Opinion ID: 330039
Heading Depth: 2
Heading Rank: 1

Heading: Failure to Use Unpaid Balance.

Text: 31 The district court found that Grants' coupon contracts used amount financed 12 instead of the term unpaid balance prescribed by Connecticut Regulations (Conn.Regs.) 13 § 36-395-7(c)(5), cf. 12 C.F.R. § 226.8(c)(5), 14 and held that this constituted a violation of the Act. See also Welmaker v. W. T. Grant Co., supra, 365 F.Supp. at 536-37. Grants first alleges that the unintentional violation defense of 15 U.S.C. § 1640(c), 15 cf. C.G.S.A. § 36-407(c), is available to it. The section provides: 32 A creditor may not be held liable in any action brought under this section for a violation of this part if the creditor shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error. 33 Grants argues that in using the term amount financed it relied on a Board pamphlet entitled What you ought to know about Truth in Lending. 16 Therefore, Grants claims the benefit of section 1640(c) as a defense. See Welmaker v. W. T. Grant Co., supra, 365 F.Supp. at 540-45, where Grants prevailed on this very issue. But see Johnson v. Associates Finance, Inc., 369 F.Supp. 1121, 1123-24 (S.D.Ill.1974), and Scott v. Liberty Finance Co., 380 F.Supp. 475, 479 (D.Neb.1974), where other defendants' reliance on the same pamphlet was to no avail. The unintentional violation provision has been the subject of substantial litigation and two different analyses have emerged. Welmaker v. W. T. Grant Co., supra; Rolader v. Georgia Power Co., 4 CCH Consumer Credit Guide P 98,684 (N.D.Ga.1974); Thrift Funds of Baton Rouge, Inc. v. Jones, 274 So.2d 150, 161 (Sup.Ct.La.), cert. denied, 414 U.S. 820, 94 S.Ct. 115, 38 L.Ed.2d 53 (1973); Richardson v. Time Premium Co., CCH Consumer Credit Guide P 99,272 (1969-1973 Transfer Binder) (S.D.Fla.1971), have held that good faith efforts to comply with the legal requirements of the statute will excuse unintentional violations. Thus, Grants demands that it at least be granted a hearing on its good faith attempt to follow the law. 34 Plaintiffs dispute the bona fides of Grants' good faith efforts, noting that both the term amount financed and the term unpaid balance are required by Conn.Reg. § 36-395-7(c)(5), cf. 12 C.F.R. § 226.8(c)(5), and Conn.Reg. § 36-395-7(c)(7), cf. 12 C.F.R. § 226.8(c)(7). Plaintiffs also rely on another line of cases, all of which follow the reasoning of Ratner v. Chemical Bank New York Trust Co., supra, 329 F.Supp. at 281-82 & n. 17, in holding that the unintentional violation defense applies only to clerical errors of a sort that might occur in billing or in making mathematical calculations despite established procedures reasonably adapted to avoid any such error. See Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161, 1166-67 (7th Cir. 1974); Palmer v. Wilson, 502 F.2d 860, 861 (9th Cir. 1974); Johnson v. Associates Finance, Inc., supra, 369 F.Supp. at 1123-24; Scott v. Liberty Finance Co., supra, 380 F.Supp. at 480; Owens v. Modern Loan Co., CCH Consumer Credit Guide P 99,099 (1969-1973 Transfer Binder) (W.D.Ky.1972); Douglas v. Beneficial Finance Co., 334 F.Supp. 1166, 1178 (D.Alaska 1971), rev'd on other grounds, 469 F.2d 453 (9th Cir. 1972); Buford v. American Finance Co., 333 F.Supp. 1243, 1247-48 (N.D.Ga.1971). Finally, plaintiffs assert that good faith in the past is irrelevant since the order appealed from only enjoined Grants from entering into any coupon contracts in violation of the Truth-in-Lending law. 35 Defendant concedes that the unintentional violation defense does not apply to that portion of the district court's order providing for injunctive relief. 17 Defendant strongly objects to the district court's summary rejection of the defense, however, because of plaintiffs' pending motions for damages for past violations. We have carefully considered the question and have reviewed all of the arguments raised in the briefs as well as those discussed in the two lines of cases referred to above. We expressly adopt the reasoning of Judge Frankel in Ratner and the cases that follow that decision. We hold that the unintentional violation defense of section 1640(c) is only available for clerical errors which occur despite a system for correcting them. 36 In its first reply brief, defendant calls to our attention the recent addition of subsection (f) to 15 U.S.C. § 1640. See section 406 of Pub.L.No.93-495, 1 U.S.Code Cong. & Admin.News, 93d Cong., 2d Sess.1974, at p. 1745. Subsection (f) provides: 37 No provision of this section or section 112 (15 U.S.C. § 1611) imposing liability shall apply to any act done or omitted in good faith in conformity with any rule, regulation, or interpretation thereof by the Board, notwithstanding that after such act or omission has occurred, such rule, regulation, or interpretation is amended, rescinded, or determined by judicial or other authority to be invalid for any reason. 38 By virtue of section 408(e) of the same Act, id. at p. 1746, subsection (f) applies to this action even though it is now in the appellate process. Defendant argues that we should construe the subsection broadly to include Board staff letters or pamphlets as providing a basis for the good faith defense. But this position was anticipated and expressly repudiated by the drafters: 39 The Truth in Lending Act is highly technical and the Committee does not believe a creditor should be forced to choose between the Board's construction of the Act and the creditor's own assessment of how a court may interpret the Act. Accordingly, the Committee recommends an amendment to Truth in Lending requested by the Board which would relieve a creditor of any civil liability under Truth in Lending for any act done or omitted in good faith in conformity with any rule, regulation, or interpretation thereof by the Board. In order to confer immunity from civil liability, the rule, regulation, or interpretation thereof must be approved by the Board itself and not merely by the staff of the Board. 18 40 Before the new good faith reliance provision was enacted, the Board noted: 41 One of the legitimate concerns of creditors who have attempted to comply in good faith with the requirements of Truth in Lending is that, although they have followed Regulation Z, a court may conclude that the Regulation is invalid and that different disclosures or procedures were mandated by the Truth in Lending Act itself. At present, the civil liability provisions of section 130 (15 U.S.C. § 1640) do not necessarily preclude a finding of liability where the creditor has followed regulatory requirements which subsequently are held invalid. In order to avoid this inequity, a good faith reliance provision is suggested for inclusion in the Act. 42 Board of Governors of the Federal Reserve System, Annual Report to Congress on Truth in Lending for the Year 1972, 14-15 (1973). Thus, it appears that the reference in subsection (f) to any rule, regulation, or interpretation thereof by the Board means those requirements of Truth in Lending that have become part of Regulation Z, 12 C.F.R. § 226. But see Scott v. Liberty Finance Co., supra, 380 F.Supp. at 480. Grants does not claim that any rule, regulation, or interpretation of the Board as so defined, upon which Grants has relied, has been held invalid. Therefore, its defense based upon purported reliance on staff letters and pamphlets is legally insufficient under the new subsection (f). We hold that Grants did not comply with the requirements of law in failing to use the term unpaid balance.