Opinion ID: 381256
Heading Depth: 3
Heading Rank: 2

Heading: The Board Staff's Contemporaneous Construction of the Act and Regulation Z

Text: 25 Public Information letters are written by various officials and employees of the Board to inquiries regarding the statute and the Board's regulations. From June 1969 through July 1979, over 1350 of these Board staff letter responses have been made available for the staff's use and for public access in the Board's Office of Public Information; those letters are also available to the public in a commercial reporting service. 26 In March 1970 only months after the Act went into effect a Public Information letter written by Kenneth A. Kenyon, then the Board's Deputy Secretary, specifically addressed whether disclosures were required before the payment of a forfeitable stand-by fee by a borrower not contractually bound to complete the ultimate transaction: 9 27 (The payment of that fee) does consummate the transaction, in that it subjects (the purchaser) . . . to a penalty for not utilizing the credit. Clearly, it creates a contractual relationship between the creditor and the customer. Accordingly, the Regulation Z disclosures must be furnished to the customer before he pays the commitment fee. 28 The Deputy Secretary's March 1970 letter which has been in effect almost ten years is the only administrative pronouncement directly on point. Courts frequently examine manuals, forms and advice issued to the public 10 in determining the proper construction of an administrative regulation. Further, we are not restricted to considering only the actions formally taken by the agency. Federal courts, including the Supreme Court, have given considerable weight to the practical application of a statute or regulation by government field personnel, compliance officers and auditors. 11 In fact, our own court in Bissette v. Colonial Mtg. Corp. of D. C., 477 F.2d 1245, 1246 (D.C.Cir.1973), found that the Board's Public Information letters, like the one at issue here, although not legally binding should be treated as persuasive . . . . Accord, McLaren v. Fleischer, supra n.11, 256 U.S. at 480-81, 41 S.Ct. at 577-78 (the practical construction of a statute by those charged with its execution is entitled to great respect). 12 We thus conclude that the Deputy Secretary's March 1970 letter is highly probative on the proper construction of Regulation Z. 13 29 Just this term, the Supreme Court in Ford Motor Co. v. Milhollin, 444 U.S. 555, ----, 100 S.Ct. 790, 792, 63 L.Ed.2d 22 (1980), accorded a high degree of deference to the Board staff's interpretations of Regulation Z in Truth-in-Lending Act cases. 14 30 The Truth in Lending Act has the broad purpose of promoting the informed use of credit by assuring meaningful disclosure of credit terms to consumers. 15 U.S.C. § 1601. Because of their complexity and variety, however, credit transactions defy exhaustive regulation by a single statute. Congress therefore delegated expansive authority to the Federal Reserve Board to elaborate and expand the legal framework governing commerce in credit. 15 U.S.C. § 1604; Mourning v. Family Publications Service, Inc., 411 U.S. 356, 93 S.Ct. 1652, 36 L.Ed.2d 318 (1973). The Board executed its responsibility by promulgating Regulation Z, 12 CFR Part 226, which at least partly fills the statutory gaps. Even Regulation Z, however, cannot speak explicitly to every credit disclosure issue. . . . 31 Id. 100 S.Ct. at 794. 32 In Milhollin, the Board staff had issued an official staff interpretation (which has a special status under the 1976 amendments to the Act 15 ) as well as three public information letters dealing with the portions of the Act and Regulation Z at issue there. The Deputy Secretary's 1970 interpretation at issue here was necessarily unofficial, since it was issued before the 1976 amendments, thus this case is not controlled by Milhollin. But the Court also concluded in Milhollin that wholly apart from jurisprudential considerations or congressional intent, deference to the Federal Reserve (Board) is compelled by necessity . . . . Id. 100 S.Ct. at 798 (emphasis supplied). As the Court explained: 33 . . . (A) court that tries to chart a true course to the Act's purpose embarks upon a voyage without a compass when it disregards the agency's views. The concept of meaningful disclosure that animates TILA, see St. Germain (v. Bank of Hawaii, 573 F.2d 572 (CA9),) supra, at 577, 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.'  S.Rep. 96-73, 96th Cong., 1st Sess., 3 (1979) (accompanying S. 108, Truth in Lending Simplification and Reform Act); see S.Rep.No. 95-720, 95th Cong., 2d Sess., 2-3 (1978); Federal Reserve Board, 63d Annual Report, 326, 349-350 (1976), Comment Acceleration Clause Disclosure Under the Truth in Lending Act, 77 Colum.L.Rev. 649, 662-663 (1977). And striking the appropriate balance is an empirical process that entails investigation into consumer psychology and that presupposes broad experience with credit practices. Administrative agencies are simply better suited than courts to engage in such a process. 34 Id. (emphasis in original). We therefore find Milhollin at least persuasive authority for our reliance on the Board staff letter here. 35 Finally, our interpretation that the Act and Regulation Z required disclosure before the Postows paid the stand-by fee furthers the policy of the Act to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit. 15 U.S.C. § 1601 (1976). As this court expressly found in Bissette, it would be preferable, from the Consumer's vantage point, to require disclosure well before the final formalities. 477 F.2d at 1247. 36 The realities of home financing practices underscore this concern. When a contract for the sale of a house is executed, the buyer usually leaves a forfeitable deposit with the seller to compensate for taking the house off the market until the buyer can locate the proper financing. If financing is unavailable, the buyer's deposit is typically refunded. If the buyer could obtain appropriate financing but does not, the buyer stands to lose the deposit with the seller. If disclosure is not made until the last moment before final settlement, the buyer is in a double bind and will be heavily pressured to take the credit, whatever the terms, in order not to lose both the deposit with the seller and the stand-by fee paid to the lender. 16 On the other hand, if the borrower learns of the lender's credit terms before putting down a substantial, forfeitable stand-by fee, the borrower is in a better position to reject that lender's offer and look for another in time to meet his obligations to the seller and avoid losing either a deposit or a stand-by fee. The policy of the Act permitting consumers to comparatively shop for credit therefore militates strongly in favor of affirming the court below. 37