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Court finds no proof that customers' ‘bad bargain' stemmed from financing, credit status

A federal appeals court has refused to reinstate a Truth-in-Lending Act suit accusing a used-car store owned by a franchised dealership group of burying finance charges in the higher prices that subprime borrowers paid for older used vehicles.

The plaintiffs failed to provide evidence that Balise Auto Sales Inc.'s Ready Credit Used Cars sold comparable vehicles at lower prices to cash customers, the court said. Balise has franchise stores in Massachusetts, Connecticut and Rhode Island.

While Ready Credit charged different prices for vehicles, "the difference is measured by the age of the cars, not the customers' credit status," Judge Miriam Cedarbaum wrote for the Second Circuit U.S. Court of Appeals panel. "The complaint fails to allege purchase price discrimination based on credit status."

The court added: "Essentially, the complaint alleges that plaintiffs received a bad deal. But TILA is a disclosure statute, not a fair pricing law."

The suit alleged that "probably 2,000 or more" customers were affected, but dealer lawyer John Farley of Hartford said a lower-court judge did not certify it as a class action before dismissing the case.

Plaintiffs Sharron Poulin and Latisha Frazier bought vehicles at the Ready Credit store in Enfield, Conn., the suit said. Frazier paid $7,995 for a 1998 Chevrolet Venture listed at $4,000 in the NADA Official Used Car Guide, and Poulin paid $8,440 for a 1998 Saturn SL2 with a NADA guide value of $3,900. The store assigned their retail installment contracts to its affiliated Auto Credit Express Inc., the suit said.

The suit claimed Ready Credit advertised newer, more valuable used cars at market prices that "roughly track" prices in the NADA guide while selling older, less valuable vehicles to subprime customers for substantially higher prices than the guide's.

The appeals court said TILA and Regulation Z require creditors to disclose as finance charges any costs imposed on credit customers but not on cash customers.

A comparison between credit and cash transactions is necessary to determine whether an item is a finance charge, the court said, but the plaintiffs provided no information about the prices that cash purchasers paid for "automobiles of the same vintage."

Said the court: "If the book values in the NADA Guide are a fair proxy for the purchased cars' market values, plaintiffs have alleged a bad bargain. But the complaint provides no facts from which to infer that that bad bargain stemmed from an undisclosed finance charges."

Plaintiffs' lawyer Daniel Blinn of Rocky Hill, Conn., said there will be no further federal appeal but that his clients may pursue related state consumer protection law claims in a Connecticut court.