Ector v. Southern Discount Co.
| Decision Date | 17 January 1981 |
| Docket Number | Civ. A. No. C78-899A. |
| Parties | Geneva ECTOR, Plaintiff, v. SOUTHERN DISCOUNT COMPANY, Defendant. |
| Court | U.S. District Court — Northern District of Georgia |
Frank L. Derrickson, Dwight Bowen, Atlanta, Ga., for plaintiff.
John E. Tomlinson, J. Lamar Nix, Tomlinson & Nix, Atlanta, Ga., for defendant.
ORDER OF COURT
Presently before the Court are the report and recommendation of United States Magistrate J. Owen Forrester and the parties' responses thereto. The magistrate recommends that the plaintiff's motion for summary judgment be denied. Although several difficult issues are presented, the Court APPROVES the recommendation that plaintiff's motion for summary judgment be DENIED and ADOPTS it as the order of the Court. The facts pertinent to each issue are set forth in connection with the individual discussion of the issue to which they pertain.
The most difficult issue presented to the Court concerns the allegation that the defendant violated the Truth in Lending Act by making the following disclosure:1
1. Amount Financed ....................... $ ______
2. FINANCE CHARGE (See 4 below) ......... $ ______
3. Total of Payments (1 plus 2) .......... $ ______
ANNUAL PERCENTAGE RATE .................. _______%
First payment due ....... Final payment due ______
(Other payments due the same dates each month)
4. Details of Finance Charges calculated in accordance with the
Provisions of Section 15 as amended of the Georgia Industrial
Loan Act
a) Maintenance Charges .................. $ ______
b) Interest ............................. $ ______
c) 8% Fee ........................ $ ______
d) 4% Fee ........................ $ ______
e) Prepaid Finance Charge (c + d) ....... $ ______
f) Finance Charge (a + b + e) ........... $ ______
5. Face amount of Contract (3 minus 4(a))... $ ______
In particular, plaintiff contends that the disclosures of loan "fees" in parts 4(c) and (d) of the disclosure statement is a disclosure made pursuant to Georgia state law which is inconsistent with the Truth in Lending Act.2
The regulations adopted by The Federal Reserve Board pursuant to 15 U.S.C. § 1604 require the lender to disclose the "prepaid finance charge." Regulation Z, 12 C.F.R. § 226.8(d)(3). In Georgia a consumer lender may exact loan fees of not more than 8% of the first $600 of the face amount of the contract plus 4% of any excess, Ga.Code Ann. § 25-315(b), and such charges, if made, must be disclosed in the truth in lending disclosure statements as a prepaid finance charge. Jones v. Community Loan & Inv't Corp., 526 F.2d 642, aff'd on rehearing, 544 F.2d 1228 (5th Cir. 1976).3 Georgia law also requires the disclosure of any loan fees charged. Ga. Code Ann. § 25-319.
Several cases in this district have dealt with alleged truth in lending violations arising out of lenders' attempts simultaneously to satisfy Regulation Z as interpreted by Jones and Ga. Code Ann. § 25-319. The issue is controlled in large part by Regulation Z, 12 C.F.R. § 226.6:
The first case in this district in which a violation was found under circumstances similar to these was Ford v. General Finance Corp., No. C78-328A (N.D.Ga. June 5, 1979) (Edenfield, J.) (). The defendant in Ford used the words "PREPAID FINANCE CHARGES/LOAN FEES" in its disclosure. Judge Edenfield ruled that such a disclosure violated the requirement in 12 C.F.R. § 226.6(a) that disclosures be made "in the terminology prescribed in the applicable sections."
In Gresham v. Termplan, Inc., 480 F.Supp. 149 (N.D.Ga.1979) (Tidwell, J.) (), a different rationale was employed. In Gresham the defendant disclosed the loan fees in two separate ways. It set forth the prepaid finance charge as follows:
PREPAID FINANCE CHARGE
LOAN FEE LOAN FEE
NONE $33.60
In addition, "in compliance with 12 C.F.R. § 226.6(c)(2)(iii), defendant placed a conspicuous demarcation line on its form with the words, `STATE DISCLOSURES THAT ARE INCONSISTENT WITH THE FEDERAL TRUTH IN LENDING ACT,' immediately below it," and in that section of its form set forth the following:
LOAN FEE (4%) $ NONE
LOAN FEE (8%) $ 33.60
_____
In the first step of his analysis, Judge Tidwell stated: He then concluded that the "inclusion of the terms `LOAN FEE' in the federal disclosure format, in the manner displayed by Defendants in this case, is in violation of 12 C.F.R. § 226.6(c)2(i) and (ii)."
In Flemings v. General Finance Corp., C78-719A (N.D.Ga. December 12, 1979) (Edenfield, J.) the Court found a violation on another basis. There the defendant General Finance apparently used the same language it had used in the Ford case. Judge Edenfield first cited Ford and then proceeded to adopt the following reasoning of the magistrate in Ford:
The addition of the word "LOAN FEES" is an inclusion of state law terms. The regulations at 12 C.F.R. § 226.6(a) mandate that "The disclosures required to be given by this part shall be made ... in the terminology prescribed in the applicable sections."... The regulations permit the creditor at his option to add additional information or explain, but none shall be stated, utilized or placed so as to mislead or confuse the customer or contradict, obscure or detract attention from the information required. 12 C.F.R. § 226.6(c). The addition of the words "LOAN FEES" might be confusing and misleading to a customer, and in the Magistrate's opinion, they detract from the information required.... The Magistrate is persuaded that the better policy is to insist upon utilization of the precise required terminology unfettered by further explanation or state law terminology. While this may have the tendency of stifling our cherished individualism and lengthening disclosures by requiring the use of other terminology elsewhere, it is seen as having overriding benefits. First, compliance is made easier if it is understood that the law requires precision. Obviously, enforcement is facilitated as clear, black and white choices will be presented only. Finally, and this is the heart of the matter, comparisons by consumers are facilitated when terminology is standardized. If one loan company uses only the terminology required by the regulation, while the instant defendant uses that terminology or approximately that terminology and couples it with additional words, then the defendant may gain an advantage because it may appear to the reasonably uninformed consumer that more things are being paid for by the dollar amount shown in the block, and, therefore, the company who complies exactly with the Act is penalized. Gaining an advantage on one's competitors is not against the law, but doing so by confusing them is. The term "Loan Fees" is in no wise synonymous with the term "Prepaid Finance Charge" to any but those most familiar with this arcane area of the law. The term in general application could be thought to include finder's fees, closing costs, official fees, notary fees, maintenance charges, recording charges, and even certain types of insurance. These are to be itemized separately, and any indication that any of these might be included at the point where the prepaid finance charge is disclosed is to contradict, obscure and...
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...Cir. 1976), reh. den. 545 F.2d 1298 (5th Cir.) cert. den. 431 U.S. 934, 97 S.Ct. 2642, 53 L.Ed.2d 250 (1976); Ector v. Southern Discount Co., 499 F.Supp. 284(2) (N.D.Ga.1980). See Ford Motor Credit Co. v. Milhollin, supra 444 U.S. at 567 n. 10, 100 S.Ct. at 798 n. ...
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