I’ve frequently have to point out to people in the car business that the Truth in Lending Act doesn’t apply to many credit transactions. An extension of credit to a corporation, partnership or association isn’t covered. Transactions with individuals aren’t covered when the primary purpose of the extension of credit is for business or commercial purposes. The biggest category of transactions not covered, I’d be willing to bet, is that category consisting of personal property credit transactions (including normal car loans and retail installment sales transactions) in which the amount financed exceeds $25,000. You’d think that a federal judge and two lawyers litigating a Truth in Lending case would be aware that the over-$25,000 transactions aren’t covered. This case shows what happens when you ignore the basics. Christina Slover-Becker bought a 2000 Mercedes-Benz ML 320 from Pitre Chrysler Plymouth Jeep of Scottsdale, Inc., financing her purchase by signing a retail installment sales contract. She traded in a 2001 Jeep Grand Cherokee on which she owed $27,300, and paid $4,400 in cash, financing the balance of $26,197 (note to the judge and the lawyers - $26,197 is a bigger number than $25,000). Pitre paid off the Jeep, and showed "N/A" as the trade-in value in the contract, with a $4,400 cash down payment. Becker alleged that her Jeep’s trade-in value was overstated by $10,800, an amount which was "rolled into" the cash price of the Mercedes.

The court, ignoring the statute’s $25,000 cutoff, framed the question as whether TILA and Reg. Z "require the amount of the 'negative equity' in a vehicle traded in on another vehicle to be clearly and separately disclosed." Becker relied on Thompson v. 10,000 RV Sales, Inc. for her contention that TILA and Reg. Z had been violated. Pitre argued that Paull v. Chrysler Credit Corp., a 20-year-old Seventh Circuit decision, contained a correct analysis of the issue. The U.S. District Court for the District of Arizona, stating that neither decision was controlling, looked at Reg. Z's definitions and the Staff Commentary and concluded that Pitre's disclosures were not in violation of TILA and Reg. Z. The court expressly rejected Becker's argument that the negative equity amount was a finance charge, concluding that it was an amount that would be charged in a comparable cash transaction (the court in Thompson came to the opposite conclusion, but in that case a dealer representative testified that the negative equity amount was charged only in credit transactions). The court’s opinion does not address the obvious question of why Becker's transaction - with an amount financed in excess of $25,000 - was subject to TILA and Reg. Z in the first place. I spoke with lawyers who represented both sides, and they told me that the issue was never raised before the court. I find cases like this to be amazing. The defendant’s lawyer has a sure-fire, slam-dunk motion to get rid of the case – one for which the plaintiff is likely to have no viable answer – and doesn’t make it. As for the plaintiff’s lawyer, you can’t really blame him for not researching a point that would sink his case, but it seems to me that a plaintiff’s lawyer who brings such a completely unsupportable claim would be wary of the possibility of sanctions if the defendant is ticked enough about having to show up in court and educate everyone. As for the judge, the only excuse I can think of is that they just aren’t making law clerks like they used to. Volume 3, Issue 1