Gonzales v. Associates Financial Service Co. of Kansas, Inc.

• Decision Date: 06 November 1998
• Docket Number: No. 78944,78944
• Citation: 967 P.2d 312,266 Kan. 141
• Parties: Henry GONZALES, Individually and on Behalf of All Others Similarly Situated, Appellant, v. ASSOCIATES FINANCIAL SERVICE COMPANY OF KANSAS, INC., Appellee.
• Court: Kansas Supreme Court

Page 312

967 P.2d 312

266 Kan. 141

Henry GONZALES, Individually and on Behalf of All Others Similarly Situated, Appellant, v. ASSOCIATES FINANCIAL SERVICE COMPANY OF KANSAS, INC., Appellee.

No. 78944.

Supreme Court of Kansas.

Nov. 6, 1998.

Syllabus by the Court

In a summary judgment case interpreting K.S.A. 16a-2-401(9)(b) of the Kansas Uniform Consumer Credit Code (UCCC) the record is reviewed and under the facts here it is held: (1) K.S.A. 16a-2-401(9)(b), which is not contained in the Model Uniform Act, authorizes, in addition to the applicable permitted finance charge, a nonrefundable origination fee legislatively named a nonrefundable prepaid finance charge, (2) K.S.A. 16a-2-401(9)(b) authorizes the lender to charge an origination fee based on the amount financed, including refinancing, rather than only on the amount of new money advanced, (3) if the UCCC is inadequate for failing to require explicit disclosure of the disadvantages or advantages of refinancing versus taking out a new loan, the remedy lies with the legislature, (4) K.S.A. 16a-5-108 does not create an independent claim for damages; unconscionability under the UCCC is an affirmative defense to the enforcement of a credit agreement and the lender did not engage in unconscionable acts, (5) the borrower does not have a viable fraud claim, (6) the lender's conduct was not deceptive under the Kansas Consumer Protection Act, K.S.A. 50-623 et seq., and (7) summary judgment in favor of the lender was proper.

Arden J. Bradshaw, of Bradshaw, Johnson & Hund, Wichita, argued the cause, and Ryan Hodge, of Ray Hodge & Associates, L.L.C., Wichita, was with him on the briefs, for appellant.

James D. Oliver, of Foulston & Siefkin, L.L.P., Topeka, argued the cause, and Martha Aaron Ross, of the same firm, Wichita, was with him on the brief, for appellee.

SIX, J.:

This first impression consumer loan case, before us on summary judgment, focuses on K.S.A. 16a-2-401(9)(b) of the Kansas Uniform Consumer Credit Code (UCCC). K.S.A. 16a-2-401(9)(b) is not contained in the Model Uniform Act. It authorizes, in addition The plaintiff, Henry Gonzales, refinanced loans with defendant Associates Financial Service Company of Kansas, Inc. (Associates) three times within a 15-month period. With the second and third refinancings, money was given directly to him. Gonzales claims the origination fees charged on the second and third refinancings were fraudulent and unconscionable. The fees were based upon the entire amount financed rather than on the smaller amount of new money given to him. The district court granted summary judgment for Associates, and Gonzales appeals.

to the permitted finance charge, a nonrefundable origination fee legislatively named a "nonrefundable prepaid finance charge."

Jurisdiction is under K.S.A. 20-3018(c), a transfer from the Court of Appeals on our motion.

The primary issue, which influences the resolution of other issues, is whether K.S.A. 16a-2-401(9)(b) allows Associates, under the facts here, to charge a nonrefundable origination fee (nonrefundable prepaid finance charge) based upon the entire amount financed, or only upon the amount of new money advanced.

Secondary issues are:

(a) Did Associates engage in unconscionable acts, violating K.S.A. 16a-5-108?

(b) Does Gonzales have a viable fraud claim?

(c) Was Associates' conduct deceptive under the Kansas Consumer Protection Act (KCPA), K.S.A. 50-623 et seq.?

Finding no error, we affirm.

K.S.A. 16a-2-401(9)(b) says:

"In addition to the applicable finance charge permitted ... for consumer loans not secured by an interest in land, a creditor may contract for and receive, in connection with any such ... loan, a nonrefundable origination fee in an amount not to exceed the lesser of 2% of the amount financed or $100, which fee shall be a nonrefundable, prepaid finance charge." (Emphasis added.)

FACTS

From 1989 to 1994, Gonzales lived in Wichita while serving in the Air Force. He enrolled in Garden City Junior College before joining the military. (He completed 43 hours of college credit in the Air Force, primarily in non-commissioned officer school.) His duties as an aircraft fuel system mechanic required him to read and follow technical orders, job guides, and instruction manuals. He also trained in logistics and supply, and served as a supply sergeant in charge of air base tool supply.

Gonzales was a 13-year customer of Associates or an out-of-state affiliate. He obtained credit from many creditors other than Associates (including ITT, Beneficial Finance, American General Finance, Commercial Credit Corporation, Luke Federal Credit Union, Golden Plains Credit Union, Discover Card, Chase Visa, Mercantile Bank Mastercard, Sears, Montgomery Ward, J.C. Penney, Spiegel, Bank One, and Union National Bank).

Gonzales first borrowed money from Associates in Wichita in September 1992. The "amount financed" was $5,655.84, using $3,074.87 to pay off a car loan from Golden Plains Credit Union and $2,508.97 to pay off the outstanding balance he owed Associates Financial Services of Arizona. No money was given directly to him. He does not base his claim against Associates on the September 1992 loan. He asserts, however, that if he had been charged the K.S.A. 16a-2-401(9)(b) incremental origination fee rate of 2%, the result would have been a fee of $61.50 (2% of $3,074.87) instead of $100. Gonzales admits the $100 charged was disclosed as a prepaid finance charge but says he was not told that an origination fee had been charged. He looked at the September 1992 disclosure statement and went through it with an Associates' employee. He saw the disclosure of the $100 prepaid finance charge before he signed. He did not ask any questions.

Gonzales entered into the September 1992 loan agreement in order to lower his total monthly payments, thus freeing up additional spending money. His new monthly payment was $80 or $90 per month less than the Gonzales says that after September 1992, he was contacted by Associates "on a continuing basis." He received cards through the mail and telephone calls. In the mail advertising, Associates would "say to the effect to come in and see them, that they've got money, Christmas is coming up, you know, would you like to borrow more money. You know, things like that." He testified that in telephone calls, Associates employees would say, "I had made my payments on a pretty regular basis, and that if I was interested that, you know, they could loan me some more money."

combined total of his payments on the Golden Plains and Arizona loans. He testified he would not have taken out the new loan if it had not reduced his monthly payments.

Associates employees endeavor to talk to customers in person or by telephone at least quarterly if time allows. During such contacts, Associates will check on customer satisfaction and ask if the customers have any questions. Associates will also ask creditworthy customers if they are interested in obtaining new loans. The customer is invited to come in and borrow more money. This practice is common with Associates and in the industry. If a loan is made, local Associates' managers are instructed to charge the maximum K.S.A. 16a-2-401(9)(b) origination fee. The office manager is eligible for quarterly bonuses if business performance improves.

During 1993, Gonzales spoke with an Associates employee in person or by telephone on or about March 12, April 20, May 11, and August 3. Associates' "Account Follow-Up History" reveals that on April 20, 1993, "TR" called Henry Gonzales at 14:53 to solicit him to apply for an advance of further funds. An answering machine apparently responded, and TR left a message to "call ASAP." Less than an hour later Gonzales apparently called back, and Associates' log suggests that he was solicited to apply for a further advance of money. According to the log Gonzales replied that he did not wish to do so at that time but "might need some cash down the road." Gonzales showed no current interest in borrowing additional money on each occasion. He testified, "I knew for myself that I was already overextended and I didn't really want to get any more money from them."

In May 1993, an Associates employee noted for the file that Gonzales said he did not have any cash reserve and wanted to save his credit with Associates "so if something comes up needs cash could get it here." Associates' records of an August 1993 conversation show that, in response to an inquiry about his credit needs, Gonzales replied, "maybe later for auto repair[s]."

On August 2, 1993, Gonzales purchased a 1992 Chevy van for $18,840.81. The purchase was financed under an installment credit agreement, assigned by the dealer to a bank, with monthly payments to the bank of $329.39. Gonzales became concerned about the size of his monthly payments. In addition, he did not have enough money to pay for the license tag and property taxes on the new van. He called Associates. The office suggested he borrow additional money. He decided to take out a new loan.

On August 20, 1993, Gonzales executed a Disclosure Statement, Note, and Security Agreement (August Loan Agreement) which provided for a loan with an "amount financed" of $5,134.83. Of the amount financed, $500 was advanced in cash to Gonzales, $60 was applied to a personal property insurance premium, and $4,574.83 was applied to repay his existing loan balance. Before August 20, 1993, Gonzales was required to make loan payments to Associates of $215.29 per month. The August Loan Agreement reduced his monthly payments to $197.47. He understood that by refinancing, his monthly payments would be reduced. He did not ask Associates about the possibility of another loan in addition to the loan he had, nor was a separate loan proposed. Gonzales also understood that if he had to take out a separate loan, his payments would probably have gone up. The September 1992 note had been in effect for almost 11...