ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
Before Gibbons and Hunter, Circuit Judges, and Gerry, District Judge.*fn*
The Provident Consumer Discount Company (Provident) appeals from a final order of the district court assessing statutory damages against it for violating the Truth in Lending Act (the Act), 15 U.S.C. § 1601 et seq., and Regulation Z of the Federal Reserve Board, 12 C.F.R. § 226.1 et seq. We hold that the district court erred in holding that a disclosure statement violated the Act and the Regulation. Thus we reverse and remand for consideration of other contentions.
In June 1979, Robert and Jacqueline Griggs (Griggses) obtained a personal loan from Provident for $2940. At that time they received from Provident a document entitled "Note, Security Agreement and Disclosure Statement" which in paragraph 17-E set forth the extent and nature of Provident's security interests in plaintiffs' real and personal property. Soon thereafter, plaintiffs filed a Petition in Bankruptcy. After being discharged from their obligations, they instituted this action, alleging that Provident violated the Act and Regulation Z in three respects. They contended (1) that the description of Provident's security interest taken in after-acquired property is inaccurate and misleading; (2) that Provident improperly calculated the refund of prepaid interest due on an earlier loan refinanced by the present loan, and (3) that the inclusion in the disclosure statement of a non-existent security interest in insurance proceeds was improper. Provident counterclaimed for a setoff against any recovery of the Griggses' pre-bankruptcy obligations to it. The district court dismissed Provident's counterclaim, and granted summary judgment to the Griggses.*fn1 The court held that Provident's disclosure of its security interests in after-acquired property was inaccurate and misleading to potential borrowers. The remaining contentions were not reached since one violation of the Act is sufficient to establish liability for statutory damages. Having determined liability, the court awarded the Griggses separate recoveries of.$1000.00 each under 15 U.S.C. § 1640(a). Provident filed a Notice of Appeal from the order on January 16, 1981.*fn2 We dismissed that appeal, 3 Cir., 672 F.2d 903, because the district court's order was not appealable under Fed.R.Civ.P. 54. Subsequently, the district court directed the entry of a separate final judgment under Rule 54(b). On November 17, 1981 defendant filed in the district court a Motion for Reconsideration and Motion to Alter, Amend and Vacate Judgment. On November 19, 1981, a Notice of Appeal was filed. On November 23, 1981, the district court dismissed Provident's motions.
Section 1601 of the Act sets forth the congressional purpose for enacting the Truth in Lending Act:
The Congress finds that economic stability would be enhanced and the competition among the various financial institutions and other firms engaged in the extension of consumer credit would be strengthened by the informed use of credit. The informed use of credit results from an awareness of the cost thereof by consumers. It is the purpose of this subchapter 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. § 1601 (1976). The Act was passed to prevent the unsophisticated consumer from being misled as to the total cost of financing. See Mourning v. Family Publications Service, Inc., 411 U.S. 356, 363-69, 93 S. Ct. 1652, 1657-60, 36 L. Ed. 2d 318 (1973). It mandates the disclosure of certain information in financing agreements and enforces that mandate by "a system of strict liability in favor of consumers who have secured financing when (the) standard(s) (are) not met." Thomka v. A. Z. Chevrolet, 619 F.2d 246, 248 (3d Cir. 1980); 15 U.S.C. § 1640(a). See also Ives v. W. T. Grant Co., 522 F.2d 749 (2d Cir. 1975). A plaintiff thus does not need to show that he was in fact deceived by substandard disclosures. See Dzadovsky v. Lyons Ford Sales, Inc., 593 F.2d 538, 539 (3d Cir. 1979) (per curiam ). Moreover, since the Act provides for statutory damages in addition to actual damages, a plaintiff need not even show actual harm.
The Act obligates "(e)ach creditor ... (to) disclose clearly and conspicuously, in accordance with the regulations of the Board, to each person to whom consumer credit is extended and upon whom a finance charge is or may be imposed, the information required under (the Act)." 15 U.S.C. § 1631. Part of that information is "(a) description of any security interest held or to be retained or acquired by the creditor in connection with the extension of credit, and a clear identification of the property to which the security interest relates." 15 U.S.C. § 1639(a)(8). No liability can result, however, from "any act done or omitted in good faith in conformity with any rule, regulation, or interpretation thereof by the (Federal Reserve) Board." 15 U.S.C. § 1640(f).
The Federal Reserve Board has issued Regulation Z, 12 C.F.R. § 226.1 et seq., pursuant to its rulemaking powers conferred in Section 1604 of the Act, 15 U.S.C. § 1604 (1976). Regulation Z mandates that "(t)he disclosure (under the Act) ... be made clearly, conspicuously, (and) in meaningful sequence." 12 C.F.R. 226.6(a), and that "additional information or explanations may be supplied with any disclosure required ..., 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." 12 C.F.R. § 226.6(c). The creditor must provide "(a) description or identification of the type of any security interest held or to be retained or acquired by the creditor in connection with the extension of credit, and a clear identification of the property to which the security interest relates.... If after-acquired property will be subject to the security interest, or if other or future indebtedness is or may be secured by any such property, this fact shall be clearly set forth in conjunction with the description or identification of the type of security interest held, retained or acquired." 12 C.F.R. § 226.8(b) (5). Special deference must be given the Board regulations since a determination of what is "meaningful disclosure" under the Act is an empirically achieved balance between incomplete disclosure and informational overload, a task to which the Board is better suited than the courts. See Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 568-69, 100 S. Ct. 790, 798-99, 63 L. Ed. 2d 22 (1980).
Our task is to determine whether the district court committed an error of law in applying the Act and Regulation Z.*fn3 Paragraph 17-E of Provident's "Note, Security Agreement and Disclosure Statement" provides:
E. SECURITY: Until the Total of Payments and all other obligations of Borrower to Provident, direct, or contingent, joint, several or independent, now or hereafter existing, due or to become due, whether created directly or acquired by assignment or otherwise, have been paid in full and as security therefor, Borrower grants Provident a security ...