Alabama Federal Court Weighs in On Preemption Under Dodd-Frank

For the first time, a federal court in Alabama addressed preemption under the Dodd-Frank Act. Under the Dodd-Frank Act, subsidiaries and affiliates of national banks can no longer argue that state laws are preempted. While the court held that the Dodd-Frank Amendment did not apply retroactively and found that the plaintiffs' claims were preempted, it noted the changed status of subsidiaries and affiliates of national banks in light of the Dodd-Frank Amendment. In Selman v. CitiMortgage, the plaintiffs filed suit against their mortgage loan servicer, the investor, and the insurer alleging violations of the RESPA, TILA, FDCPA, and state law. No. 12-0441-WS-B, 2013 WL 838193 (S.D. Ala. Mar. 5, 2013). The defendants moved to dismiss the plaintiffs' complaint. In support of their motions to dismiss, the defendants argued that the plaintiffs' claims were due to be dismissed to the extent they were based upon force-placed hazard insurance because such claims were preempted by the National Banking Act ("NBA"). Addressing the defendants' argument, the court relied on Watters v. Wachovia Bank, N.A., 550 U.S. 1 (2007), and acknowledged that the NBA controls business activities of national banks. Further, the court noted that the "NBA 'specifically authorizes federally chartered banks to engage in real estate lending' and empowers them 'to exercise all such incidental powers as shall be necessary to carry on the business of banking.'" 2013 WL 838193, at 3 (quoting Watters, 550 U.S. at 6). The court found that the NBA provides for broad regulation of national banks and stated that the NBA preempts state laws that restrict "the ability of a creditor to require or obtain private mortgage insurance, insurance for other collateral, or other credit enhancements or risk mitigants, in furtherance of safe and sound banking practices." Id. (quoting 12 C.F.R. § 34.4(a)(2)). The plaintiffs' argument hinged on the Dodd-Frank Amendment to the NBA, which eliminates the preemption of state law for subsidiaries and affiliates of national banks. Rejecting this argument, the court found that the Dodd-Frank Act provision did not apply retroactively and the events at issue in the lawsuit occurred before the effective date. Specifically, the court relied on the Comptroller of the Currency's May 12, 2011 Interpretive Letter #1132, which stated that the subject provision became effective on the transfer date of July 21, 2011. However, the court acknowledged that the Dodd-Frank Amendment changed the mortgage loan servicer's status as a subsidiary with respect to preemption under the NBA. Accordingly, the court granted the defendants' motions to dismiss, finding that the state-law claims were preempted by the NBA to the extent they relied on the placement of force-placed insurance. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.

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