Consumer Finance Litigation

In Edwards v. Macy's, Inc., --- F. Supp. 3d ---, 2016 WL 922221 (S.D.N.Y. Mar. 9, 2016), the U.S. District Court for the Southern District of New York recently held that state law claims arising from plaintiff's enrollment in a debt cancellation program were preempted by the National Bank Act ("NBA") and accompanying regulations promulgated by the Office of the Comptroller of the Currency ("OCC"). Further, the court held that the claims against both the national bank and the corporation acting on behalf of the national bank were preempted, even though the corporation was not a national bank or a subsidiary. Addressing defendants' argument that plaintiff's state law claims were preempted, the court noted that "business activities of national banks are controlled by the National Bank Act and regulations promulgated thereunder by the [OCC]." 2016 WL 922221, at 3 (quoting Watters v. Wachovia Bank, N.A., 550 U.S. 1, 6 (2007)). Pursuant to the holding in Barnett Bank, N.A. v. Nelson, 517 U.S. 25, 31 (1996), preemption under the NBA can be express or implied. Where Congress explicitly preempts the state law, the law is expressly implied. On the other hand, state law is implicitly preempted where the application of state law would "prevent or significantly interfere with a national bank's exercise of its powers." See id. (quoting Nelson, 517 U.S. at 31). Under the implied preemption analysis, state law may be preempted if there is (1) field preemption - where Congress has legislated so comprehensively that federal law occupies the field of regulation and leaves no room for state law, or (2) conflict preemption - where state law conflicts with federal law. Applying these principles to plaintiff's claims, the court acknowledged that 12 C.F.R. § 37 governs debt cancellation or suspension products. Specifically, 12 C.F.R. § 37 provides that "[n]ational banks' debt cancellation contracts and debt suspension agreements are governed by this part and applicable Federal law and regulations, and not by State law." See id. at 4 (quoting 12 C.F.R. § 37). Thus, the court easily found that the OCC's regulations expressly preempted the state law's application to debt cancellation and debt suspension products. In response to defendants' argument that 12 C.F.R. § 37 expressly preempted the state law claims, plaintiff argued that, pursuant to the Dodd-Frank Act, state laws that "directly and specifically" regulate financial transactions are not preempted expressly or preempted under the field preemption analysis. The court, however, hesitated to find that the Dodd-Frank Act applied to plaintiff's claims because its preemption amendments went into effect on July 21, 2011, after plaintiff enrolled in the debt cancellation program. Additionally, the court said that the Dodd-Frank Act has not effect on the preemption rule set forth in 12 C.F.R. § 37. Accordingly, the court held that the Dodd-Frank Act did not save plaintiff's claims from preemption. Although the court held that 12 C.F.R. § 37 expressly preempted plaintiff's claims, it went on to find that implied preemption barred plaintiff's claims. The court determined that regulation in the field of debt cancellation products offered by national banks is "sufficiently comprehensive as to crowd out state law." See id. at 5. Accordingly, the court held that plaintiff's claims were barred under both express and implied preemption. Further, the court found that claims against both defendants, Department Stores National Bank and Macy's Inc., were preempted. The Second Circuit has held that OCC preemption applies to an entity that is not a national bank only if the entity is an agent or subsidiary of a national bank, or is acting on its behalf carrying out the bank's business. Because plaintiff alleged that Macy's provided marketing services related to credit card accounts and related products, and was compensated for doing so, Macy's conducted banking activities on Department Stores National Bank's behalf. Therefore, the court held that the state law claims against both defendants were preempted and dismissed plaintiff's complaint in its entirety.