Magazine article American Banker

Calif. Minimum Payment Law Draws Industry Suit

Magazine article American Banker

Calif. Minimum Payment Law Draws Industry Suit

Article excerpt

The financial services industry has sued the California attorney general to block a state law set to take effect soon that would require credit card issuers to give customers detailed warnings about the drawbacks of minimum payments.

The lawsuit, filed Friday in Sacramento in the U.S. District Court for the Eastern District of California, contends that the statute violates federal protections against state interference with national banking activities.

"The main concern with the statute is that it directly and impermissibly interferes with the core function of banks: lending," said Howard N. Cayne, a senior partner with the law firm Arnold & Porter, which prepared the complaint.

The plaintiffs are five trade groups -- the American Bankers Association, America's Community Bankers, the Consumer Bankers Association, the Independent Community Bankers of America, and the National Association of Federal Credit Unions -- and five large credit card issuers -- Chase Manhattan Bank USA, Citibank, Bank One Corp.'s First USA Bank, Household Bank, and MBNA America Bank.

A spokeswoman for California Attorney General Bill Lockyer would not comment Tuesday because she said that state officials had not seen the lawsuit yet. However, she said that they would file a formal response next month.

The California law, which was enacted in October and is scheduled to take effect July 1, would require credit card companies that do business there to follow a specific list of procedures if they allow customers to make monthly payments of less than 10% of their total balance.

These procedures would include the printing of a "minimum balance warning," as well as examples of how long balances of certain sizes would take to pay off with minimum payments and the total cost of doing so, on the front page of billing statements for all California customers. …

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