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On January 9, the U.S. District Court of Maine entered judgment, determining that Maine law is only partially preempted by the federal Fair Credit Reporting Act (FCRA). The plaintiff, a trade association that represents the major credit reporting agencies, filed the suit as a facial challenge to certain provisions of Maine law, naming the Maine Attorney General and the Superintendent of the Maine Bureau of Consumer Credit Protection as defendants.
According to the complaint, the Maine Medical Debt Reporting Act and the Maine Economic Abuse Debt Reporting Act amended the Maine Fair Credit Reporting Act, adding state-specific restrictions on information inclusion in consumer credit reports. The plaintiff argued that the federal FCRA preempts these provisions and that enforcing these amendments threatens the accuracy, integrity, and reliability of consumer report information.
The court held that while federal law does not “preempt all state laws relating to information contained in consumer reports,” the federal FCRA did preempt provisions of the Maine Medical Debt Reporting Act related to the timing of reporting on veterans’ medical debts by nationwide consumer reporting agencies. The court noted, however, that sections §§ 1681c(a)(7) and (a)(8) of the federal FCRA do not preempt the Maine Medical Debt Reporting Act to the extent that they regulate non-veterans’ medical debt.
Regarding the Maine Economic Abuse Debt Reporting Act, the court held that the provisions related to identity-theft in the federal FCRA preempt state law requirements when identify theft is the only method of economic abuse identified by the consumer. In such cases, the court held that “the blocking of reporting activity on identity-theft-related grounds must proceed according to federal requirements and state requirements are of no effect.” The court noted that its ruling does not “support preemption of Maine’s Economic Abuse Debt Reporting Act insofar as a consumer’s debt is alleged to be the product of economic abuse carried out by means other than or in addition to identity theft.”
On July 24, the Department of Education (DOE) issued a final interpretation to clarify that the Higher Education Act (HEA) preempts state laws and other applicable federal laws “only in limited and discrete respects.” Specifically, the final interpretation revises and clarifies the DOE’s position on the legality of state laws and regulations regarding certain aspects of the federal student loan servicing, including preventing unfair or deceptive practices, correcting misapplied payments, or addressing servicers’ refusals to communicate with borrowers.
The final interpretation supersedes a 2021 DOE interpretation (covered by InfoBytes here), as well as prior statements and interpretations issued by the agency, which addressed state regulation of the servicing of student loans under the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan Program. Following a review of public comments, the DOE modified its interpretation to more clearly describe the standard for conflict preemption, explaining that recent court rulings on the issue of conflict preemption have consistently found that the HEA does not prioritize maintaining uniformity in federal student loan servicing, and that as a result, the courts have upheld the authority of individual states to address fraud and affirmative misrepresentations in the federal student aid program without being hindered by federal preemption. Additionally, the DOE noted that courts have consistently applied conflict preemption to state laws that require licensing of the DOE’s student loan servicers, particularly in limited circumstances where the licensing requirement aims to disqualify a federal contractor from operating within the state. The final interpretation states that it is firmly established that states cannot hinder the federal government's ability to choose its contractors by imposing such licensing requirements, noting that two courts recently concluded that such preemption also applies to a state’s refusal to license federal student loan servicers.
The final interpretation is effective immediately.
On July 13, a panel of the U.S. Court of Appeals for the Ninth Circuit entered an order amending an opinion filed on December 28, 2022 and denied a petition for rehearing en banc in a putative class action accusing a multinational technology company and search engine and its affiliated video-sharing platform of collecting children’s data and tracking their online behavior surreptitiously without parental consent in violation of state law and the Children’s Online Privacy Protection Act (COPPA). The panel unanimously voted against defendant’s en banc rehearing request, commenting that no other 9th Circuit judge has requested a vote on whether to consider the matter en banc.
Claiming the defendant used “persistent identifiers” — which the FTC’s regulations define as information “that can be used to recognize a user over time and across different Web sites or online services” — class members alleged state law claims arising under the constitutional, statutory, and common laws of California, Colorado, Indiana, Massachusetts, New Jersey, and Tennessee. Last December, the three-judge panel reversed and remanded the district court’s dismissal of the suit, disagreeing that the allegations were squarely covered, and preempted, by COPPA (covered by InfoBytes here.) On appeal, the 9th Circuit considered whether COPPA preempts state law claims based on underlying conduct that also violates COPPA’s regulations. The panel determined that “COPPA’s preemption clause does not bar state-law causes of action that are parallel to, or proscribe the same conduct forbidden by, COPPA. Express preemption therefore does not apply to the children’s claims.” The panel further noted that the U.S. Supreme Court and others have long held “that a state law damages remedy for conduct already proscribed by federal regulations is not preempted.”
The panel, however, amended its prior opinion to note that the FTC supports its conclusion that COPPA does not preempt the asserted state law privacy claims on the basis of either express preemption or conflict preemption. At the end of May, at the 9th Circuit’s request, the FTC filed an amicus brief (covered by InfoBytes here) arguing that COPPA does not preempt state laws that are consistent with the federal statute’s treatment of regulated activities. The panel concluded that neither express preemption nor conflict preemption bar the plaintiffs’ claims.
The FTC recently filed an amicus brief in a case on appeal before the U.S. Court of Appeals for the Ninth Circuit, arguing that the Children’s Online Privacy Protection Act (COPPA) does not preempt state laws that are consistent with the federal statute’s treatment of regulated activities. The full 9th Circuit is currently reviewing a case brought against a multinational technology company accused of using persistent identifiers to collect children’s data and track their online behavior surreptitiously and without their consent in violation of COPPA and various state laws.
As previously covered by InfoBytes, last December the 9th Circuit reversed and remanded a district court’s decision to dismiss the suit after reviewing whether COPPA preempts state law claims based on underlying conduct that also violates COPPA’s regulation. At the time, the 9th Circuit examined the language of COPPA’s preemption clause, which states that state and local governments cannot impose liability for interstate commercial activities that is “inconsistent with the treatment of those activities or actions” under COPPA. The opinion noted that the 9th Circuit has long held “that a state law damages remedy for conduct already proscribed by federal regulations is not preempted,” and that the statutory term “inconsistent” in the preemption context refers to contradictory state law requirements, or to requirements that stand as obstacles to federal objectives. The opinion further stated that because “the bar on ‘inconsistent’ state laws implicitly preserves ‘consistent’ state substantive laws, it would be nonsensical to assume Congress intended to simultaneously preclude all state remedies for violations of those laws.” As such, the appellate court held that “COPPA’s preemption clause does not bar state-law causes of action that are parallel to, or proscribe the same conduct forbidden by, COPPA. Express preemption therefore does not apply to the children’s claims.” The defendant asked the full 9th Circuit to review the ruling. The appellate court in turn asked the FTC for its views on the COPPA preemption issue, specifically with respect to “whether the [COPPA] preemption clause preempts fully stand-alone state-law causes of action by private citizens that concern data-collection activities that also violate COPPA but are not predicated on a claim under COPPA.”
In agreeing with the 9th Circuit that plaintiffs’ claims are not preempted in this case, the FTC argued that nothing in COPPA’s text, purpose, or legislative history supports the sweeping preemption that the defendant claimed. According to the defendant, plaintiffs’ state law claims are inconsistent with COPPA and are therefore preempted “because the claims were brought by plaintiffs who were not authorized to directly enforce COPPA, and would result in monetary remedies under state law that COPPA did not make available through direct enforcement.” Moreover, all state law claims relating to children’s online privacy are inconsistent with COPPA’s framework, including those brought by state enforcers, the defendant maintained. The FTC disagreed, writing that the 9th Circuit properly rejected defendant’s interpretation, which would preempt a wide swath of traditional state laws. Moreover, COPPA’s preemption clause only applies to state laws that are “inconsistent” with COPPA so as not to create “field preemption,” the FTC said, adding that plaintiffs’ claims in this case are consistent with the statute.
On March 28, the CFPB issued a determination that state disclosure laws covering lending to businesses in California, New York, Utah, and Virginia are not preempted by TILA. The preemption determination confirms a preliminary determination issued by the Bureau in December, in which the agency concluded that the states’ statutes regulate commercial financing transactions and not consumer-purpose transactions (covered by InfoBytes here). The Bureau explained that a number of states have recently enacted laws requiring improved disclosure of information contained in commercial financing transactions, including loans to small businesses. A written request was sent to the Bureau requesting a preemption determination involving certain disclosure provisions in TILA. While Congress expressly granted the Bureau authority to evaluate whether any inconsistencies exist between certain TILA provisions and state laws and to make a preemption determination, the statute’s implementing regulations require the agency to request public comments before making a final determination. In making its preliminary determination last December, the Bureau concluded that the state and federal laws do not appear “contradictory” for preemption purposes, and that “differences between the New York and Federal disclosure requirements do not frustrate these purposes because lenders are not required to provide the New York disclosures to consumers seeking consumer credit.”
After considering public comments following the preliminary determination, the Bureau again concluded that “[s]tates have broad authority to establish their own protections for their residents, both within and outside the scope of [TILA].” In affirming that the states’ commercial financing disclosure laws do not conflict with TILA, the Bureau emphasized that “commercial financing transactions to businesses—and any disclosures associated with such transactions—are beyond the scope of TILA’s statutory purposes, which concern consumer credit.”
On December 7, the CFPB issued a preliminary determination that New York’s commercial financing disclosure law is not preempted by TILA because the state’s statute regulates commercial financing transactions and not consumer-purpose transactions. The CFPB issued a Notice of Intent to Make Preemption Determination under the Truth in Lending Act seeking comments pursuant to Appendix A of Regulation Z on whether it should finalize its preliminary determination that New York’s law, as well as potentially similar laws in California, Utah, and Virginia, are not preempted by TILA. Comments are due January 20, 2023. Once the comment period closes, the Bureau will publish a notice of final determination in the Federal Register.
Explaining that recently a number of states have enacted laws to require improved disclosures of information contained in commercial financing transactions, including loans to small businesses, in order to mitigate predatory small business lending and improve transparency, the Bureau said it received a written request to make a preemption determination involving certain disclosure provisions in TILA. While Congress expressly granted the Bureau authority to evaluate whether any inconsistencies exist between certain TILA provisions and state laws and to make a preemption determination, the statute’s implementing regulations require the agency to request public comments before making a final determination.
While New York’s Commercial Financing Law “requires financial disclosures before consummation of covered transactions,” the Bureau pointed out that this applies to “commercial financing” rather than consumer credit. The request contended that TILA preempts New York’s law in relation to its use of the terms “finance charge” and “annual percentage rate”—“notwithstanding that the statutes govern different categories of transactions.” The request outlined material differences in how the two statutes use these terms and asserted “that these differences make the New York law inconsistent with Federal law for purposes of preemption.” As an example, the request noted that the state’s definition of “finance charge” is broader than the federal definition, and that the “estimated APR” disclosure required under state law “for certain transactions is less precise than the APR calculation under TILA and Regulation Z.” Moreover, “New York law requires certain assumptions about payment amounts and payment frequencies in order to calculate APR and estimated APR, whereas TILA does not require similar assumptions,” the request asserted, adding that inconsistencies between the two laws could lead to borrower confusion or misunderstanding.
In making its preliminary determination, the Bureau concluded that the state and federal laws do not appear “contradictory” for preemption purposes based on the request’s assertions. The Bureau explained that the statutes govern different transactions and disagreed with the argument that New York’s law impedes the operation of TILA or interferes with its primary purpose. Specifically, the Bureau stated that the “differences between the New York and Federal disclosure requirements do not frustrate these purposes because lenders are not required to provide the New York disclosures to consumers seeking consumer credit.”
On December 7, in a speech before the National Association of Attorneys General (NAAG) meeting, CFPB Director Rohit Chopra discussed the importance state partnerships play in enforcing consumer financial protection laws. In addressing the dangers of federal preemption over state consumer protection measures, Chopra highlighted data covering the 2007-2009 mortgage crisis, in which a 2010 study from the University of North Carolina claimed that “the OCC’s 2004 preemption in markets directly contributed to the sub-prime mortgage crises” and “resulted in deterioration in the quality of, and increase in the default risk for, mortgages originated by OCC lenders in states with strong anti-predatory lending laws.” Chopra warned that while Congress has limited the OCC’s ability to impact state consumer protection enforcement, actions that attempt to preempt stronger state consumer protection laws are “fundamentally wrong.”
To combat this, Chopra said he is considering changes that would expand state attorney general authority to enforce many federal consumer protection laws, including the Consumer Financial Protection Act (CFPA), which prohibits unfair, deceptive, and abusive practices, particularly in situations where “federal protections are stronger than state statutes.” These changes would allow states to pursue action, provided notice is given to the Bureau before filing a complaint. Chopra said he is also exploring ways to provide states more access to remedies available under the CFPA, such as civil money penalties that states could “use to bolster deterrence” in addition to access of the Bureau’s victim relief fund to provide compensation to affected consumers in state enforcement actions (the fund is currently only available in actions involving the Bureau). In the meantime, Chopra stated the Bureau is reviewing notifications from states so the agency can join actions as appropriate.
Chopra also repeated his warning about reining in repeat offenders and reiterated the need for “exploring all possible remedies,” including those directed at senior management and executive levels, to address recidivism and reshape behavior and incentives. Chopra cautioned that companies cannot be allowed “to weave in and out of state and federal regulatory oversight” and that the Bureau and the states need to “look after one another’s orders.” He stated that the Bureau intends to alert states when it “find[s] their orders are being flouted.”
On October 5, a federal judge for the U.S. District Court for the Western District of Pennsylvania remanded a case back to state court, holding that the Federal Reserve’s regulation governing Fedwire transfers does not completely preempt state law claims. The elderly plaintiff alleged that bank employees helped her execute wire transfers totaling $4.3 million to an unknown scam artist, but never questioned whether she “intended, or knew, that the wire transfers were being made through a crypto currency bank to a crypto currency trust company.” The plaintiff sued the bank, claiming that it was negligent in not protecting her from the scheme, and that its advertising claims about keeping client information safe from scams were misleading and violated Pennsylvania’s Unfair Trade Practices and Consumer Protection Law. While recognizing that the plaintiff only asserted state law claims, the bank removed the case to federal court on the ground that the Fedwire system used to make the transfers was governed by the Fed’s Regulation J, and thus state law was preempted.
The court ruled that, while the bank could invoke Regulation J as a defense, the regulation does not expressly provide a private right to seek redress in federal court, nor does the regulation itself allow the bank to remove the case to federal court. “[T]he court concludes that the more persuasive case law reflects that only Congress (not a federal agency in a regulation) can completely preempt a state law cause of action to create removal jurisdiction.” The plaintiff did not assert federal claims, and so “[t]he mere fact that [the bank] intends to assert Regulation J as a preemption defense does not create removal jurisdiction.” Furthermore, the court cited the Fed’s commentary to Regulation J, which said regulations “may pre-empt inconsistent provisions of state law” but do not affect state law where there was no conflict. Since there was no conflict between Regulation J and the Pennsylvania law, the federal regulation does not provide the exclusive cause of action, the court said.
On August 24, the OCC filed a statement of recent decision in support of its motion for summary judgment in an action brought against the agency by several state attorneys general challenging the OCC’s final rule on “Permissible Interest on Loans that are Sold, Assigned, or Otherwise Transferred” (known also as the valid-when-made rule). The final rule was designed to effectively reverse the U.S. Court of Appeals for the Second Circuit’s 2015 Madden v. Midland Funding decision and provide that “[i]nterest on a loan that is permissible under [12 U.S.C. § 85 for national bank or 12 U.S.C. § 1463(g)(1) for federal thrifts] shall not be affected by the sale, assignment, or other transfer of the loan.” (Covered by a Buckley Special Alert.) The states’ challenge argued that the rule “impermissibly preempts state law,” is “contrary to the plain language” of section 85 (and section 1463(g)(1)), and “contravenes the judgment of Congress,” which declined to extend preemption to non-banks. Moreover, the states contended that the OCC “failed to give meaningful consideration” to the commentary received regarding the rule, essentially enabling “‘rent-a-bank’ schemes.” (Covered by InfoBytes here.) Both parties sought summary judgment, with the OCC arguing that the final rule validly interprets the National Bank Act (NBA) and that not only does the final rule reasonably interpret the “gap” in section 85, it is consistent with section 85’s “purpose of facilitating national banks’ ability to operate their nationwide lending programs.” Moreover, the OCC asserted that 12 U.S.C. § 25b’s preemption standards do not apply to the final rule, because, among other things, the OCC “has not concluded that a state consumer financial law is being preempted.” (Covered by InfoBytes here.)
In its August 24 filing, the OCC brought to the court’s attention a recent order issued by the U.S. District Court for the Western District of Wisconsin. As previously covered by InfoBytes, the Wisconsin court reviewed claims under the FDCPA and the Wisconsin Consumer Act (WCA) against 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. Among other things, the court examined whether the state law’s notice and right-to-cure provisions were federally preempted by the NBA, as the original creditor’s rights and duties were assigned to the debt-purchasing company when the account was sold. 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.”
On August 9, the U.S. Department of Education published an interpretation, noting “that there is significant space for State laws and regulations relating to student loan servicing, to the extent that these laws and regulations are not preempted by the Higher Education Act of 1965, as amended (HEA), and other applicable Federal laws.” The interpretation clarifies the Department’s position on the legality of state laws and regulations regarding certain aspects of federal student loan servicing, such as preventing unfair or deceptive practices, correcting misapplied payments, or addressing refusals to communicate with borrowers. According to the interpretation, though federal law preempts state laws that conflict squarely on issues such as timelines, dispute resolution procedures, and collections, the Department believes that it does not preempt state laws regarding affirmative misrepresentations or other measures meant to address improper conduct that could occur in Federal Family Education Loan Program. The Department stated that “[s]tates may consider and adopt additional measures which protect borrowers and do not conflict with Federal law,” and that “such measures can be enforced by the States and the Department can and will work with State officials to root out all forms of fraud, falsehood, and improper conduct that may occur in the Federal student aid programs.” According to the Department, “[t]his action will help states enforce borrower bills of rights or other similar laws to address issues with servicing of federal student loans.” The new interpretation revokes and supersedes the interpretation published in March 2018, “Federal Preemption and State Regulation of the Department of Education’s Federal Student Loan Programs and Federal Student Loan Servicers” (covered by InfoBytes here). Comments are due 30 days after publication in the Federal Register.