Barksdale v. Peoples Financial Corp. of Alpharetta

• Decision Date: 21 February 1975
• Docket Number: Civ. A. No. C-74-971-A.
• Parties: Jan T. BARKSDALE v. PEOPLES FINANCIAL CORP. OF ALPHARETTA.
• Court: U.S. District Court — Northern District of Georgia

393 F. Supp. 112

Jan T. BARKSDALE v. PEOPLES FINANCIAL CORP. OF ALPHARETTA.

Civ. A. No. C-74-971-A.

United States District Court, N. D. Georgia, Atlanta Division.

February 21, 1975.

J. Stephen Clifford, Atlanta, Ga., for plaintiff.

Kilpatrick, Cody, Rogers, McClatchey & Regenstein, Atlanta, Ga., for defendant.

ORDER

HENDERSON, District Judge.

This is a civil action for statutory damages and attorney's fees for alleged violations of the Truth in Lending Act (hereinafter referred to as the "Act"), 15 U.S.C. § 1601 et seq. and the regulations promulgated pursuant thereto, 12 C.F.R. § 226.1 et seq., commonly known as Regulation "Z". Jurisdiction arises under 15 U.S.C. § 1640(e) and 28 U.S.C. § 1337. Pursuant to Rule 250 of the Local Rules of the United States District Court for the Northern District of Georgia, the case was referred to a special master who recommended that the defendant's motion for summary judgment be denied, the plaintiff's motion for summary judgment be granted and that judgment be entered accordingly awarding the plaintiff statutory damages in the amount of $144.00 plus court costs and reasonable attorney's fees. Presently pending are the defendant's objections to those recommendations.

The plaintiff has engaged in three consumer credit transactions with the defendant, respectively dated May 17, 1973, July 16, 1973 and December 20, 1973. The present civil action directly concerns only the December 20, 1973 transaction in which the defendant extended consumer credit to the plaintiff under the Georgia Industrial Loan Act, Ga.Code Ann. § 25-301 et seq. The plaintiff contends that the disclosure statement representing that loan agreement failed to satisfy the requirements of the Act and Regulation "Z" in the following respects: (1) the right of acceleration is not disclosed on the face of the statement as a "charge" in the event of default, (2) the due date disclosures and those relating to the consequences of default were not in close enough proximity to present a "meaningful sequence" of disclosure, and (3) the security interests of the defendant were not properly disclosed. The special master's recommendations concur with all three of the plaintiff's contentions.

I. RIGHT OF ACCELERATION UPON DEFAULT

The disclosure statement furnished the plaintiff upon consummation of the loan provided, inter alia, that in the event an installment is not paid within five days of its due date the plaintiff-borrower will pay a "default charge" of 5% of each such installment. However, included in the terms and conditions set forth on the reverse side of the disclosure statement is the additional provision that, upon default, "then all of said note and all installments of principal and earned finance charge then unpaid . . . shall, at the option of the holder hereof, become immediately due and payable . . . ." Nowhere on the face of the statement is this right of acceleration disclosed.

The special master concluded that, as a matter of law, a right of acceleration is itself a "charge" that must be revealed on the face of the disclosure statement under Section 129(a)(7) of the Act, 15 U.S.C. § 1639(a)(7),¹ and the corresponding section of Regulation "Z", 12 C.F.R. § 226.8(b)(4).² However, in the interim since the time the special master's recommendations were filed, a contrary conclusion was reached in a case from this district. See McDaniel v. Fulton National Bank of Atlanta, Civil Action No. C-74-244-A (N. D.Ga. Dec. 18, 1974) (Hill, J.); see also Grant v. Imperial Motors, Civil Action No. 3146 (S.D.Ga. Nov. 20, 1974). In McDaniel, the court observed that, upon exercise by the creditor of the right of acceleration, the debtor can be charged, under Georgia law, only with the principal amount of the loan and the actual earned portion of the finance charge and of the credit life and disability insurance premiums. No additional amount is to be paid by the debtor should the creditor elect to accelerate under such a provision. Therefore:

An acceleration of the loan by the creditor here would not obligate plaintiff debtor to pay any additional charge that did not appear on the face of the disclosure sheet.

McDaniel v. Fulton National Bank of Atlanta, supra, at 4. Under the facts of that case, the court concluded that the right of acceleration upon default was not a "charge" under 15 U.S.C. § 1639(a)(7) or 12 C.F.R. § 226.8(b)(4) and, consequently, there was no violation of the Act in the failure to disclose that right on the face of the statement.

Because this court is persuaded by the well reasoned opinion in McDaniel, supra, and since the present action is virtually indistinguishable from that case on material factual or legal grounds,³ the special master's recommendation on this particular issue must be overruled. The authorities relied upon by the special master in support of his conclusion were specifically considered and adequately distinguished in the McDaniel case. Furthermore, although the special master finds support by analogy to certain Opinion Letters of the Federal Reserve Board Staff, those letters deal only with whether a right to charge attorney's fees upon default must be disclosed and do not confront the acceleration question at all. Accordingly, the court likewise concludes that, as a matter of law, there is no violation of 15 U.S.C. § 1639(a)(7) or 12 C.F.R. § 226.8(b)(4) in the fact that the defendant's contractual acceleration remedy in the event of default was not set forth on the front of the disclosure statement.

II. DISCLOSURES IN A MEANINGFUL SEQUENCE

The plaintiff argues, and the special master agrees, that the defendant violated the "meaningful sequence" requirement of Regulation "Z" 12 C.F.R. § 226.6(a)⁴ in failing to make disclosures relating to the consequences of default in close proximity to those setting forth the amount and due dates of the monthly installment payments. The court again disagrees with the conclusion of the special master.

Regulation "Z" 12 C.F.R. §§ 226.6(a) and 226.8(a) conjoin to require that the necessary disclosures in a consumer loan transaction must be made together and in a "meaningful sequence" on one side of a disclosure statement so as to provide the "meaningful disclosure of credit terms" referred to in the Act's declaration of purpose, 15 U.S.C. § 1601. In the recent Federal Reserve Board Opinion Letter No. 780 of April 10, 1974, the chief of the Truth-in-Lending Section, Jerauld C. Kluckman, offered some clarification on the import of the phrase "meaningful sequence." Responding to a question as to the propriety of the disclosure of the method of computing rebate on prepayment sequentially before all other required disclosures, Mr. Kluckman stated:

We see no reason why a creditor making the disclosures required under § 226.8(b)(7) ¶ 3566 of Regulation Z ahead of other required disclosures would be considered in violation of § 226.6(a) as long as all disclosures required are made together and in accordance with other applicable provisions of the Regulation.

The words "in meaningful sequence" in § 226.6(a) relate to a presentation of required disclosures in a logical order with respect to those items which have an arithmetical relationship to each other. For example, many of the items called for in § 226.8(b), (c) ¶ 3567 and (d) ¶ 3568 are arithmetical and follow each other in logical progression. The remaining items are informative and have no particular interdependence. A meaningful sequence would call for those items which are arithmetically related to appear within a reasonable proximity to each other, not mixed with items which are irrelevant to a progression of arithmetical computations or thought. We realize that it is not always practical to list the items in vertical order, but in keeping with the purpose of the Truth in Lending Act, they should be placed in reasonable proximity to each other so that the customer will not be required to search for any arithmetical items which should logically follow a previous one.

CCH Consumer Credit Guide, ¶ 31,102 at 66,490. The interpretation the Federal Reserve Board gives Regulation "Z" in the form of such an opinion letter "is especially entitled to great deference `because of the important interpretive and enforcement powers granted this agency by Congress' in this highly technical field" (citations omitted). Philbeck v. Timmers Chevrolet, Inc., 499 F.2d 971, 977 (5th Cir. 1974).

The top portion of the form given the plaintiff is devoted entirely to personal information about the borrower and data concerning the particular loan, none of which involve disclosures required under the Act and Regulation "Z". The remaining four/fifths of the statement is captioned the "Georgia Industrial Loan Act Note and Security Agreement" and is designed to serve as a note, security agreement and disclosure statement satisfying the requirements of both federal and state law. In the first paragraph of that disclosure form, the total amount of payments is set forth along with the stipulation that the debtor promises to pay that sum to the defendant "in 18 consecutive monthly installments of $20.00 each, commencing on 2-5, 1974, and on the same day of each succeeding month. . . ." See Regulation "Z" 12 C.F.R. § 226.8(b)(3). Next in the sequence is a blocked off section itemizing the various arithmetically related components of principal, insurance premiums, finance and interest charges and other fees and charges comprising the total amount of the note, along with the annual percentage rate of the finance charge. This is immediately followed by a disclosure of the manner and amounts of disbursements of the loan.

The first full paragraph after the blocked off section relates to the description of the property securing the indebtedness and the terms of such security interest. See Regulation "Z" 12 C. F.R. § 226.8(b)(5). In the second paragraph, the defendant discloses the rights and obligations of the...