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Highlight Updates Validity of Regulation Z and Official Interpretations

The authority of the various FRB interpretations of TILA and Regulation Z has been the subject of substantial litigation.196 The issue first reached the Supreme Court in 1973 in Mourning v. Family Publications Service,197 in which the court upheld the FRB’s authority to promulgate the “four installment rule” in Regulation Z as a measurement for when a business “regularly” extends credit and is therefore subject to TILA. This decision emphasized the broad discretion delegated to the FRB to carry out the purposes of TILA.

The reasoning in Mourning was reinforced by the Court’s 1980 decision in Ford Motor Credit Co. v. Milhollin,198 which confirmed the veritable carte blanche that Congress had given the FRB and its staff to implement TILA. Specifically, the Court in Milhollin stated that:

  • • A high degree of deference to administrative interpretation is warranted;
  • • Credit transactions defy exhaustive regulation by a single statute, and Congress therefore delegated expansive authority to the Federal Reserve Board to elaborate and expand the legal framework governing commerce in credit;
  • • To the extent they are construing “gaps,” or “interstitial silences” in the statute or regulation, FRB staff opinions construing the Act or Regulation Z should be dispositive unless they are demonstrably irrational.199

Milhollin accordingly affords FRB official interpretations virtually the same deference as a regulation. Although Milhollin was decided under pre-Simplification TILA, many decisions have applied it to post-Simplification matters.200 The Supreme Court applied its standard again in 2004.201

The Supreme Court has even given deference to an FRB amicus brief expressing an interpretation of Regulation Z.202 Deference to an amicus brief does not appear to be governed by the Milhollin standard, but is appropriate if it appears to be “a fair and considered judgment on the matter in question” rather than “a post hoc rationalization” advanced to defend past agency action from attack.203

The deference to the CFPB’s official interpretations required by Milhollin is grounded in a system whereby those interpretive rules have been published for comment in the Federal Register for decades. Although the Supreme Court in Perez v. Mortg. Bankers Ass’n204 upheld an unpublished U.S. Department of Labor opinion letter as compliant with the Administrative Procedures Act, the regulatory regime to implement the Truth in Lending Act is distinct from that of the Department of Labor. Notice and comment is an essential element of TILA official interpretations and a key basis for deference to them.

Section 1640(f) of TILA provides protection from liability where there has been good faith conformity with interpretations by CFPB officials or employees through procedures established by the Bureau (even if a provision is later invalidated by a court).205 Appendix C of Regulation Z sets out the nature of the official interpretations upon which good faith conformity can be based.206 Appendix C provides that “such interpretations will not be issued separately but will be incorporated in an official commentary to the regulation which will be amended periodically.”207 This language thus contemplates that official interpretations will appear as an official document that is amended from time to time in the same manner as is Regulation Z, not as an ad hoc set of unpublished letters.

This approach is further supported by language originally proposed to be included in Regulation Z’s Appendix C but then omitted. The proposed language explicitly referred to publication in the Federal Register and an opportunity to comment.208 The supplementary information accompanying the final version of the appendix explained that the language was omitted because it was “unnecessary regulatory material” since periodic updates of the official interpretations would be “the regular vehicle for issuing interpretations.”209 This language was replaced with the existing language explaining that interpretations would not be issued separately but rather in an official commentary that would be periodically amended. This history suggests that the FRB planned to only issue official interpretations in accordance with the APA and believed that it did not need to say so more explicitly in Regulation Z’s Appendix C.210

Indeed, since 1981, the FRB and the CFPB have consistently published proposed, interim, and final official interpretations of Regulation Z pursuant to the notice-and-comment procedures.211 The only exceptions to a comment period (but not to publication) have occurred in very limited circumstances, such as: when the CFPB received jurisdiction over TILA and republished and renumbered Regulation Z and the Official Interpretations virtually unchanged as an interim final rule,212 when addressing minor errors, or withdrawing proposed changes or final rules, when deferring an effective date, or when granting temporary exceptions from compliance with specified provisions in an emergency.213 The historical practice by the FRB and the current practice of the CFPB of publishing official interpretations is itself a reinforcement of the notice and comment aspect of TILA official interpretations.

Further, the Milhollin court, in describing the nature and extent of the deference accorded to the agency and its staff, noted that official interpretations that receive such deference are published in the Federal Register with opportunity to comment.214 In contrast, “unofficial interpretations” have “no special status” in establishing good faith conformity with TILA.215

The CFPB proposed a policy on “no-action letters” in late 2014216 and finalized it in early 2016.217 This policy does not change the requirement to publish official interpretations for notice and comment. Rather, it focuses on narrow circumstances in which innovative financial products and services that promise substantial consumer benefit face significant uncertainty regarding whether and how statutes or regulations apply. Among other things, the policy lists the information that should be included in a request for a no-action letter and the factors the staff may consider in deciding whether to provide the letter.218 The CFPB clearly states that any no-action letters would be non-binding on the Bureau and would not bind courts or other actors who might challenge the recipient’s product or service.219 Such letters stand in stark contrast to official interpretations, which are the CFPB’s binding views on the application of the statute and regulation.

Notwithstanding the deference due to its official interpretations, the CFPB’s authority is not without limits. If the statute is clear and unambiguous, a regulation that conflicts with it cannot stand.220 The agency staff (now at the CFPB) that write and revise the official interpretations is legally the same staff that previously wrote the interpretations upheld in Milhollin, and the staff is acting under essentially the same statutory authority. As a result, Milhollin suggests that staff pronouncements contained in the official interpretations be subjected to a two-step analysis. First, is the comment in question addressing an issue as to which the statute or regulation contains no “clear expression,” i.e., is it filling in a gap? If it is filling in the “interstitial silence,” then it must be determined whether the interpretation is “demonstrably irrational.”221 Unless it fails to meet that standard, it is good law.

The CFPB releases compliance bulletins on its website from time to time that usually do not appear in the Federal Register.222 The agency recognizes that the bulletins are non-binding:

This Compliance Bulletin summarizes existing requirements under the law and findings made in the course of exercising the Bureau’s supervisory and enforcement authority, and is a non-binding general statement of policy articulating considerations relevant to the Bureau’s exercise of its supervisory and enforcement authority. It is therefore exempt from notice and comment rulemaking requirements under the Administrative Procedure Act pursuant to 5 U.S.C. 553(b).223


  • 196 {191} See, e.g., Consumers Union, Inc. v. Fed. Reserve Bd., 938 F.2d 266 (D.C. Cir. 1991) (upholding in part, remanding in part regulations implementing the Home Equity Loan Consumer Protection Act of 1988).

  • 197 {192} 411 U.S. 356 (1973).

  • 198 {193} 444 U.S. 555 (1980).

  • 199 {194} Id. at 444 U.S. 557, 559–560, 565.

  • 200 {195} Ragsdale v. Wolverine World Wide, Inc., 535 U.S. 81, 122 S. Ct. 1155, 1163, 152 L. Ed. 2d 167 (2002) (commenting on breadth of agency’s authority); DiVittorio v. HSBC Bank (In re DiVittorio), 670 F.3d 273, 283–284 (1st Cir. 2012) (noting FRB’s broad authority to interpret TILA); Rigby v. FIA Card Servs., 490 Fed. Appx. 230 (11th Cir. 2012) (deferring to official interpretations); Shaner v. Chase Bank USA, 587 F.3d 488 (1st Cir. 2009) (giving deference to the agency’s amicus brief because it provides the agency’s view of its own regulations); Hauk v. JP Morgan Chase Bank USA, 552 F.3d 1114, 1118 (9th Cir. 2009) (courts must defer to the agency’s interpretation of TILA, including where disclosure requirements are even more exacting than those of the statute, unless that interpretation is obviously contrary to the statute); Rossman v. Fleet Bank, 280 F.3d 384, 389–390 (3d Cir. 2002); Clay v. Johnson, 264 F.3d 744 (7th Cir. 2001) (courts are required to defer to the official interpretations unless they represent a change in the law); Johnson v. Fleet Fin., Inc., 4 F.3d 946, 949 (11th Cir. 1993); First Nat’l Bank v. Office of the Comptroller, 956 F.2d 1456 (8th Cir. 1992) (official interpretations provision requiring disclosure of composite APR in adjustable-rate mortgages with initial teaser rates was not irrational, and is consistent with TILA’s purpose; bank must comply with official interpretations); Sentinel Fed. Sav. & Loan Ass’n v. Office of Thrift Supervision, 946 F.2d 85 (8th Cir. 1991) (same); Karakus v. Wells Fargo Bank, 941 F. Supp. 2d 318 (E.D.N.Y. 2013) (giving deference to agency’s decision to create a separate notice of right to cancel for same-lender refinancings); Nat’l Ass’n of Mortgage Brokers v. Bd. of Governors of the Federal Reserve Sys., 773 F. Supp. 2d 151, 166–169 (D.D.C. 2011) (noting that agency’s interpretation of the scope of its authority under TILA is entitled to deference, but finding statute’s broad scope clear on its face without need to consider agency’s views); Valdez v. America’s Wholesale Lender, 2009 WL 5114305 (N.D. Cal. Dec. 18, 2009) (“The Commentary is binding on all lenders, and compliance shields an issuer from civil liability”); Amonette v. IndyMac Bank, F.S.B., 515 F. Supp. 2d 1176 (D. Haw. 2007); Brown v. Bank of Am., N.A., 457 F. Supp. 2d 82 (D. Mass. 2006) (relying on the Milhollin “demonstrably irrational” standard regarding Regulation E); Lavalle v. M&T Mortgage Corp., 2006 WL 2346320 n.4 (E.D. Pa. Aug. 11, 2006) (citing Milhollin regarding the expansive delegation of authority by Congress to the agency); Randolph v. Joe Holland Chevrolet, Inc., 2005 WL 2428164 (S.D. W. Va. Sept. 30, 2005) (citing Milhollin and discussing high degree of deference afforded to agency interpretations); Jeanty v. Washington Mut. Bank, 305 F. Supp. 2d 962 (E.D. Wis. 2004); Consumers Union, Inc. v. Fed. Reserve Bd., 736 F. Supp. 337 (D.D.C. 1990) (upholding agency regulations implementing the Home Equity Loan Consumer Protection Act of 1988), aff’d in part, remanded in part, 938 F.2d 266 (D.C. Cir. 1991); Stanley v. Household Fin. Corp. III, 315 B.R. 602 (Bankr. D. Kan. Oct. 8, 2004) (Regulation Z and the official interpretations control unless irrational); Williams v. BankOne (In re Williams), 291 B.R. 636, 643 (Bankr. E.D. Pa. 2003) (giving effect to Regulation Z’s rejection of conditional rescission); Gancedo v. Del Carpio, 17 So. 3d 843 (Fla. Dist. Ct. App. Aug. 26, 2009) (noting deference to the regulations and to the agency’s interpretation thereof). Cf. Forkey v. OneWest Bank, 2012 WL 5817924, at *5 (E.D. Mich. Mar. 28, 2012) (official interpretations should be given deference but are not binding); Buick v. World Sav. Bank, 637 F. Supp. 2d 765 (E.D. Cal. 2008) (upholding regulatory requirement that co-borrowers, even spouses, must receive two separate sets of documents, since “it is inconceivable that Congress and the Federal Reserve Board overlooked this situation” when requiring two sets of documents); Fin. Freedom Acquisition v. Standard Bank & Trust Co., 43 N.E.3d 911, 917 (Ill. 2015). But see First Premier Bank v. Consumer Fin. Prot. Bur., 819 F. Supp. 2d 906 (D.S.D. 2011) (concluding that the deference standard of Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984), has displaced Milhollin; failing to note Supreme Court’s post-Chevron endorsement of Milhollin in Household Credit Servs., Inc. v. Pfennig, 541 U.S. 232 (2004)); Smith-Pena v. Wells Fargo Bank, 484 B.R. 512, 527–528 (Bankr. D. Mass. 2013) (citing but disregarding duty to defer to agency interpretations; finding agency’s definition of persons entitled to rescind invalid as exceeding scope of statute and irrational).

  • 201 {196} Household Credit Servs., Inc. v. Pfennig, 541 U.S. 232, 124 S. Ct. 1741, 158 L. Ed. 2d 450 (2004).

  • 202 {197} Chase Bank USA v. McCoy, 131 S. Ct. 871, 178 L. Ed. 2d 716 (2011).

  • 203 {198} Id., 131 S. Ct. at 881. See also Shaner v. Chase Bank, 587 F.3d 488 (1st Cir. 2009) (giving substantial deference to agency amicus brief, filed at court’s request, discussing effect of Regulation Z rules prior to new provisions on retroactive rate increases on credit card accounts).

  • 204 ___ U.S. ___, 135 S. Ct. 1199, 191 L. Ed. 2d 186 (2015).

  • 205 15 U.S.C. § 1640(f).

  • 206 12 C.F.R. 1026, app. C. The text of Regulation Z’s Appendix C has remained virtually unchanged since it was published in 1981. 46 Fed. Reg. 20,848 (Apr. 7, 1981). Appendix C was republished in 2011 with only minor changes when the CFPB re-numbered all of Regulation Z and the Official Interpretations shortly after it took over jurisdiction of TILA from the FRB. 76 Fed. Reg. 79,768 (Dec. 22, 2011).

  • 207 Id.

  • 208 45 Fed. Reg. 80,648, 80,713 (Dec. 5, 1980).

  • 209 46 Fed. Reg. 20,848, 20,888 (Apr. 7, 1981) (“Language has been added to explain that a commentary to the regulation will be used as the primary vehicle for issuing official staff interpretations of the regulation. In most situations, official staff interpretations will not be issued separately but, instead, will be incorporated in this commentary.”).

  • 210 The FRB used “official” to refer to interpretations that were published in the ordinary course, whereas “unofficial” letters were not published for comment. See §, supra.

  • 211 It is important to note that the FRB adhered to the notice-and-comment procedures from 1968 to1981 to promulgate Regulation Z and its Official Staff Interpretations. During that time, however, the staff also issued unofficial interpretations. This latter practice was abandoned in 1981. See §, supra.

    In 2013, the CFPB adopted a regulation stating that it will publish “[s]ubstantive rules of general applicability adopted as authorized by law, and statements of general policy or interpretations of general applicability formulated and adopted by the CFPB” in the Federal Register. 12 C.F.R. § 1070.12(a)(4) (eff. Mar. 18, 2013); 78 Fed. Reg. 11503 (Feb. 15, 2013).

  • 212 76 Fed. Reg. 79,768 (Dec. 22, 2011). The CFPB relied upon an exception to the APA notice-and-comment procedures where an agency for good cause finds that such procedures are impracticable, unnecessary, or contrary to the public interest or when a rulemaking relates to agency organization, procedure, and practice. 5 U.S.C. § 553(b), (c). The Bureau made specific findings that there was good cause to conclude that providing notice and opportunity for comment would be unnecessary and contrary to the public interest under these circumstances, in part, because substantially all the changes made by the interim final rule were necessitated by the Dodd-Frank Act's transfer of TILA authority from the FRB to the Bureau or were related to agency organization, procedure, and practice. Id. at 79,770–79,771.

  • 213 See, e.g., 46 Fed. Reg. 61,067 (Dec. 15, 1981) (corrections); 47 Fed. Reg. 755 (Jan. 7, 1982) (deferral of mandatory effective dates); 47 Fed. Reg. 44,741 (Oct. 12, 1982) (withdrawal of proposed rule and revisions to official staff commentary); 60 Fed. Reg. 29,969 (June 7, 1995) (corrections to final regulation); 58 Fed. Reg. 40,582 (July 29, 1993) (temporary exceptions to prohibition of the use of a preprinted form by a creditor to obtain a consumer’s waiver of the right to rescind certain home-secured loans when loan proceeds are needed immediately to meet a consumer’s bona fide personal financial emergency due to flooding in the Midwest); 71 Fed. Reg. 30,577 (May 30, 2006) (correction); 75 Fed. Reg. 7925 (Feb. 22, 2010) (final rule; withdrawal).

  • 214 Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 567 n. 10 (1980).

  • 215 Id.

  • 216 79 Fed. Reg. 62,118 (Oct. 16, 2014).

  • 217 81 Fed. Reg. 8686 (Feb. 22, 2016).

  • 218 Id. at 8692–8695.

  • 219 Id. at 8686.

  • 220 {199} Fabricant v. Sears, Roebuck, 2002 WL 34477592 (S.D. Fla. Mar. 6, 2002) (to the extent that Reg. Z alters statutory requirement of disclosure that credit insurance is not a factor in approving credit, it is impermissible). See also First Premier Bank v. Consumer Fin. Prot. Bur., 819 F. Supp. 2d 906 (D.S.D. 2011) (striking down Reg. Z provision limiting up-front fees for fee-harvester credit cards based on erroneous conclusion that statutory language was unambiguous; failing to consider CFPB’s authority to prevent evasions of TILA requirements). Cf. Household Credit Servs., Inc. v. Pfennig, 541 U.S. 232, 124 S. Ct. 1741, 158 L. Ed. 2d 450 (2004) (where TILA is ambiguous or does not address specific issue, agency’s interpretation will be upheld); Schramm v. J.P. Morgan Chase Bank, 655 Fed. Appx. 553 (9th Cir. 2016) (staff interpretation controls where statute or regulation is ambiguous).

  • 221 {200} Milhollin at 559–560, 565. See also Forney, A Discussion of the Supreme Court’s Second Truth in Lending Case: Milhollin, 14 Clearinghouse Rev. 95 (June 1980).

    Note, however, that successfully challenging an official interpretations provision would be of prospective impact only. Creditors acting in good faith conformity with agency regulation or authorized staff interpretation are not subject to either administrative penalties under 15 U.S.C. § 1607 or private remedies under 15 U.S.C. § 1640 even if the regulation or interpretation is later deemed invalid; 15 U.S.C. § 1640(f); Official Interpretations Introduction-1; § 12.3.2, infra.

    Either way, Milhollin makes clear that the Board, and now the CFPB, is subject to substantial deference.

  • 222 See CFPB Implementation and Guidance, available at

  • 223 See, e.g., CFPB Compliance Bulletin 2016-1, at 2 (Feb. 3, 2016), available at The CFPB further explains that such materials are “Guides, bulletins, videos, tools and other support materials to help entities understand, implement, and comply with our rules.”