Greer v. General Motors Acceptance Corp., Civ. No. C79-816A.

• Decision Date: 17 November 1980
• Docket Number: Civ. No. C79-816A.
• Citation: 505 F. Supp. 692
• Parties: Joseph GREER v. GENERAL MOTORS ACCEPTANCE CORPORATION
• Court: U.S. District Court — Northern District of Georgia

505 F. Supp. 692

Joseph GREER v. GENERAL MOTORS ACCEPTANCE CORPORATION

Civ. No. C79-816A.

United States District Court, N. D. Georgia, Atlanta Division.

November 17, 1980.

Dwight Bowen, Bowen, Derrickson, Goldberg & West, Atlanta, Ga., for plaintiff.

Nolan C. Leake and Ralph A. Pitts, King & Spalding, Atlanta, Ga., for defendant.

ORDER

O'KELLEY, District Judge.

This Truth in Lending (hereinafter "TIL") action is presently before the court on the magistrate's report and recommendation that the plaintiff's motion for summary judgment be denied and the defendant's cross-motion for summary judgment be granted. The court disagrees with the magistrate and finds that the defendant violated the TIL Act by failing to disclose a potential security interest to be taken in unearned insurance premiums. The court, therefore, grants the plaintiff's motion for summary judgment.

On August 24, 1978, the plaintiff purchased a car from Capital Automobile Company. The contract was assigned to the defendant, General Motors Acceptance Corporation (hereinafter "GMAC"). The plaintiff subsequently filed this TIL action, and GMAC filed a counterclaim for the amount due under the contract after voluntary repossession and sale of the automobile. In his complaint the plaintiff alleged three violations of the TIL Act: (1) failure to properly disclose the amount of the official license fee, (2) failure to disclose its security interest in insurance proceeds or returned and/or unearned insurance premiums, and (3) failure to properly disclose its security interest in after-acquired equipment and accessories. It is clear from the record that the license fee was properly disclosed and that the contract in dispute did not purport to give the defendant a security interest in after-acquired equipment and accessories. The court therefore adopts the magistrate's finding that there was no TIL violation presented in the plaintiff's first and third allegations. The court also agrees that the defendant properly disclosed the security interest GMAC took in the insurance proceeds;¹ the court does not agree, however, that GMAC had no obligation to disclose the potential security interest to be taken in the plaintiff's unearned insurance premiums.

It is beyond dispute that creditors² must disclose the existence of a security interest taken in unearned insurance premiums. Edmondson v. Allen-Russell Ford, Inc., 577 F.2d 291 (5th Cir. 1978), cert. denied, 441 U.S. 951, 99 S.Ct. 2180, 60 L.Ed.2d 1057 (1979). This case differs from Edmondson, however, in that the security interest would not arise unless the debtor failed to maintain property damage insurance coverage on the collateral for the loan and GMAC was forced to buy insurance to protect its interest in the collateral.³ The defendant argues that if it obtained property damage insurance on the automobile because of the debtor's failure to do so, it would be a "subsequent occurrence" within the meaning of 12 C.F.R. § 226.6(g)⁴ and no liability would attach for failing to disclose the security interest taken in the unearned insurance premiums. The plaintiff counters that section 226.6(g) does not operate to cure defects in the creditor's original disclosure statement and that a creditor is required under 12 C.F.R. § 226.8(b)(5) to disclose "any security interest held or to be retained or acquired by the creditor in connection with the extension of credit ...." Emphasis added. The plaintiff argues that under the reasoning in Elzea v. National Bank of Georgia, 570 F.2d 1248 (5th Cir. 1978) (assignment of homestead and exemption is a security interest which must be disclosed even though the creditor's rights are contingent on events not in his control), the fact that the security interest does not arise unless the defendant fails to maintain property damage insurance does not mean that it need not be disclosed.

The court finds that it must agree with the plaintiff. Section 226.6(g) of Regulation Z was intended to relieve the creditor from making the full purview of disclosures for every contingency which might arise. It was not intended to relieve the creditor from making disclosures required under the Act. Certainly a debtor's default or payment of a loan is a "subsequent occurrence" under section 226.6(g); however, that does not relieve the creditor from disclosing "the amount, or method of computing the amount, of any default, delinquency, or similar charges payable in the event of late payments." 12 C.F.R. § 226.8(b)(4). Under the defendant's reasoning, section 226.6(g) would relieve the creditor from making these disclosures in the original disclosure statement. The court cannot agree. The TIL Act is clear that "any security interest held or to be retained or acquired" must be disclosed. The Fifth Circuit in Elzea clearly stated that a security interest must be disclosed even though it is contingent on the occurrence of an event not in the control of the defendant.⁵ The defendant seeks to distinguish Elzea by arguing that the only security interests which need be disclosed in the original disclosure statement are those which secure the original debt. The defendant contends that a security interest taken in the unearned insurance premiums would secure only the additional extension of credit made to procure insurance and would not secure the original indebtedness. Again the court must disagree. If GMAC purchased property damage insurance pursuant to the contract, it would do so to protect its interest in the collateral and would add the amount to the original indebtedness. Any unearned insurance premiums which were returned to the defendant would be used to reduce the original indebtedness and not merely to reduce the second extension of credit. In fact, section 226.8(j) of Regulation Z recognizes that when a creditor purchases insurance pursuant to the terms of the contract, it is not a new extension of credit; the section provides that "any increase in an existing obligation to reimburse the creditor for undertaking the customer's obligation in perfecting, protecting or preserving the security shall not be considered a new transaction subject to this part."

Section 226.6(g) of Regulation Z and Federal Reserve Board...