# Appendix — First National Bank of Peoria v. Childs

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1979
- **Citation:** 444 U.S. 825

## Text

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

A-2

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.

A-4

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.

A-5

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).

A-12

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.

A-13

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

A-14

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.

A-15

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

A-16

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.

A-17

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.

A-18

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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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_0086%3A2. Public record. Not legal advice.