Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • HOLA preemption question moves to 9th Circuit

    Courts

    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.

    Courts Mortgages Escrow HOLA Ninth Circuit Appellate State Issues

    Share page with AddThis
  • District Court rejects dismissal bid for California interest on escrow class action

    Courts

    On December 7, the U.S. District Court for the Northern District of California denied a bank’s motion to dismiss a putative class action alleging the bank violated the California Unfair Competition Law (UCL) by not paying interest to residential mortgagors on funds held in escrow accounts, as required by California law. The three plaintiffs filed the complaint against the bank after the March decision by the U.S. Court of Appeals for the 9th Circuit in Lusnak v. Bank of America, which held that a national bank must comply with a California law that requires mortgage lenders to pay interest on the funds held in a consumer’s escrow account. (Previously covered by InfoBytes here.) The plaintiffs argued that the 9th Circuit decision requires the bank to comply with the California law requiring interest on funds held in escrow.

    In response, the bank filed a motion to dismiss, or in the alternative to stay the case, on the basis that the plaintiffs failed to provide the bank with notice and an opportunity to cure alleged misconduct prior to judicial action as required by the mortgage deed, and that the plaintiff’s claims were preempted by the Home Owners Loan Act (HOLA). The court rejected these arguments, finding that the plaintiff’s failure to comply with the ambiguous provisions in the mortgage deed do not foreclosure their claims, concluding “[t]o deprive Plaintiffs of recourse to their statutory rights based on an ambiguous contractual provision would also frustrate the consumer protection purposes of those statutes.” As to the HOLA argument, 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 is 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. Therefore, the court concluded that “[a]llowing preemption may run contrary to HOLA's purpose and could result in a gross miscarriage of justice” by depriving homeowners of state law protections.

    Additionally, the court rejected as moot the alternative request to stay the case pending the Supreme Court’s resolution of Lusnak, because the Supreme Court denied the petition of writ in that case in November (covered by InfoBytes here).

    Courts Mortgages Escrow National Bank Act HOLA Dodd-Frank Ninth Circuit Appellate

    Share page with AddThis
  • Northern District of California Decision Highlights Growing Divide Within Ninth Circuit Over HOLA Preemption

    Lending

    On January 14, the U.S. District Court for the Northern District of California held that the federal Home Owners’ Loan Act (HOLA) preempts all of a borrower’s state law claims related to a loan originated by a thrift but held by a national bank at the time the suit was filed. Kenery v. Wells Fargo, N.A., No. 13-2411, 2014 WL 129262 (N.D. Cal. Jan. 14, 2014). In this case, a delinquent borrower sued a national bank loan servicer after the bank allegedly wrongly denied the borrower’s loan modification application and moved to foreclose on the property. The servicer argued that all of the borrower’s state law claims were preempted by HOLA, which provides for preemption of state laws purporting to impose requirements regarding the terms of credit of a loan and the processing, origination, sale, or servicing of mortgages. The borrower asserted that HOLA preempts state laws only with regard to thrifts and does not apply to the activities of the current note holder national bank, notwithstanding that the loan was originated by a thrift. The court explained that the Ninth Circuit has yet to provide clear guidance on the issue, and district courts within the circuit have diverged, holding that (i) HOLA  preemption applies to all conduct related to the loan, whether by a federal thrift or a national bank, (ii) HOLA preemption does not apply to national banks, or (iii) HOLA preemption depends on whether the action at issue was taken by the federal thrift or the national bank, with only claims deriving from thrift actions subject to federal preemption. Here, the court, based on prior Northern District of California decisions, held that HOLA preemption applies to all conduct related to a loan originated by a thrift and dismissed the borrowers state law claims, with leave to amend certain of those claims.

    Mortgage Origination Mortgage Servicing HOLA

    Share page with AddThis

Upcoming Events