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Barbara Smiley, a resident of California, possessed credits cards issued by Citibank, a national bank located in South Dakota. Under certain circumstances, Citibank will issue late-payment fees. In 1992, Smiley brought a class action against Citibank on behalf of herself and other California holders of Citibank's credit cards, alleging that the late-payment fees charged by Citibank, although legal under South Dakota law, violated California law. In response, Citibank argued that a provision of the National Bank Act of 1864, which permits a national bank to charge its loan customers "interest at the rate allowed by the laws of the State... where the bank is located," pre-empted Smiley's state law claims. After accepting Citibank's argument that late-payment fees constituted "interest," the California Superior Court ruled in its favor. The California Superior Court Supreme Court affirmed.

Does the National Bank Act of 1864 authorize a national bank to charge late- payment fees that are lawful in the bank's home State but prohibited in the States where the cardholders reside?

Yes. In a unanimous opinion delivered by Justice Antonin Scalia, the Court held that the National Bank Act of 1864 authorizes such charges because a regulation adopted by the Comptroller of the Currency, which defined interest to include late-payment fees, was a reasonable interpretation of the act and entitled to deference. The Court rejected arguments that late-payment fees do not constitute interest because they do not vary based on the payment owed or the time period of delay and because they are penalties.