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Financial Services Law Insights and Observations

HOLA preemption question moves to 9th Circuit

Courts Mortgages Escrow HOLA Ninth Circuit Appellate State Issues


On February 27, the U.S. District Court for the Northern District of California granted a national bank’s request to certify for interlocutory appeal whether state law claims involving interest on escrow accounts were preempted by the Home Owners Loan Act (HOLA). As previously covered by InfoBytes, three plaintiffs filed suit against the bank, arguing that it must comply with a California law that requires mortgage lenders to pay interest on funds held in a consumer’s escrow account, following the U.S. Court of Appeals for the 9th Circuit’s decision in Lusnak v. Bank of America. The bank moved to dismiss the action, arguing, among other things, that the claims were preempted by HOLA. The court acknowledged that HOLA preempted the state interest law as to the originator of the mortgages, a now-defunct federal thrift, but disagreed with the bank’s assertion that the preemption attached throughout the life of the loan, including after the loan was transferred to a bank whose own lending is not covered by HOLA. Specifically, the court looked to the legislative intent of HOLA and noted it was unclear if Congress intended for preemption to attach through the life of the loan, but found a clear goal of consumer protection.

By granting the motion for interlocutory appeal, the court noted that the frequency with which the HOLA issue arises, “weighs in favor of allowing the Ninth Circuit to resolve this question.” Moreover, the court cited to a recent 9th Circuit case, in which the appellate court recognized HOLA preemption as a “novel legal issue.” The court also temporarily granted the bank’s request to stay the proceedings pending the resolution of the 9th Circuit action.

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