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Ninth Circuit: TILA’s Notice of Loan Transfer is Not Retroactive

Posted By USFN, Thursday, March 31, 2016

by Kathy Shakibi
McCarthy Holthus LLP – USFN Member (WA)
Federal law requires the sending of a written notice to a borrower when a loan is sold or transferred, in addition to when the servicing of the loan is transferred. While the latter notice requirement has existed since before the financial crisis of 2008, [Real Estate Settlement Procedures Act, Title 12 U.S.C. §2605(b)], the former notice provision is comparatively recent. It was enacted in 2009 as an amendment to the Truth in Lending Act (TILA), Title 15 U.S.C. § 1641(g). The U.S. Court of Appeals for the Ninth Circuit has held that TILA’s notice provision is not retroactive. [Talaie v. Wells Fargo Bank, NA, 808 F.3d 410 (9th Cir. Dec. 14, 2015)].
The Talaie plaintiffs had brought a putative class action against Wells Fargo and US Bank in connection with a loan modification on their residence. Various state and federal law claims were alleged, including that when their mortgage loan was transferred from Wells Fargo to US Bank in 2006, they were not provided written notice of the loan transfer under TILA. Since TILA’s notice provision was enacted in 2009, the requirement would apply to the Talaie loan only if the provision operated retroactively.
TILA’s notice provision requires that “not later than 30 days after the date on which a mortgage loan is sold or otherwise transferred or assigned to a third party, the creditor that is the new owner or assignee of the debt shall notify the borrower in writing of such transfer.” If the new creditor does not provide written notice, the statute authorizes a private right of action for actual damages, penalty, and attorney fees. The Ninth Circuit based its analysis on the U.S. Supreme Court decision in Landgraf v. USI Film Products, 511 U.S. 244 (1994), which considered four principles in determining whether to apply a statute retroactively. That is, if a new statute would (1) impair the rights that a party possessed when he or she acted, (2) increase a party’s liability for past conduct, or (3) impose new duties with respect to a completed transaction, then (4) courts should not give retroactive effect to the statute without clear congressional intent favoring retroactivity. Id at 280.
The concerns discussed in Langdorf were present in Talaie. At the time of the loan transfer, the defendants had a right to sell or transfer without notice, and retroactive application of the statute would increase the defendants’ liability for past conduct, as well as impose new duties on completed transactions. Next, the Ninth Circuit looked at the text and history of section 1641(g) and found no clear indication that Congress intended for the statute to apply to loans that had transferred prior to its enactment. The Court of Appeals reasoned that Congress would not have subjected creditors to liability and penalty without providing a way to comply with the statute (for loans predating its enactment). Accordingly, the Ninth Circuit held that section 1641(g) does not apply retroactively because Congress did not express a clear intent that it do so.
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