Norman Sage v. Freedom Mortgage Company

704 F.2d 1519, 1983 U.S. App. LEXIS 27544

• Court: Court of Appeals for the Eleventh Circuit
• Decided: May 19, 1983
• Docket: 80-7717
• Status: Published

Opinions

VANCE, Circuit Judge:

A panel of this court reversed a summary judgment for the lender defendant¹ holding itself bound by the fifth circuit’s decision in Pollock v. General Finance Corp., 535 F.2d 295 (5th Cir.1976), cert. denied, 434 U.S. 891, 98 S.Ct. 265, 54 L.Ed.2d 176 (1977).² Applying Pollock the panel held that the lender violated section 129(a)(1) of the Truth-in-Lending Act, 15 U.S.C. § 1639(a)(1) by not making a disclosure of net loan proceeds separate from other required or permitted disclosures.³ Sitting en banc the court has reconsidered the correetness of the Pollock rule in the light of Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980). We now conclude that the Pollock rule is in error, decline to follow it as precedent in this circuit, and affirm the district court.

The Pollock court held that section 1639(a)⁴ required disclosure of three different items, (1) the amount of cash given to debtor or on his behalf (the “net loan proceeds”), (2) individually itemized charges that are part of the credit extended but not part of the finance charge, and (3) the total of the first two items (the “amount financed”). 535 F.2d at 298.

This case involved a real estate transaction. Here the itemized charges referred to in subsection two of section 1639(a), which were expenses usually thought of as “closing costs,” were paid out of other funds and were not part of the credit extended. As a consequence the “net loan proceeds” and the “amount financed” fortuitously equal the same number. The disclosure statement correctly reflected the amount financed but did not have a separate listing of the “net loan proceeds.” The panel held that the lender’s failure to list the net loan proceeds as a separate item was misleading and violated the Act.

The Act contains a broad grant of authority to the Federal Reserve Board to prescribe regulations to carry out the Act’s purposes. 15 U.S.C. § 1604. Regulation Z, 12 C.F.R. § 226, which was promulgated pursuant to that grant of authority does not require that the disclosure statement contain net loan proceeds as a separate item. In pertinent part the regulation requires disclosure of

(1) The amount of credit, excluding items set forth in paragraph (e) of this section, which will be paid to the customer or for his account to another person on his behalf, including all charges, individually itemized, which are included in the amount of credit extended but which are not part of the finance charge, using the term “amount financed.”

12 C.F.R. § 226.8(d)(1). In implementing section 1639(a) the board thereby designed a disclosure requirement combining its subsections. The Pollock court held that this portion of the regulation must be read in the light of section 1639(a) to require a labeled disclosure of the net loan proceeds. The board has construed its regulation to the contrary in its staff interpretations⁵ and it so argued before the court as amicus curiae in Pollock. The court rejected the board’s position holding that the regulation as construed by the board was beyond the board’s power under the statute. 535 F.2d at 298.

A Unit B panel of the fifth circuit recently concluded in Smathers v. Fulton Federal Savings and Loan Association, 653 F.2d 977 (5th Cir.1981), that another portion of the Pollock opinion could no longer be regarded as binding precedent in the light of the Supreme Court’s intervening opinion in Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980). A portion of the Milhollin language relied on was as follows:

And deference is especially appropriate in the process of interpreting the Truth in Lending Act and Regulation Z. Unless demonstrably irrational, Federal Reserve Board staff opinions construing the Act or Regulation should be dispositive for several reasons.

The Court has often repeated the general proposition that considerable respect is due “the interpretation given [a] statute by the officers or agency charged with its administration.” An agency’s construction of its own regulations has been regarded as especially due that respect. This traditional acquiescence in administrative expertise is particularly apt under TILA, because the Federal Reserve Board has played a pivotal role in setting [the statutory] machinery in motion ... . ” As we emphasized in Mourning v. Family Publications Service, 411 U.S. 356 [93 S.Ct. 1652, 36 L.Ed.2d 318] (1973), Congress delegated broad administrative lawmaking power to the Federal Reserve "Board when it framed TILA. The Act is best construed by those who gave it substance in promulgating regulations thereunder.

444 U.S. at 566, 100 S.Ct. at 797 (citations omitted) (footnote omitted) (emphasis added) (quoted in Smathers, 653 F.2d at 980).

The Smathers court concluded that although we previously had given deference to Federal Reserve staff opinions, Milhollin required that weight of a much different quality be given. 653 F.2d at 981. Appellee Freedom Mortgage Company argues that the Pollock court and the panel in this case failed to apply the Milhollin standard in reviewing the board’s implementation of section 1639(a).

The board perceived there to be a potential for conflict or overlap between the provisions of subsections 1639(a)(1) and 1639(a)(2). An example illustrates the basis of the board’s concern. In a typical real estate transaction a variety of closing costs are frequently paid out of the mortgage loan proceeds. These expenses such as title insurance premiums, credit life premiums, surveying expenses, recording fees and the like are often paid to third persons on behalf of the borrower/purchaser. They are not part of the finance charge. The board suggested that expenses of this nature came within section 1639(a)(1) because they were part of “the amount of credit of which the obligor will have the actual use” but which will be paid “to another person on his behalf.” Similarly they were includable within section 1639(a)(2) because they were charges which are included in the amount of extended credit but “not part of the finance charge.” The Pollock court rejected the board’s contention that Regulation Z was a permissible response to this potential conflict. It concluded that it was more reasonable to construe the language of subsection one so that it did not include charges covered by subsection two. 535 F.2d at 298.

The Pollock court’s approach might well have been a more reasonable implementation of the statute than the approach the board elected. That, however, is not the question. Under Milhollin the only question before us is whether the board’s discharge of its broad authority under 15 U.S.C. § 1604 was demonstrably irrational when it provided that disclosures under subsections of 1639(a) be combined. We conclude that we cannot make a determination of demonstrable irrationality. We therefore hold that the pertinent provision of Regulation Z is valid and must be given effect and that the conflicting net loan proceeds disclosure requirement of Pollock cannot stand. In reaching this result we now agree with the seventh circuit which reexamined the question in the light of Milhollin. Pridegon v. Gates Credit Union, 683 F.2d 182, 194 (7th Cir.1982). It follows that the judgment of the district court granting summary judgment for the defendant should be affirmed.

AFFIRMED.

1 . 675 F.2d 1208 (11th Cir.1982), vacated by decision for rehearing en banc.

2 . This decision was binding precedent under our holding in Bonner v. City of Prichard, 661 F.2d 1206, 1207 (11th Cir.1981) (en banc).

3 . The panel also held that under the circumstances of this case use of the phrase “amount of loan” constituted a misleading optional disclosure in violation of Reg. Z § 226.6(c). 675 F.2d at 1212. The misleading character of the phrase was based on the premise that the omitted “net loan proceeds” was a required disclosure. Since we now reach a contrary conclusion with respect to the net loan proceeds disclosure, the premise on which we found the second violation also fails.

4 . The pertinent provisions of § 1639(a) as then in effect were as follows:

(a) Any creditor making a consumer loan or otherwise extending consumer credit in a transaction which is neither a consumer credit sale nor under an open end consumer credit plan shall disclose each of the following items, to the extent applicable:

(1) The amount of credit of which the obligor will have the actual use, or which is or will be paid to him or for his account or to another person on his behalf.

(2) All charges, individually itemized, which are included in the amount of credit extended but which are not part of the finance charge.

(3) The total amount to be financed (the sum of the amounts referred to in paragraph (1) plus the amounts referred to in paragraph (2)).

Repealed by Truth in Lending Simplification and Reform Act, Pub.L. No. 96-221, Title VI § 614(d)(1), 94 Stat. 168, 180 (1980). The repeal was made effective two years and six months after March 31, 1980 by Pub.L. No. 97-110, Title III § 301, 95 Stat. 1513, 1515 (1981).

5 . See, e.g., Federal Reserve Board (FRB) Staff Opinion Letter No. 1162, excerpted in [1974—1977 Special Releases Transfer Binder] Consumer Credit Guide (CCH) ¶ 31,555 (1977); FRB Staff Opinion Letter No. 1123, excerpted in [1974-1977 Special Releases Transfer Binder] Consumer Credit Guide (CCH) ¶ 31,473 (1976); FRB Staff Opinion Letter No. 982, excerpted in [1974-1977 Special Releases Transfer Binder] Consumer Credit Guide (CCH) ¶ 31,321 (1976). Cf. FRB Official Staff Interpretation No. FC-0155, excerpted in 12 C.F.R. § 226 app. at 816 (1982) (allowing terms for unpaid balance and. unpaid balance of cash price to be combined or one omitted where the amounts are identical); FRB Official Staff Interpretation No. FC-0114, excerpted in 12 C.F.R. § 226 app. at 774 (1982) (“§ 226.8(d)(1) does not require a creditor to itemize component parts of the amount remaining after excluding all charges that are not part of the finance charge from the amount financed”); FRB Official Staff Interpretation No. FC-0110, excerpted in 12 C.F.R. § 226 app. at 770-71 (“§ 226.8(d)(1) contemplates existence of some total loan figure ... [but] requires no specific terminology to be used”).