Lawsuit against credit card companies over interest rates remanded to district court

By Holland Phillips | Dec 24, 2013

NEW ORLEANS –A lawsuit against a group of credit card companies by the Attorney General of Mississippi has been remanded from federal court to district court on appeal.

JP Morgan Chase & Company, HSBC Bank, Citigroup, Discover Financial Services, Bank of America and Capital One Bank are all companies named in a suit filed by the State of Mississippi. 

The Mississippi Attorney General filed separate suits against these six credit cards companies for their alleged violations of the Mississippi Consumer Protection Act (MCPA) “by charging consumers for products they did not want or need.”

The credit card companies are accused of peddling products that “include fee-based services to protect customers against unauthorized charges and identity theft, as well as products that suspend payment obligations under certain circumstances.”

The state alleges that the defendants “engage in a number of deceptive marketing practices, fail to make proper disclosures to their customers regarding the products, and enroll customers who are not eligible to receive the benefits of the services.”

The service at issue is the payment protection plan, which allows for debt suspension or forgiveness in case of certain extenuating circumstances. The state seeks an injunction against the defendants, civil penalties for the MCPA violations, and restitution and disgorgement of money acquired under these practices.

A district court removed the case to federal court following arguments by the defendants that the jurisdiction fell under federal purview according to the National Banking Act (NBA) and the Class Action Fairness Act of 2005 (CAFA).  Upon appeal by the state, the circuit court granted a reversal of that decision and remanded the case to the district court.

In a judgment filed on Dec. 2, the Circuit Court found that the defendants had not met their burden to prove that any of their customers satisfied the individual amount in controversy requirement.

Additionally, the appeals court ruled that “under our precedent the state is not the real party of interest with respect to this claim for restitution.” Because they determined that the state has not filed suit under its own sovereign interest and it is not a mass action plaintiff, they see no jurisdiction under CAFA.

Questions also arose about whether the fees collected by the credit card companies constituted interest payments. The state argued that the payment protection plan fees are more for insurance purposes benefiting the borrower and are optional and separate from the loan application. The circuit court found the defendants failed to meet their burden to prove their case for federal jurisdiction under the NBA because the state does not take issue with the amount of fees and interest charged, but the practices that led to customers being charged at all.

In light of the defendants’ failed arguments, the appeals court ruled in favor of the plaintiff, reversing the district court’s ruling of federal jurisdiction and remanding the case back to the district court.

The case was heard by Circuit Court Judges Priscilla Owen, Jennifer Walker Elrod and Catharina Haynes.

Case no. 13-60686.

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