Ives v. W. T. Grant Co.
| Decision Date | 31 July 1975 |
| Docket Number | D,No. 462,462 |
| Citation | 522 F.2d 749 |
| Parties | Mildred IVES et al., Plaintiffs-Appellees, v. W. T. GRANT COMPANY, Defendant-Appellant. ocket 74-2131. |
| Court | U.S. Court of Appeals — Second Circuit |
William J. Egan, New Haven, Conn. (Wiggin & Dana; J. Michael Eisner, David A. Reif, New Haven, Conn., on the brief), for defendant-appellant.
William H. Clendenen, Jr., New Haven, Conn. (Clendenen & Lesser, David M. Lesser, New Haven, Conn.; Zeldes, Needle & Cooper, Stuart Bear, Bridgeport, Conn., on the brief), for plaintiffs-appellees.
John Nicoll, Deputy Gen. Counsel; D. Edwin Schmelzer, Chief Atty., Fair Credit Practices; Mark S. Medvin, Atty., Fair Credit Practices, Federal Reserve System, as amicus curiae.
Before LUMBARD, MOORE and FEINBERG, Circuit Judges.
W. T. Grant Company (Grants) appeals from an order of the United States District Court for the District of Connecticut, Jon O. Newman, J., granting plaintiffs' motion for partial summary judgment, including injunctive relief, in this action alleging violations of the Connecticut Truth-in-Lending Act, C.G.S.A. § 36-393 et seq., and the Connecticut usury laws, C.G.S.A. §§ 37-4, 36-243. 1 Plaintiffs are three residents of Connecticut, suing on behalf of themselves and others similarly situated. The lawsuit is a broad-scale attack on Grants' coupon book credit plan, which has also been the subject of extensive litigation in other jurisdictions. 2
The court below decided that it had jurisdiction over these state law claims. Then it turned to the merits of the Grants coupon plan, which it described as follows:
(A) customer obtains a book or books of coupons which in turn may be exchanged for merchandise sold by defendant; the coupon books have varying total values of $10.00, $25.00, $50.00, $100.00 or $200.00, and the coupons may be either exchanged for merchandise at any time or returned for a cash refund. When acquiring a If the debtor chooses to acquire additional coupon books while the original account is still outstanding, like plaintiffs Mildred Ives and Moira Robertson, a substituted "add-on" form installment sales contract is signed. Typically, the prior contract balance (less an unearned finance charge rebate), plus the sum of the new coupons issued (together with any new insurance charges), constitute an amount on which a new overall finance charge is assessed, and the grand total is again made payable in monthly installments, with the first payment due thirty days from the add-on contract's execution again without regard to any actual use or rate of use of the new coupons.
coupon book for the first time or reopening a coupon account, like plaintiff Joyce Chapman, a customer executes a form retail installment sales contract, generally labelled a "new and reopened" account agreement, which sets forth the transaction's terms and basically obligates the customer-debtor to pay in monthly installments a total sum consisting of the face value of the coupon book, any attendant credit insurance charges, and finance charges computed on the coupon book's value and any such insurance charges. The monthly installment payment is ordinarily set at the outset at a figure which would result in a paid-up account within twenty-four to thirty months. Prior to January 1, 1971, the customer's obligation to pay accrued immediately upon entry into the installment contract; thereafter, as in plaintiff Joyce Chapman's case, the obligation has been triggered by the first exchange of a coupon for merchandise, although the monthly payment obligation which then accrues is based on the full contract amount without regard to the amount of the first actual coupon-merchandise exchange or to the actual period of time over which the coupons are used.
The court held that the contracts used for the plan violated the Truth-in-Lending law in five ways: (1) the term "amount financed" was used instead of "unpaid balance"; (2) the finance charge was not clearly disclosed in the add-on contract; (3) non-rebated insurance premiums were not disclosed; (4) the finance charge was not properly itemized; and (5) the effect of a claimed security interest was not properly explained. The court also found a violation of state usury laws because Grants' interest rate of over 19 per cent exceeded the legal 12 per cent limit of C.G.S.A. §§ 37-4, 36-243. On appeal, Grants raises a jurisdictional issue and a host of defenses to these charges. We affirm.
Grants first challenges the jurisdiction of the district court. The court below held it had jurisdiction over these state law claims by virtue of the federal Truth in Lending Act, 15 U.S.C.A. §§ 1601-65, particularly 15 U.S.C. § 1640(e) and 12 C.F.R. § 226.12(c). Grants' position is that absent diversity only the Connecticut state courts may hear these claims and thus the case should be remanded to examine whether diversity jurisdiction exists. 3 Since resolution of this issue depends in large part on the validity of regulations issued by the Federal Reserve Board, we asked for, and received, a brief stating the Board's position on the question.
After many years of congressional consideration, the federal Truth in Lending Act was passed in 1968 as Title I of the Consumer Credit Protection Act. 4 The Board shall by regulation exempt from the requirements of this part (15 U.S.C. §§ 1631-44) any class of credit transactions within any State if it determines that under the law of that State that class of transactions is subject to requirements substantially similar to those imposed under this part, and that there is adequate provision for enforcement.
Administrative enforcement is divided among various agencies of the federal government, but the Federal Reserve Board was directed to "prescribe regulations to carry out the purposes of" the Act, and these regulations were to provide for such "exceptions for any class of transactions, as in the judgment of the Board are necessary or proper to effectuate the purposes of (the Act) . . . or to facilitate compliance therewith." 15 U.S.C. § 1604. Also, 15 U.S.C. § 1633 provides that:
The jurisdictional problem in this case arises out the Board's power to grant exemptions.
In 1970, pursuant to section 1633, the Board granted Connecticut an exemption from the federal law with an important caveat:
Except as provided in (12 C.F.R.) § 226.12(c), all classes of credit transactions within the State of Connecticut are hereby granted an exemption from the requirements of Chapter 2 of the Truth in Lending Act (15 U.S.C. §§ 1631-42) . . . .
12 C.F.R. § 226.12 Supplement III(e), 35 Fed.Reg. 11992 (July 25, 1970). 12 C.F.R. § 226.12(c), referred to in the Board's exemption, provides:
Civil liability. In order to assure that the concurrent jurisdiction of Federal and State courts created in section 130(e) of the Act (15 U.S.C. § 1640(e)) shall continue to have substantive provisions to which such jurisdiction shall apply, and generally to aid in implementing the Act with respect to any class of transactions exempted pursuant to paragraph (a) of this section and Supplement II, the Board pursuant to sections 105 (15 U.S.C. § 1604) and 123 (15 U.S.C. § 1633) hereby prescribes that:
(1) No such exemption shall be deemed to extend to the civil liability provisions of sections 130 (15 U.S.C. § 1640) and 131 (15 U.S.C. § 1641); and
(2) After an exemption has been granted, the disclosure requirements of the applicable State law shall constitute the disclosure requirements of this Act, except to the extent that such State law imposes disclosure requirements not imposed by this Act. Information required under such State law with the exception of those provisions which impose disclosure requirements not imposed by this Act shall, accordingly, constitute the "information required under this chapter" (Chapter 2 of the Act) for the purpose of section 130(a) (15 U.S.C. § 1640(a)).
According to this Regulation, as a result of the exemption, "the disclosure requirements" of the Connecticut law became "the disclosure requirements" of the federal Act. 5 In addition, under 15 U.S.C. § 1640, relevant sections of which are quoted in the margin, 6 federal courts Grants vigorously contests the Board's power to create this "limited" exemption. It asserts that the purpose of 15 U.S.C. § 1633 was to remove totally any federal involvement in consumer credit transactions in exempted states. To this end Grants cites legislative history indicating that the exemptions were designed so that:
continue to have jurisdiction over any civil suit claiming violation of Connecticut disclosure requirements.
(A)s state legislatures promulgate disclosure statutes which are substantially as protective as the federal Truth-in-Lending Act, increasing numbers of credit transactions would be exempted from coverage under the federal law. Federal involvement in the area would subsequently diminish and assume a secondary position, leaving primary truth-in-lending responsibility to the states.
Hearings on S. 5 Before the Subcommittee on Financial Institutions of the Senate Committee on Banking and Currency, 90th Cong., 1st Sess. 452 (1967) (). See also id. at 666, 677, and 681 (), id. at 281; S.Rep.No.392, 90th Cong., 1st Sess. 21, 24 (1967); 113 Cong.Rec. 18409 (July 11, 1967) (statement of Senator Bennett), and id. at 18413 (statement of Senator McIntyre). We agree that the drafters of the federal law hoped that federal interference in consumer credit regulation would soon diminish as the states passed similar legislation, but we do not agree that this meant that federal court jurisdiction was to be eliminated.
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