WASHINGTON - A federal appeals court last week made it easier for banks to make income tax refund loans to out-of-state customers.
The U.S. Court of Appeals for the Fourth Circuit ruled Dec. 30 that the same law that allows the industry to ignore state restrictions on interest rates for credit cards also applies to the increasingly popular refund loans.
It rejected Benjamin F. Cades's argument that Delaware's Beneficial National Bank must follow South Carolina consumer protection laws because he filled out his loan forms and received his check there.
Instead, the court said the bank only must follow Delaware's laws because that is where the bank is headquartered, and where it processed the loan.
Banking advocates hailed the decision, saying it strengthens their position in a number of credit card fee cases.
"It is good precedent for the other cases out there," said Michael Crotty, deputy general counsel at the American Bankers Association.
"It has very broad implications in a variety of areas," said Alan Kaplinsky, a partner at Wolf, Block, Schorr & Solis-Cohen who represented Beneficial National.
In this case, Mr. Cades went to H&R Block in February 1991, and agreed to pay certain fees to have his taxes done and to have a bank extend him a loan for the amount of his expected refund.
He later challenged the $64 he paid for the rapid refund, saying the amount was high enough to violate South Carolina consumer protection laws.
Those local laws, however, don't apply, the court said, noting that the U.S. Supreme Court in 1978 said banks can charge whatever their home states allow.
A number of litigants have attempted to chip away at that 1978 ruling, looking for loopholes. This case closed down one of those avenues.
The court also bolstered the industry's argument in another of these loophole cases, said Mr. Crotty. In those cases, litigants are asking a different federal appeals court to rule that the Supreme Court's decision applies only to interest rates, and not to fees.
In this case, the court implicitly rejected that argument he said.
