Sutliff v. County Sav. and Loan Co.

• Decision Date: 12 March 1982
• Docket Number: Civ. A. No. C80-2029.
• Citation: 533 F. Supp. 1307
• Parties: William SUTLIFF, et al., Plaintiffs, v. The COUNTY SAVINGS AND LOAN COMPANY, Defendant.
• Court: U.S. District Court — Northern District of Ohio

533 F. Supp. 1307

William SUTLIFF, et al., Plaintiffs, v. The COUNTY SAVINGS AND LOAN COMPANY, Defendant.

Civ. A. No. C80-2029.

United States District Court, N. D. Ohio, E. D.

March 12, 1982.

COPYRIGHT MATERIAL OMITTED

David E. Williams, Williams, Purtill, Zumkehr & Welser, Kent, Ohio, for plaintiffs.

David J. Naftzinger, Cleveland, Ohio, for defendant.

MEMORANDUM AND ORDER

ANN ALDRICH, District Judge.

This action is brought by William and Linda Sutliff (the Sutliffs) against The County Savings and Loan Company (County Savings) for alleged violations of the Truth in Lending Act (TILA), 15 U.S.C. § 1601, et seq., and The Equal Credit Opportunity Act (ECOA), 15 U.S.C. § 1691, et seq. The Sutliffs also allege two violations of state law.

Before the Court is the Motion of Defendant County Savings for Summary Judgment on the first, second, and third claims of plaintiff's Complaint, and Motion for Dismissal of the fourth and fifth claims on jurisdictional grounds. Also pending is the Motion of the Sutliffs for Summary Judgment on the first, third and fourth claims of their Complaint. Upon consideration of the briefs, affidavits, and exhibits filed by both parties, and for the reasons set forth below, County Savings' Motion is granted in part and denied in part; the Sutliffs' Motion is granted in part and denied in part.

The undisputed facts show that on October 26, 1967, County Savings loaned the Sutliffs Sixteen Thousand Four Hundred Dollars ($16,400) for the purchase of their residence in Ravenna, Ohio. The loan was evidenced by a promissory note, secured by a mortgage against the Sutliffs' home, which provided for installment payments of not less than $124 per month. The note also provided for an interest rate of 6.5% per annum and was to become due and payable three full years from its date, although the amortization schedule for the note was based on a 20 year maturity. The note authorized an 8% per annum increase in the interest rate, on the unpaid principal and interest, after the three year maturity date.

In July, 1974, more than three years after the note had become due, County Savings sent the Sutliffs a letter advising that the loan was being called, but that they could continue the loan at an increased rate of 8% per annum. When the Sutliffs complained to County Savings, the demand provisions of the note were explained to them and they were told that because the loan had become due in 1970, County Savings could call the note and increase the interest rate if the Sutliffs wished to continue to pay it off monthly. The Sutliffs continued to make payments on the loan without executing any documents, and County Savings never presented them with any disclosure statements relative to the increased rate.

On January 15, 1980, County Savings again raised the interest rate on loans made prior to December 31, 1968 to 11% per annum. On February 1, 1980, County Savings sent a letter to the Sutliffs advising them that it was declaring their loan due and payable but that the loan could be continued at the same monthly payment with an 11% interest rate, effective January 1, 1980. Once again, the Sutliffs complained to County Savings, were told that its actions were permissible, and no documents were executed or disclosures made regarding the increased rate.

It was at this point that the Sutliffs sought the advice of legal counsel, who sent a letter to County Savings indicating several reasons why the increased rate was illegal, and also advising that the Sutliffs would continue to make monthly payments under protest. This action was filed on November 3, 1980.

The Sutliffs make several claims with regard to the actions of County Savings: (1) that County Savings violated the TILA when it increased their interest rate in 1974 and 1980, without making the requisite disclosures; (2) that because of the TILA violations, they have a right to rescind their obligation; (3) that defendant violated the Equal Credit Opportunity Act (ECOA) and Regulation B thereunder; and (4) that the Court should exercise pendent jurisdiction over their state law claims.

I. The Truth In Lending Act Claims

A. The 1974 Increase

Defendant County Savings contends that any claims the Sutliffs may have had regarding the increase in 1974 are no longer actionable due to the limitations period applicable to such claims. 15 U.S.C. § 1640(e) provides:

Any action under this section may be brought in any United States District Court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation. Emphasis added

A violation occurs on the date of the transaction and the limitation period begins to run at that time. There is no continuing violation of the statute. Wachtel v. West, 476 F.2d 1062 (6th Cir. 1973); Rust v. Quality Car Corral, Inc., 614 F.2d 1118 (6th Cir. 1980).

The Sutliffs argue that this case should be an exception to the rule stated in Wachtel, and that the Court should apply the doctrine of fraud which would toll the statute of limitations until the fraud is actually discovered. The Sutliffs apparently are seeking application of the fraudulent concealment doctrine, Bailey v. Glover, 88 U.S. (21 Wall.) 342, 22 L.Ed. 636 (1874), which tolls the statute as long as the fraud is concealed, or the defendant fails to disclose facts it has a duty to disclose. In Chevalier v. Baird Savings Association, 371 F.Supp. 1282 (E.D.Pa.1974), cited by plaintiffs, the Court expressed the view that the doctrine of fraudulent concealment may well be applicable to TILA violations; however, there must be a fraudulent intention to prevent the disclosure. In this case, as was the case in Chevalier, the Sutliffs have made no allegations of fraud in their complaint. Therefore, there is no reason to disturb the rule established in Wachtel. Any alleged violation of the statute in this case occurred in October, 1974. Because plaintiff's complaint was not filed until November 3, 1980, the claim for the 1974 increase is time barred by the one year statute of limitations contained in 15 U.S.C. 1640(e). Therefore, summary judgment is granted in favor of County Savings on the 1974 increase.

B. The 1980 Increase

The Sutliffs contend that County Savings' act of calling their loan due and increasing the interest rate in 1980 constituted a "refinancing" or the increase of an existing obligation within the meaning of Section 226.8(j) of Regulation Z, which would entitle them to the TILA disclosures. Regulation Z, 12 C.F.R. § 226.8(j) provides in part:

If any existing extension of credit is refinanced, or two or more existing extensions of credit are consolidated, or an existing obligation is increased, such transaction shall be considered a new transaction subject to the disclosure requirements of this part....

County Savings counters that Section 226.8(j) would apply only if its 1980 action represented a refinancing of the Sutliffs' loan. However clever they may be, County Savings' arguments as to why no refinancing has occurred, and therefore no TILA disclosures are required, are not persuasive.

In addition to the authority given to the Federal Reserve Board (15 U.S.C. § 1604) to promulgate interpretive regulations (such as Regulation Z) for the administration of the Act, the Board also was authorized to issue opinion letters interpreting the Act and Regulations. The Federal Reserve Staff has on several occasions expressed the opinion that under Regulation Z, an increase in the interest rate on a demand note which does not otherwise provide for a variation in rate is a new transaction and is subject to the disclosure requirements of § 226.8 of Regulation Z. See Federal Reserve letters of June 26 and July 1, 1969, Cons.Cred.Guide (CCH) ¶¶ 30,065, 30,078; Letter No. 710, Cons.Cred.Guide (CCH) ¶ 31,009; Letter No. 815, Cons.Cred. Guide (CCH) ¶ 31,137; and Letter No. 857, Cons.Cred.Guide (CCH) ¶ 31,179. The note in this case provided for an automatic increase in the interest rate to 8% per annum after its maturity. County Savings apparently chose not to increase the rate to 8% until 1974. In so doing, it would appear that under the Federal Reserve Staff's interpretation of Regulation Z, no disclosures were required because the loan documents provided for that variation in rate. The note, however, did not provide for any variation beyond the 8% rate. Because the 1980 increase to 11% was not authorized by the loan document, the Federal Reserve Staff's interpretation of Regulation Z would make the increase subject to the disclosure requirements of Regulation Z. The Supreme Court has held, in Ford Motor Credit Co. v. Milhollin, 442 U.S. 940, 99 S.Ct. 2880, 61 L.Ed.2d 309 (1980), that Federal Reserve interpretations are entitled to deference from the courts unless such interpretations are irrational. The Federal Reserve Staff's interpretations have been clear and consistent with regard to this issue; hence there is no reason for this Court to "exercise its own judgment to adopt the most logical application of the statute and the regulations to the facts of this case", as urged by the defendant.

County Savings also argues that because the Sutliffs did not agree to the 1980 increase and have been paying it under protest, then as a matter of contract law, there was never a consummation of a credit contract between the parties and no disclosure obligation ever arose. This argument also is not well taken. The purpose of the TILA is to assure a meaningful disclosure of credit terms so that the consumer will be aware of the cost of credit, will be able to compare more readily the various credit terms available to him, and may avoid the uninformed use of credit. See 15 U.S.C. § 1601. The only way that these objectives could be accomplished would be through disclosures made prior to the consumer entering into any contract. It would certainly undermine the stated purpose of the Act to require creditors to make disclosures...