Debtor beware Supreme Court: Ruling upholds banks' right to impose late fees on credit card payments.

June 09, 1996

IN A CASE pitting banks against consumers, the Supreme Court has sent a unanimous message: Debtor beware. The court issued an opinion last week that state laws limiting credit card fees don't apply to banks located in another state. The ruling vindicates the decision by banks like Citibank to move their credit card operations to states with lenient banking laws. It also protects a lucrative source of revenue -- credit card companies reap more than $2 billion a year from late-payment fees.

The decision comes in the case of a California woman whose Citibank credit cards, issued from South Dakota, imposed not only interest charges on unpaid balances but also late fees for payments not received on time. She sued, arguing that California law protected consumers from such onerous costs as late fees.

Banks had argued that a ruling in their favor would preserve the convenience of having uniform federal rules apply to costs incurred in interstate loans. Consumers and their allies had argued that the law in question, the 1864 National Bank Act, left control of many banking matters up to the states, and that if Congress had meant for the federal government to have the power to pre-empt a state's ability to prohibit fees it would have spelled out that intention more clearly.

The court's action preserves the federal government's preeminent role in regulatory matters. But the setback for consumer advocates need not be debilitating. For one thing, because the ruling is based on banking law, it applies only to cards issued by banks, not those from department stores, oil companies or similar institutions. Most important, though, the decision reinforces the need for consumer education. If state law can't hold down excessive fees, something else can -- the power of competition, always a consumer's best friend.

Pub Date: 6/09/96

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