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September 28, 1973

Seymour LANDAU and all others similarly situated, Plaintiff,

Kevin Thomas Duffy, District Judge.

The opinion of the court was delivered by: DUFFY


This is a motion for a class action determination and cross-motions for summary judgment. Plaintiff sues on behalf of himself and all other holders of Chase Manhattan cash reserve checking accounts. Holders of such accounts may draw up to $500 beyond their balance and repay it with interest in twenty monthly installments, pursuant to a cash reserve credit agreement entered into between the holder of the account and the bank. Plaintiff alleges that the bank's method of computing interest on loans made pursuant to cash reserve credit agreements amounts to charging interest on interest and interest on check maintenance and service charges in violation of New York Banking Law § 108(5) McKinney's Consol. Laws, c. 2 and the National Bank Act, 12 U.S.C. §§ 85, 86. Defendant maintains that its method of computing interest is in compliance with these laws.

 Jurisdiction is properly invoked pursuant to 28 U.S.C. § 1337 and 28 U.S.C. § 1355. Section 1337 confers on the district courts "original jurisdiction of any civil action or proceeding arising under any Act of Congress regulating commerce . . ." The National Bank Act clearly regulates commerce. Section 1355 confers exclusive jurisdiction "of any action or proceeding for the recovery or enforcement of any fine, penalty, or forfeiture . . . incurred under any Act of Congress." The plaintiff is suing for recovery of the penalty provided by Section 86 of the National Bank Act. In addition the state claims stem from a "common nucleus of operative fact", United Mine Workers v. Gibbs, 383 U.S. 715, 725, 86 S. Ct. 1130, 16 L. Ed. 2d 218 (1966), and thus meet the test for pendent jurisdiction.

 I. Class Action

 Before reaching the merits, it is necessary to determine whether this case should be maintained as a class action. Rule 23(a) Fed. R. Civ. P. sets out the four threshold requirements for a class action, at least three of which the plaintiff appears to have met. According to the defendant's records, the number of customers who may have paid what is alleged to be interest on interest was 1500 at the end of October, 1971, clearly a sufficiently large number to make joinder impractical. There are common questions of law and fact and the plaintiff's claims are typical of those of the class. The only dispute is whether the plaintiff can adequately protect the interests of the class. According to the defendant's uncontradicted affidavit, the plaintiff lacks standing to raise the claim that interest is charged on interest. Defendant argues that since this is the "predominating claim" in the complaint, the plaintiff is not an adequate representative of the class.

 To evaluate this contention one must understand how the defendant calculates and charges interest for reserve checking accounts. When the customer uses part of the line credit provided, the bank lends the customer the amount of the overdraft, up to an agreed maximum of five hundred dollars. Interest begins to run on this amount immediately at the rate of.0329 per cent a day, the equivalent of 12% per year. The year is divided into twelve billing cycles, and at the end of each cycle the customer receives a statement of account showing the principal amount owed, if any, with the interest accumulated during that cycle separately stated. Under the credit agreement the first installment of repayment is due within thirty days of the first monthly statement of account. During that thirty day period the interest accumulated during the previous cycle is not added onto the principal amount owing, but is held aside in the computer information system and listed separately on the second statement of account. By this time such interest should have been repaid, since the first installment is due and would have been applied first to interest and then to principal. If no installment has been paid, however, the interest from the first billing cycle is added to the principal amount and begins to collect interest.

 According to the defendant, the plaintiff has always promptly repaid his overdrafts and avoided the situation where interest could be charged on interest. Therefore, the defendant argues, he "does not possess the claim which he seeks to assert on behalf of the purported class."

 This argument puts in question not only plaintiff's adequacy as a class representative, but also his standing to raise the issue of whether the defendant charges interest on interest. The Supreme Court has recently established that the prerequisites of standing to sue under a federal statute are (1) injury in fact and (2) an interest arguably within the zone of interests intended to be protected by the statute. Association of Data Processing Service Organizations v. Camp, 397 U.S. 150, 90 S. Ct. 827, 25 L. Ed. 2d 184 (1970). Plaintiff's case raises no problem as to the second prerequisite. It is clear that the National Bank Act was intended to protect borrowers from paying excess interest, as evidenced by its provision for double recovery to those who have paid such interest. 12 U.S.C. § 86. Rather the crux of the problem is whether the plaintiff has shown the requisite injury in fact.

 In approaching this question it is important to note that the plaintiff has demanded three forms of relief, i.e. damages, an injunction and a declaratory judgment. The type of injury, whether past or future, which must be alleged to meet the test for standing naturally varies depending upon the type of relief sought. Here the complaint speaks in terms of past injury, and our analysis must therefore begin with the question whether the plaintiff has sufficiently shown past injury in fact to have standing to sue for damages.

 The relevant allegations of the complaint state that:

"7. In connection with plaintiff's account, plaintiff received loans and/or advances from CHASE, made various payments in reduction thereof and had interest charges imposed against his account in the alleged unlawful manner, more particularly described below.
8. CHASE furnished plaintiff with monthly statements setting forth the details of the previous month's loans, payments and interest charges.
9. These monthly statements reveal that CHASE exacts interest charges not only on the "unpaid principal amount", required by statute, but rather on the unpaid principal plus accrued interest, check maintenance charges and check service charges."

 Under the liberalized rules of pleading, these allegations would ordinarily be sufficient to meet the requirement of injury in fact. Standing is a threshold question which is normally resolved on the basis of the pleadings. See Environmental Defense Fund, Inc. v. Hardin, 138 U.S. App. D.C. 391, 428 F.2d 1093, 1097 (D.C. Cir. 1970); Herpich v. Wallace, 430 F.2d 792 (5th Cir. 1970). However, when the allegations of the complaint upon which standing is based are flatly contradicted by a sworn affidavit, the district court must inquire further to ...

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