395 N.E.2d 525 | Ohio Ct. App. | 1978
The Akron National Bank, plaintiff-appellee (hereafter referred to as the Bank), sued the defendant-appellant, Gerald Roundtree (hereafter referred to as Roundtree), to collect the balance due under a cognovit note executed on November 28, 1972, for a loan on the purchase of a car. Roundtree defaulted on his loan. The car was repossessed and sold. The cognovit judgment for the balance due, $492.48, taken on April 29, 1976, was set aside on *14 Roundtree's motion which alleged that the Bank violated the federal Truth-in-Lending Act (TILA). Roundtree claimed no actual damages, but counterclaimed for the statutory damages authorized by the act that is twice the amount of the finance charge of $318.83. Section 1640 (a) (2), Title 15, U.S. Code. Roundtree charged that the Bank violated the act in four respects: (1) no disclosure of the acceleration clause; (2) no meaningful disclosure of the existence or nature of the security interest; (3) insufficient disclosure of the method of computing unearned interest rebates, and (4) no itemization of the components of the finance charge. The Akron Municipal Court found that the printed form failed to adequately disclose the extent or nature of the Bank's security interest, but rejected Roundtree's other three claims. However, the trial court also found that Roundtree was barred from asserting any violations of the TILA as a defense because of the one year statute of limitations contained in Section 1640 (e), Title 15, U.S. Code, and defendant's failure to comply with Section 1640 (h), Title 15, U.S. Code. Roundtree appeals that judgment and contends as error:
"I. The trial court erred by finding that disclosure is unnecessary under
"II. The trial court erred by ruling that the use of the term `Rule of 78's' is sufficient disclosure.
"III. The trial court erred in denying the necessity of itemizing component parts of the finance charge.
"IV. The trial court erred in holding appellant's claims to be set-offs rather than defenses via recoupment and that these claims were barred by
Although there is some support for Roundtree's argument, *15
the greater weight of authority does not accept this view of the act. The consistent line of reasoning throughout the case law is that an acceleration of payments of the principal of a loan does not subject a defaulting party to any further liability or additional obligation. The debtor may be required to pay the full amount of the outstanding principal of the loan immediately, but no "charge" is involved as long as the unearned interest is rebated. See, Johnson v. McCrackin-Sturman Ford,Inc. (C.A. 3, 1975),
We agree with Griffith, supra, where it is stated:
"* * * [I]n some context every term in a retail installment contract may be of importance to a credit customer. However, there is no provision in the Act which delegates to thecourts any authority to enlarge upon the list of disclosure requirements set forth in the Act and the Board regulations simply because in the judgment of a court such additional information may be deemed desirable or even material to effectuate the statutory purposes. That power has been expressly given only to the Board: * * *" (Page 458.)
We note that the Federal Reserve Board's position on this issue is that the mere right to accelerate is not a charge and, therefore, need not be disclosed. Federal Reserve Official Staff Interpretation No. FC-0054 (1977),
"Identification of the method of computing any unearned portion of the finance charge in the event of prepayment in full of an obligation which includes precomputed finance charges * * *." (Emphasis ours.)
The meaning of the regulation is clearly that the method be identified, not explained or illustrated. The "Rule of 78's" *16 is commonly used to compute the amount of finance charges rebated in the event of prepayment or acceleration. We doubt that an explanation of this accounting practice would in reality aid the consumer in the informed use of credit.
"* * * A description of the amounts included in the finance charge is necessary to carry out the purposes of the Act only when the total charge includes more than one element. Therefore, where only a single type of charge comprises the finance charge, disclosure of the total dollar amount of such charge, using the term `finance charge,' complies with the requirements of §§ 226.8(c)(8)(i) and 226.8(d)(3), and there is no further requirement under those sections that the single type of charge be otherwise identified or described."8224
We disagree with Roundtree's assertion that this amendment supports his view of the state of the law in 1972 — i.e., that itemizing component parts of a finance charge was required even where there were no parts. We believe that the law, which never explicitly required itemization of one-component finance charges, now clearly forecloses any attempts to engraft such a requirement as implicit in the regulation. The trial court did not err when it found no violation in the disclosure of the finance charge.
"Any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation."
"A person may not take any action to offset any amount for which a creditor is potentially liable to such person under subsection (a) (2) of this section against any amount owing to such creditor by such person, unless the amount of the creditor's liability to such person has been determined by judgment of a court of competent jurisdiction in an action to which such person was a party."
The parties agree that any violation must have occurred at the time of the execution of the loan agreement, which was more than one year before the Bank brought an action to collect on the note. A recoupment is generally defined as a demand arising from the same transaction as the plaintiff's claim. A set-off is a demand asserted to diminish or extinquish a plaintiff's demand, which arises out of a transaction different from that sued on. 3 Moore's Federal Practice, para. 13.02, note 1 (1978). A set-off, which is in the nature of an independent affirmative action, would be time-barred. A recoupment is not barred as long as the main action itself is timely. Bull v. United States
(1935),
Bankers Guaranty Corp. v. Powell (D.C. 1977), 5 CCH Consumer Credit Guide, para. 98,176, held that a counterclaim in a similar suit was not barred because it was in the nature of a recoupment. That opinion distinguished the situation where a party would seek affirmative relief through a set-off, which the act would preclude if not within the one year period. The court labelled this type of counterclaim a "recoupment" because it found the execution of the loan contract to be the common basis for each claim. The lender violated a duty imposed by the act on the contract, and the lender's claim rose from the breach of that contract. See, also, Empire Finance Co. v. Ewing (Ky.App. 1977), *18
Other cases holding that the defense of a Truth-in-Lending Act violation is not barred by Section 1640 (e) rely in part on state procedural laws. Two Louisiana state court cases held that under Louisiana law the defense could be raised after the expiration of the one year period. Reliable Credit Service,Inc. v. Bernard (La.App. 1976),
Ohio has no statute that speaks directly to the effect of a statute of limitation on a defensive counterclaim. See, R. C.
The line of cases supporting the trial court's finding that *19
defendant's counterclaim is barred by Section 1640 (e) includesGillis v. Fisher Hardware Co. (Fla.App. 1974), 289 So.2d 451, and Hodges v. Community Loan and Investment Corp. (1974),
The opinion in Public Loan Co., Inc. v. Hyde (1977),
Our consideration of those opinions noted above, as well as the facts before us, lead us to hold that Roundtree's claim here is not barred by the one year statute of limitations. We agree with the reasoning of Continental Acceptance, and hold that this counterclaim is in the nature of a recoupment brought into the instant litigation as a defensive measure. Both the debt and the claimed violation arise from the same loan transaction.
Defendant argues that Congress amended the act with Section 1640 (h) to prevent a borrower from deducting the statutory penalty from his monthly balance anytime he felt his creditor had violated the act. There is support for this view in the legislative history. 123 Cong. Rec. S. 6025 (1977) (remarks of Senator Proxmire.) This provision was discussed in Grey v.European Health Spas, Inc. (Conn. 1977),
"Under this provision a debtor may not stop paying on *20 his debt when he reaches the point where his remaining payments equal the statutory penalty; in other words, he may not use self-help remedies in lieu of a judicial action to recover his truth-in-lending damages."
See, also, Brooks v. Maryville Loan and Finance Co. (Ga. 1976), 5 CCH Consumer Credit Guide, para. 98,427.
Stephens v. Household Finance Corp., supra, specifically rejects Ken-Lu, and holds that the act requires only that the consumer and creditor litigate the alleged Truth-in-Lending violation, even as a counterclaim in a state proceeding to collect a debt. That court did not interpret Section 1640 (h) as requiring a separate, prior proceeding. See, also, ReliableCredit Service, Inc., supra.
The nature and purpose of the act support a liberal interpretation of its provisions. In light of the legislative history available, it is difficult to accept the interpretation of Section 1640 (h) as set forth in Ken-Lu, supra. The section is by no means clear, but Grey, supra, interpreting Section 1640 (h) as an attempt to prevent "self-help" remedies, is at least consistent with the underlying purpose of the act. We agree with the reasoning of Stephens, supra, and hold that the action brought by the Bank against Roundtree was a proper time and place for the Bank's liability to Roundtree for any Truth-in-Lending violations to be determined.
In summary, we affirm the trial court's finding that the Truth-in-Lending Act does not require a creditor to include an acceleration clause in the disclosure statement, to identify more than the method of computing unearned finance charges, or to itemize a single component finance charge. We reverse the trial court's finding that the defendant's counterclaim is barred and we hold that neither Section 1640 (e) nor Section 1640 (h), 15 U.S. Code, bar a claim for recoupment or a Truth-in-Lending violation in a creditor's action arising out of the same loan agreement.
The judgment is reversed and the cause is remanded to the trial court for further proceedings in accordance with this opinion.
Judgment reversed.
MAHONEY, P.S., and HUNSICKER, J., concur.
HUNSICKER, J., retired assigned to active duty under authority of Section 6 (c), Article IV, Constitution.