Consumer Protection – Real Estate – TILA – ‘Tolerance For Accuracy’

A homeowner’s allegation of a $215 mistake in the finance charge on her mortgage loan falls within the TILA’s “tolerance for accuracy,” and she has not alleged a lack of actual notice or harm from receiving only one copy of the Notice of Right to Rescind, and the Charlottesville U.S. District Court dismisses her TILA suit but allows her to amend.

A lender’s failure to comply with the disclosure requirements under TILA will potentially give rise to a cause of action against it for statutory damages, actual damages, attorney’s fees and rescission. If the required notice of right to rescind or of material disclosures are not delivered, the consumer’s right to rescind is extended from three days to three years. When a consumer exercises the right to rescind under the TILA, he is not liable for any finance or other charge, and any security interest given by the obligor, including any such interest arising by operation of law, becomes void upon such a rescission.

The disclosure requirements under TILA provide for a small margin of error, known as the “tolerances for accuracy” provision, before the mortgage lender can be potentially subject to claims for damages or rescission. For “closed-end credit” transactions, that are secured by real property or a dwelling, the disclosure of the finance charge and other disclosures affected by any finance charge shall be treated as accurate for purposes of § 1635 of this title concerning the borrower’s right of rescission if the amount disclosed as the finance charge does not vary from the actual finance charge by more than an amount equal to one-half of one percent of the total amount of credit extended. The regulation covering this statutory provision provide that the finance charge and other disclosures affected by the finance charge is considered accurate if the disclosed finance charge is understated by no more than one-half of one percent of the face amount of the note or $100, whichever is greater.

The court finds, taking all plaintiff’s allegations as true and drawing all reasonable inferences in her favor, that plaintiff has identified at most that the $185,396.10 figure disclosed as the amount financed was overstated by $215. However, plaintiff must make allegations which, if taken as true, would state a plausible claim that the alleged inaccurate disclosures would exceed TILA’s tolerances for accuracy, which in this case is $960. She has not. Assuming the amount financed was overstated as alleged by plaintiff, it, as well as the finance charge and annual percentage rate figures, would still fall within TILA’s tolerance for accuracy.

Although defendant EquiFirst has not specifically raised a tolerance for accuracy defense, the court can raise this issue sua sponte. Plaintiff has requested leave to amend and is granted 14 days to state a plausible claim that the disclosure errors in the HUD-1 exceed TILA’s tolerances for accuracy.

Plaintiff also argues she can rescind because she received only one copy of the Notice of Right to Cancel. The court finds EquiFirst’s reliance on iiiByron v. EMC Mortg. Co.iii persuasive. Plaintiff has not alleged that she did not receive actual notice of the right to rescind or that the alleged disclosure violation caused her harm. The court finds plaintiff has not stated a plausible claim that the TILA disclosures were inaccurate, and this rescission claim is dismissed.

A claim for damages must be brought within one year of the date of violation, and plaintiff’s claims for damages are time-barred.

Yarney v. Wells Fargo Bank N.A. (Moon, J.) No. 3:09cv00050, Aug. 5, 2010; USDC at Charlottesville, Va. VLW 010-3-418, 22 pp.