Household Credit Services, Inc. v. Pfennig (02-857)

April 21, 2004 Supreme Court Update

Greetings Court fans!
Only one new opinion today, and not a very interesting one at that. It's a straightforward Chevron case, so all the government lawyers out there keep reading. The rest of you might want to spend your time reading press coverage (or listening to the audiotapes!) from yesterday's argument in the Guantanamo Bay cases. (Isn't it great that they're releasing audiotapes? Maybe someday they'll release tapes for all their cases.)
For those still reading, in Household Credit Services, Inc. v. Pfennig (02-857), the Court (Thomas for all 9) upheld the Federal Reserve Board's "Regulation Z" as a reasonable interpretation of the Truth in Lending Act. The TILA regulates disclosures made by credit card companies to consumers, requiring, for example, that consumers be told about all "finance charges" assessed on their accounts. In this case, Ms. Pfennig claimed that the charge assessed on her account for each month that she exceeded her credit limit was a "finance charge" and thus had to be labeled as such. (Who knew that you could exceed your credit limit?) Her credit card company disagreed, and for support, pointed to Regulation Z, which excludes such over-limit charges from the definition of finance charge. The Sixth Circuit agreed with Pfennig, but the Supreme Court reversed.
This case is a textbook application of Chevron. Congress expressly delegated broad authority to the Federal Reserve Board to issue regulations under TILA. Thus, under the classic Chevron framework, the first question is whether Congress has directly spoken to the question at issue. Here, the Court had no trouble finding that the statute was ambiguous. The statutory definition of "finance charge," when considered in the context of the entire statute, does not clearly answer whether over-limit charges should be considered finance charges. Thus, the Court moved on to step two of the Chevron framework, assessing the reasonableness of the agency's interpretation. And again, the Court had little trouble finding the regulation reasonable. Over-limit fees could be considered a penalty for defaulting on the agreement, and so the Board could reasonably exclude them from the "finance charge" category, which includes those fees that reflect "the cost of consumer credit." Moreover, the Board could reasonably conclude that requiring disclosure of over-limit and other related fees as part of the finance charge could be distracting and confusing to the consumer. The Sixth Circuit reached the opposite conclusion (i.e., holding that the regulation was unreasonable) only because it substituted its own judgment for that of the agency's. This was error and so the decision must be reversed.
That's it until next week, the last week of argument for October Term 2003. Thanks for reading!

From the Appellate Practice Group at Wiggin and Dana.
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