Source: https://www.severson.com/consumer-finance/4th-cir-finds-no-nba-pre-emption-of-state-law-car-risc-disclosure-obligations-related-to-debt-cancellation-agreements/
Timestamp: 2019-12-10 15:34:30
Document Index: 773930181

Matched Legal Cases: ['§ 12', '§ 12', '§ 12', '§ 37', '§ 12', '§ 37', '§ 37']

4th Cir. Finds No NBA Pre-emption of State Law Car RISC Disclosure Obligations Related to Debt Cancellation Agreements | Severson & Werson
In Decohen v. Capital One, N.A. — F.3d —-, 2012 WL 6685767 (4th Cir. 2012), the Fourth Circuit Court of Appeals found no NBA/OCC pre-emption of Maryland’s debt cancellation agreement laws as related to an automobile RISC where the National Bank was an assignee as opposed to the original lender. But, the Court of Appeals went farther, too, find no conflict pre-emption nor that the NBA and OCC implementing regulations occupied the field with regard to debt cancellation agreements. The Court of Appeals framed the issue as follows:
This appeal arises out of an allegation by Appellant Philip Decohen that he paid for something that he did not receive. The question presented is whether the Maryland law that protected his expectation is enforceable. Decohen bought a used Chrysler Pacifica and fi-nanced it with a loan from a Maryland car dealer, Nation Auto of Marlow Heights (“Nation Auto”). The amount financed included a $600 charge for a “debt cancellation agreement.” Under the Maryland Credit Grantor Closed End Provisions (“CLEC”), Md.Code Ann., Com. Law § 12–1001 et seq., such an agreement requires a lender to cancel the remaining loan balance when a car is totaled and the insurance payout does not cover the entire outstanding balance. But that did not happen here. Decohen’s car was to-taled, but Nation Auto had assigned his loan to Ap-pellee Capital One, N.A. (“Capital One”), and CapitalOne argues that it does not have to cancel the remaining loan balance because the National Bank Act (“NBA”) and federal regulations preempt Maryland’s CLEC law. Decohen filed this putative class action, asserting claims for, inter alia, breach of contract and violation of the CLEC. The district court was persuaded that the NBA and federal regulations preempt the CLEC, and that Decohen failed to state a claim for breach of contract; it therefore granted Capital One’s motion to dismiss. For the reasons set forth below, we conclude that the district court erred. Accordingly, we vacate the judgment and remand for further proceedings consistent with this opinion. Decohen purchased a used Chrysler Pacifica from Nation Auto in Temple Hills, Maryland, on September 29, 2007, for $22,669, financing the purchase with a Retail Installment Sale Contract (“RIC”). The RIC lists Decohen as the “Buyer” and Nation Auto as the “Creditor–Seller.” J.A. 42. The total price of the vehicle included a $600 charge for an “Optional Debt Cancellation Agreement.” J.A. 43. . . .Under Maryland’s CLEC law, the only valid debt cancellation agreement that can be financed as part of the purchase of a vehicle is one that pays off the en-tire remaining loan balance in the event of a total loss. Md.Code Ann., Com. Law §§ 12–1001(h), 12–1005(c)(1). The law defines a “debt cancellation agreement” as “an agreement between a credit grantor and a borrower which provides for cancellation of the remaining loan balance in the event of theft or total destruction of the collateral for the loan minus the proceeds of any insurance maintained on the collateral for the loan….” Id. § 12–1001(h). The debt cancellation agreement that was part of Decohen’s contract did not comply with Maryland law.
The Court of Appeals for the Fourth Circuit found Maryland’s debt cancellation laws not to be preempted.
Having carefully considered the matter in light of the plain language and purpose of the above-described regulatory regime and our precedent, we conclude, first, that the CLEC provisions regarding debt cancellation agreements are not expressly pre-empted by federal law when the agreements are part of credit contracts originated by a local lender and assigned to a national bank. The OCC regulations explicitly concern debt cancellation agreements en-tered into by national banks. See 12 C.F.R. § 37.1(c) (“This part applies to debt cancellation contracts and debt suspension agreements entered into by national banks in connection with extensions of credit they make.”). Undoubtedly, if Capital One had directly loaned Decohen the money to purchase his vehicle, and that loan included a debt cancellation agreement, it would be governed by federal regulations. That is not the case before us. Here, Capital One did not loan Decohen the money to purchase his vehicle; Nation Auto did, and then Nation Auto assigned the loan to Capital One. The RIC identifies Decohen as the “[b]uyer” and Nation Auto as the “[c]reditor.” J.A. 42. Federal regulations of national banks do not encompass such a situation and thus do not expressly preempt the CLEC’s regulation of debt cancellation agreements originated by local lenders and assigned to national banks. We further conclude that Congress has not occupied the field with regard to debt cancellation agreements. The OCC regulations concern only debt cancellation agreements entered into by national banks. This leaves room for state regulation of debt cancellation agreements entered into by entities other than national banks (such as here, a car dealer) and of agreements assigned to national banks. Congress has not spoken on those two matters in the NBA, and the OCC’s regulations are not so pervasive as to crowd out any possible state regulations. See Epps, 675 F.3d at 323 (“ ‘[T]he OCC has explicitly avoided full field preemption in its rulemaking and has not been granted full field preemption by Congress.’ “ (quoting Aguayo, 653 F.3d at 921–22)). Finally, we conclude that the CLEC is not conflict preempted by federal banking regulations. “Conflict preemption occurs either when it is physically impossible to comply with both the federal and the state laws or when the state law stands as an obstacle to the objective of the federal law.” Fla. State Conf. of the NAACP v. Browning, 522 F.3d 1153, 1167 (11th Cir.2008). The CLEC requires a debt cancella-tion agreement to cancel all of the “remaining” debt, Md.Code Ann., Com. Law § 12–1001(h), while federal regulations require a debt cancellation agreement to cancel “all or part of” the remaining debt, 12 C.F.R. § 37.2(f). It is not physically impossible to comply with both laws. A bank that chooses to cancel all of a customer’s remaining debt would be in com-pliance with both the CLEC and federal regulations. Moreover, the state law does not stand as an obstacle to the objective of the federal law. The purpose of the OCC regulation of debt cancellation agreements “is to ensure that national banks offer and implement such contracts and agreements consistent with safe and sound banking practices, and subject to appropri-ate consumer protections.” 12 C.F.R. § 37.1(b). The CLEC does not inhibit that purpose; indeed, it furthers it.
GAP/Debt Cancellation Agreements National Bank Act OCC Pre-emption