District Court (N.J) Limits TILA Assignee Liability for “Credit Inquiry Fee” Miscalculation to “Face of the Disclosure Statement” in Automobile RISC

In Stevenson v. American Honda Finance Corp., 2012 WL 6672848 (D.N.J. 2012), Judge Pisano found no liability for an automobile finance company’s acceptance of a RISC that contained a miscalculated “Credit Inquiry Fee”.

In May 2011, Plaintiff entered into a retail installment sales contract (the “RISC”) with non-party Honda Universe for the financed purchase of a 2009 Honda Civic.  The RISC, which Plaintiff alleges was drafted by AHFC, listed Honda Universe as the seller-creditor of the car and identified AHFC as an assignee of the contract. The RISC lists a total “finance charge” of $7,053.52 and a total “amount financed” of $15,582.56. Included in the total amount financed is an entry for $19 paid to Honda Universe for a “credit inq fee.” The RISC does not provide any additional details about this fee. Plaintiff asserts that this entry refers to a credit inquiry fee, which was an amount paid from the loan proceeds to reimburse Honda Universe for checking Plaintiff’s credit report. The entirety of Plaintiff’s claims relate to this $19 charge. Plaintiff alleges that the credit inquiry fee should have been included in the finance charge, rather than the amount financed. She asserts that Defendant violated TILA and two New Jersey consumer protection statutes by failing to include the credit inquiry fee in the calculation of the finance charge, thereby understating the cost of borrowing money. Plaintiff further alleges that this violation was apparent on the face of the RISC, which was assigned to Defendant.

The District Court granted the Finance Company’s Motion to Dismiss, finding the violation, if any, not apparent on the face of the document.

Accordingly, if Honda Universe charges the $19 “credit inq fee” to all applicants for credit as part of the application process, then it would qualify as an application fee that is properly excluded from the finance charge. The analysis in this case does not end there, however, as Plaintiff has not brought her claims against Honda Universe, the seller-lender and a “creditor” for purposes of TILA liability. Instead, she has only sued AHFC, the “assignee” of the contract. . . .Under TILA, an assignee may only be found liable in limited circumstances. See 15 U.S.C. § 1641(a). . . . In short, an assignee “may be liable only if the violation is apparent on the face of the disclosure statement.’ “ Jordan v. Chrysler Credit Corp., 73 F.Supp.2d 469, 473 (D.N.J.1999); see also Ramadan v. The Chase Manhattan Corp., 229 F.3d 194, 198 (3d Cir.2000) (holding that “ ‘apparent on the face’ means exactly that—for an assignee to be liable under TILA, the violation must be apparent on the face of the assigned disclosure documents”). Here, Defendant was not the car dealer, but was merely an assignee of the contract. Therefore, at issue is whether the alleged TILA violation—that the RISC did not accurately state the amount of the finance charge—is “apparent on the face of the disclosure statement” that was provided to AHFC. If it is not apparent on the face of the RISC, the analysis must end and the Court must find that the Plaintiff has failed to state a claim against AHFC. . . Plaintiff argues that the $19 charge for a credit inquiry fee was paid as part of the amount financed and thus, it is apparent from the face of the RISC that Honda Universe only charges that fee to customers that are approved for and enter into contracts to buy cars on credit. The Court does not find this argument persuasive. As Defendant correctly points out, the relevant factor in determining whether the fee is an application fee is how the fee was charged, not how it was paid.  See Allen, 971 F.Supp. at 1262 (“[I]n order to qualify for the protection of § 226.4(c)(1), [defendant] need only prove that its application fee was “charged to all applicants for credit,” not that the fee was actually collected from all of them. The two concepts are distinguishable …”) (emphasis in original). Here, the RISC says nothing about how and to whom the credit inquiry fee was charged. The mere fact that Plaintiff chose to pay the fee by incorporating it into the total amount of the loan has no bearing on whether or not it qualifies as an application fee that may be excluded from the finance charge. Id. at 1262 (finding that customer’s method of paying fee was irrelevant where defendant charged a $12 fee to all applicants and therefore properly excluded such fee from calculation of the finance charge).  Further, even if Honda Universe only charged the fee to those applicants that were approved for credit and entered into a RISC—which would mean the fee should have been included in the finance charge—that is not apparent from the face of the dis-closure statement. The RISC provides no relevant information regarding the purpose of the fee or whether it was charged to all applicants for credit. And while Plaintiff alleges that Honda Universe charged the fee to all customers that were approved and entered into contracts (that were assigned to AHFC), she makes no allegations regarding Honda Universe’s practice with respect to other applicants. To determine whether or not Honda Universe charges this fee to all applicants, Defendant would have to resort to other documents or evidence regarding Honda Universe’s practices. “In effect, the rule for which the plaintiff[ ][is] arguing would impose a duty of inquiry on financial institutions that serve as as-signees. Yet this is the very kind of duty that the stat-ute precludes, by limiting the required inquiry to de-fects that can be ascertained from the face of the documents themselves” Taylor v. Quality Hyundai, Inc., 150 F.3d 689, 694 (7th Cir.1998). Thus, while the possibility exists that Honda Universe’s practices constituted a violation of TILA, no violation is apparent from the face of the disclosure statement and Defendant cannot be held liable.