Campbell v. General Finance Corp. of Virginia

• Decision Date: 16 September 1981
• Docket Number: Civ. A. No. 80-0034-C.
• Court: U.S. District Court — Western District of Virginia
• Parties: Betsy J. CAMPBELL, Plaintiff, v. GENERAL FINANCE CORPORATION OF VIRGINIA, Defendant.

523 F. Supp. 989

Betsy J. CAMPBELL, Plaintiff, v. GENERAL FINANCE CORPORATION OF VIRGINIA, Defendant.

Civ. A. No. 80-0034-C.

United States District Court, W. D. Virginia, Charlottesville Division.

September 16, 1981.

Scott W. Williams, Charlottesville, Va., for plaintiff.

Ralph E. Main, Charlottesville, Va., for defendant.

MEMORANDUM OPINION

MICHAEL, District Judge.

Plaintiff, Betsy J. Campbell, proceeding in forma pauperis, brings this action against the defendant, General Finance Corporation of Virginia (General Finance), alleging violations of the Truth-In-Lending Act, 15 U.S.C. § 1601, et seq., 12 C.F.R. 226 and the Virginia Small Loan Act, Va.Code § 6.1-278 (1979 Repl. Vol., as in effect at that time). This court has jurisdiction pursuant to 15 U.S.C. § 1640(e) and 28 U.S.C. § 1337 to entertain plaintiff's federal claims and has pendent jurisdiction to hear plaintiff's state law claim under the doctrine espoused in United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966).

General Finance is a corporation engaged in the business of extending small loans for which the payment of a finance charge is required. General Finance also acts as agent for an insurer or insurers in the selling of credit insurance to its customers. The defendant has performed both of these functions in the regular course of its business and has maintained an office in Charlottesville, Virginia, for those purposes. Mrs. Campbell resided in Charlottesville, Virginia, at all times relevant to this proceeding.

Plaintiff and defendant have enjoyed a business relationship for a number of years, with the defendant having extended credit to the plaintiff on various occasions. At some point prior to July, 1978, Mrs. Campbell declared bankruptcy, owing the defendant an outstanding balance of Five hundred and sixty-four and 52/100ths Dollars ($564.52). Plaintiff's debt to the defendant was discharged in the bankruptcy proceeding. Subsequently, on July 5, 1978, plaintiff obtained another loan from the defendant. As a condition to obtaining this loan, the plaintiff was required to reaffirm Two hundred and fifty-eight and no/100ths Dollars ($258.00) of the pre-bankruptcy debt she owed the defendants, but which had been discharged in bankruptcy. Plaintiff again, on March 5, 1979, sought a loan from the defendant. Defendant, as a condition precedent to granting the loan, required Mrs. Campbell to reaffirm another One hundred and no/100ths Dollars ($100.00) of her debt to defendant that previously had been discharged in bankruptcy. Thus, on this occasion defendant loaned Mrs. Campbell Five hundred and fifty-eight and 73/100ths Dollars ($558.73), but required her to repay One hundred and no/100ths Dollars ($100.00) of that amount immediately. The defendant, as agent for the Old Republic Life Insurance Company sold to the plaintiff, in connection with the loan contract, a credit life insurance policy for a term of 24 months. As part of the same transaction, Mrs. Campbell gave General Finance a security interest in certain of her household goods as collateral for its loan to her. The defendant disclosed its security interest on the loan contract by making the following reference to a separate document:

Consumer Goods Listed on Such A bearing even date herewith.

The goods in which the defendant took a security interest were identified and described on a separate sheet of paper provided by the defendant and entitled — SCHEDULE "A" SECURITY LIST. It is as to this last loan transaction that plaintiff filed her complaint on February 25, 1980.

Originally, plaintiff alleged a number of claims concerning this last transaction, but subsequently dismissed all but three of them. Plaintiff seeks monetary damages and asks that the loan contract in question be declared void for the following reasons. First, the plaintiff asserts that the One hundred and no/100ths Dollars ($100.00) of the reaffirmed debt is a finance charge and that the defendant's failure to list it as such violated the disclosure requirements of the Truth-In-Lending Act, 15 U.S.C. § 1605, and Regulation Z, 12 C.F.R. § 226.4. Second, the plaintiff submits that the defendant further violated the Truth-In-Lending Act, 15 U.S.C. § 1639(a)(8) and 12 C.F.R. § 226.8(b)(5), by the manner in which they disclosed their security interest on the face of the loan contract. Lastly, the plaintiff complains that by requiring the plaintiff to reaffirm a debt discharged in bankruptcy as a condition to obtaining a new loan the defendant has contravened the Virginia Small Loan Act by assessing a prohibited charge in violation of Virginia Code § 6.1-278 (1979 Repl.Vol.). The defendant responded to plaintiff's claims by filing an answer, a motion to dismiss for failure to state claim, and counterclaimed for payment of a note executed by the plaintiff on July 26, 1979. Plaintiff followed by filing a motion to dismiss the counterclaim and finally both parties submitted the case to the court on cross-motions for summary judgment. The court heard oral argument on June 22, 1981, and now finds the case ripe for disposition.

Congress clearly established as the cornerstone of the Truth-In-Lending Act the requirement of full disclosure by creditors of all meaningful credit information to the consumer. Full disclosure implements the goals of this consumer protection act by (1) promoting standardized credit terms, (2) prohibiting false or fictitious charges, and (3) promoting the "informed use of credit". 15 U.S.C.A. § 1601; 12 C.F.R. § 226.1(a)(2); Powers v. Sims and Levin Realtors, 396 F.Supp. 12, 16-17 (E.D.Va.1975), aff'd in part, reversed on other grounds, 542 F.2d 1216 (4th Cir. 1976). The Fourth Circuit has stated that the Truth-In-Lending Act must be given a broad, liberal construction, not a technical, narrow one. White v. Arlen Realty and Development Corporation, 540 F.2d 645 (4th Cir. 1975); Mason v. General Finance Corporation of Virginia, 401 F.Supp. 782, 785 (E.D.Va.1975), aff'd in part, rev'd on other grounds, 542 F.2d 1226 (4th Cir. 1976).

For the requirements of the Truth-In-Lending Act to be involved, there must be (1) a creditor, (2) a debtor who is a natural person, and (3) a consumer credit transaction. Tom Benson Chevway Rental and Leasing, Inc. v. Allen, 571 S.W.2d 346, 349 (Tex.Civ.App.1978), cert. den. 442 U.S. 930, 99 S.Ct. 2861, 61 L.Ed.2d 298 (1979). Mrs. Campbell's two Truth-In-Lending claims meet these prerequisites.

For the purpose of Mrs. Campbell's two claims under Truth-In-Lending and Regulation "Z", defendant is self-admittedly a "creditor" as defined by 15 U.S.C.A. § 1602(f) and 12 C.F.R. § 226.2(m). See defendant's answer to plaintiff's Interrogatory No. 5. Mrs. Campbell is obviously a "person" and "customer" as defined by 15 U.S.C.A. § 1602(d) and 12 C.F.R. § 226.2. Therefore, defendant is subject to all the applicable disclosure requirements of the Truth-In-Lending Act.

15 U.S.C. § 1605(a) of the Truth-In-Lending Act, as amended, defines the term "finance charge" as the "sum of all charges, payable directly or indirectly, by the person to whom credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit." Regulation Z defines the term "finance charge" as the "cost of credit determined in accordance with § 226.4 of the regulation". 12 C.F.R. § 226.2(w). Section 226.4 provides that:

The amount of the finance charge in connection with any transaction shall be determined as a sum of all charges, payable directly or indirectly by the customer, and imposed, directly or indirectly, by the creditor as an incident to or as a condition of the extension of credit, whether payable by the customer, the seller, or any other person on behalf of the customer to the creditor or a third party.

Regulation Z provides examples of charges that are and are not finance charges. 12 C.F.R. § 226.4(a)-(b). For example, insurance required to be bought by the borrower as a condition of credit is a finance charge. The defendant argues that the One hundred and no/100ths Dollars ($100.00) of reaffirmed debt is includable as an amount financed and not as a finance charge. In support of this contention, the defendant points out that the reaffirmation of a debt discharged in bankruptcy as a condition to obtaining a loan is not listed as an example of a finance charge under either 15 U.S.C. § 1605(a)-(e) or 12 C.F.R. § 226.4(a)-(i). It is not necessary, however, that this particular incident be listed as a finance charge in order to be held to be one. This is neither required by the statute or regulation nor does it comport with the purpose of the Act or the broad interpretation given it by the Fourth Circuit Court of Appeals. White v. Arlen Realty and Development Corporation, 540 F.2d 645 (4th Cir. 1975). Even if the charge or payment does not fall squarely into one of the six listed categories, it may still be a finance charge if the payment is required by the lender as an incident to or a condition for granting the loan. Carney v. Worthmore Furniture, 561 F.2d 1100 (4th Cir. 1977). Appendix A of Regulation Z repeats that the finance charge is "the total of all costs which ... a ... customer must pay directly or indirectly for obtaining credit".

Contrary to the defendant's assertion that a discharge in bankruptcy is merely a defense to a creditor's suit, the discharge of a debt in bankruptcy releases a debtor from any legal duty to repay the debt. Discharged debts therefore enjoin any creditor whose credit extensions were so discharged from collecting on the debt by legal process. 11 U.S.C. § 32(f) provides:

An order of discharge shall: (1) declare that any judgment therefore or thereafter obtained in any other court is null and void as a determination of the personal liability of the bankrupt with respect to any of the following debts and ... (2) enjoin all creditors whose debts are discharged from instituting or continuing any

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