REE CLAY and RUBY CHIVERS v. IVER R. JOHNSON and MARVIN BILFELD, d/b/a DAVENPORT CONSTRUCTION COMPANY

In the
United States Court of Appeals
For the Seventh Circuit
No. 00-1203
REE CLAY and RUBY CHIVERS,
Plaintiffs-Appellees,
v.
IVER R. JOHNSON and MARVIN BILFELD,
d/b/a DAVENPORT CONSTRUCTION COMPANY,
Defendants-Appellants.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 97 C 6007--Morton Denlow, Magistrate Judge.
ARGUED JANUARY 12, 2001--DECIDED September 5, 2001
Before RIPPLE, ROVNER and EVANS, Circuit
Judges.
RIPPLE, Circuit Judge. Ree Clay and Ruby
Chivers (collectively "the plaintiffs")
entered into a series of retail
installment contracts and mortgages to
finance home improvements provided by
Davenport Construction Company
("Davenport"). Marvin Bilfeld,
Davenport’s owner, assigned Davenport’s
interest in the contracts to Iver
Johnson, who became the mortgagee. The
plaintiffs filed this suit against
Bilfeld, Johnson, and Davenport
(collectively "the defendants") to obtain
damages and a recision of their contracts
based on the defendants’ alleged failure
to make a proper disclosure under the
Truth in Lending Act ("TILA"), 15 U.S.C.
sec. 1601 et seq. The district court
granted partial summary judgment in favor
of the plaintiffs on the issue of
liability and awarded them statutory
damages and attorneys’ fees. The
defendants have appealed the district
court’s judgment. For the reasons set
forth in the following opinion, we
reverse the judgment of the district
court.
I
BACKGROUND

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A. Facts
The plaintiffs are sisters who live
together in a home owned by Ms. Clay. On
three separate occasions in 1995, the
plaintiffs executed retail installment
contracts in which they mortgaged the
house to finance the purchase of home
improvements from Davenport./1 Davenport
assigned its interest in each of these
contracts to Johnson, making Johnson the
mortgagee.
Each of the retail installment contracts
the plaintiffs signed contained a
"Federal Truth-In-Lending Disclosure
Statement," otherwise known as a "federal
box," which contained the disclosures
required by TILA. R.23, Ex.E at 1, Ex.G
at 1; R.68, Ex.7 at 1. One of the
disclosures required by TILA is the
debtor’s payment schedule, which includes
the date on which the debtor must begin
making payments. See 15 U.S.C. sec.
1638(a)(6); 12 C.F.R. sec. 226.18(g)
(2001). According to the information the
defendants wrote in the federal box, the
plaintiffs’ monthly payments would begin
"30 days from completion" of the
construction work on the house. R.23,
Ex.E at 1, Ex.G at 1; R.68, Ex.7 at 1.
Approximately one month after the
plaintiffs signed each of their
contracts, Johnson sent them a letter
informing them that he had purchased the
contract and mortgage from Davenport and
that the plaintiffs should begin making
payments to him thirty days after they
signed a completion certificate
confirming the value of the work
Davenport had done. As the time of
completion neared, the parties were able
to determine the start date of the
plaintiffs’ payments more precisely, and
they typed the specific date on which the
plaintiffs’ first payment was due onto
the contract.
For several months, the plaintiffs made
their monthly payments on one of the
three contracts. These payments stopped
in December 1995. The plaintiffs never
made any payments on the other two
contracts. The plaintiffs eventually
notified the defendants in writing that
they "rescind[ed] any obligation to [the
defendants] for failure to comply with
the Truth in Lending Act." R.23, Ex.D.
Five days after the plaintiffs sent their
recision notice to the defendants, Ms.

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Clay filed for bankruptcy.
B. Earlier Proceedings
On the same day that Ms. Clay filed for
bankruptcy, the plaintiffs filed this
TILA action in the district court. The
plaintiffs sought to rescind their
contracts and to recover statutory
damages and attorneys’ fees based on the
defendants’ alleged failure to disclose
properly the payment schedule. The
district court granted summary judgment
to the plaintiffs on the issue of
liability. It held that TILA required the
defendants to provide an exact date on
which the plaintiffs’ payments would be
due or to provide an estimate of the due
date if they could not determine a
precise calendar date. Therefore, the
district court believed that the
defendants’ disclosure of "30 days from
completion" did not comply with TILA. The
court also held that, even though the
defendants had provided the plaintiffs
with an exact date after the contracts
had been signed, that disclosure did not
comply with TILA’s mandate that the
required disclosures be grouped together
and segregated from other information.
See 15 U.S.C. sec. 1638(b)(1); 12 C.F.R.
sec. 226.17(a)(1) (2001). The court
believed that the defendants’ failure to
comply with TILA constituted a technical
violation of the statute that entitled
the plaintiffs to rescind their
contracts, which they had done adequately
by providing written notice of the
recision to the defendants.
The defendants filed a motion for
reconsideration following the district
court’s grant of partial summary judgment
to the plaintiffs. The defendants’
argument was based on Comment 18(g)-4 to
Regulation Z, which was promulgated by
the Board of Governors of the Federal
Reserve System ("the Board") to interpret
the provisions of TILA. The defendants
maintained that Comment 18(g)-4
specifically stated that a creditor could
satisfy TILA by defining the beginning
payment date by reference to the
occurrence of a particular event rather
than by disclosing a precise calendar
date. The district court rejected the
defendants’ argument because Comment
18(g)-4 had not been issued at the time
the defendants made their disclosures to
the plaintiffs. The court did not believe

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that the comment could be applied
retroactively to validate the defendants’
disclosure in this case.
In light of its judgment in favor of the
plaintiffs on liability, the district
court granted the plaintiffs the recision
they requested and awarded them $6,000 in
statutory damages for the defendants’
violation of their recision rights. The
court did not award damages for the
defendants’ disclosure violation because
it determined that the plaintiffs’ claims
in this regard were time barred. The
court also concluded that TILA required
the plaintiffs to return the defendants’
property--in this case, the fair market
value of the work the defendants had
performed on the house--and it therefore
ordered the plaintiffs to return $32,000
to the defendants./2 Lastly, the court
awarded the plaintiffs $38,000 in
attorneys’ fees.
II
DISCUSSION
The defendants have appealed the
district court’s grant of summary
judgment and the concomitant award of
statutory damages and attorneys’ fees.
The defendants argue that the district
court erred in holding that Comment
18(g)-4 could not be given retroactive
effect. The defendants also maintain that
their subsequent disclosure of an exact
beginning payment date was sufficient to
satisfy TILA and that the plaintiffs did
not properly preserve or exercise their
recision rights. The plaintiffs respond
by arguing that Comment 18(g)-4 is
inconsistent with a previous position
adopted by the Board and therefore cannot
be applied retroactively. The plaintiffs
also submit that the defendants’
subsequent disclosure of an exact date on
which their payments were due did not
satisfy TILA because TILA does not allow
piecemeal disclosures and because the
defendants did not send them a new notice
of their right to rescind. Lastly, the
plaintiffs assert that they exercised
their right to rescind in a timely and
proper fashion. Because the issue of the
retroactive application of Comment 18(g)-
4 is potentially dispositive of this
case, we turn to it first.
The disclosures a creditor must make at

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the time he extends credit to a consumer
are governed by TILA and its implementing
regulation, Regulation Z. See 15 U.S.C.
sec. 1638; 12 C.F.R. sec. 226.18 (2001).
The Board publishes official staff
commentary to Regulation Z that is
dispositive in TILA cases unless the
commentary is demonstrably irrational.
See Ford Motor Credit Co. v. Milhollin,
444 U.S. 555, 565 (1980). Because the
date on which a debtor must begin making
payments is a required disclosure under
TILA, the manner in which the creditor
must make the disclosure is governed by
Regulation Z and its commentary. See 15
U.S.C. sec. 1638(a)(6); 12 C.F.R. sec.
226.18(g) (2001).
While this case was pending in the
district court, the Board undertook the
process of issuing Comment 18(g)-4, its
official staff interpretation of TILA’s
payment schedule disclosure requirement.
In December 1997, the Board published a
proposed version of Comment 18(g)-4 for
public comment. The proposed comment
provided:
Timing of payments. Creditors must
disclose when payments are due, including
the calendar date that the beginning
payment is due. For example, a creditor
may disclose that payments are due
"monthly beginning on July 1, 1998." A
reference to the occurrence of a
particular event, for example, disclosing
that the first payment is due "30 days
after the completion of construction," is
not sufficient. If the beginning-payment
date is unknown, the creditor must use an
estimated date and label the disclosure
as an estimate pursuant to sec.
226.17(c).
62 Fed. Reg. 64769, 64775 (proposed Dec.
9, 1997). The Board stated in its notice
of proposed rulemaking that "[p]roposed
comment 18(g)-4 clarifies the
requirements for disclosing the timing of
payments." Id. at 64771.
The Board received about 110 comments in
response to its proposed amendments to
the commentary. See 63 Fed. Reg. 16669,
16670 (Apr. 6, 1998). It published the
final version of Comment 18(g)-4 in April
1998. See id. at 16673. The final version
of Comment 18(g)-4 establishes a general
rule requiring that creditors disclose a
specific date on which the debtor’s

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payments will begin. See 12 C.F.R. pt.
226, Supp. I, Par. 18(g)(4)(i) (2001).
However, the final version of Comment
18(g)-4 eliminated the proposed comment’s
prohibition on disclosing the beginning
payment date by referring to a specified
event, such as "30 days from completion
of construction." See id. at Par.
18(g)(4)(ii). Several commentators had
indicated to the Board during the comment
period that the exact date on which
payments should begin is often difficult
to determine with specificity at the time
TILA’s disclosures must be made. See 63
Fed. Reg. at 16673. Thus, the Board
adopted the following exception to
Comment 18(g)-4’s general rule:
In a limited number of circumstances, the
beginning-payment date is unknown and
difficult to determine at the time
disclosures are made. For example, a
consumer may become obligated on a credit
contract that contemplates the delayed
disbursement of funds based on a
contingent event, such as the completion
of home repairs. Disclosures may also
accompany loan checks that are sent by
mail, in which case the initial
disbursement and repayment dates are
solely within the consumer’s control. In
such cases, if the beginning-payment date
is unknown the creditor may use an
estimated date and label the disclosure
as an estimate pursuant to sec.
226.17(c). Alternatively, the disclosure
may refer to the occurrence of a
particular event, for example, by
disclosing that the beginning payment is
due "30 days after the first loan
disbursement." This information also may
be included with an estimated date to
explain the basis for the creditor’s
estimate.
12 C.F.R. pt. 226, Supp. I, Par.
18(g)(4)(ii) (2001). As it had with the
proposed version of Comment 18(g)-4, the
Board indicated that it intended for the
final version of Comment 18(g)-4 to
interpret and clarify a creditor’s
existing obligations under TILA and
Regulation Z. See 63 Fed. Reg. at 16673.
The adopted version of Comment 18(g)-4
is the current state of the law. However,
Comment 18(g)-4 had not been adopted at
the time the defendants made their
disclosures to the plaintiffs. The
parties therefore dispute whether Comment

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18(g)-4 can be applied retroactively to
the defendants’ disclosure in this case.
If an agency promulgates a new rule that
changes the substantive state of existing
law, that rule is not retroactive unless
Congress expressly authorized retroactive
rulemaking and the agency clearly
intended the rule to be retroactive. See
Pope v. Shalala, 998 F.2d 473, 483 (7th
Cir. 1993) (citing Bowen v. Georgetown
Univ. Hosp., 488 U.S. 204, 208 (1988)),
overruled on other grounds by Johnson v.
Apfel, 189 F.3d 561 (7th Cir. 1999).
However, a "rule simply clarifying an
unsettled or confusing area of the law .
. . does not change the law, but restates
what the law according to the agency is
and has always been." Id.; see also First
Nat’l Bank of Chicago v. Standard Bank &
Trust, 172 F.3d 472, 478 (7th Cir. 1999).
A clarifying rule, therefore, can be
applied to the case at hand just as a
judicial determination construing a
statute can be applied to the case at
hand. See Pope, 998 F.2d at 483 (quoting
Manhattan Gen. Equip. Co. v. Comm’r, 297
U.S. 129, 135 (1936)). We give great
deference to the promulgating
agency’sexpressed intent as to whether
its rule changes the law or merely
clarifies it. See id.; First Nat’l, 172
F.3d at 478. We "will defer to an
agency’s expressed intent that a
regulation is clarifying unless the prior
interpretation of the regulation or
statute in question is patently
inconsistent with the later one." Pope,
998 F.2d at 483; see also First Nat’l,
172 F.3d at 478.
The district court believed that the
position the Board announced in its
proposed version of Comment 18(g)-4 was
patently inconsistent with the position
the Board announced in the adopted
version of Comment 18(g)-4. The court
noted that the Board initially indicated
in its proposed comment that the "30 days
from" language was not sufficient to
satisfy TILA, then decided in its adopted
version of Comment 18(g)-4 that this same
language was sufficient. The court
thought it was incongruous for the Board
to characterize both of these positions
as a clarification of the existing law;
it did not believe that two such
contradictory statements could both be
clarifications. As a result, the court
determined that the adopted rule must
have been a change in the law that could

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not have a retroactive effect.
The district court recognized the
different procedural postures in which
the Board issued its conflicting
statements, but it did not perceive the
difference as significant. We
respectfully disagree with the district
court’s assessment. The Supreme Court has
drawn a distinction between proposed and
adopted rules. See Commodity Futures
Trading Comm’n v. Schor, 478 U.S. 833,
845 (1986). The Court has explained that
inconsistencies between an agency’s
proposed rule and a later-adopted rule
are not a valid basis for refusing to
defer to an agency’s official
interpretation of a statute it
administers. See id. An agency is
entitled to use the comment period
to consider alternative interpretations
before settling on the view it considers
most sound. Indeed, it would be
antithetical to the purposes of the
notice and comment provisions of the
Administrative Procedure Act to tax an
agency with "inconsistency" whenever it
circulates a proposal that it has not
firmly decided to put into effect and
that it subsequently reconsiders in
response to public comment.
Id. (internal citation omitted).
In light of the Supreme Court’s
discussion in Schor, the Tenth Circuit
has determined that an agency’s
reconsideration of a proposed rule is not
a sufficient basis on which to refuse to
defer to the agency’s final
interpretation. See Joy Techs., Inc. v.
Sec’y of Labor, 99 F.3d 991, 998 (10th
Cir. 1996) (stating that an agency’s rule
was entitled to deference even though the
final rule conflicted with an earlier
proposal that was retracted). Another
circuit has gone so far as to refuse to
take cognizance of an agency’s proposed
rule. See Cal. Rural Legal Assistance,
Inc. v. Legal Servs. Corp., 917 F.2d
1171, 1173 n.5 (9th Cir. 1990) (stating
that, although the regulation at issue
allegedly was contrary to an earlier pro
posed regulation, the court "decline[d]
to take cognizance of the proposed
regulation"). In short, "a proposed
regulation does not represent an agency’s
considered interpretation of its
statute," Schor, 478 U.S. at 845, and

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therefore is not entitled to deference.
We are convinced that the Board’s
retraction of its initial position is not
sufficient to tax the Board with
inconsistency. The Board recognized that
creditors were confused about what TILA
required them to disclose with respect to
the beginning payment date. See 63 Fed.
Reg. at 16673. The Board was "aware that
creditors could reasonably have
interpreted the statutory requirement for
specifying the ’period of payments’ in
different ways." Id. Although the Board
initially thought it proper to clarify
the law by requiring creditors to
disclose an exact date, it apparently
thought better of that position following
the comment period and in light of the
comments it received.
Because the difference between the
Board’s proposed version of Comment
18(g)-4 and the adopted version of
Comment 18(g)-4 is the only inconsistency
to which the district court--and the
plaintiffs on appeal--have pointed, we
see no reason not to defer to the Board’s
characterization of Comment 18(g)-4 as a
clarification of the existing law. As
such, Comment 18(g)-4 should be applied
to the facts of this case.
This application is a straightforward
proposition. Although Comment 18(g)-4’s
general rule requires a creditor to
disclose a specific date on which the
debtor’s payments will begin, its
exception definitively states that a
creditor may disclose the debtor’s
beginning payment date by referring to a
specified event, such as "’30 days after
the first loan disbursement.’" 12 C.F.R.
pt. 226, Supp. I, Par. 18(g)(4)(ii)
(2001). The defendants’ disclosure that
the plaintiffs’ monthly payments would be
due beginning "30 days from completion"
of the construction therefore falls
within Comment 18(g)-4’s exception.
Consequently, the defendants’ disclosure
of the plaintiffs’ beginning payment date
was sufficient to comply with TILA, and
the plaintiffs are not entitled to
rescind their contracts or to recover
damages on this ground./3
Conclusion
The district court erred in holding that
Comment 18(g)-4 does not have retroactive

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effect. Comment 18(g)-4 does apply to the
defendants’ disclosure of the plaintiffs’
beginning payment date, and it
establishes that the defendants’
disclosure complied with TILA’s
requirements. Plaintiffs, therefore, are
not entitled to rescind their contracts
or to recover damages or attorneys’ fees
under TILA. Accordingly, the judgment of
the district court is reversed.
REVERSED
FOOTNOTES
/1 Both Ms. Clay and Ms. Chivers were parties to the
first two contracts. Only Ms. Clay signed the
third contract.
/2 Pursuant to her bankruptcy plan, Ms. Clay had
returned $20,000 of the value of the work done to
the defendants at the time the district court
issued its judgment.
/3 The plaintiffs recognize that, even though the
defendants initially disclosed their beginning
payment date as "30 days from completion" of the
construction, the defendants subsequently provid-
ed them with an exact calendar date and typed
that date onto their contracts. The plaintiffs
argue that this later disclosure did not comply
with TILA because (1) TILA’s disclosures cannot
be made piecemeal and (2) the defendants did not
set off the date from the other disclosures. The
plaintiffs further assert that the defendants
failed to provide them with a proper corrected
notice of recision rights once the defendants
disclosed the exact date on which their payments
were to begin. These arguments are rendered moot
by our determination that the defendants’ initial
disclosure satisfied TILA; therefore, we need not
reach their merits.

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