Petition — Ford Motor Credit Co. v. Milhollin
Supreme Court brief1980
Ask Donna
What actually matters in this document.
Text
FILED
IN THE MAR 7 1979
Supreme Court of the United \tales cons w., cus
October Term 1978
NO. Ba 1A BY
FORD MOTOR CREDIT COMPANY and DEE THOMASON
FORD,
Petitioners,
vs.
DENNIS MILHOLLIN AND MICHELLE MILHOLLIN,
Respondents.
FORD MOTOR CREDIT COMPANY,
Petitioner,
vs.
DONNA M. EATON,
Respondent.
(Caption continued on inside cover)
Petition for a Writ of Certiorari to the United States
Court of Appeals for the Ninth Circuit.
SHEPPARD, MULLIN, RICHTER & HAMPTON,
GEORGE R. RICHTER, JR.,
WILLIAM M. BURKE,
RONALD M. BAYER,
333 South Hope Street, 48th Floor,
Los Angeles, Calif. 90071,
(213) 620-1780,
SPEARS, LUBERSKY, CAMPBELL &
BLEDSOE,
HERBERT H. ANDERSON,
JOHN M. BERMAN,
800 Pacific Building,
520 S.W. Yamhill Street,
Portland, Oregon 97204,
(503) 226-6151,
Counsel for Petitioners.
Parker & Son, Inc., Law Printers, Los Angeles. Phone 724-6622
FORD MOTOR CREDIT COMPANY and MARV TONKIN
FORD SALES, INC.,
Petitioners,
vs.
E
DARRELL MESSINGER, Re ok
FORD MOTOR CREDIT COMPANY and WEBSTFR
WOLFARD FORD, INC.,
Petitioners,
vs.
DAVID P. ANDRESEN,
~
Respondent.
SUBJECT INDEX
Page
EES 2
Te 2
GEE os Pi z
Statutory Provisions and Regulations Involved .... 3
0 a 4
Reasons for Granting the Writ —......000..0000000..00000... 8
I.
Nee cdcseuecceddeuceceaseue 8
Il.
The Decision Below Is in Conflict With Interpre-
tations of the Federal Reserve Board and the
Decisions of the Third, Fifth, Eighth, Tenth
and District of Columbia Circuits .................. 11
A. Introductory Summary of the Conflicting
Board and Circuit Court Positions ............ 11
B. Position of the Federal Reserve Board ...... 16
Re UE nnn ccsccnenenccncerences 19
a 20
Ee 22
F. The District of Columbia Circuit ............ 22
EE 22
| 23
ii.
Ill. Page
The Decision Below Throws Open to Serious
Question the Validity of Millions of Consumer
Credit Disclosure Forms Under the Truth in
SE TRIE” ids scin th icedacduatociniaiinnsacxcsmaueteseacadenses 27
es Grae ENS Re Aa ae Pir Py RAR AEO CREME TnI ane 29
Appendix A. Opinion of the United States Court
of Appeals for the Ninth Circuit ............ App. p. la
Appendix B. Recommendation and Order of the
United States District Court for the District of
Oregon. Dennis Milhollin and Michelle Milhollin,
Plaintiffs, vs. Ford Motor Credit Co., a corpora-
tion, and Dee Thomason Ford, a corporation,
Defendants. Civil No. 75-334. Filed: April 7,
SI sida ele ccicibnisdchibohdeicnenintieak ihdinidaibiuissakuaandeiisds ancien 13a
Oreder (Milhollin v. Ford Motor Credit Co.) ...... 24a
Summary Judgment (Milhollin v. Ford Motor
I I ek lr’ 26a
Opinion of the United States District Court for
the District of Oregon. Donna M. Eaton, Plain-
tiff, vs. Ford Motor Credit Company, a cor-
poration, Defendant. Civil No. 76-575. Filed:
I NI i). ci autkssie nds chastnieiceacicela bx aniennl iene uarioes 27a
Judgment (Eaton v. Ford Motor Credit Co.) ....29a
Opinion of the United States District Court for
the District of Oregon. David P. Andresen,
Plaintiff, v. Ford Motor Credit Company, a
corporation, and Webster-Wolfard Ford, Inc., a
corporation, Defendant. Civil No. 76-1090.
Re I a) ROPE E esetbnccniptntgrssctnoincnnichis cate 30a
lil.
Page
Judgment (Andresen v. Ford Motor Credit Co. )
Opinion of the United States District Court for
the District of Oregon. Darrell Méessinger,
Plaintiff, vs. Ford Motor Credit Co., a corpora-
tion, and Marv Tonkin Ford Sales, Inc., a cor-
poration, Defendant. Civil No. 76-475. Filed:
NE Se PS cinesiaeiaetenacchcncabelseipnuniaiasirethieciaaiaaias 35a
Judgment (Messinger v. Ford Motor Credit Co. )
Order (Messinger v. Ford Motor Credit Co.) ....39a
Appendix C. Opinion of the United States Court
of Appeals for the Ninth Circuit. Chuck St.
Germain, Plaintiff-Appellant, v. Bank of Hawaii,
Defendant-Appellee. No. 76-2007. Decided:
I OD 40a
Appendix D. Official Staff Interpretation No.
FC-0054. 42 F.R. 18056, [1974-1977 Transfer
Binder] Cons. Cred. Guide (CCH) 431,552,
FRE iy ARIPO sine ihc acestdacinrtowrnecslivmidovighsasnsitten 52a
Appendix E. Public Information Letter No. 851
[1974-1977 Transfer Binder] Cons. Cred. Guide
(Ce) Si, 27 eo, CeeeOer 22, 1974. .:...2...c.c..c:., 57a
Appendix F. Public Information Letter No. 1208
[1974-1977 Transfer Binder] Cons. Cred. Guide
CORRE) Wet Or, Ome G, EST fh... cancicninvens 59a
Appendix G. Public Information Letter No. 1324,
Cons. Cred. Guide (CCH) 31,827, November
i RN Nactkdeha da eased ssbtcbcabhieiestnceneckncionced 6la
iv.
TABLE OF AUTHORITIES CITED
Cases Page
Begay v. Ziems Motor Co., 550 F.2d 1244 (10th
Cie. 1979) 0. dice tS, 22,
Burley v. Bastrop Loan Co., 590 F.2d 160 (Sth
Cie. ETD) accvceclicccec ee
Griffith v. Superior Ford, 577 F.2d 455 (8th Cir.
BITE) xcncesnceneecse 10, 13, 15, 16, 22, 24,
Johnson v. McCrackin-Sturman Ford, Inc., 527 F.2d
yoy ee Fe Oe.) ee BS, £2; 12, ae oe
Kennedy v. Plaza Pontiac, Inc., 589 F.2d 161 (Sth
Che, 2979) a escccscpieeee i a
Kessler v. Associates Financial Services Co., 573 F.
26 ST7 (9Gn Che. BFE D sccne 26,
Martin v. Commercial Securities Co., 539 F.2d 521
(Sth Cie. 19763 a...0tee i3,. 14, 2, 72. 23.
McDaniel v. Fulton National Bank, 543 F.2d 568
©: Oe Ly, ) a ee
McDaniel v. Fulton National Bank, 571 F.2d 948
(Sth Cir.) (en banc), reh. denied, 576 F.2d 1156
(Sth Cir. 1978) (en banc) .......... 12, 14, 20, 21,
Milhollin v. Ford Motor Credit Co., 588 F.2d 753
bh LO A, } Be EE
Price v. Franklin Investment Co., Inc., 574 F.2d
534 (D.C. Ge. 1976) 2. 13,
St. Germain v. Bank of Hawaii, 573 F.2d 572 (9th
Cit. TET E) .iieensaeee 6, 10, 19, 20, 23, 25,
United States v. One 1976 Chevrolet Station Wag-
on, 585 F.2d 978 (10th Cir. 1978)...
Woods v. Beneficial Finance Co., 395 F. Supp. 9
(D. On. I9%5) ~....-1nismimenpsanenenenne
23
21
25
23
21
27
24
20
22
te eee emma —
a ——
——
Vi
Miscellaneous Page
Federal Reserve Board Official Staff Interpretation
as ahs cent odaperigdlandumnbonanen 17, 18,
Federal Reserve Board Public Information Letter
I se et calsiladtinminncennens | s 2
Federal Reserve Board Public Information Letter
A aE SEE ed Ae Ales Rp ae a 18,
Federal Reserve Board Public Information Letter
kal EAE ESTEE, Enos ei Ola Rei ee Se
Regulations
Code of Federal Regulations, Title 12, Sec. 226
IN MEIN cas. cclcelrvaneatateboansnientnnnioedelihesanbiie
Code of Federal Regulations, Title 12, Sec. 226.8
I oh on cs sadnisinssseersmaitomrevanstanissinnnnsnings
Code of Federal Regulations, Title 12, Sec. 226.8
PE AP MIIIEIIIED, BD cccensnnnsnnnsncnniiisnantsansracnyens
Code of Federal Regulations, Title 12, Sec. 226.8
Pe UIE, BGP occscscnpnccnssecnscccnsvasesnsosnnns
Code of Federal Regulations, Title 12, Sec. 226.8
CPCS) CHROBRUIATION 2) dbsce.. i esccdsicdd...cccconshbcceee
re AY Aine Mets M02, Ad, ET, 8B, F9, 21,
Code of Federal Regulations, Title 12, Sec. 226.8
B&R eee eee ee yee
sa A A SoA RO TE ayo, 11, 82, 16, 39, 23, 24,
Code of Federal Regulations, Title 12, Sec. 226.8
Lai snntcnsisénecuisnteddghabey ootwass
Code of Federal Regulations, Title 12, Sec. 226.8
I TED aban pctedansdavnsnaseessuvduebinwcsieveotend
21
20
21
18
9
23
29
Vi.
Statutes Page
Oregon Laws of 1957, Chap. 625, Sec. 24 ............ 13
Oregon Laws of 1977, Chap. 692, Sec. 1 .............- 13
Oregon Revised Statutes, Sec. 83.620(1) ..........--.--- 13
Senate Report No. 392, 90th Cong., Ist Sess. 18
resins cece neaecate Lamina aepiietwlacainnenieadns 27
Truth in Lending Act, 15 U.S.C. §§ 1601 et seq. 8
Truth in Lending Act, Sec. 102(a), 15 U.S.C. §
I oe ri cab hioliehaeeamieaptaaneeninneetindate 9
Truth in Lending Act, Sec. 128(a)(9), 15 U.S.C.
TRS BEO ID) asses nscisescinncisiisnrnancccanorse ae ay ORs OS
Truth in Lending Act, Sec. 130(a), 15 U.S.C.
UID, sicscncssiscerscsacinnnetebvnchisnidesarwennenessennqinsoninee 28
Truth in Lending Act. Sec. 130(e), 15 U.S.C.
BD cnn cacstscennssicannstbinrerecpatnrsandahudetnnsevebesins 4
United States Code, Title 28, Sec. 1254(1) ........ l
United States Code, Title 15, Sec. 1634 .................. 27
Textbooks
65 Federal Reserve Bulletin A42 (Table 1.55)
EOI INED {isiciid chs cleeeds lh daciclasatancabnicabieenriehenanteniicenictinleniainon 8
Finance Facts Yearbook 1977, pp. 46-47 (pub. by
Consumer Credit Education Foundation, Library
of Congress Catalog Card No. 61-14409) .......... 8
2 Gilmore, G., Security Interests in Personal Prop-
Ce is I i Aichi 8
IN THE
Supreme Court of the United States
October Term 1978
Ree
FORD MOTOR CREDIT COMPANY and DEE THOMASON
FORD,
Petitioners,
VS.
DENNIS MILHOLLIN AND MICHELLE MILHOLLIN,
Respondents.
FORD MOTOR CREDIT COMPANY,
Petitioner,
vs.
DONNA M. EATON,
Respondent.
FORD MOTOR CREDIT COMPANY and MARV TONKIN
FORD SALES, INC.,
Petitioners,
vs.
DARRELL MESSINGER,
Respondent.
FORD MOTOR CREDIT COMPANY and WEBSTER-
WOLFARD FORD, INC.,
Petitioners,
vs.
DAVID P. ANDRESEN,
Respondent.
Petition for a Writ of Certiorari to the United States
Court of Appeals for the Ninth Circuit.
Petitioners, Ford Motor Credit Company (herein-
after “Ford Credit”), Dee Thomason Ford, Marv Ton-
kin Ford Sales, Inc. and Webster-Wolfard Ford, Inc.,
respectfully pray that a writ of certiorari issue to review
a, tase
the judgment and opinion of the United States Court
of Appeals for the Ninth Circuit entered in this proceed-
ing on December 28, 1978. :
Opinions Below.
The opinion of the Court of Appeals (App. A
at la-12a) is reported at 588 F.2d 753. The opinions,
orders, and judgments of the District Court (App.
B at 13a-39a) are not reported.
Jurisdiction.
The judgment of the Court of Appeals for the Ninth
Circuit was entered on December 28, 1978. This peti-
tion for certiorari was filed within 90 days of that
date. The jurisdiction of this Court is invoked under
28 U.S.C. § 1254(1).
Questions Presented.
1. Whether the existence of a right to accelerate
an indebtedness upon default must be disclosed as
a default, delinquency or similar charge pursuant to
Section 128(a)(9) of the Truth in Lending Act and
Section 226.8(b)(4) of Regulation Z promulgated by
the Federal Reserve Board.
2. Whether the exercise of a right to accelerate
an indebtedness upon default constitutes a “prepay-
ment” under Section 226.8(b)(7) of Regulation Z.
3. Whether the creditor’s rebate agreement applica-
ble to payment of an indebtedness after acceleration
must be separately disclosed under Section 226.8(b) (7)
of Regulation Z where the creditor’s rebate disclosure
applicable to prepayment applies to payment both be-
fore and after acceleration.
—_—
Statutory Provisions and Regulations Involved.
Truth in Lending Act § 128(a)(9), 15 U.S.C.
§ 1638(a) (9):
“(a) In connection with each consumer credit
sale not under an open end credit plan, the creditor
shall disclose each of the following items which
is applicable:
(9) The default, delinquency, or similar charges
payable in the event of late payments.”
Regulation Z, 12 C.F.R. § 226.8(b) (4):
“(b) In any transaction subject to this section,
the following items, as applicable, shall be dis-
closed:
(4) The amount, or method of computing the
amount, of any default, delinquency, or similar
charges payable in the event of late payments.”
Regulation Z, 12 C.F.R. § 226.8(b)(7):
“(b) In any transaction subject to this section,
ak the following items, as applicable, shall be dis-
closed:
(7) Identification of the method of computing
any unearned portion of the finance charge in
the event of prepayment in full of an obligation
which includes precomputed finance charges and
a statement of the amount or method of computa-
tion of any charge that may be deducted from
the amount of any rebate of such unearned finance
charge that will be credited to the obligation or
refunded to the customer. If the credit contract
— wan
does not provide for any rebate of unearned fi-
nance charges upon prepayment in full, this fact
shall be disclosed.”
Statement of the Case.
This proceeding involves four separate actions
brought by respondents in the United States District
Court for the District of Oregon for damages under
the Federal Truth in Lending Act (herein the “Act”).
Jurisdiction of the District Court was based on Section
130(e) of the Act [15 U.S.C. § 1640(e)].
In each of these cases, the respondent purchased an
automobile from a dealer (one of the petitioners other
than Ford Credit) on an installment basis. As a part
of the transaction, the respondent signed an_ install-
ment sale contract in favor of the dealer. In each
case, the contract was subsequently assigned by the
dealer to Ford Credit.
The installment sale contracts signed by the respond-
ents consisted of single-page printed forms that were pre-
pared specifically for use in connection with installment
sales of automobiles subject to the Truth in Lending
Act. The terms and conditions of the sale were con-
tained on both sides of the page. Consistent with Sec-
tion 226.8(a) of Regulation Z, which requires all
disclosures to be made on the same side of a single
page, the front side of the form also served as the
“federal disclosure statement” required under the Act.
In three of the cases, the same form of contract was
used. The form signed by the respondent in the fourth
case differed only in certain minor respects.
Paragraph 14 on the front side of each of the
contracts contained the following provision dealing with
the purchaser’s right to a rebate of unearned finance
charges in the event of a prepayment of the obligation:
=— =
“(14) Prepayment Rebate: Buyer may prepay
his obligations under this contract in full at any
‘ time prior to maturity of the final installment
hereunder, and, if he does so, shall receive a
rebate of the unearned portion of the Finance
Charge computed under the sum of the digits
method after first deducting an acquisition fee
of $15.00. No rebate will be made if the afiount
is less than $1.00.”
Paragraph 19, set forth on the reverse side of each
of the contracts, contained an acceleration clause that
permitted Ford Credit to declare all unpaid installments
to be immediately due and payable in the event of a
default by the purchaser. In part, that paragraph pro-
vided that:
“19. DEFAULT
Time is of the essence of this contract. In
the event Buyer defaults in any payment... ,
or fails to comply with any other provision hereof
. . , Seller shall have the right to declare all
amounts due or to become due hereunder to be
immediately due and payable. . . .”
Upon full payment of the indebtedness following ac-
celeration, paragraph 14 of the contract, quoted above,
requires a rebate of unearned finance charges. In ac-
cordance with this provision, Ford Credit’s practice
is to rebate unearned finance charges upon payment
of the indebtedness after acceleration in all cases.’
The respondents alleged that the installment sale
contracts did not comply with the requirements of the
_ Truth in Lending Act and Regulation Z. Among the
1§ee, e.g., Eaton v. Ford Motor Credit Co., Record at
182. See also note 5, infra.
= am
violations alleged by the respondents was that the accel-
eration clause was not disclosed on the face of the con-
tracts. Relying upon its earlier opinion in Woods v.
Beneficial Finance Co., 395 F. Supp. 9 (D. Or..1975),
the District Court ruled in favor of the respondents,
holding that the Act imposes a “duty to disclose and
fully explain any right of acceleration.” (App. B at
17a)’.
On appeal to the United States Court of Appeals
for the Ninth Circuit, the four cases were consolidated.
Solely upon the basis of its earlier decision in St.
Germain v. Bank of Hawaii, 573 F.2d 572 (9th Cir.
1977) (App. C at 40a-51a), the Ninth Circuit upheld
the District Court’s conclusion that the acceleration
clause must be disclosed. The decision in St. Germain,
which conflicts with the position of the Federal Reserve
Board and decisions by five other Circuit Courts, was
premised upon the Court’s novel and unprecedented de-
termination that the act of accelerating and indebtedness
‘constitutes a “prepayment” that must be disclosed under
‘Section 226.8(b)(7) of Regulation Z. The Ninth Cir-
cuit’s decision in these cases is in direct and clear
conflict with the decisions of five other Circuits—the
Third, Fifth, Eighth, Tenth and District of Columbia—
on issues identical to the issues in this case. While
there are substantial differences in the rationales em-
ployed by the other Circuits, the Ninth Circuit stands
alone in the result achieved under the facts in. this
case. ii reaching its result, the Ninth Circuit has failed
2The District Court ruled in favor of the respondents on the
acceleration issue in the Milhollin and Eaton cases. In Messin-
ger and Andresen, the District Court found other violations and
did not reach the acceleration issue. See Méilhollin v. Ford
Motor Credit Co., 588 F.2d 753, 757-59 (9th Cir. 1978).
=
to follow a clear interpretation of the Federal Reserve
Board which has been charged by Congress with the
primary responsibility for interpreting and applying the
Truth in Lending Act.
The decision in these cases reflects present uncer-
tainty and generates more uncertainty in an important
area of the national economy where certainty and pre-
dictability are essential to maintain the free flow of
credit. If allowed to stand, it places in jeopardy millions
of consumer credit transactions entered into in good
faith reliance upon the interpretations of the Federal
Reserve Board and the decisions of the other Circuits.
This Court must step in to bring some order out
of what can only be described as chaos in the lower
federal courts.
ee
REASONS FOR GRANTING THE WRIT. »:
I. dnt
Introduction. ~
There are an estimated 60,000,000 consumer credit
contracts outstanding in the United States today repre-
senting more than $265,000,000,000 in total consumer
installment indebtedness.* Although these installment
contracts vary significantly in their credit terms, they
all contain one clause in common: an acceleration
clause.‘ The acceleration clause provides that upon
the debtor’s default, the creditor may accelerate the
maturity of all remaining installments. att
Ail of these consumer credit contracts are subject
to the Truth in Lending Act [15 U.S.C. §§ 1601
et seq.| (herein the “Act”) and Regulation Z [12
C.F.R. § 226] promulgated by the Federal Reserve
Board (herein the “Board”). The stated purpose of
the Act is “to assure a meaningful disclosure of credit
terms so that the consumer will be able to compare
more readily the various credit terms available to him
%According to the Federal Reserve Board, total consumer
installment indebtedness outstanding in the United States during
November of 1978 was $269,445,000,000. 65 Federal Reserve
Bulletin A42 (Table 1.55) (1979). Although no exact fi
are available with respect to the total number of individual
transactions that comprise this total, the amount of the average
transaction appears to be less than $4,000. See Finance Facts
Yearbook 1977, pp. 46-47 (published by the Consumer Credit
Education Foundation, Library of Congress Catalog Card No.
61-14409). Based on this average, the estimate of 60,000,000
separate transactions is probably conservative.
4See Johnson v. McCrackin-Sturman Ford, Inc., 527 F.2d
257, 264 (3d Cir. 1975); Il G. Gilmore, Security Interests
in Personal Property 1195 (1965) (“For a hundred years,
it may be, no security agreement has failed to include an
acceleration clause. ug
— we
and avoid the uninformed use of credit.” Truth in
Lending Act § 102(a) [15 U.S.C. § 1601(a)]. The
Act and the Regulation seek to achieve this goal by
requiring uniform statements of credit terms to be
given to consumers.
~In an effort to promote uniformity, the Act and
Regulation Z describe with particularity the various
disclosures that are required to be made, in some
cases even dictating the precise terminology that must
be used. See, e.g., Regulation Z §§ 226.8(b)(2), 226.8
(b)(3), 226.8(c) and 226.8(d). Although specific
numerical and descriptive disclosures are prescribed,
neither the Act nor the Regulation require disclosure
of the existence of an acceleration clause.
The Federal Reserve Board, which was charged by
Congress with the responsibility for interpreting the
Act, has confirmed that the existence of an acceleration
clause need not be disclosed. The Board has ruled,
however, that where an indebtedness is paid in full
after acceleration and the consumer is not credited
with the same rebate of unearned finance charges that
would have been made in the event that the indebted-
ness had been voluntarily prepaid in full prior to accel-
eration, the extra charge must be disclosed to the
consumer as a default charge under Section 226.8(b)
(4) of Regulation Z. Ford Credit does not charge
a consumer a greater amount to pay the indebtedness
in full after acceleration than he would have been
required to pay had the indebtedness been prepaid
in full prior to acceleration. In accordance with the
prepayment provisions of its disclosure statements,
Ford Credit’s policy is to rebate unearned finance
charges upon payment in full following acceleration
—
in the same manner in which it would rebate, —
a voluntary prepayment in full.° !
During the past forty months, the United States
Courts of Appeal for six different Circuits have exam-
ined the application of the Act and Regulation Z to ac-
celeration clauses in consumer credit contracts. Despite
the clarity of the Board’s position, none of the Cireuits
have adopted that position in total. The Board’s position
has been rejected by the Ninth and Tenth Circyits,
partially rejected by the Fifth Circuit, and partially
followed by the Third, Fifth and District of Columbia
Circuits. The Ninth Circuit has rejected decisions. by
the Third, Fifth and Tenth Circuits; the Eighth Circuit
has rejected the approach of both the Ninth and the
Fifth Circuits; the Tenth Circuit has rejected the views
of the Third Circuit; and the Fifth Circuit has ‘issued
six separate, internally conflicting opinions.
The conflicting and confusing positions that the Cir.
cuits have taken on the acceleration issue prompted
eae Court to aptly observe in frustration that “the
Circuits are in disarray.” St. Germain y. Bank of
Hawaii, 573 F.2d 572, 573 (9th Cir. 1977).
This conflict and confusion among the Circuits and
the Board has an enormous, adverse impact upon, ,the
consumer credit industry. As noted above, all consumer
credit contracts contain an acceleration clause.: Creditors
5See note 1, supra. In Griffith v. PRT Ford, 577 F. 2d
455 (8th Cir. 1978), a case involving a similar Ford Credit
form of contract and Ford Credit’s identical policy with. respect
to rebating unearned finance charges upon payment following
acceleration, the Eighth Circuit noted: “It is undisputed: that
the creditor’s policy in this case is to rebate upon prepayment
after acceleration in accordance with the rebate method shown
‘on the disclosure statement.” 577 F.2d at 460n.6, 8 ~
—>
making a conscientious and good faith effort to comply
with the Act and Regulation Z are left with no clear
guidelines as to what disclosures are required and face
enormous civil penalties if they guess wrong. Because
of the conflicting Circuit Court decisions, a consumer
installment contract that complies with the Act and
Regulation Z in one jurisdiction may be in violation
when used in other jurisdictions. Unless this Court
intervenes, the consumer credit industry will continue
to be plagued with needless and costly uncertainty,
lack of uniformity and hopeless confusion.
II.
The Decision Below Is in Conflict With Interpretations
of the Federal Reserve Board and the Decisions
of the Third, Fifth, Eighth, Tenth and District of
Columbia Circuits.
A. Introductory Summary of the Conflict'~g Board and Circuit
Court Positions.
Section 128(a)(9) of the Act and Section 226.8
(b)(4) of Regulation Z deal with default charges
and both require a creditor to disclose any “default,
delinquency, or similar charges payable in the event
of late payments.” Section 226.8(b)(7) of Regulation
Z, which has no counterpart in the Act, focuses upon
the prepayment of a consumer credit contract in which
finance charges have been precomputed and added
to the contract balance. Simply stated, Section 226.8
(b)(7) requires the disclosure of the method by which
any unearned portion of the finance charge will be
rebated to the consumer when the contract is prepaid
in full. These two provisions constitute the basis of
all of the claims litigated in the lower courts which
assert that the existence of an acceleration clause in
—
a consumer credit contract gives rise to additional
disclosure requirements under the Truth in Lending
Act.
The Federal Reserve Board has taken the positioh
that the mere existence of an acceleration clause in
a contract does not of itself result in a charge undér
Section 128(a)(9) of the Act or Section 226:8(b)(4)
of Regulation Z. The Board has taken the position,
however, that an acceleration clause can result it-’a
“charge” under these sections if upon payment in full
following acceleration the creditor does not rebate’ the
unearned finance charge by a method at least as favor-
able to the consumer as the method disclosed for
rebating finance charges in the event of a volunta
prepayment in full. This view appears to be. followed
by the most recent decisions in the Fifth Circuit. See
McDaniel v. Fulton National Bank, 571 F.2d 948
(Sth Cir.) (en banc), reh. denied, 576 F.2d 1156
(Sth Cir. 1978) (en banc); Kennedy v. ‘Plaza Pontiac,
Inc., 589 F.2d 161 (5th Cir. 1979). Applying’ this
view to the facts in the instant case, Ford Credit’s
contract would not violate the Truth in Lending Act
since Ford Credit rebates unearned finance‘ charges
in the event of a prepayment in full following accélera-
tion in the same manner in which it rebates unearned
finance charges in the event of a voluntary prepayment.
The method of calculating the rebate upon any prepay-
ment, whether voluntary or involuntary, is disclosed
to the consumer in accordance with the requirements
of Section 226.8(b)(7) of Regulation Z at paragraph
(14) of the disclosure statement on the face of Ford
Credit’s contract form. pailiea
The Third Circuit in Johnson v. McCrackin-Sturman
Ford, Inc., 527 F.2d 257 (3d Cir. 1975) and the
oo
District of Columbia Circuit in Price v. Franklin Jnvest-
ment Co., Inc., 574 F.2d 594 (D.C. Cir. 1978) have
taken a similar view, at least where the creditor is
required by state law to rebate unearned finance
charges.® Thus, under the approach taken by the Third
Circuit and the District of Columbia Circuit, Ford
Credit’s contract and policies with respect to rebating
unearned finance charges in the event of prepayment
following acceleration would not result in a violation
of the Truth in Lending Act.
Some Circuits have rejected the view of the Federal
Reserve Board and taken the position that under no
circumstances does the existence of an acceleration
clause in a contract give rise to any disclosure require-
ments under the Truth in Lending Act. This was the
position originally taken by the Fifth Circuit in Martin
v. Commercial Securities Co., 539 F.2d 521 (Sth Cir.
1976):
*Ford Credit’s contract even comports with this narrower
interpretation since Oregon law requires a rebate of unearned
finance charges if the customer prepays his account in full
subsequent to acceleration. O.R.S., Section 83.620(1) provides:
“Notwithstanding the provisions of a retail instalment
contract to the contrary, the buyer may pay in full at
any time before maturity the obligation contained in the
retail instalment contract. Upon such premature payment,
the buyer shall receive a refund credit.”
Although the caption to this section is “Voluntary prepayment
by buyer—refund”, the statute can not logically be construed
to permit a creditor to cut off the buyer’s right to a prepayment
rebate by the act of acceleration. As noted by the U.S. Court
of Appeals for the Eighth Circuit in Griffith v. Superior Ford,
577 F.2d 455, 460 n.7 (8th Cir. 1978) the reference to
“maturity” both in the statute and in the disclosure statement
“could have reference only to the stated maturity of the unpaid
installment” and not to maturity resulting from acceleration.
Moreover, the caption to Section 83.620(1) was not a part
of the legislative enactment, but was added by the legislative
counsel who prepares the statutes for publication. See Or, L.
1977, ch. 692, § 1; Or. L. 1957, ch. 625, § 24,
=
“Affording the substantial weight to the Solo-
mon letter that Philbeck v. Timmers Chevrolet,
Inc. [499 F.2d 971 (Sth Cir. 1974)], mandates,
we nevertheless can not accept the staff’s inter-
pretation of the requirements of sections 226.8(b)
(4) and 226.8(b)(7). With deference, we find
its one-sentence conclusion that an acceleration
of payments is essentially a prepayment of the.con-
tract obligation to be an analytical construction
of regulatory intent which has not been expressed
in language that ‘all who run may read.’ In the
installment credit context prepayment and accelera-
tion appear to be conceptually antithetical. The
former is the unilateral act of the debtor; the latter
the unilateral act of the creditor in the typical
installment contract.
In summary, while we recognize that one who
applies for installment credit may be as concerned
about the lender’s rebate policy with respect to
unearned finance charges in the event of accelera-
tion as he is with such policy upon prepayment,
we leave it to the Board to make explicit what
Mr. Solomon finds implicit in a regulation which
has provoked so much disagreement in conscien-
- tious trial courts.
We hold that in the absence of a regulation
requiring it, failure to disclose an acceleration
clause and the lender’s rebate policy with respect
thereto in an installment credit transaction does
not give rise to a claim for statutory damages.”
539 F.2d at 529 [footnotes omitted ].'
by
TThe Martin decision was subsequently overruled in’ part
the Fifth Circuit in McDaniel v. Fulton National. Bank,
571 F.2d 948 (Sth Cir. 1978).
niiiion
-This approach has been followed by the Tenth Circuit
in Begay v. Ziems Motor Co., 550 F.2d 1244 (10th
Cir. 1977):
“We are persuaded that the view taken by the
Fifth Circuit in Martin v. Commercial Securities
Co., Inc., supra, is the proper one on the merits
of the question before us. Such an acceleration
provision is a universal one, as Johnson v. Mc-
Crackin-Sturman Ford, Inc., points out, supra, 527
F.2d at 264. The Federal Reserve Board has
issued no regulation on the problem, despite the
rather extensive litigation on the question. In these
circumstances we are of the view that there is
no additional ‘charge’ in the acceleration provision.
. . . We agree with the Martin opinion that
the letter [Public Information Letter No. 851,
infra| is not persuasive and that we should leave
it to the Board to make such a disclosure require-
ment explicit by regulation.” 550 F.2d at 1248-
49.
Similarly, in Griffith v. Superior Ford, 577 F.2d
455 (8th Cir. 1978), in a case involving a similar
Ford Credit form of contract and Ford Credit’s identical
rebate policy upon acceleration, the Eighth Circuit
held:
“Defendants’ disclosure statement fully complies
with the Act and Regulation Z in describing the
method of rebate in the event of prepayment.
Regulation Z, fairly read, requires only the dis-
closure of the consequences of prepayment, not
the effect of the exercise of a right to accelerate.
In our judgment, no such additional disclosure
—
requirement is either explicit or implicit in. the
language of the Regulation. To the extent the
absence of such a disclosure requirement may
be perceived by the courts as a hole in the regu-
latory matrix, only the Federal Reserve Board
is authorized to fill the hole. It is for the Board
itself, not the courts, to assess the potential impact
of the exercise of the right of acceleration upon
the credit customer and on the basis thereof to
determine whether to explicitly expand the existing
disclosure requirements. We are unwilling to usurp
the prerogatives of the Board.” 577 F.2d at 460
- (emphasis in original).
Under the law expressed by the Eighth and Tenth
Circuits and as originally expressed by the Fifth Circuit,
in the cases cited above, Ford Credit’s form of contract
and policy with respect to rebating unearned finance
charges upon payment in full following acceleration
clearly do not give rise to a violation of the Truth
in Lending Act.
The Ninth Circuit’s approach is in direct conflict
with the approach taken by the Federal Reserve Board
and the Third, Fifth, Eighth, Tenth and District of
Columbia Circuits. The Ninth Circuit held that the
existence of an acceleration clause and a creditor’s
rebate policy upon acceleration must be disclosed not-
withstanding the fact that the creditor rebates unearned
finance charges upon payment in full following accelera-
tion by the same method disclosed for prepayment
in full.
B. Position of the Federal Reserve Board.
In a series of Public Information Letters and an
Official Staff Interpretation, the Federal Reserve Board
has consistently declared that an acceleration clause
‘need not be disclosed under the Act or Regulation
Z if the creditor rebates unearned finance charges
upon payment of the indebtedness after acceleration
in accordance with its disclosed method of rebating
unearned finance charges upon voluntary prepayment.
1. The Board's Position on Section 226.8(b)(4).
In its Official Staff Interpretation No. FC-0054 (App.
D at 52a-56a), the Board specifically stated that a right
of acceleration, in and of itself, is not a default, de-
linquency or similar charge under Section 226.8(b) (4).
In the same Official Staff Interpretation, the Board
also affirmed its earlier Public Information Letter No.
851 (App. E at 57a-58a) which stated that no dis-
closure is required under Section 226.8(b)(4) in con-
nection with the exercise of the right of acceleration
as long as the creditor rebates unearned finance charges
to the consumer upon payment of the indebtednesss
following acceleration:
“Staff understands that letter [Public Information
Letter No. 851] to say that early payment of
the balance of a precomputed finance charge obli-
gation by a customer upon acceleration by the
creditor is essentially the same as a prepayment
of the obligation. Therefore, if the creditor does
not rebate unearned finance charges in accordance
with the rebate provisions disclosed under § 226.8
(b)(7) when the customer pays the balance of
the obligation upon acceleration, any amounts re-
tained beyond those which would have been re-
bated under the disclosed rebate provisions do
represent the type of charge that must be disclosed
under § 226.8(b)(4).” App. D at 53a (emphasis
in original),
a
Approximately three months after the issuance of
Official Staff Interpretation No. FC-0054, the Board’s
position was reaffirmed and reiterated in Public In-
formation Letter No. 1208 (App. F at 59a-60a). That
letter stated that in determining whether the credi-
tor’s rebate method applicable to payment after accel-
eration is the same as the rebate method applicable
to voluntary payment, the controlling factor “is whether
in fact the creditor does or does not rebate upon
prepayment after acceleration in accordance with the
rebate method shown on the disclosure statement. In
this sense, then, the individual creditor’s policy deter-
mines whether there is a violation of the Act and
regulation.” Accord, Federal Reserve Board Public In-
formation Letter No. 1324 (App. G at 6la-63a).
The Board’s analysis of Section 226.8(b)(4) can
be summarized as follows: if the creditor discloses
a rebate provision relating to prepayment and actually
rebates to the consumer unearned finance charges upon
payment of the indebtedness after acceleration, neither
the existence nor the exercise of the right of accelera-
tion, nor payment after acceleration, will result in the
imposition of any additional late payment “charge”
upon the debtor. Ford Credit’s contract and rebate
policy clearly comply with this guideline.
2. The Board’s Position on Section 226.8(b)(7).
In its Official Staff Interpretation (No. FC-0054), the
Board made it clear that it views a payment of the
indebtedness following acceleration as tantamount to
a “prepayment” of the obligation for purposes of Section
226.8(b)(7). As long as the creditor’s rebate practice
is the same for both voluntary prepayment and prepay-
ment following acceleration, only one rebate disclosure
is required by Section 226.8(b)(7). Ford Credit’s re-
bate practice is the same for both voluntary prepayment
—
and prepayment following acceleration and this rebate
practice is fully disclosed in Ford Credit’s disclosure
statement. Ford Credit’s contract disclosures therefore
comply with the Board’s interpretation.
Despite the clarity of the Board’s position concerning
Sections 226.8(b)(4) and 226.8(b)(7), the Circuits
have reached widely conflicting results concerning the
disclosure requirements imposed by these Sections.
C. The Third Circuit.
The first Circuit Court to analyze the acceleration
issue was the Third Circuit in Johnson v. McCrackin-
Sturman Ford, Inc., 527 F.2d 257 (3d Cir. 1975).
In that case, the Court considered whether a creditor
was required to disclose the existence of an acceleration
clause where state law provided that the creditor must
rebate unearned finance charges in the event of a
payment after acceleration. The Court held that “when
a creditor is required to rebate the unearned portion
of the finance charge, his right of acceleration is not
a ‘default, delinquency or similar charge.’” 527 F.2d
at 268.
Although the decision of the Third Circuit is con-
sistent with the position of the Federal Reserve Board,
the Court specifically declined to consider whether the
result would be the same where the creditor is not
required by state law to rebate the unearned finance
charge upon payment after acceleration. See 527 F.2d
at 260 n.3.°
8Contrary to the assertion of the Ninth Circuit in St. Germain,
the Third Circuit did not hold “that retained interest is a
‘charge,’ the existence of which must be disclosed, unless, under
state law, the retained interest must be rebated upon accelera-
tion.” St. Germain v. Bank of Hawaii, 573 F.2d 572, 575
(This footnote is continued on next page)
oS
D. The Fifth Circuit.
The confusion rampant in the lower courts is re-
flected in the vacillation in approach taken in the
Fifth Circuit. The Fifth Circuit has issued six separate
opinions on the acceleration issue, including two opin-
ions rendered by the Court en banc. The acceleration
problem was first brought before the Fifth Circuit
in Martin v. Commercial Securities Co., 539 F.2d
521 (Sth Cir. 1976). In that case, the Court held
that no disclosures are ever required by reason of
an acceleration clause in a consumer credit contract,
even where the creditor makes no rebate of unearned
finance charges upon payment in full after acceleration.
The Court declined to follow the Board’s Public In-
formation Letter No. 851 and rejected the Third Circuit
decision in Johnson v. McCrackin-Sturman Ford, Inc.,
supra.
A few months later, in McDaniel v. Fulton National
Bank, 543 F.2d 568 (Sth Cir. 1976), another panel
of the Fifth Circuit followed the decision in Martin,
although intimating its displeasure with the holding
in Martin. Approximately sixteen months later, the
Fifth Circuit, sitting en banc, reversed the earlier de-
cision in McDaniel. McDaniel v. Fulton National Bank,
571 F.2d 948 (Sth Cir. 1978) (en banc). In this
third opinion, the Court reasoned that when an in-
debtedness is paid in full after acceleration and the
customer is not credited with the same rebate of un-
(9th Cir. 1977). Rather, the Third Circuit merely held that
acceleration is not a “charge” if state law requires unearned
interest to be rebated upon acceleration, The Court specifically
reserved and kept open the issue as to whether or not it
would be a charge even if state law did not require such
a rebate. Johnson v. McCrackin-Sturman Ford, Inc., 527 F.2d
257, 260 n.3 (3d Cir. 1975).
—
earned finance charges that would have been made
in the event of a voluntary prepayment, the additional
charge is in the nature of “default, delinquency, or
similar charges payable in the event of late payments.”
The Court quoted extensively from Official Staff Inter-
pretation No. FC-0054 and unequivocally approved
the Board’s position: “We adopt it as the rule of
decision in these cases.” 571 F.2d at 951.
In a fourth opinion denying a petition for a rehearing
‘from the second McDaniel decision, the Fifth Circuit
retracted its prior unconditional approval of the Board’s
interpretation. McDaniel v. Fulton National Bank, 576
F:2d 1156 (5th Cir. 1978) (en banc). The Court
held that if the contract permits the creditor to collect
unearned finance charges upon payment following ac-
celeration, this contract right will be viewed as a default
charge that must be disclosed under Section 226.8(b)
(4) regardless of the creditor’s actual practivé™in
enforcing this contract right. In this respect, the fourth
opinion is in direct conflict with the Board’s Public
Information Letter No. 1208.
In its most recent two pronouncements on the subject,
however, the Fifth Circuit appears to have reverted
to the position announced in the second McDaniel opin-
ion. See Kennedy v. Plaza Pontiac, 589 F. 2d 161
(Sth Cir. 1979).° Accord, Burley v. Bastrop Loan
Co., 590 F.2d 160 (Sth Cir. 1979).
In a footnote to the per curiam opinion in Kennedy v.
Plaza Pontiac, the Court summed up the position of the
Fifth Circuit:
“Since our decision, the Martin rule has been modified
by our court en banc to require disclosure of rebate pro-
visions on acceleration where the creditor does not re-
bate unearned finance charges in accordance with disclosed
provisions for rebate upon prepayment.” 589 F.2d at 161
n.l.
= oe
E. The Tenth Circuit.
Prior to the Fifth Circuit’s en banc decision in
the second McDaniel opinion, the Tenth Circuit re-
solved the acceleration issue by following the Fifth
Circuit decision in Martin. Begay v. Ziems Motor
Co., 550 F.2d 1244 (10th Cir. 1977). The Tenth
Circuit thus holds that no disclosures are ever required
with respect to an acceleration clause. The subsequent
reversal by the Fifth Circuit of its opinion in Martin
has now left the Tenth Circuit in conflict with both
the Third Circuit and the Fifth Circuit. The Tenth
Circuit recently reaffirmed its position in United States
v. One 1976 Chevrolet Station Wagon, 585 F.2d 978
(10th Cir. 1978).
F. The District of Columbia Circuit.
The District of Columbia Circuit rendered its deci-
sion regarding the disclosure of acceleration clauses
in Price v. Franklin Investment Co., 574 F.2d 594
(D.C. Cir. 1978). The District of Columbia Circuit
chose to follow the decision of the Third Circuit in
Johnson v. McCrackin-Sturman Ford, Inc., supra.
G. The Eighth Circuit.
The Court of Appeals for the Eighth Circuit con-
sidered the acceleration issue in Griffith v. Superior
Ford, 577 F.2d 455 (8th Cir. 1978). The Court sur-
veyed and critiqued the conflicting Circuit Court deci-
sions on the acceleration issue and specifically criticized
both the logical and legal inconsistencies inherent in
the approaches of the Ninth and Fifth Circuits. While
noting that its decision, under the facts in that case,
was consistent with both the approach taken by the
Third Circuit in Johnson v. McCrackin-Sturman Ford,
Inc. and the position of the Federal Reserve Board,
=
it adopted the position originally taken by the Fifth
Circuit in Martin and by the Tenth Circuit in Begay
that no disclosures are required by reason of an ac-
celeration clause.
H. The Ninth Circuit.
The approach taken by the Ninth Circuit to the
acceleration clause issue not only is in direct conflict
with the decisions in the Third, Fifth, Eighth, Tenth
and District of Columbia Circuits but is also erroneous.
The Ninth Circuit faced the acceleration issue in St.
Germain v. Bank of Hawaii, 573 F.2d 572 (9th
Cir. 1977). There the Court expressly rejected the
Third Circuit’s decision in Johnson, the Fifth Circuit’s
ruling in Martin, and the Tenth Circuit’s view expressed
in Begay. The Court also criticized the Federal Reserve
Board for issuing “conflicting signals.” 573 F.2d at 573.
Adopting what it called “the Board’s alternative pre-
payment theory” (573 F.2d at 577), the Court claimed
to have “cut a clean path. through the thicket.” 573
F.2d at 577. Unfortunately, the ambiguity and incon-
sistency in the Ninth Circuit’s approach has resulted
in even greater confusion. Essentially, the Ninth Circuit
held that:
(1) The Federal Reserve Board and other Cir-
cuits are in error to the extent that they require
default charge disclosures under Section 226.8(b)
(4) since that section is inapplicable to accelera-
tion clauses;
(2) The creditor’s act of acceleration consti-
tutes a “prepayment” within the meaning of Section
226.8(b)(7) of Regulation Z;
(3) The creditor must therefore disclose wheth-
er, and if so the manner in which, unearned
— oa
finance charges will be rebated upon the creditor’s
exercise of its right of acceleration;
(4) The creditor’s disclosure with respect to
voluntary prepayment will not suffice to satisfy
this requirement; and
(5) The creditor must disclose the existence
of the acceleration clause.
The Ninth Circuit’s novel and unprecedented decision
relying upon Section 226.8(b)(7) came as a complete
surprise to the consumer credit industry. The Court’s
theory produces two analytic anomalies: First, the Court
equated the acceleration of an indebtedness with “pre-
payment” of the indebtedness. Clearly, the acceleration
of an indebtedness is not a payment of any kind,
let alone a “prepayment.” As the Fifth Circuit noted
in Martin, “prepayment and acceleration appear to
be conceptually antithetical. The former is the unilateral
act of the debtor; the latter the unilateral act of the
creditor in the typical installment contract.” Martin
v. Commercial Securities Co., 539 F.2d 521, 529 (Sth
Cir. 1976). Second, although the Court stated that
it could “perceive no serious textual impediment to
reading Section 226.8(b)(7) prepayment to include
involuntary prepayment (acceleration) as well as volun-
tary prepayment” (573 F.2d at 576), the Court, with
complete and totally unexplained inconsistency, per-
ceived that the creditor’s disclosure of its method of
rebate upon “prepayment” did not apply to prepayment
following an acceleration. This inconsistency was criti-
cized by the Eighth Circuit in the Griffith case:
“St. Germain v. Bank of Hawaii, supra, man-
dates disclosure of whether and how a rebate
of unearned interest will be made by equating
=
acceleration with prepayment (the concept ad-
vanced in Federal Reserve Board staff pronounce-
ments), although acknowledging that ‘the prepay-
ment concept is not without its own problems.’
573 F.2d at 576. One such problem is that if
acceleration and prepayment are equivalents, then
the creditor’s disclosure respecting rebate upon pre-
payment would comply with the only express re-
quirement of § 226.8(b)(7) of Regulation Z
...” Griffith v. Superior Ford, 577 F.2d 455,
459 (8th Cir. 1978) (emphasis in original; foot-
note omitted).
The decision of the Ninth Circuit in St. Germain
was followed by the Ninth Circuit in the decision
below without further clarification or analysis."°
The Ninth Circuit opinion in St. Germair is not
only in conflict with the position of the Board and
the other Circuit Courts, it is plainly wrong. All that
the statute and Regulation require is that default, de-
linquency and similar charges be disclosed and that
the creditor's method of calculating a rebate upon
prepayment in full be disclosed. Ford Credit’s dis-
closures in these cases fully comply with both of these
requirements. A lender’s rebate policy upon payment
after acceleration is clearly not a “charge” if it does
not enable the creditor to retain unearned finance
charges. Ford Credit’s contract and disclosures in these
cases clearly provide for a rebate of any unearned
finance charges upon prepayment, and this includes
any prepayment resulting from an acceleration of the
contract. In accordance with its contract and disclosure,
The parties in St. Germain did not petition for a writ
of certiorari.
=
Ford Credit’s practice is to rebate unearned finance
charges upon payment after acceleration.
In a companion case to St. Germain, the Ninth
Circuit in Kessler v. Associates Financial Services Co.,
573 F.2d 577 (9th Cir. 1977) affirmed that portion
of a district court decision holding that an acceleration
clause had not been properly disclosed, but reversed
the district court’s decision to apply its decision prospec-
tively only. In its opinion in Kessler, the Court ac-
knowledged the uncertainties caused by the conflicting
interpretations of the Act and Regulation and the dif-
ficulties that presents to creditors attempting to draft
disclosure forms:
“We share the district court’s concern that the
vagaries of the construction of TILA and Regu-
“lation Z can be traps for even wary lenders and
that the end product of requiring more and more
revelations in disclosure statements can ultimately
defeat the informative purposes that Congress
had in mind because the disclosure statements will
become as complex, unreadable, and often as un-
read as the underlying contracts. As real as those
concerns are, however, redress lies with. Congress
and the Federal Reserve Board, not with the
courts.” 573 F.2d at 578.
The Ninth Circuit noted that Congress was silent
on the disclosure of acceleration clauses (“Congres-
sional silence is a dubious indicium of legislative in-
tent” [St. Germain v. Bank of Hawaii, supra, 573
F.2d at 574|) and agreed that additional disclosures
could “ultimately defeat the informative purposes that
Congress had in mind” (Kessler v. Associates Financial
Services Co., supra, 573 F.2d at 578). The Court
nevertheless chose to require a disclosure that is not
a
explicitly or implicitly required by either the Act or
Regulation Z and that runs contrary to the clear inter-
pretations of the Federal Reserve Board and every
other Circuit Court that has decided the issue. While
recognizing that “the vagaries of the construction of
TILA and Regulation Z can be traps for even wary
lenders” (Kessler v. Associates Financial Services Co.,
supra, 573 F.2d at 578) the Court has sprung that trap
on the lenders thereby exposing the credit industry
to liability for statutory penalties on millions of con-
sumer credit transactions and leaving the creditors to
the solace that “redress lies with Congress and the
Federal Reserve Board” (Kessler v. Associates Financial
Services Co., supra, 573 F.2d at 578) even though
such results were never contemplated by Congress”
and have been expressly rejected by the Board.
III.
The Decision Below Throws Open to Serious Question
the Validity of Millions of Consumer Credit Dis-
closure Forms Under the Truth in Lending Act.
As a result of these conflicting decisions, many con-
sumer installment contracts that comply with the Act
and Regulation Z in one jurisdiction will be found
in violation of the Act and Regulation in another
11Jn fact, the legislative history demonstrates that Congress’
silence was not unintentional since Congress considered the
exercise by a creditor of its remedies upon default and the
effect of those remedies on the rates disclosed to the consumer
to be a “subsequent occurrence” under 15 U.S.C. § 1634.
The Senate report on Section 4(h) of S.5, which became
15 U.S.C. § 1634, states:
“A repossession permitted by state law but not mutually
agreed to by both parties would affect the rate. The new
language makes it clear that such a change would not
violate the act.” S. Report No. 392, 90th Cong., Ist
Sess. 18 (1967).
Acceleration, like repossession, is a remedy of the creditor
upon default.
- we
jurisdiction. In still other jurisdictions, the status of
the law on this important question is unclear. This
conflict and confusion defeats the nationwide uniformity
that Congress sought to achieve in adopting the ‘Act.
This Court should intervene in order to eliminate these
irreconcilable conflicts and promote uniformity of de-
cision and disclosure. | tian
Although the dollar amount involved in these cases
may appear to be small, the potential civil liability
facing creditors whose forms do not comply’ with‘ the
Ninth Circuit’s novel and unprecedented holding is
truly staggering. |
Under the Act, one single violation of the disclosure
requirements of either the Act or Regulation Z exposes
a creditor to civil liability equal to double the amount
of the finance charges imposed in the transaction, with
a ‘maximum liability of $1,000 and a minimum liability
of $100.00. Truth in Lending Act § 130(a) [15
U.S.C. § 1640(a)]. This liability is penal in nature
since it is imposed without regard to whether the debtor
suffered any actual damage and without regard to
whether the creditor’s violation was intentional. — ; |
- Since there are well in excess of 60,000,000 consumer
installment contracts in existence today, virtually all
of which contain an acceleration clause, the consumer
credit industry has an enormous stake in the outcome
of this action. The decision of the Court: below on
the acceleration question represents a radical and un-
precedented departure from prior judicial decisions and
Board interpretations. The Court’s holding that the
a re
_
right to accelerate an indebtedness somehow constitutes
a “prepayment” of the indebtedness conflicts with the
plain meaning of the term “prepayment” as used in
Section 226.8(b)(7) and defies logic and common
sense. Few, if any, creditors could have anticipated
such a strained construction of Regulation Z with the
result that millions of disclosure statements now violate
the Act and Regulation Z. These unforeseen and un-
avoidable violations may result in huge penalties being
imposed against creditors. This Court should intervene
to prevent such an injustice from occurring.
Without regard to what disclosure rule ultimately
evolves out of the conflicting decisions on the accelera-
tion issue, the consumer credit industry should at least
be provided with a consistent and uniform interpretation
of the Act and Regulation Z that can be used in
drafting disclosure forms. Given the current state of
confusion and chaos in the Circuits on the acceleration
issue, only this Court can provide such uniformity.
Conclusion.
Under the decisions of the Ninth Circuit, countless
millions of disclosure statements have been thrown
into violation of the Truth in Lending Act and Regula-
tion Z. In five other Circuits, the same disclosure forms
that were held in violation of the Act and Regulation
Z below would be valid, and in another five Circuits
the fate of the forms is as yet undecided. Six Circuits
and the Federal Reserve Board have issued rulings
upon this matter. They are in conflict. The issues far
transcend the instant case. The matter is now ripe
=i Qua
for consideration by this Court. For all of the above
reasons, petitioners respectfully request that a writ of
certiorari issue to review the judgment and opinion
of the Ninth Circuit.
Respectfully submitted,
SHEPPARD, MULLIN, RICHTER & HAMPTON;
GEorGE R. RICHTER, JR.,
WILLIAM M. BuRKE,
RONALD M. BAYER,
SPEARS, LUBERSKY, CAMPBELL & BLEDSOE;
HERBERT H. ANDERSON,
JOHN M. BERMAN,
Counsel for Petitioners.
Dated: March 26, 1979.
APPENDIX A
United States Court of Appeals for the Ninth Circuit.
Dennis Milhollin and Michelle Milhollin, Plaintiffs-
Appellees, v. Ford Motor Credit Co., a corporation,
and Dee Thomason Ford, a corporation, Defendants-
Appellants.
Dennis Milhollin and Michelle Milhollin, Plaintiffs-
Cross Appellants, vy. Ford Motor Credit Co., a corpora-
tion, and Dee Thomason Ford, a corporation, Defend-
ants-Cross Appellees.
Donna M. Eaton, Plaintiff-Appellee, v. Ford Motor
Credit Co., a corporation, Defendant-Appellant, Bud
Meadows Mazda, Inc., Defendant.
Darrell Messinger, Plaintiff-Appellee, v. Ford Motor
Credit Co., a corporation, and Marv Tonkin Ford
Sales, Inc., a corporation, Defendants-Appellants.
David P. Andresen, Plaintiff-Appellee, v. Ford Motor
Credit Co., a corporation, and Webster-Wolfard Ford,
Inc., a corporation, Defendants-Appellants, and The
California Loan and Finance Association, Amicus
Curiae. Nos. 76-2914, 76-3217, 77-3084, 77-3584 and
77-3569.
Appeal from the United States District Court for
the District of Oregon.
Decided: December 28, 1978.
Before WRIGHT and GOODWIN, Circuit Judges,
and JAMESON,”* District Judge.
EUGENE A. WRIGHT, Circuit Judge:
In these consolidated cases, Ford Motor Credit Cor-
poration (Ford Credit) and several Ford dealers appeal
*Senior District Judge, District of Montana,
—, Sa
from adverse judgments finding that they violated pro-
visions of the Truth in Lending Act, 15 U.S.C. §§
1601 et seg. (1976) (Act) and the regulations promul-
‘gated thereunder, 12 C.F.R. § 226.1 et seq. (1978)
‘(Regulation Z).’ Milhollin cross appeals from a limita-
tion of Ford Credit’s liability.
Although plaintiffs below (Consumers) allege a num-
ber of violations, we need to decide only: two ‘ issues
common to the above cases and one issue. taised’-by
the Milhollins: seca ead
(1) Whether Ford Credit was clearly identified as
a creditor on the face of the contract;
(2) Whether it is necessary to disclose an accelera-
tion clause on the face of the contract; and :
(3) Whether an inadequate disclosure made to a
‘husband and wife as joint obligors results in a ‘multiple
recovery.
1. FSP ne
FACTS? PA
Ford Credit, wholly owned by the Ford Motor Com-
‘pany, provides financing for Ford dealers by extending
operating and inventory loans and by purchasing retail
installment contracts for the sale of automobiles” ‘by
dealers. f
A Ford Credit booklet explains its program to dealers
and gives guidelines for drafting contracts it is willing
to purchase. It also provides forms of credit applica-
tions, contracts and rate charts for calculating finance
charges. Use of the supplied forms is not mandatory,
‘Sections of Regulation Z cited here have remained the
same in all relevant respects since these actions arose.
2These are the facts common to all above cases. Facts
unique to a single case are presented later in the text, as
necessary.
—3a—
and Ford Credit purchases contracts on other agreement
forms. Many dealers disregard the suggested rate charts
and develop their own finance charges.
Dealers negotiate all terms of contracts directly with
customers, including the interest rate. Contracts are
typically assigned shortly after sales are consummated.
Although Ford Credit normally is unaware of any spe-
cific sale until the contract is proffered for assignment,
dealers may get prior approval for customers with
marginal credit ratings.
Ford Credit is not obligated to purchase any contracts
from dealers, but usually rejects only a small percentage
of those offered. It pays dealers cash for the contracts
less its discount.
Each dealer here has assigned the great majority
of its contracts to Ford Credit.* Shortly after each
sale Ford Credit purchased the contract, notified the
buyer, and provided him a payment book. Consumers
made subsequent payments to Ford Credit.
TI.
DISCLOSURE OF FORD CREDIT AS
A CREDITOR
In each of these cases, the district court found that
Ford Credit was not clearly identified as a creditor
on the face of the contract, and that this nondisclosure
violated the Act and Regulation Z. To uphold the
district court, we must conclude that (a) the identity
of each creditor is a required disclosure under the
Act or Regulation Z; (b) Ford Credit is a creditor
"In Messinger, of 600 to 700 contracts assigned six months
prior to and six months after the transaction with the plaintiff,
the dealer assigned all but 100 to Ford Credit. The dealer
in Andresen assigned 90% of its contracts to Ford Credit.
—
in these transactions within the meaning of the Act;
and (c) Ford Credit’s status as a creditor was not
adequately disclosed on the face of the contract.
Consumers maintain that Regulation Z requires the
disclosure of each creditor to a transaction on the
face of the contract.* A number of courts have agreed.°
Consumers also interpret a Federal Reserve Board Of-
ficial Staff Interpretation of Regulation Z to require
disclosure of each creditor.* Ford Credit reads the
*Regulation Z provides:
“General rule. Any creditor when extending credit other
than open end credit shall, in accordance with § 226.6
-and to the extent applicable, make the disclosures re-
quired by this section with respect to any transaction
consummated on or after July 1, 1969 . . [S]uch
disclosures shall be made before the transaction is consum-
mated. At the time disclosures are made, the creditor
shall furnish the customer with a duplicate of the instru-
ment or a statement by which the required disclosures
are made and on which the creditor is identified.”
12 C.F.R. § 226.8(a) (1978) (emphasis added).
“Multiple creditors or lessors; joint disclosure. If there
is more than one creditor or lessor in a transaction,
each creditor or lessor shall be clearly identified and
shall be responsible for making only those disclosures
required by this Part which are within his knowledge
and the purview of his relationship with the customer
or lessee. If two or more creditors or lessors make a
joint disclosure, each creditor or lessor shall be clearly
identified.”
Id. at § '226.6(d) (emphasis added).
°E.g., Lauletta v. Valley Buick, Inc., 421 F.Supp. 1036,
1039 (W.D.Pa.1976); Pedro v. Pacific Plan of California,
393 F.Supp. 315, 319-20 (N.D.Cal.1975).
Although this court has not addressed this precise issue,
it intimated that the identification of each creditor is required
by invalidating a disclosure statement that did not identify
one of two joint creaiiv:S™ff its description of that element
of the finance charge going to that creditor. Lijepava v. M.
L. S. C. Properties, Inc., 511 F.2d 935, 942 (9th Cir.
1975) (citing 12 C.F.R. §§ 226.6(d), 226.8(d)(3) (1974)).
*In 1976 the Federal Reserve Board was asked whether
a disclosure statement in which the finance charge, annual
percentage rate, and name of the creditor were printed in
—, ,
Official Interpretation narrowly to reach an opposite
result.’
Consumers allege that Ford Credit is a creditor
within the meaning of the Act* because it extended
credit directly to them, using the dealers merely as
a means to arrange for the credit. Ford Credit argues
that it was a subsequent assignee of the retail installment
contract, extending only commercial credit to the
dealers. It cites the apparently different treatment ac-
corded an “original creditor” and a “subsequent as-
signee” in various sections of the Act as evidence
that Congress did not intend subsequent assignees to
the same size t satisfied the requirements of 12 C.F.R.
§ 226.6(a) (1978), which states that the terms “finance
charge” and “annual percentage rate” “shall be printed more
conspicuously than other terminology required by this part.”
The *s response, issued prusuant to the authority granted
by 12 C.F.R. § 226.1(d) (1978), stated: “Although the
identification of a creditor is a required disclosure under-§ 226.-
'8(a), this disclosure does not constitute + 9k ‘terminology.’ ”
. Official Staff Interpretation of Regulation
41 Fed.Reg. 41908
(1976) (Emphasis added). ;
We have held that “[g]reat deference is especially due
the Federal Reserve Board’s construction of its own Regulation
Z because of the important interpretative and enforcement
ing Act.” Bone v. Hibernia Bank, 493 F.2d 135, 139
(9th Cir. 1974). See also Anthony v. Community Loan &
Investment Corp., 559 F.2d 1363, 1367 (Sth Cir. 1977);
Johnson v. McCrackin-Sturman Ford, Inc., 527 F.2d 257,
267 n.23 (3d Cir. 1975).
"Ford Credit relies on the strained reading given 12 C.F.R.
§ 226.8(a) (1978) and the Official St terpretation in
Grey v. European Health Spas, Inc., 428 F.Supp. 841, 843
(D.Conn.1977).
SRegulation Z defines “creditor” as
a person who in the ordinary course of business regularly
extends or arranges for the extension of consumer credit,
or offers to extend or arrange for the extension of such
credit, which is payable by agreement in more than four
instalments, or for which the payment of a finance charge
is or may be required, whether in connection with loans,
sales of property or services, or otherwise.
12 C.F.R. § 226.2(s) (1978).
Peating granted this agency by Congress under the Truth in
ast
—ba—
be subject to the same disclosure requirements as credi-
tors.” Consumers respond by citing cases that, in
certain circumstances, equate subsequent assignees with
creditors for disclosure purposes.’°
For our purposes it is unnecessary to decide whether
the identification of each creditor is a required dis-
closure or if Ford Credit is a creditor of Consumers.
Assuming an affirmative answer to these questions,
we conclude that the status of Ford Credit, even if
it is as a creditor, was adequately disclosed.
On the face of each contract, opposite the signature
of Consumers, appears the following disclosure:
The foregoing contract hereby is accepted by
the Seller and assigned to Ford Motor Credit
Company in accordance with the terms of the
assignment set forth on the reverse side hereof.
(gael Ok Ni ACRE a CRSA aE AEC
Consumers argue that the terms of 12 C.F.R. §
226.6(d) (1978) which provide that “each creditor
. Shall be clearly identified,” are not met by disclosing
‘that Ford Credit would be an assignee of the contract.
See, e.g., 15 U.S.C. §§ 1614, 1640(d), 1641 (1976).
10Meyers v. Clearview Dodge Sales, Inc., 539 F.2d 511,
514-16 (Sth Cir. 1976); Mirabal v. General Motors Acceptance
Corp., 537 F.2d 871, 874 n.1 (7th Cir. 1976); Joseph v.
Norman’s Health Club, Inc., 532 F.2d 86, 91-92 (8th Cir.
1976); Bird v. Goddards Discount Furniture, 443 F.Supp.
422, 423-24 (S.D.I1.1978); Poirrier v. Charlie’s Chevrolet,
Inc., 442 F.Supp. 894, 895-96 (E.D.Mo.1978); Cenance v.
Bohn Ford, Inc., 430 F.Supp. 1064, 1068-69 (E.D.La.1977);
Lauletta v. Valley Buick, Inc., 421 F.Supp. 1036, 1039 (W.D.
Pa.1976); Starks v. Orleans Motors, Inc., 372 F.Supp. 928,
930 (E.D.La.1974), aff'd, 500 F.2d 1182 (Sth Cir. 1974):
Kriger v. European Health Spas, Inc., of Milwaukee, Wiscon-
sin, 363 F.Supp. 334, 336 (E.D.Wis.1973); Garza v. Chicago
Health Clubs, Inc., 347 F.Supp. 955, 963-64 (N.D.JI.1972).
any |
They apparently argue that, because the precise word
“creditor” was not used in describing Ford Credit’s
prospective involvement in the transaction, the Act
was violated. We disagree. Nowhere does Regulation
Z require use of the word “creditor.” Here, the exact
role that Ford Credit ultimately played in each transac-
tion was clearly disclosed. Requiring Ford Credit to
use the word “creditor” would not have given Con-
sumers additional information nor better served the
purposes of the Act.
In Main v. Faller Ford, Inc., Civil hanien No. 74-
337 (W.D.Pa. Apr. 22, 1976), the court held that
an identical statement satisfied the creditor disclosure
requirements of Regulation Z:
Whether Ford Credit may be described as the
term is used in [12 C.F.R.] § 226.6(d) need
not be decided in this factual context because
to require such a disclosure by Ford Credit on
a separate piece of paper would not be a mean-
-ingful disclosure nor would it further the goals
of the Truth-In-Lending Act. Ford Credit was
accurately described in the contract as the assignee
and it is undisputed that plaintiff personally under-
stood that Ford Credit would actually extend her
credit and consequently be the recipient of her
monthly installment payments.’: ... To require
Ford Credit to also disclose to plaintiff that it
was also a “creditor” within the Act would be
a meaningless and needless exercise providing
plaintiff with duplicative information, and such
duplication cannot be justified by the Act’s pur-
pose nor by the practical considerations of these
circumstances. |
—Sa—
Accord, Sharp v. Ford Motor Credit Co., 452 F.Supp.
465 (S.D.I11.1978) (appeal pending); Antonio v. Canal
Motors, Inc., Civil Action No. 74-3163 (E.D.La. Nov.
18, 1977) (appeal pending); Augusta v. Marshall Mo-
tor Co., 453 F.Supp. 912 (N.D.Ohio 1977) (appeal
pending). | |
We agree with the reasoning in Main and hold
that the district court erred in finding that Ford Credit
was not adequately identified as a creditor on the
face of the contract.”
Ill.
DISCLOSURE OF AN ACCELERATION
| CLAUSE
The reverse side of each contract contained an ac-
celeration clause that did not explain the effect of
acceleration on unearned interest. Ford Credit main-
tains that its uniform practice, although not explicitly
disclosed, is to rebate unearned interest to the customer
upon acceleration in the same manner as that following
a voluntary prepayment.
This court faced a similar situation in St. Germaine
v. Bank of Hawaii, 573 F.2d 572 (9th Cir.. 1977).
We held there that
[t]he creditor must disclose whether a rebate of
unearned interest will be made upon acceleration
and also disclose the method by which the amount
of unearned interest will be computed if the debt
is accelerated.
Id. at 577. Failure to make these disclosures is a
violation of the Act.
11§ince we conclude that Ford Credit’s disclosure of its
status was adequate, we need not consider the sufficiency
of additional disclosures attached to the contract in Andresen.
a
In Milhollin, the district court concluded on dif-
ferent grounds than those stated in St. Germaine that
failure to disclose the acceleration clause on the face
of the contract was a violation of the Act. The court
held, however, that it would result in liability only
after the decision in Woods v. Beneficial Finance Co.
of Eugene, 395 F.Supp. 9 (D. Or. 1975), the first
Oregon case recognizing this nondisclosure as a viola-
tion. In so holding, the district court exceeded its
authority because “[t|}he application of doctrines limit-
ing the retroactivity of judicial decisions is restricted
to appellate courts.” Kessler v. Associates Financial
Service Co., 573 F.2d 577, 579 (9th Cir. 1977).
We hold on the basis of St. Germaine that Ford
Credit is liable to the Milhollins for failure to disclose
the acceleration clause and its effect on unearned in-
terest on the face of the contract.
IV.
RECOVERY FOR INADEQUATE DIS-
CLOSURE BY JOINT OBLIGORS
At the time of the transaction in Milhollin, plaintiffs
were husband and wife. Both signed the retail install-
ment contract, making them jointly and severally liable
for the full debt under Oregon law. They allege that
the district court erred in limiting them as joint obligors
to one recovery for violations under the Act.
The Act provides:
[A]ny creditor who fails to comply with any
requirement imposed under this part . . . with re-
spect to any person is liable to such person in an
.. amount equal to the sum of—
—10a—
(2)(A)(i) in the case of an individual action
twice the amount of any finance charge in con-
nection with the transaction . . ., except that
the liability under this subparagraph shall not be
less than $100 nor greater than $1,000... .
15 U.S.C. § 1640(a) (1976). The first quoted words
emphasized, “any person” and “such person,” suggest
that each joint obligor is entitled to a separate recovery.
The emphasized words in the second paragraph, how-
ever, suggest that the liability for any single transaction
is limited to $1,000.
The circuits have split on this issue. The Fifth and
Seventh Circuits have concluded that a husband and
wife as joint obligors are entitled to separate recoveries.
Davis v. United Companies Mortgage & Inv. of Gretna,
Inc., 551 F.2d 971 (Sth Cir. 1977); Mirabal v. General
Motors Acceptance Corp., 537 F.2d 871, 881-83 (7th
Cir. 1976); Allen v. Beneficial Finance Co. of Gary,
531 F.2d 797, 805-06 (7th Cir.), cert. denied, 429
U.S. 885, 97 S.Ct. 237, 50 L.Ed.2d 166 (1976).
The Fourth Circuit reached the opposite result in Pow-
ers v. Sims and Levin, 542 F.2d 1216, 1219-20 (4th
Cir. 1976), in which the court limited the recovery
of husband and wife as joint obligors to one penalty.
We believe that the Fourth Circuit’s approach more
closely reflects the intent of Congress. The applicable
legislative history states:
Any creditor failing to disclose required infor-
mation would be subject to a civil suit with a
penalty equal to twice the finance charge, with a
minimum penalty of $100 and a maximum penalty
not to exceed $1,000 on any individual credit
transaction.
—lla—
H.R.Rep.No. 1040, 90th Cong., 2d Sess., [1968] U.S.
Code Cong. & Admin. News, pp. 1962, 1976 (emphasis
added). The Milhollins, although joint obligors, entered
into one credit transaction with the dealer and Ford
Credit. They are entitled to one recovery.
IV.
CONCLUSION
Because the district court in Andresen and Messinger
concluded Ford Credit violated the Act only on the
basis of an inadequate disclosure of its creditor status,
a conclusion we reject, we remand those cases for a
consideration of other alleged violations of the Act not
treated by the court.
Although the district court in Milhollin found liability
on the ground used in Andresen and Messinger, it
also concluded Ford Credit violated the Act by failing
to disclose an acceleration clause on the face of the
contract. In light of St. Germaine, we disagree with
the rationale used by the court, but hold on other
grounds that Ford Credit violated the Act by failing
to disclose an acceleration clause and its effect on
unearned interest. We also disagree with the court’s
prospective application of Woods, and hold that Ford
Credit is liable to the Milhollins for its nondisclosure.
As joint obligors, they are entitled to only one recovery.
We affirm the holding of the district court in Eaton,
again under a different rationale,"* on the basis of
12Noting that it would be “a waste of judicial time and
effort” to set forth the reasons for its decisions in light
of the thorough discussion in Méilhollin, then on appeal to
this court, the district court in Eaton merely adopted the
rationale of Milhollin. We agree with the conclusion in Milhollin
that failure to disclose an acceleration clause on the face
of a contract is a violation of the Act, but do so on different
grounds.
.—12a—
Ford Credit’s failure to disclose an acceleration clause
and its effect on unearned interest on the face of
the contract.”
AFFIRMED IN PART AND REVERSED IN
PART.
- 48Since multiple violations of the Act in any single credit
sale transaction result in only one recovery, 15 U.S.C. §
1640(g) (1976), it is unnecessary to consider any other alleged
violations in Milhollin and Eaton.
|
-—13a—
APPENDIX B
Recommendation and Order
In the United States District Court for the District
of Oregon.
Dennis Milhollin and Michelle Milhollin, Plaintiffs,
vs. Ford Motor Credit Co., a corporation, and Dee
Thomason Ford, a corporation, Defendants. Civil No.
75-334.
Filed: April 7, 1976.
This is an action for money damages brought under
the Truth in Lending section of the Consumer Credit
Protection Act, 15 U.S.C. § 1601, et seq., for alleged
violations of the Truth in Lending Act (“Act”), and
Federal Reserve Board Regulation Z (“Reg. Z”), 12
C.F.R. § 226, et seg. Jurisdiction is conferred by
15 U.S.C. § 1640(e).
In. July of 1974, plaintiffs, Dennis and Michelle
Milhollin, purchased a 1973 Ford Pinto automobile
from defendant Dee Thomason Ford on a deferred
payment plan. The purchase price was $3,098.00 and
the deferred payment price $3,983.64. Plaintiffs put
down a cash payment of $400.00 and were allowed
a $300.00 trade-in allowance on their old automobile.
Additionally, a $200.00 ballon payment to be made
August 12, 1974, further increased the down payment
to a total of $900.00. The sum of $2,372.80 was
financed at an annual percentage rate of 17.91%.
After the $200.00 balloon payment, plaintiffs were
to pay 35 monthly installments of $85.68 each and
one final installment of $85.84 commencing on August
29, 1974. Because plaintiffs did not maintain property
damage insurance on the automobile, the assignee of
-—14a—
the purchase contract, defendant Ford Motor’ Credit
Company (“FMCC”), obtained this insurance and
added the premium to the principal. This resulted in
the payments due being increased to $94.61 per month
beginning with the December 29, 1974, payment. _
FMCC, without notification to the plaintiffs, repos-
sessed the automobile on February 21, 1975. FMCC
gives as reasons for repossession: (a) default in payment
of installments due under the contract (two payments
were overdue); (b) failure to supply evidence of. in-
‘surance; and (c) FMCC deemed the indebtedness and
property “insecure.” FMCC’s answer to plaintiffs’ jinter-
rogatory 15. :
By letter dated the same day as the repossession,
February 21, 1975, plaintiffs, through their: attorney,
offered to pay the delinquent amount. FMCC responded
that it had elected to accelerate the amount due. ‘This
acceleration had the effect of forcing plaintiffs to pay
$2,440.42 rather than the overdue amount ‘in. order
‘to redeem the automobile. Plaintiffs were not able
to make the payment, and the Pinto was re-sold.
Plaintiffs allege that the contract violated ‘the Act
and Rég. Z in four particulars: i amg
(1) Failure to disclose the acceleration clause on
the face of the contract; a anit
(2) Failure to disclose clearly and conspicuously
that plaintiffs were required to obtain physical dam-
age insurance on the automobile;
(3) Failure to clearly identify FMCC as a creditor
on the face of the contract; ? 7
(4) Failure to describe or identify the type of se-
curity interest retained or acquired by FMCC,
—15a—
Each plaintiff seeks the maximum allowable damages
of $1,000.00.
All parties move for summary judgment. Fed. R.
Civ. P. 56. I find that there is no genuine and material
issue of fact in dispute.’ Therefore, this matter is
ripe for summary judgment.
I. WAS FMCC A “CREDITOR”?
FMCC contends that it is not subject to the Act
or Reg. Z for any violations contained in the contract
in that, with regard to this transaction, it is not a
“creditor” within the meaning of the statute and regula-
tions. It maintains that assignees were not specifically
made subject to the Act until October 28, 1974 (after
the contract in issue was executed). Act of Oct. 28,
1974, Pub. L. 93-495, Title IV, § 413(a), 88 Stat.
1520, adding 15 U.S.C. § 1614. Therefore, FMCC’s
argument continues, it could not have been subject
to the Act prior to the enactment of § 1614.
Plaintiffs counter with the assertion that FMCC was
the true creditor in this transaction, and Dee Thomason
was merely a “conduit.” Thus, FMCC would have
been subject to the Act as a “creditor” even before
the enactment of § 1614.
1Dee Thomason contends that its attempted good faith com-
pliance with the Act and Reg. Z is a valid defense here,
and, in any event, the factual issues of good faith and alleged
oral disclosures made to the plaintiff preclude summary judg-
ment. A recent 10th Circuit case, Redhouse v. Quality Ford
Sales, Inc., 511 F.2d 230 (10th Cir. 1975), is cited by
Dee Thomason for the proposition that damages are improper
in Truth in Lending Act cases where the debtor is pecan ta
with full disclosure, be it on the face of the contract or
oral. Insofar as Redhouse can be read as holding good faith,
oral disclosure, or lack of damage causation to be defenses
to violations of the Act or Reg. Z, I respectfully must disagree.
I find nothing in the statute or its legislative history which
suggests that any standard other than strict liability should
be applied.
—16a—
I agree with the plaintiffs. The conduit approach
has been applied in many analogous situations before
the enactment of § 1614.’ Here, at the same time
as the sale of the automobile, and in the same transac-
tion, Dee Thomason arranged for the extension of
credit by FMCC, and assigned the purchase contract
to FMCC. The transaction involving Dee Thomason
and FMCC was undertaken pursuant to the usual busi-
ness practices of defendants in regularly arranging for
the extension of credit to consumers. That this was
the usual business practice of Dee Thomason and
FMCC is evidenced by the following facts: (a) The
contract was printed by defendant FMCC, naming
FMCC as the assignee; (b) In 1974, Dee Thomason
assigned 345 such contracts to FMCC; (c) FMCC
financed substantially all of the retail installment con-
tracts signed with Dee Thomason; and (d) The assign-
ments were made pursuant to instructions contained
in a booklet issued by FMCC. FMCC’s answers to
plaintiffs’ interrogatories 4, 26 and 27.
Additionally, it should be noted that the terms of
the Act itself would seem to apply to FMCC here,
even without the judicially engrafted “conduit theory.”
Section 103(f) of the Act, 15 U.S.C. § 1601(f) defines
a creditor as one who: esuaa'y Te
[R]egularly extend[s], or arrange[s] for the exten-
sion of; credit for which the payment of a finance
See, e.g., Johnson v. Johnson, TV CCH Consumer Credit
Guide 4 98,556, II Poverty Law 4 21,220 (M.D. Ga.
1975); Meyers v. Clearview Dodge Sales, Inc., 384 F: Supp.
722 (E.D. La. 1974); Philbeck v. Timmers Chevrolet, Inc.,
361 F. Supp. 1255 (N:D. Ga. 1973), rev’d on other grounds,
499 F.2d 971 (Sth Cir. 1974); Garza v. Chicago Health
Clubs, Inc., 347 F. Supp. 955 (N.D. Ill. 1972); Joseph
v. Norman's Health Club, Inc., 336 F. Supp. 307 (E.D.
Mo. 1971).
—17a—
charge is required, whether in connection with
loans, sales of property or services, or otherwise.
The provisions of this subchapter apply to any
such creditor, irrespective of his or its status as
a natural person or any type of organization.
I conclude, therefore, that, with respect to the transac-
tion at issue here, FMCC is a creditor within the
meaning of the Act.*
II. DISCLOSURE OF THE ACCELERATION
CLAUSE
The Act requires that the creditor must disclose
“the default, delinquency, or similar charges payable
in the event of late payments.” 15 U.S.C. § 1639(a)
(7). Plaintiffs contend that the right of acceleration
constitutes a “charge” within the meaning of section
1639(a)(7), and must be disclosed on the face of
the contract.
Plaintiffs and FMCC have both provided excellent
briefs to the court on this issue. Ample authority sup-
ports the position that an acceleration clause is a
“charge.” Ample authority also supports the position
that where, as here, only accrued interest becomes
due in case of acceleration, the acceleration clause
is not a “charge.” I feel compelled both by stare
decisis and logic to follow Judge Skopil’s ruling in
Woods v. Beneficial Finance Co. of Eugene, 395 F.
Supp. 9 (D.Or. 1975). The duty to disclose and fully
explain any right of acceleration was made clear in
Woods. That duty, however, is prospective in this Dis-
trict from the date of the Woods decision, February
8This holding is, of course, limited to the facts of this
case,
—18a—
14, 1975. 395 F. Supp. at 16. Since the transaction
in issue took place before Woods, there was no duty
at that time upon either Dee Thomason or FMCC
to disclose the acceleration clause.‘
Ill. DISCLOSURE OF THE INSURANCE RE-
QUIREMENT
Plaintiffs maintain that since failure to obtain prop-
erty damage insurance on the automobile can result
in default and acceleration, it also constitutes a “charge”
under section 1639(a)(7), and must be disclosed.
Although plaintiffs’ argument is somewhat plausible,
it is rejected for two reasons:
(1) 12 C.F.R. § 226.4(a)(6), which sets forth the
physical damage insurance disclosure requirements
‘ (these being in conjunction with disclosures for the
determination of the finance charge), has been complied
with. Just above the buyer’s signature by which Mr.
Milhollin acknowledged his desire to obtain life and
disability insurance in connection with the contract
appears the notice:
(2) You have the right to choose the person
through whom the Physical Damage Insurance re-
quired under this contract is to be obtained.
(Emphasis added).
(2) No authority is cited in support of the proposi-
tion that FMCC’s decision to take out insurance on
the automobile because of plaintiffs’ failure to do so
constitutes a “charge” within the meaning of 15 U.S.C.
§ 1639(a)(7).
‘Plaintiffs’ suggestion that the defendants’ duty after the
Woods decision was to change those contracts previously entered
into is, to say the least, unrealistic.
-—19a—
IV. CLEAR IDENTIFICATION OF FMCC
Section 226.6(b) of Reg. Z provides:
If there is more than one creditor in a trans-
action, each creditor shall be clearly identified
and shall be responsible for making only those
disclosures required by this part which are within
his knowledge and purview of his relationship with
the customer.
(Emphasis added).
Section 226.8(a) provides:
All of the disclosures shall be made together on
either
(1) the note or other instrument evidencing
the obligation on the same side of the page and
above or adjacent to the place for the customer’s
signature; or
(2) one side of a separate statement which
identifies the transaction.
The only reference to FMCC on the face of the contract
is one sentence in quite small type just above the
place for the seller’s signature. This sentence states:
“The foregoing contract hereby is accepted by the Seller
-and assigned to Ford Motor Credit Company in accord-
ance with the terms of the Assignment set forth on
the reverse side hereof.” Dee Thomason Ford, on the
other hand, is identified at the top of the face of
the contract in rather large writing.
FMCC has not been identified clearly within the
meaning of Reg. Z. In a situation such as this where
the true creditor ‘s a credit company, that entity should
be clearly identified so that the debtor knows whom
or what he is doing business with. I must assume
a ae
—20a—
that the only reason for placing FMCC’s name in
small type on the face of the contract in an obscure
place is that, hopefully at least, the debtor will fail
to read this provision. It is not too much to ask
that the true creditor be identified in the same manner
the seller is.
V. DESCRIPTION OF SECURITY INTEREST
By virtue of the terms of the purchase contract, FMCC
took a security interest in the Pinto automobile when
the contract was executed. This security interest was
perfected the same date as the sale by notation on
the certificate of title. ORS 79.3020(1)(d). The disclo-
sure with regard to this security interest states the
following:
(13) Security Interest: Seller shall have a security
interest under the Uniform Commercial Code in
the Property (described above) and in the pro-
ceeds thereof to secure the payment in cash of
the Total of Payments and all other amounts due
or to become due hereunder.
Section 226.8(b)(5) provides that the required dis-
closures must include:
A description or identification of the type of any
security interest held or to be retained or ac-
quired by the creditor in connection with the exten-
sion of credit, and a clear identification of the
property to which the security interest relates or,
if such property is not identifiable, an explanation
of the manner in which the creditor retains or
may acquire a security interest in such property
which the creditor is unable to identify .... If
after-acquired property will be subject to the se-
curity interest, or if other or future indebtedness
|
FOS TE Nk IA PL OR OP
—2la—
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.
The defendants’ disclosure of their security interests
fail to comply with Reg. Z. First, there is no indication
that any security interest is held by FMCC.
Secondly, the “description” of the type of security
interest held by FMCC and Dee Thomason amounts
to little more than a statement that “a security interest
under Oregon law” is retained by the seller. (The
Uniform Commercial Code is codified at ORS 71.1020,
et seq.). It should be noted that Woods held that
the incorrect disclosure that the security interest in-
volved covered after-required consumer goods was a
violation of Reg. Z. At the least, defendants should
have disclosed the type of security interest retained
under the UCC.° Otherwise, a consumer might easily
be misled as to his rights in the collateral.
Thirdly, the language “and all other amounts due
or to become due hereunder” is, as was the language
in Woods, surplusage which could be confusing not
only to a consumer, but to an attorney as well. Is
this meant to be cross-collateral clause,° or merely
5This is not to require, as FMCC suggests, that an index
of the types and qualities of different security interests possible
under the UCC must be disclosed. Something more than the
brief statement that “a security interest under the Uniform
Commercial Code” is required, however.
For an example of this type of financing arrangement,
see Williams v. Walker-Thomas Furniture Co., 350 F.2d 445
(D.C. Cir. 1965).
It is doubtful that a cross-collateral clause was intended
' in this transaction where only a single automobile was purchased.
_The. language which describes the security interest does not,
however, alleviate the confusion.
a
a statement that add-ons (such as the insurance pre-
miums in this case) also shall become secured? The
generality of the language produces uncertainty.
FMCC would be wise to heed the recent statement
of Judge Solomon with regard to language used by
insurance companies in their policies:
Insurance companies could prepare policies in
clear, simple and precise language which would
inform insureds of the limits of their coverage.
Insurance companies could avoid the risk of ambi-
guity if they use short and precise words and short
and simple sentences to express their intent clearly.
In spite of continued admonitions of the courts
to get rid of such language, insurance companies
continue t> issue such policies using insurance
jargon and verbose and meaningless generalities,
ali of which result in ambiguities.
Champion International Corp. v. Continental Casualty
Co., 400 F. Supp. 978, 981 (S.D.N.Y. 1975).
Again, I must assume that the generality and obscure
nature of the language are intended to either confuse
the consumer or hide something from him.
VI. DAMAGES
Section 130 of the Act, 15 U.S.C. § 1640(a)(1),
sets the damages recoverable as twice the finance charge
“in connection with the transaction, except that the
liability under this paragraph shall not be less than
$100 nor greater than $1,000.” 15 U.S.C. § 1640(a)
(2) also provides for the recovery of attorney’s fees
and costs for the successful plaintiff.
Plaintiffs contend that under the Act, joint borrowers
are entitled to recover twice the amount of the damages
—223a—
specified thereunder. This argument is based on the
proposition that both debtors are required to receive
the disclosures required by the Act and that each
is therefore entitled to damages. This contention fails
for two reasons.
First, the language of section 1640 itself is directed
at the “transaction” involved, not the parties involved.
Secondly, the congressional intent to limit the recov-
ery in a single credit transaction to $1,000.00 despite
the number of borrowers is quite clear. The House
Banking and Currency Committee Report, 1968 U.S.
Code Cong. & Admin. News at 1976, states the purpose
of the civil liability section as follows:
While the primary enforcement of the bill aioe
be accomplished under the administrative enforce-
ment section . . . further provision is made for
the institution of any civil action by an aggrieved
debtor. Any creditor failing to disclose required
information would be subject to civil suit with
a penalty equal to twice the finance charge, with
a minimum penalty of $100 and a maximum
penalty of $1,000 on any individual credit trans-
action . . . (Emphasis added).
The plaintiffs, therefore, are entitled to $1,000.00,
costs and attorney’s fees.
Dated this 6 day of April, 1976.
/s/ George E. Juba
United States Magistrate
After review of the file and record in this case,
I approve the foregoing recommendation.
IT IS ORDERED that defendants’ motions for sum-
-mary judgment are denied,
—24a—
IT IS FURTHER ORDERED that plaintiffs’ motion
for summary judgment is granted. Plaintiffs shall. re-
cover from the defendants the sum of $1,000.00. At
a subsequent hearing attorney’s fees shall be determined.
Dated this 6 day of April, 1976.
/s/ Robert C. Belloni
United States District Judge
Order.
In the United States District Court for the District
of Oregon.
Dennis Milhollin and Michelle Milhollin, Plaintiffs,
v. Ford Motor Credit Co., a corporation, and Dee
Thomason Ford, a corporation. Defendants. Civil No.
75-334.
Filed and entered: June 25, 1976.
This is an action for money damages brought under
the Truth in Lending section of the Consumer Credit
Protection Act, 15 U.S.C. §1601, et seq., for alleged
violations of the Truth in Lending Act, and Federal
Reserve Board Regulation Z (Reg. Z), 12 C.F.R. §226,
et seq. Jurisdiction is conferred by 15 U.S.C. §1640(e).
The undisputed facts of this case are set out in
the attached Recommendation and Order dated April
6, 1976. On that date, I reviewed the record, approved
Magistrate Juba’s recommendation, denied defendants’
Motions for Summary Judgment, granted plaintiffs’ Mo-
tion for Summary Judgment and ordered that plaintiffs
recover judgment against the defendants in the sum
of $1,000.
The defendants asked for and received a rehearing.
I have studied their additional memoranda and have
—25a—
heard oral argument on the rehearing. Nothing con-
tained in either, however, convinces me that any change
in the original opinion should be made.
A recent case out of the Western District of Pennsyl-
vania deserves some comment, however. Virginia Jones
Main v. Faller Ford, Inc. et al., Civil No. 74-337
(W.D.Penn. 1976). In that case, the judge believed
that the contract adequately identified FMCC as a
creditor. I have not seen the contract in the Main
case. Its wording seems to be identical to the one
in the case at hand. The contract in question has,
as its only reference on the face of the contract to
FMCC as a creditor, one sentence in small type above
the place for the seller's signature. Dee Thomason
Ford, on the other hand, is identified at the top of
the face of the contract in rather large writing. FMCC
has not been identified clearly within the meaning
of Reg. Z.
Defendants ask this court to make this opinion
effective only prospectively from the date of this opin-
ion. They have presented no authority, however, which
would give this court the power to reach such a result.
That request is denied.
IT IS ORDERED that the defendants’ motions to
modify and/or vacate are denied.
Dated this 25 day of June, 1976.
Robert C. Belloni
United States District Court
—26a—
Summary Judgment.
United States District Court for the District of Ore-
gon.
Dennis Milhollin and Michelle Milhollin, Plaintiffs,
v. Ford Motor Credit Co., and Dee Thomason Ford,
Defendants. Civil No. 75-334.
Filed and entered: June 25, 1976.
Based on the record,
IT IS ORDERED AND ADJUDGED that plaintiffs
recover from the defendants the sum of $1,000.00
general damages and the sum of $750.00 attorneys
fees.
Dated: June 25, 1976.
Robert M. Christ
Clerk of Court
—27a—
Opinion
In the United States District Court for the District
of Oregon.
Donna M. Eaton, Plaintiff, vs. Ford Motor Credit
Company, a corporation, Defendant. Civil No. 76-575.
Richard A. Slottee, Legal Aid Service, 1100 Board
of Trade Building, Portland, Or. 97204, Attorneys
for Plaintiff.
Herbert H. Anderson, John M. Berman, Dezendorf,
Spears, Lubersky & Campbell, 800 Pacific Building,
Portland, Or. 97204, Attorneys for Defendant.
Filed: June 16, 1977.
SOLOMON, Judge:
Plaintiff filed an action for $607.84 and for reason-
able attorneys’ fees against the defendant, Ford Motor
Credit Company (Ford), asserting that Ford violated
the provisions of the Truth in Lending Act and Federal
Reserve Board Regulations.
An action raising many of the same issues was
decided by Judge Belloni in Milhollin v. Dee Thomason
Ford and Ford Motor Credit Co., Inc., Civil No.
75-334 (D.Or., filed April 7, 1976). The Magistrate
had found that Ford Motor Credit Co., Inc. was a
creditor of the plaintiff, rather than an assignee of
the automobile dealer, and that the transaction was
governed by the provisions of the Act dealing with
creditors. The Magistrate also found that Ford Motor
Credit Co., Inc. failed to comply with other provisions
of the Act. He therefore denied Ford Motor Credit
Co., Inc.’s motion for summary judgment, and he rec-
ommended that plaintiff have a judgment against
Ford Motor Credit Co., Inc. Judge Belloni reviewed
the file and the record, and he granted plaintiff a
—28a—
judgment in accordance with the recommendations of
the Magistrate. Thereafter, Ford Motor Credit Co.,
Inc., filed a motion to modify or vacate the judgment;
and, after a hearing, Judge Belloni denied the motion.
It has been the policy and practice of this Court
to respect a fully considered opinion of another Judge
of this Court and to follow it unless it appears that
an obvious mistake has been made. I have examined
the recommendations and order of the Magistrate and
the opinion of Judge Belloni in Méilhollin v. Dee
Thomason Ford and Ford Motor Credit Co., Inc.,
supra, and ! have also carefully considered the memo-
randum of law submitted by counsi in.this case,
and I find that the conclusions reached by Judge Belloni
in Milhollin are in accord with other federal court
decisions in other jurisdictions. They alsc are in accord
with the opinion of Judge Skopil in Woods v. Beneficial
Finance Co. of Eugene, 395 F.Supp. 9 (D. Or. 1975).
Judge Belloni’s holding has been appealed and is
now pending in the Ninth Circuit Court of Appeals.
Because of all these facts, it would be a waste of judicial
time and effort for me to set forth in detail the reasons
why I believe the conclusions reached by Judge Belloni
should govern this case.
There is no merit in the contention that plaintiff
did not purchase the automobile primarily for personal
use, nor is there any merit to the other defenses asserted
by Ford.
I therefore find that plaintiff is entitled to a judgment
against Ford for $607.84 and for reasonable attorneys’
fees of $300.00. |
Dated this 16th day of June, 1977.
Gus J. Solomon,
United States District Judge
—29a—
Judgment.
In the United States District Court for the District
of Oregon.
Donna M. Eaton, Plaintiff, vs Ford Motor Credit
Company, a corporation, Defendant. Civil No. 76-575.
Filed: Aug. 12, 1977.
Based upon the record,
IT IS ADJUDGED AND ORDERED that plaintiff
Donna M. Eaton have and recover from defendant
Ford Motor Credit Company the sum of $1,300.
DATED this 12th day of August, 1977.
/s/ Gus J. Solomon
Judge, U.S. District Court
—30a—
Opinion
In the United States District Court for the District
of Oregon.
David P. Andresen, Plaintiff, v. Ford Motor Credit
Company, a corporation, and Webster-Wolfard Ford,
Inc., a corporation, Defendant. Civil No. 76-1090. .
John L. Langslet, James C. Waggoner, Martin, Bis-
choff, Templeton & Biggs, 2908 First National Bank
Tower, Portland, Oregon 97201, Attorneys for plaintiff.
Michael J. Esler, Haessler, Stamer & Esler, 2626
First National Tower, Portland, Oregon 97201,’ Attor-
ney for defendant Webster-Wolfard Ford, Inc.
John M. Berman, Dezendorf, Spears, Lubersky &
Campbell, 800 Pacific Building, Portland, Oregon
97204, Attorney for defendant Ford Motor Credit Com-
pany.
Filed: July 26, 1977.
LEAVY, J., U. S. Magistrate.
This is an action for money damages brought under
the Truth in Lending section of the Consumer Credit
Protection Act, 15 U.S.C. § 1601, et seq., for alleged
violations of the Truth in Lending Act (Act), and
Federal Reserve Board Regulation Z (Regulation Z),
12 C.F.R. § 226, et seg. Jurisdiction is conferred
by 15 U.S:C. § 1640(e). Trial was held before the
court on July 19, 1977.
On October 5, 1976, plaintiff purchased a 1976
Ford Pinto from defendant Webster-Wolfard Ford, Inc.
(Webster). The retail installment contract evidencing
this transaction was assigned to and financed by defend-
ant Ford Motor Credit Company (FMCC).
—3la—
Plaintiff contends that the contract violated the Act
and Regulation Z in five particulars:
(1) Failure to make the requisite disclosures clearly,
conspicuously, and in meaningful sequence;
(2) Failure to clearly identify FMCC as a creditor
on the face of the contract;
(3) Failure to disclose the acceleration clause on
the face of the contract;
(4) Disclosure of the $150 payment as both a
“pickup” payment and a “ballon” payment, to
the confusion of the consumer;
(5) Misstatement of the down payments.
The retail installment contract in the instant case
was printed and provided to Webster by FMCC. The
evidence discloses that approximately 90 percent of
the several hundred retail installment contracts entered
into by Webster during the year surrounding the transac-
tion were assigned to FMCC.
On the basis of these facts, I find that FMCC
was a creditor in this transaction, and that the contract
violated the Act and Regulation Z by failing to clearly
disclose this fact on the face of the contract. The
court has found similar violations on contracts that
are substantially identical to the one involved in the
instant case. Milhollin v. Ford Motor Credit Co., Civil
No. 75-334 (D. Or. filed April 7, 1976 (on appeal) );
Eaton v. Ford Motor Credit Company, Civil No. 76-
575, (D. Or., filed June 16, 1977). I see no reason
to distinguish these cases.
Defendants seek to avoid this result by pointing
to additional disclosures made on a separate sheet
of paper stapled to the front of the printed retail
installment contract. That these additional disclosures
|, a
were in fact made is evidenced by plaintiff’s signature
below them. The regulations, however, are clear. Section
226.8(a) of Regulation Z provides, in relevant part:
“All of the disclosures shall be “ame sageiner
on either:
(1) The note or other instrument evidencing
the obligation on the same side of the
page and above the place for the customer’s
signature; or !
(2) One side of a separate ananemt which
identifies the transaction.”
I find that the disclosures made in the instant case
on two pieces of paper stapled together do not meet
the requirement of § 226.8(a). Requiring strict ad-
herence to the technical requirements of the Act and
Regulation Z may appear harsh in the instant..case.
Nonetheless, were the court to approve the use- of
this procedure in this case, the door would be opened
to the types of abuses § 226.8(a) was designed to
prevent.
\ As I have found that the contract violates the Act
‘and Regulation Z as described in number (2) above,
I need not reach the alleged violations found in (1),
3), (4) and (5) above. Madison v. United Finance
Company, Inc., Civil No. 75-1094, ig Or., —_ sey
12; 1976, (on appeal) ).
Section 130 of the Act, 15 U.S.C. § 1640(a)(1),
sets the damages recoverable for a Truth in Lending
violation as twice the finance charge, with a liability
not less than $100 nor greater than $1000. 15 US.C.
§ 1640(a)(2) also provides for the recovery of- attor-
ney’s fees and costs for the successful — 0
—33a—
The finance charge in this transaction was $585.55.
Accordingly, plaintiff is entitled to recover the sum
of $1000, costs and attorney’s fees. Plaintiff shall within
five days submit an affidavit as to his attorney’s fees.
Defendants shall have five days within which to respond.
This opinion shall constitute findings of fact and
conclusions of law in accordance with Fed. R. Civ.
P. Se.
Dated this 26th day of July, 1977.
- /s/ Edward Leavy
United States Magistrate
—34a—
Judgment.
In the United States District Court for the District
of Oregon.
David P. Andresen, Plaintiff, vy. Ford Motor Credit
Company, a corporation, and Webster-Wolfard Ford,
Inc., a corporation, Defendant. Civil No. 76-1090.
Filed: Aug. 16, 1977.
This action came on for trial before the Court,
Honorable Edward Leavy, United States Magistrate,
presiding, and the issues were tried and a decision
rendered.
IT IS ORDERED AND ADJUDGED that plaintiff,
David P. Andresen, recover of defendants Ford Motor
Credit Company and Webster-Wolfard Ford, Inc. the
sum of $1000 as statutory damages, the further sum
of $1000 as attorneys’ fees, and his costs of action.
Dated at Portland, Oregon, this 16th day of August,
1977.
/s/ Robert M. Christ
Robert M. Christ
Clerk of Court
rh 8 ON ee
a a re ere ee ee
-—35a—
Opinion.
In the United States District Court for the District
of Oregon.
Darrell Messinger, Plaintiff, vs. Ford Motor Credit
Co., a corporation, and Marv Tonkin Ford Sales, Inc.,
a corporation, Defendant. Civil No. 76-475
Mr. Richard Folkes, Attorney at Law, 18448 S. E.
Pine Street, Portland, Oregon 97233, Attorney for
plaintiff.
Mr. John Berman, Dezendorf, Spears, Lubersky &
Campbell, 800 Pacific Building, Portland, Oregon
97204, Attorney for defendants.
Filed: July 26, 1977.
LEAVY, J., United States Magistrate
This is an action for money damages brought under
the Truth in Lending section of the Consumer Credit
Protection Act, 15 U.S.C. § 1601, et seq., for alleged
violations of the Truth in Lending Act (Act), and
Federal Reserve Board Regulation Z (Regulation Z),
‘12 C.F.R. § 226; et seq. Jurisdiction is conferred
by 15 U.S.C. § 1640(e). Trial was held before the
court on July 19, 1977.
On May 24, 1975, plaintiff purchased a 1975 4-
wheel drive pickup truck from defendant Marv Tonkin
Ford (Tonkin). The retail installment contract evidenc-
ing this transaction was assigned to and financed by
defendant Ford Motor Credit Company (FMCC).
Plaintiff contends that the contract violated the Act
‘and Regulation Z in ‘hree particulars.’
‘Plaintiff has withdrawn his contention that the contract
\ cqntained: a fourth violation relating to Physical Damage Insur-
ance.
—36a—
(1) Failure to clearly identify FMCC as a credi-
tor on the face of the contract;
(2) Failure to disclose the acceleration clause
on the face of the contract;
(3) Failure to describe or identify the type of
security interest retained or acquired by FMCC.
On February 15, 1977, I recommended that plain-
tiffs motion for summary judgment be denied based
on my finding that an issue of fact remained as to
whether the pickup truck was purchased for business
use, thereby removing the transaction from coverage
by the Act. I now resolve that issue in plaintiff’s
favor. Despite the fact that plaintiff claimed on his
income tax return that he used the pickup for business,
I find on the basis of plaintiff's testimony that he
purchased the truck for personal non-business purposes.
The transaction therefore involved the extension of
consumer credit as defined by the Act and Regulation
y ol
The contract in the instant case was printed and
provided to Tonkin by FMCC. The evidence discloses
that an estimated 600 to 700 retail installment contracts
were entered into by Tonkin during the period com-
mencing six months prior to the transaction and ending
six months after the transaction. Of these, all but
approximately 100 were assigned to FMCC.
On the basis of these facts, I find that FMCC
was a creditor in this transaction, and that the contract
violated the Act and Regulation Z by failing to clearly
disclose this fact on the face of the contract. This
court has found similar violations on contracts that
are substantially identical to the one involved in the
instant case. Milhollin v. Dee Thomason Ford and
—37a—
Ford Motor Credit Co., Inc., Civil No. 75-334 (D.Or.,
filed April 7, 1976) (on appeal); Eaton v. Ford Motor
Credit Company, Civil No. 76-575 (D.Or., filed June
16, 1977). I see no reason to distinguish these cases.
’ As I have found that the contract violates the Act
and Regulation Z as described in number (1) above,
I need not reach the alleged violations found in (2)
and (3) above. Madison v. United Finance Company,
Inc., Civil No. 75-1094, (D.Or., filed July 12, 1976)
(on appeal).
Section 130 of the Act, 15 U.S.C. § 1640(a)(1),
sets the damages recoverable for a Truth in Lending
violation as twice the finance charge, with a liability
nat less than $100‘nor greater than $1000. 15 U.S.C.
§ 1640(a) (2) also provides for the recovery of attor-
ney’s fees and costs for the successful plaintiff.
The finance charge in this transaction was $1395. 39.
Accordingly, plaintiff is entitled .o recover the sum
of $1000, costs and attorney’s fees. Plaintiff shall within
five days submit an affidavit as to ‘his attorney’s fees.
Defendant shall have five days within which to respond.
This opinion shall constitute findings of fact and
conclusions of law in accordance with Fed. R. Civ.
P. 52.
Dated this 26th day of July, 1977.
/s/ Edward Leavy
United States Magistrate
—38a—
Judgment.
In the United States District Court for the District
of Oregon.
Darrell Messinger, Plaintiff, vs. Ford Motor Credit
Co., a corporation, and Marv Tonkin Ford Sales, Inc.,
a corporation, Defendant. Civil No. 76-475.
Filed: Aug. 16, 1977.
This action came on for trial before the Court,
Honorable Edward Leavy, United States Magistrate,
presiding, and the issues were tried and a decision
rendered.
IT IS ORDERED AND ADJUDGED that plaintiff,
Darrell Messinger, recover from defendants Ford Motor
Credit Co. and Marv Tonkin Ford Sales, Inc. the
sum of $1000 as statutory damages, the further sum
of $1000 as attorneys’ fees, and his costs of action.
Dated at Portland, Oregon, this 16th day of August,
1977. xine
/s/ Robert M. Christ
Clerk of Court
—39a—
Order.
United States District Court, District of Oregon.
Darrell Messinger, Plaintiff, vs. Ford Motor Credit
Company, a corporation and Marv Tonkin Ford Sales,
Inc., Defendants. Civil 76-475.
Filed: March 15, 1978.
This case was tried before Magistrate Edward Leavy
on July 19, 1977 by stipulation of the parties. A
decision was entered on July 26, 1977. A Judgment,
signed by the Clerk of the Court was entered on
August 16, 1977.
It was the intent of the parties that the Magistrate
be empowered to direct entry of final judgment in
this action. It now appears, however, that notwith-
standing this stipulation and intention, an order of
a district judge is necessary to direct entry of judgment
jf a case tried before a magistrate by stipulation.
_’ Accordingly, it is ORDERED that the Clerk enter
"judgment as follows, nunc pro tunc to August 16,
1977:
“Plaintiff recover from defendants sum of $1,000
statutory damages, + $1,000 attorneys fees, and
his costs of action.” :
Dated: March 15, 1978.
/s/ Otto R. Skopil, Jr.
United States District Judge
—40a—
APPENDIX C
United States Court of Appeals for the Ninth Circuit.
Chuck St. Germain, Plaintiff-Appellant, v. Bank of
Hawaii, Defendant-Appellee. No. 76-2007. :
Appeal from the United States District Court for
the District of Hawaii. ty
Decided: December 30, 1977.
Before ELY, HUFSTEDLER and WRIGHT, Circuit
Judges.
HUFSTEDLER, Circuit Judge:
The thorny question presented on this appeal is
whether the Truth in Lending Act (“TILA”), 15 U.S.C.
§§ 1601, et seq., requires disclosure of an acceleration
clause in a retail installment contract. The. district
court held that disclosure was not required (St. Germain
v. Bank of Hawaii (D.Hawaii 1976) 413 F.Supp.
587), and it granted the Bank of Hawaii’s motion
for summary judgment. We reverse, holding that TILA
compels a creditor making a consumer loan to disclose
the creditor’s right to accelerate full payment of the
debt upon the debtor’s default or late payment.
The contract is a standard form “Retail Installment
Contract (Automobile).” The face of the contract re-
cites in simple language important rights and duties of
the parties. Section four, captioned in large type “DE-
LINQUENCIES AND OTHER CHARGES,” states that
the debtor will incur a 5 percent delinquency charge,
plus a part of the creditor’s attorney’s fees and/or
collector’s fees in the event of default or late payment.
Section three, captioned “PREPAYMENT PRIVI-
LEGE,” states that the debtor is entitled to a refund
—4la—
of unearned finance charges if he pays the debt before
maturity. Nothing is said about the creditor’s right
to accelerate if the debtor defaults or pays late nor
about the possibility of any rebate of unearned finance
charges if the debt is accelerated. On the back of
the contract in small print, the contract says that,
upon default, “the full amount hereof shall at the
Seller’s option be immediately due and payable and
Seller shall have the rights and remedies of the holder
of a retail installment contract under Chapter 476, Ha-
_waii Revised Statutes.” No reference is made to the
rebate of unearned interest upon acceleration.
The question whether TILA requires disclosure of
the existence and impact of an acceleration clause
in a retail installment contract should have been settled
early in TILA’s life. Instead, the Federal Reserve Board
has issued conflicting signals, and the Circuits are
in disarray. The common denominators of the Board’s
analysis and the basis of the four divergent views
of the courts are 15 U.S.C. § 1639(a)(7) (TILA
§ 129(a)(7)) and 12 C.F.R. § 226.8(b) (4), Regula-
tion Z, implementing TILA. Section 1639(a)(7) pro-
‘vides:
“(a) Any creditor making a consumer loan...
shall disclose each of the following items, to the
extent applicable:
(7) The default, delinquency or similar charges
payable in the event of late payments.”
Section 226.8(b), in pertinent part, states:
“(b) In any transaction subject to this section,
the following items, as applicable, shall be dis-
closed:.
—42a—
(4) The amount, or method of computing the
amount, of any default, delinquency, or similar
charges payable in the event of late payments.”
Judicial responses to the impact of Section 226.8(b)
(4) on disclosure of acceleration have split four ways.
One response is that disclosure is always required be-
cause the right of acceleration is itself a “charge .. .
in the event of late payments,” within the meaning
of TILA and Regulation Z. (Garza v. Chicago Health
Clubs, Inc. (N.D.Ill. 1972) 347 F.Supp. 955.) After
noting that neither TILA nor Regulation Z expfessly
defines “charge,” Garza turned to state decisions’ and
to Black’s Law Dictionary to find the meaning of
“charge.” The court decided that “charge” was synony-
mous with “obligation,” “claim,” and “expenses,” and
it concluded:
“Considering these definitions and the purpose
of the statute and regulation to inform consumers
of credit costs and terms so they can effectively
choose between sources of credit . . . it seems
clear that the acceleration of the balance of
the debt should be considered a ‘charge’... .”
(347 F.Supp. at 959.)
The “always” view enjoyed a spasm of popularity
among district courts, at least until two of the better
known district court decisions were overturned on ap-
peal. (Meyers v. Clearview Dodge Sales, Inc. (E.D.La.
1974) 384 F.Supp. 722, rev'd (Sth Cir. 1976) 539
F.2d 511, 519; Johnson v. McCrackin-Sturman Ford,
Inc. (W.D.Pa. 1974) 381 F.Supp. 153, rev’d (3d
Cir. 1975), 527 F.2d 257.) ;
Garza has the virtue of providing a uniform national
rule which is consistent with the remedial intent of
—43a—
TILA. (See Mourning v. Family Publications Service,
Inc. (1973) 411 U.S. 356, 93 S.Ct. 1652, 36 L.Ed.2d
318; Sellers v. Wollman (5th Cir. 1975) 510 F.2d
119, 122; Eby v. Reb Realty, Inc. (9th Cir. 1974)
495 F.2d 646, 650.) The defect in Garza is that
equating an acceleration right with the term “charge”
is not consistent with the use of “charge” in the context
of TILA or in Regulation Z. Thus, Section 1639(a) (7)
speaks of “default, delinquency, or similar charges pay-
able,” which suggests that “charges” were intended
to refer to specific monetary sums rather than an
undifferentiated notion of “burden” or “obligation.”
(See Johnson v. McCrackin-Sturman Ford, Inc., supra,
527 F.2d at 266.) Similarly, Regulation Z requires
the disclosure of “the amount, or method of computing
the amount,” of the charges payable in the event of
late payment, strongly implying that charges are sums
of money, and not the right to payment or to increase
the annual percentage rate. Moreover, the Federal Re-
serve Board’s official staff interpretation of TILA and
Regulation Z is directly contrary to Garza. “[T]he
mere right to accelerate contained in a contractual
provision . . . is not a charge payable in the event
of late payment.” (Emphasis in original. No. FC-0054
(March 21, 1977) 5 CCH Consumer Credit Guide
q 31,552.) Although we are not bound by the Board’s
official interpretation of Regulation Z nor by a staff
opinion letter, both are entitled to respect; we should
follow the Board’s construction “unless there are com-
pelling indications that it is wrong.” (Moore v. Great
Western Savings & Loan Ass'n (9th Cir. 1975) 513
F.2d 688, 690.) No compelling indications of error
are present.
—:
The polar opposite of Garza is the view that .disclo-
sure is never required. The Fifth and Tenth Circuits
have adopted the “never” view. ¢Begay v. Ziems Motor
Co..(10th Cir. 1977) 550 F.2d 1244; Martin v. Com-
mercial Securities Co., Inc. (5th Cir. 1976) 539 F.2d
521.) These courts reasoned that Congress must not
have intended to require disclosure of acceleration
- Clauses because it said nothing expressly about them.
Congressional silence about provisions as common: as
acceleration clauses spoke eloquently to these Circuits
to evidence Congress’ intent not to include them as
disclosure subjects. 3 7
Congressional silence is a ER indicium Of legista-
tive intent, especially when we are dealing with a
statute like TILA, in which Congress traced very few
lines on a new large canvass. Despite the lack of
articulate draftsmanship, TILA manifests Congress’
overriding interest in disclosure to provide consumer
protection. As the Supreme Court observed in Mourn-
ing: ; Or, 2
“The hearings held by Congress reflect the ditti-
culty of the task it sought to accomplish. What-
ever legislation was passed had to deal not only
with the myriad forms in which credit transactions
then occurred, but also with those which would
be devised in the future. To accomplish its desired
objective, Congress determined to lay the structure
1The Fifth Circuit may be in transition because
nab Gi named to hicDaniel Fulton National
Atlanta (Sth Cir. 1976), 543 F.2d 568, in which
r” vi was reaffirmed. The én banc decision has
For further criticism of the “charge” theory, see Comment,
Acceleration Clause Disclosure Under the Truth in Lending
Act, 77 Colum.L.Rev. 649 (1977).
—45a—
of the Act broadly. . .
93 S.Ct. at 1658.)
The Court explained that “[t]he Truth in Lending
” (411 US. at 365,
Act reflects a transition in congressional policy from
a philosophy of ‘Let the buyer beware’ to one of
‘Let the seller disclose.’ By erecting a barrier between
the seller and the prospective purchaser in the form
of hard facts, Congress expressly sought ‘to . . . avoid
the uninformed use of credit.’ 15 U.S.C. § 1601.” (411
US. at 377, 93 S.Ct. at 1664.)
Other courts have adopted the view that disclosure
of an acceleration clause is required under some cir-
cumstances. The leading proponent of the “sometimes”
interpretation is the Third Circuit. The pivot of the
intermediate interpretation, as in Garza, is the “charge”
concept, but the existence of a “charge” depends upon
whether the creditor retains or rebates unearned interest
after acceleration. The Third Circuit holds that retained
interest is a “charge,” the existence of which must
be disclosed, unless, under state law, the retained in-
terest must be rebated upon acceleration. (Johnson
v. McCrackin-Sturman Ford Inc. (3d Cir. 1975) 527
F.2d 257.)
A variation of the “sometimes” theme is that disclo-
sure is required if the credit agreement itself fails
to provide for rebating unearned interest. That interpre-
tation was initially accepted by a few district. courts
in the Fifth Circuit, until the Court of Appeals reversed.
(Barrett v. Vernie Jones Ford, Inc. (N.D.Ga.1975)
395 F.Supp. 904, 908-11, rev'd (Sth Cir. 1976) 543
F.2d 568; McDaniel v. Fulton National Bank of Atlanta
(N.D.Ga.1975) 395 F.Supp. 422, 425-28, rev’d (Sth
Cir. 1976) 543 F.2d 568; see also Galie, The Accel-
—46a—
eration Clause as a Truth in Lending Disclosure: The
End of the Dilemma?, 93 Banking L.J. 317 (1976).)
The “sometimes” interpretation does not run agrourid
upon the textual shoal of Garza, nor upon the remedial
difficulty with Begay and Martin. It is not satisfactory,
however, because it is too narrow to be genuinely
remedial; and it also conflicts with the Federal. Reserve
Board’s interpretation of “charge.” (See Staff Op’n
Letter No. 1208 (July 6, 1977) 5 CCH Consumer
Credit Guide 4 31,647.) The Third Circuit’s addition
of the state law element not only complicates the rule,
but also builds into the statute and regulation a morass
of conflicting and uncertain state law. (Compare Wil-
liams v. Bill Watson Ford, Inc. (E.D.La.1976) 423
F.Supp. 345, 350-52 (Louisiana law always requires
rebate upon acceleration) with Burley v, Bastrop Loan
Co., Inc. (W.D.La.1976) 407 F.Supp. 773 (Louisiana
law provides rebate subject to additional conditions);
compare McDaniel v. Fulton National Bank of Atlanta
(N.D.Ga, 1975) 395 F.Supp. 422 (Georgia law always
requires rebate) with id. at 424-28 (supplemental opin-
ion) and Barrett v. Vernie Jones Ford, Inc. (N.D.
Ga.1975) 395 F.Supp. 904 (Georgia law only provides
rebates where accelerated payment of finance charges
results in a rate of interest in violation of state“ usury
law). ‘See also Ecenrode v. Household Finance Co: of
South Dover (D.Del.1976) 422 F.Supp. 1327, 1331-
32 (Delaware law unclear).) The end product of the
Third Circuit’s interpretation is the disclosure of rebate
confusion.’ The result cannot be squared with congres-
*E.g., Burley v. Bastrop Loan Co., Inc., supra, 407 F.Supp.
at 781. A state may obligate “the accelerating creditor to rebate
the unearned interest ... [but] this rebate is conditioned
upon his filing suit to collect the obligation; the creditor has
—47a—
sional intent to require creditors to make meaningful
disclosures to consumer debtors. (See Lijepava v.
M.L.S.C. Properties, Inc. (9th Cir. 1975) 511 F.2d
935, 942; Ecenrode v. Household Finance Co. of South
Dover, supra, 422 F.Supp. at 1331.)
- The Federal Reserve Board has not resolved these
conflicts; indeed, the Board has injected its own uncer-
tainties. The Board signalled a promising beginning
in October, 1974, with a Staff Opinion Letter that
suggested a shift from the “charge” analysis to the
“prepayment” provisions of 12 C.F.R. § 226.8(b)(7):°
“For the purposes of Truth in Lending disclosures,
the staff views an acceleration of payments as
essentially a prepayment of the contract obligation.
‘As such, the disclosure provisions of § 226.8(b)
(7) of the Regulation, which require the creditor
to identify the method of rebating any unearned
portion of the finance charge or to disclose that
no rebate would be made apply. If the creditor
rebates under one method for acceleration and
the power, but not the right to collect interest as yet unearned
on the obligation.” (Emphasis in original.) See also Galie,
supra, 93 Banking L.J. at 332-33.
812 C.F.R. § 226.8(b) (7) provides: — ,
“In any transaction subject to this section the following
items, as applicable, shall be disclosed:
(7) Identification of the method of computing any un-
earned portion of the finance charge in the event of
prepayment in full of an obligation which includes pre-
ted finance charges and a statement of the amount or
method of computation of any charge that may be de-
ducted from the amount of any rebate of such unearned
finance charge that will be credited to an obligation
or refunded to the customer. If the credit contract does
not provide for any rebate of unearned finance charges
upon prepayment in full, this fact shall be disclosed.” .
—48a—
another for voluntary prepayment, both. methods
would need to be identified under § 226.8(b) (7).
Failure to disclose the method of rebate or nonre-
bate would be a violation of the Truth in reneae
Act.”
In the next paragraph of the letter, however, the: staff
returned to the “charge” analysis which had cpenigied
the attention of the courts: euormby,
“[I]f upon acceleration of the unpaid femainder
of the total payments, the creditor does not rebate
unearned finance charges in accordance with the
rebate provisions disclosed in § 226.8(b)({7), any
amounts retained beyond those which would have
been rebated under the disclosed rebate provisions
represent a ‘charge’ which should have been dis-
closed under § 226.8(b)(4).”
(Staff Op’n Letter No. 851 (Oct. 22, 1974), 5 CCH
Consumer Credit Guide 4 31,173.) A later interpreta-
tion repeats the “prepayment” analysis, begun by Letter
No. 851, but it does not pursue the implications of
the prepayment analysis. (Staff interpretation No. FC-
0054, March 21, 1977, 5 CCH Consumer Credit Guide
q 31,552 (“[E]arly payment of the balance . . .U upon
acceleration by the creditor is essentially the ‘same
as a prepayment of the obligation.” )
We think that the prepayment concept is the correct
analytical track. The prepayment concept is not without
its own problems, but the difficulties are considerably
less than those that have been encountered’ with the
“charge” theories. The prepayment concept leads direct-
ly to the conclusion that the effect of the acceleration
clause on unearned interest must be “meaningfully dis-
closed in the disclosure statement,” a result which is
me eee 2 er es ne
a re er re +
—49a—
consistent both with the overriding purposes of Congress
in enacting TILA and with the conclusions that we
reached in La Grone v. Johnson (9th Cir. 1976),
534 F.2d 1360.‘ The prepayment theory also reaches
the Garza result without the textual difficulties that
Garza encounters with the “charge” language. We per-
ceive no serious textual impediment to reading Section
226.8(b)(7) prepayment include involuntary pre-
payment (acceleration) as well as voluntary pre-
payment.® Like voluntary prepayment, acceleration
occurs during the life of the loan, upon the unilateral
act of one of the parties, and both forms of prepayment
cause payment of the contractual indebtedness before
the ultimate time fixed by the agreement. In both
voluntary and involuntary prepayment, the question
-arises whether the debtor is entitled to a rebate of
the unearned finance charges. To be sure, voluntary
payment is initiated by the debtor and acceleration
by the creditor, but the same problem of unearned
finance charges arises in either case. The potential
impact on the debtor’s pocketbook is the same.
4In La Grone, we affirmed the district court’s decision that
the debtor was entitled to rescind a credit transaction because
the creditor had failed to disclose an acceleration clause in
the disclosure statement. We assumed, without discussion, that
disclosure was required. The issue that was litigated was whether
disclosure in the underlying note, rather than in the specifically
marked disclosure section, satisfied TILA. We held that disclo-
sure in the note did not comply with TILA. See also Clausen
v. Beneficial Finance Co. of Berkeley (N.D.Cal. 1976), 423
F, Supp. 985, 986, following La Grone.
°We are aware that the Fifth and Tenth Circuits have
criticized the use of the prepayment concept under § 226.8
(b)(7) as also being unsupported by the precise language of
the Regulation and the Act. Begay v. Ziems Motor Co., supra,
550 F.2d at 1249; Martin v. Commercial Securities Co., Inc.,
supra, 539 F.2d at 529,
—
We are required to respect the Board’s construction
of the statute and its own regulation, but less respect
is due where, as here, the Board’s views have been
expressed only through unofficial staff statements rather
than official interpretations. Moreover, when the Board
has issued conflicting signals, we will choose the direc-
tion that makes more sense to us in trying to achieve
the congressional purpose of providing meaningful dis-
closure to the debtor about the costs of his borrowing.®
As we have pointed out, the charge theory, while super-
ficially plausible, leads to confusion, and, when state
law is incorporated in the “charge,” the debtor is given
an all points bulletin.
When we choose the Board’s alternative prepayment
theory, we cut a clean path through the thicket. Regula-
tion Z, Section 226.8(b)(7), requires “[i]dentification
of the method of computing any unearned portion
of the finance charge in the event of prepayment in
full . . . . If the credit contract does not provide for aiiy
rebate of unearned finance charges upon prepayihent
in full, this fact shall be disclosed.” When we equate
acceleration with prepayment, the disclosure obligation
under Section 226.8(b)(7) is evident: The creditor
tust disclose whether a rebate of unearned interest
will be made upon acceleration and also disclose the
method by which the amount of unearned interest: will
be computed if the debt is accelerated.
*The weight accorded the informal letters of the staff of
the Federal Reserve Board “‘in a particular case will ‘Sepond
on the thoroughness evident in its consideration, the dity
of its ors its consistency with earlier and later pronownce-
ments, and those factors which give it power to ,
if lacking power to control.’” Evy v. Reb Realty, inc. (9th
Cir. 1974), 495 F.2d 646, 649-50 n.5, quoting Skidmore vy.
a — (1944), 323 U.S. 134, 140, 65.S.Ct. 161, 89
L. . - ‘ve
—5la—
The Bank of Hawaii did not make the disclosures
that we hold are required under Section 226.8(b)(7)."
- REVERSED.
—52a—
APPENDIX D
Official Staff Interpretation No. FC-0054, 42 F.R.
18056, [1974-1977 Transfer Binder] Cons. Cred.
Guide (CCH 431,552.
April 4, 1977
This is in reply to your letter * * * requesting
official staff interpretations of the requirements of Regu-
lation Z with regard to computation of finance charge,
disclosure of late payment charges, disclosure of loan
proceeds, and the meaning of the term “meaningful
sequence.” This letter is an official staff interpretation
of these four matters.
Staff considers the three other questions raised in
your letter as inappropriate for official staff interpre-
tations at this time. An official interpretation con-
cerning disclosure of a dealer’s reserve is deemed inap-
propriate because the Board has proposed for comment
an amendment and an interpretation of Regulation
Z on this same subject. Similarly, an official inter-
pretation concerning whether loan proceeds must be
disclosed is deemed inappropriate because this question
has been raised in Pollock v. General Finance Cor-
poration, a case currently pending in the United States
Court of Appeals for the Fifth Circuit in which the
Board filed a brief amicus curiae. An official inter-
pretation of your question regarding disclosure of no-
tary fees under § 226.8(d)(3) would be inappropriate
since staff's position is not one upon which a creditor
may wish to rely in a civil action. A response to
that issue will, therefore, be provided in a separate
unofficial staff letter to you.
To answer your remaining four questions:
(1) You ask whether a creditor’s right of accelera-
tion upon default by the obligor must be disclosed
—53a—
as a default, delinquency, or late payment charge within
the context of § 226.8(b)(4). It is staff's opinion
that the phrase “default, delinquency, or similar charges
in the event of late payments,” found in § 128(a)(9)
‘and § 129(a)(7) of the Truth in Lending Act and
Ԥ 226.8(b)(4) of Regulation Z, refers to specific
sums assessed against a borrower solely because of
failure to make payments when due. It is staff’s opinion
that the mere right to accelerate contained in a contrac-
tual provision which sets out the creditor’s right
to accelerate the entire obligation upon a certain event
-¢generally the obligor’s failure to make a payment
when due) is not a charge payable in the event of
late payment. Therefore, it need not be disclosed under
§ 226.8(b) (4).
You refer to a prior Public Information Letter, No.
$51, which discusses the right of acceleration. Staff
believes that letter addresses a different issue than
the one posed in your letter. Staff understands that
letter to say that early payment of the balance of
a, precomputed finance charge obligation by a customer
-upon acceleration by the creditor is essentially the
game as a prepayment of the obligation. Therefore,
if the creditor does not rebate unearned finance charges
in accordance with the rebate provisions disclosed under
-§ 226.8(b)(7) when the customer pays the balance
of the obligation upon acceleration, any amounts re-
tained beyond those which would have been rebated
under the disclosed rebate provisions do represent the
type of charge that must be disclosed under § 226.8
(b) (4).
_ (2) You ask a further question regarding what
charges must be disclosed as default, delinquency, or
late payment charges within the context of § 226.8(b)
—sie—
(4). Specifically, you ask whether attorney’s fees and
foreclosure costs assessed on a non-automatic basis
at the sole discretion of the creditor need to be disclosed
pursuant to that section. It is staff's opinion that,
if the imposition of these charges is automatic (for
example, if the charge becomes immediately due and
collectible by virtue of default), the charges must. be
disclosed under § 226.8(b)(4). If, however, the im-
position of the charge is not automatic but is con-
ditioned upon employment of the services of an
attorney to effect collection or expenditure of amounts
in conjunction with foreclosure proceedings, such charge
need not be disclosed under § 226.8(b) (4).
(3) You request an official staff interpretation re-
garding the requirement in § 226.6(a) that disclosures
be made “in meaningful sequence.” Specifically, you ask
whether any particular arithmetical progression must
be used in making the disclosures. You refer to the
case of Allen v. Beneficial Finance Co., 531 F. 2d
797 (7th Cir., 1976), which has been interpreted by
some to mean that the various disclosure elements
must be arranged in a “summation column,” as opposed
to a subtractional order, to comply with the “meaning-
ful sequence” requirement.
Section 226.6(a) does not set forth any particular
arithmetical progression which must be used in making
disclosures. It is staff's opinion that the regulation
does not require all presentations to be made within
the rigid confines of a particular series of additions
or subtractions. In fact, it is inappropriate to speak
of a “summation” or “subtractional” method as if these
were separate and mutually exclusive methods of dis-
closure. In order to comply with the requirements of
i
—55a—
Ԥ 226.8(d), for example, most disclosure statements
would necessarily contain both additions and subtrac-
tions. ‘A disclosure might begin with a total of pay-
ments figure and subtract the amount financed to shaw
the finance charge. The same disclosure would probably
involve an addition process in disclosing the amount
financed, if it includes other charges, and in disclosing
the finance charge, if it contains more than one compo-
nent: By contrast, a disclosure might begin withthe
amount of credit paid to or on behalf of the customer
(a sum) and require a series of subtractions, if the
transaction involves a prepaid finance charge and/or
-a required deposit balance, to reach the amount fi-
nanced. The invalidity of attempting to characterize
disclosure methods by these labels may be. further illus-
trated by the provisions of § 226.8(c), a series of
disclosure items involving a mixture of subtractions
and additions which, therefore, cannot be described
with a single arithmetical label.
In staff's view, the term “meaningful sequence” can-
not and should not be defined by reference to some
rigid concept of arithmetical progression. We believe
that § 226.6(a) requires related terms to be presented
in an order which will assist the customer in understand-
ing their relationship. Given the wide variety in credit
transactions, “meaningful sequence” must be determined
by reference to the particular set of disclosures under
consideration. An arrangement of elements suitable for
one type of transaction may not necessarily be adequate
for another type of transaction.
(4) You ask whether finders’ fees, appraisal fees,
credit report fees, and other charges of the type men-
tioned in § 226.4(a) which are absorbed by the creditor
and which are not passed on to the obligor either
—56a—
directly or indirectly (e.g., by increasing the amount
financed or the rate of interest charged) must be
itemized and disclosed as components of the finance
charge under § 226.8(c)(8)(i) and § 226.8(d)(3).
It is staff's opinion that such amounts which’ are
absorbed by the creditor as a cost of doing business
and are not directly or indirectly imposed upon the
obligor do not constitute finance charges within the
general definition of § 226.4(a). Since they are not
part of the finance charge, they need not be itemized
and disclosed under § 226.8(c) or § 226.8(d). :
This letter is an official staff interpretation of Régula-
tion Z, issued in accordance with § 226.1(d)(3) of
the regulation, and limited in its application to the
facts and issues presented herein. I trust it will be
of assistance to you. *
Jerauld C. Kluckman
Associate Director
—S7a—
APPENDIX E
Public Information Letter No. 851 [1974-1977 Transfer
Binder] Cons. Cred. Guide (CCH) 431,173
October 22, 1974
This is in response to your letter of June 26, inquiring
whether an acceleration clause in an instalment contract
is a “charge” payable in the event of late payment
within the meaning of § 226.8(b)(4) of Regulation
Z and therefore must be disclosed with other required
items.
For the purposes of Truth in Lending disclosures,
this staff views an acceleration of payments as essential-
ly a prepayment of the contract obligation. As such,
the disclosure provisions of § 226.8(b)(7) of the Regu-
lation, which require the creditor to identify the method
of rebating any unearned portion of the finance charge
or to disclose that no rebate would be made, apply.
If the creditor rebates under one method for acceleration
and another for voluntary prepayment, both methods
would need to be identified under § 226.8(b)(7).
Failure to disclose the method of rebate or nonrebate
would be a violation of the Truth in Lending Act.
If, under the acceleration provision, a rebate is made
by the creditor in accordance with the disclosure of
the rebate provisions of § 226.8(b)(7), we believe
that there is no additional “charge” for late payments
made by the customer and therefore no need to disclose
under the provisions of § 226.8(b)(4). On the other
hand, if upon acceleration of the unpaid remainder
of the total of payments, the creditor does not rebate
unearned finance charges in accordance with the rebate
provisions disclosed in § 226.8(b)(7), any amounts
—58a—
retained beyond those which would have been rebated
under the disclosed rebate provisions represent .a
“charge” which should be disclosed under § 226.8(b)
(4).
Frederic Solomon,
Director
—_—
APPENDIX F
Public Information Letter No. 1208 [1974-1977 Trans-
fer Binder] Cons. Cred. Guide (CCH) 931,647
July 6, 1977
This is in reply to your letter * * * requesting
clarification of Official Staff Interpretation FC-0054,
which discussed the right of acceleration.
In FC-0054, staff took the position that a creditor’s
right of acceleration upon default by the obligor need
not be disclosed as a default, delinquency, or late
payment charge within the context of § 226.8(b)(4).
The interpretation went on to state, however, that
since early payment of the balance of an obligation
upon acceleration is essentially the same as voluntary
prepayment, if the creditor does not rebate unearned
finance charges in the former situation in accordance
with the rebate provisions disclosed under § 226.8(b)
(7), any extra amounts retained represent the type
of charge that must be disclosed under § 226.8(b) (4).
You state that frequently a disclosure statement will
include a provision concerning rebate of unearned fi-
nance charges upon prepayment, but contains no refer-
ence to the right of acceleration in the event of default.
The promissory note to which the statement relates,
however, often does contain an acceleration clause stat-
ing that “the entire then remaining unpaid balance
hereof shall . . . be immediately due and payable . . .,”
making no reference to any rebate in the event of
payment after acceleration. You state that some credi-
tors have a policy of providing rebates upon early
payment after acceleration, while others do not. You
suggest that where the contract is silent concerning
rebate upon prepayment after acceleration, it must be
—6h0a—
assumed that such a rebate is not provided, and, there-
fore, the disclosure statement must make the § 226.8
(b) (4) disclosure discussed above.
Staff does not agree with your analysis of this situa-
tion. The fact that the contract is silent concerning
rebate upon prepayment after acceleration is not deter-
minative of the issue; the question is whether in fact
the creditor does or does not rebate upon prepayment
after acceleration in accordance with the rebate method
shown on the disclosure statement. In this sense, then,
the individual creditor’s policy determines whether there
is a violation of the Act and regulation.
This is an unofficial staff interpretation of Regula-
tion Z. Although you requested issuance of “an official
staff interpretation, we believe that to be inappropriate
in these circumstances since your question does not
appear to staff to involve a technical ambiguity in
the regulation.
Jerauld C. Kluckman
Associate Director
of.
—6la—
APPENDIX G
Public Information Letter No. 1324
Cons. Cred. Guide (CCH) 931,827
November 14, 1978
This is in response to your letter * * * in which
you request an interpretation of § 226.8(b)(4) of
Regulation Z, which requires disclosure of the amount
or method of computing the amount of any default,
delinquency, or similar charges which may be imposed
in connection with a credit transaction.
Specifically, you ask whether a disclosure is required
under § 226.8(b)(4) where a credit agreement gives
the creditor the right, upon the customer’s default,
to accelerate payment of the entire indebtedness, includ-
ing unearned finance charges, but State law requires
a rebate of unearned finance charges in such circum-
stances.
Your question is answered in part by reference to
Official Staff Interpretation FC-0054 and Public Infor-
mation Letter 1208, copies of which are enclosed.
The staff’s position, as expressed in those interpreta-
tions, is that if a creditor rebates unearned finance
charges in connection with prepayment upon accelera-
tion using the same method as for voluntary prepayment
and that method has been properly disclosed in accord-
ance with § 226.8(b)(7), there is no default charge.
However, any amounts retained by a creditor upon
acceleration which would have been rebated under the
disclosed rebate provisions would represent the type
of default charge which must be disclosed pursuant
to. § 226.8(b) (4). :
Applying the foregoing to the situation you pose,
the staff: believes that if a creditor in fact rebates
oe
unearned finance charges in connection with prepay-
ment upon acceleration in accordance wtih State law
and, as a result, the customer receives the same rebate
as would be received under the disclosed rebate mthod,
then prepayment upon acceleration would not involve
any default charge.
Conversely, any unearned finance charges retained
by a creditor in connection with prepayment upon
acceleration, which would not be retained under the
disclosed rebate calculation method, would constitute
a default charge which must be disclosed under §
226.8(b)(4). This is so whether the excess charges
are retained pursuant to the creditor’s apparent contract
right or because the rebate method prescribed by State
law results in a lesser rebate than the method disclosed.
_ There is an additional consideration which the staff
would also call to your attention. Even where a credi-
tor’s policy is to rebate unearned finance charges in
the event of prepayment upon acceleration in accord-
ance with State law, so that no charges are retained
in excess of those indicated by the disclosed ‘rebate
method, a statement in the underlying contract’ which
apparently gives the creditor the right to retain such
unearned finance charges may mislead a customer into
believing that there will be no rebate upon acceleration.
Such a contractual provision, if supplied to a customer
with rebate method disclosure required by § 226.8(b)
(7) (e.g., as part of a combined note and disclostre
form or where separate note and disclosure forms are
presented to the customer simultaneously), would con-
stitute additional information within the meaning of
§ 226.6(c) of Regulation Z. If this additional informa-
tion is misleading or confusing or contradicts, obscures,
or detracts attention from the required § 226.8(b) (7,
—63a—
disclosure, there would be a violation of the regulation.
Of course, the capacity of the additional information
to mislead or confuse can only be determined by refer-
ence to all of the circumstances of a particular case.
You note that the question of disclosure of the
right of acceleration has been the subject of litigation
in various jurisdictions. The views expressed in this
letter and the enclosed interpretations represent the
staff's opinion on this issue. However, it would be
advisable for creditors to be aware of court holdings
in their particular jurisdiction (some of which may
be contrary to the staff's position) so that they may
determine the most prudent course to follow. The partic-
ular case which you cite, McDaniel v. Fulton National
Bank of Atlanta, 571 F. 2d 948 (Sth Cir. 1978),
however, would appear to be consistent with the staff's
views. In fact, the court in that case relied in part
upon FC-0054 in reaching its decison.
This is an unofficial staff interpretation of Regulation
Z, limited in its applicability to the facts and issues
discussed above. If you desire further assistance, please
contact this office or Mr. Richard A. Dill, Assistant
Vice President, Department of Supervision and Regula-
tion, Federal Reserve Bank of Atlanta, Atlanta, Georgia
30303.
g
3
:
a
=)
RN
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.