Meyers v. Clearview Dodge Sales, Inc., Civ. A. No. 73-963.
| Decision Date | 31 October 1974 |
| Docket Number | Civ. A. No. 73-963. |
| Parties | Cheryl A. MEYERS v. CLEARVIEW DODGE SALES, INC., and Chrysler Credit Corporation. |
| Court | U.S. District Court — Eastern District of Louisiana |
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Patrick D. Breeden, Russell & DeRussy, New Orleans, La., for plaintiff.
James K. Irvin, Milling, Benson, Woodward, Hillyer & Pierson, New Orleans, La., for defendant Chrysler Credit Corp.
Robert E. McDonald, Dupepe & McDonald, Metairie, La., for defendant Clearview Dodge Sales, Inc.
This action was brought by the plaintiff against Clearview Dodge Sales, Inc., and Chrysler Credit Corporation to recover statutory penalties and attorney's fees for alleged violations of the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., and Regulation Z, 12 C.F.R. § 226.1, et seq. The case is now before the Court on cross motions for summary judgment.
In June of 1972 the plaintiff, Cheryl Meyers, decided that she wished to purchase a 1972 Dodge from Clearview Dodge Sales, Inc., on credit. A "Retail Buyer's Order" which described the car, its sales price and the credit terms was filled out by the salesman and signed by Meyers. The sale was not finalized, however, at this point of the transaction. Since Clearview does not itself finance credit sales, it had to obtain credit approval for Meyers from one of the four or five lenders with which it regularly deals. In this case, Chrysler Credit Corporation agreed to finance Meyer's purchase. The information from the buyer's order was then fed into a machine which typed out and prepared a combination contract, disclosure statement, chattel mortgage and promissory note on a form prepared by Chrysler Credit Corporation. According to this document, Clearview appears as the seller and mortgagee of the car. However, the paper was then sold to Chrysler Credit Corporation at a discount, according to the terms of the "Vehicle Financing and Repurchase Plan" in effect between Clearview and Chrysler Credit.
Plaintiff contends that five disclosures mandated by the Truth-in-Lending Act and its companion, Regulation Z, were not made and that both defendants are liable to her for her statutory penalties and attorney's fees.
The "Retail Buyer's Order" shows that a $15.00 charge, purportedly covering "tag, title and fees," was added to the price of the car. However, on the disclosure statement this charge was neither itemized nor included as a component of the finance charge; instead, it was simply included as part of the cash price of the car. Defendants point to Reg. Z, 12 C.F.R. § 226.4(a), and argue that since all purchasers must pay this charge, regardless of whether the sale is for cash or credit, it is not a charge imposed "as an incident to or as a condition of the extension of credit" and, hence, need not be included in the finance charge. However, § 226.4(b) specifically states that "If itemized and disclosed to the customer," license, certificate of title and registration fees need not be included in the finance charge. As the court concluded in Starks v. Orleans Motors, 372 F.Supp. 928 (E. D.La.1974), "The options are clear; nowhere is there allowance for inclusion within the cash price." Inasmuch as this district court decision was recently affirmed by the Fifth Circuit, Starks v. Orleans Motors, 500 F.2d 1182 (1974), it is clear that the failure to either itemize the tag, title and registration charge on the disclosure form or to include it in the finance charge violates the Truth-in-Lending Act.
The "Retail Buyer's Order" also indicates that a $25.00 "Documentary Service Fee" was added to the price of the car. This charge was treated on the disclosure statement in the same fashion as the "tag, title and fees" charge. Instead of being separately itemized, it was merely included in the cash price of the car. Defendants again argue that this "fee" is imposed upon all buyers; since it, therefore, has no bearing upon the extension of credit, it need not be disclosed. This argument, however, fails to come to grips with the clear requirements of Regulation Z. Section 226.8(c)(4) states that in the case of a credit sale "all other charges, individually itemized which are included in the amount financed but which are not part of the finance charge" must be disclosed on the disclosure statement. The sale in question was a credit sale; the "Documentary Service Fee" was included in the amount financed and was not part of the finance charge. Thus, the failure to individually itemize this fee on the disclosure statement constitutes a violation of the Truth-in-Lending Act.
According to the disclosure statement, the total amount of the finance charge was $791.16. The Vehicle Financing and Repurchase Plan required that Chrysler Credit put a certain percentage of that charge, amounting to $271.60, into a reserve account for Clearview when it purchased Meyers' note. Clearview's retention of that full amount according to the plan, is contingent upon a number of factors, including the ability of Chrysler Credit to collect fully on the note. Naturally, this contractual relationship provides Clearview with an incentive to allow Chrysler Credit to finance its car sales, and we do not quarrel with plaintiff's characterization of it as a kind of rebate or finder's fee. As such, Regulation Z required that it be separately described on the disclosure form. 12 C.F.R. 226.8(c)(8)(i) requires that "the total amount of the finance charge, with description of each amount included ..." must be disclosed. 12 C.F.R. 226.4(a) (3) further provides that a "Loan fee, points, finder's fee, or similar charge" be included in the calculation of the amount of the finance charge. The defendant strenuously argues that the finance charge consisted solely of precomputed interest and that since the "rebate" was not a separate, additional charge adding to Meyers' financial burden, it cannot be characterized as a "finder's fee."
First, the rebate surely qualifies as either a finder's fee or a similar charge, inasmuch as it is a charge borne ultimately by the purchaser as an incident to the extension of credit which is designed to induce Clearview to sell its notes to Chrysler Credit, the creditor. Regulation Z requires that each amount included in the finance charge be separately described precisely so that lenders cannot through precomputation, disguise such charges by including them in the calculation of "precomputed interest." The defendants argue at length that the disclosure of the "finder's fee" is not necessary since the failure to disclose in no way mislead the plaintiff as to the amount of the finance charge or the annual percentage rate. The simple answer to this contention is that the purpose behind the Truth-in-Lending Act is to inform the consumer not only of the true cost of credit, but also of the nature of the terms of credit offered to him, which certainly includes a description of the components of the finance charge.
Even if we were to agree with the defendants that a finder's fee was not involved in this transaction, and that the entire finance charge was composed of precomputed interest, we would, nevertheless, find the disclosure statement defective. If the finance charge was entirely composed of interest, then the consumer is entitled to know that fact under 226.8(c)(8)(i). See, Johnson v. Associates Finance, Inc., 369 F.Supp. 1121 (S.D.Ill.1974). The disclosure statement contains no such description under the heading "finance charge."
The disclosure statement properly informs the debtor that a delinquency charge may be imposed in the event of a late payment but fails to mention the acceleration clause contained in the promissory note. Thus, by relying upon the disclosure form, the consumer would understand that he might have to pay a small delinquency charge in the event of a late payment but would not be aware that at the creditor's option the entire balance of the debt could be accelerated. The plaintiff contends that this omission violates Regulation Z, § 226.8(b)(4), which requires the disclosure of "the amount, or method of computing the amount, of any default, delinquency, or similar charges payable in the event of late payments."
Defendant argues, first, that the acceleration clause may only be triggered by the debtor's default which would constitute a "subsequent occurrence" under 226.6(g). Under that section, the defendants argue that the possibility of acceleration need not have been disclosed since its happening would be contingent upon postdisclosure events or acts. This reading of the regulation would, however, render § 226.8(b)(4) a nullity, since all delinquency-type charges are contingent upon such postdisclosure acts, namely, the failure to make timely payments.
Secondly, the defendants maintain that an acceleration clause does not constitute a "charge" under § 226.8(b) (4). This argument is grounded in a belief that § 226.8(b)(4) requires disclosure only of "default, delinquency, or similar charges" which result in the increase of the consumer's total financial obligation and that since Louisiana law provides for a rebate of interest in the event of acceleration, the acceleration clause need not be disclosed. However, the Truth-in-Lending Act is remedial in nature and in order that its important goal of providing consumers with much needed credit information be furthered, we must construe its terms liberally. Thomas v. Myers-Dickson Furniture Company, 479 F.2d 740 (5th Cir. 1973). We agree with the decision in Garza v. Chicago Health Clubs, Inc., 347 F.Supp. 955 (N.D.Ill.1972), that the word "charge" can mean any pecuniary burden, expense or obligation. The acceleration of the balance of the debt against one who is late with a payment certainly results in a considerable immediate pecuniary burden for one attempting to avoid foreclosure. The Truth-in-Lending...
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