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From Banking and Finance Law Daily, August 11, 2014

Lender needed to disclose APR for advances repaid sooner

By Andrew A. Turner, J.D.

A lender’s reliance on a 30-day term to express the annual percentage rate was misleading when it knew that the vast majority of advances would be paid within 10 to 14 days, typically from the borrower’s next paycheck, according to a federal district judge. The lender’s failure to provide the best information available to help consumers compare the costs with other available products violated the Truth in Lending Act (Small v. BOKF, N.A., Aug. 7, 2014, Blackburn, U.S. District Judge).

The suit involved a product offering loans required to be repaid within 35 days, but often repaid sooner, which resulted in an APR substantially higher than the 120 percent figure shown in the terms and conditions document, as well as on each monthly bank statement that borrowers received, based on a 30-day repayment assumption. The disclosure was not saved by the borrower’s caution that that APR “may” increase if the loan is repaid earlier.

The borrower contended that the actual APR was readily discoverable from the formula it disclosed. However, the judge concluded that an average consumer would not readily understand how to make the mathematical calculations necessary to derive an accurate representation of the APR for an advance repaid sooner than 30 days.

In addition, at the time that the monthly bank statement was issued, the lender knew the actual length of time between origination and repayment of each advance. The reiteration of a calculation relying on a 30-day repayment assumption could not be justified when the lender had all the information necessary to make an accurate disclosure.

Electronic fund transfers. Because the handful of deductions that might have occurred within the 35-day repayment window did not meet the statutory definition of transfers that occur at substantially regular intervals, the borrower’s claim under the Electronic Fund Transfer Act failed. The EFTA protections only apply to regularly scheduled payments.

State law claims. Since the lender’s representation that the periodic statement would contain the APR said nothing about how the APR would be expressed, a breach of contract claim brought by the borrower failed. While the disclaimer that the APR “may be higher” without further edification was not sufficient for TILA purposes, it did undermine the borrower’s claim the lender promised to impose an APR no more than 120 percent.

The Oklahoma Consumer Protection Act was inapplicable to any claims because the lender was a national association formed under the National Bank that was regulated by the Comptroller of the Currency and the Consumer Financial Protection Bureau. The state law regulatory exemption encompasses actions and transactions regulated by federal law.

The case is No. 13-cv-01125-REB-MJW.

Attorneys: Christopher David Dandurand (Stueve Siegel Hanson, LLP) for Leland Small. Sarah Wishard Poston (Frederic Dorwart, Lawyers) for BOKF, N.A.

Companies: BOKF, N.A.

MainStory: TopStory ConsumerCredit Loans ColoradoNews OklahomaNews TruthInLending

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