Court Opinion

ID: 9469561
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:43:56.940954+00
Date Added: 2024-06-11T17:41:27.269237
License: Public Domain

CLARK, Circuit Judge,
dissenting:
I disagree with the majority’s resolution of the difficult issues presented in this case. The courts continue to have difficulty in interpreting various loan or finance contract clauses providing for rebate of unearned interest resulting from (1) voluntary prepayment or from (2) accelerated prepayment caused by default. The majority and I differ in the interpretation of Ford Motor Credit Company v. Milhollin, 444 U.S. 555, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980).
Milhollin holds that when a creditor rebates unearned interest at differing rates for these separate precipitating causes, both methods must be disclosed.
The Federal Reserve Board staff treatment of acceleration disclosure rationally accommodates the conflicting demands for completeness and for simplicity. In determining that acceleration rebate practices need be disclosed only when they diverge from other prepayment rebate practices, the Federal Reserve has adopted what may be termed a “bottom-line” approach: that the most important information in a credit purchase is that which explains differing net charges and rates. Cf. S.Rep.No.96-73, supra, at 3-4; Federal Reserve Board, Annual Report, supra, at 350-352. Although the staff might have decided that acceleration rebates are so analytically distinct from identical voluntary prepayment rebates as to warrant separate disclosure, it was reasonable to conclude, alternatively, that ordinary consumers would be concerned chiefly about differing financial consequences.
Ford Motor Credit Company v. Milhollin, 444 U.S. 555, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980) (emphasis supplied; footnote omitted).
Here, the creditor’s practice and policy was to charge less for involuntary prepayment growing out of default than that specified in the contract. This practice is not *395revealed on the face of the contract. The majority, in holding that a creditor can charge differing rates so long as the defaulting debtor is charged less than the debtor who voluntarily prepays, relies on a portion of note 8 of the Milhollin opinion. However, that separate disclosures are required when there are different rebate charges or practices is made abundantly clear in the text of the Milhollin opinion:
But so long as the creditor’s rebate practice under acceleration is identical to its policy with respect to voluntary prepayments, separate disclosure of the acceleration policy does not seem obligatory under a literal reading of the regulation. Regulation 226.8(b)(7), therefore, squares with the position of the Federal Reserve staff that specific disclosure of acceleration rebate policy is only necessary when that policy varies from the custom with respect to voluntary prepayment rebates.
100 S.Ct. at 795 (emphasis in original).
The majority asserts that the meaning of the word “varies” was clarified by the Court in note 8. “Where acceleration rebates are less than voluntary prepayment rebates, acceleration policy must be separately explained.” 100 S.Ct. at 796, n.8. I would submit that that statement is not a clarification of the meaning of “varies.” The writer happened to use the phrase “less than” rather than “different from.” However, in that same footnote 8, the Supreme Court quoted with approval Public Information Letter No. 851. “If the creditor rebates under one method for acceleration and another for voluntary prepayment, both methods would need to be identified under § 226.8(b)(7).” Id. The opinion in Milhollin makes perfectly good sense in holding that when there are differing rates, both must be stated.
As to appellant’s second argument, Regulation Z, 12 C.F.R. § 226.6(c), states:
(c) Additional information. At the creditor’s or lessor’s option, additional information or explanations may be supplied with any disclosure required by this part, but none shall be stated, utilized, or placed so as to mislead or confuse the customer or lessee or contradict, obscure, or detract attention from the information required by this part to be disclosed.
The majority holds that the debtor in this case was not entitled to accurate information in the contract for two reasons. “First, the only disclosure required by the regulation in this case was that concerning rebate on voluntary prepayment, and no misinformation was provided by FMCC with respect to it.” (Majority opinion, p. 393) Two errors occur here. Milhollin requires disclosure of both rebate rates as discussed in the first part of this dissent. One of these rates was inaccurately stated. Since both were required and one was wrong, the disclosure requirements have not been met. Further, Regulation Z provides that the creditor may at its option supply additional information; but if it does, that information cannot mislead or confuse the customer or contradict or obscure information which is required. The majority holds that only required disclosures must be accurate. In section (c), two practices are forbidden, the misleading and confusing of customers AND the contradiction or detraction of attention from required information. A nexus with required information is necessary, only for the second part to be triggered. The first is involved here.
Additionally, I disagree with the majority that to adopt appellant’s approach would tend to encourage defaults by buyers under installment contracts. Rather, defaults are encouraged by the varying rebate practices of the lender and not by our application of truth-in-lending principles. In fact if appellant’s approach is adopted, Ford Motor Credit Company would have to change its procedure and defaults by buyers would no longer be encouraged.
For the above reasons, I would reverse the judgment of the district court, and therefore I dissent.1

. The opinion, as revised since the dissent was first drafted, at page 5 suggests that the Supreme Court did not disturb the rule in McDaniel v. Fulton National Bank, 571 F.2d 948 (5th Cir. 1978). While this is true, the issue involved there is not what this case is about.
*396The Supreme Court in Milhollin, supra, said the following in note 6, 444 U.S. at 559, 100 S.Ct. at 794:
The Court of Appeals for the Fifth Circuit has also adopted the position that separate disclosure is not required when the creditor is obliged to treat acceleration and voluntary prepayment alike for rebate purposes; that court has emphasized that the critical factor is the creditor’s legal obligation to rebate, rather than its unbidden rebate policy. McDaniel v. Fulton Nat. Bank, 571 F.2d 948 (en banc), clarified, 576 F.2d 1156 (1978) (en banc).
This note is from Part II of the Supreme Court opinion. In this part, that Court reversed the Ninth Circuit and held that “so long as the creditor’s rebate practice under acceleration is identical to its policy with respect to voluntary prepayments, separate disclosure of the acceleration policy does not seem obligatory under a literal reading of the regulation.” 444 U.S. at 562, 100 S.Ct. at 795. Thus, everyone is in agreement that when the rebate rate or charge is the same for voluntary and involuntary prepayments, disclosure of the one rate is sufficient.
The fact that “disclosure” was the issue in McDaniel instead of the issue being the different treatment as between prepayment and acceleration as contended by the majority is illustrated by the opening sentence in the en banc opinion in that case:
We here reconsider en banc the rule of Martin v. Commercial Securities Co., 539 F.2d 521 (5th Cir. 1976), that neither an acceleration clause nor the lender’s rebate policy with respect to acceleration clauses must be disclosed under the Truth-in-Lending Act (the Act).
McDaniel, supra, at 949 (footnote omitted).
The facts in the case sub judice show that a borrower received one rebate when acceleration occurred from default and a lesser amount when voluntarily prepaying the loan. The issue here then is controlled by Part III of Milhoilin, not Part II.