Smith v. Lewis Ford, Inc.

• Decision Date: 26 September 1978
• Docket Number: Civ. C-78-2244.
• Citation: 456 F. Supp. 1138
• Parties: Fred W. SMITH, Individually and on behalf of all others similarly situated, Plaintiffs, v. LEWIS FORD, INC., Union Planters National Bank, Inc., and Ford Motor Credit Company, Inc., Defendants.
• Court: U.S. District Court — Western District of Tennessee

456 F. Supp. 1138

Fred W. SMITH, Individually and on behalf of all others similarly situated, Plaintiffs, v. LEWIS FORD, INC., Union Planters National Bank, Inc., and Ford Motor Credit Company, Inc., Defendants.

Civ. C-78-2244.

United States District Court, W. D. Tennessee, W. D.

September 26, 1978.

James L. Kacena and Lillian L. Dykes, Law Offices of Schaeffer & McDougal, Memphis, Tenn., for plaintiffs.

Leo E. Bearman, Jr., Memphis, Tenn., for Lewis Ford, Inc.

Glen G. Reid, Jr., Wildman, Harrold, Allen, Dixon & McDonnell, Memphis, Tenn., for Union Planters Nat. Bank, Inc.

Freeman C. Marr and R. Lanier Fogg, Hankins, Marr, Rose & Fogg, Memphis, Tenn., for Ford Motor Credit Co., Inc.

ORDER DENYING MOTION TO DISMISS BY DEFENDANT UNION PLANTERS NATIONAL BANK, INC.

BAILEY BROWN, Chief Judge.

Defendant Union Planters National Bank, Inc., one of three defendants in this action, moves to dismiss the complaint against it pursuant to Rule 12(b) of the Federal Rules of Civil Procedure. Plaintiff has sued all three defendants for alleged violations of the Federal Consumer Credit Protection Act (also known as the "Truth-in-Lending" Act), 15 U.S.C. § 1601 et seq. Plaintiff claims that all defendants have violated § 1638(a)(4) by failing to itemize individually certain charges connected with plaintiff's purchase of a truck on an installment sales plan. Plaintiff also alleges that defendants have violated § 1631 by not making clear and conspicuous disclosures in the installment sales agreement.

Plaintiff appears to have purchased the truck from defendant Lewis Ford, Inc. which arranged financing of the truck through defendant Union Planters National Bank, Inc. (hereinafter "UPNB"). UPNB contends that plaintiff has failed to allege a violation of the stated sections of the Truth-in-Lending Act and, in addition, that even if a violation has occurred, the sole responsibility for complying with the requirements of these sections rests with the defendant Lewis Ford, Inc. as dealer. This court will address these contentions in reverse order.

I. UPNB Is a "Creditor" Within the Definition of the Act.

At the outset, it must be determined whether UPNB is a "creditor" within the scope of the Act. If not, UPNB cannot be held responsible for the alleged violations. Sec. 1602(f) states:

The term "creditor" refers only to creditors who regularly extend, or arrange for the extension of, credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, whether in connection with loans, sales of property or services, or otherwise.

The complaint is not very specific as to the terms of the credit extended. However, for purposes of a motion to dismiss, the facts are to be construed in favor of the plaintiff. It is not disputed by UPNB that it regularly extends credit in situations of this kind or that a finance charge was exacted in this instance. While UPNB asserts that it should be considered a subsequent assignee of the contract between plaintiff and the dealer rather than a "creditor," numerous cases have held that a party is a "creditor" if he extends credit to a consumer as part of arrangements made by the seller in completing the transaction. Price v. Franklin Investment Company, Inc., 187 U.S.App. D.C. 383, 388-389, 574 F.2d 594, 599-601 (1978); Meyers v. Clearview Dodge Sales, Inc., 539 F.2d 511, 514-516 (5th Cir. 1976), cert. den. 431 U.S. 929, 97 S.Ct. 2633, 53 L.Ed.2d 245 (1977); Joseph v. Norman's Health Club, Inc., 532 F.2d 86, 91-93 (8th Cir. 1976). While the exact procedure through which credit was extended to plaintiff is not spelled out in the complaint, this court must assume that this financing arrangement was of the type that is routinely arranged at the time of sale. Thus, UPNB is held to be a "creditor" required to comply with the provisions of the Act.

II. Responsibility for Disclosure Rests on UPNB as Well as the Seller.

UPNB further contends that, even if it is found to be a "creditor" within the definition of § 1602(f), it is exempted from the disclosure requirements of § 1638 by the Federal Reserve Board's Regulation Z — in particular, 12 C.F.R. § 226.6(d). Sec. 226.6(d) provides:

(d). Multiple creditors or lessors; joint disclosure. If there is more than one creditor or lessor in a transaction, each creditor or lessor shall be clearly identified and shall be responsible for making only those disclosures required by this Part which are within his knowledge and the purview of his relationship with the customer or lessee. If two or more creditors or lessors make a joint disclosure, each creditor or lessor shall be clearly identified. The disclosures required under paragraphs (b) and (c) of § 226.8 shall be made by the seller if he extends or arranges for the extension of credit. Otherwise disclosures shall be made as required under paragraphs (b) and (d) of § 226.8 or paragraph (b) of § 226.15.

UPNB asserts that this section places sole responsibility for the disclosure at issue here on the vehicle seller, relying on the interpretation of this regulation by the Third Circuit in Manning v. Princeton Consumer Discount Company, Inc., 533 F.2d 102, 105-106 (3rd Cir. 1976), cert. den. 429 U.S. 865, 97 S.Ct. 173, 50 L.Ed.2d 144 (1976), reh. den. 429 U.S. 933, 97 S.Ct. 342, 50 L.Ed.2d 303 (1976). Under § 1604, the Federal Reserve Board is given broad authority to prescribe regulations to carry out the purposes of the Act. Thus if UPNB's interpretation of this regulation is correct, this motion should be granted.

The Third Circuit in Manning relied heavily upon the language of the last two sentences of § 226.6(d). As the Third Circuit pointed out, paragraph (c) of § 226.8, referred to in the third sentence of § 226.6(d), corresponds to the disclosure requirements of 15 U.S.C. § 1638 which deals with credit sales. It is that section which is at issue in this case. The Third Circuit determined that the third sentence of § 226.6(d) puts the disclosure burden on the seller alone, and that the last sentence of § 226.6(d) puts the burden on the credit extender (such as UPNB) only if the transaction is not a credit sale but is instead a loan. The Third Circuit concluded:

In short, we hold that if the transaction is one in which the seller arranges credit, the obligation of disclosure is placed upon him by the third sentence of Regulation § 226.6(d). In that factual situation the specific direction of the third sentence prevails over the general language limiting the scope of disclosure to items within the creditor's knowledge and the purview of his relationship with the customer.

533 F.2d at 105.

This is certainly a plausible interpretation of the subsection. But, as the Third Circuit acknowledged, "the language is far from clear." Id. It is important to note that the third sentence does not say that the seller is solely responsible. Indeed, as the Third Circuit noted, such an interpretation is somewhat in conflict with the first sentence of the subsection. It would be more consistent to interpret the third sentence as spelling out the circumstances in which the seller is required to make disclosures regardless of the responsibility of the credit extender. The last sentence would then apply to situations in which the seller is not considered a creditor, but would not relieve the credit extender of responsibility where the seller is a creditor.

What seems clearest, however, is that the language is very unclear. In addition to the interpretations offered by Manning and by this court, there have been various other interpretations of this subsection. See Hinkle v. Rock Springs National Bank, 538 F.2d 295, 297 (10th Cir. 1976); Williams v. Bill Watson Ford, Inc., 423 F.Supp. 345, 356-357 (E.D.La.1976); Starks v. Orleans Motors, Inc., 372 F.Supp. 928, 931 (E.D.La.1974), aff'd 500 F.2d 1182 (5th Cir. 1974). Indeed, most cases that have found more than one "creditor" have automatically assumed that both creditors could be held liable without discussing the implications of § 226.6(d). See Meyers, supra; Joseph, supra; Mirabal v. General Motors Acceptance Corp., 537 F.2d 871 (7th Cir. 1976). Absent a contrary regulation by the Federal Reserve Board, the Act itself seems to provide for joint responsibility for disclosures. Sec. 1631(a) states:

Each creditor shall disclose clearly and conspicuously, in accordance with the regulations of the Board, to each person to whom consumer credit is extended, the information required under this part or part D of this subchapter.

(Emphasis added.)

This court is reluctant to hold that the vague language of § 226.6(d) is sufficient to counter the apparent intent of the Act that "each creditor" be required to make the appropriate disclosures. As the District of Columbia Circuit said in Price, supra:

. . . We are loathe in the absence of clearly compelling language to adopt a reading of § 226.6(d) that would permit a finance company to escape all liability for nondisclosures by enlisting a seller of goods to arrange for an extension of credit.

174 U.S.App.D.C. at 389, 574 F.2d at 601. Therefore, this court declines to follow the reasoning of the Manning case, and holds that the third sentence of § 226.6(d) does not put the exclusive burden of disclosure upon the seller.

It must be noted, however, that the first sentence of § 226.6(d) requires each creditor to make "only those disclosures . . . which are within his knowledge and the purview of his relationship with the customer or lessee." UPNB does not state any facts to support an argument that the disclosures at issue here were not within its knowledge or within the purview of its relationship with the plaintiff. However, this court points out that, in the Williams case, supra, the district court found that license, title and registration fees were solely within the knowledge of the seller. This court will entertain further argument on this point at trial.

III....