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Holmes v. No. 2 Galesburg Crown Finance Corp.

OPINION FILED OCTOBER 22, 1979.

ALBERT F. HOLMES ET AL., PLAINTIFFS-APPELLANTS,

v.

NO. 2 GALESBURG CROWN FINANCE CORPORATION, DEFENDANT-APPELLEE.



APPEAL from the Circuit Court of Knox County; the Hon. GALE A. MATHERS, Judge, presiding.

MR. PRESIDING JUSTICE STOUDER DELIVERED THE OPINION OF THE COURT:

Rehearing denied November 27, 1979.

This appeal involves two consolidated cases dealing with loans which the plaintiff-appellants allege violated the Federal Truth in Lending Act (TILA) (15 U.S.C. § 1601 et seq. (1976)), the regulations promulgated thereto (Regulation Z) (12 C.F.R. pt. 226), The Illinois Uniform Commercial Code (UCC) (Ill. Rev. Stat. 1973, ch. 26, par. 1-101 et seq.), the Illinois Consumer Installment Loan Act (Large Loan Act) (Ill. Rev. Stat. 1973, ch. 74, par. 51 et seq.), and the Illinois Consumer Fraud and Deceptive Business Practices Act (Ill. Rev. Stat. 1973, ch. 121 1/2, par. 261 et seq.). In both cases the trial court granted summary judgment for the defendant.

In each complaint the plaintiffs (Crouch in one case, Holmes in the other) alleged that the defendant, No. 2 Galesburg Crown Finance Corporation (Crown) entered into a series of consumer finance transactions with plaintiffs. Each transaction was evidenced by loan disclosure statements, security agreements, and financing statements, all prepared by Crown. Plaintiffs allege that Crown, in violation of UCC section 9-204(2), attempted to obtain an unlawful security interest in plaintiffs' after-acquired consumer goods so as to mislead them into believing that Crown's security interest extended to consumer goods acquired more than 10 days after the loan as well as the household goods and furniture which the plaintiffs owned when they signed the loan papers and any goods which they acquired within 10 days after they made the loan. They further allege that the security interest violated the Large Loan Act and the Illinois Consumer Fraud Act in both cases.

We begin our analysis by noting that the Large Loan Act is very similar to TILA. The language, for the most part, is identical and the principal difference between them deals with the statute of limitations and various defenses which can be raised to TILA suits. Thus the Federal Truth in Lending cases, while not binding on this court, are highly persuasive.

In the Crouch case there are several transactions which the plaintiffs allege violate the Large Loan Act. The first two deal with security agreements made in 1973 and 1974 which contain identical language with respect to the security interests created therein. The language reads

"It is hereby agreed by the above named Debtors that the above named Secured Party shall have a security interest in the personal property (also referred to as "collateral") described below together with all rights and remedies of a Secured Party under the Uniform Commercial Code of this State; and to the extent permitted by said Code, in all additions and accessories thereto and replacements thereof hereafter acquired by the Debtors and commingled with or substituted for the collateral hereinafter described."

Plaintiffs claim that the language "all additions and accessories thereto and replacements thereof hereafter acquired by the Debtors and commingled with or substituted for the collateral hereinafter described" makes the security interest claimed overbroad in that section 9-204(2) of the UCC excepts consumer goods other than accessions from any security interest if the debtor acquires rights in them later than 10 days from the time value is given. *fn1 Defendant responds that the language restricting its security interest to "the extent permitted by said Code" sufficiently restricts its rights and adequately discloses the interest so as to satisfy the Large Loan Act.

The Large Loan Act requires the creditor to disclose to the borrower a description or identification of the type of security interest that the creditor will retain and a clear identification of the property to which the security interest relates. If after-acquired property will be subject to the security interest or if other or future indebtedness is or may be secured by this property, this fact shall be clearly set forth in conjunction with the description or identification of the type of security interest held. The Act further states that "All of the disclosures shall be made clearly, conspicuously and in meaningful sequence * * *." Ill. Rev. Stat. 1977, ch. 74, par. 66.

• 1, 2 The Large Loan Act was enacted to ensure a meaningful disclosure of credit terms to the consumer so that the consumer will be able to more easily compare the various credit terms available to him and avoid the uninformed use of credit. We believe that a mere reference to the UCC as a delineation of the parties' rights does not disclose any useful information to the consumer regarding the terms of credit he is obtaining so as to avoid the uninformed use of credit or more easily compare credit terms. Thus we hold that the 1973 and 1974 security agreements do not meet the standards of clear disclosure required by the Large Loan Act, and find a violation thereof.

The next transaction involving Crouch concerns a 1976 loan secured by the 1973 and 1974 security agreements as well as a 1976 security agreement. The 1976 loan contained a disclosure statement which read:

"This loan and any extension or renewal thereof or future advance is secured by * * * Consumer goods including but not limited to household goods, furniture, appliances, and personal property of all kinds and descriptions: all accessions and additions now or hereafter installed in or affixed thereto; proceeds and replacements thereof; and consumer goods hereafter acquired within 10 days after Secured Party gives value."

Plaintiff Crouch claims that because the 1973 and 1974 security agreements were unlawful this loan was also a violation of the Large Loan Act, regardless of the fact that the disclosure statement contained a clause that might limit defendant's security interest to one permissible under the UCC. Defendant contends that the limitation in the disclosure statement in conjunction with the mention of the UCC in the security agreement sets forth all the required disclosures.

• 3 We believe that the disclosure statement itself was a violation of the Large Loan Act. The disclosure statement purports to secure an interest in consumer goods of various types and replacements thereof and then adds "and consumer goods hereafter acquired within ten days after Secured Party gives value." The natural reading of the disclosure statement would lead the ordinary consumer to believe that Crown has a security interest in Crouch's presently owned consumer goods, any replacements of them no matter when ...


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