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In re Late Fee and Over-Limit Fee Litigation

United States Court of Appeals, Ninth Circuit

January 21, 2014

Bank of America, NA; Bank of America Corporation; Capital One Financial Corporation; Chase Bank USA, N.A.; JPMorgan Chase & Co.; Citibank, NA; Citigroup, Inc.; HSBC North America Holdings, Inc.; HSBC Finance Corp.; Wells Fargo & CompanyLong Term Disability Plan; JPMorgan Chase Bank NA; Chase Bank USA, N.A.; Federal Deposit Insurance Corporation, Defendants-Appellees. Andrew T. Piñon; Betty Simm; Cathy Simm; Sara Prentiss-Shaw; Audree Halasz; Gwen Martin; Celeste Brackley; Marilyn Foster-Nemec; Aaron Gonzalez; Elizabeth Young, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,

Argued and Submitted Feb. 11, 2013.

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Seana Shiffrin (argued), UCLA School of Law, Los Angeles, CA; Patrick J. Coughlin, Frank J. Janecek, Jr., Elisabeth A. Bowman, and Mary Lynne Calkins, Coughlin Stoia Geller Rudman & Robbins LLP, San Diego, CA; and Tyler R. Meade and Michael L. Schrag, Meade & Schrag LLP, Berkeley, CA, for Plaintiffs-Appellants.

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Rebecca J.K. Gelfond, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, D.C.; and Christopher R. Lipsett and Noah Adam Levine (argued), Wilmer Cutler Pickering Hale and Dorr LLP, New York, NY, for Defendants-Appellees.

Appeal from the United States District Court for the Northern District of California, Saundra B. Armstrong, District Judge, Presiding. D.C. No. CV-07-00634-SBA.

Before: D.W. NELSON, STEPHEN REINHARDT, and MILAN D. SMITH, JR., Circuit Judges.


D.W. NELSON, Senior Circuit Judge:

Suppose you have an ordinary consumer credit card. You are committed to fiscal rectitude, so you pay your balance in full on the due date each month and never exceed your credit limit. One particularly busy month, though, you lose track of how much you have spent and you charge a purchase that pushes your balance a few dollars beyond your credit limit. You compound the problem when you make your monthly payment three days late.

The result is unpleasant. The card issuer charges you a $39 fee for the late payment and another $39 fee for exceeding the credit limit. Worse, the interest rate on the late balance instantly doubles as the issuer imposes the " penalty rate." Your small mistakes prove very costly.

Most Americans will find this scenario familiar. Credit card penalty fees have provoked intense consumer agita and, increasingly of late, substantial legislative interest.[1] With certain exceptions, such fees are generally authorized by federal statute.

In this appeal, a class of cardholders who paid credit card fees challenge those fees on constitutional grounds. They contend that the fees are analogous to punitive damages imposed in the tort context, and that they are therefore subject to the substantive due process limits described in BMW of North America, Inc. v. Gore, 517 U.S. 559, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996), and subsequent cases. We must decide whether substantive due process so constrains credit card fees.

The jurisprudence developed to limit punitive damages in the tort context does not apply to contractual penalties, such as the credit card fees at issue in this case. We therefore affirm the district court's dismissal of the complaint.

I. Facts and Procedural History

The Appellants (the " Cardholders" ) are a class of consumers who hold credit cards with one or more of the Appellees, which are all among the largest issuers of consumer credit cards in the United States. The contracts between card issuers and cardholders require customers to make payments on or before a predetermined date each month. The contracts also limit the total credit available to a cardholder.

The Cardholders alleged that the card issuers charged them penalty fees for making purchases in excess of their cards' credit limits (" overlimit fees" ) or for making late payments on monthly balances (" late fees" ). These fees, which are disclosed in the contracts between card issuers and their customers, are mostly uniform from issuer to issuer and are typically between $15 and $39. These

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amounts, the Cardholders alleged, vastly exceed the harm that issuers actually suffer when their customers exceed their credit limits or make late payments.

The complaint raised ten causes of action, five of which are now before us on appeal. Counts I-IV alleged that the late and overlimit fees the Appellees charged exceeded the amounts authorized by the National Bank Act, 12 U.S.C. §§ 85-86, and the Depository Institutions Deregulation and Monetary Control Act (" DIDMCA" ), 12 U.S.C. § 1831d(a). Specifically, the complaint alleged that the National Bank Act and DIDMCA cannot authorize fees that constitute unconstitutionally excessive punitive ...

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