Court: Supreme Court of Colorado; November 20, 1995; Colorado; State Supreme Court
Brian K. Copeland, representing himself and others similarly situated, petitioned against MBNA America Bank, a national banking association governed by the National Bank Act (NBA). The Supreme Court of Colorado reviewed the court of appeals' ruling, which found that Section 85 of the NBA preempted Colorado consumer protection law, allowing MBNA to impose 'late payment fees' on Colorado credit card members. The court affirmed the appellate decision but based its ruling on different grounds. MBNA, chartered by the Office of the Comptroller of the Currency, operates under Delaware law and issues credit cards that allow lending across the U.S. The cardmember agreement stipulates that a cardmember must make a minimum monthly payment, with a $15 late fee applied if the payment is not made within 25 days of the due date. Copeland, a Colorado resident and MBNA VISA cardholder since 1988, incurred a late payment fee in March 1992 after missing his minimum payment, leading him to file a class action for injunctive relief and damages under state law.
Copeland claims MBNA violated Colorado's Uniform Consumer Credit Code (UCCC) by charging a late payment fee alongside a finance charge on his VISA credit card. He argues that the UCCC prohibits any late payment fees on credit card accounts held by Colorado residents. In contrast, MBNA asserts that the National Bank Act (NBA) preempts the UCCC, allowing national banks to impose late fees classified as "interest" under federal law if permitted by the state in which the bank is chartered. Since Delaware law defines late payment fees as "interest," MBNA, as a national bank in Delaware, argues it can impose such fees on Colorado residents despite state prohibitions. The district court sided with MBNA, dismissing Copeland's complaint, a decision affirmed by the court of appeals. The court concluded that the $15 late fee is considered "interest" under the NBA, allowing MBNA to charge it legally, given that Delaware permits such fees. At the time of the fee's imposition in April 1992, Colorado's UCCC prohibited late payment fees on revolving credit accounts, while Delaware allowed a maximum charge of $15. The NBA permits national banks to charge interest at rates allowed by their home state. The court must determine if late payment fees qualify as "interest" under the NBA, using established federal statutory interpretation principles, which favor the clear statutory language.
In cases where statutory language is ambiguous, legislative history can be used to clarify legislative intent, as established in Blum v. Stenson. Statutes should be interpreted to give effect to all provisions and policy objectives, avoiding interpretations that render parts inoperative, as noted in Mountain States Tel. and Tel. Co. v. Pueblo of Santa Ana. Section 85 of the National Bank Act (NBA) does not define "interest," leading to differing interpretations. Copeland argues for a narrow definition of "interest" as only numerical periodic percentage rates, asserting that common law excluded penalty fees like late payment charges. He cites Webster's International Dictionary for support. Conversely, MBNA advocates for a broad interpretation that includes various fees, referencing the Oxford English Dictionary, which includes penalties for late payments as "interest." The common dictionary definitions do not conclusively resolve the issue, prompting examination of the NBA's legislative history, which aimed to establish a federal banking system to support the Union during the Civil War. The legislative history does not address whether late fees qualify as "interest," necessitating a review of court interpretations. The Supreme Court's ruling in Tiffany v. National Bank initiated the "most favored lender" doctrine, allowing national banks to charge interest rates equivalent to those permitted for state-regulated lenders, thereby ensuring competitive equality between national and state banks, and potentially providing national banks with a competitive edge in interest rates.
The United States Supreme Court's ruling in *Marquette Nat'l Bank of Minneapolis v. First of Omaha Serv. Corp.* established the 'exportation principle,' allowing national banks to charge borrowers in other states the interest rates permissible in their home state, thereby giving them a competitive advantage over state banks. In this case, the Court determined that a Nebraska-chartered national bank could apply its home state's higher interest rate to credit card customers in Minnesota, despite Minnesota's lower usury limits. Subsequent interpretations of section 85 of the National Bank Act (NBA) have broadly defined 'interest' to include various banking fees beyond traditional interest rates, such as overdraft fees and annual charges.
The analysis indicates that late payment fees qualify as a form of 'interest' under section 85. Historical legal precedents affirm that interest can encompass penalties for delayed payments and damages for failure to repay as agreed. Additionally, the Office of the Comptroller of the Currency (OCC), tasked with administering the NBA, has consistently classified late payment fees as 'interest.' The OCC's rulings are granted significant deference due to its regulatory authority, particularly as national banks have developed their credit card programs in accordance with OCC guidance, further reinforcing the classification of late payment fees under section 85 and relevant banking regulations.
Congress' enactment of the DIDA supports the interpretation that late payment fees qualify as 'interest' under section 85 of the NBA. The DIDA, established in 1980 to regulate FDIC-insured state-chartered banks, incorporates language from section 85 of the NBA in section 521. This section allows state banks to charge interest at rates permitted by state law, but does not define 'interest.' Legal precedent dictates that similar statutory language should be interpreted consistently unless context suggests otherwise. Given Congress's awareness of existing judicial interpretations, the lack of a narrow definition in section 521 implies that late payment fees are encompassed within 'interest.'
Prior to 1992, the classification of late payment fees under section 85 or section 521 had not been directly addressed by courts. However, subsequent rulings overwhelmingly determined that such fees charged to credit card users are considered 'interest' under both sections and can be applied across state lines by national or FDIC-insured banks. Significant cases include Greenwood Trust Co. v. Massachusetts, where the court ruled that a Massachusetts statute restricting late fees was preempted by the DIDA, allowing a Delaware bank to impose such fees on Massachusetts residents. The California Supreme Court also affirmed this interpretation in Smiley, validating that late payment fees can be classified as 'interest' when permitted by a national bank's home state law.
The Superior Court of Pennsylvania is the only jurisdiction to determine that 'interest' does not encompass late fees, as established in Mazaika v. Bank One and Gadon v. Chase Manhattan Bank. In these cases, the court ruled that late fees and similar charges fell under Pennsylvania's consumer protection and usury statutes, with the DIDA preempting state law only concerning its specific definition of 'interest' as an annual percentage rate. However, the current analysis rejects this interpretation, asserting that late payment fees qualify as 'interest' under section 85 of the National Bank Act (NBA), thereby allowing MBNA to charge such fees to Colorado residents. The court affirmed the court of appeals' judgment.
Three certiorari issues were granted, focusing on whether 'interest' includes late fees, Congress's intent regarding the definition of 'interest rate' in relation to state laws, and the constitutionality of delegating this definition to Delaware. Notably, while MBNA attempted to remove the case to federal court based on federal question jurisdiction, this attempt was unsuccessful.
Additionally, the Colorado General Assembly amended its Uniform Consumer Credit Code (UCCC) in 1993 to permit late payment fees on credit card accounts, allowing a delinquency charge for unpaid minimum payments after ten days, capped at fifteen dollars. However, this amendment does not apply to the current case.
The NBA governs federally-chartered banks, while the DIDA pertains to state-chartered banks, with both statutes being evaluated in cases involving various banking fees. The overall conclusion is that Congress has not sought to preempt Colorado's regulation of state-chartered banks or consumer loans.
