APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 79-1775)
Before Aldisert, Hunter and Higginbotham, Circuit Judges.
This case leads us once again to analyze the disclosure requirements of the Truth-in-Lending Act, 15 U.S.C. §§ 1601 et seq. (the Act), and the Federal Reserve Board's Regulations, 12 C.F.R. §§ 226.1 et seq. (Regulation Z). The district court held that in the original car leasing agreement the defendant had met the disclosure requirements of the Act; and that, alternatively, even if the defendant had breached those disclosure requirements, it was not liable because it had proven two affirmative defenses under Sections 1640(b) and (c), either of which relieved the creditor from liability. Because we find that the defendant did not satisfy the disclosure requirements and did not sustain its burden of proof on the affirmative defenses, we will reverse.
The major problem in this case is that when he signed his first agreement with defendant, the plaintiff, Albert Thomka, was not given a form which had the information required by the Act; and that, when he was given a proper form a week later, he was not advised that the first agreement failed to comply fully with the disclosure requirements of the Act. The facts are as follows.
On November 4, 1977 Albert Thomka entered into a two-year agreement with A.Z. Chevrolet (AZ) for the lease of an automobile. The arrangements for the lease were made through Albert's brother, Gary Thomka, who was employed as a salesman for AZ. This was the first time Gary Thomka had handled a leasing agreement, so Gerry Lion, another AZ employee, performed the actual paperwork for the transaction. Unfortunately, Lion was also unfamiliar with the procedures for arranging the financing of lease agreements because he was primarily responsible for the financing of purchasing agreements. He filled out and had Albert Thomka sign a "Non-Maintenance Lease Agreement." He failed, however, to include the number of months of payments in the appropriate box on the form, or the date of the second payment; to have Albert initial the insurance section; and, most importantly, to show to or have Albert sign a separate form, entitled an "Open-End Vehicle Lease Disclosure Statement."
The completed Non-Maintenance Lease Agreement was subsequently forwarded to General Motors for its approval of the financing. General Motors notified AZ that the form did not meet its requirements for financing because the lessee had failed to initial the insurance section, and the due date of the second payment was omitted. At some point and by some method not apparent from the record, officials of AZ also learned that Albert Thomka had not signed a disclosure statement with his lease agreement. Lion telephoned Albert Thomka and informed him that an error had been made in the lease he had signed and that his brother would deliver to him a new lease. App. at 41a, 69a, 72a. Lion stated there was no difference between the two documents or their requirements. Id. At trial, Lion testified that he also "had to" have explained that another form had not been signed, though he could not remember the conversation. App. at 72a. He never claimed to have told Albert Thomka anything else about the disclosure form, such as that it was needed to remedy a prior failure to make disclosures in the original agreement. App. at 72a, 85a. Albert Thomka testified that Lion never told him anything about the disclosure form. App. at 41a.
On November 11, one week after the original agreement was signed, Gary Thomka delivered to his brother a second Non-Maintenance Lease Agreement, which was identical to the first except that the number 24 had been inserted in the previously blank space indicating the number of months of lease payments, and the date of the second payment was added. Gary also delivered for the first time an Open-End Vehicle Lease Disclosure Statement, which Albert Thomka also signed. There was no evidence that Gary was instructed to inform his brother or did inform him that the original agreement failed to conform with the disclosure requirements and that the disclosure statement was intended to remedy this failure.
After some difficulties with maintenance of the vehicle, Albert Thomka sued AZ for damages under the Act. The district court held that the requirements of Section 1667 and its enforcing regulation, Regulation Z, had been complied with "for the most part" in the original agreement, and even if they were not, AZ met the statutory defenses of Sections 1640(b) and (c). 469 F. Supp. 580 (W.D.Pa.1979). This appeal followed.
The Truth-in-Lending Act was passed primarily to aid the unsophisticated consumer so that he would not be easily misled as to the total costs of financing. For when doing business as usual the figures on conditions randomly placed on the traditional form would reveal to the average business-man the true cost of the transaction, but for the inexperienced or uninformed there was the possibility of deception, misinformation, or at least an obliviousness to the true costs which some day they would have to pay. Thus, the Act seeks "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various terms available to him and avoid the uninformed use of credit." 15 U.S.C. § 1601. See generally Mourning v. Family Publications Service, Inc., 411 U.S. 356, 363-69, 93 S. Ct. 1652, 1657-61, 36 L. Ed. 2d 318 (1973). The Act mandates that certain disclosures must be made and how they should be made in finance agreements. Enforcement is achieved in part by a system of strict liability in favor of consumers who have secured financing when this standard is not met. 15 U.S.C. § 1640(a). In 1976, the Act was expanded to cover consumer leases like the one involved in this case. 15 U.S.C. § 1667. Under the statute the Federal Reserve Board is given the authority to promulgate regulations to carry out these provisions. 15 U.S.C. § 1604. Pursuant to this authority the Board has issued several regulations collectively referred to as Regulation Z.
Both the statute and Regulation Z mandate the disclosure of specified information prior to the consummation of the lease agreement. 15 U.S.C. § 1667a; 12 C.F.R. § 226.15(a). The disclosures can be included within the lease agreement itself or on a separate document. 15 U.S.C. § 1667a; 12 C.F.R. § 226.15(a). If the disclosures are made in the leasing agreement itself, they must be made "on the same page and above the place for the lessee's signature." 12 C.F.R. § 226.15(a)(1).
However, Section 1640 of the Act allows a creditor two means for avoiding liability under the Act even though the original agreement does ...