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Financial Services Law Insights and Observations

Ninth Circuit Affirms Dismissal of RESPA, California UCL Claims Against National Bank

State Issues

On March 9, the U.S. Court of Appeals for the Ninth Circuit affirmed that (i) overcharges do not violate Section 8(b) of the Real Estate Settlement Procedures Act (RESPA), and (ii) National Bank Act and Office of the Comptroller of the Currency (OCC) regulations preempt various provisions of the California Unfair Competition Law (UCL). Martinez v. Wells Fargo Home Mortgage, Inc., No. 07-17277, 2010 WL 779549 (9th Cir. Mar. 9, 2010). In Martinez, the plaintiffs claimed that the defendant bank charged excessive fees for the refinancing of their home mortgage loans. The plaintiffs alleged that the overcharges violated RESPA, while the overcharge and mark-up violated the UCL. Regarding the RESPA claim, the court found that “Section 8(b) does not prohibit charging fees, excessive or otherwise, when those fees are for services that were actually performed.” Although the U.S. Department of Housing and Urban Development (HUD) had issued a policy statement interpreting Section 8(b) as prohibiting overcharges, the court noted that weight is given to an agency’s interpretation of a statute only if the court concludes that the statute is “silent or ambiguous with respect to the specific issue.” In rejecting HUD’s interpretation, the court found that “Section 8(b) is unambiguous and does not extend to overcharges,” and that further analysis was not warranted. Regarding the UCL claims, the plaintiffs alleged that the bank (i) “committed ‘unfair’ competition by overcharging underwriting fees and marking up tax service fees,” (ii) “engaged in ‘fraudulent’ practices by failing to disclose actual costs of its underwriting and tax services, and (iii) engaged in “unlawful practices” by overcharging and marking-up the refinancing fees, as well as failing to disclose such costs. As to the allegations of “unfair” and “fraudulent” conduct, the court found that these claims were preempted by the National Bank Act (NBA) and regulations promulgated by the OCC. Under the NBA, federally chartered banks are subject to generally applicable state laws only to the extent such laws do not conflict with the general purposes of the NBA, which include real estate lending powers as part of the general powers of a national bank. OCC regulations provide that national banks have the power to set fees, and that national banks may make real estate loans under the NBA and the regulations without regard to state-law limitations on disclosures, advertising and processing or origination of such loans. As a result, the court held that federal law preempted the plaintiffs’ claims of “unfair” and “fraudulent” practices in connection with overcharges, mark-ups, and disclosure of fees. Finally, the court held that the alleged predicate violation to establish a claim of “unlawful practices” under the UCL – in this case, a failure to disclosed “actual costs” on the HUD-1 Settlement Statement – was either not unlawful or preempted by the NBA.

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