The opinion of the court was delivered by: Justice Wolfson
Appeal from the Circuit Court of Cook County. Honorable James F. Henry, Judge Presiding.
Keturah D. Chandler and Robert A. Chandler (the Chandlers) borrowed money from American General Finance, Inc. (AGFI), on June 1, 1998. After the Chandlers made some payments, AGFI began bombarding them with opportunities to borrow more money. They finally succumbed, on September 15, 1999.
In their lawsuit, the Chandlers claim they were victims of a bait-and-switch scheme. That is, AGFI led them to believe they would be getting a new loan, but intended only to refinance their existing loan. Refinancing, they say, turns out to be more expensive than taking out a new loan.
The Chandlers brought this consumer class action under the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act), 815 ILCS 505/1 et seq. (West 1998), and the Illinois Consumer Installment Loan Act (Consumer Loan Act), 205 ILCS 670/18 (West 1998).
AGFI filed a motion to dismiss, contending: (1) the Chandlers failed to state a cause of action under the Consumer Fraud Act; (2) the Chandlers failed to state a cause of action under the Consumer Loan Act; and (3) AGFI's conduct complied with the requirements of the Federal Truth in Lending Act (TILA) (15 U.S.C. § 1601 et seq. (1994)), thus ruling out the Chandlers' state law claims.
The trial court dismissed the second amended complaint without opinion. On appeal, the Chandlers contend the trial court erred in dismissing their second amended complaint. We agree.
We reverse the trial court's order and remand this case for further proceedings.
Because the trial court dismissed the Chandlers' second amended complaint after AGFI brought a motion to dismiss pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 1998)), we take the facts from the Chandlers' second amended complaint, and the exhibits attached to it, and accept them as true for the purpose of this appeal.
On June 1, 1998, the Chandlers received a loan from AGFI. The amount financed was $5,524.16. The Chandlers' automobile secured the note. The finance charge was $2,105.53 and the annual percentage rate was 21.30%.
Of the amount financed, $109.91 was the premium for credit life insurance and $276.85 was the premium for credit disability insurance. Under terms of the note, in the event of prepayment or acceleration, finance charges would be credited using the "Rule of 78's." A refund of unearned premiums on the insurance policies would also be computed using the Rule of 78's.
After the Chandlers received the June 1, 1998, loan, AGFI began soliciting them to borrow additional money. Specifically, AGFI placed advertisements directly on the Chandlers' account statements and sent advertisement letters to them. The various solicitations on their account statements were standard form letters used by AGFI to solicit borrowers to borrow more money.
The Chandlers say AGFI's advertisements are "deceptive and misleading, in that *** they purport to be an offer for an additional loan" and "they do not disclose that the borrower will refinance his or her existing obligation." The various solicitations on the Chandlers' account statements stated:
"SPLASH INTO CASH DURING OUR SUMMER CELEBRATION. WHATEVER YOUR PLANS . . . LET US HELP. WITH A HOME EQUITY LOAN YOU CAN HAVE THE CASH YOU NEED FOR A REALLY COOL SUMMER. COME IN ANYTIME FROM JULY 13 TO AUGUST 7 AND REGISTER TO WIN YOUR OWN DELUXE BEACH KIT. ALL LOANS SUBJECT TO OUR NORMAL CREDIT POLICIES."
"YOU COULD PAY OFF MONTHLY BILLS, TAKE CARE OF BACK-TO-SCHOOL EXPENSES AND STILL HAVE EXTRA CASH. WE'LL SHOW YOU HOW TO PUT YOUR HOME EQUITY TO WORK."
"IF YOU'RE PLANNING ON HOME IMPROVEMENTS TO MAKE YOUR HOME MORE COMFORTABLE THIS SUMMER . . . WE'LL BE HAPPY TO TELL YOU ABOUT THE BENEFITS OF A HOME EQUITY LOAN."
"DON'T LET THE SUMMER SLIP AWAY WITHOUT A VACATION YOU'LL REMEMBER FOR YEARS TO COME. ASK US HOW WE CAN HELP YOU GET AWAY THIS SUMMER."
"YOU'RE INVITED TO STOP BY AND COOL OFF WITH COLD CASH FROM JULY 19-AUGUST 13. WE'RE SERVING UP A SUPPLY OF COLD CASH FOR VACATIONS, HOME IMPROVEMENTS OR BACK-TO-SCHOOL EXPENSES. CALL *** TODAY TO SEE HOW MUCH WE CAN PUT 'ON ICE' FOR YOU." (Emphasis in originals.)
The advertisement letters AGFI sent to the Chandlers are, in essence, the same as the solicitations in their account statements, except that the letters are a bit more personal. For example, in a letter dated September 7, 1999, AGFI said,
I am pleased to tell you that your loan account balance has been reduced enough that you may qualify for $1,200.*
Please call me at *** and I'll do all I can to meet your requirements for new appliances, home improvements, vacation spending, or other needs."
The Chandlers responded to AGFI's solicitations. Keturah Chandler called AGFI and asked about receiving an additional loan. A representative of AGFI gave Keturah the impression she would receive a "new" loan. The representative allegedly "never mentioned the Chandlers' current loan in relation to the additional money sought to be borrowed ***." All the representative mentioned was that Keturah "could come after-hours to sign the loan documents" and "that all that would be necessary was her signature."
On September 15, 1999, the Chandlers signed a new note with AGFI. "Instead of simply making a new loan," said the amended complaint, "AGFI presented the Chandlers with papers for a refinancing of the existing loan with additional funds being advanced. *** AGFI failed to disclose that it would be far more expensive for the Chandlers to refinance than to simply obtain a new loan."
Now, the amount financed was $5,388.82, the finance charge was $2,026.75, and the annual percentage rate was 21.33% -- the Chandlers' automobile still secured the note. Of the amount financed, $107.23 was the premium for credit life insurance and $439.56 was the premium for credit disability insurance. Under terms of the note, in the event of prepayment or acceleration, finance charges would be credited using the "Rule of 78's." A refund of unearned premiums on the insurance policies would also be computed using the Rule of 78's.
The Chandlers alleged: "AGFI did not disclose to the Chandlers, when they entered into the September 15, 1999, transaction, that it would be substantially cheaper for them to simply obtain a second loan instead of refinancing the first loan."
The Chandlers say they did not realize AGFI had refinanced their original loan until the following day, September 16, 1999, when they told AGFI they wanted a "new loan." AGFI told the Chandlers they could not receive a new loan unless they returned the original check. The Chandlers were unable to return the check, however, because they had cashed it the night before. Consequently, AGFI denied the Chandlers' request to convert the additional loan money into to a new loan.
The Chandlers set out the complained-of policies and practices of AGFI they say violated the Consumer Fraud Act and the Consumer Loan Act. They allege:
"It was and is the policy and practice of AGFI to:
a. Repeatedly solicit for existing loans customers by mail to borrow additional funds.
b. Use advertisements, such as Exhibits C & D, which lead the customer to believe that he or she is being offered a new and separate loan when in fact, that is not the case.
c. Provide existing loan customers with additional funds through refinancing the original loans, rather than making new loans, with the result that the cost of the additional funds was inordinately and unconscionably expensive.
d. Concealing from or omitting to reveal to the borrowers the fact that the advertisement was for a ...