Opinion ID: 401053
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Heading Rank: 3

Heading: Did Davis and Metalcraft Consummate a Consumer Credit Transaction ?

Text: 10 Regulation Z obliges creditors 1 to make the statutorily-mandated disclosures before the transaction is consummated. 12 C.F.R. § 226.8(a). A transaction is considered consummated at the time a contractual relationship is created between a creditor and a customer ... irrespective of the time of performance of either party. Id. § 226.2(kk) (emphasis added). 11 In the present case, Metalcraft and Davis undisputedly entered into a contractual relationship pursuant to which Metalcraft was required to extend, and Davis was obliged to accept, consumer credit within the meaning of TILA. Thus, the October contract clearly was consummated for TILA purposes. 12 The district court, however, apparently was of the opinion that, because Metalcraft never did extend credit as agreed, the subsequent abandonment of the contract somehow unconsummated the agreement for TILA purposes. This is not so. The Truth in Lending Act is a 'disclosure' law.... It is the obligation to disclose, not the duty of subsequent performance, towards which the Act is directed. Burgess v. Charlottesville Savings & Loan Ass'n, 477 F.2d 40, 44-45 (4th Cir. 1973) (footnote omitted; emphasis in original). (A) bandonment of the transaction ... is not a basis for relief from liability.... Dryden, supra, 630 F.2d at 647. 13 In Dryden, the plaintiff Dryden purchased a lemon automobile, with financing provided by the defendant creditor. The plaintiff returned the car, and the creditor refunded the plaintiff her down payment. The Eighth Circuit held that the creditor was nevertheless liable for any TILA violations in connection with the financing agreement: 14 The statutory damages are explicitly a bonus to the successful TILA plaintiff, designed to encourage private enforcement of the Act, and a penalty against the defendant, designed to deter future violations. See Williams v. Public Finance Corp., supra; Hinkle v. Rock Springs Nat. Bank, 538 F.2d 295 (10th Cir. 1976). As to the fact that the transaction was abandoned by both parties and Dryden's money was returned, it is sufficient to note that recovery of statutory damages by a successful TILA plaintiff is not inconsistent with other remedies the plaintiff may have in connection with the same transaction, such as rescission of the loan contract, see Sellers v. Wollman, 510 F.2d 119 (5th Cir. 1975), or even forfeiture to the plaintiff, under state usury laws, of the unpaid balance of the loan, see Williams v. Public Finance Corp., (598 F.2d 349 (5th Cir. 1979) ). If Dryden proved that the disclosure provisions of the Act and Regulation Z were violated in connection with the January 26 transaction, (the creditor) is liable for statutory damages. 15 630 F.2d at 647 (footnote omitted). 16 In Madewell v. Marietta Dodge, Inc., 506 F.Supp. 286 (N.D.Ga.1980), the plaintiffs purchased a car on credit and made a down payment. One week later, the plaintiffs returned the car and the dealer-creditor returned the down payment. As in Dryden, the court held that the creditor could not escape TILA liability due to the abandonment of the contract: 17 (B)efore plaintiffs signed the contract and obligated themselves to the credit terms set forth in it, they were entitled to the disclosures required by truth-in-lending law. 15 U.S.C. § 1638. The Court finds this to be true even though the transaction contemplated when plaintiffs signed the contract was not consummated. The parties took action that would have been subject to truth-in-lending law had the transaction continued as contemplated, and defendant should have made the disclosures required by truth-in-lending law. Defendant was not entitled to rely on the possibility of an after-the-fact determination that the transaction would not go forward, and this Court will not allow defendant to escape its responsibilities under truth-in-lending law on the basis of developments after the time at which disclosures, if required at all, were to be made.... The fact that a credit transaction is subsequently rescinded does not preclude recovery under truth-in-lending law. Sellers v. Wollman, 510 F.2d 119 (5th Cir. 1975). 18 506 F.Supp. at 288-89 (emphasis added; footnotes omitted). 19 Thus, post-consummation abandonment of a financing agreement generally will have no effect upon a creditor's TILA liability. See also Poirrier v. Charlie's Chevrolet, 442 F.Supp. 894, 896 (E.D.Mo.1978); Copley v. Rona Enterprises, Inc., 423 F.Supp. 979, 982-83 (S.D.Ohio 1976). Ms. Davis through her able counsel consequently makes an extremely forceful argument that, because of the punitive-prophylactic purposes of the nondisclosure penalties, the creditor here is liable for these penalties despite the circumstance that the financing arrangements were cancelled before credit could be extended. Indeed, in the sparse decisional law relating to the issue, cited above, the courts have uniformly allowed such penalties as to consummated consumer transactions, despite the circumstance that credit was not actually extended due to post-consummation events. 20 On the other hand, neither the court nor either counsel could discover a decision involving the present facts: Where, after the consumer transaction was consummated, it was mutually rescinded and no financing transaction whatsoever in fact occurred. We recognize the forcefulness of counsel's intellectual arguments, based on prior jurisprudence, that the post-consummation rescission does not excuse the creditor from nondisclosure penalties, under the rationale underlying the statutory provision and motivating the decisions relied upon. Nevertheless, conceding that the financing agreement was consummated, we like the district court find it difficult to accept an interpretation of the congressional intent that would by the fact of nondisclosure freeze the right to penalties, even though the financing transaction technically consummated is mutually rescinded prior to any transaction whatsoever between the parties. If two minutes after the agreement was consummated, the parties tore up the papers and called off the transaction by mutual consent, under the plaintiff's view the consumer is nevertheless entitled to statutory penalties for any nondisclosure defect. 21 Ultimately, however, we have decided to pretermit deciding the issue that would arise from distinguishing the present facts and refusing penalties, despite their award under what could be argued to be analagous circumstances. We have decided to do so, because on examination of the merits of the plaintiff's alleged TILA violations, we find that no disclosure violations took place. 22 We now consider the merits of the plaintiff's alleged TILA violations. 23