23 F. Supp. 3d 1359
D. Utah2014Background
- Plaintiff purchased a computer online in October 2008 using Bill Me Later (BML) financing; CIT Bank funded the loan and WebBank later acquired CIT Bank’s rights.
- CIT Bank and WebBank are FDIC-insured, state-chartered banks located in Utah; the loan accounts are owned by the banks with BML acting as service provider.
- BML structure holds receivables for two days before sale to PayPal entities; banks retain interest and share upside from portfolio performance.
- Plaintiff alleges California usury and related claims, including CLRA and unfair competition, based on a disclosed 19.99% interest plus late fees.
- Judge Otero previously dismissed usury claims applying Utah law; this court evaluates express preemption under FDIA § 27 and related authorities.
- The court finds the BML program resembles credit card programs and is expressively preempted by federal law, dismissing all claims with prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FDIA § 27 preempts state usury/late fee claims | Plaintiff asserts state laws apply to protect California borrowers. | Defendants argue § 27 preempts state usury and late-fee rules as federal regulation of banks. | Preemption applies; claims dismissed. |
| Whether banks are the true lender; whether preemption bars CLRA/contract claims | Plaintiff contends BML is the true lender/real party-in-interest. | Defendants argue banks fund and own the accounts; preemption covers the claims. | Preemption controls; true-lender theory fails; contract/CLRA claims dismissed. |
| Whether CLRA and related California claims survive under transactional credit theory | Plaintiff seeks CLRA relief by labeling credit as transactional and tying it to goods/services. | CLRA does not apply to mere extension of credit absent sale of goods/services. | CLRA and related claims dismissed as inapplicable. |
| Whether other California claims (breach of contract, B&P Code, usury constitutional provisions, aiding and abetting) survive | Plaintiff relies on similar theories of non-bank lender arrangements. | Preemption and lack of plausibility defeat these claims. | All related claims dismissed with prejudice. |
Key Cases Cited
- Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299 (1978) (exported interest rates and Section 85 preemption framework)
- Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735 (1996) (definition of 'interest' and preemption of state late-fee schemes)
- Krispin v. May Dept. Stores Co., 218 F.3d 919 (8th Cir. 2000) (look to originator bank for usury analysis in store-card program)
- Van Slyke v. Capital One Bank, 503 F. Supp. 2d 1353 (N.D. Cal. 2007) (CLRA applicability requires seller of goods/services to be extending credit)
- Ball v. FleetBoston Fin. Corp., 164 Cal.App.4th 794 (Cal. App. 2008) (credit extension alone not within CLRA)
- Ubaldi v. SLM Corp., 852 F. Supp. 2d 1190 (N.D. Cal. 2012) (distinguishable pre-Twombly; non-bank lender theory not controlling here)