Count IV, plaintiffs allege that the warranty disclosure statement contained in the Kennedys' automobile sales contract was misleading and in violation of TILA. Plaintiffs further contend that CFC, as the assignee creditor of the Viking contract, is liable to the same extent that Viking is. As we noted above, if the contract in fact violates TILA, CFC can be held liable to the extent that the violation was apparent on the face of the contract. CFC argues, however, that the portion of the disclosure statement involving the warranty simply does not violate TILA and, consequently, Count IV must be dismissed on the merits. We disagree.
A. The Warranty Disclosure
Section four of the Kennedys' contract was titled "Other Charges Including Amounts Paid to Others on Your Behalf." This section dealt with costs in addition to the basic sale price of the vehicle, such as taxes, filing and license fees, insurance, and the extended warranty. Subsection (b) of section four appeared as follows:
b. Paid To: PORTFOLIO Amount: $ 780
For: Ext. Serv. Cont.
In Count IV, plaintiffs claim that this section is misleading because it leads consumers to believe that the entire $ 780 is a fee, charged by Portfolio and collected by Viking on behalf of Portfolio, for the cost of the extended warranty. In reality, however, the entire $ 780 does not get passed through Viking to Portfolio. Plaintiffs charge that the cost of the warranty is substantially less than $ 780, and after paying that cost to Portfolio, Viking keeps the difference. Plaintiffs argue that the disclosure statement is inaccurate because the title of Section 4 and the contents of subsection 4(b) indicate that all charges contained therein are paid to another party, when in fact that is not the case.
Defendant argues that neither the title nor the contents of Section 4 are misleading, and there has consequently been no TILA violation. They base their argument on certain distinctions they perceive between the instant action and a recent 7th Circuit case, Gibson v. Bob Watson Chevrolet-Geo, Inc., 112 F.3d 283, 1997 WL 196704, *2 (7th Cir. 1997). Gibson dealt with three separate cases on appeal which are factually very similar to the present action. In that case the plaintiff, Gibson, bought a car from Bob-Watson Chevrolet. Id. at *1. In conjunction with the purchase, the dealer gave Gibson a statement captioned, "Itemization of Amount Financed." Id. The statement contained a section entitled, "Amounts Paid to Others on Your Behalf," under which appeared the statement: "To North American for Extended Warranty $ 800." Id. Plaintiff alleged that a substantial amount of the finance charge was retained by Bob-Watson Chevrolet, rather than being paid to North American, as the disclosure statement represented. Id.
The court ruled that if a portion of the warranty was in fact being retained by the dealership, then the statement given to the consumers contained false representations prohibited by the Federal Reserve Board's Regulation Z, the implementing regulatory rules for the Truth in Lending Act. Id. at *1-2. See 12 C.F.R. § 226 et seq. Those rules provide that creditors shall disclose an itemization of the amount financed, including "any amounts paid to other persons by the creditor on the consumer's behalf," and the identity of such persons. 12 C.F.R. § 226.18. The rules further provides that such disclosures must be made clearly and conspicuously. 12 C.F.R. § 226.17(a)(1). It goes without saying that all disclosures must be accurate. The court in Gibson ruled that the disclosure statements were misleading because the contracts led consumers to believe that the entire warranty fee was paid to the warranty provider when, in fact, a substantial amount of the fee was actually retained by the dealership itself. Gibson at *2.
CFC concedes that, under Gibson, plaintiffs' extended warranty claim might be sufficient to withstand a motion to dismiss if their retail installment contract had used the "Amounts Paid to Others on Your Behalf" heading (Mo. to Dismiss. p.10). CFC argues, however, that because the Viking contract used a variation of that heading, they should be distinguished. The Viking contract used the title, " Other Charges Including Amounts Paid to Others on Your Behalf" (emphasis added). According to CFC, this is sufficiently different from the heading used in Gibson so as to put purchasers on notice that some or all of the fee paid for the extended warranty was going not to the warranty provider, but to Viking. We disagree.
It should first be observed that the stated purpose of TILA is to give consumers a functional understanding of what exactly it will cost them to use credit, as well as to provide meaningful and accurate disclosures of costs associated with consumer credit purchases. See 15 U.S.C. § 1601. Plaintiffs have aptly observed that the sufficiency of TILA-mandated disclosures is to be viewed from the standpoint of an ordinary consumer, not the perspective of a Federal Reserve Board member, federal judge, or English professor. See Edmondson v. Allen-Russell Ford, Inc., 577 F.2d 291, 296 (5th Cir. 1978) (holding that the proper perspective in analyzing TILA disclosures is that of "ordinary laypersons engaged in consumer credit transactions"); In re Cook, 76 B.R. 661, 664 (Bkcy., C.D.Ill. 1987) (noting that TILA disclosures should be construed through the eyes and understanding of the borrower, not the lender).
Given the practical, consumer-oriented view with which we must analyze the sufficiency of TILA disclosures, we think that Viking's disclosure section is no more informative to the average consumer than the heading found to be misleading by the Seventh Circuit in Gibson. Defendant would have us hold that the phrase, "Other Charges Including Amounts Paid to Others on Your Behalf," informs consumers that the charges listed, or even a portion of any individual charge listed, may be retained by the car dealership rather than actually being paid to another party. We fail to see any way in which the contract conveys such information in the meaningful, informative way required by TILA. 15 U.S.C. § 1601.
Moreover, CFC would have us reach these conclusions even though directly below the confusing section title described above, subsection (b) very plainly indicates that "$ 780" is "paid to" Portfolio, the warranty provider. Defendant CFC would apparently have us hold that this section informs consumers that whatever portion of the warranty is not being retained by Viking will be paid over to Portfolio. We disagree. It seems unlikely that the average consumer would read the Viking contract in the manner in which CFC contends they will. In any event, we cannot hold that the contract in this case is so distinguishable from that in the Seventh Circuit's recent case, Gibson, as to justify a ruling contrary to that decision.
B. The FRB Commentary to Regulation
Defendant CFC makes one further argument. The Federal Reserve Board, the agency that administers TILA and promulgates the rules and commentary pursuant to it in Regulation Z, issued its official staff commentary. A provision of the comments relates to the issue of whether or not dealers must disclose the fact that a portion of the warranty charge is retained by the dealer. It provides that the disclosure " may reflect that the creditor has retained a portion of the amount paid to others" (emphasis added) (Official Staff Commentary, Regulation Z). Defendant argues that this means that the dealer has the option of concealing or disclosing these facts because the rule does not say that the dealer "must" or "shall" make the disclosure. Until quite recently cases in many of the district courts were split on this issue. In Gibson, however, the Seventh Circuit finally resolved this dispute.
The Gibson defendants made the standard argument that the commentary should be construed as allowing car dealers to disclose the fact that not all of the warranty payment went to the warranty, but not requiring them to do so. On this argument the Seventh Circuit commented:
In other words, [the defendants] read the commentary to say: "You may conceal the fact that you are pocketing part of the fee that is ostensibly for a third party, but if you are a commercial saint and would prefer to tell the truth, you may do that too." So interpreted, the commentary not only would be preposterous; it would contradict the statute. The only sensible reading of the commentary is as authorizing the dealer to disclose only the fact that he is retaining a portion of the charge, rather than the exact amount of the retention.
Gibson, 112 F.3d 283, 285-86.
In this case, CFC makes the exact argument that the defendants in Gibson made. Clearly, given the Seventh Circuit's recent precedent on this issue, these arguments fail.
C. CFC's Liability for the Alleged Disclosure Violations
As discussed above, before liability for a disclosure violation can be imputed to CFC through the claims preservation clause, the violation must be apparent on the face of the disclosure documents. 15 U.S.C. § 1641. Plaintiff alleges that CFC, which had considerable experience in the area of automobile financing, knew that although the contract represented that the $ 780 warranty charge was paid to Portfolio, in fact it would be substantially retained by Viking. This allegation must be accepted as true for the purposes of a motion to dismiss. Bohac v. West, 85 F.3d 306 (7th Cir. 1996). Thus, assuming CFC did have such knowledge, the alleged misrepresentation in the warranty disclosure would be "apparent" to CFC from the face of the document. Defendant does not contest this point.
Given the foregoing analysis, it cannot be said that plaintiffs can prove no set of facts in support of their claim which would entitle them to relief. Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974), citing Conley v. Gibson, 355 U.S. 41, 45-6, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). Accordingly, defendant's motion to dismiss Count IV must be denied.
IV. Counts II, III, V and VI: The State Law Claims Under ICFA
Both AmeriCredit and CFC have also moved to have any state claims against them dismissed. Both defendants argue that if the federal TILA claims are dismissed, the court will no longer have supplemental jurisdiction over the state claims and, accordingly, dismissal is appropriate.
With respect to AmeriCredit's motion, we agree. When federal claims are dismissed before trial, the district court has the discretion to dismiss state claims over which the court has assumed supplemental jurisdiction and, generally, the court should do so in all but the rarest of instances. See 28 U.S.C. § 1367(c)(3); Perino v. Mercury Finance Co. Of Illinois, 912 F. Supp. 313, 316 (N.D. Ill. 1996). Consequently, because we have dismissed the only federal claim against AmeriCredit (Count I), we dismiss the state ICFA and MVRISA claims of Counts II and III without prejudice. This is a legally sufficient ground on which to dismiss these counts and, consequently, there is no need to hypothetically rule on AmeriCredit's other arguments for dismissal.
Defendant CFC, on the other hand, is in a different position. Although we dismiss Count I (the alleged TILA violation arising from the cash/credit price discrepancy and non-disclosure thereof), we do not dismiss Count IV (the alleged TILA violation arising from deficiencies in the extended warranty disclosure). Because the state law claims arose from the same transaction or occurrence as the remaining federal claim, this court retains supplemental jurisdiction over all counts against CFC. See 28 U.S.C. § 1367; Graves v. Tru-Link Fence Co., (N.D. Ill. 1995) (holding that the federal district court retained supplemental jurisdiction over claims that the creditor had violated ICFA where consumer-plaintiff had also alleged federal claims against creditor under TILA). Defendants, however, urge us to consider dismissing the state counts on the merits. We conclude that of the state claims (Counts II, III, V, and VI), we deem it appropriate only to dismiss Count II.
In Count II, plaintiffs allege that CFC should be held liable for Viking's failure to disclose as a finance charge the difference in price charged to customers paying with cash and those paying with credit. We found above that CFC could not be held liable for this alleged violation under TILA because federal law permits assignee creditors to be held liable only for violations that are apparent on the face of the contract, even when the contract contains a general claims preservation clause. The issue here is whether CFC can be held liable under the ICFA for the same acts for which we have determined it could not be liable under TILA. We think not.
The ICFA generally prohibits the use of unfair or deceptive practices in the conduct of any trade or commerce and entitles any consumer harmed by such practices to bring an action against the wrongdoer. 815 ILCS 505/2. The Act also provides that it does not apply 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." 815 ILCS 505/10b(1) (1995). In this case, TILA exempts assignee creditors from being liable for violations not apparent on the face of the documents. We think that limitation prevents CFC from being held liable under the ICFA. Thus, defendant CFC's motion to dismiss Count II is granted.
Using similar reasoning, however, we deny defendant's motion to dismiss Counts III, V and VI, which allege that CFC is liable under ICFA, 815 ILCS § 505/2, 2E-F, and MVRISA, 815 ILCS § 375/5, for Viking's failure to make accurate disclosures regarding the extended warranty. Like TILA, the MVRISA requires accurate and meaningful disclosure of finance charges. 815 ILCS § 375/5(4). For the claims to survive defendant's motion to dismiss, plaintiff must plead (and ultimately prove) that (1) the defendants engaged in a deceptive act or practice, (1) the defendants intended plaintiffs to rely on the deception and (3) the deception occurred in the course of conduct involving trade or commerce. Hernandez v. Vidmar Buick Co., 910 F. Supp. 422, 427 (N.D. Ill. 1996). Plaintiff's complaint has plainly met these requirements.
CFC, however, argues at considerable length that a defendant cannot be held liable under these Illinois statutes for conduct that satisfies the requirements of TILA. However, we have held that, with respect to the extended warranty section of the contract, plaintiff has made out a facially sufficient claim that defendant's conduct has not satisfied the TILA disclosure provisions. Likewise, plaintiff has made out a facially sufficient claim that defendant has violated the state statutes. Accordingly, CFC's motion to dismiss Count II is granted, but the motion to dismiss Counts III, V, VI is denied.
For the aforestated reasons, AmeriCredit's motion to dismiss is granted in its entirety and CFC's motion to dismiss is granted in part and denied in part.
JAMES B. MORAN
Senior Judge, U.S. District Court
Oct. 28, 1997.