The 11th Circuit ruled recently that the enhanced disclosure requirements and accompanying remedies of rescission, statutory damages, and attorney’s fees are not available to a consumer class against a lender under the Truth in Lending Act (TILA), because the lender’s practice of fixture filing against the consumer goods did not amount to a security interest in the consumers’ homes, even if the goods were deemed fixtures.

In Lankhorst v. Independent Savings Plan Co., 787 F.3d 1100 (11th Cir. 2015), a certified statewide class of consumers purchased water treatment equipment for their homes from an unaffiliated merchant. Purchase money financing was provided by the defendant lender, who took a security interest in the goods, and perfected that interest by recording its UCC financing statement against the consumers’ homes. The merchant seller installed the equipment outside the consumers’ homes, but attached it to the main water supply.

The district court felt the equipment was not a fixture. The Court of Appeals believed that the equipment probably was a fixture. Both courts, however, reached the same conclusion that the status of the collateral as a fixture – or not – really does not matter. The important consideration is whether the lender’s security interest in the goods could, as a matter of law, extend to the consumers’ homes and meet TILA’s requirement of a lender holding a “security interest in the consumer’s principal dwelling,” and thereby protect consumers against potentially losing their homes in the event of default, the purpose behind TILA’s disclosure requirements. Their homes, however, were never at risk because the lender’s remedies were limited to foreclosing against the equipment – nothing more. The district court’s summary judgment in favor of the lender was affirmed by the 11th Circuit.

In an interesting twist, however, the 11th Circuit zeroed in on the unique definition of “security interest” under TILA’s Regulation Z. That definition includes not only “an interest in property that secures performance of a consumer credit obligation and that is recognized by State or Federal law,” but also includes interests arising “solely by operation of law” – such as liens – for purposes of the remedy of rescission. Reg. Z, 12 C.F.R. § 1026.2(a)(25). Because of that broader definition, the consumer class advanced many creative arguments about the effect of “liens” against their homes from fixture filings, or judgment liens following the consumer’s default in payment. While the attempts were rejected by both courts, the 11th Circuit stated that the type of sale and financing transaction in dispute “may be subject to the sort of abuse of consumers that Congress sought to prevent through TILA.” But, “rather than stretch the statutory language or the language of the written agreements entered into by the parties, the appropriate remedy is to refer the matter to the proper agency for study and to ascertain if modification of the [definition of security interest] is desirable.” 787 F. 3d at 1105.

Whether a regulator, such as the Consumer Financial Protection Bureau, picks up the gauntlet of reconsidering the definition of “security interest” under TILA, it is hoped that the requirement of recognition under state and federal law retain the protection against unbridled expansion and interference with parties’ rights under the UCC.