Appendix — Massachusetts v. Greenwood Trust Co.

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2-79 4

No. 92-

In the Supreme Court o

United States

October Term, 1992

COMMONWEALTH OF MASSACHUSETTS, et al

Petitioners,

GREENWOOD TRUST COMPANY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI

SCOTT HARSHBARGER

ATTORNEY GENERAL

OF MASSACHUSETTS

Emest L. Sarason, Jr.*

William N. Brownsberger

Assistant Attomeys General

Public Protection Bureau

One Ashburton Place

Boston, Massachusetts 02108

*Counsel of Record (617) 727-2200

a 8s lie ah

‘

;

IN THE SUPREME COURT OF THE

UNITED STATES

October Term, 1992

COMMONWEALTH OF MASSACHUSETTS, et al,

Petitioners

Vv.

GREENWOOD TRUST COMPANY,

Respondent.

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

Opinion of the Court

of Appeals for the

First Circuit

Final Judgment under

Fed. R. Civ. P. 54(b)

of the United States

District Court for the

District of Massachusetts

Opinion of the

United States District

Court for the

District of Massachusetts

Supplement to the

Court’s Memorandum and

Order of October 22, 1991

of the United States District

Court for the District of

Massachusetts

Appendix

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE FIRST CIRCUIT

Nos. 91-2205

92-1065

92-1150

GREENWOOD TRUST COMPANY,

Plaintiff, Appellant,

Vv.

COMMONWEALTH OF MASSACHUSETTS, ET AL.,

Defendants, Appellees.

APPEALS FROM

THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young,

U.S. District Judge]

Before

Selya, Circuit Judge,

Lay,* Senior Circuit Judge,

and Pieras,** District Judge.

A-1

Arthur R. Miller, with whom Andrew

F. Lane, Gilbert R. Hoy, Jr., Warner &

Stackpole, Burt M. Rublin, Wolf, Block,

Schorr and Solis-Cohen, Alan R. Feldman,

and Sullivan & Worcester were on brief,

for appellant.

Ernest L. Sarason, Jr. and William

T. Matlack, Assistant Attorneys General,

with whom Scott Harshbarger, Attorney

General, and Sarah Wald, Special

Assistant Attorney General,-were on

brief, for appellees.

Frank Max Salinger and Robert E.

McKew on brief for American Financial

Services Association, amicus curiae.

Arnold M. Lerman, Christopher R.

Lipsett, John B. Bellinger, III, Kenneth

L. Chernof, and Wilmer, Cutler &

Pickering on brief for Bank of America,

et al., amici curiae.

John J. Gill, Michael F. Crotty, and

Irving D. Warden on brief for American

Bankers Association, amicus curiae.

Ralph J. Rohner, Marcia Z. Sullivan,

and Steven I. Zeisel on brief for

Consumer Bankers Association, amicus

curiae. |

L. Richard Fischer, Robert M.

Kurucza, Steven S. Rosenthal, James A.

Huizinga, and Morrison & Foerster on

brief for Visa U.S.A., Inc. and

Mastercard International Incorporated,

amici curiae.

Alfred J.T. Byrne, General Counsel,

Douglas H. Jones, Senior Deputy General

Counsel, Thomas A. Schulz, Assistant

General Counsel, Colleen B. Bombardier,

Senior Counsel, and Lisa M. Miller,

Counsel, on brief for Federal Deposit

Insurance Corporation, amicus curiae.

A-2

Marsha Kramarck, Deputy Attorney

General, on brief for Delaware State

Bank Commissioner, amicus curiae.

Richard P. Eckman, Daniel I. Prywes,

Joseph L. Lakshmanan, and Pepper,

Hamilton & Scheetz on brief for Delaware

Bankers Association, amicus curiae.

Lee Fisher, Attorney General (Ohio)

and Kathleen McDonald O’Malley, Chief

Counsel, Office of Attorney General, on

brief for States of Ohio, Arizona,

Illinois, Louisiana, Nevada, South

Dakota and Utah, amici curiae.

Bonnie J. Campbell, Attorney General

(Iowa), and Peter R. Kochenburger,

Assistant Attorney General, on brief for

States of Arkansas, Colorado,

Connecticut, Hawaii, Idaho, Iowa,

Kansas, Kentucky, Maine, Minnesota, New

Jersey, North Carolina, Pennsylvania,

Rhode Island, South Carolina, Texas,

Vermont, West Virginia and the District

of Columbia, amici curiae.

Michael M. Malakoff, Ellen Doyle,

Malako Doyle & Finberg, Nicholas E.

Chimicles, Michael D. Donovan, Robin

Resnick and Greenfield & Chimicles on

brief for Bankcard Holders of America,

et al., amici curiae.

James C. Sturdevant, Kim E. Card,

Sturdevant & Sturdevant, and Gail

Hillebrand on brief for Consumer Action

and Consumers Union, amici curiae.

Albert Endsley, Steven W. Hamm, and

Philip S. Porter on brief for National

Conference of Uniform Consumer Credit

Code States and American Conference of

Uniform Consumer Credit Code States,

amici curiae.

A-3

August 6, 1992

*Of the Eighth Circuit, sitting by

designation.

**Of the District of Puerto Rico,

sitting by designation.

SELYA, Circuit Judge. This train

wreck of a case arises out of a headlong

collision between a state

consumer-protection law and a fecera.

banking law. It brings into sharp focus

the tensions inherent in our federalist

system while presenting a novel legal

question: can a federally insured bank,

chartered in Delaware, charge its

Massachusetts credit-card customers a

late fee on delinquent accounts,

notwithstanding a Massachusetts statute

explicitly prohibiting the practice?

The district court answered this

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question in the negative, enforcing the

state statute and granting partial

summary judgment in appellees’ favor.

Because we believe that the lower court

was on the wrong track, we reverse.

Federal law has the right of way in this

area.

ie.

Background

The pertinent facts are largely

undisputed. Plaintiff-

appellant Greenwood Trust Company

(Greenwood) is a Delaware banking

corporation. Its deposits are insured

by the Federal Deposit Insurance

Corporation. Through a wholly owned

subsidiary, Greenwood offers an open end

credit card - the Discover Card - to

customers nationwide. More than one

hundred thousand of its cardholders live

in Massachusetts.

The terms and conditions applicable

to use of the Discover Card are spelled

out in a Cardmember Agreement. The

Agreement stipulates, inter alia, that

the holder must make a minimum monthly

payment, calculated by reference to the

credit-card balance outstanding from

time to time, on or before a designated

due date. Failure to make this payment

in a timeous fashion constitutes a

default. If the default is not cured

within twenty days, a ten-dollar late

charge is automatically assessed.

On October 27, 1989, the

Commonwealth of Massachusetts advised

Greenwood that its imposition of late

charges under such circumstances

contravened state law. The Commonwealth

threatened to take legal action.

Greenwood promptly launched a preemptive

strike, filing a complaint for

A-6

declaratory and injunctive relief in the

United States District Court for the

District of Massachusetts.2/ The

Commonwealth denied that federal law

preempted the Massachusetts statute. It

also counterclaimed, seeking to bar

Greenwood from assessing late charges

and to collect restitutionary damages,

together with civil penalties, referable

to Greenwood’s defiance of state law.

The district court adjudicated the

parties’ competing claims on

cross-motions for summary judgment.

Discerning no federal preemption, the

court ruled that Massachusetts law

applied. Since the court interpreted

l/ Greenwood’s suit invoked the

Supremacy Clause of the federal

Constitution. The Commonwealth and its

Attorney General were named as

defendants. For simplicity’s sake we

refer to both defendants as "the

Commonwealth."

A-7

that law to forbid Greenwood’s

imposition of late charges upon

cardholders who lived in Massachusetts,

it denied Greenwood’s motion and granted

partial summary judgment in the

Commonwealth’s favor. Greenwood Trust

Co. v. Massachusetts, 776 F. Supp. 21

(D. Mass. 1991). The district court

certified its rulings for interlocutory

appeal under 28 U.S.C. §1292(b) (1988).

In light of the pivotal importance and

broad commercial consequence of the

questions presented, we accepted the

certification. (As an aside, we remark

that our belief as to the importance of

the questions presented has been

validated to some degree by the

outpouring of amicus briefs, some

favoring appellant’s position and some

opposing it.) These appeals

A-8

ensued.

Il.

The Statutory Scheme

“Two statutes lay at the heart of the

dispute between these protagonists: the

state law that prohibits the imposition

of late fees by credit-card issuers,

viz., Mass. Gen. L. ch. 140, §114B

(1991) (Section 114B), and the federal

law which arguably preempts the state

statute, viz., Section 521 of the

Depository Institutions Deregulation and

Monetary Control Act of 1980 (DIDA),

Pub. L. No. 96-221, 94 Stat. 132 (1980)

(codified, as amended, in scattered

sections of the U.S. Code). This case

demands that we determine whether

2/ Endeavoring to ensure that its

flanks are fully protected, Greenwood

has prosecuted three separate appeals,

each with a different jurisdictional .

thrust. It is not necessary for us to

distinguish among then. ;

A-9

section 114B’s immovable prohibition

survives section 521’s irresistible

preemptive sweep.

The Massachusetts statute is

straightforward. It provides that: "No

creditor shall impose a delinquency

charge, late charge, or similar charge

on loans made pursuant to... an open

end credit plan." Mass. Gen. L. ch.

140, §114B.

On the other hand, section 521 is

equally uncompromising:

In order to prevent

discrimination against

State-chartered insured depository

institutions, including insured

Savings banks, .. . with respect

to interest rates, .. . such State

bank[s] . . . may, notwithstanding

any State constitution or statute

which is hereby preempted for the

purposes of this section, take,

receive, reserve, and charge on any

loan or discount made, or upon any

note, bill of exchange, or other

evidence of debt, interest at a rate

of not more than 1 per centum in

excess of the discount rate on

ninety-day commercial paper in

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effect at the Federal Reserve bank

in the Federal Reserve district

where such State bank... is

located or at the rate allowed by

the laws of the State, territory, or

district where the bank is located,

whichever may be greater.

12 U.S.C. §1831(d) (a) (1988 & Supp.

1990).

Iil.

Discussion

Preemption: General Principles

-In Gibbons v. Ogden, 22 U.S. (9

Wheat.) 1 (1824), Chief Justice Marshall

declared that, under the rubric of the

Supremacy Clause,

Ss.

The Supremacy Clause provides that:

This Constitution, and the Laws

of the United States which shall be

made in Pursuance thereof; and all

Treaties made, or which shall be

made, under the Authority of the

United States, shall be the supreme

Law of the Land; and the Judges in

every State shall be bound thereby,

any Thing in the Constitution or

Laws of any State to the Contrary

notwithstanding.

Const., art. VI, cl. 2.

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state laws which “interfere with, or are

contrary to the laws of Congress, made

in pursuance of the constitution," are

preempted and, therefore, invalid. Id.

at 211. This verity remains firmly

embedded in our modern jurisprudence.

See, e.g., Wisconsin Pub. Intervenor v.

Mortier, 111 S. Ct. 2476, 2481 (1991);

Hillsborough County v. Automated Medical

Labs... Inc., 471 U.S. 707, 712 (1985);

Securities Indus. Ass’n v. Connolly, 883

F.2d 1114, 1117 (lst Cir. 1989), cert.

denied, 495 U.S. 956 (1990).

In placing constitutional theory

into practice, the Court has generally

distinguished between express and

implied preemption. - Express preemption

occurs “when Congress has

‘unmistakably ... . ordained’ that its

enactments seen are to regulate a

[subject, andj state laws regulating

;

f A~-i2

that [subject] must fall." Jones v.

Rath Packing Co., 430 U.S. 519, 525

(1977) (quoting Florida Lime & Avocado

Growers, Inc. Vv. Paul, 373 U.S. 132, 142

(1963)). In such instances, the only

remaining question is whether a

particular state statute intrudes into

the federal pale. See Schneidewind v.

NR Pipeline Co., 485 U.S. 293, 299

(1988); Cabie Television Ass‘n v.

Finneran, 954 F.2d 91, 98 (2d. Cir.

1992).

Implied preemption comes in a wide

variety of sizes and shapes. Indeed, we

have said that "[t]he concept. . . has

a certain protean quality, which renders

pigeonholing difficult." French v. Pan

Am Express, Inc., 869 F.2d 1, 2 (1st

Cir. 1989). Implied preemption can

occur when Congress constructs a scheme

of federal regulation "so pervasive as

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to make reasonable the inference that

Congress left no room for the States to

supplement it"; or when an "Act of

Congress .. . touch[es]} a field in

which the federal interest is so

dominant that the federal system will be

assumed to preclude enforcement of state

laws on the same subject"; or when the

goals of, and obligations imposed by,

the federal law make manifest a purpose

to uproot state law. Rice v. Santa Fe

Elevator Corp., 331 U.S. 218, 230

(1947); accord Mortier 111 S. Ct. at

2481-82; English v. General Elec. Co.,

496 U.S. 72, 79 (1990). Implied

preemption can also occur in situations

involving actual conflicts, such as when

compliance with both federal and state

regulation is an impossibility, see,

e.g., Florida Lime, 373 U.S. at 142-43,

or when state law “stands as an obstacle

A-14

to the accomplishment and execution of

the full purposes and objectives of

Congress." Hines v. Davidowitz, 312

U.S. 52, 67 (1941).

Certain common strands bind these

diverse species of express and implied

preemption together. Two such threads

run through the fabric of the instant

case. For one thing, in any preemption

analysis, “the question of whether

federal law preempts a state statute is

one of congressional intent." French,

869 F.2d at 2; accord Ingersoll-Rand Co.

v. McClendon, 111 S. Ct. 478, 482

(1990); Securities Indus., 883 F.2d at

1117. For another thing, the different

strains of preemption all operate on

"the assumption that the historic police

powers of the States [are] not to be

superseded by [a] Federal Act unless

that was the clear and manifest purpose

A-15

of Congress." Rice, 331 U.S. at 230;

see also, Mortier, 111 S. Ct. at 2482;

Cali ia v. ARC America Corp., 490

U.S. 93, 101 (1989). Courts must tread

cautiously in this arena because the

authority to displace a sovereign

state’s law is "an extraordinary power

- . « that we must assume Congress does

nt eneeeine lightly." Gregory v.

Ashcroft, 111 S. Ct. 2395, 2400 (1991).

Even federal statutes that contain

express preemption clauses must be

viewed through the prism of this

assumption. See, Cipollone v. Ligget

Group, Inc., 60 U.S.L.W. 4703, 4706-07

(U.S. June 24, 1992) (plurality

opinion); id. at 4711 (Blackmun, J.,

concurring in part and dissenting in

part).

The Track We Must Travel

We move now from the general to the

particular. Section 521 boasts an

express preemption clause. In recent

days, the High Court has made it

pellucidly clear that, whenever Congress

includes an express preemption clause in

a statute, judges ought to limit

themselves to the preemptive reach of

that provision without essaying any

further analysis under the various

theories of implied preemption. See

Cipollone, 60 U.S.L.W. at 4707

(plurality opinion); id. at 4711

(Blackmun, J., concurring in part and

dissenting in part). Given the

teachings of Cipollone and the plain

language of section 521

("notwithstanding any State constitution

or statute which is hereby preempted for

&~27

the purposes of this section"), we

reject the Commonwealth’s contention

that this is an implied preemption

case.+/

Our conclusion that the proper

analysis in this case reduces to an

inquiry into express preemption is

4/ The district court apparently

accepted the Commonwealth’s position and

treated the case as one of implied

preemption. See Greenwood Trust, 776 F.

Supp. at 30. It is likely that this

error derived from the miasma of doubt

surrounding the applicability of section

521 in Massachusetts. The district

court believed that the Commonwealth had

exercised its right, under section 525

of DIDA, 12 U.S.C. §1730(g) note (since

repealed by Title IV of FIRREA, Pub. L.

No. 101-73, 103 Stat. 183, 363 (i1989)),

to opt out of section 521’s preemptive

grasp. See, e.g., Greenwood Trust, 776

F. Supp. at 24 n.6, 26, 30 & n.24, 35.

The court overlooked, however, that

although Massachusetts opted out in

1981, see 1981 Mass. Acts 231, it

reversed direction and, in effect, opted

back in well before this litigation

began. See 1986 Mass. Acts 177

(repealing pertinent portions of 1981

Mass. Acts 231). Section 521 is,

therefore, fully applicable to the

instant case.

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unaffected by the fact that the inquiry

requires us to interpret the terms

"interest" and "interest rates" as they

are employed in section 521. While

uncertainty about the meaning of

interstitial terms in the text of a

federal statute may affect the scope of

express preemption, it does not bear

directly on the character of Congress’s

preemptory intent. See Cipollone, 60

U.S.L.W. at 4707-10 (plurality opinion) ;

id. at 4711-14 (Blackmun, J., concurring

in part and dissenting in part); Cable

Television, 954 F.2d at 98. In other

words, so long as Congress’s intent to

effect preemption remains clear and

manifest, uncertainty which pertains

only to the contours of: the ensuring

‘preemption does not necessitate an

alteration of a reviewing court’s basic

analytic approach.

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Cc.

The Scope of Express Preemption

Under Section 521

We must still resolve the crucial

question of what state laws are

preempted. Put specifically, is a state

law banning the imposition of late

charges a law regulating "interest"

within the purview of section 521? If

so, chapter 114B is preempted.

This inquiry necessarily reduces to

ascertaining what Congress meant by the

word "interest" in drafting section

521. In divining this legislative

intent, it is incumbent upon us to

“begin with the language employed by

Congress and the assumption that the

ordinary meaning of that language

accurately expresses the legislative

purpose." Morales v. Trans World

Airlines, Inc., 112 S. Ct. 2031-2036

A-20

(1992) (quoting FMC Corp. v. Holliday,

111 S. Ct. 403, 407 (1990)). In the

process, however, we should not wear

blinders: if there is "good reason to

believe" that Congress intended to

deviate from the ordinary meaning of the

language selected, then a reviewing

court must follow the congressional

lead. Cipollone, 60 U.S.L.W. at 4708

(plurality opinion) (quoting Shaw v.

Delta Air Lines, Inc., 463 U.S. 85, 97

(1983)); see also American Tobacco Co.

v. Patterson, 456 U.S. 63, 68 (1982).

Should perlustration of a statute’s

text fail to disclose the scope of

Congress’s preemptory intent, we must

then assess the statute’s structure and

purpose in order to probe Congress’s

wishes. Ingersoll-Rand, 111 S. Ct. at

482; FMC Corp., 111 S. Ct. at 407.

Moreover, a court, faced with

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aenranen = ee ee a A A Si a a ae

the necessity of delineating a facially

cryptic statute’s preemptive scope, can

repair to statutory history and

legislative context in order to

facilitate its inquiry into

congressional purpose. See Toibb v.

Radloff, 111 S. Ct. 2197, 2200 (1991);

Blum v. Stevenson, 465 U.S. 886, 896

(1984).

The Commonwealth urges, and the

lower court determined, Greenwood Trust,

776 F. Supp. at 36-38, that section

521’s language plainly limits its

preemptory impact to state laws that

govern numerical interest rates, thereby

leaving state laws regulating flat fees

unscathed - even when, as here, such

fees arise out of the extension and

maintenance of credit. We are not

persuaded that the plain meaning of

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"interest" and/or "interest rates" as

used in section 521 requires so grudging

an interpretation.

In the first place, we do not

believe that the plain meaning of

"interest" necessarily restricts the

definition of the word to numerical

percentage rates. Reference works

typically define interest as "a charge

for borrowed money[,] generally a

percentage of the amount borrowed."

Webster’s Ninth New Collegiate

Dictionary 630 (1989) (emphasis

supplied); see also Black’s Law

Dictionary 812 (6th ed. 1990). Such

definitions do not limit interest to

numerical percentage rates, for they

simply note that interest is often, but

not always, expressed as a percentage.

If the Commonwealth’s circumscribed view

of the word were accurate, there would

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be no basis for suggesting that

exceptions exist.

Judicial opinions also tend to shy

away from limiting the word "interest"

to numerical percentage rates.

Specifically, federal case law has long

suggested that, in ordinary usage,

interest may encompass late fees and

kindred charges. See e.g.,

Shoemaker v. United States, 147 U.S.

282, 321 (1893) ("Interest

5/ Since we are interpreting the terms

of a federal statute in a dispute

between Massachusetts and a Delaware

bank, we do not believe that definitions

of interest emanating from courts in

other states are relevant to our

inquiry, except insofar as those cases

purpose to interpret DIDA or its

forebears. In any event, such state-law

definitions go both ways. Compare,

e.g., Perry v. Stewart Title Co., 756

F.2d 1197, 1207-08 (5th Cir. 1985)

(under Texas law, late charges are not a

component of interest) with, e.g.,

Swindell v. Federal Nat’l Mortgage

Ass’n, 409 S.E.2d 892, 894-95 (N.C.

1991) (under North Carolina Law, late

charges are a component of interest).

A-24

accrues either by agreement of the

debtor to allow it for the use of money,

or, in the nature of damages, by reason

of the failure of the debtor to pay the

principal when due."); Brown v. Hiatts,

82 U.S. (15 Wall.) 177, 185 (1873)

("(ijnterest is the compensation allowed

by law, or fixed by the parties, for the

use or forbearance of money, or as

damages for its detention").

Thus, the door is open to

appellant’s interpretation of the term.

Suggesting that an additional fee

attached to a delinquent, defaulted

account is related to the creditor’s

cost of lending that money does no

violence to language, to precedent, or,

indeed, to logic. Default necessarily

increases the creditor’s cost of

processing a loan. Therefore, a late

fee is sufficiently related to the "use

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or forbearance of money, or

damages for its detention" that it can

appropriately be classified as

"interest."

In the second place, the use of

words like "rate" in conjunction with

the word "interest" does little to

advance the Commonwealth’s thesis.

While there may exist support for the

assertion that a flat fee is not

included in the plain meaning of terms

such as "rate" and "interest rates,"

section 521’s preemptive reach cannot so

easily be restricted to numerical

percentage rates. Terms in an act whose

meaning may appear plain outside the

scheme of the statute can take on a

different meaning when read in their

proper context. See United Steelworkers

of America v. Weber, 443 U.S. 193, 201

(1979); Train v. Colorado Pub. Interest

A-26

Research Group, Inc., 421 U.S. 1, 10

(1976). As Judge Learned Hand once

wrote, words can be "chameleons, which

reflect the color of their

environment." Commissioner v. National

Carbide Corp., 167 F.2d 304, 306 (2d.

Cir. 1948), aff’d, 336 U.S. 422 (1949).

In short, the plain-meaning doctrine

is not a pedagogical absolute. This

rule of construction is more "an axiom

of experience than a rule of law, and

does not preclude consideration of

persuasive evidence" in contradiction to

supposedly plain meaning if such

evidence exists. Boston Sand & Gravel

Co. v. United States, 278 U.S. 41, 48

(1928) (Holmes, J.). Hence, a court

must always hesitate to construe words

in a statute according to their apparent

meaning if to do so would defeat

Congress’s discovered intendment. See

A-27

Bob Jones Univ. v. United States, 461 U.

S. 574, 586 (1983); Watt v. Alaska, 451

U. S. 259, 266 (1981); Church of the

Holy Trinity v. United States, 143 U.S.

457, 459 (1892). It follows that:

deference to the plain meaning rule

should not be unthinking or blind.

We would go beyond the plain meaning

of the statutory language when

adherence to it would produce an

absurd result or an unreasonable one

plainly at variance with the policy

of the legislation as a whole.

Massachusetts Fin. Servs., Inc. v.

Securities Investor Protection Corp.,

S45 F.2a@ 754, 756 (ist Cir. 1976)

(citations and internal quotation marks

omitted), cert. denied, 431 U.S. 904

(1977); accord In re Trans Alaska

Pipeline Rate Cases, 436 U.S. 631, 643

(1978).

Viewed as part of this

mise-en-scene, the Commonwealth’s

plain-meaning argument cannot carry the

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day. The argument gathers little steam

because the use of the terms "interest"

and "interest rates" in section 521 is

an example of how phrases’ meanings can

take on different colorations when read

in their legislative and historical

context. Accordingly, we must move

beyond the plain-meaning doctrine to

determine the scope of express

preemption under section 521.

The preamble to section 521 states

that the law was created "to prevent

discrimination against State-chartered

insured depository institutions,

including insured savings banks." To

understand the reference, we examine the

historical context.

As the 1970s wound down, the Nation

was caught in the throes of a

devastating credit crunch. Interest

A-29

rates soared. See, e.g., United States

v. Ven-Fuel, Inc., 758 F.2d 741, 764

n.20 (lst Cir. 1985) (cataloguing

fluctuations in the prime rate from 1975

to 1983). Nevertheless, state lending

institutions were constrained in the

interest they could charge by state

usury laws which often made loans

economically unfeasible from a lender’s

coign of vantage. See Gavey

Properties/762 v. First Fin. Sav. &

Loan, 845 F.2d 519, 521 (5th Cir. 1988);

Bank of New York v. Hoyt, 617 F. Supp.

1304, 1309 (D.R.I. 1985). National

banks did not share this inhibition

because they could charge whatever

interest rates were allowed under the

National Bank Act of 1864, c. 106, 13

Stat. 99 (1864) (codified, as amended,

in scattered sections of 12 U.S.C.) (the

Bank Act), and specifically, those rates

A-30

which were permitted under Bank Act §85,

12 U.S.C. §85 (1988), quoted infra note

7. Since section 85 authorized national

banks to use interest rates set by

reference to federal discount rates,

state institutions were at an almost

insuperable competitive disadvantage. &/

Congress tried to level the playing

field between federally chartered and

state-chartered banks when it enacted

DIDA. See 126 Cong. Rec. 6,907 (1980)

(section 521 will "allow[] competitive

equity among financial institutions, and

6/ Section 85 was originally enacted to

shield national banks from state laws

that were discriminating against them.

See Marquette Nat’l Bank v. First of

Omaha Serv. Corp., 439 U.S. 299, 314-18

(1978); Cong. Globe, 38th Cong., 1st

Sess. 2126 (1864) (statement of Sen.

Sherman). More than a century later,

this shield had become a sword wielded

by national banks against

state-chartered lenders. As we have

written before, "irony is no stranger to

the law." Amanullah v. Nelson, 811 F.2d

1, 186 (ist Cir. 1967).

Aw3i

reaffirm[{] the principle that

institutions offering similar products

should be subject to similar rules")

(statement of Sen. Bumpers); 126 Cong.

Rec. 6,900 (1980) (section 521 should

“provide[] parity, or competitive

equality, between national banks and

State[-]chartered depository

institutions on lending limits")

(statement of Sen. Proxmire). To

achieve this objective, Congress

engrafted onto DIDA’s bare bones, at

several points, language taken from the

Bank Act. Section 521, modeled on

section 85 of the Bank Act, was the site

of one such transplantation.’

7/ We consider the transplanted

language to be the following:

[A state-chartered, federally

insured depository institution],

with respect to interest rates,

(footnote continued)

A-32

(footnote continued)

. . May... take, receive,

reserve, and charge on any loan or

discount made, or upon any note,

bill of exchange, or other evidence

of debt, interest at a rate of not

more than 1 per centum in excess of

the discount rate on ninety-day

commercial paper in effect at the

Federal Reserve bank in the Federal

Reserve district where such State

bank .. . is located or at the

rate allowed by the laws of the

State, territory, or district where

the bank is located, whichever may

be greater.

12 U.S.C. §1831(d) (a) (DIDA §521). The

comparison between this language and the

language of section 85 is striking. The

latter provided in relevant part:

[A national bank] may take,

receive, reserve, and charge on any

loan or discount made, or upon any

notes, bills of exchange, or other

evidence of debt, interest at the

rate allowed by the laws of the

State, Territory, or District where

the bank is located, or at a rate of

1 per centum in excess of the

discount rate on ninety-day

commercial paper in effect at the

Federal reserve bank in the Federal

reserve district where the bank is

located, whichever may be the

greater ..- -»

12 U.S.C. §85 (1988) (Bank Act §85).

Although there are niggling variations,

(footnote continued)

A-33

The parallelism was not mere

happenstance. To the exact contrary,

Congress made a conscious choice to

incorporate the Bank Act standard into

DIDA. See, €.g., 126 Cong. Rec. 6,907

(1980) (statement of Sen. Bumpers); 125

Cong. Rec. 30,655 (1979) (statement of

Sen. Pryor); see also Gavey, 845 F.2d at

321.

The historical record clearly

requires a court to read the parallel

provisions of DIDA and the Bank Act in

pari materia. It is, after all, a

general rule that when Congress borrows

language from one statute and

incorporates it into a second statute,

the language of the two acts should be

(footnote continued)

the key phraseology is substantially

identical. Accord Gavey, 845 F.2d at

521 (interpreting 12 U.S.C. §1730(g) (a),

a section of DIDA containing language

parallel to section 521).

A-34

interpreted the same way. See Morales,

112 S. Ct. at 2037; Ingersoll-Rand, 111

S. Ct. at 485-86; Oscar Mayer & Co. Vv.

Evans, 441 U.S. 750, 756 (1979). So

here. What is more, when borrowing of

this sort occurs, the borrowed phrases

do not shed their skins like so many

reinvigorated reptiles. Rather, "if a

word is obviously transplanted from

another legal source, whether the common

law or other legislation, it brings the

old soil with it." Frankfurter, Some

Reflections on the Reading of Statutes,

47 Colum. L. Rev. 527, 537 (1947).

Because we think it is perfectly plain

that this portable soil includes prior

judicial interpretations of the

transplanted language, see Holmes v.

Securities Investor Protection Corp.,

112 S. Ct. 1311, 1317-18 (1992); Pierce

v. Underwood, 487 U.S. 552, 567 (1988);

Lorillard v. Pons, 434 U.S. 575, 580-581

A-35

(1978), Bank Act precedents must inform

our interpretation of words and phrases

that were lifted from the Bank Act and

inserted into DIDA’s text.

While we believe that several

principles inherent in section 85 were

transfused into section 521, the

critical item for present purposes is

the principle of exportation. This

principle, solidly embedded in the

language and purpose of both acts,

provides the mechanism whereby a bank

may continue to use the favorable

interest laws of its home state in

certain transactions with out-of-state

borrowers. See Marquette Nat’1] Bank

8/ The exportable rates are those

available to the most favored lenders in

the bank’s state, not merely those

available to lenders of a similar size,

character, or function. See Tiffany v.

National Bank of Missouri, 85 U.S. (18

Wall.) 409, 411-13 (1874).

A-36

v. First of Omaha Serv. Corp., 439 U.S.

299, 313-19 (1978); Gavey, 845 F.2d at

521. To the extent that a law or

regulation enacted in the borrower’s

home state purposes to inhibit the

bank’s choice of an interest term under

section 521, DIDA expressly preempts the

state law’s operation.

Read in this way, the language

borrowed from Bank Act §85 and

incorporated into DIDA §521 achieves

parity between national banks and their

state-chartered counterparts by allowing

lenders such as Greenwood to choose

among three interest rate ceilings: (J

the highest rate lawfully permitted

without reference to section 521; (2) a

rate not more than one percent above the

discount rate on 90-day commercial paper

in effect at the Federal Reserve Bank

the federal reserve district where thé

A-37

lender is located; or (3) the highest

rate allowed by the laws of the state

where the lender is located. Section

521’s express preemption clause is

designed to maintain this parity.

Acting in combination with the principle

of exportation, this clause necessarily

derails any state-sponsored attempt to

regulate the maximum interest chargeable

by a federally insured bank chartered in

another state. For our purposes, this

means that any Massachusetts law

applicable to Greenwood must yield to

the preemptory force of section 521

insofar as the regulation of "interest"

is concerned.

We reach this conclusion mindful of

the fact that the state statute here at

issue visits two areas which are

squarely within the ambit of the states’

historic powers - hanking, see, e.g.,

A-38

Northeast Bancorp, Inc. V. Board of

Governors of the Federal Reserve Sys.,

472 U.S. 159, 177 (1985); Valley Bank v.

Plus Sys. Inc., 914 F.2d 1186, 1195 (9th

Cir. 1990), and consumer protection.

See, e.g., ARC America, 490 U.S. at 101;

General Motors Corp. v. Abrams, 897 F.2d

34, 41-42 (2d Cir. 1990). Although this

circumstance means that any preemption

provision must be construed cautiously

and with due regard for state

sovereignty, see Cipollone, 60 U.8.3W.

at 4706-07 (plurality opinion); id. at

4711 (Blackmun, J., concurring in part

and dissenting in part), it does not

serve as a buckler against the force of

the Supremacy Clause. When Congress has

acted within its authority and its

intent to displace state law is clear -

preconditions which obtain here -

preemption is not foreclosed by the fact

that the federal statute intrudes into

the range of subjects over which the

states have traditionally exercised

9g/

their police powers. See Fidelity

Fed. Sav. & Loan Ass’n v. De La Cuesta,

458 U.S. 141, 153 (1982).

To be sure, the impuissance of the

Commonwealth’s plain-meaning argument

Signifies only that the terms "interest"

and “interest rates" as used in section

521 are susceptible to interpretation -

not that the Commonwealth’s

interpretation of those terms is

necessarily wrong or that the

appellant’s interpretation is

9/ By the same token, the relative

importance of a state law to a state

sovereign is immaterial when that law is

displaced by valid federal statute, for

the Framers provided that the federal

law must prevail. See Free v. Bland,

369 U.S. 663, 666 (1962).

A-40

necessarily correct. To like effect,

our recognition of DIDA’S ancestry,

while illuminating, provides us with no

definitive answer to the precise

question at hand. Since DIDA’s text and

legislative history are, at botton,

inconclusive, we must look either to

federal common law or to state law to

give content to the terms in question.

In general, the words and phrases

contained in a federal statute are

defined by reference to federal law.

See Mississippi Band of Choctaw Indians

v. Holyfield, 490 U.S. 30, 43 (1989);

Jerome v. United States, 318 U.S. 101,

104 (1943). There are two compelling

reasons for adhering to this praxis.

First, application of state-law

definitions may threaten the policies or

interests which a federal statute is

designed to serve. see United States v.

Kimbell Foods, Inc., 440 U.S. 715, 728

A-41

(1979); Burks v. Lasker, 441 U.S. 471,

479 (1979). Second, application of

state-law definitions may disrupt

Congress’s desire for nationwide

uniformity under a federal statute. See

Kamen v. Kemper Fin. Servs., Inc., 111

S.Ct. 1711, 1717 (1991); Mississippi

Band, 490 U.S. at 43-44.

Resort to uniquely federal

definitions is not, however, automatic.

"Congress sometimes intends that a

statutory term be given content by the

application of state law." Mississippi

Band, 490 U.S. at 43. In such

instances, a federal court may properly

use state law to fill the interstices

within a federal legislative scheme.

see, @.Gg., Kamen, 111 S. Ct. at 1722-23

(holding it proper to borrow a

definition from state corporate law) ;

Mississippi Band, 490 U.S. at 47-53

A-42

(allowing state-law definition of

"domicile" to inform a federal

definition); Federal Election Comm’n v.

National Right to Work Comm., 459 U.S.

197, 204-05 (1982) (similar, in

corporate-law context); De Sylva v.

Ballentine, 351 U.S. 570, 580-81 (1956)

(borrowing definition from state

domestic relations law); Reconstruction

Fin. Corp. v. Beaver County, 328 U.S.

204, 208-10 (1946) (borrowing definition

from state property law). This “does

not mean that a State would be entitled

to use [a statutory term] in a way

entirely strange to those familiar with

its ordinary usage, but at least to the

extent that there are permissible

variations in the ordinary concept [of

that term] we [may] deem state law

controlling." De Sylva, 351 U.S. at 581.

In this case, we need not decide

A-43

whether federal or state law is the

appropriate point of reference. Since

both sources produce the same result, it

would be a mere matter of form - and

idle - to choose between them. See

Royal Business Group, Inc. v. Realist,

inc., 933 F.2d 1056, 1064 (1st Cir.

1991) (eschewing choice of law where,

whatever the choice, the result of the

litigation would not be affected) ;

Fashion House, Inc. v. K Mart Corp., 892

F.2d 1076, 1092 (lst Cir. 1989) ("When a

choice-of-law question has been reduced

to the point where nothing turns on more

precise refinement, that should be the

end of the matter.") We illustrate

briefly.

Section 521 allows a state bank to

charge interest "at the rate aliowed by

the laws of the State .. . where the

A-44

bank is located." We think this is a

fairly clear indication that, if a

state-law definition of interest is

applicable, it must emanate from

Delaware law. We so hold, much

bolstered by the recognition that

section 85 “adopts the entire case law

of [a state bank’s home] state

interpreting the state’s limitations on

usury; it does not merely incorporate

the numerical rate adopted by the

state." First Nat’l Bank v. Nowlin, 509

F.2d 872, 876 (8th Cir. 1975); accord

Roper v. Consurve, Inc., 777 F. Supp.

508, 510-11 (S.D. Miss. 1990), aff’d,

932 F.2d 965 (5th Cir.) (table), cert.

denied, 112 S. Ct. 181 (1991). Our

conclusion is further fortified by the

knowledge that several other federal

tribunals, in addition to the Nowlin and

Roper courts, have interpreted identical

A-45

language in section 85 of the Bank Act

as adopting definitions drawn from tne

law of the state where the bank is

located. See, e.q., Daqqs v. Phoenix

Nat’l Bank, 177 U.S. 549, 555 (1900);

Union Nat’l Bank v. Louisville, N.A. &

C. Ry., 163 U.S. 325, 331 (1896); NCNB

Nat’] Bank v. Tiller, 814 F.2d 931, 937

(4th Cir. 1987), overruled on other

grounds by Busby v. Crown Supply, Inc.,

896 F.2d 833, 840-42 (4th Cir. 1990) (en

banc); Bartholomew v. Northampton Nat’1l

Bank, 584 F.2d 1288, 1295 (3d Cir.

1978); McAdoo v. Union Nat’l Bank, 535

F.2d 150, 1055-58 (8th Cir. 1976);

NorthwayLanes v. Hackley Union Nat’l

Bank & Trust Co., 464 F.2d 855, 861-64

(6th Cir. 1972).

Delaware law explicitly incorporates

late charges into the definition of

A-46

interest and allows lenders to assess

such fees against credit-card

customers. See Del. Code Ann. cit. 3,

§950 (1985 and Supp. 1990). Thus, were

we to look to Delaware law for help in

fathoming the meaning of "interest" and

"interest rates," late charges would be

included. In that event, section 114B’s

prohibition on late fees would be

nullified by section 521’s express

preemption of state laws limiting

exported interest rates.

Federal common law brings us to

precisely the same result. Several

courts, in analyzing the language of

section 85 of the Bank Act, have had

little trouble in construing the term

"interest" to encompass a variety of

lender-imposed fees and financial

requirements which are independent of a

numerical percentage rate. See, e.g.,

American Timber & Trading Co. v. First

Nat’l Bank, 690 F.2d 781, 787-88 (9th

Cir. 1982) (compensating balance

requirement); Fisher v. First Nat’l

Bank, 548 F.2d 255, 258-61 (8th Cir.

1977) (fee for cash advance); Panos v.

Smith, 116 F.2d 445, 446-47 (6th Cir.

1940) (taxes and recording fees) ;

Cronkleton v. Hall, 66 F.2d 384, 387

(8th Cir.) (bonus or commission paid to

lender), cert. denied, 290 U.S. 685

(1933); Nelson v. Citibank (South

(D.

Dakota) N.A., F. Supp.

’ —_— —

Minn. 1992) [1992 W.L. 112166 at *6-*9}

(late fees). Fairly read, these

opinions expand the scope of section 85

preemption - and, by implication, the

scope of section 521 preemption - well

A-48

10/

beyond periodic percentage rates.

10/ The court below relied upon the

legislative history of DIDA §501, 12

U.S.C. §1735f-7a, to support the

proposition that late charges are not a

component of interest under section

521. Greenwood Trust, 776 F. Supp. at

29-32. Congress enacted section 501 as

an amendment to the National Housing

Act, while section 521 altered the

Federal Deposit Insurance Act. The mere

fact that both of these sections fell

under the broad umbrella of DIDA does

not make them fair congeners. Since

DIDA contains an amalgam of different

provisions, the legislative history and

purpose of one section of DIDA does not

necessarily inform the interpretation of

all other parts of that law. See Bank

of New York, 617 F. Supp. at 1311-13.

As we have stated, "it is not unusual

for the same word to have differing

connotations in the same act and surely

no canon of statutory construction

forecloses courts from attributing to

the word the meaning which the

legislature intended that it should have

in each instance." Sherman v. Hamilton,

295 F.2d 516, 520 (lst Cir. 1961), cert.

denied, 369 U.S. 820 (1962); see also

Dewsnup v. Timm, 112 S. Ct. 773, 777-78

(1992). This sentiment seems especially

apropos in view of the fact that section

(footnote continued)

A-49

While we are aware that many of

these cases involve the intrastate

extension of loans by national banks

rather than the exportation of interest

rates, the analogy is persuasive.

Furthermore, some of them do involve

exportation. For example, Fisher

concerned a credit-card cash advance fee

charged by a Nebraska bank to a customer

residing in Iowa. The court suggested

(footnote continued)

501 addresses different categories of

lenders and loans and contains

materially different preemption terms

than does section 521.

In light of the irrefutable evidence

that section 521 was conceived as an

offspring of section 85 of the Bank Act,

we believe that the district court’s

reliance upon a comparison between it

and DIDA §501 was misplaced. The proper

analogy in this case is to compare

lineal descendants who share common

language and purpose, not distant

cousins who share little more than a

name.

A-50

that this fee was a component of the

"rate of interest", making no

distinction between the meaning of

"interest" in intrastate, as opposed to

interstate, transactions. Fisher, 548

F.2d at 258-61. For our part, we can

discern no principled basis for such a

distinction.

It is, moreover, obvious that

construing the terms "interest" and

"interest rates" to include late charges

fits most comfortably with the rationale

undergirding section 521. DIDA was

enacted in order to strike a competitive

balance between state and national

lending institutions by giving them

equal power in charging interest rates.

Allowing state banks to charge the same

or similar fees in connection with the

extension and maintenance of credit as

national banks are allowed to charge

A-51

ensures parity between the two types of

institutions.

Such a construction also finds broad

support in the rulings and informal

opinion letters of the various agencies

charged with interpretating the meaning

of section 85 and section 521. See,

e.g., 12 C.F.R. §7.7310(a) (1992)

(ruling of the Comptroller of the

Currency to the effect that all of a

bank’s home-state laws "material to the

determination of the interest rate" are

exportable); Letter by Robert B. Serino,

Deputy Chief Counsel of the Office of

the Comptroller of Currency, [1988-1989

Transfer Binder] Fed. Banking L. Rep.

(CCH) §85, 676 (Aug. 11, 1988)

(concluding that, under Bank Act §85,

state-law prohibition of late charges

may be preempted); Letter by Harry W.

Quillian, Acting General Counsel of the

A-52

Federal Home Loan Bank Board 3 (June 27,

1986) (similar, interpreting DIDA

§522) .2/

We need not grease the rails. Given

our conclusion that DIDA §521 should be

interpreted in pari materia with its

direct lineal ancestor, section 85 of

the Bank Act, and given, also, the

litany of cases extending section 85 to

a wide variety of fees and charges

associated with the extension and

maintenance of credit, we see no reason

to define either the term "interest" or

the term "interest rates," for purposes

of section 521, in a manner that

excludes late fees.

1l/ We need not join the parties’

heated debate over the level of

deference these materials deserve, for

we would reach the same result

independent of any reliance on them.

A-53

IV.

Conclusion

When Congress furnishes clear and

unequivocal evidence of its preemptory

mindset in the text of a statute, the

"task of discerning congressional intent

is considerably simplified."

Ingersoll-Rand, 111 S. Ct. at 482.

Here, section 521 provides with

undeniable clarity that usury laws in

effect in the borrower’s state may be

preempted as applied to federally

insured banks chartered in other states.

With respect to the specific scope

of section 521’s preemption, section 85

of the Bank Act long ago laid the track

upon which the parties must now travel.

Section 85’s preemption acts as a

cowcatcher by brushing aside states’

attempts to regulate "interest rates"

charged by national banks. Included

A-54

aia ama aI.

within those displaced state laws are

regulations regarding flat fees

analogous to late charges. In passing

DIDA, Congress expressly placed section

521 on the same footing. Hence,

"interest" in section 521 encompasses

late fee charges to credit-card

customers. Section 114B, which

prohibits the assessment of late

charges, thereby regulates the interest

a bank may charge in a more restrictive

manner than federal law permits.

i2/ For the

We need go no further.

reasons set forth above, it is patent

that the state statute is on a collision

course vis-a-vis section 521.

12/ Inasmuch as we conclude that

section 114B is preempted, we need not

confront various other issues addressed

by the court below. See Greenwood

Trust, 776 F. Supp. at 39-47. We take

no view of any such issues.

A-55

—_

Given the imperatives of the Supremacy

Clause, the whistle sounds loud and

clear. Section 114B must yield. It is

preempted.

Reversed.

APPENDIX B

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

GREENWOOD TRUST

COMPANY,

Plaintiff,

CIVIL ACTION

Vv. No. 89-2583-Y

THE COMMONWEALTH OF

MASSACHUSETTS,

and JAMES M. SHANNON,

ATTORNEY GENERAL OF

THE COMMONWEALTH OF

MASSACHUSETTS,

Defendants.

me ee eee eee ee”

FINAL JUDGMENT

UNDER FED. R. CIV. P. 54(B)

This matter having come on for

hearing with respect to Greenwood Trust

Company’s ("Greenwood") Motion for

Summary Judgment and the Commonwealth of

Massachusetts’ ("the Commonwealth")

Motion for Summary Judgment, and the

cross-motions for summary judgment

B-1

having been fully briefed by the parties

and oral argument having been held,

pursuant to the Court’s Memorandum and

Order of October 22, 1991 and the

Supplement to the Court’s Memorandum and

Order of October 22, 1991, and the Court

finding that there is no just reason for

delay, it is hereby ordered, adjudged,

and decreed and the Court enters final

judgment pursuant to Fed. R. Civ. P.

54(b) as follows:

as Mass. Gen. L. c. 140, §114B is

not preempted by the Depository

Institutions Deregulation and Monetary

Control Act of 1980, Pub. L. No. 96-211,

stat. 132.

2. The issue of late charges

between Greenwood and Discover Card

cardmembers residing in Massachusetts is

governed by Massachusetts law and not by

Delaware law, notwithstanding a contrary

B-2

choice of law provision in Greenwood’s

Cardmember Agreement.

3. The prohibition on credit card

late charges in Massachusetts General

Laws c. 140, §114B applies to Greenwood,

a Delaware bank.

4. Greenwood has imposed late

charges on Discover Card cardmembers

residing in Massachusetts in violation

of Massachusetts General Laws c. 140,

§114B.

5. The Commonwealth is granted

final judgment in its favor on

Greenwood’s Complaint for Declaratory

and Injunctive Relief.

Dated:

APPENDIX C

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

GREENWOOD TRUST

COMPANY,

Plaintiff,

CIVIL ACTION

No. 89-2583-Y

MASSACHUSETTS, and

JAMES M. SHANNON,

ATTORNEY GENERAL OF

THE COMMONWEALTH OF

MASSACHUSETTS,

)

THE COMMONWEALTH OF )

)

Defendants. )

)

MEMORANDUM AND ORDER

YOUNG, D.J. October 22, 1991

I. INTRODUCTION

This case raises a variety of novel

and complex issues involving the

interstate extension of consumer credit

via credit cards and the concomitant

regulation of the issuers of such credit

cards by the several states. As the

C-1

.2/

parties and the amici point out,

this appears to be a case of genuine

first impression, both in this Circuit

and through-out the United States. 2/

The parties and amici have

1/ Amicus curiae briefs in support of

the Greenwood Trust Company have been

filed by the Delaware State Bank

Commissioner and Delaware Bankers

Association, Consumer Bankers

Association, American Financial Services

Association, Mastercard International,

Inc., and VISA USA, Inc.

The following have filed amicus

Curiae briefs in support of the

Commonwealth of Massachusetts and its

Attorney General: the states of Iowa,

Maine, Minnesota, South Carolina, and

Wisconsin ("the amici states"), the

National Association of Consumer Credit

Administrators and the American

Conference of Uniform Consumer Credit

Code States.

The Court expresses its appreciation

to all the amici for their able briefs

and most helpful assistance in

addressing these important issues.

2/ The amici states in their brief call

to the Court’s attention several recent

cases raising some similar issues

(footnote continued)

C-2

extensively and skillfully briefed the

primary issue as they conceive it: May

Greenwood Trust Company ("Greenwood"),

federally-insured, state-chartered bank

located in Delaware, assess its

"Discover" credit card holders located

in Massachusetts a late charge on

delinquent accounts, a charge permitted

in Delaware but prohibited in

Massachusetts?>

(footnote continued)

brought in the Iowa State courts.

(Amici States’ Br. at 7 andn. 7, 9).

These cases, all of which settled short

of judicial resolution on the merits,

involved Iowa’s attempt to enforce

against national banks located in Iowa

certain policies with respect to

cardholder agreement late charges,

choice of law, and other provisions.

3/ More broadly stated, the issue is:

may a bank located in a state with

permissive consumer lending laws take

advantage of those favorable

non-interest rate provisions in its own

state’s laws and "export" them to or

impose them upon residents of another

state which maintains greater consumer

protection for its residents when they

borrow in that state?

C-3

Resolution of this important question

necessarily requires the Court to

address two subsidiary issues -- a major

question of federal preemption that

concerns both the parties and the amici,

and a lesser but potentially pivotal

question of statutory interpretation of

Massachusetts banking legislation, a

matter that concerns the parties alone.

The major question requires the Court to

determine whether Massachusetts banking

law is preempted under the Supremacy

Clause of the United States

Constitution, U.S. Const. art. VI, cl.

2., by section 521 of the Depository

Institutions Deregulation and Monetary

Control Act of 1980, United States Pub.

L. No. 96-221 §521, 94 Stat. 132 (1980)

("DIDA"). If so, the prohibition of the

Massachusetts usury law against such

late charges must yield. If not, it

C-4

would appear that Greenwood must prevail

unless, of course, the Massachusetts

usury law itself, Mass. Gen. L. ch. 140,

§114B, does not contemplate regulation

of out-of-state credit card issuers such

as Greenwood. Greenwood makes this

argument, and the Commonwealth and its

Attorney General demur.

Where, then, ought analysis begin?

If Massachusetts law does not reach

out-of-state credit card issuers, then

this Court need not address the thorny

issue of federal preemption -- an issue

of nationwide significance. Conversely,

if federal law preernis state

regulation, this federal court need not

-- and should not -- undertake to

analyze the legislative intent of the

Massachusetts legislature. Here the

Court ultimately concludes, first, that

federal law does not preempt

G-3

Massachusetts from barring late charges

in credit card agreements; and second,

that Massachusetts may prohibit

Greenwood from collecting the presently

disputed late charges under credit card

agreements with Massachusetts citizens.

Accordingly, though the outcome thus

turns ultimately upon state law,

resolution of the federal preemption

issue is likewise necessary to determine

whether to engage in an analysis of the

Massachusetts statute.—

4/ Greenwood, in its complaint, alleged

that Massachusetts’ enforcement of its

late charge prohibition would violate

the Commerce clause of the United States

Constitution. (Complaint, 441, 5,

22-25.) This claim was not, however,

pressed beyond that initial mention and

does not appear in any briefs or oral

arguments submitted by Greenwood in

connection with the present motion for

summary judgment.

II. STATEMENT OF

MATERIAL ISPUTED FACTSS/

The plaintiff Greenwood is a

Delaware banking corporation insured by

the Federal Deposit Insurance

Corporation. Greenwood, through its

wholly-owned subsidiary, Discover Card

Services, Inc., located in Illinois,

issues the "Discover" credit card to

customers nationwide, including several

hundred thousand residents of

Massachusetts. Greenwood actively

5/ The parties agreed to submit the

liability issues to the Court for

resolution on their cross-motions for

summary judgment. As required by Local

Rule 18, the Commonwealth submitted a

Statement of Material Undisputed Facts

("Statement") with its motion.

Greenwood submitted no Statement in

support of its motion. Thus, consistent

with Rule 18, the Court takes as

admitted by Greenwood the material facts

set forth in the Commonwealth's

Statement. Unless otherwise noted,

affidavits, depositions, and other

_documents referred to here are attached

to that Statement.

C-7

solicits cardmember applications

nationwide through direct mail,

telemarketing, and "take one"

applications; it also conducts

multi-media advertising nationwide.

(Plaintiff’s Answer to Interrog., No. 4).

Though Greenwood does not directly

employ personnel in Massachusetts to

make loans, Discover Card Services

Maintains a Massachusetts office with

approximately eight employees.

(Plaintiff's Answer to Interrog. No.

13[c]). That office solicits merchants

in Massachusetts to accept the Discover

Card. Id.

Pursuant to its Cardmember

Agreement, Greenwood charges a monthly

periodic rate of 1.5 percent to accounts

in all states which have opted out of

DIDA and 1.65 percent to accounts in all

C-§

other states. &/ Cardmember Agreement

("Agreement") 415.

Greenwood also imposes a $10.00

"late charge" if a required payment is

not made within 20 days after the

payment due date in any month.

(Agreement 917). Failure to make at

least the minimum payment due by the due

date in any month puts the cardmember in

default. (Agreement 9911, 18).

Greenwood does not include late charges

in its computation or disclosure of the

Annual Percentage Rate in either

Cardmember Agreement or monthly billing

statement. (Plaintiff’s Answer to

6/ Massachusetts is a state which in

1981 elected to override, or "opt-out"

of DIDA pursuant to Section 525 of that

Act. Mass. Stat. 1981 ch. 231.

Fourteen other states and Puerto Rico

have enacted similar legislation.

C=-9

Interrog. No. 15). It does separately

identify the late payment charge in the

Cardmember Agreement, and separately

identifies finance charges and late

payment charges on the monthly billing

statement as "Finance Charges" and "Late

Charges." Id.; (Agreement 9913, 17). A

Discover Card finance charge is imposed

on unpaid balances, which include unpaid

late charges. (Dep. of Robert Stormoen

at 86-88). Multiple late fees are

assessed in successive billing cycles

for continuing unpaid balances past the

20-day period. Id. at 88-90. A finance

charge is then imposed on unpaid

balances, including multiple late

charges. Id. at 89-90.

The purposes of Greenwood’s late

charges are to deter default, compensate

it for additional collection expenses,

and provide it with a source of revenue

C-1i0

baa

in addition to interest charges.

(Plaintiff’s Answer to Interrog. No. 5;

Stormoen Dep. at 62-63). The payment of

a late charge per se does not influence

Greenwood’s decision as to whether to

extend further credit or suspend credit

privileges. (Stormoen Dep. at 26).

Greenwood’s late charges to

Massachusetts residents involve a

substantial sum of money, the amount of

which the parties have agreed to keep

confidential. (Statement 92). The

Cardmember Agreement contains a choice

of law provision specifying that the

7/ Both Greenwood and amici Mastercard

and Visa have argued that late charges

are either components of finance charges

or material to determination of the rate

of interest. This Court rejects that

argument as untenable on the undisputed

material facts of record. See infra at

39-44.

Agreement "will be governed by the laws

of the State of Delaware and applicable

federal laws." (Agreement 425).

Greenwood has never permitted a

Massachusetts resident to enter into a

Discover Cardmember Agreement on terms

different from those on its printed form

agreement, including the choice of law

provision.

III. ANALYSIS

A. Preemption: The Federal DIDA

Statute an t Law

ke Background of Federal and

Massachusetts Legislation.

The present controversy between

Greenwood and Massachusetts traces to

the increasingly unsettled relations

among banks, state regulators, and

federal authorities over the last

decade, since abrupt changes in Federal

Reserve monetary policies and bank

C-12

deregulation have intensified interstate

competition among financial

institutions. The fast-growing credit

card industry is a sphere of particular

importance and interstate conflict as

cards issued by 50,000 financial

institutions and offices are now carried

by over seventy million Americans, who

used them in transactions amounting to

well over $400,000,000,000 in 1989.8/

Since the early years of the

Republic, the states have generally

resisted the development of national

banks and favored their own state

chartered banks through regulatory

8/ R. Burgess & M. Ciofli, Exportation

or Exploitation? A States Regulator’s

View of Interstate Credit Card

Transaction, 42 Bus. Law., 929 (1987);

Mastercard International Inc. and VISA

Uibctis~ See. Be. 2-*E-

C-13

legislation and the Supreme Court

has, since McCulloch v. Maryland, 17

U.S. (4 Wheat.) 316 (1819), generally

limited federal statutory involvement by

construing preemption narrowly and

giving relatively free rein to state

usury law regulations. See Anderson

Nat’l Bank v. Luckett, 321 U.S. 233

(1944); McClellan v. Chipman, 164 U.S.

347 (1896).

The National Bank Act of 1864, c.

106, 13 Stat. 99 (1864), favored the

national banks and protected them from

discriminatory state laws ; 22/

9/ O. Scroogs, A Century of Banking

Progress 50-51 (1924), J. Knox, A

History of Banking in the U.S. 12 (2d

ed. 1969), as cited in the brief of the

Consumer Bankers Association, 5-8. =

10/ See Northway Lanes v. Hackley Union

Nat’l Bank & Trust Co., 464 F.2d 855,

861 (6th Cir. 1972); Consumer Bankers

Association Br. 8-105,

and since 1933 they have been allowed to

charge interest at one percent above the

Federal Reserve discount rate or at the

highest rate available to competing

state banks under laws of the state

named in their charter. Banking Act of

1933, ch. 89, §25, 48 Stat. 191.

The interest rates of state and

national banks were comparable until

1979, when the Federal Reserve rate rose

sharply, giving national banks a

competitive advantage in states with

lower usury law interest ceilings. The

national banks’ advantages were further

enhanced through the Supreme Court’s

decision in Marquette Nat’1 Bank v.

First of Omaha Service Corp., 439 U.S.

299 (1978). The Marquette Court held

that national banks were only required

to comply with interest restrictions of

C-i5

OOOO

their charter state when doing business

in that state; and that they could

disregard other states’ interest

ceilings when doing business outside

their home state. 2+/

The bleeding of capital from state

banks to the national banks created a

serious shortage of mortgage loan monies

in many states by the late 1970s. The

housing industry was especially affected

by high interest rates and the dwindling

of state bank mortgage capital .22/

Congress responded to the

unprecedented crisis of simultaneous

recession and inflation by enacting

l1l/ See Burgess & Ciofli, supra note 8

at 935-36.

12/ Id. See William M. Burke & Alan S.

Kaplinsky, Unraveling the New Federal

Usury Law, 37 Bus. Law. 1079, 1096

(1982).

C-16

prpa2=/ -- the Depository Institutions

Deregulation and Monetary Control Act of

1980.24/ Section 521 of DIDA allowed

state banks, like the national banks, to

charge interest at the federal rate and

thereby preempted state usury laws. 12

U.S.C. §1831d. At the same time,

Congress also recognized the continued

importance of state consumer protection

laws. Section 525 of DIDA gave states

three years to enact legislation to

13/ Usury Lending Limits: Hearings on

S., 1988 Before the Senate Committee on

Banking, Housing and Urban Affairs, 96th

Cong., 1st Sess. (1979) ("Usury Lending

Limits Hearings").

14/ DIDA was omnibus legislation that,

in the respects relevant here, amended

various statutes, including the Home

Owners Loan Act (Section 501), the

Federal Deposit Insurance Act (Section

521), the National Housing Act (Section

522), and the Federal Credit Union Act

(Section 523). Each of these sections

is amended by and subordinated to Title

V of DIDA.

C-17

override the preemption provisions of

the Federal Act. 12 U.S.C. §1730g note.

Spurred by the same financial

crisis, Massachusetts in 1981 joined

other states in amending its usury

statute to raise the ceilings on

interest rates for state-chartered

financial institutions.+2/ The

Commonwealth and 14 other states elected

to opt out of DIDA preemption as allowed

under section 525, +8/ Massachusetts

raised its usury limit on open end

credit card accounts to an

across-the-board level of 18% and

prohibited the levy of late charges on

Massachusetts credit card

15/ Mass. Gen. L. ch. 140, §114B,

amended by Mass. Stat. 1981, ch. 384, §1.

16/ See 12 U.S.C. 1730g.

C-18

———— LK KS LLU

17/

customers.

In contrast to the efforts of

Massachusetts and states which sought to

preserve usury laws through reform, a

handful of states, most notably Delaware

and South Dakota, responded to the

credit crisis and the Marquette decision

by passing laws which virtually

eliminated interest rate and other usury

restrictions.+2/ Delaware, in an

effort to attract credit card issuers,

completely deregulated its credit card

issuers, encouraging banks such as

17/ ee note 15. In 1984, the 18%

limit was modified slightly under

circumstances not here relevant. Mass.

Stat. 1984, ch. 489, §1.

18/ See Burgess & Ciolfi, supra at

935-36.

C-

Greenwood to locate there.22/ (Def’s

Mem. Supp. Summ. J. at 2-3; Amici States

Br. at 6).

The controversy presently before

this Court is most immediately concerned

with the preemptive sweep of DIDA’s

section 521 and the reach of the

Massachusetts usury law, Mass. Gen. L.

ch. 140, §114B. But this case, ina

larger sense, is part of the constant

19/ Delaware’s 1981 Financial Center

Development Act “among other things

- eliminated rate limitations on all

Classes of loans, liberalized Delaware’s

consumer lending law, and established a

favorable tax structure for banks."

Richard P. Eckman, The Delaware Consumer

Credit Bank Act and "Exporting" Interest

Under Section 521 of The Depository

Institutions Deregulation and Monetary

Control Act of 1980, 39 Bus. Law.

1264-65 (1984) (footnotes omitted)

("Eckman"). See generally Del. Code

Ann. tit. 5, §§941-974. The Consumer

Credit Bank Act of 1983 was designed to

encourage small banking organizations to

locate in Delaware to engage in

interstate consumer _j¢nding.

challenge to strike the proper balance

of federalism in a society of constantly

evolving needs and aspirations.

as Pathways to Preemption and

Comparative Burdens.

Greenwood argues that the

Commonwealth’s enforcement of the late

charge provisions of its consumer

protection statute would conflict with

the antidiscriminatory consumer lending

provisions of Section 521 of DIDA, 12

U.S.C. §1831d ("Section 521°). That

section allows state-chartered banks

insured under the Federal Deposit

Insurance Act, to charge interest at a

federal rate and preempts conflicting

state laws, as follows:

(a) Interest Rates

In order to prevent discrimination

against State-chartered insured

depository institutions, including

insured savings banks ... with

respect to interest rates, if the

applicable rate prescribed in this

C-21

subsection exceeds the rate such

State bank . . . would be permitted

to charge in the absence of this

subsection, such State bank may,

notwithstanding any State

constitution or statute which is

hereby preempted for the purposes of

this section . .. charge on any

loan or discount made...

interest at a rate of not more than

1 per centum in excess of the

discount rate on ninety-day

commercial paper in effect at the

Federal Reserve bank in the Federal

Reserve district where such bank

. is located or at the rate

allowed by the laws of the State

. where the bank is located,

whichever may be greater.

(emphasis added)

By these literal terms, preemption

under section 521 is limited to state

interest rates which conflict with the

federal rate permitted by that

provision. It was, as noted above, the

unprecedented rise in the Federal

Reserve discount rate in the late 1970’s

which gave rise to DIDA. The plain

meaning of section 521 does not evince

Congressional intent to preempt state

C=-22

regulation as to other credit terms,

apart from interest rates, such as the

late charges challenged by Massachusetts.

Greenwood and its allied amici argue

that section 521’s stated purpose,

", . . to prevent discrimination

against State-chartered insured

depository institutions" translates into

a "national policy of providing

[federally] insured [state] banks

competitive ‘rate’ parity with national

banks." (Def’s Mem. Opp’n. Summ. J. at

8). Such an ambitious policy, it is

said, necessitates broad preemption of

not only numerical interest rates, but

all state restrictions on credit terms

(including late charges) which affect

the profits of lenders. Id. at 8-9.

This larger Congressional intent is

said by Greenwood to be manifest in the

legislative history of section 521 and

C-23

unmistakably implied by Congressional

policy objectives advanced in other

provisions of DIDA, from interpretive

decisions of various administrative

agencies, and from court decisions

interpreting either the National Bank

Act or the meaning of "rates" under that

or other federal consumer protection

statutes.

Massachusetts, countering,

essentially relies upon the plain

meaning of the "interest rate" language

in section 521 and the history of

Congressional deliberations prior to

enacting DIDA. That evidence is said to

demonstrate that Congressional concern

was limited to discriminatory interest

rates favoring national banks, and that

preemption was intended to apply only to

state interest rate ceilings. State

C-246

ee eee iis

usury laws thus would remain vital and

controlling over non-interest rate

credit terms. The amici states also

assert that consumer credit protection

is a fundamental local interest, long

recognized by Congress, and not

displaced by the sweeping preemption

urged by Greenwood.

This Court’s assessment of

preemption under section 521 is framed

by two essential questions:

First, did Congress intend a limited

or broad incursion upon state usury

laws? Was the aim to cure interstate

discrimination only in interest rate

ceilings (based upon the literal

language of section 521) or is it

implicit that the larger Congressional

aim was to establish a more uniform

national credit card lending framework?

C-25

Second, did Congress impliedly

intend by its use of the term "rates", in

DIDA to preempt state law restrictions

on all credit terms (including late

charges) as well as state regulation of

numerical interest rates standing alone?

The Court, in considering preemption

claims, is cautioned by the longstanding

presumption that "Congress did not

intend to displace state law," Maryland

v. Louisiana, 451 U.S. 725, 746 (1981),

and that it should not unnecessarily

disturb "the federal-state balance."

United States v. Bass, 404 U.S. 336, 349

(1971). Indeed, greater restraint ought

apply to preemption of spheres

traditionally occupied by the states, as

noted in the oft-cited language of Rice

v. Santa Fe Elevator Corp., 331 U.S.

‘228, 220 Cidey} t

Where .. . the field that Congress

is said to have preempted has been

traditionally occupied by the states

. . we start with the assumption

that the historic police powers of

the States were not to be superseded

by the Federal Act unless there was

the clear and manifest purpose of

Congress.

It is well settled that state usury

law restrictions on lending practices

are so extensive and historically rooted

as to form part of the consumer

protection terrain "traditionally

occupied" by the states. 22/

Accordingly, "{b]ecause consumer

protection is a field traditionally

regulated by the states, compelling

20/ See Lewis v. BT Invest. Managers,

Inc., 447 U.S. 27, 38 (1980) ("We

readily accept the submission that, both

as a matter of history and as a matter

of present commercial reality, banking

and related financial activities are of

profound local concern"). See generally

Barbara A. Curran, Legislative controls

as a response to consumer-credit

roblems, 8 Boston College Industrial

and Commercial Law Review, 409, 413-15,

418-20 (1967).

C-27

evidence of an intention to preempt is

required in this area." General Motors

Corp. v. Abrams, 897 F.2d 34, 41-42 (2a

Cir. 1990) (upholding New York’s "Lemon

Law" against a claim that a Federal

Trade Commission consent decree

preempted major elements of the local

law).

Moreover, preemption analysis

requires consideration of several

distinct criteria. See Palmer v.

Liggett Group, Inc., 825 F.2d 620,

624-25 (lst Cir. 1987). The crucial

question underlying such an inquiry is

always “whether Congress intended that

federal regulation supercede state

law." Id., quoting Louisiana Public

Service Comm’n v. Federal Communications

Comm’n, 476 U.S. 355, 369 (1986). Of

course, express statutory terms are the

C-26

surest indicator of preemptive intent.

Where provisions are unclear or fail to

address the preemption question, a

cautious resort to legislative history

is called for. American Tobacco v.

Patterson, 456 U.S. 63, 75 (1982).

Implied preemption is more difficult to

establish; one must consider "the

relationship between state and federal

laws as they are interpreted and

applied, not merely as they are written

{and] determine whether... . [they]

are so inconsistent that the state law

must give way... ." Jones v. Rath

Packing Co., 430 U.S. 519, 526 (1977);

see also Florida Lime & Avocado Growers,

Inc. v. Paul, 373 U.S. 132, 142-43

(1963) (pointing to the "physical

impossibility" of simultaneous

compliance with federal and state laws

as a directive for preemption).

Ce29

Further, preemption may be inferred from

the overall scope of a statute if

Congress has legislated so

comprehensively as to occupy the entire

field and leave no room for interstitial

regulation by the states, Rice, 331 U.S.

at 230.

Finally, a litigant not anchored to

specific federal provisions may argue

that preemption is implicit because

"state law stands as an obstacle to the

accomplishment of the full purposes and

objectives of Congress" as generally

discerned ina federal statute.

Silkwood v. Kerr-McGee Corp., 464 U.S.

238, 248 (1984); Hines v. Davidowitz,

312 U.S. 52, 67 (1941).

Greenwood embarks upon two routes to

preemption. First, selected aspects of

the legislative history of DIDA are

singled out and highlighted as explicit

C-30

indications of Congress’ broad

preemptive intent. In the alternative,

Greenwood and its amici banks seek to

travel a more precarious route,

attempting to imply preemption from the

contradiction between the Massachusetts

usury law against late charges and the

accomplishment of what Greenwood calls a

broad Congressional purpose to develop

"competitive parity" between federal and

state banks through a more uniform

credit system. (Greenwood’s Mem. Opp’n.

Summ. J. at 8-9; Mastercard and VISA Br.

at 3). Accomplishment of this larger

Congressional purpose, according to

Greenwood, requires that federal law

preempt all state usury restrictions

which “affect a lender’s economic

return." (Greenwood Br. at 13).

Greenwood’s case for this overriding

Congressional purpose depends

C-31

substantially upon an expansive reading

of the "most favored lender" doctrine

established by the National Bank Act of

1864 and elucidated in the landmark case

of Marquette Nat’l Bank v. First of

Omaha Service Corp., 439 U.S. 299 (1978)

which antedated the enactment of DIDA by

two years.

The Commonwealth, defending its

usury restrictions, argues that Congress

intended, when enacting DIDA and section

521 in particular, to preempt state laws

restricting only numerical interest

rates and "not those laws concerning

non-interest rate loan terms."

(Commonwealth’s Mem. Supp. Summ. J.

at 9). Championing the vitality of

state prohibitions against late charges,

the Commonwealth and the amici states

cite the express terms of section 521,

the legislative history of section 501

C-32

of DIDA, additional federal consumer

statutes, and two state supreme court

decisions.

3. Legislative History of

DIDA and its Section 521.

The record of Congressional debate

and deliberation concerning the

enactment of DIDA is generally

supportive of the Gommonwealth’s

argument that preemption of credit card

regulation under DIDA is confined to

numerical interest rates. The central

unifying purpose of DIDA was to provide

for increased access to home mortgage

loans. Section 501 of DIDA provided for

preemption of state usury limits on

mortgage loans in a manner virtually

identical to the treatment of other

loans (including credit card agreements)

in Title -vV, which contains the disputed

section 521.

C-33

Massachusetts cites the Senate

Report of deliberations over section 501

of DIDA which limits preemption and

expressly exempts "late charges."

Senate Report N. 96-368, 96th Cong., 2d

sess. 19 (reprinted in 1980 US Code

Cong. and Ad. News, Vol. 2, 236, 255):

In exempting mortgage loans from

state usury limitations, the

Committee intends to exempt only

those limitations that are included

in the annual percentage rate. The

Committee does not intend to exempt

limitations on prepayment charges,

attorney fees, late charges or

Similar limitations designed to

protect borrowers.

Greenwood dismisses this Senate

Report as irrelevant because it was

prepared prior to consideration of

section 521. Greenwood’s view, however,

disregards the subsequent legislative

history which links preemption concerns

in section 501 both to the consideration

of section 521, and to DIDA in its

C-34

entirety as passed on March 27-28,

1980. Massachusetts points out that

Congress passed section 501 at the same

time, and in the same title (Title V) of

the same act, as section 521.

(Commonwealth Reply at 2.)

During discussion on the Senate

floor of the various bills which figured

in the development of DIDA, Senators

Pryor and Bumpers proposed an amendment

to give state-chartered institutions

"competitive equality" with national

banks by allowing them to charge

interest at one percent above the

federal discount rate. S. 1988, 125

Cong. Rec. 30655 (November 1, 1979).

Senator Proxmire, floor manager of the

Senate bills under discussion, and

chairman of the Senate Banking

Committee, understood the proposed

C=-35

amendment to override state usury laws

and emphasized that there was "a sharp

division and difference of opinion in

the Senate." Id.

Separate hearings on the

Pryor-Bumpers initiative, S. 1988, 96th

Cong. 1st Sess. (1979) were held on

December 17, 1979, and, though it was

not reported out of committee, the

bill’s language was substantially

incorporated into House Bill 4986, H.R.

4986, 96th Cong., 1st sess. (1979),

which was, in turn, enacted as DIDA.

Burke & Kaplinsky, supra, at 1096-97 and

n.102; Usury Lending Limits Hearings.

Greenwood and its amici assert that

Congressional commitment to a "national

policy" of "competitive rate parity"

through uniform national credit terms is

manifest in the Senate consideration of

C=-36

the Pryor-Bumpers bill, S. 1988. They

have emphasized certain testimony at the

Usury Lending Limits Hearings from

various agency administrators and

financial industry officials as evidence

of a sweeping intent to eliminate all

discrimination in credit terms between

state banks and national banks.

(Consumer Bankers Association’s Br. at

13 [citing Usury Lending Limits Hearings

at 2, 19, 20-21, 32, 36, 37, and

153-54]; American Financial Services

heeaciation’s Br. at 8-11).

A fair reading of the legislative

history, however, indicates that

Congressional concern was focused with

particularity on numerical interest

rates. In introducing S. 1988, Senator

Pryor noted, "A national bank may charge

one percent above the Federal discount

C-37

rate, notwithstanding any State laws

setting an interest-rate ceiling

[which] obviously discriminates in the

strongest possible way against State

banks." 125 Cong. Rec. 30655 (November

1, 1979). The great bulk of the

subsequent committee testimony and

discussion indicates that the proposed

preemption amendment was limited since,

in Senator Pryor’s words, it "would

merely allow State chartered, federally

insured banks .. . to charge the same

interest rate as national banks." Id.

In fact, there were only two references

to wider displacement of state law

through expansion of the "most favored

lender doctrine;" and these are the

references upon which Greenwood relies

so heavily in inferring a broader

21/

Congressional purpose. Senator

Bumpers, co-sponsor of the preemption

amendment, confined his remarks to

numerical interest rate disparities and

remarked pointedly, "I do not think it

is particularly healthy to be overriding

state law." Id.

Even if the sponsors and supporters

of DIDA preemption provisions were shown

to be committed to achieving total

competitive equality of all lending

terms offered by state banks and

national banks, Greenwood fails to come

to terms with the simultaneous and

persistent concerns of the bill’s

sponsors to preserve state consumer

protection. During Senate consideration

of the conference report on March 27,

21/ See Usury Lending Limits Hearings,

supra, at 32, 36, 37, 64-65, 151,

153-54; see also Burke & Kaplinsky,

supra, at 1096-97 and n.105.

C-39

1980, Senator Proxmire emphasized the

limited preemptive scope of

Title v.22/ This limitation in DIDA’s

Title V is clear from the Senate floor

22/ 126 Cong. Rec. S. 6900 (March 27,

1980).

(Tj}he Government must seek ways to

remove competitive restrictions

Title V does this by preempting

various usury laws while giving each

State the opportunity to

re-establish its usury limitations

if it desires to do so.

I wish to reemphasize the point

made initially in the Senate Banking

Committee report that in exempting

mortgage loans from State usury

limitations, we intend to exempt

only those limitations that are

included in the annual percentage

rate. We do not intend to exempt

limitations on prepayment charges,

attorneys’ fees, late charges or

Similar limitations designed to

protect borrowers.

(footnote continued)

C-40

discussions of mortgage loans, from the

Senate Banking Committee Report, and

from the hearings on DIDA in the House

of Representatives. 22/

(footnote continued)

Title V also contains a

provision which provides parity, or

competitive equality, between

national banks and State chartered

depository institutions on lending

limits.

23/ An official of the Federal National

Mortgage Association, in response to an

inquiry by Rep. St. Germain. Chair of a

House subcommittee considering DIDA,

referred to the Senate Banking Committee

Report cited above and stated:

This expression of legislative

intent not to displace state laws

designed for consumer protection

with regard to charges other than

charges treated as interest would

leave in place those protective

enactments in the various states

that relate to prepayment penalties,

late charges, regulations on

disclosure of interest charges and

restrictions on other costs in

connection with loan transactions

other than interest.

(footnote continued)

C-41

Greenwood’s arguments for implied

preemption as necessary to implement a

clear Congressional goal can hardly

stand if Congress actually sought to

accommodate state usury restrictions in

section 521. It is not surprising,

therefore, that Greenwood and its amici

ignore entirely the significance of the

override erovision of section 521,

codified at 12 U.S.C. §1735f-7 Note,

which is also common to section 501 and

other sections of the statute. Those

provisions expressly provided that

states could, within three years of

April 1, 1980, declare that they wished

not to be bound by the Act’s limited

preemption of their states’ laws.

(footnote continued)

Regulation ©. and Related Measures:

Hearings Before the Subcommittee on

Financial Institutions of the Committee

on Banking, Finance and Urban Affairs,

96th Cong., 2d Sess. 125-26 (1980).

(emphasis added)

C-42

Massachusetts so declared on June 4,

1981. 24/

24/ Mass. Stat., 1981, ch. 231, "An Act

Exempting the Commonwealth From the

Usury Preemption Provisions of the 1980 -

Deregulation and Monetary Control Act,"

approved June 4, 1981 and effective by

operation of law September 4, 1981. The

opt-out provision refers to "loans,

mortgages, credit sales and advances

made _ in this commonwealth," (emphasis

added), and it expressly refers to

section 521 of DIDA. A 1986 amendment

expressly applied to out-of-state loans

by Massachusetts banks. Mass. Stat.,

1986, ch. 177. Though it refers to

"loans, mortgages, credit sales and

advances," it does not refer to section

521 of DIDA.

The prohibition of late charges in

open-end credit accounts, contained in

Mass. Gen. L. ch. 140, §114B, was

enacted on August 6, 1981, and became

effective by emergency declaration of

the Governor filed August 19, 1981.

Mass. Stat., 1981, ch. 384, §1. Thus,

the late charge prohibition was law when

the Commonwealth’s preemption opt-out

became effective on September 1, 1981.

By implication, then, Massachusetts

intended that DIDA not preempt its

legislative decision to prohibit late

charges on open-end credit accounts. A

question left open is whether the

Massachusetts legislature thought its

provision applied to late charges on

loans originating in another state, such

as Delaware. See infra at 57-62.

C-43

By April 1, 1983, 14 other states and

Puerto Rico had similarly chosen not to

be bound by DIDA preemption. 22“

The Commonwealth, relying on this

history, argues that in the face of

Congressional silence as to the specific

preemptive intent of section 521, the

Court may reasonably infer that Congress

intended to give the same limited

meaning to preemption provisions

throughout Title V of DIDA. See

25/ The other 15 opt-outs include:

Alaska, Colorado, Georgia, Idaho, Iowa,

Kansas, Maine, Minnesota, Nebraska,

Nevada, North Carolina, Puerto Rico,

South Carolina, South Dakota, and

Wisconsin. See One Hundred Years of

j , 70 Va. L. Rev. 1101, 1109

n.92 (1984). The Court notes that five

of these states have joined as amici in

support of the Commonwealth. It also

notes that the second amicus in support

of the Commonwealth, the American

Conference of Uniform Consumer Credit

Code States, is filed on behalf of six

of the above states, plus Wyoming,

Indiana, and Oklahoma,

Firestone v. Howerton, 671 F.2d 317, 320

n.6 (9th Cir. 1982) ("We follow the

well-known maxim of statutory

construction that, when the same terms

are used in different sections of a

statute, they receive the same

meaning"); accord, Little People’s

hoo ne. v. United States, 842 F.2d

570, 573 (lst Cir. 1988).

Post-DIDA legislative history tends

to confirm the conclusion that Congress

in 1980 did not intend to bar states

from prohibiting late ues by credit

card issuers. In 1981 and in 1983-84

the Senate (but not the House) passed

amendments to DIDA which would have

expanded preemption of state usury laws,

but would have expressly exempted late

charges from preemption. Hearings on S.

73 ittee on

Banking, Housing and Urban Affairs,

C-45

April 12, 1983; Hearings on S. 1720,

1981. 22/

26/ S. 730, the "Credit Deregulation

and Availability Act of 1983," would

have amended Title V of DIDA to provide,

in relevant part, as follows:

Sec. 531. The provisions of the

constitution or laws of any State

prohibiting, restricting, or in any

way limiting the rate, nature, type,

amount of, or the manner of

calculating or providing or

contracting for covered charges that

may be charged, taken, received or

reserved shall not apply to an

extension of consumer credit made by

a creditor.

Sec. 532.(a) As used in this part--

(1) The term ‘covered charges’

means--

(A) interest, discount, points, a

“time price differential, or any similar

fees, charges, or other compensation

paid to the creditor and arising out of

the credit agreement or transaction for

the use of credit or credit services.

The term shall not include, however,

fees, charges, or other amounts paid to

the it or arisi out o he

credit agreement or transaction that are

j is the s fe)

(footnote continued)

C-46

The failed S. 730 bill also expressly

granted states the right to override

preemption. 2 The consistent and

express limitations of these later bills

certainly comport with Massachusetts’

reading of the predecessor section 521

as confined to preemption of interest

(footnote continued)

the failure or refusal of the debtor to

comply with the terms and conditions of

the debtor’s agreement with the

creditor, including without limitation

the fa at t obligation is not

repaid in accordance with the payment

schedule. ...

129 Cong. Rec. S. 17045-17046 (November

18, 1983) (emphasis added).

27/ It would also have given continuing

effect to Massachusetts’ 1981 override

of the DIDA preemption provisions: "In

addition, the bill preserves the actions

of those States which have already

rejected the Federal preemption of

business and agricultural interest rate

ceilings contained in the 1980 Act."

129 Cong. Rec. S. 2332 (March 8, 1983).

(Statement of Senator Garn).

C-47

28/

rates only.

Both the California and Texas

Supreme Courts, after reviewing the

legislative history of DIDA, afforded

Title V only a narrowly construed

28/ At lease one commentator who has

advocated the position taken by

Greenwood here does not understand

Congress to have permitted preemption of

non-rate charges by enacting DIDA:

Whether Marquette presages a

far-reaching federal choice-of-law

principle or one that only applies

to interest rates in another issue

for future resolution.

- « « Case-by-case resolution of

the issues discussed here is an

unattractive prospect.

Consequently, Congress and the

appropriate regulatory agencies

should be strongly encouraged to

adopt new legislation or regulations

that will clearly authorize national

banks and other federally insured

depository institutions to export i

annual fees and other non rate

charges.

Jeremy Rosenblum, Exporting Annual Fees,

41 Bus. Law. 1039, 1046-47 (1986).

C~-48

preemption of their states’ usury laws.

In Seiter v. Veytia, 756 S.W.2d 303,

304-05 (Tex. 1988), the court held that

section 501 did not preempt Texas law

relating to usurious late charges.

There, a seller of residential property,

while conceding that DIDA was not

intended to cover late charges on

mortgage loans, argued that state law

was nonetheless preempted since under

Texas law late charges are considered

interest and thus a part of the annual

percentage rate. The court rejected the

contention that state law could be used

to define interest more broadly than

Congress had intended. Id. at 305.22/

In Perdue v. Crocker Nat’l Bank, 702

29/ Seiter reached this result even

though Texas had not chosen to exercise

its right to opt-out of DIDA preemption

under section 501 (a) (2) (B) - Id. at 304.

P.2d 503 (Cal. 1985), appeal dismissed,

475 U.S. 1001 (1986), the California

Supreme Court considered another section

of DIDA which provided for gradual

removal of federal regulations limiting

interest paid to depositors. The court

held that neither DIDA nor the National

Bank Act preempted state regulation of

bank service charges for overdrafts,

relying on the language of the Senate

Report regarding “late charges or

Similar limitations designed to protect

borrowers." Id. at 522-23 and n.37

(quoting Sen. Rep. No. 96-368, lst

Sess.; P. 19 [1979]}). Though not

squarely on point here, Perdue does

reinforce skepticism that in enacting

DIDA Congress intended more than a

limited intrusion into state substantive

regulation of consumer transactions.

C-50

4. An Evolving Preemptive

Purpose? The "most

favored lender" doctrine

under the National Bank

Act, Marquette, and

administrative decisions.

Greenwood and its amici argue that

the statutes, administrative and court

decisions which preceded DIDA point to a

Congressional commitment to the

equalization of credit terms in

interstate banking and a legacy of

widening preemption. Congress’

purported intent to encourage uniform

lending practices through section 521 is

said to be a logical consequence of the

"most favored lender" doctrine created

in the National Bank Act of 1864 and

developed in jurisprudence capped by the

Marquette decision of 1978. Greenwood’s

Reply at 2; Greenwood’s Mem. Opp’n.

Summ. J. at 13-14. Greenwood would have

this Court apply the familiar rule that

"Congress is presumed to be aware of an

CeSi

administrative or judicial

interpretation of a statute and to adopt

that interpretation when it reenacts a

statute without change." Merrill Lynch,

Pierce Fenner & Smith, Inc. v. Curran,

456 U.S. 353, 382 n.66 (1982) (citations

omitted) (quoting Lorillard v. Pons, 434

U.S. 575, 580-81 [1978]) .2/

The available legislative history,

discussed above, affords little support

for Greenwood’s argument that Congress,

in enacting section 521, sought to

develop fully the most favored lender

doctrine and thereby eliminate all

adifferences in national and state

30/ See Carolene Products Co. v. United

States, 323 U.S. 18, 26 (1944) ("When

words employed in a new statute had, at

the time, a well known meaning in the

law, the words are deemed to have been

used in the sense of such meaning unless

the context requires a different

interpretation").

C-S2

restrictions on credit card lending

terms .2/ However, some friendly

authority is found in administrative

decisions which deem the most favored

lender doctrine from section 85 of the

National Bank Act to have been

incorporated in section 521 of DIDA.

Greenwood notes that the language of

section 30 of the National Bank Act

which, as amended, is today 12 U.S.C.

85, closely parallels that of DIDA

section 521, authorizing state-chartered

banks to charge interest "at the rate

allowed by the laws of the State

where the bank is located." Since 1936,

the Comptroller of the Currency, the

agency charged with enforcement of the

National Bank Act, has interpreted

section 85 as allowing a

31/ See Burke & Kaplinsky, supra, at

1094-99.

C-53

national bank to "export" to its

operations in other states any interest

rate permitted to competing lenders by

the state law of the state in which the

national bank is chartered. See 12

C.F.R. §7.7310(a) (1978). This is the

"most favored lender doctrine" as

originally enunciated in Tiffany v.

National Bank of Missouri, 85 U.S. [18

Wall] 409 (1874) .2%/

32/ Actually, Tiffany held only that

section 85 permitted a national bank to

charge the interest rate allowed to

natural persons by the state where the

national bank is located, even if that

rate exceeds the rate allowed to

state-chartered banks. The case “ieft

unanswered the question of whether ‘the

rate allowed by the laws of the State

- - where the bank is located’

includes the special state interest rate

statutes applicable to regulated lenders

which typically constitute exceptions to

a state’s general usury law. The same

question remains unanswered under

sections 521 through 523 of [DIDA]}."

Burke & Kaplinsky, supra, at 1096.

C-54

The Supreme Court, in Marquette, 439

U.S. at 314 n.26 (noting, with apparent

approval, the Comptroller’s

interpretation) relied on the National

Bank Act and its most favored lender

doctrine, to allow a national bank

chartered in Nebraska to charge its

credit card customers in Minnesota a

rate of interest authorized in Nebraska,

but prohibited by usury law restrictions

in Minnesota. 439 U.S. at 313-15. The

Marquette court recognized that the -

"exportation" of interest rates from a

national bank’s "home State" (where

chartered) into a foreign state would

"Significantly impair the ability of

States to enact effective usury laws,"

but it found that such impairment "has

always been implicit in the structure of

the National Bank Act since citizens of

C=-55

one State were free to visit a

neighboring State to receive credit at

foreign interest rates." Marquette, 439

U.S. at 318 (citation omitted) (footnote

omitted).

The Court suggested Congressional

action would be necessary to check the

preemptive effect of the National Bank

Act in a time of national bank

deregulation, tightened credit

availability, and an increasingly

nationalized credit card lending system:

This impairment may in fact be

accentuated by the ease with which

interstate credit is available by

mail through the use of modern

credit cards. But the protection of

state usury laws is an issue of

legislative policy, and any plea to

alter §85 to further that end is

better addressed to the wisdom of

Congress than to the judgment of

this Court.

Id.

at 318-19.

The decision in Marquette has been

taken by lenders and issuers of credit

cards to establish a de facto national

interest rate, with exportation of the

most profitable credit terms allowed

under laws of lender-friendly states

such as Delaware. 22/ It is notable

that section 521, in seeming response to

Marquette, contains express preemption

language ("notwithstanding any State

statute which is hereby preempted for

the purposes of this Section") which

reaches beyond the preemptive scope of

section 85 of the National Bank Act.

Greenwood’s projections of sweeping

Congressional purpose implying wholesale

preemption are undone, however, by a

closer reading of the reasoning in

33/ See Burgess & Ciolfi, supra, at

935-36.

C-57

Marquette. The driving concern there

was protection of the system of national

banks established by the National Bank

Act -- banks which have long been

"National favorites" of Congress. Id.

at 313-14. Congress assumed that each

national bank was "located" in the state

named in its organization certificate,

with lending terms governed by the laws

of that “home state." Id. at 310. If

the Nebraska-based national bank was

obliged to conduct its business in

Minnesota under the latter’s laws, its

"location . . . [would] depend on the

whereabouts of each credit card

transaction," id. at 312, and such a

result would "throw into confusion the

complex system of modern interstate

banking." Id.

The factual underpinning of

Marquette cannot be ignored in the rush

C-36

of lenders to embrace the Supreme

Court’s general recognition of "the

interstate nature of American banking"

and the displacement of some state laws

governing ‘interstate loans’ by the

National Bank Act. Id. at 315, 318.

Marquette preemption is limited

factually to numerical interest rates,

with no mention of the exportation of

other credit card terms, such as late

charges. Greenwood, as a

Delaware-chartered state bank, is no

"National favorite" as was the Nebraska

bank, nor can Massachusetts’ defense of

its usury laws be equated with the

position taken by Minnesota with respect

to the Marquette bank, a position which

the Supreme Court held so directly

threatened the structure of the national

bank system established under the

National Bank Act. Delaware does not

C=-39

enact law on behalf of Congress. The

export of Delaware law to control the

credit transactions of its banks in

other states is not essential to

preserve the legal identity of Delaware

banks or the state banking system.

Even if it is accepted that section

521 is an outgrowth of Marquette, it

does not follow that the particular

Congressional purpose and preemptive

sweep of the National Bank Act extend

through Marquette to section 521 of

DIDA. The Civil War Congress that

enacted the original National Bank Act

in 1863 expressly intended to create a

34/

national banking systen,

34/ The nationalist nature of this

legislation can hardly be

overemphasized. As originally enacted

in 1863 and amended in i864, the

National Bank Act was a significant war

(footnote continued)

C-60

(footnote continued)

measure designed to strengthen the

central government and enable it to

finance its widespread combat

operations. After all, this is the same

session of Congress that enacted the

first draft law in our national

history. "’The policy of this country, ’

[said] Senate Finance Committee chairman

John Sherman, ‘ought be to make

everything national as far as possible;

to nationalize our country so that we

shall love our country.’" J. McPherson,

Battle Cry of Freedom, 594 quoting

Sherman’s remarks as found in B.

Hammond, Sovereignty and an Empty

Purse: Banks and Politics in the Civil

War, 326-27. Salmon P. Chase, Secretary

of the Treasury, pressed for enactment

of the National Bank Act "to augment the

market for war bonds." J. McPherson,

Battle Cry of Freedom, 593-94.

As Senator Robert C. Byrd remarks in

his work, The Senate 1789-1989 at 258:

Designed to replace the corrupt,

decentralized, and inefficient

system of state banks and bank

notes, the National Banking Act was

largely the work of Secretary [of

the Treasury] Chase and Senate

Finance Committee member John

Sherman. It has three objectives.

They include creation of a market

for war bonds, reestablishment of

the central banking system destroyed

during the Jackson administration,

(footnote continued)

C-61

and exportation of rates by national

banks was essential to prevent the

discriminatory effects of state usury

laws which traditionally favored

state-chartered banks. 439 U.S. at

314-17. In contrast, the legislative

history of DIDA, as already noted above,

is extremely deferential to the

state-federal balance, and the

exportation of credit terms by state

banks was apparently intended to prevent

(footnote continued)

and development of a stable

bank-note currency. As amended in

1864, the Banking Act permitted

banks to obtain federal charters and

issue national bank notes up to 90

percent of their holdings of United

States bonds. With modifications,

this system remained the backbone of

the nation’s monetary structure

until creation of the Federal

Reserve System in 1913.

See Congressional Globe, 37th Cong., 3d

sess., pp. 840-52, 896-97; L. Curry,

Blueprint for Modern America:

Non-Military Legislation of the First

Civil War Congress (1968) 197-206.

C-62

intrastate discrimination by state laws

favoring local banks against foreign

state banks doing interstate

business.2>/

The most notable divergence between

the National Bank Act and DIDA, of

course, is that states were given no

escape from National Bank Act supremacy,

while section 525 of DIDA allows states

to override the preemptive effect of

DIDA by reasserting state usury ceilings

otherwise preempted. 12 U.S.C. §1730g

35/ "To the extent that national banks

and federally insured institutions are

not borrowing rates, they are not

operating pursuant to authority

conferred by the most favored lender

G@octrine. . .

Institutions that export rates and

terms from states such as Delaware with

general credit laws [i.e., laws that do

not discriminate against banks chartered

in their states] are not borrowing the

state law under which those terms are

authorized. Only competitors’ rates may

be borrowed." Burgess & Ciolfi, supra,

at 938.

C-63

note. (See Commonwealth’s Mem. Supp.

Summ. J. at 8 n.11.) Indeed, it is not

at all clear that section 521 allows

state banks to export even numerical

interest rates to a state which, like

Massachusetts, has opted out of DIDA

preemption under section 525. The

transubstantiation of the sweep of

preemption under the National Bank Act

via the blessing of Marquette into a

like preemption under DIDA falters on

this point. It is hard to square

Greenwood’s view that Marquette inspired

section 521 with the fact that, "[t]here

is only one reference to Marquette in

the legislative history of sections 521

through 523 of the act. "39/

36/ Burke & Kaplinsky, supra, at 1104

and n.139 (citing statement of Georgia

Commissioner of Banking).

C-64

Greenwood’s portrayal of Marquette

as the preemptive bridge over state

usury laws which spans the distance from

the National Bank Act to DIDA, does draw

some support from one federal court and

several agency informal interpretive

rulings. In Gavey Properties/762 v.

First Financial Sav. & Loan Asso., 845

F.2d 519 (5th Cir. 1988), the court held

that under section 522 of DIDA, 12

U.S.C. §1730g(a), a Savings and loan

institution located in Illinois could

export its most-favored lender rate on

commercial mortgages to a resident of

Texas, a state which has a lower

ceiling. This, the court held, was not

a usurious practice under Illinois law.

The court in Gavey arrived at its result

partly in deference to a 1982 advisory

opinion of the Federal Home Loan Bank

C-65

Board ("FHLBB"). 845 F2d at 521.2

In 1988, staff counsel of the FDIC

issued an advisory opinion which also

stated that section 521 incorporated

Marquette:

Section 521 preempts State usury

laws in two ways. It gives insured

State banks the right charge a

Federally-prescribed rate on loans.

It also says an insured State bank

may ‘export’ its home state’s

interest rate -- i.e., that the bank

37/ “{I]t is the view of this Office

that the most favored lender status

conferred by §522 on insured

institutions necessarily includes the

export aspect of Marquette." FHLBB

General Counsel Opinion Letter (Aug. 6,

1982).

Significantly, however, while

section 501 of DIDA expressly granted

the FHLBB the power to issue regulations

concerning preemption of state usury

laws, the regulations which have

resulted reflect the limited preemptive

intent of Congress: "Nothing in this

section preempts limitation in state

laws on prepayment charges, attorneys’

fees, late charges or other provisions

designed to protect borrowers." 12

C.F.R. §590.3(c) (1989). (emphasis

added) C-66

may charge the highest rate allowed

in the State where the bank is

located, no matter where the

borrower may be located.

Opinion of Douglas H. Jones, Deputy

General Counsel, FDIC-88-45 (June 29,

1988) Fed. Banking L. Rep. (CCH) §81.110.

The FDIC opinion further stated that

the State’s right under section 525 to

"countermand" federal preemption

"belongs to the State where the loan is

made. . . . The fact that a State has

countermanded under section 525 should

not affect the usury preemption of

section 521 for a bank not located in

that State, so long as the loan is not

made in the State that has

countermanded." Id.

On its face, this opinion seems to

support Greenwood’s view that the

Commonwealth’s having opted-out of DIDA

cannot trump Greenwood’s right to export

C-67

its interest rates pursuant to Delaware

law and Marquette. The opinion also

noted, however, that the purpose of

section 525 was to "preserve principles

of federalism. Recognizing that section

521 deprived States of authority over

matters traditionally committed to State

control, Congress enacted section 525 in

order to enable States to recover

authority that section 521 had taken

away." Id. It seems difficult to

square the result reached by the FDIC

counsel with his concerns for

federalism: that is, why should

Massachusetts, a sovereign state, be

deprived of authority over the

traditional matter of setting its own

usury limits on the ground that Congress

prohibited Delaware from maintaining

laws discriminating against its own

state-chartered banks such as

C-68

Greenwood?’

38/ Greenwood’s heavy reliance on

various informal administrative opinions

(also known as informal interpretive

rules) raises an important question of

the weight to be accorded them here.

See Greenwood, Exs. A-G.

Federal regulations, as

distinguished from informal agency

opinions, generally have the same

preemptive effect as federal statutes.

Wood v. General Motors Corp., 673 F.

Supp. 1108, 1114-15 (D. Mass. 1987)

(citing Federal Savings & Loan Ass’n v.

De La Cuesta, 458 U.S. 141, 153 [1988]}),

rev’d on other grounds, 766 F.2d 630

(lst Cir. 1985). Yet even formal agency

regulations "can not exceed the

statutory authority by going beyond

recognized limits to the congressional

mandate." Alexander v. Trustees of

Boston University, 584 F. Supp. 282, 285

(D. Mass. 1984) (citing Batterton v.

Francis, 432 U.S. 416, 428 [1977]). A

court reviewing such regulations must

"reasonably be able to conclude that the

grant of authority contemplates the

regulations issued." Id. (quoting

Chrysler Corp. v. Brown, 441 U.S. 281,

308 [1979}).

Though interpretations of a statute

by officers of the agency charged with

its administration are entitled to great

deference, Udall v. Tallman, 380 U.S. 1,

(footnote continued)

"69

(footnote continued)

16 (1965), such "traditional deference

- - is not to be applied to alter the

clearly expressed intent of Congress".

Board o* Governors of Federal Reserve

System v. Dimension Financial Corp., 474

U.S. 361, 367 (1986). Interpretive

rulings of an agency administrator

"“while not controlling upon the courts

by reason of their authority, do

constitute a body of experience and

informed judgment to which courts and

litigants may properly resort for

guidance. The weight of judgment in a

particular case will depend upon the

thoroughness evident in its

consideration, the validity of its

reasoning, its consistency with earlier

-- and later -- pronouncements, and all

those factors which give it power to

persuade, if lacking power to

control’." General Electric Co. v.

Gilbert, 429 U.S. 125, 141 (1976)

(quoting Skidmore v. Swift & Co., 323

U.S. 134, 140 [1944]). See Perdue v.

Crocker Nat’l Bank, 702 P.2d at 519.

One benchmark suggested for whether

a court properly defers to agency

statutory interpretations is whether the

interpretation is peculiarly within the

expertise of the agency on the one hand,

or the court on the other. Breyer,

Administrative Law and Policy, 274-88

(1985). Under this standard, the

technical expertise in monetary and

financial matters of the agencies

charged with carrying out DIDA is

(footnote continued)

C-79

(footnote continued)

certainiy to be respected. On the other

hand, Constitutional issues of

federalism and preemption are

particularly within the court’s purview.

Generally, a court has discretion to

substitute its de novo interpretation

for agency interpretive rules. 2 K.

Davis, Administrative Law Treatise,

§7:8, pp. 36-37; §7:13, p.59; 1989 Supp.

at 247-48 (2d ed. 1979) (citing cases).

In particular, informal interpretive

rules written by staff members are

generally accorded less weight than the

formal interpretive rulings of an agency

administrator. See Burke & Kaplinsky at

1098-99 (Agencies such as the FDIC have

general interpretive authority under the

statutes that were amended by sections

521-23). “It would thus appear that the

interpretations of the agencies

themselves, as opposed to the

interpretations of their staffs, should

be given the same degree of deference as

Federal Home Loan Bank Board

interpretations of section 501 of the

Act." FHLBB has explicit statutory

authority to promulgate regulations to

implement section 501. Compare 12

C.F.R. §590.3(c) (1989) discussed in

n.37 above (codified FHLBB regulation

stating that preemption under section

501 is limited) with FHLBB staff

counsel’s advisory opinion relied upon

by Gavey.

(footnote continued)

"7 2

In sum, notwithstanding the

scattered suggestions in informal

administrative interpretations,

Marquette’s discussion of the National

Bank Act does not teach a general

dynamic of ever-expanding preemption or

a Congressional strategy of uniform

credit regulation which extends

irresistibly to displace all state

restrictions on state banks. Nor can

(footnote continued)

Thus, though the brief, informal staff

administrative opinions proffered by

Greenwood are entitled to the Court’s

careful consideration, they should not

be given conclusive effect. This Court

must review them in light of the

substantial evidence of DIDA’s limited

preemptive effect and the stated

continued Congressional deference given

to state consumer protection laws. They

should be weighed with all other

evidence probative of Congress’ intent.

For a criticism of expansive agency

interpretations of preemption in this

general area, see generally James G.

Kreissman Administrative Preemption in

Consumer Banking Law, 73 Va. L. Rev. 911

(1987).

C-72

preemption by necessity be implied

logically from Gavey, based as it is

upon deferential incorporation of FDIC

administrative opinions which are

themselves contradictory as to the scope

of preemption and the breadth of

Congressional purpose in enacting DIDA.

S. Exportation of

Non-Interest Rate Terms.

Even if it were established

that Congress intended to establish full

parity between national and state banks

and that the Massachusetts opt-out

legislation to avoid sweeping preemption

was entirely ineffective, the imposition

of late charges on Massachusetts credit

card customers would still not be

assured. The displacement of state law

under DIDA’s section 521 is limited to

"Interest rates" or "the rate allowed by

laws of the state," virtually the same

language as is found in the National

C=-73

Bank Act. The Commonwealth argues that

"rate" refers to numerical periodic

interest rates, while Greenwood

understands it to be an inclusive term

extending to, "all provisions [including

late charges] that affect the economic

return ’on a loan’ to a lender."

(Greenwood’s Mem. Supp. Summ. J. at

12-13.) This point is at the heart of

the dispute, and it is here that the law

is most unsettled and support for

Greenwood most attenuated.

As noted above, neither the plain

meaning of the terms "rates" and

"interest rates" in section 521 of DIDA

and section 85 of the National Bank Act,

nor the legislative history of section

521 indicate that these terms carry the

expansive meaning inferred by

Greenwood. Alternatively, it is argued

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that an inclusive definition of "rates"

is implied by the extension of "most

favored lender" status to insured state

banks through DIDA and the capacity of

such banks to export credit terms

through Marquette. (Greenwood’s Men.

Supp. Summ. J. at 12-16; Greenwood’s

Mem. Opp’n. Summ. J. at 13-15.) But the

national bank’s authorized exportation

of lending terms in Marquette (under

National Bank Act provisions) like the

state bank’s exportation in Gavey

Properties (under DIDA) was, as a

factual matter, strictly limited to

numerical interest terms.

Greenwood relies on cases arising

under the National Bank Act which did

not involve exportation of terms to

establish that "’the rate allowed by the

laws of the State’" is recognized to

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include, “any charge, fee or expense

which affect [sic] the economic return a

lender may receive." (Greenwood’s Mem.

Supp. Summ. J. at 7.) The first cited

decision, First Nat’l Bank v. Nowlin,

509 F.2d 872, 876 (8th Cir. 1975), does

not offer an expanded definition of the

term “rates," but rather] shows only that

calculation of chargeable interest rates

must take "the case law of the state"

into account. Likewise, while the Sixth

Circuit in Northway Lanes v. Hackley

Union National Bank & Trust Co., 464

F.2d 855, 864 (6th Cir. 1972) did allow

a national bank operating in Michigan to

charge closing costs in conformity to

Michigan state law governing state

banks, it did not determine whether such

charges were "interest" or another

aspect of "rates."

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Greenwood claims Massachusetts law

itself supports a flexible conception of

Chargeable "rates" under DIDA. It notes

the collection of an annual credit card

fee is allowed in spite of Massachusetts

usury laws because such a fee is not a

“finance charge" and "bears no

relationship . . . to any unpaid

balance." Northampton Nat’l Bank v.

Attorney General, 8 Mass. App. Ct. 809,

812 (1979) (Grant, J.). Such a ruling

is hardly relevant here, however, where

Greenwood contends that late charges are

collectible precisely because they arise

out of or in connection with the lending

of money. (Greenwood’s Mem. Opp’n.

Summ. J. at 2.) Reliance on

Rockland-Atlas Nat’]l Bank v. Murphy, 329

Mass. 755, 760 (1953), is likewise

misplaced, since that case emphasizes

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that, "Elimination of all other expenses

is an essential and natural part of the

legislative scheme for prescribing the

allowable rates of interest."

True, some authority supporting a

more flexible and inclusive formulation

of a chargeable "interest rate" is found

in an interpretive ruling of the most

favored lender doctrine by the Office of

the Comptroller of the Currency

("Comptroller") which provided:

If State law permits a higher

interest rate on a specified class

of loans, a national bank making

such loans at such higher rate is

subject only to the provisions of

State law relating to such class of

loans that are material to the

determination of the interest rate.

12 C.F.R. §7.7310 (1971) (emphasis

added).

While the administrative opinions of

the Comptroller are persuasive only,

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they do provide a useful framework of

analysis, one frequently employed by the

courts in "rate" determinations.2~

Under this analysis, the question is

whether a given provision of Delaware

lending law is "material" to determining

an interest rate and therefore fully

exportable by Greenwood to supplant

Massachusetts usury law. A broad

interpretation of what is "material" is

found in Equitable Trust Co. v. Sachs,

A-60063/120-1/Fo01.713 (Circuit Court of

Baltimore City, Md., June 28, 1981 and

39/ For example, in Partain v. Fir

Nat’l Bank, 467 F.2d 167 (5th Cir.

1972), the Court considered the

Comptroller’s rulings and opinions as

persuasive on the "materiality"

determination but saw no need to delve

into them since it was clear from

Supreme Court precedent that compounding

was "material" to the determination of

an interest rate and thus home state

provisions against compound interest

made extraterritorial compounding by a

national bank a violation of the

National Bank Act.

September 16, 1981), cited in Burke &

Kaplinsky, 1106, where the Court allowed

a national bank to export an annual

credit card fee to a state which

prohibited such fees on the ground that

the fee was "material" to the

determination of "interest" under laws

of the bank’s home state.

This result is unusual, since such fees

have not traditionally been considered

as "interest" by courts or state

legislatures.

See Northampton Nat’1l Bank, 8 Mass. App.

Ct. at 813.

The Comptroller has more recently

opined that state law provisions

defining the "category" or

"Classification" of a loan are

"material" and therefore "exportable" by

a national bank under the National Bank

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Act. Comptroller Op. Letter no. 178,

Fed. Banking L. Rep. (CCH) 485,259 (Jan

12, 1981). Late charge provisions would

not be material under this analysis

Since they are not germane to

Classification of a loan or the

computation of numerical interest.

The Commonwealth argues that late

charges are functionally distinct from

interest since, it says, the imposition

Or payment of the late charge does not

result in Greenwood’s forebearance of

asserting its right of collection. See

Perry v. Stewart Title Co., 756 F.2d

1197, 1207-08 (5th Cir. 1985) (Late

charge of 4% on mortgage loan which is

merely a bona fide fee for servicing

late payments, is "not properly

characterized as ‘interest’"). Indeed,

a Greenwood vice-president recognized

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this distinction when he testified at

his deposition as follows:

The payment of a late fee per se

does nothing to change the decision

on whether we would extend further

credit or suspend credit privileges,

except that it relates to his

overall payment pattern on his

account.

In my mind, finance charge is

something that, as a consumer, I

would expect to pay for having the

privilege of extending my payments

over a period of time. If I break

my contractual arrangement and

default . . . I would expect to

either pay a penalty or have the

right for someone else to charge me

a penalty for the extra cost that

they have experienced in trying to

enforce their contract with me.

(Stormoen Dep. at 26, 62-63).

In sum, regardless of whether

certain finance charges may be exported

under Marquette and DIDA, the late

charges here at issue do not involve the

facilitation of credit which undergirds

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the preemption provision of Title V of

DIDA. Rather, they implicate a

technical default and breach of the

cardholder agreement. Whatever may be

the merits of the financial or policy

arguments that non-rate provisions are

"material" to determination of interest

rates, Congress regards late charges

such as these in a class apart from

interest rates generally.

Thus. whatever the merits of

Greenwood’s case for untrammeled

interstate lending, DIDA preemption does

not prohibit Massachusetts from

enforcing its statute. Greenwood, in

effect, asks this Court to take several

unwarranted interpretive leaps to

conclude that it has met its burden of

establishing preemption. Prior case law

under the National Bank Act, the

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legislative history of DIDA itself, and

recent scholarly commentary all

demonstrate the unsettled character of

the law in this area generally.

Principles of federalism operate

with particular force to preserve

traditional spheres of state regulation

such as consumer protection through

usury laws. The Commonwealth is

entitled to enforce its laws absent a

clear showing of preemption or

interference with interstate commerce.

The inclusion of a preemption override

provision in DIDA, of which

Massachusetts took advantage,

underscores the presumption that the

Commonwealth’s law must be given force

here. Greenwood has not met its heavy

burden of showing preemption, and the

Court declines, itself, to create the

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Sweeping policy of preemption which

Congress since 1980 has refused to enact.

B. Choice of Law -- Delaware or

Massachusetts?

Balked at preempting the

Massachusetts usury law, Greenwood

argues that under applicable conflict of

laws rules, Delaware substantive law

ought apply. Under generally accepted

conflicts rules, the forum state

(Massachusetts here) applies its own

choice of law rules to determine whether

its substantive law or that Of another

State (Delaware here) governs the issue

in question. Restatement (Second) of

Conflict of Laws §187(3) and cmt. h

(1989 Supp.). See, e.y., Bushkin

Associates, Inc. v. Raytheon c., 393

Mass. 622 (1985) (Following the general

rule of the Restatement, Massachusetts’

choice of law rules applied to determine

C-85

whether Massachusetts or New York law

applied to enforce an oral

contract) .4°/

40/ Under Klaxon Co. v. Stentor

Electric Mfg. Co., 313 U.S. 487, 496

(1941), a federal court in diversity

applies the choice of law rules of the

state in which it sits, since conflicts

issues are matters of state law. Though

the primary basis for the Court’s

jurisdiction here is federal question

(to determine the scope of federal

preemption under DIDA), the case was

also brought pursuant to this Court’s

diversity jurisdiction. Thus, Klaxon

governs the choice of law issue here,

and the Court properly looks to the

conflicts law of the forun,

Massachusetts.

Further, "(b]jecause the Supreme

Court has declined to determine the

reach of the states’ legislative

jurisdiction in conflict-of-law

situations, the definition of the

boundaries has been left to state

conflicts rules." Richard J.

Bauerfield, Note, Effectiveness of

Choice-of-Law Clauses in Contract

Conflicts of Law: Party Autonomy or

Objective Determination, 82 Colum. L.

Rev. 1659, 1664 (1982). But see

Allstate Ins. Co. v. Hague, 449 U.S.

302, 307-13 (1981), reh. denied, 450

U.S. 971 (1981).

C-86

Thus, this Court looks primarily to

Massachusetts law to analyze the

conflicts issue.

In Bushkin, the leading

Massachusetts conflict of laws case, the

Supreme Judicial Court of Massachusetts

has provided some general guidance with

respect to conflict of law, though it

has not addressed the type of issue

involved here. Thus, this Court must

determine how it believes the Supreme

Judicial Court would rule on the

question at hand. In Bushkin, the court

rejected traditional Single-factor

choice of law doctrine, such as the

place of the making of the contract, or

the State with the greatest "interest"

in the issue, and instead used a broad,

"functional" approach that looked to

"various choice-influencing

C-87

considerations." Id. at 630-31; see

Travenol Laboratories, Inc. v. Zotal,

Ltd., 394 Mass. 95, 99 (1985). See also

Shinberg v. Bruk, 875 F.2d 973, 975 (1st

Cir. 1989); Bi-Rite Enterprises, Inc. v.

Bruce Miner Co., 757 F.2d 440, 442-43

(lst Cir. 1985); Choate, Hall & Stewart

v. SCA Services, Inc., 378 Mass. 535,

540-41 (1979) .44/

41/ As Bushkin noted, "[{al]most all

states have abandoned the lex loci

rule." Bushkin, 393 Mass. at 630-31.

Implicit in this statement is a

rejection as outdated of the reasoning

in Seeman v. Philadelphia Warehouse Co.,

274 U.S. 403, 407 (1927), which held

that a contract for interest exceeding

another state’s usury limit was

enforceable if the state where the

contract was made permitted it. fThus,

even assuming that the Cardmember

Agreement here was made in Deiaware,

that fact cannot be dispositive as to

whether Delaware or Massachusetts

substantive contract law applies to an

issue of usury. Indeed, Greenwood does

not insist that Delaware law must be

applied solely on the ground that the

Agreement was WAGs 3D SOEs State.

For guidance, the court in Bushkin

looked to the general choice of law

principles set forth in section 6 of the

Restatement (Second) of Conflict of Laws

(1971) and to R.A. Leflar, American

Conflicts Law (3d ed. 1977) ,42/

The issue in Bushkin was whether the

Massachusetts or the New York Statute of

Frauds should be applied to an alleged

Oral agreement between two parties where

42/ Section 6(1) of the Restatement

states that "[a]} court, subject to

constitutional restrictions, will follow

a statutory directive of its own state

on choice of law." Massachusetts’

general conflict of laws Statute permits

parties contractually to agree that the

law of either Massachusetts or another

State shall govern, "when a transaction

bears a reasonable relation to this

State and also to another State ..."

Mass. Gen. L. ch. 106 §§1-105(1);

Massengale v. Transitron Elec. Corp.,

385 F.2d 83, 86 (aac Cir., 1967). The

parties here do not appear to dispute

that the Cardmember Agreement bears a

reasonable relationship to both Delaware

and Massachusetts; the question is which

State’s law should prevail.

C-89

such an agreement was barred under the

New York statute, but not under the

Massachusetts statute. Unlike the case

at hand, however, the parties in Bushkin

were business entities engaged in a

commercial contract who had not

specified a choice of law therein.

These crucial factual differences limit

the precedential effect of Bushkin to

its multi-factor analysis.

The issue here is rather whether

Massachusetts law applies to prohibit

Greenwood from enforcing the late charge

provisions of the Discover Cardmember

Agreement, notwithstanding the choice of

law provision of the Agreement. That

provision specifies that the Agreement

"will be governed by the laws of the

State of Delaware and applicable federal

laws." Under the Delaware statute, a

C-90

credit card issuer located in Delaware

may contract with cardmembers to charge

any agreed-to interest rate, plus late

payment fees on unpaid balances. Del.

Code Ann. tit. 5, §§943, 950 (1990).

Emphasizing the disparity in

bargaining power between Greenwood --

the Discover Card colossus -- and a

credit card applicant, the Commonwealth

maintains that "Massachusetts will not

enforce a contractual choice of law

clause where it is one of the ‘boiler

plate’ terms in an adhesion contract

between parties of disparate bargaining

power." (Commonwealth’s Mem. Opp’n.

Summ. J. at 15.) It cites Ernest &

Norman Hart Bros., Inc. v. Town

Contractors, Inc., 18 Mass. App. Ct. 60,

review den. 392 Mass. 1103 (1984), and

In Re Maxcy, 45 B.R. 268, 270 (Bankr. D.

C-92

Mass. 1985) for this proposition, but

neither of those cases clearly establish

that adhesion contracts are per se

unenforceable under Massachusetts law.

In Ernest, a contract between a

Massachusetts subcontractor and a

Connecticut subcontractor contained both

a choice of forum clause that

"Connecticut law shall have jurisdiction

in disputes between the parties" and a

choice of law clause that "[t]Jhe law of

the place of the building

(Massachusetts) shall govern." Id. at

62. The court treated the first clause

as one for forum selection and refused

to enforce it primarily on waiver

grounds, although it also noted that the

contract was one of adhesion. Id. at

66-68. The Massachusetts Appeals Court

recognized, however, that the modern

C-92

view holds forum selection clauses

generally enforceable, citing Fireman’s

Fund American Ins. Co. v. Puerto Rican

Forwarding Co., 492 F.2d 1294, 1296-97

(lst Cir. 1974). Ernest at 64-65. 23/

In Maxcy, the Bankruptcy Court refused

to enforce a contract primarily on a

ground other than adhesion, though it

used adhesion as an alternative basis

for its holding. The Bankruptcy judge

Simply asserted that adhesion contracts

are unenforceable, however; he engaged

in no analysis of Massachusetts law.

This Court finds these decisions

unpersuaSive.

43/ See M/S Bremen v. Zapata Off-Shore

Co., 407 U.S. 1, 10-11 (1972); Allstate

Insurance Co. v. Hague, 449 U.S. 302,

324, nm. 11 (1981) (Choice of law

analysis applies where there is no forum

selection clause; the "justifiable

expectations" of contracting parties

remain a major CONQOER) -

Contrary to the Commonwealth’s

assertions, the law in Massachusetts is

that generally a court will not deny

enforcement of a contract of adhesion

unless it is unconscionable or in some

other way fundamentally unfair. See

Santos v. Lumbermen’s Mutual Casualty

Co., 408 Mass. 70, 86 (1990); Lechmere

Tire & Sales Co. v. Burwick, 360 Mass.

718, 720-21 (1972) .44/

This is the approach of the

Restatement (Second) of Conflict of Laws

(1989 Supp.), which Massachusetts

decisions follow without exception since

Bushkin. Under the Restatement, a

contract of adhesion is enforceable

44/ But see Edith Fine, Massachusetts

Contract Cases and Choice of Law, 43

Mass. L. Q. 46, 48-49 (1958) (Citing

older Massachusetts cases in which

choice of law provisions in insurance

contracts were disregarded, apparently

on the ground that they constituted

adhesion contracts).

C-94

unless the consent of the adherent was

"obtained by improper means, such as by

misrepresentation, duress, undue

influence, or by mistake." Restatement,

§187 cmt. b. There is no such evidence

here. True, section 187 of the

Restatement permits a Court to consider,

as one factor, whether a choice of law

provision is found in an adhesion

contract, “namely one that is drafted

unilaterally by the dominant party and

then presented on a

‘take-it-or-leave-it’ basis to the

weaker party who has no real opportunity

to bargain about its terms."

Restatement, §187 cmt. b. Though

"[c]hoice-of-law provisions contained in

such contracts are usually respected

- the forum will scrutinize such

contracts with care and will refuse to

C-9s

apply any choice-of-law provision they

may contain if to do so would result in

substantial injustice to the adherent."

ia.

Here, while the Cardmember Agreement

is a contract of adhesion, its provision

for late charges is neither

unconscionable nor does it result in

substantial injustice to the adherent.

What’s more, in view of the protection

of the Commonwealth’s consumer

disclosure statute, Mass. Gen. L. ch.

140, §114C, the Court rules that the

consent of the cardholders to such

charges was not obtained by improper

means.

Here, the choice of law provision

unmistakably directs the parties to the

law of Delaware. Still, analysis cannot

end at this point. Under section 187(2)

C-96

of the Restatement, "The law of the

state chosen by the parties to govern

their contractual rights and duties will

be applied . . . unless

(b) application of the law of the

chosen state would be contrary to a

fundamental policy of a state which

has a materially greater interest

than the chosen state in

determination of the particular

issue and which, under the rule of

§188, would be state of the

applicable law in the absence of an

effective choice by the parties.

Under the Restatement, "[the] forum

will apply its own legal principles in

determining whether a given policy is a

fundamental one within the meaning of

the present rule and whether the other

state has a materially greater interest

than the state of the chosen law in the

determination of the particular issue."

Restatement §187, cmt. g. See Kronovet

v. Lipchin, 415 A.2d 1096, 1105 (Md.

1980) (citing §187). Thus, under

C-97

section 187, a key consideration is

whether the Commonwealth’s usury

statute, particularly its prohibition of

late charges, amounts to a fundamental

policy which it has a materially greater

interest in enforcing than the policy by

which Delaware permits a bank located in

that state to assess late charges as

interest.

The Commonwealth claims that under

section 187(b) of the Restatement the

Massachusetts usury statute itself

expresses the "fundamental policy" of

Massachusetts, a policy which outweighs

Delaware’s interest in permitting its

banks to assess late charges in foreign

states. This Court agrees.

Not every statutory enactment

expresses a fundamental policy. "On the

other hand, a fundamental policy may be

C-36

embodied in a statute which makes one or

more kinds of contracts illegal or which

is designed to protect a person against

the oppressive use of superior

bargaining power." Restatement §187,

cmt. g. See, e.g., Business Incentives

Co. v. Sony Corp. of America, 397 F.

Supp. 63, 67 (S.D.N.Y. 1975) (Despite

agreement that New York Law apply, New

Jersey has a strong public policy to

protect relatively powerless consumer or

small businessperson from more powerful

commercial giants); O’Brien v. Shearson

Hayden Stone, JInc., 586 P.2d 830, 833-34

(Wash. 1978), on recons., 605 P.2d 779,

780-83 (Wash. 1980) (Disregarding a

choice of law provision in a broker’s

contract and holding that the state of

Washington has a materially greater

interest in protecting its

C-99

consumer-citizens than New York has in

charging interest to Washington

citizens); North American Bank, Ltd. v.

Schulman, 474 N.Y.2d 383, 386-87 (Co.

Ct. 1984) (Foreign law chosen permitted

usury against a fundamental policy of

the forum); Whitaker v. Spiegel, Inc.,

623 P.2d 1147, 1153-54 (Wash. 1981),

app. dismd. Spiegel, Inc. v. Whittaker,

454 U.S. 958 (1981). Turner v. Aldens,

Inc., 433 A.2d 439, 442-44 (N.J. Sup.

A.D. 1981) (Usury provision of New

Jersey Retail Installment Sales Act

applied to out-of-state creditors

despite silence of statute and choice of

law clause to the contrary in an

adhesion contract, in view of the evil

legislature sought to remedy).

In light of the significant body of

authority on this point and the evident

concern of Massachusetts with the

C-100

protection of its consumers generally,

and through its usury statute in

particular, this Court rules that

Massachusetts law applies in the

premises notwithstanding the contrary

choice of law provision.

B. The Reach of Massachusetts

Usury Restrictions Under Mass.

Gen. L. ch. 140, §114B

Greenwood has one last arrow in its

quiver. It lets fly with the brief

contention which it touched on in oral

argument that Mass. Gen. L. ch. 140,

§114B does not prohibit Greenwood’s

conduct here. The parties have examined

the express terms of section 114B and

dispute whether its prohibition on late

charges applies to unmentioned

out-of-state lenders, such as Greenwood.

As discussed above, in 1981

Massachusetts joined a number of states

which, in response to national bank

C-101

deregulation and tightened local credit,

substantially amended their usury

statutes to preserve the competitive

position of state-chartered financial

institutions.4/ Among other

measures, Massachusetts raised its usury

limit from 12% to 18% on open end credit

accounts, a category which includes

credit cards. Mass. Stat. 1981, ch.

384, §1, amending Mass. Gen. L. ch. 140,

§114B. 42/ This same statutory

amendment also provides: "No creditor

shall impose a delinquency charge, late

charge, or similar charge on loans made

pursuant to such an open end credit

plan."

45/ See, e.g., Usury Lending Limits

Hearings.

46/ ee Mass. Stat. 1984, ch. 489, §1

for a subsequent amendment not here

relevant. See note 17, supra.

C-102

The Commonwealth argues that

Greenwood is prohibited by these express

terms from imposing on Massachusetts

customers the late charge provision in

Greenwood’s Cardmember Agreement. That

Agreement is also challenged as unlawful

for imposing "unfair multiple payments

for single defaults" since

"notwithstanding the late charge, a

credit eared lender continues to charge

and accrue interest on all delinquent

accounts. "4// This is said to

constitute double-charging in excess of

47/ Commonwealt%‘s Mem. Sup. Summ. J.

at 10 n.7. The Commonwealth makes this

argument in the context of a complex

technical discussion of the preemption

issue, specifically case law

interpreting the National Bank Act and

the historical relationship between

interest rates and noninterest charges,

such as late payment fees. The

intricacies of that discussion are not

relevant to the legislative

interpretation aquired here.

the 18% usury limit on open-end credit

card accounts.

The Massachusetts statute, section

114B, is silent as to whether its late

charge prohibition reaches out-of-state

creditors. The Commonwealth argues

that, since the reach of the statute is

not by its terms restricted, it must

extend to all creditors, in and out of

state. It contends, "[t]jhe contrary

interpretation requires the conclusion

that the Legislature sought to prohibit

late fees but failed to enact a statute

which achieved this purpose for many

Massachusetts consumers."

Commonwealth’s Reply at 12. This is

hardly the Commonwealth’s strongest

argument and Greenwood at once counters

that, because the provisions of another

consumer statute in Massachusetts, Mass.

Gen. L. ch. 255D, §1, do expressly

C-104

contemplate extraterritorial reach, the

Silence of section 114B indicates

legislative intent that it not have the

same effect or, at a minimun,

demonstrates an ambiguity that requires

resort to the legislative history of the

crucial amendment to §114B -- Mass.

Stat. 1981, ch. 384. Greenwood’s Men.

Sup. Summ. J. at 15-16. 49/

48/ Chapter 255D of the Massachusetts

General Laws, enacted as part of

Massachusetts’ earliest consumer

protection legislation in 1966, covers

retail installment sales agreements

(generally treated as purchase money

security interests), as well as

revolving credit agreements, such as

department store credit agreements which

contemplate repeated transactions and a

revolving balance on finance charges.

See, e.g., Herbert P. Wilkins, Revolving

Credit Agreement, Retail Installment

Sales, 51 Mass. L. Q. 233 (1966).

Section One of chapter 255 excludes from

the definitions of both types of

agreements "an agreement Signed by a

nonresident buyer in the commonwealth if

the buyer has agreed that the law of his

state shall apply." This provision does

(footnote continued)

C-103

0 Oe

This Court has pursued this last

line of inquiry, finding that the

preponderance of available evidence

indicates that the Massachusetts

sponsors and supporters of section 114B,

not unlike the Congressional sponsors of

section 521 of DIDA, were primarily

preoccupied with raising the numerical

interest rate ceiling for

Massachusetts-chartered banks so that

they could compete effectively with

other banks.

While Massachusetts legislative

history is notoriously sparse, the

record of debate and discussion

concerning Mass. Stat. 1981, ch. 384

does exist, albeit in unofficial

(footnote continued)

not support Greenwood, since it merely

declines to extend Massachusetts’ law to

consumers who happened to reside in

other states.

C-106

form. +2/ The minutes of the

Massachusetts Senate floor debate

concerning the bill that became Mass.

Stat. 1981, ch. 384, while limited, do

shed considerable light on the purposes

of the statute. 22/

The record of the enacting

legislative session indicates that the

fundamental purpose of Mass. Stat. 1981,

ch. 384, §1 was to raise the ceiling on

49/ In Massachusetts, the official

Senate and House Journals contain only a

record of action taken but no summary of

debate. Similarly, there are no formal

transcripts of Committee hearings.

However, since the early 1970’s, a news

bureau, the State House News Service

("SHNS"), provides in the form of press

releases unofficial records of action

and selective debate from many, though

not all, daily legislative sessions.

Fortunately, SHNS recorded coverage of

the floor debate of the bill that became

Mass. Stat. 1981, ch. 384. In the

absence of an official record, the SHNS

releases are parsed here.

290/ SHNS, May 26, 1981, pp. 2-3; May

27, 1981, pp. 2-6.

C-107

finance charges Massachusetts-based

credit card issuers could impose on open

end credit accounts, in an attempt to

dissuade such issuers from moving their

51/

operations out of state.

51/ Chapter 384 went into effect just

prior to the effective date of the

Massachusetts legislature’s override of

the federal preemption provisions of

DIDA, though the legislature had acted

to override DIDA before enacting the

1981 amendment to the usury law. The

preemption override, approved June 4,

1981, became effective on September 4,

1981. Mass. Stat. 1981 ch. 231, "An Act

Exempting the Commonwealth From the

Usury Preemption Provisions of the

Nineteen Hundred and Eighty Deregulation

and Monetary Control Act." The amended

usury statute, Chapter 384, was approved

August 6, 1981 and became effective by

emergency declaration of the Governor on

August 19, 1981. Mass. Stat. 1981, ch.

384.

Section 2 of Chapter 384 for the

first time regulated charge card

agreements. That section was codified

as Mass. Gen. L. ch. 255, §12H. Under

section 12H charge card agreements

contemplate no periodic finance charge

but rather payment in full upon receipt

(footnote continued)

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As sponsor of the bill which

ultimately became Chapter 384, Senator

John A. Brennan proposed the legislation

as a compromise between those on the one

hand who wanted no interest rate higher

than the then-applicable 12%, and the

banking industry on the other which

argued for total deregulation. 2*/

(footnote continued)

of a monthly billing. Mass. Stat. 1981

ch. 384, §2, codified as Mass. Gen. L.

Ch. 255, §12H.

52/ SHNS, May 26, 1981, p.2. While the

banking industry wanted total

deregulation (See, €.g.-, 1981 House J.,

H-1233, deregulating finance charges on

open end credit plans and providing for

"(annual percentage rate] not in excess

of that agreed upon by creditor and

customer"), Senator Jack Backman charged

that the Brennan amendment was

overindulgent to the banks. Id.

Senator John Parker, on the other hand,

thought the amendment was "trying to

take care of delinquent card holders."

id. at 4. Senator Brennan argued that

his proposal was "a compromise. It

serves both banks and consumers." Id.

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Senator Brennan argued that some

increase in the interest rate was

necessary to forestall the flight of

banks from Massachusetts to other states

where higher interest rates were

permitted:

Brennan continued saying a number of

states do not restrict banks from

marketing cards in Massachusetts.

In state customers are being charged

19 to 20 percent he said, because

other states do not restrict

issuers. Brennan claimed the

realities of the situation are that

many in state issuers will begin to

move out of state if they can find

unlimited interest rates. Brennan

Said state banks originally wanted

unlimited rates in Massachusetts,

but the Banks and Banking Committee

worked up this compromise and agreed

to put the limit up to 18%.

SHNS, May 27, 1981, p.5.

More significant, Senator Brennan

pleaded for action on his compromise on

the ground that, if Massachusetts

lenders moved their operations to states

with less restrictive laws,

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Massachusetts would be unable to control

the charges banks in those states could

impose on its residents:

Senator Brennan said the U.S.

Supreme Court decided that the

National Banking Act precludes state

regulators from regulating banks

chartered to do business in another

state. He said he hopes the bill is

not recommitted.

Id. at 5. The Brennan amendment was

then adopted. Id. at 6.

It is a compelling inference that

Senator Brennan was referring to the

1978 Marquette decision. It thus

appears clear that the chief sponsor of

the statute increasing the usury limit

thought out-of-state banks beyond its

reach.

The record points to the overriding

concern of the Massachusetts

legislature: viz. to provide

Massachusetts banks with interest rates

closer to those which banks could obtain

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in some other states, yet to cap those

rates at 18%. There appears to have

been no discussion about precluding

out-of-state banks from charging higher

rates or imposing late charges on

Massachusetts residents. Chapter 384,

instead, was enacted to keep

Massachusetts-based banks in

Massachusetts while continuing to

protect consumers through limitations on

rates and charges. There is no direct

evidence that the Massachusetts

legislature ever considered the

possibility that it might possess the

authority to impose the terms of section

114B on out-of-state banks. 2>/

53/ The Court notes that prior to the

passage of the Brennan amendment, the

Massachusetts Senate in 1981 authorized

a study of the impact of late charges

specifically upon the availability of

(footnote continued)

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The evil sought to be addressed by this

legislation was the potential exodus of

Massachusetts card-issuing banks to

other states.

This is not to suggest that the

(footnote continued)

consumer credit and upon lenders.

S. 20, proposed by Senator Robert Buell,

an opponent of the Brennan amendment,

provided:

Resolved that the Joint Committee on

Banks and Banking is authorized to

investigate interest rates on credit

cards, fees attached thereto, and

consider the matter of free periods,

imposition of late charges and

delinquency charges and all other

matters pertaining to credit cards.

The Committee shall report the

results of such study, if any, and

drafts by June 30, 1981.

S. 20.

The Court has been unable to

determine whether the S.20-authorized

Study was actually carried out; at least

the Court has discovered no published

version. Such a study might enlighten

the Court as to the significance of late

charges generally, though it seems

extremely doubtful that such a Study, if

it existed, would point to a contrary

result here.

CH2iJ

Massachusetts Legislature was

unconcerned about late charges or that

the prohibition on late charges was

unthinking surplusage. The record of

enactment of Chapter 384 indicates

legislative concern that either a charge

card issuer or a card issuer pursuant to

an open end credit account could, by

imposing late charges upon a borrower’s

failure to make payments due in full,

exceed the 18% usury limit established

in the Act.

Senator Brennan expressed particular

concern over the announced intention of

American Express to impose late fees of

2.5% on balances due over 60 days on its

charge card customers, or 25% per

annum. SHNS, May 26, 1981, p.2; May 27,

1981, p.5. Sen. Brennan claimed that

though his amendment would raise

interest rates by 6%, it would save

C-114

Massachusetts consumers 7% by capping

rates at 18%. Id., May 27, 1981, p.5.

These same concerns are echoed in a

joint resolution of the legislation with

an accompanying news release prepared in

October of 1981 (after passage of

section 114B). There, Massachusetts

legislators described the banking

statutes recently enacted during the

1981 legislative session (including

section 114B) as indicating the

Commonwealth’s ". . . desire to retain

control of its interest rate statutes by

cver-riding Title V [of DIDA]"; and

called for rejection of proposed

Congressional bills (S-1406 and

HR-2501) 24/ which would "preempt state

laws expressly limiting the nature,

24/ See, C.1I.S., Annual Abstract, 1981,

S-241-46 . 666-67.

+ PP C-115

rate, amount of or manner in which

interest finance charges or other fees

may be charged." SHNS, October 6,

1981. Representative Antoine Aguiar,

Chairman of the Massachusetts Joint

Committee on Banks and Banking, was

outspoken in opposition to the

additional preemption bills or the

weakening of Massachusetts usury laws,

declarina:

The money lenders are now seeking

the wholesale repeal of state usury

laws. .. . In addition to giving

money lenders nation-wide carte

blanche to follow the lead of these

[deregulating] states [e.g.

Delaware], the [proposed] federal

legislation also eliminates all

prohibition on fees imposed by

lenders. .. . These are the

notorious hidden charges that we

have fought for years to eliminate.

- »« « Consumers will no longer be

able to comparison shop if federal

preemption occurs.

SHNS, October 26, 1981.

The Legislature’s joint resolution

against further preemption and Senator

C-116

Aguiar’s opposition to weakening state

restrictions on "hidden charges"

presumably includes protection against

late charges. These declarations thus

imply that Massachusetts legislators

believed their newly enacted usury

reforms (including section 114B)

effectively protected Massachusetts

citizens against the deregulated lending

practices allowed in states like

Delaware or proposed in preemption

legislation then before Congress.

The after-the-fact rationalizations

for legislative action provide, however,

no sure footing for analysis and are

widely considered unreliable as a source

of legislative interpretation. See

United States v. Wise, 370 U.S. 404, 411

(1962); Bobsee Corp. v. United States,

411 F.2d 231, 237 n.18 (5th Cir. 1969);

C-117

Chugach Natives, Inc. v. Doyon, Ltd.,

588 F.2d 723, 731 (9th Cir. 1978). See

also R. Dickerson, Interpretation and

Application of Statutes, 179-80 (1975);

Sutherland, Statutory Construction,

§49.11 at 414-15 (4th ed. 1984).

Greenwood argues that there are other

more reliable indicia which support the

conclusion that section 114B was never

intended to apply to out-of-state

lenders.

First, Greenwood argues that

Massachusetts policy with respect to

late charges cannot be a fundamental

legislative goal since other consumer

statutes in the Commonwealth either

permit late charges or allow interest

rates higher than the 18% cap found in

section 114B (e.g., retail installment

sales agreements and charge card

C-1i6

accounts). As to late charges, this

argument ignores the fact that no

finance charge is assessed on charge

card accounts at all. Further, higher

rates of interest under retail credit

agreements typically are not prohibited

by state usury statutes, since the

merchant is primarily in the business of

selling goods or services, not loaning

money. See Curran, Legislative Controls

as _ a Response to Consumer-Credit

Problems, 8 B.C. L. Rev. 409, 413-415

(1967). Thus, Greenwood’s argument in

this respect is unpersuasive. .

Second, Greenwood notes that the

provisions of a related Massachusetts

consumer protection statute, Mass. Gen.

L. ch. 140, §144C, enacted in 1987 by

Mass. Stat. 1987, ch. 565, required

out-of-state issuers of credit cards to

. S29

disclose to customers any rates or

charges imposed above the Massachusetts

limits, and ordered state agencies to

educate local consumers as to

comparative rates and charges for both

in-state and out-of-state banks. 2>/

Section 114C did not, however, directly

prohibit such elevated charges and rates

by foreign lenders.

Greenwood stresses that since

section 114C contained express terms

making it applicable to out-of-state

issuers of credit cards, in contrast to

the silence of section 114B in that

regard, by implication section 114B was

not intended to apply to out-of-state

55/ Section 114C also provides that a

card issuer "whether located within or

without the commonwealth, may assess an

annual fee," subject to certain

requirements for creditor notice and

consumer entitlement to cancellation and

refund without penalty.

C-i20

creditors. Section 114C, however, was

passed six years after section 114B, and

therefore it cannot shed light on the

legislative intent of the earlier

statute. See, e.g., Andrus v. Shell Oil

Co., 446 U.S. 657, 666 n.8 (1980)

("(A]rguments predicated upon subsequent

Congressional actions must be weighted

with extreme care [but] not rejected out

of hand"); Seatrain Shipbuilding Corp.

v. Shell Oil Co., 444 U.S. 572, 596

(1980) (Subsequent enactments and

statements of Congress regarding

restrictions on subsidized national flag

vessels “cannot override the

unmistakable intent" of the enacting

Congress). Nor is it clear, logically,

that section 114C supports Greenwood’s

statutory construction of section 114B’s

territorial reach, since section 114C,

unlike section 114B which expressly

C-i2i

restricts late charges, just as

expressly countenances an annual

fee. 22/ On its face, section 114C

expresses a non-discriminatory intent to

treat out-of-state credit card issuers

Similarly to their in-state

counterparts. The enactment of section

114C, therefor, sheds little light on

the interpretation to be afforded to

section 114B.

Greenwood’s conclusion that section

114B was not intended to reach beyond

Massachusetts’ borders is buttressed,

however, by the fact that the

Commonwealth has presented no evidence

56/ It will be remembered that the

Massachusetts Appeals Court had

previously held that a national bank

located in Massachusetts could assess an

annual fee in addition to the maximum

allowable finance charge, interpreting

such fees as independent of the method

of calculating finance charges.

Northampton Nat. Bank v. Attorney

General, 8 Mass. App. Ct. 809 (1979).

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of any previous attempts to enforce

Section 114B in such a way as to reach

either interest rates or late charges

imposed by out of state banks upon

Massachusetts residents. Indeed, during

the eight years prior to the filing of

the present suit, out-of-state banks

routinely charged interest rates to

Massachusetts residents higher than the

18% cap permitted to Massachusetts

banks. 22/

S7/ See Office of Commissioner of

Banks, Quarterly Credit Card Issuer’s

Report, June 30, 1990. The official

quarterly reports issued by the

Commissioner are expressly required by

the Massachusetts credit card disclosure

statute. Mass. Gen. L. ch. 140, §114C.

The most recent 23-page report lists

several hundred in state and out of

state credit card issuers and Clearly

illustrates the Slight percentage

differential in interest rates charged

by in state and out-of-state banks to

Massachusetts cardholders. The report

does not list Greenwood Trust Company.

(footnote continued)

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This, of course, is precisely the

result one would expect following the

Marquette decision with respect to

out-of-state national banks. The

evidence before the Court thus proves

little more than that the Massachusetts

banking authorities are complying with

(footnote continued)

The report includes data with

respect to annual percentage rates,

grace periods, annual fees, and "other

fees." Other fees are not further

delineated. However, the Court notes

that the underlying data form sent to

credit card issuers in and out of the

Commonwealth requests each issuer to

list "Amounts of fees charged (if any),"

and then includes spaces for annual fee,

cash advance fee, late charge, over

limit fee, and any other fees. The form

may be obtained from the Office of the

Commissioner of Banks.

The Office also publishes a

quarterly newsletter which summarizes

the results of the Card Issuer’s Report

and gives general advice to consumers to

consider the relative advantages and

disadvantages of each card issuer’s

terms.

C-124

the National Bank Act as interpreted in

Marquette. Such evidence cannot be

bootstrapped into a contemporaneous

regulatory construction of an allegedly

ambiguous statute.

For, in the final analysis, Mass.

Gen. L. ch. 140, §114B is not

ambiguous. While the Court has extended

this opinion to analyze each of

Greenwood’s contentions, that analysis

-- undertaken out of an excess of

caution in light of the importance of

the issue presented -- ultimately adds

nothing to the plain language of the

statute. The Massachusetts legislature

has simply and unequivocally barred

credit card late charges. There is,

upon reflection, no occasion to go

behind the plain language to speculate

upon the policy motives behind this

legislative mandate. Enough said.

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IV. CONCLUSION

For all the foregoing reasons, the

Court holds 1.) that the provisions of

DIDA do not preempt the Massachusetts

usury law; 2.) Massachusetts, not

Delaware, law applies in the premises;

and 3.) the prohibition on credit card

late charges reaches out-of-state credit

card issuers such as Greenwood.

Accordingly, Greenwood’s motion for

summary judgment is DENIED, and that of

the Commonwealth is ALLOWED. As there

is thus no occasion to consider the

damages issue, judgment shall enter for

the Commonwealth and its Attorney

General. The parties shall submit a

proposed form of judgment.

WILLIAM G. YOUNG

UNITED STATES DISTRICT JUDGE

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APPENDIX D

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

GREENWOOD TRUST

COMPANY,

Plaintiff,

CIVIL ACTION

No. 89-2583-Y

Vv.

THE COMMONWEALTH OF

MASSACHUSETTS

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