Clemmer v. Liberty Fin. Planning, Inc.
| Decision Date | 12 February 1979 |
| Docket Number | No. C-C-77-178.,C-C-77-178. |
| Citation | 467 F. Supp. 272 |
| Court | U.S. District Court — Western District of North Carolina |
| Parties | George M. CLEMMER, Patricia Clemmer and Robert M. Burroughs, Trustee, Plaintiffs, v. LIBERTY FINANCIAL PLANNING, INC., Defendant. |
Richard M. Mitchell, Edmund Pickup, Mitchell & Matus, Charlotte, N. C., for plaintiffs.
Richard M. Pearman, Jr., Greensboro, N. C., for defendant.
This action was brought under the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq. () for rescission of a loan transaction. The parties stipulated to the authenticity of the documents involved and informed the court that there were no questions of fact which needed to be decided by a jury, and that the remaining questions of law could be decided by the court. Arguments by counsel on all issues were heard on December 11, 1978.
On October 9, 1973, the defendant Liberty Financial Planning, Inc. made a loan to plaintiffs George and Patricia Clemmer. A copy of the loan contract, entitled "COMBINED STATEMENT, NOTE, SECURITY AGREEMENT, DISBURSEMENT SCHEDULE AND ELECTION AS TO INSURANCE PERTAINING TO A LOAN," is attached as Exhibit "A" to this order. The defendant obtained security interests in the Clemmer house, in all household furnishings and appliances, and in two cars. The security interest in the Clemmer's house was evidenced by a second deed of trust, but the loan proceeds were not used to purchase the house. The defendant also obtained a security interest in the home of Frank and Martha Watson, parents of Patricia Clemmer.
In 1974 the Clemmers filed a wage-earner proceeding under Chapter XIII of the Bankruptcy Act in the Western District of North Carolina. For reasons unimportant to this case, the proceeding was refiled on March 3, 1977. On or about October 3, 1977, the wage-earner proceeding was converted to a straight bankruptcy.
The Clemmers were apparently dissatisfied with the loan transaction, and on May 13, 1977, wrote a letter to defendant rescinding the loan. The rescission letter was received by defendant on May 17, 1977. Defendant failed to return to the Clemmers all sums paid by them, and did not cancel all deeds of trust obtained by defendant. Plaintiffs filed this action on July 8, 1977. The defendant answered denying liability and alleging that the statute of limitations barred the claims.
The loan was made on October 9, 1973. At that time there was no statute of limitations on actions to rescind loans because of violations of the Truth-in-Lending Act. See Littlefield v. Flanagan, 498 F.2d 1133 (10th Cir. 1974).
Effective October 28, 1974, Congress enacted 15 U.S.C. § 1635(f), a three-year statute of limitation on suits to rescind. That statute reads as follows:
"(f) An obligor's right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs earlier, notwithstanding the fact that the disclosures required under this section or any other material disclosures required under this part have not been delivered to the obligor."
On May 13, 1977, the plaintiffs wrote their rescission letter. It was received on May 17, 1977.
This suit to rescind was filed July 8, 1977.
The suit to rescind was thus filed more than three years after the sale, but less than three years after the effective date of the statute.
The question is whether § 1635(f) is to be applied retroactively, in which case plaintiffs' action would be barred, or prospectively from its effective date, in which case plaintiffs' action is not barred.
The court is aware of only two cases which have decided this question. In Jamerson v. Miles, 421 F.Supp. 107, 111 (N.D. Tex.1976), the court concluded that Congress, by enacting § 1635(f), "actually limited to three years the existence of the right of rescission." In James v. Home Construction Company of Mobile, 458 F.Supp. 54 (S.D.Ala.1977), Judge Hand held that § 1635(f) applied prospectively and that the period of limitation did not begin to run until its effective date, October 28, 1974.
This court agrees with Judge Hand that Congress did not intend to foreclose the right to rescind of those already owning such a right when § 1635(f) was enacted. Therefore, plaintiffs' action is not barred by the three-year limitation period of § 1635(f).
The plaintiffs allege that during the course of the loan transaction, defendant violated the Act as follows:
1. By failing to include in the finance charge those amounts charged for credit life insurance, in violation of 15 U.S.C. § 1605(b), and Regulation Z, 12 C.F.R. § 226.4(a)(5).
2. By failing to make the disclosures required by 15 U.S.C. § 1639(a) and by Regulation Z, 12 C.F.R. § 226.8(b) and (d), clearly and conspicuously in a meaningful sequence, in violation of 15 U.S.C. § 1631(a), and Regulation Z, 12 C.F.R. § 226.6(a).
3. By failing to separate inconsistent disclosures required under state law from federal disclosures, or alternatively, by placing, utilizing, and stating additional information so as to confuse or mislead the consumer or to contradict, obscure or detract attention from the information required to be disclosed by Regulation Z, in violation of 15 U.S.C. §§ 1631 and 1632, and Regulation Z, 12 C.F.R. § 226.6(b) and (c).
4. By failing properly to disclose a description of any security interest held or to be retained or acquired by the creditor in connection with the extension of credit, and a clear identification of the property to which the security interest relates, in violation of 15 U.S.C. § 1639(a)(8), and Regulation Z, 12 C.F.R. § 226.8(b)(5).
The four claims will be discussed in order.
1. Failure to include credit life insurance charges in the finance charge. — In this case credit was extended to four persons, Mr. and Mrs. Clemmer and Mr. and Mrs. Watson. Section 1605(b) provides as follows:
Only one authorization was obtained in this transaction, that of Mr. Clemmer. The Act requires specific authorization from parties to whom credit was extended. Since this was not accomplished in this case, defendant could not lawfully exclude these amounts from the finance charge. Defendant violated the Act by not obtaining authorizations for credit life insurance from the other persons to whom credit was extended. See Rivers v. Southern Discount Company Atlanta II, CCH Consumer Credit Guide ¶ 98,796 (N.D.Ga.1973).
2. Failure to make disclosures clearly and conspicuously in a meaningful sequence.—At the hearing on December 11, 1978, plaintiffs elected not to pursue this claim; it will be deemed waived.
3. Failure to separate inconsistent state disclosures from federal disclosures.—The loan in question is regulated both by state and federal law. North Carolina General Statutes, Chapter 24, Article 2, on security instruments covering loans secured by secondary mortgages, requires certain truth-in-lending disclosures concurrent with the disclosures required under federal law. It requires other disclosures which are inconsistent (as defined in Regulation Z, 12 C.F.R. § 226.6(b)(i)) with federally required disclosures in arrangement and "in form, content, terminology, or time of delivery."
N.C.G.S. § 24-16 requires "a complete and itemized closing statement which shall show all disbursements of the loan proceeds and which shall total the principal amount of the loan . . ." This "principal amount," as defined in N.C.G.S. § 24-13, is the aggregate of the amount or value actually received at the time of the loan, plus a stated rate of charge, plus the sum of all existing indebtedness of the borrower paid on his behalf by the lender. This state law "rate of charge," which is included in the "principal amount," includes all charges for application fees, title searches, credit reports, etc. N.C.G.S. § 24-14(b).
The "principal amount" under state law is inconsistent with its counterpart under federal law, the "amount financed." It includes the "rate of charge," N.C.G.S. § 24-13, which is in contrast to the federal law, where the rate of charge is a part of the finance charge, not a part of the amount financed. This principal amount under state law includes some items which would be included in the federal law amount financed, but also includes some other items which would be included in the federal law finance charge. Regulation Z, 12 C.F.R. § 226.4.
The state law requires disclosures such as the defendant has made in Part II of the disclosure statement (attached as Exhibit "A"), and those disclosures are different from the requirements of Regulation Z with respect to both content and terminology. Mason v. General Finance Corp. of Virginia, 542 F.2d 1226 (4th Cir. 1976).
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