On February 11, 2013, a panel of the Court of Appeals for the Ninth Circuit rejected the argument of a class of credit cardholders that certain fees imposed by their card issuers were unconstitutional. Their class complaint alleged violations of the National Bank Act (“NBA”) and Depository Institutions Deregulation and Monetary Control Act (“DIDMC”). The appellate court ultimately affirmed the lower court’s dismissal of the complaint on Rule 12(b)(6) grounds.
Plaintiffs argued that the fees were analogous to punitive damages imposed in the tort context, and thus, subject to the substantive due process limits described in BMW v. North America, Inc. v. Gore, 517 U.S. 559 (1996), and subsequent cases. The Ninth Circuit found, instead, that the jurisprudence developed to limit punitive damages in the tort context did not apply to contractual penalties, such as credit card fees. It further reasoned that because the fees were permissible under the NBA and DIDMCA, see e.g., 12 U.S.C. §1831d(a), the court did not err in dismissing the complaint.
In a concurrence, Judge Reinhardt urged the Supreme Court to apply its substantive due process rule to prevent disproportionate penalties from being imposed on consumers when they breach contracts of adhesion. Perhaps the CFPB will see Judge Reinhardt’s opinions as a sign that increased regulation of credit card fees is needed.