The U.S. Bankruptcy Court for the District of Massachusetts ruled that the Massachusetts Predatory Home Loan Practices Act, Chapter 183C of the General Laws of Massachusetts, is preempted by the high cost home loan provisions of the federal Truth in Lending Act (“TILA”) for federally chartered depository institutions. The July 27 ruling came in a case brought by Massachusetts residents who had jointly received a home mortgage loan from a national bank. The borrowers claimed that the bank failed to obtain certification that the borrowers had received counseling on the advisability of the loan as required by Chapter 183C. Failure to obtain the counseling certification for a high cost home mortgage renders the loan unenforceable under Chapter 183C. The joint borrowers claimed that their loan qualified as a high cost home mortgage loan, and was therefore subject to Chapter 183C, because the total points and fees associated with the loan totaled 6.6% of the total loan amount, which would exceed the 5% threshold established by Chapter 183C. The bank argued that TILA establishes an 8% threshold for high cost home loans, and that TILA preempts Chapter 183C. The court, relying on a 2003 OCC preemption determination, held that Chapter 183C defines high cost home loans in a manner inconsistent with the thresholds established by TILA and is preempted for federally chartered institutions.
Nutter Notes: The court determined that Chapter 183C was preempted by TILA only with respect to federally chartered institutions. The Federal Reserve issued an order in 1982 providing that consumer credit transactions that are subject to the Massachusetts consumer credit cost disclosure statute, Chapter 140D of the General Laws of Massachusetts, are exempt from chapters 2 and 4 of TILA, which includes the general disclosure requirements and special provisions for certain high cost home loans. However, the Federal Reserve’s 1982 order also provided that the exemption does not apply where the lender is a federally chartered institution. Notably, the court’s decision did not address the preemption provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act codified the legal standard for preemption set forth in a landmark 1996 U.S. Supreme Court decision and applies that standard to both national banks and federal savings associations. The OCC issued final rules implementing the preemption provisions of the Dodd-Frank Act in July.