Citizens State Bank of Marshfield, Mo. v. Federal Deposit Ins. Corp.

• Decision Date: 01 November 1983
• Docket Number: No. 82-1776,82-1776
• Citation: 718 F.2d 1440
• Parties: CITIZENS STATE BANK OF MARSHFIELD, MISSOURI and William G. Magers, John W. Greer, Paul Beckerdite, Calvin Burchfield, Wayne Jones, Wallace R. McFaddin, and C. Virgil Vernon, as the Board of Directors of Citizens State Bank, Marshfield, Missouri, Petitioners-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Respondent-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1440

718 F.2d 1440

CITIZENS STATE BANK OF MARSHFIELD, MISSOURI and William G Magers, John W. Greer, Paul Beckerdite, Calvin Burchfield Wayne Jones, Wallace R. McFaddin, and C. Virgil Vernon, as the Board of Directors of Citizens State Bank, Marshfield Missouri, Petitioners-Appellants, v. FEDERAL DEPOSIT INSURANCE CORPORATION, Respondent-Appellee.

No. 82-1776.

United States Court of Appeals Eighth Circuit.

Submitted April 13, 1983.

Decided Oct. 13, 1983.

As Amended Nov. 1, 1983.

Donald W. Jones, Jones, Keeter, Karchmer, Nelms, Sullivan & Kirby, John K. Hulston, Springfield, Mo., for petitioners-appellants.

Douglas H. Jones, Deputy Gen. Counsel, Werner Goldman, Asst. Gen. Counsel, Arthur L. Beamon, Counsel, Washington, D.C., E. Glion Curtis, Regional Counsel, Kansas City, Mo., for respondent-appellee.

Before LAY, Chief Circuit Judge, and McMILLIAN and JOHN R. GIBSON, Circuit Judges.

JOHN R. GIBSON, Circuit Judge.

We must decide whether an order of the Federal Deposit Insurance Corporation (FDIC) directed to the Citizens State Bank of Marshfield, Missouri, insofar as it applies to claimed violations of Regulation Z of the Truth In Lending Act, sufficiently articulated the reasons for its issuance. The FDIC's order is contrary to the recommended decision of the Administrative Law Judge (ALJ). The ALJ conducted a hearing and determined that while there were particular violations of Regulation Z, there was no continuing pattern of violations, willfulness or gross negligence. Thus, the ALJ concluded that a Cease and Desist Order with respect to Regulation Z was inappropriate. The FDIC, without discussing the findings of fact of the ALJ or ruling on exceptions filed by the parties, issued a Cease and Desist Order addressing both Regulation Z and non-Regulation Z matters. As the FDIC failed to articulate its reasons for rejecting the findings of the ALJ and for issuing its order, we remand this case for further consideration.

An examination of the bank was conducted by an FDIC Examiner as of the close of business January 29, 1980. On September 2, 1980, the FDIC filed a notice of charges against the bank with the purpose of obtaining an Order to Cease and Desist. An Administrative Law Judge conducted a hearing lasting three days and in time filed a recommended decision.

In recommending the decision, the ALJ analyzed the evidence in detail, particularly with respect to Regulation Z, 12 C.F.R. Secs. 226.1-226.29 (1983), promulgated to effectuate the Truth In Lending Act, Title I of the Consumer Credit Protection Act, 15 U.S.C. Secs. 1601-1693r (1976 & Supp. IV 1980). He specifically found that most of the alleged violations of Regulation Z involved the bank's failure to give borrowers proper disclosure of the finance charges and annual percentage rates. In one transaction the disclosure spaces were left blank. In all of the other transactions that involved violations of Regulation Z, the bank disclosed a finance charge but erred in computing it. One loan was originally payable on demand, but the bank had agreed alternatively that the balance would be due March 1, 1980. The bank failed to use the alternative date to compute the finance charge as required and accordingly did not disclose the correct finance charge. On two loans, the bank did not include loan fees of $25.65 and $30.00 in the amount of disclosed finance charges.

Those loans for which the bank failed to disclose the annual percentage rate correctly included the transaction where the disclosure blanks were not filled in, and three transactions where the finance charges and annual percentage rates stated were erroneous. In another loan the bank failed to include a charge for a credit life insurance premium in the annual percentage rate. In six transactions the bank failed to obtain a separately signed affirmative indication that the borrower desired credit life insurance. Accordingly, the bank also failed to include the cost of the credit life insurance premium in the annual percentage rate and in the disclosed finance charge. In one transaction where the original interest rate had been 9.38 percent but the borrowers agreed to pay ten percent interest in consideration of an extension, the government argued that disclosure of the new rate was inadequate.

In two loans the bank allegedly violated Regulation Z by failing to give borrowers notice of their right to rescission. In three of the loans involving previously described violations, FDIC counsel also claimed that the bank failed to itemize or disclose various types of fees or charges on its disclosure form or to include them in the finance charge in accordance with Regulation Z. In one loan, which called for monthly payments of $100.00, the Examiner found that the last payment would have to be over $1,000.00 and was thus a balloon payment that the bank had failed to disclose.

With respect to the Regulation Z allegations, the ALJ found:

Regulation Z is extremely complex. A misunderstanding of one requirement can often lead to numerous alleged violations. As shown in the analysis examples given above, a failure to have two separate signatures appear on the loan application, one on the application itself and another separate signature which declines or accepts credit life insurance can lead to a charge of failing to obtain the signature, or failing to disclose the correct annual percentage rate and a failure to disclose the correct finance charge. The 13 transactions that I have considered have resulted in over 60 alleged violations, and for the most part, these appear to have resulted from miscalculation rather than any deliberate intent to mislead the borrower and did not result from any gross negligence.

FDIC 80-51b, Recommended Decision at 5 (Feb. 17, 1982).

The ALJ then discussed three of the questioned loans specifically. He found the one where the blanks had not been filled in to be not typical. The two loans involving failure to disclose the right of rescission, he found, did not concern "previously owned" residences within the meaning of the regulation. On the whole, the ALJ concluded: "I find that the evidence concerning the transactions discussed above is unconvincing. It does not establish a pattern, and in my opinion does not justify a cease and desist order insofar as the alleged violations of Regulation Z are concerned. I so recommend." Id. at 6.

The ALJ did find, however, violations with respect to non-Regulation Z matters: Regulation B Matters (Equal Credit Opportunity), Regulation X Matters (Real Estate Settlement Procedures), Regulation 345 Matters (Community Reinvestment Act), Regulation 338 Matters (Fair Housing), Regulation 326 Matters (Minimum Security Devices and Procedures for Insured Nonmember Banks), Regulation 328 Matters (Advertisement of Membership), Regulation 329 Matters (Deposit Interest Rate Advertising), and Regulation 103 Matters (Financial Recordkeeping and Reporting of Currency and Foreign Transactions). He recommended a Cease and Desist Order with respect to each violation, but found that restitution was not appropriate. The parties then submitted exceptions to the ALJ's recommended decision.

On June 14, 1982, the FDIC Board issued a Cease and Desist Order that addressed not only non-Regulation Z violations but also the alleged Regulation Z violations that the ALJ had found inappropriate for the order. As to Regulation Z, the FDIC Board made Findings of Fact that the bank violated and was continuing to violate certain laws, rules and regulations. The Board listed these violations in nine subparagraphs that it adopted verbatim from the proposed Conclusions of Law submitted by FDIC counsel. ¹

The FDIC Board made the additional Findings of Fact:

4. Each violation cited in subparagraphs 3(a) through 3(d) was part of a clear and consistent pattern or practice of action.

5. The Bank acquiesced in, and passively approved of, the violations set forth in subparagraphs 3(a) through 3(w) of these FINDINGS, notwithstanding prior warnings of the Corporation to cease such practices and take appropriate corrective measures.

6. The Bank adopted an inconsistent and haphazard approach toward compliance with the laws, rules and regulations specified in Paragraph 1 of these FINDINGS and failed to provide adequate supervision and direction over the active officers of the Bank in order to prevent the violations of laws, rules and regulations set forth in subparagraphs 3(a) through 3(w) of these FINDINGS.

In its Conclusions of Law, the FDIC Board adopted the ALJ's recommendations with respect to the non-Regulation Z matters and the FDIC counsel's proposed Conclusions of Law as to the Regulation Z matters. The Board adopted and modified Conclusion of Law No. 4 of the ALJ to reflect the FDIC's authority to order reimbursement as a form of corrective affirmative action. The FDIC Board then issued its Order to Cease and Desist, which addressed all of the charged violations and which required reimbursement of certain overcharges.

In its order, the FDIC Board observed that the parties had submitted exceptions to the ALJ's recommended decision, but it made no further reference to those exceptions.

I.

Our primary inquiry is whether the FDIC Board's order, insofar as it pertains to Regulation Z violations, should be enforced. Under the Administrative Procedure Act, this court must hold unlawful and set aside agency action, findings, and conclusions found to be unsupported by substantial evidence. 5 U.S.C. Sec. 706(2)(E) (1976); see 5 U.S.C. Sec. 556(d) (1976). As a general rule, if the factual findings of the Board are supported by substantial evidence, in view of the record as a whole, they shall be conclusive. Universal Camera Corp. v. NLRB, 340 U.S. 474, 493, 71 S.Ct. 456, 467, 95 L.Ed. 456 (1951); State Corp. Comm'n. of Kan. v. Federal Power Comm'n., 206 F.2d 690, 698 (8th Cir.1953), cert. denied, 346 U.S. 922, 74 S.Ct. 312, 98 L.Ed. 416 (1954); see In Re United...