Anderson Bros. Ford v. Valencia, 452 U.S. 205 (1981)

Anderson Bros. Ford v. Valencia

No. 80-84

Argued March 23, 1981
Decided June 8, 1981
452 U.S. 205

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE SEVENTH CIRCUIT

Syllabus

Section 128(a)(10) of the Truth in Lending Act (TILA) provides that in connection with closed-end consumer credit transactions, the creditor must disclose

any security interest held or to be retained or acquired by the creditor in connection with the extension of credit, and a clear identification of the property to which the security interest relates.

Regulation Z of the Federal Reserve Board (Board), promulgated pursuant to the Board’s authority under the TILA, essentially repeats the statute’s disclosure requirement, defines "security interest" and "security" as "any interest in property which secures payment or performance of an obligation," and sets forth a nonexhaustive list of interests included in the terms. In 1977, respondents purchased an automobile from petitioner dealer under a retail installment contract that was assigned to petitioner Ford Motor Credit Co. A provision on the face of the contract disclosed that the seller retained a security interest in the automobile, but did not refer to a provision on the back of the contract whereby the buyers, who were required to purchase physical damage insurance on the automobile protecting the interests of both the buyers and the seller, assigned to the seller any unearned insurance premiums that might be returned if the policy were canceled. Before making any payments on the contract or the insurance policy, respondents returned the automobile to the dealer and filed suit in federal court, alleging that the contract violated the TILA for failure to disclose on its face that the seller had acquired a "security interest" in unearned insurance premiums, and seeking statutory damages, attorney’s fees, and costs. The District Court granted summary judgment for respondents, holding that the assignment of unearned insurance premiums created a "security interest" within the meaning of § 128(a)(10), and the Court of Appeals affirmed.

Held: Such an assignment of unearned insurance premiums does not create a "security interest" that must be disclosed pursuant to the TILA. Pp. 211-223.

(a) In a proposed official staff interpretation, the Board has expressly stated that Regulation Z does not require a creditor to disclose as a security interest its right to receive insurance proceeds or unearned premiums from a property insurance policy. Also the Board’s revised Regulation Z, which was issued pursuant to the Truth in Lending Simplification and Reform Act of 1980, defines "security interest" as not including "incidental interests" such as interests in insurance proceeds or premium rebates. This definition does not purport to change the original Regulation Z with respect to whether an incidental interest in unearned insurance premiums must be disclosed, and thus is persuasive authority as to whether such an interest should be disclosed as a "security interest" under the unrevised regulation. Neither the original TILA nor the 1980 Act defines the term "security interest," and the legislative history of the 1980 Act fully supports the Board’s revised regulation and its proposed interpretation of the unrevised regulation. Pp. 211-219.

(b) Although neither the 1980 Act’s legislative history nor the Board’s construction of the term "security interest" conclusively establishes the meaning of these words in the TILA, the Board’s regulation implementing this legislation, as well as its interpretation of its own regulation, should be accepted by the courts, since they are not repugnant to any provision in the TILA. Cf. Ford Motor Credit Co. v. Milhollin, 444 U.S. 555. The Board’s position is supported by the legislative history of both the TILA and the 1980 Act, and is a permissible interpretation of the term "security interest" as used in the TILA. Pp. 219-223.

617 F.2d 1278, reversed and remanded.

WHITE, J., delivered the opinion of the Court, in which BLACKMUN, POWELL, REHNQUIST, and STEVENS, JJ., joined. STEWART, J., filed a dissenting opinion, in which BURGER, C.J., and BRENNAN and MARSHALL, JJ., joined, post, p. 223.