Chapman v. Rhode Island Hospital Trust Nat. Bank, 74-391.

• Citation: 444 F. Supp. 439
• Decision Date: 10 January 1978
• Docket Number: No. 74-391.,74-391.
• Parties: Albert CHAPMAN, Debtor, Albert Chapman and John Boyajian, Trustee, Plaintiffs, v. RHODE ISLAND HOSPITAL TRUST NATIONAL BANK, Defendant.
• Court: U.S. District Court — District of Rhode Island

444 F. Supp. 439

Albert CHAPMAN, Debtor, Albert Chapman and John Boyajian, Trustee, Plaintiffs, v. RHODE ISLAND HOSPITAL TRUST NATIONAL BANK, Defendant.

No. 74-391.

United States District Court, D. Rhode Island.

January 10, 1978.

John Boyajian, Cranston, R. I., for plaintiffs.

William Hague, Providence, R. I., for defendant.

MEMORANDUM OPINION

PETTINE, Chief Judge.

This case involves questions of interpretation of the Truth-In-Lending Act ("Act"), 15 U.S.C. § 1601 et seq. and Regulation Z, 12 C.F.R. § 226.1 et seq.¹ The plaintiff in a "credit sale" transaction within the meaning of the Act, received from the defendant bank a copy of the note he executed together with a disclosure statement listing various financial items of the sale. In a bankruptcy proceeding, not required to be detailed herein, the defendant bank filed a proof of claim and received distribution as a secured creditor. Subsequent thereto, the plaintiff filed a counterclaim against the bank alleging that the disclosure statement failed to comply with the requirements of the Act and Regulation Z in that the defendant failed to use in said statement the precise term "amount financed" and failed to disclose on the face of the statement an acceleration clause together with all the other required disclosures.

Summary judgment was granted by the bankruptcy judge from which the defendant now appeals and argues that in this case, since there was no "prepaid finance charge", or "required deposit balance", the disclosed "unpaid balance" was, therefore, the same as the "amount financed," i. e., it was equal to and referred to as the "unpaid balance" and, therefore, the sequence for credit disclosure of "amount financed" as spelled out in Regulation Z is not "applicable", 12 C.F.R. § 226.8(c)²; and that there is no specific requirement in the Act or Regulation Z requiring disclosure of an acceleration right.

Viewing the case as one of initial impression, the bankruptcy judge stated that the Act's "avowed purpose" is remedial requiring a liberal construction to achieve its goals. He concluded, after an analysis of various authorities,³ that the "amount financed" must be disclosed in precisely the manner prescribed even though it may be equal to and referred to as the "unpaid balance." He also ruled that "the unearned finance charge which Rhode Island Hospital Trust has the legal right to collect upon acceleration is a `charge' which must be disclosed under § 1638(a)(9) of the Act."

I agree.

Use of the Precise Term "Amount Financed"

In defense of its position as set forth supra, the defendant bank leans heavily on St. Germain v. Bank of Hawaii, 413 F.Supp. 587 (D.Hawaii 1976). In that case, in pertinent part, the "defendant urged that the `unpaid balance' entry set forth in Regulation Z (was) not applicable to his transaction because his contract showed no `other charges' or `prepaid finance charges', thereby permitting omission of an `unpaid balance' entry" id. at 609. Relying on the same Federal Trade Commission Informal Staff Opinion Letter of July 21, 1971, cited by the Bankruptcy Judge, see n. 3, that court held:

Under the provisions of the Act and Regulation Z as set forth above, and the interpretation of same by both FRB staff opinion and case decision, where there are no "other charges" or "prepaid finance charges" no sum step is involved from the "unpaid balance of cash price" to "amount financed". Under such circumstances the "unpaid balance" entry is "not applicable" under Regulation Z.

Id. at 612 (emphasis added).

Such is not the case before this Court. As plaintiffs' counsel ably argues, there is no implication in Bank of Hawaii that the term "amount financed" is not a required disclosure. F.T.C. Opinions and F.R.B. letters may not be models of clarity, but I do not find them to say the "amount financed" which bears "independent significance to a consumer as representative of the amount on which the finance charge and annual percentage rate (is) based", can be omitted. They merely state that, "In the absence of `other charges' and `prepaid finance charges' the `unpaid balance' entry is not applicable." Id. at 612.

To this Court it is pragmatically and legally sound to require the standardization of terms. The average buyer in a credit sale is not represented by an attorney who can penetrate what is, to many, the mystique of credit step sequences. It is imperative all creditors be required to standardize the required disclosures, indeed, with total uncomplicated candor to carry out the spirit of the act so that a consumer can intelligently shop for credit. This is all the more important when the final figure might be the same for each of the categories because there was no progression of money in the credit sale.

This Court stated in Brown v. Providence Gas Co., 445 F.Supp. 459 (D.R.I.1976), that it was "unconvinced that the inclusion of the term `unpaid balance' is required by Regulation Z in the present case, even though the contract also omits "unpaid balance of cash price." Id. at 464 (emphasis added). It was noted in that case that creditors are given some leeway in preparing their forms so long as the basic purposes of full disclosure were satisfied. Slavish adherence to "talismanic verbiage", serving no substantive purpose, stretches "truth" in "Truth in Lending" to a meaningless filament. In this regard the "as applicable" language found in § 226.8 of Regulation Z is important. It is, therefore, necessary to look to the questioned document as a whole. Here, it must be determined whether or not "amount financed" is applicable and of such significance as to require its precise terminology and recordation in the transaction at issue. Viewed from the pragmatic perspective of the consumer and the special importance "amount financed" has in the determination of the annual percentage rate, the answer must be in the affirmative.

To shop meaningfully, a consumer should not be placed in a position where he can be misled. The standardization of terms is necessary to accomplish this end so that, even in a simplistic way, he has a basis for comparing the offers of competing creditors.⁴ For example, this Court feels it is common knowledge that such terms as "prepaid finance charges", "required deposit balance", "unpaid balance", "amount financed" and the like are not fully understood by the borrower. It follows that, if a term such as "amount financed" is omitted because it is the same as "unpaid balance", a consumer can be very realistically disadvantaged in trying to compare the actual amount financed if, in one case, unlike the other, there was a required deposit balance or a prepaid finance charge. It must be realized we seek to protect all consumers including those who are, unfortunately, the least intelligent among us. Conceivably the unscrupulous lender could even mislead such borrowers as to the actual purchase price. If the "amount financed" can be omitted then there is no logical reason why the cash price need not be shown if there are no adjustments to be made. There would be no reason to disclose another figure. Therefore, there is a real practical purpose for requiring disclosure of the "amount financed". The Court agrees with Judge Gesell who stated:

Scrupulous adherence to the requirements of the law is necessary to protect the public and to ensure the application of consistent and uniform terminology that is a prerequisite to the informed use of credit. And contrary to defendants' assertion, it is simply immaterial whether plaintiff in fact was or was not misled, deceived or confused. (Emphasis added). Lewis v. Walker-Thomas Furniture Co., Inc., 416 F.Supp. 514, 517 (D.C.1976).

The Court does not quarrel with the defendant's contention that significance must be attached to the words "as applicable" in Regulation Z, § 226.8(c), but it knows of no case where it can have or has had meaning so as not to apply to the term "amount financed" which denotes the amount of credit extended and is the basic figure against which the "finance charge" is applied to determine the "annual percentage" rate. This is not a secondary figure; it holds the same importance as the "cash price." Even in cases where both these figures remain the same they must be precisely identified. The Federal Reserve Board fully supports the conclusion that the first and final terms of the sequence be disclosed.

The disclosure required under Section 226.8(b) and (c) as applicable must be supplied to the customer . . . The terms cash price, unpaid balance of cash price, unpaid balance, amount financed, deferred payment price and total of payments would be synonymous in a transaction in which there was no down payment, trade in, other charges, prepaid finance charge, required deposit balance or finance charges. In such cases we recommend that you use the term "Cash price (AMOUNT FINANCED)" to connote the concept intended. . . . All other terms would not be applicable.

Federal Reserve Board Opinion Letter No. 213, December 16, 1969, (addressing a credit sale situation where several of the terms were identical). (Emphasis added).

Again on September 23, 1971, the Federal Reserve Board, in another credit sale situation where there were no other charges or required deposit balances, stated:

In those circumstances the `amount financed' would be the same figure as the `unpaid balance of cash price', and the `unpaid balance' and the latter term could appropriately be omitted. Opinion Letter 536.

The special significance of "amount financed" is further accentuated when we refer to Regulation Z § 226.5(c)(1) which states that:

The regulation Z Annual Percentage Rate Tables produced by the Board may be used to determine the annual percentage rate, and any such rate determined from these tables in accordance with instructions contained therein will comply with the requirements of this section.

It is important to note that three items must be known to compute the...