Woods v. Beneficial Finance Co. of Eugene, Civ. No. 74-39.

• Decision Date: 14 February 1975
• Docket Number: Civ. No. 74-39.
• Citation: 395 F. Supp. 9
• Parties: Veria R. WOODS, Individually and on behalf of all persons similarly, situated, Plaintiff, v. BENEFICIAL FINANCE CO. OF EUGENE, an Oregon Corporation, Defendant.
• Court: U.S. District Court — District of Oregon

395 F. Supp. 9

Veria R. WOODS, Individually and on behalf of all persons similarly, situated, Plaintiff, v. BENEFICIAL FINANCE CO. OF EUGENE, an Oregon Corporation, Defendant.

Civ. No. 74-39.

United States District Court, D. Oregon.

February 14, 1975.

COPYRIGHT MATERIAL OMITTED

Stephen W. Hewitt, Lane County Legal Aid Service, Eugene, Or., for plaintiff.

Robert D. Woods, of Riddlesbarger, Young Horn & Cass, Derrick E. McGavic, of Gildea & McGavic, P. C., Eugene, Or., for defendant.

OPINION

SKOPIL, District Judge.

Plaintiff, Verla R. Woods, seeks relief for inadequate credit disclosures made in violation of the Federal Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("The Act") and Regulation Z, 12 C.F.R. 226, promulgated thereunder.

Jurisdiction is conferred by 15 U.S.C. § 1640(e).

On January 19, 1973, plaintiff entered into a consumer credit transaction with defendant, Beneficial Finance Co. of Eugene ("Beneficial"). She was co-maker of a loan for $1,500. Interest on the loan over a three-year payment period totaled $556.32. The annual percentage rate by Beneficial's calculations was 21.79%. Insurance and other charges totaled $178.15. They were paid from the principal. As a result of this loan transaction a suit is presently pending in state court to foreclose plaintiff's security interest and for a deficiency judgment.

This dispute is presented to me on an agreed set of facts. The parties have briefed the issues of law.

The introductory provision of the Truth-in-Lending Act states its purpose clearly and concisely:

"The Congress finds that economic stabilization would be enhanced and the competition among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit. The informed use of credit results from an awareness of the cost thereof by consumers. It is the purpose of this subchapter 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.

The Act "reflects a transition in Congressional policy from a philosophy of `Let the buyer beware' to one of `Let the seller disclose'". Mourning v. Family Publications Service, 411 U.S. 356, 377, 93 S.Ct. 1652, 1664, 36 L.Ed.2d 318 (1973). The Act is protective. It serves to slice through the tangle of hidden costs encountered by the borrower. The Act imposes the standard of "meaningful disclosure" upon lenders. The Regulations enacted to implement this standard are of necessity rather technical, but the remedial nature of the Act demands strict compliance.

Plaintiff asserts seven violations of the Act and Regulation Z promulgated thereunder by the Federal Reserve Board.

I. DEFENDANT FAILED TO INCLUDE THE COST OF CREDIT LIFE AND CREDIT DISABILITY INSURANCE WITHIN THE FINANCE CHARGE.

The Act requires disclosure of the finance charge and all its elements. 15 U.S.C. § 1639. Credit life, accident or health insurance premiums must be included in the finance charge unless

"(1) the coverage of the debtor by the insurance is not a factor in the approval by the creditor of the extension of credit, and this fact is clearly disclosed in writing to the person applying for or obtaining the extension of credit; and

"(2) in order to obtain the insurance in connection with the extension of credit, the person to whom the credit is extended must give specific affirmative written indication of his desire to do so after written disclosure to him of the cost thereof." 15 U.S.C. § 1605(b)(1), (2).

Beneficial excluded insurance costs from the finance charge. This enabled it to make the loan look more favorable to the borrower by lowering the finance charge and the annual percentage rate.

Beneficial's Disclosure Statement lists the insurance charge in two places (see Appendix A):

(1) The upper left-hand corner in the midst of boxed figures; and

(2) A large box on the right-hand side, which lists various costs to the borrower.

The insurance costs are not listed anywhere in the section entitled "Insurance Authorization", which is co-signed by the plaintiff. Plaintiff contends that the cost of insurance must be listed at the place where the borrower signs for such insurance. Thus Beneficial's Disclosure Statement fails to exempt the insurance charge from the finance charge.

Several Federal Reserve Board advisory letters have suggested that the premium must be listed in the insurance authorization. It may not simply refer to the amount of premium disclosed elsewhere. See FRB letter #304, CCH Consumer Credit Guide 30,350; FRB letter #271, CCH Consumer Credit Guide, 30,522.

The Court in Phillips v. Termplan of Atlanta, Inc. (N.D.Ga. Nov. 6, 1973), CCH Consumer Credit Guide, 98,841 held that the phrase "at the cost indicated above" was not a meaningful disclosure in an insurance authorization. The Court in Pollock v. Avco Financial Services (N.D.Ga. July 1, 1974), CCH Consumer Credit Guide 98,776, also held that the phrase "indicated above by a premium charge above the coverages" was not a disclosure sufficient to exempt including insurance charges in the finance charge.

The upper left-hand premium listings gave the plaintiff written disclosure of her insurance costs as required by the skeletal language of 15 U.S.C. § 1605 (b)(2). The premiums are contained in a box entitled "Nature Security (as checked) Insurance is included if amount is shown in Cost". This obfuscatory heading, combined with its separation from the borrower's authorization signature, contributed to the failure of Beneficial's Disclosure Statement to meet the conditions of Regulation 226.6(a), which require in part

"The disclosures required to be given by this part shall be made clearly, conspicuously, in meaningful sequence, . . ."

II. DEFENDANT FAILED TO INCLUDE THE COST OF HOUSEHOLD CONTENTS INSURANCE WITHIN THE FINANCE CHARGE.

Plaintiff paid for insurance on "household contents" pledged as security for her loan. This cost was not included in the finance charge. The Regulations require that the finance charge must include

"Charges or premiums for insurance, written in connection with any credit transaction, against loss of or damage to property or against liability arising out of the ownership or use of property, unless a clear, conspicuous, and specific statement in writing is furnished by the creditor to the customer setting forth the cost of the insurance if obtained from or through the creditor and stating that the customer may choose the person through which the insurance is to be obtained." 226.4(a)(6)

The cost of "household contents" insurance is listed in approximately the same two places as the credit disability and credit life costs. The lower left-hand side of the Disclosure Statement contains an acknowledgment of household contents insurance. A line is provided for written authorization. It is not signed, nor is the cost listed in the acknowledgment. This suggests rather cursory compliance with 15 U.S.C. § 1605. The "clear, conspicuous" standards of Regulation 226.4(a)(6) are not met regarding "household contents" insurance.

III. DEFENDANT PROVIDED INCORRECT AND MISLEADING INFORMATION CONCERNING THE SECURITY INTEREST IT ACQUIRED IN PLAINTIFF'S PROPERTY.

Regulation 226.8(b)(5) requires Beneficial to describe or identify the type of security interest it acquired in connection with defendant's loan. Beneficial also must clearly identify the property to which it relates.

In the upper left-hand corner of Beneficial's Disclosure Statement a box is checked stating there is a security interest in "Furniture". The insurance purchased by defendant on this security interest purports to cover "Household Contents". In the upper right-hand corner of the Disclosure Statement it states that if the box marked "Furniture" is checked, the Security Agreement covers

"all of the consumer goods of every kind then owned or thereafter acquired by the Borrowers in replacement thereof and now or thereafter located at the Borrowers place of residence set forth above."

The Court in Kenny v. Landis Financial Group, 349 F.Supp. 939 (N.D.Iowa 1972), held that a clear identification should provide enough information to preclude any reasonable questions regarding the goods to which the security interest attaches. Furniture, household contents, and all consumer goods of every kind are hardly synonymous. I am unable to determine what goods are covered by the security interest. Defendant has failed to provide a clear identification of the property.

IV. DEFENDANT INCORRECTLY STATED THAT ITS SECURITY INTEREST COVERED AFTER-ACQUIRED CONSUMER GOODS.

The portion of defendant's Disclosure Statement quoted above also claims that its security interest covers replacement goods acquired by the borrower. Defendant asserts that this language intends merely to give it a security interest in proceeds of the collateral. It further argues that interest in these after-acquired goods is not additional security and therefore escapes the prohibition of Oregon law. ORS 79.2040(4)(b), in effect at the time of the transaction, states:

"(4) No security interest attaches under an after-acquired property clause:

"* * *

"(b) To consumer goods other than accessions when given as additional security unless the debtor acquires rights in them within 10 days after the secured party gives value."

However, ORS 79.3060 provides by law a continuing interest in proceeds where the replaced good is directly exchanged for another consumer good. Beneficial's "replacement" language is superfluous. It might mislead a consumer into believing Beneficial retained an interest in something purchased to replace a worn out consumer good.

In a case involving similar "replacement" language the Court in Kenny v. Landis, supra, held that it was additional information stated so as to mislead or confuse the borrower, in violation of Reg...