In the
United States Court of Appeals
For the Seventh Circuit

No. 99-2666

Derrick D. Smith and Valerie D. Smith,

Plaintiffs-Appellants,

v.

Check-N-Go of Illinois, Inc., et al.,

Defendants-Appellees.



Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 1958--Harry D. Leinenweber, Judge.


No. 99-2667

Sandra Brown and Deborah Jackson,

Plaintiffs-Appellants,

v.

Check-N-Go of Illinois, Inc.,

Defendant-Appellee.



Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 2073--Harry D. Leinenweber, Judge.


Argued November 9, 1999--Decided December 23, 1999



  Before Bauer, Easterbrook, and Kanne, Circuit Judges.

  Easterbrook, Circuit Judge. We have for
consideration two of the many payday-loan cases
now pending in this court./* A "payday loan" is
a short-term loan that is to be repaid on the
borrower’s next payday. The transaction is
handled with a minimum of paperwork; the loan
agreement is a single sheet of paper, and the
borrower receives cash within minutes of
applying. The rate of interest is high (in the
range of 500% annually), and the lender typically
requires the borrower to write a check that can
be submitted for payment after the borrower’s
next scheduled payday. We held in Smith v. Cash
Store Management, Inc., No. 99-2472 (7th Cir.
Oct. 27, 1999), that a lender does not violate
the Truth in Lending Act, 15 U.S.C. sec.sec.
1601-77, or its implementing regulations, by
referring to the post-dated check as "security."
We also concluded that a receipt stapled to the
front of the loan agreement, and obscuring some
of its terms, might violate the requirement that
all disclosures be made "clearly and
conspicuously". 15 U.S.C. sec.1632(a); 12 C.F.R.
sec.226.17(a)(1). (Congress has authorized the
Federal Reserve to make regulations with the
force of law. 15 U.S.C. sec.1604(a).) The two
appeals consolidated for treatment here present
a third question: whether a circle drawn by hand
around the due date violates the rule that the
finance charge and annual percentage rate be
"more conspicuous than any other disclosure,
except the creditor’s identity". 12 C.F.R.
sec.226.17(a)(2).

  Section 226.17(a) provides (footnotes omitted):

   (1) The creditor shall make the
   disclosures required by this subpart
   clearly and conspicuously in writing, in a
   form that the consumer may keep. The
   disclosures shall be grouped together,
   shall be segregated from everything else,
   and shall not contain any information not
   directly related to the disclosures
   required under sec.226.18. The itemization
   of the amount financed under
   sec.226.18(c)(1) must be separate from the
   other disclosures under that section.

   (2) The terms finance charge and annual
   percentage rate, when required to be
   disclosed under sec.226.18(d) and (e)
   together with a corresponding amount or
   percentage rate, shall be more conspicuous
   than any other disclosure, except the
   creditor’s identity under sec.226.18(a).

The appendix to this opinion reproduces the front
side of the loan agreement signed by plaintiff
Derrick Smith. The area immediately below "Our
Disclosure to You," which the parties call the
"federal box," groups the mandatory disclosures,
complying with the segregation requirement in
sec.226.17(a)(1). The borders around the annual
percentage rate and finance charge sections are
thicker than those around the amount financed and
total of payments; the phrases "annual percentage
rate" and "finance charge" are in boldface, while
"amount financed" and "total of payments" are
not. Check-N-Go, the principal defendant,
contends that as a matter of law this treatment
satisfies the requirement that the finance charge
and annual percentage rate be "more conspicuous
than any other disclosure". The finance charge
and annual percentage rate need not be the most
prominent words on the page; they need only be
the most conspicuous of the "disclosures." The
most eye-catching parts of this form are the
caption "Consumer Loan Agreement", the footer
"COPY NON-NEGOTIABLE", and the line "NOTICE:
SEE ADDITIONAL TERMS ON THE REVERSE SIDE OF THIS NOTICE".
Plaintiffs do not contend that the emphasis on
these phrases violates the regulation, which
makes us wonder what is really at stake if
borrowers’ attention properly may be diverted
from the finance charge and annual percentage
rate. Still, plaintiffs say that the due date is
a required disclosure and that the hand-drawn
circle makes it "more conspicuous" than the
boldface boxes and type used for the finance
charge and annual percentage rate. Concluding
otherwise, the district judge dismissed the
complaints under Fed. R. Civ. P. 12(b)(6) for
failure to state a claim on which relief may be
granted.

  For reasons elaborated in Walker v. National
Recovery, Inc., No. 99-2119 (7th Cir. Dec. 21,
1999), Rule 12(b)(6) does not authorize
dismissal. An allegation that a particular
disclosure is "more conspicuous" than the finance
charge or annual percentage rate states a claim
on which relief may be granted. The possibility
that the allegation is false--even that
attachments to the complaint demonstrate its
falsity--does not mean that the complaint fails
to state a claim. Instead the attachments
authorize the district court to grant judgment on
the pleadings under Rule 12(c), or to convert the
motion to dismiss into a motion for summary
judgment and to grant that relief (a possibility
raised by Rule 12(b) itself). Neither step is
appropriate if there are material factual
disputes, but "conspicuousness" for purposes of
sec.226.17(a)(2) is a matter of law rather than
fact, so decision on the papers was proper, even
though the district judge cited the wrong rule.

  Cash Store Management holds that whether
particular disclosures are "clear" is an issue of
fact, for the extent to which one piece of paper
obscures another varies, and clarity depends on
what a particular borrower would observe.
Similarly, Walker holds that whether a particular
form of words confuses an unsophisticated person
(the standard under the Fair Debt Collection
Practices Act) is a question of fact, because
confusion is in the eye (or mind) of the
beholder. What is clear to a lawyer or logician
may bewilder a less sophisticated person. See
also Johnson v. Revenue Management Corp., 169
F.3d 1057 (7th Cir. 1999). But the legal standard
under the Truth in Lending Act is the objective
"reasonable person" approach, see Cash Store
Management, slip op. 4-5. More to the point,
sec.226.17(a)(2) has nothing to do with
borrowers’ comprehension. What is "more
conspicuous than any other disclosure" depends on
the contents of the form, not on how it affects
any particular reader. See Herrera v. First
Northern Savings & Loan Ass’n, 805 F.2d 896, 900
(10th Cir. 1986), and Dixey v. Idaho First
National Bank, 677 F.2d 749 (9th Cir. 1982), both
of which treat compliance with sec.226.17(a)(2)
as a legal rather than factual matter.

  Let us assume, as plaintiffs contend, that
handwritten (or hand-drawn) portions of the form
are especially "conspicuous" to some borrowers.
Others may find the person-specific terms in a
typeface different from the rest of the form
especially eye-catching--and then every loan
agreement would violate the Act, because lenders
put details such as dates, rates, and amounts
into blank spaces. Many eyes may be most drawn to
boldface type, while to other borrowers italic
type may take precedence. Is 14-point italic more
or less "conspicuous" than 16-point bold, or
boxed 14-point large and small capitals? Perhaps
another contingent responds to the difference
between sans-serif type and type with serifs. The
preprinted parts of defendant’s forms are in
proportionally spaced sans-serif type in the
Helvetica family, but the details added to
complete the transaction are in a monospaced
serif face from the Courier family of type. Some
readers may think that statements in the middle
of the page are most prominent; other eyes may
gravitate to the top or bottom. Yet the premise
of the statute and regulations is that one size
fits all; a form complies or it doesn’t, and the
fact that some or even many of the recipients are
abnormal in their perception of "conspicuousness"
does not affect the form’s validity. Thus the
inquiry must be objective, which makes the
question legal rather than factual.

  If we were to treat the determination of
conspicuousness as a matter of "fact," then the
regulation would fail in its purpose. No matter
what a lender did, a borrower could say that to
his eyes the combination of color, typeface,
spacing, size, style, underlining,
capitalization, border, and placement made one
feature of the agreement stand out relative to
the mandatory disclosures, or emphasized one
disclosure over another. Forget the hand-drawn
circle for a moment. The finance charge and
annual percentage rate are in the middle of the
page, in boldface, sans-serif type enclosed by
vertical rectangles. The due date, printed in a
monospaced serif face, is in a larger box with a
horizontal orientation a little lower on the
page. Do these differences themselves violate the
Truth in Lending Act? If plaintiffs are right,
then lenders can’t know the answer until after a
trial--and if Lender A prevails in one trial,
Lender B with an identical form could lose the
next (or Lender A could lose to the next
borrower). Uncertainty would redound to
borrowers’ detriment, for in competition lenders
must recover their costs, and an unavoidable cost
created by legal dubiety would be passed on to
borrowers in the form of higher interest rates.
The Federal Reserve has included many sample
forms in its regulations, but if the effect of
typeface and type placement is open to
factfinding, then even the model forms are not
safe.

  Form H-2, in 12 C.F.R. Part 226 App. H, is
similar to the contract Check-N-Go used. The
model form has some additional boxes and blanks
to fill in, and lenders (like auto rental
companies and other users of forms) likely try to
direct borrowers’ attention to these options with
hand-drawn Xs and circles so that borrowers can
make the necessary choices. (For example, Form H-
2 has a yes-or-no pair of checkboxes so that the
borrower may elect to receive or forego an
itemization of the amount financed.) Neither the
checkboxes nor lenders’ attempts to draw
consumers’ attention to them detract from the
conspicuous placement, border, and typeface of
the mandatory disclosures. Borrowers who care
about the finance charge and annual percentage
rate could locate them in a trice. Section
226.17(a)(2) requires the lender to emphasize the
finance charge rather than the amount financed,
the annual percentage rate rather than the amount
the borrower receives. A reminder to the borrower
that other choices must be made does not imperil
this preference. Likewise with a circle around
the due date. The principal disclosures still
stand out, and the relative visibility of the
financial terms is unchanged.

  When a lender employs the model form
recommended by the Federal Reserve, an isolated
circle or mark cannot create liability. Although
the Federal Reserve could forbid any alterations
of the form, it has not done so; the extensive
regulations do not hint that the hand-drawn
checkmarks, Xs, and circles so commonly added to
preprinted forms in the process of signing must
be extirpated. Perhaps a determined effort to
embellish the form, as by using a yellow marker
to highlight figures other than the annual
percentage rate and finance charge, would make
the highlighted figures "more conspicuous"
despite the bolder type and boxes for the
disclosures the Federal Reserve wants emphasized.
But a single circle around the due date--the
piece of information most vital to the consumer
once the loan has been made, for failure to repay
on time can lead to penalties--does not turn a
model form into a violation of law.

Affirmed


/* In addition to the two cases listed in the
caption, the list includes two already decided by
the court and eight more pending. Smith v. Cash
Store Management, Inc., No. 99-2472 (7th Cir.
Oct. 27, 1999), and Smith v. Fast Cash Advance,
Inc., No. 99-2673 (7th Cir. Nov. 3, 1999)
(unpublished order), are the decided cases. The
others are Smith v. Americash Inc., No. 99-2936;
Jackson v. Americash Loans, LLC, No. 99-3365;
Jackson v. American Loan Co., No. 99-2596; Terry
v. Payday Loan Corp. of Illinois, No. 99-3652;
Laws v. Payday Loan Corp. of Illinois, No.
99-3625; Mitchem v. Payday Check Advance, Inc.,
No. 99-3353; Brown v. Payday Check Advance, Inc.,
No. 99-3110; and Hahn v. McKenzie Check Advance
of Illinois, LLC, No. 99-3346. All of these cases
were filed by a single law firm, on behalf of a
stable of clients most of whom have filed or
joined multiple suits. For reasons that we have
been unable to discover, the Northern District of
Illinois, in which these suits were filed, did
not consolidate them before a single judge, even
though the issues and parties have substantial
overlap. Our court can do better. From now on,
all appeals concerning payday loans will be
handled by this panel, see Operating Procedure
6(b), and we will issue orders in each of the
other eight pending appeals seeking the parties’
views on the question whether these appeals
should be decided summarily on the authority of
Smith v. Cash Store Management and this opinion.


APPENDIX
