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CAPITAL ONE BANK
November 5, 1999
Record No. 990677
CARMEN PEREZ, SUING INDIVIDUALLY AND ON BEHALF
OF ALL OTHERS SIMILARLY SITUATED
CAPITAL ONE BANK
UPON A QUESTION OF LAW CERTIFIED BY THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS
PRESENT: Carrico, C.J., Keenan and Kinser, JJ.,
Poff, Stephenson, and Whiting, Senior Justices, and Cochran,
OPINION BY SENIOR JUSTICE ROSCOE B. STEPHENSON,
The United States District Court for the
Northern District of Illinois entered an order of certification
requesting that we exercise our certification jurisdiction, Va.
Const. art. VI, ? 1; Rule 5:42, and answer the following
Does ? 6.1-330.63 of the Virginia
Code preclude a challenge, under the common law doctrine
of unlawful liquidated damages, to late fees included in
contracts between credit-card issuers and card holders,
where those contracts are governed by Virginia law?
By order entered April 21, 1999, we accepted
the question for consideration.
On December 4, 1997, Carmen Perez filed in the
United States District Court for the Northern District of
Illinois her class action complaint against Capital One Bank
(Capital One). In Count V of her complaint, Perez alleged that
the late fees charged to her credit card account by Capital One
constituted unlawful liquidated damages (i.e., penalties)
under the common law of Virginia.
Capital One filed a motion for summary judgment
as to Count V. The District Court reserved its ruling on the
motion, pending this Court’s answer to the certified question.
The relevant facts as found by the certifying
court are as follows: Perez is an Illinois resident and the only
named plaintiff alleged to represent the putative class in the
sole remaining count, Count V of the third amended complaint.
Capital One is a Virginia limited-purpose credit card bank with
its principal place of business in Glen Allen, Virginia. Capital
One currently has in excess of sixteen million credit card
account holders nationwide, and Perez has a credit card account
with Capital One.
Perez’s account is governed by the terms of
Capital One’s Customer Agreement. Paragraph 23 of the Customer
Agreement provides that the agreement is governed by Virginia and
federal law. Virginia Code ? 6.1-330.63(A) provides, in
Notwithstanding any other provision of
this chapter, any bank or savings institution may impose
finance charges and other charges and fees at such rates
and in such amounts and manner as may be agreed by the
borrower under a contract for revolving credit or any
plan which permits an obligor to avail himself of the
credit so established.
Capital One’s Customer Agreement provides that
a late charge will be imposed when a customer fails to make a
timely payment. The Customer Agreement at issue provides, in
Late Payment Charge. A late payment
charge of $18.00 (Effective 01/01/97, the late charge
will be $20) will be imposed if we do not receive
your Minimum Payment in time for it to be credited within
3 days after the due date shown on your Periodic
Statement. (Effective 01/01/97, a late payment charge
will be assessed if your payment is not received on the
due date. There will be no grace period.)
At the time the question was certified, Capital
One imposed late fees that ranged from $20.00 to $29.00. Perez’s
February 1, 1997 statement from Capital One reflects an $18.00
late payment charge imposed on January 2, 1997, because of an
untimely December 1996 payment. Her Minimum Payment Due at the
time was $10.00, and her account balance was $305.53. There is no
dispute that Perez did not pay the Minimum Payment Due within the
time provided in the Customer Agreement.
On August 1, 1997, the late fee charged by
Capital One to Perez’s account increased to $20.00. From February
1, 1997, through July 2, 1998, Perez incurred $396.00 in various
fees, $178.00 of which represented late fees. From June 1, 1996,
through July 2, 1998, Perez made payments to her account totaling
Under the common law, contracting parties may
agree in advance that, in the event the contract is breached, the
breaching party shall pay liquidated damages. A liquidated
damages provision is enforceable when the actual damages
contemplated at the time of the contract are not certain and are
difficult to measure with accuracy and when the fixed amount of
damages is not out of all proportion to the probable loss. On the
other hand, when the damages caused by the breach are prone to
definite measurement or when the stipulated amount would grossly
exceed actual damages, courts of law usually construe such a
provision as an unenforceable penalty. 301 Dahlgren Ltd.
Partnership v. Board of Sup., 240 Va. 200, 202-03, 396
S.E.2d 651, 653 (1990); Taylor v. Sanders, 233 Va.
73, 75, 353 S.E.2d 745, 746-47 (1987).
Perez, on her own behalf and on behalf of a
putative nationwide class of Capital One’s cardholders,
challenges the amount of the late fees being imposed by Capital
One as unlawful liquidated damages under the common law of
Virginia. She contends that Code ? 6.1-330.63(A) does not
preclude her from bringing an unlawful liquidated damages claim
against Capital One because the Code section does not abrogate
the common law of contracts. Perez asserts that, in the absence
of language that plainly manifests an intent to abrogate the
common law, the common law remains intact.
Capital One argues that the common law was
explicitly abrogated in 1987 when the General Assembly enacted
Code ? 6.1-330.80, which provides, in pertinent part, as
Any lender . . . may impose a
late charge for failure to make timely payment of any
installment due on a debt, . . . provided that
such late charge does not exceed five percent of the
amount of such installment payment and that the charge is
specified in the contract between the lender
. . . and the debtor.
1987 Va. Acts ch. 622. Capital One further
argues that the General Assembly, in also enacting Code
? 6.1-330.63, merely removed the 5% limit and permitted the
contracting parties to agree to fees in excess thereof with
respect to a contract for revolving credit.
Both Perez and Capital One assert that the
language of Code ? 6.1-330.63 is clear and unambiguous, and
we agree. Therefore, we must accept its plain meaning and not
consider rules of statutory construction, legislative history, or
extrinsic evidence. Yates v. Pitman Manufacturing, Inc.,
257 Va. 601, 605, 514 S.E.2d 605, 607 (1999); Town of
Blackstone v. Southside Elec. Coop., 256 Va. 527, 533,
506 S.E.2d 773, 776 (1998).
In 1987, the General Assembly enacted Chapter
7.3, entitled "Money and Interest," which is part of
Title 6.1 of the Code, entitled "Banking and Finance."
As previously noted, Code ? 6.1-330.80, a part of Chapter
7.3, permitted a lender and a debtor to agree to a late charge
that did not exceed 5% of the amount of a past due installment.
Thus, a lender could charge up to 5% without being required to
show that the actual damages were uncertain and difficult to
determine and that the amount charged was not out of proportion
to the probable loss.
Manifestly, in enacting Code
? 6.1-330.80, the General Assembly intended to abrogate the
common law rule prohibiting a penalty. In also enacting Code
? 6.1-330.63, the General Assembly removed the 5% cap on
charges imposed by banks and savings institutions under contracts
for credit, allowing such charges "at such rates and in such
amounts . . . as may be agreed by the borrower."
It logically follows, therefore, that Code ? 6.1-330.63,
which contains more specific language applicable to banks and
revolving credit plans, perpetuates the abrogation of the common
Accordingly, we answer the certified question
in the affirmative.
Certified question answered in