Thelma Phillips - Administrative Offset Decision

Petitioner was notified by a Notice of Intent that, pursuant to 31 U.S.C. § 372OA, the Secretary of the U.S. Department of Housing and Urban Development ("HUD") intended to seek offset by the Internal Revenue Service ("IRS") of any Federal income tax refund due to Petitioner against a claimed past-due, legally enforceable debt of Petitioner to HUD. Petitioner filed a request to present evidence that the debt was not past-due or not legally enforceable. As a result of that request, referral of the debt for offset by the IRS was temporarily stayed. On May 24, 1995, an Order was issued in this matter which authorized the Secretary td refer Petitioner's debt to the IRS for offset of her Federal income tax refund. Petitioner filed a motion for reconsideration on June 13, 1995. On September 29, 1995, Petitioner filed a Motion for Summary Judgment. This is a complete decision in Petitioner's case, taking into account arguments raised in all filings.

Ruling on Motion for Summary Judgment

Petitioner has filed a motion for summary judgment. In support of her motion, Petitioner argues that the seller failed to properly notify her of her right to rescind the home improvement contract. The Secretary contends that the seller did properly notify Petitioner of her right to rescind the home improvement contract.

Summary judgment will be granted only where no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby; Inc., 477 U.S. 242 (1986). However, there exist disputable issues of material fact regarding whether the seller provided Petitioner with proper notice of her right to rescind the home improvement contract. Petitioner has clearly placed this issue into controversy. For this reason, Petitioner's motion for summary judgment must be denied. See Byrd v. Hall, 847 S.W. 2d 208 (Teen. 1993).

Discussion

The Deficit Reduction Act of 1984, 31 U.S.C. § 3720A ("the Act") provides Federal agencies with a remedy for the collection of debts owed to the United States Government. The Act places the primary burden of proof on the debtor to establish by documentary evidence or application of law that the claimed debt is not pastdue or not enforceable. 31 U.S.C. § 3720A(b)(2); Ronald Durr, HUDBCA No. 86-1422-F413 (Mar. 28, 1986); see also
24 C.F.R. §§ 17.152(b) and (c).

Petitioner contends that the debt claimed by the Secretary is not past-due and not enforceable because she was not provided proper notice of her right of rescission under the Federal Trade Commission ("FTC") rule regarding the cooling off period for door-to-door sales, 16 C.F.R. § 429.1, and the Tennessee Home Solicitation Sales Act of 1974 ("THSSA"), Tenn. Code Ann. § 47-18701. The Secretary contends that this transaction is governed by the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601, et sent, rather than the FTC rule. The Secretary further contends that the seller did comply with TILA in providing Petitioner with information regarding her right to rescind.

The FTC rule at 16 C.F.R. § 429.1 provides that sellers must furnish buyers specific notice of their cancellation rights. However, this FTC rule regarding door-to-door sales does not apply to transactions "[ion which the consumer is accorded the right of rescission by the provisions of the Consumer Credit Protection Act (15 U.S.C. 1635) or regulations issued pursuant thereto . . ." 16 C.F.R. § 429.1, n.l(a)(2). TILA appears at 15 U.S.C. §§ 1601 through 1667 (e). TILA consists of the first five chapters of the Consumer Credit Protection Act. See 17 Am. Jur. 2d Consumer Protection § 2 (1990). Section 1635 of the Consumer Credit Protection Act, which excludes coverage of transactions by the FTC rule, is included in TILA. Therefore, the FTC rule is not applicable to this proceeding if the Board finds that TILA is applicable.

The Truth in Lending Act provides that when a seller extends credit to consumers for personal, family, or household purposes, the seller must make certain disclosures to ensure that consumers make informed decisions regarding credit transactions. Petitioner argues that TILA is not applicable to this proceeding because her transaction with the seller in this case was primarily for business or commercial purposes, and, as such, TILA does not apply because TILA only applies to consumer credit transactions which "are primarily for personal, family or household purposes." (Pet. Reply, p. 3). In support of her argument, Petitioner has cited a number of cases which hold that even where a security interest is taken in the consumer's residence, a business purpose for the loan proceeds places the loan outside the ambit of TILA. In applying TILA, the Board must look to the purpose of the loan to determine whether it is covered by the Act. See First Tennessee Bank National Association v. Henry L. Davis, 1995 Tenn. App. LEXIS 502. Where the purpose of the loan is part personal and part business or commercial, the courts will "balance the conflicting uses and determine which purpose predominates." Id., citing Toy National Bank of Sioux City v. McGarr, 286 N.W. 2d 376, 379 (Iowa 1979). In this case, the subject matter of the HUD-insured loan agreement was an FHA-insured home improvement loan. (Sec. Exh. B).

Petitioner has not cited any cases from the courts of the state of Tennessee, the jurisdiction where the loan originated. Further, the cases Petitioner cites note that the consumer had a significant business purpose, such as more than half of the proceeds of the loan being used for business purposes or replacement of a prior business source. See Bokros v. Associates Finance Inc., 607 F. Supp. 869 (D.C. Ill. 1984), Puckett v. Georaia Homes. Inc., 369 F. Supp. 614 (D.C. S.C. 1974).

The FHA Insured Home Improvement Retail Installment Contract and Disclosure Statement which Petitioner executed notes that the property to be improved would be used for "personal, family, or household" purposes rather than farming or business purposes, which were also available purposes on the form. (Sec. Exh. B). Further, the Credit Application for Property Improvement Loan which Petitioner also executed states that the property to be improved is a home. (Pet. App. 1). While the application details improvements to be made to both the residence and the rental property, Petitioner has not provided evidence that the business purpose of the subject loan outweighed the personal, family, or household purpose. Petitioner has the burden of proving such evidence. In absence of sufficient evidence to the contrary, I find that Petitioner's loan was not for a business purpose. Therefore, TILA is the applicable regulation.

Petitioner argues that the seller did not comply with the FTC rule regarding written notice of the buyer's right to cancel the transaction. Because the Board has found that TILA is the applicable regulation governing Petitioner's transaction, the FTC rule is not applicable.

The Secretary submits that the seller complied with the applicable regulation, TILA, in providing Petitioner notice of her right to cancel the transaction. Regulation Z. 12 C.F.R. § 226.1 et sent, was issued by the Federal Reserve System to implement TILA. The regulation provides model forms in order to ensure that lenders and sellers meet the requirements of accurate disclosure in TILA. The Secretary has submitted evidence that the seller provided Petitioner with the requisite notice of her right to cancel. (Sec. Exhs. A, C). The Secretary has also submitted evidence that Petitioner certified that the dealer or contractor had satisfactorily completed the improvements in accordance with the terms of their contract or sales agreement. (Sec. Exh. D).

Under TILA, a consumer has the right to rescind a credit transaction within three days after the transaction is consummated or the required forms have been delivered. 15 U.S.C. § 1635(a). Where the requisite disclosure has not been made, TILA provides that the consumer shall have a three-year right of rescission. Petitioner entered into the subject transaction on June 28, 1988. (Sec. Exh. B). Because she was given the requisite notice in the home improvement contract documents of her right to rescind, her right of rescission was limited to three days following the consummation of the transaction or the delivery of the information and rescission forms. (Sec. Exhs. B. C); See 15 U.S.C. § 1635 (a). Petitioner advised all relevant parties: "I wish to cancel" in a single-sentence letter dated April 27, 1995, several years after her right to rescind the sales agreement had expired. (Pet. Memorandum in Support of Motion for Summary Judgment, p. 4). Because Petitioner's right of rescission had already expired, the Secretary did not violate TILA by refusing to honor her request. I find that the seller provided Petitioner the requisite notice of her right to rescind.

Petitioner finally argues that the Secretary violated THSSA because the seller did not notify Petitioner of her right to cancel in conformity with the THSSA. Petitioner states that "that statute requires specific language to appear in the contract . . . The language used by the seller in the contract of June 28, 1988, does not exactly match the language required by the statute." (Pet. Memorandum in Support of Motion for Summary Judgment, p. 3). However, Petitioner has not submitted evidence of the statute's requirements or how the subject contract does not conform to the statute. Petitioner has made no showing that certain language, or the omission of certain language, in the sales agreement, her se, violates a specific provision of Tennessee law. Consequently, this argument fails for lack of proof. Because Petitioner has not met her burden of proving that the seller did not provide sufficient notice of her right to rescind the transaction, her claim that there is no time limit on the cancellation under Tennessee law must also fail. Consequently, I conclude that Petitioner is not entitled to any recovery based on any alleged violations of the THSSA.

For the above reasons, I find that Petitioner is indebted to HUD in the amount claimed by the Secretary.

Order

Upon reconsideration, it is hereby ORDERED that the Decision and Order issued in this matter on May 24, 1995, which authorized the Secretary of HUD to refer the debt to the Internal Revenue Service in accordance with 31 U.S.C. § 3720A for offset against any tax refund due Petitioner, shall not be modified. That Decision and Order is AFFIRMED.

February 16, 1996