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From Banking and Finance Law Daily, September 30, 2014

Late fees and interest rates viewed differently, claim not preempted

By Andrew A. Turner, J.D.

A claim that consumers had unlawful late fees charged to their home loan accounts was not preempted by the National Bank Act (NBA) because it could not be viewed as a challenge to the rate of interest charged by the lender, according to a federal district court in West Virginia. While a challenge to the amount of late fees may involve the rate of interest requiring preemption, a claim that a late fee should not have been charged was not a usury claim within the scope of the NBA (Powell v. Huntington National Bank, Sept. 26, 2014, Johnston, District Judge).

Background. Consumers claimed the illegal assessment of late fees based on the terms of their mortgage loan contract and state laws requiring a lender to credit payments to current installments. The complaint alleged that late fees were charged to consumers who made timely payments of a current month’s installment in violation of state law prohibiting the “pyramiding” of late fees.

Since late fees fall within the legal definition of “interest,” the bank contended that a claim that late fees were improper was a claim for a usury violation. It would then fall within the rule that federal law provides the exclusive cause of action against national banks for usury.

Interest and late fees. Although it has been established that late fees fall within the regulatory definition of interest, the court said that the preemption issue depended upon whether the claim was challenging a late fee as excessive or claiming that “no late fee should be charged in the first place.” A challenge to the amounts of late fees is a challenge to the rate of interest that would be preempted by federal law as a usury claim.

In this case, however, the theory of liability was that the bank assessed late fees when no late fees should have been assessed. These were purely state consumer protection claims, not usury claims contesting the amount of the $15 late fees charged by the bank.

The case is No. 2:13-cv-32179.

Attorneys: John W. Barrett (Bailey & Glasser) for Jeremy A. Powell. Jason E. Manning (Troutman Sanders) for The Huntington National Bank.

Companies: The Huntington National Bank

MainStory: TopStory InterestUsury Mortgages Preemption WestVirginiaNews

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