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were permitted to charge the maximum rate permitted by state la for
Ala. 1977), rev'd on other grounds, 467 F. 2d 167
In 1933, Congress amended 12 U.S.C. 85 to permit national banks to charge interest at a rate 1% in excess of the discount račc on ninetyday commercial paper in effect at the district Federal Reserve Bank. The amendment is phrased in the disjunctive, giving national banks the privilege of charging "whichever may be the greater" between the state usury limit, on the one hand, and a rate of 1% in excess of the ninetyday corrmercial paper rate, on the other.
That Congress intended to read the amended statute in the alternative is clearly indicated by the description furnished in the committee reports on the legislation knorn as the "Banking act of 1933." Soth the Senate Report (s. Rep. No. 77, 738 Cong., 1st Sess. 17) and the House Report (H.R. Rep. No. 150, 73d Cong., ist Sess. 4) describe the amendment in identical language, using the disjunctive "or." According to the committee reports, the amendment
Limits the interest that may be charged by a national
Thus, since the enactment of the 1933 amendment, national banks have had a choice:
1. They can charge interest at the highest rate alloved by
sta te law to lenders generally, but if state banks are permitted still a higher rate, national banks are authorized to charge that rate; or
2. ¡hey can charge interest at 1% above the discount rate on
ninety-day cocinercial paper in effect at the district Federal
The only 'case to our kno:ledge which has construed the 1933 amendineni is an unreporied opinion rendered last year in the Court of Common Pleas of York County, Pennsylvania. In National Central Bank v. Heindel (civ. Actions tos. 2064, 2065, 2065 and 2057, pay Terin 1970), defendant homeowner's petitioned to re-open judgments entered against ühen: by confession in 1970. The grounds for the petition was that National Central Cank had charged interest at 7% in violation of Pennsylvania's 6% usury limit. The court held that, regardless of state law, the bank's status as a national bänk permitted it to charge interesa ai a ratc of 1% above the discount rate on ninety-day commercial paper. Since its discount rate in effect at the Federal Reserve Bank of Philadelphia vas 6% at the time, the bank uas permitted to charge 7%.
The statute, as it no!! stands, is not a model of clarity. Without a knokledge of its original purpose, the Supreme Court's holding in Tiffany and the exact wording of the 1933 amendinent, one will find the syntax baffling. Not surprisingly, then, some erroneous notions have ariser concerning its interpretation. The principal misconception is that the statute is intended to assure that rational banks and state banks are on an equal footing when charging interest. This idea was disposed of in Tiffany, where the Suprene Court, taking note of the critical importance that Congress placed upon the establishment of a strong national banking system to provide a unifora currency for the country, declared
[The statute) speaks of alloliances to National banks
compel a withdrawal of all such issues from circulation.
persons. (Emphasis added.)
In light of the above, we hereby confirm the advice furnished to you by Mr. Barrett on the telephone that, regardless of Michigan's usury Michigan National Bank may charge interest on all loans at 1% in excess of the discount rate on ninety-day commercial paper in effect at the Federal Rank of Chicago. Since the discount rate is presently 7 1/2%, Michigan National may charge 8 1/2%.
For your information, we enclose a legal opinion from the law firm of barner, Norcross & Judd, of Grand Rapids, Michigan, in which views similar to ours are expressed.
If we can be of further assistance, please call upon us.
Very truly yours,
Thomas S. Aleshan
Thomas G. Deshazo
prime commercial paper (4- to 6-month maturities) averaged
Interest rate on a loan to an individual or unincorporated
rate for funds, often find that they are legally unable
to obtain financing. As a result, they find themselves
faced with the choice of either circumventing the law
to obtain the desired funds or else losing out to other
borrowers who may not be willing to bid as much, but who
are legally able to contract because of the nonuniformity
of usury laws.
Despite the credit market distortions
caused by ceilings on interest rates, usury laws have been
retained in most jurisdictions.
It is the intent
of this article to provide some insight and perspective
stated, "Thou shalt not lend upon usury to thy brother,
1/ A previous discussion of interest rate controls by
this Bank was given by Clifton B. Luttrell, "Interest Rate Controls Perspective, Purpose, and Problems," this Review (September 1968), pp. 6-14; see also Charlotte E. Ruebling, "The Administration of Regulation 0," this Review (February 1970), pp. 29–40.
2/ See Sidney Homer, A_History of Interest Rates (New
Brunswick, New Jersey: Rutgers University Press, 1963).