A California Court of Appeals found that triable issues of material fact existed in regard to a consumer’s state law claim against World Savings and Loan Association, a federal savings bank, under the California Consumer Credit Reporting Agencies Act. Hussey‑Head v. World Savings and Loan Ass’n, No. B160853 (Cal. Ct. App. Aug. 27, 2003). The court rejected the bank’s argument that even if triable issues of material fact existed, the state law restrictions on providing information to credit reporting agencies were preempted by 12 C.F.R. § 560.2.

    The California law prohibits the furnishing of information on a specific transaction or experience to any consumer credit reporting agency if the person knows or should know the information is incomplete or inaccurate. Cal. Civ. Code § 1785.25(a). The statute also contains a disclosure requirement. Id. § 1785.26(b), (c).

    The Office of Thrift Supervision regulation (Section 560.2) provides that the OTS occupies the entire field of lending regulations for federal savings banks. Section 560.2(b) lists examples of preempted state laws, including laws purporting to impose requirements regarding “access to and use of credit reports,” “disclosure and advertising” and “processing, origination, servicing, sale of, or participation in, mortgages.” 12 C.F.R. § 560.2(b)(8), (9), (10).

    Despite the specific references in Section 560.2(b) to state laws that relate to the California law at issue, the court held that the California law was not preempted by Section 560.2 because the California law was not a lending regulation and the bank voluntarily reports credit information to credit reporting agencies. The court found that the law did not govern how the bank ran its lending program. Rather, the court found that the law attempted to insure that information reported voluntarily was reported in a fair and accurate manner. The court held that as the state law restriction does not come into play until after a loan is made and it does not affect the manner in which the lender services or maintains the loan, it is not inconsistent with federal law. The court also noted that the statute does not on its face purport to regulate federal savings banks and is not specifically directed toward them. The court concluded that any effect the state law had on the bank was “incidental” rather than material and was the result of the bank’s voluntary action to report information to credit reporting agencies.

    Under the analysis used by the California court, the scope of state laws preempted by Section 560.2 would be narrower than generally understood. The court characterized the reporting of information to credit reporting agencies as voluntary and this was a significant factor in the court’s analysis. Many aspects of a lending program, however, represent voluntary choices by a lender. The court also adopted a narrow view of “lending regulations.”

    Jeff Langer and Elizabeth Anstaett