The Ninth Circuit, reversing the U.S. District Court, held that California's Rees-Levering Automobile Sales Finance Act's post-repossession notice requirements are not preempted by the National Bank Act or its regulations, finding that the savings clause set forth in 12 C.F.R. § 7.4008(e) clearly exempts a state's "rights to collect debts."

In Aguayo v. U.S. Bank, —F.3d— (August 1, 2011), the Ninth Circuit Court of Appeals reversed the U.S. District Court's dismissal of claims against U.S. Bank for alleged violations of California's unfair competition law stemming from a post-repossession notice U.S. Bank sent to plaintiff Jose Aguayo pursuant to California's Rees-Levering Automobile Sales Finance Act ("ASFA"). Although U.S. Bank did not dispute that the notice it sent did not fully comply with Section 2983.2 of AFSA, it argued that the notice requirements are preempted by the National Bank Act ("NBA") and Office of the Comptroller of Currency ("OCC") regulations. The District Court agreed. The Ninth Circuit reversed, finding instead that because the ASFA post-repossession notice is a "disclosure" that would not be considered a "credit-related document," and Sections 2983.2(a) and 2983.8(b) are "directed toward debt collection," the ASFA post-repossession notice requirements are not preempted by the NBA or the OCC regulations.

Reviewing the District Court's decision, the Ninth Circuit noted that "Aguayo's claims, rooted in California's consumer protection laws, fall in an area that is traditionally within the state's police powers to protect its own citizens." Consumer protection law is a field traditionally regulated by the states, which the Ninth Circuit recognized means that "evidence of an intention to preempt is required." Previously, the Ninth Circuit, in Bank of America v. City & County of San Francisco, 309 F.3d 551 (9th Cir. 2002), expressed three ways a federal law may preempt state law: (1) "express preemption" involves Congress stating in express terms its intent to preempt state law; (2) "field preemption" may be inferred when federal regulation in a particular field is so pervasive as to make reasonable the inference that Congress left no room for the states to supplement it; and (3) "conflict preemption" may be implied when compliance with both federal and state regulations is a physical impossibility, or when state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.

In Aguayo, the District Court relied on express preemption, finding that the ASFA post-repossession notice requirements are preempted by OCC regulations promulgated under the NBA. Under these regulations, national banks are exempt from state laws concerning "[d]isclosure 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[.]" Specifically, the District Court held the ASFA notice requirements are "disclosures" under the terms of the OCC regulation, stating that the ASFA "post-repossession notice standards are undoubtedly disclosure requirements." The District Court also analyzed whether the ASFA notices were "credit-related documents" under Section 7.4008(d)(2)(viii), noting that "the real question is whether the post-repossession notice qualifies as an ‘other credit-related document' under section 7.4008(d)(2)(viii)." Finding that U.S. Bank's post-repossession notice was "issued . . . during its continuing credit relationship with Aguayo . . . [and is thus] a ‘credit-related document' under section 7.4008(d)(2)(viii)[,]" the District Court held the provisions of ASFA requiring specific post-repossession notices are preempted.

The Ninth Circuit focused, however, on the savings clause found in Section 7.4008(e) and the District Court's failure to apply it. Section 7.4008(e) states, in relevant part: "State laws on the following subjects are not inconsistent with the non-real estate lending powers of national banks and apply to national banks to the extent that they only incidentally affect the exercise of national banks' non-real estate lending powers: (1) Contracts…(4) Rights to collect debts[.]" The Ninth Circuit noted that "debt collection, and specifically the right to repossess property that is the subject of a secured transaction, has deep roots in common law and remains a fixture of state, not federal, law." It found that the District Court erred by (a) glossing over the distinction between "notices" and "disclosures" and (b) summarily concluding that documents containing information about how to redeem or reinstate the secured property "are undoubtedly disclosure requirements." In addition, it noted that the ASFA notice was sent after the lending relationship had ended—the car had been repossessed, the lender was preparing to sell it and the lender's primary concern was now recovery of a debt. The Ninth Circuit concluded that U.S. Bank was no longer advertising, disclosing, or offering terms upon which it would like to strike a deal with Aguayo. Rather, the bank was simply stating the debt owed and attempting to collect that amount from Aguayo.

Ultimately, the Ninth Circuit held that "[r]eading the express preemption and savings clauses together, we conclude that the [ASFA] post-repossession notices are not preempted under the regulation's vague terms ‘disclosure' and ‘other credit-related documents' in light of the savings clause that clearly exempts a state's ‘rights to collect debts.'" It further found that the District Court's "broad reading of the terms ‘disclosure' and ‘other credit-related documents' would effectively preempt any document related to debt collection, something the OCC was acutely aware of when deliberately choosing the final language of the preemption rule to save such state laws." It then reversed the District Court's ruling granting U.S. Bank's motion to dismiss Aguayo's claims and remanded the matter for further proceedings.