High court takes credit-card case Justices will decide whether states may restrict late fees

January 20, 1996|By Lyle Denniston | Lyle Denniston,SUN NATIONAL STAFF

WASHINGTON -- The Supreme Court agreed yesterday to rule on the power of states to limit the fees that credit-card users can be charged for falling behind on payments -- fees that run upward of $1 billion a year.

The court voted to hear the appeal of a Los Angeles woman who is trying to use California law to block the $15 fee that Citibank charges customers in all states for late payments on Master Card and Visa accounts.

California is one of more than 30 states -- including Maryland -- that use consumer protection laws to limit late-payment fees, or to forbid them. Those states would no longer be able to enforce their laws against bank credit-card companies if the court finds that federal law protects the banks' right to charge such a fee.

The California Supreme Court ruled in September that a bank credit-card company has the right, under federal law, to charge late-payment fees that its home state's laws permit.

Because Citibank is based in South Dakota, where a $15 flat fee for late customers is allowed, it is entitled to charge that fee everywhere it does business, the California court declared. Citibank charges the flat fee no matter how large or small a customer's outstanding balance is.

However, the California ruling conflicts with one by the New Jersey Supreme Court, which ruled that federal banking law does not apply to late-payment fees on loans or advances made by banks or affiliates.

Bank and credit-card companies urged the Supreme Court to review the California case, to resolve the dispute among lower courts. More than 45 challenges to late-payment fees imposed by credit-card issuers are pending in state courts or agencies nationwide, the high court was told.

A ruling in the case is expected by early summer.

The court took on a second case yesterday with high financial stakes -- one involving potential claims running well above $10 billion against the federal government by the thrift industry.

At issue is whether Congress acted unconstitutionally in 1989 in passing a broad law to govern the troubled thrift industry. Congress allowed the government to break financial promises it had made to induce healthy savings institutions to take over failing thrifts in the early 1980s.

When government officials and agencies urged healthy thrifts to merge with the weaker institutions, it made a series of deals that included federal cash contributions and the right to use accounting methods that saved the surviving thrifts millions of dollars in operating and tax costs.

But the 1989 law, enacted to reform the industry, cut back sharply on those benefits, and had the effect of undoing the inducements the government had extended to promote thrift mergers.

A federal appeals court ruled in August that the 1989 law caused the government to break its contracts with the merged thrifts; thus, those firms are free to sue for damages. The Supreme Court also agreed yesterday to decide whether operators of pension plans act illegally when they change the terms of the plans as part of efforts to downsize companies through early retirements.

Many U.S. companies have sought to induce workers to retire early by offering them pension incentives, in return for releasing the companies from other benefits those workers could claim.

In 1990, Lockheed Corp. (now Bethesda-based Lockheed Martin) offered increased retirement benefits to workers who agreed to leave during a specified period, coupled with a waiver of any claims those workers might have against the company. It was sued by one of its older workers, who claimed that Lockheed had violated its duty to protect workers' pension-plan benefits.

A federal appeals court ruled that Lockheed had violated the federal Employee Retirement Income Security Act.

In another part of its decision, the appeals court ruled that a 1986 federal law requires companies to give older workers credit for time on the job for the years before they joined the pension plans.

The Supreme Court agreed to review both parts of the lower-court decision.

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