MARQUETTE NAT. BANK v. FIRST OF OMAHA CORP.
Legal provision: 12 U.S.C. 85
Argument of Richard B. Allyn
Chief Justice Warren E. Burger: The case is submitted.
We'll hear arguments next in 1258, Minnesota against the First of Omaha and the consolidated case.
Mr. Allyn, I think you may proceed whenever you're ready.
Mr. Richard B. Allyn: Mr. Chief Justice and may it please the Court, counsel, I do speak on behalf for the interest of the State of Minnesota in this case.
This is an appeal for the Minnesota Supreme Court.
The dispute is over whether a Nebraska National Bank has to abide by the Minnesota usury laws when it charges interest to Minnesota residents under bank credit card program conducted in Minnesota or whether is it claimed that it can impart the Nebraska usury law in to Minnesota in order to charge 6% more interest than the other banks are doing business in Minnesota including other national banks.
Now, BankAmericard and Master Charge credit card programs have been marketed in Minnesota if indeed throughout the country for many years.
It's a fair statement to say that thousands of Minnesotans rely on these cards daily to purchase goods and services and need to get cash advances.
A few years ago, Minnesota passed a specific statute to govern these kinds of transactions.
It's known as the open end loan arrangement law we call it the Bank Credit Card Act but essentially it says this, that a state or national bank or savings bank can issue a credit to a consumer, permit them to pay it back in a flexible way, permit them use the money in a flexible way.
And indeed, the cardholder himself decides when he's going to obtain the credit and when he's going to pay it off.
In Minnesota, the statute says, the annual interest that may be charged is 12%.
In addition, there are some compounding limitations.
Finally, there is a $15.00 fee permitted -- up to $15.00 permitted for the privilege in using the card.
It's important to note that without exception the national banks and the state banks of Minnesota which have issued and used these cards have abided by the Minnesota law from its inception in 1976.
Await 1975, the First National Bank of Omaha, Nebraska came to Minnesota registered a wholly-owned subsidiary which is managed by one of its vice presidents with our secretary state appointed a person suitable to see the process in Minnesota and embarked upon a systematic solicitation of Minnesota residents using the telephone and the mails.
In addition, merchants and banks willing to handle these transactions were enlisted.
Now, the problem is that the First National Bank of Omaha, Nebraska wants to charge 18% on the unpaid balance.
In addition, they have some compounding techniques if you call them at which exceed those, which are permitted by our state statute.
The issue in this case then is whether or not they can do that or whether they have to abide by our statute.
And let me just say by way of introduction that it seems without dispute that a state's right to protect its citizens from usury has been a tradition in America since it's founding.
We have a long Minnesota on usury since Territorial Days and this tradition was in the mind of Congress we argue in 1864 when it passed the National Banking Act which is what you're examining here.
And that tradition was codified in this respect; a number of people wanted to adopt the uniform national interest rate but it was rejected.
It was felt that each state should be entitled to regulate interest each state could protect its own citizens.
On the other hand, they wanted to make clear that their own creation the national banks or new creation that revised national banks, I should say, would not be unfairly treated by the state law.
So they provided that in charging interest the national banks would be governed by the laws of the state where they're located.
There's no question that Congress intended for the states to continue to set the interest rate and that the national banks would be bound by them.
And just one quick quote and I won't try to belabor it but as the Congressman from California said, “What is the consistency or propriety of having two rates of interest established by law in the same community?”
What is the benefit of having two systems of usury in the same state?”
Of course they rejected that notion of two systems.
All right, what is now codified is Section 85 which is an issue here simply says, a national bank can charge for a loan what they can charge for loan is that rate allowed by the laws in a state where it's located.
First of Omaha claims our main office is in Omaha, Nebraska; we can charge the Nebraska rate and go anywhere in the country and charge that rate because we're located in Nebraska.
Now, we urge that Congress never intended to let this provision be use to export interest rates into other states.
We believe that Congress intended to preserve to each state the right to regulate interest rates.
Now, there is no question that the language on its face raises the possibility they assert here.
We don't deny that.
Now, we urge you to consider Congress' purpose and intent when they adopted Section 85 and we have supplied in our brief statement such as similar to the one that I've read which indicates what that intent is.
It seems clear to us that at the time that Congress adopted Section 85, it only contemplated banks be in one place.
Banks didn't travel the -- they'd pass the interstate commerce the way they do today.
A person even from another state one at a loan, they showed up at the bank and posted their security or note and bundles of notes were handled across the counter in the way they went.
Now, a couple of courts, the decisions which are cited in our brief have agreed that Section 85 then is silent when a bank goes somewhere else than the state where it's located, that as a result when they go elsewhere are governed by whatever laws in the force in that state.
I think there's an alternative argument that is just to sound and which I would urge here today as well and that is that located can mean more than just where the home office is or that building is.
If you look at the intention of Congress and you apply it to the transaction here, it seems to me that there's no question when a bank comes in to Minnesota, does a substantial solicitation, profits by its commerce in our state, maintains a corporation license to do business in Minnesota or a form corporation.
Justice William H. Rehnquist: With respect to that counsel, would the Minnesota's purposes be served if the Court had simply enjoined the subsidiary in Minnesota from carrying on this kind of conduct?
Mr. Richard B. Allyn: We're not sure what the National Bank would've done.
It seems that it may well have and the reason for that is the subsidiary was the one according to the stipulated record which made agreements with the local banks which would handle the paper coming from the merchants.
And secondly, the subsidiary was the one that was going to collect delinquent accounts.
And as a matter of fact, keep the interest.
Justice William H. Rehnquist: But the Supreme Court of Minnesota felt not even the subsidiary could be enjoined.
Mr. Richard B. Allyn: The Supreme Court of Minnesota, that's correct Your Honor.
They felt because of a prior interpretation in the Eighth Circuit that they were bound by it.
But Mr. Justice Rehnquist, if you read our court's opinion and you'll find that's one of the most reluctant --
Justice William H. Rehnquist: They weren't happy, obviously.
Mr. Richard B. Allyn: Okay, and the reason they weren't happy is because of the anomalous result and that is that one state could go anywhere a bank from one state could go anywhere in the country and beat up the competition there because they're bringing a different interest rate with them.
Chief Justice Warren E. Burger: I would have thought that you'd more business if you charge lower rates?
Mr. Richard B. Allyn: Okay, the problem comes up here Mr. Chief Justice is they have advertise their --
Chief Justice Warren E. Burger: (Voice Overlap) in terms of competition.
Perhaps, it's just the use of that word but --
Mr. Richard B. Allyn: Well, it would have made a difference here and here is how it happened.
They claim that their card was free.
No other card in Minnesota had claimed that.
The reason they could claim their card was free is that they weren't charging this privilege fee and the reason they can do that is because they're charging a higher amount of interest.
So, no one else could make this wonderful claim that their card is free and pity the consumer walking down the street.
All these banks said -- signs up said BankAmericard, many banks and facilities not an exclusive license.
And let's face it, one of the intents behind usury laws and idea is the public can't protect itself wholly.
It doesn't shop as wisely as it might.
So, we're saying the legislature is saying in the exercise of our police power.
We got look out for the citizens to a limited extent.
And that limited extent is set in outside limit on how much interest can be charge.
So, I agree that shopping around is certainly a part and parcel of our economy but some protections apparently have been added.
The important thing that we want to emphasize here today that we're speaking for the State of Minnesota is that we feel very strongly that if Section 85 interpreted in the way that they want it's going to displace our own ability to protect our citizens from usury.
And I think there are some analogous cases although they're not based on Section 85 but those cases the (Inaudible) cases.
There're three of them now out of the Circuits.
All of them holding that a mail or company in Chicago which ship things off to say a state like in Pennsylvania must not charge more interest than the law in Pennsylvania and it is not an undue burden on interstate commerce, and it's not an interference to their ability make a profit in that state.
Justice William H. Rehnquist: Well, those are really minimum context cases I think.
Here, you have a subsidiary.
Actually, it took out papers in Minnesota.
Mr. Richard B. Allyn: That's true Your Honor.
I frankly think our case is a little stronger.
But one of the points I want to make to you today is that they're looking for approval of a radical departure from the custom and the trade today.
To our knowledge, there are only two national banks.
They are going elsewhere and claiming that they can take their higher rate with them and at least we did it one or two last points I want to make before giving way to other counsel.
That is there is a request been made in one of the amicus that you make a perspective ruling here.
Firstly, the state does not object to that because we're just seeking an injunction.
But I'd like to point out that our evidence shows that first of all there aren't that many other banks that were doing this.
Almost every state in the country today has a bank credit card statute which sets an interest rate in that state.
Secondly, First Omaha came into Minnesota and kept doing what they did in the face of our new statute without ever challenging, without ever bringing on a declaratory judgment, without ever even asking the Commissioner of Banking for an opinion.
So, what isn't is if they want a notice if there might be a problem that they decide the commerce in our state and take a profit from our state without abiding by our law.
One last point then, --
Justice Byron R. White: General Allyn, why do you think the Minnesota Court was so deferential to the Eighth Circuit?
Chief Justice Warren E. Burger: Nobody else is.
Justice Byron R. White: But that hasn't been historically true and I wondered why they were persuaded here.
Mr. Richard B. Allyn: [Laughter Attempt] Your Honor, I think the justice opinion felt that because of the procedural way the case actually came up to Minnesota courts with the First National Bank itself of Omaha not being there that they felt that in effect their decision was going to effect that bank.
There's no question about that.
Chief Justice Warren E. Burger: And all the parties were Eighth Circuit people were they not?
Mr. Richard B. Allyn: Yes, Your Honor.
That they shouldn't have try and implement a different rule law then what they felt was a Superior Court --
Justice Byron R. White: Didn't they feel that the Eighth Circuit felt and then this Court feel it was bound by Tiffany in a way that Tiffany case?
Mr. Richard B. Allyn: Actually, no they were -- well, they mentioned Tiffany.
I think what they felt their (Voice Overlap).
Justice Byron R. White: Well, you would suggest we overrule Tiffany, wouldn't you?
Mr. Richard B. Allyn: I don't suggest you over rule Tiffany, Your Honor.
I suggest what they want you to do is expand Tiffany way beyond what the Supreme Court in 1974 dissent.
What they were -- I think the Minnesota Court felt bound by -- was the Fisher case in the Eighth Circuit.
Justice Byron R. White: What did the Fisher -- what it did in the Fisher wasn't the Fisher case didn't purport to follow Tiffany?
Mr. Richard B. Allyn: Your Honor, it was in dicta.
Actually, they started right out by saying Section 85 is clear; they're located in Nebraska it's in Nebraska transaction there in Iowa.
But there's no question they discussed Tiffany and said, if the most favored lender factor and they had to be used here because Iowa had a higher rate and all they could charge the higher rate in Iowa.
And I don't deny you that Tiffany is very important part in the case and co-counsel is going to talk about the most favored lender doctrine.
But you don't have to overrule it here.
The most favored lender doctrine was meant to protect banks from discrimination against state banks in their same location.
We don't have a discriminatory statute in Minnesota.
All banks and lenders in the bank credit card business, indeed any kind of credit card business, charge the same interest rate in Minnesota, it's 12%.
If it's a diners or a local department store, if it's an installment loan from the bank, they're all 12%.
So, I -- point I want to make to you Your Honor is that why some people don't like Tiffany, we don't want you to feel you have to overturn to get to where we want to go today.
Justice Potter Stewart: Except there's talking about a different rate of interest for small loan companies.
Mr. Richard B. Allyn: Okay, Mr. Justice Stewart, if I may address that real quickly.
Chief Justice Warren E. Burger: Omaha still has its Small Loan Act, does it not?
Mr. Richard B. Allyn: It does Your Honor.
Chief Justice Warren E. Burger: Which allows 36% in the aggregate or something in that (Voice Overlap)?
Mr. Richard B. Allyn: 33% for a loan up to $300.00, 18% for $300.00 to $600.00, and 15% up to $1,200.00 which is the outside limit.
The important thing to note here is that the close end transaction, it's -- doesn't permit any compounding and it has other limitations that they don't even begin to comply with here.
Now, they used that argument Mr. Justice Stewart to say that they can go and grab off that interest rate there and use it on these credit card transactions.
What it done to all the Small Loan Act was designed to make credit available to people who couldn't frankly get credit card.
Justice Byron R. White: Well, under Tiffany, what if in the home state of the bank?
The state has a special -- a general rule, interest rates at 18% and then they set a special rate for the state banks 12%.
Mr. Richard B. Allyn: Alright.
Justice Byron R. White: Now, under Tiffany, the National Bank isn't bound by that, is it?
Mr. Richard B. Allyn: Under Tiffany, they could charge a higher percent.
Justice Byron R. White: 18.
Mr. Richard B. Allyn: And we're not contesting that.
We just don't have that situation.
Thank you very much.
Chief Justice Warren E. Burger: Very well, --
Mr. Richard B. Allyn: Was the Small Loan Company Act issue raised in Minnesota Court?
Mr. Richard B. Allyn: It has been alluded to.
Justice Byron R. White: You can see that it was?
Mr. Richard B. Allyn: Yes, I --
Justice Byron R. White: In this case?
Mr. Richard B. Allyn: Yes.
They have at least in briefing said if nothing else to you we can use the most favored lender doctrine here in Minnesota by applying this 18% which we found over here in the Small Loan Acts.
Justice Byron R. White: Did the Minnesota Court pass on it?
Mr. Richard B. Allyn: I don't believe the Minnesota Court decided that it had to.
As a matter of fact, I'm sure it didn't.
Argument of John Troyer
Chief Justice Warren E. Burger: Mr. Troyer.
Mr. John Troyer: Mr. Chief Justice and may it please the Court.
The -- I would like to respond to a couple of questions that were asked here.
In terms of the competitive disadvantage which the market National Bank finds itself, it charges a 12% rate and a $15.00 membership fee or did until it so its program.
The Omaha Bank comes in here at 18% rate.
What is the competitor disadvantage to the market bank as distinguished from disadvantage to the Minnesota consumer?
The disadvantage to the market bank is number one, obviously it cannot charge an 18% rate, it cannot get the profit yield of an 18% rate.
But more precisely a bank which can charge a higher rate of interest has tremendous flexibility in advantage in terms of advertising in terms of soliciting the consumer.
If it is entitled to a greater yield, it can afford to spend the time, money and effort in order to track the consumers in the State of Minnesota and draw them off of for instance in Marquette's program.
Furthermore, the Omaha Bank has a competitive advantage at the 18% rate level because the Omaha Bank in Omaha is entitled to charge its finance charge of one-half percent per month on the previous balance of the customer's account.
Whereas in Minnesota, the rule provided by our statute is that must charge that rate on the average daily balance of the customer's account.
Now, while charging a finance charge of say 1% on the average balance, the account is distinguished from the previous balance.
The yield is greater using the previous balance method.
So that's just another example of how Omaha Bank and its subsidiary are privileged.
Secondly, we are not as Mr. Allyn has suggested urging that you overrule Tiffany.
A Tiffany can be limited to its facts.
A Tiffany was a situation involving a Missouri Bank, it was intrastate transaction.
The Missouri law provided for a 10% rate of interest to general lenders in the state; a state bank is limited 8%.
We have Missouri Bank which charge at 9% interest and the debtors sue.
Justice Byron R. White: Don't you think the Eighth Circuit understood to stand for something a little more broad than that?
Mr. John Troyer: I don't believe -- certainly, the Eighth Circuit extended Tiffany beyond what I think ought to happen here.
It seems to me that you cannot apply or should not apply Tiffany in an interstate transaction, that the Section 85 does not or should not -- does not permit that.
The very language of Section 85 does not permit that.
If you look at the clauses and try to construe them together, the first clause which permits a bank located in the Nebraska for instance, to charge the highest rate of interest to general lenders in the State of Nebraska.
If you look at that first clause --
Justice Potter Stewart: Do you think the Section would prevent the Minnesota from passing a statute that would require Iowa banks to charge a higher rate of interest than Minnesota banks or lower rate in Minnesota banks?
Mr. John Troyer: Would you give me that again please?
I didn't follow.
Justice Potter Stewart: Well, you say that the Section, this doesn't apply at all to interstate transaction, is that it?
Mr. John Troyer: Marquette's position is that Section 85 is totally silent on issue of what rates of interest make -- on the rates of interest which may be charged in interstate loan transactions.
It is perfectly clear in intrastate setting but not in the interstate --
Justice Potter Stewart: So it doesn't apply at all to an interstate transaction?
Mr. John Troyer: That's correct, Your Honor.
Justice Potter Stewart: So that as far as that Section is concerned, Minnesota could require an Iowa bank to charge a higher rate or a lower rate than --
Mr. John Troyer: No, no, no, Minnesota couldn't require an Iowa bank in Iowa obviously.
Justice Potter Stewart: No, I mean in Minnesota?
Mr. John Troyer: When that Iowa comes in to Minnesota, when it solicits Minnesota residents, when it --
Justice Potter Stewart: Well I know, but could it require the bank to charge a higher rate or a lower rate or either one than a Minnesota bank, when it's doing business in Minnesota?
Mr. John Troyer: All it could require under the first -- most favored lender doctrine in Tiffany is that --
Justice Potter Stewart: What about the Section, you say it doesn't apply at all to protect the Minnesota bank?
Mr. John Troyer: That's correct.
Justice Potter Stewart: And so that as far as that Section is concerned, Minnesota could require the Iowa bank doing business in Minnesota to charge you to the higher rate or a lower rate than Minnesota banks?
Mr. John Troyer: The Iowa bank, when it comes in to Minnesota, has the privileges of Minnesota national banks, so that the Minnesota, that passes a law permitting Minnesota banks to charge 12% or 18% certainly, the Iowa bank could take advantage of that.
Justice Potter Stewart: By virtue of what Section?
Mr. John Troyer: By virtue of Section 85.
Justice Potter Stewart: So, it does apply the interstate transaction?
Mr. John Troyer: No, it applies to intrastate transaction.
Justice Thurgood Marshall: Mr. Troyer, I've missed something.
Why didn't you just go ahead and use it?
Mr. John Troyer: Well, the Marquette National Bank is given a special standing under Minnesota statute as sort of a private attorney general to enforce the Minnesota statute.
The Marquette Bank, in and of itself has no standing to sort of claim a usury here against the Omaha Bank or the Omaha as subsidiary.
That cause of action belongs to consumers or it belongs to the State of Minnesota acting in behalf of consumers of the state.
Justice Thurgood Marshall: Well normally, other state I know, when somebody was charged as there is interest, they manage to get indicted.
Mr. John Troyer: Well, we would have loved -- Marquette would have loved to been able to bring cause of action against that Omaha Bank for usury but we simply didn't feel we had standings.
Justice Thurgood Marshall: I didn't say the bank brought it, the individual people, once you tell them that they get all their money back, plus they're very glad to join in a suit, aren't they?
Mr. John Troyer: The State of Minnesota, as a matter of fact, in it's intervention --intervening complaint has a sort of the cause of action against the Omaha subsidiary for that purpose and is asking, if the Minnesota Supreme Court is reversed here.
It's asking recover or for an adjustment in their interest rate, charged among the consumers.
So, that's a part of the State of Minnesota's cause of action.
Justice Thurgood Marshall: I mean, is that a great problem with the cause of action that says that when people charge extra high prices, it interferes the competition and the free marketplace and all of those other trade places?
Mr. John Troyer: In response to that Your Honor, all I can say is that the Marquette Bank has been disadvantaged.
There has been a drawing off of the customers of the Marquette National Bank, and the statute was passed both for the benefit of state banks in Minnesota and national banks located in Minnesota, and for Minnesota consumers.
And we are -- we have standing under that statute and have sort of our claim here, because we have been injured.
We are injured when the Nebraska Bank comes in here and offers its card free to Minnesota residents in order to take -- it can afford to offer the card free when you have -- when it's permitted to charge an 18% rate.
If it had operated 12% rate, they wouldn't be offering that card.
Justice Thurgood Marshall: Well, suppose a gasoline company start to selling gas for $3.00 a gallon, would the other companies object?
This isn't limited to money.
Mr. John Troyer: I assume not.
Chief Justice Warren E. Burger: Well, I undertook your friend, your colleague to say that the come on was that the Omaha Bank could advertise no membership fee initially, not forget the customers enter the house and after they fined they were paying 18% instead of 12%?
Mr. John Troyer: That's correct Your Honor.
Chief Justice Warren E. Burger: That's how you explain my confusion about competitive advantage, at least to me.
Mr. John Troyer: Back to my point, if you look at the -- the Seventh Circuit here has taken the position of the plain language of the statute, it talks in the first clause of 12 U.S.C. 85 that's on page 23 of our brief, it talks about to the fact that the words are “any loan” and that means any loan made in the State of Nebraska, any loan made in the State of Minnesota.
We don't believe that you can read the statute that way.
Given the second clause of 12 U.S.C. 85, that interpretation won't wash the interpretation here that Nebraska Bank can charge you the highest rate of interest provided in either state.
The clause has taken as a whole, are clearly referring to any loans made in the state where the national bank is located.
You've got to construe both clauses together.
If the words “any loan” in the first clause referred to loans made across state lines, then the second clause presumably would refer to the rate of interest permitted state bank located in the foreign state, rather than state banks located in the home state.
It's clear that the second clause refers to the rate of interest permitted state banks located in the home state and the home state only.
The construction given here by the Seventh Circuit by the State of Minnesota is Section 85, conflicts with the doctrine of the competitive equality which has been ever since Tiffany, that has been part and parcel in Section 85.
The purpose of Congress in adopting Section 85 was to maintain and secure the competitive equality between national banks and state banks and the interest rates they could charge.
If you look at the Senate debates in the Congressional Globe which we cite in our brief, it's clear that there is not any debate by the senators as to this point, as to what interest rates could be charged for a national bank across the state lines.
Certainly, they would have debated that point because you had a state bank lobby on one hand in 1864 and you had a national bank lobby on the other hand.
And they were very concerned, each separate party, by protecting their interests and that if there was any thought of that time in adopting Section 85 that the national bank from Nebraska was going to be able to come into the state of Minnesota and charge Nebraska rates, the senators will raise it.
You would have seen that in the debates, you don't see that in the debates.
Adoption of the Seventh Circuit -- decision adoption of the Minnesota position and the Minnesota Supreme Court's position means destruction here of the doctrine of competitive equality between state national banks and interest rates.
As Mr. Allyn pointed out, there is a very delegate balance between national banks and states banks in terms of the competition between them.
If you're going to allow a Nebraska Bank to come in here, to the State of Minnesota, and by offering the card free, draw off, and in effect to ruin Marquette's bank card program, what's to stop it from going to some other state and doing the same thing.
No local, national or state bank will be safe from the predatory practices then about the state national banks located in the state permitting high interest rates.
Again, I emphasize, that Marquette in the State of Minnesota take the position that Section 85 of National Bank Act is simply silent on the issue what interest rates may be charged by a national bank when it crosses state lines and transacts business in the foreign state.
Justice William H. Rehnquist: Well, this was more then just a national bank crossing state lines.
It actually incorporated the subsidiary in Minnesota.
Mr. John Troyer: That's correct, for purposes of conducting business in the State of Minnesota.
We take the position that since Section 85 is silent that ordinary conflicts or conflict of law rules apply here.
For instance, in the First Clause of Section 85, when you read the words -- the laws, any national bank association may charge on a loan or discount made interest, the rate allowed by the laws of the state that means the state's conflicts of law rules as well.
Take for instance the state lender in Nebraska who chooses to come in to the State of Minnesota based on Nebraska's conflict of laws rules that the state bank in Nebraska would presumably given a strong public policy statement in the Minnesota statute have to comply with the Minnesota Credit Card Act.
Justice William H. Rehnquist: What if someone from Worthington, Minnesota went down to Omaha and borrowed from the First National, would the First National be entitled to charge him a Nebraska rate?
Mr. John Troyer: If that consumer goes to Omaha, Nebraska, and our Act specifically provides for that provision, subdivision 8, I believe it was.
When that Minnesota consumer goes to Nebraska, and obtains a loan from Nebraska or obtains the card from Nebraska bank, it shows up what the premises the Omaha Bank, certainly, then in that situation.
But that's not what happened here because Omaha Bank was in Minnesota, through its operating subsidiary, systematically and continuously soliciting Minnesota residents for the purposes of enrolling them in that, the Nebraska bank's program.
Justice John Paul Stevens: Mr. Troyer, the amicus brief filed here by the Conference of State Bank Supervisors makes alternatively at least different argument as you know, makes three first of all as the Court to overrule Tiffany and then it says even if Tiffany is not overruled, there are at least two alternative grounds on which your position can be and should be vindicated.
First, assuming that a bank can only be located in one place and here the bank is located in Nebraska that 85 is simply inapplicable to business, it does anywhere else except to where it is located.
And that's -- as I understand, it is in your argument.
But secondly, it says particularly now, in the light of Citizens and Southern National Bank against Bougas that a bank can be located in more than one place and that this bank is located in Nebraska and when it moved into your State of Minnesota, it's also located there.
And therefore, by the very terms of 85, for its Minnesota business, it is governed by your law, since Minnesota is where it's located for the purpose of that business.
You have mentioned that argument (Voice Overlap).
Mr. John Troyer: We don't disagree with that position, that is really the position of the State of Minnesota, that for intrastate --
Justice John Paul Stevens: No, I didn't hear you make it.
Mr. John Troyer: -- for intrastate loan transactions, the national bank is located in Nebraska.
Justice John Paul Stevens: The argument is really made only in the -- so far, as I've heard today in the brief, this amicus brief of which you have referred, I haven't heard and made orally.
Mr. John Troyer: Well, let me make it orally.
Justice John Paul Stevens: Well, you don't have to because you just stated it.
But do you disavow that argument?
Mr. John Troyer: No, no, I can accept that argument as an alternative ground for holding the favor of Marquette and State of Minnesota.
Argument of Robert H. Bork
Chief Justice Warren E. Burger: Your time is expired now, Mr. Troyer.
Mr. Robert H. Bork: Mr. Chief Justice and may it please the Court.
The only substantive question in this case is actually whether Section 85 of the National Bank Act applies to interstate loan transactions.
I think the answer to that as a legal matter is quite clear, that absolutely and it clearly applies, I think beyond doubt.
But so much of this discussion today has been essentially legislative cast somewhat as legal argument.
It's really legislative asking this Court to change the reading that Section 85 has had for over a hundred years in order to protect Minnesota's public policy.
And I think I have to spend a moment characterizing this case before going directly into the understanding of Section 85, and that is this.
Nebraska is not exporting interest rates.
I think it is more accurate to say that Minnesota is exporting its law to a Nebraska bank.
A Minnesota resident who wants a line of credit from a Nebraska bank, we are told by Nebraska -- by Minnesota I'm sorry, may drive or fly to Omaha, get the Omaha credit card and bring it back and use in Minnesota or any other state in the union, but he may not engage in that same transaction by mail and that's all of this case comes down to, because what happens here is, a Minnesota resident is told and made aware by a service corporation which extends no credit to anybody, that those credit cards are available in Omaha.
Chief Justice Warren E. Burger: Are you telling us that all of these transactions are made in this way, Mr. Bork?
Mr. Robert H. Bork: Mr. Chief Justice, I am saying that anybody who wants a First National Bank of Omaha credit card sends an application to Omaha, Nebraska.
The application is passed upon in Omaha, Nebraska.
The credit is extended in Omaha, Nebraska and the debt is repaid in Omaha, Nebraska.
And what we're being told today is that that would be all right if the Minneapolis resident drove to Omaha and got his credit card but not if he sent a letter or an application asking for his credit card.
Justice Byron R. White: What do you think the act of extending credit is in the credit thing, it's when -- if a customer goes to a restaurant and uses it's credit card and signs his slip, it's when the bank pays the --
Mr. Robert H. Bork: When the bank pays the restaurant Mr. Justice White.
I think this --
Justice Byron R. White: And that happens in Omaha, you think?
Mr. Robert H. Bork: Oh!
Yes, that happens in Omaha.
Now, it's conceivable that if a Minneapolis resident went to New York and use his credit card in a hotel in New York, New York might say, “Aha, its public policy should govern that transaction.”
And then we would have a three-way fight.
Justice Byron R. White: Well, why can't Minnesota say, if Omaha Bank wants to have one of its customers use his credit card in Minnesota, that Minnesota can control the terms of that?
Mr. Robert H. Bork: You mean a different kind of a statute?
Justice Byron R. White: Yes.
Mr. Robert H. Bork: That could happen.
And I suppose if every state in union said that every use of a credit card in our state to purchase something is governed by our usury laws, I think the credit card business would cease to exist because every time somebody cross the country, the credit card companies would have to compute interest for every different state and have to see where every transaction was --
Justice Byron R. White: Then what does Minnesota said that's different in that?
Mr. Robert H. Bork: Well, Minnesota says that if our -- if you ask our customers to write to you to get a credit card approved in Omaha, you have to comply with Minnesota interest rates even though the entire making of the loan, the entire extension of the credit and everything about that transaction is centered in Omaha and even though, and I should express this, that credit card will be used anywhere in the country and many nations abroad.
Justice William H. Rehnquist: If the business is so heavily centered in Omaha, why did they incorporate a subsidiary in Minnesota?
Mr. Robert H. Bork: To make phone call, to make it known that if you send an application to the First National Bank in Omaha, we will consider it and perhaps extend your credit card.
Justice William H. Rehnquist: Do you think the Minnesota card could have enjoined that?
Mr. Robert H. Bork: I do not think so Mr. Justice Rehnquist because that would be to apply Minnesota law through a subsidiary to a Nebraska banking transaction.
Now, it could enjoin if that was a deceptive practice or something of that sort, but we're not taking about that.
We're talking about send a letter to us in Nebraska and we will consider extending your credit which is exactly the same kind of transaction --
Justice Thurgood Marshall: Would it be that if some resident in Minnesota insist on paying more than the going rate of interest and prefers to pay 18% instead of the going rate, then the only way to do it is either to mail it to -- or to go to this office in Minnesota.
Mr. Robert H. Bork: Well, Mr. Justice Marshall, I should say that the Omaha plan has a lot of advantages, that the Minneapolis plan does not if you are a prompt payer, if you engaged in a transaction for the restaurant on September 15, get billed on October 1 and pay before October 25, you will play no interest rate to the Omaha National Bank, but the other --
Justice Thurgood Marshall: That's for mails on time?
Mr. Robert H. Bork: Yes, but the other plan, Mr. Justice Marshal, charges you a $10.00 or a $15.00 charge whether or not you're a prompt payer so that it is the advantage of prompt payers to use the Omaha -- card.
Justice Thurgood Marshall: But the problem I have is the 18% interest when given to your office in Minneapolis --
Mr. Robert H. Bork: I beg your pardon?
Justice Thurgood Marshall: Can you pay your bill in the office in Minneapolis?
Mr. Robert H. Bork: No, the bill is mailed -- the payment of the bill is mailed to Omaha.
There is no -- the Service Corporation, which is the party here, does not extend credit and does not --
Justice Thurgood Marshall: No, but -- and you can't pay it.
Mr. Robert H. Bork: No, you must mail your check or your money order to Omaha.
Justice Thurgood Marshall: And that's the way you get around the usury law.
Chief Justice Warren E. Burger: Does the Nebraska Bank advertise in Minnesota?
Mr. Robert H. Bork: It does indeed, Mr. Chief Justice.
(Voice overlap) No, it's been mostly by mail or telephone making applications available in that sense.
Now, I should say one word about this enormous competitive disadvantage which the Marquette National Bank thinks it lives under and that competitive disadvantage turns out to be really entirely that the Omaha Bank through its agent can advertise a free credit card.
The Marquette Bank could have advertised equally a 33% lower interest rate.
This entire case -- this entire attempt to change the structure of the National Banking System turns out to be a fight over alternative advertising techniques.
I really think the Marquette Bank would have done better to take their case to an advertising agency than to a law firm.
But that's what it comes down to and I would like if I may return to the law of the case, which has a presentation and somewhat slighter I think, and I think it is clear that Section 85 of the National Bank Act applies to interstate transactions and for over a hundred years, a banking industry has assumed that.
It's had every reason to think so because of this Court's decision in the Tiffany case and because of the --
Justice William H. Rehnquist: You said that Tiffany is a holding to that effect?
Mr. Robert H. Bork: No, sir.
I do not, Mr. Justice Rehnquist.
But if you take a look at Tiffany and then at the clear language of Section 85, which appears on page 14 of our respondent's brief, the blue brief, the statute provides in pertinent part the National Bank -- I'm freely translating it until I get to the right word, the pertinent word -- the National Bank may take interest or charge on any loan or discount made and that includes every loan or discount made by a national bank so that the plain text meaning of Section 85 is that if a loan or a discount is made by a national bank, Section 85 governs it.
Now, I would think it would take a rather strong or rather compelling showing in the light of the Tiffany case over a hundred years ago in a consistent line of cases following Tiffany, in the light of the clear wording of Section 85, and in the light of the understood practice of the financial industry in this area, and I want to stress that because the financial industry has built up around the settled expectation that 85 applies.
And we are now talking about an industry affected by this case.
Justice William J. Brennan: Incidentally, Mr. Bork, the Section 30, that was in Tiffany read almost exactly (Voice overlap), didn't it?
Mr. Robert H. Bork: Yes, it did, Mr. Justice Brennan.
It's the predecessor section.
Justice William J. Brennan: Yes.
Justice Potter Stewart: Well, that's okay if one precedes on the assumption.
I mean your -- your argument follows if one precedes on the assumption that the bank is located in Nebraska and only in Nebraska.
But what if the bank is located in Minnesota?
Mr. Robert H. Bork: Well, of course at the time the 1864 Act was written, branch banking was absolutely prohibited.
Justice Potter Stewart: Correct.
Mr. Robert H. Bork: So that one would have to --
Justice Potter Stewart: So a bank could have a single location.
Mr. Robert H. Bork: Single location.
Justice Potter Stewart: But is that now true?
Mr. Robert H. Bork: I think it is still true.
We -- we may -- we not -- may now branch within the state.
Justice Potter Stewart: Yes, but how about the Bougas case?
Mr. Robert H. Bork: About the Bougas case, Citizens & others against Bougas said I think entirely on reasoning that I think applies to this case that there is no particular reason to confine the word “located” so that a bank cannot be sued at its branches because all of the policy reasons against -- or for requiring the word “located” to mean sue the bank --
Justice Potter Stewart: Or one single place.
Mr. Robert H. Bork: -- have now changed, so those same reasons permit suit at the branch banks.
In this case, those policy reasons, as I hoped to show, press in -- overwhelmingly in the opposite direction.
And the reason I say that is that a really enormously complex, and I should say enormously highly regulated at state and federal levels, industry is involved here build around -- in part, build around the principle that Section 85 applies to this, and you now have an industry which has -- governed by this case alone which has annually does hundreds of billions, perhaps trillions of dollars in credit transactions.
This is not a credit card case.
This is a case that applies to all interstate loans because Section 85 is not a credit card statute.
And if Section 85 has no application to interstate transactions, it has no application to any interstate transaction.
For example, interstate mortgage money, which is a very big industry, would suddenly be thrown into chaos by a decision that the -- the state of where the bank is located no longer governs the interest rate.
Interstate automobile loans, which are very common, have been governed by Section 85.
This is not a credit card case; this is an interstate lending case.
Justice William H. Rehnquist: Well, you're -- you're saying then that if the banks have construed Section 85 this way for so long, we should construe it that way?
Mr. Robert H. Bork: Well, I think given, Mr. Justice Rehnquist -- I think given the Tiffany case --
Justice William H. Rehnquist: If that's not Tiffany you agree (Voice overlap).
Mr. Robert H. Bork: No, no, I was about to make a --
Justice William H. Rehnquist: By all means.
Mr. Robert H. Bork: I was at part, Mr. Justice Rehnquist to suggest that there was some reason for the banks to have felt this way given the Tiffany case, given the plain language, any loan made by National Bank, which is in Section 85.
And then given the practice, which is going up and was unchallenged until recently, the form books in which these loans are made, the available form book all specify the law of the state of the bank as the law of providing the interest rate, which has been understood in this industry.
Justice William H. Rehnquist: Would you really think form books should be an important part of our decisional apparatus?
Mr. Robert H. Bork: [Laughter] No, Mr. Justice Rehnquist.
I was just suggesting that the form books are merely a reflection of an understanding that this industry has been built upon.
And if I had no other argument, I -- even if it were unreasonable for the banking industry to have construed Section 85 the way they did, I would stand here before you and argue that that unreasonable construction having gone on so long ought to be adhered to because you have not the information before you to know what new statute to legislate through interpretation of Section 85 and indeed, you have not the options under Section 85 to legislate wisely in this field.
For example, the kinds of legislative problems were being given here by the State of Minnesota and by the Marquette National Bank for consideration.
Perhaps, the best national rule -- I don't know, perhaps the best national rule would be a single credit card rate for all credit cards legislated federally.
That might be the way to handle this.
That is not an option that's available to this Court under any conceivable reading --
Chief Justice Warren E. Burger: Mr. Bork.
Mr. Robert H. Bork: -- of Section 85.
Chief Justice Warren E. Burger: Would you agree that in Minnesota or any other state places a statutory limit on interest rates and declares that with certain penalties that are anything beyond the -- that is usury that what their state is doing is expressing an important social policy to protect its citizens?
That is in -- in general.
Would you agree that that's the purpose?
Mr. Robert H. Bork: I certainly do agree to that, Mr. Chief Justice.
Chief Justice Warren E. Burger: If you say that doesn't stop them from gambling by mail if they have a mail gambling apparatus in Las Vegas.
If you can -- I don't know if you can gamble by mail but -- is that --
Mr. Robert H. Bork: I doubt -- I doubt that you can gamble by mail.
But once it is -- what is being said here is that a Minneapolis resident may not write to an out of state bank for a line of credit, which he intends to use all over the county because Minnesota follows him.
Minnesota brands the residents so that Minnesota law goes everywhere he goes.
Chief Justice Warren E. Burger: Well, Minnesota may be -- would put it in a little different light that might say Minnesota is going to try to shelter and protect its native citizens.
Mr. Robert H. Bork: Well, I think that's so, but I don't think Minnesota can shelter and protect them when they leave the state in effect to do their transactions and when a federal law reads directly upon that transaction.
Chief Justice Warren E. Burger: (Voice overlap) Of course, there aren't really in the state really, are they?
Mr. Robert H. Bork: There --
Chief Justice Warren E. Burger: There is in the state when they have a branch, a Nebraska branch in Minnesota?
Mr. Robert H. Bork: Nebraska has no branch (Voice overlap).
This is a service corporation.
It does no banking business whatsoever.
Chief Justice Warren E. Burger: Yes, I was using branch not in a technical banking sense but they -- they have an arm under Minnesota?
Mr. Robert H. Bork: They have people in Minnesota who -- who make Minnesotans aware that they may write, may send an application to Nebraska for a credit card.
That's what they do.
It's -- it is a -- I'm sure that throughout our history, bankers have made known to lend to possible borrowers in other states, that credit was available in Wall Street or in Philadelphia or in Boston.
Those were financial centers back in the colonies and it was made known that that credit was available in by mail or by travel.
Borrowers came for that purpose and we had interstate lending that far back, and that this case is no different.
Justice Potter Stewart: Mr. Bork, the complaint in the case, which is referred to on page a (3) of the Supreme Court Minnesota's opinion, paragraph 3 says, “Defendant first of Omaha Service Corporation will participate in the system by entering into agreements with Minnesota merchants and Minnesota banks, which will govern the participation of these merchants and banks in the system.”
Now, doesn't that sound to me like a rumor but just virtually the right and favorite bank in Omaha?
Mr. Robert H. Bork: [laughter] Mr. Justice Rehnquist, they do -- it's licit people to sign up but no credit transaction takes place in Minnesota.
Every aspect of that, the application, the approval, the extension of the credit, and the payment all takes place in Nebraska where the bank is located.
Justice Potter Stewart: Well, what are the -- what are the agreements which the service corporation enters into that are referred to in paragraph 3 of the complaint?
Mr. Robert H. Bork: Oh, that a -- that a bank will -- when these sales drafts come in that it will send them through the ordinary bank channels to Omaha --
Unknown Speaker: These are agreements between the merchants and the bank --
Mr. Robert H. Bork: Well usually, the bank is not a party.
It's just a service corporation.
Unknown Speaker: Oh, I know, but the -- a lot of merchants won't go for certain credit cards and a lot will, and so the bank is interested in having the retail establishments agree to use their cards.
Mr. Robert H. Bork: Yes, and the service corporation will make an agreement with a restaurant or with another bank.
Justice Byron R. White: Yes, that's the agreement I think that --
Mr. Robert H. Bork: Yes, but it extends no credit.
It makes no loans.
It does nothing that would come under Section 85 or indeed under the Minnesota statute.
What is happening here is that --
Unknown Speaker: I thought -- but doesn't that include -- doesn't that include a -- an agreement as to how much of an override the bank's going to take?
Mr. Robert H. Bork: Yes --
Unknown Speaker: You have 5% or 7% or something?
Mr. Robert H. Bork: Oh, no, no, the override -- you mean the discount for the merchant?
Unknown Speaker: Yes.
Mr. Robert H. Bork: I think that runs between 1.5% and 4% now, it is --
Unknown Speaker: Well, alright, but that -- that agreement will include that figure?
Mr. Robert H. Bork: Probably so.
Unknown Speaker: So that is -- what do you call that?
Is that a fee?
Is that a fee?
Mr. Robert H. Bork: Well, I haven't characterized it, but I don't think it's an extension of a loan which -- which we have to worry about whether it falls on Section 85 or not because what we're talking about here is the interest rate charge --
Unknown Speaker: But you got to pay the merchant.
What you're doing, you're paying the merchant until you can collect from your customer.
Mr. Robert H. Bork: That's right.
Unknown Speaker: And the merchants are going to have to pay you something for the use of the bank's money.
Mr. Robert H. Bork: Yes, but the merchant gets a discount or pays a discount.
But what we're talking --
Unknown Speaker: He's getting a discount, yes.
Mr. Robert H. Bork: What we're talking about here is the interest rate paid by the car user --
Unknown Speaker: I understand.
Mr. Robert H. Bork: And that is the Section 85 issue, and I would like --
Justice John Paul Stevens: Mr. Bork.
Mr. Robert H. Bork: -- to make --
Justice John Paul Stevens: I want to go back if I may to your very beginning.
You said, and I may well be right but I'm just going to try to think it through, that in one transaction where the card user goes to Nebraska and signs the -- gets the card comes back.
Everything that's done with that card will be a Nebraska transaction.
It would be -- be exempt from the Minnesota usury law.
Mr. Robert H. Bork: That's what counsel just said, Mr. Justice Stevens.
Justice John Paul Stevens: That -- that's perfectly clear, is it, even they --
Mr. Robert H. Bork: Well, that's what -- I took that from -- from counsel's statement just now.
Justice John Paul Stevens: Is -- of any cases so held?
I mean the thing that pull a trouble, I'm just trying to think it through myself, it would seem to me that the extension of credit on which interest is paid does not occur until so many days after a purchase of a meal or something like that in Minnesota or wherever it's being used.
The extension of credit is not when you sign the -- you get the line of credit --
Mr. Robert H. Bork: No, I understand that, but I --
Justice John Paul Stevens: But then, is not credit extended in Minnesota whether or not the card is gotten by mail or by a personal visit to Nebraska?
Mr. Robert H. Bork: No.
The credit is extended when the Omaha Bank pays the merchant, whether that merchant is in Minnesota or Iowa or New York or Los Angeles or Bangkok.
Justice John Paul Stevens: Alright.
Mr. Robert H. Bork: That credit is extended at that point.
Is it -- it is extended at Omaha, Nebraska, and it is repaid.
Justice John Paul Stevens: If that's true, if it's -- if it's Omaha rather than Minnesota, isn't it equally Omaha whether or not the credit card is obtained by mail as opposed by a personal visit to Omaha?
Mr. Robert H. Bork: That was my point, Mr. Justice Stevens, that Minnesota was saying we don't attempt to follow our residents if they drive or cross the state line.
But if they write across the state line, our law goes with them.
Justice John Paul Stevens: Yes, but under your view if you're correct, as I understand you, neither transaction would be subject to the Minnesota usury law.
Mr. Robert H. Bork: That is correct because of Section 85 --
Justice John Paul Stevens: No, no, no, even entirely apart from Section 85.
Mr. Robert H. Bork: Oh, you mean if they entered into a contract about what law applied?
Justice John Paul Stevens: No, no, the contract is --
Mr. Robert H. Bork: On the choice of --
Justice John Paul Stevens: The contract is whether it's made in by a personal visit or by mail.
Is it when you buy a man -- buy a meal, you will get credit extended to you from Nebraska, if I understand you --
Mr. Robert H. Bork: Yes.
Justice John Paul Stevens: So you're just not subject to the Minnesota law under it?
Mr. Robert H. Bork: Under (Voice overlap) --
Justice John Paul Stevens: Regardless of the Section 85.
Mr. Robert H. Bork: -- of that sort, I would think not.
Justice John Paul Stevens: So you don't even rely on the federal statute if your presentation is correct.
Mr. Robert H. Bork: No, I would much prefer if I may to rely upon the federal statute, Mr. Justice Stevens.
Justice John Paul Stevens: Well, I just don't -- it's just something I haven't quite followed your argument.
Mr. Robert H. Bork: Well, I was trying to -- my point about that, and I've spent much, much too time developing it I'm afraid, is that we were started with a characterization of this case which was intended to make what happened sounds very unfair as if Nebraska was invading Minnesota with an interest rate, and I'm just trying to point out that what happens here is if somebody goes to Omaha or writes to Omaha and every step in the transaction takes place in Omaha -- and that's all I wanted to -- I merely wanted to place the case in some perspective.
When I --
Justice John Paul Stevens: Well, do you or do you not contend that there's a difference between the transaction by mail and transaction by personal visit in Omaha?
Mr. Robert H. Bork: I think there's no difference whatsoever.
The Minnesota statute, I am told by counsel, makes one.
But I really -- my argument really is the Section 85 governs.
I have already made the point I think that its plain language governs any text.
Now, the question is there are only two arguments made against that, and each of them is completely auspicious.
The first one is that there is a policy of competitive equality which has to be read into Section 85, auspicious because that policy derives from later enactments which have nothing to do with Section 85.
And if you'll look at the Marquette Bank's brief, Marquette Bank itself on page 13 as I recall agrees that a state bank -- pardon me, a national bank in a state gets the rate that the general lender gets or the rate that the state bank gets, whichever is higher.
That's not a policy of equality.
That on the face of the statute is a policy of favored lender.
Now, that is exactly what Tiffany held, and Tiffany was right.
Now it said -- but since then, we had a policy of competitive equality, which somehow it would be read backwards, to overcome the language as 85.
In fact, that is not true.
If you will look at Section 85, you will see that in 1933, it was amended to give national banks but not state banks freedom from state regulation by giving national banks the option of charging 1% above the federal discount rate, which option was not extended to state banks.
And what that means is at the beginning, competitive equality as to discount, as to interest rates was never intended by Congress.
Competitive equality as to interest rates is not intended by Congress today.
And I think I've sufficiently pointed out that there is no competitive inequality in fact in this case because it's a dispute over advertising techniques.
They have a technique they could use, as well as the one that we have used.
The other argument is that Congress simply could not have intended Section 85 to apply to an interstate transaction because there was no interstate lending back in those days or nothing to speak of.
That assertion is incredible.
Before this -- before the American Revolution, there was inter-colonial lending.
In their book, the Stamp Act Crisis, Helen and Edmund Morgan point out that the Stamp Act Crisis cause the closing of the colonial courts and that states are colonies rather such as Connecticut were delighted because that meant out of colony creditors couldn't enforce their judgments in Connecticut.
Before the American Revolution, there was an international trading.
London factories financed our tobacco trade.
George Washington himself was engaged in that kind of financing.
When we come to the Constitution itself, it's clear that interstate lending follows interstate commerce, builds an exchange and so forth, which I mentioned specifically in Section 85.
And one of the reasons for holding a Constitutional Convention was to deal with control of the federal level over interstate commerce and it is quite clear I think that in the writing of a Constitution, the framers were contemplating interstate lending because they took care to make it a federal power to write a uniform bankruptcy law obviously to prevent discrimination against out of state creditors by -- by states.
Now, if we come to the period after the revolution, I refer simply to the brief file by the First National Bank of Chicago, which gives examples of bank interstate lending in the 1830's.
I would refer you, the Court, also to Carl Swisher's history of this Court in the Taney years, the homes device history of this Court in which he points out that in 1839, this Court was deciding the right of corporations to deal in -- bills of exchange in states other than where they were incorporated.
And he points out that President Van Buren had to address Congress in the special session about the problem posed by bills of exchange, who transferred capital from one region of the country to the other.
If that Congress didn't understand that interstate lending was going on all around it, it must have been incredibly obtuse or else, it was hermetically sealed, and it was neither.
And once we assume that Congress understood that interstate lending existed around it in 1864, then we cannot assume that Congress for the only time in history reversed the Constitutional pattern and chose to legislate entirely as to intrastate transactions and leave to the states the control of interstate transactions.
That turns the thing entirely upside down.
So I think there is no -- I would close with a remark that this industry could be thrown into chaos if we have now -- not just the credit card industry, the entire industry -- if we have now to take the 48 billion credit card holders out there, follow their residences as they move around the country, recompute interests, recalculate the way it's done, follow the laws of all the jurisdictions, I don't know whether this kind of business or the interstate mortgage business or the automobile loan business is going to be doable.
There are enormous costs involved that simply aren't in this record that ought to be taken into account by Congress.
Congress has amended this Section 85 many times.
Congress has taken up the credit card issue in terms of how you compute these rates.
In 1977, a bill was introduced on that.
It is not as if Congress was inactive.
And we have a trillion-dollar -- many trillion-dollar interstate loan businesses which simply ought not to be thrown into confusion by overturning a law that has been so clear and been regarded so clear and have been interpreted so consistently for over a hundred years.
And for that reason, because of the law, because of Tiffany, because of the understanding, because of the financial industry that has been built around it, we ask the judgment of the Supreme Court of Minnesota be affirmed.
Justice Potter Stewart: If -- if it should be found that -- that your client bank, that Omaha Bank had located itself in Minnesota by opening up this wholly-owned subsidiary agent, then 85 clearly would apply, wouldn't it, to -- and make the Minnesota rate of interest applicable to --
Mr. Robert H. Bork: Well --
Justice Potter Stewart: If it's done by that wholly-owned subsidiary with Minnesota residence.
Mr. Robert H. Bork: Well, I suppose -- let me repeat, Mr. Justice Stewart, that I think the policy reasons that led to the expansion of the word “located” in Bougas lead precisely to the confinement of the word “located” here because you're going to offset a major industry without knowing exactly what is happening, without knowing the result of the ruling, without having the options of the information before you so that Bougas I think reads against it.
But if one said that a bank is located wherever it does -- has some activity --
Justice Potter Stewart: No, no.
Where -- no, no, not wherever it has some activity, not where it does business by mail but -- but wherever it opens a wholly-owned subsidiary for this business.
They after all -- the Minnesota Court -- the Minnesota statute has -- says that the defendant has to be a bank.
The Minnesota Court in this case apparently held that this subsidiary was a bank within the meaning of that statute.
Mr. Robert H. Bork: That's a point that has to be raised yet below because I think we have problems under Section 86, the venue provision by treating First of Omaha as a bank.
Justice Potter Stewart: Right.
Mr. Robert H. Bork: But that wasn't decided below our argued -- so we won't --
Justice Potter Stewart: Right at the tail-end of your brief.
Mr. Robert H. Bork: But the -- the problem would not be solved by expanding the word “located” when you incorporate a subsidiary to do this because obviously, a subsidiary doesn't have to be incorporated to do this.
I think the only way the word “located” could be enlarged in order to take care of that, we say that anytime a bank does business across a state line, it is located across a state line.
Justice Potter Stewart: Well, we wouldn't need to go that far.
Mr. Robert H. Bork: But I don't think the -- I don't think Mr. Justice Stewart, with respect to the policy would be consistent, unless you did go that far.
And if you did go that far or even this far, you would have really enormous impacts upon a --
Unknown Speaker: What if the subsidiary sold credit cards -- actually issued credit cards?
Mr. Robert H. Bork: I don't think these -- the selling of credit cards would in fact be the making of a loan.
Justice Potter Stewart: You think -- you think that the -- before Minnesota law would govern at all or the bank could be said to be located in Minnesota is if they're -- if it were extending credit in Minnesota.
Mr. Robert H. Bork: If it engaged in the act of making a loan in Minnesota, which would require a branch, it would be then located in Minnesota but it is not located within the -- within Section 85 and cannot be because it's not permitted by law to branch in to Minnesota.
But all banks do business across state lines and all banks will be affected by a ruling that -- of this sort.
Justice Lewis F. Powell: Mr. Bork, you arguing about the trillions of loans that would be affected by this case prompts me to ask why the -- the banking industry apparently has taken so little interest in this case?
I don't see a vast number of amici brief.
Has the American Bankers Association filed a brief in this case?
Mr. Robert H. Bork: I don't think the American Bankers Association has the on --
Justice Lewis F. Powell: There's one -- one by the bank examiners but --
Mr. Robert H. Bork: Well, there's one by the Consumer Banker Association --
Justice Lewis F. Powell: Yes.
Mr. Robert H. Bork: Which is an association of banks and one by the First National Bank of Chicago.
I cannot answer you as to why other banks have not filed amicus --
Justice Lewis F. Powell: Every major bank in the United States solicits loans in virtually every state, as well as foreign countries.
Mr. Robert H. Bork: Yes.
Justice Lewis F. Powell: And I understand your argument to be that this case would control the interest rates --
Mr. Robert H. Bork: Well, since Section 85 is certainly not a credit card but an international -- but a loan statute --
Justice Lewis F. Powell: Of course, that's right.
Mr. Robert H. Bork: It would certainly control all those things.
I cannot -- I cannot offer you an explanation, Mr. Justice Powell.
Justice Byron R. White: Mr. Bork, are there some controller regulations under 85 that would indicate some administrative construction of the statute down through the years or not?
Mr. Robert H. Bork: There is the -- Mr. Justice White, if I may -- if I can find it, there is in our brief the Comptroller of the Currencies regulation which rests upon Tiffany -- do you know the page -- which rests upon Tiffany and states the policy of Tiffany.
Justice Byron R. White: Well, never mind that, I can find it, but that's --
Mr. Robert H. Bork: It's 12 CFR, there is a Comptroller of the Currency
Justice Byron R. White: Is that old?
Mr. Robert H. Bork: I'm not aware of how old this.
It's been around for a while but I'm not aware of how old it is.
Justice Byron R. White: And does that say that the rate of interest on an interstate loan is going to be governed by the state of the bank?
Mr. Robert H. Bork: Well, I would feel more confident if could locate the [Laughter].
Justice Byron R. White: Is it in your brief?
Mr. Robert H. Bork: Bottom of page 17, the -- wait.
Well, it says formerly recognized but I don't see the quote there at the bottom, page 17.
It is I regret to say Mr. Justice White that I cannot locate it swiftly.
Justice Byron R. White: Alright.
Mr. Robert H. Bork: It is in the briefs.
Chief Justice Warren E. Burger: Thank you gentlemen.
The case is submitted.