Grunbeck v. Dime ( 1996 )


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    UNITED STATES COURT OF APPEALS
    FOR THE FIRST CIRCUIT
    ____________________

    No. 94-1479

    ROBERT AND JENNIFER GRUNBECK,

    Plaintiffs, Appellants,

    v.

    THE DIME SAVINGS BANK OF NEW YORK, FSB,

    Defendant, Appellee.

    ____________________


    APPEAL FROM THE UNITED STATES DISTRICT COURT

    FOR THE DISTRICT OF NEW HAMPSHIRE

    [Hon. Paul J. Barbadoro, U.S. District Judge] ___________________

    ____________________


    Torruella, Chief Judge, ___________

    Campbell, Senior Circuit Judge, ____________________

    and Cyr, Circuit Judge. _____________

    ____________________





    Jewel N. Klein, with whom Holstein, Mack & Klein, George P. ________________ ________________________ _________
    Dickson and Law Offices of George Dickson were on brief for _______ _________________________________
    appellants.
    Douglas G. Verge, with whom Richard P. Hazelton and Sheehan, _________________ _____________________ ________
    Phinney, Bass & Green were on brief for appellee. _____________________

    ____________________

    January 23, 1996
    ____________________













    CYR, Circuit Judge. The interesting issue of first CYR, Circuit Judge _____________

    impression presented in this case is whether section 501(a)(1) of

    the Depository Institutions Deregulation and Monetary Control Act

    of 1980, 12 U.S.C. 1735f-7a(a)(1) (1988) ("Monetary Control

    Act"), preempts New Hampshire Rev. Stat. Ann. 397-A:14(I) (West

    Supp. 1994) ("Simple Interest Statute" or "SIS"). In a thought-

    ful and comprehensive opinion, the district court ruled that the

    Simple Interest Statute, as applied to a residential mortgage

    loan permitting negative amortization, is preempted by section

    501(a)(1).


    I I

    BACKGROUND BACKGROUND __________

    On January 15, 1988, Dime Real Estate Services - New

    Hampshire, Inc. ("Dime Real Estate NH") made a thirty-year

    adjustable rate loan to Timothy Ray and Thomas F. Richards in the

    approximate amount of $111,000, secured by a first mortgage on

    their residence in Milford, New Hampshire. Dime Real Estate NH,

    incorporated in New York and licensed to extend loans in New

    Hampshire, is a wholly-owned subsidiary of Dime Savings Bank of

    New York, FSB ("Dime Savings"), a federally-chartered savings

    institution also incorporated in New York. The Ray and Richards

    note, which contained a provision permitting negative amortiza-

    tion, was assigned to Dime Savings the day it was made.

    The interest rate was fixed at 7.75% for the first six

    months, adjustable monthly thereafter at a margin of 3% above the

    "monthly median cost of funds" ratio, as determined by the

    2












    Federal Home Loan Bank Board ("FHLBB"), and rounded to the

    nearest one-eighth of one percentage point. The interest rate

    was capped, by agreement, at 9.75% for the second six months, and

    13.875% thereafter. The note afforded protection from unantici-

    pated variable interest rate increases by permitting the borrower

    to pay either the total principal and interest due for the month, ______

    or a lower "minimum required payment amount." In the event the __ _____

    borrower elected to make the lower "minimum required payment,"

    however, the interest remaining unpaid for that month would be

    added onto the loan principal, resulting in "negative amortiza-

    tion," and the interest due the following month would be calcu-

    lated on the basis of the higher adjusted loan principal.

    On October 31, 1990, Ray and Richards conveyed their

    Milford residence, subject to the Dime Savings mortgage, to

    appellants Robert and Jennifer Grunbeck, who occupied it as their

    principal residence. After the Grunbecks ceased payments on the

    mortgage in 1993, Dime Savings instituted foreclosure proceed-

    ings. The Grunbecks responded with an Ex Parte Petition for

    Injunctive Relief in New Hampshire state court, claiming, inter _____

    alia, that the negative amortization provision "compounded" ____

    interest and, therefore, violated the Simple Interest Statute.1
    ____________________

    1The Simple Interest Statute provides:

    Any first mortgage home loan made under the
    provisions of this chapter [Chapter 397-A:
    Licensing of Nondepository First Mortgage
    Bankers and Brokers of Title 35 Banks and
    Banking; Loan Associations; Credit Unions]
    shall provide for the computation of interest
    on a simple interest basis.

    3












    Dime Savings promptly removed the case to federal district court,

    see 28 U.S.C. 1441, 1446; see also id. 1332 (diversity ___ ___ ____ ___

    jurisdiction), then moved to dismiss on the ground, amongst

    others,2 that section 501(a)(1) of the Monetary Control Act

    preempts the Simple Interest Statute. In due course the district

    court entered judgment for Dime Savings, see Grunbeck v. Dime ___ ________ ____

    Sav. Bank of New York, FSB, 848 F. Supp. 294, (D.N.H. 1994), and __________________________

    the Grunbecks appealed.


    II II

    DISCUSSION DISCUSSION __________

    A. Standard of Review A. Standard of Review __________________

    We review Rule 12(b)(6) dismissals de novo, crediting __ ____

    all well-pleaded allegations. Clarke v. Kentucky Fried Chicken ______ ______________________

    of Cal., Inc., 57 F.3d 21, 22 n.1 (1st Cir. 1995). For present _____________

    purposes, therefore, we accept the allegation that the negative

    amortization provision in the loan agreement "compounds" interest

    and thus contravenes the Simple Interest Statute. Accordingly,

    ____________________

    N.H. Rev. Stat. Ann. 397-A:14(I).

    2Dime Savings presented additional defensive claims below,
    including that (1) the SIS is preempted by 804(c) of the
    Alternative Mortgage Transaction Parity Act of 1982, 12 U.S.C.
    3803(c) (1988), (2) the negative amortization provision in the
    Dime Savings note does not "compound" interest and, therefore,
    does not violate the SIS, and 3) for various reasons, the Grun-
    becks lack "standing" to challenge the SIS. The district court
    bypassed these claims, and dismissed on the Monetary Control Act
    preemption ground. Grunbeck v. Dime Sav. Bank of New York, FSB, ________ ________________________________
    848 F. Supp. 294, 296 n.2 (D.N.H. 1994). We do not address these
    claims. In particular, we bypass the "standing" claim because
    the undeveloped record does not enable its reliable determina-
    tion.

    4












    we turn to consider whether the statute, so construed, is pre-

    empted by section 501(a)(1).3

    B. Monetary Control Act Preemption B. Monetary Control Act Preemption _______________________________

    Congress' power to preempt state law derives from the

    Supremacy Clause of the United States Constitution. E.E.O.C. v. ________

    Massachusetts, 987 F.2d 64, 67 (1st Cir. 1993). "[I]n any _____________

    preemption analysis, 'the question of whether federal law pre-

    empts a state statute is one of congressional intent.'" Green- ______

    wood Trust Co. v. Massachusetts, 971 F.2d 818, 823 (1st Cir. _______________ _____________

    1992), cert. denied, 113 S. Ct. 974 (1993) (quoting French v. Pan _____ ______ ______ ___

    Am Express, Inc., 869 F.2d 1, 2 (1st Cir. 1989)). Although the ________________

    preemption power is not liberally exercised by Congress, id. ___

    (citing Gregory v. Ashcroft, 111 S. Ct. 2395, 2400 (1991)), if a ________ ________

    federal statute includes an express preemption provision the

    court need only determine its scope. Id. (citing Cipollone v. ___ _________

    Liggett Group, Inc., 112 S. Ct. 2608, 2618 (1992)). ___________________

    1. Rules of Construction 1. Rules of Construction _____________________

    The scope of an express preemption provision is

    gleaned, first and foremost, from the language of the federal

    statute, employing traditional rules of statutory construction.

    ____________________

    3The district court construed the SIS as a ban on "compound
    interest," or "charg[ing] interest on interest." Grunbeck, 848 ________
    F. Supp. at 296 n.2, 298-300, 302-03. The parties do not dispute
    its construction. In addition, the State of New Hampshire
    asserted in its amicus memorandum below, that "The New Hampshire
    Banking Department has construed the [SIS] as banning regulated
    mortgage companies from using any computational method other than
    simple interest in loan products including, specifically,
    assessments of interest on deferred interest unless the
    practice is permitted by overriding federal law."

    5












    CSX Transp., Inc. v. Easterwood, 113 S. Ct. 1732, 1737 (1993) _________________ __________

    ("If the statute contains an express pre-emption clause, the task

    of statutory construction must in the first instance focus on the

    plain wording of the clause, which necessarily contains the best

    evidence of Congress' pre-emptive intent."). Of course, if the

    statutory language is ambiguous, Burlington N. R.R. Co. v. ________________________

    Oklahoma Tax Comm'n, 481 U.S. 454, 461 (1987), or would work an ___________________

    unreasonable result, we may consult relevant legislative history,

    Cabral v. INS, 15 F.3d 193, 194 (1st Cir. 1994), to confirm an ______ ___

    interpretation indicated by the plain language. Strickland v. __________

    Commissioner, Maine Dep't. of Human Servs., 48 F.3d 12, 17 (1st ___________________________________________

    Cir.), cert. denied, 116 S. Ct. 145 (1995), (citing INS v. ____ ______ ___

    Cardoza-Fonseca, 480 U.S. 421, 432-43, 446 (1987)). _______________

    Where Congress has spoken directly to the issue, an

    interpretation rendered by the agency responsible for administer-

    ing the statute is entitled to no special deference. Chevron, ________

    U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. ____________ _______________________________________

    837, 842 (1984). In all events, the courts will reject an agency

    interpretation which conflicts with congressional intent. Id. at __

    843 n.9. Finally, we attribute "ordinary meaning" to plain

    statutory terms, see Greenwood Trust, 971 F.2d at 824 (citing ___ _______________

    Morales v. Trans World Airlines, Inc., 112 S. Ct. 2031, 2036 _______ ____________________________

    (1992)), but may reject an express preemption claim absent a

    sufficiently clear license to trespass on state sovereignty. See ___

    E.E.O.C., 987 F.2d at 68 (citing Gregory, 111 S. Ct. at 2401). ________ _______

    The Monetary Control Act preemption provision relied


    6












    upon by the district court states in relevant part:

    The provisions of the constitution or laws of ____
    any State expressly limiting the rate or _________ ________ ___ ____ __
    amount of interest, discount points, finance ______ __ ________
    charges, or other charges which may be _____ ___ __
    charged, taken, received, or reserved shall _______ _____
    not apply to any loan, mortgage, credit sale, ___ _____ __ ___ ____ ________
    or advance which is _____ __
    (A) secured by a first lien on _______ __ _ _____ ____ __
    residential real property . . .; ___________ ____ ________
    (B) made after March 31, 1980; and
    (C) described in section 527(b) of
    the National Housing Act . . . .

    12 U.S.C. 1735f-7a(a)(1) (emphasis added).4 Like the district

    court, see Grunbeck, 848 F. Supp. at 297-98, the parties focus ___ ________

    their preemption analyses primarily on the phrase "limiting the

    rate or amount of interest."

    As Dime Savings views the matter, the SIS plainly

    "limits" the "rate or amount of interest" received in the sense

    that more interest would be paid by the borrower were "compound- ____

    ing" not banned under the SIS; and the SIS effectively "limits"

    the "amount" of interest the lender can recover in the sense that

    the lender could earn more interest were it permitted to charge

    interest at the same "rate" calculated on a compound basis. ____ __________ __ _ ________ _____

    These arguments rest on the implicit premise that the

    "amount" of interest the lender may charge is "limited" by the

    SIS. On the contrary, the SIS imposes no restriction on either

    the "rate" or the "amount" of interest the borrower may be

    charged, but merely requires that any interest rate or amount ___

    ____________________

    4The Grunbecks do not dispute that the Dime Savings mortgage
    loan meets the three criteria set out in s (A)-(C). Grunbeck, ________
    848 F. Supp. at 297 n.4.

    7












    agreed to by the parties be computed on a "simple interest" ________

    basis. Thus, nothing in the SIS prevents a lender from contract-

    ing for whatever simple interest rate will exact an interest ______

    return equal to or greater than whatever rate and amount of

    interest would be recoverable through compounding. The SIS

    leaves entirely to the parties the rate and amount of simple

    interest to be exacted.

    The Dime Savings interpretation blurs the distinction

    between the terms "rate" and "amount" of interest, as used in

    section 501(a)(1). It assumes that the central question _______

    whether the SIS limits the "rate" of interest is to be re- ______

    solved through reference to the effect the SIS ban against ______

    charging interest on interest might have upon the "amount" of

    interest the lender may be able to command in the marketplace. ___ ______ ___ __ ____ __ _______ __ ___ ___________

    Not only does this assumption implicitly acknowledge that the SIS

    itself imposes no statutory limit on the simple interest "rate" _________ _____

    lenders may charge, but it alters the fundamental focus of the

    preemption debate by inquiring whether the SIS might make it more

    difficult for lenders to command in a better-informed market-

    place (i.e., wherein a "simple interest" calculation is mandato-

    ry) either the rate or amount of interest otherwise obtainable

    by "compounding."5
    ____________________

    5As the district court observed, "without being able to
    charge interest on interest, many lenders would not allow poten-
    tial borrowers to defer accrued interest." Grunbeck, 848 F. ________
    Supp. at 299. In other words, many lenders might choose not to ______
    compensate by increasing the simple interest rate, and might not
    permit borrowers to defer interest payments on which no interest ______
    could be charged. Although unimpeachable, these considerations

    8












    No less importantly, the shift in analytic focus

    attending the Dime Savings' assumption undermines the required

    "plain language" interpretation, see Morales v. Trans World ___ _______ ____________

    Airlines, Inc., 504 U.S. 374, 383-84 (1992), by extirpating ______________

    from the pivotal section 501(a) clause: "expressly limiting the

    rate or amount of interest" the important modifier "express-

    ly." Thus, the preemption inquiry urged by Dime Savings would

    focus not on whether the "express" language of the SIS "limit[s]"

    the rate or amount of interest which the lender may charge, but

    on broad-gauged assessments concerning the likely impact the SIS ______

    ban on compounding would have on home-mortgage lenders and the

    industry at large.

    When engaged in the task of statutory interpretation,

    "[c]ourts . . . should . . . attempt to give meaning to each word

    and phrase." See United States v. Flores, 968 F.2d 1366, 1371 ___ ______________ ______

    (1st Cir. 1992). Thus, in our view the district court mistakenly

    inquired whether the SIS ban against charging interest on inter-

    est could affect the amount of interest lenders might command in _____ ______
    ____________________

    are inapposite to the present discussion.
    First, were a lender to opt not to permit deferments of
    interest payments, it nonetheless would receive both the rate and
    amount of simple interest for which it contracted on all monies
    loaned. Second, in any such transaction it could not be said
    that the SIS, either directly or effectively, limited the legal ___
    rate or amount of interest chargeable by the lender. To be sure,
    lenders who chose not to offset the SIS ban by raising the simple
    interest rate, or chose not to permit deferments of interest
    payments, would realize less total interest income as a result of
    their lending decision. But as the State noted in its amicus
    memorandum below, "[t]o the extent that this requirement may
    affect the total amount of interest potentially realizable under
    the Dime [Savings] loan, such effect is incidental to the re-
    quirement and cannot be viewed as an 'express' usury ceiling."

    9












    the marketplace, thereby not only eliding the term "expressly"

    but overlooking the term "limiting" however defined.6

    Moreover, the language Congress employed in section

    501(a)(1) "expressly limiting the rate or amount of interest"

    contrasts sharply with the preemption language in companion

    section 521 of the Monetary Control Act, whereby Congress pre-

    empted all state legislation "with respect to interest rates" in ____ _______ __

    order to protect federally insured State-chartered banks from

    State regulation of credit card transactions. See 12 U.S.C. ___

    1831d(a) (emphasis added). See also Greenwood Trust, 971 F.2d at ___ ____ _______________

    830 n.10 ("[S]ection 501 addresses different categories of

    lenders and loans and contains materially different preemption

    terms than does section 521."). Thus, it is important to recog-

    ____________________

    6In parsing the 501(a)(1) text, the district court recog-
    nized that the parties' differing views as to the significance of
    the term "limiting" accounted for their widely divergent inter-
    pretations. The court observed that "Dime [Savings] essentially
    construes 'limiting' as an adjective meaning 'serving to restrict
    or restrain.' . . . The Grunbecks and the State ... essentially
    construe 'limiting' as a verb meaning to impose a 'final, utmost
    or furthest boundary' on permissible interest rates or amounts."
    Grunbeck, 848 F. Supp. at 298. ________
    In our view, however, the plain statutory language cannot be
    read as Dime Savings suggests, without ignoring the term "ex- ________
    pressly," see Flores, 968 F.2d at 1371, and without disregarding ___ ______ ____________
    the "ordinary meaning" of the term "limiting," see Greenwood ___ _________
    Trust, 971 F.2d at 824. The SIS itself, as distinguished from _____ __ _____________ ____
    market forces, does not "serve to . . . restrain" either the rate ______ ______
    or amount of simple interest which may be obtained, since the
    lender remains free to compensate by increasing the simple
    interest rate. Thus, the SIS does not "expressly" limit "the
    rate or amount of interest." Nor, in the alternative, does the
    SIS as distinguished from market forces "limit" the rate or _____________ ____ ______ ______
    amount of interest if "limit" means a "final, utmost or furthest
    boundary" on the rate or amount of interest, since the SIS
    imposes no ceiling whatsoever on either the rate or amount of _______
    simple interest that may be exacted.

    10












    nize that the Congress which enacted the Monetary Control Act was

    acutely aware that its choice of the distinctive terminology

    "expressly limiting" would serve as the primary interpretive

    tool through which its preemptive intent would be revealed to the

    courts. See BFP v. Resolution Trust Corp., 114 S. Ct. 1757, 1761 ___ ___ ______________________

    (1994) (Congress is presumed to act with intent and purpose when

    it uses particular language in one section of a statute and not

    in another.).7
    ____________________

    7The district court drew encouragement for its preemption
    ruling from "[p]revious interpretations of similar language in
    similar legislation," with particular reference to the National
    Bank Act of 1864, ch. 106, 13 Stat. 99 (codified as amended in
    various sections of Title 12, United States Code). Grunbeck, 848 ________
    F. Supp. at 300. Section 85 of the National Bank Act provided
    that "a bank may charge 'interest at the rate allowed by the laws
    of the State, . . . where the bank is located and no more.'"
    Citizens' Nat'l Bank of Kansas City v. Donnell, 195 U.S. 369, 373 ___________________________________ _______
    (1904). Section 86 stated that "taking, receiving, or charging
    'a rate of interest greater than is allowed by the preceding
    section, when knowingly done, shall be deemed a forfeiture of the
    entire interest which the note, bill, or other evidence of debt
    carries with it, or which has been agreed to be paid thereon.'"
    Id. ___
    The district court expressed the view that Donnell supports _______
    a broad reading of 501(a)(1), in two respects.

    First, it offers persuasive support for con-
    struing "laws limiting the rate or amount of
    interest" to include laws prohibiting com-
    pound interest. . . . Second, it indicates
    that such laws also qualify as state "usury
    laws" which the title to 501(a)(1) indi-
    cates Congress intended to preempt.

    Grunbeck, 848 F. Supp. at 301. We think the district court ________
    misapprehended the purport of Donnell, as well as its bearing _______
    upon the question before us.
    First, the National Bank Act is largely inapposite to 501 501
    of the Monetary Control Act. In drafting 501, Congress did not
    borrow language from the National Bank Act. On the other hand,
    Congress did borrow language from the National Bank Act in
    drafting 521 of the Monetary Control Act. Greenwood Trust, 971 521 _______________
    F.2d at 827. "[S]ection 521 was conceived as an offspring of

    11












    2. Legislative History 2. Legislative History ___________________

    Even assuming ambiguity in the phrase "expressly

    limiting the rate or amount of interest," see Cabral, 15 F.3d at ___ ______

    194, relevant legislative history clearly reflects a congres-

    sional intention to confine the scope of section 501(a)(1)

    preemption to state laws which impose express ceilings on the ________

    rate or amount of interest which may be charged, as distinguished

    from bans against charging interest on interest or compounding. ____

    The legislative aim in enacting section 501 focused on "state

    usury ceilings," S. Rep. No. 368, 96th Cong., 2d Sess. 18-19, ________

    reprinted in 1980 U.S.C.C.A.N. 236, 254-55 (emphasis added), with _________ __

    particular emphasis on state usury laws which restrict interest

    rates to below-market levels and result in artificial disruptions ____________ __________ ___________

    in the supply of home-loan mortgage funds.

    The Committee finds that where state usury
    laws require mortgage rates below market
    levels of interest, mortgage funds in those
    states will not be readily available and
    those funds will flow to other states where
    ____________________

    section 85 of the Bank Act . . . ." Id. at 830 n.10. Thus, the ___
    Monetary Control Act includes two separate and dramatically
    different preemption provisions. Id. Consequently, an interpre- __
    tation of the progenitor of 521, i.e., the National Bank Act, 521
    affords little, if any, insight into the 501 preemption provi- 501
    sion at issue in the present case. Second, Donnell is _______
    inapposite to the present inquiry not only because it construed
    an unrelated statute 85 of the National Bank Act but
    because the SIS does not "expressly limit[] the rate or amount of _________
    interest" even assuming that a ban against compounding can be ___
    considered a limitation on the rate of interest "allowed by the __________
    laws of the State . . . ." Donnell, 195 U.S. at 373. Indeed, it _______
    is surpassingly awkward to ascribe meaning to the term "express-
    ly" if the SIS ban against compounding is considered an "ex- ___ ___
    press[] limit[ation on] the rate or amount of interest" which may _____ ___________ ____ __ ______
    be charged, since no rate or amount of "interest on interest" may __
    be charged under the SIS.

    12












    market yields are available. This artificial
    disruption of funds availability not only is
    harmful to potential homebuyers in states
    with usury laws, it also frustrates national
    housing policies and programs.

    Id. at 254. Congress thus sought to facilitate first-mortgage ___

    home loans at market rates, in order to enable an adequate credit

    supply and strengthen the financial system.

    In addition to the adverse effects of
    usury ceilings on credit availability, mort- _____ ________
    gage rate ceilings must be removed if savings ________
    and loan institutions . . . are to begin to
    pay market rates of interest on savings de-
    posits. Without enhancing the ability of
    institutions to achieve market rates on both
    sides of their balance sheets, the stability
    and continued viability of our nation's fi-
    nancial system would not be assured.

    Id. at 255 (emphasis added). ___

    The district court correctly noted that Congress

    intended to preempt state laws imposing usury ceilings, Grunbeck, ________ ________

    848 F. Supp. at 299, but nonetheless concluded that "the [SIS] .

    . . would limit the availability of mortgage funds in a way __ _ ___

    comparable to a numerical cap on interest rates." Id. (emphasis __________ __ ___

    added). True, demand for home mortgage credit could be reduced

    were lenders to decline to defer interest payments, even though

    the SIS does not place a ceiling on simple interest rates. But

    though potential homebuyers might borrow less (or not at all)

    were lenders to decline to defer interest payments or demand too

    high a rate or amount of simple interest for doing so, the

    potential homebuyer's decision would be the result of market

    forces, the phenomenon Congress set out to facilitate in its ___ __________ ________ ___ ___ __ __________ __ ___

    enactment of section 501(a)(1). That is to say, the SIS ban _________ __ _______ _________

    13












    against charging interest on interest would neither "require _______

    mortgage rates below market levels of interest," nor cause _____

    "artificial disruption in funds availability." See 1980 U.S.C.- __________ ___

    C.A.N. at 254 (emphasis added).

    Moreover, market adjustments in simple interest rates,

    which New Hampshire home mortgage lenders are free to adopt under

    the SIS, tend to promote equilibrium between credit supply and

    credit demand. In contrast, lenders may be forced from a credit ______

    marketplace governed by interest rate ceilings where the only ________

    alternative is to make loans at interest rates below the levels

    obtainable in competing loan markets. Credit supply is artifi- __ _______

    cially disrupted in such a lending environment because credit ______ _________

    demand tends to go unmet where borrowers are attracted by below- ______

    market interest rates but lenders are not. As a result, credit ___ _______ ___ ___

    demand and credit supply are less likely to attain equilibrium at

    the usury-ceiling level. In these respects at least, a ban on

    compounding is in no sense comparable to a mortgage interest rate

    ceiling.8 Thus, an outright ban against charging interest on
    ____________________

    8As a "[p]revious interpretation of similar language in
    similar legislation," the district court cited to "Fourchon, Inc. ______________
    v. Louisiana Nat'l Leasing Corp., 723 F.2d 376, 381-83 (5th Cir. _____________________________
    1984) (construing phrase 'rate of interest' in [ 926(d) of the]
    Preferred Ship Mortgage Act in accordance with previous construc-
    tion of similar phrase in National Bank Act to preempt state law
    prohibiting charging of interest on interest)." Grunbeck, 848 F. ________
    Supp. at 300. But the policies subserved by 926(d) of the
    Preferred Ship Mortgage Act are much broader than those underly-
    ing 501 of the Monetary Control Act. "The Preferred Ship
    Mortgage Act was designed to avoid parochial limitations on the
    ready availability of credit to the shipping industry by wholly ______
    and completely superseding state law and practice in every ___ __________ ___________
    respect." Fourchon, 723 F.2d at 387 (Shaw, J., dissenting) ________
    (emphasis added). "[T]he policies behind the Preferred Ship

    14












    interest does not work the adverse effects on the credit market-

    place which concerned Congress in section 501(a)(1), viz.,

    artificial disruptions in credit availability caused by State __________

    ceilings on interest rates resulting in below-market rates. ________ ____________

    Accordingly, we believe the relevant legislative history provides

    sturdy support for the view that the important modifier "express-

    ly" may not be read out of section 501(a)(1) and the term "limit-

    ing" is not to be equated with "banning."

    Congress also signaled its narrow preemptive intent

    under section 501(a)(1) by insulating these mortgage loans from

    state usury limitations only, and not from other state-law _____ ___________ ____

    limitations encompassed within the "annual percentage rate" nor

    other state-law limitations designed to protect borrowers:

    In exempting mortgage loans from state usury
    limitations, the Committee intends to exempt
    only those limitations that are included in
    the annual percentage rate. The Committee
    does not intend to exempt limitations on
    prepayment charges, attorney fees, late char-
    ges or similar limitations designed to pro- __ _______ ___________ ________ __ ____
    tect borrowers. ____ _________

    1980 U.S.C.C.A.N. at 255 (emphasis added). The district court

    concluded, without elaboration, that "interest on interest

    prohibitions . . . are 'included' in the interest rate." Grun- _____

    beck, 848 F. Supp. at 300. Dime Savings so contends on appeal, ____
    ____________________

    Mortgage Act support an expansive interpretation of the term
    'rate of interest' in section 926(d)." Fourchon, 723 F.2d at ________
    382. As discussed above, however, see Section B.2, the policies ___
    underlying 501 of the Monetary Control Act do not support a
    broad interpretation of the term "rate or amount of interest."
    Consequently, the Fourchon interpretation affords little insight ________
    into the preemptive intent underlying 501 of the Monetary
    Control Act.

    15












    maintaining that the SIS ban against charging interest on inter-

    est is included in the "annual interest rate." We cannot agree.

    In the first place, a ban against compounding interest

    affords significant consumer protections to homebuyers. Charging

    interest on deferred interest under a residential mortgage not

    only increases the "unseen" costs of home ownership but erodes _____

    home equity. Moreover, the relevant legislative history address-

    es "state usury limitations" only. The SIS, on the other hand, ___________

    is no mere "limitation" but an outright ban against calculating

    interest on interest. The ordinary meaning of the term "limit-

    ing" is either as the district court and Dime Savings view it

    "serving to restrict or restrain" or as the Grunbecks urge

    to enforce a "final, utmost or furthest boundary." Id. at ___

    298. But the SIS does not merely "limit," nor does it simply ___

    "restrain," compounding; it prohibits it. Thus, the "plain _________

    language" interpretation advocated by Dime Savings cannot be

    endorsed without disregarding the ordinary meanings of the

    distinctive terms "ban" or "prohibit" and "limit" or "restrain."

    See Greenwood Trust, 971 F.2d at 824. ___ _______________

    3. Administrative Regulations and Opinions 3. Administrative Regulations and Opinions _______________________________________

    Congress authorized the FHLBB and its successor, the

    Office of Thrift Supervision ("OTS"), "to issue rules and regula-

    tions and to publish interpretations governing the implementation

    of [section 501]." 12 U.S.C. 1735f-7a(f). Judicial review of

    an agency's interpretation of the statute it administers impli-

    cates two preliminary inquiries. Strickland, 48 F.3d at 16 __________


    16












    (citing Chevron, 467 U.S. at 842-43). The first is whether _______

    Congress has "directly spoken to the precise question at issue."

    Id. (quoting Chevron, 467 U.S. at 842) (internal quotation marks ___ _______

    omitted). If not, we inquire "whether the agency's answer is

    based on a permissible construction of the statute." Id. (quot- ___

    ing Chevron, 467 U.S. at 843) (internal quotation marks omitted). _______

    Although we accord deference to the agency's interpretation, the

    final word on statutory interpretation is for the courts.

    Chevron, 467 U.S. at 843 n.9 ("The judiciary is the final author- _______

    ity on issues of statutory construction and must reject adminis-

    trative constructions which are contrary to clear congressional

    intent."). Furthermore, "[i]f a court, employing traditional

    tools of statutory construction, ascertains that Congress had an

    intention on the precise question at issue, that intention is the

    law and must be given effect." Id. Where an agency interpreta- ___

    tion is based exclusively on its reading of the bare statutory

    language, no special deference is due. See Strickland, 48 F.3d ___ __________

    at 16. Furthermore, if "the statute itself, viewed in connection

    with the statutory design and the legislative history, reveals an

    unequivocal answer to the interpretive question, the court's

    inquiry ends." Id. at 17. __

    a. FHLBB Regulations a. FHLBB Regulations _________________

    The FHLBB has issued administrative regulations for the

    implementation of section 501, see 12 C.F.R. Part 590 (1988), ___

    which focus upon the effect of interest ceilings on the avail- ________

    ability of mortgage credit. "The purpose of this permanent


    17












    preemption of state interest-rate ceilings applicable to Federal- ________

    ly-related residential mortgage loans is to ensure that the

    availability of such loans is not impeded in states having

    restrictive interest limitations. . . ." 12 C.F.R. 590.1(b)

    (emphasis added). The FHLBB has reaffirmed that "[n]othing in

    this section preempts limitations in state laws on prepayment

    charges, attorneys' fees, late charges or other provisions

    designed to protect borrowers." Id. 590.3(c). ___

    A statute that imposes an outright ban against com-

    pounding does not place a "ceiling" on interest rates or amounts.

    See supra pps. 12-14. Moreover, assuming it may affect loan ___ _____

    demand, a ban against charging interest on interest does not

    artificially disrupt the availability of home mortgage credit. ____________ _______

    See supra at pps. 12-15. Finally, given the commercial reali- ___ _____

    ties, it is reasonably clear that the SIS ban against charging

    interest on interest not only affords important protections to

    homebuyers but does so without "expressly limiting" interest

    rates.

    b. The FHLBB and OTS Opinions b. The FHLBB and OTS Opinions __________________________

    In response to an inquiry in 1984 as to whether "Michi-

    gan laws regarding the charging of interest on deferred interest"

    were preempted by section 501, the FHLBB opined that "state laws

    which would prohibit the charging of [interest on] interest would

    constitute provisions 'limiting the rate or amount of interest .

    . . which may be charged. . . .' It is our opinion that such

    charges are not consumer protection provisions of the type


    18












    contemplated by 12 C.F.R. 590.2(c) (1984) such as limitations

    on prepayment charges, attorney's fees and late charges." Op.

    Off. Gen. Counsel, FHLBB 1097 (November 15, 1984). In 1991, the

    OTS followed suit with an opinion reaffirming the 1984 FHLBB

    opinion that a state statute regulating "compounding" is preempt-

    ed by section 501. Op. Off. Chief Counsel, OTS 91/CC-37 (Aug.

    16, 1991).

    We agree with the district court that these opinions

    are not controlling. See Grunbeck, 848 F. Supp. at 298 ("Al- ___ ________

    though these two opinions unequivocally support [Dime Savings']

    reading of 501(a)(1), the regulators have failed to provide any

    analytical support for [their conclusion]. In this circumstance,

    absolute deference would be nothing more than blind al-

    legiance."). The district court's observations are plainly

    correct. Neither regulatory body tendered a rationale for its _________

    opinion. The FHLBB the first to address the question

    neither described, nor cited, the Michigan provision to which its

    opinion related.9 And neither agency parsed the section 501(a)-

    (1) preemption clause language.

    As deference ultimately "depends on the persuasiveness

    of the agency's position," Strickland, 48 F.3d at 18, we agree __________

    that none is due in this instance. The interpretation adopted by

    ____________________

    9The OTS indicated that the party requesting its opinion had
    represented that Michigan has no statute on the subject and that
    the Michigan provision relating to "interest on interest" origi-
    nated in uncited caselaw announced around the turn of the centu-
    ry.


    19












    these agencies disregarded entirely the term "expressly" which

    plainly constrains the scope of the section 501(a)(1) preemption

    clause and overlooked the relevant legislative history explic-

    itly declaring a congressional intention to preempt state usury-

    law ceilings as distinguished from bans on compounding ________

    which result in artificial disruptions in home-mortgage loan

    credit by mandating below-market interest rates. Finally, even ____________

    assuming the FHLBB interpretation were apposite to the present

    discussion, in the respect that the Michigan provision with which

    it dealt imposed a ban on compounding, there is no explicit

    indication that either agency considered the significant consumer

    protections, see supra at 15, afforded by state bans such as ___ _____

    the SIS against charging interest on interest. For these and

    other reasons discussed at length in this opinion, we conclude

    that the agency interpretation relied on by Dime Savings is

    unpersuasive and entitled to no deference in the present context.



    c. The Parity Act c. The Parity Act ______________

    The district court rejected the State's argument that

    passage of the Alternative Mortgage Transaction Parity Act of

    1982 ("Parity Act"), 12 U.S.C. 3801 et seq., two years after __ ___

    passage of the Monetary Control Act, supports a narrow construc-

    tion of the preemptive scope of section 501(a)(1). Grunbeck, 848 ________

    F. Supp. at 301-02. We nonetheless believe that significant

    insight can be gleaned from the Parity Act.

    The Parity Act preempts State bans on certain "alterna-


    20












    tive mortgage transactions,"10 by which is meant "all manner of

    mortgage instruments that do not conform to the traditional

    fully-amortized, fixed-interest-rate mortgage loan." First _____

    Gibraltar Bank, FSB v. Morales, 19 F.3d 1032, 1037 (5th Cir. ____________________ _______

    1994), cert. denied, 115 S. Ct. 204, vacated on other grounds, 42 _____ ______ _______ __ _____ _______

    F.3d 895 (5th Cir. 1995) (per curiam). Common forms of "alterna-

    tive mortgage transactions" include adjustable interest rate

    mortgages, which may permit negative amortization, and graduated

    payment mortgages, which may temporarily lower the mortgage

    payment to less than the monthly interest due, resulting in

    planned negative amortization whereby interest is charged on the

    deferred interest. Id. (citing generally to Grant S. Nelson & ___

    Dale A. Whitman, Real Estate Transfer, Finance, and Development _______________________________________________

    1000-13 (4th ed. 1992)). Other planned negative amortization
    ____________________

    10The term "alternative mortgage transaction" means a
    residential mortgage loan
    (A) in which the interest rate or
    finance charge may be adjusted or
    renegotiated;
    (B) involving a fixed-rate, but
    which implicitly permits rate ad-
    justments by having the debt mature
    at the end of an interval shorter
    than the term of the amortization
    schedule; or
    (C) involving any similar type of
    rate, method of determining return,
    term, repayment, or other variation
    not common to traditional fixed-
    rate, fixed-term transactions, in-
    cluding without limitation, trans-
    actions that involve the sharing of
    equity or appreciation;
    described and defined by applicable regula-
    tion.

    12 U.S.C. 3802(1).

    21












    provisions include the reverse annuity mortgage ("RAM") and the

    credit conversion mortgage, both of which charge interest on

    deferred interest. Id. "An alternative mortgage transaction may ___

    be made by a housing creditor in accordance with [section 3803],

    notwithstanding any State constitution, law or regulation." 12

    U.S.C. 3803(c). It is a requirement of section 3803 that for

    "housing creditors [other than banks and credit unions] . . .

    transactions [must be] made in accordance with regulations

    governing alternative mortgage transactions as issued by the

    [OTS] . . . ." Id. 3803(a)(3). These OTS regulations, see 12 ___ ___

    C.F.R. 545.33(f)(4)-(11) (1988), impose, inter alia, substan- _____ ____

    tial lender disclosure requirements relating to features unique

    to alternative mortgage transactions.

    The State argued below that it would be "'illogical and

    contrary to public policy'" for Congress to require as a

    precondition to preemption under the Parity Act that negative

    amortization loans conform with OTS disclosure regulations "if

    lenders could claim preemption for the same transactions under

    [the Monetary Control Act] without making the required disclo-

    sures." Grunbeck, 848 F. Supp. at 302. Although, as the dis- ________

    trict court correctly observed, "[c]onstruing the Monetary

    Control Act to preempt simple interest laws does not eliminate _________

    the incentive for lenders to comply with the Parity Act's disclo-

    sure requirements," id. (emphasis added),11 it must also be __
    ____________________

    11The court explained that "negative amortization provisions
    are not the only characteristics that qualify a loan as an
    alternative mortgage transaction," and, further, that "[s]imple

    22












    noted that negative amortization provisions whereby interest is

    assessed on deferred interest are common features in various _______

    forms of alternative mortgage transactions; e.g., graduated _____

    payment mortgages, RAMs, and credit conversion mortgages.

    Because a ban against charging interest on interest would pre-

    clude a central feature common to many forms of alternative

    mortgage transactions, simple interest statutes unquestionably

    infringe upon alternative mortgage loans, even though they do not

    impose an outright ban. Thus, as the State contends, construing

    the Monetary Control Act so as to preempt simple interest laws,

    such as the SIS, would significantly reduce these alternative ______

    mortgage lenders' incentive to comply with the Parity Act disclo-

    sure requirements. Whether or not illogical, there can be little

    question that this result would conflict with the policy underly-

    ing the Parity Act and, thus, with the intent of Congress.

    As the district court noted, "the Parity Act and the

    Monetary Control Act serve related but distinctly different

    functions." Id. The Parity Act represents a congressional ___

    response to a concern, amongst others, that State bans on mort-

    gages other than traditional fixed-rate mortgages would reduce

    the overall availability of mortgage credit, since fixed-rate

    mortgages had become relatively more expensive as the result of

    increased interest-rate volatility.

    The Congress hereby finds that
    ____________________

    interest laws are merely one of several categories of" state laws
    "inconsistent with a qualifying lender's right to issue alterna-
    tive mortgage loans." Id. ___

    23












    (1) increasingly volatile and dy-
    namic changes in interest rates
    have seriously impaired the ability
    of housing creditors to provide
    consumers with fixed-term, fixed-
    rate credit secured by interests in
    real property, cooperative housing,
    manufactured homes, and other dwel-
    lings;
    (2) alternative mortgage transac-
    tions are essential to the provi-
    sion of an adequate supply of cred-
    it secured by residential property
    necessary to meet the demand ex-
    pected in the 1980's; . . . .

    12 U.S.C. 3801(a). These concerns prompted Congress to autho-

    rize State-chartered housing lenders, such as Dime Real Estate _____

    NH, to enter into alternative mortgage transactions.

    It is the purpose of [the Parity Act] to ...
    provide [nonfederally chartered housing cred- ____________
    itors] . . . parity with federally chartered
    institutions by authorizing all housing cred-
    itors to make, purchase, and enforce alterna-
    tive mortgage transactions so long as the
    transactions are in conformity with the regu-
    lations issued by the Federal agencies.

    Id. at 3801(b). See also First Gibraltar Bank, FSB, 19 F.3d at ___ ___ ____ _________________________

    1043. Thus, the purpose of the Parity Act was to preempt State

    bans on alternative mortgage transactions, including adjustable ____

    rate mortgages permitting negative amortization whereby interest

    may be charged on deferred interest payments.12

    In the Monetary Control Act, on the other hand, Con-

    gress was responding to the very different concern that State
    ____________________

    12The parties do not dispute that the Dime Savings loan is
    an "alternative mortgage transaction," though they disagree
    whether the loan was made in accordance with OTS regulations. We
    do not resolve the Dime Savings' Parity Act preemption claim as
    applied to the present loan, however, since it has not yet been
    considered by the district court.

    24












    interest-rate ceilings were depressing home-mortgage interest ________

    rates to below-market levels, thereby artificially disrupting the ____________

    availability of funds for both traditional fixed-rate mortgages

    and "alternative mortgage transactions." The latter concern

    prompted Congress to preempt only state laws "expressly limiting

    the rate or amount of interest." Thus, section 501(a)(1) of the

    Monetary Control Act was not aimed at preempting State laws, such

    as the SIS, which prohibit "alternative mortgage transactions"

    permitting negative amortization whereby interest may be charged

    on deferred interest.


    III III

    CONCLUSION CONCLUSION __________

    We hold that the New Hampshire Simple Interest Statute,

    as applied to the Dime Savings loan, is not preempted by section

    501(a)(1) of the Monetary Control Act. Consequently, we remand

    to permit the district court to consider the remaining issues

    relating to the petition to enjoin foreclosure on the Grunbeck

    residence.

    The judgment is vacated and the case is remanded for The judgment is vacated and the case is remanded for _______________________________________________________

    further proceedings consistent with this opinion. Costs are further proceedings consistent with this opinion. Costs are ___________________________________________________ __________

    awarded to appellants. awarded to appellants. _____________________











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