Rucker v. Sheehy Alexandria, Inc.
| Decision Date | 16 October 2002 |
| Docket Number | No. CIV.A.02-466-A.,CIV.A.02-466-A. |
| Citation | 228 F.Supp.2d 711 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | Emily RUCKER, Plaintiff, v. SHEEHY ALEXANDRIA, INC., d/b/a Sheehy Honda, Defendant. |
Alexander Hugo Blankingship, III, Blankingship & Associates P.C., Alexandria, VA, for Plaintiffs.
Jodi Victoria Zagorin, Hudgins Law Firm, P.C., Alexandria, VA, for Defendants.
This action arises from the sale and spot delivery1 of an automobile. The consumer drove away in the automobile after signing a first sales agreement conditioned on certain financing. When that financing fell through, the consumer returned to the dealership some ten days later and signed a second sales agreement, which was backdated ten days and based on different financing.
The novel question presented is whether the disclosures in the second agreement violate the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq., by calculating the annual percentage rate of interest (APR) on the basis of the date on the backdated agreement rather than the date the transaction was consummated.
I.
The record reflects the following undisputed material facts: Plaintiff Emily Rucker is a Virginia citizen who purchased a car in April 2001 from the defendant Sheehy Alexandria, Inc., a automobile dealer doing business under the name of Sheehy Honda. On April 3, 2001, Rucker contracted to purchase a 1998 Honda Civic from Sheehy. She executed a buyer's order, a retail installment sales contract (RISC), and a bailment agreement. Under the terms of the April 3 RISC, Rucker provided a $1,000 down payment and financed $13,576.68 at 22.95% APR over 5 years. The total finance charge was $9,582.72, resulting in total payments on the car, including down payment, of $24,159.40. The first monthly payment of $386.99 was due on May 18, 2001, 45 days after the consummation of the transaction. The buyer's order and bailment agreement made clear that this was a spot delivery, because the sale was conditioned upon financing being obtained from a third party lender according to the terms of the RISC within five days from the date of the agreements. Rucker drove the car home on April 3. Sheehy was unable to obtain financing on the terms offered in the first RISC. In a series of six facsimile transmissions, all dated April 3, the financing companies contacted by Sheehy declined to make the loan on the proposed terms. By its terms, the April 3 agreement became null and void when Sheehy was unable to obtain financing within five days. Nonetheless, Sheehy made no effort to contact Rucker at that time and ask her to return the car.
On April 13, 2001, Sheehy received a counteroffer from Mercury Finance, approving a loan of up to $11,000 at an APR of 24.95%. After receiving this counteroffer Sheehy asked Rucker, who was still in possession of the car, to return to the dealership. Although the parties dispute what reason the dealership gave Rucker for returning, it is clear that Sheehy did not tell her that the original financing offer had fallen through.2 Upon Rucker's return on or after April 13, 2001, a second agreement was reached, according to which Rucker provided an additional $1,000 down payment, while the dealer eliminated a $943.77 extended service warranty from the contract, and lowered the price of the car by $614.65. These changes lowered the amount financed to meet the lender's limit. Under the terms of the second RISC, Rucker financed $10,998.77 at 24.95% over 4 years. The finance charge came to $6,672.91, resulting in total payments under the second deal of $19,671.68. The first monthly payment, now $368.16, was still due on May 18, 2001.
The terms of the two agreements are summarized in the table below:
April 3 April 13
Sale Price $12,998.00 $12,383.35
Total Cash Price (including taxes and $13,632.91 $12,998.77
fees)
Extended service warranty $ 943.77 not provided
Down Payment $ 1,000 $ 2,000
Amount Financed $13,576.68 $10,998.77
Annual Percentage Rate (APR) 22.95% 24.95% (beginning on April 3)
Finance Charge $ 9,582.72 $ 6,672.91
Total Payments (including down
payment) $24,159.40 $19,671.58
Term of Loan 5 years 4 years
Monthly Payment $ 386.99 $ 368.16
First Payment Due May 18, 2001 May 18, 2001
A comparison of these agreements reveals that, even though the monthly payment and the total payment over the life of the loan were lower in the April 13 agreement, the terms of the April 13 agreement were less favorable to Rucker than the April 3 terms had been. Under the April 13 agreement, Rucker was required to pay more money down, and to pay off the loan over a shorter period of time. Also, she was charged a higher APR to finance a smaller sum. Additionally, she received less value under the April 13 deal, since the extended warranty, a near $1,000 value, was not included in that transaction as it had been in the April 3 agreement. The only concrete benefit of the second deal was the dealership's reduction in price of $614.65.
Although the second agreement was reached on or about April 13,3 the April 13 buyer's order and RISC were backdated to April 3, the date of the original and now void agreement between the parties and the date Rucker took possession of the car. The April 13 RISC, therefore, provides no clue on its face that it actually represents a second offer which was entered into well after Rucker took possession of the car. Most significantly for this case, the backdating of the April 13 RISC also resulted in Rucker being charged interest beginning on April 3, even though the agreement pursuant to which that interest was calculated and charged was not reached until ten days later. According to Sheehy, it is industry practice for car dealers to use the date of delivery of the vehicle on subsequent agreements reached in spot delivery transactions, and banks will only accept buyer's orders containing the date of delivery of the vehicle.
On these facts, Rucker filed a complaint asserting the following claims:
Count I: violation of the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq.
Count II: violations of TILA, 15 U.S.C. § 1601 et seq.
Count III: violation of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301 et seq.
Count IV: violations of the Virginia Consumer Protection Act, Va.Code § 59.1-196 et seq.
Count V: Breach of Contract
Count VI: Fraud
Rucker filed a motion for partial summary judgment with respect to Count II and Sheehy filed a cross motion for summary judgment on all counts. On September 10, 2002, after oral argument on the motions, Sheehy's motion for summary judgment was granted with respect to Counts I, III and V, and denied with respect to Counts IV and VI.4 The cross motions for summary judgment on Count II were taken under advisement. For the reasons stated in court and presented below, Rucker was granted summary judgment on the Count II TILA claim by Order dated October 9, 2002.5
II.
No controlling circuit authority addresses the question whether the backdating of the April 13 RISC constitutes a violation of TILA, 15 U.S.C. § 1601 et seq. Accordingly, analysis of the question presented properly begins with an examination of the stated purposes of the statute and the relevant statutory and regulatory language.
The goal of TILA is to "assure a meaningful disclosure of credit terms" to promote the "informed use of credit" and to "protect the consumer against inaccurate and unfair credit billing ... practices." TILA, 15 U.S.C. § 1601(a). To this end, TILA requires lenders to make certain prominent disclosures when extending credit, including the amount financed, all finance charges, and the APR. Id. at § 1638(a). The disclosed APR must be accurate to within one-eighth of one per cent of the properly calculated actual APR. See 15 U.S.C. § 1606(c). And, Regulation Z, promulgated by the Federal Reserve pursuant to TILA, provides detailed and complex instructions for accurate APR calculation. See 12 C.F.R. § 226 app. J(b)(2).
Consistent with TILA's goals, the timing of these required disclosures is critical. The required information must be disclosed "before credit is extended," 15 U.S.C. at § 1638(b)(1), or, according to Regulation Z, "before consummation of the transaction," 12 C.F.R. § 226.17. Consummation, in turn, is defined by Regulation Z as "the time that a consumer becomes contractually obligated on a credit transaction." 12 C.F.R. § 226.2(a)(13); see Cades v. H & R Block, Inc., 43 F.3d 869, 876 (4th Cir.1994); Harper v. Lindsay Chevrolet, 212 F.Supp.2d 582, 587 (E.D.Va.2002). In this respect, the Fourth Circuit recently held that the then-existing industry practice of providing the disclosures only after the consumer had signed the agreement was a clear violation of TILA and Regulation Z. See Polk v. Crown Auto, Inc., 221 F.3d 691, 692 (4th Cir.2000).
The April 13 RISC agreement presents two questions concerning TILA compliance. First, were the required disclosures timely, even though the agreement retroactively charged interest dating to April 3, ten days before the disclosures occurred? Second, was the APR properly calculated based on the nominal date of the agreement rather than the actual date of its signing? The answer to these questions hinges on the determination of the proper "consummation date" for the purposes of TILA.
Rucker contends that April 13 is the proper consummation date. Although Sheehy's arguments have been somewhat inconsistent, the most recent filing asserts that the deal "must have been consummated on April 3, 2001," although the terms of the April 3 RISC were superseded by the April 13 RISC. Yet, both parties agree...
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