Anderson Bros Ford v. Valencia

• Citation: 101 S.Ct. 2266,68 L.Ed.2d 783,452 U.S. 205
• Decision Date: 08 June 1981
• Docket Number: No. 80-84,80-84
• Parties: ANDERSON BROS. FORD and Ford Motor Credit Company, Petitioners, v. Olga VALENCIA and Miguel Gonzalez
• Court: United States Supreme Court

452 U.S. 205

101 S.Ct. 2266

68 L.Ed.2d 783

ANDERSON BROS. FORD and Ford Motor Credit Company, Petitioners,

v Olga VALENCIA and Miguel Gonzalez.

No. 80-84.

Argued March 23, 1981.

Decided June 8, 1981.

Syllabus

Section 128(a)(10) of the Truth in Lending Act (TILA) provides that in connection with closed-end consumer credit transactions, the creditor must disclose "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." Regulation Z of the Federal Reserve Board (Board), promulgated pursuant to the Board's authority under the TILA, essentially repeats the statute's disclosure requirement, defines "security interest" and "security" as "any interest in property which secures payment or performance of an obligation," and sets forth a nonexhaustive list of interests included in the terms. In 1977, respondents purchased an automobile from petitioner dealer under a retail installment contract that was assigned to petitioner Ford Motor Credit Co. A provision on the face of the contract disclosed that the seller retained a security interest in the automobile but did not refer to a provision on the back of the contract whereby the buyers, who were required to purchase physical damage insurance on the automobile protecting the interests of both the buyers and the seller, assigned to the seller any unearned insurance premiums that might be returned if the policy were canceled. Before making any payments on the contract or the insurance policy, respondents returned the automobile to the dealer and filed suit in federal court alleging that the contract violated the TILA for failure to disclose on its face that the seller had acquired a "security interest" in unearned insurance premiums, and seeking statutory damages, attorney's fees, and costs. The District Court granted summary judgment for respondents, holding that the assignment of unearned insurance premiums created a "security interest" within the meaning of § 128(a)(10), and the Court of Appeals affirmed.

Held: Such an assignment of unearned insurance premiums does not create a "security interest" that must be disclosed pursuant to the TILA. Pp. 211-223.

(a) In a proposed official staff interpretation, the Board has expressly stated that Regulation Z does not require a creditor to disclose as a security interest its right to receive insurance proceeds or unearned premiums from a property insurance policy. Also the Board's revised Regulation Z, which was issued pursuant to the Truth in Lending Simplification and Reform Act of 1980, defines "security interest" as not including "incidental interests" such as interests in insurance proceeds or premium rebates. This definition does not purport to change the original Regulation Z with respect to whether an incidental interest in unearned insurance premiums must be disclosed, and thus is persuasive authority as to whether such an interest should be disclosed as a "security interest" under the unrevised regulation. Neither the original TILA nor the 1980 Act defines the term "security interest," and the legislative history of the 1980 Act fully supports the Board's revised regulation and its proposed interpretation of the unrevised regulation. Pp. 211-219.

(b) Although neither the 1980 Act's legislative history nor the Board's construction of the term "security interest" conclusively establishes the meaning of these words in the TILA, the Board's regulation implementing this legislation, as well as its interpretation of its own regulation, should be accepted by the courts since they are not repugnant to any provision in the TILA. Cf. Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 100 S.Ct. 790, 63 L.Ed.2d 22. The Board's position is supported by the legislative history of both the TILA and the 1980 Act, and is a permissible interpretation of the term "security interest" as used in the TILA. Pp. 219-223.

617 F.2d 1278, reversed and remanded.

Aaron J. Kramer, Chicago, Ill., for petitioners.

Alan A. Alop, Countryside, Ill., for respondents.

Justice WHITE delivered the opinion of the Court.

The issue presented in this case is whether an assignment of certain unearned insurance premiums created a "security interest" that should have been disclosed pursuant to the Truth in Lending Act (TILA), 82 Stat. 146, as amended, 15 U.S.C. § 1601 et seq.¹

I

In September, 1977, respondents purchased an automobile from petitioner Anderson Bros. Ford. They signed the dealer's standard automobile retail installment contract. This contract was assigned for value to petitioner Ford Motor Credit Co. A provision on the face of the contract disclosed that the seller retained a security interest in the automobile.² A provision on the back of the contract stated that the buyer was required to purchase and maintain physical damage insurance on the automobile, "protecting the interests of Buyer and Seller," and further stated:

"Buyer hereby assigns to Seller any monies payable under such insurance, by whomever obtained, including returned or unearned premiums, and Seller hereby is authorized on behalf of both Buyer and Seller to receive or collect same, to endorse checks or drafts in payment thereof, to cancel such insurance or to release or settle any claim with respect thereto. The proceeds from such insurance, by whomever obtained, shall be applied toward replacement of the Property or payment of the indebtedness hereunder in the sole discretion of Seller."

If the insurance policy on the automobile were canceled for any reason prior to the expiration of the term of the policy, this provision would permit the creditor to apply any unearned insurance premiums toward payment of the remaining debt.³

In October, 1977, before making any payments on the installment contract or on the insurance policy, respondents returned the automobile to Anderson Bros. Ford. They subsequently brought this action in federal court,⁴ alleging, inter alia, that the sales contract violated the TILA because it did not disclose on the face of the contract that the seller had acquired a "security interest" in unearned insurance premiums.⁵ This claim was based on § 128(a)(10) of the TILA, which provides in pertinent part:

"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:

* * * * *

"A description 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." 82 Stat. 155, 15 U.S.C. § 1638(a)(10).

This disclosure requirement is essentially repeated in § 226.8(b)(5) of Regulation Z, a Federal Reserve Board regulation promulgated pursuant to the Board's authority under § 105 of the TILA.⁶ Under the regulation, a creditor must disclose:

"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 . . . ." 12 CFR § 226.8(b)(5) (1980).

Respondents sought statutory damages, attorney's fees, and costs.⁷ The District Court granted summary judgment for respondents, holding that an assignment of unearned insurance premiums creates a "security interest" within the meaning of § 128(a)(10). App. 33-35. The Court of Appeals for the Seventh Circuit affirmed. 617 F.2d 1278 (1980). Recognizing that the TILA does not define the term "security interest," the Court of Appeals relied on the definition contained in Regulation Z:

"Security interest' and 'security' mean any interest in property which secures payment or performance of an obligation. The terms include, but are not limited to, security interests under the Uniform Commercial Code, real property mortgages, deeds of trust, and other consensual or confessed liens whether or not recorded, mechanic's, materialmen's, artisan's, and other similar liens, vendor's liens in both real and personal property, the interest of a seller in a contract for the sale of real property, any lien on property arising by operation of law, and any interest in a lease when used to secure payment or performance of an obligation." 12 CFR § 226.2(gg) (1980).

The Court of Appeals concluded that the assignment of unearned insurance premiums created an "interest in property which secure[d] payment or performance of an obligation" within the meaning of Regulation Z, and thus created a "security interest" that must be disclosed under § 128(a)(10). The Court of Appeals accordingly affirmed the judgment below.⁸ We granted certiorari to settle whether such an assignment of unearned insurance premiums must be disclosed as a "security interest" under the TILA.⁹ 449 U.S. 981, 101 S.Ct. 395, 66 L.Ed.2d 242 (1980). We reverse.

II

Although the Court of Appeals' construction of the Act and of Regulation Z is shared by three of the four other Courts of Appeals that have ruled on the question,¹⁰ this view, which is essentially a claim that the plain language of the statute and the regulation requires the result reached by the court below, has recently been challenged on several fronts. First, based in part on the legislative history of the 1980 amendments to the TILA, see infra, at 218-219, the Court of Appeals for the Tenth Circuit has concluded that the meaning of the term "security interest" as used in the TILA is not so plain and has held that the creditor's interest in unearned insurance premiums need not be disclosed as a security interest under either the statute or Regulation Z. James v. Ford Motor Credit Co., 638 F.2d 147 (1980).

Second, in September 1980, the Board, the agency that issued Regulation Z, published for comment Official Staff Interpretation FC-0173, regarding security...