A California Court of Appeals has ruled that the National Bank Act (NBA) and regulations of the Office of the Comptroller of the Currency (OCC) do not preempt a California law requiring credit card issuers to make certain disclosures on "convenience checks" provided to cardholders.
In Parks v. MBNA America Bank, N.A., filed on May 12, 2010, the Court disagrees with the 2008 decision of the U.S. Court of Appeals for the Ninth Circuit in Rose v. Chase Bank USA, N.A., 513 F.3d 1032, which held, on identical facts, that the California law was preempted.
Most significantly, the California Court refused to defer to an OCC regulation, 12 C.F.R. §7.4008(d), which authorizes national banks to make non-real estate loans without regard to state law concerning "disclosure and advertising."
The California law in question required certain disclosures be made on an attachment to the check, including whether using the check would immediately trigger finance charges and that such use would result in a charge against the consumer's account. The Court acknowledged that the California law would fall within the specific language of §7.4008(d), the OCC was authorized to issue regulations interpreting NBA preemption, and the OCC had followed proper procedures in adopting the regulation. Nevertheless, the Court concluded that §7.4008(d) was not a reasonable interpretation of NBA preemption because the regulation would exempt national banks from all state disclosure requirements, regardless of whether a particular state law "significantly impaired" a national bank's lending authority. In taking this action, the Court left the door open for MBNA to create a factual record showing that the California law significantly impaired its lending authority.
We believe the state Court was misguided in its preemption analysis and should have followed the Ninth Circuit, which correctly concluded that the California law was preempted under the NBA. In its decision, the California Court relied, in part, on the U.S. Supreme Court's refusal in Watters v. Wachovia Bank, N.A., 127 S. Ct. 1559 (2007), to resolve the issue of whether, and how much, deference must be given to OCC preemption regulations, as well as the strong reservations expressed in that case by the dissenting justices about the OCC's power to declare that state law was preempted. It also relied, in part, on the U.S. Supreme Court's decision in Cuomo v. The Clearing House Association, L.L.C., 129 S. Ct. 2710 (2009), which suggested a narrower view of preemption than prior Supreme Court cases.
By invalidating the OCC regulation in question, Parks shows the type of analysis that will be required if the financial reform bill passed by the Senate last week is enacted in its present form. Cutbacks on preemption may provide full employment to banking lawyers, but they will predictably create serious problems for banks?and the national economy.