A Pennsylvania court has gone against a national tide by ruling against Banc One Corp. in a case involving the interstate export of late fees on credit cards.
More than two dozen courts had ruled previously that credit card issuers could charge late fees in a cardholder's state based on rules in effect elsewhere. But in a 6-to-3 decision Dec. 14, the Superior Court of Pennsylvania said a Banc One unit did not have the right to export.
"It's the first appellate decision of its kind," said Alan S. Kaplinsky, a partner at Wolf, Block, Schoor & Solis-Cohen in Philadelphia who represents Chase Manhattan Corp. and the Greenwood Trust Co. in similar cases.
"Twenty-six other courts have looked at the same issue, including seven different appellate courts," he added. "All consistently upheld the banks, position."
"We will appeal," said John Russell, a spokesman for Banc One in Columbus, Ohio. He noted that the Pennsylvania legislature approved a bill last week that would establish a $20 cap for credit card late fees, and added,
"Everything indicates the decision is in the opposite direction."
BankCard Holders of America, a consumer group that filed briefs on behalf of the plaintiffs in the Pennsylvania class action and others, said it was pleased with the ruling.
"We think states should have the right to set limits and regulations for people in their state," said Ruth Susswein, executive director of the McLean, Va., advocacy group. "It really allows state law to have teeth."
The U.S. Supreme Court, in Marquette National Bank of Minneapolis v. First of Omaha Service Corp., ruled in 1978 that a national bank could export interest rates beyond its home state. That landmark ruling allowed banks to market credit cards nationally at rates that exceeded some states, usury ceilings.
Because Banc One affiliates offer cards nationally, the Pennssylvania case was governed by the National Bank Act. One of the sticking points in interpreting the law is whether it covers fees in addition to interest rates. Many courts have ruled yes, and the Office of the Comptroller of Currency has issued rules based on that assumption.
In the 1992 case Greenwood Trust v. Massachusetts, the U.S. Court of Appeals for the First Circuit ruled that late-payment fees fall under the category of interest under federal law.
The Pennsylvania appellate court said late fees, as well as charges for exceeding credit limits and for insufficient funds, cannot be defined as interest.
"While we agree that the express language of the National Bank Act preempts any attempt by a state legislature to regulate the rate of interest which may be charged by a national bank located in another state, we are not persuaded that all Pennsylvania consumer protection laws which purport to prohibit fees and contingent default charges . . . have been preempted by the provisions of the National Bank Act governing the rate of interest to be charged by national banks."
Further, it said, "It would appear that the plain and ordinary meaning of the term interest, or "interest rate, does not include late fees, over-credit-limit charges, or the like, which are not levied on a percentage basis."
"The court concluded very simplistically," Mr. Kaplinsky said, that interest has to be expressed as a percent."
The conflict with previous rulings, he added, increases the possibility that the U.S. Supreme Court will delve into the issue by agreeing to consider one of the cases from the state or federal appellate levels.
Supreme courts in New Jersey, California, and Colorado have rate-exportation cases before them, which are likely to be decided before the Banc One case comes before the Pennsylvania Supreme Court. "We're still optimistic," Mr. Kaplinsky said, "that the state supreme court will uphold the opinions of the interim appellate courts.
