MBNA told it can't charge interest on `over-limit' fees

U.S. appellate court rules in Cincinnati

July 03, 2002|By BLOOMBERG NEWS

CINCINNATI -- MBNA Corp.'s MBNA America Bank, the world's second-largest credit-card issuer, can't charge interest on fees assessed when consumers exceed their credit limits, a federal appeals court panel ruled yesterday.

The 6th U.S. Circuit Court of Appeals in Cincinnati said that "over-limit" fees should be considered a finance charge and not a separate debt, which is subject to additional finance charges.

The 2-1 ruling, which is at odds with a Federal Reserve Board regulation that the fees are subject to interest charges, might apply to all credit-card issuers that do business in Michigan, Ohio, Kentucky and Tennessee.

"The over-limit fee defendants impose falls squarely within the statutory definition of a finance charge," wrote Judge Eric L. Clay. "There is no ambiguity."

Officials at Wilmington, Del.-based MBNA and the Fed weren't immediately available for comment.

The court limited plaintiff Sharon Pfennig's ability to collect damages because MBNA had relied on the Fed regulation. The judges ruled that the federal Truth in Lending Act must be interpreted liberally in favor of consumers.

"Every industry group and the Federal Reserve Board asked for rehearing on this, so we've clearly hit a nerve," said Sylvia M. Antalis, a lawyer for Pfennig.

The ruling allows Pfennig to proceed with a lawsuit seeking class action status against Household Credit Services Inc. and MBNA, which bought Household's credit-card portfolio in 1998.

Pfennig said a $29 over-limit charge was omitted from the finance charge calculation on her monthly statement and instead was posted to her account as a new purchase or debit on which additional finance charges were assessed.

The court found that because MBNA allowed Pfennig to exceed her credit limit, the over-limit fee was a finance charge.

The appellate judges originally ruled in Pfennig's favor in April and issued an amended, almost identical opinion after requests for rehearing by the defendants, credit-card industry groups and the Federal Reserve Board.

Judge R. Allan Edgar dissented from the decision, finding that the Federal Reserve regulation is not "demonstrably irrational."

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