Opinion 87-11

JIM JONES ATTORNEY GENERAL STATE O F IDAHO OFFICE OF THE ATORNEY GENERAL BOISE 83720 ATTORHEY GENE= OPINION NO. TO: Belton J. Patty Director of Finance Department of Finance 700 West State Street STATEHOUSE MAIL Per Request f o r A t t o r n e y General's Opinion QUESTIONS PRESEPJTED: TELEPHONE I2081 334-2400 1. Whether it is lawful for late charges to be imposed upon (a) open-end credit accounts. or (b) interest-bearing consumer credit transactions, under the Idaho Credit Code? 2. If such charges nay be imposed, must they be disclosed as "finance charges" as that term is defined in the Idaho Credit Code? CONCLUSIONS: -- 1. Late charges may be lawfully imposed on open-end credit accounts as part of the finance charge. Late charges can only be imposed on interest-bearing consumer credit transactions if the transaction is a precomputed loan or a loan secured by an interest in real property. 2. Because of inconsistencies in definitions, if the creditor is subject to the Federal Consumer Protection Act, late charges must be disclosed as "other charges" but not as part of the "finance charge." puestion 1: Late charges on Open-end Credit Idaho Code 3 28-42-201(1) sets forth the general principle that : With respect to a loan or credit sale, the rate of finance charge shall be that which is agreed upon between the parties to the transaction. The definition of "finance charge" is found in § 28-41-301(18): (18) "Finance charge": (a) Except as provided in paragraph (b) of this subsection, "finance charge" means the sum of any of the followinq types of c h a r q ~ payable directly or indirectly by the debtor and imposed directly or indirectly by the creditor as an incident to or as a condition of the extension of credit, as applicable: 1. Interest or any amount pavable under a point, discount, or other system of - charses, however denominated; 2. Time-priced differential, credit service, service, carrying, or other charge, however denominated; 3. Premium or other charge for any guarantee or insurance protecting the creditor against the debtor's default or other credit loss; and 4. Charges incurred for investigating the collateral or credit-worthiness of the debtor or for commissions or brokerage for obtaining the credit, irrespective of the person to whom the charges are paid or payable, unless the creditor had no notice of the charges when the credit was granted. (b) The term does not include: 1. Charges as a result of default or delinquency if made for actual unanticipated late payment, delinquency, default, or other like occurrence, unless the parties aqree that these charges are finance charges; a charge is not made for actual unanticipated late payment, delincnrency, default or other like - - occurrence if imposed on an aczmnt that-- i s or may be debited from time t o time - f o r purchases o r other debts and, under i t s terms, payment i n f u l l o r of a specified amount i s r e w i r e d when b i l l e d , and i n the ordinary course of business -- t h e debtor i s permitted t o continue t o have purchases o r other debts debited t o t h e account a f t e r imposition of the charqe; . . . (Emphasis added.) To paraphrase: (1) Virtually any charge paid by a debtor i n connection with a c r e d i t transaction i s p a r t of t h e finance charge unless it i s s p e c i f i c a l l y excluded by the d e f i n i t i o n and ( 2 ) delinquency charges are not "finance charges" unless the p a r t i e s agree t h a t they are, or i f t h e charge i s imposed on the type of account described i n the l a t t e r p a r t of paragraph ( b ) . The account described i s an "open-end" account, which i s defined i n 5 28-41-301(25): (25) "Open-end c r e d i t " means an arranqement pursuant t o which: ( a ) A creditor may permit a debtor, from time t o time, t o purchase on c r e d i t from the c r e d i t o r o r pursuant t o a c r e d i t card, o r t o obtain loans from t h e c r e d i t o r or pursuant t o a c r e d i t card; ( b ) The amounts financed and the finance and other a ~ p r o p r i a t e charges are debited t o an account; Ic) The finance charge, i f made, i s computed \ - , on t h e account periodically; and ( d ) Either the debtor has the privilege of paying i n f u l l o r i n installments or the c r e d i t o r periodically imposes charqes computed on the account f o r delaying payment and permits the debtor t o continue t o purchase on c r e d i t . (Emphasis added.) This language closely tracks the specific language i n the l a t t e r p a r t of 3 28-41-301(18)(b), describing the type of account i n which delinquency charges may be included as finance charges. Both the d e f i n i t i o n s of "finance charge" and "open-end credit" r e f e r t o debiting an account from time t o time f o r purchases, loans, o r other debts; both r e f e r t o the debtor's option t o pay t h e e n t i r e amount, installments, or specified amounts; and both contemplate t h a t the debtor w i l l continue t o use t h e c r e d i t even a f t e r l a t e charges have been imposed. Therefore, t h i s o f f i c e concludes t h a t l a t e charges on open-end c r e d i t transactions are authorized by s t a t u t e . They are included in the "finance charge" and, as such, late charges can be imposed pursuant to Idaho Code 9 28-42-201. Late Charges on Simple Interest Consumer Loans Idaho Code 9 28-45-301 prohibits the parties to a consumer credit transaction from agreeing to the imposition of late charges in most instances: Except for reasonable expenses incurred in realizing on a security interest, the aqreement with respect to a regulated consumer credit transaction may not provide for any charges as a result of default by the debtor except those authorized by this act. A provision in violation of this section is unenforceable. (Emphasis added.) The term "default" is not found in the "Definitions" section of the Idaho Credit Code, 9 28-41-301. However, a default occurs whenever a debtor "fails to make a payment as required by agreement." Idaho Code 9 28-45-107. The term "late charge" indicates that the debtor has failed to make a payment as required by agreement, i.e., not on time, but "late." Thus, a late charge is a charge resulting from default and is prohibited except where "authorized" by the Credit Code. Specific authorization of late charges is found in Idaho Code 9 28-42-301(1) and (2). These subsections allow such charges for precomputed loans and loans secured by a security interest in real property used or expected to be used as a residence by the debtor. As mentioned above, late charges may also be imposed on open-end credit transactions because 3 28-41-301(18) provides that such charges are "not made for . . . default." Instead, such charges are "finance charges" and thus do not fall under the prohibition of 3 28-45-301. A maxim of statutory construction, "expressio unius est exclusio alterius," states that where certain things are enumerated, things not enumerated are excluded. 2A Sutherland, Statutory Construction, § 47.33. The legislature's enumeration of three specific exceptions to the prohibition of late charges implies a legislative intent to exclude all other exceptions. It has been argued that authorization to impose late charges can be found in Idaho Code 3 28-42-201(1): With respect to a loan or credit sale, the rate of finance charge shall be that which is agreed upon between the parties to the transaction. In addition to the finance charge permitted herein, a creditor may cgntract for and receive any other charge unless expressly prohibited or limited by this act. (Emphasis added.) In our opinion, this section does not authorize late charges. A section generally allowing the debtor and creditor to agree to "any other charge," ti 28-42-201, cannot prevail over a section specifically prohibiting those parties from agreeing on late charges. § 28-45-301. This follows from the general rule of statutory construction that "where there is a general statute, and a specific or special statute, dealing with the same subject, the provisions of the special or specific statute will control those of the general statute." State v. Roderick, 85 Idaho 80, 84, 375 P.2d 1005 (1962); see also Guillard v . Department of Employment, 100 Idaho 647, 603 P.2d 981 (1979). Section 28-45-301 only allows late charges where "authorized by this act." If late charges are authorized every time the creditor and debtor agree to such "other charges," then the statute's general prohibition of late charges in the context of regulated consumer credit transactions becomes meaningless. To interpret the section in that manner would destroy it altogether, and it is an elementary rule of statutory construction that "a statute should be construed to give effect to all its provisions, so that no part thereof will be inoperative or superfluous, void or insignificant, and so that one section will not destroy another." Norton v. Dept. of Employment, 94 Idaho 924, 928, 500 P.2d 925 (1972). Thus, the section should be rezd as alli-.horizFn(j late charges only in the three situations specifically authorized by statute. This interpretation preserves all sections intact. It might also be argued that late charges ar? authorized by Idaho Code 4 28-41-301(18). That section provides that the term "finance chakgew does nbt include: Charges as a result of default or delinquency if made for actual unanticipated late payment, delinquency, default, or other like occurrence, unless the parties aqree that these charqes are finance charges . . . . (Emphasis added.) For the same reasons stated above, this section cannot be read to authorize late charges merely by agreeing to label them as "finance charges." As stated by the leading treatise on the interpretation of legislation, "[sltatutes for the same subject, although in apparent conflict, are construed to be in harmony if reasonably possible." 2A Sutherland, Statutory Construction, 5 51.02. To harmonize the sections, 5 28-41-301(18) should be read as authorizing the parties to label late charges as finance charges only in those instances where late charges are already specifically authorized. Thus, for precomputed loans and loans .. . - - secured by interests in real property, the ..parties coul? agree-.to .. t h e imposition of l a t e charges a s p a r t of t h e "finance charge." Late charges would be prohibited i n a l l other instances whether imposed under t h e rubric of "finance charge" or "any other charge." Ouestion 2: Your second question asks whether l a t e charges must be disclosed a s "finance charges" a s t h e term i s defined i n the Idaho Credit Code. The Idaho Credit Code contains only one provision regarding disclosure: A person upon whom t h e Federal Consumer Credit Protection Act, including regulations promulgated pursuant t h e r e t o , imposes d u t i e s or obligations, s h a l l make o r give t o the debtor the disclosures, information, and notices required of him by t h a t a c t and i n a l l respects comply with t h a t a c t . Idaho Code 3 28-43-201. Thus, t h e disclosure provisions of the f e d e r a l law are controlling. The f e d e r a l d e f i n i t i o n of "finance charge" i s found i n both t h e s t a t u t e s and the administrative regulations of the Federal Reserve Board. The s t a t u t e , 12 U.S.C. 3 1605, sheds no l i g h t on t h i s question, but what i s commonly c a l l e d "Regulation Z" d i f f e r s from t h e Idahc s t a t u t o r y d e f i n i t i o n . 12 C.F.R. 3 226.4(c)2 excludes from t h e finance charge "[clharges f o r actual unanticipated l a t e payment, f o r exceeding a c r e d i t l i m i t or f o r delinquency, d e f a u l t or s i m i l a r occurrence." For t h i s reason, " l a t e charges" are not required t o be disclosed a s a p a r t of t h e "finance charge" a s defined b y ' t h e Idaho Credit Code. They must be disclosed i n both the i n i t i a l disclosure statement and i n t h e periodic statements as "other charges." 12 C.F.R. 3 226.6, 7 . AUTHORITIES CONSIDERED: 1. Idaho S t a t e S t a t u t e s : Idaho Code !j 28-41-301(18), (25) Idaho Code 3 28-42-201(1) Idaho Code § 28-42-301 Idaho Code 3 28-43-201 Idaho Code 3 28-45-107 Idaho Code "8-45-301 2. Idaho Cases: State v. Roderick, 85 Idaho 80, 375 P.2d 1005 (1962). Guillard v. Department of Employment, 100 Idaho 647, 603 P.2d 981 (1979). Norton v. Dept. of Emplovment, 94 Idaho 924, 500 P.2d 825 (1972). 3. Federal Statutes: 12 U.S.C. § 1605 4. Other Authorities: 2A Sutherland, Statutory Construction, § § 47.33, 51.02 rJ DATED this 2 -day of .YePte- &r-r , 1987. Analysis by: Fred C. Goodenough Deputy Attorney General Department of Finance Steve Strack Legal Intern