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Simmons, Jannace and Stagg Secures Victory For Bank Client in Five Truth in Lending Act Arbitrations
July 9, 2007 Syosset, New York
Thomas E. Stagg of Simmons, Jannace and Stagg successfully defended a large banking client in five recent arbitrations and recovered attorney's fees for the bank in one of the arbitrations. The claims, asserted before the American Arbitration Association and the National Arbitration Forum, alleged Truth in Lending Act ("TILA") and Regulation Z violations. The claimants contended that their credit card statements violated various sections of Regulation Z in that: (1) their statements failed to properly categorize their finance charges by component under 12 C.F.R. § 226.7(f); (2) the Statement of Billing Rights contained on the back of their statements was not "clear and conspicuous" as required under TILA because the font size was too small and the statement combined promotional material with mandated disclosures pursuant to 12 C.F.R. §§ 226.9(a) and 226.5(a); and (3) other mandatory disclosures such as the "balance determination method," "grace period" and the "free ride period" were not clearly and conspicuously disclosed because the font was too small and the disclosures were combined with promotional material in violation of 12 C.F.R. §§ 226.7 and 226.5(a).
Some of the claimants retained an expert in typography, who testified that the statements were not clear and conspicuous because the font size was too small. However, on cross examination, Thomas Stagg elicited concessions from the expert that the use of bold, hyphens, capitals, bulleting and other distinguishing marks displayed on the statements promoted readability. The respective arbitrators agreed that while claimants may prefer a different form of disclosure, the Federal Reserve requires only that disclosures be in a reasonably understandable form, and the statements at issue in the cases complied with that standard.
The arbitrators also agreed that the "Explanation of Finance Charges" on the reverse of the credit card statement explained the calculation of the finance charges and that the Cardholder Agreements clearly set forth the terms of any minimum finance charge charged in a billing cycle. With regard to the claimants' argument that the disclosures were not "clear and conspicuous," Thomas Stagg, along with Jacqueline M. Della Chiesa, argued that TILA only requires that the "annual percentage rate" and "finance charge" terms be disclosed more conspicuously than other terms. However, even as to those terms, there is no required font size under 12 C.F.R. §226, Supp. I, Comment 5(a)(1)-1. Simmons, Jannace & Stagg successfully argued that the disclosures made on claimants' statements were displayed in a type size that is equal to other terms as required under the regulation and that they were not required to be segregated from other material on the periodic statement. Although claimants urged the application of a font size used for credit and charge card applications and solicitations under Section 226.5a (not Section 226.5), the firm successfully demonstrated that it would be improper to apply that standard since the statements received by the respective claimants were not an application or solicitation to a new customer. Finally, the arbitrator in each of the cases agreed that the "clear and conspicuous" standard under 12 C.F.R. §226, Supp. I, Comment 5a(a)(2)-1does not require that disclosures be segregated from other material or located in any particular place on the disclosure statement.