Richard Doyle, Plaintiff-appellee, v. Southern Guaranty Corporation, Defendant-appellant.jimmy E. Wood, Plaintiff-appellee, v. Fort Wayne Mortgage Co., Defendant-appellant, 795 F.2d 907 (11th Cir. 1986)

Some federal statutes permit exemption from state usury laws if mobile home financing contracts afford protections to the consumer set forth in the federal laws. Not all the federal statutes require the same protection. These diversity jurisdiction usury cases present the question of whether FHA or VA-insured mobile home agreements, which provide the protections required by those separate Acts, are exempt from Georgia usury laws, even though the contracts do not contain the terms required by another federal exemption statute, section 501 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA). DIDMCA was the statute dealt with in two recent en banc decisions. Quiller v. Barclays American/Credit, Inc., 764 F.2d 1400 (11th Cir. 1985) (en banc), cert. denied, --- U.S. ----, 106 S. Ct. 1992, 90 L. Ed. 2d 673 (1986); Grant v. General Electric Credit Corp., 764 F.2d 1404 (11th Cir. 1985) (en banc), cert. denied, --- U.S. ----, 106 S. Ct. 1993, 90 L. Ed. 2d 673 (1986).

This is a consolidated appeal of two cases, one involving an FHA-insured agreement,¹  the other a VA-insured agreement.²  We make three decisions at this time and certify a controlling question of state law to the Supreme Court of Georgia. First, we hold that a lender who complies with the requirements of the FHA or VA preemption statutes, for loans guaranteed under those statutes, need not also comply with DIDMCA in order to exempt itself from state usury limits on mobile home retail installment contracts. Second, we hold that the State of Georgia overrode the FHA and VA preemptions when it amended its usury limit on mobile home transactions in 1980 and 1981, even though the amendments referred to neither the FHA/VA statutes nor to FHA/VA-insured loans. Third, we hold that the Georgia statute of limitations does not bar these suits.

We certify to the Supreme Court of Georgia one question: whether Georgia's 1983 abolition of interest ceilings on mobile home retail installment contracts of the dollar amounts involved here eliminated the cause of action for usury of those purchasers who entered their contracts prior to the amendments' effective date.

Under Georgia law, a lender who violates the finance charge limitations contained in the Georgia Motor Vehicle Sales Finance Act (GMVSFA) is barred from recovering any of the finance charge. O.C.G.A. Sec. 10-1-38(b). A lender who willfully violates the statute is subject to an additional penalty of double the time-price differential. O.C.G.A. Sec. 10-1-38(c). The finance charge on both contracts involved here exceeded the maximum rate of interest (10% add-on) then allowed under GMVSFA. O.C.G.A. Sec. 10-1-30 et seq.

The cases came to us on a 28 U.S.C.A. Sec. 1292(b) appeal of the legal questions decided by the district court in denying defendants' motions for dismissal for failure to state a cause of action and summary judgment.

The district court held that an FHA or VA-insured mobile home lender may not rely on the FHA or VA preemption statutes alone, but rather must also comply with the DIDMCA regulations in order to receive federal exemption from the state usury laws. On this point, we reverse the district court. The district court held that Georgia's 1983 amendments eliminating interest rate limits on mobile home retail sales installment contracts of $3000.00 or more apply prospectively only and did not affect the causes of action herein asserted. This point we certify to the Supreme Court of Georgia. The district court also ruled on class action and discovery issues which are inappropriate for us to decide.

The FHA and the VA preemption statutes were enacted at approximately the same time.³  The VA statute received final approval several days before the FHA statute. It makes the VA exemption the same as that provided for FHA loans. Therefore, the intent and consequences of both statutes should be the same on the issue before us.

Although the published legislative history regarding the FHA preemption statute gives little guidance as to Congress' purpose in enacting the federal preemption, the VA legislative history provides some insight as to the purpose of the joint FHA/VA preemption.

The Senate Report accompanying the VA legislation noted that although the purpose of state usury laws is to protect state residents against exorbitant interest rates, the laws may effectively "bar lenders from making VA loans and thus prevent veterans from using their loan-guaranty entitlement." S.Rep. No. 260, 96th Cong., 1st Sess. 30, reprinted in 1979 U.S.Code Cong. & Ad.News 1894, 1916. Usury limits in several states were impeding FHA and VA loans, and in Arkansas, the state limit was so low as to have "brought VA loan activity to a virtual halt." Id. The purpose of the preemption provision was to assure, to the maximum extent possible in any jurisdiction in which FHA loans were exempt, that a veteran seeking to use his or her loan-guarantee entitlement for a conventional home, mobile home, or any other authorized purpose would not be discouraged or prevented by reason of a state anti-usury provision. Explanation of House Bill, Senate Amendment, and Compromise Agreement, 125 Cong.Rec. 16,753, reprinted in 1979 U.S.Code Cong. & Ad.News 1966, 1969. Under both the FHA and VA provisions, however, "the State's right to set an interest-rate limitation that overrides the Federal exemption would be preserved." S.Rep. No. 260, supra, at 31, 1979 U.S.Code Cong. & Admin.News at 1917.⁴ 

Within four months after the FHA and VA exemptions became law, Congress enacted a third federal preemption provision, DIDMCA, referred to here as section 501.⁵  This statute preempts state usury laws with regard to a broad range of residential loans and lenders. A Senate committee reported that the bill was a response to the finding that in states where usury laws require mortgage rates below market levels of interest, mortgage funds will not be readily available and those funds will flow to other states where market yields are available. This artificial disruption of funds availability is harmful to potential homebuyers in states with such usury laws and frustrates national housing policies and programs. S.Rep. No. 368, 96th Cong., 2d Sess. 19, reprinted in 1980 U.S.Code Cong. & Ad.News 236, 254.⁶ 

Because of "the congressional policy of permitting a state the primary opportunity to determine its usury statutes," id. at 18, 1980 U.S.Code Cong. & Admin.News at 254, however, section 501 provided that an individual state could within three years enact a law specifying that the state intended to override section 501.

In order for mobile home financing to come under the DIDMCA preemption, the financing contract must contain certain consumer protection provisions specified in Federal Home Loan Bank Board regulations.⁷ 

This Court concludes that although the DIDMCA statute encompasses the "federally related" mobile home loans involved in this case and therefore overlaps with the FHA and VA preemptions, this dual coverage does not nullify the FHA and VA preemptions as applied to mobile home loans. FHA or VA lenders may obtain federal preemption under the respective FHA or VA preemption without also satisfying the DIDMCA requirements. If, however, the state has overridden the FHA/VA preemption, the lender may still qualify for federal preemption by complying with the DIDMCA regulations (unless, of course, the state has also overridden the DIDMCA preemption). These conclusions come from the following analysis.

All of the statutes in question were enacted by the 96th Congress in a six-month time span. The same House and Senate committees considered both the FHA and DIDMCA statutes.

The FHA and VA statutes aimed at addressing the specific problem of state usury laws restricting FHA and VA home loan availability to qualified purchasers. In contrast, the purpose of DIDMCA was more wide-ranging. DIDMCA applied not only to federally insured loans but to all home loans, including conventional loans, which were in some way "federally related," a phrase defined broadly in section 501. "The law seeks to facilitate the free flow of capital into states with restrictive interest rates." Recent Developments, 36 Bus.Law. 1237, 1243 (1981). Congress believed the DIDMCA preemption was needed to enhance the stability of the national financial system and to facilitate a national housing policy.⁸ 

It is unreasonable to believe that Congress, in addressing the more immediate concern of FHA and VA loan availability to individual borrowers, would require the lender to comply with the additional DIDMCA regulations in order to obtain federal preemption. The district court and plaintiffs have placed great reliance on the supposedly "better" consumer protection the DIDMCA regulations provide. Nothing, though, indicates that the FHA and VA protections are inadequate.⁹  Although the regulations appearing under DIDMCA are not identical to the FHA and VA regulations,¹⁰  they address similar concerns and overlap substantially. Indeed, the House Conference Report accompanying DIDMCA stated: "The conferees intend that in developing [the DIDMCA] regulations the Bank Board should look for guidance to regulations, handbooks and circulars of the FHA and VA regarding mobile home lending...." H.R.Conf.Rep. No. 842, 96th Cong., 2d Sess. 79, reprinted in 1980 U.S.Code Cong. & Ad.News 298, 309.

Several other points support independent interpretation of the FHA, VA, and DIDMCA preemptions. First, section 529 of DIDMCA repealed certain existing laws but made no mention of the FHA or VA preemption statutes. Second, section 528 of DIDMCA¹¹  demonstrates that Congress intended to retain independent vitality in the respective statutory schemes. Finally, a HUD opinion letter supports this interpretation.¹² 

At the time the FHA and VA preemptions were enacted, DIDMCA was well through the congressional committee process. It simply defies reason that Congress would enact one preemption if it were considering a second preemption which would render the first meaningless. This Court holds that a lender entitled to preemption under the FHA or VA statutes need not comply with the DIDMCA regulations.

The next question presented to this Court is whether the State of Georgia has overridden the FHA and VA preemptions. The district court did not reach this issue due to its resolution of the first issue. Because under the VA provision "any State that overrode the exemption for FHA loans would also be overriding the exemption for VA loans," S.Rep. No. 260, supra, at 31, 1979 U.S.Code Cong. & Admin.News at 1917 this Court need only examine whether Georgia has overridden the FHA provision.

Soon after the effective date of the FHA and VA preemption statutes, the Georgia General Assembly amended O.C.G.A. Sec. 10-1-33 to raise the interest limit on Class 1 "motor vehicle" retail installment contracts to 10% add-on. "Motor vehicle" loans are defined to include mobile home loans, but section 10-1-33 does not apply to other types of home loans or mortgages. The 1980 amendments to section 10-1-33 refer to neither "federally insured" loans nor the FHA/VA preemption statutes. 1980 Ga.Laws 523.¹³ 

The finance companies argue that the phrase "such loan, mortgage, or advance" in the FHA statute, 12 U.S.C.A. Sec. 1735f-7(b), quoted supra note 3, refers back to subsection (a) of the statute, and that the state law must refer specifically to loans insured under titles I and II of the National Housing Act in order to override the preemption. Plaintiffs, on the other hand, suggest that "such loans" refers to the type of loan being made, such as real estate loans or mobile home loans, and that a state need only pass a statute regulating the general type of credit transaction. Because Georgia subsequently amended GMVSFA to raise and "reinstate" the usury limits on mobile home contracts, plaintiffs argue, Georgia has overridden the FHA and VA preemptions for mobile home transactions.

The language of the FHA statute is less than clear and would support either of these interpretations. The legislative history, moreover, provides no firm guidance.¹⁴  The Court concludes, however, that the statute must be read to require only that the state reenact its anti-usury provision and not to require specific reference to FHA-insured loans.

Unlike the FHA preemption, the DIDMCA preemption is clear in mandating specific language in the state override provision.¹⁵  Congress was already considering this language at the time that the FHA preemption was enacted. Congress knew the type of language to use when it intended that state override provisions make specific reference to the federal preemption. The Department of Housing and Urban Development apparently also interprets the respective statutes in this manner.¹⁶ 

The lenders have argued that it is illogical to conclude that a state could override the FHA and VA preemptions by merely adjusting the permissible interest rate on some loans which may be insured, as there would be many unintentional overrides, and the result would create instability in the FHA and VA programs and frustrate the policies behind the federal legislation. This argument overstates the case. The FHA and VA preemptions were enacted in large part because individual states had been unable or unwilling to amend their usury limits to reflect increases in market interest rates. Congress was concerned with assisting states such as California and Arkansas, which had troublesome procedures for removing or raising state constitutional or statutory limits. See, e.g., S.Rep. No. 260, supra, at 30. At the same time, Congress recognized its traditional deference to the state's right to determine its usury statute. When the state goes through the entire legislative or constitutional process of reenacting or amending its usury limitation, it is unlikely that it will do so in ignorance of the federal preemptions or of market forces. For a state to raise its usury limit in response to changes in market interest rates is consistent with the purpose of the FHA and VA preemptions. The Court determines, given Congress' deference to states' rights to fix their own usury law, as well as the purpose behind the federal law, that when a state reenacts or raises its usury limit on a particular class of loans, it overrides the FHA and VA preemptions for that type of loan in the absence of a contrary statement.

Although defendants presented a statute of limitations defense in their answers, the issue was neither argued nor addressed in the district court. Defendants argue that these actions are barred because both actions were instituted more than one year after the respective contracts were formed. Although GMVSFA and its penalty provision state no limitations period themselves, defendants suggest that the general one-year statute applying to usury actions contained in O.C.G.A. Sec. 7-4-10(d) applies here as well.¹⁷ 

The issue is amenable to prompt resolution in this appeal. The Court agrees that O.C.G.A. Sec. 7-4-10(d) seems to apply in these actions, but disagrees with defendants regarding the effect of this statutory bar. Rather than concluding that this statute acts as a complete bar to actions filed more than a year after contract formation, the courts interpreting the statute have held that it bars only actions to affirmatively recover interest paid more than a year before the action was instituted. Duderwicz v. Sweetwater Savings Association, 595 F.2d 1008, 1115 n. 11 (5th Cir. 1979); Reconstruction Finance Corp. v. Puckett, 181 Ga. 288, 181 S.E. 861 (1935); Family Home Services, Inc. v. Taylor, 142 Ga.App. 386, 236 S.E.2d 28 (1977); Hartsfield Co. v. Watkins, 67 Ga.App. 411, 20 S.E.2d 440 (1942).

The district court decided that a Georgia statute enacted in 1983 which removes the interest rate ceiling on mobile home installment sales contracts in excess of $3000.00¹⁸  did not apply to these lawsuits filed after the statute's effective date as to contracts executed before that date. If the statute is applied retroactively to loans predating the statute, then plaintiffs would have no cause of action.

The Georgia courts now hold unequivocally, in the absence of a savings clause, that repeal of a usury limit operates retroactively to lift the penalty for usury. See, e.g., Ward v. Hudco Loan Co., 254 Ga. 294, 328 S.E.2d 729 (1985); Fountain v. Dixie Finance Corp., 252 Ga. 543, 314 S.E.2d 906 (1984); Dorsey v. West, 252 Ga. 92, 311 S.E.2d 816 (1984); Southern Discount Co. v. Ector, 246 Ga. 30, 268 S.E.2d 621 (1980); Wasser v. Citizens & Southern National Bank, 170 Ga.App. 872, 318 S.E.2d 518 (1984). At least one section of the 1983 Act has been held retroactive. In Ward v. Hudco Loan Co., the court held retroactive the amendment to O.C.G.A. Sec. 7-4-2(a) (1).¹⁹ 

The district court held, however, that these normal rules of construction cannot apply in this case. In all of the prior cases, the legislature simply abolished the interest limits applying to a particular class of loans. Here, the legislature coupled this removal with a requirement that retail installment contracts comply with certain federal regulations. Although the removal is not "conditioned" per se on compliance with the regulations, the legislature obviously intended for there to be a trade-off: in exchange for losing usury law protection, prospective borrowers would receive other consumer protections.

The district court concluded that logically the legislature would have considered these protections no less important for contracts preceding March 30, 1983. Many of these contracts, though, would not contain the federal protections. Moreover, if the legislature attempted to apply the new penalty provisions to pre-1983 Act contracts, the district court thought serious constitutional questions would arise. Rather than applying only part of the new statute to the pre-Act contracts, the district court determined that it is more likely that the Georgia General Assembly intended the "package" to apply only as a whole to loans post-dating the Act's effective date.

Because this question of state law appears to control the outcome of this action and there are no clear controlling precedents in the decisions of the Supreme Court of Georgia, we certify the question to the Supreme Court of Georgia pursuant to Rule 37 of the Rules of the Supreme Court of Georgia.

CERTIFICATE FROM THE UNITED STATES COURT OF APPEALS FOR THE

ELEVENTH CIRCUIT TO THE SUPREME COURT OF GEORGIA PURSUANT TO

RULE 37 OF THE SUPREME COURT OF GEORGIA, TO THE SUPREME

COURT OF GEORGIA AND THE HONORABLE JUSTICES THEREOF.

Question to be Certified

Whether section 2 of 1983 Ga.Laws 1146, O.C.G.A. Sec. 7-4-3(a), which provides that O.C.G.A. Sec. 10-1-33 shall not apply to retail installment contracts pertaining to any manufactured home with a cash sales price of more than $3,000.00, operates retroactively so as to eliminate any cause of action a manufactured home purchaser may have acquired under O.C.G.A. Sec. 10-1-38 by a transaction prior to the 1983 Act's effective date.

The phrasing used in the certified question is not to restrict the Supreme Court's consideration of the issue in its analysis of the record certified in this case. This extends to the Supreme Court's restatement of the issue and the manner in which the answer is given. See Martinez v. Rodriquez, 394 F.2d 156, 159 n. 6 (5th Cir. 1968).²⁰ 

The clerk of the court is directed to transmit this certificate, as well as the briefs and record filed with the court, to the Supreme Court of Georgia and simultaneously to transmit copies of the certificate to the attorneys for the parties.

QUESTION CERTIFIED.