## Facts

- Ruby Louise Lawson and Carl Wayne Brumlow bought two used automobiles from Scott Reeves and Roy Limbaugh, doing business as Rocket City Auto Sales.
- For each vehicle, the buyers signed an installment sales contract and security agreement.
- One contract listed a sale price of $1,511.83 plus $63.33 sales tax, with payments consisting of $500 down, two $50 payments, forty-seven weekly payments of $30, and a final $1.83 payment.
- Despite the extended installment payment schedule, the contract disclosed a finance charge of “0” and an APR of “0%.”
- The second contract was similar in structure and disclosures.
- The buyers alleged the stated sale prices exceeded the vehicles’ actual values and that the difference represented a finance charge imposed for the extension of credit.
- The buyers sought statutory damages and attorney’s fees under the Truth in Lending Act (TILA) and Regulation Z for failure to disclose the alleged finance charges and APR.

## Issues

1. Whether a complaint states a claim under TILA by alleging that an installment sales contract discloses “0” finance charge and “0%” APR, but the stated price exceeds the item’s actual value so that the excess constitutes an undisclosed, hidden finance charge.

## Decision

- The Supreme Court of Alabama reversed the trial court’s dismissal and remanded.
- The court held that TILA permits a claim for nondisclosure of hidden finance charges when an installment contract fails to disclose a meaningful APR and the stated price is alleged to exceed the item’s actual value.
- The court concluded the buyers’ allegations were sufficient at the pleading stage; valuation and proof of any hidden finance charge were matters for later proceedings.

## Legal Principles

- Under TILA, a “finance charge” includes charges imposed directly or indirectly as an incident to the extension of credit, including a time-price differential.
- Creditors in covered credit sales must disclose the finance charge and APR before consummation as required by TILA and Regulation Z.
- A seller’s inflation of the stated sale price above actual value, when tied to payment over time, can constitute a finance charge that must be disclosed even if the contract labels the finance charge and APR as zero.
- At the motion-to-dismiss stage, allegations of an inflated price functioning as an undisclosed finance charge are sufficient to state a TILA claim.

## Conclusion

The court allowed the consumers’ TILA action to proceed, holding that allegations of an inflated installment-sale price functioning as a hidden finance charge can support liability for nondisclosure even where the contract states “0” finance charge and “0%” APR.


Lawson v. Reeves, 537 So. 2d 15 (Ala. 1988)