[Congressional Record Volume 140, Number 149 (Thursday, December 1, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: December 1, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                          TRUTH IN LENDING ACT

 Mr. MACK. As soon as we return for the start of the 104th 
Congress, I intend to introduce amendments to the Truth in Lending Act 
(``TILA'') in response to the recent case of Rodash against A.I.B. 
Mortgage Co., 16 F. 3d 1146 (11th Cir. 1994) decided in March of this 
year. In Rodash, the Court held that a tax levied on security 
instruments that must be paid as a pre-condition to recording the 
mortgage and delivery fees were both ``finance charges'' under TILA. 
Although the tax and fees were disclosed to the consumer, in the 
opinion of the court, their disclosure as components of the ``amount 
financed'' rather than as part of the ``finance charge'' was improper. 
Based primarily on Rodash, over fifty class action suits have already 
been filed and more are being brought every week. At least 30 of these 
suits have been brought in my home state of Florida. The average tax is 
about $200.00 and on average the courier fees are $30.00 per 
transaction.
  These developments present a serious and immediate threat to the 
future of mortgage lending that necessitate prompt responsive steps to 
address the issue. Under the TILA, a refinance or second mortgage loan 
can be rescinded if a lender is found to have made improper material 
disclosures, including the amount of the finance charge. Virtually all 
of the class actions have sought class rescission or a declaration by 
the Court that members of the class have continuing rescission rights. 
The Courts have liberally construed what constitutes a material 
nondisclosure so that even minor discrepancies allow borrowers to 
exercise the right to rescind a loan or seek statutory penalties. If a 
borrower rescinds a loan, the lender must reimburse all fees and cost 
to the borrower, including all interest paid, and must release the 
mortgage lien. Generally speaking, the borrower's right to rescind may 
be asserted against any subsequent owners of the loan, even if it did 
not make or contribute to the incorrect disclosure. This aspect affects 
mortgages that have been resold as mortgage-backed securities.
  Mortgage lending faces dire consequences if loans are rescinded in 
significant numbers because the losses could be in the billions of 
dollars. Since 1991, 11.8 million loans totaling $1.3 trillion have 
been refinanced. The exposure from this litigation could impair the 
safety and soundness of the thrift and banking institutions. 
Prepayments from massive rescissions would also affect the mortgage-
backed securities marketplace.
  The legislation I will offer will address liability under the TILA 
based upon the manner in which a creditor disclosed certain taxes and 
delivery fees.
  Mr. D'AMATO. I understand the importance of the amendment my 
colleague from Florida intends to offer. I expect that the issues he 
raises will be considered early in the next session. I also appreciate 
the disruptive affect of unlimited future litigation on this issue. 
However, I am concerned about the impact of this legislation on pending 
lawsuits and recission claims.
  Mr. MACK. I understand and share his concern. My amendment will 
strike a balance in eliminating hyper-technical liability on lenders 
while preserving individual consumer rights under TILA. We will 
propose, therefore, to exclude from the effect to the limitations on 
liability only individual actions filed, rescission claims made by 
individuals, or class action certified, prior to October 1, 1994, and 
in which a claimant alleged, prior to that time, improper disclosure of 
delivery fees or taxes. The consumers who will be affected by these 
amendments are those who have not filed an individual action or 
counterclaim, who are not part of certified ``class,'' or who have not 
made a rescission claim prior to October 1, 1994. Cases already 
decided, including Rodash, will not be affected. We've made out 
intention to act on this issue very clear and none will suffer any 
unanticipated adverse affect.
  It is also my intention that the legislation have a fixed effective 
date so that it will be apparent that future class actions would be 
foreclosed insofar as they allege violations of the items treated in 
the amendment, as would existing class action suits where the class had 
not been certified before October 1, 1994. For class actions that were 
not certified before that date however, the named individual 
plaintiff's representatives would be permitted to pursue their 
individual claims.

                          ____________________