Opinion ID: 2995397
Heading Depth: 2
Heading Rank: 1

Heading: The Disclosure Statement Claim

Text: Corus makes no attempt to shade the purpose of its 80/20 program, which allows customers to finance more than eighty percent of the purchase price (or value) of their home through two loans. It adopted the program in response to customer complaints about the cost of private mortgage insurance which was required for mortgage loans of more than eighty percent of the property’s value. The alternative of a home equity line of credit for the balance of up to the remaining twenty percent of the property’s value apparently offered a less expensive substitute for the private mortgage insurance. Rendler first argues that by failing to provide a single disclosure statement summarizing the combined annual percentage rate on both loans, Corus Bank violated the TILA’s disclosure requirements. The TILA is a disclosure statute. It does not substantively regulate consumer credit but rather requires disclosure of certain terms and conditions of credit before consummation of a consumer credit transaction. Valencia v. Anderson Bros. Ford, 617 F.2d 1278, 1282 (7th Cir. 1980), rev’d on other grounds, 452 U.S. 205 (1981). The disclosures vary depending on the type of loan transaction. The TILA recognizes two general types of consumer credit transactions: open-end credit and closed-end credit. See Benion v. Bank One, Dayton N.A., 144 F.3d 1056, 1057 (7th Cir. 1998). The disclosure requirements for each type of transaction are described in different sections of the TILA’s implementing regulation, Regulation Z. See 12 C.F.R. sec. 226.17- 18 (closed-end credit disclosures); 12 C.F.R. sec. 226.5b (open-end credit disclosure). For closed-end credit disclosures, the TILA requires that a creditor make the required disclosures clearly and conspicuously in writing. . . . 12 C.F.R. sec. 226.17(a)(1). In addition, [t]he disclosures shall be grouped together, shall be segregated from everything else, and shall not contain any information not directly related to the disclosures required under sec. 226.18. Id. For open-end credit disclosures, the TILA requires that the disclosures required shall be made clearly and conspicuously and shall be grouped together and shall be segregated from all unrelated information. 12 C.F.R. sec. 226.5b(a)(1). Rendler admits that each disclosure statement provided by Corus Bank satisfied the respectiverequirements, but contends that the disclosures were deceptive in that they hid the true cost of the loans she received and prevented her from comparing her loan to loans offered by other institutions. The TILA’s goal is to help consumers accurately compare credit rates. As the statute recites, [i]t is the purpose of [the TILA] to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against unfair credit billing and credit card practices. 15 U.S.C. sec. 1601(a); Williams v. Chartwell Fin. Servs., 204 F.3d 748, 757 (7th Cir. 2000). Needless to say, all TILA disclosures must be accurate. Gibson v. Bob Watson Chevrolet-Geo, Inc., 112 F.3d 283, 285 (7th Cir. 1997). In her quest for more accuracy, Rendler requests this court to interpret the TILA as requiring a lender to provide a single document to a borrower, that reflects the total cost of a loan, regardless of the number or variety of loans that comprise a credit transaction. The heart of Rendler’s argument is that even though two distinct loans were issued, with two distinct and adequate disclosure statements, the subject matter of both loans was financing a single piece of real estate and therefore should be viewed as one transaction requiring one statement. See In re Buckles, 189 B.R. 752, 760 (Bankr. D. Minn. 1995) (stating that the giving of two separate disclosure statements for a single loan transaction is a violation of the TILA’s requirement of a single, comprehensible disclosure of the cost of credit). We disagree. The TILA anticipates situations where two parties will conduct multiple transactions necessitating multiple disclosures to achieve one goal. Under 12 C.F.R. sec. 226.17(c)(6)(i), which applies to closed-end transactions, [a] series of advances under an agreement to extend credit up to a certain amount may be considered as one transaction. (emphasis added). This section, in addition to the official commentary/6 that accompanies the statute, makes it clear that the regulation encompasses situations where multiple credit transactions with multiple disclosures would be used to finance a single piece of property. The official commentary to Regulation Z has been regarded as an authoritative interpretation of the TILA and Regulation Z by this court. In re Dingledine, 916 F.2d 408, 411 (7th Cir. 1990). The commentary also states that creditors have flexibility in handling credit extensions that may be viewed as multiple transactions. 12 C.F.R. sec. 226, Supp. 1, 17(c)(1)- (16). As an example, the commentary notes that [t]he separate financing of a down payment in a credit sale transaction may, but need not, be disclosed as two transactions (a credit sale and a separate transaction for the financing of the down payment). Id. In Rendler’s case, the home equity line of credit substitutes for the traditional down payment and therefore qualifies as a separate transaction. Despite the fact that both credit transactions involved a single piece of residential property, there were two distinct financial transactions--a first and a second mortgage./7 The commen- tary makes it clear that lenders have some flexibility in structuring loan transactions with each consumer, even multiple loan transactions financing a single piece of property. This is particularly true when these transactions are different types of loans. The disclosure requirements for open-end credit transactions and closed-end credit transactions are segregated into different sections of the regulations. The fact that each type of credit transaction has its own set of required disclosures indicates that the regulations are designed to control the credit transactions themselves and not the underlying property for which the credit is obtained. Because each of the loans that Rendler applied for was a separate transaction, Corus had the discretion under the Act to issue two disclosure statements. Also, the facts of this case would not only make the task of providing a single disclosure statement very difficult, but it could even defeat the TILA’s purpose of keeping the comparison of rates simple. Williams, 204 F.3d at 757. The home equity line of credit that Ms. Rendler received in addition to her mortgage was a revolving line of credit with an adjustable rate. A single disclosure statement reflecting an annual percentage rate for both of her loans would have to be altered on a monthly basis to reflect any excess payments or amounts reborrowed on her line of credit. In fact, almost one quarter of the class members who received loans under the 80/20 program paid down and then reborrowed on the home equity line of credit, thereby completely altering their loan package midway through the term of the loan./8 If Corus had issued a single piece of paper reflecting a combined annual percentage rate for those individuals, it would have been completely meaningless once the home equity line of credit was paid off. Ms. Rendler is correct in her assertion that a purpose of the TILA is to allow consumers to compare credit terms offered by various lending institutions. Id. Given these circumstances and based upon the disclosures presented, it would have been difficult for a consumer like Ms. Rendler to compare her 80/20 loan package to a single loan for the full value of her property that included private mortgage insurance from another lender. However, the purpose of the TILA is for consumers to be able to compare similar credit transactions./9 It does not require that all credit transactions be similar. Ms. Rendler could have easily compared her primary mortgage loan for eighty percent of the property value with other lending institutions’ similar offerings. She also could have shopped around her second mortgage for a comparable rate. And finally, she could have had another institution compare both loans together to a full value mortgage that included mortgage insurance. Rendler admits that when taken individually, the disclosures for her two loans satisfied TILA requirements and therefore could easily have been used for comparison purposes by other lending institutions. The ultimate adequacy of the clarity of TILA disclosures can only be judged by an objective reasonable person standard. See Smith v. Check-N-Go of Ill., Inc., 200 F.3d 511, 515 (7th Cir. 1999). The standard is met in this case. Rendler requested and received financing for her home. She received eighty percent through a fully disclosed closed-end loan and the balance through a properly disclosed open-end line of credit. Issuing two disclosures for two different mortgages is an acceptable method under the TILA for Corus to clearly communicate the details of the transaction to a borrower without unnecessary confusion.