Court Opinion

ID: 9634540
Source: CourtListenerOpinion
Date Created: 2023-08-22 13:16:27.137561+00
Date Added: 2024-06-11T18:09:04.842544
License: Public Domain

SCHREIBER, J.,
dissenting.
Irrespective of whether the debtor’s claim is labeled as a recoupment or setoff, the determinative issue is the meaning of subsection 1640(e) of the Truth in Lending Act, 15 U.S.C.A. § 1601 et seq.1 Section 1640 generally provides that a creditor *617who fails to comply with any requirement of the act with respect to a borrower is liable to that person for actual damages plus (1) twice the amount of any finance charge or if in connection with a consumer lease 25% of the total amount of monthly payments, up to a maximum of $1,000 and (2) costs of the action together with a reasonable attorney’s fee. Subsection (e) then states:
Any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction within one year from the date of the occurrence of the violation.
This language clearly expresses the intent that the borrower has an affirmative claim for the items specified provided , he asserts the claim within one year. Moreover Subsection 1610(d) provides that the borrower’s claim under subsection 1640(a) does not affect the validity or enforceability of any contract or obligation. This provision is supportive of the proposition that the debtor’s claim is separate and affirmative.
The disclosure provisions set forth in the Truth in Lending Act and in Regulation Z, 12 C.F.R. § 226.1 et seq.,2 áre very complicated and demanding, and a creditor’s failure to comply exactly with the provisions need not be intentional, or cáuse actual damages to give rise to liability, 15 U.S.C.A. § 1640(a)(2). The most likely explanation therefore for Congress instituting the brief one year limitation period was an intent to mitigate the harshness, of holding a lendér resporisible indefinitely for *618harmless violations. See Comment, “Truth in Lending and the Statute of Limitations,” 21 Vill.L.Rev. 904, 921 (1976).
The circumstances of this case are illustrative. The defendant does not claim that plaintiff’s violation induced him to enter into a loan agreement which he might not otherwise have made, or caused him any actual damages. The asserted violation is the plaintiff’s failure to describe adequately its security interest. The loan agreement purported to take a security interest in defendant’s after-acquired property, without noting that under the Uniform Commercial Code such security interest is limited to property acquired within ten days of the extension of credit. Existence of this Truth in Lending Act violation does not undermine the basic fairness of the plaintiff’s claim for repayment of its loan. Permitting defendant a setoff amounts to nothing more than a windfall for a defaulting debtor who has had the benefit of the loan.
The claim that enforcement of the act would be weakened if section 1640 claims could not be utilized beyond the one year period is not substantial when consideration is given to the fact that criminal sanctions, 15 U.S.C.A. § 1611, and actions by those administrative agencies, 15 U.S.C.A. § 1607, which are charged with enforcing the act, are not subject to the one year limitation. Restricting the right of a consumer to seek recovery from a creditor reflects an intent to balance the goals of encouraging compliance without unfairly penalizing legitimate creditors.
Lastly, Congress recently amended subsection 1640(e) to allow counterclaims in this situation by permitting a person to assert a violation of the act “in an action to collect the debt which was brought more than one year from the date of the occurrence of the violation as a matter of defense by recoupment or set-off in such action . . .. ” The amendment is to become effective April 1, 1982. 94 Stat. 185. Contrary to congressional intent, the majority has made the amendment effective immediately.
I would affirm the judgment of the Appellate Division.
*619For reversal and remandment — Chief Justice WILENTZ, and Justices SULLIVAN, PASHMAN, CLIFFORD, HANDLER and POLLOCK — 6.
For affirmance — Justice SCHREIBER — 1.

 The majority’s assumption that a debtor’s claim predicated on violation of the Truth in Lending Act is a defense in the nature of recoupment against a creditor’s suit for monies loaned based on a note or loan agreement is a misconception of the doctrine. Once it is realized that the plaintiff’s claim is grounded on an express provision promising the repayment of money loaned and the other on a statute governing disclosure of the terms of the loan, it becomes apparent that the statutory claim is a setoff.
To raise a recoupment defense a defendant must assert that the plaintiff has violated an obligation under the same contract involving the very claim asserted upon which plaintiffs claim is dependent. When the contract involves mutual obligations of both parties, recoupment is permissible only when those obligations are mutually dependent. See In re Hoffman, 63 N.J. 69, 83-84 (1973) (Chief Justice Weintraub concurring); 20 Am.Jur.2d, Counterclaim, Recoupment and Setoff, § 11 (1965). To illustrate, if a seller of goods sues to recover the contract price, then the buyer may seek to defeat or reduce the claim by asserting that the goods delivered were defective. On the other hand, if the seller violated a provision in the same contract calling for him to give advance notice of any future price increases, the buyer could not raise such violation in defense of the claim for the price of goods already delivered. The notice covenant is independent of and not *617related to the sale of the goods. Similarly, the lender’s obligation to comply with the Truth in Lending Act, even if considered part of the loan contract, and the obligation of the buyer to repáy monies loaned, are independent obligations and therefore the borrower should not be able to assert Truth in Lending violations as a recoupment defense in an action for repayment of the loan.

The Regulation was promulgated by the Federal Reserve Bbard which administers the Truth in Lending Act. 15 U.S.C.A. § 1604. Other administrative agencies including the Federal Home Loan Bank Board, the National Credit Union Administration, the Interstate Commerce Commission, the Federal Trade Commission and others are also obligated to enforce the act. 15 U.S.C.A. § 1607.