Taylor v. Quality Hyundai, Inc.

Jerry and Mary Taylor, and Smith (the buyers) (plaintiffs), respectively, bought cars from Quality Hyundai and DeSi (the dealers). The buyers signed consumer credit contracts agreeing to pay a price for the car and a separate price of $1,395 for an extended warranty. The contracts contained the holder-notice required by the Federal Trade Commission (FTC) stating that any holder of the contract is subject to all claims and defenses that the buyers could assert against the dealers. The dealers also gave the buyers a disclosure pursuant to the Truth in Lending Act (TILA), which included under a heading “Amounts Paid to Others for You” an entry reporting $1,395 paid to the warranty provider. Subsequently, the dealers respectively assigned the contracts to Bank One Chicago and Guardian (the banks). The buyers sued the dealers and the banks under the TILA. The buyers alleged that the disclosure-entries were false because the dealers did not pay the full amounts reported to the warranty providers. The buyers also alleged that the banks, as sophisticated lending-market participants, must have known that the statements on the TILA forms were false. The banks argued that Congress amended the TILA in 1980 to defeat the FTC-holder-notice. The district courts dismissed the buyers’ claims against the banks. On appeal, the buyers made three arguments. First, notwithstanding the TILA, the banks were liable under the contract-terms. Second, the TILA and FTC-holder-notice were not in conflict because Congress did not include a specific exemption and the FTC was never amended. Third, the violations were apparent on the face of the disclosure statements.