The opinion of the court was delivered by: LORD, III
Plaintiffs and defendant have filed cross-motions for summary judgment in this Truth in Lending Act
(TILA) case. On June 19, 1979, the plaintiffs and defendant signed a Note, Security Agreement and Disclosure Statement (Disclosure Statement) refinancing an earlier loan made to plaintiffs by defendant. Attachment to Defendant's Answer.
Plaintiffs argue that defendant violated the TILA in three ways. First, they argue that the description of the security interest taken in after-acquired property is inaccurate and misleading. Second, plaintiffs claim that defendant improperly calculated the refund due to plaintiffs of interest prepaid on the original loan resulting in an incomplete refund. Plaintiffs claim that the amount not refunded to them should have been and was not disclosed as part of the finance charge on the June 19th transaction. As a result of this allegedly incorrect calculation, the disclosures of the amount financed and the annual percentage rate are also claimed to be incorrect. Third, plaintiffs argue that the disclosure of a security interest in proceeds of insurance where no insurance exists violates the TILA. I need find only a single violation of the statutory requirements to hold defendant liable under the TILA. 15 U.S.C. § 1640; Thomka v. A. Z. Chevrolet, Inc., 619 F.2d 246 (3d Cir. 1980). I agree with plaintiffs that the after-acquired property clause violates the TILA and therefore will not resolve the other claims.
Congress declared that its purpose in enacting the TILA was to promote "the informed use of credit ... by consumers" and "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 ...." 15 U.S.C. § 1601. See also Mourning v. Family Publications Service, Inc., 411 U.S. 356, 93 S. Ct. 1652, 36 L. Ed. 2d 318 (1973). The TILA and the regulations
promulgated under it require a creditor to disclose relevant credit information to a consumer in comprehensible language and form. The required disclosures are intended to provide, especially to the inexperienced and uninformed consumer, a way to avoid "the possibility of deception, misinformation, or at least an obliviousness to the true costs" of a credit transaction. Thomka, 619 F.2d at 248. See also Allen v. Beneficial Finance Co., 531 F.2d 797 (7th Cir.), cert. denied, 429 U.S. 885, 97 S. Ct. 237, 50 L. Ed. 2d 166 (1976).
A creditor in a TILA transaction must clearly describe or identify any security interest retained by the creditor. 15 U.S.C. at § 1639(a)(8); 12 C.F.R. at § 226.8(b)(5). Defendant disclosed the security interest at issue here by checking boxes next to the following items in Paragraph E of the printed Disclosure Statement:
2. All household goods of every kind now owned or hereafter acquired within ten days of this date by Borrower, located in or about Borrower's premises set forth above.
3. Real Property (by a Mortgage and Judgment Note of even date): Address of Real Property: 2121 E. Orleans St. Phila., Pa. (address handwritten in).
4. Other Real Property: The Judgment Note of even date, when recovered or recorded constitutes a lien on all real property owned by Borrower in the County where such judgment is recovered or recorded.
5. Proceeds of insurance required or purchased in accordance with Paragraph F below payable to Lender.
Note, Security Agreement, and Disclosure Statement, Attachment to Answer. Immediately following the above provision, in larger type, the form states, "AFTER ACQUIRED REAL AND PERSONAL PROPERTY OF BORROWER WILL BE SUBJECT TO THE SECURITY INTEREST SET FORTH HEREIN AND THE COLLATERAL SECURES FUTURE AND OTHER INDEBTEDNESS OF BORROWER TO PROVIDENT."
The after-acquired property clause violates the TILA as to both real and personal property. First, the purported disclosure of a security interest in after-acquired real property is clearly inaccurate. Both defendant and plaintiffs agree that the mortgage defendants took in conjunction with this transaction applied only to the plaintiffs' residence at 2121 E. Orleans Street. Paragraph E.3. explicitly sets forth the legitimate security interest taken in real property. However, the after-acquired property clause contradicts Paragraph E.3. and incorrectly discloses a security interest in all real property acquired in the future by plaintiffs. An incorrect disclosure of a security interest violates the TILA and Regulation Z. 15 U.S.C. at § 1639(a) (8); 12 C.F.R. at § 226.8(b)(5).
The inaccuracy of the after-acquired property clause as to real property alone is enough to subject defendant to liability under the TILA. However, this inaccuracy is coupled with a confusing and misleading disclosure as to after-acquired personal property. Pennsylvania law limits the security interest a creditor can hold in after-acquired consumer goods. Under 13 Pa.Cons.Stat. § 9204(d)(2) a creditor can acquire a security interest in such goods only where the debtor acquires rights in the goods within ten days after the creditor gives value. Paragraph E-2 is within the limits of Pennsylvania law. However, the bold print clause appears to grant a much broader security interest since it fails to confine the interest to property acquired within ten days.
Defendant notes that the Tenth Circuit has held that it is not a violation for a creditor to disclose a security interest in after-acquired property without further disclosing state limitations on such security interests including time limits on acquisition. Montoya v. Postal Credit Union, 630 F.2d 745 (10th Cir. 1980). In this case, however, there are two technically accurate disclosures on after-acquired personal property. The violation is ...