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NBA PREEMPTS CALIFORNIA CONVENIENCE CHECK DISCLOSURE LAW

The United States Court of Appeals for the Ninth Circuit found that the National Bank Act (NBA) preempts the "convenience check" disclosure requirements of California Civil Code Section 1748.9, insofar as those requirements apply to national banks. Rose v. Chase Bank USA, N.A., No. 05-56850 (9th Cir. Jan. 23, 2008). 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.

According to plaintiffs, when the defendant bank mailed its credit card holders a convenience check, it did not disclose that use of the check will constitute a charge against the credit account or whether the finance charges would be triggered immediately upon the use of the check. Plaintiffs brought three causes of action against the bank under California's Unfair Competition Law based on the bank's alleged failure to make these disclosures pursuant to Section 1748.9.

The district court found that the NBA and the 0CC regulations preempted plaintiffs claims and granted the bank's motion for judgment on the pleadings.

In affirming the lower court's ruling, the Court of Appeals reasoned that (i) the NBA specifically enumerates, without limitation, as one "incidental power" of a national bank the power to "loan money on personal security" and (ii) the power to "loan money on personal security" is the power pursuant to which the bank extended credit to its cardholders using convenience checks. Citing to the Barnett Bank and Franklin cases, the court concluded that where, as here, Congress has explicitly granted a power to a national bank without any indication that Congress intended that the power be subject to local restriction, Congress is presumed to have intended to preempt state laws such as Section 1748.9. See Barnett Bank of Marion County, 517 U.S. 25, 33-35 (1996); Franklin Nat'l Bank of Franklin Square v. New York, 347 U.S. 373, 378 (1954).

The Court of Appeals rejected the plaintiffs' contention that two of their three claims (i.e., that the bank committed "deceptive" or "unfair business practices) should survive a finding that Section 1748.9 is preempted because those claims are not predicated on a violation of Section 1748.9. The court stated that the proper inquiry is whether the legal duty that is the predicate of plaintiffs' state law claim falls within the preemptive power of the NBA or regulations promulgated thereunder.

The Court of Appeals also rejected the plaintiffs' contention that it should remand the case to the district court for further discovery regarding the issue of whether the state law constitutes a "significant" impairment or interference with the purposes of the NBA. The court asserted in a footnote that no amount of discovery would change the central holding that Congress intended for the NBA to preempt state restrictions on national banks such as Section 1748.9.

Judy Scheiderer and Margaret Stolar