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APRIL v. UNION MORTG. CO.

March 6, 1989

A.J. APRIL and ANNIE APRIL, Plaintiffs,
v.
UNION MORTGAGE COMPANY, INC., Defendant


Suzanne B. Conlon, United States District Judge.


The opinion of the court was delivered by: CONLON

SUZANNE B. CONLON, UNITED STATES DISTRICT JUDGE

 In June 1987, A. J. April and Annie April ("the Aprils") entered into an agreement with Budget Construction Company ("Budget") to provide home improvements "at an ostensible price of $ 28,000." Second amended complaint ("complaint") para. 1. The Aprils executed a retail installment contract with Budget that represented the cost of the work to be $ 20,000. Id. at para. 8.

 In July 1987, a Budget representative allegedly advised the Aprils to refinance their obligation through Union Mortgage Company, Inc. ("Union"). The Aprils subsequently entered into a refinancing agreement with Union that covered the Aprils' debt to Budget, as well as certain other obligations.

 Several documents were executed in connection with the refinancing, including a Truth in Lending statement, *fn1" a security agreement and a junior mortgage on the Aprils' home. Id. at para. 11. The Truth in Lending statement reflects that Union paid $ 20,000 to Budget. The Aprils allege Union paid Budget approximately $ 16,700 and retained $ 3,300 as a charge in the nature of "points." Id. at paras. 1, 17. They contend Union and Budget agreed that Budget would systematically inflate the purported cash price of a transaction to allow Union to charge "points" without disclosure to the consumer. Id. at para. 1.

 The statement accurately reported the annual percentage rate ("APR") to be 18.86%. Id. at para. 12. The "finance charge," described as "the dollar amount the credit will cost," was listed as $ 40,675.60. Union allegedly did not include a $ 1,019.40 "prepaid finance charge" in the $ 40,675.60 "finance charge." Id. at para. 14. The complaint does not allege that the $ 1,019.40 was in excess of the APR.

 The Aprils filed this action against Union alleging violations of the Federal Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601-1667, the Illinois Consumer Fraud and Deceptive Business Practices Act ("Consumer Fraud Act"), Ill.Rev.Stat. ch. 121-1/2 paras. 261-272, and the Illinois Interest Act, Ill.Rev.Stat. ch. 17 paras. 6401-6419, as well as breach of contract. Union moves to dismiss all counts of the complaint except the breach of contract claim (Count VI).

 DISCUSSION

 In ruling on a motion to dismiss, the court accepts all well-pleaded factual allegations as true and views them in the light most favorable to the plaintiffs. Gomez v. Illinois State Board of Education, 811 F.2d 1030, 1039 (7th Cir. 1987). A claim will not be dismissed unless it appears beyond doubt that plaintiffs are unable to prove any set of facts that would entitle them to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957).

 Counts I and III

 The Aprils charge that Union retained $ 1,019.40 of the amount financed as a "prepaid finance charge" but did not include this amount in the $ 40,675.60 "finance charge." Id. at para. 14.

 In Count I, the Aprils argue Union's failure to include the prepaid finance charge in the finance charge constitutes a violation of Section 1605 of TILA. 15 U.S.C. § 1605(a) provides in relevant part:

 
The amount of the finance charge in connection with any consumer credit transaction shall be determined as the sum of all charges . . . imposed directly or indirectly by the creditor as an incident to the extension of credit [including] . . . (3) loan fee, finder's fee, or similar charge.

 The Aprils claim that Union imposed on them an undisclosed finance charge that entitles them to rescind the loan transaction. Complaint paras. 27-28.

 Union does not dispute that the $ 1,019.40 amount was an incident to the extension of consumer credit. It admits that the "finance charge" was understated but maintains that the APR was correct. If the APR is correct, Union argues, the finance charge need not be correct. Union's memo. at 8. Union claims it satisfied the congressional intent that credit terms be meaningfully disclosed and denies the Aprils were misled or damaged by the technical inaccuracy.

 The regulations issued to implement TILA ("Regulation Z") requires a creditor to disclose clearly and accurately both the finance charge and the APR for each transaction. The finance charge must be accompanied by a "brief description such as 'the dollar amount the credit will cost you.'" 12 C.F.R. § 226.18(d). Where the amount financed exceeds $ 1,000, the finance charge is considered accurate if it is within $ 10 of the actual amount. Id. at n.41. A creditor must also disclose the APR, together with a brief description of the yearly cost of the credit. 12 C.F.R. § 226.18(e). The finance charge and APR must be more conspicuously disclosed than any disclosure other than the creditor's identity. 12 C.F.R. § 226.17(a) (2).

 The Seventh Circuit has recognized that Congress did not intend for creditors to escape liability for ...


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