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December 13, 1972


The opinion of the court was delivered by: Tone, District Judge.


Plaintiffs, retail credit card customers of defendant, Cities Service Oil Company, bring this action under the Truth in Lending Act, 15 U.S.C. § 1601 et seq. They propose to represent an alleged class of approximately 680,000 Cities Service credit card holders to whom monthly statements were mailed during the second half of 1969. Plaintiffs allege that defendant failed to disclose to the class during this period the credit information required to be furnished under the the Act.

Under defendant's credit card operation, a customer is billed on a monthly basis for purchases made during the prior month. If the bill is not paid in full within 60 days of the initial billing date, the customer is assessed a monthly charge of 1 1/2 per cent. This monthly charge is also imposed at the end of each subsequent month until the account is paid in full. Even though an account remains unpaid and the monthly charges continue to be assessed, the customer may continue to use his credit card for purchases. An account containing unpaid bills 180 days old is cancelled by defendant.

The Truth in Lending Act was signed on May 29, 1968, and became effective on July 1, 1969. Regulation Z, the body of regulations promulgated under the Act by the Federal Reserve Board, was published in final form in the Federal Register on February 11, 1969. 12 C.F.R. § 226.1, et seq. Counsel for defendant reviewed Regulation Z and determined that the Cities Service credit card plan probably was not covered by the Act. Shortly after that determination, on April 22, 1969, the Federal Reserve Board issued Interpretation 226.401 on the "open end" credit provisions of Regulation Z. This interpretation, which was published in the Federal Register on May 10, 1969, 12 C.F.R. § 226.401, seemed to indicate that the Cities Service plan was covered by the Act.

Defendant's management then considered the following alternatives, recognizing that it could not comply with the Act by its effective date, July 1, 1969: (1) stop imposing monthly charges on credit card customers until a final decision could be reached on the applicability of the Act to defendant's credit program, and, if necessary, its program could be brought into compliance; (2) take the position that their credit card operation was not subject to the Act and continue to impose monthly charges without changing their credit disclosure procedures; (3) impose the monthly charges while taking steps in the first few months of the Act's existence to bring their credit procedures into conformity with the Act, though not necessarily conceding its applicability to defendant. They decided upon the third alternative.

The Act authorizes consumers to whom creditors have not disclosed the required information to bring a civil action to recover twice the finance charge assessed to them, but not less than $100 nor more than $1,000 per transaction, plus costs and reasonable attorneys fees. 15 U.S.C. § 1640(a). This is such an action. Defendant succeeded in bringing its procedures in line with the requirements of the Act by January 1, 1970. The period at issue in this lawsuit is the six months from the effective date of the Act, July 1, 1969, to December 31, 1969. During these six months defendant collected approximately $252,000 in monthly charges.

The Truth in Lending Act requires creditors to disclose to consumers, in a uniform and meaningful manner, certain minimum information about their credit transactions so that they are able to compare more readily the various credit terms available to them. The Act does not regulate the amount of the credit charges or the terms of the credit transactions. It merely requires full and uniform disclosure of such charges and terms to help consumers shop for alternative sources of credit. Because uniformity of disclosure is an important purpose of the Act, its requirements are rather technical. Defendant admits that the forms it used in early 1969 for monthly statements to credit card customers did not contain the information required by the Act. Accordingly, when defendant decided to comply with the Act, it ordered new forms from its suppliers, drafted an initial disclosure statement which was included with every credit card statement mailed in July, August and September of 1969 and mass mailed separately in October, and, finally, drafted a supplement to the monthly statement which was mailed with every credit card statement mailed during each of the months of July through December of 1969. The new forms were put into use on January 1, 1970.

Regulation Z provides for a transition period of six months after the effective date of the Act for creditors to bring their credit procedures into compliance. Whether the steps taken by defendant in 1969 to comply with the Act were within this transition period provision, and thus whether the defendant complied with the Truth in Lending Act, is the major substantive issue in this case. Both parties have moved for summary judgment, raising additional issues which can be disposed of simply. Defendant has also filed a motion for an order disallowing the class action, which will be dealt with first.

The Class Action

Since Judge Frankel's opinion in Ratner v. Chemical Bank of New York Trust Co., 54 F.R.D. 412 (S.D.N.Y. 1972), all but one of the district courts which to our knowledge have considered the question in Truth in Lending cases have decided that the class action device is inappropriate.*fn* There is no need here to decide that a class suit is never appropriate in such a case. The precise holding of Ratner, which is unquestionably sound, was that where the alleged violations of the Act are "at most technical and debatable," and where the size of the proposed class and the minimum $100 recovery portend "a horrendous, possibly annihilating punishment" to the defendant, "unrelated to any damage to the purported class or to any benefit to defendant," 54 F.R.D. at 416, the class action should not be confirmed.

In an effort to remove the possibility that defendant might be subjected to horrendous punishment by eventual recovery on behalf of the alleged class, plaintiffs have offered to voluntarily reduce their ad damnum to $504,000, an amount equal to twice the finance charges imposed by defendant during the six months it was allegedly not complying with the Act. Assuming for the moment that this offer were not fraught with legal difficulty (see Goldman v. First National Bank of Chicago, 56 F.R.D. 587 (N.D.Ill., 1972), it would not sufficiently distinguish this case from the Ratner rationale. Although the specter of "possibly annihilating" punishment to defendant would be largely removed, the violations alleged here and discussed below are still "highly technical" and even debatable, and the recovery would be unrelated to any damage to the purported class. Whether any of the members of the proposed class actually suffered damages from these alleged violations is highly speculative.

Accordingly, the motion for an order disallowing the class action will be granted.

Summary Judgment

In its motion for summary judgment, defendant contends that it is not subject to the Truth in Lending Act as a matter of law, that if applied to defendant's credit card program the Act and its regulations are so vague that they violate the due process clause of the Fifth ...

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