Davis v. Pacific Capital Bank ( 2008 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
FELICIA D. DAVIS, for herself and 
for all others similarly situated, No. 07-56236
Plaintiffs-Appellants,
v.  D.C. No.
CV-07-02786-R
PACIFIC CAPITAL BANK, N. A., OPINION
Defendant-Appellee.

Appeal from the United States District Court
for the Central District of California
Manuel L. Real, District Judge, Presiding
Argued and Submitted
November 17, 2008—Pasadena, California
Filed December 24, 2008
Before: Myron H. Bright,* Stephen S. Trott, and
Michael Daly Hawkins, Circuit Judges.
Opinion by Judge Hawkins
*The Honorable Myron H. Bright, Senior United States Circuit Judge
for the Eighth Circuit, sitting by designation.
16771
DAVIS v. PACIFIC CAPITAL BANK 16773
COUNSEL
Jordan M. Lewis, Siegel, Brill, Greupner, Duffy & Foster,
P.A., Minneapolis, Minnesota, for the plaintiff-appellant.
Brad W. Seiling, Manatt, Phelps & Phillips, LLP, Los Ange-
les, California, for the defendant-appellee.
OPINION
HAWKINS, Circuit Judge:
Must a creditor who imposes a flat finance charge that does
not vary with the term of a Refund Anticipation Loan refund
a portion of the charge as “unearned interest” under 15 U.S.C.
§1615 when the loan is repaid earlier than anticipated in the
loan agreement? Concluding that the finance charge in ques-
tion is not an “interest” charge, we answer no and affirm.1
FACTUAL AND PROCEDURAL BACKGROUND
Felicia Davis (“Davis”) brought this action for herself and
others similarly situated against Pacific Capital Bank, N.A.,
1
Because we hold that no portion of the $85 finance charge was
unearned “interest,” we need not resolve Pacific’s alternative argument
that Davis’s Unfair Competition Law claim should be dismissed as pre-
empted by the National Bank Act, 12 U.S.C. § 21.
16774 DAVIS v. PACIFIC CAPITAL BANK
(“Pacific”) under California’s Unfair Competition Law, Cal.
Bus. & Prof. Code §17200. Davis alleges she obtained a “Re-
fund Anticipation Loan” (“RAL”) secured by her anticipated
federal income tax refund, which Davis authorized the Inter-
nal Revenue Service to deposit into an account established by
Pacific. The loan document, attached as an exhibit to Davis’s
complaint, provided that $1,115 was credited to Davis, the
credit would cost $85, the Annual Percentage Rate “cost of
[the] credit at a yearly rate” was 57.969%, and that one pay-
ment of $1,200 would be due forty-eight days after Pacific
approved the loan. The loan document provided that, if Davis
repaid the loan early, she would not be entitled to a refund of
any part of the $85 finance charge, but the loan document did
not require Davis to pay any additional finance charges if she
repaid the loan after the anticipated forty-eight day period.
Davis alleges her refund was deposited ten days earlier than
anticipated in the loan agreement, and, as a consequence,
Pacific’s failure to refund a $17.74 pro-rated portion of her
finance charge was “unlawful” or “unfair” because § 1615
requires Pacific to refund unearned “interest.” The district
court dismissed Davis’s complaint with prejudice, holding
that the $85 finance charge was not interest.
JURISDICTION AND STANDARD OF REVIEW
We have appellate jurisdiction pursuant to 28 U.S.C.
§ 1291. We review dismissals for failure to state a claim de
novo. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005).
DISCUSSION
[1] Section 1615 states that “[i]f a consumer prepays in full
the financed amount under any consumer credit transaction,
the creditor shall promptly refund any unearned portion of the
interest charge to the consumer.” 15 U.S.C. § 1615(a)(1).
Because Congress did not define the word “interest” as used
in § 1615, it is not immediately obvious whether it encom-
passes the finance charge at issue.
DAVIS v. PACIFIC CAPITAL BANK 16775
In other contexts, the term “interest” has been interpreted
broadly. See, e.g., 12 C.F.R. § 7.4001 (defining “interest,” as
used in the National Bank Act, 12 U.S.C. § 85, to include
“numerical periodic rates, late fees, creditor-imposed not suf-
ficient funds (NSF) fees . . . , overlimit fees, annual fees, cash
advance fees, and membership fees”). Charges that do not
vary according to the length of delay before repayment are
sometimes still “interest.” See Smiley v. Citibank (South
Dakota), N.A., 517 U.S. 735, 745-46 (1996) (“Any flat charge
may, of course, readily be converted to a percentage charge
— which was indeed the basis for 19th century decisions
holding that flat charges violated state usury laws establishing
maximum ‘rates.’ ”). Indeed, Pacific has argued successfully
in other cases that the National Bank Act preempts state laws
limiting its RAL fees because of the National Bank Act’s
broad definition of “interest.” See Pac. Capital Bank, N.A. v.
Connecticut, 542 F.3d 341, 353-54 (2d Cir. 2008).
Within the framework of the Truth in Lending Act
(“TILA”), 15 U.S.C. §§ 1601-1615, and its implementing
Regulation Z, 12 C.F.R. § 226.4, however, the term “finance
charges” is used to refer to this broader category of payments
for credit and the term “interest” is used more narrowly.
Although TILA itself does not define “interest” or “finance
charge,” see 15 U.S.C. § 1602, Regulation Z defines several
types of “finance charges,” including “[i]nterest [and] time
price differential” under one subsection and “[p]oints, loan
fees, . . . and similar charges” under a separate subsection. 12
C.F.R. § 226.4 (b)(1), (b)(3). “Points” are similar to the
finance charge at issue because both are calculated based on
the size of the original loan balance, but do not increase in
direct proportion to length of time prior to repayment. See,
e.g., 15 U.S.C. § 1602(aa)(4). Regulation Z’s inclusion of
“[p]oints, loan fees” and “similar charges” under a separate
subsection from “interest” or “time price differential” sug-
gests that, under TILA, the two categories are distinct types
of finance charges. Although TILA requires all finance
16776 DAVIS v. PACIFIC CAPITAL BANK
charges to be included when the borrower is informed of the
total “cost of credit” expressed as an Annual Percentage Rate,
this computation is required to enable consumers to compare
loans with different types of finance charges effectively and
does not imply that all finance charges are “interest” or vary
depending on the duration of the loan. See 15 U.S.C. § 1604;
12 C.F.R. § 226.18.
When interpreting a statutory term that is not explicitly
defined by Congress, we ordinarily defer to the agency
charged with administering the statute. In this case, however,
no agency appears to have decided which framework or set of
definitions applies to § 1615 or interpreted the unearned inter-
est provision directly.
[2] Accordingly, we turn to § 1615’s legislative history for
help in resolving the ambiguity. Saratoga Sav. & Loan Ass’n.
v. Federal Home Loan Bank Bd., 879 F.2d 689, 693 (9th Cir.
1989). Section 1615 was originally introduced as an amend-
ment to TILA. H.R. 5170, 102d Cong. § 4 (as introduced May
14, 1992). Although language indicating that the provision
would amend TILA was later removed, § 1615 was codified
within the statutory sections comprising TILA. See H.R.
5334, 102d Cong. § 933 (as enacted Oct. 28, 1992); see also
15 U.S.C. §§ 1601-1615.
[3] Of critical importance was a revision that occurred
before § 1615 was enacted. The original bill required creditors
to refund unearned portions not only of an “interest charge,”
but of any “finance charge.” H.R. 5170 § 4. This change in
terminology, in addition to indicating that § 1615’s drafters
apparently assumed it operated within the TILA framework,
suggests that the drafters considered applying § 1615 to all
finance charges, but then intentionally excluded finance
charges that do not vary according to the term of the loan and
DAVIS v. PACIFIC CAPITAL BANK 16777
limited the provision to require refunds only of unearned “in-
terest,” as defined under TILA.2
[4] In light of this legislative history and absent an agency
regulation invoking the other permissible interpretation, we
interpret § 1615 as not requiring Pacific to refund a portion of
the $85 finance charge at issue here. Pacific’s decision to fol-
low TILA and describe the “cost of [the] credit as a yearly
rate” does not create a triable issue of fact regarding whether
the finance charge may be “interest.” The proper interpreta-
tion of “interest” in § 1615 is a question of law.
[5] California’s Unfair Competition Law “permits viola-
tions of other laws to be treated as unfair competition that is
independently actionable.” Leonel v. Am. Airlines, Inc., 400
F.3d 702, 714 (9th Cir. 2005) (citations omitted). Although
Davis argues that Pacific’s practice is both “unlawful” and
“unfair,” both allegations are based on the asserted violation
of § 1615. Concluding Pacific retained no unearned “interest”
under § 1615, we find no violation of federal law to form the
basis of Davis’s single Unfair Competition Law claim. It
therefore must be dismissed.
AFFIRMED.
2
Although we do not rely upon privately held views of legislators when
interpreting a statute, it is also worth noting that at least one of the bill’s
sponsors assured a correspondent that the provision does not require
refunds of “points.” See Roland E. Brandel, et al., Truth in Lending: A
Comprehensive Guide § 33.03, n.3 (2d ed. Supp. 1994).