Truth In Lending Act
PNC v. Lyons
Date: August 14, 2024
Issue: Whether the Truth in Lending Act’s (TILA) offset provision, or the Real Estate Settlement Practices Act (RESPA) apply to home equity lines of credit (HELOCs).
Case Summary: In a 2-1 decision, a Fourth Circuit panel ruled that TILA’s offset provision applies to HELOCs.
TILA (15 U.S.C. § 1666h) and Regulation Z prohibit credit card issuers from offsetting a “cardholder’s indebtedness arising in connection with a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer” (offset provision).
William Lyons Jr. sued PNC alleging violations of TILA, related to PNC’s setoff of funds from two of his deposit accounts to pay the outstanding balance on HELOCs. Dismissing the case, the court concluded TILA’s language as interpreted in Regulation Z could not support Lyons’ argument that the offset provision applies to HELOCs. The court reasoned home equity plans, which are secured by real property, are different from credit card plans, which are not. The court observed Lyons’ loan was a HELOC rather than a credit card plan, and Regulation Z declares the two types of accounts are distinct.
On appeal, the Consumer Financial Protection Bureau (CFPB) filed an amicus brief arguing TILA’s offset provision applies to HELOCs accessible by credit card. In response, ABA filed an amicus brief supporting PNC arguing HELOCs and credit cards are fundamentally different products; a HELOC is not a “credit card plan” under TILA’s offset provision; and CFPB’s interpretation is not entitled to deference.
The panel reversed the district court’s decision in part and affirmed in part. First, the panel declared the district court erred in finding “credit card plans” do not include HELOCs. The panel determined that the district court erroneously assumed the definition of “credit card” in TILA bore no relevance to the meaning of “credit card plan” in the same statute. The panel explained the district court missed the possibility that a “credit card plan” is simply a plan in which a consumer accesses credit using a credit using a credit card. The court highlighted that the type of credit is not what matters, but rather that a card is used to access the credit, and that terms and conditions govern credit. What is more, the panel determined the district court erroneously assumed the term “credit card plan” in TILA was synonymous with “credit card account under an open-end (not home-secured) consumer credit plan” in Regulation Z. In the panel’s view, whether the term “credit card account under an open-end (not home-secured) consumer credit plan” includes HELOCs only matters if one assumes the term is interchangeable with the term “credit card plan.”
Conversely, the panel affirmed the district court’s decision holding that CFPB may exempt HELOCs from federally related mortgage loans. Lyons alleged PNC violated RESPA by “failing to respond timely and adequately to his correspondence notifying it of an error in his mortgage servicing and requesting documentation and information.” Lyons contended he submitted a qualified written request, and under RESPA, PNC had 30 business days to investigate and respond. However, the panel determined Congress also authorized CFPB to grant reasonable exemptions for classes of transactions, as necessary. Under Regulation X, CFPB expressly excluded open-end lines of credit from the definition of mortgage loans. Thus, the panel rejected Lyons’ RESPA claim because RESPA’s requirement to respond did not cover HELOCs.
In dissent, Judge Henry F. Floyd noted he would have affirmed because, in his view, a HELOC is not a “credit card plan” under TILA. Judge Floyd reasoned Congress did not intend to expand the term “credit card plan” in the offset provision to include any HELOC which can be accessed via a credit card. Moreover, Judge Floyd maintained the majority’s conclusion is overly formalistic and ignores the larger statutory and regulatory context of TILA.
Bottom Line: The Fourth Circuit is the first appellate court to address whether the offset provision applies to HELOCs.
Documents: Opinion
