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Mortgage Lending: 6.2.2.3 State Law Claims That Parallel Federal Requirements Are Not Preempted Under the Barnett Bank Standard

State laws that parallel federal requirements do not conflict with those requirements and thus are not preempted under the Barnett Bank standard. In First National Bank in St. Louis v. Missouri,60 the Supreme Court upheld a state law that prohibited branch banks. At the time, federal law also did not authorize branch banks. There was no question that this law severely limited banks’ powers, but federal law at the time also did not authorize branch banks.

Mortgage Lending: 13.3.3.3 Assignees, Non-Banks, and State-Chartered Banks

In a pre-Beneficial Bank case, the Eighth Circuit held that, once an open-end credit account is assigned to a national bank, any claim about the illegality of the interest rate is a usury claim against the bank and thus is completely preempted.85 On the other hand, the National Bank Act (NBA) does not completely preempt usury claims against a non-bank purchaser of loans, even loans originated by national banks.86

Mortgage Lending: 6.8.1 Introduction

The federal preemption statutes analyzed in this chapter apply directly only to national banks, federal savings associations, and federal credit unions. However, they can have an indirect effect on the application of a state’s law even to state-chartered banks and other state-chartered depository institutions.

Mortgage Lending: 6.8.3 Riegle-Neal Act Preemption Inapplicable to State Banks Without Host State Branch

For Riegle-Neal Act preemption to apply, there must be strict compliance with the Act’s statutory language. The Riegle-Neal Act extends preemption only to credit offered by a host state branch of an out-of-state, state bank. If an out-of-state, state-chartered bank does not have branches in the host state, then the Act does not apply. The Riegle-Neal Act states that it “shall apply to any branch in the host State of an out-of-State State bank.”583

Unfair and Deceptive Acts and Practices: 2.5.3.3.1 Overview

The federal Home Owners Loan Act (HOLA)2457 gives federal banking regulators broad authority over federal savings associations. This function was exercised by the Office of Thrift Supervision (OTS) until 2011, when OTS was abolished and its functions transferred to the Office of the Comptroller of the Currency (OCC).

Mortgage Lending: 6.11.1 History and Purpose of the Home Owners’ Loan Act

Congress enacted the Home Owners’ Loan Act (HOLA) in 1933.632 This statute authorizes a federal agency—originally the Federal Home Loan Bank Board, then the Office of Thrift Supervision (OTS), and now the Office of the Comptroller of the Currency (OCC)—to provide for the organization, incorporation, examination, and regulation of federal savings and loan associations and federal savings banks.633 The Act succeeded for many years in making fixed rate, long term loans available to home buyers

Unfair and Deceptive Acts and Practices: 6.9.1.4 Bank Fees

Older cases have held that excessive bank fees may be unconscionable.581 However, challenges to the size of bank fees are likely to be governed by permissive federal bank regulator guidances,582 by the law of the bank’s home state if the fee is deemed to be “interest,”583 or by parity laws that allow banks to charge the highest fee that any bank can charge.584 But imposing fees without authority, with

Mortgage Lending: 6.10 Effect of Merger or Assignment of Loans Between Federal Savings Associations and National Banks

On occasion, a federal savings association merges into a national bank, or exchanges its charter for a national bank charter, or vice-versa. For example, Wachovia Bank, Federal Savings Bank, was a federal savings association but it merged into Wells Fargo Bank, a national bank, on November 1, 2009.621 Or the federal savings association may close, and its receiver may assign its loans to a national bank.

Unfair and Deceptive Acts and Practices: 2.5.3.3.4 UDAP claims based on contract

Consistent with the OTS regulation’s preservation of contract laws, courts generally held that UDAP claims based on contract law violations or principles were not preempted.2477 For example, the Seventh Circuit held that even though the OTS regulation specifically preempted states from setting servicing standards, it did not preempt a claim that a servicer violated the state UDAP statute by demanding fees, contrary to the loan contract.2478

Unfair and Deceptive Acts and Practices: 2.5.3.3.2 Structure of OTS’s pre-2011 preemption regulation

Contracts entered into before July 21, 2010, are still governed by the former OTS regulations.2465 As “illustrative examples” of state laws that were preempted, the former regulation listed those purporting to impose requirements regarding a number of topics, including: licensing; loan-to-value ratios; loan-related fees; disclosure and advertising; processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages; and usury and interest rate ceilings.2466

Mortgage Lending: 6.11.4.5 Treatment of Contract Claims

The former OTS rule provided that state contract and commercial laws were not preempted to the extent that they only incidentally affected the lending operations of federal savings associations or were otherwise consistent with the purposes of OTS’s preemption rule.726 The Seventh Circuit held that this rule generally preserved contract and commercial law, so borrowers could assert state law claims against federal savings associations that breach their contracts.727 Many courts agreed with t

Mortgage Lending: 6.11.4.4 Interpretation of the Former OTS Rule’s List of Laws That Are Not Preempted

The savings clause in the former regulation enumerated state laws that were not preempted as long as they only “incidentally” affected the lending operations of federal savings associations.709 In the supplementary information accompanying this regulation, the OTS stated that the purpose of the savings clause was “to preserve the traditional infrastructure of basic state laws that undergird commercial transactions, not to open the door to state regulation of lending by federal savings associations.”71

Unfair and Deceptive Acts and Practices: 2.5.3.3.3 No general preemption of UDAP claims under former OTS regulations

The former OTS regulation did not include UDAP statutes in the list of either preempted or preserved statutes.2472 An OTS opinion letter stated that HOLA did not preempt the Indiana UDAP law, using reasoning that should apply to other UDAP laws.2473 According to OTS’s analysis, a UDAP statute may affect lending relationships, but the impact on lending is only incidental to the primary purpose of the statute—the regulation of the ethical practices of all businesses in the state.

Unfair and Deceptive Acts and Practices: 2.5.3.5 Federal Credit Unions

Pursuant to its statutory authority to regulate the rates, terms of repayment, and other conditions of credit extended by federal credit unions, the National Credit Union Administration (NCUA) has adopted a regulation regarding preemption of state law.2506 According to the regulation, state laws are preempted if they restrict interest rates, late charges, closing costs, other fees, terms of repayment, the amount and purpose of loans, the security for loans, the eligibility of borrowers, or liens on share accounts.

Mortgage Lending: 9.4.2 How Rate Exportation Works

Rate exportation allows national banks and federal savings associations to utilize their home state’s interest cap instead of the ceiling of the state where they originate the loan.110 When a branch bank is located in the state where the loan is originated, the bank in some cases has the option of using its home state interest ceiling or the ceiling of the state where it extends the loan.111 Rate exportation does not apply to federally chartered credit unions; instead, for these institutions

Mortgage Lending: 4.11.2 Federal Credit Unions

Federal law caps the interest rates that federal credit unions may charge, and also prohibits prepayment penalties.503 The National Credit Union Administration (NCUA) had adopted a counterpart to the Federal Trade Commission’s Credit Practices Rule, prohibiting a few abusive lending practices.504 However, in 2010 the Dodd-Frank Act repealed the rulemaking authority under which NCUA had promulgated its rule.505 In accordance with this Congress

Mortgage Lending: 9.6.2 Federal Credit Unions

Federal law caps the interest rate that a federal credit union may charge. The limit is fifteen percent, but the National Credit Union Administration (NCUA) Board has authority to authorize a higher cap for periods of up to eighteen months if justified by money market rates.204 The NCUA has done so frequently, setting the cap at 18% since May 1987.205 State rate limitations are preempted.206