Greenwood Trust Co. v. Com. of Mass., Civ. A. No. 89-2583-Y.

CourtU.S. District Court — District of Massachusetts
Writing for the CourtYOUNG
Citation776 F. Supp. 21
PartiesGREENWOOD TRUST COMPANY, Plaintiff, v. COMMONWEALTH OF MASSACHUSETTS and Attorney General of the Commonwealth of Massachusetts, Defendants.
Docket NumberCiv. A. No. 89-2583-Y.
Decision Date22 October 1991

776 F. Supp. 21

GREENWOOD TRUST COMPANY, Plaintiff,
v.
COMMONWEALTH OF MASSACHUSETTS and Attorney General of the Commonwealth of Massachusetts, Defendants.

Civ. A. No. 89-2583-Y.

United States District Court, D. Massachusetts.

October 22, 1991.


776 F. Supp. 22

Andrew Lane, Alan Feldman, Harvey Bock, Gilbert Hoy, Gaston & Snow, Boston, Mass., for plaintiff.

Stephen Jonas, Deputy Atty. Gen., Chief, Public Protection Bureau, Boston, Ernest Sarason, Asst. Atty. Gen., Consumer Protection Div., Public Protection Bureau, Boston, Mass., for defendants.

William N. Lund, Bureau of Consumer Credit Protection, Dept. of Professional & Financial Regulation, ACUCCCS President, Augusta, Me., Laura Udis, State of Colo., Dept. of Law, Denver, Colo., Steven W. Hamm, Adm'r, Philip S. Porter, Counsel to the Adm'r, S.C. Dept. of Consumer Affairs, Columbia, S.C., Leon Swerin, Legal Counsel, Office of the Com'r of Banking, Madison, Wis., Peter Kochenburger and Richard Cleland, Asst. Attys. Gen., Consumer Protection Div., Des Moines, Iowa, Gilber B. Kaplan, Morrison & Foerster, Washington, D.C., Marsha Kramarck, Deputy Atty. Gen., Delaware Dept. of Justice, Richard P. Eckman, Daniel I. Prywes, Wilmington, Del., Susan K. Hoffman, Pepper, Hamilton & Scheetz, Craig Ulrich, Consumer Bankers Ass'n, Alan S. Kaplinsky, Jeremy T. Rosenblum, Wolf, Block, Schorr and Solis-Cohewn, Philadelphia, Pa., Frank M. Salinger, Robert E. McKew, American Financial Services Ass'n, Washington, D.C., for amici.

MEMORANDUM AND ORDER

YOUNG, District Judge.

I. INTRODUCTION

This case raises a variety of novel and complex issues involving the interstate extension

776 F. Supp. 23
of consumer credit via credit cards and the concomitant regulation of the issuers of such credit cards by the several states. As the parties and the amici1 point out, this appears to be a case of genuine first impression, both in this Circuit and throughout the United States.2

The parties and amici have extensively and skillfully briefed the primary issue as they conceive it: May Greenwood Trust Company ("Greenwood"), a federally-insured, state-chartered bank located in Delaware, assess its "Discover" credit card holders located in Massachusetts a late charge on delinquent accounts, a charge permitted in Delaware but prohibited in Massachusetts?3 Resolution of this important question necessarily requires the Court to address two subsidiary issues?€”a major question of federal preemption that concerns both the parties and the amici, and a lesser but potentially pivotal question of statutory interpretation of Massachusetts banking legislation, a matter that concerns the parties alone. The major question requires the Court to determine whether Massachusetts banking law is preempted under the Supremacy Clause of the United States Constitution, U.S. Const. art. VI, cl. 2., by section 521 of the Depository Institutions Deregulation and Monetary Control Act of 1980, United States Pub.L. No. 96-221 ? 521, 94 Stat. 132 (1980) ("DIDA"). If so, the prohibition of the Massachusetts usury law against such late charges must yield. If not, it would appear that Greenwood must prevail unless, of course, the Massachusetts usury law itself, Mass.Gen.L. ch. 140, ? 114B, does not contemplate regulation of out-of-state credit card issuers such as Greenwood. Greenwood makes this argument, and the Commonwealth and its Attorney General demur.

Where, then, ought analysis begin? If Massachusetts law does not reach out-of-state credit card issuers, then this Court need not address the thorny issue of federal preemption?€”an issue of nationwide significance. Conversely, if federal law preempts state regulation, this federal court need not?€”and should not?€”undertake to analyze the legislative intent of the Massachusetts legislature. Here the Court ultimately concludes, first, that federal law does not preempt Massachusetts from barring late charges in credit card agreements; and second, that Massachusetts may prohibit Greenwood from collecting the presently disputed late charges under credit card agreements with Massachusetts citizens. Accordingly, though the outcome thus turns ultimately upon state law, resolution of the federal preemption issue is likewise necessary to determine whether to engage in an analysis of the Massachusetts statute.4

776 F. Supp. 24

II. STATEMENT OF MATERIAL UNDISPUTED FACTS5

The plaintiff Greenwood is a Delaware banking corporation insured by the Federal Deposit Insurance Corporation. Greenwood, through its wholly-owned subsidiary, Discover Card Services, Inc., located in Illinois, issues the "Discover" credit card to customers nationwide, including several hundred thousand residents of Massachusetts. Greenwood actively solicits cardmember applications nationwide through direct mail, telemarketing, and "take one" applications; it also conducts multi-media advertising nationwide. (Plaintiff's Answer to Interrog. No. 4).

Though Greenwood does not directly employ personnel in Massachusetts to make loans, Discover Card Services maintains a Massachusetts office with approximately eight employees. (Plaintiff's Answer to Interrog. No. 13c). That office solicits merchants in Massachusetts to accept the Discover Card. Id.

Pursuant to its Cardmember Agreement, Greenwood charges a monthly periodic rate of 1.5 percent to accounts in all states which have opted out of DIDA and 1.65 percent to accounts in all other states.6 Cardmember Agreement ("Agreement") ? 15.

Greenwood also imposes a $10.00 "late charge" if a required payment is not made within 20 days after the payment due date in any month. (Agreement ? 17). Failure to make at least the minimum payment due by the due date in any month puts the cardmember in default. (Agreement ?? 11, 18). Greenwood does not include late charges in its computation or disclosure of the Annual Percentage Rate in either the Cardmember Agreement or monthly billing statement. (Plaintiff's Answer to Interrog. No. 15). It does separately identify the late payment charge in the Cardmember Agreement, and separately identifies finance charges and late payment charges on the monthly billing statement as "Finance Charges" and "Late Charges." Id.; (Agreement ?? 13, 17). A Discover Card finance charge is imposed on unpaid balances which include unpaid late charges. (Dep. of Robert Stormoen at 86-88). Multiple late fees are assessed in successive billing cycles for continuing unpaid balances past the 20-day period. Id. at 88-90. A finance charge is then imposed on unpaid balances, including multiple late charges. Id. at 89-90.

The purposes of Greenwood's late charges are to deter default, compensate it for additional collection expenses, and provide it with a source of revenue in addition to interest charges. (Plaintiff's Answer to Interrog. No. 5; Stormoen Dep. at 62-63). The payment of a late charge per se does not influence Greenwood's decision as to whether to extend further credit or suspend credit privileges.7 (Stormoen Dep. at 26).

Greenwood's late charges to Massachusetts residents involve a substantial sum of money, the amount of which the parties have agreed to keep confidential. (Statement ? 2). The Cardmember Agreement contains a choice of law provision specifying that the Agreement "will be governed by the laws of the State of Delaware and applicable federal laws." (Agreement ? 25). Greenwood has never permitted a Massachusetts resident to enter into a Discover

776 F. Supp. 25
Cardmember Agreement on terms different from those on its printed form agreement, including the choice of law provision

III. ANALYSIS

A. Preemption: The Federal DIDA Statute and State Usury Laws

1. Background of Federal and Massachusetts Legislation.

The present controversy between Greenwood and Massachusetts traces to the increasingly unsettled relations among banks, state regulators, and federal authorities over the last decade, since abrupt changes in Federal Reserve monetary policies and bank deregulation have intensified interstate competition among financial institutions. The fast-growing credit card industry is a sphere of particular importance and interstate conflict as cards issued by 50,000 financial institutions and offices are now carried by over seventy million Americans, who used them in transactions amounting to well over $400,000,000,000 in 1989.8

Since the early years of the Republic, the states have generally resisted the development of national banks and favored their own state chartered banks through regulatory legislation9 and the Supreme Court has, since M'Culloch v. Maryland, 17 U.S. (4 Wheat.) 316, 4 L.Ed. 579 (1819), generally limited federal statutory involvement by construing preemption narrowly and giving relatively free rein to state usury law regulations. See Anderson Nat'l Bank v. Luckett, 321 U.S. 233, 64 S.Ct. 599, 88 L.Ed. 692 (1944); McClellan v. Chipman, 164 U.S. 347, 17 S.Ct. 85, 41 L.Ed. 461 (1896).

The National Bank Act of 1864, ch. 106, 13 Stat. 99 (1864), favored the national banks and protected them from discriminatory state laws;10 and since 1933 they have been allowed to charge interest at one percent above the Federal Reserve discount rate or at the highest rate available to competing state banks under laws of the state named in their charter. Banking Act of 1933, ch. 89, ? 25, 48 Stat. 191.

The interest rates of state and national banks were comparable until 1979, when the Federal Reserve rate rose sharply, giving national banks a competitive advantage in states with lower usury law interest ceilings. The national banks' advantages were further enhanced through the Supreme Court's decision in Marquette Nat'l Bank v. First of Omaha Service Corp., 439 U.S. 299, 99 S.Ct. 540, 58 L.Ed.2d 534 (1978). The Marquette Court held that national banks were only required to comply with interest restrictions of their charter state when doing business in that state; and that they could disregard other states' interest ceilings...

To continue reading

Request your trial
13 practice notes
  • Continental Bank, Nat. Ass'n v. Village of Ludlow, Civ. A. No. 90-12535-Y
    • United States
    • U.S. District Court — District of Massachusetts
    • October 31, 1991
    ...Court also resulting in a choice of law at odds with the applicable forum selection clause, see Greenwood Trust Co. v. Massachusetts, 776 F.Supp. 21, 39-42 13 While resolution of the choice-of-law issue is necessary for an analytically accurate record, nothing much turns on it as the issues......
  • Greenwood Trust Co. v. Com. of Mass., Nos. 91-2205
    • United States
    • U.S. Court of Appeals — First Circuit
    • June 3, 1992
    ...it denied Greenwood's motion and granted partial summary judgment in the Commonwealth's favor. Greenwood Trust Co. v. Massachusetts, 776 F.Supp. 21 (D.Mass.1991). The district court certified its rulings for interlocutory appeal under 28 U.S.C. § 1292(b) (1988). In light of the pivotal impo......
  • Sherman v. Citibank (South Dakota), N.A.
    • United States
    • New Jersey Supreme Court
    • November 28, 1995
    ...rooted as to form part of the consumer protection terrain 'traditionally occupied' by the states." Greenwood Trust Co. v. Massachusetts, 776 F.Supp. 21, 27-28 (D.Mass.1991), rev'd, 971 F.2d 818 (1st Cir.1992), cert. denied, 506 U.S. 1052, 113 S.Ct. 974, 122 L.Ed.2d 129 (1993) (citing Lewis ......
  • Auctus Fund, LLC v. Sunstock, Inc., CIVIL ACTION NO. 18-12568-WGY
    • United States
    • United States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts
    • September 23, 2019
    ...or prohibiting Auctus from arranging these deals with entities outside of the Commonwealth. Cf. Greenwood Trust Co. v. Massachusetts, 776 F. Supp. 21, 41-42 (D. Mass. 1991) (ruling that the Massachusetts Usury Act reflects the Commonwealth's fundamental public policy of protecting Massachus......
  • Request a trial to view additional results
13 cases
  • Continental Bank, Nat. Ass'n v. Village of Ludlow, Civ. A. No. 90-12535-Y
    • United States
    • U.S. District Court — District of Massachusetts
    • October 31, 1991
    ...Court also resulting in a choice of law at odds with the applicable forum selection clause, see Greenwood Trust Co. v. Massachusetts, 776 F.Supp. 21, 39-42 13 While resolution of the choice-of-law issue is necessary for an analytically accurate record, nothing much turns on it as the issues......
  • Greenwood Trust Co. v. Com. of Mass., Nos. 91-2205
    • United States
    • U.S. Court of Appeals — First Circuit
    • June 3, 1992
    ...it denied Greenwood's motion and granted partial summary judgment in the Commonwealth's favor. Greenwood Trust Co. v. Massachusetts, 776 F.Supp. 21 (D.Mass.1991). The district court certified its rulings for interlocutory appeal under 28 U.S.C. § 1292(b) (1988). In light of the pivotal impo......
  • Sherman v. Citibank (South Dakota), N.A.
    • United States
    • New Jersey Supreme Court
    • November 28, 1995
    ...rooted as to form part of the consumer protection terrain 'traditionally occupied' by the states." Greenwood Trust Co. v. Massachusetts, 776 F.Supp. 21, 27-28 (D.Mass.1991), rev'd, 971 F.2d 818 (1st Cir.1992), cert. denied, 506 U.S. 1052, 113 S.Ct. 974, 122 L.Ed.2d 129 (1993) (citing Lewis ......
  • Auctus Fund, LLC v. Sunstock, Inc., CIVIL ACTION NO. 18-12568-WGY
    • United States
    • United States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts
    • September 23, 2019
    ...or prohibiting Auctus from arranging these deals with entities outside of the Commonwealth. Cf. Greenwood Trust Co. v. Massachusetts, 776 F. Supp. 21, 41-42 (D. Mass. 1991) (ruling that the Massachusetts Usury Act reflects the Commonwealth's fundamental public policy of protecting Massachus......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT