Plaintiff, Anthony Brodo ("Brodo"), instituted this action against Bankers Trust Co. ("Bankers") pursuant to the Truth-In-Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. Plaintiff has also alleged violations of the Pennsylvania Loan Interest and Protection Law, 41 Pa. Cons. Stat. Ann. § 101 et seq., and the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 Pa. Cons. Stat. Ann. § 201-1 et seq. Plaintiff predicates subject matter jurisdiction on 28 U.S.C. §§ 1331 and 1337.
Before the court are plaintiff's motion for partial summary judgment and defendant's motion for summary judgment.
Brodo owns a house in Philadelphia, Pennsylvania. In the spring of 1990, he applied to Champion Mortgage Company ("Champion") for a loan of $ 10,000 to pay for home repairs. Champion processed his application as a request for a loan secured by a first mortgage, and agreed to lend him funds only if all his pre-existing debts were paid off. The parties dispute whether Brodo knew prior to the settlement date, May 4, 1990, that the loan amount would include funds sufficient to eliminate his pre-existing debts and that he would be required to pay settlement costs. Based on its appraisal of plaintiff's home and supporting documentation, Champion determined that he was eligible for a loan of $ 43,500.
On May 4, 1990, Brodo attended the settlement. At that time, he executed loan documents including a note and mortgage, a loan settlement statement, TILA disclosure statements, a notice of his right to cancel, and a closing statement. Although only $ 3,747.40 was actually disbursed to Brodo, his loan totaled $ 43,500 at an interest rate of 13.625% per annum. Champion used the remaining funds to pay his previous debts, including first and second mortgages, real estate taxes, municipal claims, and unsecured credit card debts.
At settlement, Champion required plaintiff to pay $ 450 in attorney's fees to Stern & Hendler, a law firm Champion had retained. Stern & Hendler prepared loan documents, security documents and credit reports regarding plaintiff's loan. It informed plaintiff which documents he would need to bring to the closing. Stern & Hendler also completed the TILA disclosure statement and the TILA itemization of amount financed, checked Champion's calculations on preliminary versions of these forms, and calculated the number of payments, the date on which the payments should begin, and the amount to be charged for late payments.
Near the end of May, 1990, Champion assigned the mortgage on plaintiff's home to American Financial Corporation. In July, 1991, American Financial Corporation assigned the note and the mortgage to Bankers as trustee under a servicing agreement.
Brodo made loan payments until July 8, 1992. In January of 1993, Bankers filed suit against him in the Court of Common Pleas of Philadelphia County to collect the balance due on the loan. The following month, plaintiff sent a notice of rescission to the defendant. Bankers never responded to the notice. This lawsuit followed.
The standards for summary judgment are well known. A moving party may obtain summary judgment by establishing that no genuine issues of material fact exist. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). An issue is "genuine" only if there is sufficient evidence for a jury to find in favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). A dispute is "material" if it might affect the outcome of the action under the governing law. Id. at 248. In order for the court to determine whether the standards for summary judgment have been met, the evidence must be viewed in the light most favorable to the non-moving party. Mellon Bank Corp. v. First Union Real Estate Equity & Mortg. Invest., 951 F.2d 1399, 1404 (3d Cir. 1991).
TILA is a consumer protection statute designed to ensure "a meaningful disclosure of credit terms" to applicants for credit to alleviate the unequal bargaining power and sophistication between consumers and lenders. 15 U.S.C. § 1601(a); Thomka v. A.Z. Chevrolet, Inc., 619 F.2d 246, 248 (3d Cir. 1980). The statute imposes strict liability upon lenders which fail to disclose any mandated information, even if the violation is technical and unintended. Smith v. Fidelity Consumer Discount Co., 898 F.2d 896, 898 (3d Cir. 1990). TILA is to be liberally construed in favor of the borrower. Id. A borrower is not required to prove or even to allege any injury resulting from a TILA violation. Thomka, 619 F.2d at 250. Courts should defer to the interpretation of TILA set forth in 12 C.F.R. § 226 ("Regulation Z"), promulgated by the Federal Reserve Board pursuant to expansive authority granted by Congress, "absent some obvious repugnance to the statute." Smith, 898 F.2d at 898 (citations omitted.)
When a lender takes a security interest in a borrower's principal dwelling in exchange for credit, TILA permits the borrower to rescind the transaction until three business days after the consummation of the transaction or the delivery of the material disclosures required by the statute, whichever is later. 15 U.S.C. § 1635(a). If the lender does not give the required disclosures, the borrower's right to rescind expires three years after the consummation of the transaction or upon the sale of the property, whichever is first. 15 U.S.C. § 1635(f). Failure to disclose the proper finance charge or amount financed constitutes a material violation which entitles the borrower to rescind the loan. 15 U.S.C. § 1635(a); 12 C.F.R. § 226.23(a)(3) n. 48; Smith, 898 F.2d at 899. A borrower who has a right to rescind against the original lender also has the right to rescind against any assignee. 15 U.S.C. § 1641(c).
The lender's security interest becomes void upon a borrower's rescission, and the borrower is no longer "liable for any finance or other charge." 15 U.S.C. § 1635(b). Within 20 days of receiving notice of the borrower's intent to rescind, the lender must "return ... any money or property given as earnest money, downpayment, or otherwise, and [must] take any action necessary or appropriate to reflect the termination of any security interest created under the transaction." Id. Violation of the lender's obligations under this section constitutes a separate TILA violation. 15 U.S.C. § 1635(g). Plaintiff seeks rescission of the loan, a $ 1,000 statutory penalty for Bankers' refusal to respond to plaintiff's notice of rescission, and an award of attorney's fees and costs.
Plaintiff's complaint alleges that Champion violated TILA by failing to disclose the proper finance charge for the loan. Plaintiff contends that the disclosed finance charge is incorrect because Champion improperly excluded from the finance charge all, instead of just a portion, of the attorney's fees paid to Stern & Hendler.
Section 1605 of TILA defines the finance charge as "the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit." 15 U.S.C. § 1605 (a). TILA requires the following items to be excluded from the computation of the finance charge:
(1) Fees or premiums for title examination, title insurance, or similar purposes.