Mazaika v. Bank One, Columbus, N.A.

653 A.2d 640, 439 Pa. Super. 95

• Court: Superior Court of Pennsylvania
• Decided: May 25, 1995
• Status: Published

Opinions

McEWEN, Judge:

The essential questions presented in this appeal by the demurrer of appellee¹ are: Did the 38th Congress intend, by the Act of June 3, 1864, to delegate to Ohio the power to define the term “interest” for purposes of preempting all other states’ consumer protection laws, and, if, in fact, it did so intend, did the decision of the United States Supreme Court in Marquette National Bank v. First of Omaha Service Corp., 439 U.S. 299, 99 S.Ct. 540, 58 L.Ed.2d 534 (1978), bestow that power upon the Ohio legislature?² We pose a negative response to these inquiries and, accordingly, reverse the order which dismissed, with prejudice, the complaint filed by appellants.

Our scope of review in an appeal from an order sustaining preliminary objections in the nature of a demurrer is plenary, and, after accepting as true all material facts set forth in the complaint as well as all inferences reasonably deducible therefrom, we determine whether, on the facts averred, the law precludes with certainty a recovery by plaintiff. Where any doubt exists as to whether a demurrer should be sustained, it must be resolved in favor of overruling the demurrer. Kyle v. McNamara & Criste, 506 Pa. 631, 633-34, 487 A.2d 814, 815 (1985); J.M. White v. Kreithen, 435 Pa.Super. 115, 119, 644 A.2d 1262, 1264 (1994); Newtown Village Partnership v. Kimmel, 424 Pa.Super. 53, 55-56, 621 A.2d 1036, 1037 (1993); Solomon v. Gibson, 419 Pa.Super. 284, 286-88, 615 A.2d 367, 368 (1992).

Bank One, Columbus, N.A., is a nationally chartered banking institution located in Columbus, Ohio, which extends open-ended credit accounts to individuals living throughout the United States, including Pennsylvania. Jennifer and Daniel Mazaika are residents of Pennsylvania who obtained a credit card from Bank One pursuant to a card-member agreement which provides for a twenty-four (24%) percent³ finance charge on all outstanding balances. The cardholder agreement also permits Bank One to charge credit card holders:

An annual fee of twenty ($20) dollars,

A service fee of eighteen ($18) dollars for any checks returned,

A service fee of eighteen ($18) dollars for over-credit-limit charges, and

A service fee of eighteen ($18) dollars if a minimum monthly payment is not received within twenty-five (25) days after the same is due.

Although not termed or computed as interest by appellee in its cardholder agreement or monthly statements, these charges are considered lawful “interest” under Ohio law as a result of the following statutory provision:

[A] bank may charge, collect, and receive, as interest, other fees and charges that are agreed upon by the bank and the borrower, including, but not limited to, periodic membership fees, cash advance fees, charges for exceeding a designated credit limit, charges for late payments, and charges for the return of a dishonored check....

Ohio Revised Code § 1107.262(A) (emphasis supplied).

Appellants contend that Pennsylvania statutory and common law — including the Pennsylvania Goods and Services Installment Sales Act, 69 P.S. §§ 1101 et seq., the Pennsylvania Banking Code of 1965, 7 P.S. §§ 101 et seq., and the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. §§ 201-1 et seq. — prohibit the imposition of the aforementioned fees levied by appellee. Appellee argues that such fees, since the Ohio legislature has characterized them in ORC § 1107.262(A) as “interest”, may be lawfully charged to Pennsylvania card holders as a result of the preemption, by Section 85 of the National Bank Act, of all state laws purporting to regulate fees charged in connection with such loans.

All parties agree that the interest rate that appellee, a national bank located in Ohio,⁴ may lawfully charge its customers, regardless of their domicile, is governed by Section 85 of the National Bank Act of 1864, 13 Stat. 99, which specifically permits a national bank to charge interest “on any loan ... at the rate allowed by the laws of the state ... in which the bank is located”. 12 U.S.C. § 85.

The National Bank Act was enacted by the 38th Congress in 1864 to place national banks on a competitive footing -with state-chartered banks, and sought to prevent state legislatures from discriminating against national banks.⁵ Section 85 of the National Bank Act, 12 U.S.C. § 85, more specifically prescribes the amount of interest that a national bank may charge as follows:

Any association may take, receive, reserve, and charge on any loan ... interest at the rate allowed by the laws of the State ... 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, and no more____

Appellee contends that all state usury and consumer protection laws which purport to regulate any fees which may be charged by a national bank in connection with a loan, so long as they are characterized as interest by a law of the state in which the bank is “located”, have been expressly preempted by this section of the National Bank Act. While we agree that the express language of the National Bank Act preempts any attempt by a state legislature to regulate the rate of interest which may be charged by a national bank located, for purposes of federal law, in another state, we are not persuaded that all Pennsylvania consumer protection laws which purport to prohibit fees and contingent default charges, such as those at issue in the instant case, have been preempted by the provisions of the National Bank Act governing the rate of interest to be charged by national banks.

I. PREEMPTION

Appellee’s preemption argument arises from Article VI of the U.S. Constitution which provides that the laws enacted by the U.S. Congress “shall be the supreme Law of the Land; ... any Thing in the Constitution or Laws of any state to the Contrary notwithstanding.” Art. VI, cl. 2.

The path to be followed in pre-emption cases is laid out by our cases. It is accepted that Congress has the authority, in exercising its Article I powers, to preempt state law. In the absence of an express statement by Congress that state law is pre-empted, there are two other bases for finding pre-emption. First, when Congress intends that federal law occupy a given field, state law in that field is pre-empted. Pacific Gas & Electric Co. v. State Energy Resources Conservation and Development Comm’n, 461 U.S. 190, 212-213, 103 S.Ct. 1713, 1726-27, 75 L.Ed.2d 752 (1983). Second, even if Congress has not occupied the field, state law is nevertheless pre-empted to the extent it actually conflicts with federal law, that is, when compliance with both state and federal law is impossible, Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963), or when the state law “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress,” Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941). See, e.g., Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 248, 104 S.Ct. 615, 621, 78 L.Ed.2d 443 (1984).

Field v. Philadelphia Electric Co., 388 Pa.Super. 400, 408-09, 565 A.2d 1170, 1174 (1989), quoting, California v. ARC America Corp., 490 U.S. 93, 100-101, 109 S.Ct. 1661, 1665, 104 L.Ed.2d 86, 94 (1989). Accord: English v. General Electric Co., 496 U.S. 72, 78-79, 110 S.Ct. 2270, 2274-75, 110 L.Ed.2d 65, 73-74 (1990); Fidelity Federal Savings & Loan Assoc. v. de la Cuesta, 458 U.S. 141, 153, 102 S.Ct. 3014, 3022, 73 L.Ed.2d 664 (1982).

Banking is an area in which Congress has not evidenced an intent to occupy the entire field to the exclusion of the states, and thus state legislatures may legislate in all areas not expressly or impliedly preempted by federal legislation. See, e.g., Lewis v. B.T. Investment Managers, Inc., 447 U.S. 27, 38, 100 S.Ct. 2009, 2016, 64 L.Ed.2d 702 (1980); Anderson National Bank v. Luckett, 321 U.S. 233, 248, 64 S.Ct. 599, 607, 88 L.Ed. 692 (1944); First National Bank in St. Louis v. State of Missouri, supra, 263 U.S. at 656, 44 S.Ct. at 215; Griffith v. Connecticut, 218 U.S. 563, 569, 31 S.Ct. 132, 133, 54 L.Ed. 1151 (1910), aff'd., 218 U.S. 572, 31 S.Ct. 134, 54 L.Ed. 1155 (1910); General Motors Corporation v. Abrams, 897 F.2d 34, 41 (2nd Cir.1990); Smith v. Mitchell, 420 Pa.Super. 137, 139-41, 616 A.2d 17, 19 (1992).

[Njational banks have traditionally been “governed in their daily course of business far more by the laws of the State than of the Nation. All their contracts are governed and construed by State laws.” National Bank v. Commonwealth (1869) 76 U.S. (9 Wall) 353, 362, 19 L.Ed. 701; see Scott, The Dual Banking System: A Model of Competition in Regulation (1977) 30 Stan.L.Rev. 1. As explained in National State Bank, Elizabeth, N.J. v. Long, 630 F.2d 981 (3d Cir.1980), “[wjhatever may be the history of federal-state relations in other fields, regulation of banking- has been one of dual control since the passage of the first National Bank Act in 1863---- In only a few instances has Congress explicitly preempted state regulation of national banks. More commonly, it has been left to the courts to delineate the proper boundaries of federal and state supervision. The judicial test has been a tolerant one. [National banks’] right to contract, collect debts, and. acquire and transfer property are all based on state law.” [630 F.2d at 985] Thus the rule is that state laws apply, “the exception being the cessation of the operation of such laws whenever they expressly conflict with the laws of the United States or frustrate the purpose for which the national banks were created, or impair their efficiency to discharge [their] duties.... ” McClellan v. Chipman (1896), 164 U.S. 347, 357, 17 S.Ct. 85, 87, 41 L.Ed. 461.

Perdue v. Crocker National Bank, 38 Cal.3d 913, 216 Cal.Rptr. 345, 702 P.2d 503, 521 (1985) (footnotes omitted), appeal dismissed, 475 U.S. 1001, 106 S.Ct. 1170, 89 L.Ed.2d 290 (1986).

Since Congress has not displaced all state legislation affecting national banks, state law will be preempted only

“to the extent that it actually conflicts with federal law, that is, when it is impossible to comply with both state and federal law, or where the state law stands as an obstacle to the accomplishment of the full purposes and objectives of Congress....” [Silkwood v. Kerr-McGee Corporation, 464 U.S. 238, 248, 104 S.Ct. 615, 621, 78 L.Ed.2d 443 (1984) ]. Accord: Pacific Gas & Electric v. St. Energy Resources Conservation & Development Com’n], 461 U.S. 190, 204, 103 S.Ct. 1713, 1722, 75 L.Ed.2d 752 (1983). Defendant bears the burden of persuasion on this issue; “[c]ourts are reluctant to infer preemption, and it is the burden of the party claiming Congress intended to preempt state law to prove it.” Elsworth v. Beech Aircraft Corp., 37 Cal.3d 540, 548, 208 Cal.Rptr. 874, 691 P.2d 630 (1984) and cases there cited.

Perdue v. Crocker National Bank, supra, 216 Cal.Rptr. at 361-362, 702 P.2d at 519-520 (emphasis supplied).

“Consideration of issues arising under the Supremacy Clause starts with the assumption that the historic police powers of the States (are) not to be superseded by____ Federal Act unless that (is) the clear and manifest purpose of Congress”. Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947).

Cipollone v. Liggett Group Inc., — U.S. -, -, 112 S.Ct. 2608, 2617, 120 L.Ed.2d 407 (1992).

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 not exercise lightly.” Gregory v. Ashcroft, 501 U.S. 452, 460, 111 S.Ct. 2395, 2400, 115 L.Ed.2d 410 (1991).

Greenwood Trust, supra, 971 F.2d at 823.

As we have noted, all parties to the instant appeal agree that Section 85 of the National Bank Act expressly preempts all attempts by state legislatures to regulate the rate of interest which a national bank may charge in connection with a loan. The disagreement arises over the items and charges which are encompassed within the definition of the term “interest”.

The question, at bottom, is one of statutory intent, and we accordingly “begin with the language employed by Congress and the assumption that the ordinary meaning of that language accurately expresses the legislative purpose.”

Morales v. TWA Inc., 504 U.S. 374, 382, 112 S.Ct. 2031, 2036, 119 L.Ed.2d 157 (1992) quoting FMC Corp. v. Holliday, 498 U.S. 52, 56-58, 111 S.Ct. 403, 407, 112 L.Ed.2d 356 (1990). Thus, the issue of whether Pennsylvania law has been preempted by Section 85 of the National Bank Act necessarily involves a determination of the intent of the Congress when it employed the term “interest” in drafting Section 85 of the National Bank Act.

II. “INTEREST”: DEFINITION

Some courts, in concluding that thé term “interest” can include the fees and penalties charged by appellee, have found that, while the plain meaning of the term “interest”, both in 1864 and presently, does not generally include the contingent default charges at issue,⁶ the term “interest” must be defined, for purposes of the application of Section 85, by reference to the laws of. the state in which the national bank is located. See, e.g., Tikkanen v. Citibank (South Dakota) N.A., 801 F.Supp. 270 (D.Minn.1992). Appellee finds support for this argument in the opinion of the First Circuit Court of Appeals in Greenwood Trust Co. v. Massachusetts, 971 F.2d 818 (1st Cir.1992).

The Court in Greenwood conceded that the sole inquiry before it was ascertaining “what Congress meant by the word ‘interest’ ”. Id. at 824. The Court also conceded that “[i]n 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, [504] U.S. [374, 382], 112 S.Ct. 2031, 2036, 119 L.Ed.2d 157 (1992), quoting FMC Corp. v. Holliday, 498 U.S. 52, 57, 111 S.Ct. 403, 407, 112 L.Ed.2d 356 (1990).” Greenwood Trust Co. v. Massachusetts, supra, 971 F.2d at 824.

The Greenwood Court, however, disregarding the substantial legislative history recited by the distinguished Judge William F. Young of the District Court, concluded that:

the plain meaning doctrine is not a pedagogical absolute ... [and] ‘does not preclude consideration of persuasive evidence' in contradiction to supposedly plain meaning if such evidence exists. Boston Sand and Gravel Co v. U.S., 278 U.S. 41, 48 [49 S.Ct. 52, 54, 73 L.Ed. 170] (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.

Greenwood Trust Co. v. Massachusetts, supra, 971 F.2d at 825 (emphasis supplied). The persuasive evidence upon which the Circuit Court in Greenwood relied in order to avoid the ordinary meaning of the term “interest” is, however, quite elusive and, however deferential we strive to be toward that tribunal, we find the reasoning of the Greenwood Court singularly unpersuasive.

In order to determine the nature of the charges contemplated by the term “interest”, in the absence of an express definition of the term in the National Bank Act or direct evidence of the intent of the 38th Congress, settled principles of statutory construction direct that we look to the ordinary meaning of the term and consider the then existing federal common law definitions of “interest”. See, e.g., FMC Corp. v. Holliday, supra, 498 U.S. at 57, 111 S.Ct. at 407; CSX Transportation Inc. v. Easterwood, — U.S. -, -, 113 S.Ct. 1732, 1737, 123 L.Ed.2d 387 (1993); Perrin v. United States, 444 U.S. 37, 42, 100 S.Ct. 311, 314, 62 L.Ed.2d. 199, 204 (1979); Burns v. Alcala, 420 U.S. 575, 580-581, 95 S.Ct. 1180, 1184-85, 43 L.Ed.2d. 469, 475 (1975). “[W]here words are employed in a statute which had at the time a well-known meaning at common law or in the law of this country[,] they are presumed to have been used in that sense unless the context compels to the contrary.” Lorillard v. Pons, 434 U.S. 575, 583, 98 S.Ct. 866, 871, 55 L.Ed.2d 40, 47 (1978) (emphasis supplied). Accord: Evans v. First Nat’l Bank of Savannah, 251 U.S. 108, 40 S.Ct. 58, 64 L.Ed. 171 (1919).

“Interest rate” is commonly defined as “[t]he percentage of an amount of money which is paid for its use for a specified time.” Black’s Law Dictionary 730 (5th ed. 1979) (emphasis added). Similarly, “interest” has been defined as “a charge for borrowed money[,] generally a percentage of the amount borrowed.” Webster’s Ninth New Collegiate Dictionary 630 (1989) (emphasis added). It would appear beyond peradventure that the plain and ordinary meaning of the term “interest” or “interest rate” does not include late fees, over credit limit charges, or the like which are not levied on a percentage basis.⁷ Copeland v. MBNA America, N.A., 820 F.Supp. 537, 540 (D.Colo.1993). See, e.g., Perry v. Stewart Title Co., 756 F.2d 1197, 1207-1208 (5th Cir.1985), on rehearing, 761 F.2d 237 (5th Cir.1985); Seiter v. Veytia, 756 S.W.2d 303 (Tex.1988); Perdue v. Crocker National Bank, 38 Cal.3d 913, 216 Cal.Rptr. 345, 702 P.2d 503 (Cal.1985), appeal dismissed, 475 U.S. 1001, 106 S.Ct. 1170, 89 L.Ed.2d 290 (1986).⁸ In fact, it would appear that even the Ohio legislature is of the opinion that the term “interest” does not generally include “periodic membership fees, cash advance fees, charges for exceeding a designated credit limit, charges for late payments, and charges for the return of a dishonored check”, or presumably, enactment of Section 1107.262(A)⁹ of the Ohio Code would have been unnecessary.

One is compelled to such an inference since, although Section 1107.261 of the Ohio Revised Code provides for a maximum annual percentage rate of 25%,¹⁰ no definition of “interest” — for purposes of the application of the 25% maximum rate of interest — is provided in Section 1107.261. If one accepts the proposition that the term “interest” in Ohio, pursuant to ORC 1107.262(A), always includes “periodic membership fees, cash advance fees, charges for exceeding a designated credit limit, charges for late payments, and charges for the return of a dishonored check”, it logically follows that appellee would be in violation of Ohio usury laws in those instances where the fees at issue, when imposed in combination with the 24% rate of interest applied by appellee to all outstanding credit balances, exceed an effective rate of 25%.

The Ohio legislature, however, having caused the word “interest” in Section 1107.262(A) to include “periodic membership fees, cash advance fees, charges for exceeding a designated credit limit, charges for late payments, and charges for the return of a dishonored check,” proceeded to provide that such fees and charges, although designated as “interest”, could not be “included in the computation of the annual percentage rate or the rates of interest or finance charges for purposes of determining whether the maximum annual percentage rate or the maximum rate or rates of interest____have been exceeded.” ORC § 1107.262(A) (emphasis supplied). Thus, even under Ohio law, the fees and contingent default charges levied by appellee are not interest except for one, unique purpose.

In any event, since the Greenwood Court failed to reveal the “persuasive evidence” upon which it relied to avoid the “ordinary meaning” of the term “interest”, we are simply unable to find that Congress, when it used the phrase “interest at the rate” in enacting Section 85 of the National Bank Act, intended anything other than the ordinary and popular meaning of the word “interest”, which a person of average intelligence and experience would understand.¹¹

III. EXPORTATION PRINCIPLE

Appellee contends, however, that even if the plain meaning of the term “interest” in Section 85 does not include the contingent default charges at issue herein,¹² the decision of the U.S. Supreme Court in Marquette requires that we apply the Ohio definition of interest in ruling on the demurrer. More specifically, appellee, while conceding that the exportation principle as enunciated by the Supreme Court in Marquette is expressly applicable only to periodic interest rates, urges that because (1) Marquette provides for the exportation of interest rates by national batiks, and (2) Ohio has characterized contingent default charges as well as annual fees as interest, Pennsylvania’s consumer protection laws prohibiting such fees are preempted by the Ohio definition of the term “interest”.

The Supreme Court in Marquette was called upon to decide whether Omaha Bank, a national bank authorized by 12 U.S.C. § 85 to charge interest on any loan at the rate allowed by the laws of Nebraska, the state in which the bank was located, was “entitled to charge its Minnesota customers the rate of interest authorized by Nebraska law”. Marquette, supra, 439 U.S. at 308, 99 S.Ct. at 545. The Supreme Court specifically noted that Omaha Bank operated “no branch banks in Minnesota, ... nor apparently could it under federal law”. Marquette, supra, 439 U.S. at 309, 99 S.Ct. at 546. Omaha Bank, pursuant to Nebraska law, was permitted to charge 18% interest per year on the first $999.99 of all balances, and 12% interest per year on all amounts over $1000.00. By contrast, Minnesota law permitted an interest rate of 12% but “[t]o compensate for the reduced, interest, Minnesota law permitted] banks to charge annual fees of up to $15.00 for the privilege of using a bank credit card”. Marquette, supra, 439 U.S. at 302-303, 99 S.Ct. at 542-543 (emphasis supplied). It was upon these essential facts that the Supreme Court held that Omaha Bank, “located” in Nebraska, could lawfully charge all of its customers, regardless of their domicile, the rate of interest allowed by the state of Nebraska. The Court, based upon the express words of the statute, refused to find an intent on the part of Congress to “exempt interstate loans from the reach of [Section 85].” Marquette, supra, 439 U.S. at 318, 99 S.Ct. at 550. The Court in Marquette thus concluded that the Nebraska rate of interest was applicable to all of Omaha Bank’s transactions where Omaha Bank was located, situated, and transacted all of its business operations in the state of Nebraska. See: Marquette, supra, 439 U.S. at 309 n. 20, 99 S.Ct. at 546 n. 20.

It is thereby apparent that Marquette involved a narrow issue, namely, whether a national bank, located in a single state, had to provide different rates of interest to its customers who had domiciles different from the bank. Marquette did not involve fees or penalties or any other loan terms. Moreover, the legendary Justice William J. Brennan, as he proclaimed the exportation principle for the unanimous Marquette Court, cited to the following language contained in Seattle Trust & Savings Bank v. Bank of California, 492 F.2d 48 (9th Cir.1974) cert. denied, 419 U.S. 844, 95 S.Ct. 77, 42 L.Ed.2d 72 (1974):

If the words “located” or “situated” in these provisions [12 U.S.C. §§ 24, 36, 85, 90, 92, 371] were to refer to the site of Bank of California’s corporate headquarters in San Francisco, then the Bank’s performance in the State of Washington of many essential banking functions would be governed by the laws of California. The law of California would control even when these functions are carried on by non-California branches in dealings with local customers and in competition with banks subject to local state statutory limitations. Such an anomaly could not have been intended by Congress in establishing national banking policy through the National Banking Act.

Seattle Trust & Savings Bank v. Bank of California, supra, 492 F.2d at 51.

Thus it is that, unlike many of our brethren in other jurisdictions,¹³ we are unable to find in Marquette support for the premise that Section 85 was intended to or has been interpreted in Marquette to preempt all state consumer protection laws which seek to regulate aspects of consumer loan transactions other than rates of interest, at the whim of the Ohio state legislature.¹⁴

We are further mindful that the United States Supreme Court in Marquette noted that when the National Bank Act was enacted on June 3, 1864, a national bank was required to specifically state in its organizational certificate “the place where its operations of discount and deposit are to be carried on, designating the State, Territory, or District, and the particular county and city, town or village”. Marquette, supra, 439 U.S. at 301 n. 2, 99 S.Ct. at 542 n. 2, quoting 12 U.S.C. § 22.

[A]t the time the 1864 Act was passed, the activities of a national bank were restricted to one particular location. That Act’s provisions to the effect that the organization certificate (as 12 U.S.C. § 22 also requires today) shall specifically state “the particular county and city, town, or village” of its place of operations, 13 Stat. 101, and that the bank’s “usual business shall be transacted at an office or banking house located in the place specified in its organization certificate,” 13 Stat. 102 (cf. 12 U.S.C. § 81), indicated as much. National banks (other, perhaps, than those that originally were state banks with existing branches) were not permitted to engage in branch banking until 1927, when the McFadden Act, 44 Stat. Pt. 2, p. 1224, was passed; moreover, the McFadden Act allowed national banks to “establish” branches only if permitted by state law, and only “within the limits of the city, town, or village in which said association is situated,” id., at 1228. It was not until 1933 that Congress approved, upon specified conditions, national bank branches beyond the place named in the charter. 48 Stat. 189-190.

sfc ‡ Hí # H* H*

It suffices to. stress that Congress did not contemplate today’s national banking system, replete with branches, when it formulated the 1864 Act; [and] that there are no sure indicators of 1864 congressional intent with respect to a banking system that did not then exist....

Citizens and Southern National Bank v. Bougas, 434 U.S. 35, 42-43, 98 S.Ct. 88, 93, 54 L.Ed.2d 218 (1977).

Moreover, Marquette declared that the intent of the 38th Congress, in providing that national banks “may ... charge ... interest at the rate allowed by the laws of the State, Territory or District where the bank is located, ... and no more ... ”, 12 U.S.C. § 85 (emphasis supplied), was to allow national banks to compete with state-chartered banks and to give certain “ ‘advantages to National banks over their State competitors’ Marquette, supra, 439 U.S. at 314, 99 S.Ct. at 548, quoting Tiffany v. National Bank of Missouri, 85 U.S. (18 Wall.) 409, 413, 21 L.Ed. 862 (1873). See also: First National Bank in Plant City, Florida v. Dickinson, 396 U.S. 122, 90 S.Ct. 337, 24 L.Ed.2d 312 (1969). Surely the Congress could not then have logically intended, via Section 85 of the National Bank Act, to bestow upon a single state the authority to declare that the phrase “rate of interest” and the term “interest” are ambiguous expressions, thereby permitting a single state to define the term “interest” to include items which have never been included in the computation of “interest” ¹⁵ as that term is commonly understood and thereby void all other states’ validly enacted consumer protection laws.

Appellee argues, however, even while acknowledging that Marquette dealt with interest rates as that term is commonly understood and not service fees or contingent default charges, that, solely by authority of Section 85 of the National Bank Act, any fees, no matter how far removed from a charge based on the time-value of money, so long as they are permitted by Ohio law and labeled “interest”, may be applied, in derogation of all state consumer protection laws to the contrary, to all interstate loans.¹⁶ We cannot agree and refuse to permit appellee, in the clothing of sheep nibbling upon “interest”, to swallow whole the Pennsylvania Goods and Services Installment Sales Act,¹⁷ the Pennsylvania Banking Code of 1965,¹⁸ and the Pennsylvania Unfair Trade Practices and Consumer Protection Law.¹⁹ Rather, we are compelled to the view that federal law, and not state law, must be applied in determining whether the contingent penalties permitted by the State of Ohio under the label of “interest” can be considered “interest” charges for purposes of the application of Section 85. See: First National Bank in Plant City Florida v. Dickinson, supra. We find support for this position in the ruling of the United States Supreme Court in First Nat’l Bank in Plant City, Florida v. Dickinson, supra, where the Supreme Court was called upon to determine, for purposes of the McFadden Act,²⁰ what constituted a “branch bank”. The Court concluded that, absent a clear Congressional indication to the contrary, the state of Florida could not be allowed to define the term, opining:

We reject the contention made by amicus curiae National Association of Supervisors of State Banks to the effect that state law definitions of what constitutes “branch banking” must control the content of the federal definition of § 36(f). Admittedly, state law comes into play in deciding how, where, and when branch banks may be operated, [First National Bank of Logan, Utah v. Walker Bank & Trust Co., 385 U.S. 252, 87 S.Ct. 492, 17 L.Ed.2d 343 (1966) ], for in § 36(c) Congress entrusted to the States the regulation of branching as Congress then conceived it. But to allow the states to define the content of the term “branch” would make them the sole judges of their own powers.

First Nat’l Bank in Plant City, Florida v. Dickinson, supra, 396 U.S. at 133, 90 S.Ct. at 343 (footnote omitted). The facts of the instant case beg for application of this same analysis.

The 103rd Congress has recently enacted the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,²¹ which expressly provides that a national bank is bound, as to operations carried on in a particular state, by the consumer protection laws of each state in which it operates any branches. While the intent of the 103rd Congress can shed no light upon that of an earlier Congress, we believe the intent of the 38th Congress, when it enacted the Bank Act of 1864, was not unlike that of the 103rd Congress in enacting the Riegle-Neal Interstate Banking and Branching Act of 1994 — national banks, while favorites of the government, were not meant to be exempted from all state laws designed to protect consumers from overreaching on the part of banking institutions.

Since Section 85 of the National Bank Act does not, in our view, preempt all common law and state consumer protection laws dealing with charges and penalties not commonly included in the term “interest”, we reverse the order which sustained the demurrer of appellee and remand for further proceedings.

Order reversed. Case remanded. Jurisdiction relinquished.

CIRILLO, J., files a concurring opinion. WIEAND, J., files a dissenting opinion in which POPOVICH, and SAYLOR, JJ., join.

1 . The preliminary objections filed by appellee recount:

1. The Complaint, and each and every count thereof, fails to state a cause of action because federal law governs Bank One's lending charges and preempts state law.

WHEREFORE, Bank One requests that the Court dismiss Plaintiff's Amended Class Action Complaint, and each and every count thereof, with prejudice.

2 . Due to our resolution of these two issues, we do not reach the question of whether such a delegation of authority by Congress to a single state is permissible under our federal constitution.

3 . Anyone who is perplexed that banking interests have persuaded the Pennsylvania legislature to approve an interest rate of 18% must surely be appalled to learn that the banking interests have convinced the legislature of Ohio that an interest rate of 25% is neither criminal nor confiscatory. Don Corleone once rasped: “A lawyer with his briefcase can steal more than a hundred men with guns.”, Mario Puzo, The Godfather p. 51 (Putnam Publishing Group 1969) — one supposes that professional courtesy precluded his allusion to the banker. Having, in this footnote, tamed the advocate, the task of analysis- and decision resumes.

4 . A national bank is “located” in the state designated in its "organization certificate”. The National Bank Act, Rev.Stat. § 5134, 12 U.S.C. § 22, provides that a national bank must create an “organization certificate” which specifically states “[t]he place where its operations of discount and deposit are to be carried on, designating the State, Territory, or District, and the particular county and city, town, or village.” See: Citizens and Southern National Bank v. Bougas, 434 U.S. 35, 43, 98 S.Ct. 88, 93, 54 L.Ed.2d 218, 225 (1977); First National Bank in St. Louis v. State of Missouri, 263 U.S. 640, 657, 44 S.Ct. 213, 215, 68 L.Ed. 486 (1923).

5 . The Court of Appeals for the First Circuit in Greenwood Trust Co. v. Massachusetts, 971 F.2d 818, 826 n. 6 (1st Cir.1992), noted that:

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 Service Corp., supra, 439 U.S. at 314-18, 99 S.Ct. at 548-50; 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, 18 (1st Cir.1987).

6 . The complaint in the instant case, which alleges that the annual fee is not included in the monthly APR computation, does not specifically differentiate between the annual fee and the contingent default charges at issue. While the analysis applicable to the annual fee differs from that applicable to the contingent default charges at issue, we find it unnecessary, for purposes of ruling on the demurrer at this stage of the pleadings, to analyze the annual fee separately. Cf. Northampton National Bank v. Attorney General, 8 Mass.App. 809, 397 N.E.2d 1149 (1979).

7 . The Supreme Court utilized, in Marquette Nat’l Bank v. First of Omaha Service Corp., supra, the terms “interest rate’’ and “rate of interest”, referring to a periodic rate of interest charged on a daily outstanding balance, without pausing to define that term. Justice Brennan did note, however, that "unlike the Nebraska bank, Marquette was forced by the low rate of interest permissible under Minnesota law to charge a $10 annual fee for the use of credit cards.” Marquette, supra, 439 U.S. at 304, 99 S.Ct. at 543 (emphasis supplied).

8 . This issue has been addressed in a most insightful and enjoyable opinion by the learned Philadelphia County Common Pleas Court Judge Bernard J. Avellino in In Re: Citibank (South Dakota) Credit Card Litigation, presently pending before this Court at No. 1673 PHL 1994.

9 . See page 3 supra for text of ORC 1107.262(A).

10 . Section 1107.261 of the Ohio Revised Code provides:

§ 1107.261 Alternative interest or finance charge rates permitted' As an alternative to the interest permitted in section 1107.26 of the Revised Code and to the finance charges permitted in division (D) of section 1107.27 of the Revised Code, a bank may contract for and receive interest or finance charges at any rate or rates agreed upon or consented to by the parties to the loan contract or revolving credit agreement, but not exceeding an annual percentage rate of twenty-five per cent, (emphasis supplied)

11 . Section 85 permits a national bank to charge its home state’s rate of interest or, in the alternative, "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 greater, and no more....” 12 U.S.C. § 85 (emphasis supplied). On March 25, 1994, the discount rate on ninety-day commercial paper, rated A-l and P-1, was 4.1%, resulting in an effective alternative interest rate of 5.1%! Appellants have alleged in their complaint that the delegation to Ohio of the right to define the term "interest” has enabled appellee, in addition to the 24% rate of interest which it charges on outstanding balances, to charge a variety of contingent default charges which can amount to an effective rate of interest in excess of 200% of the outstanding balance.

12 . A majority of courts which have found state law prohibiting such charges to have been preempted by Section 85 have done so in reliance on Marquette and not as a result of a finding that the term "interest” was intended by the 38th Congress to include such charges. The eminent Judge Maurice B. Cohill, Jr., of the Western District of Pennsylvania, relying upon Greenwood and the opinion of the Court of Common Pleas in the instant case, observed that:

Plaintiffs ask that we ignore recent developments and inspect the case law prior to 1992, and that, upon doing so, we will deny defendants’ motions because at common law, penalty charges were not the same as "interest” because they were not required by the lender as compensation for the loan, and that single sum late fees were not usurious because they were not "interest.”.... Essentially, plaintiffs are arguing that because penalties have historically never been classified as interest, the National Bank Act and DIDA do not regulate such penalties, and Pennsylvania state law does.

Ament v. PNC National Bank, 849 F.Supp. 1015, 1018-1019 (WD Pa.1994) (emphasis supplied).

13 . See, e.g.:

Ament v. PNC National Bank, 849 F.Supp. 1015 (1994).

Goehl v. Mellon Bank, 825 F.Supp. 1239 (E.D.Pa.1993).

Hill v. Chemical Bank, 799 F.Supp. 948 (D.Minn.1992).

Hunter v. Greenwood Trust Co., 272 N.J.Super. 526, 640 A.2d 855 (1994).

Nelson v. Citibank, 794 F.Supp. 312 (D.Minn.1992).

Sherman v. Citibank, 272 N.J.Super. 435, 640 A.2d 325 (1994).

14 . The Court in Greenwood, citing to four Circuit Court cases and one District Court case, conceded that "[flairly read, these opinions expand the scope of Section 85 preemption....” Greenwood at 830. The thought occurs that these cases, which are not binding on this Court, have improperly expanded the preemptive scope of Section 85 well beyond what was intended by the 38th Congress or contemplated by the United States Supreme Court in Marquette.

15 . See, e.g.: Truth In Lending Act, 15 U.S.C. § 1601 et seq.; Regulation Z, 12 C.F.R. §§ 226.1 et seq. The Truth In Lending Act definition of “finance charge” includes “interest”, but specifically excludes many of the contingent default fees which the Ohio definition of “interest” incorporates. See: 12 C.F.R. §§ 226.4(b)(1), (c)(l)-(3). Similarly, the Depository Institution Deregulation and Monetary Control Act of 1980, 94 Stat. 132, which preempted state usury laws to the extent that such laws limited the rate of interest national banks could collect on mortgages, left intact state consumer protection laws limiting other charges associated with mortgage loans.

The Senate committee report on the 1980 Act states that "[i]n 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.” (Sen.Rep. No. 96-368, 1st Sess., p. 19 (1979).) Thus the committee intended to leave many features of the contract between a bank and a borrower to be governed by state law, including state provisions which placed a limit on the amount the bank could charge.

Perdue, supra, 216 Cal.Rptr. at 364 n. 37, 702 P.2d at 522 n. 37 (emphasis supplied). See also regulations promulgated pursuant to the Depository Institution Deregulation and Monetary Control Act of 1980 at 12 C.F.R. § 590.3(c) (1989) ("Nothing in this section preempts limitations in state laws on prepayment charges, attorneys’ fees, late charges or other provisions designed to protect borrowers.”) (emphasis supplied).

16 . The Greenwood Court suggested that if a state were to enact legislation which crossed an imaginary line of intellectual decency, the statute would not be found controlling:

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 there are permissible variations in the ordinary concept [of that term] we [may] deem state law controlling.”

Greenwood, supra, 971 F.2d at 829, quoting DeSylva v. Ballentine, 351 U.S. 570, 581, 76 S.Ct. 974, 980, 100 L.Ed. 1415 (1956). The Greenwood Court, however, did not suggest any parameters for measuring or quantifying how strange a usage would have to be in order to be found invalid.

17 . 69 P.S. § 1101 et seq.

18 . 7 P.S. § 101 et seq.

19 . 73 P.S. § 201-1 et seq.

20 . The McFadden Act of 1927, 44 Stat. 1228, as amended, 12 U.S.C. § 36.

21 . The Senate Committee Report on the Riegle-Neal Interstate Banking and Branching Act of 1994, 103 P.L. 328, 108 Stat. 2338, includes an excellent history of interstate banking in the United States as well as an explanation of the effect of the 1994 Act upon state law, and in particular, upon consumer protection laws such as those at issue herein. Certain pertinent portions of the Act and of the Committee Report are attached to the recorded majority opinion but are not here reproduced.