Pfennig v. Household Credit Services, Inc.

• Decision Date: 11 April 2002
• Docket Number: No. 00-4213.,00-4213.
• Citation: 286 F.3d 340
• Parties: Sharon R. PFENNIG, Plaintiff-Appellant, v. HOUSEHOLD CREDIT SERVICES, INC. and MBNA America Bank, N.A., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

286 F.3d 340

Sharon R. PFENNIG, Plaintiff-Appellant, v. HOUSEHOLD CREDIT SERVICES, INC. and MBNA America Bank, N.A., Defendants-Appellees.

No. 00-4213.

United States Court of Appeals, Sixth Circuit.

Argued: November 27, 2001.

Decided and Filed: April 11, 2002.

COPYRIGHT MATERIAL OMITTED

John T. Murray (briefed), Sylvia M. Antalis (argued and briefed), Murray & Murray, Sandusky, OH, for Plaintiff-Appellant.

William G. Porter II (argued and briefed), John J. Todor (briefed), Vorys, Sater, Seymour & Pease, Columbus, OH, Richard C. Pepperman II (argued and briefed), Sharon L. Nelles (briefed), Sullivan & Cromwell, New York, NY, David W. Alexander (briefed), Squire, Sanders & Dempsey, Columbus, OH, for Defendants-Appellees.

Before CLAY and GILMAN, Circuit Judges; EDGAR, Chief District Judge.^*

CLAY, J., delivered the opinion of the court, in which GILMAN, J., joined. EDGAR, Chief District Judge (pp. 351-53), delivered a separate opinion dissenting in part and concurring in part.

OPINION

CLAY, Circuit Judge.

Plaintiff, Sharon R. Pfennig, appeals from the district court's September 1, 2000 order dismissing her complaint in which she seeks to bring a class action against Defendants, Household Credit Services, Inc. ("Household") and MBNA America Bank, N.A. ("MBNA"), for alleged violations of the federal Truth in Lending Act ("TILA" or "Act"), 15 U.S.C. § 1601, et seq. Plaintiff alleges that Defendants extended her credit and then charged her a fee for doing so without properly disclosing that fee as a finance charge as required by TILA. The district court dismissed Plaintiff's complaint, determining that regulations promulgated by the Federal Reserve Board ("FRB"), which exclude over-limit fees from the definition of "finance charges," barred her claims. We now AFFIRM in part, REVERSE in part, and REMAND.

BACKGROUND

Plaintiff holds a credit card originally issued by an affiliate of Defendant Household in 1993, but in which MBNA acquired the interest in 1998, when MBNA bought Household's credit card portfolio. Defendants originally established Plaintiff's credit limit at $2,000, and subsequently allowed her to increase that limit when she attempted to make a purchase. That purchase pushed Plaintiff's credit limit over the originally agreed upon credit limit. Incident to extending Plaintiff's credit limit, Defendants assessed her an over-limit charge of $29.00 a month for every month her balance remained over the original limit. Plaintiff alleges that this charge was omitted from the finance charge calculation on her monthly statement, and instead was posted to her account as a new purchase or debit on which additional finance charges were calculated.

As indicated, Plaintiff seeks to bring a class action on behalf of all customers who hold or have held credit cards issued by Defendants. She alleges that Defendants' practice of imposing over-limit fees in the manner described above is pervasive. Plaintiff claims that Defendants routinely permit their customers to exceed their originally agreed upon credit limits upon request, and then impose upon them an over-limit fee for going over that limit. Plaintiff further alleges that the foregoing results in an exorbitant penalty that often amounts to an annual percentage rate of nearly sixty percent on credit extended over the limit. As a result of Defendants' alleged TILA violations, Plaintiff requests equitable relief, including a declaratory judgment that the over-limit fee is not properly disclosed pursuant to TILA (count I), and monetary damages (count II).

As further explained below, the district court dismissed Plaintiff's complaint on Defendants' motion for failure to state a claim under Fed.R.Civ.P. 12(b)(6) because the administrative regulations interpreting TILA (hereinafter "Regulation Z") expressly exclude fees charged for exceeding a credit limit from the definition of the "finance charge."

DISCUSSION

I.

This Court reviews de novo a district court's dismissal of a complaint under Rule 12(b)(6). Hammons v. Norfolk S. Corp., 156 F.3d 701, 704 (6th Cir.1998) (citing Merriweather v. City of Memphis, 107 F.3d 396, 398 (6th Cir.1997)). On such a motion, the Court accepts as true well-pleaded facts alleged in the complaint, and will dismiss the complaint only if it appears beyond doubt that the plaintiff can prove no set of facts in support of the claims that would entitle him or her to relief. Bibbo v. Dean Witter Reynolds, Inc., 151 F.3d 559, 561 (6th Cir.1998) (citing Sistrunk v. City of Strongsville, 99 F.3d 194, 197 (6th Cir.1996)). All allegations must be construed in the light most favorable to the plaintiff. Mertik v. Blalock, 983 F.2d 1353, 1355 (6th Cir.1993).

II.

Plaintiff argues that the plain language of TILA mandates that Defendants include as a finance charge the monthly fee imposed on Plaintiff's monthly statement for exceeding her credit limit. She admits that Regulation Z, promulgated by the FRB, has excluded from the definition of the term "finance charge" fees imposed for exceeding a credit limit. However, she argues that the regulation conflicts with the plain language of the statute, and in such cases, the Supreme Court has held that courts must ignore the regulation so as to give effect to the statute. She further contends that TILA is a consumer protection statute and must be construed liberally so as to prevent the type of action in which Defendants are now engaged.

Defendants contend that the district court properly dismissed Plaintiff's complaint because Regulation Z excludes over-limit fees from the definition of finance charge. They argue that Regulation Z's exclusion of over-limit fees from the definition of the finance charge is rationally based and not contrary to TILA, and that the Supreme Court and this Court have stressed that courts should defer to the FRB's interpretations of TILA. Finally, Defendants claim that they acted in good faith compliance with Regulation Z when they failed to disclose the over-limit fee as a finance charge, and that pursuant to 15 U.S.C. § 1640(f), they are therefore immune from civil liability in the instant action.

III.

The purpose of TILA is "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare... the various credit terms available to him and avoid the uninformed use of credit and to protect the consumer against inaccurate and unfair credit billing and credit card practices." 15 U.S.C. § 1601(a); Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 559, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980) (explaining that TILA's purpose is to assure "meaningful disclosure of credit terms to consumers"); Begala v. Ohio, Nat'l Ass'n, 163 F.3d 948, 950 (6th Cir.1999) (holding that TILA "was enacted to promote the informed use of credit by consumers by requiring meaningful disclosure of credit terms") (citation omitted). Because of TILA's purpose of protecting consumers in credit transactions, this Court has held that the statute must be construed liberally in the consumer's favor. See Jones v. TransOhio Sav. Ass'n, 747 F.2d 1037, 1040 (6th Cir.1984) ("TILA is a remedial statute and should be construed liberally in favor of the consumer.") (citations omitted).

TILA, however, is not exhaustive. Congress delegated to the FRB the authority "to elaborate and expand the legal framework governing the commerce in credit." Milhollin, 444 U.S. at 567, 100 S.Ct. 790 ("Congress has specifically designated the Federal Reserve Board ... as the primary source for interpretation and application of the truth-in-lending law."); see also 15 U.S.C. § 1604(a) (explaining that the FRB "shall prescribe regulations to carry out the purposes of this subchapter"). The Supreme Court has recognized that TILA is a highly technical act and that deference should be given to the FRB's interpretation of the Act as long as such interpretations are not irrational. Milhollin, 444 U.S. at 568, 100 S.Ct. 790. In explaining the deference that courts should afford to the FRB's interpretation of TILA, the Court stated:

wholly apart from jurisprudential considerations or congressional intent, deference to the ... [FRB] is compelled by necessity; a court that tries to chart a true course to the Act's purpose embarks upon a voyage without compass when it disregards the agency's views. The concept of "meaningful disclosure" that animates TILA ... cannot be applied in the abstract. Meaningful disclosure does not mean more disclosure. Rather, it describes a balance between "competing considerations of complete disclosure ... and the need to avoid ... [informational overload.]"

Id. (italics in the original). This Court also has stated that "in TILA actions, ... it will defer to the regulations interpreting the Act." Begala, 163 F.3d at 950 (citing Milhollin, 444 U.S. at 565, 100 S.Ct. 790). However, while the FRB has been given broad authority in prescribing regulations to carry out the purposes of TILA, this authority is confined to efforts to "effectuate the purpose of [the Act], to prevent circumvention or evasion thereof, or to facilitate compliance therewith." 15 U.S.C. § 1604(a). Thus, the FRB's authority is not without limits. See e.g., Anderson Bros. Ford v. Valencia, 452 U.S. 205, 219, 101 S.Ct. 2266, 68 L.Ed.2d 783 (1981) (holding that courts need only defer to FRB regulations that are not repugnant to TILA); Consumers Union of the U.S., Inc. v. Fed. Reserve Bd., 938 F.2d 266, 272-74 (D.C.Cir.1991) (holding that despite authority § 1604(a) grants to the FRB, remand was necessary for clarification of the rationality of regulations that conflicted with TILA disclosure requirements regarding home equity loan promotional discount rates and repayment options).

Section 1605(a) defines "finance charge" as follows:

Except as otherwise provided in this section, the amount of the finance charge in connection with any consumer credit transaction shall be determined as the sum of all charges, payable directly or...