Simmons v. American Budget Plan, Inc.

• Decision Date: 19 November 1974
• Docket Number: Civ. A. No. 73-1031.
• Citation: 386 F. Supp. 194
• Parties: Tommy Lee SIMMONS and Mamie Williams v. AMERICAN BUDGET PLAN, INC.
• Court: U.S. District Court — Eastern District of Louisiana

386 F. Supp. 194

Tommy Lee SIMMONS and Mamie Williams v. AMERICAN BUDGET PLAN, INC.

Civ. A. No. 73-1031.

United States District Court, E. D. Louisiana.

November 19, 1974.

COPYRIGHT MATERIAL OMITTED

Patrick D. Breeden, New Orleans, La., for plaintiffs.

G. Michael Grosz, III, New Orleans, La., for defendant.

BOYLE, District Judge:

Plaintiffs, Tommy Lee Simmons and Mamie Williams Simmons, instituted this action pursuant to the Consumer Protection Act, 15 U.S.C. § 1601 et seq. The basis of their complaint is that the defendant, American Budget Plan, Inc. (hereinafter American Budget), a finance company which made them a loan secured by a second mortgage on their home, failed to furnish the plaintiffs with the information required to be furnished them by the statute. Jurisdiction is conferred on the Court by 15 U.S.C. § 1640(e).

Prior to the trial of this action, plaintiff Tommy Lee Simmons died. His widow, Mamie Williams Simmons, as administratrix of his succession, was substituted for Tommy Lee Simmons as plaintiff. She also sues in her own right as plaintiff.

Plaintiff alleges the following violations of the Consumer Protection Act:

1. Defendant failed to disclose the notarial fee and cost of certificates and recordation.

2. Defendant failed to obtain the signature of the borrower accepting Credit Life Insurance and failed to disclose the cost and term of such insurance.

3. Defendant failed to disclose to the borrowers their right to rescind; and

4. Defendant failed to provide the borrowers with a copy of the Truth in Lending disclosures at the time of the transaction.

The following facts appear from the testimony and the record:

On March 12, 1973, plaintiffs Tommy and Mamie Simmons visited the office of defendant American Budget. They were accompanied by D. M. Greenup of D. M. Greenup Realty Co.¹ The purpose of their visit was to arrange to borrow $2,000.00 from American Budget, which sum was to be the down payment on a home they were buying located at 1812-14 Toledano Street. The Simmonses planned to make the home their principal place of residence, and Mrs. Simmons was in fact living there at the time of trial.

Defendant American Budget, in the ordinary course of its business regularly extends, offers to extend or arranges for the extension of credit of its customers, for which a finance charge is or may be collected.

While at American Budget, Mr. and Mrs. Simmons signed a mortgage in favor of defendant on the property at 1812-14 Toledano Street² and a $4,500.00 promissory note payable to bearer.³ Tommy Simmons also signed a Federal Disclosure Statement⁴ and a Notice of Right of Recission,⁵ acknowledging receipt of a copy of both documents. Mamie Simmons did not sign either the disclosure statement or the recission notice.

The facts stated thus far are undisputed. On the question of whether Tommy Simmons was given a copy of the disclosure statement and the recission notice, the parties disagree. Mrs. Simmons testified that neither she nor her husband received copies of any loan documents before they left defendant's office; they were told they would receive the papers in the mail and they did in fact receive them by mail.

Peter Plaia, manager of American Budget, testified that he did give copies of both the disclosure statement and the recission notice to Mr. Simmons.

While plaintiffs were in the office of American Budget, defendant issued three separate checks payable to Mr. and Mrs. Simmons in the amounts of $2,000.00,⁶ $53.36,⁷ and $225.00.⁸

The check in the amount of $2,000.00 was to be used as the down payment on their home.

The check in the amount of $53.36 was for closing costs, according to Mr. Plaia. Mrs. Simmons testified that no one told her what that check was to be used for. She and Mr. Simmons endorsed the check in Mr. Plaia's presence. The sum of $53.36 is not specifically mentioned on the Federal Disclosure Statement, but Mr. Plaia testified it was included in the figure shown as "amount financed."

The plaintiffs also received and endorsed in Mr. Plaia's presence a third check for $225.00. Mrs. Simmons was told the sum was for insurance on her husband's life for the entire length of the note. A "credit life insurance charge" of $225.00 was shown on the Federal Disclosure Statement and was included in the figure shown as "amount financed" on the form.

In a separate section of the disclosure form, defendant indicated that the credit life insurance was not required in order to obtain the loan. The form contained a space for the borrower to sign to indicate that he voluntarily elected to purchase the insurance after he had been informed of the cost of the insurance. Neither Mr. Simmons nor Mrs. Simmons signed in the space provided.

The disclosure form reflected that the total of payments due on the plaintiffs' loan was $4,500.00. Of this amount, $2,221.64 was the finance charge, consisting solely of interest, and $2,278.36 was the amount financed, which included the down payment for the Simmonses' home, closing costs, and credit life insurance.

Plaintiffs were scheduled to pass the act of sale on their home thirty minutes after they appeared at American Budget's office, and they needed the $2,000.00 in order to pass the act of sale. Mr. Plaia testified that Mr. and Mrs. Simmons informed him there was an emergency need for the money, but made no written statement to that effect.

Plaintiffs allege that American Budget failed to properly disclose the notarial fee and fees for certificates and recordation in connection with the second mortgage by which the loan was secured. American Budget included the fee of $53.36 in a lump sum of $2,278.36 designated as "amount financed." The form does not itemize the various elements of the amount financed, and plaintiffs claim this is a violation of the statute and regulations.

We agree. While defendant was entirely correct in including the fee in the amount financed,⁹ its duty to disclose did not end there. In addition to disclosing the total amount to be financed, it was also required to disclose:

". . . (1) The amount of credit of which the obligor will have the actual use, or which is or will be paid to him or for his account or to another person on his behalf.

(2) All charges, individually itemized, which are included in the amount of credit extended but which are not part of the finance charge."

15 U.S.C. § 1639 (a)(1)(2) (Emphasis supplied).

Since defendant failed to individually itemize the various elements of the amount financed, it has violated the statute.

Plaintiffs next allege that the defendant failed to obtain the signature of the borrower accepting credit life insurance and failed to disclose the cost and term of such insurance.

It is apparent from an examination of the disclosure form that defendant did not secure the signature of the borrower accepting the optional insurance. As a consequence of this omission, the charge for credit life insurance must be included in the finance charge,¹⁰ rather than in the amount financed, as disclosed on defendant's form.

Since the charge for credit life insurance was required to be included in the finance charge, this fact makes defendant's statement that the finance charge consisted solely of interest inaccurate. Since the creditor in the case of a consumer loan is required to itemize the various elements included in the finance charge,¹¹ defendant's failure to do so constitutes a violation of the regulations promulgated pursuant to the statute.¹²

Plaintiffs cite Philbeck v. Timmers Chevrolet, 361 F.Supp. 1255 (N.D.Ga. 1973) and Phillips v. Termplan of Atlanta, Inc., No. 18,300, N.D.Ga., November 6, 1973, CCH Consumer Credit Guide ¶ 98,841, for the proposition that defendant's failure to disclose the cost and term of insurance in the section of the form provided for the borrower to elect optional credit life insurance is a violation.

Philbeck is distinguishable on its facts, since in that case there was disclosure of the cost of optional credit life insurance in the section of the disclosure statement provided for the borrower to elect coverage. A reference on the disclosure statement directed the reader to the reverse of the statement, where the term of insurance coverage was disclosed. In this case, the cost of credit life insurance was disclosed at the top of the disclosure statement but the cost did not appear in the section provided for the borrower to elect coverage. The term of the credit life insurance was not disclosed on the disclosure statement at all and there was no reference to any other document which would indicate the term.

The plaintiff referred to the decision of the district court in Philbeck in support of his position. That decision has since been reversed by the Fifth Circuit; Philbeck v. Timmers Chevrolet, Inc., 499 F.2d 971 (5 Cir. 1974), and now does not support plaintiff's contention.

Phillips v. Termplan of Atlanta, Inc., supra, is also factually distinguishable. There, the cost of credit life insurance was shown at the top of the disclosure statement. In the box provided for the borrower to elect insurance coverage, located near the center of the page, the statement was made that coverage would be at the cost "shown above" for the term of credit. The disclosure of the cost of insurance in Phillips was identical to the method used here, but in this case the term of the insurance was not shown at all.

Phillips also relied in part on the district court's holding in Philbeck, since reversed. We find the remainder of the court's decision in Phillips is not compelled by either the statute, regulations or interpretations of the Federal Reserve Board and we, therefore, decline to follow Phillips.

The statute provides only that the creditor must disclose the amount of the finance charge in a consumer loan.¹³ The regulations require only a description of each amount included in the finance charge.¹⁴ And the Board regulations require disclosure of the...