In Morales v. Barberino Brothers, Inc., 2016 WL 2626826, at *4-7 (D.Conn., 2016), Judge Haight dismissed a TILA claim brought by a consumer against a car dealer who inflated the car’s purchase price to account for the vehicle that the customer traded in.
Two provisions of TILA are at issue. Section 1638(a)(2)(B) requires in certain instances that a creditor provide a “written itemization of the amount financed” of a given loan. Section 1638(a)(3) requires that a creditor accurately disclose the “finance charge,” as defined by TILA. Defendant argues it committed no TILA violation. It initially argued that it was not liable under TILA only because it properly disclosed the “finance charge” pursuant to Section 1638(a)(3). In so arguing, it relied on Poulin v. Balise Auto Sales, Inc., 647 F.3d 36, 38 (2d Cir. 2011), which held that defendant-car dealership’s increase of the sales price of a car far above its market value could not be construed as a backdoor (i.e., undisclosed) increase to the “finance charge.” . . .Here, the uncontroverted deposition testimony of John Mocadlo, Barberino’s Managing Partner, is that Barberino charges an “identical” amount when selling a car for cash as opposed to credit. Doc. 34-3, at 19. Plaintiff neither argues nor offers any evidence to the contrary. Specifically, she nowhere demonstrates—or avers—that Barberino added the trade-in over-allowance to the price of its cars only to its customers paying by credit rather than by cash. In such a situation, the finance charge requirement of TILA, “a disclosure statute, not a fair pricing law,” Poulin, 647 F.3d at 38, is not applicable. Plaintiff seems to acknowledge that Poulin bars a Section 1638(a)(3) claim. Rather, she now argues that Barberino violated TILA only “by not accurately itemizing the amount financed as required by 15 U.S.C. § 1638(a)(2)(B).” Doc. 36, at 10. In support, Plaintiff claims the following alleged inaccuracies in the itemization of amount financed: “Th[e] itemization shows the bogus $3,500 allowance being credited towards the purchase of the Altima. It also lists the cash price of the Altima which, as acknowledged by Loureiro, included the $3,500 allowance as part of the total price. This was a false and inaccurate itemization, because Barberino manipulated the numbers to give the false impression that Plaintiff received $3,500 credit for her nearly worthless Camry.” Despite her efforts, Plaintiff has not identified any factual inaccuracy on the itemization of amount financed. Plaintiff was offered a cash price for the Nissan Altima of $31,322.80. She agreed to that price. To pay for same, she agreed to pay a creditor a principal balance of $29,280.23, documented as an “amount financed” on her credit agreement. Although the purchase of the car was without a doubt a bad bargain for Plaintiff—i.e., a price $7,172.80 above the manufacturer’s suggested price—these were the figures disclosed to her on the itemization of amount financed and they represent a true and accurate description of the terms of her credit arrangement. In other words, the contract stated that she would be financing $29,280.23 (in TILA’s terms, her “amount financed”), and she in fact did finance $29,280.23 and owed as much ultimately to Regional. For the purposes of TILA, it is of no moment that the disclosed price of the car included the $3,500 value of her trade-in car despite Defendant’s advertised trade-in program. As stated on a nearly identical set of facts: “The focus of the TILA is full disclosure of all terms and charges. The value of the trade-in, and (by Plaintiff’s theory) resulting inflation of the sale price, were fully set forth in the [credit agreement]. Regardless of whether Plaintiff was unfairly taken advantage of in the overall transaction, I do not see a violation of the TILA…. All of the financial terms of the transaction were set forth in full.” Gregory v. Metro Auto Sales, Inc., 2016 WL 336861, at *3 (E.D. Pa. Jan. 27, 2016) (emphasis in original); cf. Diaz v. Paragon Motors of Woodside, Inc., 424 F. Supp.2d 519, 530 (E.D.N.Y. 2006) (finding that “an increase in price above the advertised price constitute[d] a hidden finance charge because [Plaintiff] was forced to pay the increase based on his need to secure sub-prime financing” (emphasis added)). Although there may be a tension between Barbarino’s shamelessly admitted practice and the letter or spirit of consumer protection laws, it is simply not a TILA violation. Nor is the listing of the $3,500 trade-in allowance. Plaintiff refers to this as “the bogus $3,500 allowance,” but she was in fact allowed a $3,500 reduction in the cash price of the car. Although that price was inflated in light of Defendant’s practice of in essence erasing the benefit it purported to offer through its advertised trade-in program, it was, as dispositive here, a disclosed amount. In short, for much of the same reason that an inflated yet accurately disclosed cash price cannot constitute an inaccurate “finance charge,” such a cash price cannot constitute an inaccurate “amount financed.” For purposes of TILA, it is of no moment that Barberino did not disclose certain facts with respect to Plaintiff’s agreement to purchase the car.10 What matters is whether Barberino failed to disclose accurately anything related to Plaintiff’s agreement to finance the car. Plaintiff simply has not shown this. Tellingly, Plaintiff has not proffered a single court decision finding that an inflated, but accurately disclosed, “amount financed” constituted a violation of TILA § 1638(a)(2)(B). Plaintiff’s heavy reliance on the California state appellate case, Thompson v. 10,000 RV Sales, Inc., 31 Cal. Rptr.3d 18 (Cal. Ct. App. 4th 2005), is misplaced. There, the appellate court held, inter alia, that a car dealership violated California law by “increasing the cash price to include an over-allowance on a trade-in vehicle in a credit transaction.” Despite some broad language in the opinion, Thompson is not on point.11 There, like here, the plaintiff aimed to trade in a previously owned vehicle towards the purchase of a new vehicle. However, unlike Plaintiff here, that plaintiff had an outstanding loan balance on her trade-in car, and, moreover, one that was larger than the value of the vehicle. Specifically, the trade-in was worth $30,000 but was subject to a $46,000 loan balance, amounting to $16,000 of negative equity. The defendant dealership then over-valued the car at $54,000 for purposes of the trade-in, which it did only “to obtain lender approval for the purchase.” Id. at 21; see also id. at 22 (10,000 RV’s sales manager “testified he valued Thompson’s trade-in vehicle at $54,000 rather than $30,000 for purposes of obtaining credit approval for Thompson’s purchase”). As the court found, “the $24,000 over-allowance was added to the $69,398 price of the Safari a cash purchaser would pay.” Id. at 22; see also id. (10,000 RV’s sales manager “admitted negative equity is not included in the selling price for a cash buyer because the only reason for this practice … is to obtain financing for a credit buyer”) (all emphases added). In short, the Thompson defendant purposefully hid from the lender plaintiff’s negative equity in the trade-in to demonstrate a purported net positive trade-in value such that plaintiff would satisfy the lender’s loan-to-value ratio requirements. Moreover, the defendant failed to disclose any of this to the plaintiff. The court held this to be against California’s “official policy relating to negative equity [which] reflects that adding either disclosed or undisclosed negative equity to the cash price of the vehicle is illegal.” Id. at 32. It is clear that the California court was concerned specifically with undisclosed trade-in over-allowances that aimed to distort a credit purchaser’s equity position. Where such negative equity is hidden from the lender, and in a way that is not disclosed to the borrower, such as in Thompson, there are legitimate reasons to be concerned about the borrower’s awareness of the true terms of her credit arrangement, and laws akin to TILA are impacted. Here, in contrast, Morales owed nothing on her trade-in12 and therefore there are no concerns in the case at bar of hiding negative equity. She knew (or had access to the documents to learn) exactly the terms that governed each element of her credit transaction. Barberino may have proffered a bad bargain, but it did not do so by distorting a credit arrangement. That TILA is not at issue in this circumstance is supported by official staff commentary as to Regulation Z, which acknowledges that negative equity should be included in a disclosed “amount financed” in order for a credit agreement to be properly disclosed to a borrower: “Comment 18(c)-2 is revised in response to requests for guidance by creditors offering credit sales when downpayments involve a trade-in and an existing lien that exceeds the value of the trade-in. ( [i.e.], where a consumer owes $10,000 on an existing automobile loan and the trade-in value of the automobile is $8,000, leaving a $2,000 deficit.) The amount by which the lien exceeds the trade-in value would be reflected in the amount financed. … Assuming the cash price for the new car was $20,000, the amount financed would be $22,000 ($20,000 representing the cash price plus $2,000 representing the excess of the lien over the trade-in value financed by the creditor.) The regulation provides great flexibility for disclosing the itemization of amount financed. Comment 18(c)-2 iii … is revised to clarify that any amounts financed by the creditor and representing the excess of the lien over the trade-in value ($2,000 in this example) must appear on the itemization of the amount financed.” Truth in Lending, 63 Fed. Reg. 16,669, 16,673 (April 6, 1998) (emphases added). The regulation thus provides that negative equity in a trade-in must be disclosed as part of the amount financed, but says nothing about generally disclosing the inclusion of a trade-in overallowance. This makes eminent sense in light of TILA’s goals. A consumer trading in a vehicle with negative equity owes a balance on the earlier loan even after trading in the vehicle—i.e., in the example in the commentary above, the borrower still owes $2,000 on his initial credit agreement—and may think that such balance was transferred to and included in the “amount financed” on the credit agreement for the newer vehicle. Therefore, failure to disclose the negative equity amount may lead the borrower to be misinformed as to the amount owed to his or her creditor(s). This is simply not an issue where there is no negative equity on the trade-in—as with Plaintiff here, the “amount financed” on the loan for the newer vehicle will be precisely the total amount that the borrower owes his or her creditor(s). TILA is thereby not implicated