Alert August 26, 2008

Federal Appeals Court Rules for Lenders in Federal Preemption, FDCPA and EFTA Cases

In a busy week for the Sixth Circuit, the Court issued three decisions favorable to lenders.

Federal Preemption. The Court ruled that the mortgage lending activities of a third party that is an exclusive agent of a federal savings bank are preempted by the Home Owners’ Loan Act, reversing a trial court decision we reported on in the October 9, 2007 Alert. Following the reasoning of the Supreme Court’s decision in Watters v. Wachovia, the Court found that because the activity being challenged – mortgage lending – was both field and expressly preempted by HOLA, Ohio could not force the exclusive agents of a federal thrift to register with the state before originating loans there. As in Watters, the Sixth Circuit made its determination based on the Home Owners’ Loan Act without analyzing whether the OTS’ opinion that the activity was preempted was entitled to deference. Click here for a copy of State Farm Bank, FSB v. Reardon, No. 07-4260 (6th Cir. Aug. 22, 2008).

FDCPA. The Court affirmed a grant of summary judgment for a defendant under the Fair Debt Collection Practices Act. Plaintiff alleged that the defendant violated FDCPA by stating in its initial collection communication that plaintiff was required to dispute her debt in writing. The Sixth Circuit concluded that even if the communication violated FDCPA, the defendant’s mistaken interpretation of law satisfied the “bona fide error” defense. The Court rejected plaintiff’s claim that FDCPA mirrored the Truth in Lending Act, which does not contain a bona fide error defense for mistakes of law, reasoning that TILA explicitly excludes interpretations of law from its definition of a “bona fide error,” but FDCPA does not. Click here for a copy of Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LPA, No. 07-03964 (6th Cir. Aug. 18, 2008).

EFTA. The Court also ruled that the Electronic Funds Transfer Act is not violated by an ATM screen message informing customers that they “may” be charged a service fee, coupled with an on-screen message asking whether the customer wishes to proceed and accept the fee. The Court rejected plaintiff’s argument that the original message should have indicated that a fee “will” be charged, to comply with EFTA. Click here for a copy of Clemmer v. Key Bank Nat’l Assoc., No. 07-3936 (6th Cir. Aug. 22, 2008).