American Bankers Assciation v. Lockyer

• Citation: 239 F.Supp.2d 1000
• Decision Date: 23 December 2002
• Docket Number: No. CV.S-02-1138 FCD JFM.,CV.S-02-1138 FCD JFM.
• Parties: AMERICAN BANKERS ASSOCIATION, a national trade association, et al., Plaintiffs, v. Bill LOCKYER, Attorney General of the State of California, et al., Defendants.
• Court: U.S. District Court — Eastern District of California

Page 1000

239 F.Supp.2d 1000

AMERICAN BANKERS ASSOCIATION, a national trade association, et al., Plaintiffs, v. Bill LOCKYER, Attorney General of the State of California, et al., Defendants.

No. CV.S-02-1138 FCD JFM.

United States District Court, E.D. California.

December 23, 2002.

John Joseph Quinn, Jr., Laurence J. Hutt, Arnold and Porter, Los Angeles, CA, Dennis G. Lyons, Michele J. Woods, Christine E. Koh, Howard N. Cayne, Arnold and Porter, Washington, DC, for plaintiffs.

Robyn Cerny Smith, Atty. General's Office of State of Cal., Los Angeles, CA, Susan Eileen Henrichsen, Atty. General's Office of State of Cal, San Diego, CA, for defendants.

Douglas B. Jordan, Office of Comptroller of Currency, Washington, DCF, for Amicus Curiae.

MEMORANDUM AND ORDER

DAMRELL, District Judge.

This action is before the court on plaintiffs American Bankers Association, America's Community Bankers, Chase Manhattan Bank USA, N.A., Citibank (South Dakota), N.A., Consumer Bankers Association, Credit Union National Association, Inc., First USA Bank, N.A., Household Bank (SB), N.A., Independent Community Bankers of America, MBNA America Bank, N.A., and National Association of Federal Credit Unions' (collectively "plaintiffs") (1) motion for a preliminary injunction, and (2) motion for summary judgment and permanent injunctive relief. Briefing has been submitted by the parties as well as amicus curiae Office of the Comptroller of the Currency ("OCC") in support of the motions, and amicus curiae Consumers Union, Consumer Action, California Public Interest Research Group (CalPIRG), Consumer Federation of America, National Consumer Law Center, United States Public Interest Research Group, and AARP ("Consumers Union") in opposition to the motions. Plaintiffs seek a preliminary injunction restraining defendants Bill Lockyer, Attorney General of the State of California, and Kathleen Hamilton, Director of the California Department of Consumer Affairs ("defendants" or the "State") from enforcing California Civil Code section 1748.13 (the "statute" or "section 1748.13"). Plaintiffs further seek summary judgment and a permanent injunction against defendants' enforcement of the statute on the basis that section 1748.13 is preempted by federal banking laws and thus inapplicable to all federally chartered credit card issuers. The court heard oral argument on December 6, 2002, and by this order now renders its decision.

FACTUAL BACKGROUND

1. California Civil Code Section 1748.13

In 2001, the California legislature passed Assembly Bill Number 865. See Resp. of Defs. Bill Lockyer and Kathleen Hamilton to Pltfs.' Statement of Undisputed Facts ("UF"), filed Oct. 25, 2002, UF 1. The Bill was codified as California Civil Code section 1748.13. Id. The Attorney General and Department of Consumer Affairs have the power and duty to enforce section 1748.13. UF 2.

Section 1748.13 requires that certain language and information be placed on the billing statements credit card issuers provide their cardholders. The statute applies to all credit cards,¹ but differentiates "retail credit cards" as a separate category with slightly different requirements.² See Cal. Civ.Code §§ 1748.13(a)(1)(A)(ii), 1748.13(b)(3).

According to defendants, the statute was designed to provide credit card users with warnings about the length of time and total amount of cost a cardholder will incur if (s)he repays the outstanding balance on a credit card by remitting only the minimum payment on each periodic bill. Section 1748.13 requires credit card issuers to include the warnings contemplated by the statute except in billing cycles where they either: (1) require a minimum payment of at least 10% of the cardholder's outstanding balance; or (2) do not impose finance charges. Cal. Civ.Code § 1748.13(c)(1)-(2); UF 4.

When credit card issuers do not meet these exceptions, they must provide the warnings and information to cardholders contemplated by the statute. First, each cardholder's bill must display two messages on the front of the first page, in capitalized type that is at least 8-point size. Cal. Civ.Code § 1748.13(a); UF 3. The first message is required and must state, "Minimum Payment Warning: Making only the minimum payment will increase the interest you pay and the time it takes to repay your balance." Cal. Civ. Code § 1748.13(a)(1); UF 3. The statute also requires a second message, but allows the credit card issuer to decide between two optional methods of presenting further warnings and distributing information required by the statute. The credit card issuer must decide to provide one of the following options.

The first option is set out in section 1748.13(a)(2)(A). It provides that immediately after the Minimum Payment Warning, the credit card issuer must provide a short statement that describes the time it would take and the total cost to a cardholder if (s)he paid off balances of $1000, $2500, and $5000 by paying only the minimum payment, if the billing was based on an annual percentage rate of 17% and a minimum payment of 2% of the bill or $10 (whichever was greater). UF 3. Credit card issuers can satisfy the requirements of this option if they provide the same information for the three specified balance amounts at the annual percentage rate and required minimum payment which are applicable to an individual cardholder's account. Cal. Civ.Code § 1748.13(a)(2)(A)(i); UF 3.³ If the credit card issuer chooses to provide this message then, immediately following the required wording, it must provide the following written statement: "For an estimate of the time it would take to repay your balance, making only minimum payments, and the total amount of those payments, call this toll-free number: (Insert toll-free telephone number)." Cal. Civ.Code § 1748.13(a)(3)(A); UF 3. The statute requires that the toll-free number be available between the hours of 8 a.m. and 9 p.m. Pacific Standard Time, seven days a week. The statute also mandates that the toll-free number provide consumers with the opportunity to speak to a person, rather than a recording, from whom the individualized account information discussed above can be obtained. Cal. Civ.Code § 1748.13(a)(3)(B); UF 3.

The second option, under section 1748.13(a)(2)(B), allows a creditor to print a written statement on the front of the bill's first page that provides individual, "customized" information to the cardholder. UF 3. This information would indicate an estimate of the number of years and months and the approximate total cost to pay off the entire balance due on an account if, based on the terms of the credit agreement, the cardholder were to pay only the minimum amount due for each bill. If the credit card issuer chooses this option, the bill must also provide the cardholder with either a referral to a credit counseling service or the "800" number for the National Foundation for Credit Counseling (through which the cardholder can be referred to credit counseling services in, or closest to, the cardholder's county of residence).⁴ A credit card issuer is required to use this option if the cardholder has not paid more than the minimum payment for 6 consecutive months after July 1, 2002. Cal. Civ.Code § 1748.13(a)(2)(B); UF 3; UF 8.

In addition to the requirements described above, the statute mandates that the Department of Financial Institutions ("DFI") establish a detailed table illustrating the approximate number of months and approximate total cost to repay an outstanding balance if the consumer pays only the required minimum monthly payments and if no other fees are incurred. Cal. Civ.Code § 1748.13(a)(3)(C). These tables must consider: a significant number of interest rates (§ 1748.13(a)(3)(C)(i)); a significant number of different account balances (with the difference between amounts considered no greater than $100) (§ 1748.13(a)(3)(C)(ii)); a significant number of different payment amounts (§ 1748.13(a)(3)(C)(iii)); and that only minimum monthly payments are made with no additional charges or fees incurred on the account. Cal. Civ.Code § 1748.13(a)(3)(C)(iv).

The information developed by the DFI can be referenced when a cardholder calls the toll-free line and requests information on how long and at what cost they would pay off a balance using a minimum payment, or when the credit card issuer is required to disclose this information to cardholders who have paid only the minimum for 6 consecutive months. However, credit card issuers are not allowed to include the full chart with a billing statement to satisfy their obligations under the statute. Cal. Civ.Code § 1748.13(a)(3)(D); UF 7.

2. Consumer Debt

Defendants maintain that the statute should withstand constitutional challenge because it benefits Californians by requiring credit card issuers to provide information regarding the costs and consequences of remitting only minimum monthly credit card payments. Defs.' Mem. of P. & A. in Opp'n to Pltfs.' Appl. for a Prelim. Inj. and Mot. for Summ. J. ("Defs.' Opp'n to MSJ ), filed Oct. 25, 2002, at 2. Defendants represent that "U.S. and California households are facing an unprecedented debt crisis, brought about in large part by high levels of revolving credit card debt." Id. at 3.

A marked increase in purchases made with credit cards in the 1990s is in part responsible for the now-record levels of indebtedness across the United States. Id. Between 1990 and 2001, the total amount of revolving debt in United States households increased by 193%, from $190.9 to $559.6 billion. Id. at 3; Defs.' App. of Non-Federal Authorities and Other Cited Sources in Supp. of Defs.' Opp'n to Pltfs.' Appl. For Prelim. Inj. and Mot. for Summ. J. ("Defs.' App."), filed Oct. 25, 2002, at Exs. 24, 33. Defendants represent that in 2001, at least 55% of United States households (or approximately 41.7 million households total) holding a credit card revolved balances from month to month.⁵ Californians accounted for approximately...