Opinion ID: 723951
Heading Depth: 1
Heading Rank: 4

Heading: The National Bank Act

Text: 34 The plaintiffs also contend that they have been charged excessive interest by the Bank on the premiums that were added to their automobile loans. The Bank is a nationally chartered bank and therefore governed by the National Bank Act. 12 U.S.C. § 38 et al. (1988). The National Bank Act and its accompanying regulations allow nationally chartered banks to charge up to the maximum permitted to the most-favored state-chartered banks in the state in which they are operating. The National Bank Act provides in relevant part: 35 Any association may take, receive, reserve, and charge on any loan or discount made, or upon any notes, bills of exchange, or other evidences of debt, interest at the rate allowed by the laws of the State ... where the bank is located.... 36 12 U.S.C. § 85. This statute has been interpreted by the Supreme Court, under the Most Favored Lender Doctrine, to allow banks to charge the rate allowed to the most favored lenders under state law. Marquette Nat'l Bank v. First of Omaha Serv. Corp., 439 U.S. 299, 314 n. 26, 99 S.Ct. 540, 548 n. 26, 58 L.Ed.2d 534 (1978) (citing 12 C.F.R. § 7.7310). 37 Consequently, the maximum interest rate allowed to banks under Ohio law determines whether the Bank in this case has charged excessive interest. The Ohio Revised Code allows building and loan banks as well as savings banks to charge unlimited dues, fines, interest and premiums on loans made. Ohio Rev.Code Ann. §§ 1151.21, 1161.28 (Baldwin 1994). The defendants argue convincingly that when the Bank acted pursuant to the Notice to Provide Insurance signed by the plaintiffs and added the premiums to the outstanding balances on the plaintiffs' automobile loans, it was making a loan for the amount of the premium. Thus, adding the premiums to the loan balance constituted loans made under Ohio law, and consequently the Bank could charge any amount of interest on these loans. 38 The plaintiffs contend that the charges for the insurance were not loans made and are governed by another section of the Ohio Revised Code that limits the interest chargeable on forbearances or payments of money at a future time. This statute provides: 39 (A) The parties to a bond, bill, promissory note, or other instrument of writing for the forbearance or payment of money at any future time, may stipulate therein for the payment of interest upon the amount thereof at any rate not exceeding eight percent per annum payable annually, except as authorized in division (B) of this subsection [which does not apply to the present case]. 40 Ohio Rev.Code Ann. § 1343.01(A). The plaintiffs argue that the premiums were due immediately and that the Bank allowed them a forbearance or alternatively accepted their promise to pay at a future time. Under the National Bank Act, interest on these obligations cannot exceed eight percent. Because the interest rate on the automobile loans exceeded eight percent, when the Bank added the premium to the loan balance it began charging interest on the premiums that exceeded eight percent. 41 But the Bank did not forbear its right to collect the premiums. Under Ohio law, in order for a forbearance to occur a party must forego all of its legal rights to collect money or enforce an obligation for a specified period of time. See, e.g., Kellogg-Mackay Co. v. O'Neal, 39 Ohio App. 372, 384, 177 N.E. 778, 782 (1931). Here, the Bank could collect part of the premiums each time an installment on the loan came due. In addition, the Bank and the plaintiffs did not make an agreement for payment at a future time. The annual insurance premiums were due in full when the notices were sent to the plaintiffs, and the Bank then financed the amount due by granting an extension of the automobile loan. Finally, the Notice of Requirement to Provide Insurance that each plaintiff signed specifically states that the premiums and other charges associated with the insurance will be added to [the] loan balance. Nowhere in any of the contracts does the word forbearance appear. The language of the agreements indicates that the plaintiffs were obligated to pay the loan made by the Bank to finance the premiums. Consequently, these contracts for loans are governed by the Most Favored Lender Doctrine, and there is no limit on the amount of interest the Bank could charge. 42