Emery v. American General Finance, Inc.

Verna Emery (plaintiff) was an unsophisticated borrower who obtained a loan from American General Finance, Inc. (American General) (defendant) for approximately $2,000. Six months later, Emery received a letter from American General offering her additional credit in the purported amount of $750. Emery took advantage of the offer, and American General refinanced the original loan. Ultimately, once fees, additional payments, and additional interest were taken into account, Emery had the right to only an additional $200 as opposed to the $750 advertised, and Emery had to pay additional costs of about $1,200. In other words, it cost Emery $1,200 to borrow an additional $200, and these costs were greater than if Emery would have simply obtained a new, separate loan. The Truth in Lending Act (TILA) requires commercial lenders to provide borrowers with full information regarding the terms of consumer credit. However, although Emery received a TILA form regarding the original loan, the second borrowing was classified as a reborrowing of the initial loan under the TILA rather than a separate loan, and therefore, Emery did not receive an updated or separate TILA form regarding the second borrowing. Emery filed suit and alleged that American General’s conduct amounted to fraud because American General knew Emery was an unsophisticated borrower and sent the letter with the improper purpose of exploiting Emery based on her unsophistication. The district judge dismissed Emery’s complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) on the grounds that Emery had failed to allege that American General owed her a fiduciary duty and thus that the facts alleged by Emery did not amount to fraud. Emery appealed.