GOOD NEWS FOR CREDITORS
U.S. Supreme Court’s Decisions on Interest Rates, Late Charges, and Over-limit Fees
By Attorney Kathleen T. Madigan
Reiner Reiner & Bendett, PC

Attorneys representing creditors and regularly engaging in litigation involving consumer debt collection know that often a debtor will argue in court that the late payment fee charged by a creditor in association with the collection of a credit card debt is unfair or illegal.  Another frequent claim by debtors is that certain fees or finance charges, which creditors are required to disclose, were not disclosed as required by law and are, therefore, illegal.  This article provides a brief analysis of the United States Supreme Court’s and other Federal Circuit Courts’ holdings regarding both issues.

In Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735 (1996), a California credit card holder sued a South Dakota based bank, Citibank, regarding certain changes contained in Citibank’s monthly credit card statement issued to Smiley.  Ms. Smiley alleged that Citibank had charged late payment fees on her account that were illegal under the laws of California.  Citibank argued successfully that the credit card late payment fees constituted “interest” under the National Bank Act of 1864, 12 U.S.C. Section 85, and as long as the fees were lawful in the bank’s home state, they should be held valid in this case.  The Supreme Court in its analysis explained that Section 30 of the National Bank Act of 1864, Rev. Stat. Section 5197, as amended, 12 U.S.C. Section 85, provides that a national bank may charge its loan customers “interest at the rate allowed by the laws of the state … where the bank is located.”  The Court then cited Marquette National Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299 (1978), where the Supreme Court held that the National Bank Act authorized a national bank to charge all of its customers the highest rate allowable in the bank’s home state even though that rate may exceed the statutory cap in other states where its customers reside.  Further, in Smiley, the Court concluded that the statutory term “interest” encompasses late-payment fees.  The Court also held that Section 85 authorizes a national bank to charge late payment fees that are lawful in the bank’s home state, but prohibited in the states where the cardholders reside.

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