After AARP filed an amicus brief asking the California Court of Appeal to protect consumers by upholding the state’s automobile repossession law the parties settled the case.
There are only two ways for a creditor to legally repossess a car in California. One is to comply with the state’s Rees-Levering Motor Vehicle Sales and Finance Act, which allows a creditor to seize a car but contains consumer protections including very specific notice requirements to the borrowers. The other is to go to court with a formal action to recover the property.
Wachovia Bank acquired an automobile loan, in which the borrowers (Jose De La Cruz and Willie Mae Jackson) allegedly fell behind in payments. Wachovia repossessed the car without going to court first, and the couple alleges, without following the notice requirements Rees-Levering demands.
Wachovia argued that because it is a federally chartered bank, it did not need to comply with state repossession laws such as Rees-Levering. It claimed that its status as a national bank trumps state laws, invoking the legal principal that when a federal law that conflicts with a state law, the federal law wins. A trial court agreed that the bank’s national charter allowed it to ignore the notice provisions of state repossession law, and de la Cruz appealed.
Attorneys with AARP Foundation Litigation filed AARP’s friend-of-the-court brief in the California Court of Appeal along with the Center for Responsible Lending and the National Consumer Law Center, arguing that the U.S. Supreme Court and the federal Office of the Comptroller of Currency (which regulates national banks) have both made it clear that national banks are in fact subject to numerous state laws. The brief also points out that Rees-Levering is a carefully crafted law that balances consumer and lender protections and provides lenders with rights they might not otherwise have. For example, federal law does not authorize self-help repossession at all. Which also leads to another point the brief makes: there is no conflict between federal and state law in this matter. There is no federal repossession law. The brief also carefully reviews the massive lending abuses that led the California legislature to enact Rees-Levering, and that were specifically noted by the legislature during enactment of the law.
What’s at Stake
Reading the law as Wachovia urged would leave borrowers in a void with little or no protection from the State. It would leave lenders in the position where they could pick and choose which state laws with which they choose to comply and subject only to federal oversight. The federal OCC overwhelmed with dealing with massive issues such as national consumer credit and home mortgage lending abuses, has historically had few resources to pursue consumer protection cases on matters such as auto repossession. Eviscerating state consumer protection laws would leave borrowers with few protections and little recourse.
Before the court decided the appeal in De La Cruz v. Wachovia, the parties reached a class action settlement which was approved by the trial court. The settlement included $4.4 million in cash payments, and defendants waived outstanding deficiency obligations estimated at $278 million for over 30,000 class members.