Alert August 26, 2008

US Court of Appeals for Sixth Circuit Rules for Federal Savings Bank in Federal Preemption Case Regarding Agents

The US Court of Appeals for the Sixth Circuit (the “Court”) ruled that the mortgage lending activities of a third party that is an exclusive agent of a federal savings bank obtain the benefit of preemption from the Home Owners’ Loan Act, reversing a 2007 trial court decision.  Following the reasoning of the US Supreme Court’s decision in Watters v. Wachovia, the Court found that since the activity being challenged – mortgage lending – was both field preempted and expressly preempted by HOLA, Ohio could not force the exclusive agents of a federal thrift to register with the state before originating loans in Ohio.  The Court said that “it is the activity being regulated rather than the actor who is being regulated that matters” for purposes of preemption.  Also, as in Watters, the Court made its determination without analyzing whether the OTS’ opinion that the activity was preempted was entitled to deference.  In the first footnote of its opinion, however, the Court suggests that the federal Housing and Economic Recovery Act of 2008, which was enacted on July 30, 2008 (and established certain new licensing and registration requirements under a system designed by the Conference of State Bank Supervisors) may supersede the Court’s decision at some point in the future.  State Farm Bank, FSB v. Reardon, No. 07-4260 (6th Cir. Aug. 22, 2008).