Stormy Watters
The U.S. Supreme Court held oral argument on November 29 in Watters v. Wachovia Bank. The issue is whether the National Bank Act and OCC regulations preempt state regulation of operating subsidiaries of national
banks as the Second, Fourth, Sixth, and Ninth Circuits have held. Recall, certiorari had been granted on two issues: (1) Is
the interpretation that 12 C.F.R. § 7.4006 preempts Michigan’s law purporting to regulate mortgage lending by national bank
operating subsidiaries entitled to deference under Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984)? (2) Does the OCC regulation violate the 10th Amendment by treating op-subs the same as their national
bank parents for purposes of federal preemption?
The Tenth Amendment never came up, even though that was an issue many court watchers had been scratching their heads about.
Most of the questions focused on the relationship between the federal regulation by the OCC and the state regulation. Some
of the Justices were trying to figure out whether to analyze the case as field preemption or conflict preemption. It is always
perilous to predict outcomes from the questioning, but Justices Scalia and Roberts appeared to be cool to the idea of federal
preemption. Other justices asked questions that seemed more bank-friendly, but they too posed difficult questions of the bank
and OCC.
For more information, contact Beth Brinkmann at bbrinkmann@mofo.com.
RALs Rocked
A California court of appeal held that a national bank that makes tax refund anticipation loans (RALs) and includes “cross-collection”
provisions in its loan agreements may be answerable under California’s consumer protection laws, which are not preempted under
the visitorial powers doctrine or OCC regulations. (Hood v. Santa Barbara Bank & Trust, 143 Cal.App.4th 526 (2006).) “Cross-collection” gives a prior year’s RAL lender a security interest in this year’s tax refund;
critics (and many state Attorneys General) complain that this feature makes this year’s RAL lender a “debt collector” within
the meaning of the federal and state Fair Debt Collection Practices Acts. The petition for review to the California Supreme
Court is pending.
For more information, contact Will Stern at wstern@mofo.com.
Cleveland’s Predatory Lending Ordinance Rejected
The Ohio Supreme Court ruled 5-2 on November 20 that Cleveland and other cities in Ohio may not adopt rules against predatory
lending that conflict with state law. The court’s decision in American Financial Services Ass’n. v. Cleveland, 2006 WL 3350732, follows the reasoning of the California Supreme Court and other courts in rejecting the notion of local
regulation over mortgage lending.
For more information, contact Michael Agoglia at magoglia@mofo.com.
Mark-Up Case Not Preempted
California seems to have a thing about preemption. Another Court of Appeal rejected preemption arguments this quarter. (McKell v. Washington Mutual, Inc., 142 Cal.App.4th 1457 (2006).) Plaintiffs challenged a mortgage lender’s practice of charging fees for services to home loan
applicants that exceeded the actual cost. The Court found that the state consumer protection laws that formed the basis for
the plaintiffs’ claims were not preempted by RESPA or Regulation X.
For more information, contact Michael Agoglia at magoglia@mofo.com.
