Pay Day Loans in Bankruptcy

In re Ferrell was a case out of the 9th Circuit where the court ruled statutory damages are not available for violations of the bankruptcy code.  The court also rejected a claim for actual damages and for attorney’s fees.  The debtor received a pay-day loan, which included a financing fee and an interest rate in excess of 700%.  The trustee initiated an adversary proceeding by filing a complaint requesting the bankruptcy court to disallow the claim, alleging the loan company violated the Truth in Lending Act.

The trustee also sought damages and attorney’s fees under both the federal and state statutes. The bankruptcy court found the loan company did violate the TILA and entered a default judgment for the trustee by granting the objection to the proof of claim, but denied the motion for damages and fees.

The 9th Circuit determined the trustee was not entitled to statutory damages and that consumers may not recover such damages.

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