Griffith v. Superior Ford, 77-1576

• Decision Date: 10 July 1978
• Docket Number: No. 77-1576,77-1576
• Citation: 577 F.2d 455
• Parties: Josephine GRIFFITH, Appellee, v. SUPERIOR FORD and Ford Motor Credit Company, Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 455

577 F.2d 455

Josephine GRIFFITH, Appellee, v. SUPERIOR FORD and Ford Motor Credit Company, Appellants.

No. 77-1576.

United States Court of Appeals,

Eighth Circuit.

Submitted Dec. 6, 1977.

Decided June 16, 1978.

Rehearing and Rehearing En Banc Denied July 10, 1978.

Douglas R. Rainbow, Harstad & Rainbow, Minneapolis, Minn., argued and on brief, for appellants.

George H. Smith (on brief), Douglas, Jaycox, Trawick & McManus, Minneapolis, Minn., argued for appellee.

Before ROSS and WEBSTER ^*, Circuit Judges and REGAN ^**, District Judge.

REGAN, District Judge.

At issue is whether the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq. (1976), and Federal Reserve Board Regulation Z, 12 C.F.R. §§ 226.1-.15 (1977), mandate disclosure of an acceleration clause in a retail installment contract. The district court, the Honorable Earl R. Larson, ruled this question in the affirmative. We reverse. ¹

The material facts are not in dispute. Plaintiff contracted with Superior Ford for the purchase of a new automobile, the purchase being financed with Ford Motor Credit Company. The contract form contains on the front a disclosure statement, including one concerning delinquency charges on installments in default and one pertaining to rebate of the unearned portion of the finance charge in the event the buyer prepays in full his obligations under the contract prior to the maturity of the final installment thereunder.

On the reverse side of the contract is a provision which in certain events, including default in any payment, authorizes but does not require the creditor to declare all amounts due or to become due "immediately due and payable." This acceleration clause was not disclosed on the face of the contract. Plaintiff's recovery of $1,000 damages and attorney's fees is based solely on this omission. There is no contention that at the time this suit was brought plaintiff was in default or that defendants had utilized the acceleration clause.

The Truth in Lending Act is unquestionably remedial legislation, the expressed purpose of which is "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit." 15 U.S.C. § 1601. The Act sets forth certain specific items and credit terms which the creditor must disclose to the credit customer, together with the time and method of such disclosure. Id. § 1638(a), (b). The Board of Governors of the Federal Reserve System is directed to prescribe regulations to carry out and implement the purposes of the Act, Id. § 1604, and in carrying out this directive the Board has promulgated Regulation Z.

Acceleration clauses (the right to accelerate and require immediate payment of all installments upon default or other specified events) have traditionally been a common feature of installment contracts. Begay v. Ziems Motor Co., 550 F.2d 1244, 1248 (10th Cir. 1977). It is significant, therefore, that neither the Act nor Regulation Z in terms requires disclosure of or even refers to an acceleration clause. What is required, in 15 U.S.C. § 1638(a)(9), is only that the creditor disclose "(t)he default, delinquency, or similar charges payable in the event of late payments" (emphasis added). And the implementing Regulation Z, 12 C.F.R. § 226.8(b)(4), provides that such disclosure shall state "(t)he amount, or method of computing the amount, of any default, delinquency, or similar charges payable in the event of late payments " (emphasis added). In compliance with these provisions, the contract here in question specifically sets forth the obligation of the buyer to pay a delinquency charge on each installment in default for more than 10 days in the amount of 5% thereof or $5.00, whichever is less, together with expenses incurred by the seller in effecting collection.

The initial question is whether the mere right to accelerate is within the purview of "default, delinquency, or similar charges payable in the event of late payments." Id.. The phrase "default, delinquency, or similar charges" is not defined in the Act. It would appear that Congress did not deem definition was necessary, in light of the fact that terms such as "default charges" and "delinquency charges" had well established meanings in the commercial credit field and in other consumer credit legislation.

The district court stressed the purpose of the Act "to assure a meaningful disclosure of credit terms." 15 U.S.C. § 1601. However, neither Congress nor the Board stated or implied by the use of this language that the credit user be informed of all the terms available to or required of him. To the contrary, the Act and Regulation Z list only those specific credit terms which Congress and the Board deemed essential to the informed use of credit.

By the use of the term "meaningful" in the purpose section, Congress had reference to how the specifically required disclosures should be made, not which terms must be disclosed. To that end, in order to assure a "meaningful disclosure," the operative sections of the Act, as well as Regulation Z, prescribe uniformity in both terminology and manner of presentation of the listed credit terms.

Obviously, in some context every term in a retail installment contract may be of importance to a credit customer. However, there is no provision in the Act which delegates to the courts any authority to enlarge upon the list of disclosure requirements set forth in the Act and the Board regulations simply because in the judgment of a court such additional information may be deemed desirable or even material to effectuate the statutory purposes. That power has been expressly given only to the Board: "The Board shall prescribe regulations to carry out the purposes of (the Act)." Id. § 1604 (emphasis added). The judiciary is limited to the specific disclosure requirements of Regulation Z in the consideration of whether disclosure of an acceleration clause is necessary to carry out the purposes of the Act.

We note that the Federal Reserve Board's Official Staff Interpretation of the Act and Regulation Z (which, although not binding on the Courts, is entitled to respect) is to the effect that "the mere right to accelerate . . . is not a charge payable in the event of late payment," and "(t)herefore, it need not be disclosed under § 226.8(b)(4)." Federal Reserve Board Official Staff Interpretation No. FC-0054 (March 21, 1977), 42 Fed.Reg. 18,056 (1977) (emphasis added). ²

"In the commercial credit field and in other consumer credit legislation, the terms 'delinquency charges ' and 'default charges ' generally refer to specific pecuniary sums that are assessed against the borrower solely because of his failure to make his payments in a timely manner. They are sums above and beyond the amount ordinarily due in the event of timely payment." Johnson v. McCrackin-Sturman Ford, Inc., 527 F.2d 257, 266 (3d Cir. 1975) (emphasis added).

A late payment default or delinquency charge is one made to compensate the creditor for the loss of the use of his money during the period of the debtor's delay in paying a particular installment. Such charges are imposed by the creditor as an alternative to acceleration, as a means of enabling the debtor to continue the installment payment of the loan under its original terms.

In our judgment the term "similar charges" has reference to charges comparable to default and delinquency charges, that is, to sums of money, additional to the debtor's existing obligation, which are imposed upon him because of the late payment of an installment to compensate the creditor for the delay in payment, certainly so in the absence of a Board regulation expanding the meaning of the term. The right to accelerate is simply an additional contractual remedy which the creditor may, but need not, utilize in the event of default.

We join the Third Circuit, Johnson v. McCrackin-Sturman Ford, Inc., supra, the Fifth Circuit, Martin v. Com'l Securities Co., Inc.,539 F.2d 521 (5th Cir. 1976), ³ the Ninth Circuit, St. Germain v. Bank of Hawaii, 573 F.2d 572 (9th Cir. 1977), and the Tenth Circuit, Begay v. Ziems Motor Co., supra, in holding that absent a regulation requiring it, the mere right to accelerate is not a charge payable in the event of late payment.

Plaintiff urges, however, that even if the mere existence of an acceleration clause need not be disclosed, the fact that such undisclosed clause does not reveal the creditor's policy with respect to rebate of unearned interest in the event of acceleration of itself gives rise to a claim for damages under the Act. The Tenth Circuit has rejected this approach in its entirety. Begay v. Ziems Motor Co., supra. This was formerly the position of the Fifth Circuit. Martin v. Com'l Securities Co., Inc., supra.

In retreating from Martin, the Fifth Circuit en banc held that where on its face the loan contract purports to give the creditor the right to accelerate and demand payment of the entire indebtedness, including precomputed interest on future installments, the creditor is required to disclose his rebate policy in the event of early payment of the accelerated indebtedness, on the theory that such payment constitutes "default, delinquency, or similar charges payable in the event of late payment." McDaniel v. Fulton Nat. Bank of Atlanta, No. 75-2410, 571 F.2d 948 (5th Cir. April 24, 1978).

In so holding, McDaniel "adopted" as its rule of decision the Federal Reserve Board's Staff Interpretation FG-0054, on the premise that the Staff Interpretation "is a practical one in a debatable area." Id., at 951. The difficulty with McDaniel is that it is inconsistent with the staff's construction of the very Interpretation relied on by the Court. Staff Interpretation FC-0054 ruled only that any...