In re: Late Fee & Over-Limit Fee Litigation, No. 08-15218 (9th Cir. 2014)
Annotate this CasePlaintiffs, a class of cardholders who paid credit card penalty fees, challenged those fees on constitutional grounds. Plaintiffs argued that the fees are analogous to punitive damages imposed in the tort context and are subject to substantive due process limits described in BMW of North America, Inc. v. Gore. The court concluded that the due process analysis developed in the context of jury-awarded punitive damages was not applicable to contractual penalty clauses. Further, there was no derivative liability under the Unfair Competition Law. Accordingly, the district court did not err in dismissing the complaint where constitutional due process jurisprudence did not prevent enforcement of excessive penalty clauses in private contracts and the fees were permissible under 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).
Court Description: National Bank Act. The panel affirmed the district court’s dismissal for failure to state a claim of an action brought under the National Bank Act and the Depository Institutions Deregulation and Monetary Control Act by a class of cardholders who challenged credit card overlimit fees and late fees on constitutional grounds. The panel held that the substantive due process jurisprudence developed to limit punitive damages in the tort context does not apply to contractual penalties such as credit card penalty fees. The panel held that because the fees were permissible under the NBA and the DIDMCA, the district court did not err in dismissing the complaint. Concurring in the judgment, Judge Reinhardt wrote that the Supreme Court would be well advised to apply its substantive due process rule to prevent disproportionate penalties from being imposed on consumers when they breach contracts of adhesion. Concurring, Judge Nelson wrote separately to join Judge Reinhardt’s concurrence.
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