Welmaker v. WT Grant Company
| Decision Date | 11 December 1972 |
| Docket Number | Civ. A. No. 15621,15891 and 16101.,15822 |
| Citation | 365 F. Supp. 531 |
| Parties | Dorothy WELMAKER v. W. T. GRANT COMPANY. Bessie ROSS v. W. T. GRANT COMPANY. Mae Lizzie HACKNEY and Dorothy Welmaker, on behalf of themselves and all persons similarly situated v. W. T. GRANT COMPANY. Betty G. JAMES v. W. T. GRANT COMPANY. |
| Court | U.S. District Court — Northern District of Georgia |
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Stack, O'Brien & Neely, Atlanta, Ga., for plaintiffs.
Brackett, Arnall & Stephens, Atlanta, Ga., Charles A. Doyle, New York City, for defendant.
The question in these consolidated cases, brought as a class action, is whether the defendant has violated the Truth in Lending Act, 15 U.S.C. § 1601 et seq. (1970). At this juncture the Court must determine whether the plaintiffs have shown a likelihood of success on their claims such that the notification of the proposed class is warranted. A protracted hearing, as supplemented by discovery and stipulations, was had for such purpose.
BACKGROUND.
The Plaintiffs assert seven violations of the Truth in Lending Act (hereinafter "the Act") all having to do with the credit aspects especially of the "coupon book" system of defendant, W. T. Grant Company (hereinafter "Grant's").1 The offered by Grant's. Under the coupon book credit operation the customer ob-coupon book is one of three credit plans tains a book of coupons which he may later exchange for merchandise at any Grant store. The coupons vary in denominations from 25 cents to $10.00 and the books vary in value from $20.00 to $200.00. The coupons can be exchanged for merchandise at any time after purchase.
When a customer acquires his very first coupon book he is furnished with a credit disclosure form included within his installment sales contract. This contract designated as the "new and reopened contract," contains the terms of the transaction, the customer's repayment obligation and the credit disclosures. See Appendix A. The contract was revised in early 1971. Prior to the 1971 revision of the new and reopened contract, the customer's obligation to pay on the account accrued immediately upon execution of the contract. The payment included a sum for the principal amount of the coupon book and the finance charges, regardless of when or in what amount a coupon was exchanged for merchandise. The 1971 revised form for new and reopened contracts (hereinafter "new contract(s)") postpones the customer's payment obligation until the first coupon has been exchanged for merchandise. See Appendix A (a blank of P #2). Therefore, the finance charge does not begin accruing until the first exchange for merchandise takes place. Thus, when a coupon of any denomination is exchanged (be it 25 cents or $10.00) the customer's obligation accrues for the full amount of his contract including full finance charges.2
If a debtor wishes to acquire additional coupon books before he has fully paid for any prior acquisitions he does so through the vehicle of a "add-on" retail installment sales contract. See Appendix B (P #1). The transaction is accomplished by rebating to the debtor a portion of the prior unearned finance charge, which rebated amount is determined from Defendant's Rebate or Discount Table Book. The prior balance is then reduced by the amount of the rebated finance charge. To this net amount is added the face value of the new coupon book (less any cash down payment) and any new insurance charges to arrive at the amount to be financed. The new finance charge is then calculated on the amount financed and added to that amount to arrive at the total new indebtedness. Any insurance premiums charged on the add-on contracts are determined by the amount of the new coupon book and not on the basis of total indebtedness. Upon execution of an add-on contract, the debtor is immediately obligated to pay the entire amount plus full finance charges, regardless of when the coupons are used or in what amount they are used. Neither the accrual of the finance charge nor repayment on the principal amount is deferred until a coupon has been exchanged for merchandise. In this sense, the add-on contracts are exactly like the pre-1971 new and reopened contracts.
As indicated above, plaintiffs have alleged seven violations of the Act by defendant arising from the coupon book credit scheme. In the interest of clarity the Court will discuss each of the seven challenges in order below and will render the necessary findings of fact and conclusions of law applicable to a disposition of each. The above discussion should provide an adequate groundwork for that which follows.
PLAINTIFFS' CHARGES.
This is the first alleged violation and concerns only the add-on form. See Appendix B. The purpose of the disclosure provisions of the Act is:
". . . to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit." 15 U.S.C. § 1601 (1970).
In order to accomplish this "meaningful disclosure" the Act and Regulation Z require a creditor, prior to the extension of credit, to disclose to the debtor the sum of all charges, payable directly or indirectly by the creditor as an incident to or as a condition of the extension of credit. This sum is designated as the "Finance Charge." 15 U.S.C. § 1605; Regulation Z, § 226.4(a).
When a customer initially deals with Grant's coupon book credit plan he is presented the new contract wherein the finance charge is clearly displayed in the fourth column next to item 8 designated "Finance Charge" (in capitalized dark letters). See Appendix A. At the second encounter with Grant's, assuming he is indebted on an outstanding new contract, he is confronted with a different presentation vis-a-vis the finance charge. See Appendix B. The finance charge is still presented in dark letters (however not capitalized as in the new contract), but the finance charge is one of two figures located in the third column along with certain verbal descriptions. This is confusing in and of itself. What is perhaps most confusing is the fact that the finance charge is not made to appear as a separately stated item, but as an integral part of a formula that produces the figure in the fourth column. See Appendix B. That figure ($14.82) was termed by a defendant's witness on hearing as the "net finance charge"; it is actually the charge for adding the latest coupon book (in this instance $20.00) and extending the previous balance ($339.85) for another 24 months.
Regulation Z, § 226.6(c) authorizes the creditor, at its option, to make additional informational disclosures to the creditor. However, such additional disclosures may not "be stated, utilized, or placed so as to mislead or confuse the customer or contradict, obscure, or detract attention from the information required by this Part to be disclosed." Regulation Z, § 226.6(c). The Court finds that the positioning of the unlabeled "net finance charge" in relation to the required "finance charge" serves only to confuse the customer and clearly detracts attention from the required disclosure; the total finance charge. The resultant confusion and distraction defeats the purpose of the Act by diminishing, if not preventing, the consumer's conceptualization of what the entire transaction is costing him. He is left with no clear and unambiguous ground for comparison credit shopping.
The resolution of this second alleged violation is determined by the answer to the following question, to wit: Does the defendant extend credit to the customer from the time the coupon book is issued or from some later date when the coupons are exchanged for merchandise? The plaintiffs contend that for Truth in Lending disclosure purposes the coupon book is no more than a credit device, a credit card, and that the extension of credit for which defendant imposes a finance charge occurs only when, and if, the coupons are actually exchanged for merchandise. The defendant contends that there is one sale and that occurs when the coupon book is purchased; the use of the coupons represents a series of exchanges, not a series of sales. At the sale defendant asserts the credit is extended.
The significance of the point in time when credit is extended is occasioned by the fact that as the period over which the credit is extended decreases (all other factors remaining constant), the annual percentage rate3 increases proportionately; i. e. there is an inverse proportion between the annual percentage rate and the time over which credit is extended.
The Court is unpersuaded by plaintiffs' argument that when a coupon book is issued Grant's has parted with nothing of value and has not assumed any risk, credit or otherwise, to the purchaser. Upon coupon book issuance, Grant's has parted with the right to as yet undesignated merchandise in the total amount of the coupon book; the purchaser could immediately exchange the coupons for merchandise up to the amount indicated on the coupons — with no payment moving from the purchaser to Grant's. The Court can view such a transaction only as the extension of credit incident to a sale. Moreover, according to Ga.Code Ann. § 96-902(1) a sale of "goods" has occurred, to wit:
"`Goods' means all personalty when purchased primarily for personal, family or household use, including certificates or coupons issued by a retail seller exchangeable for personalty or services. . . ." § 902(1) of The Retail Installment and Home Solicitation Act.4 (Emphasis added)
Therefore, the Court specifically rejects plaintiffs' contention that defendant has understated the annual...
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