Today's Trends in Credit Regulation

When a Contract Does Not "Line Up"
By Christopher M.A. Chamness

The U.S. District Court for the Northern District of Alabama recently addressed whether the misalignment of financing terms on a contract violated the Truth in Lending Act and the Alabama Deceptive Trade Practices Act. The court found that the plaintiff's facts did not "line up" with an enforceable claim under either law.

The transaction that led to the case began simply enough. Timothy Lynn saw a 2003 Chevrolet Cavalier at a Family Nissan dealership tent sale and offered to buy the car for "a little over $5,000." This price was accepted by the salesman at the tent sale. Lynn saw a copy of the salesman's internal document, which described the amounts to be paid, including the preprinted "processing fee" of $399 and the "grand total price" of $5,512. The next day, Lynn met the salesman at the local Wal-Mart, where he received the paperwork on the car. Also that day, he signed without reading the Retail Purchase Agreement and the Retail Installment Contract and Security Agreement. Had Lynn read the documents, he might have noticed that the printed numbers on the Retail Installment Contract and Security Agreement were not aligned with the proper descriptions on the form. This misalignment mistake was also missed by the finance manager at Family Nissan when he reviewed the documents.

The transaction had gone awry on a simple mistake. Because the wrong contract code was entered into the ADP software at the time the agreed upon numbers from the salesman's internal document were entered, the first dollar amount after the TILA disclosure box on the Retail Installment Contract was printed two lines above where that amount belonged. There was nothing written on the line to the right of "Processing Fee Paid to Seller" in this section; instead, the $399 fee appeared next to the line "Insurance Premiums."

The printing mistake went unnoticed by others. The credit union employee who reviewed Lynn's financing documents at the time the credit union purchased the finance contract also missed this mistake, probably because the "grand total price" on the Retail Installment Contract was on the correct line and matched the "unpaid balance due" of $5,512 on the Retail Purchase Agreement. Lynn did not realize the misalignment on the Retail Installment Contract until about the time he filed a Chapter 13 bankruptcy petition. Lynn then sued Family Nissan and Fort McClellan Credit Union, seeking a judgment against them for liability and monetary relief under TILA. In addition, Lynn sued Family Nissan for a violation of the ADTPA.

The court rejected Lynn's TILA claim, finding that both the dealership and the credit union established a bona fide error defense. Section 1640(c) of TILA states that a creditor may not be held liable if it can be shown by a preponderance of evidence that the violation is not intentional and results from an error despite the maintenance of procedures reasonably adapted to avoid such an error. The court found that both defendants followed such preventative procedures, noting that the dealership used ADP software for compliance, the numbers and terms of the contract had been explained to Lynn, and he agreed to the total amount.

In addition to rejecting the TILA claims, the court also rejected Lynn's ADTPA claim against the dealership. The court explained that the Act allows a consumer to recover money damages that are caused by an unlawful act or practice. Because Lynn admitted that he agreed to pay the total sale price, including the $399 processing fee, the disclosure error did not result in any money damages. In addition, there was no evidence that the dealership intended to deceive Lynn or that Lynn actually was deceived.

Dealers and lenders can take comfort knowing that not every mistake on a contract will automatically open them up to liability. In some cases, a bona fide error by the dealer or lender on the contract will not expose a dealer or lender to liability if other safeguards are in place, the TILA box is accurate, and the consumer does not experience monetary harm.

Lynn v. Fort McClellan Credit Union, 2013 U.S. Dist. LEXIS 151021 (N.D. Ala. October 21, 2013).

Christopher M.A. Chamness is an associate in the Maryland office of Hudson Cook, LLP. Chris can be reached at 410-782-2321 or by email at

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