TILA requires there be a proximate cause between the violation and the consumer’s injury to sustain a claim of actual damages

A recent Third Circuit decision held that a consumer must establish that there is a proximate cause between the violation and the consumer’s injury to sustain a claim of actual damages for a TILA violation. In Vallies v. Sky Bank, No. 08-4160 (3rd Cir., Dec. 31, 2009) the court observed that actual damages are treated differently from statutory damages under TILA. TILA states that statutory damages of not less than $400 or greater than $4,000 are recoverable in a transaction secured by real property if the creditor fails to comply with any requirement of TILA. 15 U.S.C. § 1640(a)(2). For actual damages TILA provides that where the creditor fails to comply with any requirement of the Act it is liable in an amount equal to the sum of (1) any actual damage sustained by such person as a result of the failure. 15 U.S.C. § 1640(a)(1). Coupled with the phrase sustained by such person as a result of the failure in §1640(a)(1) the court concluded that TILA links the loss to the failure to disclose. The plain meaning of § 1640(a), therefore, requires causation to recover actual damages. In the context of TILA disclosure violations, a creditor’s failure to properly disclose must cause actual damages; that is, without detrimental reliance on faulty disclosures (or no disclosure), there is no loss (or actual damage). The court was not impressed by the argument that a detrimental reliance standard will make actual damages for TILA disclosure violations difficult to prove and may create obstacles for class certification because of the individualized fact-specific nature of the reliance inquiry. Given that the requirements of proving actual damages are dictated by TILA’s remedial structure the court felt it was compelled to rule this way. By providing for statutory and actual damages, the statute achieves its dual purpose of deterrence and compensation. The compensatory remedy of actual damages is permitted only in cases where the violation caused harm-where harm was sustained by [the consumer] as a result of the violation.

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