Appeal from the Circuit Court of Cook County No. 95 CH 10112 The Honorable John K. Madden, Judge Presiding.
The opinion of the court was delivered by: Justice Cousins
This case concerns "refund anticipation loans" (RALs) made to customers of the defendant tax preparers, H&R Block, Inc., H&R Block Tax Services, Inc., and H&R Block Eastern Tax Services, Inc. (collectively, Block). RALs are short-term demand loans to be repaid by the borrowers' anticipated federal income tax refunds. Block has agreements with various banks to provide the loans. Block would advertise this service as part of its "Rapid Refund" program.
In order to obtain a RAL, a customer must file his or her tax return electronically through Block. The customer also fills out a RAL application, which Block forwards to a participating bank. The bank then advances a loan against the customer's income tax refund. The refund, when issued, goes into an account established by the bank and is used to pay off the loan. The customer receives a check within five days. A stub with disclosures mandated under the Truth in Lending Act (TILA) (15 U.S.C. §§1601 through 1667e (1994)), is attached to the check. On the back of the check is a loan agreement, stating that by endorsing and negotiating the check the customer agrees to its terms.
According to the plaintiffs, the RAL application conceals much of the true cost of the loan, and Block misrepresents that the finance charge all goes to the bank, when in fact some of it is kept by or sent back to Block.
The case was originally brought as a federal class action in the northern district of Illinois, alleging violations of TILA and the Illinois Consumer Fraud and Deceptive Business Practices Act (Act or Consumer Fraud Act) (815 ILCS 505/1 et seq. (West 1994)). Defendant Bank One filed a motion to dismiss the claims against it for lack of standing. None of the named class representatives in the federal suit had obtained a RAL from Bank One. The defendants also jointly filed a motion to dismiss for failure to state a claim, arguing that the complaint did not allege that they had done anything that violated TILA. United States District Court Judge Holderman dismissed the TILA claim under Federal Rule of Civil Procedure 12(b)(6), holding that the record conclusively showed that Block and the banks had complied with TILA. Fed R. Civ. P. 12(b)(6). Judge Holderman declined to exercise jurisdiction over the remaining state law claims, dismissing them without prejudice. Beckett v. H&R Block, Inc., No. 94 C 776 (N.D. Ill. December 12, 1994) (Beckett I).
One of the class representatives, Kathryn Beckett, along with two new plaintiffs, Stephanie Etheredge and Pamela Williams, then filed a class action in Cook County circuit court alleging violations of the Consumer Fraud Act and common law breach of fiduciary duty against Block as well as Mellon Bank and Bank One, the lending institutions that had provided the RALs to the named plaintiffs. Attached to the complaint were exhibits, including the RAL applications, and some of the loan checks and check stubs with the TILA disclosures. Bank One filed a section 2-619 motion to dismiss based on the statute of limitations, which the court denied. 735 ILCS 5/2-619 (West 1994). The banks jointly filed a section 2-615 motion to dismiss arguing that, since their disclosures were authorized by TILA, they could not violate the Consumer Fraud Act, and, furthermore, that there was no agency relationship between the plaintiffs and the banks upon which to predicate a fiduciary duty. 735 ILCS 5/2-615 (West 1994). The court granted the section 2-615 motion. Finally the court granted Block's motion to strike counts I and II of the complaint, but gave leave to amend.
Shortly afterwards, the plaintiffs filed an amended complaint against Block only. This complaint added the charge that Block violated the Act by engaging in a "bait and switch" scheme, in which Block would lure the customer by stating low finance charges on the RAL application and then disclose the true higher finance charge only when the customer received the check. Upon request of plaintiffs' counsel, Mellon agreed to include an affidavit stating that the printouts detailing Etheredge's and Williams' loans from Mellon were correct.
Block made a section 2-615 motion to dismiss, arguing that: (1) the allegedly deceptive forms were the banks'; (2) the forms accurately set out all required disclosures; (3) its compliance with TILA barred any claim under the Act; and (4) there was no basis for a finding that Block was its customers' agent for the purposes of the RAL transaction. The plaintiffs unsuccessfully moved to strike the section 2-615 motion on the basis that it raised factual matters outside the complaint. The trial court granted the section 2-615 motion and dismissed the remaining claims with prejudice.
The plaintiffs now appeal the dismissal of their claims against both Block and the bank defendants and the denial of their motion to strike Block's section 2-615 motion to dismiss. Bank One cross-appeals the denial of its section 2-619 motion to dismiss the claim against it under the statute of limitations.
Each of the plaintiffs applied for and received a RAL through Mellon Bank. Plaintiffs Williams and Etheredge also applied for and received RALs through Bank One. In each case, the defendants assert, the finance charge was $29. The Mellon RAL application contains the following disclosure statement:
"The FINANCE CHARGE for your RAL is set forth in section 6 below. Fees are also charged for the completion and electronic filing of your income tax return by your tax preparer/electronic filer. You are responsible for these fees and the repayment of the loan whether or not your tax refund is paid in whole or in part.
Your income tax return can be filed electronically without obtaining a RAL and the average time within which you can expect to receive a refund if you file electronically and without a RAL is two to three weeks. Alternatively, if you elect to obtain a RAL the loan proceeds will be made available to you within approximately two to five days of your loan approval.
The usual duration of a RAL is approximately two weeks. The following are examples of the ANNUAL PERCENTAGE RATES for hypothetical RALs of varying amounts, having a RAL FINANCE CHARGE of $29.00 or $38.00, with 14 day maturity periods."
"Hypothetical Loan RAL-$29 FINANCE RAL-$38 FINANCE
ANNUAL PERCENTAGE ANNUAL PERCENTAGE
The Bank One RAL application contains a substantially similar statement.
Plaintiff Beckett prepared her own taxes. On one of Beckett's application forms, the finance charge was filled in as $64 rather than $29. On the other, the finance charge was left blank.
The check stubs from Mellon have a box labeled "Truth-in-Lending Disclosures." Ms. Beckett's 1994 check stub is used as an example:
"Truth-In Lending Disclosures
1. Amount financed (the amount of credit provided to you or on your behalf) $533.00
2. FINANCE CHARGE (the dollar amount the credit will cost you). $29.00
3. Total of Payments (the amount you will have paid after you have made all scheduled payments) $562.00
4. ANNUAL PERCENTAGE RATE (the cost of your credit as an estimated yearly rate) 141.852%."
Beside the TILA box on the check stub is a section entitled "Itemization of Amount Financed," which provides, once again using Ms. Beckett's 1994 stub as an example:
"1. Amount paid directly to you$498
2. Amount paid to H&R Block$35
3. Amount financed(Items 1)$533
4. Prepaid finance charge (Itemized below)$29
a. Amt. Paid to Mellon Bank$29
5. Total Refund Anticipation Loan$562
Plaintiff Etheredge also prepared her own taxes, but she did not attach the RAL applications and check stubs to her complaint. Block prepared Williams' taxes. Her receipt discloses a charge of $60 paid to Block ($35 for ...