| 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;
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
(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);
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
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