Opinion ID: 311478
Heading Depth: 1
Heading Rank: 2

Heading: applicability of disclosure requirements to preexisting accounts

Text: 24 There is no question that a violation of Sec. 226.4(a)(5) would have been shown here if plaintiff had opened her account with defendant after the effective date of the Act. In each of the eleven challenged periodic statements, defendant failed to include the insurance charge within the finance charge shown on the statement, even though defendant did not have a specific dated and separately signed insurance authorization from plaintiff. Indeed, if defendant has improperly understated the finance charge, it has also improperly understated the annual percentage rate, which is computed from the finance charge. See 12 C.F.R. Sec. 226.5. 25 Plaintiff's account having been opened before the Act became effective, defendant argues that because it has complied with Sec. 226.7(f) of Regulation Z by sending the letter of June 28, 1969, it need not now comply with Sec. 226.4(a)(5). We cannot agree. Section 226.7(f) merely provides that: 26 In the case of any open end credit account in existence and in which a balance remains unpaid on July 1, 1969 . . . the items described in paragraph (a) of this section [the terms that a creditor must disclose to a customer opening an account after the Act becomes effective] . . . shall be disclosed in a notice mailed or delivered to the customer not later than July 31, 1969. . . . 27 Defendant argues that this language creates a grandfather clause excusing all pre-existing open end credit accounts from compliance with the ongoing disclosure requirements of Sec. 226.4(a)(5), but nowhere in the Act or in Regulation Z do we find any such exception. Defendant argues nonetheless that such an exception should be implied from two factors. First, defendant relies on the fact that pre-existing open end credit accounts are not mentioned elsewhere in Regulation Z to support the inference that Sec. 226.7(f) contains the only disclosure requirements applicable to such pre-existing accounts. Secondly, defendant urges that the obvious intent of this [Sec. 226.7(f)] disclosure to existing accounts was to relieve a business from the impractical requirement of obtaining signed credit life elections and disclosures from the holders of its numerous existing accounts. . . . 28 Defendant's efforts to create an existing-accounts exception from the disclosure requirements of Regulation Z must fail. As to its first theory, we deem it sufficient to iterate that exceptions not mentioned in the Act should not lightly be read into it, Buford v. American Finance Co., N.D.Ga.1971, 333 F.Supp. 1243, 1247, and we can perceive no good reason for our creating the exception defendant here urges. See also Mourning v. Family Publications Service, Inc., supra. Nor is defendant's second theory persuasive, for we understand that the promulgation of Sec. 226.7(f) reveals an altogether different intent. Section 226.7 sets out the specific disclosures required for all open end credit accounts. Section 226.7(a), for example, lists eight items that must be disclosed-at the time an account is opened-to every customer who opens such an account after the effective date of the Act. Rather than creating a special category of open end credit accounts, we think it clear that Sec. 226.7(f) merely guarantees that pre-existing open end credit accounts will receive the identical level of protection that such post-Act accounts are afforded. Under Sec. 226.7(a) new accounts are given certain disclosures at the time of opening; old accounts are placed on a par by the requirement that the same disclosures be made after the Act's effective date, i. e., under the circumstances enumerated in Sec. 226.7(f). Furthermore, we reject the argument that creditors may excuse their actions not in compliance with the regulatory scheme by arguing that to comply will place a commercially unfeasible burden on them. E. G., Douglas v. Beneficial Finance Co., D.Alas.1971, 334 F.Supp. 1166, 1175, rev'd on other grounds, 9 Cir. 1972, 469 F.2d 453. In that regard, we note that at the time defendant sent out its Sec. 226.7(f) disclosure letters, it might have been able to ease its burden by including a Sec. 226.4(a)(5) insurance authorization form in the same envelopes. 29 Defendant's view of this case misconceives the central thrust of the Truth in Lending Act and Regulation Z. The stated purpose of the Act's disclosure provisions is to assure a meaningful disclosure of credit terms so that the customer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit. 15 U.S.C. Sec. 1601. See also Mourning v. Family Publications Service, Inc., supra, 411 U.S. at 363-369, 93 S.Ct. 1652, Sec. I. In order to enhance the consumer's ability to shop for credit intelligently, the Act created the terms finance charge and annual percentage rate as standards that the consumer might look to in determining the actual cost to him of using credit. Buford v. American Finance Co., supra. See also Ratner v. Chemical Bank New York Trust Co., S.D.N.Y.1971, 329 F.Supp. 270; Bostwick v. Cohen, N.D.Ohio 1970, 319 F.Supp. 875. To implement this general purpose, two types of disclosures are required for open end credit accounts. First, a disclosure must be made when the account is opened advising the consumer what will or may happen to his account. See Sec. 226.7(a). Defendant has complied with this requirement by sending plaintiff the notice contemplated by Sec. 226.7(f). But secondly, the creditor is required to send periodic statements to users of its open end credit accounts advising them what has happened to their accounts. See Sec. 226.7(b). 30 The regulatory scheme is clearly intended to allow consumers to look to one place on the periodic statement to see what the cost of credit is, and defendant admits that the statement it sent plaintiff would violate Regulation Z, 12 C.F. R. Sec. 226.4(a)(5), if employed for accounts opened after July 1, 1969. That seemingly harsh result is necessary, however, if consumers are to be able to (1) intelligently shop for credit, and (2) intelligently assess the costs of continuing to use that credit. Defendant has failed to include a required item within its listing of the finance charge on the periodic statements it sent plaintiff, and we hold that this non-disclosure is excused neither by the fact that this individual open end credit account was opened before the effective date of the Act nor by the fact that defendant has complied with Sec. 226.7(f). 31 The biologism of the grandfather clause suggested by defendant would project progeny and lineal descendants ad infinitum. Instead of establishing this anomolous result, a realistic reading suggests that Regulation Z was intended to delineate the specifics of charges imposed after the Act's effective date and necessitates a continuum of their monthly permutations. It would have been a simple matter and the grist of their daily Congressional mill for the Congress to have employed explicit words of prospectivity if such a result had been intended. We are satisfied that violations of Sec. 226.4(a)(5)'s disclosure requirements have been established, and we turn now to a consideration of the proper measure of damages for those violations.