Norman Sage, Plaintiff-appellant, v. Freedom Mortgage Company, Defendant-appellee, 675 F.2d 1208 (11th Cir. 1982)

The outcome of this appeal turns upon two questions that have not been squarely addressed by our court: whether the disclosure of net loan proceeds required by section 129(a) (1) of the Truth in Lending Act, 15 U.S.C. § 1639(a) (1),¹  and by the decision of the fifth circuit in Pollock v. General Finance Corp., 535 F.2d 295 (5th Cir. 1976), rehearing denied, 552 F.2d 1142 (5th Cir.), cert. denied, 434 U.S. 891, 98 S. Ct. 265, 54 L. Ed. 2d 176 (1977), must be made separately from other required or permissible disclosures; and whether use of the term "AMOUNT OF LOAN" to describe the amount of a note²  is misleading when there has been no separate disclosure of net loan proceeds. We conclude that binding precedent requires that both questions be answered in the affirmative, and therefore reverse the judgment of the district court.

Appellant, Norman Sage, borrowed $40,000 from appellee, Freedom Mortgage Company, to purchase a home. A portion of that amount, $1,341.62, was retained by Freedom Mortgage as prepaid finance charges. There were no individually itemized charges financed.³  Freedom Mortgage prepared a disclosure statement that attempted to comply with the hodgepodge of disclosure requirements created by the Truth in Lending Act, 15 U.S.C. §§ 1601-1667, Regulation Z of the Federal Reserve Board, 12 C.F.R. § 226.1 et seq., and the decisions of the fifth circuit. The statement, in relevant part, provided:

2. The AMOUNT OF LOAN in this transaction is $40,000 ....

3. The PREPAID FINANCE CHARGE on this transaction (is) ... $1,341.62

4. The amount of the loan less the prepaid finance charge equals the AMOUNT FINANCED in this transaction, which is ... $38,658.38

Sage brought suit in the district court seeking statutory damages under 15 U.S.C. § 1640. He claimed that the statement failed to meet the requirements of 15 U.S.C. § 1639(a) (1) because there was no meaningful disclosure of the net loan proceeds, although that amount fortuitously equaled the amount financed.⁴  The claim was reviewed by a magistrate who found that Freedom Mortgage complied with § 1639(a) (1) by listing net loan proceeds under the label "AMOUNT FINANCED." The district court adopted the recommendation of the magistrate, and granted summary judgment for Freedom Mortgage.

The fifth circuit held in Pollock that lenders must disclose the net loan proceeds amount, which is equal to the amount financed minus individually itemized charges that are included in the amount of the note but are not part of the finance charge.⁵  See Barbieri v. Commercial Credit Loans, Inc., 596 F.2d 660, 662 (5th Cir. 1979). This disclosure is necessary to inform the borrower of the amount of cash that is actually given to him or on his behalf. Pollock, 535 F.2d at 198-99. We find that listing net loan proceeds under the term "AMOUNT FINANCED" is misleading and violates both the rule contained in Pollock and the policy that underlies it. Section 129(a) (1) of the Truth in Lending Act, 15 U.S.C. § 1639(a) (1), is aimed at revealing to the credit consumer the precise amount that he will receive after the swarm of prepaid interest charges, brokerage fees, insurance payments, etc., has nibbled away at the credit that he requested. Unless that amount is revealed under a description that the borrower can recognize as indicating the net loan proceeds amount, the disclosure is not meaningful. See Pollock, 535 F.2d at 299 n.4. It is certainly misleading to disclose the net loan proceeds amount under the description "AMOUNT FINANCED," which has as its "clear and uniform meaning," Friend v. Termplan, 651 F.2d 1012, 1013 (5th Cir. 1981), net loan proceeds plus individually itemized charges, see Pollock, 535 F.2d at 298-99.⁶  "A misleading disclosure is as much a violation of TILA as a failure to disclose at all." Smith v. Chapman, 614 F.2d 968, 977 (5th Cir. 1980).

In addition to its failure to make a meaningful required disclosure Freedom Mortgage has made a misleading optional disclosure. The $40,000 "AMOUNT OF LOAN" figure in paragraph 2 is the amount of the note on which Sage must pay interest,⁷  and is not a term that must be disclosed under the Truth in Lending Act. While disclosure of such additional information is generally permitted, there are some restrictions: it cannot be "stated, utilized, or placed so as to mislead or confuse the customer or lessee or contradict, obscure, or detract attention from the information required ... to be disclosed." Friend v. Termplan, 651 F.2d at 1013 (quoting 12 C.F.R. § 226.6(c)); accord, Federal Reserve Board Official Staff Interpretation, No. FC-1001 (Sept. 6, 1977), reprinted in 12 C.F.R. app. § 226, at 694-95 (1981) (lender may disclose amount of note including the amount financed plus the prepaid finance charge under an appropriate caption so long as that disclosure will not be confused with another disclosure). Freedom Mortgage has violated these restrictions upon the disclosure of additional information. Although we decline to hold that the term amount of loan used in a disclosure statement must indicate the net loan proceeds amount, we recognize that the term has been used to describe net loan proceeds. See Souife v. First National Bank of Commerce, 628 F.2d 480, 487 (5th Cir. 1980) (subject disclosure statement lists net loan proceeds under term "Amount of Loan"), supplemental opinion, 653 F.2d 142 (5th Cir. 1981); Pollock, 535 F.2d at 299; Letter No. 1334 from the Federal Reserve Board (March 5, 1979), reprinted in 5 C.C.H. Consumer Credit Guide P 31,840.⁸  Because the term amount of loan may be used to refer to net loan proceeds we find use of the term to refer to the amount of the note to be misleading where there is no meaningful disclosure of net loan proceeds elsewhere in the disclosure statement.

REVERSED AND REMANDED.