Court: District Court, W.D. Virginia; December 27, 2016; Federal District Court
Defendant Huntington National Bank's Motion for Summary Judgment has been granted by the Court. Plaintiffs Jeremy A. Powell and Tina M. Powell initiated this class action in Kanawha County, West Virginia, on October 15, 2013, claiming unlawful late fees charged on their home loan accounts. They allege Huntington violated the terms of their mortgage contract and the West Virginia Consumer Credit and Protection Act (WVCCPA) by improperly assessing multiple late fees despite timely payments. For instance, they cite an instance where a late fee was charged on October 17, 2012, after a full payment was made on October 8, 2012, and a subsequent fee was charged on November 19, 2012, despite another timely payment. Huntington removed the case to federal court, asserting diversity jurisdiction, and filed its Motion for Summary Judgment on April 25, 2016. The Court's standard for granting summary judgment requires no genuine issue of material fact and entitlement to judgment as a matter of law, with the moving party bearing the burden of proof. The motion is fully briefed and ready for adjudication.
To determine if an issue warrants trial, the Court must evaluate all evidence favorably for the nonmoving party. A material fact, as required by Rule 56(a), does not need to be conclusively resolved in favor of the party asserting it; rather, there must be enough evidence to necessitate a jury or judge's resolution of differing factual claims. The nonmoving party must demonstrate the existence of specific material facts beyond a mere scintilla of evidence and cannot rely solely on pleadings. Summary judgment is also appropriate for pure questions of law.
Huntington seeks summary judgment, contending that Plaintiffs must prove a legal obligation for Huntington to apply their October 2012 payment in a specified order according to West Virginia law, which they argue is preempted by the National Bank Act (NBA). Huntington claims that the provisions of the West Virginia Consumer Credit and Protection Act (WVCCPA) regarding late fees and payment posting are preempted by the NBA and accompanying regulations from the Office of the Comptroller of the Currency (OCC).
The Supremacy Clause of the U.S. Constitution establishes federal law as superior to state law, allowing federal legislation to negate conflicting state actions. Preemption can occur in three forms: express, field, and conflict preemption. In this case, only conflict preemption is relevant, as the NBA does not provide for express preemption and allows for some state regulation of national banks. State laws are invalidated only when they conflict with federal law.
A conflict between state and federal law does not require direct opposition, but a direct conflict necessitates a conflict preemption analysis. In a prior memorandum opinion, the Court found that Plaintiffs’ claims were not completely preempted by the National Bank Act (NBA). Huntington contends that despite this finding regarding removal, the claims could still be deemed non-cognizable due to ordinary preemption. Legally, Huntington's assertion is valid; complete preemption and ordinary preemption are distinct concepts. Complete preemption serves as a jurisdictional doctrine, whereas ordinary preemption indicates federal law's supremacy and offers a defense to claims. The Supreme Court is cautious in recognizing complete preemption, having done so for only three statutes, and presumes against it. Consequently, defendants asserting complete preemption face a heavy burden, and courts typically resolve doubts against such claims. Several district court rulings indicate that the NBA does not completely preempt all claims related to national banks, but is limited to specific types, such as usury. The Court's previous ruling on the non-complete preemption of Plaintiffs’ claims does not eliminate the possibility of ordinary preemption. The NBA aims to establish a national banking system, and its Section 85 permits associations to charge interest at state-allowed rates, while the West Virginia Consumer Credit and Protection Act (WVCCPA) imposes specific regulations on delinquency charges.
The Supreme Court in Smiley v. Citibank determined that the term 'interest' in § 85 encompasses late-payment fees as per OCC regulations. The Court asserted that the OCC's interpretation of 'interest' merits deference and aligns with the Chevron standard. Consequently, state laws conflicting with national banks' discretion to set late fees, provided these fees comply with the bank's home state laws, are preempted. Huntington claims § 85 permits it to impose late fees when borrowers are delinquent, citing the Ohio Consumer Sales Practices Act, which it interprets as lacking restrictions on charging late fees. Huntington maintains that it can apply payments based on its internal policies and argues that the relevant West Virginia Consumer Credit and Protection Act (WVCCPA) provision is invalid as it attempts to limit Huntington’s ability to charge late fees. Huntington supports its position with references to Supreme Court cases and Fourth Circuit rulings that affirm § 85's preemptive effect over state laws concerning late fees. While acknowledging the Plaintiffs' focus on alleged improper late fee charges rather than the fees' amounts, Huntington argues that § 85 allows for the adoption of all interest-related laws from its home state. Plaintiffs contest this broad interpretation, asserting that § 85 only permits the export of laws directly related to interest rates and not other aspects of interest charge permissibility, emphasizing that their claims do not challenge interest rates and thus should not be preempted by § 85.
Plaintiffs contest Huntington's assertion that § 85 of the National Bank Act (NBA) preempts state laws concerning interest charges, specifically challenging Huntington's reliance on the cases of Smiley, Marquette, and Vaden. Huntington maintains that the late fees in question qualify as "interest" under 12 C.F.R. § 7.4001(a) and therefore are permissible under § 85, which purportedly conflicts with West Virginia law aiming to regulate national bank fees. Huntington cites Office of the Comptroller of the Currency (OCC) interpretive letters to justify charging interest based on Ohio's laws, its home state. While Plaintiffs argue they are not disputing the interest amount, Huntington frames their claim as a challenge to its authority to impose an increased interest rate through late fees.
The court disagrees with Huntington's interpretation of the cited cases. Smiley specifically addressed whether late fees are considered "interest" without engaging in preemption analysis. Marquette focused on a national bank's ability to apply state interest rates based on its location, affirming that a bank can charge higher rates allowed by its home state for nonresident customers, but did not address the broader implications of state preemption. Vaden involved a preemption question regarding usury claims under the Federal Deposit Insurance Act but did not examine NBA § 85's preemptive scope over state regulations on loan payment applications. Overall, the court finds that none of the cited cases support Huntington's broad preemption claim.
The Court previously addressed the issue of late fees in its September 26, 2014, memorandum opinion, concluding that the Plaintiffs' claims focus on the improper assessment of late fees rather than the interest rate charged by the Defendant. It rejected Huntington's argument that the Smiley case preempted state law claims regarding late fees, clarifying that while § 85 of the National Bank Act preempts challenges to interest rates, it does not extend to all claims regarding late fee assessments. Huntington's citation of Citizens’ National Bank v. Donnell was deemed irrelevant as that case pertained to compounding interest and usury claims, which differ from the current allegations that assert certain late fees were unlawfully charged under West Virginia law. The Court emphasized that the distinction lies in the nature of the claims; the Plaintiffs are asserting that certain fees should not have been charged at all, not that they were excessive or usurious. The authority cited by Huntington primarily deals with usury claims, which are not applicable here. Consequently, the Court affirmed that there is no conflict between the applicable state law and § 85 that would warrant preemption, thus allowing the Plaintiffs' claims to proceed.
The Court affirms its prior ruling that § 85 does not preempt West Virginia Code section 46A-3-112(3). However, it finds that the National Bank Act (NBA) and Office of the Comptroller of the Currency (OCC) regulations do preempt the Plaintiffs' claims. The Court states that the actions of Huntington in applying payments to missed installments and assessing late fees are governed by federal law. Even in the absence of direct conflict with state law, preemption can occur if state law obstructs federal objectives. The Court concludes that section 46A-3-112(3) significantly impairs a national bank's powers under the NBA, which grants broader powers than those specified in § 85. The NBA allows national banks to exercise all necessary incidental powers for banking, including engaging in real estate lending, without significant state law burdens. The Supreme Court emphasizes that the NBA aims to prevent inconsistent regulation of national banks' operations. Courts must discern implicit preemptive intent when federal statutes lack explicit preemption language.
The Supreme Court's analysis in Barnett Bank focused on the preemptive impact of a federal statute, 12 U.S.C. § 92, which grants national banks specific powers related to insurance sales. This statute parallels provisions in the National Bank Act (NBA) by specifying that “rules and regulations” governing such sales derive from federal authority, notably the Office of the Comptroller of the Currency (OCC), rather than state law. The Court emphasized that the term 'powers' in the statute implies a historical legal context in which national banks' authority is generally not limited by state laws but instead preempts them. The ruling determined that Congress intended for states not to impede the powers granted to banks significantly.
The inquiry established by Barnett Bank assesses whether a state law either directly conflicts with federal law or obstructs federal objectives. While a presumption against preemption typically exists, it does not apply in the national banking context, particularly where there is a significant federal presence. State laws that significantly impair the exercise of authority under the NBA must yield to federal law.
The level of interference required for preemption under the NBA is relatively low, as demonstrated in Monroe Retail, Inc. v. RBS Citizens, N.A., where courts recognized that federal law preempts state regulations regarding banking operations. In Gutierrez v. Wells Fargo Bank, NA, the Ninth Circuit concluded that federal law also preempts state laws concerning the posting order of debit items, reinforcing the idea that federal regulatory power typically preempts contrary state law. Additionally, federal regulations have the same preemptive effect as federal statutes, meaning that if compliance with both federal and state laws is impossible, or if state laws obstruct federal objectives, they will be preempted under the Supremacy Clause.
The OCC (Office of the Comptroller of the Currency) is the federal agency primarily responsible for overseeing the banking industry under § 24 Seventh. It has the authority to create rules and regulations that define the "incidental powers" of national banks, extending beyond those explicitly listed in statutes. Congress does not need to explicitly state its intent for federal law, including OCC regulations, to preempt state law. When a federal regulation conflicts with state law, courts must determine if the Comptroller has exceeded statutory authority or acted arbitrarily.
Judicial review of the Comptroller's decisions will consider the thoroughness of the agency's analysis, the validity of its reasoning, consistency with prior decisions, and other relevant factors. The preemptive effect of regulations can be assessed through their wording. In Barnett Bank, the Comptroller’s interpretation indicated that federal law does not require state approval for national banks' authority, leading to a finding of preemption. Similar rulings in other jurisdictions, such as the Ninth Circuit's Gutierrez case, affirmed that OCC regulations allow banks to set account terms, including the order of posting transactions as part of pricing decisions. Consequently, courts must defer to the OCC’s interpretations of the National Banking Act (NBA) and cannot apply state laws that interfere with the powers granted to national banks. Courts are obliged to give substantial deference to the OCC's interpretations of banking laws, as established by the Supreme Court.
The court in Monroe Retail, Inc. determined that the National Bank Act (NBA) preempts an Ohio law due to the Office of the Comptroller of the Currency's (OCC) definition of national banks' fee-charging abilities as an "incidental power." National banks can charge late fees to interstate customers, which are classified as interest under federal definitions and permissible under the relevant state law. This case illustrates the substantial deference courts must give to OCC regulations, reinforcing that the Comptroller’s interpretations can lead to preemption of state laws.
Huntington argues that West Virginia Code section 46A-3-112(3) is preempted by other NBA provisions and OCC regulations, despite the state law not directly regulating interest rates. Huntington emphasizes that the NBA possesses a unique preemptive force and that state laws hindering a national bank’s federal authority are preempted. Huntington contends that the WVCCPA provision unlawfully restricts its ability to originate and service mortgage loans, backed by various legal precedents and an OCC regulation.
In opposition, the plaintiffs assert that the WVCCPA does not significantly interfere with Huntington's ability to make real estate loans or exercise its banking powers. They argue that accepting Huntington’s broad interpretation of preemption would imply all state laws limiting any bank activity would be invalidated. The plaintiffs reference Fourth Circuit rulings that state laws related to bank operations are not inherently preemptive. They further claim that the WVCCPA does not materially impede Huntington's mortgage lending capabilities, as the bank has the technical means to comply without substantial cost or inefficiency. In response, Huntington cites specific NBA provisions and an OCC regulation to support its claim of preemption and challenges the legal authority cited by the plaintiffs.
Huntington asserts that the ability of a national bank to operate in accordance with both state and federal law does not negate the possibility of state law being preempted by the National Bank Act (NBA). It cites that as a national bank, it possesses all necessary incidental powers to conduct banking business, which extends beyond explicitly enumerated powers. The Office of the Comptroller of the Currency (OCC) has interpreted these powers to include making real estate loans, which allows national banks to do so without adhering to state law limitations regarding loan terms and servicing. This interpretation aligns with the Supreme Court’s ruling in Barnett, confirming that state regulations governing mortgage servicing and payment scheduling are preempted. Huntington argues that requiring compliance with varying state laws on payment posting while permitting uniform mortgage servicing contradicts the NBA and OCC regulations. Citing cases such as Akopyan, Huntington emphasizes that state-imposed requirements that disrupt uniformity in loan servicing conflict with the NBA's intent to prevent diverse state limitations on national banks' operations.
The court in Gutierrez emphasized that the ability to determine the method of posting transactions is essential to the posting process linked to deposit receipts, highlighting that this authority falls under federal banking regulatory power, which generally preempts state law. The receipt of mortgage loan payments similarly includes the essential component of choosing how to post those payments. The Office of the Comptroller of the Currency (OCC) has interpreted the National Bank Act (NBA) to permit the charging of late fees, despite conflicting state laws. In Wittenberg v. First Independent Mortgage Co., it was found that a plaintiff's claim regarding late fees was preempted by federal regulations, as it related to the servicing of mortgages by a national bank. Additionally, a California law restricting late fees for credit card payments was preempted due to its conflict with OCC regulations that allow banks to operate without state law interference on loan terms, including payment schedules.
The OCC restricts state regulation of national banks' real estate lending to specific areas such as contracts, torts, and taxation, while a West Virginia law attempting to regulate a bank's payment application and late fee practices would impede the bank's ability to service loans effectively. If enforced, this law would prevent a bank from applying a current payment to a past due installment, thereby complicating the process of managing missed payments and late fees. For example, if a borrower pays only for February without addressing a missed January payment, the bank would be required to allocate the payment to February, leaving January unpaid and unable to charge any delinquency fees. This scenario illustrates the national bank’s regulatory framework governing loan servicing and payment scheduling.
12 C.F.R. 34.4 grants national banks, including Huntington, the authority to schedule loan payments and service mortgages without being bound by state law limitations. While the OCC regulation does not specifically address the application of loan payments to monthly installments, it allows national banks to determine the allocation of payments between principal and interest. The OCC regulation, as defined under 12 U.S.C. 34.3 and 371, permits national banks to establish credit terms and amortization schedules without regard to state law. This includes the incidental power to apply payments to previous months to ensure compliance with the bank’s repayment terms.
State laws that regulate payment application interfere with the powers granted by the National Bank Act (NBA) and OCC regulations, leading to preemption of such claims. The West Virginia statute in question cannot override federal law, as the NBA and OCC regulations empower Huntington to manage real estate loans, including the application of payments and assessment of fees, without state legal constraints. The decision to apply a borrower’s payment to a prior month’s installment is a loan servicing prerogative authorized by federal law. Thus, the state law is preempted not merely for restricting bank actions but because federal law explicitly empowers banks to operate without state interference.
The Court affirms that it must defer to the Office of the Comptroller of the Currency (OCC) regarding its interpretation of the National Bank Act (NBA), specifically confirming the OCC's authority to allow national banks the discretion to service mortgages and schedule payments. It concludes that the OCC acted within its statutory authority and did not act arbitrarily in this context. Consequently, state laws that conflict with the powers granted to national banks by federal law, such as West Virginia's section 46A-3-112, are preempted. The Court emphasizes the supremacy of federal law over conflicting state regulations, referencing Justice Jackson's interpretation of the federal-state relationship. As a result, Huntington’s Motion for Summary Judgment is granted, and the Court orders that the Clerk send a copy of the order to relevant parties. Additionally, pending motions, including those to set aside prior orders and for a hearing, are rendered moot due to the resolution of the case. Huntington's late fee policy is described as a procedure rather than a formal policy, with implementation varying among customers. The representative from Huntington stated no awareness of any state law requiring different late fee assessments compared to Ohio law, and the cases cited by the Plaintiffs are deemed irrelevant to the current matter.
A case was initiated against a national bank, raising issues related to federal regulations; however, the national bank was not the lender of the disputed loan. Instead, the loan originated from Nation Auto, a local car dealer, and was subsequently assigned to Capital One. Consequently, the claim is not preempted by federal regulations. The retail sales installment contract executed by Nation Auto, which includes a clause opting for governance under the Maryland Credit Laws (CLEC), is valid since Nation Auto is not a national bank. Capital One's lack of involvement in any debt cancellation agreements with the plaintiff means that relevant regulations do not apply. The plaintiffs reference Epps v. JP Morgan Chase Bank, which also examines Maryland's CLEC, where the Fourth Circuit determined that certain repossession clauses in a retail installment contract were not preempted by federal banking regulations due to their non-disclosure status. Both Epps and the current case involve contracts governed by the CLEC but do not address mortgage loans or a national bank as the primary lender, allowing for clear distinctions between the cases.
