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motionregulationrespondent

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Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735, 116 S.Ct. 1730, 135 L.Ed.2d 25, 64 USLW 4399, 96 Cal. Daily Op. Serv. 3922, 96 Daily Journal D.A.R. 6399

Facts

The petitioner, a California resident, held credit cards issued by a national bank located in South Dakota. She alleged that the late fees charged on her accounts were excessive and violated California law. The bank argued that these fees were permissible under South Dakota law and that her claims were pre-empted by the National Bank Act, which allows national banks to charge interest at the rate allowed by the laws of the state where the bank is located. The California courts agreed with the bank's interpretation, leading to the dismissal of the case.

Petitioner, a resident of California, held two credit cards—a 'Classic Card' and a 'Preferred Card'—issued by respondent, a national bank located in Sioux Falls, South Dakota.

Issue

Whether the term 'interest' in the National Bank Act includes late-payment fees charged by a national bank.

The question in this case is whether § 85 also authorizes a national bank to charge late-payment fees that are lawful in the bank's home State but prohibited in the States where the cardholders reside—in other words, whether the statutory term 'interest' encompasses late-payment fees.

Rule

The term 'interest' as used in the National Bank Act encompasses any payment compensating a creditor for an extension of credit, including late-payment fees.

The term 'interest' as used in 12 U.S.C. § 85 includes any payment compensating a creditor or prospective creditor for an extension of credit, making available of a line of credit, or any default or breach by a borrower of a condition upon which credit was extended.

Analysis

The court applied the rule by deferring to the Comptroller of the Currency's interpretation of the term 'interest' in the National Bank Act, which included late fees. The court found that the late fees charged by the bank were lawful under South Dakota law and that the National Bank Act pre-empted California law in this context. The court reasoned that the interpretation was reasonable and consistent with the historical understanding of 'interest'.

The Comptroller's interpretation of the statutory term 'interest' is reasonable. There is no indication that, at the time of the passage of the National Bank Act, common usage of the word 'interest' or the phrase 'at the rate allowed' required that interest charges be expressed as functions of time and amount owing.

Conclusion

The Supreme Court affirmed the lower court's decision, concluding that the late fees charged by the bank were considered 'interest' under the National Bank Act and thus permissible.

Because the regulation is entitled to deference, and because the Comptroller's interpretation of § 85 is not an unreasonable one, the decision of the Supreme Court of California must be affirmed.

Who won?

Citibank (South Dakota), N.A. prevailed because the court upheld the bank's right to charge late fees as interest under the National Bank Act, which pre-empted state law.

The California Superior Court, accepting respondent's argument that credit card late-payment fees constitute 'interest' for purposes of § 85, granted respondent's motion.

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