Mourning v. Family Publications Service, Inc.

1973-04-24

Headline: Consumer-credit rule upheld: Court allows Federal Reserve to require clear price disclosures for purchases payable in more than four installments, making it harder for sellers to hide credit costs and protecting consumers nationwide.

Holding: The Court reversed the Court of Appeals and held that the Federal Reserve Board permissibly adopted the "Four Installment Rule," allowing required disclosure for sales payable in more than four installments even without an identifiable finance charge.

Real World Impact:

Requires clearer price and credit disclosures for sales over four installments.
Makes it harder for sellers to conceal credit costs in listed prices.
Allows modest civil penalties when disclosure rules are violated.

Topics: consumer credit, truth in lending, consumer protection, price disclosure

Summary

Background

A 73-year-old widow bought a five-year magazine subscription door-to-door, paid a small upfront amount, and agreed to monthly payments for 30 months. The contract was noncancelable, did not state the total price or any finance charge, and the buyer later defaulted. She sued under the Truth in Lending Act, saying the seller failed to disclose required price and credit information. Both sides asked for summary judgment, and a federal appeals court struck down the Federal Reserve Board’s “Four Installment Rule,” which had required disclosures for sales payable in more than four installments.

Reasoning

The Court examined §105 of the Act and the legislative history showing Congress wanted to stop sellers from "burying" the cost of credit in price. The majority held the Board’s regulation is a reasonable way to prevent evasion and is within the agency’s broad rulemaking authority. The Court rejected the idea that the regulation unlawfully presumes a finance charge exists, and upheld the availability of the modest civil penalty even when a separate finance charge is not identified. The Supreme Court reversed the Court of Appeals and sent the case back for further proceedings consistent with its ruling.

Real world impact

The decision lets federal rules force clearer disclosures for many installment sales and makes it harder for sellers to hide credit costs in higher prices. Businesses that offer multi-installment plans will need to follow Regulation Z’s disclosure rules or face penalties. The ruling applies broadly because it affirms the agency’s power to craft rules to prevent evasion.

Dissents or concurrances

Two Justices said remand was appropriate because a factual question remained about whether the seller actually extended credit, while another Justice would have held no credit extension occurred as a matter of law.