Court Opinion

ID: 9465090
Source: CourtListenerOpinion
Date Created: 2023-08-05 00:35:11.125775+00
Date Added: 2024-06-11T17:38:57.833693
License: Public Domain

WINTER, Circuit Judge,
concurring in part and dissenting in part:
Although I agree with the majority opinion with regard to attorneys’ fees and also with regard to after-acquired property, I think that there was a violation of Regulation Z in the statement in the promissory note about the monthly interest rate and that we should reverse on this issue.
The majority opinion’s analysis of this issue rests on the conclusion that “the disclosure statement is clearly and distinctly separated from the promissory note” and that “the note and its terms are clearly and distinctly separated from the disclosure statement and the information it contains.” This characterization of the loan document in question, I respectfully suggest, is not accurate. The disclosure statement, the promissory note and the security agreement are all on a single sheet of paper. There is no heading for the disclosure statement as such. There are headings for the promissory note and the security agreement, but the heading for the promissory note is in the same size and style as the headings of the security agreement and, moreover, there is on the back page of the document another subheading “general provisions” in the same size and style as the heading “promissory note.”
Admittedly, the design of the document, though not pellucid, might be overlooked if that were its only shortcoming. But that is not the ease. The so-called promissory note is confusing, and its placement makes the document’s design flaws a serious defect. Chief among the problems with the note is that it is not phrased such that it would be a valid, legally enforceable obligation standing alone. It is undated, it does not identify the parties, and, more importantly, it does not state the principal amount of the note. For all of this information it makes reference to the disclosure statement which precedes it on the facing page of the single document, viz.:
*887For value received . . . the undersigned Borrower promises to pay to the order of the above named Lender at the address shown, the Amount Financed, Principal Amount of Note stated above, with interest thereon from the date of Loan at the rate of three percent (3%) per month on that part of the unpaid principal balance not in excess of $300.00 and one and one-half percent (1V2%) per month on any remainder of such unpaid principal balance as permitted by and in accordance with the North Carolina Consumer Finance Act.
Furthermore, the paragraphs immediately following the statement of interest rates discuss the effect of prepayment, Southern’s right of acceleration upon default and the borrower’s obligation for attorneys’ fees. All of this information is required to be disclosed under Regulation Z.
Thus, not only are the disclosure and note sections of the loan document not clearly segregated, the note section depends on information in the disclosure section and itself contains federal disclosure terms. The legal question is thus whether the loan document, as written, violates Regulation Z. I think that it does.
Regulation Z, 12 C.F.R. § 226.6(c), provides that when state law requires disclosures in terms different from those decreed by Regulation Z, the creditor must:
(1) Make such inconsistent disclosures on a separate paper apart from the disclosures made pursuant to this part, or
(2) Make such inconsistent disclosures on the same statement on which disclosures required by this part are made; provided:
(i) All disclosures required by this part appear separately and above any other disclosures,
(ii) Disclosures required by this part are identified by a clear and conspicuous heading indicating that they are made in compliance with Federal law, and
(iii) All inconsistent disclosures appear separately and below a conspicuous demarcation line, and are identified by a clear and conspicuous heading indicating that the statements made thereafter are inconsistent with the disclosure requirements of the Federal Truth in Lending Act.
As the majority recognizes, the information concerning interest rates contained in the promissory note section had to be stated in order for there to be a valid contract under state law. That being so, because the interest rate terminology used in the promissory note differs from the annual percentage rate terminology mandated by Regulation Z, § 226.6(c) requires that the two sections be conspicuously segregated. That plainly was not done here. Also, the loan document runs afoul of that portion of § 226.6(c) which provides:
At the creditor’s or lessor’s option, additional information or explanations may be supplied with any disclosure required by this part, but none shall be stated, utilized, or placed so as to mislead or confuse the customer or lessee or contradict, obscure, or detract attention from the information required by this part to be disclosed.
By impliedly cross-referencing the disclosure statement and the note, I think the loan document in this case might reasonably prevent a borrower from appreciating the relationship between the annual percentage rate, which federal law requires be disclosed, and the monthly interest rates of 3% and 1V2% set forth in the promissory note. It is precisely that sort of confusion which Regulation Z seeks to eliminate.
In Mason v. General Finance Corporation, 542 F.2d 1226 (4 Cir. 1976), we held “that to accord state lending lingo equal billing on the lending contract does not accord with the congressional purpose and violates the Act and Regulation Z.” 542 F.2d at 1233. I think the loan document in the instant case does just that and, therefore, that Mason requires reversal.