Appendix E

Sample Complaints

E.1 Introduction
This appendix includes four sample TIL complaints: A sample complaint for money damages; A sample complaint for rescission; A sample complaint for HOEPA rescission and damages; and A sample complaint for damages under the Fair Credit Billing Act.

statutory damages, attorney fees, and the costs of this action against defendant Credit-R-Us for multiple violations of the Truth in Lending Act, 15 U.S.C. 1601 et seq., (hereinafter TILA), and Federal Reserve Board Regulation Z, 12 C.F.R. 226, promulgated pursuant thereto, and for violations of Consumer Loan Act, .2 the II. JURISDICTION 2. The jurisdiction of this court for the First Cause of Action is invoked pursuant to the Truth in Lending Act, 15 U.S.C. 1640(e) and 28 U.S.C. 1331 and 1337. 3. This court has supplemental jurisdiction over the plaintiffs state law claims pursuant to 28 U.S.C. 1367. III. PARTIES 4. The plaintiff, Molly Consumer, is a natural person . currently residing at 5. Defendant Credit-R-Us, Inc. is a domestic corporation duly licensed under the Consumer Loan Act, Chapter of the laws of the state of and doing business within this state.3 6. At all times relevant hereto, the defendant regularly4 extended or offered to extend consumer credit for which a nance charge is or may be imposed or which, by written agreement, is payable in more than four installments, and is the person to whom the transaction which is the subject of this action is initially payable, making defendant a creditor within the meaning of TIL, 15 U.S.C. 1602(f) and Regulation Z 226.2(a)(17).
offered to support such a claim, though when the nance charge and APR are understated, such a claim may be appropriate. See 8.5, supra for a discussion of proof of actual damages. 2 Refer to state statute under which any claims are brought. 3 This complaint assumes that the defendant is the original creditor in the transactions. Assignees are also liable for TIL violations that are apparent on the face of the disclosure statement and other documents assigned (or, in real estate-secured transactions, on the face of the disclosure statement, any itemization of the amount nanced, the note, and any other disclosure of disbursements). 15 U.S.C. 1641(a), (e). If an assignee is a defendant, allegations should be added about the assignment of the obligation from the original creditor, and that the violations are apparent on the face of the relevant documents. 4 For a denition of regularly, see Regulation Z 226.2(a)(17) n.3; 2.3.3, supra.

These pleadings are also included on the companion CDRom to this volume. In addition, the CD-Rom collects Truth in Lending and Consumer Leasing Act complaints from a number of other NCLC manuals. It also includes various motions and briefs on class certication issues, the merits, and attorney fee awards in TIL litigation.

E.2 Sample TIL Complaint for Money Damages

This is a sample pleading for demonstration purposes only, and must be adapted by a competent professional to meet the circumstances of a given case and the requirements of local rules and practice.
UNITED STATES DISTRICT COURT DISTRICT OF MOLLY CONSUMER, ) ) Plaintiff, ) ) ) Civ. No. ) ) Defendant ) )

v. CREDIT-R-US, Inc.

COMPLAINT I. PRELIMINARY STATEMENT 1. Plaintiff institutes this action for actual damages,1
1 Under 15 U.S.C. 1640(a), it is not necessary to allege or to prove actual damages to recover statutory damages. A prayer for actual damages should not be included unless evidence will be

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Truth in Lending IV. FACTUAL ALLEGATIONS consummation of the transaction in violation of 15 U.S.C. 1638(b) and Regulation Z 226.17(b).8 b. By failing to make required disclosures clearly and conspicuously in writing in violation of 15 U.S.C. 1632(a) and Regulation Z 226.17(a).9 c. By failing to properly identify property subject to a security interest in violation of 15 U.S.C. 1638(a)(9) and Regulation Z 226.18(m).10 d. By failing to include in the nance charge certain charges imposed by defendant payable by plaintiff incident to the extension of credit as required by 15 U.S.C. 1605 and Regulation Z 226.4, thus improperly disclosing the nance charge in violation of 15 U.S.C. 1638(a)(3) and Regulation Z 226.18(d). Such amounts include, but are not limited to:11 i. $45 service charge, 15 U.S.C. 1605(a)(2); Regulation Z 226.4(b)(2);12 ii. $75 attorney fee, 15 U.S.C. 1605(a), Regulation Z 226.4(a);13 iii. $25 credit report fee, 15 U.S.C. 1605(a)(4), Regulation Z 226.4(b)(4);14 iv. $8 nonling fee, which, upon information and belief, was not used to purchase insurance in lieu of perfecting a security interest, 15 U.S.C. 1605(d)(2), Regulation Z 226.4(e)(2);15
This sample complaint does not include every possible violation of the Act and Regulation, but is merely an illustrative pleading. The detail with which the alleged violations are spelled out varies with the practitioners preference and local practice. Nonetheless, it is always a good idea to clearly state that any list of alleged violations is not an exclusive listing, as discovery may reveal additional violations. See 4.3.1, 8.6.5.3.4, supra. See 4.2.4, 8.6.5.3.2, supra. See 4.6.7, 8.6.5.2, supra. The alleged violation here is an overinclusive disclosure of the security interest, discussed in detail at 4.6.7.4.3, supra. See 4.6.3, supra. See also 4.6.3.2 (tolerance). Improper disclosure of the nance charge is a statutory penalty violation, 8.6.5.2, supra. (See note 7, supra regarding pleading.) See 3.7.3, supra. See also 3.7.4, supra. The transaction at issue in this example is not secured by real estate nor is it a residential mortgage transaction. Thus fees for the preparation of a personal property mortgage should be considered a nance charge, if the creditor requires the services performed. 3.6.23.6.4, supra. See also 3.6.3.3, supra. If the transaction is secured by real estate or is a residential mortgage transaction, an attorney fee may be included in the amount nanced provided it meets certain requirements. 3.9.6.2.4, supra. The transaction at issue in this example is not secured by real estate nor is it a residential mortgage transaction. Thus credit report fees are a nance charge. 3.7.5, supra. If the transaction is secured by real estate or is a residential mortgage transaction, credit report fees might be included in the amount nanced provided they are bona de and reasonable. 3.9.6.2.5, supra. Nonling insurance premiums may be excluded from the nance charge only if they are for insurance which protects

7. On or about November 10, 2003, plaintiff made a telephone inquiry to Credit-R-Us about obtaining credit to purchase a used automobile for personal, family and household purposes.5 8. On or about November 10, 2003, plaintiff executed a promissory note and security agreement for that purpose, which transaction is a consumer credit transaction within the meaning of TILA, 15 U.S.C. 1602 and Regulation Z 226.2.6 A true and accurate copy of the combined note and security agreement is attached hereto as Exhibit A, and is hereby incorporated by reference. 9. The security agreement lists as collateral the automobile purchased with the proceeds of this loan, a camera, tools, and hunting equipment. 10. Defendant did not provide a copy of the loan documents to plaintiff on November 10, 2003. On or about November 13, 2003, she received in the mail a copy of the note, security agreement, Truth in Lending disclosure statement, and a loan payment book. A true and accurate copy of the disclosure statement is attached hereto as Exhibit B, and is hereby incorporated by reference. Prior to November 13, 2003, she had not seen or received a copy of the Truth in Lending disclosure statement. 11. The Truth in Lending Disclosure statement prepared by defendant disclosed an amount nanced of $8500, a nance charge of $5010.94, an annual percentage rate of 24.924%, and a security interest in the automobile purchased and in household goods. 12. Included as part of the $8500 amount nanced were the following charges: a. $45.00 service charge; b. $75.00 attorney fee for preparation of chattel mortgage documents; c. $25.00 credit report fee; d. $ 8.00 nonling insurance; e. $94.96 credit life insurance premium; f. $80.00 VSI property insurance. V. FIRST CAUSE OF ACTION 13. The disclosure statement issued in conjunction with this consumer credit transaction violated the requirements of Truth in Lending and Regulation Z in the following and other respects:7 a. By failing to provide the required disclosures prior to
5 TILA applies solely to consumer credit transactions; 2.2, supra. 6 The complaint must allege all facts necessary to bring the transaction and the parties within the scope of TIL. See generally Ch. 2, supra. If the credit extended was not subject to a nance charge, then it must be alleged that it was payable by written agreement in more than four installments. See 2.3.4, supra. 7 Only some disclosure violations create civil liability for statutory damages, 8.6.5, supra. Actual damages, when provable, should be available for all disclosure violations. 8.5, supra.

8 9 10

11

12 13

14

15

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Sample Complaints v. $94.96 credit life insurance premium, for which disclosures required as a precondition to exclusion from the nance charge were not properly made, 15 U.S.C. 1605(b), Regulation Z 226.4(d)(1);16 vi. $80 VSI property insurance, for which, upon information and belief, the insurer failed to waive all right of subrogation against the consumer, Regulation Z 226.4(d)(2) note 5.17 e. By calculating the annual percentage rate (APR) based upon improperly calculated and disclosed nance charges and amount nanced, 15 U.S.C. 1606, Regulation Z 226.22, the defendant understated the disclosed annual percentage rate in violation of 15 U.S.C. 1638(a)(4) and Regulation Z 226.18(e).18 14. By reason of the aforesaid violations of the Act and Regulation Z, defendant is liable to plaintiff in the amount of twice the nance charge,19 actual damages to be established at trial,20 and attorneys fees and costs in accordance with 15 U.S.C. 1640. VI. SECOND CAUSE OF ACTION 15. [Insert other applicable claims, such as violation of a regulated loan act or unfair and deceptive acts and practices statute.]21 PRAYER FOR RELIEF WHEREFORE, plaintiff respectfully prays that this Court: 1. Assume jurisdiction of this case; 2. Award actual damages to be established at trial pursuant to 15 U.S.C. 1640(a)(1);
against risks caused by not perfecting a security interest and if the creditor actually purchases such insurance, rather than selfinsuring. 3.9.7.3, supra. Credit life insurance premiums may be excluded from the nance charge only if the purchase is voluntary and if proper disclosures are made. 3.9.4.5, supra. If the consumer is alleging that the purchase of insurance was required by the creditor, the factual allegations should reect that. See 3.9.4.5.1, 3.9.4.5.2, supra. VSI property insurance may be excluded only if the consumer has a choice of providers, all proper disclosures are met pursuant to 226.4(d)(2), and the insurer waives all rights of subrogation against the consumer. 3.9.4.8, supra. See 3.2.2, 4.6.4, (especially 4.6.4.3); 8.6.5.2, supra. Note that TIL permits inaccurate disclosures within certain allowable tolerances. 4.6.3.2, 4.6.4.6, supra. The violations alleged in 13ae are all ones giving rise to a claim for statutory penalties. 8.6.5.2, supra. A number of courts have held that a TIL plaintiff must establish detrimental reliance to recover actual damages. In at least some circuits it may be necessary to plead and prove that the plaintiff (1) read the TIL disclosure statement; (2) understood the charges being disclosed; (3) would have sought better terms if the terms had been accurately disclosed; and (4) would have obtained better terms. See National Consumer Law Center, The Cost of Credit: Regulation and Legal Challenges (2d ed. 2000 and Supp.).

Appx. E.3 3. Award statutory damages in the amount of twice the nance charge in accordance with 15 U.S.C. 1640(a)(2);22 4. Award plaintiff costs and reasonable attorneys fees in accordance with 15 U.S.C. 1640; 5. [Include a prayer for other relief which may be authorized under other causes of action.] 6. Award such other relief as the court deems appropriate. Dated this [date].23 Attorney for Plaintiff

E.3 Sample Complaint for TIL Rescission

This is a sample pleading for demonstration purposes only, and must be adapted by a competent professional to meet the circumstances of a given case and the requirements of local rules and practice. Cautionary note: Some judges look upon TILA as an overly technical statute and upon the rescission remedy, specically, as harsh. If possible, it is advisable for the complaint to include allegations about other overreaching creditor behavior and additional causes of action seeking relief due to that behavior, rather than pleading TIL violations in a vacuum. Since the defendant is likely to ask the court to order conditional rescission, the complaint should include facts showing why the equities favor the plaintiff, including, where appropriate, before-and-after scenarios that show how entering into the transaction put the plaintiff in a worse position.
UNITED STATES DISTRICT COURT DISTRICT OF ) Plaintiff ) ) v. ) ) Civil Action No. Creditor and Assignee, ) Defendants ) )

16

17

18

COMPLAINT I. PRELIMINARY STATEMENT 1. This Complaint is led under the Truth in Lending Act, 15 U.S.C. 1601 (hereinafter called Act) to enforce the
22 Courts disagree about whether there is a $100 oor and a $1000 cap on statutory damages for credit transactions that are not secured by real estate or a dwelling. See 8.6.2.3, supra. 23 Affirmative actions for damages must be brought within one year of the violation. 7.2, supra. Claims may be raised by way of recoupment or setoff after one year, unless prohibited by state law. 7.2.5, supra.

19 20

21

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Appx. E.3

Truth in Lending initially payable to Defendant. 9. A true and accurate copy of the credit agreement evidencing the transaction is attached hereto, marked PLAINTIFFS EXHIBIT A, and by this reference is incorporated herein. 10. As part of this consumer credit transaction, the Defendant retained a security interest in , which is used as the principal dwelling of Plaintiff. 11. The security interest was not created to nance the acquisition or initial construction of Plaintiffs dwelling. 12. A true and accurate copy of the mortgage evidencing the Defendants security interest is attached hereto, marked PLAINTIFFS EXHIBIT B, and by this reference is incorporated herein. , Defendant Creditor 13. On or about assigned the obligation in question to Defendant Assignee.29 V. FIRST CAUSE OF ACTION 14. This consumer credit transaction was subject to the Plaintiffs right of rescission as described by 15 U.S.C. 1635 and Regulation Z 226.23 (12 C.F.R. 226.23).30 15. In the course of this consumer credit transaction, Defendant Creditor violated 15 U.S.C. 1635(a) and Regulation Z 226.23(b) by failing to deliver to the Plaintiff two copies of a notice of the right to rescind which:31 a. Identied the transaction. b. Clearly and conspicuously disclosed the security interest in the Plaintiffs principal dwelling. c. Clearly and conspicuously disclosed the Plaintiffs right to rescind the transaction. d. Clearly and conspicuously disclosed how to exercise the right to rescind the transaction, with a form for that purpose, designating the address of the Defendant Creditors place of business. e. Clearly and conspicuously disclosed the effects of rescission. f. Clearly and conspicuously disclosed the date the rescission period expired. 16. In the course of this consumer credit transaction, Defendant Creditor failed to deliver all material disclosures required by the Act and Regulation Z, including the following:32
29 Assignees are fully liable for rescission regardless of whether the violation is apparent on the face of the documents. See 6.9, supra. However, an assignees liability for damages for disclosure violations depends on whether they are apparent on the face of the disclosure statement and other documents. See 7.3.2, supra. 30 If the transaction is open-end, the applicable provision of Regulation Z is 226.15. 31 See 6.4.3, supra. 32 Material disclosures are dened at 15 U.S.C. 1602(u); Reg. Z 26.23(a)(3), n.48. The list of violations in this Complaint is not an inclusive list of every possible material violation, but it does represent some inarguable material violations. See 6.4.2, 6.4.3, supra. Note that under 15 U.S.C. 1635(i)(2) the

plaintiffs right to rescind a consumer credit transaction, to void the Defendants security interest in the Plaintiffs home, and to recover statutory damages, reasonable attorneys fees and costs by reason of the Defendants violations of the Act and Regulation Z, 12 C.F.R. 226 (hereinafter called Regulation Z).24 Plaintiff also seeks damages for Defen.25 dants violations of II. JURISDICTION 2. Jurisdiction is conferred on this Court by 15 U.S.C. 1640(e) and 28 U.S.C. 1331, 1337. The Court has authority to issue a declaratory judgment by virtue of 28 U.S.C. 2201. 3. This Court has supplemental jurisdiction over the Plaintiffs state law claims pursuant to 28 U.S.C. 1367. III. PARTIES , is a natural person, re4. The Plaintiff, . siding at 5. Defendant Creditor, , is a engaged in the business of at . , is a 6. Defendant Assignee, engaged in the business of at . 7. At all times relevant hereto, the Defendant, in the ordinary course of its business, regularly26 extended or offered to extend consumer credit for which a nance charge is or may be imposed or which, by written agreement, is payable in more than four installments.27 IV. FACTUAL ALLEGATIONS , 19 , Plaintiff entered into 8. On or about a consumer credit transaction (hereinafter the transaction) with Defendant in which the extended consumer credit was subject to a nance charge28 and which was
24 If the one-year statute of limitations has not yet expired, the court may award statutory and actual damages for disclosure violations that occurred at the time the transaction was consummated. See 6.9.4, supra. In addition, the creditors failure to respond properly to the consumers rescission notice is an independent violation, and the one year statute of limitations for damages for that violation starts running with that failure. Id. See also 6.6.4, supra. 25 Here add references to any state consumer statutes under which the Plaintiff asserts claims. 26 See Reg. Z 226.2(a)(17), n.3 for denition of regularly extends consumer credit. See 2.3.3, supra. 27 A rescission action may also be brought against an assignee, regardless of whether the assignee is a creditor or whether the violation was apparent on the face of the disclosure statement. 15 U.S.C. 1641(c). See 6.9, supra. 28 If the credit was not subject to a nance charge, then it must be alleged that it was payable by written agreement in more than four installments. See Reg. Z 226.2(a)(17)(i)(A). See 2.3, supra.

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Sample Complaints a. By failing to properly and accurately disclose the amount nanced, using that term in violation of Regulation Z 226.18(b) and 15 U.S.C. 1638(a)(2)(A). b. By failing to clearly and accurately disclose the nance charge, using that term, in violation of Regulation Z 226.4 and 226.18(d) and 15 U.S.C. 1638(a)(3). c. By failing to clearly and accurately disclose the annual percentage rate, using that term, in violation of Regulation Z 226.18(e) and 15 U.S.C. 1638(a)(4). d. By failing to properly disclose the number, amounts, and timing of payments scheduled to repay the obligation, in violation of Regulation Z 226.18(g) and 15 U.S.C. 1638(a)(6). e. By failing to clearly and accurately disclose the total of payments, using that term, in violation of Regulation Z 226.18(h) and 15 U.S.C. 1638(a)(5).33 17. The Plaintiff has a continuing right to rescind the transaction until the third business day after receiving both the notice described in paragraph 11 and all material disclosures described in paragraph 12, pursuant to 15 U.S.C. 1635(a) and Regulation Z 226.23(a)(3), up to three years after consummation of the transaction. , the Plaintiff rescinded the transaction 18. On , by sending to Defendant Creditor at , by and to Defendant Assignee at U.S. Mail, postage prepaid, certied mail, return receipt requested, a notice of rescission.34 19. A true and accurate copy of that notice of rescission is attached hereto, marked PLAINTIFFS EXHIBIT C, and by this reference is incorporated herein. 20. Defendants Creditor and Assignee received copies of the Plaintiffs notice of rescission on or about . 21. More than 20 calendar days have passed since the

Appx. E.3 Defendants received copies of the Plaintiffs notice of rescission. 22. The Defendants have failed to take any action necessary or appropriate to reect the termination of any security interest created under the transaction, including the security interest described in Paragraph 8, as required by 15 U.S.C. 1635(b) and Regulation Z 226.23(d)(2). 23. The Defendants have failed to return to the Plaintiff any money or property given by the Plaintiff to anyone, including the Defendants, as required by 15 U.S.C. 1635(b) and Regulation Z 226.23(d)(2). 24. As a result of the aforesaid violations of the Act and Regulation Z, pursuant to 15 U.S.C. 1635(a), 1640(a), and 1641(c), Defendants are liable to Plaintiff for: a. Rescission of this transaction. b. Termination of any security interest in Plaintiffs property created under the transaction. c. Return of any money or property given by the Plaintiff to anyone, including the Defendant, in connection with this transaction. d. Statutory damages of $2000 for the disclosure violations.35 e. Statutory damages of $2000 for Defendants failure to respond properly to Plaintiffs rescission notice.36 f. Forfeiture of return of loan proceeds.37 g. Actual damages in an amount to be determined at trial.38 h. A reasonable attorney fee. VI. SECOND CAUSE OF ACTION 25. Plaintiff brings the second cause of action against the Section defendant under the
35 15 U.S.C. 1640(a)(2)(A)(iii) sets a $200 minimum/$2000 maximum for statutory damages in connection with closed-end, real-estate or dwelling-secured transactions. In contrast to other statutory damage awards, which are based on double the amount of the nance charge, the statute can be read to give the court discretion to set the statutory damage award anywhere between $200 and $2000, without regard to the amount of the nance charge. See 8.6.2.2, supra. An affirmative claim for damages for the underlying disclosure violations is available only if it is within the one-year statute of limitations. See 7.2, supra. 36 See the previous note regarding the amount of the statutory damage award. Note that in some circumstances the plaintiff can seek two statutory damage awards: one for the disclosure violations, if that claim is not barred by the one-year statute of limitations, and one for the creditors failure to respond properly to the consumers rescission. See 8.6.3.1.1, supra. The statute of limitations for rescission violations runs from the date of the violation. See 7.2.2.4, supra. 37 See 6.8.3, supra. See also 6.9, supra. 38 A number of courts have held that a TIL plaintiff must establish detrimental reliance to recover actual damages. In at least some circuits it may be necessary to plead and prove that the plaintiff (1) read the TIL disclosure statement; (2) understood the charges being disclosed; (3) would have sought better terms if the terms had been accurately disclosed; and (4) would have obtained better terms. See 6.8.2, 8.5.2, supra.

tolerance for inaccuracies in the nance charge and related disclosures is only $35 if the consumer exercises rescission rights after the initiation of any judicial or nonjudicial foreclosure process; if a foreclosure process has been initiated, this fact should be pleaded. 33 If the plaintiff seeks damages for these disclosure violations against the assignee, the complaint should also allege that they were apparent on the face of the documents. 34 See Appendix D, supra for a sample TIL rescission notice. Neither the Act nor Reg. Z requires anything more than sending the notice of rescission by mail (or telegram or other means of written communication). See 6.6.2, supra. However, if litigation is contemplated, and it is often necessary in rescission actions, then sending the notice by certied mail, return receipt requested will eliminate most factual issues as to when the notice was sent, when it was received and who received it. These pleadings should be modied if the notice was sent in some other fashion (for example, by ordinary, rst class mail).

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Truth in Lending and over a reasonable period of time;40 10. Award actual damages in an amount to be established at trial; 11. Award the Plaintiff costs and a reasonable attorney fee as provided under 15 U.S.C. 1640(a); 12. Award such other and further relief as the Court deems just and proper. BY Attorney for Plaintiff

et seq.39 This Court has supplemental jurisdiction to adjudicate this cause in that it arises out of the same credit transaction as Count I and is so related to that claim that it forms part of the same case or controversy. 26. Plaintiff incorporates the allegations in Paragraphs above with the same force and effect as if herein set forth. 27. The Defendants violated the provisions of Section of the in that the failed to . 28. As a result of the violation of Section the Defendants are liable to the Plaintiff in the sum of as provided in Section . VII. PRAYER FOR RELIEF WHEREFORE, it is respectfully prayed that this Court: 1. 2. 3. 4. Assume jurisdiction of this case; Declare the security interest in Plaintiffs home void; ; Rescind the transaction of Order Defendants to take all action necessary to terminate any security interest in Plaintiffs property created under the transaction and that the Court declare all such security interests void, including but not limited to the mortgage related to the transaction of ; Order the return to the Plaintiff of any money or property given by the Plaintiff to anyone, including the Defendants, in connection with the transaction; Enjoin Defendants during the pendency of this action, and permanently thereafter, from instituting, prosecuting, or maintaining foreclosure proceedings on the Plaintiffs property, from recording any deeds or mortgages regarding the property or from otherwise taking any steps to deprive Plaintiff of ownership of that property; Award the Plaintiff statutory damages for the disclosure violations, in the amount of twice the nance charge in connection with this transaction, but not less than $200 or more than $2000 as provided under 15 U.S.C. 1640(a); Award the Plaintiff statutory damages for Defendants failure to respond properly to the Plaintiffs rescission notice, in the amount of twice the nance charge in connection with this transaction, but not less than $200 or more than $2000 as provided under 15 U.S.C. 1640(a); Order that, because the Defendants failed to respond to the Plaintiffs notice of rescission, the Plaintiff has no duty to tender, but in the alternative, if tender is required, determine the amount of the tender obligation in light of all of the Plaintiffs claims, and order the Defendants to accept tender on reasonable terms
39 Here insert a reference to any state consumer statute under which the plaintiff is asserting a claim.

E.4 Sample Complaint for HOEPA Rescission and Damages

This is a sample pleading for demonstration purposes only, and must be adapted by a competent professional to meet the circumstances of a given case and the requirements of local rules and practice. Cautionary note: Some judges look upon TILA and HOEPA as overly technical statutes and upon the rescission remedy, specically, as harsh. If possible, it is advisable for the complaint to include allegations about other overreaching creditor behavior and additional causes of action seeking relief due to that behavior, rather than pleading TIL or HOEPA violations in a vacuum. In anticipation of a request by the defendant for conditional rescission, the complaint should specically plead facts showing that the equities favor the consumer.
UNITED STATES DISTRICT COURT DISTRICT OF ) JAMES and JOAN HOME) OWNER, ) Plaintiffs, ) ) v. ) ) SUBPRIME FINANCIAL ) CORP., ) Defendant ) )

5.

6.

7.

8.

COMPLAINT I. PRELIMINARY STATEMENT 1. This is an action brought by low-income homeowners against a lender with whom they unknowingly entered into
40 A paragraph in the prayer along these lines is particularly important in the Ninth Circuit because of the ruling in Yamamoto v. Bank of New York, 329 F.3d 1167 (9th Cir. 2003), which granted summary judgment for the lender on the ground that the consumer was unable to tender. The consumer should be prepared to submit specic proposals for the manner of making tender in response to a summary judgment motion from the lender.

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Sample Complaints an exorbitantly priced mortgage loan. Plaintiffs seek rescission and statutory damages under the Home Ownership and Equity Protection Act of 1994 (hereinafter HOEPA), 15 U.S.C. 1602(aa) and 1639, and the Truth in Lending Act, 15 U.S.C. 1601 et seq. and 1640(a). [Add description of any other claims asserted.] II. JURISDICTION AND VENUE 2. Jurisdiction of this Court exists pursuant to 15 U.S.C. 1640(e) as to claims under HOEPA and the Truth-inLending Act (TILA). [Add reference to jurisdictional basis for any other federal claims and to 28 U.S.C. 1367 for any pendent state claims]. This Court has jurisdiction to render the declaratory judgment Plaintiffs seek pursuant to 28 U.S.C. 2201. 3. Venue lies in this District pursuant to 28 U.S.C. 1391(b). III. PARTIES 4. Plaintiffs James and Joan Homeowner are natural persons who reside at [Address]. 5. Defendant Subprime Financial Corporation (hereinafter Subprime) is a corporation which conducts retail consumer loan operations in Pennsylvania through nine branch offices. Subprimes principal office is located at [Address]. 6. At all relevant times, Subprime regularly extended consumer credit payable by written agreement in more than four installments or for which a nance charge is imposed.41 IV. FACTUAL ALLEGATIONS A. FACTS PERTAINING TO SUBPRIMES SOLICITATION OF PLAINTIFFS 7. Plaintiffs are retired elderly homeowners who both suffer from serious health problems. 8. Plaintiffs own the home at [Address], which is their principal dwelling. Until the transaction with Subprime, the home was subject to a mortgage with [Bank], which had an unpaid balance of $[Amount], an interest rate of [Rate]%, and monthly payments of $[Amount].42
41 Under the non-HOEPA provisions of TILA, an entity regularly extends consumer credit if it extended credit secured by a dwelling more than ve times in the preceding calendar year. Reg. Z 226.2 n.3. A lender also meets the HOEPA denition of regularly extending consumer credit if it originates two or more high-cost mortgages in any 12-month period or one such mortgage through a mortgage broker. 15 U.S.C. 1602(f). A new start-up lender or one who is not in the general business of extending credit may meet this alternate denition. In a jurisdiction that requires fact pleading rather than notice pleading jurisdiction, it might be wise to include this level of detail in the allegation that the Defendant is a creditor. 42 The allegations in this and the preceding paragraph are relevant to show that the transaction is subject to HOEPA, since HOEPA only covers credit secured by the borrowers principal dwelling, and does not cover credit for construction or purchase of the home. See 9.2.4, supra.

Appx. E.4 9. On or about [Date], Plaintiffs received a telephone call from Subprime, asking them if they were interested in renancing their mortgage to lower their payments. Plaintiffs had been having difficulty making their mortgage payments, so indicated that they were interested. 10. On or about [Date], a representative from Subprime visited Plaintiffs in their home and had them sign an application for credit.43 11. On [Date], the date of settlement, Plaintiffs entered into a consumer credit transaction with Subprime in which Subprime extended consumer credit which was subject to a nance charge and which was initially payable to Subprime. 12. As part of this consumer credit transaction, Subprime acquired a security interest, namely a mortgage, in [Address], which is used as the principal dwelling of the Plaintiffs. 13. Subprime required Plaintiffs to consolidate $1581.65 in existing real estate taxes and water bills and $3222.11 in unsecured credit card debt into the loan, persuaded them to borrow an additional $525.67 in cash, and imposed approximately $3,050 in additional points, fees and settlement charges. As a result, the principal amount of the new loan was $[Amount] and the payments were $[Amount] per month for [Amount] months, with a disclosed annual percentage rate of [Rate]%. 14. Plaintiffs monthly income consists of $600 in Social Security benets plus $211.95 in pension benets. They have high utility bills (exceeding $400/month), regular unreimbursed medical expenses of more than $150 per month and expensive dietary restrictions. Their total monthly payment owing to Subprime under the loan transaction is $[Amount]/month (the loan amount, plus tax and insurance escrow), i.e., an amount in excess of their ability to pay. Accordingly, within the rst year of their contract they had fallen behind in their payments.44 15. Pursuant to this transaction, Plaintiffs have paid Subprime $[Amount] in payments, of which $[Amount] was applied to nance charges and fees.45
43 These allegations are not essential for a HOEPA cause of action. While the interest rate trigger is measured as of the 15th day of the month preceding the date of the borrowers application for credit, 15 U.S.C. 1602(aa)(1)(A), an allegation regarding the date of settlement should be unnecessary in a notice pleading jurisdiction. Details about the plaintiffs and the manner in which the particular transaction was solicited may be important for a fraud claim and for setting the HOEPA claim in context, however. 44 The allegations in this and the preceding paragraph are relevant if the homeowner is asserting a claim that the lender made the loan without regard to the plaintiffs ability to repay the debt. 45 The amount paid in nance charges and fees is relevant since 15 U.S.C. 1640(a)(4) allows an additional award of damages for material HOEPA violations in an amount equal to all nance charges and fees paid by the consumer. Note that prepaid nance charges and fees should be included in this calculation. See 9.6.1.3, supra, and National Consumer Law Center, The Cost of Credit: Regulation and Legal Challenges 5.5.2.2.2 (2d ed. 2000 and Supp.). The attorney may also wish to add allegations supporting any claim for actual damages.

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Appx. E.4

Truth in Lending Staff Commentary 226.32(c)(3)-2; or it failed to make the disclosures regarding the variable interest rate that are required by 15 U.S.C. 1639(a)(2)(B).] 21. The loan extended to Plaintiffs includes abusive terms prohibited by HOEPA, including: [Examples are prepayment penalties, balloon payments if the term is less than ve years, penalty interest rates upon default, negative amortization, prepayment of more than two payments from the proceeds of the loan].47 22. Subprime failed to deliver all the material disclosures required by the Truth in Lending Act to Plaintiffs in connection with this transaction. In particular, Subprime failed to: [Identify disclosure violations]48 C. FACTS PERTAINING TO PLAINTIFFS RESCISSION OF THE TRANSACTION 23. Because of the violations of HOEPA and TILA listed above, Plaintiffs retained the right to rescind the transaction up to three years after its consummation.49 24. On [Date], Plaintiffs rescinded the transaction by sending a notice of rescission, a true copy of which is attached hereto as Exhibit [], to Subprime at [Address]. 25. Subprime received Plaintiffs notice of rescission on [Date]. 26. More than twenty days have passed since Plaintiffs rescinded the transaction50 and Subprime has failed to take any action necessary or appropriate to reect the termination of any security interest created under the transaction, as required by 15 U.S.C. 1635(b) and Regulation Z, 226.23(d)(2). In addition, Subprime has failed to return to the Plaintiffs any money or property given by the Plaintiff to anyone, including Subprime, as required by 15 U.S.C. 1635(b) and Regulation Z, 226.23(d)(2). 27. On [Date], prior to plaintiffs rescission of this transaction, Subprime had instituted a foreclosure action against the Plaintiffs in the [Name of court] Court.51
47 See 15 U.S.C. 1639(c)(g); 9.4, supra. 48 While this sample complaint focuses on HOEPA violations, the plaintiff will also have the same extended right of rescission if the material TIL disclosures were not provided. 49 The advance look HOEPA disclosures are dened as material disclosures by 15 U.S.C. 1602(u), so failure to make them properly results in the extended right of rescission. Inclusion of a prohibited term also results in extension of the right to rescind pursuant to 1639(j). However, the FRB has taken the position that the rescission period is not extended by a pattern or practice of lending without regard to the consumers ability to pay or by direct payment of the proceeds to a home improvement contractor. See discussion at 9.4.9, supra. 50 If the complaint must be led before the 20-day period has passed, this allegation can be rephrased as Since receipt of the rescission notice, Subprime has failed to . . .. 51 Whether a foreclosure action has been instituted is relevant because the tolerance for errors in the nance charge is only $35 if the consumer is seeking rescission after the initiation of a judicial or nonjudicial foreclosure. 15 U.S.C. 1635(i)(2). See 6.9.6, supra.

B. FACTS PERTAINING TO DISCLOSURES AND TERMS OF THE TRANSACTION 16. The above-mentioned consumer credit transaction was a high rate mortgage within the meaning of HOEPA, 15 U.S.C. 1602(aa)(1)(B), in that the total points and fees as dened in that section that Subprime charged Plaintiffs exceeded 8 percent of the total loan amount [or in that the annual percentage rate at consummation of the transaction exceeded by more than 10 percentage points the yield on Treasury securities having comparable periods of maturity on the 15th day of the month immediately preceding the month in which Subprime received Plaintiffs credit application]. 17. Upon information and belief, Subprime has engaged in a pattern or practice of extending credit to consumers under high rate mortgages, as dened by 15 U.S.C. 1602(aa), based on the consumers collateral without regard to the consumers repayment ability, including their current and expected income, current obligations and employment, in violation of 15 U.S.C. 1639(h).46 18. Plaintiffs believe and therefore aver that Subprime required or induced them to borrow substantially more money than they were seeking, and in an amount beyond their ability to repay, based primarily on Subprimes evaluation of the amount of Plaintiffs equity in their homes. 19. Because the transaction described herein met the HOEPA denition of a high rate mortgage, the transaction was subject to additional disclosure requirements that must be provided three days in advance of the consummation of the transaction. 15 U.S.C. 1639(b). 20. Subprime did not furnish the required HOEPA disclosures to Plaintiffs three days prior to their settlement. [Or: Subprime furnished a HOEPA disclosure form to Plaintiffs three days prior to the settlement, but it did not comply with HOEPA in that . . . (examples are: it disclosed the annual percentage rate as [Rate]% when actually it was [Rate]%, and then it did not provide revised advance disclosures 3 days prior to settlement; it failed to print the warnings in conspicuous type size; it included the note rate along with the APR to detract from or overshadow the APR disclosure; it disclosed a payment that included optional credit insurance products not yet voluntarilypurchased; it failed to disclose a balloon payment as required by Offcial
46 The facts underlying this allegation should be carefully investigated before it is pleaded, and the attorney should consider pleading at least some facts in support of the claim. Facts supporting this claim could include examples of other consumers who got unaffordable loans, allegations that the lender allows excessively high debt-to-income ratios such as 50% or 60% or that it allows deviations from its own income guidelines, or allegations regarding the lenders high default or foreclosure rates for recently originated loans. For many subprime lenders, some of this information is available in their SEC lings, especially 424(b)(5) forms led by lenders who securitize. County court records can also be utilized to locate other borrowers and to determine how many foreclosures the lender has led in relation to the number of mortgages it has led. See 9.5.2, supra.

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Sample Complaints V. CAUSES OF ACTION COUNT IHOEPA and TIL52 28. Subprimes lending to Plaintiffs based on their collateral, without regard to their repayment ability, was part of a pattern or practice of such lending and violates 15 U.S.C. 1639(h), entitling Plaintiffs to actual and statutory damages under 15 U.S.C. 1640(a). 29. Subprimes failure to give Plaintiffs the disclosures required by HOEPA three days prior to settlement violates 15 U.S.C. 1639(a) and (b), entitling Plaintiffs to actual and statutory damages under 15 U.S.C. 1640(a) and extending their right to rescind the transaction until up to three years after its consummation. 30. Subprimes inclusion of the abusive terms set forth in above violates 15 U.S.C. 1639( ), Paragraph entitling Plaintiffs to actual and statutory damages under 15 U.S.C. 1640(a) and extending their right to rescind the transaction until up to three years after its consummation. 31. Subprimes failure to deliver all the material disclosures required by the Truth in Lending Act to Plaintiffs in connection with the transaction violates 15 U.S.C. 1638, entitling Plaintiffs to actual and statutory damages under 15 U.S.C. 1640(a) and extending their right to rescind the transaction until up to three years after its consummation. 32. Subprimes failure to take the action necessary and appropriate to reect the termination of the security interest within 20 days after Plaintiffs rescission of the transaction violates 15 U.S.C. 1635(b) and entitles Plaintiffs to actual damages, statutory damages, and orders enforcing their rescission of the transaction. WHEREFORE, Plaintiffs pray for the following relief, pursuant to 15 U.S.C. 1635(a), 1639(j), and 1640(a): a. Rescission of the transaction, including a declaration that the Plaintiffs are not liable for any nance charges or other charges imposed by Defendant; b. A declaration that the security interest in Plaintiffs property created under the transaction is void, and an order requiring Defendants to release such security interest; c. Return of any money or property given by the Plaintiffs to anyone, including the Defendant, in connection with the transaction; d. Statutory damages of $6000 (consisting of $2000 for the disclosure violation, $2000 for the failure to rescind, and $2000 for [each inclusion of a prohibited term or other non-disclosure violation, such as lending without regard to repayment ability]);53
52 Other counts should be added to set forth any claims the consumers may have under other state or federal laws. 53 The statute of limitations for actual and statutory damages based on disclosure violations is one year from the date of consummation of the transaction. If this cause of action is asserted as a defense to a judicial foreclosure or as an objection to a proof of claim in a bankruptcy case, damages can be awarded by way of recoupment even after the one-year period, however. See 7.2.5,

Appx. E.5 e. Additional damages pursuant to 15 U.S.C. 1640(a)(4) in the amount of all nance charges and fees paid by Plaintiffs, for each non-disclosure violation; f. An order that, because Defendants failed to act in response to Plaintiffs notice of rescission, Plaintiffs have no duty to tender the loan proceeds to Defendants, but in the alternative, if tender is required, a determination of the amount of the tender obligation in light of all of the Plaintiffs claims, and an order requiring the Defendant to accept tender on reasonable terms and over a reasonable period of time;54 g. Actual damages in an amount to be determined at trial; h. An award of reasonable attorney fee and costs; and i. Such other relief at law or equity as this Court may deem just and proper. Respectfully submitted, [Attorney for Plaintiff]

E.5 Sample Fair Credit Billing Act Complaint

This is a sample pleading for demonstration purposes only, and must be adapted by a competent professional to meet the circumstances of a given case and the requirements of local rules and practice. UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT JAMES CONSUMER v. YOUR BANK CREDIT CARD SERVICES L.P. ) ) ) ) ) ) ) )

supra. In addition, most courts have ruled that the statute of limitations can be tolled if there is fraudulent concealment. See 7.2.3, supra. The creditors failure to respond to a timely rescission letter is a separate TIL violation, and the statute of limitations is one year from the date the creditor should have responded. See 7.2.2.4, supra. While only one statutory damage award is allowed for disclosure violations, multiple statutory damage awards are allowed if there are disclosure violations plus nondisclosure violations. See 8.6.3, 9.6.1, supra. 54 A paragraph in the prayer along these lines is particularly important in the Ninth Circuit because of the ruling in Yamamoto v. Bank of New York, 329 F.3d 1167 (9th Cir. 2003), which granted summary judgment for the lender, albeit in a non-HOEPA case, on the ground that the consumer was unable to tender. The consumer should be prepared to submit specic proposals for the manner of making tender in response to a summary judgment motion from the lender.

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Truth in Lending COMPLAINT55 [or: 9. Despite its receipt of plaintiffs billing error notice, and before meeting the requirements of 15 U.S.C. 1666 to either correct the error or investigate and send an explanation of the charges, defendant made [or threatened to make] an adverse credit report regarding plaintiff.59] [or: 9. Despite its receipt of plaintiffs billing error notice, and before meeting the requirements of 15 U.S.C. 1666 to either correct the error or investigate and send an explanation of the charges, defendant took action to collect the disputed amount by calling plaintiff and sending plaintiff notices demanding payment.60] 10. Defendants actions caused plaintiff actual damages as follows: [describe]61 WHEREFORE, plaintiff prays for: A. Actual damages; B. Statutory damages in the amount of double the nance charge pursuant to 15 U.S.C. 1640(a)(2);62 C. Pursuant to 15 U.S.C. 1666(e), a declaration that Defendant has forfeited any right to collect the rst $50 of the disputed amount and any nance charges thereon from Plaintiff;63 D. Costs and attorney fees; E. Such other relief as the Court deems proper. [Attorney for Plaintiff]

1. This is an action for actual damages, statutory damages, and attorney fees for violation of the Fair Credit Billing Act (part of the Truth in Lending Act), 15 U.S.C. 1666 and Regulation Z issued thereunder.56 2. This Court has jurisdiction pursuant to 15 U.S.C. 1640(e) and 28 U.S.C. 1331 and 1367. The Court has authority to issue a declaratory judgment by virtue of 28 U.S.C. 2201. 3. Defendant Your Bank Credit Card Services L.P. is a business entity with offices at [Address]. 4. Plaintiff is a natural person, residing at [Address], who entered into an open-end credit transaction, namely a Mastercharge account, with defendant for personal, family, and household purposes. 5. At all times relevant hereto, defendant, in the ordinary course of business, regularly extended open-end consumer credit, pursuant to a MasterCard, on which defendant assessed nance charges. 6. Beginning with the periodic statement with a closing date of February 21, 2002, charges from IBM Internet and CSI Compuserve began appearing on plaintiffs Your Bank MasterCard statement. 7. Plaintiff did not make those charges. 8. Within 60 days after transmission of the statement, plaintiff sent a notice disputing the charges to defendant at the address stated on the periodic statement. 9. Since defendant did not, within 30 days after receiving plaintiffs notice, investigate and correct or explain the charge, defendant was required by 15 U.S.C. 1666(a)(3)(A) to send plaintiff a written acknowledgement of its receipt of plaintiffs notice within that period. Defendant failed to send this acknowledgement.57 [or: 9. Defendant did not, within two complete billing cycles after receipt of the notice, either correct the error and transmit to plaintiff a notication of the corrections or investigate the error and send plaintiff a written explanation.58]
55 This complaint is adapted from a sample supplied by Joanne Faulkner, a Connecticut attorney who practices consumer law. 56 Note that the plaintiff may also have claims under a state UDAP statute, a state debt collection statute, and contract law. These potential claims are not included in this pleading. If state law claims are added, the jurisdictional statement should be revised to add a reference to supplemental jurisdiction under 28 U.S.C. 1367. 57 This paragraph alleges a violation of 15 U.S.C. 1666(a)(3)(A). See 5.8.5, supra. 58 This alternate paragraph alleges a violation of 15 U.S.C.

1666(a)(3)(B). See 5.8.6, 5.8.7, supra. 59 This alternate paragraph alleges a violation of 15 U.S.C. 1666a(a). See 5.8.7.3, supra. 60 This alternate paragraph alleges violation of 15 U.S.C. 1666(a)(3)(B). Note that, pursuant to 1666(c), merely sending a statement of account while the dispute is pending may not be a violation. See 5.8.5, supra. 61 Several circuits have held that a plaintiff must allege detrimental reliance when seeking actual damages for TIL disclosure violations. Since detrimental reliance is an import from commonlaw fraud, it makes little sense to consider it a requirement for actual damages for FCBA violations that do not involve representations or disclosures. Nonetheless, attorneys should take particular care in the pleading and proof of causation when claiming actual damages. 62 Courts disagree about whether there is a $100 oor and a $1000 cap on statutory damages for credit transactions that are not secured by real estate or a dwelling. See 8.6.2.3, supra. There are also questions about what amount should be doubled in an open-end credit transaction. See 5.8.8, supra. 63 Since 15 U.S.C. 1666(e) limits this forfeiture to $50, the consumer may want to join a state law cause of action seeking a ruling that the consumer is not liable for any part of the debt.

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