Virachack v. Univeristy Ford

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

MALINEE B. VIRACHACK; RITNARONE 
T. VIRACHACK,
Plaintiffs-Appellants,
No. 03-55852
and
D.C. No.
RACHELLE HARVEY,
Plaintiff,  CV-02-00139-
JTM/JFS
v.
OPINION
UNIVERSITY FORD, dba: Bob Baker
Ford,
Defendant-Appellee.

Appeal from the United States District Court
for the Southern District of California
Jeffrey T. Miller, District Judge, Presiding

Argued and Submitted
December 10, 2004—Pasadena, California

Filed May 20, 2005

Before: Betty B. Fletcher, John T. Noonan, and
Richard A. Paez, Circuit Judges.

Opinion by Judge Noonan;
Dissent by Judge B. Fletcher

5467
 VIRACHACK v. UNIVERSITY FORD 5469

COUNSEL

Frank J. Fox, San Diego, California, for the plaintiffs-
appellants.

Jan T. Chilton, San Francisco, California, for the defendant-
appellee.

OPINION

NOONAN, Circuit Judge:

Malinee B. Virachack and Ritnarone T. Virachack (the
Virachacks) appeal the district court’s grant of summary judg-
5470 VIRACHACK v. UNIVERSITY FORD
ment to University Ford, a California corporation doing busi-
ness as Bob Baker Ford, in their action under the Truth In
Lending Act (TILA), 15 U.S.C. § 1601 et seq. Holding that
Bob Baker Ford did not fail to disclose the total finance
charge, we affirm the judgement of the district court.

FACTS

On November 18, 2001, the Virachacks bought a Ford
Explorer from Bob Baker Ford. The purchase was partly on
credit. Bob Baker Ford made the following statement in the
Retail Sales Installment Contract executed by the Virachacks,

Federal Truth-In-Lending Disclosure
ANNUAL FINANCE Amount Total of Total Sale Price
PERCENTAGE CHARGE Financed Payments The total cost of
RATE The dollar The amount of The amount you your purchase,
The cost of your amount the credit credit provided to will have paid including your
credit as a yearly will cost you. you or on your after you have down payment of
rate. behalf made all
payments as
scheduled. $4303.14 is

0.90% $417.47 (e) $22615.33 $23032.80 (e) $27335.94 (e)

(e) = estimate

The contract also stated that the Virachacks would make
monthly payments of $479.85 for 48 months. The contract
also reflected a sales tax of $1,748.47, based on the “cash
price” of the vehicle of $23,268.

According to the affidavit of Nathaniel Torres, the finance
manager of Bob Baker Ford, on the day the Virachacks
bought the Explorer, Ford Motor Company was offering a
$2,000 rebate to certain customers buying that model and year
vehicle, but was not offering this rebate to customers buying
on credit at the 0.9% rate. The availability of the rebate also
depended, in part, on the geographical area in which the cus-
tomer resided. The possibility of the rebate was not mentioned
in the “Federal Truth-In-Lending Disclosure” of the contract.
 VIRACHACK v. UNIVERSITY FORD 5471
According to Torres, had the Virachacks “desired a factory
rebate and financing through Bob Baker Ford, they could
have entered into a retail installment contract with Bob Baker
Ford at a non-promotional interest rate offered by Ford Motor
Credit Company, or they could have entered into a retail
installment contract with Bob Baker Ford at whatever interest
rate, promotional or not, was offered by any one of the other
banks or finance companies to whom we regularly sell con-
tracts.”

PROCEEDINGS

The present suit began as a class action in the Superior
Court for the County of San Diego. Bob Baker Ford trans-
ferred it to the district court. By stipulation of the parties, the
Virachacks were substituted for the original plaintiff, who
was discovered to have entered a transaction with Bob Baker
Ford where the rebate option was not available. The
Virachacks alleged that the $2,000 cash rebate they might
have received if they had paid cash should have been dis-
closed as part of the finance charge and that the failure to dis-
close violated the TILA, 15 U.S.C. § 1638(a)(2),(3), (4), and
(5). They sought for themselves and for each member of the
plaintiff class damages not to exceed the statutory maximum
of the lesser of $500,000 or 1% of the defendant’s net worth.
Id. at § 1640(a)(2)(b).

After discovery, each side moved for summary judgment.
Granting summary judgment to Bob Baker Ford, the district
court stated:

The reality of plaintiffs’ transaction is that they
were given a “discount” on the market interest rate
in order to induce them to purchase their vehicle.
Indeed, plaintiffs’ own separate statement of facts
posits that the promotional rate is below the market
interest rate. The cash rebate is not a cost of credit
imposed upon plaintiffs. Rather, the rebate is an
5472 VIRACHACK v. UNIVERSITY FORD
option made available to both cash and credit pur-
chasers in order to induce the purchase of Ford vehi-
cles at a price that would otherwise be unavailable to
those consumers. In essence, the promotional interest
rate is simply a different form of the cash rebate in
that both the rebate and the interest rate are forms of
subsidizing the market price of the vehicle offered to
consumers in order to generate sales. Thus, the
rebate is a “discount” made available to consumers
who wish to receive the promotional interest rate but
in the form of the reduced APR rather than in cash.
Therefore, plaintiffs have received the “discount”
made available to cash and other credit purchasers
illustrating that the forgone rebate is not a condition
of the extension of credit. See 12 C.F.R. Pt. 226,
Supp. I, Comment 4(a)(i)(B) (discount available to
both cash and credit consumers not a finance
charge). Consequently, the record does not support
plaintiffs’ argument that the forgone rebate is
imposed as a condition of the extension of credit or
that the rebate is being offered to induce purchases
by means other than credit. Therefore, the court con-
cludes that the cash rebate is not part of plaintiffs’
cost of credit and need not be disclosed.

Virachack v. Univ. Ford, 259 F. Supp.2d 1089, 1091 (S.D.
Cal. 2003).

The Virachacks appeal.

ANALYSIS

The case is governed by a statute with a broad purpose,
“the informed use of credit” by consumers. 15 U.S.C.
§ 1601(a). The statute’s carefully drawn terms are rendered
even more precise by the regulations issued by the Federal
Reserve Bank, the agency entrusted with the implementation
of this law.
 VIRACHACK v. UNIVERSITY FORD 5473
[1] The statute defines “finance charge” as “the sum of all
charges, payable directly or indirectly by the person to whom
the credit is extended, and imposed directly or indirectly by
the creditor as an incident to the extension of credit. The
finance charge does not include charges of a type payable in
a comparable cash transaction.” 15 U.S.C. § 1605(a).

[2] The statutory definition does not embrace a rebate that
is withheld. A charge is a request for payment. A rebate is a
reduction in payment. It is to turn topsy-turvy to contend that
a rebate that is not given is a hidden charge.

[3] The Virachaks’ case looks less implausible under Regu-
lation Z of the Federal Reserve Bank. This authoritative inter-
pretation of the statute lists among examples of finance
charges the following: “Discounts for the purpose of inducing
payments by a means other than the use of credit.” FRB Reg-
ulation Z, 12 C.F.R. § 226.4(b)(9) (2004). How can a discount
be a charge? It cannot be. What the Federal Reserve Bank
means is that the presence of a discount for a cash transaction
is an index that more is being charged for a credit transaction.
The Virachacks contend that a rebate for cash on the purchase
price is functionally the same as a discount for cash. The
rebate is an index that more is being charged for credit. They
refer to the Official Staff Commentary on the regulations:

The seller of land offers individual tracts for $10,000
each. If the purchaser pays cash, the price is $9,000,
but if the purchaser finances the tract with the seller
the price is $10,000. The $1,000 difference is a
finance charge for those who buy the tracts on credit.

Commentary to Fed. Reserve Bd. Reg. Z, 12 C.F.R.
part 226 Supp. I 374 para. 4(b)(9)

The preceding example treats the discount as evidence of pur-
pose to induce payment in cash.
5474 VIRACHACK v. UNIVERSITY FORD
[4] The question for decision, then, is whether the $2,000
rebate was offered to induce customers to use means other
than credit. The declaration of Nathaniel Torres is that induce-
ment to pay with means other than credit was not the purpose
of the offer. Although an employee of Bob Baker Ford, Torres
acted as the agent of Ford Motor Company so far as the avail-
ability of the rebate was concerned and so may be relied on
in his statement that the rebate would have been offered to the
Virachacks if they had sought to buy on credit but not at the
extraordinarily low rate of 0.9%. If we accept Torres’s
unchallenged account of the facts, Ford Motor Company
denied the rebate only because the manufacturer did not want
to offer two incentives to the same customer. According to
Torres, the $2,000 rebate is not an index of a hidden credit
charge but simply a subsidy from the manufacturer that was
available only to those not getting the subsidized interest rate.
The element of a purpose to induce a cash payment—the ele-
ment critical to the Virachacks’ case—is absent.

This account is confirmed by two facts also furnished by
Torres. Bob Baker Ford did not determine eligibility for the
rebate. If a rebate had been offered, the price of the vehicle
for sales tax purposes would not have been affected; the tax
would have been paid on the price before the rebate. The price
is therefore the same on credit or cash terms.

[5] The Virachacks complain that, not being told of the
possibility of the rebate in the “Federal Truth-In-Lending Dis-
closure,” they never got to choose; that they, therefore, were
not the informed users of credit that the federal law seeks to
assure. Compliance with the TILA did not require them to be
informed to this extent. They got a good deal. Seeking to get
a windfall, they cannot get more than the statute and its regu-
lations afford them.

For the foregoing reasons, the judgment of the district court
is AFFIRMED.
 VIRACHACK v. UNIVERSITY FORD 5475
B. FLETCHER, Circuit Judge, dissenting:

The majority affirms the district court’s summary judgment
dismissal of the Virachacks’ claim under the Truth in Lending
Act (“TILA”), concluding their foregone rebate was not a
finance charge. I respectfully dissent. A discount or rebate
offered to purchasers paying with cash that is not extended to
purchasers using credit is a finance charge. See F.R.B. Regu-
lation Z, 12 C.F.R. § 226.4(b)(9) (“Regulation Z”).

The Appellants, Malinee B. Virachack and Ritnarone T.
Virachack, purchased a Ford Explorer from the Appellee,
University Ford d/b/a Bob Baker Ford, the dealer and credi-
tor. The Virachacks purchased the Explorer on a credit plan
negotiated with Bob Baker Ford. The credit plan had an Aver-
age Percentage Rate (“APR”) of 0.9%. To receive this APR,
customers including the Virachacks had to forego a $2,000
manufacturer’s rebate offered by Ford Motor Company
(“Ford Motor”) for the purchase of its Explorer. The $2,000
manufacturer’s rebate was offered to all other customers pur-
chasing an Explorer paying either cash or credit. The
Virachacks argue the foregone rebate was a finance charge.
As such, they argue the $2,000 increase in cost incurred by
financing at 0.9% APR should have been disclosed to them
under TILA.

A finance charge is defined by TILA “as the sum of all
charges, payable directly or indirectly by the person to whom
the credit is extended, and imposed directly or indirectly by
the creditor as an incident to the extension of credit.” 15
U.S.C. § 1605(a). Bob Baker Ford argues the foregone rebate
was not a finance charge requiring disclosure under TILA.
The district court agreed and the majority opinion affirms.

As a general matter, discounts to purchasers using cash that
are not extended to purchasers using credit are treated as
finance charges. See 12 C.F.R. § 226.4(b)(9). Regulation Z1
1
Regulation Z, 12 C.F.R. § 226, is the Federal Reserve Board’s regula-
tions implementing the Truth in Lending Act. Its purpose “is to promote
5476 VIRACHACK v. UNIVERSITY FORD
specifically lists “Discounts for the purpose of inducing pay-
ment by a means other than the use of credit” under examples
of finance charges. Id. To further explain this principle the
official staff interpretation states:

Discounts for payment by other than credit. The dis-
counts to induce payment by other than credit men-
tioned in § 226.4(b)(9) include, for example, the
following situation:

The seller of land offers individual tracts for
$10,000 each. If the purchaser pays cash, the price
is $9,000, but if the purchaser finances the tract with
the seller the price is $10,000. The $1,000 difference
is a finance charge for those who buy the tracts on
credit.

12 C.F.R. Pt. 226, Supp. 1 § 226.4-4(b)(9)(1). A discount
offered to customers that pay in cash but withheld from cus-
tomers paying with a particular form of credit is considered
a finance charge to those customers paying with the particular
form of credit.2 Withholding the rebate from these customers
is necessarily a discount for the purpose of inducing payment
by other means. This is a legal conclusion. A creditor’s testi-
mony on why he or she believes the rebate is withheld from

the informed use of customer credit by requiring disclosures about its
terms and costs.” Id. at § 226.1(b). To augment Regulation Z the Board
also issues Official Staff Interpretations. 12 C.F.R. Pt. 226, Supp. I. The
Supreme Court has said that because “Congress . . . delegated expansive
authority to the Federal Reserve Board to elaborate and expand the legal
framework governing commerce in credit” that “absent a clear expression
to the contrary” deference is due the Board’s interpretations of TILA.
Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 559-60 (1980).
2
Credit cards and other forms of open-ended credit are exempt from this
rule. See 15 U.S.C. § 1666f(b). The Virachacks’ financing is a closed-end
credit plan. See 12 C.F.R. § 226.2(a)(10) (defining closed-end credit); 12
C.F.R. § 226.2(a)(20) (defining open-end credit).
 VIRACHACK v. UNIVERSITY FORD 5477
customers paying with a particular form of credit is not perti-
nent to this consideration. The result of withholding the rebate
is a discount to cash paying customers as contrasted to cus-
tomers paying with the 0.9% APR plan.

The example used in the official staff interpretation of land
being sold for $10,000 to purchasers using credit and for
$9,000 to purchasers using cash is analogous to the
Virachacks’ transaction. If the Virachacks had paid cash for
their Ford Explorer they would have received the $2,000
rebate. But under the credit plan with 0.9% APR they were
denied the rebate and as a result paid $2,000 (plus interest on
the $2,000 loaned) more for their car than a cash purchaser.
Ford Explorers sold to purchasers paying cash cost at least
$2,000 less than the same car sold to purchasers paying with
the 0.9% APR credit plan.

The Virachacks are not requesting a “windfall” as the
majority opinion suggests. Maj. op. at 5474. Rather they sim-
ply want to be fully informed, as TILA requires, of the full
costs of paying with the 0.9% APR credit plan. The credit
plan extended to the Virachacks cost them $2,000 (plus inter-
est) more than paying with cash would have cost them.

The district court found the foregone $2,000 rebate was not
a finance charge.3 The district court reasoned that the $2,000
rebate was available to people who paid with either cash or
credit. The only group excluded from the $2,000 rebate was
composed of people who paid with the 0.9% APR financing.
The district court’s flawed reasoning was as follows, “Simply
put, a consumer may obtain the rebate and still purchase on
independently obtained credit. Forgoing the rebate, then, is
not a condition of the extension of credit but, instead, is
merely a condition of receiving the promotional rate.”
3
The district court in Virachack adopted the reasoning of the only other
federal court opinion on this issue Coehlo v. Park Ridge Oldsmobile, Inc.,
247 F.Supp.2d 1004 (D. Ill. 2003). No federal court of appeals has yet
ruled on this issue.
5478 VIRACHACK v. UNIVERSITY FORD
The problem with this reasoning is that although forgoing
the $2,000 rebate was not a cost for all purchasers using
credit, it was a cost for all purchasers using Bob Baker Ford’s
0.9% APR financing plan. The official staff interpretation of
Regulation Z explains that when determining whether a
charge is a finance charge one should look at the particular
credit transaction at issue. 12 C.F.R. Pt. 226, Supp. 1 § 226.4-
4(a)(1). The staff interpretation states “[c]harges imposed uni-
formly in cash and credit transactions are not finance charges.
In determining whether an item is a finance charge, the credi-
tor should compare the credit transaction in question with a
similar cash transaction.” Id. (emphasis added). This requires
“the credit transaction in question” to be compared with a
cash transaction. Id. If one compares the Virachacks’ transac-
tion with a cash transaction for a Ford Explorer then the
Virachacks paid $2,000 (plus interest) more for their car than
a cash purchaser would have paid.

At the time the Virachacks purchased their car, receiving
the 0.9% APR credit required a purchaser to forego the
$2,000 rebate. This was not a negotiable aspect of the sale.
Persons receiving the 0.9% APR forfeited the rebate. Individ-
uals paying cash or with other forms of credit were eligible
for the rebate. Thus, in this case, the $2,000 rebate was with-
held “as an incident to or as a condition of the extension of
credit.” 15 U.S.C. § 1605(a); 12 C.F.R. § 226.4(a). Foregoing
the $2,000 credit was a cost of receiving Bob Baker Ford’s
0.9% APR financing. The district court erred by comparing
purchasers using credit as a general group to purchasers using
cash. The fact that the Virachacks could seek other financing
is irrelevant. When examining the costs of the credit terms
offered, the appropriate comparison is between purchasers
using the specific type of credit at issue and purchasers paying
with cash. In this case, such a comparison reveals that the
Virachacks and similarly situated customers paid $2,000 (plus
interest) more for their vehicle than a cash purchaser paid for
the same vehicle. This price differential for using the 0.9%
APR financing was not disclosed to the Virachacks.
 VIRACHACK v. UNIVERSITY FORD 5479
The central purpose of TILA is to provide “the informed
use of credit” by requiring “meaningful disclosure of credit
terms” to consumers. 15 U.S.C. § 1601; Ford Motor Credit
Co. v. Milhollin, 444 U.S. 555, 559 (1980). If Ford Motor
gives a rebate to every Bob Baker Ford customer buying a
Ford Explorer but withholds the rebate from those customers
financing at 0.9% then the foregone rebate is a cost to the lat-
ter group of customers. If 0.9% APR customers are not
informed of the $2,000 rebate then they are ignorant of the
full cost of the credit. This conflicts with the explicitly stated
purpose of TILA:

It is the purpose of this subchapter [15 U.S.C. § 1601
et seq.] 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 inaccurate and unfair
credit billing and credit card practices.

15 U.S.C. § 1601(a). Not disclosing the $2,000 cost of the
0.9% financing means customers are making uninformed
credit decisions. I believe the failure of Bob Baker Ford to
disclose the foregone rebate violates TILA. I would reverse.