Supreme Court to Hear Cases on Credit Fees and S&L; Bailout
The Supreme Court on Friday agreed to hear an appeal filed on behalf of a disgruntled credit card holder from Los Angeles who wants to revive a state law that limits late fees to $5 per month.
The justices also agreed to decide a $10-billion dispute growing out of the savings and loan industry fiasco of the 1980s. Glendale Federal Bank is among nearly 100 S&Ls; seeking damages from the government for first inducing it to merge with a failing thrift and then changing the accounting rules in a way that nearly sent Glenfed into insolvency.
The credit card case turns on whether a bank that issues credit cards is governed exclusively by regulations--such as limits on late fees--imposed in its home state or must abide by the laws of the states where its customers reside.
Over the past decade, state lawmakers in California and elsewhere have passed consumer-friendly laws to protect their card holders from sharply escalating fees. But some giant banks have escaped those laws by relocating the headquarters of their credit card operations in small states whose laws are more generous to bankers.
Citibank, the nation’s largest issuer of MasterCards and Visa cards, runs its credit card operations from South Dakota, which does not limit fees charged by banks.
Lawyers for Barbara Smiley, a Los Angeles woman, filed a class-action suit against Citibank protesting its $15-a-month late fee on the grounds that it exceeded the fees allowed in California. The state law then allowed fees of $5 or 5% of the outstanding balance, whichever was less.
In September, however, Citibank won a victory before the state Supreme Court, which ruled the federal banking law, which dates to the Civil War era, allows it to charge the higher fees allowed in its home state of South Dakota.
In the Glenfed dispute, Clinton administration lawyers say taxpayers stand to pay as much as $10 billion if the court rules against the government.
The deals at issue date back to the early 1980s, when federal S&L; regulators were trying to head off an impending financial disaster by persuading healthy thrifts to take over failing ones. As an inducement, the government offered to change accounting rules to allow the healthy S&L; to lend even more money.
In 1981, Glenfed took such a deal and merged with a troubled Florida thrift. In 1989, Congress passed S&L; clean-up legislation that revoked the special deal that Glenfed and others had negotiated. Glenfed sued for a breach of contract and last year won its basic claim before a federal appeals court.
Glenfed shares fell $1.125 to close at $16.875 on the New York Stock Exchange Friday.
