Sixth Circuit Finds State Debt Collection Laws Not Preempted by National Bank Act

On December 14, the U.S. Court of Appeals for the Sixth Circuit, in a plaintiff-garnishors’ lawsuit alleging a defendant bank had improperly garnished funds to satisfy certain service fees, affirmed the dismissal of plaintiffs’ claims (2-1) and held: (i) the National Bank Act ("NBA") does not preempt general state debt collection laws, including laws regulating banks’ rights to collect debts, but (ii) on the other hand, the NBA’s grant of authority to banks to charge and collect fees preempted plaintiffs’ specific state-based conversion claim. See Read Monroe Retail, Inc. v. RBS Citizens, N.A., No. 07-4263 (6th Cir. Dec. 14, 2009). The Court also vacated the district court’s characterization of service fees as setoffs, further holding that the doctrine of setoff "applies only when banks use customers’ funds to satisfy an ‘independent contract’ and external debt to the bank." In dissent, the minority argued that the garnishment law at issue was one of general applicability that only incidentally affects national banks and thus, the NBA should not preempt plaintiffs’ claims.