Opinion ID: 370296
Heading Depth: 2
Heading Rank: 1

Heading: Credit Sale

Text: 20 Under 15 U.S.C. § 1602(g) and 12 C.F.R. § 226.2(t), the term  credit sale is defined as any sale with respect to which credit is extended or arranged by the seller. The sale of insurance is clearly a sale within the meaning of TIL. Stefanski v. Mainway Budget Plan, Inc., 456 F.2d 211 (5 Cir. 1972). Moreover, Community admittedly extended credit to the purchasers of the cancer insurance policies. The only question, then, is whether Community was a seller within the meaning of § 1602(g). 21 The district court held that Community was a seller under two theories. First, the court concluded that Community was a proximate cause of or a substantial factor in the sale, borrowing those terms from cases involving Securities Act violations. See, e. g., Lewis v. Walston & Co., 487 F.2d 617, 621-22 (5 Cir. 1973); Hill York Corp. v. American Int'l Franchises, Inc., 448 F.2d 680, 692-93 (5 Cir. 1971). Alternatively, the court determined that Community was a seller under agency principles, since Community authorized and encouraged its loan managers to sell the cancer insurance. 22 Community argues that, under Georgia law, there is no sale of an insurance policy until the application for such a policy is accepted by the insurer. See, e. g., Sasser v. Coastal States Life Ins. Co., 113 Ga.App. 17, 147 S.E.2d 5 (1966). Therefore, Community contends, only American Family could be a seller since it had the authority to accept or reject the applications. 23 We find this argument unpersuasive for several reasons. First, it ignores Community's role in the merchandising process and instead emphasizes the moment at which a contractual agreement actually arose. Since TIL is  consumer protection legislation, we think the appropriate focus should be on the time of the contact with the consumer. That is, we must examine the transaction through the eyes of the consumer, and the transactions in the instant case, viewed in such a manner, involved a sale of cancer insurance by the loan managers. Cf. Meyers v. Clearview Dodge Sales, Inc., 539 F.2d 511, 514-15 (5 Cir. 1976), Cert. denied, 431 U.S. 929, 97 S.Ct. 2633, 53 L.Ed.2d 245 (1977) (seller who prearranges credit for consumer is creditor under TIL). From the plaintiffs' perspective, Community was obviously selling the insurance policies, for plaintiffs' only contact with any organization concerning the policies was with Community's loan managers during normal office hours. Even if the loan managers were wearing two hats, the one marked American Family was all but invisible to the plaintiffs. 11 24 Second, under 12 C.F.R. § 226.8(a), a creditor must make TIL disclosures before the transaction is consummated. Section 226.2(kk) provides that a transaction shall be considered consummated at the time a contractual relationship is created . . . . Thus, although state law is determinative of when a contractual relationship is created, it has nothing whatsoever to do with how the transaction is to be characterized for TIL purposes. The obligation to disclose arises before the creation of a contractual relationship, and it would be circular to define the nature of the transaction which determines the particular disclosures that are required in terms of the state law governing the contract's formation. We thus characterize the transaction as a matter of federal law. Starks v. Orleans Motors, Inc.,372 F.Supp. 928, 931 (E.D.La.) (Rubin, J.), Aff'd, 500 F.2d 1182 (5 Cir. 1974). 12 25 Third, we have stressed that TIL is a remedial statute that is to be liberally construed in favor of the consumer. Sellers v. Wollman, 510 F.2d 119, 122 (5 Cir. 1975); See also McGowan v. King, Inc., 569 F.2d 845, 848 (5 Cir. 1978); Thomas v. Myers-Dickson Furniture Co.,479 F.2d 740, 748 (5 Cir. 1973). A hyper-technical interpretation of seller or sale based on state law would be contrary to this principle. 26 Finally, we agree with the district court that applications to the insurance company provided no information upon which the company could chose to reject them, . . . and the final step in the consummation of the sales transaction in question was a mere formality. Record at 534. In terms of the overall consumer transaction, American Family's only function was to rubber stamp the applications and issue the policies. 27 Having concluded that state law is not dispositive of Community's status, we now examine that issue in terms of the loan company's role in the merchandising of the insurance and its business relationship with American Family. Although we have doubt as to the viability of the district court's proximate cause theory in the TIL context, we are convinced that the record is more than sufficient to establish Community's status as a seller by virtue of its relationship with American Family and by application of simple agency principles. 28 Aristar, Community's corporate parent, clearly developed the cancer insurance sales program as a profitable sideline that would help develop new loan business, increase revenue to the tune of a projected annual gross of $1.5 million, and provide a bonus or incentive plan for Community's loan managers and supervisory personnel. American Family's role was to underwrite the CancerCare policies sold by Community's loan managers, who were also licensed agents of American Family. 29 We thus view the program as a type of joint venture between American Family and the Aristar family, with American Family providing the policy and Community the marketing. Aristar undoubtedly benefited from the arrangement, for Diamond State, acting as the general and receiving agent for sales commissions, received half of each premium, retained 25%, and paid the remainder in commissions to the Community loan manager who made the sale and to his district supervisor. Thus, Community's incentive plan was paid for by Diamond State, its sister subsidiary. 30 Given this business arrangement, Community's argument that the loan managers were selling the insurance policies strictly on behalf of American Family simply does not wash. To draw such a bright, bold line between the loan managers' dual functions would be to ignore reality, since a business relationship obviously existed between American Family and the Aristar conglomerate. 13 The fact that the loan managers were licensed agents of American Family does not indicate that they were working solely for that company, but rather that their licensing was a necessary part of the business venture between American Family and the Aristar group, just as Community's authorizing the sale of cancer policies at its loan offices was an essential part of the arrangement. 14 31 Given the existence of the business relationship described above, it follows that the loan managers acted on behalf of both American Family and Community in selling the cancer insurance policies. The sales could not have been made without the cooperation and agreement of both American Family and Community. For its part, Community authorized and encouraged every significant phase of the sales program, and the loan managers obviously could not have made on-the-job sales of this type of insurance without permission of the loan company. The loan managers thus made the insurance sales within the scope of their employment by Community, See Restatement (2d) of Agency § 229(1) (1957), 15 and the loan company is responsible as a principal for the actions of its agents. Accordingly, we hold that Community is a seller within the meaning of TIL.