Livingston v. Vanguard Federal Sav. Bank

• Decision Date: 08 September 1989
• Citation: 386 Pa.Super. 496,563 A.2d 175
• Parties: Earl B. LIVINGSTON and Rebecca J. Livingston, His Wife, Individually and on Behalf of all Others Similarly Situated, Appellants, v. VANGUARD FEDERAL SAVINGS BANK. 1913 PITTS. 1988
• Court: Pennsylvania Superior Court

Page 175

563 A.2d 175

386 Pa.Super. 496

Earl B. LIVINGSTON and Rebecca J. Livingston, His Wife,

Individually and on Behalf of all Others Similarly

Situated, Appellants, v. VANGUARD FEDERAL SAVINGS BANK.

1913 PITTS. 1988

Superior Court of Pennsylvania.

Argued June 8, 1989.

Filed Sept. 8, 1989.

Michael P. Malakoff, Pittsburgh, for appellants.

Neal Brendel, Pittsburgh, for appellee.

Before CAVANAUGH, DEL SOLE and MONTGOMERY, JJ.

DEL SOLE, Judge:

Mr. and Mrs. Livingston, as representatives of a class, have taken this appeal from a trial court order sustaining the preliminary objections filed by Vanguard Federal Savings Bank. In so ruling the trial court dismissed Appellants' complaint which alleged that Vanguard's method of computing interest on prepayments made on mobile home loans was not permitted by Pennsylvania law under 69 Pa.S.A. § 623 G.5. The trial court accepted Vanguard's position that the Pennsylvania statute, which prohibits the imposition of prepayment penalties on mobile home installment contracts, was preempted by federal law. We reverse.

The Livingstons initiated this action after learning the amount due to pay-off a loan on a mobile home which they had purchased approximately 4 1/2 years earlier. The sales agreement made between the Livingstons and Keystone Trailer, Inc. declared that Keystone was assigning the contract to Vanguard who was providing the funding to the Livingstons. ¹ The contract provided that the Livingstons were financing $26,300.00 at a rate of 14% for 15 years. It also stated that the finance charges earned by Vanguard were to be calculated using the accounting method known as the "Rule of 78s". After making payments for 4 1/2 years, the Livingstons informed Vanguard that they would like to pay-off the balance of their loan. Vanguard notified them that the pay-off figure, calculated as described in the contract, was $27,002.58, approximately $700.00 more than the principal amount of the Livingstons' loan.

Alleging that this method of calculation resulted in a prepayment penalty as prohibited by 69 Pa.S.A. § 623, ² the Livingstons as representatives of a class sought to have the court enter an award of damages in their favor and issue an injunction against Vanguard. ³ Vanguard then filed preliminary objections contending that this statutory provision was preempted by federal law governing the operation of Vanguard, a federal savings bank. The trial court accepted Vanguard's position that Congress evidenced an intent to preempt state law on this subject by means of its extensive regulation in this area. The court also ruled that this state law directly conflicted with 12 U.S.C. § 1464(a), a regulation issued by the Federal Home Loan Bank Board (the Board) under the authority granted it by the Home Owners' Loan Act of 1933, (HOLA), 12 U.S.C. § 1461 et seq.

Pre-emption may be either expressed or implied by Congress. Toolan v. Trevose Federal Savings and Loan Ass'n, 501 Pa. 477, 462 A.2d 224 (1983), citing Jones v. Rath Packing Co, 430 U.S. 519, 525, 97 S.Ct. 1305, 1309, 51 L.Ed.2d 604 (1977), rehearing denied 431 U.S. 925, 97 S.Ct. 2201, 53 L.Ed.2d 240 (1977) "[W]hen Congress has unmistakably ... ordained, ... that its enactments alone are to regulate a part of commerce, state laws regulating that aspect of commerce must fall. This result is compelled whether Congress' command is explicitly stated in the statute's language or implicitly contained in its structure and purpose." Lukus v. Westinghouse Electric Corp., 276 Pa.Super. 232, 419 A.2d 431 at 438, (1980) citing Jones v. Rath Packing Co, supra. Whether examining explicit language or the structure and purpose of a federal scheme of regulation, a court must proceed with caution. "[I]t must start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress." Lukus v. Westinghouse Electric Corp., supra, quoting Ray v. Atlantic Richfield Co., 435 U.S. 151, 157, 98 S.Ct. 988, 994, 55 L.Ed.2d 179 (1978), quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947). This assumption was created to ensure that "the federal-state balance, ... will not be disturbed unintentionally by Congress or unnecessarily by the courts." Lukus v. Westinghouse Electric Corp., supra, quoting, Jones v. Rath Packing Co., supra, 430 U.S. at 525, 97 S.Ct. at 1409.

In this case the trial court found that preemption could be inferred since Congress had given the Board sufficient authority to entirely dispute state law which would purport to regulate the operation of a federal association. In support of its ruling the trial court cited a federal regulation which provides:

The regulations in this Part 545 are promulgated pursuant to the plenary and exclusive authority of the Board to regulate all aspects of the operations of Federal associations, as set forth in section 5(a) of the Home Owners' Loan Act of 1933, 12 U.S.C. 1464, as amended. This exercise of the Board's authority is preemptive of any state law purporting to address the subject of the operation of a Federal association.

12 C.F.R. 545.2

It may be inferred that Congress intended to supersede state law altogether in a particular field where the scheme of federal regulation is so pervasive that it can be reasonably inferred that Congress left no room for the State to supplement it. Fidelity Federal Savings and Loan Ass'n v. De La Cuesta, 458 U.S. 141, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664 (1982). Such an inference may also be made where the federal interest in a field is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject or where the "object sought to be obtained by federal law and the character of obligations imposed by it may reveal the same purpose." Id. Rice v. Santa Fe Elevator Corp., supra, 331 U.S. at 230, 67 S.Ct. at 1152.

In Fidelity Federal, supra, the Supreme Court was asked to consider whether a Board regulation regarding due-on-sale clauses pre-empted conflicting state law. The Court recounted that the Board, an independent federal regulatory agency, was authorized under the provisions of HOLA to promulgate regulations governing the powers and operation of every federal savings and loan association from its cradle to its corporate grave. 458 U.S. 141, at 144, 102 S.Ct. at 3018; People v. Coast Federal Savings & Loan Ass'n., 98 F.Supp. 311, 316 (S.D.Cal.1951). Although the court acknowledged that Congress did not express any limits on the Board's authority to regulate the lending practices of federal savings and loans, Fidelity Federal, supra, 458 U.S. at 160-61, 102 S.Ct. at 3026, Justice O'Connor in a Concurring Opinion wrote: "I join in the Court's opinion but write separately to emphasize that the authority of the Federal Home Loan Bank Board to pre-empt state laws is not limitless. Although Congress delegated broad power to the Board ... it is clear that HOLA does not permit the Board to pre-empt the application of all state and local laws to such institutions." Id. 458 U.S. 171, 102 S.Ct. at 3032. Further other courts have refused to find that Congress has occupied the entire field of federal savings and loan associations. See Departmento de Asuntos del consumidor v. Oriental Federal Savings Bank, 648 F.Supp. 1194 (D.P.R.1986) (where court recognized local law setting maximum interest rates for retail installment contracts); Ford Motor Co. v. Insurance Comm'r of the Commonwealth of Pennsylvania, 874 F.2d 926, 940 (3d Cir.1989) (where court declined to rule that by the Board's regulations, "Congress left no room for supplementary state regulation.")

We too conclude that Congress did not intend to displace state law entirely in this area. Although the broad scope of the Board's regulations can be readily appreciated, we conclude that absent specific provisions detailing the pre-payment interest charges which federal savings and loans may charge on mobile home installment contracts, the Commonwealth of Pennsylvania was free to limit those charges. However, it is Vanguard's position that the Board has expressly addressed the area of pre-payment charges which may be accessed on a mobile home loan. The trial court accepted this claim and ruled that the Pennsylvania statute directly conflicted with the federal regulation, therefore federal preemption must be upheld. We recognize that a federal regulation has no less pre-emptive effect than a federal statute, Fidelity Federal, supra, 458 U.S. at 153, 102 S.Ct. at 3022, however, we must dismiss this preemption argument simply because the Pennsylvania statute is not in direct conflict with any federal regulation.

The Pennsylvania statute in question permits mobile home installment contracts to be prepaid without any penalty or other charge. 69 P.S. § 623 G. 5. Vanguard claims that this statute conflicts with 12 C.F.R. § 545.34(c) which provides:

Limitations for home loans secured by borrower-occupied property.

(c) Loan payments and prepayments. Except for loans to natural persons secured by borrower-occupied property and on which periodic advances are being made, payments on the principal indebtedness of all loans on real estate shall be applied directly to reduction of such indebtedness, but prepayments made on an installment loan may be reapplied from time to time wholly or partly to offset payments which subsequently accrue under the loan contract. Subject to the disclosure provisions of § 545.33(f)(2), an association may impose a penalty on prepayment of a loan as provided in the loan contract....

12 C.F.R. § 545.34(c) (emphasis added).

The trial court accepted Vanguard's position that this regulation covers the subject of prepayment charges on the sale of a mobile home despite Appellants' contention that this regulation deals solely with prepayment charges on "home" loans which do not include mobile...