## Facts

- Valerie Smith obtained eight two-week “payday” loans from Cash Store at an APR of about 521%.
- For each loan, Smith signed a standard consumer loan agreement and provided a post-dated check for the total amount due (principal plus finance charge).
- The loan agreement stated that the post-dated check was taken as “security for the loan.”
- Cash Store allowed renewals by paying the finance charge and extending the due date, permitting repeated short-term extensions without substantial principal reduction.
- At each loan or renewal, Cash Store stapled a receipt over the agreement; the receipt described the finance charge using labels such as “deferred deposit extension fee” or “deferred deposit check fee.”
- Smith sued under the Truth in Lending Act (TILA) and Regulation Z, alleging (1) the stapled receipts and terminology rendered required disclosures unclear or obscured, and (2) describing the post-dated check as “security” was misleading because it did not create a security interest.
- The district court dismissed the TILA claims under Rule 12(b)(6) and dismissed state-law claims without prejudice; Smith appealed only the TILA dismissal.

## Issues

1. Whether alleging that receipts stapled over the loan document and fee labels like “deferred deposit extension fee” obscured or confused required TILA disclosures states a claim under TILA and Regulation Z’s “clear and conspicuous” standard.
2. Whether characterizing a borrower’s post-dated check as “security for the loan” is misleading (and thus a TILA violation) when the lender takes the check as part of the payday-loan transaction.

## Decision

- The court affirmed in part, reversed in part, and remanded.
- It reversed the Rule 12(b)(6) dismissal of the claim that stapled receipts and nonstandard fee terminology could render disclosures not clear and conspicuous, holding the allegations sufficient to proceed.
- It affirmed dismissal of the claim challenging the “security” characterization, holding the post-dated check could be treated as security under Illinois law.

## Legal Principles

- TILA and Regulation Z require mandated credit disclosures to be “clear and conspicuous” to an ordinary consumer and not obscured, confused, or contradicted by other materials.
- Whether disclosures are clear and conspicuous is often fact-dependent; claims based on how documents are presented to consumers may be unsuitable for resolution on a motion to dismiss.
- A creditor’s description of “security” may depend on state-law consequences; if an instrument provides the lender additional rights or remedies beyond the basic debt obligation, treating it as security may be permissible under TILA.
- Purely legal questions about the effect of an instrument under state law may be resolved at the pleading stage, while consumer-perception questions typically require factual development.

## Conclusion

The Seventh Circuit held that allegations that Cash Store stapled receipts over required disclosures and used terminology that could mislead consumers about finance charges plausibly alleged a TILA disclosure violation, but it rejected Smith’s theory that describing a post-dated check as “security” was misleading because the check provided the lender additional remedial rights under Illinois law.


Smith v. Cash Store Mgmt., Inc., 195 F.3d 325 (7th Cir. 1999)