Fenton v. Citizens Savings Association, 73 CV 149-C.

• Decision Date: 19 August 1975
• Docket Number: No. 73 CV 149-C.,73 CV 149-C.
• Citation: 400 F. Supp. 874
• Parties: E. Dale FENTON and Wanda Fenton, Plaintiffs, v. CITIZENS SAVINGS ASSOCIATION, Defendant.
• Court: U.S. District Court — Eastern District of Missouri

400 F. Supp. 874

E. Dale FENTON and Wanda Fenton, Plaintiffs, v. CITIZENS SAVINGS ASSOCIATION, Defendant.

No. 73 CV 149-C.

United States District Court, C. D. Missouri, W. D.

August 19, 1975.

A. Howard Chamberlin, Shafer & Chamberlin, Kansas City, Mo., for plaintiffs.

Martin J. Purcell, P. John Owen, Morrison, Hecker, Curtis, Kuder & Parrish, Kansas City, Mo., for defendant.

FINDINGS, OPINION AND ORDER

ELMO B. HUNTER, District Judge.

This is an action brought on November 8, 1973, in which plaintiffs, E. Dale Fenton and Wanda Fenton charge defendant, Citizens Savings Association (Citizens) with having violated certain provisions of the Truth In Lending Act, 15 U.S.C. § 1601 et seq. and Regulation Z issued pursuant thereto by the Board of Governors of the Federal Reserve System.¹ Plaintiffs seek damages and reasonable attorney fees.

The defendant, Citizens, denies having violated the Act and Regulation Z, and asserts that if there ever existed any cause of action it is barred by the one year limitation period provided in the Act. Other defenses are also raised, including the lack of subject matter jurisdiction.

After substantial discovery, the parties have stipulated for the purposes of this case to the following facts concerning the alleged violation.

The Fentons are citizens of the state of Missouri, residing in Columbia, Missouri. Citizens is a corporation existing under the laws of the state of Missouri and is engaged in the business of providing financial services, principally as a savings association for its account holders and as a lending institution for various borrowers. Citizens has its principal place of business in Mexico, Missouri, and maintains a permanent branch office in Columbia, Missouri.

Prior to May 21, 1970, the Fentons applied to Citizens for a loan to finance construction of a single family residence of occupancy by the Fentons.

On May 21, 1970, the Fentons and Citizens contracted for the extension of credit by the execution of a note secured by a Deed of Trust. The written contract (note) showed the amount as $44,000.00 "for money loaned with interest from date at the rate of 8.0 per cent per annum, payable in 240 successive equal monthly installments in the amount of $368.10 each, with the first payment becoming due and payable on the 1st day of July, 1970, and a like payment becoming due and payable on the same day of each and every month thereafter until the 1st day of June 1990 on which date the remaining balance of principal and interest shall be due and payable." The Deed of Trust stated it was to secure the note "executed by E. Dale Fenton and Wanda Sue Fenton, husband and wife, in the principal sum of $44,000.00 . . .."

Also, on May 21, 1970, the Fentons and Citizens executed an agreement providing for the administration of a $4,000 compensating balance in connection with Citizens' loan to them. On May 21, 1970, the Fentons acknowledged their receipt on that date of a Loan Settlement Statement. That statement, among other things, showed the loan amount as $44,000.00, rate of interest as 8%, each monthly payment as $469.00 beginning July 1, 1970 for 240 months (20 years). It showed the breakdown as: Monthly principal and interest payment — $368.10; C. & I. premium — $9.25; Monthly tax — $70.00; and Insurance payment — $20.75 for a total payment of $469.00. It also showed loan disbursements of $4,000.00 as a required deposit balance, and some other small fees. And finally it showed, "the annual percentage rate on this transaction is 10.07%."

On May 21, 1970, the Fentons acknowledged their receipt on that date of Notice pursuant to Federal Reserve Board Regulation Z, 12 C.F.R., § 226 of their right to cancel the transaction within three business days of May 21, 1970.

By the terms of their loan agreement with Citizens, the Fentons were to commence making monthly payments on July 1, 1970, of the following amounts:

                (a) Principal and interest       $368.10
                (b) Mortgage insurance
                     premium                     $  9.25
                (c) Monthly tax                  $ 70.90
                (d) Insurance payment            $ 20.75
                                                 _______
                                 Total           $469.00
                

Citizens charge a four percent (4%) "late fee" for any installment payment not received within fifteen (15) days of the due date for that installment; this charge is disclosed in numbered paragraph "1" on page 2 of the Deed of Trust, and in the Notice given the Fentons pursuant to Federal Reserve Board Regulation Z, 12 C.F.R. § 226.

Citizens disclosed its pre-payment formula under the heading "privilege to Pre-Pay" in the Note Secured by Deed of Trust signed by the Fentons, and in the Notice given to the Fentons pursuant to Federal Reserve Board Regulation Z, 12 C.F.R. § 226.

Citizens disclosed the annual percentage rate in the Notice given to the Fentons pursuant to Federal Reserve Board Regulation Z, 12 C.F.R. § 226.

Citizens disclosed the amount financed by the loan transaction in the Notice given to the Fentons pursuant to Federal Reserve Board Regulation Z, 12 C.F. R. § 226.

Citizens disclosed the prepaid finance charges to the Fentons in the Notice given them pursuant to Federal Reserve Board Regulation Z, 12 C.F.R. § 226.

Citizens disclosed the total number of payments scheduled to repay the Fentons' indebtedness in the Notice given to the Fentons pursuant to Federal Reserve Board Regulation Z, 12 C.F.R. § 226.

Citizens monthly sent to the Fentons a Notice of Payment Due; this Notice was mailed on approximately the twenty-fifth day of each month giving notice for payment due on the first day of the next following month, and in the year preceding the commencement of this action, Citizens sent eight such monthly statements to the Fentons.

Whenever the Fentons' loan payment was not received by the fifteenth day of the month, Citizens mailed a Delinquency Notice.

A loan of $44,000.00 payable in 240 monthly payments of $368.10 each (combined principal and interest) reflects a rate of interest of 8.00000%.²

A loan of $40,000.00 payable in 240 monthly payments of $368.10 each (combined principal and interest) reflects a rate of interest of 9.31750%.

If plaintiffs prevail in this action, their damages are computed pursuant to 15 U.S.C. § 1640; plaintiffs may also receive their reasonable attorneys' fees and costs of this action.

If Citizens prevail in this action, the Fentons shall not receive any sum in damages.

Other Facts

Eventually, and as a result of plaintiffs' defaults in payments due, Citizens foreclosed. Thereafter, plaintiffs brought this suit.

The Truth In Lending Act — Its Purpose

Congress stated the purpose of the Truth In Lending Act to be, "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. In order to assure meaningful credit comparison the Truth In Lending Act and Regulation Z established a uniform method for setting out and determining the finance charge so that a consumer can comparison shop before committing himself to a loan, by looking at a single statement showing the annual percentage rate. Buford v. American Finance Co., N.D.Ga.1971, 333 F.Supp. 1243; Ratner v. Chemical Bank of New York Trust Co., S.D.N.Y.1971, 329 F.Supp. 270; W. T. Grant & Co., v. C. I. R., C.A.2nd, 1973, 483 F.2d 1115. The obligation of the lendor under the Truth In Lending Act is to properly disclose, and this law does not concern itself with the subsequent performance. See, Burgess v. Charlottesville Savings and Loan Ass'n, C.A.4th, 1973, 477 F.2d 40; Bostwick v. Cohen, N.D.Ohio 1970, 319 F.Supp. 875.

The Finance Charge

Section 1605 of the Truth In Lending Act³ provides in part 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, "including any of the following types of charges which are applicable: (1) Interest, time price differential, and any amount payable under a point, discount, or other system of additional charges. (2) Service or carrying charge. (3) Loan fee, finder's fee or similar charge. (4) Fee for an investigation or credit report. (5) Premium or other charge for any guarantee or insurance protecting the creditor against the obligor's default or other credit loss." Other portions of § 1605 indicate additional items that are to be considered a part of the finance charge and certain items that are exempted from computation of the finance charge.

Section 1606 specifically states how the annual percentage rate shall be computed. And § 1631 requires that each creditor shall disclose clearly and conspicuously, in accordance with the regulation of the Board of the Federal Reserve System (Board) to whom consumer credit is extended and upon whom a finance charge is or may be imposed the information required by the Act. The Board is authorized by regulation to implement this requirement and has done so in its Regulation Z.⁴

Section 1640(a) sets out the civil liability of violators of the disclosure requirements as follows:

"Except as otherwise provided in this section, any creditor who fails in connection with any consumer credit transaction to disclose to any person any information required under this part to be disclosed to that person is liable to that person in an amount equal to the sum of

"(1) twice the amount of the finance charge in connection with the transaction, except that the liability under this paragraph shall not be less than $100 nor greater than $1,000; and

"(2) in the case of any successful action to enforce the foregoing liability, the costs of the action together with a reasonable attorney's fee as determined by the court."

The Limitation

...