1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 argument v.

IN THE SUPREME COURT OF THE UNITED STATES - - - - - - - - - - - - - - - -X HOUSEHOLD CREDIT SERVICES, INC. and MBNA AMERICAN BANK, N.A., Petitioners : : : : : : No. 02-857

SHARON R. PFENNIG.

- - - - - - - - - - - - - - - -X Washington, D.C. Monday, February 23, 2004 The above-entitled matter came on for oral

before the Supreme Court of the United States at

10:03 a.m. APPEARANCES: SETH P. WAXMAN, ESQ., Washington, D.C.; on behalf of the Petitioners. BARBARA B. McDOWELL, ESQ., Assistant to the Solicitor General, Department of Justice, Washington, D.C.; on behalf of the United States, as amicus curiae, supporting the Petitioners. SYLVIA A. GOLDSMITH, ESQ., Sandusky, Ohio; on behalf of the Respondent.

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ORAL ARGUMENT OF SETH P. WAXMAN, ESQ.

C O N T E N T S
PAGE

On behalf of the Petitioners BARBARA B. McDOWELL, ESQ.
On behalf of the United States,
as amicus curiae, supporting the Petitioners SYLVIA A. GOLDSMITH, ESQ.
On behalf of the Respondent REBUTTAL ARGUMENT OF
SETH P. WAXMAN, ESQ.
On behalf of the Petitioners

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Alderson Reporting Company, Inc.
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 explained MR. now

P R O C E E D I N G S (10:03 a.m.) CHIEF JUSTICE REHNQUIST: We'll hear argument

in No. 02-857, Household Credit Services v. Sharon R.

Pfennig. Mr. Waxman. ORAL ARGUMENT OF SETH P. WAXMAN ON BEHALF OF THE PETITIONERS WAXMAN: Mr. Chief Justice, and may it

please the Court: This case involves a regulation promulgated by

the Federal Reserve Board to govern the disclosure of fees imposed for exceeding a credit limit. any challenge that the were. to the fees themselves It does not involve or any contention they

fees were

not disclosed.

Unquestionably

This case

concerns only

how such fees

should be

characterized when they are disclosed. QUESTION: Would you enlighten us on just how

this transaction gets authorized in the ordinary course of events and in this event? or is the credit card just store processes through? it and if Is there any special call made, submitted to the store and the it's not rejected, it goes

What happens? MR. WAXMAN: in Well, as for the Solicitor General has Reserve Board,

his brief

the Federal

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ordinarily the arrangement banks that issue

between banks -- that and the banks

is, the the an the

the cards

that do

corresponding relationship with agreement between the merchant will

the merchants -- have the banks where

merchants and

be liable for fraudulent use of the card or it obtains authorization to process the board has

the other unless charge.

And so in the

ordinary practice, the

explained, a but may

merchant may or may not, is not required to, in the charge or submit the account

well call

number to the issuing bank via the

correspondent bank and

get an approval, yes or no, to process the charge. Now, issuing bank the board has the explained merchant that when the the

authorizes

to

process

charge, that two

important things don't happen.

One, it the

does not in any way represent a renegotiation between consumer and the issuing bank, and it

says nothing about

the overall credit limit.

And two, the issuing bank often

will have no idea whether the charge being authorized will or will not trigger a credit limit of the consumer for a

variety of reasons, not the least of which is that, as the board explains, credits and payments aren't instantly of

reflected, merchants often the charge in. companies do

don't put

the true amount

They may, as hotels and -- and rental car block very large amounts because

-- often

they don't know what the ultimate charge will be.

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And there is also a recognition in the industry, explains, of a certain tolerance. That is, the want to

merchant -- the credit

card company won't always

cut somebody off whenever it has a suspicion that they may hit their credit limit because the merchant has a

relationship with information is so relationship with

the customer.

And since

the system of also has a want to

imperfect, the issuing bank its consumer and

doesn't

embarrass the consumer. So the short answer to that -- the short version the very long answer is in the ordinary course,

merchants they're given

have an

incentive

to seek

authorization, but that's that a

not

required to, reflect

and

the authorization the issuer

doesn't

knowledge by

credit limit will be exceeded. QUESTION: But, Mr. Waxman, is it not true that

are many occasions on which exceeded and

the credit limit will, come

in fact, be

there will, nevertheless,

back an approval, and that the customer in those cases may or may not know that his -that, A, his limit was

exceeded, and B, that he's going to be charged for it? MR. WAXMAN: or may not know Well, the that his that creditor -- the consumer or her credit limit was

exceeded,

but

of course,

information

is entirely

within the knowledge of the

-- the potential knowledge of

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the

consumer because the

consumer does

know what

or -­ he or

what charges she has made.

he or she has

made and what payments

QUESTION:

Well, not necessarily.

You can have

a card owned by two or three people in the same family and maybe the husband know about spent some money was going that the wife So it's at didn't least

while this

on.

possible that they

would exceed the credit

limit without

the credit cardholder knowing it, their not being aware of it, not keeping track of it. MR. WAXMAN: QUESTION: not true that Well, the -­

And -- and I'm just asking you, is it possible that using the he will receive without an

it is

affirmative whether or

answer to not he

card

knowing is

exceeded

the limit

and therefore

going to be -- be charged for it? MR. WAXMAN: It's possible either because he

doesn't keep good track or he doesn't -- he's not accurate or he's allowed a child or a spouse to use the card and

isn't keeping track or control of that. But one thing that you said, Your Honor, that is not true is the issuing -the credit card issuer is not

giving permission directly to the consumer to do anything, and most particularly if -­ QUESTION: Well, but I'm not sure that's right.

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If

the --

if the credit

card issuer is

informed of the

overcharge, that a good

it's over the limit, and decides this is let's not charge him for it or the

customer, well, it anyway, the

let's okay merchant

he gives that may

information to the

and

merchant

not tell

customer

anything about it. MR. WAXMAN: QUESTION: MR. The merchant -­

Isn't that true? The merchant won't know. The

WAXMAN:

merchant isn't going to tell the customer anything. QUESTION: No. And the credit card issuer may not

MR. WAXMAN: know. QUESTION:

But he may know. But you're positing -­

MR. WAXMAN: QUESTION:

That's my point. Yes. credit company may know and he

MR. WAXMAN: QUESTION:

The

will not pass that information on to the consumer. MR. WAXMAN: There is a credit -- there is an

agreement that must be accepted -­ QUESTION: Well, am I correct on my facts? You're --

MR. WAXMAN: QUESTION:

Is it not possible? You are correct that it is possible

MR. WAXMAN:

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that the know.

consumer

won't realize

it and

the issuer which has

may no

And in

that instance,

the issuer,

relationship directly with the consumer, merchant to tell the consumer. QUESTION: Correct.

doesn't tell the

MR. WAXMAN: QUESTION:

But, Justice Stevens -­

And so the consumer may end up paying

a charge that he didn't realize he'd incurred. MR. WAXMAN: QUESTION: Well, the -­

Is that correct or not? That is only partially correct. you've

MR. WAXMAN:

It's correct factually given the hypothetical that articulated. It's incorrect legally because

the credit

agreement -- it must -­ QUESTION: He knows If he has -- if he knows two things.

the fine print on the credit agreement and, two,

he knows the status of his balance. MR. WAXMAN: QUESTION: those I -­ But if he doesn't have either of

in mind, it could an

occur -- it

could occur that he $15 or $20 or

would run

overcharge and

be charged

whatever it is without realizing he's incurred the charge. MR. caveats. WAXMAN: It is true with the following I

I'm not

trying to

fight the hypothetical.

just want to make sure -­

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Alderson Reporting Company, Inc.
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QUESTION:

It

seems to

me you're unwilling

to

give me a categorical yes answer when the answer is yes. MR. WAXMAN: And I can't, and here's why,

Justice Stevens.

I -- I mean

no disrespect.

But many,

many credit card issuers do not imply an over-limit fee on a transactional the end of the basis. They apply it, for example, if at balance exceeds the limit as

month the

opposed to whether a particular transaction sort of spikes it over the limit one time. And so I'm just trying to be

completely accurate. Now, the term -- I think it's very important -­ QUESTION: where the Well, you've given me lots of I'm

charge would

not

be incurred.

merely trying to get you to acknowledge there will be some cases in which a person who is not fully familiar with the -- with gone the balance in his account doesn't realize he's an extra

over the amount

and is

being charged for

credit charge. MR. WAXMAN: I think that must -- there must be

instances in which that is true. But the term, credit limit, Your Honor, is a

art that is recognized

in the industry,

that is

reflected in the Federal Reserve Board regulations, and it draws an important distinction between increasing a credit limit, an established credit limit, upon an application

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and authorizing a point-of-sale transaction. QUESTION: happens when Well, now, Mr. Waxman, transaction is exactly what authorized?

a point-of-sale

The merchant is then off the hook? MR. WAXMAN: Your Honor. The merchant has a safe harbor, charge

The merchant is told, if you pay this

and it turns out

not to be collectible for any reason, we And that's the reason that relationship a is way this

will hold you harmless. business between --

contractual and

established to encourage

issuers

merchants, as

merchants to allow use of the card. Now -­ QUESTION: Mr. Waxman, is -- I'm sorry. No. Is the -- is the defined in event of exceeding these agreements any time is

MR. WAXMAN: QUESTION: the -the

limit

characteristically as an event that can occur at during the billing period, or is it an

event that

defined as -- as occurring only at the period

end of the billing

when all the credits and -- and all the debits are

-- are accounted for? MR. WAXMAN: is it My understanding, Justice Souter, that is,

varies depending on issuer

and card, but

some -- some cards

will -- all -- all --

well, there are

some credit cards and charge cards that don't have limits,

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but when

they have a limit, in the initial

the limit is disclosures.

required to be And in the

explicated

solicitation, the disclosure, and all periodic statements, the lender, the credit card issuer, is required to

identify the credit

limit and specify that

fees that are

charged for exceeding a credit limit will be the following amount. QUESTION: consequence is? Mr. Waxman, will you explain what the It's -- this is not a question of of the

disclosure or finance charge you call OCL.

not because either it and disclosed as What difference

will be part

such or the

-- whatever It's not

does it make?

notice.

If it goes -- if it's part of the finance charge,

how is the consumer benefitted? MR. what WAXMAN: Well, I don't No one -- I will explain explained,

difference it

makes.

has yet

neither the respondent in this case nor the Sixth Circuit, how the consumer is benefitted by the rule that she's

advocating or the Sixth Circuit's rule, but works. In the open-end credit

here's how it

relationship, the credit

card or charge card relationship, there are three relevant events. One invite is the solicitation a or advertisement to

someone

to

enter into

relationship.

That's

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called the solicitation. The -­ QUESTION: for a purchase of Are you a credit talking about card or for solicitation purchase of

merchandise? MR. WAXMAN: You get a letter in For a purchase the mail saying of a credit buy a -card. open a

Citibank card, and there are

certain disclosures that are

required in those solicitations. If you send back something that says, yes, I

want to have a -- I want one of your credit cards, the act and the made at regulations require that that point, and certain disclosures called the be

that's

initial

disclosure. And then the third event is the periodic

statement, when you get your statement every month or so. Now, with respect initial disclosure, the to the solicitation and the a

consequences of

calling this

finance charge or a component of the finance charge versus an other charge are the zero. That is, in must both of those

instances, there

lender,

the issuer,

disclose that

will be charges paid -- fees assessed for exceeding limit and there how as much it part of is. the And they're not

a credit

characterized otherwise.

finance

charge or

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Alderson Reporting Company, Inc.
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The

--

on

the --

those

documents

require a

statement of what the APR, the annualized percentage rate, is, but the APR rate, in those the statements refers only rate that's going to the to be

periodic

interest

charged to all -- applied to all charges. QUESTION: That's the only

In the -­

thing it could occur

MR. WAXMAN: QUESTION: MR.

Yes.

Yes. Because you don't know whether

WAXMAN:

there will be late charges or over-limit charges. QUESTION: Is -- is it a consequence of -- of

position that they would somehow have to try to

do the impossible? MR. WAXMAN: Not at those two stages, but at the

third stage, that is, the periodic statement, when you get your bill every month, there is there will be a a difference there. specification of In

both instances, limit charge, instances in

over­

but if the Sixth Circuit is right, in those which the issuer actually knew that the

charge it authorized the consequence of

the merchant to process an over-limit charge,

resulted in it would be is, there

called over-limit charge would be a line item that

finance charge.

That

specifies what it is, just like

any other charge or any other purchase or payment, and the

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amount.

But it would

affect the annual percentage annual percentage

rate,

what's called

the historical

rate, in

the periodic statement. QUESTION: instances in the Are act there where any the other APR, -other

calculated than

retroactively on

the monthly

statement,

is higher

what was the APR that was disclosed? MR. Justice WAXMAN: Yes, there there -yes, there are, types of

Stevens,

because

are

certain

charges that

may or may not

occur.

For example,

if you

use your card to get cash at the cash machine or something that will be -- will -- that are charged in the finance -­ that are part affect of the finance charge and on the will, therefore, but won't be

the APR

monthly statement,

disclosed to the -­ QUESTION: could -So -- so then the respondent's theory the act, I take it.

and that's consistent with

So then respondent's theory could work. My concern was that respondent's theory couldn't work because you had -- couldn't hypothetically calculate

an annual percentage rate not knowing whether charge would be made. MR. WAXMAN: QUESTION: adjustment of the Well -­ and -- and do have an the act, on

But if you can

APR that's permitted under

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the disclosure work.

statement, then

her theory

at least

can

MR. WAXMAN: her theory

Well, her --

I'm not saying

that It

or the Sixth Circuit's rule couldn't work.

would require a great deal of additional rulemaking by the Federal Reserve Board because the APR is a -is a

fraction, is a component of

percentage, the numerator of all the individual

which is the and the

charges

denominator is something limit fee, is unclear. that it was applied

that, in the context of an over­ Does it apply to the transaction

to?

Is

it

the

average monthly

balance?

Is it for the whole

month or part of the month?

It's not impossible. But what it -- what it is is directly contrary

to the two objectives of TILA. come up with bright line complied with by

The purpose of TILA is to

classifications that are readily consumers compare

issuers and that help credit.

competing costs of

That is manifest in Congress' to

purpose, and a rule that month, charge the time

requires the treatment month

to charge depend on what the issuer knew at some charge that at -- the may later be the

it authorized

determined to borrower to

have triggered exceed the

-- allowing

credit

limit would

cause these

monthly APR's to vary widely and, it seems to me, can only create confusion and inability to say, well, gee, I just

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got an

application or a -- a thing

in the mail from, you at

know, Citibank saying 17.3

percent, but I just looked

my statement and it's 79 percent. QUESTION: finished the Mr. Waxman, I don't think you

answer to the question

I asked, and

what I then

wanted to know is if

it's labeled a finance charge,

there won't be interest on it; whereas, if it's treated as a debit like any purchase, then the interest would run on future. So could -- it could be a difference

it in the

for the consumer, could it not? MR. WAXMAN: has occurred Well, yes, in the month in which it respect to the next month,

because, with

whatever finance charge as a balance will

was applied and -applied to

and continues finance So,

also have

it the

charge, that

is, the interest rate that would apply. is a consequence in the month that is, for whatever

but with -- there it is applied;

in which it's

days

outstanding, up until the grace period, a finance

-- the end of the -- the card's charge could be applied to that

other charge. QUESTION: QUESTION: to month? In other So it could be -- it could be -­ Why isn't it carried over from month a late -- this --

words, I -- I get

this special

charge, but I just part of

pay the minimum, charge over

so I'm to the

really carrying

the special

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next month.

I pay interest on that too, I take it. These cards typically have a grace

MR. WAXMAN:

period in which you can pay off your balance and you don't have to pay any finance charge, but if you don't, whatever charges are carried forward, whether they derive from -is

purchases of over-limit charges or late fee charges or or finance charges in the previous month, something

charged against it. May I reserve the balance of my time? QUESTION: Very well, Mr. Waxman.

Ms. McDowell, we'll hear from you. ORAL ARGUMENT OF BARBARA B. McDOWELL ON BEHALF OF THE UNITED STATES, AS AMICUS CURIAE, SUPPORTING THE PETITIONERS MS. McDOWELL: please the Court: Congress broad authority has given the Federal Reserve in Lending Board Act. Mr. Chief Justice, and may it

to implement

the Truth

The regulation at of that authority.

issue here is the

permissible exercise

The board has addressed

the disclosure of

fees

for exceeding a credit limit with a clear bright line rule which requires all such fees to be disclosed clearly and and

conspicuously but separately APR.

from the finance charge

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 statutory whether charges.

To

use

the

Court's

own

terminology,

that

approach is neither obviously repugnant to the statute nor demonstrably irrational. sensible one that, To the contrary, the rule view of the expert is a

in the

agency, clear of

provides meaningful

disclosure There's

to

consumers

and

guidance to creditors. appeals' only

no merit to the court

and respondent's exorbitant

contrary approach costs

which would creditors

impose

compliance

on

without any meaningful consumers. The board's The

benefit in terms of

disclosure to

rule act

is

not

foreclosed speak are

by

the

text.

does not are

expressly to not finance act's

over-the-limit Nor is

fees

or

that question

resolved

by the

generally phrased definition of finance charges as charges imposed as an incident to phrase is ambiguous that are imposed not creditor the extension of credit. That

as to whether it as the cost of

encompasses charges the credit that the

has contractually

obligated itself

to provide,

but instead as a penalty for the consumer's obtaining some additional credit obtain. The board's rule is rational. As the board that she had no contractual right to

recognized over-the-limit fees -­ QUESTION: Ms. McDowell?

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MS. McDOWELL: QUESTION: respondent's brief,

Yes. -as I understand the

Would you

it asks us to draw a line between the are imposed for acts extension of of default the credit

over-the-limit fees that and those that are

imposed for

limit and says that Regulation Z draws such a distinction. Would you comment on that argument? MS. McDOWELL: That argument is incorrect, Your of Regulation Z, which is

The relevant provision

2 of the petitioners' brief, contains no limit of It speaks of charges for actual unanticipated for exceeding a credit limit and It for thus

that sort. late

payment

delinquency, default,

or similar

occurrences.

speaks in a categorical manner credit limit.

of charges for exceeding a

It doesn't condition them on whether it was

unanticipated or whether it's tantamount to a default. The board has acknowledged that there are

hypothetical situations at

least in which

a -- a

charge

might be labeled an over-the-limit charge when it actually is not, when there actually, for example, is no

contractual credit limit and -- and a charge is simply, in that context, labeled inaccurately an over-the-credit-

limit fee.

However, when a charge is, in fact, imposed by of the consumer's exceeding is validly within this

the creditor as a consequence the contractual credit

limit, it

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regulation. QUESTION: finance charge? Was this an the account that carried regulations doesn't have a

Because charge

describe finance

something called

card that

charge, but could have an over-the-limit charge. MS. McDOWELL: That's -- the particular account

at issue in this case was a credit card. QUESTION: you don't know? MS. McDOWELL: charge if Yes, it does impose a periodic Which did have a finance charge, or

all charges that are run up during a particular

month are not paid within the grace period. QUESTION: If I understand the other side, they They -- they talk in -- they want

make kind of a plain language argument. to the merchant. The merchant sends

approve a $200-purchase and they over the limit and is it okay.

get back, well, it'll go And they say, yes, let

them go over the limit, and so they've extended additional credit. And -- and they, if they're it, that would be be a charge for going to charge them I mean, Why

$15 to do that would

a finance charge --

an extension of credit.

doesn't it fit the plain language? MS. McDOWELL: that it We don't is, disagree with you, a

Justice Stevens,

at some

general level,

charge imposed incident to the extension of credit.

There

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was necessarily an extension of credit here. QUESTION: credit limit, yes. MS. McDOWELL: The -but -- but the term, In -in exchange for the higher

incident to the extension of The Court construed case and

credit, is an ambiguous one. in the Holly It Farms

similar language to be

recognized it

ambiguous.

doesn't

address precisely

the nature or -- or the extent to which

a particular charge has to be connected to an extension of credit. And here, the board has reasonably viewed fees and other over­

the-limit fees like fees as

late payment

default

being imposed for a violation of the terms of the

credit agreement rather than as -­ QUESTION: customer say, And then the -- but wouldn't the You told

well, I didn't violate anything? Why is it a violation?

me I could do it.

MS. McDOWELL: communication communication in

In the first place, there and there typically only

was no is no the

this case, we're

when

speaking

of

authorization process. QUESTION: there had been a But what if there were Would -- what if

communication?

it be different?

Would it

be a different case if the merchant put the bank

officer on the phone and said, you're over your limit, and the -- and the customer said, is it okay for me to pay the

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extra 15

bucks for

this -- go

over the

limit $15?

He

says, yes, we'll -- we'll okay it. At the end of the month, he

And then they hang up. for that.

gets a $15 charge

Would that be in your view instead of

-- that would not be an extension of credit if they talked on the phone and agreed to it

having

to just

go

through

these anonymous

communications. MS. McDOWELL: It would look more like an

extension of credit, I -- I might grant you, but the board is still entitled to draft categorical rules by virtue of

its authority under section 1604(a) to make classification adjustments and exceptions. QUESTION: of the There's no duty on the -- on the part

bank to say, of course, if we okay it, you have to

pay an extra 15 bucks. MS. McDOWELL: Well, Your Honor, you're raising

a policy question that Congress or the board could address whether additional disclosures are Here we're days or required at the point that

of purchase.

talking about disclosures weeks later, when the

occurred later,

customer

receives her periodic statement. QUESTION: Just a bill that said, you didn't owe

realize it, but you just earned

a -- you just -- you

us $15 that you should have realized. MS. McDOWELL: Well, and whether it's imposed as

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a finance charge or -- or as an other charge, the consumer is still going to have the -- the kind of surprise that

you referred to.

And in the board's view, it doesn't make that point when the

any meaningful difference whether, at

customer receives her periodic statement, it is identified as one or the other. Indeed, it could confuse the the

consumer to have historic or were, for

the over-the-limit

fee included in

actual APR on her periodic statement. example, comparing that statement

If she with a

solicitation that she

received by direct mail,

she might

be inclined to think that -- that the solicitation offered better terms when it really did not. QUESTION: Would you agree that -- that it would

be to the consumer's advantage to have this categorized as a finance charge because then she wouldn't have to pay

interest on that in -- in future charges? MS. McDOWELL: have to pay interest No, Your Honor. on it. Whether She would still a

it's labeled

finance charge or not makes no difference It only has to included periodic charge, in do with how it's labeled actual APR Even on if the

in that regard. and whether it's customer's a finance

the

-- the

statement. in

it's labeled

other words,

she

can be

charged additional

interest.

The periodic rate can be applied to it. So, in fact, the board has concluded that --

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that there's

no benefit

to consumers

to treating

over­

the-limit fees generally as finance charges, and the Sixth Circuit's rule, in particular, would make no sense because it would depend on the creditor's subjective knowledge

whether a particular charge was or was not included in the APR in the particular month. That would impose not to

significant compliance

costs on

creditors and would

tell consumers anything that's particularly meaningful them.

When the board revised Regulation Z in the 1980­ 81 period, after the TILA Simplification Act, the board not

sought to focus on legally enforceable relationships,

on unenforceable understandings that a consumer might have as a result of a course of dealings with the credit card

company. And consistent understanding its plain this particular provision, to all

with

terms,

as applying

charges imposed or exceeding a with that approach.

credit limit is consistent

It provides the meaningful disclosure

and it avoids imposing unwarranted compliance costs. If there are no further questions -­ QUESTION: Thank you, Ms. McDowell.

Ms. Goldsmith, we'll hear from you. ORAL ARGUMENT OF SYLVIA A. GOLDSMITH ON BEHALF OF THE RESPONDENT

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MS. GOLDSMITH: please the Court:

Mr. Chief

Justice, and may

it

This case has come and-a-half years complaint ago with

full circle.

It

started 4­ a a

the filing of

a complaint, request of

that says

if you

authorize the

consumer to have more

credit and you

tie a fee for

that

authorization, that fee is a finance charge. The question presented here is whether or not

the Sixth Circuit has the right or should have invalidated a provision of Regulation Z with respect to the exclusion

of certain over-limit fees, and we believe that resolution of that question brings us back to the complaint. What

does the complaint say in that regard? QUESTION: Are -- are you fully defending the

decision of the Sixth Circuit, Ms. Goldsmith? MS. GOLDSMITH: We -- yes. We believe that the

Sixth Circuit's decision is that this fee, the fee in this case, is decision that a finance charge, and We have we stand behind that

100 percent.

stated in

our complaint to remember

this fee --

and --

and it's important

that -­ QUESTION: Sixth Ms. Goldsmith, before a portion you continue, Z is Are

Circuit said

of Regulation

invalid because it's

incompatible with the statute.

you defending that invalidation?

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MS. GOLDSMITH:

In theory,

yes.

We -- we

feel

QUESTION:

How about in practice?

(Laughter.) MS. GOLDSMITH: We feel that perhaps the court the

did not need to go there, that -- in -- in looking at situation now, we -- we have always -­ QUESTION: to do that. MS. GOLDSMITH: QUESTION: Circuit, you When Yes, we did. you argued the case very clear But you asked -- you asked

the court

before the were was

made it

that you Z

seeking a

holding

that a

portion

of Regulation

incompatible with the statute. MS. GOLDSMITH: I think to the extent that

Regulation Z says that anything you call an over-limit fee as excluded from the finance with the argument regulation. that if that charge, that is incompatible stand by our lower court

And we

is the case,

then that regulation

cannot stand. And -- and realized -- a once the Government stepped in, we

significant part of their argument

is that The

the -- that the Federal Reserve Board could say that. Federal Reserve Board could say that all

over-limit fees

are excluded from the finance charge and we took that as a

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-- as a tacit concession

that the -- the Federal

Reserve

Board didn't actually do that. context of

What they said, within the is that fees, penalty need not be

section 226.4(c)(2), for unilateral

fees, fees

acts of default,

disclosed as part of the finance charge. support the Sixth Circuit's decision,

And so while we finance get to to is

this is a

charge -- no matter how you get there, you have to that point -alternately, as an alternate

basis

support the decision,

we realize

that the regulation

not necessarily triggered in this instance. QUESTION: But that's an argument you didn't you

make before the Sixth Circuit. told them that statute. MS. GOLDSMITH: That

The Sixth Circuit --

this regulation was incompatible

with the

is correct.

And I

-- I

have to fall on the until the Government issue for us,

sword in that regard, that stepped in -- we

honestly, that

and helped clarify a

we did

were fighting

battle we

didn't need to fight. QUESTION: Circuit.

And ultimately -­ they clarified it in the Sixth

But

So why didn't you say, oh, Sixth Circuit, we've want the regulation

now seen the light and we -- we don't declared invalid? MS. GOLDSMITH: I don't us in

believe the Sixth

that

the

Government clarified

that for

Circuit.

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What --

what

clarified it

for me

was the

Government's

brief, the merit briefing in this case, where they said, I believe 28 pages into a 30-page brief, if the Federal fees, they went off. us

Reserve Board wants could, and

to exclude all over-limit the light bulb sort of

that's sort of when And

They didn't. where we are.

that -- that's

what took

And ultimately, this Court to

I think

there's precedent basis to support

for this

review the ultimate

decision based on making sure that the -­ QUESTION: Well, you used the word review. We

wouldn't be reviewing it. of it. MS. GOLDSMITH: QUESTION:

We would be taking a first view

I'm sorry.

But you didn't -- you -- we would not We

be reviewing anything that the court below determined. would be

accepting a new argument that has not been aired

below, and that's not review. MS. GOLDSMITH: Doehr, for instance, I think that in Connecticut v. that there

this Court acknowledged

are circumstances that this Court wants the right rule of law is handed

to make sure that And if the were

down.

questions are raised below decision is

intertwined, the

-- the

issues that

and an alternate argument in

support of the

raised before this Court, if it's a matter of

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importance,

if it's a

matter that the

lower courts need

direction on, if it's a matter that has been -­ QUESTION: an alternate Usually it's a if we're asked to ground that the affirm on court of

ground,

appeals passed on as kind

of an alternate ground.

Here,

the court of appeals didn't pass on this at all. MS. GOLDSMITH: I believe I agree. And like I said, I -­ case, this put form Court over

in the Connecticut that alternately

v. Doehr we

acknowledged

cannot

substance, and we need to make sure that the right rule of law is passed down. And I comment in U.S. believe Justice Scalia, as a concurring be play in came to that

v. Burke, said there's got to

the joints, that even if it is not something that the Court procedurally, if it is

something that --

meets the three factors I was enumerating from Connecticut v. Doehr, the Court will entertain an argument. QUESTION: Goldsmith. court We do It isn't just a procedural point, Ms. better if on the we have an opinion if of the just

of appeals

subject

than

we're

launching it into -- for the first time ourselves. MS. the only GOLDSMITH: And I would agree, and -- and is a

defense that I

have to that

is that this

matter that

has been fully briefed and

argued by counsel

before this Court.

And when -- when the case got taken in

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by this Court, everyone said why they took it in, and --

to me, you have to

remember is is

and my understanding And -­

because the regulation has been challenged. QUESTION: don't understand. about this. I What other thought -argument and I'm

is there? just mixed

I up

I thought that there is a Z regulation. Z.

It's

called Regulation following is exceeding a

And I thought Regulation Z says the

not part of the finance charge, a charge for credit limit. Now, are we talking about

something in

this case that is not a charge for exceeding

a credit limit? MS. GOLDSMITH: QUESTION: I believe so.

What? I think that a fee denominated

MS. GOLDSMITH:

an over-limit fee that is actually an anticipated cost for approving charge. QUESTION: Does it say on the paper this is a an extension of credit is in fact a finance

charge for exceeding a credit limit? MS. GOLDSMITH: I believe they called it an

over-limit fee assessment. QUESTION: All right. And so it's called an

over-limit fee assessment and you pay it if you exceed the credit limit. You don't pay it if you exceed the credit

limit, or do you?

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MS.

GOLDSMITH:

I

think

that's

a

factual

I -- I think -­ QUESTION: Oh, okay. Do Well, what is you pay for the answer

the factual question?

exceeding the

credit limit or do you not pay it for exceeding the credit limit? MS. GOLDSMITH: -- this is not a I believe the facts of this case unilateral

fee that was imposed for the

act of exceeding a credit limit. QUESTION: QUESTION: QUESTION: Okay. So -­

It depends, doesn't it, on -­ -- there's a new argument, the first

time in this Court, that this is not a fee for exceeding a credit limit. Was it made below in any form? I believe the allegations of our

MS. GOLDSMITH:

complaint have always been clear. QUESTION: Oh, yes, but, I mean -- that may be.

I'm just asking, have you ever told any court before today that but this is not I don't the -- I'm not -- it sounds sarcastic, I want to know.

mean it to

be sarcastic.

Have you ever before argued in this case, told a judge and -that this is not a End quote. MS. GOLDSMITH: QUESTION: No. No. fee, quote, for exceeding a credit

limit?

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QUESTION:

Ms. Goldsmith,

we wouldn't resolve a that

whole lot in this case, question, would we? MS. GOLDSMITH: QUESTION: little bit down We

however, if we didn't reach

I don't believe we would. -- we'd just have another case a parties

the line, perhaps

with the same

before the Court, arguing this -- this follow-on question. Right? MS. GOLDSMITH: that what we realized is making in the court I believe absolutely. I think were

that the arguments that we -- which we

below, which

stand by,

were premature. QUESTION: If we don't resolve it, we've

essentially wasted our time. What -- what -- doesn't it depend upon what regulation means by credit limit? It could mean the that

limit set forth in the -- in the agreement with the credit card company, past which there is no obligation on further credit. Indeed, that the It --

part of the company to extend you any could -- it could reasonably that's what could mean

mean that.

I would normally think what you want it

it does mean.

Or it

to mean, whatever

limit the

company later places upon your desire to -- to go ahead. Now, why should we accept your interpretation of rather than the interpretation of the agency? We

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usually do accept regulation. MS.

the agency's interpretation of

its own

GOLDSMITH:

I

don't

believe

that

our

interpretation conflicts with that of the Board. If -- if we look at

Federal Reserve of the

the plain language

regulation -­ QUESTION: mean -­ MS. GOLDSMITH: I believe what the -- what the We wouldn't be arguing here. I

Federal Reserve Board has said is that when you have a fee for a unilateral act of default, that that fee is properly excluded from the finance charge. QUESTION: Well, don't It's I believe in the -­ we have to accept the is

Government's position? it not?

representing the agency,

MS. GOLDSMITH: QUESTION:

Absolutely.

So it is the agency position. I don't believe that you will

MS. GOLDSMITH: find in the Government's

brief an argument

that the fee

alleged in

this case necessarily fits within the terms of In fact, I believe several times,

section 226.4(c)(2). pages 17, 18 of

the Government's brief,

they talk about

how over-limit fees were included as a penalty fee in that portion of the regulation. That gets us back to the complaint. Was the fee

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charged

here

a

penalty

fee or

was

it

a

fee for

an

anticipated, approved extension of credit? QUESTION: I didn't think that was the

Government's argument in there are some for

my -- as I For

read it.

I thought says,

words here.

exceeding a -- it And as I

exceeding a credit might not

limit.

understood the -- is -I

argument -- I

have perfectly well

thought that their argument is basically when you exceed a credit Okay? limit, the company And doesn't want you to do it.

So it says, no.

if you do it, we're not going Now,

to cancel you out, but we will charge you a penalty. sometimes it's what you say. love you to do it might make profits But trying to too

Sometimes the company would In fact, they

and get the extra money. on that.

So they'd love you to do it. instances is we are

distinguish between those two and because it's

difficult,

too difficult,

going to have you fall

a blanket rule, and the

blanket rule is if a credit limit,

within these

words, exceeding

this is not a finance charge. Now, typical that's what I understood argument. it to And be, a

administrative

agency

they say

Chevron, Mead, et cetera, we win. Now, suppose let me

All right. -for the purpose of

answering, please assume that falls within the

that you do term,

have a charge

here

exceeding a

credit limit.

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What is your response to the argument that I just made? MS. GOLDSMITH: I think if we assume that this

fee is a fee for exceeding a credit limit, then we need to look at the nature of the fee and determine whether or not that is obviously repugnant to part of -of what we the statute. accused And I think is

have been

of doing

creating an impossible factual distinction.

Some would be

disclosed as a finance charge, some would not. And I direct the Court that draws to the regulation itself The

that factual distinction as to late fees.

-- the Federal Reserve Board went out of its the language of the regulation and

way, in both

the commentary, to say

if this is a unilateral act of default, you have paid late or not in the amount that you were supposed to pay and we

absolutely did not authorize that, that must -- that would be excluded from the finance charge. But if the creditor

acquiesced in that in any way, that is a finance charge. And what our position is is that a late fee -­ QUESTION: I mean, you say the agency said this?

Where -- where did the agency say that? MS. GOLDSMITH: and the commentary. QUESTION: regulation says that? MS. GOLDSMITH: Section 226.4(c)(2) in the In both the regulation itself

In the commentary -­ What -what portion of the

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portion that says actual unanticipated late payments. in the commentary, the -the board has

And

defined actual,

and it's the qualification of actual unanticipated goes to the question is this a unilateral act of default or is

this something that the creditor acquiesced in. our point is is that if you look at -­ QUESTION: I suppose that depends

So our -­

on what

--

what time period unanticipated refers to. MS. GOLDSMITH: helps explain that for us. QUESTION: Okay. What does the commentary say? The commentary says if have paid and this is I believe that the commentary

MS. GOLDSMITH: truly a

late fee because you

the creditor to be an

could do nothing

about it, then late fee.

that is going But if

actual unanticipated that month month and

this is something late every

after month

after month

you paid

they could be deemed to have acquiesced in that that must be disclosed as part of the

late payment,

finance charge. QUESTION: brief? MS. GOLDSMITH: to be perfectly honest, The portion of the commentary -­ I don't know if the -- if the Where -- where is that in -- in your

commentary is reprinted language is -­

in the appendix.

The regulation

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QUESTION:

Gee,

if it's

that central, I

would

have thought it ought to have been there. Where -- where is it? MS. GOLDSMITH: QUESTION: MS.

It's new to me.

I don't know, Your Honor.

You don't know what you just said? I don't know where I know in the

GOLDSMITH:

appendix it is is what I don't know. 226.4(c)(2) -fact the commentary

that section the

specifically outlines

that there is a

distinction between acts of default

and -- and acquiesced -- oh, thank you very much. What counsel was I mean, the commentary is handing me is the at 12CFR Section actual CFR. 226.4(c)(2).

What I don't believe is that is reprinted in full anywhere in the appendix or in the briefing. your question was. QUESTION: Yes, sort of. I -- I'd like to know case. I thought that's what

what it is that you're

-- you're saying makes your

I -- I don't have the text in front of me and you say it's nowhere to be found in all of these voluminous materials

that we have for this case. MS. GOLDSMITH: I was trying to give an analogy

as to late fees which is somewhat tangential to the issue. What the point is is that a late fee -- you have to start concept of an extension of credit is. And

with what the

-- and we do outline this in our brief, that we're talking

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about each purchase,

and

every time

a consumer saying

seeks may

to make I have

a an

they're

essentially

extension of credit to cover this purchase. QUESTION: If -- if you May I ask you a question about that? isn't the that no

are correct in your analysis, why

answer to the problem that they are not entitled to

you raise here is simply charge you any

fee at all,

matter what you call it? and I may not, but if

Because if

I understand your -­ argument, your

I understand your

argument is they agreed to my charging beyond the limit in the agreement as we it's okay. And if originally negotiated it. that is the case, why They isn't said your

argument and your

remedy simply they can't charge They agreed to it.

me any

penalty at all for that?

And we never

even get into the question that we've got in this case. MS. question GOLDSMITH: I think the answer to the

is is that

this is

really no different

than a

request to -- to -- a request to make a purchase below the credit limit versus a request to make a purchase above it. Either way, they could -- that's what -­ QUESTION: No. -- credit is. charge you a fee. I mean, that's

MS. GOLDSMITH: QUESTION: not

But if your point -- and I think I'm but if your point is that they

getting your point,

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approved this honor this will honor

in the sense that

they said, yes,

we will -- we a

-- they're telling you this charge and that

in -- in effect that, in

effect, is

renegotiation would follow all.

of your credit limit with the bank, then it that they can't charge you any penalty at you to

The only thing they can make you do is pay what And if that's the case, this complicated we don't need question

have charged. get into

this Z.

--

about

Regulation

All you have to

say is, I don't owe you a Why isn't that the

cent for exceeding the credit

limit.

answer to your question or to your problem? MS. GOLDSMITH: I think two things. First of

all, we have never claimed that this is a renegotiation of the credit there is limit. We have always taken the position that your credit

a distinction between renegotiating an extension of credit credit limit.

limit and getting take you over your first issue.

that happens to the

So that -- that's

The second issue is -­ QUESTION: the contract, but So it's you're saying, yes, okay to violate it violates contract

the

because they -- they approved in advance this charge. MS. GOLDSMITH: We do not feel that it's a

violation of the contract if they allow you to do it. QUESTION: Then if it's not a violation of the

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contract

because they allowed

you to

do it, why

do you

concede that they can charge you that? MS. GOLDSMITH: I'm not

any fee at all for doing

conceding that they can

charge you a penalty on top a finance charge, but what I'm saying is that anytime a creditor extends credit, they may charge a fee and -­ QUESTION: Okay. -- as a credit. may, -- the but in the original the

MS. GOLDSMITH: QUESTION: contract with you

They in the

-- at

the

-- at

beginning of your relationship with spell here.

the bank, they didn't

out the particular situation that you're describing They said, in -- if I understand it, if you go over charge you X dollars, You're and -- and that was the X or

the limit, we the

extent of it. should be

fighting about whether as a finance

dollars

classified

charge

something else, but of argument. Your

your argument now is a different kind

argument

now

is

they,

in

some

sense,

approved my going over the limit.

If that does not change

the original agreement, then what difference does it make? If it does change the original agreement, then why isn't

your remedy simply to say you can't charge me a fee at all for going over the limit?

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MS. GOLDSMITH:

I believe

what we have

always other

said is that this extension

of credit was like any

extension of credit on the card.

Whether Ms. Pfennig goes

in 2 weeks before her -- her credit limit was exceeded and says, may I have enough credit to make this purchase, and

they say, yes, and contractually we know -­ QUESTION: Yes, but your -your argument is

extension of credit in this case is an agreement Isn't that your argument?

to exceed the credit limit. MS. GOLDSMITH: QUESTION: Goldsmith, was that I the

I don't think so. thought contract your argument, that Ms. any

provides

extension of credit over the credit limit shall be subject to the regular percentage plus the $15 penalty. mean, you acknowledge outset as to what that there is Right? I

an agreement at be for

the this

the finance

charge will

added extension of credit. the penalty. MS. GOLDSMITH: QUESTION:

It'll be the regular rate plus

I don't -­ your argument, then -­

If that's not

then I think Justice Souter has to be correct. MS. GOLDSMITH: I think at this stage of -of

the litigation, since we have not conducted any discovery, we have what it not seen the actual cardholder says with regard to over-limit agreement to know fees. So I don't

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think I can answer the question in that regard. QUESTION: copy? Didn't -- didn't Ms. Pfennig get a

I mean, the -- isn't it on her monthly bill? MS. GOLDSMITH: On her bill it will tell her

what her contract rate is,

but the initial disclosures -­

I believe she had this card 7-8 years before this happened and it is not in the record. QUESTION: to be I thought -- I thought the terms have in addition to when the credit

disclosed monthly

card is new. MS. GOLDSMITH: What has to be -- and -- and I that you

believe that -- that

Mr. Waxman explained this,

have your initial disclosures that come with the card when you originally get basis it. What has to be disclosed on a

periodic

is an

itemization

of each

extension of

credit that you've received, a total that you've received, plus your -- your APR. cost of credit Those types of terms of what basis are going to the

is on a monthly

be on

your periodic statement. I believe what -- what Justice Scalia's question was is she what does the credit card agreement say as fee, is she to is

going to be

charged a flat

going to be that is

charged a

flat fee plus the

finance charge, and

not in the record. QUESTION:

We don't have that. And if that's not in the record, how

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can you

make

the argument

you're making?

Because

the

argument you're making depends on -the agreement is Justice

whether, in effect, the or my

Scalia's suggestion

suggestion.

And if that's not in the record and you don't

know, how do we get into this at all? MS. GOLDSMITH: in because over-limit I think is or the confusion is coming is not labeled in an

ultimately what fee may not

be a

fee for exceeding

a credit

limit as that term has been used in the regulations. QUESTION: And the only way we can tell that is

to look at the contract, isn't it? MS. GOLDSMITH: QUESTION: No? I believe that if you each look at every I don't believe so.

MS. GOLDSMITH: section 1637(b)(2) that

describes how

and

extension of credit about a may I

needs to

be itemized, we're

talking She says of in

singular event, an extension of credit. purchase. May I

make this

have an extension And

credit to cover this purchase, everyday experience, we to be

and they say yes.

all know that means for

you're going of credit.

charged something

that extension

It's going to be charged a finance charge. QUESTION: Are you talking about just an

ordinary credit card transaction where you go in and look, I'm buying a pair of gloves and

say,

I want to put them

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on my

credit card?

This

you're describing as

a request

for an extension of credit? MS. GOLDSMITH: QUESTION: simply. Absolutely. So we're starting back that

Okay.

Then how did we get so complicated? MS. GOLDSMITH: (Laughter.) QUESTION: Well, one reason it's complicated, if to the I'm not quite sure.

I understand your fee and to

position, you're objecting both statements imposing

the later

an interest

charge on the fee, aren't you? MS. yes. GOLDSMITH: I think it's triple dipping,

I think that, as Justice Ginsburg pointed out, they You get a They

-- they charge you for the extension of credit. finance charge impose on your actual extension of fee, and then they

credit.

a penalty

charge a

finance

charge on the penalty fee -­ QUESTION: A deal is a deal. If that's in the contract, so what?

If you agree, I

pay 10 percent up to I pay 10 percent

this

amount, if I go

over that amount,

plus $15, if that's in the fair? MS. GOLDSMITH: QUESTION: the contract. And

contract, isn't that perfectly

I think -­ you don't know whether it's in

So you can't say it's unfair.

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MS. GOLDSMITH: contract case.

But this

is not

a breach

of

This is a Truth in Lending

Act case, and

the only thing the Truth in Lending Act -­ QUESTION: Whether it is or not, you shouldn't

call it unfair if you don't know. MS. GOLDSMITH: I'm sorry. I -I believe that Truth in Lending is about I don't recall using the word

disclosure as to whether or not they have to -­ QUESTION: I want Could to be I interrupt with get it this one the

sure I

out before

argument is over. it makes, calls it

Would you explain to me what difference

in terms of notice to the consumer, whether one a -- an other charge or the consumer a finance charge? get exactly the In same

either event, doesn't notice?

MS. GOLDSMITH: it is charged as

I don't

believe so because when besides the

a flat fee as

an other charge,

the fact that there's interest consumer is in a position cost of credit, APR. And

charged on top of it,

that they then need to

compare

one, as a dollar figure, the believe Ms. McDowell

other as an the

while I

said that

primary purpose of TILA is to create bright line rules for the credit card industry, I think there is significant

support, as this Court has stated, that one of the primary

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objectives is making sure the cost of credit.

consumer can understand the

And -- and Congress has said we -­ But why would the consumer understand any better by labeling it a finance

QUESTION: the cost of credit

charge rather than an other charge? haven't explained to me. MS. GOLDSMITH: Because

That I haven't -- you

Congress said we

want

that to be an apples-to-apples comparison. can know till now that the extensions of

So Ms. Pfennig up

credit she received She

were charged at 18.49

percent.

knows that

the extension of credit she received over her credit limit was $29 -­ QUESTION: my credit by $15. So how does that work? I -- I exceed

My colleague exceeds his credit by $42. What's the interest number of

Each of us is charged a $15 late fee. rate? And, of course, there So

are an infinite

possibilities. would be every

I guess I'd get a

-- a statement that how much I go to

conceivable possibility of

over with interest rates ranging 48,000 percent. to work? MS. GOLDSMITH: know. Ultimately The So,

from like .2 percent

I mean, how -- how

is this supposed

simple answer

is I

don't

I think the Federal

Reserve Board does

have to offer the direction of how this will be disclosed, but I think the important thing -- and I believe -­

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QUESTION:

I think

that's why

Justice Stevens if

might have thought it's

going to confuse the consumer

you win, not help the consumer. QUESTION: I would think it's much more

informative to the consumer to for all of been this the things up past month

know that my interest rate my credit limit -- and then has

to the -and

so much,

see a

separate charge, God, I got socked 15 bucks for going over my credit limit. -- by You think you're helping the consumer by

taking that $15 separate charge and just mushing it credit limit so that instead 10 percent, and he thinks he doesn't of

into the general overall thinking he's being charged

being charged 11 -11

he's know

percent,

anything about the late -- about the -- the going over his over limit fee? I don't think that helps him at all. But I don't believe that that's I believe that, Justice how certain -fees are there

MS. GOLDSMITH:

necessarily how it would be done. Breyer, you had are instances

said earlier about where You certain a

disclosed a cash

differently.

can have

situation

where

advance is calculated at a different APR than the contract rate at a And of the finance charge. different -those are An ATM fee might be charged APR than bottom. this something else. You wouldn't charge

a different at

itemized

the

necessarily

not let

them

know that

was a

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incident to something over the credit limit, but you would put it in apples-to-apples comparison, which I believe -­ QUESTION: you is all you somewhat by But, of course, the difficulty for

have to say is that the

view I was taking it's a

argument is a reasonable guess it's a And

one, and if

reasonable one, I of the statute.

reasonable interpretation Regulation Z doesn't

therefore,

violate it. Now -- now, you haven't been able to show us how we'd get on the opposite know what the statement me to say it's interpretation. would look We didn't So even

like.

it's very

hard for

not reasonable what

the -- what

the -- that Regulation Z, isn't it? MS. GOLDSMITH: on -seem on the I think that ultimately depends regulation. We -- we

construction of the parse out at the

to want to looking

for exceeding a of the

credit limit

without

context

regulation that in is the

these are acts of the complaint, not an act

default.

And what

we have alleged

which ultimately is default. So in

controlling here, that instance,

of

regulation is not triggered

and it's premature for

us to

decide whether or not it was rationally based. QUESTION: has said is we don't The one thing that the -- the board every

want these individual to make

extension of credit or what -- to do this kind of thing on

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a case-by-case basis. categories.

That's why we're establishing these

And your interpretation was making the credit to know and every one is going to of the case. be a And

card company has

knock-down, drag-out,

specific facts

that's exactly, it seems to me, what the board didn't want to have happen. MS. GOLDSMITH: Justice -- Justice ago. Where And I think that gets back to

Kennedy's question of quite trying to go is that

some time is a

I was

there

distinction in fee.

the nature of a late fee and an over-limit

And the -- the Federal Reserve Board went out of its that factual distinction as to late fees.

way to create

And late fees, by nature, are on the periphery of the cost of an extension of credit. While the total has to be

disclosed and your late payment is associated with whether or not you paid toward the total, an over-limit fee by its nature is tied to a specified extension of credit. have this extension of credit, which May I me

happens to take

over the credit limit?

Yes, you may, but we are

going to

charge you a fee for that. And I think the extent we have to that's the distinction, is get to -- let's that to the it to an

just assume Is

regulation controls rationally based late fees which

here.

Does it

make sense?

to create are on the

a factual

distinction as cost of

periphery of the

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extension of that goes to

credit and not do

so for an

over-limit fee

the very core of what the

finance charge is

supposed to disclose? QUESTION: Now you're going back to the

regulation itself is no good. MS. GOLDSMITH: here, which -- that To the extent that it controls And that and

I'm not sure it does, I down the

think yes.

decision comes

nature of

the fee

whether or not it is so integrally

tied to the cost of an

extension of credit that it has to be disclosed as part of the finance charge, and we think that it does. QUESTION: dollars and cents, using -- there is a Ms. McDowell said that -- that in

there's no difference to

the customer take

dollars and cents difference, I

it, and would you explain what it is? MS. GOLDSMITH: Yes. With all due respect, I

believe she said -- may I finish the question? QUESTION: I think you've answered it.

Mr. Waxman, you have 3 minutes remaining. MS. GOLDSMITH: Thank you.

REBUTTAL ARGUMENT OF SETH P. WAXMAN ON BEHALF OF THE PETITIONERS MR. WAXMAN: disclosed this The question of whether within It the or not we

fee properly

regulation was

passed on by the lower court.

is the law of the case.

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The lower

court held, as the

second part of

its ruling, us to

that, quote,

unequivocally the regulation required

disclose this fee as an other charge. Now, Justice Scalia is correct that how you

interpret the Fed's bright line page 2 of our blue brief,

regulation which says, at are not

the following charges

finance charges. course, depends limit is a

Charges for exceeding a credit limit, of on what credit limit means, and in credit

term

of art.

Everybody

the industry 1 of her a

understands it. brief, she credit says,

Even

the respondent

at page of

quote, in

the middle amount

the page,

limit

represents the

of credit

the card

issuer has preapproved the consumer to obtain. possible allegation in this case that she

There's no

ever asked for extension

an extension of her credit limit or received an of her credit limit. And there with an before is a reason that the

board came

up

absolute bright line rule, and the reason is that 1980, when Congress mandated classifications in

order to simplify things for Federal Reserve Board like many of others

creditors and consumers, the questions and

confronted -- confronted

the hypotheticals here. Well,

that Justice Stevens what if --

have asked

what if they

knew that it

was going to exceed it and and asked permission.

what if somebody

actually called

I don't want to be

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embarrassed in the store. The board

Will you authorize this? some of -many of in

literally -- and

these letter interpretations this case, although not

are cited them.

in the briefs The board

all of

drove

itself crazy trying and came up with a

to answer all of

these hypotheticals by own

set of letter rulings, exacerbated to come up with their impossible for

the Federal courts also trying interpretations, that made it

issuers to

come up with formulaic disclosures that would prevent them from being socked with huge class action awards and

allowed compare.

them to present

information that consumers could

And so Congress said in 1980 we want bright line classifications, and In 1980, the board that's exactly said that it what the board was amending did. its

regulations to, quote,

substitute where possible precise, that create ambiguity

easily applied rules for principles and -­ QUESTION:

Thank you, Mr. Waxman. Thank you, Your Honor. The case is submitted. case in the

MR. WAXMAN:

CHIEF JUSTICE REHNQUIST: (Whereupon, at 11:03

a.m., the

above-entitled matter was submitted.)

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