INDUSTRY OUTLOOK ON DODD-FRANK ACT PREEMPTION PROVISIONS O S 2011 CSBS LEGAL CONFERENCE RALEIGH, NC AUGUST 24, 2011 DONALD C. LAMPE California Illinois Michigan North Carolina Texas Washington, D.C. www.dykema.com What We Will Cover Overview of Title X Preemption DFA General Rules DFA Bank Preemption DFA Enforcement Industry concerns under DFA 2 1
Preemption in Federal Consumer Protection Laws Existing federal consumer credit statutes deal w/ relationship between federal & state law E.g., CLA, EFTA, ECOA, FCBA, FDCPA, RESPA inconsistent state laws preempted, but greater protection provided by state t law not necessarily inconsistent i t 3 Pre-DFA Bank Preemption Regulations (OCC) Specified types of state laws that do not apply to national banks Limited description of state laws that may not be preempted Operating subsidiaries got the same preemption 4 2
Part 34 of OCC Rules: Real Estate Lending 12 CFR 34.4(a) expressly preempts certain state laws: Licensing, registration, filings, or creditor reports Creditor Insurance Loan-to-value Ratios Terms of Credit Loan Amounts Escrow and Similar Accounts Security Property Credit Reports 5 Part 34 of OCC Rules 12 CFR 34.4(a) expressly preempts certain state laws [continuation]: Credit Reports Mandated Statements/Disclosures Mortgage processing, origination, servicing, sales. Disbursements and repayments Interest Rates Due-on-sale clauses Lease covenants and restrictions for security 6 3
Part 34 cont d 12 CFR 34.4(b) describes state laws not preempted Contracts, debt collection, property, taxation, zoning, crimes, torts, homestead Other laws not attempting to regulate manner or content of national banks real estate lending, but legal infrastructure supporting business conduct 7 Part 7 of OCC Rules 12 CFR 7.4000-7.4006 cover preemption in bank operations and activities Exclusive visitorial powers Interest Rates Deposits Nat l bank operating subsidiaries Same approach to preemption as Section 34 for non-real estate lending 8 4
DFA General Rule 1041(a)(1) of DFA codifies conflict preemption analysis 1041(a)(2): greater protection under state law not preempted, but - 1041(b) preserves substantive preemption provisions of enumerated consumer laws 9 Enumerated Consumer Laws Consumer Leasing Act of 1976 (CLA) Electronic Fund Transfer Act (EFTA) Equal Credit Opportunity Act (ECOA) Fair Credit Billing Act (FCBA) Fair Credit Reporting Act (FCRA) Fair Debt Collection Practices Act (FDCPA) Real Estate Settlement Procedures Act (RESPA) Truth in Lending Act (TILA) Truth in Savings Act (TISA) 10 5
General Preemption Standard DFA doesn t modify any preemption provision of existing enumerated consumer law as to application of state law to such federal law In effect, NO CHANGE to existing consumer protection statutes! BUT Current role of the Fed as arbiter 11 Fed s Role Under Existing Consumer Laws Commonly, federal consumer protection laws permit or require Fed to make preemption determinations Fed has not exercised this power widely But with Bureau, what now? Let s look at the existing federal laws 12 6
Federal Laws of General Application TILA general rule: no impact on state law unless state law inconsistent Federal floor : state law not inconsistent if more protective of consumers (Reg E; Reg P) State law preempted if rights, responsibilities or procedures different from Federal law (TILA billing error resolution) 13 General Application cont d State law preempted for credit card applications and solicitations (15 USC 1610(e) Amended FCRA/FACT Act: 22 separate national uniformity or preemption provisions ESIGN: states encouraged to follow Federal law, deviations not tolerated 14 7
Practically Speaking? Under DFA, need to look at each enumerated consumer law to see impact see next page States generally have not tried to override federal consumer laws of general application But now, states may get into the act 15 Factors CLA EFTA ECOA FCBA FCRA FDCPA RESPA TILA TISA SAFE Act Inconsistent state law preempted X X X X X X X X X NA Fed Reserve Board discretion to determine X X X X NA NA NA X X NA extent of inconsistency Greater protection under state law not preempted X X X X NA X X NA NA NA Inconsistent state laws preempted, except where state law is expressly NA NA NA NA X NA NA NA NA NA preserved Board shall by regulation exempt if state law substantially similar or gives greater protection and X NA X X NA NA NA NA NA NA adequate provision for enforcement Board shall by regulation exempt if state law substantially similar and NA X NA NA NA NA NA X NA NA adequate provision for enforcement FTC by regulation exempt if state law is substantially similar and there is adequate NA NA NA NA NA X NA NA NA NA provision for enforcement HUD authorized to determine whether inconsistency exists Secretary must consult with NA NA NA NA NA NA X NA NA NA the appropriate Federal agencies States are encouraged to enact licensing requirement or federal law applies NA NA NA NA NA NA NA NA NA X 16 8
DFA Bank Preemption Definition: 1044(a)(2), State consumer financial law = State law that does not directly or indirectly discriminate against national banks and that directly and specifically regulates the manner, content, or terms and conditions of any financial transaction or account with respect to consumer 17 Bank Preemption Focus In effect, first determine whether state law directly & specifically regulates financial i transaction ti that t national bank has power to enter into So, broad claims of state authority will prove ineffective e.g., UDTPA Then, apply the new (yet old) standard... 18 9
Bank Preemption Standard State consumer financial laws (see above) )preempted, p only if: Discriminatory effect, or Prevents or significantly interferes with exercise by national bank of its powers per Barnett Bank, 517 U.S. 25 (1996) Federal law other than this Title preempts it 19 DFA Bank Preemption: Return to Barnett State consumer financial law preempted if it prevents or significantly interferes with the exercise by the national bank of its powers - the Barnett standard Stricter than OCC preemption regulation: obstruct, impair, or condition (12 C.F.R. 7.4009(b)) OCC repealed 20 10
Barnett Bank Standard? 1044(b) Preemption standard : in accordance with legal standard for preemption in Barnett Bank.... Should mean: the Barnett Bank standard as a whole, as set forth in the case, and not just the word formula So,,previous OCC rules and guidance based in Barnett Bank should live on 21 OCC Amends Regulations Effective July 21, 2011, OCC amended its preemption regulations: (1) visitorial powers made consistent with Cuomo v. Clearing House; (2) deposit taking, lending and real estate lending subject to Barnett Bank standard Concerns of banks and others: did OCC get it right? What standards do apply, for compliance purposes? 22 11
Preemption Determinations under Title X Court and OCC may make preemption determinations OCC may make determination by regulation or order but only on case-by-case basis Must be made by Comptroller Must consult with CFPB OCC cannot simply issue informal guidance such as GC opinions or broad regulations 23 Limits on OCC Congress ditches Chevron deference for OCC preemption determinations OCC must make specific findings and Comptroller (not GC) must do it Field preemption is nixed in any event determinations must be fully justified based on conflicts 24 12
Op Subs No Longer Congress overrode Watters v. Wachovia see 1044(e) Nat l bank op subs do not get preemption anymore Nat l bank, for subs, must roll up or register 25 Interest Rates Left Alone Congress said 85 of National Bank Act unchanged Importantly, includes definition of interest So, exportation of interest rates by national banks will continue 26 13
Existing Contracts? Title X of DFA does not affect the applicability of state t law under federal banking law to any contract entered into on or before date of enactment of [DFA] Did Congress mean date of enactment or designated transfer date? 27 Importance of Old Law For pre-existing contracts, questions remain on scope of OCC regulations and guidance The lists of preempted and nonpreempted types of state laws in OCC regulations not completely clear E.g., recent 9 th Circuit Aguayo case, thumbs down for OCC preemption 28 14
DFA Preemption: Enforcement v. Banks New cops to enforce federal law Under 1042(a)(2)(B), state attorney general may bring civil action against national bank or federal savings association to enforce regulation prescribed by the Bureau and to secure remedies under Title X 29 Enforcement v. Others Otherwise, state AG s civil actions, & state regulators civil actions or other appropriate proceedings to enforce Title X & regulations v. covered person doing business in state 30 15
Visitorial Powers ( 1047) Cuomo v. Clearing House codified State attorney general may bring civil action to enforce non-preempted laws No administrative enforcement by state regulators No routine books and records examinations 31 Real Enforcement Threat? Private plaintiffs, particularly related to national bank and federal thrift preemption courts will apply new law in case-by-case scenarios Will national banks become litigation magnets due to common interstate products such as credit cards? 32 16
Questions? Donald C. Lampe Dykema Gossett PLLC 100 N. Tryon Street Suite 2700 Charlotte, NC 28202 E-Mail: dlampe@dykema.com Direct Dial: 704-335-2736 33 17