537 F.2d 871 (7th Cir. 1976), 75--1048, Mirabal v. General Motors Acceptance Corp.

Docket Nº:75--1048 to 75--1050.
Citation:537 F.2d 871
Party Name:John MIRABAL and Sharon Mirabal, Plaintiffs-Appellees and Cross Appellants, v. GENERAL MOTORS ACCEPTANCE CORPORATION, a corporation, and Ed Murphy Buick-Opel, Inc., a corporation, Defendants-Appellants and Cross Appellees.
Case Date:March 26, 1976
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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537 F.2d 871 (7th Cir. 1976)

John MIRABAL and Sharon Mirabal, Plaintiffs-Appellees and

Cross Appellants,



Murphy Buick-Opel, Inc., a corporation,

Defendants-Appellants and Cross Appellees.

Nos. 75--1048 to 75--1050.

United States Court of Appeals, Seventh Circuit

March 26, 1976

Argued June 4, 1975.

Rehearing Denied April 19, 1976.

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[Copyrighted Material Omitted]

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Martin M. Ruken, Robert D. Hughes, Gary M. Elden, Chicago, Ill., for General Motors.

Albert Koretzky, Chicago, Ill., for Mirabal.

Before STEVENS, Circuit Justice, [*] MOORE, Senior Circuit Judge, [**] and SPRECHER, Circuit Judge.

SPRECHER, Circuit Judge.

This appeal primarily concerns interpretations of certain provisions of the Truth in Lending Act, 15 U.S.C. § 1601 et seq., and regulations promulgated thereunder by the

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Federal Reserve Board, 12 C.F.R. § 226.1 et seq. (Regulation Z).


The plaintiffs in this action, John and Sharon Mirabal, bought a new 1971 Buick Skylark from one of the defendants, Ed Murphy Buick-Opel, Inc., in July of 1971. The cash price for the car including service, accessories and taxes totalled $4,497.65. The Mirabals financed their purchase through General Motors Acceptance Corporation (GMAC), the other defendant to this action. 1 The Mirabals made a down payment of $2,296.65 including $600.00 in trade for their 1964 Rambler. The retail installment contract which the defendants provided the Mirabals required that they buy $259.00 of physical damage insurance for a total amount financed after deduction of the down payment of $2,460.00. A $511.80 finance charge was imposed on this and the total deferred payment price of $2,971.80 was to be paid in 36 monthly installments of $82.55 each. The installment contract disclosed the annual percentage rate on this transaction as 11.08 percent and contained a voluminous quantity of detailed requirements on its back, including provisions detailing the seller's rights upon default.

About one week after the transaction was consummated, GMAC sent a letter to the plaintiffs informing them that the annual percentage rate disclosed in the transaction had been understated by 1.75 percent and stating that the contract be corrected to provide for an annual percentage rate of 12.83 percent. The plaintiffs denied that they received any such letter. The trial court made no finding of fact on this issue

In late 1971, the Mirabals filed this action charging numerous violations of the Truth in Lending Act, the Illinois Motor Vehicle Retail Installment Sales Act, Ill.Rev.Stat., ch. 121 1/2, § 561 et seq. (1967) and the Illinois Sales Finance Agency Act, Ill.Rev.Stat., ch. 121 1/2, § 401 et seq. (1967) in connection with the transaction. The district court in a trial without a jury found that the defendants had violated the Truth in Lending Act in a number of ways, and had also violated both Illinois acts.

The district court found seven specific violations of Truth in Lending requirements in the transaction. For each violation of the Truth in Lending Act the court assessed damages of $1,000 against the defendants. Along with the damages under both Illinois acts, the plaintiffs won a judgment of more than $8,000. From this judgment, the defendants appealed and the plaintiffs cross-appealed.


The Truth in Lending Act, enacted in 1968, was designed to provide the consumer with the information needed to compare the cost of different types of consumer credit and to enable the consumer to make the best informed decision in regard to his use of credit. The Act focused not on regulating consumer credit, but on requiring uniform disclosure of credit terms. To accomplish this, the Act required creditors to make certain disclosures of the terms and conditions of credit before consummating any transaction. Among the most important of these disclosures, the Act required

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disclosure of the dollar cost of credit as a finance charge and the relative cost of credit as an annual percentage rate. The disclosure requirements were to be enforced two ways, through administrative regulation and through private suits for civil penalties for violation of these requirements.

In 1974, Congress passed what it termed 'largely technical' amendments to the Truth in Lending Act. 2 Some of these amendments, as shall be seen later in this opinion, affect this suit. The amendments were enacted between the lower court judgment in the case and this appeal. A preliminary question which we face concerns whether these amendments are applicable in deciding this appeal.

Congress obviously wanted the amendments applicable to all suits pending in the courts whether on appeal or otherwise. Congress provided that certain provisions of the amendments, including all those provisions relevant to the present suit, 'shall apply in determining the liability of any person under . . . the Truth in Lending Act, unless prior to the date of enactment of this Act (Oct. 28, 1974) such liability has been determined by final judgment of a court of competent jurisdiction and no further review of such judgment may be had by appeal or otherwise.' Pub.L. No. 93--495, § 408(e), 88 Stat. 1518 (Oct. 28, 1974). However, the plaintiffs claim that such an application in this case would be unconstitutional.

Although the law in this area is not particularly clear, 3 what appears to this court dispositive of our question is the treatment of trial court judgments under the Fair Labor Standards Act with respect to the Portal to Portal Act, 29 U.S.C. §§ 251 et seq. This latter act was passed to bar enormous claims pending in the courts for overtime pay under what Congress believed to be an erroneous construction of the Fair Labor Standards Act. Although the effect of this act was to divest in the appellate courts many judgments for overtime wages already obtained in the trial courts, no court held this result impermissible. 4 The Supreme Court twice remanded labor cases to the district court for consideration in

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light of the Portal to Portal Act, after having in one already issued an opinion and in the other denied certiorari. See 149 Madison Avenue Corp. v. Asselta, 331 U.S. 795, 67 S.Ct. 1178, 91 L.Ed. 1432 (1947); Alaska Juneau Gold Mining Co. v. Robertson, 331 U.S. 793, 67 S.Ct. 1314, 91 L.Ed. 1839 (1947). 5 In the courts of appeals judgments for overtime wages which had been rendered in the trial courts prior to passage of the act were reversed on numerous occasions. E.g., McCloskey & Co. v. Eckart, 164 F.2d 257 (5th Cir. 1947). For a full list of these cases see 3 A.L.R.2d 1097, 1162 (annotation on the Portal to Portal Act). In one of the most lucid opinions on the question, a district court held that reversal on appeal because of subsequent legislation was constitutional:

Rights under the Fair Labor Standards Act came into existence only by virtue of an act of Congress. These rights did not exist at common law, nor were they established by the Constitution. Therefore, since these rights were created by the Congress, they may be taken away in whole or in part, or altered, by Congress which established them at any time before they have ripened into final judgment (meaning a judgment upon which no further appeal can be taken).

Ferrer v. Waterman S.S. Corp., 76 F.Supp. 601, 603 (D.P.R.1948).

This reasoning seems persuasive in the present situation. Civil actions under the Truth in Lending Act are rights created by Congress. Congress can repeal, amend or modify these rights in any way it sees fit. Under the reasoning that what Congress giveth, Congress can taketh away, we hold that the amendments must be applied in deciding this appeal.


The facts are not in question in regard to the plaintiffs' major claim concerning a disclosure error under the Truth in Lending Act. The annual percentage rate disclosed in the contract was 11.08 percent. As all parties agree, this understated by 1.75 percent the annual percentage rate properly applicable to the finance charge, amount financed, and term of the Mirabals' contract. Thus, the defendants disclosed an erroneous annual percentage rate. 6

The defendants contend that the error resulted from a bona fide mistake and claim exemption from liability under 15 U.S.C. § 1640(c). 7 This section provides:

A creditor may not be held liable in any action brought under this section for violation of this part if the creditor shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding

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the maintenance of procedures reasonably adapted to avoid any such error.

Thus, we must determine whether the defendants have met the burden of section 1640(c). 8

Under that provision, the creditors must prove first, that the error was an unintentional, bona fide error and second, that they maintained procedures reasonably adapted to avoid any such error. The first part of the test is met. Even the plaintiffs admit that the error was unintentional and that the defendants had no motive to understate the annual percentage rate. Clearly, the defendants' good faith is not in question.

In regard to the second part of the test, we will take the defendants' contentions on brief before this court as true. The defendants laid out their procedures in this manner:

Defendant dealer had specially trained office personnel to assist salesmen in determining annual percentage rates for instalment contracts. Those office personnel had been trained in the preparation of Truth in Lending disclosure statements at educational meetings that defendant GMAC held with each GM dealer before the Act went into effect. At these meetings, GMAC used a chart easel presentation to explain full disclosure, the new type of contracts, the establishment of rates, and how to arrive at rates. GMAC held classes at the...

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