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OHIO COURT FINDS RISA PROVISION NOT PREEMPTED BY NATIONAL BANK ACT

The U. S. District Court for the Northern District of Ohio held that the Ohio Retail Installment Sales Act is not preempted by the National Bank Act. Blanco v. KeyBank USA, N.A., Case No. 04 CV 230 (N.D. Ohio Sept. 30, 2005). The decision is contrary to a decision last year by the U. S. District Court for the Northern District of Ohio finding that the National Bank Act and corresponding federal regulations preempted the Ohio RISA. Abel v. KeyBank USA, N.A., Case No. 03 CV 524 (N.D. Ohio March 4, 2004). The Blanco court acknowledged the Abel decision, but stated that the court was not bound by the decision and respectfully disagreed with the Abel court.

The Blanco case arose out of a student loan offered by a national bank (KeyBank USA, N.A.) to finance a career training education program. The education academy closed prior to the plaintiff receiving the education that the loan was intended to finance. The loan was pooled with other loans and sold to other national banks. The RISA provision at issue permits consumers to assert against a holder of a purchase money loan installment note defenses the consumer has against the seller.

The Blanco court found that the RISA provision does not directly control or prohibit national bank activity, but does incidentally encourage lenders to engage in closer risk analysis in purchasing consumer notes. The court found the RISA not to obstruct, impair or condition a national bank’s ability to fully exercise its powers to negotiate promissory notes. As the court found the state law to only incidentally affect national bank’s business transactions, the court concluded it was not the type of law Congress intended to preempt.

The court also found that because consumer protection law is a field traditionally regulated by the states, compelling evidence of an intention to preempt is required. As additional support for its decision, the court considered the Federal Trade Commission "holder rule" and FTC staff guidance on the holder rule. The court found that the staff guidance, providing that the holder rule does not eliminate any other rights the consumer may have as a matter of state law, indicates that the holder rule is not intended to preempt state regulation. The court concluded that the National Bank Act does not preempt the RISA provision permitting the plaintiff to assert his breach of contract claims against a national bank holder of a promissory note.

-Elizabeth Anstaett and Jeffrey I. Langer