### 2002 D e c i sion s O p inion s of the U nit e d

S t a t e s C our t of Appe al s for the Thir d C ir c uit

1-29-2002 

# S chn al l v . Amb o y N a tl B a nk

P r e c e de n t i al or N on-P r e c e de n t i al :

D ock e t 1-1502

F o l lo w thi s a nd a dd it ion al w ork s a t : h tt p://d i g it alc ommon s .l a w

. v i l l a no v a

. e du/thir dc ir c uit_2002

Thi s de c i sion i s br ou gh t t o y ou for f r e e a nd ope n a c c e s s b y the O p inion s of the U nit e d S t a t e s C our t of Appe al s for the Thir d C ir c uit a t V i l l a no v a

U niv e r sit y S choo l of L a

w Di g it al R e posit or y

. I t h as be e n a c c e pt e d for inclusion in 2002 D e c i sion s b y a n a uthor i z e d a dmini s tr a t or of V i l l a no v a

U niv e r sit y S choo l of L a

w Di g it al R e posit or y

. F or mor e infor m a t ion, p le as e c on t a ct Be n j a min

. C a rl s on@l a

w

. v i l l a no v a

. e du

. 

### R e c omme nde d C it a t ion

" S chn al l v . Ambo y N a tl B a nk " (2002). 2002 D e cisio n s

. P a pe r 52.
h tt p://d i g it alc ommon s .l a

w

. v i l l a no v a

. e du/thir dc ir c uit_2002/52Filed January 28, 2002

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 01-1502

MARTIN SCHNALL, individually and on behalf of all others Similarly Situated, Appellant

v.

AMBOY NATIONAL BANK

On Appeal From the United States District Court For the District of New Jersey (D.C. Civ. No. 99-cv-04908) District Judge: Honorable Katharine S. Hayden

Argued: November 6, 2001

Before: BECKER, Chief Judge, McKEE and RENDELL Circuit Judges.

(Filed: January 28, 2002)

STUART A. BLANDER, ESQUIRE (ARGUED) Alan A. Heller, Esquire Heller, Horowitz & Feit, P.C.
292 Madison Avenue New York, NY 10017

ABE RAPPAPORT, ESQUIRE David Kessler & Associates, L.L.C.

1373 Broad Street Clifton, NJ 07013

Counsel for AppellantDENNIS T. KEARNEY, ESQUIRE

(ARGUED)
HELEN A. NAU, ESQUIRE Pitney, Hardin, Kipp & Szuch, LLP

P.O. Box 1945 Morristown, NJ 07962-1945

Counsel for Appellee

DOLORES S. SMITH, ESQUIRE
Director

Board of Governors of the Federal Reserve System
Division of Consumer and Community Affairs Washington, DC 20551

Counsel for Amicus Curiae at the
Invitation of the Court

OPINION OF THE COURT

BECKER, Chief Judge.

In this putative class action, plaintiff Martin Sch nall alleges that the newspaper advertisements and accou nt disclosures of defendant Amboy National Bank ("the Bank") violated the Truth in Savings Act ("TISA"), 12 U.S. C. SS 4301-13, and regulations promulgated by the Fede ral Reserve Board pursuant to the Act. In particular, S chnall
contends that the Bank failed to calculate the adve rtised annual percentage yield ("APY") on its money market savings accounts according to the methods prescribe d by the regulations and required by the statute. The Di strict Court granted summary judgment for the Bank, holdin g that the advertisements and disclosures at issue di d not violate TISA or the relevant regulations, and that even if they did, Schnall had failed to show that he was mi sled by the advertised rates. Schnall appeals, and we rever se, holding that the advertisements and disclosures at issue violated TISA and the Act's implementing regulation s. This holding is buttressed by the letter-brief of the Fe deral

2Reserve Board of Governors, amicus curiae at the re quest

of the Court, which endorses this position.

Schnall brought this suit pursuant to 12 U.S.C.S 43 10, which has since been repealed. See infra note 2. Th is section created a private cause of action for TISA violations, and provided for actual damages as well as statutor y damages of between $100 and $1,000 in an individual action and "such amount as the court may allow" in a class
action. See 12 U.S.C. S 4310. The Bank contends tha t even if there was a violation, Schnall may not recover s tatutory damages because he failed to establish that he was misled by or relied on the advertised rates or that he was financially harmed by the TISA violation. However, we hold that TISA imposes strict liability on depository in stitutions that violate its disclosure requirements, and that to recover statutory damages under S 4310, a plaintiff need no t show
that he relied to his detriment on the advertised A PY, that he was misled by the advertised APY, or that he was financially harmed by the TISA violations. We there fore conclude that Schnall is entitled to partial summar y judgment on the question of liability and will rema nd for a determination of damages.

I.

At various times between October 18, 1998 and Octob er 10, 1999, the Bank placed in the Newark Star-Ledger a number of substantially identical advertisements pr omoting its Money Market Accounts. In bold letters and larg e typeface, these advertisements offered "a 3-month b onus of 6.00% APY." In smaller print, the advertisements st ated that "[a]fter the bonus your yield is based on the 3-month Treasury Bill. Plus, we'll guarantee that the yield will always be higher than the combined average yield of fered by the 3 largest NJ banks." The advertisements also set forth the APY that the accounts had earned during t he previous year.

Consumers who called the phone number listed on the advertisements would receive from the Bank an appli cation and Disclosure of Account Terms and Fees ("account disclosure"), which stated the APY in the same mann er as

3the advertisements. In particular, the account disc losure

stated that an APY of 6% would apply for a period o f 90 days from the date the account is opened. After tha t, "the Interest Rate paid on your account is based on the 3-month Treasury Bill and is guaranteed to be at least 1.00 % higher than the average money market account yields of Fir st Union/NJ, PNC Bank/NJ and Summit Bank as of the las t business day of the previous month."

On October 16, 1998, before any of the advertisemen ts at issue had been published, Schnall called the Bank t o request an account application. On October 26, 1998 , after seeing the advertisements described above, Schnall again phoned the Bank to request an application. The Bank sent Schnall an account disclosure and application, whic h he executed and returned, together with a check for $2 0,000 to open the advertised account. On or about October 28, 1998, the Bank received Schnall's application and c heck, and opened a Money Market Account in his name.

On October 18, 1999, Schnall filed this action on b ehalf of himself and a putative class of all persons who had deposited at least $20,000 into a Money Market Acco unt with the Bank during the period from October 18, 19 98 to October 18, 1999. The complaint alleged that the AP Y that appeared in the Bank's advertisements and account disclosures failed to comply with the required meth od of calculating the advertised APY under TISA and its implementing regulations. In particular, Schnall co ntends that under the regulations, the Bank may not advert ise a
6% APY for the first three months and a variable ra te APY for the remainder of the account term. Rather, in S chnall's submission, the regulations require the Bank to adv ertise a single "blended," or "composite," APY that represen ts the total yield on the account over a term of one year. According to Schnall, the regulations require this blended APY to be computed by applying the introductory rat e for the first three months and applying whatever the va riable
rate was at the time of the advertisements for the remaining nine months, even though the resulting blended APY, which the Bank is required to advertise, may differ from the actual APY at the end of the year, depending on whe ther the variable rate changes.

4The District Court granted the Bank's motion for

summary judgment and denied Schnall's cross-motion for partial summary judgment. In an oral opinion, the C ourt
held that because the variable rate on the accounts is a function of both the 3-month Treasury Bill as well as the APY of three other banks, the requirement that advertisements disclose the APY as a single blended rate was inapplicable, and the advertisements therefore complied with TISA. The Court further concluded tha t even
if the Bank's advertisements and account disclosure s violated TISA, summary judgment in favor of the Ban k was appropriate because Schnall had failed to produce
sufficient evidence that he relied to his detriment on the
advertised APY.

The District Court had subject matter jurisdiction pursuant to 12 U.S.C. S 4310(e) and 28 U.S.C.S 1331 , and this Court has appellate jurisdiction pursuant to 2 8 U.S.C. S 1291. We review de novo the District Court's disp osition of the parties' cross-motions for summary judgment, see Woodside v. School Dist. of Philadelphia Bd. of Edu c., 248 F.3d 129, 130 (3d Cir. 2001), under the familiar st andard set forth in the margin.1 We turn first to whether the advertisements and disclosures in question violated TISA and the implementing regulations, and then address whether TISA imposes strict liability on depository institutions that violate its disclosure requiremen ts or whether a plaintiff must also establish reliance or some form of financial injury.

II.

Schnall commenced this suit pursuant to a now-repea led provision of TISA, which created a private right of action

___________________________________________________ ______________

1. Summary judgment is proper if there is no genuin e issue of material fact and if, viewing the facts in the light most fa vorable to the nonmoving party, the moving party is entitled to judgm ent as a matter of law. See Fed. R. Civ. P. 56(c); Celotex Corp. v. Ca trett, 477 U.S. 317 (1986). The judge's function at the summary judgmen t stage is not to weigh the evidence and determine the truth of the m atter, but to determine whether there is a genuine issue for tria l. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).

5against "any depository institution which fails to comply

with any requirement imposed under this chapter or any regulation prescribed under this chapter . . . ." 1 2 U.S.C. S 4310(a).2 Thus, Schnall may establish liability b y showing
that the Bank's advertisements and account disclosu res

___________________________________________________ ______________

2. Section 4310 was repealed as of September 30, 20 01. See Act of Sept. 30, 1996, Pub. L. 104-208, S 2604(a), 110 Stat. 300 9, 3009-470 (1996) ("Effective as of the end of the 5-year period begi nning on the date of

the enactment of this Act [September 30, 1996], section 271 of the Truth in Savings Act (12 U.S.C. S 4310) is repealed."). Alth ough private parties may no longer sue for violations of TISA, the Feder al Reserve Board retains authority to enforce compliance. See 12 U.S .C. S 4309.

The Bank does not argue that S 4310 is inapplicable to this action, which was filed before S 4310 was repealed, and we believe that pursuant to 1 U.S.C. S 109, Schnall's action surviv es the repeal. Section 109 provides that "[t]he repeal of any statute shal l not have the effect

to release or extinguish any . . . liability incurred under such statute, unless the repealing Act shall so expressly provide , and such statute shall be treated as still remaining in force for th e purpose of sustaining any proper action . . . for the enforcement of such . . . liability."
Since the repeal of S 4310 did not expressly provide for retroactive application,
Schnall's claims survive under S 109.

We acknowledge that it could be argued that S 109 d oes not apply in this case, because S 4310 contained, inter alia, a subsection conferring jurisdiction on district courts to hear private TIS A actions. See 12

U.S.C. S 4310(e). In repealing S 4310, Congress therefore withdrew jurisdiction, and the Supreme Court in Bruner v. United States , 343 U.S. 112 (1952), held that S 109 does not apply to repeals that simp ly withdraw the jurisdiction of a federal district court without ex tinguishing any liability. Id. at 116-17 ("[W]hen a law conferring jurisdictio n is repealed without any reservation as to pending cases, all cases fall with the law."). We believe that Bruner is distinguishable, however, be cause unlike in Bruner, where the withdrawal of jurisdiction from f ederal district courts left the plaintiff with an alternate remedy in the Court of Claims, see

343 U.S. at 115, the repeal of S 4310 not only withdrew the jurisdiction of federal district courts to hear private TISA enforc ement actions, but also entirely eliminated the cause of action, thereby re leasing banks from future claims of private parties to recover actual and statutory damages for TISA violations. See De La Rama Steamship Co., Inc. v. United States, 344 U.S. 386, 390 (1953) (holding that under S 109, pending appeals survive "the repeal of statutes which create rights and also prescribe howthe rights are to be vindicated," and distinguishin g "the repeal of

statutes solely jurisdictional in their scope") (em phasis added).

6violated either a provision of TISA itself or a reg ulation

promulgated pursuant to TISA. We consider first whe ther the Bank's disclosures violated requirements impose d by the regulations, and then turn to whether the discl osures also violated requirements imposed by TISA itself.

A.

1.

The relevant regulations were promulgated by the Fe deral Reserve Board pursuant to 12 U.S.C. S 4308(a), and are found in 12 C.F.R. Part 230, known as Regulation DD

. Under the regulations, account disclosures and advertisements that state a rate of return are requ ired to state the account's annual percentage yield. See 1 2 C.F.R. S 230.4(b)(1)(i) ("Account disclosures shall includ e the following, as applicable: . . . The `annual percent age yield' and the `interest rate,' using those terms . . . ." ); 12 C.F.R. S 230.8(b) ("If an advertisement states a rate of r eturn, it shall state the rate as an `annual percentage yield ' using that term."). The regulations define "annual percen tage yield" as "a percentage rate reflecting the total a mount of interest paid on an account, based on the interest rate and the frequency of compounding for a 365-day period a nd calculated according to the rules in appendix A of this part." 12 C.F.R. S 230.2(c).

Part I.A of appendix A provides that "[f]or account s without a stated maturity date (such as a typical s avings or transaction account), the calculation shall be base d on an assumed term of 365 days."3 Because the accounts at issue in this case lack a stated maturity date, the adver tised APY must therefore assume a term of 365 days.

Part I.B of appendix A specifically defines how the APY should be computed for "stepped-rate accounts," whi ch are accounts that apply different interest rates during different

___________________________________________________ ______________

3. For such accounts, Part I.A provides that"the an nual percentage yield can be calculated by use of the following simple fo rmula: APY = 100 (Interest/Principal)," where "Interest" is the tota l dollar amount of interest earned on the Principal during the 365 day term.

7periods of the term: "For accounts with two or more interest

rates applied in succeeding periods . . . an instit ution shall assume each interest rate is in effect for the leng th of time provided for in the deposit contract." If, for exam ple, a bank offers a savings account with a 7% interest rate fo r the first six months and a 3% interest rate thereafter, appen dix A requires the advertised APY to be the blended rate calculated by applying the 7% interest rate for the first six months and the 3% interest rate for the remaining s ix

months.

Finally, Part I.C of appendix A specifies how this blendedrate calculation should be performed for a variable rate account, which the regulations define as "an accoun t in which the interest rate may change after the accoun t is opened." 12 C.F.R. S 230.2(v). Part I.C specificall y defines
the method of calculation for accounts such as thos e at issue in this case, where an initial fixed rate app lies for a given period, followed by a variable rate for the r emainder

of the term:

Variable-rate accounts with an introductory premium (or discount) rate must be calculated like a stepped- rate account. Thus, an institution shall ass ume that: (1) The introductory interest rate is in eff ect for the length of time provided for in the deposit c ontract; and (2) the variable interest rate that would ha ve been in effect when the account is opened or adverti sed (but for the introductory rate) is in effect for the remainder of the year. If the variable rate is tied to an index, the
index-based rate in effect at the time of di sclosure must be used for the remainder of the year.

Part I.C illustrates the required method of calcula tion by using the example of an account that pays an introd uctory
7% interest rate for the first three months and a v ariable rate thereafter, which at the time of the disclosur e is 5%. In this example, the advertised APY must be computed b y applying the 7% interest rate for the first three m onths and by applying the current 5% variable rate for the re maining nine months of the term, yielding an APY of 5.65%. Thus, in calculating the APY, a bank must assume that the
variable rate that is in effect at the time of the disclosure will remain in effect throughout the term, even tho ugh this

8assumption means that the APY that the regulations

require the bank to advertise will differ from the actual APY
that the consumer will earn on the account should t he variable rate change.

2.

Applying this method of calculation to the Amboy Mo ney Market Account, we agree with Schnall that the Bank 's
advertisements and account disclosures violate the regulations, since they fail to state the APY as a single composite rate computed on a one-year term, as requ ired by appendix A. Instead of calculating the APY by ap plying the introductory 6% APY for the first three months and assuming that the variable rate at the time of the disclosure would remain in effect throughout the remaining nin e months of the term, the Bank simply advertised an i nitial 6% APY followed by a variable rate set by the 3-mon th Treasury Bill and guaranteed to exceed the combined average yield of New Jersey's three largest banks.

The Bank contends that the District Court correctly concluded that the method of calculating the APY sp ecified in appendix A is inapplicable because the variable rate in this case is determined not only by the 3-month Tre asury Bill, but also by the average money market account yields of the three largest New Jersey Banks (First Union/ NJ, PNC Bank/NH, and Summit Bank). We disagree.

First, appendix A clearly states that with only one exception, not applicable to this case, the APY tha t is advertised must be calculated according to the spec ified method: "Except as provided in Part I.E. of this ap pendix, the annual percentage yield shall be calculated by the formula shown below."4 This statement definitively establishes that the specified formula must be appl ied in
this case.

Second, the regulations do not distinguish among different types of variable rates for purposes of c omputing
the APY that must be advertised. Under Part I.C of the

___________________________________________________ ______________

4. The exception in Part I.E applies to "time accou nts with a stated maturity greater than one year that pay interest at least annually."

9appendix, "Variable rate accounts with an introduct ory

premium (or discount) rate must be calculated like a stepped-rate account." And the definitions section of the regulations provides that "[v]ariable-rate account means an account in which the interest rate may change after the account is opened." 12 C.F.R. S 230.2(v). Thus, the regulations treat all variable rates alike, regardl ess whether the rates are a function of one variable, two varia bles, or twenty variables. That the variable rate in this ca se, rather than being solely a function of the 3-month Treasur y Bill, is a function of both the 3-month Treasury Bill and the combined average yield of the three largest New Jer sey Banks, is immaterial for purposes of the regulation s.

Regardless of what the variable rate depends on, un der the regulations a bank must determine what the vari able rate would be at the time of the advertisement, and assume that that rate will remain in effect throughout the relevant part of the term, for purposes of computing the APY that the bank may advertise. Thus, the regulations requi re Amboy to advertise a single blended APY calculated by applying the 6% APY for the first three months and by applying for the remaining nine months whatever the
current variable rate was at the time of the advert isement.
This it did not do.

3.

The Bank urges us to adopt the District Court's reasoning that the guarantee that the APY for the remainder of the term would exceed the average APY of the Bank's three competitors is pro-consumer, and there fore
that it should be allowed to advertise that fact. I n our view, this argument proves too much, since it would apply to any variable rate that is determined by reference to an index or a competing investment. For example, a variable rat e that is set to the 3-month Treasury Bill is pro-consumer , since it guarantees that consumers will never earn less o n their savings account than they would on the Treasury Bil l. Nonetheless, the regulations require that variable rates be advertised according to a particular formula, regar dless of how pro- or anti-consumer the rate is.

10The District Court also worried that the APY that t he

Bank would be required to advertise under the regul ations would be misleading because "[i]t would not help th e consumer know whether this particular snapshot will turn out to be accurate for the long run . . . ." We agr ee that the advertised rate required by the regulations may mis lead consumers, since the advertised APY could differ fr om the actual APY. Consider two banks, one of which offers a fixed
rate account with a 4% APY and the other of which o ffers a variable rate account that, using the variable ra te in effect at the time of the advertisement, would have a 4% A PY. Under the regulations, both banks must advertise th e same APY of 4%, which risks misleading consumers to beli eve that the two investments are of equal value. This r isk is mitigated, however, by the requirement that adverti sements
for variable rate accounts "shall state . . . clear ly and conspicuously . . . that the rate may change after the account is opened." 12 C.F.R. S 230.8(c)(1).

Moreover, even if the regulations required rates to be advertised in a misleading manner, unless the defen dant challenged the regulations' validity, the Court wou ld be constrained to apply the regulations that exist. Wh ether these regulations make sense as a matter of policy is irrelevant in this case, since the Bank does not ch allenge the regulations' validity on the grounds that the F ederal Reserve Board exceeded its authority under TISA, ac ted arbitrarily and capriciously in promulgating the re gulations, or failed to comply with the procedural requirement s imposed by the Administrative Procedure Act. Absent such a challenge, a court may not second-guess the polic y choices made by an agency in a matter that Congress has committed to the agency's discretion.

4.

We therefore conclude that the Bank's advertisement s and account disclosures violated the regulations promulgated under TISA by failing to advertise the APY as a single composite rate based on a one-year term, calculated by applying the 6% introductory rate for the first three months and by applying whatever the variable rate
was at the time of the advertisements for the remai ning

11nine months. We note that this conclusion is suppor ted by

an amicus letter brief filed at the Court's invitat ion by the Board of Governors of the Federal Reserve System. S igned by the Director of the Division of Consumer and Community Affairs, the letter concludes that "Amboy did not comply with the requirements set forth in Regul ation
DD because . . . the advertisements did not disclos e a single `composite' APY, based on an assumed term of 365- days, and taking into account both the introductory rate and post-introductory rate in effect for these acco unts at the time they were advertised."

B.

The Bank argues that even if its advertisements and account disclosures failed to comply with the regul ations, the advertisements nonetheless complied with the st atutory disclosure requirements. Therefore, the Bank submit s, Schnall's claims were properly dismissed. We disagr ee. Even if the Bank's advertisements complied with the statutory requirements, the Bank would still be lia ble for violating the regulations, since at the time this l awsuit was filed, TISA imposed civil liability on any bank"whi ch fails to comply with any . . . regulation prescribed under t his chapter." 12 U.S.C. S 4310(a).

At all events, we conclude that the Bank violated t he statutory disclosure requirements. The Bank argues that its advertisements fully complied with the disclosure requirements of TISA, which requires that

Each advertisement . . . relating to any . . . interest- bearing account . . . which includes any ref erence .. . to a specific yield . . . shall state the fo llowing information, to the extent applicable, in a clear and conspicuous manner:

(1) The annual percentage yield.

(2) The period during which such annual percentage yield is in effect.

(3) All minimum account balance and time requirements which must be met in order to e arn the advertised yield . . . .

12(4) The minimum amount of the initial deposi t

which is required to open the account in ord er to obtain the yield advertised . . . .

(5) A statement that regular fees or conditi ons could reduce the yield . . . .

(6) A statement that an interest penalty is required for early withdrawal.

12 U.S.C. S 4302(a). In the Bank's submission, by disclosing in its advertisements that its accounts would earn a 6% APY for the first three months, followed by an APY based on the 3-month Treasury Bill but guarante ed to exceed the average yield of New Jersey's three larg est banks, the Bank complied with the requirement of S 4302(a)(1) that advertisements disclose the"annua l percentage yield."

The problem with the Bank's argument, however, is t hat TISA defines "annual percentage yield" as:

the total amount of interest that would be r eceived on a $100 deposit, based on the annual rate of simple interest and the frequency of compounding fo r a 365- day period, expressed as a percentage calcul ated by a method which shall be prescribed by the Boar d in regulations.

12 U.S.C. S 4313(2). This definition of "annual per centage yield" applies to the requirements in SS 4302(a)(1) and 4303(c)(1) that advertisements and account disclosu res state the annual percentage yield. Because, as expl ained above, the Bank failed to calculate the APY appeari ng in its advertisements and account disclosures according to the method prescribed by the regulations, the Bank fail ed to comply with the statutory disclosure requirements i mposed by SS 4302(a)(1) and 4303(c)(1).

The District Court focused on the language "to the extent applicable" in S 4302(a), and concluded that the re quired method of computing the advertised APY is not appli cable here, because the variable rate is a function of bo th the 3- month Treasury Bill and the average yield of three other
banks. The District Court further reasoned that the method of calculating the APY specified in the regulations is

13inapplicable in this case because "blind adherence" to the

regulation "would not assist [the] consumer in comp aring" Amboy's account with accounts offered by competitor s. According to the District Court, applying the formu la specified in the regulations would thereby frustrat e one of the stated purposes of TISA, which is to enhance"th e ability of the consumer to make informed decisions regarding deposit accounts." 12 U.S.C. S 4301.

We disagree with the District Court's interpretatio n of "to the extent applicable" as an invitation to courts t o disregard the mandate of the regulations if doing so makes se nse as a matter of policy. In our view, the language "to t he extent applicable" was included in S 4302(a) because certa in disclosure requirements enumerated in that provisio n may not apply to a particular account, given the nature of the account. For example, S 4302(a)(6) requires adverti sements to include "[a] statement that an interest penalty is required for early withdrawal." This requirement, however, w ould obviously be inapplicable to an account that has no withdrawal penalty.

In contrast, the requirement under S 4302(a)(1) tha t advertisements disclose the account's APY is applic able to all interest-bearing accounts, including the accoun t at issue in this case. As discussed above, the formula in the regulations for computing an account's APY is fully applicable to accounts such as Amboy's, which inclu de an introductory fixed interest rate followed by a vari able rate
for the remainder of the term.

In sum, we hold that by failing to disclose the APY on its accounts as a single blended rate based on a 365-da y term,
the Bank's advertisements and account disclosures v iolated both the disclosure requirements found in the regul ations, see 12 C.F.R. SS 230.2, 230.4, 230.8 & appendix A t o part 230, and the disclosure requirements imposed by the relevant statutory provisions, see 12 U.S.C.SS 4302 , 4303, 4305 & 4313, which incorporate the regulations by
reference. Either the violation of the statute or t he violation of the regulations provides an independent ground f or liability under S 4310.

14III.

The Bank argues that even if its advertisements and account disclosures violated the requirements impos ed by TISA and the implementing regulations, the District Court properly granted summary judgment on the ground tha t no reasonable jury could find that Schnall was harmed by the
manner in which the Bank disclosed the APY on its accounts. The Bank frames this argument in various terms, arguing that Schnall did not rely on the manner in which the Bank advertised its APY, that Schnall was not m isled by the advertisements and disclosures, and that Schnal l suffered no financial injury as a result of the TIS A
violations. Each characterization relates to the sa me conceptual question whether a TISA plaintiff must s how that he or she suffered some financial injury that he would not have incurred had the defendant complied with T ISA. Schnall responds that TISA imposes strict liability on depository institutions that violate its disclosure requirements, and that to recover under S 4310, a p laintiff
need not show that he or she was misled or financia lly harmed by the violation.

The relevant provision of TISA, 12 U.S.C. S 4310(a) , which has been repealed since the commencement of this la wsuit, see supra note 2, provided that:

[A]ny depository institution which fails to comply with any requirement imposed under this chapter o r any regulation prescribed under this chapter wit h respect to any person who is an account holder is li able to such person in an amount equal to the sum of --

(1) any actual damages sustained by such per son as a result of the failure;

(2)(A) in the case of an individual action, such additional amount as the court may allow, ex cept that the liability under this subparagraph s hall not be less than $100 nor greater than $1,000; o r

(B) in the case of a class action, such amo unt as the court may allow, except that--

(i) as to each member of the class, no mini mum recovery shall be applicable; and

15(ii) the total recovery under this subparag raph in

any class action . . . arising out of the sa me failure to comply by the same depository institution shall not be more than the lesser of $500,000 or 1 percent of the net worth of the depository institution involved; and

(3) in the case of any successful action to enforce any liability under paragraph (1) or (2), th e costs of the action, together with a reasonable attor ney's fee as determined by the court.

The question before us reduces to whether the langu age imposing liability for any violation "with respect to any person who is an account holder" requires account h olders who bring suit to show that they would not have ope ned their account had the bank's disclosure complied wi th TISA, or that they were otherwise misled or financi ally harmed by the TISA violation.

In deciding this question, we are writing on a clea n slate,
as this Court has not had occasion to construe S 43 10. The only court squarely to address the issue was the Di strict
Court for the Southern District of New York in Hale v. Citibank, N.A., 198 F.R.D. 606 (S.D.N.Y. 2001). In an opinion by Judge Rakoff, the court in Hale rejected defendants' claim that reliance is a necessary elem ent of a
cause of action under S 4310:

[N]either the regulation nor TISA itself req uires such a showing as a condition of liability, and suc h exacting notions of reliance, drawn from the common l aw, are inapplicable, so far as liability is concern ed, to a regulatory statute like TISA whose stated pu rpose is"to require the clear and uniform disclosure of . . . the rates of interest which are payable on depos it accounts by depository institutions." 12 U.S.C. S 430 1(b) (emphasis added); see also S. Rep. 102-167, at 80-82 (1991).

Id. at 607.5 We find this reasoning persuasive.6 As the

___________________________________________________ ______________

5. The court noted that reliance might be relevant, however, for purposes of determining actual (in contrast to statutory) da mages. Id.

6. The only other case to discuss the issue is Shel ley v. AmSouth Bank,

16Court in Hale noted, neither the statute nor the re gulations

explicitly require that a plaintiff show reliance o r financial injury to recover statutory damages under S 4310.

Moreover, the purpose of TISA is not only to preven t consumers from being misled by deceptive advertisem ents, but also to ensure uniformity in how banks advertis e rates of return. See 12 U.S.C. S 4301 ("The Congress here by finds that economic stability would be enhanced, competit ion between depository institutions would be improved, and the ability of the consumer to make informed decisions regarding deposit accounts, and to verify accounts, would be strengthened if there was uniformity in the disc losure of terms and conditions on which interest is paid and fees are assessed in connection with such accounts."). This consideration also supports the result reached in H ale.

We read the regulations promulgated under TISA as representing a policy judgment by the Federal Reser ve Board that even if consumers are not misled by advertisements that violate the regulations, they b enefit from the requirement that banks advertise their ret urns according to a standard formula that allows quick a nd accurate comparison of the expected rates of return offered by different banks, thus promoting informed consume r choice and competition among banks. The harm that T ISA is intended to prevent, therefore, is not only the financial harm that occurs when a consumer is misled by an advertisement, but also the information costs and a nticompetitive effects created when banks advertise yi elds in non-uniform ways that make it difficult for consume rs to compare the rates of return offered by competing ba nks.

Contrary to the purpose of TISA, interpreting S 431 0 to require reliance or financial injury would permit b anks to violate TISA's uniform disclosure requirement as lo ng as the advertisements issued by the banks were not themselves misleading. Indeed, the advertisements i n this

___________________________________________________ ______________

No. 97-1170-rv-c, 2000 WL 1121778 (S.D. Ala. July 2 4, 2000), aff 'd, 247 F.2d 250 (11th Cir. 2001), which briefly stated in dicta that "proximate cause and actual damages are not element s of a TISA claim for statutory damages." Id. at *14.

17case, although they prominently feature the "6.00% APY,"

are quite clear that this APY is in effect for only an introductory period of three months. It would there fore be
difficult for a consumer to show that he was misled by the advertisement into believing that the 6% APY would be in effect for longer than three months. Schnall, as an M.B.A. and statistician, see infra note 7, could have easi ly computed from the information in the Amboy advertis ement the blended APY that the Bank was required to discl ose, and could have then compared that APY to those offe red by other banks. One of the purposes of TISA, however, is to relieve consumers of this burden, for comparing the yields offered by different banks may be difficult for man y consumers and will take unnecessary time if the yie lds are not advertised uniformly. In order for the regulati ons in this case to have any bite, they must therefore be enfor ced even when advertisements are not necessarily misleading.

To be sure, violations of TISA that do not actually cause consumers to be misled could still be prosecuted by the Federal Reserve Board. But the structure of S 4310, which permitted a plaintiff to recover both actual damage s and statutory damages, suggests that this provision ser ved the dual purpose of both compensating plaintiffs who ha ve been misled and deterring banks from advertising in ways that Congress and the Federal Reserve Board believe are socially harmful. Cf. Williams v. Pub. Fin. Corp., 598 F.2d 349, 356 (5th Cir. 1979) ("The remedial scheme in t he [Truth in Lending Act] is designed to deter general ly illegalities which are only rarely uncovered and pu nished, and not just to compensate borrowers for their actu al injuries in any particular case.").

We acknowledge that as a matter of policy, it seems odd to permit plaintiffs to sue banks for damages when they have personally suffered no financial loss as a res ult of the bank's TISA violation.7 This result, however, is wh at S 4310,

___________________________________________________ ______________

7. A law professor probably could not have imagined a better hypothetical than this case, in which the plaintiff , Martin Schnall, has an M.B.A. from NYU and masters degrees from Columbi a University and University of Michigan in biostatistics. Indeed, it is possible that

Schnall never intended to invest his money in a savings acc ount, but saw an

18as a "private attorney general" statute, contemplat ed.

Although TISA authorizes the Federal Reserve Board to enforce the Act, see 12 U.S.C. S 4309, the Board ha s limited resources to devote to enforcement, and Con gress may have deemed it more cost-effective to cede TISA enforcement to individuals in the private sector wh o stand to profit from efficiently detecting and prosecutin g TISA
violations.

We also note that S 4310 provided an affirmative de fense to defendants who unintentionally violate TISA. See 12 U.S.C. S 4310(c) ("A depository institution may not be held liable in any action brought under this section for a violation of this chapter if the depository institu tion demonstrates by a preponderance of the evidence tha t the
violation was not intentional and resulted from a b ona fide error, notwithstanding the maintenance of procedure s reasonably adapted to avoid any such error."). Sinc e a plaintiff who suffers actual financial harm as a re sult of being misled by a TISA violation will go uncompensa ted if the violation is inadvertent under S 4310, the prim ary purpose of S 4310 may not have been compensation, b ut rather deterrence. This deterrent purpose is furthe red under S 4310 by permitting account holders to bring TISA actions even if they have not suffered any financia l harm as
a result of the violation.

Finally, our conclusion is consistent with the jurisprudence construing the provision of the Truth in Lending Act ("TILA") upon which S 4310 appears to h ave been modeled. The private enforcement provision of TILA uses almost the same language as S 4310 in creating a private right of action:

[A]ny creditor who fails to comply with any requirement imposed under this part . . . with respect t o any person

___________________________________________________ ______________

advertisement that he knew violated TISA, and opene d an account precisely so that he could then sue the bank under TISA and earn statutory damages. Under our construction of S 4310 , such a plaintiff would nonetheless be entitled to statutory damages, making him better
off than he would have been had TISA not been viola ted.

19is liable to such person in an amount equal to the sum

of --

(1) any actual damage sustained by such pers on as a result of the failure;

(2)(A)(i) in the case of an individual actio n twice the amount of any finance charge in connection w ith the transaction . . . ; or

(B) in the case of a class action, such amo unt as the court may allow, except that as to each member of the class no minimum recovery shall be applicable, and the total recovery under thi s subparagraph in any class action or series o f class actions arising out of the same failure to c omply by
the same creditor shall not be more than the lesser of $500,000 or 1 per centum of the net worth of the
creditor . . . .

15 U.S.C. S 1640(a). A comparison of the language a nd structure of this provision with the language and s tructure of S 4310, quoted supra at 15-16, leaves little dou bt that Congress, in enacting S 4310 in 1991, consciously b orrowed the language of TILA.

This Court has squarely held that reliance is not a n element of a cause of action under TILA. See Mannin g v. Princeton Consumer Disc. Co., 533 F.2d 102, 106 (3d Cir. 1976) ("Although it is extremely unlikely that the purchaser was not aware of the undisclosed terms, i.e., selli ng price, down payment and balance, we cannot say that the di strict court erred in imposing the penalty and attorneys' fees under the circumstances here."); see also Dzadovsky v. Lyons Ford Sales, Inc., 593 F.2d 538, 539 (3d Cir. 1979) (per curiam) (rejecting "the requirement of financi al loss before a borrower may bring an action" under TILA). Indeed, as noted in the margin, those Courts of App eals that have considered the issue are nearly unanimous that to recover statutory damages under TILA, plaintiffs need not show that they would not have agreed to the transaction had the lender's disclosure complied wi th TILA

20or that they were otherwise misled or suffered fina ncial

injury as a result of the TILA violation.8

Given the similar purposes of TISA and TILA and the

___________________________________________________ ______________

8. See, e.g., Mars v. Spartanburg Chrysler Plymouth , Inc., 713 F.2d 65, 66 (4th Cir. 1983) ("The district court held that thes e violations were only technical and because [plaintiff] sustained no actu al injury as a result

of them, no liability on the part of the creditors aro se. We disagree and reverse the judgment of the lower court."); Brown v . Marquette Sav. & Loan Ass'n, 686 F.2d 608, 614 (7th Cir. 1982) ("As an initial matter we note that the violation before us is a purely techn ical one, and that the plaintiffs do not claim that they were misled or su ffered any actual damages as a result of the statutory violation. It is well settled, however,
that a borrower need not have been so deceived to r ecover the statutory penalty."); Dryden v. Lou Budke's Arrow Fin. Co., 6 30 F.2d 641, 647 (8th Cir. 1980) ("TILA plaintiffs, otherwise entitled to recover, need not show that they sustained actual damages stemming from th e TILA violations proved before they may recover the statutory damage s the Act also provides for."); Smith v. Chapman, 614 F.2d 968, 97 1 (5th Cir. 1980) ("It is not necessary that the plaintiff-consumer actual ly have been deceived in order for there to be a [TILA] violation."); Hin kle v. Rock Springs

Nat'l Bank, 538 F.2d 295, 297 (10th Cir. 1976) ("It is ap parent that no showing of actual damages is required and instead t he recovery is fixed by statute.").

The only case to depart from strict liability under TILA is Streit v. Fireside Chrysler-Plymouth, Inc., 697 F.2d 193 (7th Cir. 1983), in which the defendant, a car dealer, allegedly violated TIL A by neglecting to provide the plaintiff with a duplicate of the retai l installment contract.

Id. at 194. After paying a portion of the down payment, the plaintiff returned the car claiming that it was defective and refused to pay any installments. Id. at 194-95. The court rejected the plaintiff's TILA
claim:

[I]t is not good policy and is not required by a reasonable
construction of the Act to hold a creditor l iable for a technical
violation of the sort here involved: where t he consumer was not misled nor financially harmed and where the consumer unilaterally breached the contract almost immediately aft er it was entered. The purposes of the Act and the respect the Act is due are not served by a rigid application that results in an unjus tified windfall to the

consumer.

Id. at 197. The holding in Streit therefore appears confined to the specificfacts of that case -- namely the hyper-technical na ture of the violation

(failure to provide a duplicate of the finance agre ement) and the plaintiff's own actionable conduct (breach of contr act).

21fairly substantial body of TILA caselaw that existe d at the

time Congress enacted TISA in 1991, we presume that Congress was aware of the judicial interpretation o f TILA and that in borrowing language from TILA, Congress intended that language to have the same meaning tha t courts had given TILA.9 Cf. Northcross v. Bd. of Ed uc., 412 U.S. 427, 428 (1973) (per curiam) (noting that "sim ilarity of language . . . is, of course, a strong indication t hat . . . two statutes should be interpreted pari passu," particu larly where "the two provisions share a common raison d'e tre" (internal quotations omitted)). Since the TILA juri sprudence overwhelmingly rejects any reliance requirement, it seems likely that Congress did not intend to impose any s uch requirement under the similarly-worded provision of TISA.

For the foregoing reasons, we hold that to recover statutory damages under S 4310, a plaintiff need no t show that he relied on the advertised APY, that he would not have opened the account had the advertisement compl ied with TISA, or that he was otherwise misled or finan cially harmed by the failure to comply with TISA's disclos ure requirements.10

IV.

Because we hold that the Bank's advertisements and account disclosures violated TISA and the implement ing regulations, and because we hold that to recover st atutory

___________________________________________________ ______________

9. The stated purpose of TISA is "to require the cl ear and uniform
disclosure of . . . the rates of interest which are payable on deposit accounts by depository institutions . . . and the f ees that are assessable against deposit accounts so that consumers can make a meaningful comparison between the competing claims of deposito ry institutions with regard to deposit accounts." 12 U.S.C. S 4301(b). S imilarly, the stated purpose of TILA is "to assure a meaningful disclosu re of credit terms so that the consumer will be able to compare more read ily the various
credit terms available to him and avoid the uninfor med use of credit, and to protect the consumer against inaccurate and unfa ir credit billing and credit card practices." 15 U.S.C. S 1601(a).

10. To recover actual damages, however, a plaintiff must obviously show
that he suffered some financial harm that he would not have suffered had the advertisements and disclosures in question complied with TISA.

22damages an account holder need not show that he was

misled or financially harmed by the defendant's fai lure to comply with TISA, we hold that Schnall is entitled to partial summary judgment on the question of liability. See Fed. R. Civ. P. 56(c) ("A summary judgment, interlocutory i n character, may be rendered on the issue of liabilit y alone although there is a genuine issue as to the amount of damages.").

Accordingly, the order of the District Court granti ng the Bank's motion for summary judgment and denying Schnall's cross-motion for partial summary judgment will be reversed, and this case will be remanded for fur ther proceedings to determine the amount of damages to b e awarded.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

23