Court Opinion

ID: 9467433
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:48:48.490357+00
Date Added: 2024-06-11T17:40:20.770829
License: Public Domain

WILLIAM E. DOYLE,
Circuit Judge, dissenting.
Because of my belief that the seller’s right to unearned and returned premiums is a security interest, and thus the installment purchase contract here violates the Truth in Lending Act, I respectfully dissent.
The question is whether the provision in the contract which provides that the buyer assigns to the seller any monies payable under the insurance (on the car), including returned or unearned premiums, and which authorizes the seller on behalf of both parties to receive or collect same constitutes a violation of the Truth in Lending Act.
Regulation Z, 12 C.F.R. Section 226.2(gg), defines security interest as meaning “any interest in property which secures payment or performance of an obligation. The terms include, but are not limited to, security interests under the Uniform Commercial Code . .
This problem is not a new one. Three circuits have considered this issue and have held that the nondisclosure of the seller’s right to unearned and returned premiums violates the Truth in Lending Act and subjects the seller to the remedy which is being pursued here. The cases are Gennuso v. Commercial Bank & Trust Company, 566 F.2d 437 (3rd Cir. 1977); Edmondson v. Allen-Russell Ford, Inc., 577 F.2d 291 (5th Cir. 1978), cert. denied 441 U.S. 951, 99 S.Ct. 2180, 60 L.Ed.2d 1057; and Valencia v. Anderson Brothers Ford, 617 F.2d 1278 (7th Cir. 1980).
The earliest of these decisions is Gennuso v. Commercial Bank & Trust Co., supra. Here the plaintiff charged that the Commercial Bank and Trust Company failed to properly identify in the Disclosure Statement and in the Note and Security Agreement a security interest in the proceeds and the unearned premiums in a property insurance policy covering the automobile that he had purchased. It was alleged that such failure violated the Truth in Lending Act and Regulation Z. No mention of the security interest in the insurance policy was made at the top of the note where the collateral was described. There had been some slight mention of the interest in question in the note and security agreement. It was held that the use of general language in this document was sufficient. It was said that the mention of the security interest in after-acquired property satisfied the requirements of the Act. The court held that the conduct of the bank constituted a violation of the Truth in Lending Act and Regulation Z as well.
To the same effect is Edmondson v. Allen-Russell Ford, Inc., supra. Here again the court held that the assignment of a returned or unearned premium of an insurance policy was a security interest for purposes of Regulation Z, in accordance with the Truth in Lending Act, and had to be disclosed. The court, through Goldberg, J., had no difficulty concluding that the unearned portion of the premium was a security interest which had to be disclosed. The court relied on Gennuso v. Commercial Bank & Trust Co., supra. Here again the court ruled that it was inadequate to construe the general provision that the “ ‘Seller shall have a security interest under the Uniform Commercial Code in the Property (described above) and in the proceeds thereof . . . 577 F.2d at 295. The court said that the “lender must disclose the type of security interest held, retained, or acquired and the property of the borrower which serves or will serve as the collateral.” 577 F.2d at 295. A sufficient description was determined to be essential.
The third of the recent circuit cases is Valencia v. Anderson Brothers Ford, supra, from the Seventh Circuit. The court said:
We therefore affirm the district court’s ruling that an assignment of unearned or *152returned insurance premiums in a consumer credit installment contract is a security interest for purposes of disclosure under the TILA. This result is consistent with the liberal interpretation to be given the Act, the majority of federal court decisions addressing the issue, and a Federal Reserve Board staff interpretation of a closely analogous issue. In view of the interest in uniformity in TILA disclosures and in the absence of any persuasive argument to the contrary, we decline to break with the Third and Fifth Circuits on this issue.
At p. 1286.
The majority was influenced by the fact that on March 31, 1980, the President approved the “Truth in Lending Simplification and Reform Act,” which amended 15 U.S.C. Section 1638(a), the disclosure section of the Truth in Lending Act. As amended, it was pointed out by the majority that this section permits disclosure of the principal property which provides the security for the loan. It does not require, so the Report says, a listing of related or incidental interests in the property, and it gives as an example a loan secured by an automobile which is not being purchased with the proceeds of the loan, but which would require a statement indicating that the loan is secured by an automobile. It would not require a listing of incidental or related rights which the creditor may have such as insurance proceeds or unearned insurance premiums.
The majority also calls attention to the recent opinion of the Supreme Court in Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980), which adopted the approach that security documents have, in the past, carried too much excess luggage and that they should disclose with simplicity and should limit themselves to the disclosure of the matters having to do with the security itself. This may well be the present tendency, but at the time of the occurrence in question the approach which is shown by the Third, Fifth and Seventh Circuits obtained.
In summary, the automobile insurance policy and, of course, the premium which is paid to obtain the coverage, are part and parcel of the entire automobile financing business. It makes the loan more secure.1 Thus the unearned premium which would ordinarily go to the insured and which is being held back by the lender is information of genuine interest to the purchaser-insured, and it is not possible to cause it to be unimportant.
The new approach might render the procedure less complicated. Nevertheless, I submit that we are not justified in adopting this concept so as to apply it to the present set of facts and to do so only on the basis of legislative history which attended the enactment of the amendments. Even if the legislative history would call for a different result, it should not be applied here in a retroactive way.
For the reasons stated, I disagree with the majority opinion.
ON PETITION FOR REHEARING
The petition for rehearing is denied. The petitioners-appellants object to the consideration which the court gave to the March 31, 1980, “Truth in Lending Simplification Act” and its legislative history. The Supreme Court has said that when two acts are in pari materia, the later act can be “regarded as a legislative interpretation of the earlier.” United States v. Stewart, 311 U.S. 60, 64, 61 S.Ct. 102, 105, 85 L.Ed. 475. In Regents of the University of California v. Bakke, 438 U.S. 265, 349, 98 S.Ct. 2733, 2779, 57 L.Ed.2d 750, the separate opinion of four Justices says: “We have repeatedly recognized that subsequent legislation reflecting an interpretation of an earlier Act is entitled to great weight in determining the meaning of the earlier statute.”
The 1968 and 1980 acts related to the same subject matter, “Truth in Lending.” We are convinced that the 1980 Act reflects an interpretation by Congress of the earlier *153act and is entitled to great weight. The effect is that Congress in passing the 1968 act did not intend to impose a civil penalty for the type of nondisclosure claimed by the appellants.
Judge Doyle would grant the petition for rehearing.
The petition for rehearing having been denied by the panel to whom the case was argued and submitted and no member of the panel nor judge in regular active service on the court having requested that the court be polled on rehearing en banc, Rule 35, Federal Rules of Appellate Procedure, the suggestion for rehearing en banc is denied.

. If, for example, the automobile were to be stolen or totaled out in an accident, there would be no security in the absence of insurance.