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Is U.S. Bank Collecting Illegal Interest Rates?

posted by Bob Lawless

When their customers have complained about an unexpected fee, credit card companies have pointed to the fine print in their credit card agreements. Now, a pro se litigant in California has turned the tables on U.S. Bank, saying it has failed to read the fine print in the North Dakota statute. As detailed in the Santa Rosa Press Democrat, a small-business owner and bootmaker, Michael Carnacchi, is opposing U.S. Bank's collection action against him on the grounds that U.S. Bank's credit card interest rates are illegal.

It all sounds crazy, but it gets crazier. A careful reading of the North Dakota statute and the National Bank Act suggests Carnacchi might be right. U.S. Bank is a national bank located in North Dakota, and the particular language of that state's laws might give it a big headache.

The legal issues are complex. One must begin with the National Bank Act which allows a federally chartered bank to charge the interest rate allowed by the laws of the state where the bank is located (12 U.S.C. § 85). In a seminal decision, Marquette Nat'l Bank v. First of Omaha Service Corp., 439 U.S. 299 (1978), the Supreme Court ruled that section 85 meant that a bank physically located in Nebraska needed only to comply with the relatively more generous Nebraska usury statute rather than the stricter Minnesota statute even when lending to Minnesota residents. The Marquette decision is why U.S. Bank thinks it can export the lax usury law of North Dakota to a California resident like Carnacchi.

The same section of the National Bank Act, however, further specifies that "when no rate is fixed by by the laws of the state . . . ." then the maximum rate a national bank can charge is the greater of 7% or 1% in excess of the rate on 90-day commercial paper in effect at the Federal Reserve (which is currently 0.46%). If a national bank charges an interest rate greater than allowed, the bank cannot collect any interest on the debt, and the borrower can recover twice the amount of interest actually paid during the two years prior to the lawsuit (12 U.S.C. §  86).

North Dakota state law sets a usury rate of the 6-month T-bill rate plus 5.5% (N.D.C.C. § 47-14-09.1). Of course, such an interest rate cap would be too low to attract national banks like U.S. Bank to locate their operations in North Dakota. Thus, in the next subsection, the North Dakota legislature simply wrote, "This section does not apply to a . . . loan made by a lending institution which is regulated or funded by an agency of a state or of the federal government." But, therein lies the problem. As far as I can tell--and this point is key--there appears to be no other provision of North Dakota law that fixes an interest rate for nationally chartered banks like U.S. Bank to charge. The National Bank Act only allows a federally chartered bank to charge the interest rate of the state where the bank is located when state law "fixes" a rate.

The North Dakota statute thus has a lacuna for national banks. By removing all national banks from application of its usury statute, there is no North Dakota law that "fixes" an interest rate within the meaning of the National Bank Act. Under this reasoning, the 7% cap of the National Bank Act would be the maximum for a federally chartered bank located in North Dakota. One response might be that North Dakota has effectively "fixed" an interest rate by having no law whatsoever on the subject. The problem with that reasoning is that it proves too much -- if the absence of state law is "fixing" an interest rate, there would be no reason for the language in the National Bank Act saying the interest rate is 7% where no state law applies (and courts do not like to read statutes in a way that makes part of a statute unnecessary verbiage).

Although I have not undertaken an exhaustive analysis of other states' laws, North Dakota's statutory language appears to be uncommon. South Dakota--another state where it is popular for national banks to locate--states that the maximum rate of interest that may be charged is whatever the parties establish by written agreement (S.D.C.L. § 54-3-1.1). An old Supreme Court case says that such a statute is sufficient to "fix" an interest rate within the meaning of the National Bank Act. Daggs v. Phoenix Nat'l Bank, 177 U.S. 549 (1900). (At the same time, South Dakota also has another section completely exempting regulated lenders from its usury statutes (S.D.C.L. § 54-3-13), meaning banks located there might also be subject to the same reasoning suggested by the North Dakota law.)

Every lawyer "knows" that a federally chartered bank can charge whatever interest rate the market can bear. It can be an odd experience, however, to discover that we "know" less than we thought we did when we go read the statutes. Still, I think Mr. Carnacchi faces an uphill battle. It can be difficult to persuade a court to upset settled expectations, and settled expectations are that U.S. Bank can charge whatever interest rate it wants. Judging from the newspaper article, Mr. Carnacchi fortunately does not seem to be the type of person who accepts settled expectations.

(Thank you to the Credit Slips reader who brought this fascinating case to my attention--you know who you are. And, thanks to the Santa Rosa Press Democrat for a nice piece of reporting and giving us another example of the service that a good community newspaper can provide.)


It's a duty of gov that need to take actions and aware of such thing. If bank did it, they should do something for customer.

Mr. Lawless (Bob):

Thank you for writing this post about my case.

According to my theory, the maximum interest that US BANK can charge is 7% (Title 12 U.S.C. 85). During my entire credit card history with US BANK, the bank charged me an average of 17.5% interest. By this action, US BANK is also violating Title 18 U.S.C. 1962 (RICO Act) which defines my debt to US BANK as "unlawful debt."

Title 18 U.S.C. 1961(6) defines "unlawful debt" as follows:

"unlawful debt" means a debt... (b) which was incurred in connection with... the business of lending money or a thing of value at a rate usurious under State or Federal law, where the usurious rate is at least twice the enforceable rate.

Under the above statute the maximum interest that US BANK can charge is 14% (twice the enforceable rate of 7%) and by charging an average of 17.5%, US BANK has violated the RICO Act. Therefore, everyone who called the bankers "banksters" are exactly correct. As remedy for a violation of a RICO statute, Federal law provides that a plaintiff can seek three times the damages.

In the book "Civil Rico; A Definitive Guide" author Gregory P. Joseph writes:

In fact, there is some doubt, based on the legislative history, that RICO was ever intended to be used against banking institutions. Congress's purpose in requiring that the usurious rate be at least twice the enforceable rate was "to limit the effect of this definition to cases of clear 'loan-sharking.'" S. Rep. No. 91-617, 91st Cong., 1st Sess., 158-59 (1969).

The Title 12 U.S.C 85 and Title 18 U.S.C. 1962 infractions are part of my basis for asserting an 8th Amendment "excessive fines" clause violation by US BANK. My study into this cause of action has uncovered some of the more interesting details for my case and I will make them available as time and space permits.

Goliath will fall...

Michael Anthony Carnacchi
227 N. Main St.
Sebastopol, CA 95472
707 823 7204 (workshop)

No shot.

The NBA just requires that there exist a rate which is "fixed by the laws of the state." There clearly is a rate which is fixed by North Dakota law (i.e., the nominal usury rate you cite). The fact that U.S. Bank is exempt from that fixed rate is irrelevant. The NBA doesn't require there to be a rate fixed by state law AND which applies to the bank in question. It just requires that there be a rate fixed by state law. And in North Dakota, there is. You're trying to add an element to the analysis that simply isn't there.

This isn't nearly as close as you're making it out to be -- this is pretty basic statutory interpretation.

What do you believe is the threshold for there to exist a rate "fixed by the laws of the State"? Hypothetically, let's say that a state capped the interest rate that a used car dealer could charge, when providing dealer financing for a car sold for less than a thousand dollars. Would that be sufficient to fix a rate for the purposes of the NBA? What if they capped car dealers in general, but no other institutions?

What if they capped non-bank lenders (like payday loan companies), but not banks? Or if they capped certain banks but not others, but based on some criterion other than a federal charter? Or certain classe of transactions--for example, what if state law capped the interest rate on credit cards held by a customer under twenty-one years of age, but no others?

I'm guessing that you'd argue that no rate is fixed until a bank is affected, but as soon as even one transaction at one bank is affected, that does the job for the NBA. That's probably the most consistent response (beyond "all of them" or "none of them"), though it's difficult to imagine this was the intent of anyone drafting either the NBA or the state's rate cap.

Everyone knows the right answer (and, almost certainly, the answer that he will get); but it seems silly to pretend that there's logic behind it--unless, of course, one is paid to do so.

A little thought experiment here:

I am holding two law books, in my left hand I have the United States Code containing Title 12 Sec. 85 and in my right hand, the North Dakota Century Code containing Chapter 47-14.

According to the National Bank Act, US BANK is bound by the laws of the State where it is located. With this said, I flip open the the law book in my right hand (N.D.C.C.) and in reading the North Dakota statute regulating interest under the section titled "loans of money," I find that US BANK is exempted from this statute and therefore, I close the book because it is not applicable.

Naturally, and it seems to be simple common sense to me that if the law book in my right hand (N.D.C.C.) does not apply to US BANK, then the law book in my left hand (U.S.C.) must be applicable.

Is it possible that neither law book applies to US BANK and if so, then what is the purpose of Title 12 U.S.C. Sec. 85 of the National Bank Act?

Allow me to add one more piece of background information that many will know but others may not. The federal statute, the National Bank Act, was passed in the midst of the Civil War primarily to ensure a federally controlled banking system that would help finance the Union's war effort. The part of that statute at issue, section 85, was most likely meant to prevent states from driving a nationally chartered bank out of business by passing laws that were favorable to state chartered banks only. (Remember Andrew Jackson's campaign against the U.S. Bank is only 30 years old at this point and within the living memory of many politicians at the time.) Thus, in section 85, whatever interest rate the state allowed for its state-chartered banks, federally chartered banks got also. It is highly unlikely that anyone thought about section 85 as a means for banks to export rates to other states.

One hundred and ten years later, information technology and the banking industry has changed such that interstate lending offers real profit opportunities for consumer lenders. In Marquette, the Supreme Court interprets section 85 in a way that it is no longer just a shield of protection for national banks against discriminatory state laws but now it is a sword that allows national banks to export lax state regulation into other states. Whether we think the Marquette decision was right or wrong as a matter of judicial craft is not the point. Rather, we've come to this regulatory state largely by path dependence and historical accident. There is no grand intent behind this setup.

I'm following the discussion here and it all seems to make sense, except for the 8th Amendment claim by Mr. Carnacchi. Is he asserting that US Bank is a state actor, or is he claiming that US Bank's usage of the court system to enforce their contract is sufficient to state an 8th Amendment claim?

In order to successfully prove a United States Constitution “Excessive Fines” clause violation, the Supreme Court has held that there are three questions to be answered, all of to which, the answer must be yes.

Is the payment a fine?

Yes, for the following reasons:

1) In Austin v. United States (1993), the Supreme Court held that the “Excessive Fines” clause of the Eighth Amendment applies to both civil and criminal fines and that a payment is a “Fine” if it is punitive at least in part.

2) Part of the judgment sought by US BANK is punitive and is therefore a “Fine.”

Is the fine excessive?

Yes, for the following reasons:

1) During the entire duration of the US BANK credit card account of MICHAEL A CARNACCHI (October 2005 thru July 2008), US BANK did violate 12 U.S.C. 85 by charging “Excessive” interest that is more than 7% as governed by the National Bank Act.

2) During the entire duration of the US BANK did violate 18 U.S.C. 1962 (RICO Act), by charging interest to the credit card account of MICHAEL A CARNACCHI at a rate greater than “twice the enforceable rate” of 7% and that the debt is therefore defined as “unlawful debt” which is an “Excessive Fine.”

3) If US BANK wins this lawsuit against MICHAEL A CARNACCHI and the judgment is allowed to run its course, it will be worth USD 44, 038.88 or 227 percent more than the USD 13,444.99 that US BANK charged-off on July 31, 2008. (An Excessive Fine)

4) With a judgment for this lawsuit in its favor, US BANK will cause an Armed Sonoma County Sheriff's Deputy to stand guard at CARNACCHI'S workshop to seize any of his tangible property and revenue, levy his bank account and safe deposit box, or open his mail, all of which will destroy Plaintiff causing him to declare bankruptcy and be forced out of his small boot and shoe making business. (An Excessive Fine)

5) The Supreme Court has defined "Excessive" in terms of proportionality - is the fine overly large when compared to the conduct giving rise to the fine? The US BANK “Legal Person” and the MICHAEL A CARNACCHI “Legal Person” both suffered from the same loss of revenue at or about the end of 2007. When the US BANK “Legal Person” could not meet its financial obligations, it received a U.S. Government cash infusion without penalty, while the “Legal Person” that is MICHAEL A CARNACCHI received zero U.S. Government assistance and is now being penalized with “Excessive Fines Imposed” upon him to the full extent of the law by US BANK

Is US BANK a United States Government Actor and or does the United States Government have “any right to receive a ‘share’ of the damages awarded”?

Yes, for the following reasons:

1) The oldest charter (#24) that US BANK currently holds was issued on July 13, 1863 and it was the 24th corporation erected by an Act of Congress (NBA) which designates US BANK to be a "Government Instrumentality."

2) Title 31 C.F.R. Chapter II Section 202, designates US BANK to be a “Financial Agent of the Federal Government” by virtue of the five (5) Federal Charters that it holds: Charter numbers; 24; 23412; 23446; 23604; and 24090. The legal definition of “agent” is “one who acts on behalf of another” and by this action US BANK is a defined as a United States Government Actor and the U.S. Constitution is activated.

3) On November 14, 2008 the United States Treasury Secretary did electronically transfer a payment of USD 6 Billion, 599 Million to US BANCORP for the purchase 6,599,000 shares of Preferred Stock at USD 1,000 per share and the said stock was placed in the name of the United States Treasury Department. By this action the United States Constitution is activated.

4) In Browning- Ferris Industries, Inc. v. Kelco Disposal, Inc. (1989), the Supreme Court held that the “Excessive Fines” clause of the Eighth Amendment applies when the government: “has any right to receive a ‘share’ of the damages awarded.”

5) On May 31, June 9, and July 15, 2009, the U.S. Treasury Department received a combined payment of USD 334.2 million from dividend and warrant proceeds paid on “shares” of US BANCORP stock owned by the United States Government. Because US BANK’S sole source of revenue comes from interest, fees, and penalties charged for loans and banking services, and if MICHAEL A CARNACCHI did not stand up to defend himself, a small share of the default judgment awarded to US BANK would have been indirectly paid to the U.S. Government. By this action the United States Constitution is activated.

6) By virtue of the actions stated in numbers 3 (above), US BANK has also been granted “specific authority” in its designation as a “Financial Agent of the Federal Government” as outlined in Title 31 C.F.R. Section 202.3 (b).

7) US BANK did cause an Indirect U.S. Government Tax (TARP) to be levied upon CARNACCHI by his government which was used to bailout US BANK and indirectly gave US BANK the money to hire the law firm of NELSON & KENNARD to collect the debt from CARNACCHI. US BANK held bailout monies from 11/14/08 thru 6/9/09 and NELSON & KENNARD (US BANK attorneys) were hired by US BANK on January 12, 2009. By this action it can be said that the United States government is a party to the action of the lawsuit filed against CARNACCHI.

Please note that my case is a work in progress and that the only thing constant about it is that it is constantly changing.

Thank you for your interest.


I question your reading of Austin v. United States. It seems you are attempting to extend the court's reasoning to a non-state actor.
I also question your logic in deciding that US Bank is a state actor for the following reasons:
1. The simple holding of a license or charter from the government is not sufficient to establish a private entity as a state actor. See Moose Lodge v. Irvis.
2. US Bank was not acting in its capacity as an agent of the US Government when it offered you a credit card, not was it acting under any apparent authority of the United States government. The CFR cite you use appears to deal solely with the authority of certain institutions (including US Bank) to accept certain tax payments on behalf of the Federal Government.
3 and 4. Browning-Ferris v. Kelco 492 U.S. 257 (1989) does not appear on a cursory reading to hold anything of the sort. In particular, I direct your attention to "In short, nothing in English history suggests that the Excessive Fines Clause of the 1689 Bill of Rights, the direct ancestor of our Eighth Amendment, was intended to apply to damages awarded in disputes between private parties. Instead, the history of the Eighth Amendment convinces us that the Excessive Fines Clause was intended to limit only those fines directly imposed by, and payable to, the government." Id. at 268.
5. That's a bit of a stretch, but OK.
6. The specific authority is to collect TT&L payments. Not to offer credit cards.
7. Unless a claim is stated under a portion of the constitution that directly limits the Taxing and Spending Clause, a claimant may not assert standing solely as a taxpayer to protest an expenditure of the federal government. See Flast v. Cohen, Everson v. Board of Education, etc. The Court has only (to this date) allowed such challenges when the claim involves the Establishment Clause.

Anyhow, good luck with your suit. I'm a fan of disallowing usurious interest rates, so I'm rooting for you.

Taking from the book “Zen and the Art of Archery,” I liken myself to that of a beginner sword fighter who at first swings his sword from every possible direction in an attempt to strike a blow against his opponent.

Two short thoughts as I need to rest for court tomorrow morning.

1) With regard to the US BANK Federal Charter #24 which was issued on July 13, 1863 by way of an Act of Congress and the comment that the bank is a private entity. US BANK (formerly the First National Bank of Cincinnati as originally chartered) issued United States National Currency in 1863, 1875, 1882, 1902, and 1929, all of which was printed with the bank’s name (now US Bank) and charter number on the notes. This currency is still legal tender to this day and I have actual physical notes from 1882, 1902, and 1929, all signed by the bank's president and cashier. A completely private corporation to my understanding does not have such authority.

2) The first bank of the United States was issued the first Federal Charter in 1791 (from which the authority to create all Federal Charters was born). The bank was a corporation erected by and funded with an Act of Congress (February 25, 1791) whereby the U.S. Treasury purchased USD 2 million worth of stock in the bank (Similar to TARP). The way I see it, the USD 2 million of taxpayer money invested in the bank is the original capital that remains present in every bank that was issued a Federal Charter since then. In other words, the money that the banks are loaning us at usurious rates is the money that was deposited by our antecedents and the founders of our country.

For me (as a bootmaker) to read the law and make a case out of it is like a lawyer trying to measure a foot and make a boot out of what he has read. With determination and commitment, the lawyer will most certainly be able to succeed. I am committed to learning the law and as Abraham Lincoln said “If you are resolutely determined to make a lawyer of yourself, the thing is more than half done already.”

The reason why I am fighting US BANK and the settled expectations allowing usurious interest is summed up as follows:

Now, that I have chosen to fight rather than file for bankruptcy, my credit rating is no longer impeccable as it had been during my 16 years in business as a bootmaker. Having said this, yesterday (June 9, 2010) I received a credit offer in the mail addressed to me at my workshop. On the outside of the envelope in a bright red rectangular box printed to look like a rubber stamp were the words: "PRE-QUALIFIED NOTIFICATION IMMEDIATE REPLY REQUESTED."

I opened the envelope and read the offer from FIRST BANK of DELAWARE. At the top of the page in large, bold print highlighted in vivid orange were the words: "YOU'RE PRE-QUALIFIED: GET $700 AS SOON AS TOMORROW WITH NO HASSLE AND YOU DON'T NEED PERFECT CREDIT" and "THE MONEY WILL BE DEPOSITED IN YOUR ACCOUNT AS SOON AS TOMORROW."

Upon further reading of the "fine print" at the bottom of the page it stated the following: "THE ANNUAL PERCENTAGE RATE (APR) FOR A LOAN OF $700.00 IS 324.11%."

Fortunately, I am not in need of money to the extent that would cause me to accept the offer, so I wrote the date that it was received on the outside of the envelope and placed it in a pile of similar offers sent to me since I took up my fight.

Unfortunately, in this economy, there are plenty of people who need the money bad enough to accept an offer like this. In example, a father who has lost his job and has three children and a wife who is also unemployed. To this family, the $700 means food and shoes for their children or payment of the electric bill to keep the lights on in their home. Naturally, and with no other means to survive, this family will accept the offer.

Upon acceptance of the offer, the father gives FIRST BANK of DELAWARE his bank account information for the direct deposit of the funds not knowing that if he misses a payment, the bank will seize any money in his account including that received from unemployment checks or welfare.

This kind of predatory lending preys upon the destitute citizens in our society and offers us an excellent example of how those in America who need help the most (food, clothing, and shelter) are the class of citizens who are paying the most for it. This is unethical, immoral, and un-American, and this is why I am fighting.

Citizens of States of North Dakota, South Dakota, Nevada, and Delaware, is this the kind of action you want your elected legislative bodies to inflict upon fellow citizens for the sake of “artificial corporate legal persons”? There must be a usury cap put in place (now) before our society is damaged beyond repair and the American experiment proves to be a failure, entering us into the history books as another empire that was.

US Bank v. Carnacchi update:

My amended cross-complaint against US Bank was filed with the State of California Superior Court; County of Sonoma on September 3, 2010.

The following causes of action are inclusive:

1) Usury
2) Declaratory Relief
3) RICO Act
4) Eighth Amendment
5) Fourteenth Amendment
6) Fraud
7) Unfair Competition

US Bank must file a response on or before October 6, 2010.

A jury trial for the above matter will begin on April 15, 2011 (tax day).

US Bank caused a tax to be levied upon me (TARP) and now it is my turn to lawfully impose attacks (a tax) against US Bank.

April 15th indeed; didn't Abe Lincoln die that day? You are fighting the fight I've wanted to for years. These national banks receive our tax dollars as bailouts with their right hand while raping us with usurious interest rates with their left hands. When you are late, you pay the higher rate - if you can't afford the lower rate, how can you afford the higher rate? It's expensive being poor in these United States.

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