September 20, 1993

Richard A. Duncan, Director
Division of Banking
500 East Capitol
Pierre, SD 57501-5070

OFFICIAL OPINION NO. 93-08

Credit card late charges

Dear Mr. Duncan:

You have requested an official opinion from this Office in regard to the following question:

QUESTION:

Are credit card late charges that are agreed to by a South Dakota bank and its customers subject to the liquidated damages provisions in SDCL 53-9-5?

IN RE QUESTION:

SDCL ch. 53-9 contains the statutory provisions which generally govern contracts. SDCL 53-9-5 states:

Every contract in which amount of damage or compensation for breach of an obligation is determined in anticipation thereof is void to that extent except the parties may agree therein upon an amount presumed to be the damage for breach in cases where it would be impracticable or extremely difficult to fix actual damage.

The answer to your question turns upon whether credit card agreements containing provisions for late charges are a "contract in which amount of damage or compensation for breach of an obligation is determined in anticipation thereof," as prohibited by SDCL 53-9-5.

The intent of a statute must be derived from its language and that language must be given its plain, ordinary and popular meaning. Whalen v. Whalen, 490 N.W.2d 276, 280 (S.D. 1992). Legislative intent should be derived primarily from the language expressed in the statute. Nelson v. School Board of Hill City, South Dakota, 459 N.W.2d 451, 454 (S.D. 1990). Legislative intent is also derived from other enactments relating to the same subject which may modify or limit the effective scope of the statute in issue. Id. Therefore, we must look to those enactments which deal specifically with credit cards and credit card charges. SDCL 51A-12-13 states:

Notwithstanding any other provisions of law, a bank may contract for and collect the following credit service charges in connection with the extensions of credit made pursuant to <185> 51A-12-12 in an amount agreed to by the bank and the debtor either initially or pursuant to a modification made under <185> 54-11-10:

(1) Membership fees, whether assessed on an annual or other periodic basis;
(2) Transaction fees;
(3) Interest charges permitted by <185> 54-3-1.1;
(4) Charges for exceeding a designated credit limit;
(5) Charges for stopping payment;
(6) Charges for each return of a dishonored check, negotiable order of withdrawal or draft;
(7) Other charges made in connection with the revolving loan or charge account arrangement.

All of these fees and charges permitted by this section shall be deemed interest. No fee, expense or other charge whatsoever may be taken or received by a bank under a revolving loan or charge account arrangement except as provided in this section. [Emphasis added.]

The language of this section dealing specifically with credit card service charges clearly indicates that such "other charges," such as late charges, are deemed interest, as opposed to a liquidated damage.

To the extent that the language of SDCL 51A-12-13 could be read to run contrary to that of SDCL 53-9-5, another principle applies. "[W]hen the question is which of two enactments the legislature intended to apply to a particular situation, `terms of a statute relating to a particular subject will prevail over general terms of another statute.'" Nelson, 459 N.W.2d at 454. Obviously, SDCL 51A-12-13 is the more specific statute and thus would control. Moreover, SDCL 51A-12-13 provides that it alone controls credit card charges.

The definition of "interest" further demonstrates that late charges are part of interest to be paid and not a liquidated damage. SDCL 54-3-1 states that:

Interest is the compensation allowed by law for the use, or forbearance, or detention of money or its equivalent, including without limitation, points, loan origination fees, credit service or carrying charges, charges for unanticipated late payments, and any other charges, direct or indirect, as an incident to or as a condition of the extension of credit. [Emphasis added.]

This section clearly contemplates that late charges are "interest." Further, the South Dakota Supreme Court has long held that the various charges associated with revolving credit accounts and the loaning of money are considered part of the interest. Ulvilden v. Sorken, 58 S.D. 466, 237 N.W. 565, 566-67 (1931); Rollinger v. J.C. Penney Company, 86 S.D. 154, 192 N.W.2d 699, 705 (1971); Meierhenry v. Spiegel, Inc., 277 N.W.2d 298, 300 (S.D. 1979). These decisions, in addition to the statutory definition of interest, indicate that all charges on an extension of credit come under the term "interest." AGO 74-25, 1973-74 AGR at 280; AGO 80-24, 1979-80 AGR at 176. Because credit card late charges are "interest," and not liquidated damages, the general contract prohibition of SDCL 53-9-5 does not apply.

In view of the discussion above, the answer to your question is "no."

MB:CDM:do