David Gambardella v. G. Fox & Co.

NEWMAN, Circuit Judge,

concurring:

I concur in the Court’s judgment and in all portions of Judge Lumbard’s opinion except Part A.l. concerning the claim that G. Fox failed to disclose, or misleadingly disclosed, the amount of the payment necessary to avoid additional finance charges. In the majority’s view, no violation occurred because, under its construction of the Truth in Lending Act (TILA), 15 U.S.C. § 1637 (b)(10) (1976), and Regulation Z, 12 C.F.R. § 226.7 (b)(l)(ix), p. 593 (1982) (preOctober 1, 1982, version), a creditor must notify a customer only of the date by which payment must be made to avoid finance charges, but not the amount of such payment. In my view, that construction is at odds with both common sense and the interpretation of the Federal Reserve Board, and I write separately to set forth the basis of my disagreement with that construction. Nevertheless, I agree, for reasons explained below, that the defendant’s disclosure of the payment necessary to avoid finance charges was not in violation of TILA.

*123 The front side of the printed billing form sent by defendant G. Fox & Co. to the plaintiffs contains this statement: “To avoid additional FINANCE CHARGES pay the new balance in full by the payment due date.” The reverse side contains this statement: “No FINANCE CHARGE is assessed in any billing period in which the ‘Previous Balance’ ... is $3 or less.... ” In the District Court the parties assumed that the practice of G. Fox was to impose a finance charge in the billing cycle that followed receipt of a bill unless the “previous balance” listed on that bill was $3 or less. While the case has been pending in this Court, the parties have learned that the policy of G. Fox is in fact somewhat more generous to customers: no finance charge is imposed if the previous balance is $3 or less, or if the customer pays all but $3 of his new balance, or if the average daily balance is $3 or less.

The majority opinion, viewing the case solely on the facts as they were thought to exist in the District Court, observes that the statement on the front side of the bill is “generally accurate,” at 110, though “misleading to customers who have ‘new balances’ of $3 or less.” Id. The majority then concludes (1) that, under TILA and Regulation Z, the amount of payment necessary to avoid additional finance charges is not a required disclosure and that (2) misleading statements that concern only non-required information do not violate the Act. I disagree with the first of these interpretations. 1

I.

One of the disclosures TILA requires a creditor to make in a bill under an open-end consumer credit plan is “the date by which ... payment must be made to avoid additional finance charges.” 15 U.S.C. § 1637 (b)(10)(1976), 12 C.F.R. § 226 .-7(b)(l)(ix), p. 593 (1982) (pre-October 1, 1982, versions). 2 Purporting to defer to the expertise of the Federal Reserve Board (the Board), the majority reads this language rigidly to mean that a creditor must disclose only the date by which payment must be made to avoid additional finance charges but not the amount of the payment that must be made to avoid such charges. If we had no guidance from the Board, I would challenge that construction, since it seems odd, to say the least, to require a creditor to *124 tell a customer when he must make a payment but not what payment he must make. Indeed, it is difficult to imagine how a creditor could tell a customer when to pay without also telling him the amount to pay. An instruction to make an unspecified payment by a specified date would hardly be informative.

Fortunately the Board has made explicit what common sense would tell us is the proper way to construe the payment date provision. On May 5, 1980, the Board proposed a revised version of this provision, requiring the following disclosure:

(11) Free-ride period. The date by which ... the new balance must be paid in order to avoid the imposition of finance charges. If only a portion of the new balance need be paid to avoid a finance charge, that amount must be disclosed. .. .

12 C.F.R. § 226.5 (c)(ll) (proposed), 45 Fed. Reg. 29702 , 29738 (May 5, 1980). Significantly, the Board noted that this proposal involved “no substantive change” in the existing regulation, 12 C.F.R. § 226 .-7(b)(l)(ix), p. 593 (1982), which governs this case. 45 Fed.Reg. 29712. Thus, in the view of the Board, the payment date provision has always meant that the creditor must disclose the amount of payment necessary to avoid a finance charge; if the full amount of the new balance must be paid, the date by which such payment must be made is required to be disclosed, and if “only a portion” of the new balance must be paid, “that amount must be disclosed.” The final version of the revised payment date provision combines the date and amount disclosures by requiring disclosure of “[t]he date by which ... the new balance or any portion of the new balance must be paid to avoid additional finance charges.” 12 C.F.R. § 226.7 (j), p. 837 (1982).

The majority attaches significance to the fact that the final version of section 226.7(j) omits the separate sentence, which had appeared in proposed section 226.5(c)(ll), requiring disclosure when only a portion of the new balance must be paid. In the majority’s view, the deletion of this separate sentence implies a decision not to require such disclosure. 716 F.2d at 109 n. 5. I would not draw that inference for two reasons. First, an interpretation that reads the amount of required payment out of section 226.7(j) is so contrary to common sense that it should be resisted if any other construction is possible. Second, the Board attaches no such significance to the revision of its wording of proposed section 226.5(c) (11). On December 5, 1980, the Board published a revised version of proposed section 226.5(c)(ll), renumbering it as section 226.7(k). 45 Fed.Reg. 80699 (1980). That revision deleted the second sentence of proposed section 226.5(c)(ll), combining its content into a slightly expanded version of the first sentence. The commentary to the December 5, 1980, draft makes no mention of this revised wording. Since the Board’s commentary to its proposed and final versions of Regulation Z always notes, and explains the reasons for, any substantive change from an earlier proposed version, the absence of explanation indicates that no change of substance had occurred. Significantly, on April 7,1981, when the Board published the current version, renumbered as section 226.-7(j), which virtually tracked proposed section 226.7(k), it explicitly noted that this final version was “substantially the same” as the then existing section 226.7(b)(l)(ix). 46 Fed.Reg. 20860 (1981).

The Supreme Court has instructed us to heed the Board’s views, expressed in connection with the revision of Regulation Z, to the extent that they explain the meaning of TILA and the original version of Regulation Z. See Anderson Bros. Ford v. Valencia, 452 U.S. 205 , 101 S.Ct. 2266 , 68 L.Ed.2d 783 (1981). I therefore conclude that, as a general rule, TILA requires a creditor to disclose the amount of payment necessary to avoid finance charges.

II.

Since, in my view, the amount of the necessary payment is a required disclosure, I must consider the issue, not reached by the majority, whether the G. Fox disclosures concerning the necessary payment *125 were in violation of TILA. On the facts as presented in the District Court, Judge Cabranes concluded that there was a violation because of the apparent contradiction between the front-side and reverse-side statements concerning the payment needed to avoid finance charges. In the plaintiffs’ view, the facts as the parties now understand them to be show that the front-side statement itself violates TILA by informing the customer that he must pay his new balance in full to avoid finance charges, whereas in fact a finance charge will not be imposed if the customer pays all but $3 of his bill. That is surely a plausible contention, but it is refuted by the explicit authority that Regulation Z confers on a creditor not to disclose the fact that it imposes no finance charge on small balances.

Regulation Z provides:

If a creditor does not impose a finance charge when the outstanding balance is less than a certain amount, the creditor is not required to disclose that fact or the balance below which no such charge will be imposed.

12 C.F.R. § 226.7 (b)(l)(v) n. 9a, p. 593 (1982) (pre-October 1,1982, version). 3 The evident purpose is to permit a creditor to forgo charging interest on small balances without the need to inform customers of this generosity. It seems obvious that the non-disclosure permission is closely related to the forgoing of interest: if all customers were told that they need not pay the last $3 of their bill to avoid finance charges, it is reasonable to think that many would withhold the last $3, thereby making it less likely that the creditor could afford to forgo imposing interest charges on the few who now do so. The Federal Reserve Board apparently believes that creditors can adopt their own de minimis rules without disclosure.

At first glance, non-disclosure of the amount below which no finance charge will be imposed may seem inconsistent with the requirement of disclosure of the amount of payment necessary to avoid finance charges. But an interpretation is available that accords meaning to both provisions. The disclosure requirement, in its currently applicable version, requires notification of the date by which “the new balance or any portion of the new balance” must be paid to avoid finance charges. 12 C.F.R. § 226.7 (j), p. 837 (1982). That means that if, for example, a customer’s new balance is $300, the creditor must inform him that he must pay either the entire balance or some portion of it (for example, one-third) by the due date to avoid finance charges in the next billing cycle. Creditors frequently require prompt payment of at least some stated fraction of an outstanding balance. At the same time, the non-disclosure permission allows a creditor, without notice, to forgo finance charges on small balances, below a certain amount. The Board is entitled to think that a customer needs to know whether he must pay all or some stated fraction of his bill to avoid incurring finance charges, but need not know that his failure to pay the last $3 of his bill, or the maintenance of a balance of less than $3, will not subject him to finance charges. 4

Plaintiffs contend that the non-disclosure permission concerning small balances applies only to a creditor’s decision not to *126 impose a finance charge on a small balance in a current billing cycle and does not entitle a creditor to withhold the fact that no finance charge will be imposed in a subsequent billing cycle if the balance in that cycle is brought below a certain amount. In their view, a G. Fox customer is entitled to know that he can pay all but $3 of his new balance and still avoid finance charges on his purchases in the next billing cycle. I disagree. The wording of the non-disclosure permission in Regulation Z refers to forgoing finance charges when the “outstanding balance” is below a certain amount, making no distinction between a “new balance” in a current billing cycle and the customer’s balance during the next billing cycle after making a payment. And the wording permits non-disclosure of the balance below which a finance charge “will” not be imposed. Moreover, it would make little sense to permit a creditor to conceal the fact that it does not impose finance charges on new balances of less than $3 and still require disclosure of the fact that finance charges will not be imposed when a customer’s payment brings his outstanding balance down to $3. In both instances, interest is not being charged on small balances, and the Board does not require disclosure of that fact.

I conclude, therefore, that G. Fox did not violate TILA when it disclosed that payment of the new balance would avoid additional finance charges without informing the plaintiffs of the fact, now known, that finance charges would not be imposed if all but $3 of the new balance was paid. And, since G. Fox did not have to disclose any aspect of its willingness to forgo finance charges on balances under $3, it did not violate TILA, on the facts as known in the District Court, by disclosing on the reverse side of its bill one of the circumstances under which it would do so. Since the regulation permits a disclosure that full payment is necessary to be contradicted by an undisclosed policy of not imposing finance charges on small balances, it is not violated by a partial disclosure of that policy-

For these reasons I conclude that G. Fox’s billing statement did not violate the payment date provision of TILA and therefore concur in the judgment and in all portions of Judge Lumbard’s opinion except Part A.l.

. The second interpretation, though adopted elsewhere, Stewart v. Ford Motor Credit Co., 685 F.2d 391 (11th Cir.1982); Fox v. HeiligMeyers Co., 681 F.2d 212, 214 (4th Cir.1982) (alternative holding), is not free from doubt, see Stewart v. Ford Motor Credit Co., supra, 685 F.2d at 395 (Clark, X, dissenting). The statute simply says that a creditor “may supply additional information.” 15 U.S.C. § 1632 (1976 & Supp. V 1981). The Regulation, as it read when plaintiffs’ claim arose, was more precise. It permitted “additional information” but specified:

none shall be stated, utilized, or placed so as to mislead or confuse the customer ... or contradict, obscure, or detract attention from the information required ... to be disclosed.

12 C.F.R. § 226.6 (c), p. 588 (1982) (pre-October 1, 1982, version). As a matter of parsing, this regulation would normally be read to accomplish two distinct objectives: (1) banning any statement that misleads or confuses a customer and (2) banning any statement that contradicts, obscures, or detracts attention from a required disclosure. However, in the revised version of Regulation Z, the Federal Reserve Board deleted former section 226.6(c) with this explanation:

The Board believes that additional information may be included on the statement, and its use will be adequately regulated by the general requirement that all open-end Truth in Lending disclosures be made clearly and conspicuously.

46 Fed.Reg. 20848, 20857 (April 7, 1981). Since the “clearly and conspicuously” standard applies only to required disclosures, 12 C.F.R. § 226.6 (a), p. 586 (pre-October 1, 1982, version), id. at § 226.5(a), p. 835 (current version), it is apparently the Board’s view that optional information will be “adequately regulated” simply by determining whether, in light of the optional information, the required information remains “clearly and conspicuously” disclosed. This suggests that the Board does not construe TILA to regulate the clarity of optional information, except to the extent that such information might impair understanding of a required disclosure. The Board gave no indication that it viewed the deletion of former section 226.6(c) as a substantive change.

. The current versions appear at 15 U.S.C. § 1637 (b)(9) (Supp. V 1981) and 12 C.F.R. § 226 .7®, p. 837 (1982).

. The current version appears at 12 C.F.R. §§ 226.6 (a)(4) n. 13, 226.7(d) n. 14, p. 836 (1982).

. The majority opinion relies on the “small-balance” non-disclosure language of section 226.-7(b)(l)(v) as support for its conclusion that the payment necessary to avoid finance charges need not be disclosed at all. 716 F.2d at 108-110. In the majority’s view, since a creditor need not disclose that it imposed no finance charge on balances below a certain amount, it need not disclose the amount of any payment necessary to avoid finance charges. The conclusion does not follow. It is true that a creditor who requires payment of only a portion of a balance to avoid finance charges, for example, one-third of the new balance, is forgoing interest on the remaining two-thirds. But forgoing interest on stated fractions of a balance, regardless of amount, is not the same as forgoing interest on all balances below a constant amount. Permission for non-disclosure of de minimis amounts is not a basis for allowing a creditor to refuse to tell a customer whether he must pay all or only some fraction of his bill in order to avoid finance charges.