BANKS' LATE FEES RULED OK : L.A. WOMAN LOSES CREDIT-CARD CHALLENGE.

Byline: Russ Britt Daily News Staff Writer

The U.S. Supreme Court ruled Monday that credit card companies can continue to charge whatever late fees they deem necessary, even to people who live in states such as California that limit or ban such levies.

The decision saves banks and other institutions billions of dollars. And consumer activists say the ruling could wind up costing consumers money because banks might feel emboldened by the court action and raise late fees.

The nation's banks collect $2 billion in late fees each year.

Also, creditors will not have to face litigation that was sure to arise with a different decision, said Richard Kendall, an attorney for Citibank, the New York-based banking giant that was the target of the suit.

``There were five to six years of charges that consumers would have tried to get banks to pay back,'' he said.

Consumer groups plan to ask the U.S. Comptroller of the Currency to overturn the decision and limit the fees.

Earl Lui, staff attorney for Consumers Union in San Francisco, said late fees represent profit centers for some banks that are charging $15, generally the standard in the industry. While there is no limit on late fees for companies based in certain states, market forces were expected to keep those rates down.

This ruling could shift those forces in the other direction, Lui said.

``The sky's the limit,'' he said. ``I think it might make it more likely for banks to do this.''

Bank officials said little is expected to change.

``What it does for us is it maintains the status quo,'' said Peter Magnani, spokesman for BankAmerica Corp. in San Francisco.``An unfavorable decision would have cost us a lot.''

The high court upheld previous decisions in favor of Citicorp, saying that the company could continue to enforce its customary $15 delinquent fee on Citibank cards, even though states such as California limit charges.

Until two years ago, California did not allow any late credit card fees to be charged. The Legislature relaxed that rule in 1994 to allow companies based in the state to charge $7 for payments less than five days late, $10 for payments that are five to 10 days delinquent and $15 for those 10-15 days overdue.

Justices unanimously ruled against Barbara Smiley, a Citibank customer in Los Angeles who sued in 1992 over the fee. At the time, California forbade any fee to be charged.

``It's a victory for free market forces,'' said Marie Mendler, spokeswoman for Citicorp. ``It ensures that customers have access to credit markets.''

However, the attorney who argued on Smiley's behalf before the high court had a different interpretation.

The decision ``will allow small states to override the longstanding consumer protection laws of more heavily populated . . . states,'' the lawyer, Michael Donovan, told Bloomberg Business News.

In the short term, it appears that California credit card holders will see no change in their bills.

The court's ruling essentially determined that nationally chartered banks are allowed to charge late fees and put them in the category of interest on accounts. In preliminary rulings, the Comptroller of the Currency has determined late fees qualify as interest.

To take advantage of the ruling, the banks will have to base their credit card operations in states that allow more leniency in setting late fees.

It's something banks already do.

For example, San Francisco-based BankAmerica moved its credit card operations to Arizona in the early 1990s, following the lead of many financial institutions that moved to states that were more late fee-friendly. Citibank's credit card operations are in South Dakota.

Even San Francisco-based Wells Fargo Bank, which had no retail outlets outside California a year ago, created a credit card facility in Arizona in 1995, partly to avoid restrictions on late fees, said Kathy Shilkret, bank spokeswoman. Wells Fargo since has acquired First Interstate Bank, which has facilities in Arizona and other Western states.

And some companies have credit card operations in California but formally issue them from other states. Household Credit Services in Salinas uses General Motors cards from its Las Vegas bank.

``We comply with the law,'' said Ellen Rosenfels, a Household Credit spokeswoman. ``We've been issuing them out of Nevada at least two years.''