Carmichael, Harry R. v. Payment Center Inc ( 2003 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-3958
HARRY CARMICHAEL AND LOUISE CARMICHAEL,
Plaintiffs-Appellants,
v.
THE PAYMENT CENTER, INC.,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 01 C 9392—Milton I. Shadur, Judge.
____________
ARGUED MAY 28, 2003—DECIDED JULY 17, 2003
____________
Before EASTERBROOK, MANION, and KANNE, Circuit Judges.
MANION, Circuit Judge. Harry and Louise Carmichael
sued The Payment Center, Incorporated (PCI), alleging
that PCI violated the Truth in Lending Act (TILA or the
Act), 15 U.S.C. § 1601, et seq., by failing to make adequate
disclosures regarding their loan, and by failing to allow
them the extended recision period of three years required
when a creditor fails to make a material disclosure. The
district court granted summary judgment, holding that
PCI’s disclosures were adequate under the Act and that
the extended recision period was therefore unavailable to
the Carmichaels. The Carmichaels appeal. Because PCI’s
disclosures satisfied the Act, we affirm.
2 No. 02-3958
I.
In March 2001, PCI lent the Carmichaels $69,000 for home
remodeling, which they secured through a mortgage on
their house. The promissory note called for a series of 12
monthly payments of $709.74, followed by a final bal-
1
loon payment of all remaining principal and interest in
the 13th month, although the Carmichaels had the option
of prepayment. In an effort to comply with the Act,
PCI submitted a TILA statement to the Carmichaels. The
statement was accurate except for two glaring errors: it
greatly overstated the finance charge as $188,716.76, and it
likewise overstated that the Carmichaels’ total of pay-
ments would be $257,716.76. Both amounts due under the
loan contract were only a fraction of the numbers listed.
Despite the obvious mistakes in the TILA document, the
Carmichaels made several of the $709.74 monthly payments
to PCI. In October 2001, they then made several attempts
to rescind the loan, each of which PCI rebuffed. In June
2002, after this litigation started, the Carmichaels paid the
correct balance due on the promissory note.
The Carmichaels brought suit against PCI in December
2
2001, alleging, in relevant part, that PCI violated: (1) 15
U.S.C. § 1638(a)(6), by failing to disclose the amount of the
13th payment; (2) 15 U.S.C. § 1638(a)(4), by failing to
disclose accurately the annual percentage rate (APR);
1
“A balloon payment results if paying the minimum periodic
payments does not fully amortize the outstanding balance by a
specified date or time, and the consumer must repay the entire
outstanding balance at such time.” 12 C.F.R. § 226.5b(d)(5)(1)
n.10b (2003).
2
The district court dismissed all other claims on the Car-
michaels’ motion.
No. 02-3958 3
and (3) 15 U.S.C. § 1635(f), by refusing to allow the Car-
michaels to rescind the loan during the extended recision
period of three years applicable when the creditor makes
a material non-disclosure. On PCI’s motion for sum-
mary judgment, the district court dismissed all three
claims. The Carmichaels appeal the dismissal of the three
claims.
II.
This court reviews the district court’s grant of summary
judgment de novo, construing all facts in favor of the non-
moving party. Rogers v. City of Chicago, 320 F.3d 748, 752
(7th Cir. 2003). Summary judgment is proper when the
“pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter
of law.” Fed. R. Civ. P. 56(c). Thus, “[s]ummary judgment
is appropriate if, on the record as a whole, a rational trier
of fact could not find for the non-moving party.” Rogers,
320 F.3d at 752.
The Act’s main purpose is to allow consumers to com-
pare credit rates so that they may make an informed use
of credit. 15 U.S.C. § 1601(a) (2000); Brown v. Marquette
S. & L. Ass’n, 686 F.2d 608, 612 (7th Cir. 1982). Toward
that end, § 1638(a)(6) requires lenders to disclose ac-
curately the “number, amount, and due dates or period
of payments scheduled to repay the total of payments.”
Regulation Z, which implements TILA, similarly provides
that “the creditor shall disclose . . . [t]he number,
amounts, and timing of payments scheduled to repay the
obligation.” 12 C.F.R. § 226.18(g).
4 No. 02-3958
The first issue on appeal is whether PCI adhered to
§ 1638(a)(6)’s amount requirement regarding the 13th
payment. It is undisputed that PCI’s TILA document
describes the 13th payment’s amount as encompass-
ing “the balance of unpaid principal and interest to be
paid in full”; there is no dollar figure for the 13th pay-
ment. Therefore, we must first decide whether, as the
Carmichaels maintain, only a dollar figure can satisfy
§ 1638(a)(6)’s amount requirement. This is an issue of
first impression in this jurisdiction and, as far as we can
discern, a question that none of our sister circuits has
answered.
“When interpreting the meaning of a statute, we look first
to the text; the text is the law, and it is the text to which we
must adhere.” United States ex rel. Feingold v. AdminAstar
Fed., Inc., 324 F.3d 492, 495 (7th Cir. 2003). The Act’s def-
inition section does not define the term “amount.” See 15
U.S.C. § 1602. Without a statutory definition, we construe
the term “in accordance with its ordinary or natural mean-
ing,” a meaning which may be supplied by a dictionary.
FDIC v. Meyer, 510 U.S. 471, 476 (1994). Dictionaries, how-
ever, are inconclusive in this case. Some definitions of
“amount” treat the word as being synonymous with a
precise number, which would favor the Carmichaels’ view
that the amount requirement is satisfied only where a
dollar figure is provided. See, e.g., Webster’s Ninth New
Collegiate Dictionary 80 (1987) (“the total number or
quantity”); The Compact Oxford English Dictionary 46
(1987) (“[t]he sum of the principal and interest due upon a
loan”). Other definitions of “amount” are broader, which
would support PCI’s position that “amount” does not
necessarily equate to “dollar figure.” See, e.g., id. (“[t]he full
value, effect, significance, or import”); Webster’s Third
New International Dictionary 72 (1981) (“the whole or final
effect, significance, or import”).
No. 02-3958 5
Regulation Z, however, shows that the broader concept
of amount applies within the context of TILA. It provides
that, “[i]n a transaction in which a series of payments varies
because a finance charge is applied to the unpaid principal
balance, the creditor may comply with this paragraph by
disclosing . . . (i) [t]he dollar amounts of the largest and
smallest payments in the series.” 12 C.F.R. § 226.18(g)(2)(i)
(emphasis added). This provision illustrates that “amount”
does not necessarily equate to “dollar figure” within the
scheme of TILA and its implementing regulations. First,
the provision’s use of the word “may” indicates that
providing a dollar figure as to the largest and smallest
payments is a permissive, instead of mandatory, means
of satisfying § 1638(a)(6)’s amount requirement, see
Christensen v. Harris County, 529 U.S. 576, 588 (2000), which
leads unavoidably to the conclusion that there must be
other ways to satisfy the requirement. The provision also
implies the possibility that the dollar figures of the other
payments in the series need not be given, which leads to
the same conclusion.
A statute and its implementing regulations should be
read as a whole and, where possible, afforded a harmoni-
ous interpretation. See Tom Lange Co., Inc. v. A. Gagliano,
Inc., 61 F.3d 1305, 1310 (7th Cir. 1995); Powell v. Heckler, 789
F.2d 176, 179 (3d Cir. 1986). We are able to apply that stan-
dard here. Although the word “amount” as contained in
§ 1638(a)(6) is susceptible to different definitions, Regulation
Z makes clear that there are instances in which a creditor
may satisfy the amount requirement without providing a
dollar figure. In light of that consideration, it is safe to
conclude that the word “amount” in § 1638(a)(6) does not
necessarily equate to “dollar figure.”
Analogous authority also weighs in favor of this interpre-
tation. In Clay v. Johnson, 264 F.3d 744 (7th Cir. 2001), we
confronted the question of whether a creditor met
6 No. 02-3958
§ 1638(a)(6)’s demand that it provide the “due dates” on
which the borrower must make payments. Id. at 746. In
Clay, as here, the consumers borrowed money to finance
home improvements. Id. at 745. Instead of providing a
specific date on which the borrowers had to make the first
payment, the lender had written in its TILA disclosure
that the borrowers’ monthly payments would begin “30
days from completion” of the construction work. Id. at
746. The consumers sued, arguing that only an exact date
on which the first payment would be due, or an estimate
of the due date if a precise calendar date were unavailable,
would adhere to § 1638(a)(6)’s “due dates” requirement.
Id. The district court agreed with the plaintiffs and granted
summary judgment on that ground. Id. We reversed,
holding that, under Regulation Z and its commentary,
§ 1638(a)(6)’s “due dates” requirement could be met even
where the creditor provided no precise due date. Id. at
750. It was enough, instead, that the lender had provided
the borrowers with the information from which they could
derive the first due date for themselves. Although Clay
concerned a different aspect of § 1638(a)(6) than we inter-
pret today, and different parts of Regulation Z and its
commentary, it buttresses the proposition that courts are
to evaluate § 1638(a)(6)’s strictures functionally, not in
formalistic manner.
Reading the Act and its implementing regulations as a
whole, and in light of analogous precedent, we hold that
providing a dollar figure is not the only means of adher-
ing to § 1638(a)(6)’s amount requirement. That leads us,
then, to the more fundamental question of whether the
disclosure that PCI made regarding the 13th payment,
although not in the form of a dollar figure, satisfied
§ 1638(a)(6).
A creditor’s TILA disclosures must meet an objective
standard, providing the relevant information in a form
No. 02-3958 7
that a “reasonable person” would understand. Rendler
v. Corus Bank, N.A., 272 F.3d 992, 999 (7th Cir. 2001). Here,
a reasonable person in the Carmichaels’ position would
have comprehended what “the balance of unpaid principal
and interest to be paid in full” meant. The loan was for
$69,000 at an APR of 12%. The loan called for 12 monthly
payments of a minimum of $709.74 each, which adds to
$8,516.88 over the course of a year. Thus, a reasonable
3
consumer who paid the minimum payments for the first
twelve months would have known that the first twelve
payments would cover mostly interest, and that the 13th
payment would be slightly less than the principal loan of
$69,000, which is what one would expect to be the case for
a construction loan with a balloon payment. See generally
Marianne Moody Jennings, Real Estate Law 579 (5th ed.
1999). Had he, or someone on his behalf, made the cal-
culations, our reasonable consumer could have learned
that the precise number was $68,727.37. In short, this case
is an example of how the amount requirement can be
satisfied by providing a method that would enable a
reasonable consumer to calculate the dollar figure of a final
payment where the dollar figure of that final payment
depends on the actual payments the consumer had made
beforehand.
The Carmichaels disagree, contending that because the
reasonable consumer is “left to guess the amount of the
13th payment,” he “could easily assume the 13th payment
to be $249,199.88, e.g.—subtracting 12 monthly payments
of $709.74 each ($8,516.88) from the total of payments of
3
Under the loan’s terms, the Carmichaels were allowed to
make higher payments in any given month. Had they done
so, the 13th payment would have been correspondingly re-
duced or even eliminated.
8 No. 02-3958
$257,716.76 ($257,716.76 ! $8516.88 = $249,199.88).” We do
not subscribe to that point of view. Such an “easy” assump-
tion would be ridiculous where, as here, the original loan
was for $69,000.
Aside from that obvious defect, there is another funda-
mental flaw in the Carmichaels’ position. The Carmichaels
are essentially saying that PCI violated § 1638(a)(6) be-
cause, by grossly overstating the total of payments, PCI
insinuated that the 13th payment was far larger than
actually was the case. PCI, relying upon 15 U.S.C.
§ 1605(f)(1)(B), argues that TILA immunizes creditors from
liability under the Act where, as here, they overstate a
disclosure affected by a finance charge. Section 1605(f)(1)(B),
through which Congress amended the Act in 1995, provides
as follows:
In connection with credit transactions not under an
open end credit plan that are secured by real property
or a dwelling, the disclosure of the finance charge and
other disclosures affected by any finance charge—
(1) shall be treated as being accurate for purposes of
this subchapter if the amount disclosed as the finance
charge– . . .
(B) is greater than the amount required to be disclosed
under this subchapter . . .
15 U.S.C. § 1605(f)(1)(B) (emphasis added).
Theoretically, the $257,716.76 total-of-payments figure,
although patently incorrect, was “affected by any finance
charge,” because it corresponds to the addition of the
$69,000 principal to the inaccurately listed finance charge of
$188,716.76. Therefore, the $249,199.88 amount of the 13th
payment that, the Carmichaels argue, derives from the total-
of-payments number was itself “affected by [the over-
No. 02-3958 9
stated] finance charge” and, pursuant to § 1605(f)(1)(B),
must be “treated as being accurate.” Thus, even after
drawing all factual inferences in the Carmichaels’ favor, we
hold that there is no genuine issue of fact as to the
Carmichaels’ claim under § 1638(a)(6). The Act protects
consumers only when the stated amount is less than the
amount required to be disclosed.
We turn now to the Carmichaels’ second claim: that PCI
violated § 1638(a)(4), which requires creditors accurately
to disclose the contractual APR. To be accurate, such a
disclosure must “reflect the terms of the legal obligation
between the parties,” which, of course, derive from the
loan contract. Janikowski v. Lynch Ford, Inc., 210 F.3d 765,
767 (7th Cir. 2000) (quoting 12 C.F.R. § 226.17(c)(1)). Here,
the loan contract was the parties’ promissory note, which
required the Carmichaels to pay an APR of 12%. It would
therefore seem obvious that the 12% APR listed on the
TILA document was accurate and that PCI is not liable
under § 1638(a)(4).
The Carmichaels’ position, nonetheless, is that the APR
should be calculated not from the loan contract, but
should be “based on [PCI’s] disclosed Finance Charge of
$188,716.76, [the] Amount Financed of $69,000, 12 monthly
payments of $709.74 each and a 13th installment of the
remaining balance,” which equates to an APR of “130.7721
percent.” Because PCI did not list an APR of 130.7721%
on the TILA document, so the argument goes, it violated
§ 1638(a)(4). This contention is incorrect because it ig-
nores the fundamental point that the terms of the con-
tract dictate the TILA disclosure, not vice versa. See id.
In their reply brief, the Carmichaels try a different ap-
proach, arguing for the first time that “the APR is impos-
sible to calculate.” Because they have waited until this
juncture to contend that no calculation of the APR is
10 No. 02-3958
possible, that argument is waived. See, e.g., James v.
Sheahan, 137 F.3d 1003, 1008 (7th Cir. 1998). Moreover, to
the extent that the Carmichaels’ argument might be con-
strued to imply that the creditor overstated the APR, the
Carmichaels still would lose. The APR is a disclosure
affected by the finance charge. Wepsic v. Josephson (In re
Wepsic), 231 B.R. 768, 773 (Bankr. S.D. Cal. 1998). Therefore,
where the APR is overstated, § 1605(f)(1)(B) immunizes
a creditor from liability for that technical inaccuracy.
Alicea v. Citifinancial Servs., Inc., 210 F. Supp. 2d 4, 7-8
(D. Mass. 2002); Wepsic, 231 B.R. at 772-73. Even where
the overstatement is so obviously an error (to everyone
except the Carmichaels), they cannot prove that PCI vio-
lated § 1638(a)(4).
The Carmichaels’ final argument on appeal is that they
were entitled to an extended period of recision under
§ 1635(f). The Act provides that a consumer may rescind,
inter alia, a consumer credit transaction in which the cred-
itor retains a security interest on the consumer’s home.
In the typical case, this right extends until the third busi-
ness day after the later of two dates: the date on which
the parties consummate the transaction, or the date on
which disclosure and recision forms are delivered to
the consumer. 15 U.S.C. § 1635(a). If, however, the creditor
fails to deliver the forms, or fails to provide the required
information, the right to rescind extends for three years
after the transaction’s consummation. Id. § 1635(f); 12
C.F.R. § 226.23(a)(3); Smith v. Highland Bank, 108 F.3d
1325, 1326 (11th Cir. 1997).
The Carmichaels base their right to the three-year recision
period on the contention that PCI failed to provide the
information that §§ 1638(a)(4) and (a)(6) require. Because
we have held as a matter of law that PCI did provide the
requisite information, it follows that the Carmichaels
No. 02-3958 11
were not entitled to the extended recision period of
§ 1635(f).
III.
We affirm summary judgment in favor of PCI.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—7-17-03