627 F.2d 1370 (D.C. Cir. 1980), 78-1892, Postow v. Oba Federal Sav. and Loan Ass'n

Docket Nº:78-1892, 78-1902.
Citation:627 F.2d 1370
Party Name:Elliot POSTOW and Joan L. Postow v. OBA FEDERAL SAVINGS AND LOAN ASSOCIATION, Appellant. Elliot POSTOW and Joan L. Postow, Appellants, v. OBA FEDERAL SAVINGS AND LOAN ASSOCIATION.
Case Date:June 18, 1980
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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Page 1370

627 F.2d 1370 (D.C. Cir. 1980)

Elliot POSTOW and Joan L. Postow

v.

OBA FEDERAL SAVINGS AND LOAN ASSOCIATION, Appellant.

Elliot POSTOW and Joan L. Postow, Appellants,

v.

OBA FEDERAL SAVINGS AND LOAN ASSOCIATION.

Nos. 78-1892, 78-1902.

United States Court of Appeals, District of Columbia Circuit

June 18, 1980

Argued Sept. 13, 1979.

Rehearing Denied July 24, 1980.

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Appeal from the United States District Court for the District of Columbia (D.C. Civil Action No. 2017-73).

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Patricia D. Gurne, Washington, D. C., with whom Thomas S. Jackson and James A. Crooks, Washington, D. C., were on brief, for appellant in No. 78-1892 and appellee in No. 78-1902.

Steven A. Skalet, Washington, D. C., with whom Benny L. Kass, Washington, D. C., was on brief, for appellee in No. 78-1902 and cross appellants in No. 78-1892.

Before McGOWAN, LEVENTHAL [*] and WALD, Circuit Judges.

Opinion for the Court filed by Circuit Judge WALD.

WALD, Circuit Judge:

This case involves alleged violations of Title I of the Consumer Credit Protection Act, popularly known as the Truth-in-Lending Act (the Act), 15 U.S.C. § 1601 et seq., and of the Federal Reserve Board's (Board's) implementing Regulation Z, 12 C.F.R. § 226 et seq. It arose in 1972 from Oriental Building Association's (Oriental's) 1 financing of a residential real estate loan for Elliot and Joan L. Postow.

Count II of the complaint, with which we are principally concerned here, 2 sought class certification of an allegation that Oriental had violated the Act by revealing certain fees and closing costs only at the time of the loan settlement. The Postows argued that those disclosures were required approximately a month earlier i. e., when Oriental extended a written commitment to make the mortgage loan or at least before the Postows secured that commitment by the payment of a $305 forfeitable "stand-by" fee.

The district court, 455 F.Supp. 781 (D.C.) granted the Postows summary judgment on Count II, certified the case as a class action and awarded the class statutory damages. The court also awarded the class attorneys' fees based on the time spent both on Count II and on the unsuccessful Count I. We affirm the award of summary judgment to the Postows, and we uphold the class certification and the grant of attorneys' fees. We find the amount of statutory damages awarded to the class, however, to be excessive and remand for the entry of an order modifying that portion of the judgment below. 3

BACKGROUND

On August 14, 1972, the Postows entered into a sales contract with a building contractor to purchase a new house in Rockville, Maryland. The contract was conditioned

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upon a cash down payment and the securing of a first deed of trust loan.

A few days later, the Postows applied to Oriental for a loan. On September 19, 1972, Oriental issued a "commitment letter" to the Postows in which Oriental agreed to loan the Postows the sum of $27,300 at 7 percent interest, secured by a first deed of trust on the property. The commitment was contingent upon the Postows providing the balance of the sale price at settlement and upon their timely payment of a $305.00 "stand-by" fee. Regarding that fee, the commitment letter stated:

A "Stand-By Fee" of THREE HUNDRED FIVE Dollars ($305.00) shall be paid to the Association at the time this commitment is accepted and agreed to by the applicants as evidenced by signatures hereon. The loan is to be consummated between November 6, 1972 and January 26, 1973 and if not, this fee shall be retained by the Association as fully earned for services rendered in connection with the application for loan. If the loan is consummated, the amount will be refunded.

J.A. 34. The Postows signed a copy of the commitment letter on September 26, 1972; Oriental received that signed copy and a check from the Postows for the $305 "stand-by" fee two days later. J.A. 147.

Settlement was completed on November 8, 1972. On that date, the Postows received for the first time the Truth-in-Lending disclosure statement required by the Act. The Postows executed the note, a deed of trust, and other documents necessary to convey title to the property and acknowledged receipt of the Truth-in-Lending disclosure statement at settlement.

ANALYSIS

The Act requires the disclosure of the finance charge and the separate disclosure of all other charges imposed on the borrower by the creditor as a condition of making a loan. It also requires disclosure of any default and late payment charges imposed by the creditor. The Act was designed to promote consumers' "informed use of credit" by the "meaningful" disclosure of credit charges and terms. 15 U.S.C. § 1601 (1976). Through passage of the Act, Congress intended to enable creditors "to compare more readily the various credit terms available to (them) . . . and to avoid the uninformed use of credit." Id.

I. TIME OF DISCLOSURE

The principal issue is whether the Act, as amplified by Regulation Z, required a written disclosure by Oriental of the terms of the credit extension at the time Oriental agreed to lend the $27,300 or at least sometime before the Postows paid the $305 forfeitable "stand-by" fee, or whether the requirements of the Act were satisfied by disclosure just prior to settlement. Section 129(a) of the Act sets forth those items that must be disclosed in an extension of consumer credit including residential mortgage loans; they include "(a)ll charges, individually itemized, which are included in the amount of credit extended but which are not part of the finance charge." 15 U.S.C. § 1639(a) (2) (1976). In the Postows' case this meant various closing costs amounting to $1,827.78. 4 Some of these closing costs, i. e., the appraisal, credit report and inspection fees (totaling $95.00) were disclosed in the commitment letter. But the Postows did not learn of the $194.50 charge for title insurance until almost two weeks after paying the "stand-by" fee, and other charges totaling $1,538.28 for title examination, survey, document preparation, real estate taxes and other settlement fees were first disclosed to the Postows on the day of settlement. The disclosure form also described for the first time at settlement two of Oriental's loan repayment policies: the "late charge" that Oriental would assess (4 percent) if the Postows' monthly payments were more

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than 15 days late, and the "rebate formula" Oriental would use to return unearned fire insurance premiums to the Postows if they repaid the loan before maturity. 5

All of these charges were "included in the amount of credit extended" 6 and, along with Oriental's loan repayment policies, were required to be disclosed to the Postows under § 129 of the Act. As noted above, the issue is when those disclosures were required.

  1. The Language of the Act and Regulation Z

    Section 129(b) of the Act requires that "the (aforesaid) disclosures . . . shall be made before the credit is extended, and may be made by disclosing the information in the note or other evidence of indebtedness to be signed by the obligor." 15 U.S.C. § 1639(b) (1976). Regulation Z, 12 C.F.R. § 226.8(a) (1979), interpreting that section of the Act, provides:

    The disclosures shall be made before the transaction is consummated. At the time disclosures are made, the creditor shall furnish the customer with a duplicate of the instrument or a statement by which the required disclosures are made and on which the creditor is identified. All of the disclosures shall be made together on either:

    (1) The note or other instrument evidencing the obligation on the same side of the page and above the place for the customer's signature; or

    (2) One side of a separate statement which identifies the transaction.

    (Emphasis supplied.) Regulation Z goes on to define when "the transaction is consummated" as "the time a contractual relationship is created between a creditor and a customer . . . irrespective of the time of performance of either party." Id. § 226.2(kk) (emphasis supplied).

    The relevant question here is whether credit was "extended" when Oriental became obligated to make the loan and the Postows paid the "stand-by" fee which they would lose if they later decided not to borrow from Oriental. In our view, and in that of the district court whose construction of the statute we affirm, credit was "extended" at that point; a "transaction" was "consummated," a "contractual relationship" was created, and disclosure was required by the Act. Once the commitment letter was signed and the "stand-by" fee paid, Oriental could have been sued by the Postows if it refused to lend the money; the Postows would have forfeited their $305 if they had not subsequently borrowed the money from Oriental.

    Oriental's arguments against this interpretation center first on language in the Act and in Regulation Z that allows the required disclosures to be made "in the note or other evidence of indebtedness to be signed by the obligor." 15 U.S.C. § 1639(b) (1976); see 12 C.F.R. § 226.8(a) (allowing disclosure in "(t)he note or other instrument evidencing the obligation"). This language is cited by Oriental to show that Congress and the Board meant only to require disclosures at some point before the ultimate sale or finance transaction is completed; in this case when both the borrower and the lender signed the mortgage note.

    We disagree with that interpretation. We can find no indication that in authorizing

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    disclosure to be made on a particular piece of paper, Congress meant to authorize by implication a timing for disclosure at odds with other more specific mandates as to when disclosure is to take place. This Act requires disclosure at the time of "extend(ing) credit," and Regulation Z mandates disclosure at the consummation of either "the" transaction (§ 226.8(a)) or "a" transaction (§ 226.2(kk)) without defining any particular...

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