Buford v. American Finance Company

• Decision Date: 01 December 1971
• Docket Number: 14661,14860.,Civ. A. No. 14638-14642,14859,14660
• Citation: 333 F. Supp. 1243
• Parties: Mary BUFORD v. AMERICAN FINANCE COMPANY. Daisy LEMONS et al. v. WELCOME FINANCE COMPANY. Daisy LEMONS et al. v. JACKSON LOAN COMPANY. Daisy LEMONS v. CITY FINANCE CORP. Daisy LEMONS v. ACME INVESTMENT CO. Evelyn KINSEY v. TIME FINANCE SERVICE. Evelyn KINSEY v. CHESTERFIELD FINANCE COMPANY. Willie C. LEMONS v. TIME FINANCE COMPANY. Evelyn KINSEY v. YATES, POOLE & FOSTER, t/a Atlanta Finance Company.
• Court: U.S. District Court — Northern District of Georgia

333 F. Supp. 1243

Mary BUFORD v. AMERICAN FINANCE COMPANY.

Daisy LEMONS et al. v. WELCOME FINANCE COMPANY.

Daisy LEMONS et al. v. JACKSON LOAN COMPANY.

Daisy LEMONS v. CITY FINANCE CORP.

Daisy LEMONS v. ACME INVESTMENT CO.

Evelyn KINSEY v. TIME FINANCE SERVICE.

Evelyn KINSEY v. CHESTERFIELD FINANCE COMPANY.

Willie C. LEMONS v. TIME FINANCE COMPANY.

Evelyn KINSEY v. YATES, POOLE & FOSTER, t/a Atlanta Finance Company.

Civ. A. Nos. 14638-14642, 14660, 14661, 14859, 14860.

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

October 1, 1971.

On Motion for Reconsideration December 1, 1971.

COPYRIGHT MATERIAL OMITTED

Margery Pitts Hames, Richard Roesel, John Harris Paer of Stack & O'Brien, Atlanta, Ga., for plaintiffs.

Lefkoff & Hanes, Atlanta, Ga., for American, Welcome, Jackson, City, Acme, and Yates.

Heyman & Sizemore, Atlanta, Ga., for Time and Chesterfield.

ORDER

EDENFIELD, District Judge.

The question in these consolidated cases is whether defendants have violated the Truth in Lending Act, 15 U.S.C. § 1601 et seq. (1970), by disclosing a notary fee of $1.00 as a separate item on their small loan disclosure statements instead of including the fee in the "finance charge" and "annual percentage rate." The court finds that they have, and that plaintiffs are entitled to recover the statutory penalty imposed by 15 U.S.C. § 1640 (1970).¹

A. The Truth in Lending Claim

The avowed purpose of the disclosure provisions of the Truth in Lending Act "the Act" is

"* * * to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit." 15 U.S.C. § 1601 (1970).

In order to accomplish this purpose the Act creates two artificial terms — "finance charge" and "annual percentage rate" — the determination of which is removed from the individual creditors and, instead, established by statute and regulation. The idea is to put a simple price tag on credit so that the consumer may "comparison shop" in credit transactions by looking at the "annual percentage rate." H.R.Rep.No. 1040, 90th Cong., 2d Sess. (1968).

These cases involve "close-end" consumer loans and § 1639 of the Act requires the creditors in such loans to disclose, among other things, "the amount of the finance charge" § 1639 (a) (4) and "the finance charge expressed as an annual percentage rate" § 1639(a) (5).² The "amount of the finance charge" which must be disclosed³ is statutorily defined as

"* * * the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit. * * *" 15 U.S.C. § 1605(a) (1970).

Section 1605 gives several examples of typical charges which must be included in the "finance charge", such as a "premium or other charge for any guarantee or insurance protecting the creditor against the obligor's default or other credit loss" § 1605(a) (5). It also specifically exempts certain charges from inclusion in the "finance charge" if they are itemized separately and exempts other charges even if they are not itemized. For example, in credit transactions involving a security interest in real property the fees charged for notarizing deeds and other documents are excludable from the "finance charge." § 1605(a) (4). Finally, the section provides that any other types of charges which are not for credit may be excluded from the "finance charge" if the Federal Reserve Board approves such exclusion by regulation. § 1605 (d) (4). Among such excludable items approved by the Board are "license, certificate of title, and registration fees imposed by law." 12 C.F.R. § 226.4 (b) (4) (1971).

On September 8, 1969, the Comptroller General of Georgia promulgated Rule No. 120-1-10-.03, which is apparently unique in this country, requiring promissory notes such as those involved in these consumer loans to be notarized. As a result of this rule defendants authorized their agents to have these notes notarized, and a $1.00 fee was imposed upon the borrowers. Plaintiffs contend that this fee is a "charge incident to the extension of credit" and since defendants itemized this fee as a separate charge and did not include it in the "finance charge" or the "annual percentage rate" they violated § 1639 of the Act. Their contention is based on the premise that any "charge incident to the extension of credit" which is not specifically excludable from the "finance charge" by statute or regulation must be included in it.

Defendants argue that the premise upon which plaintiffs' contention is based is wrong. Although these notary fees are not specifically exempted from inclusion in the "finance charge" by statute or regulation, defendants contend that the fees are not "incident to the extension of credit" but are incident to an independent legal requirement designed to protect the creditor against fraud. They say that the intent of the Act was to permit the exclusion of such charges from the "finance charge" as evidenced by the specific exemption accorded notary fees charged in credit transactions involving a security interest in real property. § 1605(e) (4). Defendants claim it is reasonable to assume Congress did not contemplate Georgia would require notarization of promissory notes, since, apparently, no other state has such a requirement. But since the probable theory upon which is based the exclusion of notary fees in transactions involving security interests in real property applies to transactions involving consumer loans as well, defendants contend the court should read the Act to permit the exclusion of those notary fees from the "finance charge." Alternatively, defendants argue that the notary fees are registration fees imposed by law and therefore excludable from the "finance charge" under 12 C.F.R. § 226.4(b) (4) (1971).

The court agrees with plaintiffs' construction of the Act and their conclusion. As already noted, the design of the Act was to remove from the individual creditors the right to determine the "finance charge" and to establish by statute and regulation a uniform method for such determination so that consumers could "comparison shop" by looking at a single "price tag" — the "annual percentage rate." Given the purpose of the Act and the thrust of its provisions, the court concludes that only those charges specifically exempted from inclusion in the "finance charge" by statute or regulation may be excluded from it. The notary fees involved in these cases are not specifically exempted, therefore defendants were required to include them in the "finance charge."⁴ Although the fee was only $1.00, its amount is immaterial as far as the disclosure requirements of the Act are concerned.⁵ Defendants' alternative argument that the notary fees are registration fees imposed by law is without foundation. The rule issued by the Comptroller General only required that the promissory notes be notarized, it did not impose any notary fee. Notary fees in Georgia are authorized by law Ga. Code Ann. § 71-110 (1964) but they are not mandatory.

Since defendants have failed to disclose the "finance charge" as it is defined by the Act, they have failed to disclose information required to be disclosed under § 1639 and should be liable to plaintiffs under § 1640. However, defendants claim they are exempt from liability because their liability, if any, was "unintentional" and was a bona fide error which resulted despite their attempts to avoid such error. Under § 1640(c) of the Act,

"A creditor may not be held liable in any action brought under this section for a violation of this part if the creditor shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error."

Defendants say that "intentional" means "bad faith" and that they exhibited no such bad faith. On the contrary, they argue, they "intended" to comply in every respect with the Act, and to that end their employees attended special seminars on the Act and all the disclosure statement forms were obtained from credit life insurance companies who are supposedly knowledgeable in this field. The court cannot accept this argument.

As has been held recently, § 1640(c) is clearly meant to exempt clerical errors which result despite reasonable safety precautions and not "good faith" errors of law such as committed here by defendants. Ratner v. Chemical Bank New York Trust Co., 329 F.Supp. 270 (S.D.N.Y., 1971). Defendants intentionally imposed the notary fees in these cases, although they mistakenly did not include these fees in the "finance charge." Thus their act was intentional within the meaning of § 1640(c) and not a clerical error. If consumers would be required to prove that creditors were determined to violate the Act in order to prevail, the civil remedy would be a hollow one. Moreover, all defendants admit they did not seek any legal advice nor did they inquire of the Federal Reserve Board whether their treatment of the notary fees was proper.

Since § 1640(c) offers no help to defendants, they are liable to plaintiffs under § 1640(a).

B. The State Claims

Defendants in cases numbered 14638, 14639, 14640, and 14641 have counterclaimed to recover payments due on the promissory notes for which the disclosure statements were issued. Plaintiffs in these and the other cases consolidated here, on the other hand, have asked the court to declare the notes null and void because they claim the imposition of notary fees violates Georgia law and renders the notes illegal.

Neither plaintiffs nor defendants have briefed these issues at all. No evidence has been supplied by defendants to support their counterclaim and no cases or laws have been cited by plaintiffs to support their claim. Pendent jurisdiction is a doctrine of discretion and...