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Financial Services Law Insights and Observations

District Court: State law right-to-cure provisions preempted by National Bank Act

Courts Debt Collection FDCPA State Issues Consumer Finance National Bank Act


On August 4, the U.S. District Court for the Western District of Wisconsin granted defendants’ motion for partial summary judgment in an action alleging claims under the FDCPA and the Wisconsin Consumer Act (WCA). The defendants were a debt-purchasing company and a law firm hired by the company to recover outstanding debt and purported late fees on the plaintiff’s account in a separate state-court action. After the plaintiff failed to make payments on his outstanding balance, the original creditor (a national bank) charged late fees and mailed him a “right to cure” letter advising him of the minimum payment due and the deadline to make the payment. The account was eventually sold to the debt-purchasing company after the plaintiff failed to make any minimum payments. The law firm sent the plaintiff two letters on behalf of the debt-purchasing company, one which outlined his right to dispute the debt and one which provided a “notice of right to cure default.” A small claims action was filed against the plaintiff in state court, in which the plaintiff argued for dismissal, contending in part that the notice of default failed to itemize delinquency charges as required under Wisconsin law. The plaintiff then filed this suit in federal court alleging violations of the FDCPA and the WCA, claiming that the defendants “falsely represented the status of his debt in violation of § 1692e by purporting to have properly accelerated his debt and filed suit against him despite [the plaintiff] never being provided an adequate right to cure letter pursuant to Wisconsin law.”

First, in reviewing whether the plaintiff had standing to sue, the court determined that the “costs, time, and energy” incurred by the plaintiff to defend himself in the state-court action amounted to a “concrete injury in fact” that established his standing in the federal-court action. However, upon reviewing the WCA’s right-to-cure provisions as the basis for the plaintiff’s claims that the defendants violated federal and state laws by allegedly falsely representing that they could accelerate the plaintiff’s debt and sue him, the court examined whether the state law’s notice and right-to-cure provisions were federally preempted by the National Bank Act (NBA), as the original creditor’s rights and duties were assigned to the debt-purchasing company when the account was sold. The court determined that while the WCA right-to-cure provisions “do relate in part to debt collection,” they also “go beyond that by imposing conditions on the terms of credit within the lending relationship.” The court ultimately concluded that the WCA provisions “are inapplicable to national banks by reason of federal preemption,” and, as such, the court found “that a debt collector assigned a debt from a national bank is likewise exempt from those requirements” and was not required to send the plaintiff a right-to-cure letter “as a precondition to accelerating his debt or filing suit against him.”

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