Petition — Ford Motor Credit Co. v. Cenance
Supreme Court brief1981
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by 0 ne ] 2 ) 5 Ofiice-Supreme Court, U.S.
FILED
JAN 19
eve. 1981
IN THE ALEXANDER |. Sivas,
Supreme Court of the United-States—
October Term, 1980
FORD MOTOR CREDIT COMPANY,
Petitioner,
VS.
JANET CENANCE, et al.,
Respondents,
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT.
PETER A. FERINGA, JR.,
Norris S. L. WILLIAMS,
CHAFFE, MCCALL, PHILLIPS,
TOLER & SARPY,
1500 First N.B.C. Building,
New Orleans, Louisiana 70112,
(504) 568-1320,
WILLIAM M. BurRKE,
SHEPPARD, MULLIN, RICHTER
& HAMPTON,
333 South Hope Street,
48th Floor,
Los Angeles, Calif. 90071,
(213) 620-1780,
Attorneys for Petitioner.
Parker & Son, Inc., Law Printers, Los Angeles. Phone 724-6622
Questions Presented.
1. Under the Truth in Lending Act and the Federal
Reserve Board’s Regulation Z, is the purchaser of a con-
sumer credit contract evidencing an installment sales trans-
action a ‘‘creditor’’ at the time the credit sale is consum-
mated, and, if so, does the conspicuous identification of the
purchaser on the disclosure statement as the intended
assignee of the contract satisfy the creditor identification
requirements of Regulation Z?
2. Under the Truth in Lending Act, is the purchaser of
a consumer credit contract evidencing an installment sales
transaction a subsequent assignee, liable only for disclosure
violations that are apparent on the face of the disclosure
Statement, or an original creditor, liable for all disclosure
violations whether or not they are apparent on the face of
the disclosure statement?
3. Assuming that the purchaser of a consumer credit
contract evidencing an installment sales transaction is a cred-
itor under the Truth in Lending Act and Regulation Z, is
the purchaser relieved of disclosure obligations by Section
226.6(d) of Regulation Z?
il
List of Parties.
Janet Cenance, Plaintiff-Appellee,
v.
Bohn Ford, Inc., Defendant-Appellant,
Ford Motor Credit Company, Defendant-Appellant.
Nicole Antonio, Plaintiff-Appellant,
v.
Canal Motors, Inc., Defendant,
Ford Motor Credit Company, Defendant-Appellee.
Marion Shropshire, Plaintiff-Appellee,
v.
George Thompson Ford, Inc., Defendant-Appellee,
Vv.
Ford Motor Credit Corporation, Defendant-Appellant.
Solomon Wiggs, Plaintiff-Appellee,
Vv.
Ford Motor Credit Corporation, Defendant-Appellant.
Jimmy W. Farrell, Plaintiff-Appellee, Cross-Appellant,
Vv.
Frank Jackson Motors, Inc., d/b/a/ Jackson AMC-Jeep,
Defendant-Appellant, Cross-Appellee.
Nicholas Strzelecki, Plaintiff-Appellee,
V.
Terry Ford Company and Ford Motor Credit Company,
Defendants-Appellants.
Michael Duane Culver, Plaintiff-Appellee,
v.
Greenbriar Lincoln Mercury Sales, Inc. and Ford Motor
Credit Company, Defendants,
Ford Motor Credit Company, Defendant-Appellant.
iil
Dennis Vissichelli, Plaintiff-Appellee,
Vv.
Terry Ford Company and Ford Motor Credit Company,
Defendants-Appellants.
Thomas J. Rogers and Phyliss Rogers, Plaintiffs-Appellees,
V.
Frank Jackson Lincoln-Mercury and Ford Credit Conipany,
Defendants-Appellants.
Nos. 77-2200, 77-3508, 78-2369, 78-2914, 79-1139,
79-1584, 79-2227, 79-2340, 79-2449 and 79-2672.
United States Court of Appeals, Fifth Circuit.
*Ford Motor Credit Company is a wholly owned subsidiary of Ford
Motor Company. All subsidiaries of Ford Motor Credit Company are
either wholly owned by Ford Motor Credit Company or are wholly
owned by Ford Motor Credit Company and other subsidiaries of Ford
Motor Company. Ford Motor Credit Company may be considered an
affiliate of the subsidiaries of Ford Motor Company listed in Appendix
F,
a
iV
TABLE OF CONTENTS
Page
Sn I 20 o's bo 0S a a aes eo wae wwe i
SE EE 5-5 4s cd esas de eak ake ten ses eames il
CI, pint ph cexenccbcidvaasseueayeuees ]
pO OPP Pre CERT LE ee eT ee eee
Statutory Provisions and Regulations Involved...... 2
SE SR I cca ce acestesterapae ce 2
Reasons for Granting the Writ................... 6
I.
SEAPOGUCIOTY TRMUEMIGME 8 ci cece nc ceees 6
A. Brief History of the Instaliment Sales Financ-
Slt cit schon canna Kea wee ea 7
B. Legal Distinction Between Installment Sales
Financing and Direct Lending Under the
We PP RN FE oo hin oak occas 8
C. The Conflict and Confusion Resulting From
the Filtn Ciscuit’s Decision ..........5.. 9
I].
The Decision of the Fifth Circuit Is in Direct Conflict
With Decisions of Three Other Circuits and With
an Official Staff Interpretation of the Federal
Reserve Board on the Creditor Identification
PL Eee ee ee ere Teer ee a ee 1]
A. The Decision of the Fifth Circuit Conflicts
With Decisions of the Sixth, Seventh and
Ninth Circuits and With an Official Staff In-
terpretation of the Federal Reserve Board on
the Creditor Identification Issue.......... 11
B. The Sixth, Seventh and Ninth Circuits Have
Correctly Decided the Creditor Identification
Per eee eee ee ee ERED ee ee 12
Ill. Page
The Decisions of the Third, Fifth, Tenth and District
of Columbia Circuits Are in Conflict With Respect
to the Disclosure Obligations of Multiple Creditors
Under Regulation Z ....................... 14
IV.
The Decision of the Fifth Circuit Fails to Apply the
Disclosure Principles Established by This Court in
Ford Motor Credit Company v. Milhollin..... . 18
7:
The Decision of the Fifth Circuit Frustrates the Clear
Provisions of the Act and the Regulation Limiting
the Liability of Purchasers of Consumer Credit
Contracts in Installment Sales Financing Transac-
ME SNA Wh SSK WR sas e cece nccncccccccee 19
A. The Fifth Circuit Decision Is in Conflict With
the Provisions of the Act Limiting the Liabil-
ity of Assignees to Violations That Appear on
the Face of the Disclosure Statement ..... 19
B. The Truth in Lending Simplification and Re-
form Act Repudiates the Fifth Circuit’s Hold-
ing That the Purchaser of a Consumer Credit
Contract in an Installment Sales Financing
Transaction Is an Original Creditor Under the
ME SRG RDO e bee see nneesecnscerseuasss 22
VI.
The Fifth Circuit Decision Renders Uncertain the
Disclosure Requirements Applicable to Install-
ment Sales Financing and Throws Open to Serious
Question Millions of Consumer Credit Disclosure
Statements... 2... cee ee. 24
Conclusion..........0.000 0000000 cc cee eee eee. 26
vi
INDEX TO APPENDICES
Page
Appendix A. Opinion of the United States Court of
ee l
Judgment, Dated: July 9, 1980 ................ 9
Appendix B. Opinion of the United States District
Court, Eastern District of Louisiana, Filed: Apr. 14,
1977 [Cenance v. Bohn Ford, et al.] ........... 10
Judgment, Dated: April 18, 1977[Cenance v. Bohn
es ink ig pin sececssccsececss 20
Opinion of the United States District Court, Eastern
District of Louisiana, Filed: Nov. 18, 1977 [An-
tonio v. Canal Motors, et al.}] ............... 21
Judgment, Filed: Nov. 21, 1977 [Antonio v. Canal
es ou ke dae ule evsecccos 32
Recommendation of Special Master, Filed: Nov. 29,
1977 [Shropshire v. George Thompson Ford, et
ES Tus kg seb A sos cedcecdcvvesae 33
Order, Filed: May 1, 1978 [Shropshire v. George
A 8 ee 40
Judgment, Filed: May 1, 1978 [Shropshire v.
George Thompson Ford, et al.] .............. 42
Recommendation of Special Master, Filed: Nov. 30,
1977 [Wiggs v. Ford Motor Credit Corporation] 44
Order, Filed: June 29, 1978 [Wiggs v. Ford Motor
RO gk cee e cece gees 47
Judgment, Filed: July 20, 1978 [Wiggs v. Ford
Motor Credit Corporation] .................. 50
United States Magistrate’s Report and Recommenda-
tion, Filed: June 27, 1978 [Farrell v. Frank
TS ee 51
Order, Filed: June 27, 1978 [Farrell v. Frank
ES 55
Vil
Page
Order, Filed: Nov. 30, 1978 [Farrell v. Frank
Jackson Motors, Inc.]...................... 56
Judgment, Filed: Nov. 30, 1978 [Farrell v. Frank
Jackson Motors, Inc.]...................... 58
Magistrate’s Report and Recommendation,
Filed: June 26, 1978 [Strzelecki v. Terry Ford
ee 59
Order, Filed: Sept. 7, 1978 [Strzelecki v. Terry Ford
oo eT 8 ee 63
Judgment, Filed: March 30, 1979 [Strzelecki v.
Terry Ford Company, et al.] ................ 65
Order, Dated: Sept. 28, 1978 [Culver v. Ford Motor
een 66
Judgment, Filed: April 19, 1979 [Culver v. Ford
Motor Credit Company] .................... 68
Magistrate’s Report and Recommendation,
Filed: June 28, 1978 [Culver v. Ford Motor Credit
ME Ses 69
Magistrate’s Report and Recommendation,
Filed: June 26, 1978 [ Vissichelli v. Terry Ford
| tk eee 72
Order, Filed: Oct. 26, 1978 [ Vissichelli v. Terry
Ford Company, et al.] ..................... 76
Judgment, Filed: Apr. 11, 1979[ Vissichelli v. Terry
Ford Company, et al.] ..................... 77
United States Magistrate’s Report and Recommenda-
tion, Dated: June 19, 1978 [Rogers v. Frank
Jackson Lincoln-Mercury, et | SR ae eae 78
Order, Dated: June 19, 1978 [Rogers v. Frank
Jackson Lincoln-Mercury, et al.]}............. 82
Order, Filed: Oct. 2, 1978 [Rogers v. Frank Jackson
Lincoln-Mercury, et al.].................... 83
Vill
Page
Judgment, Filed: January 29, 1979 [Rogers v. Frank
Jackson Lincoln-Mercury, et al.]............. 90
Appendix C. Statutory Provisions and Regulations
Meta a Ai oA > 7 8 a a 91
Appendix D. Legislative History of the Truth in Lend-
ing Act and the Truth in Lending Simplification and
Reform Act Relating to Installment Sales Financing
eee ee 94
Appendix E. Opinion of United States District Court,
Eastern District of Louisiana, Filed: July 22, 1980
[Clausell v. Abraham Lincoln-Mercury, Inc]... .. 110
Appendix F. Subsidiaries of Ford Motor Company
ix
TABLE OF AUTHORITIES
Cases Page
Augusta v. Marshall Motor Co., 614 F.2d 1085 (6th
ee «4 re 11
Clausell v. Abraham Lincoln-Mercury, Inc., Civ. Ac-
tion No. 79-1139 (E.D. La. July 22, 1980) ...... 25
Fort Motoi Credit Company v. Milhollin, 444 U.S. 555
fi Pee SS 6, 18
Glaire v. La Lanne-Paris Health Spa, Inc., 12 Cal. 3d
915, 117 Cal. Rptr. 541, 528 P.2d 357 (1974) ... 24
Hinkle v. Rock Springs National Bank, 538 F.2d 295
(WG CO, Ge ,............... 16
Joseph v. Norman’s Health Club, Inc. , 532 F.2d 86 (8th
Cle... RPP cs ee eee ..ss.e, 24
Manning v. Princeton Consumer Discount Co., Inc.,
533 F.2d 102 (3d Cir. 1976) ........ 15, 16,17, 25
Meyers v. Clearview Dodge Sales Inc., 539 F.2d 511
(See Ce, Me... 23, 24
Milhollin v. Ford Motor Credit Co., 588 F.2d 753
(9th Cir. 1978), rev’d on other grounds, Ford Motor
Credit Company v. Milhollin, 444 U.S. 555
Ce Pe so, $4
NLRB v. Bell Aerospace Co., 416 U.S. 267
(ESO ne ee es... ......... 23
Price v. Franklin Investment Co., Inc., 574 F.2d 594
(OO... Ga ec. 5a. .......... 16
Red Lion Broadcasting Co. v. FCC, 395 U.S. 367
CUSGRD «ccna ene... .........., 23
Regents of University of California v. Bakke, 438 U.S.
Sas Cems eae... 2 ........... 23
Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S.
eB 23
ee BR 11, 13, 14
Miscellaneous Page
‘“Explanation of Changes in Committee Print,’’ 113
Cong. Rec. 14694, 14695 (June 5, 1967)........ 21
Federal Reserve Board Bulletin (October 1980),
eer ee eee erry re eer ee pe rae 8
Federal Reserve Board Official Staff Interpretation No.
FC-0001, 41 Fed. Reg. 41907 (1976)........... 12
Public Law No. 96-221 (94 Stat. 132) ............ 22
Regulations
Regulation Z,.12 C.F.R. §226................... 3
Regulation Z, 12 C.F.R. §226(d) ................ 5
Regulation Z, 12 C.F.R. §226.2(kk).............. 12
Regulation Z, 12 C.F.R. §226.6(d)...... _ Se Y Oe a
Regulation Z, 12 C.F.R. §226.8(a)............... 9
Regulation Z, 12 C.F.R. §226.8(d)............... 4
Statutes
Equal Credit Opportunity Act, Sec. 702(e) [15 U.S.C.
PN 2s cs Se teiestbanione bance olny Lae c 22
Truth in Lending Act, Sec. 115 [15 U.S.C. $1614]
Ne ee ere a : ey
Truth in Lending Act, Sec. 130(d) [15 U.S.C.
SEE 5 64 6k CRO eee ee eee es 20
Truth in Lending Act, Sec. 131 [15 U.S.C.
SEE cane hwcuriseerCanueoet ee, 4,9, 20, 21
United States Code, Title 15, §102(a)............. 18
United States Code, Title 15, §1601 et eee a @
United States Code, Title 15, §1638.............. )
United States Code, Title 15, §1639.............. 9
United States Code, Title 28, §1254(1) ........... 2
Xl
Textbooks
Britton & Ulrich, The Illinois Retail Installment Sales
Act—Historical Background and Comparative
Legislation, 54 N.W. U.L. Rev., 137, 142
aay ET OL REE AS Ree Cae
Finance Facts Yearbook 1980, Library of Congress,
Catalog Card No. 61-14409, 43-48 ............
Malcolm, The New Maximum Charges, in The
Realities of Maximum Ceilings on Interest and Fi-
nance Charges, 23, 24 (Conference on Personal Fi-
tas tails side: song MTEL TCT
Miller, Truth in Lending Act, 34 Bus. Law.., 1405,
“pack cue de Le EET OT OR Pe a ete
Plummer, W., & R. Young, Sales Finance Companies
and Their Credit Practices, 106-07, 138-40, 197-204
S sstnas the EEE TECTEE E p RM AnD
1 Seligman, E., The Economics of Installment Selling
42, 48-49, 68-69 (1927) ......................
Warren, Regulation of Finance Charges in Retail
Installment Sales, 68 Yale L.J., 839, 850 (1959)
Ce ee ee ee ee EEG a ee ee eee ee ee ee cee ee ee ke
Page
24
Supreme Court of the United States
October Term, 1980
FORD Motor CREDIT COMPANY.
Petitioner,
vs.
JANET CENANCE, et al.,
Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT.
Petitioner, Ford Motor Credit Company (herein **Ford
Credit’’), prays that a writ of certiorari issue to review the
judgment and opinion of the United States Court of Appeals
for the Fifth Circuit in these consolidated cases.
Opinions Below.
The opinion of the Court of Appeals is reported at 621
F.2d 130 and is reprinted in Appendix A. The opinions of
the District Courts are reprinted in Appendix B.
Jurisdiction.
The judgment of the Court of Appeals for the Fifth Circuit
was rendered on July 9, 1980. On July 22, 1980, Petitioner
filed a petition for rehearing and rehearing en banc which
pond, ae
was denied on October 22, 1980. This Petition was filed
within 90 days of that date. Jurisdiction of this Court is
invoked pursuant to 28 U.S.C. § 1254(1). The basis
of jurisdiction in the District Court was 15 U.S.C.
§ 1601 ef seq.
Statutory Provisions and Regulations Involved.
Set forth in Appendix C
Statement of the Case.
The facts in these nine consolidated cases are typical of
installment sales financing transactions as practiced in this
country for more than fifty years. In each case, a buyer
entered into an installment sale transaction with an auto-
mobile dealer in order to purchase an automobile. The dealer
negotiated the terms of the sale with the buyer with respect
to the price, down payment, finance charge, repayment and
other credit terms. Before completing the sale, the dealer
submitted the buyer’s credit application to Ford Credit. Ford
Credit indicated to the dealer that the buyer satisfied Ford
Credit’s credit standards. A Retail Instalment Contract was
then signed by the dealer and the buyer. The contract was
thereafter tendered by the dealer to Ford Credit for possible
purchase. When Ford Credit approved the terms of the con-
tract, it purchased the contract and became the owner and
holder of the contract by assignment from the dealer.
The buyer dealt only with the automobile dealer, and not
with any agent or representative of Ford Credit.’ Ford Credit
'The records show the following facts are uncontroverted:
(a) No agreement existed between Fore Credit and any seller
requiring Ford Credit to accept the assignment of any of the
installment contracts tendered to Ford Credit for purchase
by the seller. (See Wiggs Tr. 146; Shropshire Tr. 21; Strze-
lecki Tr. 1, 31-43; Vissichelli Tr. 16, 29-41; Farrell Tr. 11,
15, 53; Culver Tr. 52)
oa, See
took no part in the negotiations between the buyer and the
dealer and had no contact with the buyer until after the
credit transaction had been consummated and the contract
had been submitted to and purchased by Ford Credit. Ford
Credit did not assist the dealer in completing the contract
after the dealer and the buyer agreed upon the terms of the
sale.
Ford Credit prepared and supplied the dealer with blank
forms of Retail Instalment Contracts for completion by the
dealer. The contract served as both the agreement of the
parties and the disclosure statement required by the Truth
in Lending Act, 15 U.S.C. § 1601 et seg. (herein ‘‘the
Act’’), and Regulation Z, 12 C.F.R. § 226 (herein ‘‘the
Regulation’’), promulgated by the Board of Governors of
the Federal Reserve Board (herein ‘‘the Board’’). Each
Retail Instalment Contract contained on the face of the
contract and directly adjacent to the buyer’s signature the
following reference to Ford Credit:
‘The foregoing Contract hereby is accepted by the
Seller and assigned to Ford Motor Credit Company in
(b) There was no obligation on the part of any seller to assign
to Ford Credit any contract as to which Ford Credit had
approved the buyer’s credit. In fact, Ford Credit has rejected
the purchase of installment contracts tendered to it for pur-
chase by sellers even in cases in which Ford Credit had
previously approved the buyer’s credit application. (See
Wiggs Tr. 146; Shropshire Tr. 66-67; Strzelecki Tr. 1, 31-
43; Vissichelli Tr. 16, 29-41; Farrell Tr. 11, 15, 53; Culver
Tr. 52; Rogers Tr. 48)
(c) With the possible exception of Bohn Ford, as to which no
evidence was heard, each seller used several financial
institutions other than Ford Credit to purchase installment
contracts. See, Shropshire Tr. 68. In Antonio, the parties
stipulated that less than 50% of the dealer’s contracts were
sold to Ford Credit (Stipulation No. 12, p.3 of the Opinion
in Appendix B), and that the dealer sold its contracts as well
to seven other lenders. The Fifth Circuit’s statement to the
contrary in its opinion is without support in the record.
per ee
accordance with the terms of the assignment set forth
on the reverse side hereof.”’
The buyers thereafter each filed separate actions against
the dealers and Ford Credit alleging violations of the Act
and the Regulation. In all nine actions, the buyers alleged
that Ford Credit was an original creditor in the sale trans-
actions and not a subsequent assignee. Upon this basis, the
buyers claimed that Ford Credit was not adequately iden-
tified as an original creditor and is liable for all disclosure
violations, including violations that were not apparent on
the face of the assigned contracts. In the Cenance, Strzelecki
and Booker cases, the buyers also claimed that tag, title and
registration fees applicable to the purchase of the automobile
should have been separately disclosed under the Act and the
Regulation. In Cenance, the buyer argued that a $1.00
charge for lien recordation, which was disclosed by the
dealer as a tag, title and registration fee, should instead have
been disclosed as a fee paid to public officials. In the Shrop-
shire and Wiggs cases, the buyers claimed that the dealer’s
inclusion of certain documentary fees as part of the cash
price disclosure was a violation of the Act.
With the exception of the Antonio case, judgments were
rendered by the District Courts ir. favor of the buyers on
all claimed violations of the Act and the Regulation.
The Fifth Circuit:
(1) Affirmed the judgments in all cases insofar as the
courts held that Ford Credit was an original creditor under
the Act and the Regulation and was not adequately identified
as an original creditor in the disclosure statements;
(2) Affirmed the judgments in all cases insofar as the
courts held that Ford Credit, as an original creditor, is liable
for all disclosure violations and may not claim the protection
afforded to subsequent assignees by Section 131 of the Act;
sean!
(3) Reversed the judgments against Ford Credit in the
Cenance, Strzelecki, and Booker cases insofar as the courts
held that tag, title and registration fees must be separately
disclosed;
(4) Affirmed the judgment against Ford Credit in the
Cenance case insofar as the court held that the $1.00 lien
recordation fee should have been disclosed as a fee paid to
public officials;
(5) Affirmed the judgments against Ford Credit in the
Shropshire and Wiggs cases insofar as the courts held that
documentary fees should not have been included as part of
the cash price disclosure; and
(6) Affirmed the judgment against Ford Credit in the
Shropshire and Wiggs cases insofar as the courts rejected
Ford Credit’s argument that Section 226.6(d) of the Reg-
ulation relieved it of any duty to make disclosures as a
multiple creditor.
ce
REASONS FOR GRANTING THE WRIT.
This Petition will show that the decision of the Fifth
Circuit: (1) Is in direct conflict with decisions of the Sixth,
Seventh and Ninth Circuits and with an Official Staff Inter-
pretation of the Federal Reserve Board on the question of
creditor identification: (2) Is in direct conflict with a decision
of the Third Circuit on the question of multiple creditor
disclosure obligations; (3) Is in direct conflict with the
disclosure principles recently established by this Court in
Ford Motor Credit Company v. Milhollin, 444 U.S. 555
(1980); (4) Is in direct conflict with the intent of Congress
in defining the status of purchasers of consumer credit con-
tracts in installment sales financing transactions; and (5)
Renders uncertain the disclosure requirements applicable to
installment sales financing transactions and throws open to
attack millions of Truth in Lending disclosure forms.
I.
INTRODUCTORY STATEMENT.
These consolidated cases involve typical automobile
installment sales financing transactions in which automo-
biles were sold to buyers on an installment basis by dealers
who assigned the installment contracts to a financial insti-
tution. In holding that Ford Credit was an original creditor
and not a subsequent assignee, the Fifth Circuit has obfus-
cated the distinction, recognized and provided for through-
out the Act and the Regulation, between installment sales
financing and direct lending. The structural differences be-
tween installment sales financing and direct lending have
existed for over fifty years and have led to the development
of an entire body of law distinguishing the two types of
financing. These differences have also produced two distinct
and separately regulated segments of the finance industry.
The Fifth Circuit’s failure to recognize these legal and his-
en, ee
torical distinctions for Truth in Lending Act purposes leaves
the sales finance industry gravely exposed as to millions of
existing transactions and in doubt as to the disclosure ob-
ligations that will apply in future transactions.
A. Brief History of the Installment Sales Financing
Industry.
With the advent of mass production techniques in the
automobile industry, installment sales financing gained pop-
ularity during the 1920’s as the only affordable means by
which most consumers could purchase automobiles.” This
type of financing soon gained acceptance and popularity in
other areas as well, in large part because direct loan con-
sumer financing was too costly to be extended within the
limits of local usury laws that did not apply to installment
sales transactions.* Installment sales financing has
since played a dominant role in every field of consumer
merchandising.
The success of the sales finance industry is exemplified
by the fact that the form of installment sales financing has
remained virtually unchanged over the past fifty years.‘
Then, as now, sales finance companies supplied forms, rate
charts and credit guidelines to dealers in an effort to en-
courage business and insure that the installment obligations
were in compliance with applicable laws. Throughout the
‘See 1 E. Seligman, The Economics of Installment Selling 42,
48-49 (1927).
‘See Malcolm, The New Maximum Charges, in The Realities of
Maximum Ceilings on Interest and Finance Charges 23, 24 (Conference
on Personal Finance Law 1969); Warren, Regulation of Finance Charges
in Retail Installment Sales, 68 Yale L.J. 839, 850 (1959).
“See generally, Warren, supra note 3, at 847; Britton & Ulrich, The
Illinois Retail Installment Sales Act - Historical Background and Com-
parative Legislation, 54 NW. U.L. Rev. 137, 142 (1958); 1 Seligman,
supra note 2, at 68-69; W. Plummer & R. Young, Sales Finance
Companies and Their Credit Practices 106-07, 138-40, 197-204 (1940).
— =
development of the installment sales financing industry,
financial institutions have maintained close and continuing
business relationships with their dealers. The transactions
involved in these cases are virtually identical in all respects
to the sales finance practices of the 1920’s as well as those
followed in the massive sales finance industry that devel-
oped over the next fifty years.
Over the years, installment sales financing has grown to
become a vital part of our economic and social prosperity.
By year end 1979, an estimated $90 billion of consumer
credit had been extended through the use of this method of
financing.” The availability of installment financing has
permitted our country to rise to an unparalleled standard of
living, and has been a continuing force in expanding the
availability of credit to consumers and businesses alike.
B. Legal Distinction Between Installment Sales
Financing and Direct Lending Under the Truth in
Lending Act.
The structural differences between direct lending and
installment sales financing has resulted in two segments of
the consumer finance industry, each regulated by separate
and distinct laws.° This distinction is recognized throughout
the Act and the Regulation. For example, the Act and the
*While no exact statistical breakdown between direct lending and
installment sales financing is available, the Federal Reserve Board
Bulletin, October 1980, page A 40, breaks down the $311.1 billion in
consumer credit outstanding as of December 31, 1979 by type of credit
and type of financial institution involved. From this analysis, it can be
conservatively estimated that over 30 percent of all consumer credit
was extended in installment sales financing transactions. See also, Fi-
nance Facts Yearbook 1980, pages 43-48, Library of Congress, Catalog
Card Number 61-14409.
‘For example, in most states installment sales transactions are not
subject to state usury laws and are regulated by retail installment sales
acts. Direct loan transactions, on the other hand, may be subject to
State usury laws or consumer loan laws.
tls
Regulation provide for different disclosures in the case of
direct loans from those disclosures required in the case of
sales transactions.’
The Board, in implementing the Act, acknowledged that
in sales finance transactions, the ultimate holder of the con-
tract will likely be a financial institution, such as a bank or
finance company, that did not negotiate the credit terms or
complete the credit documents. For this reason, the Board
provided that the seller, not the financial institution, must
make the disclosures required by the Act. Regulation Z,
§ 226.6(d). Congress also recognized the inherent limita-
tions upon the ability of the financial institution, as an as-
signee of the contract, to control the disclosures that are
made by the seller and provided that such financial insti-
tutions will not be responsible for errors made by the seller
in preparing Truth in Lending disclosures unless those errors
are apparent on the face of the disclosure statement. 15
U.S.C. 8§ 1614, 1641.
C. The Conflict and Confusion Resulting From the
Fifth Circuit’s Decision.
Despite these clear provisions of the Act and the Regu-
lation, the Fifth Circuit recharacterized the transactions and
the relationships of the parties in these cases and held that
Ford Credit was not an assignee of the contracts, but was
an Original extender of credit. The Fifth Circuit narrowly
construed the subsequent assignee provisions of the Act so
as to preclude their application to the massive installment
sales financing industry. Ford Credit and other financial
institutions will thus be denied the protection
afforded by the Act to subsequent assignees for violations
-'Compare, 15 U.S.C. § 1638, 12 C.F.R. § 226.8(a) (credit sale
disclosures) with 15 U.S.C. § 1639, 12 C.F.R. § 226.8(d) (credit loan
disclosures).
yom
of the Act and the Regulation that are not apparent on the
face of the disclosure statement.
The Fifth Circuit’s decision is in direct conflict with de-
cisions of the Sixth, Seventh and Ninth Circuits and with
an Official Staff Interpretation of the Federal Reserve Board
on the creditor identification issue. The decision also con-
flicts with a decision of the Third Circuit on the disclosure
obligations of multiple creditors in installment sales
financing.
This conflict in the Circuits and the confusion and un-
certainty that it has spawned, affects virtually the entire
sales finance industry in the United States. Many financial
institutions that purchase installment contracts operate on
a national basis and, like Ford Credit, prepare disclosure
statements that make uniform disclosures that can be used
in all jurisdictions. This uniformity benefits both the credit
industry, since the same form can be used throughout the
country, and consumers, since uniform disclosures permit
consumers to comparison shop for credit.
Despite this urgent need for disclosure uniformity, the
same disclosure form that has been approved by the Sixth,
Seventh and Ninth Circuits may not be used in the Fifth
Circuit. And, the multiple creditor disclosure obligations
that apply to financial institutions in the Third Circuit con-
flict with the disclosure obligations imposed upon such
institutions in the Fifth, Tenth and District of Columbia
Circuits. This Court should grant this Petition to resolve
these conflicts.
pa, | Veo
Il.
THE DECISION OF THE FIFTH CIRCUIT IS IN DIRECT
CONFLICT WITH DECISIONS OF THREE OTHER
CIRCUITS AND WITH AN OFFICIAL STAFF INTERPRE-
TATION OF THE FEDERAL RESERVE BOARD ON THE
CREDITOR IDENTIFICATION ISSUE.
A. The Decision of the Fifth Circuit Conflicts With
Decisions of the Sixth, Seventh and Ninth Circuits
and With an Official Staff Interpretation of the
Federal Reserve Board on the Creditor Identifica-
tion Issue.
The decision of the Fifth Circuit in these cases conflicts
with decisions of the Sixth, Seventh and Ninth Circuits
which have held that, even assuming that Ford Credit is a
creditor for purposes of the Act and Regulation, it was
adequately identified in the disclosure statement for Truth
in Lending purposes. Augusta v. Marshall Motor Co., 614
F.2d 1085 (6th Cir. 1979); Sharp v. Ford Motor Credit Co..,
615 F.2d 423 (7th Cir. 1980); Milhollin v. Ford Motor
Credit Co., 588 F.2d 753 (9th Cir. 1978), rev’d on other
grounds, Ford Motor Credit Company v. Milhollin, 444
U.S. 555 (1980). The language in the disclosure statement
that these Circuits found was sufficient to identify Ford
Credit in the transaction is identical to the language ap-
pearing in the disclosure statement used in these cases as
quoted at pages 3-4, supra.
In reaching its decision, the Fifth Circuit acknowledged
the conflict with the decisions of the three other Circuits:
‘‘This particular issue is of first impression in this
circuit. The Sixth, Seventh and Ninth Circuits have,
however, uniformly held that conspicuous identifica-
tion of a party in Ford’s position as assignee adequately
describes the relationship of the parties. (Citing cases.)
All, however, expressly declined to decide whether
a
Ford was actually a creditor.’’ 621 F.2d at n.2.
The Fifth Circuit based its decision upon the fact that,
although the disclosure statement identified Ford Credit, it
did not use the terminology ‘‘creditor.’’ In this respect, the
Fifth Circuit’s decision conflicts directly with an Official
Staff Interpretation issued by the Federal Reserve Board
which has concluded that ‘‘[a]lthough the identification of
a creditor is a required disclosure under § 226.8(a), this
disclosure does not constitute required ‘terminology.’ ”’
Federal Reserve Board Official Staff Interpretation No. FC-
0001, 41 Fed. Reg. 41907 (1976).
B. The Sixth, Seventh and Ninth Circuits Have
Correctly Decided the Creditor Identification Issue.
The identity of the creditor is not required to be disclosed
by the Act. The Regulation, however, requires that the
creditor be identified on the disclosure statement furnished
to the consumer. Regulation Z, §§ 226.8(a), 226.6(d). This
disclosure statement must be delivered to the consumer at
or before the consummation of the transaction, Regulation
Z, § 226.8(a), which is defined in the Regulation as being
‘“the time a contractual relationship is created.’’ Regulation
Z, § 226.2(kk).
When the contracts in these cases were consummated,
the only parties to the contracts were the selling dealers and
the buyers. Even assuming that Ford Credit became a cred-
itor after it accepted the assignment of the contracts, it was
not a creditor at the time the credit transactions were con-
summated. Although Ford Credit had been asked by the
dealers to pre-approve the buyer’s credit, Ford Credit did
not commit in advance to purchase the contracts and the
dealers did not commit in advance to sell them to Ford
Credit. In installment sales financing, a seller will frequently
—
ask a financial institution to pre-approve the buyer’s credit
and with this approval it will shop the contract among sev-
eral financial institutions. The records in these cases indicate
that the dealers sold their installment contracts to several
financial institutions. In fact, in the Antonio case, the parties
stipulated that less than 50% of the dealer’s contracts were
sold to Ford Credit.* :
Even assuming that Ford Credit’s identity was required
to be disclosed, the Regulation does not require the use of
any particular terminology in the disclosure, and Ford Credit
was Clearly identified on the disclosure forms as the intended
assignee of the contracts. It was upon this basis that the
Sixth, Seventh and Ninth Circuits properly held that Ford
Credit’s prospective relationship to the transaction was ad-
equately described by the contract language adjacent to the
buyer’s signature. As stated by the Ninth Circuit in Milhollin
v. Ford Motor Credit Company, 588 F.2d 753. 757 (9th
Cir. 1978), rev'd on other grounds, Ford Motor Credit Co.
v. Milhollin, 444 U.S. 555 (1980):
‘‘Nowhere does Regulation Z require use of the word
‘creditor.’ Here, the exact role that Ford Credit ulti-
mately played in each transaction was clearly
disclosed. Requiring Ford Credit to use the word
‘creditor’ would not have given Consumers additional
information nor better served the purposes of the Act.”’
In Sharp v. Ford Motor Credit Company, 615 F.2d 423,
426 (7th Cir. 1980), the Seventh Circuit held that Ford
Credit had been adequately identified and stated:
‘‘[NJeither the statute nor the regulations require that
a creditor’s identity be disclosed in a particular manner
or be denominated by the specific and descriptive ap-
pellation of creditor. Indeed, the Federal Reserve
‘See note 1, supra.
a
Board has stated in response to a similar claim: ‘Al-
though the identification of a creditor is required dis-
closure under § 226.8(a), this disclosure does not con-
stitute required ‘‘terminology.’’ ’ Official Interpretation
of Regulation Z, 41 Fed. Reg. 41908 (1976).”’
The Sixth, Seventh and Ninth Circuits in ruling in favor
of Ford Credit were concerned that, to require Ford Credit
to be identified in some manner other than as the intended
assignee, would not provide the buyers with any additional
credit information that could assist them in shopping for
credit by comparing credit terms.”
The Fifth Circuit’s conflicting decision is not mandated
by the Act or the Regulation and it does not further their
credit shopping objectives. Compliance with the decision,
however, will result in needless consumer confusion as to
Ford Credit’s exact status in such transactions and will leave
to the buyer the responsibility to sort out the relationship
of the parties. This will distract the buyer’s attention from
the important credit cost disclosures in the disclosure state-
ment, thus defeating the purpose for which the Act was
passed.
lif.
THE DECISIONS OF THE THIRD, FIFTH, TENTH AND DIS-
TRICT OF COLUMBIA CIRCUITS ARE IN CONFLICT
WITH RESPECT TO THE DISCLOSURE OBLIGATIONS
OF MULTIPLE CREDITORS UNDER REGULATION Z.
Ford Credit contends that it should be treated as a sub-
sequent assignee of the consumer credit contracts and not
*As stated by the Seventh Circuit in Sharp v. Ford Motor Credit Co.,
615 F.2d 423, 426 (7th Cir. 1980):
‘*To require, as appellants now contend, that Ford and General
should have been designated as other than assignees on the in-
stallment contracts would not further the purpose of the Act but
would, in our view, result in subverting the substance of the Act
to form.”’
See also, Milhollin v. Ford Motor Credit Co., 588 F.2d 753, 757 (9th
Cir. 1978), rev'd on other grounds, 444 U.S. 555 (1980).
wien
as an original creditor for Truth in Lending purposes. How-
ever, even assumirig that Ford Credit is viewed as an original
creditor and the seller is viewed as an arranger of credit,
the Fifth Circuit incorrectly applied the disclosure require-
ments of the Regulation. In doing so, its decision conflicts
with the decision of the United States Court of Appeals for
the Third Circuit in Manning v. Princeton Consumer Dis-
count Co., Inc., 533 F.2d 102 (3d Cir. 1976).
Recognizing that under a variety of circumstances there
may be more than one creditor in a consumer credit trans-
action, the Board attempted in Section 226.6(d) of the Reg-
ulation to delineate the respective disclosure responsibilities
of multiple creditors. The first sentence of that Section pro-
vides that, where there are multiple creditors in a consumer
credit transaction, each creditor is responsible for making
only those disclosures ‘‘which are within his knowledge and
the purview of his relationship with the customer.”’ The
third sentence of that same Section specifically provides that
in a credit sale transaction the credit sale disclosures **shall
be made by the seller if he extends or arranges for the
extension of credit.”’
Applying the established rule of statutory construction
that the specific language in a statute takes precedence over
the general language, the Third Circuit in the Manning case
held that in a credit sale transaction the responsibility to
make credit sale disclosures is specifically and exclusively
placed upon the seller:
‘In short, we hold that if the transaction is one in
which the seller arranges credit, the obligation of dis-
closure is placed upun him by the third sentence of
Regulation Z, § 226.c<d). In that factual situation the
specific direction of the third sentence prevails over
the general language limiting the scope of disclosure
to items within the creditor's knowledge and the pur-
view of his relationship with the customer.’’ 533 F.2d
at 105.
The Tenth and District of Columbia Circuits, however,
have reached the opposite conclusion. Hinkle v. Rock
Springs National Bank, 538 F.2d 295 (10th Cir. 1976);
Price v. Franklin Investment Co., Inc., 574 F.2d 594 (D.C.
Cir. 1977). The conflict in the Circuits was highlighted in
the Price case:
‘*There has been a split among the Circuits as to the
proper construction of this regulation. The Third Cir-
cuit, in Manning v. Princeton Consumer Discount Co.,
533 F.2d 102 (3d Cir.), cert. denicd, 429 U.S. 865,
97 S.Ct. 173, 50 L.Ed.2nd 144 (1976), found that a
transaction in which an automobile dealer arranged a
loan for a customer with a finance company was in
reality a ‘credit sale,’ and that both the dealer and the
finance company were ‘creditors’ within the meaning
of the Act and the Regulation. It held, however, that
the duty of each to make the required disclosures, and
the liability for failure to do so, was controlled by
Section 226.6(d). It noted that the first sentence of that
section would require ‘each creditor’ to make ‘those
disclosures . . . which were within his knowledge and
the purview of his relationship with the customer,’ but
concluded that the more specific language of the third
sentence controls whenever a ‘seller ... arranges
credit.’ By its terms, the Manning court held, the third
sentence limits both the duty and the liability to the
seller alone.
Three other Courts have reached the opposite
conclusion.’’ 574 F.2d at 601.
= a
The Fifth Circuit has now joined the Tenth and District
of Columbia Circuits in rejecting the Third Circuit’s multiple
creditor analysis in Manning.'°
Needless to say, in a multiple creditor situation it is just
as important to know who must make the required disclo-
sures as it is to know what disclosures must be made. The
Board has attempted to delineate those responsibilities by
setting forth a general rule that each creditor shall make
those disclosures that are within its knowledge and the pur-
view of its relationship with the customer. However, in the
case of a credit sale transaction, the Board chose to be spe-
cific by providing that the seller must provide the credit sale
disclosures. This reflects a recognition by the Board that
in the typical credit sale transaction the seller has the ex-
clusive knowledge of the specific terms of the credit sale
and controls the disclosures that are made by completing
the disclosure statement. Despite this fact, three out of the
four Circuits that have considered this question have rejected
the Board’s specific disclosure rule and have imposed credit
sale disclosure obligations upon financial institutions. This
Court should grant this Petition and resolve this conflict.
“In affirming the judgments against Ford Credit in the Shropshire
and Wiggs cases, the Fifth Circuit dismissed Ford Credit’s Section
226.6(d) defense with the observation that ‘*[bJecause this question is
factual in essence and the district courts’ findings are not clearly er-
roneous, we affirm.’’ 621 F.2d at 135. The District Courts, however,
made no findings that the disclosure errors alleged in the cases were
within the purview of Ford Credit’s relationship with the customers.
In any event, the Fifth Circuit appears to have rejected the Manning
court’s legal conclusion that the third sentence of Section 226.6(d)
places all credit sale disclosure obligations upon the seller in the multiple
creditor situation regardless of the knowledge and relationship of the
parties.
= oe
IV.
THE DECISION OF THE FIFTH CIRCUIT FAILS TO APPLY
THE DISCLOSURE PRINCIPLES ESTABLISHED BY THIS
COURT IN FORD MOTOR CREDIT COMPANY V. MIL-
HOLLIN.
The stated purpose of the Truth in Lending Act is ‘‘to
assure a meaningful disclosure of credit terms so that the
customer will be able to compare more readily the various
credit terms available to him and avoid the uninformed use
of credit.’” 15 U.S.C. § 102(a). Both Congress and the
Board have recognized that this goal will be realized only
if the disclosures required by the Act and the Regulation
are kept simple, uniform and meaningful. This policy was
recently confirmed by this Court in Ford Motor Credit
Company v. Milhollin, 444 U.S. 555, 568 (1980):
‘*The concept of ‘meaningful disclosure’ that animates
TILA, . . . cannot be applied in the abstract. Mean-
ingful disclosure does not mean more disclosure.
Rather, it describes a balance between ‘competing con-
siderations of complete disclosure . . . and the need
to avoid . . . [informational overload].’ ’’ (Emphasis
in original).
The Sixth, Seventh and Ninth Circuits applied this prin-
ciple of limited and meaningful disclosure in holding that
Ford Credit was adequately identified in the disclosure state-
ments, even assuming that it was a ‘‘creditor’’ for purposes
of the Act. All three Circuits held that the separate identi-
fication of Ford Credit as a creditor would not further the
disclosure purposes of the Act and could complicate the
disclosure statement and confuse consumers.
Ignoring this solid precedent favoring limited disclosures,
including a decision of this Court less than one year old,
the Fifth Circuit has opted for a more complicated disclosure
rule. The Fifth Circuit’s rule requires the disclosure state-
a)
ment not only to identify the financial institution purchasing
the contract but to do so with particular terminology even
though the Regulation does not require such terminology
and the Board has stated that such terminology is not nec-
essary. This disclosure rule was in turn based upon the Fifth
Circuit’s recharacterization of installment sales financing
transactions as direct extensions of credit by the financial
institution despite the explicit provisions of the Act to the
contrary. The Fifth Circuit’s disclosure rule and the conflict
in the Circuits discussed above have created widespread
confusion as to how installment sales financing transactions
should be disclosed. See also discussion infra at part VI.
This will undoubtedly result in lengthier and more compli-
cated disclosure statements as the credit industry seeks to
provide disclosures that will satisfy all of the conflicting
approaches.
¥.
THE DECISION OF THE FIFTH CIRCUIT FRUSTRATES THE
CLEAR PROVISIONS OF THE ACT AND THE
REGULATION LIMITING THE LIABILITY OF PUR-
CHASERS OF CONSUMER CREDIT CONTRACTS IN
INSTALLMENT SALES FINANCING TRANSACTIONS.
A. The Fifth Circuit Decision Is in Conflict With the
Provisions of the Act Limiting the Liability of
Assignees to Violations That Appear on the Face of
the Disclosure Statement.
The alleged disclosure errors made by the selling dealers
in the Shropshire and Wiggs cases were the inclusion of
certain documentary fees as part of the cash price disclosure.
The alleged disclosure error made by the selling dealer in
the Cenance case was the inclusion of a $1.00 fee for lien
notation as part of the tag, title and registration fee dis-
closure. These errors were not apparent on the face of the
contracts when they were assigned to Ford Credit. Section
, an
131 of the Act, 15 U.S.C. § 1641, limits the liability of
assignees of consumer credit contracts to disclosure errors
that are ‘‘apparent on the face of the statement.’’ In denying
Ford Credit the protection of Section 131, the Fifth Circuit
has frustrated the clear intent of Congress.
Petitioner has set forth in Appendix D to this Petition an
analysis of the legislative history of those provisions of the
Act defining the liability of purchasers of consumer credit
contracts. This legislative history demonstrates beyond any
question that Congress intended that financial institutions
purchasing contracts in installment sales financing trans-
actions would only be liable for Truth in Lending violations
that appear on the face of the disclosure statements.
When Congress passed the Act in 1967, effective July
1, 1969, it was well aware of the typical manner in which
installment sales financing was conducted in the United
States. In order to protect financial institutions from liability
for unknown violations of the Act and to facilitate the free
flow of commerce, Congress included Section 131 in the
Act. 15 U.S.C. § 1641. That Section provides that, except
as to certain real estate transactions,'' the customer’s written
acknowledgment of receipt of disclosure ‘‘shall be conclu-
sive proof of the delivery thereof, and, unless the violation
is apparent on the face of the statement, of compliance with
this Chapter.’’ The Report of the Senate Committee on
Banking and Currency concerning this Section makes it
clear that it was intended to protect financial institutions in
the installment sales financing industry. The Report ex-
plained that the Section was:
"Section 130(d) of the Act, 15 U.S.C. § 1640, specifically creates
liability upon assignees in real estate transactions who are in a contin-
uous business relationship with the original creditor.
|
‘“designed to facilitate the free flow of credit paper.
It provides a bank or finance company with assurance
that the original dealer has made the required disclosure
and that the bank or finance company will not be liable
for any failure, on the dealer’s part, to make disclo-
sure.’’ ‘Explanation of Changes in Committee Print,”’
113 Cong. Rec. 14694, 14695 (June 5, 1967)
(emphasis added). App. D at 95.
In adopting Section 131, Congress specifically rejected an
earlier draft of the Section that would have provided that
the Section does not apply if ‘‘the assignee, its subsidiaries.
or affiliates, are in a continuing business relationship with
the original creditor.’’ App. D at 96-99.
This legislative history clearly demonstrates that Congress
intended financial institutions participating in the sales fi-
nance industry to be treated as subsequent assignees under
Section 131 and to be entitled to the protection afforded by
that Section even where they were engaged in a continuing
business relationship with the seller.
In 1974, Congress passed Section 115 of the Act. 15
U.S.C. § 1614. That Section provides that any civil action
which may be brought against the original creditor in any
transaction may be maintained against any subsequent as-
signee of the original creditor where the violation from
which the liability arose is apparent on the face of the in-
strument assigned. This Section was passed based upon the
recommendations of the National Commission on Consumer
Finance. The Commission concluded that, in the typical
installment sales financing transaction, the financial insti-
tution prepares blank forms of contracts and disclosure state-
ments, has the capacity to audit the forms for compliance
with the Act, engages in multiple purchases from the same
dealer and is otherwise closely connected with the dealer.
The Commission felt that, because of this close contact
—22—
between the financial institution and the dealer, it would be
fair to impose liability upon the financial institution for
violations that appear on the face of the disclosure statement.
App. D at 100-102.
The Commission’s recommendations and the action of
the Congress in passing Section 115, make it even more
clear that Congress was aware of the practices that prevailed
in the massive sales finance industry and once again chose
to treat financial institutions as subsequent assignees with
their liability limited to violations that are apparent on the
face of the disclosure statement. Had such financial insti-
tutions been considered by Congress to be original creditors
and not subsequent assignees, it would not have been nec-
essary for Congress to enact Section 115 since such financial
institutions would have been liable as creditors for all vi-
olations whether or not they were apparent on the face of
the disclosure statement."
B. The Truth in Lending Simplification and Reform
Act Repudiates the Fifth Circuit’s Holding That the
Purchaser of a Consumer Credit Contract in an
Installment Sales Financing Transaction Is an
Original Creditor Under the Act.
On March 31, 1980, President Carter signed the Depos-
itory Institutions Deregulation and Monetary Control Act
of 1980. Public Law No. 96-221, 94 Stat. 132. Title VI of
that Act enacted the Truth in Lending Simplification and
"Significantly, as part of the same legislation that adopted Section
115 (Pub. L. No. 93-495), Congress enacted Section 702(e) of the
Equal Credit Opportunity Act (15 U.S.C. § 1691a(e)), which defined
“‘creditor’’ for the purpose of that Act as including ‘‘any assignee of
an original creditor who participates in the decision to extend, renew,
or continue credit.’’ Although the definition of ‘‘creditor’’ in the Truth
in Lending Act was also amended at the same time, Congress did not
include ‘‘assignees’’ within that definition. App. D at 103.
—,;, —_
Reform Act (herein ‘‘Simplification Act’’). Upon the rec-
ommendation of the Board, Congress in the Simplification
Act amended the definition of creditor to explicitly reject
the Fifth Circuit’s holding in Meyers v. Clearview Dodge,
539 F.2d 511 (Sth Cir. 1976) relied upon by the Fifth Circuit
in these cases in ruling against Ford Credit. In holding that
purchasers of consumer credit contracts in installment sales
financing transactions are creditors under the Act, the
Meyers court rejected as an argument which ‘‘elevates form
over substance’’ the position that the seller to whom the
contract is payable is the original creditor. Congress has
now made it clear that it intends the form of the transaction
to govern by providing that the creditor ‘‘is the person to
whom the debt arising from the consumer credit transaction
is initially payable on the face of the evidence of indebt-
edness.’’ Simplification Act § 602(a)(1). App. D at 104-
109.
This latest expression of Congressional intent concerning
the creditor issue completes a long chain of legislative his-
tory in which Congress has repeatedly expressed its intention
that financial institutions in installment sales financing trans-
actions should not be treated as original creditors under the
Act. This new provision of the Simplification Act clarifying
the status of such assignees should be considered declaratory
of the existing law since it is consistent with that law and
is over whelmingly supported by the legislative history of
the law. See Seatrain Shipbuilding Corp. v. Shell Oil Co..,
444 U.S. 572 (1980); Regents of University of California
v. Bakke, 438 U.S. 265, 349 (1978) (opinion of Justices
Brennan, White, Marshall and Blackmun); NLRB v. Bell
Aerospace Co., 416 U.S. 267, 275 (1974); Red Lion Broad-
casting Co. v. FCC, 395 U.S. 367, 380-81 (1969).
Although the Simplification Act will resolve many of the
uncertainties that exist in applying the Act and the Regu-
lation to installment sales financing transactions, the Act
does not become effective until April 1, 1982. It will thus
<a
not protect sellers and financial institutions from claims
based upon the millions of disclosure statements that have
been used in existing transactions. And, until the Act
becomes effective, the conflict in the Circuits and the
confusion resulting from this conflict will undoubtedly
worsen, thereby increasing the exposure of sellers and fi-
nancial institutions with each passing day.
VI.
THE FIFTH CIRCUIT DECISION RENDERS UNCERTAIN THE
DISCLOSURE REQUIREMENTS APPLICABLE TO IN-
STALLMENT SALES FINANCING AND THROWS OPEN
TO SERIOUS QUESTION MILLIONS OF CONSUMER
CREDIT DISCLOSURE STATEMENTS.
The Fifth Circuit decision in these cases creates many
uncertainties as to how installment sales financing trans-
actions should be disclosed. In holding that an assignee of
a consumer credit contract is an original extender of credit,
the Fifth Circuit’s decision leaves open the question of
whether the assignee should make loan or sale disclosures
under the Act and the Regulation. If characterized as the
direct extender of credit to the consumer, the financial in-
stitution could be viewed as a direct lender to the buyer.
Viewed in this manner, the financial institution would be
obligated to make Truth in Lending loan disclosures. See
Miller, Truth in Lending Act, 34 Bus. Law. 1405, 1418
(1979).'? However, in making these loan disclosures, the
financial institution would expose itself to substantial claims
''On this issue there is also a conflict in the Circuits. The Fifth Circuit
holds that, where the dealer and the financial institution are both cred-
itors, they are jointly obligated to make Truth in Lending sale disclo-
sures. See Meyers v. Clearview Dodge Sales, Inc., 539 F.2d 511 (Sth
Cir. 1976). In Joseph v. Norman’s Health Club, Inc., 532 F.2d 86 (8th
Cir. 1976), however, the Eighth Circuit held that, in this situation, the
financial institution must make Truth in Lending /oan disclosures. Ac-
cord, Glaire v. La Lanne-Paris Health Spa, Inc., 12 Cal. 3d 915, 117
Cal. Rptr. 541, 528 P.2d 357 (1974).
a
under state loan laws regulating interest rates and lender
practices.
The Fifth Circuit's recharacterization of installment sales
financing transactions coupled with its apparent rejection
of the Third Circuit’s decision in Manning may also lead
to dual disclosure obligations, with the seller required to
make sale disclosures and the financial institution required
to make loan disclosures all in the same transaction. This
would needlessly complicate the disclosure statement and
lead to consumer confusion which would defeat the purposes
of the Act. '
Even if the assignee is not viewed as an extender of loan
credit, the Fifth Circuit’s decision will inevitably create
disclosure confusion. When the consumer credit contract
is signed and the disclosure statement is furnished to the
buyer, the financial institution with whom the seller does
business is not a party to the contract and may never pur-
chase the contract. It would thus be misleading for the seller
to identify the financial institution as a creditor when the
disclosures are provided to the buyer. '* Financial institutions
purchasing contracts from sellers will face an equally serious
dilemma because of their potential liability as creditors for
violations of the Act and Regulation that are not apparent
on the face of the contracts that they purchase. In order to
uncover such latent violations, these financial institutions
would be required to conduct a factual audit of every con-
‘In Clausell v. Abraham Lincoln-Mercury, Inc., Civ. Action No.
79-1139 (E.D. La., July 22, 1980) the dealer sold a Ford Credit form
of conditional sale contract to another financial institution. The Court
held that ‘‘the naming of Ford Motor Credit Company as an assignee
on the disclosure form was misleading and confusing and therefore in
violation of Regulation Z, 12 C.F.R. 226.6(c)."" A copy of the Court's
opinion is reprinted in Appendix E.
—
tract that they purchase which would impede the free flow
of commerce.
The Fifth Circuit’s decision in these cases exposes the
entire sales finance industry to civil liability through class
action claims of truly staggering proportions. Few, if any,
financial institutions in the sales finance industry are iden-
tified in disclosure statements in the manner required by the
Fifth Circuit. This violation alone will subject these financial
institutions to the severe penalties provided for in the Act
in an estimated $90 billion of installment sales financing
transactions. It will also subject these financial institutions
to liability for hidden disclosure errors as small as the $1.00
filing fee error alleged in the Cenance case.
Conclusion.
The decision of the Court below represents a radical and
unprecedented departure from prior judicial decisions in-
terpreting the clear disclosure requirements of the Act and
the Regulation. This Court should intervene in order to
eliminate the conflict in the Circuits and promote uniformity
of decision as to the disclosure obligations of sellers and
financial institutions in installment sales financing trans-
actions.
Respectfully submitted,
PETER A. FERINGA, JR.,
Norris S. L. WILLIAMS,
CHAFFE, MCCALL, PHILLIPS,
TOLER & SARPY,
WILLIAM M. BurRKE,
SHEPPARD, MULLIN, RICHTER,
& HAMPTON,
Attorneys for Petitioner.
INDEX TO APPENDICES
Appendix A. Opinion of the United States Court of
Bre ar eer ee
Appendix B. Opinions of the United States District
GANT: Shiiacalaciwacteciveia seen cineagevelisamate tee
Appendix C. Statutory Provisions and Regulations
MN Snsiducscoccnesss Mose aceaee eae
Appendix D. Legislative History of the Truth in
Lending Act and the Truth in Lending Simplification
and Reform Act Relating to Installment Sales Fi-
nancing and the Creditor Issue ...................0.0..
Appendix E. Opinion of United States District Court,
Eastern District of Louisiana, Filed: July 22, 1980
(Clausell v. Abraham Lincoln-Mercury, Inc] .......
Appendix F. Subsidiaries of Ford Motor Company
SPHSHSHSSHSSHSHSHSHHEHSHSHSHSHSSSHEHHHSHHSHHKSSHOHOEHEKEHEEHEHHCOCOEEECO OHO OC EEE EES
Page
10
94
110
APPENDIX A.
Janet Cenance, Plaintiff-Appellee, v. Bohn Ford, Inc.,
Defendant-Appellant, Ford Motor Credit Company, De-
fei.dant-Appellant.
Nicole Antonio, Plaintiff-Appellant, v. Canal Motors,
Inc., Defendant, Ford Motor Credit Company, Defendant-
Appellee.
Marion Shropshire, Plaintiff-Appellee, v. George
Thompson Ford, !nc., Defendant-Appellee, v. Ford Motor
Credit Corporation, Defendant-Appellant.
Solomon Wiggs, Plaintiff-Appellee, v. Ford Motor Credit
Corporation, Defendant-Appellant.
Jimmy W. Farrell, Plaintiff-Appellee, Cross-Appellant,
v. Frank Jackson Motors, Inc., d/b/a Jackson AMC-Jeep,
Defendant-Appellant, Cross-Appellee.
Randolph Booker, Jr., Plaintiff-Appellee, Cross-Appel-
lant, v. Ford Motor Credit Company, Defendant-Appellant,
Cross-Appellee.
Nicholas Strzelecki, Plaintiff-Appellee, v. Terry Ford
Company and Ford Motor Credit Company, Defendants-
Appellants.
Michael Duane Culver, Plaintiff-Appellee, v. Greenbriar
Lincoln Mercury Sales, Inc. and Ford Motor Credit Com-
pany, Defendants, Ford Motor Credit Company, Defendant-
Appellant.
Dennis Vissichelli, Plaintiff-Appellee, v. Terry Ford
Company and Ford Motor Credit Company, Defendants-
Appellants.
Thomas J. Rogers and Phyllis Rogers, Plaintiffs-Appel-
lees, v. Frank Jackson Lincoln-Mercury and Ford Motor
Credit Company, Defendants-Appellants.
Nos. 77-2200, 77-3508, 78-2369, 78-2914, 79-1139, 79-
1584, 79-2227, 79-2340, 79-2449 and 79-2672.
— a
United States Court of Appeals, Fifth Circuit.
July 9, 1980.
Purchasers of automobiles brought actions against auto-
mobile dealers and finance company to recover for alleged
violations of the Truth in Lending Act. The United States
District Court for the Eastern District of Louisiana, 430
F.Supp. 1064, and the United States District Court for the
Northern District of Georgia, 458 F.Supp. 1387, entered
judgments for plaintiffs, and appeals were consolidated with
other Truth in Lending Act suits. The Court of Appeals,
Kravitch, Circuit Judge, held that:
(1) finance company which routinely financed the sale of
automobiles by dealers in exchange for assignment of orig-
inal note from purchaser was a ‘“‘creditor’’ within meaning
of the Truth in Lending Act, since dealer and finance com-
pany prearranged for the assignment of finance instrument,
the risk of finance did not reside with dealer, and transaction
between dealer and purchaser was conditioned upon ac-
ceptance of credit application by finance company, and
(2) finance company was not sufficiently identified as a
creditor in Truth in Lending statement which designated
finance company as a ‘‘subsequent assignee.”
Affirmed in part, reversed in part and remanded in part.
Appeals from the United States District Court for the
Eastern District of Louisiana.
Appeals from the United States District Court for the
Northern District of Georgia.
Before COLEMAN, Chief Judge, PECK, and KRAV-
ITCH, Circuit Judges.
KRAVITCH, Circuit Judge.
*Circuit Judge of the Sixth Circuit, sitting by designation.
nen, EN
The common issues binding these consolidated cases are
whether a finance company, Ford Motor Credit Co. [Ford],
which routinely finances the sale of automobiles by dealers
in exchange for assignment of the original note from the
purchaser (1) is a creditor within the meaning of the Truth-
in-Lending Act, and (2) whether designation of Ford as
‘*subsequent assignee’’ adequately describes its relationship
with the consumer debtor. We answer the first question
‘*yes,’’ the second ‘‘no.’’
All plaintiffs involved purchased automobiles on credit
from various party automobile dealers. Each of the dealers
had a similar standing agreement with Ford: as a prerequisite
for the extension of credit, purchasers were required to
submit a credit application to Ford on a form printed by
Ford. If the application met with Ford’s approval, Ford
would purchase the credit instrument after execution by the
dealer and purchasers without further participation or risk
on the part of the dealer.
The Truth-in-Lending statement did not disclose Ford as
a creditor but rather referred to Ford as a ‘‘subsequent as-
signee.’’ The final portion of the statement provided:
The foregoing contract hereby is accepted by the Seller
and assigned to Ford Motor Credit Company in ac-
cordance with the terms of assignment set forth on the
reverse side thereof.
In all cases the district courts held that Ford was a creditor
under the Truth-in-Lending Act and that such status had not
been adequately disclosed in the Truth-in-Lending state-
ment.
A. Ford's Status as Creditor
The Truth-in-Lending Act, 15 U.S.C. § 1601 et seq.,
and Regulation Z thereunder define a creditor as one who,
in the ordinary course of business, ‘‘regularly extends or
oar Yom
arranges for the extension of consumer credit or offers to
extend or arrange for the extension of such credit... .”’
Reg. Z, 226.2(s), 12 C.F.R. § 226.2(s) (1976).
In Meyers v. Clearview Dodge, 539 F.2d 511 (Sth Cir.
1976), this Court was first confronted by the question
whether a downstream fiance company was a creditor or
subsequent assignee within the above provision of Regu-
lation Z. In Meyers, the automobile dealer prearranged
credit with one of several institutions, unlike the instant
cases in which a standing agreement with only a single
finance company existed. Holding that the dealer was the
arranger of credit but that the finance company, Chrysler
Credit, was the extender of credit, the court stated:
Chrysler Credit argues . . . that it is merely a “‘sub-
sequent assignee’’ within the meaning of that term in
section 1641 of the Act. Appellant insists that Clear-
view is the original creditor in this transaction, since
at the moment the transaction was consummated Clear-
view was the holder of the note and chattel mortgage,
and consequently the only one to whom appellee was
obligated. However, appellant’s argument elevates
form over substance in an effort to avoid the realities
of the credit transaction. Clearview never assumed any
of the risks normally associated with the extension of
credit in its dealings with appellee. By prearranging
the assignment of the installment contract to Chrysler
Credit, or any other institutional lender, Clearview
merely arranged to sell the automobile for cash to be
supplied by another. There is little doubt that in this
transaction ‘‘credit,’’ ‘‘the right granted by a creditor
to a debtor to defer payment of debt or to incur debt
and defer its payment,’’ was extended by Chrysler
Credit and arranged for by Clearview.
539 F.2d at 515, 516.
me Tee
The Meyers analysis applies with even greater force to
the instant situation because here the dealers regularly dealt
only with Ford. The dealer and Ford prearranged for the
assignment of the finance instrument. At no time did the
risk of finance reside with the dealer. The transaction be-
tween dealer and automobile purchaser was conditioned
upon acceptance of the credit application by Ford. Indeed,
the credit application form was prepared by Ford. As in
Meyers, it would be elevating form over substance to hold
that Ford was anything but an original creditor within the
meaning of the Act and Regulation Z.
In order to avoid the Meyers doctrine, the appellants
contend that a recent provision passed in 1974, 15 U.S.C.
§ 1614," limiting the liability of assignees, clearly expresses
a Congressional intent that entities in the position of Ford
are not to be treated as creditors. Although the section does
address the liability of subsequent assignees, the appellants’
argument begs the question of whether Ford is truly a ‘‘sub-
sequent assignee’’ in substance rather than form. Simply
denominating oneself as a subsequent assignee is insuffi-
cient. To enjoy the protection of the new provision, the
company must be subsequent assignee in fact as well as
name. Thus, the status of a loan participant is determined
by the nature of the participation rather than a designation
arbitrarily shown on the loan instrument.
'15 U.S.C. § 1614 reads:
Except as otherwise specifically provided in this subchapter [15
U.S.C. §§ 1601, et seq.] any civil action for a violation of this
subchapter [15 U.S.C. §§ 1601, et seq.] which may be brought
against the original creditor in any credit transaction may be
maintained against any subsequent assignee of the original cred-
itor where the violation from which the alleged liability arose is
apparent on the face of the instrument assigned unless the as-
signment is involuntary.
"Ss
Ford next argues that even if it is deemed a creditor for
Truth-in-Lending purposes, the relationship between it and
the debtor consumer was adequately disclosed in the state-
ment concerning subsequent assignment. This issue was not
reached by the court in Meyers because there no disclosure
of Chrysler’s participation in the transaction had been made.
Although other circuits have held to the contrary,” we do
not accept Ford’s argument. The Truth-in-Lending Act re-
quirement of disclosure of al/ creditors is quite clear. Section
226.6(d) of Regulation Z provides in part:
If there is more than one creditor . . . in a transaction,
each creditor shall be clearly identified . . . (emphasis
added)
Disclosure of Ford as subsequent assignee does not *‘clearly’’
identify it as a creditor. Additionally, Ford cannot be both
a creditor and a subsequent assignee. Meyers, supra, 539
F.2d at 515.*° Accordingly, because Ford is a creditor for
Truth-in-Lending purposes and did not disclose that status
’This particular issue is of first impression in this circuit. The Sixth,
Seventh and Ninth Circuits have, however, uniformly held that con-
spicuous identification of a party in Ford’s position as assignee ade-
quately describes the relationship of the parties. Augusta v. Marshall
Motor Co., 614 F.2d 1085 (6th Cir. 1979); Sharp v. Ford Motor Credit
Co., 615 F.2d 423 (7th Cir. 1980); Milhollin v. Ford Motor Credit
Co., 588 F.2d 753 (9th Cir. 1978). All, however, expressly declined
to decide whether Ford was actually a creditor.
*Although Meyers involved the interpretation of 15 U.S.C. § 1641
rather than § 1614, the analysis is equally persuasive. Section 1641
provides:
Except as provided in section 1635(c) and except in the case of
actions brought under section 1640(d), in any action or proceeding
by or against any subsequent assignee of the original creditor
without knowledge to the contrary by the assignee when he ac-
quires the obligation, written acknowledgment of receipt by a
person to whom a statement is required to be given pursuant to
this subchapter shall be conclusive proof of the delivery thereof
and, unless the violation is apparent on the face of the statement,
of compliance with this part. This section does not affect the
rights of the obligor in any action against the original creditor.
a, aan
except by reference to assignment, we hold that Ford vio-
lated § 226.6(d) of Regulation Z and affirm the district
courts.
B. Itemization of ‘‘Tag, Title and Registration Fees’’
There remain to be disposed of issues not common to all
the consolidated cases. Cenance, Strzelecki and Booker all
involve the question whether ‘‘tag, title and registration
fees’’ must be itemized separately. This recently has been
answered negatively by this court in Downey v. Whaley
Lamb Ford Sales, Inc., 607 F.2d 1093 (Sth Cir. 1979). The
district courts therefore are reversed on this issue.
Cenance also involves the question whether a $1.00
charge for lien or mortgage recordation was properly dis-
closed under the designation ‘‘license, title and registration
fees.’’ This issue is not one of improper itemization but
rather misnomer. Because Regulation Z distinguishes the
category embracing mortgage recordation fees from that of
‘license, tag and registration fees,’’ the inclusion violated
the Truth-in-Lending Act. Part b(1) of 12 C.F.R. § 226.4
is denominated ‘‘Fees and charges prescribed by law which
actually are or will be paid to public officials for determining
the existence of or for perfecting or releasing or satisfying
any security related to the credit transaction.’’ Section (b)(4)
refers to: ‘“‘License, certificate of title, and registration fees
imposed by law.’’ These separate definitions serve to dif-
ferentiate charges paid to perfect mortgages from registra-
tion fees. This distinction is not without reason. A charge
for ‘‘tag, title and registration fees’’ is independent of the
nature of the transaction, whether cash or credit. A lien
recordation fee, in contrast, will only occur in a credit trans-
action. Separate designation of these types of charges in the
regulations compels the conclusion that fees paid to officials
for the purpose of perfecting a security interest simply is
=
not a “‘title, tag or registration’ fee. Inclusion of the lien
recordation fee under that heading therefore violated the
Act. The district court, therefore, is affirmed.
C. Responsibility of a Joint Creditor
Finally, in Shropshire and Wiggs, Ford argues that if it
should be considered a creditor it is only liable for those
violations which were within its purview. The particular
violations are not at issue on appeal. Ford relies on 12
C.F.R. § 226.6(d)* which limits liability of joint creditors
to those items within its knowledge and scope of relationship
with the consumer. Because this question is factual in es-
sence and the district court’s findings are not clearly erro-
neous, we affirm.
We have considered the remaining points raised on appeal
but find them without merit.”
AFFIRMED IN PART, REVERSED IN PART AND
REMANDED IN PART.
“Section 226.6(d) of Regulation Z provides as follows:
(d) Multiple creditors or lessors; joint disclosure. If there is
more than one creditor or lessor in a transaction, each creditor
or lessor shall be clearly identified and shall be responsible for
making only those disclosures required by this part which are
within his knowledge and the purview of his relationship to the
customer or the lessee. If two or more creditors or lessors make
a joint disclosure, each creditor or lessor shall be clearly iden-
tified. The disclosures required under paragraphs (b) and (c) of
§ 226.8 shall be made by the seller if he extends or arranges for
the extension of credit. Otherwise disclosures shall be made as
required under paragraphs (b) and (d) of § 226.8 or paragraph
(b) of § 226.15. (Emphasis supplied)
*In Booker, Ford argues that summary judgment was improper be-
cause a genuine dispute as to a material fact existed. We agree and
remand. We observe, however, that the court was correct in holding
that the plaintiff had received a duplicate instrument as required by
Regulation Z § 226.8(a). In Culver, Ford contends that it was entitled
to a partial setoff based upon a settlement agreement between the dealer
and the purchaser. The legal effect of the settlement was not raised
below, however.
—9_
Judgment.
United States Court of Appeals For the Fifth Circuit.
No. 77-2200. D. C. Docket No. CA-76-2878-C.
Janet Cenance, Plaintiff-Appellee, versus Bohn Ford,
Inc., Defendant-Appellant, Ford Motor Credit Company,
Defendant-Appellant.
Appeal from the United States District Court for the East-
ern District of Louisiana.
Before COLEMAN, Chief Judge, PECK’ and KRA-
VITCH, Circuit Judges.
This cause came on to be heard on the transcript of the
record from the United States District Court for the Eastern
District of Louisiana, and was argued by counsel;
ON CONSIDERATION WHEREOF, It is now here or-
dered and adjudged by this Court that the judgment of the
said District Court in this cause be, and the same is hereby,
affirmed in part and reversed in part; and that this cause be,
and the same is hereby remanded to the said District Court
in accordance with the opinion of this Court;
IT IS FURTHER ORDERED that defendants-appellants
pay to plaintiff-appellee, the costs on appeal to be taxed by
the Clerk of this Court.
July 9, 1980. °
A true copy
Test GILBERT F. GANUCHEAU Clerk,
U.S. Court of Appeals, Fifth Circuit
By Claudia Nides, Deputy
New Orleans, Louisiana
DATE OF ENTRY OCT 31, 1980.
ISSUED AS MANDATE: OCT 30 1980.
‘Hon. John W. Peck, Circuit Judge of the Sixth Circuit, sitting by
designation.
a oN
APPENDIX B.
United Staies District Court, Eastern District of Louisi-
ana.
Janet Cenance, Plaintiff versus Bohn Ford, Inc. and Ford
Motor Credit Company, Defendants.
Civil Action No. 76-2878.
Filed: Apr. 14, 1977.
Joseph W. Thomas, Esq., Attorney for Plaintiff; Peter
A. Feringa, Jr., Esq., Norris Williams, Esq., Attorneys for
Defendant; William J. Wegmann, Esq., Attorney for De-
fendant.
RUBIN, District Judge:
The plaintiff seeks damages for a claimed violation of the
Truth in Lending Act as a result of failure properly to itemize
the charges made and properly to identify the true lender
on the required disclosure form. Although the amount of
the charge that was not properly itemized is small, the stat-
utory violation is clear. The true lender was not identified
in a way that would be clear to the borrower. Hence, judg-
ment is rendered for the plaintiff.
|
On 26 April 1976, plaintiff entered into a contract with
Bohn Ford (‘‘Bohn’’) to purchase a used 1974 Ford auto-
mobile. She did not pay cash, but sought credit. To obtain
this, she agreed to time payments pursuant to the terms of
an automobile retail installment contract and filled out a
credit application to Ford Motor Credit Co. (‘‘Ford’’) on
a form printed by Ford. Bohn had a standing arrangement
with Ford to handle credit sales in this way, and, in addition
to receiving payment for the automobiles it sold, was paid
a consideration by Ford out of the net proceeds or the trans-
actions accepted by Ford. Bohn and Ford both contemplated
a | we
throughout that, if the application was satisfactory, Ford
would finance the car, and Bohn would not itself undertake
the financing risk.
On the next business day, Bohn submitted plaintiff's ap-
plication to Ford, and was advised that Ford would purchase
the credit instrument represented by the Ford approved
forms if Bohn and the plaintiff executed them. The plaintiff
signed these documents, supplied by Ford, then the de-
fendant’s representative signed them and submitted them
to Ford, which promptly remitted the agreed upon price to
Bohn. :
Bohn’s business is selling automobiles. Ford’s principal
business is financing Ford dealers by making direct loans
to them and by purchasing automobile retail installment
contracts from them.
I]
The plaintiff was required to pay a fee of $1.00, which
was later actually paid to a public official for recording the
chattel mortgage held as security for the credit sale. The
disclosure form showed the following:
License, Title & Registration Fees $10.50.
The state’s charge for the automobile license was $6.00,
and the state’s charge for the automobile title and registration
was $3.50. The sum of $1.00 was actually paid for recording
the mortgage, but this was not separately itemized and Bohn
Says it was included in the $10.50.
Section 226.4 of the Truth in Lending Regulations permits
creditors to omit from the finance charge ‘‘fees and charges
prescribed by law’’ if they are otherwise itemized and dis-
closed to the borrower.' Including the official fee for re-
cording a mortgage in the charge shown for ‘‘License, Title
'12 C.F.R. 226.4(b).
a | wen
& Registration’’ does not satisfy the requirements of the
regulations. The finance charge is what the credit consumer
is told is the cost of his credit. In order for the creditor to
exclude official charges from the finance charge, the official
charges must be itemized. A charge may not be lumped
together with a number of other, ostensibly official, charges.
Grant v. Imperial Motors, 5 Cir. 1976, 539 F.2d 506. The
consumer has a right to know the nature of and amount of
each charge exacted by law rather than by the creditor.
It is possible to indulge in semantic pilpul about whether
a charge for recording a mortgage is embraced within the
phrase ‘‘license, title, and registration fees.’’ But, however
common parlance or dictionaries may treat the terms, Sec-
tion 226.4 of the Regulations distinguishes the two types
of charges for Truth in Lending purposes. 12 C.F.R. $226.4.
Section (b)(1) refers to: ‘‘Fees and charges prescribed by
law which actually are or will be paid to public officials for
determining the existence of or for perfecting or releasing
or Satisfying any security related to the credit transaction.”’
Section (b)(4) refers to: ‘‘License, certificate of title, and
registration fees imposed by law.’’ These separate defini-
tions serve to differentiate charges paid to perfect mortgage
from registration fees. Hence, the disclosure statement fails
to itemize the charge for recordation and is deficient. The
Fifth Circuit has recently held that the modesty of an omitted
charge is no defense. Grant v. Imperial Motors, supra, 539
F.2d at 510. Even if it were a defense, we do not deal here
with a minor error but with a practice dictated by a printed
form that is obviously used repetitively. Hence, it cannot
be treated as inadvertent or de minimis.
iil
Nor is there any itemization of the other charges included
in the $10.50 exacted for ‘‘license, title and registration
fees.’’ It was not sufficient for the defendants to list the
—|
charges collectively; the borrower has a right to know not
only the total sum of officially prescribed fees, but also the
specific amount of each such fee. In Grant v. Imperial
Motors, supra, the court held:
The requirements of this section are clear; unless the
fees imposed by law in this transaction are itemized,
they must be included in the computation of the finance
charge.
539 F.2d at 510. In Grant, the defendant had disclosed
charges for license tag and title registration by aggregating
the two and calling them ‘‘official fees’’. While the disclo-
sure statement revealed the nature of the official fees, the
components of the fees were not listed separately, as the
court held the Truth in Lending Act requires.
IV
The Truth in Lending Act, through the regulations pro-
mulgated pursuant to it, requires that the creditor who makes
a loan be clearly identified on the disclosure statement.’
Ford was mentioned in only one way on the disclosure form:
at the bottom of the form, there was the recital:
*. . . At the time disclosures are made, the creditor shall furnish
the customer with a duplicate of the instrument or a statement by
which the required disclosures are made and on which the creditor
is identified . . .
12 C.F.R. 226.8(a).
If there is more than one creditor in a transaction, each creditor
shall be clearly identified and shall be responsible for making
only those disclosures required by this Part which are within his
knowledge and the purview of his relationship with the customer.
If two or more creditors make a joint disclosure, each creditor
shall be clearly identified. The disclosures required under para-
graph (b) and (c) of §226.8 shall be made by the seller if he
extends or arranges for the extension of credit. Otherwise dis-
closures shall be made as required under paragraph (b) and (d)
of §226.8.
12 C.F.R. 226(d).
moe? ee
The foregoing contract hereby is accepted by the Seller
and assigned to Ford Motor Credit Company in ac-
cordance with the terms of the assignment set forth on
the reverse side hereof.
This obviously refers to Ford only as a potential assignee,
and the assignment was, of course, to be executed only at
some time after the plaintiff signed the form.’ The real
question is whether Ford was a ‘‘creditor’’ as defined in the
Regulations when the plaintiff executed the instrument so
that it had to be identified.*
Vv
The Act and Regulation Z define a creditor as one who,
in the ordinary course of buisness, ‘‘regularly extends or
arranges for the extension of consumer credit or offers to
extend or arrange for the extension of such credit. . .’’ Reg.
Z, 226.2(s), 12 C.F.R. §226.2(s), (1976).
Ford was the ostensible assignee of the installment sales
contract for the sale by Bohn to the plaintiff. But the form
the transaction took, an apparent credit sale by Bohn, fol-
lowed by an assignment to Ford, was planned by Ford for
the putative advantages Ford would gain were it not a lender
but an assignee. As indicated above, Bohn obtained credit
information from the plaintiff on a form of customer state-
ment prepared by Ford before entering into any agreement
with the plaintiff. Based upon this data, Ford approved the
plaintiff’s credit standing and agreed to the transaction.
*One district court has considered such a reference a sufficiently clear
identification, Virginia Jones Main v. Faller Ford, Inc., C.A. 74-337,
W.D. Pa., April 22, 1976.
“This determination is also significant in deciding the joint liability
of Ford for the other violations of the Regulations. See this opinion,
supra.
—_ | a
The terms of the proposed credit sale were incorporated
in a blank form of contract prepared by and furnished to
Bohn by Ford. Subsequent to the sale of the automobile,
the contract was tendered to Ford. It was ‘‘purchased’’ by
Ford in the ordinary course of a continuing business rela-
tionship between Ford and Bohn, under which Ford pur-
chased a substantial quantity of such credit paper.
The facts pointing to Ford as lender—because Bohn dealt
entirely with Ford unless the purchaser was able to make
his own arrangements—are even stronger than those in
Meyers v. Clearview Dodge, 5 Cir. 1976, 539 F.2d 511.
It is undisputed that Clearview is in the business of
selling automobiles and does not ordinarily finance
credit sales itself. Instead, when the purchaser has not
made financing arrangements of his own, Clearview
takes a financial statement and submits it to several
institutional creditors with whom it regularly deals for
approval of the purchaser’s credit. If any one of the
lenders approves the customer’s credit, Clearview
completes the sale and immediately assigns the com-
mercial papers to an approving lender. This practice
of prearranging the assignment of commercial paper
is a regular and essential part of Clearview’s business
and is, as the district court concluded, tantamount to
arranging for the extension of credit.
539 F.2d at 515. There the Fifth Circuit held that the financer
who agreed to take a particular loan was, in fact, an extender
of credit, even though it might also be characterized as an
assignee:
Chrysler Credit argues . . . that additional undisputed
facts support a conclusion that it is merely a ‘subse-
quent assignee’ within the meaning of that term in
section 1641 of the Act. Appellant insists that Clear-
view is the original creditor in this transaction, since
at the moment the transaction was consummated Clear-
="
view was the holder of the note and chattel mortgage,
and consequently the only one to whom appellee was
obligated. However, appellant’s argument elevates
form over substance in an effort to avoid the realities
of the credit transaction. Clearview never assumed any
of the risks normally associated with the extension of
credit in its dealings with appellee. By prearranging
the assignment of the installment contract to Chrysler
Credit, or any other institutional lender, Clearview
merely arranged to sell the automobile for cash to be
supplied by another. There is little doubt that in this
transaction ‘credit,’ ‘the right granted by a creditor to
a debtor to defer payment of debt or to incur debt and
defer its payment,’ was extended by Chrysler Credit
and arranged for by Clearview.
539 F.2d at 515, 516.
Under Meyers, all who are assignees under state law are
not treated alike when they handle transactions governed
by the Truth in Lending Act. The issue is whether the
assignee was so involved in the original decision to extend
credit that it was not merely a firm who came on the scene
after a lender had extended credit and purchased the loan,
innocent of the original terms of the credit relationship and
the disclosure statement, but, in fact, the intended creditor
from the start.
The passage of a new provision limiting the liability of
assignees in 1974, 15 U.S.C. $1614, does not alte: that
rule.” The new section, quoted in the footnote,° was de-
*The Meyers case dealt with 15 U.S.C. $1641 rather than 15 U.S.C.
$1614, but its reasoning is apposite here. See also 15 U.S.C. $1640(d).
°15 U.S.C. $1614 reads:
Except as otherwise specifically provided in this title [15 U.S.C.
§§1601, et seq.] any civil action for a violation of this title [15
U.S.C. §§1601, et seq.] which may be brought against the original
creditor in any credit transaction may be maintained against any
subsequent assignee of the original creditor where the violation
from which the alleged liability arose is apparent on the face of
the instrument assigned unless the assignment is involuntary.
rea |, Se
signed to immunize true assignees from liability for all vi-
olations excepi those apparent on the face of the instrument
Indeed, the section employs the term ‘‘subsequent as-
signee’’ (emphasis supplied) to differentiate assignees who
participate in the initial decision to extend credit from those
who are not involved in the credit transaction until after
assignment. To interpret Section 1614 as applicable to all
who are nominal assignees, as Ford Suggests, would permit
the real lender to extend credit from behind the scenes,
though the ostensible lender is merely its puppet so far as
the credit decision goes. The real lender could then issue
a joint disclosure statement with the arranger of credit, yet
claim the limited liability permitted by Section 1614 because
of the timing of the assignment of the contract. Although
one of my brethren thinks otherwise, (Williams v. Bill
Watson Ford, C.A. 74-3379, E.D. La. 1976), I do not
believe that this was the intent of the 1974 amendment.
Thus, while Ford may have been an assignee for state
law purposes, it was a creditor as that term is defined in the
Regulations, and violated Regs. 226.8(a) and 226.6(d) by
failing clearly to identify itself on the disclosure statement.
VI
Ford contends that the identification requirement is unen-
forceable because the Federal Reserve Board (““FRB’’) ex-
ceeded its statutory authority’ in promulgating Regs. 226.8(a)
‘The Board shall prescribe regulations to carry out the purposes of
this title [15 USC §§1601 et seq.]. 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 [15 USC §§1601 et seq.], to prevent circumvention
or evasion thereof, or to facilitate compliance therewith. 15 U.S.C.
$1604.
The Act provides recovery by the successful individual plaintiff in the
amount of $100.00 or twice the finance charge, but, in no case, more
than $1,000.00. 15 U.S.C. §1640(a). The finance charge in this case
was $934.61, so that the plaintiff may recover $1,000.00. That same
section permits recovery of costs.
—_= —
and 226.6(d). The parameters of the Board’s authority are
broad, and a regulation will be upheld whenever it is ‘‘rea-
sonably related to the purposes of the enabling legislation.’’
Mourning v. Family Publications Service, 1973, 411 U.S.
356, 93 S.Ct. 1652. The FRB was not unreasonable in
concluding that knowledge of a creditor’s identity promotes
the *‘informed use of credit,’’ the express goal of the Truth
in Lending Act.
The Congress finds that economic stabilization would
be enhanced and the competition among the various
financial institutions and other firms engaged in the
extension of consumer credit would be strengthened
by the informed use of credit . . . It is the purpose of
this subchapter to assure a meaningful disclosure of
credit terms so that the consumer will be able to com-
pare more readily the various credit terms available to
him and avoid the uninformed use of credit.
15 U.S.C. §1601.
Congress deemed that the FRB was capable of formu-
lating the details of the regulatory plan. Congress delegated
to FRB the authority to use its reasonable discretion in
promoting the informed use of credit. This broad delegation
of authority is not confined to regulations that dictate only
disclosure of the terms of the contract—in other words, the
cash price, the finance charge, etc. While the discretion of
the FRB is not unbounded, the creditor’s identity is not a
frivolous or extraneous bit of information, and may be im-
portant in the borrower’s decision to commit himself to a
particular credit arrangement. Informed persons sometimes
do not choose to borrow from a lender known to be difficult
to deal with and exacting in its demands.
Because Ford is not merely a ‘‘subsequent assignee”’, it
is jointly liable with Bohn for any violations of the Act or
= =
Regulations contained in the disclosure statement. Meyers
v. Clearview Dodge Sales, Inc., supra.
Section 1614 limits the liability of a subsequent assignee
to instances where ‘‘the violation is apparent on the face”’
of an assigned instrument. Ford cannot be both a creditor
and a subsequent assignee. Meyers supra, 539 F.2d 511,
at 515. Since Ford was a creditor, its liability is not restricted
to violations ‘‘apparent on the face of the instrument as-
signed.”’
Vil
While three violations of the Act and Reg. Z have been
found in this case, the plaintiff may recover only once.
Section 130(g) of the Act precludes multiple recoveries for
multiple violations. 15 U.S.C. $1640(g). Furthermore, a
plaintiff may not recover against each defendant separately.
The [defendants] herein acted jointly in extending the
credit and they were responsible for making a joint
disclosure of the information required by the Act and
Reg. Z. Imposing separate liability on the joint cred-
itors in this single consumer credit transaction does
little to further the general purposes of the Act and is
not mandated by practical considerations or the stat-
utory language.
Meyers, supra, 539 F.2d at 521.
Accordingly, judgment will be entered for the plaintiff
for $1,000.00, plus costs. Plaintiff’s counsel will be
awarded reasonable attorneys fees, as permitted by the Act.
15 U.S.C. §1640(a). If the parties to this lawsuit do not
agree on the amount of attorneys fees, they may submit the
matter to this court for further proceedings.
[Illegible]
United States District Judge
New Orleans, Louisiana
April 14, 1977
ae,”
Judgment.
United States District Court, Eastern District of Louisi-
ana.
Janet Cenance versus Bohn Ford, Inc. and Ford Motor
Credit Company. Civil Action No. 76-2878.
This cause came on for trial on a previous day, and for
the written reasons filed herein, and the direction of the
Court that judgment be entered,
IT IS ORDERED, ADJUDGED AND DECREED that
there be judgment in favor of plaintiff, Janet Cenance, and
against defendants, Bohn Ford, Inc. and Ford Motor Credit
Company, in amount of $1,000.00, plus costs.
IT IS FURTHER ORDERED that counsel for plaintiff
is awarded attorney’s fees, to be agreed upon.
Dated at New Orleans, Louisiana, this 18 day of April,
1977.
[Illegible]
United States District Judge
Joseph W. Thomas, Esq.
Peter A. Feringa, Jr., Esq.
Ms. Norris Williams
William J. Wegmann, Esq.
ae, | pees
United States District Court, Eastern District of Louisi-
ana.
Nicole Antonio versus Canal Moiors, Inc. and Ford Motor
Credit Company. No. 74-3163, Civil Action.
Filed: Nov. 18, 1977.
SCHWARTZ, J.
This matter came on for hearing on a previous day and
was submitted to the Court pending further supplemental
memoranda from counsel. Subsequently, Defendant moved
to strike portions of Plaintiff's Suggested Findings of Fact
and Conclusions of Law which had been filed as supple-
mental memoranda. The Court has been advised by counsel
for Plaintiff that he did not intend to extend and add to the
record by such supplemental memoranda, and accordingly
the motion to strike was denied as moot. After due consid-
eration of the argument and memoranda of counsel, the
record and the law, the Court rules as follows:
The complainant, Nicole Antonio, instituted this action
for penalties, damages, costs and attorney’s fees pursuant
to the Truth in Lending Act of 1968 (hereinafter ‘‘the Act’’),
15 U.S.C. 1601 et seq., and 12 C.F.R. 226 et seq., (Reg-
ulation *‘Z’’). It is alleged that Defendants are creditors
under the Act, and have violated these enactments by stating
an incorrect finance charge and Annual Percentage Rate in
violation of 12 C.F.R. 226.4 and 226.5 respectively.
The Defendants, Canal Motors, Inc.' and Ford Motor
Credit Company (hereafter ‘‘Ford’’) filed individual an-
swers generally denying the allegations of the complaint.
‘Insofar as Canal Motors, Inc. has been represented to the Court to
have been *‘in Liquidation and defunct’’, its counsel of record was thus
permitted to withdraw from this cause, and plaintiff's motion to dismiss
Canal Motors, Inc. without prejudice was granted. Thus, the only party
defendant remaining in this matter for all intents and purposes is Ford
Motor Credit Company.
eae
Specifically, Ford avers that it was only a subsequent as-
signee of the note and mortgage in question and, alterna-
tively Ford avers that if there was a violation of the Act,
then such violation was not intentional and resulted from
bona fide error excusable under 15 U.S.C. § 1640(c).
To the extent that any of the following findings of fact
constitute conclusions of law, they are adopted as such, and
to the extent that any of the conclusions of law constitute
findings of fact they are adopted as such.
FINDINGS OF FACT
Counsel for Mr. Antonio and Ford entered into a joint
stipulation of facts which forms the sole factual predicate’
for the adjudication of this case. The facts are as follows:
1. On 16 July 1974, Nicole Antonio purchased
from Canal Motors, Inc., Seller, a new 1974 Ford
automobile.
2. A copy of the mortgage and disclosure state-
ment, the original of which is attached to this stipu-
lation, was given to plaintiff in its entirety.
3. The automobile was purchased by plaintiff for
her personal use.
4. The Louisiana Automobile Retail Installment
Contract, note and mortgage was assigned for value
by the Seller, Canal Motors, Inc., to Ford Motor Credit
Company.
5. Following the assignment, and within fifteen
(15) days of the sale and mortgage, plaintiff was no-
tified in writing that the assignment had taken place
and that payment should be made to Ford Motor Credit
Company.
*At the trial of this matter on July 28, 1977, only oral argument of
counsel was given in support of their respective positions and, the case
was thus submitted solely on the stipulated facts, augmented by oral
argument.
a, ; an
6. Ford Motor Credit Company did not fill in any
portion of the note and mortgage, nor did Ford Motor
Credit Company tell the dealer what information to put
into any of the blanks in the note and mortgage form.
7. Ford Motor Credit Company received a credit
application from Canal Motors, Inc. regarding plaintiff
on or about 15 July 1974. Ford Credit purchased the
contract on 22 July 1974.
8. The Louisiana Automobile Retail Installment
Contract (sale and chattel mortgage) used by Canal
Motors, Inc. in this transaction was printed by a profes-
sional printer at the direction of Ford: Motor Credit
Company. Defendant, Ford Motor Company, believes
that an employee or salesman of the defendant, Canal
Motors, Inc., completed the Louisiana Automobile
Retail Installment Contract executed by plaintiff and
Canal Motors, Inc. Ford Motor Credit Company pro-
vided the Louisiana Automobile Retail Installment
Contract form, in blank, to Canal Motors, Inc. either
by manual delivery or through the United States mail.
9. Ford Motor Credit Company purchased the dis-
counted contract (Louisiana Automobile Retail Install-
ment Contract) from Canal Motors, Inc. for a total
consideration of $3,753.05 on 22 July 1974.
10. Ford Motor Credit Company had a contract
with Canal Motors, Inc. pursuant to which a portion
of the consideration paid to the dealer in connection
with the purchase of contracts was paid into the Dealer
Preoceeds [sic] Withheld account against which Ford
Motor Credit Company reserved the right to setoff cer-
tain losses, if any, which might be sustained on the
contracts purchased from Canal Motors, Inc.
11. During 1974, Ford Motor Credit Company
purchased 674 Louisiana Automobile Retail Install-
ment Contracts from Canal Motors, Inc.
12. Ford Motor Credit Company purchased during
a,
1974 less than 50% of all retail installment contracts
sold by Canal Motors, Inc.; and, Canal Motors, Inc.
regularly sold its Louisiana Automobile Retail Install-
ment Contracts to the following banks and finance com-
panies in addition to selling to Ford Motor Credit Com-
a) First National Bank of Commerce
b) Hibernia National Bank
c) Bank of New Orleans
d) Creditthrift of America, Inc.
e) Beneficial Finance Company
f) Town Finance Company
g) Courtesy Finance Company
13. Canal Motors, Inc. was not required by Ford
Motor Credit Company to use the forms supplied by
Ford Motor Credit Company and referenced in Stip-
ulation No. 8 in connection with the instant transaction
or any transaction.
14. Ford Motor Credit Company was not obligated
contractually or otherwise to purchase the Louisiana
Automobile Retail Installment Contract identified as
Exhibit A attached hereto, prior to the actual purchase
on 22 July 1974, nor was Canal Motors, Inc. required
to sell any of its Louisiana Automobile Retail Install-
ment Contracts to Ford Motor Credit Company, either
contractually or otherwise.
The Louisiana Automobile Retail Installment Contract,
(attached to the stipulated facts and made a part of the
record) on its face and in the upper left cornew [sic] reads
‘‘Account No. FMCC.’’ Additionally, to the left of the
signatory line bearing Plaintiff’s signature, and directly
above the sellers signature is the following typewritten state-
ment:
‘‘The foregoing contract hereby is accepted by the
Seller and assigned to Ford Motor Credit Company in
ox, | a
accordance with the terms of the assignment set forth
on the reverse side hereof.’’
Other than these two references, the Contract fails to relate
on its face to Ford in any other capacity.’
The Court finds it unnecessary to decide whether or not
Ford is an arranger or extender of credit and thus a
‘creditor’? under § 226.2(m)* of the Act.° The Court first
addresses the crucially important and dispositive question
of whether there has been any recognizable violation under
the Act. In this respect, Plaintiff’s only viable contention,
in light of the stipulated facts, is that the disclosure of Ford’s
name as a creditor should have been made clearly, con-
spicuously and in a meaningful sequence on the face of the
instrument, as required by 12 C.F.R. § 226.6(a) and (d).
In rebuttal, Ford contends that ‘‘the disclosure statement
provided to plaintiff completely and accuratley [sic] de-
scribed the relationship of the parties and Ford Credit’s
potential involvement as an assignee of the paper.’’ This
pivotal issue alone is the focus of the Court’s inquiry.
Far from being settled, the jurisprudence has taken di-
vergent stances on the requirement of whether or not the
‘However, clause 16 on the face of the contract, printed approxi-
mately one inch above the buyer’s signature, refers to the ‘‘ Additional
Terms and Conditions’’ set forth on the reverse side and incorporated
therein by such reference; on the reverse side, clause 17 refers to the
assignment and buyer’s duties if such assignment occurs; and the actual
assignment thereof to Ford by the Seller, as it appears on the reverse
side, is set forth in its entirety.
“12 C.F.R. §226.2(m) (1974) reads:
‘*(m) ‘Creditor’ means a person who in the ordinary course of
business regularly extends or arranges for the extension of con-
sumer credit, or offers to extend or arrange for the extension of
such credit.”’
*Under a similar factual setting, this issue has been thoroughly ex-
hausted in Meyers v. Clearview Dodge 539 F 2d 511 (Sth Cir. 1976).
Also see Joseph v. Norman’ s Health Club, 532 F 2d 86 (8th Cir. 1976):
Manning v. Princeton Consumer Discount Co., Inc., 533 F 2d 102.
105 n. 2 (3rd Cir. 1976)
TEM
name of the creditor extendor, becoming such through an-
ticipated assignment of the contract, should be identified
as as [sic] a creditor on the seller’s disclosure statement.
Some courts have simply concluded that an anticipated as-
signee who is a “‘creditor’’ under the Act must clearly iden-
tify itself as such on the disclosure statement. See Lauletta
vs. Valley Buick 421 F. Supp 1036 (W.D. Pa., 1976); and
Cenance vs Bohn Ford, Inc. and Ford Motor Credit Com-
pany, NO 76-2878 (E.D. La., Section “*C’’, Apr. 14, 1977);
Milhollin vs. Ford Motor Credit Co. No. 75-334 (D.C.
Ore., Apr. 7, 1976).
Other courts have held that fair disclosure on the face of
the contract of seller’s relationship with the prospective
assignee satisfied the requirements 12 C.F.R. § 226.6(d).
See Augusta v Marshall Motor Co., et al No. 77-430 (N.D.
Ohio, Eastern Div., Sept. 9, 1977); Main v Fallar Ford,
Inc. and Ford Motor Credit Co., No. 74-337 (W.D. Pa.,
Apr. 22, 1976); DeMuzio v Westinghouse Credit Corpo-
ration, No. C-1-74-61 (S.D. Ohio, W.D., Nov. 1975)
Assuming arguendo that Ford is a creditor, the Court
looks to the 12 C.F.R. § 226.6(d) in order to allocate liability
between Ford and the seller, Canal Motors, Inc. Section
226.6(d) provides:
(d) Multiple creditors; joint disclosure. If there is
more than one creditor in a transaction, each creditor
shall be clearly identified and shall be responsible for
making only those disclosures required by this part
which are within his knowledge and the purview of his
relationship whith [sic] the customer. If two or more
creditors make a joint disclosure, each creditor shall
be clearly identified. The disclosures required under
paragraphs (b) and (c) of § 226.8 shall be made by the
seller if he extends or arranges for the extension of
_ ;
credit. Otherwise disclosures shall be made as required
under paragraphs (b) and (d) of § 226.8.
Another division of this Court in Williams v Bill Watson
Ford, Inc. 423 F Supp. 345 (E.D. La., Div. ‘‘G’’, 1976)
considered a similar set of facts involving Ford Motor Credit
Company and found several Truth-in-Lending violations but
did not touch upon the subject issue at hand. After the
rendition of the Meyer decision, supra, the Court, in a
supplemental opinion, considered Ford to be a creditor
within the meaning of the Act. The Court then looked to
the provisions of 12 C.F.R. §226.6(d) in deciding how to
allocate the responsibilities of disclosure in credit sales.
After reviewing the decisions of Manning, supra, and Hin-
kle v Rock Springs National Bank 538 F. 2d 295 (10th Cir.,
1976), the Williams court adopted the Hinkle rationale.
Having further explored and disected [sic] § 226.6(d), in
light of Hinkle, the Williams court made there [sic] obser-
vations:
‘“(S) The first sentence of 226.6(d) is a general in-
struction on the allocation of liability among multiple
creditors.
‘If there is more than one creditor in a transaction,
each creditor shall be clearly identified and shall be
responsible for making only those disclosures re-
quired by this part which are within his knowledge
and the purview of his relationship with the cus-
tomer.’
The test posed by this sentence applies whether each
creditor issued his own disclosure statement or whether
all creditors issue on joint statement. The test is two-
pronged. Before finding one particular creditor among
multiple creditors liable for a failure to disclose, it must
be determined that (1) the information withheld was
within his knowiedge, and (2) the information withheld
—
a, to
was within the purview of his relationship with the
customer.’’
The Court concluded that the seller, not Ford, had peculiar
knowledge of the items violating the Act, and such items
were within the ‘‘purview’’ of the seller-consumer rela-
tionship. Thus only the seller was held liable for the vio-
lation.
This approach to § 226.6(d) is sound and logical and,
accordingly, the Court herein adopts it as its own.
Here, at the time of the consumer transaction, clearly
Ford was a prospective assignee of the installment contract,
having approved the financing thereon on the previous day.
Equally true, neither Ford nor the seller Canal Motors, Inc.
were contractually bound to enter the assignment agreement
(Stipulation #14). In fact, less than 50% of all retail in-
stallment contracts sold by Canal Motors were sold to Ford
(Stipulation #12). Thus while there may have been a rea-
sonable anticipation that Ford and Canal Motors would enter
numerous like transactions in any given year (674 during
1974, Stipulation #11), neither the seller nor Ford had a
contractual obligation to do so once the consumer trans-
action was consummated.° It follows that the only disclosure
at the time of the consumer transaction which was within
the peculiar knowledge of both Canal Motors, Inc. and Ford
was that Ford may become the assignee of the contract.
‘This is es cially true since the actual assignment, found on the
reverse side of the installment contract, significantly provides in its last
sentence:
‘This assignment shall become effective upon delivery of the
within contract to FMCC or upon FMCC’s payment of the pur-
chase price therefor whichever first occurs”
In the event the seller fails to deliver the contract and FMCC does not
pay the price therefor, the assignment never comes into existance.
Moreover, Clause 17 of the contract gives additional notice of the
assignment and is couched in discretionary terms: *‘The original Seller
may assign this contract. . .’’ (emphasis added)
—
a,
Inasmuch as the Act and Regulations fail to delineate the
manner by which a ‘‘creditor’’ is to be disclosed, the Court
specifically finds, having carefully studied the installment
contract, that fair and conspicuous disclosure of Ford’s true
relationship with the transaction has been clearly fulfilled
on the fact of the instrument within reasonable proximity
to the consumer’s signature.’ Under these circumstances,
in clear conscience, the Court is unable to find a disclosure
violation 12 C.F.R. § 226.6(d); Augusta v Marshall Motor
Co., supra.
The avowed and stated purpose of the federal truth in
lending legislation is to assure ‘‘meaningful disclosure of
credit terms’’ thus allowing the consumer to make informed
choices as to the cost of available credit terms. 15 U.S.C.
§ 1601. Pennino v. Morris Kirschman & Co., Inc. 526 F
2d 367 (Sth Cir. 1975). To additionally require Ford to
make a separate disclosure to the plaintiff regarding its
‘‘creditor’’ status once the assignment took place would not
further the purpose of the Act. In this spirit, the Court
approbatively cites from Main v Fallar Ford Inc. and Ford
Motor Credit Co., supra:
‘“Whether Ford Credit may be described as a ‘‘cred-
itor’? as the term is used in §226.6(d) need not be
decided in this factual context because to require such
a disclosure by Ford Credit on a separate piece of paper
would not be a meaninful [sic] disclosure nor would
it further the goals of the Truth in Lending Act. Ford
Credit was accurately described in the contract as the
assignee and it is undisputed that plaintiff personally
understood that Ford Credit would actually extend here
’The consumer is further alerted to the terms and conditions on the
reverse side which include Clause 17 entitled ‘‘Assignment’’ and the
entire bottom portion of the reverse side which also is boldly captioned
as ‘‘Assignment.”’ See footnote #3 above.
a
[sic] credit and consequently be the recipient of her
monthly installment payments. In her deposition,
plaintiff states that she was familiar with the final ar-
rangement provided by defendant Fort [sic] Credii to
Ford dealers because her fiance (now husband) had
financed a car through them. Plaintiff, through her
conversation with Faller’s sales person, was also aware
that the financing of the Pinto automobile would be
provided by defendant Ford Credit if her credit record
was acceptable. To adopt plaintiff's argument would
not advance the goals of the Act. Section 226.6(d)
places the obligation upon the seller who arranges for
the credit to make the statutory disclosures.'® See Man-
ning v. Princeton Consumer Discount Co. and Spring-
field, supra, and Faller made such disclosures. To re-
quire Ford Credit to also disclose to plaintiff that it
was also a ‘“‘creditor’’ within the Act would be a mean-
ingless and needless exercise providing plaintiff with
duplicative information and such duplication cannot be
justified by the Act’s purpose nor by the practical con-
siderations of these circumstances. (Footnote omitted).
In any event, ‘‘Following the assignment, and within (15)
days of the sale and mortgage, plaintiff was notified in
writing that the assignment had taken place and that payment
should be made to Ford Motor Credit Company.’* (Stipu-
lation #5).°
‘Any romescageareng ay ew failure to disclose Ford’s relationship to
the consumer may have been cured by such prompt notification of the
assignment within 15 days or the actual transaction under 15 U.S.C.
§ 1640(b); which reads:
15 U.S.C. § 1640(b) provides:
‘Correction of error within fifteen days
A creditor has no liability under this section if within fifteen days
after discovering an error, and prior to the institution of an action
under this section or the receipt of written notice of the error, the
creditor notified the person concerned of the error and makes
whatever adjustments in the appropriate account are necessary to
insure that the person will not be required to pay a finance charge
in excess of the amount of percentage rate actually disclosed.”
Accordingly, see Augusta, supra; however, there is jurisprudence to
the contrary which would indicate that this statutory exemption is lim-
ited to clerical errors. See Jumbo v. Nester Motors, Inc. 428 F Supp.
1085 (D.C. Ariz., 1977); Palmer v Wilson 502 F 2d 860 (9th Cir.,
1974).
a,
Having found no actionable violation to speak of, the
Court need not discuss the issue of whether Ford really was
a creditor.
For these reasons assigned, Plaintif{’s complaint is DIS-
wAISSED with prejudice in its entirety. The Clerk of Court
shall enter judgment accordingly.
New Orleans, Louisiana, this 17th day of November,
1977.
[illegible]
United States District Judge
a. a
Judgment.
United States District Court, Eastern District of Louisi-
ana.
Nicole Antonio vs. Canal Motors, Inc., et al. Civil Ac-
tion. No. 74-3163. Section ‘‘A’’.
Filed: Nov. 21, 1977
Considering the written reasons on file herein; and the
Court having directed the entry of judgment, accordingly;
IT IS ORDER, ADJUDGED AND DECREED that there
be judgment in favor of defendant, Ford Motor Credit Co..,
and against plaintiff, Nicole Antonio, dismissing plaintiff’ s
complaint with prejudice.
New Orleans, Louisiana, this 18th day of November,
1977.
/s) NELSON B. JONES,
Nelson B. Jones, Clerk
APPROVED AS TO FROM [sic]:
[Illegible]
United States District Judge
oe, ,
Recommendation of Special Master.
In the United States District Court for the Northern Dis-
trict of Georgia, Atlanta Division.
Marion Shropshire, Plaintiff, vs. George Thompson Ford,
Inc. and Ford Motor Credit Corp., Defendants. Civil Action
No. C75-2290A.
Filed: Nov. 29, 1977.
This truth in lending case was remanded to this Special
Master by Order entered November 23, 1976. That Order
held George Thompson Ford, Inc. liable for a civil penalty
for including a documentary service fee in the cash price.
On remand, this Special Master was to make a recommen-
dation whether Ford Motor Credit Corp. (‘‘Ford Credit’’)
is jointly and severally liable for that violation.
Trial was held before this Special Master to determine
the relationship between Ford Credit and its dealer, George
Thompson Ford, and to determine Ford Credit’s knowledge
of the inclusion of the documentary service charge in the
cash price. Following are this Special Master’s Findings of
Fact, Conclusions of Law and Recommendation.
I.
FINDINGS OF FACT.
This Special Master finds these facts. George Thompson
Ford, Inc. is a car dealer, selling cars at retail. Ford Credit
finances retail installment sales of cars and regularly does
this type of business with the dealer. The dealer never, or
almost never, sells a car to be paid for in installments unless
a consumer finance company agrees in advance to take an
assignment of the installment sales contract, with the con-
sumer finance company paying the dealer the cash price of
the car on acceptance of the assignment. The car dealer
cannot afford to finance credit sales of cars.
=
When the prospective purchaser of a car looks to the
dealer to arrange financing, the dealer takes credit infor-
mation and sends it, along with the terms of the proposed
car sale, to one or more consumer finance companies. Some-
times, more than one consumer finance company approves
- the credit and expresses a willingness to accept the assign-
ment. If more than one consumer finance company ex-
presses such a willingness, the dealer decides which to
choose. This decision is often based on how great a re-
muneration the consumer finance company offers the dealer
out of the collected finance charges. Perhaps the recourse
provisions of the assignment would also be of some im-
portance to the dealer.
After getting the credit approval of a consumer finance
company, the dealer consummates the retail installment sale
on a form approved by the consumer finance company that
the dealer has selected. With Ford Credit the retail install-
ment contract and the assignment are on the same form and
the assignment is contemporaneous with the execution of
the contract. Ford Credit, like virtually all consumer finance
companies, does not attend the consummation of the pur-
chase and does not learn that the dealer has accepted its
offer to accept an assignment until it receives in the mail
the retail installment contract and assignment, along with
a draft drawn by the dealer. Ford Credit then reviews the
contract to make sure that it is in proper form. This review
includes the terms of the contract and the truth in lending
disclosures. If there is an error, Ford Credit does not pay
the draft but sends the papers back for the dealer to make
the necessary corrections with the purchaser. If this is done
to Ford Credit’s satisfaction, it will accept the assignment
by honoring the draft.
It is not quite clear what would happen if after approving
the credit but before accepting the assignment, Ford changes
ct
its position about the credit worthiness of the purchaser.
This Special Master inquired into that. Ford Credit would
_ Tecognize at least a moral obligation. It might be relevant
in fixing a legal obligation whether the dealer was culpable
in taking or transmitting the credit information.
When the contract in question was assigned to Ford
Credit, it knew that many of its dealers included documen-
tary service charges in the cash price. Ford Credit condoned
this practice because it, like many others, believed that this
was not a violation of the Truth in Lending Act. Ford Credit
thus had strong reason to suspect that a documentary service
fee might be included in this cash price.
Likewise, by knowledge of its dealers’ practices, Ford
Credit had strong reason to suspect that the dealer had im-
posed a charge for a certificate of title and other official
fees. Since no such charge was disclosed in the space pro-
vided on Ford Credit’s form for retail installment contract,
Ford Credit had strong reason to suspect that these charges
were lumped into the cash price.
The strong suspicion that the documentary service and
official fee charges were included in the cash price becomes
a virtual certainty when certain worksheets submitted by the
dealer are compared with the disclosures on the retail in-
stallment contract. Those worksheets, submitted with the
credit information, show how the terms of the contract are
calculated. The worksheet shows both documentary service
charges and charges for official fees. The calculations cor-
respond exactly with the terms of the contract and lead to
the conclusion that the documentary service charges and
charges for official fees are included in the cash price.
II.
CONCLUSIONS OF LAW.
The Truth in Lending Act specifies that a subsequent
assignee is not liable for a truth in lending penalty unless
the disclosure error is apparent on the face of the instrument
a es
assigned. This is provided by 15 U.S.C. 1614. The instru-
ment assigned is the retail installment contract. It is not
apparent from the face of that contract that the documentary
service charge or the charge for the certificate of title is
included in the cash price. Ford Credit’s virtual certainty
of these inclusions comes from knowledge of its dealers’
practices and review of the dealers’ worksheets, which are
not an assigned instrument.
Read literally, 15 U.S.C. 1614 does not impose liability
on Ford Credit for a disclosure error not apparent from the
face of the retail installment contract alone, if Ford Credit
is a subsequent assignee. This Special Master believes that
the statute should be read literally. A literal reading does
not condone some mischief that the statute was obviously
designed to remedy. Because it is technical, the Truth in
Lending Act and Regulations are generally read literally in
imposing liability. E.g., Pennino v. Morris Kirschman &
Co., 526 F.2d 367 (Sth Cir. 1976); Grant v. Imperial Mo-
tors, 539 F.2d 506, 510 (Sth Cir. 1976). It should similarly
be read literally to exonerate from liability where, as here,
there is no clear reason for a different reading.
Thus, if Ford Credit is a subsequent assignee, it is not
liable with the dealer for the inclusion of the documentary
service fee in the cash price. But under the authority of
Meyers v. Clearview Dodge Sales, Inc., 539 F.2d 511 (Sth
Cir. 1976); Cenance v. Bohn Ford, Inc., 430 F. Supp. 1064
(E.D. La. 1977); and Smith v. General Finance Corp., C76-
358A (Edenfield, J. 1977), Ford Credit, as an extender of
credit, is a creditor and jointly liable with the dealer, an
arranger of credit. In Cenance, a subsequent assignee is
defined as one who des not participate in the credit decision
until after the assignment. Ford Credit obviously does not
meet that test.
—
—
_;
It is immaterial that Ford Credit is not present at the
consummation of the installment sales contract, does not
know that the dealer will include a documentary service
charge in the cash price, and does not know that the contract
will be assigned to it. Ford Credit could insist on being
present, and oversee every detail of the disclosures of the
contract terms. But Ford Credit is content not to. That does
not render Ford Credit any less an extender of credit, within
the meaning of the Truth in Lending Act. The key fact
making Ford Credit a creditor is the prior approval of credit.
It is likewise immaterial that Ford Credit can reject the
assignment of an improperly prepared or disclosed contract.
This Special Master doubts that Ford Credit could reject an
assignment because of a change in position as to the credit
worthiness of the consumer unless the dealer is cul-
pable in taking or transmitting credit information. But even
if Ford Credit, for cause, can reject the assignment, that,
like the matter of whether the assignment is with recourse
and the matter of whether the parties have agreed to indem-
nification for truth in lending liability, goes to the agreed
division of risk between Ford and the dealer rather than the
question of whether Ford is an extender of credit.
In Smith v. General Finance Corp., C76-358A (Eden-
field, J. 1977), this Court took a view similar to that taken
in Cenance v. Bohn Ford, Inc. In Smith, as in Cenance,
the court declined to follow Williams v. Bill Watson Ford,
Inc., 423 F.Supp. 345 (E.D. La. 1976). In Smith, the Court
held that where a car dealer as an arranger of credit and a
consumer finance company as an extender of credit provided
one disclosure statement, with the dealer providing the fi-
nancial terms of the contract on a form provided by the
consumer finance company, both were jointly and severally
liable for any error. There was no division of liability based
on who had undertaken to furnish what information to the
— on
consumer. The court in Smith noted 12 C.F.R. 226.6(d),
which provides for each creditor being responsible for only
those disclosures within his knowledge and the purview of
his relationship with the customer. The court in Smith held
that the court in Meyers properly did not apply that regu-
lation because it referred to multiple creditors, not joint
creditors, which the car dealer and the consumer finance
company in Meyers were.
Ford Credit requests a stay of this case until its appeal
in the case of Cenance v. Bohn Ford, Inc. is concluded.
But final resolutions of that case can easily take another
year. And the final resolution might still leave Ford Credit
with a question as to its liability in this case. Furthermore,
the District Court in this case may wish to express contrary
views to those expressed herein and find for Ford Credit.
In all, the goal of speedy and specific adjudication of liti-
gation favors denial of the stay.
III.
RECOMMENDATION.
WHEREFORE, it is recommended thai plaintiff have
judgment jointly and severally against defendants for a truth
in lending penalty of $1,000, and a reasonable attorney’s
fee of $700. The plaintiff’s attorney is directed to submit
by December 12, 1977 an affidavit of legal services rendered
since November 23, 1976, for this Court to award whatever
attorney’s fees are reasonable for prosecuting the case since
then against Ford Motor Credit Corp. Any objection to the
affidavit is to be filed by December 22, 1977. The Clerk
a ae
shall then resubmit this case to this Special Master for rec-
ommendation of a reasonable attorney’s fee.
AT ATLANTA, GEORGIA, this 29th day of November,
1977.
/s) EZRA COHEN
Ezra H. Cohen
Bankruptcy Judge, Sitting as
Special Master
—
Order.
United States District Court, Northern District of Geor-
gia, Atlanta Division.
Marion Shropshire vs. George Thompson Ford, Inc. and
Ford Motor Credit Corporation. Civil Action No.
C75-2290A.
Filed: May 1, 1978.
By order of November 23, 1976, the court concluded that
defendant George Thompson Ford, Inc. was liable to plain-
tiff in this truth-in-lending action. The case was remanded
to the special master for a further recommendation with
respect to the liability of Ford Motor Credit Corporation,
and a ruling on an award of attorney’s fees was deferred.
The case is now before the court on the resulting recom-
mendation that Ford Motor Credit Corporation be found to
be jointly and severally liable with George Thompson Ford
for a truth-in-lending penalty of $1,000 and an attorney’s
fee of $700. A further fee of $450 is recommended, to be
assessed against Ford Motor Credit only, for services ren-
dered by plaintiff’s attorney subsequent to the finding that
George Thompson Ford had violated the truth-in-lending
law.
After having read and considered the special master’s
recommendations, the court finds itself in agreement with
his conclusion that Ford Motor Credit Corporation acted as
an extender of credit rather than a subsequent assignee and
is jointly liable with the automobile dealer who arranged
the credit. See Meyers v. Clearview Dodge Sales, Inc., 539
F.2d 511, 514-15 (Sth Cir. 1976), cert. denied sub nom.
Meyers v. Chrysler Credit Corp., 431 U.S. 929 (1977).
Accordingly, the special master’s recommendations are
ae |
ADOPTED in their entirety as the opinion and order of the
court.”
The clerk is DIRECTED to enter judgment for the plain-
tiff. Defendants are jointly and severally liable for a truth-
in-lending penalty of $1,000.00, an attorney’s fee of
$700.00, and costs, while defendant Ford Motor Credit
Corporation alone is liable to plaintiff for an additional
attorney’s fee of $450.00.
‘ So ORDERED, this 28th day of April, 1978.
/s/ Newell Edenfield,
Newell Edenfield,
United States District Judge
‘This includes denial of the Stay requested by Ford Motor Credit. See
Special Master’s Recommendation of November 29, 1977, at 7.
—_—
Judgment.
United States District Court for the Northern District of
Georgia, Atlanta Division.
Marion Shropshire vs. George Thompson Ford, Inc. and
Ford Motor Credit Corporation. Civil Action File No. C75-
2290A.
Filed: May 1, 1978.
This action came on for consideration before the Court,
Honorable Newell Edenfield, United States District Judge,
presiding, and the issue having been duly considered and
a decision having been duly rendered adopting Special
Master recommendations.
It is Ordered and Adjudged that the defendants take noth-
ing, the action be dismissed, and the plaintiff, MARION
SHROPSHIRE recover of the defendants, jointly and sev-
erally, a Truth-In-Lending penalty of ONE THOUSAND
& 00/100 DOLLARS ($1,000.00); an attorney’s fees in the
amount of SEVEN HUNDRED & 00/100 DOLLARS
| a
($700.00) and cost. Plaintiff to recover from defendant
FORD MOTOR CREDIT CORPORATION additional at-
torney’s fee in the amount of FOUR-HUNDRED FIFTY
& 00/100 DOLLARS ($450.00)
BEN H. CARTER
Clerk of Court
By /s/ CLAUDIA PHILLIPS
Deputy Clerk
Dated at Atlanta, Georgia, this Ist day
of May, 1978.
FILED & ENTERED IN CLERK’S
OFFICE THIS Ist DAY OF MAY 1978
BEN H. CARTER, CLERK
By /s/ CLAUDIA PHILLIPS
Deputy Clerk
—_*
Recommendation of Special Master.
In the United States District Court for the Northern Dis-
trict of Georgia, Atlanta Division.
Solomon Wiggs, Plaintiff, Vs. Ford Motor Credit Cor-
poration, Defendant. Civil Action No. 19428.
Filed: Nov. 30, 1977.
On July 23, 1976, this Special Master entered a Rec-
ommendation on the merits of the truth in lending conten-
tions. By Order dated December 17, 1976, this case was
remanded for reconsideration in light of recent Fifth Circuit
opinions dealing with the disclosure of car sales. On May
5, 1977, this remand was transferred from the Magistrate
to this Special Master.
Plaintiff’s first contention as to liability is the defendant's
failure to disclose its right to accelerate unearned interest.
As the Court noted in its Order of December 17, 1976, that
contention is not well taken in the light of Martin v. Com-
mercial Securities Co., 539 F.2d 521 (Sth Cir. 1976). This
issue is now being reconsidered en banc in McDaniel v.
Fulton National Bank, 554 F.2d 1391 (Sth Cir. 1977).
Plaintiff's second contention is that charges for credit
insurance should have been included in the cash price. This
second contention has two bases. The first is that the dealer
required the purchase of insurance. The disclosure sheet
contains a recital signed by plaintiff that credit insurance
was not required. Yet plaintiff has submitted an affidavit
reciting, ‘‘I was required to purchase credit Life and credit
Accident and Health or Disability Insurance.’’ This affidavit
does not create an issue of fact because plaintiff does not
show that he was specifically and unequivocally informed
that credit insurance was required, so as to meet the burden
of Mims v. Dixie Finance Co., 426 F.Supp. 627, 637 (N.D.
Ga. 1976). By Direction entered October 14, 1977, this
a om
Special Master gave plaintiff fifteen days to make such a
showing. Nothing was filed. Therefore, on the authority of
Mims v. Dixie Finance Co., supra, and Anthony v. Com-
munity Loan and Investment Co., 559 F.2d 1363 (5th Cir.
1977), this first basis of plaintiff’s second contention is not
well taken.
The second basis of the second contention is that the
insurance authorization is undated. This basis is not suffi-
cient for two reasons. The first is that Ford appears to have
proved that any failure by the dealer to date or have dated
the disclosure sheet given defendant was the result of a bona
fide clerical error notwithstanding the maintenance of pro-
cedures reasonably designed to avoid any such error. See
Mirabel v. General Motors Acceptance Corp., 537 F.2d
871 (7th Cir. 1976), and Directions entered October 14,
1977. The second is that the failure to date the insurance
authorization is not a violation if the authorization is in-
cluded in the body of a dated sales contract. Hayslip v.
Dunlap Chevrolet Co., 560 F.2d 192 (Sth Cir. 1977). That
is the case here. Thus, the second basis of plaintiff’s second
contention is not well taken.
Plaintiff’s third contention is that use of the term ‘‘the
Rule of 78’s’’ to describe the method used to rebate un-
earned finance charges is not meaningful. That is contrary
to Roberts v. National School of Radio & Television Broad-
casting, 374 F. Supp. 1266 (N.D. Ga. 1974). Thus, plain-
tiff's third contention is not well taken.
Plaintiff's fourth contention is that defendant is liable for
the inclusion in the cash price of a documents fee of $25.00.
The facts material to this contention are virtually the same
as in Shropshire v. George Thompson Ford, C75-2290A.
For the reasons set forth in the Recommendation dated No-
vember 29, 1977 in Shropshire v. George Thompson Ford,
—46—
supra, that contention is well taken. Attached is a copy of
that Recommendation.
Plaintiff's fifth contention is that defendant failed to iden-
tify the type of security interest taken. But the defendant
has disclosed that there is taken ‘‘a security interest under
the Uniform Commercial Code in the Property (described
above) and in the proceeds thereof to secure the payment
in cash [of the indebtedness].’’ This is sufficient under An-
thony v. Community Loan & Investment Corp., 559 F.2d
1363 (Sth Cir. 1977). Thus, plaintiff’s fifth contention is
not well taken.
As its sixth contention, the plaintiff was allowed to adopt
orally the violation declared in Edmonson v. Allen-Russell
Ford, Inc., C75-940A (Edenfield, J. 1976). That was the
failure to disclose the security interest in unearned or re-
turned premiums for automobile insurance. But since Ed-
monson, there has been a contrary decision. That is Shanks
v. Greenbriar Dodge, C75-1154A (Moye, J. 1977). This
Special Master declines to make a recommendation on plain-
tiffs sixth contention, since it is a matter of some doubt
and is unnecessary to resolve the litigation.
WHEREFORE, it is recommended that plaintiff have
judgment against defendant in the amount of $1,000 as a
civil penalty, together with a reasonable attorney’s fee and
costs. Plaintiff is directed by December 12, 1977 to file an
affidavit of legal services rendered since July 30, 1976. Any
objection should be filed by December 22, 1977. The Clerk
shall then resubmit this case to the Special Master for rec-
ommendation of a reasonable attorney’s fee.
AT ATLANTA, GEORGIA, this 30th day of November,
1977.
/s) EZRA COHEN,
Ezra H. Cohen ©
Bankruptcy Judge
a. on
Order.
United States District Court, Northern District of
Georgia, Atlanta Division.
Solomon Wiggs vs. Ford Motor Credit Company. Civil
Action No. 19428.
Filed: June 29, 1978.
This Truth-in-Lending action, 15 U.S.C. $1601, et seq.
and attendant regulations, is presently before the court on
defendant’s motion for recoasideration of our order of
March 21, 1978. Defendant rightfully complains that due
to a clerical error its duly-filed objections were not for-
warded with the Report and Recommendation of the Special
Master for the court’s review. Defendant’s motion for re-
consideration, as it seeks review of the Special Master’s
Report in light of defendant’s objections, must therefore be
GRANTED.
The Special Master has: (1) identified a Truth-in-Lending
disclosure violation upon the automobile dealer’s unspeci-
fied inciusion of a $25.00 document fee in the cash price,
12 C.F.R. §§226.4(b) and 226.8(c)(4), Meyers v. Clearview
Dodge Sales, Inc., 539 F.2d 511, 517 (Sth Cir. 1976), cert.
denied, 97 S. Ct. 2633 (1977), and (2) recommended an
award of $1,000.00 plus interest representing the maximum
statutory penalty, 15 U.S.C. §1640(a)(1), and $1,350.00,
representing reasonable attorney’s fees and costs. Defendant
objects to the finding of liability for the identified disclosure
violation claiming the limited protection of a ‘‘subsequent
assignee’’ when the violation is not apparent on the face of
the financing document. 15 U.S.C. §1614. Defendant fur-
ther objects to plaintiff's accounting of compensable attor-
ney hours, contending that the proper total is 10.9 rather
than the claimed 13.9. hours expended after July 30, 1976.
oN
The defendant’s attempt to avoid liability by posing as
a subsequent assignee is unavailing in this instance. The
Special Master has found upon the evidence adduced in this
instance and in the related action, Marion Shropshire v.
George Thompson Ford, Inc. and Ford Motor Credit Co.,
C.A. No. 75-2290 (N.D. Ga.) [Recommendation of Special
Master filed Nov. 29, 1977], that the defendant credit com-
pany is not an innocent ‘‘assignee’’ within the protection
of 15 U.S.C. $1614, but is more properly a ‘‘creditor’’
under the Act, id. at §1640. The automobile dealer served
as a mere conduit for the financing arrangement, while the
automobile credit company was the intended creditor in the
loan transaction. Upon this finding, the defendant was prop-
erly held liable for the Truth-in-Lending disclosure violation
of the wrongful inclusion of the $25.00 document fee in the
cash price. Meyers v. Clearview Dodge Sales, Inc., supra;
Cenance v. Bohn Ford, Inc., 430 F. Supp. 1064, 1069
(E.D. La. 1977).
The defendant challenges the plaintiff’s ability to add the
hours of attorney hours expended after July 30, 1976. Al-
though plaintiff claims 13.9 hours of attorney time, the
defendant contends that the total sum itemized is only 10.9
hours. The court notes that the Special Master has recom-
mended compensation for 11 hours of attorney’s fees at the
rate of $50.00 per hour. The defendant’s objection is there-
fore without meaningful effect. The court finds that the total
recommended attorney’s fee award, before and after July
30, 1976, is reasonable within the parameters provided in
this circuit. Johnson v. Georgia Highway Express, Inc.,
488 F.2d 714 (Sth Cir. 1974); Wolf v. Frank, 555 F.2d 1213
(Sth Cir. 1977) and cases cited therein. See also, ABA Code
of Professional Responsibility D.R. 2-106B.
Accordingly, the court has GRANTED defendant’s mo-
tion for reconsideration of our March 21, 1978, order in
a
light of defendant’s objections to the Special Master’s Re-
port and Recommendation. Upon reconsideration, the court
once more ADOPTS the Recommendations of the Special
Master and ORDERS judgment to be entered for the plaintiff
in the amount of $1,000.00 plus interest as the statutory
penalty and of $1,350.00 as attorney’s fees and costs.
IT IS SO ORDERED.
This, the 28 day of June, 1978.
/s) RICHARD C. FREEMAN,
Richard C. Freeman
United States District Judge
—
Judgment.
United States District Court for the Northern District of
Georgia — Atlanta Division.
Solomon Wiggs vs. Ford Motor Credit Corporation. Civil
Action File No. C.A. 19428.
Filed: July 20, 1978.
This action came on for consideration before the Court,
Honorable Richard C. Freeman, United States District
Judge, presiding, and the issues having been duly considered
and a decision having been duly rendered,
It is Ordered and Adjudged that the plaintiff SOLOMON
WIGGS recover of the defendant FORD MOTOR CREDIT
CORPORATION the sum of ONE THOUSAND & NO/100
dollars ($1,000.00) civil penalty, plus ONE THOUSAND
THREE HUNDRED FIFTY & NO/100 dollars ($1,350.00)
as attorney’s fees with interest thereon as provided by law
and his costs of action.
Dated at Atlanta, Georgia, this 20th day of July, 1978.
BEN H. CARTER
Clerk of Court
By /s/_ Mary J. Watson
Deputy Clerk
FILED & ENTERED IN CLERK’S OFFICE
THIS 20TH DAY OF JULY, 1978
BEN H. CARTER, CLERK
By /s/_ Mary J. Watson
Deputy Clerk
ae: oe
United States Magistrate’s
Report and Recommendation.
In the United States District Court for the Northern Dis-
trict of Georgia, Atlanta Division.
Jimmy W. Farrell, Plaintiff, vs. Frank Jackson Motors,
Inc., d/b/a Jackson AMC-Jeep, Defendant. Civil Action No.
77-1194.
Filed: June 27, 1978.
This action is now before the Court on motion for sum-
mary judgment submitted by both the plaintiff and defendant
concerning plaintiff's complaint brought pursuant to the
Federal Truth-in-Lending Act, 15 U.S.C. §1601, et seq.
Plaintiff alleges that defendant has violated the Act in several
particulars, while defendant has filed a brief in opposition
to plaintiff’s motion.
TRUTH-IN-LENDING VIOLATIONS.
The most apparent of the alleged Truth-in-Lending vio-
lations deals with the status of Ford Motor Credit Corpo-
ration (hereinafter referred to as FMCC), in the underlying
installment credit sales transaction. It is plaintiff’s position
that FMCC is a creditor within the meaning of Regulation
Z, whose identity and location should have been disclosed
prior to the consummation of the contract. Regulation Z 12
C.F.R. §226.2(s); §226.6(d); Wellmaker v. W. T. Grant
Co., 365 F.Supp. 531 (N.D. Ga. 1972). A line of cases has
labeled this argument as the ‘‘conduit theory’’ whereby a
financial institution, such as FMCC, has been held to be
a co-creditor when the dealer acts simply as a conduit for
placing a finance company’s contracts with consumers and
then regularly assigns the executed contracts to the financial
institution. Meyers v. Clearview Dodge Sales, Inc., 384
F.Supp. 722 (N.D. Ga. 1974), aff'd 539 F.2d 511 (Sth Cir.
1976); Philbeck v. Timmers Chevrolet, Inc., 361 F.Supp.
=)
1255 (N.D. Ga. 1973), rev’d on other grounds, 499 F.2d
971 (Sth Cir. 1974). Additional evidence indicating the exis-
tence of a credit extender-arranger relationship includes: the
use by the dealer-arranger of the extender’s financial loan
papers; the arrangement of an assignment of the commercial
paper to the extender prior to or contemporaneously with
the final execution of the contract between the consumer
and the arranger of credit; and the fact that the dealer does
not ordinarily finance credit sales itself, but through its
regular course of business submits financial applications to
institutional creditors with whom it regularly deals for ap-
proval of the consumer’s credit. Where an ongoing business
relationship exists between the parties, Regulation Z, 12
C.F.R. §226.8(a) and case law requires that both the ar-
ranger and extender be disclosed as creditors. In cases of
multiple creditors both parties shall be held liable for any
violation of the Truth-in-Lending Act and accompanying
regulations. Meyers, supra.
Defendant’s admissions in the instant case conclusively
establish FMCC as an extender of credit. In spite of de-
fendant’s assertion that a genuine issue of material fact exists
concerning the dealership’s customary practice of obtaining
credit approval from a financial institution prior to the com-
pletion of a credit contract, there is ample evidence docu-
menting the factors Meyers supra, and Philbeck, supra,
have determined to indicate the presence of multiple cred-
itors. Frank Jackson Motors, Inc. has stated it does not
ordinarily finance credit sales itself; rather it submits a fi-
nancial statement of a potential buyer to a financial insti-
tution with whom it regularly deals for approval. Further-
more, defendant used forms and manuals issued by FMCC
in preparing the loan papers. More importantly, in this par-
ticular transaction, defendant received notification from
FMCC prior to the completion of the automobile sale, that
ae em
FMCC had approved plaintiff’s credit application and would
accept the assignment of any commercial paper executed
by defendant and plaintiff. The admissions submitted by
defendant reveal obvious parallels with Meyers, supra.
Therefore, as in Meyers, supra, defendant-Frank Jackson
Motors, Inc. should be found to have violated the Truth-in-
Lending Act by its failure to adequately disclose all the
creditors involved in the credit transaction.
Plaintiff has asserted other instances where defendant
should be found to have failed to comply with the Act and
Regulation Z. However, since there may be only one re-
covery per single consumer sale, regardless of the number
of violations present in that transaction, 15 U.S.C. §1640(g);
Turner v. Firestone Tire & Rubber Co., 537 F.2d 1296
(Sth Cir. 1976),' and the failure to disclose FMCC, the
extender of credit, as the creditor, is a clear violation of the
requirements of the Act, there is no need to proceed with
the discussion of the issues presented by plaintiff at this
time.
CONCLUSION.
For the reasons stated above the plaintiff should have
judgment on the Truth-in-Lending violation. Plaintiff is thus
entitled to recover the statutory penalty of twice the finance
charge, in this case the maximum, of $1,000. Additionally,
the plaintiff is entitied to costs and reasonable attorney fees.
In the event that this Report and Recommendation is adopted
as the opinion and order of the District Court, the attorney
for the plaintiff is directed to file with this Magistrate within
ten (10) days of the receipt of the order of the District Court
his claim and affidavit of attorney fees. The defendant shall
'The sole exception: allowing multiple recovery where there is the
continuing failure to disclose after recovery has been granted, is not
applicable to the present transaction.
—
be allowed ten (10) days from the receipt of the claim in
which to object.
SO REPORTED AND RECOMMENDED this 26th day
of June, 1978.
/s) JOHN E. DOUGHERTY,
John E. Dougherty
United States Magistrate
a
Order.
In the United States District Court for the Northern Dis-
trict of Georgia, Atlanta Division.
Jimmy W. Farrell, Plaintiff, vs. Frank Jackson Motors,
Inc. d/b/a Jackson AMC-Jeep, Defendant. Civil Action No.
77-1194.
Filed: June 27, 1978.
Let a copy of this Report and Recommendation be served
upon counsel for the parties. Counsel for the parties will
be allowed ten days from the receipt of this Report and
Recommendation to file objections thereto. If no objections
are made, this Report and Recommendation will be adopted
as a record of the proceedings and may become the opinion
and Order of the Court.
The Clerk is directed to submit the Report and Recom-
mendation with objections, if any, on July 7, 1978.
SO ORDERED this 26th day of June, 1978.
/s)_ JOHN E. DOUGHERTY,
John E. Dougherty
United States Magistrate
wht
a
Order.
In the United States District Court for the Northern Dis-
trict of Georgia, Atlanta Division.
Jimmy W. Farrell vs. Frank Jackson Motors, Inc.,
d/b/a Jackson AMC-Jeep. Civil No. C77-1194A.
Filed: Nov. 30, 1978.
This truth-in-lending action is before the court on the
report and recommendation of the magistrate as to attorney’s
fees. The magistrate determined from attorney for plaintiff’s
affidavit and from the nature of the suit in question that
approximately 9.6 hours were reasonably spent. The mag-
istrate furthermore recommended that plaintiff be compen-
sated at the rate of $50.00 per hour for a total of $480.00.
Plaintiff objects to the recommendation, stating that he
should be awarded the full 11.2 hours claimed and should
be compensated at the enhanced rate of $66.67 per hour.
Cf. Wolf v. Frank, 555 F.2d 1213 (Sth Cir. 1977). The rule
of this court has been to award $50.00 per hour for attorney’s
fees in truth-in-lending cases. See Slatter v. Aetna Finance
Co., No. 18279 (N.D. Ga. Oct. 25, 1978); Stewart v. At-
lanta Hypnosis Institute, Inc., No. C78-654A (N.D. Ga.
Oct. 10, 1978). There is no indication that any unusual
circumstances exist in this case to warrant extraordinary
compensation. Accordingly, the court finds the magistrate’s
determinations as to both time reasonably spent and hourly
rate to be well justified and hereby adopts said report and
a, See
recommendation as the opinion of the court. The clerk is
directed to enter judgment for plaintiff in the sum of
$1,000.00, plus costs and attorney’s fees in the sum of
$480.00.
IT IS SO ORDERED this 29th day of November, 1978.
/s/) WILLIAM C. O’KELLEY,
William C. O’Kelley
United States District Judge
_— an
Judgment.
United States District Court for the Northern District of
Georgia, Atlanta Division.
Jimmy W. Farrell vs. Frank Jackson Motors Inc.
d/b/a Jackson AMC-Jeep. Civil Action File No. C77-
1194A.
Filed: Nov. 30, 1978.
This action came on for consideration before the Court,
Honorable William C. O’Kelley, United States District
Judge, presiding, and the issues having been duly considered
and a decision having been duly rendered, adopting report
& recommendation of Magistrate, granting plaintiff's mo-
tion for Summary Judgment.
It is Ordered and Adjudged that the defendant, FRANK
JACKSON MOTORS INC. d/b/a JACKSON AMC-JEEP
take nothing, that the action be dismissed and the plaintiff,
JIMMY W. FARRELL recover of the defendant ONE-
THOUSAND & 00/100 dollars ($1,000.00) statutory dam-
ages and FOUR-HUNDRED EIGHTY & 00/100 ($480.00)
attorney’s fees and costs of action.
Dated at Atlanta, Georgia, the 30th day of November,
1978.
Ben H. Carter
Clerk of County
BY /s/ Claudia Phillips
Deputy Clerk
FILED & ENTERED IN CLERK’S OFFICE
THIS 30th DAY OF NOVEMBER, 1978
BEN H. CARTER, CLERK
BY /s/ Claudia Phillips
Deputy Clerk
= Te
Magistrate’s Report
and Recommendation.
In the United States District Court for the Northern Dis-
trict of Georgia, Atlanta Division.
Nicholas Strzelecki, Plaintiff, vs. Terry Ford Company
and Ford Motor Credit Company, Defendants. Civil Action
No. C76-1624A.
Filed: June 26, 1978.
This case, brought under the Consumer Credit Protection
Act (15 U.S.C. § 1601, et seq.), is before the Magistrate
on cross motions for summary judgment on the Truth-in-
Lending issues. The defendant has filed a plea of set-off
and recoupment, but no additional pleadings in support of
that contention have been received, and it is not dealt with
herein.
The plaintiff purchased a 1976 Ford Pinto from the de-
fendant, Terry Ford. The dealer, at the time of the trans-
action, did not finance its own sales and in this transaction
obtained credit information from the plaintiff and submitted
the application to Defendant Ford Motor Credit Co. for
approval prior to consummating the sale. The dealer says
that if Ford Motor Credit Co. had not approved the credit
the sale and financing would not have gone through. Con-
temporaneous with the execution of the loan documents
which purported to show Terry Ford as the creditor, the
paper was assigned to Ford Motor Credit. The fact of the
assignment appears on the disclosure sheet but is not clearly
and conspicuously shown, nor is the address of Ford Motor
Credit Company shown.
The plaintiff cites a number of alleged violations of the
Truth-in-Lending Act, but the Magistrate feels that it is
necessary to treat only two of them. First, it is said that the
defendants violated the Act by failing to disclose the identity
—_60—
of Ford Motor Credit as a creditor. Secondly, the plaintiff
shows that the individual components of a charge entitled
‘*License, Title and Registration Fees’’ were not broken out
and individually itemized but instead a lump sum was
shown. The plaintiff says that these amounts must be in-
dividually itemized to be excludable from the finance
charge.
The Magistrate is of the opinion that the plaintiff is correct
in the two contentions just enumerated. The rule of the
Circuit established by Meyers v. Clearview Dodge, 539 F.
2d 511 (Sth Cir. 1976), declares that both Terry Ford and
Ford Motor Credit were creditors within the meaning of the
Act. Both had an obligation, therefore, to disclose the exis-
tence of Ford Motor Credit as a creditor and to disclose it
adequately. The passing reference in the assignment set
down in the lower left hand portion of the contract is in-
adequate to meet this requirement of the Act. Copeland v.
Harry White Ford, C75-541A (N.D.Ga. 1978); Whitehead
v. Harry White Ford, C75-695A (N.D.Ga. 1978) (Rec-
ommendations of the Magistrate adopted by Henderson, J.,
and Freeman, J.). See also the Magistrate’s recent Report
and Recommendation in the case of Clark v. Ford Motor
Credit, C77-761A (June 13, 1978).
As noted above, the defendant disclosed a lump sum
figure of $10.50 as a charge for the cost of obtaining the
license, title and other registration fees. In fact, the dealer
incurred separate costs for paying a county tax, obtaining
the temporary tag, and having the vehicle inspected. The
individual amounts (which in this case exceed the $10.50
lump sum charge were not individually itemized. Generally
the defendants take the position that the law requires an
itemization only of this “‘type’’ of charge, and, indeed, this
is a reasonable inference drawn from a reading of 12 C.F.R.
226.4(b)(4). It is said, however, that that section must be
ae {en
read together with 12 C.F.R. 226.8(c)(4) and that that re-
quires that each component of the lump sum charge be set
out. While the contention of the defendants is reasonable,
it is contrary to the established law of this District and this
Circuit. See Meyers v. Clearview Dodge, 539 F. 2d 511
(Sth Cir. 1976), cert. denied sub nom, Meyers v. Chrysler
Credit Corp., 431 U.S. 929 (1977); Grant v. Imperial Mo-
tors, 539 F.2d 506 (Sth Cir. 1976); Downey v. Whaley-
Lamb Ford Sales, C75-160A (N.D.Ga. 1977) (Edenfield,
J.); Scott v. Stanley Motors, C76-1512A (N.D.Ga. 1978)
(Edenfield, J.). The failure to show the component parts,
therefore, is seen as a violation, and the plaintiff’s motion
for summary judgment on this point ought to be granted.
As liability may be predicated upon a single violation,
the plaintiff's other contentions will not be dealt with here.
IS U.S.C. § 1640(g); Mourning v. Family Publications
Service, 411 U.S. 356, 376 n. 41: McGowan v. King, Inc.,
569 F. 2d 845 (Sth Cir. 1978).
CONCLUSION.
For the reasons given, the plaintiff ought to have a judg-
ment for the statutory penalty which in this case would be
$1,000.00 plus costs and reasonable attorney’s fees. The
attorney for the plaintiff is Directed to file a claim for rea-
sonable attorney’s fees with supporting itemization and af-
fidavit within ten (10) days of the receipt of any Order by
the District Court favorable to the plaintiff on the Truth-in-
Lending issues.
As noted earlier, a set-off and recoupment claim was filed
in the defendant’s answer. No motion for summary judg-
ment on this issue was received within the time allowed by
the Order of the Magistrate. If no motion for summary
judgment on this issue is filed within 30 days of the date
iio
of this Order the Magistrate will recommend that the plea
be dismissed.
SO REPORTED AND RECOMMENDED this 23rd day
of June, 1978.
/s/) J. OWEN FORRESTER,
J. Owen Forrester
United States Magistrate
pee e
Order.
In the United States District Court for the Northern Dis-
trict of Georgia, Atlanta Division.
Nicholas Strezelecki vs. Terry Ford Company and Ford
Motor Credit Company. Civil No. C76-1624A.
Filed: Sept. 7, 1978.
This action, brought pursuant to the Consumer Credit
Protection Act, 15 U.S.C. § 1601 ef seq., is befove the
court on the report and recommendation of the magistrate.
The magistrate found that defendants had violated the Truth
in Lending Act by (1) failing to properly and completely
identify Ford Motor Credit Co. as a credtior and (2) failing
to itemize separately the charges for license, title, and
registration fees.
Defendants cite authority from a variety of jurisdictions
standing for the proposition that the disclosure of Ford Motor
Credit Co. as an ‘‘assignee’’ instead of a ‘‘creditor’’ would
satisfy the act. Each case relied on by defendants arose in
another circuit, and, furthermore, defendants cite only dis-
trict court opinions as authority. Although other district
courts have a right to disagree, it is the law of this district,
and indeed of this circuit, that both the arranger of credit
and the extender of credit must be adequately disclosed as
creditors. Meyers v. Clearview Dodge Sales, Inc., 539 F.2d
S11 (Sth Cir. 1976); Whitehead v. Harry White Ford, Civ.
No. C75-695A (N.D. Ga. Mar. 21, 1978); Copeland vy.
Harry White Ford, Civ. No. C75-541A (N.D. Ga. Feb. 2,
1978). Accordingly, defendants’ first objection is without
merit.
As to the second objection, defendants’ contentions are
clearly without basis. The Fifth Circuit has stated its position
that charges such as license, title, and registration fees
should be itemized. Meyers v. Clearview Dodge Sales, Inc.,
a an
supra. Although the court agrees with defendants and the
magistrate that 12 C.F.R. 226.4(b)(4) and 12 C.F.R.
226.8(c)(4) seem to demand only itemization of this *‘type”’
of charge, the Fifth Circuit’s language is clear that ‘*Section
226.4(b)(4) clearly requires the itemization and separate
disclosure of the charge for ‘tag, title and fees.’ ’’
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