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Cardholder used the checks to make purchases and incurred finance charges in excess of the finance charges Cardholder would have otherwise incurred had he simply used his credit card for the purchases.
Before the trial court, Issuing Bank argued that the National Bank Act ("NBA") and its federal regulations preempted the state disclosure law, and, in light of a Ninth Circuit decision involving the same factual and legal issues, renewed its motion for judgment on the pleadings. See Rose v. Chase Bank USA, N.A., 513 F.3d 1032, 1034 (9th Cir. 2008) (NBA preempted California convenience check disclosure requirements and national bank's failure to attach the disclosures to its convenience checks was therefore not unlawful).
The Court of Appeal reversed, ruling in part that the NBA did not preempt California's disclosure requirements because California law did not "significantly impair" the powers of national banks, as the state law did not forbid national banks from making loans through the use of convenience checks, but merely required "clear and conspicuous" disclosures to be attached to the convenience checks. The Appellate Court also held, despite the Ninth Circuit's preemption ruling in Rose, that Issuing Bank had failed to make the required factual showing of significant impairment.
Thus, disagreeing with the Court of Appeal's characterization of section 1748.9's requirements as not "forbidding" the exercise of national banks' powers and therefore not a "significant impairment" to the exercise of those powers, the California Supreme Court reasoned that "to say that [Issuing Bank] may offer convenience checks so long as it complies with section 1748.9 is equivalent to saying that [Issuing Bank] may not offer convenience checks unless it complies with section 1748.9. . . . [T]he effect of section 1748.9 is to forbid national banks from offering credit in the form of convenience checks unless they comply with state law."
Accordingly, the California Supreme Court ruled that section 1748.9's disclosure requirements "significantly impaired" the exercise of authority granted to national banks under the NBA, and were therefore preempted.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
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