Card Issuers Sue California over
Minimum Payment Disclosure Law

Five financial industry trade groups (American Bankers Association, America's Community Bankers, Consumer Bankers Association, Independent Community Bankers of America, and the National Association of Federal Credit Unions) joined with five large credit card issuers (Chase Manhattan Bank, Citibank, Bank One, Household Bank and MBNA) to file suit against the State of California. The suit was intended to block that state's new disclosure law that would give customers new warnings about the disadvantages of making only minimum payments on their card accounts. In late June, the industry plaintiffs won a temporary injunction on the July 1st implementation of the new law to allow the court time to examine the issue more fully.

The California law was passed in October 2001. It would require card issuers to follow a specific set of procedures if they allow customers to make monthly payments of less than 10 percent of the outstanding balance, a common practice in the industry. The procedures would include the printing of a "minimum payment" warning on the statement, examples of how long balances of various sizes would take to pay off with only minimum payments, and the total cost of doing so. Issuers would also be required to provide a toll-free hotline staffed 13 hours a day, 365 days a year to allow customers to get a customized estimate of the total cost and amount of time necessary to pay off their outstanding balance making only minimum payments. Issuers would also be required to provide customers who make the minimum payment six months in a row a customized such a customized estimate directly in their statement, along with a referral to a credit counseling agency.

Issuers claimed in their lawsuit that the California law is pre-empted by the National Bank Act, which prevents states from dictating national bank credit terms. The suit also claims that the California law violates the commerce clause of the U.S. Constitution by creating a law that significantly impedes commerce.