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BRYSON v. BANK OF NEW YORK

February 28, 1984

DONALD BRYSON, MARTIN EIZIK and MARK BERKOWITZ, Plaintiffs, against THE BANK OF NEW YORK and EMPIRE NATIONAL BANK, Defendants.


The opinion of the court was delivered by: HAIGHT

MEMORANDUM OPINION AND ORDER

HAIGHT, District Judge:

Defendant Empire National Bank, which was merged into defendant Bank of New York in September, 1980, issued "Visa" credit cards to each of the plaintiffs at undisclosed dates prior to 1980. Sometime thereafter, apparently on the occasion of the denial of a home improvement loan by Empire National (hereinafter referred to collectively with Bank of New York as "the Bank") to plaintiff Berkowitz, plaintiffs filed this action. The complaint alleges that plaintiffs are the victims of numerous violations by defendants of federal and state truth-in-lending laws in connection with the "Visa" accounts and the loan. It requests various statutory, actual and punitive damages as well as costs and attorneys' fees. Defendants have moved to dismiss all claims, and alternatively, for summary judgment on Counts I and II of the complaint which allege, respectively, that the defendants violated various provisions of the federal Truth-in-Lending Act, 15 U.S.C. § 1601 et seq. ("the Act") in connection with the "Visa" accounts and that defendants violated other provisions of the Act in connection with a home improvement loan denied plaintiff Berkowitz. Defendants also move for a more definite statement regarding Counts 1, III, and IV. The latter two counts allege, respectively, that the denial of the home improvement loan to Berkowitz violated the Equal Credit Opportunity Act, specifically 15 U.S.C. § 1691(a), and that all of the above acts violated New York state law.

 I.

 Plaintiffs each held individual credit card accounts with the Bank which permitted them to make purchases or to obtain cash advances from the Bank on credit. As required by the Federal Truth-in-Lending Act, each month the Bank sent them billing statements setting out, inter alia, the amount of the purchases and cash advances charged to their accounts that month, the total balances outstanding in the accounts, and any "finance charges" levied on the balances. The plaintiffs claim that these monthly billing statements violated the Act *fn1" in the four following ways: 1) in violation of 15 U.S.C. § 1637(b) (8) (1980), the monthly billing statement failed to disclose that the balance on which the finance charge was imposed was computed "without first deducting all credits during the period"; 2) in violation of § 1637(b)(8), the Bank's Visa monthly billing statement (a sample of which is attached as Appendix A) failed to supply a clear and conspicuous statement *fn2" explaining how the balance on which the Bank imposed its monthly finance charge was computed; 3) in violation of § 1637(b)(10) and 12 C.F.R. § 226.7 (c) (1980), the monthly billing statement failed to provide on its face a clear and conspicuous statement of the date by which payment had to be made in order to avoid the imposition of a finance charge on the outstanding balance; and 4) in violation of 12 C.F.R. § 226.7(b)(1)(ix) (1980) the monthly statement failed to clearly and conspicuously accompany a statement of the outstanding balance in the account on the closing date of the billing cycle with a statement of the date on which payment had to be made in order to avoid the imposition of additional finance charges on that balance.

 Plaintiff Berkowitz also claims individually that the Bank violated 12 C.F.R. § 226.4(a)(5) (1980) by failing to include in the finance charge assessed on a home improvement loan for which he applied a charge for credit life insurance. He claims that acceptance of such insurance was required for approval of the loan and that his dickering with the Bank over this alleged requirement caused the Bank to refuse his loan application. The plaintiffs also append the customary parallel claims under New York state law, which forbids "[d]eceptive acts or practices in the conduct of any business." N.Y. Gen. Bus. Law § 349(a) (McKinney's Supp. 1983).

 In support of the instant motion the Bank asserts 1) that its monthly billing statements were in full compliance with the Act; 2) that plaintiff Bryson, who filed for bankruptcy before filing this suit, is not a proper party; 3) that plaintiff Berkowitz lacks standing to assert his claims in connection with the bank loan because the loan transaction was never "consummated"; 4) that the loan documents complied with the Act's disclosure requirements; and 5) that because its practices do not violate federal law, they do not violate New York state law.

 II.

 Like all "Visa" cardholders, plaintiffs could use their cards to purchase goods and receive cash advances for which they would be billed later on a monthly basis. Each month they received billing statements which summarized their purchases and cash advances since the last billing date and added these amounts to any previously outstanding balance in their accounts. If they paid this total amount within fifteen to twenty days after receiving their bills, they would not be charged for the cost of extending them this credit. If, however, they paid only a part or none of this total, the Bank would levy a finance charge at the end of their next billing cycle.

 The finance charge was calculated as a percentage of the amount of credit extended. It was not, however, levied on the "total balance." Instead, it was levied on a figure referred to by the Bank as "the average daily balance." In order to calculate the average daily balance, the Bank figured for each day of a given billing period a current account balance by adding to the prior day's balance all cash advances and purchases recorded during the current day and then subtracting all credits and payments recorded this day. At the end of the month the Bank summed up these daily current balances. It then divided this sum by the number of days in the month to arrive at the average daily balance. It was this balance which was multiplied times the fractional interest rates to calculate the finance charge for the month. Two interest rates applied. As appears from Appendix A, an annual percentage rate of 18 percent applied to the "average daily purchase balance of $500 or less," and a 12 percent rate "on any excess thereof over $500 and on the average daily advance balance."

 Under § 1637(b)(8), if the balance on which the finance charge was imposed was computed "without first deducting all credits during the period," the Bank was required to disclose this fact. The statement did not make such a disclosure because, the Bank argues, the average daily balance was not so calculated. Plaintiff claims that it was. The dispute centers on what Congress meant by the phrase "first deducting all credits during the period."

 The plaintiffs' theory is that § 1637 requires disclosure unless no balance is arrived at until all credits which have accrued during the month are subtracted. An example will be more helpful than further explanation in illustrating this. Assume an account with a balance of $1000 at the beginning of the month, a $1000 credit accruing on the last day of the month, and a billing period running from the first to the last day of the month. Plaintiffs argue that § 1637 envisions disclosure unless such a state of facts results in a finance charge balance of zero -- i.e., the $1000 initial balance minus the "credit during the period" of $1000. By contrast, under the Bank's system, as plaintiffs point out, a balance of approximately $966 would result (assuming a thirty-day month) -- i.e., twenty-nine "daily balances" of $1000 and one "daily balance" of zero all summed and then divided by thirty. Plaintiffs, in other words, argue that the Bank is required to make a disclosure unless no balance is struck until all credits which have accrued during the period are first deducted from the previous month's balance.

 The Bank, on the other hand, contends that because it subtracts all credits at some time during the month, it does first deduct all credits. That is, its position is that the statute does not require disclsoure unless credits accrue during the month and are not deducted at all during that month's balance calculations.

 Plaintiffs derive some comfort from the bald words of the statute. The statute speaks only of one "balance," not of several balances. A logical reading is that this "balance" refers to the final balance on which the finance charge is ultimately imposed. If, in our example above, twenty-nine of the thirty "average daily balances" are calculated without first deducting the $1000 credit which was made during the period, it is less than precise to say that the fiinal balance which is based on them is determined after first deducting all credits during the period. In fact, only one-thirtieth of the final balance was determined after the called-for deduction.

 Nevertheless, a reading of the statute's history convinces me that such a literal reading would misconstrue the statute. The brief legislative history of the bill contains this statement of the intended purpose of § 1637(b)(8):

 "Section 203(d)(3)(F) *fn3" -- Balance on which finance charge is computed. -- The method of determining the balance on which the finance charge is computed must be disclosed, and plans using the opening-balance method must disclose that fact as well as the amount of payments during the period." (second emphasis added).

 1968 U.S. Code Cong. and Admin. News 1962, 1984.

 In the "opening balance," or "previous balance," method of computing finance charges, interest is based on the previous month's balance due, regardless of charges or credits to the account during the billing period. Turoff v. May Co., 531 F.2d 1357, 1359 (6th Cir. 1976). "Under the previous balance method, the finance charge is imposed on all of the previous balance unless all of it has been paid in the following month." Taylor v. R.H. Macy & Co., 481 F.2d 178, 179 (9th Cir.), cert. ...


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