Weiner v. Bank of King of Prussia, Civ. A. No. 72-1444.

Citation358 F. Supp. 684
Decision Date30 April 1973
Docket NumberCiv. A. No. 72-1444.
PartiesJoseph WEINER, Individually and on behalf of all members of a class of borrowers similarly situated v. BANK OF KING OF PRUSSIA, et al.
CourtU.S. District Court — Eastern District of Pennsylvania

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Arnold Levin, Freedman, Borowsky & Lorry, Philadelphia, Pa., for plaintiff.

John G. Harkins, Jr., Barbara W. Mather, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for defendants.

OPINION AND ORDER

NEWCOMER, District Judge.

Presently before the Court is a Motion to Dismiss the Amended Complaint in the above captioned action under Federal Rule of Civil Procedure 12(b) on the ground that the plaintiff lacks standing to maintain his action. The Motion has been submitted by all defendants except Central Penn National Bank.

The plaintiff has brought this action against twenty (20) named banks, including seven (7) national banks and thirteen (13) state banks, and against a class of defendants said to consist of all other national banks within the Court's jurisdiction. The plaintiff alleges that he is a customer and borrower of only one (1) bank, i. e. Central Penn National Bank. However, he claims to sue on behalf of a class of "customers and/or borrowers of national banks in this District."

Nowhere in his Amended Complaint (hereinafter referred to as "Complaint"), does the plaintiff allege how he borrowed from the defendant, Central Penn National Bank; nor does he allege at what rate of interest he borrowed these funds; nor does he allege that his loans come within those statutory categories for which interest rates are fixed by law. All that the plaintiff asserts is that at some point in time he borrowed some money from a Philadelphia bank. Furthermore, the plaintiff has erroneously assumed that two of the statutes upon which he relies, the National Bank Act, 12 U.S.C. § 85 (Count I) and the state laws regulating interest (Count II), are uniformly applicable to all twenty defendant banks. The averments in Counts I and II are wrong on their face since thirteen of the named defendants are state chartered banks, not subject in any way to the duties imposed by the National Bank Act. The National Bank Act, 12 U.S.C. § 21 et seq., regulates national banks and only national banks, which can be identified by the word "national" in their name. 12 U.S.C. § 22. Furthermore, seven of the banks are national banks not subject to state laws regulating interest. Farmers' and Mechanics' National Bank v. Dearing, 91 U.S. 29, 23 L.Ed. 196 (1875); Schuyler National Bank v. Gadsden, 191 U.S. 451, 24 S.Ct. 129, 48 L.Ed. 258 (1903); Haseltine v. Central National Bank of Springfield, 183 U.S. 132, 22 S.Ct. 50, 46 L.Ed. 118 (1901).

Nonetheless, the plaintiff alleges that all the defendants have violated the following federal and state laws regulating the calculation and disclosure of interest rates on loans to individuals:

(a) The National Bank Act, 12 U.S.C. § 21 et seq., which defines the maximum interest rate that can be charged on loans by National banks (Count I);

(b) The laws of the Commonwealth of Pennsylvania which regulate the interest rates that can be charged by state banks (Count II);

(c) Unspecified "common law" (Count III); and

(d) The Truth-in-Lending Act, 15 U. S.C. § 1601 et seq., which requires creditors to disclose information concerning finance charges in consumer credit transactions (Count IV). The plaintiff seeks fines and penalties imposed for violations of these statutes, together with injunctive relief against continuing violations.

The statutes, federal and state, dealing with charges for credit transactions shape the issues in this case and on this motion, and should be considered preliminarily as the setting in which the plaintiff's complaint should be evaluated.

The Federal statute invoked by the plaintiff partially incorporates by reference a state law standard as one of the alternative bases for determining whether the rate of interest to be charged is limited for a particular credit transaction of a national bank, and if so, what the pertinent limit is. 12 U.S.C. § 85. Hence, one of the bases for credit extended by a national bank located in Pennsylvania may be derived by reference to applicable Pennsylvania Standards. Whatever base is used, however, any civil liability for collecting more than a maximum charge, where a maximum is set by law, is determined for a national bank under the federal statute as a matter of federal, not state, law. 12 U.S.C. § 86. In the case of a state bank, any civil liability for collecting more than an applicable maximum is determined under state law. 41 P.S. § 4.

Even where state law becomes a base for determining a national bank's charges it may not be the same law as that which would determine a state bank's charges. One alternative base for a national bank's charges under 12 U.S.C. § 85 is "the rate allowed by the laws of the State" and another alternative is "where by the laws of any state a different rate is limited for banks organized under State laws." Even among national banks, the maximum rate may not be the same in all parts of the same state or at all times, since another alternative base is "a rate of 1 per centum in excess of the discount rate . . . in effect at the Federal Reserve Bank in the Federal Reserve District where the bank is located." The Federal Reserve discount rate varies from time to time and varies in different districts. Parts of Western Pennsylvania are in the Fourth Federal Reserve District, and the rest of the state is in the Third Federal Reserve District.

As to national bank transactions where state law is an alternative base for charges and as to state bank transactions, there is no single rule for determining whether a maximum rate is applicable. Pennsylvania law on charges for credit transactions consists of a number of statutes which either set a limit, or remove a limit, on charges depending on amount, purpose, type of transaction, type of debtor, type of credit extender, and type of collateral. Maximum rates, where set, vary as high as 36% per annum (Small Loan Act, 7 P.S. § 6152). Installment sale rates vary from loan rates. (Motor Vehicle Sales Finance Act, 69 P.S. § 601 et seq.; Goods and Services Installment Sales Act, 69 P.S. § 1101 et seq.; Home Improvement Finance Act, 73 P.S. § 500-101 et seq.). Rates are explicitly removed from some type of borrowers such as corporations (41 P.S. § 2), state and local government units (Acts 205 and 185 of 1972), and from some types of transactions such as F.H.A. and V.A. loans (41 P.S. § 3).

Even in the portion of the credit business consisting of direct loans by state banks to individuals, the rules vary. There is no limit for interest rates on loans of $50,000 or more. (41 P.S. § 3). There is no limit for demand loans of $5,000 or more secured by negotiable collateral (41 P.S. § 1). Outside of such exceptions to any limit, varying maximum rates are set for residential mortgages (other than F.H.A. and V.A. loans, 41 P.S. § 3), other mortgage loans (41 P.S. § 6), installment loans up to $5,000 (7 P.S. § 309), installment loans up to $50,000 for business and other purposes (7 P.S. § 316), and revolving credit loans arising out of retail transactions (69 P.S. §§ 1901, 1904). In the absence of such statutes which remove any limit, or fix limits, the Act of 1858 (41 P.S. §§ 3, 4) sets the "legal rate" at 6% per annum.

The meaning of the "legal rate", where applicable, under the 1858 statute has been judicially determined to be nothing more than an option of the borrower not to pay an excess over 6% or to sue for recovery of the excess within six months after payment of the principal of and interest on the loan. In Appeal of Second Nat. Bank of Titusville, 96 Pa. 460, 463 (1868), the Supreme Court said, after discussing prior Pennsylvania law:

At that time the taking of more than six per cent interest was unlawful, and subjected the lender to a penalty. It is not so now. The Act of the 28th of May, 1858, Pamph.L. 622, has made a radical change in this respect. By the first section of said act six per cent is allowed to be the legal rate of interest, where no express contract has been made for a less rate. The second section recognized the right to reserve or contract for a higher rate, but provides that in such case the creditor shall not compel his debtor to pay more than six per cent; authorizes the debtor to retain and deduct the amount of the excess from such debt, and when he has paid such excess to recover it by an action to be commenced within six months after such payment. It is not therefore unlawful for a debtor to pay and a creditor to receive more than six per cent . . .

This interpretation of the effect of the 1858 statute has been the consistent course of the Pennsylvania decisions as recapitulated in Garbarini v. Amer. Snyder B. & L. Assn., 116 Pa.Super. 41, 43-44, 176 A. 49, 50 (1935):

The act of 1858 contains an express repeal of the previous acts dealing with usury or usurious contracts in Pennsylvania, and did away with the penal provisions contained in a former act. "It is to be remembered in all discussions upon the subject of interest, that what used to be and still is called usury, is not now unlawful in this state—as it was, prior to 1858." Montague v. McDowell, 99 Pa. 265, 269. The creditor may lawfully charge and receive the excess, though he cannot coerce its payment by suit or process, and the debtor may retain and deduct such excess from the amount of the debt; or where the debtor has voluntarily paid the whole debt or sum loaned, together with interest exceeding the lawful rate, he may recover back any such excess, provided suit is commenced within six months "from and after the time of such payment." Montague v. McDowell, supra; Fitzsimons v. Baum, 44 Pa. 32; Com. v. Hill, 46 Pa.Super. 505, 508; Stayton v. Riddle, 114 Pa. 464, 7 A. 72.
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