Mourning v. Family Publications Service, Inc. Petition for a Writ of Certiorari to the US Court of Appeals for the Fifth Circuit

    I n the

^itprrmr (ta rt of tljr Imtrti i>tatro
October Term, 1971 

No..................

L eila M ourning ,

vs.
Petitioner,

F am ily  P ublications S ervice, I n c .

PETITION FOR A WRIT OF CERTIORARI TO THE 
UNITED STATES COURT OF APPEALS 

FOR THE FIFTH CIRCUIT

J ack  Greenberg 
J ames M. N abrit, III 
E ric S chnapper

10 Columbus Circle, Suite 2030 
New York, New York 10019

M. D onald D bescher

Suite 207, Sunset House 
5825 Sunset Drive 
South Miami, Florida 33143

Counsel for Petitioner





TABLE OF CONTENTS

PAGE

Opinion B elow ........................................................    1

Jurisdiction .......................... ............................................ .. 1

Questions Presented ...................................................    2

Statutory Provisions and Regulations Involved______ 2

Statement of the Case ...................................................... 6

Reasons for Granting the Writ .... .................................  9

Conclusion ...............       19

A ppendix

Opinion of the District Court ................. ............. . la

Opinion of the Court of Appeals .... ...................... 6a
Judgment of the Court of Appeals ........................  24a

T able of A uthorities

Cases:

Federal Power Commission v. Hope Nat. Gas Co., 320 
TT.S. 591 (1944) ......... ................................................... . 16

Federal Trade Commission v. Gratz, 253 U.S. 421 
(1920) .................................... ...................... .................. -  15

General Telephone Co. of California v. Federal Com­
munications Commission, 413 F.2d 390 (D.C. Cir. 
1969) ..................... ................ ..........................................  18



11
PAGE

National Broadcasting Co. v. United States, 319 U.S.
190 (1943) .......................................................................13,15

Norwegian Nitrogen Prod. Co. v. United States, 288 
U.S. 294 (1933) .............................................................17,18

Perez v. United States, 402 U.S. 146 (1971)   .......... 16

Sproles v. Binford, 286 U.S. 374 (1932)   ...... .......... 15,16

Strompolos v. Premium Readers Service, 326 F. Supp.
1100 .......................................... ........... 9,10,12,15,16,18,19

United States v. Shreveport Grain & Elevator Co.,
287 U.S. 77 (1932) ................... .............. ....................... 15

Statutes:

15 U.S.C. §1601 ... 

15 U.S.C. §1602(e) 

15 U.S.C. §1602(f) 

15 U.S.C. §1602 (g) 

15 U.S.C. §1604 ... 

15 U.S.C. §1606(a) 

15 U.S.C. §1631 ... 

15 U.S.C. §1638(a) 

15 U.S.C. §1640(e) 

28 U.S.C. §1254(1)

...2, 9,15

.....  3

3,10,13 

.....  3

3,14,15

....16,17

...... 4

...... 4

...... 7

...... 2



Ill

12 C.F.R. §226.2 (k) ..............................    passim,

12 C.F.R. §226.2(1) .....    6

12 C.F.R. §226.2(m) ..................................    6

Congressional Hearings:

Hearings Before the Consumer Subcommittee of the 
House Banking and Currency Committee, 91st Cong.,
1st Sess., Part II (1969) ............................... ....... ......  12

Miscellaneous:

“ Consumer Legislation and the Poor,” 76 Yale L.J.
745 (1967) ...............................................................   18

Davis on Administrative L a w ................................   15

4 C.C.H. Consumer Credit Guide 1130,114 ...............   17

4 C.C.H. Consumer Credit Guide H30,228 .......... ..... 11,17

4 C.C.H. Consumer Credit Guide U30,320 ........    17

4 C.C.H. Consumer Credit Guide 1130,434 ..................  11

4 C.C.H. Consumer Credit Guide §30,658 ..................  17

Regulations: page





I n  t h e

(Euurt of %  In it^  States
October Term, 1971 

No..................

L eila M ourning ,

vs.
Petitioner,

F am ily  P ublications S ervice, I n c .

PETITION FOR A WRIT OF CERTIORARI TO THE 
UNITED STATES COURT OF APPEALS 

FOR THE FIFTH CIRCUIT

The petitioner, Leila Mourning, respectfully prays that 
a writ of certiorari issue to review the judgment of the 
United States Court of Appeals for the Fifth Circuit 
entered in this proceeding on September 27, 1971.

Opinion Below

The opinion of the Court of Appeals, not yet reported, 
appears in the Appendix hereto, p. 6a. The opinion of the 
District Court for the Southern District of Florida, which 
is not reported, appears in the Appendix hereto, p. la.

Jurisdiction

The judgment of the Court of Appeals for the Fifth 
Circuit was entered on September 27, 1971, and appears in



2

the Appendix hereto, p. 24a. This Court’s jurisdiction is 
invoked under 28 U.S.C. §1254(1).

Questions Presented

1. Whether the Federal Reserve Board acted within its 
statutory authority when it promulgated 12 C.F.R. §226.2
(k), defining “consumer credit” covered by the Consumer 
Credit Protection Act to include any credit payable in more 
than four installments?

2. Whether the Federal Reserve Board acted consistent 
with the Fifth Amendment when it promulgated 12 C.F.R. 
§226.2(k), defining “consumer credit’’ covered by the Con­
sumer Credit Protection Act to include any credit payable 
in more than four installments?

Statutory Provisions and Regulations Involved

United States Code, Title 15, §1601, 82 Stat. 146 (1968):

§1601. Congressional findings and declaration of pur­
pose

The Congress finds that economic stabilization would 
be enhanced and the competition among the various 
financial institutions and other firms engaged in the 
extension of consumer credit would be strengthened by 
the informed use of credit. The informed use of credit 
results from an awareness of the cost thereof by con­
sumers. It is the purpose of this subchapter to assure 
a meaningful disclosure of credit terms so that the 
consumer will be able to compare more readily the 
various credit terms available to him and avoid the 
uninformed use of credit.



3

United States Code, Title 15, §1602(e), 82 Stat. 146:
(e) The term “credit” means the right granted by a 
creditor to a debtor to defer payment of debt or to 
incur debt and defer its payment.

United States Code, Title 15, §1602(f), 82 Stat. 146:

(f) The term “creditor” refers only to creditors who 
regularly extend, or arrange for the extension of, credit 
for which the payment of a finance charge is required, 
whether in connection with loans, sales of property or 
services, or otherwise. The provisions of this title shall 
apply to any such creditor, irrespective of his or its 
status as a natural person or any type of organization.

United States Code, Title 15, §1602 (g), 82 Stat. 146
(1968):

(g) The term “ credit sale” refers to any sale with 
respect to which credit is extended or arranged by the 
seller. The term includes any contract in the form of 
a bailment or lease if the bailee or lessee contracts to 
pay as compensation for use a sum substantially equiv­
alent to or in excess of the aggregate value of the 
property and services involved and it is of the aggre­
gate value of the property and services involved and 
it is agreed that the bailee or lessee m il become, or for 
no other or a nominal consideration has the option to 
become, the owner of the property upon full compli­
ance with his obligations under the contract.

United States Code, Title 15, §1604, 82 Stat. 148 (1968):

The Board shall prescribe regulations to carry out the 
purposes of this subchapter. These regulations may 
contain such classifications, differentiations, or other 
provisions, and may provide for such adjustments and



4

exceptions for any class of transactions, as in the judg­
ment of the Board are necessary or proper to effectuate 
the purposes of this subchapter, to prevent circum­
vention or evasion thereof, or to facilitate compliance 
therewith.

United States Code, Title 15, §1631, 82 Stat. 152 (1968):

(a) Each creditor shall disclose clearly and conspicu­
ously, in accordance with the regulations of the Board, 
to each person to whom consumer credit is extended 
and upon whom a finance charge is or may be imposed, 
the information required under this part.

United States Code, Title 15, §1638(a), 82 Stat. 156
(1968):

§1638. Sales not under open end credit plans—Re­
quired disclosures by creditor

(a) In connection with each consumer credit sale not 
under an open end credit plan, the creditor shall dis­
close each of the following items which is applicable:

(1) The cash price of the property or service pur­
chased.

(2) The sum of any amounts credited as downpay­
ment (including any trade-in).

(3) The difference between the amount referred to 
in paragraph (1) and the amount referred to in para­
graph (2).

(4) All other charges, individually itemized, which 
are included in the amount of the credit extended but 
which are not part of the finance charge.



5

(5) The total amount to be financed (the sum of the 
amount described in paragraph (3) plus the amount 
described in paragraph (4)).

(6) Except in the case of a sale of a dwelling, the 
amount of the finance charge, which may in whole or 
in part be designated as a time-price differential or 
any similar term to the extent applicable,

(7) The finance charge expressed as an annual per­
centage rate except in the case of a finance charge

(A) which does not exceed $5 and is applicable
to an amount financed not exceeding $75, or

(B) which does not exceed $7.50 and is applicable
to an amount financed exceeding $75.

A creditor may not divide a consumer credit sale into 
two or more sales to avoid the disclosure of an annual 
percentage rate pursuant to this paragraph.

(8) The number, amount, and due dates or periods 
of payments scheduled to repay, the indebtedness.

(9) The default, delinquency, or similar charges pay­
able in the event of late payments.

(10) A  description of any security interest held or 
to be retained or acquired by the creditor in connec­
tion with the extension of credit, and a clear identifica­
tion of the property to which the security interest 
relates.

12 C.F.R. §226.2 ( k ) :
(k) “ Consumer credit” means credit offered or ex­
tended to a natural person, in which the money, prop­
erty, or service which is the subject of the transaction 
is primarily for personal, family, household, or agri­



6

cultural purposes and for which either a finance charge 
is or may be imposed or which pursuant to an agree­
ment, is or may be payable in more than 4 instalments. 
“ Consumer loan” is one type of “ consumer credit.”

12 C.F.R. §226.2(1):

(l) “Credit” means the right granted by a creditor to 
a customer to defer payment of debt, incur debt and 
defer its payment, or purchase property or services 
and defer payment therefor. (See also paragraph (bb) 
of this section.)

12 C.F.R. §226.2 (m):

(m) “Creditor” means a person who in the ordinary 
course of business regularly extends or arranges for 
the extension of consumer credit, or offers to extend 
or arrange for the extension of such credit.

Statement of the Case

Petitioner is a seventy-three year old widow residing in 
Dade County, Florida. On August 19, 1969, she entered 
into a contract with the Family Publications Service, Inc., 
(hereinafter “FP:S” ), a Delaware corporation engaged in 
interstate commerce, for the purchase of certain magazines. 
The contract was the result of a telephone solicitation made 
to petitioner followed up by a solicitation at her home. 
Petitioner made an initial payment of $3.95, and contracted 
to pay an equal amount monthly for a period of thirty 
months. FPS agreed that petitioner would receive 4 maga­
zines for a period of sixty months.

The contract, made on a standard printed form supplied 
by FPS, did not disclose to petitioner the total purchase



7

price of the magazines—'$122.45. Nor did it disclose the 
balance due after the initial payment, $118.50, or reveal 
other information or use terminology required by the Con­
sumer Credit Protection Act, 15 XJ.S.C. §§1601 et seq. Peti­
tioner was required to state in writing information normally 
used in a credit check, such as her occupation and business 
address, and an agent of FPS wrote on the contract “ Own 4 
years” , apparently indicating the period time which peti­
tioner had owned her home.

The sale of magazine subscriptions under similar circum­
stances is agreed to be FPS’s sole business and source of 
income. FPS contracts with the magazine publishers to 
supply magazines directly to its customers, and FPS 
periodically reimburses the publishers out of the payments 
received from subscribers. What portion of a subscriber’s 
payments are paid to the publishers and what portion re­
tained by FPS is not disclosed by the record.

Shortly after entering into this contract petitioner, ap­
parently realizing for the first time the large amount of 
money involved, refused to make further payments. There­
after petitioner received at least five dunning letters from 
FPS demanding at first a resumption of monthly payments 
and then payment of the full $118.50 balance. The letters 
stressed that petitioner had “ a credit account” , warned of 
the “ embarrassment” of having her name appear on a 
“monthly delinquent report” , and threatened “ expensive 
and unpleasant” legal action.

On April 23, 1970, petitioner, then represented by the 
Legal Services Senior Citizens Center, brought this action 
in the United States District Court for Southern District of 
Florida alleging that the contract violated the Consumer 
Credit Protection Act. Jurisdiction of the District Court 
was invoked under 15 U.S.C. §1640(e) providing for federal 
jurisdiction of actions arising under the Act. Petitioner de-



8

mantled $100 in statutory damages, legal fees, and costs.* 
FPS urged, inter alia, that it was not required to make any 
disclosures because the transaction with petitioner did not 
involve a finance charge and was thus not covered by the 
Act. Petitioner maintained that she was not required to 
prove that the $122.45 total cost included a. hidden finance 
charge because the applicable regulation, 15 C.F.R. §226.2 
(k), required disclosure whenever, as here, the contract was 
payable in four or more instalments.

In connection with the proceedings in the District Court 
petitioner filed affidavits of the Director and an Inspector 
of the Consumer Protection Division of Metropolitan Dade 
County. The affidavits stated that the Consumer Protection 
Division had received over 100 complaints about FPS’s 
practices, that to entice potential subscribers FPS falsely 
represented it was giving away free 5 year subscriptions 
to “Life” magazine, that those entering into contracts with 
FPS would not have done so had they known the full con­
tract price, that FPS refused to permit subscribers to cancel 
contracts and used threatening and harassing tactics to en­
force them. The affidavit of the Director further states 
that on July 29, 1970, defendant and two of its employees 
were convicted in Dade County Criminal Court of mislead­
ing advertising and that FPS was ordered to cease doing 
business in the State of Florida.

On November 27, 1970, the District Court held that the 
four instalment rule set out in section 226.2 (k) was valid 
and applicable to the facts of this case, and granted peti­
tioner’s motion for summary judgment for $100 statutory 
damages plus costs and a reasonable attorney’s fee. On 
September 27, 1971, the Court of Appeals reversed on the

* The action was originally denoted a class action. The District 
Court denied class action treatment, and petitioner did not appeal 
from that decision.



9

Reasons for Granting the Writ

Title I o f the Consumer Credit Protection Act, also 
known as the Truth in Lending Act, was enacted in 1968 
“to assure a meaningful disclosure of credit terms so that 
the consumer will be able to compare more readily the 
various credit terms available to him and avoid the unin­
formed use of credit,” 15 U.S.C. §1601. The Act requires 
certain specified disclosures to be made in all credit con­
tracts, authorizes the Federal Reserve Board to prescribe 
regulations under the Act, and provides for enforcement by 
a variety of administrative agencies and by private litiga­
tion. The decision of the Fifth Circuit invalidated a major 
regulation which the Federal Reserve Board has found to 
be essential to prevent circumvention of the Act. The Fifth 
Circuit’s erroneously constricted view of the Board’s rule 
making authority threatens the continued vitality of the 
Act, is in direct conflict with the well reasoned decision in 
Strompolos v. Premium Readers Service, 326 F. Supp. 1100 
(N.D. 111. 1971), and has brought about serious uncertainty 
as to the legal obligations of thousands of creditors which 
only this Court can resolve.

The only issue in this case is whether the transaction 
between petitioner and FPS is the type of transaction in 
which disclosures are legally required. FPS concedes that 
it did not disclose to petitioner the total purchase price of 
the magazines or several other items of information re­
quired in transactions falling under the Act and regulations. 
While the delineation of the types of transactions subject 
to disclosure requirements depends on several definitions,

sole ground that the four instalment rule contained in Regu­
lation §226.2 (k) was invalid and that FPS was therefore
not required to make any disclosures.



10

statutory provisions and regulations, the instant petition 
concerns regulation §226.2 (k). That regulation provides in 
pertinent part:

“Consumer credit” means credit . . . for which a finance 
charge is or may be imposed or which pursuant to an 
agreement, is or may be payable in more than 4 in­
stallments . . . .

The District Court, in granting petitioner’s motion for 
summary judgment, concluded that consumer credit was 
involved because the transaction involved 30 installments 
and thus fell under the second clause quoted, known as the 
four installment rule. The District Court did not consider 
whether the transaction might also involve consumer credit 
because of the presence of a finance charge.

The Court of Appeals reversed the judgment for peti­
tioner below on the sole ground that the four installment 
rule on which the District Court had relied was invalid. 
The Court of Appeals reasoned that, since the definition 
of a “creditor” in the statute, 16 U.S.C. §1602(f), includes 
only creditors extending credit for a finance charge, the 
Act could only be applied to creditors who were proven to 
have imposed a finance charge in each particular case. 
The Court concluded that the four installment rule pur­
ported to require disclosures in cases not involving finance 
charges and was therefore outside the authority of the 
Board and involved an unconstitutional conclusive pre­
sumption that a finance charge was present in every trans­
action involving more than four installments. (See pp. 16a- 
23a). The decision of the Fifth Circuit is in direct conflict 
with that more than four months earlier in a case involving 
virtually identical facts, Strom,polos v. Premium Readers 
Service, 326 F. Supp. 1100 (N.D.Ill. 1971).* The Court of

* Strompolos is now on appeal before the Seventh Circuit Court 
of Appeals.



11

Assuming, arguendo, that Title I of the Consumer Credit 
Protection Act is concerned primarily with disclosures in 
transactions involving finance charges, the four installment 
rule embodied in §226.2 (k) is nonetheless well within the 
statutory authority of the Board.

The four installment rule is founded upon an explicit and 
reiterated finding by the Federal Reserve Board that such 
a rule is essential to prevent wholesale evasion of the Act. 
In an opinion letter issued eight days after the regulation 
became effective, Vice-Chairman Robertson of the Board 
explained:

The Board considers this to be a rather significant 
part of the Regulation, intended as a deterrent to those 
who might cease to charge a finance charge but, in­
stead, inflate their so-called “cash” price and thus avoid 
compliance. 4 C.C.H. Consumer Credit Guide, Tf.30,434.

Six months later, on December 9, 1969, Governor Robertson 
wrote:

We believe that without this general provision [the 
four instalment rule] the practice of burying the finance 
charge in the cash price, a practice which already exists 
in many cases, would be encouraged by Truth in Lend­
ing. In order to prevent this ironic result we felt it 
imperative to establish the more than four payment 
rule. 4 C.C.H. Consumer Credit Guide f[30,228.

Again on March 3, 1970, Governor Robertson explained:

The Board felt that it was imperative to include trans­
actions involving more than four instalments under

Appeals, however, neither mentioned Strompolos nor pur­
ported to consider the detailed reasoning given therein for
upholding the validity of regulation §226.2 (k).



12

the Regulation since without this provision the prac­
tice of burying the finance charge in the cash price, 
a practice which already exists in many cases, would 
have been encouraged by Truth in Lending. Conse­
quently we believe that this is a rather important part 
of the Regulation. . . .  4 C.C.H. Consumer Credit 
Guide; 1j30,320.

See also Hearings Before the Consumer Subcommittee of 
the House Banking and Currency Committee, 91st Cong., 
1st Sess., Part II, p. 375 (1969).

The District Court in Strompolos also concluded that the 
four instalment rule was essential to avoid evasion:

We agree with the Federal Reserve Board’s evaluation 
of the necessity of this type of regulation.

The facts of this particular case may very well dem­
onstrate why the four installment rule is not only 
sensible but also necessary to prevent the Truth in 
Lending Act from being a hoax and a delusion upon 
the American public. Although the defendant con­
tends that it charges the same unitary price for both 
credit and cash sales, it is readily apparent that a 
seller in any industry which sells primarily or almost 
exclusively on a long term credit basis could easily 
set a theoretical unitary cash and credit price which 
he knows no one will pay in less than four installments 
and thus exempt himself and his industry from the 
coverage of the Act. . . .

It is most logical that the Federal Reserve Board 
would . . . plug a loophole by which a substantial por­
tion of long term credit dealers could escape from 
the Act’s coverage. Neither the law, the Federal Re­
serve Board nor the courts are so simplistic as to



13

believe that a person in the business of extending long 
term credit should be permitted in effect to abolish 
the Truth in Lending Act by merely charging a single 
“cash or credit” price knowing full well that the great 
bulk of its customers will never pay in less than, for 
example, thirty months.

. . . Were the Board not to have promulgated this 
rule nor the courts to sustain it, the Truth in Lending 
Act might never achieve its stated goals. 326 F. Supp. 
at 1103-04.

The Board’s finding that the regulation is essential to pre­
vent wholesale evasion of the Act is not subject to judicial 
review absent a clear showing of abuse of discretion on the 
part of the Board. National Broadcasting Co. v. United 
States, 319 U.S. 190, 224 (1943). The Court of Appeals in 
the instant case, however, completely ignored both this 
principle of deference to the Board’s expertise and the find­
ing of the Board.

The Court of Appeals reasoned that if the literal defini­
tion of “creditor” in 15 XJ.S.C. §1602 (f) permitted on its 
face a scheme which would make a shambles of the entire 
statute, there was absolutely nothing the Board could do 
about it. This argument seriously misconstrues the pur­
pose of the Act and the authority given to the Board. 
Congress did not intend to require exactly and only the dis­
closures set out in the statute under exactly and only those 
circumstances defined therein, authorizing the Board to 
merely resolve minor ambiguities. Rather the Congress 
intended, as it stated, “to assure meaningful disclosure of 
credit terms” , and to this end set out a rough outline of 
what disclosures it believed would be needed under what 
circumstances to effectuate this purpose, and left it to the 
Board to fill in the details, correct any oversights or omis­
sions, and make any necessary exceptions.



14

The express grant of rule making authority to the Board 
is extremely broad, and encompasses both interpretative 
and legislative rules:

The Board shall prescribe regulations to carry out the 
purposes of this title. These regulations may contain 
such classifications, differentiations, or other provi­
sions, and may provide for such adjustments and ex­
ceptions for any class of transactions, as in the judg­
ment of the Board are necessary or proper to effectu­
ate the purposes of this title, to prevent circumvention 
or evasion thereof, or to facilitate compliance there­
with. 15 U.S.C. §1604.

The grant of authority to avoid evasion is particularly ap­
plicable here. As the District Court reasoned in Strompolos:

The wording of section 105 of the Act [15 U.S.C. 
§1604] clearly indicates, not only that Congress dele­
gated to the Board authority to issue regulations to 
effectuate the purposes of the Act, but that Congress 
also went further and granted the Board the power 
to promulgate, at its discretion, regulations necessary 
to prevent circumvention of the Act. The use of the 
word “ circumvention” in the Act signifies that Congress 
was aware that some creditors who would otherwise 
fall within the purview of the Act might, after passage 
of the Act, attempt to restructure their consumer busi­
ness relations in such a manner that they might techni­
cally avoid the wording of the Act.

Along with the recognition of this potential for eva­
sion, Congress also recognized the equally obvious fact 
that no legislative body could conceivably put into a 
workable piece of legislation regulations and restric­
tions covering every imaginable business transaction 
wherein credit may be involved. Consistent with other



15

complex regulatory legislation, Congress granted an 
administrative agency the power to apply the basic 
purposes of the Act to the everyday world. Not only 
did Congress order the Federal Reserve Board to 
promulgate regulations to effectuate the purposes of 
the Act, it also took the further affirmative step of 
enabling the Board to reach creditors, who in the 
Board’s judgment, were attempting to circumvent or 
evade the Act by structuring their credit activities to 
fall a fine line outside the Act. 326 F. Supp. 1103-04.

Indeed, as the instant case makes clear, if the grant of au­
thority to prevent evasion does not include the power to 
reach transactions just outside the literal reach of the 
statute that grant is meaningless.

That Congress should have given the Board the authority 
to modify the details of its statutory plan is not unusual. 
Congress could of course have given the Board the rule 
making authority set out in section 1604, and the broad 
statement of purpose in section 1601, and left it to the 
Board to promulgate the entire regulatory scheme. Com­
pare National Broadcasting Co. v. United States. 319 U.S. 
190 (1943) (F.C.C. authorized to regulate broadcast indus­
try in accordance with “public convenience, interest, or 
necessity” ) ; Federal Trade Commission v. Grafs, 253 U.S. 
421 (1920) (F.T.C. authorized to define and prevent “un­
fair methods of competition” ). It was entirely proper for 
the Congress in the instant case to set out, in addition to a 
statement of the ultimate purpose to be sought by the 
Board, a sketch of how it thought that goal would be 
achieved subject to such “variations, extensions, or exemp­
tions” as the Board might find necessary to effectuate the 
general purpose of the Act. Davis on Administrative Law 
§20; United States v. Shreveport Grain & Elevator Co., 287 
U.S. 77, 85 (1932); Sproles v. Binford, 286 U.S. 374, 397



16

(1932); compare Federal Power Commission v. Hope Nat. 
Gas Co., 320 U.S. 591 (1944). It is not, of course, necessary 
in each individual case for the Board to establish that the 
creditor is seeking to evade the law. Such a requirement 
would reduce the Board to proving the existence of a finance 
charge in each case and render nugatory its power to 
promulgate rules to avoid evasion. The Board need only 
have a reasonable basis for concluding that its regulation 
of the class of activities involved is necessary to effectuate 
the purposes of the Act. Compare Peres v. United States, 
402 U.S. 146 (1971).

The four installment rule is also necessary to avoid 
hopeless confusion as to when a creditor in FPS’s position 
has imposed a finance charge and is thus required to make 
disclosures. “Finance charge” is defined broadly in the 
statute to include “ the sum of all charges, payable directly 
or indirectly by the person to whom the credit is extended, 
and imposed directly or indirectly by the creditor as an 
incident to the extension of credit. . . 15 U.S.C. §1606(a).
As the District Court pointed out in Strompolos, 326 F. 
Supp. at 1103, the fact that a creditor purports to have 
a cash price equal to his credit price may only mean that 
the finance charge is well hidden.

As a practical matter any creditor who permits a cus­
tomer to defer payment of an obligation for goods or ser­
vices already provided or paid for by the creditor must 
as a consequence borrow from a third party or his own 
capital reserves and incur a finance charge or resulting 
loss of interest. He must also maintain, as FPS evidently 
did, some form of collection department. The costs of the 
creditor’s borrowing and collections, as well as his bad debt 
reserve, must ultimately and literally come out of his 
customer’s pockets, since, as in the case of FPS, their



17

payments to him are his only source of funds, regardless 
of whether the creditor in any sense “ intends” to bury a 
finance charge in his prices. FPS presumably met all these 
costs out of the difference between the amount received 
from its customers and the amount it paid to the magazine 
publishers. The statute sets no standards, however, for 
determining the existence and amount of a finance charge 
under these circumstances, and the Court of Appeals in 
the instant case intimated no suggestions as to what sort 
of proof petitioner could have offered along these lines.

Section 226.2 (k) resolves this problem as a practical 
matter by requiring disclosures in all transactions involv­
ing more than four installments. The section may be 
understood as an interpretation of the definition of “ finance 
charge” in Section 1606(a). As such it would reflect the 
Board’s apparent conclusion that it -would not be feasible 
to determine for categories of transactions or on a case 
by case basis when the price paid by the consumer includes, 
purposely or otherwise, part of all of the costs necessarily 
incurred by the creditor in extending credit. See 4 C.C.H. 
Consumer Credit Guide 1130,228.

In the instant case both the Federal Reserve Board and 
the Federal Trade Commission, which share the primary 
responsibility for interpreting and enforcing the Act, be­
lieve that the four installment rule set out in §226.2 (k) and 
promulgated within a year of the passage of the Act is a 
valid use of the Board’s general rule making authority. 
See 4 C.C.H. Consumer Credit Guide 1ffl30,ll4, 30,658. A 
strong presumption of validity attaches to “a contempo­
raneous construction of a statute by the men charged with 
the responsibility of setting its machinery in motion, of 
making the parts work efficiently and smoothly while they 
are yet untried and new.” Norwegian Nitrogen Prod. Co. v.



18

United States, 288 U.S. 294, 315 (1933). The presumption 
is particularly weighty when the regulation involved is 
directed at effectuating the ultimate purposes of the Act. 
General Telephone Co. of California v. Federal Communi­
cations Commission, 413 F.2d 390, 403 (D.C.Cir. 1969).

The decision of the Court of Appeals in the instant case 
is not only clearly erroneous, but has opened the door to 
wholesale evasion of the Consumer Credit Protection Act. 
If the four installment rule is invalidated there will be 
little if any incentive to prevent merchants from reverting 
with avengeance to the practices common prior to the 
passage of the Act, disclosing neither finance charges, in­
terest rates, or total prices for their goods. The success 
of such a scheme of evasion will give merchants selling 
on credit a substantial and unwarranted competitive edge 
over hanks and other lenders who have no price in which 
to bury their finance charges. Such results would have a 
particularly adverse effect on the poor. Burying finance 
charges and advertising “free credit” was especially com­
mon prior to 1969 in ghetto neighborhoods, and low income 
consumers are particularly susceptible to these practices 
because they are least likely to ask the total cost of some 
good or service so long as the monthly payments seems 
within their reach. See Comment, “ Consumer Legislation 
and the Poor,” 76 Yale L.J. 745, 762-63 (1967). Moreover, 
the Court of Appeals’ constricted view of the Board’s rule 
making authority calls into question the validity of, and is 
likely to precipitate a flury of attacks on the many other 
regulations with which creditors may prefer not to comply.

The need for a final ruling by this Court on the validity 
of the four installment rule is particularly great because 
of the financial stakes involved. The regulation invalidated 
by the Fifth Circuit is still being enforced in the Northern 
District of Illinois because of Strompolos. Throughout the



19

rest of the country there is general uncertainty as to 
whether compliance is necessary in view of the conflict be­
tween the instant case and Strompolos. A  creditor who 
gambles that the regulation will be invalidated in his Cir­
cuit and loses may be liable for millions of dollars in statu­
tory damages. A creditor who presumes incorrectly that 
the regulation will be held valid in his area stands to lose 
a substantial amount of business because of the competitive 
edge assumed by his non-complying competitors. The nine 
federal agencies charged with enforcing the Act as to vari­
ous groups of creditors are themselves left in a quandary 
as to how to proceed pending a final resolution of this 
question.

CONCLUSION

For these reasons, a writ of certiorari should issue to re­
view the judgment and opinion of the Fifth Circuit.

Respectfully submitted,

J ack Greenberg

J ames M. Nabrit, III
E ric S chnapper

10 Columbus Circle, Suite 2030 
New York, New York 10019

M. D onald D rescher

Suite 207, Sunset House 
5825 Sunset Drive 
South Miami, Florida 33143

Counsel for Petitioner





APPENDIX





UNITED STATES DISTRICT COURT

S outhern  D istrict of F lorida 

M ia m i D ivision

No: 70-559-Civ-WM

Filed November 27, 1970

L eila M ourning , on beh a lf o f  h erse lf and 
a ll those sim ilarly  situated,

Plaintiffs,
vs.

F am ily  P ublications S ervice, I n c .,
Defendant.

AMENDED ORDER GRANTING FINAL SUMMARY 
JUDGMENT TO PLAINTIFF, DENYING DEFEND­
ANT’S MOTION FOR SUMMARY JUDGMENT AND 

DISMISSING CLASS ACTION CLAIM

T h is  Cause came on to be heard upon the Defendant’s 
motion to amend this Court’s Order and judgment entered 
October 30, 1970, and the Court having heard argument 
of counsel, and having considered the memoranda sub-

la



2a

mitted by counsel for the parties, and being otherwise 
fully advised in the premises,

The Court finds that the Plaintiff, L eila  M ourning , can­
not fairly and adequately protect the interests of the 
alleged class in this cause, and any previous order herein 
to the contrary is superceded by this Order and Judgment, 
and it is therefore,

Ordered and A djudged that this action  shall not be 
m aintained as a class action, and the class action  claim  
o f  the “ second am ended com plain t”  is h ereby  dism issed, 
and it is further,

Ordered and A djudged that this Court’s Order of 
October 30, 1970, be and it is hereby vacated and amended 
to state as follows:

T h is  Cause having come on before me upon Motions 
for Summary Judgment filed by the parties, Philip L. 
Coller, Esq. of the Legal Services Senior Citizens Center, 
and M. Donald Drescher, Esq., appearing for the Plaintiff, 
and Peter Fay, Esq. of Prates Fay Floyd & Pearson, P.A., 
appearing for the Defendant, and the Court having heard 
argument of counsel and being otherwise fully advised 
in the premises, makes the following findings of fact and 
conclusions of law:

F indings of F act

This action is founded on the Consumer Credit Protec­
tion Act (Title I, Truth in Lending Act) 15 USC §1601 
et seq., and the Regulations duly promulgated thereunder 
by the Board of Governors of the Federal Reserve System

Amended Order Granting Final Summary Judgment



3a

(Regulation Z, 12 CFR §§226.1-226.12). The relief sought 
is recovery of a civil penalty imposed by the Act for fail­
ure to make disclosures required by the Act and its Regu­
lations.

There is no issue as to any material fact. Defendant 
admits (1) that it entered into a written standard form 
contract with the named Plaintiff and other members of 
this class; and (2) that the standard form contract did 
not contain the disclosures specified by the Truth in 
Lending Act. Further, Defendant admits contacting the 
named Plaintiff on several occasions subsequent to the 
filing of this suit to enforce collection of a debt asserted 
by Defendant against the Plaintiff. Defendant is engaged 
in the interstate business of soliciting subscriptions to 
magazines and offering contracts therefor. The contract 
on its face provides that the customer agrees to pay a 
stated sum over a period of 24 or 30 months, that it is 
non-cancellable and that “Payments due monthly, other­
wise entire balance due.”

Plaintiff Leila Mourning entered into a standard form 
contract with the Defendant on August 19, 1969. Subse­
quent to July 1, 1969, the date the Act went into effect, 
a number of other individuals in Dade County entered 
into identical or similar contracts with the Defendant.

The sole question presented is : “ Does the transaction 
here sued upon come within the scope of the Truth in 
Lending Act and the Regulations duly promulgated there­
under?”

Amended Order Granting Final Summary Judgment

Conclusion 's of L aw

A. The Truth in Lending Act and the Regulations must 
be interpreted so as to be consistent with each other and



4a

with the declared Congressional purpose of the Act—- 
“to assure meaningful disclosure of credit terms.”

B. The uncontroverted evidence before the Court plainly 
demonstrates that it is the intent of the Begulation and 
the interpretation of the Federal Reserve Board and of 
the staff of the Federal Trade Commission that the trans­
action here in question falls squarely within the scope 
of the Act and its Regulations by virtue of the “more than 
four installments” rule, 12 CFR §226.2 (k); F.R.B. Letter, 
July 24, 1969, 1 CCH, Consumer Credit Guide, §§30,113, 30, 
114; FTC Letter, September 3, 1970 (in Court file); CLE, 
TRUTH IN LENDING IN FLORIDA, Chapter 2.2(1))“; 
Tanner, Truth in Lending and Regulation Z — A  Primer, 
6 Ga. S.B.J. 1 (Aug. 1969).

C. The uncontroverted facts show that Consumer credit 
was extended by the Defendant to the Plaintiff. The 
Plaintiff received a present contract right—a subscription, 
in exchange for a promise to pay a certain sum in more 
than four installments. The promise to pay is uncondi­
tional and non-cancellable, and, further, the written agree­
ment provides that “Payments due monthly, otherwise 
entire balance due.” The evidence before the Court regard­
ing the named Plaintiff reveals that the Defendant, itself, 
considered the transaction to be a credit transaction, and 
that it was owed a debt by the Plaintiff.

D. No constitutional question is presented by the case 
at bar.

E. The answer to the question presented to the Court 
must be “yes,” and since the Defendant has extended 
“ Consumer credit” within the meaning of the Truth in 
Lending Act and its Regulations and has failed to make

Amended Order Granting Final Summary Judgment



5a

the material disclosures required by 15 USC §1631 and 
12 CFR §226.8, the Defendant is liable to the Plaintiff 
for the penalties imposed by 15 USC §1640(a).

Accordingly, it is Ordered and A dju dicated :

1. That the motion of Plaintiff, L eila M ourning , for 
summary judgment be and the same is granted and the 
Defendant’s motion for summary judgment is denied.

2. That as a penalty for its failure to provide the 
disclosures required by the Act and its Regulations, the 
Defendant shall pay to the Plaintiff, L eila M ourning , 
the sum of One Hundred Dollars ($100.00).

3. That the Clerk of this Court shall enter final judg­
ment in favor of Plaintiff, L eila M ourning , against the 
Defendant, F am ily  P ublications S ervice, I n c ., in the 
amount of One Hundred Dollars ($100.00), plus 1500.00 
on behalf of Plaintiff, L eila M ourning , as a reasonable 
attorneys’ fee and the costs of this action.

D one and Ordered in Chambers at Miami, Florida, on 
this 27th day of November, 1970.

/ s /  W . M ehrtens

United States District Judge

Amended Order Granting Final Summary' Judgment



6a

I n the

UNITED STATES COURT1 OF APPEALS 

F ob t h e  F if t h  C ircuit

Opinion of United States Court of Appeals
For the Fifth Circuit

No. 71-1150

L eila M ourning , et al .,

Plaintiffs-Appellees,
versus

F am ily  P ublications S ervice, I n c .,

D efendant-A ppellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR TH E  SOUTHERN DISTRICT OF' FLORIDA

(September 27, 1971)

Before
Colem an , S im pson , and R oney,

Circuit Judges.

Colem an , Circuit Judge: The validity of Regulation Z,1 
promulgated by the Federal Reserve Board under the 
Truth-In-Lending Act,2 is the material issue in this appeal. 
The District Court held for validity. We reverse.

112 C.F.R. 226.
215 U.S.C., §1601, et seq.



7a

I

The Facts

Appellant, Family Publications Service, Inc., is a Dela­
ware Corporation engaged in tire interstate business of 
soliciting subscriptions and offering contracts for the sale 
and delivery of a large number of well known periodicals.

The appellee Leila Mourning, is a seventy-three year old 
widow having her domicile in Dade County, Florida.

Under appellant’s method of conducting its business for 
the sale and delivery of well known periodicals, the cus­
tomer under a standard form contract agrees to receive 
his particular magazine selections for 48 (or 60) months 
and to pay for them over the first 24 (or 30) months. Under 
normal operating circumstances, the appellant expects to 
receive a prepayment for magazines to be delivered to the 
customer in the future. The only circumstances in which 
magazines are occasionally delivered prior to appellant’s 
receipt of payment for them is when a. customer defaults in 
making the prepayment. According to the appellant, these 
transactions, contractual in nature, for the sale and delivery 
of magazines do not involve the extension of credit as de­
fined by the Truth-In-Lending Act or the imposition of a 
finance charge, either directly or indirectly, requiring the 
disclosures specified in the Truth-In-Lending Act.

On August 19, 1969, appellee entered into a written con­
tract with the appellant for the purchase of the Ladies Some 
Journal, Holiday, Life, and Travel and Camera. As usual, 
the standard form contract required the appellee to make 
thirty monthly payments of $3.95 each, in return for which 
she would receive magazines for sixty months. The contract 
provided that it was non-cancellable and that failure to

Opinion of United States Court of Appeals
For the Fifth Circuit



8a

make the monthly payments would result in the entire bal­
ance becoming due. Said contract is the only instrument 
executed and existing between the parties and it does not 
contain a disclosure as to the total purchase price, finance 
charges, service charges, or the amount to be financed.

Although Leila Mourning, the appellee, received the mag­
azines ordered, she defaulted on her contract and never 
made any payments beyond the initial $3.95'. Consequently, 
her contract was cancelled by Family Publications Service, 
Inc., on April 15, 1970. Appellant admits contacting the 
named appellee on several occasions seeking to enforce the 
contract. In those letters, appellant explained that it had 
already entered her subscriptions for the entire period; 
that it was a financier which had fully invested in her con­
tract and would not receive a refund from the publishers; 
that Mrs. Mourning would have had to pay in advance had 
she dealt directly with the publishers; that she had an obli­
gation to repay appellant on her “credit” account, much the 
same as if she had purchased any other type of merchan­
dise ; and that the entire balance of $118.50 was due.

On April 23, 1970, Mrs. Mourning filed her civil suit as­
serting that the appellant, Family Publications Service, 
Inc., had failed to make the disclosures required by the 
Truth-In-Lending Act and, on that basis seeking the civil 
penalty, including the attorney’s fees, prescribed by the 
Act.

II

The Decision of the District Court

Both Mrs. Mourning and Family Publications, Inc. moved 
for summary judgment. The judgment went to the plain­
tiff, in the following language:

Opinion of United States Court of Appeals
For the Fifth Circuit



9a

“ T h is  Cause having come on before me upon Motions 
for Summary Judgment filed by the parties, Philip L. 
Coller, Esq. of the Legal Services Senior Citizens 
Center, and M. Donald Drescher, Esq., appearing for 
the Plaintiff, and Peter Fay, Esq. of Frates Fay Floyd 
& Pearson, P.A., appearing for the Defendant, and the 
Court having heard argument of counsel and being 
otherwise fully advised in the premises, makes the 
following findings of fact and conclusions of law:

F ihdiwgs oe F act

“ This action is founded on the Consumer Credit Pro­
tection Act (Title I, Truth in Lending Act) 15 USC 
§1601 et seq., and the Regulations duly promulgated 
thereunder by the Board of Governors of the Federal 
Reserve System (Regulation Z, 12 CFR §§226.1-226.12). 
The relief sought is recovery of a civil penalty imposed 
by the Act for failure to make disclosures required by 
the Act and its Regulations.

“ There is no issue as to any material fact. Defen­
dant admits (1) that it entered into a written standard 
form contract with the named Plaintiff and other mem­
bers of this class; and (2) that the standard form 
contract did not contain the disclosures specified by 
the Truth in Lending Act. Further, Defendant admits 
contacting the named Plaintiff on several occasions 
subsequent to the filing of this suit to enforce collection 
of a debt asserted by Defendant against the Plaintiff. 
Defendant is engaged in the interstate business of 
soliciting subscriptions to magazines and offering con­
tracts therefor. The contract on its face provides that 
the customer agrees to pay a stated sum over a period

Opinion of United States Court of Appeals
For the Fifth Circuit



10a

of 24 or 30 months, that it is non-cancellable and that 
‘Payments due monthly, otherwise entire balance due’ .

“Plaintiff Leila Mourning entered into a standard 
form contract with the Defendant on August 19, 1969. 
Subsequent to July 1, 1969, the date the Act went into 
effect, a number of other individuals in Dade County 
entered into identical or similar contracts with the 
Defendant.

“ The sole question presented is: ‘Does the transac­
tion here sued upon come within the scope of the Truth 
in Lending Act and the Regulations duly promulgated 
thereunder!’

Conclusions o r  L aw

“A. The Truth in Lending Act and the Regulations 
must he interpreted so as to be consistent with each 
other and with the declared Congressional purpose 
of the Act—-‘to assure meaningful disclosure of credit 
terms.’

“B. The uncontroverted evidence before the Court 
plainly demonstrates that it is the intent of the Regu­
lation and the interpretation of the Federal Reserve 
Board and of the staff of the Federal Trade Com­
mission that the transaction here in question falls 
squarely within the scope of the Act and its Regula­
tions by virtue of the ‘more than four installments’ 
rule, 12 CFR §226.2 (k ) ; F.R.B. Letter, July 24, 1969, 
1 CCH, Consumer Credit Guide, §§30,113, 30,114; 
FTC Letter, September 3, 1970 (in Court file); CUE, 
TRUTH IN LENDING IN FLORIDA, Chapter 2.2
(D) Tanner, Truth in Lending and Regulation Z -----
A Primer, 6 Ga. S.B.J. 1 (Aug. 1969).

Opinion of United States Court of Appeals
For the Fifth Circuit



11a

“ C. The uncontroverted facts show that Consumer 
credit was extended by the Defendant to the Plaintiff. 
The Plaintiff received a present contract right—a 
subscription, in exchange for a promise to pay a 
certain sum in more than four installments. The pro­
mise to pay is unconditional and non-caneellable, and, 
further, the written agreement provides that ‘Pay­
ments due monthly, otherwise entire balance due’. The 
evidence before the Court regarding the named Plain­
tiff reveals that the Defendant, itself, considered the 
transaction to be a credit transaction, and that it was 
owed a debt by the Plaintiff.

“D. No constitutional question is presented by the 
case at bar.

“E. The answer to the question presented to the 
Court must be ‘yes,’ and since the Defendant has 
extended ‘Consumer credit’ within the meaning of the 
Truth in Lending Act and its Regulations and has 
failed to make the material disclosures required by 
15 U8C §1631 and 12 CFR §226.8, the Defendant is 
liable to the Plaintiff for the penalties imposed by 
15 DSC §1640(a).

“Accordingly, it is Ordered and A dju dicated :

“ 1. That the motion of Plaintiff, L eila M ourning , 
for summary judgment be and the same is granted 
and the Defendant’s motion for summary judgment 
is denied.

“2. That as a penalty for its failure to provide the 
disclosures required by the Act and its Regulations,

Opinion of United States Court of Appeals
For the Fifth Circuit



12a

the Defendant shall pay to the Plaintiff, L eila 
M ourning , the snm of One Hundred Dollars ($100.00).

“3. That the Clerk of this Court shall enter final 
judgment in favor of Plaintiff, L eila  M ourning , 
against the Defendant, F am ily  P ublication  S ervice, 
I n c ., in the amount of One Hundred Dollars ($100.00), 
plus 1500.00 on behalf of Plaintiff, L eila M ourning , 
as a reasonable attorneys’ fee and the costs of this 
action.”

We have included the Findings and Conclusions be­
cause they reveal the absence of any finding that a 
finance charge was involved in this transaction. The 
defendant’s answer denied the existence of such a charge, 
and the plaintiff did not traverse it. The long and the 
short of it is that the plaintiff and the court stood on the 
Regulation.

Opinion of United States Court of Appeals
For the Fifth Circuit

I l l

The Truth-In-Lending Act,
Its Statutory Scheme, and 

Regulation Z

Recognizing that the full disclosure of finance charges 
would greatly aid consumers in deciding for themselves 
the reasonableness of the credit charges imposed and 
would thereby enable consumers to effectively shop for 
credit, the Truth-In-Lending Act, Title I of the Consumer 
Credit Protection Act, Public Law 90-321, 82 Stat. 146, 
was enacted by the Congress, establishing the statutory 
requirement that as a matter of fair play to the consumers



13a

the cost of credit should be disclosed fully, simply, and 
clearly. United States Code Congressional and Adminis­
trative News, 90th Congress, Second Session (1968), pp. 
1962, 1965. It was the feeling- of the Congress that “the 
informed use of credit results from an awareness of the 
cost thereof by consumers” . 15 U.S.C., §1601.

The basic thrust of the Truth-In-Lending Act is that 
each creditor who regularly extends, or arranges for his 
debtors in consumer transactions to defer payment of debt 
or to incur debt and defer its payment and -who thereby as 
an incident to such extension or arrangement for the de­
ferred payment of debt imposes either directly or indirectly 
a finance charge for such deferred debt, shall disclose clearly 
and conspicuously, in accordance with the regulations of the 
Board of Governors of the Federal Reserve System, to each 
person to whom such right of deferred payment of debt 
is granted and upon which right a finance charge is or may 
be imposed, the information required by 15 U.S.C., §1638(a), 
15 U.S.C., §1602(e) and (f), §1605(a), §1631(a). Accord­
ing to such section, 15 U.S.C., §1638(a), in any consumer 
transaction, not under an open end credit plan, where the 
debtor is granted the right to defer payment of debt or to 
incur debt and defer its payment, and for which right the 
payment of a finance charge is required of the debtor by the 
creditor, the creditor shall disclose each of the folio-wing 
items:

1. The cash price of the item purchase, 15 U.S.C., 
§1638(a)(1).

2. The amount of the down payment, 15 U.S.C., 
§1638(a )(2).

Opinion of United States Court of Appeals
For the Fifth Circuit



14a

3. The difference between the cash price of the item pur­
chased and the amount of the down payment, 15 
U.S.C., §1638 (a) (3),

4. All additional charges, individually itemized, which 
are included in the amount of the credit extended but 
which are not part of the finance charge, 15 U.S.C., 
§1638(a ) (4).

5. The total amount to be financed (the sum of # 3  and 
# 4 ) , 15 U.S.C., §1638(a ) (5).

6. Amount of the finance charge, 15 U.S.C., §1638(a) (6).

7. The annual percentage rate of the finance charge, 15 
TJ.'S.C., §1638(a) (7).

8. The schedule of payments required, 15 U.S.C., 
§1638(a )(8).

9. The charges for late payments, 15 U.S.C., §1638(a) (9).

10. A  description of any security interest involved, 15 
ILS.C., §1638(a) (10).

In order to assure the effective operation of the statutory 
provisions of the Act and to assure the meaningful dis­
closures of credit terms so that all consumers would be able 
to compare more readily the various credit terms available 
and thereby avoid the uninformed use of credit, the Act 
delegated to the Board of Governors of the Federal Reserve 
System the authority to promulgate regulations to accom­
plish the above-mentioned objectives, 15 TT.S.C., §1604. This 
section expressly authorized the Board of Governors to 
promulgate regulations containing such classifications, dif­
ferentiations, or other provisions, and providing for such

Opinion of United States Court of Appeals
For the Fifth Circuit



adjustments and exceptions for any class of transactions, as 
in the judgment of the Board of Governors are necessary 
or proper to effectively effectuate the purposes of the 
Truth-In-Lending Act, to prevent the circumvention or 
evasion of such statutory provisions, or to facilitate com­
pliance with such provisions. In connection with the Truth- 
In-Lending Act’s delegation of authority to promulgate 
regulations, the Act provided that any reference in the Act 
to requirements imposed by the Act included reference to 
the Board of Governor’s regulations, 15 U.S.C., §1602 (k).

In addition to the specification in the Truth-In-Lending 
Act of criminal penalties for the wilful and knowing failure 
of a creditor to make the required disclosures of 15 U.S.O., 
§1638(a), or for failing to comply with any other require­
ments of the Act, 15 U.S.C., §1611, the Act established two 
methods of civil enforcement. One is administrative in 
nature and is vested (1) in a number of federal agencies 
which already exercised jurisdiction by virtue of other 
statutory authority, over particular classes of creditors, 15 
U.S.C., §1607(a), and (2) in the Federal Trade Commis­
sion with respect to all other creditors, 15 U.S.C., §1607(c).

The other civil remedy established by Congress was made 
available directly to consumers. Specifically, the Act estab­
lished federal court jurisdiction over actions for a civil 
penalty and authorized the courts, in successful actions, to 
award the consumer a reasonable attorneys’ fee, 15 LT.S.C., 
§1640(a) and (e). The amount of the civil penalty was set 
at “ an amount equal to the sum of twice the amount of the 
finance charge in connection with the transaction” , except 
that the penalty could not be less than $100 nor greater than 
$1,000, 15 U.S.C., §1640(a).

Opinion of United States Court of Appeals
For the Fifth Circuit



16a

The Four Installment Rule of Regulation Z

On February 10, 1969, the Board of Governors of the 
Federal Reserve System implemented the Act by promulgat­
ing a set of regulations dealing comprehensively and 
thoroughly with all aspects of the Truth-In-Lending Act.

Within these regulations there was included a provision 
that the Board of Governors of the Federal Reserve Sys­
tem determined that the Act’s disclosure requirements 
would be applied not only to those creditors who extend 
consumer credit which involves an expressly stated finance 
charge, lout also those who extend consumer credit for which 
no finance charge is stated hut which pursuant to agree­
ment, is or may he payable in more than four installments.

The purpose, indeed the inescapable result of the Regula­
tion, is the imposition of a conclusive presumption that 
those who extend credit and permit payment in four or 
more installments have added a finance charge for the ex­
tension of credit.

The primary question, then, is: Was such a require­
ment within the delegated authority of the Board?

IV

Our Decision

As already stated, the Act requires that “ each creditor 
shall disclose clearly and conspicuously, in accordance with 
the regulations of the Board, to each person to whom con­
sumer credit is extended and upon whom a finance charge 
is or may be imposed, the information required under 15 
U.S.G., §1638(a).” 15 U.S.C., §1631(a). For failure in con­
nection with any consumer credit transaction to disclose

Opinion of United States Court of Appeals
For the Fifth Circuit



17a

to any person information required by 15 U.S.C., §1638(a), 
tire Truth-In-Lending Act imposes on such creditor civil 
liability, 15 U.S.C., §1640, and in cases of wilful and know­
ing violation of the disclosure requirement, criminal lia­
bility, 15 U.S.C., §1611. This particular action was brought 
under the civil liability provisions.

Mindful of the Supreme Court’s decision in Federal 
Communication Commission v. American Broadcasting 
Company, 347 U.S. 284, 290 (1954), that penal statutes are 
to be strictly construed, and mindful that it is the duty of 
the judiciary to finally determine the proper construction of 
statutes, this Court construes 15 U.S.C., §1631 to require 
that three essential elements must be found present together 
in a transaction before a person is obligated under the 
Truth-In-Lending Act to make the information disclosures 
listed in 15 U.S.C., §1638(a). These three essential elements 
consist of the following:

First, there must be found present a creditor as defined 
by the Act, or a person who regularly extends or arranges 
for the extension of the right to defer payment of debt, or 
to incur debt and defer its payment, and for which right of 
deferred payment the payment of a finance charge is re­
quired, 15 U.S.C., §1602(e) and (f).

Secondly, there must be found present a consumer credit 
transaction as defined by the Act, or a transaction in which 
the person to whom is extended the right to defer payment 
of debt or to incur debt and defer its payment is a natural 
person, and the money, property, or services which are the 
subject of the transaction are primarily for personal, 
family, household, or agricultural purposes, 15 U.S.C., 
§1602(e) and (h).

Opinion of United States Court of Appeals
For the Fifth Circuit



18a

Thirdly, there must be found present a “finance charge”  
as defined by the Act, 15 U.S.C., §1605(a), and §1602(e) and
(f).
Regulation Z provides:

“ Consumer credit means credit offered or extended 
to a natural person, in which the money, property, 
or service which is subject of the transaction is 
primarily for personal, family, household, or agri­
cultural purposes for which either a finance charge 
is or may be imposed or which, pursuant to an agree­
ment, is or may be payable in more than four install­
ments.”

According to the brief of the United States as amicus 
curiae, the four installment rule in effect establishes a 
conclusive presumption that those who extend credit and 
allow payment in four or more payments have included 
within the price which the consumer pays for their product 
their cost of extending credit, notwithstanding that they 
purport not to levy a finance charge. Therefore, we can 
conclude from the Regulation promulgated by the Board 
of Governors of the Federal Reserve System, from the 
decision of the lower district court, and from the brief filed 
in this cause by the United States as amicus curiae, that in 
order for the disclosure and penalty provisions of the 
Truth-In-Lending Act to be applicable, all that is required 
is that the transaction involve the extension of credit 
which, pursuant to agreement, is or may be payable in 
more than four installments. No showing or finding of the 
imposition, directly or indirectly, of a finance charge is 
necessarily required. The presence of a finance charge

Opinion of United States Court of Appeals
For the Fifth Circuit



19a

is conclusively presumed from the nature of the trans­
action, involving payment in more than four installments.

It can be readily seen from a consideration of the four 
installment rule of Regulation Z as defined by the appellee 
and from a consideration of this Court’s construction of 
the statutory provisions of the Truth-In-Lending Act that 
an inconsistency exists between the four installment rule 
and the Truth-In-Lending Act. On the one hand, the four 
installment rule requires the application of the disclosure 
and penalty provisions of the Truth-In-Lending Act to 
transactions involving the extension of credit which, pur­
suant to agreement, is or may be payable in more than four 
installments, whether or not a finance charge is proven 
to have been imposed, directly or indirectly, as an incident 
to the extension of credit. On the other hand, the statutory 
provisions of the Truth-In-Lending Act requires that a 
finance charge must be found present, directly or indirectly, 
along with the other two essential elements in a trans­
action before such transaction is considered to be subject

A

to the penalty and disclosure provisions of the Truth-In- 
Lending Act.

By extending the applicability of the disclosure and 
penalty provisions of the Truth-In-Lending Act to trans­
actions involving the extension or credit repayable by 
agreement in more than four installments, whether or not 
there is found in such transactions the imposition of a 
finance charge as an incident to the extension of credit, 
the Board of Governors, in our opinion, over-stepped the 
authority granted to them under 15 IT.S.C., §1604. The 
authority delegated to the Board of Governors to prescribe 
such regulations as they deem necessary and proper to 
further the purposes of the Act and to prevent the cir-

Opinion of United States Court of Appeals
For the Fifth Circuit



20a

cumvention of the Act did not include the authority to 
make subject to the disclosure and penalty provisions of 
the Act transactions not involving the imposition of a 
finance charge, and therefore not covered within the scope 
of the Act.

“ The power of an administrative officer or board to 
administer a federal statute and to prescribe rules and 
regulations to that end is not the power to make law— 
for no such power can be delegated by Congress—but the 
power to adopt regulations to carry into effect the will 
of the Congress as expressed by the statute. A regulation 
which does not do this, but operates to create a rule out 
of harmony with the statute is a mere nullity” , Manhattan 
General Equipment Company v. Commissioner of Internal 
Revenue, 297 TT.S. 129, 134, 56 S.Ct. 397, 399, 80 L.Ed. 528 
(1935).

We therefore hold that the four installment rule of 
Regulation Z constituted an administrative endeavor to 
amend the law as enacted by the Congress and to thereby 
make the Act reach transactions which the Congress by its 
statutory language did not seek or intend to cover by its 
enactment. The effect of such an effort comes within the 
condemnation of decisions of the Supreme Court. This 
condemnation is exemplified by Commissioner of Internal 
Revenue v. Acker, 361 U.S. 87, 80 S.Ct. 144, 4 L.Ed.2d 
127 (1959), where the Court stated:

“But the section contains nothing to that effect, and 
therefore, to uphold this addition to the tax would be 
to hold that it may be imposed by regulation, which, 
of course, the law does not permit. United States v. 
Calamaro, 354 U.S. 351, 359; Koshland v. Helvering,

Opinion of United States Court of Appeals
For the Fifth Circuit



21a

298 U.S. 441, 446, 447; Manhattan Co. v. Commis­
sioner, 297 U.S. 129, 134.”

Equally applicable to the above holdings of the United 
States is this Court’s opinion in United States v. Marett, 5 
Cir., 1963, 325 F.2d 28, 30, 31.

As previously noted, the four installment rule of Regu­
lation Z which decrees that those who extend credit and 
permit payment in more than four installments have in­
cluded within the price which the consumer pays for their 
product their cost of extending credit, notwithstanding that 
they purport not to levy a finance charge, creates a con­
clusive or irrebuttable presumption. Such a presumption 
states a rule of substantive law. This is in contrast to a 
rebuttable presumption which only states a rule of evi­
dence and which the opposing party is entitled to overcome 
by proof. The Supreme Court has held that a statute which 
creates a conclusive presumption contravenes the Four­
teenth Amendment, if enacted by the State Legislature. It 
violates the Fifth Amendment if enacted by the Congress.

In Schlesinger v. State of Wisconsin, 270 U.S. 230, 46 
S.Ct. 260, 70 L.Ed. 557 (1926), the Supreme Court struck 
down as violative of the Fourteenth Amendment a statute 
of the State of Wisconsin which provided in effect that 
gifts of a decedent estate made within six years of death 
were made in contemplation thereof. The Court, 270 U.S., 
at page 239, 46 S.Ct., at page 261, stated:

“The challenged enactment plainly undertakes to 
raise a conclusive presumption that all material gifts 
within 6 years of death were made in anticipation of it 
and to lay a graduated tax upon them without regard 
to the actual intent. The presumption is declared to

Opinion of United States Court of Appeals
For the Fifth Circuit



22a

be conclusive and cannot be overcome by evidence. It 
is no mere prima facie presumption of fact.”

In Seiner v. Donnan, 285 U.S. 312, 52 S.Ct. 358, 76 L.Ed. 
772 (1932), the Court likewise struck down a Congressional 
enactment which created a conclusive presumption that 
gifts made within two years prior to the death of the donor 
were made in contemplation of death, on the ground that the 
provision violated the Fifth Amendment of the Constitu­
tion. The Court pointed out, 285 U.S., at page 324, 52 S.Ct., 
at page 360, that Congress had the power to create a rebut­
table presumption, and stated:

“ But the presumption here created is nest of the 
kind. It is made definitely conclusive, incapable of 
being overcome by proof of the most positive charac­
ter.”

And further the Court stated, 285 U.S., at page 329, 52 
S.Ct., at page 362:

“ T his  court has held more than once that a statute 
creating a presumption which operates to deny a fair 
opportunity to rebut it violates the due process clause 
of the 14th Amendment.”

It thus appears that Congress itself would have been 
without power to create the conclusive presumption which 
the Board of Governors seeks to accomplish in the four 
installment rule. It is then even more certain that an ad­
ministrative agency is without authority to promulgate 
such a regulation. Therefore, we conclude that the four 
installment rule, as promulgated by an agency of the Fed­
eral Government is void because it violates the Fifth

Opinion of United States Court of Appeals
For the Fifth Circuit



23a

Amendment to the Constitution. Although Regulation Z 
was designed by the Board of Governors to prevent cir­
cumvention of the Act and to facilitate the purposes of the 
Act, in its present language it exceeded the authority dele­
gated, or which could have been delegated, to the Board 
and is, as presently written, void. This necessitates the re­
versal of the judgment below.

We further point out that since this transaction carried 
with it no finance charge, or cost of credit, it was without 
the scope of the Act, leaving aside the matter of Regulation 
Z, 15 U.S.C., §1602 (e) and (f).

The judgment of the District Court is reversed and re­
manded with directions that the complaint be dismissed.

R eversed and R emanded With Directions.

Opinion of United States Court of Appeals
For the Fifth Circuit



24a

Judgment of Court of Appeals

UNITED STATES COURT OF APPEALS 

F ob the  F if t h  Cibcuit

October Term, 1970

No. 71-1150

D. C. Docket No. Civ. 70-559-WM 
L eila  M ourning , et al.,

Plaintiff s-Appellees,
versus

F am ily  P ublications S ervice, I n c .,

Defendant-Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE  

SOUTHERN DISTRICT OF FLORIDA

Before C olem an , S im pson  and R oney, Circuit Judges.

This cause came on to be beard on the transcript of the 
record from the United States District Court for the 
Southern District of Florida, and was argued by counsel;

On C onsideration W hereof, It is now here ordered and 
adjudged by this Court that the judgment of the said 
District Court in this cause be, and the same is hereby, 
reversed; and that this cause be, and the same is hereby



25a

Judgment of Court of Appeals

remanded to the said District Court with directions that 
the complaint he dismissed.

September 27, 1971

Issued As Mandate: Oct. 19, 1971.

[ S e a l ]

A true copy 12-7-71 
Test: E dward W. W adsworth 

Clerk, IT. S. Court of Appeals, Fifth Circuit

B y  / s/ B arry W. S tirling  
Deputy

New Orleans, Louisiana







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