Banks to get high court review on customer suits

Published: Saturday, January 25, 2003 at 6:01 a.m.
Last Modified: Saturday, January 25, 2003 at 1:49 a.m.

WASHINGTON - Banks led by Household International Inc. will get a U.S. Supreme Court hearing in a bid to derail lawsuits by customers who say they were charged excessive interest.

The justices agreed to hear arguments from Household's Beneficial units, which along with tax preparer H&R Block Inc. is fighting an Alabama lawsuit filed by 26 consumers. The people took part in an H&R Block program that gave them a short-term loan from Beneficial, to be repaid by their anticipated tax refund.

The case will have particular importance for the growing ``fast cash'' business, which earned $357 million for tax preparation services and lenders in 2001, according to a Brookings Institution report. H&R Block is the largest U.S. tax preparer.

``Suits like this one are not rarities,'' Household International said in its appeal. ``Filing them may be a cottage industry of some size.''

At stake is whether borrowers can invoke consumer-friendly laws in such states as Alabama, which caps interest in most cases at 8 percent, or instead are bound by National Bank Act rules, which are more favorable to lenders.

The case won't affect the credit-card industry. In 1978 the Supreme Court said credit-card companies are bound by the lending caps in their home states, not that of their customers.

Many major lenders, such as Citigroup Inc.'s South Dakota-based credit-card business, are now located in states with business-friendly laws.

The Supreme Court case asks whether state courts have the legal authority to consider usury lawsuits against national banks, which have a federal charter and are supervised by the Office of the Comptroller of the Currency.

Household Finance and H&R Block say the National Bank Act gives federal courts exclusive power over those cases and that the usury provisions of that law will apply. The 1964 National Bank Act lets banks charge either the maximum rate in their home state or the rate allowed under a federal formula, whichever is higher.

The issue has cropped up in recent suits against Citigroup Inc., Mellon Financial Corp. and SouthTrust Corp.

The Atlanta-based 11th U.S. Circuit Court of Appeals said the Household International lawsuit could go forward in Alabama state court. The appeals court said Congress didn't intend to strip state courts of their authority over consumer lawsuits against banks.

``There is no evidence of any intent to displace state causes of action by the National Banking Act,'' the consumers, led by Marie Anderson, said in court papers.

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