APPEAL from the Circuit Court of Marion County; the Hon.
WILLIAM H. SPITLER, JR., Judge, presiding.
MR. JUSTICE JONES DELIVERED THE OPINION OF THE COURT:
The American Buyers Club of Mt. Vernon, Illinois, Inc., brought suit against Harold and Rosie Grayling to recover $600.40 allegedly due on a promissory note, the largest portion of which, $437, represented the principal balance with the remainder being for late charges and attorney's fees. The court, sitting without a jury, found for the defendants and the plaintiff appeals. The defendants were not represented by counsel at the trial and have not filed a brief in this court. Nevertheless, we have decided to consider the case on its merits. Daley v. Jack's Tivoli Liquor Lounge, Inc., 118 Ill. App.2d 264, 254 N.E.2d 814.
The plaintiff corporation operates a "buyers club" which they assert can save members substantial amounts over standard retail prices for many kinds of merchandise. These savings are to be achieved through bulk buying by the club. The total "membership fee" is $495.50. This fee is separated into an "initiation fee" of $39.50 and 24 monthly installments of $19. The "member benefit agreement" also recites that if any installment is 30 days past due the entire remaining balance may be accelerated and that the member agrees to pay attorney's fees and "legal expenses" of collection. The 24 monthly installments of $19 total $456. This amount is embodied in a promissory note which provides for acceleration of due date in the event of default and that costs of collection are to be paid by the makers of the note. The note must be signed at the same time as the "member benefit agreement." The agreement also includes the following provision:
"MEMBER(S) authorize and direct the Club to sell or assign this agreement to any bank or finance company selected by the Club and agree to make all payments to assignee."
It is the practice of the Club, as testified to by its president, to assign the promissory note to various banks and finance companies. In this way the corporation receives an immediate cash payment rather than having to wait to receive the member's payments of $19 a month. The note in the instant case, which was admitted into evidence contains the following assignment on its reverse side:
"Assignment with full recourse
For value received the undersigned hereby sells, assigns and transfers this contract, note to _________________ with full recourse.
Seller American Buyers Club By Gene Watts Date 12-27-74"
Just below this language the First Illini Acceptance Corp. of Peoria, Illinois, accepted the assignment. There is a space for showing a "Finance Charge" and for the "Annual Percentage Rate" on both the agreement and the note. However, on both these instruments these spaces are filled in with the word "none." Mr. Grayling testified that he made two payments plus the initiation fee but then made no further payments. He testified that he investigated the prices for merchandise at the Club and found that the savings he had been promised were not available. He also testified that he had been told that he could "drop out at any time." The trial court found the contracts, that is, the member benefit agreement and the promissory note were "unreasonable, unfair, * * * unjust, and * * * unconscionable" and entered judgment for the defendants.
• 1 The law of Illinois provides a defense to the enforcement of a contract if that contract is illegal either as a matter of Illinois or of Federal law. (First Trust & Savings Bank v. Powers, 393 Ill. 97, 65 N.E.2d 377; Zeigler v. Illinois Trust & Savings Bank, 245 Ill. 180, 91 N.E. 1041.) The relevant Federal statute need not declare the contract void or unenforceable to render it available to the defendant as a ground for the defense of illegality. Ideal Building Material Co. v. Benson Concrete Co., 273 Ill. App. 519; Hunter W. Finch & Co. v. Zenith Furnace Co., 245 Ill. 586, 92 N.E. 521.
• 2 Upon consideration of the contract and note in the instant case in the light of the foregoing standards we find them to be void since they are in violation of that portion of the Federal Consumer Credit Protection Act commonly known as the "Truth in Lending Act" (15 U.S.C. § 1601 et seq.) and Regulation Z promulgated by the Federal Reserve Board (12 C.F.R. § 226.1 et seq).
There have been a series of Federal cases dealing with factual situations nearly identical to that presented in the instant case in which contracts and promissory notes such as those we deal with here were found to be in violation of this Federal statute.
The Truth in Lending Act obliges merchants extending credit to disclose to consumers, among other information, the cash price, the total amount of deferred payments, the finance charge and the annual percentage rate of interest. (15 U.S.C. § 1638.) Failure to disclose these items of information can result in the assessment of a penalty of twice the amount of the finance charge, though not less than $100 nor more than $1,000, and for the costs of the litigation including reasonable attorney's fees. 15 U.S.C. § 1640.
In debating the coverage of the Act Congress was aware that "[w]hatever legislation was passed had to deal not only with the myriad forms in which credit transactions then occurred, but also with those which would be devised in the future." (Mourning v. Family Publications Service, Inc., 411 U.S. 356, 365, 36 L.Ed.2d 318, 327, 93 S.Ct. 1652, 1658.) Accordingly, broad authority was delegated to the Federal Reserve Board to interpret the Act and ...