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04/15/96 DEBORAH A. ZWAYER v. FORD MOTOR CREDIT

April 15, 1996

DEBORAH A. ZWAYER, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED, AND EDDIE ROPER, PLAINTIFFS-APPELLEES,
v.
FORD MOTOR CREDIT COMPANY, DEFENDANT-APPELLANT. SANDRA BISHOP AND EDITH TERRELL, COUNTERPLAINTIFFS-APPELLEES, V. FORD MOTOR CREDIT COMPANY, COUNTERDEFENDANT-APPELLANT.



Appeal from the Circuit Court of Cook County. Honorable EVERETTE A. BRADEN, Judge Presiding.

As Modified on Denial of Rehearing May 28, 1996.

The Honorable Justice Buckley delivered the opinion of the court: Campbell, P.j. and Wolfson, J., concur.

The opinion of the court was delivered by: Buckley

Modified Upon Denial of Rehearing

The Honorable Justice BUCKLEY delivered the opinion of the court:

This is an interlocutory appeal arising from the trial court's partial denial of defendant's motion to dismiss. We granted leave to appeal the following two questions certified by the trial court: (1) whether the terms of plaintiffs' motor vehicle retail installment form contracts permit computation of the plaintiffs' finance-charge refund by the sum-of-the-digits method when payments are accelerated because of default, and (2) if not, whether section 7 of the Illinois Motor Vehicle Retail Installment Sales Act (815 ILCS 375/7 (West 1994)) permits computation of plaintiffs' finance-charge refund by the sum of the digits when payments are accelerated because of default.

Plaintiffs are a class of consumers of Ford/Mercury automobiles who financed the purchase of their vehicles by entering into retail installment contracts which were assigned to defendant, Ford Motor Credit Company (FMCC). The contracts were all on a standard form provided by defendant. The front side of the contract shows a box containing the key financing terms and a statement directing the reader to "additional information" elsewhere in the contract. The back side contains the heading "ADDITIONAL AGREEMENTS." Paragraph A under that heading, entitled "Payments," states

"You may prepay your debt at any time. If you prepay in full, you will get a refund of part of the Finance Charge. The refund will be figured by the sum of the digits method ***."

Paragraph F, entitled "Default", states that in the case of a default,

"the Creditor may require you to pay at once all remaining payments less a refund of part of the Finance Charge. He may repossess (take back) the vehicle too."

Plaintiffs defaulted on their loans and defendant repossessed and sold the vehicles. In determining the amount still due under the contracts, defendant applied the "sum of the digits" or "Rule of 78" method of computing the amount of the finance charge to be refunded. Under the Rule of 78, the interest component of payments in the beginning of the loan is a higher percentage of the outstanding balance than the agreed-upon interest rate. Joel G. Siegel and Frank Grippo, Evaluating Your Client's Debt Position, National Public Accountant, 42 (Sept. 1993). Under the "actuarial" method, on the other hand, the interest component of each payment is determined by simply applying the interest rate to the outstanding balance. Therefore, the unearned finance charge to be refunded after payment upon acceleration is less under the Rule of 78 than under the actuarial method.

CONTRACT PROVISIONS

The first question certified for our review is whether defendant's standard form contract allows defendant to apply the sum-of-the-digits method in computing the amount of the finance-charge refund upon acceleration. Defendant claims that acceleration is a form of prepayment, and, therefore, the contract allows application of the Rule of 78 under Paragraph A, which provides for a sum-of-the-digits method of computing the refund upon prepayment.

Defendant's contention is erroneous. In Slevin Container Corp. v. Provident Federal Savings & Loan Ass'n, 98 Ill. App. 3d 646, 424 N.E.2d 939, 54 Ill. Dec. 189 (1981), a mortgage contract imposed a prepayment penalty if the borrower paid the loan before maturity. The contract also contained a due-on-sale clause which provided that the lender may declare the entire loan due immediately if the borrower sold the secured property. Sometime later, the borrower sold the property, and the lender accelerated the maturity date of the loan. The borrower paid the principal due, but the lender claimed that payment upon acceleration is ...


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