The court notes that as a matter of Florida law, no transaction in which a TILA violation occurred was ever consummated, and this is why the court dismissed the TILA claim. The court states: “Bill Heard had no obligation to provide TILA disclosures prior to obtaining financing approval.” It then goes on to explain that TILA requires certain disclosures “before credit is extended” and that Regulation Z interprets the phrase “before credit is extended” to mean prior to consummation of the transaction. “The official commentary on the definition of consummation indicates,” the court continues, “that state law, not Regulation Z, determines when a consumer becomes contractually obligated.”
The court then indicated that spot delivery contract clauses – like the one in this case (no contract language provided) – have been construed under Florida contract law to create a condition precedent to contract formation. (Ed. Note: Presumably, the dealer’s spot delivery documents make financing a condition precedent to contract formation, whereas many dealers make it a condition subsequent, in which case their documents allow them to unwind the deal.).
Since much of the case law relied on by the plaintiffs seemed to involve spot delivery scenarios set up with financing as a condition subsequent to contract formation, the court found that those cases did not change its analysis – that any TILA violation in the plaintiffs’ unfunded contracts was not actionable since those contracts were never consummated under Florida law because the condition precedent to contract formation, financing, never came about.
The court also addressed the plaintiffs’ argument that the court’s ruling makes the TILA disclosures that were provided by the dealer “estimates.” The court responds: “Buyers and car dealers are not prohibited under TILA from backdating a contract.”
The court goes on to state that such arrangements (backdating) “provide benefits and value to consumers.” In exchange for use of the vehicle without paying any rental fee under the bailment agreement, the court said, the plaintiff agreed to allow the dealer to backdate the final contract. The court concludes by saying that TILA makes certain that disclosures are accurate. “TILA does not prohibit, restrict, or otherwise control the parties [sic] right to freedom of contract.”
No, You Can’t Backdate. This opinion deals with a motion to alter or amend a judgment. In the earlier opinion, the U.S. District Court for the Eastern District of Virginia ruled on a “novel question” under the federal Truth in Lending Act.
The case involved a sale and spot delivery of an automobile. The first contract signed by the buyer was conditioned on certain financing. When that contract fell through, the buyer signed a second contract approximately 10 days later. The dealer backdated the second contract to the date of the first contract. The question addressed by the court was “whether the disclosures in the second agreement violate[d] the Truth in Lending Act ... by calculating the annual percentage rate of interest on the basis of the date on the backdated agreement rather than the date the transaction was consummated.” The court ruled that the auto dealer violated TILA.
By its terms, the first retail installment contract became void when the dealer was unable to obtain financing on the terms reflected in the agreement within five days. The court noted in its prior opinion that the dealer indicated that, “it is industry practice for car dealers to use the date of delivery of the vehicle on subsequent agreements reached in spot delivery transactions, and banks will only accept buyer’s orders containing the date of delivery of the vehicle.”
The court responded: “According to Regulation Z, consummation occurs not when the consumer takes possession of the product, but at the ‘time that a consumer becomes contractually obligated on a credit transaction.’” Although the required disclosures were timely, the court found that they were inaccurate. The APR figure on the second agreement was inaccurate because “Regulation Z does not permit calculation of the APR based on an interest accrual date which is earlier than the consummation date.”
In its argument to the court to amend or alter the judgment, the dealer argued that the second contract “related back” to an “effective date” of April 3 by agreement of the parties and that the relation back made the disclosed APR accurate. The court disagreed, once again concluding that the date of consummation was April 13.
The court rejected the notion that the dealer’s argument changed its analysis under TILA and Regulation Z. The court said the dealer’s request for reconsideration was “inappropriate and without merit.”
Conclusion. Spot deliveries and the “re-contracting” process that usually accompany them, are filled with traps for unwary dealers and lawyers. Plaintiffs’ lawyers, who call these “yo-yo” deals, are becoming very knowledgeable about the legal issues that are involved with spot deliveries. So be careful, go slow, and get your lawyer’s review of your procedures and documents.
Bragg v. Bill Heard Chevrolet, Inc.-Plant City, 2003 WL 431633 (M.D. Fla. February 14, 2003); Rucker v. Sheehy Alexandria, Inc., 2003 WL 342126 (E.D. Va. February 13, 2003).