Court: Court of Appeals for the Eighth Circuit; May 5, 2003; Federal Appellate Court
Ross M. Jessup appealed against Pulaski Bank after the district court granted summary judgment in favor of the bank, ruling that Jessup's usury claim, based on alleged violations of Arkansas and Texas law regarding an 18.5 percent interest rate on his credit card debt, was unfounded. The case hinged on the interpretation of 12 U.S.C. § 1831u(f) from the Gramm-Leach-Bliley Financial Modernization Act of 1999, which permits Arkansas banks to charge interest rates allowed by out-of-state banks with branches in Arkansas, provided the loan is not made in another state.
Pulaski Bank, chartered in Arkansas and operating solely in Little Rock, processed Jessup's credit card application, which was solicited and submitted from Texas. The application and agreement specified that the loans were made in Arkansas and governed by Arkansas and federal law, including § 1831u(f). The court noted that although Jessup used the credit card exclusively in Texas, the application process and loan approval occurred in Arkansas.
The parties disputed whether Arkansas, Texas, or Alabama law governed the interest rate. While the 18.5 percent rate was usurious under Arkansas and Texas laws, it was permissible under Alabama law due to a nearby bank's presence. The district court ruled that, under § 1831u(f), Pulaski Bank could charge this interest rate because Alabama law applied, thus upholding the bank's action of charging the agreed rate. The court rejected Jessup's argument that the loan was made in Texas, affirming that it was made in Arkansas.
The court conducts a de novo review of the district court's summary judgment. It establishes that federal choice-of-law principles apply to interpret Congress's intent regarding section 1831u(f), asserting that the meaning of a federal statute is a federal question, and it presumes Congress did not intend the application of federal law to depend on state law. The term "made" is not defined in the statute, nor has it been interpreted in case law. However, an August 2001 opinion letter from the Office of the Comptroller of the Currency (OCC) clarified that a loan is "made" by a bank's out-of-state branch if it is approved, credit is extended, and funds are disbursed from that branch.
For an Arkansas bank, reliance on section 1831u(f) and Alabama interest rate law is not permissible when the loan originates from an out-of-state branch. Since the bank does not operate outside Arkansas, it can apply Alabama's interest rates without consideration of the borrower's residence. The OCC letter is entitled to Chevron deference, meaning it is controlling unless found arbitrary or contrary to the statute. The court agrees with the district court's conclusion that Jessup's loan was "made" in Arkansas, thus falling under section 1831u(f)(1), allowing the agreed 18.5 percent interest rate under Alabama law to be non-usurious. The court affirms the judgment.
