John Mason Kessler v. Associates Financial Services Company

This case is a companion of St. Germain v. Bank of Hawaii (9th Cir. 1977) 573 F.2d 572 , and, like St. Germain , it raises the question whether the Truth in Lending Act (“TILA,” 15 U.S.C. §§ 1601 et seq.) and Regulation Z ( 12 C.F.R. §§ 226.1 et seq.) require the disclosure statement to reveal the consequences upon unearned finance charges of the creditor’s exercise of its right to accelerate the debt upon default or late payment. The district court concluded that disclosure was required, based on a rationale different from ours in St. Germain . Nevertheless, the court granted summary judgment in favor of the creditor because it thought that the creditor’s reasonable misinterpretation of the statute and its good faith was a defense to the action, and because it believed that it could insulate the creditor from the consequences of the court’s construction of the statute and the regulation by holding that its construction of the law was prospective only. We reverse.

Kessler entered a loan transaction with Associates Financial Services Co. of Hawaii, Inc. (“Associates”) on May 29, 1975, in connection with an automobile purchase. The disclosure statement shows that Associates paid to…