The Supreme Court's unanimous June 3, 1996, ruling that banks can continue to charge late fees to credit card customers who live in states that ban or limit such fees. The court determined that credit cards fees can be considered interest charges and therefore are controlled by laws in the state where the bank is located.

SUPREME COURT OF THE UNITED STATES

Syllabus

SMILEY v. CITIBANK (SOUTH DAKOTA), N. A.

certiorari to the supreme court of california

No. 95-860. Argued April 24, 1996-Decided June 3, 1996

Petitioner, a resident of California, held credit cards
issued by respondent, a national bank located in South
Dakota. She filed suit in state court, alleging that late-
payment fees charged by respondent, although legal under
South Dakota law, violated California law. Respondent
moved for judgment on the pleadings, contending that
petitioner's state law claims were pre-empted by a
provision of the National Bank Act of 1864 that 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," 12 U. S. C. 85, see Marquette Nat. Bank of
Minneapolis v. First of Omaha Service Corp., 439 U. S.
299. The California Superior Court, accepting
respondent's argument that credit card late-payment fees
constitute "interest" for purposes of 85, granted
respondent's motion. The State Court of Appeal and State
Supreme Court affirmed.

Held: The Comptroller of the Currency has reasonably
interpreted the term "interest" in 85 to include late-
payment fees, see 12 CFR 7.4001(a), and petitioner has
failed to establish that the Court should not accord its
customary deference to the Comptroller's interpretation
of an ambiguous provision of the National Bank Act. Pp.
3-11.

(a) Where a provision of the National Bank Act is
ambiguous, the Court, pursuant to Chevron U. S. A. Inc.
v. Natural Resources Defense Council, Inc., 467 U. S.
837, 842-845, defers to reasonable judgments of the
Comptroller, the official charged with administering the
Act. NationsBank of N. C., N. A. v. Variable Annuity
Life Ins. Co., 513 U. S. ___, ___. Petitioner's argument
that deference is not owing to the recently adopted 12
CFR 7.4001(a) is unpersuasive. The validity of the
Comptroller's interpretation is not affected by the fact
that the regulation was issued more than 100 years after
85 was enacted or that it was litigation, including this
very suit, which disclosed the need for the regulation.
And the distinction that the regulation makes between
those charges designated as interest and those not so
classified is not arbitrary or capricious. See Chevron,
supra, at 844. Petitioner errs in contending that an agency
interpretation that contradicts a prior agency position is
necessarily invalid; in any event, she fails to show that a
change of official agency position has occurred here.
Finally, the issue here, the meaning of 85, does not bring
into play the pre-emption considerations that petitioner
raises. Pp. 3-8.

(b) The Comptroller's interpretation of the statutory term
``interest'' is reasonable. There is no indication that, at the
time of the passage of the National Bank Act, common
usage of the word ``interest'' or the phrase ``at the rate
allowed'' required that interest charges be expressed as
functions of time and amount owing. Nor is there support
for petitioner's contention that the late fees are
``penalties'' rather than ``interest.'' See Citizens' National
Bank v. Donnell, 195 U. S. 369. Pp. 9-11. 11 Cal. 4th
138, 900 P. 2d 690, affirmed.

Scalia, J., delivered the opinion for a unanimous Court.


NOTICE: This opinion is subject to formal revision
before publication in the preliminary print of the United
States Reports. Readers are requested to notify the
Reporter of Decisions, Supreme Court of the United
States, Washington, D.C. 20543, of any typographical or
other formal errors, in order that corrections may be
made before the preliminary print goes to press.

SUPREME COURT OF THE UNITED STATES

No. 95-860

BARBARA SMILEY, PETITIONER v. CITIBANK
(SOUTH DAKOTA), N. A. on writ of certiorari to the
supreme court of california [June 3, 1996]

Justice Scalia delivered the opinion of the Court. Section
30 of the National Bank Act of 1864, Rev. Stat. 5197, as
amended, 12 U. S. C. 85, provides that a national bank
may charge its loan customers "interest at the rate allowed
by the laws of the State . . . where the bank is located."
In Marquette Nat. Bank of Minneapolis v. First of Omaha
Service Corp., 439 U. S. 299 (1978), we held that this
provision authorizes a national bank to charge out-of-state
credit-card customers an interest rate allowed by the
bank's home State, even when that rate is higher than
what is permitted by the States in which the cardholders
reside. The question in this case is whether 85 also
authorizes 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-in other words,
whether the statutory term "interest" encompasses late-
payment fees.

I
Petitioner, a resident of California, held two credit cards-
a "Classic Card" and a "Preferred Card"-issued by
respondent, a national bank located in Sioux Falls, South
Dakota. The Classic Card agreement provided that
respondent would charge petitioner a late fee of $15 for
each monthly period in which she failed to make her
minimum monthly payment within 25 days of the due
date. Under the Preferred Card agreement, respondent
would impose a late fee of $6 if the minimum monthly
payment was not received within 15 days of its due date;
and an additional charge of $15 or 0.65% of the
outstanding balance on the Preferred Card, whichever
was greater, if the minimum payment was not received by
the next minimum monthly payment due date. Petitioner
was charged late fees on both cards. These late fees are
permitted by South Dakota law, see S. D. Codified Laws
54-3-1, 54-3-1.1 (1990 and Supp. 1995). Petitioner,
however, is of the view that exacting such
"unconscionable" late charges from California residents
violates California law, and in 1992 brought a class action
against respondent on behalf of herself and other
California holders of respondent's credit cards, asserting
various statutory and common-law claims. Respondent
moved for judgment on the pleadings, contending that
petitioner's claims were pre- empted by 85. The
Superior Court of Los Angeles County initially denied
respondent's motion, but the California Court of Appeal,
Second Appellate District, issued a writ of mandate
directing the Superior Court to either grant the motion or
show cause why it should not be required to do so. The
Superior Court chose the former course, and the Court of
Appeal affirmed its dismissal of the complaint, 26 Cal.
App. 4th 1767, 32 Cal. Rptr. 2d 562 (1994). The
Supreme Court of California granted review and
affirmed, two Justices dissenting. 11 Cal. 4th 138, 900 P.
2d 690 (1995). We granted certiorari. 516 U. S. ___
(1996).

II
In light of the two dissents from the opinion of the
Supreme Court of California, see 11 Cal. 4th, at 165, 177,
900 P. 2d, at 708, 716 (Arabian, J., dissenting, and
George, J., dissent- ing), and in light of the opinion of the
Supreme Court of New Jersey creating the conflict that
has prompted us to take this case, it would be difficult
indeed to contend that the word "interest" in the National
Bank Act is unambiguous with regard to the point at issue
here. It is our practice to defer to the reasonable
judgments of agencies with regard to the meaning of
ambiguous terms in statutes that they are charged with
administering. See Chevron U. S. A. Inc. v. Natural
Resources Defense Council, Inc., 467 U. S. 837, 842-845
(1984). As we observed only last Term, that practice
extends to the judgments of the Comptroller of the
Currency with regard to the meaning of the banking laws.
"The Comptroller of the Currency," we said, "is charged
with the enforcement of banking laws to an extent that
warrants the invocation of [the rule of deference] with
respect to his deliberative conclusions as to the meaning
of these laws."  NationsBank of N. C., N. A. v. Variable
Annuity Life Ins. Co., 513 U. S. ___, ___ (1995) (slip
op., at 4) (citations and internal quota- tion marks
omitted). On March 3, 1995, which was after the
California Superior Court's dismissal of petitioner's
complaint, the Comptroller of the Currency noticed for
public comment a proposed regula- tion dealing with the
subject before us, see 60 Fed. Reg. 11924, 11940, and on
February 9, 1996, which was after the California
Supreme Court's decision, he adopted the following
provision: "The term `interest' as used in 12 U. S. C. 85
in- cludes any payment compensating a creditor or
prospec- tive creditor for an extension of credit, making
available of a line of credit, or any default or breach by a
borrower of a condition upon which credit was extended.
It includes, among other things, the following fees
connected with credit extension or availability: numerical
periodic rates, late fees, not sufficient funds (NSF) fees,
overlimit fees, annual fees, cash advance fees, and
membership fees. It does not ordinarily include appraisal
fees, premiums and commissions attributable to insurance
guaranteeing repayment of any extension of credit,
finders' fees, fees for document preparation or
notarization, or fees incurred to obtain credit reports."
61 Fed. Reg. 4869 (to be codified in 12 CFR 7.4001(a)).
Petitioner proposes several reasons why the ordinary rule
of deference should not apply to this regulation. First,
petitioner points to the fact that this regulation was issued
more than 100 years after the enactment of 85, and
seemingly as a result of this and similar litigation in
which the Comptroller has participated as amicus curiae
on the side of the banks. The 100-year delay makes no
difference. To be sure, agency interpretations that are of
long standing come before us with a certain credential of
reasonableness, since it is rare that error would long
persist. But neither antiquity nor contem- poraneity with
the statute is a condition of validity. We accord deference
to agencies under Chevron, not because of a presumption
that they drafted the provisions in question, or were
present at the hearings, or spoke to the principal spon-
sors; but rather because of a presumption that Congress,
when it left ambiguity in a statute meant for
implementation by an agency, understood that the
ambiguity would be resolved, first and foremost, by the
agency, and desired the agency (rather than the courts) to
possess whatever degree of discretion the ambiguity
allows. See Chevron, supra, at 843-844. Nor does it
matter that the regulation was prompted by litigation,
including this very suit. Of course we deny deference "to
agency litigating positions that are wholly unsupported by
regulations, rulings, or administrative practice," Bowen
v. Georgetown Univ. Hospital, 488 U. S. 204, 212 (1988).
The deliberateness of such positions, if not indeed their
authorita- tiveness, is suspect. But we have before us here
a full-dress regulation, issued by the Comptroller himself
and adopted pursuant to the notice-and-comment
procedures of the Administrative Procedure Act designed
to assure due deliberation, see 5 U. S. C. 553; Thompson
v. Clark, 741 F. 2d 401, 409 (CADC 1984). That it was
litigation which disclosed the need for the regulation is
irrelevant. Second, petitioner contends that the
Comptroller's regulation is not deserving of our
deference because "there is no rational basis for
distinguishing the various charges [it] has denominat- ed
interest . . . from those charges it has denominated `non-
interest.'"  Reply Brief for Petitioner 14. We disagree.
As an analytical matter, it seems to us perfectly possible
to draw a line, as the regulation does, between (1)
"payment compen- sating a creditor or prospective
creditor for an extension of credit, making available of a
line of credit, or any default or breach by a borrower of
a condition upon which credit was extended," and (2) all
other payments. To be sure, in the broadest sense all
payments connected in any way with the loan-including
reimbursement of the lender's costs in processing the
application, insuring the loan, and appraising the
collateral-can be regarded as "compensating [the] creditor
for [the] extension of credit."  But it seems to us quite
possible and rational to distinguish, as the regulation does,
between those charges that are specifically assigned to
such expenses and those that are assessed for simply
making the loan, or for the borrower's default. In its
logic, at least, the line is not "arbitrary [or] capricious,"
and thereby disentitled to deference under Chevron, see
467 U. S., at 844. Whether it is "arbitrary [or]
capricious" as an interpretation of what the statute means-
or perhaps even (what Chevron also excludes from
deference) "manifestly contrary to the statute,"we will
discuss in the next Part of this opinion. Finally, petitioner
argues that the regulation is not entitled to deference
because it is inconsistent with positions taken by the
Comptroller in the past. Of course the mere fact that an
agency interpretation contradicts a prior agency position
is not fatal. Sudden and unexplained change, see, e.g.,
Motor Vehicle Mfrs. Assn. of United States, Inc. v. State
Farm Mut. Automobile Ins. Co., 463 U. S. 29, 46-57
(1983), or change that does not take account of legitimate
reliance on prior interpretation, see, e.g., United States v.
Pennsylvania Industrial Chemical Corp., 411 U. S. 655,
670-675 (1973); NLRB v. Bell Aerospace Co., 416 U. S.
267, 295 (1974), may be "arbitrary, capricious [or] an
abuse of discretion," 5 U. S. C. 706(2)(A). But if these
pitfalls are avoided, change is not invalidating, since the
whole point of Chevron is to leave the discretion provided
by the ambiguities of a statute with the implementing
agency. In any case, we do not think that anything which
can ac- curately be described as a change of official
agency position has occurred here. The agency's Notice
of Proposed Rulema- king asserted that the new
regulation "reflect[s] current law and [Office of the
Comptroller of the Currency (OCC)] interpretive letters,"
60 Fed. Reg. 11929 (1995), and the Statement of Basis
and Purpose accompanying the final adoption stated that
"[t]he final ruling is consistent with OCC interpretive
letters in this area . . . and reflects the position the OCC
has taken in amicus curiae briefs in litigation pending in
many state and Federal courts," 61 Fed. Reg. 4859 (1996)
(citing OCC interpretive letters). Petitioner points only
to (1) a June 1964 letter from the Comptroller to the
Presi- dent's Committee on Consumer Interests, which
states that "[c]harges for late payments, credit life
insurance, recording fees, documentary stamp are
illustrations of charges which are made by some banks
which would not properly be character- ized as interest,"
see App. to Brief for Petitioner 5a; and (2) a 1988
opinion letter from the Deputy Chief Counsel of the OCC
stating "it is my position that [under 85] the laws of the
states where the banks are located . . . determine whether
or not the banks can impose the foregoing fees and
charges [including late fees] on Iowa residents," OCC
Interpretive Letter No. 452, reprinted in 1988-1989
Transfer Binder, CCH Fed. Banking L. Rep. 85,676 p.
78,064 (1988). We doubt whether either of these
statements was sufficient in and of itself to establish a
binding agency policy-the former, because it was too
informal, and the latter because it only purported to
represent the position of the Deputy Chief Counsel in
response to an inquiry concerning particular banks. Nor
can it even be argued that the two statements reflect a
prior agency policy, since, in addition to contradicting the
regula- tion before us here, they also contradict one
another-the former asserting that "interest" is a nationally
uniform concept, and the latter that it is to be determined
by reference to state law. What these statements show, if
anything, is that there was good reason for the
Comptroller to promulgate the new regulation, in order
to eliminate uncertainty and confu- sion. In addition to
offering these reasons why 12 CFR 7.4001- (a) in
particular is not entitled to deference, petitioner contends
that no Comptroller interpretation of 85 is entitled to
deference, because 85 is a provision that pre-empts state
law. She argues that the "presumption against . . . pre-
emption" announced in Cipollone v. Liggett Group, Inc.,
505 U. S. 504, 518 (1992), in effect trumps Chevron, and
requires a court to make its own interpretation of 85 that
will avoid (to the extent possible) pre-emption of state
law. This argument confuses the question of the
substantive (as opposed to pre-emptive) meaning of a
statute with the question of whether a statute is pre-
emptive. We may assume (without deciding) that the
latter question must always be decided de novo by the
courts. That is not the question at issue here; there is no
doubt that 85 preempts state law. In Marquette Nat.
Bank of Minneapolis v. First of Omaha Service Corp.,
439 U. S. 299 (1978), we dismissed petitioners' argument
that the "exportation" of interest rates from the bank's
home State would "significantly impair the ability of
States to enact effective usury laws" with the observation
that "[t]his impairment . . . has always been implicit in the
structure of the National Bank Act . . . . [T]he protection
of state usury laws is an issue of legislative policy, and
any plea to alter 85 to further that end is better
addressed to the wisdom of Congress than to the judgment
of this Court."  Id., at 318-319. What is at issue here is
simply the meaning of a provision that does not (like the
provision in Cipollone) deal with pre-emption, and hence
does not bring into play the considerations petitioner
raises.

III
Since we have concluded that the Comptroller's regulation
deserves deference, the question before us is not whether
it represents the best interpretation of the statute, but
whether it represents a reasonable one. The answer is
obviously yes. Petitioner argues that the late fees charged
by respondent do not constitute "interest" because they
"do not vary based on the payment owed or the time
period of delay."  Brief for Petitioner 32-33. We do not
think that such a limitation must be read into the statutory
term. Most legal dictionaries of the era of the National
Bank Act did not place such a limitation upon "interest."
See, e.g., 1 J. Bouvier, A Law Dictionary 652 (6th ed.
1856) ("The compensation which is paid by the borrower
to the lender or by the debtor to the creditor for Glossary
90 (2d ed. 1860); 11 American and English Encyclo-
pedia of Law 379 (J. Merrill ed. 1890). But see J.
Wharton, Law Lexicon or Dictionary of Jurisprudence
391 (2d. Amer. ed. 1860). The definition of "interest"
that we ourselves set out in Brown v. Hiatts, 15 Wall.
177, 185 (1873), decided shortly after the enactment of
the National Bank Act, likewise contained no indication
that it was limited to charges ex- pressed as a function of
time or of amount owing: "Interest is the compensation
allowed by law, or fixed by the parties, for the use or
forbearance of money or as damages for its detention."
See also Hollowell v. Southern Building & Loan Assn.,
120 N. C. 286, 26 S. E. 781 (1897) ("[A]ny charges made
against [the borrower] in excess of the lawful rate of
interest, whether called `fines,' `charges,' `dues,' or
`interest,' are in fact interest, and usurious"). Petitioner
suggests another source for the asserted require- ment
that the charges be time- and rate-based: What is
authorized by 85, she notes, is the charging of interest
"at the rate allowed" by the laws of the bank's home State.
This requires, in her view, that the interest charges be
expressed as functions of time and amount owing. It
would be surpris- ing to find such a requirement in the
Act, if only because it would be so pointless. Any flat
charge may, of course, readily be converted to a
percentage charge-which was indeed the basis for 19th-
century decisions holding that flat charges violated state
usury laws establishing maximum "rates."  See, e.g.,
Craig v. Pleiss, 26 Pa. 271, 272-273 (1856); Hollowell,
supra, at 286, 26 S. E., at 781. And there is no apparent
reason why home-state-approved percentage charges
should be permissible but home-state-approved flat
charges unlawful. In any event, common usage at the
time of the National Bank Act prevents the conclusion that
the Comptroller's refusal to give the word "rate" the
narrow meaning petitioner demands is unreasonable. The
1849 edition of Webster's gives as one of the definitions
of "rate" the "[p]rice or amount stated or fixed on any
thing."  N. Webster, American Dictionary of the English
Language 910. To illustrate this sense of the word, it
provides the following examples: "A king may purchase
territory at too dear a rate. The rate of interest is
prescribed by law."  Ibid. Cf. 2 Bouvier, supra, at 421
(defining "rate of exchange" as "the price at which a bill
drawn in one country upon another, may be sold in the
former"). Finally, petitioner contends that the late fees
cannot be "interest" because they are "penalties."  To
support that dichotomy, she points to our opinion in
Meilink v. Unemploy- ment Reserves Comm'n of Cal.,
314 U. S. 564, 570 (1942). But Meilink involved a
provision of the Bankruptcy Act that disallowed debts
owing to governmental entities "as a penalty," except for
"the amount of the pecuniary loss sustained by the act . . .
out of which the penalty . . . arose, with . . . such interest
as may have accrued thereon according to law."  Id., at
566. Obviously, this provision uses "inter- est" to mean
only that interest which is exacted as commercial
compensation, and not that interest which is exacted as a
penalty. A word often takes on a more narrow
connotation when it is expressly opposed to another word:
"car," for ex- ample, has a broader meaning by itself than
it does in a passage speaking of "cars and taxis."  In 85,
the term "interest" is not used in contradistinction to
"penalty," and there is no reason why it cannot include
interest charges imposed for that purpose. More relevant
than Meilink is our opinion in Citizens' Nat. Bank of
Kansas City v. Donnell, 195 U. S. 369 (1904), which did
involve 85 (or, more precisely, its predecessor, Rev.
Stat. 5197). There, a bank argued that a 12% charge on
overdrafts did not violate a state law setting an 8% ceiling
on interest rates because, inter alia, the overdraft charge
"was a penalty because of a failure to pay a debt when
due."  Id., at 373-374. We dismissed the argu- ment out
of hand: "The suggestions as to the twelve per cent charge
on overdrafts do not seem to us to need answer."  Id., at
374.

Petitioner devotes much of her brief to the question
whether the meaning of "interest" in 85 can
constitutionally be left to be defined by the law of the
bank's home State-a question that is not implicated by the
Comptroller's regulation. Because the regulation is
entitled to deference, and because the Comptroller's
interpretation of 85 is not an unreasonable one, the
decision of the Supreme Court of California must be
affirmed.

It is so ordered.