Nesbitt v. Blazer Financial Services, Inc., 79 C 134

Citation550 F. Supp. 819
Decision Date09 August 1982
Docket NumberNo. 79 C 134,78 C 4277.,79 C 134
PartiesRoselda E. NESBITT, individually and on behalf of all others similarly situated, Plaintiff, v. BLAZER FINANCIAL SERVICES, INC., Defendant. Willie Mae MILLS, individually and on behalf of all others similarly situated, Plaintiff, v. BLAZER FINANCIAL SERVICES, INC., Defendant.
CourtUnited States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)

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Roberta Strickler, Carolyn Cozad Hughes, Timothy T. Hughes, Gary S. Laser (IIT/Chicago-Kent Law School, Legal Services Center), Chicago, Ill., for plaintiffs.

Mary Alice Noone, Lawrence X. Pusateri (Peterson, Ross, Shloerb & Seidel), Chicago, Ill., for defendant.

MEMORANDUM AND ORDER

MORAN, District Judge.

These consolidated lawsuits have been brought as class actions to recover damages for alleged violations of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., and Regulation Z, 12 C.F.R. § 226.1 et seq., issued pursuant to TILA. Plaintiffs, Roselda E. Nesbitt ("Nesbitt") and Willie Mae Mills ("Mills"), representing certified classes composed of consumers who entered into loan transactions with defendant Blazer Financial Services, Inc. ("Blazer"), and who received disclosure statements similar to those received by Nesbitt or Mills, claim that Blazer violated federal law in six respects:

(1) It failed to make required disclosures clearly, conspicuously, and in meaningful sequence.

(2) Its notes and disclosure statements contain terms and information which are confusing, misleading and contradictory.

(3) It failed to comply with regulations governing disclosure of insurance costs.

(4) It did not disclose, in the Nesbitt transaction, that the note contains a provision for confession of judgment, which constitutes a security interest in property, and it failed to describe the property taken as security.

(5) In the Mills transaction it failed to disclose that after-acquired property was subject to a security interest and to adequately describe the security interest in that it did not state that a confession of judgment clause permits entry of a judgment without prior notice or hearing.

(6) It failed to make reference, in the Nesbitt disclosure statement, to a separate document itemizing the personal property subject to a security interest, and did not disclose that after-acquired property was also subject to a security interest.

The parties, agreeing that there are no genuine issues of material fact,1 filed cross motions for summary judgment on the issue of liability as to each of these claims. The matter was referred to Magistrate Olga Jurco for findings and recommendations. On May 5, 1981, Magistrate Jurco issued a report recommending that Blazer be granted summary judgment on plaintiffs' first through third claims and that plaintiffs be granted summary judgment on their fourth through sixth claims. Blazer has filed objections to the latter recommendation and those objections have been fully briefed. Upon review of the facts of these cases, the arguments of the parties, and the relevant case authority, this court agrees with Magistrate Jurco's recommendations with respect to claims one through five, but concludes that Blazer is entitled to summary judgment with respect to claim six.

I. MAGISTRATE'S RECOMMENDATIONS TO WHICH THERE ARE NO OBJECTIONS

Magistrate Jurco recommended that Blazer's motion for summary judgment be granted with respect to claims one through three set forth above. In light of the Magistrate's lucid and thorough report on these claims and in the absence of any objections thereto, this court adopts her recommendations with the following brief discussion.

A. Plaintiffs' First Claim

Regulation Z, 12 C.R.F. § 226.6(a), imposes on creditors the duty to make the disclosures required by TILA and regulations thereunder "clearly, conspicuously, and in meaningful sequence...." In Allen v. Beneficial Finance Company of Gary, 531 F.2d 797 (7th Cir.), cert. denied, 429 U.S. 885, 97 S.Ct. 237, 50 L.Ed.2d 166 (1976), the Seventh Circuit Court of Appeals defined "meaningful sequence" as follows:

Meaningful sequence first requires groupings of logically related terms. Second, meaningful sequence requires that terms in the groupings be arranged in a logically sequential order emphasizing the most important terms.

531 F.2d at 801.

Plaintiffs contend that TILA and Regulation Z require Blazer to group two sets of logically-related items: (1) the number, amount and dates of payments, and (2) the amount financed, the finance charge and the annual percentage rate.2 But the law does not mandate such rigidity. While the burden is on the creditor "to be able to support his belief that his disclosures meet the requirements of the Regulation," he can do so in a "multitude of ways." Public Position Letter No. 545 (November 4, 1971), CCH Consumer Credit Guide ¶ 30,759.3

Read horizontally, the first line of Blazer's disclosure statement informs the consumer of the number and amount of payments. The sum of these individual payments is the total amount paid by the consumer, which is the next disclosure in the line. Following that, Blazer lists the portion of the total payment constituting interest.

On the second line — again reading horizontally — the statement presents the total amount financed, itemized charges and the "net to customer(s)," which is the "amount of credit of which the obligor will have the actual use." 15 U.S.C. § 1639(a)(1). This latter figure is reached by subtracting the itemized charges from the amount financed.

On the third line Blazer lists — again in horizontal order — the term of the loan, the due date of each payment and the maturity date of the loan. Finally, Blazer highlights the finance charge and annual percentage rate, two essential terms of the loan, by isolating them in boldface type on the far right side of the disclosure statement.

While Blazer's disclosure format may not comport with plaintiffs' preferred logic, this court believes that its sequential presentation of facts relating to the money involved in the loan, followed by facts about the dates of the loan, is logical and permits easy arithmetical computation. See Johnson v. Blazer Financial Services, Inc., No. 75-178-MAC, slip op. at p. 6 (M.D.Ga. April 19, 1976) (upholding identical disclosure statement). In its disclosure statement Blazer has presented the required disclosures in a reasonably if not optimally comprehensible fashion, and that is all that is required. Warren v. Credithrift of America, Inc., 599 F.2d 829, 832 (7th Cir.1979).

B. Plaintiffs' Second Claim

Plaintiffs' second claim concerns the acceleration, delinquency and prepayment provisions of the notes and disclosure statements in question. This claim has two components4 and Blazer is entitled to summary judgment on each of them.

1. Failure to Disclose Default Charges in the Context of Acceleration

Plaintiffs allege in their complaints that Blazer violated Regulation Z, 12 C.F.R. § 226.8(b)(4) by failing to disclose as a default charge its contractual right to accelerate the balance of the loan on default. In Ford Motor Credit v. Milhollin, 444 U.S. 555, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980), the Supreme Court, relying heavily on the official interpretations and positions of the Federal Reserve Board, held that an acceleration clause is a default charge for disclosure purposes only when the debtor does not receive a rebate of unearned finance charges and that disclosure is required only where the policy of the creditor relating to rebate upon acceleration differs from the creditor's rebate policy in the case of voluntary prepayment of the debt.

The Mills and Nesbitt disclosure statements provide that the debtors "shall be entitled to a rebate of" the unearned portion of the finance charge upon prepayment of the unpaid balance of the loan. The notes contain clauses which provide that "a default in the making of any payment ... shall, at the option of the Creditor ... render the unpaid balance due and payable less any refunds or credits then due ...." The disclosure statements contain no reference to Blazer's rebate policy in the event of acceleration.

Plaintiffs contend that summary judgment may not be granted on this claim because there is a disputed question of fact as to Blazer's rebate policy upon acceleration — the factor that triggers disclosure requirements under Milhollin. In its answer to Plaintiffs' Interrogatory No. 21, however, Blazer stated that its policy on acceleration of a debt was to rebate the unearned portion of the finance charge in the same manner as rebate upon prepayment. Since Blazer's rebate policy was the same with respect to acceleration and prepayment, Milhollin requires no more disclosure than was made. Blazer is therefore entitled to summary judgment on this claim. See also Official Staff Interp. No. FC-0054, 12 C.F.R. Part 226 Appendix (1977).

2. Contradictions between Information on Notes and Disclosure Statements

Regulation Z, 12 C.F.R. § 226.6(c) permits a creditor to provide additional, but not required, information on its disclosure statements as long as such information does not mislead or confuse the debtor or contradict information that is required to be disclosed. Plaintiffs contend that Blazer has violated this provision because the acceleration clause of its notes, which provides for acceleration of the unpaid balance of the debt "less any refunds or credits then due," when read in the context of the delinquency provision of its disclosure statements, which provides for "the rebate of charges which would be required for prepayment in full," leads the debtor to conclude incorrectly that there will be no rebate of finance charges upon acceleration. According to plaintiffs this conclusion, necessarily drawn from the delinquency and acceleration provisions, improperly conflicts with the presumption, under Milhollin, that the...

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