Citibank Denied Right To Collect 29.9% Interest On Defaulted Credit Card Account: Judge Rules That New York’s Usury Laws Apply Absent Evidence That “Non-Ministerial” Tasks Were Performed In Citibank’s Home State Of South Dakota

It is common knowledge that national bank’s are exempt from New York’s usury statute.  Or are they?

In a recent, detailed and well reasoned decision, in Citibank (South Dakota) v. Hansen, Judge Ciaffa of the Nassau County District Court surveyed the relevant federal statute (12 U.S.C. § 85), case law, agency opinions, and legislative history, and cast doubt on Citibank’s entitlement to collect interest of 29.9%, well above New York’s maximum rate of 16%.  The Court held that Citibank was entitled to exemption from New York’s usury limit and instead to rely on the less lenient usury laws of its “home state”, “only if at least one significant non-ministerial function associated with the account actually took place in the bank’s ‘home state’”,  as opposed to New York.

Although the decision does not provide a concise definition of a “non-ministerial function”, the Court appeared to include approval of the loan, extension of the credit, and disbursement of the proceeds as “non-ministerial” acts.   If those acts all occurred in New York, rather than in the bank’s home state, the Court reasoned that New York’s usury limits would apply.  Because Citibank had provided no evidence that any such non-ministerial functions were ever performed by Citibank in its home state of South Dakota with reference to defendant’s account, the limited Citibank’s to the unpaid balance at the time the consumer defaulted, despite the consumer’s failure to appear for trial.

It would be easy to overstate the scope of the Court’s holding.  Judge Ciaffa went out of his way to make clear that he was not invalidating “Citibank’s right, consistent with federal law, to structure its credit line and credit card affairs in a manner that enables it to avoid and circumvent the usury limits of this state” .  Rather, Judge Ciaffa questioned “whether Citibank has, indeed, so structured its affairs” and found that it had presented insufficient  evidence on this point.

Still the decision is important because debt buyers and original creditors, such as Citibank and Capital One, that file hundreds of thousands of collection lawsuits in New York’s courts virtually never allege much less provide evidence regarding where “non-ministerial” acts were performed.  For this reason, Judge Ciaffa’s opinion provides a new and potentially fruitful defense to high interest rates sought in many collection actions, including those brought by original creditors.

Click here to read full opinion.

This entry was posted on Thursday, May 13th, 2010 at 2:35 pm and is filed under Credit Card Defense. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.