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Financial Services Law Insights and Observations

West Virginia Federal Court Rejects HOLA Preemption of Certain State Law Claims Pertaining to Late Charges

State Issues

On April 19, the U.S. District Court for the Northern District of West Virginia held that the Home Owner’s Loan Act (HOLA) does not preempt certain state law claims pertaining to late charges made by a federal thrift. Padgett v. OneWest Bank, FSB, No. 3:10-cv-08, 2010 WL 1539839 (N.D.W. Va. Apr. 19, 2010). In a prior bankruptcy, the plaintiff borrower and his lender filed an agreed order treating the borrower as current and moving his one month arrearage to the end of his loan obligation. The defendant, a federal thrift, acquired that lender and allegedly began to treat the borrower as one month late, charging him late fees and reporting his account as delinquent. The borrower sued the federal thrift for, among other things, violations of the West Virginia Consumer Credit and Protection Act (WVCCPA) and breach of contract for the alleged assessment of late charges and for defamation for the alleged improper credit reporting. The federal thrift argued that HOLA preempted the borrower’s claims, however, the court denied the motion to the extent it sought to preempt the borrower’s WVCCPA and breach of contract claims based on the late charges. According to the court, these claims were not preempted because they did not seek to regulate the terms of the loan agreement – an action that HOLA would preempt – but instead sought to hold the federal thrift to the terms of that agreement. The court also denied the federal thrift’s motion with respect to the claims of defamation. Relying on In re Ocwen Loan Servicing, LLC Mortg. Servicing Litig., 491 F.3d 638 (7th Cir. 2007), the court held that the “common law claim of defamation is ‘a good example of [a] claim that the [HOLA] does not preempt,’” noting that HOLA does not deprive a defamed consumer his basic state common law remedy. According to the court, “prohibiting . . . federal savings banks from defaming consumers certainly has no more than an incidental effect on lending operations.”