1 All interest rates in this paper were calculated according to the formula R=2PC/A(N + 1). This may result in some minor inaccuracies but should not affect any of the comparative rates.Google Scholar

1a. See Wallace P. Mors, Consumer Credit Finance Charges, Rate Information and Quotation 75-85 (New York: National Bureau of Economic Research, 1965); Marion Benfield, Money, Mortgages and Migraine-the Usury Headache, 19 Case W. Res. L. Rev. 819, 826 (1968).Google Scholar

2 Some state provisions became hopelessly confused by starting out the legislative process with a statute regulating rates and winding up with a disclosure statute that retained definitional provisions intended for regulating rates. For example, Illinois enacted a disclosure law but some of the definitional provisions were drafted in conjunction with a maximum rate provision that was eliminated in the legislative process. Retail Instalment Sales Act secs. 1-29, Ill. Laws 1957, 669, previously codified in Ill. Ann. Stat. ch. 121h, secs. 223-53 (Smith-Hurd 1960).Google Scholar

3 See generally Franklin W. Ryan, Usury and Usury Laws 10-17 (1924). Of course, usury laws have been under constant attack for a long time. See Jeremy Bentham, Letters in Defense of Usury (1787), in 3 Jeremy Bentham's Works 1-29 (1843). An excellent discussion of the usury issue, citing the historical background and pertinent authorities, is Benfield, supra note 1.Google Scholar

4 The “rate regulation” approach was often followed in connection with first mortgage loans. In most states, either as a matter of statute, administrative rule, or judicial decision, all (or almost all) servicing costs were excluded from calculation of the rate ceilings.Google Scholar

5 There is a complete compilation of these differences in Barbara A. Curran, Trends in Consumer Credit Legislation 25-29, 48-49, 55-56, 71, 101 (Chicago: University of Chicago Press, 1965). Although this survey is now out of date because of numerous recent changes in state statutes, it provides a very accurate picture of the situation faced by the Congress that passed TIL in early 1968. The extensive case law in which state courts attempted to deal with these issues is reviewed in Annots., 21 A.L.R. 797 (1922), 53 A.L.R. 743 (1928), 63 A.L.R. 823 (1929), 105 A.L.R. 795 (1936), 52 A.L.R.2d 703 (1957), 91 A.L.R.2d 1344 (1963), 91 A.L.R.2d 1386 (1963). See also F. B. Hubachek, Annotations on Small Loan Laws 164-73 (New York: Russell Sage Foundation, 1938). For some recent examples of state decisions, see, e.g., Harris v. Guaranty Financial Corp., 244 Ark. 218, 424 S.W.2d 355 (1968); Mong v. Bass, 248 C.A.2d 377, 56 Cal. Rptr. 579 (1967); Grady v. Price, 94 Ariz. 252, 383 P.2d 173 (1963).Google Scholar

6 This was essentially the view of the National Commission on Consumer Finance in their report-NCCF report ch. 6. The commission's view is similar to the predominant view of scholars. See, e.g., William D. Warren, Consumer Credit Law: Rates, Costs, and Benefits, 27 Stan. L. Rev. 951 (1975); Robert W. Johnson, The Uniform Consumer Credit Code and the Credit Problems of Low-Income Consumers, 37 Geo. Wash. L. Rev. 1117 (1969); Robert P. Shay, The Uniform Consumer Credit Code: An Economist's View, 54 Cornell L. Rev. 491 (1969); Benfield, supra note 1. However, removing all restrictions on rates may not be the answer either. See Rolf Nugent, The Loan-Shark Problem, 8 Law & Contemp. Prob. 3, 12 (1941).Google Scholar

7 This is the explanation offered in Robert W. Johnson, Robert L. Jordan, & William D. Warren, Attorney's Guide to Truth in Lending 16-17 (Cal. Continuing Education of the Bar, 1969). Tie-in sales may be an effective means of avoiding price regulation. See Richard S. Markovits, Tie-ins. Reciprocity, and the Leverage Theory, 76 Yale L.J. 1397, 1458-59 (1967); Ward S. Bowman, Jr., Tying Arrangements and the Leverage Problem, 67 Yale L.J. 19, 21 (1957). See also Donald F. Turner, The Validity of Tying Arrangements Under the Antitrust Laws, 72 Harv. L. Rev. 50, 73-74 (1958); Comment, The Logic of Foreclosure: Tie-in Doctrine After Fortner v. U.S. Steel, 79 Yale L.J. 86 (1969).Google Scholar

8 S. 1740, 87th Gong., 1st Sess. sec. 3(3) (Apr. 21, 1962).Google Scholar

9 1961 Senate Hearings, at 1309-12.Google Scholar

10 See Uniform Small Loan Act secs. 1(a)(4), 2(a),(c), 13(c) (7th Draft 1942); id. sec. 13 (6th Draft 1935) (specifically forbidding charges for “examination, service, brokerage, commission, expense, fee, or bonus” or other direct or indirect charge). See, e.g., Madison Personal Loan, Inc. v. Parker, 124 F.2d 143 (2d Cir. 1941); Commonwealth Fin. Co. v. Livingston, 12 So. 2d 44 (La. App. 1943). But see Martorano v. Capital Fin. Corp., 289 N.Y. 21, 43 N.E. 2d 705 (1942). See also Annot., 143 A.L.R. 1323 (1943). Actually, most states that enacted the Uniform Small Loan Law did not follow the approach of including all charges within the finance charge and opted for individualized patterns in which some charges were included in the finance charge and others excluded. See Curran, supra note 5, at 25. Even in states that used the “all inclusive approach,” various additional charges received judicial sanction. See, e.g., Orme v. Lendahand Co., 128 F.2d 756 (D.C. Cir. 1942) (notary fee); Platz v. Lapinski, 263 Mich. 240, 248 N.W. 607 (1933) (insurance); Niles v. Kavanagh, 179 Cal. 98, 175 P. 462 (1918) (brokerage). See generally Roger S. Barrett & Charles C. Ulrich, First Draft of Supplement to Annotations on Small Loans Laws 44-51 (1948). And, while the Federal Credit Union Act (12 U.S.C. secs. 1751-72 (1970)) provides that the maximum rate includes all charges, some state provisions that were otherwise modeled on the federal act permitted credit unions to add various fees and charges to the maximum finance charges. Curran, supra note 5, at 49.Google Scholar

11 See, e.g., 1960 Senate Hearings, at 306-8, 359-62, 398-99, 809, 820-21; 1961 Senate Hearings, at 635, 994, 1034; 1967 House Hearings, at 348-49, 889.Google Scholar

12 If the consumer does not have $500 in savings, then he must compare the finance charge with the cost to him of deferring the purchase. The cost of deferral will be the cost of using machines in a laundromat (plus transportation costs and a money equivalent of inconvenience) for the period it will take to accumulate funds for payment. Although these costs may not be readily calculable by the consumer, there are indications that the consumer rightly suspects that even the out-of-pocket laundromat costs may be quite high. See NCCF report, at 183; note 221 infra.Google Scholar

13 Sec. 106(d)(4) also grants the board authority to promulgate regulations to exempt “[a]ny other type of charge which is not for credit”; such a charge would have to be itemized. It is questionable whether this authority was intended to permit the board to exempt charges for tied-in services that would otherwise be part of the finance charge. It appears as if some of the language originated in testimony by Richard Morse, although it is not clear exactly what he had in mind. See 1967 House Hearings, at 1073. In this connection, the conference committee report stated:Google Scholar

It is not intended that the Board should exercise this authority except in the case of charges which are reasonable in relation to the benefits conferred on the obligor, and where their inclusion in the package makes economic sense from the standpoint of the obligor, apart from the creditor's merchandising convenience.Google Scholar

114 Cong. Rec. 14382 (1968), The board has used this authority only to exempt license, title, and registration fees. See text at note 60 infra.Google Scholar

14 Even here, problems of terminology abound, since the consumer may direct payment of a sum that should be included in the finance charge (e.g., payment to a loan broker). What the text refers to are situations where a portion of the amount of credit received by the debtor is remitted directly to a third party to repay a debt or to pay for a purchase.Google Scholar

15 TIL secs. 128(a)(4), 129(a)(2), Reg. Z/226.8(c)(4), (d)(1).Google Scholar

16 See FRB Letter No. 1007, 5 CCH-CCG, para. 31, 341 (Feb. 19, 1976); FRB Letter No. 25, TB, para. 30,079 (July 2, 1969), holding that finder's fee paid by a bank to an automobile dealer is not part of the finance charge. While the opinion seems wrong on the merits (see discussion at pp. 64 and 89 infra), it illustrates the principle that terminology is not decisive.Google Scholar

17 See Johnson et al., supra note 7, at 18. This work suggests that TIL departed substantially from the total cost of credit approach for non-real estate transactions. Id. at 17, 18. However, the only exclusion is for filing fees or insurance in lieu thereof; thus it closely approaches a total cost of credit scheme. The first draft of the Uniform Small Loan Law-which is often cited as a paradigm total cost of credit measure (see text at note 10 supra)-contained a similar provision. Uniform Small Loan Law sec. 2 (First Draft 1916). Of course, insurance is excluded if not required, but if the premise is accepted that the purchase of insurance is voluntary, this charge is part of the amount financed in the same way that the cost of white sidewall tires is part of the amount financed.Google Scholar

The use of “charge” should be interpreted to mean an affirmative cost that the buyer must pay. Thus, a finance “charge” does not include the value of rights that the consumer waives. See Mims v. Dixie Fin. Corp., 5 CCH-CCG, para. 98,430 (N.D. Ga. 1976) (waiver of tort claim); cf. Johnson v. McCrackin-Sturman Ford, Inc., 527 F.2d 257 (3d Cir. 1975) (right of acceleration not a default charge).Google Scholar

18 See Reg. Z/226.8(o), which sets up a special system of disclosure for such cases.Google Scholar

19 FRB Letter No. 765, 5 CCH-CCG, para. 31,087 (Feb. 15, 1974) (charges for computer services passed on to consumers); FRB Letter No. 824, id., para. 31,146 (July 31, 1974) (default insurance); FRB Letter, TB, para. 30,963 (Apr. 13, 1973) (fee for preparing TIL statement); FRB Letter, id., para. 30,796 (Jan. 24, 1972) (same); FRB Letter No. 461, id., para. 30,659 (Mar. 26, 1971) (same); FRB Letter, id., para. 30,959 (Mar. 20, 1973) (fee for preparing deed, note, and mortgage papers); FRB Letter No. 520, id., para. 30,726 (Aug. 19, 1971) (investigation fees); FRB Letter, id., para. 30,703 (July 1, 1971) (same); FRB Letter No. 440, id., para. 30,636 (Feb. 23, 1971) (collection and close-out fees); FRB Letter, id., para. 30,322 (Mar. 6, 1970) (1 percent commitment fee); FRB Letter, id., para. 30,197 (Oct. 21, 1969) (FHA insurance premium); cf. FRB Letter No. 614, id., para. 30,862 (July 19, 1972) (fee and insurance required for participation in all tuition plans, not only in plan that was consumer credit transaction). See also FRB Letter No. 807, 5 CCH-CCG, para. 31,129 (May 30, 1974) (intangibles tax imposed on creditor and passed on to consumer is part of finance charge).Google Scholar

The few judicial decisions have been similar. See Glover v. Doe Valley Dev. Corp., 408 F. Supp. 699 (W.D. Ky. 1975) (membership fee in owners association required of all purchasers); Mondik v. DiSimo, 386 F. Supp. 537 M.D. Pa. 1974), aff'd mem., 521 F.2d 1399 (3d Cir. 1975) (delivery and packing charge imposed on all purchasers).Google Scholar

If a builder obtains a construction loan and must pay points, the points are not a finance charge since they will be included in the price for all purchasers. FRB Letter No. 429, TB, para. 30,616 (Dec. 1, 1970). But in a somewhat confusing distinction, the staff has said that if the builder obtains such a loan with the expectation that it will be assumed by a consumer purchaser and pays points he expects to pass on the consumer through an increase in the selling price, the points must be included in the finance charge. FRB Letter No. 771, 5 CCH-CCG, para. 31,093 (Apr. 4, 1974). The distinction presumably turns on the probability that the construction loan will be assumed. See FRB Letter No. 167, TB, para. 30,197 (Oct. 21, 1969); FRB Letter No. 196, id., para. 30,227 (Dec. 1, 1969).Google Scholar

20 333 F. Supp. 1243 (N.D. Ga. 197.1); accord, Carlin v. Homakers Fin. Serv., Inc., C.A. No. 75-1045 (E.D. La. 1975); Rogers v. Coburn Fin. Corp., 54 F.R.D. 417 (N.D. Ga. 1972); Simmons v. American Budget Plan, Inc., 386 F. Supp. 194 (E.D. La. 1974). But cf. George v. General Fin. Corp., 414 F. Supp. 33 (E.D. La. 1976) (notary charge required for filing is within exclusion for official fees). See note 58 infra.Google Scholar

21 See Record Statement of David L. Campbell in 1976 Senate Hearings, at 552-58.Google Scholar

22 S. 5, 90th Cong., 1st Sess. sec. 3(d)(2)(D) (Comm. Print, June 8, 1967), 113 Cong. Rec. 15795 (1967). Presumably for the reasons stated in the text, this approach was abandoned in the bill reported by the full committee.Google Scholar

23 FRB Letter No. 767, 5 CCH-CCG, para. 31,089 (Apr. 2, 1974) (condominium insurance required whether or not credit extended); FRB Letter No. 773, id., para. 31,095 (Apr. 4, 1974) (fur care and storage costs required of credit purchasers); FRB Letter No. 687, TB, para. 30,977 (May 24, 1973) (environmental impact report charge payable by all purchasers not part of finance charge; cost of FHA-required reports that plumbing, heating, etc., are satisfactory may be if passed on to credit buyers); FRB Letter, id., para. 30,935 (Jan. 23, 1973) (make-ready fee imposed on all purchasers); FRB Letter No. 623, id., para. 30,872 (Aug. 9, 1972) (inspection and make-ready fees); FRB Letter No. 482, id., para. 30,702 (May 28, 1971) (fees for preparing documents for transfer of title to automobiles imposed on all purchasers); FRB Letter No. 609, id., para. 30,853 (June 8, 1972) (building permit); FRB Letter, id., para. 30,647 (Feb. 17, 1971) (escrow fee); FRB Letter No. 363, id., para. 30,425 (June 17, 1970) (same); FRB Letter, id., para. 30,246 (Dec. 31, 1969) (same); FRB Letter No. 60, id., para. 30,123 (Aug. 7, 1969) (documentary fee imposed on all purchasers); FTC Informal Staff Opinion, id., para. 30,296 (Aug. 18, 1969) (service guarantee imposed on all purchasers of mobile homes); see Johnson et al., supra note 7, at 19; 1961 Senate Hearings, at 1310; 1963 Senate Hearings, at 555.Google Scholar

If there is a specific place on the form for the charge, an inference may be drawn that it is required. FRB Letter No. 801, 5 CCH-CCG, para. 31,123 (May 24, 1974).Google Scholar

24 FRB Letter, TB, para. 30,243 (Dec. 29, 1969).Google Scholar

25 FRB Letter No. 588, TB, para. 30,831 (Mar. 30, 1972); FRB Letter No. 499, id., para, 30,698 (July 8, 1971); cf. FRB Letter No. 774, 5 CCH-CCG, para. 31,096 (Apr. 4, 1974).Google Scholar

26 See FRB Letter No. 440, TB, para. 30,636 (Feb. 23, 1971). In fact, the staff initially had considerable difficulty with the analogous problem of fees for termite reports. An exemption was found in the special provisions of the act for real property transactions on the ground that this was an “appraisal fee.”See text at note 84 infra. Such a construction has the main virtue of permitting the staff to evade the basic issue whether it is properly part of the finance charge.Google Scholar

27 The staff may be moving to a presumption that tied-in services are required when often purchased. Otherwise, FRB Letter No. 923, 5 CCH-CCG, para. 31,262 (Oct. 2, 1975), seems quite inconsistent with the prior learning. In that letter, the staff opined that the cost of hospitalization insurance sold in connection with a loan should be included in the finance charge. While this decision is not a departure if the insurance is required, there is no indication of that in the opinion. Instead, the staff simply noted the “incident” test and that the insurance was offered “in conjunction with the loan transaction.” Conspicuously absent is any reference to Regulation Z's requirement that the charge be a “condition” of the loan.Google Scholar

Uniform Consumer Credit Code sec. 2.501(1)(e) (1974) exempts from the finance charge reasonable charges for valuable benefits upon approval of the administrator. This authority replaces a loophole in secs. 2.202 and 2.302 of the 1968 UCCC, which exempted charges for benefits conferred on the consumer which were “not for credit”; this might have opened the door for widespread inclusion of tied-in services. However, regardless of whether the charges are included in the finance charge under UCCC, they are included for TIL if required.Google Scholar

28 See FRB Letter No. 773, 5 CCH-CCG, para. 31,095 (Apr. 4, 1974) (fur care and storage).Google Scholar

29 A rather extensive body of law has developed to determine whether, under state usury statutes, brokers' fees should be included in the finance charge. In general, the answer was negative, at least if the broker was independent and there was no evidence that he was employed as a subterfuge for usury. See Annot., 52 A.L.R.2d 703 (1957). The volume of such litigation seems to have abated considerably in recent years; whether this is because of TIL, new consumer credit statutes or regulations at the state level, or some other factor is not clear.Google Scholar

30 TIL sec. 106(a)(3) and Reg. Z/226.4(a)(3) include a “finder's fee” within the finance charge, and this seems to cover the fee to a broker who receives a fee for “finding” a lender.Google Scholar

31 A review of the usury cases involving brokers' fees suggests that the lender is usually aware of the involvement of the broker in the transaction. See Annot., 52 A.L.R.2d 703 (1957).Google Scholar

32 See In re Virginia Mortgage Exch. No. 9007 (FTC Feb. 10, 1976); In re Security Indus. Loan Ass'n, 5 CCH-CCG, para. 98,445 (FTC 1976) (initial decision of Administrative Law Judge).Google Scholar

33 The broker would be an arranger if he received a fee and had a business or other relationship with the lender. It would not appear necessary for the lender to collect the broker's fee to find the necessary business or other relationship, and, therefore, the broker will ordinarily be held to be an arranger. See Jonathan M. Landers, The Scope of Coverage of the Truth in Lending Act, 1976 A.B.F. Res. J. 565, 575-76.Google Scholar

34 See Johnson et al., supra note 7, at 22-23.Google Scholar

35 See 113 Cong. Rec. 18416 (1967) (Cahill); Benfield, supra note 1, at 861. In fact, such a benefit is so widely accepted that the Federal Home Loan Bank Board, in reporting statistics for home mortgages, amortizes such front-end charges over a ten-year period rather than over the full life of the loan. 9 FHLBB J. 39 n.4 (June 1976).Google Scholar

36 FRB Letter, TB, para. 30,202 (Oct. 24, 1969); FRB Letter, id., para. 30,979 (May 24, 1973).Google Scholar

37 FRB Letter No. 194, id., para. 30,504 (Dec. 1, 1969); FRB Letter No. 228, id., para. 30,260 (Jan. 7, 1970); FRB Letter, id., para. 30,372 (May 11, 1970); FTC Informal Staff Opinion, id., para. 30,308 (Nov. 14, 1969); see FRB Letter, id., para. 30,197 (Oct. 21, 1969) (standby fee); FRB Letter, id., para. 30,227 (Dec. 1, 1969) (same). The testimony before Congress was inconclusive whether such points were usually passed on by sellers to buyers. Compare 1967 House Hearings, at 339, with id., at 343.Google Scholar

38 FRB Letter, TB., para. 31,029 (Sept. 12, 1973); 1973 Senate Hearings, at 53 (FRB opposed including points in the finance charge because of very complicated disclosures that would be needed). In FRB Int. Rul. sec. 226.406 the board evaded the issue by stating that there was no presumption that points are passed on for the purpose of the board's enforcement authority but that this rule did not apply to private actions. The board did not explain what principle did apply in private actions. See also FRB Letter No. 771, 5 CCH-CCG, para. 31,093 (Apr. 4, 1974).Google Scholar

39 See Benfield, supra note 1, at 860. The National Commission on Consumer Finance concluded that all points must be part of the finance charge. NCCF report, at 185. It was included in S. 1630, 93d Cong., 1st Sess. sec. 203 (1973), and endorsed by the FTC. 1973 Senate Hearings, at 123. The recommendation was not supported by the FRB because it would result in “some very complicated disclosures” and “simplifying disclosures may be more important than adhering to a theoretically precise position that all charges—no matter how indirectly imposed—must be included in the finance charge” (id. at 53) and was opposed by banking groups. Id. at 238.Google Scholar

40 Reg. Z/226.4(a)(2) n.2; FRB Letter No. 449, TB, para. 30,645 (Mar. 4, 1971); see Johnson, et al., supra note 7, at 20-21. A $2 fee for each debit that results in an overdraft is a finance charge. FRB Letter No. 640, TB, para. 30,901 (Oct. 16, 1972). But a fee for handling checks returned for insufficient funds is not a finance charge. FRB Letter No. 1008, 5 CCH-CCG, para. 31,342 (Feb. 13, 1976).Google Scholar

41 FRB Letter No. 948, 5 CCH-CCG, para. 31,287 (Nov. 17, 1975); FRB Letter, id., para. 31,322 (Nov. 20, 19.75) ($2 fee for honoring checks over limit is a finance charge when overdraft treated as regular extension of credit under plan); see Reg. Z/226.4(d). But cf. FRB Letter No. 890, 5 CCH-CCG, para. 31,216 (May 14, 1975).Google Scholar

42 Consumers' Union was the most aggressive proponent of the suits, which were generally based on an antitrust theory. The suit against American Express was settled on the basis that any restrictions on merchant discounts would be eliminated from merchant-credit card company agreements. See BNA Antitrust & Trade Reg. Rep., A-20 (Apr. 23, 1974).Google Scholar

TIL sec. 167(a) now specifically forbids contractual agreements that prohibit the seller from offering discounts to consumers to induce them to pay by cash or check rather than use a credit card.Google Scholar

43 Reg. Z/226.4(a)(8) provides that a finance charge include:Google Scholar

Any charge imposed by a creditor [read card company] upon another creditor [read seller] for purchasing or accepting an obligation of a customer if the customer is required to pay any part of that charge in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation.Google Scholar

The staff specifically held a cash discount to be a finance charge in FRB Letter No. 826, 5 CCH-CCG, para. 31,148 (Aug. 12, 1974), but relied on the general definition of finance charge rather than this section. See also FRB Letter No. 587, TB, para. 30,830 (Mar. 28, 1972). It has, however, been argued that discounts to discourage card use are not credit costs but simply general sales costs. See 1973 Senate Hearings, at 250-51.Google Scholar

44 See Reg. Z/226.8(o). The board has exempted creditors offering discounts of 5 percent or less from having to state the APR, although it is not clear on what basis the board has seen fit to dispense with the most important of the disclosures.Google Scholar

45 TIL sec. 167(b); Reg. Z/226.4(i)(1). See FRB Letter No. 972, 5 CCH-CCG, para. 31,311 (Dec. 9, 1975) (merchant offering 1-2 percent cash and carry discount in addition to 5 percent cash discount must comply with TIL if cash and carry discount only available to cash customers). But, if the discount is not offered to all cash customers, it is a finance charge. FRB Letter, 5 CCH-CCG, para. 31,227 (May 19, 1975).Google Scholar

46 Reg. Z/226.4(a)(8), (i)(4); FRB Letter No. 1039, 5 CCH-CCG, para. 31,379 (Apr. 27, 1976) (discount to induce cash payment instead of future billing is finance charge). Both the board and staff have struggled with the problem of retailers who issue cash cards granting consumers discounts (usually 5 percent) for paying cash. The board has struggled with the problem for almost six years and apparently has been unable to find a solution since it recently asked Congress to provide one. See FRB 1975 Annual Report, at Appendix A (letter from Chairman Bums to Senator Proxmire); FRB 1971 Annual Report, at 16; FRB 1970 Annual Report, at 25. The staff has held that the discount was a finance charge. FRB Letter No. 176, TB, para. 30,209 (Nov. 5, 1969); FRB Letter No. 409, id., para. 30,591 (Sept. 28, 1970); FRB Letter, id., para. 30,919 (Dec. 21, 1972). The discount would be disclosed under Reg. Z/226.8(o). Now, the staff seems to regard these cash card plans as subject to the credit card exemption (assuming the cash card is a credit card) if the retailer offers the discount to all purchasers and not only those who have the card. See FRB Letter, id., para. 30,965 (Apr. 23, 1973); FRB Letter, id., para. 30,967 (May 4, 1973).Google Scholar

47 E.g., H.R. Rep. No. 1040, 90th Cong., 1st Sess. 113 (1967); 114 Cong. Rec. 1587-90 (1968); 1967 House Hearings, at 142-43, 160-61, 165, 226-27, 475-76, 688, 752, 845, 1151, 1164, 1178,Google Scholar

48 FRB Int. Rut. sec. 226.407; see FRB Letter No. 806, 5 CCH-CCG, para. 31,128 (May 30, 1974); FRB Letter No. 597, TB, para. 30,841 (Apr. 28, 1972); Glover v. Doe Valley Dev. Corp., 408 F. Supp. 699 (W.D. Ky. 1975) (dictum). Essentially the same approach was followed by the UCCC, which does not include such annual charges within the finance charge as long as the card entitles the holder to purchase from at least 100 unrelated concerns; thus, department stores may not make the charge but travel and entertainment and bank cards can. UCCC sec. 2.501(i)(c) (1974).Google Scholar

It was recently reported that Citibank was going to impose a $.50 per month charge on cardholders who paid in full during the free-ride period and thereby avoided finance charges. Wall Street Journal, Apr. 13, 1976, at 8, col. 3 (Midwest ed.). Since the charge would not be imposed on cardholders who had no balances or otherwise incurred finance charges, the Citibank charge is a traditional finance charge not subject to the membership fee exclusion discussed in this section.Google Scholar

49 Minn. Session Law Service, ch. 196 (1976), to be codified as Minn. Stat. sec. 48.185, subd. 4(a) (1974); 7B Utah Code Ann. sec. 70B-3-202(1)(c) (Supp. 1975).Google Scholar

50 One recent study of balances in Sears' accounts showed a mean outstanding monthly balance of $91.90 and a median balance of $37.27. There is reason to suspect that the figures are low because of the nature of Sears' business and the possibility that big ticket items were excluded from the plan; other studies show balances up to $230. E. Ray McAlister, An Empirical Analysis of Retail Revolving Credit 39-41 (West Lafayette, Ind.: Credit Research Center, 1975). The point is, however, that many consumers have revolving accounts with balances of a few hundred dollars or less.Google Scholar

51 In a state that permits finance charges of 1$ percent monthly and a $15 annual fee, the APR on an average balance of $200-which may be high (see note 50 supra)-would be 18 percent exclusive of the annual fee and 25.5 percent with the fee included. On an average balance of $100, inclusion of the annual fee raises the APR to 33 percent. Perhaps the best evidence of this is FRB Letter No. 869, 5 CCH-CCG, para. 31,192 (Feb. 10, 1975), where a department store offering a revolving credit plan asked whether a yearly membership fee would be part of the finance charge. The store noted that the fee would be assessed only in states “where current state maximum finance charge rates are lower than the national average.” Obviously, this store conceived of the annual charge as a form of finance charge.Google Scholar

52 See Johnson et al., supra note 7, at 20, reaching this conclusion even if the membership fee entitles the consumer to other benefits such as a magazine and travel information. However, if an organization that charges a membership fee makes incidental loans to members (e.g., a fraternity or country club), then the membership fee would not be part of the finance charge on the ground that the primary purpose of the club is not to lend money. Id. See FRB Letter No. 707, TB, para. 31,004 (Aug. 9, 1973) (religious fraternal insurance organization); FRB Letter No. 656, id., para. 30,926 (Jan. 11, 1973) (credit union). But, the fraternity or club must still comply with TIL if it makes more than a few loans each year. See Landers, supra note 33, at 568-72.Google Scholar

53 Reg. Z/226.7(a)(3).Google Scholar

54 See Reg. Z/226.7(a)(4).Google Scholar

55 The FRB has recently proposed deletion of this entire provision; it is still unclear whether the amounts must be separately itemized as part of the amount financed if the charges are financed or whether they can be included in the cash price. The recommendations have been introduced as S. 3699, 94th Cong., 2d Sess., sec. 2 (1976).Google Scholar

56 The insurance charge may equal the total charges for filing and releasing liens. FRB Letter No. 812, 5 CCH-CCG, para. 31,134 (June 20, 1974). In FRB Letter No. 618, TB, para. 30,866 (June 30, 1972), the staff considered a case where, under state law, such filing fees could not be collected from the consumer and suggested that then the fees could not be excluded from the finance charge even if itemized. The letter seems incorrect insofar as it equates state determinants of the finance charge with the federal test. Regardless of state law, it should be apparent that the amount of the fees, although initially paid by the creditor, will ultimately be borne by the consumer.Google Scholar

57 See 1967 Senate Hearings, at 665; 113 Cong. Rec. 14696 (1967); 113 id. 27808 (1968). Another possibility is simply tradition. Thus, such fees were excluded from the first draft of the Uniform Small Loan Act, which is often cited as the prime example of a total cost of credit approach to finance charge determinations. See note 10 supra. Congress recognized the inconsistency. See 1961 Senate Hearings, at 1311; 1967 House Hearings, at 512 (Morse). In George v. General Fin. Corp., 414 F. Supp. 33 (E.D. La. 1976), the court found a $.75 notary fee to be within the exclusion on the ground that the notary was a public official and the violation, if any, was de minimis. The former ground is unjustifiable because such notary fees are not set–thus opening an area for potential abuse; on small transactions even small additions to the finance charge can raise the APR significantly. The latter ground has been rejected in comparable cases (note 20 supra), none of which was even cited, and has no statutory support.Google Scholar

58 Uniform Commercial Code sec. 9-403(5) (1972 draft) (usually under $5).Google Scholar

59 FRB Letter No. 313, TB, para. 30,366 (Apr. 20, 1970); FRB Letter No. 35, id., para. 30,435 (July 9, 1969); FRB Letter, id., para. 30,071 (June 19, 1969).Google Scholar

60 See English v. MCC Financial Servs., Inc., 403 F. Supp. 679, 683 (M.D. Ga. 1975), aff'd mem., 520 F.2d 941 (5th Cir. 1975); McKinney v. Greenbriar Lincoln-Mercury, Inc., 5 CCH-CCG, para. 98,552 (N.D. Ga. 1975) (Sp. Master); FRB Letter No. 482, TB, para. 30,702 (May 28, 1971). But cf. Allen v. City Dodge, Inc., 5 CCH-CCG, para. 98,428 (N.D. Ga. 1975) (Sp. Master). It is presumably for this reason that the staff has viewed the Reg. Z/226.4(b)(3) exclusion for taxes as not applicable to an intangibles tax imposed on retailers in credit transactions and passed on only to credit buyers. FRB Letter No. 807, 5 CCH-CCG, para. 31,129 (May 30, 1974). Compare FRB Letter No. 900, id., para. 31,234 (June 19, 1975) (sales tax imposed on credit sales may be excluded from finance charge if itemized). In this wilderness, one court recently became lost. See note 62 infra.Google Scholar

The exclusion of license, title, and registration fees in Regulation Z is pursuant to sec. 106(d)(4) of the act, which empowers the board to exclude by regulation “Any other type of charge which is not for credit.” The board has not otherwise used this authority.Google Scholar

61 Because components of the finance charge must be itemized, these charges must be itemized even if included in the finance charge. See Meyers v. Clearview Dodge Sales, Inc., 384 F. Supp. 722 (E.D. La. 1974), aff'd, 539 F.2d 511 (5th Cir. 1976).Google Scholar

62 See Starks v. Orleans Motors, Inc., 372 F. Supp. 928 (E.D. La.), aff'd, 500 F.2d 1182 (5th Cir. 1974); Meyers v. Clearview Dodge Sales, Inc., 384 F. Supp. 722 (E.D. La. 1974), aff'd, 539 F.2d 511 (5th Cir. 1976); Grant v. Imperial Motors, 539 F.2d 506 (5th Cir. 1976); Allen v. City Dodge, Inc., 5 CCH-CCG, para. 98,428 (N.D. Ga. 1975) (Sp. Master); Walker v. Security Trust Co., 379 N.Y.S.2d 308 (Sup. Ct. 1976); FRB Letter No. 330, TB, para. 30,385 (May 21, 1970). Taxes may, however, be included on the cash price. Reg. Z/226.2(n); 226.4(b)(3). See also FRB Letter No. 623, TB, para. 30,872 (Aug. 9, 1972) (inspection fee required by law, and make-ready fee may be included in cash price but title application fee must be itemized). Unfortunately, one court did not get the message that TLTR fees were treated specially even though they were not, analytically, part of the finance charge. As a result, the court found itself unable to reconcile the TLTR case with staff opinions on non-TLTR fees that were not part of the finance charge because required of all purchasers; as to the latter, they may be included in the cash price. St. Germain v. Bank of Hawaii, 413 F. Supp. 587, 606-9 (D. Haw. 1976).Google Scholar

63 See Jones v. Car Credit Center, Inc., 74 C.2629 (N.D. Ill. May 19, 1975); FRB Letter No. 482, TB, para. 30,702 (May 28, 1971); cf. FRB Letter No. 609, id., para. 30,853 (June 8, 1972) (implying fee for building permit need not be disclosed if not financed). Compare FRB Letter No. 691, id., para. 30,985 (June 14, 1973) (226.4(b) charges must be itemized to be excluded from finance charge whether paid in cash or financed); FRB Letter No. 623, id., para. 30,872 (Aug. 9, 1972) (implying disclosure required if paid in cash).Google Scholar

64 This discussion assumes that the transaction by which the dealer makes license, registration, and title arrangements is not a part of the financing arrangements. This may be common since such title and registration arrangements may not be made until the car is ready whereas the financial arrangements may be made earlier. See Jones v. Car Credit Center Inc., 74 C.2629 (N.D. Ill. May 19, 1975). But for this limitation, creditors could avoid disclosure in all cases simply by saying that the license, registration, and title fees were taken from the down payment and thereby paid in cash. If a creditor cannot establish the separateness of the registration transaction, the safer practice may be to assume that the charges are financed.Google Scholar

65 The amount of such fees is limited to fees “imposed by law.” Reg. Z/226.4(b)(4). See FRB Letter No. 623, TB, para. 30,872 (Aug. 9, 1972) (title application fee not part of finance charge even though dealer gets commission since charge imposed on cash and credit buyers; not clear if cash buyers could avoid by making direct title application).Google Scholar

66 FRB Letter No. 60, TB, para. 30,123 (Aug. 7, 1969).Google Scholar

67 See Landers, supra note 33, at 678.Google Scholar

68 FRB Letter No. 800, 5 CCH-CCG, para. 31,122 (May 23, 1974); FRB Letter No. 699, TB, para. 30,996 (July 19, 1972).Google Scholar

69 Descriptions of the full variety of such charges can be found in 1963 Senate Hearings, at 1195-1253; Department of Housing and Urban Development and Veteran's Administration, for the Senate Comm. on Banking, Housing and Urban Affairs, 92d Cong., 2d Sess., Report on Mortgage Settlement Costs (Comm. Print 1972). See also John C. Payne, Ancillary Costs in the Purchase of Homes, 35 Mo. L. Rev. 455 (1970).Google Scholar

70 See, e.g., 1963 Senate Hearings, at 552; 1962 Senate Hearings, at 140-90, 363; 1967 House Hearings, at 89-90, 184, 333-36, 338-40, 557; 1967 Senate Hearings, at 664 (Governor Robertson suggested points be excluded from the finance charge); 113 Cong. Rec. 18416 (1967) (points should be included).Google Scholar

71 See, e.g., 1962 Senate Hearings, at 186-91, 363; 1960 Senate Hearings, at 398-99; 1963 Senate Hearings, at 552-53; 1967 Senate Hearings, at 406; 1973 House Hearings, at 333.Google Scholar

72 S. 5, 90th Cong., 1st Sess. (June 2, 1967).Google Scholar

73 See Jonathan M. Landers & Cathleen Chandler, The Truth in Lending Act and Variable-Rate Mortgages and Balloon Notes, 1976 A.B.F. Res. J. 35, 60 & n.50. This was expressly recognized by the House in considering a package of TIL amendments designed to curb second mortgage lending clauses. Landers, supra note 33, at 573-74; 1967 House Hearings, at 126-27, 797.Google Scholar

74 See 113 Cong. Rec. 14694 (1967) in which the Senate explained the real estate provisions as follows:Google Scholar

The term [finance charge] has been expanded to make its meaning clearer. With respect to real estate transactions, the definition indicates which of the typical closing costs are to be included in the finance charge and which ones are not. The rule followed was to include only those charges clearly incident to credit. Where there was doubt, the charge was excluded from the definition.Google Scholar

75 See, e.g., Siebert v. Hall, 63 F.2d 517 (8th Cir. 1933); George J. Danforth, Jr., Usury: Applicability to Collateral Fees and Charges, 16 S.D.L. Rev. 52 (1971). The various cases are collected in Annots., 21 A.L.R. 797 (1922); 53 A.L.R. 743 (1928); 63 A.L.R. 823 (1929); 105 A.L.R. 795 (1936).Google Scholar

76 TIL sec. 129(a)(4); Reg. Z/226.8(d)(3).Google Scholar

77 This statement may not be accurate in cases where such closing costs would be considered to be prepaid finance charges since the staff has said that disclosure of the total of such prepaid charges is required in first mortgage transactions. FRB Letter No. 687, TB, para. 30,977 (May 24, 1973); FRB Letter No. 585, id., para. 30,828 (Mar. 1972); FRB Letter No. 240, id., para. 30,275 (Feb. 5, 1970); FRB Letter No. 224, id., para. 30,246 (Dec. 31, 1969). Although it is not clear what a prepaid finance charge is, many closing costs would probably be included since they are paid in cash at the closing. See text at note 121 infra.Google Scholar

78 See Landers & Chandler, supra note 33, at 61.Google Scholar

79 See 113 Cong. Rec. 2045 (1967) in which Senator Proxmire suggested that perfection expenses “are clearly not incident to the extension of credit. These charges are paid whether one borrows or not.” This may be a slight overstatement since an occasional borrower may decline such services.Google Scholar

80 This may not be accurate since one of the purposes of RESPA was to prevent kickbacks and excessive charges for title protection services. Real Estate Settlement Procedures Act sec. 2, 88 Stat. 1724 (1974).Google Scholar

81 Senator Douglas thought that such charges were part of the finance charge because they are for the benefit of the creditor in evaluating the credit risk. 1962 Senate Hearings, at 192. FHA representatives have differed. Compare 1962 Senate Hearings, at 186 (General Counsel Semer), with 1967 House Hearings, at 333 (Commissioner Brownstein).Google Scholar

82 Reg. Z/226.4(a)(4). The NCCF report, at 185, 187, criticized the exlusion of credit reports and appraisal fees, but a legislative effort to amend the act failed. S. 1630, supra note 39, at sec. 204 (1973). The FRB supported the change “in theory” but questioned whether the minimal effect justified reprinting the forms and restructuring disclosure. 1973 Senate Hearings, at 54.Google Scholar

83 See FRB opinions at note 19 supra. Conversely, the charge may be excluded if it falls within the excluded categories even if it is misnamed by the creditor. FRB Letter, TB, para. 30,197 (Oct. 21, 1969) (tax investigation fee is title examination fee). Compare FRB Letter No. 224, id., para. 30,246 (Dec. 31, 1969) (tax investigation fee in addition to normal title examination fee is part of finance charge).Google Scholar

84 FRB Letter, TB, para. 30,243 (Dec. 29, 1969); FRB Letter, id., para. 30,210 (Nov. 5, 1969); FTC Informal Staff Opinion, id., para. 30,293 (Aug. 18, 1969); see FTC Informal Staff Opinion, id., para. 30,293 (Aug. 18, 1969) (photographs charge is appraisal fee).Google Scholar

85 In Foster v. Maryland State Sav. & Loan Ass'n, 369 F. Supp. 843, 847 (D.D.C. 1974), plaintiffs had their own attorney close the loan and also paid a $100 fee to the bank's attorney which fee included services relating both to the perfection of title and to the plaintiff's execution of the note and mortgage. The court, oblivious to both the history of the TIL definition of “finance charge” and the potential conflict of interest problem of the bank's attorney representing both consumer and lender said:Google Scholar

. [T]his fee is as much for the protection of the borrower as it is the lender. Also, all commercial lending institutions known to this Court universally require their borrowers to pay for the lender's counsel fees and this is an accepted and proper practice in the industry. In fact, the borrowers, in electing to have their own title attorney, forfeited the right to complain about this and could have thus avoided the same by having the lender's attorneys conduct the settlement and all that precedes and follows the closing of the loans.Google Scholar

For the reasons stated in the text this decision is unjustifiable. It may also involve the lawyer for the bank in unethical practices. See Florida Bar v. Teitelman, 261 So. 2d 140, 68 A.L.R.3d 959 (Fla. 1972).Google Scholar

86 See Postow v. Oriental Bldg. Ass'n, 5 CCH-CCG, para. 98,628 (D.D.C. 1975). If the creditor has a third party perform the service and charges the consumer, but receives a rebate from the third party, the rebate will not be considered part of the finance charge if the charge imposed upon the consumer was the actual cost (including rebate) and it was reasonable in amount. FRB Letter No. 963, 5 CCH-CCG, para. 31,302 (Dec. 2, 1975). Creditors who use “expensive” third-party services to obtain rebates may be courting danger if a consumer subsequently sues claiming a concealed finance charge.Google Scholar

87 This question was raised in the hearings but remained unanswered. 1967 House Hearings, at 889. Several leading commentators have given an affirmative answer, but without any support. Johnson et al., supra note 7, at 25-26.Google Scholar

88 Reg. Z/226.4(c) contains no requirement of disclosure for such charges to be excluded if paid in cash. FRB Letter, TB, para. 30,826 (Mar. 29, 1972); FRB Letter No. 124, id., para. 30,475 (Sept. 25, 1969). Such disclosure had been required by the recently repealed provisions of sec. 121(c) of the act and the provisions of RESPA, 88 Stat. 1728 (1974); HUD Reg. X/Appendix A-HUD Form 1, 41 Fed. Reg. 1673 (1976).Google Scholar

89 See FRB Letter No. 963, 5 CCH-CCG, para. 31,302 (Dec. 2, 1975). Full exploitation of these possibilities would be somewhat limited if creditors could not provide the services themselves. See text at note 87 supra.Google Scholar

90 Sec. 9 of the now-defunct Real Estate Settlement Procedures Act, 88 Stat. 1728 (1974), contained limitations on tying sales of property to the purchase of particular title insurance.Google Scholar

91 See 1960 Senate Hearings, at 244, 462, 645, 657, 753-54; 1967 House Hearings, at 1074.Google Scholar

92 Sec. 129(a)(4) provides for disclosure of “the amount of the finance charge,” and sec. 128(a)(6) contains a comparable provision.Google Scholar

93 In my study of the legislative history I found virtually no testimony on these issues in hearings that took place after 1961.Google Scholar

94 See notes 11, 69, 70 supra.Google Scholar

95 See FRB Int. Rul. sec. 226.820, which states: “The primary purpose of [requiring itemization] is to assure that all sums constitute (sic) finance charges under sec. 226.4(a) are properly taken into account in determining the total finance charge.”Google Scholar

96 TIL secs. 128(a)(4), 129(a)(2); Reg. Z/226.8(c)(4), (d)(1).Google Scholar

97 See FRB Int. Rul. sec. 226.820.Google Scholar

98 Ives v. W. T. Grant Co., 522 F.2d 749 (2d Cir. 1975); Meyers v. Clearview Dodge Sales, Inc., 384 F. Supp. 722, 726 (E.D. La. 1974) (alternative holding); Johnson v. Associates Fin., Inc., 369 F. Supp. 1121, 1122 (S.D. Ill. 1974); Woods v. Beneficial Fin. Co., 395 F. Supp. 9, 16 (D. Ore. 1975); statement of David Campbell, 1976 Senate Hearings, at 49-50 (citing other unreported cases). Several courts have reached the opposite conclusion. Bloomer v. McKnight Road Dodge, Inc., 397 F. Supp. 403 (W.D. Pa. 1975); Jones v. East Hills Ford Sales, Inc., 398 F. Supp. 402 (W.D. Pa. 1975); St. Germain v. Bank of Hawaii, 413 F. Supp. 587 (D. Haw. 1976); Bond v. Shape Spa, Inc., 5 CCH-CCG, para. 98,436 (E.D. La. 1976); Gibson v. Blazer Financial Serv., Inc., 404 F. Supp. 897 (E.D. La. 1975); statement of David Campbell, 1976 Senate Hearings, at 50 (citing other unreported cases).Google Scholar

99 FRB Int. Rul. sec. 226.820; FRB Letter No. 682, TB, para. 30,972 (Apr. 25, 1973) (stating that disclosure of component might be confusing, in violation of 226.6(c)). The interpretive ruling came under attack on the ground that the board did not follow the proper procedure in promulgation. Hatten v. Board of Governors, Civil No. N76-14 (D. Conn., filed Jan. 7, 1976). Creditors could disclose a single component finance charge in any of three ways:Google Scholar

100 See Letters from William H. Clendenen, Jr., Esq. to D. Edwin Schmeltzer, Esq. of the Federal Reserve Board, dated Nov. 5, 1975, at pp. 4-5 & Attachment, and to Hon. Theodore E. Allison, Secretary to the Federal Reserve Board, dated April 8, 1976, at 2, 4.Google Scholar

101 This may be a slight overstatement since we are all familiar with advertisements designed to convince consumers that particular retailers charge lower prices because they have “low overhead.” However, this can probably be determined as well by observation as by TIL disclosures.Google Scholar

102 See Letters, supra note 100.Google Scholar

103 See Meyers v. Clearview Dodge Sales, Inc., 384 F. Supp. 722, 726 (E.D. La. 1974). Compare Adams v. New Haven U. I. Federal Credit Union, 5.CCH-CCG, para. 98,619 (D. Conn. 1975) (no disclosure required of cost of life insurance included in single component finance charge; questionable precedent because opinion later withdrawn); FRB Letter No. 1007, 5 id., para. 31,341 (Feb. 19, 1976) (no separate disclosure of finder's fee paid by creditor and absorbed within regular finance charge); FRB Letter No. 895, id., para. 31,221 (May 20, 1975) (no separate disclosure of cost of credit report not passed on to consumer directly or indirectly). On at least three occasions, the staff has stated that creditors are not required to break out charges for life insurance when coverage was included in the overall rate. FRB Letter No. 167, TB, para. 30,197 (Oct. 21, 1969); FRB Letter, id., para. 30,049 (May 19, 1969); FRB Letter No. 870, 5 CCH-CCG, para. 31,193 (Feb. 11, 1975).Google Scholar

104 See 1960 Senate Hearings, at 50-52, 141-42, 524-29, 539-40, 547-48, 564-65, 582, 647-68; 1961 Senate Hearings, at 224-25, 228-29, 232-33.Google Scholar

105 The problem of the dealer's reserve and the state legislative responses are explored in detail in Curran, supra note 5, at 113-15. The reserve has been a problem in England and Australia. See Robert W. Johnson, Rate Competition, 26 Bus. Law. 777, 784 & n.21 (1971).Google Scholar

106 1960 Senate Hearings, at 649; see Robert Paul Shay, A Portrait of the Consumer Credit Market, 26 Bus. Law. 761, 770-72 (1971). There is some evidence that when the Defense Department required creditors operating on military reservations to disclose finance charges, finance commissions were lowered. 1967 Senate Hearings, at 336.Google Scholar

107 This is on the assumption that the assignee will be considered a creditor under the act. The courts seems to be moving in this direction, at least where there is an ongoing relationship between assignor and assignee. This issue, was examined in a prior portion of this study, although there is reason to think that the courts may have moved beyond the test of assignee liability proposed therein. See Joseph v. Norman's Health Club, Inc., 532 F.2d 86 (8th Cir. 1976); Landers, supra note 33, at 588-90. If the assignee is not a creditor, then the assignor-assignee arrangement becomes an independent transaction without TIL import.Google Scholar

In Meyers v. Clearview Dodge Sales, Inc., 539 F.2d 511 (5th Cir. 1976), the court declined to require separate disclosure of such a rebate, apparently, on the grounds that it was not a finder's fee. Unfortunately, the court badly misunderstood the role of the inclusion of the “finder's fee” within the definition of a finance charge. The court acknowledged that the rebate was part of the finance charge whether called a finder's fee or something else. The issue then was whether separate disclosure was required, and for this issue the proper question is whether it was a separate component of the finance charge apart from the basic interest cost (whether labeled a finder's fee or something else). In addition, the court was oblivious to the substantial legislative history in which such a reserve was referred to as a sort of finder's fee. See note 104 supra.Google Scholar

108 See Landers & Chandler, supra note 73, at 64. For differing judicial attitudes, compare St. Germain v. Bank of Hawaii, 5 CCH-CCG, para. 98,434 at 87,871 (D. Haw. 1976), with Woods v. Beneficial Fin. Co., 395 F. Supp. 9 (D. Ore. 1975).Google Scholar

109 Landers & Chandler, supra note 73, at 65 & n.64. There is some evidence that consumers' “shopping” is frequently limited to knowledge of which type of institutional creditor has the lowest rates (i.e., that banks charge less than auto dealers or finance companies). See Francis Thomas Juster & Robert Paul Shay, Consumer Sensitivity to Finance Rates: An Empirical and Analytical Investigation (New York: National Bureau of Economic Research, 1964); Homer Kripke, Consumer Credit Regulation: A Creditor-Oriented Viewpoint, 68 Colum. L. Rev. 445, 460-64 (1968).Google Scholar

110 Cf. Department of Financial Institutions v. Holt, 231 Ind. 293, 305, 108 N.E.2d 629, 635 (1952).Google Scholar

111 Brief for FRB as amicus curiae at 4-6, 8, Jones v. Community Loan & Inv. Corp., 526 F.2d 642 (5th Cir. 1976):Google Scholar

[T]he Board's only purpose in defining “prepaid finance charge” was to insure that charges described by this term are not included in the “amount financed.”. [T]he sole purpose was to assure that, in transactions in which payment of any portion of the finance charge reduces the amount of the proceeds of the loan actually received by the debtor, the amount financed” is adjusted to reflect the true amount of loan proceeds of which the debtor had actual use.Google Scholar

See FRB Int. Rul. sec. 226.819; Hamilton v. G.A.C. Fin. Corp., 5 CCH-CCG, para. 98,804, at 88,470 n.7 (N.D. Ga. 1974) (Sp. Master); FRB Letter No. 61, TB, para. 30,124 (Aug. 8, 1969); cf. Roberts v. Allied Fin. Co., 129 Ga. App. 16, 198 S.E.2d 416 (1973) (knowledge of total finance charge-whether prepaid or not-enables consumers to compare credit alternatives). But see FRB Letter No. 108, TB, para. 30,156 (Sept. 9, 1969) (prepaid finance charge helps the consumer understand cases where loan proceeds are reduced by finance charges).Google Scholar

112 Appropriate provisions of Regulation Z so provide. Reg. Z/226.8(c)(6),(7), (d)(1).Google Scholar

113 FRB Int. Rul. sec. 226.819. The FTC took a contrary position. FTC Informal Staff Opinion, TB, para. 30,302 (Sept. 5, 1969).Google Scholar

114 This method is approved in National Consumar Law Center. Truth in Lensing Handbook 3105 (Borighton, Mass.; National Consumar Law Center, Boston College Law School, 1971).Google Scholar

115 The disclosures for these two methods would be as follows:Google Scholar

116 See Reg. Z/226.8(e)(1) n.12; FRB Letter No. 240, TB, para. 30,275 (Feb. 5, 1970). It should be noted that the prepaid finance charge concept is not mentioned in either the definition of finance charge or the section specifying determination of the finance charge. Reg. Z/226.2(w), 226.4. Thus, when the term arises in connection with the formal disclosure requirements, the reference must be to a charge already determined to be part of the finance charge under Reg. Z/226.4.Google Scholar

117 See cases cited at notes 123, 124 infra.Google Scholar

118 See Johnson et al., supra note 7, at sec. 6.32.Google Scholar

119 See Hamilton v. G.A.C. Fin. Corp., 5 CCH-CCG para. 98,804, at 88,471-73 (M.D. Ga. 1974) (Sp. Master). The decisions have not placed any weight on the “separately” requirement, but instead, have appeared to hold that when the finance charge was prepaid, it was either paid separately or withheld. See cases cited at notes 123, 124 infra; FRB Letter No. 150, TB, para. 30,492 (Oct. 14, 1969); FRB Letter No. 824, id., para. 31,146 (July 31, 1974); FRB Letter, id., para. 30,197 (Oct. 21, 1969).Google Scholar

120 See FRB Letter No. 150, TB, para. 30,492 (Oct. 14, 1969); FRB Letter No. 61, id., para. 30,124 (Aug. 8, 1969); FRB Letter No. 920, 5 CCH-CCG, para. 31,259 (Sept. 17, 1975). The National Consumer Law Center proposed to use a new term such as “inflated principal” to cover cases where the creditor advanced funds to be paid to a third party. National Consumer Law Center, supra note 114, at 2532.Google Scholar

121 See FRB Letter No. 774, TB, para. 31,096 (Apr. 4, 1974) (amount withheld from advance for first-year premium is prepaid finance charge; cost of later years' premiums is not); FRB Letter, 5 CCH-CCG, para. 31,210 (Mar. 21, 1975) (same).Google Scholar

122 Ga. Code Ann. tit. 57, sec. 315 (1971).CrossRefGoogle Scholar

123 The two cases most often cited as representative of the distinction are Grubb v. Oliver Enterprises, Inc., 358 F. Supp. 970 (N.D. Ga. 1972), and Slatter v. Aetna Fin. Co., 377 F. Supp. 806 (N.D. Ga. 1974), rev'd, 526 F.2d 642 (5th Cir. 1976). The most intense attempt to explain the distinction, albeit unsuccessfully, is Hamilton v. G.A.C. Fin. Corp., 5 CCH-CCG, para. 98,804 (N.D. Ga. 1974) (Sp. Master). Attempts to apply the distinction include Jones v. Community Loan & Inv. Corp., 5 CCH-CCG, para. 98,787 (N.D. Ga. 1974), rev'd, 526 F.2d 642 (5th Cir. 1976); Jackson v. Public Fin. Corp., 5 CCH-CCG, para. 98,677 (N.D. Ga. 1974) (Sp. Master); Heard v. G.A.C. Fin. Corp., id., para. 98,802 (N.D. Ga. 1974) (Sp. Master); Rivers v. Southern Discount Co. Atlanta II, id., para. 98,796 (N.D. Ga. 1973) (Sp. Master) (citing other authorities). See also Burrell v. City Dodge, Inc., id., para. 98,764 (N.D. Ga. 1974) (Sp. Master).Google Scholar

124 Jones v. Community Loan & Inv. Corp., 526 F.2d 642 (5th Cir. 1976).Google Scholar

125 FRB Brief, supra note 111, at 8-10 n.2, 12.CrossRefGoogle Scholar

126 A proconsumer manual on TIL concluded after reviewing a sample transaction involving a $1,000 loan with $100 of prepaid finance charges that “from an economic and functional point of view the $1,000 figure is meaningless, and. is probably confusing to most consumers, if not all consumers.” Indeed, the manual suggested that disclosure of the $1,000 figure might violate the Reg. Z/226.6(c) proscription of misleading information on the ground that the consumer might be misled into thinking the amount of credit extended was $1,000. National Consumer Law Center, supra note 114, 2532. Such a “heads, I win, tails, you lose” approach does not bear any discernible relationship to the objectives of TIL. Essentially the same conclusion was reached in Johnson et al., supra note 7, at sec. 6.33.Google Scholar

127 FRB Int. Rul. sec. 226.806; FRB Letter No. 995, 5 CCH-CCG, para. 31,348 (Jan. 23, 1976). There is some difficulty in applying subsec. (ii) to Morris Plan banks since the consumer's periodic deposits in his account are in the form of investment certificates, and the term “investment” does not appear in subsec. (ii). Johnson et al., supra note 7, at sec. 6.35. In view of the board's explicit pronouncement, the slipup in language-caused, no doubt, by an absence of familiarity with Morris Plan banking-should not be considered significant.Google Scholar

128 The staff has held that the required transfer of a savings account to the lending bank makes the account a required deposit balance. FRB Letter No. 942, 5 CCH-CCG, para. 31,281 (Nov. 6, 1975); FRB Letter No. 864, id., para. 31,187 (Dec. 17, 1974). But, if the bank only requires the consumer to open or maintain an account without a specific balance, there is no required deposit balance. FRB Letter, id., para. 31,257 (Aug. 19, 1975): FRB Letter No. 343, TB, para. 30,398 (June 4, 1970); cf. FRB Letter No. 805, 5 CCH-CCG, para. 31,127 (May 29, 1974) (not required deposit balance when balance necessary to qualify for other bank services as well as favorable loan rate). The practical difference may not be significant since the consumer may decide to “move” an existing account in another bank to satisfy the creditors' requirement. Indeed, one recent staff opinion implied that creditors were unduly concerned and could avoid the entire issue of treating an account as a required deposit balance simply by not specifying a particular amount as required. FRB Letter No. 1105, 5 CCH-CCG, para. 31,444 (Aug. 16, 1976).Google Scholar

129 This generic problem applies equally to the so-called passbook loan, in which the consumer is required to pledge his savings account as security for the loan. See National Consumer Law Center, supra note 114, at 2531. This requirement is often absolute in that the banks offering such loans are frequently not able to make any other types of consumer non-real property loans. Yet, unless such loans were subject to this exception, the amount financed would in all cases be zero since the amount financed must always be no greater than the amount in the savings account. The approach suggested in the text would resolve this uncertainty. See also Landers, supra note 33, at 649.Google Scholar

130 See FRB Letter, 5 CCH-CCG, para. 31,256 (July 24, 1975).Google Scholar

131 See FRB Letter, TB, para. 30,229 (Dec. 2, 1969). One court has held that the so-called bankers' lien was not a security interest under TIL. Fletcher v. Rhode Island Hosp. Trust Nat'l Bank, 496 F.2d 927 (1st Cir.), cert. denied, 419 U.S. 1001 (1974).Google Scholar

132 See FRB Letter No. 181, 5 CCH-CCG, para. 31,184 (Nov. 24, 1969); cf. Reg. Z/226.4(f) (income on security not deducted in figuring finance charge).Google Scholar

133 See FRB Letter No. 197, TB, para. 30,229 (Dec. 2, 1969).CrossRefGoogle Scholar

134 The staff apparently inclines toward a relaxed view of the regulation's language. In one case where the consumer borrowed × dollars and was “required” to deposit × dollars as a compensating balance, the staff held the transaction within the (iv) exception. There is no indication that the consumer requested the deposit arrangement. FRB Letter No. 181, 5 CCH-CCG, para. 31,184 (Nov. 24, 1969).Google Scholar

135 Recently, the staff could not “conceive” of such a situation arising and referred to the interest rate calculation as “strictly hypothetical.” FRB Letter No. 864, 5 CCH-CCG, para. 31,187 (Dec. 17, 1974). At an earlier date, the staff not only found such a situation but also had to ignore the regulation's language to deal with it. See note 134 supra. And, the staff noted that this problem necessitated the Morris Plan bank exclusion. FRB Letter No. 995, 5 CCH-CCG, para. 31,348 (Jan. 23, 1976). In fact, such a situation can easily arise where a deposit is transferred to the lending bank and is a required deposit balance, and it can be withdrawn immediately.Google Scholar

136 FRB Letter No. 181, 5 CCH-CCG, para. 31,184 (Nov. 24, 1969); FRB Letter, TB, para. 30,050 (May 20, 1969).Google Scholar

137 Such distortion was expressly sanctioned in FRB Letter No. 907, 5 CCH-CCG para. 31,241 (July 29, 1975), and implicitly sanctioned in FRB Letter No. 942, 5 CCH-CCG, para. 31,281 (Nov. 6, 1975). The board does have interest tables for calculating the APR on required deposit balance transactions when the loan itself provides for reduction or elimination of the deposit during the term. Reg. Z/Supp. 1(f)(3)(ii). But this does not apply to cases such as that described in the text where the consumer may withdraw some or all of the deposit at will.Google Scholar

138 This concept is expressly incorporated in TIL sec. 129(a)(i). Essentially the same position as in the text is taken by Johnson et al., supra note 7, at sec. 6.35.Google Scholar

139 Most TIL cases also involve allegations of federal antitrust claims, and state law claims for usury, fraud, constructive trust, unjust enrichment, and breach of contract. See cases cited at note 140 infra.Google Scholar

140 The two earliest reported decisions were Stavrides v. Mellon Nat'l Bank & Trust Co., 353 F. Supp. 1072 (W.D. Pa.), aff'd, 487 F.2d 953 (3d Cir. 1973) (plaintiff's case hurt by concession that defendant would not be liable if it actually segregated the escrow account); Graybeal v. American Sav. & Loan Ass'n, 59 F.R.D. 7 (D.D.C. 1973) (relying largely on escrow provisions of statute and regulation and ignoring argument that interest on the escrows was part of the finance charge). Subsequent decisions tended to rely heavily on these cases. Moore v. Great W. Sav. & Loan Ass'n, 513 F.2d 688 (9th Cir. 1975); Munn v. American Gen. Inv. Corp., 364 F. Supp. 110 (S.D. Tex. 1973); Kinee v. Abraham Lincoln Fed. Sav. & Loan Ass'n, 365 F. Supp. 975 (E.D. Pa. 1973); Umdenstock v. American Mortgage & Inv. Co., 363 F. Supp. 1375, 1379 (W.D. Okla. 1973) (citing no authority), modified, 495 F.2d 589 (10th Cir. 1974); Foster v. Maryland State Sav. & Loan Ass'n, 369 F. Supp. 843 (D.D.C. 1974); Buchanan v. Brentwood Fed. Sav. & Loan Ass'n, 457 Pa. 135, 320 A.2d 117 (1974).Google Scholar

141 This is the result in FRB Letter No. 766, 5 CCH-CCG, para. 31,088 (Apr. 2, 1974), and FRB Letter 995, id., para. 31,348 (Jan. 23, 1976) where the staff stated that insurance escrow accounts in credit transactions arising from the sale of mobile homes were required deposit balances; the real property exemption did not apply since mobile homes were personal property under state law. Accord, FRB Letter 1049, id., para. 31,389 (May 21, 1976) (escrow for fees treated as required deposit balance).Google Scholar

142 FRB Letter No. 504, TB, para. 30,707 (July 15, 1971); FRB Letter No. 265, id., para. 30,518 (Feb. 24, 1970); FRB Letter No. 580, id., para. 30,820 (Mar. 8, 1972).Google Scholar

143 FRB Letter, id., para. 30,980 (May 25, 1973); cf. FRB Letter, id., para. 30,983 (June 6, 1973).Google Scholar

144 Landers & Chandler, supra note 73, at 60-63.Google Scholar

145 See pp. 77-81 supra.Google Scholar

146 Moore v. Great W. Sav. & Loan Ass'n, 513 F.2d 688 (9th Cir. 1975); FRB Letter, TB, para. 30,980 (May 25, 1973); FRB Letter No. 35, id., para. 30,435 (July 9, 1969); FRB Letter No. 313, id., para. 30,366 (Apr. 20, 1970); FRB Letter, id., para. 30,071 (June 19, 1969).Google Scholar

147 Landers & Chandler, supra note 73, at 86.Google Scholar

148 A number of states adopted legislation proposed by the National Association of Insurance Commissioners, which included the so-called 50 percent bench mark test, that benefits had to be 50 percent of premiums. See Frederick G. Davis, Wayne E. Etter, Harry Blythe, & Peter F. Freund, The Regulation of Consumer Credit Insurance, 33 Law & Contemp. Prob. 718, 728-30, 732-34 (1968).Google Scholar

149 See National Association of Insurance Commissioners, A Background Study of the Regulation of Credit Life and Disability Insurance (1970); NCCF report, at 85-89; Hearings on the Consumer Credit Industry Before the Subcomm. on Antitrust and Monopoly of the Senate Comm. on the Judiciary, 90th Cong., 1st Sess., pt. 1-2 (1967); Comment, Credit Insurance: Abuse and Reform, 10 B.C. Ind. & Corn. L. Rev. 439 (1969) (citing earlier authorities); F. B. Hubachek, The Drift Toward a Consumer Credit Code, 16 U. Chi. L. Rev. 609, 620-22 (1949).Google Scholar

150 For example, Arkansas courts, which have rigorously adhered to the state constitution's 10 percent usury ceiling, have been extremely tolerant of tied-in sales of insurance. See Poole v. Bales, 257, Ark. 764, 520 S.W.2d 273 (1975); James E. Mitchell, Usury in Arkansas, 26 Ark. L. Rev. 263, 290-93 (1972).Google Scholar

151 See NCCF report, at 86 & n.12 (Missouri finance companies required insurance income to avoid operating at loss); Kansas Consumer Credit Commissioner, Eighteenth Annual Report 9 (1973) (40 percent of consumer loan profit came from insurance in 1973; 23 percent in 1972); Comment, An Empirical Study of the Arkansas Usury Law: “With Friends Like That.,” 1968 U. Ill. L. Forum 544, 575-76. See also 1967 House Hearings, at 408-9.Google Scholar

152 The NAIC bill, which regulates some of these areas, has been adopted in almost two-thirds of the states. Comment, supra note 149, at 450; UCCC Art. 4; National Consumer Act Art. 4; Wisconsin Consumer Act, Wis. Stat. Ann. sec. 424 (1973).Google Scholar

153 An extensive review of the case law is contained in Annot., 91 A.L.R.2d 1344 (1963).Google Scholar

154 In 1955, abuses in credit insurance were apparently so widespread that Congress threatened legislation if the states did not get the matter under control. Staff of Senate Comm. on the Judiciary, 83d Cong., 2d Sess., Report on the Tie-in Sale of Credit Insurance in Connection with Small Loans and Other Transactions (Comm. Print 1955). At the same time TIL was being considered in 1967, a Senate committee was hearing evidence that abuses were still widespread. Hearings on the Consumer Credit Industry, supra note 149. The House committee considering TIL was aware of the situation. 1967 House Hearings, at 758-59, 760-62, 914-27.Google Scholar

155 1960 Senate Hearings, at 52-64.Google Scholar

156 See, e.g., 1961 Senate Hearings, at 1310; 1967 Senate Hearings, at 86, 665; 1967 House Hearings, at 127-32, 752, 830.Google Scholar

157 113 Cong. Rec. 18179, 18424 (1967).Google Scholar

158 114 Cong. Rec. 1582, 1851 (1968); see 113 Cong. Rec. 27809 (1967).Google Scholar

159 113 Cong. Rec. 14692 (1967); 113 id. 15795 (1967).Google Scholar

160 113 Cong. Rec. 14694 (1967). Secretary Barr's testimony is at 1967 Senate Hearings, at 86. See 1967 House Hearings, at 79.Google Scholar

161 See 1967 House Hearings, at 87, 127-32, 189, 401, 408-10, 662, 752, 798, 830, 854, 875-76, 881-83, 886-87, 898, 1073, 1151.Google Scholar

162 In this sense, the term “required” in Regulation Z should be interpreted to mean that the insurance may not be required in a particular case as a basis for either granting credit or a more favorable rate and not to be interpreted in terms of the creditor's general policy; in other words, it should be synonymous with “optional” to the consumer. Although the meaning of “required” has not received explicit attention, this seems to be what the courts and the board have in mind. See Mason v. General Fin. Co., 401 F. Supp. 782, 789 (E.D. Va. 1975); Fisher v. Beneficial Fin. Co., 383 F. Supp. 895 (D.R.I. 1974); Hall v. Sheraton Galleries, 5 CCH-CCG, para. 98,737 (N.D. Ga. 1974) (Sp. Master); In re USLIFE Credit Corp., id., para. 98,524, at 87,988 (complaint and proposed order) (respondent's practices precluded “knowing, affirmative election” to purchase insurance); FRB Letter No. 624, TB, para. 30,873 (Aug. 9, 1972); FRB 1974 Annual Report, at 11-12 (to be excluded insurance must be “offered to the customer on an optional basis and the consumer [must] elect. to take the insurance”).Google Scholar

163 William C. Whitford, The Functions of Disclosure Regulation in Consumer Transactions, 1973 Wis. L. Rev. 400, 424.Google Scholar

164 There is little evidence that consumers shop on the basis of the two most important disclosures-the finance charge and the APR. See Landers & Chandler, supra note 73, at 65 & nn.63, 64; Whitford, supra note 163, at 406-20. It is even less likely that there is much comparison shopping on the additional contractual terms, especially when there are so many different ones to compare. Regardless of the ability and willingness of the middle classes to shop, there is considerable doubt whether the poor can be expected to do so. See Note, Consumer Legislation and the Poor, 76 Yale L.J. 745 (1967).Google Scholar

165 See Gary v. W. T. Grant Co., 5 CCH-CCG, para. 98,550 (N.D. Ga. 1975) (Sp. Master) (liability only for consummated agreement); cf. Stanley v. R. S. Evans Motors, 394 F. Supp. 859 (M.D. Fla. 1975) (order form did not contain insurance disclosures although it did list the cost of insurance; no violation when contract signed next day contained proper TIL disclosures). Of course, the consumer could complete the agreement and bring a TIL suit claiming that the insurance was required and that the finance charge was wrongly stated. But such a consumer would have to know his rights at the time of the contract–a most unlikely circumstance.Google Scholar

166 See John H. Paer, Truth in Lending: Protection for the Consumer or for the Creditor? 24 Emory L.J. 357, 373 (1975). Some creditors now use a machine that permits the dealer to punch in the relevant information and produces a complete contract-usually with the cost of insurance figured in. Such a contract has an “official” look that may further inhibit consumers from deleting the optional insurance.Google Scholar

167 The National Commission on Consumer Finance has stated: “The creditor or lender usually will not openly and directly state that the purchase of credit insurance is required. However, it seems probable that subtle pressure is used in the sale of insurance to debtors.” NCCF report, at 86. In Stanley v. R. S. Evans Motors, 394 F. Supp. 859 (M.D. Fla. 1975) defendant adopted an even surer tactic. The consumer signed an order form with an insurance cost included but without the necessary TIL disclosure, the order form was forwarded to the assignee which agreed to finance the sale if the consumer provided a co-signer, and then the dealer gave the consumer the official TIL statement with the insurance disclosures. The court found no violation, thereby making a mockery of the voluntariness requirement, and then reproved plaintiff for his failure to “fully underst[and] the terms of the Contract.” But perhaps the court was right for, after all, plaintiff undoubtedly would have taken the insurance anyway had the TIL disclosures been included on the order form. But see Gonzalez v. Schmerler Ford, 397 F. Supp. 323 (N.D. Ill. 1975) (cannot use preliminary order without TIL disclosures when arrangement intended as a credit transaction).Google Scholar

168 See Fisher v. Beneficial Fin. Co., 383 F. Supp. 895, 899-900 (D.R.I. 1974); cf. Stanley v. R. S. Evans Motors, 394 F. Supp. 859 (M.D. Fla. 1975) (use of preliminary order without insurance disclosures).Google Scholar

The staff has recognized the “practice of preparing all documents with the insurance included,” which has the practical effect of precluding the consumer's free choice. FRB Letter No. 398, TB, para. 30,576 (Aug. 26, 1970); cf. FRB Letter No. 801, 5 CCH-CCG, para. 31,123 (May 24, 1974) (preprinting space for optional auto club membership and its cost could be construed by consumers to mean that purchase is expected). However, nothing forbids this practice. FRB Letter No. 408, TB, para. 30,586 (Sept. 25, 1970) (letter 398, cited above, does not represent a specific requirement). The FTC has recently moved against an egregious example of a creditor's attempt to “defeat” the optional nature of insurance purchases. In re USLIFE Credit Corp., 5 CCH-CCG, para. 98,524 (FTC 1975) (complaint and proposed order).Google Scholar

169 See NCCF report, at 86; FRB 1974 Annual Report, at 12; Letter from Charles A. Tobin, Secretary, FTC, to Federal Reserve Board, for 1975 Annual Report on TIL; Paer, supra note 166, at 373 (one creditor, in answering interrogatories reported 99 percent penetration).Google Scholar

170 See FRB 1974 Annual Report, at 10.Google Scholar

171 In response to a creditor's inquiry whether a voluntary prepayment of interest had to be disclosed as a prepaid finance charge, the staff said no if it was “truly voluntary and not in any way required.” FRB Letter No. 1048, 5 CCH-CCG, para. 31,388 (May 21, 1976). I suspect that the staff would take a dim view of this if more than a small fraction of persons prepaid.Google Scholar

172 Sec. 106(b) clearly provides that the purchase of insurance must not be a factor in granting credit and for disclosure of this fact. Fisher v. Beneficial Fin. Co., 383 F. Supp. 895, 900 (D.R.I. 1974); see Shipman v. Citizens Sav. & Loan Ass'n, 532 S.W.2d 413 (Ct. Civ. App. 1976). The court missed this point in Stanley v. R. S. Evans Motors, 394 F. Supp. 859 (M.D. Fla. 1975) in stating that there was “nothing that the law requires which defendant did not do.” To be sure, the court also quoted the president of defendant to the effect that the purchase of insurance was not required, but the opinion seems to regard compliance with the statutory formalities as well nigh conclusive. Accord, Mims v. Dixie Fin. Corp., 5 CCH-CCG, para. 98,430 (N.D. Ga. 1976) (Sp. Master) (signature on insurance authorization estops plaintiff from showing insurance required absent fraud). Compare Powers v. Sims & Levin Realtors, 396 F. Supp. 12, 22-23 (E.D. Va. 1975) (signed receipt not conclusive on whether plaintiffs received TIL statement).Google Scholar

173 Interviews with attorneys for plaintiffs in recent TIL actions revealed that some were reluctant to prosecute such claims on behalf of consumers and preferred to limit their TIL practice to instances of form violations. This point will be developed further at a later date.Google Scholar

174 See Peritz v. Liberty Loan Corp., TB, para. 98,969 (N.D. Ill. 1973); FRB Letter No. 660, id., para. 30,930 (Jan. 17, 1973); cf. FRB Letter No. 107, id., para. 30,467 (Sept. 9, 1969) (no disclosure required if insurance not purchased).Google Scholar

175 FRB Letter No. 464, TB, pars: 30,662 (Mar. 29, 1971); FRB Letter, TB, para. 30,067 (June 26, 1969) (subsequent mail solicitation of insurance not subject to disclosure requirements); see FRB Letter No. 638, id., para. 30,897 (Oct. 11, 1972) (same result for property insurance). If the transaction is truly separate, the creditor is not required to make any disclosures simply because it collects the periodic premiums. But, if it advances the premium that is repaid with a finance charge, the creditor must furnish the appropriate disclosures. See FRB Int. Rul. sec. 226.814; FRB Letter No. 917, 5 CCH-CCG, para. 31,251 (Aug. 19, 1975); FRB Letter No. 432, TB, para. 30,626 (Jan. 14, 1971).Google Scholar

176 As a consequence, there are really separate issues whether the insurance disclosures comply with the special insurance disclosure requirements and the overall requirement of clear and conspicuous disclosure. See McDonald v. Savoy, TB, para. 98,935 (Tex Civ. App. 1973). The latter may be a factual issue for the judge or jury. Courts have not been precise in the published opinions as to these separate inquiries. See Doresey v. Termplan, Inc., 5 CCH-CCG, para. 98,691 (N.D. Ga. 1974) (Sp. Master); Sarratt v. Aetna Fin. Co., id., para. 98,692 (N.D. Ga. 1974) (Sp. Master); cf. Woods v. Beneficial Fin. Co., 395 F. Supp. 9 (D. Ore. 1975).Google Scholar

177 FRB, What You Ought to Know About Truth in Lending 22 (1969). Another form contained the following statement: “CREDIT LIFE AND DISABILITY INSURANCE is not required to obtain this loan. No charge is made for credit insurance and no credit insurance is provided unless the borrower signs the appropriate statement.”Google Scholar

178 See Pedro v. Pacific Plan, 393 F. Supp. 315 (N.D. Cal. 1975) (rambling statement adequately disclosed insurance was voluntary); Doggett v. Ritter Fin. Co., 528 F.2d 860 (4th Cir. 1975) (rambling statement approved when first sentence taken from FRB forms). One court said that the question whether the insurance disclosures were clear and conspicuous should be decided according to the standard of a “reasonable or ordinary borrower” and not that of the judge. Thus, decision should be in the “time-honored way by a jury.” Peritz v. Liberty Loan Corp., TB, para. 98,969 (N.D. Ill. 1973).Google Scholar

179 Since cost disclosure is not feasible for open-end accounts, disclosure of the method of computation will suffice; the staff also suggested examples of computation. FRB Letter, TB, para. 31,031 (Oct. 3, 1973); see FRB Letter No. 522, id., para. 30,728 (Sept. 7, 1971).Google Scholar

180 In one case, the creditor simply disclosed the cost orally and then required a statement in writing that the cost had been disclosed. In FRB Letter No. 408, TB, para. 30,586 (Sept. 25, 1970), the staff seemed to approve this practice. The approval was based on a construction of the regulation to require only disclosure of the cost; written disclosure was evidentiary but not required. Such an opinion is clearly wrong. Reg. Z/226.4(a)(5)(ii) requires the consumer's signature after “receiving written disclosure to him of the cost of such insurance.” As a policy matter, oral disclosure is likely to render the whole regulation on insurance meaningless since it is extremely doubtful that the consumer can appreciate and act upon such information.Google Scholar

181 There are really two issues here: first, must the insurance disclosures be self-contained; and second, if not, to what extent must the creditor make it clear where the further disclosures are located. Compare Simmons v. American Budget Plan, Inc., 386 F. Supp. 194 (E.D. La. 1974) (no violation if figures elsewhere and minimum chance for confusion); Gillard v. Aetna Fin. Co., 414 F. Supp. 737, 743-44 (E.D. La. 1976) (same); English v. MCC Financial Serv., Inc., 403 F. Supp. 679 (M.D. Ga. 1975), aff'd mem., 520 F.2d 941 (5th Cir. 1975) (specific reference pointing to costs sufficient); McKinney v. Greenbriar Lincoln-Mercury, Inc., 5 CCH-CCG, para. 98,552 (N.D. Ga. 1975) (Sp. Master) (authorization and cost connected by arrow), with Phillips v. Termplan of Atlanta, Inc., id., para. 98,841 (N.D. Ga. 1973) (Sp. Master) (insurance authorization must be complete within itself; creditor may not refer to insurance “at the cost indicated above” when it is not clear to which charge this refers); Pollock v. Avco Financial Serv., Inc., id., para. 98,766 (N.D. Ga. 1974) (Sp. Master) (same); Woods v. Beneficial Fin. Co., 395 F. Supp. 9 (D. Ore. 1975) (insurance authorization and costs separated thus violating 226.6(a) requirement that disclosures be clear, conspicuous, and in meaningful sequence). The courts are split whether the insurance authorization must be on the same piece of paper as the financial disclosures. Compare Pedro v. Pacific Plan, 393 F. Supp. 315 (N.D. Cal. 1975); Philbeck v. Timmers Chevrolet, Inc., 361 F. Supp. 1255 (M.D. Ga. 1973), rev'd on other grounds, 499 F.2d 971 (5th Cir. 1974); Rivers v. Southern Discount Co. Atlanta II, 5 CCH-CCG, para. 98,796 (N.D. Ga. 1973) (Sp. Master), with Hamlet v. Beneficial Fin. Co., 5 CCH-CCG, para. 98,646 (N.D. Ga. 1974) (Sp. Master) (insurance information need not be on disclosure form given consumers); Burton v. G.A.C. Fin. Co., 525 F.2d 961 (5th Cir. 1976) (copy of insurance authorization not required to be given to consumer, thereby implying that it can be on separate piece of paper); FRB Letter No. 264, TB, para. 30,517 (Feb. 20, 1970) (can use separate statement for insurance disclosures); FRB Letter No. 853, 5 CCH-CCG, para. 31,175 (Oct. 30, 1974). See also Colin K. Kaufman, Truth in Lending Compliance: Drafting Problems and a Constitutional Defense, 8 U.C.C.L.J. 34, 35-37 (1975).Google Scholar

The staff has wavered whether the separate disclosure of costs was required or was simply the better practice. See FRB Letter No. 1036, 5 CCH-CCG, para. 31,376 (Apr. 22, 1976); FRB Letter No. 398, TB, para. 30,576 (Aug. 26, 1970); FRB Letter No. 271, id., para. 30,522 (Mar. 6, 1970); FRB Letter No. 304, id., para. 30,350 (Apr. 16, 1970); FRB Letter No. 408, id., para. 30,586 (Sept. 25, 1970).Google Scholar

182 The cost for credit life and credit accident and health must be stated separately if offered separately. It is common, however, for creditors to offer either credit life, or credit life and credit accident and health, but not to offer credit accident and health alone. Courts have consistently rejected the view that the creditor can be compelled to offer credit accident and health alone. E.g., Jones v. Community Loan & Inv. Corp., 5 CCH-CCG, para. 98,787 (N.D. Ga. 1974), rev'd on other grounds, 526 F.2d 642 (5th Cir. 1976); Gillard v. Aetna Fin. Co., 414 F. Supp. 737, 743 (E.D. La. 1976). But, when the creditor offers only the two alternatives, he must disclose the cost for each alternative and must do so in a clear and conspicuous manner. But see FRB Letter No. 843, 5 CCH-CCG, para. 31,165 (Sept. 19, 1974) (creditor's disclosure statement must only disclose cost of insurance alternative consumer elects). For cases where the creditor was saved by sympathetic court, see the district court and court of appeals opinions in Doggett v. Ritter Fin. Co., 384 F. Supp. 150 (W.D. Va. 1974), rev'd, 528 F.2d 860 (4th Cir. 1975) (not clear that price figure included cost of life and accident and health; arguably deceptive because of disclosure of separate cost of accident and health which was not separately available); Stanley v. R. S. Evans Motors, 394 F. Supp. 859 (M.D. Fla. 1975).Google Scholar

Because of the different disclosures that must be made, creditors cannot combine life and property coverages. Hall v. Sheraton Galleries, 5 CCH-CCG, para. 98,737 (N.D. Ga. 1974) (Sp. Master). But they can if property insurance is made optional. FRB Letter No. 531, TB, para. 30,743 (Oct. 21, 1971).Google Scholar

183 See Weaver v. General Fin. Corp., 528 F.2d 589 (5th Cir. 1976); Gillard v. Aetna Fin. Co., 414 F. Supp. 737, 747-48 (E.D. La. 1976).Google Scholar

184 See Porter v. Household Fin. Corp., 385 F. Supp. 336 (S.D. Ohio 1974) (must be on disclosure statement); In re Warren, 387 F. Supp. 1395 (S.D. Ohio 1975) (court not clear what happens if dispute over date insurance disclosures furnished); Meehan v. Nelsonville Mobile Home Sales, 5 CCH-CCG, para. 98,665 (S.D. Ohio 1975); Washington Motor Sales v. Ferreira, 131 N.J. Super. 328, 329 A.2d 599 (1974), aff'd, 140 N.J. Super. 529, 357 A.2d 17 (App. Div. 1976). Contra Brown v. Commercial Credit Plan, Inc., CCH-CCG, 1969-73 Decisions Transfer Binder, para. 98,976 (N.D. Ga. 1973) (Sp. Master); Heard v. G.A.C. Fin. Corp. 5 CCH-CCG, para. 98,802 (N.D. Ga. 1974) (Sp. Master). The date may be typed in prior to or at the time of signature. Doresey v. Termplan, Inc., id., para. 98,691 (N.D. Ga. 1974) (Sp. Master).Google Scholar

185 See Simmons v. American Budget Plan, Inc., 386 F. Supp. 194 (E.D. La. 1974); cf. Sneed v. Beneficial Fin. Co., 5 CCH-CCG, para. 98,424 (D. Haw. 1976) (signature not on borrower's copy); Lemons v. Aetna Fin. Co., 5 CCH-CCG, para. 98,892 (N.D. Ga. 1973) (Sp. Master) (signature did not carry through carbon paper). If there are joint borrowers and only one is insured, only that person must sign, but if both are insured, both must sign. FRB Letter No. 624, TB, para. 30,873 (Aug. 9, 1972);. FRB Letter No. 625, id., para. 30,874 (Aug. 9, 1972). And, if only one borrower is insured, the creditor is not required to give a separate disclosure statement to the uninsured borrower which shows insurance as part of the finance charge. Mason v. General Finance Corp., 401 F. Supp. 782, 789-90 (E.D. Va. 1975).Google Scholar

186 See 1961 Senate Hearings, at 1310; 1962 Senate Hearings, at 187, 190, 243.Google Scholar

187 113 Cong. Rec. 18179, 18424 (1967).Google Scholar

188 114 Cong. Rec. 1582, 1851 (1968).Google Scholar

189 114 Cong. Rec. 14387 (1968).Google Scholar

190 For example, the lender may call property liability coverage “F. & G. C. Insurance” (fire and general casualty), “general casualty,”“special physical risks insurance,” or another name unfamiliar to insurance agents who might offer competitive coverage. See Kaufman, supra note 181, at 70-71.Google Scholar

191 Another tactic to discourage consumers from obtaining insurance themselves is to provide a space on the form for the name, address, and phone number of the person through whom insurance is to be obtained. If the consumer does not remember the name of an agent, or has not yet shopped for coverage, he may think he must accept that offered by the creditor. See Reed v. Washington Trailer Sales, Inc., 393 F. Supp. 886, 890 (M.D. Tenn. 1974).Google Scholar

192 See Reg. Z/226.4(a)(6) n.4; FRB Int. Rul. sec. 226.405.,Google Scholar

193 See FRB Int. Rul. sec. 226.403; FRB Letter No. 638, TB, para. 30,897 (Oct. 11, 1972) (insurance obtained from an agency formed by creditor's directors is obtained “from or through the creditor” and requires cost disclosure); FRB Letter No. 953, 5 CCH-CCG, para. 31,292 (Nov. 21, 1975); cf. FRB Letter No. 378, TB, para. 30,559 (July 29, 1970) (must include option to purchase elsewhere if insurance not required, but offered by creditor in transaction where premium is financed). The “cost” is presumably the cost as provided by the creditor since this is the amount the consumer needs for comparative purposes.Google Scholar

194 However, the cost of insurance when not offered by the creditor and purchased from a third party must be included as a separate charge within the amount financed if the premiums are financed. FRB Int. Rul. secs. 226.403, 226.405; FRB Letter, 5 CCH-CCG, para. 31,256 (July 24, 1975); FRB Letter No. 542, TB, para. 30,756 (Oct. 29, 1971).Google Scholar

195 See FRB Letter, 5 CCH-CCG, para. 31,210 (Mar. 21, 1975).Google Scholar

196 FRB Int. Rul. sec. 226.402.Google Scholar

197 FRB, supra note 162, at 22, 26.Google Scholar

198 361 F. Supp. 1255 (N.D. Ga. 1973), rev'd, 489 F.2d 971 (5th Cir. 1974). The ambush was complete when one court told a creditor who disclosed that insurance was for the term of the credit–as in the board's form–that it was not good enough. Phillips v. Termplan of Atlanta, Inc., 5 CCH-CCG, para. 98,841 (N.D. Ga. 1973) (Sp. Master).Google Scholar

199 See Doggett v. Ritter Fin. Co., 384 F. Supp. 150 (W.D. Va. 1974), rev'd on other grounds, 528 F.2d 860 (4th Cir. 1975), in which the court stated:Google Scholar

given the possible penalties for nondisclosure it is only fair to require the Board to state clearly what is required to be disclosed and not make a creditor act at his peril.Google Scholar

See also Hensley v. Granning & Treece Loans, Inc., 378 F. Supp. 841 (D. Ore. 1974).Google Scholar

200 FRB Letter No. 724, 5 CCH-CCG, para. 31,035 (Oct. 26, 1973). There is no indication that the alternative of filing an amicus brief was considered. Such a brief has been filed in another case involving proper disclosures of proposed finance charges. 1976 Senate Hearings, at 80-81 (board has filed amicus briefs in about six cases). See also Houston v. Atlanta Fed. S & L Ass'n, 5 CCH-CCG, para. 98,553 (N.D. Ga. 1975), rev'd, 414 F. Supp. 851 (N.D. Ga. 1976) (Sp. Master) (discussing staff opinions on matters not contained in act or regulations).Google Scholar

201 Philbeck v. Timmers Chevrolet, Inc., 499 F.2d 971 (5th Cir. 1974). In addition to the policy reason, the court referred to certain language in the interpretive ruling which suggested that (1) it was only concerned with cases where the “insurance premium cost” was different from the “cost of insurance for the full term of the transaction”; and (2) it only applied when there was an “initial policy” that might be followed by other policies.Google Scholar

202 One lower court judge, after noting that the Philbeck court had apparently permitted the opinion of a single staff member to overrule contrary district court opinions and that the court had emphasized the predominant weight to be accorded to staff opinions, was unsure whether he should decide an issue in accordance with other district courts or follow a contrary staff opinion. He resolved the issue by following the district courts and certifying the question of the proper authority for staff opinions for interlocutory appeal. It appears that the Philbeck court will thus have a chance to reconsider these issues. Willis v. Town Fin. Corp., 416 F. Supp. 10 (N.D. Ga. 1976).Google Scholar

203 The board is considering a proposal that would require the finance charge not to be itemized. 41 Fed. Reg. 10077, 10078 (1976). Then, consumers would not even know the cost of such insurance.Google Scholar

204 FRB Letter No. 834, 5 CCH-CCG, para. 31,156 (Aug. 28, 1974); see FRB Letter, TB, para. 30,242 (Dec. 29, 1969) (required insurance must be included even though creditor has no direct right against the insurance for payment of debt); FRB Letter No. 499, id., para. 30,698 (July 8, 1971) (required insurance must be disclosed even with option to purchase from another). Somewhat inconsistently, no disclosures are required if an existing policy is assigned. Reg. Z/2264(a) n.3; see FRB Letter No. 499, TB, para. 30,698 (July 8, 1971); FRB Letter No. 589, id, para. 30,832 (Apr. 7, 1972) (same); FRB Letter No. 737, id., para. 31,056 (Dec. 18, 1973) (same).Google Scholar

205 FRB Letter No. 870, 5 CCH-CCG, para. 31,193 (Feb. 11, 1975) (citing earlier authorities).Google Scholar

206 That the APR on loans with insurance is lower than on loans without insurance has been the basis of an elaborate argument that the act is unconstitutional. See Kaufman, supra note 181, at 68-80. Quite apart from the merits of this issue, which are beyond the present effort, the argument has overlooked the fact that insurance is at least arguably beneficial to consumers and is usually prepaid; thus, the consumer who has incurred a debt and purchased insurance has received more value than one who has simply incurred a debt and therefore, if the amount of the finance charges are the same, the former credit transaction should show a lower annual percentage rate. This argument is, however, not applicable to filing fees, and as to those, Mr. Kaufman may have scored a debating point.Google Scholar

207 See FRB, supra note 162, at 13 (delaying solicitation is “an interesting potential remedy”). In a letter to Senator Proxmire, the board recommended that insurance not be included in the finance charge if consumers could cancel at any time without penalty. 122 Cong. Rec. S12296 (daily ed. July 23, 1976). This recommendation has been introduced as S. 3699, 94th Cong., 2d Sess. (1976). Compare letter from Charles A. Tobin, supra note 169 (favor delayed solicitation; “negative-option” will not be effective in reducing penetration rates). At least one consumer advocate has questioned the use of a disclosure approach to regulating the sale of credit life and credit accident and health insurance. 1973 Senate Hearings on National Commission Report, at 114.Google Scholar

208 NCCF report, at 89, 187.Google Scholar

209 The National Commission's recommendation was included as sec. 216 of S. 1630, supra note 39. The board opposed the proposal on the ground that the addition of a new APR would complicate already complex TIL disclosures, and the FTC on the ground that the added rate would confuse consumers. 1973 Senate Hearings, at 55, 123-24. Curiously, a coalition of bankers' interest groups supported the proposal. Id. at 256.Google Scholar

210 An awareness of the low finance charge problem is suggested in 1961 Senate Hearings, at 56-57, 127-30, 447-48, 563-64; 1962 Senate Hearings, at 287, 376.Google Scholar

211 See 1960 Senate Hearings, at 370, 470-71, 823-24; 1961 Senate Hearings, at 295-98, 445-48, 635-37, 951-52, 1014-15, 1018-19, 1025-27, 1144-45; 1962 Senate Hearings, at 265-66, 267-68, 287, 341-42, 360-61, 365-67, 415; 1963 Senate Hearings, at 13-14, 749-57 (including illustrative advertisements), 1284-85; 1967 Senate Hearings, at 371-72, 377-80, 513, 699; 1967 House Hearings, at 583, 590-91, 802.Google Scholar

212 See 1961 Senate Hearings, at 49, 56-67, 299, 1155-56; 1962 Senate Hearings, at 45, 407; 1967 Senate Hearings, at 4142, 123-24; 1967 House Hearings, at 825-26; 113 Cong. Rec. 2046 (Jan. 31, 1967).Google Scholar

213 See FRB 1971 Annual Report, at 11; FRB 1972 Annual Report, at 8; 1973 Senate Hearings, at 55-56; 1969 House Hearings, at 380-81; FRB Letter, TB, para. 30,113 (July 24, 1969); FRB Letter, id., para. 30,114 (July 25, 1969); FRB Letter No. 134, id., para. 30,180 (Oct. 9, 1969); FRB Letter, id., para. 30,320 (Mar. 3, 1970); FRB Letter No. 30, id., para. 30,086 (July 8, 1969). One early decision sustained the four-installment rule as necessary to prevent the TIL Act from “being a hoax and a delusion upon the American public” and to “plug a substantial loophole by which a substantial portion of long term credit dealers could escape coverage.” The loophole was, of course, the apparent exclusion of unitary price retailers from coverage. Strompolos v. Premium Readers Sew., 326 F. Supp. 1100, 1103 (N.D. Ill. 1971); see Sambolin v. Klein Sales Co., 5 CCH-CCG, para. 98,432 (S.D.N.Y. 1976).Google Scholar

214 Mourning v. Family Publications Serv., Inc., 411 U.S. 356, 369, 377 (1973). Similar language appears in FRB Letter No. 134, TB, para. 30,180 (Oct. 9, 1969).Google Scholar

215 See Strompolos v. Premium Readers Serv., 326 F. Supp. 1100, 1103 (N.D. Ill. 1971) suggesting an absence of judicial creativity in coping with unitary pricing transactions absent the four-installment rule.Google Scholar

216 Mourning v. Family Publications Serv. Inc., 449 F.2d 235 (5th Cir. 1971), rev'd, 411 U.S. 356 (1973).Google Scholar

217 See FRB 1971 and 1972 Annual Reports. The National Commission on Consumer Finance strongly supported the amendment as necessary to deal with the burying problem. NCCF report, at 185.Google Scholar

218 TIL secs. 103(f), 146. After Mourning, codification of the four-installment rule was thought desirable to avoid any lingering uncertainty. See 1973 Senate Hearings, at 122, 252, 415-16.Google Scholar

219 One can argue that a comparison of APRs is not the best method of deciding which deal is best for the consumer. From the consumer's point of view, the effect of using the unitary price retailer's plan is to give him use of a portion of the credit for a longer period of time. Thus, to make an accurate comparison, a consumer would have to calculate the rate of return that he could obtain from the difference in monthly installments ($8.34 per month) cumulated over the three-year period. At an assumed rate of 6 percent, the consumer would have to deduct about $20.00 from the total credit price of $750.00, thus suggesting that the cash price retailer's offer is better. The reason this conclusion differs from that reached by comparing APRs is that the consumer cannot realize a rate of return on the amount “saved” by making longer payments which approach the APR on the transaction. In this example, the consumer would have to realize a rate of return of about 15 percent on the cumulated difference in installment payments to make the unitary price retailer's transaction as good as the cash price retailer. Of course, the significance of this point is not limited to comparisons between cash price and unitary price retailers, but extends to all cases where a given amount of credit is extended for different periods of time.Google Scholar

220 One can, of course, snipe at these policies and suggest that they are not operative in consumer transactions, but as long as the act remains, the stated legislative rationale seems the most appropriate guide for interpretation. It is absurd to pass a statute for a given set of reasons and to say that those very reasons are ridiculous guidelines for construing that very statute. The very serious question of the value of TIL and whether it fulfills these objectives must be left to another day. See also note 219 supra and note 221 infra.Google Scholar

221 It can be argued that TIL does not provide the right kind of information in cases where the consumer is considering deferring the purchase of a consumer durable. For example, a consumer considering the purchase of a washer would have to know how much it will cost him to use the laundromat while he saves funds to make the purchase. There is some evidence that such costs are sufficiently high that the consumer would be justified in paying quite a high APR to avoid them. See William C. Dunkelberg & James Stephenson, The Rate of Return on Consumer Durables (1972); 1973 Senate Hearings, at 264-65.Google Scholar

222 See 1961 Senate Hearings, at 56-57; 1962 Senate Hearings, at 287, 341-42. See also Shay, supra note 106, at 764 (credit dependent consumer is rational to decide on credit by comparing APRs). See Note, Consumer Legislation, supra note 164 (citing authorities).Google Scholar

223 FTC, Economic Report on Installment Credit and Retail Sales Practices of District of Columbia Retailers (1968).Google Scholar

224 These factors are developed in an excellent student note. Note, Consumers and Anti-trust Treble Damages: Credit-Furniture Tie-ins in the Low Income Market, 79 Yale L.J. 254, 257-59, 263 (1970). There is some evidence that, in response to TIL, retailers decreased finance charges and increased prices. Id. at 258 n.16 (citing authorities).CrossRefGoogle Scholar

225 These characteristics have been noted often. See, e.g., id. at 260-67; Note, Consumer Legislation, supra note 164; Shay, supra note 106, at 767-68. One student commentator suggests that a tied-in sale of furniture and credit may violate the antitrust laws and should be stopped as a means of encouraging more competition and more informed shopping for credit. Note, Credit-Furniture Tie-ins, supra note 224, at 267-77. Unfortunately, the author takes inadequate account of the problem of low rate ceilings, and as a result the cure he proposed might be worse than the disease. A similar proposal is to set rates on vendor credit so low that most consumers would be forced to seek direct loans. Note, Consumer Legislation, supra note 164, at 771-72. Although the author attempts to deal with burying by making any amount over the lowest cash price to any customer part of the finance charge, this is not likely to affect dealers who have an all-credit business. The result is a number of provisions requiring uniform pricing for all customers and notices of markups over 50 percent. Id. at 773-75.Google Scholar

226 See Arthur Berney et al., Legal Problems of the Poor 988 (Boston: Little Brown & Co., 1975); Robert L. Jordan & William D. Warren, The Uniform Consumer Credit Code, 68 Colum. L. Rev. 387, 393-94 (1968); Homer Kripke, Gesture and Reality in Consumer Credit Reform, 44 N.Y.U.L. Rev. 1, 6-7, 13-16 (1969); Note, Consumer Legislation, supra note 164, at 775.Google Scholar

227 Landers supra note 33, at 605 n.99, 616 n.122. The staff has said that there is no finance charge in a case where a retailer discounts consumers' 90-day notes. FRB Letter No. 342, TB, para. 30,397 (June 3, 1970).Google Scholar

228 See p. 70 supra.Google Scholar

229 See, e.g., NCCF report, at 105-7, 180-82. Several studies have suggested that credit charges rarely equal costs. See 1973 Senate Hearings on National Commission Report, at 162, 185-86; McAlister, supra note 50, at 59, 67 n.4 (citing authorities that most retailers barely break even at 1% percent per month). At the time this paper was being written, the author attended a credit conference sponsored by the Illinois Institute of Continuing Legal Education. After grousing about unrealistic rate ceilings, several creditor spokesmen nonchalantly noted that retailers would simply include portions of their finance charges in cash prices. Absent some form of tight price controls or regulation, there is no way to prevent this practice, and it is extremely doubtful that TIL is at all suited to this task. Thus, the assumption is that TIL is not intended to reach what might be called “conventional” burying as distinguished from some more pernicious kind. Cf. Berney et al., supra note 226, at 988.Google Scholar

230 See Note, supra note 224, at 260; Jordan & Warren, supra note 226, at 393-94.Google Scholar

231 The board may have moved in this direction in FRB Int. Rut. sec. 226.406 suggesting that it is a question of fact whether a finance charge was improperly included in the cash price.Google Scholar

232 For example, if the assignee discounts the obligation at 80 percent of face value but permits an 8 percent rebate if the consumer completes the contract, then the true cost of credit is 12 percent plus that portion of the 8 percent rebate which the assignee forfeits because of defaults. If that amount is 1 percent, the creditor would be justified in estimating the finance charge on the basis of a 13 percent discount.Google Scholar

233 See FRB Letter, TB, para. 30,372 (May 11, 1970). In FRB Letter No. 433, TB, para. 30,627 (Jan. 21, 1971), the staff suggested that a creditor who sold his paper to a financer at various discounts but imposed the same finance charge upon all consumers was in compliance with the act. This seems to be the kind of good faith estimate of the finance charge referred to in the text.Google Scholar

234 An example of such a case might be Lee v. Household Fin. Co., 263 A.2d 635 (D.C. Ct. App. 1970).Google Scholar

235 In practice, the amount of burying would have to be substantial to trigger a TIL violation lest the scheme not get out of hand. In other circumstances, excessive pricing schemes have been attacked as unconscionable. See, e.g., UCCC sec. 5.108(4)(c); Kugler v. Romain, 58 N.J. 522, 279 A.2d 640 (1971); Morris v. Capitol Furniture and Appliance Co., 280 A.2d 775 (D.C. Ct. App. 1971); Note, UCC section 2-302 and the Pricing of Goods: Are the Courts More than the Market Will Bear, 33 U. Pitt. L. Rev. 589 (1972). The literature on unconscionability (including excessive pricing) is as gargantuan as the case law is sparse. For a recent discussion that cites the leading earlier authorities, see Richard A. Epstein, Unconscionability: A Critical Reappraisal, 18 J. Law & Econ. 293 (1975).Google Scholar

236 Such thinking provided the theoretical justification for the well-known time-price doctrine. See Hogg v. Ruffner, 66 U.S. (1 Black) 115 (1861); Beete v. Bidgood, 108 Eng. 792 (K.B. 1827); William C. Warren, Regulation of Finance Charges in Retail Installment Sales, 68 Yale L.J. 839, 842 (1959).Google Scholar

237 This may be more easily said than done, however, since the availability of attorneys' fees to successful plaintiffs alters the normal economic determinants of litigation effort. Thus, a defendant may find that the dollar cost of settlement is less than the dollar cost of a successful defense on the merits. In this circumstance, there is a strong incentive not to take the risk of losing the case. A full discussion of the impact of the TIL approach to attorneys' fees must be saved to another day.Google Scholar

238 In some cases, a consumer may have access to a different market in which finance charges are not buried; this is most likely if the consumer can readily shop in adjacent states. It still remains extremely doubtful that TIL is the appropriate means of compelling retailers in one state to readjust their pricing policies.Google Scholar

239 Some of the policical considerations are reviewed, and pertinent authorities cited, in Berney et al., supra note 226, at 983-84.Google Scholar

240 490 F.2d 865 (5th Cir. 1974); accord, Rowe Auto & Trailer Sales, Inc. v. King, 257 Ark. 484, 517 S.W.2d 946 (1975).Google Scholar

241 Joseph v. Norman's Health Club, Inc., 532 F.2d 86 (8th Cir. 1976); Kriger v. European Health Spa, Inc., 363 F. Supp. 334 (E.D. Wis. 1973); Glaire v. La Lanne-Paris Health Spa, Inc., 12 Cal. 3d 915, 528 P.2d 357, 117 Cal. Rptr. 541 (1974).Google Scholar

242 See Joseph v. Norman's Health Club, Inc., 532 F.2d 86 (8th Cir. 1976) (discount varied but was the same for notes at any given time). It appears that the “credit men” of the high-volume retailers are sufficiently expert to provide extremely accurate estimates of whether an assignee will buy particular paper, and if so, how much the assignee will pay.Google Scholar