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Home Foreclosures: 7.2.2 Steering and Targeting

Steering and targeting are both forms of discrimination in which some borrowers, usually low-income or minority borrowers, receive loans on less favorable terms than other groups of borrowers.7 Steering and targeting only happen when pricing for loan products is decoupled from the borrower’s creditworthiness. Such decoupling is pervasive in lending to communities of color.

Mortgage Lending: 6.5.1 To What Banking Activities Do the OCC Preemption Rules Apply?

Just as Barnett Bank preemption is limited by the statutory powers of national banks, the OCC’s preemption regulations are applicable only to the extent that a state law relates to certain specified banking powers.319 Prior to July 21, 2011, the OCC had four main preemption regulations: one relating to deposit taking, one to non-mortgage lending, one to mortgage lending, and a catchall “incidental powers” rule relating to other bank activities.

Mortgage Lending: 6.3.1.2.1 Opinion letters upholding state law

Except for the rules described in the preceding subsection, prior to 2004 the OCC addressed particular state laws and their impact on national banks only on an “as-needed” basis through opinion letters.220 Despite paying lip service to state authority to co-regulate national banks, the OCC issued few letters in which it upheld the applicability of state law.

Unfair and Deceptive Acts and Practices: 2.5.3.2.2 Preemption of state non-usury laws that prevent or significantly interfere with a national bank’s exercise of its powers

The National Bank Act also preempts state non-usury laws if they “prevent or significantly interfere with” the exercise of the bank’s federally granted powers.2418 This standard, known as the Barnett Bank standard,2419 was embedded into federal law in 2010 by the Dodd-Frank Act.2420 That Act also makes it clear that federal banking agencies cannot preempt the field for either national banks or federal savings associations,

Mortgage Lending: 6.2.2.4.2 Incidental powers

The NBA provides that banks have incidental powers as may be “necessary to carry on the business of banking.”88 Some circuit courts of appeal have interpreted this standard to allow a bank to exercise powers that are “convenient or useful in connection with the performance of one of the bank’s established activities pursuant to its express powers.”89 This formulation properly underscores that an incidental power must be closely tied to an express power.

Mortgage Lending: 6.4.3.2 Can the OCC’s 2011 Preemption Rules Be Interpreted to Be Consistent with the Dodd-Frank Act?

It may be possible to interpret the OCC’s 2011 preemption rules to be consistent with the Dodd-Frank Act and the Barnett Bank standard. A number of courts, both before and after the OCC’s 2011 revision of the rule, have treated the list of subjects on which state laws are preempted as something far less than absolute.313 Further, the express preemption provision of the rules only preempts state law “limitations” on the listed topics.

Mortgage Lending: 5.3 State Mortgage Lending Laws

Most states have statutes regulating mortgage loans. These laws may impose limits on interest rates and other charges. Many states also limit mortgage loan terms other than interest. For example, state law may ban or restrict prepayment penalties, or prohibit negative amortization.

Mortgage Lending: 6.5.3.6 Escrow Requirements

The OCC’s lending rules also identify state law limitations regarding escrow or similar accounts as preempted.371 However, in Lusnak v. Bank of America372 the Ninth Circuit held that the NBA did not preempt a state law requiring lenders to pay at least 2% interest on escrow accounts.

Mortgage Lending: 6.3.1.1 The OCC’s Pre-2004 Regulations

Until 2004, the OCC had not issued broad regulations preempting state laws related to the business of lending or deposit taking. In the area of mortgage lending, the agency had promulgated regulations that trumped state law only with regard to:

Mortgage Lending: 6.5.3.13 Processing, Origination, Servicing, Sale or Purchase of, Investment in, or Participation in Mortgages

For real estate secured loans, the rule identifies state-law limitations relating to “processing, origination, servicing,419 sale or purchase of, investment in, or participation in” mortgages as preempted.420 Nevertheless, not every state law that touches upon one of these areas is preempted.421 For example, the New Mexico Supreme Court held that, in light of the Dodd-Frank Act changes, a state predatory lending law’s restrictions on repeat r

Mortgage Lending: 13.3.3.2 Complete Preemption Under the National Bank Act

In Beneficial Bank v. Anderson the Supreme Court identified one portion of the National Bank Act as completely preempting state law: usury claims that are raised against national banks.71 The Court held that sections 85 and 86 of the National Bank Act72 provide the exclusive cause of action for these claims. Thus, any case raising a state law usury claim against a national bank is removable to federal court.73

Mortgage Lending: 5.12.8.1 Use of Contract Claims in Mortgage Origination Litigation

In some circumstances a breach of contract claim can provide reasonably useful remedies for lender overreaching. Breach of contract claims have the advantage of probably avoiding federal preemption.569 Contract claims also avoid the scope issues that can make deceptive practices (UDAP) and other statutory claims inapplicable to certain lenders. Contract claims are often suitable for class action treatment, as lenders are likely to use form contracts with identical clauses for large groups of consumers.

Mortgage Lending: 6.5.3.11 Interest; Non-Interest Fees

The OCC regulations list “rates of interest on loans” as an area in which state-law limitations are preempted.394 But, as acknowledged by a footnote in the OCC’s regulation, national banks are, in fact, required to obey state law regarding interest rates—their home state’s law, which they can export—unless they choose to follow the alternative federal ceiling.395 States other than the bank’s home state cannot, however, impose caps on the interest rates that a national bank can charge.

Mortgage Lending: 6.5.3.5 Terms of Credit

The OCC lending rules also list as preempted state-law limitations regarding “the terms of credit,” specifically including the “schedule for repayment of principal 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 the passage of time or a specified event external to the loan.”366 As an example, courts have held that federal law preempts a state law that prohibits including a cash loan as part of home

Mortgage Lending: 5.2.2 Scope

Some UDAP statutes are very broad in scope, covering all business acts or all acts in “trade or commerce,” without a string of exemptions. These statutes clearly apply to mortgage lending. Other UDAP statutes are limited to transactions involving “merchandise.” “Merchandise” is typically defined broadly to include intangibles and any other thing of value, so these statutes are also likely to encompass mortgage lending.