Petition — General Finance Corp. v. Pollock

Fi. = Supreme Court, U. ms

mm FCLED hy

- ;

AUG § 977 |

IN THE | (MICHAEL RODAK, JR., CLERK

Supreme Court of the United States

October Term, 1976

GENERAL FINANCE CORPORATION,

Petitioner,

v.

JOHN C. POLLOCK AND BARBARA POLLOCK,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE FIFTH CIRCUIT

MILTON W. SCHOBER

TERRENCE H. KLASKY

1750 Pennsylvania Avenue, N.W.

| Suite 1107

. Washington, D.C. 20006

(202) 393-4961

Attorneys for Petitioner

August 5, 1977

— A A TLS SE

BEACON PRINTING - 293-7160 - Washington, D.C. 20036

TABLE OF CONTENTS

: Page

TABLE OF AUTHORITIES ................. iii

OPINIONS OF THE COURTS BELOW ...... 1

JURISDICTIONAL STATEMENT ............ 2

. QUESTIONS PRESENTED FOR REVIEW .. 2

. STATUTES AND REGULATIONS

EET tb cinedusncstehsnednveneienesss« 3

. REASONS FOR GRANTING THE WRIT:

. The Court below has struck down the broad

regulatory authority of the Board of

Governors of the Federal Reserve System

under the Truth in Lending Act in direct

conflict with an applicable decision of

I hie od uk ad od venesees 10

. The judgment in this case is in total disregard

of, and direct conflict with, § 121(a) of the

Truth in Lending Act, 15 U.S.C. § 1631 (a) .... 16

. The judgment in this case leaves in sub-

stantial doubt the authority of the Board

of Governors of the Federal Reserve System

to administer the highly technical provisions

of the Truth in Lending Act with precision

and certainty for the benefit of all persons

OD i i eves ceadesestsedeuesic 18

in

4. The Court of Appeals decided that the Federal

Truth in Lending Act mandates detailed dis-

closure of the creditor’s rights and duties

under state law, and that any right asserted

in the contract by the creditor which was not

permitted by state law would constitute a viola-

tion of the Truth in Lending Act, if the dis-

closures agreed with the contract. This is an

important question of federal law which has

not been, but should be, settled by this Court .. 21

Vee CPE 6 vaedncccnusvesiacvqhaseasnents 28

iw

TABLE OF AUTHORITIES

Page

CASES:

Addison, et al., v. Holly Hill Fruit Products, Inc.

i aw ume ecee. 19

American Telephone & Telegraph Co. v. United

Rt BR 14

Armstrong Paint and Varnish Works v. Nu-Enamel

Corp., 305 U.S. 315 (1938) ..... Ce SE Sees 17

Bone v. Hibernia Bank, et al., 493 F.2d 135

i i SPE. ae tetbeatesseeceece 27

Burrell v. City Dodge, Inc., (No. 18739, N.D.Ga..,

eee an bate-< 25

Crowell v. Benson, 285 U.S. 22 (19382) ............ 17

Graham v. Goodcell, 282 U.S. 409 (1931) .......... 17

Griggs v. Duke Power Co., 401 U.S. 424 (1971) ... 16

Imperial Production Corp. v. Sweetwater,

ee ee ee Ge Gs ED Soccccccevccscccces 17

Kreitlein v. Fergen, 238 U.S. 21 (1915) ........... 13

Mourning v. Family Publications Service, Inc.,

Ge Bae Be OED dcccccecccccscdes 10, 11, 14, 27

National Labor Relations Board v. Bell Aerospace

ee ED nk coc cecvdddevvesbsces 15

National Labor Relations Board v. Boeing Co., et al.,

ed dae iueeadeebevastsnes 16

Pennino v. Morris Kirschman & Co., Inc., 526 F.2d

I a a ag 21, 22, 25

Philbeck vy. Timmers Chevrolet, Inc., et al.,

499 F.2d 971 (5th Cir. 1974) ............... 27, 28

Pinkett v. Credithrift of America, Inc., No. 2,

430 F. Supp. 113 (N.D.GA. 1977) ........... 22, 24

Power Reactor Development Co. v. International

Union of Electrical, Radio and Machine Workers,

EE - hdlean ane lictebsbatebns tense 14

e

TABLE OF AUTHORITIES (continued)

Page

Red Lion Broadcasting Co. v. Federal Communica-

tions Commission, et al., 395 U.S. 367 (1969) ... 16

Udall v. Tallman, 380 U.S. 1 (1965) .............. 14

United States v. Bryan, 339 U.S. 323 (1950) ...... 19

United States v. Kirby, 7 Wall. 482 (1869) ........ 13

United States v. Public Utilities Commission of

Catifornia, et al., 345 U.S. 295 (1953) .......... 19

STATUTES:

15 USL. § IGOR) ..0ccccccccesssevsneseeenee 13

1S UBL. 8 1606: inicvcisdusiecesdeumenn 10, 11, 19, 20

15 U.S.C. § 1605(b), (c), (d), and (e) .............. 5

1S UBL. § WSO. nccssostvepssaseeulceuneenneee 23

15 USD. § SERRE: éccvewstvatueeens 10, 16, 17, 18, 21

15 U.S.C. § 1639(a)(1), (2), and (3) . 4, 5, 8, 11, 12, 13

15 USC. § MGRBRRIID cc ccccccccovasenban 4, 8, 11, 12

85 UBL. § BOGGS) occ ccccccsuscenscuucanueul 4

16 UBC. © BGR xo cccccucessechienneeeeee 21, 25

38 UBS. §- 19501) .... «+00 ec00ec0svaaneeseeee 2

38 USS. § SRG ..ccscccsdscussuaeieeeeee —

Consumer Credit Protection Act, § 503,

GS Saat. O67... .vcsccsveuseeecuieoneeneeee 17

Pub.L. No. 91-508 (1970) ................ ~~ebeewel 15

Pub.L. No. 93-495 (1974) ............e0-- 9, 15, 18, 20

Pua. Ne. 06-005 (1000)... scccccscevcnsenananene

Fub.k. Tee. COG GHEE sccctsdccncescene 15, 18, 25

is SS SF ee ee 15

Ge. Cade Anum. & BR-GRRD ...cicscsiccuecdeeee 12

Ga. Code Ann. § 109A-1, ef seg. .............0005- 6

Ga. Code Ann. § 109A-9-204(4),(5) ............. 6, 26

Vv

TABLE OF AUTHORITIES (continued)

Page

REGULATIONS:

ek... cccccccccccescceces 23

12 C.F.R. § 226.4(a)6) and (7); (b),(c),(d), and (e) .. 5

SE ae se 23

12 C.F.R. § 226.8(b\5) ......... 4, 7, 8, 9, 24, 25, 26

12 C.F.R. § 226.8(dX1) ......... 4, 5, 8, 9, 13, 16, 28

FEDERAL RESERVE BOARD PUBLIC

INFORMATION LETTERS:

No. 271, CCH, Consumer Credit Guide, Par. 30,522 6

No. 444, CCH, Consumer Credit Guide, Par. 30,640 27

No. 509, CCH, Consumer Credit Guide, Par. 30,712 24

No. 521, CCH, Consumer Credit Guide, Par. 30,727 24

No. 983, CCH, Consumer Credit Guide, Par. 31,323 25

No. 1053, CCH, Consumer Credit Guide,

i le eed ete gasccetcecceccsue 25, 26

FC-0023, 41 Federal Register 52981 (1976) ........ 25

OTHER AUTHORITIES:

S.5, 90th Cong., Ist Sess. (1967) .................. 19

H.R. 11601, 90th Cong., Ist Sess. (1967) .......... 19

§.2101, 93rd Cong., 2nd Sess. (1974) .............. 20

H.R. Rep. No. 1040, 90th Cong., 1st Sess. (1967) .. 19

S. Rep. No. 93-278, 93rd Cong., lst Sess. (1973) .. 20

ANNUAL REPORT OF THE DIRECTOR OF THE

ADMINISTRATIVE OFFICE OF THE UNITED

STATES COURTS. 1976 ............::eceeeeees 22

Board of Governors of the Federal Reserve System,

Annual Report to Congress on Truth in Lending

ES a 17

73 Am. Jur. 2d, Statutes, § 249 ............---55- 17

vi

TABLE OF AUTHORITIES (continued)

Page

Webster’s Third New International Dictionary

SOE 60 deebrds cnbdntdcccdine He 15

Brief for Amicus Curiae, Pollock v. General Finance

Corporation, 552 F.2d 1142 (5th Cir. 1977) ..... 13

—

1

IN THE

Supreme Court of the United States

OCTOBER TERM, 1976

No.

GENERAL FINANCE CORPORATION, Petitioner,

Vv

JOHN C. POLLOCK AND BARBARA POLLOCK,

Respondents.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE FIFTH CIRCUIT

General Finance Corporation (“GFC”), Petitioner, re-

quests that a writ of certiorari issue to review the

judgment of the United States Court of Appeals for the

Fifth Circuit, entered on July 16, 1976, rehearing denied,

May 27, 1977, confirming the judgment of the United

States District Court for the Northern District of Georgia,

entered on March 26, 1975, adopting the Recommenda-

tions of a Special Master for the U.S. District Court for

the Northern District of Georgia, filed on February 28,

1975.

I. OPINIONS OF THE COURTS BELOW

The opinion of the United States Court of Appeals for

the Fifth Circuit to which this petition is addressed is

reported at 535 F.2d 295 and also appears at page A-2 of

the Appendix to this Petition. The Court of Appeals’ order

denying GFC’s petition for a rehearing is reported at 552

F.2d 1142 and appears at page A-9 of the Appendix.

The order of the United States District Court for the

Northern District of Georgia approving the Recommend-

ations of the Special Master that was the subject of GFC’s

appeal to the Court of Appeals is unreported but appears

at page A-14 of the Appendix.

The Recommendations of the Special Master for the

United States District Court for the Northern District of

Georgia upon which the District Court entered its order

are unreported but appear at page A-16 of the Appendix.

II. JURISDICTIONAL STATEMENT

The order of the Court of Appeals denying rehearing

was entered on May 27, 1977. This Court has jurisdiction

to hear the Petition under 28 U.S.C. § 1254(1), and the

Petition has been filed in the time required by 28 U.S.C. §

2101(c).

III. QUESTIONS PRESENTED FOR REVIEW

1. Whether the Board of Governors of the Federal

Reserve System (“Board”) has the authority under

the Federal Truth in Lending Act to promulgate

regulations which obviate ambiguous provisions of

that Act and facilitate compliance therewith.

2. Whether a disclosure made by a creditor in strict

conformity with Regulation Z promulgated by the

Board pursuant to the Truth in Lending Act can be

held to constitute a violation of that Act.

3. Whether a creditor which complied with Regulation

Z proniuigated by the Board pursuant to the Truth

in Lencing Act can be held liable for civil penalties

for violation of that Act.

4. Whether the Board has the authority to administer

the Truth in Lending Act through staff Public Infor-

mation Letters interpreting the provisions of Regul-

ation Z, which the Board promulgated pursuant to

that Act.

3

5. Whether Public Information Letters issued by the

Board’s staff, which consistently interpret a provi-

sion of Regulation Z to have a given meaning, are en-

titled to great weight and are to be the controlling

interpretation of regulatory meaning.

6. Whether the last sentence of § 226.8(b)(5) of

Regulation Z, 12 C.F.R. § 226.8(b) (5), which has no

statutory counterpart but was promulgated by the

Board under its broad rulemaking authority, re-

quires creditors to inform borrowers that, pursuant

to state law, any consumer goods acquired within ten

days after a loan transaction were subject to a

security interest under that transaction and that any

consumer goods acquired after that date were not

subject, notwithstanding a staff Public Information

Letter to the contrary.

7. Whether the last sentence of § 226.8(b) (5) of

Regulation Z, 12 C.F.R. § 226.8 (b) (5), which has no

statutory counterpart but was promulgated by the

Board under its broad rulemaking authority, re-

quires creditors to inform borrowers that, pursuant

to state law, future indebtedness is secured by all

consumer goods acquired by the borrower within ten

days of the creditor’s having given value for the

future indebtedness and that no security interest

was retained in consumer goods acquired after that

ten day period, notwithstanding a staff Public Infor-

mation Letter to the contrary.

IV. STATUTES AND REGULATIONS INVOLVED

The Truth in Lending Act, 15 U.S.C. §§1601, et seg., and

Regulation Z, i2 C.F.R. Part 226, promulgated by the

Board pursuant to that Act are principally involved. The

specific sections of the Act involved are §§ 102(a); 105;

106(b), (c), (d), and (e); 111; 121(a); 129(a) (1), (2), (3), and

(8); and 130(f) (15 U.S.C. §§ 1601(a); 1604; 1605(b), (c), (d),

and (e); 1610; 1631(a); 1639(a) (1), (2), (3), and (8); and 1640

(f)), and the specific sections of Regulation Z involved are

§ 226.1(a) (2); §§ 226.4(a) (6) and (7), (b), (c), (d), and (e);

§ 226.6(c); and §§ 226.8(b\5) and (d\1) of Regulation Z (12

C.F.R. § 226.1(a\(2); §§ 226.4(a)(6) and (7), (b), (c), (d), and

(e); § 226.6(c); and §§ 226.8(b\5) and (dX1)). The pertinent

provisions of the Act and Regulation appear at pages A-22

to A-31 of the Appendix.

V. STATEMENT OF THE CASE

Respondents brought this action in the United States

District Court for the Northern District of Georgia,

alleging that Petitioner, GFC, a financial institution, had

violated the Act and Regulation Z. Original jurisdiction in

the United States District Court was thus conferred by §

130(e) of the Act, 15 U.S.C. § 1640(e).

The consumer credit transaction upon which this suit

was brought was an instalment loan entered into by

Respondents and Petitioner on September 12, 1973 in the

amount of $171.36. Inasmuch as that transaction involved

an extension of consumer credit other than open end,

Petitioner furnished to Respondents the disclosures re-

quired by 15 U.S.C. § 1639(a) and 12 C.F.R. §§ 226.8(b)

and (d). The required disclosures were made on the note

evidencing the obligation, a copy of which was given to

Respondents along with a copy of the security agreement

which they also executed in connection with the trans-

action. Conformed copies of the note and security agree-

ment appear at page A-41 of the Appendix.

The case was heard by a Bankruptcy Judge sitting as a

Special Master for the United States District Court for the

Northern District of Georgia on a motion for summary

judgment. The Special Master filed his Recommendations

for judgment in favor of Respondents on the grounds that—

1. GFC failed to itemize the amount of the check given

to Respondents as proceeds of the loan, after

deducting the amount of the premiums for voluntary

credit life and disability insurance (which were

5

itemized) from the disclosed “amount financed,” all

in violation of 15 U.S.C. § 1639(a) (1) and 12 C.F.R. §

226.8(d) (1);

2. GFC failed to disclose properly that Respondents’

after-acquired property will be subject to GFC’s

security interest; and

3. GFC failed to disclose properly that Respondents’

future indebtedness to GFC will be secured by GFC’s

security interest.

GFC’s disclosure statement furnished to Respondents

disclosed the “amount financed” as $171.36 as well as

voluntary credit life and credit disability insurance

premiums of $3.84 and $12.24, respectively. The net

amount of the check paid to Respondents after deducting

the aggregate amount of those premiums from the

“amount financed” ($155.28) was shown without a label or

description.

GFC relied on the provisions of 12 C.F.R. § 226.8(d) (1)

which does not require disclosure of net loan proceeds; it

only requires disclosure of the “amount financed” and

itemization of “all charges .. . which are included in the

amount of credit extended but which are not part of the

financia! charge.”! Inasmuch as the net disbursement to

the borrowers of the proceeds of the loan after deducting

optional and voluntary insurance premiums are not

“charges,” of the type which may be excluded from the

financial charge under 12 C.F.R. § 226.4,2 GFC did not

! Appendix, p. A-29.

2Excludable “charges” under that section of Regulation Z relate to

expenses incurred in connection with a consumer credit transaction,

such as premiums for optional and voluntary credit life and disability

insurance; fees for perfecting a security interest; license, title, and

registration fees; and title examination fees. § 106(b),(c),(d), and (e) of

the Act, 15 U.S.C. § 1605(b),(c),(d), and (e); 12 C.F.R. §§ 226.4(aX6) and

(7) and 12 C.F.R. §§ 226.4(b),(c),(d), and (e); Appendix, pp. A-22 and

A-26.

6

individually itemize (i.e., describe) the net proceeds. GFC

also relied on the Board’s Public Information Letter No.

271 holding that the proceeds of a loan, after deducting

charges incurred in connection with the loan that are not

part of the financial charge, need not be itemized.

Whether the credit life and credit disability insurance

were optional and voluntary was never an issue in the

case; however, Respondents did allege a violation in

connection with disclosure of the term of such insurance.

As to that claim, the Special Master found for GFC, and

the issue was not raised on appeal.

With respect to after-acquired property, the only

security interest taken was in “household and consumer

goods,”* and GFC’s disclosure statement indicated that

the security agreement “may” cover such property. GFC

used the word “may” in its disclosure ststement, because

Georgia had adopted the Uniform Commercial Code,5

which limits a security interest in after-acquired con-

sumer goods to such goods acquired by the obligor within

a period of ten days after the secured party gives value.®

Thus, after-acquired consumer goods literally may (or

may not) be subject to the security agreement, depending

upon when they are acquired by the obligor.

The Special Master found a violation of the after-

acquired property disclosure, however, because the secur-

ity agreement described the secured property as “house-

hold and consumer goods . . . now or hereafter located in

3CCH, Consumer Credit Guide, Par. 30,522; Appendix. p. A-31.

‘Appendix, p. A-41.

5Ga. Code Ann., §§ 109A-1, et seg.

Ga. Code Ann., § 109A-9-204(4\b); Appendix, p. A-30.

7

or about the premises constituting the Debtor’s resi-

dence.” According to his Recommendations, failure to

disclose that a security interest “will” be retained in after-

acquired property was a violation, notwithstanding that

under State law, consumer goods acquired more than ten

days after GFC’s having given value will not be so subject.

With respect to the security interest for future indebt-

ednesses, it should be carefully noted that the most logical

interpretation and, it is submitted, the intended meaning

of the provisions of the last sentence of 12 C.F.R. §

226.8(b\(&) impose the obligation to disclose the security

interest on future indebtedness only as it relates to after-

acquired property. That sentence provides that “[i}f after-

acquired property will be subject to the security interest,

or if other or future indebtedness is or may be secured by

any such property, this fact shall be clearly set forth in

conjunction with the description or identification of the

type of security interest held, retained or acquired”

(emphasis supplied). Thus, the security interest for future

indebtedness need be disclosed only as that security

interest “may” relate to after-acquired property.

GFC’s disclosure relating to future indebtedness pro-

vided that any property which secured the current loan

“may” secure future or other indebtedness. Again, GFC

used the word “may” in its diclosure statement, because

the only security interest taken was in consumer goods,

and the provisions of the Uniform Commercial Code as

adopted in Georgia limit any such security interest in

consumer goods to only such goods as are acquired by the

obligor within ten days after the obligee’s having given

value for the future indebtedness. Although GFC’s se-

curity agreement was not conditional with respect to

consumer goods acquired more than ten days after giving

"Appendix, p. A-41.

’Appendix, p. A-29.

8

value on future indebtedness, Georgia law under which

the security agreement is enforced was conditional.

Moreover, the security agreement was, in fact, conditional

in that it stipulated that the security interest would not

apply to any property for future indebtedness incurred

after the current indebtedness had been paid in full. Thus,

GFC’s disclosure that the loan may secure future or other

indebtedness was, quite literally, true. However, the

Special Master found that use of the word “may” instead

of the word “will’ in GFC’s disclosure relating to the

security interest for future indebtedness was a violation.

In affirming the lower court’s judgment with respect to

itemization of the net proceeds of the loan after deducting

charges for optional and voluntary credit insurance, the

Court of Appeals found that although the “literal lan-

guage of the regulation” does not require itemization, the

statute imposed different requirements. In short, the

Court of Appeals found that 15 U.S.C. § 1639(a) required

disclosure (itemization) of the net proceeds of the loan,

although the provisions of 12 C.F.R. § 226.8(d\1) im-

plementing that section of the Act did not require

itemization.

In affirming the holding of the lower court relating to

the security interest in after-acquired property, the Court

of Appeals arrived at the same conclusion as the District

Court -- that there had been a violation -- but for different

reasons. The Court of Appeals interpreted 12 C.F.R. §

226.8(b\5) as requiring a lender, in its Truth in Lending

disclosures, “to explain the 10 day limitation”’® under the

Uniform Commercial Code.

With respect to future indebtedness, the Court of

Appeals found that the phrase “any such property” in the

*Appendix, p. A-5.

Appendix, p. A-7.

9

last sentence of 12 C.F.R. § 226.8(b\5) referred to “after-

acquired property,” and for that reason, lenders were

required to disclose affirmatively the ten day limitation

on the security interest in consumer goods for future

indebtedness.

In denying the petition for rehearing, the Court of

Appeals specifically reaffirmed its holding that the Truth

in Lending Act requires a creditor to make a labeled

disclosure of net loan proceeds, notwithstanding the

“more natural reading of § 226.8(d\(1)”" of Regulation Z

to the contrary.

The Court of Appeais also reaffirmed without modifi-

cation its holding that a creditor must disclose the ten-day

limitation on a security interest in after-acquired con-

sumer goods. However, in reaffirming its position on

disclosure of a security interest for future indebtedness,

the Court of Appeals changed its interpretation of the

proper meaning of the phrase “any such property” in the

last sentence of i2 C.F.R. § 226.8(b)\(5), holding that that

phrase referred to “property to which the security interest

relates” in the first sentence of that paragraph -- an

interpretation which breaks every rule of grammatical

construction.

The matter of immunity from civil liability for good

faith reliance on the Board’s regulation was first raised in

the petition for rehearing. Section 408(e) of the Depository

Institutions Amendments Act of 1974 added a new

subsection (f) to 15 U.S.C. § 1640 which provides that no

civil liability “ ...shall apply to any act done or omitted in

good faith in conformity with any rule, regulation, or

interpretation thereof by the Board.”!* Moreover, that

"Appendix, p. A-11.

2Act of October 28, 1974, Pub. L. No. 93-495.

Appendix, p. A-25.

10

defense was specifically made available in any case

wherein review was still available, “whether hy appeal or

otherwise.” Although the Court of Appeals found that

GFC’s assertion of the defense on petition for rehearing

was timely, it refused to rule whether that defense against

civil penalties for failure to itemize the proceeds of the

loan was available to GFC on the basis that violations

relating to disclosure of the security interest in after-

acquired property and in connection with future in debt-

edness justified the imposition of the civil penalties.

VI. REASONS FOR GRANTING THE WRIT

1. The Court below has struck down the broad

regulatory authority of the Board of Governors

of the Federal Reserve System under the Truth

in Lending Act in direct conflict with an ap-

plicable decison of this Court.

The judgment below would strike down and render null

the broad regulatory authority of the Board of Governors

of the Federal Reserve System (“Board”) under the Act.

Section 105 of the Act, 15 U.S.C. § 1604, specifically

authorizes the Board to include in its regulation “. .. such

judgments and exceptions for any class of transactions, as

in the judgment of the Board are necessary or proper...

to facilitate compliance [with the Act].”* Furthermore, 15

U.S.C. § 1631(a) requires that each creditor “ .. . shall

disclose clearly and conspicuously, in accordance with the

regulations of the Board.”

This Court, in Mourning v. Family Publications Service,

Inc., 411 U.S. 356 (1973), confirmed the Board’s authority

to extend by regulation the coverage of the Truth in

Lending Act to transactions payable in more than four

instalments where no separate finance charge was im-

4 Appendix, p. A-22.

‘Appendix, p. A-24.

11

posed. There, the Court made the following observation:

To accomplish its desired objective, Congress deter-

mined to lay the structure of the Act broadly and to

entrust its construction to an agency with the necessary

experience and resources to monitor its operation.

Secticn 105 delegated to the Federal Reserve Board

broad authority to promulgate regulations necessary to

render the Act effective. (411 U.S. at 365) (emphasis

supplied)

Mourning, supra. dealt with the Board’s authority to

promulgate regulations “to prevent circumvention or

evasion” of the Truth in Lending Act. In reversing the

Court of Appeals for the Fifth Circuit in Mourning, supra,

the Court said:

[W]e cannot agree with the conclusion of the Court of

Appeals that the Board exceeded its authority in

promulgating the Four Installment Rule. Congress was

clearly aware that merchants would evade the re-

porting requirements of the Act by concealing credit

charges. In delegating authority to the Board, Congress

emphasized the Board’s authority to prevent such

evasion. To hold that Congress did not intend the Board

to take action against this type of manipulation would

require us to believe that, despite this emphasis,

Congress intended the obligations established by the

Act to be open to evasion by subterfuges of which it was

fully aware. As in Gemsco, the language of the enabling

provision precludes us from accepting so narrow an

interpretation of the Board’s power. (411 U.S. at 371)

The rulemaking authority of the Board under § 105 of

the Act, 15 U.S.C. § 1604, is not limited to preventing

circumvention or evasion. It extends equally to authority

to “facilitate compliance” with the Act. In the case at bar,

the wisdom of Congress in granting to the Board such a

broad delegation of authority is vindicated. As written, 15

U.S.C. § 14&39(a) contains the following internal incon-

sistency:

12

@ Paragraph (1) requires disclosure, inter alia, of the

“amount of credit .. . which is or will be paid . . . to

another person on his [obligor’s] behalf,”"* which in

the case at bar is the aggregate amount of the

voluntary and optional credit insurance premiums

deducted from the “amount financed” on the bor- |

rower’s instructions and paid to the insurer on the

borower’s behalf;

e Paragraph (2) requires disclosure of “all charges

individually itemized which are included in the

amount of credit extended but which are not part

of the finance charge,”!” which in the case at bar

are the respective amounts of the same credit in-

surance premiums; and

e Paragraph (3) requires disclosure of “the sum of

the amounts referred to in paragraph (1) plus the

amounts referred to in paragraph (2),”" thus in-

cluding the amount of the insurance premiums

twice in the amount financed.

Premiums on optional and voluntary credit insurance

of the type involved in the case at bar clearly are a part of

the credit paid to another person -- under Georgia law,'® to

or on behalf of an agent licensed by the insurance

commissioner -- on the obligor’s behalf.

Thus, as written, 15 U.S.C. § 1639(a) imposes the

absurd requirement that, in any transaction involving

“charges” which are included in the amount financed and

are excluded from the finance charge, the amount of such

Appendix, p. A-24.

"Appendix, p. A-24.

Appendix, p. A-25.

'%Ga. Code Ann., § 24-315(c).

13

“charges” be included twice in computing the amount

financed. And absurd consequences are never presumed.

Kreitlein v. Fergen, 238 U.S. 21 (1915); United States v.

Kirby, 7 Wall. 482 (1869). Moreover, including such

charges twice in computing the disclosed amount fi-

nanced would frustrate the purpose of the Act, which is to

assure a “meaningful disclosure of credit terms.””°

In drafting Regulation Z, the Board-recognized the

internal inconsistency in the Act, and in 12 C.F.R.§

226.8(dX1) simply required disciosure of the “amount

financed” and all other charges, individually itemized,

which are included in the amount of credit extended but

which are not part of the financial charge.?! And the

Board has consistently held that that provision of the

Regulation does not require itemization of cash proceeds

of a loan.

In explaining its reason for drafting the Regulation as

it now stands, the Board in its brief as Amicus Curiae in

support of defendant-appellant’s petition for rehearing in

the Court below explained that the “ ... Regulation

eliminates the possibility that certain ‘charges’ will be

counted twice in arriving at the ‘amount financed’.””

The Court of Appeals saw no such internal inconsist-

ency in the statute, observing that 15 U.S.C. § 1639(a\1)

referred to “consolidation loan payments and the like;” 15

U.S.C. § 1639(a\(2) referred to “incidental charges such as

credit insurance;” and 15 U.S.C. § 1639(aX3) required the

summation of the two.”

15 U.S.C. § 1601(a); Appendix, p. A-22.

2! Appendix, p. A-29.

“Brief for Amicus Curiae at 9, Pollock v. General Finance

Corporation, 552 F.2d 1142 (5th Cir. 1977).

2 Appendix, p. A-25.

V4

This provision in the Board’s Regulation became ef-

fective on July 1, 1969, the effective date of the Act, and

has never been amended. It reflects the Board’s judgment

as to the manner in which the Act’s mandates and

purposes would be most effectively implemented. As such,

the Regulation is a “contemporaneous construction” of the

Act and is entitled to great deference. In Power Reactor

Development Co. v. International Union of Electrical,

Radio and Machine Workers, 367 U.S. 396 (1961), the

Court stated “[p]articularly is this respect due when the

administrative practice at stake ‘involves a contempora-

neous construction’ of a statute by the men charged with

the responsibility of setting its machinery in motion,

making the parts work efficiently and smoothly while

they are yet untried and new.” (367 U.S. at 408). Accord,

Udall v. Tallman, 380 U.S. 1 (1965).

in Mourning, supra, the Court made the following

additional observations: “That some other remedial pro-

vision might be practicable is irrelevant. We have consis-

tently held that where reasonable minds may differ as to

which of several remedial measures should be chosen,

courts should defer to the informed experience and

judgment of the agency to whom Congress delegated

appropriate authority.” (411 U.S. at 371).

Courts are not generally free to substitute their own

discretion for that of an administrative agency that has

kept within the bounds of its powers, unless the rules of

that agency are “ .. . the expression of a whim rather than

an excercise of judgment.”™ Such is clearly not the case

here. “Whim” is defined as a “capricious or eccentric idea,

notion, or vagary usu., occurring suddenly or spon-

“American Telephone & Telegraph Co. v. United States, 299 U.S.

232, 236 (1936).

15

taneously.” It is submitted that the Board’s Regulation

which resolves what an experienced administrative

agency perceives to be an internal inconsistency in the

statute cannot by any stretch of semantic imagination be

considered a “whim.”

Not only is the Regulation to be accorded great

deference because it is a “contemporaneous construction”

of the statute, but also because Congress has reviewed the

statute a number of times and amended it at least five

times” without reversing the Board’s Regulation. Thus, it

may be presumed that the Regulation reflects congres-

sional intent.

A case directly in point is National Labor Relations

Board v. Bell Aerospace Co., 416 U.S. 267 (1974). That

ease involved the question of whether the National Labor

Relations Act (“NLRA”), as amended by the Taft-Hartley

Act, excludes “managerial employees” from the protection

of NLRA. The Wagner Act (the original NLRA) did not

expressly mention the term “managerial employee” but

the National Labor Relations Board created that category

by regulation as one which may not be included in a

bargaining unit with rank-and-file employees. The Taft-

Hartley amendments created several! other categories of

excluded employees but did not specifically mention

“managerial employees.” In holding that Congress in-

tended to exclude “managerial employees” from the

protection of NLRA, the Court said:

[A] court may accord great weight to the longstanding

interpretation placed on a statute by an agency charged

with its administration. This is especially so where the

25Webster’s Third New International Dictionary (Springfield, Mass:

G. & C. Merriam Company (1961)).

*%Act of October 26, 1970, Pub.L. 91-508; Act of October 28, 1974,

Pub.L. 93-495; Act of January 2, 1976, Pub.L. 94-205; Act of February

27, 1976, Pub.L. 94-222; Act of March 23, 1976, Pub.L. 94-240.

16

Congress has re-enacted the statute without pertinent

change. In these circumstances, Congressional failure to

revise or repeal the agency’s interpretation is persuasive

evidence that the interpretation is the one intended by

Congress. (416 U.S. at 274) (emphasis supplied)

Accord, Red Lion Broadcasting Co. v. Federal Com-

munications Commission, et al., 395 U.S. 367, 381 (1969);

Griggs v. Duke Power Co., 401 U.S. 424, 433-34 (1971); and

National Labor Relations Board v. Boeing Co., et al., 412

U.S. 67, 75 (1973).

Three of the five amendments to the Act passed since

the Board promulgated 12 C.F.R. § 226.8(d\1) have dealt

specifically with the Board’s regulatory authority by

extending and enhancing it, not by restricting or other-

wise diminishing it. And none of those laws have revised,

repealed, or otherwise altered 12 C.F.R. § 226.8 (d\1).

Under the foregoing authorities, the conclusion is in-

escapable that Congress intended the Board’s Regulation

to stand. This Court should affirm the Board’s authority to

promulgate such a Regulation and should affirm the

efficacy uf that Regulation as promulgated.

2. The judgment in this case is in total disregard of,

and direct conflict with, § 121(a) of the Truth in

Lending Act, 15 U.S.C. § 1631(a). _

Courts are not free to disregard the clear mandate of a

duly enacted statute.

In the construction of statutes, the courts start with the

assumption that the legislature intended to enact an

effective law, and the legislature is not to be presumed

to have done a vain thing in the enactment of a statute.

** *

An interpretation should, if possible, be avoided under

which the statute or provision being construed is

defeated, explained away. or rendered insignificant,

17

meaningless, inoperative or nugatory. (73 Am.Jur.2d,

Statutes, § 249)

Accord, Armstrong Paint and Varnish Works v. Nu-

Enamel Corp., 305 U.S. 315 (1982); Crowell v. Benson,

285 U.S. 22 (1932); Graham v. Goodcell, 282 U.S. 409

(1931); and Imperial Production Corp. v. Sweetwater, 210

F. 2d 917 (5th Cir. 1954).

Section 121 (a) of the Act, 15 U.S.C. § 1631 (a), imposes

the obligation that creditors “shall disclose . . . in

accordance with the regulations of the Board.”*’ More-

over, § 503 of the Consumer Credit Protection Act, 83

Stat. 167, which sets out the rules of grammatical usage

for the Act, provides that "[t]he word ‘shall’ is used to

indicate that an action is both authorized and required.”

(emphasis supplied).

Thus, the use of the word “shall” in 15 U.S.C. § 1631 (a)

indicates that Congress intended that the Board’s Regu-

lations be the last word in determining disclosures. The

clear purpose of this provision is to give creditors the

certainty that if they comply with the disclosure require-

ments of the Board’s Regulations, they will have made all

the disclosures required by law. Following this statutory

mandate the Board drafted Regulation Z “. . . in a form

that would serve not only as a legal directive for

_implementing the Act, but also as an operating hand-

book .”28

It is not at issue here whether GFC complied with

Regulation Z; clearly it did. In fact, that is the precise

reason it was cast in judgment on this issue: it complied to

the letter with the Board’s Regulation.

“’Appendix, p. A-24.

Board of Governors of the Federal Reserve System, Annual! Report

to Congress on Truth in Lending for the Year 1969, January 3, 1970, at

2.

18

A creditor’s rights and obligation to rely upon the

Board’s Regulations and other authoritative interpreta-

tions have twice been reaffirmed and expanded by

Congress. In 1974, Congress amended the civil liability

provisions of the Act” specifically to provide that a

creditor may not be held liable for either civil or criminal

penalties for any act done or omitted in good faith in

reliance on any rule, regulation, or interpretation of the

Board, even if the rule, regulation or interpretation is

subsequently amended, rescinded, or determined by

judicial or other authority to be invalid for any reason.

The Act was amended in 1976* to permit creditors to rely

upon interpretations or approvals of officials of the

Board’s staff who have been duly authorized by the Board

to issue such interpretations or approvals.

It is apparent from this statutory structure, particu-

larly in view of the requirements of 15 U.S.C. § 1631 (a),

that Congress intended that creditors must look to the

Board’s Regulations for instruction and guidance on how

to make disclosures, and, similarly, that creditors are able

to rely upon the Board’s Regulations in making those

— That intent should be confirmed by this

urt.

3. The judgment in this case leaves in substantial

doubt the authority of the Board of Governors of

the Federal Reserve System to administer the

highly technical provisions of the Truth in

Lending Act with precision and certainty for the

benefit of all persons subject to the Act.

Congress made it abundantly clear that the Board of

Governors of the Federal Reserve System was to have

broad authority to institute and maintain uniform admin-

istration of the Act for all types of credit in all parts of

Act of October 28, 1974, Pub.L. 93-495.

*Act of February 27, 1976, Pub.L. 94-222.

19

this Nation. H.R. 11601, 90th Cong., 1st Sess. (1967), was

the Truth in Lending bill which passed the United States

House of Representatives and was referred to the Com-

miitee of Conference to be reconciled with a similiar

Senate bill, S. 5, 90th Cong., Ist Sess. (1967). The

delegation of regulatory authority to the Board in H.R.

11601 survived almost verbatim in 15 U.S.C. § 1604.*!

Accordingly, it is appropriate to look at the legislative

history of this provision in order to ascertain legislative

intent and to confirm the literal meaning of the language

used in the Act. Addison, et al. v. Holly Hill Fruit

Products, Inc., 232 U.S. 607 (1944); United States v. Public

Utilities Commission of California, et al., 345 U.S. 295

(1958); United States v. Bryan, 339 U.S. 323 (1950).

The Report of the Committee on Banking and Cur-

rency, House of Representatives, to accompany H.R.

116012 makes very clear this congressional intent to

confer broad regulatory authority:

All substantive regulations in connection with the full

disclosure of the terms and conditions of finance

charges in credit transactions or in the advertisement of

credit transactions shall be issued by the Board of

Governors of the Federal Reserve System. No one

can deny their experience and expertise in these matters.

Accordingly, it is the view of your committee that,

for the uniformity of application toall affected segments

Section 204(c) of H.R. 11601, supra, as reported to the House of

Representatives by the Committee on Banking and Currency provided

as follows:

“Any regulation prescribed under this section may contain such

classifications and differentiations and may provide for such

adjustments and exceptions for any class of transactions as in the

judgment of the Board are necessary or proper to effectuate the

purposes of Section 203 or prevent circumvention or evasion thereof,

or to facilitate compliance by creditors with Section 203 or any

regulation issued under this section.”

2H.R. Rep. No. 1040, 90th Cong., Ist Sess. (1967).

20

of the industries concerned, a single set of compre-

hensive regulations should be issued.

*s* *

The Board of Governors of the Federal Reserve System

is to be the central, single agency for issuing all

regulations on credit disclosure or on the advertising of

credit to insure a single set of overall standards

applicable to all forms of consumer credit... . (at 18-19)

(emphasis supplied)

The 93rd Congress reviewed and reenforced this admin-

istrative authority. Title II of S. 2101,% the Truth in

Lending Amendments which eventually became law as

part of the Depository Institutions Amendments Act of

1974, supra, upgraded creditors’ protection by providing

immunity from civil and criminal liability for any act

done or omitted in good faith in conformity with any rule,

regulation, or interpretation of the Truth in Lending Act

by the Board. In the Report of the Committee on Banking,

Housing and Urban Affairs, United States Senate, to

accompany S. 2101, the Committee referred to the Truth

in Lending Act as being “highly technical” (at 13) and

subject ta “hyper-technical litigation” (at 14), and thus

enhanced the Board’s rulemaking authority so that a

creditor could not be forced “. . . to choose between the

Board’s construction of the Act and the creditor’s own

assessment of how the court may interpret the Act” (at

13). :

Thus, there is presented in the case at bar an important

question of Federal law which has not been, but should be,

settled by this Court: § 105 of the Act, 15 U.S.C. § 1604,

893rd Cong., 2nd Sess. (1974).

4S. Rep. No. 93-278, 93rd Cong., Ist Sess. (1973).

21

gives the Board broad authoirty to promulgate regula-

tions which “facilitate compliance” with the Act;* § 130 of

the Act, 15 U.S.C. § 1640(f), contemplates that courts

shall have the authority to hold such regulations to be

“invalid;’”® and yet § 121(a) of the Act, 15 U.S.C. § 1631

(a), contains the unqualified mandate for the creidtors to

make disclosures “in accordance with the regulations of

the Board.”*’ This internal inconsistency was not addres-

sed directly by the Court of Appeals, thus leaving in

substantial doubt the Board’s authority to administer the

Act. It should be resolved by this Court.

4. The Court of Appeals decided that the Federal

Truth in Lending Act mandates detailed dis-

closure of the creditor’s rights and duties

under state laws, and that any right asserted in

the contract by the creditor which was not pre-

mitted by state law would constitute a violation of

the Truth in Lending Act, if the disclosures

agreed with the contract. This is an important

question of Federal law which has not been, but

should be, settled by this Court.

In Pennino v. Morris Kirschman & Co., Inc., 526 F. 2d

367 (5th Cir. 1976), the court held that “. . . the Act does

not require a creditor to narrate the law of the forum state

but requires simply a meaningful disclosure of the credit

terms he intends to charge” (at 371; emphasis supplied).

Thus, Pennino only requires the creditor to disclose the

rights he claims in his contract. However, the decision of

the same court in the case at bar requires a creditor to

disclose only those rights he can assert consistent with

state law, irrespective of the terms he intends to impose.

3 Appendix, p. A-22.

% Appendix, p. A-25.

* Appendix, p. A-24.

22

This dichotomy is best illustrated by the decision in

Pinkett v. Credithrift of America, Inc., No. 2, 430 F. Supp.

113 (N.D.Ga. 1977) in which the court laid out its dilemma

as follows:

This court originally attempted to reconcile Pennino

with the Pollock doctrine . . . In retrospect, this court

finds.such reconciliation unconvincing; Pennino and

Pollock stand on opposing principles. Pennino only

requires the creditor to disclose the rights he claims in

his note, while Pollock requires him to disclose only

those rignts he can assert consistent with state law. The

Speciai Master urges this court to follow Pollock, the

more recent pronouncement, but the court believes that

Pennino sets the better course .... (430 F.Supp. at 117)

The case at bar is the later of the two cases in conflict;

yet, in its opinion, the Court of Appeals did not specifically

overrule the earlier Pennino decision. Accordingly, all of

the District Courts within the Fifth Circuit, which are,

presumably, bound by both the Pennino and Pollock

decisions, find themselves in the dilemma of deciding

which is a proper statement of the requirements of the

Act. Creditors and consumers face that same dilemma.

The need for certainty under the Truth in Lending Act

and Regulation Z is particularly important in the United

States Court of Appeals for the Fifth Circuit. During the

last four fiscal years reported (1973 through 1976), 55.57%

of all Truth in Lending cases filed in U.S. District Courts

were filed in District Courts under the jurisdiction of the

Fifth Circuit.** Thus, it is all the more important that the

conflict between two decisions of that Court of Appeals be

resolved by this Court.

That conflict brings into sharp focus an important

%A NNUAL REPORT OF THE DIRECTOR OF THE ADMINIS-

TRATIVE OFFICE OF THE UNITED STATES COURTS, 1976,

(Washington: U.S. Government Printing Office, 1977) at 200.

23

questions of Federal law which has not been, but should be,

settled by this Court: Does the Truth in Lending Act

require a creditor to disclose the rights that a creditor

claims in the contract documents, or does the Act require

the creditor to disclose only those rights which may be

asserted under state law?

Both the Act and Regulation Z are clear in this regard.

Section 111 of the Act, 15 U.S.C. § 1610, specifically

leaves the matter of the validity and enforcement of any

contract to applicable state law. Moreover, the Act does

not annul, alter, or affect the scope or applicability of

state law. Thus, the Congress was clearly leaving the

substantive provisions of state law and the enforcement of

state law to state authority, reserving to Federal law only

the disclosures clearly required by the Act.

The Board properly interpreted this congressional

intent in Regulation Z where it provided that “[nJeither

the Act not this Part is intended to control charges for

consumer credit, or to interfere with trade practices

except to the extent that such practices may be inconsis-

tent with the purposes of the Act.”“° Furthermore, 12

C.F.R. § 226.6 (c) permits, but does not require, creditors

to supply “additional information or explanations,” in-

cluding “any provision of State law.”*! Thus, both Con-

gress and the Board have left disclosure and enforcement

of the substance of state contract law where it belongs—

with the states. Disclosure is permitted, but not required.

The unintended complexity which will surely result if

the Court of Appeals in the case at bar is not reversed is

3% Appendix, p. A-24.

12 C.F_R. § 226.1(aX(2); Appendix, p. A-25.

*“ Appendix, p. A-28.

24

best described in the opinion in Pinkett v. Credithrift of

America, Inc., No. 2, supra:

The {Truth in Lending] Act does not give the consumer

the right to know all the creditor’s rights and duties

under state law. If the terms of the credit agreement

violate that law, the consumer is free to resort to

remedies provided by the state .. . [I}f the Congress

wanted it any other way, it would have said so. But if

this court were to follow Pollock to its logical conclusion,

the result would be the opposite: all notes which

violated state law in the various areas pertinent to the

Act would automatically give rise to a violation of the

Act if the disclosure statements were consistent with

the note.

Enforcement of this laudable Act has become con-

fusing enough, without engrafting onto it the laws of

the fifty states ...[A] faithful adherence to Pollock can

rapidly lead the courts astray. (430 F.Supp. at 117-18)

Because of this complexity, the Board has been quite

consistent in minimizing the requirements relating to

disclosure of the terms of state contract law in its

interpretations of the Act and Regulation Z. For example,

even though 12 C.F.R. § 226.8 (b) (5) requires a “clear

identification of the property”*? to which a security

interest relates, the Board has consistently held that a

reasonable short-form disclosure was permissable. The

Board’s Public Information Letters No. 509 and 521

permit reference to “common stock” and “household

goods,” respectively, rather than requiring a detailed

listing of each item of collateral.

Thus, the Board charted the course toward reasonable

and commercially feasible interpretation of the Act and

“Appendix, p. A-29.

“CCH, Consumer Credit Guide, Par. 30,712 and Par. 30,727;

Appendix, pp. A-32 and A-34.

25

Regulation, a course which is reflected in the Recom-

mendations of the Special Master adopted by the District

Court in Burrell v. City Dodge, Inc., (No. 18739, N.D.Ga.,

June 21, 1974) that “Regulation Z does not require a

lender to give the consumer a short course in commercial

transactions,” and in the later opinion of the Court of

Appeals for the Fifth Circuit in Pennino, supra, that“...

the Act does not require a creditor to narrate the law of

the forum state.” (526 F.2d at 371).

More recently, the Board reaffirmed its position that

disclosure of the “type” of the security interest retained or

acquired may be made very generally. In Official Staff

Interpretation FC-0023* issued pursuant to the amend-

ment to 15 U.S.C. § 1640 (f) made by Public Law 94-222,

the Board held that the requirement of 12 C.F.R. § 226.8

(bX5) relating to disclosure of the “type” of security

interest is satisfied by disclosure of a “security interest

under the Uniform Commercial Code,” saying that the

Regulation does not require a detailed statement of the

type of security interest or a citation to any specific statu-

tory provision.

The Board has taken a parallel position regarding the

meaning of the after-acquired property disclosure in 12

C.F.R. § 226.8 (b) (5). The Board’s Public Information

Letter No. 983 holds that disclosure of the fact that after-

acquired property will be subject to the security interest

is sufficient to comply with the Regulation.

Public Information Letter No. 1053*7 reemphasized and

“CCH, Consumer Credit Guide, Par. 98,764, p. 88,385, 88,388.

41 Federal Register 52981; Appendix, p. A-38.

“CCH, Consumer Credii Guide, Par. 31,323; Appendix, p. A-35.

“CCH, Consumer Credit Guide, Par. 31,395; Appendix, p. A-37.

26

further clarified the Board’s intent with respect to the

requirements of Regulation Z relating to the disclosure of

the security interest in after-acquired property, holding

specifically that disclosure of the ten-day limitation under

§ 9-204 of the Uniform Commercial Code was not required

for Truth in Lending purposes. Inasmuch as Georgia has

enacted the pertinent provisions of that section of the

U.C.C. intact, the decision of the Court of Appeals on this

point of law should be reversed.

Furthermore, a disclosure that after-acquired property

“will” be subject to a security interest when, in fact, such

property acquired more than ten days after consum-

mation will not be so subject would be “inaccurate and

misleading in violation of Regulation Z,” Public Informa-

tion Letter No. 1053, supra.

Similarly, the decision of the Court of Appeals with

respect to the disclosure of the fact that future indebted-

ness would be secured by the security agreement is at

odds with the rationale of the foregoing Public Informa-

tion Letters. The better reading—indeed, the only gram-

matically sound reading—of 12 C.F.R. § 226.8(b)(5)

imposes the obligation on creditors to disclose the security

interest on future indebtedness only as it relates to after-

acquired property. Thus, in the case at bar ihe security

for future indebtedness need by disclosed only as that

security might relate to after-acquired consumer goods.

The Board’s Public Information Letters indicate clearly

that “. ..asimple disclosure of the fact that after-acquired

property may be subject to the security interest would be

sufficient,” Public Information Letter No. 1053, supra.

Bott. logic and equity demand a parallel construction for

the disclosure of the security interest in consumer goods

for future indebtedness.

Not only have the courts consistent!y upheld the Board’s

“Ga. Code Ann., § 109A-9-204(4\b); Appendix, p. A-30.

tila

27

regulatory authority, they have also consistently held that

the Board’s interpretations and staff opinions are entitled

to great weight in interpreting the Truth in Lending Act

and Regulation Z. In Philbeck v. Timmers Chevrolet, Inc.,

et al., 499 F.2d 971 (5th Cir. 1974), the court said

[We deal primarily with four sources of law and

interpretation: the Truth in Lending Act itself; Regula-

tion Z, which was promulgated by the Board pursuant

to the broad powers granted it under Section 105 of the

Act; the Federal Reserve Board Interpretations of

Regulation Z, 12 C.F.R. §§ 226.201 et seg.; and the

Federal Reserve Board’s staff opinions, which explain

the provisions of the three foregoing authorities, usually

in answer to a query regarding a particular factual

situation. The three latter authorities, although not

binding on the Court, are entitled to great weight, for they

constitute part of the body of “informed experience and

judgment of the agency to whom Congress delegated

appropriate authority.” (499 F.2d at 976) (emphasis

supplied)

Similarly, in Bone v. Hibernia Bank, et al., 493 F.2d

135 (9th Cir. 1974) the court concluded that “great

deference” is to be given to the Board’s construction of the

“complex requirements” of its own Regulation “because of

the important interpretative and enforcement powers

granted this agency by Congress under the Truth in

Lending Act.” (493 F.2d at 139).

It is the Board’s position that “the public is entitled to

rely on a formal staff opinion un!ess and until it is altered

by the Board.”*® The Board relies heavily upon the staff's

Public Information Letters in the administration of the

Truth in Lending Act. Furthermore, it is clear that

Congress intended (and the courts have consistently

agreed) that the Board has great “flexibility [and] broad

rulemaking authority” (Mourning, supra, at 372). The

“Public Information Letter no. 444; CCH, Consumer Credit Guide,

Par. 30,640; Appendix, p. A-32.

28

Court of Appeals has recongized that authority in prior

opinions (e.g. Philbeck, supra). This Court should confirm

that authority in the case at bar and confirm that

creditors must disclose the various rights pertinent to the

Truth in Lending Act as claimed in the contract docu-

ments.

VII. CONCLUSION

The clear and unequivocal provisions of 12 C.F.R. §

226.8(d1) do not require itemization of the net cash

proceeds of a loan paid to the borrower; several of the

Board’s Public Information Letters reiterate that such a

disclosure need not be made. Both the Regulation and the

staff opinions are entitled to great weight, because they

resolve an internal statutory conflict which would have

imposed an absurd compliance requirement, one at odds

with the purpose of the Act. They should be controlling in

the case at bar.

Similarly, the requirement regarding disclosure of a

security interest in after-acquired property is imposed by

Regulation Z, not the Truth in Lending Act. Accordingly,

the Board’s staff interpretations are entitled to particu-

larly great deference in interpreting those requirements.

Failure to accord them such deference has left in

shambles the Board’s ability to administer effectively the

Act and Regulation Z. Those letters should have been

controlling in the case at bar.

Since the security interest in consumer goods which

secures future indebtedness is limited to such goods

acquired within ten days after the secured party gives

value, the Board’s Public Information Letters relating to

29

the after-acquired property disclosure should also have

been controlling in the case at bar.

For the foregoing reasons, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

/s/ Milton W. Schober

Milton W. Schober

/s/ Terrence H. Klasky

Terrence H. Klasky

1750 Pennsylvania Avenue, N.W.

Suite 1107

Washington, D.C. 20006

(202) 393-4961

August 5, 1977