state-law notice and disclosure requirements for collecting on
deficiencies following motor vehicle repossessions are not preempted under
the National Bank Act.
A copy of the opinion is available at:
Plaintiff car buyer sued the defendant national bank ("National Bank")
that had purchased and received the assignment of his retail installment
contract, claiming that the National Bank violated a section of
California's Rees-Levering Act, that requires certain post-repossession
notices to a defaulting auto-loan borrower prior to selling the
As you may recall, under California's Rees-Levering Act, if the retail
installment contract holder fails to provide certain required notices and
disclosures following repossession of a motor vehicle, the holder is
barred from collecting any remaining deficiency after the vehicle is sold.
The plaintiff argued that because the notices he received from the
National Bank did not contain all the information required under the
relevant section of the Rees-Levering Act, the National Bank is barred
from collecting any deficiency.
The plaintiff filed his original action in California state court on
behalf of himself and a putative class of other similarly situated
California consumers. The National Bank removed the case to federal
court, and then moved to dismiss. The district court granted the National
Bank's motion to dismiss on grounds of preemption. However, the Ninth
The National Bank argued that the Rees-Levering post-repossession notice
requirements are preempted by the National Bank Act ("NBA") and its
implementing regulations. The district court agreed, holding that the
post-repossession notices required under the Rees-Levering Act are
preempted by regulations promulgated under the NBA by which national banks
are exempt from
state laws concerning "[d]isclosure and advertising, including laws
requiring specific statements, information, or other content to be
included in credit application forms, credit solicitations,
billing statements, credit contracts, or other credit-related documents"
under 12 C.F.R. § 7.4008(d)(2)(viii)).
The Ninth Circuit held that the lower court improperly relied on an
opinion applying HOLA preemption to a similar Ohio statute, Crespo v. WFS
Financial, Inc., 580 F. Supp. 2d 614 (N.D. Ohio 2008). The appellate
court noted that, "[b]ecause the district court had already found the
Rees-Levering notices were expressly preempted under the language in 12
C.F.R. § 7.4008(d)(2)(viii), the district court refused to consider the
savings clause language in Subsection (e) [of 12 C.F.R. § 7.4008] that
explicitly saves '[r]ights to collect debts' from preemption." The
corresponding OTS savings clause, 12 C.F.R. § 560.2(c), makes no such
The Ninth Circuit also rejected the National Bank's argument that it is
subject to the UCC only when a state chooses to adopt the UCC in its true
"uniform" model code structure but not when a state, such as California,
chooses to modify sections of the UCC through its legislative actions. OCC
Interpretive Letter No. 1005, 2004 WL 3465750 (June 10, 2004).
The Court held that the OCC Interpretative Letter 1005 is narrowly
tailored to answer the question of whether the uniform UCC provisions are
preempted, and explicitly does not address "non-uniform provisions that
individual states may adopt and elect to include in the body of their
state commercial code." OCC Interpretive Letter No. 1005, at n.2. Thus,
the Court held the National Bank cannot use the OCC's letter to claim that
the OCC has stated national banks are only subject to the UCC if the UCC
is adopted in an unmodified form. According to the Court, the National
Bank failed "to identify what law applies with respect to repossessions
and the notices due a borrower after a repossession when a state chooses
to adopt a nonuniform version of the UCC."
The Court also noted that the "OCC's discussion of its implementation of
Section 7.4008 makes clear that the OCC contemplated debt collection
activities but explicitly intended to save them from preemption." The
Court further rejected the National Bank's argument that its activities
were not "debt collection" under 12 C.F.R. 7.4008(e). The Court noted
that the National Bank "wishes to collect the remainder of the debt, yet
now claims that while it could act under color of state law, or at least
the uniform provisions of the UCC, in repossessing Aguayo's car, it no
longer needs to comply with state law in collecting the remaining debt
The Court further rejected the National Bank's argument that the
Rees-Levering provisions do more than "incidentally affect" the bank's
lending powers, as the Court held the activities at issue were not
"lending" activities. The Court also rejected the notion that the notices
were "disclosures" and "credit-related documents" under the terms of
The Court held that the Rees-Levering provision at issue "falls squarely
within the OCC savings clause." Because the Court held that the
Rees-Levering Act sections at issue are directed toward debt collection
and are therefore not preempted by the NBA, the Ninth Circuit reversed the
lower court's dismissal order in favor of the National Bank.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
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