Williams v. Bill Watson Ford, Inc.

• Decision Date: 19 November 1976
• Docket Number: Civ. A. No. 74-3379.
• Citation: 423 F. Supp. 345
• Parties: Deborah A. WILLIAMS v. BILL WATSON FORD, INC. and Ford Motor Credit Co.
• Court: U.S. District Court — Eastern District of Louisiana

423 F. Supp. 345

Deborah A. WILLIAMS v. BILL WATSON FORD, INC. and Ford Motor Credit Co.

Civ. A. No. 74-3379.

United States District Court, E. D. Louisiana.

September 27, 1976.

Supplemental Opinion November 19, 1976.

Keith A. Rodriguez, Robert M. Hearin, Jr., New Orleans, La., for plaintiff.

Peter A. Feringa, Jr., New Orleans, La., for Ford Motor Credit Co.

James C. Murphy, Jr., New Orleans, La., for Bill Watson Ford, Inc.

OPINION

SEAR, District Judge:

This is a suit under the Truth in Lending Act for damages and attorney's fees.

On August 27, 1974, defendant Bill Watson Ford prepared a Louisiana Automobile Retail Installment Contract and a note and chattel mortgage in connection with the sale of a used 1974 Mercury Montego to the plaintiff. The Contract served as the disclosure statement required by the Truth in Lending Act and had been furnished in blank to Watson by defendant Ford Motor Credit Company. The note and mortgage were subsequently assigned to Ford Motor Credit in accordance with prior arrangements between Watson and Ford Motor Credit.

Plaintiff claims that the disclosure statement violated the Truth in Lending Act and Regulation Z and was defective in the following particulars:

(1) A charge of $3.50 for "Official fees" which was separately itemized on the disclosure statement, was in fact a notary's fee and should have been contained in the finance charge as a cost of credit.

(2) The charge for "Official fees" and a charge of $15.00 for "License, title and registration fees" exceeded the amounts actually paid by Watson for these services and therefore contained hidden finance charges which should have been revealed to plaintiff.

(3) An acceleration clause set out on the reverse side of the disclosure statement constituted a default charge and, as such, should have been revealed either on the front of the disclosure statement above or adjacent to the plaintiff's signature, or on a separate statement identifying the transaction.

Each issue may be separately considered:

NOTARY'S FEE

The purpose of the Truth in Lending Act is to promote the informed use of credit by consumers by enforcing a meaningful disclosure of credit terms. 15 U.S.C. § 1601. Among the required disclosures, a creditor must reveal the amount of the finance charge and the finance charge expressed as an annual percentage rate. 15 U.S.C. § 1638(a)(6), (7). The regulations adopted by the Federal Reserve Board pursuant to the Truth in Lending Act, popularly known as Regulation Z, specify the method by which the finance charge is determined with the following qualification:

"If itemized and disclosed to the customer, any charges of the following types need not be included in the finance charge:

(1) Fees and charges prescribed by law which actually are or will be paid to public officials for determining the existence of or for perfecting or releasing or satisfying any security related to the credit transaction."

12 C.F.R. § 226.4(b)(1).

The disclosure statement furnished to the plaintiff listed a $3.50 charge for "Official fees". This fee was assessed for the notarization of four separate items in connection with the sale. Plaintiff argues that any charge incident to the extension of credit must be included in the finance charge unless it is specifically excludable from the finance charge by statute or regulation, and that § 226.4(b)(1) does not provide such an exemption in this case since a notary's fee is not a charge imposed by law for the perfection of a security interest.

We disagree. Louisiana law does indeed require authentication of certain documents in order to perfect a security interest in the context of the credit sale of an automobile. See, e. g., La.R.S. 9:5353. Furthermore, we agree with Judge Rubin's reasoning in George v. General Finance Corp. of Louisiana, E.D.La.1976, 414 F.Supp. 33, 35 that:

"While a notary public is not an elected public official, ... the office is a public one. It was necessary to have the mortgage notarized and recorded to perfect the security retained by the creditor."

Therefore, we hold that a notary's fee falls within the exception delineated by § 226.4(b)(1) and need not be included in the finance charge if it is separately itemized on the disclosure statement.

HIDDEN FINANCE CHARGES

The general manager of defendant Bill Watson Ford testified at trial that it was the defendant's practice to assess a flat notary's fee of $3.50 on every used car sale. This amount was deposited by the general manager into his "notary's account" from which the defendant retained the services of a notary at a salary of $250 a month. The $3.50 was never paid directly to the notary, nor did his compensation fluctuate in relation to the number of documents he notarized each month. It is therefore entirely possible that the notary never received this particular fee or that he received only a part of it. Plaintiff argues that to the extent the $3.50 exceeded the amount actually paid to the notary, it contained a hidden finance charge which accrued to the secret profit of Watson.

We agree. In light of Watson's financial arrangements with its notary, the mere listing of the $3.50 charge as a notary's fee was inadequate. A disclosure of the precise amount paid to the notary was required, with the excess to be included in the finance charge. Therefore, the disclosure statement violated 15 U.S.C. § 1638(a)(6), (7) and 12 C.F.R. § 226.8(c)(8). Cf. Starks v. Orleans Motors, Inc., E.D.La.1974, 372 F.Supp. 928, 932, aff'd 5 Cir., 500 F.2d 1182; Meyers v. Clearview Dodge Sales, Inc., E.D. La.1974, 384 F.Supp. 722, 725.

By the same reasoning, the charge of $15.00 for "License, title and registration fees" listed on the disclosure statement was also in violation of the Act and Regulation Z insofar as it contained a hidden finance charge. It was shown at trial that Watson charged a standard fee of $15.00 for license, title and registration charges. However, the exact amount required by Louisiana law was $10.50, composed of $3.50 for the title, $6.00 for the license, and $1.00 for recordation. La.R.S. 32:733; La.R.S. 47:463. Again, the disclosure statement violated 15 U.S.C. § 1638(a)(6), (7) and 12 C.F.R. § 226.8(c)(8). Starks v. Orleans Motors, Inc., E.D. La.1974, 372 F.Supp. 928, 932, aff'd 5 Cir., 500 F.2d 1182; Meyers v. Clearview Dodge Sales, Inc., E.D.La.1974, 384 F.Supp. 722, 725.

ACCELERATION CLAUSE

On the reverse side of the disclosure statement furnished to the plaintiff, provision was made for acceleration of the debt upon default:

"Buyer does hereby declare that in the event Buyer defaults in any payment, or fails to obtain or maintain the insurance required hereunder, or fails to comply with any of the terms and conditions hereof, or a proceeding in bankruptcy, receivership or insolvency shall be instituted by or against Buyer or his property, or Seller deems the Property in danger of misuse or confiscation, or Seller otherwise reasonably deems the indebtedness or the Property insecure, Seller shall have the right, at its election, to declare the unpaid portion of the Total of Payments and said promissory note, together with any other amount for which Buyer shall have become obligated hereunder, to be immediately due and payable."

Plaintiff contends that the acceleration clause should have been disclosed on the face of the statement in accord with 15 U.S.C. § 1638(a)(9) which requires disclosure of "default, delinquency, or similar charges payable in the event of late payments," and in accord with 12 C.F.R. § 226.8(b)(4) requiring the disclosure of "the amount, or method of computing the amount, of any default, delinquency, or similar charges payable in the event of late payments." Defendants argue that a right of acceleration is not a "charge" within the meaning of either of these provisions, since acceleration does not impose upon the consumer any cost above the amount already due under the contract, particularly when Louisiana law requires that unearned interest at the time of acceleration be rebated to the consumer. La.R.S. 9:3528. If acceleration is not a "charge", neither the Act nor Regulation Z require its disclosure.

The issue presented is a complex one and has been the subject of many conflicting decisions since the Truth in Lending Act was enacted. The first case to consider the question, Garza v. Chicago Health Clubs, Inc., N.D.Ill.E.D.1972, 347 F.Supp. 955, concluded that acceleration clauses are charges which must be disclosed. The Court referred to the meaning of the word "charges" as defined by Black's Law Dictionary 294 (4th Ed. 1951): a synonym for "obligation" or "claim".

"Considering these definitions and the purpose of the statute and regulation to inform consumers of credit costs and terms so they can effectively choose between sources of credit (TIL § 102, 15 U.S.C. § 1601), it seems clear that the acceleration of the balance of the debt should be considered a `charge' ..."

347 F.Supp. at 959. This aspect of the Garza decision has been challenged on the ground that it took the word "charges" out of context, ignoring the import of the entire phrase "default, delinquency, or similar charges".

"In considering the word `charges' apart from the language that modifies it, the ... court not only used a method of analysis which is inconsistent with well established principles of statutory interpretation but also derived a definition of that term which does not comport with the purpose of section 1638(a)(9)."

Johnson v. McCrackin-Sturman Ford, Inc., 3 Cir. 1975, 527 F.2d 257, 265. The Johnson court went on to propose that the phrase "default, delinquency, or similar charges" should be given its generally accepted meaning in the consumer credit industry, i. e., specific monetary sums which are imposed because of late payment over and above amounts already due under the loan. The court pointed out that if upon acceleration unearned interest is rebated, no additional charge...