Rendler, Geraldine v. Corus Bank ( 2001 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 01-1934
Geraldine L. Rendler,
Plaintiff-Appellant,
v.
Corus Bank, N.A., formerly
known as Aetna Bank, N.A.,
formerly known as Belmont
National Bank of Chicago,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 96 C 7351--Nan R. Nolan, Magistrate Judge.
Argued September 26, 2001--Decided December 3, 2001
Before Flaum, Chief Judge, and Coffey and
Manion, Circuit Judges.
Manion, Circuit Judge. In 1995,
Geraldine Rendler applied to Corus Bank
to finance the purchase of a condominium
and received both an adjustable rate note
secured by a first mortgage and a home
equity line of credit secured by a second
mortgage under Corus Bank’s 80/20 loan
program. Rendler subsequently sued Corus
Bank under the Truth in Lending Act
("TILA"), alleging that the bank violated
the Act by issuing two loans and two TILA
disclosure statements in connection with
a single credit transaction. The district
court certified a class of individuals to
whom Corus Bank issued two loans and two
TILA disclosure statements in connection
with the financing of a single purchase
or the refinancing of a single piece of
residential real estate. Following
discovery, the district court granted
Corus Bank summary judgment holding that
it had not violated the TILA. Rendler
appeals this decision and we affirm.
I. Background
On October 5, 1995, Geraldine Rendler
entered into a contract with Corus Bank
to finance a purchase of a condominium
unit./1 Under the financing agreement,
Corus lent Rendler a total of $53,200
through two separate loans pursuant to
its 80/20 loan program. Under the 80/20
program, customers, like Rendler, who
sought to finance more than eighty
percent of the purchase of residential
real estate were offered two loans. The
first loan was a closed-end transaction
in the form of a fully amortizing note
for eighty percent of the property’s
value, and the second loan was a home
equity line of credit. The home equity
line of credit was a seven-year open-end
loan for the remainder of the purchase
price, meaning that the consumer could
pay off the balance of the loan or borrow
additional sums. Each loan was secured by
a separate mortgage against the property,
and both loans were offered as either
stand-alone products or together./2
Under the program, investors could
finance the purchase of property without
a down payment and avoid paying private
mortgage insurance typically required for
borrowers financing more than eighty
percent of a home purchase./3 Corus
regularly offered loans to residential
property consumers under the 80/20
program. At the time Rendler applied for
financing to purchase her condominium,
Corus did not offer a fully amortizing
first mortgage loan for an amount in
excess of eighty percent of the value of
the property to be purchased.
Rendler’s primary loan transaction with
Corus Bank was an adjustable rate note
secured by a first mortgage on the
property with a principal amount of
$44,200 at an annual percentage rate of
8.61%. In addition, Rendler entered into
a home equity line of credit secured by a
second mortgage on the property, with a
term of seven years, a maximum credit
amount of $8,400 and an adjustable annual
percentage rate of 4.5% above prime rate.
At the closing on November 20, 1995,
Rendler borrowed the full amount on her
home equity line of credit and applied it
towards the purchase of her condominium.
Corus provided Rendler with separate TILA
disclosure statements for each loan, both
of which were signed by Rendler on
November 20, 1995. The disclosure
statement for the closed-end loan was a
one-page document that clearly denoted
the percentage rate, finance charge,
amount financed and total of payments as
required by the TILA. The home equity
line of credit agreement disclosure
statement was more detailed and included
the percentage rate, balance and fee
information required by the TILA. Rendler
admits that both disclosures, if
considered individually, are adequate
under the TILA.
Almost one year later, on November 8,
1996, Rendler sued Corus claiming that
Corus violated the TILA by not providing
her with one disclosure statement for the
combined loan. Rendler alleged that by
offering two simultaneous loans and two
sets of TILA disclosure statements, Corus
violated the TILA’s requirements that
disclosures be grouped together to allow
easy comparison amongst different
lenders.
In her complaint, Rendler sought to
certify a class of consumers who had
received financing from Corus under simi
lar circumstances. After four years of
litigation the district court certified a
class of individuals who obtained a loan
from Corus on or after November 5, 1998,
where: (1) Corus files show that the
credit was applied for the purchase or
refinancing of residential property, and
(2) Corus issued two loans and two TILA
disclosure statements in connection with
the financing of a single piece of
residential real estate. Geraldine
Rendler was named as the class
representative./4 Once the class was
certified, both Corus Bank and Rendler
moved for summary judgment on Rendler’s
claim that Corus violated the TILA by
providing two loans and two Truth in
Lending disclosures in connection with
the financing or refinancing of a single
piece of real estate./5 The district
court granted Corus Bank’s motion and
denied Rendler’s cross-motion for summary
judgment, holding that nothing in the
Truth in Lending Act would prohibit a
lender from simultaneously entering into
two loans and issuing two separate TILA
disclosures for each transaction. The
court also found that Rendler’s class of
plaintiffs could not maintain a cause of
action involving loan splitting because
in this case the class was not defined to
be limited to individuals who expected to
enter into more than one transaction.
Rendler appeals.
II. Discussion
On appeal, Rendler argues that the
district court erred in granting Corus
Bank summary judgment and denying her
motion for summary judgment because the
undisputed facts demonstrate that Corus
violated the TILA. Specifically Rendler
contends that Corus’ disclosures in the
80/20 program violate the TILA because
Corus does not provide a single piece of
paper summarizing the combined annual
percentage rate that consumers will have
to pay on the combined loans. In
addition, Rendler claims that Corus
violated the TILA by mischaracterizing a
single credit transaction, namely the
financing of a single piece of real
estate, as two separate transactions. We
review a district court’s summary
judgment decision de novo. Summary
judgment is appropriate if there are no
genuine issues of material fact and the
moving party is entitled to a judgment as
a matter of law. Fed.R.Civ.P. 56(c); Grun
v. Pnumo Abex Corp., 163 F.3d 411, 419
(7th Cir. 1999); Curran v. Ho Sung Kwon,
153 F.3d 481, 485 (7th Cir. 1998).
A. The Disclosure Statement Claim
Corus makes no attempt to shade the
purpose of its 80/20 program, which
allows customers to finance more than
eighty percent of the purchase price (or
value) of their home through two loans.
It adopted the program "in response to
customer complaints about the cost of
private mortgage insurance which was
required for mortgage loans of more than
eighty percent of the property’s value."
The alternative of a home equity line of
credit for the balance of up to the
remaining twenty percent of the
property’s value apparently offered a
less expensive substitute for the private
mortgage insurance.
Rendler first argues that by failing to
provide a single disclosure statement
summarizing the combined annual
percentage rate on both loans, Corus Bank
violated the TILA’s disclosure
requirements. The TILA is a disclosure
statute. It does not substantively
regulate consumer credit but rather
"requires disclosure of certain terms and
conditions of credit before consummation
of a consumer credit transaction."
Valencia v. Anderson Bros. Ford, 617 F.2d
1278, 1282 (7th Cir. 1980), rev’d on
other grounds, 452 U.S. 205 (1981). The
disclosures vary depending on the type of
loan transaction.
The TILA recognizes two general types of
consumer credit transactions: open-end
credit and closed-end credit. See Benion
v. Bank One, Dayton N.A., 144 F.3d 1056,
1057 (7th Cir. 1998). The disclosure
requirements for each type of transaction
are described in different sections of
the TILA’s implementing regulation,
Regulation Z. See 12 C.F.R. sec. 226.17-
18 (closed-end credit disclosures); 12
C.F.R. sec. 226.5b (open-end credit
disclosure). For closed-end credit
disclosures, the TILA requires that a
creditor make the required disclosures
"clearly and conspicuously in writing. .
. ." 12 C.F.R. sec. 226.17(a)(1). In
addition, "[t]he disclosures shall be
grouped together, shall be segregated
from everything else, and shall not
contain any information not directly
related to the disclosures required under
sec. 226.18." Id. For open-end credit
disclosures, the TILA requires that the
disclosures required shall be "made
clearly and conspicuously and shall be
grouped together and shall be segregated
from all unrelated information." 12
C.F.R. sec. 226.5b(a)(1). Rendler admits
that each disclosure statement provided
by Corus Bank satisfied the
respectiverequirements, but contends that
the disclosures were deceptive in that
they hid the true cost of the loans she
received and prevented her from comparing
her loan to loans offered by other
institutions.
The TILA’s goal is to help consumers
accurately compare credit rates. As the
statute recites, "[i]t is the purpose of
[the TILA] to assure a meaningful
disclosure of credit terms so that the
consumer will be able to compare more
readily the various credit terms
available to him and avoid the uninformed
use of credit, and to protect the
consumer against unfair credit billing
and credit card practices." 15 U.S.C.
sec. 1601(a); Williams v. Chartwell Fin.
Servs., 204 F.3d 748, 757 (7th Cir.
2000). Needless to say, all TILA
disclosures must be accurate. Gibson v.
Bob Watson Chevrolet-Geo, Inc., 112 F.3d
283, 285 (7th Cir. 1997).
In her quest for more accuracy, Rendler
requests this court to interpret the TILA
as requiring a lender to provide a single
document to a borrower, that reflects the
total cost of a loan, regardless of the
number or variety of loans that comprise
a credit transaction. The heart of
Rendler’s argument is that even though
two distinct loans were issued, with two
distinct and adequate disclosure
statements, the subject matter of both
loans was financing a single piece of
real estate and therefore should be
viewed as one transaction requiring one
statement. See In re Buckles, 189 B.R.
752, 760 (Bankr. D. Minn. 1995) (stating
that the giving "of two separate
disclosure statements for a single loan
transaction is a violation of the TILA’s
requirement of a single, comprehensible
disclosure of the cost of credit").
We disagree. The TILA anticipates
situations where two parties will conduct
multiple transactions necessitating
multiple disclosures to achieve one goal.
Under 12 C.F.R. sec. 226.17(c)(6)(i),
which applies to closed-end transactions,
"[a] series of advances under an
agreement to extend credit up to a
certain amount may be considered as one
transaction." (emphasis added). This
section, in addition to the official
commentary/6 that accompanies the
statute, makes it clear that the
regulation encompasses situations where
multiple credit transactions with
multiple disclosures would be used to
finance a single piece of property. The
official commentary to Regulation Z has
been regarded as an "authoritative
interpretation" of the TILA and
Regulation Z by this court. In re
Dingledine, 916 F.2d 408, 411 (7th Cir.
1990). The commentary also states that
"creditors have flexibility in handling
credit extensions that may be viewed as
multiple transactions." 12 C.F.R. sec.
226, Supp. 1, 17(c)(1)- (16). As an
example, the commentary notes that "[t]he
separate financing of a down payment in a
credit sale transaction may, but need
not, be disclosed as two transactions (a
credit sale and a separate transaction
for the financing of the down payment)."
Id. In Rendler’s case, the home equity
line of credit substitutes for the
traditional down payment and therefore
qualifies as a separate transaction.
Despite the fact that both credit
transactions involved a single piece of
residential property, there were two
distinct financial transactions--a first
and a second mortgage./7 The commen-
tary makes it clear that lenders have
some flexibility in structuring loan
transactions with each consumer, even
multiple loan transactions financing a
single piece of property. This is
particularly true when these transactions
are different types of loans. The
disclosure requirements for open-end
credit transactions and closed-end credit
transactions are segregated into
different sections of the regulations.
The fact that each type of credit
transaction has its own set of required
disclosures indicates that the
regulations are designed to control the
credit transactions themselves and not
the underlying property for which the
credit is obtained. Because each of the
loans that Rendler applied for was a
separate transaction, Corus had the
discretion under the Act to issue two
disclosure statements.
Also, the facts of this case would not
only make the task of providing a single
disclosure statement very difficult, but
it could even defeat the TILA’s purpose
of keeping the comparison of rates
simple. Williams, 204 F.3d at 757. The
home equity line of credit that Ms.
Rendler received in addition to her
mortgage was a revolving line of credit
with an adjustable rate. A single
disclosure statement reflecting an annual
percentage rate for both of her loans
would have to be altered on a monthly
basis to reflect any excess payments or
amounts reborrowed on her line of credit.
In fact, almost one quarter of the class
members who received loans under the
80/20 program paid down and then
reborrowed on the home equity line of
credit, thereby completely altering their
loan package midway through the term of
the loan./8 If Corus had issued a
single piece of paper reflecting a
combined annual percentage rate for those
individuals, it would have been
completely meaningless once the home
equity line of credit was paid off.
Ms. Rendler is correct in her assertion
that a purpose of the TILA is to allow
consumers to compare credit terms offered
by various lending institutions. Id.
Given these circumstances and based upon
the disclosures presented, it would have
been difficult for a consumer like Ms.
Rendler to compare her 80/20 loan package
to a single loan for the full value of
her property that included private
mortgage insurance from another lender.
However, the purpose of the TILA is for
consumers to be able to compare similar
credit transactions./9 It does not
require that all credit transactions be
similar. Ms. Rendler could have easily
compared her primary mortgage loan for
eighty percent of the property value with
other lending institutions’ similar
offerings. She also could have shopped
around her second mortgage for a
comparable rate. And finally, she could
have had another institution compare both
loans together to a full value mortgage
that included mortgage insurance. Rendler
admits that when taken individually, the
disclosures for her two loans satisfied
TILA requirements and therefore could
easily have been used for comparison
purposes by other lending institutions.
The ultimate adequacy of the clarity of
TILA disclosures can only be judged by an
objective reasonable person standard. See
Smith v. Check-N-Go of Ill., Inc., 200
F.3d 511, 515 (7th Cir. 1999). The
standard is met in this case. Rendler
requested and received financing for her
home. She received eighty percent through
a fully disclosed closed-end loan and the
balance through a properly disclosed
open-end line of credit. Issuing two
disclosures for two different mortgages
is an acceptable method under the TILA
for Corus to clearly communicate the
details of the transaction to a borrower
without unnecessary confusion.
B. Loan Splitting
Rendler also argues that the district
court erred in granting Corus Bank’s
summary judgment motion and denying her
motion based on her claim that Corus
violated the TILA by splitting Rendler’s
loan into two separate transactions. She
claims that Corus engaged in "loan
splitting" when it issued her two loans,
on its own volition, when she only filled
out one application and sought only one
loan. Loan splitting may be defined "as
the situation where the debtor wanted,
requested and expected to receive a
single loan, consummated in one
transaction, but the lender documented
and made disclosure for the loan as if it
were two separate transactions." In re
Buckles, 189 B.R. 752, 760 (D. Minn.
1995). Several district courts have held
that loan splitting violates the TILA
because the Act mandates that the lender
provide a single, comprehensible
disclosure of the cost of credit./10
We need not decide however, whether loan
splitting, as defined in In re Buckles,
violates the TILA because that is not
what is claimed by the Rendler class. In
this case, the class is defined as those
individuals to whom "Corus issued two
loans and two TILA disclosure statements
in connection with the financing of a
single piece of residential real estate."
The class is not limited by the
expectations of the consumers. In fact,
three-fourths of potential class members
under this definition submitted two
applications for and expected to receive
two separate loans from Corus Bank. Loan
splitting focuses on whether the borrower
expected to enter into more than one
transaction. See Buckles, 189 B.R. at
760. The key for a loan splitting claim
is the breach of the borrower’s
expectations by the lender, and because
this class definition does not include a
limitation based on those expectations,
the Rendler class cannot maintain a claim
for loan splitting.
III. Conclusion
For the reasons stated above, we AFFIRM
the district court’s grant of summary
judgment. Corus Bank’s 80/20 program did
not violate the Truth in Lending Act’s
disclosure requirements because the
disclosures provided were adequate and
there is no per se requirement in the Act
that disclosures for multiple
transactions be combined into one
statement. Additionally, the TILA does
not prevent a lender from issuing two
loans to a consumer to finance a single
piece of property when the expectations
of the consumer are not frustrated.
FOOTNOTES
/1 The original loan transactions in 1995 were made
between Geraldine Rendler and Aetna Bank, N.A.
Aetna Bank, N.A. and Belmont National Bank of
Chicago are both predecessor entities of Corus
Bank, N.A. and the original complaint in this
action was filed against Corus Bank in November
1996. For convenience, we will refer to the
entity as Corus throughout the opinion.
/2 Seventy-four percent of borrowers under the 80/20
program with Corus Bank signed and submitted two
loan applications, one for the mortgage loan and
a second for the home equity line of credit. In
this case, Geraldine Rendler submitted only one
application for the entire financing of her
condominium.
/3 The Charter Acts of the Federal National Mortgage
Association and the Federal Home Loan Mortgage
Association normally require residential real
estate consumers to buy mortgage insurance if the
loan amount exceeds eighty percent of the ap-
praised value. See 65 F.R. 12632, 12717 n. 208
(March 9, 2000).
/4 Corus Bank did not appeal the certification of
the class and that issue was not raised in its
subsequent summary judgment motion.
/5 In her complaint, Rendler also alleged that Corus
Bank violated the TILA by offering consumers a
home equity line of credit and open-end credit
disclosures in connection with a condominium
purchase financed by a closed-end loan. That
count was dismissed and Rendler does not appeal
that decision.
/6 Under the official commentary provided with the
regulation, if there is a series of advances
involved in a transaction:
1. Series of advances. Section 226.17(c)(6)
(i) deals with a series of advances under an
agreement to extend credit up to a certain
amount. A creditor may treat all of the advances
as a single transaction or disclose each advance
as a separate transaction. If these advances are
treated as 1 transaction and the timing and
amounts of advances are unknown, creditors must
make disclosures based on estimates, as provided
in sec. 226.17(c)(2). If the advances are dis-
closed separately, disclosures must be provided
before each advance occurs, with the disclosures
for the first advance provided by consummation.
12 C.F.R. sec. 226, Supp. I, Par. 17(c)(6)
(2001).
/7 Corus argues that the regulations regarding open-
end and closed-end transactions, when read in
concert, indicate that the TILA not only permits
multiple disclosure statements but prohibits the
combining of the disclosures for these transac-
tions into a single disclosure. Corus cites In re
Gillespie, 110 B.R. 742 (E.D. Pa. 1990), as
holding that multiple disclosures for multiple
loans may not be consolidated into one disclo-
sure. The facts in Gillespie are different from
the case at hand in that the two mortgages in
question in Gillespie were issued almost a decade
apart. Id. at 744. In addition, in Gillespie,
when the lender collapsed the two notes into one
disclosure, the lender failed to include other
information required by the TILA such as "amount
financed" and "total payments." See id. That is
not the case here. Corus issued both of the
disclosures to Rendler on the same day, and
included all required information. We do not need
to reach the question of whether the TILA prohib-
its issuing one disclosure statement for a real
estate financing package that involves both open-
end and closed-end loan transactions in order to
rule in this case.
/8 The fact that almost a quarter of the potential
class members reborrowed on their home equity
line of credit also nullifies Rendler’s reliance
on this court’s statements in Benion v. Bank One
Dayton, N.A., 144 F.3d 1056 (7th Cir. 1998). In
that case this court noted in dicta that a
company that only sells aluminum siding could not
offer open-end credit to a consumer to finance
the siding because it would be unlikely for the
company to expect repeat transactions on the
credit line. See id. at 1060. Rendler argues that
if open-end credit is improper for aluminum
siding for a house, then it cannot be proper for
financing the house itself. In this case, not
only should the bank have expected repeat trans-
actions on the home equity line of credit applied
to the down payment, but there actually were
multiple transactions by some of Corus’ custom-
ers.
/9 See Brown v. Marquee S.&L. Ass’n, 686 F.2d 608,
612 (7th Cir. 1982) (stating the TILA purpose is
to "provide information to facilitate comparative
credit shopping and thereby the informed use of
credit by consumers.").
/10 See Harris v. Illinois Vehicle Premium Finance
Co., 2000 WL 1307513, at *2 (N.D.Ill. Sept. 12,
2000) (describing loan splitting as violative of
the TILA due to the need for a single comprehen-
sive disclosure for a single loan transaction);
see also, Hemauer v. ITT Financial Services, 751
F. Supp. 1241 (W.D.Ky. 1990) (holding that a
lender violated the TILA by splitting the charges
surrounding one loan into two loans executed on
the same day where the consumer only sought one
loan).