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#15308 - 04/12/02 07:42 PM Special Compliance Briefing - Pfennig v Household
1 Peter 5:7 Offline
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1 Peter 5:7
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TX
Note that a dissenting judge said that the majority essentially amended Reg Z in the 6th Circuit. The four states within the 6th Circuit are Michigan, Ohio, Kentucky and Tennessee. See the BOL article:


http://www.bankersonline.com/compliance/regzsurprise.html

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General Discussion
#15309 - 04/12/02 07:52 PM Re: Special Compliance Briefing - Pfennig v Househ
Anonymous
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Has anyone heard whether MBNA will appeal this decision?

How about a reaction from the Fed to the decision?

If your bank operates in the 6th Circuit, do you have to re-disclose (or stop imposing) the over-the-limit fee immediately or is there a delay before the decision becomes "final"?

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#15310 - 04/12/02 07:53 PM Re: Special Compliance Briefing - Pfennig v Household
Anonymous
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The thing that concerns me about this case is that while the defendants here were spared liability because they had relied in good faith upon the Reg Z provision, can any lender in any circuit be able to claim good faith reliance on that same provision in the future, now that one circuit court has ruled that it impermissibly conflicts with the statute?

In other words, would lenders in other circuits be well-advised to take a conservative approach and proceed as though they were on notice of the defect in the regulation?

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#15311 - 04/12/02 07:59 PM Re: Special Compliance Briefing - Pfennig v Household
Andy_Z Offline
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So, know the Reg., know the statute behind it, and if you think the two disagree, "... because the purpose of the Act was to protect consumers, it must be construed liberally in the consumer's favor".

This job is gettin tougher folks. Circuit courts are handing down their interpretations of "Z" and RESPA. It was hard enough to keep up with one version.
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#15312 - 04/12/02 07:59 PM Re: Special Compliance Briefing - Pfennig v Househ
Anonymous
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Mary Beth: If I'm reading the decision correctly, MBNA only avoided 1 form of liability (statutory damages for the TILA violation). The case was remanded to determine if the Plaintiffs were entitled to equitable relief.

Although I think you're right, I wonder if other lenders wouldn't be willing to take the risk, collect the fee and await another case filing in their particular circuit. I think this may be the case, because there is a dissenting opinion and this case was only decided by 3 judges, rather than all of the judges of the 6th Circuit. If all of the judges of the 6th Circuit had issued the decision, I'd definitley be worried across the country.

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#15313 - 04/12/02 08:06 PM Re: Special Compliance Briefing - Pfennig v Household
Andy_Z Offline
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We don't have a card portfolio anymore or revolvers in general.

But another question to ask is, what other fees might be lumped into this category of being considered a FC?
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AndyZ CRCM
My opinions are not necessarily my employers.
R+R-R=R+R
Rules and Regs minus Relationships equals Resentment and Rebellion. John Maxwell

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#15314 - 04/12/02 08:08 PM Re: Special Compliance Briefing - Pfennig v Househ
Anonymous
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Geraldine, you're right about the defendants only avoiding civil liability under TILA. It will be interesting to see what kind of "equitable relief" the lower court might grant upon remand.

As for what other lenders will do, it always boils down to a risk management decision. What are the odds that other courts will follow this decision, what is the potential liability if they do, what is the chance the good faith defense won't be available.

And, as you noted, the fact that even this court was not unanimous in its decision indicates that there is not universal agreement on the issue, so it's quite possible other circuits will disagree, should the issue come up.

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#15315 - 04/12/02 08:10 PM Re: Special Compliance Briefing - Pfennig v Household
Anonymous
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Andy, that was my concern as well, but on page 5 of the decision, the first full paragraph, the Court appears to draw a distinction between over-limit charges and the other types of charges excluded under 226.4(c)(2).

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#15316 - 04/15/02 07:03 PM Re: Special Compliance Briefing - Pfennig v Househ
Anonymous
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I think I might have found a bit of a bright spot in this case for lenders in the 6th Circuit.

This case seems relatively fact-specific. Pfenning ASKED MBNA to raise her credit limit so she could make a purchase. MBNA agreed, raised her credit limit so she could make the purchase and then charged her an over-the-limit fee.

It appears that this case may be limited to instances when a cardholder specifically requests additional credit, rather than the broader instance of using the card (w/out any advance request of the card issuer), exceeding the credit limit and then incurring the fee.

The Court specifically said (my words not its) that it found APPLICATION of the over-the-limit fee to this scenario to be a finance charge because its imposition was incident to an extension of credit (ie. the increase in the credit limit being the extension of credit). I dont read the decision to say that an over-the-limit fee is ALWAYS a finance charge under TILA. I think it says that it depends upon how the fee was incurred.

Any thoughts?

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#15317 - 04/16/02 02:13 PM Re: Special Compliance Briefing - Pfennig v Househ
redsfan Offline
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My reading of the decision did not leave the impression that the request by the borrower had any effect on the nature of the over-limit fee as a finance charge under TILA. The impression I received was that an over-limit fee was a finance charge under TILA irrespective of Reg Z because it was incident to the credit transaction.
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#15318 - 04/17/02 05:09 PM Re: Special Compliance Briefing - Pfennig v Househ
Liz F Offline
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Liz F
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Does anyone have any thoughts on the applicability of this decision to business credit card holders? I know Reg Z is a regulation relating to consumer credit, but there are some instances where business credit cards and cardholders are brought under the reg (issuance of cards, unauthorized use, etc.)

Also, what are institutions in the 6th circuit doing in response to this decision? Not imposing the fee? Not allowing cardholders to go over the limit?

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