On April 23, 2019, the Ninth Circuit approved a request for an interlocutory appeal in McShannock v. JP Morgan Chase Bank N.A.,[1] to resolve a split amongst the district courts on the reach of preemption under the Home Owners Loan Act (“HOLA”), which governs federal savings banks (“FSBs”). Given that the majority of cases involving HOLA preemption arise in the Ninth Circuit, other courts look to it for guidance. As a result, the outcome in this appeal could redefine the scope of HOLA preemption nationwide.
The issue on appeal is whether HOLA preemption for a loan originated by an FSB applies to conduct occurring after the loan is transferred to a national bank. Currently, district courts within the Ninth Circuit “have taken three distinct positions on this issue.”[2]
- The first position is that HOLA preemption attaches to loans originated by FSBs and extends to all subsequent loan-related conduct (even if the loan was transferred to a non-FSB such as a national bank).
- The second position is that that HOLA preemption cannot be asserted by a non FSB at all.
- The third position is that HOLA preemption attaches to loans originated by FSBs but extends only to loan-related conduct by an FSB and not all subsequent loan related conduct.
While there are three distinct positions, the fight in the interlocutory appeal will be over whether the first or third position is correct. As the district court in McShannock explained, the majority of district courts in the Ninth Circuit have taken the first position, but in the last several years, “the third position represents the current trend of court rulings.”[3]
Advocates for the first position argue that it is the majority approach, that OTS Opinion Letters indicate that HOLA preemption should extend to all subsequent loan-related conduct, and that the OTS’s interpretation of HOLA is consistent with the statute’s rationale and legislative purpose.[4] Also, a number of courts have followed the first position where the loan agreement for the loan at issue expressly indicates that it would be governed by HOLA, thus incorporating HOLA preemption into the terms of loan.
On the other hand, advocates for the third position argue that it has been “the virtually universal trend . . . [for] the last four years,”[5] that HOLA’s legislative history does not indicate that Congress intended HOLA preemption to apply sold to non-FSB entities, and that this lack of Congressional intent undermines the persuasiveness of the OTS’s interpretation of HOLA.[6]
Reviewing these arguments, the McShannock district court adopted the third position. If the McShannock decision is upheld on appeal, it will cement a major shift in the Ninth Circuit’s HOLA preemption jurisprudence, which could have far-reaching implications on cases across the country involving loans originated by FSBs.
Alston & Bird LLP will continue to track developments in this case.
[1] Case No. 19-80030 (Dkt. Entry 15) (9th Cir. Apr. 23, 2019).
[2] See Kenery v. Wells Fargo, N.A., No. 5:13-CV-2411-EJD, 2014 WL 129262, at *3 (collecting cases and describing in detail the split among the district courts).
[3] McShannock v. JP Morgan Chase Bank N.A., 354 F. Supp. 3d 1063, 1075 (N.D. Cal. 2018).
[4] See Metzger v. Wells Fargo Bank, N.A., 2014 WL 1689278 (C.D. Cal. Apr. 28, 2014) (explaining the various rationales for attaching HOLA preemption to FSB-originated loans for their duration).
[5] McShannock, 354 F. Supp. 3d at 1074 (quoting Plaintiffs’ briefing at 6).
[6] See id. at 1074–77 (explaining the various rationales for attaching HOLA preemption only to loan-related conduct by an FSB rather than all subsequent loan-related conduct).