In Vallies v. SkyBank, — F.3d –, 2009 WL 5154473 (3d Cir. 2010), the Court of Appeals for the Third Circuit held that a showing of detrimental reliance is required to recover actual damages for a TILA disclosure violation in a vehicle retail installment sales contract.  Vallies  involved, in a putative class action, whether a plaintiff must prove detrimental reliance in order to recover actual damages sustained because of a disclosure violation under § 1640(a) of the Truth in Lending Act (“ TILA”), 15 U.S.C. §§ 1601-67. The District Court had concluded that detrimental reliance was required, and granted summary judgment for defendant because plaintiff failed to plead and could not prove detrimental reliance. The Court of Appeals affirmed.  The facts were as follows:

Louis Vallies brought a putative class action on be-half of consumers who had obtained loans from Sky Bank to finance purchases of motor vehicles, claiming Sky Bank violated TILA disclosure requirements, specifically 12 C.F.R. § 226.4(d).    Vallies and Sky Bank had entered into a Loan Note and Security Agreement, which financed an automobile and other items, including a premium of $395 for Guaranteed Auto Protection (“GAP”), a form of debt cancellation insurance covering any loan deficiency which may remain in the event property insurance was insufficient to cover complete property loss. This charge was not calculated into the “finance charge” as required by TILA. In addition, instead of itemizing the GAP premium individually, the loan agreement combined it with a $1395 service contract charge, and disclosed the two generally as $1790 to be paid to National Auto, the service contract seller. At the same time, Vallies also signed the GAP Waiver Agreement with the automobile dealer, Phil Fitts Ford, which contained the statements required by TILA. Sky Bank was not a party to the GAP Waiver Agreement.    The District Court initially granted Sky Bank’s motion to dismiss for failure to state a claim, holding that Sky Bank did not violate TILA because the necessary disclosures had been made to Vallies-not by Sky Bank, but by the automobile dealer Phil Fitts Ford, a third party. Alternatively, the District Court concluded that under TILA, each creditor is not required to make all relevant disclosures. We reversed and remanded, holding that “the creditor, and the creditor alone, is required to disclose … required in-formation.”   Vallies v. Sky Bank, 432 F.3d 493, 495 (3d Cir.2005). On remand, Sky Bank moved for summary judgment, asserting that it fulfilled its TILA obligations through an undisclosed agent. After the District Court denied summary judgment, the parties settled Vallies’s statutory damage claims under 15 U.S.C. § 1640(a)(2) for the maximum statutory amount of $501,000. The District Court certified a class exclusively for settlement purposes and approved the settlement.    The settlement, however, explicitly did not cover Vallies’s actual damage claims under 15 U.S.C. § 1640(a)(1). Sky Bank moved for summary judgment on these claims, arguing that Vallies cannot recover actual damages because he failed to plead and cannot prove detrimental reliance. The District Court held that to recover actual damages, Vallies must show “(1) he read the TILA disclosure statement; (2) he understood the charges being disclosed; (3) had the disclosure statement been accurate, he would have sought a lower price; and (4) he would have obtained a lower price.” Mem. Order at 10. Finding that Val-lies “got all of the required information and voluntarily elected to incur the debt cancellation insurance when he purchased his vehicle,” the District Court concluded he could not satisfy the third or fourth element recited, and granted Sky Bank’s motion for summary judgment. Id.


The Court of Appeals held that TILA requires detrimental reliance in order to recover actual damages, explaining


Section 130(a) of TILA allows a consumer to recover both actual and statutory damages in connection with TILA violations. However, statutory damages are provided in TILA because actual damages, which require proof that the borrower suffered a loss in reliance upon the inaccurate disclosure, are extremely difficult to establish. To re-cover actual damages, consumers must show that they suffered a loss because they relied on an inac-curate or incomplete disclosure.  141 Cong. Rec. 26567, 26576 (1995) (statement of Rep. McCollum, co-author of legislation); see alsoH.R.Rep. No. 104-193, at 99 (1995) (“To recover actual damages, consumers must show that they suffered a loss because they relied on an inaccurate or incomplete disclosure.”). Statutory damages provide a compensatory remedy for TILA violations and also effectuate TILA’s deterrence objectives. Actual damages compensate those consumers who have suffered actual harm because of the violations. Statutory damages “are provided in TILA because actual dam-ages, which require proof that the [consumer] suffered a loss in reliance upon the inaccurate disclosure, are extremely difficult to establish.” 141 Cong. Rec. 26758, 26898 (1995) (statement of Sen. Mack).FN10TILA’s legislative history supports our conclusion that a showing of detrimental reliance is required to recover actual damages for TILA disclosure violations.


This decision brings the Third Circuit in line with decisions from other circuits, including the Ninth Circuit.  See, e.g. McDonald v. Checks-N-Advance, Inc. (In re Ferrell), 539 F.3d 1186, 1192 (9th Cir.2008) (finding no valid basis to overturn the rule requiring a showing of detrimental reliance to establish actual damages); Gold Country Lenders v. Smith (In re Smith), 289 F.3d 1155, 1157 (9th Cir.2002) (“We join with other circuits and hold that in order to receive actual damages for a TILA violation … a borrower must establish detrimental reliance.”).


Severson & Werson’s Jan Chilton, with the assistance of associate Joshua Whitehair, appeared for Amici Curiae-Appellee, American Bankers Association, American Financial Services Association, Association of Consumer Vehicle Lessors, Chamber of Commerce of the United States of America, Consumer Bankers Association, Consumer Mortgage Coalition, Financial Services Roundtable, Mortgage Bankers Association, Pennsylvania Bankers Association.