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GOLDMAN v. FIRST NAT'L BANK. OF CHICAGO

February 5, 1975

STEVEN GOLDMAN, ON HIS OWN BEHALF AND ON BEHALF OF A CLASS CONSISTING OF ALL OTHER FIRST BANKAMERICARD CARDHOLDERS SIMILARLY SITUATED, PLAINTIFF,
v.
THE FIRST NATIONAL BANK OF CHICAGO, DEFENDANT.



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

MEMORANDUM OPINION

Before me are defendant's motion to strike and dismiss and plaintiff's motion for summary judgment as to Counts 1-3 of the complaint. The material facts are undisputed. Based on the facts, the judgment of the court is that summary judgment should be granted for the defendant.

The plaintiff's third amended complaint is in six counts. Counts 1-3 alleged violations of sections 121(a), 127(a) and 130(a), of the Truth in Lending Act,*fn1 15 U.S.C. § 1631(a), 1637(a), and 1640(a) (1970). The remaining counts allege violations of the Illinois Consumer Fraud Act, Ill.Rev.Stat., ch. 121 1/2, § 262 (1973), and the Illinois Deceptive Trade Practice Act, Ill.Rev.Stat., ch. 121 1/2 § 312(12) (1973). The substance of the controversy lies in the disclosures made by the defendant in its Bankamericard open end credit plan.*fn2 Jurisdiction of Counts 1-3 rests on 15 U.S.C. § 1640(e) and is pendent as to Counts 4-6.

Under the Bankamericard Agreement a cardholder may make merchandise purchases and borrow money with his card. At the end of a billing period a cardholder receives a statement itemizing the previous balance, all current charges and credits to the account, finance charges, if any, and the new balance, including finance charges.

A finance charge of 1 1/2 percent per month is applied on the outstanding average daily balance due on the account during the billing period. If the entire balance for merchandise purchases is paid and received within 25 days of the billing date shown on the billing statement, no finance charge is imposed. On the other hand, if full payment is not received within 25 days, a finance charge accruing from the billing date is imposed on the unpaid balance at the rate described above. The Bankamericard Agreement states that "Finance charges shall commence 25 days from the billing date." Whether this provision is consistent with the method actually used to determine finance charges is the center of the controversy.

Plaintiff used his Bankamericard several times in the seven or eight months following his receipt of it. But he always paid the balance due within 25 days of billing date and thus incurred no finance charge. The plaintiff's February 8, 1971, bill carried new purchases of $79.04. To avoid incurring finance charges, this amount had to paid in full by March 5, 1971. No payment was received by this date; as a result, the March 8 statement reflected a finance charge of $1.19, which accrued retroactively to the February 8, 1971, billing date. Thus, the plaintiff argues that the charge did not commence 25 days after the billing date, and hence the disclosure requirements of the Truth in Lending Act were violated.

The clear purpose of the Truth in Lending Act 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." 15 U.S.C. § 1601 (1970). Thus the Act assures that the cost of credit will be disclosed and that other credit terms will be disclosed so that consumers can compare various plans and make an informed decision on the use of credit. 12 C.F.R. § 226.1(a)(2) (1974). See S.Rep. No. 392, 90th Cong., 1st Sess. (1967); H.R.Rep. No. 1040, 90th Cong. 1st Sess. 7, 13 (1967); 2 U.S. Code Cong. & Admin. News, p. 1962 (1968).

The Act, as interpreted by Regulation Z of the federal reserve system, 12 C.F.R. § 226.1 et seq. (1974), requires that before the first transaction is made on an open end plan, the creditor, in a single statement, must clearly, conspicuously and in meaningful sequence, disclose to the prospective obligor the conditions under which a finance charge may be imposed, an explanation of any free ride period, the method of determining the finance charges, the periodic rate, and corresponding annual percentage rate. 15 U.S.C. § 1631, 1637 (1970); 12 C.F.R. § 226(a), 226.7(a) (1974). In essence, the plaintiff's complaint charges that the free ride period was not disclosed clearly and conspicuously.

The plaintiff strenuously urges that the disclosures made by the defendant did not meet the broad objectives of the remedial Truth in Lending Act. For its part, the defendant asserts with equal vigor that the disclosure was adequate, and that the method of calculating the finance charge was the fairest method used in the industry and consistent with banking custom.*fn3 The question of whether the disclosure was adequate need not be decided, however, because the plaintiff's claim under the Act is barred by the applicable statute of limitations.

Section 130(e), 15 U.S.C. § 1640(e) (1970), of the Act provides:

    Any action under this section may be brought in any
  United States district court, or in any other court
  of competent jurisdiction, within one year from the
  date of the occurrence of the violation.

The facts surrounding the statute of limitations defense are not in dispute. In April of 1970, the plaintiff applied for a Bankamericard on a standard form supplied by the defendant. In late April or early May he received the card along with the Bankamericard Agreement and a Disclosure Statement as Required By the Truth In Lending Act. For purposes of this action, the disclosures were made when the plaintiff received these written statements along with his card.*fn4 On July 1, 1970, the plaintiff first used the card. The first finance charge was imposed on March 8, 1971, and the complaint was filed 4 months later on July 8, 1971. On these facts there are three possible times from which the statute could run. The defendant urges that it runs from the date of disclosure or at the latest the date the card was first used. Under either of these interpretations, the statute would bar this action. The plaintiff asserts the third alternative; the statute runs from the date the first finance charge was imposed, March 8, 1971. If this is correct, the complaint was filed within the one-year period.

Of the few reported cases dealing with the statute of limitations under the Act, not one has faced the precise issue presented by this action. In Wachtel v. West, 476 F.2d 1062 (6th Cir.) cert. denied, 414 U.S. 874, 94 S.Ct. 161, 38 L.Ed.2d 114 (1973), the plaintiffs alleged that they had borrowed money from the defendants on October 28, 1970, giving a second mortgage on their residence. The complaint was filed on April 25, 1972, more than a year after the loan was made. On these facts the lower court dismissed the action on the merits (344 F. Supp. 680 (E.D.Tenn. 1972)). The court of appeals affirmed the lower court stating:

  [A] credit transaction which requires disclosures
  under the Act is completed when the lender and
  borrower contract for the extension of credit. The
  disclosures must be made sometime before this event
  occurs. If the disclosures are not made, this
  violation of the Act occurs, at ...

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