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[Congressional Record Volume 141, Number 66 (Monday, April 24, 1995)]
[Senate]
[Pages S5614-S5615]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

            TRUTH IN LENDING CLASS ACTION RELIEF ACT OF 1995

  Mr. KYL. Mr. President, I ask unanimous consent that the Senate 
proceed to the immediate consideration of H.R. 1380, that the bill be 
deemed read a second and third time, passed, and the motion to 
reconsider be laid upon the table, and that any statements relating to 
the bill be placed at the appropriate place in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. MACK. Mr. President, I urge my colleagues to support H.R. 1380, 
which temporarily suspends class action lawsuits filed under the Truth 
in Lending Act until October 1, 1995.
  This bill will give Congress time to address a U.S. Court of Appeals 
decision, Rodash versus AIB Mortgage Co., which allowed a borrower to 
rescind a mortgage based on a technical violation of the disclosure and 
notice requirements provided for in the Truth in Lending Act. Nearly 50 
class action suits have been filed based on the Rodash decision.
  The Truth in Lending Act is a complex law with almost no room for 
forgiveness if an honest technical error is made by the lender. Under 
truth in lending, for a mistake as little as $11 in how a charge is 
disclosed, the lender could be forced to reimburse all fees and costs 
to the borrower, including all interest paid for up to 3 years. In 
addition, the lender must release the mortgage lien, leaving the lender 
with an unsecured loan. These laws encourage cookie-cutter lending in 
order to avoid mistakes. Consumers are then hurt by higher rates and 
less lending.
  The enormous number of loans that have been refinanced since 1991 
makes this a potentially system-wide problem. I do not believe that the 
authors of the Truth in Lending Act intended to stifle creative lending 
and punish the mortgage industry for technical violations of its 
complex disclosure provisions. If the courts were to permit borrowers 
to rescind loans as part of class action lawsuits, the impact could be 
felt from the financial institutions and the secondary markets all the 
way to the Federal deposit insurance funds, which are ultimately backed 
by the U.S. taxpayer.
  In Florida, we have seen ads with banner headlines, ``collect money 
back from your lender,'' encouraging borrowers to rescind their loan. 
There is no mention of harm done to the consumer in the ads. In fact, 
even if the amount disclosed was more than what was actually charged, a 
borrower can rescind the loan. I have heard that some attorneys are 
trying to amass a large number of plaintiffs in order to increase their 
fees. In the end, the biggest beneficiaries of this wave of class 
action suits will be the lawyers. Consumers will be left with small 
settlements, higher costs, and fewer choices of mortgage lenders.
  This bill, H.R. 1380, gives Congress time to examine the Truth in 
Lending Act and correct the problems created by the Rodash decision. At 
a minimum, we need to clarify the disclosure provisions of this highly 
complex law, provide a greater tolerance for honest mistakes, and make 
sure that the penalties are in line with the violations.
  This bill is narrowly drawn to temporarily end the abuse of the Truth 
in Lending Act through class-action suits. Individual consumers will 
still be allowed to bring suit during the moratorium on class actions. 
I urge my colleagues to support this bill.
  Mr. D'AMATO. Mr. President, I rise today to voice my support for the 
Truth in Lending Class Action Relief Act of 1995. Our colleagues in the 
House recently passed this legislation. It is a product of bipartisan 
cooperation and is intended as a temporary measure to deal with an 
urgent situation. As chairman of the Banking Committee, I believe that 
immediate action is warranted. I would therefore encourage my 
colleagues to consider and pass H.R. 1380 immediately.
  Mr. President, I made reference to an ``urgent situation.'' The 
situation to which I refer is the potential for devastating liability 
that threatens our housing finance system in the wake of the 11th 
Circuit Court of Appeals' recent decision in Rodash versus AIB Mortgage 
Co. The Rodash decision has resulted in a wave of litigation and 
created a threat of wholesale rescissions of mortgages. The threat of 
rescissions on so massive a scale could wreck havoc on our mortgage 
lending system and the secondary mortgage markets.
  If a class-action rescission is granted, every class member would be 
released from their mortgage lien, and the obligation to pay finance 
charges and other charges. Class members would also be entitled to 
reimbursement of all finance charges, as well as other charges that are 
outside the scope of the finance charge. The 3-year right of rescission 
in truth in lending entitles the borrower to reimbursement of these 
charges. The potential for massive rescissions, based on technical 
disclosures errors of as little as $10, creates a potential for 
liability that has 
[[Page S5615]] been estimated to be as high as $217 billion.
  The granting of wholesale rescissions, and the liability that such 
rescissions would create, could be devastating to both mortgage 
lenders, and to the secondary markets that provide the mortgage-market 
with liquidity. And we must remember that the liquidity of the mortgage 
markets has helped millions of Americans obtain their dream of home 
ownership at lower costs.
  This bill will permit time for careful consideration of this problem. 
This legislation provides a short-term moratorium that only applies to 
class action certifications in connection with certain first-lien 
refinancings and consolidations. This moratorium is narrowly focused on 
a specific, technical disclosure problems, and will last only until 
October 1, 1995. This provision is not intended to impede the 
settlement of class actions. If, for purposes of settlement, the 
parties stipulate to the certification of a class, a court can approve 
the stipulation and solely for the purposes of settlement, can certify 
the class. A class action cannot be settled without certification of 
the class. This moratorium will provide time to remedy this problem and 
ensure the continued safety-and-soundness of the mortgage-finance 
markets.
  Mr. BOND. Mr. President, I state my support for H.R. 1380, the Truth 
in Lending Class Action Relief Act of 1995. This important legislation 
is designed to impose a class action moratorium on certain lawsuits 
under the Truth in Lending Act. This legislation is narrow but 
necessary to give the Congress an opportunity to review the 
requirements of the Truth in Lending Act and the possible unintended 
consequences of the Rodash case and the possible impact of Rodash on 
the mortgage finance industry.
  Rodash is a Florida case that allowed for the rescission of a 
mortgage where the lender disclosed certain delivery fees and an 
intangible tax in an improper place on the settlement sheet. This case 
has now been used as precedent for nationwide lawsuits that could 
potentially disrupt and damage our mortgage finance industry. I 
emphasis that the violation in Rodash was a technical violation of the 
Truth in Lending Act, and that the fees in question were small and that 
any improper disclosure was unintended. Nevertheless, a complete 
rescission of the mortgage was permitted.
  In addition, since 1991, some 11.8 million loans totaling $1.3 
trillion have been refinanced. The cost of rescinding these mortgages 
is about $217 billion. To apply Rodash to the mortgage industry is like 
killing a mosquito with an atomic bomb. I believe we need to consider 
these consequences.
  Thank you, Mr. President.
  The bill (H.R. 1380) was deemed read three times and passed.

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