Green v. Levis Motors, Inc.

REVISED, June 25, 1999

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT
_____________________

No. 98-30443
_____________________

WILMORE GREEN, III; MARSHA W. GREEN,
on behalf of themselves and all
others similarly situated,

Plaintiffs-Appellants,

versus
LEVIS MOTORS, INC., ET AL.,

Defendants,
LEVIS MOTORS, INC., doing business as
Levis Mitsubishi; JOHN DOES, 1-10;
HANCOCK BANK OF LOUISIANA; ABC
INSURANCE; XYZ INSURANCE CO.,

Defendants-Appellees.
_________________________________________________________________

Appeal from the United States District Court for the
Middle District of Louisiana
_________________________________________________________________
June 22, 1999

Before KING, Chief Judge, and REYNALDO G. GARZA and JOLLY, Circuit
Judges.

E. GRADY JOLLY, Circuit Judge:

Wilmore and Marsha Green have sued their car dealer and the

bank that holds their retail installment contract for a violation

of the Truth in Lending Act, 15 U.S.C. § 1601 et seq. The district

court granted summary judgment for both Levis Motors, Inc. d/b/a

Levis Mitsubishi (the car dealer) and Hancock Bank of Louisiana

(the holder of the installment contract). The district court erred

in granting summary judgment for Levis Motors, but correctly
granted summary judgment for Hancock. We therefore reverse in

part, affirm in part and remand for further proceedings.

I

The core facts in this case are not in dispute. On or about

August 31, 1995, (and this date is important), Wilmore and Marsha

Green purchased a used car from Levis Motors. To finance this

purchase, the Greens entered a retail installment contract (“RIC”)

with Levis Motors. As required by the Truth in Lending Act

(“TILA”), the contract disclosed the “amount financed” and, in

conjunction with the disclosure of this amount, purported to

itemize an amount paid to the state of Louisiana for licensing

fees. See 15 U.S.C. § 1638(a)(2)(B)(iii) (West 1998). The

relevant portion of the contract reads as follows:

Itemization of Amount Financed

(1) Cash Price $ 11,332.34
(2) (a) Cash Downpayment $ 700.00
(b) Net Trade-In Allowance $ n/a
(3) Unpaid Balance $ 10,632.34
* * *
(5) Amount Paid to Public Officials For:
* * *
(c) License Fee $ 40.00

The issues in this case surround the amount listed as “Paid to

Public Officials For License Fee.” Although the RIC lists the

amount paid to Louisiana as $40, the state only charged $22 for

-2-
licensing involved with the Greens’ car. Levis Motors retained the

$18 balance. Apparently, the practice of tacking on dealer charges

to amounts paid to third parties is common in the automotive sales

industry, and the balance retained is referred to as an “upcharge.”

According to Levis Motors, the $40 amount was a standard

licensing fee that it applied to the sale of all its cars. In some

of the sales, the actual amount charged by Louisiana exceeded the

$40 listed, and in others (such as the sale to the Greens) the

state charged less than $40. (Louisiana bases its licensing fee on

the sale price of the automobile and the length of time the license

remains valid.) The Greens have alleged that Levis Motors violated

the TILA because of the RIC’s inaccuracy in disclosing the amount

paid to third parties.

After executing the RIC with the Greens, Levis Motors assigned

the contract to Hancock. Another provision of the RIC plays an

important role in evaluating the potential liability of Hancock.

That provision, which the FTC requires for all consumer credit

contracts, see 16 C.F.R. § 433.2 (1998), states the following:

ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO
ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT
AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT
HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER
BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR
HEREUNDER.

(This clause is referred to below as the “FTC clause.”) The Greens

sued both Levis Motors and Hancock for violating the TILA. The

history of the various, relevant regulations and agency

-3-
interpretations is somewhat complex. Therefore, we first turn to

the applicable code law before addressing the district court’s

reasoning and the parties’ arguments.

II

A

The statutory text upon which the Greens base their claim is

found in 15 U.S.C. § 1638(a)(2)(B)(iii):

(a) Required disclosures by creditor
For each consumer credit transaction other than under an
open end credit plan, the creditor shall disclose each of
the following items, to the extent applicable:
***
(2)(B) In conjunction with the disclosure of
the amount financed, a creditor shall provide
a statement of the consumer's right to obtain,
upon a written request, a written itemization
of the amount financed. . . . Upon receiving
an affirmative indication, the creditor shall
provide, at the time other disclosures are
required to be furnished, a written
itemization of the amount financed. For the
purposes of this subparagraph, "itemization of
the amount financed" means a disclosure of the
following items, to the extent applicable:
***
(iii) each amount that is or will be paid to
third persons by the creditor on the
consumer's behalf, together with an
identification of or reference to the third
person;

Instead of giving the Greens the option of requesting a written

itemization of the amount financed, Levis Motors decided to supply

this itemization automatically.1 An underlying issue in the

1
12 C.F.R. Part 226, Supp. I, § 226.18(c)(1) specifically
allows creditors to provide an itemization as a matter of course,
without notifying the consumer of the right to receive it.

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Greens’ case is whether Levis Motors’s retention of an upcharge,

without notification to the Greens that the upcharge was included

in the amount listed as paid to a third party, violates this

statutory provision.

At the time the Greens and Levis Motors executed the RIC, the

only relevant regulatory provisions offering any guidance were 12

C.F.R. 226.18(c)(iii) (a section within “Regulation Z,” 12 C.F.R.

226), and 12 C.F.R. Part 226, App. H-3 (“model form”). These two

regulatory enactments have not changed since the time of the RIC’s

execution (August 31, 1995). Neither the regulation nor the model

form provide any further guidance--with any relevance to this

case--than that already present on the face of

§ 1638(a)(2)(B)(iii). The regulation states:

For each transaction, the creditor shall disclose the
following information as applicable:
***
(c) Itemization of amount financed. (1) A
separate written itemization of the amount
financed, including:
***
(iii) Any amounts paid to other persons by the
creditor on the consumer’s behalf. The
creditor shall identify those persons.2

12 C.F.R. § 226.18(c)(iii) (1999). Model form H-3 appears as

follows:

2
The following payees may be described using generic or other
general terms and need not be further identified: public officials
or government agencies . . . [This footnote is a part of the quoted
regulation.]

-5-
 Itemization of the Amount Financed of $ __________
$ ________ Amount given to you directly
$ ________ Amount paid on your account

Amount paid to others on your behalf
$ ________ to [public officials] [credit bureau]
[appraiser] [insurance company]
$ ________ to [name of another creditor]
$ ________ to [other]

$ ________ Prepaid finance charge

These were the only relevant materials promulgated by the Federal

Reserve Board (“FRB”) (which is charged with elaborating on the

TILA’s text, see 15 U.S.C. § 1604) at the time the Greens entered

the RIC. Nevertheless, some of Levis Motors’s and Hancock’s

arguments rely on FRB interpretations proposed and issued after

execution of the RIC. A description of these materials follows.

B

In December 1995, the FRB staff proposed an official staff

interpretation of § 1638(a)(2)(B)(iii). See Truth in Lending, 60

Fed. Reg. 62764, 62765, 62769 (1995) (proposed Dec. 7, 1995). This

proposed interpretation provides the following:

Creditor-imposed charges added to amounts paid to others.
A creditor that offers an item for sale in both cash and
credit transactions sometimes adds an amount (often
referred to as an “upcharge”) to a fee charged to a
consumer by a third party for a service (such as for a
maintenance or service contract) that is payable in an
equal amount in both types of transactions, and retains
that amount. At its option, the creditor may list the
total charge (including the portion retained by it) as an
amount paid to others, or it may choose to reflect the
amounts in the manner in which they were actually paid to
or retained by the appropriate parties.

-6-
Truth in Lending, 60 Fed. Reg. at 62769 (emphasis indicated by

underlining added). The FRB never adopted this proposed

interpretation. Instead, the FRB promulgated a somewhat more

restrictive interpretation in April 1996:

Charges added to amounts paid to others. A sum is
sometimes added to the amount of a fee charged to a
consumer for a service provided by a third party (such as
for an extended warranty or a service contract) that is
payable in the same amount in comparable cash and credit
transactions. In the credit transaction, the amount is
retained by the creditor. Given the flexibility
permitted in meeting the requirements of the amount
financed itemization (see the commentary to § 226.18(c)),
the creditor in such cases may reflect that the creditor
has retained a portion of the amount paid to others. For
example, the creditor could add to the category “amount
paid to others” language such as “(we may be retaining a
portion of this amount).”

Truth in Lending, 61 Fed. Reg. 14952, 14956 (1996) (effective

April 1, 1996) (referred to below as the “FRB official

interpretation”) (emphasis indicated by underlining added). The

FRB’s accompanying explanation explains why this officially adopted

interpretation is more restrictive than its previously proposed

counterpart:

[The December, 1995 proposed interpretation] stated that
a creditor could include in the “amount paid to others,”
any amount retained by the creditor without itemizing or
noting this fact. Concern is raised about the
appropriateness of such treatment under the TILA where a
substantial portion of a fee categorized as “amounts paid
to others,” is in fact retained by the creditor.
Accordingly, a sentence has been added to clarify that
given the flexibility in itemizing the amount financed,
creditors may reflect that they have retained a portion
of the “amount paid to others” rather than disclosing the
specific amount retained.

-7-
61 Fed. Reg. 14952, 14954 (1996). After the April 1996, adoption

of the official interpretation,3 a handful of district courts (most

within the state of Illinois) disagreed as to whether the FRB

interpretation would allow creditors to lump the upcharge in with

the fees paid to third parties--without informing the buyers that

the creditor included an upcharge.4 Subsequently, the Seventh

Circuit settled the intra-circuit controversy by reading the FRB’s

interpretation as requiring creditors either to itemize the

upcharge separately or to include some language indicating that it

may have listed the upcharge and the actual amount paid to third

parties as one numerical value. Gibson v. Bob Watson Chevrolet-

Geo, Inc., 112 F.3d 283, 285-86 (7th Cir. 1997) (Posner, C.J.).

III

3
Now codified at 12 C.F.R. Part 226, Supp. I,
§ 226.18(c)(1)(iii)-2 (1999).
4
See, e.g., Gibson v. Bob Watson Chevrolet-Geo, Inc., No.
95-C-6661, 1996 WL 316975 (N.D. Ill. June 10, 1996) (holding that
defendant does not violate TILA when it failed to disclose
existence of an upcharge), rev’d, 112 F.3d 283 (7th Cir. 1997);
Taylor v. Quality Hyundai, Inc., 932 F. Supp. 218 (N.D. Ill. 1996)
(same), aff’d in part and rev’d in part, 150 F.3d 689 (7th Cir.
1998); Abercrombie v. William Chevrolet/Geo Inc., No. 95-C-3119,
1996 WL 251435 (N.D. Ill. May 8, 1996) (same); El-Mohammed v. Old
Orchard Chevrolet-Geo, Inc., No. 96-C-3774, 1997 WL 106243 (N.D.
Ill. Feb. 10, 1997) (same); Bambilla v. Evanston Nissan, Inc., No.
94-C-6818, 1996 WL 284954 (N.D. Ill. May 21, 1996) (holding that
defendant violated TILA by failing to note the existence of an
upcharge); Alexander v. Continental Motor Werks, Inc., 933 F. Supp.
715 (N.D. Ill. July 16, 1996) (same).

-8-
 The Greens filed their TILA claims against Levis Motors and

Hancock in May 1996.5 The Greens filed their action as a putative

class action, but the district court granted summary judgment to

both Levis Motors and Hancock before reaching a decision as to

class certification. In the claims asserted against Hancock, the

district court issued summary judgment for Hancock based on a

written opinion. The court also granted summary judgment in favor

of Levis Motors based on oral conclusions stated during a hearing

on the motion for summary judgment. In short, the district court

first concluded that Hancock was not liable as an assignee of the

RIC under 15 U.S.C.A. § 1641(a) (which governs assignee liability).

Furthermore, the court also concluded that the FTC clause did not

have any effect in the context of TILA claims asserted against an

assignee. Finally, the court found that the TILA good faith safe

harbor provision, 15 U.S.C.A. § 1640(f), shielded Levis Motors from

liability for the alleged violations. The district court did not,

however, decide whether Levis Motors’s conduct would have

constituted a TILA violation if the safe harbor provision did not

apply.

IV

This court reviews a trial court’s grant of summary judgment

de novo. Edwards v. Your Credit, Inc., 148 F.3d 427, 431 (5th Cir.

1998). Summary judgment should be granted when there is no genuine

5
The Greens filed several other claims, but only the TILA
claims are before us on appeal.

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issue as to any material fact and the moving party is entitled to

a judgment as a matter of law. Fed. R. Civ. P. 56(c).

A

Levis Motors argues that, irrespective of whether it has

technically violated the TILA, the good faith safe harbor provision

of that act, 15 U.S.C. § 1640(f), shields it from liability.

Section 1640(f) states:

No provision of this section . . . imposing any liability
shall apply to any act done or omitted in good faith in
conformity with any rule, regulation, or interpretation
thereof by the Board . . ., notwithstanding that after
such act or omission has occurred, such rule, regulation,
interpretation, or approval is amended, rescinded, or
determined by judicial or other authority to be invalid
for any reason.

15 U.S.C.A. § 1640(f) (West 1998). The district court agreed with

Levis Motors, reasoning that the car dealer could not be charged

with a violation of the TILA when such a divisive split occurred in

the (Illinois) district courts after the FRB issued its official

interpretation.

(1)

The Greens first argue that the district court erred because

the FRB did not propose the interpretation that prompted the

disagreement among the courts until after the Greens and Levis

Motors executed the RIC. Citing Fifth Circuit law, the Greens

maintain that the safe harbor provided by § 1640(f) can only shield

creditors who act in conformity with regulations or interpretations

in existence at the time of the challenged disclosure. See Jones

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v. Community Loan & Investment Corp. of Fulton County, 544 F.2d

1228, 1232 (5th Cir. 1977); McGowan v. Credit Ctr. of North

Jackson, Inc., 546 F.2d 73, 77 (5th Cir. 1977). The Greens further

note that Levis Motors does not claim to have relied on any

conflicting authority existing before the Greens entered their RIC.

(2)

Levis Motors makes two main arguments in response to the

Greens. First, Levis Motors argues that it did act in conformity

with the statutory, regulatory, and commentary provisions existing

at the time of the RIC’s execution. Specifically, Levis Motors

maintains that it acted in conformity with model form H-3 and

Official Comments 18(c)-2 and 18(c)-3.6 The district court did

not, however, rely on this particular argument in making its

decision.

In its second argument, Levis Motors puts forth, and attempts

to bolster, the reasoning of the district court. According to that

reasoning, Levis Motors acted in good faith conformity with the

official FRB interpretation issued in April 1996. Although this

interpretation was not adopted until after execution of the Greens

contract, Levis Motors maintains that it must have been acting in

good faith because multiple courts split over how to read that

interpretation: roughly half of the courts ruled that the FRB

interpretation allowed creditors to combine upcharges with amounts

6
See 12 C.F.R. § 226, Supp. I, § 226.18(c)-2,3 (1999).

-11-
paid to third parties without indicating to buyers that they were

doing so; the other half of the courts ruled that the buyers must

be informed. Levis Motors argues that with half of the courts

going one way, and half going the other way, it should be entitled

to the good faith safe harbor. Because the FRB adopted its

interpretation after execution of the Greens’ RIC, Levis Motors

necessarily argues that one need not actually rely upon a

regulatory interpretation in order to act “in good faith in

conformity with” that interpretation.

(3)

Levis Motors cannot overcome a serious obstacle to its good

faith argument: Binding Fifth Circuit precedent holds that a party

cannot act “in good faith in conformity with” a regulation or

interpretation that does not exist at the time of the disputed act

(or omission).7 For example, in Jones, this court dealt with a

TILA claim in which the lenders executed their loans prior to the

date the FRB amended a particular regulation. “Since these two

lenders could not have relied upon the amendatory regulation at the

time their loans were transacted, [this court] held that they were

barred from reliance upon Section 1640(f)’s exculpatory language.”

McGowan, 546 F.2d at 77 (discussing Jones, 544 F.2d at 1231).

7
The relevant Fifth Circuit cases (Jones and McGowan) deal
with FRB regulations. However, Levis Motors has offered no good
reason for treating official FRB interpretations differently from
FRB regulations in this particular context.

-12-
 Although Levis Motors holds the view that “Jones and McGowan

are contrary to the plain language of § 1640(f),”8 it does not

provide any compelling argument for why those cases do not bind

this court on the principle that a party cannot base its § 1640(f)

defense on a regulation or interpretation that did not exist at the

time of the transaction.9

In the alternative, Levis Motors argues that it acted in

conformity with the model form (H-3) and FRB commentary existing at

the time the parties executed the RIC. As is clear from the above

description of model form H-3, however, that form does not

indicate--in any way--that creditors can lump in upcharges with

amounts paid to third parties without telling the buyers that they

are doing so. Furthermore, the existing commentary that Levis

Motors cites, 12 C.F.R. Part 226, Supp. I, § 226.18(c)-2,3, does

8
Levis Motors thinks that Jones and McGowan are contrary to
the plain language of § 1640(f) because the words “in conformity
with” should not be read to mean “in reliance upon.” As the cases
constitute precedent binding on our panel, however, this argument
carries no weight.
9
Hancock, which, as an assignee, has an interest in supporting
Levis Motors’s defenses, tries to help with an argument stating
that Jones and McGowan are no longer good law because Congress
overruled those decisions when it simplified the TILA in 1980. We
cannot see that the 1980 amendments changed § 1640(f) in any
relevant respect. Furthermore, Hancock has not pointed to any
relevant change in the regulations interpreting § 1640(f). In
short, Jones and McGowan continue to bind us.

-13-
not aid Levis Motors. For the sake of completeness, we set out the

(minimally) relevant text of those comments:10

18(c) Itemization of amount financed.
***
2. Additional information. Section 226.18(c) establishes
only a minimum standard for the material to be included
in the itemization of the amount financed. Creditors
have considerable flexibility in revising or
supplementing the information listed in § 226.18(c) and
shown in model form H-3, although no changes are
required.
***
3. Amounts appropriate to more than one category. When
an amount may appropriately be placed in any of several
categories and the creditor does not wish to revise the
categories shown in § 226.18(c), the creditor has
considerable flexibility in determining where to show the
amount. For example:

• In a credit sale, the portion of the purchase price
being financed by the creditor may be viewed as either an
amount paid to the consumer or an amount paid on the
consumer’s account.
***

Neither the model form nor these FRB comments could be read as

offsetting the plain language of § 1638(a)(2)(B)(iii) or 12 C.F.R.

§ 226.18(c)(iii). That plain language requires the itemization of

amounts paid to third parties. By lumping the creditors’ own

charges in with the amounts actually paid to third parties, and

failing to denote the conflation, the creditor fails to itemize or

disclose (under any ordinary understanding of those terms) the

10
Levis Motors’s decision not to quote or focus in on any
portion of these commentary paragraphs further highlights the
weakness of the arguments that rely upon them.

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“amount that is or will be paid to third persons.” 15 U.S.C.A.

§ 1638(a)(2)(B)(iii).11

We will reverse the district court’s decision to shield Levis

Motors from TILA liability under § 1640(f). A complete reading of

the statutory text, regulations, and commentary existing at the

time of the relevant transaction mandates the conclusion that Levis

Motors failed to conform in good faith with those authorities.

Furthermore, Levis Motors cannot rely on subsequently issued FRB

interpretations to support its § 1640(f) defense.

B

As noted above, after the district court found the § 1640(f)

defense applicable, it did not go on to decide whether the RIC

actually violated the TILA. Notwithstanding this fact, we have

discretionary authority to decide the issue on this appeal. See

Singleton v. Wulff, 428 U.S. 106, 120-21 (1976) (“The matter of

what questions may be taken up and resolved for the first time on

appeal is one left primarily to the discretion of the courts of

appeals, to be exercised on the facts of individual cases.”); Creel

v. Johnson, 162 F.3d 385, 390 n.3 (5th Cir. 1998) (resolving an

issue not argued to the district court “because uncertainty exists

with respect to a pure question of law”).

11
To comply with Form H-3, Levis Motors must have listed the
actual amount paid to Louisiana next to the line designated “Amount
Paid to Public Officials For License Fee.” See Gibson, 112 F.3d at
286.

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 The issue here is one of pure law: Does a lender violate the

TILA by retaining an upcharge and failing to denote this fact in

its itemization of the amount paid to third parties. Additionally,

and as the next section of our opinion indicates, “the proper

resolution of this question [in the Greens’ favor] is beyond any

doubt.” Murray v. Anthony J. Bertucci Construction Co., 958 F.2d

127, 129 (5th Cir. 1992).

C

The Seventh Circuit has addressed this identical issue in

Gibson, 112 F.3d at 284-86. That court concluded that the

retention of an undisclosed upcharge does violate the TILA. The

reasoning in that opinion is convincing, and we will follow it.

The strongest argument against finding a violation is made by

narrowly focusing on two sentences of the FRB’s official

interpretation (quoted in full ante at 7):

Given the flexibility permitted in meeting the
requirements of the amount financed itemization (see the
commentary to § 226.18(c)), the creditor in such cases
may reflect that the creditor has retained a portion of
the amount paid to others. For example, the creditor
could add to the category “amount paid to others”
language such as “(we may be retaining a portion of this
amount).”

61 Fed. Reg. at 14956 (emphasis added). By focusing on the

permissive words “may” and “could,” some district courts (ruling

before the Seventh Circuit’s opinion in Gibson) read this

interpretation to mean that a creditor could choose to disclose

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neither the actual amount of any upcharge nor the possible

existence of an upcharge.

But read in the context of the interpretation’s entire

paragraph and the accompanying explanation (both are quoted in full

ante at 7-8), it is clear that the inclusion of permissive terms

was not intended to leave open the option of saying absolutely

nothing at all about the existence of an upcharge. Instead, the

FRB undoubtedly meant to give the creditors the option of either

separately itemizing the actual amount paid to third parties or

reporting one lump sum (made up of the actual amount paid to a

third party and the upcharge) with an accompanying notation that

the creditor might have included an upcharge.

This is the way that the Seventh Circuit has read the FRB’s

official interpretation. To read it any other way, the court said,

would be to

read the commentary to say: “You may conceal the fact
that you are pocketing part of the fee that is ostensibly
for a third party, but if you are a commercial saint and
would prefer to tell the truth, you may do that too.” So
interpreted, however, the commentary not only would be
preposterous; it would contradict the statute. The only
sensible reading of the commentary is as authorizing the
dealer to disclose only the fact that he is retaining a
portion of the charge, rather than the exact amount of
the retention. Even this is a considerable stretch of
the statute; and it is as far as, if not farther than,
the statute will stretch.

Gibson, 112 F.3d at 285-86.

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 In this case, Levis Motors neither itemized the upcharge

separately nor indicated that an upcharge might be included. This

failure constitutes a clear violation of the Truth In Lending Act.

D

We now consider the liability of Hancock as an assignee.

Section 1641(a) governs the liability of assignees for the TILA

violations of their assignors. That provision states, in relevant

part:

Except as otherwise specifically provided in this
subchapter, any civil action for a violation of this
subchapter . . . which may be brought against a creditor
may be maintained against any assignee of such creditor
only if the violation for which such action or proceeding
is brought is apparent on the face of the disclosure
statement, except where the assignment was involuntary.
For the purpose of this section, a violation apparent on
the face of the disclosure statement includes, but is not
limited to (1) a disclosure which can be determined to be
incomplete or inaccurate from the face of the disclosure
statement or other documents assigned . . .

15 U.S.C.A. § 1641(a) (West 1998).

The Greens argue that this provision does not protect Hancock

for two primary reasons. First the Greens argue that Levis

Motors’s TILA violation was apparent on the face of the RIC.

Second, the Greens point to the FTC clause,12 contained within the

12
We repeat the clause for convenience:

ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO
ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT
AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT
HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER
BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR
HEREUNDER.

-18-
RIC, and argue that that provision makes Hancock liable to the same

extent as Levis Motors, notwithstanding § 1641(a). We discuss

these arguments in turn.

1

In the Greens’ first argument, they note that Hancock is an

experienced player in the credit industry; Hancock regularly

purchases RICs from automobile dealers. Thus, according to the

Greens, Hancock must have known, or at least should have known,

that Levis Motors included an upcharge in the amount reported as

“Amount Paid to Public Officials For License Fee.” Furthermore,

the Greens argue, the existence of this upcharge was apparent on

the face of the RIC because Hancock could have looked at license

fee tables that list the actual amount Louisiana would have charged

the Greens. After noting this amount, the Greens continue, Hancock

should have recognized the discrepancy with the amount listed in

the Greens’ RIC, thereby being alerted of the TILA violation.

According to the Greens, the ready access to the tables makes the

alleged TILA violation apparent on the face of the RIC.

In support of its argument, the Greens contrast their own case

with Taylor v. Quality Hyundai, Inc., 150 F.3d 689 (7th Cir. 1998).

In Taylor, the automobile dealer’s RIC listed an amount paid to a

third party for extended warranty coverage. This creditor also

included an upcharge, which the Seventh Circuit concluded was not

apparent on the face of the RIC. Id. at 694-95. The Greens argue

that their case is different because the actual amount paid to the

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third party (Louisiana) is readily available through public

documents. In contrast, the actual amount paid to third parties in

Taylor (the party offering the extended warranty) may not have been

as readily available to the assignee.

The district court disagreed with the Greens. That court held

that the violation alleged by the Greens was not apparent on the

face of the RIC. In following several other district court

decisions, the district court stated that § 1641(a) establishes an

objective test to determine the liability of assignees.13 Thus, the

court refused to consider Hancock’s subjective experience and also

refused to read § 1641(a) as requiring Hancock to look to the

Louisiana tables.

The district court was correct. The only “assigned” document

that the Greens point to is the RIC. Although Louisiana’s fee

tables may be available to the public, those tables do not

constitute, according to § 1641(a)’s text, “documents assigned” to

Hancock. A statement from the Seventh Circuit’s Taylor opinion

applies in this case as well:

In effect, the rule for which the plaintiffs are arguing
would impose a duty of inquiry on financial institutions
that serve as assignees. Yet this is the very kind of
duty that the statute precludes, by limiting the required

13
See, e.g., Alexander v. Continental Motor Works, Inc., No.
97 C 5828, 1996 WL 79403, at *6 (N.D. Ill. Feb. 16, 1996) (“In
general, courts addressing the issue of TILA assignee liability
have found that § 1641(a) limits liability when there is no
indication from the disclosure documents that liability may
arise.”).

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 inquiry to defects that can be ascertained from the face
of the documents themselves.

Taylor, 150 F.3d at 694. The Eleventh Circuit has since agreed

with Taylor and stated that “the plain language of the statute

forbids us to [resort to evidence or documents extraneous to the

disclosure statement].” Ellis v. General Motors Acceptance Corp.,

160 F.3d 703, 709 (11th Cir. 1998). The fact that Taylor and

Ellis involved payments to third parties for extended warranty

services--as opposed to state licensing fees--is a distinction

that has no effect.

The two circuits that have addressed this issue and a common

sense reading of § 1641(a) all point towards the conclusion that

the alleged TILA violations were not apparent on the face of the

Greens’ contract. Thus, under § 1641(a), Hancock is not liable

for Levis Motors’s violations.

2

Finally, the Greens invoke the FTC clause (quoted ante at

footnote 12) of their RIC to argue that Hancock remains liable for

Levis Motors’s TILA violations regardless of § 1641(a)’s

limitations. Because this clause is in a contract between two

parties, the Greens argue, the court should give it its full

effect. This argument becomes problematic, however, because

giving this clause the full effect of its language would in every

consumer credit contract negate the protections that § 1641(a)

provides for the assignee; this is so because the FTC requires

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creditors to insert the FTC clause in all consumer credit

contracts. See 16 C.F.R. § 433.2 (1999). This situation leaves

our court with two options: (1) apply the clause so as to negate

the effect of TILA’s specific statutory provision; or (2) conclude

that § 1641(a) overrides a clause (required by another agency) in

a private contract. Both the Seventh and Eleventh Circuits have

addressed this problem and both courts had little problem

concluding that § 1641(a) overrides the contract clause. Taylor,

150 F.3d at 692-94; Ellis, 160 F.3d at 708-09.

The Taylor court noted that overriding the FTC clause in this

context does not nullify it entirely. Taylor, 150 F.3d at 693.

The clause still serves a very useful purpose for the plaintiffs.

For example, “[i]f the cars they purchase turn out to be lemons

and they assert a right to withhold payment against the sellers,

they may also assert the same right against the assignees.” Id.

Thus, § 1641(a) limits assignee liability on only one set of

claims (i.e., the specified TILA claims). The Taylor court

further reasoned that the FTC clause, “even though contained

within the contract, was not the subject of bargaining between the

parties, and indeed could not have been. It is part of the

contract by force of law, and it must be read in light of other

laws that modify its reach.” Id.14

14
The Ellis court agreed with the Taylor court on these points
and reiterated its reasoning. Ellis, 160 F.3d at 709.

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 The Greens respond to this by pointing us to 15 U.S.C.

§ 1610(d):

Except as specified in sections 1635, 1640, and 1666e of
this title, this subchapter and the regulations issued
thereunder do not effect the validity or enforceability
of any contract or obligation under State or Federal law.

The Greens argue that to deny the FTC clause’s application to TILA

claims would be to invalidate (at least in part) the retail

installment contract. Section 1610(d), according to the Greens,

disclaims any intent to modify the reach of the included FTC

clause.

To read § 1610(d) this way, however, would still produce an

absurd result: the protections of § 1641(a) would never have any

effect on consumer credit contracts. We fully recognize that the

FTC’s regulations do not neatly complement the TILA in this case.

Yet, faced with the choice presented, we agree with the conclusion

reached by the Taylor and Ellis courts, thereby choosing the

lesser of two imperfect options.

VI

In sum, we have concluded that the good faith safe harbor

provision of the TILA does not shield Levis Motors from liability

in this case. Furthermore, Levis Motors’s RIC did violate the

TILA. Therefore, we will remand for further proceedings with

regard to Levis Motors. Finally, we will affirm the district

court’s grant of summary judgment in favor of Hancock. We will

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therefore remand for further proceedings not inconsistent with

this opinion.

REVERSED in part, AFFIRMED in part, and REMANDED.

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