Stewart v. Dollar Federal Sav. and Loan Ass'n

Decision Date17 September 1981
Docket NumberNo. C-3-80-227.,C-3-80-227.
Citation523 F. Supp. 218
PartiesMarie STEWART, Plaintiff, v. DOLLAR FEDERAL SAVINGS AND LOAN ASSOCIATION, Defendant.
CourtU.S. District Court — Southern District of Ohio

Rodney M. Johnson, Dayton, Ohio, for plaintiff.

Thomas Noland, Stephen Miles, Dayton, Ohio, for defendant.

DECISION AND ENTRY ON OUTSTANDING MOTIONS; DEFENDANT'S MOTION FOR SUMMARY JUDGMENT GRANTED; PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT DENIED; PLAINTIFF'S MOTION TO DISMISS DEFENDANT'S COUNTERCLAIM GRANTED; PLAINTIFF'S MOTION TO COMPEL DISCOVERY DEEMED MOOT AND NOT RULED UPON; TERMINATION ENTRY

RICE, District Judge.

The captioned cause involves alleged violations of provisions of the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq. and regulations promulgated thereunder, 12 C.F.R. § 226 et seq. (Regulation Z).1 Several motions are before this Court, to wit:

1. Defendant's motion for summary judgment for reason that there is no set of genuinely disputed or disputable facts present which would indicate that defendant is liable for violations of the TILA;
2. Plaintiff's motion for summary judgment;
3. Plaintiff's motion to dismiss defendant's counterclaim; and
4. Plaintiff's motion to compel discovery.

For the reasons set forth below, defendant's motion for summary judgment is well taken and the same is hereby granted. Plaintiff's motion for summary judgment is denied. Plaintiff's motion to dismiss defendant's counterclaim is granted, for the reason that the counterclaim is permissive and this Court lacks jurisdiction to adjudicate the counterclaim once plaintiff's action is dismissed. Finally, plaintiff's motion to compel discovery is deemed moot by the above rulings and said motion is not ruled upon.

I. FACTS

Plaintiff Marie Stewart obtained a consumer credit loan from the defendant, Dollar Federal Savings & Loan Association, on June 11, 1979, in the amount of $2,600.00. The loan agreement, in pertinent part, set out in individual, numbered boxes the following amounts:

1. Proceeds of loan: $2,600.00
2. Credit Life Premium: None
3. Amount Financed: $2,600.00
4. Finance Charge: $1,039.60
5. Total Payments: $3,639.60
6. Annual Percentage Rate: 14.13%

At the same time, plaintiff signed a promissory note paid to the order of the defendant, for an amount equalling the total payments on the loan ($3,639.60). The note contained an acceleration clause, in that upon default in payment on the loan (or other events specified on the note), the "unpaid balance hereof shall become due and payable, without demand or notice."

Plaintiff had previously dealt with defendant. On September 7, 1978, plaintiff had borrowed $908.12 from defendant, and the June 11, 1979, transaction was in fact a refinancing of the 1978 loan (in the amount of $625.00), plus an additional loan of $1,975.00, yielding a total of $2,600.00. Plaintiff planned to pay the additional loan amount to the Home Roofing and Siding Company (Home Roofing) for improvements to her house (installation of ten electrical outlets and ten non-insulated aluminum windows). Plaintiff alleges that an agent of Home Roofing suggested defendant as a source of financing for the improvements, and that this individual drove her to defendant's offices and aided her in obtaining the loan.

However, plaintiff was dissatisfied with Home Roofing's work and ultimately refused to continue payments either to Home Roofing or on the loan from defendant. Plaintiff thereupon sued defendant in this Court, alleging that the loan agreement violated provisions of the TILA and regulations promulgated thereunder, and prayed for statutory damages of $1,000 plus attorney's fees. 15 U.S.C. § 1640(a)(1). Plaintiff properly invoked the jurisdiction of this Court pursuant to 15 U.S.C. § 1640(e) and 28 U.S.C. § 1337. Shortly thereafter, defendant filed a counterclaim for the balance of the loan which plaintiff had left unpaid.

II. MOTIONS FOR SUMMARY JUDGMENT

Pursuant to Fed.R.Civ.P. 56, this Court, in ruling upon a motion for summary judgment, must view the evidence in the light most favorable to the party opposing the motion. New Jersey Life Ins. Co. v. Getz, 622 F.2d 198, 200 (6th Cir. 1980). In the present case, both parties have moved for summary judgment. The granting of one motion does not necessarily warrant the denial of the other motion, unless the parties base their motions on the same legal theories and same set of material facts. Schlytter v. Baker, 580 F.2d 848, 849 (5th Cir. 1978). In this case, both parties proceed on the basis of undisputed facts, save for the plaintiff's allegation of defendant's affiliation with Home Roofing. However, defendant argues that even if plaintiff's allegations on this issue are taken as true, defendant should still prevail as a matter of law. Thus, this Court will treat both motions for summary judgment as arising from the same legal theories and the same set of undisputed facts.

Plaintiff argues that the 1979 loan agreement form violated the TILA in three respects:

1. failure to itemize the loan proceeds;
2. failure to disclose on the loan form:
a. Home Roofing's ability to obtain a mechanic's lien on plaintiff's house, and
b. Home Roofing as an "arranger of credit" 3. failure to disclose the promissory note's acceleration clause on the loan form.

Each argument is without merit.

1. Itemization of Loan Proceeds.

Section 1639(a) of the TILA, in pertinent part, outlines the items which a consumer lender, such as defendant, must disclose on a consumer loan form:

(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.
(3) The total amount to be financed (the sum of the amounts referred to in paragraph (1) plus the amounts referred to in paragraph (2)).

15 U.S.C. § 1639(a)(1)-(3).

These disclosure requirements are further outlined in the relevant regulations, which require the following information to appear on the loan form:

The amount of credit ... which will be paid to the customer or for his account or to another on his behalf, including all charges, individually itemized, which are included in the amount of credit extended but which are not part of the finance charge, using the term "amount financed."

12 C.F.R. § 226.8(d)(1) (1981).

From this statutory and regulatory language, plaintiff argues that the "loan proceeds" box of the loan form should have been itemized into the separate amounts of the refinancing of the 1978 loan and the new 1979 loan amount. This is an erroneous interpretation. The itemization requirement mentioned in both the statute and regulation simply does not apply to the "amount of credit" referred to in § 1639(a)(1) or, in other words, to the loan proceeds. Only charges made by the lender for costs incurred in connection with the making of the loan, which are not included in the finance charge, such as insurance and recording fees, need be itemized. McGowan v. Credit Center of North Jackson, Inc., 546 F.2d 73, 76 (5th Cir. 1977); Basham v. Finance America Corp., 583 F.2d 918, 922 (7th Cir. 1978), cert. denied, 439 U.S. 1128, 99 S.Ct. 1046, 59 L.Ed.2d 89 (1979). The amount of the loan proceeds must be disclosed, and a lump sum figure satisfies this requirement. Pollock v. General Finance Corp., 535 F.2d 295, 299 (5th Cir. 1976); Basham v. Finance America Corp., supra, at 922-23. Defendant disclosed such a lump sum figure on the loan form.2

As an additional defense for the failure to itemize the loan proceeds, defendant relies upon an Official Staff Interpretation of the Federal Reserve Board (FRB), the agency charged with enforcement of the TILA. 15 U.S.C. § 1607. The staff interpretation expressly held that itemization of the components of loan proceeds is not required by § 1639(a)(1) and 12 C.F.R. § 226.8(d)(1). FRB Official Staff Interpretation, 42 Fed.Reg. 53949 (1977). Unless demonstrably irrational, such FRB staff opinions construing the TILA or its regulations should be "dispositive" and treated as persuasive authority. Anderson Bros. Ford v. Valencia, ___ U.S. ___, ___, 101 S.Ct. 2266, 2273-74, 68 L.Ed.2d 783 (1981); Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 566-68, 100 S.Ct. 790, 797-98, 63 L.Ed.2d 22 (1980); Rudisell v. Fifth Third Bank, 622 F.2d 243, 250 (6th Cir. 1980). As noted above, this Court finds the conclusions of the FRB staff to be fully justified. Thus, reliance on this FRB interpretation constitutes an "act done or omitted in good faith in conformity" with an official, published interpretation of the FRB which, under the TILA, § 1640(f), precludes defendant from being held liable in a civil action.3

2. Disclosure of Security Interest and Home Roofing as an "Arranger of Credit"

Plaintiff's second allegation regarding the loan form predicates liability on § 1639(a)(8) of the TILA, which requires creditors to disclose "any security interest held or to be retained or acquired by the creditor in connection with the extension of credit ...." In the present case, plaintiff argues that this section was violated since the loan form did not reveal the possibility that Home Roofing could obtain a mechanic's lien on plaintiff's home if she failed to pay Home Roofing. Defendant held no security interest as defined by the TILA, and plaintiff's position has been rejected by case law and the FRB.

In Rudisell v. Fifth Third Bank, supra, the court stated that a direct loan made to a customer who used the proceeds to pay for home repairs would not require disclosure on the loan form of a possible mechanic's lien by the repair service:

Had Appellee Fifth Third Bank loaned the money directly to Appellant customers and Appellants then used the money for a cash sale from A.W.D. home repair service, clearly A.W.D. would not have arranged or extended credit and would not have
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