Opinion
No. LR-C-80-144.
March 27, 1981.
James R. Cromwell, Thomas J. Ginger, Don Barnes, Central Ark. Legal Services, Little Rock, Ark., for plaintiff.
Eugene J. Mazzanti, Little Rock, Ark., for defendant.
MEMORANDUM OPINION
The instant cause of action arose from an agreement entered into between the plaintiff and defendant wherein the plaintiff agreed to rent a television from the defendant. Under the terms of that agreement, the plaintiff was to pay a rental fee of $15.97 per week. He was obligated, under the terms of the contract, to pay only the first week of the rental. The agreement was terminable by either party under certain circumstances. Should the plaintiff rent the television for a period of 78 consecutive weeks, the television would belong to him. During the term of the agreement, should plaintiff continue to rent the television, the defendant would be responsible for all maintenance on the set. (See Appendix).
The plaintiff contends that the defendant violated the credit sale provision of the Truth in Lending Act, 15 U.S.C. § 1631, et seq., and Federal Reserve Regulation Z, 12 C.F.R. §§ 226, et seq., in that the defendant failed to make all the disclosures required before the transaction was consummated, to provide meaningful information as to the cost of credit prior to the sale, to disclose the cash price of the property, the sum of any amounts credited as downpayment, the difference between the cash price of the property purchased and the sum of any amounts credited as downpayment and all other charges, individually itemized, which are included in the amount of credit extended but not part of the finance charge. The plaintiff claims that the plaintiff also failed to disclose the total amount to be financed, the amount of the finance charge, the finance charge expressed as an annual percentage rate, the default, delinquency or similar charges payable in the event of late payments, a description of any security interest held or to be retained or acquired by the defendant and a clear identification of the property to which the security interest relates, the date on which the finance charge begins to accrue if different from the date of the transaction, a description of any penalty charge that may be imposed by the defendant for prepayment of the principal of the obligation, identification of the method of computing any unearned portion of the finance charge in the event of prepayment in full, any amounts required to be deducted, and the difference between the amounts for full-term payment and prepayment.
The plaintiff also claims that the transaction between the plaintiff and the defendant was a "consumer lease" as defined in 15 U.S.C. § 1667(1), and that the defendant also violated the consumer lease provision of the Truth in Lending Act. The plaintiff alleges a similar series of offenses under that provision.
The plaintiff also claims that the provisions of the agreement violate the Arkansas constitutional usury limit and that the contract was unconscionable. Plaintiff claims that he understood that the rental agreement was to be, instead, an agreement whereby he was making an ordinary credit purchase of the television.
The defendant has filed a Motion for Summary Judgment which is the subject of this Opinion.
This lawsuit is not a matter of first impression. From a study of the cases addressing the application of the Truth in Lending Act to rent-to-buy agreements, in fact the terms and language of the contract appear to be fairly uniform, and they have been challenged on the same basis in other Courts. In most of the previous cases, the Courts have found that the rent-to-buy agreement did not come within the purview of the Truth in Lending Act. Dodson v. Remco Enterprises, Inc., 504 F. Supp. 540 (E.D.Va. Dec. 23, 1980); Smith v. ABC Rental Systems of New Orleans, Inc., 491 F. Supp. 127 (E.D.La. 1978). Unpublished cases include Clark v. Aquarius TV Rentals, Inc., Civ. Action No. CA-4-77-3 (N.D.Tex. 1977); Griggs v. Easy TV Rentals, Inc., Civ. Action No. C-75-2509A (N.D.Ga. 1976); Terrell v. Mr. T's Rental, Civ. Action No. C-75-2058A (N.D.Ga. 1976); and Turner v. Curtis Mathes Centers, Inc., Bky. No. 3-78-1135(D) (D.Minn. 1979). The sole dissenting voice among these decisions is Waldron v. Best TV and Stereo Rentals, Inc., 485 F. Supp. 718 (D.Md. 1979).
Section 103(g) of the Truth in Lending Act, 15 U.S.C. § 1602(g), defines a credit sale as:
. . . any sale with respect to which credit is extended or arranged by the seller. The term includes any contract in the form of a bailment or lease if the bailee or lessee contracts to pay as compensation for use a sum substantially equivalent to or in excess of the aggregate value of the property and services involved and it is agreed that the bailee or lessee will become, or for no other or a nominal consideration has the option to become, the owner of the property upon full compliance with his obligations under the contract.
"Credit sale" is also defined at 12 C.F.R. § 226.2(t) and is substantially the same.
From a reading of the rental agreement entered into between the parties, it is clear that the terms of that agreement do not bring the transaction within the definition of a credit sale. A reading of the claims of violations thereunder as alleged by the plaintiff in light of the terms of the contract involved herein demonstrates that the credit sale provisions of the Truth in Lending Act are irrelevant to this transaction. The alleged violations, when put into the context of the contract which is the subject of this lawsuit, clearly do not apply. They do not address the terms and conditions of the parties' agreement. The plaintiff did not agree to pay "a sum substantially equivalent to or in excess of the aggregate value of the property and services involved," nor is the plaintiff to become "the owner of the property upon full compliance with his obligations under the contract." The sole payment the plaintiff agreed to make and was obligated to make was the first week's payment for rent. Thereafter, if he chose to keep the television for another week, he could pay the rent. Otherwise, the defendant would pick up the television from the plaintiff's residence, for a $5.00 charge. It is clear, therefore, that the plaintiff was not obligated to pay more than $15.97 for the first week's rent and, prospectively, $5.00 for the pickup. The transaction was not, under the terms of the Truth in Lending Act nor its corollary, Regulation Z, a "credit sale."
Regulation Z, 12 C.F.R. 226.2(mm), provides a definition of "consumer lease:"
"Consumer lease" means a contract in the form of a bailment or lease for the use of personal property by a natural person primarily for personal, family or household purposes, for a period of time exceeding four months, for a total contractual obligation not exceeding $25,000 whether or not the lessee has the option to purchase or otherwise become the owner of the property at the expiration of the lease.
Under the above definition, the agreement herein does not fit into the category of a consumer lease. There is no requirement that the plaintiff rent the television for four months, only for one week. Therefore, the agreement which is the subject of this lawsuit is not what is contemplated in either 15 U.S.C. § 1667(1) or Regulation Z, 12 C.F.R. § 226.2(mm).
The agreement between the parties herein was neither a "consumer lease" nor a "credit sale." Therefore, it does not come within the purview of the Truth in Lending Act, and summary judgment for the defendant is appropriate.
However, the summary judgment, a judgment on the merits, goes only to the allegations of violations of the Truth in Lending Act. The plaintiff also raises other questions concerning usury, unconscionability and possible common law fraud. The Truth in Lending Act being inapplicable to the facts of this case, this Court no longer has jurisdiction, and the Court will not render judgment on those issues. The plaintiff might want to raise those issues in a lawsuit filed in State court, and this summary judgment, going only to the Truth in Lending allegations, does not preclude the plaintiff from doing so.
A separate Order shall be entered herein in accordance with this Opinion.