Court Opinion

ID: 767522
Source: CourtListenerOpinion
Date Created: 2012-04-18 08:36:10+00
Date Added: 2024-06-11T17:55:29.051545
License: Public Domain

202 F.3d 911 (7th Cir. 2000)
Deborah Jackson and Victoria Davis,    Plaintiffs-Appellants,v.American Loan Company, Inc.,    Defendant-Appellee.
No. 99-2596
In the  United States Court of Appeals  For the Seventh Circuit
Submitted January 5, 2000Decided February 2, 2000

Appeal from the United States District Court  for the Northern District of Illinois, Eastern Division.  No. 99 C 2067--George W. Lindberg, Judge.
Before Bauer, Easterbrook, and Kanne, Circuit Judges.
Per Curiam.

1
Plaintiffs contend that the Truth in  Lending Act, 15 U.S.C. sec.sec. 1601-77, does not  permit a lender to use the word "fee" rather than  the term "finance charge" to describe a price for  extending the payment deadline. Nothing in the  Act or its regulations requires use of the term  "finance charge" for any transaction other than  the initial loan or its refinancing--and it is  common ground that an extension of time to make  one payment of a multi-payment loan is neither.  But plaintiffs insist that when the entire debt  is repaid in one lump sum any extension must be  deemed a "refinancing" of the principal--and most  rules applicable to an original extension of  credit must be followed for refinancings. 12  C.F.R. sec.226.20(a). If delay in repaying a  single-payment loan is a statutory "refinancing,"  then the lender may not call the charge a "fee."  The district court rejected plaintiff's position  and dismissed the complaint for failure to state  a claim on which relief may be granted. 1999 U.S.  Dist. Lexis 9143 (N.D. Ill. June 10, 1999).

2
This is one of many recent suits concerning  "payday loans," short-term credit designed to be  repaid on the borrower's next payday. See Smith  v. Cash Store Management, Inc., 195 F.3d 325 (7th  Cir. 1999); Smith v. Check-N-Go of Illinois,  Inc., No. 99-2666 (7th Cir. Dec. 23, 1999).  Defendant American Loan Company permits its  clients to put off repayment in exchange for an  "extension fee." Any charge for deferred  repayment is economically equivalent to interest  and thus could be labeled a finance charge (with  an associated annual percentage rate), but the  Truth in Lending Act does not track the economic  vocabulary through the whole course of credit  extension and repayment. The statutory  disclosures are required, and the Act's  terminology governs, only before credit is  extended. 15 U.S.C. sec.1638(b); 12 C.F.R.  sec.226.17(b). How the parties deal subsequently  is largely up to them. Only a few events  following the extension of credit are regulated;  one of these is refinancing. 12 C.F.R.  sec.226.20. Deferral is equivalent to a different  original loan with a longer term, but this is  true of any change in the timing or conditions of  repayment. Treating economic equivalence as  "refinancing" would destroy the distinction  between the initial extension of credit (to which  the Act applies) and subsequent arrangements (to  which it does not).

3
If the statute and the Federal Reserve (which  administers the Act) had been silent on the  difference between refinancing and modification  of a loan, we would be entitled to reach an  independent decision on the location of that  line. Adams v. Plaza Finance Co., 168 F.3d 932  (7th Cir. 1999). But the Federal Reserve has not  been silent; its Official Staff Commentary says:

4
Changes in the terms of an existing obligation, such as the deferral of     individual installments, will not constitute a refinancing unless accomplished by the cancellation of that obligation and the substitution of a new obligation.

5
Official Staff Commentary to 12 C.F.R.  sec.226.20(a) (12 C.F.R. Pt. 226, Supp. I, p.399). Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 566-68 (1980), recognizes that the  Official Staff Commentary provides lenders with  a defense to claims based on conduct that took  place while the Commentary was in force. See 15  U.S.C. sec.1640(f). American Loan does not  "cancel" the old loan and note, or substitute a  new one, when it agrees to defer repayment until  another payday, and thus it does not "refinance"  the loan.

6
Nonetheless, plaintiffs insist that the Official  Staff Commentary should be limited to situations  in which the lender defers a subset of payments;  when a note calls for only one, the argument  goes, any change in the due date equals a  refinancing. Whether or not it makes economic  sense, that position would make hash of the  Official Staff Commentary, which uses deferral of  "individual installments" just as an  illustration. The rule stated by the Commentary  is that only "the cancellation of [the original]  obligation and the substitution of a new  obligation" amount to a refinancing. See Begala  v. PNC Bank, Ohio, N.A., 163 F.3d 948 (6th Cir.  1998). To say, as plaintiffs do, that a loan  "expires by its terms" on the original due date  is fanciful. All of the loan's terms, including  the repayment obligation, persist. The agreement  and note specify legal obligations even after a  due date is extended. Under 12 C.F.R.  sec.226.20(a)(1) even a "renewal of a single  payment obligation with no change in the original  terms" is not treated as a refinancing. An  extension without "renewal" likewise is not a  refinancing. And because the Truth in Lending Act  does not apply to the deferral, American Loan  Company is free to call the price an "extension  fee" rather than a "finance charge."

7
It also follows that use of the word "fee" for  an extension does not change the "original terms"  of the loan. The agreement between Jackson and  American Loan does not provide for extensions. If  it did, and if it calculated a "finance charge"  for deferred repayment, then later use of the  word "fee" might be thought to depart from the  original agreement--though this sounds more like  a contract claim under state law than like a  claim under the Truth in Lending Act. But if all  that occurs is that the borrower and lender reach  a post-loan bargain in which the lender attaches  a price to delay in repayment, then the parties  are free to call that price what they want  (provided, of course, that the price is  accurately disclosed, as it was here). That the  term "extension fee" appears in a new document  does not matter, unless that document accompanies  a new loan (or the refinancing of an old one),  and, as we have already held, the deferral does  neither.

Affirmed