Jones v. TRANSOHIO SAV. ASS'N, C82-3130.

• Decision Date: 01 July 1983
• Docket Number: No. C82-3130.,C82-3130.
• Parties: Richard M. JONES, et al., Plaintiffs, v. The TRANSOHIO SAVINGS ASSOCIATION, Defendant.
• Court: U.S. District Court — Northern District of Ohio

569 F. Supp. 1188

Richard M. JONES, et al., Plaintiffs, v. The TRANSOHIO SAVINGS ASSOCIATION, Defendant.

No. C82-3130.

United States District Court, N.D. Ohio, E.D.

July 1, 1983.

Harvey B. Bruner, Steven M. Weiss, Bruner & Shafran, Cleveland, Ohio, for plaintiffs.

Brett J. Bacon, David Naftzinger, Thompson, Hine & Flory, Cleveland, Ohio, for defendant.

MEMORANDUM OF OPINION AND ORDER

KRENZLER, District Judge.

This action was filed by the plaintiffs on November 12, 1982. The plaintiffs alleged that the defendant's assignor violated the Truth-in-Lending Act (hereinafter TILA), 15 U.S.C. § 1601 et seq. and Federal Reserve Regulation Z, 12 C.F.R. § 226.1 et seq., by failing to disclose the variable-rate feature of their mortgage. The plaintiffs brought their suit on behalf of themselves and a class of consumers who had dealt with the defendant's assignor and were similarly situated.

The complaint further alleged that subject matter jurisdiction is based upon § 1640(e) of the Truth-in-Lending Act (TILA) and 28 U.S.C. § 1337, providing jurisdiction for any action arising under an Act of Congress regulating commerce.

In substance, the complaint alleges the following.

On June 15, 1971, the plaintiffs Richard M. Jones and Donna S. Jones entered into a loan agreement with the defendant's assignor, the Union Savings Association, for the purpose of financing the purchase of their home. At that time the plaintiffs executed a mortgage note. On the same date, a disclosure form, purporting to satisfy the requirements of Regulation Z, was drawn up by the defendant's assignor and given to the plaintiffs. The plaintiffs allegedly did not receive a copy of the mortgage note, and apparently did not request one.

Subsequent to this transaction, the note was assigned by Union Savings Association to The Transohio Savings Association, the defendant in this case.

Paragraph 10 of the mortgage note provides that the holder may, after two (2) years from the time of execution, increase the interest rate as much as one percent per annum. This option required that the holder merely give the customer 30 days' advance notice. Although the Disclosure Document states the interest rate as seven percent, it fails to mention the variable rate provision as found in paragraph 10 of the mortgage note. Plaintiffs allege that on or about October 29, 1982, the defendant notified them that it planned to exercise its option to raise the interest from seven (7) to eight (8) percent. Plaintiffs further alleged that this was the first time they were made aware of the variable clause in the loan agreement.

On December 9, 1982, the defendant timely filed a motion to dismiss on the grounds that this Court lacks subject matter jurisdiction. Defendant alleges that the one-year statute of limitations to bring this action elapsed on June 14, 1972, one year after the loan transaction was consummated.¹ In support of its argument, defendant cites the leading Sixth Circuit case of Wachtel v. West, 476 F.2d 1062 (6th Cir.), cert. denied, 414 U.S. 874, 94 S.Ct. 161, 38 L.Ed.2d 114 (1973), which held that the statute of limitations provided by § 1640(e) begins to run at the time the contract for extension of credit is entered into.

Plaintiffs argue that, in the instant situation, the statute is tolled because the defendant concealed the existence of the variable rate feature from them by failing to provide them with a copy of the note or an accurate and complete disclosure statement. Plaintiffs further argue that because of the concealment of the very information the Act mandates the lender to supply, they were not apprised of the TILA violation until the defendant first exercised its option to increase the interest rate. Therefore, plaintiffs contend, the remedial purpose of the Act is defeated unless the statute is tolled until the time the consumer knew, or should have known, of the existence of the nondisclosed information.

This case presents the issue of whether the lender's failure to include pertinent information in the TILA disclosure statement tolls the statute of limitations, 15 U.S.C. § 1640(e), until the borrower discovers the existence of the omitted information.

Section 1640(e) of the TILA reads as follows:

Any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation. (emphasis added).

The purpose of the Truth-in-Lending Act as stated within the Congressional Findings, 15 U.S.C. § 1601, is:

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 to avoid the uninformed use of credit ....

Hence, the detailed requirements of Regulation Z, and the command that the lender "shall furnish the customer with a duplicate of the instrument or a statement by which required disclosures are made ..." 12 C.F.R. § 226.8(a).

In Wachtel v. West, supra, the Sixth Circuit held that the statute of limitations in § 1640(e) begins to run at the time the contract for extension of credit is entered into, and that the violation is not a continuous one. Determining that the purpose of the statute was to give the borrower an opportunity to do some comparative shopping for credit terms, the court reasoned that this purpose would only be meaningful if the buyer had the necessary information before purchasing the credit. The court concluded that since disclosure was required at the time the contract was consummated, such was the point from which the limitations period runs.

The dissent in Wachtel pointed out the fundamental flaw in this reasoning. By holding that the statute runs from the date the transaction was consummated, the effectiveness of the statute is limited to situations in which a borrower inadvertently discovers the violation within a year after the transaction. This enables creditors to structure loan transactions in such a way that the violation is not discovered until after the statute has expired.²

Since the Sixth Circuit has held that the one-year statute of limitations begins to run when the transaction closes, thereby implicitly rejecting the tolling theory, it places a considerable burden on the borrower. Congress' intent in requiring the lender to give the borrower either a duplicate copy of the note or a complete statement setting forth all relevant terms and conditions prior to closing, was to give the borrower the opportunity to make an intelligent choice between this particular loan or one with another lending institution.

The Sixth Circuit's Wachtel holding places a burden upon the borrower because it imputes to the borrower the knowledge that, at or before the time of closing, he should have been given a copy of the promissory note or a complete and accurate disclosure statement. It further imputes to the borrower the knowledge that the lender's failure to provide him these disclosure documents results in a violation of the law, and that the borrower...