CASE 41-2
HOUSEHOLD CREDIT SERVICES, INC. v. PFENNIG
Supreme Court of the United States, 2004
541 U.S. 232, 124 S. Ct. 1741,158 L.Ed.2d 450
http://scholar.google.com/scholar_case?case=6616956060046722608&q=541+U.S.+232&hl=en&as_sdt=2,10
Thomas, J.
[Sharon Pfennig, holds a credit card initially issued by Household Credit Services, Inc. but
in which MBNA America Bank, N.A., now holds an interest through the acquisition of
Household’s credit card operation. Although the terms of Pfennig’s credit card agreement set
her credit limit at $2,000, Pfennig was able to make charges exceeding that limit, subject to
a $29 “overlimit fee” for each month in which her balance exceeded $2,000.
On August 24, 1999, Pfennig filed a complaint in the U.S. District Court for the
Southern District of Ohio on behalf of a purported nationwide class of all consumers who
were charged overlimit fees by Household or MBNA (defendants). Pfennig alleged that
TILA itself does not explicitly address whether over-limit fees are included within the
definition of “finance charge.” Congress defined “finance charge” as “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.” § 1605(a). * * *
Because petitioners would not have imposed the over-limit fee had they not “granted
[respondent’s] request for additional credit, which resulted in her exceeding her credit
limit,” the Court of Appeals held that the over-limit fee in this case fell squarely within §
1605(a)’s definition of “finance charge.” * * *
The Court of Appeals’ characterization of the transaction in this case, however, is not
supported even by the facts as set forth in respondent’s complaint. Respondent alleged in her
complaint that the over-limit fee is imposed for each month in which her balance exceeds
regardless of a creditor’s particular billing practices, are imposed only when a consumer
exceeds his credit limit, it is perfectly reasonable to characterize an over-limit fee not as a
charge imposed for obtaining an extension of credit over a consumer’s credit limit, but rather
as a penalty for violating the credit agreement.
* * *
Moreover, an examination of TILA’s related provisions, as well as the full text of § 1605
itself, casts doubt on the Court of Appeals’ interpretation of the statute. A consumer holding
an open-end credit plan may incur two types of charges—finance charges and “other charges
which may be imposed as part of the plan.” [Citation]. TILA does not make clear which
charges fall into each category. But TILA’s recognition of at least two categories of charges
* * *
Regulation Z’s exclusion of over-limit fees from the term “finance charge” is in no way
manifestly contrary to § 1605. Regulation Z defines the term “finance charge” as “the cost of
consumer credit.” [Citation]. * * *
Because over-limit fees, which are imposed only when a consumer breaches the terms of
his credit agreement, can reasonably be characterized as a penalty for defaulting on the
Contract Terms
Creditors in consumer loans often use standardized documents with blank
spaces to accommodate the negotiated contractual details; facilitates
transfer of the creditor’s rights to a bank or finance company.
Most states impose limits on fees and interest rates for consumer credit, and
usually require a creditor to permit the debtor to pay o the debt early and
receive a refund of any unearned interest already paid.
The Fair Credit Billing Act preserves a consumer’s defense against the
issuer (provided the consumer has made a good faith attempt to resolve the
Consumer Credit Card Fraud
The Credit Card Fraud Act, enacted in 1984, makes it illegal to: (1)
possess unauthorized cards, (2) counterfeit or alter credit cards, (3) use
account numbers alone, and (4) use cards obtained from a third party with
Fair Reportage
The Fair Credit Reporting Act, enacted in 1970, prohibits the inclusion of
inaccurate or obsolete information in a consumer credit report. Consumers
have a right to ask for information regarding the source of any material in
the report and a listing of those receiving reports during the past two years
for employment purposes, or for the past six months if received for some
other reason.
Consumer objections concerning the substance of a report must be
investigated; inaccurate information promptly deleted; for unresolved
disputes, the consumer may write a brief explanation.
CASE 41-3
FREEMAN v. QUICKEN LOANS, INC.
Supreme Court of the United States, 2012
Scalia, J.
[The Freemans, Bennetts, and Smiths (petitioners) are three married couples who obtained
mortgage loans from respondent Quicken Loans, Inc. In 2008, they filed separate actions
alleging that the respondent had violated a provision of the Real Estate Settlement
Procedures Act (RESPA) by charging them fees for which no services were provided. In
particular, the Freemans and Bennetts allege that they were charged loan discount fees of
$980 and $1,100, respectively, but that the respondent did not give them lower interest rates
in return. The Smiths‘ allegations focus on a $575 loan “processing fee” and a “loan
origination” fee of more than $5,100. The District Court granted summary judgment in favor
of respondent because the petitioners did not allege any splitting of fees. A divided panel of
the United States Court of Appeals for the Fifth Circuit affirmed. The U.S. Supreme Court
granted certiorari. ]
* * *
[Section 2607], subsection (b), adds the following:
No person shall give and no person shall accept any portion, split, or percentage of any
charge made or received for the rendering of a real estate settlement service in
connection with a transaction involving a federally related mortgage loan other than for
services actually performed.
These substantive provisions are enforceable through * * * actions for damages brought
by consumers of settlement services against “[a]ny person or persons who violate the
prohibitions or limitations” of §2607, with recovery set at an amount equal to three times the
charge paid by the plaintiff for the settlement service at issue. §2607(d)(2).
* * *
* * *
By providing that no person “shall give” or “shall accept” a “portion, split, or
percentage” of a “charge” that has been “made or received,” “other than for services actually
performed,” §2607(b) clearly describes two distinct exchanges. First, a “charge” is “made”
to or “received” from a consumer by a settlement-service provider. That provider then
“give[s],” and another person “accept[s],” a “portion, split, or percentage” of the charge.
Congress’s use of different sets of verbs, with distinct tenses, to distinguish between the
consumer-provider transaction (the “charge” that is “made or received”) and the fee-sharing
transaction (the “portion, split, or percentage” that is “give[n]” or “accept[ed]”) would be
pointless if, as petitioners contend, the two transactions could be collapsed into one.
Petitioners try to merge the two stages by arguing that a settlement-service provider can
Petitioners seek to avoid this consequence, at stage two at least, by saying that the
consumer is the person who “give[s]” a “portion, split, or percentage” of the charge to the
provider who “accept[s]” it. [Citation.] But since under this statute it is (so to speak) as
accursed to give as to receive, this would make lawbreakers of consumers—the very class
for whose benefit §2607(b) was enacted, [citation.]
* * *
The phrase “portion, split, or percentage” reinforces the conclusion that §2607(b) does
not cover a situation in which a settlement-service provider retains the entirety of a fee
received from a consumer. It is certainly true that “portion” or “percentage” can be used to
include the entirety, or 100 percent. [Citations.] But that is not the normal meaning of
“portion” when one speaks of “giv[ing]” or “accept[ing]” a portion of the whole, as
In the present statute, that meaning is confirmed by the “commonsense canon of noscitur
a sociis—which counsels that a word is given more precise content by the neighboring
words with which it is associated.” [Citation.] For “portion” and “percentage” do not stand in
isolation, but are part of a phrase in which they are joined together by the intervening word
“split”—which, as petitioners acknowledge, [citation], cannot possibly mean the entirety. We
Credit Card Bill of Rights
On May 22, 2009, President Obama signed into law the Credit Card
Accountability, Responsibility, and Disclosure Act (also known as the
Credit Card Bill of Rights or CARD). The 2009 Act amends the TILA to
establish fair and transparent practices relating to credit cards. The Act
delegates regulation to The Fed. The Fed has issued regulations in three
stages, the latest in June 2010. These regulations include—
1. Credit card issuers generally cannot raise interest rates, or any fees,
during the first year an account is open, except when a variable rate
changes, a promotional rate ends, or a required minimum payment is more
than sixty days late.
4. Credit card issuers are prohibited from giving credit cards to a full-time
college student under twenty-one years of age unless that student can prove
that she has the means to pay or a parent or guardian cosigns for the card.
5. Credit card issuers may not raise the credit limit on accounts held by a
college student under twenty-one and a cosigner without written permission
from the cosigner.
6. Credit card agreements must be posted online and no fees can be
charged to make a payment online, by phone, mail, or any other means.
7. Credit card issuers must mail account statements twenty–one days prior
to the payment due date.
11. Cardholders cannot be charged over-limit fees unless they give express
permission (“opt in”) to the card issuer to approve transactions that exceed
their credit limits.
12. First year fees required to open a credit card account cannot total more
than 25 percent of the initial credit limit. This restriction applies to annual
fees, application fees, and processing fees, but not to penalty fees, such as
penalties for late payments.
13. If the account is closed or cancelled by the consumer, the closed account
will not be considered in default and the card issuer cannot require
immediate repayment of the entire balance. Issuers also cannot charge
*** Question to Discuss ***
Outline the major remedies that are available to a creditor.
D. CREDITORS’ REMEDIES
On a debtor’s default the creditor can accelerate the debt and sue for the
entire unpaid balance. If a scheduled payment on the debt is merely
delinquent, the creditor can impose a late charge.
Wage Assignments and Garnishment
Wage assignments are not allowed in some states, and consequently,
creditors will have to initiate a garnishment action available only in a court
proceeding; there is usually a limitation on the amount that may be
deducted from each paycheck.
Security Interests in Goods
Debt Collection Practices
To curb deceptive and unfair collection procedures Congress passed the Fair
Debt Collection Practices Act (FDCPA). Harassing or oppressive conduct,
communication at odd hours, and misleading representations are prohibited,
as well as communication with the consumer if she is represented by an
CASE 41-4
JERMAN v. CARLISLE, MCNELLIE, RINI, KRAMER &
ULRICH LPA
United States Supreme Court, 2010
559 U.S. 573, 130 S.Ct. 1605, 176 L. Ed. 2d 519
http://scholar.google.com/scholar_case?q=130+S.Ct.
+1605&hl=en&as_sdt=2,34&case=10408914555667566662&scilh=0
Sotomayor, J.
The Fair Debt Collection Practices Act (FDCPA or Act) imposes civil liability on “debt
collector[s]” for certain prohibited debt collection practices. Section 813(c) of the Act,
I
A
Congress enacted the FDCPA in 1977, [citation], to eliminate abusive debt collection
practices, to ensure that debt collectors who abstain from such practices are not
competitively disadvantaged, and to promote consistent state action to protect consumers.
[Citation.] The Act regulates interactions between consumer debtors and “debt collector[s],”
defined to include any person who “regularly collects … debts owed or due or asserted to be
owed or due another.” [Citation]. Among other things, the Act prohibits debt collectors from
making false representations as to a debt’s character, amount, or legal status, [citation];
communicating with consumers at an “unusual time or place” likely to be inconvenient to
the consumer, [citation]; or using obscene or profane language or violence or the threat
thereof. [Citations.]
circumstances that such act is [prohibited under the FDCPA]” is subject to civil penalties of
up to $16,000 per day. [Citation.]
The FDCPA also provides that “any debt collector who fails to comply with any
provision of th[e] [Act] with respect to any person is liable to such person.” [Citation.]
Successful plaintiffs are entitled to “actual damage[s],” plus costs and “a reasonable
attorney’s fee as determined by the court.” [Citation.] A court may also award “additional
damages,” subject to a statutory cap of $1,000 for individual actions, or, for class actions,
“the lesser of $500,000 or 1 per centum of the net worth of the debt collector.” [Citation.] In
awarding additional damages, the court must consider “the frequency and persistence of [the
B
Respondents in this case are a law firm, Carlisle, McNellie, Rini, Kramer & Ulrich, L. P. A.,
and one of its attorneys, Adrienne S. Foster (collectively Carlisle). In April 2006, Carlisle
filed a complaint in Ohio state court on behalf of a client, Countrywide Home Loans, Inc.
Carlisle sought foreclosure of a mortgage held by Countrywide in real property owned by
petitioner Karen L. Jerman. The complaint included a “Notice,” later served on Jerman,
stating that the mortgage debt would be assumed to be valid unless Jerman disputed it in
writing. Jerman’s lawyer sent a letter disputing the debt, and Carlisle sought verification
from Countrywide. When Countrywide acknowledged that Jerman had, in fact, already paid
the debt in full, Carlisle withdrew the foreclosure lawsuit. Jerman then filed her own lawsuit
seeking class certification and damages under the FDCPA, contending that Carlisle violated
§1692g by stating that her debt would be assumed valid unless she disputed it in writing.
II
A
The parties disagree about whether a “violation” resulting from a debt collector’s
misinterpretation of the legal requirements of the FDCPA can ever be “not intentional” under
§1692k(c). Jerman contends that when a debt collector intentionally commits the act giving
rise to the violation (here, sending a notice that included the “in writing” language), a
misunderstanding about what the Act requires cannot render the violation “not intentional,”
given the general rule that mistake or ignorance of law is no defense. Carlisle * * *, in
contrast, argue that nothing in the statutory text excludes legal errors from the category of
* * *
We draw additional support for the conclusion that bona fide errors in §1692k(c) do not
include mistaken interpretations of the FDCPA, from the requirement that a debt collector
maintain “procedures reasonably adapted to avoid any such error.” * * * In that light, the
statutory phrase is more naturally read to apply to processes that have mechanical or other
such “regular orderly” steps to avoid mistakes—for instance, the kind of internal controls a
debt collector might adopt to ensure its employees do not communicate with consumers at
the wrong time of day, §1692c(a)(1), or make false representations as to the amount of a
debt, §1692e(2). * * * But legal reasoning is not a mechanical or strictly linear process. For
this reason, we find force in the suggestion by the Government (as amicus curiae supporting
Appeals’ reading is at odds with the role Congress evidently contemplated for the FTC in
resolving ambiguities in the Act. Debt collectors would rarely need to consult the FTC if
§1692k(c) were read to offer immunity for good-faith reliance on advice from private
counsel. Indeed, debt collectors might have an affirmative incentive not to seek an advisory
opinion to resolve ambiguity in the law, as receipt of such advice would prevent them from
* * *
B
Carlisle, its amici, and the dissent raise the additional concern that our reading will have
unworkable practical consequences for debt collecting lawyers. [Citations.] Carlisle claims
the FDCPA’s private enforcement provisions have fostered a “cottage industry” of
professional plaintiffs who sue debt collectors for trivial violations of the Act. [Citation.] If
debt collecting attorneys can be held personally liable for their reasonable misinterpretations
of the requirements of the Act, Carlisle and its amici foresee a flood of lawsuits against
creditors’ lawyers by plaintiffs (and their attorneys) seeking damages and attorney’s fees.
The threat of such liability, in the dissent’s view, creates an irreconcilable conflict between
an attorney’s personal financial interest and her ethical obligation of zealous advocacy on
* * *
To the extent the FDCPA imposes some constraints on a lawyer’s advocacy on behalf of
a client, it is hardly unique in our law. * * *
For the reasons discussed above, the judgment of the United States Court of Appeals for
the Sixth Circuit is reversed, and the case is remanded for further proceedings consistent
with this opinion.