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HOUSEHOLD CREDIT SERVICES, INC., et al. v. PFENNIG, 541 U.S. 232

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HOUSEHOLD CREDIT SERVICES, INC., et al. v. PFENNIG

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

No. 02-857. Argued February 23, 2004--Decided April 21, 2004

The Truth in Lending Act (TILA) regulates, inter alia, the disclosures that credit card issuers must make to consumers, 15 U. S. C. §1637(a), and provides consumers with a civil remedy for creditors' failure to comply, §1640. Among other things, the creditor's periodic balance statement to the consumer must include "[t]he amount of any finance charge," §1637(b)(4), which is defined as an amount "payable directly or indirectly by the [consumer], and imposed directly or indirectly by the creditor as an incident to the extension of credit." §1605(a). Section §1604(a) expressly gives to the Federal Reserve Board (Board) expansive authority to prescribe regulations containing "such classifications, differentiations, or other provisions," as, in the Board's judgment, "are necessary or proper to effectuate [TILA's] purposes ... , to prevent circumvention or evasion thereof, or to facilitate compliance therewith." The Board's Regulation Z interprets §1605(a)'s "finance charge" definition to exclude "charges ... for exceeding a credit limit" (over-limit fees).

Respondent holds a credit card issued by one of the petitioner financial institutions and in which the other holds an interest. Although the parties' agreement set respondent's credit limit at $2,000, she was able to make charges exceeding that limit, subject to a $29 over-limit fee for each month in which her balance exceeded $2,000. While her monthly billing statement disclosed the over-limit fees, the amount was not included as part of the "finance charge," consistent with Regulation Z. Respondent filed suit alleging that petitioners violated TILA by failing to classify over-limit fees as "finance charges," but the District Court granted petitioners' motion to dismiss on the ground that Regulation Z specifically excludes such fees. The Sixth Circuit reversed, holding that the exclusion conflicts with §1605(a)'s plain language. Noting, first, that, as a remedial statute, TILA must be liberally interpreted in favor of consumers, the court then concluded that the over-limit fees in this case were imposed "incident to an extension of credit" and therefore fell squarely within §1605's language. That conclusion turned on the distinction the court drew between unilateral acts of default, which would not generate a "finance charge," and acts of default resulting from an agreement between the creditor and the consumer, which would.


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