Court: District Court, E.D. Pennsylvania; March 28, 2016; Federal District Court
Plaintiffs Jennifer Gordon, Valerie Tantlinger, and Jennifer Underwood, in a putative class action, allege that Defendants Kohl’s Department Stores, Inc. and Capital One, National Association, improperly charged them for two unauthorized 'enhancement products' linked to their Kohl’s-branded credit card accounts, claiming these products offered little or no value. Their Second Amended Complaint (SAC) includes claims for unjust enrichment and breach of the implied covenant of good faith and fair dealing. Defendants have moved to dismiss these claims entirely.
The Kohl’s-branded credit cards, issued by Capital One, resulted from a joint venture between the two companies, following Capital One's acquisition of the card program from Chase Bank in April 2011. The Capital One Cardmember Agreement governs these accounts, and all cardholders were informed of this agreement upon the transfer from Chase. The agreement specifies that 'us' refers to Capital One and any assignees.
The charges at the center of the plaintiffs' claims relate to two ancillary products—Kohl’s Account Ease (KAE) and PrivacyGuard—whose details are not specified in the Capital One Cardmember Agreement. Profit from these products is shared between Capital One and Kohl’s, as outlined in their Private Label Agreement. The court's decision on Defendants' motion to dismiss will partially grant and partially deny the motion.
KAE (Kohl’s Account Ease) is a product designed to cancel a consumer’s account balance up to $10,000 in cases of involuntary employment, disability, hospitalization, or death, for a fee of $1.60 per $100 of the customer's monthly balance. In-store applications for Chase-issued Cards included a KAE Benefit Summary/Disclosure, stating that KAE is an optional amendment to the Cardmember Agreement. However, the Capital One Cardmember Agreement, received by consumers after account transfers, lacks this KAE Benefit Summary/Disclosure. The complete terms are outlined in the KAE Amendments from each bank, which maintain that the original Cardmember Agreement remains effective, with the KAE Amendments governing in case of any conflict. Notably, the KAE Amendments do not mention assignment and grant banks the authority to modify KAE terms, with adverse changes requiring prior written notice. A key distinction between the Chase and Capital One KAE Amendments is the governing law; Chase’s is governed by Delaware law, while Capital One’s is governed by Virginia law.
PrivacyGuard is a credit monitoring service offered for a monthly fee of $14.99, but it is not mentioned in the Cardmember Agreements from either bank or in the in-store applications. However, it is referenced in the Private Label Agreement, which states it will be offered alongside KAE.
Regarding the plaintiff, Jennifer Gordon, she opened her Kohl’s-branded credit card account in Pennsylvania in 2010 and was enrolled in KAE. After Capital One acquired the accounts in 2011, Gordon received a new Cardmember Agreement that did not reference KAE. She claims she did not authorize KAE charges after April 1, 2011, but later found over $400 in KAE fees charged to her account through 2014, despite the account remaining open.
Valerie Tantlinger, a Pennsylvania resident, opened her account in 2007 and was enrolled in Kohl’s Account Enrollment (KAE) on March 3, 2007. After a period of inactivity from November 2008 to May 2012, she attempted to use her inactive card, leading to her receipt of a new Capital One card and a Cardmember Agreement that did not mention KAE or previous agreements. Tantlinger asserts she did not authorize any charges for KAE after receiving the Capital One Agreement. She later discovered over $200 in KAE charges from May 2012 to June 2013, but no further charges after June 2013.
Jennifer Underwood, a California resident, opened her account in 2009 and was enrolled in KAE on January 12, 2009. After Capital One took over in April 2011, she received a Capital One card and Agreement that similarly did not reference KAE or PrivacyGuard. Underwood claims she did not authorize any charges for these services post-April 1, 2011. After paying her balance in full in October 2011, she found a balance of $71.44 two months later due to PrivacyGuard and KAE fees. Despite closing her account and canceling these services, she continued to incur charges that led to further fees. By June 2012, she realized she had ongoing charges for PrivacyGuard, resulting in additional fees. In October 2014, Underwood discovered negative credit reporting due to late payments associated with these charges, despite not receiving any PrivacyGuard services or proper authorization for credit report access.
Chase and Capital One faced penalties from the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) due to their practices related to KAE, leading to multiple federal lawsuits, including a class action case, Kardonick v. J.P. Morgan Chase Co., filed in 2010. This case was settled on a class basis under the Kardonick Settlement Agreement, which included all cardholders of a Chase-issued Kohl’s-branded credit card billed for KAE between September 1, 2004, and November 11, 2010. The settlement was preliminarily approved on February 11, 2011, and received final approval on September 16, 2011.
For a complaint to survive a motion to dismiss, it must present sufficient factual matter to state a plausible claim for relief, surpassing mere allegations. A plaintiff does not need to prove likelihood of success but must provide enough facts to raise a reasonable expectation of finding evidence supporting each claim element. If the facts presented are merely consistent with a defendant's liability, they do not reach the necessary plausibility threshold. The court must assess claims with the facts favorably construed for the plaintiff and may refer to documents attached to the complaint to evaluate their support for the claims.
The Court is analyzing a Rule 12(b)(6) motion to dismiss, which assesses whether Plaintiffs have plausibly pled a claim for relief based on the factual allegations in their Second Amended Complaint (SAC) and associated documents. At this stage, Plaintiffs are not required to prove their case definitively; they must only provide sufficient factual support to suggest a reasonable likelihood of proving their claims through discovery. The Court will not evaluate the broader record at this point, as that will be addressed later.
Regarding the exhibits submitted by both parties, the Court maintains a narrow focus on those documents that are either part of the complaint, attached to it, or publicly available. The Court may also consider authentic documents the Defendant attaches that the Plaintiffs’ claims are based upon. Specifically, the Court finds that some of Defendants' exhibits are permissible for consideration: Exhibits A, B, and C, which include in-store Card applications and Chase Cardmember Agreements relevant to the Plaintiffs' claims, will be considered. Exhibit E, containing each Plaintiff’s Chase KAE Amendment, will also be considered as it supports the claim regarding changes in the KAE program terms post-acquisition by Capital One. Conversely, Exhibit D, which contains a 2011 Capital One application and agreement not integral to the claims, and Exhibit F, a generic PrivacyGuard Terms and Conditions document not referenced in the SAC, will not be considered.
Exhibits G, H, and I are Plaintiffs' account statements, which document relevant charges and will be considered for activity post-April 1, 2011, the earliest claim date. Exhibit J, a schedule to the Private Label Agreement, is critical as it defines various provisions within the main agreement attached to the Second Amended Complaint (SAC). Exhibit K is the Kardonick Settlement Agreement, relevant for claim preclusion based on Third Circuit precedent. The Court will fully consider Defendants’ Exhibits A, B, C, E, J, and K, and Exhibits G, H, and I for post-April 1, 2011 activity, while Exhibits D and F will not be considered.
For Plaintiffs’ exhibits, all six submitted during the motion's briefing may be considered. Exhibit 1 is an execution copy of the Private Label Agreement, while Exhibits 2 and 3 are its schedules. Exhibit 4, a Capital One KAE Amendment, is integral to the claims regarding differences from the Chase KAE Amendment. Exhibit 5 is a transcript from the Kardonick fairness hearing, considered for statements made but not for their truthfulness. Exhibit 6 is a copy of the Kardonick Settlement Agreement, submitted by Defendants as Exhibit K. Demonstrative Exhibits 1, 3, 5, 6, and 8 consist of material already before the Court. Demonstrative Exhibits 2 and 7 contain declarations from other cases, which the Court can acknowledge but not the factual claims. Demonstrative Exhibit 4 is a federal statute, and Exhibit 9 is a publicly available legal opinion, both of which are acceptable as legal references. Overall, the Demonstrative Exhibits provide no additional factual material for consideration.
The Plaintiffs' two-count SAC alleges (1) breach of the implied covenant of good faith and fair dealing, and (2) unjust enrichment, both stemming from their enrollment in KAE and PrivacyGuard (specific to Underwood). Despite previously unclear theories, two distinct recovery theories now emerge from the SAC's allegations.
Allegations against Defendants involve two primary theories: the 'No Value' theory and the 'No Authorization' theory. Under the No Value theory, Plaintiffs assert that their enrollment in programs provided minimal or no value, claiming that this unilateral enrollment and ongoing billing represented an improper exercise of Defendants' rights or unjust enrichment beyond the terms of the Cardmember Agreements. The No Authorization theory posits that any lawful implementation and billing of products at the time the Cards were issued did not authorize Capital One to continue billing after the agreement took effect, leading to a breach of the implied covenant of good faith and fair dealing or unjust enrichment.
The Court will separately analyze these theories despite their potential overlap. Virginia law recognizes an implied duty of good faith and fair dealing in contracts, classified as a breach of contract claim requiring proof of an existing contract and a breach of the implied covenant. Breaches can occur when a party with a clear contractual right acts dishonestly or when a party with discretion performs arbitrarily or unfairly.
Specifically regarding the KAE program under the No Value theory, Plaintiffs allege they were enrolled without consent, and despite Capital One's right to modify the agreement, the unilateral enrollment in a program deemed to have little value breached the duty to exercise contractual rights in good faith. Allegations suggest that KAE customers faced challenges in claiming benefits and canceling enrollment, leading to the conclusion that such actions could be seen as a breach of the implied covenant of good faith and fair dealing, allowing this theory to withstand the motion to dismiss.
The KAE No Authorization theory posited by Plaintiffs claims that Defendants lacked legal authorization to charge for KAE after the issuance of the Capital One Cardmember Agreement, regardless of KAE's value. Defendants contend that the Chase KAE Amendment modified the original Chase Cardmember Agreement, which was subsequently assigned to Capital One, thereby granting Defendants the necessary contractual authorization to charge for KAE. Plaintiffs counter this by arguing that the absence of an assignment provision in the Chase KAE Amendments prohibits their assignment to Capital One. They further assert that the Capital One Cardmember Agreement is a new contract that supersedes all prior agreements and does not incorporate previous amendments. Additionally, Plaintiffs claim that even if the Chase KAE Amendment could be assigned, the changes sought by Capital One were adverse and required notice to Plaintiffs before implementation.
The assignment of Plaintiffs' accounts to Capital One in April 2011 is undisputed, as documented in the Private Label Agreement. The legal principle states that absent an express provision otherwise, an assignee inherits the assignor's rights. This principle applies to contracts governed by both Delaware and Virginia law, confirming that Capital One assumed all rights associated with the accounts, including those under the Chase KAE Amendment. Plaintiffs argue against this by emphasizing the lack of an express assignment authorization in the Chase KAE Amendment, but the law allows for assignments unless they materially alter another party's rights, which Plaintiffs have not substantiated.
Furthermore, Plaintiffs maintain that even if Capital One assumed rights from Chase, the Capital One Cardmember Agreement is an entirely new agreement that requires Plaintiffs' consent for any changes, including those regarding KAE charges, as the differences between the agreements necessitate such consent for authorization.
The assignment of rights from the original Chase KAE Amendment to Capital One allows Capital One to continue exercising existing rights unless explicitly extinguished by a subsequent document. The Chase KAE Amendment mandates that Capital One maintain the KAE program until proper notice of cancellation is given to the Plaintiffs. Plaintiffs argue that the issuance of a substitute credit card under the Truth in Lending Act (TILA) negates prior rights established with Chase. However, TILA permits banks to issue substitute credit cards without creating a new credit account, thus not affecting the existing rights under the Chase KAE Amendment.
Plaintiffs also contend that a provision in the Chase KAE Amendment, which requires customer notification of adverse changes, was violated when governing law shifted from Delaware to Virginia—an adverse change because Virginia law necessitates proof of reliance for deceptive practices claims, unlike Delaware law. This lack of notification could invalidate the implementation of the new terms in the Capital One KAE Amendment. While the invalidation of one adverse change doesn’t automatically invalidate the entire assignment of KAE, it raises sufficient questions regarding Defendants' authorization to charge for KAE with Capital One cards, supporting Plaintiffs' claim for breach of the covenant of good faith and fair dealing.
Underwood's claims regarding PrivacyGuard involve two main theories: No Value and No Authorization. Underwood asserts that she was improperly enrolled in PrivacyGuard under the Capital One Cardmember Agreement, which allegedly allows Capital One to unilaterally amend account terms. She contends that this enrollment was without her consent and that the service provided little or no value, violating the duty of good faith and fair dealing. Defendants argue that PrivacyGuard was obtained from a third-party, Trilegiant, but this claim is contradicted by the Private Label Agreement, which indicates that Capital One offers PrivacyGuard.
In the No Authorization theory, Underwood claims that any prior authorization for PrivacyGuard became invalid following the issuance of the Capital One Cardmember Agreement. She argues that there was no valid authorization for the charges related to PrivacyGuard. Both theories support her claims of good faith and fair dealing, which will not be dismissed unless time-barred or preempted.
For the unjust enrichment claim, Underwood must show that she paid for KAE and/or PrivacyGuard without an existing contract, that Defendants were aware of the payment, and that no benefit was provided in return. The Defendants contend that the existence of the Capital One Cardmember Agreement precludes this claim regarding KAE. However, an unjust enrichment claim based on the No Value theory for KAE is barred by this agreement, as any incorporated amendments constitute an express contract. In contrast, the No Authorization theory can proceed since it challenges the validity of the KAE Amendment, which must be assumed true at this stage.
Plaintiffs allege they were billed for KAE services but did not receive them, supporting a KAE-related unjust enrichment claim based on a No Authorization theory. Underwood's claim regarding PrivacyGuard also survives, as there is no contractual barrier preventing her unjust enrichment claim under either No Value or No Authorization theories. She asserts that she paid for PrivacyGuard services, including premiums and late fees, but received no benefits such as credit monitoring or reports. Underwood contends that Defendants lacked authorization to access her credit reports, which undermines their ability to provide the claimed services. The Court must view these allegations favorably for Underwood, making her unjust enrichment claims plausible.
Regarding the statute of limitations, the parties agree that Virginia’s three-year statute applies. Defendants argue that Plaintiffs’ claims are time-barred since both were first billed over three years prior to the complaint filed on February 13, 2015. Plaintiffs counter that a new claim arises with each instance of alleged improper billing. Under Virginia law, the accrual of claims may depend on the nature of the wrongful acts and the harm caused, as outlined in relevant case law. Whether claims accrue at a single moment or with each instance of billing remains a question of law determined by the specifics of each transaction.
The determination of whether damages from wrongful acts must be recovered in one action or through multiple claims hinges on the nature of the acts. If the wrongful act is permanent and results in all damages at once, then the statute of limitations begins at the time of the act. However, if the wrongful acts occur intermittently, each act inflicts a new injury and creates a separate cause of action. The Virginia Supreme Court's ruling in *Hampton Roads* exemplifies this, where intermittent sewage discharges were deemed separate wrongful acts, allowing for distinct causes of action for each occurrence. Similarly, in *American Physical Therapy Association v. Federation of State Boards of Physical Therapy*, the court ruled that each improperly charged fee constituted a new injury and a separate cause of action. In contrast, in *Westminster Investing Corp. v. Lamps Unlimited, Inc.*, a landlord's continuous failure to enforce lease restrictions was treated as a single breach, occurring at the initial failure.
The question of whether the plaintiffs' claims are time-barred is analyzed through these precedents. Specifically, for the No Value good faith and fair dealing claim, parallels are drawn with *American Physical Therapy*, where the court recognized separate causes of action for each fee increase. The plaintiffs argue that each improperly charged fee is a distinct claim, while the defendants assert that a separate breach only occurred when the fee was altered, not for each billing thereafter. The specific issue of whether each billing after an improper fee implementation constitutes a distinct claim was not directly addressed in *American Physical Therapy*, but the reasoning appears to support the defendants’ interpretation regarding the No Value claims.
Damages for the plaintiffs arose each time they paid an improperly increased fee, but the wrongful acts occurred only during the three distinct fee increases. The No Value theory posits that the KAE program was worthless, making the act of unilateral enrollment the key wrongful act, which established that claims for good faith and fair dealing accrued at the initial enrollment in KAE, occurring at the latest in April 2011. Therefore, these claims are time-barred as they accrued before February 13, 2012. In contrast, the No Authorization theory argues that plaintiffs were not validly enrolled in KAE and/or PrivacyGuard, asserting a distinct wrongful act with each billing. Claims under this theory are also time-barred for charges prior to February 13, 2012 but are valid for charges incurred afterward. Lastly, regarding unjust enrichment, a claim arises each time Defendants received payment without providing value, making earlier payments subject to the same time-bar as the other claims, only being valid for payments made after February 13, 2012.
Defendants claim that Plaintiffs’ KAE claims are barred by the Kardonick Settlement Agreement from Kardonick v. J.P. Morgan Chase, arguing that the claims were released. Plaintiffs assert their claims involve “non-Chase” credit cards, which they contend are excluded from the settlement, and note that the agreement only releases claims that accrued before November 11, 2010. In the Third Circuit, class action settlements can preclude future claims that were not presented in the original action, but this preclusive effect depends on the specific terms of the settlement agreement. The meaning of such agreements is interpreted based on general contract principles.
Plaintiffs’ argument that Defendants are not parties to the Kardonick Settlement is rejected; as cardholders of Chase-branded credit cards billed for KAE between September 1, 2004, and November 11, 2010, Plaintiffs are part of the Kardonick class. Despite Plaintiffs’ assertion that their cards are no longer "Chase" cards, it is acknowledged that their accounts were Chase accounts when the settlement was executed, and "Released Parties" includes Chase’s assigns. Furthermore, any rights related to the preclusive effects of the Kardonick Settlement would transfer to Capital One upon the assignment of accounts, with no evidence presented by Plaintiffs to counter this.
Consequently, Capital One can enforce the preclusive effects of the Kardonick Settlement concerning Plaintiffs’ accounts. However, determining whether Plaintiffs’ claims are among those released necessitates a close examination of the specific parameters of the Released Claims in the Kardonick Settlement, which includes all claims related to any Payment Protection Product occurrences prior to November 11, 2010.
Claims related to any acts or omissions raised or potentially raised within the scope of the class action complaint or the litigation are addressed. The Kardonick settlement is at the center of a dispute, with Defendants asserting that it released all KAE-related claims for accounts enrolled before November 11, 2010, while Plaintiffs contend it only released claims arising from specific wrongful acts prior to that date. Both interpretations are considered reasonable, but the Court must favor the Plaintiffs' interpretation when evaluating a motion to dismiss. As a result, only claims accrued before November 11, 2010, which are also time-barred, are precluded by the Kardonick settlement.
Regarding the National Bank Act (NBA), Defendants argue that Plaintiffs’ KAE claims are preempted. The NBA does not completely eliminate state laws affecting banks but allows for state regulation as long as it does not significantly interfere with national banks’ powers. The Dodd-Frank Act reaffirmed states’ ability to apply general laws to national banks. Defendants claim that the NBA preempts KAE claims against Kohl’s, which is not a national bank, because Kohl’s acted as an agent for Capital One, a national bank. This argument leverages the Supreme Court's ruling in Watters v. Wachovia Bank, which established that state-law claims against non-national bank subsidiaries can be preempted if they significantly impair the national bank's authorized activities.
The First and Second Circuits have applied subsidiary preemption from the Waters case to extend National Bank Act (NBA) preemption to claims against non-bank third parties acting as agents for national banks. In specific cases such as *Pac. Capital Bank N.A. v. Connecticut* and *SPGGC, LLC v. Ayotte*, this principle was used to preempt claims against tax preparers and shopping mall operators, respectively. However, the Dodd-Frank Act introduced a provision that states state law applies to subsidiaries, affiliates, or agents of national banks, effectively negating the preemptive effect established in Waters. The Office of the Comptroller of the Currency (OCC) confirmed this interpretation in a letter, stating that the Dodd-Frank Act eliminates preemption of state law for national bank subsidiaries and affiliates. As a result, any claims accruing before the Dodd-Frank provisions are time-barred, and any claims arising after July 21, 2011, are not subject to NBA preemption against entities that are not national banks, thus rejecting the preemption argument against Kohl’s.
In contrast, the NBA preemption remains relevant for claims against Capital One, a national bank. Defendants argue that the claims are preempted by a federal regulation (12 C.F.R. § 37) which governs debt cancellation contracts and contains an explicit preemption clause, stating that these contracts are governed solely by federal law and not by state law. This regulation establishes a comprehensive framework for debt cancellation contracts, indicating a clear intent to preempt state law claims related to such contracts.
A debt cancellation contract involves a bank agreeing to cancel all or part of a customer's repayment obligation upon a specified event, as defined in 12 C.F.R. 37.2(f). Plaintiffs have contested whether KAE is a debt cancellation product but contradicted themselves by asserting in their Second Amended Complaint (SAC) that KAE cancels account balances up to a certain amount upon qualifying events. Both Chase and Capital One KAE Amendments also indicate that KAE cancels account balances under specific conditions. Given these assertions, it is concluded that KAE qualifies as a debt cancellation product, and the Plaintiffs' claims alleging KAE is worthless are preempted by Part 37, necessitating dismissal of those claims.
In contrast, the Plaintiffs' No Authorization claims do not arise from a KAE contract but assert that after their accounts were assigned to Capital One, the charges for KAE fees were unauthorized. These claims are not preempted by Part 37.
The conclusion states that all claims related to fees incurred or paid before February 13, 2012, are time-barred and must be dismissed. Specifically, the No Value theory claims regarding KAE are time-barred, released by the Kardonick Settlement Agreement, and unjust enrichment claims based on the No Value theory are foreclosed by the existence of an express contract. Additionally, breach of good faith and fair dealing claims based on the No Value theory cannot proceed against Capital One due to preemption by 12 C.F.R. 37. The factual basis for these conclusions is derived from the pleadings and documents integral to them, as permitted in a Rule 12(b)(6) motion to dismiss. There is an implication that Underwood did not authorize access to her credit information, inferred from the SAC, despite no explicit assertion in the document. Plaintiffs agreed to consider certain exhibits relevant to their account activity after April 1, 2011.
Plaintiffs mistakenly believed that Defendants' Exhibit D and the Capital One Cardmember Agreement in the Second Amended Complaint (SAC) as Exhibit 2 were substantially similar, but they are not. Exhibit D has organizational differences and includes sections on Additional Cards and Telephone Monitoring absent in Exhibit 2, which contains sections on Account Information and Credit Marketing not present in Exhibit D. Notably, Exhibit D references KAE, which is missing from Exhibit 2. Due to this misunderstanding, the Court will disregard Plaintiffs' concession regarding Exhibit D and accept their assertion that Exhibit 2 reflects the terms received with their Capital One Cards.
Plaintiffs initially suggested that federal law governs their claims related to the breach of the implied covenant of good faith and fair dealing; however, they conceded in oral arguments that state law applies. Thus, Virginia law governs all claims arising from the Capital One Cardmember Agreement. Although there is inconsistency between Plaintiffs' unjust enrichment claim and their good faith and fair dealing claim, they can pursue both at this stage without having to choose between them, per Federal Rule of Civil Procedure 8(d)(3).
The determination of whether allegedly unauthorized charges stemmed from a contractual right to impose new terms or from outside the agreement is a matter for later litigation. Defendants inaccurately claim that the case law from Jones prohibits splitting contract suits into separate causes of action; rather, it establishes that a single breach of contract cannot be divided into multiple actions. The principal test for whether a claim is single or several hinges on the identity of the facts required to maintain the action. Plaintiffs’ argument regarding claim accrual is based on case law about installment contracts, recognizing that Virginia law allows for separate actions to recover installment payments as they become due. However, this case law is not particularly relevant to the current claim-accrual issues before the Court.
Plaintiffs’ claims of improper enrollment and unauthorized billing differ from a breach associated with failure to make installment payments. The case aligns more closely with precedents like American Physical Therapy. Defendants acknowledged that Tantlinger’s Account was inactive for several years, with her enrollment in KAE occurring within the three-year statute of limitations, allowing her good faith and fair dealing claim to proceed. The Dodd-Frank Act’s NBA preemption provision clarifies that state laws regarding financial transactions are not preempted unless they discriminate against national banks, are preempted under the Barnett Bank standard, or conflict with other federal laws (12 U.S.C. 25b). The Dodd-Frank Act also specifies that the NBA does not occupy any state law field (12 U.S.C. 25b). The OCC is tasked with enforcing federal banking law and has maintained that Dodd-Frank did not alter the scope of existing regulations. Defendants cited a recent district court opinion regarding NBA preemption against a non-bank but failed to provide post-Dodd-Frank precedents that support the continued validity of previous holdings. Federal regulations, like statutes, possess preemptive power, determined by their content unless challenged. The OCC affirmed that no changes were made to certain provisions post-Dodd-Frank, and other courts have also recognized the preemption of debt cancellation contracts, ultimately concluding that the NBA preempts Plaintiffs’ claim for breach of the covenant of good faith and fair dealing.
Plaintiff’s state law claims are barred by field preemption, as established in Rose v. Bank of America Corp., where the court found the Office of the Comptroller of the Currency's (OCC) regulatory framework leaves no space for state law regarding Debt Agreements. The court in Spinelli v. Capital One Bank confirmed that the OCC's comprehensive regulations result in both explicit and implied federal preemption of laws governing debt cancellation contracts. Defendants argued that Plaintiffs' KAE-related claims were preempted by 12 C.F.R. Part 7, asserting that KAE fees qualify as "interest." However, the court determined that KAE does not constitute an extension of credit, as payments for KAE do not compensate a creditor for any credit extension or default. The anti-tying provisions of Part 37 prohibit banks from requiring a debt cancellation contract as a condition for credit extension. The OCC clarified that national banks may impose non-interest charges and fees for debt cancellation contracts. Thus, following the interpretation of "interest" and the OCC’s commentary, KAE fees are not classified as interest, aligning with precedents set by the Fifth and Ninth Circuits that similarly ruled payment protection plan fees are not interest. Consequently, Part 7 does not preempt Plaintiff's KAE claims.
