Full text of Federal Reserve Bank of New York Circulars : 9637. Regulation Z

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FEDERAL RESERVE BANK
OF NEW YORK

[

Circular No. 9637 1
February 16, 1984 J

REGULATION Z
Final Preemption Determinations
To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:
Following is the text of a statement issued by the Board o f Governors o f the Federal Reserve System:
The Federal Reserve Board has announced final determinations that provisions of New Hampshire and New Jersey
State laws governing the offering of cash discounts in the sale of motor fuel are not inconsistent with the Truth in
Lending Act and Regulation Z implementing the Act and are not preempted. The Board’s determination is effective
January 31, 1984.
In this regard, the Board made the more general determination that these laws are subject to the Board’s pre­
emption authority.

Printed below is the text of the Board’s Notice in this matter, which has been reprinted from the
of February 6, 1984.

F e d e ra l R e g is te r

A n t h o n y M. S o lo m on ,
P r e s id e n t.

FEDERAL RESERVE SYSTEM!

n OFR ^sirt 22®
[R©fi. 2; 0®e. No. K-0477]
Truth in Lending; Determinations of
Effect on State Laws, New Hampshire

and Mq w Jersey
A6IN6V: Board of Governors of the
Federal Reserve System.
Aen@N: Preemption determinations.
summary: In accordance with Appendix
A to 12 CFR Part 226 and in response to
a request, the Federal Reserve Board is
publishing final determinations that
certain provisions in the laws of New
Hampshire and New Jersey are not
inconsistent with, and therefore are not
preempted by, the Truth in Lending Act
or Regulation Z. The state laws that
were the subject of the request govern
the offering of cash discounts in the sale
of motor vehicle fuel.

EFFECTIVE DATE: January 31,1984.
FOR FURTHER INFORMATION CONTACT:

Lynn Goldfaden or Gerald Hurst, Staff
Attorneys, Division of Consumer and
Community Affairs, Board of Governors
of the Federal Reserve System,
Washington, D.C. 20551, at (202) 4523667 or 452-3867.
SUPPLEMENTARY INFORMATION: (1)

General. 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. The Board may not find
that any state law is inconsistent with a
chapter 4 provision if the state law gives
greater protection to the consumer than
does the federal law.
The Board has determined that the
state laws reviewed are not preempted
under either of these standards. Since
there is no preemption, a delayed
effective date is unnecessary. Such a
delay is needed only in those situations
in which creditors are required to revise
forms or procedures. Because the
Board’s action requires no changes,
these determinations are effective
immediately.
These final determinations are 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)(3); 48 FR
4454, February !, 1983).
(2) Discussion of specific requests and

final determinations. The Board
received a request for determinations 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 et seq.) and Regulation Z
(12CFR Part 226). The request came
from a federation of trade associations
representing independent petroleum
marketers and was concerned with state
law provisions governing the offering of
cash discounts in the sale of motor
vehicle fuel.
In response to this request, the Board,
on August 5,1983, published for
comment a notice of its intent to make
preemption determinations (48 FR
35659). In the notice, the Board first
requested comment on whether these
state laws are of the type subject to the
Board's preemption authority. In
addition, for discussion purposes, the
Board assumed that the laws are subject
to, its review authority and proposed to
find that the laws are not inconsistent
with, and therefore not preempted by,
the federal law.
The Board received twelve comments
on the proposal. Most of the commenters
believed that the state laws are not
inconsistent with and are not preempted
by the federal law.
Section 167(b) is the federal statutory
provision relevant to these
determinations, since it addresses the
offering of cash discounts. Section
(Over)

167(b) is located in chapter 4 of the act,
but its purpose is to provide an
exception for certain cash discounts to
the finance charge rules in section 108,
which is found in chapter 1. Because
section 167(b) is so closely related to the
finance charge rules, the state laws have
been examined under the preemption
standard in section 111(a)(1). However,
because section 171(a) is the preemption
provision for chapter 4 of the act, the
state laws also have been examined
under the standards found in that
section. Upon review of these state
laws, the Board has determined that
under either standard, the laws are not
inconsistent with, and therefore not
preempted by, the federal law. The state
law provisions and the Board’s findings
are discussed below.
N ew Hampshire. The federation
asked for a determination of whether
section 339-B:8,II of New Hampshire
Revised Statutes Annotated (1981 Supp.)
(N.H. Rev. Stat. Ann.), as interpreted by
the state Attorney-General’s office, is
inconsistent with, and therefore
preempted by, the Truth in Lending Act
and Regulation Z. That statute deals
with the posting of prices for motor
vehicle fuel at retail gasoline stations.
The law prohibits the posting of a
different price at one pump for the same
grade of gasoline dispensed at another
pump when both are supplied from
common storage and the gasoline
dispensed from both is of the same
quality (although a ‘‘self serve”—"full
serve” price distinction is permitted).
The New Hampshire Attorney
General’s office (in opinions dated May
26,1982, and January 21,1983) has
interpreted the statute as prohibiting
separate “cash pumps” and “credit
pumps" with different posted prices for
the same grade of gasoline, but
permitting the dealer to vary the price
for separate sales from the same pump
according to the method of payment. As
a result, dealers in New Hampshire may
offer cash discount programs in which
one price is posted and charged for the
same grade of gasoline with a discount
provided for cash customers.
The Board has determined that the
New Hampshire provision is not
preempted by the federal law. In
discussing the term “regular price” in
the Official Staff Commentary to
Regulation Z, the staff made clear that
offering a discount by establishing
separate cash and credit pumps, and
posting only the cash or credit prices on
these pumps, would be considered an
appropriate means of offering a discount
under section 167(b) of the act and
would not result in a surcharge
prohibited under section 167(a)(2). (See
Comment 4(b)(9)—
3 of the Official Staff
Commentary to Regulation Z, 12 CFR
Part 220, Supplement I; as amended, 48
FR 41343, September 20,1982.) However,
this material only describes a
permissible means of offering a cash




discount under federal law, not a
required method or the sole means of
doing so.
The purpose of the federal cash
discount provision is to encourage the
offering of cash discounts by removing
certain impediments to offering them.
Specifically, Congress provided that a
discount offered in accordance with
section 167(b) of the act would not be a
finance charge under the federal Truth
in Lending Act, or a finance charge or
other charge for credit under state usury
or disclosure laws (see section 171(c) of
the act). The New Hampshire law does
not provide that a discount offered in
accordance with the federal law is to be
a finance charge for disclosure or usury
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 believes
that the state law is not inconsistent
with the federal law and therefore is not
preempted.
New Jersey. The federation also asked
for 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 allows a retail dealer
to sell similar fuels at different prices to
cash and credit customers. However, the
price posted on top of the pump and on
the meter must be the credit price. In
addition, the cash discount must appear
on a conspicuous sign at the pump or at
the island. New Jersey Administrative
Code (N.J.A.C.) section 18:9-2.7(b).
This provision has been interpreted
by the New Jersey Department of Law
and Public Safety (in a memorandum
dated February 9,1983). The
interpretation reiterated that all gasoline
pumps must display the higher credit
card price and that a sign disclosing the
discount may be shown at the pump or
at the island site. The interpretation also
stated that separate islands for cash
and/or credit are permissible if the
pump signs and meter prices on both the
cash island and credit island reflect the
higher credit price.
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 is not inconsistent with the
federal law.
Furthermore, the Board 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 requested a
determination that New Jersey Attorney
General’s Formal Opinion No. 2—1982 is
preempted. That opinion addresses
section 56:6-2(e) of New Jersey Statutes
Annotated, which provides that no
rebates or price concessions may be
given which would permit a person to
obtain motor fuels from a retail dealer at
less than the posted price or at a net
price below the posted price applicable
at the time of sale.
In the interpretation, the Attorney
General concluded that the state law
allows a retail dealer to set one price for
the sale of gasoline to credit customers
and a lower price to cash customers, if
the discount “approximates the
econom ic value to the retailer of
providing a discount to his cash
custom ers."

The Congress, in passing the Cash
Discount Act of 1981, expressly removed
the five percent limitation (contained in
the original provision) on the amount of
a cash discount that could be offered to
cash customers and excluded from
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
prohibition on the offering of discounts
in a certain manner. The law 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,” are to be treated as a
finance charge or other charge for credit
under state disclosure or usury laws;
instead the law only prohibits a retail
dealer from offering a discount under
certain circumstances. As a result, the
Board believes that the state position, as
set forth in the formal opinion of the
Attorney General, is not inconsistent
with the federal law.
B o ard of G o ve rn o rs of the Federal Reserve
System , January 31,1984.

William W. Wiles,

Secretary of the Board.
(FR Doc. 84-3084 Filed 2-3-84: 8:45 am]

BILLING CODE G210-01-M