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The Scope of Coverage of the Truth in Lending Act
Published online by Cambridge University Press: 27 December 2018
Extract
Although the Truth in Lending Act (TIL) was actively considered by Congress for the better part of a decade questions of coverage rarely arose, and debate on the scope of the coverage provisions was almost nonexistent. The reasons appear to be twofold. First, as Justice Frankfurter observed, every statute has a “core of indisputable application” about which there is little question, and there was general agreement that certain types of transactions constituting the majority of consumer credit transactions would clearly be covered. Thus the undisputed coverage of the TIL Act was very broad. Second, legislators were preoccupied with debating a number of the substantive provisions that creditors found so objectionable and consumerists thought so necessary that little attention was focused on defining the perimeter of coverage. Moreover, as this paper will show, a number of “fringe” transactions bear at least superficial resemblance to transactions that were clearly to be covered. Thus, creditors might wisely have preferred to take their chances on later interpretations of the scope of coverage by administrators and courts rather than risking a specific congressional resolution. of the coverage issues.
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- Copyright © American Bar Foundation, 1976
References
1 Hoffman v. Blaski, 363 U.S. 335, 354 (1960) (Frankfurter, J., dissenting).CrossRefGoogle Scholar
2 Truth in Lending Act, 82 Stat. 146 (1968), as amended, 15 U.S.C. sec. 1601 et seq. (1970). Unless otherwise noted all references to the act in the text will be to the version presently in force.Google Scholar
3 12 C.F.R. sec. 226 (1975). All references to Regulation Z will be to the version presently in force (i.e., as amended effective October 28, 1975) unless otherwise noted.Google Scholar
4 It is questionable whether the interpretive rulings constitute the kind of administrative action that is properly published in the Federal Register. Kenneth C. Davis, Administrative Law Treatise sec. 6.09, at 393–94 (St. Paul: West Publishing Co., 1958).Google Scholar
5 Courts have been inconsistent in the weight accorded informal pronouncements of the board and staff. Compare Thomas v. Myers-Dickson Furniture Co., 479 F.2d 740, 746–47 (5th Cir. 1973), Scott v. Liberty Fin. Co., 380 F. Supp. 475 (D. Neb. 1974), and Grubb v. Oliver Enterprises, Inc., 358 F. Supp. 970, 973 n.6 (N.D. Ga. 1972) (rejecting interpretations), with Philbeck v. Timmers Chevrolet, 499 F.2d 971 (5th Cir. 1974), and Bone v. Hibernia Bank, 493 F.2d 135 (9th Cir. 1974) (accepting interpretations).Google Scholar
6 Ives v. W. T. Grant Co., 522 F.2d 749, 758 (2d Cir. 1975); S. Rep. No. 278, 93d Cong., 1st Sess. 13 (1973) (interpretation “must be approved by the Board itself and not merely by the staff”); John H. Paer, Truth-in-Lending: Protection for the Consumer or for the Creditor? 24 Emory L.J. 357, 367 (1975). Sec. 103(b) of the act defines the board to mean the Federal Reserve Board. While this definition was apparently used to designate the entity responsible for rule making, that term should probably have the same meaning in sec. 130(d). But cf. Welmaker v. W. T. Grant Co., 365 F. Supp. 531 (N.D. Ga. 1973). FRB Letter No. 447, CCH Cons. Credit Guide [CCH-CCG], 1969–74 TIL Special Releases Transfer Binder, para. 30,640 (Mar. 1, 1971), makes it clear that matters in staff opinions have “not been presented to, nor reviewed by, the Board.”See generally William D. Warren & Thomas R. Larmore, Truth in Lending: Problems of Coverage, 24 Stan. L. Rev. 793, 794–95 & n.7 (1972).Google Scholar
7 Truth in Lending Act secs. 127, 128, 129; Reg. Z/226.7, 226.8.Google Scholar
8 Truth in Lending Act secs. 112, 130.Google Scholar
9 Reg. Z/226.2(s) defines creditor in terms of “persons” who regularly extend credit. “Person” includes an “organization.” Reg. Z/226.2(bb). The term organization includes “govern-mental subdivision or agency.” Thus, governmental creditors must disclose. FRB Letter No. 784, 5 CCH-CCG, para. 31,106 (Apr. 19, 1974); FRB Letter, CCH-CCG 1969–74 TIL Special Releases Transfer Binder, para. 30,004 (Apr. 7, 1969); FRB Letter No. 161, id., para. 30,190 (Oct. 17, 1969); FRB Letter No. 540, id., para. 30,754 (Sept. 22, 1971); FRB Letter, id., para. 30,073 (June 30, 1969); FRB Letter, id., para. 30,911 (Dec. 4, 1972). Sec. 113 of the act does exempt governmental creditors from civil or criminal penalties, however. See Ferguson v. Electric Power Board, 378 F. Supp. 787 (E.D. Tenn. 1974), affd, 511 F.2d 1403 (6th Cir. 1975); FRB Letter No. 784 supra There is some indication that the right of rescission for real property transactions is not a civil or criminal penalty and that, therefore, governmental creditors are subject to it. FRB Letter of April 7, 1969, supra. But a recent addition to Regulation Z states that governmental creditors that are “agenc[iesj of the State” are not subject to the consumer's right of rescission. Reg. Z/226.9(g)(5).Google Scholar
10 Another possible use for the “ordinary course of business” language is to exclude extensions of credit by persons whose business involves other types of credit transactions, e.g., a banker who makes a credit sale of his own used car. See FRB Letter No. 161, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,190 (Oct. 17, 1969). It is doubtful that the board designed the language to resolve such a situation, since it is necessary to read the phrase as “in the ordinary course of his business.” Moreover, it is not at all clear that such extensions of credit in a different field are exempt. See FRB Letter No. 886, 5 CCH-CCG, para. 31,212 (Apr. 28, 1975). See generally Warren & Larmore, supra note 6, at 822–23.Google Scholar
11 For example, sellers of goods or contractors could claim that their credit activities were incidental and an adjunct to their principal activities, and it is not clear how such persons could be distinguished from professionals such as doctors or lawyers.Google Scholar
12 See FRB Letter No. 261, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,313 (Feb. 19, 1970); FRB Letter No. 359, id., para. 30,421 (June 24, 1970).Google Scholar
13 H.R. Rep. No. 1040, 90th Cong., 1st Sess. 20 (1967); S. Rep. No. 392, 90th Cong., 1st Sess. 13 (1967).Google Scholar
14 See Eby v. Reb Realty, Inc., 495 F.2d 646, 649–51 (9th Cir. 1974) (defendant realtor who had three credit transactions in more than one year is creditor; transaction in suit involved £4,200); Pugh v. American Tractor Trailer Training, Inc., 5 CCH-CCG, para. 98,827 (D. Conn. 1974); Washington Motor Sales v. Ferreira, 131 N.J. Super. 328, 335–36, 329 A.2d 599, 603–4 (1974) (automobile dealer is creditor); FRB Letter, 5 CCH-CCG, para. 31,225 (May 15, 1975) (religious organization is creditor); FRB Letter No. 261, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,313 (Feb. 19, 1970) (corporation, selling its own stock to employees, is “a sophisticated party fully able to make disclosures”); FRB Letter No. 704, id., para. 31,001 (Aug. 2, 1973) (creditor's consumer loan through loan broker is not the “type of isolated private transaction by a non-sophisticated individual” that was exempted); FRB Letter No. 30, id., para. 30,086 (July 8, 1969); FRB Letter, id., para. 30,027 (May 7, 1969); FRB Letter, id., para. 30,033 (Apr. 11, 1969). But cf. FTC Informal Staff Opinion, id., para. 30,329 (Aug. 1, 1969) (incidental loans by corporation to corporate officers and directors are not in the ordinary course of business since loans are not an integral part of its operations nor do they further its business purpose). A recent staff opinion seems to have reduced the threshold level for coverage. FRB Letter No. 905, 5 CCH-CCG, para. 31,239 (July 9, 1975) (occasional remodeling transactions by factory worker covered).Google Scholar
Two decisions seem to adopt the approach suggested in stating that it is a factual determination whether an individual is a creditor under the act. See Ljepava v. M.L.S.C. Properties, Inc., 511 F.2d 935, 945 (9th Cir. 1975); Sarter v. Mays, 491 F.2d 675, 676 (5th Cir. 1974).Google Scholar
15 See FRB Letter No. 30, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,086 (July 8, 1969); cf. FRB Int. Rul. sec. 226.302 (extension of credit for dwelling with more than four units is for business or commercial purposes); Int. Rev. Code of 1954 sec. 1237. But cf FRB Letter No. 905, 5 CCH-CCG para. 31,239 (July 9, 1975).Google Scholar
16 See FRB Letter, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, 30,802 (Feb. 7, 1972); FRB Letter No. 323, id., para. 30,374 (May 11, 1970); FRB Letter, id., para. 30,206 (Nov. 4, 1969); FRB Letter, id., para. 30,030 (Apr. 23, 1969).Google Scholar
17 See FRB Letter No. 157, id., para. 30,496 (Oct. 16, 1969).Google Scholar
18 In some cases the transaction may be covered if a nonprofessional creditor promptly discounts the obligation with a bank or finance company, or if there is an arranger. See note 54 infra and text at notes 77–87 infra.Google Scholar
19 The activities of such a broker are described in in re Virginia Mortgage Exchange, Inc., 5 CCH-CCG, para. 98,545 (FTC 1975). In some cases the use of such brokers may raise the effective interest rate to levels acceptable to lenders and still not cause the transaction to violate the usury laws. See Early v. Williams, 239 Miss. 320, 123 So. 2d 446 (1960).Google Scholar
20 A recent staff opinion indicated that disclosure by the loan broker is not adequate in a case where the broker then finds a lender to make the actual loan; instead, the lender must also disclose. Thus, the lender would be known to the consumer at the time TIL disclosures are given. FRB Letter No. 952, 5 CCH-CCG, para. 31, 291 (Nov. 19, 1975).Google Scholar
21 Restatement (Second) of Agency sec. 4 (1957).Google Scholar
22 Id. secs. 320, 328, 343, 348, comment b.Google Scholar
23 The courts have had a hard time categorizing Truth in Lending actions when necessary in other contexts. See Mourning v. Family Publications Serv., Inc., 411 U.S. 356, 375 (1973); Porter v. Household Fin. Corp., 385 F. Supp. 336 (S.D. Ohio 1974) (characterization for Bankruptcy Act purposes); cf. Curtis v. Loether, 415 U.S. 189 (1974) (attempt to categorize civil rights statute).Google Scholar
24 Hearings on S. 5 before the Subcomm. on Financial Institutions of the Senate Comm. on Banking and Currency, 90th Cong., 1st Sess. 402 (1967) (Douglas Hewitt). Mr. Hewitt spotted another problem that was missed by everyone else. See note 133 infra. The legislation containing the “principal agent” language was S. 750, 88th Cong., 1st Sess. sec. 3(4) (1963).Google Scholar
25 113 Cong. Rec. 14692 (1967).Google Scholar
26 144 Cong. Rec. 1611 (1968)Google Scholar
27 Te. only interpretation of this phrase is in FRB Letter No. 823, 5 CCH-CCG, para. 31,145 (July 24, 1974).Google Scholar
28 One court has given the requirement a reverse twist in an assignment case, holding that an assignee who had not agreed to the assignment before the consumer signs the note could not be a creditor as an extender because the seller could not be an arranger. Joseph v. Norman's Health Club, Inc., 386 F. Supp. 780, 791–92 (E.D. Mo. 1974, amended 1975). There is no indication, however, that this phrase in the definition of arranger was intended to influence the definition of extender-creditors in assignment transactions. And, in any event, there is no policy reason why the business or other relationship should require a full contractual understanding between assignor and assignee before the consumer enters the transaction. While most of the arranger cases have not specifically focused on the assignment situation, there is no suggestion in any that the concept requires the degree of formality suggested by the Joseph court. Finally, the court has ignored the fact that, in such a case, there may simply be two extenders and, therefore, the court's attempt to avoid deciding the issue whether the assignee was an extender via the application of the definition of arranger to the assignor should be unsuccessful.Google Scholar
29 If the arranger receives a fee, he is covered regardless of knowledge of the terms or preparation of the documents. Childress v. Mobile Living Corp., 386 F. Supp. 903 (E.D. La. 1974).Google Scholar
30 A third category would be “gratuitous arrangers,” such as friends, relatives, employers, and others, who assist in making the credit arrangements. Since such persons are not in the business of arranging for credit, do not receive a fee or other compensation, and usually play no role beyond that of a finder, they would not be arrangers under Regulation Z.Google Scholar
31 Childress v. Mobile Living Corp., 386 F. Supp. 903 (E.D. La. 1974); FRB Letter No. 699, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,996 (July 19, 1973); see Starks v. Orleans Motors, Inc., 372 F. Supp. 928, 930 (E.D. La. 1974), aff'd, 500 F.2d 1182 (5th Cir. 1974); FRB Letter No. 523, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,729 (Sept. 7, 1971); FRB Letter No. 597, id., para. 30,841 (Apr. 28, 1972). See also FRB Letter No. 881, 5 CCH-CCG, para. 31,206 (Mar. 19, 1975).Google Scholar
32 Another common example is a builder of homes who helps the consumer to obtain credit so he can sell his homes. In some respects, however, the builder resembles the somewhat hybrid case of a seller of goods; therefore, this section will focus on the broker.Google Scholar
33 Cf. Pugh v. American Tractor Trailer Training, Inc., 5 CCH-CCG, para. 98,827 (D. Conn. 1974).Google Scholar
34 In a number of opinions involving brokers, the staff's statements imply that a real estate broker is not a fee-gathering arranger. See FRB Letter No. 124, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,475 (Sept. 25, 1969); FRB Letter No. 167, id., para. 30,197 (Oct. 21, 1969); opinions at note 40 infra.Google Scholar
35 FRB Letter No. 301, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,347 (Apr. 16, 1970); cf. FRB Letter No. 661, id., para. 30,932 (Jan. 10, 1973) (builder released from liability on loan assumed by purchaser). Since overlapping ownership of brokers and mortgage lenders is rare, such a situation will be discussed in connection with sales of goods.Google Scholar
36 FRB Letter No. 162, id., para. 30,187 (Oct. 17, 1969).Google Scholar
37 Such cases of a professional arranger and a nonprofessional extender are discussed at p. 597 infra.Google Scholar
38 It is always possible to argue that two potential defendants are better than one, but such reasoning does not seem sufficient in light of the extender's role in setting TIL terms and the lender's suitability as the responsible party. See Manning v. Princeton Consumer Discount Co., 390 F. Supp. 320, 325 (E.D. Pa. 1975); cf. Boggan v. Euclid National Bank, 5 CCH-CCG, para. 98,674 (N.D. Ohio 1974). It is ironic that for several years the staff excluded coverage in the one area where there was no potential duplication, i.e., the nonprofessional extender and the professional arranger. See pp. 597–600 infra.Google Scholar
39 See Gonzalez v. Schmerler Ford, 397 F. Supp. 323, 325–26 (N.D. Ill. 1975); Manning v. Princeton Consumer Discount Co., 390 F. Supp. 320, 325 (E.D. Pa. 1975).Google Scholar
40 See FRB Letter No. 162, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,187 (Oct. 17, 1969); FRB Letter No. 344, id., para. 30,399 (June 4, 1970); FRB Letter No. 105, id., para. 30,154 (Sept. 5, 1969); FRB Letter No. 158, id., para. 30,497 (Oct. 16, 1969). But cf. FRB Letter No. 388, id., para. 30,569 (Aug. 4, 1970) (appears that contractor's involvement in setting terms may have been much greater than that of usual broker); FRB Letter No. 778, 5 CCH-CCG, para. 31,100 (Apr. 10, 1974) (builder's letter stated that he “prepares the note and mortgage”).Google Scholar
The matter has arisen in a few cases, but they are of dubious precedential value. See Stefanski v. Mainway Budget Plan, Inc., 456 F.2d 211, 212 (5th Cir. 1972) (dictum); Boggan v. Euclid Nat'l Bank, 5 CCH-CCG, para. 98,674 (N.D. Ohio 1974) (plaintiff admitted seller arranged for credit; not clear to what extent later discussion is based on admission); Manning v. Princeton Discount Co., 380 F. Supp. 116 (E.D. Pa. 1974) (allegation that auto dealer was an arranger sufficient to withstand motion to dismiss; court did not pass on question what activities constitute preparation of contract documents).Google Scholar
At one point, the board seemed to take the position that identification of a person as an “arranger” should depend on whether that party had the pertinent information to make disclosure. Hearings on Consumer Credit Regulations (TIL) Before the Subcomm. on Consumer Affairs of the House Comm. on Banking and Currency, 91st Cong., 1st Sess. 402 (1969). For the reasons stated in the text, I would interpret “arranger” in terms of the need for disclosure rather than the ability to disclose.Google Scholar
41 FRB Letter No. 892, 5 CCH-CCG, para. 31,218 (May 28, 1975). See also FRB Letter, id., para. 31,226 (May 17, 1975). The board took a similar position in explaining Regulation Z to Congress. Hearings on Consumer Credit, supra note 40, at 402.Google Scholar
42 The staff had previously opined that an attorney who works for a professional extender is not an arranger even if he prepares the actual documents. FRB Letter No. 553, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,774 (Nov. 24, 1971); see Redhouse v. Quality Ford Sales, Inc., 511 F.2d 230, 238 (10th Cir. 1975). While such a result is understandable to avoid requiring disclosure by the employees of banks, finance companies, and other creditors, it is hard to square with the coverage of the real estate broker. Thus, the attorney mentioned in the opinion letter undoubtedly had a much greater impact on the substantive terms of the transaction that must be disclosed under TIL than a broker who fills in forms at the direction of another. Yet the broker is subject to the act but the attorney is not.Google Scholar
43 See Jonathan M. Landers & Cathleen Chandler, The Truth in Lending Act and Variable-Rate Mortgages and Balloon Notes, 1976 A.B.F. Res. J. 35.Google Scholar
44 See Austin v. Ohio Furniture Co., 5 CCH-CCG, 1969–73 Decisions Transfer Binder, para. 99,610 (N.D. Ohio 1970). This issue was left open in Philbeck v. Timmers Chevrolet, Inc., 361 F. Supp. 1255, 1260 n.7 (N.D. Ga. 1973), rev'd on other grounds, 499 F.2d 971 (5th Cir. 1974).Google Scholar
45 Garza v. Chicago Health Clubs, Inc., 347 F. Supp. 955, 964 (N.D. Ill. 1972); Meyers v. Clearview Dodge Sales, Inc., 384 F. Supp. 722, 728 (E.D. La. 1974) (implying liability is not under sec. 131, but as a regular creditor); Johnson v. Johnson, 5 CCH-CCG, para. 98,566 (M.D. Ga. 1975) (dictum); cf. Joseph v. Norman's Health Club, Inc., 386 F. Supp. 780, 792 (E.D. Mo. 1974, amended 1975) (implying there may be full assignee liability under sec. 131).Google Scholar
46 Compare Reg. Z/226.8(a), which requires disclosures by “any creditor when extending credit other than open end credit.” This could be interpreted to require disclosures only by the extender and never by the arranger.Google Scholar
47 See Hearings on S. 1630 and S. 914 Before the Subcomm. on Consumer Credit of the Senate Comm. on Banking, Housing and Urban Affairs, 93d Cong., 1st Sess. (1973); cf. Chrysler Credit Corp. v. Barnes, 126 Ga. App. 444, 191 S.E.2d 121 (1972) (distinguishing liability as an assignee and liability as a “creditor”). These cases are cited at notes 54–56 infra. Rohner assumes that these cases are irrelevant in light of the amendments governing assignee liability. For the reasons stated in the text, I do not believe the amendment resolves the issue. See Ralph J. Rohner, Holder in Due Course in Consumer Transactions: Requiem, Revival, or Reformation? 60 Cornell L. Rev. 503, 560 (1975). The draftsmen of the UCCC seem to have experienced similar difficulties in drafting the assignee provisions of that act. Id. at 561–63.Google Scholar
48 See Hearings on S. 750 Before a Subcomm. of the Senate Comm. on Banking and Currency, 88th Cong., 1st & 2d Sess. 478–79 (1963–64).Google Scholar
49 Uniform Commercial Code sec. 9–318(1) (1972 Official Text) (unless otherwise noted, all future references will be to this version of the code, and will be cited as UCC); Restatement (Second) of Contracts sec. 168 (Tent. Drafts Nos. 1–7, 1973); 2 Grant Gilmore, Security Interests in Personal Property secs. 41.4–41.6 (Boston: Little, Brown & Co. 1965); 4 Arthur Linton Corbin, Contracts secs. 896–97 (St. Paul: West Publishing Co. 1951); see Estel v. Radio Corp. of America, 307 N.E.2d 471 (1974); Seattle-First Nat'l Bank v. Oregon Pacific Indus., Inc., 262 Ore. 578, 581, 500 P.2d 1033, 1034 (1972).Google Scholar
50 See Restatement (Second) of Contracts at sec. 168, comment c; 4 Corbin, supra note 49, sec. 896, at 598–99; see McGraw-Edison Co. v. Haverluk, 130 N.W.2d 616 (1964); cf. TIL sec. 170, 15 U.S.C. sec. 1666 (Supp. IV 1974) (card issuers subject to consumer defenses not to exceed amount of credit outstanding). Of course, the situation is different if the assignee has expressly or impliedly promised to render some performance to the third party. See, e.g., United States v. Thompson & Georgeson, Inc., 346 F.2d 865, 869 (9th Cir. 1965).Google Scholar
The FRB and the FTC differed on the need for the amendments. The board suggested that “section 131 may already place such liability upon an assignee” but supported the amendment as desirable “classification.” Hearings on S. 1630 and S. 914, supra note 47, at 54. The FTC called the change an “important proposal,” which “will greatly increase the extent to which compliance is achieved.” If financial institutions and finance companies are potentially liable, “they will be prompted to take steps to assure the … paper they are buying is in full compliance with TIL.”Id. at 123.Google Scholar
51 A number of cases have discussed the closely related question whether the creditor's claim on the underlying account is a compulsory counterclaim to the consumer's TIL claim so that the federal court may exercise ancillary jurisdiction. Although it seems hard to resist the conclusion that the claims arise from the same transaction, some courts have been unwilling to become dragged into the collection business, and thus have held the counterclaim permissive. See, e.g., Ball v. Connecticut Bank & Trust Co., 404 F. Supp. 1 (D. Conn. 1975); Roberts v. Nat'l School of Radio and Television Broadcasting, 5 CCH-CCG, para. 98,765 (N.D. Ga. 1974). An analysis of this issue is beyond the scope of this paper.Google Scholar
52 See, e.g., Unico v. Owen, 50 N.J. 101, 232 A.2d 405 (1967); Vasquez v. Superior Court, 4 Cal. 3d 800, 484 P.2d 914, 94 Cal. Rptr. 796 (1971); cf. Block v. Ford Motor Co., 286 A.2d 228 (D.C. App. 1972). See generally Grant Gilmore, The Commercial Doctrine of Good Faith Purchase, 63 Yale L.J. 1057 (1954).Google Scholar
53 See cases at notes 54–57 infra. The Uniform Consumer Credit Code (Final Draft, 1974) [hereinafter cited as UCCC] has special provisions governing assignee liability. UCCC sec. 1.301(18), and comment on subsection (18).Google Scholar
54 See Philbeck v. Timmers Chevrolet, Inc., 361 F. Supp. 1255 (N.D. Ga. 1973), rev'd on other grounds, 499 F.2d 961 (5th Cir. 1974); Meyers v. Clearview Dodge Sales, Inc., 384 F. Supp. 722, 729 (E.D. La. 1974); Glaire v. La Lanne-Paris Health Spa, Inc., 12 Cal. 3d 915, 528 P.2d 357, 117 Cal. Rptr. 541 (1974). Cf. Unico v. Owen, 50 N.J. 101, 232 A.2d 405 (1967); Calvert Credit Corp. v. Williams, 244 A.2d 494 (D.C. Ct. App. 1968). Several cases have indicated the assignee might be liable on a conduit or agency theory without classifying precisely what was meant by these conclusory labels. See Garza v. Chicago Health Clubs, Inc., 347 F. Supp. 955, 964 (N.D. Ill. 1972); Joseph v. Norman's Health Club, Inc., 336 F. Supp. 307, 318 (E.D. Mo. 1971); Chrysler Credit Corp. v. Barnes, 126 Ga. App. 444, 191 S.E.2d 121 (1972). Similarly, in several opinion letters, the staff has stated that if a private individual sold his residence and took back a mortgage that was quickly discounted to a financial institution, the financial institution would be a creditor responsible for making disclosure. FRB Letter, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,802 (Feb. 7, 1972); FRB Letter No. 259, id., para. 30,311 (Feb. 17, 1970); FTC Informal Staff Opinion, id., para. 30,332 (Jan. 15, 1970).Google Scholar
In Garza, supra, the assignees sought summary judgment and argued that they did not supply the forms or set the terms of the contracts. While not expressly passing upon the legal import of such facts, the court denied summary judgment on the ground that the long relationship between the assignor and assignee could warrant the conclusion that the assignee was a creditor under the act. The case can probably be explained by the court's sympathy for the plaintiff, whose attorney had not properly prepared the case in opposition to the motion and the general reluctance to grant summary judgment.Google Scholar
55 See Joseph v. Norman's Health Club, Inc., 386 F. Supp. 780 (E.D. Mo. 1974, amended 1975); Meyers v. Clearview Dodge Sales, Inc., 384 F. Supp. 722, 728 (E.D. La. 1974); Claire v. La Lanne-Paris Health Spa, Inc., 12 Cal. 3d 915, 528 P.2d 357, 117 Cal. Rptr. 541 (1974); FRB Letter No. 626, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,875 (Aug. 10, 1972).Google Scholar
56 See Kriger v. European Health Spa, Inc., 363 F. Supp. 334 (E.D. Wis. 1973); Philbeck v. Timmers Chevrolet, Inc., 361 F. Supp. 1255 (N.D. Ga. 1973), rev'd on other grounds, 499 F.2d 971 (5th Cir. 1974) (GMAC approved extension of credit); Meyers v. Clearview Dodge Sales, Inc., 384 F. Supp. 722, 728 (E.D. La. 1974); Glaire v. La Lanne-Paris Health Spa, Inc., 12 Cal. 3d 915, 528 P.2d 357, 117 Cal. Rptr. 541 (1974); cf. Garza v. Chicago Health Clubs, Inc., 347 F. Supp. 955, 965 (N.D. Ill. 1972) (“long relationship” between assignor and assignees); FRB Letter No. 538, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,752 (July 21, 1971). But cf. Chrysler Credit Corp. v. Barnes, 126 Ga. App. 444, 191 S.E.2d 121 (1972), where the court held the assignee not liable although the assignee had a substantial role in approving the buyer's credit. The decision was on a motion for summary judgment, and the opinion intimates that plaintiff's attorney failed to develop adequately the issue of assignee liability. See also Johnson v. Johnson, 5 CCH-CCG, para. 98,566 (M.D. Ga. 1975). One decision appears to hold that the assignee is never liable. Alpert v. U.S. Industries, Inc., 59 F.R.D. 491 (C.D. Cal. 1973) (assignor and assignee are affiliated corporations).Google Scholar
In some cases, the assignee has been joined as a defendant and held liable for TIL violations without contesting the issue of assignee liability. See Reed v. Washington Trailer Sales, 393 F. Supp. 886 (M.D. Tenn. 1974); McDaniel v. Fulton National Bank, 395 F. Supp. 422 (N.D. Ga. 1975).Google Scholar
The status of assignees under state retail installment sales acts that preceded both TIL and the UCCC was extremely varied both as to responsibility for compliance and liability for noncompliance. See Barbara A. Curran, Trends in Consumer Credit Legislation 113–17, 118 (Chicago: University of Chicago Press, 1965).Google Scholar
57 See Joseph v. Norman's Health Club, Inc., 386 F. Supp. 780 (E.D. Mo. 1974, amended 1975); FRB Letter No. 626, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,875 (Aug. 10, 1972).Google Scholar
58 See Philbeck v. Timmers Chevrolet, Inc., 361 F. Supp. 1255, 1260 (N.D. Ga. 1973), rev'd on other grounds, 499 F.2d 971 (5th Cir. 1974) (dealer is extender); Meyers v. Clearview Dodge Sales, Inc., 384 F. Supp. 722, 728 (E.D. La. 1974) (dealer is extender and arranger); Kriger v. European Health Spa, Inc., 363 F. Supp. 334 (E.D. Wis. 1973) (not clear); Glaire v. La Lanne-Paris Health Spa, Inc., 12 Cal. 2d 915, 528 P.2d 357, 117 Cal. Rptr. 541 (1974) (plaintiff argued assignor was arranger, and court may have tacitly agreed although it is hard to tell); Johnson v. McCrackin-Sturman Ford, Inc., 381 F. Supp. 153, 156 M.D. Pa. 1974), rev'd on other grounds, CCH-CCG, para. 98,499 (3d Cir. 1975) (not clear; court mistakenly thought sec. 130(d) governed rights against assignee); Garza v. Chicago Health Clubs, Inc., 347 F. Supp. 955 (N.D. Ill. 1972) (not clear); Johnson v. Johnson, 5 CCH-CCG, para. 98,566 (M.D. Ga. 1975) (one part of the opinion implies assignor is arranger; other part not clear). Indeed, Regulation Z/226.6(d) implies that the distinction is not important, since it requires the appropriate disclosures for credit sales if the seller is an extender or an arranger. See also note 64 infra.Google Scholar
59 See Johnson v. McCrackin-Sturman Ford, Inc., 381 F. Supp. 153, 156 (W.D. Pa. 1974), rev'd on other grounds, CCH-CCG, para. 98,499 (3d Cir. 1975) (holding seller liable; since only one recovery, rights against assignee deferred); Philbeck v. Timmers Chevrolet, Inc., 361 F. Supp. 1255 (N.D. Ga. 1973), rev'd on other grounds, 499 F.2d 971 (5th Cir. 1974) (seller must be extender by definition, since otherwise there would be no one to make the assignment).Google Scholar
60 E.g., Kan. Stat. Ann. sec. 16a-3-404(5) (1974).Google Scholar
61 See Warren & Larmore, supra note 6, at 831.Google Scholar
62 It may be found that the seller has received compensation if the financer purchases the paper on a nonrecourse basis for more than the amount financed (basically, the sales price less down payment); this difference could be considered a fee that qualifies the seller as an arranger. Whether there are many such cases is doubtful. More difficulty is presented by the case where the financer buys the note for the amount financed (or less) and establishes a so-called seller's reserve or dealer's participation, part of which may be turned over to the dealer if the assignee's credit experience is favorable. See Curran, supra note 56, at 113–15; Rohner, supra note 47, at 539. Since this reserve is contingent on future experience, and is not attached to a specific extension of credit, it is doubtful that it is included as a fee, compensation, or other consideration that would make the seller an arranger.Google Scholar
63 The lender can use either a joint disclosure statement, or a separate statement containing the appropriate disclosure for consumer loans. Reg. Z/226.6(d). In Manning v. Princeton Consumer Discount Co., 390 F. Supp. 320, 325–26 (E.D. Pa. 1975), the court held that only the seller must make disclosure, and relied on sec. 128, which states that disclosure is required by “the creditor,” implying disclosure by one creditor. Compare FRB Letter No. 929, 5 CCH-CCG, para. 31,268 (Oct. 21, 1975). In addition to ignoring Reg. Z/226.6(d), the court failed to distinguish the assignment cases in which this same section was used to require disclosure by two creditors. Moreover, sec. 103(f) of the act defines “creditor” to mean “creditors who regularly extend, or arrange for the extension of, credit ….”See Stefanski v. Mainway Budget Plan, Inc., 326 F. Supp. 138, 139 n.1 (S.D. Fla. 1971), rev'd on other grounds, 456 F.2d 211 (5th Cir. 1972).Google Scholar
64 Reg. Z/226.8(c)(1), (2), (3), (8)(ii). It may be argued that this blurs the distinction between a loan and a credit sale. While this is true, the distinction has already been blurred, and there has been increasing recognition that the sale followed by an immediate assignment differs insubstantially from a loan that the seller plays a dominant role in arranging. See Neil O. Littlefield, Preserving Consumer Defenses: Plugging the Loophole in the New UCCC, 44 N.Y.U.L. Rev. 272 (1969); Note, Direct Loan Financing of Consumer Purchases, 85 Harv. L. Rev. 1409 (1972); FTC Statement Accompanying Trade Reg. Rule 433, 40 Fed. Reg. 53506, 53514 (1975). The result has been the increasingly widespread adoption of statutes permitting the consumer to assert merchandise defenses against the direct lender. E.g., D.C. Code sec. 28–3809(a) (1973); UCCC, supra note 53, sec. 3.405. There appears to be a substantial overlap between situations where the lender will be subject to liability under such statutes and cases where the seller is an arranger under TIL, and this justifies requiring the additional disclosures for credit sales under TIL. See FTC Trade Reg. Rule 433, 40 Fed. Reg. 53506 (1975).Google Scholar
65 Stefanski v. Mainway Budget Plan, Inc., 456 F. 2d 211 (5th Cir. 1972) (dictum); Boggan v. Euclid National Bank, 5 CCH-CCG, para. 98,674 (N.D. Ohio 1974); Lipscomb v. Chrysler Credit Corp., id., para. 98,626 (N.D. Ohio 1973).Google Scholar
66 See p. 578 supra.Google Scholar
67 See Jonathan M. Landers, A Unified Approach to Parent, Subsidiary and Affiliate Questions in Bankruptcy, 42 U. Chi. L. Rev. 589 (1975).CrossRefGoogle Scholar
68 456 F.2d 211 (5th Cir. 1972); el; Joseph v. Norman's Health Club, Inc., 386 F. Supp. 780, 792 (E.D. Mo. 1974, amended 1975). It is possible that Warren & Larmore, supra note 6, at 828, may have had the same notion in mind when they suggested that some recipients of incidental benefits might be held fee-gathering arrangers.Google Scholar
69 See Mourning v. Family Publications Serv., Inc., 411 U.S. 356 (1973); Glaire v. La Lanne-Paris Health Spa, Inc., 12 Cal. 3d 915, 528 P.2d 357, 117 Cal. Rptr. 541 (1974).Google Scholar
70 See pp. 580–81 supra. It is not clear on what basis the seller was held liable in Hall v. Sheraton Galleries, 5 CCH-CCG, para. 98,737 (N.D. Ga. 1974) (Sp. Master). In that case, G.E. Credit Corp. set up a revolving plan and committed several TIL violations. Other than providing the pretransaction forms, the seller did not appear to participate in the plan.Google Scholar
71 Gonzalez v. Schmerler Ford, 397 F. Supp. 323 (N.D. Ill. 1975).Google Scholar
72 UCCC, supra note 53, sec. 3.405.Google Scholar
73 See Kan. Stat. Ann. sec. 16a-3-405, Comment 3 (1974); Rohner, supra, note 47, at 540, 543–49.Google Scholar
74 In several cases, consumers have seized on the uncertainty whether the seller is an arranger and have argued that disclosures for a loan were improper because the involvement of the seller as an arranger-creditor meant that the disclosures for a consumer credit sale were required. Stefanski v. Mainway Budget Plan, Inc., 456 F.2d 211 (5th Cir. 1972); Manning v. Princeton Consumer Discount Co., 380 F. Supp. 116 (E.D. Pa. 1974).Google Scholar
75 The court in Boggan v. Euclid National Bank, 5, CCH-CCG, para. 98,674 (N.D. Ohio 1974) carried this policy to its extreme in a case of a direct loan in which the seller was an arranger-creditor. The court read the last sentence in Reg. Z/226.6(d)–which requires the credit sale disclosures if the seller is an extender or arranger–as an exemptive provision for the lender. Unfortunately, the court ignored the prior sentence which makes it clear that when two creditors are involved, both must make disclosure. The court reached this same result in Manning v. Princeton Consumer Discount Co., 390 F. Supp. 320, 325 (E.D. Pa. 1975), but the opinion did not cite Reg. Z/226.6(d). Compare Lipscomb v. Chrysler Credit Corp., 5 CCH-CCG, para. 98,626 (N.D. Ohio 1973); FRB Letter No. 929, id., para. 31,268 (Oct. 21, 1975).Google Scholar
76 Although consumers are not told that they can resist payments to the seller if they have merchandise defenses, they frequently sense it. See generally David Caplovitz, Consumers in Trouble: A Study of Debtors in Default ch. 6 (New York: Free Press, 1974). On the other hand, consumers would undoubtedly be surprised to learn that they can do so against a direct lender. Consumers will get notice of such rights under an FTC Trade Regulation Rule, which becomes effective on May 14, 1976. FTC Trade Reg. Rule sec. 433.2(b), 40 Fed. Reg. 53506 (1975). See also Proposed Trade Reg. Rule sec. 433.2, 40 Fed. Reg. 53530 (1975).Google Scholar
77 The requirement of a previous relationship will probably be satisfied by virtue of the broker's help in the sales transaction.Google Scholar
78 FRB Letter No. 44, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,097 (July 16, 1969); FRB Letter, id., para. 30,170 (Sept. 25, 1969). For a critique of the board's interpretation, and possible alternative constructions see Warren & Larmore, supra note 6, at 832–33.Google Scholar
79 The same ambiguity is found in the statute itself, which defines “credit” as the “right granted by a creditor to a debtor to defer payment of a debt ….” Truth in Lending Act sec. 103(e). It has been suggested that the broker might be considered the extender in some cases where he offers to extend the credit himself. See Warren & Larmore, supra note 6, at 831. Although this may be true, it does not appear to be a common practice in transactions where there is a nonprofessional extender.Google Scholar
80 The legislative background for this provision is discussed at pp. 602–4 infra.Google Scholar
81 Truth in Lending Act sec. 125. There is now a three-year statute of limitations for the right of rescission. Id. sec. 125(f).Google Scholar
82 See FRB Letter No. 704, 1969–74 TIL Special Releases Transfer Binder, CCH-CCG, para. 31,001 (Aug. 2, 1973).Google Scholar
83 Id.; cf. UCCC, supra note 53, sec. 1.301(15)(c).Google Scholar
84 FRB Letter, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 31,006 (July 17, 1973).Google Scholar
85 FRB Letter, id., para. 30,951 (Mar. 1, 1973).CrossRefGoogle Scholar
86 FRB Letter No. 677, id., para. 30,955 (March 8, 1973).Google Scholar
87 Truth in Lending Act sec. 103(f).Google Scholar
88 Truth in Lending Act sec. 103(e).Google Scholar
89 411 U.S. 356 (1972), reversing 499 F.2d 235 (5th Cir. 1971).Google Scholar
90 Truth in Lending Act sec. 103(e).Google Scholar
91 Reg. Z/226.2(k), 12 C.F.R. 226 (1969).Google Scholar
92 UCCC, supra note 53, sec. 1.301(12)(a)(iv).Google Scholar
93 The complete provision in S. 5, 90th Cong., 1st Sess. para. 3(2) (1967) is as follows:Google Scholar
(2) “Credit” means any loan, mortgage, deed of trust, advance, or discount; any conditional sales contract; any contract to sell or sale, or contract of sale of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract; any rental purchase contract; any contract or arrangement for the hire, bailment, or leasing of property; any option, demand, lien, pledge, or other claim against, or for the delivery of, property or money; any purchase, or other acquisition of, or any credit upon the security of, any obligation or claim arising out of any of the foregoing; and any transaction or series of transactions having a similar purpose or effect.Google Scholar
94 See Hearings on S. 750, supra note 48, at 1304. Governor Robertson's testimony on this point was as follows:Google Scholar
Section 3(2) incorporates a definition of credit that was originally developed or designed for a different purpose, the selective regulation of downpayments and maturities for credit in emergency situations. Some of the specified categories cover matters that it would seem unnecessary or impractical to cover under a credit-cost disclosure bill. This would seem true particularly of the definition of credit to include “any contract or arrangement for the hire, bailment, or leasing of property.” As to such transactions, it would seem impossible to attribute or determine a finance charge. Similar questions can be raised as to inclusion in the definition of such things as options, demands, liens, and pledges.Google Scholar
We believe it would be preferable to define credit as “the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment,” followed by an enumeration of some of the important types of credit listed in section 3(2) of the present bill. The quoted definition–which has been proposed in connection with the Uniform Consumer Credit Code now being drafted by the National Conference of Commissioners on Uniform State Laws–is sufficiently broad to cover any situation within what we conceive to be the purpose and intent of S. 5. It would eliminate any concern as to categories of transactions whose inclusion in the present definition might seem to be questionable.Google Scholar
Hearings on S. 5, supra note 24, at 663. Compare Hearings on S. 750, supra note 48, at 1309. The Senate adopted Robertson's argument. S. Rep. No. 392, supra note 13, at 12.Google Scholar
95 Hearings on S. 1740 Before the Subcomm. on Production and Stabilization of the Senate Comm. on Banking and Currency, 87th Cong., 1st Sess. 295–99, 447–48, 1155–56 (1961). Other legislative references are cited in the Mourning opinion. 411 U.S. at 367–68 nn.27-29.Google Scholar
96 Reg. Z/226.2(k), 12 C.F.R. 226 (1969).Google Scholar
97 Reg. Z/226.2(q), 226.4; UCCC, secs. 2.109, 3.109 (1968 Official Text). See Hearings on Consumer Credit, supra note 40, at 380–81.Google Scholar
98 In several cases involving health spas, courts found that the discount at which the note was sold was a finance charge but did not also discuss whether there was a credit transaction. The reason appears to be one stated in the text: once there is a finance charge there is, by definition, a credit transaction. Kriger v. European Health Spa, Inc., 363 F. Supp. 334 (E.D. Wis. 1973); Glaire v. La Lanne-Paris Health Spas, Inc., 12 Cal. 3d 915, 528 P.2d 357, 112 Cal. Rptr. 572 (1974).Google Scholar
99 Sec. 121(a) of the original act requires disclosure by creditors to “each person to whom credit is extended and upon whom a finance charge is or may be imposed.” This language was originally inserted in the Senate version of S. 5, and the Senate report explained that this was a prefatory section stating the basic disclosure requirement and was similar to the original S. 5, except that it is made clear that disclosure need only be made to persons “upon whom a finance charge is or may be imposed.” Thus, the disclosure requirement would not apply to transactions which are not commonly thought of as credit transactions, including trade credit, open account credit, 30-, 60-, or 90-day credit, etc., for which a charge is not made.Google Scholar
See S. Rep. No. 392, supra note 13, at 25; H.R. Rep. No. 1040, supra note 13, at 14. Governor Robertson also appeared to equate the credit transaction and finance charge requirements. See note 94 supra. See also Cowart v. Lang, 252 App. Div. 720, 298 N.Y.S. 875 (1937).Google Scholar
100 See note 95 supra.Google Scholar
101 See Strompolos v. Premium Readers Serv., 326 F. Supp. 1100 (N.D. Ill. 1971); Glaire v. La Lanne-Paris Health Spa, Inc., 12 Cal. 3d 915, 920–22, 528 P.2d 357, 360–61, 117 Cal. Rptr. 541 (1974).Google Scholar
102 FRB Letter No. 134, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,180 (Oct. 9, 1969). One former staff member, whose name appears on many of the FRB's staff opinions, has been a party to this same mischief. Griffith L. Garwood, A Look at Truth in Lending–Five Years After, 14 Santa Clara Law. 491, 496–97 n.32 (1974). The FTC has expressed similar views. See note 104 infra.Google Scholar
103 See Claire v. La Lanne-Paris Health Spa, Inc., 12 Cal. 3d 915, 918, 528 P.2d 357, 360, 117 Cal. Rptr. 541, 544 (1974); cf. Mourning v. Family Publications Serv., Inc., 411 U.S. 356, 369, 377, (1973). The board has been party to similar talk. FRB Letter, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,180 (Oct. 9, 1969); FRB Letter, id., para. 30,199 (Oct. 23, 1969); FRB Letter No. 53, id., para. 30,439 (Aug. 5, 1969).Google Scholar
104 The FTC seems to have concluded, without any explanation, that all four-installment transactions are covered. FTC Advisory Opinion No. 352, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,250 (July 3, 1969); FTC Informal Staff Opinion, id., para. 30,575 (June 30, 1970). But see FTC Informal Staff Opinion, id., para. 30,294 (Aug. 18, 1969) (leases not included, but deferred payment plan for tuition is). The court seems to have made the same assumption in Strompolos v. Premium Readers Serv., 326 F. Supp. 1100 (N.D. Ill. 1971).Google Scholar
105 See note 94 supra. The Senate Report specifically states that “lease situations might not be true extensions of credit.” S. Rep. No. 392, supra note 13, at 12.Google Scholar
106 FRB Letter No. 783, 5 CCH-CCG, para. 31,105 (Apr. 18, 1974); FRB Letter No. 701, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,998 (July 31, 1973). Warren and Larmore recognize the inconsistency–at least, as to doctors-but conclude that many such transactions should be covered. Warren & Larmore, supra note 6, at 820–21. With deference, it is believed that they have incorrectly interpreted the definition of “credit” to cover all cases where there is a fixed obligation to pay. This point is explored at pp. 622–23 infra.Google Scholar
107 Federal Reserve Board, Annual Report to Congress on Truth in Lending for the Year 1974, 14–16 & App. B (1975); see Federal Reserve Board, Annual Report to Congress on Truth in Lending for the Year 1973, 14 (1974) (expressing concern over consumer leasing transactions).Google Scholar
108 FRB Letter No. 134, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,180 (Oct. 9, 1969); FRB Letter, id., para. 30,320 (March 3, 1970); Garwood, supra note 102, at 495–96.Google Scholar
109 411 U.S. at 362 n.16, 378–88.Google Scholar
110 Id. at 380.Google Scholar
111 UCC sec. 3–306.Google Scholar
112 UCC sec. 3–305. Usury is not always a real defense, and the question may depend on whether the applicable statute provides that usurious obligations are void or prescribes a lesser penalty. Compare Andrews v. Martin, 245 Ark. 995, 436 S.W.2d 285 (1969), with Katz v. Simcha Co., 251 Md. 227, 246 A.2d 555 (1968).Google Scholar
113 Cf. UCC sec. 9–105(k); Peter J. Coogan, The Effect of the Federal Tax Lien Act of 1966 Upon Security Interests Created Under the Uniform Commercial Code, 81 Harv. L. Rev. 1369, 1393 (1968).Google Scholar
114 3A Corbin, supra note 49, sec. 687, at 246.Google Scholar
115 Actually, almost all of Corbin's discussion is addressed to the consequences of the failure of one party to perform one installment of a multiple-installment contract (whether a credit transaction or not) and the questions (1) whether that failure releases the other party from performing subsequent installments, and (2) under what circumstances nonperformance of an installment amounts to a total breach. Id. para. 687, at 247.Google Scholar
116 See FRB Letter No. 701, CCH-CCC, 1969–74 TIL Special Releases Transfer Binder, para. 30,998 (July 31, 1973).Google Scholar
117 The variety of transactions, and adroit labeling, have sometimes perplexed the staff. In one case, a condominium developer offered a 6 percent discount (approximately 11 percent APR) for prepayment of monthly management fees, and the staff held that there was no debt. FRB Letter No. 645, id., para. 30,906 (Nov. 14, 1972). Of course, such transactions could have been set up as a yearly management fee payable in a lump sum at the outset, or in monthly payments at an APR of 11 percent. The discount-for-prepayment situation is discussed further at p. 619 infra.Google Scholar
118 See Hearings on S. 5, supra note 24, at 663, where Governor Robertson noted that, as to bailment and leasing transactions, “it would seem to be impossible to attribute or determine a finance charge.” S. Rep. No. 392, supra note 13, at 12; Hearings on S. 1740, supra note 95, at 407. See also Robert J. McEwen, Economic Issues on State Regulation of Consumer Credit, 8 B.C. Ind. & Corn. L. Rev. 387, 388–92 (1967).Google Scholar
119 In fact, this difference was cited by lenders who opposed TIL and feared that sellers could advertise low rates and bury credit charges in cash prices. See note 95 supra. There is some indication that retailers dealing with low-income consumers make credit charges that are comparable with those of other retailers. The increased risk is, instead, reflected in higher prices. See FTC Economic Report on Installment and Retail Sales Practices of District of Columbia Retailers (1968).Google Scholar
120 In an earlier portion of the opinion, Justice Powell suggested this same test for a credit transaction. 411 U.S. at 385–86 & n.4. In Manzina v. Publishers Guild, Inc., 386 F. Supp. 241 (S.D.N.Y. 1974), plaintiff purchased a dictionary and five-year subscriptions to several magazines. The court assumed a credit transaction, and its decision was correct if the defendant–which was not a publisher–had advanced the price for the subscriptions to the publisher.Google Scholar
121 FRB Letter No. 262, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,516 (Feb. 19, 1970) (obstetrical); FRB Letter No. 214, id., para. 30,510 (Dec. 16, 1969) (medical); FRB Letter No. 254, id., para. 30,287 (Feb. 12, 1970) (college tuition). The medical profession has never been quite sure of its exemption for regular payments for regular treatments. See Hearings on S. 1630 and S. 914, supra note 47, at 400–402.Google Scholar
122 This view may be responsible for statements in both the Senate and House reports that 30–60–90 deferred payment plans were not ordinarily thought of as credit transactions. S. Rep. No. 392, supra note 13, at 14; H.R. Rep. No. 1040, supra note 13, at 25.Google Scholar
123 FRB Letter No. 809, 5 CCH-CCG, para. 31,131 (May 31, 1974); FRB Letter No. 583, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,823 (March 15, 1972); FRB Letter No. 254, id., para. 30,287 (Feb. 12, 1970); FRB Letter, id., para. 30,051 (May 27, 1969); FRB Letter No. 3, id., para. 30,041 (June 3, 1969); FRB Letter No. 159,' id., para. 30,186 (Oct. 17, 1969). See also FRB Letter No. 645, id., para. 30,906 (Nov. 14, 1972). At least one court has, without analysis, agreed with the staff's position. Gerlach v. Allstate Ins. Co., 338 F. Supp. 642 (S.D. Fla. 1972).Google Scholar
124 Warren and Larmore adopt essentially the same position. Supra note 6, at 795–97. They define “credit” in terms of “debt,” and “debt” as a legally enforceable obligation to pay money. The result is to include all obligations payable in more than four installments within TIL regardless of when benefits are received or whether a disguised finance charge may be involved. For the reasons stated in the text, such a result is believed incorrect.Google Scholar
125 411 U.S. at 386 n.4.Google Scholar
126 FRB Letter No. 863, 5 CCH-CCG, para. 31,186 (Dec. 17, 1974); cf. FRB Letter No. 645, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,906 (Nov. 14, 1972); FRB Letter No. 809, 5 CCH-CCG, para. 31,131 (May 31, 1974); opinions at notes 171, 182 infra. See also FRB Letter No. 364, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,426 (June 19, 1970).Google Scholar
127 We have changed the example to contrast, the discounted prepayment price with one where the magazines are paid for as received. The same analysis is applicable to a case where the creditor offers 60 months of magazines at a discount for prepayment in full or at a larger sum payable in 30 installments.Google Scholar
128 The check plan has an APR of 12 percent, whereas the publisher's plan has an APR of over 13.25 percent.Google Scholar
129 Munson v. Orrin E. Thompson Homes, Inc., 395 F. Supp. 152 (D. Minn. 1974); Gerlach v. Allstate Ins. Co., 338 F. Supp. 642 (S.D. Fla. 1972); FRB Letter No. 809, 5 CCH-CCG, para. 31,131 (May 31, 1974); FRB Letter No. 645, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,906 (Nov. 14, 1972); FRB Letter No. 583, id., para. 30,823 (March 15, 1972); FRB Letter, id., para. 30,051 (May 27, 1969); FRB Letter No. 3, id., para. 30,041 (June 3, 1969). But see FRB Letter No. 95, id., para. 30,151 (Aug. 29, 1969) (discount for early payment is finance charge; staff incorrectly analogized transaction to receipt of goods on arrangement such as “2% discount if paid within 10 days”). In one case, the creditor fumbled by using incorrect terminology–instead of a discount for prepayment, the creditor called it a charge for making installment payments. FRB Letter No. 254, id., para. 30,287 (Feb. 12, 1970). Of course, the two are the same.Google Scholar
130 The staff has never made it clear whether, in the event of a prepayment transaction, the refund must be a pro rata portion of the discounted price, or whether it can be a pro rata portion of the nondiscounted price.Google Scholar
131 Hearings on S. 750, supra note 48, at 486–87, 1089–92, 1143, 1298–99, 1304, 1309. Senator Proxmire may have had somewhat the same idea when he stated that leasing transactions were not “on an installment credit basis.” Hearings on S. 1740, supra note 95, at 407.Google Scholar
132 Hearings on S. 750, supra note 48, at 1304 (finance charge is “any amount which would not be incurred in a cash transaction”).Google Scholar
133 The only apparent recognition of the problem was an obscure statement of Douglas Hewitt of the Farm and Industrial Equipment Institute. He proposed to define credit much as suggested herein: a loan, a receipt of goods or services in advance of payment, a lease intended as security, and“[t]ransactions whereby a person acquires or purchases from another a right to receive money or property at a later date.” Hearings on S. 5, supra note 24, at 401. Unfortunately, his suggestion remained hidden in the thousands of pages of hearings and was never followed up. See also Hearings on S. 2755 Before the Subcomm. on Production and Stabilization of the Senate Comm. on Banking and Currency, 86th Cong., 2d Sess. 755–56 (1960).Google Scholar
134 411 U.S. 356 (1973).Google Scholar
135 In his view, plaintiff extended credit to the publisher. Id. at 385.Google Scholar
136 See UCC sec. 2–717Google Scholar
137 See Kriger v. European Health Spa, Inc., 363 F. Supp. 334 (E.D. Wis. 1973); Glaire v. La Lanne-Paris Health Spas, Inc., 12 Cal. 3d 915, 528 P.2d 357, 112 Cal. Rptr. 572 (1974); cf. Joseph v. Norman's Health Club, Inc., 386 F. Supp. 780, 791 (E.D. Mo. 1974, amended 1975). But see Alpert v. U.S. Industries, Inc., 59 F.R.D. 491 (C.D. Cal. 1973) (not clear if plaintiff developed and presented a theory of assignee liability). There is considerable legislative history suggesting that Congress did not intend to cover 30–60–90 plans by which retailers permit consumers to pay in four or fewer installments without imposing added finance charges. See note 99 supra. It is not uncommon for retailers to discount the notes. If Kriger and the other cases are right, such plans may be swept inadvertently within the coverage of the act. But see FRB Letter No. 342, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,397 (June 3, 1970).Google Scholar
138 See Joseph v. Norman's Health Club, Inc., 386 F. Supp. 780, 783, 786 (E.D. Mo. 1974, amended 1975) (10 percent cash discount; finance company discount ranged from 17 to 40 percent). But see Alpert v. U.S. Industries, Inc., 59 F.R.D. 491, 498 (C.D. Cal. 1973).Google Scholar
139 While such a contract is unlikely, the financer is likely to be upset with a spa that attempts to induce those persons who could pay cash–and who are presumably the best credit risks–to make cash payments.Google Scholar
140 In some cases, the FTC has required merchants to disclose that consumers' obligations may be assigned and that consumers will have little recourse against the assignee if the product or service is defective. See in re Allstate Ind., Inc., CCH Trade Reg. Rep., para 18,740 (FTC 1969); in re Household Sewing Mach. Co., CCH Trade Reg. Rep., para. 18,882 (FTC 1969).Google Scholar
141 The seller may use a contract that has a clause in which the seller agrees not to assert claims against third-party assignees. UCC sec. 9–206. But such contracts have generally been thought less effective for assignees than the negotiable note. See Unico v. Owen, 50 N.J. 101, 232 A.2d 405 (1967). See also Rohner, supra note 47, at 507.Google Scholar
142 Hearings on S. 1740, supra note 95, at 407; Hearings on S. 2755, supra note 133, at 11; Hearings on S. 5, supra note 24, at 288, 353; Hearings on S. 750, supra note 48, at 1298.Google Scholar
143 113 Cong. Rec. 18179 (1967).Google Scholar
144 S. Rep. No. 392, supra note 13, at 12–13.Google Scholar
145 See 114 Cong. Rec. 1582 (1968) (committee bill); 114 Cong. Rec. 1852 (1968) (House-enacted bill); H.R. Rep. No. 1040, supra note 13, at 23.Google Scholar
146 114 Cong, Rec. 14375, 14386–89 (1968). In fact, language corresponding to the en-acted bill appeared in an earlier Senate draft. 113 Cong. Rec. 14692 (1967).Google Scholar
147 FRB Letter No. 877, 5 CCH-CCG, para. 31,202 (Feb. 28, 1975); FRB Letter No. 783, id., para. 31,105 (Apr. 18, 1974); FRB Letter, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 31,021 (Aug. 23, 1973); FTC Informal Staff Opinion, id., 30,597 (Sept. 29, 1970); FTC Informal Staff Opinion, id., para. 30,294 (Aug. 18, 1969); FRB Letter No. 50, id., para. 30,117 (July 28, 1969). Accord, Berry v. Thompson, 197 So. 2d 484 (La. App. 1974).Google Scholar
148 FRB Letter No. 701, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,998 (July 31, 1973).Google Scholar
149 Both the accounting profession and the Internal Revenue Service have struggled with the problem. The accountants' study resulted in the conclusion that the same transaction might be differently characterized as a sale and a lease by the two parties; the Commissioner issued a lengthy opinion setting forth some pertinent considerations and calling for further clarification. The details are reviewed in Peter J. Coogan, Leases of Equipment and Some Other Unconventional Security Devices: An Analysis of UCC Section 1–201(37) and Article 9, 1973 Duke L.J. 909, 965–72.CrossRefGoogle Scholar
150 Uniform Conditional Sales Act sec. 1 (2).Google Scholar
151 Allen v. Cohen, 310 F.2d 312, 313–14 (2d Cir. 1962) (citing authorities); cf. Da Rocha v. Macomber, 330 Mass. 611, 116 N.E.2d 139 (1953) (same result without UCSA); see generally Samuel Williston, The Law Governing Sales of Goods Common Law and Under the Uniform Sales Act sec. 336 (rev. ed. 1948); 1 Grant Gilmore, Security Interests in Personal Property sec. 3.6, at 76–77 & n.3 (Boston: Little, Brown & Co., 1965).Google Scholar
152 UCC sec. 1–201(37) (1957 Official Text). This legislative history is adapted from Coogan, supra note 149, at 929 & n.46.Google Scholar
153 Coogan, supra note 149. The essence of the argument is at pp. 924–30, 93642, 954–65. Gilmore's discussion states that a term giving the lessor an option to terminate during the term “should no doubt lead to the conclusion that the lease was a true lease,” and indicates that this was the precode rule, but does not explain the UCC provision and the departure from the UCSA. Supra note 151, sec. 11.2, at 339 & n.3.Google Scholar
154 Coogan, supra note 149, explains:Google Scholar
When the decision was made [to adopt an all-inclusive definition of security interest in 1–201(37)], the problem passed primarily from control of the draftsmen and advisors on secured transactions to the draftsmen and advisors on the Code's general provisions…. Coordination was less than perfect. Partly as a result of this shift, the more explicit language of old articles 7 and 8 and their valuable references to the UCSA were lost in the shuffle. Id. at 941.Google Scholar
It is interesting to compare the comments of the chairman of the permanent editorial board for the UCC:Google Scholar
I shall not go into detail as to the manner in which the Code was prepared, except to say that it was considered and debated by more than 1,200 of the ablest lawyers in the United States over a period of approximately seven years. It was also examined by a number of financial and trade groups, all of whose criticisms and suggestions were care-fully considered. William A. Schnader, Foreword to 1 Uniform Laws Annotated, Uniform Commercial Code x (St. Paul: West Publishing Co., 1968).Google Scholar
155 Warren and Larmore state that the TIL provision was taken from the UCCC. Supra note 6, at 805. The legislative history is, however, plainly at variance with their view. See pp. 630–31 supra.Google Scholar
156 Some courts have not figured out the message for themselves but instead have read the sentence in UCC sec. 1–201(37) dealing with leases by itself and have concluded that a lease in which the purchase price was nominal was a secured transaction even though the lessee had the option to cancel. United Rental Equip. Co. v. Potts & Callahan Contracting Co., 231 Md. 552, 191 A.2d 570 (1963); in re Royer's Bakery, Inc. (No. 2), 5 CCH Installment Credit Guide, para. 99,274 (E.D. Pa. 1963) (referee in bankruptcy). While Coogan is critical of these decisions, he cannot be too harsh with the courts who made the mistake of reading the code as written. Supra note 149, 916–19, 923–25.Google Scholar
157 See note 151 supra.Google Scholar
158 Two staff opinions indicate that leases containing an option to terminate are not covered. FRB Letter No. 750, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 31,069 (Jan. 11, 1974); FRB Letter No. 761, id., para. 31,083 (March 12, 1974).Google Scholar
159 An explicit term may not, in fact, be necessary. See Warren & Larmore, supra note 6, at 885–86; cf. in re Financial Computer Systems, Inc., 474 F.2d 1258 (9th Cir. 1973).Google Scholar
160 See, e.g., Peco, Inc. v. Hartbauer Tool & Die Co., 262 Ore. 573, 500 P.2d 708 (1972) (citing authorities); Percival Construction Co. v. Miller & Miller Auctioneers, Inc., 387 F. Supp. 882 (W.D. Okla. 1973); Davis Bros. v. Misco Leasing, Inc., 508 S.W.2d 908, 911–12 (Ct. Civ. App. 1974) (dictum); William D. Hawkland, The Impact of the Uniform Commercial Code on Equipment Leasing, 1972 U. Ill. L.F. 446, 453–54. See generally Coogan, supra note 149, at 911 n.2, 963–64 n.146 (citing authorities).Google Scholar
161 Despite the large number of leasing transactions, there has been almost no TIL experience. This may be because the TIL provisions are too rigid to be applied to most consumer leasing transactions.Google Scholar
162 Coogan argues that the requirement that there be an obligation for the full purchase price is “the heart of the security interest (the remedy provision).”Supra note 149, at 960. Another purpose of defining leases as secured transactions is to protect other creditors of the debtor-lessee, and that purpose might suggest a somewhat broader coverage of leasing transactions. But Coogan does not believe it necessary to subject all such transactions to the full rigors of article 9 to achieve this goal. Coogan, supra note 149, at 926–27 n.41, 954–60; cf. UCC sec. 9–408 (permitting lessor to file financing statement; such filing “shall not itself be a factor in determining whether the … lease is intended as security”).Google Scholar
163 UCCC, supra note 53, sec. 5.103.Google Scholar
164 It has been held that some leases of this type satisfy the UCC definition of security interest. Avis Rent A Car System, Inc. v. Franklin, 366 N.Y.S.2d 83 (Sup. Ct. App. T. 1975); cf. Granite Auto Leasing Corp. v. Jeff-Mar Bus Leasing Corp., 44 A.D.2d 553, 353 N.Y.S.2d 217 (1974). See generally Comment, Automobile Leasing-Is the Moscone Act Really Protecting the Consumer? 14 Santa Clara Law. 612 (1974).Google Scholar
165 See Warren & Larmore, supra note 6, at 806–7.Google Scholar
166 The fact that the board has proposed legislation to cover such leases suggests it views them as not covered now. FRB 1974 Annual Report, supra note 107, at 14–16 & App. B. The staff was evasive on the question in FRB Letter, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 31,029 (Sept. 12, 1973). Such leases would be covered under the Consumer Leasing Act of 1976, which recently passed both houses of Congress. 122 Cong. Rec. 111596 (daily ed. March 4, 1976) (conference report); 122 Cong. Rec. S3067-68, H1705-7 (daily ed. March 9, 1976) (approval of conference report).Google Scholar
167 See note 107 supra. A bill covering consumer leasing was recently introduced in Congress. S. 1961, 94th Gong., 1st Sess. (1975). See generally Hearings on S. 483, S. 1900, S. 1927, S. 1961, and H.R. 5616 Before the Subcomm. on Consumer Affairs of the Senate Comm. on Banking Housing and Urban Affairs (1975). The bill recently passed both houses. See note 166 supra. This same history occurred under the UCCC; the initial drafts did not cover leasing, but the present version contains a fairly elaborate set of provisions. UCCC, supra note 53, sec. 1.301(13), (14), 3.202, 3.401.Google Scholar
168 This case should be distinguished from two others: the consumer's payment for previously rendered services in more than four installments or the consumer's falling behind in payments under a plan for regular medical treatments. These will be discussed in the section analyzing the “by agreement” requirement. See p. 650 infra.Google Scholar
169 FRB Letter No. 262, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,516 (Feb. 19, 1970); FR Letter No. 214, id., para. 30,510 (Dec. 16, 1969). In the 1973 hearings at which codification of the four-installment rule was proposed, dentists were sufficiently apprehensive that they would be brought within TIL coverage that they requested a separate statutory exemption for a plan for health services “where no finance charge is imposed” and fees “are billed on a monthly or quarterly basis for a period of the number of months estimated to accomplish treatment.” Hearings on S. 1630 and S. 914, supra note 47, at 400–402.Google Scholar
170 FRB Int. Rut. sec. 226.201; see FRB Letter No. 412, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,598 (Oct. 13, 1970).Google Scholar
171 FRB Letter No. 159, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,186 (Oct. 17, 1969); see FRB Letter No. 502, id., para. 30,701 (July 12, 1971). Since there is no finance charge, more than four installments are necessary to make the seller a creditor. Reg. Z/226.2(s).Google Scholar
172 FRB Letter No. 922, 5 CCH-CCG, para. 31,261 (Sept. 29, 1975); FRB Letter, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,667 (Apr. 15, 1971); FRB Letter, id., para. 30,884 (Sept. 25, 1972). On the more-than-four-installment requirement, sec note 171 supra.Google Scholar
173 FRB Letter No. 502, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,701 (July 12, 1971); see also FRB Letter No. 501, id., para. 30,700 (July 12, 1971).Google Scholar
174 There has been some recent attention to the consumer's rights to recover the goods in the event of the seller's insolvency. See Philip G. Schrag & Bruce C. Ratner, Caveat Emptor–Empty Coffer: The Bankruptcy Law Has Nothing to Offer, 72 Colum. L. Rev. 1147, 1157–66 (1972). Such a discussion emphasizes the “creditor” nature of the consumer's position.Google Scholar
175 Neither the board's interpretive ruling nor the staff's opinion letters articulated the economic compulsion rationale, which was first explicated in Warren & Larmore, supra note 6, at 799. The staff has subsequently embraced it. FRB Letter No. 863, 5 CCH-CCG, para. 31,186 (Dec. 17, 1974).Google Scholar
176 See Warren & Larmore, supra note 6, at 799 & n.24.Google Scholar
177 This view appears to be inconsistent with FRB Letter No. 254, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,287 (Feb. 12, 1970). This letter stated that a £25 charge for participation in a university's plan for periodic payments of charges for tuition, room, and board brought the plan within TIL.Google Scholar
178 As a finance charge, there would be the necessary consumer credit; that requirement could also be satisfied if the transaction were payable in more than four installments. See FRB Letter No. 920, 5 CCH-CCG, para. 31,261 (Sept. 29, 1975).Google Scholar
179 The staff has reached a contrary conclusion in insurance premium cases, without any effort at reconciliation. FRB Letter No. 863, 5 CCH-CCG, para. 31,186 (Dec. 17, 1974). The explanation may be based on one staff letter that implied that the fee had to be nominal; unfortunately, however, another issued the same day contained no such requirement. See note 173 supra. If the fee must in fact be nominal, and it is not, then presumably the participation fee itself would establish a credit transaction (on the economic compulsion theory) and a consumer credit transaction (because the fee was a finance charge).Google Scholar
180 Consumers who cancel insurance policies in midstream may not be entitled to a proportionate refund since the short note for the period of coverage may be substantially greater than the pro rata rate would he.Google Scholar
181 One court has held that, to the extent that TIL would require disclosure in insurance cases, state law is paramount because of the McCarran Act (15 U.S.C. sec. 1012(b) (1970)). That act makes state law preeminent unless the federal statute “relates to the business of insurance,” which TIL, does not. Gerlach v. Allstate Ins. Co., 338 F. Supp. 642, 649–50 (S.D. Fla. 1972); accord, Ben v. General Motors Acceptance Corp., 374 F. Supp. 1199, 1201 (D. Colo. 1974). A broad dictum in Gerlacb stated that the McCarran Act also exempted trans-actions involving insurance premium financing. Six days later, the Fifth Circuit held a premium financing transaction might be subject to TIL, although it is not clear that the McCarran Act point was raised. Stefanski v. Mainway Budget Plan, Inc., 456 F.2d 211 (5th Cir. 1972). The board has not expressed itself on this matter, but numerous opinions on coverage of various types of insurance transactions seem to assume TIL coverage. See opinions cited at notes 182, 183, 185 infra. Insurance companies, too, thought they were covered. See note 186 infra. I have deliberately omitted any specific discussion of the McCarran Act issues in this paper, and will discuss the appropriateness of TIL coverage as if that act did not apply. I hope to consider the McCarran Act question at a later time.Google Scholar
182 FRB Letter No. 863, 5 CCH-CCG, para. 31,186 (Dec. 17, 1974) (£10 nonrefundable fee for payment of insurance premiums in installments means plan is a credit transaction since this would “tend to coerce the insured to continue his participation in the plan for the full year”); FRB Letter No. 809, id., para. 31,131 (May 31, 1974) (must be contractual obligation); FRB Letter No. 200, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,506 (Dec. 3, 1969); FRB Letter, id., para. 30,406 (March 18, 1970); FRB Letter No. 296, id., para. 30,339 (April 1, 1970); FRB Letter, id., para. 30,176 (Sept. 1969); FRB Letter, id., para. 30,051 (May 27, 1969); FRB Letter No. 3, id., para. 30,041 (June 3, 1969). See also FRB Letter No. 254, id., para. 30,287 (Feb. 12, 1970).Google Scholar
183 Gerlach v. Allstate Ins. Co., 338 F. Supp. 642 (S.D. Fla. 1972) (citing authorities). Thus, if the plan permits payments of £335 for three years coverage, or £360 in three annual installments, the plan is not a credit transaction. But, beware: if the creditor charges £335 and if £25 is added for an installment payment plan, the transaction may be covered. FRB Letter No. 254, CCII-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,287 (Feb. 10, 1970).Google Scholar
184 See Stefanski v. Mainway Budget Plan, Inc., 456 F.2d 211 (5th Cir. 1972); FRB Letter, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,051 (May 27, 1969); FRB Letter No. 3, id., para. 30,041 (June 3, 1969).Google Scholar
185 See opinions cited at notes 182, 184 supra.Google Scholar
186 FRB Letter, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,867 (July 20, 1972); FRB Letter No. 566, id., para. 30,788 (Jan. 21, 1972); FRB Letter No. 291, id., para. 30,529 (Mar. 18, 1970). The exemption must be welcome news to life insurers who appeared to assume that they were subject to the provisions of TIL and sought a specific exemption which was never enacted. See Hearings on S. 750, supra note 48, at 833–43, 972–73. The Senate report states that “the disclosure provisions would not apply to life insurance policy loans which are merely component features of an overall contractual arrangement,” but no similar reference is contained in the House or conference report. S. Rep. No. 392, supra note 13, at 10. Since Congress obviously knew how to create exemptions and, as the text suggests, the policy of TIL requires disclosure, this isolated statement should not be considered determinative.Google Scholar
187 FRB Letter No. 886, 5 CCH-CCG, para. 31,212 (April 28, 1975). See also FRB Letter No. 253, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,286 (Feb. 12, 1970) (reinstatement of retirement plan covered when employee may pay amount due in a lump sum or in installments with interest; employee could not later decide to stop making payments).Google Scholar
188 Cf. FRB Letter No. 253, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,286 (Feb. 12, 1970). Policy loan rates vary and are not necessarily stated in APR terms. In the past, loans could be obtained at lower rates from banks if the policy was pledged as security, although it is doubtful that this situation will recur soon. Charles F. B. Richardson, Nonforfeiture Values and Policy Loans, in Davis W. Gregg & Vane B. Lucas, eds., Life and Health Insurance Handbook 173, 180–81 (Homewood, Ill.: Richard D. Irwin, Inc., 1973); J. Belth, Life Insurance-A Consumer's Handbook 131 (Bloomington: Indiana University Press, 1973). See generally 17 G. Couch, Cyclopedia of Insurance Laws secs. 64:51 to 64:76 (Roches-ter, N.Y.: Lawyers Co-operative Publishing Co., 1967).Google Scholar
189 Hearings on S. 5, supra note 24, at 569–70; Hearings on S. 750, supra note 48, at 53–59.Google Scholar
190 FRB Letter No. 385, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,566 (July 29, 1970).Google Scholar
191 See, e.g., FRB Letter No. 335, id., para. 30,390 (May 26, 1970); FRB Letter No. 354, id., para. 30,416 (June 11, 1970); FRB Letter No. 549, id., para. 30,763 (Nov. 4, 1971); FRB Letter No. 441, id., para. 30,637 (Feb. 24, 1971). Of course, regardless of whether an involuntarily incurred debt is a credit transaction, if the alleged creditor has a small number of transactions it may not satisfy the professional creditor requirement. See pp. 568–70 supra.Google Scholar
192 Warren & Larmore, supra note 6, at 807–8.Google Scholar
193 The staff's position seems analogous to its view that life insurance policy loans are not covered. See text at note 188 supra.Google Scholar
194 To be covered, it will still be necessary to show that the professional or tradesman is a professional creditor. See pp. 568–70 supra.Google Scholar
195 FRB Letter No. 909, 5 CCH-CCG, para. 31,243 (Aug. 1, 1975); FRB Letter No. 170, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,498 (Oct. 24, 1969); FRB Letter No. 32, id., para. 30,434 (July 8, 1969); FRB Letter No. 53, id., para. 30,439 (Aug. 5, 1969); FI'C Staff Letter, id., para. 30,253 (July 1, 1969); FRB Letter No. 134, id., para. 30,180 (Oct. 9, 1969). In one case where coverage was questionable the staff seemed to go out of its way to suggest such a method to a factory worker who occasionally did home remodeling. FRB Letter No. 905, 5 CCH-CCG, para. 31,239 (July 9, 1975).Google Scholar
196 FRB Letter No. 134, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,180 (Oct. 9, 1969); FRB Letter No. 73, id., para. 30,131 (Aug. 15, 1969). The staff has suggested that a high incidence of payments in more than four installments may bring the transaction within Regulation Z. FRB Letter No. 11, id., para. 30,037 (June 5, 1969). Presumably the staff means that such a pattern will constitute evidence that there are actual agreements. But cf Fl'C Informal Staff Opinion, id., para. 30,556 (July 27, 1970).Google Scholar
197 See FRB Letter No. 134, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,558 (Oct. 15, 1969); FRB Letter, id., para. 30,128 (Aug. 13, 1969); opinions at note 195 supra. This same type of test is used to determine when a charge is for an “unanticipated late payment.” See p. 652 infra.Google Scholar
198 See FRB Letter, id., para. 31,015 (Aug. 15, 1973); cf. FRB Letter, id., para. 30,073 (June 30, 1969).Google Scholar
199 See FRB Letter, id., para. 30,228 (Dec. 2, 1969).Google Scholar
200 FRB Int. Rul. sec. 226.401. At one time, the board proposed to codify the ruling as part of Regulation Z. 35 Fed. Reg. 6328 (1970).Google Scholar
201 FRB Letter No. 883, 5 CCH-CCG, £ para. 31,208 (March 26, 1975); FRB Letter No. 909, id., para. 31,243 (Aug. 1, 1975); FRB Letter No. 797, id., para. 31,119 (May 16, 1974); FRB Letter No. 697, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,994 (July 6, 1973); FRB Letter No. 630, id., para. 30,880 (Aug. 25, 1972); FRB Letter No. 414, id., para. 30,600 (Oct. 23, 1970); FRB Letter, id., para. 30,163 (Sept. 16, 1969); FRB Letter, id., para. 30,054 (June 10, 1969). The FTC appears to have had doubts over the board's test in a case where the late charge is imposed when it is “inconvenient” for the customer to pay in one month but he “fully intend[s]” to pay in the next. See FTC Letter in Continental Oil Co. v. Burns, 317 F. Supp. 194, 199–200 n.6 (D. Del. 1970). Unfortunately, the FTC did not suggest language which would effectuate this rather elusive test.Google Scholar
In one case, a charitable foundation made subsidized loans to students, using demand notes payable two years after graduation with late charges of 5 percent per year thereafter. Apparently, the loans were never paid off in full after two years but always in installments. An FTC staffer, obviously straining to find an exemption, found it on the grounds that if the note were paid on its anniversary, there would be no finance charge imposed. FTC Informal Staff Opinion, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,556 (July 27, 1970).Google Scholar
202 FRB Letter No. 36, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,088 (July 9, 1969). Similarly, a storage company was told it did not have to throw the consumer's goods onto the street to impose bona fide late charges. FRB Letter No. 414, id., para. 30,600 (Oct. 23, 1970).Google Scholar
203 Congress recently enacted legislation that will subject all credit card transactions to TIL regardless of whether finance charges are imposed. See p. 659 infra Google Scholar
204 Kroll v. Cities Serv. Oil Co., 352 F. Supp. 357 (N.D. Ill. 1972); cf Continental Oil Co. v. Burns, 317 F. Supp. 194, 198 n.3 (D. Del. 1970). Some oil company plans did qualify when credit was stopped upon imposition of the late charges. Garland v. Mobil Oil Corp., 340 F. Supp. 1095 (N. D. Ill. 1972).Google Scholar
205 Truth in Lending Act sec. 161.Google Scholar
206 Whitman v. Connecticut Bank & Trust Co., 400 F. Supp. 1341 (D. Conn. 1975).Google Scholar
207 This same problem arises for a merchant who honors a travel and entertainment card. To the extent that a merchant is a creditor under Reg. Z/226.2(s), the card issuer is not liable for the merchant's failure to comply with the act. FRB Letter No. 928, 5 CCH-CCG, para. 31,267 (Oct. 16, 1975).Google Scholar
208 FRB Letter No. 10, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,038 (June 4, 1969).Google Scholar
209 Rootberg v. American Express Co., 352 F. Supp. 949 (S.D.N.Y. 1972); see S. Rep. No. 750, 92d Cong., 2d Sess. 15 (1972).Google Scholar
210 S. 2101, 93d Cong., 1st Sess. sec. 103 (1973); see S. Rep. No. 278, supra note 6, at 21.Google Scholar
211 Sec. 127(a) dealing with open-end credit plans requires disclosure of various items “to the extent applicable.” This approach could have been followed if all credit card transactions were brought within TIL. But cf. Ratner v. Chemical Bank N.Y. Trust Co., 329 F. Supp. 270, 275–78 (S.D.N.Y. 1971).Google Scholar
212 See FRB Letter No. 936, 5 CCH-CCG, para. 31,275 (Oct. 31, 1975). For reasons that are unclear, creditors who permit repayment in more than four installment payments without finance charges are full-fledged creditors who must make disclosure of all applicable terms, but creditors who require payments in four or fewer installments without finance charges are creditors in the more limited sense for whom the board has specified the appropriate disclosures. Reg. Z/226.2(s). In practice, the disclosures are likely to be the same.Google Scholar
213 Sec. 143 requires advertising disclosure for an “open end credit plan.” Since the definition of “open end credit plan” in Regulation Z includes plans of the specialized class of creditors insofar as they must make disclosure (see p. 659 supra), the advertising provisions probably should apply.Google Scholar
214 This test is found in sec. 9–109(1) of the UCC, which defined goods as consumer goods “if they are used or bought for use primarily for personal, family, or household purposes.” Many state retail installment sales acts had similar provisions. Curran, supra note 56, at 353–55.Google Scholar
215 S. 750, supra note 24, secs. 3(2), (5), 4(a); S. 1740, 87th Cong., 1st Sess. secs. 3(2), (5), 4 (1961); S. 2755, 86th Cong., 2d Sess. secs. 3(2), (5), 4 (1960).Google Scholar
216 S. 750, supra note 24, sec. 5(a); S. 1740, supra note 215, sec. 5(a); S. 2755, supra note 215, sec. 5(a).Google Scholar
217 S. 5, supra note 93, sec. 8(1) (1967). This change resulted from criticism of the broad power given to the board to determine exemptions. Hearings on S. 750, supra note 48, at 834–35.Google Scholar
218 Hearings on S. 5, supra note 24, at 663, 664–65.Google Scholar
219 H.R. 11601, 90th Cong., 1st Sess. secs. 202(b), (c), 203(n) (1967); H.R. 11602, 90th Cong., 1st Sess. sec. 3(a), (b), 8 (1967) (bill as passed by Senate).Google Scholar
220 S. Rep. No. 392, supra note 13, at 7.Google Scholar
221 Id. at 22.Google Scholar
222 Id.Google Scholar
223 The UCCC appeared to recognize the problem and attempted a limited form of coverage. UCCC sec. 3.602 (1968 Official Draft). This provision was not included in the 1974 UCCC. Some usury statutes have exemptions for loans to individual proprietorships. Ill. Ann. Stat., ch. 74, sec. 4 (Smith-Hurd Supp. 1975).Google Scholar
224 FRB Letter No. 411, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,593 (Sept. 28, 1970). FRB Letter No. 572, id., para. 30,801 (Feb. 2, 1972) (credit to corporation not covered even if guaranteed by natural person). Since a “proprietorship” is not an organization, credit rendered to an agricultural proprietorship was said to be subject to the act. FTC Informal Opinion, id., para. 30,304 (Sept. 9, 1969). Pursuant to 1968 UCCC sec. 3.602, loans of £25,000 or less to an organization which are secured by the residences of the principals are subject to some regulation. See also Ill. Ann. Stat., ch. 74, sec. 4 (Smith-Hurd Supp. 1975) (loans to organizations exempt from usury statute unless secured by assignment of wages or certain household articles).Google Scholar
225 See Redhouse v. Quality Ford Sales, Inc., 511 F.2d 230, 235 (10th Cir. 1975); Warren & Larmore, supra note 6, at 812; cf. UCC sec. 9–109, Comment 2.Google Scholar
226 There is precedent for requiring the creditor to inquire as to the purpose of a loan: under Regulation W, credit terms varied according to the purpose of the loan. See FRB, Cons. Credit: Reg. W 13 (as amended, April 13, 1944).Google Scholar
227 FRB Letter, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,026 (March 14, 1969).Google Scholar
228 See FRB Letter, id., para. 30,063 (June 26, 1969). The board has solved a similar problem relating to a consumer's waiver of his rescission rights in an emergency situation by requiring a separate dated and signed statement describing the situation and forbidding the use of printed forms. Reg. Z/226.9(e)(3).Google Scholar
229 FRB Letter No. 751, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 31,070 (Jan. 14, 1974); FRB Letter No. 938, id., para. 31,277 (Nov. 5, 1975); FRB Letter No. 633, id., para. 30,934 (Jan. 23, 1973); FRB Letter, id., para. 30,920 (Dec. 21, 1972); FRB Letter No. 603, id., para. 30,847 (May 24, 1972); FRB Letter, id., para. 30,623 (Dec. 4, 1970); FRB Letter No. 277, id., para. 30,318 (March 10, 1970).Google Scholar
230 FRB Letter No. 650, id., para. 30,914 (Dec. 1, 1972). The 1968 UCCC covers some of these transactions. sec. 3.602.Google Scholar
231 See FRB Letter No. 380, id., para. 30,561 (July 29, 1970); cf: FRB Letter No. 903, 5 CCH-CCG, para. 31,237 (June 24, 1975) (agreement to pay employment agency fees is for a personal and not a business purpose). There is some suggestion that this is a jury issue. Redhouse v. Quality Ford Sales, Inc., 511 F.2d 230, 234–35 (10th Cir. 1975).Google Scholar
232 FRB Letter No. 821, 5 CCH-CCG, para. 31, 143 (July 18, 1974); FRB Letter No. 808, id., para. 31,130 (May 30, 1974); FRB Letter No. 792, id., para. 31,114 (May 10, 1974); FTC Informal Staff Opinion, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,621 (Nov. 5, 1970); FRB Letter No. 650, id., para. 30,914 (Dec. 1, 1972) (by implication); FRB Letter, id., para. 30,026 (March 14, 1969). See also FRB Letter, id., para. 30,002 (April 21, 1969).Google Scholar
Reg. Z/226.8(e)(iv) may support this construction. In defining the term “required deposit balance,” that section excludes an “investment which was acquired or established from the proceeds of an extension of credit.” While this section does not purport to be a definition of a consumer credit transaction, it appears to reflect the board's view that at least some investment transactions are covered.Google Scholar
The exemption of transactions in security or commodities accounts with a broker-dealer registered with the SEC also supports this view. It suggests that, absent the exemption, such investment purpose transactions when carried out with a person who is not an SEC registered broker are covered. See text at note 266 infra.Google Scholar
233 FRB Letter No. 675, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,953 (March 1, 1973). Similar views were expressed in FRB Letter No. 915, 5 CCH-CCG, para. 31,252 (Aug. 19, 1975); FRB Letter No. 821, id., para. 31,143 (July 18, 1974); FRB Letter No. 792, id., para. 31,114 (May 10, 1974); FRB Letter No. 584, 1969–74 TIL Special Releases Transfer Binder, para. 30,824 (March 22, 1972).Google Scholar
234 FRB Int. Rut. sec. 226, 302. Prior to this ruling, the staff suggested that some transactions involving investments in realty with more than four units might be covered. FRB Letter, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,210 (Nov. 5, 1969). The number “4” seems to have mystical attributes. See Reg. Z/226.2(k), 12 C.F.K. 226 (1969) (original four-installment rule), Bankruptcy Act secs. 60a, 67a, 11 U.S.C. secs. 96(a), 107(a) (1970) (antecedent debt paid within four months of bankruptcy).Google Scholar
235 See FRB Letter No. 918, 5 CCH-CCG, para. 31,252 (Aug. 19, 1975). The use of the term “family units” and not “rental units” or “tenants” suggests that the ruling does not cover a homeowner who rents single rooms in an owner-occupied house. It also should not cover the common practice in resort areas whereby owners of large houses rent some rooms on a nightly basis during the vacation season.Google Scholar
236 FRB Letter No. 918, 5 CCH-CCG, para. 31,252 (Aug. 19, 1975). FRB Letter No. 808, id., para. 31,130 (May 30, 1974); FRB Letter No. 792, id., para. 31,114 (May 10, 1974); FRB Letter No. 675, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,953 (March 1, 1973); FRB Letter No. 348, id., para. 30,403 (June 5, 1970).Google Scholar
237 FRB Letter, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,026 (March 14, 1969). See also FRB Letter No. 584, id., para. 30,824 (March 22, 1972) (resort condominium may be covered when occupied by owner for 30 days and otherwise leased to others).Google Scholar
238 326 F. Supp. 871 (E.D. La.), aff'd, 450 F.2d 941 (5th Cir. 1971), cert. denied, 406 U.S. 920 (1972).Google Scholar
239 CCH-CCG, 1969–73 Transfer Binder, para. >99,057 (S.D.N.Y. 1973).99,057+(S.D.N.Y.+1973).>Google Scholar
240 It is not clear whether plaintiffs argued that their house qua investment was covered by the act. Their principal argument was that they bought the house mainly to acquire a summer home.Google Scholar
241 369 F. Supp. 614 (D.S.C. 1974).Google Scholar
242 Accord, Adema v. Great Northern Dev. Co., 374 F. Supp. 318 (N.D. Ga. 1973).Google Scholar
243 See notes 232, 233, 236 supra.Google Scholar
244 One court held the purchase of seven lots in a recreational development to be exempt based on plaintiffs testimony that they were purchased for investment and not personal use. Adema v. Great Northern Dev. Co., 374 F. Supp. 318 (N.D. Ga. 1973).Google Scholar
245 See p. 664 supra.Google Scholar
246 Something of this notion may lie behind Governor Robertson's testimony that the objective of the exemption might warrant a much lower sum than the £20,000 he proposed. Hearings on S.5, supra note 24, at 675. In fact, two sections of Regulation Z recognize that the consumer may use the proceeds of a consumer credit transaction to make an investment. Reg. Z/226.4(f); 226.8(e)(2)(iv).Google Scholar
247 Pyramid Sales Are Now Chief Consumer Fraud Here, N.Y. Times, April 3, 1973, at 45, col. 1.Google Scholar
248 FRB Letter No. 792, 5 C:CH-CCG, para. 31,114 (May 10, 1974). For a recent case that struggled over the analogous issue under the UCC, see Commercial Credit Equip. Corp. v. Carter, 83 Wash. 2d 136, 516 p.2d 767 (1973).Google Scholar
249 S. Rep. No. 392, supra note 13, at 12, 22.Google Scholar
250 See Warren & Larmore, supra note 6, at 811, 815.Google Scholar
251 Reg. Z/226.3(a). An extension of credit to an organization for agricultural purposes is exempt. FRB Int. Rul. sec. 226.301.Google Scholar
252 FRB Letter, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,057 (June 24, 1969).Google Scholar
253 FRB Letter No. 54, id., para. 30,440 (Aug. 5, 1969); FRB Letter No. 39, id., para. 30,436 (July 10, 1969); FTC Informal Opinion, id., para. 30,303 (Sept. 9, 1969); FRB Letter No. 41, id., para. 30,119 (July 15, 1969); FRB Letter No. 33, id., para. 30,105 (July 8, 1969); FRB Letter, id., para. 30,039 (June 4, 1969)Google Scholar
254 See FTC Informal Opinion, id., para. 30,303 (Sept. 9, 1969). A somewhat similar result has occurred under the bankruptcy act provision, which provides that farmers may not be involuntarily bankrupt. The provision has been limited to persons who are actual farmers. See 1 William Collier, Bankruptcy para. 4.15 (14th ed. New York: Matthew Bender, 1974).Google Scholar
255 Reg. Z/226.3(c) also exempts transactions “pursuant to an express written commitment… to extend credit in excess of £25,000.” Since these would be credit transactions under Reg. Z/226.2(s), it is not clear what this adds to the statute. It may have been designed to handle open-end credit transactions involving a line of credit exceeding £25,000. If so, it is of slight significance in the consumer credit field. Warren & Larmore, supra note 6, at 833–34.Google Scholar
256 Truth in Lending Act secs. 103(3), (5).Google Scholar
257 Reg. Z/226.3(c) n.1a. A definite commitment of credit of £25,000 or more is required. FRB Letter No. 338, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,393 (June 1, 1970).Google Scholar
258 Reg. Z/226.2(gg); see, eg., N.C. Fried Co. v. FRB, 473 F.2d 1210 (2d Cir.), cert. denied, 414 U.S. 827 (1973); Starks v. Orleans Motors, Inc., 372 F. Supp. 928, 930–32 (E.D. La. 1974), aff'd, 500 F.2d 1182 (5th Cir. 1974); Barksdale v. People's Fin. Co., 5 CCH-CCG, para. 98,742 (N.D. Ga. 1974); Charnita, Inc., CCH-CCG, 1969–73 Transfer Binder, para. 99,184 (FTC 1972), aff'd, 479 F.2d 684 (3d Cir. 1973); Meyers v. Clearview Dodge Sales, Inc., 384 F. Supp. 722, 727–28 (E.D. La. 1974). But cf. Fletcher v. Rhode Island Hospital Trust National Bank, 496 F.2d 927 (1st Cir.), cert. denied, 419 U.S. 1001 (1974) (right of setoff not security interest).Google Scholar
259 See in re Charnita, Inc., 479 F.2d 684 (3d Cir. 1973).Google Scholar
260 See Garza v. Chicago Health Clubs, Inc., 329 F. Supp. 936 (N.D. Ill. 1971). Of course, the creditor cannot “waive” lien rights of noncontracting parties such as artisans and subcontractors.Google Scholar
261 See Truth in Lending Act secs. 125(a), (e), 129(a)(4).Google Scholar
262 Reg. Z/226.3(e). Although the FRB had been recommending an exemption for agricultural transactions above “an appropriate amount,” the £25,000 came from the National Commission on Consumer Finance, which drew on the fact that this was the figure already used by Congress for non-real property transactions. NCCF, Consumer Credit in the United States 188 (1972).Google Scholar
263 E.g., if the amount for agricultural purposes was £20,000, and for consumer purposes was £10,000, the transaction would be exempt even though neither advance taken individually would be exempt.Google Scholar
264 If the purpose of the loan is to purchase a farm, the amount of the loan attributable to each purpose should be based on the percentage of the purchase price attributable to farm house and farmland.Google Scholar
265 FTC Informal Staff Opinion, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,621 (Nov. 5, 1970).Google Scholar
266 FRB Letter No. 368, id., para. 30,546 (July 6, 1970) (transactions involving nonregistered broker-dealer subject to act); FRB Letter No. 241, id., para. 30,274 (Feb. 5, 1970) (same); FTC Informal Staff Opinion, id., para. 30,299 (Aug. 29, 1969). This exemption was designed to remove margin loans from TIL coverage on the grounds of extensive regulation, existing disclosure, the difficulty of stating an APR for such loans since the rates fluctuated with short-term money market rates, and the prospect of similar SEC requirements of disclosure. Hearings on S. 750, supra note 48, at 1176–77, 1655; Hearings on S. 5, supra note 24, at 685–86; S. Rep. No. 392, supra note 13, at 9.Google Scholar
267 FTC Informal Staff Opinion, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,365 (April 7, 1970).Google Scholar
268 There is some indication that general regulation would suffice. Hearings on Consumer Credit, supra note 40, at 405. Moreover, in cases arising under the McCarran Act provision that defers to states if the business of insurance is “regulated” by state law, it has consistently been held that general state regulation of insurance by the states suffices and that it is not necessary to show that a particular practice is the subject of regulation. See FTC v. National Cas. Co., 357 U.S. 560 (1958); Commander Leasing Co. v. Transamerica Title Ins. Co., 477 F.2d 77 (10th Cir. 1973); Ohio AFL-CIO v. Insurance Rating Board, 451 F.2d 1178 (6th Cir. 1971).Google Scholar
269 Jackson v. Metropolitan Edison Co., 419 U.S. 345 (1974).Google Scholar
270 See FRB Letter No. 524, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,730 (Sept. 13, 1971); cf. Grein v. Hawkins, 295 So. 2d 219, 223–24 (La. App. 1974). There is some legislative basis for the board's distinction. Representative Sullivan stated that whereas “any utility late-payment charges regulated under state utility laws” were exempt, “this exemption applied only to extra charges on utility services and not to finance charges brought on the utility bill.” 144 Cong. Rec. 14387 (May 22, 1968); see Hearings on Consumer Credit, supra note 40, at 393.Google Scholar
271 Since the utility furnished the start-up services before demanding payment, there is a credit transaction. If the utility imposes extra charges for delayed payments, these could be finance charges.Google Scholar
272 FRB Letter No. 692, CCH-CCG, 1969–74 TIL Special Releases Transfer Binder, para. 30,987 (June 27, 1973); see FRB Letter No. 764, id., para. 31,086 (March 12, 1974).Google Scholar
273 395 F. Supp. 152 (D. Minn. 1974).Google Scholar
274 Cf. Truth in Lending Act sec. 103(g).Google Scholar
275 See S. Rep. No. 750, supra note 209, at 33–34. The report indicates that the exemption was not considered by either the House or Senate when TIL was enacted but was inserted in the conference committee. Hearings on Consumer Credit, supra note 40, at 393. The National Commission on Consumer Finance has recommended removing the exemption. NCCF, supra note 262, at 187. The FRB is equivocal. See Federal Reserve Board, Annual Report to Congress on Truth in Lending for the Year 1972, 9–10 (1973).Google Scholar