Household Credit Services, Inc. v. Pfennig

• Citation: 541 U.S. 232
• Decision Date: 21 April 2004
• Docket Number: No. 02-857.,02-857.
• Parties: HOUSEHOLD CREDIT SERVICES, INC., ET AL. v. PFENNIG.
• Court: U.S. Supreme Court

541 U.S. 232

HOUSEHOLD CREDIT SERVICES, INC., ET AL. v. PFENNIG.

No. 02-857.

Supreme Court of United States.

Argued February 23, 2004.

Decided April 21, 2004.

The Truth in Lending Act (TILA) regulates, inter alia, the disclosures that credit card issuers must make to consumers, 15 U. S. C. § 1637(a), and provides consumers with a civil remedy for creditors' failure to comply, § 1640. Among other things, the creditor's periodic balance statement to the consumer must include "[t]he amount of any finance charge," § 1637(b)(4), which is defined as an amount "payable directly or indirectly by the [consumer], and imposed directly or indirectly by the creditor as an incident to the extension of credit," § 1605(a). Section 1604(a) expressly gives to the Federal Reserve Board (Board) expansive authority to prescribe regulations containing "such classifications, differentiations, or other provisions" as, in the Board's judgment, "are necessary or proper to effectuate [TILA's] purposes . . . , to prevent circumvention or evasion thereof, or to facilitate compliance therewith." The Board's Regulation Z interprets § 1605(a)'s "finance charge" definition to exclude "charges . . . for exceeding a credit limit" (over-limit fees).

Respondent holds a credit card issued by one of the petitioner financial institutions and in which the other holds an interest. Although the parties' agreement set respondent's credit limit at $2,000, she was able to make charges exceeding that limit, subject to a $29 over-limit fee for each month in which her balance exceeded $2,000. While her monthly billing statement disclosed the over-limit fees, the amount was not included as part of the "finance charge," consistent with Regulation Z. Respondent filed suit alleging that petitioners violated TILA by failing to classify over-limit fees as "finance charges," but the District Court granted petitioners' motion to dismiss on the ground that Regulation Z specifically excludes such fees. The Sixth Circuit reversed, holding that the exclusion conflicts with § 1605(a)'s plain language. Noting, first, that, as a remedial statute, TILA must be liberally interpreted in favor of consumers, the court then concluded that the over-limit fees in this case were imposed "incident to an extension of credit" and therefore fell squarely within § 1605's language. That conclusion turned on the distinction the court drew between unilateral acts of default, which would not generate a "finance charge," and acts of default resulting from an agreement between the creditor and the consumer, which would.

Held: Regulation Z is not an unreasonable interpretation of § 1605. Pp. 238-245.

(a) Because respondent does not challenge the Board's authority under § 1604(a) to issue binding regulations, this Court faces only two questions. It asks, first, whether "Congress has directly spoken to the precise question at issue," Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837, 842, in which case courts, as well as the Board, "must give effect to the unambiguously expressed intent of Congress," id., at 842-843. However, whenever Congress has "explicitly left a gap for the [implementing] agency to fill," the agency's regulation is "given controlling weight unless [it is] arbitrary, capricious, or manifestly contrary to the statute." Id., at 843-844. Pp. 238-239.

(b) TILA itself does not explicitly address whether over-limit fees are included within the "finance charge" definition. The Sixth Circuit did not attempt to clarify the scope of § 1605(a)'s critical term "incident to the extension of credit." Because the phrase "incident to" does not make clear whether a substantial (as opposed to a remote) connection is required between an antecedent and its object, cf. Holly Farms Corp. v. NLRB, 517 U. S. 392, 402, n. 9, it cannot be concluded that the term "finance charge," standing alone, unambiguously includes over-limit fees. Moreover, an examination of TILA's related provisions, as well as the full text of § 1605 itself, casts doubt on the Sixth Circuit's interpretation. A consumer holding an open-end credit plan may incur two types of charges—finance charges and "other charges which may be imposed as part of the plan." §§ 1637(a)(1)-(5). TILA does not make clear which charges fall into each category, but its recognition of at least two categories establishes that Congress did not contemplate that all charges made in connection with an open-end credit plan would be considered "finance charges." And where TILA explicitly addresses over-limit fees, it defines them as fees imposed "in connection with an extension of credit," § 1637(c)(1)(B)(iii), rather than "incident to an extension of credit," § 1605(a). Furthermore, none of § 1605's specific examples of charges that fall within the "finance charge" definition includes over-limit or comparable fees. Thus, § 1605(a) is, at best, ambiguous. Pp. 239-242.

(c) Regulation Z's exclusion of over-limit fees from "finance charge[s]" is in no way manifestly contrary to § 1605. Regulation Z defines "finance charge" as "the cost of consumer credit," excluding as less relevant to determining such cost a number of specific payments, including over-limit fees, that do not automatically recur or are imposed only when a consumer defaults on a credit agreement. Because over-limit fees are imposed only in the latter circumstance, they can reasonably be characterized as a penalty for defaulting on the credit agreement, and the Board's decision to exclude them from "finance charge[s]" is reasonable. Despite the Board's rational decision to adopt a uniform rule excluding from the term "finance charge" all penalties imposed for exceeding the credit limit, the lower court adopted a case-by-case approach contingent on whether an act of default was "unilateral." That approach would prove unworkable to creditors and, more importantly, lead to significant confusion for the consumer, who would be able to decipher if a charge is more properly a "finance charge" or an "other charge" only by recalling the details of the particular transaction that caused him to exceed his credit limit. In most cases, the consumer would not even know the relevant facts, which are contingent on the nature of the authorization given by the creditor to the merchant. Here, the Board accomplished all of the objectives set forth in § 1604(a)'s broad delegation of rulemaking authority when it set forth a clear, easy to apply (and easy to enforce) rule that highlights the charges the Board determined to be most relevant to a consumer's credit decisions. Pp. 242-245.

295 F. 3d 522, reversed.

THOMAS, J., delivered the opinion for a unanimous Court.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT.

Seth P. Waxman argued the cause for petitioners. With him on the briefs were Louis R. Cohen, Christopher R. Lipsett, Richard C. Pepperman II, and William G. Porter.

Barbara B. McDowell argued the cause for the United States as amicus curiae urging reversal. With her on the brief were Solicitor General Olson, Assistant Attorney General Keisler, Deputy Solicitor General Clement, Matthew D. Roberts, James V. Mattingly, Jr., and Katherine H. Wheatley.

Sylvia Antalis Goldsmith argued the cause for respondent. With her on the brief were John T. Murray, Joseph F. Murray, and Brian K. Murphy.^*

JUSTICE THOMAS delivered the opinion of the Court.

Congress enacted the Truth in Lending Act (TILA), 82 Stat. 146, in order to promote the "informed use of credit" by consumers. 15 U. S. C. § 1601(a). To that end, TILA's disclosure provisions seek to ensure "meaningful disclosure of credit terms." Ibid. Further, Congress delegated expansive authority to the Federal Reserve Board (Board) to enact appropriate regulations to advance this purpose. § 1604(a). We granted certiorari, 539 U. S. 957 (2003), to decide whether the Board's Regulation Z, which specifically excludes fees imposed for exceeding a credit limit (over-limit fees) from the definition of "finance charge," is an unreasonable interpretation of § 1605. We conclude that it is not, and, accordingly, we reverse the judgment of the Court of Appeals for the Sixth Circuit.

I

Respondent, Sharon Pfennig, holds a credit card initially issued by petitioner Household Credit Services, Inc. (Household), but in which petitioner MBNA America Bank, N. A., now holds an interest through the acquisition of Household's credit card portfolio. Although the terms of respondent's credit card agreement set respondent's credit limit at $2,000, respondent was able to make charges exceeding that limit, subject to a $29 "over-limit fee" for each month in which her balance exceeded $2,000.

TILA regulates, inter alia, the substance and form of disclosures that creditors offering "open end consumer credit plans" (a term that includes credit card accounts) must make to consumers, § 1637(a), and provides a civil remedy for consumers who suffer damages as a result of a creditor's failure to comply with TILA's provisions, § 1640.¹ When a creditor and a consumer enter into an open-end consumer credit plan, the creditor is required to provide to the consumer a statement for each billing cycle for which there is an outstanding balance due. § 1637(b). The statement must include the account's outstanding balance at the end of the billing period, § 1637(b)(8), and "[t]he amount of any finance charge added to the account during the period, itemized to show the amounts, if any, due to the application of percentage rates and the amount, if any, imposed as a minimum or fixed charge," § 1637(b)(4). A "finance charge" is an amount "payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit." § 1605(a). The Board has interpreted this definition to exclude "[c]harges . . . for exceeding a credit limit." See 12 CFR § 226.4(c)(2) (2004...