Court Opinion

ID: 9470543
Source: CourtListenerOpinion
Date Created: 2023-08-05 03:08:36.53199+00
Date Added: 2024-06-11T17:41:57.431047
License: Public Domain

CLARK, Circuit Judge,
with whom
HATCHETT, Circuit Judge,
joins, dissenting:
I dissent. In holding that a lender is not required to disclose to a borrower the amount of “net cash in fist” — the sum the borrower walks out of the finance company with — the majority deprives consumers in the three states of this circuit from knowing the most meaningful disclosure mandated by Congress in the Truth-in-Lending Act. The decision is regrettably reached without any logically reasoned basis, unless one concludes that it is reasonable to permit the Federal Reserve Board to ignore a clear mandate of Congress. To analyze the problem, one must look at the statute, the Board regulation, the financial disclosure statement furnished by Freedom Mortgage in this case, and the disclosure statement that should have been furnished.

The Statute

Section 1639. Consumer loans not under open end credit plans — Required disclosures by creditor
(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)).
15 U.S.C. sec. 1639(a) (emphasis added).

The Federal Reserve Board Regulation

(d) Loans and other nonsale credit. In the case of a loan or extension of credit which is not a credit sale, in addition to the items required to be disclosed under paragraph (b) of this section, the following items, as applicable, shall be disclosed:
(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. sec. 226.8(d)(1) (emphasis added).

The Financial Disclosure Statement Furnished by Freedom

FREEDOM MORTGAGE
DISCLOSURE STATEMENT REQUIRED BY FEDERAL LAW • FEDERAL RESERVE REGULATION Z
Bo,row,!rl Norman A. Sage ______ Loon No. 12 4-19248_
1. The FINANCE CHARGE on this transaction will begin to accrue on the date ol disbursement of funds which is estimated to he June 26 . 197 9___
7, \ The AMOUNT OF LOAN in this transaction is $ 40,000.00 .bearing interest at 10.75 %.

*1523

*1524
The Financial Disclosure Statement Mandated by Congress

Credit Available for Actual Use of Borrower
To the seller of the house, or to the holder of an existing first mortgage and the seller as the case may be All charges, itemized, included in the amount of credit extended but which are not part of finance charge1
Initial Escrow Deposit $405.46 Inspection Fees/
Amor. Sch. 33.00 Assign Fee/
Tax Svc. Fee 22.50
Fed. Exp./Atty Fees 348.50
Clear Title Ins. Co. 105.00
Accurate Surveyors 75.00
Good Hands Ins. Co. 196.00
Ga. Tax Collector— Intangible Taxes 120.00
Clerk of Superior Ct.— Recording 20,00
$ 1,325.46
Total $38,658.38
Referring first to the statute, section 1639(a), one notes that paragraph (1) of the statute requires disclosure of the amount of credit of which the obligor will have the actual use: the amount “which is or will be paid to him or for his account or to another person on his behalf.” Paragraph (a)(3) of the statute requires that the total of the figures in paragraphs (a)(1) and (2) must add up to the amount financed, which in this case is $38,658.38. The Board regulation has lumped the amount of credit available to the borrower with all charges which are included in the amount of credit but which are not part of the finance charge. The phrase “all charges” means a lender’s legitimate charges for costs necessary to make the loan, but excepted from the finance charge by 15 U.S.C. sec. 1605(b)-(e). (See note 1).
The financial disclosure statement furnished by Freedom conforms with neither the statute nor the regulation because it does not reflect what sum of money the borrower received as the result of the transaction, in this case $37,332.92 (the circled amount in “The Financial Disclosure Statement Mandated by Congress”). The regulation, although having no separate breakdown as required by the statute, can be construed to require that the borrower be informed of the net amount to be paid to him or in his behalf to another and that all the items add up to the amount financed. With the Freedom Mortgage form, the borrower must make calculations in order to determine the exact amount of money by which he is benefited as a result of the loan transaction.
The majority misunderstands the purpose behind the Board’s modification of the congressional statute.2 The Board determined *1525that lenders and borrowers would be confused by “all charges” made pursuant to paragraph (a)(2) of the statute and payments under paragraph (a)(1) for the account of the borrower or to another person on his behalf. In the amicus brief filed in this case, counsel points to an example of property or credit insurance which could be said to be paid to another for the benefit of the borrower under, paragraph (a)(1) or which could be an item classified as “all charges” under paragraph (a)(2). Thus, the Board, in its regulations, prescribed that the lender could itemize all expenditures made by the lender which when added to the amount of money furnished the borrower (the circled amount) equals the “amount financed.” In order to reach a total that equals the “amount financed,” all of the sums must be itemized, and amongst the items listed must be included the amount of money furnished the borrower (the circled amount). The majority excuses the lender in this case, and all lenders in the three states covered by this circuit, from being obligated to inform a borrower of the amount of money which he is receiving. In this case, the majority fails to require disclosure of the sum of $37,332.92 (the circled amount).
The seminal case on this subject is 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). In speaking of the relationship between the statute and the regulation, the court said:
These three subsections of sec. 1639(a) clearly require the disclosure of three different items. A creditor must disclose (1) the amount of cash given to the debtor or given on the debtor’s behalf, (2) the charges, individually itemized, and (3) the total of the above two amounts. As the disclosure statement makes apparent, General Finance satisfied only the last two subsections of sec. 1639(a). The statement also informed the debtor that the total amount financed was $171.36. However, the statement failed to disclose that the amount of the loan was $155.28. Although the debtor could have determined the amount of the loan by the simple arithmetic procedure of subtracting the total insurance charges from the total amount financed, we determine that the statute does not require a consumer to perform this function, and that the creditor’s failure to disclose the required item violated sec. 1639(a)(1).
535 F.2d at 298-99 (footnote omitted). Pollock has been followed in a number of other cases.3
*1526The majority opinion holds that it is unnecessary for a lender to disclose the net loan proceeds as required by 15 U.S.C. sec. 1639(a)(1) and as conceptually required by the Board regulation found in 12 C.F.R. sec. 226.8(d)(1). The majority makes this giant step of obliterating the congressional mandate and the Board duly adopted regulation by saying “[t]he board has construed its regulation to the contrary in its staff interpretation,” citing certain staff opinion letters. at pp. 1520-1521 and n. 5). Without being explicit, the majority holds that the Board can rewrite the statute by issuing regulations, and then if the regulations are not clear, (see note 2), the Board can issue interpretative letters that eliminate the clear intent of Congress set out in the statute. As legal support the majority cites Smathers v. Fulton Federal Savings and Loan Association, 653 F.2d 977 (5th Cir.1981), where the court had under consideration “the question whether the disclosure statement should have used the word ‘will’ instead of ‘may’ as to the security interest in after-acquired property .... ” 563 F.2d at 979. In holding for the lender in that case, the court stated that use of the word “will” was not essential and that the word “may” was permissible, particularly in light of a Federal Reserve Board letter so interpreting a Board regulation. The majority next states: “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,” and concludes:
Under Milhollin the only question before us is whether the board’s discharge of its broad authority under 15 U.S.C. sec. 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.
(at pp. 1521-1522).
The majority reads Ford Motor Co. v. Milhollin, 444 U.S. 555, 100 S.Ct. 790, 63 L.Ed.2d 22 (1980), too broadly to reach its conclusion that the Federal Reserve Board can modify a statute of Congress and then issue interpretive orders construing its own regulations in a manner that vitiates the congressional act. The language of Milhollin must be considered in the light of the facts of that case and the reasoning of the Court. In Milhollin, the Supreme Court had under consideration a claim by the borrower:
that acceleration clauses were comprehended by the general statutory prescription that a creditor shall disclose “default, delinquency, or similar charges payable in the event of late payments,” 15 U.S.C. sections 1638(a)(9), 1639(a)(7), and were included within the provision of Regulation Z requiring disclosure of the “amount, or method of computing the amount, of any default, delinquency, or similar charges payable in the event of late payments,” 12 CFR sec. 226.8(b)(4) (1979).
444 U.S. at 559, 100 S.Ct. at 794, 63 L.Ed.2d at 27. The Supreme Court reached the reasonable conclusion that “[a]n acceleration clause cannot be equated with a ‘default, delinquency, or similar charg[e],’ subject to disclosure under 15 U.S.C. sections 1638(a)(9), 1639(a)(7), and 12 CFR sec. 226.8(b)(4).” In Milhollin, the Court reasoned:
[W]e conclude that the issue of acceleration disclosure is not governed by clear expression in the statute or regulation, and that it is appropriate to defer to the Federal Reserve Board and staff in determining what resolution of that issue is implied by the truth-in-lending enactments.
444 U.S. at 560, 100 S.Ct. at 794, 63 L.Ed.2d at 28. The statute under consideration in this case does give clear expression by requiring disclosure to the borrower of “the *1527amount of credit of which the obligor will have the actual use.”
Congress was not silent with respect to the requirement that a lender inform a borrower of the sum of money being loaned. Because Congress mandated the full disclosure of the amount of credit of which the borrower would have the actual use, I dissent.

. 12 C.F.R. sec. 226.4(e) (1979) is applicable here since this is a real estate loan. It provides:
(e) Excludable charges, real property transactions. The following charges in connection with any real property transaction, provided they are bona fide, reasonable in amount, and not for the purpose of circumvention or evasion of this part, shall not be included in the finance charge with respect to that transaction:
(1) Fees or premiums for title examination, abstract of title, title insurance, or similar purposes and for required related property surveys.
(2) Fees for preparation of deeds, settlement statements, or other documents.
(3) Amounts required to be placed or paid into an escrow or trustee account for future payments of taxes, insurance, and water, sewer, and land rents.
(4) Fees for notarizing deeds and other documents.
(5) Appraisal fees.
(6) Credit reports.

. The confusion in the regulation, which has required the Board to issue interpretative letters trying to explain its meaning, stems from the phrase “including all charges, individually itemized, which are included in the amount of credit extended.” This phrase is subject to two interpretations. The word “including” may be read to mean that the individualized charges are components of the “amount of credit,” the latter being the subject of the clause. If that is so, the phrase “amount of credit” is synonymous with the phrase “amount financed.” I do not give this interpretation to the regulation because common sense requires attributing a separate identity to the phrase “amount of credit,” in this case $37,332.92 (the circled amount). I read the regulation as meaning that *1525the “amount of credit” (the circled amount) is one of the components of the all-inclusive figure of the “amount financed.” Under this interpretation, the regulation as written accords with the statute. As interpreted by the Board, however, and as followed by Freedom Mortgage in this case, the regulation does not require explicit disclosure of the “amount of credit” (the circled amount).
The alternate interpretation is that the regulation equates “amount of credit” with “amount financed” and defines it as the sum of (1) the net proceeds to the borrower (the circled amount) and (2) the itemized charges. Under this interpretation, the regulation does not, as written, comport with the statute. This is the interpretation followed in Pridegon v. Gates Credit Union, 683 F.2d 182 (7th Cir.1982), where the court stated that the regulation, sec. 226.8(d)(1), “only requires the disclosure listed in sections 1639(a)(2) and (3)” of the statute. 683 F.2d at 191. Under this interpretation, the Freedom Mortgage statement comports with the regulation.
The choice between these two alternate interpretations, though confusing, is not crucial to my opinion in this case. Under either reading of the regulation, we are left with the fundamental problem: lenders are not being required to inform borrowers of the amount of credit of which they will have the actual use, as mandated by the statute.

. See, e.g., Barbieri v. Commercial Credit Loans, Inc., 596 F.2d 660 (5th Cir.1979), where the court said:
If we had held to the contrary, permitting a creditor to disclose only the total amount financed and the itemized finance charges, we would have by judicial fiat written out of the statute the express provision of section 1639(a)(1) requiring disclosure of the amount of credit made available to the debtor (i.e., the total amount financed less the itemized finance charges). If Congress had intended the debtor rather than the creditor to perform the task of subtraction, it would not have included section 1639(a)(1) in the statute. In this case, however, although we allow the debtor to be burdened with a simple *1526arithmetic calculation, we do not ignore section 1639(a)(1). Instead, we speak to the form of the disclosure required by that section and conclude that the disclosure made in this case is satisfactory.
596 F.2d at 662.