Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 95 C 763 James B. Zagel, Judge.
Before BAUER, ESCHBACH, and FLAUM, Circuit Judges.
Reginald McGee sued Kerr-Hickman Chrysler Plymouth, Inc. ("Kerr-Hickman") and General Electric Capital Corporation ("GECC"), alleging a violation of the Federal Truth in Lending Act ("TILA"), 15 U.S.C. sec. 1601, et seq., as well as various state law infractions, all in connection with his purchase of a used car from Kerr-Hickman. *fn1 Some of the claims, including the TILA claim, were brought as a class action. The TILA violation alleged was the systematic designation of a particular "finance charge" as part of the "amount financed," rather than as a "finance charge," within the TILA disclosures in Kerr-Hickman's sales contracts. The defendants filed motions to dismiss. The district court granted the motions with respect to the TILA claim on the merits and dismissed the supplemental state law claims. *fn2 We affirm.
On July 27, 1994, McGee purchased a used 1988 Pontiac Trans Am from Kerr-Hickman. This case concerns the contents of the retail installment contract ("the sales contract" or "the contract") by which McGee's purchase was accomplished. The contract notes that McGee agreed to pay $9500 for the car and that he made an $800 down payment, leaving $8700 as the "credit sale balance." In a section headed "Amounts Paid to Other for You," the sales contract records $1371.50 paid to insurance companies, $824.20 paid to public officials (for license, title, and taxes), a $40 documentation fee, and a $750 service contract. In the TILA disclosure box in the upper left corner of the sales contract, the contract lists the "Amount Financed" as $11,685.70, *fn3 the "Finance Charge" as $3260.42, and the "Annual Percentage Rate" as 16.75 percent. McGee was scheduled to make 36 monthly payments of $415.17, for a total of $14,946.12. The sales contract also notes that McGee agreed to purchase credit life insurance for $224.19 and credit disability insurance for $747.31. The sales contract itself does not explain the source of the other $400 listed as paid to insurance companies.
This $400 is accounted for in a separate document, titled "GAP Loan Agreement Addendum" ("GAP Agreement" or "GAP"), which was also executed by McGee and Kerr-Hickman on July 27, 1994. McGee is listed as the Debtor, with Kerr-Hickman listed as the Lender, and GECC listed as the Lending Institution. The GAP Agreement states as follows:
Although the Debtor is not required to do so, the Debtor and the Lender hereby agree to amend the early termination provisions of the Loan Agreement for the above referenced vehicle dated the date hereof.
Under the terms of such Loan Agreement, as amended by this Addendum, if such financed vehicle is stolen and unrecovered or deemed a total loss by the Debtor's insurance company (providing the vehicle insurance which the Debtor is required to maintain at all times under the terms of such Loan Agreement), the Debtor's maximum legal liability to the Lender under such Loan Agreement shall be the actual cash value of the vehicle as determined by the Debtor's insurance company plus any delinquent payments and all past due charges at the time of such theft or loss. (Actual cash value equals the insurance company settlement plus your policy deductible.)
McGee agreed to pay $400 for participation in the GAP program. Under the basic sales contract, McGee's balance would become immediately payable if the Pontiac were destroyed or stolen. If there was a difference between the amount still owed on the car and the cash value of the car determined by McGee's automobile insurance company, i.e., a "gap," McGee would be obligated under the contract to make up the difference out of his own pocket. *fn4 By purchasing GAP the debtor is able to avoid this risk (though he would still be responsible for paying any past due charges on the loan and any deductible under his automobile insurance policy). The purchase of GAP is optional, however, and does not affect other terms of the sales contract.
The $400 paid for GAP was included on the sales contract as part of the amount paid to insurance companies and within the "Amount Financed" dollar amount listed within the TILA disclosure section. Thus it was not treated as a "Finance Charge" under the sales contract. The sales contract was subsequently assigned by Kerr-Hickman to GECC. *fn5 The GAP program is administered by GECC, and the GAP Addendum specifically instructs the debtor to direct correspondence regarding GAP to GECC's office in Middletown, Rhode Island.
We review a district court's grant of a 12(b)(6) motion to dismiss de novo, accepting all well-pled allegations in the complaint as true and drawing all reasonable inferences in favor of the plaintiff. FED. R. CIV. P. 12(b)(6); Travel All Over the World, Inc. v. The Kingdom of Saudi Arabia, 73 F.3d 1423, 1429 (7th Cir. 1996). In this case the parties agree on the essential underlying facts, and the case boils down to one fundamental question: Is the money paid for GAP a "finance charge" under TILA? *fn6
The stated purpose of TILA is "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit ...