Philbeck v. Timmers Chevrolet, Inc., Civ. A. No. 16692.
| Decision Date | 24 August 1973 |
| Docket Number | Civ. A. No. 16692. |
| Citation | 361 F. Supp. 1255 |
| Parties | Norlinda D. PHILBECK, Plaintiff, v. TIMMERS CHEVROLET, INC., and General Motors Acceptance Corporation, Defendants. |
| Court | U.S. District Court — Northern District of Georgia |
COPYRIGHT MATERIAL OMITTED
Joseph L. Abraham, Atlanta, Ga., for plaintiff.
Wilkinson, Nance & Wittner, Atlanta, Ga., for General Motors.
Jones, Bird & Howell, Atlanta, Ga., for Timmers Chevrolet.
This action was brought by Norlinda D. Philbeck against Timmers Chevrolet and General Motors Acceptance Corporation hereinafter G.M.A.C. pursuant to the Truth-in-Lending Act, 15 U.S.C. § 1601 et seq., for allegedly inadequate credit disclosures made in connection with financing a new car. The action is now before the Court on cross motions for summary judgment. The focal point of the motions for summary judgment1 is whether the Instalment Sale Contract executed in connection with this transaction adequately disclosed the cost of creditor life insurance which plaintiff voluntarily agreed to purchase.
Both the Act2 and Regulation Z3 provide that charges for various types of credit insurance must be included in the finance charge unless certain disclosures are made and other requirements are met. The disclosures and requirements are most clearly stated in Regulation Z which provides:
The Court has reviewed the Instalment Sale Contract which is the subject of this action and finds it to be in complete compliance with the regulations quoted above.4 The basis for plaintiff's contention is that although the premium for the insurance was disclosed, this did not constitute adequate disclosure of the "cost" of the insurance because the term of the insurance policy was not disclosed. Support for plaintiff's contention is not found in § 226.4(a)(5) of Regulation Z or in the Act but in an Interpretation issued by the Federal Reserve Board and published in the Code of Federal Regulations immediately following the text of Regulation Z.
The Interpretation, 12 C.F.R. § 226. 402, states:
Interpretation § 226.402 clearly requires that for the disclosure of the cost of insurance to be adequate it must be "accompanied by a statement of the type of insurance and the term thereof." But what weight should this Court ascribe to an interpretation issued by the Federal Reserve Board?
That issue was squarely met by a federal district court in Kroll v. Cities Service Oil Co., 352 F.Supp. 357 (N.D.Ill.1972), which determined the weight to be given to Federal Reserve Board Interpretation § 226.401. The court stated:
"While an interpretative rule is not binding upon the courts, it is usually held valid `unless it is plainly erroneous or inconsistent with the regulation,' Bowles v. Seminole Rock Co., 325 U.S. 410, 414, 65 S.Ct. 1215, 1217, 89 L.Ed. 1700 (1945), Continental Oil Co. v. Burns, supra, 317 F.Supp. 194, 200 (D.Del.1970)." 352 F.Supp. at 363
This Court is in agreement with the above-quoted statement of the law and, in view of the purpose of the Truth in Lending Act,5 therefore finds that Interpretation § 226.402 is a valid interpretation of 15 U.S.C. § 1605 and 12 C.F.R. § 226.4(a)(5) and, accordingly holds that when credit insurance is not required by the creditor, the creditor, in disclosing the cost of the credit insurance pursuant to 15 U.S.C. § 1605 and Regulation Z § 226.4(a)(5), must also accompany that disclosure with a statement of the type of insurance and term thereof. This disclosure must be located in compliance with the general requirements of 12 C. F.R. § 226.8. The Instalment Sale Contract in the instant case fails to satisfy these requirements and, accordingly, plaintiff's motion for summary judgment is Granted.
Defendant Timmers argues that the Instalment Sale Contract did disclose the term of the insurance in two places. First, Timmers contends the term of the insurance is disclosed on the front side of the contract in the Payment Schedule which states that the total amount due shall be payable in 36 monthly installments. According to Timmers, this served to notify plaintiff of the term of the insurance because the Total of Payments included the Cost of Creditor Insurance and therefore served to disclose the term of the insurance.
The Court does not agree. Merely because the loan was made payable in 36 monthly installments, it does not necessarily follow that the term of the credit insurance must be for that same duration. It is entirely possible that the credit insurance could have been sold for a much shorter period of time than the duration of the installment contract. Therefore, Timmers's argument that the number of monthly payments served to disclose the term of the insurance is without merit.
In the alternative, Timmers contends that the disclosure was made on the reverse side of the contract and on the insurance policy itself. The reverse side of the buyer's copy of the contract does contain a section entitled "Notice of Proposed Creditor Insurance on Life of Buyer" and Subsection (b) of the Notice states: "If the insurance becomes effective, the term thereof shall commence on the date of this contract and will (in the absence of default on installment payments) continue until the date on which the unpaid balance of the obligation hereunder is or becomes paid in full, unless the insurance is terminated earlier in accordance with the terms and conditions set forth in the policy or certificate issued by the aforesaid insurer." Although the above-quoted wording fully discloses the term of the insurance coverage, the Notice is not located on the front side of the contract together with other disclosures required by Regulation Z. According to 12 C.F.R. § 226.8: "All of the disclosures shall be made together on either (1) the note or other instrument evidencing the obligation on the same side of the page and above or adjacent to the place for the customer's signature; or (2) one side of a separate statement which identifies the transaction." Therefore, the notice contained on the reverse side of the contract is not located in compliance with the requirements of Regulation Z. Likewise, the disclosure of the term of insurance located on the insurance policy which was issued after the transaction was consummated is also inadequate because it is not located in conformance with § 226.8 as explained above.6
Having decided that the Instalment Sale Contract in the instant case fails to comply with the disclosure requirements of the Act and Regulation Z as interpreted, there remains one other issue to dispose of: Who is liable for the statutory damages and attorney's fees?
Plaintiff contends that both Timmers and G.M.A.C. are liable as "creditors" under the Act.7 Under the Act and Regulation Z a "creditor" is one who regularly extends or arranges for the extension of credit, for which the payment of a finance charge is required, in connection with sales or loans to consumers. 15 U.S.C. §§ 1602(f) and 1605(a), Reg. Z § 226.2(k) and (m). Based on the facts contained in answers to interrogatories, and the Instalment Sale Contract itself, it is clear that defendant Timmers extended credit to plaintiff in connection with the purchase of the automobile and under the above definition is liable for the statutory damages and attorney's fees. Further evidence of Timmers's status of "creditor" is also shown by the assignment of the contract to G. M.A.C. because Timmers could not assign the contract to G.M.A.C. without first having rights under the contract itself. But the assignment of the contract leads the Court to the plaintiff's second argument concerning liability.
Plaintiff argues that G.M.A.C. is also liable as a "creditor" for violations of the Act because it is a finance company which regularly extends or arranges for the extension of credit to consumers through the use of assignors of contracts such as defendant Timmers. Support for plaintiff's theory is found in an emerging line of cases which have held finance companies to be "creditors" when the seller merely serves as a "conduit" for placing the finance companies' contracts with consumers and then regularly assigns the contracts to the finance companies.8 In the latest reported opinion which has considered this theory of recovery, Garza v. Chicago Health Clubs, Inc., 347 F.Supp. 955 (N.D.Ill., E.D. 1972), the court denied defendant finance companies' motions for summary judgment stating:
...
To continue reading
Request your trial
-
Price v. Franklin Inv. Co., Inc.
...F.Supp. 928, 933 (E.D.La.1974), aff'd mem., 500 F.2d 1182 (5th Cir. 1975) ($2000 fees; $644.56 penalty); Philbeck v. Timmers Chevrolet, Inc., 361 F.Supp. 1255, 1262 (N.D.Ga.1973), rev'd on other grounds, 499 F.2d 971 (5th Cir. 1974) ($2520 fees; $1000 penalty).6 The term "creditor" is defin......
-
Porter v. Household Finance Corp. of Columbus, Civ. A. No. C 2 74-47.
...accompanied by a statement of the type of insurance and the term thereof. This language was interpreted in Philbeck v. Timmers Chevrolet, Inc., 361 F. Supp. 1255 (N.D.Ga.1973) to require disclosure of the term even when the term of the credit life was the same as the term of the loan. Since......
-
Copley v. Rona Enterprises, Inc.
...Bank & Trust Company, 353 F.Supp. 1072, 1078-79 (W.D.Pa.), aff'd, 487 F.2d 953 (3d Cir. 1973). 3 In Philbeck v. Timmers Chevrolet, Inc., 361 F.Supp. 1255, 1257 n.1 (N.D.Ga.1973), rev'd on other grounds, 499 F.2d 971 (5th Cir. 1974), the district court labeled "specious" a contention that a ......
-
Joseph v. Norman's Health Club, Inc.
...Starks v. Orleans Motors, Inc., 372 F.Supp. 928 (E.D.La.), aff'd mem., 500 F.2d 1182 (5th Cir. 1974); Philbeck v. Timmers Chevrolet, Inc., 361 F.Supp. 1255 (N.D.Ga.1973), rev'd on other grounds, 499 F.2d 971 (5th Cir. 1974); Stephanski v. Mainway Budget Plan, Inc., 326 F.Supp. 138 (S.D.Fla.......