APPEAL from the Circuit Court of Winnebago County; the Hon. K.
CRAIG PETERSON, Judge, presiding.
JUSTICE HOPF DELIVERED THE OPINION OF THE COURT:
Defendants Raymond and Mary Buck obtained a consumer installment loan from plaintiff Household Finance Corporation (HFC). Subsequently HFC brought an action in small claims court to recover money due them under the loan agreement and the Bucks filed a counterclaim alleging violations of both the Truth in Lending Act (TILA) (15 U.S.C. § 1601 et seq. (1976) (prior to 1980 amendment)); Federal Reserve Board Regulation Z (12 C.F.R. sec. 226.1 et seq.); and the Illinois Consumer Installment Loan Act (CILA) (Ill. Rev. Stat. 1977, ch. 74, pars. 66(i), (k) and 70(b)). The parties have agreed that $682.71 is the balance due on the loan. The Bucks appeal from the denial of their counterclaim.
The Bucks' counterclaim contended that the HFC contract failed to make adequate disclosures under TILA, Regulation Z and CILA. Thus, they sought statutory damages.
• 1 The Bucks' first contention is that the lack of adequate security disclosure results in TILA and Regulation Z violations. TILA was enacted by Congress for the purpose of assuring "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(a) (1976).) The implementation of this is carried out by Regulation Z, which was promulgated by the Board of Governors of the Federal Reserve Board (Board). (15 U.S.C. sec. 1602(b) (1976); 12 C.F.R. sec. 226.8.) It is clear that State courts> have jurisdiction to enforce TILA. (15 U.S.C. § 1640(e) (1976); Associates Finance, Inc. v. Cedillo (1980), 89 Ill. App.3d 179, 411 N.E.2d 1194.) It is also clear that HFC is a creditor under TILA (15 U.S.C. § 1602(f) and 1640 (1976)).
The form used by HFC in this case contains three boxes that relate to security for the loan. These boxes are headed respectively "Chattel Mortgage," "Wage Assignment," and "Real Estate Mortgage." To determine the meaning of these boxes, the debtor must refer to the section labeled "SECURITY," found several inches below the boxes. This section provides:
"Unless `No' appears under `Wage Assignment' above, there is an assignment of your salary and wages. Unless `No' appears under `Chattel Mortgage' above, there is a Chattel Mortgage Security Agreement on all household and consumer goods belonging to borrowers and located at their address stated above and any property listed below. If `Yes' appears under `Real Estate Mortgage' above, there is a mortgage on the real estate belonging to borrowers which is located at their address stated above, unless a different address is stated below. Any real property which secured this loan may secure future or other indebtedness."
• 2 This provision, when read in conjunction with the three boxes fails to disclose HFC's security interest clearly or in meaningful sequence as required by Regulation Z (12 C.F.R. sec. 226.6(a).) The blanks in the boxes do not have a consistent meaning, and result in a confusing disclosure as well as a clouded identification of the security interest. Because a stringent view is taken of unclear check-off devices (Associates Finance, Inc. v. Cedillo (1980), 89 Ill. App.3d 179, 183, 411 N.E.2d 1194), the use of the boxes in this fashion constitutes a violation of TILA and Regulation Z.
• 3, 4 In a consumer installment loan, such as the Bucks obtained from HFC, various credit terms must be disclosed. (15 U.S.C. § 1639 (1976); 12 C.F.R. sec. 226.8.) Due to TILA's remedial nature, creditors must meet a standard of strict compliance with these technical disclosure requirements. (Kraft v. No. 2 Galesburg Crown Finance Corp. (1981), 95 Ill. App.3d 1044, 420 N.E.2d 865; Associates Finance, Inc. v. Cedillo (1980), 89 Ill. App.3d 179, 411 N.E.2d 1194.) An objective standard is used in determining TILA violations; the consumer need not have been deceived in fact for the statute to have been violated. Smith v. Chapman (5th Cir. 1980), 614 F.2d 968.
A creditor must describe any security interest obtained as a result of the loan and clearly identify the property to which the security interest relates. (15 U.S.C. § 1639 (1976); 12 C.F.R. sec. 226.8; Associates Finance, Inc. v. Cedillo (1980), 89 Ill. App.3d 179, 411 N.E.2d 1194.) The disclosure of the security interest, as all other disclosures, must be made clearly, conspicuously, and in meaningful sequence. (12 C.F.R. sec. 226.6(a).) Similar requirements exist under TILA and Regulation Z as amended. Pub. Law 96-221, sec. 614(a); 12 C.F.R. secs. 226.17(a)(1), 226.18 (1980) (as amended).
"Clear identification" means that the creditor must provide enough information to preclude any reasonable question concerning the goods to which the security interest attached. Associates Finance, Inc. v. Cedillo (1980), 89 Ill. App.3d 179, 183, 411 N.E.2d 1194.
The fact that the description of the boxes' meaning is separated from the boxes themselves obfuscates the disclosures. Disclosures of related terms must follow a logical order and should not be scattered throughout the agreement. Basham v. Finance America Corp. (7th Cir. 1978), 583 F.2d 918, 926, cert. denied sub nom. DeJaynes v. General Finance Corp. (1979), 439 U.S. 1128, 59 L.Ed.2d 89, 99 S.Ct. 1046.
None of the cases cited by HFC deal with inconsistent use of terms in boxes, and therefore are distinguishable on their facts. Further, this court cannot consider the contracts HFC encloses in its brief, as they are outside the record. Littrell v. Coats Co. (1978), 62 Ill. App.3d 516, 379 N.E.2d 293.
• 5 TILA and Regulation Z were amended recently. However, the amendments to TILA do not become effective until October 1, 1982. (Pub. Law 96-221 (1980).) Revised Regulation Z became effective April 1, 1981, but compliance is optional until October 1, 1982. (12 C.F.R. sec. 226.) As the loan agreement here was executed in 1977, HFC cannot argue that it is exercising the option to comply with the revised Regulation Z. Because a court is to apply the law in effect at the time it renders its decision (Bradley v. School Board of Richmond (1974), 416 U.S. 696, 40 L.Ed.2d 476, 94 S.Ct. 2006), the amendments to TILA and Regulation Z do not control this case, but may be persuasive where similar to the old law.
In Allen v. Beneficial Finance Co. (7th Cir. 1976), 531 F.2d 797, cert. denied (1976), 429 U.S. 885, 50 L.Ed.2d 166, 97 S.Ct. 237, the issue of meaningful disclosure was discussed. According to Allen, "meaningful sequence" requires that disclosure statements basically follow two criteria. The first criteria requires groupings of logically related terms, and the second requires that the terms in these groupings be arranged in a logically sequential order, emphasizing the most important terms. (531 F.2d 797, 801.) The Allen court found a failure to provide a disclosure in meaningful sequence where some figures were listed horizontally and others were listed vertically. The disclosure attempt also contained random ...