JAMES K. BREDAR, District Judge.
Kevin and Joanne Gardner ("Plaintiffs") brought this putative class-action suit against the Montgomery County Teachers Federal Credit Union ("Defendant") alleging violations of the Truth in Lending Act, 15 U.S.C. § 1601, et seq. ("TILA"), and the Maryland Consumer Protection Act, MD. CODE ANN., COM. LAW § 13-101, et seq. ("MCPA"). Now pending before the Court are cross-motions for summary judgment. The issues have been briefed and no oral argument is required. Local Rule 105.6. For the reasons explained below, Defendant's Motion for Summary Judgment (ECF No. 39) will be GRANTED IN PART (with respect to Counts III and IV of the Amended Complaint) and DENIED IN PART (with respect to Count I) and Plaintiffs' Cross-motion for Partial Summary Judgment (ECF No. 40) (with respect to Count I) will be GRANTED.
This case involves a dispute between a federally chartered credit union (Defendant) and two of its customers (Plaintiffs) over the legality of the credit union's practice of using funds from customers' checking and savings accounts to offset debt that the customers have incurred on their credit card accounts. Plaintiffs, Mr. and Mrs. Gardner, are Maryland consumers who maintain checking, savings, and credit card accounts with Defendant. On October 27, 2009, Defendant withdrew $145.00 from Plaintiffs' deposit accounts ($49.16 from their checking account and $95.84 from their savings account) in order to satisfy an amount due on their credit card account. Plaintiffs allege that Defendant made these withdrawals without their authorization. They further allege that it is Defendant's general practice, referred to as the Delinquent Loan Transfer Program ("DLT Program"), to use software to automatically withdraw funds from customers' deposit accounts to satisfy delinquent credit card balances.
On October 7, 2010, Plaintiffs filed a complaint in this Court alleging violations of the TILA and the MCPA and seeking declaratory and injunctive relief. (ECF No. 1). On June 7, 2011, they filed a
On January 14, 2012, Defendant filed a motion for partial summary judgment with respect to Plaintiffs' claim under the MCPA. The Court granted the motion, finding that Plaintiffs had failed to allege any facts or advance any legal theories suggesting that Defendant had committed unfair or deceptive trade practices under that statute. (Memorandum, ECF No. 37). Specifically, the Court rejected Plaintiffs' theory that a violation of the TILA was a per se violation of the MCPA. In doing so, the Court also noted that, even if that theory were correct, Plaintiffs had not offered any evidence of a TILA violation either. The Court therefore invited Defendant to file a second motion for summary judgment with respect to Plaintiffs' remaining claims. (Order, ECF No. 38). The Court set a briefing schedule, giving Defendant until March 9, 2012 to file its motion and giving Plaintiffs until March 19 to file a response. The Court gave Defendant the option of filing a reply no later than March 26.
On March 9, 2012, Defendant filed its second motion for summary judgment (ECF No. 39) per the Court's order. On March 26, Plaintiffs filed a response in opposition combined with their own cross-motion for partial summary judgment (ECF No. 40). On April 18, the Court issued a letter order apprising the parties that it had reconsidered its previous position, expressed in dicta, that the evidence Plaintiffs had thus far adduced was insufficient to show a TILA violation. Specifically, the Court observed that the law was unclear as to which party bore the burden of proof on the issue of whether Defendant had a valid security interest in the Plaintiffs' deposit funds, and speculated that the burden might be on Defendant to prove that it did have such an interest. In view of this development, the Court gave each party until May 9, 2012 to file supplemental memoranda on the issue of the burden of proof, in addition to the normal course of responses and replies to the motions for summary judgment. Defendant filed a supplemental memorandum on May 9, but Plaintiffs did not. The Cross-motions for summary judgment are now ripe.
A party seeking summary judgment must show "that there is no genuine dispute as to any material fact" and that he is "entitled to judgment as a matter of law." FED.R.CIV.P. 56(a). If a party carries this burden, then the court will award summary judgment unless the opposing party can identify specific facts, beyond the allegations or denials in the pleadings, that show a genuine issue for trial. FED. R.CIV.P. 56(e)(2). To carry these respective burdens, each party must support its assertions by citing specific evidence from the record. FED.R.CIV.P. 56(c)(1)(A). The court will assess the merits of the motion, and any responses, viewing all facts and reasonable inferences in the light most favorable to the opposing party. Scott v. Harris, 550 U.S. 372, 378, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007); Iko v. Shreve, 535 F.3d 225, 230 (4th Cir.2008).
Count I of the Amended Complaint (ECF No. 24) alleges that Defendant seized funds from Plaintiffs' deposit accounts
Plaintiffs base their right of action and request for actual damages on TILA's civil liability provision, which reads, in pertinent part:
It is undisputed that Defendant used funds from Plaintiffs' deposit accounts to offset their indebtedness arising from a consumer credit transaction under a credit card plan. Further, there are no allegations that the offset was affected by attachment, levy, or court order as described in § 226.12(d)(2), or by an automatic debit plan as described in § 226.12(d)(3). The only question, then, is whether the offset was affected by "enforcing a consensual security interest in the funds" as described in § 226.12(d)(2).
The evidence on this issue is scant. Neither side has been able to produce any documents signed by the Plaintiffs with respect to their credit card account, and Plaintiffs testified at their depositions that they do not remember what, if any, documents
With such a dearth of evidence, the first and most critical issue that the Court must resolve is the allocation of the burden of proof. In a previous memorandum (ECF No. 37) the Court stated in dicta that if Plaintiffs could not produce concrete evidence of the terms of their credit card agreement, then Defendant would be entitled to summary judgment on their TILA claim. The Court subsequently withdrew that statement, noting that it was uncertain as to whether the borrower or the creditor bears the burden of proving compliance with TILA. The Court offered both sides an opportunity to brief the issue. Defendant submitted a memorandum (ECF No. 46) arguing that the Court was correct in the first instance to place the burden on Plaintiffs to prove that they did not give Defendant a security interest in their deposit accounts. Defendant noted that it was unable to locate any case law discussing burdens of proof specifically with respect to TILA's "no offset" rule. Therefore, it argued, the standard civil litigation model applied to Plaintiffs' claim, meaning that they must prove each element by a preponderance of the evidence. Defendant also cited two cases in which courts required plaintiffs to prove a creditor's non-compliance with other TILA and Regulation Z requirements. Plaintiffs argued, however, that any exceptions to Regulation Z's offset prohibition operate as affirmative defenses, which it is the defendant's burden to prove.
The Court's own research reveals that, as Defense Counsel writes in his memorandum, there is no clear rule either in the statute or in case law regarding a plaintiff's burden of proof specifically with respect to offsets. There is, however, extensive case law standing for the more general proposition that once a debtor makes a threshold showing that a TILA violation has occurred, then the burden shifts to the creditor to prove its compliance. See, e.g., In re Cobb, 122 B.R. 22, 26 (Bankr.E.D.Pa.1990) ("[T]he burden of proving compliance with the TILA is upon a lender once a debtor has produced or provided some evidence or testimony that a TILA violation has occurred."); In re Blakeney, 126 B.R. 449, 459 (Bankr. E.D.Pa.1991) (same); Payne ex rel. Estate of Payne v. Equicredit Corp. of America, 71 Fed.Appx. 131, 134 (3rd Cir.2003) (same); In re Ross, 338 B.R. 266, 271 (Bankr.E.D.Pa.2006) (same); In re Meyer, 379 B.R. 529, 545 (Bankr.E.D.Pa.2007) (same); Wright v. Tower Loan of Mississippi Inc., 679 F.2d 436, 444 (5th Cir.1982) (stating that lender bears the burden of proving compliance with TILA and Regulation Z) (citing FRB Public Information Letter No. 832 (1974-1977 Transfer Binder) Consumer Cred. Guide-Special Releases (CCH) P 31,154 (Aug. 27, 1974)); Hicks v. Star Imports, Inc., 5 Fed.Appx. 222, 227 (4th Cir.2001) (same); In re Williams, 232 B.R. 629, 640 (Bankr.E.D.Pa.1999) (same);
Defendant, however, argues that a (nominally) different rule applies, i.e., that "plaintiffs typically bear the burden of proof of demonstrating a violation of TILA by a preponderance of the evidence." (Supp. Mem. 5, ECF No. 46). But, Defendant cites only two cases in support of this position, and neither of these are particularly probative of the issue. In both cases — Smith v. Argent Mortgage Company, LLC, Civil Case No. 05-cv-02364-REB-BNB, 2007 WL 4105192 (D.Colo. Nov. 14, 2007) and Stutzka v. Walters, No. 8:02CV72, 2006 WL 1215146 (D.Neb. April 28, 2006) — the borrowers alleged that the lenders had failed to provide them with certain documents required by TILA. Both courts, however, found that the evidence before them showed that the lenders had provided the documents and that the borrowers therefore had not carried their burden of proving a TILA violation by a preponderance of the evidence. Although these opinions are written in terms of the borrowers' burdens of proof, that is not necessarily inconsistent with the burden-shifting framework described above. What the courts in these cases actually found was that there was affirmative evidence of the lenders' compliance with TILA that outweighed the borrowers' evidence of non-compliance. Clearly, where a lender offers persuasive evidence that it has complied with TILA, a borrower must prove that a violation occurred in order to prevail on his claim. But, this does not address the issue of what a borrower must show in the first instance, before the lender has offered any evidence of compliance.
The Court, therefore, finds that the general rule in TILA cases is that once a debtor makes a threshold showing of a violation, the burden of proof shifts to the creditor to prove its compliance. That rule, however, offers little guidance in this case because the real question at issue here is whether Defendant's purported security interest (or lack of it) is an element of Plaintiffs' claim, or an affirmative defense to it. For the following reasons, the Court finds that it is the latter.
Defendant's position, that the absence of a security interest is an element of Plaintiffs' claim that they must prove, is based on its argument that "Neither TILA nor Regulation Z ... contain a blanket prohibition against offsetting indebtedness of a credit card holder against funds held on deposit with the issuer of the credit card," and that, instead, "Section 226.12(d) effectively provides that the credit card issuer can conduct such offsets as long as, among other possibilities, it has a consensual security interest in the funds." (Supp. Mem. at 4). The Court, however, finds that this reading of the Regulation is mistaken. Indeed, a "blanket prohibition" on offsets is precisely what § 226.12(d) describes. The title of subsection (d) is "Offsets by card issuer prohibited," and Paragraph (1) states in plain terms that "[a] card issuer may not take any action... to offset a cardholder's indebtedness... against funds of the cardholder held on deposit with the card issuer."
The root of Defendant's error is its apparent assumption that: (1) "offset" is a generic term for satisfying a debt with
Contrary to Defendant's assertion, § 226.12(d)(2) does not prescribe these rights as acceptable means of effecting an offset, but, rather, clarifies that they are not "altered" or "affected" by the offset prohibition. Whether a card issuer has lawfully acquired a debtor's deposit funds through one of these rights is thus primarily a matter of the substantive state or federal law that creates them, not of TILA or Regulation Z.
Although Defendant does not concede that it must prove its security interest to avoid liability in this case, it nevertheless argues that it has done so. First, Defendant points to an unsigned loan application form that it produced during discovery that has been filled out with Plaintiffs' names and information. (Loan Application, ECF No. 41-1, Ex. 1). When Defense Counsel showed Plaintiffs the unsigned application at their depositions, neither one could recall signing it.
Nevertheless, Defendant argues that since "[t]he Gardners were, in fact, issued a credit card ... it is reasonable to assume that [they] did sign the Loan Application." (Def.'s Reply at 7, ECF No. 41). Defendant then points to language in the loan application that reads: "by signing below, using, or permitting another to use the credit card(s), you agree that you will be bound by the VISA agreement accompanying the credit card(s)." Defendant then states that its practice is to send "disclosures" to its members when they are first granted a credit card account and to then send updated disclosures annually thereafter. Id. Defendant claims that provisions granting it a security agreement in the borrower's deposit accounts appear in two different sets of disclosures. The first is what appears to be a pamphlet or booklet entitled "Account Information," a copy of which Defendant claims was produced by Plaintiffs during discovery. The following language appears on page 8 of the Account Information booklet:
(Account Information Booklet, p. 8 ¶ 20, ECF No. 41-5, Ex. 5). The second set of disclosures is a two-page document entitled "Credit Card Agreement and Disclosure: Share VISA-Student VISA-Classic VISA-Gold VISA-Platinum VISA." The Court infers, although Defendant does not specifically say, that this is the "VISA Agreement" referenced in the unsigned loan application. Paragraph 9 of the Agreement reads:
(VISA Agreement ¶ 9, ECF No. 41-6, Ex. 6).
To determine whether these documents evidence a consensual security interest in Plaintiffs' deposit funds, as contemplated by Regulation Z, the Court will consult the Federal Reserve Board's Official Staff Commentary on § 226.12(d), which explains in clear terms what is required:
Applying these standards, the Court finds that the documents on which Defendant relies for its purported security interest in Plaintiffs' deposit funds are plainly inadequate. First, the default provision of the VISA Agreement says absolutely nothing about granting Defendant a security interest in a borrower's deposit accounts. Any suggestion that this provision effects such an interest is patently frivolous. Second, with respect to paragraph 20 of the Account Information booklet, none of the indicia of intent listed in the Staff Commentary, or anything remotely equivalent to them, are present. Far from having a separate signature or initials next to the security interest provision, there is no place anywhere in the entire document for the borrower to sign or write his initials. Rather than being set apart from the rest of the document, the security interest provision is buried on the eighth of twenty pages of fine print.
For these reasons, the Court finds that there is no genuine dispute of material fact with respect to Defendant's purported security interest in Plaintiffs' deposit funds. It had none. Therefore, since it is undisputed that Defendant took funds from Plaintiffs' deposit accounts to offset their credit card debt, and since Defendant has not shown that it acquired the funds by any means other than a general right of offset, summary judgment will be entered in favor of Plaintiffs and against Defendant on Plaintiffs' claim under TILA, 15 U.S.C. § 1666h and Regulation Z, 12 C.F.R. § 226.12(d) in the amount of Plaintiffs' claimed actual damages of $145.00
Counts III and IV of the Amended Complaint (ECF No. 24) seek declaratory and injunctive relief, respectively. Defendant argued in its summary judgment motion that Plaintiffs are not entitled to these
The standing requirements for declaratory relief and injunctive relief are essentially the same. Levinson-Roth v. Parries, 872 F.Supp. 1439, 1446 (D.Md. 1995). A plaintiff who seeks either form of relief must show that he is in danger of being injured by the opposing party's conduct and that the danger is both "real" and "imminent" and neither "conjectural" nor "hypothetical." City of Los Angeles v. Lyons, 461 U.S. 95, 102, 103 S.Ct. 1660, 75 L.Ed.2d 675 (1983). Importantly, "[p]ast exposure to illegal conduct does not in itself show a present case or controversy." Id. (internal quotation marks and citation omitted). Here, the complaint requests a declaratory judgment "as to whether the Defendant has the right to make withdrawals from deposit accounts for credit card debt," (Am. Compl. ¶¶ 66, 68), and asks that "[t]he Defendant ... be enjoined from making illegal withdrawals from deposit accounts for credit card debts." (Am. Compl. ¶ 72). But, Plaintiffs have offered no facts at all suggesting that Defendant is poised to withdraw more money from their accounts or from the accounts of any putative class member. Indeed, Plaintiffs acknowledge that Defendant has suspended the DLT Program pending the outcome of this litigation. Plaintiffs therefore lack standing to seek an injunction or declaratory judgment, and Defendant is entitled to summary judgment on those claims for relief.
Accordingly, an order shall enter GRANTING IN PART and DENYING IN PART Defendant's Motion for Summary Judgment (ECF No. 39) and GRANTING IN PART and DENYING IN PART Plaintiffs' Motion for Summary Judgment (ECF No. 40).
"The bank's right in situations such as this is more appropriately called a setoff than a lien. A debtor/creditor relationship is created when a customer opens a general depository account with a bank. Such a bank account constitutes a debt where the bank is the debtor and the customer is the creditor. When the customer also owes the bank money, such as through a promissory note, the bank is the creditor of the customer. It is this mutual debtor/creditor relationship, which occurs when a depositor also borrows money from the bank, that gives rise to the bank's right of setoff." Id.
