Summary
involving application stating "Credit life insurance and/or disability insurance are not required to obtain this loan. No such insurance is provided unless maker signs the appropriate statement below. I desire credit life insurance only at the cost set forth in Item 2 for the term of the loan"
Summary of this case from London v. Chase Manhattan Bank USA, N.A.Opinion
No. C-78-293-WS.
August 19, 1980.
Michael R. Greeson, Jr., Winston-Salem, N.C., for plaintiff.
Benjamin G. Philpott, Lexington, N.C., for defendant.
MEMORANDUM OPINION
This case was noticed for hearing on August 15, 1980, in the United States Courtroom, Greensboro, North Carolina. Pursuant to the notice the Court heard arguments on the parties' cross-motions for summary judgment. Having considered the briefs of the parties, all relevant material of record and the arguments of counsel at the hearing, the Court concludes that the plaintiff's motion for summary judgment should be denied and that the defendant's motion for summary judgment should be granted.
Discussion
The complaint alleges three violations of the Truth-In-Lending Act, 15 U.S.C. § 1601, et seq. ("Act") and Regulation Z, 12 C.F.R. § 226, et seq. In Count I plaintiff claims that the defendant violated 12 C.F.R. § 226.4(a)(5)(i) by failing to disclose in a conspicuous manner on the face of the contract that life and disability insurance were not required as a condition of the loan. A copy of the contract is attached to this Opinion. The provision in question in this Count is located on the left side of the front of the contract, near the middle. The top of the provision contains one word ("INSURANCE"), and it is written in capital letters. The next lines state in no uncertain terms that "Credit life insurance and/or disability insurance are not required to obtain this loan. No such insurance is provided unless maker signs the appropriate statement below."
Plaintiff argues that there is nothing on the face of the contract to attract the borrower's attention to the insurance disclosure. The Court disagrees. The word "INSURANCE" is more than sufficient to catch the eye of even the most casual reader. Plaintiff's reliance on Smith v. Chapman, 436 F. Supp. 58 (W.D.Tex. 1977), is misplaced. The disclosure in that case was on the back of the contract, in the same size type as all the surrounding language, and it appears that there was nothing on that contract to attract the reader's attention. See 436 F. Supp. at 64. Nor is the holding in Doggett v. Ritter Finance Co., Inc. of Louisa, 528 F.2d 860 (4th Cir. 1975), dispositive of this case. The Court there approved of a similar disclosure as being in compliance with 12 C.F.R. § 226.4(a)(5)(i). 528 F.2d at 862. The fact that the disclosure in Ritter contained five words in capital letters, while the disclosure in this case contained only one word in capitals, does not mean that the disclosure of Lexington State Bank was defective. To the contrary, it was patently sufficient.
Another court has reached the same conclusion concerning a virtually identical disclosure statement. See Dzadovsky v. Lyons Ford Sales, Inc., 452 F. Supp. 606 (W.D.Pa.), aff'd per curiam, 593 F.2d 538 (3rd Cir. 1979). In that case the plaintiff moved for summary judgment, claiming that an insurance disclosure statement was not conspicuous because it was in the same size type as was the rest of the document. The disclosure was of the same type size, just as is the type in this case, but the words appeared directly under the word "INSURANCE," just as in the present case. The court also noted that the disclosure was separated from the preceding and following lines by unusually large spaces. Although the distance between the disclosure and other items in this case may not be "unusually large," the separating spaces are large enough to add to the conspicuous nature of the disclosure. For these reasons, then, the Court concludes that the plaintiff's motion for summary judgment should be denied and the defendant's motion granted as to Count I. See also Reed v. Washington Trailer Sales, Inc., 393 F. Supp. 886 (M.D. Tenn. 1974).
The Court is mindful that it should grant summary judgment sparingly, and only when it is clear that no genuine issue of material fact exists and that the moving party is entitled to judgment as a matter of law. The Court also notes that the Court in Dzadovsky not only denied the plaintiff's motion for summary judgment, it sua sponte granted summary judgment for the defendant.
The Court finds it unnecessary to decide whether the U.C.C.'s definition of "conspicuous" applies to this case. Cf. Smith v. Chapman, 436 F. Supp. 58, 64-65 (W.D.Tex. 1977). Assuming without deciding that N.C.G.S. § 251-201(10) does apply, it is clear that the disclosure in this case is "conspicuous" under that section: "Language in the body of a form is `conspicuous' if it is in larger or other contrasting type or color." (Emphasis added.)
Count II is based on an alleged violation of 12 C.F.R. § 226.6(a). Plaintiff claims that the phrase "with interest after maturity at the maximum lawful rate" is not clear and easily understood by the average consumer. According to the plaintiff, the form should have stated the actual rate of interest allowed under North Carolina law. He cites Smith v. Chapman, supra, for this proposition, and the Court there did so hold. 436 F. Supp. at 63. With much respect, this Court declines to follow that ruling. The maximum interest allowed under the law can vary. As a result, a lender would have to either leave a blank space in its forms to accommodate changes in the statutory maximum, or change forms each time the legislature amended the operative statute. There is nothing unclear about the phrase plaintiff challenges; it plainly states that the lender will charge as much interest as is lawful. It may not tell the borrower what the current maximum is, but that does not, by any stretch of the imagination, make the phrase unclear. Summary judgment for the defendant on this claim also is proper.
This phrase appears near the top of the contract, just after the amount of the loan is stated for the first time.
A consumer who knows that she/he will be charged a given rate of interest does not necessarily know everything she/he may desire to know. Such information will not automatically inform the consumer of the total amount of interest to be paid, and that total may be much more important to the customer than the rate of interest.
Courts look to the purpose of the statute and regulations in deciding cases under the Act. See Reed v. Washington Trailer Sales, Inc., 393 F. Supp. 886, 889 (M.D.Tenn. 1974). 12 C.F.R. § 226.1(a)(2) states, inter alia, that the purpose of the Act is "to assure that every customer who has need for consumer credit is given meaningful information with respect to the cost of that credit" and to allow the customer to "compare the various credit terms available to him from different sources and avoid the uninformed use of credit." (Emphasis added.) A person who knows that the highest rate of interest under the law will be charged has most certainly been given meaningful information; such a person can hardly claim to have used credit in an uninformed manner.
Count III is dependent on the Court's ruling on Count I, and the plaintiff concedes as much. The violation alleged in the third Count concerns Section 1606(a)(1) of the Act and 12 C.F.R. § 226.5. Plaintiff argues that since the defendant failed to make the insurance disclosure in a conspicuous manner, the insurance premiums should have been included in the finance charge. Since they were not so included, plaintiff contends that the annual percentage rate was not disclosed accurately, a violation of § 1606(a)(1) and § 226.5. Due to the fact that the Court has concluded the insurance disclosure was made in a conspicuous manner, Count III must be resolved in defendant's favor.
Summary
For the foregoing reasons the Court concludes that the plaintiff's motion for summary judgment should be denied and that the defendant's motion for summary judgment should be granted. A judgment consistent with this Opinion will issue forthwith.