Zeltzer v. Carte Blanche Corp., 74-1651
| Decision Date | 21 April 1975 |
| Docket Number | No. 74-1651,74-1651 |
| Citation | 514 F.2d 1156 |
| Parties | Jay S. ZELTZER, on behalf of himself and all others similarly situated, Appellant, v. CARTE BLANCHE CORPORATION, Appellee. |
| Court | U.S. Court of Appeals — Third Circuit |
Mark A. Senick, Senick & Penkower, Pittsburgh, Pa., for appellant.
Clyde R. Mellott, John H. Morgan, Robert J. Tate, Eckert, Seamans, Cherin & Mellott, Pittsburgh, Pa., for appellee.
This appeal calls upon us to determine the applicability of the Truth in Lending Act 1 to Carte Blanche's method of apportioning a cardholder's payment between the cardholder's airline account, which is subject to finance charges, and the cardholder's general account, which is not. The district court held that the Truth in Lending Act did not require Carte Blanche to disclose its method of apportioning payments. We reverse.
Defendant-appellee Carte Blanche Corporation (Carte Blanche) 2 is a national credit card company, which gives to cardholders the privilege of charging items at retail establishments. 3 Non-business retail purchases are recorded in the cardholder's Carte Blanche general account; are billed on a monthly basis; apparently are not subject to finance charges, and are payable upon receipt. 4
A cardholder may also use his credit card to purchase airline tickets. Charges incurred for airline ticket purchases are billed in monthly installments under an extended payment plan and, in contrast to general account billings, are subject to finance charges.
During the time period from January 1, 1970 to November 1, 1970, Carte Blanche with its monthly billing statement made the following disclosures with reference to a cardholder's airline account:
The quoted language makes no mention of how a payment which exceeds the airline monthly installment (i.e. an "overpayment") is applied to the cardholder's airline and general accounts. During the period in question, unless specifically instructed by the cardholder, 5 an airline account overpayment, if less in amount than the total airline account balance then due, was not applied to reduce the airline account. Instead the overpayment was credited to the cardholder's general account, without regard to whether or not there were any outstanding charges in the cardholder's general account. 6 Carte Blanche's practice in applying an overpayment is best understood by illustration. For our purposes here, we have assumed: (1) an airline charge of $600.00 was incurred by a cardholder; (2) this charge required a monthly installment payment of $50.00, and (3) no specific instruction as to allocation of payments was given to Carte Blanche by the cardholder.
1. Example 1: The cardholder, with a general account balance of $150.00, pays a total of $500.00. The airline account would be credited with $50.00 (thereby leaving an outstanding balance of $550.00 in the airline account upon which finance charges would be incurred). The general account balance of $150.00 would be deemed paid in full. The remainder of the payment made ($500.00 minus ($150.00 k 50.00)), $300.00, would then be credited to the general account for application against future charges and would bear no interest. The remaining $550.00 balance in the airline account would not be reduced.
2. Example 2: The cardholder, with no general account balance, pays a total of $550.00. The airline account would be credited with only $50.00 (thereby leaving an outstanding balance of $550.00 in the airline account upon which finance charges would be incurred). The balance of the payment made ($500.00) would be credited to the general account for application against future charges and would not bear interest. 7
The practice in applying airline account overpayments is easily summarized. No advice was given by Carte Blanche to its cardholders that they could direct the allocation of payments between two accounts. Accordingly, unless the cardholder paid the entire airline account balance plus any outstanding general account balance, the airline account would be reduced only by the amount of the minimum monthly installment due. Any overpayment credited to the cardholder's general account would not bear interest, although the airline account balance remaining unpaid would be subject to finance charges.
On August 30, 1971, on behalf of himself and all others similarly situated, plaintiff-appellant Zeltzer filed this action against Carte Blanche. He alleged that Carte Blanche violated the Truth in Lending Act from January 1, 1970 to November 1, 1970 by failing to disclose its practice in applying overpayments made in connection with a cardholder's airline account. Carte Blanche moved under Fed.R.Civ.P. 12 8 to dismiss the complaint for the following alternative reasons: (1) the court lacked in personam jurisdiction over Carte Blanche by reason of defective service; (2) the complaint failed to set forth a claim for relief under the Truth in Lending Act; 9 (3) if a claim for relief under the Truth in Lending Act were alleged, plaintiff's action was barred because it was already included within another purported class action then pending before the same district court. 10 With the consent of all parties, further proceedings in this case were postponed pending decision of this Court in Katz v. Carte Blanche Corp., 496 F.2d 747 (3rd Cir.) (en banc), cert. denied, 419 U.S. 886, 95 S.Ct. 152, 42 L.Ed.2d 125 (1974). Following decision of this Court in Katz, plaintiff filed an amended complaint 11 and moved for class determination pursuant to Fed.R.Civ.P. 23. Thereafter the district court granted summary judgment to Carte Blanche, see Fed.R.Civ.P. 12(c), holding that Carte Blanche was not obligated under the Truth in Lending Act to disclose "the method of allocating overpayment credits to accounts." Zeltzer v. Carte Blanche Corp., 375 F.Supp. 717 (W.D.Pa.1974). 12 We disagree.
The complaint alleged that the Truth in Lending Act obligated Carte Blanche to disclose the manner in which it applied payments to airline account balances and that Carte Blanche had failed to make these disclosures. Accordingly, we address ourselves to the sole question of whether Carte Blanche disclosed all that it was required to disclose under the Truth in Lending Act.
The Truth in Lending Act requires disclosure of terms and conditions of credit extension under open end credit plans. See 15 U.S.C. § 1637, Regulation Z, 12 C.F.R. § 226.7. When airline tickets are purchased by a Carte Blanche cardholder on a deferred payment basis, finance charges are imposed upon the balance remaining "open" at the end of each month in the airline account. Hence, the Carte Blanche airline account, unlike Carte Blanche's general account, is an open end credit plan, for which disclosures are required. See III, infra; 15 U.S.C. § 1602(i); Regulation Z, 12 C.F.R. § 226.2(r).
The pertinent disclosure provisions of the Act provide:
(a) Before opening any account under an open end consumer credit plan, the creditor shall disclose to the person to whom credit is to be extended each of the following items, to the extent applicable:
(2) The method of determining the balance upon which a finance charge will be imposed.
Statement required with each billing cycle
(b) The creditor of any account under an open end consumer credit plan shall transmit to the obligor, for each billing cycle at the end of which there is an outstanding balance in that account or with respect to which a finance charge is imposed, a statement setting forth each of the following items to the extent applicable:
(8) The balance on which the finance charge was computed and a statement of how the balance was determined. If the balance is determined without first deducting all credits during the period, that fact and the amount of such payments shall also be disclosed.
15 U.S.C. § 1637. Section 105 of the Act (15 U.S.C. § 1604) delegates to the Federal Reserve Board broad regulatory and rulemaking powers to effectuate its purposes. See Mourning v. Family Publications Service, Inc., 411 U.S. 356, 364, 93 S.Ct. 1652, 36 L.Ed.2d 318 (1973); Bone v. Hibernia Bank, 493 F.2d 135, 138 (9th Cir. 1974). Pursuant to the broad powers granted it, the Federal Reserve Board promulgated Regulation Z. The specific disclosures required by Regulation Z, and alleged to have been violated by Carte Blanche, are disclosures to be made on opening a new account, 13 and disclosures to be made by periodic statements after an account has been opened. 14
Referring to the literal words of Regulation Z the district court speculated "that plaintiff, under this state of facts, (might have) stated a cause of action . . .." 375 F.Supp. at 720. However, interpreting Regulation Z in accordance with an interpretive ruling of the Federal Reserve Board, the district court held that a cause of action was not so stated. Cf. Mourning v. Family Publications Service, Inc., 411 U.S. at 372, 93 S.Ct. 1652; Udall v. Tallman, 380 U.S. 1, 16-17 (1965); Bone v. Hibernia Bank, 493 F.2d at 139-40. The district court reached its conclusion without regard to whether disclosure was required under the Act. In so doing, the district court bypassed the question of whether disclosure was mandated and...
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