Opinion
April 7, 1977.
Appeal from the Supreme Court, Monroe County, LYMAN H. SMITH, J.
Rene Reixach for appellants-respondents.
Harris, Beach Wilcox (Paul Meunier of counsel), for respondent-appellant.
This action is founded upon plaintiffs' claim that the disclosure statement furnished them by defendant, a consumer finance agency, in connection with a loan made in June, 1974, failed to comply with the Federal Truth in Lending Act (US Code, tit 15, § 1601 et seq.) and the regulations promulgated thereunder (Regulation Z, 12 C.F.R. § 226.1 et seq.). Plaintiffs moved for summary judgment on their first cause of action alleging that the disclosure statement failed to set forth defendant's right of acceleration in violation of section 1639 (subd [a], par [7]) of the act and section 226.8 (b) (4) of the regulations; on their third cause of action alleging that the disclosures were not made in a meaningful manner in violation of subdivision [a] of section 1631 of the act and section 226.6 (a) of the regulations; and on their fourth cause of action alleging that the defendant's failures to make the requisite disclosures rendered the loan void pursuant to section 358 Banking of the Banking Law.
Special Term concluded that the failure to disclose the acceleration provision constituted a statutory violation and awarded plaintiffs a penalty of $1,000 together with reasonable counsel fees pursuant to section 1640 (subd [a]) of title 15 of the United States Code. Plaintiffs' motion for summary judgment on the third and fourth causes of action was denied. Both parties appeal.
With respect to defendant's failure to set forth the acceleration provision, the act requires disclosure of "default, delinquency, or similar charges payable in the event of late payments" (US Code, tit 15, § 1638, subd [a], par [9]). Similarly, the regulations call for disclosure of "[t]he amount, or method of computing the amount, of any default, delinquency, or similar charges payable in the event of late payments." ( 12 C.F.R. § 26.8 [b] [4].) The issue then is whether the acceleration clause represents a default, delinquency, or similar charge.
The staff of the Federal Reserve Board takes the view that an acceleration clause is not a "charge" payable on default unless the method for rebating unearned portions of the finance charge yields different results upon acceleration by the creditor than upon prepayment by the debtor. When the creditor does not rebate the same amount of finance charges upon acceleration as it does upon prepayment, "any amounts retained beyond those which would have been rebated under the disclosed rebate provisions represent a `charge' which should be disclosed under § 226.8 (b) (4)." (Federal Reserve Board Letter No. 851, 5 CCH Consumer Credit Guide, par 31,173 [Oct. 22, 1974].) This interpretation of the requirements of sections 226.8 (b) (4) and 226.8 (b) (7) has been specifically rejected by the Fifth Circuit in Martin v Commercial Securities Co. ( 539 F.2d 521, 529), which held that "in the absence of a regulation requiring it, failure to disclose an acceleration clause and the lender's rebate policy with respect thereto in an installment credit transaction does not give rise to a claim for statutory damages." Application of Martin here, of course, would necessarily require reversal of the judgment granted at Special Term.
The Third Circuit, however, in Johnson v McCrackin-Sturman Ford ( 527 F.2d 257) adopted the Federal Reserve Board staff's interpretation. Noting that acceleration is essentially a prepayment, the Johnson court found that where the method for rebate on acceleration was the same as that for voluntary prepayment, "it was unnecessary to include a separate provision delineating the method of rebate in the event of acceleration" (p 269, n 28). In such a circumstance, acceleration of the loan upon a failure to make payments does not result in a "'default, delinquency, or similar charge'" (p 268) and there is no need for disclosure.
Here the loan contract prescribes the same rebate method for refunding unearned precomputed interest upon acceleration as upon prepayment, and to that extent we find that the acceleration is not a "charge". Plaintiffs argue, however, that disclosure is required because the formula for rebating insurance premiums upon acceleration results in a greater amount retained by the creditor than upon prepayment.
This assertion necessarily presents a question as to whether defendant complied with section 1605 (subd [b]) of title 15 of the United States Code and 12 C.F.R. § 226.4 (a) (5) (ii). Essentially, these sections provide that insurance charges shall be included in finance charges unless the debtor gives specific written indication of his desire for insurance coverage. Whether such an indication was given here is specifically at issue in plaintiffs' second cause of action on which no motion for summary judgment was made. Moreover, the issue has not been directly addressed by the parties in this appeal and cannot now be resolved. Thus, whether we apply the broad rule of Martin v Commercial Securities Co. ( 539 F.2d 521, supra) or, in the circumstances of this case, the rationale of Johnson v McCrackin-Sturman Ford ( 527 F.2d 257, supra), plaintiffs are not entitled to summary judgment on their first cause of action. It is unnecessary to have further proceedings thereon, however, in view of our determination with respect to plaintiffs' third cause of action (see Mirabal v General Motors Acceptance Corp., 537 F.2d 871, 880).
The issue presented in the third cause of action is whether defendant's statement of disclosure sets forth the items which must be disclosed clearly and conspicuously (see US Code, tit 15, § 1631) and in meaningful sequence (see 12 C.F.R. § 226.6 [a]). We are guided in the resolution of this question by the purpose of the Truth in Lending Act, which 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 and avoid the uninformed use of credit" (US Code, tit 15, § 1601). Additionally, the phrase "in meaningful sequence" has been interpreted to mean that items which are arithmetically related should be placed "within a reasonable proximity to each other, not mixed with items which are irrelevant to a progression of arithmetical computations or thought * * * so that the customer will not be required to search for any arithmetical items which should logically follow a previous one." (Federal Reserve Board Public Position Letter No. 780, 5 CCH Consumer Credit Guide, par 31,102 [April 10, 1974].) We attach great weight to this interpretative pronouncement of the board (see Mourning v Family Pub. Serv., 411 U.S. 356, 365; Udall v Tallman, 380 U.S. 1, 16-17, reh den 380 U.S. 989; Philbeck v Timmers Chevrolet, 499 F.2d 971, 976-977).
Our examination of defendant's disclosure statement shows that it neither attains the purpose nor complies with the letter of the act and the regulations. The attempt to understand this form requires one to search for related items, and even then uncertainty and confusion remain as the result of its desultory composition. The disclosure statement is appended hereto and we note that it is substantially identical to that printed in Allen v Beneficial Finance Co. of Gary ( 531 F.2d 797, 807-808, cert den 45 US Law Week 3280 [October 12, 1976]). To the extent that Allen (pp 802-803) finds that the form is defective, we adopt its rationale and conclusion here. Specifically, defendant's disclosure statement groups together certain terms which are neither arithmetically nor logically related, and fails to present sensibly those terms which do bear such relationships.
We do not consider defendant's contention that the "meaningful sequence" requirement is so vague and uncertain as to be unconstitutional, since the record fails to indicate that it was raised at Special Term (see Slater v Gallman, 38 N.Y.2d 1, 4; Flagg v Nichols, 307 N.Y. 96, 99).
Plaintiffs' motion for summary judgment on their third cause of action, therefore, should be granted and they should be awarded a statutory penalty of $1,000 together with reasonable counsel fees. While it is unnecessary to remand with respect to plaintiffs' first cause of action inasmuch as multiple failures to disclose would not increase plaintiffs' recovery (see US Code, tit 15, § 1640, subd [g]), the determination of additional attorneys' fees should initially be made in the court of original instance (Matter of Kellogg, 55 A.D.2d 215; Matter of Hedrick, 52 A.D.2d 1035; Matter of Ebright v Ward, 39 A.D.2d 1013).
Plaintiffs' contention that they are each entitled to recover a $1,000 statutory penalty lacks merit. Plaintiffs are husband and wife who entered into this single credit transaction, and in the absence of clear statutory language to the contrary, "it is not to be lightly supposed that the statutory maximum is to be doubled, trebled, or quadrupled, depending upon the number of joint obligors in a single consumer credit transaction. That we should treat husband and wife, when joint obligors, as one is indicated by the legislative history" (Powers v Sims, 542 F.2d 1216, 1219; contra, Mirabal v General Motors Acceptance Corp., 537 F.2d 871, 883 , supra).
The applicable legislative history recites that "[a]ny creditor failing to disclose required information would be subject to civil suit with a penalty equal to twice the finance charge, with a minimum penalty of $100 and a maximum penalty of $1,000 on any individual credit transaction". (H R Rep No. 1040, 90th Cong, 1st Sess [1976], 1968 US Code Cong Admin News, pp 1962, 1976, emphasis added.)
The final issue in this appeal is whether plaintiffs are entitled to a refund of their payments on this loan pursuant to section 358 Banking of the Banking Law. To the extent applicable, section 358 provides that a loan transaction which is violative of section 353 Banking of the Banking Law constitutes a misdemeanor and "shall be void and the lender shall have no right to collect or receive any principal, interest or charges whatsoever". Section 353 directs a lender to comply with the provisions of the Federal Truth in Lending Act.
Initially, we disagree with Special Term's conclusion that the Legislature must not have intended that the civil penalties provided in section 358 would apply to violations of the Truth in Lending Act when it amended section 353 (L 1969, ch 1141, § 7). A statute should not be deemed repealed by a later enactment which contains no language of repeal, unless the two are in such conflict that they cannot be reconciled (People v Newman, 32 N.Y.2d 379, 389-390; McKinney's Cons Laws of NY, Book 1, Statutes, § 391).
The legislative memoranda submitted upon the amendment to section 353 enumerated the penalties for violations of the Federal Truth in Lending Act (see McKinney's Session Laws of 1969, pp 2510-2511). While we concur with Special Term that some reference to section 358 might reasonably have been expected in such an enumeration of penalties, we do not view its omission as tantamount to repeal of that section.
Furthermore, defendant's contention that section 353 is unconstitutional (NY Const, art III, § 16), insofar as it incorporates by reference future amendments to the Federal Truth in Lending Act, is irrelevant since plaintiffs' claims are not based upon any such amendment. Similarly, we need not reach the issue of whether section 353 improperly allows the Congress and the Federal Reserve Board to define a crime in this State inasmuch as we are not concerned here with a criminal prosecution. Nor do we accept defendant's argument that the availability of the civil remedy afforded by section 358 is conditioned upon a specific finding of criminal liability. Indeed, civil liability pursuant to section 358 has been imposed without assessment or consideration of criminal responsibility (see Equity Serv. Corp. v Agull, 250 App. Div. 96, 101; Personal Finance Co. of N.Y. v Gross, 170 Misc. 166, 169). We view this statute as providing a separate and distinct civil remedy (see McKinney's Cons Laws of NY, Book 1, Statutes, § 275).
Accordingly, we conclude that section 358 operates to render this loan void. As we have previously indicated, however, the plaintiffs are not thereby vested "with a right to recover payments of principal and interest voluntarily made upon a loan otherwise valid except for defective disclosure." (Conrad v Home Auto Loan Co., 53 A.D.2d 48, 53.) Plaintiffs assert that by stipulation with the defendant several payments were made under a reservation of rights and without prejudice. The stipulation, however, does not appear in the record and, since plaintiffs' claim may well bear upon the issue of voluntariness, their fourth cause of action, to the extent of such payments, remains viable.
Special Term's order granting summary judgment on plaintiffs' first cause of action should be reversed and the motion denied; its order denying plaintiffs' motion for summary judgment on their third cause of action should be reversed and plaintiffs' motion granted in accordance herewith; and its order denying plaintiffs' motion for summary judgment on their fourth cause of action should be affirmed, but so much of plaintiffs' fourth cause of action as seeks recovery of payments voluntarily made upon the loan should be dismissed.
MARSH, P.J., MOULE, GOLDMAN and WITMER, JJ., concur.
Order and judgment unanimously modified on the law and facts in accordance with opinion by DILLON, J., and as modified affirmed with costs to plaintiffs.