August 1, 2003


Judge Claudia Wilken of the U.S. District Court for the Northern District of California issued an Order on Cross‑Motions for Summary Judgment on July 28, 2003 in Bank of America, N.A. v. City of Daly City, California (i) declaring that “opt‑in” financial privacy ordinances enacted by three California municipalities are preempted under federal law to the extent that the ordinances restrict the sharing of confidential consumer information between financial institutions and their affiliates and (ii) enjoining enforcement of the ordinances to that extent, but (iii) upholding the ordinances’ restrictions on the sharing of information between financial institutions and non‑affiliated third parties.

Plaintiffs Bank of America and Wells Fargo Bank had sought (i) a judicial declaration that ordinances passed by Daly City, Contra Costa County and San Mateo County are preempted by the Fair Credit Reporting Act (FRCA), the Gramm‑Leach‑Bliley Act (GLBA) and the National Bank Act (NBA) and (ii) a permanent injunction against enforcement of the ordinances. The ordinances purport to prohibit financial institutions from sharing confidential consumer information with affiliates or non‑affiliated third parties without the consumer’s consent. Judge Wilken concluded that the provisions of the ordinances regarding information‑sharing between affiliates are preempted by the FRCA based on 15 U.S.C. § 1681t(b)(2), which provides an exception to the general FCRA standard of preemption of state laws only to the extent that they are inconsistent therewith. The exception provides for comprehensive preemption of state regulation of information sharing among affiliates. Finding it unnecessary to consider the plaintiffs’ GLBA and NBA preemption arguments because of her conclusion that the ordinances are preempted by the FCRA with regard to affiliate disclosures, Judge Wilken held that the remaining provisions of the ordinances, including those regarding disclosure of confidential consumer information to non‑affiliated third parties, are not preempted. The banks did not argue that the NBA preempted the portions of the ordinances addressing such disclosure to non‑affiliated third parties.

This order is significant because of the implications it has for the scope of FCRA preemption and the ability of state and local governments to regulate financial privacy. The FCRA preemption at issue in this case is scheduled to expire on January 1, 2004, but legislation to make this preemption (and existing FCRA comprehensive preemption of certain other types of state laws) permanent is pending in Congress Please do not hesitate to contact us if you would like additional information regarding these issues or copies of relevant documents.

²Jeff Langer


On July, 22 2003, the Office of Thrift Supervision, in response to a letter from a federal savings bank (FSB), concluded that federal law preempts the application of certain provisions of the New Jersey Home Ownership Security Act of 2002, including its compliance scheme, to FSBs and their operating subsidiaries. OTS Letter P‑2003‑5 from Carolyn J. Buck, Chief Counsel (July 22, 2003) (OTS Letter). The OTS also concluded that those who purchase or are assigned loans that are originated by an FSB under the New Jersey Act would be subject only to the claims and defenses that would apply to the FSB that originated the loan because the New Jersey Act expressly indicates that purchasers and assignees are subject only to those claims and defenses that a borrower could assert against the original creditor. The New Jersey Act imposes requirements on the terms of credit, loan‑related fees, disclosures, processing, originating and servicing mortgages and disbursements in connection with home loans. OTS Letter at 2.

In its response, the OTS concluded that the provisions of the New Jersey Act that purport to regulate the terms of credit, loan‑related fees, disclosures, mortgage processing, origination, refinancing and servicing and disbursements are preempted by federal law from applying to FSBs and their operating subsidiaries. Id. at 3‑4. In addition, the OTS concluded that the New Jersey Act’s compliance scheme is preempted as to FSBs. Id. at 6. In support of its conclusion, the OTS indicated that the Home Owners’ Loan Act and regulations issued by the OTS occupy the field of regulation for lending activities of FSBs. Id. at 4. The OTS indicated that such federal regulation is “exclusive, leaving no room for state regulation, conflicting or complementary.” Id. In support of its conclusion, the OTS cited to Section 560.2 of the OTS Regulations, which generally provides that FSBs may extend credit as authorized under federal law without regard to state laws that purport to regulate or otherwise affect their credit activities. Id. Section 560.2 also sets forth specific types of state laws that are preempted, such as state laws on terms of credit, loan‑related fees, disclosure, processing, servicing, sale, investment and participation in mortgages and disbursements. Id. at 5. The OTS indicated that the New Jersey Act contains a number of restrictions and requirements on home lending that would fall within these areas, and thus would be preempted. Id. at 4-5. According to the OTS, such preemption is necessary because subjecting FSBs to the burdens of complying with a hodgepodge of conflicting and overlapping state lending requirements would undermine the federal objective of permitting FSBs to exercise their lending powers under a single set of uniform federal laws and regulations. Id. at 6.

The OTS’ conclusion regarding the applicability of the New Jersey Act is consistent with recent letters issued in January 2003, in which it concluded that similar provisions of the Georgia Fair Lending Act and the New York Predatory Lending Law are preempted by federal law from applying to FSBs and their operating subsidiaries. OTS Letter P‑2003‑1 from Carolyn J. Buck, Chief Counsel (Jan. 21, 2003); OTS Letter P‑2003‑2 from Carolyn J. Buck, Chief Counsel (Jan. 30, 2003).

² Mike Tomkies and Chuck Gall