A state can put a lid on the credit-card interest rates charged by a national bank it chartered but not on the rates charged by a rival national bank chartered elsewhere, the Supreme Court ruled 9 to 0 yesterday.
The protection provided by state usery laws is "an issue of legislative policy," Justice William J. Brennan Jr. wrote for the court. Any plea to let states control the rates charged by national banks incorporated elsewhere "is better addressed to the wisdom of Congress than to the judgement of this court," he said.
The court acted in a case involving the BankAmericard program, the differing usery laws of Nebraska and Minnesota, and the National Bank Act of 1864, which allows a national bank "to charge on any loan" the rate of interest allowed by the state "where the bank is located."
Nebraska permits a bank to charge up to 18 percent on the unpaid balance of a cardholder's account up to $999.99 and 12 percent on amounts exceeding that sum. By contrast, Minnesota's maximum is a flat 12 percent. But, to compensate for the reduced interest, it allows an annual fee of up to $5 for the privilege of using a bank credit card.
The case began when the First National Bank of Omaha and its owner, First of Omaha Service Corp., solicited BankAmericard customers in Minnesota. Although its interest rate was 50 percent higher than Marquette National Bank of Minneapolis was charging on the same credit cards, the Minnesota bank claimed that it lost customers because it was forced to charge a $10 annual fee.
Ut the litigation that followed, the Minnesota Supreme Court held that the usury laws of Nebraska rather than Minnesota govern the operation of the Omaha bank's BankAmericard program in Minnesota.
The state of Minnesota, in appealing to the High Court, argued that the Omaha Bank, even though it has no branches in Minnesota is "located" there under the federal banking law because it "systematically solicits Minnesota residents for credit cards to be used in transactions with Minnesota merchants. . ."
"We disagree," Justice Brennan wrote. Citing the legislative history of the century-old law, he said that a national bank can't be deprived of its location-the state named in its organization certificate-"merely because it is extending credit to residents of a foreign state."
"Minnesota residents were always free to visit Nebraska and receive loans in that state," Brennan continued. "It has not been suggested that Minnesota usury laws would apply to such transactions.
The Minnesota brief also contended that Congress had intended to insure competitive equality between state and national banks in the charging of interest, and that this policy could best be implemented by limiting national banks to the interest rates permitted by the states in which the banks were operating.