Pollock v. General Finance Corp., 75-2017
| Decision Date | 16 July 1976 |
| Docket Number | No. 75-2017,75-2017 |
| Citation | 535 F.2d 295 |
| Parties | 19 UCC Rep.Serv. 1219 John C. POLLOCK and Barbara Pollock, Plaintiffs-Appellees, v. GENERAL FINANCE CORPORATION, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Lewis N. Jones, J. Norwood Jones, Jr., Atlanta, Ga., for defendant-appellant.
G. W. Florence, Jr., Atlanta, Ga., for plaintiff-appellee.
Appeal from the United States District Court for the Northern District of Georgia.
Before GODBOLD, McCREE * and TJOFLAT, Circuit Judges.
This is an appeal by the defendant from an adverse judgment in a truth-in-lending action. 15 U.S.C. § 1639. The district court determined that the defendant had violated the requirements of Regulation Z, 12 C.F.R. § 226.8, by failing to inform the borrowers in the disclosure statement about (1) the actual proceeds of the loan, (2) the fact that after-acquired property was subject to a security interest and (3) the consequence that any future indebtedness was secured by property used to secure the present loan. We affirm.
This case was heard by Bankruptcy Judge William L. Norton, Jr., sitting as a Special Master for the U. S. District Court for the Northern District of Georgia. On February 28, 1975, Judge Norton filed his Recommendations and on March 26, 1975, the district court adopted the Special Master's Recommendations and entered judgment in favor of the plaintiffs.
It appears from the record that on September 12, 1973, appellees obtained a loan ("consumer credit" under 15 U.S.C. §§ 1602(e), (h)) in the amount of $155.28. The disclosure statement, however, failed to state expressly that the loan proceeds were $155.28. Instead, the statement indicated that the "amount financed" was $171.36. The statement separately itemized the charges for credit life insurance and disability credit insurance of $3.84 and $12.24, respectively. The "amount financed" was defined in another part of the disclosure statement as including insurance charges and the principal amount of the loan. 1
The district court adopted the bankruptcy judge's recommended finding that a violation of 12 C.F.R. § 226.8(d)(1) had occurred. That section provides that the "amount of credit . . . which will be paid to the customer . . ., including all charges, individually itemized, which are included in the amount of credit extended but which are not part of the finance charge" must be disclosed. The bankruptcy judge determined that the principal amount of the loan ($155.28) represented a part of the amount of credit extended and that individual itemization was required.
The district court further determined that the disclosure statement phraseology about future indebtedness and about security interests in after-acquired property conflicts with the corresponding language of the security agreement. With respect to after-acquired property, the disclosure statement recites that the security agreement "may cover after-acquired property." The pertinent language of the security agreement indicates, however, that a security interest would be retained in "all of the household and consumer goods . . . now or hereafter located in . . . the Debtor's residence . . . ." With respect to future indebtedness, the next sentence in the disclosure statement provides that "(a)ny chattel or real property which secured this loan may secure future or other indebtedness." The security agreement, however, indicates that future indebtedness incurred by the debtor "at any time before the entire indebtedness secured thereby shall be paid in full" would be secured by the property described in the security agreement.
With respect to these two disclosures, the court determined that General Finance had failed to "clearly set forth" the fact that after-acquired property will be subject to the security interest or that future indebtedness will be secured by property listed in the security agreement. It concluded that General Finance thereby violated 12 C.F.R. § 226.8(b)(5). 2
The first issue we consider is whether the district court erred in determining that the failure of General Finance to separately itemize the amount of the loan proceeds was a violation of § 226.8(d)(1). The regulation requires disclosure of the "amount of credit . . . which will be paid to the customer . . . including all charges, individually itemized, which are included in the amount of credit extended but which are not part of the finance charge . . . ." The disclosure statement here clearly identifies and itemizes $3.54 and $12.24 as credit insurance charges. However, it does not expressly identify and itemize the principal amount borrowed. 3
District Judge O'Kelley made the following observation about § 226.8(d)(1) which would support the conclusion that the principal amount of loan proceeds need not be itemized:
It appears to this court that the phrase, "which are included in the amount of credit extended but which are not part of the finance charge," clearly refers to the charges because otherwise there would be no need for the "but which are not part of the finance charge" since this contemplates a "charge" not an amount of credit which is paid to the borrower or on his account. This would indicate that the wording "individually itemized" sandwiched between the reference to all "charges" and that phrase refers only to such charges.
Mullinax v. Aetna Finance Co., CA 19124 (July 25, 1975 N.D.Ga.).
We tend to agree that Judge O'Kelley's interpretation of Regulation Z, § 226.8(d)(1) is more consonant with the literal language of the regulation than is the interpretation made by the district judge in this case. Nevertheless, we affirm the district court's finding of a disclosure violation because the regulation must be read in light of the statute which requires separate disclosure of the amount borrowed. Under 15 U.S.C. § 1639(a) a creditor is required to "disclose each of the following items, to the extent applicable:"
(1) The amount of credit of which the obligor will have the actual use, or which is or will be paid to him or for his account or to another person on his behalf.
(2) All charges, individually itemized, which are included in the amount of credit extended but which are not part of the finance charge.
(3) The total amount to be financed (the sum of the amounts referred to in paragraph (1) plus the amounts referred to in paragraph (2)).
These three subsections of § 1639(a) clearly require the disclosure of three different items. A creditor must disclose (1) the amount of cash given to the debtor or given on the debtor's behalf, (2) the charges, individually itemized, and (3) the total of the above two amounts. As the disclosure statement makes apparent, General Finance satisfied only the last two subsections of § 1639(a). The statement also informed the debtor that the total amount financed was $171.36. However, the statement failed to disclose that the amount of...
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