Court Opinion

ID: 9637922
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:26:25.764851+00
Date Added: 2024-06-11T18:10:01.921047
License: Public Domain

O’HERN, J.,
dissenting.
I agree with the majority that the National Bank Act does not preempt state consumer protection laws that prohibit late charges on credit card accounts. I would, however, allow national banks to assess late charges against credit card holders in New Jersey, not because the late charges are interest under the National Bank Act (they are not) and not because Congress has authorized the Comptroller of the Currency to preempt the State’s consumer protection law, but because New Jersey law permits lenders to impose such late charges and may not discriminate against national banks that seek to impose the same charges.
In 1864 Congress enacted the National Bank Act, c. 106, 13 Stat. 99 (NBA). Section 85 of the NBA now 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 the 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 reserve bank in the Federal reserve district where the bank is located, whichever may be the greater * * *.
[ 12 U.S.C.A § 85.]
*93In addition to addressing interest rate differentials between state and national lending institutions, the NBA had a more profound purpose and effect — to assure that national banking institutions were never put at any economic disadvantage in competition with state-chartered institutions.1
Before the Civil War, Jacksonian distrust of concentrated power of mercantile interests had brought about the demise of national banks and the rise of the state banking systems. Clarke v. Securities Indus. Ass’n, 479 U.S. 388, 413, n. 5, 107 S.Ct. 750, 764, n. 5, 93 L.Ed.2d 757, 777, n. 5 (1987) (Stevens, J., concurring).
Enactment of the National Bank Act was part of Congress’s attempt to induce state-chartered banks to convert to national charters in order to achieve several federal objectives, such as the development of a national currency, the creation of a market for federal bonds to finance the war, and the use of the national banks as depositories.
[Edward L. Symons, Jr., The “Business of Banking” in Historical Perspective, 51 Geo.Wash.L.Rev. 676, 699 (1983).]
If state-chartered banking institutions were permitted to make loans on more favorable terms than nationally chartered institutions, then nationally chartered institutions would be at an economic disadvantage. Congress “deliberately settled upon a policy intended to foster ‘competitive equality’ ” between national banks and state banks. First Nat'l Bank in Plant City, Fla. v. Dickinson, 396 U.S. 122, 131, 90 S.Ct. 337, 342, 24 L.Ed.2d 312, 318 (1969) (quoting First Nat’l Bank of Logan, Utah v. Walker Bank & Trust Co., 385 U.S. 252, 261, 87 S.Ct. 492, 497, 17 L.Ed.2d 343, 349 (1966)). In the Walker Bank case, involving branch banking issues, the Comí; wrote: “To us it appears beyond question that the Congress was continuing its policy of equalization first *94adopted in the National Bank Act of 1864.” 385 U.S. at 261, 87 S.Ct. at 497, 17 L.Ed.2d at 349 (emphasis added).
Because equalization, not preemption, is the congressional policy, New Jersey cannot grant late-charge privileges to its financial institutions and not to national banks:
The purpose of section 85 is [1] to adopt the state law, relating to interest rates permitted, to permit national banks to charge the rate of interest allowed to competing lenders in the state, and [2] to guard against unfriendly federal-state legislation or ruinous competition with state chartered or licensed lenders. This interpretation of Section 85, commonly referred to as “the most favored lender policy” puts national banks on an equal footing with the most favored lenders in the state without giving them an unconscionable and destructive advantage over all state lenders. The statute prevents state legislation which purports to give state banks or possibly any state lender advantages over national banks.
[United Missouri Bank of Kansas City, N. A v. Danforth, 394 F.Supp. 774, 779 (W.D.Mo.1975) (emphasis added).]
The New Jersey Department of Banking reasons that state-chartered credit unions “are authorized to offer credit cards and charge late charges without limit.” (Letter from Francis P. Carr, Assistant Commissioner, New Jersey Department of Banking, to Dennis R. Casale 1 (Oct. 14, 1994) (citing N.J.S.A 17:13-105(e)). Thus, even though late charges are not interest, a national bank must be permitted to impose late charges as long as a state lender may impose them. See Saul v. Midlantic Nat’l Bank/South, 240 N.J.Super. 62, 81, 572 A.2d 650 (App.Div.) (recognizing that under “most favored lender” doctrine, national banks may make loans on same terms as state-chartered credit union), certif. denied, 122 N.J. 319, 585 A.2d 338 (1990).
In addition, S. 1412, signed into law on March 7,1995, amended the Retail Installment Sales Act (RISA), N.J.S.A 17:16C-1 to -61, the statute on which plaintiffs have based their claims in this case. The 1995 amendment expressly authorizes the holder of any retail charge account to collect flat late charges. N.J.S.A 17:16C-42. After that amendment there can be no question that a nationally chartered credit card lender may not impose such late charges, at least to the extent allowed under & 1412. Were it otherwise, *95Citibank explains, there would be favoritism shown to state lenders:
The favored lender, by contracting for flat, contingent charges from late payers, can protect itself against risks and costs associated with delinquencies while keeping monthly percentage charges low to attract good customers who are consistently punctual. The disfavored lender, who cannot collect late charges, tends to get all the customers who anticipate paying late and tends to lose the customers with strong credit and habits of punctuality because it must impose higher monthly percentage charges to make up for its inability to impose late charges.
That competitive advantage cannot be given to the state-chartered institutions. Northway Lanes v. Hackley Union Nat'l Bank & Trust Co., 464 F.2d 855, 863 (6th Cir.1972), held that because a Michigan-chartered savings and loan association was permitted to charge a borrower (in addition to interest) the closing costs of a real estate loan, a national bank could legally impose such additional charges. The Northway Lanes court quoted a principal drafter of the NBA, Senator John Sherman of Ohio, who explained that the purpose of the NBA was “to confer on these national banks the same privileges that are conferred by the laws of the States on other associations and individuals * * * [and] to place the national banks in each state on precisely the same footing with individuals and persons doing business in the state by its laws.” 464 F.2d at 861 (quoting Cong.Globe, 38th Cong. 1st Sess. 2126 (1863)).
“National banks have been national favorites.” Tiffany v. National Bank of Missouri, 85 U.S. (18 Wall.) 409, 413, 21 L.Ed. 862, 864 (1874). The NBA confers on them “at least competitive equality ” with other lenders and a “possible advantage over state banks in the field of interest rates.” Fisher v. First Nat'l Bank of Omaha, 548 F.2d 255, 259 (8th Cir.1977) (emphasis added). No state may create a competitive disadvantage by favoring any class of state lenders over national lenders, as New Jersey would favor its state lenders if they alone can impose late charges. An Opinion Letter from the Office of the Comptroller of the Currency explains:
*96[I]f a state allows state banks to charge credit card annual fees at flat rates, then section 85 allows national banks to do so as well. If national banks were not allowed to match state-regulated lenders on these flat loan charges, then the “most favored lender” principle would be destroyed.
[Letter from Julie L. Williams, Chief Counsel, to John L. Douglas (Feb. 17, 1995), 1995 WL 71676 (OCC), *6.]
Plaintiffs seek to avoid the application of the “most favored lender” doctrine by arguing that The Credit Union Act, N.J.SA 17:13-73.1 to -125, did not always authorize unlimited late fees on retail charge cards, insisting that the more specific provisions of RISA controlled retail credit card transactions. Plaintiffs’ interpretation of the law is of little consequence as long as the State regulators continue to permit state-chartered lenders to impose late charges. The NBA forbids precisely that form of discrimination against national banks.
States have a profound interest in their consumer protection laws. Marquette Nat’l Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S. 299, 314, 99 S.Ct. 540, 548, 58 L.Ed.2d 534, 545-46 (1978), held only that “interest rates of one State [can be] ‘exported’ into another” because a literal application of the plain language of “rate allowed” in Section 85 compelled that result. Only a distorted reading of Section 85 would allow exportation of the consumer protection attitudes of the home state of the national bank. See William G. Bomstein, Comment, Extension of the Most Favored Lender Doctrine Under Federal Usury Law: A Contrary View, 27 Vill.L.Rev. 1077, 1107-08 (1981-82) (analyzing the Marquette holding).
I cannot imagine that Congress intended that South Dakota or Delaware be permitted to export their concepts of consumer protection and to preempt and nullify the consumer protection laws of New Jersey. I therefore agree with that portion of the Court’s opinion.
For reversal — Chief Justice WILENTZ, and Justices HANDLER, STEIN and COLEMAN — 4.
For affirmance — Justices POLLOCK, O’HERN and GARIBALDI — 3.

 Sections 521 through 523 of the Depository Institutions Deregulation and Monetary Control Act of 1980, Puh.L. No. 96-221, 94 Stat. 132, authorize other federally insured depository institutions to collect interest as allowed by the laws of the state in which they are located. Those provisions generally confer on federally insured state banks the privileges that national banks enjoy under the NBA. For convenience of analysis, I refer only to the federally chartered institutions.