GE Capital Corp.'s Monogram Credit Card Bank of Georgia recently botched its second effort to stay clear of the reach of Louisiana's consumer credit laws, this time by lobbying to enact legislation that was ultimately vetoed by Louisiana Governor M. J. "Mike" Foster Jr. Those consumer credit laws that Monogram is trying to circumvent set limits on the late fees and other charges that the credit card issuer may levy on Louisiana consumers.
As reported in the March 2000 issue of U.S. Banker, a class of Louisiana consumers has sued Monogram in the Louisiana courts, seeking to compel Monogram to keep its late fees and other charges in line with those permissible under the Louisiana consumer credit law. Monogram has been countering that it is not subject to those Louisiana laws, and that it can seek refuge in the more pro-credit card issuer laws of Georgia, where Monogram is headquartered.
Although Monogram had enlisted its parent, GE Capital, to use its clout to secure assistance from officials at the Federal Deposit Insurance Corp. in its private litigation against Louisiana consumers, last November a federal district court judge ruled that Monogram is subject to Louisiana's consumer credit laws in its dealings with the state's card holders. The judge found that Monogram could not take advantage of an exemption from these types of local laws in the federal banking statutes and therefore concluded that Monogram was subject to the Louisiana laws.
While appealing the recent court decision to the Fifth Circuit Federal Court of Appeals, Monogram, assisted by GE Capital's lobbyists, mounted a new attack in a different forum. The company turned to lobbyists to push for legislation in the Louisiana legislature that would have had the effect of exempting Monogram from the state's own consumer credit laws.
Larry Murray and David S. Willenzik, two lawyers in the same Louisiana law firm that is representing Monogram in its litigation, were the guiding forces behind Monogram's legislative gambit. Murray happened to have been the Louisiana commissioner of financial institutions from 1991 to 1998, and his law firm listing specifies "governmental relations" as the first of his areas of practice. They have declined to provide comment for this article, nor have any persons at Monogram responded to requests for information.
Murray and Willenzik first approached Louisiana State Senator Francis C. Heitmeier, who became the sponsor of Monogram's bill on the Louisiana Senate floor. Through oblique wording, their proposed bill effectively permitted Monogram and any other credit card issuers to choose, in their boilerplate agreements with cardholders, any state's law to apply to their relationships with consumers. If the credit card issuers were to choose the law of a state other than Louisiana in their agreements, they would not have to worry about the limits on fees and charges established in the Louisiana consumer protection law.
In Monogram's case, many of its boilerplate credit card agreements provide that pro-industry Georgia law applies. Therefore, the effect of Monogram's proposed legislation was to allow Monogram to specify that Georgia law would govern its relationships with consumers, and to allow Monogram to ignore the limits on fees and charges imposed by Louisiana law.
Senator Heitmeier says that based on the lobbyists' statements to him, he genuinely believed that their proposed new bill was a "pro-consumer" bill, and that it merely "clarified" existing law on the subject. Heitmeier, who has been a state senator since 1992, acknowledges that at the time the bill was presented to him, he was not even aware of the Monogram case or the court decision in it.
The lobbyists persuaded Heitmeier to introduce the bill on the floor of the Louisiana Senate, in the form of an amendment to an essentially unrelated motor vehicle and consumer credit bill. By so doing, the bill did not go through the deliberative process in the Louisiana House, which typically requires formal introduction through a legislative "call," a hearing before the appropriate House committee, followed by public debate on the House floor.
Nor did the bill go before the appropriate Senate committee. The Senate then summarily adopted the bill by a 37-0 vote and sent it back to the House, which adopted it by a similarly unanimous 101-0 vote.
But while the bill was awaiting signature in Gov. Foster's office, the Louisiana attorney general got wind of it and began asking questions. Although "no one caught on for several days," says Assistant Attorney General Debbie Baer, she realized that despite the "pro-consumer" label given to the bill by its credit card industry lobbyists, the bill was in fact anti-consumer, in her view, for Louisiana residents.
Baer concluded that the practical effect of the Louisiana legislature's bill was to permit credit card issuers to word their credit card agreements in a way that would allow them to circumvent the protections the Louisiana legislature had previously given to the state's consumers.
Moreover, while the commentary accompanying Heitmeier's bill stated that the bill does "not change present substantive law," Baer and others disagree strongly.
Louis Plotkin, the plaintiffs' lawyer in the ongoing litigation against Monogram, says that he, like the attorney general's office, first learned about the legislation when it was sitting on the governor's desk awaiting signature. Plotkin chafes at the language accompanying the amendment describing its stated "clarifying" purpose and claiming it didn't change substantive law.
As advocate for his Louisiana consumer clients, Plotkin believes that the "sentence [on the clarifying purpose in the bill] made clear that the legislation was designed to end the class action" and that the federal district court's decision establishing that Monogram was subject to the Louisiana consumer protection laws. Put bluntly, Plotkin believes that GE Capital "had the hubris to think that 'we're going to hedge our bets'" by securing "legislative insurance."
Baer echoes Plotkin's sentiments about GE Capital's objective: "They wanted to deep-six the litigation" against their clients, she says. She plainly concludes that the bill was designed "purely for litigation."
But "there is an unwritten rule that you don't try to affect ongoing litigation by legislation," says Trey Hodgkins, manager of governmental affairs for the Louisiana Sheriffs' Association, a group incidentally affected by Monogram's proposed legislation.
Baer says that Murray's response to her criticisms was to suggest that "we didn't know what we were talking about." When she asked Murray why he had asked Heitmeier to introduce the bill on the Senate floor instead of putting it on the "call" at the Louisiana House level and letting it run through the normal legislative course, Murray replied that not everyone who asks for legislation in a call at the outset ultimately gets it passed.
Heitmeier calls the eleventh hour on the Senate floor "when all the snakes come out," but he also defends Murray as "a straight-up guy."
Politicians Catch On
Before the Louisiana governor had an opportunity to sign the bill, the attorney general's office contacted Heitmeier about his bill. After Baer gave him her take on the bill, the state senator said, "Tell the governor's office I want it vetoed."
And he was not the only one who had a change of heart. According to Heitmeier and others, House member Gillis J. Pinac, the author of the original bill to which Monogram's essentially unrelated amendment was pasted, also signalled his feeling that the governor should veto the Monogram bill.
Several organizations affected by the bill then made their positions known. Among them was the Louisiana Sheriffs' Association. That group was concerned that the bill would have allowed out-of-state creditors to abide by their own state credit repossession laws and ignore Louisiana's consumer credit laws on the subject. In particular, the sheriffs' trade group was worried that creditors might resort to "self-help repossession," a practice that is illegal in Louisiana. In other states, self-help repossession statutes allow creditors to repossess products without having to go through appropriate court procedures and without having to use local law enforcement officials--sheriffs--to do the repossessing.
While it is in the Louisiana sheriffs' financial self-interest to keep these types of activities to themselves, lobbyist Hodgkins claims that there is an additional public-safety interest in preventing renegade "repo men" from taking the law into their own hands, possibly generating violence. Baer says that the AG's office shared the same public-safety concerns.
In the end, Louisiana Attorney General Richard T. Ieyoub recommended that Gov. Foster veto the bill. Foster vetoed it in April.
Although the governor's office declined to comment on the discussions that led up to the veto, he issued a somewhat revealing veto letter. Referring to the sponsors' claim that the bill "makes no substantive change to current laws"--in the face of the Monogram court decision to the contrary--Foster stated, "I find there is neither a sufficient comfort level about the effect the amendment will have on existing law nor sufficient time remaining to achieve same."
Referring to Heitmeier and Pinac, he also stated: "After discussions with both the author of the bill and the author of the Senate floor amendment, I have decided to veto the bill to afford the legislature the opportunity to more fully discuss and evaluate" the measure.
Why are GE Capital and Monogram going to such great lengths in both the courts and the legislature in Louisiana? According to Monogram, the nationwide stakes are huge. One of its lawyers, Burt M. Rublin, has argued that if the court decision against Monogram withstands appeal, there will be "a major, major explosion of litigation which would have liability in the billions of dollars...and I am sure that the liability...would far outstrip any insurance that anybody would have and that would make the S&L crisis look like nothing. You could be talking about billions of dollars there."
Even in the context of the current litigation alone, plaintiffs' lawyer Plotkin says, "We believe that the class, if certified, will encompass tens of thousands of individuals and possibly hundreds of thousands of accounts that may have been overcharged by Monogram."
The position Monogram has been advocating in the Louisiana courts is that it is a "bank" that is "engaged in the business of receiving deposits" for purposes of a provision in the federal banking laws. If Monogram is such a bank, it can choose to comply only with the usury and other consumer protection laws of the state where it is headquartered and "export" that state's consumer protection laws to all the states in which it does business. By availing itself of that exemption afforded to banks receiving deposits, Monogram would not have to comply with the usury and related consumer protection laws of the other states where its borrowers reside.
The plaintiffs in the Monogram litigation have maintained that Monogram is not a bank in the business of receiving deposits. Its only depositors appear to be two GE Capital affiliates, and the Georgia law under which Monogram is chartered in fact requires that credit card banks accept deposits only from their affiliates.
Relatively early on, Monogram chose to hire a former general counsel of the FDIC to help in the litigation. That advocate, John Douglas, drafted a letter purporting to set forth the FDIC's "official position" on the "bank" legal issue and championing Monogram's cause. Douglas then managed to persuade an FDIC officer in Georgia to have the letter typed and signed on FDIC letterhead.
Although one of the federal judges involved in the Monogram case initially ruled in Monogram's favor, in part because of the FDIC letter, Judge Carl J. Barbier ruled last November that "under the plain language of the Federal Deposit Insurance Act," Monogram is not a bank "in the business of receiving deposits."
Monogram has appealed the federal district court's decision against it to the Fifth Circuit Court of Appeals, which is currently scheduled to hear the parties' oral argument on September 6.