Virachack v. University Ford

• Citation: 410 F.3d 579
• Decision Date: 20 May 2005
• Docket Number: No. 03-55852.,03-55852.
• Parties: Malinee B. VIRACHACK; Ritnarone T. Virachack, Plaintiffs-Appellants, and Rachelle Harvey, Plaintiff, v. UNIVERSITY FORD, dba: Bob Baker Ford, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

410 F.3d 579

Malinee B. VIRACHACK; Ritnarone T. Virachack, Plaintiffs-Appellants, and Rachelle Harvey, Plaintiff, v. UNIVERSITY FORD, dba: Bob Baker Ford, Defendant-Appellee.

No. 03-55852.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 10, 2004.

Filed May 20, 2005.

Frank J. Fox, San Diego, CA, for the plaintiffs-appellants.

Jan T. Chilton, Severson & Werson, San Francisco, CA, for the defendant-appellee.

Appeal from the United States District Court for the Southern District of California; Jeffrey T. Miller, District Judge, Presiding. D.C. No. CV-02-00139-JTM/JFS.

Before: B. FLETCHER, NOONAN, and PAEZ, Circuit Judges.

NOONAN, Circuit Judge:

Malinee B. Virachack and Ritnarone T. Virachack (the Virachacks) appeal the district court's grant of summary judgment to Ford, a California corporation business as Bob Baker Ford, in their action under the Truth In Lending Act (TILA), 15 U.S.C. § 1601 et seq. Holding that Bob Baker Ford did not fail to disclose the total finance charge, we affirm the judgement of the district court.

FACTS

On November 18, 2001, the Virachacks bought a Ford Explorer from Bob Baker Ford. The purchase was partly on credit. Bob Baker Ford made the following statement in the Retail Sales Installment Contract executed by the Virachacks,

                                       Federal Truth-In-Lending Disclosure
                --------------------------------------------------------------------------------
                  ANNUAL FINANCE Amount Total of Total Sale Price
                PERCENTAGE CHARGE Financed Payments The total cost of
                RATE       The dollar      The amount      The amount you    your purchase
                The cost of   amount the       of credit      will have paid    including your
                your credit   credit will   provided to you   after you have    down payment of
                as a yearly   cost you.       or on your         made all
                   rate.                        behalf.         payments as
                                                                 scheduled.       $4303.14 is
                   0.90%      $417.47(e)    $22615.33          $23032.80(e)      $27335.94(e)
                ---------------------------------------------------------------------------------
                                                                         (e) = estimate
                

The contract also stated that the Virachacks would make monthly payments of $479.85 for 48 months. The contract also reflected a sales tax of $1,748.47, based on the "cash price" of the vehicle of $23,268.

According to the affidavit of Nathaniel Torres, the finance manager of Bob Baker Ford, on the day the Virachacks bought the Explorer, Ford Motor Company was offering a $2,000 rebate to certain customers buying that model and year vehicle, but was not offering this rebate to customers buying on credit at the 0.9% rate. The availability of the rebate also depended, in part, on the geographical area in which the customer resided. The possibility of the rebate was not mentioned in the "Federal Truth-In-Lending Disclosure" of the contract.

According to Torres, had the Virachacks "desired a factory rebate and financing through Bob Baker Ford, they could have entered into a retail installment contract with Bob Baker Ford at a non-promotional interest rate offered by Ford Motor Credit Company, or they could have entered into a retail installment contract with Bob Baker Ford at whatever interest rate, promotional or not, was offered by any one of the other banks or finance companies to whom we regularly sell contracts."

PROCEEDINGS

The present suit began as a class action in the Superior Court for the County of San Diego. Bob Baker Ford transferred it to the district court. By stipulation of the parties, the Virachacks were substituted for the original plaintiff, who was discovered to have entered a transaction with Bob Baker Ford where the rebate option was not available. The Virachacks alleged that the $2,000 cash rebate they might have received if they had paid cash should have been disclosed as part of the finance charge and that the failure to disclose violated the TILA, 15 U.S.C. § 1638(a)(2), (3), (4), and (5). They sought for themselves and for each member of the plaintiff class damages not to exceed the statutory maximum of the lesser of $500,000 or 1% of the defendant's net worth. Id. at § 1640(a)(2)(b).

After discovery, each side moved for summary judgment. Granting summary judgment to Bob Baker Ford, the district court stated:

The reality of plaintiffs' transaction is that they were given a "discount" on the market interest rate in order to induce them to purchase their vehicle. Indeed, plaintiffs' own separate statement of facts posits that the promotional rate is below the market interest rate. The cash rebate is not a cost of credit imposed upon plaintiffs. Rather, the rebate is an option made available to both cash and credit purchasers in order to induce the purchase of Ford vehicles at a price that would otherwise be unavailable to those consumers. In essence, the promotional interest rate is simply a different form of the cash rebate in that both the rebate and the interest rate are forms of subsidizing the market price of the vehicle offered to consumers in order to generate sales. Thus, the rebate is a "discount" made available to consumers who wish to receive the promotional interest rate but in the form of the reduced APR rather than in cash. Therefore, plaintiffs have received the "discount" made available to cash and other credit purchasers illustrating that the forgone rebate is not a condition of the extension of credit. See 12 C.F.R. Pt. 226, Supp. I, Comment 4(a)(i)(B) (discount available to both cash and credit consumers not a finance charge). Consequently, the record does not support plaintiffs' argument that the forgone rebate is imposed as a condition of the extension of credit or that the rebate is being offered to induce purchases by means other than credit. Therefore, the court concludes that the cash rebate is not part of plaintiffs' cost of credit and need not be disclosed.

Virachack v. Univ. Ford, 259 F.Supp.2d 1089, 1091 (S.D.Cal.2003).

The Virachacks appeal.

ANALYSIS

The case is governed by a statute with a broad purpose, "the informed use of credit" by consumers. 15 U.S.C. § 1601(a). The statute's carefully drawn terms are rendered even more precise by the regulations issued by the Federal Reserve Bank, the agency entrusted with the implementation of this law.

The statute defines "finance charge" as "the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit. The finance charge does not include charges of a type payable in a comparable cash transaction." 15 U.S.C. § 1605(a).

The statutory definition does not embrace a rebate that is withheld. A charge is a request for payment. A rebate is a reduction in payment. It is to turn topsy-turvy to contend that a rebate that is not given is a hidden charge.

The Virachaks' case looks less implausible under Regulation Z of the Federal Reserve Bank. This authoritative interpretation of the statute lists among examples of finance charges the following: "Discounts for the purpose of inducing payments by a means other than the use of credit." FRB Regulation Z, 12 C.F.R. § 226.4(b)(9) (2004). How can a discount be a charge? It cannot be. What the Federal Reserve Bank means is that the presence of a discount for a cash transaction is an index that more is being charged for a credit transaction. The Virachacks contend that a rebate for cash on the purchase price is functionally the same as a discount for cash. The rebate is an index that more is being charged for credit. They refer to the Official Staff Commentary on the regulations:

The seller of land offers individual tracts for $10,000 each. If the purchaser pays cash, the price is $9,000, but if the purchaser finances the tract with the seller the price is $10,000. The $1,000 difference is a finance charge for those who buy the tracts on credit.

Commentary to Fed. Reserve Bd. Reg. Z, 12 C.F.R. part 226 Supp. I 374 para. 4(b)(9)

The preceding example treats the discount as evidence of purpose to induce payment in cash.

The question for decision, then, is whether the $2,000 rebate was offered to induce customers to use means other than credit. The declaration of Nathaniel Torres is that inducement to pay with means other than credit was not the purpose of the offer. Although an employee of Bob Baker Ford, Torres acted as the agent of Ford Motor Company so far as the availability of the rebate was concerned and so may be relied on in his statement that the rebate would have been offered to the Virachacks if they had sought to buy on credit but not at the extraordinarily low rate of 0.9%. If we accept Torres's unchallenged account of the facts, Ford Motor Company denied the rebate only because the manufacturer did not want to offer two incentives to the same customer. According to Torres, the $2,000 rebate is not an index of a hidden credit charge but simply a subsidy from the manufacturer that was available only to those not getting the subsidized interest rate. The element of a purpose to induce a cash payment—the element critical to the Virachacks' case—is absent.

This account is confirmed by two facts also furnished by Torres. Bob Baker Ford did not determine eligibility for the rebate. If a rebate had been offered, the price of the vehicle for sales tax purposes would not have been affected; the tax would have been paid on the price before the rebate. The price is therefore the same on credit or cash terms.

The Virachacks complain that, not being told of the possibility of the rebate in the "Federal Truth-In-Lending Disclosure," they never got to choose; that they, therefore, were not the informed users of credit that the federal law seeks to assure. Compliance with the TILA did not require them to be informed to this extent. They got a good deal. Seeking to...