Franklin v. First Money, Inc.

• Decision Date: 04 December 1976
• Docket Number: Civ. A. No. 75-2003.
• Citation: 427 F. Supp. 66
• Parties: Eugene FRANKLIN, Plaintiff, v. FIRST MONEY, INC., d/b/a E-Z Finance Plan, Defendant.
• Court: U.S. District Court — Eastern District of Louisiana

427 F. Supp. 66

Eugene FRANKLIN, Plaintiff, v. FIRST MONEY, INC., d/b/a E-Z Finance Plan, Defendant.

Civ. A. No. 75-2003.

United States District Court, E. D. Louisiana.

December 4, 1976.

Mark G. Murov, Lawrence B. Fabacher, II, New Orleans, La., Ford Dieth, Asst. U. S. Attys., New Orleans, La., Colin R. C. Dyer, U. S. Dept. of Justice, Antitrust Div., Washington, D. C., for plaintiff.

David S. Willenzik, New Orleans, La., for defendant.

ALVIN B. RUBIN, District Judge:

The defendant has moved for summary judgment in its favor on the basis that one provision of the Truth-in-Lending Act, Section 129(a)(7)¹ and two provisions of the regulations promulgated pursuant to that Act, Sections 226.8(b)(4)² and 226.8(l)³, violate the due process clause of the 5th Amendment to the Constitution⁴ because they are too vague to enable persons subject to these provisions to determine whether or not their actions violate the law. They also contend that due process is violated because Section 130(a) of the Act, 15 U.S.C. § 1640(a), imposes "punitive-type penalties" without requiring proof of actual damages.

I.

The due process clause requires that civil and criminal statutes, and regulations promulgated pursuant to statutory authority, be sufficiently clear that persons who are affected can gain a reasonably clear idea of what the law requires of them. Jordan v. De George, 1951, 341 U.S. 223, 71 S.Ct. 703, 95 L.Ed. 886; Champlin Refining Co. v. Corporation Commission of the State of Oklahoma, 1931, 286 U.S. 210, at 242-3, 52 S.Ct. 559, 76 L.Ed. 1062; A. B. Small Co. v. American Sugar Refining Co., 1924, 267 U.S. 233, at 238-9, 45 S.Ct. 295, 69 L.Ed. 589. One of the two statutes at issue in this suit, 15 U.S.C. § 1639(a)(7) reads:

(a) Any creditor making a consumer loan or otherwise extending consumer credit in a transaction which is neither a consumer credit sale nor under an open end consumer credit plan shall disclose each of the following items, to the extent applicable: . . .

* * * * * *

(7) The default, delinquency, or similar charges payable in the event of late payments.

The regulations promulgated pursuant to it and which are challenged as unconstitutional read:

(a) General rule. Any creditor when extending credit other than open end credit shall . . . make the disclosures required by this section. . . . Except as otherwise provided in . . . this section, such disclosures shall be made before the transaction is consummated.

* * * * * *

(b) Disclosures in sale and nonsale credit. In any transaction subject to this section, the following items, as applicable, shall be disclosed:

* * * * * *

(4) The amount, or method of computing the amount, of any default, delinquency, or similar charges payable in the event of late payments.

12 C.F.R. 226.8(b)(4).

(l) Deferrals or extensions. In the case of an obligation other than an obligation upon which the amount of the finance charge is determined by the application of a percentage rate to the unpaid balance, if the creditor imposes a charge or fee for deferral or extension, the creditor shall disclose to the customer

(1) The amount deferred or extended;

(2) The date to which, or the time period for which payment is deferred or extended; and

(3) The amount of the charge or fee for the deferral or extension.

12 C.F.R. 226.8(l)(1)(2)(3).

In an earlier opinion in this case, the Court found that a monetary charge made by the defendant, which the defendant called a "deferral charge," was, in fact, a "delinquency charge" and was required by law to be disclosed at the outset of the credit agreement, in compliance with Section 226.8(b)(4) of the regulations. The defendant had argued that this was a true deferral charge and that Section 226.8 does not require deferral charges to be disclosed when the loan is made, but only when the deferral is actually granted.

The defendant contends the court's decision "startled" it. The decision was, it asserts, so unpredictable that a regulation permitting it to be reached is unconstitutional. But the fact that a decision interpreting a statute or regulation surprises the parties does not make the law unconstitutional. The due process clause does not protect citizens against judicial decisions that they consider unforeseeable, nor does it assure that litigants will always receive judgments on their lawsuits that they can accept with equanimity.

The defendant complains that judicial interpretations of the Truth-in-Lending Act have been so inconsistent that creditors have had no basis for choosing among the various interpretations of the Act's provisions and regulations. While the defendant has made no showing that the issue in this case has been treated differently by any other court in this circuit, it cites a decision from the District of Iowa, Kenney v. Landis Financial Group, Inc. (No. 71-C-32CR, Nov. 1, 1973, 5 CCH CCC Para. 98,937) which supports its view of the issue.⁵ There are 400 federal district judges and it is not a test for the constitutionality of a statute that it be so unambiguous that all judges will read the statute in only one way. The decision of one federal district court may persuade another judge who must decide the same issue, but the second nisi prius judge is not constrained to accept the reasoning of the first to do so, and to adopt his rationale. It is one of the primary functions of the Courts of Appeal to resolve conflicts among the district courts, just as it is one of the major duties of the Supreme Court to decide issues on which the Courts of Appeal for various circuits have differed.⁶ Indeed, if every statute were so clear as to permit only one reading, judicial interpretation would never be necessary.

None need dispute the straw man formulation of the defendant: "The courts are not free to substitute their own judgment as to what disclosures should be required under the Act and regulations for the express disclosures actually required by Congress and the Federal Reserve Board." (p. 36 defendant's brief) If this court has failed properly to divine Congressional intent, the Court of Appeals will correct its misconception. But the fact that a judge may commit error does not render unconstitutional the statute or regulation that he seeks to interpret.

A statute so vague as to have no predictable meaning is void for vagueness. But this doctrine does not ordain the unconstitutionality of a statute that two lawyers may read differently, nor does it mean that persons subject to the law may bank against startling or inconsistent decisions. The fundamental purpose of the doctrine is to prevent capricious and unforeseeable enforcement of the law, and to require its application in a fair and reasonable manner. Colten v. Kentucky, 1972, 407 U.S. 104, at 110, 92 S.Ct. 1953, 32 L.Ed.2d 584. The Supreme Court has, in several notable cases, struck down statutes because of vagueness. In A. B. Small, supra, the challenged statute made it illegal for a person to charge "unjust or unreasonable" prices for "necessaries." In Champlin, supra, the court held unconstitutionally vague a statute which prohibited "waste" in the production of crude oil.

However, "there are limitations in the English language with respect to being both specific and manageably brief . . .." Civil Service Commission v. National Association of Letter Carriers, 1973, 413 U.S. 548 at 578, 93 S.Ct. 2880 at 2897, 37 L.Ed.2d 796. In Arnett v. Kennedy, 1974, 416 U.S. 134, 94 S.Ct. 1633, 40 L.Ed.2d 15, the Court ruled that the phrase "such cause as will promote the efficiency of the service" was a sufficiently clear standard for dismissal of public employees. 416 U.S. at 162, 94 S.Ct. at 1648. The Court based its holding on the practical difficulty of drawing statutes that are reasonably clear and yet not unreasonably elaborate and specific. Id.

Predictability of judicial interpretation of the laws is desirable because citizens must abide by those laws and should not have to guess their meaning. Connally v. General Construction Co., 1926, 269 U.S. 385, 46 S.Ct. 126, 70 L.Ed. 322. But neither absolute uniformity of interpretation, nor total absence of ambiguity is semantically or practically achievable — or, it necessarily follows — constitutionally required. "The test is whether the language conveys sufficiently definite warning of the proscribed conduct when measured by common understanding and practices." Jordan v. De George, 1951, 341 U.S. 223 at 231-2, 71 S.Ct. 703, at 708, 95 L.Ed. 886. The relevant inquiry is not whether this court's decision was foreseen, but whether the language of the regulations and the statute or other factors made it reasonably foreseeable.

The language and context of § 226.8(l) indicate that a "deferral charge" is not merely a charge exacted by the creditor for late payment. If it were, "deferral charge" and "delinquency charge" would have virtually identical fiscal, but different legal, consequences. Both would be financial penalties imposed on late-paying borrowers. Though the term "deferral charge" denotes a payment in exchange for the privilege of postponing payment, and, in that sense, has a distinct meaning, that meaning is logically connected with the notion of an exchange of consideration for a promise,⁷ i. e., a contract. Contracts exist by virtue of mutual agreement. Thus, the only sense in which a deferral charge is distinguishable from a delinquency charge is the notion that a deferral involves an agreement between the parties; this is in contrast to a charge exacted unilaterally by the creditor merely because the payment is late, that is, a delinquency charge. Thus reading the two terms, the provision of Section 226.8(l) of the regulations permitting disclosure of a deferral charge at the time when the rate payment is made makes sense: there is no need to disclose the charge when the loan is originally made because it will be paid only if an agreement to delay payment is made at some future time. The consumer...