Effective Defense of Truth in Lending Act Cases for Credit Unions

The Truth in Lending Act is a federal law passed in 1968 to protect consumers from unfair treatment by lenders. It sets forth a number of rules and regulations that creditors and lenders must follow. While these requirements are meant to allow consumers to confidently compare interest rates and conditions with credit unions and other financial institutions, lenders are still able to assert several defenses in the event a dispute arises.

One of the primary objectives of the Truth in Lending Act is to provide consumers with clear and easy to understand explanations concerning the cost of credit. Lawsuits are frequently brought against credit unions under the Truth in Lending Act alleging violations for failure to provide truthful disclosure statements and comply with Regulation Z. Under this regulation, lenders are required to inform consumers regarding the accurate cost of credit in writing before they make the decision to borrow.

There are several effective defenses credit unions may be able to use during litigation, including the following:

  • Clerical errors — A credit union may assert that it committed a bona fide clerical error if they can establish it occurred unintentionally, even though reasonable maintenance procedures were in place.
  • Reliance on a Fed interpretation — If the credit union relied on the Federal Reserve Board’s interpretation of a regulation in good faith, and it was subsequently found to violate a rule, the credit union could raise the interpretation as a defense. However, the defense would not be effective if the credit union made a mistake regarding its own interpretation of the rule.
  • Correction of an error — If a clerical error was made in an original disclosure, a credit union may voluntarily correct the error within 60 days. The corrected disclosure must be issued before a suit is filed or the creditor is notified of the mistake in writing.
  • Arbitration clause — If an arbitration clause is contained in a contract, the credit union may be able to use arbitration to resolve claims outside of court or avoid a class action lawsuit.

At Bowen, Radabaugh & Milton, P.C., we offer a wide range of legal services to credit unions and have the experience and knowledge necessary to advise on a wide scope of issues ranging from day-to-day operations to regulatory compliance matters. Call 248.641.8000 or contact us online to schedule a consultation at our Troy, Michigan office.