The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
EVA PEREZ, on behalf of plaintiff and the )
class members defined herein, )
)
Plaintiff, ) Case No. 24 C 3180
)
v. ) Judge Robert W. Gettleman
)
CONSUMER FINANCIAL SERVICES, )
CORPORATION, )
)
Defendant. )
MEMORANDUM OPINION & ORDER
Plaintiff Eva Perez, on behalf of herself and the class members defined in the complaint,
brings this class action complaint against defendant Consumer Financial Services, Corporation
(“CFS”), alleging improper credit practices. Count I alleges violations of § 1638 of the Truth in
Lending Act (“TILA”), 15 U.S.C. § 1602, and its implementing regulation, Regulation Z, 12
C.F.R. § 1026.18; Count II alleges violations of the Illinois Consumer Installment Loan Act
(“CILA”), 205 ILCS 670/1; and Count III alleges unfair and deceptive acts and practices in
violation of the Illinois Consumer Fraud Act (“the Consumer Fraud Act”), 815 ILCS 505/2.
Plaintiff filed her complaint in Illinois state court, and defendant removed the action to federal
court on April 19, 2024. On June 10, 2024, the court denied plaintiff’s motion for remand. On
July 2, 2024, defendant moved to dismiss plaintiff’s complaint for failure to state a claim
pursuant to Federal Rule of Civil Procedure 12(b)(6) (Doc. 14). For the reasons discussed
below, the court denies defendant’s motion.
BACKGROUND
As outlined in this court’s prior opinion, according to the factual allegations in plaintiff’s
complaint, defendant extends credit to consumers. Plaintiff states that she entered a loan
transaction with defendant for personal, family, or household purposes, which gave defendant a
security interest in an automobile. In connection with the transaction, plaintiff alleges that she
signed or received: a promissory note and security agreement; a wage assignment; an application
for a “car club membership”; a TILA disclosure statement, which disclosed an annual percentage
rate (“APR”) of 21.988%; and a personal property security list.
Plaintiff alleges that she was required to purchase a car club membership, and she was
“specifically told that the car club membership was a condition for the extension of credit.”
According to plaintiff, the car club membership provides: roadside assistance for breakdowns,
flat tires, dead batteries, and “the like” of not more than $75; costs of defending criminal and
traffic charges arising out of the use of an automobile; cost of posting bail for charging arising
out of the use of an automobile; and a reward for the recovery of a stolen automobile. Plaintiff
claims that the car club membership meets the definition of a contract of insurance under Illinois
law, “notwithstanding the statements in the application that it is not insurance,” because it
“involves insurance against the loss of the automobile, and against liability arising out of the
ownership or use of the automobile.”
According to plaintiff, defendant included the $120 premium for the membership in the
amount financed. However, she claims that the price of the membership was an undisclosed
finance charge. According to plaintiff, because the membership price was a finance charge, it
changed the APR calculation. Thus, plaintiff claims that defendant understated the finance
charge by $120, and the APR by “about 7%.” Plaintiff alleges that the “true annual percentage
rate was approximately 29.95%,” and on information and belief, the “loss ratio” of the
membership is “very low, such that it would not be approved as insurance.” Plaintiff alleges it
is defendant’s standard practice to require the purchase of a car club membership to include that
premium “in the amount financed and not in the finance charge.” She further alleges that
defendant “did not disclose that the car club membership could be obtained from a person of the
consumer’s choice.”
Defendant moves to dismiss all counts of plaintiff’s complaint for failure to state a claim
based on the exhibits attached to the complaint. Specifically, plaintiff attached her application
for the auto club membership, which is signed and acknowledged by plaintiff. The application
provides that purchase of the membership is not a required condition for the loan (“This is not an
Automobile Liability Insurance Contract.”). Further, in the signing application, plaintiff attested
that she “fully understand[s] that the membership is NOT INSURANCE of any kind and the
benefits to which [she] would be entitled upon acceptance hereof are governed by the applicable
state laws pertaining to auto clubs or associations.” The application further states that plaintiff
may cancel the membership within 30 days of membership and receive a full refund, and that
“[p]urchase of the Motor Club Membership is not a required condition of the loan.”
LEGAL STANDARD
“To survive a motion to dismiss [under Rule 12(b)(6)], a complaint must allege sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009), citing Fed. R. Civ. Pro. 12(b)(6). For a claim to have “facial
plausibility,” a plaintiff must plead “factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Id. “[W]here the well-pleaded
facts do not permit the court to infer more than the possibility of misconduct, the complaint has
alleged—but has not shown—that the pleader is entitled to relief.” Id. “Threadbare recitals of
the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.
DISCUSSION
According to defendant, the court should dismiss all counts pursuant to Rule 12(b)(6).
Defendant argues that Count I should be dismissed because the complaint’s exhibits contradict
plaintiff’s claim that defendant failed to comply with TILA. Defendant argues that Counts II and
III should be dismissed because compliance with TILA is a complete defense to claims under
CILA and the Consumer Fraud Act when the claims are premised on the same facts. The court
will address each argument.
Congress enacted TILA 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, and to protect the consumer against inaccurate and unfair
credit billing and credit card practices.” 15 U.S.C. § 1601(a). Section 1605(a) of TILA defines a
“finance charge” as “[t]he sum of all charges, payable directly or indirectly by the person to
whom the credit is extended, and imposed directly or indirectly by the creditors and incident to
the extension of credit,” not including “charges of a type payable in a comparable cash
transaction.”1 15 U.S.C. § 1605(a). The Federal Reserve Board promulgated Regulation Z, 12
C.F.R. § 1026 (formerly numbered 12 C.F.R. § 226), to implement TILA.
First, defendant argues that plaintiff fails to state a claim pursuant to TILA in Count I.
Defendant argues that the auto club membership is not “insurance” under Illinois law, and even
if it is insurance, the cost of the membership was not an undisclosed finance charge. According
to defendant, the membership is not “insurance” because “insurance” generally refers to “a
policy issued by an authorized and licensed insurance company whose primary business is to
1 The “amount financed” is calculated by subtracting “any prepaid finance charge” from the “principal loan amount
or the cash price” plus “any other amounts that are financed by the creditor and are not part of the finance charge.”
12 C.F.R. § 1026.18(b).
assume certain risks of loss of its insureds, in exchange for the payment of a ‘premium.’”
According to defendant, because plaintiff does not allege that defendant is an authorized and
licensed insurance company, or that defendant is primarily in the business of assuming risks of
loss to insureds in exchange for premiums, plaintiff fails to state a claim under TILA.
Rather, defendant argues that plaintiff alleges that defendant is a creditor as defined in
TILA and a licensee as defined by CILA, and it is engaged in the business of extending credit,
not insurance, to consumers. Defendant further argues that the application for the auto club
membership stated that it was not insurance, and in signing the application, plaintiff attested that
she understood that the membership was “NOT INSURANCE of any kind.”
Plaintiff responds that the Seventh Circuit has held that a plaintiff does not plead herself
out of court when she attaches a document to a complaint “not in order to vouch for the truth of
the statements in it” but to specifically allege a fraudulent representation. Carroll v. Yates, 362
F.3d 984, 986 (7th Cir. 2004). While plaintiff acknowledges that the membership application
states that it is not insurance, she argues that it is insurance in fact. According to plaintiff,
Illinois law defines “insurance” as a “contract for the assumption of risk by the insurer whereby
the insurer agrees to indemnify the insured for potential pecuniary loss to the insured resulting
from certain specified perils.” Plaintiff cites Homeward Bound Servs. v. Ill. Dep't of Ins., 365
Ill. App. 3d 267, 272 (3d Dist. 2006), which itself cited Griffin Systems, Inc. v. Washburn, 153
Ill.App.3d 113 (1987), to support her definition.
Plaintiff argues that “[t]he car club membership involves insurance against the loss of the
automobile, and against liability arising out of the ownership or use of the automobile,
notwithstanding the statements in the application that it is not insurance.” She cites several
persuasive precedents that have so ruled on similar facts under similar state laws. See Love v.
Money Tree, Inc., 279 Ga. 476, 479 (2005); People by Abrams v. American Motor Club, 520
N.Y.S.2d 383, 385 (1st Dept. 1987); Arkansas Motor Club v. Arkansas Employment Sec. Div.,
237 Ark. 419, 424 (1963); Texas Ass’n. of Qualified Drivers v. Texas, 361 S.W.2d 580, 582
(Tex. Civ. App. 1962); Continental Auto Club, Inc. v. Commissioner of Insurance, 337 Mich.
434, 437 (1953).
The court agrees with plaintiff that she has plausibly alleged that the auto club
membership is “insurance” under Illinois law as stated in Homeward Bound Servs. v. Ill. Dep't
of Ins., 365 Ill. App. 3d 267, 272 (3d Dist. 2006). Defendant’s arguments about whether
defendant is an insurance provider fall flat. As the court acknowledged in Homeward Bound,
“[t]he nature of a contract as one of insurance depends upon its contents and the true character of
the contract actually entered into or issued.” Id. at 276 (internal quotations omitted). The court
determined that, “whether a contract is one of insurance is to be determined by a consideration of
the real character of the promise or of the act to be performed, and by a consideration of the
exact nature of the agreement in the light of the occurrence, contingency, or circumstances under
which the performance becomes requisite, and not by what it is called.” Id. (internal quotations
omitted).
Yet, defendant argues that even if plaintiff has alleged that the membership is
“insurance,” plaintiff still fails to state a claim in Count I because the exhibits attached to her
complaint contradict her allegation that purchase of the membership was mandatory. The
application states that “[p]urchase of the Motor Club Membership is not a required condition of
the loan,” and defendant emphasizes that parties who sign written contracts are presumed to have
notice of all the contract terms. See Janiga v. Questar Capital Corp., 615 F.3d 735, 743 (7th Cir.
2010). The application also stated that plaintiff could cancel the membership within 30 days of
membership and receive a full refund.
Plaintiff counters that the complaint alleges that she was “specifically told that the car
club membership was a condition for the extension of credit.” She emphasizes that TILA and
Regulation Z permit certain types of insurance agreements to be excluded from the finance
charge if: (1) the consumer is not required to purchase them in fact; (2) that fact is disclosed; and
(3) in some cases, certain other requirements are met. See 12 C.F.R. § 1026.4(d). For example,
voluntary credit insurance premiums may be excluded from the finance charge if:
(i) The insurance coverage is not required by the creditor, and this fact is
disclosed in writing.
(ii) The premium for the initial term of insurance coverage is disclosed in
writing . . . .
(iii) The consumer signs or initials an affirmative written request for the
insurance after receiving the disclosures specified in this paragraph, except
as provided in paragraph (d)(4) of this section . . . .
12 C.F.R. § 1026.4(d)(1)(i)‒(iii). In addition, property insurance premiums that insure
against loss of or damage to property, or against liability arising out of the ownership or use of
property, may be excluded from the finance charge if:
(i) The insurance coverage may be obtained from a person of the consumer's
choice, and this fact is disclosed . . . .
(ii) If the coverage is obtained from or through the creditor, the premium for
the initial term of insurance coverage shall be disclosed . . . . .
12 C.F.R. § 1026.4(d)(2).
Plaintiff cites Muñoz v. JLO Auto., Inc., 3:19-cv-01793 (MPS), 2020 WL 6607789 (D.
Conn. Nov. 12, 2020), which addresses a similar theory to defendant’s motion. In Muñoz, the
plaintiff alleged that the defendant stated that the relevant insurance was mandatory. Id. at *1.
On plaintiff’s motion for reconsideration, the court reasoned that because it must accept the
factual allegations as true and draw all reasonable inferences in favor of the plaintiff, “[the court]
must accept that [guaranteed auto protection (“GAP”)] insurance was in fact mandatory—which
t[ook the defendant’s] conduct out of the exemption in the above-quoted portion of Regulation
Z.” Id. at *2 (quoting 12 C.F.R. § 226.4(d)(3)).
The Muñoz court further determined that Regulation Z was clear, but even if it were
ambiguous, “[t]he Federal Reserve Board, which promulgated Regulation Z, has stated, through
its staff, that items such as GAP insurance must be, in fact, voluntary to be lawfully excluded
from the finance charge.” Id. at *3 (citing Truth in Lending, Amendments to Regulation Z and
staff commentary, 75 Fed. Reg. 76508-01 (Feb. 22, 2010)). The Federal Reserve Board has
determined that “[w]hether the insurance or coverage is in fact required or optional is a factual
question,” and “[i]f the insurance or coverage is required, the premiums must be included in the
finance charge, whether the insurance or coverage is purchased from the creditor or from a third
party.” Id. Board staff opinions construing TILA and Regulation Z are dispositive unless
demonstrably irrational. See Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 565 (1980).
This court agrees with plaintiff, and the Muñoz court, and concludes that plaintiff has
plausibly alleged that the auto club membership was mandatory insurance obtained “through”
defendant. In light of plaintiff’s allegation that she was “specifically told that the car club
membership was a condition for the extension of credit,” the court is not convinced by
defendant’s argument that plaintiff has not alleged that it “affirmatively represented, by words or
by conduct, that insurance was in fact required.” This is a factual dispute that the court cannot
resolve on a motion to dismiss.
Thus, plaintiff has plausibly alleged that the membership fee was not subject to
exemption for disclosure under Regulation Z as a finance charge. See Brugger v. Elmhurst Kia,
01-cv-1860, 2001 WL 845472, at *2 (N.D. Ill. July 18, 2001). The court rejects defendant’s
argument that the membership was not an undisclosed financed charge because it is not a finance
charge in the first place.2 At this stage, the court is unable to determine whether auto club
memberships are offered to or required in comparable cash transactions. See Regulation Z,
Supp. I, 12 C.F.R. § 226.4(a). Moreover, Regulation Z contemplates that the cost of mandatory
credit and property insurance premiums are included in the finance charge if obtained “from and
through” the creditor.
Accordingly, the court denies defendant’s motion to dismiss Count I. Plaintiff has
plausibly alleged that defendant violated TILA by understating the finance charge and
consequent APR. Because defendant’s arguments to dismiss Counts II and III depend on its
perceived inadequacy of plaintiff’s TILA claim,3 this court also denies defendant’s motion to
dismiss Counts II and III.
2 According to defendant, TILA provides that the finance charge does not include “charges of a type payable in the
comparable cash transaction.” See Dees v. Bob O’Connor Ford Inc., No. 94 C 7083, 1995 WL 441629, at *2 (N.D.
Ill. July 20, 1995) (quoting 15 U.S.C. § 1605(a)). Defendant also emphasizes that Regulation Z states that
“[c]harges imposed on the consumer by someone other than the creditor for services not required by the creditor are
not finance charges, as long as the creditor does not retain the charges.” Dees, 1995 WL 441629, at *2 (citing
Regulation Z, Supp. I, 12 C.F.R. § 226.4(a)(3) (1991)).
3 Defendant argues that its compliance with TILA is a complete defense to both claims.
CONCLUSION
For the reasons stated above, the court denies defendant’s motion to dismiss (Doc. 14).
Defendant is directed to answer plaintiff's complaint on or before September 11, 2024. The
parties are directed to file a joint status report using this court’s form on or before September 25,
2024.
ENTER:
United States District Judge
DATE: August 21, 2024