Brown v. First National City Bank, 72 Civ. 4516.

• Decision Date: 07 November 1973
• Docket Number: No. 72 Civ. 4516.,72 Civ. 4516.
• Citation: 365 F. Supp. 1286
• Parties: Jordan BROWN and all others similarly situated, Plaintiff, v. FIRST NATIONAL CITY BANK, Defendant.
• Court: U.S. District Court — Southern District of New York

365 F. Supp. 1286

Jordan BROWN and all others similarly situated, Plaintiff, v. FIRST NATIONAL CITY BANK, Defendant.

No. 72 Civ. 4516.

United States District Court, S. D. New York.

November 7, 1973.

Sheldon V. Burman, New York City, for plaintiff.

Shearman & Sterling, New York City, for defendant by John E. Hoffman, Jr., Joseph T. McLaughlin, New York City, of counsel.

OPINION

KEVIN THOMAS DUFFY, District Judge.

This is one of two actions brought simultaneously by customers^* of the defendant First National City Bank challenging the bank's method of calculating interest on Checking Plus accounts. The defendant has moved for summary judgment in both cases; this Court denied one of the motions, finding disputed issues of fact. Rosenspan v. First National City Bank, 72 Civ. 4515 (S.D. N.Y., filed Aug. 23, 1973).

The essence of plaintiff's claim in this case is that the defendant's method of calculating interest on amounts lent to him under the Checking Plus agreement violates the National Bank Act, 12 U.S. C. § 85 and the New York Banking Law § 108(5), McKinney's Consol. Laws, c. 2, in three respects: first, plaintiff challenges defendant's practice of using multiples of one hundred in advancing funds to Checking Plus customers instead of the exact amount indicated by the customer's check; second, plaintiff claims that the defendant charges interest on interest; and third, that it charges interest on service charges. Plaintiff claims that the latter two practices also constitute violations of the Checking Plus agreement which allows interest to be charged only on "the amount of credit in use." In its motion for summary judgment the defendant denies using the latter two practices and claims that its practice of using multiples of a hundred is permitted by both State and federal law.

Jurisdiction is properly invoked pursuant to 28 U.S.C. § 1337 and 28 U.S.C. § 1355. Section 1337 confers on the district courts "original jurisdiction of any civil action or proceeding arising under any Act of Congress regulating commerce . . ." The National Bank Act clearly regulates commerce. Section 1355 confers exclusive jurisdiction "of any action or proceeding for the recovery or enforcement of any fine, penalty, or forfeiture . . . incurred under any Act of Congress." The plaintiff is suing for recovery of the penalty provided by Section 86 of the National Bank Act. In addition, the state claims stem from a "common nucleus of operative fact", United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966), and thus meet the test for pendent jurisdiction.

Following the defendant's motion for summary judgment, the plaintiff cross-moved for partial summary judgment based on the defendant's practice of charging interest on multiples of $100. The plaintiff opposes the defendant's motion for summary judgment on the questions of compounding interest and charging interest on service and maintenance charges, claiming that these questions raise factual issues which should not be resolved on the basis of conflicting affidavits. Finally, as part of his cross-motion plaintiff raises a new issue, claiming that both state and federal statutes are violated by the defendant's failure to credit deposits by plaintiff to his checking account as repayment of loans advanced pursuant to the Checking Plus agreement. With the exception of the question whether the defendant charges interest on service charges, all of these issues can be disposed of by summary judgment.

Plaintiff's first argument centers on the question of whether the charging of interest on multiples of a hundred rather than on the exact amount of the overdraft violates state and federal law. The National Bank Act, 12 U.S.C. § 85 permits a national bank to charge interest up to the maximum rate permitted by the laws of the state where it is located. Here the applicable law is Section 108(5) of the New York Banking Law, which provides that:

"5. (a) A bank or trust company which operates a personal loan department pursuant to paragraph (a) of subdivision four hereof may establish credits under written agreements with borrowers, pursuant to which one or more loans or advances to or for the account of a borrower may be made from time to time, by means of honoring one or more checks or other written orders or requests of the borrower and may charge interest on such loans and advances at the rate permitted by paragraph (b) of this subdivision, provided such loans and advances comply with the provisions of this subdivision."

"(b) Such agreement may provide for interest on the unpaid aggregate principal amount of such loans and advances from time to time outstanding at a rate not in excess of one per centum per month . . . reckoned on each loan or advance from the date thereof . . ."

Under Section 108(5)(a) the bank may charge interest at the rate permitted by Section 108(5)(b) only on loans or advances made "by means of honoring one or more checks or other written orders or requests of the borrower." Under the Checking Plus agreement, if a customer writes a check for which there is an insufficient balance in his checking account, the bank does not merely honor it, but rather advances funds from his Checking Plus account in the multiple of a hundred needed to cover the overdraft. For example, if a customer with a balance of zero wrote a check for $105, the bank would transfer $200 from his Checking Plus account to his checking account. The $105 would be used to cover the check and his checking account would then show a positive balance of $95. But he would pay interest on $200 until it was repaid. In this case the plaintiff wrote four...