Mourning v. Family Publications Service, Inc.
411 U.S. 356 (1973)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
An administrative agency, acting under a broad grant of authority from Congress to prevent circumvention of a statute, may promulgate prophylactic regulations that apply to a class of transactions not explicitly covered by the statute if the regulation is reasonably related to the statutory purpose.
Facts:
- A door-to-door salesman for Family Publications Service, Inc. sold a five-year subscription to four magazines to Mourning, a 73-year-old widow.
- Mourning agreed to pay $3.95 immediately and $3.95 per month for 30 months.
- The contract stated it was non-cancelable and included an acceleration clause making the entire balance due upon any default in payment.
- The contract did not disclose the total purchase price ($122.45), the remaining balance after the down payment ($118.50), or any finance charges.
- After making the initial payment, Mourning defaulted on subsequent payments.
- Family Publications Service declared the entire balance due and sent Mourning dunning letters.
- One of the letters from an agent of Family Publications Service explicitly referred to Mourning's obligation as a 'credit account.'
Procedural Posture:
- Mourning sued Family Publications Service, Inc. in the United States District Court, alleging violations of the Truth in Lending Act.
- On cross-motions for summary judgment, the District Court granted judgment for Mourning.
- Family Publications Service, Inc., as appellant, appealed to the United States Court of Appeals.
- The Court of Appeals reversed, holding that the Federal Reserve Board had exceeded its statutory authority in promulgating the Four Installment Rule.
- The U.S. Supreme Court granted Mourning's petition for a writ of certiorari.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does the Federal Reserve Board's 'Four Installment Rule' in Regulation Z, which requires Truth in Lending Act disclosures for consumer credit sales payable in more than four installments regardless of a stated finance charge, exceed the authority granted to the Board by § 105 of the Act?
Opinions:
Majority - Chief Justice Burger
No, the Federal Reserve Board's 'Four Installment Rule' is a valid exercise of the authority granted by Congress in the Truth in Lending Act. The Act's purpose is to ensure meaningful disclosure of credit terms, and Congress specifically empowered the Board to issue regulations to prevent circumvention or evasion. Congress was aware that merchants could hide finance charges by burying them in the cash price of goods. The Four Installment Rule is a reasonable prophylactic measure designed to prevent this evasion. The rule does not create an unconstitutional irrebuttable presumption that a finance charge exists; rather, it defines a class of transactions for which disclosure is required to ensure the Act's effectiveness. By including a 'reasonable margin to insure effective enforcement,' the Board acted within its authority to make the statutory scheme work as intended.
Dissenting in part - Justice Douglas
No, summary judgment was improperly granted because a genuine issue of material fact exists as to whether an extension of 'consumer credit' actually occurred. The Truth in Lending Act only applies to credit transactions. It is unclear from the record whether Family Publications Service extended credit to Mourning by, for example, paying the magazine publishers upfront on her behalf, or whether it merely acted as a collection agent. Because the existence of a credit transaction is a prerequisite for the Act's application, and this fact remains unresolved, the case should be remanded to the District Court for further proceedings rather than being decided on summary judgment.
Dissenting - Justice Powell
No, as a matter of law, the transaction did not involve an extension of consumer credit by Family Publications Service to Mourning. The contract required Mourning to pay for 60 months of magazines over a 30-month period, meaning she was always paying in advance for the services to be rendered. This arrangement constitutes an extension of credit from the consumer (Mourning) to the seller (Family Publications Service), not the other way around. Since the Truth in Lending Act only applies when a creditor extends credit to a consumer, the Act is inapplicable to this transaction, and the judgment of the Court of Appeals should be affirmed.
Analysis:
This decision significantly bolsters the rulemaking authority of administrative agencies, particularly in the context of consumer protection. It establishes that an agency can create prophylactic rules that regulate a broader class of conduct than explicitly detailed in the enabling statute in order to prevent evasion and effectuate legislative intent. The case validated the 'reasonable margin' approach, allowing regulations to sweep in some technically non-violating conduct to ensure that sophisticated violators cannot escape through clever structuring of transactions. This principle has had a lasting impact on administrative law, affirming that agencies have the flexibility to design practical and effective enforcement mechanisms to address the problems Congress sought to remedy.
