Misher v. Household Finance Consumer Discount Co.

MEMORANDUM LOUIS H. POLLAK, District Judge. This motion for judgment on the pleadings comes in an action arising out of a loan made by defendant, Household Finance Consumer Discount Company, to plaintiff, Juanita Misher. Plaintiff alleges that defendant violated the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601 et seq., and Regulation Z, 12 C.F.R. § 226 (1981).1 The motion raises two issues involving disputed questions of fact not properly the subject of judgment on the pleadings.2 [728] The remaining issue raised by the motion — and the only issue properly addressed at this point in the proceedings — is whether defendant’s loan agreement form (“the form”), appended to this Memorandum, contains per se violations of TILA and Regulation Z. Plaintiff argues that the form violates TILA and Regulation Z because it fails to disclose properly the total of payments and the finance charge, and does not make its disclosures in meaningful sequence. Plaintiff first complains that the use of the term “total of payments” violates TILA because it does not indicate that the total amount is payable in 36 months. Regulation Z clarifies the disclosure required with regard to payments: (3) The number, amount, and due dates or periods of payments scheduled to repay the indebtedness and, except in the case of a loan secured by a first lien or equivalent security interest on a dwelling made to finance the purchase of that dwelling and except in the case of a sale of a dwelling, the sum of such payments using the term, “total of payments.” Regulation Z, 12 C.F.R. § 226.8(b)(3). This provision has been strictly construed by courts encountering it. In Smith v. No. 2 Galesburg Crown Finance Corp., 615 F.2d 407 (1980), the Seventh Circuit mandated “strict adherence to the required terminology under the statute and regulations,” refusing to “countenance deviations from those requirements, however minor they may be in some abstract sense.” Id. at 417. The court found a violation of Regulation Z in “the use of the term ‘AMOUNT OF NOTE INCL. CHGS. (TOTAL PAYMENTS)’ instead of the required term ‘total of payments.’ ” Id. The court concluded that “the method of disclosure used (here) was improper, and that the figures should simply have been disclosed as ... ‘total of payments’ ...” Id.3 The description suggested by plaintiff — incorporating into the disclosure of the “total of payments” an indication that the total amount is payable in 36 monthly payments — would fail to meet the Smith requirements of standardized terminology and would violate Regulation Z. The information sought by plaintiff — that the total amount is payable in 36 monthly payments — now appears directly below the “total of payments.” Defendant has disclosed in the simple terminology prescribed by section 226.8(b)(3) the sum, number and amount of the payments as well as the due dates or periods of the payments. Plaintiff proposes no design in compliance with section 226.8(b)(3) that is any clearer.4 Plaintiff’s next specific complaint is that the definition of “finance charge,” set forth in the section called “payment,” is improperly located outside the bar grid section and so violates § 226.8(d)(3). Section 226.8(d)(3), however, prescribes not the location but the substance of the “finance charge” description. It requires disclosure of “the total amount of the finance charge, using the term ‘finance charge,’ and where the total charge consists of two or more types of charges, a description of the amount of each type.” Regulation Z, 12 C.F.R. § 226.8(d)(3) (footnote deleted). The language of Regulation Z thus does not support plaintiff’s claim that disclosure of the finance charge must appear in any particular place on the form. The Eleventh Circuit discussed disclosure of the finance charge in Besaw v. General Finance Corporation of Georgia, 693 F.2d 1032 (1982). In that case, the finance charge consisted of three separate components, the “interest charge,” the “prepaid finance charge” and the “maintenance charge.” The form described the composition of the finance charge at a point three or four inches below the bar grid. While the first two components appeared in the [729] second of three rows on a bar grid, the maintenance charge appeared in the third row, next to the finance charge. The court held that the component charges, though “arithmetically related to each other,” were “mixed with items which [were] irrelevant to a progression of arithmetical computation or thought.” 693 F.2d at 1036. The components of the finance charge were not “presented in an order which [would] assist the customer in understanding their relationship.” 693 F.2d at 1036. The form in Besaw was, in this respect, more confusing than the one used by Household. Were the average consumer to examine the form used in Besaw, there would be nothing to draw attention to the bottom row, to suggest that the “maintenance charge” is part of the finance charge. Household’s form, on the other hand, places both components of the finance charge next to one another on the second row. Although Household’s “finance charge” appears in the bottom row, its relationship to the two components is clear.5 When the average customer reads, “[t]he Finance Charge is the total of Interest plus Service Charge,” those components and their relationship are readily discernible.6 Plaintiff’s final complaint is that defendant violated Regulation Z by failing to make its disclosures on the bar grid in meaningful sequence as required by Regulation Z: Disclosures; general rule. The disclosures required to be given by this part shall be made clearly, conspicuously, in meaningful sequence, in accordance with the further requirements of this section, and at the time and in the terminology prescribed in applicable sections. Regulation Z, 12 C.F.R. § 226.6(a). The Seventh Circuit explored the requirement of meaningful sequence in Allen v. Beneficial Finance Co. of Gary, Inc., 531 F.2d 797 (1976). That court turned to Federal Reserve Board Interpretation # 780 (April 10, 1974) for some clarification of “meaningful sequence”: The words “in meaningful sequence” in § 226.6(a) relate to a presentation of required disclosures in a logical order with respect to those items which have an arithmetical relationship to each other. For example, many of the items called for in § 226.8(b), (c) and (d) are arithmetical and follow each other in logical progression. The remaining items are informative and have no particular interdependence. A meaningful sequence would call for those items which are arithmetically related to appear within a reasonable proximity to each other, not mixed with items which are irrelevant to a progression of arithmetical computations or thought. We realize that it is not always practical to list the items in vertical order, but in keeping with the purpose of the Truth in Lending Act, they should be placed in reasonable proximity to each other so that the customer will not be required to search for any arithmetical items which should logically follow a previous one. 531 F.2d at 801, quoting 4 CCH Consumer Credit Guide ¶ 31,102. Plaintiff complains that various disclosures located on the bar grid of the form are not grouped together in meaningful sequence.7 Plaintiff bases her allegations on [730] the Board’s direction that “meaningful sequence would call for those items which are arithmetically related to appear within a reasonable proximity to each other, not mixed with items which are irrelevant to a progression of arithmetic computations or thought.” Allen, 531 F.2d at 801. Plaintiff fails to recognize, however, that the form contains many progressions of arithmetic computations. One item on the bar grid may relate arithmetically to several figures and be part of several separate progressions. For example, in order to disclose clearly the components of “total of payments” — “interest,” “service charge” and “amount financed” — Household must place the “total of payments” figure next to those components, although they are wholly unrelated to a different progression reflecting the method of payment — “payments,” “total amount payable in 36 monthly payments” and “total of payments.” The fact that “interest” is irrelevant to the latter progression does not mean that Household has “mixed” the “total of payments” figure with “items which are irrelevant to a progression of arithmetical computations or thought.” In short, Household has not placed items on the bar grid which “have no particular interdependence” with items surrounding them. As a lending agency like Household designs a loan agreement form, it must make its disclosures in accordance with the goals of the TILA: “Although the requirements of meaningful sequence mandate no one arrangement and can be fulfilled in many ways, whatever form is chosen must always reflect the dominant purposes of the Truth in Lending Act.” Allen, 531 F.2d at 802. The purpose of the TILA is “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit....” 15 U.S.C. § 1601(a). For purposes of comparison, the disclosures most important to the consumer include the “finance charge,” the “annual percentage rate” and the “total of payments.” Household has presented these items in a way that complies with Regulation Z, promotes clarity of disclosure, and, most importantly, allows the consumer to compare the loan with others available to him. Moreover, it is unclear that a superior arrangement of the information exists. Household’s form promotes the goals of TILA and Regulation Z as it makes clear the terms of the loan and affords the consumer the opportunity to use credit in a knowing and responsible way. For these reasons, in the accompanying Order, plaintiff’s motion for judgment on the pleadings is denied. [731] [[Image here]] Footnotes [1] Pursuant to the Truth in Lending Simplification and Reform Act, 15 U.S.C. § 1604, the Federal Reserve Board prescribed a revision of Regulation Z effective October 1, 1981. Compliance with the revised regulation was optional until October 1, 1982, at which time the original Regulation Z, including appendices, interpretations, official interpretations and supplements, was repealed. Because the original Regulation Z was in effect at the time Household issued the disputed loan agreement form to Ms. Misher, it was the original regulation, as described in the text, with which Household was required to comply. [2] Plaintiff must await trial or summary judgment for determination of whether defendant failed to make required disclosures prior to consummation of the transaction, in that plaintiff allegedly executed the documents in blank and did not receive a copy of the loan agreement form until sometime after February 2, 1982. Although plaintiff argues that her allegations regarding the date on which she received the document have not been denied by defendant, defendant’s general denial of any failure to comply with Regulation Z is sufficient in federal practice to withstand a motion for judgment on the pleadings. Plaintiff’s general allegation is deemed responded to by defendant’s general denial. [3] See also McGowan v. King Inc., 569 F.2d 845, 848 (5th Cir.1978) (the failure to use required terminology results in a violation of TILA). [4] The form’s clarity weakens substantially plaintiffs argument that the average unsophisticated consumer would not know that the “total amount” is payable in 36 monthly payments. [5] The problem of non-standard terminology addressed in Smith arises here as well. Were defendant to adopt the sort of description suggested by plaintiff, defendant would run afoul of the requirement of standard terminology. 615 F.2d at 417. [6] Upon a thorough reading, the form is quite clear. The consumer is, after all, presented with a form and expected to read it in its entirety. See Household Consumer Discount Company v. Payne, 62 Ohio App.2d 181, 405 N.E.2d 729 (1978). [7] Plaintiff’s allegations are as follows: a. “Number of payments,” “amount of payments” and “total of payments” should be but are not in reasonable and logical order. b. “Finance charge,” “service charge” and “interest” should be but are not grouped together in meaningful sequence. c. Because “total of payments” is the sum of “amount financed” and “finance charge,” the three should appear together. d. The “amount financed” is confusing because it appears both on the bar grid and in the lower third of the form, and only in the lower [730] part of the form is it explained that the amount financed is comprised of the balance of the previous loan (“loan proceeds”) and “official fees.”