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Abstract

At the request of the Attorney General, the Administrative Judge of the Civil Court of New York brought an action against Chemical Bank to recover all attorneys' fees collected by the bank in obtaining numerous default judgments during 1973 and 1974. These judgments resulted from unpaid consumer loans and were based on certain notes signed by each borrower. The consumer notes included provisions for the recovery of attorneys' fees even though the defaults were not prosecuted by an independent law firm but by the bank's salaried in-house counsel. The plaintiff in Thompson v. Chemical Bank argued that Chemical Bank, by collecting attorneys' fees for the work of in-house counsel, had engaged in the unauthorized practice of law, had misrepresented the true facts to consumer debtors by seeking recovery for the fees, had illegally split fees with its salaried attorneys, and had sought to recover usurious charges from defaulting borrowers. The court held that the expenses of in-house counsel are not embraced by the term "attorneys' fees." The court found that the attorneys' fees paid were not what they purported to be in the consumer loan notes and were thus illegal. Because of this finding, the court added these monies to the notes' original interest rate and found the entire transaction usurious. While the court's narrow reading of the provision for attorneys' fees in the statute is consistent with the prior law and with the intent of the legislature to prevent consumer debtors from paying excessive extra charges, its finding on the usury question is doubtful. The court did not need to resort to the usury statute since the notes were arguably valid at their inception. The court could have invalidated the bank's practice without involving itself with the usury issue by striking only the attorneys' fees provisions as being excessive and illegal fee-splitting.

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