California Court of Appeal Reverses Trial Court Decision Holding That State Law Requiring Disclosures on Convenience Checks is Preempted

On May 12, the California Court of Appeal reversed a trial court decision that had found that a state law requiring certain disclosures when offering convenience checks was preempted by the National Bank Act (NBA) and regulations promulgated by the Office of the Comptroller of the Currency (OCC). Parks v. MBNA America Bank, N.A., G040798, 2010 WL 1885983 (Cal. Ct. App. May 12, 2010). In Parks, the plaintiff brought a putative class action alleging that the defendant bank failed to affix certain disclosures to its convenience checks in violation of California law. Based on the Ninth Circuit’s decision inRose v. Chase Bank USA, NA, 513 F.3d 1032 (9th Cir. 2008), the trial court found that the NBA and OCC regulations preempt state laws requiring such disclosures and dismissed the case. Taking a narrower view of preemption and rejecting the Ninth Circuit’s analysis in Rose, the California Court of Appeal reversed. It found that the NBA precluded only those laws that forbid or significantly impair the exercise of power by national banks. The court concluded that the California law did not forbid the use of convenience checks and that, on the limited factual record, it was unclear whether the law significantly impaired the practice, thus necessitating remand. On remand, it instructed the trial court that the California law could only be considered preempted if the bank could establish that it significantly impaired its use of free checks. Likewise, the court held that OCC regulations interpreting the NBA did not preempt the California law. Although the regulations expressly preempted state laws such as the one at issue, the court found that they were invalid because they represented an overbroad interpretation of the NBA.