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Usury defense revisited


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Here’s a completely untried, untested usury defense and/or cause of action I developed that I believe is theoretically sound. I am not a lawyer, this is not legal advice—if you need legal advice, consult an attorney. I’m just sharing something I developed that I believe will work in certain circumstances, and I would appreciate feedback. It may be particularly effective if you have an otherwise well-prepared OC to contend with and nothing else to throw at them if they are vulnerable. This is completely dependent upon the choice of law provision.

Here it is:

The ability of national banks under Section 85 of the National Bank Act to extend credit across state lines and export the interest rates of the bank’s state of domicile in preemption of the usury laws of the customer’s state of residence was established by the United States Supreme Court in the Marquette National Bank v. First of Omaha Svc. Corp. -439 U.S. 299 (1978) and is codified in Title 12 of the United States Code.

A BANK, a national bank domiciled in Virginia, operates under the authority of the National Bank Act and the supervision of the Office of the Comptroller of the Currency. The credit card agreement with A BANK contains a choice of law provision providing for Federal and Virginia law.

A BANK, as a bank operating under the authority of the National Bank Act and the under the supervision of the Office of the Comptroller of the Currency, has federal preemption from state usury laws, including MY STATE, and this preemption is codified in The Code of Federal Regulation, Title 12 – Banks and Banking, Part 7 –Bank Activities and Operation, Subpart D – Preemption, Section 7.4008 Lending and Section 7.4009 Applicability of state law to national bank operations.

A BANK, by acting under the Federal preemption, is subject to all applicable federal law, including the following:

12 USC Sec. 85

Title 12 – Banks and Banking

Chapter 2 – National Banks

Subchapter IV – Regulation of the Banking Business; Powers and Duties of National Banks

Sec. 85 Rates of interest on loans, discounts, and purchases

“Any association my take, receive, reserve, and charge on any loan or discount made, or upon any notes, bills of exchange, or other evidence of debt, interest at the rate allowed by the laws of the State, Territory, or District where the bank is located…When no rate is fixed by law of the State, or Territory, or District, the bank may take, receive, reserve or charge a rate not exceeding 7 per centum…”

The Code of Virgina Section 6.2-309. Charges by banks and savings institutions on installment loans, states:

“Notwithstanding any statutory or case law, a bank or savings institution making a loan payable in installments may impose finance charges and other charges and fees at such rates and in such amounts and manner as borrower as agreed.”

Therefore, under Virginia law, “no rate is fixed by the law of the State.”

Consequently, and by preemption from MY STATE law, A BANK is subject to, and in violation of, federal usury law:

12 USC Sec. 86

Title 12 – Banks and Banking

Chapter 2 – National Banks

Subchapter IV – Regulation of the Banking Business; Powers and Duties of National Banks

Sec. 86 Usurious interest; penalty for taking; limitations

“The taking, receiving, reserving, or charging of interest greater than is allowed by section 85 of this title, when knowingly done, shall be deemed a forfeiture of the entire interest which the note, bill, or other evidence of debt carries with it, or which has been agreed to be paid thereon. In case the greater rate of interest has been paid, the person by whom it has been paid, or his legal representatives, may recover back, in an action in the nature of an action of debt, twice the amount of the interest thus paid from the association taking or receiving the same; Provided, That such action is commenced within two years from the time the usurious transaction occurred.”

A BANK has knowingly demanded and received an amount which includes illegal and usurious interest.

As a matter of federal law, and consistent with preempted MY STATE law, A BANK has forfeited all claims of interest and may be penalized.

The cause of action in a claim against A BANK is federal:

“Because Sections 85 and 86 provide the exclusive cause of action for such cases, there is, in short, no such thing as a state law claim of usury against a national bank.” Beneficial Nat. Bank v. Anderson, 539 US 1- Supreme Court 2003.

However, a claim may be presented and decided by state court as long as Sections 85 and 86 are, by preemption, the exclusive basis for rendering a decision:

“…Section 86 does not create exclusive federal jurisdiction, the state court in which plaintiff commenced this action had jurisdiction. However, Section 86 provides an exclusive federal remedy and…the state would have been required by the Supremacy Clause to apply Section 86”

Nahas v. First Natl. Bank of Hot Springs, 930 F.2d 608,1991& Co.

If a claim against A BANK were filed with the state court, one could reasonably anticipate that they attempt to remove to federal court.

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Forget this, you'll lose. Credit cards are not installment loans. Why do you think these companies move to VA, SD, etc? Because there is no cap on the interest rate for an open account. The usury defense has NEVER worked against a national bank. See Marquette.

“Notwithstanding any statutory or case law, a bank or savings institution making a loan payable in installments may impose finance charges and other charges and fees at such rates and in such amounts and manner as borrower as agreed.”

You agreed when you accepted the card and used it. That's what they'll argue. Also, read a bit further into state law, you'll probably find that they exempt national banks, all states do.

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Forget this, you'll lose. Credit cards are not installment loans. Why do you think these companies move to VA, SD, etc? Because there is no cap on the interest rate for an open account. The usury defense has NEVER worked against a national bank. See Marquette.

“Notwithstanding any statutory or case law, a bank or savings institution making a loan payable in installments may impose finance charges and other charges and fees at such rates and in such amounts and manner as borrower as agreed.”

You agreed when you accepted the card and used it. That's what they'll argue. Also, read a bit further into state law, you'll probably find that they exempt national banks, all states do.

I agree with this. Claiming usury against any bank that ends its name with "N.A." is a losing proposition. What I still want to know is if a JDB charges an interest rate that is usurious under state law, how will that play out? Obviously, all interest charged while the alleged debt was owned by the bank itself is going to be good to go under the law, but JDBs have been known to tack excessive crap on themselves. That also leads into the next question: Assuming that JDBs have to follow state usury laws, how would Smiley v Citibank apply? Would their bogus fees also count as interest?

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I completely concur that you can't "win" with a usury defense--it's like trying to take the poker pot holding a pair of twos. But I'm also of a mind that anything is better than rolling over and you might force a better settlement or an "Aw, why mess with this? We could fill out 200 defaults if we don't waste time on this." Heck, if it'll help me out, I'll mutter to myself, rock in my chair, and pee my khakis.

The whole thing about JDB's using the federal preemption provided for banks irritates me to no end, but courts have generally held that the federal preemption follows the debt under the valid when made doctrine. Look up Munoz v. PipestoneFinancial--it's instructive in this regard.

If I went to bank and said, "Look, do you have an acccount I can collect on?" and they sold me an account with a 100K balance and I went to court and said I'm collecting all this interest under federal preemption, they'd laugh me out of court or worse. But JDB LLC does it all the time and, in theory, JDB LLC is a person under the law just like I am.

A big problem is all these appellate court decisions with pro se debtors. If the opposing view had been argued coherently, at least the courts would consider an alternative view. The OC and JDB industry has deep pockets and can throw all available resources at anything they perceive as a threat to the status quo and their business models. A lot of these decisions are essentially defaulted.

(There's a WA appellate decision where a pro se screwed up BADLY and it scares the h-e-double toothpicks out of me. Enough said.)

For example, another sure loser is the securitization issue. Actually, it could be a sure winner in some cases, but who can spend literally tens of thousands of dollars defending? Not going to happen. The industry gets that one, rightly or wrongly, by default.

Off the soapbox. Thanks for the feedback.

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Our own Supreme court has done away with the usury law. Just goes to show you who runs this country< THOSE WITH THE CASH,>

Just like opur oil companies, who we know are gouging consumers at the pump. How can you beat a corporation with hundreds of billions of dollars? YOU CANT.

even O.J. proved that if you have enough money you CAN get away with murder.

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But I'm also of a mind that anything is better than rolling over and you might force a better settlement or an "Aw, why mess with this?

I agree and it works many times. I had to do it all the time with insurance claims. I paid off or did not go after certain claims for what you just described.

However, in my opinion, you have to pick something where you are going against the U.S. Supreme Court. There is not much arguing the other side has to do. It does not matter what you come up with, it's trumped.

It's like when somebodies only argument on a total loss was, you are required to give me Kelly Blue Book, do it or I'm filing a dept of insurance complaint and/or lawsuit. I want $500.00 more dollars.

My response, "file your complaint or lawsuit" that takes about 30 seconds to defeat, it's insurance law in my state and you are wrong. You're not going to cause me problems, it's too easy to defeat.

Now if we were arguing over $500.00, I had rated the car in one condition and they were disputing and wanted to meet me at the car to look over the condition, wanted to know what my definition of "rough" "normal" "above average" was or wanted to dispute the wear on the tires and know if I measured the tires from the center of the tire or just on the outside where the tire wears more, and/or they had independent values based on the "local market value" and "actual cash value" pretty much you were getting your $500.00 bucks.

The I am going to be such a nuisance that you need to do what I want and make me go away, is a valid argument and strategy. However, if you go so over the top, it can back fire.

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The difference between a bulldog and a loon? A bulldog will eventually let go...

So I've delved deeper into this and I would like help and opinions please. For the most part, it appears a non-starter but...

(And this is specific to Washington State. YMMV.)

In Washington, the courts seem to have consistently held:

1. The amount of interest the parties agree to is the cap for National Bank Act purposes.

2. It must be a written agreement

What about using Usury as a counterclaim, especially with a JDB. If things were to go south on say, account stated, it could still be useful if they can't/won't/don't provide the written agreement--which I presume would have to include all the TILA Reg Z. Also, what if the JDB had to admit in court that they could not provide a zero based accounting if ordered to recalculate?

Any thoughts, ideas, other input would be appreciated...

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What I still want to know is if a JDB charges an interest rate that is usurious under state law, how will that play out?

The individual state usury laws do not have any bearing. The only law that counts is the interest law of the state in which the lender is located. They can actually be in violation of their own state interest law, which becomes very interesting. That good old "written agreement" requirement can come back to bite them if they can't produce one.

Smiley (CA supreme court, then US supreme court) established that the various late fees etc are considered interest. Marquette covers the usury issue.

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