Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp.

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Seminal 1978 U.S. Supreme Court banking-law case

1978 United States Supreme Court case

Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299 (1978), is a unanimous U.S. Supreme Court decision holding that state anti-usury laws regulating interest rates cannot be enforced against nationally chartered banks based in other states. Justice William Brennan wrote that it was clearly the intent of Congress when it passed the National Banking Act that nationally chartered banks would be subject only to federal regulation by the Comptroller of Currency and the laws of the state in which they were chartered, and that only Congress or the appropriate state legislature could pass laws regulating them.

The case has been called one of the most important of the late 20th century, since it freed nationally chartered banks to offer credit cards to anyone in the U.S. they deemed qualified, and more specifically because it allowed them to export credit card interest rates to states with stricter regulations, opening up a race between states in an effort to attract lending institutions to set up shop in their states and offer a wider variety of consumer credit products. Over the next decade, the states accelerated a process that had already begun of repealing or loosening their anti-usury laws, allowing state-chartered banks to compete more equally with national ones. As a result, the use of credit cards has vastly increased, and the mortgage industry soon followed suit.

Background of the case

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U.S. banking system and anti-usury laws

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During the Civil War , Congress enacted the National Bank Act , which allowed for nationally chartered banks as well as state-chartered ones and encouraged many existing banks to become national ones. It led to the standardization of U.S. currency and created a dual banking system that has existed ever since.

National banks were subject to regulation by the Comptroller of Currency but had to follow the laws of the states in which they were located. Among these statutes were anti-usury laws, which capped the rates at which banks were allowed to lend money, usually between 10 and 20 percent.

In the late 1970s, these created problems for some banks as the high inflation of that period resulted in them borrowing money at higher rates than they could lend it. In response to this asset–liability mismatch , libertarians and free-market advocates called for interest rate caps to be increased or repealed entirely as an unreasonable restriction on market forces. Bills to do so were introduced in Congress and some state legislatures. Some succeeded in the former goal, but those that sought to eliminate interest rate caps entirely failed.

Credit cards

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Main article: Credit card

The term "credit card" had been used and proposed by utopian author Edward Bellamy in his 1887 book _Looking Backward _. The first realizations of this model came during the Depression with Chargaplate, meant to encourage customers to spend money by introducing an alternative to cash and checks. Diners Club evolved in the early 50s as the first credit card company; what it provided, however, was a charge card, intended to be paid in full every month, rather than a credit card, designed to entail longer-term lending.

In 1958, Bank of America had introduced BankAmeriCard (today's Visa), the first credit card on a revolving credit model, in which cardholders did not have to pay the full balance each month but merely a minimum payment if they so chose. It, like other banks in those days, tried to promote use of them by mailing cards, unsolicited, to multiple, sometimes randomly chosen, customers in a particular area.

Fisher v. First of Omaha Service Corp.

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In 1969, one of these unsolicited cards, First National Bank of Omaha , came to Iowa resident Fred Fisher. He filed suit in the Southern District of Iowa against the Omaha bank on September 3, 1971, for exporting Nebraska's higher interest rates to his state. He alleged that since that state's legislature had fixed the usury ceiling at nine percent, First National was breaking the law by charging him twice that for an advance of up to $500.

On February 22, 1972, the court ordered the Fisher case be transferred to the U.S. District Court of Nebraska because the Omaha bank had "not waived its privilege of being sued in the district where it was established." In an opinion filed on June 24, 1975, the Nebraska court ruled that the interest rate which First National may legally charge in Iowa is governed by the usury laws of the state "where the extension of credit occurs" and that since the credit was extended in Omaha where the 18 percent interest rate was not usurious, it was entirely within the legal bounds in Iowa as well.

On November 1, 1974, the Iowa attorney general , Richard C. Turner, filed a petition with the District Court, requesting a permanent injunction enjoining the Omaha bank and a Des Moines bank from assessing or collecting a finance charge in excess of the amount permitted by the Iowa Consumer Credit Code. The court ruled in favor of the defendants. In 1977, the United States Court of Appeals for the Eighth Circuit affirmed the judgment of the District Court in the Fisher case, saying that First National's card program should not be restrained or restricted in any way because it "promotes and facilitates, rather than limits or inhibits, interstate trade and commerce.

In Iowa, on August 30, 1978, the Iowa Supreme Court threw out the lower court decisions and ruled in favor of both Fisher and the attorney general. As a result, First National filed an appeal with the U.S. Supreme Court on September 11 and hired Robert H. Bork to argue its Minnesota case before the justices.

Marquette Bank

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At the same time, some residents of Minnesota were being offered cards by First National of Omaha, at similar terms. Marquette National Bank of Minneapolis , which was chartered in the state and also offering credit cards, confronted First National Bank of Omaha and informed them that what they were doing with the interest rate was illegal, since Minnesota's capped interest rates at 12 percent (without specifying what kind of debt). Marquette threatened to take the Omaha bank to the U.S. Supreme Court if necessary if their practice continued.

Marquette began to lobby for the passage of a state law designed to put a 12 percent ceiling on all bank credit card outstandings. In May 1976, about one month after that measure was signed into law, Marquette filed a suit in Hennepin County court to enjoin First Omaha from offering credit cards at the higher interest rate in Minnesota. It was first removed to federal court , where the judge sent it back to state court, which ruled in favor of Marquette. The Minnesota Supreme Court overturned that ruling on appeal.

Before the Court

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