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Washington Motor Sales v. Ferreira

New Jersey Superior Court, Appellate Division

Decided: April 9, 1976.


Fritz, Seidman and Milmed. The opinion of the court was delivered by Milmed, J.A.D.


[140 NJSuper Page 531]

Plaintiff sought recovery on a claimed deficiency arising following defendant's default on a retail installment contract under which defendant had purchased from plaintiff a used Ford auto. Defendant sought a setoff under the federal Truth in Lending Act.*fn1 The essential facts are set out in the opinion of the Essex County District Court reported at 131 N.J. Super. 328 (Cty. D. Ct. 1974), and need not be repeated here. Following trial of the issues the trial judge found no merit in any of defendant's claims for a setoff and directed the entry of judgment in favor of plaintiff and against defendant for $530, plus attorney's fees of $103, and interest and costs of suit.

Defendant contended below, as he does on this appeal, that the installment contract violates the Truth in Lending Act, 15 U.S.C.A. §§ 1631 and 1638, in that (a) it failed properly to disclose on the face of the contract plaintiff's right of acceleration upon defendant's default, and (b) it failed to include in the amount of the finance charge the premiums for credit insurance. He claims he is entitled to a setoff in the amount of twice the finance charge.*fn2

[140 NJSuper Page 532]

It appears that the credit insurance authorization on the face of the contract, although signed by defendant, was not dated as required by Regulation Z,*fn3 12 C.F.R. § 226.4(a)(5)(ii). The trial judge found that the omission of the date was unintentional and a bona fide error. That finding is supported by the evidence, and the exemption from liability contained in 15 U.S.C.A. § 1640 applies.

The remaining issue before us is whether the Truth in Lending Act and Regulation Z thereunder required, in the circumstances of this case, that plaintiff-creditor disclose on the face of the installment contract its right to accelerate, upon default, the balance due under the contract -- a right set forth in one of the "Provisions" contained on the back of the document. On this issue the trial judge found and concluded that there was "no obligation" on the part of plaintiff-seller to place the terms of that acceleration clause on the face of the contract. His reasons for that holding are set out in his opinion at 131 N.J. Super. 332-334. Solely for the reasons hereinafter set forth, we are satisfied that the judgment entered in favor of plaintiff should be affirmed. We therefore find it unnecessary to comment on the trial judge's reasoning.

The credit transaction in this case is subject to the provisions of the Truth in Lending Act (Consumer Credit Protection Act, 15 U.S.C.A. §§ 1601-1665). See N.J.S.A. 17:3B-1 and 2. One of the stated purposes of the Truth in Lending Act is "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. * * *" 15 U.S.C.A. § 1601. Required disclosure in installment contracts includes "The default, delinquency, or similar charges payable in the event of late payments," 15 U.S.C.A. § 1638(a)(9), and

[140 NJSuper Page 533]

"The amount, or method of computing the amount, of any default, delinquency, or similar charges payable in the event of late payments," Truth in Lending Regulations (Regulation Z), 12 C.F.R. § 226.8(b)(4). These disclosures are to "be made clearly, conspicuously, in meaningful sequence * * *." Regulation Z, 12 C.F.R. § 226.6(a).

In the retail installment contract signed by defendant a clause on the reverse side (Provision No. 10), which allows the seller to "declare the unpaid balance of the contract immediately due and payable" upon a default by the buyer, appears in small type and makes no provision for rebate of any unearned finance charge upon such acceleration. A statement is contained on the face of the contract for rebate in the event of prepayment of the entire balance.*fn4

Following oral argument of this appeal the United States Court of Appeals for the Third Circuit filed its opinion in Johnson v. McCrackin-Sturman Ford, Inc. , 527 F.2d 257 (Dec. 16, 1975). Thereafter, at our request, counsel filed their letter memoranda commenting on the effect of that opinion on the appeal before us. Emphasizing "that we are not here confronted with the question whether the Truth in Lending Act or Regulation Z require disclosure of an acceleration provision under which the creditor is not required to rebate the unearned finance charge,"*fn5 the Third Circuit reasoned in Johnson:

Federal Reserve Board Staff Opinion Letter No. 851, 4 CCH Consumer Credit Guide para. 31,173 (October 22, 1974), states in pertinent part that:

For the purposes of Truth in Lending disclosures, this staff views an acceleration of payments as essentially a prepayment of the contract obligation. As such, the disclosure provisions of § 226.8(b)(7) of the Regulation, which require the creditor to identify the method of rebating any unearned portion of the finance charge*fn6 or to disclose that no rebate would be made, apply. If the creditor rebates under one method for acceleration and another for voluntary prepayment, both methods would need to be identified under § 226.8(b)(7). Failure to disclose the method of rebate or nonrebate would be a violation of the Truth in Lending Act.

If, under the acceleration provision, a rebate is made by the creditor in accordance with the disclosure of the rebate provisions of § 226.8(b)(7), we believe that there is no additional "charge" for late payments made by the customer and therefore no need to disclose under the provisions of § 226.8(b)(4). On the other hand, if upon acceleration of the unpaid remainder of the total of payments, the creditor does not rebate unearned finance charges in accordance with the rebate provisions disclosed in § 226.8(b)(7), any amounts retained beyond those which could have been rebated under the disclosed rebate provisions represent a "charge" which should be disclosed under § 226.8(b)(4).

The court in Johnson found that the Board Staff's interpretation of § 226.8(b)(4) was a reasonable one and agreed that:

when a creditor is required*fn7 to rebate the unearned portion of the finance charge, his right of acceleration is not a "default, delinquency or similar charge." [527 F.2d at 268].

[140 NJSuper Page 535]

We are in accord. In such a situation there is no " additional 'charge'" and no need to disclose the acceleration provision under § 226.8(b)(4) of Regulation Z, 12 C.F.R. § 226.8(b)(4) or § 128(a)(9) of the Truth in Lending Act, 15 U.S.C.A. § 1638(a)(9).

Rebate upon prepayment in full is required by § 43 of the Retail Installment Sales Act of 1960, N.J.S.A. 17:16C-43. Here, paragraph 12 on the face of the retail installment contract sets forth the method of rebate in the event of prepayment. As did the court in Johnson, supra , we consider acceleration to be essentially a prepayment. We, accordingly, hold that plaintiff was required, upon acceleration, to rebate to defendant the unearned portion of the finance charge,*fn8 and in the circumstances of this case it was unnecessary to include in the contract "a separate provision delineating the method of rebate in the event of acceleration." See Johnson v. McCrackin-Sturman Ford, Inc., supra , 527 F.2d at 269, n. 28.

The judgment under review is affirmed. No costs.

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