Virachack v. University Ford is a surprisingly interesting opinion about a subject as boring as the Truth-in-Lending Act, cash rebates, and hidden finance charges. The issue here is whether a $2,000 rebate offered to customers paying cash or credit obtained on their own, but not to customers buying it through the dealership's preferred APR rate, is a hidden finance charge that should have been disclosed under the Truth-in-Lending Act. I believe Judge Flethercher's dissent gets the better of Judge Noonan's majority, as a matter of both law and policy.
The facts are simple. The plaintiffs bought a new Ford Explorer (God knows why!) and obtained financing for part for the purchase price through the defendant's dealership at the promotional 0.9 % interest rate. What the plaintiffs did not know (and folks at University Ford did not tell them) was that at the time, Ford was offering a $2,000 factory rebate to customers paying cash or credit at other than the promotional 0.9 rate offered by the defendant. The sales contract contained a very good explanation of all the costs and prices applicable to this transaction, but did not include the information about the $2,000 rebate possibility.
The applicable authorities, as described by the 9th Circuit, are as follows. The Truth-in-Lending Act ("TILA") itself defines a finance charge as a charge imposed directly or indirectly for the use of credit. A Federal Reserve Bank regulation interpreting TILA (12 C.F.R., sec. 226.4) defines the term "finance charge" in a similar manner, i.e., as a discount for using cash not extended to customers using credit. A staff interpretation of that regulation further explains that in order to determine whether a discount is a "finance charge" that requires disclosure, the court looks at a particular credit transaction and compares the price paid with the price that was paid by a cash customer. If there is a difference, the rebate is a "finance charge" and must be disclosed.
The majority opinion gets sidetracked by two facts. One - legal definitions aside, it cannot conclude that a cash-rebate (discount) can be considered a charge. Two - it thinks the plaintiffs got a good deal on the car by getting financing at 0.9 %, so it deems their lawsuit a request for a windfall. Neither of these points seems well-taken. While a cash rebate is not a charge in an abstract dictionary sense, according to the TILA and the interpretive regulation, it is a charge in a sense that it is a cost of using the defendant's preferred credit arrangement. Furthermore, whether the plaintiffs got "a good deal" (in Judge Noonan's opinion) is irrelevant - the point is that they never got to make that choice. [Editorial Note - I would also say that this point is very debatable - some people may well prefer to pay cash to reduce the overall amount of money paid and they would be very much interested in the additional $2,000 incentive]
On the other hand, Judge Fletcher is right, both as a matter of law and as a matter of being consistent with the purposes of TILA. Under the statutory and regulatory definitions of the term "finance charge," the rebate was a finance charge requiring disclosure because it was a cost of using the defendant's preferred credit. Also, the purpose of TILA to promote informed use of credit through meaningful disclosure of credit terms. Here, any meaningful disclosure of the terms of the deal required the defendant to inform the plaintiffs of both sides of the coin (preferred financing vs. cash rebate if cash is used).