West Virginia Federal Court Holds That A State Debt Collection Law Is Not Preempted Under Dodd-Frank

On October 13, the U.S. District Court for the Southern District of West Virginia held that the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank or Act) did not preempt provisions of the West Virginia Consumer Credit and Protection Act (WVCCPA) that regulate debt collection activities. Cline v. Bank of America, N.A., Case No. 2:10-1295 (S.D. W. Va. Oct. 13, 2011). Plaintiff's complaint alleged that national bank defendant harassed him in violation of the WVCCPA in order to collect on a motorcycle loan. Defendant moved for a judgment on the pleadings, arguing that the WVCCPA was preempted by the National Bank Act (NBA) and a preemption regulation promulgated by the Office of the Comptroller of the Currency (OCC). The court noted that Dodd-Frank amended the NBA by providing that a state consumer financial law is preempted if in accordance with Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996), the state law prevents or significantly interferes with the exercise of a national bank power. The court stated that the preemption standard set forth in Barnett Bank is whether the state law (i) imposes an obligation on a national bank in direct conflict with federal law or (ii) is an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. The court also noted that the OCC amended its preemption regulation pursuant to Dodd-Frank to clarify that its focus is no longer on whether a state law obstructed, impaired, or conditioned a national bank power or more than incidentally affected the exercise of that power, but whether the state law is preempted based on an application of Barnett Bank. The court next discussed whether the preemption provisions contained in Dodd-Frank applied to the instant case, because the Act provides that it does not alter or affect OCC regulations governing the applicability of state law to any contract entered on or before July 21, 2010. The court concluded that this Dodd-Frank provision was intended only to preserve existing contracts by national banks, and not to protect national banks from state consumer protection laws. Therefore, the Dodd-Frank preemption provisions applied to the instant action. The court then found that Dodd-Frank's preemption provisions only concerned state consumer financial laws, and that if a state law is not a state consumer financial law, the state law is not preempted by the NBA.* The court held that the state law protects West Virginia residents from unfair and abusive collection practices, and thus is not a consumer financial law. Accordingly, the court concluded that none of plaintiff's claims were preempted. The court then analyzed whether plaintiff's claims were preempted under the OCC's amended regulation. The court stated that the OCC's new regulation tied preemption to Barnett Bank, and that in this case, the West Virginia law did not impose an obligation on defendant in direct conflict with federal law or stand as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. The court thus denied defendant's motion.