On March 9, the U.S. District Court for the Southern District of New York upheld the preemption of state-law claims brought against a national bank and its non-bank servicer provider. Edwards v. Macy’s Inc., No. 14-cv-8616 (S.D.N.Y. March 9, 2016). The plaintiff alleged that, without her consent, she had been enrolled in and charged for a payment-protection program in connection with her private-label, department store credit card. She sued the issuing bank – a national bank based in South Dakota – and the department store, asserting (among other things) that both had violated the South Dakota Consumer Deceptive Trade Practices Act. The court held that the plaintiff’s claims were preempted by the National Bank Act and Office of the Comptroller of the Currency (OCC) regulations.
The court held that the plaintiff’s state law claims against the bank were expressly preempted by OCC regulations, which provide that “[n]ational banks’ debt cancellation contracts and debt suspension agreements are governed by this part and applicable Federal law and regulations, and not by State law.” Opinion at 7 (citing 12 C.F.R. § 37.1). In addition, the court held that the state law claims were impliedly preempted because the OCC regulations are “sufficiently comprehensive as to crowd out state law,” and requiring the bank “to comply with state law that reaches the same subject matter would impermissibly ‘prevent or significantly interfere with the national bank’s exercise of its powers.’” Id. at 9 (citing Barnett Bank, N.A. v. Nelson, 517 U.S. 33 (1996)).
Significantly, the court held that claims brought against the non-bank department store also were preempted. The court agreed with the plaintiff that the Second Circuit’s recent holding inMadden v. Midland Funding means that “OCC preemption extends to an entity that is not a national bank only where that entity is an agent or subsidiary of a national bank or is otherwise acting on behalf of the national bank in carrying out the bank’s business.” Id. at 13 (citing Madden v. Midland Funding, LLC, 786 F.3d 246, 249 (2d Cir. 2015)). However, it held that the plaintiff’s complaint clearly alleged that the department store did act on behalf of the bank in carrying out the bank’s powers. Specifically, the complaint alleged that the department store provided marketing services, credit processing, collections, and customer service to the bank with respect to the private-label credit cards and ancillary products such as the payment protection program. The court therefore concluded that “[t]he federal preemption that cloaks [the bank] extends to [the department store] in connection with the activities in suit,” and it dismissed the complaint. Id. at 14.
It should be noted that the opinion is silent on the Dodd-Frank Act’s express rejection of federal preemption for agents (and subsidiaries) of national banks. In its preemption analysis, the court stated that it was unclear whether “Dodd–Frank even applies to Plaintiff’s claims, because Dodd–Frank’s preemption amendments regarding national banks did not go into effect until July 21, 2011, months after Plaintiff enrolled in Payment Protection.” Id. at 8. As such, the case can be viewed (and distinguished by other courts) as applying pre-Dodd-Frank Act preemption standards in analyzing the specific question of whether federal preemption extends to non-banks that provide services to banks in connection with loans or other extensions of credit.