January 9, 1996
STATE OF MICHIGAN
DEPARTMENT OF COMMERCE
FINANCIAL INSTITUTIONS BUREAU
IN RE: REQUEST BY NBD BANK, DETROIT, FOR A DECLARATORY RULING ON THE APPLICABILITY OF SECTION 191(b) OF THE MICHIGAN BANKING CODE OF 1969 TO CERTAIN CREDIT CARD TRANSACTIONS.
AUTHORITY TO ISSUE
On Tuesday, November 16, 1995, the Commissioner of the Financial Institutions Bureau received a letter from NBD Bank, Detroit, Michigan, requesting a declaratory ruling on the applicability of section 191(b) of the Banking Code of 1969, MCL 487.491(b); MSA 28.710(191)(b), under section 63 of the Administrative Procedures Act of 1969, MCL 24.263; MSA 3.560(163).
Section 63 requires that an interested party present an agency with a specific state of facts as to the applicability of a statute administered by the agency for a declaratory ruling to be issued. The Financial Institutions Bureau is an agency of state government with jurisdiction over financial institutions transacting business under the laws of Michigan, and the Commissioner is vested with the authority to implement the Banking Code of 1969 (hereinafter "Banking Code"), MCL 487.301 et.seq.; MSA 23.710(1) et. seq. NBD Bank, Detroit, Michigan (hereinafter "NBD"), is a state-chartered banking corporation organized under the laws of Michigan, more specifically the Banking Code, and as such is deemed an interested party. Further, NBD presented the Commissioner with an actual state of facts regarding its operations under the Banking Code. The Commissioner finds that NBD has fulfilled the requirements of section 63 of the Administrative Procedures Act of 1969, supra, and as the regulator of state-chartered banks, the authority to issue this declaratory ruling is proper.
The factual situation described in this section and under which NBD has requested this ruling is set out in the above-referenced letter and other communications between the Financial Institutions Bureau (hereinafter "FIB") and NBD during a period beginning on September 15, 1994. The factual situation presented by NBD is as follows.
NBD operates a national merchant credit card processing program in which it services a wide variety of businesses that range in size from local "mom & pop" establishments to multi- billion dollar corporations. As a merchant credit card processor, NBD acts as an intermediary between a merchant and a credit card issuing bank. Merchant processing is the settlement of credit card sales transactions for merchants. It is separate and distinct from the line of business in which a bank issues a credit card and carries the loan made pursuant to the credit card arrangement with its customer.
As a merchant credit card transactions processing bank (hereinafter "merchant bank"), NBD enters into contracts with merchants to provide credit card processing services for purchases of goods and services in which a consumer has used a VISA or MasterCard credit card as the medium of exchange. The merchant bank collects the funds from the card-issuing bank and credits the merchants account, less a fee for the authorization and settlement services described below.
Merchants clear their sales transactions by submitting them either physically in paper form, or electronically by a telephone linked terminal. In the typical transaction, the merchant "swipes" the customers card through an electronic card reader. The magnetic stripe on the card is read and the information it contains is transmitted to the issuing bank for authorization (or to a third party approved by the issuing bank). NBD provides authorization services to their merchant customers by providing an electronic or telephonic link to the card issuing banks.
After a transaction is authorized, the merchant enters the sales information through a terminal, usually a cash register. Typically, at the end of the day, the merchant totals its credit card transactions and transmits the data to NBD. NBD then transmits the information via MasterCard or VISA networks to the card-issuing banks, obtains the funds, and credits the merchant's account, less a processing fee. In an electronic transaction NBD may settle with the issuing bank the day following the merchant's submission.
The processing fee that NBD charges its merchant customer is made up of several components which cover costs incurred by the bank which are charged by other entities in the collection process. NBD specifically has requested a ruling as to whether its operations as a merchant bank are affected by section 191(b) of the Banking Code, MCL 487.491(b); MSA 23.710(191)(b). Section 191(b) limits the discount a bank may charge when purchasing obligations resulting from credit card arrangements to 5% of the gross obligations purchased.
Section 191 of the Bank Code states in pertinent part:
"Banks may collect interest and charges on loans as follows:
(b) On any existing credit card arrangement or future credit card arrangement banks may not charge a discount of more than 5% of the gross amount of obligations purchased by the bank." MCL 487.491(b); MSA 28.710(191)(b).
III. Discussion of Law
Section 191 of the Banking Code generally provides a banking corporation with the authority to collect interest and charges on loans. The subsections to 191 set forth limitations upon the amounts and types of interest and charges that a bank may collect on those loans. Subsection (b) limits a bank to charging a discount rate of no more than 5% of the gross amount of credit card obligations it purchases. The issue presented is whether the scope of section 191(b) of the Banking Code covers NBD in its role as a merchant credit card transactions processor. The Financial Institutions Bureau (hereinafter "FIB") has never made an official determination, nor is it aware of any judicial ruling on this issue.
The cardinal rule of statutory construction is to identify and give effect to the intent of the Legislature. Mull v. Equitable Life, 444 Mich. 508, 514; 510 N.W.2d 184 (1994). The first step in ascertaining such intent is to focus on the language in the statute itself. Thorton v. Allstate Ins. Co., 425 Mich. 643, 648; 391 M.W.2d 320 (1986). If statutory language is certain and unambiguous, construction is neither required nor permitted, and the statute must be applied as written. Mull, supra.
Section 191 is part of the scheme of usury laws in Michigan. First Bank of Cadillac v. Miller, 131 Mich. App. 764, 768-69; 347 N.W.2d 714 (1984). In Hillman's v. Em 'n Al's, 345 Mich. 644; 77 N.W.2d 96 (1956), the Michigan Supreme Court defined usury as, "the receiving, securing, or taking of a greater sum or value for the loan of forbearance of money, goods, or things in action than allowed by law." Id. at 651 (quoting, 55 Am. Jur., Usury, 2, p.324). The law of usury thus governs the legal rate of interest a lender may charge in connection with a loan it has made.
It is the position of the FIB that the plain language employed by the Legislature in section 191 clearly does not apply to a merchant bank operation. The preamble language to section 191 states, "Banks may not collect interest and charges on loans...." MCL 487.491; MSA 23.710(191) (emphasis added). The authorization to collect interest and charges on loans and the limitations placed on that authority unambiguously covers only loans made or purchased by the subject bank. In its role as a merchant bank, NBD is merely a provider and processor of financial data, and not a lender. Applied as written, subsection (b) of section 191 of the Banking Code, a usury statute intended to govern a lender bank, cannot be read to cover NBD's merchant credit card processing business. To read it otherwise would be at odds with the Legislative intent to enact a usury statute which governs the rate of interest and other charges a lender may collect.
As a result of the above analysis, the position of the Financial Institutions Bureau is that section 191(b) of the Banking Code of 1969, MCL 487.491(b); MSA 28.710(191)(b), does not apply to NBD in its role as a merchant bank because section 191(b) is part of the scheme of usury laws enacted by the Legislature to govern rates of interest banks acting as lenders may charge. NBD, in its role as a processor of credit card transactions is not a bank making a loan, and thus is not subject to the 5% discount restriction contained in section 191(b) of the Banking Code.
Patrick M. McQueen, Commissioner
Financial Institutions Bureau
Department of Commerce
January 9, 1996