Gillard v. Aetna Finance Co., Inc.

• Decision Date: 07 May 1976
• Docket Number: Civ. A. No. 75-1042.
• Citation: 414 F. Supp. 737
• Parties: Leon GILLARD and Lula Gillard v. AETNA FINANCE COMPANY, INC.
• Court: U.S. District Court — Eastern District of Louisiana

414 F. Supp. 737

Leon GILLARD and Lula Gillard v. AETNA FINANCE COMPANY, INC.

Civ. A. No. 75-1042.

United States District Court, E. D. Louisiana.

March 19, 1976.

Supplemental Memorandum Opinion May 7, 1976.

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James W. Blackman, New Orleans, La., for plaintiffs.

Kenneth J. Berke, New Orleans, La., for defendant.

MEMORANDUM OPINION

BOYLE, District Judge:

The plaintiffs, Leon and Lula Gillard, instituted this action pursuant to Section 130 of the Consumer Credit Protection Act of 1968 (hereinafter Act), 15 U.S.C. § 1601 et seq., popularly referred to as the Truth in Lending Act, and Regulation Z, 12 C.F.R. § 226.1 et seq., promulgated by the Board of Governors of the Federal Reserve System (hereinafter Board) in accordance with 15 U.S.C. § 1604.

It is alleged in the complaint that on or about July 22, 1974, the plaintiffs refinanced with the defendant, Aetna Finance Company, Inc. (hereinafter Aetna), a loan previously made and that Aetna failed to make the necessary disclosures required by the Act.

Aetna denies that it violated any of the Act's disclosure requirements. Alternatively, it contends that any violation found to exist was not intentional and resulted from a bona fide error, notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.

By agreement of counsel, the case was submitted to the Court for adjudication on stipulation of facts, exhibits, affidavits and memoranda.

Jurisdiction is conferred by 15 U.S.C. § 1640(e) and venue is properly laid in the Eastern District of Louisiana.

It is undisputed that Aetna is a "creditor" and that the parties entered into a "consumer credit" transaction within the meaning of the Act. Aetna was required, therefore, to comply with its disclosure provisions. The plaintiffs claim that it failed to do so and assert no less than nine violations.¹

I.

The plaintiffs take the position that the absence of one of their signatures on the "Borrower's Copy"² of the disclosure statement constitutes a violation of the Act. In that Leon Gillard's signature does appear in the election of insurance section of the copy, although the form instructed him not to sign, it could be presumed that the plaintiffs are referring to the absence of a place on the borrower's copy for the borrower to indicate receipt of a copy of the disclosure statement prior to consummation of the transaction.

The plaintiffs have cited no authority, nor can we find any, in support of their position. There is no requirement that a customer sign the disclosure statement itself evidencing that he has received a copy. See Federal Reserve Board Advisory Letters Nos. 125 and 333 of September 26, 1969 and May 25, 1970, quoted in, CCH Consumer Credit Guide ¶ 30,173 and 30,388.

This acknowledgment merely creates a rebuttable presumption of delivery, for the creditor's benefit, according to the terms of 15 U.S.C. § 1635(a). If it is not necessary for the original to contain such an acknowledgment, there can be no such requirement with respect to the copy.

Further, if the plaintiffs are claiming a violation because the form instructed them not to sign the copy, in the election of insurance section, this contention is without merit. The copy which must be furnished the consumer need not contain the borrower's written election of insurance coverage required by 15 U.S.C. § 1605(b)(2) and 12 C.F.R. § 226.4(a)(5)(ii). Burton v. G.A.C. Finance Co., 525 F.2d 961 (5 Cir. 1976).

II.

The plaintiffs contend that Aetna failed to disclose the costs of insurance clearly, conspicuously and in a meaningful sequence. In particular, it is charged that:

(a) the defendant failed to provide the plaintiffs with the option of purchasing health and accident insurance by itself and without the purchase of credit life insurance, although the costs of both types of insurance are separately disclosed;

(b) the defendant failed to disclose the combined costs of both credit life and health and accident insurance; and

(c) the defendant failed to disclose the insurance costs in close proximity to the place on the disclosure statement where the borrowers were to elect to purchase insurance.

Because of these failures, it is argued that the insurance costs had to be included in the finance charge, which they were not, thereby rendering inaccurate Aetna's disclosure of the finance charge, amount financed and annual percentage rate.

15 U.S.C. § 1631(a) states that a creditor must disclose the information required by the Act clearly and conspicuously, in accordance with the Board's regulations. 12 C.F.R. § 226.6(a) adds the requirement that the necessary disclosures be made in meaningful sequence.

According to 12 C.F.R. § 226.4(a)(5), charges or premiums for credit life, health and accident insurance must be included in the finance charge disclosed to the consumer unless:

(i) The insurance coverage is not required by the creditor and this fact is clearly and conspicuously disclosed in writing to the customer; and

(ii) Any customer desiring such insurance coverage gives specific . . . affirmative written indication of such desire after receiving written disclosure to him of the cost of such insurance.

It is true that Aetna did not offer health and accident insurance separately as it provided only the following options: (1) credit life insurance; (2) credit life and health and accident insurance; and (3) neither credit life nor health and accident insurance.³

It is also true, however, as the defendant points out and the plaintiffs now concede,⁴ that a creditor is not compelled to provide any particular insurance option to the customer, nor is he prohibited from offering one type of insurance only in connection with the purchase of another type. See Doggett v. Ritter Finance Co., 384 F.Supp. 150 (W.D.Va.1974), rev'd on other grounds, 5 CCH Consumer Credit Guide ¶ 98,500 (4 Cir. December 19, 1975); Jones v. Community Loan & Investment Corp., 5 CCH Consumer Credit Guide ¶ 98,787 (N.D.Ga. March 22, 1974), rev'd on other grounds, 5 CCH Consumer Credit Guide ¶ 98,485 (5 Cir. January 30, 1976).

The plaintiffs had initially relied on Hall v. Sheraton Galleries, 5 CCH Consumer Credit Guide ¶ 98,737 (N.D.Ga. March 21, 1974), for the proposition that Aetna was required to provide the option of purchasing health and accident (disability) insurance alone. Hall is distinguishable, however, as that "case" involved property insurance and the disclosure patterns for such insurance are different and governed by a separate regulation. See Federal Reserve Board Advisory Letter No. 843 of September 19, 1974, by Jerauld C. Kluckman, Chief, Truth in Lending Section, quoted in, CCH Consumer Credit Guide ¶ 31,165.

The defendant's failure to provide the option of purchasing only health and accident insurance, therefore, is not in and of itself a violation.

Because health and accident insurance could not be purchased separately, it is also argued that Aetna was required to disclose the combined costs of both credit life and health and accident insurance. For authority, the plaintiffs cite the district court's opinion in Doggett v. Ritter Finance Co., supra, wherein it was found that a separate statement of the cost of disability insurance was confusing surplusage since it was not available except in combination with credit life insurance.

The Fourth Circuit disagreed with this portion of the lower court's decision, however, and stated that the itemization rule of 12 C.F.R. § 226.8(d)(1) probably required the separate disclosure of the cost of health and accident insurance. Thus, the court could not fault the defendant for doing what the regulation seemingly required.

Further, according to Federal Reserve Board Advisory Letter No. 843, supra, 12 C.F.R. § 226.4(a)(5) does not require the creditor to disclose the costs of the various combinations of insurance coverage available.

We find this approach persuasive. If the borrowers elected to purchase both types of insurance, it would be a simple matter to add the individual costs disclosed. Further, we agree with the Fourth Circuit's analysis of the requirements of 12 C.F.R. § 226.8(d)(1). Disclosure of the combined costs must be considered additional information which Aetna could have, but was not compelled to, disclose. See 12 C.F.R. § 226.6(c). Standing alone the defendant's failure to disclose the combined costs of insurance options available is not a violation.

Finally, the plaintiffs claim that the defendant's insurance authorization disclosure was deficient because the disclosed costs were not in close proximity to the place on the form where the borrowers were to indicate their desire to elect coverage.

The disclosure statement⁵ contained a separate boxed section at the bottom of the page wherein the following language, in pertinent part, appeared:

CREDIT LIFE OR HEALTH AND ACCIDENT INSURANCE is optional and it is not required as a condition to the granting of this loan. If borrower elects to have the Lender obtain Credit Life or Health and Accident insurance coverage, the cost of such insurance is the charge(s) therefor stated above. . . . No charge is made for this insurance and none is provided unless the borrower to be insured signs the appropriate statement below.

Above, near the top of the form, in a box labeled "Credit Life Ins. Chg.", $25.92 is shown. In the next box labeled "H. & A. Ins. Chg.", $38.88 appears.

The plaintiffs cite Pollock v. Avco Financial Services, Inc., 5 CCH Consumer Credit Guide ¶ 98,766 (N.D.Ga. July 1, 1974), and Phillips v. Termplan of Atlanta, Inc., 5 CCH Consumer Credit Guide ¶ 98,841 (N.D.Ga. November 6, 1973) for the proposition that all insurance disclosures must be complete within themselves and that the defendant may not incorporate the costs of insurance by reference to figures at the top of the disclosure statement.

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