Rose v. Chase Bank -- Preemption of State UDAP Laws
Robert M. Jaworski examines the 9th Circuit decision in Rose v. Chase Bank holding that Chase's failure to make certain disclosures under the California Convenience Check Law did not violate California's Unfair Competition Law since it was preempted by the National Bank Act, and tries to reconcile it with a seemingly contrary holding by the District Court in Jefferson v. Chase Home Finance.
Mr. Jaworski writes: In support of its motion to dismiss the complaint, Chase argued that, as a national bank, it was empowered under the National Bank Act (“NBA”) and applicable regulations of the federal Office of the Comptroller of the Currency (“OCC”) to “make, sell, purchase, participate in, or otherwise deal in [non-real estate secured] loans …, subject to such terms, conditions, and limitations prescribed by the [OCC] and any other applicable Federal law.” 12 C.F.R. § 7.4008(a). It further argued that, with regard to the applicability of state law to a national bank engaged in non-real estate lending, OCC regulations provide that state laws which “obstruct, impair, or condition a national bank’s ability to fully exercise its Federally authorized non-real estate lending powers are not applicable to national banks,” and, more specifically, that national banks may make non-real estate loans without regard to state laws concerning “[d]isclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other creditrelated documents.” 12 C.F.R. § 7.4008(d).
The district court found Chase’s argument compelling and dismissed the complaint in its entirety. In affirming the district court’s dismissal, the Ninth Circuit first determined that Chase could not be found to have violated the UCL by having committed an “unlawful” business practice. In this regard, it found that the CA Convenience Check Law was clearly preempted by the NBA and applicable OCC regulations and, hence, a violation of that law by Chase could not be deemed to be “unlawful.”
Plaintiffs tried to salvage its other claims, arguing that they should survive because they were not predicated upon a finding that Chase’s failure to provide the disclosures required by the CA Convenience Check Law was “unlawful.” Those claims, they said, alleged that Chase’s failure to provide the required disclosures constituted a “fraudulent” or “deceptive and unfair” business practice which, considered by itself and without regard to the CA Convenience Check Law, violated the UCL. Although not articulated in the decision, plaintiffs presumably asserted that in these regards at least the UCL is a law of general applicability with which all businesses in California, not just lenders or banks, must comply, and that it does not significantly impair Chase’s ability to exercise its lending powers. It would therefore follow that plaintiffs second and third claims under the UCL should not be deemed preempted by the NBA.
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