Dixon v. Freeman Finance (In re Dixon)

Summarized by Paul Avron , Berger Singerman LLP
14 years 10 months ago

Citation:

Case No. 10-15517 (11th Cir. April 14, 2011) (unpublished)

Tag(s):

11th Circuit

Ruling:

The defendant finance company didn't violate "Regulation Z" concerning TILA-required disclosure of finance charges required by section 226.4(d)(2), 12 C.F.R., when it (i) disclosed to the borrower that (a) she could select who would provide required insurance on the vehicle used as collateral, (b) the premium it would charge for insurance, and (ii) waived subrogation rights against the borrower notwithstanding that there was an exception for fraud by the borrower and lender.

Procedural context:

The Eleventh Circuit affirmed the district court's affirmance of the grant of summary judgment by the bankruptcy court in favor of the defendant finance company on the debtor/plaintiff's complaint alleging violations of the Truth-in-Lending Act (TILA).

Facts:

Prior to filing bankruptcy, Verna Dixon (Dixon) obtained a loan from Freeman Finance (Freeman) using her car as collateral. Dixon elected to obtain insurance on the vehicle (as required by the loan) from Freeman. DIxon acknowledged that Freeman had a financial interest in the sale of the insurance through retaining part of the premium or receiving a commission if it sold the policy to another insurance company (which it did). The insurance cost $376.00, and Freeman received 50%. commission. Freeman itemized the insurance as part of the amount financed instead of including it in the finance charge. The insurance policy contained a waiver of subrogation, but not in cases of fraudulent actions by the lender or borrower. During her bankruptcy case, the debtor-borrower filed an adversary proceeding against Freeman alleging violations of TILA. The bankruptcy court granted Freeman's motion for summary judgment and the district court affirmed. On further appeal, Dixon argued that despite the fact that the required disclosures were made, Freeman violated TILA by treating the insurance premium as part of the amount financed, and that the waiver was ineffective because of the fraud exclusion. The Eleventh Circuit rejected Dixon's first argument noting that there was nothing in section 226.18(c), 12 C.F.R., that required a commission received by a creditor to be removed from the amount financed and added to the finance charge. The court noted that Dixon didn't pay Freeman's commission; that was paid by the third party insurere. The court next rejected Dixon's second argument, concluding that the qualifying language didn't violate TILA. The Eleventh Circuit noted that TILA, a disclosure statute, does not affect parties' substantive rights under state or federal law, that waiver of subrogation clauses are valid under applicable GA law and, therefore, the waiver was not changed by the fraud exclusion because Freeman did not retain rights it did not have under GA law.

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