Questions and Answers

What liabilities can we face if we do not comply with Reg. Z and cancel the security interest in a property after a rescission within the 20 day period? Due to a clerical error, this was not done until 3 years after the rescission notice was received. This oversight also caused distress on the consumer's credit rating.

The Truth-in-Lending Act provides for three types of liability for violations: (1) administrative liability, (2) civil liability, and (3) criminal liability.

  1. Administrative liability is liability to the administrative agencies that enforce the TILA and Regulation Z.
  2. Civil liability is liability to the consumer for damages the consumer suffers as a result of the violation.
  3. Criminal liability is liability to the government and is limited to situations where the violation is willful and knowing.

Since the violation was caused by a clerical error and does not seem to be willful and knowing, criminal liability is probably not a concern.

Administrative liability is also probably not a concern since the violation appears to be a single event and not a chronic deficiency in your operation.

Civil liability could be a concern. Under TILA, the consumer is entitled to (1) actual damages, (2) twice the finance charge in the transaction (limited to no less than $200 nor more than $2,000), and (3) court costs and attorneys fees. (See 15 USC 1640(a).) You may be able to avoid liability, however, under TILA's correction rule, which says that if you correct the violation within 60 days of discovering it and meet some other conditions, you will not have any civil liability. (See 15 USC 1640(b).)

(Posted: 08/10/2007)