Click here to read decision

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.

Specifically, Judge Liebowitz held:

[T]his Court grants defendant’s motion in its entirety, vacates the judgment plaintiff obtained against her and orders plaintiff to make restitution for the property upon which execution has been levied, and the wages that have been garnished by reason of the income execution.

The Court reaches the above conclusion based on the fact that plaintiff lacked standing to bring the instant action. Despite the fact that it was clearly doing business in New York State prior thereto, plaintiff was not registered as a foreign limited liability company with the New York State Department of Corporations until January of 2008, which was fifteen (15)  months after plaintiff initiated the within action. Therefore, in the exercise of its “inherent discretionary power in situations that [warrant] vacatur…”‘, the Court vacates the default judgment entered herein.

Click here to read the full decision.

According to a recent study conducted by MFY Legal Services, Midland Funding brought 26,998 lawsuits in 2007 in Bronx, Kings, Queens and Richmond Civil Courts, alone!  It would appear from this decision that Midland lacked the capacity to sue in virtually all of those cases, as well as the thousands of other cases it filed in the State of New York that year.  If Midland Funding took a judgment against you in New York prior to January, 2008, we may be able to help (click here to fill out questionnaire).

In coming to this conclusion, the Court did not rely upon the Delaware choice of law provision in the consumer’s credit card agreement.  Rather, the Court held that even though the credit card agreement’s “standard” choice of law provision only applied to “substantive” legal issues and not to “procedural” issues , such as the statute of limitations, the consumer, a pro se litigant, was entitled to Delaware’s shorter statute of limitations pursuant to CPLR § 202 (i.e. New York’s “borrowing statute”).  Specifically, the Court held that defendant was entitled to choose the shorter of the statute of limitations available in a the original creditor’s home state of Delaware, and the six year statute of limitations generally applicable to credit card cases under New York law.

The Court explicitly held that it was the original creditor’s home state that was at issue, and not the home state of the debt buyer, who had purchased the account after default.

Our office routinely sees pleadings filed by debt buyers in which, even according to the debt buyer’s own allegations, default occurred more than three years prior to the filing of the collection suit.  Many of these suits involve debts originally owed to a company whose “home” state has a three year statute of limitations.  In particular, many banks that issue credit cards (for example, Discover and Chase) are either incorporated and/or headquartered in Delaware, which has a three year statute of limitations.  Other banks, such as Providian National Bank, are based in New Hampshire, which also has a three year statute of limitations.

In addition to providing a significant and strong defense to many credit card lawsuits, the Court’s decision opens the door to consumer lawsuits against debt buyers under the Fair Debt Collection Practice Act (FDCPA) for bringing claims that were time barred or “stale” pursuant to CPLR §202.

Click here to read the Court of Appeals’ decision.