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January 9, 1996

EUTIQUIO HERNANDEZ, etc., Plaintiff,
VIDMAR BUICK CO., Defendant.

The opinion of the court was delivered by: SHADUR


 Eutiquio Hernandez ("Hernandez") has charged Vidmar Buick Co. ("Vidmar") with having violated (1) the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601-1693r, as implemented by Federal Reserve Board ("Board") Regulation Z ("Reg. Z"), 12 C.F.R. Part 226 *fn1" (Count I), and (2) the Illinois Consumer Fraud and Deceptive Business Practices Act ("Consumer Fraud Act"), 815 ILCS 505/1 to 505/12 *fn2" (Counts II and V), by making misrepresentations in the retail installment contract used to finance Hernandez' purchase of a used car from Vidmar. Vidmar has moved for dismissal of the Complaint under Fed. R. Civ. P. ("Rule") 12(b)(6), and its motion is fully briefed and ready for decision.

  Before this opinion turns to that task, however, a few words are in order as to the aspects of this lawsuit that are not dealt with here. For one thing, the parties have settled Hernandez' other claims that Vidmar sold him a lemon, so that Complaint Counts III and IV have just been dismissed by stipulation. And for another, Hernandez' motion for class certification under Rule 23(c)(1) will not be addressed here on the merits:


1. On November 30, 1995 this Court decided that this action would not be maintained as a class action, stating its reasons for that determination in an oral ruling.


2. After more than an intervening month had elapsed--and when this opinion had already reached substantially final form--Hernandez' counsel has now tendered an extensive motion for reconsideration of the class certification issue.


3. In the meantime our Court of Appeals has for the first time expressed its approval of the sensible approach of a district court's sometimes choosing to address a substantive motion (even one brought under Rule 56) before making a Rule 23(c)(1) decision--essentially a recognition by the Court of Appeals that the latter Rule's directive to decide on certification "as soon as practicable after the commencement of an action brought as a class action" is not to be viewed as an inexorable mandate regarding the priority of decision ( Cowen v. Bank United of Texas, 70 F.3d 937, 1995 WL 691861, at *2 (7th Cir. 1995)). *fn3"


4. Accordingly Hernandez' motion for reconsideration is granted, and the November 30 order denying class certification is hereby made conditional (see Rule 23(c)(1)). When the open issues hereafter referred to in the substantive part of this opinion become ripe for resolution, this Court will be in a better position to decide whether the other substantive matters that have been posed by Hernandez' motion for reconsideration will need to be addressed at all.

 And now to the principal task at hand. For the reasons stated in this memorandum opinion and order:


1. Vidmar's Rule 12(b)(6) motion is denied except to the extent stated in the next numbered paragraph.


2. To the extent that Hernandez' TILA and Consumer Fraud Act claims are based on his theory that Vidmar misrepresented the service contract fee as non-negotiable by its placement of the reference to that fee in the retail installment contract, that aspect of Hernandez' claims is dismissed with prejudice.


3. Discovery and all other proceedings in this case are stayed until Board has taken official action on its proposed commentary to Reg. Z discussed in this opinion.

 Hernandez' Allegations4

 In February 1995 Hernandez bought a used car and an accompanying service contract from Vidmar. In connection with the financing of the transaction, the parties entered into a retail installment contract ("Contract"), which listed the "Itemization of the Amount Financed" in the manner shown in the right-hand column of the Appendix to this opinion.

 Two things about that "Itemization" should be noted at the outset. First, its format is dictated by the requirements of Reg. Z (with which Vidmar, like every other credit seller of consumer goods, must comply) and specifically comports with Board's model form H-3 as prescribed in Reg. Z and its Appendix H. Second, as to the focal point of the controversy between the parties--the $ 498 that is listed as paid to "Advantage"--it is plain from the service contract attached to Hernandez' Complaint that "Advantage" is simply the name of the service contract plan that is administered by a company named Western Diversified Services, Inc. ("Western"). *fn5"

 In any event, this entire lawsuit grows out of the manner in which the $ 498 service contract fee has been disclosed in the Contract. Although the Contract reflects that sum (on the line reading "$ 498.00 to Advantage") as an amount "paid to others" ("others" being anyone other than Vidmar), in fact Vidmar paid only a small portion of that fee over to third party Western and retained the rest.

 Hernandez' quarrel is not with Vidmar's having kept some of the service contract fee as such, but rather with the manner in which the fee was disclosed in the Contract. First, he charges Vidmar with misrepresentation because its having pocketed a portion of the $ 498 meant that not all of it was an amount actually "paid to others," as the Contract says. Second, he takes issue with the location of the reference to the service contract fee in the Contract: Because it is placed in a space amid such "non-negotiable" charges as "license, title & taxes" and insurance premiums, Hernandez urges that the service contract fee is made to appear non-negotiable, thus allowing Vidmar to overcharge for the service contract.

 Count I--TILA

 TILA "has the broad purpose of promoting 'informed use of credit' by assuring 'meaningful disclosure of credit terms' to consumers" ( Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 559, 63 L. Ed. 2d 22, 100 S. Ct. 790 (1980), quoting 15 U.S.C. § 1601). To implement that purpose Congress "delegated expansive authority to the Federal Reserve Board to elaborate and expand the legal framework governing commerce in credit" ( id. at 559-60, citing 15 U.S.C. § 1604). Pursuant to that authority Board issued the set of regulations (Part 226) commonly known as Reg. Z.

 Hernandez' TILA claim is based on the disclosure requirements contained in Sections 226.17 and 226.18. Section 226.17(a) sets out the general rule that creditors must "make the disclosures required by this subpart clearly and conspicuously in writing...." Section 226.18, which governs the content of such disclosures, states in pertinent part (footnote omitted):


For each transaction, the creditor shall disclose the following information as applicable:


* * *


(c) Itemization of amount financed. (1) A separate written itemization of the amount financed, including:


* * *


(iii) Any amounts paid to other persons by the creditor on the consumer's behalf. The creditor shall identify those persons.

 In ruling on the degree to which a creditor's actual disclosures must match the requirements of TILA and Reg. Z, Smith v. No. 2 Galesburg Crown Fin. Corp., 615 F.2d 407, 416-17 (7th Cir. 1980) *fn6" has held that "strict adherence" is the rule and that even the most technical disclosure violation is actionable; accord, Cowen, 70 F.3d 937, 1995 WL 691861, at *1 ("hypertechnicality reigns"). Thus Hernandez' claim based on the Contract's listing of the $ 498 service contract fee as an amount "paid to others," when that was not literally true, is a claim of the same type that at least until recently has been found sufficient by several of this Court's colleagues to withstand a motion to dismiss (see, e.g., Shields v. Lefta, 888 F. Supp. 894, 897 (N.D. Ill. 1995); Cirone-Shadow v. Union Nissan, Inc., No. 94 C 6723, 1995 U.S. Dist. LEXIS 1379, 1995 WL 51547, at *2 (N.D. Ill. Feb. 2)).

 And that sufficiency has been upheld over defendants' objections (like Vidmar's here) that TILA's purposes will not be furthered by allowing such claims to go forward. It is well within Board's province to require the disclosures that are set forth in Section 226.18, and once those disclosures are required they must be made accurately--as Smith, 615 F.2d at 416 has put it:


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.

 Before this opinion turns to the reason that the discussion in the preceding two paragraphs has not been framed in the present tense, it pauses to dispatch Hernandez' claim that Vidmar was guilty of misrepresentation by the mere placement of the service contract fee among non-negotiable items such as "license, title and taxes" and insurance premiums (see the Appendix). That contention is untenable, for the complained-of placement is clearly permissible--it is the very placement prescribed by Board's model form H-3 (Part 226, App. H-3, implementing in part the authority conferred by 15 U.S.C. § 1604(b)). This Court agrees with Shields, 888 F. Supp. at 897:


Any possible violation springs from the placing of cash in the dealer's pocket under the category of amounts charged to others. But plaintiffs cannot be heard to complain that there was an additional TILA violation in the placement of the charges. That placement was authorized by the regulations, see 12 C.F.R. § 226, App. H-3, absolving defendant...on this point.

 Accordingly that aspect of Hernandez' claim is dismissed with prejudice.

 To return to Hernandez' principal TILA claim, however, Vidmar has identified a new development that threatens to supersede the cases on which Hernandez relies. On December 7, 1995 Board issued a proposed commentary on Reg. Z that covers the specific issue in this case: the disclosure of a service contract fee in a situation in which the creditor retains a portion of that fee (60 Fed.Reg. 62,769). Here is that commentary, applicable to the earlier-quoted Section 226.18(c)(1)(iii):


A creditor that offers an item for sale in both cash and credit transactions sometimes adds an amount (often referred to as an "upcharge") to a fee charged to a consumer by a third party for a service (such as for a maintenance or service contract) that is payable in an equal amount in both types of transactions, and retains that amount. At its option, the creditor may list the total charge (including the portion retained by it) as an amount paid to others, or it may choose to reflect the amounts in the manner in which they were actually paid to or retained by the appropriate parties.

 As Vidmar would have it, that should end matters. And indeed, if the proposed commentary (1) were to be approved in its current form and (2) is to be viewed as declaratory of the intended meaning of Section 226.18(c)(1)(iii) rather than as purely prospective (see Pope v. Shalala, 998 F.2d 473, 482-86 (7th Cir. 1993), holding that agency rules that interpret or clarify, as opposed to effecting a substantive change in, existing law should be applied to disputes that arose before they were promulgated), Vidmar would be right. That is the plain teaching of such cases as Ford Motor Credit, 444 U.S. at 565-70, holding that courts are to give great deference to Board's interpretation, construction and application of TILA and Reg. Z, and Anderson Bros. Ford v. Valencia, 452 U.S. 205, 219, 68 L. Ed. 2d 783, 101 S. Ct. 2266 (1981), stating that Board regulations and interpretations of its own regulations should be accepted by courts absent "some obvious repugnance" to TILA.

 Because of that prospect and because the proposed commentary has just reached the stage of Board's invitation for public comment, the situation calls for the current denial of Vidmar's Rule 12(b)(6) motion on the issue under consideration--but clearly without prejudice to its potential renewal when Board adopts the proposed commentary in any form. And to conserve the expenditure of time and energy in activity that may well be mooted by Board's action, this Court now stays all further discovery and other proceedings in this action (including the possibility of taking a fresh look at the class certification question) until Board acts officially on the proposed commentary. *fn7"

 Count II--Consumer Fraud Act

 As already discussed, TILA and Reg. Z set forth affirmative disclosure requirements that creditors must follow to the letter to avoid liability. In contrast, the Consumer Fraud Act "does not mandate any particular form or subject of disclosure, but rather is a general prohibition of fraud and misrepresentation" ( Lanier v. Associates Fin., Inc., 114 Ill. 2d 1, 17, 499 N.E.2d 440, 447, 101 Ill. Dec. 852 (1986)). To recover under that state statute a plaintiff must show (1) that defendant engaged in a deceptive act or practice, (2) that defendant intended plaintiff to rely on the deception and (3) that the deception occurred in the course of conduct involving trade or commerce ( Martin v. Heinold Commodities, Inc., 163 Ill. 2d 33, 75, 643 N.E.2d 734, 754, 205 Ill. Dec. 443 (1994)).

 Hernandez' Count II has satisfied those requirements in pleading terms. Although Vidmar correctly identifies the need to comply with Rule 9(b) in asserting a Consumer Fraud Act claim ( Appraisers Coalition v. Appraisal Inst., 845 F. Supp. 592, 608-09 (N.D.Ill. 1994)), that requirement has been met here. Vidmar is also off base in contending that the Complaint's allegations are defective because they do not establish when Hernandez read the Contract or what he understood it to mean. First, there is no requirement of actual reliance under the Consumer Fraud Act ( Martin, 163 Ill. 2d at 76, 643 N.E.2d at 754). Second, although Hernandez will not be able to recover unless he establishes that he suffered some harm proximately caused by the alleged deception ( id. at 58-61, 643 N.E.2d at 746-47; Duran v. Leslie Oldsmobile, Inc., 229 Ill. App. 3d 1032, 1039-40, 594 N.E.2d 1355, 1361-62, 171 Ill. Dec. 835 (2d Dist. 1992), also holding that damages are an essential element of a private cause of action under the Consumer Fraud Act), at this stage it cannot be said that Hernandez will undoubtedly be unable to do so.

 But that level of pleading sufficiency does not control here, for the Consumer Fraud Act does not apply at all to "actions or transactions specifically authorized by laws administered by any regulatory body or officer acting under statutory authority of this State or the United States" (Section 10b(1)). In that respect Lanier, 114 Ill. 2d at 17-18, 499 N.E.2d at 447 teaches:


Because the Illinois consumer credit statutes requiring specific disclosures are met by compliance with the Truth in Lending Act, we believe that the Consumer Fraud Act's general prohibition of fraud and misrepresentation in consumer transactions did not require more extensive disclosure in the plaintiff's loan agreement than the disclosures required by the comprehensive provisions of the Truth in Lending Act.


* * *


The disclosure in the loan transaction between the plaintiff and the defendant complies with Federal Reserve Board Regulation Z, and thereby comports with the Truth in Lending Act. Because the Act is a law administered by the Federal Reserve Board, we find that, under section 10b(1) of the Consumer Fraud Act, the defendant's compliance with the disclosure requirements of the Truth in Lending Act is a defense to liability under the Illinois Consumer Fraud Act in the present case.

 And so the Consumer Fraud Act itself provides that a disclosure that complies with TILA cannot by definition constitute a deceptive act or practice in violation of the state statute. Because Hernandez' Consumer Fraud Act claims are based on the selfsame conduct that allegedly violates TILA, the fates of his Consumer Fraud Act and TILA claims are thus inextricably linked.

 This opinion has already dismissed Hernandez' TILA claim based on the allegedly misleading placement of the service contract fee, because that placement is specifically authorized by Board's model forms. Hence his Consumer Fraud Act claim based on that same conduct must also be dismissed (accord, Shields, 888 F. Supp. at 897-98). And Hernandez' Consumer Fraud Act claim based on the listing of the entire service contract fee as an amount "paid to others" now floats in the same limbo as his parallel TILA claim: It survives the present motion to dismiss ( id. at 898), but its future fate awaits final action by Board on its proposed Reg. Z commentary.

 Count V--Consumer Fraud Act

 Hernandez' Count V charges that the same conduct that has allegedly breached TILA and the Consumer Fraud Act also violates the Motor Vehicle Retail Installment Sales Act ("Motor Vehicle Sales Act") (815 ILCS 375/5(4)) and consequently the Consumer Fraud Act, specifically its Sections 2E and 2F. Those statutes provide in relevant part:


§ 2E. Any person who is regularly engaged in the business of providing or furnishing merchandise to consumers...and who has committed in any calendar year 3 or more violations, as determined in any civil or criminal proceeding, of...the "Motor Vehicle Retail Installment Sales Act" guilty of an unlawful practice within the meaning of this Act.


§ 2F. Any person who is held in any civil or criminal proceeding to have wilfully and materially violated any Illinois statutory provision regulating the extension of credit to borrowers or designed to protect the consumer purchasing merchandise in a credit, as contrasted from a cash, transaction is guilty of an unlawful practice within the meaning of this Act.

 To invoke both Section 2E and 2F, Hernandez points to the same provision of the Motor Vehicle Sales Act, 815 ILCS 375/5, which in part requires every motor vehicle installment contract to disclose "clearly, conspicuously and in meaningful sequence" the items described in id. 375/5(4):


All other charges, individually itemized, which are included in the amount financed but which are not part of the finance charge.

 But like Section 10b(1) with regard to self-contained Consumer Fraud Act claims, 815 ILCS 375/5 also states that any installment contract that complies with TILA or any of its implementing regulations also complies with the Motor Vehicle Sales Act. That being said, it is clear that Hernandez' claims under Sections 2E and 2F are in the same boat as the other Consumer Fraud Act claims discussed in this opinion.


 Hernandez' motion for reconsideration of this Court's prior denial of class certification is granted. That earlier denial is hereby made conditional. As for the substantive matters now before this Court, for the present it denies Vidmar's motion to dismiss except to the extent that Hernandez seeks to base his claims on a theory of alleged misrepresentation attributable to the placement of the service contract fee in the Contract. Those latter claims are dismissed with prejudice. But because Hernandez' reprieve from total dismissal may be only temporary, this Court stays discovery and all other proceedings in this case until Board has taken official action on the proposed commentary to Reg. Z discussed in this opinion.

 Milton I. Shadur

 Senior United States District Judge

 Date: January 9, 1996



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