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Daniel A. Edelman

Name*

EDELMAN, COMBS & LATTURNER, LLC

E-Mail*

October 15, 2002

Phone

Copyright Daniel A. Edelman 2002

Briefly describe your legal issue.

Daniel A. Edelman is the founding partner of Edelman, Combs & Latturner, a 14-attorney firm that
represents injured consumers and investors. Edelman, Combs & Latturner brings both individual
and class actions on behalf of people injured by home improvement frauds, the purchase of
lemon automobiles, automobile lease overcharges, illegal repossession practices, mortgage
overcharges (such as escrow, late payment and interest computations, illegal collection practices,
excessive points on second mortgages), and similar violations.

Please check the circle after reading the disclaimer.*

I have read the disclaimer.

SU BMIT

Daniel A. Edelman is a 1976 graduate of the University of Chicago Law School. From 1976 to
1981 he was an associate at the Chicago office of Kirkland & Ellis with heavy involvement in the
defense of consumer class action litigation (such as the General Motors Engine Interchange
cases). In 1981 he became an associate at Reuben & Proctor, a medium-sized firm formed by
some former Kirkland & Ellis lawyers, and was made a partner there in 1982. From the end of
1985 he has been in private practice in downtown Chicago. Virtually all of his practice involves
litigation on behalf of consumers. He is the author or coauthor of numerous publications on class
actions and consumer protection law, including Predatory Lending Litigation in Illinois (2001);
Consumer Class Action Manual (2d-5th editions), National Consumer Law Center 1990-2002;
Payday Loans: Big Interest Rates and Little Regulation, 11 Loy.Consumer L.Rptr. 14 (1999); Fair
Debt Collection Practices Act Update 1999, Chicago Bar Assn 1999; An Overview of The Fair
Debt Collection Practices Act, in Financial Services Litigation, Practicing Law Institute (1999);
Consumer Fraud and Insurance Claims, in Bad Faith and Extracontractual Damage Claims in

REP RESEN TATI VE CA SES

P RA CTI CE A RE AS
Credit Reporting
Potential Claims You May Have
Debt Collection Rights

Insurance Litigation, Chicago Bar Assn 1992; Chapter 8, Fair Debt Collection Practices Act, Ohio
Consumer Law (1995 ed.); Fair Debt Collection: The Need for Private Enforcement, 7
Loy.Consumer L.Rptr. 89 (1995); The Fair Debt Collection Practices Act: Recent Developments, 8

Consumer Protection News

Loy.Consumer L. Rptr. 303 (1996); Residential Mortgage Litigation, in Financial Services Litigation,

Robocalls & Telemarketing Abuse

Practicing Law Institute (1996); Automobile Leasing: Problems and Solutions, 7 Loy.Consumer
L.Rptr. 14 (1994); Current Trends in Residential Mortgage Litigation, 12 Rev. of Banking &
Financial Services 71 (1996); Applicability of Illinois Consumer Fraud Act in Favor of Out-of-State
Consumers, 8 Loy.Consumer L.Rptr. 27 (1996); Illinois Consumer Law (Chicago Bar Assn 1996).

Unwanted Solicitations

Mr. Edelman argued Heintz v. Jenkins, 115 S.Ct. 1489, 131 L.Ed.2d 395 (1995), the case
establishing that the litigation conduct of collection attorneys is subject to the Fair Debt Collection
Practices Act, as well as some 50 other federal and state appeals.

Junk Faxes

Unfair Business Practices

Identity Theft
Employment Background Check Errors
Are You Being Sued By A Debt Buyer?
Do You Have a Problem With Your Mortgage?

I.

ILLINOIS CONSUMER FRAUD ACT

Predatory Lending

A.

Section 2 of the Illinois Consumer Fraud Act, 815 ILCS 505/2, provides:

Payday Loan And Credit Companies

Unfair methods of competition and unfair or deceptive acts or practices, including but not
limited to the use or employment of any deception, fraud, false pretense, false promise,
misrepresentation or the concealment, suppression or omission of any material fact, with
intent that others rely upon the concealment, suppression or omission of such material fact,
or the use or employment of any practice described in Section 2 of the Uniform Deceptive
Trade Practices Act, approved August 5, 1965, are hereby declared unlawful whether any
person has in fact been misled, deceived or damaged thereby. In construing this section
consideration shall be given to the interpretations of the Federal Trade Commission and the
federal courts relating to Section 5(a) of the Federal Trade Commission Act.
B.
As indicated, 2 was patterned after 5(a) of the Federal Trade Commission Act, 15 U.S.C.
45. Section 5 of the FTC Act does not provide for any private right of action.

Problems With Landlords

Unpaid Overtime And Other Wages
Has Your Car Been Repossessed?
Car Purchasing Tips

C.
Section 2 of the Uniform Deceptive Trade Practices Act, 815 ILCS 510/2, incorporated by
reference in the Consumer Fraud Act, provides:
A person engages in a deceptive trade practice when, in the course of his business,
vocation or occupation, he:
(1) passes off goods or services as those of another;
(2) causes likelihood of confusion or of misunderstanding as to the source, sponsorship,
approval or certification of goods or services;
(3) causes likelihood of confusion or of misunderstanding as to affiliation, connection or
association with or certification by another;
(4) uses deceptive representations or designations of geographic origin in connection with
goods or services;
(5) represents that goods or services have sponsorship, approval, characteristics,
ingredients, uses, benefits or quantities that they do not have or that a person has a
sponsorship, approval, status, affiliation or connection that he does not have;
(6) represents that goods are original or new if they are deteriorated, altered, reconditioned,
reclaimed, used or secondhand;
(7) represents that goods or services are a particular standard, quality or grade or that
goods are a particular style or model, if they are of another;
(8) disparages the goods, services or business of another by false or misleading
representation of fact;
(9) advertises goods or services with intent not to sell them as advertised;
(10) advertises goods or services with intent not to supply reasonably expectable public
demand, unless the advertisement discloses a limitation of quantity;
(11) make false or misleading statements of fact concerning the reasons for, existence of or
amounts of price reductions;
(12) engages in any other conduct which similarly creates a likelihood of confusion or of
misunderstanding.
In order to prevail in an action under this Act, a plaintiff need not prove competition
between the parties or actual confusion or misunderstanding.
This Section does not affect unfair trade practices otherwise actionable at common law or
under other statutes of this State.
D.
There are some 40 specific prohibitions in the Consumer Fraud Act following 2. Some of
the more important are:
1.

Pyramid sales prohibited: 815 ILCS 505/2A

2.

Right of cancellation for home solicitation sales: 815 ILCS 505/2B. Patterned after FTC

regulation (see below), but not as broad.

3.

Return of down payment or trade in on rejection of credit application. 815 ILCS 505/2C.

4.
Revolving repossession or churning schemes: disposing of collateral under retail
installment contract in manner calculated to increase deficiency. 815 ILCS 505/2G
5.
Credit advertising (similar prohibition in Truth in Lending Act, but no private right of action).
815 ILCS 505/2J.
6.

Statutory used car warranties. 815 ILCS 505/2L.

7.
Until recently, if contract was negotiated in foreign language contract must be furnished in
that language. 815 ILCS 505/2N. This has now been substantially watered down.
8.
Failure of home improvement contractor to complete work or return money upon demand.
815 ILCS 505/2Q.
9.

A contract may not be enforced against a cosigner without giving 15 days advance notice

to the cosigner. 815 ILCS 505/2S provides:

No person may report adverse information to a consumer reporting agency, provide
information to a collection agency or take any collection action regarding a cosigner of an

OU R OF FI C E LOCA TION
Edelman, Combs, Latturner, & Goodwin, LLC
20 South Clark Street
Suite 1500
Chicago, IL 60603
info@edcombs.com
Phone: 312-739-4200
Fax: 312-419-0379

obligation unless prior thereto, such person has notified the cosigner by first class mail that
the primary obligor has become delinquent or defaulted on the loan, that the cosigner is
responsible for the payment of the obligation and that the cosigner must, within 15 days
from the date such notice was sent, either pay the amount due under the obligation or make
arrangements for payment of the obligation. In the event that the cosigner pays or makes
arrangements to pay the obligation, no adverse information shall be reported regarding the
cosigner.
Any person violating this Section commits an unlawful practice within the meaning of this
Act and, in addition, is liable in a civil action for actual damages of up to $250 plus
reasonable attorneys fees.
10.
Prohibits advertising of wholesale prices unless the advertiser can substantiate
significant savings on his price as compared to identical merchandise offered for sale by retailers in
the trade area. 815 ILCS 505/2CC.
11.
Section 2D subjects assignees to certain claims and defenses. This has in part been
rendered obsolete by the FTC regulation on the same subject, 16 C.F.R. part 433 (discussed
below).
E.

Violations of other statutes are specifically defined as violations of the Consumer Fraud

Act:
1.

815 ILCS 505/2E: Commission of three or more violations in a calendar year of:

a.

Consumer Installment Loan Act, 205 ILCS 670/1 et seq.

b.

Retail Installment Sales Act, 815 ILCS 405/1 et seq.

c.

Motor Vehicle Retail Installment Sales Act, 815 ILCS 375/1 et seq.

d.

Interest Act, 815 ILCS 205/0.01 et seq.

e.

Wage Assignment Act, 740 ILCS 170/.01 et seq.

f.

Garnishment restrictions in Code of Civil Procedure

Most of these other statutes are discussed below.

There is a conflict between Appellate Court districts as to whether the adjudication of the multiple
violations can be made in the present action or has to have occurred previously. Fidelity Financial
Services, Inc. v. Hicks, 214 Ill.App.3d 398, 574 N.E.2d 15 (1st Dist. 1991), leave to appeal denied,
141 Ill.2d 539, 580 N.E.2d 112 (1991); Smith v. Sears, Roebuck & Co., 95 Ill.App.3d 174, 419
N.E.2d 673 (4th Dist. 1981) (divided panel).
Furthermore, in Robinson v. Toyota Motor Credit Corp., No. 90242, 201 Ill.2d 403, 2002 WL
1038728 (May 23, 2002), the court held that the prohibition of unfair practices covers conduct
which violates, or comes close to violating, other statutes, not specifically enumerated.
2.
Willful and material violation of any Illinois consumer credit statute: 815 ILCS 505/2F.
Picks up some federal violations as well because the regulations under the Sales Finance Agency
Act require compliance with certain federal laws. (See below)
3.

815 ILCS 505/2Z makes a knowing violation of the following statutes a violation of the

Consumer Fraud Act:

a.

Dance Studio Act, 815 ILCS 610/1 et seq.

b.

Physical Fitness Services Act, 815 ILCS 645/1 et seq.

c.

Hearing Instrument Consumer Protection Act, 225 ILCS 50/1 et seq.

d.

Illinois Union Label Act, 815 ILCS 425/1 et seq.

e.

Job Referral and Job Listing Services Consumer Protection Act, 815 ILCS 630/1 et seq.

f.

Travel Promotion Consumer Protection Act, 815 ILCS 420/1 et seq.

g.

Credit Services Organizations Act, 815 ILCS 605/1 et seq. (discussed below).

h.

Home Repair and Remodeling Act, 815 ILCS 513/1 et seq.

i.

Safe and Hygienic Bed Act, 225 ILCS 50/1 et seq.

j.
Subsection (a) or (b) of Section 3-10 of the Cigarette Tax Act and subsection (a) or (b) of
Section 3-10 of the Cigarette Use Tax Act, 815 ILCS 390/1 et seq. and 35 ILCS 130/3-10.

k.

Electronic Mail Act, 815 ILCS 511/1 et seq.

l.

Automatic Telephone Dialers Act, 815 ILCS 305/1 et seq.

m.

Pay-Per-Call Services Consumer Protection Act, 815 ILCS 520/1 et seq.

n.

Telephone Solicitations Act, 815 ILCS 413/1 et seq.

o.

Automotive Repair Act, 815 ILCS 306/1 et seq.

p.

Illinois Funeral or Burial Funds Act, 225 ILCS 45/1 et seq.

q.

Cemetery Care Act, 760 ILCS 100/1 et seq.

r.

Pre-Need Cemetery Sales Act, 815 ILCS 413/1 et seq.

F.
Finally, the Illinois Supreme Court has adopted a definition of unfair practice that includes
conduct that violates public policy, as defined by other statutes and regulations, injures consumers,
and cannot reasonably be avoided by consumers.
G.

Illinois Attorney General Regulations

a.

Buyers clubs: 14 Ill. Adm. Code part 460

b.

Retail advertising: 14 Ill. Adm. Code part 470

c.

Automobile sales/ lease practices: 14 Ill. Adm. Code part 470. Important provisions.

(1)

14 Ill. Adm. Code 475.210 requires disclosure of all material terms and conditions relating

to the offer clearly and conspicuously at the outset of the offer so as to leave no reasonable
probability that the offering might be misunderstood. Material terms include, without limitation,
those mandated by federal law including, but not limited to, those Acts listed in Section 475.250, or
state law, or without which the advertisement would be false or misleading.
(2)

14 Ill.Adm. Code 475.310 makes it unlawful to advertise the total price of a motor vehicle

without including in the advertised price all costs to the purchaser at the time of sale, or which are
necessary or usual prior to delivery of such vehicle to the purchaser, including any costs of
delivery, dealer preparation and any other charges of any nature; provided, however, taxes, license
and title fees and a documentary service fee, as defined herein, may be excluded from the
advertised price if clearly disclosed in the advertisement that these costs are excluded from the
advertised price.
(3)

14 Ill. Adm. Code 475.410 regulates use of Dealer Cost and Invoice in advertising.

(4)

14 Ill. Adm. Code 475.580 makes it unlawful for a dealer to negotiate the terms of a sale

and thereafter add the cost of items including, without limitation, extended warranties, credit life,
dealer preparation, or undercoating, to the contract without previously disclosing same to the
consumer and without the consumers consent.
H.

APPLICABILITY

1.
Section 2 covers unfair methods of competition and unfair or deceptive acts or practices in
the conduct of any trade or commerce . . . .
2.

Section 1(f) defines trade and commerce to mean the advertising, offering for sale,

sale, or distribution of any services and any property, tangible or intangible, real, personal or
mixed, and any other article, commodity, or thing of value wherever situated, and shall include any
trade or commerce directly or indirectly affecting the people of this State.
3.
This language should be construed to cover violations committed by an Illinois business,
regardless of where the victim is located, and was so construed in Martin v. Heinold Commodities,
117 Ill.2d 772, 510 N.E.2d 840 (1987); and Gordon v. Boden, 224 Ill.App.3d 195, 586 N.E.2d 461
(1st Dist. 1991), leave to appeal denied. However, in Oliveira v. Amoco Oil Co., 311 Ill.App.3d 886,
726 N.E.2d 51 (4th Dist. 2000), appeal pending, the court held that the CFA only protected Illinois
consumers. People of the state@ means any conduct affecting the sovereign interests of the state
of Illinois the sense it is used in an indictment and not particular individuals within the state
of Illinois.
4.
Section 1(a) defines advertisement to include[] the attempt by publication, dissemination,
solicitation or circulation to induce directly or indirectly any person to enter into any obligation or
acquire any title or interest in any merchandise and includes every work device to disguise any
form of business solicitation by using such terms as renewal, invoice, bill, statement, or
reminder, to create an impression of existing obligation when there is none, or other language to
mislead any person in relation to any sought after commercial transaction.

5.
Merchandise is defined in 1(b) to include any objects, wares, goods, commodities,
intangibles, real estate situated outside the State of Illinois, or services.
6.

Leases are covered as well as sales. Duncavage v. Allen, 147 Ill.App.3d 88, 497 N.E.2d

433 (1st Dist. 1986), leave to appeal denied, 505 N.E.2d 352 (Ill. 1987); Carter v. Mueller, 120
Ill.App.3d 314, 457 N.E.2d 1335 (1st Dist. 1983); People ex rel. Fahner v. Hedrich, 108 Ill.App.3d
83, 438 N.E.2d 924 (2d Dist. 1982); People ex rel. Fahner v. Testa, 112 Ill.App.3d 834, 445 N.E.2d
1249 (1st Dist. 1983); Johnson v. Steven Sims Subaru and Subaru Leasing, 92 C 6355, 1993 WL
761231, 1993 U.S.Dist. LEXIS 8078 (N.D.Ill. June 9, 1993); Kedziora v Citicorp Natl Servs., 780
F.Supp. 516 (N.D. Ill. 1991).
7.

There were a couple of cases stating that the Consumer Fraud Act did not apply to banking

practices, In re Estate of Szorek, 194 Ill.App.3d 750, 551 N.E.2d 697 (1st Dist. 1990), but these
have now been repudiated, Law Offices of Wm. J. Stogsdill v. Cragin Fed. Bank for Savings, 268 Ill
App.3d 433, 645 N.E.2d 564 (2d Dist. 1995); Brown v. C.I.L., Inc., 1996 U.S.Dist. LEXIS 4917
(N.D.Ill. 1996), adopted, 94 C 1479, 1996 WL 164294, 1996 U.S.Dist. LEXIS 4053 (N.D.Ill. April 1,
1996).
8.

The statute does not apply to a claim by a client against an attorney for malpractice, Frahm

v. Urkovich, 113 Ill.App.3d 580, 447 N.E.2d 1007 (1st Dist. 1983); Guess v. Brophy, 164 Ill.App.3d
75, 517 N.E.2d 693 (4th Dist. 1987), leave to appeal denied, 121 Ill.2d 569, 526 N.E.2d 830
(1988); Lurz v. Panek, 172 Ill.App.3d 915, 527 N.E.2d 663 (2d Dist. 1988), or to similar claims by
patients against health care providers, Feldstein v. Guinan, 148 Ill.App.3d 610, 499 N.E.2d 535
(1st Dist. 1986), but has been held to apply to the commercial aspects of the provision of health
care, such as secret payments for referrals. Gadson v. Newman, 807 F.Supp. 1412 (C.D.Ill. 1992);
Dimensions Medical Ctr. v. Principal Fin. Group, 93 C 6264, 1995 U.S. Dist. LEXIS 1420 (N.D.Ill.
1995), later opinion, 1996 WL 494229, 1996 U.S.Dist. LEXIS 12,051 (N.D.Ill. Aug. 21, 1996);
Sullivans Whsle. Drug Co. v. Faryls Pharmacy, Inc., 214 Ill.App.3d 1073, 573 N.E.2d 1370 (5th
Dist. 1991), leave to appeal denied, 141 Ill.2d 561, 580 N.E.2d 136 (1991).
9.

There is some ambiguity in the definitions as to whether the sale of Illinois real estate is

covered, because 1(b) states that The term merchandise includes any objects, wares, goods,
commodities, intangibles, real estate situated outside the State of Illinois, or services, but the
better view is that it is covered. City of Aurora v. Green, 126 Ill.App.3d 684, 467 N.E.2d 610 (2d
Dist. 1984); Randels v. Best Real Estate, Inc., 243 Ill.App.3d 801, 612 N.E.2d 984 (2d Dist. 1993).
Contra: Maguire v. Holcomb, 169 Ill.App.3d 238, 523 N.E.2d 688 (5th Dist. 1988). Numerous
cases, including Supreme Court decisions, assume that it is covered. Siegel v. Levy Organization
Development Co., 153 Ill.2d 534, 607 N.E.2d 194 (1992); Breckenridge v. Cambridge Homes, Inc.,
246 Ill.App.3d 810, 822-23, 616 N.E.2d 615 (1993), leave to appeal denied, 152 Ill.2d 555, 622
N.E.2d 1201 (1993); Tan v. Boyke, 156 Ill.App.3d 49, 59-60, 508 N.E.2d 390 (2d Dist. 1987), leave
to appeal denied, 116 Ill. 2d 577, 515 N.E.2d 127 (1987).
10.
There are decisions holding that one must be a consumer to bring suit under the general
provisions of 2 and 10a of the Consumer Fraud Act. Norton v. City of Chicago, 267 Ill.App.3d 507,
642 N.E.2d 839 (1st Dist. 1994), leave to appeal denied, 161 Ill.2d 529, 649 N.E.2d 418 (1995)
(private citizens who were dunned for excessive amounts for parking violations by debt collection
firm held to lack standing because they were not consumers). However, this conclusion is not
justified by the text of the statute (certain provisions, such as 2B, are limited to consumer
transactions, but neither 2 nor 10a is so limited), and there are a larger number of cases from the
same Appellate Court districts and divisions holding that non-consumers can sue.
11.
For example, it is clear that one business can bring suit against another under the Act for
unfair competition. Empire Home Servs., Inc. v. Carpet Am., Inc., 274 Ill.App.3d 666, 653 N.E.2d
852 (1st Dist. 1995), appeal denied, 163 Ill.2d 553, 657 N.E.2d 619 (1995); Downers Grove
Volkswagen, Inc. v. Wigglesworth Imports, Inc., 190 Ill.App.3d 524, 546 N.E.2d 33 (2d Dist. 1989);
Zinser v. Rose, 245 Ill.App.3d 881, 614 N.E.2d 1259 (3d Dist. 1993); Sullivans Whsle. Drug Co. v.
Faryls Pharmacy, Inc., supra, 214 Ill.App.3d 1073, 573 N.E.2d 1370 (5th Dist. 1991), leave to
appeal denied, 141 Ill.2d 561, 580 N.E.2d 136 (1991); P.I.A. Mich. City, Inc. v. National Porges
Radiator Corp., 789 F. Supp. 1421 (N.D. Ill. 1992); Gadson v. Newman, 807 F.Supp. 1412 (C.D.Ill.
1992); Coca-Cola Co. v. Alma-Leo U.S.A., Inc., 719 F.Supp. 725 (N.D.Ill. 1989); Web
Communications Group, Inc. v. Gateway 2000, Inc., 889 F.Supp. 316 (N.D.Ill. 1995); Adams v.
Advanta Mortgage Corp. Midwest, 88 A 216 (Bkcy., N.D.Ill. 1989); Pain Prevention Lab, Inc. v.
Electronic Waveform Labs, Inc., 657 F.Supp. 1486 (N.D.Ill. 1987); Uniroyal Goodrich Tire Co. v.
Mutual Trading Corp., 749 F.Supp. 869 (N.D.Ill. 1990); Industrial Specialty Chemicals v. Cummins
Engine Co., 902 F. Supp. 805 (N.D.Ill. 1995), later opinion, 918 F.Supp. 1173 (N.D.Ill. 1996). The
court in Sullivans held that the protections of the statute are not limited to consumers. That this is
so is made clear by the full title of the Act itself, which indicates that it is An Act to protect
consumers and borrowers and businessmen against fraud, unfair methods of competition and
unfair or deceptive acts or practices in the conduct of any trade or commerce . . . .' (214 Ill.App.3d

at 1082, 573 N.E.2d at 1370) Another court stated: Recently, courts have specifically held that
standing to sue under the Fraud Act is not limited to consumers. . . . The conclusion reached by
these courts is fully supported by the explicit language of the statute and is in accord with the
Illinois Supreme Courts interpretation thereof. Scotsman Group v. Mid-America Distribs., 1994
U.S. Dist. LEXIS 4127 (N.D.Ill. 1994), *17. Another court explained: As is apparent from its
name, The Consumer Fraud Act is fundamentally concerned with protecting consumers. . . . In
spite of this fact, a plaintiff need not be a consumer to proceed under the Act. See 815 ILCS 505/1
(c). However, when both parties to the suit are commercial entities which are not consumers the
test for standing is whether the alleged conduct invokes trade practices addressed to the market
generally or otherwise implicates consumer protection concerns. Stepan v. Winter Panel Corp.,
948 F. Supp. 802, 805-06 (N.D. Ill. 1996).
12.
The decisions requiring that the plaintiff be a consumer may have originated prior to the
express enactment of a private right of action in 1973. During that period, courts implied a private
right of action, Rice v. Snarlin, 131 Ill.App.2d 434, 440-2, 266 N.E.2d 183 (1st Dist. 1970), but
inferred from the existence of the definition of consumer that one be a consumer to sue.
Steinberg v. Chicago Medical School, 69 Ill.2d 320, 328, 371 N.E.2d 634 (1977); People ex rel.
Scott v. Cardet Intl, Inc., 24 Ill.App.3d 740, 321 N.E.2d 386 (1st Dist. 1974). It appears that some
courts continued to refer to these cases even though the cause of action enacted by the legislature
in 1973 (10a) runs in favor of any person affected by a violation.
13.

Privity between the plaintiff and defendant is not required. Elder v. Coronet Ins. Co., 201

Ill.App.3d 733, 558 N.E.2d 1312 (1st Dist. 1990), appeal withdrawn, Elder v. Coronet Ins. Co., 139
Ill.2d 594, 575 N.E.2d 913 (1991) (in action complaining of use of polygraph tests to process
insurance claims, suit could be brought by insured against claims processor as well as insurer,
although insured had only contracted with insurer); Connick v. Suzuki Motor Co., 174 Ill. 2d 482,
675 N.E.2d 584 (1996) (consumer fraud claim stated against manufacturer of vehicle purchased
through dealer for false statements in advertising); Ramson v. Layne, 668 F.Supp. 1162 (N.D.Ill.
1987) (liability of endorser).
14.

Debt collection is covered by the Act. People ex rel. Daley v. Datacom Sys. Corp., 146

Ill.2d 1, 585 N.E.2d 51 (1991); Brown v. C.I.L., Inc., 1996 U.S.Dist. LEXIS 4917 (N.D.Ill. 1996),
adopted, 94 C 1479, 1996 WL 164294, 1996 U.S.Dist. LEXIS 4053 (N.D.Ill. April 1, 1996).
I.

STANDARD OF DECEPTION

1.
The basic elements of a deception claim are (1) a deceptive act or practice, (2) at least if an
omission is concerned, defendants intent that the plaintiff rely on the deception, and (3) that the
deception occurred in the course of conduct involving trade or commerce. Siegel v. Levy Org. Dev.
Co., 153 Ill.2d 534, 607 N.E.2d 194, 198 (1992); Brandt v. Time Ins. Co., 302 Ill.App.3d 159, 704
N.E.2d 843, 946 (1st Dist. 1998); Vance v. National Benefit Assn, 99 C 2627, 1999 WL 731764,
1999 U.S.Dist. LEXIS 13846 (N.D.Ill. Aug. 30, 1999), *13; Shields v. Lefta, Inc., 888 F. Supp. 891
(N.D. Ill. 1995); Bankier v. First Fed. Sav. & Loan Assn, 225 Ill.App.3d 864, 588 N.E.2d 391 (4th
Dist.), leave to appeal denied, 146 Ill.2d 622, 602 N.E.2d 446 (1992).
2.
The test of deception is whether a representation creates the likelihood of deception or
has the capacity to deceive the persons exposed to the practice in the particular case. Elder v.
Coronet Ins. Co., 201 Ill.App.3d 733, 558 N.E.2d 1312 (1st Dist. 1990), appeal withdrawn, Elder v.
Coronet Ins. Co., 139 Ill.2d 594, 575 N.E.2d 913 (1991); Williams v. Bruno Appliance & Furniture
Mart, Inc., 62 Ill.App.3d 219, 222, 379 N.E.2d 52, 54 (1st Dist. 1978); Beard v. Gress, 90 Ill.App.3d
622, 625, 413 N.E.2d 448 (4th Dist. 1980).
3.
The Consumer Fraud Act imposes an affirmative duty to disclose material facts pertaining
to a transaction. Connick v. Suzuki Motor Co., 174 Ill. 2d 482, 675 N.E.2d 584 (1996). Under the
Act the omission of any material fact is deceptive conduct. Crowder v. Bob Oberling Enterprises,
Inc., 148 Ill.App.3d 313, 317, 499 N.E.2d 115 (1st Dist. 1986); Simeon Mgmt. Corp. v. FTC, 579
F.2d 1137, 1145 (9th Cir. 1978) (Failure to disclose material information may cause an
advertisement to be false or deceptive within the meaning of the FTCA [Federal Trade Commission
Act] even though the advertisement does not state false facts); J. B. Williams Co. v. FTC, 381
F.2d 884, 888 (6th Cir. 1967) (court found a violation of FTCA 5 based on the manufacturers
failure to disclose that Geritol was useful only to individuals who were deficient in one of the
vitamins or minerals contained in the product and required affirmative disclosure of the negative
fact that a great majority of persons who experience these symptoms do not experience them
because there is a vitamin or iron deficiency).
4.
Thus, material omissions are actionable even if no duty to disclose the omitted information,
other than that imposed by the Consumer Fraud Act itself, exists. Connick v. Suzuki Motor Co.,
supra, 174 Ill.2d 482, 675 N.E.2d 584 (1996); Celex Group v. Executive Gallery, 877 F.Supp. 1114
(N.D. Ill. 1995), citing Totz v. Continental Du Page Acura, 236 Ill.App.3d 891, 602 N.E.2d 1374 (2d
Dist. 1992) (car dealer has duty to disclose that vehicle has been previously damaged in an

accident). The common-law restriction of liability to affirmative misrepresentation, as opposed to

nondisclosure, has been abolished. Indeed, one of the specific problems that CFA 2 and other
state statutes patterned after FTCA 5 were intended to solve was the common-law rule that a
seller had no affirmative duty to disclose material information relating to the product or service
sold. Note, The Sellers Duty to Disclose Under Consumer Protection Statutes: Defining the
Standard of Care, 17 Suff.U.L.R. 722 (1983).
5.
The Illinois courts have held that where there is a dispute concerning the construction of a
statute, noncompliance does not constitute a CFA violation until the statute has been construed.
Lee v. Nationwide Cassell, LP, 174 Ill.2d 540, 675 N.E.2d 599 (1997); Stern v. Norwest Mortgage,
Inc., 179 Ill.2d 160, 688 N.E.2d 99 (1997).
6.
A matter is material if it might cause a consumer to act differently. Kleidon v. Rizza
Chevrolet, Inc., 173 Ill.App.3d 116, 527 N.E.2d 374 (1st Dist. 1988), leave to appeal denied, 123
Ill.2d 559, 535 N.E.2d 402 (1988). Materiality is objective, to be determined according to the
standard of the population to which the defendants practices are directed. Heastie v. Community
Bank of Greater Peoria, 690 F.Supp. 716 (N.D.Ill. 1988), later opinion, 125 F.R.D. 669 (N.D.Ill.
1989), later opinion, 727 F. Supp. 1133 (N.D.Ill. 1989), later opinion, 727 F.Supp. 1140 (N.D.Ill.
1989); Mother Earth, Ltd. v. Strawberry Camel, Ltd., 72 Ill.App.3d 37, 52, 390 N.E.2d 393, 406 (1st
Dist. 1979), appeal after remand 98 Ill.App.3d 518, 424 N.E.2d 758 (1st Dist 1981). Note that this
does not mean that the consumer would not have entered into the transaction at all, just that
something different would have happened. Thus, small overcharges obtained through deception
or unfair practices are actionable. People ex rel. Hartigan v. Stianos, 131 Ill.App.3d 575, 475
N.E.2d 1024 (2d Dist. 1985).
7.

Even the unthinking, the ignorant and the credulous are protected from deceptive

conduct, Williams, supra, quoting from Rodale Press, Inc., 71 F.T.C. 1184, 1237-38 (1967).
Accordingly, lack of due diligence on the part of the injured party is no defense. Zimmerman v.
Northfield Real Estate, Inc., 156 Ill.App.3d 154, 168, 510 N.E.2d 409 (1st Dist. 1986), appeal
denied, 116 Ill.2d 578, 515 N.E.2d 129 (1987); Beard v. Gress, supra, (neither the mental state of
the person making a misrepresentation nor the diligence of the party injured to check as to the
accuracy of the misrepresentation [is] material to the existence of a cause of action for that
misrepresentation); Carter v. Mueller, 120 Ill.App.3d 314, 320, 457 N.E.2d 1335 (1st Dist. 1983).
8.

Deception is evaluated from the perspective of an unsophisticated consumer. FTC v.

Standard Education Society, 302 U.S. 112, 115 (1937) (The fact that a false statement may be
obviously false to those who are trained and experienced does not change its character, nor take
away its power to deceive others less experienced. . . . Laws are made to protect the trusting as
well as the suspicious); Clomon v. Jackson, 988 F.2d 1314, 1318-1319 (2d Cir. 1993) (the law
protects the vast multitude which includes the ignorant, the unthinking and the credulous, and in
evaluating the tendency of language to deceive, courts and agencies look not to the most
sophisticated readers but rather to the least); Gammon v. GC Services, 27 F.3d 1254, 1257 (7th
Cir. 1994) (following Clomon, standard is that of the unsophisticated consumer and protects the
average consumer who is uninformed, naive, or trusting). As the court in Williams, supra, noted:
It is well established that the test to be used in interpreting advertising is the net impression that it
is likely to make on the general populace. [Citations.] It is immaterial that a given phrase
considered technically may be construed so as not to constitute a misrepresentation or that a
deception is accomplished by innuendo rather than by affirmative misstatement. [Citations.] . . . In
sum, the [Federal Trade] Commissions mandate from the courts is to protect the `ignorant, the
unthinking, and the credulous.' 62 Ill.App.3d at 222, 379 N.E.2d at 54, citing, Rodale Press, Inc.,
71 F.T.C. 1184, 1237-38 (1967).
9.
The fact that an astute consumer could have detected the practice is irrelevant when the
fact is that most consumers under the circumstances do not check. For example, in People ex rel.
Hartigan v. Stianos, 131 Ill.App.3d 575, 475 N.E.2d 1024 (2d Dist. 1985), the court held that a
retailers practice of charging consumers sales tax in an amount slightly greater than that
authorized by law was both deceptive and unfair:
We conclude the practice described in this case is both deceptive and unfair as those terms are
used in the Consumer Fraud Act. The sales tax rates which may be charged to consumers have
been fixed by statute; the legislature set the tax rate at 1.25%, but the evidence here is that
defendants collected an average of 4.75%. While the three sales upon which this case is premised
reflect only a few cents in overcharges, it is apparent that similar overcharges, if permitted to
continue, could aggregate very substantial losses and injury to the consuming public. It is also
unfair to permit the extraction from the consumer of excessive sums under the guise it is a lawful
tax. If, as defendants alleged in their answer, the excess sums collected were turned over to the
State, defendants conduct remains unfair and deceptive to the consumers injury. (475 N.E.2d at
1029.

Obviously, the amount of sales tax is set by law, and a consumer who looked up the statute and
then did the computations upon being presented with a cash register tape at the supermarket could
detect the overcharge. Of course, consumers generally do not whip out the Revenue Act and a
calculator when the clerk rings up their grocery purchase. They simply accept the supermarkets
representation of the amount of the tax and pay. Given the context in which the representation
was made i.e., the normal shopping habits of consumers inflating the amount of the tax
has the tendency and capacity to deceive.
Another instructive decision is Linden v. United States, 254 F.2d 560 (4th Cir. 1958), which held
that the use of advertising material for phone directory other than Yellow Pages that simulated
appearance of Yellow Pages renewals violated the federal mail fraud statute, 18 U.S.C. 1341.
10.
Under this standard, a representation is deceptive if it can be interpreted in either a
misleading or a nonmisleading manner. Russell v. Equifax A.R.S., 74 F.3d 30 (2d Cir. 1996).
11.

Although there is some occasional contrary language in cases, e.g., Duran v. Leslie

Oldsmobile, Inc., 229 Ill.App.3d 1032, 594 N.E.2d 1355 (2d Dist. 1992), the common-law fraud
requirement of a false statement of fact is eliminated. The statute expressly covers false
pretenses, false promises, and omissions. For example, the Act prohibits false statements of
opinion, Duhl v. Nash Realty, Inc., 102 Ill.App.3d 483, 495, 429 N.E.2d 1267 (1st Dist. 1981),
misrepresentations as to future conduct, Buzzard v. Bolger, 117 Ill.App.3d 887, 453 N.E.2d 1129,
1131-2 (2d Dist. 1983), false innuendos, Simeon Mgmt. Corp. v. FTC, 579 F.2d 1137, 1145 (9th
Cir. 1978), and other conduct that does not involve an outright false statement of fact.
12.
The Illinois legislature has given a clear mandate . . . that the courts . . . are to utilize the
Consumer Fraud Act to the utmost degree in eradicating all forms of deceptive and unfair business
practices and to grant appropriate remedies to defrauded consumers. Warren v. LeMay, 142
Ill.App.3d 550, 491 N.E.2d 464, 472 (5th Dist. 1986), later appeal, 144 Ill.App.3d 107, 494 N.E.2d
206 (5th Dist 1986); American Buyers Club of Mt. Vernon v. Honecker, 46 Ill.App.3d 252, 257, 361
N.E.2d 1370, 1374 (5th Dist. 1977); Downers Grove Volkswagen, Inc. v. Wigglesworth Imports,
Inc., 190 Ill.App.3d 524, 546 N.E.2d 33 (2d Dist. 1989); Roberts v. Robert V. Rohrman, Inc., 909
F.Supp. 545, 549 (N.D.Ill. 1995). The best element of business has long since decided that
honesty should govern competitive enterprises, and that the rule of caveat emptor should not be
relied upon to reward fraud and deception. FTC v. Standard Education Society, 302 U.S. 112,
116 (1937).
13.
Whether the failure to disclose matters of law is deceptive has turned on whether the
parties had equal access to the information. Randels v. Best Real Estate, Inc., 243 Ill.App.3d 801,
612 N.E.2d 984 (2d Dist. 1993); City of Aurora v. Green, 126 Ill.App.3d 684, 467 N.E.2d 610 (2d
Dist. 1984). Where a statute or regulation requires that a seller inform a consumer of his or her
rights, the parties do not have equal access to the information. Lee v. Nationwide Cassell, L.P.,
277 Ill.App.3d 511, 660 N.E.2d 94 (1st Dist. 1995), revd other grounds, 174 Ill. 2d 540, 675 N.E.2d
599 (1996). Affirmative misrepresentation of a consumers legal rights constitutes an unfair and
deceptive practice. Heastie v. Community Bank of Greater Peoria, 727 F.Supp. 1133 (N.D.Ill.
1989) and 727 F.Supp. 1140 (N.D.Ill. 1989); Leardi v. Brown, 394 Mass. 151, 474 N.E.2d 1094
(1985) (landlords inclusion in lease of provisions prohibited or rendered unenforceable by various
consumer protection statutes or judicial decision is an unfair and deceptive practice violative of a
statute virtually identical to the Illinois Consumer Fraud Act); People v. McKale, 25 Cal.3d 626, 602
P.2d 731, 159 Cal.Rptr. 811 (1979) (similar); Wiginton v. Pacific Credit Corp., 2 Haw. 435, 634
P.2d 111 (App. 1981) (unlawful for creditor to assert that debtors are liable for attorneys fees
where such liability is clearly barred by state law). In the context of debt collection, such
misrepresentation is specifically prohibited by the Fair Debt Collection Practices Act.
J.

UNFAIRNESS

1.
The Illinois Supreme Court has adopted the test of an unfair practice@ set forth in FTC v.
Sperry & Hutchinson Co., 405 U.S. 233, 244-45 n. 5 (1972); and Cheshire Mortgage Service, Inc.
v. Montes, 223 Conn. 80, 612 A.2d 1130 (1992). Robinson v. Toyota Motor Credit Corp., No.
90242, 201 Ill.2d 403, 2002 WL 1038728 (May 23, 2002); Scott v. Association for Childbirth at
Home, Intl, 88 Ill.2d 279, 430 N.E.2d 1012 (1981). The Robinson decision approved and adopted
the discussion of unfair practice@ in Cheshire, which held that violations of the Truth in Lending
Act and a Connecticut law regulating the number of points that can be charged in residential
mortgage transactions established an unfairness violation.
2.

In determining whether a practice is unfair, these decisions consider:

(1) whether the practice, without necessarily having been previously considered unlawful, offends
public policy as it has been established by statutes, the common law, or otherwise whether, in
other words, it is within at least the penumbra of some common-law, statutory or other established
concept of unfairness;

(2) whether it is immoral, unethical, oppressive or unscrupulous;

(3) whether it causes substantial injury to consumers (or competitors or other businessmen).
FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244-45 n. 5 (1972).
3.

All three criteria do not need to be satisfied to support a finding of unfairness. A practice

may be unfair because of the degree to which it meets one of the criteria or because to a lesser
extent it meets all three.@ Cheshire Mortgage Service, Inc. v. Montes, 223 Conn. 80, 612 A.2d
1130, 1143-44 (1992).
4.

ATo justify a finding of unfairness the injury must satisfy three tests. It must be

substantial; it must not be outweighed by any countervailing benefits to consumers or competition

that the practice produces; and it must be an injury that consumers themselves could not
reasonably have avoided. Cheshire, 612 A.2d at 1447. An overcharge of about $400 was
considered substantial injury.@
5.

In light of the Supreme Court=s adoption of Cheshire, the Connecticut decisions following it

should be considered as precedent. Some of the practices found to be unfair in Connecticut

include:
a.

Conducting business without compliance with a licensing requirement intended to protect

the public. DSM, Inc. v. Sentry Select Ins. Co., 2002 WL 652424 (Conn. Super. March 22, 2002).
b.
Forgery or enforcing forged documents. HomeAmerican Credit, Inc. v. Weiss, 2000 WL
347785 (Conn. Super. March 16, 2000).
K.

PATTERN REQUIREMENT

1.

A 1990 amendment to 815 ILCS 505/10a specified that no such requirement ordinarily

exists. The amendment did not effect a substantive change in the law, but merely clarified that
there never was a public injury requirement under the statute. Ryan v. Wersi Elec. GmbH & Co., 3
F.3d 174 (7th Cir. 1993), later opinion, 59 F.3d 52 (7th Cir. 1995); Golembiewski v. Hallberg Ins.
Agency, Inc., 262 Ill.App.3d 1082, 635 N.E.2d 452 (1st Dist.), leave to appeal denied, 157 Ill.2d
499, 642 N.E.2d 1278 (1994).
2.

A 1995 amendment to 10a purported to reinstate a public injury requirement with respect

to car dealers, only. This was extended to holders of motor vehicle retail installment contracts in
1999. A 2002 Appellate Court decision holds that it violates the special legislation@ prohibition in
the Illinois constitution. Allen v. Woodfield Chevrolet, Inc., 332 Ill.App.3d 605, 773 N.E.2d 1145
(1st Dist.2002).
3.
There are a number of cases which state that a simple breach of a consumer contract is
not a Consumer Fraud Act violation. Bankier v. First Fed. Sav. & Loan, 225 Ill.App.3d 864, 588
N.E.2d 391 (4th Dist. 1992), leave to appeal denied, 146 Ill.2d 622, 602 N.E.2d 446 (1992); Village
of Pawnee v. Azzarelli Constr. Co., 183 Ill.App.3d 998, 539 N.E.2d 895 (4th Dist. 1989); Zankle v.
Queen Anne Landscaping, 311 Ill.App.3d 308, 311-12, 724 N.E.2d 988, 992 (2d Dist. 2000).
These decisions should not be read as imposing a pattern requirement, but rather as defining
what constitutes a deceptive or unfair act or practice. A simple dispute over performance of a
contract is neither. Golembiewski v. Hallberg Ins. Agency, Inc., 262 Ill.App.3d 1082, 1093, 635
N.E.2d 452 (1st Dist. 1994), leave to appeal denied, 157 Ill.2d 499, 642 N.E.2d 1278 (1994)
(Every individual breach of contract between two parties . . . does not amount to a cause of action
cognizable under the Act and the Act should not apply to simple breach of contract claims).
4.
However, it is unfair and deceptive for a business to (1) systematically breach or fail to
honor obligations under consumer contracts, Orkin Exterminating Co., 108 F.T.C. 263 (1986), affd,
849 F.2d 1354 (11th Cir. 1988) (Orkin entered into form contracts with thousands of consumers to
conduct annual pest inspections for a fixed fee and later, without authority in the contracts, raised
the fees an average of $40; both the FTC and the federal Court of Appeals had no difficulty holding
that this action was an unfair practice); People ex rel Hartigan v. All American Aluminum &
Construction Co., 171 Ill.App.3d 27, 524 N.E.2d 1067 (1st Dist. 1988) (repeated failure to perform
home improvement contracts violated Consumer Fraud Act); or (2) misrepresent or conceal
material information concerning its ability or intention to perform a consumer contract, Elder v.
Coronet Ins. Co., supra, 201 Ill.App.3d 733, 558 N.E.2d 1312 (1st Dist. 1990) (deceptive for
insurance company to enter into contracts of insurance without disclosing that it intended to
process claims under the contracts by means of lie detector tests). Some cases state that the
test for standing is whether the alleged conduct involves trade practices addressed to the market
generally or otherwise implicates consumer protection concerns. Lefebvre Intergraphics, Inc. v.
Sanden Mach. Ltd., 946 F.Supp. 1358, 1368 (N.D.Ill. 1996); Gadson v. Newman, 807 F. Supp.
1412, 1421 (C.D. Ill. 1992); Industrial Specialty Chemicals, Inc. v. Cummins Engine Co.,, 902 F.

Supp. 805, 812 (N.D. Ill. 1995); Zinser v. Rose, 245 Ill.App.3d 881, 886, 614 N.E.2d 1259, 1263
(3d Dist. 1993).
5.

While it is not generally necessary for a plaintiff to prove that a defendant acted in violation

of the Consumer Fraud Act on other occasions, it is proper for a plaintiff to do so. Bond v. Noble,
163 Ill.App.3d 1067, 517 N.E.2d 319 (4th Dist. 1987). A pattern of violations shows that defendant
intended to deceive, which in turn gives rise to an inference that the means defendant selected to
carry out his intent were suitable to effectuate his illicit purpose. Gammon v. GC Services L.P., 27
F.3d 1254 (7th Cir. 1994). E.g., Joseph Taylor Coal Co. v. Dawes, 122 Ill.App. 389 (1905), affd.
220 Ill. 147, 77 N.E. 131 (1906) (intent); Eaves v. Penn, 587 F.2d 453, 463-4 (10th Cir. 1978) (in
civil action for breach of fiduciary duty, evidence of breaches of fiduciary other than one for which
recovery was sought properly admitted to show intent); Edgar v. Fred Jones Lincoln-Mercury, 524
F.2d 162, 167 (10th Cir. 1975) (same, odometer fraud); Welch v. Barnett, 34 Okla. 166, 125 P.
472 (1912) (that five Indians willed property to the same unrelated white men in different
transactions is convincing proof that undue influence and fraud were practiced on all). Further, a
pattern of deception justifies an award of punitive damages. Carter v. Mueller, 120 Ill.App. 3d 314,
457 N.E.2d 1335, 1337 (1st Dist. 1983); accord, Tetuan v. A.H. Robins, 738 P.2d. 1210 (Kan.
1987); Eichenseer v. Reserve Life Ins. Co., 934 F.2d 1377 (5th Cir. 1991)
L.

NO INTENT REQUIREMENT

1.
There is no requirement of intent to defraud on the part of the defendant. Miller v. William
Chevrolet/ Geo, Inc., 326 Ill.App.3d 642, 762 N.E.2d 1, 11 (1st Dist. 2001); Beard v. Gress, supra.
Even innocent misrepresentations are covered. Ramson v. Layne, 668 F.Supp. 1162, 1169-70
(N.D.Ill. 1987). [A] plaintiffs right to recovery under the Act may be based on an innocent or
negligent misrepresentation as well as one that is intentional. Rubin v. Marshall Field & Co., 232
Ill.App.3d 522, 533, 597 N.E.2d 688, 695 (1st Dist. 1992).
2.

Scienter is required for real estate brokers and insurance agencies and producers

3.
The reference in CFA 2 to intent that others rely . . . does not reintroduce the
common-law requirement of intent to defraud. Rather, it requires that the defendant intend to
affect the conduct of the victim. Warren v. LeMay, supra, 142 Ill.App.3d 550, 566, 573-74, 491
N.E.2d 464 (5th Dist. 1986); Crowder v. Bob Oberling Enterprises, Inc., 148 Ill.App.3d 313, 316,
499 N.E.2d 115 (1st Dist. 1986); Elder v. Coronet Ins. Co., supra, 201 Ill.App.3d 733, 558 N.E.2d
1312 (1st Dist. 1990); Carl Sandburg Village Condominium Assn No. 1 v. First Condominium
Development Co., 197 Ill.App.3d 948, 557 N.E.2d 246 (1st Dist. 1990) (the intent required by the
statute is only the intent that plaintiffs . . . rely on the information that defendants gave them, as
opposed to any intent on defendants part to deceive); Cox v. Joe Rizza Ford, Inc., 94 C 5688,
1996 WL 65994, 1996 U.S. Dist. LEXIS 1581 (N.D.Ill. Feb. 9, 1996). Satisfaction of this
requirement is presumed when the challenged conduct takes place in connection with a
transaction between the parties. Warren v. LeMay, supra; Roberts v. Robert V. Rohrman, Inc.,
supra, 909 F.Supp. 545 (N.D.Ill. 1995). The purpose of the requirement is to prevent unlimited
liability to unknown persons for failure to disclose.
M.

NO RELIANCE REQUIREMENT

1.
Siegel v. Levy Organization Development Co., 153 Ill.2d 534, 607 N.E.2d 194 (1992);
Martin v. Heinold Commodities, 163 Ill.2d 33, 643 N.E.2d 734, 754 (1994); Miller v. William
Chevrolet/ Geo, Inc., 326 Ill.App.3d 642, 762 N.E.2d 1, 11 (1st Dist. 2001); Tylka v. Gerber
Products Co., 178 F.R.D. 493 (N.D.Ill. 1998); Swanagan v. Al Piemonte Ford Sales,94 C 4070,
1995 WL 493480, 1995 U.S. Dist. LEXIS 11863 (N.D.Ill., August 15, 1995).
2.

Damages are assessed on objective basis: would reasonable consumer have considered

matter significant. Heastie v. Community Bank of Greater Peoria, supra, 690 F.Supp. 716 (N.D.Ill.
1988).
3.
However, it is necessary to prove that plaintiffs damages were caused by the defendants
conduct. See below.
N.

TRIAL BY JURY

1.
Available in federal court, Inter-Asset Finanz AG v. Refco, Inc., 1993 U.S. Dist. LEXIS
11181, *8-9 (N.D.Ill. 1993), Cellular Dynamics, Inc. v. MCI Telecommunications Corp., 1997
U.S.Dist. LEXIS 7466 (N.D.Ill. 1997), but not in state court, Martin v. Heinold, supra.
2.
In most cases, whether a representation is material or deceptive presents a factual
question. Nichols Motorcycle Supply v. Dunlop Tire Corp., 913 F.Supp. 1088 (N.D.Ill. 1995);
People ex rel. Daley v. Datacom Sys., 146 Ill. 2d 1, 585 N.E.2d 51, 66 (1991).
O.

PARTIES LIABLE

1.
In Zekman v. Direct American Marketers, Inc., 182 Ill.2d 359, 695 N.E.2d 853 (1998), the
court rejected the theory that knowingly accepting the fruits of a deceptive practice results in CFA
liability. We agree with AT&T that the plain language of section 2 of the Act does not include
anything that makes it unlawful to knowingly receive the benefits of anothers fraud. Defendants
tend to cite this decision in inappropriate contexts, such as where liability is sought to be imposed
on the basis of respondeat superior.
2.
Respondeat superior liability is necessarily provided for by the CFA, as 10a provides that
Any person who suffers actual damage as a result of a violation of this Act committed by any other
person may bring an action against such person, and 1(c) defines person to include any natural
person or his legal representative, partnership, corporation (domestic and foreign), company, trust,
business entity or association, and any agent, employee, salesman, partner, officer, director,
member, stockholder, associate, trustee or cestui que trust thereof. Since a corporate person
can only act through a human agent, respondeat superior liability is necessarily contemplated.
Warren v. LeMay, supra; Duhl v. Nash Realty, Inc., 102 Ill.App.3d 483, 429 N.E.2d 1267 (1st Dist.
1981); Vance v. National Benefit Assn, 99 C 2627, 1999 WL 731764, *4, 1999 U.S.Dist. LEXIS
13846 (N.D.Ill. Aug. 30, 1999).
3.
Similarly, the CFA expressly contemplates that agents, officers, directors, etc., may be held
liable. The cases hold that an officer or other person who controls a corporation is liable if he or
she participates in violations. Garcia v. Overland Bond & Inv. Co., 282 Ill.App.3d 486, 668 N.E.2d
199 (1st Dist. 1996); People ex rel. Hartigan v. All American Aluminum & Construction Co., 171
Ill.App.3d 27, 524 N.E 2d 1067 (1st Dist. 1988); People ex rel. Fahner v. American Buyers Club,
Inc., 115 Ill.App.3d 759, 450 N.E.2d 904 (3d Dist. 1983); People ex rel. Hartigan v. Dynasty
System Corp., 128 Ill.App.3d 874, 471 N.E 2d 236 (1st Dist. 1984). This test appears somewhat
more stringent than that applied under 5 of the FTC Act. Zale Corp. v. FTC, 473 F.2d 1317, 1322
(5th Cir. 1973); In re Macmillan, Inc., 96 F.T.C. 208 (1980); FTC v. Amy Travel Service, 875 F.2d
564 (7th Cir. 1989); FTC v. International Diamond Corp., 1983-2 Trade Cas. (CCH) &65,506, at p.
68,458 (N.D.Cal. 1983); FTC v. H. N. Singer, Inc., 1982-83 Trade Cas. (CCH) &65,011 (N.D.Cal.
1982).
4.

Advertising agencies

In re Diamond Mortgage Co., 118 B.R. 575 (Bankr., N.D.Ill. 1989).

5.

Endorsers

Ramson v. Layne, 668 F.Supp. 1162 (N.D.Ill. 1987); In re Diamond Mtge. Corp., 118 B.R. 588
(Bankr. N.D.Ill. 1989); In re Diamond Mtge. Corp., 118 B.R. 575 (Bankr. N.D.Ill. 1989).
6.

Aiding, abetting, and assisting.

Waltham Watch Co. v. FTC, 318 F.2d 28, 32 (7th Cir. 1963); People by Lefkowitz v. Therapeutic
Hypnosis, Inc., 83 Misc.2d 1068, 374 N.Y.S.2d 576 (N.Y.Sup.Ct. 1975); Armstrong v. Edelson, 718
F.Supp. 1372 (N.D.Ill. 1989). This ground of liability is open to question in light of Zekman.
P.

REMEDIES
1.

a.

DAMAGES

Causation.

It is necessary to show a causal connection between the misrepresentation or omission and the
claimed damages, but this can be done on an objective basis through proof of a material
misrepresentation or omission. Heastie v. Community Bank of Greater Peoria, supra, 690 F.Supp.
716 (N.D.Ill. 1988); Mother Earth, Ltd. v. Strawberry Camel, Ltd., supra, 72 Ill.App.3d 37, 52, 390
N.E.2d 393, 406 (1st Dist. 1979). For example, in Martin v. Heinold Commodities, Inc., 163 Ill.2d
33, 643 N.E.2d 734 (1994), where a commodities broker misrepresented that part of its
commission was a third-party foreign service fee, the court permitted a class of commodities
purchasers to recover the entire amount of the fee, without any showing as to what happened in
individual transactions.
In In re Synthroid Marketing Litigation, 1999 U.S.Dist. LEXIS 11195 at *13 (N.D.Ill. July 19, 1999),
Judge Bucklo stated that Proximate cause is established by demonstrating that purchases
occurred after the allegedly fraudulent statements were made, and that the alleged fraud directly or
indirectly injured Plaintiffs, citing Garner v. Healy, 184 F.R.D. 598, 602 (N.D.Ill. 1999).
Defendants claim that a stricter standard is required under Oliveira v. Amoco Oil Co., No. 89511,
201 Ill.2d 134, 2002 WL 1340895 (June 20, 2002).
b.

Benefit of Bargain

Brooks v. Midas-Intl Corp., 47 Ill.App.3d 266, 272-73, 361 N.E.2d 815 (1st Dist. 1977).

c.

Injury to Person: recently abolished

d.

Punitive: Guess v. Brophy, 164 Ill.App.3d 75, 517 N.E.2d 693 (4th Dist. 1987); Gent v.

Collinsville Volkswagen, Inc., 116 Ill.App.3d 496, 451 N.E.2d 1385 (5th Dist. 1983); Malooley v.
Alice, 251 Ill.App.3d 51, 621 N.E.2d 265 (3d Dist. 1993); Ekl v. Knecht, 223 Ill.App.3d 234, 585
N.E.2d 156 (2d Dist. 1993); Martin v. Heinold Commodities, 163 Ill.2d 33, 643 N.E.2d 734 (1994).
2.

INJUNCTIVE RELIEF.

a.

The Consumer Fraud Act was amended effective January 1, 1991 to authorize injunctive

relief where appropriate in suits by private parties. 10a(c). This changed prior law to contrary.
Brooks v. Midas-International Corp., 47 Ill.App.3d 266, 361 N.E.2d 815 (1st Dist. 1977).
b.
Previously, courts had refused to grant injunctive relief in suits by private individuals on the
grounds that (i) a person harmed by a deceptive practice does not need an injunction against
future deception and (ii) the provisions in the Act authorizing the Attorney General to obtain
injunctive relief were exclusive. Brooks, supra.
c.

It appears that the Legislature meant to create a statutory injunction, whereby any

individual who was damaged by a practice has standing to obtain an injunction protecting others
from being harmed. In applying a statute authorizing an injunction for law enforcement purposes,
the standards of the public interest, not the requirements of private litigation, measure the
propriety and need for injunctive relief. Hecht Co. v. Bowles, 321 U.S. 321, 331 (1944). The
question is simply whether an injunction is necessary to secure future compliance with the law.
People ex rel. Edgar v. Miller, 110 Ill.App.3d 264, 441 N.E.2d 1328 (4th Dist. 1982). However,
some cases appear to continue to inquire whether the plaintiff needs an injunction, which will
almost never be the case. Disc Jockey Referral Network, Ltd. v. Ameritech Publishing, 230
Ill.App.3d 908, 596 N.E.2d 4 (1st Dist. 1992), leave to appeal denied, 146 Ill.2d 625, 602 N.E.2d
450 (1992).
3.

RESCISSION

Grimes v. Adlesperger, 67 Ill.App.3d 582, 384 N.E.2d 537, 539 (4th Dist. 1978); Warren v. Borger,
184 Ill.App.3d 38, 539 N.E.2d 1284 (5th Dist. 1989), appeal denied, 136 Ill. Dec. 610, 545 N.E.2d
134 (1989); Perkins v. Collette, 179 Ill.App.3d 852, 534 N.E.2d 1312 (2d Dist. 1989).
4.

DECLARATION THAT AN OBLIGATION IS UNENFORCEABLE.

American Buyers Club v. Honecker, 46 Ill.App.3d 252, 361 N.E.2d 1370, 1375 (5th Dist. 1977);
American Buyers Club v. Hayes, 46 Ill.App.3d 270, 361 N.E.2d 1383, 1384 (5th Dist. 1977).
5.

NO NEED TO PROVE MONETARY DAMAGES

In a case where rescission of contracts or declaratory relief is appropriate, it should be possible to

sue under the Act for that relief alone. Section 10a(a) of the Act provides that Any person who
suffers actual damage as a result of a violation of this Act committed by any other person may
bring an action against such person. The court, in its discretion may award actual economic
damages or any other relief which the court deems proper . . . . Injury or damage is defined as
any wrong or damage done to another, either in his person, rights, reputation or property. The
invasion of a legally protected interest of another. Blacks Law Dictionary, 5th Ed., p. 706. See
White v. Touche Ross & Co., 163 Ill.App.3d 94, 516 N.E.2d 509 (1st Dist. 1987), appeal denied,
119 Ill.2d 576, 522 N.E.2d 1259 (1988). For example, the fact that a purported indebtedness
results from a violation of the CFA is in and of itself an invasion of protected rights. Golt v. Phillips,
308 Md. 1, 517 A.2d 328 (1986) (legal liability is also an actual damage under Maryland statute
similar to the Illinois Consumer Fraud Act).
At least one court has found that the fact that a consumer was required to defend a lawsuit and
prosecute a counterclaim to secure relief from an illegal obligation constituted damages sustained
under a consumer protection statute. St. Paul Fire & Marine Ins. Co. v. Updegrave, 33 Wash.App.
653, 656 P.2d 1130 (1983). In St. Paul Fire, a consumer was sued for insurance premiums, and
successfully counterclaimed alleging the premiums had been imposed in violation of the consumer
protection statute. The court awarded the consumer attorneys fees due to the fact that the
consumer was forced to defend the lawsuit, and held that damages sustained does not require
proof of specific monetary damages. See also, Hinchliffe v. American Motors Corp., 184 Conn.
607, 440 A.2d 810, 813 (1981).
Massachusetts courts have also held that a consumer who signed a contract containing illegal
terms constituted injury within the meaning of the Massachusetts consumer protection statute.
Leardi v. Brown, 394 Mass. 151, 474 N.E.2d 1094, 1100-01 (1985). The term `injury denotes `the
invasion of any legally protected interest of another.' Id. 474 N.E.2d at 1101.
6.

ATTORNEYS FEES

Attorneys fees are specifically authorized by 10a(c). Although there is some difference in the
formulations used in the 1st and 2d Appellate Districts, a prevailing defendant should be able to
recover fees only if the action was frivolous.

Graunke v. Elmhurst Chrysler Plymouth Volvo, Inc.,

247 Ill.App.3d 1015, 617 N.E.2d 858 (2d Dist. 1993).

Q.

DEFENSES

1.

LIMITATIONS

Section 10a provides a three year statute of limitations, which is tolled until the injury is discovered
by the victim. Hermitage Corp. v. Contractors Adjustment Co., 166 Ill.2d 72, 651 N.E.2d 1132
(1995); Highsmith v. Chrysler Credit Corp., 18 F.3d 434 (7th Cir. 1994).
2.

PAROL EVIDENCE

The parol evidence rule does not bar evidence of deceptive representations. Shanahan v.
Schindler, 63 Ill.App.3d 82, 379 N.E.2d 1307 (1st Dist. 1978); Spindler v. Krieger, 16 Ill.App.2d
131, 147 N.E.2d 457 (1st Dist. 1958); Wagner v. Morris, 658 S.W.2d 230 (Tex.Civ.App. 1983);
Tidelands Life Ins. Co. v. Harris, 675 S.W.2d 224 (Tex.Civ.App. 1984), writ refd n.r.e.
3.

VOLUNTARY PAYMENT

Under this doctrine, a plaintiff who voluntarily pays money in reply to an incorrect or illegal claim of
right cannot recover that payment unless he show fraud, coercion, or mistake of fact.@ Randazzo
v. Harris Bank Palatine, 262 F.3d 663, 666 (7th Cir. 2001).
The voluntary payment doctrine cannot be used to defeat public policy. Pratt v. Smart Corp., 968
S.W.2d 868 (Tenn. App. 1997) (the voluntary payment rule does not come into play in situations
involving a transaction that violates public policy@); Harper v. American Tel. & Tel. Co., 54
F.Supp.2d 1371, 1380-81 (S.D.Ga. 1999) (state law regarding voluntary payments cannot be used
to prevent recovery of money obtained through mail fraud); LaParr v. City of Rockford, 100 F.2d
564, 568 (7th Cir. 1938); Dunbar v. American Tel. & Tel. Co., 238 Ill. 456, 87 N.E. 521, 535-36
(1909); Evans v. Funk, 151 Ill. 650, 661-2, 38 N.E. 230, 234 (1894); Bizik v. Bizik, 124 Ind. App.
146, 158, 111 N.E.2d 823, 829 (1953). Thus, where a party not in pari delicto seeks recovery of
amounts paid pursuant to an illegal contract, he may do so. Congress & Empire Spring Co. v.
Knowlton, 103 U.S. 49, 58 (1880).
For example, the voluntary payment doctrine cannot be used to defeat the recovery of usurious
interest, the law being intended for the protection of borrowers against lenders. Watertown Fire
Ins. Co. v. Rust, 40 Ill.App. 119 (3d Dist. 1890), affd on opinion below, 141 Ill. 85, 30 N.E. 772
(1892); Buck v. Dahlgren, 23 Cal. App.3d 779, 100 Cal.Rptr. 462, 468 (1972). Similarly, where a
statute limits the fees that may be charged in a transaction, and a person intended to be protected
against excessive fees is charged more than permitted, the fact that the payment is voluntary does
not prohibit recovery of the fee. Newton v. Cox, 878 S.W.2d 105 (Tenn. 1994).
Illinois courts have held that where a person performs professional services for which a license is
required to protect the public, without having the required license, and collects a fee, the person
that paid the fee is entitled to bring an action for restitution of the payment. Ransburg v. Haase,
224 Ill.App.3d 681, 684-88, 586 N.E.2d 1295, 1297-1300 (3d Dist. 1992) (unlicensed architect);
Kaplan v. Tabb Assoc., 276 Ill.App.3d 320, 324-5, 657 N.E.2d 1065 (1st Dist. 1995) (same). The
purchaser is not considered to be in pari delicto because the law in question was passed for the
protection of the person who paid and it appears that the purposes of the law would be better
effectuated by granting relief [to the client] than by denying it.@ Ransburg, 586 N.E.2d at 1298-99.
The Ransburg decision specifically allows recovery on public policy grounds even though the fee
was voluntarily paid to the unlicensed person.
The voluntary payment doctrine has no application where money is entrusted to someone for a
specific purpose, such as payment to a governmental official, and the money is not paid over to the
third party. Harrison Sheet Steel Co. v. Lyons, 15 Ill.2d 532, 155 N.E.2d 595, 597-8 (1959); Cohon
v. Oscar L. Paris Co., 17 Ill.App.2d 21, 149 N.E.2d 472 (1st Dist. 1958); Lawyers Title Ins. Corp. v.
Dearborn Title Corp., 118 F.3d 1157, 1164 (7th Cir. 1997). There is no rule of equity or law which
would permit the defendant to collect money for a special purpose for which it never can or will be
used and to retain the money for its own enrichment over the rights of the plaintiff or plaintiffs who
had paid it.@ Cohon, 149 N.E.2d at 478. Duress, compulsion or fraud need not be shown in such
cases. Cohon, supra; Lawyers Title, supra. Allowing the defendant to retain money under such
circumstances is little short of theft.
Finally, the voluntary payment doctrine should have no applicability to residential mortgages. The
Illinois voluntary payment rule in effect imposes an obligation to raise any question regarding
debits and credits on a transaction prior to payment. The federal Cranston Gonzales amendment
to the Real Estate Settlement Procedures Act, 12 U.S.C. 2605, says a mortgagor can go back and

get an adjustment for any debits or credits up to one year after the servicer ceases servicing the
loan. See N. K. Fairbank Co. v. City of Chicago, 153 Ill.App. 140, 1910 WL 1720 (1st Dist. 1910)
(where ordinance gives payor right to adjustment after payment, voluntary payment rule does not
apply). The federal statute prevails over the state common law rule, under the Supremacy Clause.
4.

PREEMPTION DEFENSE

Invariably, and usually inappropriately, invoked by defendants.

The CFA does not apply to actions taken or transactions specifically authorized by laws
administered by any regulatory body or officer . . . . 10b (815 ILCS 505/10b)
Preemption exists only if some other statute or regulation mandated some specific disclosure or
act and an attempt is made to prohibit it under CFA. Heastie v. Community Bank of Greater
Peoria, supra, 690 F.Supp. 716 (N.D.Ill. 1988); Aurora Firefighters Credit Union v. Harvey, 163
Ill.App.3d 915, 516 N.E.2d 1028 (2d Dist. 1987), leave to appeal denied, 119 Ill.2d 553, 522 N.E.2d
1240 (1988).
a.

INSTANCES WHERE PREEMPTION FOUND

In Lanier v. Associates Finance, Inc., 114 Ill.2d 1, 499 N.E.2d 440 (1986), the court held that where
the Federal Reserve Board required use of particular terminology, without further explanation, a
CFA 2 claim complaining that further explanation should have been provided could not be
sustained.
In Hill v. St. Paul Federal Bank, 2002 WL 480924 (Ill.App. March 29, 2002), the court held that it
was not necessary for a bank to disclose the fact that it posted checks in such order as to
maximize the overdraft fees it charged. A[I]t is the policy in Illinois not to extend disclosure
requirements beyond what is mandated by federal law.
In Weatherman v Gary-Wheaton Bank of Fox Valley, N.A., 186 Ill.2d 472, 713 N.E.2d 543 (1999),
the court held that where a fee was disclosed in compliance with the Real Estate Settlement
Procedures Act, the CFA could not be used to impose greater disclosure requirements.
In Aurora Firefighters Credit Union, the court held that where TILA specified the persons to whom
a disclosure statement had to be furnished, CFA 2 could not be used to alter the list.
b.

INSTANCES WHERE PREEMPTION NOT FOUND

The mere fact that a transaction is subject to regulation under another statute does not mean that it
is not also subject to the CFA.
In Chandler v. American General Finance, Inc., 329 Ill.App.3d 729, 768 N.E.2d 60 (1st Dist. 2002),
the court held that the fact that the disclosures in a credit transaction complied with the Truth in
Lending Act did not foreclose a CFA claim based on misleading advertising used to induce the
credit transaction.
In Heastie v. Community Bank of Greater Peoria, supra, the court held that the fact that TILA
confers a right to cancel certain mortgage transactions does not preclude a CFA 2 claim based on
unfair or deceptive inducement of such mortgage transactions.
Similarly, in Aurora Firefighters Credit Union v. Harvey, supra, the fact that the Credit Union Act
regulated the credit unions practices did not create a CFA exemption; the court held that only if a
specific act or representation were authorized or required by the Credit Union Act would there be
an exemption.
Likewise, Kellerman v. MCI Telecommunications Corp., 112 Ill.2d 428, 493 N.E.2d 1045 (1986),
held that the federal Communications Act, by regulating rates for long distance phone service, did
not preclude application of CFA 2 to deceptive advertising of long distance telephone rates.
Accord, Speakers of Sport, Inc. v. U. S. Telephone, 149 Ill.App.3d 898, 501 N.E.2d 318 (1st Dist.
1986), appeal denied, 114 Ill.2d 558, 508 N.E.2d 736 (1987).
If the other regulatory statute is not complied with, and the conduct is also unfair or deceptive
within meaning of CFA 2, there is no problem in applying CFA to impose liability. April v. Union
Mortgage Co., 709 F.Supp. 809 (N.D.Ill. 1989) (misstatement of material information required to be
disclosed by TILA); Kleidon v. Rizza Chevrolet, Inc., 173 Ill.App.3d 116, 527 N.E.2d 374 (1st Dist.
1988), leave to appeal denied, 123 Ill.2d 559, 535 N.E.2d 402 (1988)(similar).
The fact that the federal law has a shorter limitations period, which has expired, does not mean
that the transaction complies with federal law for purposes of 10b. MorEquity, Inc. v. Naeem, 118
F.Supp.2d 885, 893 (N.D.Ill. 2000).

Under a parallel provision in the North Carolina UDAP statute, the fact that the state insurance
commission authorized the terms of the policy did not exempt deception in marketing or selling it.
Davidson v. Knauff Ins. Agency, Inc., 93 N.C.App. 20, 376 S.E.2d 488 (1989), review denied, 324
N.C. 577, 381 S.E.2d 772 (1989)
Section 155 of the Insurance Code does not preempt the CFA. Fox v. Industrial Cas. Ins. Co., 98
Ill.App.3d 543, 546, 424 N.E.2d 839 (1st Dist. 1981).
II.

FTC REGULATION ABOLISHING THE HOLDER IN DUE COURSE RULE IN MOST

CONSUMER TRANSACTIONS
A.

16 CFR part 433

In 1976, the Federal Trade Commission promulgated a regulation, 16 C.F.R. part 433, intended to
address the problem of consumer liability to financial institutions which finance the purchase of
defective goods. As explained in the FTCs Staff Guidelines on Trade Regulation Rule Concerning
Preservation of Consumers Claims and Defenses, the purpose of the regulation was to make it
impossible for a seller to arrange credit terms for buyers which separate the consumers legal duty
to pay from the sellers legal duty to keep his promises. Prior to the regulation, this could be
accomplished in three ways: (1) [T]he seller may execute a credit contract with a buyer which
contains a promissory note, which was then negotiated to a financing institution. (2) [T]he seller
may incorporate a written provision called a waiver of defenses in the text of an installment sales
agreement and then assign the agreement to a financing institution. (3) [A] seller may arrange a
direct loan for his buyer from the financing institution. (Id.)
The FTC regulation is directed at all three of the above situations. Seller-arranged direct loans
were expressly included because [i]n jurisdictions where efforts have been made to curtail the use
of promissory notes and waivers of defenses, the Commission documented a significant increase
in the use of arranged loans to accomplish the same end. (Id.)
1.

Assigned obligations

The FTC regulation has two parts. The first part, 16 C.F.R. 433.2(a), applies to situations (1) and
(2) -- where the seller and the consumer enter into an obligation which is then assigned or
transferred to a financing institution. In that situation, the FTC regulation eliminates holder in due
course status for the financing institution by requiring that the contract contain the following
statement:
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND
DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR
SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF.
RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE
DEBTOR HEREUNDER.
2.

Direct loans

The second part of the regulation, 16 C.F.R. 433.2(b), applies to situation (3) -- where the seller
refers the consumer to a lender which proceeds to enter into a loan agreement with the consumer.
Section 433.2(b) is triggered when a creditor makes a cash advance to a consumer which the
consumer applies, in whole or substantial part, to a purchase of goods or services from a seller
who (1) refers consumers to the creditor or (2) is affiliated with the creditor by common control,
contract, or business arrangement. (16 C.F.R. 433.1(d)) It requires that any consumer credit
contract made in connection with such purchase money loan -- i.e., the contract between the
consumer and the lender -- contain the following notice:
ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND
DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR
SERVICES OBTAINED WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE
DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.
B.

Depends on existence of referral or assignment relationship

C.

Purpose:

1.
The FTC regulation was intended to abrogate the holder in due course rule in consumer
transactions, Hempstead Bank v. Babcock, 115 Misc.2d 97, 453 N.Y.S.2d 557, 559 (Sup.Ct.
1982), and place the creditor in the shoes of the seller with respect to the consumer. Aillet v.
Century Fin. Co., 391 So.2d 895, 897 (La.App. 1980). The creditor or assignee is in the same
position the seller would have been in. Thomas v. Ford Motor Credit Co., 48 Md.App. 617, 429
A.2d 277, 282 (Md.App. 1981)

2.
The FTC intended to place the burden of losses caused by seller misconduct on the
creditor/assignee, on the theory that it is in a better position to bear the losses and to avoid them
by policing seller misconduct. Provident Bank v. Barnhart, 3 Ohio App. 3d 316, 445 N.E.2d 746,
749-50 (1982)
D.

Restrictive reading by Illinois Supreme Court

1.

In Jackson v. South Holland Dodge, 197 Ill.2d 39, 755 N.E.2d 462 (2001), the Illinois

Supreme Court held that the FTC notice only applied where the violation was such as to warrant
rescission, revocation of acceptance, or the like.
E.

Displacement by specific assignee limitation provisions in TILA and other statutes.

1.
The Seventh and Eleventh Circuits and the Illinois Supreme Court have held that the FTC
required notice does not overcome the limitation on assignee liability in the Truth in Lending Act,
15 U.S.C. 1641. Walker v. Wallace Auto Sales, 155 F.3d 927 (7th Cir. 1998); Ellis v. GMAC, 160
F.3d 703 (11th Cir. 1998); Jackson v. South Holland Dodge, Inc., 197 Ill.2d 39, 755 N.E.2d 462
(2001).
2.

The Jackson court further held that under 10b of the Consumer Fraud Act, the holder

notice could not be used to impose liability for a CFA violation based entirely on noncompliance
with TILA, on the theory that the assignee complied with TILA by accepting a transaction that did
not on its face violate TILA.
3.

This limitation should not be applied to any federal statute that does not expressly address

and limit the liability of assignees or transferees.

4.
Outside the context of the CFA, with its peculiar provision in 10b, this limitation should not
be applied to any state statute or common law theory of liability, regardless of whether it expressly
addresses or limits the liability of assignees or transferees, as doing so would be inconsistent with
the Supremacy Clause. While Walker held that an FTC regulation cannot override a federal
statute, a federal regulation can override state law.
F.

Extent of affirmative recovery:

1.

The consumer may recover from an assignee all payments made under an assigned

contract, including any down payment made to the seller. Cox v. First Natl Bank of Cincinnati, 633
F.Supp 236, 239 (S.D.Ohio 1986); FTC Staff Guidelines on the Holder Rule, 41 Fed.Reg. 20,023
(May 14, 1976).
2.

Tinker v. De Maria Porsche Audi, Inc., 459 So.2d 487, 492 (Fla.App. 1984):

. . . it is clear that not only does the Notice clause entitle the buyer to withhold the balance of the
purchase price owed to the creditor when the sellers contractual duties are not fulfilled, but it gives
the buyer a complete defense should the creditor sue for payment.
3.

Provident Bank v. Barnhart, supra, 445 N.E.2d 746, 750 (Ohio App. 1982):

The FTC Notice allows the obligor to sue the assignee for the seller-assignors faulty
performance.
4.

Thomas v. Ford Motor Credit Co., 429 A.2d 277, 282 (Md.App. 1981):

The appellee urges that a debtor can only assert a defense in response to a suit by the creditor for
collection of the debt. We disagree. The appellee, as the assignee of the contract can be sued
directly by the appellants, recovery being limited to the amounts paid by the debtor under the
contract. To find otherwise would be to defeat the purpose of the notice and the clear import of the
language.
G.

Operation

1.

The rule requires insertion of language negating negotiability in the contract.

2.
This avoids the problem that there is no private right of action under 5 of the FTC Act. The
cause of action is contractual.
3.

Because it alters the contract, the required preservation-of-claims language may be

enforced as a contract term even if it is inserted in error, e.g., in a business-purpose contract, or

one in which there is no referral relationship. Jefferson Bank & Trust Co. v. Stamatiou, 384 So.2d
388, 391 (La. 1980).
4.

The consumer may be able to recover attorneys fees from a creditor who refuses to

recognize its obligations under the required notice, on the theory that it is unfair or deceptive

conduct. Home Savings Assn v. Guerra, 733 S.W.2d 134 (Tex. 1987); Kish v. Van Note, 692
S.W.2d 463, 466, 468-69 (Tex. 1985).
5.

Consumers who exercise their rights under the notice may be the subject of derogatory

reports to credit bureaus. Such reports may be unfair or deceptive, insofar as they imply that the
consumer is not paying for credit-related reasons. See Metro Ford Truck Sales, Inc. v. Davis, 709
S.W.2d 785, 790-1 (Tex.Civ.App. 1986).
H.

Consequences of attempts to evade

1.

Consumer fraud

Heastie v. Community Bank of Greater Peoria, 727 F.Supp. 1133 (N.D.Ill. 1989), and 727 F.Supp.
1140 (N.D.Ill. 1989) (lenders provision of contradictory loan documentation as consumer fraud
violation).
Iron & Glass Bank v. Franz, 9 Pa.D.& C.3d 419, 428-29 (1978) (court held that a lenders knowing
participation in a transaction which violated the FTC preservation of defenses trade regulation rule
constitutes an unfair or deceptive act or practice within the meaning of the Pennsylvania
consumer protection statute).
In re Beneficial Corp., 96 F.T.C. 120 (1980) (financial institution which attempted to limit claims and
defenses assertable against it to those raised within specific time period committed violation of 5
of FTC Act) (consent order).
The FTC Staff Guidelines state that [t]he requirement that a contract contain the Notice is not
satisfied if the text of the Notice is printed in the contract in conjunction with additional recitals
which limit or restrict its application.
2.

Mail and wire fraud

Brown v. LaSalle Northwest National Bank, 148 F.R.D. 584 (N.D.Ill. 1993), later opinion, 820
F.Supp. 1078 (N.D.Ill. 1993), later opinion, 1993 U.S.Dist. LEXIS 11419 (N.D.Ill. 1993) (lenders
provision of nonconforming loan documentation as scheme to defraud within mail and wire fraud
statutes).
Stevens v. Associates Finance, 1996 U.S. Dist. LEXIS 1912 (N.D.Ill. 1996) (Magistrate Judges
report, adopted by District Court).
III.

UNIFORM COMMERCIAL CODE, 810 ILCS 5/1-101 et seq.

A.

Article 2: sales

1.

Express warranties:

a.
2-313(1)(b): any description of the goods which is made part of the basis of the bargain
creates an express warranty that the goods shall conform to the description.
b.
2-313(1)(a): any affirmation of fact or promise made by the seller to the buyer which
relates to the goods and becomes part of the basis of the bargain creates an express warranty that
the goods shall conform to the affirmation or promise.
c.
Brochures and advertisements may constitute express warranties. Wheeler v. Sunbelt Tool
Co., 181 Ill.App.3d 1088, 1100, 537 N.E.2d 1332, 1340 (4th Dist. 1989), appeal denied, 136
Ill.Dec. 610, 545 N.E.2d 134 (1989). The description of the product normally creates an express
warranty. Custom Automated Machinery v. Penda Corp., 537 F.Supp. 77, 82 (N.D.Ill. 1982)
(sellers statement that machine would operate at 120 cycles per hour created an express
warranty).
d.
In car cases, express warranties may be found on the basis of statements that a car is in
good running condition or free from defects, Redmac, Inc. v. Computerland of Peoria, 140
Ill.App.3d 741, 489 N.E.2d 380 (3d Dist. 1986) (free of defects and would work for a reasonable
period of time); that a car is new, Stamm v. Wilder Travel Trailers, 44 Ill.App.3d 530, 358 N.E.2d
382 (5th Dist. 1976); Buechin v. Ogden Chrysler-Plymouth, Inc., 159 Ill.App.3d 237, 511 N.E.2d
1330 (2d Dist. 1987), in undamaged condition, Sass v. Spradlin, 66 Ill.App.3d 976, 384 N.E.2d 464
(2d Dist. 1978), in good order, condition and repair, Continental Sand & Gravel, Inc. v. K & K Sand
& Gravel, Inc., 755 F.2d 87 (7th Cir. 1985); or a good runner. Crothers by Crothers v. Cohen, 384
N.W.2d 562, 563 (Minn. App. 1986).
e.

Disclaimers: Disclaimers of express warranties are generally not effective to the extent that

they negate promises or representations. UCC 2-316; Blankenship v. Northtown Ford, Inc., 95
Ill.App.3d 303, 420 N.E.2d 167, 169-71 (4th Dist. 1981) (boilerplate disclaimer did not negate

dealers obligation to supply new car); Husky Spray Serv. v. Patzer, 471 N.W.2d 146 (S.D.
1991). UCC 2-316 states:
Exclusion or modification of warranties.
(1) Words or conduct relevant to the creation of an express warranty and words or conduct
tending to negate or limit warranty shall be construed wherever reasonable as consistent with each
other; but subject to the provisions of this Article on parol or extrinsic evidence (Section 2-202)
negation or limitation is inoperative to the extent that such construction is unreasonable.
Comment 4 to UCC 2-313 states:
In view of the principle that the whole purpose of the law of warranty is to determine what it is that
the seller has in essence agreed to sell, the policy is adopted of those cases which refuse except
in unusual circumstances to recognize a material deletion of the sellers obligation. Thus, a
contract is normally a contract for sale of something describable and described. A clause
generally disclaiming all warranties, express or implied cannot reduce the sellers obligation with
respect to such description and therefore cannot be given literal effect under Section 2-316.
2.

Implied warranties:

a.

Merchantability

UCC 2-314 provides:

(1) Unless excluded or modified (Section 2-316), a warranty that the goods shall be merchantable
is implied in a contract for their sale if the seller is a merchantable is implied in a contract for their
sale if the seller is a merchant with respect to goods of that kind. . . .
(2) Goods to be merchantable must be at least such as
(a) pass without objection in the trade under the contract description; and . . .
(c) are fit for the ordinary purposes for which such goods are used; . . . .
(f) conform to the promise or affirmations of fact made on the container or label if any.
b.

Fitness for particular purpose. UCC 2-315.

c.
Used vehicles are covered: Lipinski v. Martin J. Kelly Oldsmobile, Inc., 325 Ill.App.3d 1139,
759 N.E.2d 66 (1st Dist. 2001); Jackson v. H. Frank Olds, Inc., 65 Ill.App.3d 571, 382 N.E.2d 550,
555-6 (1st Dist. 1978); Overland Bond & Investment Corp. v. Howard, 9 Ill.App.3d 348, 292 N.E.2d
168 (1st Dist. 1972). Any car can be expected to provide reliable and safe transportation.
Blankenship v. Northtown Ford, Inc., 95 Ill.App.3d 303, 420 N.E.2d 167, 169-71 (4th Dist. 1981).
d.
The statute of limitations on such a warranty begins running from the time the used vehicle
is delivered to the plaintiff. Lipinski, supra.
e.

Disclaimers must be:

(1)
Permitted under 15 U.S.C. 2308, which invalidates disclaimers if a written warranty or
service contract is issued within 90 days after purchase (see below).
(2)
Conspicuous. UCC 2-518. Language of disclaimer under a caption such as Warranty is
misleading and not conspicuous. Blankenship v. Northtown Ford, Inc., 95 Ill.App.3d 303, 420
N.E.2d 167 (4th Dist. 1981).
(3)
Made prior to or at the time of consummation of the transaction, not later. Midland Supply
Co. v. Ehret Plumbing & Heating Co., 108 Ill.App.3d 1120, 440 N.E.2d 153, 157 (5th Dist 1982);
Independent Mach. v. Kuehne & Nagel, Inc., 867 F. Supp. 752 (N.D.Ill. 1994).
(4)
Must be in a document comprising part of the contract, rather than an invoice or shipping
document. See Independent Mach. v. Kuehne & Nagel, Inc., 867 F.Supp. 752 (N.D.Ill. 1994);
Schroeder v. Fageol Motors, Inc., 86 Wash. 2d 256, 544 P.2d 20 (1975) (en banc) (disclaimer of
warranties included in owner book handed to vehicle owner upon delivery of vehicle)
(5)

In order to disclaim the implied warranty of merchantability, the disclaimer must either refer

to merchantability or contain as is language. Schultz v. Jackson, 67 Ill. App. 3d 889, 385

N.E.2d 162 165 (3d Dist. 1979); Jackson v. H. Frank Olds, Inc., 65 Ill.App.3d 571, 382 N.E.2d 550,
555-6 (1st Dist. 1978); McCormick Mach. v. Julian E. Johnson & Sons, 523 So.2d 651 (Fla.App.
1988).
f.

Disclaimers may not be effective if the seller engages in fraud. Shannon v. Boise Cascade,

328 Ill.App.3d 621, 630, 766 N.E.2d 1136, 1143-44 (4th Dist. 2002). A[E]ven if a disclaimer on its

face is not unconscionable, it is subject to challenge if a plaintiff, as in this case, properly raises
allegations of deceit and violation of chapter 93A.@ V.S.H. Realty, Inc. v. Texaco, Inc., 757 F.2d
411, 418 (1st Cir. 1985). The First Circuit Court also stated that Massachusetts case law
unequivocally rejects assertion of an Aas is@ clause as an automatic defense against allegations
of fraud:
The same public policy that in general sanctions the avoidance of a promise obtained by deceit
strikes down all attempts to circumvent the policy by means of contractual devices. In the realm of
fact it is entirely possible for a party knowingly to agree that no representations have been made to
him, while at the same time believing and relying upon representations which in fact have been
made and in fact are false but for which he would not have made the agreements.= Bates v.
Southgate, 308 Mass. 10, 182, 31 N.E.2d 551 (1941).
See also Schell v. Ford Motor Company, 270 F. 2d 384, 386 (1st Cir. 1959) ( under the law of
Massachusetts in the absence of fraud a person may make a valid contract exempting himself
from any liability to another which he may in the future incur as a result of his negligence@);
Attaway v. Tom=s Auto Sales, Inc., 144 Ga.App. 813, 815, 242 S.E.2d 740, 742 (1978). An
effective disclaimer of warranties does not necessarily prevent recovery of damages caused by the
seller=s fraudulent or other deceptive conduct.@ Bundren v. Car Connection, Inc., 963 P.2d 634,
637 (Okla.Civ.App. 1998)..
The use of an Aas is@ disclaimer did not disclaim all prior misrepresentations regarding the failure
of a seller to disclose that a truck had been wrecked, because the state Consumer Protection Act
creates a separate and distinct cause of action for unfair and deceptive acts or practices.@ Smith
v. Scott Lewis Chevrolet, 843 S.W.2d 9, 11 (Tenn.1992). The Tennessee Supreme Court stated
that to allow an Aas is@ disclaimer to serve as a bar to claims of fraud, would be to contradict the
intent of the Consumer Protection Act and give sellers free rein to engage in fraudulent acts. Id.,
citing Morris v. Mack=s Used Cars & Parts, Inc., 1991 WL 3310 (Tenn.Ct.App.). The Tennessee
Supreme Court has held that the Uniform Commercial Code (UCC) imposes an obligation of good
faith in the performance of every contract which may not be disclaimed, and that disclaimers
permitted by Tenn.Code. Ann. 47-2-316 do not defeat separate causes of action under the
Consumer Protection Act.@ Ganzevoort v. Russell, 949 S.W.2d 293, 297 (Tenn. 1997).
g.
A seller=s ability to disclaim is limited by the principles of unconscionability (UCC 2-302)
and good faith (UCC 1-203). Among the circumstances which can invalidate a disclaimer on
these grounds are misrepresentation or nondisclosure of known nonconformities. Bernstein v.
Sherman, 130 Misc.2d 741, 497 N.Y.S.2d 298 (1986); Butcher v. Garrett-Enumclaw Co., 20
Wash.App. 361, 581 P.2d 1352 (1978).
h.

Disclaimers of liability for consequential and incidental damages flowing from warranty

breaches may not be honored in consumer cases, on the theory that the warranty fails of its
essential purpose if the defendant is unable or unwilling to repair a defective vehicle or similar
product, but nevertheless seeks the benefit of its disclaimer. Franks Maintenance & Engineering,
Inc. v. C.A. Roberts Co., 86 Ill.App.3d 980, 989-92, 408 N.E.2d 403 (1st Dist. 1980); Custom
Automated Machinery v. Penda Corp., 537 F.Supp. 77 (N.D.Ill. 1982); KKO, Inc. v. Honeywell, Inc.,
517 F.Supp. 892 (N.D.Ill. 1981); Jones & McKnight Corp. v. Birdsboro Corp., 320 F.Supp 39, 43-44
(N.D.Ill. 1970) (This Court would be in an untenable position if it allowed the defendant to shelter
itself behind one segment of the warranty when it has allegedly repudiated and ignored its very
limited obligations under another segment of the same warranty, which alleged repudiation has
caused the very need for relief which the defendant is attempting to avoid); see Schroeder v.
Fageol Motors, Inc., 86 Wash. 2d 256, 544 P.2d 20, 22-5 (1975) (en banc). Under Illinois law, a
buyer may seek consequential damages arising from a sellers breach of warranty, despite a
disclaimer to the contrary if the buyer can demonstrate that the warranty fails of its essential
purpose and the parties did not contractually allocate all attendant risks. Trans States Airlines v.
Pratt & Whitney Canada, Inc., 1995 U.S.Dist. LEXIS 1641, * 6 (N.D.Ill. 1995).
3.
Proof of breach does not necessarily require expert testimony, although such testimony is
certainly desirable. Redmac, Inc. v. Computerland of Peoria, 140 Ill.App.3d 741, 489 N.E.2d 380
(3d Dist. 1986); Jackson v. H. Frank Olds, Inc., 65 Ill.App.3d 571, 382 N.E.2d 550, 555-6 (1st Dist.
1978); Burrus v. Itek Corp., 46 Ill.App.3d 350, 360 N.E.2d 1168, 1171-2 (3d Dist. 1977); Sauers v.
Tibbs, 48 Ill.App.3d 805, 809-10, 363 N.E.2d 444 (4th Dist. 1977); Overland Bond & Investment
Corp. v. Howard, 9 Ill.App.3d 348, 292 N.E.2d 168 (1st Dist. 1972); Universal Motors, Inc. v.
Waldock, 719 P.2d 254, 257-9 (Alas. 1986) (extensive discussion). It is well settled that the
defective condition of a product can be shown by circumstantial evidence. Ouwenga v. Nu-Way
Ag, Inc., 239 Ill.App.3d 518, 521, 604 N.E.2d 1085 (3d Dist. 1992).
4.

Remedies:

a.
The basic measure of damages is the difference in value between what was promised and
what was received, plus consequential and incidental damages. UCC 2-714, 2-715. The cost of

repair is an acceptable measure of the difference in value; it is not necessary that the repairs
actually have been made. Continental Sand & Gravel, Inc. v. K & K Sand & Gravel, Inc., 755 F.2d
87, 91-92 (7th Cir. 1985); Crest Container Corp. v. R.H. Bishop Co., 111 Ill.App.3d 1068, 1075,
445 N.E.2d 19 (5th Dist. 1982); Midland Supply Co. v. Ehret Plumbing & Heating Co., 108
Ill.App.3d 1120, 440 N.E.2d 153, 157 (5th Dist 1982); Stamm v. Wilder Travel Trailers, 44
Ill.App.3d 530, 358 N.E.2d 382, 385 (5th Dist. 1976); Overland Bond & Investment Corp. v.
Howard, 9 Ill.App.3d 348, 292 N.E.2d 168 (1st Dist. 1972). It is permissible to award damages on
this basis exceeding the purchase price of the goods. Continental Sand, supra, 755 F.2d at 91.
b.

Finance charges may be included in determining the value of the product as warranted.

Burrus v. Itek Corp., 46 Ill.App.3d 350, 360 N.E.2d 1168, 1171-2 (3d Dist. 1977); Thompson
Chrysler-Plymouth, Inc. v. Myers, 48 Ala.App. 350, 264 So.2d 893, 896-97 (1972).
c.

One court has held that diminished resale value due to the public perception that a given

make and model is defective is not compensable. Carlson v. GMC, 883 F.2d 287 (4th Cir. 1989).
d.

Revocation of acceptance

(1)

Requires substantial impairment.

(2)
This may not require that the car be dangerous or inoperable. Black v. Don Schmid Motor,
Inc., 232 Kan. 458, 657 P.2d 517, 523-24 (1983).
(3)
It is sufficient that the buyers faith in the product, or the sellers ability to place it in good
working order, has been substantially impaired, and that its operation is fraught with
apprehension. Lathrop v. Tyrrell, 128 Ill. App. 3d 1067, 1068, 471 N.E.2d 1049, 1051 (3d Dist.
1984); Cogan & OBrien Co. v. Photo & Framing Place, Ltd., 1987 U.S. Dist. LEXIS 9019 (N.D.Ill.,
September 24, 1987); Jackson v. H. Frank Olds, Inc., 65 Ill.App.3d 571, 382 N.E.2d 550, 555-6
(1st Dist. 1978); Stamm v. Wilder Travel Trailers, 44 Ill.App.3d 530, 358 N.E.2d 382, 385-86 (5th
Dist. 1976); Overland Bond & Investment Corp. v. Howard, 9 Ill.App.3d 348, 292 N.E.2d 168 (1st
Dist. 1972); Hemmert Agric. Aviation, Inc. v. Mid-Continent Aircraft Corp., 663 F.Supp. 1546, 1552
(D.Kan. 1987).
(4)
It may be possible to revoke acceptance even if all implied warranties have been
disclaimed. Lytle v. Roto Lincoln Mercury & Subaru, Inc., 167 Ill.App.3d 508, 521 N.E.2d 201, 207
(2d Dist. 1988); Blankenship v. Northtown Ford, Inc., 95 Ill.App.3d 303, 420 N.E.2d 167, 169-71
(4th Dist. 1981).
e.

Recovery of price: The purchase price may be recovered in an action for rejection or

revocation of acceptance. In addition, the purchase price may also be recovered upon proof of
breach of warranty, without rejection or revocation, if the goods have essentially no value.
Toyomenka (America), Inc. v Combined Metals Corp., 139 Ill.App.3d 654, 487 N.E.2d 1172 (1st
Dist. 1985); AES Technology Systems, Inc. v. Coherent Radiation, 583 F.2d 933, 942 (7th Cir.
1978); Stamm v. Wilder Travel Trailers, 44 Ill.App.3d 530, 358 N.E.2d 382, 385 (5th Dist 1976).
This is the case where they cannot be repaired. McGrady v. Chrysler Motors Corp., 46 Ill.App.3d
136, 360 N.E.2d 818 (1st Dist. 1977)
f.
Aggravation, inconvenience and loss of use may be recoverable damages. McGrady v.
Chrysler Motors Corp., 46 Ill.App.3d 136, 360 N.E.2d 818 (1st Dist. 1977) (inconvenience and
aggravation can be recovered, but only if there is loss of use); Vieweg v. Friedman, 173 Ill.App.3d
471, 526 N.E.2d 364 (2d Dist. 1988) (similar).
g.
Notice: UCC 2-607 requires notice of breach or warranty before damages may be
recovered.
(1)
The complaint constitutes notice in a consumer case only where personal injuries are
involved, Goldstein v. G. D. Searle & Co., 62 Ill.App.3d 344, 345, 378 N.E.2d 1083 (1st Dist.
1978). The complaint cannot be relied on as notice in cases where economic damages are
sought. Perona v. Volkswagen of America, Inc., 276 Ill.App.3d 609, 658 N.E.2d 1349 (1st Dist.
1995), vacated, 223 Ill.Dec. 40, 678 N.E.2d 1048 (1997), on remand, 292 Ill.App.3d 59, 684 N.E.2d
859 (1st Dist. 1997).
(2)
Requirements for notice are less stringent for a consumer buyer than for a merchant
buyer. UCC 2-607, Comment 4.
(3)
The UCC does not require any particular type of notification in any particular words.
Custom Automated Machinery v. Penda Corp., 537 F.Supp. 77, 84 (N.D.Ill. 1982). The sellers
observation of the product operating in a defective manner or its presentation for repairs by the
buyer constitute sufficient notice. Malawy v. Richards Mfg. Co., 150 Ill.App.3d 549, 501 N.E.2d
376, 384 (5th Dist. 1986), leave to appeal denied, 114 Ill.2d 547, 508 N.E.2d 729 (1987); Crest
Container Corp. v. R.H. Bishop Co., 111 Ill.App.3d 1068, 1077, 445 N.E.2d 19 (5th Dist. 1982);
Overland Bond & Investment Corp. v. Howard, supra, 9 Ill.App.3d 348, 357-8, 292 N.E.2d 168, 176

(1st Dist. 1972) (Certainly by having the car towed to the dealers place of business, by informing
its employees that the car was again in need of major repair, thus clearing implying that it could not
be operated in a safe manner until such repairs were completed, was sufficient notice to the dealer
that its implied warranties had been breached. . . . ). See Arcor, Inc. v. Textron, Inc., 960 F.2d
710, 715 (7th Cir. 1992) (Under Illinois law, the buyer is not required to notify the seller that the
buyer considers the deficiencies of a product to constitute a breach in order to fulfill its obligation
under section 2-607(3)(a). Notification need merely be sufficient to let the seller know that the
transaction is still troublesome. There is no need to state all objections the buyer has or for the
buyer to say he is holding the seller liable and threaten litigation. [citation] Further, the buyer is
deemed to have met the notice requirement when the seller has actual knowledge of the products
failure based on the sellers own observations).
(4)
If the defendant had actual knowledge of a defect, the notice requirement is satisfied.
Connick v. Suzuki Motor Co., 174 Ill. 2d 482, 675 N.E.2d 584 (1996). However, recall notices
which merely evidenced knowledge of a potential problem in a large number of vehicles may not
be sufficient. Perona v. Volkswagen of America, Inc., 276 Ill.App.3d 609, 658 N.E.2d 1349 (1st
Dist. 1995), vacated, 223 Ill.Dec. 40, 678 N.E.2d 1048 (1997), on remand, 292 Ill.App.3d 49, 684
N.E.2d 859 (1st Dist. 1997).
h.

Give notice required under UCC 2-717:

The buyer on notifying the seller of his intention to do so may deduct all or any part of the damages
resulting from any breach of the contract from any part of the price still due under the same
contract.
5.

Statute of limitations: UCC 2-725

a.

Four years from delivery

b.

Where car is warranted to perform for specified length of time, breach may be found to

occur upon noncompliance. Stelzer v. Matthews Roofing Co., 117 Ill.2d 186, 511 N.E.2d 421, 42123 (1987); R.W. Murray Co. v. Shatterproof Glass Corp., 697 F.2d 818, 823 (8th Cir. 1983) (in
order to constitute a warranty of future performance under [2-725(2)], the terms of the warranty
must unambiguously indicate that the manufacturer is warranting the future performance of the
goods for a specified period of time); Moore v. Puget Sound Plywood, Inc., 214 Neb. 14, 332
N.W.2d 212, 214-15 (1983); U.S. Industries, Inc. v. Mitchell, 148 Ga.App. 770, 252 S.E.2d 672,
673 (1979); Standard Alliance Indus. Inc. v. Black Clawson Co., 587 F.2d 813 (6th Cir. 1978).
B.

Article 9: secured transactions

1.

Repossession / sale of collateral

a.
Illinois followed rule that failure to comply with notice requirements creates rebuttable
presumption that the collateral is worth the debt. First Galesburg Natl Bank v. Joannides, 103
Ill.2d 294, 469 N.E.2d 180 (1984). Now codified in revised Article 9.
b.
Burden is on the secured party to prove a commercially reasonable sale and reasonable
notice to the debtor of the sale. Tauber v. Johnson, 8 Ill.App.3d 789, 291 N.E.2d 180 (1st Dist.
1972).
c.
Notice to obsolete address insufficient where debtor had given notice of address change.
Northern Trust Co. v. Kuykendall, 133 Ill.App.2d 458, 273 N.E.2d 526 (1st Dist. 1971).
2.
Waiver/ estoppel through acceptance of late payments. Margolin v. Franklin, 132 Ill.App.2d
527, 270 N.E.2d 140 (1st Dist. 1971).
C.

Article 2A: leases

D.

Articles 3 and 4: negotiable instruments and payment systems

IV.

MAGNUSON MOSS CONSUMER PRODUCT WARRANTY ACT, 15 U.S.C. 2301 et seq.

A.
Creates federal cause of action for noncompliance with written warranty, service contract or
implied warranty and provides for recovery of attorneys fees. 15 U.S.C. 2310. Written warranty
is defined in manner covering repair or replace warranties and warranties that product will perform
for specified period.
B.
Prohibits disclaimer of implied warranties if a written warranty or service contract is issued
within 90 days after purchase of product. 15 U.S.C. 2308. However, a car dealer who sells a
warranty issued by another can disclaim implied warranties. Priebe v. Autobarn, Ltd., 240 F.3d
584 (7th Cir. 2001).

C.
Affects state law privity requirements. Szajna v. General Motors Corp., 115 Ill.2d 294, 316,
503 N.E.2d 760, 770-71 (1986), holds that although the UCC requires privity, privity need not be
shown for an implied warranty claim under Magnuson Moss. However, there are several federal
district court opinions that disagree. , and thus rejected the notion that the Warranty Act can create
implied warranties that would not have existed under state privity law. Diamond v. Porsche Cars
North America, Inc., 02 C 414, 2002 WL 31155064 (N.D.Ill. Sep 26, 2002) (Hibbler, J.); Kowalke v.
Bernard Chevrolet, Inc., No. 99 C 7980, 2000 WL 656660, at *5 (N.D.Ill. March 23, 2000) (Kocoras,
J.); Jones v. Fleetwood Motor Homes, No. 98 C 3061, 1999 WL 999784, at * 2 (N.D.Ill. Oct. 29,
1999) (Hart, J.); Larry J. Soldinger Associates, Ltd. v. Aston Martin Logonda of North America, Inc.,
97 C 7792, 1999 WL 756174 (N.D.Ill., Sept. 13, 1999).
D.

Requires disclosures of warranties

E.

Although limited to consumer products, a business may be a plaintiff, as long as the

product in question is one which is normally or usually purchased for personal, family or household
purposes. Stuart Becker & Co. v. Steven Kessler Motor Cars, Inc., 135 Misc.2d 1069, 517
N.Y.S.2d 692, 695-6 (Sup.Ct. 1987); Business Modeling Techniques, Inc. v. General Motors Corp.,
123 Misc.2d 695, 474 N.Y.S.2d 258, 260-1 (Sup.Ct. 1984). Thus, a passenger car owned by a
corporation is covered.
V.

ILLINOIS STATUTES REGULATING CREDIT TRANSACTIONS

A.

CREDIT SERVICES ORGANIZATIONS ACT, 815 ILCS 605/1 et seq.

1.
Covers many persons that offer to arrange financing. Credit Services Organization is
defined in 815 ILCS 605/3(d) to mean:
[A] person who, with respect to the extension of credit by others and in return for the
payment of money or other valuable consideration, provides, or represents that the person
can or will provide, any of the following services:
(i) improving a buyers credit record, history, or rating;
(ii) obtaining an extension of credit for a buyer; or
(iii) providing advice or assistance to a buyer with regard to either subsection (i) or (ii).
However, it does not include (i) a person authorized to make loans or extensions of credit under
the laws of this State or the United States who is subject to regulation and supervision by this State
or the United States, (ii) a lender approved by the United States Secretary of Housing and Urban
Development for participation in a mortgage insurance program under the National Housing Act
(12 U.S.C. Section 1701 et seq.), (iii) banks, savings and loan associations, or subsidiaries
thereof, (iv) credit unions, (v) nonprofit consumer credit counseling organizations unless they
charge or receive money, (vi) real estate brokers acting within the course and scope of their
licenses, (vii) attorneys, (viii) securities and commodities brokers, (ix) consumer reporting
agencies, and (x) residential mortgage loan brokers and bankers. Under the Act, an extension of
credit is the right to defer payment of a debt or to incur a debt and defer its payment offered or
granted primarily for personal, family, or household purposes. 815 ILCS 605/3(c).
2.
This definition is broad enough to cover retailers (e.g., home improvement contractors) that
arrange for credit to be extended to others and derive some pecuniary benefit from the transaction,
even if the benefit is not a specific fee allocable to the arranging of credit. In Midstate Siding &
Window Co. v. Rogers, 309 Ill.App.3d 610, 722 N.E.2d 1156 (3d Dist. 1999), a divided court held:
[T]he case at bar presents a factual situation that compels application of the Act. Through their
dealings with Midstate, the Rogers were placed in the precarious position of having signed a
contract without knowing the interest rate that would eventually be charged. Midstate might have
secured an outrageous rate to which the Rogers, for all intents and purposes, would have been
bound. Such a situation is directly at odds with the Act and is likely to be one of the very evils that
the legislature attempted to remedy through the Act.
The Supreme Court granted leave to appeal, but no decision has been issued. Midstate Siding
and Window Co. v. Rogers, 189 Ill.2d 661, 731 N.E.2d 765 (2000).
3.
It probably does not cover a retailer that extends credit itself through a retail installment
contract, as the extension of credit by others requirement is not satisfied in such a case.
4.

The statute prohibits (815 ILCS 605/5) a credit services organization from:

a.
Charging or receiving any money or other valuable consideration prior to full and complete
performance of the services the credit services organization has agreed to perform for or on behalf
of the buyer, unless the credit services organization has obtained a surety bond.

b.
Charging or receiving any money or other valuable consideration solely for the referral of a
buyer to a retail seller who will or may extend credit to the buyer if such extension of credit is in
substantially the same terms as those available to the general public.
c.
Making, or advising any buyer to make, any statement that is untrue or misleading, or that
should be known by the exercise of reasonable care to be untrue or misleading, with respect to a
buyers credit reporting agency or to any person who has extended credit to a buyer or to whom a
buyer has made application for an extension of credit.
d.
Making or using any untrue or misleading representations in the offer or sale of the services
of a credit services organization or engaging, directly or indirectly, in any act, practice or course of
business intended to defraud or deceive a buyer in connection with the office or sale of such
services; including but not limited to: the amount or type of credit a consumer can expect to receive
as a result of the performance of the services offered; the qualifications, training or experience of
its personnel; or the amount of credit improvement the consumer can expect to receive as a result
of the services.
5.

In addition, the statute requires disclosures (815 ILCS 605/6) and affords a right to cancel

(815 ILCS 605/7) within three business days.

6.

All credit services organizations must file registration statements with the Secretary of State

(815 ILCS 605/9).

7.

815 ILCS 605/11 creates a private right of action:

Any person injured by a violation of this Act or by the credit services organizations breach
of a contract entered into pursuant to Section 7 of this Act [815 ILCS 605/7], may bring any
action for recovery of actual damages. Such person may also be awarded punitive
damages, reasonable attorneys fees and court costs.
8.

Violations are also a violation of the Consumer Fraud Act (815 ILCS 605/15).

B.

RETAIL INSTALLMENT SALES ACT, 815 ILCS 405/1 et seq.

1.

Prescribes contents of retail installment contracts

2.

Requires consumer credit disclosures, satisfied by compliance with TILA.

3.

Requires credit for unearned finance charge on prepayment

4.

Regulates insurance

5.

Liability of cosigners

6.

Right to reinstate after payment of 30% of total sale price and prohibition of deficiency upon

repossession after payment of 60%.

7.

No maximum rates.

8.

Does not create private right of action, Hoover v. May Dept. Stores Co., 77 Ill. 2d 93, 395

N.E.2d 541 (1979), but violations are cognizable under Consumer Fraud Act 2, 2E and 2F and
Sales Finance Agency Act.
C.

MOTOR VEHICLE RETAIL INSTALLMENT SALES ACT, 815 ILCS 375/1 et seq.

1.

Contents generally similar to RISA.

2.
Repossession protections now moved into Vehicle Code, 625 ILCS 5/3-114. Does not
specifically provide for cause of action for noncompliance.
D.

INTEREST ACT, 815 ILCS 205/0.01 et seq.

1.

As practical matter, no longer is limitation on rates that professional lenders may charge.

2.
Are limitations on points and prepayment penalties in 4 and 4.1a, but there is extensive
federal preemption.
E.
CONSUMER INSTALLMENT LOAN ACT, 205 ILCS 670/1, AND REGULATIONS, 38 ILL.
ADM. CODE PART 110
1.

Licensing: anyone can get one

2.

No longer any maximum interest rates

3.

Rebate of unearned interest on prepayment

4.

Regulation of credit life, disability and property insurance

5.

Prohibition of charges not authorized by CILA

6.

Disclosure requirements (satisfied by compliance with TILA)

7.

Prohibition of small mortgage loans (under $3,000)

8.

Redemption of motor vehicle security

F.

WAGE ASSIGNMENT ACT, 740 ILCS 170/1

1.

Form requirements for wage assignments

2.

Conditions before demand for wages can be made

3.

Limit on percent of wages that may be taken

G.
SALES FINANCE AGENCY ACT, 205 ILCS 660/1, AND REGULATIONS, 38 ILL. ADM.
CODE PART 160
1.

Licensing

2.

Violations:

Sec. 8.3. Aiding or conspiring to aid any person in the violation of the Retail Installment Sales Act
[815 ILCS 405/1 et seq.] or of the Motor Vehicle Retail Installment Sales Act [815 ILCS 375/1 et
seq.].
Sec. 8.4. Purchase of any retail contract, retail charge agreement, or evidence of indebtedness
thereunder, that on its face violates the SFAA, the Retail Installment Sales Act [815 ILCS 405/1 et
seq.] or the Motor Vehicle Retail Installment Sales Act [815 ILCS 375/1 et seq.].
Sec. 8.5. Purchase of any retail contract, retail charge agreement, or evidence of indebtedness
thereunder after actual knowledge that the contract, agreement or evidence of indebtedness
violates the SFAA, the Retail Installment Sales Act [815 ILCS 405/1 et seq.] or the Motor Vehicle
Retail Installment Sales Act [815 ILCS 375/1
Sec. 8.6. Use of collection process which violates any of the laws of this State with respect to
garnishment, wage deduction orders or wage assignments.
Sec. 8.8. Fraud.
Sec. 8.9. Fraud, misrepresentation, or concealment by the licensee of material facts required to be
disclosed to a retail buyer under the Retail Installment Sales Act [815 ILCS 405/1 et seq.] or the
Motor Vehicle Retail Installment Sales Act [815 ILCS 375/1 et seq.].
3.

Remedy: Sec. 16. Statutory damages have been abolished.

H.

ILLINOIS RESIDENTIAL MORTGAGE LICENSING ACT, 205 ILCS 635/1-1 et seq.

1.

Provides for licensing and regulation of mortgage lenders and brokers

2.

Regulations require written agreement between broker and client, and provide that

attorneys fees are awardable in action for breach

3.

Mortgage brokers must provide disclosure of their status as such

I.

PAWNBROKER REGULATION ACT, 205 ILCS 510/0.01 ET SEQ.

J.

REVOLVING CHARGE BILLING ACT, 815 ILCS 130/0.01 ET SEQ.

K.

CREDIT CARD ISSUANCE ACT, 815 ILCS 140/0.01 ET SEQ.

L.

CREDIT CARD LIABILITY ACT, 815 ILCS 145/0.01 ET SEQ.

M.

UNSOLICITED CREDIT CARD ACT OF 1977, 815 ILCS 150/1 ET SEQ.

VI.

OTHER ILLINOIS CONSUMER PROTECTION PROVISIONS

A.

RESIDENTIAL REAL PROPERTY DISCLOSURE ACT, 765 ILCS 77/25

1.
Requires delivery of report attesting to seller=s knowledge of list of conditions, and creates
private cause of action (765 ILCS 77/55) against anyone who knowingly violates or fails to perform
any duty or knowingly makes false disclosure
B.

PRIVATE BUSINESS AND VOCATIONAL SCHOOLS ACT, 105 ILCS 425/1.01 ET SEQ.

C.

PRIVATE EMPLOYMENT AGENCY ACT, 225 ILCS 515/0.01 ET SEQ.

D.

TRANSMITTERS OF MONEY ACT, 205 ILCS 657/1 ET SEQ.

E.

FEDERAL AND STATE ODOMETER ACTS

1.

49 U.S.C. 32701-11, formerly 15 U.S.C. 1981-91, and implementing regulations 49

C.F.R. part 580

2.

625 ILCS 5/3-112.1

3.

720 ILCS 5/17-11

4.

Requires intent to defraud, However, actual knowledge is not a requirement under the

Federal Odometer Fraud Act; constructive knowledge or reckless disregard is sufficient. Smith v.
Walt Bennett Ford, Inc., 314 Ark. 591, 864 S.W.2d 817, 830 (1993); accord, Nieto v. Pence, 578
F.2d 640 (5th Cir. 1978). While ordinary negligence is not enough, gross negligence by a
professional dealer in cars is sufficient basis for a finding of intent. Tusa v. Omaha Auto Auction
Inc., 712 F.2d 1248, 1253 (8th Cir. 1983); Jones v. Hanley Dawson Cadillac, 848 F.2d 803, 808-9
(7th Cir. 1988); Resendiz v. Eatinger, 1990 U.S.Dist. LEXIS 7112, *4 (N.D.Ill. 1990). Once a
dealer has notice of grounds for suspecting an odometers inaccuracy, the law imposes upon him a
duty of further inquiry. The dealer must then investigate the facts in order to ascertain whether the
odometers mileage reading is reliable, before certifying that it as such; or, if he chooses not to do
this, then he is legally bound to inform the customer that he suspects the odometer is inaccurate
and that it should not be relied upon. Oettinger v. Lakeview Motors, Inc., 675 F.Supp. 1488, 1493
(E.D.Va. 1988); Hall v. Riverside Lincoln Mercury Sales, Inc., 148 Ill.App.3d 715, 499 N.E.2d 156,
160 (2d Dist. 1986).
5.

Grounds for suspecting an odometers inaccuracy include:

a.

Mileage which appears unusually low given the age of the car. Examples of mileage

readings which have been held to place a dealer on notice that further inquiry is necessary include
14,736 on a ten-year-old truck, Nieto v. Pence, 578 F.2d 640 (5th Cir. 1978), 33,000 on a six-yearold car, Adams v. Neil Huffman Nissan, Inc., 1989 Ky.App. LEXIS 51 (1989), and 27,000 miles on
a six-year-old car, Ragland v. Dumm, 1994 Ohio App. LEXIS 6030 (1994).
b.
The condition of the car whether it shows signs of wear or replacement of parts that
normally occur at a higher mileage than shown on the odometer. Ragland v. Dumm, supra;
Levine v. Parks Chevrolet, Inc., 76 N.C.App. 44, 331 S.E.2d 747, 751 (1985) (finding that evidence
was sufficient to show that defendant should have known that mileage was other than that
recorded by odometer because several pieces of equipment, most noticeably the tires, were not of
the original brand).
c.
The extent to which the defendant makes affirmative claims about the cars mileage and
ownership. [T]o make affirmative claims about mileage without knowledge is either intentionally
deceitful or reckless . . . . Oettinger, supra, 675 F.Supp. at 1495.
6.
The duty of further inquiry placed upon the car dealer who has notice of a possible
odometer discrepancy includes an obligation to obtain prior title or odometer disclosure
documents. Tusa v. Omaha Auto Auction, supra, 712 F.2d at 1254; Oettinger v. Lakeview Motors,
675 F.Supp. at 1494; Ragland v. Dumm, supra. It may include an obligation to contact prior
owners. Resendiz v. Eatinger, supra.
7.
Intent may be established by inference: [t]hat an odometer was tampered with or that a
transferor knew or should have known the mileage was false can be inferred from the facts.
Smith, 864 S.W.2d at 830; Bryant v. Thomas, 461 F.Supp. 613 (D.Neb. 1978).
8.
Proof of an undisclosed false odometer statement or reading is prima facie evidence of
fraudulent intent. Smith, 864 S.W.2d at 831.
9.

The statute provides for treble damages with $1,500 minimum, plus attorneys fees

10.
Mileage representations may also constitute express warranty under state law or
representation actionable under Consumer Fraud Act. See Roberts v. Robert V. Rohrman, Inc.,
909 F.Supp. 545 (N.D.Ill. 1995):
This court notes that one possible outcome of this case would result in the imposition of strict
liability on vendors like Rohrman, who have a statutory obligation to disclose the material fact of
mileage on a vehicle at the time of sale. This may be a desirable result, but it may not be either
Congress intent when it drafted the Federal Odometer Act, nor the intent of the Illinois legislature
when it drafted the ICFA. The motion for summary judgment will be denied without prejudice.
F.

LEMON LAW, 815 ILCS 380/1 et seq.

1.
Of little value because of bar to UCC remedies, informal dispute settlement requirement, 18
month statute of limitation, requirement that same defect recur four times, absence of attorneys
fees, offset for consumers use of vehicle.
G.

ILLINOIS COLLECTION AGENCY ACT, 225 ILCS 425/1 et seq.

1.

There is implied private right of action, Sherman v. Field Clinic, 74 Ill. App. 3d 21, 392

N.E.2d 154 (1st Dist. 1979).

2.

Substantive prohibitions similar to those of federal act, except that it does not apply to

attorneys
3.

Injunctive relief against unlicensed collectors

4.

No statutory damages, but can recover punitive damages

H.

INDUSTRY-SPECIFIC STATUTES

1.

Dance Studio Act, 815 ILCS 610/1 et seq.

2.

Physical Fitness Services Act, 815 ILCS 645/1 et seq.

3.

Hearing Instrument Consumer Protection Act, 225 ILCS 50/1 et seq.

4.

Job Referral and Job Listing Services Consumer Protection Act, 815 ILCS 630/1 et seq.

5.

Travel Promotion Consumer Protection Act, 815 ILCS 420

6.

Automatic Telephone Dialers Act, 815 ILCS 305/1 et seq.

7.

Pay-Per-Call Services Consumer Protection Act, 815 ILCS 520/1 et seq.

8.

Telephone Solicitations Act, 815 ILCS 413/1 et seq.

VII.

UNCONSCIONABILITY

A.

OUTRAGEOUS INTEREST RATES

1.
Brown v. C.I.L., Inc., 1996 U.S. Dist. LEXIS 4053 (N.D.Ill., March 29, 1996), adopting, 1996
U.S.Dist. LEXIS 4917 (N.D.Ill., Jan. 28, 1996)(motion to dismiss).
2.
Cobb v. Monarch Fin. Corp., 913 F. Supp. 1164 (N.D.Ill. 1995), later opinion, 1996 U.S.
Dist. LEXIS 2814 (N.D.Ill. 1996), later opinion, 1996 U.S. Dist. LEXIS 7776 (N.D.Ill. 1996), later
opinion 1997 U.S. Dist. LEXIS 754 (N.D.Ill. 1997).
3.

Carboni v. Arrospide, 2 Cal.App.4th 76, 2 Cal.Rptr. 2d 845 (1991), rehearing denied, Jan.

21, 1992 (200%)

VIII.

ILLINOIS INSURANCE CODE

A.

Section 155, 215 ILCS 5/155:

(1) In any action by or against a company wherein there is in issue the liability of a company on a
policy or policies of insurance or the amount of the loss payable thereunder, or for an
unreasonable delay in settling a claim, and it appears to the court that such action or delay is
vexatious and unreasonable, the court may allow as part of the taxable costs in the action
reasonable attorney fees, other costs, plus an amount not to exceed any one of the following
amounts:
(a) 25% of the amount which the court or jury finds such party is entitled to recover against the
company, exclusive of all costs;
(b) $25,000;
(c) the excess of the amount which the court or jury finds such party is entitled to recover,
exclusive of costs, over the amount, if any, which the company offered to pay in settlement of the
claim prior to the action.
(2) Where there are several policies insuring the same insured against the same loss whether
issued by the same or by different companies, the court may fix the amount of the allowance so
that the total attorney fees on account of one loss shall not be increased by reason of the fact that
the insured brings separate suits on such policies.
IX.

FEDERAL CONSUMER CREDIT PROTECTION ACT AND RELATED PROVISIONS

A.
TRUTH IN LENDING ACT, 15 U.S.C. 1601 et seq./ FEDERAL RESERVE REGULATION
Z, 12 C.F.R. part 226

1.
TILA was enacted for the purpose of requiring every creditor extending credit to consumers
in the United States to compute and state the cost of that credit in a precise, uniform manner,
thereby enabling consumers to compare the cost of credit from various lenders by simply
comparing a few numbers. Congress decided to effectively adopt a new national loan vocabulary
that means the same in every contract in every state. Mason v. General Finance Corp., 542 F.2d
1226, 1233 (4th Cir. 1976). The legislative history [of TILA] makes crystal clear that lack of
uniformity in the disclosure of the cost of credit was one of the major evils to be remedied by the
Act. (Id., 542 F.2d at 1231)
2.

TILA and Regulation Z accordingly require disclosure of several key credit terms, computed

in the precise manner prescribed by the Regulation and using precise terminology.
a.
The amount financed is the amount of credit provided to you [the consumer] or on your
behalf. 12 C.F.R. 226.18(b)
b.

The finance charge is the dollar amount the credit will cost you [the consumer]. 12

C.F.R. 226.18(d). 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. 12 C.F.R. 226.4(a).
c.

Strict compliance with the required disclosures and terminology is required. Smith v. No.

2 Galesburg Crown Finance Corp., 615 F.2d 407, 416-17 (7th Cir. 1980). Liability will flow from
even minute deviations from the requirements of TILA and Regulation Z. Semar v. Platte Valley
Fed. S. & L. Assn, 791 F.2d 699, 703-04 (9th Cir. 1986). Moreover, any violation of TILA,
regardless of the technical nature of the violation, must result in a finding of liability against the
lender. [citation] Such a strict assessment of damages by courts was intended by Congress to
create a private attorney general scheme of enforcement which would obviate the need for a large
federal bureaucracy to perform such a task. In re Steinbrecher, 110 B.R. 155, 161 (Bankr.
E.D.Pa. 1990). The scheme of [TILA] is to create a system of private attorneys general to aid its
enforcement, and its language should be construed liberally in light of its remedial purpose.
McGowan v. King, Inc., 569 F.2d 845, 848 (5th Cir. 1978).
d.

Statutory damages are provided for. Harm need not be shown for recovery under TILA:

An objective standard is used to determine violations of the TILA, based on the representations
contained in the relevant disclosure documents; it is unnecessary to inquire as to the subjective
deception or misunderstanding of particular consumers. Zamarippa v. Cys Car Sales Inc., 674
F.2d 877, 879 (11th Cir. 1982). Accord, Brown v. Marquette S. & L. Assn, 686 F.2d 608, 614 (7th
Cir. 1982); Wright v. Tower Loan, 679 F.2d 436, 445 (5th Cir. 1982); In re Steinbrecher, supra at
161; Shepeard v. Quality Siding & Window Factory, Inc., 730 F.Supp. 1295, 1299 (D.Del. 1990); In
re Russell, 72 B.R. 855 (Bankr. E.D.Pa. 1987)
3.

REMEDIES

a.

Statutory damages

(1)

There is a one-year statute of limitations, but a creditor who files suit waives its protection.

National Boulevard Bank v. Thompson, 85 Ill.App.3d 1145, 407 N.E.2d 739 (1st Dist. 1980).
b.
Actual damages: The lender who has failed to make proper disclosure is estopped to
deny the borrower the benefit of a charge no higher than the amount actually disclosed or an
amount calculated in accordance with the percentage rate actually disclosed, whichever is more
favorable to the borrower. Villanueva v. Motor Town, Inc., 619 F.2d 632, 635 (7th Cir. 1980).
c.

Rescission of non-purchase money mortgages

d.

Effect under state law: violation of MVRISA/ RISA/ SFAA

e.
Does not void obligation, but there may be additional consequences under state law; e.g.,
failure to disclose material information may be fraud.
Peoples Trust & Sav. Bank v. Humphrey, 451 N.E.2d 1104 (Ind.App. 1983) (misstatement in TILA
disclosures as fraud).
B.
CONSUMER LEASING ACT (TRUTH IN LEASING ACT), 15 U.S.C. 1667 et seq./
FEDERAL RESERVE REGULATION M, 12 C.F.R. part 213
C.

CREDIT BILLING PROVISIONS (PART OF TILA)

1.

FAIR CREDIT BILLING ACT, 15 U.S.C. 1666 et seq.

a.
Within 60 days after you receive a statement of account first showing a charge, you have
the right to send a written notice to the creditor at address given on statement for disputes/
inquiries (not payment) contesting the charge

b.

Cannot be on payment stub

c.

Must give account name and number, state that there has been an error in the bill and the

amount of the error, and provide an explanation.

d.

Billing errors include:

(1)

Item is not yours.

(2)

Amount is wrong

(3)

Dont recognize the merchant name and want evidence that its yours.

(4)

Goods or services were not accepted or not delivered in accordance with the agreement.

(5)

This would include goods which are rejected, as to which acceptance is revoked, but

probably not simple breach of warranty

(6)

Failure to reflect payment/ credit

(7)

Computational or accounting errors.

e.

Creditor must:

(1)

Acknowledge within 30 days

(2)

Within two billing cycles or 90 days, either:

(a)

Correct the account

(b)
Conduct an investigation and send the customer a statement in writing why the entry is
correct and, upon request, send documentary evidence of obligation
f.
Creditor may not take any action to collect before conducting the investigation. If account
is reported to a credit reporting agency, disputed amounts must be shown as disputed.
2.

UNAUTHORIZED USE

a.
Use by a person other than the cardholder who does not have actual, implied or apparent
authority and from which the cardholder receives no benefit.
b.
A person who is given a credit card by the account holder is an authorized user, even if he
or she uses it in a manner that exceeds authority given. For example, if the card is given for
purpose of making one charge purchase, in the amount of $100, and the recipient runs up $1,000
in charges, the charges are authorized, because the merchant has no way of knowing of the
restriction on authority. Only way to effectively revoke the authority is to have the account
canceled.
c.
Once charges appear on the monthly statement, if no objection is made further charges of
like nature will be authorized. Problem with estranged spouses, etc.
d.
Conversely, if the card issuer changes the address to which billing statements are sent
without your permission, you may not have liability. Common fraud.
e.
A merchant who processes a charge for an excessive amount is not making unauthorized
use of the card, if the cardholder derives some benefit. Car repair shop that exceeds estimate, for
example. May be billing error, though.
f.
If use was unauthorized, maximum liability is $50. Can be imposed only if (i) the card was
accepted, (ii) there is a means for identifying the cardholder or authorized user (signature,
photograph, or PIN), (iii) the cardholder provides notice of potential liability and how to notify the
issuer of theft, loss, etc., (iv) use took place before cardholder notifies issuer of loss, theft, or
unauthorized use.
g.

Card issuer must prove use was authorized if authority is disputed.

3.

CLAIMS/ DEFENSES

a.
If credit card is used as a means of payment for goods or services (cash advances are not
covered), you make good faith attempt to resolve the dispute with the merchant, the amount
involved exceeds $50, and the transaction occurred within the same state as the cardholders
mailing address or within 100 miles from that address, the credit card issuer is subject to claims
and defenses arising from the purchase.
b.

Location is normally place of delivery for mail or phone orders.

c.
The location and amount restrictions dont apply if the issuer and the merchant are the
same or related entities (department store credit cards), or have a franchise relationship (gasoline
company credit cards), or the merchant got the order through mail solicitation involving the card
issuer (junk mail enclosed with bill).
D.

EQUAL CREDIT OPPORTUNITY ACT/ FEDERAL RESERVE REGULATION B; OTHER

CIVIL RIGHTS LAWS

1.

ECOA, Fair Housing Act, and 42 U.S.C. 1981 prohibit discrimination on account of race.

2.

Many practices that are consumer protection violations impact most heavily on minorities

3.

Reverse redlining: While most people think of discrimination in terms of denial of credit, it

also encompasses the conduct of businesses that take advantage of the limited access, or
perception of limited access, to credit and other services to secure exorbitant rates and impose
other disadvantageous terms. For example, a lender which decides that it will take advantage of
the fact that other lenders discriminate by making loans to minorities at higher rates is also
engaging in intentional discrimination. In Clark v. Universal Builders, 501 F.2d 324, 330-31 (7th
Cir. 1974), the court held that one who exploits and preys on the discriminatory hardship of
minorities does not occupy a more protected status that the one who created the hardship in the
first instance. Defendant cannot escape liability under the Civil Rights Act by asserting it merely
exploited a situation crated by socioeconomic forces tainted by racial discrimination.
DuFlambeau v. Stop Treaty Abuse-Wisconsin, Inc., 41 F.3d 1190, 1194 (7th Cir. 1994); Mescall v.
Burrus, 603 F.2d 1266 (7th Cir. 1979); Ortega v. Merit Insurance Co., 433 F.Supp. 135 (N.D.Ill.
1977) (plaintiffs allegations that a defacto system of discriminatory credit insurance pricing exists,
and that defendant is exploiting this system is sufficient to withstand the defendants motion to
dismiss); Stackhouse v. De Sitter, 566 F.Supp. 856, 859 (N.D.Ill. 1983) (Charging a black buyer
an unreasonably high price for a home where a dual housing market exists due to racial
segregation also violates this section . . .); Buycks-Robertson v. Citibank, 162 F.R.D. 322 (N.D.Ill.
1995).
4.

This kind of discrimination claim overlaps with the concept of unconscionability and unfair

practices, and in fact may be a violation of the Consumer Fraud Act. Ortega v. Merit Insurance,
supra.
E.

FAIR DEBT COLLECTION PRACTICES ACT, 15 U.S.C. 1692 ET SEQ.

F.

FAIR CREDIT REPORTING ACT, 15 U.S.C. 1681 et seq.

1.
Regulates what credit information credit bureau may maintain. Prohibits reporting of
obsolete information, including a bankruptcy proceeding more than 14 years old, tax liens after
seven years, criminal records more than seven years from the date of disposition, release or
parole, other adverse items more than seven years old. 15 U.S.C. 1681c.
2.

Entitles consumer to obtain their own credit reports. 15 U.S.C. 1681h.

3.
Allows consumers to dispute information on their credit reports. The credit bureau must
verify the information. If the consumer disagrees with the verified item, he/ she is entitled to
include a statement in the report. 15 U.S.C. 1681i.
4.

Regulates reasons credit report may be obtained.

5.

Generally, there is no legal way in which a consumer is entitled to the deletion of accurate

information within the time periods permitted in the FCRA.

6.
1996 amendments create cause of action against creditor or debt collector that furnishes
inaccurate credit information, but only if consumer complains to credit bureau and credit bureau
seeks verification of the information from the creditor or debt collector. 15 U.S.C. 1681s-2.
Dornhecker v. Ameritech Corp., 99 F.Supp.2d 918 (N.D.Ill. 2000); Hawthorne v. Citicorp Data
Systems, Inc., 216 F.Supp.2d 45 (E.D.N.Y. 2002); McMillan v. Experian Information Services, 119
F.Supp.2d 84 (D.Conn. 2000); DiMezza v. First USA Bank, Inc., 103 F.Supp.2d 1296 (D.N.M.
2000); Campbell v. Baldwin, 90 F.Supp.2d 754 (E.D.Tex. 2000).
7.
Preemption of uncertain scope of common-law claims for defamation, etc. 12 U.S.C.
1681h. All such actions are limited to cases where conscious wrongdoing can be shown. Courts
divide on whether furnisher of false information to credit bureau can be held liable even if
conscious wrongdoing shown, or whether preemption only applies to response that furnisher
makes to specific inquiry from credit bureau requesting validation of item.
G.

CREDIT REPAIR ORGANIZATIONS ACT, 15 U.S.C. 1679 et seq.

1.

Basically invalidates contracts for credit repair services

2.
Coverage of nontraditional credit repair organizations: promises by collection agencies, bad
debt buyers to restore credit. Bigalke v. Creditrust Corp., 162 F.Supp.2d 996 (N.D.Ill. 2001), earlier
opinion, 99 C 2303,

2001 WL 1098047 (N.D.Ill. Sep 14, 2001).; and Parker v. 1-800 Bar

None, a Financial Corp., Inc., 01 C 4488, 2002 WL 215530 (N.D.Ill. Feb 12, 2002).
H.

ELECTRONIC FUNDS TRANSFER ACT, 15 U.S.C. 1693 et seq., AND FEDERAL

RESERVE REGULATION E, 205 C.F.R. PART 205

1.

Covers ATM transactions, direct deposits and withdrawals, and non-conversational

telephone transactions in which consumer account is debited or credited.

2.

Disclosure and documentation requirements

3.
Conditions under which consumer can revoke authorization for preauthorized electronic
funds transfers
4.

Error resolution procedures

5.

Limitation of liability for unauthorized transfers

6.

Prohibition against distribution of unsolicited access devices

I.

TRUTH IN SAVINGS ACT, 12 U.S.C. 4301

1.

Requires disclosures for consumer accounts

2.

Annual percentage yield

X.

OTHER SIGNIFICANT FEDERAL STATUTES AND REGULATIONS

A.

RICO

1.

MAIL AND WIRE FRAUD, 18 U.S.C. 1341 and 1343

a.

Loan flipping: Emery v. American Gen. Fin., Inc., 71 F.3d 1343 (7th Cir. 1995), complaint

dismd, on remand 938 F. Supp. 495, 1996 U.S. Dist. LEXIS 12,695 (N.D. Ill. 1996), dismd, 952 F.
Supp. 602, 1997 U.S. Dist. LEXIS 1982 (N.D. Ill. 1997), affd, 134 F.3d 1321 (7th Cir. 1998)
(repetitive refinancing of loans without disclosing economic disadvantage); Chandler v. American
General Finance, Inc., 329 Ill.App.3d 729, 768 N.E.2d 60 (1st Dist. 2002)(same).
b.
Billing for unauthorized charges: Ventura v. Home Servicing of America, 1996 U.S. Dist.
LEXIS 4583 (N.D.Ill., April 9, 1996). Also see overescrowing cases: Greenberg v. Republic
Federal, 1995 U.S. Dist. LEXIS 5866 (N.D.Ill., April 28, 1995); Poindexter v. National Mtge. Co.,
1995 U.S. Dist. LEXIS 5396 (N.D.Ill., April 18, 1995); Aitken v. Fleet Mtge. Corp., 1991 U.S.Dist.
LEXIS 10420 (N.D.Ill. 1991), and 1992 U.S.Dist. LEXIS 1687 (N.D.Ill., Feb. 12, 1992); Robinson v.
Empire of America Realty Credit Corp., 1991 U.S.Dist. LEXIS 2084 (N.D.Ill., Feb. 20, 1991); Leff v.
Olympic Fed. S. & L. Assn, 1986 WL 10636 (N.D.Ill. 1986).
2.

EXTORTIONATE EXTENSION OF CREDIT

3.

TRAVEL ACT, 18 U.S.C. 1952

B.

GARNISHMENT RESTRICTIONS IN CONSUMER CREDIT PROTECTION ACT. 15

U.S.C. 1673.
1.
Maximum deduction in Illinois is the lower of (a) 15% of gross wages or (b) [(net wages)
(45 x hourly minimum wages)] or (c) 25% of net wages.
C.

REAL ESTATE SETTLEMENT PROCEDURES ACT, 12 U.S.C. 2601 et seq.

1.
Now applies to second mortgages and home improvement financing secured by real estate
if jurisdictional tests are met
2.

Requires furnishing of settlement statement

3.
Section 8, 12 U.S.C. 2607, and implementing HUD Regulation X, 24 C.F.R. 3500.14,
prohibit payment and receipt of charges in connection with settlement other than for services
rendered.
Prohibition against kickbacks and unearned fees.
(a) Section 8 violation. Any violation of this section is a violation of section 8 of RESPA (12
U.S.C. 2607) and is subject to enforcement as such under 3500.19(b). . .
(b) No referral fees. No person shall give and no person shall accept any fee, kickback, or other
thing of value pursuant to any agreement or understanding, oral or otherwise, that business

incident to or a part of a settlement service involving a federal-related mortgage loan shall be

referred to any person.
(c) No split of charges except for actual services performed. No person shall give and no
person shall accept any portion, split, or percentage of any charge made or received for the
rendering of a settlement service in connection with a transaction involving a federally-related
mortgage loan other than for services actually performed. A charge by a person for which no or
nominal services are performed or for which duplicative fees are charged is an unearned fee and
violates this section. The source of the payment does not determine whether or not a service is
compensable. Nor may the prohibitions of this Part be avoided by creating an arrangement
wherein the purchaser of services splits the fee. (Emphasis added)
Treble damages are provided for violations.
4.

Section 10 regulates escrow deposits. Most courts hold that there is no private right of

action.
D.

NATIONAL BANK ACT AND OTHER PROVISIONS OF TITLE 12

1.

Usury provision

2.

Exportation

3.

Preemption

E.

FTC REGULATIONS

1.

HOME SOLICITATION SALES, 16 C.F.R. part 429.

a.

Provides a three-day right to cancel a door-to-door sale of consumer goods or services,

with a purchase price of $ 25 or more

b.

Requires seller to furnish the buyer with oral and written disclosures of the right to cancel

c.

Generally applies to any sale made at a place other than the place of business of the seller.

2.

USED CARS, 16 C.F.R. part 455.

a.

Window sticker stating warranty rights must be displayed

3.

CREDIT PRACTICES, 16 C.F.R. part 444

a.

Prohibits confession of judgment provisions in consumer transactions

b.

Requires that all wage assignments be revocable at will by the consumer

c.

Prohibits certain non-purchase-money security interests in household goods

d.

Requires notices to cosigners

e.

Prohibits misrepresentation of liability of cosigners

f.

Prohibits pyramiding of late charges

4.

INDUSTRY-SPECIFIC RULES

XI.

AUTOMOBILE PRODUCT PROBLEMS

A.

MAGNUSON MOSS ACT

1.

Affirmative cause of action for written warranties, service contracts, and implied warranties

2.
Negation of warranty disclaimers if written warranty or service contract is issued within 90
days. 15 U.S.C. 2308.
a.

Illegal disclaimers are common

B.
CONSUMER FRAUD ACT (CFA) STATUTORY WARRANTIES ON USED CARS
CONSIDER INTERACTION WITH MAGNUSON MOSS ACT
C.
FAILURE TO DISCLOSE KNOWN DEFECTS, WRECK DAMAGE OR DISFAVORED USE
OF CAR AS CFA VIOLATION IRRESPECTIVE OF ANY WARRANTY
a.

Cases: Crowder v. Bob Oberling Enters., Inc., 148 Ill. App. 3d 313, 499 N.E.2d 115 (4th

Dist. 1986); Totz v. Continental Du Page Acura, 236 Ill.App.3d 891, 602 N.E.2d 1374 (2d Dist.
1992) (car dealer has duty to disclose that vehicle has been previously damaged in an accident);
Wilson v. Huntsville Chrysler Plymouth Dodge, Inc., 1996 Tex. App. LEXIS 3834 (1996); Huff v.

Autos Unlimited, Inc., 124 N.C.App. 410, 477 S.E.2d 86 (1996); Black v. Iovino, 219 Ill.App.3d 378,
580 N.E.2d 139 (1st Dist. 1991), leave to appeal denied, 143 Ill.2d 636, 587 N.E.2d 1011 (1992);
Curtis v. Bill Byrd Automotive, Inc., 579 So.2d 590 (Ala. 1990) (even if sold as is); Siegrist v.
Kowalczyk, 1996 Conn.Super. LEXIS 69 (1996).
b.

FTC has repeatedly taken position that failing to disclose known serious defects is an unfair

and deceptive trade practice. Ford Motor Co., 96 F.T.C. 362 (1980) (consent order); General
Motors Corp., 102 F.T.C. 1741 (1983) (consent order) (failure to disclose defects in transmissions,
camshafts and fuel injection systems); American Motors Corp., 100 F.T.C. 229 (1982) (consent
order) (failure to disclose propensity of vehicles to roll over); Saab-Scandia of America, Inc., 107
F.T.C. 410 (1986) (consent order) (failure to disclose defective operating systems); American
Honda Motor Co., 99 F.T.C. 305 (1982) (consent order) (failure to disclose premature rusting).
c.

The Appellate Court has held that prior rental use of a car is a material fact that must be

disclosed. Miller v. William Chevrolet/ Geo, Inc., 326 Ill.App.3d 642, 762 N.E.2d 1, 11 (1st Dist.
2001).
d.

Get title history and contact prior owners

D.

UCC WARRANTIES

1.

Apply to used cars as well as new. Overland Bond & Inv. Corp. v. Howard, 9 Ill.App.3d

348, 292 N.E.2d 168 (1st Dist. 1972)

2.

Permit recovery for inconvenience and aggravation and loss of use. McGrady v. Chrysler

Motors Corp., 46 Ill.App.3d 136, 360 N.E.2d 818 (1st Dist. 1977).
E.

EXTENDED WARRANTY ABUSES

1.

Price gouging

2.
Unreasonable conditions on warranties: MMA cause of action applies only to full
warranties, but unreasonable conditions should be actionable on other theories with respect to any
warranty: for example, demanding $500 before inspecting a car.
3.

Lack of coverage/ misrepresentation of benefits

F.

REJECTION OF TENDER/ REVOCATION OF ACCEPTANCE

G.

LEMON LAW

H.

ODOMETER VIOLATIONS

XII.

AUTOMOBILE CONTRACT FORMATION PROBLEMS

A.

TWO-CONTRACT DODGE

Get consumer to sign binding contract, sign over trade-in, and take possession of new car before
financing terms are known. Also done with home improvements.
Consumer fraud violation in any case: Gonzalez v. Schmerler Ford, 397 F.Supp. 323 (N.D.Ill.
1975):
[T]here are not actually two separate transactions in this case, one for a sale of goods and one for
credit. The purpose of the purchase order procedure is only to allow a salesman to get a floor
commitment from the buyer that can be used to counteract the buyers remorse while he awaits
clearance in the credit office. Since most of the sellers sales are on credit, the salesman knows
when he gets the buyers signature on the purchase order that the likelihood of a credit transaction
is great. Disclosure is of little help to a buyer who is told in the credit office that he has a choice of
either signing the creditors conditional sales contract form or of having collection procedures
instituted against him because he is unable to come up with the cash. (397 F.Supp. at 327)
Under Simplification (1980 amendment to TILA), TILA violation only if the initial contract states
credit terms of some sort, which they often do: Diaz v. Westgate Lincoln Mercury, Inc., 1994
U.S.Dist. LEXIS 16300 (N.D.Ill., Nov. 14, 1994) (Magistrate Judges report, adopted by District
Court).
B.
MISREPRESENTATIONS IN DISCLOSURE ITEMS TO FACILITATE OVERCHARGING
ON EXTENDED WARRANTIES, ETC.
Slawson v. Currie Motors Lincoln Mercury, Inc., 1995 U.S.Dist. LEXIS 451 (N.D.Ill., Jan. 5, 1995);
Cirone-Shadow v. Union Nissan, Inc., 1995 U.S.Dist. LEXIS 1379 (N.D.Ill., Feb. 3, 1995).
C.
THERE IS NO RIGHT TO CANCEL A CONTRACT FOR THE PURCHASE OF AN
AUTOMOBILE

1.
However, if the dealer undertakes to arrange financing, there is no contract until financing
terms satisfactory to the buyer (subjectively) are arranged and disclosed in compliance with TILA.
2.

Prior to that time any down payment or trade-in must be returned if the consumer cancels

or does not like the financing terms obtained. Consumer Fraud Act, 2C. The dealer may not
impose any charge except for damage to the vehicle.
XIII.

AUTO REPOSSESSION CASES

A.

SECRETARY OF STATE REGULATIONS RE: TRANSFER OF TITLE

1.

Debtor must be sent notice of intent to apply for transfer of title and blank affidavit of

defense. Debtor has 21 days to object to transfer of title by submitting affidavit to creditor (creditor
must receive affidavit within 21 days), in which event the creditor must obtain a court order
directing transfer of title.
2.

Required as a result of a consent decree in Gibson v. Dixon, 75 C 4147 (N.D.Ill.).

3.

Occasionally used car lots do not issue the title to the consumer until a number of

payments have been made, and then fail to comply with the transfer of title procedure. This is
illegal.
B.

IS THE DEBT OWED

1.

FORCE PLACED INSURANCE

Bermudez v. First of America Bank Champion, N.A., 860 F.Supp. 580 (N.D.Ill. 1994), withdrawn
per settlement, 886 F.Supp. 643 (N.D.Ill. 1995); Travis v. Boulevard Bank, 1994 U.S.Dist. LEXIS
14615 (N.D.Ill., Oct. 13, 1994), modified, 880 F. Supp. 1226 (N.D.Ill. 1995).
2.

FAILURE TO CREDIT UNEARNED PREMIUMS

C.

30/ 60 PERCENT RULE OF MVRISA 20

1.
once

If you pay 30% of total of payments (including down payment), have right to reinstate

2.

If you pay 60% of total of payments (including down payment), and are willing to return

the car upon request without intentional damage, the creditor must elect between taking the car
and collecting the balance of the debt; cannot do both
D.

COMPLIANCE WITH UCC ARTICLE 9 NOTICE PROVISIONS

E.

REVOLVING REPOSSESSION OR CHURNING

XIV.

COSIGNERS

A.

MVRISA 18

XV.

AUTO LEASES (30% of all sales)

XVI.

FINANCING ABUSES: CARS, MORTGAGES

A.

KICKING BACK PART OF FINANCE CHARGE TO DEALER

1.

If dealer undertakes to find financing, amounts to fraud. Adkinson v. Harpeth Ford-

Mercury, Inc., 1991 Tenn.App. LEXIS 114 (1991); Baggett v. Crown Automotive Group, 1992
Tenn.App. LEXIS 464 (1992); First Chicago Bank of Ravenswood v. Mangiardi, No. 92 M1 122340
(Circuit Court of Cook County, Aug. 25, 1993); Smith v. First Family Fin. Serv., Inc., 626 So.2d
1266 (Ala. 1993); McNulty v. First Natl Bank, 93 CH 11379 (Circuit Court of Cook County, August
17, 1994). See also, In re Milbourne, 108 B.R. 522, 538 (Bankr. E.D.Pa. 1989), endorsing the
same principle. See also Sullivans Wholesale Drug Co. v. Faryls Pharmacy, Inc., 214 Ill.App.3d
1073, 573 N.E.2d 1370 (5th Dist. 1991), appeal denied, 141 Ill. 2d 561, 580 N.E.2d 136 (1991)
(kickbacks by pharmacy to nursing home to get patient referrals); Gadson v. Newman, 807 F.Supp.
1412 (C.D.Ill. 1992) (court upheld an ICFA claim based on undisclosed referrals and other
financial incentives in connection with the referral of patients); Dimensions Medical Center, Ltd. v.
Principal Finan. Group, Ltd., 1995 U.S.Dist. LEXIS 1420 (N.D.Ill., Feb. 6, 1995) (similar).
Contra: Perino v. Mercury Fin. Co., 1995 U.S. Dist. LEXIS 15654 (N.D.Ill., October 12, 1995),
earlier opinion, 912 F. Supp. 313 (N.D.Ill. 1995).
B.

UPSELL BRIBERY OF MORTGAGE BROKERS

One who undertakes to find and arrange financing or similar products for another becomes the
latters agent for that purpose, and owes statutory, contractual and fiduciary duties to act in the

interest of the principal and make full disclosure of all material facts. A person who undertakes to
manage some affair for another, on the authority and for the account of the latter, is an agent. In
re Estate of Morys, 17 Ill.App.3d 6, 9, 307 N.E.2d 669 (1st Dist. 1973).
A mortgage loan broker is an agent procured by the borrower to obtain a loan. Wyatt v Union
Mtge. Co., 24 Cal.3d 773, 782, 157 Cal.Rptr. 392, 397, 598 P.2d 45 (1979) (a mortgage broker
owes a fiduciary duty of the highest good faith toward his principal, the prospective borrower,
and is charged with the duty of fullest disclosure of all material facts concerning the transaction
that might affect the principals decision'). Accord: Allabastro v. Cummins, 90 Ill.App.3d 394, 413
N.E.2d 86, 82 (1st Dist. 1980); In re Dukes, 24 B.R. 404, 411-12 (Bankr. E.D.Mich. 1982) (the
fiduciary, Salem Mortgage Company, failed to provide the borrower-principal with any sort of
estimate as to the ultimate charges until a matter of minutes before the borrower was to enter into
the loan agreement); Community Fed. Savings v. Reynolds, 1989 U.S. Dist. LEXIS 10115 (N.D.Ill.
August 18, 1989); First City Mtge. Co. v. Gillis, 694 S.W.2d 144, 147 (Tex.Civ.App. 1985)
(requirement of fiduciary duty forbids conduct on the part of the broker which is fraudulent or
adverse to his principals interest and also imposes duty of full disclosure of facts material to his
principal); In re Russell, 72 B.R. 855 (Bankr. E.D.Pa 1987); Langer v. Haber Mortgages, Ltd., New
York Law Journal, August 2, 1995, p. 21 (N.Y. Sup.Ct.).
C.

FALSE ADVERTISING OR REPRESENTATIONS OF CREDIT TERMS

Tashof v. FTC, 437 F.2d 707, 711-12 (D.C.Cir. 1972) (false representations of easy credit and
the like); Kleidon v. Rizza Chevrolet, Inc., 173 Ill.App.3d 116, 527 N.E.2d 374 (1st Dist. 1988),
appeal denied, 123 Ill.2d 559, 535 N.E.2d 402 (1988) (deception regarding proposed financing
terms actionable)
D.

CREDITOR AS FIDUCIARY FOR SALE OF INSURANCE AND SIMILAR PRODUCTS

Allabastro v. Cummins, 90 Ill.App.3d 394, 413 N.E.2d 86 (1st Dist. 1980) (one who undertakes to
procure loan is an agent and fiduciary)
Fitzgerald v. Chicago Title & Trust Co., 72 Ill.2d 179, 380 N.E.2d 790 (1978) (title companys
payment of secret rebates to persons standing in fiduciary relationship to plaintiffs actionable under
the Consumer Fraud Act)
Browder v. Hanley Dawson Cadillac Co., 62 Ill.App.3d 623, 379 N.E.2d 1206 (1st Dist. 1978)
(seller of goods or services who undertakes to procure credit insurance has duties of insurance
broker, and if he procures unnecessarily expensive insurance coverage because he has a
pecuniary interest in doing so, and who fails to disclose to the insured the fact that comparable
coverage is available elsewhere for less, commits Consumer Fraud Act violation)
Fox v. Industrial Cas. Ins. Co., 98 Ill.App.3d 543, 424 N.E.2d 839 (1st Dist. 1981) (similar to
Browder).
Insurance Code has been amended for purpose of abolishing Fox and Browder.
E.

ADDITIONAL PRODUCTS:

1.
GAP PROTECTION: $500 for privilege of not having a deficiency judgment against you if
car is stolen or destroyed.
2.

CREDIT INSURANCE

a.

Life

b.

Disability

c.

Involuntary unemployment

d.
Commissions are normally 40-60% and loss ratio (percentage of premiums collected paid
out as losses) under 50%. Normal loss ratios are 60-70% for automobile casualty companies and
higher for good life and disability companies.
e.
Amount of insurance is often grossly excessive: you never need coverage in excess of the
payoff amount. Lenders will sell coverage based on principal plus unearned interest, even though
unearned interest is not paid.
f.
Failure to rebate unearned premiums if transaction is paid off early or accelerated.
Particularly if loan is assigned (second mortgages).
3.

MOTOR CLUB MEMBERSHIPS, SERVICE CONTRACTS

F.

MORTGAGE ESCROWS

G.

JUNK CHARGES AND GARBAGE FEES

H.

INTEREST RATE ADJUSTMENTS ON ARMS

XVII. UNFAIR/ DECEPTIVE INDUCEMENT OF HOME IMPROVEMENT TRANSACTIONS

A.

Target population: People who purchased homes some years ago, which have often

appreciated dramatically, even

in poor neighborhoods

B.

Practices

1.

Getting consumers to sign binding agreements prior to disclosure of all financial terms. In

some cases, the initial agreements (a) represent that the financing terms will be other than the final
terms, (b) provide for stiff penalties for cancellation
a.

As deceptive practice

Ky. AG opinion (1992 CCH Trade Cas. &69,916).

Fidelity Financial Services, Inc. v. Hicks, 214 Ill.App.3d 398, 574 N.E.2d 15 (1st Dist. 1991).
Williams v. Bruno Appliance & Furniture Mart, Inc., 62 Ill.App.3d 219, 222, 379 N.E.2d 52, 54 (1st
Dist. 1978) (bait and switch)
Santiago v. Turner Acceptance Corp., 76 C 1247 (N.D.Ill., April 21, 1980).
In re American Aluminum Corp., 84 F.T.C. 21 (1974), affd per curiam, 522 F.2d 1278 (5th Cir.
1975) (litigated decision).
In re Capital Builders, Inc., 92 F.T.C. 274 (1978) (consent order).
In re United Builders, Inc., 92 F.T.C. 291 (1978) (consent order)
In re Tri-West Construction Co., 86 F.T.C. 1051 (1975) (consent order).
b.
Negates right to rescind under TILA: Doggett v. County Savings & Loan Co., 373 F.Supp.
774, 777 (E.D.Tenn. 1974).
c.

As TILA violation (if first contract contains a reference to financing terms): Graves v. Tru-

Link Fence Co., 905 F. Supp. 515 (N.D.Ill. 1995).

2.

EVASION OF RESCISSION RIGHTS THROUGH SPIKING

a.

Truth in Lending, 15 U.S.C. 1635

b.

CFA 2B

c.

FTC home solicitation sales regulation (16 C.F.R. part 429)

3.

IMPROPER DISCLAIMERS OF RESPONSIBILITY BY FINANCING ENTITIES

4.

Making loans without expectation of repayment for the purpose of acquiring the borrowers

equity. In many cases, such loans involve exorbitant points and other devices, so that the
financing entity is getting a mortgage substantially in excess of the amount of cash actually
disbursed to unrelated third parties.
a.

New TILA section, 15 U.S.C. 1639

5.

Steep discounts

C.

IMPROPER PERFORMANCE

1.
CFA now allows consumer to make demand for performance and rescind contract if not
performed. Section 2Q(c) provides:
A person engaged in the business of home repair, as defined in Section 2(a)(1) of the Home
Repair Fraud Act [815 ILCS 515/2] who fails or refuses to commence or complete work under a
contract or an agreement for home repair, shall return the down payment and any additional
payments made by the consumer within 10 days after a written demand sent to him by certified
mail by the consumer or the consumers legal representative or by a law enforcement or consumer
agency acting on behalf of the consumer.
2.

It is unlawful for a contractor to threaten to remove the improvements if payment is not

forthcoming. Ekl v. Knecht, 223 Ill. App. 3d 234, 585 N.E.2d 156 (2 Dist. 1991).
XVIII. WAGE ASSIGNMENTS

A.

REVOCABLE

1.

FTC Credit Practices Rule

B.

REQUIREMENTS UNDER ILLINOIS WAGE ASSIGNMENT ACT

XIX.

INSURANCE DISPUTES

A.

APPLICATION OF CONSUMER FRAUD ACT TO INSURANCE PRACTICES

1.
It is well established that the sale of insurance constitutes trade or commerce subject to
the Consumer Fraud Act. Browder v. Hanley Dawson Cadillac Co., 62 Ill.App.3d 623, 379 N.E.2d
1206 (1st Dist. 1978); Fox v. Industrial Cas. Ins. Co., 98 Ill.App.3d 543, 424 N.E.2d 839 (1st Dist.
1981); P.I.A. Mich. City, Inc. v. National Porges Radiator Corp., 789 F.Supp. 1421 (N.D.Ill. 1992);
Glazewski v. Coronet Ins. Co., 108 Ill.2d 243, 466 N.E.2d 1151 (1985), affg, Glazewski v. Allstate
Ins. Co., 126 Ill.App.3d 401, 466 N.E.2d 1151 (1st Dist. 1984); Petersen v. Allstate Ins. Co., 171
Ill.App.3d 909, 525 N.E.2d 1094 (1st Dist. 1988); Logsdon v. Shelter Mut. Ins. Co., 143 Ill.App.3d
957, 493 N.E.2d 748 (3d Dist. 1986); Ortega v. Merit Ins. Co., 433 F.Supp. 135 (N.D.Ill. 1977);
Elrad v. United Life & Acc. Ins. Co., 624 F.Supp. 742 (N.D.Ill. 1985); Barr Co. v. Safeco Ins. Co.,
583 F.Supp. 248 (N.D.Ill. 1984), later opinion, 706 F.Supp. 616 (N.D.Ill. 1989); Aabye v.
Security-Connecticut Life Ins. Co., 586 F.Supp. 5 (N.D.Ill. 1984).
B.

SPECIFIC PRACTICES

1.

Claims practices

a.

Elder v. Coronet Ins. Co., 201 Ill.App.3d 733, 558 N.E.2d 1312 (1st Dist. 1990). Class

action was brought by insured under auto policy against insurer and its claims processor, Elston.
Complaint alleged that Coronet and Elston denied plaintiffs insurance claim on the basis of lie
detector tests, that it is the policy of defendants to grant or deny claims based on the results of
such tests, and that lie detector tests are grossly unreliable. Elder alleged that defendants denied
claim on ground that the loss did not occur as you reported, based on a finding of deception on
the polygraph test, but made no investigation to ascertain the true facts, even after he produced a
witness to theft of car and vehicle was recovered in stripped condition. The complaint alleged that
defendants policy of relying on lie detector tests to process claims was an unfair trade practice and
that the sale of insurance policies without disclosure of the fact that the insurer had a policy of
using grossly unreliable means of determining claims constituted a deceptive trade practice.
Both claims were held to state a cause of action by Appellate Court. Case ultimately settled on
class wide basis.
b.

Barr v. Safeco Ins. Co., 583 F.Supp. 248 (N.D.Ill. 1984). Plaintiffs asserted a Consumer

Fraud Act claim alleging that an insurance company had misrepresented that it would promptly and
fairly investigate claims and indemnify its insureds; engaged in a practice of failing to pay or
delaying the payment of its insureds claims as a means of coercing them into accepting
inadequate settlements; and concealed and failed to disclose this practice. The court held that
these allegations stated a claim for engaging in a deceptive practice under the Consumer Fraud
Act.
c.

Aabye v. Security-Connecticut Life Ins. Co., 586 F.Supp. 5 (N.D.Ill. 1984) (similar).

d.
W. E. ONeil Construc. Co. v. National Union Fire Ins. Co., 721 F.Supp. 984 (N.D.Ill. 1989)
(similar allegations held to state CFA claim)
2.

Third party claims

a.
Held not to be covered in McCarter v. State Farm Mut. Aut. Ins. Co., 130 Ill.App.3d 97, 473
N.E.2d 1015 (3d Dist. 1985). McCarter involved a claim against the insured by a third party injured
by the insured. The court held that the improper processing of such a claim was not a CFA 2
violation because the injured third party had not purchased insurance and was not a consumer.
3.

Improper Conduct In Obtaining or Placing Insurance.

a.
Browder v. Hanley Dawson Cadillac Co., 62 Ill.App.3d 623, 379 N.E.2d 1206 (1st Dist.
1978); and Fox v. Industrial Cas. Ins. Co., 98 Ill.App.3d 543, 424 N.E.2d 839 (1st Dist. 1981), hold
that an insurance broker who procures unnecessarily expensive insurance coverage because he
has a pecuniary interest in doing so, and who fails to disclose to the insured the fact that
comparable coverage is available elsewhere for less, violates CFA 2. Noteworthy that neither
case involved a conventional broker both cases involved sellers of goods who procured credit
insurance at unnecessarily high price, allegedly because the commissions on the more expensive
insurance were better.

b.
Lang v. Consumers Ins. Service, Inc., 222 Ill.App.3d 226, 583 N.E.2d 1147 (2d Dist. 1991).
CFA claim stated against insurance agent who told prospective insured that he had coverage of
newly-purchased vehicle under existing policy, when insurance company later denied coverage.
c.
Ortega v. Merit Ins. Co., 433 F.Supp. 135 (N.D.Ill. 1977) (racial discrimination in pricing of
insurance held actionable under CFA).
d.

Failure to inform purchaser of credit insurance of pre-existing condition restriction was not a

deceptive act where defendant was not aware of pre-existing condition. Mackinac v. Arcadia Natl
Life Ins. Co., 271 Ill.App.3d 138, 648 N.E.2d 237 (1st Dist. 1995), leave to appeal denied, 164 Ill.2d
561, 657 N.E.2d 624 (1995).
4.

Failure to Offer Underinsured Motorist Coverage When Required By Insurance Code

a.

Logsdon v. Shelter Mut. Ins. Co., 143 Ill.App.3d 957, 493 N.E.2d 748 (3d Dist. 1986);

Peterson v. Allstate Ins. Co., 171 Ill.App.3d 909, 525 N.E.2d 1094 (1st Dist. 1988).
5.

Credit insurance practices

a.

Elliott v. ITT Corp., 764 F.Supp. 102 (N.D.Ill. 1991).

6.

Medical insurance issues

a.

Provider attempts to collect from patient amount in excess of what the insurance company

has determined to be reasonable, where patients only liability is to pay reasonable charge.
b.

Insurer gets discount on bill but doesnt take it into account when computing copayment

7.

Vanishing premium cases

XX.

PRACTICAL CONSIDERATIONS

A.

CLIENT INTERVIEWS

1.
Clients often have no idea whether something actionable took place. Furthermore, even
where they have a specific complaint, the transaction may be subject to challenge, or only subject
to challenge, on altogether different grounds. For example, a client may come to you with a claim
that a used car was defective, which is not worth bringing because there was a prominent as is
disclaimer and no proof that the dealer actually knew of any defect, but the Truth in Lending
disclosures are deficient. You need to look at a case in a manner that will uncover all claims, not
just the ones that the client thinks he or she has.
2.

Claims based on documents are generally better than claims based on oral testimony.

Assume that a car dealer or home improvement contractor will contradict everything that the client
says and that is not reflected in a document emanating from the dealer or home improvement
contractor. However, if the APR is not properly calculated, there is probably nothing that the dealer
or contractor can say that will get him out of liability.
3.
First examine all documents that the client has; then have the client tell his/her story
chronologically. Make certain that the client has given you all documents and not just those he or
she has concluded are relevant.
4.
Pay particular attention to any additional charges or fees that have been placed on the
clients account. These often furnish the best claims. We have seen many cases where the
defendants basic conduct was outrageous but not clearly actionable, but a valid claim exists
because the defendant got greedy and could not resist tacking on an additional $10 or $20 in
charges. For example, it is not clearly illegal to charge 40% interest in Illinois (it may or may not be
unconscionable), but if the defendant added $10 or $20 in extra charges which were not authorized
by CILA or MVRISA, the entire interest is uncollectible.
5.
Do not assume that numbers generated by a computer or calculator are correct, or that the
fact that a client was billed for something means that he or she owes it. APR calculations should
be checked with an appropriate program.
6.
Do not assume that the client did not receive or sign a document from the fact that he/she
does not recall receiving or signing it, or does not have it.
7.
Never take a case involving automobile or home improvement problems without having the
vehicle examined by your mechanic/ expert, who should be willing to testify to what he/ she finds.
8.

Expect that 90% of cases you review either do not involve a violation or are not viable.

B.

IS CASE WORTHWHILE

1.
Do you have a solvent defendant? Individual claims for home improvement defects against
fly-by-night contractors are inherently uncollectible.
2.

To what extent does proof of violation depend on oral testimony, as opposed to violations

apparent on face of documents? Are you going to have to try the case? Are you prepared to do
so? Can you win it if you do try it?
3.

If contractor arranged financing, financial institution has liability/ is subject to defense

against payment under clause required by FTC regulation.

C.

PLEADINGS

1.

Your pleadings should tell a compelling story.

2.

Fraudulent representations must be pled with specificity. Connick v. Suzuki Motor Co., 174

Ill. 2d 482, 675 N.E.2d 584 (1996); Spengler v. V & R Marathon, Inc., 162 Ill.App.3d 715, 516
N.E.2d 787 (2d Dist. 1987), leave to appeal denied, 119 Ill.2d 575, 522 N.E.2d 1257 (1988) (state
requirement); Ramson v. Layne, 668 F.Supp. 1162, 1170 (N.D.Ill. 1987) (federal). This means that
the complaint must state the identity of the person making the misrepresentation, the time, place,
and content of the misrepresentation, and the method by which the misrepresentation was
communicated . . . . Schiffels v. Kemper Financial Servs., 978 F.2d 344, 352 (7th Cir. 1992);
Connick v. Suzuki, supra; Vance v. National Benefit Assn, 99 C 2627, 1999 WL 731764, 1999
U.S.Dist. LEXIS 13846 (N.D.Ill. Aug. 30, 1999), *13-14.
D.

LITIGATION TACTICS

1.

Many cases are dismissed at the trial court level. To maintain credibility you must be

prepared to appeal valid cases, and to do so in a manner that will not result in making bad law.
There are many decisions of the Appellate Court which are simply irreconcilable with other
decisions, and may have resulted from inadequate presentation.
2.

Proof is peculiarly within hands of defendants. Aggressive pursuit of discovery is essential.

E.

STATE VS. FEDERAL COURT

1.
Jury trial available under Consumer Fraud Act and other statutory violations under Seventh
Amendment, but not under Illinois Constitution.
F.

ATTORNEYS FEES

1.
Make sure your petition is appropriately documented, both as to time entries and
justification for rates claimed.
2.

It is not uncommon in consumer protection litigation for the attorneys fees to exceed the

amounts paid to the aggrieved consumer. Tolentino v. Friedman, 46 F.3d 645 (7th Cir. 1995);
Fleet Inv. Co., Inc. v. Rogers, 620 F.2d 792, 793 (10th Cir. 1980); Johnson v. Eaton, 958 F. Supp.
261, 264 (M.D. La 1997)(over $13,000 in fees and costs awarded for $500 award in Fair Debt
Collection Practices Act case); Perez v. Perkiss, 742 F. Supp. 883, 892 (D. Del. 1990)($10,110
fees, $1,200 damages); Beaulieu v. Dorsey, 562 A.2d 678, 679 (Me. 1989)($18,000 fees, $600
damages); Williams v. Finance Plaza, Inc., 2002 WL 753516 (W.D. Mo. 2002)($47,500 fees and
$4,000 damages in odometer fraud claim); Bittner v. Tri-County Toyota, Inc., 569 N.E.2d 464, 46566 (Ohio 1991); Poussard v. Commercial Credit Plan, Inc., 479 A.2d 881 (Me. 1984) ($20,000
fees even though only $10,000 benefit); Welmaker v. W. T. Grant Co., 365 F.Supp. 531 (N.D.Ga.
1972) ($380.28 recovery and $17,500 attorneys fees); In re Martinez, 2001 Bankr. LEXIS 1051
(Bankr. S.D.Fla., Aug. 22, 2001) (attorney==s fees of $29,037.50 awarded although plaintiff
recovered FDCPA statutory damages of $1,000.00). The theory on which such fees are allowed is
that in view of the statutory caps on damages, any requirement of proportionality between the
recovery and the fees would be inconsistent with the policy of encouraging private enforcement of
the Act. Hayer v. National Bank of Alaska, 663 P.2d 547, 550 n. 7 (1983). See Tolentino, supra.

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Our consumer protection, collection abuse and class action law firm, attorneys and lawyers represent clients throughout
Illinois and Wisconsin including, but not limited to Chicago, Elgin, Aurora, Schaumburg, Naperville, Bolingbrook, Joliet,
Plainfield, Barrington Hills, Waukegan, Winnetka, Evanston, DeKalb, Geneva, Batavia, Wheaton, Woodridge, Rockford,
Harvey, Markham, Westchester, Cicero, Berwyn, Belvidere, West Chicago, Country Club Hills, Crestwood, Rolling
Meadows, Romeoville, Chicago Heights, Tinley Park, Orland Park, Oak Forest, Homewood, Lansing, Calumet City, Hazel
Crest, Dolton, Riverdale, Midlothian, Frankfurt, Oak Lawn, Oak Park, Cook County, DuPage County, Kane County, Will
County, McHenry County, Lake County and more.