Recently, a California appellate court concluded disclosures required by California Civil Code Section 1748.9 are not preempted as to a national bank. Parks v. MBNA America Bank, N.A., 2010 WL 1885983 (Cal. App. 4 Dist., May 12, 2010). The court reached its conclusion by finding that Section 1748.9 (i) does not, on its face, significantly impair federally authorized powers under the National Bank Act and (ii) is not preempted by the Office of the Comptroller of the Currency’s preemption regulation at Section 7.4008(d).

    Section 1748.9 provides that a credit card issuer that extends credit to a cardholder through the use of a preprinted check must disclose on the front of an attachment affixed to the check (i) that use of the check will constitute a charge against the credit account, (ii) the annual percentage rate and calculation of finance charges associated with the use of the check and (iii) whether the finance charges are triggered immediately upon use of the check. Plaintiff brought a class action against MBNA, a national bank, alleging that it had issued convenience checks that did not contain the required disclosures.

    Following the Ninth Circuit Court of Appeals’ decision in Rose v. Chase Bank USA, N.A., 513 F.3d 1032 (9th Cir. 2008), which found Section 1748.9 preempted as to national banks by the National Bank Act (NBA), the trial court granted judgment on the pleadings to MBNA. [See January 25, 2008 DTS Alert discussing the Rose decision.] In examining the trial court’s decision, the appellate court reasoned that it must affirm the judgment if it agreed that the result in Rose follows from the United States Supreme Court precedent regarding preemption or (ii) that Section 7.4008(d) is a validly enacted regulation that preempts Section 1748.9.

    After discussing the Supreme Court’s findings in Franklin Nat’l Bank of Franklin Square v. People, 347 U.S. 373 (1954), Barnett Bank of Marion County, 517 U.S. 25 (1996) and Watters v. Wachovia Bank, N.A., 550 U.S. 1 (2007), the appellate court concluded that according to Supreme Court conflict preemption precedents, the NBA precludes states from “forbidding, or impairing significantly,” the exercise of a power explicitly granted to national banks by the NBA. While the court found that Section 1748.9 does not “forbid” the exercise of a banking power, the question remains as to whether it “significantly impairs” the exercise of the power to lend money on personal property. The court concluded that it could not as a matter of law determine that the impairment was significant and that a national bank claiming preemption must make a factual showing that the disclosure requirement significantly impairs the exercise of the relevant power. Because of the procedural posture of the case, MBNA had not yet had the chance to present facts showing significant impairment and the court indicated that it need not establish a “yardstick” for determining what constitutes significant impairment.

    Turning to the OCC’s preemption rule at Section 7.4008, which expressly preempts state laws regarding “disclosure and advertising, including laws requiring specific statements, information, or other content to be included in . . . credit-related documents,” the court addressed the question of whether the OCC’s rule, which essentially bans all state disclosure requirements with respect to national banks, is substantively valid. Citing to the recent Supreme Court decision in Cuomo v. Clearing House Ass’n L.L.C., 129 S.Ct. 2710 (2009) and to California Supreme Court precedent, the appellate court found that Section 7.4008 does not suggest a reasonable attempt to describe and interpret the reach of NBA precedent

    In Cuomo’s wake, we may see more courts winnowing out federal preemption arguments and a renewed interest in state laws among financial institutions.

    • Judy Scheiderer and Margaret Stolar