976 F.3d 881
9th Cir.2020Background:
- Between 2005–2007 Washington Mutual (WaMu), a federal savings association regulated under HOLA, made California residential mortgages; WaMu did not pay escrow interest because HOLA/OTS preemption applied.
- WaMu failed in 2008; FDIC sold WaMu’s mortgage assets and servicing rights to JP Morgan Chase (a national bank), which thereafter serviced the loans.
- Plaintiffs (California borrowers) sued Chase, alleging it failed to pay interest on escrow accounts as required by Cal. Civ. Code § 2954.8.
- The district court denied Chase’s Rule 12(b)(6) motion; Chase pursued interlocutory appeal under §1292(b). The Ninth Circuit reviewed whether HOLA/OTS regulations preempt California’s escrow-interest law as applied to loans that originated with a federal savings association but are now held/serviced by a national bank.
- The OTS field-preemption regulation (12 C.F.R. § 560.2, operative at loan origination) identifies escrow-account requirements and loan servicing/sale as preempted categories and preempts state laws having more than an “incidental effect” on thrift lending operations.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether HOLA/OTS preempts California §2954.8 when loan originated with a federal savings association but later assigned to a national bank | Preemption is limited to the conduct/operations of federal savings associations; a national bank assignee (Chase) is not entitled to HOLA/OTS preemption for its post-acquisition conduct | HOLA/OTS field preemption covers state laws that affect loans originated by thrifts—even after sale; allowing state regulation to apply to assignees would frustrate thrift lending and securitization | HOLA/OTS preemption applies: California escrow-interest law is preempted as applied to loans that originated with a federal savings association, even after assignment to a national bank. |
| Whether §560.2(b)(6) (escrow accounts) and §560.2(b)(10) (processing/servicing/sale of mortgages) preempt California’s escrow-interest requirement | §560.2’s scope should be read narrowly; escrow-interest obligations do not follow a loan to a non-thrift assignee | §560.2(b)(6) expressly preempts state requirements regarding escrow accounts; (b)(10) preempts laws affecting processing, servicing, sale or purchase of mortgages | The court held both (b)(6) and (b)(10) preempt California’s escrow-interest law as applied here. |
| Whether application of California’s law would have only an incidental effect on thrift lending operations (§560.2(c)) | Requiring escrow interest for assignees would be incidental and would not meaningfully impair thrift securitization or lending | Imposing state-by-state escrow rules on loans originated by thrifts would increase transaction/compliance costs, create uncertainty for secondary-market buyers, depress loan value, and reduce thrift lending—more than incidental effect | The court held the effect is more than incidental; §560.2(c) supports preemption because state regulation would impede securitization and thrift lending. |
| Whether NBA/other precedents (e.g., Lusnak) bar preemption here | Lusnak (NBA context) shows national banks are not preempted and thus Chase must follow California law on escrow interest | Lusnak concerns NBA conflict preemption (higher threshold); HOLA/OTS field-preemption standard is broader and different | The court distinguished Lusnak and held its NBA analysis does not control; HOLA/OTS field preemption governs and preempts the state law in this context. |
Key Cases Cited
- Lusnak v. Bank of America, N.A., 883 F.3d 1185 (9th Cir. 2018) (held NBA conflict preemption did not bar California escrow-interest law as to national-bank-originated loans)
- Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001 (9th Cir. 2008) (endorsed OTS’s broad HOLA field-preemption framework and deference to thrift-regulatory preemption)
- Fid. Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141 (1982) (recognized that federal thrift regulation can preempt state laws that affect mortgage marketability and thrift operations)
- Madden v. Midland Funding, LLC, 786 F.3d 246 (2d Cir. 2015) (held NBA did not preempt state usury law for bank-originated loans sold to assignees; cited for secondary-market effects)
- Campidoglio LLC v. Wells Fargo & Co., 870 F.3d 963 (9th Cir. 2017) (identified the open question whether HOLA preemption applies to national-bank assignees of thrift-originated loans)
- Kisor v. Wilkie, 139 S. Ct. 2400 (2019) (limits on deference to agency interpretations; discussed in court’s treatment of OTS/agency materials)