## Facts

- Kevin and Joanne Gardner held checking, savings, and credit-card accounts with Montgomery County Teachers Federal Credit Union (MCTFCU).
- MCTFCU used an automated “Delinquent Loan Transfer” program to withdraw funds from members’ deposit accounts to satisfy delinquent credit-card balances.
- On October 27, 2009, MCTFCU withdrew $145.00 from the Gardners’ deposit accounts ($49.16 from checking and $95.84 from savings) to pay an amount due on their credit-card account.
- The Gardners alleged the withdrawals were unauthorized and violated the Truth in Lending Act (TILA) and Regulation Z, which generally prohibit card issuers from offsetting deposit accounts to pay card debt absent a valid security interest.
- MCTFCU contended the withdrawals enforced a security interest in the Gardners’ deposit accounts created by standard credit-card agreement language mailed to cardholders after card issuance.
- MCTFCU could not produce a credit-card agreement signed by the Gardners; the security-interest language appeared within lengthy fine print.
- The Gardners also asserted Maryland Consumer Protection Act (MCPA) claims premised on the same conduct and sought declaratory and injunctive relief.
- The parties filed cross-motions for summary judgment; plaintiffs sought partial summary judgment on the TILA claim.

## Issues

1. Whether MCTFCU’s automatic withdrawals from the Gardners’ deposit accounts to pay credit-card debt were a prohibited “offset” under TILA and Regulation Z or permissible enforcement of a valid, consensual, bona fide security interest.
2. Whether the same conduct constituted an unfair or deceptive trade practice under the Maryland Consumer Protection Act.

## Decision

- The court granted plaintiffs’ partial summary judgment on the TILA/Regulation Z claim and denied MCTFCU’s summary judgment on that claim.
- The court held the withdrawals were a prohibited offset because MCTFCU lacked a valid, bona fide security interest meeting Regulation Z’s requirements.
- The court granted MCTFCU summary judgment on the MCPA claims.

## Legal Principles

- TILA and Regulation Z prohibit a card issuer from offsetting a cardholder’s deposit accounts to satisfy credit-card debt, unless the issuer is enforcing a valid security interest in those funds.
- For a deposit-account security interest to avoid the offset prohibition under Regulation Z, it must be affirmatively agreed to by the cardholder, clearly and conspicuously disclosed, and bona fide rather than a device to evade the offset ban.
- Boilerplate security-interest language embedded in fine-print terms, especially where the issuer cannot show the cardholder’s affirmative agreement, is insufficient to establish a valid, enforceable security interest for purposes of Regulation Z.
- A federal statutory violation under TILA does not, without more, establish liability under the MCPA; plaintiffs must show a cognizable unfair or deceptive trade practice under state law.

## Conclusion

The court ruled that the credit union’s automated program withdrawing funds from members’ checking and savings accounts to pay delinquent credit-card balances violated TILA’s offset prohibition because the credit union failed to show a clearly disclosed, affirmatively agreed-to, bona fide security interest in the deposit accounts; however, the court rejected the related MCPA claims on summary judgment.


Gardner v. Montgomery Cnty. Tchrs. Fed. Credit Union, 864 F. Supp. 2d 410 (D. Md. 2012)