Alston v. Crown Auto

• Decision Date: 09 June 2000
• Docket Number: CA-98-61-4,No. 99-1944,99-1944
• Citation: 224 F.3d 332
• Parties: (4th Cir. 2000) RACHEL ALSTON, Plaintiff-Appellant, v. CROWN AUTO, INCORPORATED, Defendant-Appellee. () Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 332

224 F.3d 332 (4th Cir. 2000)

RACHEL ALSTON, Plaintiff-Appellant, v. CROWN AUTO, INCORPORATED, Defendant-Appellee.

No. 99-1944 (CA-98-61-4)

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

Argued: June 9, 2000

Decided: June 28, 2000

Filed: July 21, 2000

Appeal from the United States District Court for the Western District of Virginia, at Danville. Norman K. Moon, District Judge.

COUNSEL ARGUED: Thomas Dean Domonoske, Chapel Hill, North Carolina, for Appellant. James A.L. Daniel, DANIEL, VAUGHAN, MEDLEY & SMITHERMAN, P.C., Danville, Virginia, for Appellee. ON BRIEF: Elmer R. Woodard, Danville, Virginia, for Appellant. Robert J. Smitherman, DANIEL, VAUGHAN, MEDLEY & SMITHERMAN, P.C., Danville, Virginia, for Appellee.

Before LUTTIG and KING, Circuit Judges, and Richard L. WILLIAMS, Senior United States District Judge for the Eastern District of Virginia, sitting by designation.

O R D E R

PER CURIAM:

The court amends its opinion filed June 28, 2000, as follows:

On the cover sheet, section 1 -the status is changed from "UNPUBLISHED" to "PUBLISHED."

On the cover sheet, section 6 -the status line is corrected to read "Affirmed by published per curiam opinion."

On page 2, section 1 the reference to use of unpublished opinions as precedent is deleted.

OPINION

Rachel Alston sued Crown Auto, Inc., for various federal and state law violations arising out of her purchase of a car from Crown Auto. The district court granted Crown Auto's motion for summary judgment on all of Alston's claims. For the reasons that follow, we affirm.

I.

On November 28, 1997, Alston entered into a Retail Installment Sales Contract ("RISC") with Crown Auto, to purchase a 1987 Honda Accord for $5,281.60. Under the RISC, Alston was required to pay a ten-percent fee for any late payments. Alston made late payments on several occasions and was charged a ten-percent late fee. It is undisputed that under Virginia law, Crown Auto was not permitted to charge Alston a late fee in excess of five percent. See Va. Code § 6.1330.80(A) ("Any lender or seller may impose a late charge for failure to make timely payment of any installment due on a debt . . . provided that such late charge does not exceed five percent of the amount of such installment payment . . .

In September 1998, Crown Auto repossessed Alston's car because she did not have required insurance. At that time, Crown Auto gave Alston a check for the amount in excess of five percent that she paid in late fees, plus interest. J.A. 41-42, 53.

Alston sued Crown Auto in federal district court under the federal Truth-in-Lending Act ("TILA") and on various state law grounds. The district court granted Crown Auto's motion for summary judgment on all claims. Alston now appeals.

II.

Alston argues that the district court erred when it granted summary judgment to Crown Auto on her TILA claim. Alston contends that Crown Auto violated TILA when it failed to designate as a "finance charge" an $85.00 processing fee, as required under 15 U.S.C. § 1638(a)(3). Under TILA, a "finance charge" includes any charges "imposed by the creditor as an incident to the extension of credit. The finance charge does not include charges of a type payable in a comparable cash transaction." 15 U.S.C. § 1605(a).

The district court found that Alston had produced no evidence to prove that the $85.00 fee was incident to the extension of credit and not charged in comparable cash transactions. The district court held that the fee was not a "finance charge" and therefore that Crown Auto did not violate TILA when it did not label it as such. We agree.

Crown Auto presented evidence that its general practice is to charge both cash and credit customers an $85.00 processing fee. Although Alston presented evidence that two cash customers negotiated with Crown Auto not to pay the processing fee, she has presented no evidence to refute Crown Auto's position that its general practice is to charge the $85.00 fee to all customers, credit and cash alike. Because Crown Auto's processing fee is payable in comparable cash transactions, we cannot conclude that the district court erred in concluding that the processing fee was not a "finance charge."¹

III.

Alston also argues that the district court erred when it granted summary judgment to Crown Auto on her two state law claims, which we address below.

A.

Alston argues that the district court erred when it concluded that her loan from Crown Auto was not usurious. Under Virginia law, a loan is usurious if the creditor charges an interest rate higher than that rate disclosed in the contract.² Alston maintains that, because Virginia law permits Crown Auto to charge only a five-percent late fee, and not the ten-percent late fee that it did charge, the excess late fee charged should be considered additional undisclosed interest. Therefore, she claims that Crown Auto actually charged her more than the eighteen-percent interest, which it disclosed and to which she agreed.

The district court held that the late fee is a penalty that is not subject to usury, and that the Virginia statute that directly addresses excess late fees provides the exclusive remedy under Virginia law. We agree.

Under Virginia law, a loan that is not usurious when made cannot be made usurious by subsequent events. See Ward's Adm'rs v. Cornett, 22 S.E. 494, 495 (Va. 1895) ("A debt to be usurious, must be so in the beginning. It cannot be made so by subsequent events. . . . If the obligor had paid the debt when the bond became due, he would not have incurred, even under the literal terms of the bond, any liability to pay the illegal interest stipulated for after its maturity. Where the debtor, by a punctual payment of the debt, may thus relieve himself and avoid the payment of the illegal interest stipulated for, it is not usury."); see also Pollard v. Baylors, 1819 WL 897 (Va. Nov. 27) ("[A] penalty inserted in a contract, from which a party may deliver himself, does not make the contract usurious."). Although Alston was subject to an illegal excess late fee if she failed to make payments on time, if she complied with her payment schedule she would not be subject to any illegal charges or excess interest. Therefore, under Virginia law, the loan was not usurious.

Alston responds to this reasoning by quoting Garrison v. First Federal Savings and Loan Assoc. of South Carolina, 402 S.E.2d 25 (Va. 1991), for the proposition that "any charge which cannot be attributed to either principal or to an allowed charge for collateral services is considered interest" for purposes of usury.³ Accord Byrd v. Sterling Mortgage Corp., 1994 WL 1031124 (Va. Cir. Ct. April 6, 1994) (unreported). That is, Alston argues that under Garrison, because the excess late fee cannot be attributed to principal or to an allowed charge, it is necessarily interest which exceeds the interest to which Alston agreed. However, both Garrison and Byrd address the question whether fees charged up front at the time the loan is made are to be considered "interest" for purposes of usury. Neither case, nor any other case Alston cites, stands for the relevant proposition that any future disallowed fees that could come due based on events subsequent to the signing of the loan could render the loan usurious. And, we are further convinced that excessive late fees are not to be considered in the determination whether a loan is usurious when made, because Virginia has a statute which directly addresses excessive late fees. See Va. Code § 6.1-330.80(C) ("Any provision for late charges in excess of the amount permitted in this section shall be void as to such excess but shall not otherwise affect the validity of the obligation."). This provision makes clear that the exclusive remedy is to void the amount in excess of the allowable fee but as well that no other obligation including the obligation to pay the allowable late fee, is effected.

Here, Crown Auto did, as required under section 6.1-330.80, void the excess late fee and reimburse...