So You've Been Preempted-What Are You Going to Do Now?: Solutions for States Following Federal Preemption of State Predatory Lending Statutes

Brigham Young University Law Review, 2004 by Childs, Christopher R

The OCC's order also determined that additional GFLA provisions were preempted under the broader preemption principle stated in 12 C.F.R. § 34.4(b).64 Under this provision, the OCC applied a traditional preemption analysis based upon the United States Supreme Court's preemption jurisprudence.65 Because the GFLA conditioned the exercise of § 371 "upon the approval of the states," provisions of the GFLA were preempted.66 The following GFLA provisions impose requirements that a national bank must satisfy before exercising lending powers granted to it by Congress and are therefore preempted under the § 34.4(b) preemption principle: the "financing of credit insurance and debt suspension and debt cancellation fees," "restrictions on refinancings," the requirement that borrowers receive counseling prior to receiving a loan, restrictions on underwriting standards, limits on home improvement loans, and certain notice requirements.67 Additional provisions are preempted because they interfere with the power of national banks to make real estate loans, including a provision discouraging the use of mandatory arbitration, a provision imposing liability on assignees of loans, a requirement that lenders not encourage default by borrowers, and a requirement that contractors be liable for the loans they produce.68

Finally, the OCC determined that some GFLA provisions are preempted under 12 U.S.C. § 24 (Seventh) and 12 C.F.R. § 7.1004.69 These sections preempt GFLA provisions prohibiting payoff balance and release fees, provisions providing the borrower the right to cure default, and provisions limiting the rate of interest a national bank can charge.70

B. The OTS Preemption Determinations

In an action similar to but preceding the OCC's determination that the GFLA does not apply to national banks or their operating subsidiaries, the OTS also decided that the GFLA does not apply to federally regulated savings and thrift associations.71 The OTS followed a line of reasoning similar to that of the OCC, explaining that, under the Home Owners' Loan Act ("HOLA"), Congress required the OTS "to provide for the organization, incorporation, examination, operation, and regulation of federal savings associations."72 Based on this language, the

OTS has made clear in its lending regulations its intent to carry out this congressional objective by giving federal savings associations maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation. That uniform federal scheme occupies the field of regulation for lending activities. The comprehensiveness of the HOLA language demonstrates that Congress intended the federal scheme to be exclusive, leaving no room for state regulation, conflicting or complimentary.73

OTS regulations promulgated under HOLA give federal savings associations the ability to make loans under federal law without approval or interference from state laws or regulators.74 Thus, "GFLA provisions purporting to regulate the terms of credit, loanrelated fees, disclosures, or the ability of a creditor to originate or refinance a loan, are preempted by federal law from applying to federal savings associations."75