ALLAN PARKS, Plaintiff and Appellant, v. MBNA AMERICA BANK, N.A., Defendant and Respondent.
No. S183703
Supreme Court of California
June 21, 2012
376, 377, 378, 379, 380, 381, 382, 383, 384, 385, 386, 387, 388, 389, 390, 391, 392, 393, 394
Rosner & Mansfield, Law Office of Michael R. Vachon and Michael R. Vachon for Plaintiff and Appellant.
Arbogast & Berns, David M. Arbogast; Spiro Moss and J. Mark Moore for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiff and Appellant.
Edmund G. Brown, Jr., and Kamala D. Harris, Attorneys General, Manuel M. Medeiros, State Solicitor General, Frances T. Grunder, Assistant Attorney General, Kathrin Sears and Sheldon H. Jaffe, Deputy Attorneys General, for People of the State of California as Amicus Curiae on behalf of Plaintiff and Appellant.
Arnold & Porter, Nancy L. Perkins, Laurence J. Hutt, Teri R. Richardson and Christopher S. Tarbell for Defendant and Respondent.
Morrison & Foerster, James R. McGuire, Rita F. Lin and Aaron D. Jones for American Bankers Association and California Bankers Association as Amici Curiae on behalf of Defendant and Respondent.
Sullivan & Cromwell, Bruce E. Clark, H. Rodgin Cohen, Michael M. Wiseman and Achyut J. Phadke for The Clearing House Association L.L.C. as Amicus Curiae on behalf of Defendant and Respondent.
Horace G. Sneed and Douglas B. Jordan for the Office of the Comptroller of the Currency Administrator of National Banks, upon the request of the Court of Appeal.
LIU, J.—We granted review to address whether the National Bank Act (June 3, 1864, ch. 106, 13 Stat. 99) (NBA) preempts
I.
As indicated in the Court of Appeal‘s opinion below, defendant MBNA America Bank, N.A. (MBNA), “renamed itself as FIA Card Services, N.A. Nevertheless, for the sake of simplicity, we shall follow the parties in continuing to refer to defendant as MBNA.”
In 2003, MBNA issued a credit card to plaintiff Allan Parks. Later that year, as part of its service to cardholders, MBNA extended credit to plaintiff by sending him preprinted drafts, commonly referred to as “convenience checks.” (See Rose v. Chase Bank USA, N.A. (9th Cir. 2008) 513 F.3d 1032, 1034 (Rose).) Plaintiff used several of these convenience checks to purchase holiday gifts and pay bills, and he incurred finance charges in excess of those he would have incurred had he used his credit card for similar transactions. The convenience checks that MBNA sent to Parks did not include disclosures required by
The Court of Appeal reversed. Applying Barnett Bank of Marion Cty., N. A. v. Nelson (1996) 517 U.S. 25 [134 L.Ed.2d 237, 116 S.Ct. 1103] (Barnett Bank), the Court of Appeal concluded that the NBA does not preempt section 1748.9 because the state law does not “significantly impair” the power of national banks. According to the Court of Appeal, section 1748.9 is a “generally applicable disclosure law” that does not forbid banks from making loans via convenience checks. It “merely requires ‘clear and conspicuous’ disclosures of three items of information and requires those disclosures to be attached to the convenience checks.” The Court of Appeal acknowledged that section 1748.9 “imposes some burden” on national banks and that finding preemption would “establish clarity in the law.” But the court said its task was “not to divine the best policy,” and it went on to hold 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.” The court concluded that “[s]ection 1748.9 does not, on its face, significantly impair federally authorized powers under the NBA” and that “given the procedural posture of this case, MBNA has not yet had an opportunity to submit evidence establishing a significant impairment.”
The Court of Appeal concluded, however, that “[t]he language of [former regulation 7.4008(d)] does not suggest a reasonable attempt to describe and interpret the reach of NBA preemption. [Citation.] Rather, the regulation exempts national banks from all state disclosure requirements, even though . . . the NBA . . . [did not] express[] an intention to create this bright line exemption.” Moreover, the Court of Appeal reasoned, Congress failed to “delegate[] the power to [the] OCC to take ‘administrative action whose sole purpose [is] to preempt state law rather than to implement a statutory command.’ (Watters [v. Wachovia Bank, N.A. (2007)] 550 U.S. [1,] 44 [167 L.Ed.2d 389, 127 S.Ct. 1559] (dis. opn. of Stevens, J.).)” Though “reluctant to create a split of authority [sic] with the Ninth Circuit Court of Appeals on a point of federal law,” the Court of Appeal said it was “require[d] . . . to do so.”
We granted MBNA‘s petition for review.
II.
A preemption “question is basically one of congressional intent. Did Congress, in enacting the Federal Statute, intend to exercise its constitutionally delegated authority to set aside the laws of a State? If so, the Supremacy Clause requires courts to follow federal, not state, law.” (Barnett Bank, supra, 517 U.S. at p. 30, citing
A.
“Since McCulloch v. Maryland [citation], it has not been open to question that the Federal Government may constitutionally create and govern [banks] within the states.” (Franklin Nat. Bank v. New York (1954) 347 U.S. 373, 375 [98 L.Ed. 767, 74 S.Ct. 550] (Franklin).) In Franklin, the high court considered whether a New York statute prohibiting banks “from using the word ‘saving’ or ‘savings’ in their advertising or business” (id. at p. 374) was preempted by the Federal Reserve Act (
In subsequent cases involving national bank legislation, the high court has found preemption where compliance with federal and state law did not pose the kind of physical impossibility that exists where federal law requires banks to do something that state law prohibits. Following Franklin, the high court has repeatedly found a sufficient basis for preemption where the federal banking statute provides “a broad, not a limited, permission.” (Barnett Bank, supra, 517 U.S. at p. 32.) In Barnett Bank, the court observed that the word “powers” is “a legal concept that, in the context of national bank legislation, has a history. That history is one of interpreting grants of both enumerated and incidental ‘powers’ to national banks as grants of authority not normally limited by, but rather ordinarily pre-empting, contrary state law.” (Ibid.) The court went on to say that “where Congress has not expressly conditioned the grant of ‘power’ upon a grant of state permission, the Court has ordinarily found that no such condition applies. In Franklin Nat. Bank, the Court made this point explicit. It held that Congress did not intend to subject national banks’ power to local restrictions, because the federal power-granting statute there in question contained ‘no indication that Congress [so] intended . . . as it has done by express language in several other instances.’ 347 U.S. at 378, and n. 7.” (Barnett Bank, supra, 517 U.S. at p. 34.)
Barnett Bank applied these principles to a Florida law providing that “banks cannot sell insurance in Florida—except that an unaffiliated small town bank (i.e., a bank that is not affiliated with a bank holding company) may sell insurance in a small town.” (Barnett Bank, supra, 517 U.S. at p. 29.) The federal law at issue said that ” ‘any’ ” national bank operating in a small town ” ‘may . . . act as the agent for any fire, life, or other insurance company authorized by the authorities of the State . . . to do business [there], . . . by soliciting and selling insurance. . . .’ ” (Id. at p. 28, citing Act of Sept. 7, 1916, 39 Stat. 753, as amended
In reaching this conclusion, the high court observed that a federal grant of power to national banks does not preempt state law where there is “an explicit statement that the exercise of that power is subject to state law”
The high court affirmed and elaborated on these principles in Watters v. Wachovia Bank, N.A., supra, 550 U.S. 1 (Watters). There, the court considered Michigan statutes requiring “mortgage brokers, lenders, and servicers that are subsidiaries of national banks to register with the State‘s Office of Financial and Insurance Services . . . and submit to state supervision.” (Id. at p. 8, citing Mich. stats.) It was undisputed that under the NBA “Michigan‘s licensing, registration, and inspection requirements cannot be applied to national banks” themselves. (Watters, supra, 550 U.S. at p. 15; see id. at p. 13, quoting
Summarizing the principles established in Franklin and Barnett Bank, the high court in Watters said: “In the years since the NBA‘s enactment, we have repeatedly made clear that federal control shields national banking from unduly burdensome and duplicative state regulation. [Citations.] . . . [¶] We have ‘interpret[ed] grants of both enumerated and incidental “powers” to national banks as grants of authority not normally limited by, but rather ordinarily pre-empting, contrary state law.’ [Citations.] States are permitted to regulate the activities of national banks where doing so does not prevent or significantly interfere with the national bank‘s or the national bank regulator‘s exercise of its powers. But when state prescriptions significantly impair the exercise of authority, enumerated or incidental under the NBA, the State‘s regulations must give way.” (Watters, supra, 550 U.S. at pp. 11–12.)
Moreover, in explaining why the Michigan supervisory regime could not apply to national banks and their operating subsidiaries, the high court in Watters said that were it otherwise, “[n]ational banks would be subject to registration, inspection, and enforcement regimes imposed not just by Michigan, but by all States in which the banks operate. Diverse and duplicative superintendence of national banks’ engagement in the business of banking, we observed over a century ago, is precisely what the NBA was designed to prevent: ‘Th[e] legislation has in view the erection of a system extending throughout the country, and independent, so far as powers conferred are concerned, of state legislation which, if permitted to be applicable, might impose limitations and restrictions as various and as numerous as the States.’ [Citation.] Congress did not intend, we explained, ‘to leave the field open for the States to attempt to promote the welfare and stability of national banks by direct legislation. . . . [C]onfusion would necessarily result from control possessed and exercised by two independent authorities.’ ” (Watters, supra, 550 U.S. at pp. 13–14, fn. omitted; see id. at pp. 17–18 [“[J]ust as duplicative state examination, supervision, and regulation would significantly burden mortgage lending when engaged in by national banks, . . . so too would those state controls interfere with that same activity when engaged in by an operating subsidiary.” (Citation omitted.)].)
B.
Applying the principles above, we conclude that the NBA preempts section 1748.9. As noted, the NBA broadly authorizes national banks to exercise “all such incidental powers as shall be necessary to carry on the
The specific disclosure obligations imposed by section 1748.9 exceed any requirements in federal law. The requirement in section 1748.9 that disclosures appear “on the front of an attachment that is affixed by perforation or other means to the preprinted check or draft” has no counterpart in federal law. The same is true of section 1748.9‘s requirement that precise language (” ‘use of the attached check or draft will constitute a charge against your credit account’ “) appear on each check. (§ 1748.9, subd. (a)(1).) In addition, although federal regulations require certain disclosures when the terms of using a convenience check differ from the terms of the customer‘s credit account (
In characterizing the disclosure requirements of section 1748.9, the Court of Appeal said that the statute “does not forbid the exercise of a banking power authorized by the NBA. Section 1748.9 does not bar national banks from loaning money on personal security through convenience checks.” It is true that section 1748.9, unlike the state law in Barnett Bank that prohibited national banks from selling insurance in small towns, does not outlaw a category of banking activity. However, to say that MBNA may offer convenience checks so long as it complies with section 1748.9 is equivalent to saying that MBNA may not offer convenience checks unless it complies with section 1748.9. Whether phrased as a conditional permission or as a contingent prohibition, the effect of section 1748.9 is to forbid national banks from offering credit in the form of convenience checks unless they comply
Requiring compliance with section 1748.9 as a condition of “loaning money on personal security” (
Moreover, even if California‘s disclosure requirements by themselves do not seem particularly onerous, the high court in Watters made clear that our preemption analysis must consider the burden of disclosure “regimes imposed not just by [California], but by all States in which the banks operate.” (Watters, supra, 550 U.S. at p. 13.) If disclosure requirements such as those in section 1748.9 were allowed to stand, national banks operating in multiple states would face the prospect of ” ‘limitations and restrictions as various and as numerous as the States.’ [Citation.]” (550 U.S. at p. 14.) National banks would have to monitor requirements as to the content, language, manner, and format of disclosures for each of the 50 states (and possibly municipalities as well), and continually adjust their convenience check offers to comply with the prescriptions of each local jurisdiction. Such “[d]iverse and duplicative [regulation] of national banks’ engagement in the
C.
Plaintiff contends that the phrase “subject to law” in the federal banking statute means that Congress intended state laws like section 1748.9 to apply to national banks. (See
Plaintiff further contends that section 1748.9 is a state law of “general application,” akin to state contract law, from which national banks are not exempt unless federal law expressly provides. (See Watters, supra, 550 U.S. at p. 11.) But section 1748.9 is quite different from the kind of state contract law we have previously upheld against preemption challenge. In Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 932–944 [216 Cal.Rptr. 345, 702 P.2d 503] (Perdue), we examined whether federal banking laws preempted California law prohibiting unreasonable charges or unconscionable contracts as applied to bank charges on checks drawn against insufficient funds. In finding no preemption, we said that “. . . Congress clearly anticipated that banks would be able to charge fees for depositor services sufficient to recover the cost of such services.” (Id. at pp. 942–943.) The state laws at issue were consistent with Congress‘s intent, we explained, because they “permit the bank to charge fees sufficient to recover the cost of the services and a reasonable profit.” (Id. at p. 943.) Importantly, we observed that the state laws “are part of the common law governing all commercial transactions; they regulate not only sale of bank services but the sale of groceries, automobiles, furniture or medical services.” (Ibid.) We found no indication that Congress sought to authorize banks to charge more for depositor services than what they could charge in a “free and competitive
Section 1748.9 is not a generally applicable law similar to California‘s law against unconscionable contracts. It is a law specifically directed at “credit card issuer[s]” and at offers of “credit to a cardholder through the use of a preprinted check or draft.” (Ibid.) Section 1748.9 does not state a background legal principle against fraudulent, deceptive or unconscionable practices. It prescribes specific and affirmative conduct that credit card issuers must undertake if they wish to lend money through convenience checks. Unlike the state law considered in Perdue, the disclosure requirements of section 1748.9 cannot be understood as part of the general legal backdrop to Congress‘s enactment of federal banking legislation.
To be sure, section 1748.9 is a generally applicable law in the sense that it applies equally to all credit card issuers and does not discriminate against national banks. That distinguishes section 1748.9 from the New York law at issue in Franklin, for example, which directed its prohibition on use of the word “savings” at non-state-chartered banks. (See Franklin, supra, 347 U.S. at p. 374 & fn. 1.) However, Franklin‘s preemption analysis did not emphasize or even mention the discriminatory aspect of the state law; the high court simply observed that the state law unduly limited the incidental power of national banks to advertise. (Id. at pp. 377–378.) Similarly, although the Florida law in Barnett Bank allowed only small town banks unaffiliated with a holding company to sell insurance in small towns, the high court indicated that its holding would be the same even if the state law had prohibited all banks from selling insurance in small towns. (Barnett Bank, supra, 517 U.S. at p. 37 [“[T]he Federal Statute means to grant small town national banks authority to sell insurance, whether or not a State grants its own state banks or national banks similar approval.“].)
Moreover, as Fidelity Federal Sav. & Loan Assn. v. de la Cuesta (1982) 458 U.S. 141 [73 L.Ed.2d 664, 102 S.Ct. 3014] (de la Cuesta) shows, state laws that restrict federally authorized banking powers may be preempted
To conclude that section 1748.9 is preempted does not mean that all state laws that specifically regulate banking activities are preempted. For example, in Anderson Nat. Bank v. Luckett (1944) 321 U.S. 233 [88 L.Ed. 692, 64 S.Ct. 599], the high court held that national banking laws did not preempt a Kentucky statute authorizing the state to take custody of abandoned bank deposits. In addition to noting that the state law applied to “state and national banks alike” (id. at p. 247), the court explained: “Under the statute the state merely acquires the right to demand payment of the accounts in the place of the depositors. Upon payment of the deposits to the state, the bank‘s obligation is discharged. Something more than this is required to render the statute obnoxious to the federal banking laws. For an inseparable incident of a national bank‘s privilege of receiving deposits is its obligation to pay them to the persons entitled to demand payment according to the law of the state where it does business. A demand for payment of an account by one entitled to make the demand does not infringe or interfere with any authorized function of the bank.” (Id. at pp. 248–249.) In other words, the Kentucky law authorized “a change in the dominion over [abandoned] accounts . . . , to
The Kentucky statute in Anderson National Bank v. Luckett is an example of a state banking law that does not significantly impair the exercise of a national bank‘s federally authorized power. As the high court explained, the state law transferred ownership of abandoned accounts without affecting a national bank‘s prerogative to receive deposits or its obligation to pay upon lawful demand. The state law did not annul, condition, restrict, hamper, or otherwise limit the powers of a national bank. The same cannot be said of section 1748.9. Because section 1748.9 ” ’ “stands as an obstacle to the accomplishment and execution of the full purposes and objectives” ’ of the NBA, it is preempted. (Viva! International, supra, 41 Cal.4th at p. 936.)
D.
Concluding that “[s]ection 1748.9 does not, on its face, significantly impair federally authorized powers under the NBA,” the Court of Appeal held that “national banks claiming preemption must make a factual showing that the disclosure requirement significantly impairs the exercise of the relevant power or powers.” After stating this requirement of factual proof, the Court of Appeal said “[w]e need not elucidate a precise ‘yardstick for measuring when a state law “significantly interferes with” . . . the exercise of national banks’ powers.’ [Citation.]” We believe the Court of Appeal‘s approach is unsupported by preemption case law and unworkable in practice.
In Franklin, supra, 347 U.S. 373, the court did not examine record evidence before concluding that the state prohibition on using the word “savings” significantly impaired the ability of national banks to advertise. And in Watters, supra, 550 U.S. 1, the court did not undertake an evidentiary inquiry before concluding that the state registration and supervision regime significantly impaired the real estate lending powers of national banks and their operating subsidiaries. (See Watters, supra, 550 U.S. at p. 35 (dis. opn. of Stevens, J.) [“There is no evidence . . . that compliance with the Michigan statutes imposed any special burdens on Wachovia Mortgage‘s activities . . . .“].) The Court of Appeal cited our decision in Perdue, where we held on the pleadings that the state law survived preemption and then said that “conceivably information not contained in the pleadings might lead to a different conclusion.” (Perdue, supra, 38 Cal.3d at p. 943, italics added; see id.
That the Court of Appeal declined to “elucidate a precise ‘yardstick for measuring’ ” significant impairment suggests the impracticality of this approach. As amici curiae American Bankers Association and California Bankers Association explain: “If the yardstick consists of a cost threshold for the specific state law, the law might be preempted as applied to some banks but not others, as banks with more expansive convenience-check activities are able to evidence higher costs. If, in contrast, the yardstick focuses on costs in proportion to the size of the bank, the law might be preempted as to smaller banks but not larger banks. In fact, preemption outcomes might change over time for a specific bank, as it expands its operations. Preemption rulings based on ‘factual evidence’ for a particular defendant bank therefore will have little value—even for a single bank—much less for many or all national banks.
“Additionally, the new evidentiary requirement will make it very difficult for national banks to predict, in advance, with which state laws they must comply. Even where one national bank has litigated the applicability of the precise state law at issue, other national banks will not be able to rely on the outcome of that litigation because the inquiry will vary depending on the particular operations of the bank and the factual showing made. A national bank that believes it has been subjected to a preempted law will be forced to initiate a lawsuit and submit its own evidence, to prove significant impairment of its own operations. Otherwise, absent such a lawsuit, the bank would have to monitor, analyze, and comply with state laws that may in fact be pre-empted . . . .” Here, we conclude as a matter of law that the NBA preempts the disclosure requirements in section 1748.9.
Because we find section 1748.9 preempted by the NBA, we express no view on whether section 1748.9 is also preempted by former regulation 7.4008(d).
The judgment of the Court of Appeal is reversed and the matter remanded for further proceedings.
Cantil-Sakauye, C. J., Kennard, J., Baxter, J., Werdegar, J., Corrigan, J., and Gomes, J.,* concurred.
*Associate Justice of the Court of Appeal, Fifth Appellate District, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.