Court Opinion

ID: 9498051
Source: CourtListenerOpinion
Date Created: 2023-08-05 17:07:02.279885+00
Date Added: 2024-06-11T17:58:35.218220
License: Public Domain

B. FLETCHER, Circuit Judge,
dissenting.
The majority affirms the district court’s summary judgment dismissal of the Virachacks’ claim under the Truth in Lending Act (“TILA”), concluding their foregone rebate was not a finance charge. I respectfully dissent. A discount or rebate offered to purchasers paying with cash that is not extended to purchasers using credit is a finance charge. See F.R.B. *583Regulation Z, 12 C.F.R. § 226.4(b)(9) (“Regulation Z”).
The Appellants, Malinee B. Virachack and Ritnarone T. Virachack, purchased a Ford Explorer from the Appellee, University Ford d/b/a Bob Baker Ford, the dealer and creditor. The Virachacks purchased the Explorer on a credit plan negotiated with Bob Baker Ford. The credit plan had an Average Percentage Rate (“APR”) of 0.9%. To receive this APR, customers including the Virachacks had to forego a $2,000 manufacturer’s rebate offered by Ford Motor Company (“Ford Motor”) for the purchase of its Explorer. The $2,000 manufacturer’s rebate was offered to all other customers purchasing an Explorer paying either cash or credit. The Virachacks argue the foregone rebate was a finance charge. As such, they argue the $2,000 increase in cost incurred by financing at 0.9% APR should have been disclosed to them under TILA.
A finance charge is defined by TILA “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.” 15 U.S.C. § 1605(a). Bob Baker Ford argues the foregone rebate was not a finance charge requiring disclosure under TILA. The district court agreed and the majority opinion affirms.
As a general matter, discounts to purchasers using cash that are not extended to purchasers using credit are treated as finance charges. See 12 C.F.R. § 226.4(b)(9). Regulation Z1 specifically lists “Discounts for the purpose of inducing payment by a means other than the use of credit” under examples of finance charges. Id. To further explain this principle the official staff interpretation states:
Discounts for payment by other than credit. The discounts to induce payment by other than credit mentioned in § 226.4(b)(9) include, for example, the following situation:
The seller of land offers individual tracts for $10,000 each. If the purchaser pays cash, the price is $9,000, but if the purchaser finances the tract with the seller the price is $10,000. The $1,000 difference is a finance charge for those who buy the tracts on credit.
12 C.F.R. Pt. 226, Supp. 1 § 226.4-4(b)(9)(1). A discount offered to customers that pay in cash but withheld from customers paying with a particular form of credit is considered a finance charge to those customers paying with the particular form of credit.2 Withholding the rebate from these customers is necessarily a discount for the purpose of inducing payment by other means. This is a legal conclusion. A creditor’s testimony on why he or she believes the rebate is withheld from customers paying with a particular form of *584credit is not pertinent to this consideration. The result of withholding the rebate is a discount to cash paying customers as contrasted to customers paying with the 0.9% APR plan.
The example used in the official staff interpretation of land being sold for $10,000 to' purchasers using credit and for $9,000 to purchasers using cash is analogous to the Virachacks’ transaction. If the Virachacks had paid cash for their Ford Explorer they would have received the $2,000 rebate. But under the credit plan with 0.9% APR they were denied the rebate and as a result paid $2,000 (plus interest on the $2,000 loaned) more for their car than a cash purchaser. Ford Explorers sold to purchasers paying cash cost at least $2,000 less than the same car sold to purchasers paying with the 0.9% APR credit plan.
The Virachacks are not requesting a “windfall” as the majority opinion suggests. Maj. op. at 582. Rather they simply want to be fully informed, as TILA requires, of the full costs of paying with the 0.9% APR credit plan. The credit plan extended to the Virachacks cost them $2,000 (plus interest) more than paying with cash would have cost them.
• The district court found the foregone $2,000 rebate was not a finance charge.3 The district court reasoned that the $2,000 rebate was available to people who paid with either cash or credit. The only group excluded from the $2,000 rebate was composed of people who paid with the 0.9% APR financing. The district court’s flawed reasoning was as follows, “Simply put, a consumer may obtain the rebate and still purchase on independently obtained credit. Forgoing the rebate, then, is not a condition of the extension of credit but, instead, is merely a condition of receiving the promotional rate.”
The problem with this reasoning is that although- forgoing the $2,000 rebate was not a cost for all purchasers using credit, it was a cost for all purchasers using Bob Baker Ford’s 0.9% APR financing plan. The official staff interpretation of Regulation Z explains that when determining whether a charge is a finance charge one should look at the particular credit transaction at issue. 12 C.F.R. Pt. 226, Supp. 1 § 226.4-4(a)(1). The staff interpretation states “[cjharges imposed uniformly in cash and credit transactions are not finance charges. In determining whether an item is a finance charge, the creditor should compare the credit transaction in question with a similar cash transaction.” Id. (emphasis added). This requires “the credit transaction in question” to be compared with a cash transaction. Id. If one compares the Virachacks’ transaction with a cash transaction for a Ford Explorer then the Virachacks paid $2,000 (plus interest) more for their car than a cash purchaser would have paid.
At the time the Virachacks purchased their car, receiving the 0.9% APR credit required a purchaser to forego the $2,000 rebate. This was not a negotiable aspect of the sale. Persons receiving the 0.9% APR forfeited the rebate. Individuals paying cash or with other forms of credit were eligible for the rebate. Thus, in this case, the $2,000 rebate was withheld “as an incident to or as a condition of the extension of credit.” 15 U.S.C. § 1605(a); 12 C.F.R. § 226.4(a). Foregoing the $2,000 credit was a cost of receiving Bob Baker Ford’s 0.9% APR financing. The district court erred by comparing purchasers us*585ing credit as a general group to purchasers using cash. The fact that the Virachacks could seek other financing is irrelevant. When examining the costs of the credit terms offered, the appropriate comparison is between purchasers using the specific type of credit at issue and purchasers paying with cash. In this case, such a comparison reveals that the Virachacks and similarly situated customers paid $2,000 (plus interest) more for their vehicle than a cash purchaser paid for the same vehicle. This price differential for using the 0.9% APR financing was not disclosed to the Virachacks.
The central purpose of TILA is to provide “the informed use of credit” by requiring “meaningful disclosure of credit terms” to consumers. 15 U.S.C. § 1601; Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 559, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980). If Ford Motor gives a rebate to every Bob Baker Ford customer buying a Ford Explorer but withholds the rebate from those customers financing at 0.9% then the foregone rebate is a cost to the latter group of customers. If 0.9% APR customers are not informed of the $2,000 rebate then they are ignorant of the full cost of the credit. This conflicts with the explicitly stated purpose of TILA:
It is the purpose of this subchapter [15 U.S.C. § 1601 et seq.] 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 and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.
15 U.S.C. § 1601(a). Not disclosing the $2,000 cost of the 0.9% financing means customers are making uninformed credit decisions. I believe the failure of Bob Baker Ford to disclose the foregone rebate violates TILA. I would reverse.

. Regulation Z, 12 C.F.R. § 226, is the Federal Reserve Board’s regulations implementing the Truth in Lending Act. Its purpose "is to promote the informed use of customer credit by requiring disclosures about its terms and costs.” Id. at § 226.1(b). To augment Regulation Z the Board also issues Official Staff Interpretations. 12 C.F.R. Pt. 226, Supp. I. The Supreme Court has said that because "Congress ... delegated expansive authority to the Federal Reserve Board to elaborate and expand the legal framework governing commerce in credit” that "absent a clear expression to the contrary” deference is due the Board's interpretations of TILA. Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 559-60, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980).

. Credit cards and other forms of open-ended credit are exempt from this rule. See 15 U.S.C. § 1666f(b). The Virachacks’ financing is a closed-end credit plan. See 12 C.F.R. § 226.2(a)(10) (defining closed-end credit); 12 C.F.R. § 226.2(a)(20) (defining open-end credit).

. , The district court in Virachack adopted the reasoning of the only other federal court opinion on this issue Coelho v. Park Ridge Oldsmobile, Inc., 247 F.Supp.2d 1004 (D.Ill.2003). No federal court of appeals has yet ruled on this issue.