Hunter v. Greenwood Trust Co.

• Citation: 143 N.J. 97,668 A.2d 1067
• Parties: James H. HUNTER, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. GREENWOOD TRUST COMPANY, Defendant-Respondent.
• Decision Date: 28 November 1995
• Court: United States State Supreme Court (New Jersey)

Page 97

143 N.J. 97

668 A.2d 1067

James H. HUNTER, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. GREENWOOD TRUST COMPANY, Defendant-Respondent.

Supreme Court of New Jersey.

Argued Feb. 15, 1995.

Decided Nov. 28, 1995.

Alan S. Kaplinsky, Burt M. Rublin, Philadelphia, PA, for Greenwood Trust Co.

Michael D. Donovan, Wayne, PA, a member of the Pennsylvania bar, argued the cause for appellant (Spector Gadon & Rosen, attorneys; Mr. Donovan and Ann Miller, a member of the Pennsylvania bar, of counsel; Mr. Donovan, Ms. Miller, Paul R. Rosen and Robert L. Grundlock, Jr., on the briefs).

Arthur R. Miller, Cambridge, MA, a member of the Massachusetts bar, argued the cause for respondent (Archer & Greiner, attorneys; Mr. Miller and Sean T. O'Meara, on the briefs).

Marilyn A. Bair, Deputy Attorney General, argued the cause for amicus curiae Attorney General of New Jersey (James J. Ciancia, Acting Attorney General, attorney; Andrea M. Silkowitz, Assistant Attorney General, of counsel).

Richard P. Jacobson, Hackensack, submitted a brief on behalf of amici curiae The States of Arizona, Delaware, Louisiana, Nevada, Ohio, South Dakota, and Utah (Dunn, Pashman, Sponzilli, Swick & Finnerty, attorneys).

Charles N. Riley, Haddonfield, submitted a brief on behalf of amicus curiae Consumer Action (Tomar, Simonoff, Adourian & O'Brien, attorneys).

Beverly R. Porway, Counsel, Wayne, submitted a brief on behalf of amicus curiae Federal Deposit Insurance Corporation.

Charles N. Riley, Haddonfield, submitted a brief on behalf of amici curiae the States of Hawaii, Iowa, Maryland, Massachusetts, Pennsylvania, South Carolina, Vermont, West Virginia, and Wisconsin (Tomar, Simonoff, Adourian & O'Brien, attorneys).

Dennis R. Casale, Princeton, submitted a brief on behalf of amici curiae The New Jersey Bankers Association, American Bankers Association, American Financial Services Association and Consumer Bankers Association (Jamieson, Moore, Peskin & Spicer, attorneys).

Michael J. Dunne, Morristown, submitted a brief on behalf of amici curiae Visa U.S.A., Inc., and Mastercard International Incorporated (Pitney, Hardin, Kipp & Szuch, attorneys).

The opinion of the Court was delivered by

HANDLER, J.

The facts and issues in this case are substantially similar to those in the companion case, Sherman v. Citibank (South Dakota), N.A., 143 N.J. 35, 668 A.2d 1036 rev'g 272 N.J.Super. 435, 640 A.2d 325 (1994), also decided today. Here, New Jersey credit-card holders challenge the legality of late-payment fees assessed by Greenwood Trust, a federally-insured state bank chartered in Delaware. The bank, on the other hand, claims that it is permitted under the Depository Institutions Deregulation and Monetary Control Act to charge out-of-state customers the same interest rate and other lender-imposed charges it is authorized to charge its own customers.

The specific issues are framed by the contentions of the parties. Plaintiff is the named party in this class-action suit. As in Sherman, plaintiff argues that New Jersey's Retail Installment Sales Act, N.J.S.A. 17:16C-50, -54 (RISA) (since amended, L. 1995, c. 43) forbids federally-insured state banks that issue credit cards to New Jersey customers from charging late-payment fees, that defendant's advertising and cardmember agreements violate New Jersey's Consumer Fraud Act, N.J.S.A. 56:8-2, -19 (CFA), and that the imposition of late-payment fees constitutes a common-law breach of contract and conversion. Like the claims in Sherman, plaintiff's claims focus on whether the notion of interest includes late-payment charges.

Greenwood Trust, however, argues it is free to charge late-payment fees in New Jersey. It relies on section 521 of the Depository Institutions Deregulation and Monetary Control Act, 12 U.S.C.A. § 1831d (DIDA), which expressly mirrors section 85 of the National Bank Act, 12 U.S.C.A. § 85(NBA), and provides that federally-insured state banks may charge borrowers "interest at a rate allowed by the laws of the State ... where the bank is located." 12 U.S.C.A. § 1831d(a). Section 521 expressly preempts conflicting state "constitution[s] or statute[s]." Ibid. Because it is a federally-insured state bank chartered in Delaware, which includes late fees in its statutory definition of interest, Greenwood Trust argues that RISA and plaintiff's other claims conflict with, and are preempted by, section 521. 272 N.J.Super. at 438-39, 640 A.2d 325.

The Law Division dismissed the complaint. The Appellate Division affirmed, 272 N.J.Super. 435, 640 A.2d 325, and we granted plaintiff's petition for certification. 138 N.J. 270, 649 A.2d 1289 (1994).

For substantially the same reasons expressed in Sherman, we conclude that this State's usury law prohibiting banks from charging late fees does not conflict with the federal statute giving national banks and federally-insured state banks preferential treatment with respect to lending authority. We hold that DIDA does not preempt the New Jersey RISA's prohibition on late-payment fees, and, therefore, reverse the judgment of the Appellate Division.

I

Although it is clear that Congress intended section 521 to preempt conflicting state usury provisions, federal preemption of state law requires an actual conflict, not merely a potential, speculative or hypothetical one. Rice v. Norman Williams Co., 458 U.S. 654, 659, 102 S.Ct. 3294, 3298-99, 73 L.Ed.2d 1042, 1049 (1982); Brown v. Hotel Employees International Union, 468 U.S. 491, 510, 104 S.Ct. 3179, 3185, 82 L.Ed.2d 373, 389 (1984). An actual conflict arises when it is impossible to comply with both state and federal law, or when state law is an obstacle to the accomplishment of the full purposes and objectives of Congress. Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 299-300, 108 S.Ct. 1145, 1150-51, 99 L.Ed.2d 316, 325 (1988); Feldman v. Lederle Lab., 125 N.J. 117, 135, 592 A.2d 1176 (1991). However, courts faced with potentially conflicting state and federal statutes must attempt to harmonize them whenever possible. Exxon Corp. v. Hunt, 97 N.J. 526, 533, 481 A.2d 271 (1984) (citing Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 83 S.Ct. 1210, 10 L.Ed.2d 248 (1963); Huron Cement Co. v. City of Detroit, 362 U.S. 440, 80 S.Ct. 813, 4 L.Ed.2d 852 (1960)). "Preemption of state law by federal statute is not favored 'in the absence of persuasive reasons--either that the nature of the regulated subject matter permits no other conclusion, or that Congress has unmistakenly so ordained.' " Chicago & N.W. Transp. Co. v. Kalo Brick & Tile Co., 450 U.S. 311, 317, 101 S.Ct. 1124, 1130, 67 L.Ed.2d 258, 264-65 (1981) (quoting Florida Lime & Avocado Growers, Inc., supra, 373 U.S. at 142, 83 S.Ct. at 1217, 10 L.Ed.2d at 257).

Section 521 of DIDA provides that any federally-insured state bank may:

notwithstanding any State constitution or statute to the contrary which is hereby preempted for the purposes of this section, take, receive, reserve, and charge on any loan or discount made, or upon any note, bill or exchange, or other evidence of debt, interest at a rate of not more than 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 such State bank ... is located or at the rate allowed by the laws of the State ... where the bank is located, whichever may be the greater....

[12 U.S.C.A. § 1831d(a).]

The language and purpose of section 521 essentially imitate that of section 85 of the NBA. See, e.g., Copeland v. MBNA America Bank, N.A., ---Colo. ----, ----, 907 P.2d 87 (1995). Courts and federal agencies have interpreted Section 521 as conferring on federally-insured state banks the same insulation from State usury laws that national banks have enjoyed for over 100 years under the NBA. Greenwood Trust Co. v. Massachusetts, 971 F.2d 818, 826-27 (1st Cir.1992) (concluding that section 521 permits federally-insured state banks to "export" interest rates), rev'g 776 F.Supp. 21 (D.Mass.1991); VanderWeyst v. First State Bank, 425 N.W.2d 803, 806 (Minn.) (concluding that section 521 gives federally-insured state banks "most-favored-lender" status), cert. denied, 488 U.S. 943, 109 S.Ct. 369, 102 L.Ed.2d 359 (1988); Smiley v. Citibank (South Dakota), N.A., 11 Cal.4th 138, 44 Cal.Rptr.2d 441, 465-66, 900 P.2d 690 (1995) (Arabian, J., dissenting); id. 44 Cal.Rptr.2d at 467-68, 900 P.2d 690 (George, J., dissenting). Thus, "interest," as that term is used in the NBA and DIDA, should be construed uniformly. E.g., Greenwood Trust, supra, 971 F.2d at 827 ("historical record clearly requires a court to read the parallel provisions of DIDA and the Bank Act in pari materia "); see also Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384, 112 S.Ct. 2031, 2037, 119 L.Ed.2d 157, 167 (1992) (finding that when legislature borrows exact phrase from existing statute, courts should adopt prior judicial interpretations of that phrase). As demonstrated in Sherman, the term "interest" in the NBA does not include late fees, 143 N.J. at 45-60, 668 A.2d 1036; Smiley, supra, 44 Cal.Rptr.2d at 469, 900 P.2d 690 (George, J., dissenting). We conclude that "interest" in DIDA similarly does not include late fees.

Like section 85, the language in section 521 expressly refers to interest rates. It says nothing about other specific charges associated with lending money. Thus, it would be improvident to impute to Congress the intent to include in the statute a meaning it did not express. Moreover, as we discussed at length in Sherman, the legislative history surrounding DIDA's enactment indicates that Congress intended to preempt only state usury laws regarding traditional interest, namely, periodic percentage rates, not other specific charges. See Sherman, 143 N.J. at 49-52, 668 A.2d 1036; see also Smiley, supra, 44 Cal.Rptr.2d 441, 465, 900 P.2d 690 (Arabian, J., dissenting).

The record of...