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ALEXANDER v. CONTINENTAL MOTOR WERKS

July 16, 1996

JOSEPH R. ALEXANDER, ETHEL L. ALEXANDER and TAYLOR CLEVELAND on behalf of themselves and all others similarly situated, Plaintiffs,
v.
CONTINENTAL MOTOR WERKS, INC., doing business as A-1 CONTINENTAL MOTOR WERKS, INC., and EAGLE FINANCE CORP., Defendants.



The opinion of the court was delivered by: KOCORAS

 CHARLES P. KOCORAS, District Judge:

 This matter is before the court on the defendant's motion to dismiss the plaintiffs' amended complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons set forth below, the defendant's motion is denied.

 BACKGROUND

 The case at bar is one of many presently pending in this district and elsewhere which involves the purchase of automobiles with accompanying extended warranty/service contracts. Alleging violations of the federal Truth in Lending Act ("TILA"), 18 U.S.C. ยง 1601 et seq., and the Illinois Consumer Fraud Act ("ICFA"), 815 ILCS 505/1 et seq., the plaintiffs maintain that the retail installment sales contracts ("RICs") which they entered into upon financing their purchases failed to reflect accurately that the dealer was retaining a portion of the cost charged for their purchased service contracts. Instead, the plaintiffs' RICs reflected the entire amount charged by the dealer for the service contracts under the heading "Amount Paid to Others for You." That the dealer was retaining a portion was nowhere disclosed on the RICs.

 On February 15, 1996, this court issued a memorandum opinion and order dismissing the plaintiffs' complaint against Defendant Continental Motor Werks ("Continental"), with leave to reinstate the complaint pending the final passage of the Federal Reserve Board's proposed commentary to Regulation Z. The proposed commentary pertained to the precise issue in the plaintiffs' case, i.e., the disclosure of a service contract fee where the creditor retains a portion of that fee. Given the immanency of its final passage and the potentially substantial impact which the proposed commentary had upon the plaintiffs' action, we dismissed the plaintiffs' action with leave to reinstate the complaint were the final commentary to be materially changed.

 On March 28, 1996, the finalized version of the Official Staff Commentary to Regulation Z was promulgated. Noting that the final commentary contained certain material differences from the proposed version (but making no pronouncements as to their ultimate significance), this court, on May 7, 1996, reinstated the plaintiffs' action against Continental. Continental now moves for dismissal based upon the finalized version of the Official Staff Commentary to Regulation Z.

 LEGAL STANDARD

 The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the sufficiency of the complaint, not to decide the merits of the case. Defendants must meet a high standard in order to have a complaint dismissed for failure to state a claim upon which relief may be granted since, in ruling on a motion to dismiss, the court must construe the complaint's allegations in the light most favorable to the plaintiff and all well-pleaded facts and allegations in the plaintiff's complaint must be taken as true. Ed Miniat, Inc. v. Globe Life Ins. Group Inc., 805 F.2d 732, 733 (7th Cir. 1986), cert. denied, 482 U.S. 915, 96 L. Ed. 2d 676, 107 S. Ct. 3188 (1987). The allegations of a complaint should not be dismissed for failure to state a claim "unless it appears beyond a doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). See also Hishon v. King & Spalding, 467 U.S. 69, 81 L. Ed. 2d 59, 104 S. Ct. 2229 (1984); Doe on Behalf of Doe v. St. Joseph's Hospital, 788 F.2d 411 (7th Cir. 1986). Nonetheless, in order to withstand a motion to dismiss, a complaint must allege facts sufficiently setting forth the essential elements of the cause of action. Gray v. County of Dane, 854 F.2d 179, 182 (7th Cir. 1988). We turn to the motion before us with these principles in mind.

 DISCUSSION

 On December 7, 1995, the Federal Reserve Board ("FRB") published for comment a proposed commentary to Regulation Z which provided:

 
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 transaction, 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.

 60 Fed. Reg. 62785 (Dec. 7, 1995). Seemingly, this proposed commentary, to which great deference would have been owed were it ultimately adopted (see Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 559-60, 63 L. Ed. 2d 22, 100 S. Ct. 790 (1980)), would have legitimized the practices of Defendant Continental, and the fate of the plaintiffs' lawsuit would have been sealed. However, following the solicitation of comments, the finalized version of the FRB's commentary was modified considerably. The finalized version, applicable as of April 1, 1996, reads as follows:

 
Charges Added to Amounts Paid to Others. A sum is sometimes added to the amount of a fee charged to a consumer for a service provided by a third party (such as for an extended warranty or a service contract) that is payable in the same amount in comparable cash and credit transactions. In the credit transaction, the amount is retained by the creditor. Given the flexibility permitted in meeting the requirements of the amount financed itemization. . . , the creditor in such cases may reflect that the creditor has retained a portion of the amount paid to others. ...

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