Wright v. Tower Loan of Mississippi, Inc., 81-4154

• Decision Date: 28 June 1982
• Docket Number: No. 81-4154,81-4154
• Citation: 679 F.2d 436
• Parties: Luella WRIGHT and Charlie Wright, Plaintiffs-Appellees-Cross Appellants, Willie Shavers, Plaintiff-Appellee, v. TOWER LOAN OF MISSISSIPPI, INC., d/b/a Tower Loan of Canton, Defendant-Appellant-Cross Appellee. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 436

679 F.2d 436

Luella WRIGHT and Charlie Wright, Plaintiffs-Appellees-Cross Appellants, Willie Shavers, Plaintiff-Appellee, v. TOWER LOAN OF MISSISSIPPI, INC., d/b/a Tower Loan of Canton,

Defendant-Appellant-Cross Appellee.

No. 81-4154

Summary Calendar.

United States Court of Appeals,

Fifth Circuit.

June 28, 1982.

Kenneth G. Stamps, Jackson, Miss., for defendant-appellant cross appellee.

Charles H. Ramberg, Jackson, Miss., for plaintiffs-appellees-cross appellants.

Appeals from the United States District Court for the Southern District of Mississippi.

Before RUBIN, SAM D. JOHNSON and GARWOOD, Circuit Judges.

ALVIN B. RUBIN, Circuit Judge:

The purpose of the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601-1667e (1976 & Supp. IV 1980), ¹ is "to assure a meaningful disclosure of credit terms." Id. § 1601(a). This purpose would appear to be best served by a succinct and lucid statement that would at once facilitate both the borrower's understanding and the lender's compliance. However, although TILA has now been in force for over thirteen years, the court decisions, regulations, amended regulations, official staff interpretations, unofficial staff interpretations, and the Act itself still do not resolve all compliance problems. This difficulty arises in part because of the infinite variety of lending transactions, and the efforts of lenders to devise a simple form adequate for all of them. ² Although Congress has tried to resolve these problems by enacting TILSA, supra note 1, its provisions, not being retroactive, do not resolve the problems still arising from loans made before its effective dates, see id.

These cases involve the adequacy of credit insurance disclosures and the effect of erroneously putting superfluous charges on disclosure statements. Taking into consideration the rule that the burden of compliance is on the lender, we affirm the magistrate's judgment holding the lender liable to three borrowers for failing to furnish them proper disclosure, although our reasons differ from the magistrate's.

I

This appeal involves two separate suits filed by different borrowers against the same lender, Tower Loan of Mississippi, Inc. ("Tower"), and consolidated for trial before a magistrate. ³ On June 6, 1978, the first borrowers, Luella and Charlie Wright, entered into a loan transaction with Tower by which they obligated themselves to pay a total of $550 in installments. The loan was scheduled to be for twenty-five months, and would, therefore, have been paid in full on July 6, 1980. Tower then granted, and charged the Wrights for, a first-payment extension that made the final loan payment due on July 21, 1980, several days beyond twenty-five months from the date on which the Wrights entered into their loan transaction with Tower. The disclosure statement, however, erroneously said that the last payment was due on August 21, 1980.

Tower gave the Wrights an undated disclosure statement. On it, Mrs. Wright signed an election or authorization to buy credit life, health, and accident insurance and credit property insurance. The life, health, and accident insurance was provided in one policy, the property insurance in another. Each policy was issued by a different company. Their disclosure statement recited that the terms of coverage of their insurance policies were stated in the policies. Each policy stated that the term of coverage was twenty-five months, beginning June 6, 1978, and ending July 6, 1980. Thus, according to the information on the policies, each policy expired one month and fifteen days before the disclosure statement recited, erroneously, that the last loan payment was due, and fifteen days before it actually was due, according to the loan agreement.

Tower put the total amount of the charges for insurance premiums in the "Amount Financed" box on the disclosure statement, and did not include them in the finance charge, which was disclosed in a separate box. Regulation Z, 12 C.F.R. pt. 226 (1981), ⁴ permits lenders to exclude such insurance premiums from the finance charge. However, "if the term of the insurance is less than the term of the credit obligation," then Regulation Z "requires disclosure of the term of the insurance." Philbeck v. Timmers Chevrolet, Inc., 499 F.2d 971, 978 (5th Cir. 1974).

The Wrights contend that Tower violated Regulation Z by excluding the insurance premiums from the finance charge and failing to disclose on the disclosure statement that the insurance expired before the loan would be paid. The Wrights also contend that Tower violated Regulation Z by failing to include a date with their insurance authorization and by erroneously putting on the disclosure statement a charge of $299.77 in a box marked "Other."

The other borrower was Willie Shavers. Although the facts are different, the alleged violations are similar. His disclosure statement recited that the terms of coverage of his insurance policies were stated in the policies. His final loan payment was due on February 10, 1981, but his credit life, health, and accident insurance policy showed its term of coverage as twenty-five months from December 22, 1978, which meant that it would expire on January 22, 1981, nineteen days before his loan would be paid. Thus, as with the Wrights, the credit life, health, and accident insurance expired before the loan would be paid, and the insurance policy showed an expiration date although the disclosure statement did not. His property insurance policy, however, unlike the Wrights', stated no dates of commencement or expiration. His disclosure statement contained an erroneous charge, for $807.22, in the box marked "Other."

The only witness at the consolidated trial was Tower's general supervisor, who testified, over objection, that Tower has an oral agreement with each of the insurance companies with which it does business that the terms of their insurance policies will be coextensive with Tower's loans. No other evidence of this agreement was introduced. The supervisor also testified that Tower tells each borrower that the loans and insurance policies are coextensive. Tower urges that this oral representation to its borrowers obligates it to provide such insurance coverage and that its oral agreement with its insurers in turn requires the insurers to provide such coverage. If this testimony were in fact correct, then the effect of showing the expiration dates on the policies would be nullified, for the true expiration dates would be different from those shown.

The magistrate rejected Tower's attempt to contradict the insurance policies and the disclosure statements' recitals that the terms of the insurance policies were shown on the policies. He found that the loans and insurance policies were not in fact coextensive, but that in each transaction the policies would have expired substantial periods of time before the loans would have been paid. He held that Tower violated TILA by failing to disclose on the disclosure statements the terms of the insurance policies. He also held that Tower violated TILA by putting the erroneous "Other" charges on the disclosure statements.

The magistrate awarded each of the Wrights $495.46, which equals the statutory penalty of twice the "actual" finance charge. 15 U.S.C. § 1640(a)(2). He derived the actual finance charge by taking the finance charge given in the Wrights' disclosure statement and adding the insurance premiums to it; ⁵ because he concluded that Tower had violated the procedures a lender must follow before it can exclude insurance premiums from the finance charge, these premiums should have been included in the finance charge stated on the disclosure form. Using the same approach, he calculated Shavers's actual finance charge to be $590.28. ⁶ He awarded Shavers the maximum statutory recovery of $1000, however, because twice Shavers' actual finance charge exceeded that maximum. He also awarded costs and attorney's fees to both Shavers and the Wrights.

Tower counterclaimed against Shavers for the unpaid balance of his loan. The magistrate allowed this counterclaim, plus attorney's fees, but refused to offset these amounts against Shavers' award of costs and attorney's fees.

II

Neither TILA nor Regulation Z explicitly requires disclosure of the term of credit life, health, accident, or property insurance. Only the "cost" of insurance that is written for the sale or loan must be disclosed. ⁷ Neither the statute nor the regulation, as originally adopted, distinguished between the cost paid for insurance purchased when the loan is made and the total cost of the insurance for the full term of the loan if the term of the insurance is shorter than the term of the loan. "To clarify the delphic, the (Federal Reserve Board) promulgated 12 C.F.R. § 226.402...." Reneau v. Mossy Motors, 622 F.2d 192, 194 (5th Cir. 1980) (per curiam). ⁸

Subsection (b) of 12 C.F.R. § 226.402 provides that a creditor may exclude an insurance premium from the finance charge if the creditor discloses the premium for the initial term of the insurance policy. Subsection (b) also provides that, if the creditor does exclude the premium from the finance charge, the creditor must then disclose the term of the insurance policy if it is shorter than the term of the loan. Without disclosure of the term of a policy that is shorter than the term of a loan, "the creditor has not effectively disclosed the cost of the insurance." Reneau v. Mossy Motors, 622 F.2d at 195. "The consumer who desired insurance for the full term of the transaction would find it necessary either to renew the policy initially acquired or to take out an additional policy or policies, thus resulting in additional cost to the consumer. The (Federal Reserve) Board was concerned with making the consumer aware of this possible additional cost." Philbeck v. Timmers Chevrolet, Inc., 499 F.2d at 979.

When a creditor must disclose the term of an insurance policy, it may do so in the...