SUSAN MCSHANNOCK, as Executrix of the Estate of Patricia Blaskower, on behalf of the Estate of Patricia Blaskower and all others similarly situated; MONICA CHANDLER, as Trustee of the Chandler Family Trust, and all others similarly situated; MOHAMED MEKY, and all others similarly situated, Plaintiffs-Appellees, v. JP MORGAN CHASE BANK NA, doing business as Chase Bank, Defendant-Appellant.
No. 19-15899
D.C. No. 3:18-cv-01873-EMC
United States Court of Appeals for the Ninth Circuit
September 22, 2020
Before: J. Clifford Wallace and Ryan D. Nelson, Circuit Judges, and James S. Gwin,*
Opinion by Judge R. Nelson;
Dissent by Judge Gwin
SUMMARY**
Home Owners’ Loan Act / Preemption
The panel reversed the district court‘s order denying JP Morgan Chase Bank N.A.‘s motion to dismiss, and held that California‘s law requiring the payment of interest on escrow accounts was preempted by the
Plaintiffs obtained residential home mortgages from Washington Mutual Bank, FA, a federal savings association organized and regulated under HOLA. Chase Bank, a national bank organized and regulated under the
The panel held that HOLA field preemption principles applied to plaintiffs’ claims against Chase, a national bank, even though its conduct giving rise to the complaint occurred after it acquired the loans in question from Washington Mutual, a federal savings association. Because California‘s interest-on-escrow law imposed a requirement regarding escrow accounts; affected the terms of sale, purchase, investment in, and participation in loans originated by savings associations; and had more than an incidental effect on the lending operations of savings associations, the panel held that it was preempted by
District Judge Gwin dissented because the majority opinion reached a conclusion not supported by the statute‘s and regulation‘s text, and because California was not otherwise preempted from requiring banks to pay nominal interest on escrow account balances.
COUNSEL
Alan E. Schoenfeld (argued), Noah A. Levine, and Alexandra Hiatt, Wilmer Cutler Pickering Hale and Dorr LLP, New
Glenn A. Danas (argued), Robins Kaplan LLP, Los Angeles, California; Michael F. Ram and Marie Appel, Robins Kaplan LLP, Mountain View, California; Michael J. Pacelli, Robins Kaplan LLP, Minneapolis, Minnesota; Samuel J. Strauss, Turke & Strauss LLP, Madison, Wisconsin; Harold Jaffe, Dublin, California; for Plaintiffs-Appellees.
H. Rodgin Cohen, Matthew A. Schwartz, Corey Omer, and Y. Carson Zhou, Sullivan & Cromwell LLP, New York, New York; Gregg L. Rozansky, The Bank Policy Institute, Washington, D.C.; Thomas Pinder, The American Bankers Association, Washington, D.C.; Steven P. Lehotsky and Janet Galeria, U.S. Chamber Litigation Center, Washington, D.C.; for Amici Curiae The Bank Policy Institute, The American Bankers Association, and Chamber of Commerce of the United States of America.
Scott L. Nelson and Allison M. Zieve, Public Citizen Litigation Group, Washington, D.C., for Amicus Curiae Public Citizen Litigation Group.
Xavier Becerra, Attorney General; Nicklas A. Akers, Senior Assistant Attorney General; Michele Van Gelderen, Supervising Deputy Attorney General; Rachel A. Foodman, Deputy Attorney General; Office of the Attorney General, San Francisco, California; for Amicus Curiae State of California.
OPINION
R. NELSON, Circuit Judge:
This case requires us to decide whether mortgagors are entitled, under California law, to interest on escrow accounts for mortgages that were issued by a savings association and later assigned to a national bank. We hold that California‘s law requiring the payment of interest on escrow accounts is preempted by the
I
Between 2005 and 2007, the Chandler Family Trust,1 Mohamed Meky, and Patricia Blaskower2 (collectively, “Appellees“) obtained residential home mortgages from Washington Mutual Bank, FA (“WaMu“). Appellees, whose homes were located in California, would normally have been entitled to “at least 2 percent simple interest per annum” on any funds held in escrow under
regulations preempted California law.3
WaMu failed during the 2008 financial crisis and was placed in the Federal Deposit Insurance Corporation‘s (“FDIC“) receivership. The FDIC sought buyers for WaMu‘s assets, eventually coming to terms with Appellant JP Morgan Chase Bank NA (“Chase“). Under the terms of the agreement, Chase assumed “all mortgage servicing rights and obligations” of WaMu. Unlike WaMu, which was organized and regulated under HOLA, Chase is a national bank organized and regulated under the
We recently held in Lusnak v. Bank of America, N.A., 883 F.3d 1185, 1188 (9th Cir. 2018), cert. denied, 139 S. Ct. 567 (2018), that the NBA does not preempt California‘s interest-on-escrow law. Appellees filed a consolidated class action complaint against Chase shortly after our decision in Lusnak was issued, seeking to represent a class of:
[a]ll mortgage loan customers of Chase (or its subsidiaries), whose mortgage loan is for a one-to-four family residence located in California, and who paid Chase money in advance for payment of taxes and assessments on the property, for insurance, or for other purposes relating to the property, and to whom Chase failed to pay interest as required by
Cal. Civ. Code § 2954.8(a) .
Chase then moved to dismiss the complaint under
Chase requested interlocutory appeal of the district court‘s denial of its motion to dismiss. The district court granted the request, and we granted Chase‘s permission to proceed with the interlocutory appeal. We have jurisdiction under
II
We review de novo a district court‘s denial of a motion to dismiss for failure to state a claim under
III
A
Through HOLA, Congress vested the OTS4 with “broad authority” to shape the regulatory environment for federal savings associations. Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1004–05 (9th Cir. 2008). Consistent with congressional intent, the OTS decided in 1996 to “occup[y]
the entire field of lending regulation for federal savings associations.”
intend[ed] to give federal savings associations maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation. Accordingly, federal savings associations may extend credit as authorized under federal law . . . without regard to state laws purporting to regulate or otherwise affect their credit activities.
The specific question before us is whether HOLA preempts California‘s interest-on-escrow law for loans issued by WaMu between 2005 and 2007 that were later assigned to Chase.5 We have observed that “[w]hether, and to what extent, HOLA applies to claims against a national bank when that bank has acquired a loan executed by a federal savings association is an open question” in our court. Campidoglio LLC v. Wells Fargo & Co., 870 F.3d 963, 970-71 (9th Cir. 2017). We resolve that question in this appeal.
Federal district courts that have addressed the question have taken three different positions: (1) HOLA preemption
applies to all conduct connected to a loan originating with a federal savings association; (2) HOLA preemption necessarily does not apply to national banks; and (3) whether HOLA preemption applies depends on whether the claims arise from the conduct of the federal savings association or of the national bank. See, e.g., Kenery v. Wells Fargo Bank, N.A., No. 5:13-CV-02411-EJD, 2014 WL 129262, at *4 (N.D. Cal. Jan. 14, 2014). The district court adopted the third approach, and Chase asks us to adopt the first approach.
To resolve this dispute, we begin with the text of HOLA, its amendments, and
The OTS‘s preemption regulation is not so limited in scope to cover only the conduct of a federal savings association.
In addition, in 1982, the FHLBB, the precursor to the OTS, implemented a regulation preempting “any state law purporting to address the subject of a Federal association‘s ability or right to . . . sell” mortgages or ”directly or indirectly to restrict such ability or right.”
We defer to the FHBLBB and the OTS‘s “broad authority to issue regulations governing thrifts.” Silvas, 514 F.3d at 1005. Significantly, those regulations have “no less preemptive effect than federal statutes.” Id. Thus, the
text of HOLA and the OTS regulations support applying field preemption here.
The district court correctly observed that “at the time HOLA was enacted in 1933, nothing in its text or legislative history expressly indicated Congress expected that federal savings associations would sell their residential mortgage loans on a secondary market to entities not governed by HOLA, much less intended for HOLA preemption to attach to any such loans.” But although there is nothing in the text or the legislative history of HOLA that references the transfer of loans from a federal savings association in a secondary market, the district court erred by discounting the subsequent amendments to HOLA and the OTS‘s regulations.7 Indeed,
court adopted. See Fid. Fed. Sav. & Loan Ass‘n v. de la Cuesta, 458 U.S. 141, 154 (1982) (“A pre-emptive regulation‘s force does not depend on express congressional authorization to displace state law . . . . Thus, the [lower court‘s] narrow focus on Congress’ intent to supersede state law was misdirected. Rather, the questions upon which resolution of this case rests are whether the Board meant to pre-empt California‘s [] law, and, if so, whether that action is within the scope of the Board‘s delegated authority.” (emphasis added)).
HOLA‘s subsequent amendment and the OTS regulations support applying field preemption here. Although a secondary market for mortgage loans did not exist at the time HOLA was adopted in 1933, Congress created the Federal National Mortgage Association (“Fannie Mae“) in 1938, thereby establishing a secondary market for loans. See National Housing Act Amendments of 1938, ch. 13, 52 Stat. 23. Congress expanded the secondary market for loans in 1970 by creating the Federal Home Loan Mortgage Corporation (“Freddie Mac“). See H.R. Rep. No. 91-1311, at 4 (1970); see also S. Rep. No. 91-761, at 1 (1970). Finally, in 1978 Congress amended HOLA to allow savings associations to sell loans into the secondary market. See
B
We now turn to and apply the established HOLA preemption framework. To guide banking institutions and state legislatures about the contours of HOLA‘s field preemption, the OTS established a tripartite scheme. First,
A three-step process governs our inquiry. See Silvas, 514 F.3d at 1005.
The first step . . . [is] to determine whether the type of law in question is listed in paragraph [560.2](b). If so, the analysis will end there; the law is preempted. If the law is not covered by paragraph (b), the next question is whether the law affects lending. If it does, then, in accordance with paragraph [560.2](a), the presumption arises that the
law is preempted. This presumption can be reversed only if the law can clearly be shown to fit within the confines of paragraph [560.2](c). For these purposes, paragraph (c) is intended to be interpreted narrowly. Any doubt should be resolved in favor of preemption.
Id. (quoting
We therefore first turn to the question whether California‘s interest-on-escrow law is preempted by sections
Applying
preempts state laws “purporting to impose requirements regarding . . . [the] [p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages.”
C
We need not go further because California‘s interest-on-escrow law is “the type of law in question in paragraph 560.2(b).” Silvas, 514 F.3d at 1005 (cleaned up). “So, the analysis ends there; the law is preempted.” Id. (cleaned up). But
After Congress amended HOLA in 1978, federal savings associations developed a common lending cycle. A mortgagor, like Appellees here, applies for a mortgage at a savings association. The federal savings association extends the mortgagor funds to purchase the property, in exchange for future interest payments. Rather than wait to collect those interest payments, however, the federal savings association exchanges the original mortgage for a mortgage backed security from Fannie Mae or Freddie Mac. The federal savings association then sells this mortgage backed security to investors on the secondary market. Finally, the savings association takes the funds generated by the sale of the mortgage backed security and uses them to fund
additional loans to new mortgagors. A simplified version of this process follows.
Fannie Mae, Basics of Fannie Mae Single-Family MBS (Oct. 2019), https://www.fanniemae.com/resources/file/mbs/pdf/basics-sf-mbs.pdf (last accessed Aug. 6, 2020).
A central component of this cycle is the ability of federal savings associations to securitize the original loans and sell them into the secondary market. As the Supreme Court explained in de la Cuesta, the “marketability of a mortgage
in the secondary market is critical to a savings and loan, for it thereby can sell mortgages to obtain funds to make additional home loans.” 458 U.S. at 155 n.10 (emphasis added). In 2009, “82 percent of the first-lien home-purchase and refinance loans for one- to four-family properties . . . were sold during the year.” Robert B. Avery et al.,
Allowing states to impose a panoply of requirements on loans originated by savings associations impedes the securitization of those loans by (1) creating substantial uncertainty for buyers in the secondary market about the applicable law governing the loans they are purchasing and (2) imposing substantial compliance costs on secondary buyers. See R. H. Coase, The Problem of Social Cost, 56 J.L. & Econ. 837, 850 (2013) (observing that transaction costs are frequently sufficient to “prevent many transactions that would be carried out in a world in which the pricing system worked without cost“). This, in turn, decreases the value of the loans being held by federal savings associations, thereby reducing the amount of lending federal savings institutions can do. See de la Cuesta, 458 U.S. at 155 n.10. We hold that this result more than “incidentally effect[s] . . . the lending operations of” savings associations, which triggers preemption under
Our conclusion is supported by a natural experiment that took place in the Second Circuit in the wake of Madden v. Midland Funding, LLC, 786 F.3d 246 (2d Cir. 2015). See In re Nat‘l Collegiate Athletic Ass‘n Athletic Grant-in-Aid Cap Antitrust Litig., 958 F.3d 1239, 1250 (9th Cir. 2020)
(crediting the results of natural experiments in reaching the conclusion that an increase in compensation to student athletes did not diminish consumer demand). In Madden, the Second Circuit held that the NBA did not preempt application of New York state‘s usury law to loans that were originally issued by national banks and then sold into the secondary market. 786 F.3d at 251-52.
In the wake of Madden, the secondary market “significantly reduced the price of notes backed by above-usury loans to borrowers in Connecticut and New York.” Colleen Honigsberg et al., How Does Legal Enforceability Affect Consumer Lending? Evidence from A Natural Experiment, 60 J.L. & Econ. 673, 675 (2017). Lenders also extended “relatively less credit to borrowers” and “discount[ed] notes backed by above-usury loans to borrowers in Connecticut and New York.”
Even before Madden started to impact the market, many questioned its reasoning, including the United States. See
Brief for the United States as Amicus Curiae at *1, Midland Funding, LLC v. Madden, 786 F.3d 246 (2d Cir. 2015) (No. 15-610), 2016 WL 2997343. The United States explained why Madden was “incorrect“:
Properly understood, a national bank‘s Section 85 authority to charge interest up to the maximum permitted by its home State encompasses the power to convey to an assignee the right to enforce the interest rate term of the agreement. That understanding is reinforced by 12 U.S.C. 24(Seventh) , which identifies the power to sell loans as an additional power of national banks. The court of appeals appeared to conclude that, so long as application of New York usury law to petitioners’ collection activities would not entirely prevent national banks from selling consumer debt, state law is not preempted. That analysis reflects a misunderstanding of Section 85 and of this Court‘s precedents.
Id. at *6 (internal quotation marks omitted).
Basic economic principles, the natural experiment that took place in the wake of Madden, and the persuasive arguments put forth by the United States convince us that enforcing California‘s interest-on-escrow law would reduce the value of the loans and reduce lending by savings associations, particularly to high-risk borrowers. Id. This is more than the “incidental effect” required by
of our rule that “[a]ny doubt should be resolved in favor of preemption.” Silvas, 514 F.3d at 1005.9
D
Appellees and amici‘s arguments and the case law on which they rely do not compel a different conclusion.
First, Appellees argue “that [the plain text of]
As we have discussed, supra Section III(C), applying California‘s interest-on-escrow law would the impose requirements on the “[p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages,” contra
Second, the case on which Appellees primarily rely, Lusnak, does little to support their position. In Lusnak, we held that the NBA‘s conflict preemption regime did not preempt California‘s interest-on-escrow law. 883 F.3d at 1197. But preemption under the NBA is triggered only where the state law at issue “prevent[s] or significantly interfere[s] with the exercise of national bank powers.” Id. Preemption under HOLA, by contrast, is triggered at a much lower threshold—whenever a state law is the type of law contemplated by
Finally, we disagree that applying field preemption would run afoul of a primary purpose of HOLA: consumer protection. Although there is ordinarily a presumption against preemption in the context of consumer protection statutes like California‘s interest-on-escrow law, this case involves field preemption of a sweeping federal law. See Lusnak, 883 F.3d at 1196. HOLA field preemption is so broad that the traditional presumption against preemption does not apply. See Silvas, 514 F.3d at 1004. We have described “HOLA and its following agency regulations as a ‘radical and comprehensive response to the inadequacies of the existing state system,’ and ‘so pervasive as to leave no room for state regulatory control.‘” Id. (quoting Conference of Fed. Sav. & Loan Ass‘ns v. Stein, 604 F.2d 1256, 1257, 1260 (9th Cir. 1979) (emphasis added)). Thus, because of this “history of significant federal presence . . . the presumption against preemption of state law is inapplicable.” Id. at 1005.
E
Our holding also accords with the view of HOLA preemption expressed in two agency opinion letters.10 In 1985, the FHLBB was asked to evaluate whether HOLA preemption extended to a “New York State law requiring the payment of interest on escrow accounts.” FHLBB Op. General Counsel, 1985 FHLBB LEXIS 178, at *1 (Aug. 13, 1985). The FHLBB observed that HOLA preempted “state laws or regulations which would impose upon federal associations obligations to pay interest on escrow accounts other than those provided for in their loan contracts.” Id. at *4. Taking this analysis one step further, the FHLBB opined that “such preemption would exist regardless of whether the loans in question are sold by the federal association to a third party, are being serviced by a third party, or whether the escrow deposits are held at a federal association while the loans have been sold in the secondary market.” Id. at *5 (emphasis added).11
Although we need look no further than the text of HOLA‘s implementing regulation to decide this case, the views expressed by FHLBB and OTS only further bolster our conclusion that California‘s interest-on-escrow law would interfere with the lending operations of savings associations, triggering HOLA preemption.
****
We hold that HOLA field preemption principles apply to Appellees’ claims against Chase, a national bank, even though its conduct giving rise to the complaint occurred after it acquired the loans in question from WaMu, a federal savings association. Because California‘s interest-on-escrow law imposes a requirement regarding escrow accounts; affects the terms of sale, purchase, investment in, and participation in loans originated by savings associations; and has more than an incidental effect on the lending operations of savings associations, we hold that it is preempted by
REVERSED and REMANDED. Each party shall bear its own costs.
GWIN, District Judge, dissenting:
Because the majority opinion reaches a conclusion that the authorizing statute‘s text does not support; because the majority opinion reaches a conclusion that the regulatory text does not support; and because California is not otherwise preempted from requiring banks to pay nominal interest on escrow account balances, I dissent.
Introduction
From the 1930s, federal savings associations and national banks were separately regulated. With their different regulation, federal savings association institutions received different and greater preemption from state laws. In contrast, national banks were separately regulated and national banks, like Chase, had less preemption from state regulations and laws. Under the Supremacy Clause, states could regulate national banks more than states could regulate federal savings association institutions.
The 2011 Dodd-Frank Act changed this. Now, federal savings associations and national
California law requires banks pay consumers a nominal interest on bank customers’ escrow account balances. Before the 2011 Dodd-Frank Act, California did not require similar escrow interest payments by federal savings association institutions.
This case asks us to exempt Chase from paying its California customers nominal interest on escrow balance monies that Chase can otherwise use—but asks for this exemption only on accounts that Chase bought from federal savings association institutions before January 21, 2013. Chase already pays this escrow interest on loans that Chase generated and pays this interest on loans generated by other national banks.
After January 21, 2013, revised federal regulations require both national banks and federal savings association comply with state escrow interest rate requirements.
Although Chase pays the escrow interest on loans that Chase or other banks generated, Chase says it should not be required to compensate customers whose loans originated with a federal savings association institution before 2013.
Background
In 1933, and during the Depression, Congress adopted the Home Owners Loan Act (“HOLA“) to charter and regulate savings associations at a time when a record number of home loans were in default and many savings associations were insolvent.1 “HOLA empowered the regulatory body, which became the [Office of Thrift Supervision (“OTS“)], to authorize the creation of federal savings and loan associations, to regulate them, and, by its regulations, to preempt conflicting state law.”2
At HOLA‘s 1933 adoption, federal savings association loans were not sold. The 1933 HOLA legislation said nothing about loan sales and said nothing about transferring any state preemption benefits to loan purchasers.3
Within ten years of HOLA‘s enactment, the Office of Thrift Supervision‘s predecessor promulgated regulations that suggested that federal savings association loans could be sold. These early regulations did not say federal preemption followed the loans.4
In 1938, Congress created the Federal National Mortgage Association (“Fannie Mae“), establishing a new secondary private market for mortgage loans. The 1938 Fannie Mae legislation did not change HOLA and only implicitly authorized Fannie Mae‘s loan sales in a secondary market.5 Once again, the Fannie Mae legislation did not say that any HOLA state law preemption followed a loan sale to a buyer not otherwise entitled to the preemption.
In 1978, Congress amended HOLA and, for the first time, explicitly authorized the sales of federal savings association institution generated loans. The 1978 HOLA amendments said nothing regarding the transferability of any federal savings association preemption. Congress said nothing regarding preemption transferability despite obvious knowledge and approval for federal savings association loan sales.6
On September 30, 1996, the Office of Thrift Supervision adopted regulations for
Chase is a national bank; Chase is not a federal savings association. As a national bank, HOLA does not directly regulate or protect Chase. Nonetheless, Chase argues that HOLA preemption applies because Appellees’ loans originated with Washington Mutual, a federal savings association, before Congress passed Dodd-Frank.
While this Court has earlier found broad HOLA preemption, it has not decided whether a non-federal-savings-association entity that acquires a loan from a federal savings association receives HOLA protections for its own post-acquisition conduct.
Discussion
This case should be simple. California requires banks pay interest on escrow account balances. This Court‘s Lusnak decision found that national banks must pay California‘s escrow interest on loans that national banks themselves generated.8 Chase is a national bank with California escrow accounts. It seems obvious—Chase, a national bank and not a federal savings association, should comply with California‘s escrow interest law.
The majority, however, finds that HOLA exempts national banks from paying escrow interest on loans that national banks purchased from a federal savings association before 2013.
First, the majority‘s opinion gives this one-off exemption from state interest law where the underlying statutory text gives no suggestion that Congress intended to exempt national bank purchased loans, even when those loans were purchased from federal thrift associations.
Second, the majority opinion interprets the critical regulation beyond what the regulation‘s text supports.
Finally, the majority opinion justifies its disregard of the underlying statute text and regulation text by positing that differing state escrow interest rules will make federal savings association loan sales more difficult because of regulatory costs.
The majority reaches this result even though Congress reached the directly opposite policy judgment in the 2011 Dodd-Frank Act.
The majority opinion also supports its theory by relying on an unrelated law review study that speaks to a completely different issue and says that the described regulatory change had no impact except for secondary sales of usurious loans that were already in default. Hardly a surprise.
We are not legislators charged with weighing the cost and benefit of the escrow interest requirement. And with Dodd-Frank, Congress has made its policy judgment by allowing states to require escrow interest. Even if Dodd-Frank does not control this case, it suggests that Congress does not believe HOLA preemption should stop state escrow interest requirements.
I
A.
Under the Supremacy Clause,9 federal law preempts conflicting state law but only when Congress intends to preempt state law. In judging whether Congress intended to preempt state law, including state banking controls, we first look first at the authorizing statute. As Justice Gorsuch describes: “Invoking some brooding federal
The underlying HOLA statute gives only limited regulatory authority. Before 2010, HOLA gave the Office of Thrift Supervision the power to adopt regulations to “provide for the examination, safe and sound operation, and regulation of Federal savings associations.”11 Consistent with this, HOLA gave the Office of Thrift Supervision authority to adopt regulations “for the . . . operation[] and regulation of . . . [f]ederal savings associations.”12
The controlling statute gives no suggestion that it authorizes bank regulation. Chase‘s argument fails because there is no statutory support to allow the Office of Thrift Supervision to regulate banks or to preempt state escrow account interest regulations.
B.
The majority recognizes that HOLA includes no statutory language extending preemption to banks but suggests we should find such intent from the 1978 HOLA legislation.13 The 1978 HOLA legislation allowed the sale of federal savings association generated loans. The 1978 HOLA says nothing regarding the transferability of federal savings association state preemption.
The majority says that Congress’ decision to expand HOLA to permit savings associations to sell into secondary markets indicates that HOLA preemption should travel with a loan after it is sold.14
First, Congress’ allowing mortgages to be sold is different from Congress’ extending the reach of HOLA preemption. Congress’ knowledge of and approval for the sale of federal savings association loans says nothing regarding whether Congress intended federal preemption to follow the loan. Congress already regulated national banks and already decided to give national banks less protection from state laws. That the 1978 HOLA legislation allowed the sale of savings association loans says little regarding Congress’ intent to allow national banks to escape state regulation.
Second, what is good for the goose is good for the gander. If the Court considers the 1978 HOLA legislation (which contained no specific reference to extending preemption to banks), then the Dodd-Frank Act and its attending regulations (explicitly authorizing state escrow interest requirements) should be considered.
California‘s interest-on-escrow law does not affect the operation of a federal savings association in this instance. To excuse Chase from California‘s interest-on-escrow law via
A.
Even if the Office of Thrift Supervision had authority to regulate banks’ escrow interest obligations, the relied-upon regulation,
Section
[The Office of Thrift Supervision] is authorized to promulgate regulations that preempt state laws affecting the operations of federal savings associations when deemed appropriate to facilitate the safe and sound operation of federal savings associations, to enable federal savings associations to conduct their operations in accordance with the best practices of thrift institutions in the United States, or to further other purposes of the HOLA.
When the
Chase is a national bank, not a federal thrift association. With Washington Mutual long gone,
Further, the
The negative inference, expressio unius est exclusion alterius (the inclusion of one is the exclusion of others), applies. Under
The regulation‘s preemption language limited preemption to lending regulation and to federal savings associations. As described in the regulation: “[The Office of Thrift Supervision] intends to give federal savings associations maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation.”19 The regulation went on to cabin its application: “Accordingly, federal savings associations may extend credit as authorized under federal law, including this part, without regard to state laws purporting to regulate or otherwise affect their credit activities.”20
By the language used,
B.
The majority principally relies on two historical facts in the evolution of HOLA regulation to show that
First, the majority cites a 1985 opinion letter from the predecessor agency to the Office of Thrift Supervision.21 Only a single line in the letter could be read to address the sale of loans to a third party: “Such preemption would exist regardless of whether the loans in question are sold by the federal association to a third party. . . .”22 This 1985 opinion letter predates the 1996
Second, a 2003 opinion letter from the Office of Thrift Supervision states that loan terms should not change “simply because an originator entitled to federal preemption may sell or assign a loan to an investor that is not entitled to federal preemption.”24 Although a similar issue, this case does not involve loan terms.
These historical notes do not warrant the majority‘s deference and do not indicate Congress’ intent to allow preemptive effect to travel with loans sold by federal savings associations to third parties.25
As the majority recognizes, the Supreme Court‘s decision in Kisor v. Wilkie, cautions against deference to an agency‘s interpretation when a regulation is not genuinely ambiguous. Here,
The majority does not show that
Finally, the majority‘s concern about potential “effects” is misguided.
Section
In this case, we consider the California escrow-interest provision. We do not bear responsibility for protecting Chase from some panoply of not-yet-enacted state banking regulation.
Also, this decision will have no going-forward effect. Regardless of how this case is decided, for contracts entered after January 21, 2013, federal-thrift-generated loans receive the same preemption treatment as national-bank-generated loans. Since January 21, 2013, both federal savings associations and banks must now “pay interest to the consumer on the amount held in any impound, trust, or escrow account . . . in the manner as prescribed by that applicable State or Federal law.”30
Additionally, it is not clear that permitting Chase to evade California‘s law for loans purchased from federal savings association institutions before January 21, 2013, would make the secondary market for loans less attractive overall. Chase already complies with California‘s escrow interest laws on loans that Chase or other national banks underwrote.
The majority also cites a study based on a “natural experiment” following the Second Circuit‘s decision in Madden v. Midland Funding, LLC to support its argument that ruling against preemption will cause more than an “incidental effect.”31
In Madden, the Second Circuit held that the National Banking Act did not preempt New York‘s and Connecticut‘s usury law‘s application to debts originally issued by national banks and then sold in the secondary market.32 The article measures the Second Circuit‘s opinion‘s impact on the secondary sales of usurious loans in three states.33 The Madden decision allowed all New York and Connecticut usurious loan customers to walk away from their usurious loans without any liability.
Against this backdrop, where secondary purchasers could lose all right to recover, the article surprisingly finds little impact: “[T]he discount is highly economically meaningful for notes backed by noncurrent loans but close to 0 for current loans. These findings indicate that debt holders . . . were not especially concerned unless borrowers were already late on their payments.”34
Madden is wildly different from this case. After Madden, the law review article finds no secondary loan sales impact for current loans and only limited secondary loan sales impact for non-current loans that are not enforceable.35
Madden also disrupted a long-held belief that national banks were exempt, under federal banking law, from state limits on interest rates. Uncertainty and risk to lenders stemmed from the unknown disposition of the Madden case; for example, there was a chance that the Supreme Court would take up the case, which it did not.36 In this case, a ruling against preemption would treat these loans as they would have been treated if they had been originated post-Dodd-Frank and there is no evidence that post-Dodd-Frank-originated loans have disrupted the secondary market.
Conclusion
This case is fundamentally about statutory interpretation. Justice Gorsuch appropriately describes how the actual text of statutes and regulations should control:
Rather than beginning with legislative history or making economic hypotheses about social consequences, a textualist starts with dictionary definitions, rules of grammar, and the historical context in which a law was adopted to see what its language meant to those who adopted the law. In this way, textualism offers a known and knowable methodology for judges to determine impartially and fix what the law is, not simply declare what it ought to be—a method to discern the written law‘s content without extraneous value judgments about person or policies.37
Instead of heeding this advice, the majority ignores the text of the relevant statutes and regulations and instead hypothesizes about the economic impact of a finding against preemption.
For the foregoing reasons, I believe that the majority should not stretch the HOLA‘s application and its accompanying regulations to excuse Chase from California‘s interest-on-escrow law. I respectfully dissent.