Florida Federal District Court Holds Creditor Vicariously Liable for a Servicer's TILA Violation

TILA

On March 19, the U.S. District Court for the Southern District of Florida determined that a mortgage loan creditor can be held vicariously liable under TILA for the loan servicer’s alleged failure to properly respond to a borrower’s request for information. In Khan v. Bank of New York Mellon, No. 12-60128-CIV, 2012 WL 1003509 (S.D. Fla. Mar. 19, 2012) the borrowers sued their creditor for their servicer’s failure to respond to the borrowers’ TILA request for information about the identity of the owner of the note. The creditor moved to dismiss the complaint, arguing that as the creditor of the mortgage loan at issue, it cannot be vicariously liable for the servicer’s TILA violation. The creditor further argued that while TILA imposes an obligation on servicers to provide information about the owner of the loan to the borrower upon request, it also absolves servicers of any liability where the servicers are not also owners of the obligation. Borrowers, however, have a private cause of action under TILA against any creditor for a failure to comply with certain TILA requirements, including the obligation to provide the loan owner’s information to the borrower. The court reasoned that, because TILA expressly absolves the servicer of liability under these circumstances, if there is no vicarious liability for the creditor, the provision allowing a private right of action would be without effect. The court, therefore, denied the motion to dismiss, determining that Congress intended to make creditors vicariously liable for a servicer’s failure to provide information to the borrower upon request.