Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civ. No. 87-2026.
Before: Seitz,*fn** Stapleton and Cowen, Circuit Judges.
Fidelity Consumer Discount Corporation ("Fidelity") appeals from the final judgment of the district court, specifically the order of the district court granting the motion of Annabelle Smith, Charles Coplin, and Margaret Coplin,*fn1 (herein denominated "plaintiffs" unless otherwise indicated) for summary judgment on their claims under the Truth-in-Lending Act ("TILA"), 15 U.S.C. § 1601, et seq. The district court had jurisdiction pursuant to 28 U.S.C. § 1331. We have jurisdiction under 28 U.S.C. § 1291.
Fidelity, a Pennsylvania corporation in the business of making loans to the general public, is a wholly owned subsidiary of Equitable Credit and Discount Company ("Equitable"). Silver is the President and chief operating officer of Fidelity. Gorson is the majority stockholder of Equitable. They will be referred to collectively as "Fidelity" unless otherwise indicated.
The claims of the plaintiffs arose in connection with three loans extended by Fidelity. In each of the three loan transactions, Fidelity extended credit for the purchase of an automobile and held the buyer's, or in one case the buyer's cosigner's, home as security for the car loan. Because the district court entered judgment on cross-motions for summary judgment, our review is plenary. Solomon v. Klein, 770 F.2d 352, 353 (3d Cir. 1985).
We proceed to address plaintiffs' TILA claims.
Through TILA, Congress sought to remedy the "divergent and often fraudulent practices by which credit customers were apprised of the terms of the credit extended to them." Johnson v. McCrackin-Sturman Ford, Inc., 527 F.2d 257, 262 (3d Cir. 1975). Indeed, the congressionally stated purpose of 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." 15 U.S.C. § 1601(a). TILA, as a remedial statute which is designed to balance the scales "thought to be weighed in favor of lenders," is to be liberally construed in favor of borrowers. Bizier v. Globe Financial Services, 654 F.2d 1, 3 (1st Cir. 1981). See Johnson, 527 F.2d at 262.
TILA achieves its remedial goals by a system of strict liability in favor of the consumers when mandated disclosures have not been made. 15 U.S.C. § 1640(a). A creditor who fails to comply with TILA in any respect is liable to the consumer under the statute regardless of the nature of the violation or the creditor's intent. Thomka v. A.Z. Chevrolet Inc., 619 F.2d 246, 249-250 (3d Cir. 1980). "[O]nce the court finds a violation, no matter how technical, it has no discretion with respect to liability." Grant v. Imperial Motors, 539 F.2d 506, 510 (5th Cir. 1976).
A single violation of TILA gives rise to full liability for statutory damages. Damages include actual damages incurred by the debtor plus a civil penalty equal to double the finance charge up to a maximum of $1,000. 15 U.S.C. § 1640(a)(1) and (a)(2)(A)(i). Multiple violations of TILA in the course of a single loan transaction do not yield multiple civil penalties but result in only a single penalty. 15 U.S.C. § 1640(g).
In addition, when a creditor takes a security interest against property which is the principal dwelling of the debtor, the debtor has the right to rescind the transaction until the later of (1) midnight of the third day following the transaction or (2) the date on which the creditor delivers to the consumer the notice of the right to rescission and the material disclosures that TILA requires. 15 U.S.C. § 1635. Exercise of the right to rescind under § 1635 results in discharge of the consumer's liability for any finance or other charge and in a discharge of any security interest taken in conjunction with the extension of credit. 15 U.S.C. § 1635(b).
To implement TILA, Congress "delegated expansive authority to the Federal Reserve Board to elaborate and expand the legal framework governing commerce in credit." Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 560, 63 L. Ed. 2d 22, 100 S. Ct. 790 (1980). "The Board exerted its responsibility by promulgating Regulation Z, 12 C.F.R. Part 226 (1979)," Id., which "absent some obvious repugnance to the statute . . . should be accepted by the courts, as should the Board's interpretation of its own regulation." Anderson Brothers Ford v. Valencia, 452 U.S. 205, 219, 68 L. Ed. 2d 783, 101 S. Ct. 2266 (1981). As the Supreme Court has noted, "traditional acquiescence in administrative expertise is particularly apt under TILA, because the Federal Reserve Board has played a pivotal role in setting the statutory machinery in motion [and] . . . the Act is best construed by those who gave it substance in promulgating regulations thereunder." Ford Motor Credit Co. v. Milhollin, 444 U.S. at 566.
Here Smith as well as Charles and Margaret Coplin requested, and the district court awarded them, both statutory and rescissory damages. We next address Fidelity's attack on each such liability determination.
Herbert Smith is the son of Annabelle Smith. On January 27, 1984, the Smiths and Fidelity entered into a loan transaction to enable Herbert to buy a used car. Annabelle Smith used her house as collateral for the loan.
The total amount of financing was $5,500. Of the $5,500, $4,216.59 was given directly to Herbert and Annabelle in the form of a check made out to the two of them. In addition, $1,008.34 was charged as an "origination fee:" $990 as prepaid finance charges and $18.34 as prepaid interest. Finally, $257.07 was used to record the fact that the title to Annabelle Smith's house was clear and for other related costs. Among the $257.07 charges, was a charge of $13. This $13 was to be used to pay the filing fee to clear Smith's title of record and establish that Troy Acceptance Corporation, which previously held a lien on Smith's property, no longer had a lien on Smith's property. Fidelity, however, was never able to obtain the necessary release from Troy and the filing was never made; the $13 was not returned to Annabelle Smith.
In May, 1986, Annabelle Smith sought to rescind the transaction pursuant to TILA but Fidelity refused. Annabelle Smith then brought this action seeking both rescissory relief and monetary damages under TILA. Specifically, Smith claims, and the district court found that, Fidelity violated TILA (1) by failing to disclose the $13 fee as a finance charge; and (2) by failing to properly itemize in its disclosure form the amount financed. On appeal, Smith continues to rely on the above bases for TILA liability found by the district court as well as several other grounds for imposing liability. The district court did not consider the merits of these additional grounds. Fidelity challenges each of the findings of liability and asks us in the exercise of our discretion not to review the additional grounds.
Finance charges are defined at 15 U.S.C. § 1605(a) as "the sum of all charges, payable directly or indirectly by the person to whom credit is extended, and is imposed directly or indirectly by the creditor as an incident to the extension of credit." Failure to disclose the total finance charge not only affords the consumer a remedy of statutory damages but also constitutes a material violation entitling the consumer to rescind the loan. 15 U.S.C. § 1640(a); 12 C.F.R. § 226.23(a)(3) n.48.
In the Smith transaction, Fidelity withheld certain money from the loan proceeds distributed to Smith in order to pay for filing fees to clear title to Smith's house. Under 12 C.F.R. § 226.4(e)(2) "[t]axes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing or satisfying a security claim" are not finance charges. In this case, however, Fidelity was unable to obtain a signed release from Troy Acceptance because Troy was no longer in business and Fidelity simply retained the money, i.e. $13, which it had planned to use to clear Smith's title of Troy's lien. On these facts the district court found that the $13 was an undisclosed finance charge because the funds were never used to release a security interest.
We conclude, on the facts of this case, that the $13 charge cannot properly be considered a "finance charge." The effect of subsequent events on the accuracy of disclosures is dealt with in 12 C.F.R. § 226.17(e) which states:
If a disclosure becomes inaccurate because of an event that occurs after the creditor delivers the required disclosures, the inaccuracy is not a violation of this regulation.
The purpose of this regulation is to relieve creditors from making disclosures regarding every contingency which might arise. Cf. Greer v. General Motors Acceptance Corp., 505 F. Supp. 692, 694 (N.D. Ga. 1980). Indeed, the Official Staff Interpretation of § 226.17(e) states:
Inaccuracies in disclosures are not violations if attributable to events occurring after the disclosures are made. For example, when the consumer fails to fulfill a prior commitment to keep collateral insured and the creditor provides the coverage and charges the consumer for it, such a charge does not make the original disclosure inaccurate.
12 C.F.R. § 226.17(e) (Supp. I 1988).
It is undisputed that the $13, when charged by Fidelity, was taken by Fidelity for the purpose of releasing the lien of Troy of record. There is no contention that Fidelity, at the time when it charged the $13, knew that Troy was no longer in business or that it would be unable to obtain a signed release from a Troy representative.*fn2 Therefore, when Fidelity disclosed to Smith that $13 was being charged to release Troy's lien of record, the disclosure was accurate. It was only the subsequent inability on the part of Fidelity to obtain the release, despite diligent efforts, that prevented compliance with TILA. We conclude that because Fidelity charged $13, intending to use it to release a lien of record, Fidelity's subsequent inability to obtain this release, due to no fault of its own, does not render the fee a "finance charge" within the meaning of the statute. Fidelity therefore did not violate the statute when it failed to include the sum as a finance charge. Thus, we find ourselves in disagreement with the district court.
b. Inaccuracy In Itemization of Amount Financed
In the Smith transaction the TILA disclosure statement listed the "amount given to me directly" as $5,224.93 while the actual amount given directly to Annabelle Smith was only $4,216.59. Based on this inaccuracy Smith asks for both statutory and rescissory relief.
Section 226.18 of Regulation Z sets forth the disclosures required to be made by a creditor in a closed-end credit transaction. In enumerating more than fifteen items to be disclosed, § 226.18 provides in pertinent part:
For each transaction, the creditor shall disclose the following information, as applicable:
(b) Amount Financed. The "amount financed" using the term, and a brief description such as "the amount of credit ...