Consumers Union of US v. Federal Reserve Bd.
| Decision Date | 02 May 1990 |
| Docket Number | Civ. A. No. 89-3008-GHR. |
| Citation | 736 F. Supp. 337 |
| Parties | CONSUMERS UNION OF U.S., INC., Plaintiff, v. FEDERAL RESERVE BOARD, Defendant. |
| Court | U.S. District Court — District of Columbia |
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Michelle Meier and Linda Lipsen, Consumers Union, Washington, D.C., for plaintiff.
Steve Frank and Theodore C. Hirt, Attys., Dept. of Justice, Civ. Div., and Richard Ashton and Katherine Wheatley, Bd. of Governors of the Federal Reserve System, Washington, D.C., for defendant.
Plaintiff seeks judicial review pursuant to the Administrative Procedure Act ("APA"), 5 U.S.C. § 706, of regulations promulgated by the Federal Reserve Board pursuant to the Home Equity Loan Consumer Protection Act of 1988 ("HEL Act"), Pub.L. No. 100-709, 102 Stat. 4725. The HEL Act amended the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., to provide disclosures and substantive limitations with respect to open-end lines of credit secured by consumers' residences. Section 7(a) of the HEL Act instructed the Board to promulgate regulations to carry out the purposes of the amending legislation. On January 23, 1989, the Board published a proposed rule to amend Regulation Z to implement the HEL Act. 54 Fed.Reg. 3063. The Board received approximately 150 comments on the proposal. On June 9, 1989, after a review of the comments and further analysis, the Board adopted a final rule implementing the HEL Act. 54 Fed. Reg. 24670. This matter is before the Court pursuant to defendant's Motion to Dismiss or, in the Alternative, Motion for Summary Judgment, and the plaintiff's Motion for Summary Judgment.
The APA provides that agency action1 may be set aside only if arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, or if the action failed to meet statutory, procedural, or constitutional requirements. 5 U.S.C. § 706(2). The agency's decision is entitled to a presumption of regularity, Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 415, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971), and "the burden of overcoming the presumption of validity is on the party seeking review." Sierra Pac. Indus. v. Block, 643 F.Supp. 1256, 1266 (N.D.Cal. 1986); see also Short Haul Survival Comm. v. United States, 572 F.2d 240, 244 (9th Cir.1978) ().
The need for deference is all the more compelling where the Board is not only charged with administering the statute, Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965), but where Congress has specifically delegated authority to the Board to elucidate a specific provision of the statute by regulation. Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843-44, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984).
Under this highly deferential standard this Court cannot substitute its own judgment for that of the Board's provided that its decision is "rational and reflects a full consideration of relevant factors." National Indus. Sand Ass'n v. Marshall, 601 F.2d 689, 699 (3d Cir.1979). Congress has relied on the discretion of the Board to administer the HEL Act based on its expertise in the area and this Court should accordingly defer where appropriate. As the Supreme Court has held:
That some other remedial provision might be preferable is irrelevant. We have consistently held that where reasonable minds may differ as to which of several remedial measures should be chosen, courts should defer to informed experience and judgment of the agency to whom Congress delegated appropriate authority.
Moreover, Congress has granted broad authority to the defendant under the TILA. Section 105 of the TILA authorizes the Board to:
prescribe regulations to carry out the purposes of this subchapter. These regulations may contain such classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for any class of transactions, as in the judgment of the Board are necessary or proper to effectuate the purposes of this subchapter, to prevent circumvention or evasion thereof, or to facilitate compliance therewith.
15 U.S.C. § 1604. The Supreme Court has recognized the complexity of the subject matter of credit transactions and specifically discussed the practical necessity for judicial deference to the Board pursuant to its authority in section 1604:
Wholly apart from jurisprudential considerations or congressional intent, deference to the Federal Reserve is compelled by necessity; a court that tries to chart a true course to the Act's purpose embarks upon a voyage without a compass when it disregards the agency's views. The concept of "meaningful disclosure" that animates TILA ... cannot be applied in the abstract. Meaningful disclosure does not mean more disclosure. Rather, it describes a balance between "competing considerations of complete disclosure ... and the need to avoid ... information overload." And striking the appropriate balance is an empirical process that entails investigation into consumer psychology and that presupposes broad experience with credit practices. Administrative agencies are simply better suited than courts to engage in such a process.
Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 568-69, 100 S.Ct. 790, 798, 63 L.Ed.2d 22 (1980); see also Postow v. OBA Federal S & L Ass'n, 627 F.2d 1370, 1377 (D.C.Cir.1980).
The plaintiff contends that the "exception authority" of section 105 of the TILA does not apply to the HEL Act, which amended the TILA, because the sole rulemaking authority for the HEL Act is 15 U.S.C. § 1637a note.2 There is simply no basis for plaintiff to argue that Congress intended to prohibit the Board from invoking the broad discretionary authority of section 1604 in promulgating regulations pursuant to the HEL Act. Plaintiff's argument that Congress was unaware of section 1604, part of the very statutory scheme that Congress was amending, is unsupported by the record and is speculative at best. Indeed, on the contrary, it is always appropriate to assume that Congress knows what the existing law—whether statutory or judicial precedent—is. See generally Cannon v. University of Chicago, 441 U.S. 677, 99 S.Ct. 1946, 60 L.Ed.2d 560 (1979); In re A.B., 556 A.2d 645, 648 n. 5 (D.C.1989).
The plaintiff further argues that because the HEL Act, unlike the TILA, is drafted with such specificity that Congress intended to leave very little implementing discretion to the Board and that accordingly the expansive authority of section 1604 does not apply. The short answer to this argument, of course, is that if the legislation were so comprehensive and the need for agency expertise and discretion so limited, then why did Congress specifically require the Board to promulgate regulations under the legislation. Moreover, the TILA similarly contains sections of detailed legislation and yet section 1604 has applied across the board. Accordingly, this Court rules that the "exception authority" of section 1604 applies to the Board in promulgating regulations pursuant to the HEL Act and that those regulations, involving complex credit transaction issues, are entitled to the judicial deference that the Supreme Court established in Ford Motor.
The plaintiff contends that the HEL Act requires lenders offering variable rate HELs to disclose the complete formula under which the interest rate will be determined, including the margin value, in the preapplication stage.3 The Board's regulations do not require preapplication disclosure of the margin but do require lenders to advise consumers in the early disclosure period to "ask about" the current margin.4 12 C.F.R. § 226.5b(d)(12)(v).
The HEL Act provides that lenders must disclose:
15 U.S.C. § 1637a(a)(2)(A), (B)(iii). The plaintiff reads the plain language of this section to require that lenders disclose the margin to consumers. However, a literal reading of the statute does not support the plaintiff's position; the literal language of the statute provides that lenders must disclose "a description of the manner in which changes" in the interest rate will be made, including "any index or margin to which such changes in the rate are related." Id. (emphasis added). In the normal case, the change in the interest rate of a variable HEL is not related to the margin but to the index; the margin is generally a fixed figure which will not be responsible for a change in the interest rate. Accordingly, the lenders would only be required to describe how the interest rate would change over time due to the index. Under some plans, the margin may change upon the occurrence of specified events, such as a change in the consumer's employment or deposit relationship with the lender. In such instances, consistent with the plain language of the statute, the lender would then be required to describe how the margin will relate to a change in the interest rate. 12 C.F.R. § 226.5b(d)(12)(viii).
The plaintiff further challenges the Board's regulations because they do not require the disclosure of a specific discounted initial rate. The HEL Act requires the following disclosure:
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