Truth in Lending Act is a defense to liability under the Illinois Consumer Fraud Act . . . ."). Thus, if Aronson can establish that it has complied with TILA, it is entitled to summary judgment on all of the plaintiffs' claims.
TILA imposes strict requirements on lenders regarding the disclosure of their terms of credit.
In particular, lenders must disclose their finance charges to consumers, along with an explanation of how the charges were calculated. See 15 U.S.C. § 1638(a); 12 C.F.R. § 226.6(a). The term "finance charge" is defined as "the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit." 12 C.F.R. § 226.4(a); see also 15 U.S.C. § 1605(a). Because a fee charged for a creditor's investigation of a potential customer's credit-worthiness is clearly "incident to" the extension of credit, application fees such as those charged by Aronson normally are considered finance charges and must be disclosed as such. Thus, at first glance, Aronson appears to have violated TILA by characterizing its application fee as part of the "amount financed" rather than as a finance charge. Cf. Rodash v. AIB Mortgage Co., 16 F.3d 1142, 1147-48 (11th Cir. 1994) (creditor is liable under TILA for mischaracterizing a finance charge as part of the amount financed).
Certain charges that would otherwise meet the definition of "finance charge" are specifically excluded, however. The regulations indicate that a charge is not a finance charge if it is an "application fee charged to all applicants for credit, whether or not credit is actually extended." 12 C.F.R. § 226.4(c)(1). Aronson suggests that its application fee qualifies for this safe harbor because it does in fact charge $ 12 to all applicants for credit. The undisputed facts appear to support this assertion. Aronson's sales contracts, purchase orders, and downpayment receipts all conspicuously indicate that the applicant is being charged a non-refundable credit application fee of $ 12, and Aronson's sales representatives orally inform customers of this fee as well. See Def.'s 12(M) PP 21, 23, 26, 30; see also id. Exs. 2-5. These communications do not indicate that the fee is contingent upon a favorable disposition of the customer's credit application.
The plaintiffs present two rationales for denying Aronson the protection of the § 226.4(c)(1) safe harbor. First, the plaintiffs observe that Aronson does not charge the $ 12 fee to those persons eliminated by its preliminary screening process, and thus the fee cannot be said to apply to "all applicants for credit." See Pl.'s Resp. Br. at 6. This argument overlooks the significance of the word "applicants." As explained in the Background section supra, the purpose of Aronson's preliminary screening process is to identify those customers with particularly bad credit ratings and to discourage them from submitting pointless applications--by definition, these people are not yet "applicants for credit." Hence, the fact that Aronson does not charge these people a $ 12 application fee has no bearing on its ability to claim the protection of § 226.4(c)(1).
Second, the plaintiffs claim that § 226.4(c)(1) is inapplicable because a number of Aronson's prospective customers--namely, those we classified as group four in our Background section--never actually pay the $ 12 application fee. See Pl.'s Resp. Br. at 7. The plaintiffs repeatedly observe that Aronson is unable to "collect" its $ 12 fee from persons who are denied credit and who did not make a downpayment when they applied for credit. See id. ; Pl.'s 12(N) P 18. But in order to qualify for the protection of § 226.4(c)(1), Aronson need only prove that its application fee was " charged to all applicants for credit," not that the fee was actually collected from all of them. The two concepts are distinguishable, and we do not believe that the former encompasses the latter. Even the plaintiffs concede that the ordinary meaning of the word "charge" is "'to ask payment (for): as, we charge for this service.'" Pl.'s Resp. Br. at 8 (quoting WEBSTER'S UNABRIDGED DICTIONARY).
Aronson asked for a payment of $ 12 from every person who filled out an application for credit, and therefore "charged" them $ 12 in the plain sense of the word. The fact that a small percentage
of applicants ultimately did not pay the fee is immaterial.
The plaintiffs contend that, in certain cases, our interpretation of the term "charge" might encourage creditors to impose "sham" application fees: a creditor could "circumvent TILA by simply including a charge on the retail installment contract for all applicants but only collecting from those who actually received or were extended credit." Pl.'s Br. at 8. If a consumer could show that a creditor collected its application fee only from those customers to whom credit was extended, perhaps the fee could not be said to have been "charged" in good faith to all applicants--we should not elevate form over substance, even in the formalistic universe of TILA. But these are not the facts of our case. Aronson indisputably collected its application fee from many applicants who were denied credit. Between January 1994 and January 1997 the company collected $ 110,639 from consumers who were denied credit but made a downpayment--those identified as group two in our Background section--which means that roughly 9,218 individual consumers who were denied credit nevertheless paid the application fee. See Def.'s 12(M) P 36. Aronson's application fee was not a sham.
In sum, Aronson's application fee was charged to all applicants, and therefore was not a finance charge. It follows that Aronson did not violate TILA by characterizing the $ 12 fee as part of the "amount financed" on its disclosure forms. And since the company did not violate TILA, it did not violate RISA or CFA either.
For the foregoing reasons, Aronson's cross-motion for summary judgment [38-1] is granted and the plaintiffs' motion for partial summary judgment [26-1] is denied. Plaintiffs' motions for class certification [22-1] and to dismiss affirmative defenses [12-1] are denied as moot. It is so ordered.
MARVIN E. ASPEN
United States District Judge