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OHIO FEDERAL DISTRICT COURT CITES TO NEW OCC PREEMPTION RULE IN FINDING RISA PREEMPTED

Citing to the new OCC preemption regulation for support, the United States District Court, Northern District of Ohio, found that the National Bank Act and corresponding federal regulations preempted the Ohio Retail Installment Sales Act (RISA). Abel v. KeyBank USA, N.A., Case No. 03 CV 524 (D. Ohio March 4, 2004). The case involved a class action brought by plaintiffs who obtained student loans from KeyBank USA, N.A., a national bank. The plaintiffs claimed a violation of the Ohio RISA provision that provides that a buyer can assert defenses against a holder and can assert these defenses as affirmative claims. See Ohio Rev. Code § 1317.032.

The bank argued that the National Bank Act, 12 U.S.C. § 24 (Seventh), preempts plaintiffs’ RISA claim. The bank argued that the RISA impermissibly interferes with the ability of national banks to negotiate promissory notes, lend money and collect on outstanding loans, powers specifically granted by the National Bank Act. Defendants also argued that regulations recently enacted by the OCC demonstrate the federal government’s intent to preempt state laws such as RISA.

The court considered case law on preemption, including the preemptive effect of regulations, and concluded that the National Bank Act and the corresponding federal regulations preempt the RISA. The court found that the RISA provision significantly interferes with a national bank’s ability to negotiate promissory notes and lend money. The court found that recent revisions to the Code of Federal Regulations support this conclusion and evidence federal intent to preempt state statutes such as RISA. The court specifically cited to 12 C.F.R. § 7.4008(d)(2)(10) of the new OCC regulation providing that state law limitations concerning the terms of credit, including the schedule for repayment of principal and interest, amortization of loans, balance, payments due, minimum payments or term of maturity of the loan, including the circumstances under which a loan may be called due and payable upon the passage of time or a specified event external to the loan are preempted as support for finding that the RISA is preempted.

The court concluded that the RISA more than “incidentally” affects the lending activities of national banks and thus rejected the plaintiffs’ position that the RISA was a state law that applied to national banks. The court also rejected the plaintiffs’ argument that the RISA was not preempted because it was a consumer protection statute, citing to the OCC testimony on the new OCC preemption regulations before the Subcommittee on Oversight and Investigations of the Committee on Financial Services of the U.S. House of Representatives on January 28, 2004. The court interpreted that testimony, which directly addressed state consumer protection statutes, to indicate at least in a general sense the federal government’s intent to preempt state consumer protection laws by enacting the revisions to the federal regulations.

The case illustrates the level of deference courts are willing to give the OCC preemption rule as well as OCC testimony at congressional hearings.

Darrell Dreher and Elizabeth Anstaett