Ninth Circuit Rejects Constitutional Challenge to Bank Credit Card Overlimit and Late Fees

30 January 2014 Consumer Class Defense Counsel Blog

In the case of In re: Late Fee and Over-Limit Fee Litigation (Pinon v. Bank of America, N.A.), No. 08-15218, ___ F.3d ___ (9th Cir., Jan. 21, 2014), a plaintiff class of cardholders contended that overlimit and late payment fees charged by banks to credit card-holders grossly exceed the actual harm caused to the issuing banks. The plaintiffs argued that such fees are analogous to punitive damages in excess of constitutional limits and, notwithstanding clear authority under the National Bank Act (NBA) and the Depository Institutions Deregulation and Monitary Control Act (DIDMCA), should be subject to constitutional substantive due process limits.

The U.S. Court of Appeals for the Ninth Circuit rejected this argument and affirmed the District Court’s dismissal of the case for failure to state a claim. The court noted that the fees are permissible under the NBA and DIDMCA, and reasoned that the Constitution’s due process jurisprudence does not prevent enforcement of penalty clauses, however excessive, in private contracts. The court separately affirmed the District Court’s dismissal of a claim under the California Unfair Competition Law, Cal. Bus. & Prof. Code sec. 17200 et seq.

The “reluctant” concurring opinion of Circuit Judge Reinhardt observed that existing due process jurisprudence does not extend to cardholder agreements, but–stressing that such agreements are essentially contracts of adhesion, a point apparently conceded by the majority opinion–encouraged the Supreme Court to “evolve” its due process jurisprudence to cover such fees.

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