United States District Court, Central District of Illinois, Peoria Division
June 1, 1993
DAVID LEATHERS AND GAIL LEATHERS, PLAINTIFFS,
PEORIA TOYOTA-VOLVO, DEFENDANT.
The opinion of the court was delivered by: McDADE, District Judge.
Before the Court is Plaintiffs' Motion for Summary Judgment.
Because the Defendant has failed to respond pursuant to Local
Rule 2.9(B), the Court has reviewed the merits of Plaintiffs'
motion without benefit of a response and concludes that summary
judgment must be granted as a matter of law.*fn1
This action was filed pursuant to the Truth In Lending Act,
15 U.S.C. § 1601 et seq. ("TILA"), specifically § 1638(a)(9) and
the regulations promulgated thereto.*fn2 Plaintiffs allege that
they are entitled to judgment as a matter of law in the amount of
$1,000 plus attorney's fees and costs, because Defendant did not
properly disclose "the fact that it has or will acquire a
[security] interest" in the car Plaintiffs purchased "as part of
[a] credit transaction."
A. The Facts
On or about September 30, 1991, Plaintiffs, David W. and Gail
E. Leathers, purchased a used car from Defendant, Peoria Toyota
Volvo, borrowing $4,533.84 from Defendant to finance the
purchase. According to Plaintiffs, "Defendant, on a form prepared
by it, delivered to Plaintiffs a "Retail Installment Contract"
which included both the Security Agreement ["Agreement"] and a
Truth In Lending Disclosure Statement." Plaintiffs signed the
The contract contains a group of disclosures in what is
commonly referred to as the "Federal Box," entitled "Truth In
Lending Disclosures." The annual percentage rate, the finance
charge, the amount financed, the total [number] of payments, and
the payment schedule is set out clearly and conspicuously at the
top of the box. The Agreement is set out at the bottom of the box
in extremely small print and without any distinguishing features
by which to call attention to it. The Agreement provides three
alternatives with empty boxes where a check mark is inserted
designating the type of security promised. In this case, the
Agreement states that Plaintiffs, as purchasers, agreed to give a
security interest in a "right of set-off against any moneys,
credits or other property . . . in the possession of the Holder."
At the bottom of the contract, outside the Federal Box, is a
paragraph which reads as follows:
Security Interest: Seller shall have a security
interest under the Uniform Commercial Code in the
Property (described above) and in the proceeds
thereof, to secure the payment in cash of the Total
of Payments and all other amounts due or to become
due hereunder. Holder is granted a right of set-off
or lien on any deposit or sums now or hereafter owed
by Holder to Buyer(s).
B. Truth In Lending Act
Initially, the Court notes that TILA "must be liberally
construed in favor of the consumer." Davis v. Werne,
673 F.2d 866, 869 (5th Cir. 1982). Furthermore, "TILA requirements are
enforced by imposing a sort of strict liability in favor of
consumers who have secured financing through transactions not in
compliance with the terms of the Act. `It is strict liability in
the sense that absolute compliance is required and even technical
violations will form the basis for liability.'" Shepeard v.
Quality Siding & Window Factory, Inc., 730 F. Supp. 1295, 1299
(D.Del. 1990) (citations omitted). In Smith v. No. 2. Galesburg
Crown Finance Corp., 615 F.2d 407 (7th Cir. 1980), the Seventh
Circuit provided the Court with clear guidelines for evaluating
complaints regarding violations of the Act. Smith stated:
It is not sufficient to attempt to comply with the
spirit of TILA in order to avoid liability. Rather,
strict compliance with the required disclosures and
terminology is required. Many violations of TILA
involve technical violations without egregious
conduct of any kind on the part of the creditor.
However, Congress did not intend that the creditors
should escape liability for merely technical
violations. Thus, while it may be true, in some sense
. . . that the terminological violations here are
inconsequential, the fact remains that they are
violations. Any misgivings which creditors may have
about the technical nature of the requirements should
be addressed to Congress or to the Federal Reserve
Board, not to the courts. . . . We will therefore
require strict adherence to the required terminology
under the statute and regulations, and we will not
countenance deviations from those requirements,
however minor they may be in some abstract sense.
Id. at 416-417. (citations omitted).
In "closed-end" consumer credit transactions, the Truth In
Lending Act requires a seller/creditor to make certain
disclosures to protect the consumer. A list of the required
disclosures is provided at 15 U.S.C. § 1638(a)(1)-(13). Included
in this list is the requirement that in purchase money
transactions a creditor must disclose any security interest taken
in the property purchased. Section 1638(a)(9) provides:
§ 1638. Transactions other than open end credit
Required disclosures by creditor
(a) For each consumer credit transaction other than
under an open end credit plan, the creditor shall
disclose each of the following items, to the extent
applicable: (9) Where the credit is secured, a
statement that a security interest has been taken in
(A) the property which is purchased as a part of
the credit transaction, or (B) property not
purchased as a part of the credit transaction
identified by item or type.
Required disclosures must conform to the applicable regulations
governing Section 1638, commonly referred to as "Regulation Z,"
12 C.F.R. § 226 et seq. Matter of Dingledine,
916 F.2d 408
(7th Cir. 1990) ("Congress has demonstrated an
unmistakable intention to treat administrative rule making and
interpretation under TILA as authoritative." (citation omitted)).
These regulations state:
The creditor shall make the disclosures required by
this subpart clearly and conspicuously in writing, in
a form that the consumer may keep. The disclosures
shall be grouped together, shall be segregated from
everything else, and shall not contain any
information not directly related to the disclosures
required under § 226.18. 12 C.F.R. § 226.17(a)(1).
(g)(2) In a transaction in which a series of payments
varies because a financial charge is applied to the
unpaid principal balance, the creditor may comply
with this paragraph by disclosing the following
information . . . (m) Security interest. The fact
that the creditor has or will acquire a security
interest in the property purchased as part of the
transaction, or in other property identified by item
or type. 12 C.F.R. § 226.18(g)(2), (m).
In Marshall v. Security State Bank of Hamilton, 121 B.R. 814
(C.D.Ill. 1990), aff'd on other grounds by In Re Marshall,
970 F.2d 383
(7th Cir. 1992), this Court found that TILA is designed
to inform the consumer "as to the nature of the transaction" so
that he or she may "be able to compare and shop for credit from
various creditors." Id. at 816. To this end, the regulations
requiring disclosures to be clear, conspicuous and segregated
from irrelevant information have taken the form of what is
commonly referred to as the "Federal Box." Id. at 816. See
also 12 C.F.R. § 226.17(a)(1), Supp. I (1993).*fn3
with these regulations is satisfied when the creditor places all
the disclosures on one side of one document (unless there is not
enough room) or groups the disclosures together within the
Federal Box. See 12 C.F.R. § 226.17(a)(1) and § 226.18(m),
Supp. I (1993).
Where the point of disclosure is to advise the purchaser that
the seller/creditor seeks to obtain a security interest in the
property purchased, the disclosure must generally identify the
property. 12 C.F.R. § 226.18(m), Supp. I (1993). In Matter of
Dingledine, 916 F.2d 408 (7th Cir. 1990), the Seventh Circuit
noted that the purpose of the disclosure statement is merely to
disclose the fact of a security interest in the "general
category" of property purchased. "The consumer must look to the
security agreement to ascertain the exact items securing the
loan." Id. at 411. Thus, in this case, TILA is satisfied if the
disclosure statement acknowledges that the creditor intends to
take a security interest in the "goods or property being
purchased" without specific reference to the vehicle itself.
Disclosure by incorporating references outside the disclosure
statement, however, is not "clear and conspicuous" because it
"obscures the relationship of the terms to each other" by
segregation and thus does not comply with TILA. See
12 C.F.R. § 226.17(a)(1) and § 226.18(m), Supp. I (1993). See also Marshall
v. Security State Bank, 121 B.R. 814, 816 (C.D.Ill. 1990) ("the
actual reference to the vehicle is outside the `Federal Box' and
cannot be considered to be part of the required disclosures").
Thus the sole issue in this case is whether the disclosure inside
the "Federal Box" satisfies the requirements of TILA.
Where a creditor violates the TILA by failing to disclose its
security interest in the property purchased, the debtor is
entitled to damages.*fn4 15 U.S.C. § 1640(a)(2).
Title 15 U.S.C. § 1640(a)(2) provides that liability is to be
twice the amount of any finance charge in connection with the
transaction, not to exceed $1,000.
In cases where a creditor is liable for non-disclosure, courts
also may award attorney's fees and costs. 15 U.S.C. § 1640(a)(3).
However, determination of the amount of fees awarded is left to
the sound discretion of the Court and must be assessed on a case
by case basis. In some cases, an attorney's fees will exceed the
$1,000 ceiling on damages; however, the Seventh Circuit cautions
district courts that an award of fees which greatly exceeds the
amount of damages at stake "requires strong support from the
circumstances of the particular case." Pine v. Barash,
705 F.2d 936, 938-39 (7th Cir. 1983) citing and distinguishing Mirabal v.
General Motors Acceptance Corp., 576 F.2d 729 (7th Cir.) (per
curiam), cert. denied, 439 U.S. 1039, 99 S.Ct. 642, 58 L.Ed.2d
C. Summary Judgment
Federal Rule 56(c) Summary Judgment is appropriate when there
remains no genuine issue of material fact upon which a reasonable
jury could find in favor of the non-moving party, and the moving
party is entitled to judgment as a matter of law. Although the
moving party on a motion for summary judgment is responsible for
demonstrating to the Court why there is no genuine issue of
material fact, the non-moving party must go beyond the face of
the pleadings, affidavits, depositions, answers to
interrogatories, and admissions on file, to show that a rational
jury could return a verdict in this party's favor. Celotex Corp.
v. Catrett, 477 U.S. 317, 322-27, 106 S.Ct. 2548, 2552-55, 91
L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 254-55, 106 S.Ct. 2505, 2513-14, 91 L.Ed.2d 202 (1986);
Matsushita Elec. Industrial Co. v. Zenith Radio Corp.,
475 U.S. 574, 586-87, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538 (1986). In
essence, the inquiry on summary judgment is whether the evidence
presents a sufficient disagreement to require submission to a
jury, or whether the evidence is so one-sided that one party must
prevail as a matter of law. Anderson, 477 U.S. at 251-52, 106
S.Ct. at 2512. The Court must view all inferences to be drawn
from the facts in the light most favorable to the opposing party.
Anderson, 477 U.S. at 247-48, 106 S.Ct. at 2510. Beraha v.
Baxter Health Corp., 956 F.2d 1436, 1440 (7th Cir. 1992).
Disputed facts are material when they might affect the outcome of
the suit. First Indiana Bank v. Baker, 957 F.2d 506, 507-08
(7th Cir. 1992). A metaphysical doubt will not suffice.
Matsushita, 475 U.S. at 586, 106 S.Ct. at 1356.
At issue is whether Defendant-Creditor failed to identify a
security interest in the goods or property being purchased. The
Court finds that the Defendant violated TILA because the Security
Agreement did not disclose in a clear and conspicuous manner that
Defendant took a security interest in the vehicle purchased. The
disclosure itself only states that the security interest is in
the right of set-off; it makes no mention of a security interest
in the "goods or property being purchased." While it is true that
the contract indicates elsewhere that the seller has a security
interest in the "property described above," it is not clear
whether that statement refers to the automobile or whether it
refers to the property described in the disclosure section (i.e.,
money, credit or other property in the possession of the Holder).
Further, the paragraph at the bottom of the contract, which
mentions the "property described above," is outside the
disclosure statement within the Federal Box and thus does not
comply with the requirement that
disclosures be grouped together.*fn5
Because TILA is construed in favor of protecting the consumer,
a technical violation is sufficient for an award of damages, even
if rescission is not being sought. Accordingly, the Court finds
that Defendant's failure to clearly and conspicuously identify a
security interest in the property purchased is a non-disclosure
which violates TILA and entitles Plaintiffs to damages.
Section 1640(a)(2) provides that damages are to be twice the
amount of any finance charge in connection with the transaction,
not to exceed $1,000. In this case the finance charge was
$870.00. Twice that amount equals $1,740.00. Thus, the Court will
award Plaintiffs $1,000 for Defendant's failure to properly
disclose the Security Agreement.
Plaintiffs are also entitled to reasonable attorney's fees and
costs. 15 U.S.C. § 1640(a)(3). However, before the Court will
make an award of attorney's fees, Plaintiffs must submit a
supporting affidavit which indicates the amount of fees required
and the method of calculation. This affidavit should comply with
the standards set forth in Gusman v. Unisys Corp., 1993 WL
48043 (7th Cir. 1993) and Pine v. Barasch, 705 F.2d 936 (7th
IT IS THEREFORE ORDERED that Plaintiff's Motion for Summary
Judgment (Doc. # 6-1) is GRANTED and judgment is awarded in the
amount of $1,000.00 plus attorney's fees and costs. Plaintiffs
shall submit an affidavit for the amount of attorney's fees and
costs requested, including the manner in which the fees were
calculated, within twenty-one (21) days from the date of this
Order. Defendant will be permitted to respond. The Court will
reserve ruling on the amount of the attorney fee award until
these briefs are submitted. CASE TERMINATED.