A California appellate court recently held that California Civil Code Section 1748.9, which requires certain disclosures in connection with credit card checks, is not preempted on its face as it does not preclude national banks from exercising their authority to lend money on personal security and, in this particular case, there was no basis for preemption of Section 1748.9 without a factual record that Section 1748.9 forbids or significantly impairs the exercise of powers granted to national banks.
California Civil Code Section 1748.9 requires credit card issuers who extend credits by means of pre-printed checks or drafts to make certain disclosures on an attachment to such checks or drafts. This class action lawsuit was brought against a national bank for its purported unlawful business practices for allegedly failing to comply with the disclosure requirements of Section 1748.9. The trial court granted the defendant national bank's motion for judgment on the pleadings, holding that Section 1748.9 is preempted by federal law applicable to national banks.
In reversing the lower court's holding, the appellate court focused on Rose v. Chase Manhattan Bank USA, a Ninth Circuit case the lower court used to determine that Section 1748.9 was preempted as to national banks by the National Bank Act and regulations promulgated thereunder ("NBA"), noting that the court was not bound by federal court precedent, however, if it was "persuaded federal law preempts section 1748.9 as to national banks, the supremacy clause ... obligates this court to honor federal law."
In Rose, the Ninth Circuit used Supreme Court precedent to distill the rule that, where "Congress has explicitly granted a power to a national bank without any indication that Congress intended for that power to be subject to local restriction, Congress is presumed to have intended to preempt state laws such as Cal. Civ. Code § 1748.9." The court disagreed with the Ninth Circuit's interpretation of Supreme Court precedent to mean that the NBA preempts the disclosure requirements of Section 1748.9 because the NBA gives national banks the power to loan money on personal security.
California Civil Code Section 1748.9 requires credit card issuers who extend credits by means of pre-printed checks or drafts to make certain disclosures on an attachment to such checks or drafts. This class action lawsuit was brought against a national bank for its purported unlawful business practices for allegedly failing to comply with the disclosure requirements of Section 1748.9. The trial court granted the defendant national bank's motion for judgment on the pleadings, holding that Section 1748.9 is preempted by federal law applicable to national banks.
In reversing the lower court's holding, the appellate court focused on Rose v. Chase Manhattan Bank USA, a Ninth Circuit case the lower court used to determine that Section 1748.9 was preempted as to national banks by the National Bank Act and regulations promulgated thereunder ("NBA"), noting that the court was not bound by federal court precedent, however, if it was "persuaded federal law preempts section 1748.9 as to national banks, the supremacy clause ... obligates this court to honor federal law."
In Rose, the Ninth Circuit used Supreme Court precedent to distill the rule that, where "Congress has explicitly granted a power to a national bank without any indication that Congress intended for that power to be subject to local restriction, Congress is presumed to have intended to preempt state laws such as Cal. Civ. Code § 1748.9." The court disagreed with the Ninth Circuit's interpretation of Supreme Court precedent to mean that the NBA preempts the disclosure requirements of Section 1748.9 because the NBA gives national banks the power to loan money on personal security.
Instead, the state appellate court found that under Supreme Court conflict preemption precedent, the NBA precludes states from forbidding or impairing significantly the exercise of a power explicitly granted to national banks by the NBA, and that on its face Section 1748.9 does not forbid or significantly impair the exercise of banking power authorized by the NBA. The court further held that "when a state disclosure requirement does not, on its face, forbid or significantly impair national banks from exercising a power granted to it by Congress under the NBA, national banks claiming preemption must make a factual showing that the disclosure requirement significantly impairs the exercise of the relevant power or powers."
Finally, the court also held that 12 Code of Federal Regulations part 7.4008(d) also does not preempt Section 1748.9, as was held by the district court in Rose.
Finally, the court also held that 12 Code of Federal Regulations part 7.4008(d) also does not preempt Section 1748.9, as was held by the district court in Rose.
Eric Tsai
McGinnis Wutscher Beiramee LLP
Emerald Plaza
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Direct: (619) 955-6989
McGinnis Wutscher Beiramee LLP
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