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Public Finance Corp. v. Riddle





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


On March 22, 1973, Public Finance Corporation (Public) filed a complaint in the circuit court of Knox County against the defendants, David and Beverly Riddle (Riddles), alleging that the Riddles owed them $1,142.70 based upon a note executed on December 8, 1969, in the original face amount of $1,759.45. On March 3, 1975, the case was dismissed for want of prosecution. On February 27, 1978, Public filed a motion to reinstate the case, and on March 10, 1978, an order was entered reinstating it.

The Riddles answered the reinstated complaint, admitting everything except the amount due on the note. They also filed a counterclaim against Public alleging various violations of the Federal Truth in Lending Act (TILA) (15 U.S.C. § 1601 et seq. (1976)), the Illinois Consumer Installment Loan Act (Large Loan Act) (Ill. Rev. Stat. 1977, ch. 74, par. 51 et seq.), the Illinois Consumer Fraud Act (Ill. Rev. Stat. 1977, ch. 121 1/2, par. 261 et seq.), and the Uniform Commercial Code (UCC) (Ill. Rev. Stat. 1977, ch. 26, par. 1-101 et seq.), regarding the loan Public sued on and another loan they made from Public. Public filed an answer to the counterclaim denying any violations.

Both parties then filed cross motions for summary judgment. On August 10, 1978, the trial court entered an order granting summary judgment for the Riddles with regard to the violations of Illinois law only. The trial court did not rule on the Federal violations or damages. Both sides appealed and the case was briefed and argued before this court in March 1979. We dismissed the appeal, holding that the trial court had not rendered an appealable order because it had not adjudicated the Riddles' claims based upon alleged violations of TILA. On July 6, 1979, the trial court entered a judgment in the Riddles' favor and against Public in which (1) the Riddles were awarded judgment against Public for violations of the Illinois Large Loan Act in the amount of $1,747.60 together with attorney's fees of $500; (2) the balance due Public was stipulated to be $1,142.70; (3) the net judgment in the Riddles' favor was $1,104.90 plus court costs; (4) the court entered judgment in Public's favor regarding violations of TILA holding that, based upon Ninth Liberty Loan Corp. v. Hardy (1977), 53 Ill. App.3d 601, 368 N.E.2d 971, "* * * no damages are due to the consumers by virtue of any violation of the Federal Truth in Lending Act inasmuch as the same is duplicitous with the Illinois Act, on which violations were found."

The Riddles appeal from that portion of the trial court's judgment denying them recovery for violations of TILA. Public cross-appeals, seeking to overturn that portion of the trial court's judgment granting recovery against it.

We first consider whether the loans from Public to the Riddles violated Illinois law. The first loan from Public to the Riddles was entered into on May 5, 1969. The second loan was entered into on December 8, 1969. Public contends that the May 5 loan could not have contravened the Large Loan Act because the Large Loan Act did not become effective until October 7, 1969. We have no quarrel with this contention. However, the trial judge specifically found that the May 5 loan violated section 16 of the Large Loan Act, (Ill. Rev. Stat. 1969, ch. 74, par. 66(g)), which was in effect prior to May 5, 1969. Therefore, we believe that there are no problems regarding the application of Illinois law to the May 5 loan.

• 1 Public next contends that the trial court erred in finding that the loans violated the Large Loan Act and the UCC. We disagree. The trial judge held that the security interest was overbroad and violated the UCC. We see no reason to disturb that holding. The trial judge also held that the disclosure requirements of existing Illinois statutes were violated. Public claims that its disclosure statements were not violative of State law in that although the security interests claimed were overbroad, the disclosure statements accurately describe them. This argument misses the point behind the statute. The security agreement claimed an impermissible interest. The disclosure statement described the agreement exactly, telling the Riddles that Public had a security interest it couldn't have. Therefore, Public's disclosure statements served to mislead the Riddles as to the security interest Public had. (See Holmes v. No. 2 Galesburg Crown Finance Corp. (1979), 77 Ill. App.3d 785, 396 N.E.2d 583.) For this reason, we believe the trial judge ruled correctly that the disclosure statements violated Illinois law.

• 2 Having held that both loans violated State law, we next turn to the question of whether or not the loans violated the Federal Truth in Lending Act. Initially it must be determined whether TILA was applicable to both loans. The Federal Consumer Protection Act (15 U.S.C. § 1601 et seq. (1976)), of which TILA is a part, was enacted and effective May 29, 1968. However, section 504 of the act specifically states that chapters 2 and 3 of title I of the Act did not take effect until July 1, 1969. Chapter 2, consisting of sections 121 through 135, is the section which deals with credit transactions and disclosure. Since the first loan between Public and the Riddles was entered into on May 5, 1969, prior to the provisions on credit transactions and disclosures becoming effective, TILA is not applicable to it. The second loan between Public and the Riddles was entered into on December 8, 1969, and therefore TILA is applicable to it.

Since TILA is applicable to the December 8, 1969, loan, the next issue is whether or not the TILA violation could be pled as a counterclaim despite the fact that the statute of limitations had run, barring the Riddles from initiating an action under TILA. Section 130(e) of TILA (15 U.S.C. § 1640(e)) 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 occurrence in the instant case took place on December 8, 1969. The counterclaim by the Riddles was not filed until April 17, 1978. Public contends that since the statute of limitations had expired, the Riddles should be barred from asserting the cause of action in a counterclaim. We disagree.

We find the reasoning in Wood Acceptance Co. v. King (1974), 18 Ill. App.3d 149, 309 N.E.2d 403, persuasive here. In Wood the loan company filed an action to recover a deficiency judgment after repossession of an automobile. Defendant filed an answer and counterclaimed for damages under TILA. The trial court dismissed the counterclaimed because it had not been filed within one year. The appellate court reversed, relying on section 17 of the Limitations Act (Ill. Rev. Stat. 1971, ch. 83, par. 18), which provides:

"A defendant may plead a set-off or counter claim barred by the statute of limitations, while held and owned by him, to any action, the cause of which was owned by the plaintiff or person under whom he claims, before such set-off or counter claim was barred, and not otherwise * * *."

The court noted that TILA is intended to safeguard the consumer in connection with the utilization of credit and that the enforcement of TILA is accomplished largely through civil suits. Congress assumed that the civil penalty section would secure substantial compliance with TILA, and for this reason no provision was made for investigative or enforcement machinery at the Federal level. The court stated that the placing of such responsibility on often unknowledgeable consumers lent support to the conclusion that the penalty sought to be imposed under TILA should not be circumvented where the debtor's obligation is not stale and is raised by way of a section 17 counterclaim arising out of the same transaction. Therefore, the court concluded ...

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