Washington Federal Court Holds State Law Claims Regarding Real Estate Lending Fees Not Preempted by NBA

On March 9, the U.S. District Court for the Western District of Washington held that the National Bank Act (NBA) and regulations promulgated by the Office of the Comptroller of the Currency (OCC) do not preempt state law claims challenging the legality of fees related to real estate lending. Deming v. First Franklin, No. 09-5418, 2010 WL 891009 (W.D. Wash. Mar. 9, 2010). The plaintiff borrower in Deming alleged that defendants’ "Administration" and "Compliance Review" fees charged in connection with his two mortgage loan transactions were fraudulent, constituted breach of contract, and violated the Washington Consumer Protection Act. The defendants moved to dismiss the complaint, arguing that the borrower’s state-law claims were preempted by the NBA and OCC regulations because the claims sought to impose state-law limitations on the real estate lending activity of a national bank. The court denied the defendants’ motion, holding that “the NBA is not so broad as to cover ‘fees’ in this context.” According to the court, the OCC regulation that the defendants’ argued is controlling law regarding “fees” only involves national bank charges, not real estate loan transactions. Moreover, an OCC regulation permitting national banks to “make real estate loans . . . without regard to state law limitations concerning . . . [p]rocessing, origination, [and] servicing . . . mortgages,” while applicable to real estate lending, does not explicitly define “processing, origination, [and] servicing” to include “fees.” The court found dispositive that, while the NBA regulations are extensive, “the OCC chose not to address fees related to real estate lending specifically,” and therefore federal law did not preempt the borrower’s state-law claims challenging the fees.