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FDIC Enforcement Decisions and Orders |
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When a bank allocated notary and legal fees to the "amount financed" rather than to the "finance charge" on the bank's disclosure form used for direct bank financing of consumer loans secured by automobiles, the FDIC Board ordered the bank to cease and desist from this practice, and to reimburse all affected customers. (This decision was affirmed by the U.S. Court of Appeals for the Fifth Circuit, 833 F.2d 548 (1987)).
[.1] Regulation ZLegislative Intent
[.2] Regulation ZDisclosure of Charges
[.3] Regulation ZDisclosure of Charges
[.4] Regulation ZSubsequent DisclosureReimbursement of Gains
In the Matter of * * * Bank (INSURED
DECISION
The Board of Directors ("Board") has reviewed the record and finds that the Administrative Law Judge's ("ALJ's") recommended Initial Decision (appended hereto) is in all material respects fully supported by the law and the evidence. We therefore adopt the Administrative Law Judge's Initial Decision and incorporate it herein by this reference.
Before: ALAN W. HEIFETZ
INITIAL DECISION
Statement of the Case
This administrative action was initiated by the Board of Review of the Federal Deposit Insurance Corporation ("FDIC") on February 12, 1986, when it issued a Notice of Charges and of Hearing ("Notice") against * * * Bank, * * * ("Bank"), pursuant to the provisions of Section 8(b)(1) of the Federal Deposit Insurance Act ("Act"), 12 U.S.C. § 1818(b)(1), and the FDIC Rules of Practice and Procedures, 12 C.F.R. Part 308. The Notice charged the Bank with violation of the Truth in Lending Act, as amended, 15 U.S.C. §&sec; 1601-1667e, and Regulation Z of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 226.
Findings of Fact
The Bank is a corporation organized, existing and doing business under the laws of the State of * * *, having its principal place of business at * * *. At all times pertinent to this proceeding, the Bank has been, and continues to be, an insured nonmember bank subject to the Act, 12 U.S.C. §&sec; 1811-1831d, the FDIC's Rules and Regulations, 12 C.F.R. Chapter III, the amended Truth in Lending Act, 15 U.S.C. §&sec; 1601 et seq., the Federal Reserve Board Regulation Z, 12 C.F.R. §&sec; 226 et seq., as revised effective April 1, 1981, and the Federal Reserve Board Official Staff Commentary which became effective October 1, 1982. The Bank is also subject to the laws of the State of * * *, including the * * * Consumer Credit Law * * *-R.S. 9:3510 et seq. The FDIC has jurisdiction over the Bank and the subject matter of this proceeding. (Stip. §&sec; 1-4).
At all relevant times, * * * has been president of the Bank as well as a stockholder, director, and member of the Bank's Executive, Loan and Investment Committees. He has never served as chairman of the Board of Directors. Mr. * * * and his law firm have provided certain legal services to the Bank as one of its outside counsel. (Stip. § 21).
Discussion
To determine the appropriate treatment of costs incurred by the borrower in providing the Bank with a valid chattel mortgage, the overall purpose of the Truth in Lending Act4 must be considered.
[.1] At the time of enactment, the general legislative intent of the Truth in Lending Act was to strengthen competition among financial institutions and other entities extending consumer credit by promoting informed use of credit. By requiring that all information necessary to compare the terms and cost of credit options offered be made available to consumers, Congress intended to enable them to make meaningful choices from among competing credit terms. 15 U.S.C. § 1601. Commentators have noted that Congress was also concerned about creditors deceiving or deliberately confusing borrowers with respect to credit terms. Their hope was that required disclosure of credit terms would minimize such abuse. See, e.g., Beardsley, Truth In Lending Act: A Summary of Consumer Remedies, 22 S.D.L. Rev. 332 (1977).
[.2] The concept of a "finance charge" is an essential component of the legislative and regulatory Truth in Lending scheme of disclosure, for it is the finance charge that states the actual cost of credit. The finance
(6) Charges imposed on a creditor by another person for purchasing or accepting a consumer's obligation, if the consumer is required to pay the charges in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation.
[.4] In the instant case, the Bank has stipulated that it has engaged in a pattern and practice of excluding the disputed fees from the finance charge and APR disclosures (Stip. §&sec; 34 and 35). Accordingly, restitution is the appropriate remedy.
ORDER
IT IS ORDERED, that the Bank, its directors, officers, employees, agents, successors, assigns, and other persons participating in the conduct of the affairs of the Bank, cease and desist from violating the Truth in Lending Act and Regulation Z and take AFFIRMATIVE ACTION as follows:
CERTIFICATE OF SERVICE
I hereby certify that copies of this INITIAL DECISION issued by ALAN W. HEIFETZ, Chief Administrative Law Judge, FDIC-86-42b, were sent to the following parties on this 21st day of October, 1986. |
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Last Updated 6/6/2003 | legal@fdic.gov |