ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA C.A. No. 75-495
Before: VAN DUSEN, ADAMS and HUNTER, Circuit Judges.
Plaintiff, Richard Gennuso, sought statutory damages from the defendant bank for its alleged failure to disclose fully the terms of a consumer credit transaction into which Gennuso entered while in the course of purchasing a new automobile. The district court granted the bank's motion for summary judgment. Since we conclude that the bank violated the disclosure provisions of federal law, we now reverse and remand.
Mr. Gennuso claims that the disclosure of the terms of a consumer loan by the Commercial Bank and Trust Co. (hereinafter Commercial Bank) was not in accordance with the requirements of the Truth-In-Lending Act, 15 U.S.C. § 1601 et seq, and more particularly was not in compliance with Federal Reserve Board Regulation Z, 12 CFR § 226.1 et seq.*fn1
First, Gennuso charges that Commercial Bank failed to identify properly in the Disclosure Statement and in the Note and Security Agreement - the key documents used in the credit transaction - a security interest in the proceeds and the unearned premium in a property insurance policy covering the automobile he purchased, and that such failure transgressed §§ 226.8(a) and 228.8(b)(5) of Regulation Z. Second, he maintains that Commercial Bank, in violation of these two sections, did not properly disclose a security interest in after-acquired property, namely, accessions to the automobile that was made available as collateral for the loan. Finally, Gennuso asserts that the inclusion of a reference to a warrant to confess judgment in the Note and Security Agreement, when in fact there was no such warrant, abridged § 226.6(c) of Regulation Z.
The first claim - that of improper disclosure of a security interest in an insurance policy - rests on the fact that the Disclosure Statement contains no mention of such an interest. Item 8 of the Disclosure Statement describes the interest of the Commercial Bank as a "new 1974 Chev. Monte Carlo." No description of any other security interest is given in the Disclosure Statement, although printed language under Item 8 refers the reader to "... the instrument evidencing the obligation for full description of property to which the security interest relates...." The Note and Security Agreement describes the collateral for the loan as a 1974 Chevrolet Monte Carlo. There is no reference to any interest in insurance at the top of the Note where the collateral is described. However, paragraph 6 of the debtor's covenants included in the Note and Security Agreement does create a security interest in an insurance policy covering the automobile.*fn2 Gennuso alleges that these provisions, taken together, contravene the rule embraced in § 226.8(a) that disclosure of the terms of consumer loans be made on one document,*fn3 and also violate the principle articulated in § 226.8(b)(5) that descriptions of security interests be set forth clearly.*fn4
Gennuso's second argument - that Commercial Bank improperly disclosed its security interest in after-acquired property - is grounded on the proposition that there is no typewritten description of this security interest in the Disclosure Statement.*fn5 The only mention of such an interest in the Note and Security Agreement is in printed language stating that the collateral includes "... all attachments, accessories and parts used or intended to be used with the above described property ('Collateral') whether now or hereafter installed therein...." Gennuso claims that the disclosure of the security interest in after-acquired property infringes upon the "one document" rule of § 226.8(a) and the "clear identification" principle of § 226.8(b)(5). And he maintains that the disclosure requirement in § 226.8(b)(5) dealing with a security interest in after-acquired property is not met here.*fn6
Gennuso's final contention - that when a creditor makes reference to a non-existent warrant to confess judgment, he transgresses § 226.6(c)*fn7 - is premised on the fact that the Note and Security Agreement has a clause, printed in bold-face type, referring to a "foregoing warrant of attorney to confess judgment,"*fn8 even though there was no clause providing for a warrant of attorney to confess judgment. Indeed, Commercial Bank admitted that no such warrant existed. As a consequence, plaintiff insists, the inclusion of a reference to such a provision constituted "additional information" stated in such a manner as "to mislead or confuse the customer."
Rejecting each of these three arguments, the district court granted the defendant's motion for summary judgment. This appeal followed.
The purpose of the Truth-In-Lending Act, which was passed by Congress in 1968 to help correct what it perceived as widespread consumer confusion about the nature and cost of credit obligations,*fn9 is "... to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various terms available to him and avoid the uninformed use of credit."*fn10 The Federal Reserve Board is empowered to construe the Act's provisions and to prescribe regulations carrying out the legislative purpose.*fn11 Regulation Z was promulgated pursuant to that authority.
In evaluating Gennuso's claim regarding the alleged failure of Commercial Bank to adhere to the "one document" precept of Regulation Z, the district court rested its rejection of plaintiff's argument on the fact that the creditor used two separate documents, not a single two-sided document. We cannot accept this contrast as a controlling distinction. The plain terms of § 226.8(a) establish that disclosures are to be made either on "... the note or other instrument evidencing the obligation on the same side of the page and above or adjacent to... the customer's signature" or on "(one) side of a separate statement which identifies the transaction." The references to "the page" and "a separate statement," read literally, indicate that the regulation requires the disclosures to be made on one document.*fn12 Certainly there is no suggestion in the language of § 226.8(a) that the requirement applies to two-sided documents but not documents in a series consisting of two or more items.*fn13 Moreover, the primary aim of the Truth-In-Lending Act of avoiding consumer confusion would not be served by an artificial distinction between disclosures spread over two separate papers and those occurring on the front and the back of one document.*fn14
Furthermore, the district court erroneously has assumed that this is a situation in which a clear identification of the type of a security interest "... cannot properly be made on the disclosure statement due to the length of such identification...."*fn15 Section 226.8(b)(5) of Regulation Z does provide that in a limited class of cases a note or other instrument evidencing the obligation may contain a reference to a separate document describing a security interest.However, the terms of this exception apply only to situations where a full and lucid identification of the property "cannot properly be made on the disclosure statement due to the length of such identification...",*fn16 and no such excessive length exists in this situation. Both the security interest in the insurance policy and in the after-acquired property could have been identified by a brief description, as Gennuso has suggested.*fn17 Thus, the ...