Credit Card Judge Seems to Side With Plaintiffs

SACRAMENTO – During a December 6 hearing in a lawsuit over a pending California credit card law, the judge deciding the suit appeared prepared to favor the credit unions, however no decision has been forthcoming so far. Judge Frank Damrell’s Eighth Circuit U.S. District Court seemed poised to side for the plaintiffs in their ongoing effort to strike down a controversial California law mandating a high degree of credit card disclosures during the hearing. According to NAFCU’s Linda Dent, director of regulatory compliance for the association, Judge Damrell’s questions during the December 6 hearing appeared to indicate that he was inclined to strike down the statute, but that he wanted to be certain beforehand that there was nothing in the law that would require to leave some parts of it standing. NAFCU and CUNA joined a coalition of national banking associations and several national bank card issuers who brought suit against the law prior to it going into effect. The law would have mandated banks and credit unions to either require a significantly higher minimum payment from their cardholders each month or to issue detailed disclosures to credit card holders about their interest rates and how much borrowed money cost them. The coalition argued in a suit that stayed the implementation of the law that Federal regulation and statute preempts the proposed law and that California lacks the constitutional authority to meddle in interstate commerce. Judge Damrell’s hearing lasted two and one half hours, Dent said, and focused on three questions to the state of California, the defendant in the case, and one to the coalition. Damrell asked the California legal team about whether the recent court cases between the Bank of America and several California cities, which the bank won, had eliminated any reasonable expectation that state law ever wins out over federal law. He also asked whether it was reasonable to argue, as the state had, that federal preemption of state law was restricted to only those portions of a statute which directly counteract a specific area of federal law or whether a federal law’s overall authority was sufficient. This was important, Dent explained, because the state had wanted to argue that the federal law’s general authority over bank and credit union disclosure requirements was insufficient to trump state statute. The federal law, for example, would have had to have a provision giving it authority explicitly over bank and credit union credit card disclosures, she said. The Judge also asked about whether any part of the proposed statute could be struck down and leave the rest standing, Dent said. This was the area he covered most closely with the plaintiffs, Dent said. Dent said that while the Judge’s questions provide no guarantee of the eventual ruling, “they indicate that he might want to strike down the law, she said. Mary Dunn, CUNA’s associate general counsel, largely agreed with Dent’s observations about the judge’s questions, observing as well that neither side be guaranteed of the outcome until the judge rules. [email protected]