APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA (Civil Action No. 73-458).
Van Dusen, Maris and Hunter, Circuit Judges.
This appeal presents a question of great importance to consumers and to persons and institutions extending consumer credit in the United States. We are called upon to determine whether the Truth in Lending Act*fn1 and Regulation Z*fn2 thereunder require a creditor to disclose an acceleration clause where state law provides that the creditor must rebate the unearned portion of the finance charge.*fn3
On January 20, 1973, William and Joan Johnson (hereinafter "plaintiffs") purchased a used Ford automobile from McCrackin-Sturman Ford, Inc., (hereinafter "McCrackin-Sturman"). In order to finance the purchase of the automobile, plaintiffs entered into a retail installment contract with McCrackin-Sturman under which plaintiffs were required to pay the purchase price of the vehicle, less a down payment, and finance and other charges in 30 monthly installments. A copy of the contract and a disclosure statement setting forth certain of the terms of the contract were delivered to the Johnsons at the time of sale.
The contract, but not the disclosure statement, contained the following provision concerning McCrackin-Sturman's right to accelerate payment:
Time is of the essence of this contract. In the event Buyer defaults in any payment, or fails to obtain or maintain the insurance required hereunder, or fails to comply with any other provision hereof, or a proceeding in bankruptcy, receivership or insolvency shall be instituted by or against Buyer or his property, or Seller deems the Property in danger of misuse of confiscation, Seller shall have the right to declare all amounts due or to become due hereunder to be immediately due and payable and Seller shall have all the rights and remedies of a Secured party under the Uniform Commercial Code, including the right to repossess the Property wherever the same may be found with free right of entry, and to recondition and sell the same at public or private sale. Upon request, Buyer shall deliver the Property to Seller at a place designated by Seller. Seller shall have the right to retain all payments made prior to repossession and Buyer shall remain liable for any deficiency. Any personalty in or attached to the Property when repossessed may be held by Seller without liability and Buyer shall be deemed to have waived any claim thereto unless written demand by certified mail is made upon Seller within 24 hours after repossession. Buyer agrees to pay reasonable attorneys' fees (15% if permitted by law) and other expenses incurred by Seller in effecting collection, repossession or resale hereunder. Seller's remedies hereunder are in addition to any given by law and may be enforced successively or concurrently. Waiver by Seller of any default shall not be deemed a waiver of any other default. App. at 9a (emphasis added).
The disclosure statement contained a provision delineating the charges that would be assessed against plaintiffs in the event of late payment of an installment, but this provision did not treat the remedies provided in paragraph 20, supra, as charges payable in the event of late payment.*fn4 The disclosure statement also set forth the method for computing the portion of the finance charge that would be rebated if plaintiffs prepaid their obligation.*fn5
After acceptance of the contract, it was assigned by McCrackin-Sturman to the Ford Motor Credit Company (hereinafter "Ford Motor Credit"). Plaintiffs made none of the payments required under the contract, and the automobile was ultimately repossessed by Ford Motor Credit in accordance with its rights under paragraph 20, supra.
In June 1973, plaintiffs instituted this action in the United States District Court for the Western District of Pennsylvania. The complaint alleged that the disclosure statement delivered to the plaintiffs did not comply with the Truth in Lending Act and Regulation Z thereunder, and sought statutory damages for the inadequate credit disclosures. All parties moved for partial summary judgment.
On May 23, 1974, the district court granted plaintiffs' motion for summary judgment against McCrackin-Sturman. 381 F. Supp. 153, 156 (W.D. Pa. 1974). The court held that McCrackin-Sturman's failure to set forth the acceleration provision in the disclosure statement was a violation of section 128(a)(9) of the Truth in Lending Act, 15 U.S.C. § 1638(a)(9) (1970), and of section 226.8(b)(4) of Regulation Z, 12 C.F.R. § 226.8(b)(4) (1975). Because of its holding concerning disclosure of the acceleration clause, the court found it unnecessary to consider the other alleged violations of the Act. Plaintiffs' motion for ...