WELLS FARGO WINS ON VISITATION AND LICENSING ISSUES, BUT NOT STATE LAW PREEMPTION IN NINTH CIRCUIT OPERATING SUBSIDIARIES APPEAL
The United States Court of Appeals for the Ninth Circuit affirmed the District Court for the Eastern District of California’s ruling in favor of national banks Wells Fargo Bank, N.A. and National City Bank of Indianapolis that (i) the Commissioner of the California Department of Corporations did not have authority to audit their respective wholly-owned operating subsidiaries, Wells Fargo Home Mortgage, Inc. and National City Mortgage Co., and (ii) the subsidiaries were not required to be licensed to engage in mortgage lending in California. Wells Fargo Bank, N.A. v. Boutris, 2005 WL 1924713, — F.3d — (9th Cir. 2005).
The Commissioner had sought to audit the lending activities of the operating subsidiaries, both of which held California Residential Mortgage Lender licenses. The banks objected, arguing that the National Bank Act grants the OCC exclusive authority to exercise visitorial powers over national banks as well as their operating subsidiaries. They also argued that under the NBA the operating subsidiaries are not required to be licensed under California law to engage in mortgage lending in California. The Ninth Circuit substantially agreed with both of these arguments, holding that (i) the Commissioner is preempted under the NBA from ordering regulatory audits of national bank operating subsidiaries and (ii) California real estate lending licensing requirements as applied to operating subsidiaries of national banks are field-preempted by OCC operating subsidiary licensing regulations.
However, the Ninth Circuit reversed the district court’s holding that a California law prohibiting the charging of interest on mortgage loans for a period in excess of one day prior to recording (the per diem statute) was preempted by Section 501(a)(1) of the Depository Institutions Deregulation and Monetary Control Act of 1980. The Ninth Circuit found that the California law did not expressly limit the rate or amount of interest that may be charged and, therefore, was not preempted. The court followed the analysis in Grunbeck v. Dime Savings Bank of New York, FSB, 74 F.3d 331 (1st Cir. 1996), in which another federal appellate court held that Section 501(a)(1) did not preempt the New Hampshire simple interest statute’s requirement that lenders compute their interest rate by summing “simple interest,” i.e., by not charging interest on unpaid interest.