A Massachusetts court has ruled that credit card interest rates above 18% are unconscionable as a matter of law and cannot be enforced. The ruling was handed down on January 4 in response to a motion for summary judgment in a case involving a bank’s attempt to collect delinquent credit card payments. The plaintiff, a national bank located in South Dakota, filed suit to recover delinquent amounts on two credit cards issued to the defendant, a Massachusetts consumer, who owed more than $33,000 on the two credit card accounts. In response, the consumer filed a counterclaim alleging that the interest rates charged on her credit cards, which ranged from between 10.65% and 54.73%, were greater than the amount allowed by federal law. The court determined that the interest rates charged by the bank did not violate federal law but nevertheless allowed the consumer’s motion for partial summary judgment on the grounds that interest rates above 18% are “so outrageous as to warrant holding [them] … unenforceable.” The court described the dispute as one that “highlights an issue of national concern—mounting credit card debt and unregulated interest rates, which make paying that debt next to impossible.” The case is still pending before the Massachusetts Superior Court in Essex County.

Notes: The court noted that while the national bank was permitted under the National Bank Act to charge interest at the highest rate allowed under South Dakota law, the interest charges must still be consistent with common law concepts of fairness. Because the court was apparently not presented with a credit card agreement containing a choice of law provision, the court decided that Massachusetts had the most significant relationship to the transaction and that its common law principles of unconscionability should apply. The ruling points out that unconscionability of a contract provision under Massachusetts common law is determined by the court on a case-by-case basis, with particular attention to whether the contract provision could “result in oppression and unfair surprise to the disadvantaged party.” The common law doctrine of unconscionability allows a court to declare a provision of a contract unenforceable when the provision is outrageously favorable to the advantaged party. The court said that the bank’s interest charges, in excess of 18%,“drives too hard a bargain for a court of conscience to assist.”