The Consumer Financial Protection Bureau (CFPB) this week filed an amicus brief in a Maine Supreme Judicial Court in a case involving a married couple’s loan, joining with state officials including the attorney general, its Bureau of Financial Institutions and Bureau of Consumer Credit Protection.
The Maine state agencies filed the lawsuit, Franklin Savings Bank v. Bordick, under the federal Truth in Lending Act (TILA) on behalf of a couple that took out a mortgage in 2008 in order to purchase land for the construction of a new home. While they sold the home in 2014, the sale proceeds were not enough to cover the debt since the home lost value during the 2008 financial crisis.
In an effort to cover the deficit, the couple took out a new loan and made regular payments for nearly four years. The dispute emerged at the end of the loan’s term, the CFPB explained.
“[A]t the end of the loan’s term, the couple was unable to make the balloon payment that was due,” CFPB said. “When they failed to pay the whole amount, the bank sued, and the couple tried to present evidence that the bank had not provided them with disclosures required by [TILA] or determined that they could repay the loan. The bank has argued that because the loan documents stated that the loan had a commercial purpose, the law does not apply.”
However, the brief filed by the CFPB explains the Bureau’s firm belief that “why the consumer borrowed the money – not the label that the company sticks on the loan – determines whether the loan is covered by the law,” the agency said.
“[L]enders can’t escape coverage under [TILA] by labeling their loans as ‘commercial,’” the Bureau said. “As many courts have held, and as the law clearly states, the borrower’s purpose for taking out the loan determines whether the law applies.”
The CFPB goes on to cite U.S. Supreme Court case law which previously noted that TILA’s language “evinces the awareness of Congress that some creditors would attempt to characterize their transactions so as to fall one step outside whatever boundary Congress attempted to establish.”
Letting lenders “escape coverage just by sticking a particular label on their loans” would also be inconsistent with the intention of TILA, the CFPB added.