FIRST ACADIANA BANK, Petitioner, v. FEDERAL DEPOSIT INSURANCE CORP., Respondent, 833 F.2d 548

PATRICK E. HIGGINBOTHAM, Circuit Judge: First Acadiana Bank seeks review of a final administrative order by the Federal Deposit Insurance Corporation. The FDIC found the Bank in violation of the Truth-in-Lending Act and FDIC regulations and ordered the Bank to reimburse certain customers. We affirm. I In 1984, the FDIC notified First Acadia-na Bank of Eunice, Louisiana, that it was in violation of the Truth-in-Lending Act and FDIC regulations. Since October 1, 1982, the Bank’s policy has been to require each car-loan borrower to employ a bank-approved attorney to prepare a valid chattel mortgage on the car.

For two-thirds of such customers, these legal fees were included in the amount financed by the Bank. The amount of the fee was always determined by the attorney and ranged from $55 to $151 per loan. When the Bank financed such a fee, it did not add it to the “finance charge” listed on the disclosure form presented to the borrower. Nor was the fee included in the computation of the annual percentage rate (APR) listed on the same form. Had these fees been included in the finance charge, the APR in any given loan would have been from half a point to ten points higher than that quoted by the Bank.

However, the fees were included in the category “amount financed” and separately disclosed to the borrower. After the Bank refused to alter its policy pursuant to the compliance examiner’s report, the FDIC Board of Review issued a Notice of Charges and of Hearing. An administrative law judge entered an initial decision against the Bank that the FDIC’s Board of Directors adopted in whole. The FDIC order commands the Bank to cease and desist from failing to include the attorneys’ fees as part of the finance charge on its disclosure form.

The Board also ordered the Bank to identify all consumer automobile loans it made since October 1, 1982, in which the finance charge and annual percentage rate were understated. The Bank must then reimburse each borrower to the extent of the understatement. II The Truth-in-Lending Act requires the Bank to disclose to the borrower, among other things, three components of a credit transaction: the “amount financed,” the “finance charge,” and the “annual percentage rate.” 15 U.S.C. § 1638 (1982). The APR is a function of the loan’s duration, payment terms, and the finance charge. See id. § 1606 (1982).

The statute’s definition of “finance charge” is: the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit. The finance charge does not include charges of a type payable in a comparable cash transaction.... Id. § 1605. The statute also provides examples of finance charges.

These include, among others, a “[s]ervice or carrying charge,” a “[l]oan fee” or “finder’s fee,” a “[f]ee for an investigation or credit report,” and a premium for “any guarantee or insurance protecting the creditor against the obligor’s default.” Id. Under the Act’s definition, the attorneys’ fees obviously constitute part of the finance charge. Payment of the fees was “incident to the extension of credit,” because the Bank would not extend credit otherwise. See Berryhill v.

Rich Plan, 578 F.2d 1092, 1099 (5th Cir.1978) (“The important question is whether the seller refuses to extend credit until the customer agrees to another charge.”); see also Jonathan M. Landers, Determining the Finance Charge Under the Truth In Lending Act,1977 Am.B.Found.Res.J. 45, 57-58. Likewise, the attorneys’ fee to perfect a mortgage is not “of a type payable in a comparable cash transaction,” because a cash sale would involve no security interest. In addition, the fees were “imposed directly or indirectly by the creditor,” and thus within the Act’s definition.

The Bank contends that the fee was imposed not by the Bank but by the attorney perfecting the mortgage insofar as the attorney set the amount of the fee and kept the proceeds. According to the Bank, its policy was simply the practical consequence of Louisiana’s strict requirements for a valid chattel mortgage. We reject the Bank’s approach. The Bank has required its borrowers, as a condition to the extension of credit, to pay an avoidable economic cost. Louisiana law does not require the Bank to take a mortgage on a car loan, or to have an attorney complete the mortgage documents.

The fact that the precise amount of the fee was set by a third party makes no difference. We also do not agree that the disputed fees could be finance charges only if the Bank had retained them. Cf. Abbey v. Columbus Dodge, Inc., 607 F.2d 85, 86 (5th Cir.1979) (finance charge includes filing fee only partly retained by lender). Although the Bank retained no fee, it retained a substantial benefit from the attorneys’ services: a perfected security interest. It would be difficult to reconcile any other

interpretation with the Act’s explicit examples of finance charges, several of which involve payments to third parties. “Finders fees,” a “fee for an investigation or credit report,” or an insurance premium against the borrower’s default all may be set and retained by a party other than the lender. We also do not believe, as the Bank contends, that separate disclosure of the attorneys’ fee eliminated the need to comply with the Act’s particular requirements. Congress unambiguously set forth the procedures necessary to ensure informed borrowing.

Accurate disclosure of the finance charge and APR is essential to the “informed use of credit” Congress sought to achieve. See 15 U.S.C. § 1601 (1982). Exclusion of these fees from the finance charge had the effect of understating the annual percentage rate by as much as ten percentage points. The Bank’s non-compliance thus was more serious than the technical violations excused by some courts. See Redhouse v. Quality Ford Sales, Inc., 511 F.2d 230, 237 (10th Cir.1975).

Ill The Bank also challenges the FDIC’s order that the Bank reimburse the disputed fee to each borrower who did not receive statutorily adequate disclosure. We conclude that the FDIC’s remedy is consistent with the congressional mandate.

The Truth-in-Lending Act allows the FDIC to require the creditor to make an adjustment to the account of the person to whom credit was extended, to assure that such person will not be required to pay a finance charge in excess of the finance charge actually disclosed or the dollar equivalent of the annual percentage rate actually disclosed, whichever is lower. 15 U.S.C. § 1607(e)(1). And under the Act, the FDIC shall require such an adjustment when it determines that such disclosure error resulted from (

A) a clear and consistent pattern or practice of violations, (

B) gross negligence, or (

C) a willful violation which was intended to mislead the person to whom the credit was extended. Id. § 1607(e)(2) (emphasis added). Because the Bank has stipulated that it engaged in a “pattern or practice” of excluding the disputed fees from the “finance charge,” the Bank’s policy was the kind of behavior for which restitution was statutorily mandated. Even if we believed the Bank’s extenuation of “good faith” — a plea belied by the Bank’s refusal, to this date, to comply with the FDIC’s order — the statutory remedy still would be appropriate. The enforcement

section of the statute makes no good faith exception. Indeed, because the Act mandates reimbursement where there has been either a “pattern or practice” or a willful violation, it is implied that the “pattern or practice” need not be intentional or in bad faith. The Bank’s final complaint is that it would be unfair to make the Bank pay back fees it never received. Congress made no such exception to the reimbursement remedy, even though the examples of finance charges listed in the Act included fees paid to third parties. It is not our job to decide whether the legislative directive is just. AFFIRMED. .

These figures are based on a sample set of 51 loans made between September 1, 1987 and November 30, 1983, the period covered by the FDIC’s compliance examination of the Bank. . Regulation Z, issued by the FDIC, includes a similar definition of “finance charge": The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit.

It does not include any charge of a type payable in a comparable cash transaction. 12 C.F.R. § 226.4(a) (1987). . We do not read Watts v. Key Dodge Sales, Inc., 707 F.2d 847, 850 (5th Cir.1983), to the contrary. In Watts, we ruled that a fee for notarizing a chattel mortgage fell outside the finance charge. But we reached this result not because the creditor had not set or retained the fee, as Judge Williams’ concurrence suggests, but rather because FDIC regulations specifically exempted such fees from the finance charge. .

The Bank also asserts that the ALJ improperly considered the fact that the disputed fees were paid to attorneys having other relationships with the Bank. In fact, the judge expressly refused to reach the issue of whether the attorneys receiving the disputed fees "control or set Bank policy.”