Opinion ID: 346607
Heading Depth: 1
Heading Rank: 2

Heading: the truth-in-lending violation

Text: 30 The district court approved the bankruptcy judge's conclusion that the conditional sales contract violated the disclosure provisions of the Truth-in-Lending Act and the Federal Reserve Board's regulations thereunder (Regulation Z), because the disclosure statement on the contract did not call attention to a provision in small type on the reverse side of the document dealing with a security interest in future indebtedness. Record at 86-87. The future indebtedness provision states: 31 The security interest aforesaid shall, in addition to securing all presently existing debts and liabilities, secure all future advances made by the Seller to or for the account of the Buyer, including advances for loans, taxes, levies, insurance, repairs to or maintenance of the collateral and all reasonable costs and expenses incurred in the collection of any such indebtedness. 32 Record at 16. 33 The Truth-in-Lending Act requires the creditor 13 in the kind of transaction involved here to disclose 34 (a) description of any security interest held or to be retained or acquired by the creditor in connection with the extension of credit, and a clear identification of the property to which the security interest relates. 35 15 U.S.C. § 1638(a)(10). The Federal Reserve Board's regulations require 36 (a) description or identification of the type of any security interest held or to be retained or acquired by the creditor in connection with the extension of credit, and a clear identification of the property to which the security interest relates or, if such property is not identifiable, an explanation of the manner in which the creditor retains or may acquire a security interest in such property which the creditor is unable to identify. . . . If after-acquired property will be subject to the security interest, or if other or future indebtedness is or may be secured by any such property, this fact shall be clearly set forth in conjunction with the description or identification of the type of security interest held, retained or acquired. 37 12 C.F.R. § 226.8(b)(5). 38 The future indebtedness term on the reverse side of the conditional sales contract here seems clearly to fall within the language both of the Act and of Regulation Z. General Finance offers three contentions in opposition to this conclusion. 39 First, General Finance seeks the protection of 12 C.F.R. § 226.8(j), which states in relevant part: 40 Any increase in an existing obligation to reimburse the creditor for undertaking the customer's obligation in perfecting, protecting or preserving the security shall not be considered a new transaction subject to this part. 41 General Finance's position seems to be that the future indebtedness term on the back of the contract served only to state ahead of time that the car would secure any sums expended by General Finance to protect the collateral and that, since the Act does not require disclosure even when such advances are made, disclosure a fortiori is not required prior to the expending of the sums. Manifestly, however, the dragnet provision in the instant contract reaches well beyond sums spent to protect the collateral. The contract provides that the automobile shall secure 42 all future advances made by the Seller to or for the account of the Buyer, including advances for loans, taxes, levies, insurance, repairs, to or maintenance of the collateral . . . . 43 Record at 9 (emphasis added). Thus, we think the provision is drawn too broadly to come within any protection § 228.8(j) might otherwise have provided. 44 Second, General Finance contends that the spirit of the Truth-in-Lending Act will be served if disclosure is made at the time of any future advances, the theory being that Garner could then choose to go elsewhere for credit. This notion has been rejected by the Federal Reserve Board. Section 226.8(b)(5), set out supra, provides in part that 45 (i)f after-acquired property will be subject to the security interest, or if other or future indebtedness is or may be secured by any such property, this fact shall be clearly set forth in conjunction with the description or identification of the type of security interest held, retained or acquired. 46 While this language is not without ambiguity, as we shall discuss infra, it is at least clear that the creditor may not wait until the future transaction to tell the debtor about the future indebtedness provision. We think this is consistent with the Congressional purpose toassure 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. 47 15 U.S.C. § 1601. The implication of General Finance's argument is that it should be of no moment to the potential borrower that he is binding the collateral to cover any future debts owed to the creditor. We think, on the contrary, that Congress meant for the potential debtor to have such information when deciding whether he ought to deal with a particular lender. 48 Third, General Finance contends that a security interest covering future indebtedness need be disclosed only when the interest covers after-acquired property. The argument is based on a reading of the somewhat ambiguous portion of 12 C.F.R. § 226.8(b)(5) set out supra. General Finance argues that the word such appearing in the quoted part of the regulation has as its antecedent after-acquired property, so that the regulation does not cover a future indebtedness provision binding existing collateral. 49 We reject this argument. First, the fact that the Federal Reserve Board may have singled out after-acquired property provisions for special treatment does not mean that future indebtedness provisions covering existing collateral are exempt from the disclosure requirement. The Board may have concluded simply that such terms respecting existing collateral so obviously fall within the language of the Act and regulations that explicit treatment is not necessary. Second, we perceive no policy reason why future indebtedness terms covering after-acquired property should be subject to the disclosure requirement, while such terms covering existing collateral may be couched in small type on the back of a document. Finally, we have stated in another case involving General Finance, Pollock v. General Finance Corp., 552 F.2d 1142 (5th Cir. 1977) (on petition for rehearing), that the word such in the regulation does not refer only to after-acquired property, but instead has as its antecedent property to which the security interest relates, as those words appear in the first sentence of the regulation. Id. at 1145. 50 The bankruptcy judge and the district court held correctly that the conditional sales contract transgressed the disclosure imperative of the Truth-in-Lending Act.