Mourning v. Family Publications Service, Inc 8212 829

Citation93 S.Ct. 1652,411 U.S. 356,36 L.Ed.2d 318
Decision Date24 April 1973
Docket NumberNo. 71,71
CourtU.S. Supreme Court

Petitioner, who contracted to purchase magazine subscriptions from respondent, brought this action in District Court, alleging that respondent had failed to comply with the disclosure provisions of the Truth in Lending Act, as implemented by Federal Reserve Board 'Regulation Z.' The District Court found that respondent had failed to comply with Regulation Z, in that respondent had extended credit to petitioner, payable in more than four installments, without making the disclosures required by the Act. The Court of Appeals reversed, holding that the Board had exceeded its statutory authority in issuing Regulation Z since the regulation required disclosure in some credit transactions in which a finance charge had not been made, and, alternatively, that the regulation violated due process by creating a conclusive presumption that credit payments made in more than four installments included a finance charge. Held:

1. The 'Four Installment Rule' of Regulation Z is a valid exercise of the Federal Reserve Board's rulemaking authority under the Truth in Lending Act. Pp. 363—375.

(a) Congress, which was well aware that merchants could evade the disclosure requirements of the Act by concealing credit charges, gave the Board broad rulemaking power to prevent such evasion, and, in the exercise of that power, the Board issued the challenged rule to deal with the practice of concealing finance charges in the cash price of merchandise sold. Pp. 363—369.

(b) No conflict arises from the fact that the Act mentions disclosure only in regard to transactions in which a finance charge is imposed while the disclosure requirements of the rule sometimes apply where no such charge exists, since Congress did not attempt to specify all types of situations under which the Board's regulations might apply, and the deterrent effect of the rule clearly implements the objectives of the Act. Pp. 372—373.

(c) The Board had authority to promulgate a general rule to prevent circumvention, even if the rule embraces some transac- tions that the provisions of the Act might not on their face reach. Village of Euclid v. Ambler Realty Co., 272 U.S. 365, 47 S.Ct. 114, 71 L.Ed. 303. Pp. 373—374.

(d) Existence of penalty provisions in the Act does not require a narrow construction of the Act's nonpenalty provisions. FCC v. American Broadcasting Co., 347 U.S. 284, 74 S.Ct. 593, 98 L.Ed. 699, distinguished. Pp. 374—375.

2. Imposition, pursuant to § 130 of the Act, of a minimum penalty of $100 in cases such as this where the finance charge is nonexistent or undetermined, but where disclosure has not been made, is a permissible sanction. P. 376.

3. In imposing a disclosure requirement on all members of a defined class to discourage evasion by a substantial portion of that class, the challenged regulation does not create a conclusive presumption violative of the Fifth Amendment. Pp. 376—377.

5 Cir., 449 F.2d 235, reversed and remanded.

Eric Schnapper, New York City, for petitioner.

A. Raymond Randolph, Jr., Washington, D.C., for United States, as amicus curiae, pro hac vice, by special leave of Court.

Robert S. Rifkind, Washington, D.C., for respondent.

Mr. Chief Justice BURGER delivered the opinion of the Court.

We granted the writ of certiorari in this case to resolve whether the Federal Reserve Board exceeded its authority under § 105 of the Truth in Lending Act 1 in promulgating that portion of Regulation Z commonly referred to as the 'Four Installment Rule.'2

Respondent is a Delaware corporation which solicits subscriptions to several well-known periodicals. In 1969, one of respondent's door-to-door salesmen called on the petitioner, a 73-year-old widow residing in Florida, and sold her a five-year subscription to four magazines. Petitioner agreed to pay $3.95 immediately and to remit a similar amount monthly for 30 months. The contract form she signed contained a clause stating that the subscriptions could not be canceled and an acceleration provision similar to that found in many installment undertakings, providing that any default in installment payments would render the entire balance due. The contract did not recite the total purchase price of the subscriptions or the amount which remained unpaid after the initial remittance, and made no reference to service or finance charges. The total debt assumed by the petitioner was $122.45; the balance due after the initial payment was $118.50.

Petitioner made the initial payment, began to receive the magazines for which she had contracted, and then defaulted. Respondent declared the entire balance of $118.50 due and threatened legal action. Petitioner brought this suit in United States District Court, alleging that respondent had failed to comply with the disclosure provisions of the Truth in Lending Act. She sought re- covery of the statutory penalty and reimbursement for the costs of the litigation, including reasonable attorney's fees.

In support of her claim, petitioner submitted to the District Court a series of 'dunning' letters which she had received from respondent. One letter, dated December 16, 1969, stated:

'After making the terms of our contract clear to you, we went ahead in good faith and had your subscriptions entered for the entire periods you had agreed to take. The contract you signed is: Not subject to cancellation after acceptance or verification.

'Knowing, therefore, the obligations we have incurred in your name, we feel confident that you will continue your magazine subscriptions and make the convenient monthly payments regularly and promptly.'3

A second letter, received a week later from respondent's agent, declared:

'After an account is three months delinquent it is brought to my attention. I feel that you should realize that you are receiving our merchandise which we have paid for. Had you dealt directly with the publishers yourself, you would have had to pay them in advance for the magazines.

'Again, let me remind you that we have ordered these magazines in advance and that you have incurred an obligation to repay us. This is a credit account, and as such must be repaid by you on a monthly basis, much the same as if you had purchased any other type of merchandise on a monthly budget plan. (Emphasis supplied; underlined words are emphasized in the original letter).'4

Respondent admitted sending each of the above letters to petitioner.5 In addition, respondent submitted one affidavit to the District Court, describing the nature of the contracts which it offered to its clients. The affidavit stated that a customer who ordered magazine subscriptions from respondent was required to pay for all magazines during the first half of the contract term. 6 Thus, according to the affidavit, at all times during the course of contract, a purchaser who has complied with the terms of the contract has paid for more magazines than he has received. Respondent did not, however, submit any affidavit to the court contesting any of the facts stated in its 'dunning' letters. On this record, both parties moved for summary judgment, declaring explicitly that no factual question remained undecided.

Section 121 of the Truth in Lending Act requires merchants who regularly extend credit, with attendant finance charges,7 to disclose certain contract information 'to each person to whom consumer credit is extended and upon whom a finance charge is or may be imposed . . .'8 Among other relevant facts, the merchant must, where applicable, list the cash price of the merchandise or service sold, the amount of finance and other charges, and the rate of the charges.9 Failure to disclose renders the seller liable to the consumer for a penalty of twice the amount of the finance charge, but in no event less than $100 or more than $1,000.10 The creditor may also be assessed for the costs of the litigation, including reasonable attorney's fees 11 and, in certain circumstances not relevant here, may be the subject of criminal charges.12

Section 105 of the Act13 provides:

'The (Federal Reserve) Board shall prescribe regulations to carry out the purposes of (the Act). These regulations may contain such classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for any class of transactions, as in the judgment of the Board are necessary or proper to effectuate the purposes of (the Act), to prevent circumvention or evasion thereof, or to facilitate compliance therewith.'

Accordingly, the Board has promulgated Regulation Z, which defines the circumstances in which a seller who regularly extends credit must make the disclosures outlined in § 128.14 The regulation provides that disclosure is necessary whenever credit is offered to a consumer 'for which either a finance charge is or may be imposed or which pursuant to an agreement, is or may be payable in more than four installments.'15

Relying on the rule governing credit transactions of more than four installments, the District Court granted summary judgment for petitioner. The court found that respondent had extended credit to petitioner,16 which by agreement was payable in more than four installments, but had failed to comply with the disclosure provisions of the Act.

The Court of Appeals reversed, holding that the Board had exceeded its statutory authority in promulgating the regulation upon which the District Court relied. The regulation was found to conflict with § 121 of the Act17 since it required that disclosure be made in regard to some credit transactions in which a finance charge had not been imposed. As an alternative ground for its decision, the Court of Appeals held that the regulation created a conclusive presumption that credit payments made in more than four installments included a finance charge. Relying on ...

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