OAG 67-31.

• Case Date: March 08, 1967
• Court: Oregon

Oregon Attorney General Opinions 1967. OAG 67-31. 160OPINION NO. 67-31[33 Or. Op. Atty. Gen. 160]The rates of interest set forth for state banks in ORS 708.480 apply also to national banks. Credit extended by a national bank to a credit cardholder pursuant to the Bank-Americard program constitutes a loan subject to the maximum interest rates set forth for state banks.No. 6250March 8, 1967Honorable Don S. WillnerState Senator You ask whether the BankAmericard program violates the usury laws of Oregon. The facts are as follows: During 1966 the First National Bank of Oregon and the United States National Bank of Oregon inaugurated in the State of Oregon the BankAmerica credit card system. Under this credit card system a business desiring to honor BankAmericards enters into an agreement with the bank to honor any valid BankAmericard tendered for use, and bank agrees to pay the merchant the amount of each "sales draft" less a discount of from three to five percent. As part of the agreement the merchant is required to maintain a commercial checking account with bank. A person desiring to obtain a BankAmericard fills out a credit application directed to one of the national banks. BankAmericards are issued on the basis of such applications or without application to persons having accounts with one of the banks. Each card issued contains an agreement on the back thereof an example of which is as follows: "AGREEMENT: This credit card is the property of licensee United States National Bank of Oregon (Bank), and use of this card by, or with the consent of, the holder constitutes agreement as follows: Holder agrees (1) to assume responsibility for credit extended by this Bank on the basis of this card; (2) to pay at such place as this Bank designates, obligations evidencing such credit, and service charges where applicable, in accordance with billings and to current Customer Payment Schedule, including a reasonable attorney's fee in the event of suit; (3) to notify Bank promptly in writing of loss of this card; (4) this card may be cancelled by the Bank at any time; (5) to surrender this card upon demand; (6) to waive and release Bank from all defenses, rights and claims holder may have against any merchant or company honoring this card; (7) any claim of Bank against holder shall at Bank's option become immediately due and payable if holder fails to perform any terms hereof or make any payments as otherwise agreed." (Emphasis supplied) The holder of a BankAmericard may enter any retail establishment accepting such cards, make a purchase and present his card for payment. If the purchase does not exceed the coded limit shown on the card, the merchant automatically accepts the card in payment. If the purchase exceeds the coded limit shown on the credit card, the merchant must obtain the approval of the bank by telephone before accepting the credit card in payment. The credit card, once accepted, is imprinted on a "sales draft." The "sales draft" is a form furnished by the bank. On the left side of the form is the following language: "Sale confirmed and draft accepted" and a line for the customer's signature who is designated as "purchaser-acceptor." On the right-hand side of the form are blanks for describing the merchandise, stating the cost thereof and the total price. On the bottom right-hand side is the following language: "25 days from demand purchaser-acceptor shall pay to First National Bank of Oregon, or order, the sum shown above. Unit cost includes all motor vehicle fuel taxes where applicable." Pursuant to the agreement between the merchant and the bank, the merchant's account with the bank is given credit for the amount of the sales draft less a discount of from three to five percent when the merchant presents the sales draft to the bank. The cardholder is billed monthly by the bank for the amount of his purchases from merchants. At the time of his billing he receives a copy of the executed sales draft. If the cardholder pays his bill within 25 days after the "billing date," no additional charge is made. The cardholder, however, may elect to pay the bank in minimum monthly instalments in which case a "service charge" of one and one-half percent per month is billed on the portion of the monthly balance not exceeding $1,500 and not paid within the 25 days. The holder of a BankAmericard may also present a "cash advance draft" to the bank and receive a cash loan upon payment of a minimum fee ($4 on a $100 loan). If the loan is paid within 25 days of billing there is no further charge. If the extended payment plan is used, the unpaid balance is subject to a "service charge" of one and one-half percent monthly. We are advised that although state161 banks are permitted to participate in the program so that they can retain their commercial customers, state banks are not permitted to keep any of the "service charges" collected under the program but must remit such revenues to the Oregon national banks. Accordingly, the subsequent analysis will in general be limited to the two national banks in Oregon. The subject of usury is entirely one of statutory regulation and prohibition, so that in the absence of a statutory restriction parties may contract for interest in any amount which they see fit and their contracts are valid and enforceable. 91 C.J.S., Usury, § 5b, p. 569. The term "usury" has been defined as the "contracting for or reserving something in excess of the amount allowed by law for the loan or forbearance of money." 91 C.J.S., Usury, § 1, p. 558. The Oregon court in Balfour v. Davis, (1886) 14 Or. 47, 52, held that in order to constitute usury "* * * '* * * there must be (1) a loan, express or implied; (2) an understanding between the parties that the money lent shall or may be returned; (3) that for such loan a greater rate of interest than is allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for the use of the sum loaned. * * *' * * *." In Oregon and in the absence of a contract specifying otherwise the legal rate of interest is six percent per annum. ORS 82.010 (1). But where there is a contract, interest up to a maximum rate of 10 percent per annum may be charged upon express agreement of the parties. ORS 82.010 (2). Corporations other than charitable, religious or nonprofit corporations, however, may agree to pay 12 percent per annum. ORS 82.010 (3) and (4). With respect to state and national banks the Oregon legislature has authorized the exaction of a higher rate of interest in ORS 708.480 which provides as follows: "Notwithstanding ORS chapter 82, any state or national bank authorized to do business in this state may contract for and receive for a loan or use of money: "(1) On any loan payable in approximately equal instalments, interest at a rate not exceeding 10 percent per annum, or, in lieu of interest on that part of the original principal amount of the loan not exceeding $500, a charge at a rate not exceeding $8 per annum per $100 of the original principal amount of the loan not exceeding $500 and at a rate not exceeding $6 per $100 per annum of the original principal amount of the loan in excess of $500, not exceeding $1,000. If any such instalment loan providing for charges in excess of interest at 10 percent per annum is repaid before maturity, except as provided in subsection (3) of this section, the unearned portion of such charges shall be refunded to the borrower. Any instalment not paid at maturity may bear interest from the date of maturity at a rate not exceeding 10 percent per annum. "(2) On any loan not payable in approximately equal instalments, interest at a rate not exceeding 10 per cent per annum. "(3) On any loan, not in renewal or extension of a prior loan, the interest to maturity of...