Opinion ID: 378909
Heading Depth: 2
Heading Rank: 1

Heading: Acceleration clause

Text: 4 To obtain their residential loan, the Vegas signed both a promissory note and a mortgage. Both documents contained an acceleration clause allowing First Federal to demand the entire unpaid principal upon default. The disclosure statement received by the Vegas from First Federal did not reflect this power of acceleration. 1 The Vegas maintain that the acceleration clause or the effect of such clause should have been disclosed under 15 U.S.C. § 1639(a)(7) as a delinquency charge. 5 The proper treatment of acceleration clauses under the Truth in Lending Act has recently been resolved by the Supreme Court in Ford Motor Credit Co. v. Milhollin, --- U.S. ----, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980). Prior to Milhollin, however, the issue was one of considerable confusion and conflict. Most of the courts had held that the mere right of acceleration was not a charge which must be disclosed. See Ford Motor Credit Co. v. Milhollin, supra at note 7. But courts have diverged in their treatment of whether the effect of an acceleration clause was required to be disclosed. Compare United States v. One 1976 Chevrolet Station Wagon, 585 F.2d 978 (10th Cir. 1978); Griffith v. Superior Ford, 577 F.2d 455 (8th Cir. 1978); Begay v. Ziems Motor Co., 550 F.2d 1244 (10th Cir. 1977) with Price v. Franklin Investment Company, Inc., 574 F.2d 594 (D.C. Cir. 1978); McDaniel v. Fulton National Bank, 571 F.2d 948 (5th Cir. 1978); Johnson v. McCrackin-Sturman Ford, Inc., 527 F.2d 257 (3rd Cir. 1975) with St. Germain v. Bank of Hawaii, 573 F.2d 572 (9th Cir. 1977). In resolving this conflict, the Supreme Court deferred to the interpretations of the Act by the Federal Reserve Board and its staff. The Court emphasized that, in light of the Congressional delegation of authority to the Federal Reserve Board, such interpretations should be treated as dispositive unless demonstrably irrational. 6 In considering the disclosure of acceleration clauses, the Board's staff has concluded that the mere right itself need not be disclosed. Official Staff Interpretation No. FC-0054. In addition, the staff has determined that the effect of an acceleration clause is only required to be disclosed in limited circumstances, specifically when the rebate of unearned interest upon acceleration is different from the rebate of unearned interest in other prepayment situations. Accordingly, as long as the rebate practices upon acceleration and other prepayment situations do not differ, and as long as the rebate of unearned interest in such prepayment situations is disclosed pursuant to 12 C.F.R. § 226.8(b)(7), separate disclosure of the acceleration rebate practice is not required. See Ford Motor Credit Co. v. Milhollin, supra at note 8. In Milhollin, the Supreme Court found this interpretation of the requirements of the Act was a reasonable one and therefore deemed it to be controlling. 7 That same interpretation is controlling in this case. Under the staff interpretation First Federal was not required to disclose the right of acceleration. Nor was it required to disclose the effect of the acceleration clause. The disclosure statement received by the Vegas from First Federal specifically indicated that in no event will any portion of the unearned finance charge be charged for any prepayment. The effect of the acceleration clause contained in the note was consistent with this disclosure. It stated that upon default, the entire principal amount outstanding hereunder and accrued interest thereon shall at once become due and payable. (Emphasis added.) The acceleration clause in the mortgage was somewhat less clear. It provided that upon default, the creditor may declare all of the sums secured by this Mortgage to be immediately due and payable. The district court held that the note and mortgage, read in conjunction with one another, allowed the acceleration of the principal due plus earned interest. We believe that the district court's construction of the documents was correct. Accordingly, unearned interest was not retained by First Federal either upon acceleration or upon prepayment. Since the practice was the same in both situations and since the prepayment practice was disclosed under 12 C.F.R. § 226.8(b)(7), separate disclosure of the same practice was not required under 12 C.F.R. § 226.8(b) (4). Therefore, First Federal's failure to disclose either the acceleration clause or the effect of such a clause was not a violation of the Truth in Lending Act.