The U.S. Court of Appeals for the Third Circuit has ruled in Vallies v. Sky Bank that a plaintiff must prove detrimental reliance to recover actual damages for a Truth in Lending disclosure violation. Ballard Spahr partner Martin C. Bryce, Jr., successfully argued the case on behalf of Sky Bank. The decision represents a significant victory for the consumer credit industry because it will now be virtually impossible for a class to be certified where a plaintiff seeks actual damages for such a TILA violation.

Due to the case's legal significance, amicus briefs were filed by many of the nation’s leading consumer organizations and industry trade groups, including the Center for Responsible Lending, National Consumer Law Center, American Bankers Association, American Financial Services Association, Consumer Bankers Association, and Financial Services Roundtable. In adopting a detrimental reliance requirement in its decision, issued December 31, 2009, the Third Circuit followed the First, Fifth, Sixth, Ninth, and Eleventh Circuits, as well as numerous district courts.

The plaintiff's class action complaint sought statutory and actual damages under TILA for the bank's disclosure of a finance charge that did not include the premium for guaranteed auto protection (GAP). Although he had received from the car dealer the disclosures required by TILA to exclude the GAP premium from the finance charge, the plaintiff argued that the bank had to provide such disclosures for the premium to be properly excluded. After the plaintiff's state court claims were dismissed and his statutory damages claim was resolved through a class action settlement, the bank moved for summary judgment on the plaintiff's remaining claim for actual damages under TILA.

In affirming the district court's grant of summary judgment to the bank, the Third Circuit found that detrimental reliance on faulty disclosures to recover actual damages was required by the plain meaning of TILA's civil liability provision. While observing that this unambiguous statutory language made consideration of TILA's legislative history unnecessary, the court nevertheless noted that such history provided support for a detrimental reliance requirement.

The Third Circuit rejected the plaintiff's attempts to show that such a requirement was inconsistent with other language in TILA, as well as with civil liability provisions in other consumer protection statutes. Also roundly rejected was the plaintiff's argument that "material" or "substantial" violations of TILA should be treated differently from "technical" violations for purposes of allowing actual damages to be recovered without proof of detrimental reliance.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). For more information, please contact group Chair Alan S. Kaplinsky, 215.864.8544 or; Vice Chair Jeremy T. Rosenblum, 215.864.8505 or; Martin C. Bryce, Jr., 215.864.8238 or; John L. Culhane, Jr., 215.864.8535 or; Barbara S. Mishkin, 215.864.8528 or; or Mark J. Furletti, 215.864.8138 or

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