In a move that elated bank regulators and trade groups, the Pennsylvania Supreme Court has decided to review a controversial lower- court decision preventing out-of-state institutions from charging fees to in-state customers.
"We thought the (lower court) result wasn't consistent with our precedents and we are happy the higher court is going to take a look at it," said Julie Williams, chief counsel at the federal Office of the Comptroller of the Currency, which has petitioned to join the case as a friend of the court.
"This is the aberration out there," said Michael Crotty, deputy general counsel for litigation at the American Bankers Association. "All the other courts have gone the right way," he said. Pennsylvania needs "to be turned around."
The state Supreme Court's May 25 decision to hear Mazaika v. Bank One Columbus could do just that.
The case centers on whether the Ohio-based bank can charge Pennsylvania residents annual fees, returned-check fees, credit-limit violation fees, and late-payment fees.
The lower court ruled the bank could not, saying a Pennsylvania consumer protection law prohibits these types of fees. It also said that a provision of the National Bank Act doesn't nullify the state law because the section only deals with interest rates.
The decision contradicts numerous other rulings, all of which found that the term "interest" in the bank act includes the types of fees in dispute.
Mr. Crotty said the future of national credit card networks is at stake. If other courts adopt Pennsylvania's reasoning, banks would have to devise 50 different credit card programs to cover residents in all the states. That would be impossible, he said.
Also, he said, Pennsylvania's stance hurts consumers because banks must charge higher rates to recoup losses from bounced checks and late payments.
"You've got to make money," he said. "If you can't charge delinquent customers, you've got to charge everyone."
But not everyone buys that argument. Kathleen Keest, an attorney at the National Consumer Law Center, said the fees are meant to inflate profits, not cover losses.
"If the fees were priced to cover the cost of what they are paying for, then their argument would have some validity," she said.
She also said consumers would benefit if banks incorporated all their fees into the interest rate. "People shop on the basis of interest rates," she said, adding that the same market forces that keep rates competitive don't apply to fees because they are all hidden.
Despite her qualms with the industry's arguments, Ms. Keest said the case raises serious issues worthy of higher court review. "Ultimately, the big nine are going to have to look at this," she said, referring to the U.S. Supreme Court.
The Pennsylvania Supreme Court has not yet set a date for oral arguments.