Moyer v. Citicorp Homeowners, Inc., 84-8166
| Decision Date | 22 September 1986 |
| Docket Number | No. 84-8166,84-8166 |
| Citation | 799 F.2d 1445 |
| Parties | Whildon L. MOYER, et al., Plaintiffs-Appellees, v. CITICORP HOMEOWNERS, INC., et al., Defendants-Appellants. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Michael J. Templeton, Hansell & Post, W. Rhett Tanner, Atlanta, Ga., for defendants-appellants.
John B. Long, David E. Hudson, Thomas W. Tucker, Augusta, Ga., for plaintiffs-appellees.
Appeal from the United States District Court for the Southern District of Georgia.
Before TJOFLAT and KRAVITCH, Circuit Judges, and DUMBAULD *, Senior District Judge.
This interlocutory appeal 1 is from a decision of the district court holding the interest rates of three retail installment contracts for the purchase of mobile homes usurious under Georgia law. As to two of the contracts, the court rejected the lenders' argument that federal law preempted Georgia law and authorized the interest rates charged. With respect to the third contract, the court refused to apply South Carolina's usury law, which also would have authorized the interest rate charged. We disagree with the district court's treatment of the federal preemption issue and accordingly reverse its decision on this point. We affirm, however, the court's application of Georgia law to the third contract.
In the late 1970's, the interest rates permitted under the usury laws of many states were so far below the interest rates called for by free market forces as to make housing unavailable to many who needed mortgage financing. In an effort to cure this problem and to permit financiers to charge the interest rates commanded in the free market, Congress, in 1980, enacted the Depository Institutions Deregulation and Monetary Control Act, Pub.L. No. 96-221, tit. V., Sec. 501, 94 Stat. 161 (1980) (codified at 12 U.S.C. Sec. 1735f-7 note (1982)) (DIDMCA). See S.Rep. No. 368, 96 Cong., 2d Sess., reprinted in 1980 U.S.Code Cong. & Ad. News 236, 254. Section 501(a)(1) of DIDMCA expressly preempts all state laws that limit the interest rate 2 chargeable in connection with loans 3 creating first liens on residential real property and mobile homes, 4 provided that the terms and conditions of such loans comply with regulations promulgated by the Federal Home Loan Bank Board (Bank Board). 5
In 1981, two married couples from Georgia, the Sanderses and the Harrisons, purchased mobile homes from a dealer in Thomson, Georgia. They paid part of the purchase price in cash and financed the balance, giving the dealer a first lien on the purchased mobile homes by executing a retail installment contract. The contracts provided for interest rates in excess of the rate allowed by the Georgia Motor Vehicle Sales Finance Act, O.C.G.A. Secs. 10-1-30 to 10-1-38 (1982) (MVSFA). The dealer sought to avoid the application of MVSFA by having the buyers execute retail installment contracts that recited that they were made in compliance with federal law, 6 presumably DIDMCA. The dealer assigned the contracts to Citicorp Homeowners, Inc., which, in turn, assigned them to Citicorp Acceptance Co., Inc. (collectively, "Citicorp").
In June 1981, the Moyers, citizens of South Carolina, entered into a retail installment sales contract with an Augusta, Georgia dealer for the purchase of a mobile home. The contract provided for an interest rate in excess of that allowed by MVSFA but permitted under South Carolina law. Apparently in an effort to ensure that South Carolina's usury law would govern the transaction, the dealer had the Moyers execute a form contract that conformed to South Carolina law. 7 The contract provided, however, that it would be governed by the law of the state of the dealer's residence; in this instance, the dealer resided in Georgia. Nothing in the contract indicated that it had been drafted so as to comply with DIDMCA. After the contract was executed, the dealer assigned it to Citicorp.
On March 22, 1983, the Sanderses, Harrisons, and Moyers (collectively "buyers" or "debtors"), invoking the district court's diversity jurisdiction, 8 28 U.S.C. Sec. 1332 (1982), joined forces and filed this class action suit against Citicorp in the United States District Court for the Southern District of Georgia. They alleged that the interest rates they were paying Citicorp violated Georgia's usury law, MVSFA, and asked the court to enjoin Citicorp from collecting the interest due under their contracts. 9 They also sought the recovery of the penalty provided in section 10-1-38(c) of MVSFA: "double the time price differential and any delinquency charge and any attorneys' fees and court costs charged and paid with respect to such" contracts. 10 The debtors sought the above relief in behalf of all persons who had executed similar contracts assigned to Citicorp.
Citicorp, in its answer, alleged that the Sanders and Harrison contracts complied with DIDMCA and the regulations promulgated by the Bank Board; consequently, the interest charged was permissible. As for the Moyer contract, Citicorp alleged that South Carolina law, which allowed the contracted interest rate, controlled. After the parties filed cross motions for summary judgment, the district court granted the debtors' motion on the issue of liability only, making the following rulings. First, the Sanders and Harrison contracts failed to comply with two of the Bank Board's regulations, 12 C.F.R. Secs. 590.4(d), (h) (1985), and thus were subject to Georgia's usury law. The contracts did not comply with section 590.4(d), because the contracts' provision concerning the debtors' right to prepay the balance of the debt without penalty was not disclosed in type larger than that used in the body of the documents. The contracts did not comply with section 590.4(h), because they contained language that could be interpreted as eliminating the debtors' right under that section to receive notification thirty days prior to foreclosure, repossession, or acceleration of the debt.
Second, the district court rejected Citicorp's contention that South Carolina law governed the Moyer contract. The court reasoned that Georgia law applied for two reasons: the contract had been made and performed in Georgia, 11 and it provided that the law of the state of the dealer's residence, i.e., Georgia, would control its enforcement.
The district court, pursuant to 28 U.S.C. Sec. 1292(b) (1982), certified that its order granting partial summary judgment involved a controlling question of law as to which there was substantial ground for difference of opinion and that an immediate appeal would materially advance the ultimate termination of the cause, and we granted leave to appeal. At the time it entered the order now before us, the district court, in a separate order, certified two plaintiff classes. The propriety of this certification is not involved in this appeal.
In the discussion that follows, we first address the question of whether the Sanders and Harrison contracts satisfied the Bank Board's regulations, and therefore DIDMCA. We then address the question of whether the Moyer contract is controlled by the usury law of South Carolina or Georgia.
To avoid a state's usury laws, a lender must provide in his loan statement that "debtor may prepay in full or in part the unpaid balance of the loan at any time without penalty." 12 C.F.R. Sec. 590.4(d) (1985). "The right to prepay shall be disclosed in the loan contract in type larger than that used for the body of the document." Id. The debtors' right to prepay without penalty is set out on the face of the Sanders and Harrison contracts. The district court, however, found that words in both the body of the documents and the prepayment clause were of the same point type size and accordingly ruled that the contracts did not satisfy section 590.4(d). 12 We view the district court's interpretation of the regulation as unduly narrow.
As we noted in our en banc decision in Grant v. General Electric Credit Corp., 764 F.2d 1404, 1408 (11th Cir.1985) (en banc) (per curiam), the Bank Board's originally proposed version of section 590.4(d) required that the prepayment clause be "conspicuously disclosed in the loan contract." 45 Fed.Reg. 31,124 (1980). The Board eventually employed the current type-size language because it believed that the "conspicuously disclosed" standard "may be potentially troublesome." 45 Fed.Reg. 43,684 (1980). It is clear that the current regulation is intended to require a creditor to set out the prepayment clause in such a way as to bring the clause to the debtor's attention. The Bank Board determined that larger type would accomplish this result. Nothing in the language or history of section 590.4(d), however, suggests that the prepayment clause be in a larger point type than the type used in the body of the document. The type in the prepayment clause of the Sanders and Harrison contracts, while perhaps of the same point type as the type used in the body of the contracts, is still "larger" than the type in the body of the contracts for the purposes of section 590.4(d). The disclosure clause is printed in boldface type; each letter of the clause is wider than those appearing in the body of the contracts. In addition, most of the initial letters of each word in the clause are capitalized, in contrast to the initial letters of the words in the body of the contracts which are only capitalized if they begin a sentence or certain significant terms. These distinguishing factors serve to bring the prepayment clause to the attention of the debtor; 13 we therefore hold that the Sanders and Harrison contracts satisfy section 590.4(d). 14
Section 590.4(h)(1) provides that "no action to repossess or foreclose, or to accelerate payment of the entire outstanding balance of the obligation may be taken against the debtor until 30 days after the creditor sends the debtor a notice of default." 1...
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