Gilbert v. Wood Acceptance Co., 72-1617.

• Decision Date: 24 October 1973
• Docket Number: No. 72-1617.,72-1617.
• Parties: Elmo J. GILBERT, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. WOOD ACCEPTANCE CO. et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

486 F.2d 627 (1973)

Elmo J. GILBERT, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. WOOD ACCEPTANCE CO. et al., Defendants-Appellees.

No. 72-1617.

United States Court of Appeals, Seventh Circuit.

Argued May 31, 1973.

Decided October 24, 1973.

Ronald W. Fritsch, Legal Aid Society of Chicago, Chicago, Ill., for plaintiff-appellant.

Max Wildman, David L. Schiavone, Chicago, Ill., for defendants-appellees.

Before PELL and STEVENS, Circuit Judges, and REYNOLDS,^* District Judge.

PELL, Circuit Judge.

This appeal concerns the interpretation of the Truth-in-Lending Act (Title I of the Consumer Credit Protection Act, 15 U.S.C. § 1601 et seq.), as implemented by Federal Reserve Board Regulation Z, 12 C.F.R. § 226. Appellant Gilbert, who signed a retail installment contract for the purchase of a used automobile from Southland Motors, Inc., (Southland) contends that the contract fails to disclose several items of information allegedly required to be disclosed by Section 128(a)(2) and (8) of the Act, 15 U.S.C. § 1638 (a)(2) and (8), and subsection 226.8 of the Regulation. Pursuant to 15 U.S.C. § 1640, he seeks a judgment for a penalty of $197.72, twice the finance charge due under the contract. The defendants are Southland and Wood Acceptance Co. (Wood), the assignee of the installment contract.¹ The district court granted the defendants' motion to dismiss the complaint, holding that even if all of Gilbert's allegations were taken as true the complaint failed to state a claim upon which relief could be granted.

The complaint alleges that on March 6, 1971, Gilbert, a "consumer," entered into a retail installment contract with Southland, a "creditor," for the purchase of a used automobile; that on or after March 6th, Southland assigned the contract to Wood, a "creditor"; that Southland and Wood are owned by the same persons; and that Wood had actual knowledge of all aspects of the March 6, 1971, transaction. The complaint further alleges that the contract, although reciting on its face that it includes "disclosures required by Federal law," fails to comply with the applicable law: (1) the contract falsely states that plaintiff paid a "cash downpayment" of $350, when in fact the "cash downpayment" was only $100 and Gilbert was obligated to pay the $250 balance in four weekly installments ($100 on March 8, 1971, and $50 thereafter through March 29, 1971) to one "M. Wishner," an agent of the defendants; and (2) the contract also states that the "total of payments" was $948.86, payable in 38 weekly installments of $24.97 each, beginning April 5, 1971, but the total of payments was really $1198.86, payable in 42 weekly payments beginning March 8, 1971.

The first "false statement" supposedly violates subsection 226.8(c)(2) of Regulation Z, which requires that a creditor disclose "the amount of the downpayment itemized, as applicable, as downpayment in money, using the term `cash downpayment,' downpayment in property, using the term `trade-in' and the sum, using the term `total downpayment.'" The second asserted misstatement allegedly contravenes Section 128(a)(8) of the Act and subsection 226.8(b)(3) of the Regulation. Those provisions require a creditor to disclose "the number, amount, and due dates or periods of payments scheduled to repay the indebtedness and . . . the sum of such payments using the term, `total of payments.' If any payment is more than twice the amount of an otherwise regularly scheduled equal payment, the creditor shall identify the amount of such payment by the term `balloon payment' and shall state the conditions, if any, under which that payment be refinanced if not paid when due."²

In his brief, Gilbert further particularizes the charges he made in his complaint. The most important of these points—the one on which the validity of plaintiff's other contentions hinges—is defendants' supposed failure to disclose accurately in the contract the "amount of downpayment itemized" and the "cash downpayment." On the date the parties executed the contract, Gilbert paid Southland $100 in cash. He characterizes this amount as the "downpayment in money" or "cash downpayment." The "total downpayment" agreed upon was $350 (which fact, plaintiff admits, the contract reveals). Because the $250 difference between the "total downpayment" and the $100 Gilbert gave to Southland on March 6th was to be paid in four weekly installments, Gilbert argues that the $250 cannot accurately be deemed part of the "cash downpayment" and should not have been noted as such in the contract. The crucial inquiry, therefore, is whether the applicable law requires that the contract disclose expressly the $250.

No provision of the Consumer Credit Protection Act directly addresses this issue. Subsection 226.8(c)(2) of Regulation Z seems to be of help, for it speaks, inter alia, of disclosing "the amount of the downpayment itemized, as applicable, as downpayment in money, using the term `cash downpayment,' downpayment in property, using the term `trade-in' and the sum . . . ." However, as the parties' differing interpretations of this provision of the Regulation indicate, it is somewhat ambiguous.

The defendants read the provision as establishing exclusive subclassifications. That is, when disclosing in a contract the items of which the downpayment consists, a creditor is limited to the terms "cash downpayment" and "trade-in." If that is so, then "cash downpayment" supposedly more aptly describes the $250 that Gilbert was to pay than "trade-in" does. Presumably the $250 is properly considered part of the downpayment not only because the parties characterized it as such but because Gilbert was allowed to pay it in installments without a finance charge and prior to the commencement of the 38 uniform, "interest-included" installments.

The plaintiff, in contrast, maintains that "cash downpayment" and "trade-in" are merely examples. He points out that the "section does not state that these are the only items or ingredients of the `total downpayment.'" He calls to our attention the following official interpretation of Regulation Z issued by the Board of Governors of the Federal Reserve System on September 11, 1969:

§ 226.504 Treatment of "Pick-up Payment" in an Instalment Contract

In some instances involving an instalment contract arising from a credit sale, the purchaser may not pay the full amount of the required downpayment at the time he signs the contract or otherwise enters into the credit transaction. In such cases, the creditor may include in the instalment contract or accept a separate obligation for the unpaid portion of the downpayment, commonly called a "pick-up payment," the amount of which usually carries no finace charge and is to be paid on or before a specified date independent of the other scheduled payments.

The question arises whether the "pick-up payment" must be treated as part of the "amount financed" for purposes of disclosure and determination of the "annual percentage rate" or whether it may be treated as a deferred portion of the downpayment.

In determining the "amount financed" the creditor may exclude the amount of the "pick-up payment" provided that:

(1) The amount of the finance charge applicable to the transaction does not exceed the amount that would have been imposed had the required down payment been paid in full upon consummation of the transaction; and

(2) The due date of the "pick-up payment" is not later than the due date of the second payment otherwise scheduled.

In making the disclosures required under § 226.8(b)(3), if such "pick-up payment" is more than twice the amount of an otherwise regularly scheduled equal payment, the creditor shall state the conditions, if any, under which such "pick-up payment" may be refinanced if not paid when due; and such "pick-up payment" may be identified using that term or the term "balloon payment."

It is obvious that the primary aim of § 226.504 is to clarify when a creditor must include the pick-up payment in the "amount financed." However, it is not so certain that the section supports the plaintiff's claim that "deferred downpayments" must be separately listed in a contract. Gilbert asserts that, in the final paragraph of the Interpretation, the Board was construing the disclosure requirement of subsection 226.8(b)(3) as including the "unpaid portion of the downpayment" or "pick-up payment."³ In rebuttal, the defendants emphasize the use of the word "may" in the Interpretation and cite the grammatical usages provision of the original Act, Section 503. They also argue that it is illogical to construe subsection 226.8(b)(3), which involves repayment of the "indebtedness," to include a deferred downpayment where the downpayment is excludable, as is the case here, from the "amount financed." That phrase...