Georgia Federal District Court Holds that TILA (Truth in Lending Act) and Regulation Z do not Require Disclosure of “Administrative Charges”
A putative class action was filed in state court alleging inter alia that a dental fee payment plan violated the federal Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 et seq., and Regulation Z because the lender kept a portion of the loan proceeds to cover an “administrative charge” rather than forwarding all sums borrowed to the dentist. Jones v. People’s Heritage Bank, 433 F.Supp.2d 1328 (S.D. Ga. 2006). The district court agreed with defense attorneys that the terms of the loan were fairly disclosed, and so dismissed the federal TILA claim in the class action complaint and remanded the balance of the action to state court.
Plaintiff required $10,000 in dental work, half of which was covered by insurance. To pay the remaining $5,000, plaintiff elected to finance the dental work through a dental fee plan offered by her dentist through a lender, AmeriFee. The loan contract stated that the $5,000 would be paid to the dentist; AmeriFee, however, kept 7.5% of the loan amount ($375) as an “administrative charge.” Plaintiff’s class action complaint alleged that the failure to disclose the “administrative charge” for loan transactions violated TILA. Jones, at 1329. Specifically, the class action complaint alleged that this conduct violated state law and constituted a breach of contract, and that it also violated TILA and Reg Z “by failing to disclose and by making a misrepresentation of the amount financed and to whom the amount of the loan was paid.” Id., at 1331. In essence, plaintiff argued that her loan amount should have been only $4,625 – the amount the dentist received – and that the $375 administrative fee qualified as a “finance charge,” id., at 1333.
The district court rejected these arguments, finding “the issue is a great deal simpler than the briefs imply.” Jones, at 1333. The court noted that “one of the main purposes” of TILA is fair and accurate disclosure of the cost of credit to the consumer: “Once these disclosures are made, a consumer can comparison shop for credit by looking at the various annual percentage rates and tacking on any finance charges.” Id., at 1333-34. The plaintiff borrowed $5,000 – “the same amount that she would have paid [the dentist] at that time in a cash transaction.” Id., at 1334. Nor was there any misrepresentation concerning the loan:
AmeriFee, practically, paid [the dentist] $5,000 – he received $4,625 in the form of a check and $375 in the form of a credit on his account with AmeriFee. If the Court adopted Plaintiff’s logic, this problem would be avoided if AmeriFee and [the dentist] structured their transactions in a less efficient manner. For example, AmeriFee could have paid [the dentist] the $5,000 owed him by Plaintiff, and, then, [the dentist] could turn around and satisfy his debt to AmeriFee by writing a check for $375. The result would be the same. It seems irrational to require the parties to go through further lengths to accomplish the same end.
Jones, at 1335. Accordingly, the dismissed the federal TILA claim and remanded the balance of the complaint to state court for resolution of the remaining state law claims. Id., at 1336.
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