Natl Home Equi Mtge v. OTS

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 6, 2004 Decided July 13, 2004

No. 03-5204

NATIONAL HOME EQUITY MORTGAGE ASSOCIATION,

APPELLANT

v.

OFFICE OF THRIFT SUPERVISION, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 02cv02506)

Ronald W. Stevens argued the cause for appellant. With

him on the briefs were David R. Overstreet and Christopher

R. Nestor.

Thomas J. Segal, Deputy Chief Counsel, Office of Thrift

Supervision, argued the cause for appellees. With him on the

brief was Elizabeth R. Moore, Special Counsel.

Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

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Sarah Reznek was on the brief for amicus curiae State

Attorneys General in support of appellee.

Cheryl L. Ziegler, Jonathan P. Hooks, Nina F. Simon, and

Michael R. Schuster were on the brief for amici curiae

National Community Reinvestment Coalition, et al. in support

of appellee.

Before: GINSBURG, Chief Judge, and HENDERSON and

RANDOLPH, Circuit Judges.

Opinion for the Court filed by Chief Judge GINSBURG.

GINSBURG, Chief Judge: The National Home Equity Mort-

gage Association seeks an order declaring invalid a final rule

promulgated by the Office of Thrift Supervision pursuant to

the Alternative Mortgage Transaction Parity Act, 12 U.S.C.

§§ 3801 et. seq. The challenged rule designates certain OTS

regulations as applicable and others as inapplicable to nonfed-

erally chartered housing creditors that engage in ‘‘alternative

mortgage transactions.’’ The district court granted summary

judgment in favor of the OTS, 271 F. Supp. 2d 264 (D.D.C.

2003), and the NHEMA appeals. We conclude the OTS did

not exceed its statutory authority in promulgating the rule

and hence we affirm the judgment of the district court.

I. Background

The NHEMA is a trade association of non-prime mortgage

lenders, here representing state chartered housing creditors,

including both non-depository lenders and depository institu-

tions other than commercial banks and credit unions. The

Association petitions for review of a final rule in which the

OTS designated certain of its regulations as applicable and

others as inapplicable to nonfederally chartered creditors that

engage in ‘‘alternative mortgage transactions’’ (AMTs). See

67 Fed. Reg. 60,542 (Sept. 26, 2002). An AMT is a mortgage

loan for which the term or interest rate or both are adjustable

rather than fixed. See 12 U.S.C. § 3802(1).

The Congress passed the Parity Act in 1982 in order to

‘‘eliminate the discriminatory impact that [regulations autho-

rizing federally chartered depository institutions to engage in

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alternative mortgage financing] have upon nonfederally char-

tered housing creditors,’’ and to provide for parity between

the two types of lenders ‘‘by authorizing all housing creditors

to make, purchase, and enforce alternative mortgage transac-

tions so long as the transactions are in conformity with’’

federal regulations. Id. § 3801(b). Section 804(c) of the Act

provides:

An alternative mortgage transaction may be made by a

housing creditor in accordance with this section notwith-

standing any State constitution, law, or regulation.

Id. § 3803(c). The Act also authorized the OTS, the Office of

the Comptroller of the Currency, and the National Credit

Union Administration to

identify, describe, and publish those portions or provi-

sions of their respective regulations that are inappropri-

ate for (and thus inapplicable to), or that need to be

conformed for the use of, nonfederally chartered housing

creditors.

Pub. L. 97–320, § 807(b), reprinted in 12 U.S.C. § 3801 note.

Pursuant to this authority, in 1983 the Federal Home Loan

Bank Board (OTS’s predecessor) promulgated a final rule in

which it identified certain of its regulations, including those

that describe and define AMTs, as applicable to nonfederally

chartered creditors. 48 Fed. Reg. 23,032, 23,053 (May 23,

1983). The Bank Board understood its role as making appli-

cable to state chartered housing creditors only those regula-

tions that were ‘‘an integral part of, and particular to’’ AMTs

entered into by federally chartered housing creditors, and not

those regulations that governed all types of mortgage loans.

Id.

This regulatory scheme remained substantially unchanged

until 1996, when the OTS added to the list of regulations

applicable to nonfederally chartered creditors those govern-

ing late fees and prepayment penalties. The former allows

federal thrifts to include a late fee provision in their loan

contracts, subject to certain limitations upon the collection

and application of such fees. 12 C.F.R. § 560.33. The latter

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permits federal thrifts to impose a fee for prepayments and

specifies how such payments shall be applied to the balance of

the loan. Id. § 560.34. As a result of this change, state

chartered housing creditors could levy prepayment penalties

and late fees without regard to state laws limiting or prohibit-

ing such charges.

Within a few years of this change the OTS became aware

that the application of its late fee and prepayment penalty

regulations to housing creditors might be contributing to

predatory lending practices in the subprime mortgage mar-

ket. In April 2000 the OTS issued an Advance Notice of

Proposed Rulemaking in which it aired that concern. See 65

Fed. Reg. 17,811, 17,813 (Apr. 5, 2000). Although the agency

recognized that subprime lending helps borrowers who would

not otherwise qualify for a mortgage loan, it wanted to

discourage rather than to enable predatory practices. Id. at

17,814/2. To that end, the agency sought public comments

regarding, among other things, the extent to which housing

creditors were ‘‘engaging in predatory or abusive mortgage

lending practices that would be contrary to existing state law

but for the provisions of the Parity Act and OTS’s implemen-

tation thereof.’’ Id. at 17,816/2.

The OTS next issued a Notice of Proposed Rulemaking

that would make the late fee and prepayment penalty regula-

tions inapplicable to state chartered housing creditors. In

the NPR, the agency noted the rising incidence of potentially

predatory lending practices and preliminarily found the two

regulations at issue were not ‘‘essential or intrinsic’’ to a

creditor’s ability to engage in AMTs. See 67 Fed. Reg.

20,468, 20,471 (Apr. 25, 2002). In contrast, the OTS proposed

to continue applying to state chartered housing creditors its

rules regarding adjustments and disclosures to borrowers

entering into AMTs. Id.

Pursuant to its authority under § 807(b), the OTS then

promulgated a final rule making its prepayment penalty and

late fee regulations inapplicable to state chartered housing

creditors, see 67 Fed. Reg. 60,542–55, on the ground that

those regulations are ‘‘not essential or intrinsic’’ to a lender’s

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ability to engage in AMTs. Id. at 60,544. As a result, state

chartered housing creditors again have to comply with state

laws governing prepayment penalties and late fees, rather

than with the relevant OTS regulations.

The NHEMA challenged the final rule in district court,

arguing (1) the OTS lacks authority to designate which of its

regulations shall apply to state housing creditors because the

Parity Act preempts all state laws governing AMTs; and (2)

the rule is arbitrary and capricious, in violation of the Admin-

istrative Procedure Act, 5 U.S.C. § 706(2)(A), because there

is insufficient evidence in the record to support either the

agency’s conclusion that the regulations at issue are ‘‘not

essential or intrinsic’’ to a creditor’s ability to engage in

AMTs, or the factual premise of the rule, that state chartered

housing creditors were abusing their authority to charge

prepayment penalties and late fees.

Upon cross-motions for summary judgment, the district

court concluded the Parity Act is ambiguous with regard to

the scope of state law preempted. 271 F. Supp. 2d at 270–71.

The court then concluded the agency’s interpretation of the

extent to which the Act preempts state law is based upon a

permissible construction of the statute and is therefore enti-

tled to deference. Id. at 273. Finally, the district court

rejected the NHEMA’s argument that the rule is arbitrary

and capricious for want of factual support in the rulemaking

record. Id. at 276–78.

II. Analysis

On appeal the NHEMA renews only its argument that the

agency’s rule is based upon an impermissible interpretation of

the Parity Act. We review the OTS’s interpretation of a

statute it is charged with administering according to the

familiar two-step analysis in Chevron U.S.A., Inc. v. Natural

Resources Defense Council, Inc., 467 U.S. 837 (1984). Under

Chevron, we must first determine ‘‘whether Congress has

directly spoken to the precise question at issue,’’ id. at 842,

here, whether the Parity Act requires that state chartered

housing creditors be made subject to all federal regulations

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respecting AMTs or, rather, only those regulations reason-

ably identified by the OTS as not ‘‘inappropriate for (and thus

inapplicable to)’’ state chartered housing creditors. If the

Congress has so spoken, then ‘‘the court, as well as the

agency, must give effect to the unambiguously expressed

intent of Congress.’’ Id. at 842–43. If, however, ‘‘the statute

is silent or ambiguous with respect to the specific issue,’’ then

we must go on to determine ‘‘whether the agency’s answer is

based on a permissible construction of the statute.’’ Id. at

843.

At Chevron step one the NHEMA emphasizes that, pursu-

ant to § 804(a) of the Parity Act, nonfederally chartered

housing creditors may engage in AMTs that are ‘‘made in

accordance with regulations governing alternative mortgage

transactions as issued by the [OTS] for federally chartered

savings and loan associations.’’ 12 U.S.C. § 3803(a) (appel-

lant’s emphasis). The NHEMA contends that this provision,

when read in conjunction with § 804(c) (preempting state law

with respect to AMTs made in accordance with § 804), id.

§ 3803(c), unambiguously establishes that nonfederally char-

tered housing creditors shall be able to engage in AMTs upon

all the same terms as federally chartered housing creditors,

and that the Act thus preempts all state laws respecting

AMTs. The NHEMA draws further support for its interpre-

tation from § 802 of the Parity Act, in which the Congress

stated the purpose of the Act is to ‘‘provide [nonfederally

chartered housing creditors] parity with federally chartered

institutions.’’ Id. § 3801(b). ‘‘Thus,’’ we are told, ‘‘the scope

of preemption created by the Parity Act is that necessary to

create parity: not more, not less.’’

It is not so clear to us the Parity Act is intended to

preempt all state laws applicable to AMTs. The Act also

provides that § 804, which authorizes state chartered housing

creditors to engage in AMTs, ‘‘shall apply TTT only to transac-

tions made in accordance with regulations governing alterna-

tive mortgage transactions as issued by the [OTS].’’ The

Congress did not, however, simply make all OTS regulations

applicable to nonfederally chartered housing creditors engag-

ing in AMTs; to the contrary, the legislature specifically

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directed the agency to ‘‘identify, describe, and publish those

portions of [its] regulations that are inappropriate for (and

thus inapplicable to)’’ such creditors. Pub. L. 97–320,

§ 807(b). The Congress neither defined ‘‘inappropriate’’ nor

provided any further guidance to the OTS. In light of this

consequently broad mandate, the Act need not be construed,

as the NHEMA argues, as an unequivocal direction to make

applicable to state chartered housing creditors all OTS regu-

lations governing federally chartered housing creditors en-

gaging in AMTs, and thus to preempt all state laws and

regulations inconsistent therewith. The agency must decide

which regulations are appropriate and which are inappropri-

ate for nonfederally chartered housing creditors in view of the

purposes of the Parity Act and of such other regulatory

policies as the OTS may lawfully pursue.

Because the Parity Act does not unambiguously express an

intent to preempt all state laws governing AMTs, we must go

on to Chevron step two and consider whether the agency’s

interpretation of the Act is a permissible one. We hold it is.

As the OTS interprets the Parity Act, the agency is re-

quired to apply to state chartered housing creditors only

those core regulations that ‘‘authorize’’ federally chartered

housing creditors to ‘‘engage in’’ AMTs, as opposed to those

less central regulations that govern the terms upon which

federally chartered creditors may do so; only state laws in

conflict with such authorizing provisions are preempted. In

the final rule, the OTS defined the applicable regulations as

those that are ‘‘essential or intrinsic to the ability of state

housing creditors to continue to provide alternative mortgage

transactions.’’

As we have seen, although the Parity Act on its face makes

clear the Congress intended to preempt state law to some

extent, the Act also clearly vested the OTS with authority to

‘‘identify those portions’’ of its regulations that are ‘‘inappro-

priate for’’ application to nonfederally chartered creditors.

The statute thus clearly admits of the agency’s interpretation

that the Congress did not mandate parity between federally

and nonfederally chartered creditors with respect to every

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detail of AMTs, and that the purpose of the Act is served —

and the agency’s responsibility thereunder is discharged — if

the OTS makes applicable to state creditors only those regu-

lations ‘‘essential or intrinsic to the[ir] ability’’ to engage in

AMTs.

The NHEMA also argues we owe no deference to the

OTS’s interpretation of the Act because it is a departure from

previous agency policy. An agency’s interpretation of a

statute is entitled to no less deference, however, simply

because it has changed over time. ‘‘On the contrary, the

agency, to engage in informed rulemaking, must consider

varying interpretations and the wisdom of its policy on a

continuing basis.’’ Chevron, 467 U.S. at 863–64. To be sure,

an agency must provide a ‘‘reasoned analysis’’ for its change

in course, Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State

Farm Mut. Auto. Ins. Co., 463 U.S. 29, 57 (1983), but the

OTS has clearly done that. As early as the April 2000 ANPR

the OTS expressed concern that state housing creditors were

engaging in predatory subprime lending — a concern it

ultimately determined to be well-founded. Moreover, the

agency’s change in course is simply a return to the view it

held consistently from its first implementation of the Parity

Act in 1983 until 1996. Cf. Power Reactor Develop. Co. v.

Int’l Union of Electricians, 367 U.S. 396, 408 (1961) (agency

interpretation entitled to greater deference when adopted

soon after passage of statute). The OTS reverted to this view

in response to what it reasonably perceived as the unantic-

ipated and undesirable fallout from the change it made in

1996. See Florida Cellular Mobile Communications Corp. v.

FCC, 28 F.3d 191, 196–97 (D.C. Cir. 1994) (upholding change

in regulation as reasoned response to experience).

In sum, because we conclude the agency’s interpretation of

the Parity Act and its rulemaking authority thereunder is a

permissible one, we defer to that interpretation pursuant to

Chevron step two.

The NHEMA argued in the district court that the OTS rule

is arbitrary and capricious, in violation of the Administrative

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Procedure Act, 5 U.S.C. § 706(2)(A), because there is no

evidence in the administrative record demonstrating that (1)

late payment and prepayment fees are ‘‘not essential or

intrinsic’’ to state housing creditors’ ability to engage in

AMTs; or that (2) state housing creditors’ abuse of late

payment and prepayment provisions resulted in an increase

in predatory lending. The NHEMA does not, however, raise

this argument on appeal — no doubt because 46 state Attor-

neys General had submitted evidence supporting the findings

of fact upon which the OTS based its decision to make its

prepayment and late fee regulations inapplicable to state

chartered housing creditors, which evidence the Attorneys

General reiterate in their brief as amici curiae in support of

the OTS. In response to the agency’s ANPR, the Attorneys

General reported that, in their experience, the regulatory

change made in 1996 encouraged abusive practices ‘‘primarily

by non-depository lenders and mortgage brokers,’’ that is,

state chartered housing creditors subject to little, if any

federal regulation. Letter from Nat’l Ass’n of Attorneys

General in Response to ANPR, at 1–3. Concerned particular-

ly with prepayment penalties and late fees, the Attorneys

General ‘‘strongly urge[d] the OTS to take appropriate action

to revise its regulations’’ in order ‘‘to protect borrowers from

predatory practices.’’ Id. at 3. In view of the Attorneys

General’s responsibility for enforcing state consumer protec-

tion laws, the OTS could reasonably have given special weight

to their informed judgment about the effect of the agency’s

1996 change of policy. Because the NHEMA does not press

its APA argument on appeal, however, we hold only that the

OTS’s interpretation of the Parity Act is a reasonable one.*

* In the district court the NHEMA also argued the OTS’s

interpretation is not entitled to deference because more than one

agency has authority to administer and hence to interpret the

Parity Act. See 271 F. Supp. 2d at 274. Because that issue is not

presented on appeal, we do not decide it either.

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III. Conclusion

For the foregoing reasons, the judgment of the district

court is

Affirmed.