Amicus Curiae Brief — BarclaysAmerican/Credit, Inc. v. Quiller

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Supreme Court of | >> United States

OCTOBER TERM, 1$85

BARCLAYSAMERICAN /CREDIT, INC.,

. Petitioner

ARTHUR QUILLER, LILLIE MAE QUILLER, et al.,

Respondents

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Eleventh Circuit

MOTION OF THE

AMERICAN FINANCIAL SERVICES ASSOCIATION,

THE CONSUMER BANKERS ASSOCIATION,

AND

THE NATIONAL COUNCIL OF SAVINGS INSTITUTIONS

FOR LEAVE TO FILE BRIEF AS AMICI CURIAE,

AND BRIEF OF AMICI CURIAE

IN SUPPORT OF THE PETITIONER’S POSITION

Of Counsel: FRANK MAX SALINGER *

REBECCA H. LAIRD AMERICAN FINANCIAL

NATIONAL COUNCIL OF SERVICES ASSOCIATION

SAVINGS INSTITUTIONS 1101 14th Street, N.W.

1101 15th Street, N.W. Washington, D.C. 20005

Washington, D.C. 20036 (202) 289-0400

(202) 857-3100 CRAIG ULRICH *

CONSUMER BANKERS

ASSOCIATION

1300 North 17th Street

Suite 1200

Arlington, Virginia 22209

(703) 276-1750

* Counsels of Record Attorneys for Amici Curiae

WILSON - EPES PRINTING Co., INC. - 789-O096 - WASHINGTON, D.C. 20001

\ 4s

2

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

No. 85-541

BARCLAYSAMERICAN /CREDIT, INC.,

Petitioner

v.

ARTHUR QUILLER, LILLIE MAE QUILLER, et al.,

Respondents

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Eleventh Circuit

MOTION OF THE

AMERICAN FINANCIAL SERVICES ASSOCIATION,

THE CONSUMER BANKERS ASSOCIATION,

AND

THE NATIONAL COUNCIL OF SAVINGS INSTITUTIONS

FOR LEAVE TO FILE BRIEF AS AMICI CURIAE

To the Honorable, the Chief Justice of the United

States and the Associate Justices of the Supreme Court

of the United States:

The American Financial Services Association (AFSA),

the Consumer Bankers Association (CBA), and the Na-

tional Council of Savings Institutions (the Council) re-

spectfully move, pursuant to Rule 36 of the Rules of this

Court, for leave to file the attached brief as amici curiae

in support of Petitioner’s position. The Petitioner has

consented to the filing of such brief. The Respondents

denied consent to file amicus curiae briefs to both AFSA

and CBA before the Eleventh Circuit. AFSA and CBA

were granted permission to file before the Eleventh

Circuit.

The AFSA is the nation’s trade association serving

consumer finance companies. Organized in 1916, AFSA

represents over 550 companies engaged in the extension

of consumer credit throughout the United States.

AFSA member companies are vitally interested in this

ease as they hold over $9.4 billion in manufactured hous-

ing loans as of July 1985,’ much of which ‘s financed

under the regulatory framework, the validity of which

is at issue in this case.

CBA is a nonprofit organization that was organized in

1919 to provide a voice for the retai! banking industry.

Today, membership in CBA is open to any federally in-

sured depository institution, including commercial banks,

thrifts and credit unions. Combined, CBA members now

hold over 70% of all consumer credit outstanding held

by commercial banks and over 80% of the consumer

credit accounts held by commercial banks.

Federally insured depository institutions are vitally in-

terested in the outcome of this case as they hold more

than $15 billion in manufactured housing loans as of

April 1985.?

The Council, formed by a consolidation of the National

Savings and Loan League and the National Association

1G.19 Statistical Report, Federal Reserve Board, September 17,

1985.

2 August 1985 Federal Reserve Bulletin, p. A40.

of Mutual Savings Banks, represents over 600 savings

institutions with aggregate assets of over $400 billion.

Council members finance manufactured housing and op-

erate under a general regulatory framework adminis-

tered by the Federal Home Loan Bank Board, the agency

whose regulation and ultimate authority are at issue in

this case.

Until this litigation, the preemption provisions of the

Depository Institutions Deregulation and Monetary Con-

trol Act of 1980, Pub. L. No. 96-221, 94 Stat. 161 (1980)

codified at 12 U.S.C. § 1735f-7 (the Preemption Act) and

the implementing regulations were understood by the in-

dustry and interpreted by the legal community and the

Federal Home Loan Bank Board (the Bank Board) to

entail a few, straight-forward contractual disclosure re-

quirements. The court of appeals’ decision is premised on

a hypertechnical interpretation of the substance of the

Preemption Act. Worse yet, this interpretation is itself

based on an erroneous view of the congressional purpose

underlying the Preemption Act. Based on this decision,

thousands of transactions are at risk through their fail-

ure to withstand such scrutiny. Litigation reminiscent of

that experienced under the original Truth-in-Lending

Act may be anticipated, particularly in view of the ex-

traordinary recoveries sought herein.

This decision has created substantial uncertainty in the

marketplace as to the requirements of the Preemption

Act, thereby discouraging prospective investment nation-

wide in contracts entered into pursuant to that law.

The court of appeals decision jeopardizes the heretofore

justified reliance of creditors on the interpretations of

the Bank Board, which, in an era of form contracts

made by interstate credit grantors, is essential. This de-

cision thereby directly thwarts the congressional intent

to facilitate national housing policies underlying the Pre-

emption Act.

WHEREFORE, it is respectfully requested that the

Court grant movants leave to file the attached brief as

amici curiae in this case.

Respectfully submitted,

Of Counsel: FRANK MAX SALINGER

REBECCA H. LAIRD AMERICAN FINANCIAL

NATIONAL COUNCIL OF SERVICES ASSOCIATION

SAVINGS INSTITUTIONS 1101 14th Street, N.W.

1101 15th Street, N.W. Washington, D.C. 20005

Washington, D.C. 20036 (202) 289-0400

(202) 857-3100 CRAIG ULRICH

CONSUMER BANKERS

ASSOCIATION

1300 North 17th Street

Suite 1200

Arlington, Virginia 22209

October 25, 1985 (703) 276-1750

TABLE OF CONTENTS

Page

pc Se ice sy | aR ii

INTERESTS OF AMICI CURIAE ...............0000000000.... 1

SUMMARY OF ARGUMENT ....WWW00000.0 eee 3

PE: OR CRSA SA ANE en SD ee Re ee 4

I. THE PURPOSE OF THE PREEMPTION ACT

WAS TO OVERRIDE STATE INTEREST

RATE LIMITATIONS ON RESIDENTIAL

MORTGAGE TRANSACTIONS, NOT TO RE-

QUIRE NEW CONSUMER PROTECTIONS.... 4

Il. THE FEDERAL HOME LOAN BANK BOARD

HAS STATED IN REGULATIONS, AN OPIN-

ION LETTER AND IN BRIEFS SUPPORT-

ING THE PETITIONER HEREIN THAT NO

CONTRACTUAL NOTICE OF DEFAULT IS

| RRR OR Ee EES PML S/S ca OD Ie 14

et __ ear ae ARES eek RR PL 18

| (i)

ii

TABLE OF AUTHORITIES

CASES:

Anderson Brothers Ford, et al. Vv. Valencia, 452

EE ED UTIL xc cctsahschccngelmsicashenpageatibisenamagaiiiiniamniies

Bowles v. Seminole Rock & Sand Co., 325 U.S. 410

a sieceicescmennicceheeddaceiaeesidetaliedadesdialiaasiinaraaon

Diamond y. Chakrabarty, 447 U.S. 303 (1980)......

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

UII nse lactacin teeecidenanediiiesalaididaiiaenaatie

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

STINET sxlcsk-os tna sintsncicbenedibbeassandisiiinalindsialsGimidgiateddsisiaadiaedemibaibaas

Griags V. Duke Power Ce., 401 U.S. 424 (1971)......

McDonald v. Thompson, 305 U.S. 263 (1938)........

Mourning Vv. Family Publications Service, Inc., 411

7 9s RN i SE Lee eee

Potomac Electric Power Co. v. Director, 449 U.S.

ee LAUD ‘cacbicicsnsucdinassthdachaidpedietadeddnaaadeaieasdadinteel

Quiller, et al. Vv. BarclaysAmerican/Credit, Ine.,

Te We ROGT CRUG CRP. BBE) cccccccccccecccceccccsscnsee

Quiller, et al. v. BarclaysAmerican/Credit, Inc.,

764 F.2d 1404 (11th Cir. 1985) (en bane)...........

Train Vv. Natural Resources Defense Council, 421

itt Gee: Ce epee ichachcieescenibinniccenacbiniatenhnciinenieesiiamesgibdunses

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

United States v. American Trucking Association,

BA Ee 8 RR ee

United States v. Oregon, 366 U.S. 643 (1961)........

United States Railroad Retirement Board vy. Fritz,

GED EE. TE CRO sinicricccsvissesenciusacseepmmeniconvopenases

Zenith Radio Corp. v. United States, 487 U.S. 448

ren eo cee Mn ar I Lee EE rt

STATUTES AND REGULATIONS:

Depository Institutions Deregulation and Mone-

tary Control Act of 1980, Pub. L. No. 96-221,

Title V, §501, 94 Stat. 161 (March 31, 1980),

16-17

15

codified at 12 U.S.C. § 1735f-7 note [DIDMCA]..passim

FHA and VA mobile home regulations: 38 CFR

§ 36.4231 - 36.4232 and - § 36.4235; 24 CFR

Te SULIT ecsinetecesdotavsinecieptaieemacnasiaiammaiaseaan

ily Meee EP Secesntnncindamdinieinn etjunmvtinailitinaieds

iii

TABLE OF AUTHORITIES—Continued

Page

National Housing Act, Pub. L. No. 96-399 ............. 11

Ss tee te a BI hatte ciitssdacnsiinntdechamseinnanahatiiiiinient 7

Truth-In-Lending Simplification and Reform Act,

15 U.S.C. $§ 1601 e¢ seg. ........................... a aad passim

ee al ais cenenininstncesanbiinnninhiiniion 7

8 ES NS a 15

12 CFR § 590.4(a) through (h) -...-000..00... 8,9, 11,138

LEGISLATIVE HISTORY:

Conference Comm. Report on H.R. 4986, No. 96-

842, 96th Cong., 2nd Sess. (1980) ...... 2.0000. 12

S. Rep. No. 96-368, 96th Cong., 2nd Sess. 18-19

(1979), reprinted in 1980 U.S. Code Cong. and

Be Ne IEE sisati: cinsctetctaspelnsaiccecialentdtpeleanmiidesimtiaaac 5-6

Usury Lending Limits: Hearing on S. 1988 before

the Comm. on Banking, Housing, and Urban

Affairs, 96th Cong., Ist Sess. (1979) (Opening

Statement of Chairman William Proxmire)........ 5

MISCELLANEOUS:

Background and Summary of Regulation Z, Board

of Governors of the Federal Reserve System,

Paragraph 6-1125.1 of the Federal Reserve Reg-

I PU WII OE siccceccseesnctcnaceresentesscndnaiasennnn 7

Burke, Federal Preemption of State Usury Laws,

, The Business Lawyer, Vol. 37 (1981 ABA An-

nual Meeting Program) ........................................ 11

5 Fed. Banking L. Rep. (CCH) % 58,910 00.00... 10

Interpretive Letter of the General Counsel of the

Federal Home Loan Bank Board reprinted at 5

Fed. Banking L. Rep. (CCH) © 83,027 .............. 4 15

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

No. 85-541

BARCLAYSAM SRICAN /CREDIT, INC.,

. Petitioner

ARTHUR QUILLER, LILLIE MA# QUILLEK, et ai.,

Respondents

On Petition for a of Certiorari to the United States

Court of Appeals e Eleventh Circuit

BRIEF AMICI CURIAE OF THE

AMERICAN FINANCIAL SERVICES ASSOCIATION,

THE CONSUMER BANKERS ASSOCIATION, AND

THE NATIONAL COUNCIL OF SAVINGS INSTITUTIONS

IN SUPPORT OF THE PETITIONER’S POSITION

STATEMENT OF INTERESTS

The AFSA is the nation’s trade association serving

consumer finance companies. Organized in 1916, AFSA

represents over 550 companies engaged in the extension

of consumer credit throughout the United States.

AFS.. member companies are vitally interested in this

case as they hold over $9.4 billion in manufactured hous-

ing loans as of July 1985, much of which is financed un-

der the regulatory framework, the validity of which is

at issue in this case.

CBA is a nonprofit organization that was organized in

1919 to provide a voice for the retail banking industry.

Today, membership in CBA is open to any federally in-

a

2

sured depository institution, including commercial banks,

thrifts and credit unions. Combined, CBA members now

hold over 70% of all consumer credit outstanding held by

commercial banks and over 80% of the consumer deposit

accounts held by commercial banks.

Federally insured depository institutions are vitally

interested in the outcome of this case as they hold more

than $15 billion in manufactured housing loans as of

April 1985.

The Council, formed by a consolidation of the National

Savings and Loan League and the National Association

of Mutua! Savings Banks, represents over 600 savings

institutions with aggregate assets of over $400 billion.

Council members finance manufactured housing and op-

erate under a general regulatory framework adminis-

tered by the Federal Home Loan Bank Board, the agency

whose regulation and ultimate authority are at issue in

this case.

Until this litigation, the preemption provisions of the

Depository Institutions Deregulation and Monetary Con-

trol Act of 1980, Pub. L. No. 96-221, 94 Stat. 161 (1980)

codified at 12 U.S.C. § 1735f-7 (the Preemption Act) and

the implementing regulations were understood by the in-

dustry and interpreted by the legal community and the

Federal Home Loan Bank Board (the Bank Board) to

entail a few, straight-forward contractual disclosure re-

quirements. The court of appeals’ decision is premised

on a hypertechnical interpretation of the substance of

the Preemption Act. Worse yet, this interpretation is

itself based on an erroneous view of the congressional

purpose underlying the Preemption Act. Based on this

decision, thousands of transactions are at risk through

their failure to withstand such scrutiny. Litigation remi-

niscent of that experienced under the original Truth-in-

Lending Act may be anticipated, particularly in view of

the extraordinary recoveries sought herein.

3

This decision has created substantial uncertainty in the

marketplace as to the requirements of the Preemption

Act, thereby discouraging prospective investment nation-

wide in contracts entered into pursuant to that law. The

court of appeals decision jeopardizes the heretofore jus-

tified reliance of creditors on the interpretations of the

Bank Board, which, in an era of form contracts made by

interstate credit grantors, is essential. This decision

thereby directly thwarts the congressional intent to fa-

cilitate national housing policies underlying the Preemp-

tion Act.

SUMMARY OF ARGUMENT

Congress enacted the Preemption Act to assure the

availability of mortgage credit for both site-built and

manufactured housing in states whose usury limits were

fixed in preinflationary. times. Without such pre-

emption, available mortgage funds would have continued

to migrate to states with less stringent usury limits.

This situation brought great hardship to the housing in-

dustry and to the consumer in search of affordable hous-

ing. Therefore, the court of appeals determination that

consumer protection is a principal object of the Preemp-

tion Act and the “price” of interest rate relief, is an un-

tenable construction of the congressional purpose and

action.

Appellees have in no way been harmed. Substantial

damage will entail, however, for the nation’s housing

policies, manufactured housing lenders and consumers

seeking affordable housing as a result of the court of

appeals decision.

In light of the above, amici curiae respectfully submit

that the court of appeals decision directly contradicts the

congressional intent behind the Preemption Act, thwarts

national housing policies, jeopardizes heretofore justifi-

able reliance on interpretations of the Bank Beard and

esuses unjustifiable harm to manufactured housing le. 4-

ers and to consumers in search of affordable housing.

4

ARGUMENT

I. THE PURPOSE OF THE PREEMPTION ACT WAS

TO OVERRIDE STATE INTEREST RATE LIMITA-

TIONS ON RESIDENTIAL MORTGAGE TRANS-

ACTIONS, NOT TO REQUIRE NEW CONSUMER

PROTECTIONS

The court of appeals decided that an ambiguous refer-

ence to consumer protections—not required to be dis-

closed in a mortgage contract—misled the borrower and

deprived the contract of federal rate relief. Essential to

this determination, was the court’s view that the Preemp-

tion Act is a consumer protection law designed to be

strictly and technically construed. However, an analysis

of the history and content of the fecleral law in question

does not support this view. Instead, the Preemption Act

was designed to afford interest rate relief to financia’

institutions and mortgage lenders to ease a credit crunch.

A. The Legislative History Reflects That Congress

Simply Intended To Stimulate Housing Finance,

Not To Create A New Consumer Protection Statute

The Preemption Act contains three parts, each dealing

with a different segment of a lending market that, at the

time of the law’s passage, could only be described chari-

tably as “‘troubled.” At the time of passage, prevailing

market interest rates for consumer and commercial loans

approached or exceeded 20% per annum. The cost of

funds in this period, as reflected by the prime lending

rate and the federal discount rate, followed close behind.

Part A of the Act—described below—is the subject of

this case. Part B created an alternative federal interest

rate for business and agricultural loans and Part C freed

federally-insured institutions from restrictive state usury

laws.

Part A of the Act totally preempts state law limita-

tions on residential mortgage loans secured by a first

5

lien. Congress determined that the housing industry was

particularly susceptible to the destabilizing effects of a

market with rates at a historical high and with state

law rate limitations established during the depression.’

As the legislative history explains:

(W)here state usury laws require mortgage rates

below market levels of interest, mortgage funds in

those states will not be readily available and those

funds will flow to other states where market yields

are available. This artificial disruption of funds

availability not only is harmful to potential home-

buyers in states with such usury laws, it also frus-

trates national housing policies and programs.

(T)his limited modification in state usury laws

will enhance the stability and viability of our Na-

tion’s financial system and is needed to facilitate a

national housing policy and the functioning of a na-

tional secondary market in mortgage lending. S. Rep.

No. 96-368, 96th Cong., 2nd Sess. 18-19 (1979), re-

printed in 1980 U.S. Code Cong. and Ad. News 254-

55. (emphasis added)

1 Sec. 501, Pub. L. No. 96-221.

2 Senator Proxmire’s opening statement accompanying the Senate

bill which included the eventual Preemption Act noted:

“Usury limits have become economically counter-productive, if

they ever had any purpose.

Most usury limits were established during the depression and

bear no reasonable relationship to today’s circumstances. Bor-

rowers are hurt, not helped, by unrealistic lending limits and

also homebuilding, small business, or agricultural purposes, if

they are restricted to rates below the market rate. The home-

building industry is particularly disadvantaged by usury limits

. . . the impact will be most severely felt by younger, lower-

income prospective homeowners.”

Usury Lending Limits: Hearing on S. i988 before the Comm. on

Banking, Housing and Urban Affairs, 96th Cong., Ist Sess. (1979).

6

The legislative history noted that preemption of state

law limitations ultimately would have the salutory effect

of permitting loan originators to offer more attractive

rates of return, thereby attracting increased capital to

fuel a housing recovery.-

In addition to the adverse effects of usury ceilings

on credit availability, mortgage rate ceilings must

be removed if savings and loan institutions are to

begin to pay market rates of interest on savings de-

posits. Without enhancing the ability of institutions

to achieve market rates on both sides of their bal-

ance sheets, the stability and continued viability of

our nation’s financial system would not be assured.

Thus, Federal preemption of State usury ceilings

would not only promote national home financing ob-

jectives but would provide the resources with which

savers could be paid more interest on their savings

accounts. (emphasis added) Id.

Significantly, the legislative history reflects a specific

intention not to address the question of consumer pro-

tection on the federal level.

In exempting mortgage loans from state usury

limitations, the Committee intends to exempt only

those limitations that are included in the annual per-

centage rate. The Committee does not intend to ex-

empt limitations on prepayment charges, attorney

fees, late charges or sim’lar limitations designed to

protect borrowers. Id.

Both the statute and the legislative history of the Pre-

emption Act clearly show that Congress was preoccupied

with the need to stimulate housing credit by freeing it

from the shackles of an archaic system of state rate

ceilings. The court of appeals mistakenly read a con-

sumer protection scheme into the congressional purpose

and action behind passage of the Act.

Had Congress intended to make consumer protections

the centerpiece of the Preemption Act it could have done

7

so. In fact, the Preemption Act is but one title of com-

prehensive legislation. The Truth-in-Lending Simplifica-

tion and Reform Act (The “Simplification Act”) was

enacted along with the Preemption Act as Title VI of

Pub. L. No. 96-221. It was specifically designed to sim-

plify and clarify the technical disclosure requirements of

the original Truth-in-Lending Act and thereby limit the

volume of frivolous litigation that had erupted under the

original law.* The passage of the Simplification Act as a

separate but companion piece to the Preemption Act

clearly distinguishes the congressional intent behind the

respective laws and evinces a congressional goal to dis-

courage the very type of hypertechnical litigation that

is before this Court on appeal.

Unlike the Preemption Act, the Simplification Act is

categorical in its avowed consumer protection purposes

au detailed requirements:

It is the purpose of this title to assure a meaning-

ful disclosure of credit terms so that the consumer

will be able to compare more readily the various

credit terms available to him and avoid the unin-

formed use of credit, and to protect the consumer

against inaccurate and unfair credit billing and

credit card practices.‘

The Simplification Act comprises a total of 31 statu-

tory sections specifying in detail the disclosures that

must be made at every step of a consumer credit trans-

action. This statutory scheme is, of course, fleshed out

by Regulation Z which is comprised of 4 subparts, 29

separate sections, and a 10-part appendix.® In ac#ition,

the staff of the Federal Reserve Board has published its

3 See the Background and Summary of Regulation Z . ablished by

the Board of Governors of the Federa] Reserve System, Paragraph

6-1125.1 of the Federal Reserve Regulatory Service, Vol. 2.

#Sec. 102. Pub. L. No. 90-321 (as amended).

512 CFR §§ 226.1 et seq.

8

Official Staff Commentary to Regulation Z, a 100-plus

page supplement, which is updated annuauy.

In striking contrast to the volume and detail of this

federal consumer protection law and regulation, section

501(c) of the Preemption Act—in its entirety—provides

that the terms and conditions relating to a manufactured

housing loan or credit sale shall comply with Bank Board

regulations which are to:

(1) Include consumer protection provisions with

respect to balloon payments, prepayment penalties,

late charges, and deferral fees;

(2) require a 30-day notice prior to instituting

any action leading to repossession or foreclosure (ex-

cept in the case of abandonment or other extreme

circumstances) ;

(3) require that upon prepayment in full, the

debtor shall be entitled to a refund of the unearned

portion of the precomputed finance charge in an

amount not less than the amount which would be

calculated by the actuarial method, except that the

debtor shall not be entitled to a refund which is less

than $1; and

(4) include such other provisions as the Federal

Home Loan Bank Board may prescribe after a find-

ing that additional protections are required. Sec.

501(c) (1) through-(4), Pub. L. No. 96-221.

Clearly, the statute requires neither express disclo-

sure requirements ner specific contractual consumer pro-

tection provisions.

This Court has plainly stated there is “no more per-

suasive evidence of the purpose of a statute than the

words by which the legislature undertook to give expres-

sion to its wishes.” United States v. American Trucking

Association, 310 U.S. 534, 543 (1940). Where the words

of a statute are unambiguous, this Court repeatedly has

required that the “plain meaning” of the statutory lan-

9

guage be followed. See Fotomac Electric Power Co. V.

Director, 449 U.S. 268, 283-84 (1980); United States

Railroad Retirement Board v. Fritz, 449 U.S. 166, 176

(1980); Diamond v. Chakrabarty, 447 U.S. 303, 315-18

(1980): United States v. Oregon, 366 U.S. 643, 648

(1961); McDonald v. Thompson, 305 U.S. 268, 266

(1938).

The court of appeals has gone beyond the plain mean-

ing of the statutory language to find a requirement that

additional consumer protections are required. With the

exception of the prepayment and notice requirements

stated above, the substance of the consumer protections

that are to be included in the Bank Board regulation are

not described. In fact, subsections 501(¢c)(1) and 501

(c) (4) generally defer to the judgment of the Bank

Board and evidence little legislative regard for the par-

ticular form of the consumer safeguards. This lack of

specificity with regard to form sharply contrasts with

the Simplification Act and undercuts the notion that spe-

cificity was a statutory object or compliance requirement.

likely evidence a congressional intent to provide parity

for persons engaged in all types of residential mortgage

finance transactions.

Where Congress was specific was in its limitations} as

to the nature of the federal preemption embodied in the

Preemption Act. First, it stated that “(the) provisions

of the constitution or the laws of any state expressly

limiting the rate or amount of interest, discount points,

finance charges, or other charges which may be charged,

19

taken, received or reserved shall not apply to any loan,

mortgage, credit sale or advance” which falls within a

prescribed statutory definition.* Second, it premised pre-

emption on the express condition that the states could

opt out of the preemptive framework, thereby striking a

balance between state and federal government.’

Again, the federal intention is clear. A federal pre-

emption impacting state law only with respect to the

rate of return on certain loans ov credit sales, and which

can be overridden at the state’s discretion, evidences no

particular consumer protection concern.

In sum, Congress neither intended nor enacted a fed-

eral scheme of consumer protections or intended to

remedy particular industry practices when it passed the

Preemption Act.

B. The Court Of Appeals Determination That Con-

sumer Protection Was The “Price” Of Rate Relief

Was In Error

Neither the legislative history nor the content of the

Preemption Act evidences a dominant consumer protec-

tion purpose. No comprehensive scheme of consumer

rights is expressed. No technical precision in consumer

disclosure is required. No pattern of industry practice

or abuse is described. The states were provided the op-

tion of overriding the Preemption Act at their sole dis-

cretion.

Yet, the court of appeals decision hinges on a con-

struction that the Preemption Act bartered rate relief

in exchange for the provision of consumer protections.

6 Sec. 501 (a) (1). Pub. L. No. 96-221.

7 Only 14 states and the territory of Puerto Rico opted out of the

usury preemption provisions as of April 1, 1983, the sunset date for

doing so. See 5 Fed. Banking L. Rep. (CCH) Paragraph 58,910 and

citations contained therein. Georgia opted out of the statute effec-

tive March 31, 1983 via H.B. 128.

11

In fact, the true “price” of rate relief under the Act is

the satisfaction of the statutory definitions of a “credi-

tor” who makes “federally related mortgage loans.”

The general preemption language of the Act is clear.

Section 501(a)(1) provides in essence that preemption

will apply to transactions occurring after March 31, 1980,

which are secured by a first lien on residential property

if the transaction constitutes a “federally related mort-

gage loan” made by a “creditor” as those terms are de-

fined in section 527(b) of the Naticnal Housing Act,

as amended by Pub. L. No. 96-399 (October, 1980) .*

The court of appeals appears to have lost sight of the

statutory framework by concluding, in effect, that the

“price” of preemption is the provision of consumer pro-

tections. Clearly, the “price” is considerably more than

that, as a transaction is not either “in” or “out” of the

Preemption Act solely on the basis of consumer protec-

tion issues.

The “consumer protection” clauses in the Preemption

Act surfaced in an eleventh-hour conference committee

compromise. This very brief consideration, when viewed

in the context cf the Preemption Act generally, and when

compared to actual federal consumer credit protection

law, more clearly reflects a congressional intent to pro-

vide buyers of manufactured housing, typically low-to-

moderate income families, legal parity with persons en-

tering into conventional residential mortgage arrange-

ments. In short, the manufactured housing provisions

were added to the Preemption Act in an effort to stimu-

late the provision of adequate and affordable housing at

all income levels. Further, in recognition that this object

could be frustrated if such financing was conducted in

8 Sec. 501 (a) (1) (A), (B) and (C); Section 527(b) of the NHA

is found at 12 U.S.C. Section 1735f-5(b) ; Cf. Burke, Federal Pre-

emption of State Usury Laws, The Business Lawyer, Vol. 37, p. 750

(1981 ABA Annual Meeting Program).

12

accordance with something other than standard residen-

tial mortgage practices, the so-called “consumer protec-

tion” provisions were included.

The House Conference Report underscores the congres-

siona! intent to standardize residential mortgage lending

practices:

Manufactured home financing is covered by the

mortgage usury preemption as long as such financ-

ing complies with consumer protection provisions

specified in regulations of the FHLBB. The confer-

ees intend that in developing these regulations the

Bank Board should look for guidance to regulations,

handbooks and circulars of the FHA and VA re-

garding mobile home lending, the provisions of the

standard conventional mortgage forms of FHLMC

and FNMA, and the provisions of the Uniform Con-

sumer Credit Code. P. 79, Conf. Comm. Rpt. on

H.R. 4986, Report No. 96-842, filed March 21, 1980.

(emphagis added)

Congress sought to standardize mortgage lending prac-

tices in the manufactured housing market by providing

for requirements typical to all residential mortgage ar-

rangements, realizing that such financing at that time

was generally subject to a scheme of motor vehicle sales

finance and Uniform Commercial Code provisions in the

various states which contain strict remedial provisions

more appropriate to the financing of personal property.

Instead, Congress sought to insure that manufactured

housing would be treated like any other residential mort-

gage lending.

The above cited portion of the Conference Committee

Report on the Preemption Act refers to the terms con-

tained in the FHA and VA mobile home regulations,

standard secondary mortgage market documentation and

the U.C.C.C. The FHA and VA regulations to which the

Bank Board was referred indicate no particular scheme

of consumer protections or disclosures. Typical require-

13

ments include those covering manufacturers’ warranties,

site preparation, FHA and VA points and title and lien

requirements. Loan limitations, credit eligibility require-

ments, and maturity provisions are other examples of

the concerns addressed in these regulations. They clearly

do not constitute a program ef particular consumer bene-

fits except to the extent that they inject a modicum of

commercial reason and uniformity necessary to the effi-

cient operation of these federal insurance programs.*°

The emphasis is clear—standard industry practices, as

embodied in federally-assisted home financing regulations,

conventional financing documentation, and uniform law

systems, are to be followed. No particular abuses are

highlighted. No particular disclosures are mandated. The

Bank Board was provided with little specific guidance

and a broad degree of discretion.

To view consumer protection as a principal object of

either the manufactured home provisions specifically or

the Preemption Act generally, is to misconstrue Cengress’

real objective. The language of section 501(c) of the

Preemption Act, viewed in the context of the legislative

history and the other provisions of the statute, merely

denotes the congressional desire to promote affordable

housing for all by encouraging a standardization of all

types of residential mortgage financing.

®See eg, 38 CFR Sertion 36.4231, and - Section 36.4235,

respectively.

1©Tn certain instances, these regulations countenance terms that

would seem to be the antithesis of consumer protection. For

example, 24 CFR Section 201.565 sanctions a fairly strict accelera-

tion provision as follows:

Section 201.565 Default Provision.

The obligation shall contain a provision for acceleration of

maturity, at the option of the holder, upon default in the pay-

ment of any installment upon the due date thereof, or failure

to make the payments of rent, taxes, or other charges incurred

in connection with the lot or site where the mobile home is

emplaced.

14

In sum, rate relief, even within the context of manv-

factured housing transactions, was not premised on con-

sumer protection provisions. Accordingly, the court of

appeals decision directly conflicts with the congressional

act and intent.

Il. THE FEDERAL HOME LOAN BANK BOARD HAS

STATED IN REGULATIONS, AN OPINION LET-

TER AND IN BRIEFS SUPPORTING THE PETI-

TIONER HEREIN THAT NO CONTRACTUAL

NOTICE OF DEFAULT IS REQUIRED

In discharging its responsibilities under the Act, the

Bank Board promulgated a regulation consonant with

congressional intent. Like the Act, the regulation did not

require that contracts provide notice of a borrower's

right to a 20-day notice of default. (12 C.F.R. § 590.4(h)

(1))

Having promulgated the regulation, the Bank Board

has interpreted it consistently. Its General Counsel, in

an opinion letter dated October 28, 1982, stated:

This requirement refers only to the act of giving

notice; neither paragraph (h) nor the Congressional

legislation that it implements (Depository Institu-

tions Deregulation and Monetary Control Act of

1980. Pub. L. No. 96-221, § 501, 94 Stat. 161-63

(1980)) expressly requires that a covered credit

agreement recite the purchaser-borrower’s right to

notice. Furthermore, there are no legislative or reg-

ulatory history materials suggesting that either

Congress or the Board intended an implic:t require-

ment of a contractual notice provision. If a con-

tractual notice provision requirement had been in-

tended, it is reasonable to assume that the Board

would have expressly so provided, as it did in para-

graphs, {d) (Prepayment with Penalty), (e) (terms

of balloon payments), (f) (late charges), and (g)

(agreements for deferral of fees) of section 590.4.

In light of these considerations, it is the view of this

15

Office that section 590.4(h) does not require that the

terms of a manufactured home credit sale agreement

recite the purchaser’s right to 30 days notice of ac-

celeration or repossession. (emphasis added.) (5

Banking L. Rep. (CCH) { 83-027).

As “chief legal officer” of the Bank Board, the general

counsel’s duties include “advising the Board with re-

spect to interpretations involving questions of law.” (12

C.F.R. 500.17 (1983) ).

Proper regard for the role of the Bank Board as Con-

gress’ chosen instrument under the Act, and proper re-

gard for the general rule of deference to an agency’s

construction of its own regulations, as described by this

Court in Udall v. Tallman, 380 U.S. 1, 16 (1965), re-

quire that controlling weight be given to the Bank

Board’s views. Where Congress has delegated broad rule-

making power to an agency, deference is especially apt.

See e.g., Bowles v. Seminole Rock & Sand Co., 325 USS.

410, 413-14 (1945).

This Court has long held that agency interpretativas

should be followed by a reviewing court. Zenith Radio

Corp. v. United States, 437 U.S. 448, 450-51 (1978);

Mourning Vv. Family Publications Service, Inc., 411 U.S.

356, 371 (1973); and Griggs v. Duke Power Ce., 401

U.S. 424, 433-34 (1971).

Further, this Court has recognized that special def-

erence is appropriate with respect to agency interpre-

tations where reliance interests are likely to have in-

tervened. See Train v. Natural Resources Defense Coun-

cil, 421 U.S. 60, 87 (1975); Udali v. Tallman (Id.).

Substantial policy considerations support such special def-

erence, particularly in the area of credit transactions.

Creditors must rely upon agency interpretations to com-

ply with various statutes and regulations. Form contracts

are drafted in reliance on such interpretations. In this

case, literally thousands of manufactured housing credit

transactions have been entered into in reliance upon the

Bank Board’s regulation and interpretation.

a

16

More than once this Court has addressed the issue of

reliance on opinions of administrative agencies dealing

directly with such credit-related issues. In Ford Motor

Credit Co. v. Milhollin, 444 U.S. 555 (1980), this Court

found that a Federal Reserve Board staff interpretation

was entitled to the same respect as an official interpre-

tation, absent the finding that the interpretation was

demonstrably irrational.

Far from finding the Bank Board’s interpretation de-

monstrably irrational, the panel below (hereinafter re-

ferred to as Quiller I) cited Milhollin and admitted that

“to qualify for federal preemption under the Act the

financing agreement need not contain an express term

guaranteeing the debtor 30-day notice before repos-

session or foreclosure.” Quiller, et al. v. BarclaysAmer-

ican/Credit, Inc. 727 F.2d i667, 1071 (11th Cir. 1984)

Had the court of appeals stopped at that point, amici

would not now be before this Court.

Instead, the court of appeals held that contractual

provisions concerning immediate declarations of default

and acceleration are contrary to the rights provided to

consumers under the Act. The Bank Board has made a

contrary finding. In its brief amicus curiae filed before

the rehearing en banc (hereinafter referred to as Quiller

II), the Bank Board has stated:

“Contract language providing for immediate dec-

larations of default and accelleration is not neces-

sarily contrary to the Act and the implementing

regulation. Both the Act and the regulation specifi-

cally provide for circumstances in which a creditor

may in fact act without notice. Overlooked by the

Borrowers are the qualifications in the full text of

the Act and the regulation. The Act merely requires

that the Board issue a regulation that requires a ‘30-

day notice prior to instituting any action leading to

repossession or foreclosure (except in the case of

abandonment or other extreme circumstances)’” 12

17

U.S.C. § 1735f-7 note (c) (2) (emphasis added in

original) (Reprinted in Appendix to Petition for

Writ of Certiorari at Page L-13)

The Bank Board brief rightly points out that the Bar-

clays’ contract does not claim an unqualified right to

foreclosure without notice and was expressly qualified by

the borrower’s rights to notice and cure. As the Bank

Board brief summed up the language, “the contracts do

not controvert the protections of the Act.” (At Peti-

tioner’s Appendix at Page L-14)

The Quiller II case is reported at 764 F.2d 1040 (11th

Cir. 1985) (en bane).

The panel in Quiller I then looked to congressional in-

tent to justify its conclusion that the “terms and con-

ditions” relating to the loan agreement did not comply

with § 590.4(h). The court found that Congress condi-

tioned federal preemption on the creditor’s compliance

with consumer protections. Significantly, neither the

panel in Quiller I nor the court of appeals in Quiller II

found the Bank Board’s interpretation to be demon-

strably irrational.

Since Milhollin was decided, this Court has restated

the view that regulations promulgated by a governmental

body responsible for interpreting or administering a

statute are entitled to considerable respect, Ford Motor

Credit Co. v. Cenance, 452 U.S. 155 (1981). Again, in

Anderson Brothers Ford, et al. v. Valencia, 452 U.S. 205

(1981), this Court found that, absent some obvious re-

pugnance to the statute, an -agency’s interpretation of

its own regulation should be accepted by the court.

The court of appeals did not find that the Bank Board’s

interpretation was obviously repugnant to the statute.

Nor could it, as the interpretation and regulation fol-

lowed the statute.

The Bank Board filed amicus curiae below stoutly de-

fending its regulation and statutory interpretation.

18

This decision creates a double standard for regulatory

agencies regulating financial institutions. Left undis-

turbed, the practical effect of the court of appeals deci-

sion is to create a safe harbor for creditors who follow

the regulatory regime of the Board of Governors of the

Federal Reserve System while leaving those who follow

the precepts of the Bank Board “tossed by the waves of

chance.”

CONCLUSION

The manufactured housing finance community and its

congressionally-designated regulatory agency face a di-

lemma. The court of appeals decision directly contradicts

congressional intent, thwarts national housing policies,

and jeopardizes the hithertofore justified reliance by

credit grantors on the interpretations of regulatory agen-

cies. In an era of form contracts made by interstate

credit grantors, such reliance is not merely desirable, it

is essential.

The Petition for Writ of Certiorari should be granted.

Respectfully submitted,

Of Counsel: FRANK MAX SALINGER *

REBECCA H. LAIRD AMERICAN FINANCIAL

NATIONAL COUNCIL OF SERVICES ASSOCIATION

SAVINGS INSTITUTIONS 1101 14th Street, N.W.

1101 15th Street, N.W. Washington, D.C. 20005

Washington, D.C. 20036 (202) 289-0400

(202) 857-3100 CRAIG ULRICH #

CONSUMER BANKERS

ASSOCIATION

1300 North 17th Street

Suite 1200

Arlington, Virginia 22209

(703) 276-1750

Attorneys for Amici Curiae

* Counsels of Record

October 25, 1985