Campbell v. Liberty Financial Planning, Inc.

• Decision Date: 10 December 1976
• Docket Number: Civ. No. 75-0-181.
• Parties: Rico CAMPBELL, a minor by and through Barbara Campbell, his mother, Plaintiff, v. LIBERTY FINANCIAL PLANNING, INC., a corporation, Defendant.
• Court: U.S. District Court — District of Nebraska

422 F. Supp. 1386

Rico CAMPBELL, a minor by and through Barbara Campbell, his mother, Plaintiff, v. LIBERTY FINANCIAL PLANNING, INC., a corporation, Defendant.

Civ. No. 75-0-181.

United States District Court, D. Nebraska.

December 10, 1976.

Robert V. Broom, Gary R. Batenhorst, Legal Aid Society of Omaha, Council Bluffs, Inc., Omaha, Neb., for plaintiff.

Robert P. Miller, Omaha, Neb., for defendant.

MEMORANDUM

ROBINSON, Senior District Judge.

This is an action brought pursuant to the Truth-In-Lending provisions of the Consumer Credit Protection Act, 15 U.S.C. § 1601 et seq., and the regulations adopted pursuant thereto published at 12 CFR 226 (commonly referred to as Regulation Z). Jurisdiction is clearly present under 15 U.S.C. § 1640(e). The matter was tried to the Court without a jury, and this Memorandum shall constitute the Court's findings of fact and conclusions of law in accordance with Rule 52(a) of the Federal Rules of Civil Procedure.

I

On March 6, 1975 Rico Campbell, plaintiff herein, went to the Omaha office of the defendant Liberty Financial Planning, Inc. hereinafter Liberty to arrange financing for the purchase of an automobile. Liberty was originally contacted by the salesman from whom plaintiff purchased the car. Plaintiff's mother, Barbara Campbell, had an outstanding account with Liberty which had been discharged in bankruptcy in November, 1974. Liberty, however, retained a security interest in the Kirby vacuum cleaner which had been the basis of Mrs. Campbell's debt. Upon arrival at Liberty's office, plaintiff conferred with Jack Preston, Liberty's manager, who told him that the loan for the automobile could not be approved unless plaintiff paid $100 on his mother's account, which amount Preston felt represented the probable fair value of the vacuum cleaner. Plaintiff had previously that day been told by an employee of Liberty on the telephone of this precondition to consideration of his loan. Plaintiff claimed at trial that Preston at this time told him that the loan for the automobile would be extended if the $100 were paid; Preston, on the other hand, claimed that he told plaintiff only that his loan application would be considered if the $100 were paid. In any event, plaintiff agreed to pay the demanded $100 and was given a receipt by Preston which stated that the payment was in full settlement of the account of Barbara Campbell plaintiff's Exhibit 1. Plaintiff then executed a note to Liberty with a principal amount, including insurance charges, of $737.28 plaintiff's Exhibit 3. This amount indisputably reflected the $600 which plaintiff needed to finance the automobile and the $100 which he paid to settle his mother's account. The disclosure statement given to plaintiff by Liberty at this time plaintiff's Exhibit 2 showed the amount financed as $737.28 and the finance charge as $222.72. The $100 payment was not individually listed on the document.

Plaintiff subsequently brought this action against Liberty alleging that the failure to disclose the $100 payment as part of the finance charge constituted a violation of the Truth-In-Lending Act. Plaintiff further claims that because the $222.72 finance charge imposed on the loan was the maximum interest permissible under Nebraska Statute, the additional $100 charge made the transaction usurious and therefore created an action in his favor under Neb.Rev. Stat. § 45-137(5) (Reissue 1974), which this Court can consider in the exercise of its pendent jurisdiction.

II

15 U.S.C. § 1605(a) provides that the

"amount of the finance charge in connection with any consumer credit transaction shall be determined 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. . . ."

It thus becomes obvious that the initial inquiry must be whether the $100 which plaintiff paid to settle his mother's account was "an incident to the extension of credit." In making this determination, the Court notes the finding of Congress that

economic stabilization would be enhanced and the competition among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit. The informed use of credit results from an awareness of the cost thereof by consumers. It is the purpose of this subchapter 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.

The Court of Appeals for this Circuit has stated that the purpose of the Act is to require creditors to disclose the true cost of credit, Joseph v. Norman's Health Club, Inc., 532 F.2d 86 (8th Cir. 1976), and it has been stated many times that the Act requires a liberal construction in order to effectuate the intent of Congress. See, e. g., Eby Realty v. Reb Realty, 495 F.2d 646 (9th Cir. 1974); Scott v. Liberty Finance Co., 380 F.Supp. 475 (D.Neb.1974).

The Court has been unable to find precise guidance in the case law of Truth-In-Lending actions with respect to the instant factual situation. However, it is easily seen that a broad array of extraneous charges has been found to be within the contemplation of the Act's definition of a finance charge. See, e. g., Buford v. American Finance Co., 333 F.Supp. 1243 (N.D.Ga.1971) (notary fees); Grubb v. Oliver Enterprises, Inc., 358 F.Supp. 970 (N.D.Ga.1972) (loan fees authorized by state statute includible in finance charge); Meyers v. Clearview Dodge Sales, Inc., 384 F.Supp. 722 (E.D.La. 1974) (tag, title, and fees).

The assumption by a borrower of the pre-existing debt of another as a condition to the extension of credit has been found to be interest applicable to the borrower's loan in a usury context, Curtiss National Bank of Miami Springs v. Solomon, 243 So.2d 475 (Fla.App.1971); Ferdon v. Zarriello Bros., Inc., 87 N.J.Super. 124, 208 A.2d 186 (1965), but there does not appear to be a reported case with like facts which was a Truth-In-Lending action.

The lack of clear precedent in this area notwithstanding, the Court is required by all of the above to find that the $100 payment by plaintiff on his mother's account was an "incident to the extension of credit." Defendant's manager testified that plaintiff was not assured that his loan would be granted if he paid the $100, but it seems logical that plaintiff would not have so paid it without some measure of confidence that he would get his loan. Regardless of the precise semantical posturing which took place at the time, it is clear that payment of the $100, however voluntary it may have been, was a condition precedent to the extension of the loan by Liberty to Plaintiff. Indeed, the very ease with which the $100 was added to the amount financed undoubtedly had the effect of making its payment more palatable to plaintiff, and it is precisely this type of added cost of credit which the Truth-In-Lending Act is designed to disclose and thereby prevent.

III

The finding that the $100 payment was properly includible in the finance charge as defined by 15 U.S.C. § 1601 invokes an inquiry into the disclosure requirements of the Act. 15 U.S.C. § 1639(a)(4) requires the disclosure of the finance charge by a creditor making a consumer loan. More directly on the present point, § 226.8(e)(1) of Regulation Z requires the disclosure of

any finance charge paid separately, in cash or otherwise, directly or indirectly to the creditor or with the creditor's knowledge to another person, or withheld by the creditor from the proceeds of the credit extended.

§ 226.8(d)(2) of Regulation Z further requires that any such finance charge shall be disclosed using the term "prepaid finance charge" and shall be excluded from the disclosure section labelled "amount financed."

The Court thus finds that defendant Liberty violated the disclosure requirements imposed upon it as a maker of consumer loans.

IV

The remedy to which plaintiff is entitled in this case due to Liberty's violation of the Act's disclosure requirements is the sum of 1) twice the amount of the finance charge in connection with the transaction (except that it shall not be less than $100 nor greater than $1000) and 2) the costs of the action, together with a reasonable attorney's fee as determined by the Court. 15 U.S.C. § 1640. Twice the amount of the finance charge in this transaction would be $322.72 × 2 or $645.54. The Court will delay the entry of judgment for fifteen (15) days from the date hereof so that plaintiff's counsel may make a showing regarding an attorney's fee.

The fact that plaintiff's counsel is employed by a Legal Aid Society does not affect the award of attorney's fees. Sellers v. Wollman, 510 F.2d 119, 123 (5th Cir. 1975), and cases cited therein.¹

V

Plaintiff also contends that the exaction by Liberty of the $100 payment as a condition precedent to his loan violated the provisions of the Nebraska Installment Loan Act, Neb.Rev.Stat. § 45-114 et seq. (Reissue 1974). The theory is that since plaintiff was already charged the maximum interest allowable under § 45-137(1), the additional $100 charge made the transaction usurious.

Plaintiff is correct in his assertion that this Court may entertain the related state claim in the exercise of its pendent jurisdiction. The test of a federal court's power to hear a state claim is the requirement of a common nucleus of operative facts. United Mine Workers of America v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). This test is clearly satisfied in the present instance. However, beyond the mere power to hear the state claim, the Court is also imbued with discretion in deciding whether to exercise pendent jurisdiction. The factors which the Court must take into account in this determination include considerations of judicial...