The opinion of the court was delivered by: FRANKEL
The central question in this case is whether defendant Bank violated the disclosure requirements of the Truth in Lending Act when it failed to show the "nominal annual percentage rate" of interest on a statement to plaintiff obligor under an "open end consumer credit plan," where the statement showed an outstanding balance but no finance charge yet incurred so that no interest rate had yet been applied. (This involved statement of the question and its terms of art should become intelligible as we proceed.) Other questions now before the court are (1) whether, assuming a failure of adequate disclosure, the plaintiff before us is entitled to sue, and (2) whether defendant Bank is absolved because, if there was a violation, it was "not intentional." Finally, the parties have agreed, with the court's concurrence, to postpone for the time being questions as to whether the case may proceed as a class action and as to the amount of plaintiff's recoverable costs and legal fees if he is entitled to such recovery.
Now before the court are defendant's motion to dismiss and plaintiff's motion for summary judgment. Upon the study of an extensive stipulation and the long, scholarly briefs for both sides, the court concludes that the facts deemed material are undisputed; that the issues ripe for decision should be resolved in plaintiff's favor; and that further submissions on the postponed issues must precede, and determine the nature of, the summary judgment to be entered for plaintiff.
The Truth in Lending Act (hereinafter "The Act") is Title I, 15 U.S.C. § 1601 et seq. of the Consumer Credit Protection Act of May 29, 1968, 82 Stat. 146. Under the Act an "open end credit plan" is one "prescribing the terms of credit transactions which may be made thereunder from time to time and under the terms of which a finance charge may be computed on the outstanding unpaid balance from time to time thereunder."
As everyone knows who has not sojourned lately in a cave, plans of this kind have proliferated widely in the last few years. The parties here are contractually related under one of these, known as a Master Charge Card Agreement.
Under this Agreement, as is commonly the case with such plans, the cardholder may use his card to purchase goods and services and/or to borrow money, and he may at any time repay all or any part of his outstanding indebtedness. The Bank
sends the cardholder at the end of each month (or "billing cycle") a statement setting forth, among other things, the indebtedness outstanding at the beginning of the month ("previous balance"), all charges and credits to the account during the month (including finance charges, if any, incurred during the month) and the indebtedness outstanding at the end of the month ("new balance").
Under plans of this type generally, the cardholder may incur a service or finance charge in connection with any extension of credit, and this may be computed as a minimum charge, a percentage of the outstanding indebtedness or in other ways. Under the Master Charge plan, where the cardholder borrows money, he incurs a finance charge from the date the indebtedness is contracted.
For purchases of goods and services, however, the cardholder incurs no finance charge until the 26th day after the "billing date" shown on the statement which first reflects the indebtedness. In other words, if the indebtedness is paid in full before the expiration of the 25-day grace period (called, naturally, the "free ride"), there is no finance charge.
The Act imposes an array of disclosure requirements to further the objective of "truth in lending" -- "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."
Among other things, the creditor under an open end plan, before opening an account, must disclose to the prospective obligor, "to the extent applicable," the conditions for imposing finance charges, the length of any freeride period, the method of determining finance charges, the periodic rate for computing finance charges, and "the corresponding nominal annual percentage rate determined by multiplying the periodic rate by the number of periods in a year."
It is not disputed that the Agreement in this case complied with these requirements.
Once an open end account is created, the creditor must send the obligor, "for each billing cycle at the end of which there is an outstanding balance in that account or with respect to which a finance charge is imposed, a statement setting forth" a number of prescribed items of information. The full provision governing such periodic statements central in the present dispute, is given here in a footnote.
For his charge of an unlawful omission, plaintiff relies on paragraph "(5)," which for convenience we remove from its vital setting and repeat here in text, italicizing the words central to his thesis:
"Where one or more periodic rates may be used to compute the finance charge, [the statement is to set forth] each such rate, the range of balances to which it is applicable, and, unless the annual percentage rate (determined under section 1606(a)(2) of this title) is required to be disclosed pursuant to paragraph (6), the corresponding nominal annual percentage rate determined by multiplying the periodic rate by the number of periods in a year."
The periodic statement sent by defendant Bank to plaintiff for the monthly period ending September 15, 1969, disclosed an outstanding indebtedness of $111.41 at the beginning of the period (approximately August 15, 1969); that this amount had been paid during the free-ride period so that it had given rise to no finance charge; that plaintiff had acquired a new indebtedness of $191.58 for purchases during the monthly period (the "new balance"); and (in a line of type under the new balance), a legend and an arrow pointing to the "new balance" and indicating "no additional finance charges if [this total of $191.58 was] paid in 25 days from bill date."
On the far right, on the other hand, the statement indicated as a "minimum payment" the sum of $10.00, explained on the back of the form (and in accordance with the Agreement) as the payment required "to avoid delinquency." Although no finance charge had been incurred during the period covered by the statement, but in seeming compliance with § 127(b)(5) of the Act, the statement reported three periodic (monthly) percentage rates: 1.50% for purchases up to $500, 1.00% for purchases over $500, and 1.00% for cash advances. However, -- and here we reach the point of the case -- no "annual percentage rate" of any kind was shown.
Plaintiff sent defendant the minimum payment of $10.00. It appears that plaintiff, on his next statement, was billed for a finance charge.
In the meantime, on September 24, 1969, plaintiff filed the complaint instituting the present lawsuit. His ultimate contention is, in the language of the complaint, that "[defendant's] monthly statement to plaintiff in September 1969, violated the Act and the implementing Regulation, 12 CFR 226.7, in that it failed to disclose the annual percentage rate or the nominal annual percentage rate." We proceed to that central topic.
A. To begin with the statutory language most directly in issue, § 127(b)(5) (note 7, supra) appears literally to require the kind of disclosure defendant omitted -- and, specifically, disclosure of the "nominal annual percentage rate" of 18% for the category of purchases under $500.
Defendant attacks this literal reading by referring to the introductory words of the subsection, which say that the items listed are to be disclosed "to the extent applicable." No "nominal annual percentage rate" was "applicable," defendant says, because there was no finance charge for the period covered by the statement. Hence, no "rate" of any kind "applied." (Defendant did show the "monthly periodic rate," which was not "applied" to the statement in question. Despite defendant's attempted explanation, which the court considers elsewhere, this seeming anomaly remains to haunt and undermine a substantial portion of defendant's contentions.) Expanding on this in a Reply Memorandum, defendant argues that § 127(b) of the Act, concerning periodic statements, was designed to require an historical account of things that had actually happened, as contrasted with § 127(a), governing the opening Agreement and its disclosures. It is worth noting that under defendant's reading, the nominal annual percentage rate would never have to be disclosed on the monthly statement -- making § 127(b)(5) meaningless -- because it is, by definition, never "applied" in the sense plaintiff means. But even apart from that, the argument is weak as a matter of dictionary English and utterly limp as a matter of construction of the statute and its patent purposes.
The word "applicable" is hardly confined in meaning to what has been or is being "applied." It means, to use the dictionary only as a preliminary reference, not a legal authority:
"Capable of being applied; fit, suitable, or right to be applied; having relevance; as, this observation is applicable to the case under consideration."
To illustrate the nature and signification of this usage, we need look no farther than the subsection defendant invokes, § 127(a), governing the so-called "prospective" disclosure made when nothing has yet happened, everything is "unknown," nothing is being applied, and, therefore, in defendant's parlance, nothing is "applicable." Subsection (a) uses the same words: it lists the items to be disclosed "to the extent applicable." And it lists, inter alia, both the periodic rates "and the corresponding nominal annual percentage rate * * *."
Clearly, "applicable" means "relevant" under the plan or statement in question. And that -- when the plaintiff faced a finance charge if he chose to accept defendant's invitation to pay only the $10 minimum, and take the credit -- was exactly the case for both the periodic rate defendant did show and the annual rate it omitted.
The characterization of § 127(b) as "historical" is demonstrably wrong in at least one other respect. Looking strictly to the future, the tenth item required to be shown (as defendant showed it) is the "date by which, or the period (if any) within which, payment must be made to avoid additional ...