Pioneer Credit Corp. v. Commissioner of Banks

• Decision Date: 05 May 1965
• Citation: 207 N.E.2d 51,349 Mass. 214
• Parties: PIONEER CREDIT CORPORATION v. COMMISSIONER OF BANKS et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 51

207 N.E.2d 51

349 Mass. 214

PIONEER CREDIT CORPORATION v. COMMISSIONER OF BANKS et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued March 3, 1965.

Decided May 5, 1965.

James C. Gahan, Jr., Boston, for plaintiff.

Nelson I. Crowther, Jr., Asst. Atty. Gen., for defendants.

Before WILKINS, C. J., and SPALDING, KIRK, SPIEGEL and REARDON, JJ.

SPIEGEL, Justice.

This is a bill in equity for a declaratory decree to determine the rights, duties and status of the plaintiff under G.L. c. 255B, § 16, which governs the payment of refunds of finance charges under motor vehicle retail instalment contracts paid in full before maturity. The judge, without decision, ¹ reported the suit on the 'statment of facts and material issues' contained in his report. The pleadings material to the report are incorporated therein.

The plaintiff is a 'sales finance company' as defined by G.L. c. 255B, § 1, engaging, 'in whole or in part, in the business of purchasing retail instalment contracts from one or more retail sellers,' and is licensed pursuant to G.L. c. 255B, § 2. It is also a small loans licensee regulated under G.L. c. 140, §§ 96-113, as amended. The defendant Hynes is the Commissioner of Banks (commissioner) under G.L. c. 26, § 2, as amended through St.1963, c. 801, § 63. The defendant Hanley is the deputy commissioner of banks and supervisor of loan agencies under G.L. c. 26, § 4, as amended by St.1941, c. 596, § 21.

A 'retail instalment contract' which would be purchased by the plaintiff is 'an agreement, entered into in this state, pursuant to which the title to, the property in or a lien upon a motor vehicle, which is the subject matter of a retail instalment sale, is retained or taken by a retail seller from a retail buyer as security, in whole or in part, for the buyer's obligation.' G.L. c. 255B, § 1. A 'retail instalment sale' is 'a sale of a motor vehicle by a retail seller to a retail buyer for a time sale price payable in two or more instalments, payment of which is secured by a retail instalment contract. The cash sale price of the motor vehicle, the amount, if any, included for insurance and other benefits, recording charges and finance charge shall together constitute the time sale price.' G.L. c. 255B, § 1. Under G.L. c. 255B, § 9, the retail instalment contract must contain, inter alia, the following items: '(1) the cash sale price of the motor vehicle which is the subject matter of the retail instalment sale; (2) the amount of the buyer's down payment, itemizing the amounts paid in money and in goods and containing a brief description of the goods, if any, traded in; (3) the difference between items (1) and (2); (4) the amount, if any, included for insurance on the motor vehicle * * *; (5) the amount, if any, included for other insurance and other benefits * * *; (6) the amount of recording charges; (7) the principal balance, which is the sum of items (3), (4) and (5); (8) the amount of the finance charge; (9) the time balance, which is the sum of items seven and eight, payable in instalments by the buyer to the seller * * *.' A retail seller would assign such a contract to the plaintiff, which would expect to profit from the collection of the finance charge.

Section 14 provides the maximum rates of finance charges. For example, the maximum rate for 'any new motor vehicle designated by the manufacturer by a year model not earlier than the year in which the sale is made' is 'not more than eight dollars per one hundred dollars per year.' 'Such finance charge shall be computed on the principal balance as determined under section nine on contracts payable in successive monthly installments substantially equal in amount.' The majority of the contracts purchased by the plaintiff are customarily payable in such equal monthly instalments. Section 16, upon which the controversy at bar turns, provides as follows: 'Notwithstanding the provisions of any retail instalment contract to the contrary, any buyer may pay in full at any time before maturity the debt of any retail instalment contract, and in so paying such debt shall receive a refund credit thereon for such anticipation. The amount of such refund credit shall represent at least as great a proportion of the finance charge after first defucting from such finance charge an acquisition cost of twelve dollars and fifty cents as the sum of the periodic time balances after the day on which prepayment is made bears to the sum of all the periodic time balances under the schedule of instalments in the original contract. Where the amount of the credit for anticipation of payment is less than one dollar, no refund need be made.' Thus, for purposes of illustration, we hypothesize an instalment contract whereby a 'time balance' (see § 9 , supra), consisting of a principal balance of $2,200 and a finance charge of $200, is payable in equal instalments at the end of each month over a twelve month period. The 'time balance' before the end of the first month is therefore $2,400 and is equal to the entire debt under the contract, and the amount to be paid each month is $200. During the fifth month under such a schedule the 'periodic time balance' would be $1,600 ince $800 in the form of four $200 instalments would have already been paid. If, at the end of the fourth month, the buyer were to pay the fourth instalment of $200 plus the whole of the remaining debt under the contract ($1,600), he would be entitled under § 16 to a refund of part of the finance charge. As part of the process of determining the amount of this refund, the section requires that an 'acquisition cost' of $12.50 be first deducted from the $200 finance charge in our hypothetical example. The remaining $187.50 would then be multiplied by a fraction equivalent to 'the sum of the periodic time balances after the day on which prepayment is made' ($7,200) over 'the sum of all the periodic time balances under the schedule of instalments in the original contract' ($15,600). The amount of the refund would thus be $86.54. ² There is no dispute between the parties as to the factual situation illustrated above. The dispute arises, as will be shown infra, when a prepayment is made during a month or period and not at the end of the month or period.

On December 15, 1961, Hanley sent a memorandum to 'All Licensees,' stating, with regard to § 16: 'The words, 'after the day' in effect mean that only full months can be charged against the buyer. EXAMPLE 1. A contract is prepaid in full fifteen (15) days after said contract commenced. The customer would receive a rebate of the entire finance charge less the acquisition cost of twelve dollars and fifty cents. EXAMPLE 2. A twelve month contract is made on February 1 and is paid in full on June 29. The buyer would receive a rebate of eight (8) months even though the contract has run four (4) months and twenty nine (29) days. This is due to the fact that credit for any partial month must be given to the buyer. All licensees must follow the above procedure for prepayment commencing immediately.'

The plaintiff asserts that this memorandum has no legal effect because Hanley had no power to issue it. However, whether we treat the memorandum as a validly promulgated regulation and whether Hanley or the commissioner had the power to issue it are immaterial questions in the case at bar, for, as it is apparent infra, there is, in our view, only one permissible construction of § 16. The defendants in their brief agree with and defend the position taken in the memorandum, and we thus regard the memorandum as part of their contention as to the proper construction of § 16. We do not here decide whether Hanley is a proper party in this case. We do note that under § 21, '[w]hoever violates any provision of [chapter 255B] * * * shall be punished by a fine of not more than five hundred dollars or by imprisonment for not more than six months, or both.' Furthermore, under § 7 a 'license may be suspended or revoked by the commissioner * * * [for] failure to comply with the provisions of' c. 255B. Inasmuch as the plaintiff would act at its peril under § 16 in the face of these sections and in view of the commissioner's interpretation of § 16, there is before us a controversy under G.L. c. 231A.

It is the plaintiff's contention that the 'numerator of the refund fraction [under § 16] is derived * * * [from] the periodic time balance which * * * [becomes due at the start of] the next full period after the day of prepayment.' It argues that, under the defendants' interpretation of § 16, 'if the buyer prepays in full during a month or installment period, not only does he receive a refund of that portion of the finance charge fairly allocable to periods anticipated, but he would also receive a refund credit for finance charges fairly allocable to a portion of the contract [period] which the buyer himself permitted to run. The seller or his assignee is thereby deprived of that portion of the finance charge which is applicable to a partially elapsed installment period--in other words, the buyer is given the use of the seller's (or his assignee's) capital for this period * * * but thus escapes the obligation to pay him for it. Since the buyer is in sole control of the selection of the day on which prepayment is made, it hardly seems equitatble * * * to give him also the power to employ another's capital without compensation.'

The issue is simply whether, under § 16, 'the sum of the periodic time balances after the day on which prepayment is made' includes the periodic time balance at the end of the month or period in which prepayment is made. We are of opinion that it is so included.

When the statute in question was enacted (1958 Senate Bill No. 238, p. 10; 1958 Senate Journal, p. 1539; 1958 House Journal, p. 2050), a number of bills on the subject had been considered by the committee on banks and banking. See 1958 Senate Journal, p. 465. One of them, 1958 Senate Bill...