Full text of Federal Reserve Bank of New York Circulars : 9539. Regulation Z

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FEDERAL RESERVE BANK
OF NEW YORK

[

Circular No. 9539
August 17,1983

"1

REGULATION Z
Proposed Preemption Determinations
To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:

The Board of Governors of the Federal Reserve System has requested com­
ment as to whether provisions of New Hampshire and New Jersey State laws that
govern the offering of cash discounts in the sale of motor fuel are not inconsistent
with the Truth in Lending Act or Regulation Z and should not be preempted.
The Board has also requested comment on its view that these laws are of a type
not subject to the Board’s authority to preempt State law under the Truth in Lending
Act.
Printed on the following pages is the text of the Board’s Notice of Intent which
has been reprinted from the F e d e r a l R e g is te r of August 5, 1983. Comments should
be submitted by October 7, 1983, and may be sent to our Regulations Division.




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FEDERAL RESERVE SYSTEM
12 CFR Part 226
[Reg. Z; Doc. No. R-0477]

Truth in Lending; Intent To Make
Determinations of Effect on State
Laws; New Hampshire and New Jersey
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Notice of intent to make
determinations of effect on state laws.
s u m m a r y : The Board is publishing for
comment proposed determinations as to
whether certain provisions in the laws
of New Hampshire and New Jersey are
inconsistent with, and therefore
preempted by, the Truth in Lending Act
or Regulation Z. The request for
preemption determinations concerns
state laws governing the offering of cash
discounts in the sale of motor vehicle
fuel. The Board believes that these laws
may be of a type not subject to the
Board's preemption authority and
specifically requests comment on this
question. Alternatively, the Board has
assumed—for discussion purposes—that
these laws are subject to a preemption
determination, and proposes to find that
the laws are not preempted.
DATE: Comments must be received on or
before October 7,1983.
ADDRESS: Comments should refer to
Docket No. R-0477 and be mailed to
William W. Wiles, Secretary, Board of
Governors of the Federal Reserve
System, Washington, D.C. 20551, or
delivered, to Room B-2223, 20th and
Constitution Avenue. NW., Washington,
D.C., between 8:45 am. and 5:15 p.m.
Comments may be inspected in Room B~
1122 between 8:45 am . and 5:15 p.m.

FOR FURTHBt INFORMATION CONTACT:

Gerald Hurst or Lynn Goldfaden, Staff
Attorneys, Division of Consumer and
Community Affairs, Board of Governors
of the Federal Reserve System,
Washington. D.C. 20551. at (20?) 4523667 or 452-3867.
SUPPLEMENTARY INFORMATION: (1)

General. The Board has received a

request for a determination as to
whether provisions of certain laws in
New Hampshire and New Jersey are
inconsistent with, and therefore




preempted by, the Truth in Lending Act
(15 U.S.C. 1601 e t seq .l and Regulation Z
(12 CFR Part 226). This notice is issued
under authority delegated to the
Director of the Division of Consumer
and Community Affairs, as set forth in
the Board’s Rules Regarding Delegation
of Authority (12 CFR 265.2(h)(2); 48 FR
4454, February 1 ,1983).
Section 111(a)(1) of the act authorizes
the Board to determine whether any
inconsistency exists between chapters 1
(General Provisions), 2 (Credit
Transactions), or 3 (Credit Advertising)
of the Truth in Lending Act or its
implementing regulation, Regulation Z,
and any state law relating to the
disclosure of information in connection
with consumer credit transactions.
Section 171(a) of the act authorizes the
Board to determine whether any
inconsistency exists between chapter 4
(Credit Billing) of the act or its
implementing regulation and any state
law relating to credit billing practices.
Section 167(b), the federal statutory
provision relevant to these
determinations, is locatechin chapter 4 of
the act, but its purpose is to provide an
exception for certain cash discounts to
the finance charge rules In section 106,
which is found in chapter 1. Since
section 167(b) is significant only in its
relationship to the finance charge rules,
the Board believes that section 111(a)(1),
instead of section 171(a), provides the
appropriate standard for review for
preemption determinations concerning
the federal cash discount provision.
The Board believes, however, that the
state laws addressed in the present
preemption request may be outside the
scope of the Board’s preemption
authority under the Truth in Lending
Act. The state laws deal with
permissible sales and pricing practices
in the sale of motor vehicle fuel rather
than with the disclosure of information
in connection with consumer credit
transactions. Section 111(b) of the act,
which limits the effect of the federal act
on state laws, provides that:
This title does not otherwise annul, alter or
affect in any manner the meaning, scope or
applicability of the law s of any State,
including, but not limited to. law s relating to
the types, amounts or rates of charges, or any
element or elements of charges, permissible

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under such law s in connection with the
extension or use of credit * * *. (Emphasis
added.)

If the state laws contained in this
request do not fall within the scope of
section 111(a)(1). it appears that the

Board would not be authorized to make
preemption determinations as to those
laws. The Board believes that the state
laws included in the present request
may not be subject to preemption
determinations because they do not
relate to the disclosure of credit terms.
Comment is specifically requested on
this point.
If the Board, however, ultimately finds
that these state laws are within the
scope of section 111(a)(1), it will be
necessary to make preemption
determinations as to those laws.
Therefore, in order to facilitate public
comment, this notice includes proposed
determinations, on the assumption that
the state laws may be subject to the
Board’s preemption authority.

(2)
Standards for and effect of
preemption determinations. In
determining whether a state law is
inconsistent with the federal provisions,
§ 226.28(a)(1) of Regulation Z, which
implements § 111 of the act, provides
that a state law is inconsistent if it
requires a creditor1 to make disclosures
or take actions that contradict the
federal law. A state law is
contradictory, and therefore preempted,
if it significantly impedes the operation
of the federal law or interferes with the
purposes of the federal statute.
In general, preemption determinations
are limited to those provisions of state
law identified in the request for a
determination. At the Board’s discretion,
however, other state provisions that
may be affected by the federal law also
may be addressed.

If the Board determines that a state
requirement is inconsistent with the
federal law, the state law is preempted
to the extent of the inconsistency.
Creditors in that state may not make
disclosures using the inconsistent term
or form, even on a separate document
from the federal disclosures. A
determination on provisions in the law
1A service station operator accepting credit cards
is a “creditor” for limited purposes under
$ 226.2(a)(17)(iii) of Regulation Z, 12 CFR Part 226.

vary the price charged for separate sales
of one state will have no effect in the
validity of similar provisions in other
of gasoline from the same pump
states.
according to the method of payment. As
Preemption determinations have an
a result, dealers in New Hampshire may
offer “a discount for cash program
effective date of the October 1 that
follows the determination by at least 0
which involves the posting and charging
of one price for the same grade of
months, as required by section 105(d) of
gasoline with a discount provided for
the act. It is expected that these
customers who pay with cash, if
proposed determinations, if adopted,
would have an effective date of October
advertised and operated in a manner
which is neither deceptive nor
1,1984, although creditors could begin
misleading."
complying with the determinations
before that time.
The federation argues that since the
(3)
Discussion of specific requests andfederal law contains a provision stating
proposed determinations. In response to
that the establishment of separate
a request from a federation of trade
pumps or islands for cash and credit
associations representing independent
sales is an allowable means of offering a
petroleum marketers, the Board has
cash discount (see Comment 4(b)(9)—3 of
reviewed provisions in the laws of New
the Official Staff Commentary to
Hampshire and New Jersey. The request
Regulation Z (12 CFR Part 226,
is available for public inspection and
Supplement I; as amended, 48 FR 41343,
copying, subject to the Board’s Rules
September 20,1982) the state law, as
Regarding Availability of Information
interpreted, is inconsistent with federal
(12 CFR Part 261). The proposed
law, impedes and interferes with the
determinations regarding the state laws
offering of cash discounts, and is
at issue, together with the reasons for
preempted. The Board, however, does
the proposals, are set forth below.
not believe that the state law is
N ew Hampshire. The federation has
preempted.
requested a determination of whether
In discussing the term "regular price"
section 339-B:8,II of New Hampshire
in the Official Staff Commentary, the
Revised Statutes Annotated (1981 Supp.)
staff made clear that offering a discount
(N.H. Rev. Stat. Ann.), as interpreted by
by establishing separate cash and credit
the state Attorney General’s office, is
pumps, and posting only the cash or
inconsistent with, and therefore
credit prices on these pumps, would be
preempted by, the Truth in Lending Act
considered an appropriate means of
and Regulation Z. Under that law it is
offering a discount under section 167(b)
unlawful for any person operating a
of the act and would not result in a
retail gasoline station to:
surcharge prohibited under section
167(a)(2). However, this material only
Post a different price at one pump for the
describes a permissible means of
same grade of gasoline as is dispensed from
offering a cash discount under federal
another pump when both pumps are supplied
law, not a required or the sole means of
from a common storage at the same service
doing so.
station and when the gasoline dispensed from
both is represented to be and is sold as the
The purpose of the federal cash
same quality of gasoline; provided, however,
discount provision is to encourage the
that this paragraph shall not prohibit such
offering of cash discounts by removing
price differences betw een a self-service and
certain impediments to offering them.
an attendant-operated pump supplied from a
Specifically, Congress provided that a
common storage as described hereinabove.
discount offered in accordance with
section 167(b) of the act would not be a
The New Hampshire Attorney
finance charge under the federal Truth
General’s office, in opinions dated May
in Lending Act, or a finance charge or
26,1982, and January 21,1983, has
other charge for credit under stale usury
interpreted N.H. Rev. Stat. Ann. section
or disclosure laws (see section 171(c) of
339-B:8,II as prohibiting the
the act). The New Hampshire law does
establishment of separate "cash pumps"
not provide that a discount offered in
and “credit pumps” with different
accordance with the federal law is to be
posted prices for the same grade of
a finance charge for disclosure or usury
gasoline, but permitting the dealer to




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purposes. Rather, the state law, by
prohibiting a particular practice in the
sale of gasoline, prohibits one manner of
offering discounts that is permissible
under federal law while allowing
dealers to offer discounts in another
manner. As a result, the Board does not
believe that the state law significantly
impedes or interferes with the federal
scheme and therefore the state law is
not preempted.
N ew Jersey. The federation has also
requested a determination on two
provisions of New Jersey law as they
have been interpreted in relation to the
offering of cash discounts by petroleum
retailers. The first provision in question
provides:
A retail dealer may sell similar fuels at
different prices to cash and credit customers,
and the price posted on top of the pump and
on the pump meter shall be the credit
purchase price. A conspicuous sign shall also
be displayed at the pump or at the island
posting the price per gallon (or per gallon and
per liter) reduction for cash purchasers of
fuels.

New Jersey Administrative Code
(N.J.A.C.) § 18;19—
2.7(b).
A February 9,1983 memorandum from
the New Jersey Department of Law and
Public Safety clarified this provision by
stating:

1. All gasoline pumps will show the
posted price per gallon and/or liter at
the higher or credit card price. A sign
disclosing the cents-off per gallon
discount may be shown at the pump or
at the island site. The lower cash price
may be posted on a street sign or some
other sign not in close proximity to the
pumps themselves. This sign shall be
accessible to the public.
2. Separate islands for cash and/or
credit may be used provided that the
pump posted signs and computer prices
on both the cash island and credit card
island reflect the higher credit card
price.
The federation believes that these
provisions result in two positions that
are contradictory to positions taken by
the Board and should be preempted.
Specifically, the positions are:
(1) New Jersey law requires the meter
on a gasoline pump dedicated to cash
sales to display the higher credit card
price.

(2)
New Jersey law requires the meter
on a gasoline pump used for both cash
and credit card sales to display the
higher credit card price.
With respect to the first position, the
federal law does permit a service station
operator to designate separate pumps or
separate islands as being for either cash
or credit purchases while displaying
only the appropriate cash or credit price
at the pumps. (See Comment 4(b}(9}-3 of
the Official Staff commentary to
Regulation Z.) The New Jersey law,
however, like the New Hampshire law
described above, requires certain sales
practices to be followed by persons
offering cash discounts in the sale of
gasoline.
The federal law, as interpreted by the
staff, simply gives an example of a
permissible means of offering a discount
under section 167(b). The federal law
does not require the use of this method
and a state’s decision to prohibit a
specific method of offering cash
discounts does not significantly impede
the operation of the federal law or
interfere with its purposes. Therefore,
the Board believes that the provisions of
New Jersey law are not preempted.
With respect to the second position,
the staff has not taken a position as to
whether it is appropriate to display the
cash price on the meter of a pump used
for both cash and credit card sales.
However, even if a position had been
taken that it was permitted, the Board
believes the state law would not be
preempted. Once again, the federal law
would only be providing an example of
a method of giving a discount that is
proper under federal law.
The federation also asks for a
determination that New Jersey Attorney




General’s Formal Opinion No. 2—1982 is
preempted. The opinion addresses
section 56:6-2(e) of New Jersey Statutes
Annotated, which provides:
No rebates, allow ances, concessions or
benefits shall be given directly or indirectly,
so as to permit any person to obtain motor
fuels from a retail dealer below the posted
price or at a net price lower than the posted
price applicable at the time of sale.

Relying largely upon a court decision,

Sperry and Hutchinson Co. v. Margetts,
15 N.J. 203 (1954), that discusses the
Statutory provision, the Attorney
General concluded that:
There is no statutory impediment under the
Motor Fuel Act to a motor fuel retail dealer
establishing one price for the sale of gasoline
to its credit customers and a separate lower
price to its cash customers, provided a
discount would approximate the economic
value to the retailer o f providing a discount
to his cash customers. (Emphasis added.)

The federation argues that this opinion,
in implicitly placing a limit on the
amount of the discount that can be
offered to cash customers, is
inconsistent with the federal cash
discount provision and therefore should
be preempted.
Congress, in passing the Cash
Discount Act of 1981, expressly removed
the five percent limitation on the amount
of a cash discount that could be offered
to cash customers and excluded from
the treatment as a finance charge in
credit card transactions. Once again,
however, the federal law is permissive
with respect to the amount of a cash
discount that is allowed under the
federal cash discount provision. The
state law, as interpreted, results in an
absolute prohibtion on the offering of
discounts in a certain manner. The law

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does not say that cash discounts in
excess of a specific amount, or in excess
of an amount that approximates “the
economic value to the retailer of
providing a discount to his cash
customers,” is to be treated as a finance
charge or other charge for credit under
state disclosure or usury laws; instead
the law prohibits a retail dealer from
offering a discount at all under certain
circumstances. A retail dealer can offer
a cash discount in compliance with the
state law and still take advantage of the
benefits of the federal cash discount
provision, although the dealer may not
take advantage of the unlimited nature
of the federal cash discount provision.
As a result, the Board believes that the
state position, as set forth in the formal
opinion of the Attorney General, does
not significantly impede the operation of
the federal law or interfere with its
purposes, and therefore is not
preempted.
(4)
Comment requested. Interested
persons are invited to submit comments
regarding the proposed finding that
these state laws are not subject to the
Board’s preemption authority and the
proposed determinations. After the close
of the comment period and analysis of
the comments received, notice of final
action on the proposals will be
published in the Federal Register.
List of Subjects in 12 CFR Part 226

Advertising, Credit, Consumer
Protection, Finance, Truth in Lending.
Board of Governors of the Federal Reserve
System, August 2,1983.

William W. Wiles,
Secretary of the Board.
|FR Doc. 83-21395 Filed 6-4-03; 8:45 am)
BILLING COC* S210-04-M