The Supreme Court of Washington recently held that state contract and consumer protection claims regarding fax and notary fees charged by a federal savings bank were not preempted under HOLA. A copy of the opinion is attached.
To reconvey title, the defendant federal savings bank charged fax and notary fees that the borrowers argue were not permitted by the deed of trust, unjustly enriched the defendant federal savings bank, and violated the state UDAP statute. The trial court held state laws supporting the borrower's contract and consumer protection claims were preempted by federal regulation under the Home Owners Loan Act (HOLA). The Court of Appeals affirmed.
However, the Washington Supreme Court held that the state laws are generally applicable with only an incidental effect on the federal savings bank's lending operations, thus reversed and remanded the case to the trial court for further proceedings.
As you may recall, "[s]tate laws purporting to impose requirements regarding . . . loan-related fees, including . . . servicing fees” are preempted. 12 C.F.R. § 560.2(b)(5). The Court cited with approval the rulings in Silvas v. E*Trade Mortgage Corp., 514 F.3d 1001, 1003 (9th Cir. 2008) (preempted state law alleged to preclude charging an interest rate lock-in mortgage fee); Lopez v. World Savings & Loan Ass’n, 105 Cal. App. 4th 729, 739, 130 Cal. Rptr. 2d 42 (2003) (preempted state law dictating amount of lender servicing fees); Boursiquot v. Citibank FSB, 323 F. Supp. 2d 350, 352-53, 356 (D. Conn. 2004) (preempted state law dictating amount and whether any fax and statement fee could be charged).
However, the Washington Supreme Court held that 12 C.F.R. § 560.2(b)(5) only preempts state laws that dictate what type of loan-related fees can be charged and the nature of those fees. Here, the Court noted that the borrowers were alleging that the fax and notary fees were not allowed under the contract between the parties, and that state contract law does not purport to impose requirements on loan-related fees, but that state contract law instead requires parties to adhere to the terms of their contracts.
The Court also held that the state-law UDAP claim also survives preemption to the extent it is a misrepresentation stemming from the contract. The Court noted that, if and to the extent the borrowers might argue the state UDAP statute regulates how or when fax or notary fees (loan-related fees) can be charged, the state UDAP statute as applied directly to the loan-related fees would be preempted.
Rejecting that dissent's opinion that the fax and notary fees at issue were not merely incidental to the federal savings bank loan-related activities, the majority stated that:
"the dissent’s novel interpretation of preemption would prevent Washington consumers from enforcing contracts against federal savings associations. Federal law does not provide consumers with a breach of contract remedy against federal savings associations. See In re Ocwen, 491 F.3d at 643. Thus, the dissent’s interpretation renders contracts with federal savings associations legally unenforceable. If the federal government intended to preempt general state contract law (which by the language of 12 C.F.R. § 560.2(c) it does not), it would provide a federal remedy to replace individuals’ ability to enforce their contracts. If the federal government intended to completely restructure the nature of contracting and render federal savings associations immune to breach of contract claims, it would have explicitly said so."
Let me know if you have any questions. Thanks.
Ralph T. Wutscher
Kahrl Wutscher LLP
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