VanderWeyst v. First State Bank of Benson

• Decision Date: 03 June 1988
• Docket Number: C5-87-339,C6-87-379 and C7-87-1184,Nos. C4-87-283,s. C4-87-283
• Citation: 425 N.W.2d 803
• Parties: RICO Bus.Disp.Guide 6961 James VANDERWEYST, et al., Petitioners, Appellants, v. FIRST STATE BANK OF BENSON, Respondent. Patrick J. WALSH, et al., Petitioners, Appellants, v. STATE BANK OF PENNOCK, Respondent. Charles HEIMARK, Jr., Petitioner, Appellant, v. NORWEST BANK MONTEVIDEO, Respondent. Joseph J. BANDAS, et al., Petitioners, Appellants, v. CITIZENS STATE BANK OF SILVER LAKE, et al., Petitioners, Respondents.
• Court: Minnesota Supreme Court

Page 803

425 N.W.2d 803

RICO Bus.Disp.Guide 6961

James VANDERWEYST, et al., Petitioners, Appellants, v. FIRST STATE BANK OF BENSON, Respondent.

Patrick J. WALSH, et al., Petitioners, Appellants, v. STATE BANK OF PENNOCK, Respondent.

Charles HEIMARK, Jr., Petitioner, Appellant, v. NORWEST BANK MONTEVIDEO, Respondent.

Joseph J. BANDAS, et al., Petitioners, Appellants, v. CITIZENS STATE BANK OF SILVER LAKE, et al., Petitioners,

Respondents.

Nos. C4-87-283, C5-87-339, C6-87-379 and C7-87-1184.

Supreme Court of Minnesota.

June 3, 1988.

As Amended July 5, 1988.

Syllabus by the Court

1. The federal 1980 Deregulation Act gives federally insured state banks "most favored lender" status.

2. Respondent state banks, having most favored lender status, may charge up to 21.75 percent a year on their agricultural loans made between 1983 and 1985, and need not comply with the loan ceiling, loan splitting, and attorney fee provisions of Minn.Stat. chapter 56.

3. The Bandas case is remanded to determine whether, in fact, the "origination fee" charged constitutes interest, and a separate RICO issue is left undecided.

Affirmed in all four cases, except, in Bandas, the case is remanded for further proceedings as indicated.

Scott B. Lundquist, Michael D. Miller, Minneapolis, for appellants in all four cases.

John W. Riches, II, Benson, and Peter B. Stein, Stein & Moore, P.A., St. Paul, for First State Bank of Benson C4-87-283.

Donald M. Spilseth, Willmar, for State Bank of Pennock C5-87-339.

Jerry W. Snider, Calvin L. Litsey, Minneapolis, David Minge, Montevideo, for Norwest Bank of Montevideo C6-87-379.

Reed H. Glawe, Gary W. Koch, New Ulm, for Citizens State Bank of Silver Lake C7-87-1184.

Heard, considered, and decided by the court en banc.

OPINION

SIMONETT, Justice.

The issues in these four appeals are whether federally-insured, state-chartered banks have preemptive most favored lender status under federal law, and, if so, whether under state law their agricultural loans charged a permissible interest rate and were otherwise lawful. We answer these issues, for the most part, yes, but remand in one case on a particular fact issue.

Minn.Stat. Sec. 334.011 (1986) regulates the interest rate chargeable on agricultural loans under $100,000 and states any lender may charge not more than 4 1/2 percent in excess of the applicable federal discount rate. In each instance involved here, the bank charged more. The banks contend, however, that Minnesota law, when read in light of federal legislation regulating interest rates for state-chartered, federally-insured banks, authorized them to charge interest at a rate up to 21.75 percent on agricultural loans. All the loans were made between 1983 and 1985, and, with the possible exception of one loan to appellant Joseph Bandas, all the loans were financed at an interest rate lower than 21.75 percent (in a range from 11.85 percent to 16 percent).

The banks say they may charge the higher rate because they have "most favored lender" status under 1980 federal legislation entitled the Depository Institutions Deregulation and Monetary Control Act of 1980, Pub.L. No. 96-221, 94 Stat. 132, 161 (codified in scattered sections of 12 and 15 U.S.C.) (hereafter the Deregulation Act). They claim that the most favored lender doctrine authorizes them to charge the highest interest rate allowed under Minnesota law to any lender empowered to make agricultural loans. They argue that state law authorizes industrial loan and thrift companies to make agricultural loans at an interest rate up to 21.75 percent per annum and, therefore, that they may do the same.

Plaintiff-appellant borrowers contest the banks' position each step of the way. They deny the Deregulation Act gives the banks most favored lender status. They deny that state law allows industrial loan and thrift companies to charge 21.75 percent on agricultural loans. Finally, even if the banks could use the 21.75 percent rate, plaintiffs claim the banks failed to comply with other material provisions regulating loans made by industrial loan and thrift companies. In short, plaintiffs claim the bank loans are in violation of Minnesota's usury laws. In addition, in one case it is claimed that the bank charged 51.52 percent interest on a particular loan in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO).

In First Bank East v. Bobeldyk, 391 N.W.2d 17 (Minn.App.1986), the court of appeals held that the Deregulation Act extended most favored lender status to federally-insured state banks. We denied the borrower's petition for further review in that case. Since then, the issue has continued to fester in cases before the court of appeals and it appears this is a matter of statewide importance that should be considered by this court. ¹ Consequently, we have granted the borrowers' petitions for further review in the cases now before us, all of which have followed Bobeldyk, namely, VanderWeyst v. First State Bank of Benson, 408 N.W.2d 208 (Minn.App.1987) (wherein we also granted oral argument); Walsh v. First State Bank of Pennock (and Heimark v. Norwest Bank Montevideo ), 409 N.W.2d 5 (Minn.App.1987), and Bandas v. Citizens State Bank of Silver Lake, 412 N.W.2d 818 (Minn.App.1987). We now consolidate these cases on appeal, and this opinion covers all four cases.

Specifically, the appellate court in these appeals has held: That the Deregulation Act permits extension of the most favored lender doctrine to insured state banks; that under this doctrine the banks may charge interest on their agricultural loans at the rate allowed industrial loan and thrift companies; and that banks, to qualify for most favored lender status, need not adhere to the licensing, lending, and loan splitting and ceiling provisions required for industrial loan and thrifts. Finally, in Bandas, while the court ruled that one of the loans was made at a usurious rate, it further held that this did not constitute a RICO violation. Each of these holdings is put at issue in these appeals.

I.

We hold the Deregulation Act gives respondent banks "most favored lender" status. 12 U.S.C. Sec. 1831d(a) (1982) of the Act, dealing with federally-insured, state banks, says:

In order to prevent discrimination against State-chartered insured banks, * * * with respect to interest rates, if the applicable rate prescribed in this subsection exceeds the rate such State bank * * * would be permitted to charge in the absence of this subsection, such State bank * * * may, notwithstanding any State constitution or statute which is hereby preempted for the purposes of this section, * * * charge on any loan * * * interest at a rate of not more than 1 per centum in excess of the discount rate on ninety-day commercial paper * * * or at the rate allowed by the laws of the State, territory, or district where the bank is located, whichever may be greater. [Emphasis added] Thus one of the preemptive alternatives given insured state banks is to charge "the rate allowed by the laws of the State." Because state laws, as in Minnesota, provide for different rates for different institutions for different classes of loans, the question arises what is meant by "rate allowed"? The banks contend this phrase means that they may charge interest at the highest rate available to any competing lender under the state law; in other words, that they are entitled to most favored lender status. Plaintiffs argue this meaning is not to be read into the statutory language, particularly when the legislative history of the Act is silent on the most favored lender doctrine.

The banks point out, however, that the "rate allowed" language is the same wording that appears in the 1864 National Bank Act, where the clause has been construed to give national banks most favored lender status, i.e., to give national banks the same interest rate privileges as any competing state institution. For this well-established construction, see Tiffany v. National Bank of Missouri, 85 U.S. (18 Wall.) 409, 412, 21 L.Ed 862 (1873); Office of the Comptroller of the Currency, 2 Comptroller's Interpretative Rulings: Changes in Text, 1948-77, Secs. 7310, 9510 (1963); 12 C.F.R. Sec. 7.7310(a) (1988); see also, e.g., Marquette National Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299, 99 S.Ct. 540, 58 L.Ed.2d 534 (1978); Fischer v. First National Bank of Omaha, 548 F.2d 255 (8th Cir.1977).

Did Congress, in enacting the Deregulation Act, intend to give federally-insured, state-chartered banks the same favorable status it had given national banks? In a matter of this importance, involving the law of usury and the need for certainty in business transactions, one would expect Congress to have spoken plainly. Instead, inexplicably, the Act uses language inviting uncertainty and disagreement. See, e.g., Arnold and Rohner, The "Most Favored Lender" Doctrine for Federally Insured Financial Institutions--What Are Its Boundaries? 31 Cath.U.L.Rev. 1 (1981); Comment, Extension of the Most Favored Lender Doctrine Under Federal Usury Law: A Contrary View, 27 Vill.L.Rev. 1077 (1981-82). Perhaps this confusion is not surprising because usury law, whether federal or state, has become so arcane and impenetrable (as commentators frequently observe) that one yearns to start over with a clean slate. In any event, the Federal Deposit Insurance Corporation, the Federal Home Loan Bank Board, and the National Credit Union Administration have all issued interpretative opinions construing the Deregulation Act to give insured state banks most favored lender status. So has the Minnesota Commissioner of Banks (Interpretation, March 5, 1981).

We conclude that the "rate allowed" clause should be construed as granting to federally-insured, state-chartered banks most favored lender status. We are persuaded that by using the same "rate allowed" language in the Deregulation Act that appears in the National Bank Act, Congress intended to give this...