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ACKER v. PROVIDENT NATL. BANK

February 27, 1974

Fred ACKER and Kenneth C. Dabrow, Individually, and on behalf of all other persons similarly situated
v.
PROVIDENT NATIONAL BANK and Philadelphia National Bank, all national banking corporations


Hannum, District Judge.


The opinion of the court was delivered by: HANNUM

HANNUM, District Judge.

On November 27, 1972, plaintiffs Fred Acker and Kenneth C. Dabrow brought this action individually and on behalf of a class of persons similarly situated against the defendants Provident National Bank and Philadelphia National Bank (hereinafter "Provident" and "PNB" respectively), to recover statutory damages for the alleged violation of the National Bank Act (12 U.S.C. §§ 85, 86), the Pennsylvania Goods and Services Installment Sales Act (Pa. Stat. Ann. tit. 69 § 1101 et seq. (1966)), the Pennsylvania Banking Code of 1965 (Pa. Stat. Ann. Tit. 7 § 301 et seq.) and the Truth-In-Lending Act (15 U.S.C. § 1640).

 The Defendants presently, and for a period of two years preceding the filing of this complaint, have contracted to render "Master Charge" and "BankAmericard" charge services to a large number of Pennsylvania residents. The "Master Charge" and "BankAmericard" credit plans are commonly referred to as revolving credit plans because of their unique features. A description of the chain of events involved in their issuance and implementation is as follows:

 A person desiring to become a credit card holder of Provident Master Charge or PNB BankAmericard generally completes a written application and submits it to the bank for whose plan he is applying. Upon approval of the application, a written agreement is sent to the applicant and he is issued a plastic Master Charge or BankAmericard credit card with his name and account number impressed thereon. The cardholder agreements set forth the terms and conditions governing the use of the card, including the maximum amount of credit which the cardholder may have outstanding at any one time.

 Under the cardholder agreement, an account is established at the bank on behalf of each cardholder who is then permitted (a) to borrow money from the bank through cash advances and (b) to purchase merchandise from various member merchants who have agreed with a Master Charge or BankAmericard licensee, as the case may be, to honor the credit card, provided that the sum of borrowings and credit purchases does not exceed the maximum limit that has been established. PNB also imposes a separate maximum limitation on cash advances.

 When a cardholder utilizes his card to purchase merchandise, he presents the card to the merchant when the purchase is made. The merchant fills out a sales slip describing the merchandise, which usually then is imprinted with the cardholder's number, and is signed by the cardholder. The merchandise and a copy of the sales slip are given to the cardholder.

 The Master Charge and BankAmericard plans are operated on the basis of billing cycles. The last day of the billing cycle is referred to as the "billing date", which is the same date of each month for each individual cardholder. The day immediately following the billing date is the first day of the next billing cycle. There are 12 billing cycles per calendar year. Provident's Master Charge billing system and PNB's BankAmericard billing system are processed by computer. Although transactions such as payments, credits and new charges to accounts are processed as the slips are received by Provident or PNB respectively, actual computations in the accounts, including calculation of charges, are made only once each billing cycle on the billing date.

 On the billing date all transactions posted to an account during that billing cycle [e.g., purchases, payments and credits] are reviewed by the computer; the charge, if any, is calculated and imposed, and a summary of the resulting information is printed by computer on a statement [the "monthly statement"]. The monthly statement is mailed to the cardholder within a day or two after the billing date.

 On the first billing date subsequent to the receipt of sales slips by Provident or PNB, the amounts and dates of new purchases are recorded on the monthly statement and the total of the new purchases is included on the statement as a part of the amount shown under the heading "New Balance". The remainder of the amount shown under the heading "New Balance" consists of previously outstanding balances less applicable payments and credits.

 No charges are imposed on purchases when they first appear on the periodic statement as new charges. If the cardholder pays the entire outstanding balance of his account before his next billing date [a period of about 25 days] he will incur no charges on those new purchases. This feature is known as the "free ride" period. Some Master Charge and BankAmericard cardholders pay their entire outstanding balances each month and never incur any charges.

 If the cardholder fails to pay the entire outstanding balance, a charge will be imposed on those purchases, but it will be computed only from the billing date on which the purchases first appeared on the monthly statement, and not from the date of the actual purchase.

 Plaintiff Dabrow has been a Master Charge cardholder since June 1970 and he used his Master Charge Credit Card only for the purchases of goods and services. Dabrow and Acker have been BankAmericard cardholders since November 5, 1966 and March 11, 1970, respectively, and both have used their BankAmericard credit cards only for purchases of merchandise.

 In their first count, the plaintiffs claim that the defendants' charge in excess of one percent per thirty days against their revolving credit accounts are usurious under the National Bank Act and the Pennsylvania Banking Code of 1965 in charging interest at a rate exceeding 12% per annum. The defendants contend that the Goods and Services Installment Sales Act, which permits a finance charge of 15% per annum, is the applicable statute.

 In count two of the Complaint, the plaintiffs allege that both Provident and PNB, in determining the outstanding balance on which the finance charge is imposed, failed to deduct or otherwise take into account payments and credits that occurred subsequent to the previous billing date. This method of calculation is known as the "previous balance method." The plaintiffs allege that since under this method the balance may represent a sum of money which may have been substantially paid the day after the carrying charge was imposed, the previous balance method of calculating interest violates the National Bank Act and the Goods and Services Installment Sales Act.

 Plaintiffs have conceded that their allegation that the defendants employed the previous balance method of calculating finance charges was contrary to fact and they do not oppose the dismissal of count two. *fn1" Therefore, the defendants' motions for summary judgment on count two are granted.

 In count three of the Complaint, the plaintiffs claim that it is unlawful to charge one and one quarter (1.25) per cent on their revolving credit accounts' outstanding balances every thirty days instead of every calendar month because the effect is to charge an annual percentage rate in excess of 1.25% per month allowed by the National Bank Act and the Goods and Services Installment Sales Act. Plaintiffs do not oppose the dismissal of count three as well as count two. *fn2" Therefore, the defendants' motions for summary judgment on count three are granted.

 In count four, defendants are alleged to have violated the provisions of the National Bank Act and the Pennsylvania Goods and Services Installment Sales Act by charging interest on interest, i.e., by compounding interest, in computing the finance charge imposed on their revolving credit accounts.

 In count five of the Complaint, plaintiffs allege that the defendants are understating the true annual interest rate on "Master Charge" and "BankAmericard" charge accounts by disclosing an annual percentage interest rate based on a three hundred and sixty (360) day year instead of a calendar year in violation of the Truth-In-Lending-Act. It has been stipulated by the parties that Provident and PNB never used a 365/360 day method of accounting *fn3" and the plaintiffs do not oppose the dismissal of count five. *fn4" Therefore, the defendants' motions for summary judgment on count five are granted.

 In the sixth and final count, the plaintiff, Kenneth C. Dabrow, claims that defendant Provident charged a monthly service charge in each 31 day month from November 28, 1970 to October 1971 in excess of 1.25% in violation of the National Bank Act and the Pennsylvania Goods and Services Installment Sales Act.

 Thus, of the six counts listed in the plaintiffs' amended complaint, three (counts 2, 3 and 5) are no longer asserted by the plaintiffs. Counts one, four and six are still to be decided.

 The case is here on the following motions submitted by the parties: (1) the defendant Provident's motion to dismiss pursuant to Rule 12 of the Fed. R. Civ. P. on the ground that the Court lacks subject matter jurisdiction, (2) the defendant Provident's motion to dismiss the entire complaint pursuant to Rule 11 of the Fed. R. Civ. P. on the ground that it was filed without good ground to support it, (3) the defendant Provident's motion to dismiss counts 1, 4 and 6 under Rule 12 of the Fed. R. Civ. P. on the ground that as to these counts, the complaint fails to state a claim upon which relief can be granted, (4) the ...


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