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JOHNSON v. MCCRACKIN-STURMAN FORD

May 23, 1974

William JOHNSON and Joan Johnson, his wife, Plaintiffs,
v.
McCRACKIN-STURMAN FORD, INC., and Ford Motor Credit Company, Defendants


Willson, Senior District Judge.


The opinion of the court was delivered by: WILLSON

WILLSON, Senior District Judge.

 This action was begun by William and Joan Johnson to recover statutory damages from McCrackin-Sturman Ford and Ford Motor Credit Company for allegedly inadequate credit disclosures in violation of the Truth-In-Lending Act, 15 U.S.C. § 1601 et seq., and Federal Reserve Regulation Z, 12 C.F.R. 226, made in the course of financing the automobile which the plaintiffs purchased from defendant McCrackin-Sturman and which financing was later assigned to defendant, Ford Motor Credit. Jurisdiction is conferred by 15 U.S.C. § 1640(e). Answers have been filed. Thereafter, pursuant to Rule 56, all parties have moved for partial summary judgment with respect to paragraphs 7(a) and 7(b) of the Amended Complaint claiming no genuine issue as to any material fact regarding these allegations and all parties believe they are entitled to judgment in their favor as a matter of law.

 Under the heading "20. Default." in the retail installment contract, in addition to granting the seller the right to repossess and making the buyer liable for attorney's and collection fees in the event of default, the following acceleration clause is included:

 
"In the event Buyer defaults in any payment, or fails to obtain or maintain the insurance required hereunder, or fails to comply with any other provision hereof, or a proceeding in bankruptcy, receivership or insolvency shall be instituted by or against Buyer or his property, or Seller deems the Property in danger of misuse or confiscation, Seller shall have the right to declare all amounts due or to become due hereunder to be immediately due and payable . . . ."

 The presence of this acceleration clause was not indicated anywhere in the disclosure statement given to the plaintiffs. An inspection shows its absence.

 Section 128(a)(9) of the Act, 15 U.S.C. § 1638(a)(9), requires that, in connection with each consumer credit sale not under an open end credit plan, the creditor must disclose "The default, delinquency, or similar charges payable in the event of late payments." Pursuant to the mandate of 15 U.S.C. § 1604, the Federal Reserve Board promulgated § 226.8(b)(4) of Regulation Z, which sets forth the same disclosure requirement:

 
"(b) In any transaction subject to this section, the following items, as applicable, shall be disclosed: (4) The amount, or method of computing the amount, of any default, delinquency, or similar charges payable in the event of late payments."

 The only case dealing directly with the question of whether an acceleration clause is the type of disclosure required by the Act is Garza v. Chicago Health Clubs, Inc., 347 F. Supp. 955 (N.D.Ill. 1972), in which the court held that an acceleration clause is a default charge within the meaning of the Truth-In-Lending Act and therefore must be disclosed. After noting that the word charge was nowhere defined in the Act or regulations, the Court accorded the word its usual meaning of "an obligation" or "claim" and went on to hold that:

 
"Considering these definitions and the purpose of the statute and regulation to inform consumers of credit costs and terms so they can effectively choose between sources of credit (TIL § 102, 15 U.S.C. § 1601), it seems clear that the acceleration of the balance of the debt should be considered a 'charge' . . . ." Id. at 959.

 The defendants in the instant case contend that there is a significant difference between the acceleration clause found in Garza, in which the remaining balance became due and owing without demand or notice upon default, and here, where the remaining balance became due and owing at the election of the seller.

 In support of their position, the defendants point to letters of members of the Federal Reserve Board which declare that, unless automatically imposed, attorney's or collection agency fees need not be included in the disclosure statement in order to comply with Section 226.8(b)(4) of Regulation Z, for they are conditional upon the employment of such personnel to effectuate satisfaction of the debt. See Federal Reserve letter dated April 10, 1972, Griffith L. Garwood, 4 CCH Consumer Credit Guide, para. 30,834, and Federal Reserve letter dated June 23, 1969, Milton W. Schober, 4 CCH Consumer Credit Guide, para. 30,404.

 A distinction must be made between that type of charge, which is conditional in that it hinges on employment of an outside source to effectuate collection, and the type of charge herein involved, which is conditional only in the respect that it comes into operation at the election of the seller. In the former case, the charge is undeterminable and contingent, while in the latter, although ...


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