Petition — Harris v. Research Federal Credit Union

%< 1 4% [ Office - Supreme

FI ED

of the United States

OCTOBER TERM, 1982

JOHN J. HARRIS and RUTHETTA HARRIS,

Petitioners and Plaintiffs-Appellants, —

v.

RESEARCH FEDERAL CREDIT UNION,

Respondent and Defendant- Appellee.

and

EUGENE OSTROWE and KAREN OSTROWE,

Petitioners and Plaintiffs- Appellants,

v.

DEARBORN FEDERAL CREDIT UNION

Respondent and Defendant- Appellee.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

DAVID W. SINCLAIR

Counsel of Record

Suite 2727 - David Stott Bidg.

Detroit, Michigan 48226

(313) 964-0515

a a

QUESTIONS PRESENTED FOR REVIEW

I. Is there a conflict in the decisions of the United States

Circuit Courts of Appeals as to whether in making the

disclosure of a security interest in after-acquired property re-

quired by Regulation Z to the Truth In Lending Act, the

creditor should specify the Uniform Commercial Code’s

limitation of the interest to property acquired within 10-days

of the consumer credit transaction?

II. Did the Court of Appeals depart from the accepted and

usual course of judicial proceedings as to call for an exercise

of this Court’s power of supervision by reversing the District

Court on the basis of a misrepresentation as to the state of the

record before the District Court regarding the relevant

Federal Reserve Board staff interpretations of the issue posed

in Question I?

Ill. Did the Court of Appeals decide a federal question in

a way in conflict with the applicable decision of this Court by

failing to follow this Court’s instruction in Ford Motor

Credit Co. v. Milhollin as to the collateral issue of whether

the creditors’ respective acceleration clauses are confusing

and misleading in violation of Regulation Z to the Truth In

Lending Act, 12 CFR § 226.6 (c)?

IV. Is there a conflict in the decisions of the United States

Circuit Courts of Appeals as to whether the Truth In Lending

Act’s civil enforcement provision prior to its amendment, ef-

fective October 1, 1982, allowed each obligor on a consumer

credit transaction to recover individually the full civil penalty

for a violation?

TABLE OF CONTENTS

Page

Questions Presented for Review ............00eeceeeeees i

IED. 6s Robbins ob odtene bd dc aveccediccede ii

Opinions of Lower Courts ............000ccceeeeeee. viii

Ground on Which Jurisdiction Is Involved ............ ix

Concise Statement of the Case ....... 2.2... ccceeceenees 1

Reasons Why Certiorari Should Be Granted ............ 3

TABLE OF AUTHORITIES

pe ea at

Andersen v. Farmers Bank of Clatonia, 640 F2d 1347

Pt 25 cnc Gin sede’ sabeoans scenes 11

Anderson Bros. Ford v. Valencia, 452 U.S. 205; 68

L.Ed2d 783; 101 S. Ct. 2266(1981) ............. 2

Aronson Furniture Co. v. Johnson, 365 N.E.2d61, ~~~

64; 47 Ill. App 3d 648 (1977) ..... 2.2.66. cece eee = 1

Bartlett v. Com’s Federal S. & L. Ass’n of Omaha,

433 F.Supp. 284, 286(N.Neb. 1977) ............ 1

Basham v. Finance America Corp., 583 F.2d 918 (7th

Cir. 1978) cert. den. 439 U.S. 1128; 99 S.Ct. 1046;

SP CITE hd hc s cecccccdcccccns ae 1

Bell v. Loosier of Albany, Inc., 222 S.Ed.2d 839,

(Ga. Ct. App. 1975) vac and remanded on other

grds, 229 S.E.2d 374 (Ga. Sup. Ct. 1976), imple-

mented 231 S.E.2d 142(Ga. Ct. App. 1976) ......_!

iii

Page

Bizier v. Globe Financial Services, 654 F.2d 1 (1st Cir. ~~

BOD scdicvns spe8s pueda umecebesendetecseccces i=

Brooks v. AVCO Financial Services of Barre, Inc.,

CCH Consumer Credit Guide, ¢ 97,733 (D.Vt.

a. é atk ctadke dhr ee bho bb0 bed cakes Kecgene 1

Brown v. OSLIFE Credit Corp., 602 S.W.2d 94 (Tex.

AREAS 2 ee 1

Cadmus v. Commercial Credit Plan, Inc. 437

F.Supp. 1018, 1029(D. Del. 1977) .............. 1°

Clausen v. Beneficial Finance of Berkeley 423 F Supp

985 (N.D. 1976) ...... 02. sceeeeeeeeeeeeeeeees 11

Conrad v. Beneficial Finance Co. of New York, Inc.,

SI, ce adn cs cudgaseescioues 1

Davis v. United Companies Mort. & Inv. of Greta,

$51 F2d 971, 972-973 (Sth Cir. 1977) ............ 1]

In re Dunne, 407 F Supp 308, 311 (D.R.I. 1976) ..... 1

Ecenrode v. Household Finance Corp. of South

Dover, 422 F.Supp. 1327(D. Del. 1976) ......... l

Ellis v. Hensley, (Ohio Ct. App. 1979), CCH Con-

sumer Credit Guide ¢ 97,906 .................. 2

Empire Finance Co. of Louisville, Inc. v. Ewing, 558

SW2d619(C. App. Ky 1977) ..............006- 2

Evans v. Household Finance Corp., (D.lowa 1973)

CCH Consumer Credit Guide 4 99,007.......... i

First National Bank of Cincinnati v. Williams, (Ohio

Ct. App. 1980), CCH’ Consumer Credit Guide

SNS. cits 6 hie kh ctp dike tubal etanret> 2

Ford Motor Credit Co. v. Cenance, 452 U.S. 155,

68 L.Ed2d 744, 101 S.Ct. 2239(1981) ........... » 3

iv

Ford Motor Credit Co. v. Milhollin, 444 U.S. 555;

63 L.Ed2d 22; 100S.Ct. 790(1980) .. 1.3.4.5

Franklin v. Community Federal Saving & Loan

Ass’n, 629 F.2d 514(8th Cir. 1980) .............

Griggs v. Provident Consumer Discount Co., 503

F. Supp 246(E.D. Penn. 1980).................

Hinkle v. Rock Springs National Bank, 538 F.2d

295 (10th Cir. 1976) ........ base kixsckicia¥s

"Irvin v. Public Finance Co., 340 So.2d 811 (Ala. Ct.

BOOED hace COR ER OMEES we cebetecade

Jacklitch v. Redstone Federal Credit Union, 463

F.Supp 1134 (N.D. Ala. 1979) aff’d 615 F.2d 679

SE BE 6 kncuyc% cab GbWWaes bu ciedsnudas

_ Jones v. Allied Loans, Inc., 447 F.Supp 1121 (D.S.

Carolina 1977) .... 2... 0:esceeeeeeeeeeeeeeees

Johnson v. Associates Finance, Inc., 369 F.Supp.

1121 (S.D. Pah db yh csbecchoiescceaihined

Johnson v. Johnson (M.D. Ga. 1975) CCH Con-

sumer Credit Guide 498,566 ................5.

Kelly v. Beneficial Finance Co. of Alabama, 347

S0.2d 338, 339-340 (1979)... cece ec ecceeees

Lee v. Redstone Federal Credit Union, 615 F.2d 682

UG. IGG. o.ocs sibs cediscaesceccccccvnsens

Liberty Loan Corp. v. Boyajian, 407 F.Supp 308

ED Sacha ncewenbud deks’s oouecvcewend’

Lowery v. Finance America Corp., 231 SE2d 904, 32

DSO UUETED c564 ke Cuvesed occcinases wer

Milhollin v. Ford Motor Credit Co., 588 F.2d 753 (9th

Cir. 1978) rev’d on other grds. 444 U.S. 555, 63

L.Ed2d 22; 100S.Ct. 790(1980)............505-

ll.

11

Miracle v. General Motors Acceptance Corp., 537

F2d 871, 881-883 (7th Cir. 1976) ...............

Montoya v. Postal Credit Union, 630 F.2d 745 (10th

SE BED «anaes Bod Ge ob Wd Oe OMENS CEs soe benee

Mourning v. Family Publication Service, 411 US 356,

36 L. Ed2d 318, 93S. Ct. 1652(1973) ............

Murphy v. Beneficial Finance Co. of Central Ohio,

443 F.Supp. 463, 466-8 (S.D. Ohio 1976) ........

Noel v. General Finance Corp., 421 NE 2d 25 (Ind.

Le D NCS 0d 0005 44 HAR OR TBED 0:00 6400

Pollack v. General Finance Corp., 535 F.2d 295 (Sth

Cir. 1976) aff'd on rehearing, 552 F.2d 1142 (Sth

Cir. 1977) cert. den., 434 U.S. 891; 98S. Ct. 265, 54

Me, Ee ee Or ee ae

Powers v. Sims and Levin, 542 F2d 1216 (4th Cir.

FEE RSG cbbcccccccvcntecuvess sidemesaccees

Sneed v. Beneficial Fin. Co. of Hawaii, 410 F. Supp.

1135, 1138-45 (D. Ha. 1976) ...............045.

State Employees Credit Union v. Curry, CCH Con-

sumer Credit Guide ¢ 98,658 (Lansing District

CITED As boy ccddaetceeteceeascess

Stone v. Modern Loan Co., Inc., (W.D. Ky 1976)

CCH Consumer Credit Guide 4 98,356..........

Tarplain v. Baker Ford, Inc., 466 F.Supp. 1340,

SEs MAND EUEIN ob Wis cbs oeets s cesedee

Tinsman v. Moline Beneficial Finance Co., 531 F. 2d

GES BIOTIC. TOFD oo acc ccccncccescscccecs

Union Trust Co. of Ellsworth v. Hardy, 400 A.2d 384

CE, FOR Ga BEF 0 kn bach bss vache cccsveas

Willis v. Town Fin. Corp. of Atlanta, 416 F.Supp. 10,

pT 8 SEA ee fo re

vi

Woods v. Beneficial Finance Co. of Eugene, 391 F.

Supp. 9, 11-12(D. Ore. 1975)...-..+.++-0+e0e++

Federal:

SOUS BO OGIITIIED cco ccctcccccccccccccces

PU BRGINUIIEED ois cece ccc ccccccccccccecs

1S USC § 1640(a)(2ANMI). «6. 6 ee eee

BEUIIS 6 IGGRNR. 0 cece c cc ccccccsccccccccccss

MCLA 440.9204(4)(b), MSA 19.9204(4)(b) ......

Regulations:

Regulation Z, 12 CFR § 226.6(c) ............++.

Regulation Z, 12 CFR § 226.8(b)(5) ............

Regulation Z, 12CFR § 226.18(m) .............

Federal Reserve Board Interpretations:

FRB Staff Letter No. 829, August 22, 1974, CCH

Consumer Credit Guide 4 31,151...............

FRB Letter No. 983, December 30, 1975, CCH Con-

sumer Credit Guide 4 31,323 ...............55.

FRB Staff Letter No. 1053, May 28, 1976, CCH

Consumer Credit Guide 4 31,393...............

FRB Official Staff Interpretation No. FC-0023, 41

F.R. 52980, November 22, 1976, CCH Consumer

Credit Guide 31,491... 1.6... cc ccc ecw eeeeee

FRB Staff Letter No. 1084, July 15, 1976, CCH Con-

sumer Credit Guide 4 31,424 ...............5..

FRB Staff Letter No. 1151, January 31, 1977, CCH

Consumer Credit Guide 4 31,531...............

Page’

4

vii

FRB Official Staff Interpretation No. FC-0071, 42

F.R. 25491, April 28, 1977, CCH Consumer Credit

ER Fase ee sic scvdesescaviscenavcescoee

Page

_ /-

i Li

ix

GROUNDS ON WHICH JURISDICTION IS INVOKED

1. Federal jurisdiction is vested pursuant to 15 USC §

1640(e).

2. The United States Court of Appeals for the Sixth

Feikens, by Order entered Jan. 5, 1982.

3. The Court of Appeals by Order entered April 22, 1982,

denied petitioner’s petition for rehearing.

4. This is acivil case and this Court’s jurisdiction is evoked

pursuant to 28 USC § 1254(1).

as otherwise provided in this section, any creditor

who f: Sey ogee me Ss a wd transaction

(1) twice the amount of the finance in connection

with the transaction, except that the under this

er Oe ee ee ee than

1,000.00; and 15 USC § 1640(a}\1), eff. July 1, 1969 until

Subsec. (a)(2(A). Pub.L. 94-240 § 4(2), desig-

nated existing provision as cl. (i) and added cl. (ii).

15 USC § 1640(d) Effective October’l, 1982.

xi

Uniform Commercial Code

No security interest attaches under an after-acquired

property clause to consumer goods other than accessions when

given as additional security unless the debtor acquires rights in

them within ten days after the secured party gives value.

MCLA § 440.9204(4)(b); MSA 19.9204(4)(b).

Regulation Z

At the creditor’s option, additional information or

explanations may be supplied with any disclosure required by

this Part, but none shall be stated, utilized, or placed so as to

mislead or confuse the customer or contradict, obscure, or

detract attention from the information required by this Part to

be disclosed. (emphasis added) 12 CFR §226.6(c) Effective

July 1, 1969 to April 1, 1981, although at creditors’ option,

until October 1, 1982.

(b) Disclosures in sale and nonsale credit. In any

transaction subject to this section, the following items, as

applicable, shall be disclosed:

(5) A description or identification of the type of any

security interest held or to be retained or acquired by the

creditor in connection with the extension 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. In any such case where a clear identification of such

property cannot properly be made on the disclosure statement

due to the length of such identification, the note, other

instrument evidencing the obligation, or separate disclosure

statement shall contain reference to a separate pledge agree-

ment, or a financing statement, mortgage, deed of trust, or

similar document evidencing the security interest, a copy of

which shall be furnished to the customer by the creditor as

promptly as practicable. If after-acquired property will be

xii

subject to the security interest, or if other or future

indebtedness is or may be secured by any such property, this

fact shall be clearly set forth in conjunction with the

12 CFR §226.8(b)(5) Effective July 1, 1969 to April 1, 1981,

although at creditor’s option, until October 1, 1982.

For each transaction, the creditor shall disclose the

following information as applicable:

(m) Security interest. The fact that the creditor has or will

acquire a security interest in the property purchased as part of

the transaction or in other property identified by item or type.

12 CFR § 226.18(m) effective April 1, 1981, but compliance

optional until October 1, 1982.

(25) ‘*Security interest’’ means an interest in property that

secures performance of a consumer credit obligation and that

is recognized by state or federal law. It does not include

incidental interests such as interests in proceeds, accessions,

additions, fixtures, insurance proceeds (whether or not the

creditor is a loss payee or beneficiary), premium rebates, or

interests in after-acquired property. For purposes of disclosure

under §§ 226.6 and 226.18, the term does not include an

interest that arises solely by operation of law. However, for

purposes of the right of recission under § § 226.15 and 226.23,

the term does include interests that arise solely by operation

of law.

12 CFR § 226.2(a)(25) eff. April 1, 1981, but compliance

optional until October 1, 1982.

CONCISE STATEMENT OF THE CASE

Since the Truth in Lending Act first became effective July 1,

1969, it has generated a high volume of litigation. At the same

time, the number of substantive disclosure issues over which

the United States Circuit Courts of Appeals have split has been

relatively few. Indeed, this Court has recently resolved all but

one remaining issue. Ford Motor Credit Co. v Milhollin, 444

U.S. 555; 63 L.Ed2d 22; 100 S.Ct. 790 (1980); Ford Motor

Credit Co. v Cenance, 452 U.S. 155, 68 L.Ed2d 744, 101 S.Ct.

2239 (1981); Anderson Bros. Ford v Valencia, 452 U.S. 205; 68

L.Ed2d 783; 101 S.Ct. 2266 (1981).

Not surprisingly, this one remaining issue has already been

posed to this Court. In Pollack v General Finance Corp., 535

F.2d 295 (Sth Cir. 1976) aff’d on rehearing, 552 F.2d 1142 (Sth

Cir. 1977) cert. den., 434 U.S. 891; 98 S.Ct. 265, 54 L.Ed2d 176

(1977), and Basham v Finance America Corp, 583 F.2d 918

(7th Cir. 1978) cert. den. 439 U.S. 1128; 99 S.Ct. 1046; 59

L.Ed2d 189 (1979), the Court denied certiorari from decisions

on this issue by the Fifth and Seventh Circuits in favor of the

credit consumer.

The majority of reported decisions have taken the pro-

consumer position on this issue. Aronson Furniture Co v

Johnson, 365 N.E.2d 61, 64; 47 Ill. App 3d 648 (1977); Bartlett

v Com’s Federal S. & L. Ass’n of Omaha, 433 F.Supp. 284, 286

(N.Neb. 1977); Beil v Loosier of Albany, Inc., 222 S.Ed.2d

839, (Ga. Ct. App. 1975) vac and remanded on other grds, 229

S.E.2d 374 (Ga. Sup. Ct. 1976), implemented 231 S.E.2d 142

(Ga. Ct.App. 1976); Bizier v Globe Financial Services, 654

F.2d 1 (ist Cir. 1981); Brooks v AVCO Financial Services of

Barre, Inc, CCH Consumer Credit Guide, ¢ 97,733 (D.Vt.

1979); Brown v OSLIFE Credit Corp, 602 S.W.2d 94 (Tex.

Civ. Ct. App. 1980); Cadmus v Commercial Credit Plan, Inc.,

437 F.Supp. 1018, 1029 (D. Del. 1977); Conrad v Beneficial

Finance Co of New York, Inc., 398 NYS 2d 499 (1977); In re

Dunne, 407 F.Supp. 308, 311 (D.R.1. 1976); Ecenrode v

Household Finance Corp. of South Dover, 422 F.Supp. 1327

(D.Del. 1976); Ellis v Hensley, (Ohio Ct. App. 1979), CCH

Consumer Credit Guide { 97,906; Empire Finance Co of

Louisville, Inc. v Ewing, 558 SW2d 619 (C. App. Ky 1977);

Evans v Household Finance Corp, (D.lowa 1973) CCH

Consumer Credit Guide ¢ 99,007; First National Bank of

Cincinnati v Williams, (Ohio Ct. App. 1980), CCH Consumer

Credit Guide 4 97,393; Franklin v Community Federal Saving

& Loan Ass'n, 629 F.2d 514 (8th Cir 1980); Irvin v Public

Finance Co., 340 So.2d 811 (Ala. Ct. Civ. App. 1976);

Jacklitch v Redstone Federal Credit Union, 463 F.Supp 1134

(N.D. Ala. 1979) aff'd 615 F.2d 679 (Sth Cir. 1980); Jones v

Allied Loans, Inc., 447 F.Supp 1121 (D.S. Carolina 1977);

Johnson v Associates Finance, Inc., 369 F Supp. 1121 (S.D.

Ill. 1974); Johnson v Johnson (M.D. Ga. 1975) CCH

Consumer Credit Guide ¢ 98,566; Lee v Redstone Federal

Credit Union, 615 F.2d 682 (Sth Cir. 1980); Liberty Loan Corp

v Boyajian, 407 F.Supp 308 (D.I. 1976); Lowery v Finance

America Corp., 231 SE2d 904, 32 NC App 174(1977); Murphy

v Beneficial Finance Co of Central Ohio, 443 F. Supp. 463,

466-8 (S.D. Ohio 1976); Noel v General Finance Corp, 421 NE

2d 25 (Ind. Ct. App. 1981); Sneed v Beneficial Fin. Co. of

Hawaii, 410 F.Supp. 1135, 1138-45 (D. Ha. 1976); State

Employees Credit Union v Curry, CCH Consumer Credit

Guide ¢ 98,658 (Lansing District Court 54-A) (1974); Stone v

Modern Loan Co., Inc., (W.D. Ky 1976) CCH Consumer

Credit Guide ¢ 98,356; Tinsman v Moline Beneficial Finance

Co., 531 F.2d 815, 819 (7th Cir. 1976); Union Trust Co of

Elisworth v Hardy, 400 A.2d 384 (Me Sp. Jud. Ct. 1979); Willis

v Town Fin. Corp. of Atlanta, 416 F.Supp. 10, 11-13 (N.D.

Ga. 1976); Woods v Beneficial Finance Co. of Eugene, 391 F

Supp 9, 11-12 (D. Ore. 1975);

Notwithstanding this weight of authority in favor of the

consumer, a panel of the Sixth Circuit in this case, and the 10th

Circuit in Montoya v Postal Credit Union, 630 F.2d 745 (10th

Cir. 1980) have taken the pro-creditor position, based on

purported reliance on Ford Motor Credit Co v Milhollin,

supra. These two decisions, notably, do not acknowledge the

above pro-consumer authority. The First Circuit, on the other

hand, in Bizier v Globle Financial Services, supra, in acknow-

ledging Ford Motor Credit Co v Mithollin, supra, has held

with the pro-consumer position.

There are also collateral issues discussed in sections II, III,

and IV below under Reasons Why Certiorari Should be

Granted.

It should be noted that the case involves two consolidated

actions. Harris v. Research Federal Credit Union, Ostrowe v.

Dearborn Federal Credit Union. The cases were consolidated

because the parties, respectively, are represented by the same

counsel, and the credit documents involved are virtually

identical, being forms issued by the Michigan Credit Union

League.

’ REASONS WHY CERTIORARI

SHOULD BE GRANTED

I. THERE IS A CONFLICT IN THE DECISIONS OF

THE UNITED STATES CIRCUIT COURTS OF

APPEALS AS TO WHETHER IN MAKING THE

DISCLOSURE OF A SECURITY INTEREST IN

AFTER ACQUIRED PROPERTY REQUIRED BY

REGULATION Z TO THE TRUTH IN LENDING

ACT THE CREDITOR SHOULD SPECIFY THE

UNIFORM COMMERCIAL CODE’S LIMITATION

OF THE INTEREST TO PROPERTY ACQUIRED

WITHIN 10-DAYS OF THE CREDIT TRANs-

ACTION.

The Act requires disclosure-of the security interest held by

the creditor. 15 USC § 16398), 15 USC § 1638(9)

Regulation Z required a description of identification of the

security interest claimed in all property including after-

acquired property until April 1, 1981. 12 CFR § 226.8(b)(5).

§9-204 of the Uniform Commercial Code [in effect in

Michigan, with respect to the individual transactions in this

case, MCLA 440.9204(4)(b); MSA 19.9204(4)(b)] limits the

security interest in after acquired property to property

acquired within 10 days of the transaction.

This 10-day limitation is important in the average consumer

credit transaction which typically provides for a term of from

six months to four years. The creditor’s interest may only

attach to property acquired within 10-days of the transaction,

not to property acquired within the full six month to four year

term of the obiigation between the consumer and the creditor.

A statement in the disclosure that there is a security interest

in after-acquired property without specifying the UCC

limitation does not adequately describe or identify the actual

interest to which the creditor is entitled. Without specification

of the limitation, the average consumer is left with the impres-

sion that the security interest attaches to any property acquired

during the term of the loan, an impression inconsistent with the

basic purposes of the Act.

The Truth in Lending Act reflects a transition in Congres-

sional policy from a philosophy of let the buyer beware to let

the seller disclose. Mourning v. Family Publication Service,

411 US 356, 36 L. Ed2d 318, 93 S. Ct. 1652 (1973).

Meaningful disclosure does not mean more disclosure.

Rather, it describes a balance between competing considera-

tions of complete disclosure and the need to avoid informa-

tional overload. Ford Motor Credit Co. v. Mithoilin, supra.

A meaningful description or identification of the security

interest in after-acquired property includes specification of the

UCC limitation. It is evident that this limitation may be speci-

fied simply and succinctly without creating informational

overload.

It is not surprising that the overwhelming majority of the

courts that have addressed this issue have taken the pro-

consumer position, nor is it surprising that twice this Court has

declined to review decisions in favor of the consumer on this

issue. |

Nonetheless, in the light of Ford Motor Credit Co. v.

Milthollin, supra, the question must be posed: What is the

position of the Federal Reserve Board staff on the issue?

Therein lies the problem, for unlike the specific disclosure

issues before this Court in Ford Motor Credit Co. v. Milhollin,

supra, and Anderson Bros. Ford v. Valencia, supra, the FRB

staff’s published letters on this issue have not been clear and

consistent.

The first published letter, FRB Staff Letter No. 829, August

22, 1974, CCH Consumer Credit Guide 431,151, clearly took

the pro-consumer position. App 17

This was the published staff letter in effect at the time of the

individual transactions at issue in this case. If the FRB staff had

let the matter rest with this letter, there would not be the

present split among the U. S. Circuit Courts of Appeals. The

problem is that notwithstanding reported decisions consistent

with this first letter, Bell v. Loosier of Albany, Inc., supra,

Evans v. Household Finance Corp., supra, Johnson v.

Associates Finance, Inc., supra, Johnson v. Johnson, supra,

State Employees Credit Union v. Curry, supra, Woods v.

Beneficial Finance Co. of Eugene, supra, the FRB staff did a

dramatic turnabout and attempted to repudiate this letter.

This attempt first appears in an unpublished Opinion and

Clarification Letter brought to the Court’s attention in Willis

v. Town Finance Co., supra. The Willis Court, in examining

the circumstances surrounding this letter’s issuance, was

prompted to comment:

It appears to the Court that these Opinion and

Clarification Letters are instigated by credit industry

inquiries and the interpretations emanating therefrom

appear to be generally favorable to the industry. There

presently appears to exist the opportunity for credit

industry sources dissatisfied with a particular court-

made truth-in-lending interpretation to overturn that

interpretation by appealing to an individual Federal

Reserve Board employee to issue an Opinion Letter

changing that prevailing judicial interpretation of the

Act. This type of lobbying process is quite feasible for

credit industry representatives but is largely unfeasible

Sor the individual consumers which this Court sees in

the vast majority of truth-in-lending matters.

Rather than affording great weight to an ex post

facto interpretation in a Staff Opinion Letter by a

single Federal Reserve Board employee, the Court

suggests that it might be appropriate for the Court of

Appeals to consider whether such a result might have

been the result of one-sided extra-judicial lobbying by

credit industry representatives to overturn established

court precedent. at F. Supp 12

In the next published letter, FRB Letter No. 983, Dec. 30,

1975, CCH Consumer Credit Guide 431,323, on the issue, the

FRB staff pulled the rug out from under its first letter and the

emerging pro-consumer court decisions. App 18

It is this letter that the Sixth Circuit panel in this case and the

10th Circuit panel in Montoya v. Postal Credit Union, supra,

invoked to create the split. Murphy v. Beneficial Finance Co.

of Central Ohio, supra, cogently critiques these two conflicting

letters.

The FRB staff then had yet another change of heart in FRB

Staff Letter No. 1053, May 28, 1976, CCH Consumer Credit

Guide 431,393. In this letter, to use the words of the Sixth

Circuit panel, ‘‘the Federal Reserve Board changed the

ee ee eee

clauses."” App 20

The 10th Circuit, on the other hand, acknowledged this

letter but seized on the use of the word ‘‘all’’ in an attempt to

reconcile the two letters. The problem, of course, is that any

reference to after-acquired property regardless of whether the

particular prefix word ‘‘all’’ is included must necessarily leave

the impression that any after-acquired property is subject to

the creditor’s security interest unless the UCC limitation is

specified. In any event, respondents’ clause does not merely

state that there ‘‘may’’ be a security interest in after-acquired

property, but affirmatively states that it ‘‘will . . . cover’’

after-acquired property. (District Court Opinion App 5 )

The disclosure statements provide (District Court Opinior

App 5 ):

Security Agreement will secure future or other

indebtedness, and cover after-acquired property.

(Emphasis added)

The respective Security Agreements (A5)! and (A41) refer to

**All Household Goods, Furniture and Appliances... .’’

(Emphasis added)?

Subsequently, FRB Official Staff Interpretation No.

FC-0023, 41 F.R. 52980, November 22, 1976, CCH Consumer

Credit Guide ¢31,491 has stated that reference to after-

acquired property being subject to the Uniform Commercial

Code is sufficient. App. 20

From the consumer’s standpoint mere reference to the

Uniform Commercial Code is inadequate. Unless the

consumer knows the Code’s 10-day limitation, something

which the average American consumer would not actually

know, the reference is not ‘‘meaningful.’’ In any event, in the

transactions at hand there was no alerting reference to the

- UCC,

On other similar issues, the FRB staff has taken the position

that both disclosure statements and terms in the underlying

agreements must not be phrased so as to mislead or confuse the

consumer as to applicable state law restriction on the

creditor’s rights. FRB Staff Letter No. 1084, July 15, 1976,

CCH Consumer Credit Guide ¢ 31,424; FRB Staff Letter

No. 1151, January 31, 1977, CCH Consumer Credit Guide

¢ 31,531; FRB Official Staff Interpretation No. FC-0071, 42

F.R. 25491, April 28, 1977, CCH Consumer Credit Guide {

31,581; FRB Staff Letter No. 1324, November 11, 1978, CCH

Consumer Credit Guide ¢ 31,827.

ll. THE COURT OF APPEALS DEPARTED FROM

THE ACCEPTED AND USUAL COURSE OF

JUDICIAL PROCEEDINGS AS TO CALL FOR AN

EXERCISE OF THIS COURT’S POWER OF

SUPERVISION BY REVERSING THE DISTRICT

COURT ON THE BASIS OF A MISREPRESENTA-

TION AS TO THE STATE OF THE RECORD

BEFORE THE DISTRICT COURT REGARDING

THE RELEVANT STAFF INTERPRETATIONS OF

THE ISSUE POSED IN SECTION I.

Quoting from FRB Staff Letter No. 983, the Sixth Circuit’s

Order states:

Neither the Regulation nor the Act clearly state

whether the ten-day limit must or must not be

disclosed. The staff opinion here was in effect at the

time of trial and is clearly not irrational. After the trial

in this case the Federal Reserve Board changed the

disclosure requirements relating to after-acquired

property clauses, but this change alone does not render

the otherwise rational staff opinion irrational. Accord-

ingly, it was error for the District Court to rule contrary

to the staff opinion. (Emphasis added) App

Plaintiffs’ Trial Brief (A303) cited the District Court to the

later FRB Staff Letters, also cited in Appellants’ Reply and

Cross-Appellees’ Brief, p.2. Respondents did not challenge

these citations, and the District Court naturally followed the

revised position, as would be required by Ford Motor Credit

Hb Mithollin, 444 U.S. 555; 63 L.Ed 2d; 100 S.Ct. 790

(1980).

In the Petition for Rehearing to the Court of Appeals, p.1,

plaintiffs brought the true state of the record before the

District Court to the panel’s attention, but the panel was not

persuaded to modify its decision. App 4

Ill. THE COURT OF APPEALS DECIDED A FEDERAL

QUESTION IN A WAY IN CONFLICT WITH THE

APPLICABLE DECISION OF THIS COURT BY

FAILING TO FOLLOW THIS COURT'S INSTRUC-

TION IN FORD MOTOR CREDIT CO. V.

MiLHOLLIN AS TO THE COLLATERAL ISSUE OF

WHETHER THE CREDITORS’ ACCELERATION

CLAUSES ARE CONFUSING AND MISLEADING

IN VIOLATION OF REGULATION Z TO THE

TRUTH IN LENDING ACT, 12 CFR § 226.6(c).

The District Court held that the right of acceleration in the

event of default must be disclosed on the disclosure statement.

App As a consequence of Ford Motor Credit Co. v.

Mithollin, supra, the District Court’s specific holding had to be

set aside, as Appellant’s Brief to the Sixth Circuit acknow-

ledged, p. 61. Appellant’s Brief went on to discuss the colla-

teral holding of Ford Motor Credit Co. v. Milhoillin with

regard to the actual wording of the acceleration clause.

The respondents’ acceleration clause states: e

Upon such defaults and at any time thereafter,

secured party shall declare all obligations secured

remedies of a secured party under the Uniform

Commercial Code. App

The respondents’ respective disclosure statements disclose

the amount financed, total payments, and the original

computed finance charge. The wording of the acceleration

clause is confusing and misleading because it conveys the

impression that on default, the full amount, without reduction

of the finance charge, will become due. The District Court

correctly concluded that under respondents’ application of the

United States Rule in computing interest, acceleration will

effectively reduce the finance charge from the amount

disclosed on the disclosure statement. App 16

It is precisely because acceleration will change the finance

charge from the amount disclosed on the disclosure statement,

but the literal language of the clause leaves the contrary impres-

sion, and that there is a separate violation of 12 CFR §

226.6(c).

Contrary to Ford Motor Credit Co. v. Milhollin’s clear

directive, n. 14, at US 570; L.Ed 2nd 34; S. Ct. 799, the Sixth

Circuit panel did not even acknowledge this collateral issue. In

the Petition for Rehearing, p. 10, plaintiffs brought this

apparent oversight to the panel’s attention, but the panel was

not persuaded to modify its decision. App 4

IV. THERE IS A CONFLICT IN THE DECISIONS OF

THE UNITED STATES COURT OF APPEALS AS

TO WHETHER THE TRUTH IN LENDING ACT’S

CIVIL ENFORCEMENT PROVISION PRIOk TO

ITS AMENDMENT, EFFECTIVE OCTOBER 1, 1982,

ALLOWED EACH OBLIGOR ON A CONSUMER

CREDIT TRANSACTION TO RECOVER INDI-

VIDUALLY THE FULL CIVIL PENALTY FOR

VIOLATION.

This case represents the typical example of a husband and

wife co-signing as joint obligors on a consumer loan. The civil

enforcement provision as it has been worded clearly allows

each spouse to recover the full individual civil penalty of

double the finance charge between a maximum of $1,000.00

and a minimum of $100.00. 15 USC § 1640(a)(1), as amended

15 USC § 1640(a)(2 Ai). Effective October 1, 1982, an addi-

tional section has been added, 15 USC § 1640(d) that explicitly

limits recovery to one civil penalty per transaction where

multiple obligors are involved. In the more analytical and

thorough of the U. S. Circuit Court of Appeals decisions, the

Fifth, Seventh, and Eighth Circuits, Davis v. United

Companies Mortg. & Inv. of Greta $51 F28 971, 972-973 (Sth

Cir. 1977); Mirabel v. General Motors Acceptance Corp. $37

F2d 871, 881-883 (7th Cir. 1976); Andersen v. Farmers Bank of

Clatonia, 640 F2d 1347 (8th Cir. 1981), have held effectively

that the language of 15 USC § 164(a), absent the express

terms of 15 USC § 1640(d) effective October 1, 1982, clearly

provide for an individual recovery for each obligor. See also

Clausen v. Beneficial Finance of Berkeley 423 F Supp 985

(N.D. 1976); Tarplain v. Baker Ford, Inc. 466 F Supp 1340,

1348-1350 (1D, R.I. 1979); Kelly v. Beneficial Finance Co. of

Alabama 374 So.2d 338, 339-340 (1979); Griggs v. Provident

Consumer Discount Co., 503 F.Supp 246 (E.D. Penn. 1980).

On the other hand, the Fourth, Ninth and Tenth Circuits in

less analytical decisions have held that notwithstanding the

wording of these provisions, only one recovery to multiple

obligors would be allowed. Powers v. Sims and Levin, $42 F2d

1216 (4th Cir. 1976); Hinkle v. Rock Springs National Bank,

$38 F.2d 295 (10th Cir. 1976); Milhollin v. Ford Motor Credit

Co., 588 F.2d 753 (9th Cir. 1978) rev'd on other grds. 444 U.S.

555; 63 1..Ed.2d 22; 100 S.Ct. 790 (1980).

There is some ambiguou: language in an excerpt from the

_ Congressional history suggesting that only one recovery for

multiple obligors, but as discussed in Mirabe/l v. General

Motors Acceptance Corp., supra, and Davis v. United

Companies Mortg. & Inv. of Greta, supra, this excerpt is not

dispositive in view of the provision’s wording.

12

The District Court construed the pre-amended provision to

allow for only one recovery. The Sixth Circuit panel did not

reach the issue on petitioners’ appeal because of its disposition

in favor of respondents on their cross-appeal.

This petition provides this Court the opportunity to resolve

this conflict.

Footnotes

1. Arabic numeral page references to Appendix filed with the United

States Court of Appeals.

2. On the Ostrowe Security Agreement, the box next to *‘A// Household

Goods, etc’’ is not marked, but if this were construed to mean that the

Disclosure Statement claims a security interest which the creditor does not

have, this too would be a violation of the Act. /ves v. W. T. Grant Co., $22

F.2d 749, 761 (2d Cir. 1975).

3. In the revised Regulation Z, eff. April 1, 1981, but compliance not

required until October 1, 1982, itemization of a security interest in after-

acquired property is no longer required on the Disclosure Statement. 12 CFR

§ 226.2(n)(25), 226.18(m).