Opinion ID: 845747
Heading Depth: 2
Heading Rank: 3

Heading: Bona Fide and Reasonable

Text: Because we agree with the Court of Appeals ultimate conclusion that Paxson's TILA claim was improperly dismissed, we must likewise address whether summary disposition was warranted under MCR 2.116(C)(10). Summary disposition under MCR 2.116(C)(10) is proper where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. The court must consider the affidavits, pleadings, depositions, admissions, and documentary evidence submitted in the light most favorable to the opposing party. Skinner v. Square D Co., 445 Mich. 153, 161-162, 516 N.W.2d 475 (1994). A genuine issue of material fact exists when the record, giving the benefit of reasonable doubt to the opposing party, leaves open an issue upon which reasonable minds might differ. West v. Gen. Motors Corp., 469 Mich. 177, 183, 665 N.W.2d 468 (2003). The purpose of TILA is 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 .... 15 USC 1601(a). Accordingly, TILA requires lenders, like defendant, to provide a written statement summarizing the loan transaction, including all related finance charges. 15 USC 1605(a). Under TILA, the amount of the finance charge in connection with any consumer credit transaction shall be determined as the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit. Id. Section 1605(a) sets forth a list of examples of fees and charges that are properly included in the finance charge. Significantly, 15 USC 1605(e) sets forth a list of certain items that are not properly included in the finance charge, and one of those items is [f]ees for preparation of loan-related documents. 15 USC 1605(e)(2). Further, Regulation Z, 12 CFR 226.4(c)(7)(ii), provides that fees for preparing loan-related documents are not finance charges and, thus, need not be included in the finance charge if the fees are bona fide and reasonable in amount[.] Here, Paxson claims that defendant violated § 1605 and Regulation Z because defendant's document preparation fee, as a finance charge, was not included in the loan's APR. Specifically, Paxson claims that defendant's document preparation fee was not bona fide and reasonable in amount because the fee did not actually relate to document preparation. The Court of Appeals concluded that summary disposition under MCR 2.116(C)(10) was inappropriate because, while there is no question of material fact with respect to the reasonableness of the document preparation fee, a question of fact exists whether defendant's fee was bona fide within the meaning of applicable federal law. We agree and adopt the Court of Appeals following rationale as our own. A resolution of the issue involves interpretation of federal law. When construing federal statutes and regulations, we are governed by authoritative decisions of the federal courts. Bement v. Grand Rapids & I R Co, 194 Mich. 64, 65-66, 160 N.W. 424 (1916). Where no decision on a particular issue has been rendered by the United States Supreme Court, we are free to adopt decisions of the lower federal courts if we find their analysis and conclusions persuasive and appropriate for our jurisprudence. Abela v. Gen. Motors Corp., 469 Mich. 603, 606-607, 677 N.W.2d 325 (2004). In Brannam v. Huntington Mortgage Co., 287 F.3d 601 (C.A.6, 2002), the plaintiffs argued that the $ 250 document preparation fee was not bona fide and reasonable such that it could be excluded from the finance charge. The court acknowledged that the TILA exempts fees for preparation of loan-related documents from the computation of the finance charge. Id. at 603. The Sixth Circuit Court of Appeals considered whether the $ 250 fee was bona fide and reasonable. Id. at 603-604. The evidence did not support that the fee covered anything more than document preparation costs. Thus, there was no evidence to support that the fee was not bona fide under Regulation Z. Id. at 606. With respect to the reasonableness of the $250 charge, the court determined that a fee is reasonable if it is for a service actually performed and reasonable in comparison to prevailing practices of the industry in the relevant market. Id. The evidence supported that $ 250 was a reasonable document preparation fee for western Michigan. Id. In this case, unlike in Brannam, there is a question of material fact with respect to whether the fee was bona fide. The term bona fide, as used in Regulation Z, is not defined. 12 CFR 226.2(b)(3) provides that, unless a term is specifically defined in Regulation Z, the words used have the meanings given to them by state law or contract. We construe undefined words used in statutes according to their plain and ordinary meanings. Cox v. Flint Bd. of Hosp. Managers, 467 Mich. 1, 18, 651 N.W.2d 356 (2002). Resort to dictionary definitions is acceptable and useful in determining ordinary meaning. Id. The term bona fide means made or done in good faith, without deception or fraud, authentic, genuine, real. Random House Webster's College Dictionary (1997). The purpose of TILA is to assure a meaningful disclosure of credit terms so consumers may compare various credit terms to allow them to avoid uninformed uses of credit. 15 USC 1601(a); Inge v. Rock Financial Corp., 281 F.3d 613, 619 (C.A.6, 2002). With that purpose in mind, and using the ordinary definition of bona fide, a document preparation fee is not bona fide, authentic, or genuine, if it includes charges for items other than document preparation. There was evidence in this case to support that the document preparation charge was not bona fide. Paul Sydloski, defendant's president, testified that he believed that the document preparation fee was charged to cover or defray defendant's expenses, specifically the costs associated with taking a loan through the entire sequence from the application through the closing and subsequently selling it to the secondary market or keeping it. Sydloski believed that defendant's senior management employees held the same view. He was unsure whether there was any difference between a document preparation fee and a loan processing fee. James Koessel, the bank's chief lending officer, testified that the document preparation fee was initially instituted at $ 100 to defray some of the costs incurred in preparing documents. Koessel admitted, however, that the document preparation fee was eventually replaced by a loan-processing fee, which is properly disclosed as part of the finance charge. We believe the evidence presents a question of material fact with respect to whether the fee was for a variety of services necessary to take the loan from application through closing and beyond. Because a genuine issue of material fact exists with respect to whether the fee was bona fide, summary disposition on the merits of the TILA claim is inappropriate. We note, however, that there is no question of material fact with respect to reasonableness. We agree with the Brannam Court that reasonableness is measured by looking at the marketplace, and we note that the market comparison approach is compatible with ordinary dictionary definitions of the term reasonable, which include logical, not exceeding the limit prescribed by reason, not excessive, moderate. Random House Webster's College Dictionary (1997). The Brannam Court determined that $250 was a reasonable document preparation fee in west Michigan. Id. Paxson has failed to offer evidence to dispute that $250 is reasonable in west Michigan for document preparation. [ Cowles, supra at 233-235, 687 N.W.2d 603.] [17] Nonetheless, defendant urges this Court to adopt the view apparently espoused by the United States Court of Appeals for the Seventh Circuit in Guise v. BWM Mortgage, LLC, 377 F.3d 795, 800 (C.A.7, 2004). According to defendant, Guise sets forth an objective test under which a fee is bona fide as long as the services for which the fees are imposed are performed, period. We decline defendant's invitation to adopt its reading of Guise because it is inconsistent with the meaning of bona fide. For example, if defendant charges $250 for its document preparation fee, but only $10 of that total fee represents actual document preparation services and the remainder represents, for example, overhead charges, the fee would not be bona fide within the meaning of the TILA. In other words, the fee would not be what it is claimed to be, so the fee would not be bona fide, authentic, or genuine. Accordingly, we reject defendant's argument and affirm the Court of Appeals decision that summary disposition under MCR 2.116(C)(10) would be inappropriate.