Appendix — First National Bank of Peoria v. Childs

Supreme Court, U.S,

FILED

MAR 23 {979

MIGHABL BODAK, JR. CLERK

IN THE

Supreme Court of the United States

October Term, 1978

No. €8-1468

FIRST NATIONAL BANK OF PEORIA,

Petitioner,

Vv.

GAREY R. CHILDS, et al.,

Respondent.

On Petition for a Writ of Certiorari to the United

States Court of Appeals for the Seventh Circuit

APPENDIX TO PETITION FOR WRIT

OF CERTIORARI

MILTON W. SCHOBER

1750 Pennsylvania Avenue, N.W.

Suite 1107

Washington, D.C. 20006

(202) 393-4961

Attorney for Petitioner

March 28, 1979

IN THE

Supreme Court of the United States

October Term, 1978

No.

FIRST NATIONAL BANK OF PEORIA,

Petitioner,

GAREY R. CHILDS, on behalf of himself and all

others similarly situated,

Respondent.

On Petition for a Writ of Certiorari to the United

States Court of Appeals for the Seventh Circuit

APPENDIX TO PETITION FOR WRIT

OF CERTIORARI

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IN THE UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Nos. 77-2029 and 77-2030

DAV!D J. BASHAM, LINDA C. BASHAM, GREGORY D.

VOGELSANG and DONNA I. VOGELSANG,

Plaintiffs-Appellants, ©

US.

FINANCE AMERICA CORPORATION,

Defendant-A ppellee.

No. 77-2031

GAREY R. CHILDS, on behalf of himself and all others

similarly situated.

Plaintiff-A ppellant,

US.

FIRST NATIONAL BANK OF PEORIA,

Defendant-A ppellee.

No. 77-2032

‘SUSAN M. STEELE,

Plaintiff-A ppellant,

VS.

THORP CREDIT, INC., OF ILLINOIS,

Defendant-A ppellee.

No. 78-1059

VICKIE SHOLL and DEBBIE BRASCHE, on behalf of them-

selves and all others similarly situated,

Plaintiffs-A ppellants,

US.

GENERAL FINANCE CORPORATION OF ILLINOIS, a corpor- .

ation,

Defendant-A ppellee.

No. 78-1060

BRUCE P. DORETHY, on behalf of himself and all others

similarly situated,

Plaintiff-A ppellant,

VS.

BUSHNELL FINANCE COMPANY,

Defendant-A ppellee.

No. 78-1061

JAMES E. ROUNDS,

Plaintiff-A ppellant,

US.

HOUSEHOLD FINANCE CORPORATION,

Defendant-A ppellee.

No. 78-1062

DEAN BRASCHE and CHARLENE BRASCHE,

Plaintiffs-A ppellants,

US,

GENERAL FINANCE CORPORATION OF ILLINOIS, a corpor-

ation,

Defendant-A ppellee.

No. 78-1063

JAMES E. ROUNDS,

Plaintiff-A ppellant,

US.

GENERAL FINANCE CORPORATION OF ILLINOIS, a

corporation,

Defendant-A ppellee.

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No. 78-1064

ROBERT N. SHARP and MARY E. SHARP,

Plaintiffs-A ppellants,

vs.

GENERAL FINANCE CORPORATION OF ILLINOIS, a

corporation,

Defendant-A ppellee.

No. 78-1065

RICHARD D. CORBIN and CHERI CORBIN,

Plaintiffs-A ppellants,

vs.

GENERAL FINANCE CORPORATION OF ILLINOIS, a

corporation,

Defendant-A ppellee.

No. 78-1066

FRED H. TIBBITS, VICKEY L. TIBBITS, and JAMES S.

BRANNON, Trustee in Bankruptcy for Fred H. Tibbits,

Plaintiffs-A ppellants,

Vs.

GENERAL FINANCE CORPORATION OF ILLINOIS, a

corporation,

Defendant-A ppellee.

No. 78-1067

KEITH A. DEJAYNES, DIANE M. DEJAYNES, and

RAYMOND E. BURGER, Wage Earner Trustee,

Plaintiffs-A ppellants,

Vs .

GENERAL FINANCE CORPORATION OF ILLINOIS, a

corporation,

Defendant-A ppellee.

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No. 78-1068

JEFFREY C. BROWN and CINDY S. BROWN,

Plaintiffs and Counter-Defendants-A ppellants,

US.

GENERAL FINANCE CORPORATION OF ILLINOIS, a

corporation,

Defendant and Counter-Plaintiff-A ppellee.

No. 78-1069

RICK JOHNSON,

Plaintiff-A ppellant,

US.

MID AMERICA CREDIT, INC., now HEIGHTS FINANCE

CORPORATION,

Defendant-A ppellee.

No. 77-2179

ROBERT N. SHARP and MARY E. SHARP,

Plaintiffs-A ppellants,

US.

THE FIRST NATIONAL BANK OF PEORIA,

Defendant-A ppellee.

No. 77-2180

FORT MADISON BANK & TRUST CO.

Plaintiff and Counter-Defendant-A ppellee,

US.

CHARLES E. COLLINS and PATRICIA D. COLLINS,

Defendants and Counter-Plaintiffs-A ppellants

and Third-Party Plaintiffs,

vs.

HART MOBILE HOMES, INC.,

Third-Party Defendant-A ppellee.

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No. 78-1058

In the Matter of:

WILLIAM ERNEST ANDERSON,

Debtor.

Appeal of:

WILLIAM ERNEST ANDERSON,

Debtor, and

RAYMOND E. BURGER,

Wage Earner Trustee.

No. 78-1198

SHERYL K. HAWK and FRANKLIN HAWK,

Plaintiffs-A ppellants,

vs.

GENERAL FINANCE CORPORATION OF ILLINOIS, a

corporation,

Defendant-A ppellee.

Appeals from the United States District Court for the

Southern Division of Illinois, Peoria Division.

Civil Nos. 77-1053 and 77-1059, 77-1072,

77-1060, 77-1080, 77-1081, 77-1083,

77-1088, 77-1089, 77-1090, 77-1093,

77-1102, 77-1107, 77-1116, 77-1117,

77-1087, 77-1119 and 77-1120, 77-1139 and 78-1107—

Bankruptey Nos. 77-10547 and 77-10548.

Robert D. Morgan, Judge.

Argued June 14, 1978—Decided August 16, 1978

Before CUMMINGS, SPRECHER and BAUER,

Circuit Judges.

SPRECHER, Circuit Judge.

This case is a consolidation of nineteen Truth in

Lending actions which were either dismissed or upon

A-7

which summary judgment was granted for defendants.

Numerous issues are raised, the primary ones being the

liability of creditors when disclosures are made in

conformity with Federal Reserve Board (“Board”) regula-

tions, official staff interpretations or unofficial staff

letters; the extent of required disclosure by a creditor of a

security interest in after-acquired property; the compli-

ance of various loan forms with the requirement that the

disclosures therein be made clearly, conspicuously and in

meaningful sequence; and whether the one-year statute of

limitations on Truth in Lending actions applies to

counterclaims filed by a debtor in response to a secured

creditor’s claim or a claim for reclamation.

I

These appeals arise out of alledged violations of the

Truth in Lending Act (“TILA”), 15 U.S.C. §§ 1601, et seq.,

the regulations promulgated thereto (“Regulation Z”), 12

C.F.R., part 226, the Illinois Uniform Commericial Code

(“UCC”), Illinois Revised Statutes 1975, chapter 26, §§ 1-

101, et seg., and the Illinois Consumer Fraud Act, Illinois

Revised Statutes 1975, chapter 121%, §§ 261. et seg.

All of the creditors and the transactions described in

the complaints are subject to regulation under TILA,

Regulation Z, the Uniform Commercial Code and the

Consumer Fraud Act. All of the transactions were

consumer credit transactions within the meaning of 15

U.S.C. § 1602(h), in that the party to whom credit was

offered or extended was a natural person, and the money,

property, or services which were the subject of the

transaction were primarily for personal, family, house-

hold, or agricultural purposes. All but one of the nineteen

appeals involve close-end consumer loans under 15 U.S.C.

§ 1639.!

‘One of the appeals, Fort Madison Bank and Trust Co. v. Collins,

(No. 77-2186) is a sale by a mobile home dealer under 15 U.S.C. § 1638.

The contract in the Fort Madison Bank case was immediately assigned

by the dealer to the bank in a typical dealer-paper transaction. No

appeal here involves the extension of “open-end” credit under 15 U.S.C.

§ 1637.

A-8

All of these cases were decided adversely to plaintiffs

upon motions to dismiss or motions for summary

judgment and therefore turn almost entirely on the

resolution of questions of law involving construction of the

statute, regulations and loan documents. For this reason,

combined with the fact that most of the legal issues

involve more than one case, the facts of individual cases

will be discussed only where necessary to resolve an issue

or where differing facts would dictate a different result.

Otherwise, in the interest of brevity, only a general

description of the transaction involved will be given.

II

Plaintiffs’ first claim? is that defendants failed to

disclose “(t]he amount of credit of which the obligor will

have the actual use, or which is or will be paid to him or

for his account or to another person on his behalf” in

?The twelve cases involving this claim are 78-1059 through 78-1069

and 78-1198. Plaintiffs also argue that cases 77-2029 and 77-2030

involve this claim. A perusal of the record indicates that the original

complaints raised only the issue of an improper security interest on the

part of defendants in these latter cases. While a motion to amend the

complaint in each case was filed, these motions, according to the docket

sheet, were withdrawn by plaintiffs on September 2, 1977. Therefore,

this issue was neither raised nor ruled upon in the district court and is

therefore not before us on appeal in those two cases. For the same

reason, plaintiffs’ additional claim in 77-2030 that credit life insurance

charges were not disclosed is not before us.

Plaintiffs also argue that 78-1058 involves this issue. That case,

however, was decided solely on a statute of limitations question and

this is the only issue before us on appeal of that case. See Part V infra.

A-9

violation of 15 U.S.C. § 1639(a).* This section of the statute

requires that a creditor disclose that amount designated

by the above quotation in addition to all charges for

insurance or other purposes, individually itemized.

Finally, these two figures must be added together and

disclosed to determine the total amount financed.

Defendants do not deny that they failed to disclose the

amount required by § 1639(a)(1). Rather, they contend

that their disclosure forms, which only included the

individual itemized charges and the total amount financ-

ed, were in full compliance with the Board’s Regulation Z

§ 226.8(d)(1), 12 C.F.R. § 226.8(d)(1), which requires

disclosure of:

The amount of credit, .. . which will be paid to the

customer or for his account or to another person on

his behalf, including all charges, individually item-

ized, which are included in the amount of credit

extended but which are not part of the finance

charge, using the term “amount financed.”

A careful reading of this portion of Regulation Z indicates

that it requires only the disclosures spelled out in §§

1639(a)(2) and (a)(3) of the TILA, which defendants here

315 U.S.C. § 1639(a) provides in relevant part:

(a) Any creditor making a consumer loan or otherwise extending

consumer credit in a transaction which is neither a consumer credit

sale nor under an open end consumer credit plan shall disclose each

of the following items, to the extent applicable:

(1) Tie amount of credit of which the obligor will have the actual

use, or which is or will be paid to him or for his account or to another

person on his behalf.

(2) All charges, individually itemized, which are included in the

amount of credit extended but which are not part of the finance

charge.

(3) The total amount to be financed (the sum of the amounts

referred to in paragraph (1) plus the amounts referred to in

paragraph (2)).

A-10

gave, thereby implicitly allowing the actual proceeds of

the loan to remain undisclosed.‘

Assuming, without deciding, that defendants must

comply with the statute even where it differs from the

Board’s regulations,' it is clear that failure to disclose the

actual proceeds of the loan violates § 1639(a)(1) of the

TILA. Thus we are presented with a situation, accounted

for by Congress in 15 U.S.C. § 1640(f), where action in

good faith conformity with Regulation Z is found violative

of the TILA:

No provision of this section or section 1611 of this

title imposing any liability shall apply to any act done

or omitted in good faith in conformity with any rule,

regulation, or interpretation thereof by the Board or

in conformity with any interpretation or approval by

an official or employee of the Federal Reserve

System duly authorized by the Board to issue such

interpretations or approvals under such procedures

as the Board may prescribe therefor, notwithstand-

ing that after such act or omission has occurred, such

‘This conclusion is also reached in Pollock v. General Finance Corp.,

535 F.2d 295, 298-99 (5th Cir. 1976), aff'd on rehearing, 552 F.2d 1142,

1143-44 (5th Cir. 1977), cert. denied, 434 U.S. 891, 98 S.Ct. 265, 54

L.Ed.2d 176 (1977). It is to be noted, however, that the simple

arithmetical procedure of subtraction will yield the “undisclesed”

figure.

5 Defendants argue that the Board has authority under 15 U.S.C. §

1604 to provide for variations and exceptions to the statute such as that

involved here. While we need not decide that issue in this case, we note

that a similar argument was rejected in Pollock v. General Finance

Corp., 552 F.2d 1142, 1143-44 (5th Cir. 1977), cert. denied, 434 U.S. 891,

98 S.Ct. 265, 54 L.Ed.2d 176 (1977). Defendants also claim that

Congress has acquiesced in the Board’s construction of the statute in

this manner since 1969 and therefore this construction must be given

weight. See generally Norwegian Nitrogen ‘Products Co. v. United

States, 288 U.S. 294, 313, 53 S.Ct. 350, 77 L.Ed. 512 (1933); Zemel v.

Rusk, 381 U.S. 1, 11, 85 S.Ct. 1271, 14 L.Ed.2d 179 (1965). Given our

disposition of the broader issue of liability, we need not address this

argument.

A-11

rule, regulation, interpretation, or approval is amend-

ed, rescinded, or determined by judiciai or other

authority to be invalid for any reason.

Since defendants’ disclosures have followed the require-

ments of Regulation Z® no civil liability may be imposed

upon them according to § 1640(f) for having failed to make

the disclosure required by § 1639(a)(1). Therefore, the

district court properly concluded that no claims existed

on this basis.’

III

Plaintiffs claim that defendants’ loan documents at-

tempt to grant the creditor an overbroad and unlawful

6 See also Federal Reserve Board Letter No. 982 (December 24,

1975) CCH Consumer Credit Guide paragraph 31,321, to the effect that

loan proceeds need not be disclosed. The statute itself mandates that

disclosures be “in accordance with the regulations of the Board.” 15

U.S.C. § 1631(a).

7Section 1640(f) limits its exemption from liability to “good faith”

conformity to regulations and interpretations. We do not reach the

issue of whether continued adherence by the creditors to their present

form of disclosure after at least one circuit has ruled that it is illegal

vitiates their “good faith.” See Pollock v. General Finance Corp., 535

F.2d 295 (5th Cir. 1976), affd on rehearing, 552 F.2d 1142 (7th Cir.

1977), cert. denied, 434 U.S. 891, 98 S.Ct. 265, 54 L.Ed.2d 176 (1977).

Nor do we decide whether mere coincidental conformity with the

Board’s regulations are sufficient for exculpation under § 1640(f). See

Jones v. Community Loan & Inv. Corp., 544 F.2d 1228, 1231-32 (5th

Cir. 1976), cert. denied, 431 U.S. 934, 97 S.Ct. 2642, 53 L.Ed.2d 250

(1977). The regulation relied upon here became effective on July 1,

1969, the same day as the TILA, and has never been amended. Reliance

on this regulation as initial and continuous guidance in complying with

the statute is apparent from the disclosure forms used by defendants.

Finally, in No. 78-1198, the issue of whether a TILA claim passes to

the wage earner trustee in a Chapter XIII bankruptcy proceeding is

argued. In light of our conclusion that no civil liability exists here, we

do not decide that issue. See also Matter of Dickson, 432 F.Supp. 752

(W.D.N.C.1977).

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security interest in the debtors’ after-acquired consumer

goods. A creditor desiring to hold a security interest must

make the following disclosure under 15 U.S.C. § 1639

(a)(8):

A description of any security interest held or to be

retained or acquired by the creditor in connection

with the extension of credit, and a clear identification

of the property to which the security interest relates.

Regulation Z, § 226.8(b)(5), 12 C.F.R. § 226.8(b)(5)

requires:

A description or identification of the type of any

security interest held or to be retained or acquired by

the creditor in connection with the extension of

credit, and a clear identification of the property to

which the security interest relates or, if such

property is not identifiable, an explanation of the

manner in which the creditor retains or may acquire

a security interest in such property which the

creditor is unable to identify. In any such case where

a clear identification of such property cannot proper-

ly be made on the disclosure statement due to the

length of such identification, the note, other instru-

ment evidencing the obligation, or separate dis-

closure statement shall contain reference to a

separate pledge agreement, or a financing statement,

mortgage, deed of trust, or similar document

evidencing the security interest, a copy of which shall

be furnished to the customer by the creditor as

promptly as practicable. If after-acquired property

will be subject to the security interest, or if other or

future indebtedness is or may be secured by any such

property, this fact shall be clearly set forth in

conjunction with the description or identification of

’This issue involves appeals 77-2029 through 77-2032. Plaintiffs

claim that 77-2180 is also involved. A perusal of the record indicates

that 77-2180 was decided solely on a statute of limitations question and

is therefore the issue of a security interest and that case is not before us

on appeal. See Part V infra.

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the type of security interest held, retained or

acquired.

The legal extent of a security interest is determined

according to state law and section 9—204(2) of the Illinois

Uniform Commercial Code (UCC) Ill. Rev. Stat. ch. 26, §

1-101 et seq., provides in relevant part:

No security interest attaches under an after-

acquired property clause to consumer goods other

than accessions (Section 9-314) when given as

additional security unless the debtor acquires rights

in them within 10 days after the secured party gives

value.

Therefore, plaintiffs argue that defendants violated

section 1639(a)(8) of the TILA and section 226.8(b)(5) of

Regulation Z by claiming to cover more than UCC section

9-204(2) allows and by failing to disclose the time

limitation imposed on such clauses by this section of the

UCC.

The leading case in this circuit on the after-acquired

property security interest is Tinsman v. Moline Beneficial

Finance Co., 531 F.2d 815 (7th Cir. 1976). There this court

held that disclosures of security interests that fail to

indicate state law limitations on such security interests do

not fulfill the disclosure requirements of the TILA and

Regulation Z. In particular, debtors’ security interest

there covered more property than allowed by the statute

and also did not disclose that any security interest was

limited to property acquired within 10 days after the

secured party gives value.

The security interest clauses in three of the four cases

involved here do not contain any reference to a time

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limitation.’ This failure to indicate this limitation on the

security interest violates the TILA and Regulation Z

under our holding in Tinsman. See also Pollock v. General

Finance Corp., 535 F.2d 295, 300 (5th Cir. 1976), aff'd on

rehearing, 552 F.2d 1142, 1144-45 (5th Cir. 1977), cert.

denied, 434 U.S. 891, 98 S.Ct. 265, 54 L.Ed.2d 176 (1977);

Johnson v. Associates Finance, Inc., 369 F.Supp. 1121,

1122-23 (S.D.Il1.1974).

Defendants, however, claim reliance on unofficial staff

opinions of the Board for the contention that the

disclosure here was made in good faith reliance upon

Board interpretations of the TILA and therefore subject

to no civil liability under section 1640(f). See Federal

Reserve Letters Nos. 829, 983 and 1053, CCH Consumer

Credit Guide, paragraphs 31,151, 31,323, and 31,393. !°

*Nos. 77-2029, 77-2030 and 77-2031. No. 77-2031 also appears to

improperly claim an interest in more than merely accessions. The

security agreement states flatly that it “will cover after acquired

property,” no limitation of the kind of property covered being given.

Defendants argue that they have in good faith relied on Exhibit E of

the Model Forms provided with a pamphlet entitled, “What You Ought

to Know About Truth in Lending” and therefore should be immune

from liability under 15 U.S.C. § 1640(f). These forms, however, are

merely samples “solely for purposes of demonstration” as the

disclaimer at.the bottom of the form states. See Johnson v. Associates

Finance, Inc., 369 F.Supp. 1121, 1123 (S.D.Il. 1974); Bone v. Hibernia

Bank, 354 F.Supp. 310, 311 (N.D.Cal.1973), reversed on other grounds,

493 F.2d 135 (9th Cir. 1974). Reliance on such a form, where it is

contrary to the law of the jurisdiction, is not sufficient to insulate

defendants from liability under § 1640(f).

The extent of reliance on these letters to support defendants’

position is itself open to question. Letter 829, August 22, 1974, seems to

indicate that the strictures of state law must be followed in describing

the security interest. While Letter 983, December 30, 1975, seems to

backtrack from this position, Letter 1053, May 28, 1976, followed and

stated:

It appears from your letter that these creditors are disclosing a

security interest in “all after-acquired property” or “all after-

acquired property including all attachments, substitutions, and

replacements.” If, in fact, the applicable State law only permits

acquisition of a security interest in after-acquired property

acquired within a certain period of time, then such a statement

would be improper under Regulation Z.

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This ignores the fact that these unofficial staff opinion

letters are explicitly excepted from reliance under

Regulation Z, section 226.1(d)(4)(iii). The latest interpre-

tation from the Board, post-dating the staff letters relied

on by defendants, is an Official Staff Interpretation which

concludes that the statement that a creditor holds “a

security interest under the Uniform Commercial Code” is

a sufficient description when the creditor obtains a

security interest under the UCC. See Federal Reserve

Board Official Staff Interpretation (November 19, 1976),

CCH Consumer Credit Guide, paragraph 31,491. Without

deciding whether this Official Staff Interpretation is

consistent with Tinsman, we note that defendants cannot

rely on this Official Interpretation since the language in

their disclosure forms makes no mention of the UCC.

In holding that defendants cannot rely on the unofficial

staff letters under the facts of this case, we realize that

such letters are an important informative function of the

staff of the Board which, although not binding on a court,

are entitled to deference and may prove helpful to a

decision in a given case. Philbeck v. Timmers Chevrolet,

Inc., 499 F.2d 971, 976-77 (5th Cir. 1974); Frank v. Reserve

Consumer Discount Co., 398 F.Supp. 703 (D.Pa.1975). In

the instant cases, however, the disclosure forms give a

clearly mistaken impression of the extent of time the

security interest may be in effect. As we stated in

Tinsman v. Moline Beneficial Finance Company, 531 F.2d

815, 818 (7th Cir. 1976):

A reading of the form would lead the debtors to

conclude erroneously that the security interest

extends to all [consumer] goods .. . at any time the

loan agreement is in effect, even though Illinois law

precludes such a security interest covering consumer

goods acquired more than 10 days after the secured

party gives value.

The disclosures required here are not onerous and

their uniformity is enhanced by the fact that the UCC has

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been adopted by 49 states. Moreover, the fact that

defendants cannot in actuality claim any greater security

interest than is allowed by state law is of no consequence.

Although the inclusion of language in the forms which

does not limit the security interest to 10 days fails to

extend that interest beyond the limited period, it does

mislead the consumer. As was stated in Jves v. W.T. Grant

Company, 522 F.2d 749, 761 (2d Cir. 1975):

Whether [a creditor] actually retains a security

interest is irrelevant. On its face, the contract

provides for a security interest and for [a creditor] to

reveak later that there is none is hardly the type of

disclosure Congress thought would “permit con-

sumers to compare the cost of credit among different

creditors and to shop effectively for the best credit

buy.”

Therefore the district court erred in dismissing these

claims.

In the fourth case, No. 77-2032, the security agreement

explicitly excepts “after acquired consumer goods acquir-

ed more than 10 days after the date hereof.” Defendant in

this case has complied with the TILA and Regulation Z.!!

Dismissal of the complaint was properly allowed by the

district court.

"Plaintiffs also attempt to premise a claim on language in the

security interest purporting to cover “al! substitutions and replace-

ments.” Assuming that substitutions and replacements for coiiatera!

cannot be the subject of a security interest after 10 days (See Tinsman

v. Moline Beneficai Finance Co., 531 F.2d 815, 816 (7th Cir. 1976)), such

goods must, by definition, be considered as being “of the same or

similar type” as those secured. Thus the 10-day limitation contained in

the agreement covers these goods as well:

Debtor further grants to Secured Party a security interest in all

goods, personal property and chattels of the same or similar type or

kind to that described above now owned or hereafter acquired,

excepting only after acquired consumer goods acquired more than

10 days after the date hereof.

No valid claim of violation is therefore made.

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IV

The next contention is that defendant!* violated the

TILA and Regulation Z, 12 C.F.R. § 226.6(a), which

provides in relevant part: |

(a) Disclosures; general rule. The disclosures

required to be given by this part shall be made

clearly, conspicuously, in meaningful sequence, in

accordance with the further requirements of this

section, and at the time and in the terminology

prescribed in applicable sections.

See also 15 U.S.C. § 1631(a). This regulation is designed to

insure that the disclosures follow a logical order and are

not scattered throughout the agreement. See Staff

Opinion Letter No. 780 (April 10, 1974), CCH Consumer

Credit Guide paragraph 31,102.

Allen v. Beneficial Finance Company of Gary, 531 F.2d

797 (7th Cir.), cert. denied, 429 U.S. 885, 97 S.Ct. 237, 50

L.Ed.2d 166 (1976), deals with the issue of meaningful

disclosure. According to Allen, 531 F.2d at 801, “meaning-

ful sequence” requires.that, disclosure statements ba-

sically must follow two criteria:

Thus, meaningful sequence first requires groupings

of logically related terms. Second, meaningful se-

quence requires that the terms in these groupings be

arranged in a logically sequential order emphasizing

the most important terms.

Plaintiffs complain that the disclosure statements make

disclosures horizontally instead of vertically. This fact

does not, however, make the disclosures misleading. The

2This issue involves Nos. 78-1059 and 78-1061 through 78-1069.

Plaintiffs also claim that Nos. 77-2029, 77-2030 and 78-1058 involve

this issue. For the reasons discussed in note 2 supra, however, this issue

was not reached in those cases and is not before us on apreal.

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key factor is reasonable proximity and comprehensibility.

As Staff Opinion Letter 780 (April 10, 1974) states:

We realize that it is not always practical to list the

items in vertical order, but in keeping with the

purpose of the Truth in Lending Act, they should be

placed in reasonable proximity to each other so that

the customer will not be required to search for any

arithmeticai items which should logically follow a

previous one.

The forms involved here satisfy this requirement even

though the disclosures are horizontal in nature.

Plaintiffs next suggest that the use of a subtractional

disclosure in several of the forms violates the “meaningful

sequence” rule. While it was noted in Allen, 531 F.2d at

802, 804, that the subtractional method is not favored, the

court stated that the “requirements of meaningful

sequence cannot be applied mechanically or rigidly.” }3 In

Allen the statement contained some figures listed hori-

zontally and others listed in two vertical columns.

Groupings of terms were located at random. The columns

of numbers appeared to add up when in reality they did

not. The same charge was listed twice under two

difference titles. The court, 531 F.2d at 802, described this

attempt at disclosure as follows:

The present defendant has failed in almost every

respect to provide disclosures in meaningful se-

quence in the present disclosure statement. The court

below cited ten instances in which the disclosure

statement failed to set forth the required information

in a meaningful sequence.

'3Subsequent to the decision in Allen, the Board issued Staff

Opinion Letter No. 1047 (May 20, 1976), CCH Consumer Credit Guide

paragraph 13,387, commenting on Allen that no particular form of

statement was required so long as the relationship among the terms is

clear, thereby providing the consumer with a clear and adequate basis

on which to shop for credit.

A-19

In contrast, the subtractional disclosure statements

here contain a logically sequential series of disclosures

beginning with the total amount of required payments,

the finance charge, the amount financed, the charges for

credit life, and credit disability insurance, the total

number of payments and the annual percentage rate.

Perusal of the forms indicate that while this particular

sequence is not additional, it is logical and meaningful.

This is all that the TILA, Regulation Z and the Allen

decision require.'4 See also Official Staff Interpretation

(March 21, 1977), CCH Consumer Credit Guide para-

graph 31,552. Therefore, the decision of the district court

that the disclosures in these forms were made in a

“meaningful sequence” must be sustained.

V

Two of the cases! concern the issue of whether, after

filing a petition under Chapter XIII of the Bankruptcy

Act, the debtors may respond to a filing of a claim or a

reclamation petition by alleging TILA violations on the

part of the creditor, even though the TILA claim is

beyond the statutory limitation period. Plaintiffs contend

that their action is not time barred since their claim is one

of recoupment.

The limitation period for TILA claims provides in 15

U.S.C. § 1640(e):

14 See generally Annotation, “Meaningful Sequence” Requirement of

Regulation Z (12 C.F.R., pt. 226.6(a)), 33 A.L.R.Fed. 751 (1977).

‘5 Nos. 77-2180 and 73-1058. In 77-2180, plaintiffs also argue that the

creditors violated Regulation Z § 226.8(a). For the reasons discussed in

note 8 supra, this issue is not before us. Also, in light of our disposition

of the statute of limitations issue, plaintiffs’ further argument relating

to the vacating of the default judgment need not be addressed. In any

case, the district court has wide discretion in granting such relief. See

Fed.R.Civ.P. 60(b) and Bankrupty Rules 755(b) and 924.

A-20

Any action under tisis 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.

There is no dispute that debtors failed to make a claim

within one year from the date of the occurrence. See also

Goldman v. First National Bank of Chicago, 532 F.2d 10

(7th Cir.), cert. denied, 429 U.S. 870, 97 S.Ct. 133, 50

L.Ed.2d 150 (1976). Rather, debtors claim that somehow

their action was revived when creditors made claims in

response to debtors filing for voluntary bankruptcy under

Chapter XIII. The bankruptcy judge and the district

court rejected this claim in both cases.

Failure te bring an action for damages within the one-

year limitation period bars the action. See Jamerson v.

Miles, 421 F.Supp. 107 (N.D.Tex.1976); Fenton v. Citizens

Savings Association, 400 F.Supp. 874 (C.D.Mo.1975).

Where a counterclaim seeks to assert a separate cause of

action for an independent wrong, it generally may not be

instituted after the applicable statute of limitations has

expired. See Smith-Johnson Steamship Corp. v. United

States, 231 F.Supp. 184 (D.Del.1964). We believe that this

rule applies to these cases as well. Debtors argue,

however, that a counterclaim is not barred where it seeks

“recoupment” rather than affirmative relief. This argu-

ment must fail here even assuming that the doctrine of

recoupment may assist the claiming party in a given

situation. See Bull v. United States, 295 U.S. 247, 262, 55

S.Ct. 695, 79 L.Ed. 1421 (1935). The TILA claim presented

by debtors seeks affirmative damages under 15 U.S.C. §

1640(a)(2). They do not claim however that they were

actually damaged ‘in any way as a result of the claimed

TILA violations.'* Nor do they claim that the alleged TILA

16 See 15 U.S.C. § 1640(a)(1). We express no opinion concerning the

availability of a counterclaim after the limitation period where debtors

would seek to have the recovery by creditor reduced by the amount of

actual damages sustained by debtors in, for example, overpayment of

finance charges. See also 15 U.S.C. § 1640(h). Certainly, however, such

a claim is much closer to the concept of “recouping” something

unlawfully taken by the creditor.

A-21

violations somehow negate the validity of the underlying

loan transaction.!” The TILA claim is not directed at or an

answer to the underlying debt. '8

Viewed in this manner, debtors in bankruptcy have

brought suit for affirmative relief based on alleged TILA

violations. The fact that the creditors being sued have

filed claims in the bankruptcy proceeding has no material

relevance. Debtors action is barred by the one-year

statute of limitations contained in 15 U.S.C. § 1640(e).'

The design of TILA was to provide protection to

consumers by affording them meaningful! disclosure and

thereby an opportunity to shop for credit. It was not

designed, nor should it be used to thwart, the valid claims

of creditors. The district court properly dismissed these

claims on the authority of the statute of limitations.

VI

In Sharp v. First National Bank of Peoria, No. 77-2197,

plaintiffs, husband and wife, allege that defendant failed

7 Thus, it has been held that the one-year limitation period does not

apply to an action for rescission under 15 U.S.C. § 1635. See Littlefield

v. Walt Flanagan & Co., 498 F.2d 1133 (10th Cir. 1974).

'8Tt has been held that a TILA claim and the underlying loan

_ transaction are not so related as to be the subject of a compulsory

counterclaim under Rule 13(a), Federal Rules of Civil Procedure. See

Gammons v. Domestic Loans of Winston-Salem, Inc., 423 F.Supp. 819

(M.D. N.C. 1976), and cases cited therein.

19We recognize that the state courts have split on this question. See

generally Annotation, Time Limitations Under 15 U.S.C. § 1640(e) on

Truth in Lending Suits, 36 A.L.R.Fed. 657 (1978); Note, Restrictions on

Defenses and Counterclaims Based on Truth In Lending Violation, 13

Wake Forest L.Rev. 189 (1977). This split is attributable mainly to a

variation in state statutes. Even ignoring the questionable use of state

statutes to modify a federal cause of action controlled by an explicit

federal limitations period, such statutes do not bind the federa! courts.

See also 15 U.S.C. § 1640(h), which denies any offset under § 1640(a)(2)

unless the liability has been judicially determined.

A-22

to give them any documents or disclosure statements

necessary to comply with the TILA or the Motor Vehicle

Retail Installment Sales Act of Illinois, Ill.Rev.Stat., ch.

121%, § 573. Defendant filed a motion to dismiss and

attached a copy of a loan document signed by Robert N.

Sharp. Plaintiffs responded by filing only an affidavit by

Mary Sharp. The district court granted defendant’s

- motion to dismiss.

Plaintiffs’ claim under the Illinois Statute is without

merit. The statute is designed to apply where a retail

automobile sales establishment provides or procures

financing for the vehicles it sells, not where independent

bank financing is obtained. See generally Rivera v. Dick

McFeely Pontiac, Inc., 431 F.Supp. 506 (N.D.III1. 1977);

Lucas v. Park Chrysler Plymouth, Inc., 62 F.R.D. 399

(N.D.IIl. 1974). Thus, the section which plaintiffs claim

defendant violated provides in relevant part:

The seller shall deliver to the buyer a copy of the

retail installment contract signed by the seller. Any

acknowledgment by the buyer of delivery of a copy of

the contract must be printed or written in a size

equal to at least 10 point bold type and, if contained in

the contract, must appear directly above the legend

required above the buyer’s signature by paragraph

(1) of Section 3. The Buyer’s written acknowledge-

ment of delivery of a copy of the contract conforming

to the requirements of this Act is conclusive proof of

such delivery and of compliance with this Section in

any action by or against an assignee of the contract

without knowledge to the contrary when he pur-

chases the contract.

This section clearly contemplates the situation where the

T1].Rev.Stac., ch. 121%, § 573.

—?

e+

A-23

automobile dealer, the “seller,”?! arranges the financing

and is therefore not applicable to the bank in this case.

Regarding the TILA claim, defendant filed a motion to

dismiss and attached a copy of the loan agreement signed

by Robert Sharp. The loan document provides, above Mr.

Sharp’s signature, that debtor “acknowledges receipt of a

completely filled in copy prior to execution thereof.” This

acknowledgment by Mr. Sharp created a rebuttable

presumption that the required disclosures were made.”

Mr. Sharp failed to rebut this presumption by filing an

affidavit or otherwise pleading further. The dismissal of

the TILA claim was therefore proper.”? See Whitlock v.

Midwest Acceptance Corp., 76 F.R.D. 190 (E.D.Mo.1977).

211]].Rev.Stat., ch. 121%, § 562.3, defines this term:

“Retail seller” or “seller” means a person engaged in the business

of selling motor vehicles to retail buyers in retail installment

transactions.

The bank is not in the business of selling motor vehicles. See also

Ill. Rev.Stat., ch. 121%, §562.4:

“Retail installment transaction” means a credit sale of a motor

vehicle by a retail seller to a retail buyer for a deferred payment

price payable in one or more ‘nstallments.

2215 U.S.C. § 1635(c) provides:

Notwithstanding any rule of evidence, written acknowledgement

of receipt of any disclosures required under this subchapter by a

person to whom a statement is required to be given pursuant to this

section does no more than create a rebuttable presumption of

delivery thereof.

23Plaintiffs argue that the filing of an affidavit by Mary Sharp

should be sufficient. However, both the purchase agreement and the

loan documents are signed by Robert Sharp alone. The loan agreement

provides a place for a second debtor or co-signer to sign, but this space

is left blank. It appears that Mary Sharp did not obligate herself in any

way to defendant and therefore would not be entitled to disclosure. Her

affidavit adds nothing to Robert Sharp’s claim.

In addition, if plaintiffs could have stated a claim under the Illinois

Motor Vehicle Retail Installment Act, Mr. Sharp’s acknowledgment

would provide “conclusive proof” of delivery according to the terms of

that statute.

VII

Plaintiffs’ final claim is that the district court impro-

perly dismissed the class action request in Childs v. First

National Bank of Peoria, No. 77-2031.%4 In this case the

complaint consisted of six counts, three of which were for

class action relief and three of which were for individual

relief. The district court dismissed the entire complaint,

including the class action counts.

While the reasons for the dismissal of the class action

counts by the district court are not clear from the record

provided on appeal,” the district judge was not required

to reach the issue since the individual substantive claims

by plaintiff were dismissed.” In light of our holding in

Part III that this plaintiff has stated a cause of action

under TILA, we direct the district court, on remand, also

to consider the class action allegations of the complaint in

this case.

4 Plaintiffs also argue that this issue involves No. 78-1060. In light of

our holding in Part II of this opinion that the substantive cause of

action was properly dismissed, we need not reach tie class action issue

in that case. In addition, defendants seem to believe that No. 78-1059 is

also involved (Defendants’ Brief p. 62). Plaintiffs do not argue this issue

in their briefs with regard to this case (Plaintiffs’ Brief pps. 93-102; but

see p. 9). In any case, because of our conclusions in Parts II and IV that

the substantive claims in this case were properly dismissed, we need

not reach the class action issue.

2% Apparently the motion to dismiss was granted at an oral hearing

on September 6, 1977. The transcript of that hearing has noi been

provided to this court.

For example, the district court may have concluded that, since

plaintiff's individual claims were meritless, plaintiff could not

adequately represent the class for purposes of securing relief. Since the

district court’s reasons have not been presented to us, however, this is:

merely a surmise.

A-25

Vill

The disposition of the cases in this appeal is as follows:

Nos. 77-2032, 77-2179, 77-2180, 78-1058 through 78-1069,

and 78-1198 are affirmed; Nos. 77-2029, 77-2030 and 77-

2031 are reversed and remanded for further proceedings

consistent with this opinion.

AFFIRMED IN PART; REVERSED IN PART.

A-26

OPINION BY JUDGE SPRECHER

United States Court of Appeals

For the Seventh Circuit

Chicago, Illinois 60604

August 16, 1978

Before

HON. WALTER J. CUMMINGS, Circuit Judge

HON. ROBERT A. SPRECHER, Circuit Judge

HON. WILLIAM J. BAUER, Circuit Judge

) Appeals from the

) United States Dis-

) trict Court, for the

) Southern District

) of Illinois, Peoria

) Division.

)

Nos. 77-2029 through 77-2032, 78- ) Nos. CV77-1053,

1059 through 78-1069, 77-2179, CV77-1059,

77-2180, 78-1058, and 78-1198 CV77-1072,

CV77-1060,

CV77-1080,

CV77-1081,

CV77-1083,

CV77- 1088,

CV77-1089,

CV77-1090,

)

|

DAVID J. BASHAM and LINDA C. )

)

)

)

)

FINANCE AMERICA CORPORATION, ) CV77-1093,

)

)

)

)

)

)

)

)

)

BASHAM, et al.,

Plaintiffs-A ppellants,

vs.

et al., CV77-1102,

Defendants-A ppellees. CV77-1107,

CV77-1116,

CV77-1117,

CV77-1087,

CV77-1119,

CV77-1120,

CV77-1139,

CV78-1007,

A-27

These causes came on to be heard on the transcript of

the recerd from the United States District Court for the

Southern District of Illinois, Peoria Division, and were

argued by counsel.

On consideration whereof, it is ordered and adjudged

by this court that the judgments of the said District Court ‘

in these causes appealed from be, and the same hereby,

Affirmed as to cases Nos. 77-2032, 77-2179, 77-2180,

78-1058 through 78-1069, and 78-1198; and are Reversed

and Remanded as to Nos. 77-2029, 77-2030, and 77-2031,

all cases are with costs, in accordance with the opinion

of this court filed this date.

A-28

United States Court of Appeals

For the Seventh Circuit

Chicago, Illinois 60604

October 24, 1978

Before

Hon. WALTER J. CUMMINGS, Circuit Judge

Hon. ROBERT A. SPRECHER, Circuit Judge

Hon. WILLIAM J. BAUER, Circuit Judge

GAREY R. CHILDS, on ) Appeal from the United

behalf of himself and ) States District Court

all others similarly ) for the Southern

)

)

situated, District of Illinois,

Plaintiff-Appellant, Peoria Division.

No. 77-2031 vs. )

FIRST NATIONAL BANK ) Civil No. 77-1072

OF PEORIA, ) Robert D. Morgan, Judge.

Deitendant-Appellee. )

On consideration of the petition for rehearing and

suggestion for rehearing in bane filed in the above-

entitled cause by defendant-appellee, First National Bank

of Peoria, no judge in active service has requested a vote

thereon, and all of the judges on the original panel have

voted to deny a rehearing. Accordingly,

IT IS ORDERED that the aforesaid petition for

rehearing, and suggestion that said petition be reheard in

banc be, and the same is hereby, DENIED.

A-29

United States District Court

For the Southern District of Illinois, Northern Division

(Abstract of Record)

CHILDS -VS- FIRST NATIONAL BANK OF PEORIA

77-1072

* * *

Sept 6 Parties present by counsel for hearing on pending

motions. Hear. on Def. Motion to Dismiss. Ordered

that Mot. to Dismiss is allowed and Complaint is

dismissed. (Morgan J.)

Sept 6 CLOSED —JS 6

A-30

STATUTES AND REGULATIONS INVOLVED

15 U.S.C. § 1604

Sec. 105. Regulations

The Board shall prescribe regulations to carry out the

purposes of this title. These regulations may contain such

classifications, differentiations, or other provisions, and

may provide for such adjustments and exceptions for any

class of transactions, as in the judgment of the Board are

necessary or proper to effectuate the purposes of this title,

to prevent circumvention or evasion thereof, or to facili-

tate compliance therewith.

15 U.S.C. § 1639

Sec. 129. Consumer Loans Not Under Open End

Credit Plans

(a) Any creditor making a consumer loan or otherwise

extending consumer credit in a transaction which is

neither a consumer credit sale nor under an open end

consumer credit plan shall disclose each of the following

items, to the extent applicable:

(1) The amount of credit of which the obligor will have

the actual use, or which is or will be paid to him or for his

account or to another person on his behalf.

(2) All charges, individually itemized, which are in-

cluded in the amount of credit extended but which are not

part of the finance charge.

(3) The total amount to be financed (the sum of the

amounts referred to in paragraph (1) plus the amounts

referred to in paragraph (2)).

(4) Except in the case of a loan secured by a first lien on

a dwelling and made to finance the purchase of that

dwelling, the amount of the finance charge.

(5) The finance charge expressed as an annual per-

centage rate except in the case of a finance charge

A-31

(A) which does not exceed $5 and is applicable to an

extension of consumer credit not exceeding $75, or

(B) which does not exceed $7.50 and is applicable to an

extension of consumer credit exceeding $75.

A creditor may not divide an extension of credit into

two or more transactions to avoid the disclosure of an

annual percentage rate pursuant to this paragraph.

(6) The number, amount, and the due dates or periods of

payments scieduled to repay the indebtedness.

(7) The default, delinquency, or similar charges payable

in the event of late payments.

(8) A description of any security interest he!d or to be

retained or acquired by the creditor in connection with

the extension of credit, and a clear identification of the

property to which the security interest relates.

15 U.S.C. § 1640

Sec. 130. Civil Liability

(a) Except as otherwise provided in this section, any

creditor who fails to comply with any requirement

imposed under this chapter or chapter 4 or 5 of this title

with respect to any person is liable to such person in an

amount equal to the sum of—

(1) any actual damage sustained by such person as

a result of the failure;

(2) (A)(i) in the case of an individual action twice

the amount of any finance charge in connection with

the transaction, or (ii) in the case of an individual

action relating to a consumer lease under chapter 5 of

this title, 25 per centum of the total amount of

monthly payments under the lease, except that the

liability under this subparagraph shall not be less

than $100 nor greater than $1,000; or

A-32

(B) in the case of a class action, such amount as the

court may allow, except that as to each member of the

class no minimum recovery shall be applicable, and

the total recovery in such action shall not be more

than the lesser of $500,000 or 1 per centum of the net

worth of the creditor; and

(3) in the case of any successful action to enforce the

foregoing liability, the costs of the action, together

with a reasonable attorney’s fee as determined by the

court. :

In determining the amount of award in any class action,

the court shall consider, among other relevant factors, the

amount of any actual damages awarded, the frequency

and persistence of failures of compliance by the creditor,

the resources of the creditor, the number of persons

adversely affected, and the extent to which the creditor’s

failure of compliance was intentional.

* * *

(e) 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.

(f) No provision of this section or section 112 imposing

any liability shall apply to any act done or omitted in good

faith in conformity with any rule, regulation, or inter-

pretation thereof by the Board or in conformity with any

interpretation or approval by an official or employee of

the Federal Reserve System duly authorized by the Board

to issue such interpretations or approvals under such

procedures as the Board may prescribe therefor, not-

withstanding that after such act cr omission has occurred,

such rule, regulation, interpretation, or approval is

amended, rescinded, or determined by judicial or other

authority to be invalid for any reason.

12 C.F.R. § 226.2

Definitions and Rules of Construction

* * *

(gz) “Security interest” and “security” mean any inter-

est in property which secures payment or performance of

an obligation. The terms include, but are not iimited to,

security interests under the Uniform Commercial Code,

real property mortgages, deeds of trust, and other

consensual or confessed liens whether or not recorded,

mechanic’s, materialmen’s, artisan’s, and other similar

liens, vendor’s liens in both real and personal property,

the interest of a seller in a contract for the sale of real

property, any lien on property arising by operation of law,

and any interest in a lease when used to secure payment or

performance of an obligation.

12 C.F.R. § 226.8

Credit Other Than Open End—Specific Disclosures

* * *

(b) In any transaction subject to this section, the

following items, as applicable, shall be disclosed:

(1) The date on which the finance charge begins to

accrue if different from the date of the transaction.

(2) The finance charge expressed as an annual per-

centage rate, using the term “annual percentage rate,”

except in the case of a finance charge

(i) Which does not exceed $5 and is applicable to an

amount financed not exceeding $75, or

(ii) Which does not exceed $7.50 and is applicable to an

amount financed exceeding $75.

A creditor may not divide an extension of credit into two

or more transactions to avoid the disclosure of an annual

percentage rate, nor may any other percentage rate be

disclosed if none is stated in reliance upon subdivisions (i)

A-34

or (ii) of this subparagraph.

(3) The number, amount, and due dates or periods of

payments scheduled to repay the indebtedness and,

except in the case of a loan secured by a first lien or

equivalent security interest on a dwelling made to finance

the purchase of that dwelling and except in the case of a

sale of a dwelling, the sum of such payments using the

term, “total of payments.” If any payment is more than

twice the amount of an otherwise regularly scheduled

equal payment, the creditor shall identify the amount of

such payment by the term “balloon payment” and shall

state the conditions, if any, under which that payment

may be refinanced if not paid when due.

(4) The amount, or method of computing the 2™mount, of

any default, delinquency, or similar charges payable in

the event of late payments.

(5) A description or identification of the type of any

security interest held or to be retained or acquired by the

creditor in connection with the extension of credit, and a

clear identification of the property to which the security

interest relates or, if such property is not identifiable, an

explanation of the manner in which the creditor retains or

may acquire a security interest in such property which

the creditor is unable to identify. In any such

case where a clear identification of such property

cannot properly be made on the disclosure statement

due to the length of such identification, the note,

other instrument evidencing the obligation, or separate

disclosure statement shall contain reference to a

separate pledge agreement, or a financing statement,

mortgage, deed of trust, or similar document evidencing

the security interest, a copy of which shall be furnished to

The disclosures required by this sentence need not be made with

respect to interim student loans made pursuant to Federally insured

student loan programs under Public Law 89-329, Title IV Part B of the

Higher Education Act of 1965, as amended.

A-35

the customer by the creditor as promptly as practicable.

If after-acquired property will be subject to the security

interest, or if other or future indebtedness is or may be

secured by any such property, this fact shall be clearly set

forth in conjunction with the description or identification

of the type of security interest held, retained or acquired.

(6) A description of any penalty charge that may be

imposed by the creditor or his assignee for prepayment of

the principal of the obligation (such as a real estate

mortgage) with an explanation of the method of computa-

tion of such penalty and the conditions under which it may

be imposed.

(7) Identification of the method of computing any

unearned portion of the finance charge in the event of

prepayment in full of an obligation which includes

precomputed finance charges and a statement of the

amount or method of computation of any charge that may

be deducted from the amount of any rebate of such

unearned finance charge that will be credited to the

obligation or refunded to the customer. If the credit

contract does not provide for any rebate of unearned

finance charges upon prepayment in full, this fact shall be

disclosed.

(8) If the annual percentage rate as disclosed under §

226.8(b\(2) is prospectively subject to increase,’ the

following additional disclosures shall be made:

(i) the fact that the annual percentage rate is subject

to increase ard the conditions under whick such rate may

increase, including: (A) identification of the index, if any,

with respect to which such increase in annual percentage

rate is tied; and (B) any limitation on such increase;

0,For this purpose, the phrase “prospectively subject to increase”

does not apply to increases in the annual percentage rate upon such

occurrences as default, acceleration, late payment, assumption or

transfer of property.

A-86

(ji) the manner(a) (Quch as an increase in payment

amounts, number of acheduled periodic paymenta, or in

the amount due at maturity) in whieh any inerease in the

annual percentage rate may be effected;

(iii) if the obligation is repayable in substantially

equal instalmenta at substantially equa. intervals (includ:

ings those obligations providing for “balloon” payments)

and the inerease could be effected by an increase in the

periodic payment amount, a statement of the estimated

increase in the amount of the payment caused by a

hypothetical immedicate increase of one quarter of one

percentage point, based upon the number of scheduled

periodic payments and original amount finaneed dis

closed at consummation;

(iv) if the obligation is repayable in substantially

equal instalments at substantially equal intervals (includ:

ings those obligations providing for “balloon” payments)

and the increase could be effected by an increase in the

number of periodic payments, a statement of the esti-

mated inerease in the number of periodic payments

caused by a hypothetical immediate inerease of one

quarter of one percentage point, based upon the periodic

payment amount and the original amount financed dis:

closed at consummation,

Any inerease in the annual percentage rate within the

conditions or limitations disclosed in accordance with this

paragraph is a subsequent occurrence under § 226,6(g)

and is not a refinancing under § 226,8()),

The disclosures required under § 226, 8(b)(8)(ii) and (iv)

need be made only in transactions in whieh a security

interest is taken in real property used or expected to be

used as the customer's dwelling, and they need not be

made in transactions primarily for agricultural purposes,

transactions in which the obligation is repayable in

substantially equal instalments whieh do not inelude

repayments of principal, or transactions in which dis:

closures are made pursuant to § 226,814,

Atl

(d) In the case of a loan or extension of credit which is

not a credit sale, in addition to the itema required to be

disclosed under paragraph (b) of this section, the follow.

ing itema, as applicable, shall be disclosed;

(1) The amount of credit, excluding itema set forth in

paragraph (e) of this section, which will be paid to the

customer or for hia account or to another person on his

behalf, including all charges, individually itemised,

which are included in the amount of credit extended but

which are not part of the finance charge, using the term

“amount financed,”

(2) Any amount referred to in paragraph (e) of this

section required to be excluded from the amount in

subparagraph (1) of this paragraph, using, as applicable,

the terms “prepaid finance charge” and “required deposit

balance,” and, if both are applicable, the total of such

items using the term, “total prepaid finance charge and

required deposit balance,”

(8) Except in the case of a loan secured by a first lien or

equivalent security interest on a dwelling and made to

finance the purchase of that dwelling, the total amount of

the finance charge,'! using the term “finance charge,” and

where the total charge consists of two or more types of

charges, a description of the amount of each type,

12 C.F.R. § 226,202

SECTION 226,202—SECURITY INTEREST—

CONFESSIONS OF JUDGMENT—

COGNOVIT NOTES

Under § 226.2(@@) “security interest” is defined to

The disclosure required by thia subparagraph need not be made

with reapeet to interim atudent loans made pursuant to Federally

insured atudent loan programa under Public Law 8829, Tithe LV Part

B of the Higher Edueation Act of 1965, aa amended,

A-38

include confessed liena whether or not recorded and, in

general, to include any intereat in property whieh secures

payment or performance of an obligation, In certain

transactions involving a security interest, under § 226.9

the customer has a right of reaciasion,

In some of the States, confession of judgment clauses or

cognovit provisions are lawful and make it possible for the

holder of an obligation containing such clause or provision

to record a lien on property of the obligor simply by

recordation entry of judgment; the obligor is afforded no

opportunity to enter a defense against such action prior to

entry of the judgment,

Since confession of judgment clauses and cognovit

provisions in such States have the effeet of depriving the

obligor of the right to be notified of a pending action and

to enter a defense in a judicial proceeding before judgment

may be entered or recorded against him, such clauses and

provisions in those States are security interests under §

226, 20ee) and for the purposes of § 226, 7(a)(7), S226, 80b)(5),

and § 226.9, This is the case even if the judgment cannot

be entered until after a default by the obligor,

Confession of judgment clauses and cognovit provisions

whic’, by their terms, exclude a lien on all real property

which is used or is expected to be used as the principal

residence of the customer, would not bring a transaction

under the provisions of § 226.9

Ill, Rev, Stat, ch, 26, § 9204

After-aequired property; Future advances

ee

(2) No security interest attaches under an after-acquir-

ed property clause to consumer goods other than acces:

sions (Section 9814) when given as additional security

unless the debtor acquires rights in them within 10 days

after the secured party gives value,

A-39

Ill, Rev. Stat. ch. 77, §9

When execution binds personality—Noting receipt of

No execution shall bind the goods and chattels of the

person against whom it is issued, until it is delivered

to the sheriff or other proper officer to be executed; and for

the better manifestation of the time, the sheriff or other

officer shall, on receipt of such writ, indorse upon the back

thereof the day of the month and year and hour when he

received the same.

Ill, Rev. Stat. ch. 77, § 10

What liable to execution

All and singular the lands, tenements, his real estate,

goods and chattels (except such as is by law declared to be

exempt) of every person against whom any judgment has

been or shall be hereafter obtained in any court, for any

debt, damages, costs, or other sum of money, shall be

liable to be sold upon execution, to be issued upon such

judgment.

Ill, Rev. Stat. ch. 110, § 50

Judgments—Default—Confession

* *° *

(3) Any person for a debt bona fide due may confess

judgment by himself or attorney duly authorized, without

process, The application to confess judgment shall be

made in the county in which the note or obligation was

executed or in the county in which one or more of the

defendants reside or in any county in which is located any

property, real or personal, owned by any one or more of

the defendants. A judgment entered by any court in any

county other than those herein specified has no force or

validity, anything in the power to confess to the contrary

notwithstanding.

EXHIBIT E _ A-41

DISCLOSURE STATEMENT OF LOAN

BORROWERS (NAMES AND ADDRESSES): LENDER LOAN NO Date

(STREET ADDRESS)

(CITY) (STATE) (ZIP)

TOTAL OF PAYMENTS | F AMOUNT FINANCED CREDIT LIFE] DISABILITY] PROPERTY

IMANCE CHARGE hi. PERCENTAGE INSURANCE | INSURANCE| INSURANCE

: CHARGE CHARGE CHARGE

$ $ $ *1$ $ $

PAYABLE IN: DUE DATE OF PAYMENTS AMOUNT OF PAYMENTS

CONSECUTIVE

MONTHLY FIRST: OTHERS: | FINAL: FIRST: | OTHERS: FINAL: RECORDING FEE

INSTALLMENTS SAME DAY OF

EACH MONTH $ $ $ $

INSURANCE

PROPERTY INSURANCE, if written in connection with this loan, may be obtained by borrower

through any person of his choice. If 7. reuer desires property insurance to be obtained

through the creditor, the cost will be $_ for the term of the credit.

CREDIT LIFE AND DISABILITY INSURANCE is not required to obtain this loan. No charge is

made for credit insurance and no credit insurance is provided unless the borrower signs the

appropriate statement below:

(a) The cost for Credit Life Insurance alone will be $ for the term of

the credit.

(b) The cost for Credit Life and Disability Insurance will be $. for the

term of the credit.

1 desire Credit Life 1 desire Credit 1} DO NOT want Credit

and Disability Insurance. Life Insurance only. Life or Disability Insurance.

(Date) (Signature) (Date) (Signature) (Date) (Signature)

REBATE FOR PREPAYMENT IN FULL. If the loan contract is prepaid in full by cash, a new

loan, refinancing or otherwise before the final instaliment date, the borrower shall receive a

rebate of precomputed interest computed under the Rule of 78’s,

DEFAULT CHARGE. [The creditor should set forth the amount, or method of computing the

amount, of any default, delinquency, or similar charges payadlie in the event of late payments.]

SECURITY

DESCRIPTION

Motor Vehicle(s): Make ............ccccceees Serial NOS .......0rcccssccsscssce

A. DD This Loan is Secured By a Security Household Goods & Appliances of the foliowing description...........

Agreement of Even Date covering..............00

The Security Agreement will secure

future or other indebtedness and

will cover after-acquired property.

QD Other: (Describe)

B. [J This Loan is Unsecured.

3} ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT.

Borrower: »

Witness:

This form, when properly completed, will show how a creditor may comply with the disclosure requirements

cf the provisions of paragraphs (b) and (d) of § 226.8 of Regulation Z for the type of credit extended in this

example, This form is intended solely for purposes of demonstration and it is not the only format which will

perimit a creditor to comply with disclosure requirements of Regulation Z.

A-48

ILLUSTRATION OF FEDERAL DISCLOSURES ON

A SEPARATE STATEMENT FOR A LOAN

REPAYABLE IN INSTALLMENTS

(Section 226.8)

Regulation Z

Applicable Disclosures Shown

on Exhibit E (opposite page) Reference (226.8)

1. Identification of Transaction ............... (a)

2. “Amount Financed” including itemized charges

other than finance charges. (Note § 226.4(b)) (d)(1)

es ie bbeeeeee ss (d)(3)

4. “Annual Percentage Rate” ................. (b)(2)

5. Number, Amount, and Due Date

eR ee a oe Uae ay valwie wok é (b)(3)

yn Oe oe eg a obese bbumwarpe en (b)(3)

7. Default, Delinquency, or Similar Charge ... (b)(4)

8. Identification of Security Interest .......... (b)(5)

9. Identification of Property to Which Security

SO he ds ee ees wee ke wa w (b)(5)

10. Method of Computing Any Unearned Portion

of the Finance Charge .........00. .csevees (b)(7)

11. After-acquired Property Subject to

ee ahaa usdbasen’-s (b)(5)

12. Security for Future Indebtedness .......... (b)(5)

13. Identification of Creditor ...............05. (a)

14. Credit Life, Accident, and Health

FISICA DEN Pe § 226.4(a)(5)

15. Property and Liability Insurance ... § 226.4(a)(6)

Other Disclosures Not Applicable to Example Shown

in Exhibit E

Regulation Z prescribes other disclosures to be made in

connection with loan credit which are not applicable to

the illustrated example, such as, prepaid finance charge

(d)(2) required deposit balance (d)(2) and balloon payment

(b)(3), ete.

A-45

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