by In an effort to have its cake and eat it too, J.P. Morgan Chase Bank (Chase) sought to take advantage of state laws permitting the recovery of deficiency debts upon repossession and sale of a vehicle, while at the same time seeking to avoid other state laws that impose conditions upon lenders for the recovery of those debts. The Fourth Circuit said no. Epps v. J.P. Morgan Chase Bank, No. 10-2444 (4th Cir., April 5, 2012).
This putative class action case involves the interplay between Maryland’s Credit Grantor Closed End Credit Provision (CLEC), and the National Banking Act (NBA) and its implementing regulations.
Named Plaintiff/Debtor, Ms. Epps, entered into a retail sales installment contract (RIC) with a nonbank lender. The contract stated that the lender was bound by the terms of the CLEC which provides for certain notice requirements upon repossession and sale of a vehicle. Failure to follow those notice requirements deprives the lender of the right to collect any deficiency debt. The lender assigned the RIC to Chase and, after two years, debtor defaulted on the loan.
Chase repossessed the vehicle but failed to comply with the notice requirements under the CLEC. Chase then sought a deficiency judgment.
Ms. Epps filed suit for injunctive relief on behalf of herself and similarly situated debtors in Maryland, alleging that Chase’s practices violate the CLEC which was made applicable by the express terms of the original RIC.
Chase argued that the claims under the CLEC were governed by 12 C.F.R. § 7.4008(d)(2)(viii) which provides that state laws concerning disclosures relating to the making of “non-real estate loans” are preempted by the NBA. Chase argued that the savings clause, § 7008(e), which provides that state laws relating to the collection of debts or that are otherwise incidental to the non-real estate lending powers of the lender are not preempted by the NBA, was not applicable. Finally, Chase argued that the terms of the RIC in which the lender agreed to be bound by the CLEC, did not apply to it as a mere assignee of the contract.
The District Court agreed and granted Chase’s motion to dismiss.
The Fourth Circuit reversed.
With respect to preemption, because the national banking arena is one in which there is substantial federal presence, the court declined to apply the presumption against preemption that state consumer protection laws typically enjoy. The court, therefore, went on to determine whether the CLEC notice requirements were preempted either explicitly, by general field preemption or by reason of an actual conflict between the state and federal laws. The court made the following findings.
1) No express preemption: The provisions Chase complained of are conditions of repossession only which is a power granted to Chase pursuant to state law, not the NBA.
2) No field preemption: In making the rules relating to the NBA, Congress explicitly stated that it was not preempting the entire field of national bank non-real estate lending.
3) No conflict preemption: The ability to make loans does not extend to all actions in the collection of those loans after default. The court drew a distinction between “disclosure” requirements associated with the original extension of the loan, which would be preempted by the OCC regulations, and “notice” requirements associated with collection upon default, which are not.
The Court also found that the provisions of CLEC fall within the savings clause pursuant to 12 C.F.R. § 7.4008(e) as that clause specifically saves state collection laws from preemption and does not unduly burden the bank’s lending power.
The Court, citing to the Ninth Circuit decision in Aguayo v. U.S. Bank,658 F.Supp.2d 1226 (S.D. Cal. 2009), rev’d, 653 F.3d 912 (9th Cir. 2011), posited that if state law were preempted banks performing collection activities “would not be bound by state law….nor would it be operating under any specific federal law because no federal law governs self-help repossession.”
Finally, the court rejected Chase’s argument that as an assignee of the RIC it was not bound by the agreement to comply with the CLEC. The court found that parties to a contract may agree to the application of state law which would otherwise be subject to federal preemption. The court found that Chase could not be the beneficiary of the terms of the contract without also taking on its obligations that were negotiated and agreed upon by the original parties.
West Virginia District Court Rulings Cases:
The Epps case supports the recent decisions in the Northern and Southern Districts of West Virginia finding that the National Bank Act does not preempt the West Virginian Consumer Credit and Protection Act. These cases involved claims arising out of the WVCCPA relating to the collection of debts by various national banks or federal savings banks. The cases are United States District Court for the Northern District of West Virginia, Meluzio v. Capital One Bank, NA 2:11-cv-000033 and O’Neal v. Capital One Auto Finance, Inc 3:10-cv-00040 doc 137; and United States District Court for the Southern District of West Virginia, Smith v. BAC 2:10-cv-00354.
Thanks to Aaron Amore for bringing this case to our attention!