Sherman v. Citibank (South Dakota), N.A.

CourtNew Jersey Supreme Court
Writing for the CourtHANDLER; POLLOCK; GARIBALDI; O'HERN
Citation668 A.2d 1036,143 N.J. 35
Parties, 64 USLW 2353 Marc SHERMAN, on Behalf of Himself and All Others and All Others Similarly Situated, Plaintiff-Appellant, v. CITIBANK (SOUTH DAKOTA), N.A., Defendant-Respondent.
Decision Date28 November 1995

Page 35

143 N.J. 35
668 A.2d 1036, 64 USLW 2353
Marc SHERMAN, on Behalf of Himself and All Others and All
Others Similarly Situated, Plaintiff-Appellant,
v.
CITIBANK (SOUTH DAKOTA), N.A., Defendant-Respondent.
Supreme Court of New Jersey.
Argued Feb. 15, 1995.
Decided Nov. 28, 1995.

Michael D. Donovan, Wayne, PA, a member of the Pennsylvania Bar, for appellant (Spector Gadon & Rosen, Moorestown, 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).

Louis R. Cohen, a member of the District of Columbia Bar, Washington, DC, for respondent (Dechert Price & Rhoads, Lawrenceville, attorneys; Mr. Cohen, George G. O'Brien, Matthew V. DelDuca, and Robert D. Rhoad, on the briefs).

Marilyn A. Bair, Deputy Attorney General, for amicus curiae Attorney General of New Jersey (James J.

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Ciancia, Acting Attorney General, attorney; Andrea M. Silkowitz, Assistant Attorney General, of counsel).

Richard P. Jacobson, Hackensack, NJ, 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).

Irene E. Dowdy, Assistant United States Attorney, submitted a brief on behalf of amicus curiae Office of the Comptroller of the Currency (Faith S. Hochberg, United States Attorney, attorney).

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

Mark L. First, Princeton, submitted a brief on behalf of amicus curiae Mellon Bank [668 A.2d 1040] (DE), N.A. (Reed, Smith, Shaw & McClay, 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).

Jeffrey M. Keiser, Haddonfield, submitted a brief on behalf of amici curiae Trial Lawyers for Public Justice, P.C., and Bankcard Holders of America, Inc.

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).

HANDLER, J.

In this case, as in the companion case of Hunter v. Greenwood Trust Co., 143 N.J. 97, 668 A.2d 1067, (1995) rev'g 272 N.J.Super.

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526, 640 A.2d 855 (1994), also decided today, New Jersey credit-card customers contend that New Jersey's usury laws prohibit banks that issue those cards from charging late-payment fees to New Jersey customers.

The issues before us are more specifically framed by the claims and defenses of the respective parties. Plaintiff, as a named party in a class-action suit, challenges the legality of the late-payment fees that are charged to New Jersey holders of defendant Citibank (South Dakota) credit cards. Plaintiff argues that New Jersey's Retail Installment Sales Act of 1960, N.J.S.A. 17:16C-50, -54 (RISA), forbids national banks that issue credit-cards to New Jersey consumers from charging late-payment fees. Plaintiff also argues that defendant's failure to disclose in its cardmember agreements and advertising that late-payment fees are prohibited by New Jersey law violates New Jersey's Consumer Fraud Act (CFA), N.J.S.A. 56:8-2, -19. Finally, plaintiff contends that the imposition of late-payment fees constitutes a common-law breach of contract and conversion.

Defendant relies on section 85 of the National Bank Act (NBA), which provides that a national bank may charge borrowers "interest at a rate allowed by the laws of the State ... where the bank is located." 12 U.S.C.A. § 85. Citibank is a national bank chartered in South Dakota, and South Dakota includes late-payment fees in its statutory definition of interest. 272 N.J.Super. at 435, 438, 640 A.2d 325 (1994). Citibank, therefore, contends that plaintiff's RISA claim, as well as plaintiff's other claims, conflict with, and are preempted by, section 85. See id. at 439, 640 A.2d 325. Thus, Citibank argues it is free to charge late-payment fees in New Jersey.

Following the commencement of this action, the Law Division granted the bank's motion to dismiss the complaint with prejudice. The Appellate Division affirmed. 272 N.J.Super. 435, 640 A.2d 325 (1994). We granted plaintiff's petition for certification, 138 N.J. 270, 649 A.2d 1289 (1994), and now reverse the dismissal of plaintiff's claims.

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We determine that the understanding of "interest" as expressed and authorized in the NBA does not include distinctive and contingent loan terms or charges, such as late fees, that are unrelated to interest rates. We hold that late-payment fees are not "interest" within the intendment and purposes of the applicable federal statute. Rather, "interest at a rate allowed by the laws of the State ... where the bank is located" refers only to the periodic percentage rate charged on outstanding balances. Therefore, plaintiff's state-law defenses to the bank's charges do not conflict with federal law, are not preempted, and the late-payment fees are illegal under New Jersey law.

I

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 legislation. William Oscar Scroggs, A Century of Banking Progress 50-51 (1924); John J. Knox, A History of Banking in the U.S. 12 (2d ed. 1969). 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 [668 A.2d 1041] 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).

This Court, in considering preemption claims, must be cautioned by the longstanding presumption that "Congress did not intend to displace state law." Maryland v. Louisiana, 451 U.S. 725, 746, 101 S.Ct. 2114, 2129, 68 L.Ed.2d 576, 595 (1981), and that it should not unnecessarily disturb "the federal-state balance." United States v. Bass, 404 U.S. 336, 349, 92 S.Ct. 515, 523, 30 L.Ed.2d 488, 497 (1971). Indeed, greater restraint ought apply to preemption of spheres traditionally occupied by the states. Where the field that Congress is said to have preempted has been traditionally occupied by the states, "we start with the assumption

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that the historic police powers of the States were not to be superseded by the Federal Act unless there was the clear and manifest purpose of Congress." Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947).

"It is well settled that state usury law restrictions on lending practices are so extensive and historically 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 v. BT Inv. Managers, Inc., 447 U.S. 27, 38, 100 S.Ct. 2009, 2016, 64 L.Ed.2d 702, 713 (1980) ("We readily accept the submission that, both as a matter of history and as a matter of present commercial reality, banking and related financial activities are of profound local concern")); Smiley v. Citibank (South Dakota), N.A., 11 Cal.4th 138, 44 Cal.Rptr.2d 441, 465-66, 900 P.2d 690, 714-15 (1995) (Arabian, J., dissenting) (same); id. at 467-68, 900 P.2d at 716-17 (George, J., dissenting) (same). Accordingly, "[b]ecause consumer protection law is a field traditionally regulated by the states, compelling evidence of an intention to preempt is required in this area." General Motors Corp. v. Abrams, 897 F.2d 34, 41-42 (2d Cir.1990) (upholding New York's "Lemon Law" against a claim that a Federal Trade Commission consent decree preempted major elements of the local law). Congress' failure to include an express preemption clause in section 85 necessitates a careful examination of whether the NBA conflicts with RISA's prohibition of late-payment fees.

Section 85 provides in pertinent part:

Any [national bank] association may take, receive, reserve, and charge on any loan or discount made, or upon any notes, bills of exchange, or other evidence of debt, interest at a rate allowed by the laws of the State, Territory or District where the bank is located, or at a rate of 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 the bank is located, whichever may be the greater ...

12 U.S.C.A. § 85 (emphasis added).

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On its face, section 85 immunizes national banks that lend money beyond their home-state's borders from local usury laws that might give local banks a competitive advantage. It also protects national banks during periods of inflation by overriding even the home-state's usury laws and permitting national banks to charge interest at a rate tied to the federal discount rate. E.g. Tiffany v. National Bank, 85 U.S. (18 Wall) 409, 412-13, 21 L.Ed. 862, 863-64 (1874) (holding that Congress, by enacting NBA, intended to protect national banks from hostile state usury laws); Roper v. Consurve, Inc., 578 F.2d 1106 (5th Cir.1978), aff'd sub nom., Deposit Guaranty Nat'l Bank v. Roper, 445 U.S. 326, 100 S.Ct. 1166, 63 L.Ed.2d 427 (1980) (holding section 85 was designed by Congress to mandate parity between national banks and local lenders). However, neither the plain meaning of the terms "rate" and "interest" in section 85, nor the legislative history of that...

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9 practice notes
  • State v. Lopez-Carrera, A-8 September Term 2020
    • United States
    • United States State Supreme Court (New Jersey)
    • March 30, 2021
    ...2A Norman J. Singer, Sutherland Statutory Construction § 46:05 at 167-68 (6th ed. 2000))); see also Sherman v. Citibank (S.D.), N.A., 143 N.J. 35, 74, 668 A.2d 1036 (1995) (Pollock, J., dissenting) ("More relevant than the meaning that lexicographers assign to statutory terms is the meaning......
  • McCullar v. Universal Underwriters Life Ins. Co.
    • United States
    • Supreme Court of Alabama
    • November 22, 1996
    ...does not dispute the claim by the defense that New Jersey uses "total of payments." See Sherman v. Citibank (South Dakota), N.A., 143 N.J. 35, 668 A.2d 1036 (1995), judgment vacated, --- U.S. ----, 116 S.Ct. 2493, 135 L.Ed.2d 186 (1996); Trico Mortgage Co. v. Penn Title Ins. Co., 281 N.J.Su......
  • Hunter v. Greenwood Trust Co.
    • United States
    • United States State Supreme Court (New Jersey)
    • November 28, 1995
    ...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 ......
  • Lemelledo v. Beneficial Management Corp. of America
    • United States
    • United States State Supreme Court (New Jersey)
    • July 3, 1997
    ...as commission) was a form of interest. The Appellate Division rejected that argument, relying on our decision in Sherman v. Citibank, 143 N.J. 35, 668 A.2d 1036 (1995) (holding that late fees were not "interest"), vacated, --- U.S. ----, 116 S.Ct. 2493, 135 L.Ed.2d 186 (1996). The Appellate......
  • Request a trial to view additional results
9 cases
  • State v. Lopez-Carrera, A-8 September Term 2020
    • United States
    • United States State Supreme Court (New Jersey)
    • March 30, 2021
    ...2A Norman J. Singer, Sutherland Statutory Construction § 46:05 at 167-68 (6th ed. 2000))); see also Sherman v. Citibank (S.D.), N.A., 143 N.J. 35, 74, 668 A.2d 1036 (1995) (Pollock, J., dissenting) ("More relevant than the meaning that lexicographers assign to statutory terms is the meaning......
  • McCullar v. Universal Underwriters Life Ins. Co.
    • United States
    • Supreme Court of Alabama
    • November 22, 1996
    ...does not dispute the claim by the defense that New Jersey uses "total of payments." See Sherman v. Citibank (South Dakota), N.A., 143 N.J. 35, 668 A.2d 1036 (1995), judgment vacated, --- U.S. ----, 116 S.Ct. 2493, 135 L.Ed.2d 186 (1996); Trico Mortgage Co. v. Penn Title Ins. Co., 281 N.J.Su......
  • Hunter v. Greenwood Trust Co.
    • United States
    • United States State Supreme Court (New Jersey)
    • November 28, 1995
    ...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 ......
  • Lemelledo v. Beneficial Management Corp. of America
    • United States
    • United States State Supreme Court (New Jersey)
    • July 3, 1997
    ...as commission) was a form of interest. The Appellate Division rejected that argument, relying on our decision in Sherman v. Citibank, 143 N.J. 35, 668 A.2d 1036 (1995) (holding that late fees were not "interest"), vacated, --- U.S. ----, 116 S.Ct. 2493, 135 L.Ed.2d 186 (1996). The Appellate......
  • Request a trial to view additional results

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