Schnall
contends that the Bank failed to calculate the advertised
annual percentage yield ("APY") on its money market
savings accounts according to the methods prescribed by
the regulations and required by the statute. The District
Court granted summary judgment for the Bank, holding
that the advertisements and disclosures at issue did not
violate TISA or the relevant regulations, and that even if
they did, Schnall had failed to show that he was misled by
the advertised rates. Schnall appeals, and we reverse,
holding that the advertisements and disclosures at issue
violated TISA and the Act's implementing regulations. This
holding is buttressed by the letter-brief of the Federal
2
Reserve Board of Governors, amicus curiae at the request
of the Court, which endorses this position.
Schnall brought this suit pursuant to 12 U.S.C.S 4310,
which has since been repealed. See infra note 2. This
section created a private cause of action for TISA violations,
and provided for actual damages as well as statutory
damages of between $100 and $1,000 in an individual
action and "such amount as the court may allow" in a class
action. See 12 U.S.C. S 4310. The Bank contends that even
if there was a violation, Schnall may not recover statutory
damages because he failed to establish that he was misled
by or relied on the advertised rates or that he was
financially harmed by the TISA violation. However, we hold
that TISA imposes strict liability on depository institutions
that violate its disclosure requirements, and that to recover
statutory damages under S 4310, a plaintiff need not show
that he relied to his detriment on the advertised APY, that
he was misled by the advertised APY, or that he was
financially harmed by the TISA violations. We therefore
conclude that Schnall is entitled to partial summary
judgment on the question of liability and will remand for a
determination of damages.
I.
At various times between October 18, 1998 and October
10, 1999, the Bank placed in the Newark Star-Ledger a
number of substantially identical advertisements promoting
its Money Market Accounts. In bold letters and large
typeface, these advertisements offered "a 3-month bonus of
6.00% APY." In smaller print, the advertisements stated
that "[a]fter the bonus your yield is based on the 3-month
Treasury Bill. Plus, we'll guarantee that the yield will
always be higher than the combined average yield offered
by the 3 largest NJ banks." The advertisements also set
forth the APY that the accounts had earned during the
previous year.
Consumers who called the phone number listed on the
advertisements would receive from the Bank an application
and Disclosure of Account Terms and Fees ("account
disclosure"), which stated the APY in the same manner as
3
the advertisements. In particular, the account disclosure
stated that an APY of 6% would apply for a period of 90
days from the date the account is opened. After that, "the
Interest Rate paid on your account is based on the 3-month
Treasury Bill and is guaranteed to be at least 1.00% higher
than the average money market account yields of First
Union/NJ, PNC Bank/NJ and Summit Bank as of the last
business day of the previous month."
On October 16, 1998, before any of the advertisements at
issue had been published, Schnall called the Bank to
request an account application. On October 26, 1998, after
seeing the advertisements described above, Schnall again
phoned the Bank to request an application. The Bank sent
Schnall an account disclosure and application, which he
executed and returned, together with a check for $20,000
to open the advertised account. On or about October 28,
1998, the Bank received Schnall's application and check,
and opened a Money Market Account in his name.
On October 18, 1999, Schnall filed this action on behalf
of himself and a putative class of all persons who had
deposited at least $20,000 into a Money Market Account
with the Bank during the period from October 18, 1998 to
October 18, 1999. The complaint alleged that the APY that
appeared in the Bank's advertisements and account
disclosures failed to comply with the required method of
calculating the advertised APY under TISA and its
implementing regulations. In particular, Schnall contends
that under the regulations, the Bank may not advertise a
6% APY for the first three months and a variable rate APY
for the remainder of the account term. Rather, in Schnall's
submission, the regulations require the Bank to advertise a
single "blended," or "composite," APY that represents the
total yield on the account over a term of one year.
According to Schnall, the regulations require this blended
APY to be computed by applying the introductory rate for
the first three months and applying whatever the variable
rate was at the time of the advertisements for the remaining
nine months, even though the resulting blended APY, which
the Bank is required to advertise, may differ from the
actual APY at the end of the year, depending on whether
the variable rate changes.
4
The District Court granted the Bank's motion for
summary judgment and denied Schnall's cross-motion for
partial summary judgment. In an oral opinion, the Court
held that because the variable rate on the accounts is a
function of both the 3-month Treasury Bill as well as the
APY of three other banks, the requirement that
advertisements disclose the APY as a single blended rate
was inapplicable, and the advertisements therefore
complied with TISA. The Court further concluded that even
if the Bank's advertisements and account disclosures
violated TISA, summary judgment in favor of the Bank was
appropriate because Schnall had failed to produce
sufficient evidence that he relied to his detriment on the
advertised APY.
The District Court had subject matter jurisdiction
pursuant to 12 U.S.C. S 4310(e) and 28 U.S.C.S 1331, and
this Court has appellate jurisdiction pursuant to 28 U.S.C.
S 1291. We review de novo the District Court's disposition
of the parties' cross-motions for summary judgment, see
Woodside v. School Dist. of Philadelphia Bd. of Educ., 248
F.3d 129, 130 (3d Cir. 2001), under the familiar standard
set forth in the margin.1 We turn first to whether the
advertisements and disclosures in question violated TISA
and the implementing regulations, and then address
whether TISA imposes strict liability on depository
institutions that violate its disclosure requirements or
whether a plaintiff must also establish reliance or some
form of financial injury.
II.
Schnall commenced this suit pursuant to a now-repealed
provision of TISA, which created a private right of action
_________________________________________________________________
1. Summary judgment is proper if there is no genuine issue of material
fact and if, viewing the facts in the light most favorable to the non-
moving party, the moving party is entitled to judgment as a matter of
law. See Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317(1986). The judge's function at the summary judgment stage is not to
weigh the evidence and determine the truth of the matter, but to
determine whether there is a genuine issue for trial. See Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).
5
against "any depository institution which fails to comply
with any requirement imposed under this chapter or any
regulation prescribed under this chapter . . . ." 12 U.S.C.
S 4310(a).2 Thus, Schnall may establish liability by showing
that the Bank's advertisements and account disclosures
_________________________________________________________________
2. Section 4310 was repealed as of September 30, 2001. See Act of Sept.
30, 1996, Pub. L. 104-208, S 2604(a), 110 Stat. 3009, 3009-470 (1996)
("Effective as of the end of the 5-year period beginning on the date of
the
enactment of this Act [September 30, 1996], section 271 of the Truth in
Savings Act (12 U.S.C. S 4310) is repealed."). Although private parties
may no longer sue for violations of TISA, the Federal Reserve Board
retains authority to enforce compliance. See 12 U.S.C. S 4309.
The Bank does not argue that S 4310 is inapplicable to this action,
which was filed before S 4310 was repealed, and we believe that
pursuant to 1 U.S.C. S 109, Schnall's action survives the repeal. Section
109 provides that "[t]he repeal of any statute shall not have the effect
to
release or extinguish any . . . liability incurred under such statute,
unless the repealing Act shall so expressly provide, and such statute
shall be treated as still remaining in force for the purpose of sustaining
any proper action . . . for the enforcement of such . . . liability."
Since
the repeal of S 4310 did not expressly provide for retroactive
application,
Schnall's claims survive under S 109.
We acknowledge that it could be argued that S 109 does not apply in
this case, because S 4310 contained, inter alia, a subsection conferring
jurisdiction on district courts to hear private TISA actions. See 12
U.S.C.
S 4310(e). In repealing S 4310, Congress therefore withdrew jurisdiction,
and the Supreme Court in Bruner v. United States , 343 U.S. 112 (1952),
held that S 109 does not apply to repeals that simply withdraw the
jurisdiction of a federal district court without extinguishing any
liability.
Id. at 116-17 ("[W]hen a law conferring jurisdiction is repealed without
any reservation as to pending cases, all cases fall with the law."). We
believe that Bruner is distinguishable, however, because unlike in
Bruner, where the withdrawal of jurisdiction from federal district courts
left the plaintiff with an alternate remedy in the Court of Claims, see
343
U.S. at 115, the repeal of S 4310 not only withdrew the jurisdiction of
federal district courts to hear private TISA enforcement actions, but also
entirely eliminated the cause of action, thereby releasing banks from
future claims of private parties to recover actual and statutory damages
for TISA violations. See De La Rama Steamship Co., Inc. v. United States,
344 U.S. 386, 390 (1953) (holding that under S 109, pending appeals
survive "the repeal of statutes which create rights and also prescribe how
the rights are to be vindicated," and distinguishing "the repeal of
statutes solely jurisdictional in their scope") (emphasis added).
6
violated either a provision of TISA itself or a regulation
promulgated pursuant to TISA. We consider first whether
the Bank's disclosures violated requirements imposed by
the regulations, and then turn to whether the disclosures
also violated requirements imposed by TISA itself.
A.
1.
The relevant regulations were promulgated by the Federal
Reserve Board pursuant to 12 U.S.C. S 4308(a), and are
found in 12 C.F.R. Part 230, known as Regulation DD.
Under the regulations, account disclosures and
advertisements that state a rate of return are required to
state the account's annual percentage yield. See 12 C.F.R.
S 230.4(b)(1)(i) ("Account disclosures shall include the
following, as applicable: . . . The `annual percentage yield'
and the `interest rate,' using those terms . . . ."); 12 C.F.R.
S 230.8(b) ("If an advertisement states a rate of return, it
shall state the rate as an `annual percentage yield' using
that term."). The regulations define "annual percentage
yield" as "a percentage rate reflecting the total amount of
interest paid on an account, based on the interest rate and
the frequency of compounding for a 365-day period and
calculated according to the rules in appendix A of this
part." 12 C.F.R. S 230.2(c).
Part I.A of appendix A provides that "[f]or accounts
without a stated maturity date (such as a typical savings or
transaction account), the calculation shall be based on an
assumed term of 365 days."3 Because the accounts at issue
in this case lack a stated maturity date, the advertised APY
must therefore assume a term of 365 days.
Part I.B of appendix A specifically defines how the APY
should be computed for "stepped-rate accounts," which are
accounts that apply different interest rates during different
_________________________________________________________________
3. For such accounts, Part I.A provides that"the annual percentage yield
can be calculated by use of the following simple formula: APY = 100
(Interest/Principal)," where "Interest" is the total dollar amount of
interest earned on the Principal during the 365 day term.
7
periods of the term: "For accounts with two or more interest
rates applied in succeeding periods . . . an institution shall
assume each interest rate is in effect for the length of time
provided for in the deposit contract." If, for example, a bank
offers a savings account with a 7% interest rate for the first
six months and a 3% interest rate thereafter, appendix A
requires the advertised APY to be the blended rate
calculated by applying the 7% interest rate for the first six
months and the 3% interest rate for the remaining six
months.
Finally, Part I.C of appendix A specifies how this blended-
rate calculation should be performed for a variable rate
account, which the regulations define as "an account in
which the interest rate may change after the account is
opened." 12 C.F.R. S 230.2(v). Part I.C specifically defines
the method of calculation for accounts such as those at
issue in this case, where an initial fixed rate applies for a
given period, followed by a variable rate for the remainder
of the term:
Variable-rate accounts with an introductory premium
(or discount) rate must be calculated like a stepped-
rate account. Thus, an institution shall assume that:
(1) The introductory interest rate is in effect for the
length of time provided for in the deposit contract; and
(2) the variable interest rate that would have been in
effect when the account is opened or advertised (but for
the introductory rate) is in effect for the remainder of
the year. If the variable rate is tied to an index, the
index-based rate in effect at the time of disclosure
must be used for the remainder of the year.
Part I.C illustrates the required method of calculation by
using the example of an account that pays an introductory
7% interest rate for the first three months and a variable
rate thereafter, which at the time of the disclosure is 5%. In
this example, the advertised APY must be computed by
applying the 7% interest rate for the first three months and
by applying the current 5% variable rate for the remaining
nine months of the term, yielding an APY of 5.65%. Thus,
in calculating the APY, a bank must assume that the
variable rate that is in effect at the time of the disclosure
will remain in effect throughout the term, even though this
8
assumption means that the APY that the regulations
require the bank to advertise will differ from the actual APY
that the consumer will earn on the account should the
variable rate change.
2.
Applying this method of calculation to the Amboy Money
Market Account, we agree with Schnall that the Bank's
advertisements and account disclosures violate the
regulations, since they fail to state the APY as a single
composite rate computed on a one-year term, as required
by appendix A. Instead of calculating the APY by applying
the introductory 6% APY for the first three months and
assuming that the variable rate at the time of the disclosure
would remain in effect throughout the remaining nine
months of the term, the Bank simply advertised an initial
6% APY followed by a variable rate set by the 3-month
Treasury Bill and guaranteed to exceed the combined
average yield of New Jersey's three largest banks.
The Bank contends that the District Court correctly
concluded that the method of calculating the APY specified
in appendix A is inapplicable because the variable rate in
this case is determined not only by the 3-month Treasury
Bill, but also by the average money market account yields
of the three largest New Jersey Banks (First Union/NJ, PNC
Bank/NH, and Summit Bank). We disagree.
First, appendix A clearly states that with only one
exception, not applicable to this case, the APY that is
advertised must be calculated according to the specified
method: "Except as provided in Part I.E. of this appendix,
the annual percentage yield shall be calculated by the
formula shown below."4 This statement definitively
establishes that the specified formula must be applied in
this case.
Second, the regulations do not distinguish among
different types of variable rates for purposes of computing
the APY that must be advertised. Under Part I.C of the
_________________________________________________________________
4. The exception in Part I.E applies to "time accounts with a stated
maturity greater than one year that pay interest at least annually."
9
appendix, "Variable rate accounts with an introductory
premium (or discount) rate must be calculated like a
stepped-rate account." And the definitions section of the
regulations provides that "[v]ariable-rate account means an
account in which the interest rate may change after the
account is opened." 12 C.F.R. S 230.2(v). Thus, the
regulations treat all variable rates alike, regardless whether
the rates are a function of one variable, two variables, or
twenty variables. That the variable rate in this case, rather
than being solely a function of the 3-month Treasury Bill,
is a function of both the 3-month Treasury Bill and the
combined average yield of the three largest New Jersey
Banks, is immaterial for purposes of the regulations.
Regardless of what the variable rate depends on, under
the regulations a bank must determine what the variable
rate would be at the time of the advertisement, and assume
that that rate will remain in effect throughout the relevant
part of the term, for purposes of computing the APY that
the bank may advertise. Thus, the regulations require
Amboy to advertise a single blended APY calculated by
applying the 6% APY for the first three months and by
applying for the remaining nine months whatever the
current variable rate was at the time of the advertisement.
This it did not do.
3.
The Bank urges us to adopt the District Court's
reasoning that the guarantee that the APY for the
remainder of the term would exceed the average APY of the
Bank's three competitors is pro-consumer, and therefore
that it should be allowed to advertise that fact. In our view,
this argument proves too much, since it would apply to any
variable rate that is determined by reference to an index or
a competing investment. For example, a variable rate that
is set to the 3-month Treasury Bill is pro-consumer, since
it guarantees that consumers will never earn less on their
savings account than they would on the Treasury Bill.
Nonetheless, the regulations require that variable rates be
advertised according to a particular formula, regardless of
how pro- or anti-consumer the rate is.
10
The District Court also worried that the APY that the
Bank would be required to advertise under the regulations
would be misleading because "[i]t would not help the
consumer know whether this particular snapshot will turn
out to be accurate for the long run . . . ." We agree that the
advertised rate required by the regulations may mislead
consumers, since the advertised APY could differ from the
actual APY. Consider two banks, one of which offers a fixed
rate account with a 4% APY and the other of which offers
a variable rate account that, using the variable rate in effect
at the time of the advertisement, would have a 4% APY.
Under the regulations, both banks must advertise the same
APY of 4%, which risks misleading consumers to believe
that the two investments are of equal value. This risk is
mitigated, however, by the requirement that advertisements
for variable rate accounts "shall state . . . clearly and
conspicuously . . . that the rate may change after the
account is opened." 12 C.F.R. S 230.8(c)(1).
Moreover, even if the regulations required rates to be
advertised in a misleading manner, unless the defendant
challenged the regulations' validity, the Court would be
constrained to apply the regulations that exist. Whether
these regulations make sense as a matter of policy is
irrelevant in this case, since the Bank does not challenge
the regulations' validity on the grounds that the Federal
Reserve Board exceeded its authority under TISA, acted
arbitrarily and capriciously in promulgating the regulations,
or failed to comply with the procedural requirements
imposed by the Administrative Procedure Act. Absent such
a challenge, a court may not second-guess the policy
choices made by an agency in a matter that Congress has
committed to the agency's discretion.
4.
We therefore conclude that the Bank's advertisements
and account disclosures violated the regulations
promulgated under TISA by failing to advertise the APY as
a single composite rate based on a one-year term,
calculated by applying the 6% introductory rate for the first
three months and by applying whatever the variable rate
was at the time of the advertisements for the remaining
11
nine months. We note that this conclusion is supported by
an amicus letter brief filed at the Court's invitation by the
Board of Governors of the Federal Reserve System. Signed
by the Director of the Division of Consumer and
Community Affairs, the letter concludes that "Amboy did
not comply with the requirements set forth in Regulation
DD because . . . the advertisements did not disclose a
single `composite' APY, based on an assumed term of 365-
days, and taking into account both the introductory rate
and post-introductory rate in effect for these accounts at
the time they were advertised."
B.
The Bank argues that even if its advertisements and
account disclosures failed to comply with the regulations,
the advertisements nonetheless complied with the statutory
disclosure requirements. Therefore, the Bank submits,
Schnall's claims were properly dismissed. We disagree.
Even if the Bank's advertisements complied with the
statutory requirements, the Bank would still be liable for
violating the regulations, since at the time this lawsuit was
filed, TISA imposed civil liability on any bank"which fails to
comply with any . . . regulation prescribed under this
chapter." 12 U.S.C. S 4310(a).
At all events, we conclude that the Bank violated the
statutory disclosure requirements. The Bank argues that its
advertisements fully complied with the disclosure
requirements of TISA, which requires that
Each advertisement . . . relating to any . . . interest-
bearing account . . . which includes any reference .. .
to a specific yield . . . shall state the following
information, to the extent applicable, in a clear and
conspicuous manner:
(1) The annual percentage yield.
(2) The period during which such annual
percentage yield is in effect.
(3) All minimum account balance and time
requirements which must be met in order to earn the
advertised yield . . . .
12
(4) The minimum amount of the initial deposit
which is required to open the account in order to
obtain the yield advertised . . . .
(5) A statement that regular fees or conditions could
reduce the yield . . . .
(6) A statement that an interest penalty is required
for early withdrawal.
12 U.S.C. S 4302(a). In the Bank's submission, by
disclosing in its advertisements that its accounts would
earn a 6% APY for the first three months, followed by an
APY based on the 3-month Treasury Bill but guaranteed to
exceed the average yield of New Jersey's three largest
banks, the Bank complied with the requirement of
S 4302(a)(1) that advertisements disclose the"annual
percentage yield."
The problem with the Bank's argument, however, is that
TISA defines "annual percentage yield" as:
the total amount of interest that would be received on
a $100 deposit, based on the annual rate of simple
interest and the frequency of compounding for a 365-
day period, expressed as a percentage calculated by a
method which shall be prescribed by the Board in
regulations.
12 U.S.C. S 4313(2). This definition of "annual percentage
yield" applies to the requirements in SS 4302(a)(1) and
4303(c)(1) that advertisements and account disclosures
state the annual percentage yield. Because, as explained
above, the Bank failed to calculate the APY appearing in its
advertisements and account disclosures according to the
method prescribed by the regulations, the Bank failed to
comply with the statutory disclosure requirements imposed
by SS 4302(a)(1) and 4303(c)(1).
The District Court focused on the language "to the extent
applicable" in S 4302(a), and concluded that the required
method of computing the advertised APY is not applicable
here, because the variable rate is a function of both the 3-
month Treasury Bill and the average yield of three other
banks. The District Court further reasoned that the method
of calculating the APY specified in the regulations is
13
inapplicable in this case because "blind adherence" to the
regulation "would not assist [the] consumer in comparing"
Amboy's account with accounts offered by competitors.
According to the District Court, applying the formula
specified in the regulations would thereby frustrate one of
the stated purposes of TISA, which is to enhance"the
ability of the consumer to make informed decisions
regarding deposit accounts." 12 U.S.C. S 4301.
We disagree with the District Court's interpretation of "to
the extent applicable" as an invitation to courts to disregard
the mandate of the regulations if doing so makes sense as
a matter of policy. In our view, the language "to the extent
applicable" was included in S 4302(a) because certain
disclosure requirements enumerated in that provision may
not apply to a particular account, given the nature of the
account. For example, S 4302(a)(6) requires advertisements
to include "[a] statement that an interest penalty is required
for early withdrawal." This requirement, however, would
obviously be inapplicable to an account that has no
withdrawal penalty.
In contrast, the requirement under S 4302(a)(1) that
advertisements disclose the account's APY is applicable to
all interest-bearing accounts, including the account at
issue in this case. As discussed above, the formula in the
regulations for computing an account's APY is fully
applicable to accounts such as Amboy's, which include an
introductory fixed interest rate followed by a variable rate
for the remainder of the term.
In sum, we hold that by failing to disclose the APY on its
accounts as a single blended rate based on a 365-day term,
the Bank's advertisements and account disclosures violated
both the disclosure requirements found in the regulations,
see 12 C.F.R. SS 230.2, 230.4, 230.8 & appendix A to part
230, and the disclosure requirements imposed by the
relevant statutory provisions, see 12 U.S.C.SS 4302, 4303,
4305 & 4313, which incorporate the regulations by
reference. Either the violation of the statute or the violation
of the regulations provides an independent ground for
liability under S 4310.
14
III.
The Bank argues that even if its advertisements and
account disclosures violated the requirements imposed by
TISA and the implementing regulations, the District Court
properly granted summary judgment on the ground that no
reasonable jury could find that Schnall was harmed by the
manner in which the Bank disclosed the APY on its
accounts. The Bank frames this argument in various terms,
arguing that Schnall did not rely on the manner in which
the Bank advertised its APY, that Schnall was not misled by
the advertisements and disclosures, and that Schnall
suffered no financial injury as a result of the TISA
violations. Each characterization relates to the same
conceptual question whether a TISA plaintiff must show
that he or she suffered some financial injury that he would
not have incurred had the defendant complied with TISA.
Schnall responds that TISA imposes strict liability on
depository institutions that violate its disclosure
requirements, and that to recover under S 4310, a plaintiff
need not show that he or she was misled or financially
harmed by the violation.
The relevant provision of TISA, 12 U.S.C. S 4310(a), which
has been repealed since the commencement of this lawsuit,
see supra note 2, provided that:
[A]ny depository institution which fails to comply with
any requirement imposed under this chapter or any
regulation prescribed under this chapter with respect
to any person who is an account holder is liable to
such person in an amount equal to the sum of --
(1) any actual damages sustained by such person
as a result of the failure;
(2)(A) in the case of an individual action, such
additional amount as the court may allow, except
that the liability under this subparagraph shall not
be less than $100 nor greater than $1,000; or
(B) in the case of a class action, such amount as
the court may allow, except that--
(i) as to each member of the class, no minimum
recovery shall be applicable; and
15
(ii) the total recovery under this subparagraph in
any class action . . . arising out of the same failure
to comply by the same depository institution shall
not be more than the lesser of $500,000 or 1
percent of the net worth of the depository
institution involved; and
(3) in the case of any successful action to enforce
any liability under paragraph (1) or (2), the costs of
the action, together with a reasonable attorney's fee
as determined by the court.
The question before us reduces to whether the language
imposing liability for any violation "with respect to any
person who is an account holder" requires account holders
who bring suit to show that they would not have opened
their account had the bank's disclosure complied with
TISA, or that they were otherwise misled or financially
harmed by the TISA violation.
In deciding this question, we are writing on a clean slate,
as this Court has not had occasion to construe S 4310. The
only court squarely to address the issue was the District
Court for the Southern District of New York in Hale v.
Citibank, N.A., 198 F.R.D. 606 (S.D.N.Y. 2001). In an
opinion by Judge Rakoff, the court in Hale rejected
defendants' claim that reliance is a necessary element of a
cause of action under S 4310:
[N]either the regulation nor TISA itself requires such a
showing as a condition of liability, and such exacting
notions of reliance, drawn from the common law, are
inapplicable, so far as liability is concerned, to a
regulatory statute like TISA whose stated purpose is"to
require the clear and uniform disclosure of . . . the
rates of interest which are payable on deposit accounts
by depository institutions." 12 U.S.C. S 4301(b)
(emphasis added); see also S. Rep. 102-167, at 80-82
(1991).
Id. at 607.5 We find this reasoning persuasive.6 As the
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5. The court noted that reliance might be relevant, however, for purposes
of determining actual (in contrast to statutory) damages. Id.
6. The only other case to discuss the issue is Shelley v. AmSouth Bank,
16
Court in Hale noted, neither the statute nor the regulations
explicitly require that a plaintiff show reliance or financial
injury to recover statutory damages under S 4310.
Moreover, the purpose of TISA is not only to prevent
consumers from being misled by deceptive advertisements,
but also to ensure uniformity in how banks advertise rates
of return. See 12 U.S.C. S 4301 ("The Congress hereby finds
that economic stability would be enhanced, competition
between depository institutions would be improved, and the
ability of the consumer to make informed decisions
regarding deposit accounts, and to verify accounts, would
be strengthened if there was uniformity in the disclosure of
terms and conditions on which interest is paid and fees are
assessed in connection with such accounts."). This
consideration also supports the result reached in Hale.
We read the regulations promulgated under TISA as
representing a policy judgment by the Federal Reserve
Board that even if consumers are not misled by
advertisements that violate the regulations, they benefit
from the requirement that banks advertise their returns
according to a standard formula that allows quick and
accurate comparison of the expected rates of return offered
by different banks, thus promoting informed consumer
choice and competition among banks. The harm that TISA
is intended to prevent, therefore, is not only the financial
harm that occurs when a consumer is misled by an
advertisement, but also the information costs and anti-
competitive effects created when banks advertise yields in
non-uniform ways that make it difficult for consumers to
compare the rates of return offered by competing banks.
Contrary to the purpose of TISA, interpreting S 4310 to
require reliance or financial injury would permit banks to
violate TISA's uniform disclosure requirement as long as
the advertisements issued by the banks were not
themselves misleading. Indeed, the advertisements in this
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No. 97-1170-rv-c, 2000 WL 1121778 (S.D. Ala. July 24, 2000), aff 'd,
247 F.2d 250 (11th Cir. 2001), which briefly stated in dicta that
"proximate cause and actual damages are not elements of a TISA claim
for statutory damages." Id. at *14.
17
case, although they prominently feature the "6.00% APY,"
are quite clear that this APY is in effect for only an
introductory period of three months. It would therefore be
difficult for a consumer to show that he was misled by the
advertisement into believing that the 6% APY would be in
effect for longer than three months. Schnall, as an M.B.A.
and statistician, see infra note 7, could have easily
computed from the information in the Amboy advertisement
the blended APY that the Bank was required to disclose,
and could have then compared that APY to those offered by
other banks. One of the purposes of TISA, however, is to
relieve consumers of this burden, for comparing the yields
offered by different banks may be difficult for many
consumers and will take unnecessary time if the yields are
not advertised uniformly. In order for the regulations in this
case to have any bite, they must therefore be enforced even
when advertisements are not necessarily misleading.
To be sure, violations of TISA that do not actually cause
consumers to be misled could still be prosecuted by the
Federal Reserve Board. But the structure of S 4310, which
permitted a plaintiff to recover both actual damages and
statutory damages, suggests that this provision served the
dual purpose of both compensating plaintiffs who have
been misled and deterring banks from advertising in ways
that Congress and the Federal Reserve Board believe are
socially harmful. Cf. Williams v. Pub. Fin. Corp., 598 F.2d
349, 356 (5th Cir. 1979) ("The remedial scheme in the
[Truth in Lending Act] is designed to deter generally
illegalities which are only rarely uncovered and punished,
and not just to compensate borrowers for their actual
injuries in any particular case.").
We acknowledge that as a matter of policy, it seems odd
to permit plaintiffs to sue banks for damages when they
have personally suffered no financial loss as a result of the
bank's TISA violation.7 This result, however, is what S 4310,
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7. A law professor probably could not have imagined a better
hypothetical than this case, in which the plaintiff, Martin Schnall, has
an M.B.A. from NYU and masters degrees from Columbia University and
University of Michigan in biostatistics. Indeed, it is possible that
Schnall
never intended to invest his money in a savings account, but saw an
18
as a "private attorney general" statute, contemplated.
Although TISA authorizes the Federal Reserve Board to
enforce the Act, see 12 U.S.C. S 4309, the Board has
limited resources to devote to enforcement, and Congress
may have deemed it more cost-effective to cede TISA
enforcement to individuals in the private sector who stand
to profit from efficiently detecting and prosecuting TISA
violations.
We also note that S 4310 provided an affirmative defense
to defendants who unintentionally violate TISA. See 12
U.S.C. S 4310(c) ("A depository institution may not be held
liable in any action brought under this section for a
violation of this chapter if the depository institution
demonstrates by a preponderance of the evidence that the
violation was not intentional and resulted from a bona fide
error, notwithstanding the maintenance of procedures
reasonably adapted to avoid any such error."). Since a
plaintiff who suffers actual financial harm as a result of
being misled by a TISA violation will go uncompensated if
the violation is inadvertent under S 4310, the primary
purpose of S 4310 may not have been compensation, but
rather deterrence. This deterrent purpose is furthered
under S 4310 by permitting account holders to bring TISA
actions even if they have not suffered any financial harm as
a result of the violation.
Finally, our conclusion is consistent with the
jurisprudence construing the provision of the Truth in
Lending Act ("TILA") upon which S 4310 appears to have
been modeled. The private enforcement provision of TILA
uses almost the same language as S 4310 in creating a
private right of action:
[A]ny creditor who fails to comply with any requirement
imposed under this part . . . with respect to any person
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advertisement that he knew violated TISA, and opened an account
precisely so that he could then sue the bank under TISA and earn
statutory damages. Under our construction of S 4310, such a plaintiff
would nonetheless be entitled to statutory damages, making him better
off than he would have been had TISA not been violated.
19
is liable to such person in an amount equal to the sum
of --
(1) any actual damage sustained by such person as
a result of the failure;
(2)(A)(i) in the case of an individual action twice the
amount of any finance charge in connection with the
transaction . . . ; or
(B) in the case of a class action, such amount as
the court may allow, except that as to each member
of the class no minimum recovery shall be
applicable, and the total recovery under this
subparagraph in any class action or series of class
actions arising out of the same failure to comply by
the same creditor shall not be more than the lesser
of $500,000 or 1 per centum of the net worth of the
creditor . . . .
15 U.S.C. S 1640(a). A comparison of the language and
structure of this provision with the language and structure
of S 4310, quoted supra at 15-16, leaves little doubt that
Congress, in enacting S 4310 in 1991, consciously borrowed
the language of TILA.
This Court has squarely held that reliance is not an
element of a cause of action under TILA. See Manning v.
Princeton Consumer Disc. Co., 533 F.2d 102, 106 (3d Cir.
1976) ("Although it is extremely unlikely that the purchaser
was not aware of the undisclosed terms, i.e., selling price,
down payment and balance, we cannot say that the district
court erred in imposing the penalty and attorneys' fees
under the circumstances here."); see also Dzadovsky v.
Lyons Ford Sales, Inc., 593 F.2d 538, 539 (3d Cir. 1979)
(per curiam) (rejecting "the requirement of financial loss
before a borrower may bring an action" under TILA).
Indeed, as noted in the margin, those Courts of Appeals
that have considered the issue are nearly unanimous that
to recover statutory damages under TILA, plaintiffs need
not show that they would not have agreed to the
transaction had the lender's disclosure complied with TILA
20
or that they were otherwise misled or suffered financial
injury as a result of the TILA violation.8
Given the similar purposes of TISA and TILA and the
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8. See, e.g., Mars v. Spartanburg Chrysler Plymouth, Inc., 713 F.2d 65, 66
(4th Cir. 1983) ("The district court held that these violations were only
technical and because [plaintiff] sustained no actual injury as a result
of
them, no liability on the part of the creditors arose. We disagree and
reverse the judgment of the lower court."); Brown v. Marquette Sav. &
Loan Ass'n, 686 F.2d 608, 614 (7th Cir. 1982) ("As an initial matter we
note that the violation before us is a purely technical one, and that the
plaintiffs do not claim that they were misled or suffered any actual
damages as a result of the statutory violation. It is well settled,
however,
that a borrower need not have been so deceived to recover the statutory
penalty."); Dryden v. Lou Budke's Arrow Fin. Co., 630 F.2d 641, 647 (8th
Cir. 1980) ("TILA plaintiffs, otherwise entitled to recover, need not show
that they sustained actual damages stemming from the TILA violations
proved before they may recover the statutory damages the Act also
provides for."); Smith v. Chapman, 614 F.2d 968, 971 (5th Cir. 1980) ("It
is not necessary that the plaintiff-consumer actually have been deceived
in order for there to be a [TILA] violation."); Hinkle v. Rock Springs
Nat'l
Bank, 538 F.2d 295, 297 (10th Cir. 1976) ("It is apparent that no
showing of actual damages is required and instead the recovery is fixed
by statute.").
The only case to depart from strict liability under TILA is Streit v.
Fireside Chrysler-Plymouth, Inc., 697 F.2d 193 (7th Cir. 1983), in which
the defendant, a car dealer, allegedly violated TILA by neglecting to
provide the plaintiff with a duplicate of the retail installment contract.
Id.
at 194. After paying a portion of the down payment, the plaintiff
returned the car claiming that it was defective and refused to pay any
installments. Id. at 194-95. The court rejected the plaintiff's TILA
claim:
[I]t is not good policy and is not required by a reasonable
construction of the Act to hold a creditor liable for a technical
violation of the sort here involved: where the consumer was not
misled nor financially harmed and where the consumer unilaterally
breached the contract almost immediately after it was entered. The
purposes of the Act and the respect the Act is due are not served
by
a rigid application that results in an unjustified windfall to the
consumer.
Id. at 197. The holding in Streit therefore appears confined to the
specific
facts of that case -- namely the hyper-technical nature of the violation
(failure to provide a duplicate of the finance agreement) and the
plaintiff's own actionable conduct (breach of contract).
21
fairly substantial body of TILA caselaw that existed at the
time Congress enacted TISA in 1991, we presume that
Congress was aware of the judicial interpretation of TILA
and that in borrowing language from TILA, Congress
intended that language to have the same meaning that
courts had given TILA.9 Cf. Northcross v. Bd. of Educ., 412
U.S. 427, 428 (1973) (per curiam) (noting that "similarity of
language . . . is, of course, a strong indication that . . . two
statutes should be interpreted pari passu," particularly
where "the two provisions share a common raison d'etre"
(internal quotations omitted)). Since the TILA jurisprudence
overwhelmingly rejects any reliance requirement, it seems
likely that Congress did not intend to impose any such
requirement under the similarly-worded provision of TISA.
For the foregoing reasons, we hold that to recover
statutory damages under S 4310, a plaintiff need not show
that he relied on the advertised APY, that he would not
have opened the account had the advertisement complied
with TISA, or that he was otherwise misled or financially
harmed by the failure to comply with TISA's disclosure
requirements.10
IV.
Because we hold that the Bank's advertisements and
account disclosures violated TISA and the implementing
regulations, and because we hold that to recover statutory
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9. The stated purpose of TISA is "to require the clear and uniform
disclosure of . . . the rates of interest which are payable on deposit
accounts by depository institutions . . . and the fees that are assessable
against deposit accounts so that consumers can make a meaningful
comparison between the competing claims of depository institutions with
regard to deposit accounts." 12 U.S.C. S 4301(b). Similarly, the stated
purpose of TILA is "to assure a meaningful disclosure of credit terms so
that the consumer will be able to compare more readily the various
credit terms available to him and avoid the uninformed use of credit, and
to protect the consumer against inaccurate and unfair credit billing and
credit card practices." 15 U.S.C. S 1601(a).
10. To recover actual damages, however, a plaintiff must obviously show
that he suffered some financial harm that he would not have suffered
had the advertisements and disclosures in question complied with TISA.
22
damages an account holder need not show that he was
misled or financially harmed by the defendant's failure to
comply with TISA, we hold that Schnall is entitled to partial
summary judgment on the question of liability. See Fed. R.
Civ. P. 56(c) ("A summary judgment, interlocutory in
character, may be rendered on the issue of liability alone
although there is a genuine issue as to the amount of
damages.").
Accordingly, the order of the District Court granting the
Bank's motion for summary judgment and denying
Schnall's cross-motion for partial summary judgment will
be reversed, and this case will be remanded for further
proceedings to determine the amount of damages to be
awarded.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
23