In the

United States Court of Appeals

For the Seventh Circuit

No. 00-1203

REE CLAY and RUBY CHIVERS,

Plaintiffs-Appellees,

v. 

IVER R. JOHNSON and MARVIN BILFELD, 

d/b/a DAVENPORT CONSTRUCTION COMPANY,

Defendants-Appellants.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 97 C 6007--Morton Denlow, Magistrate Judge.

ARGUED JANUARY 12, 2001--DECIDED September 5, 2001

 Before RIPPLE, ROVNER and EVANS, Circuit

Judges.

 RIPPLE, Circuit Judge. Ree Clay and Ruby

Chivers (collectively "the plaintiffs")

entered into a series of retail

installment contracts and mortgages to

finance home improvements provided by

Davenport Construction Company

("Davenport"). Marvin Bilfeld,

Davenport’s owner, assigned Davenport’s

interest in the contracts to Iver

Johnson, who became the mortgagee. The

plaintiffs filed this suit against

Bilfeld, Johnson, and Davenport

(collectively "the defendants") to obtain

damages and a recision of their contracts

based on the defendants’ alleged failure

to make a proper disclosure under the

Truth in Lending Act ("TILA"), 15 U.S.C.

sec. 1601 et seq. The district court

granted partial summary judgment in favor

of the plaintiffs on the issue of

liability and awarded them statutory

damages and attorneys’ fees. The

defendants have appealed the district

court’s judgment. For the reasons set

forth in the following opinion, we

reverse the judgment of the district

court.

I

BACKGROUND
A. Facts

 The plaintiffs are sisters who live

together in a home owned by Ms. Clay. On

three separate occasions in 1995, the

plaintiffs executed retail installment

contracts in which they mortgaged the

house to finance the purchase of home

improvements from Davenport./1 Davenport

assigned its interest in each of these

contracts to Johnson, making Johnson the

mortgagee. 

 Each of the retail installment contracts

the plaintiffs signed contained a

"Federal Truth-In-Lending Disclosure

Statement," otherwise known as a "federal

box," which contained the disclosures

required by TILA. R.23, Ex.E at 1, Ex.G

at 1; R.68, Ex.7 at 1. One of the

disclosures required by TILA is the

debtor’s payment schedule, which includes

the date on which the debtor must begin

making payments. See 15 U.S.C. sec.

1638(a)(6); 12 C.F.R. sec. 226.18(g)

(2001). According to the information the

defendants wrote in the federal box, the

plaintiffs’ monthly payments would begin

"30 days from completion" of the

construction work on the house. R.23,

Ex.E at 1, Ex.G at 1; R.68, Ex.7 at 1.

Approximately one month after the

plaintiffs signed each of their

contracts, Johnson sent them a letter

informing them that he had purchased the

contract and mortgage from Davenport and

that the plaintiffs should begin making

payments to him thirty days after they

signed a completion certificate

confirming the value of the work

Davenport had done. As the time of

completion neared, the parties were able

to determine the start date of the

plaintiffs’ payments more precisely, and

they typed the specific date on which the

plaintiffs’ first payment was due onto

the contract.

 For several months, the plaintiffs made

their monthly payments on one of the

three contracts. These payments stopped

in December 1995. The plaintiffs never

made any payments on the other two

contracts. The plaintiffs eventually

notified the defendants in writing that

they "rescind[ed] any obligation to [the

defendants] for failure to comply with

the Truth in Lending Act." R.23, Ex.D.

Five days after the plaintiffs sent their

recision notice to the defendants, Ms.
Clay filed for bankruptcy.

B. Earlier Proceedings

 On the same day that Ms. Clay filed for

bankruptcy, the plaintiffs filed this

TILA action in the district court. The

plaintiffs sought to rescind their

contracts and to recover statutory

damages and attorneys’ fees based on the

defendants’ alleged failure to disclose

properly the payment schedule. The

district court granted summary judgment

to the plaintiffs on the issue of

liability. It held that TILA required the

defendants to provide an exact date on

which the plaintiffs’ payments would be

due or to provide an estimate of the due

date if they could not determine a

precise calendar date. Therefore, the

district court believed that the

defendants’ disclosure of "30 days from

completion" did not comply with TILA. The

court also held that, even though the

defendants had provided the plaintiffs

with an exact date after the contracts

had been signed, that disclosure did not

comply with TILA’s mandate that the

required disclosures be grouped together

and segregated from other information.

See 15 U.S.C. sec. 1638(b)(1); 12 C.F.R.

sec. 226.17(a)(1) (2001). The court

believed that the defendants’ failure to

comply with TILA constituted a technical

violation of the statute that entitled

the plaintiffs to rescind their

contracts, which they had done adequately

by providing written notice of the

recision to the defendants.

 The defendants filed a motion for

reconsideration following the district

court’s grant of partial summary judgment

to the plaintiffs. The defendants’

argument was based on Comment 18(g)-4 to

Regulation Z, which was promulgated by

the Board of Governors of the Federal

Reserve System ("the Board") to interpret

the provisions of TILA. The defendants

maintained that Comment 18(g)-4

specifically stated that a creditor could

satisfy TILA by defining the beginning

payment date by reference to the

occurrence of a particular event rather

than by disclosing a precise calendar

date. The district court rejected the

defendants’ argument because Comment

18(g)-4 had not been issued at the time

the defendants made their disclosures to

the plaintiffs. The court did not believe
that the comment could be applied

retroactively to validate the defendants’

disclosure in this case.

 In light of its judgment in favor of the

plaintiffs on liability, the district

court granted the plaintiffs the recision

they requested and awarded them $6,000 in

statutory damages for the defendants’

violation of their recision rights. The

court did not award damages for the

defendants’ disclosure violation because

it determined that the plaintiffs’ claims

in this regard were time barred. The

court also concluded that TILA required

the plaintiffs to return the defendants’

property--in this case, the fair market

value of the work the defendants had

performed on the house--and it therefore

ordered the plaintiffs to return $32,000

to the defendants./2 Lastly, the court

awarded the plaintiffs $38,000 in

attorneys’ fees.

II

DISCUSSION

 The defendants have appealed the

district court’s grant of summary

judgment and the concomitant award of

statutory damages and attorneys’ fees.

The defendants argue that the district

court erred in holding that Comment

18(g)-4 could not be given retroactive

effect. The defendants also maintain that

their subsequent disclosure of an exact

beginning payment date was sufficient to

satisfy TILA and that the plaintiffs did

not properly preserve or exercise their

recision rights. The plaintiffs respond

by arguing that Comment 18(g)-4 is

inconsistent with a previous position

adopted by the Board and therefore cannot

be applied retroactively. The plaintiffs

also submit that the defendants’

subsequent disclosure of an exact date on

which their payments were due did not

satisfy TILA because TILA does not allow

piecemeal disclosures and because the

defendants did not send them a new notice

of their right to rescind. Lastly, the

plaintiffs assert that they exercised

their right to rescind in a timely and

proper fashion. Because the issue of the

retroactive application of Comment 18(g)-

4 is potentially dispositive of this

case, we turn to it first.

 The disclosures a creditor must make at
the time he extends credit to a consumer

are governed by TILA and its implementing

regulation, Regulation Z. See 15 U.S.C.

sec. 1638; 12 C.F.R. sec. 226.18 (2001).

The Board publishes official staff

commentary to Regulation Z that is

dispositive in TILA cases unless the

commentary is demonstrably irrational.

See Ford Motor Credit Co. v. Milhollin,

444 U.S. 555, 565 (1980). Because the

date on which a debtor must begin making

payments is a required disclosure under

TILA, the manner in which the creditor

must make the disclosure is governed by

Regulation Z and its commentary. See 15

U.S.C. sec. 1638(a)(6); 12 C.F.R. sec.

226.18(g) (2001).

 While this case was pending in the

district court, the Board undertook the

process of issuing Comment 18(g)-4, its

official staff interpretation of TILA’s

payment schedule disclosure requirement.

In December 1997, the Board published a

proposed version of Comment 18(g)-4 for

public comment. The proposed comment

provided: 

Timing of payments. Creditors must

disclose when payments are due, including

the calendar date that the beginning

payment is due. For example, a creditor

may disclose that payments are due

"monthly beginning on July 1, 1998." A

reference to the occurrence of a

particular event, for example, disclosing

that the first payment is due "30 days

after the completion of construction," is

not sufficient. If the beginning-payment

date is unknown, the creditor must use an

estimated date and label the disclosure

as an estimate pursuant to sec.

226.17(c).

62 Fed. Reg. 64769, 64775 (proposed Dec.

9, 1997). The Board stated in its notice

of proposed rulemaking that "[p]roposed

comment 18(g)-4 clarifies the

requirements for disclosing the timing of

payments." Id. at 64771. 

 The Board received about 110 comments in

response to its proposed amendments to

the commentary. See 63 Fed. Reg. 16669,

16670 (Apr. 6, 1998). It published the

final version of Comment 18(g)-4 in April

1998. See id. at 16673. The final version

of Comment 18(g)-4 establishes a general

rule requiring that creditors disclose a

specific date on which the debtor’s
payments will begin. See 12 C.F.R. pt.

226, Supp. I, Par. 18(g)(4)(i) (2001).

However, the final version of Comment

18(g)-4 eliminated the proposed comment’s

prohibition on disclosing the beginning

payment date by referring to a specified

event, such as "30 days from completion

of construction." See id. at Par.

18(g)(4)(ii). Several commentators had

indicated to the Board during the comment

period that the exact date on which

payments should begin is often difficult

to determine with specificity at the time

TILA’s disclosures must be made. See 63

Fed. Reg. at 16673. Thus, the Board

adopted the following exception to

Comment 18(g)-4’s general rule:

In a limited number of circumstances, the

beginning-payment date is unknown and

difficult to determine at the time

disclosures are made. For example, a

consumer may become obligated on a credit

contract that contemplates the delayed

disbursement of funds based on a

contingent event, such as the completion

of home repairs. Disclosures may also

accompany loan checks that are sent by

mail, in which case the initial

disbursement and repayment dates are

solely within the consumer’s control. In

such cases, if the beginning-payment date

is unknown the creditor may use an

estimated date and label the disclosure

as an estimate pursuant to sec. 

226.17(c). Alternatively, the disclosure

may refer to the occurrence of a

particular event, for example, by

disclosing that the beginning payment is

due "30 days after the first loan

disbursement." This information also may

be included with an estimated date to

explain the basis for the creditor’s

estimate.

12 C.F.R. pt. 226, Supp. I, Par.

18(g)(4)(ii) (2001). As it had with the

proposed version of Comment 18(g)-4, the

Board indicated that it intended for the

final version of Comment 18(g)-4 to

interpret and clarify a creditor’s

existing obligations under TILA and

Regulation Z. See 63 Fed. Reg. at 16673. 

 The adopted version of Comment 18(g)-4

is the current state of the law. However,

Comment 18(g)-4 had not been adopted at

the time the defendants made their

disclosures to the plaintiffs. The

parties therefore dispute whether Comment
18(g)-4 can be applied retroactively to

the defendants’ disclosure in this case.

If an agency promulgates a new rule that

changes the substantive state of existing

law, that rule is not retroactive unless

Congress expressly authorized retroactive

rulemaking and the agency clearly

intended the rule to be retroactive. See

Pope v. Shalala, 998 F.2d 473, 483 (7th

Cir. 1993) (citing Bowen v. Georgetown

Univ. Hosp., 488 U.S. 204, 208 (1988)),

overruled on other grounds by Johnson v.

Apfel, 189 F.3d 561 (7th Cir. 1999).

However, a "rule simply clarifying an

unsettled or confusing area of the law .

. . does not change the law, but restates

what the law according to the agency is

and has always been." Id.; see also First

Nat’l Bank of Chicago v. Standard Bank &

Trust, 172 F.3d 472, 478 (7th Cir. 1999).

A clarifying rule, therefore, can be

applied to the case at hand just as a

judicial determination construing a

statute can be applied to the case at

hand. See Pope, 998 F.2d at 483 (quoting

Manhattan Gen. Equip. Co. v. Comm’r, 297

U.S. 129, 135 (1936)). We give great

deference to the promulgating

agency’sexpressed intent as to whether

its rule changes the law or merely

clarifies it. See id.; First Nat’l, 172

F.3d at 478. We "will defer to an

agency’s expressed intent that a

regulation is clarifying unless the prior

interpretation of the regulation or

statute in question is patently

inconsistent with the later one." Pope,

998 F.2d at 483; see also First Nat’l,

172 F.3d at 478.

 The district court believed that the

position the Board announced in its

proposed version of Comment 18(g)-4 was

patently inconsistent with the position

the Board announced in the adopted

version of Comment 18(g)-4. The court

noted that the Board initially indicated

in its proposed comment that the "30 days

from" language was not sufficient to

satisfy TILA, then decided in its adopted

version of Comment 18(g)-4 that this same

language was sufficient. The court

thought it was incongruous for the Board

to characterize both of these positions

as a clarification of the existing law;

it did not believe that two such

contradictory statements could both be

clarifications. As a result, the court

determined that the adopted rule must

have been a change in the law that could
not have a retroactive effect.

 The district court recognized the

different procedural postures in which

the Board issued its conflicting

statements, but it did not perceive the

difference as significant. We

respectfully disagree with the district

court’s assessment. The Supreme Court has

drawn a distinction between proposed and

adopted rules. See Commodity Futures

Trading Comm’n v. Schor, 478 U.S. 833,

845 (1986). The Court has explained that

inconsistencies between an agency’s

proposed rule and a later-adopted rule

are not a valid basis for refusing to

defer to an agency’s official

interpretation of a statute it

administers. See id. An agency is

entitled to use the comment period 

to consider alternative interpretations

before settling on the view it considers

most sound. Indeed, it would be

antithetical to the purposes of the

notice and comment provisions of the

Administrative Procedure Act to tax an

agency with "inconsistency" whenever it

circulates a proposal that it has not

firmly decided to put into effect and

that it subsequently reconsiders in

response to public comment.

Id. (internal citation omitted).

 In light of the Supreme Court’s

discussion in Schor, the Tenth Circuit

has determined that an agency’s

reconsideration of a proposed rule is not

a sufficient basis on which to refuse to

defer to the agency’s final

interpretation. See Joy Techs., Inc. v.

Sec’y of Labor, 99 F.3d 991, 998 (10th

Cir. 1996) (stating that an agency’s rule

was entitled to deference even though the

final rule conflicted with an earlier

proposal that was retracted). Another

circuit has gone so far as to refuse to

take cognizance of an agency’s proposed

rule. See Cal. Rural Legal Assistance,

Inc. v. Legal Servs. Corp., 917 F.2d

1171, 1173 n.5 (9th Cir. 1990) (stating

that, although the regulation at issue

allegedly was contrary to an earlier pro

posed regulation, the court "decline[d]

to take cognizance of the proposed

regulation"). In short, "a proposed

regulation does not represent an agency’s

considered interpretation of its

statute," Schor, 478 U.S. at 845, and
therefore is not entitled to deference.

 We are convinced that the Board’s

retraction of its initial position is not

sufficient to tax the Board with

inconsistency. The Board recognized that

creditors were confused about what TILA

required them to disclose with respect to

the beginning payment date. See 63 Fed.

Reg. at 16673. The Board was "aware that

creditors could reasonably have

interpreted the statutory requirement for

specifying the ’period of payments’ in

different ways." Id. Although the Board

initially thought it proper to clarify

the law by requiring creditors to

disclose an exact date, it apparently

thought better of that position following

the comment period and in light of the

comments it received. 

 Because the difference between the

Board’s proposed version of Comment

18(g)-4 and the adopted version of

Comment 18(g)-4 is the only inconsistency

to which the district court--and the

plaintiffs on appeal--have pointed, we

see no reason not to defer to the Board’s

characterization of Comment 18(g)-4 as a

clarification of the existing law. As

such, Comment 18(g)-4 should be applied

to the facts of this case.

 This application is a straightforward

proposition. Although Comment 18(g)-4’s

general rule requires a creditor to

disclose a specific date on which the

debtor’s payments will begin, its

exception definitively states that a

creditor may disclose the debtor’s

beginning payment date by referring to a

specified event, such as "’30 days after

the first loan disbursement.’" 12 C.F.R.

pt. 226, Supp. I, Par. 18(g)(4)(ii)

(2001). The defendants’ disclosure that

the plaintiffs’ monthly payments would be

due beginning "30 days from completion"

of the construction therefore falls

within Comment 18(g)-4’s exception.

Consequently, the defendants’ disclosure

of the plaintiffs’ beginning payment date

was sufficient to comply with TILA, and

the plaintiffs are not entitled to

rescind their contracts or to recover

damages on this ground./3 

Conclusion

 The district court erred in holding that

Comment 18(g)-4 does not have retroactive
effect. Comment 18(g)-4 does apply to the

defendants’ disclosure of the plaintiffs’

beginning payment date, and it

establishes that the defendants’

disclosure complied with TILA’s

requirements. Plaintiffs, therefore, are

not entitled to rescind their contracts

or to recover damages or attorneys’ fees

under TILA. Accordingly, the judgment of

the district court is reversed.

REVERSED

FOOTNOTES

/1 Both Ms. Clay and Ms. Chivers were parties to the

first two contracts. Only Ms. Clay signed the

third contract.

/2 Pursuant to her bankruptcy plan, Ms. Clay had

returned $20,000 of the value of the work done to

the defendants at the time the district court

issued its judgment.

/3 The plaintiffs recognize that, even though the

defendants initially disclosed their beginning

payment date as "30 days from completion" of the

construction, the defendants subsequently provided them with an exact calendar date and typed

that date onto their contracts. The plaintiffs

argue that this later disclosure did not comply

with TILA because (1) TILA’s disclosures cannot

be made piecemeal and (2) the defendants did not

set off the date from the other disclosures. The

plaintiffs further assert that the defendants

failed to provide them with a proper corrected

notice of recision rights once the defendants

disclosed the exact date on which their payments

were to begin. These arguments are rendered moot

by our determination that the defendants’ initial

disclosure satisfied TILA; therefore, we need not

reach their merits.