The opinion of the court was delivered by: Gladys Kessler, United States District Judge.
Plaintiff, National Home Equity Mortgage Association ("NHEMA"), brings this action under the Administrative Procedure Act, 5 U.S.C. § 706. Plaintiff challenges amendments to 12 C.F.R. § 560.220, which the Office of Thrift Supervision ("OTS") adopted and published as a final rule on September 26, 2002 ("Amended Rule"). 67 Fed. Reg. 60542 (Sept. 26, 2002). Defendants are OTS and its Director, James Gilleran. On March 31, 2003, the Court granted the Motion of Amici Curiae the National Community Reinvestment Coalition, et al. ( collectively"National Community Reinvestment Coalition")*fn1 to file an Amicus Brief. On April 4, 2003, the Court granted the Motion of Amici Curiae the State Attorneys General*fn2 to file an Amicus Brief.
This matter is now before the Court on Plaintiff's Motion for Summary Judgment, Defendants' Motion for Summary Judgment, the Brief Amicus Curiae of the National Community Reinvestment Coalition in Support of Defendants' Motion for Summary Judgment, and the Brief Amicus Curiae of the State Attorneys General in Support of Defendants' Motion for Summary Judgment. Upon consideration of the Motions, Oppositions, Replies, the administrative record, and the entire record herein, for the reasons stated below, Defendants' Motion for Summary Judgment is granted and Plaintiff's Motion for Summary Judgment is denied.
NHEMA is a national trade association whose members include state-chartered housing creditors ("state housing creditor" or"SHC") other than commercial banks and credit unions. Plaintiff challenges the Amended Rule,*fn3 which designates certain OTS regulations as applicable to SHCs engaging in alternative mortgage transactions ("AMTs"),*fn4 such as Plaintiff's members, under the Alternative Mortgage Transaction Parity Act, 12 U.S.C. §§ 3801 et seq. ("AMTPA" or"Parity Act").
In designating federal regulations that are applicable to SHCs, OTS also determined that two regulations previously applicable to SHCs---those governing prepayment penalties, 12 C.F.R. § 560.33, and late fees, 12 C.F.R. § 560.34---are no longer applicable to SHCs. As a result, Plaintiff must comply with states' regulations governing these items, rather than the relevant OTS regulations.
In its Complaint, filed on December 20, 2002, NHEMA challenges the OTS determinations. Plaintiff alleges that AMTPA preempts all state laws governing AMTs, and that OTS does not have the authority to determine what state laws are or are not preempted by federal law.
Congress enacted AMTPA in 1982, after finding that"increasingly volatile and dynamic changes in interest rates" had"seriously impaired the ability of housing creditors to provide consumers with fixed-term, fixed-rate credit secured by interests in real property...." 12 U.S.C. § 3801(a)(1); Pub. L. 97-320 § 802 (Oct. 15, 1982). Congress concluded that the availability of loans other than traditional fixed-rate, fixed-term transactions was"essential to the provision of an adequate supply of credit secured by residential property." 12 U.S.C. § 3801(a)(2).
Because federally chartered depository institutions had already been authorized to engage in such alternative mortgage financing, id. § 3801(a)(3), Congress enacted the Parity Act to eliminate the discriminatory impact that those regulations have upon nonfederally chartered housing creditors and provide them with parity with federally chartered institutions by authorizing all housing creditors to make, purchase, and enforce alternative mortgage transactions so long as the transactions are in conformity with the regulations issued by the Federal agencies [i.e., OTS].
Id. § 3801(b). To that end, AMTPA provides that"[a]n alternative mortgage transaction may be made by a housing creditor in accordance with this section notwithstanding any State constitution, law, or regulation." Id. § 3803(c).
The Parity Act further authorizes OTS, and other federal agencies, to"identify, describe, and publish those portions or provisions of their respective regulations that are inappropriate for (and thus inapplicable to), or that need to be conformed for the use of, nonfederally chartered housing creditors." Pub. L. 97-320 § 807(b) ("Section 807(b)").
OTS' amendment of 12 C.F.R. § 560.222 and concurrent determination that federal rules governing prepayment penalties and late fees are not applicable to SHCs, was made pursuant to its authority under Section 807(b). Specifically, OTS concluded that these regulations are not applicable to SHCs because they are neither"essential [n]or intrinsic" to SHCs' ability to offer AMTs. See Amended Rule, 67 Fed. Reg. at 60544.
Under Fed. R. Civ. P. 56, a motion for summary judgment shall be granted if the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits show that there is no genuine issue of material fact, and that the moving party is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Under the Administrative Procedure Act, an agency's action may be set aside only if it is"arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). In making this determination, the Court"must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). If the"agency's reasons and policy choices... conform to'certain minimal standards of rationality'... the rule is reasonable and must be upheld," Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 506, 521 (D.C. Cir. 1983) (citation omitted), even though the Court itself might have made different choices.
Under arbitrary and capricious review, the Court does not undertake its own fact-finding. Instead, the Court must review the administrative record assembled by the agency to determine whether its decision was supported by a rational basis. See Camp v. Pitts, 411 U.S. 138, 142 (1973).
As noted above, NHEMA contends that OTS adopted the Amended Rule without authority to do so, and that the Amended Rule is arbitrary, capricious, and"otherwise not in accordance with law," in violation of the APA. 5 U.S.C. § 706(2)(A). First, Plaintiff argues that the Parity Act expressly defines the scope of preemption. Second, Plaintiff contends that, even if the Parity Act is ambiguous, OTS' interpretation, in the Amended Rule, that AMTPA and Section 807(b) authorize it to determine what regulations are"essential or intrinsic" to SHCs' ability to offer AMTs, is not entitled to deference. See Amended Rule, 67 Fed. Reg. at 60544. Such deference is not warranted, according to Plaintiff, because: (a) Section 807(b) is not a grant of rulemaking authority under the Parity Act; (b) OTS is not the only agency with delegated authority to interpret the Parity Act; and (c) OTS' interpretation of the Parity Act has been inconsistent. Third, Plaintiff maintains that, even if OTS did have authority to determine what rules are essential or intrinsic, the Amended Rule is arbitrary and capricious because there is no evidence in the administrative record demonstrating that late payment and prepayment fees are not essential or intrinsic to SHCs' ability to provide AMTs. Finally, Plaintiff contends that the Amended Rule is arbitrary and capricious because there is no evidence in the administrative record to support OTS' allegation that SHCs are abusing late payment and prepayment fees.
A. AMTPA Does Not Expressly Preempt All State Laws Governing AMTs Made by SHCs
Plaintiff's principal argument is that OTS does not have the authority to limit the extent to which AMTPA preempts state laws because, in enacting the Parity Act, Congress expressly preempted all state laws governing AMTs. Defendants maintain that Congress did not preempt all such state laws, but instead preempted only those regulations that authorize, not those that govern, alternative mortgage transactions.
In Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837, 842-43 (1984), the Supreme Court announced a two-part test for determining whether an agency's interpretation of a statute is entitled to deference. First, the reviewing court inquires whether the plain language of the statute addresses the precise issue. Id.; Ranger Cellular v. FCC, 2003 WL 21495159, at *3 (D.C. Cir. July 1, 2003); Cellular Communications & Internet Ass'n v. FCC, 330 F.3d 502, 507 (D.C. Cir. 2003). If so, the courts as well as the agency must give effect to the unambiguously expressed intent of Congress. Chevron, 467 U.S. at 842-43; Ranger Cellular, 2003 WL 21495159, at *3; Cellular Communications, 330 F.3d at 507.
If, however, the statute is unclear,"the question for the court is whether the agency's answer is based on a permissible construction of the statute." Chevron, 467 U.S. at 843; Ranger Cellular, 2003 WL 21495159, at *3; Cellular Communications, 330 F.3d at 507. In answering that question,"considerable weight should be accorded to an executive department's construction of a statutory scheme it is entrusted to administer." Chevron, 467 U.S. at 844; Ranger Cellular, 2003 WL 21495159, at *3; Cellular Communications, 330 F.3d at 507. The rationale for this deference is that the agency's decision as to the meaning of the statute involves"reconciling conflicting policies and a full understanding of the force of the statutory policy... [and] depend[s] upon more than ordinary knowledge respecting the matters subjected to agency regulations." Chevron, 467 U.S. at 844; Ranger Cellular, 2003 WL 21495159, at *3; Cellular Communications, 330 F.3d at 507. In short,"a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency." Chevron, 467 U.S. at 844; Ranger Cellular, 2003 WL 21495159, at *3; Cellular Communications, 330 F.3d at 507.
1. Plain Language of AMTPA
a. Sections 3801 and 3803
Under the first step of the Chevron analysis, the text of the Parity Act does not clearly establish the scope of the Act's preemption.*fn5 Subsections (a)(3) and (b) of Section 3801 suggest that Congress intended to preempt regulations authorizing AMTs, not all regulations governing AMTs. These subsections indicate that the parity Congress sought to achieve between state and federal lenders is the ability to engage in AMTs.
Specifically, as noted above, AMTPA's"Findings and Purpose" section indicates that the statute was enacted in response to the inability"of housing creditors to provide consumers with fixed term, fixed-rate credit secured by interests in real property." 12 U.S.C. § 3801(a)(1). Congress recognized that AMTs"are essential to the provision of an adequate supply of credit secured by residential property," and that federal agencies, such as OTS, had already"adopted regulations ...