Robert E. Potrzebowski, Jr., President and Owner of Kohn Law Firm S.C., is happy to announce that attorneys David A. Ambrosh and Jason D. Hermersmann have joined Matt Richburg as Non-Capital Partners. They will have a direct personal interest in the financial performance of the firm and therefore assist the firm's upper management in its efforts to maximize that performance.
By Attorney David A. Ambrosh, Partner/Litigation
Attorneys in the debt-collection industry, both on the consumer side and the creditor side, often fail to recognize the application of federal preemption to state consumer laws. A significant number of state consumer laws are, in fact, preempted by federal law to the extent that those laws attempt to regulate certain activities of national banks. This fact does not suggest that those state consumer laws are unconstitutional or inoperative. To the contrary, certain state consumer laws may be entirely constitutional and operative as to non-federally chartered banks, yet at the same time lack enforceability as to national banks.
Federal preemption may be established in any of three ways: (1) express preemption, (2) field preemption, and (3) conflict preemption. There is generally a presumption against preemption. However, this presumption is not implicated when the area of law analyzed is subject to significant federal presence. National banking is an example. “Congress has legislated the field of banking since the days of M’Culloch v. Maryland [citation], creating an extensive federal statutory and regulatory scheme.” Bank of America v. City and County of San Francisco, 309 F.3d 551, 558 (9th Cir. 2002). Thus, there is no presumption against preemption when analyzing state regulation of the banking industry.
In January 2004, the Office of the Comptroller of the Currency (“OCC”) issued 12 C.F.R. § 7.4008 to clarify the applicability of state law to national banks’ non-real estate lending activities. 69 Fed. Reg. at 1905. The regulation sets forth a general preemption test and specific types of state laws preempted by the NBA. Id. The regulation provides, in pertinent part:
(1) Except where made applicable by Federal law, state laws that obstruct, impair, or condition a national bank’s ability to fully-exercise its Federally authorized non-real estate lending powers are not applicable to national banks.
(2) A national bank may make non-real estate loans without regard to state-law limitations concerning:
...
(iv) The terms of credit, including the schedule for repayment of principle and interest, amortization of loans, balance, payments due, minimum payments, or term to maturity of the loan, including the circumstances under which a loan may be called due and payable upon passage of time or a specified event external to the loan;
...
(vii) Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents.
12 C.F.R. § 7.4008(d).
While there are a list of state laws that are not generally preempted, the OCC has described these exempt laws as those that “typically do not regulate the manner or content of the business of banking authorized for national banks.” Aguayo v. U.S. Bank, 658 F. Supp. 2d 1226, 1231 (S.D. Cal. 2009), citing to 69 Fed. Reg. at 1913. What is clear from § 7.4008(d) is that preemption extends to those state laws which attempt to regulate such things as credit terms, terms of repayment, acceleration clauses, disclosures, applications, and other “credit-related documents.”
In Aguayo, a California consumer statute was put under review. Specifically, the statute placed certain requirements on notices that creditors were required to send subsequent to the repossession of collateral, but prior to suing for the deficiency balance. The district court ruled that the state statute was expressly preempted by federal law to the extent that it applied to a national bank. The notice was found to be a “credit-related document,” which is one area exclusively regulated by federal law. A similar Maryland statute was found to be expressly preempted in Epps v. JP Morgan Chase, 2010 U.S. Dist. Lexis 122782 (D. Md. Nov. 19, 2010). In Epps, the court went on to hold that even had there been no finding of express preemption, the Maryland statute was inapplicable to national banks by virtue of conflict preemption. Specifically, the court found that the Maryland notice statute at issue would significantly burden, interfere or impair the bank’s exercise of powers. The court held that “[t]he burden that would be imposed on national banks of complying with the various notice and disclosure statutes of all fifty states is readily apparent.” In both Aguayo and Epps, the district courts held that by enforcing additional state notice requirements on national banks, the state statutes directly regulated the disclosure practices of national banks.
The case of Crespo v. WFS Fin. Inc., 580 F. Supp. 2d 614 (N.D. Ohio 2008) involved yet another post-repossession notice statute, this time in the state of Ohio. Crespo held that the Ohio statute was preempted under 12 C.F.R. § 560.2(b)(9) – the Office of Thrift Supervision (“OTS”) equivalent to section 7.4008. The Crespo decision was best summarized by the Aguayo court as follows:
The court’s analysis reinforced the fact that the [bank] supplied the post-repossession notice during the continuing credit relationship between the debtor and the bank. According to the court, “the purpose of such notice is to notify a debtor that his or her credit was revoked...as well as to inform the debtor what he or she needs to pay in order to restore his or her credit.” (emphasis added).
The court reasoned that the notice required under Ohio state law was a “credit-related document” under § 7.4008(d)(2)(viii) because the notice was one that was issued during the continuing credit relationship with the debtor. Accordingly, the court concluded that the statute constituted state law limitations relating to disclosures in credit-related documents, and was therefore preempted by § 7.4008(d)(2)(viii) to the extent of its application to a nationally chartered bank.
In summary, if a state law attempts to regulate such things as credit disclosures, contracts, terms, notices, or other credit-related documents, the statute is likely preempted by federal law to the extent that it applies to national banks.
By: Kathy Johnson, Administrator
In 2009, we asked employees to Raise the Bar. We completed a study of some of our “hot spots” that we felt everyone needed to work on during the year:
1) Interdepartmental communication & cooperation
2) Personal responsibility (no excuses)
3) Better delegation of work
4) Getting back requested information faster
5) Helping others after your work is done
Recognition was given to individuals throughout the year by way of Raise the Bar Certificates. Employees were nominated by both management and their peers and were given to individuals who:
- helped define improvements in work processes
- helped increase communication between departments
- defined training needs for their departments and other departments
- were very organized, highly productive and efficient in handling their workload
- took pride in their work
- had a great attitude
- helped co-workers
The firm wanted to reward two employees who we felt had gone above and beyond in Raising the Bar throughout the year. Each manager was asked to recommend someone in their department or another department who they felt had Raised the Bar, and managers then voted on the 2009 Raise the Bar recipients. We are happy to announce that three employees were awarded a paid vacation to Las Vegas. Congratulations go out to Nicole Smeby (Cash Department), Therronda Sloan (Support Department) and Stephanie Mackey (Paralegal Department). They were selected for their input, passion, dedication and overall ability to outperform their duties. We would not, as a firm, have Raised the Bar to the level we did in 2009 without the exceptional contributions of these three individuals as well as our entire staff.