Opinion ID: 1962394
Heading Depth: 1
Heading Rank: 5

Heading: Truth-In-Lending

Text: The Act is a part of the Consumer Protection Act, Pub. L. No. 90-321. Its purpose, as stated in 15 U.S.C. § 1601, is to promote the informed use of credit by providing for meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him. One of the things which must be disclosed is the substantive right of recission provided in § 1635 (a). The object of this and similar acts is said by Boyd, The Federal Consumer Credit Protection Act  A Consumer Perspective, 45 Notre Dame Lawyer 171 (1970), to be to relieve consumers who, as a result of high-pressure tactics by door-to-door salesmen, have incurred obligations they otherwise would have avoided. Id. at 188. The three-day right of recission, however, granted in § 1635 (a) is tolled if the creditor fails to disclose the right of recission. In such instance it expires three years after the date of consummation of the transaction. 15 U.S.C. § 1635 (f). The Act is a remedial statute and should be construed liberally in favor of the consumer in order to effectuate the congressional purpose. Eby v. Reb Realty, Inc., 495 F.2d 646, 650 (9th Cir.1974). It is not to be construed so liberally or loosely, however, as to lose sight of the balance which Congress sought to strike between borrowers and lenders. Downey v. Whaley-Lamb Ford Sales, Inc., 607 F.2d 1093, 1095 (5th Cir.1979). The Act provides in § 1604 that the Federal Reserve Board shall prescribe regulations to carry out the purposes of the Act. It has done so by regulations popularly termed Regulation Z and codified at 12 C.F.R. Part 226. It has further clarified the Act by issuing various interpretive rulings and public information letters in response to inquiries by citizens. The Act provides in § 1602: (f) The term creditor refers only to creditors who regularly extend, or arrange for the extension of, credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, whether in connection with loans, sales of property or services, or otherwise. [Emphasis added.] [2] Regulation Z (12 C.F.R. § 226.2 (s)) states in pertinent part relative to the term creditor: (s) Creditor means a person who in the ordinary course of business regularly extends or arranges for the extension of consumer credit, or offers to extend or arrange for the extension of such credit, which is payable by agreement in more than four instalments, or for which the payment of a finance charge is or may be required, whether in connection with loans, sales of property or services, or otherwise. The term arrange for the extension of credit is also defined in pertinent part: (h) Arrange for the extension of credit ... means to provide or offer to provide consumer credit... which is or will be extended by another person under a business or other relationship pursuant to which the person arranging such credit ... (1) Receives or will receive a fee, compensation, or other consideration for such service, or (2) Has knowledge of the credit ... terms and participates in the preparation of the contract documents required in connection with the extension of credit.... [12 C.F.R. § 226.2 (h) (emphasis added).] This latter definition of arranger has been noted as being somewhat problematic in the sense that it is not clear whether an incidental arranger, such as a real estate broker who refers his customers to a lending institution should be held to be an arranger along with professional arrangers, such as loan brokers. The problem is discussed by Professor Landers in The Scope of Coverage of the Truth in Lending Act, 1976 A.B.F. Research Jnl. 565, 576-78 (1976). The cases and staff opinions of the Federal Reserve Board, however, almost without exception have applied the rule mechanically: one is an arranger of credit only if he receives a fee for his arranging or has knowledge of the credit terms and participates in the preparation of the contract documents. On one hand, as the court indicated in Childress v. Mobile Living Corporation, 386 F. Supp. 903, 905 (E.D. La. 1974), acceptance of a fee renders one an arranger of credit even if he did not participate in the preparation of the credit documents and regardless of whether the fee was paid by the lender or the borrower. On the other hand, as indicated by the courts in Manning v. Princeton Consumer Discount Co., Inc., 390 F. Supp. 320, 325 (E.D. Pa. 1975), and Gerasta v. Hibernia Nat. Bank, 411 F. Supp. 176, 186 (E.D. La. 1975), rev'd in part on other grounds, 575 F.2d 580 (5th Cir.1978), participation in the preparation of contract documents and knowledge of its terms, even without acceptance of a fee for the service, makes one an arranger. In fact, a fee was involved in Manning, having been paid by an automobile dealer to a financer. However, no fee was involved in Gerasta which involved the relationship between a home improvement financer and a bank which was held to be an extender of credit under the Act. This construction of Regulation Z is endorsed by Warren and Larmore, Truth in Lending: Problems of Coverage, 24 Stanford L.R. 793, 825 (1972). Moreover, the Federal Reserve Board staff opinions clearly adopt this approach. See, e.g., Federal Reserve Letter No. 158, [1969-1974 Transfer Binder] Cons. Cred. Guide (CCH) ¶ 30,497 (October 16, 1969): You indicated that the builder may assist the prospective purchaser in preparing a loan application and in initiating a credit report, all in connection with first mortgage credit to be extended by a party other than the builder. However, the builder does not become involved in the preparation of the contract documents (note, mortgage, etc.) even though he may be aware of the credit terms. You questioned whether such involvement by the builder placed him within the definition of a creditor under the terms of participates in the preparation of the contract documents required in connection with the extension of credit. Merely providing a prospective purchaser assistance in completing a loan application and initiating a credit report would not, in itself, place the builder within the definition of the creditor and, therefore, subject him to the disclosure requirements of Regulation Z. Of course, if he were to receive a fee for his assistance in the credit transaction, he would fall within the definition of a creditor. See also: Federal Reserve Letters No. 1283, 5 Cons. Cred. Guide (CCH) ¶ 31,774 (February 21, 1978); No. 778, [1974-1977 Transfer Binder] Cons. Cred. Guide (CCH) ¶ 31,100 (April 10, 1974); No. 661, [1969-1974 Transfer Binder] Cons. Cred. Guide (CCH) ¶ 30,932 (January 10, 1973); No. 344, [1969-1974 Transfer Binder] Cons. Cred. Guide (CCH) ¶ 30,399 (June 4, 1970); No. 124, [1969-1974 Transfer Binder] Cons. Cred. Guide (CCH) ¶ 30,475 (September 25, 1969). The fact that Dorsey may have received intangible business benefits from his purchase of funds in the form of a higher marketability of the homes which he built does not make him an arranger of credit absent his receipt of a fee or his knowledge of the credit terms and participation in the preparation of the contract documents. Gerasta, 411 F. Supp. at 186-87; Munson v. Orrin E. Thompson Homes, Inc., 395 F. Supp. 152, 160-61 (D. Minn. 1974); Federal Reserve Letter No. 301, [1969-1974 Transfer Binder] Cons. Cred. Guide (CCH) ¶ 30,347 (April 16, 1970). We discussed the rules for statutory construction in Police Comm'r v. Dowling, 281 Md. 412, 379 A.2d 1007 (1977). A number of cases were cited for each of the statements there made. That which is pertinent to the case at bar includes: The cardinal rule of statutory construction is to ascertain and carry out the real legislative intent. In determining that intent the Court considers the language of an enactment in its natural and ordinary signification.... A corollary to this rule is that if there is no ambiguity or obscurity in the language of a statute, there is usually no need to look elsewhere to ascertain the intent of the General Assembly.... A court may not insert or omit words to make a statute express an intention not evidenced in its original form.... The General Assembly is presumed to have had, and acted with respect to, full knowledge and information as to prior and existing law and legislation on the subject of the statute and the policy of the prior law.... Absent a clear indication to the contrary, a statute, if reasonably possible, is to be read so that no word, clause, sentence or phrase is rendered surplusage, superfluous, meaningless, or nugatory.... [ Id. at 418-19]. See also Messitte v. Colonial Mortgage Serv., 287 Md. 289, 293-94, 411 A.2d 1051 (1980), and cases there cited. In Messitte we said, We know of no reason why any other rule should be used for the interpretation of regulations of an administrative agency, giving appropriate references. Id at 293. Accordingly, using those rules, we turn to an evaluation of the facts here under the Act and Regulation Z. It must be borne in mind that the burden of proof here was on the Beads who brought the action. Also, whether Dorsey is a creditor within the meaning of the Act must be determined upon the basis of facts occurring prior to and at the time of the execution of the mortgage, not upon the basis of any transactions in which Dorsey has been involved since the time of execution of the mortgage. The undisputed evidence is that this was the only instance in which Dorsey himself extended credit up to the time of this transaction; that Dorsey did not obtain financing for his customers but referred them to realtors; that prior to this transaction Dorsey had arranged through a realtor for funds to be available for his customers, paying a fee in connection with such funds, but it still was necessary for his customers to satisfy the credit requirements of such lenders; that Dorsey never received any compensation from any lender or from any customer for loans made to Dorsey's customers; and that Dorsey at no time participated in the preparation of the contract documents required in connection with loans to his customers. For one to be a creditor the Act requires that he  regularly extend, or arrange for the extension of, credit.... (Emphasis added.) This has been interpreted through Regulation Z as meaning a person who in the ordinary course of business regularly extends or arranges for the extension of consumer credit, or offers to extend or arrange for the extension of such credit.... In reporting the original Truth-in-Lending bill, the Committee on Banking and Currency of the House of Representatives emphasized that the term was intended to [c]over[] only those who regularly engage in credit transactions. Thus a small retailer who extended credit and charged for it in an isolated instance to accommodate a particular customer would not be covered. H.R. Rep. No. 1040, 90th Cong., 1st Sess. 23-24 (1967). Our cases tell us that [t]he word `regularly' ordinarily implies uniformity, continuity, consistency, and method, and excludes the idea of an occasional, accidental, incidental or casual use.... Carter v. Reardon-Smith Line, 148 Md. 545, 558, 129 A. 839 (1925). Dorsey in the ordinary course of his business does not regularly extend consumer credit. Compare Eby v. Reb Realty, Inc., 495 F.2d 646 (9th Cir.1974), and James v. Ragin, 432 F. Supp. 887 (W.D.N.C. 1977). It is further provided that the term arrange for the extension of credit means that to be an arranger one must either receive a fee, compensation, or other consideration for such service, or [h]a[ve] knowledge of the credit ... terms and participate[] in the preparation of the contract documents required in connection with the extension of credit.... (Emphasis added.) Dorsey received no fee, compensation or other consideration for extension of credit. Thus, he does not meet the test of the first prong. He does not in the ordinary course of business regularly participate in the preparation of contract documents for the extension of credit. Hence, he is not covered by the second prong relative to an arranger of credit. Since the evidence here does not place Dorsey within these definitions, the Act is not applicable and the mortgage is valid. Judgment reversed; appellees to pay the costs.