ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, June 4, 1996 TAG: 9606040058
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Knight-Ridder/Tribune
NOTE: Above
In a sharp defeat for consumers, the Supreme Court ruled unanimously Monday that a bank may collect late-payment fees from its credit-card customers - even if they live in states that prohibit them.
It was a sweeping victory for banks, clearing the way for them to bill holders of credit cards in every state not only for late fees, but also for annual fees and other charges.
Fewer than 5 percent of credit-card holders miss their payment deadlines, but the federal government estimates that late-fee collections add up to $2billion a year. About 91million people held bank credit cards in 1994.
Consumer groups had challenged the late fees, describing them as a hidden cost of credit and even fraudulent.
About 25 states backed the credit-card holders. They argued that permitting banks to collect late fees on top of interest charges would allow ``excessive penalty charges'' in violation of state consumer-protection laws.
Fifteen other states supported the banks, warning that a Supreme Court rejection of late fees would escalate costs of credit and lead to ``staggering damage awards'' to consumers.
A 132-year-old federal law permits nationally chartered banks to charge their loan customers ``interest at the rate allowed by the laws of the state headquarters in creditor-friendly states such as South Dakota, which has no ceiling on interest rates.
The Supreme Court ruled in 1978 that a bank may charge out-of-state credit-card customers at whatever interest rate the bank's home state permits. The question before the court this time was whether late fees are a form of ``interest.''
Justice Antonin Scalia, writing for all nine justices, concluded that they are. He deferred to the judgment of the U.S. Comptroller of the Currency, who oversees banks with national charters.
In February the comptroller, responding to the consumer suits, said ``interest'' includes late fees, annual fees, membership fees, insufficient funds fees and any other ``payment compensating a creditor for an extension of credit.''
As a result, a bank may charge such fees at any amount permitted by its home state - even if the state where the consumer lives doesn't allow it.
Scalia said the comptroller's interpretation of the law was ``obviously'' reasonable. Agreeing with the California Supreme Court, Scalia rejected arguments made on behalf of California consumers that late fees are penalties, not interest.
The case was filed by Barbara Smiley of Los Angeles, a former teacher who objected to late-payment charges as high as $15 a month on her Citibank credit cards. She said California law prohibits such late fees, which she called ``unconscionable.'' But South Dakota, where Citibank moved its credit-card operations in 1980, allows them.
Michelle Meier, government affairs counsel for the Consumers Union, urged consumers to ``be more astute in looking at the small print in credit-card solicitations and searching for the best deals out there.''
LENGTH: Medium: 63 linesby CNB