Carl and Margaret Walker (“the Walkers”) brought this lawsuit against Wallace Auto Sales (“Wallace”) and Guardian National Acceptance Corporation (“Guardian”) on behalf of themselves and all others similarly situated. In their nine-count amended complaint, the Walkers alleged that the defendants systematically imposed hidden finance charges on automobile purchases in violation of the Truth in Lending Act (“TILA”), 15 U.S.C. §§ 1601-1693r, the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18
I
BACKGROUND
A. Facts
On August 31,1995, the Walkers agreed to purchase a used 1989 Lincoln Continental from Wallace. In order to finance this purchase, the Walkers entered into a retail installment contract (“the contract”) with Wallace. The contract listed the cash price of the automobile as $14,040.
After the sale was complete, Wallace promptly assigned the contract to Guardian, “a specialized indirect consumer finance company engaged primarily in financing thе purchase. of automobiles through the acquisition of retail installment contracts from automobile dealers.” R.21 ¶ 7. Guardian purchased the contract at a discount of $7,182 from the total value.
B. Proceedings in the District Court
As noted above, the Walkers filed a nine-count amended complaint against Wallace and Guardian in the district court alleging violations of TILA RICO and two state law consumer protection statutes. The gravamen of the Walkers’ complaint is that Wallace artificially inflated the cost of the vehicle to cover the discount at which Guardian purchased the Walkers’ sales contract and therefore imposed a “hidden finance charge” on them in violation of TILA, 15 U.S.C. § 1638(a)(3).
Wallace and Guardian filed a motion to dismiss the Walkers’ amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The district court first examined the Walkers’ TILA claim. The court began its analysis of that claim by noting that the regulations interpreting TILA’s disclosure requirements exempt specific charges from those requirements. Specifically, the Official Staff Commentary to the regulations provides that:
Charges absorbed by the creditor as a cost of doing business are not finance charges, even though the creditor may take such costs into consideration in determining the interest rate to be charged or the cash*930 price of the рroperty or services sold. However, if the creditor separately imposes a charge on the consumer to cover certain costs, the charge is a finance charge if it otherwise meets the definition.
12 C.F.R. Pt. 226, Supp. I at 308-09. The commentary further states that “[a] discount imposed on a credit obligation when it is assigned by a seller-creditor to another party is not a finance charge as long as the discount is not separately imposed on the consumer.” Id. In the district court’s view, the “hidden finance charge” alleged by the Walkers was in fact a “cost of doing business” and was therefore exempt from TILA’s disclosure requirements. The court therefore held that the Walkers had not pleaded sufficient facts to state a claim under TILA. In addition, the court dismissed the Walkers’ RICO and state law-based claims because, in its view, those claims could not survive in the absence of a TILA violation.
II
DISCUSSION
We review de novo the district court’s decision to dismiss, taking the Walkers’ factual allegations as true and drawing all reasonable inferences in their favor. See Kauthar SDN BHD v. Sternberg,
A. The Walkers’ TILA Claim
In order to assess the sufficiency of the Walkers’ TILA claim against Wallace and Guardian, we must first examine the statutory and regulatory framework under which it arises.
Congress enacted TILA “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair billing and credit card practices.” 15 U.S.C. § 1601(a); see also Gibson v. Bob Watson Chevrolet-Geo, Inc.,
The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.
12 C.F.R. § 226.4(a). Regulation Z further provides that the term “finance charge” includes “[c]harges imposed on a creditor by another person for purchasing or accepting a consumer’s obligation, if the consumer is required to pay in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation.” Id. § 226.4(b)(6).
These provisions, however, are qualified by the Federal Reserve Board’s Official Staff Commentary to Regulation Z
Costs of doing business. Charges absorbed by the creditor as a cost of doing business are not finance charges, even though the creditor may take such costs into consideration in determining the interest rate to be charged or the cash price of the property or services sold. However, if the creditor separately imposes a charge on the consumer to cover certain costs, the charge is a finance charge if it otherwise meets the definition. For example:
A discount imposed on a credit obligation when it is assigned by a seller-creditor to another party is not a finance charge as long as the discount is not separately imposed on the consumer.
12 C.F.R. Pt. 226, Supp. I at 308-09.
In this case, the Walkers allege that the defendants violated TILA by artificially inflating the “cash price” of the vehicle purchased by the Walkers to cover the cost of the discount at which Guardian purchased the Walkers’ sales contract. The Walkers contend that, by passing on the cost of Guardian’s discount to the Walkers, the defendants imposed a “hidden finance charge” on them in violation of TILA, 15 U.S.C. § 1638(a)(3). The defendants, however, contend that the Walkers’ TILA claim must be dismissed because the “hidden finance charge” alleged by the Walkers was in fact a “cost of doing business” and was therefore exempt from TILA’s disclosure requirements. See 12 C.F.R. Pt. 226, Supp. I at 308-09.
As an initial matter, we note that, under TILA, Guardian may only be charged as an assignee, not a creditor. See 15 U.S.C. § 1602(f); 12 C.F.R. Pt. 226, Supp. I at 300. Accordingly, the Walkers must properly allege a cause of action against Wallace (the creditor) before it "can assert a claim against Guardian (the assignee). We therefore turn first to the issue of whether the Walkers’ amended complaint states a valid TILA claim against Wallace.
1. Wallace’s Liability
In paragraph 27 of the Walkers’ amended complaint, they allege that:
It is the standard policy of Wallace and other dealers who receive financing from Guardian to charge hidden finance charges on vehicles sold on time. The purported cash price of vehicles sold in this manner substantially exceeds the value of the vehicle, and the price at which comparable vehicles are sold for cash, and includes part of the finance charge.
R.21 ¶ 27. In the next paragraph, the Walkers further allege that this “hidden finance charge resulted from the need of [Wallace] to pass on to the consumer the discount imposed by Guardian.” Id, ¶ 28. It is our task to discern whether these allegations are sufficient to state a claim against Wallace under TILA.
Our conclusion that the Walkers allege sufficient facts to state a cause of action under TILA is supported by the Supreme Court’s exposition of the concept and effect of a “hidden finance charge” in Mourning. In that case, the Court noted that “[o]ne means of circumventing the objectives of the Truth in Lending Act, as passed by Congress, was that of ‘burying’ the cost of credit in the price of goods sold.” Id. at 366, 93 5.Ct. 1652. The Court explained further that, in many credit transactions, creditors sought to evade TILA’s mandate by claiming that no finance charge had been charged and assuming “the cost of extending of credit as an expense of doing business, to be recouped as part of the price charged in the transaction.” Id. To illustrate this concept, the Court provided the following example:
[T]wo merchants might buy watches at wholesale for $20 which normally sell at retail for $40. Both might sell immediately to a consumer who agreed to pay $1 per week for 52 weeks. In one case, the merchant might claim that the price of the watch was $40 and that the remaining $12 constituted a charge for extending credit to the consumer. From the consumer’s point of view, the credit charge represents the cost which he must pay for the privilege of deferring payment of the debt he has incurred. From the creditor’s point of view, much simplified, the charge may represent the return which he might have earned had he been able to invest the proceeds from the sale of the watch from the date of the sale until the date of payment. The second merchant might claim that the price of the watch was $52 and that credit was free. The second merchant, like the first, has forgone the profits which he might have achieved by investing the sale proceeds from the day of the sale on. Thе second merchant may be said to have ‘buried’ this cost in the price of the item sold. By whatever name, the $12 differential between the total payments and the price at which the merchandise could have been acquired is the cost of deferring payment.
Id. at 366 n. 26,
Moreover, our conclusion is further strengthened by this сourt’s recent decision in Gibson v. Bob Watson Chevrolet-Geo, Inc.,
Wallace, however, contends that, even if we characterize the cost allegedly imposed on the Walkers and other credit customers as a finance charge, the particular type of charge involved here, “a discount imposed on a credit obligation when it is assigned by a seller-creditor to another party,” see 12 C.F.R. Pt. 226, Supp. I at 308-09, is exempt from TILA’s disclosure requirements. As we noted earlier, the Official Staff Commentary to Regulation Z exempts certain charges from TILA’s disclosure requirements:
Costs of doing business. Charges absorbed by the creditor as a cost of doing business are not finance charges, even though the creditor may take such costs into consideration in determining the interest rate to be charged or the cash price of thе property or services sold. However, if the creditor separately imposes a charge on the consumer to cover certain costs, the charge is a finance charge if it otherwise meets the definition. For example:
A discount imposed on a credit obligation when it is assigned by a seller-creditor to another party is not a finance charge as long as the discount is not separately imposed on the consumer.
Id. This regulation makes clear that mer-chantcreditors are not necessarily required to disclose to consumers that they plan on selling the retail installment contract at a discount. However, if a creditor-merchant “separately imposes” thе cost of the discount on the particular credit consumer, then that cost does not fit within the “cost of doing business” exemption, but rather is a finance charge and must be disclosed to the consumer as such. Therefore, the critical issue in this case is the meaning of the term “separately imposed” and whether Wallace's alleged conduct constitutes such a separate imposition.
In this case, the district court concluded that the Walkers failed to allege that Wallace “separately imposed” the cost of the discount on them. In the district court’s view, even if Wallace artificially inflated the “cash price” of the automobile sold to the Walkers to cover the cost оf the discount imposed by Guardian, the discount was not “separately imposed” on the Walkers because those charges were included in the cash price of the car. We cannot accept the district court’s interpretation of the term “separately imposed.” Indeed, under the district court’s interpretation, a creditor would be allowed to impose a cost on consumers buying on credit without disclosing to those customers that they are paying more only because they are buying on credit.
In their amended complaint, the Walkers allege that Wallace passed on the cost of the discount imposed by Guardian, that this cost was passed on in credit transactions only and that Wallace failed to disclose it as a finanсe charge. At this early stage in the proceedings, these allegations are sufficient to prevent the dismissal of the Walkers’ TILA claim against Wallace. In order to prevail in the end, however, the Walkers will have to prove their allegation that Wallace separately imposed the cost of Guardian’s discount on them. As we noted above, the commentary to Regulation Z makes it clear that it is permissible for a ear dealer to assign retail installment contracts to a finance company at a discount, without disclosing the discount to customers. See 12 C.F.R. Pt. 226, Supp. I at 30809. Moreover, the commentary specifically provides that a “charge directly or indirectly imposed by a creditor” is not considered to be a finance charge if the charge “is imposed uniformly in both cash and credit transactions.” 12 C.F.R. § 226.4(a) & Pt. 226, Supp. I at 308. Accordingly, Wallace need not disclose the cost of the discount as a finance charge if it attempts to recoup that cost by charging all customers higher prices. Under that scenario, the discounts would not be “separately imposed” on credit consumers like the Walkers, but, like any other overhead item, would be taken into account in the price of all vehicles sold.
Finally, in arriving at the holding we reach today, we stress that nothing in the law prevents a merchant-creditor from passing on the full cost of a discount imposed by an assignee to a crеdit purchaser. However, if the merchant-creditor chooses this route, TILA requires that it disclose that amount to the purchaser as a finance charge.
2. Guardian’s Liability
Because we have concluded that the Walkers have stated a claim against Wallace under TILA, we must consider whether they have stated a claim against Guardian.
Liability of assignees
(a) Prerequisites
Except as otherwise specifically provided in this subchapter, any civil action for a violation of this subchapter or proceeding under section 1607 of this title which may be brought against a creditor may be*935 maintained against any assignee of such creditor only if the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement, except where the assignment was involuntary. For the purpose of this section, a violation apparent on the face of the disclosure statement includes, but is not limited to (1) a disclosure which can be determined to be incomplete or inaccurate from the face of the disclosure statement or other documents assigned, or (2) a disclosure which does not use the tеrms required to be used by this subchapter.
Id.
The Walkers advance two arguments as to why their amended complaint sufficiently states a TILA claim for assignee liability against Guardian. First, the Walkers contend that the limitations on assignee liability in § 131(a) are inapplicable in this case because Guardian is bound by the terms of the retail installment contract it purchased from Wallace. That contract repeats the language of the FTC’s Holder Notice (as 16 C.F.R. § 433.2 requires) which provides:
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTORS-HALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.
Id. In the Walkers’ view, this provision subjects the holder (Guardian) to “all claims” which the consumer (the Walkers) has against the seller (Wallace), including violations of TILA. In the alternative, the Walkers assert that Guardian is liable under § 131 because Wallaсe’s violation of TILA is apparent on the face of the sales contract. Specifically, in their amended complaint, the Walkers allege that “Guardian is conscious of the fact that the dealer has a strong incentive to pass the discount onto the customer.” R.21 ¶ 9. The Walkers contend that this allegation, combined with their allegation that the purported “cash price” of the vehicle was substantially in excess of its true value, is sufficient to state a TILA claim for assignee liability against Guardian. In short, they maintain that, given Guardian’s knowledge of Wallace’s incentive to pass the cost of the discount on to its credit customers, Guardian could discern from the exorbitant “cash price” аppearing on the face of the sales contract that Wallace had concealed a portion of the finance charge in the cash price.
We turn first to the Walkers’ contention that they may maintain a TILA action against Guardian due to the inclusion of the FTC’s Holder Notice in their contract with Wallace. In essence, the Walkers assert that, when Guardian accepted the assignment, it voluntarily waived any right to rely on the statutory defense provided by § 131(a). This court recently addressed this very issue in Taylor v. Quality Hyundai, Inc.,
Given our conclusion that the inclusion of the FTC’s Holder Notice in the Walkers’ sale contract does not override the limitations on assignee liability in § 131, we turn to the Walkers’ contention that Guardian may nonetheless be held liable under § 131 because, given Guardian’s “knowledge” of Wallace’s practices, Wallace’s failure to disclose a portion of the finance charge was apparent on the face of the Walkers’ retail installment contract. Again, this contention is answered by Taylor. In that case, the plaintiffs argued “that the apparentness (or lack thereof) of a violation should be ascertained in light of the knowledge that a reasonable assignee similarly situated to the defendants should have.” Id. at 694. In the Taylor plaintiffs’ view, the assignees, “as active participants in the financing market,” know that creditors often hide finance charges in other items (in that case, the price of an extended warranty, in this case, the “cash price” of the automobile) and therefore
In addition to the argument based on Guardian’s knowledge of industry practices, the Walkers assert that the TILA violation was apparent on the face of the disclosure statement due to the fact that the “cash price” of the vehicle purchased by the Walkers was substantially in excess of the vehicle’s actual value. This argument is also without merit. One cannot assume that Guardian could tell from the face of the sales contract that the auto was overpriced; more importantly, even if Guardian did know that the vehicle was overpriced, such knowledge cannot be equated with knowledge that Wallace was burying a portion of the finance chargе in the price of the vehicle.
Finally, even if the Walkers’ amended complaint could be construed to allege that Guardian had actual knowledge of Wallace’s practice of disguising finance charges, such allegations are not sufficient, under the plain wording of the statute, to state a TILA claim for assignee liability against Guardian. Instead, the Walkers must allege that the violation was “apparent on the face” of the assigned documents. The Walkers do not, and cannot, make such an allegation. Accordingly, we hold that the Walkers have failed to state a TILA claim against Guardian.
B. The Walkers’ RICO and State Law Based Claims
In addition to their TILA claim against Wallace and Guardian, the Walkers’ amended complaint contains eight other counts alleging that Wallace, Guardian and certain unnamed officers of those companies (“John Does 1-10”) violated RICO and two Illinois consumer protection statutes. As we noted earlier, these remaining counts are based on the same factual predicate as the Walkers’ TILA claim. Once the district court determined that the Walkers had failed to state a claim under TILA, it dismissed the remaining claims because, in its view, those claims could not survive in the absence of a TILA violation. The court did not independently assess the sufficiency of the Walkers’ allegations in the remaining counts.
Because the district court did not reach the issue of whether the plaintiffs’ remaining claims are viable and the parties have not briefed that issue on appeal, we remand that issue to the district court for its consideration in the first instance.
We reverse the district court’s judgment dismissing the Walkers’ TILA claim (Count I) against Wallace, but affirm the dismissal of the TILA claim against Guardian. We also remand the remaining counts (Counts II through IX) to the district court for further consideration consistеnt with this opinion.
Affirmed in Part;
REVERSED AND REMANDED IN PART.
Notes
. Because this case comes to us on appeal from the dismissal of the complaint, we take the facts as alleged in the complaint as true for purposes of our review. See, e.g., Kauthar SDN BHD v. Sternberg,
. According to the August 1995 "Blue Book” used car guide, the car purchased by the Walkers had a retail value of $8,300.
. That section provides in pertinent part:
(a) Required disclosures by creditor
For each consumer credit transaction other than under an open end credit plan, the creditor shall disclose each of the following items, to the extent applicable:
(3) The "finance charge”, not itemized, using that term.
15 U.S.C. i 1638(a)(3). Under TILA, finance charge is defined as the "sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit.” 15 U.S.C. § 1605(a).
. We note at the outset that the operative complaint in this case is the Walkers' (first) amended complaint. In their opening brief to this court, the Walkers base their statement of facts on their second amended complaint. That complaint, however, is not before this court. On September 18, 1997, the district court entered its judgment dismissing plaintiffs’ amended complaint. The Walkers subsequently filed a motion pursuant to Rule 59(e) of the Federal Rules of Civil Procedure to alter or amend judgment to permit filing of a second amended complaint. The Walkers attached their proposed second amended complaint to the Rule 59(e) motion. On October 27, 1997, the court entered an order denying the Walkers' motion. In their opening brief to this court, the Walkers challenged only the district court's order dismissing their amended complaint. Accordingly, they have waived any argument concerning the district court's exercise of discretion in denying their Rule 59(e) motion. See Marie O. v. Edgar,
. The official staff opinions of the Federal Reserve Board construing TILA and Regulation Z are binding on this court unless they are " 'demonstrably irrational.' ” McGee, v. Kerr-Hickman Chrysler Plymouth, Inc.,
. Wallace contends that this case is distinguishable from the hypothetical in Mourning because, in this case, Wallace did disclose a finance charge tо the Walkers whereas, in the Mourning hypothetical, the second merchant advertised the watch as credit free. TILA, of course, is aimed at ensuring the full and complete disclosure of credit terms. Therefore, the fact that Wallace disclosed a portion of the finance charge to its customers does not excuse it from failing to disclose the remainder.
. To illustrate this point. Chief Judge Posner offered the following example:
If the amount retained of the fee for an extended warranty or other third-party service is greater in credit transactions than in cash transactions, then in deciding whether to pay cash or buy on credit the consumer will assume that if he pays cash he will have to pаy the same additional fee to get the extended warranty; if the facts are as the plaintiffs claim, he would not. The purchaser thinks he'll have to pay $800 for an extended warranty whether he pays cash or buys on credit, whereas if the retention really is smaller on cash purchases than on credit purchases and the third party's fee net of the retention is the same, the customer will not have to pay $800 if he pays cash for the car.
Gibson,
. In fact, adoption of the district court’s view in this case would severely undermine our holding in Gibson by allowing unscrupulous used car dealers to evade our holding in that case by hiding a portion of the finance charge in the cash price of the vehicle rather than concealing it as part of the price of the extended warranty. Given that TILA and Regulation Z were drafted in
. The district court's view appears to be that an item cannot be separately imposed on a consumer unless it appears separately on the face of the contract. Therefore, because the Walkers failed to allege that the defendants imposed the cost of the discount separately from the Walkers’ obligations to pay the purchase price of the vehicle, the district court held that the Walkers failed to allege nondisclosure of a finance charge. However, as noted above, this interpretation of the phrase "separately imposed” turns TILA on its head, rewarding a creditor for burying the cost of credit in the cash price and penalizing it for disclosing the cost as a separate line item. In our view, because a finance charge may be imposed directly or indirectly, see 15 U.S.C. § 1605 & 12 C.F.R. § 222.6(4), a charge may be separately imposed upon a consumer despite the fact it does not appear separately on the face of the contract. Accordingly, in this case, the fact that Wallace did not separately list the cost of discount on the face of the retail installment contract is not fatal to the Walkers’ claim.
. The district court, of course, did not reach this issue because it found that the Walkers had failed to state a TILA claim against the original creditor, Wallace.
. TILA, of course, does not prohibit car dealers from selling their cars at high prices. Instead, the Act is aimed only at ensuring that consumers are made fully cognizant of the costs of buying on credit. See, e.g., Frazee v. Seaview Toyota Pontiac, Inc.,
. The Walkers make no аrgument that § 131(b) of TILA, 15 U.S.C. § 1641(b), provides them with any rights independent of those provided in § 131(a).
.Although the Walkers did not specifically address the district court's dismissal of its RICO and state law based claims, we decline to find waiver because they did address the district court’s sole reason for dismissing those claims— the Walkers' failure to state a TILA claim. The situation we encounter in this case is therefore different from the one we encountered in Kaut-har SDN BHD v. Sternberg,