Opinion
Docket No. CV-48972-21/IT
03-06-2023
Bank of America, Plaintiff, v. Yannick A. David, Defendant.
Unpublished Opinion
Seth J. Peacock, J.
I. Background
1. Plaintiff, by and through its attorney, Rubin & Rothman LLC of Islandia, New York, commenced this Civil action on December 3, 2021 seeking $4596.43 for the balance due on a Bank of America credit card, number ending 1512. Defendant has failed to appear. Plaintiff applied to the court clerk for a default judgment, asserting a claim for a sum certain. The court held an inquest on February 23, 2023. The Plaintiff submitted further documentation in support of its application and appeared at the inquest through its attorney. The Court now deems the matter submitted.
II. The Court Can Review Applications to the Clerk for Default Judgment
2. The Court may review an application to the court clerk for a default judgment because the clerk's authority to enter judgment is derived from the Court. The concept of the clerk's judgment existed as early as 1848, when New York enacted the country's first set of codified civil procedure rules known as the Field Code. Field Code § 202(1) was similar to the current CPLR in that, upon the plaintiff's filing of the requisite proof, "The clerk shall thereupon enter judgment for the amount mentioned in the summons." When a clerk enters judgment, the court is "acting through its clerk" and can still require proof of facts and the precise amount due. Tuttle v Smith, 14 How. Pr. 395 (Sup. Ct. Gen. Term NY 1857). This understanding of the law has persisted to the present day; under the CPLR, the granting of a default judgment is not a mandatory ministerial duty, but rather a matter of judicial discretion. Matter of Dyno v Rose, 260 A.D.2d 694 (3d Dep't 1999). Indeed, CPLR§ 3215(b) explicitly authorizes the court to "make an assessment or take an account or proof." Courts routinely exercise this power when an application for a clerk's judgment is denied.
3. Furthermore, CPLR § 3215(a) states, "Where the case is not one in which the clerk can enter judgment, the plaintiff shall apply to the court for judgment." The Court has the authority to enforce CPLR § 3215(a)'s requirement that a plaintiff apply to the court for judgment if the clerk cannot enter judgment.
4. The Court may also review a clerk's determination of whether a claim is for a sum certain, for a mistake there can result in reversible error. Jannon v Vanbuskirk, 227 A.D.2d 844 (3d Dep't 1996). The determination of whether a plaintiff has properly met the legal requirements for a sum certain often involves legal and factual issues that are beyond the ministerial role of the clerk.
5. Finally, the Court can review a clerk's determination of the sufficiency of the proof required under CPLR § 3215(f). "The Clerk is authorized to enter judgment against a defendant only when the proof of service of a summons and notice is accompanied by proof by affidavit made by the party of the facts constituting the claim, the default and the amount due." Woodstock Lake Ass'n, Inc. v. Pleasure Crest Corp., 65 A.D.2d 867 (3d Dep't 1978). "A failure to submit the proof required by CPLR 3215(f) should lead a court to deny an application for a default judgment." Manhattan Telecom. Corp. v H & A Locksmith, Inc., 21 N.Y.3d 200 (2013).
6. The Court chooses not to abrogate its responsibility to decide matters properly before it or to otherwise delegate to clerks what is properly a matter of judicial discretion. Matter of Dyno v Rose, 260 A.D.2d 694.
7. For the reasons given below, the Court finds that this case was not one in which the clerk could enter judgment.
III. Plaintiff's Claim to the Clerk is Not for a Sum Certain Under CPLR § 3215(a)
8. The last sentence of CPLR § 3215(a) states, "Where the case is not one in which the clerk can enter judgment, the plaintiff shall apply to the court for judgment." This case was not one in which the clerk could enter judgment, because the claim was not for a sum certain.
9. The "sum certain" referred to in CPLR § 3215(a) refers to a very limited set of claims, that is, undisputable claims such as negotiable instruments and money judgments. Reynolds Sec. v. Underwriters Bank & Trust Co., 44 N.Y.2d 568 (1978); Gibbs v. Hoot Owl Sportsman's Club Inc., 257 A.D.2d 942 (3d Dep't 1999).
10. Determining an undisputable amount due was not possible with the limited proof provided in the original application to the clerk for default judgment. Gibbs v. Hoot Owl Sportsman's Club Inc., 257 A.D.2d 942; Vinny Petulla Contr. Corp. v. Ranieri, 94 A.D.3d 751 (2d Dep't 2012); see also Hotel Syracuse v. Brainard, 265 A.D. 1055 (4th Dep't 1939). A credit card company's charge-off amount is not a "sum certain" in the legal sense, but an accounting practice which may or may not equal the Defendant's contractual obligation. See Discover Bank v. Shimer, 36 Misc.3d 1214 (A) (NY Dist. Ct. 2012). For example, the charge-off amount claimed by Plaintiff includes post-breach interest at the contractual rate, but Plaintiff can only charge contractual interest after Defendant's default on the agreement if there is a contractual provision to that effect. CPLR § 5001(b); NML Capital v. Republic of Argentina, 17 N.Y.3d 250, 258 (2011). Plaintiff's original application for judgment by default did not include the agreement between the parties. Without the agreement, Plaintiff would at best have been entitled to post-breach interest at the statutory rate. NML Capital, 17 N.Y.3d at 258. Recalculation of post-breach interest at the statutory interest rate would have required the date of breach and the balance due on the date of breach. Even with that information though, the statutory rate cannot constitute a sum certain unless the instrument references the statute. Uniform Commercial Code § 3-106(2).
11. The Court notes that, although the Consumer Credit Fairness Act permits a charge-off statement in lieu of the original agreement (CPLR § 3016(j)), that statute went into effect on May 7, 2022 and is not retroactive. S.153/A.2382 § 15. Furthermore, the Consumer Credit Fairness Act merely sets forth prerequisites for complaints and applications for default judgment. Nowhere does said Act mandate the granting of default judgment if those prerequisites are met. Indeed, the granting of default judgment is not a mandatory ministerial duty, but rather a matter of judicial discretion. Matter of Dyno v Rose, 260 A.D.2d 694 (3d Dep't 1999). As discussed above, the Court often must refer to the original agreement to determine if there is a contractual provision permitting post-breach interest at the contractual rate. NML Capital, 17 N.Y.3d at 258. Such a provision is usually not found in a charge-off statement. Furthermore, the Court often must refer to the original agreement to ascertain a stated rate of interest, especially if the stated rate of interest includes a "margin" or references an extrinsic source. Uniform Commercial Code § 3-106(2).
12. The sum claimed by Plaintiff was thus not undisputable, nor was it "capable of being ascertained therefrom by computation only." Hotel Syracuse, Inc. v Brainard, 256 A.D. 1055. This claim was therefore not for a sum certain. If the claim is not for a sum certain, the clerk may not enter a default judgment; application to the court is required. Reynolds Sec. v. Underwriters Bank & Trust Co., 44 N.Y.2d at 572-73; Jannon v Vanbuskirk, 227 A.D.2d 844 (reversing clerk's entry of a default judgment because amount was not a sum certain). Even where one cause of action in a plaintiff's pleading is for a sum certain and another cause of action is not, the clerk is without authority to enter a default judgment, because that would "be severing the nonconforming causes of action from the pleading.... Such action is more in the nature of a judicial function than a ministerial function of the type contemplated for a clerk by CPLR 3215(a)." Stephan B. Gleich & Associates v. Gritsipis, 87 A.D.3d 216 (2d Dep't 2011).
IV. Lack of Proof of Amount Due on Application for Default Judgment
13. "On any application for judgment by default, the applicant shall file... proof of... the amount due...." CPLR § 3215(f) (emphasis added). By its plain language, CPLR § 3215(f) applies to judgments entered by the clerk or the court. The clerk is unable to enter judgment because there is a lack of proof of the amount due. Woodstock Lake Ass'n, Inc. v. Pleasure Crest Corp., 65 A.D.2d 867. "A failure to submit the proof required by CPLR 3215(f) should lead a court to deny an application for a default judgment." Manhattan Telecom. Corp. v H & A Locksmith, Inc., 21 N.Y.3d 200 (2013).
14. Even when a Defendant fails to appear, CPLR § 3215(f) still requires "proof of the facts constituting the claim, the default and the amount due." Although a defendant's default "does constitute an admission of all of the factual allegations of the complaint (including the basic allegation of liability) and all reasonable inferences therefrom... [t]he legal conclusions to be drawn from the applicant's complaint and factual allegations are reserved for the court's determination...." Matter of Dyno v Rose, 260 A.D.2d 694. "The lack of opposition does not negate this judicial function." Id.
15. There is insufficient proof of the amount due here because there is insufficient proof that Plaintiff was authorized to charge the contractual interest rate that it did. The original card agreement states that Delaware law applies, and that choice of law was unilaterally changed to North Carolina as of October 1, 2014. Exhibit 1, page 18. However, the Comptroller of Currency's March 1998 Interpretive Letter No.822 set forth the circumstances in which 12 U.S.C. § 85 permits a national bank to charge the interest rate allowed by its home state pursuant to a contractual choice-of-law clause.
16. In Interpretive Letter #822, the Comptroller of Currency stated that "if a branch or branches in a particular host state approves the loan, extends the credit, and disburses the proceeds to a customer, Congress contemplated application of the usury laws of that state." The Comptroller of Currency also noted that "Congress had a clear recognition in the dawning age of comprehensive interstate branching, that host state rates could apply to loans made by an interstate bank." Although a national bank's right to charge home state rates "is not defeated simply because a bank has a branch in the state where the borrower resides," the host state's laws and rules would continue to apply when the host state's branch office was the one actually "making the loan."
17. The Comptroller of Currency's interpretations of 12 U.S.C. § 85 are accorded deference "because of a presumption that Congress, when it left ambiguity in a statute meant for implementation by an agency, understood that the ambiguity would be resolved, first and foremost, by the agency, and desired the agency (rather than the courts) to possess whatever degree of discretion the ambiguity allows." Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735 (1996).
18. Taking the above principles into consideration, this Court holds that a national bank is permitted to charge the interest rates of its home state (12 U.S.C. § 85), but only if at least one significant non-ministerial function associated with the account actually takes place in the bank's alleged home state. Citibank (SD) v. Hansen, 28 Misc.3d 195 (Nassau County Dist. Ct. 2010); Chase Bank, USA, N.A. v. Fisher, 28 Misc.3d 440 (Nassau County Dist. Ct. 2010); American Exp. Bank, FSB v. Dalbis, 30 Misc.3d 1235 (A) (Richmond County Civ. Ct. 2011).
19. The Court is unable to discern what, if any, credit card operations were conducted in Delaware or North Carolina. Plaintiff's witness Pamela Ritter was able to establish that Exhibit 1 consisted of business records. Ms. Ritter is an Assistant Vice President in the Collections Services Department for Bank of America, N.A., has been with the company for almost thirty years, and "handle[s] the litigation accounts as well as Custodian of Records." However, none of her testimony set forth any non-ministerial acts that were performed by Plaintiff in any particular state. CPLR § 3215(b); see Joosten v Gale, 129 A.D.2d 531, 534-35 (1st Dep't 1987) (requiring "personal knowledge of the facts constituting the claim" and stating that "an attorney's verification not made on personal knowledge cannot be used for purposes of obtaining a default judgment.")
20. There is no evidence of where Defendant's credit card application was approved. Ms. Ritter testified that Defendant's credit card application was received electronically. She stated that "if all the information lines up together, it's an automatic approval. It looks like this one was received on the twenty-second of February and it was approved on the twenty-fourth of February, and the card was given to the customer." However, Ms. Ritter did not know where the Defendant's electronic credit card application was processed. Ms. Ritter testified that there wouldn't have been a physical person reviewing the credit application because it was an electronic application. She then clarified that a human being reviewed the electronic application on a screen in a physical location. However, Ms. Ritter testified that she did not know where the Defendant's application was reviewed.
21. There is no evidence of what branch extended credit to Defendant. Even though the original card agreement claims, "we extend credit to you from Delaware" (Exhibit 1, page 14) and this was later amended to "we extend credit to you from North Carolina" (Exhibit 1, page 18), this is not evidence that credit was in fact extended from either state. There is no evidence of which state Plaintiff sent the initial communication of the loan approval from. Interpretive Letter #822, page 13. Ms. Ritter testified that the credit department used to be located in Delaware, but she was "not currently sure" where the credit department is located "because there are so many different areas. There may still be a credit department in Delaware, but I do not know where the physical credit section is."
22. There is also no evidence of what branch, if any, disbursed the proceeds to Defendant. Ms. Ritter testified that "the billing statement information is completed as the purchases and payments are made on the account. They create a monthly statement every thirty days. As a balance is due and owing they are set up for the customer. They are stored electronically and they are password encrypted." Ms. Ritter later testified, "Anybody that has access to our Bank of America protected sites would be able to access it. You don't necessarily have to be in a certain area." She also testified that she did not know where the Plaintiff's "actual server is held."
23. Plaintiff's attorney offered proof that Plaintiff is incorporated in North Carolina. Exhibit 2. However, this does nothing to establish the card agreement's choice of law provision under the factors set forth by the Comptroller of Currency in Interpretive letter #822. That a bank is incorporated in a state does not mean that a branch in that state approves a loan, extends credit, or disburses proceeds for a customer. Indeed, from the testimony of Plaintiff's witness, it seems these activities can be done from any location on the planet with an internet connection.
24. Plaintiff thus did not prove the factors set forth by the Comptroller of Currency regarding the location of the branch that made the loan. Interpretive Letter #822, pages 12-13. The Court is unable to determine from the competent evidence before it the location of the branch that approved the Defendant's loan, extended the credit, and disbursed the proceeds. In the absence of evidence of which state's interest rates apply to Defendant's account, the Court finds that the Plaintiff has failed to provide proof of the amount due.
25. The proof required to establish that a home state's interest rates apply to an account includes evidence of significant non-ministerial functions taking place in that state, a statement of the usury laws of that state, and, if the state has no usury rate, proof of "the discount rate on ninety-day commercial paper in effect at the Federal reserve bank in the Federal reserve district where the bank is located" (12 U.S.C. § 85).
26. If insufficient proof of the amount due was the only issue in consideration, the Court might attempt to calculate on the papers the correct amount due, plus statutory interest from the date of breach of the agreement. CPLR § 5001(b); NML Capital, 17 N.Y.3d at 258. However, a review of the interest rate claimed by Plaintiff reveals a public policy concern meriting further discussion. This public policy concern could result in the forfeiture of the entire interest on the card agreement.
V. Criminally Usurious Interest Rate on Defendant's Credit Card
27. In June 2019 Defendant was charged $55.49 of interest and $38.00 in late fees on a balance of $4023.21, resulting in an interest rate equivalent to about 27.885% per year. In July 2019 Defendant was charged $55.04 of interest and $39.00 in late fees on a balance of $4123.57, resulting in an interest rate equivalent to about 27.367% per year.
28. Late fees should be included when calculating the true interest rate of an agreement. Cleo Realty Associates, L.P. v. Papagiannakis, 151 A.D.3d 418 (1st Dep't 2017) (holding that "late fees are unenforceable" because they increased the interest rate above 25%). "Interest" encompasses late-payment fees. Smiley v. Citibank (South Dakota), N.A., 517 U.S. at 740 (deferring to the Comptroller of Currency's regulation including late fees as "interest" as the term is used in 12 U.S.C. § 85). As the Court of Appeals stated,
In determining whether a loan is usurious, 'interest' is construed broadly. From colonial times to present, the legislature has defined interest to include the value of all goods and promises exchanged in consideration for a loan in the usury analysis.... Not surprisingly then, our cases involving criminal usury show strict attention to additional fees exacted sometimes creatively through loan instruments.Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d 320 (2021). Thus, late fees must be included when computing interest. See Panos v. Smith, 116 F.2d 445 (6th Cir. 1940) ("A mortgage is usurious if, in addition to the maximum legal rate of interest, the mortgagor pays or promises to pay the mortgage tax and recording fees.")
29. Plaintiff asserts that there is "no such thing as a state-law claim of usury against the national bank" because the National Bank Act preempts state-law usury claims. Plaintiff's Memorandum of Law. However, the United States Supreme Court stated that 12 U.S.C. § 85 preempts state usury statutes or common-law if "the interest that the bank charged to respondents did not violate § 85 limits." Beneficial Nat. Bank v. Anderson, 539 U.S. 1, 9 (2003). Interpretive Letter #882 details what proof is required to establish a bank's home state under § 85. As detailed above in section IV, this Court finds that there is insufficient proof of which branch made the loan. Without such proof the National Bank Act does not preempt New York usury statutes or common law.
30. New York's civil usury limit is 16%. General Obligations Law § 5-501; New York Banking Law §14-a. New York's criminal usury limit is 25% "per annum or the equivalent rate for a longer or shorter period." New York Penal Law § 190.40. The interest rate charged to Defendant exceeded the criminal usury rate of 25%.
Not only is usury impermissible in this case, the compounding of interest also seems to be prohibited as well. Giventer v. Arnow, 37 N.Y.2d 305, 308 (1975) ("But it is well-settled that 'a promise to pay interest upon interest is void if made at a time before simple interest has accrued.'" Though Giventer goes on to state that a creditor may "demand additional interest once the debtor fails to make timely payment," a post-default interest rate still may not exceed the criminal usury limit of 25%. See footnote 3 below.) Creditors can compound interest only with statutory permission. For example, 12 U.S.C. § 1735f-7a immunizes many mortgages from state usury laws, while General Obligations Law § 5-527 permits compound interest on a principal debt over $250,000.00 (NML Capital, 17 N.Y.3d at 265). Here, Plaintiff has not provided sufficient proof that 12 U.S.C. § 85 permits them to apply home state law allowing higher interest rates or compound interest. Thus, the Plaintiff has not even established the existence of a valid agreement permitting compound interest.
VI. Public Policy Against Criminal Usury
31. To be sure, the defense of usury is generally an affirmative defense to be asserted by the Defendant. Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d 320; Feldman v. Torres, 34 Misc.3d 47 (2d Dep't 2011). However, the New York legislature has made criminal usury a felony offense. Penal Law § 190.40. "It is a recognized principle that where a party must trace her cause of action to an illegal transaction there can be no recovery." Janke v. Janke, 47 A.D.2d 445 (4th Dep't 1975). "New York has chosen to make it a felony to charge more than 25% annual interest.... That New York chose to criminalize such conduct is further evidence that its usury prohibition is a fundamental public policy." Madden v. Midland Funding, LLC, 237 F.Supp.3d 130 (S.D.NY 2017). "New York has a strong public policy against interest rates which exceed 25%, which policy must be enforced." In re McCorhill Pub., Inc., 86 B.R. 783 (S.D.NY 1988).
32. This Court agrees with the opinion that "public policy weighs against the waiver of criminal statutes." Turkmani v. Republic of Bolivia, 193 F.Supp.2d 165, 176 n.10 (U.S. Dist. Ct., D.C. 2002). As the Second Department stated in Hammelburger v. Foursome Inn Corp., 76 A.D.2d 646 (2d Dep't 1980),
[i]t is not difficult to ascertain that the criminal usury statutes fall within the class of rules created for the protection of society as a whole. They were enacted in an effort to protect the public from loansharking.... Accordingly, it would seem to follow that a party cannot waive his right to be protected from criminally usurious loans. This right is not personal to the borrower, so as to be waivable by it. Rather, the right exists for the benefit of everyone.
Although the Court of Appeals modified the Second Department's order in Hammelburger, it did so based on the doctrine of estoppel in pais; the debtor in that case had given the debt's assignee an out-of-court estoppel certificate waiving all defenses. Hammelburger v. Foursome Inn Corp., 54 N.Y.2d 580 (1981). In the case before this Court, Defendant has not executed any such estoppel certificate, nor has the debt been assigned to an "innocent assignee."
This Court is also bound by Third Department precedent, which holds that the doctrine of unclean hands "is not primarily a matter of defense; it need not be pleaded as a defense, and, in fact, need not be pleaded at all as the court may raise it sua sponte. It is applied 'not to favor a defendant, but because of the interest of the public.'" Richards v. Levy, 40 A.D.2d 1055 (3d Dep't 1972) (internal citations omitted). "Although neither party raised the issue of unclean hands or illegality as a defense to plaintiff's action... this court is not precluded from raising the issue Sua sponte [sic] for the first time on appeal... not to favor defendant, but as a matter of public policy." Janke v. Janke, 47 A.D.2d 445. "The fact that defendants defaulted does not preclude this Court from addressing the issue of an illegal transaction and unclean hands, because 'it would be most inappropriate to permit a userer [sic] to recover on a loan for which he could be prosecuted.'" Pearl Capital Rivis Ventures, LLC v. RDN Const., Inc., 54 Misc.3d 470 (Westchester Sup. Ct. 2016). The Court is mindful of the fact that Defendant has failed to appear or assert the defenses of civil and criminal usury, but this does not preclude a court from considering criminal usury as a matter of public policy.
33. As the Court of Appeals has stated, "the modern conception of our usury laws focuses on the protection of persons in weak bargaining positions from being taken advantage of by those in much stronger bargaining positions." Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d at 331-32. "The purpose of usury laws, from time immemorial, has been to protect desperately poor people from the consequences of their own desperation." Schneider v Phelps, 41 N.Y.2d 238, 243 (1977).
34. New York's public policy against criminal usury is also found in General Obligations Law § 5-521. Corporations have traditionally been prohibited from asserting the defense of usury. General Obligations Law § 5-521(1). However, General Obligations Law § 5-521(3) explicitly permits corporations to raise the defense of criminal usury.
35. This Court is not bound by the Second Department's holding in Power Up Lending Group, Ltd. v. Cardinal Resources, Inc., 160 A.D.3d 674 (2d Dep't 2018). In that case, the Second Department held that "[t]he Supreme Court erred when it severed those provisions of the agreements which it found to be illegal pursuant to the criminal usury statute. Usury is an affirmative defense which a defendant must either assert in an answer or as a ground to move to dismiss the complaint pursuant to CPLR 3211. Otherwise, the defense is waived (see CPLR 3211[e]; 3018[b] [case citations omitted])."
36. Third Department precedent requires this court to consider New York's public policy against criminal usury. Richards v. Levy, 40 A.D.2d 1055. Since the Second Department did not discuss these public policy concerns in Power Up Lending Group, Ltd., this Court declines to follow the holding in that case.
To be sure, the Third Department has held that "[t]he defense of usury does not apply where the terms of a promissory note impose a rate of interest in excess of the statutory maximum only after maturity of the note." Klapper v. Integrated Agricultural Mgmt. Co., 149 A.D.2d 765, 539 N.Y.S.2d 812 (3d Dep't 1989). However, Klapper did not involve an interest rate above the criminal usury cap of 25%. Madden v. Midland Funding, LLC, 237 F.Supp.3d 130, 144 (S.D.NY 2017) (interpreting Klapper and stating, "Based on this survey of New York state cases, I believe that the New York Court of Appeals, were it to face this situation, would hold that the criminal usury cap limits interest charged on debts to 25% annually, even for defaulted debts.") Furthermore, a credit card account does not have a set maturity date like a non-revolving note does. Even though a card holder may "default" by missing a payment date, a credit card account continues until it is cancelled. As such, an increased interest rate after a "default" on a credit card will affect future borrowing. On the other hand, in a non-revolving loan where all the money is already borrowed, an increased interest rate will only affect repayments.
37. The Plaintiff should provide evidence establishing its right to charge criminally usurious interest rates. Even in the context of a criminal proceeding, with its greater due process protections, a party accused of charging a criminally usurious interest rate bears the responsibility of asserting that he was authorized to charge that interest rate. United States ex rel. Corozzo v. Attorney General of State of New York, 475 F.Supp. 707 (D.C.NY 1979) (holding that "lack of authorization to charge higher interest is not an element of the crime which must be established by the prosecution, but is instead a matter which the defendant must put in issue.... Such a shifting of the burden of going forward is not unconstitutional.") If this burden can be shifted to a criminal defendant who is afforded greater due process protections in a criminal action, it can be shifted to the plaintiff in a civil action as a matter of New York public policy.
38. Thus, the Court holds that while civil usury above 16% is an affirmative defense that should be asserted by a defendant, New York's public policy against criminal usury above 25% must be enforced. This does not mean that a bank may not charge interest in excess of 25%. It means only that where the interest rate on a bank loan exceeds 25%, the issue of criminal usury is not waived merely by a defendant's failure to assert it. The burden is on a plaintiff to establish its authority to charge an interest rate in excess of New York's criminal usury rate of 25%. See Cleo Realty Associates, L.P. v. Papagiannakis, 151 A.D.3d 418 (denying a plaintiff's motion for summary judgment and holding that "plaintiff failed to establish as a matter of law that it was entitled to the amount it seeks.... In view of the public policy underlying Penal Law § 190.40, which makes an interest charge of more than 25% per year a criminal offense, these late fees are unenforceable"). As discussed above, Plaintiff has failed to establish the basis for claiming a criminally usurious interest rate. Penal Law § 190.40.
In Flushing National Bank v. Pinetop Building Corp., 54 A.D.2d 555 (2d Dep't 1976), the Second Department said, "Section 190.40 of the Penal Law was not intended to cover loans by banks." This statement is mistaken and not grounded in logic. From an analysis of that case and its cited statutes and caselaw, it seems the Second Department intended to hold that usury in excess of 25% does not result in the voiding of an entire loan agreement. It would have been correct for the Second Department to instead state, "Section 5-511 of the General Obligations Law was not intended to cover loans by banks," since that is the statute that voids usurious contracts. In Flushing National Bank, the Second Department held that "[u]nder sections 108 (subd. 6) and 235-b of the Banking Law, the sole penalty for any usurious loan by a banking institution is the forfeiture of interest." Flushing Nat. Bank, 54 A.D.2d 555. A review of Banking Law §§ 108(6) and 235-b reveals that the forfeiture of interest is indeed the civil penalty for a usurious loan by a banking institution that exceeds the civil usury rate of 16%. It would be illogical to prohibit an interest rate above 16% while at the same time permitting an interest rate above 25%. Indeed, New York Banking Law § 235-b explicitly penalizes "interest at a rate greater than such rate of interest as may be authorized by law." Surely this law includes the criminal usury rate set by Penal Law § 190.40. Furthermore, nothing in the Banking Law precludes criminal prosecution for exceeding Penal Law § 190.40's criminal usury rate of 25%. The Second Department cited two cases in Flushing National Bank, and a reading of those cases supports this Court's conclusions about the Second Department's intended holding. The first case, Franklin Nat. Bank of Long Island v. DeGiacomo, 20 A.D.2d 797 (2d Dep't 1964), made absolutely no mention of Penal Law § 190.40, but did state, "Although a usurious loan by a bank is not void, the entire interest is forfeited." The second case, Reisman v. William Hartman & Son, Inc., 51 Misc.2d 393 (Queens County Sup. Ct. 1966), did not disregard the criminal usury rate. On the contrary, that case turned on whether the interest rate exceeded 25% because criminal usury can be raised by corporations under General Obligations Law § 5-521(3). For the reasons stated above, this Court holds that Penal Law § 190.40 can apply to banks, notwithstanding the Second Department's erroneous statement in Flushing Nat. Bank, 54 A.D.2d 555.
39. "Criminal usury requires proof that the lender (1) knowingly charged, took or received (2) annual interest exceeding 25% (3) on a loan or forbearance. The first element requires proof of the general intent to charge a rate in excess of the legal rate rather than the specific intent to violate the usury statute." In re David Schick, Venture Mtge. Corp., and A & D Trading Group, LLC, Debtors, 245 B.R. 460, 473-474 (Bankr.S.D.NY 2000) (internal citations omitted). "Usurious intent is 'an essential element of usury' and 'where usury does not appear on the face of the note, usury is a question of fact.'" Adar Bays, LLC v. GeneSYS ID, Inc., 37 N.Y.3d 320. As already discussed, the evidence before the court shows that the interest (including any late fees) charged on Defendant's credit card account resulted in an interest rate exceeding "twenty-five per centum per annum or the equivalent rate for a longer or shorter period." New York Penal Law § 190.40. The Court finds that there was general intent to charge a rate over the legal rate. All the criminal usury elements of (1) the general intent to charge (2) a rate in excess of 25% (3) on a loan are established here.
VIII. Conclusion
40. Plaintiff has charged Defendant a criminally usurious rate of interest. The penalty is "forfeiture of the entire interest which the note, bill, or other evidence of debt carries with it, or which has been agreed to be paid thereon." 12 U.S.C. § 86; New York Banking Law §§ 108(6) and 235-b. Thus, on the cause of action for a breach of contract, Plaintiff forfeits the entire interest charged on the credit card.
41. The total interest, including late fees, charged to Defendant throughout the entirety of the account was $1773.04. As discussed above, this amount is forfeited.
42. Defendant made $8235.54 in purchases throughout the entirety of the account. Defendant had $5412.15 in payments and credits, resulting in a debt of $2823.39.
43. Under the usury penalty statutes, a defendant might recover twice the amount of the interest already paid, though an action for such relief must usually be commenced within two years of the usurious transaction. 12 U.S.C. § 86; New York Banking Law §§ 108(6) and 235-b. The Defendant here has not pursued such relief.
44. Based on the foregoing, judgment is for the Plaintiff in the amount of $2823.39.
45. This constitutes the Decision and Order of the Court entered upon notice to both parties. A notice of appeal, if applicable, must be filed within thirty (30) days of service of this decision.
SO ORDERED.