Clausen v. White

• Decision Date: 25 June 1986
• Citation: 132 Wis.2d 477,392 N.W.2d 131
• Parties: NOTICE: UNPUBLISHED OPINION. RULE 809.23(3), RULES OF CIVIL PROCEDURE, PROVIDE THAT UNPUBLISHED OPINIONS ARE OF NO PRECEDENTIAL VALUE AND MAY NOT BE CITED EXCEPT IN LIMITED INSTANCES. FREDERICK CLAUSEN d/b/a JANESVILLE ACADEMY OF BEAUTY CULTURE, Plaintiff-Respondent, v. SHIRLEY D. WHITE, Defendant-Appellant. 86-0437.
• Court: Wisconsin Court of Appeals

Page 131

392 N.W.2d 131

132 Wis.2d 477

NOTICE: UNPUBLISHED OPINION. RULE 809.23(3), RULES OF CIVIL PROCEDURE, PROVIDE THAT UNPUBLISHED OPINIONS ARE OF NO PRECEDENTIAL VALUE AND MAY NOT BE CITED EXCEPT IN LIMITED INSTANCES.

FREDERICK CLAUSEN d/b/a JANESVILLE ACADEMY OF BEAUTY CULTURE, Plaintiff-Respondent, v. SHIRLEY D. WHITE, Defendant-Appellant.

86-0437.

Court of Appeals of Wisconsin.

June 25, 1986.

Circuit Court, Rock County

Affirmed

Appeal from a judgment of the circuit court for Rock county: Mark J. Farnum, Judge.

DYKMAN, Judge.

This case is decided by one judge pursuant to sec. 752.31(2)(a), Stats., and is decided under this court's 'fast track' procedure. Shirley White appeals from a judgment in favor of Frederick Clausen d/b/a Janesville Academy of Beauty Culture. The issues are: whether the trial court's finding that the Academy's tuition, registration and supply prices contained no hidden finance charges was clearly erroneous; and whether Clausen violated the federal Truth In Lending Act (TILA) ¹ by failing to disclose a 'finance charge' and 'annual percentage rate' in his installment payment contract. Because there is adequate evidence that no finance charge was made, we conclude the court's finding was not clearly erroneous. We also conclude that Clausen's failure to disclose finance charges of 'zero' and a 'zero' percent annual percentage rate did not violate the Act. We therefore affirm.

FACTS

In November, 1981, White enrolled in the Academy to study cosmetology. Her tuition and fees totalled $1975. She paid $253.00 before beginning classes and executed a retail installment contract covering the unpaid balance of $1722. The contract provided for nine equal monthly installments of $191.33, and included a schedule of 'tuition adjustment' for students who withdraw at various times after beginning the course.

White qualified for a federal education grant and applied the first of two disbursements of $779 toward her tuition. She was entitled to receive the second disbursement upon completion of half the course. However, White withdrew after completing slightly less than one-third of the course. Under the terms of the contract, Clausen was then entitled to receive 70% of the total tuition; $1205.40. ² Thus, White owed him $426.40.

Clausen filed this small claims action to recover that sum plus interest. White counterclaimed for statutory damages, alleging that Clausen's installment contract failed to disclose the applicable 'finance charge' and 'annual percentage rate,' (APR) as required by 15 U.S.C., secs. 1638(a)(3) and (4) (Supp. V 1981), and Regulation Z, 12 C.F.R. secs. 226.18(d) and (e) (1986), thus violating TILA. ³

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The trial court held for Clausen on the contract claim and implicitly denied White's counterclaim. ⁴ White appeals.

HIDDEN FINANCE CHARGE

'A 'finance charge' is defined in TILA as the sum of all charges 'imposed' by the creditor as an incident to the extension of credit. Items specifically identified as such charges are interest, time-price differential, any amount payable under a discount system, etc. 15 U.S.C. sec. 1605(a), (b), (c).' Manzina v. Publishers Guild, Inc., 386 F.Supp. 241, 244 (S.D.N.Y. 1974). However, the act, by its terms, governs any consumer credit transaction involving four or more installment payments. 15 U.S.C. sec. 1602(f) (1976). Therefore, the United States Supreme Court has noted, 'it does not presume that all creditors who are within its ambit assess finance charges. . . .' Mourning v. Family Publications Service, 411 U.S. 356, 377 (1973).

There is no dispute that the 'deferred payment price' included no express finance charge. ⁵ Therefore, we first consider whether the price of the cosmetology course contained a hidden finance charge. The trial court found no evidence of a hidden finance charge. We will not upset a finding of the trial court unless it is clearly erroneous. Noll v. Dimiceli's, Inc., 115 Wis.2d 641, 643, 340 N.W.2d 575, 577 (Ct.App. 1983).

'One means of circumventing the objectives of the Truth in Lending Act [is] that of 'burying' the cost of credit in the price of goods sold.' Mourning, 411 U.S. at 366. We have previously said that '[t]he concept of unstated interest is well established,' American Industrial Leasing Co. v. Geiger, 118 Wis.2d 140, 147, 345 N.W.2d 527, 530 (Ct.App. 1984), and that '[i]nterest is normally paid for the use of another's money.' Id.

White contends that it 'grates against common sense' to conclude that Clausen provided interest-free use of his money to his students. The fact that a credit agreement does not expressly provided that part of each monthly payment is attributable to interest 'is not dispositive of whether interest is being charged.' American Industrial Leasing, 118 Wis.2d at 147, 345 N.W.2d at 531.

White suggests that the fact that the majority of the Academy's students pay in installments is persuasive evidence of a hidden finance charge. She cites Yazzie v. Reynolds, 623 F.2d 638, 641 (10th Cir. 1980), for the proposition that 'there [are] necessarily costs which [grow] out of this way of doing business.'

In the abstract, Yazzie is correct. Virtually any business decision involves costs and benefits. However, though there is a cost in extending optional installment payments, there is no evidence that that cost has been passed on to White. A large number of students choosing to pay on an installment basis may be evidence of a hidden finance charge but that fact is just as supportive of a conclusion that, given the option of paying the same amount all at once or over time, prudent money managers would choose the installment method of payment. Another conclusion a trial court could reasonably reach is that Clausen has resigned himself to the economic reality that his business is financed to a large extent by the federal government, and that its method of payment dictates his receipt of tuition.

White has not demonstrated that there is a real difference between the deferred payment price of the Academy's course and its market value. A United States District Court has concluded under facts similar to those at hand that '[s]uch a demonstration is essential to [the] cause of action . . . [because i]f there is no differential, the cost to the consumer is the same whether he or she pays in cash all at once, or by installments over time, and ipso facto, the choice of the installment method does not carry with it the imposition of a hidden finance charge.' Manzina, 386 F.Supp. at 244. We this is a reasonable view and adopt it.

Because White has not demonstrated such a price differential, we conclude that the trial court's finding that there was no hidden finance charge was not clearly erroneous. Therefore, we will not upset it.

DISCLOSURE REQUIREMENTS

We now turn to the issue of whether Clausen's failure to disclose a 'zero' finance charge and a 'zero' APR constitute an actionable violation of the Truth in Lending Act. The application of a statute to a particular set of facts poses a question of law. Midwest Developers v. Goma Corp., 121 Wis.2d 632, 651, 360 N.W.2d 554, 564 (Ct.App. 1984). We decide questions of law without deference to the trial court. Ball v. District No. 4, Area Board, 117 Wis.2d 529, 537, 345 N.W.2d 389, 394 (1984).

White contends that, even if Clausen assessed no finance charge, his failure to make the required disclosure constituted a violation of the Act. White argues for strict compliance with the disclosure requirements of the Act, citing Mars. v. Spartanburg Chrysler Plymouth, Inc., 713 F.2d 65, 67 (4th Cir. 1983); Huff v. Stewart-Gwinn Furniture, 713 F.2d 67, 69 (4th Cir. 1983); Smith v. No.2 Galesburg Crown Finance Corp., 615 F.2d 407, 416 (7th Cir. 1980); Smith v. Chapman, 614 F.2d 968, 971 (5th Cir. 1980); and Brown v. Marquette Sav. and Loan Ass'n, 686 F.2d 608, 613 (7th Cir. 1982).

None of these cases deal with transactions in which there was a failure to disclose the absence of a finance charge. Instead, they hold that the use of disclosure terminology other than that mandated by TILA constitutes a violation of the Act, even if the debtor is not misled or injured. Those results are understandable. 'In view of the goal of standardized terminology to facilitate comparison shopping, many courts have held that the failure to use the required terminology results in a violation of TILA.' (Footnote omitted.) Smith, 615 F.2d at 416. However, that is not the issue before us.

A statute should be applied to carry out the purpose for which it was enacted. Meyer v. Kero-Sun, Inc., 570 F.Supp. 402, 406 (W.D. Wis. 1983). The purpose of the Truth in Lending Act is set out in 15...