Yazzie v. Reynolds

• Decision Date: 06 May 1980
• Docket Number: No. 78-2012,78-2012
• Citation: 623 F.2d 638
• Parties: Ella YAZZIE et al., Plaintiffs-Appellants, v. Gerald REYNOLDS, d/b/a Ben's Auto Sales, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 638

623 F.2d 638

Ella YAZZIE et al., Plaintiffs-Appellants, v. Gerald REYNOLDS, d/b/a Ben's Auto Sales, Defendant-Appellee.

No. 78-2012.

United States Court of Appeals Tenth Circuit.

May 6, 1980.

Decided June 12, 1980.

Richard H. Levin, Window Rock, Ariz., for plaintiffs-appellants.

Richard B. Addis, Albuquerque, N. M., for defendant-appellee.

Before SETH, Chief Judge, and BREITENSTEIN and DOYLE, Circuit Judges.

WILLIAM E. DOYLE, Circuit Judge.

In this federal Truth-in-Lending Act case, 15 U.S.C. § 1601, et seq., the plaintiffs-appellants seek reversal of an order of the United States District Court of the District of New Mexico. The cause was disposed of on summary judgment.

Each of the plaintiffs-appellants is a person who purchased a used motor vehicle from the defendant Reynolds on an installment payment basis. The prayer in each case is for statutory damages, reasonable attorney's fees and costs, and is based on alleged violations by Reynolds, d/b/a Ben's Auto Sales, in Gallup, New Mexico. The claim is that Reynolds violated the Truth-in-Lending Act and Federal Reserve Regulation Z, 12 C.F.R. § 226.1 et seq. The crux of the claim is that Reynolds failed to disclose a finance charge and to express it as an annual percentage rate when, in fact, the allegation is, a finance charge was imposed on credit customers. It is further alleged that Reynolds used language which contradicted and obscured the information required by the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., and Regulation Z, 12 C.F.R. § 226.6(c).

There is no dispute about the facts:

Reynolds, who does business in Gallup, New Mexico, as Ben's Auto Sales, was engaged in retail sale of used cars. 98% of his sales were pursuant to installment contracts which provided for four or more payments payable on a prearranged schedule. The same printed-form contract was used in all of his sales transactions. Included in each contract was the following statement:

Buyer . . . having been quoted both a time sale price and a lesser cash price hereby purchased from Seller on a time price basis . . . the following property. . . .

The actual transaction was different from this description. At no time did Reynolds quote to the plaintiffs-purchasers two different prices. In fact, the prices quoted as the "cash price" and the "deferred payment price" in the contracts were the same. Reynolds did not quote or charge any of his customers different prices according to the payment terms. Each of the present contracts disclosed the finance charge and the annual percentage rate as zero.

Thus, an express statement regarding interest or financing charge was studiously avoided. The practice was that the price was the same regardless of whether the buyer agreed to pay cash or to pay for the car in installments. Furthermore, Reynolds, according to the stipulated facts, did not sell the contracts at a discount to any other individual or financing institution. There were, nevertheless, expenses in collecting delinquent payments and repossessing automobiles. According to the evidence, this service was performed by Reynolds' salesmen. They were given notice at the outset of their employment that they would be, from time to time, required to make collections or repossessions and they did so. Reynolds would sometimes furnish an automobile for the purpose of performing this service. The salesmen would make the collections and sometimes would repossess the vehicle by connecting it to the salesman's car through the use of a towing bar.

The trial court ruled that there had been a failure to prove that Reynolds' automobiles were artificially priced so as to hide finance charges, or that there were any real differences between the cash price and the deferred payment price. The court found also that the evidence failed to establish the existence of hidden finance charges and that the contract language was not confusing. Each of the transactions was negotiated face-to-face by the plaintiffs with the salesmen, and the agreed price was in accordance with an oral agreement. The trial court determined that costs incurred by Reynolds for extension of credit were part of his regular business expenses; that these are not in any way reflected in the price which he charged installment customers.

The important issue in the case is whether this single-price sales approach was intended to and did conceal the cost of credit so as to circumvent the Truth-in-Lending Act, 15 U.S.C. § 1601, et seq. and 12 C.F.R. § 226.4.

The suit is on behalf of five plaintiffs, Ella Yazzie, Albert Sliver, Mary Keyonnie, Alice Mary Begay and Adella T. Benally. The several cases do not differ one from the other on facts or issues. The same printed-form contract was used in each sale to the several plaintiffs. Each contract contained the following statement Buyer . . . having been quoted both a time sale price and a lesser cash price hereby purchased from Seller on a time price basis . . . the following property. . . .

Contrary to this language, the contract provided under the heading of "Finance Charge" and "Annual Percentage Rate" a zero. Also, each contract contained a space labeled "cash price" and another space stating "Deferred Payment Price." On each contract the appellee disclosed the "Deferred Payment Price" as an amount equal to the "Cash Price."

A flat fee was paid to the collector (salesman) for each credit payment which he successfully collected. On some occasions Reynolds would employ persons other than the salesmen to make the collections. Here again, a flat fee for each delinquent payment collected was given. There were also expenses from use of an automobile in bringing about the collection.

More than 50% of Ben's Auto Sales' customers were residents of the Navajo Indian Reservation. The vehicle of Albert Sliver which was repossessed at Ganado, Arizona, was located some 40 miles from the used car lot. An attempt was made to repossess the vehicle of Alice Mary Begay from Window Rock, Arizona. This was 26 miles from Reynolds' place of business. Appellant Mary Keyonnie ceased payment to Ben's Auto Sales on her vehicle after it was wrecked in an accident. Reynolds abandoned this car due to its condition and because of storage charges.

When he repossessed a vehicle, Reynolds would send a form letter to the delinquent credit buyer informing him or her of the repossession and of the amount required to reclaim the vehicle. The period during which plaintiffs' purchases were made, Ben's Auto Sales lost money as a result of amounts unpaid by credit buyers.

The various sections of the Truth-in-Lending Act require the amount of the finance charge "imposed directly or indirectly by the creditor as an incident to the extension of credit" to be determined by including any of the following:

(1) Interest, time price differential, and any amount payable under a point, discount, or other system of additional charges.

(2) Service or carrying charge.

(3) Loan fee, finder's fee, or similar charge.

(4) Fee for an investigation or credit report.

(5) Premium or other charge for any guarantee or insurance protecting the creditor against the obligor's default or other credit loss.

15 U.S.C. § 1605(a).

Regulation Z defines the items which are set forth in Section 1605 in somewhat greater detail. Thus, Regulation Z, for all practical purposes, follows the more general provisions contained in the statute. Both the statutory provision and the regulation reveal the purpose of the statute, which is identification and disclosure of the charges associated with financing the transaction.

Plaintiffs contend:

1. That a finance charge under the statute is imposed on credit buyers where the creditor has an insignificant percentage of cash sales and incurs substantial costs in connection with the extension of credit.

2. That the trial court failed to give effect to the inferences as to finance charges which are to be drawn from the basic facts.

3. That the language of the contract contradicts the disclosures required by the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., and violates Regulation Z, 12 C.F.R. § 226.6(c).

4. That actual damages need not be proven in order for a buyer to recover.

Finance charges within the meaning of the Act are, as we have noted above, all charges payable by the person to whom the credit is extended, and charges "imposed directly or indirectly by the creditor as an incident to the extension of credit . . ." 15 U.S.C. § 1605. The obvious object is to prevent hidden, undisclosed costs whereby the credit buyer is unable to know the identity of the credit items. If any such finance items were added to the cost of the automobile and charged the buyer, it is essential that they be disclosed to the buyer in order that he or she can make informed decisions. In other words, the defendant was required to disclose any sums of money which stemmed from the credit transaction. The automobiles which were sold were not expensive, but the number of payments were in excess of four. The same pattern was present in every instance. Also, the evidence established that 98% of the sales made by the defendant provided for payment in more than four installments, and that there were necessarily costs which grew out of this way of doing business. Books had to be kept on the status of each sale, receipts had to be given when payments were made, and fees were paid for collection of delinquent payments in nearly all of the instances in which there was a time contract. Defendant had a vehicle used for collections and repossessions with a tow bar. Furthermore, he suffered losses on account of unpaid and uncollected bills. The cash customers were charged...