Court Opinion

ID: 9637904
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:25:54.262258+00
Date Added: 2024-06-11T15:02:22.161233
License: Public Domain

POLLOCK, J.,
dissenting.
This appeal focuses on the question whether late-payment fees are included in the definition of “interest” in the Depository Institutions Deregulation and Monetary Control Act of 1980, 12 U.S.C.A § 1831d (“DIDA”). A related issue is whether the DIDA preempts state laws prohibiting late fees. As in the companion case, Sherman v. Citibank (South Dakota), NA., 143 N.J. 35, 668 A.2d 1036 (1995), also decided today, the Law Division dismissed the complaint. The Appellate Division affirmed, 272 N.J.Super. 526, 640 A.2d 855 (1994). The majority reverses. I dissent.
-I-
The facts in this case are substantially similar to those in Sherman. James H. Hunter is the plaintiff in a class action challenging the legality of late fees charged to New Jersey holders of credit cards issued by Greenwood Trust, a federally-insured Delaware bank. Hunter argues that New Jersey’s Retail Installment Sales Act of 1960, N.J.S.A. 17:16C-50, to -54 (“RISA”), forbids federally-insured state banks from charging late fees to New Jersey consumers. He also argues that Greenwood Trust’s cardmember agreement violates N.J.S.A 56:8-2 and -19 (which prohibit consumer fraud), and that the imposition- of late fees constitutes a common-law breach of contract and conversion. Like the claims in Sherman, Hunter’s claims depend on whether interest includes late fees.
The DIDA, like the National Bank Act (NBA), which was the subject of Sherman, authorizes federally-insured state banks to *109charge borrowers “interest ... allowed by the laws of the State ... where the bank is located.” Delaware’s statutory definition of interest includes late fees: “If the agreement governing a revolving credit plan so provides, a bank may impose, as interest, a late or delinquency charge.” Del.Code Ann. tit. 5, § 950 (1994). Thus, Greenwood Trust maintains both that the DIDA expressly authorizes charging late fees as interest and that the DIDA preempts conflicting state laws.
Hunter, however, contends that late fees are not interest under the DIDA. Specifically, he asserts that “interest” refers only to the periodic percentage rate charged on outstanding balances. He argues that his state-law claims do not conflict with the DIDA, and therefore that the DIDA does not preempt them. Alternatively, Hunter argues that the DIDA’s express preemption clause preempts only his statutory, but not his common-law, claims.
-II-
This case requires us to determine the meaning of “interest ... allowed by the laws of the State ... where the bank is located,” as that phrase is used in the DIDA. Ultimately, matters of statutory construction involve a determination of congressional intent. E.g., Norfolk and Western Ry. Co. v. American Train Dispatchers Ass’n, 499 U.S. 117, 128, 111 S.Ct. 1156, 1163, 113 L.Ed.2d 95, 106-07 (1991); Roig v. Kelsey, 135 N.J. 500, 515, 641 A.2d 248 (1994). In the DIDA, Congress did not expressly define “interest.” Nor does a fair reading of the legislative history disclose the intended meaning of that term.
As discussed more fully in my dissent in Sherman, supra, 143 N.J. at 75, 668 A.2d 1036, the Civil War Congress enacted section 85 of the NBA to protect the newly-created national banking system from unfriendly state usury laws. Section 85 provides that any national bank
may take, receive, reserve, and charge on any loan or discount made, or upon any notes, bills of exchange, or other evidence of debt, interest at a rate allowed by the laws of the State ... where the bank is located, or at a rate of 1 per centum in excess of the discount rate on ninety-day commercial paper in effect at the Federal *110reserve bank in the Federal reserve district where the bank is located, whichever may be the greater____
[ 12 U.S.C.A § 85.]
In Tiffany v. National Bank of Missouri, 85 U.S. (18 Wall.) 409, 411-13, 21 L.Ed. 862, 863-64 (1873), the United States Supreme Court held, pursuant to section 85, that the defendant national bank could charge its borrowers the highest interest rate authorized to any lender in that state. The Court acknowledged that the “most favored lender” doctrine might disadvantage state-chartered banks, but relied on Congress’s intent to create a strong national banking system immune from hostile state legislation. Id. at 412-13, 21 L.Ed. at 863-64.
A century later, the Court determined that a national bank located in one state could charge its borrowers in other states the highest interest rate allowed to any lender in its home state. Marquette Nat'l Bank v. First of Omaha Serv. Corp., 439 U.S. 299, 99 S.Ct. 540, 58 L.Ed.2d 534 (1978).
In the years following Marquette, interest rates soared. Although national banks could charge interest at a rate tied to the federal discount rate, local usury laws constrained state banks. See Greenwood Trust Co. v. Massachusetts, 971 F.2d 818, 826 (1st Cir.1992), cert. denied, 506 U.S. 1052, 113 S.Ct. 974, 122 L.Ed.2d 129 (1993). Congress rectified the imbalance by enacting the DIDA. Ibid.
Section 521 of the DIDA (“section 521”) provides that
[i]n order to prevent discrimination against any [federally-insured state bank], such State bank may ... notwithstanding any State constitution or statute which is hereby preempted for the purposes of this section, take, receive, reserve, and charge on any loan or discount made, or upon any note, bill of exchange, or other evidence of debt, interest at a rate of not more than 1 per centum in excess of the discount rate on ninety-day commercial paper in effect at the Federal Reserve bank in the Federal Reserve district where such State bank ... is located or at the rate allowed by the laws of the State ... where the bank is located, whichever may be the greater____
[ 12 U.S.C.A § 1831d(a)J
The text of section 521 virtually mirrors that of section 85. Section 521 articulates Congress’s intent that the purpose of the *111DIDA, like that of the NBA, is to prevent discrimination against federally-insured state banks. Unsurprisingly, courts and banking regulators have interpreted section 521 as protecting federally-insured state banks from hostile state laws, just as section 85 protects national banks from those laws. Greenwood Trust, supra, 971 F.2d at 826-27 (concluding that section 521 permits federally-insured state banks to “export” interest rates); Copeland v. MBNA America Bank, N.A, — Colo.-, 907 P.2d 87 (1995) (concluding that “language and legislative history of section 521 of the DIDA grants federally insured, state chartered banks the same interest authority as national banks”); VanderWeyst v. First State Bank, 425 N.W.2d 803, 806 (Minn.) (concluding that section 521 gives federally-insured state banks “most favored lender” status), cert. denied, 488 U.S. 943, 109 S.Ct. 369, 102 L.Ed.2d 359 (1988); Letter by Douglas H. Jones, Deputy General Counsel, FDIC No. 92-47, Fed. Banking L.Rep. (CCH) ¶ 81,534 at 55,730 (July 8, 1992) (most favored lender and exportation principle); Letter by Frank L. Skillem, Jr., General Counsel, FDIC No. 81-3 (February 8, 1981) (most favored lender status); Letter by Kathy A. Johnson, Attorney, FDIC No. 81-7 (March 17, 1981) (exportation principle).
I agree with the majority, ante at 104, that “interest,” as that term is used in the NBA and the DIDA, should be construed uniformly. E.g., Greenwood Trust, supra, 971 F.2d at 827; see also Morales v. Trans World Airlines, Inc., 504 U.S. 374, 383-84, 112 S.Ct. 2031, 2037, 119 L.Ed.2d 157, 167 (1992) (finding that when legislature borrows exact phrase from existing statute, courts should adopt prior judicial interpretations of that phrase). Substantially for the reasons set forth in my Sherman opinion, 143 N.J. 35, 668 A.2d 1036, I conclude that “interest” in the DIDA includes late fees.
Interpretations of the Federal Deposit Insurance Corporation (FDIC), the agency charged with the regulation of federally-insured banks, 12 U.S.C.A § 1811, support that conclusion. In my dissent in Sherman, supra, 143 N.J. at 80-81, 668 A.2d 1036, I *112noted that when Congress does not define a statutory term, courts should accept a reasonable interpretation of the term of the appropriate administrative agency. NationsBank of North Carolina, N.A. v. Variable Annuity Life Ins. Co., 513 U.S.-,-, 115 S.Ct. 810, 813, 130 L.Ed.2d 740, 747 (1995); Chevron, U.S.A, Inc. v. NRDC, 467 U.S. 837, 843-44, 104 S.Ct. 2778, 2782-83, 81 L.Ed.2d 694, 703-04 (1984); Lammers v. Board of Educ., 134 N.J. 264, 274, 633 A.2d 526 (1993); Metromedia, Inc. v. Director, Div. of Taxation, 97 N.J. 313, 327, 478 A.2d 742 (1984); Kenneth C. Davis & Richard J. Pierce, Jr., Administrative Law Treatise § 3.3 (3d ed. 1994) (discussing Chevron); Antonin Scalia, Judicial Deference to Administrative Interpretations of Law, 1989 Duke L.J. 511, 516-18 (same). As described in my dissent in Sherman, supra, 143 N.J. at 82-83, 668 A.2d 1036, the Comptroller of the Currency, which regulates national banks, has long ruled that interest could include late fees. Like the Comptroller, the FDIC has concluded that interest, for purposes of section 521, includes late fees that are authorized by a bank’s home state. Letter from Douglas H. Jones, Deputy General Counsel, FDIC No. 92-47, Fed. Banking L.Rep. (CCH) ¶ 81,534 at 55,730 (July 8, 1992). As in Sherman, I find that interpretation reasonable.
-III-
Whether a federal law, such as the DIDA preempts a state law is a matter of congressional intent. E.g., Cipollone v. Liggett Group, Inc., 505 U.S. 504, 515-17, 112 S.Ct. 2608, 2617-18, 120 L.Ed.2d 407, 422-23 (1992). The inclusion of an express preemption clause unmistakably declares the intent of Congress to' preempt conflicting state statutes. Ibid.
The DIDA unlike the NBA includes such an express preemption clause. Section 521 permits a national bank to charge interest at a rate allowed by its home state “notwithstanding any State constitution or statute which is hereby preempted for the purposes of this section____” The word “notwithstanding” suggests that Congress intended the DIDA to preempt conflicting state statutes. *113Thus, under the language of the DIDA’s express preemption clause, the question is whether RISA’s prohibition against late fees conflicts with section 521.
In Sherman, supra, 143 N.J. at 90, 668 A.2d 1036, I concluded that section 85 conflicts with state laws, such as RISA, that prohibit late fees. I likewise submit that section 521 conflicts with state laws prohibiting such fees. Under its express preemption clause, the DIDA preempts Hunter’s statutory claims.
I further determined in Sherman that New Jersey’s State Bank Parity Act authorizes banks located in this State to charge interest in the form of late-payment fees. 143 N.J. at 89-90, 668 A.2d 1036; see Letter by Francis P. Carr, Assistant Commissioner, Department of Banking (Oct. 14, 1994). Because I conclude that New Jersey banks may charge late fees to their New Jersey customers, I also conclude that a state law prohibiting out-of-state federally-insured state banks from charging such fees impermissibly discriminates against those institutions. See Sherman, supra, 143 N.J. at 90, 668 A.2d 1036. That conflict with the congressional intent to prevent discrimination against federally-insured state banks further supports my conclusion that the DIDA preempts state statutes that prohibit late fees.
-IV-
Hunter argues alternatively that even if the DIDA preempts his statutory claims, his common-law claims must survive. Specifically, he argues that the United States Supreme Court’s holding in Cipollone, supra, 505 U.S. 504, 112 S.Ct. 2608, 120 L.Ed.2d 407, limits the DIDA’s preemptive scope to “State constitution[s] or statute[s].” 12 U.S.C.A § 1831d(a). I disagree..
The Court recently addressed a comparable issue in Freightliner Corp. v. Myrick, 514 U.S.-, 115 S.Ct. 1483, 131 L.Ed.2d 385 (1995). In Freightliner, the Court clarified that Cipollone does not preclude implied preemption whenever Congress includes an express preemption clause in a federal statute. 514 U.S. at-, 115 S.Ct. at 1487-88, 131 L.Ed.2d at 393. “At best, Cipollone *114supports an inference that an express pre-emption clause forecloses implied pre-emption; it does not establish a rule.” Id. at -, 115 S.Ct. at 1488, 131 L.Ed.2d at 393. The Court emphasized that a statute’s preemptive scope is a function of congressional intent. Id. at-, 115 S.Ct. at 1487, 131 L.Ed.2d at 393.
I believe that Congress intended that section 521 of the DIDA should have the same preemptive effect as section 85 of the NBA A recent interpretive letter by the FDIC further supports that conclusion. Letter by Douglas H. Jones, Deputy General Counsel, FDIC No. 93-27, Fed.Banking L.Rep. (CCH) ¶ 81,635 at 55,838 (July 12,1993) (concluding that Congress intended to confer upon federally-insured banks the same protections that section 85 of the NBA confers on national banks). I conclude that Hunter’s common-law claims, like his statutory claims, conflict with the DIDA and are preempted.
-V-
In Sherman, supra, 143 N.J. at 90-91, 668 A.2d 1036, I disagreed with the majority’s conclusion that in the future, out-of-state federally-insured state banks may charge late fees on delinquent customers, but only up to $10. Although I agree that those banks may charge such fees, I disagree that state law may limit the amount so charged. As a national banking law, the DIDA takes precedence over conflicting state law. Under the authority of the DIDA, Greenwood Trust may impose late fees as authorized by its home state, Delaware, without reference to another state’s limitation on those fees. Consequently, the RISA’s limitation on late charges must yield to the DIDA, as construed by the FDIC.
Accordingly, I respectfully dissent.
Justice GARIBALDI joins in this dissent.