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Hunter v. Greenwood Trust Co.

November 28, 1995

JAMES H. HUNTER, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF-APPELLANT,
v.
GREENWOOD TRUST COMPANY, DEFENDANT-RESPONDENT.



On certification to the Superior Court, Appellate Division, whose opinion is reported at 272 N.J. Super. 526 (1994).

The opinion of the court was delivered by Handler, J. Chief Justice Wilentz and Justices Stein, and Coleman join in Justices Handler's opinion. Justice Pollock has filed a separate Dissenting opinion in which Justice Garibaldi joins. Justice O'Hern has also filed a separate Dissenting opinion.

The opinion of the court was delivered by: Handler

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

JAMES HUNTER V. GREENWOOD TRUST COMPANY (A-103-94)

Argued February 15, 1995 -- Decided November 28, 1995

HANDLER, J., writing for a majority of the Court.

In this case, New Jersey credit-card holders challenge the legality of late-payment fees assessed by Greenwood Trust, a federally-insured state bank chartered in Delaware. James Hunter, a named party in a class-action suit, contends that: New Jersey's Retail Installment Sales Act (RISA) (since amended in 1995) forbids federally-insured state banks that issue credit cards to New Jersey customers from charging late-payment fees; Greenwood Trust's advertising and card-member agreements violate New Jersey's Consumer Fraud Act; and the imposition of late-payment fees constitutes a common-law breach of contract and conversion.

Greenwood Trust claims that it is free to charge late-payment fees in New Jersey, relying on section 521 of the Depository Institutions Deregulation and Monetary Control Act (DIDA), which expressly mirrors section 85 of the National Bank Act (NBA) and provides that federally-insured state banks may charge borrowers "interest at a rate allowed by the laws of the State . . . where the bank is located." According to Greenwood Trust, it can charge out-of-state customers the same interest rate and other lender imposed charges, such as late-payment fees, it is authorized to charge its own customers. Greenwood Trust points out that section 521 of DIDA expressly preempts conflicting state constitutions or statutes. Because it is a federally-insured bank chartered in Delaware, that includes late fees in its statutory definition of interest, Greenwood Trust contends that RISA, and Hunter's other claims, conflict with, and are preempted by, section 521.

The Law Division dismissed the complaint and the Appellate Division affirmed. The Supreme Court granted Hunter's petition for certification.

HELD: For substantially the same reasons expressed in Sherman v. Citibank (South Dakota), N.A., New Jersey usury law prohibiting banks from charging late fees does not conflict with the federal statute giving national banks and federally-insured state banks preferential treatment with respect to lending authority. Therefore, the Depository Institutions Deregulation and Monetary Control Act does not preempt New Jersey's Retail Installment Sales Act's prohibition on late-payment fees.

1. The language and purpose of section 521 mirrors that of section 85 of the NBA. Section 521 has been interpreted as conferring on federally-insured state banks the same insulation from state usury laws that national banks enjoy under the NBA. Thus, "interest," as the term is used in both the NBA and DIDA, should be construed uniformly. Because the term "interest" in the NBA does not include late-payment fees, "interest" in DIDA similarly does not include such fees. Like section 85, the language in section 521 expressly refers to interest rates. Thus, the Court should not impute to Congress the intent to include in the statute a meaning it did not express. Moreover, the legislative history surrounding DIDA's enactment indicates that Congress intended to preempt only state usury laws regarding traditional interest, namely, periodic percentage rates, not other specific charges. (pp. 4-8)

2. To rely on agency determinations in this case would be to undermine the Court's responsibility to interpret the law. Far less than the usual amount of deference to an agency interpretation is appropriate when that agency has failed to adopt a consistent interpretation in administering the relevant statute in question. Neither the Office of the Comptroller of Currency (OCC), which regulates national banks, nor the Federal Depository Insurance Company (FDIC), the agency charged with regulation of federally-insured banks, has issued consistent rulings concerning the interpretation of interest for the purposes of the NBA and DIDA. (pp. 8-10)

3. New Jersey's State Bank Parity Act (Parity Act) does not authorize banks located in this State to charge late-payment fees in the guise of interest. Although the Parity Act provides for parity between the rates of interest charged by both banks and credit unions, the Parity Act has not explicitly authorized banks to charge other types of fees. Moreover, there is no indication that the Legislature implicitly intended to authorize the imposition of such other fees in the Parity Act. (pp. 10-11)

4. Greenwood Trust has failed to demonstrate a Congressional intent to preempt State usury laws that prohibit discrete, specialized charges that do not directly affect the interest rate. Thus, there is no conflict between RISA and DIDA. Prohibiting either national banks or federally-insured state banks from charging late fees does not constitute discrimination because, at the time Greenwood Trust procured those charges, New Jersey banks were likewise prohibited from assessing them. Unless Congress expressly provides so through legislation, RISA prohibits Greenwood Trust from charging New Jersey customers late fees. The relevant late-charges were assessed prior to the enactment of the amendment to RISA that now specifically allows for late-payment fees on retail charge accounts. That amendment applies prospectively and is, therefore, inapplicable to the late-payment fee in this case. (pp. 11-12)

Judgment of the Appellate Division is REVERSED.

JUSTICE POLLOCK, Dissenting, in which JUSTICE GARIBALDI joins, is of the view that interest under DIDA includes late fees. Interpretations by the FDIC support that Conclusion and the Controller of Currency has long ruled that interest could include late fees. DIDA, unlike the NBA, includes an express preemption clause. The word "notwithstanding" in section 521's preemption clause suggests that Congress intended that DIDA preempt conflicting State statutes. In Sherman, Justice Pollock concluded that section 85 conflicts with State laws, such as RISA, that prohibit late fees. He likewise finds that section 521 conflicts with State laws prohibiting such fees; therefore, under its express preemption clause, DIDA preempts Hunter's statutory claims. Moreover, state law prohibiting out-of-state federally-insured state banks from charging late fees impermissibly discriminates against those institutions. That conflict with Congressional intent to prevent discrimination against federally-insured state banks further supports the Conclusion that DIDA preempts state statutes that prohibit late fees. In addition, Congress intended that section 521 of DIDA have the same preemptive effect as section 85 of the NBA; therefore, Hunter's common law claims, like his statutory claims, conflict with DIDA and are preempted. Lastly, Justice Pollock notes that under the authority of DIDA, Greenwood Trust may impose late fees as authorized by its home state, Delaware. Consequently, the RISA's new $10 limitation on late charges must yield to DIDA, as construed by the FDIC.

Justice O'HERN, Dissents for the reasons stated in his separate opinion in Sherman v. Citibank also filed today.

CHIEF JUSTICE WILENTZ and JUSTICES STEIN and COLEMAN join in JUSTICE HANDLER's opinion. JUSTICE POLLOCK filed a separate Dissenting opinion in which JUSTICE GARIBALDI joins. JUSTICE O'HERN filed a separate Dissenting opinion.

The opinion of the Court was delivered by HANDLER, J.

The facts and issues in this case are substantially similar to those in the companion case, Sherman v. Citibank (South Dakota), N.A., N.J. , rev'g 272 N.J. Super. 526 (1994), also decided today. Here, New Jersey credit-card holders challenge the legality of late-payment fees assessed by Greenwood Trust, a federally-insured state bank chartered in Delaware. The bank, on the other hand, claims that it is permitted under the Depository Institutions Deregulation and Monetary Control Act to charge out-of-state customers the same interest rate and other lender-imposed charges it is authorized to charge its own customers.

The specific issues are framed by the contentions of the parties. Plaintiff is the named party in this class-action suit. As in Sherman, plaintiff argues that New Jersey's Retail Installment Sales Act, N.J.S.A. 17:16C-50, -54 (RISA) (since amended, L. 1995, c. 43) forbids federally-insured state banks that issue credit cards to New Jersey customers from charging late-payment fees, that defendant's advertising and cardmember agreements violate New Jersey's Consumer Fraud Act, N.J.S.A. 56:8-2, -19 (CFA), and that the imposition of late-payment fees constitutes a common-law breach of contract and conversion. Like the claims in Sherman, plaintiff's claims focus on whether the notion of interest includes late-payment charges.

Greenwood Trust, however, argues it is free to charge late-payment fees in New Jersey. It relies on section 521 of the Depository Institutions Deregulation and Monetary Control Act, 12 U.S.C.A. § 1831d (DIDA), which expressly mirrors section 85 of the National Bank Act, 12 U.S.C.A. § 85 (NBA), and provides that federally-insured state banks may charge borrowers "interest at a rate allowed by the laws of the State . . . where the bank is located." 12 U.S.C.A. § 1831d(a). Section 521 expressly preempts conflicting state "constitution[s] or statute[s]." Ibid. Because it is a federally-insured state bank chartered in Delaware, which includes late fees in its statutory definition of interest, Greenwood Trust argues that RISA and plaintiff's other claims conflict with, and are preempted by, section 521. 272 N.J. Super. at 529-30.

The Law Division dismissed the complaint. The Appellate Division affirmed, 272 N.J. Super. 526, and we granted plaintiff's petition for certification. 138 N.J. 270 (1994).

For substantially the same reasons expressed in Sherman, we conclude that this State's usury law prohibiting banks from charging late fees does not conflict with the federal statute giving national banks and federally-insured state banks preferential treatment with respect to lending authority. We hold that DIDA does not preempt the New Jersey RISA's ...


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