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Nevada v. Bank of America

Federal Appeals Court Allows State Prosecution of Predatory Lending

    

A federal appeals court supported the State of Nevada’s efforts to protect homeowners from allegedly predatory lending practices by enforcing state consumer protection laws in state court

Background

In 2011, the Nevada Attorney General’s office sued in its own state court Bank of America, Countrywide Home Loans and their respective mortgage servicing companies, alleging that they violated state deceptive trade practices law by providing misleading information about terms and eligibility for home mortgage loss mitigation and foreclosure processes. The defendants removed the case from state to federal court, arguing that the State did not have the authority to bring the lawsuit itself. Nevada appealed the removal.

States use their enforcement authority to redress a broad range of deceptive practices in the marketplace and bring actions to protect citizens, particularly in the arena of consumer protection. States have been particularly active in the arena of predatory mortgage lending, mitigating the inadequate resources at the federal level that have failed to address the ever-changing nature of predatory mortgage lending.

In this case, the State of Nevada alleged that the practices in question were an affront to the state itself, not just to the borrowers involved. The State asked the court to order relief that individual borrowers might not otherwise be able to obtain — for instance, restitution, civil penalties and broad-brush injunctive relief on behalf of all people of the State, not just the specific victims. The threat of such remedies could provide immediate relief and be a serious deterrent to the defendant and any other lenders contemplating the questionable activities.

AARP Foundation Litigation attorneys joined those from the Center for Responsible Lending and the National Consumer Law Center in a friend of the court brief that detailed the efforts of numerous states to get out in front of and to prosecute predatory mortgage lending practices, as well as other financial crimes (such as credit card and “zombie” debt practices). The brief parsed constitutional principles that reserve this power to states, noted the precedents that permit state regulation of this specific area of the law, and detailed how the effects of prohibiting this type of state investigation would hamper states’ ability to protect residents.

A federal appeals court agreed that state court was the proper forum. Relying on its own precedent, it declined to find, as the Bank wanted, that the case was a class or mass action appropriate for federal court. “Here, the Complaint raises exclusively state law claims,” the court ruled.

What’s at Stake

States have stepped in to protect borrowers and consumers in a variety of arenas where federal authorities either do not have the resources or the ability to prosecute. The ability of states to bring lawsuits as a party in interest is a powerful tool in prosecution — and sends a significant message to would-be wrongdoers

Case Status

Nevada v. Bank of America
was decided by the U.S. Court of Appeals for the 9th Circuit.

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Our legal advocacy initiatives  - conducted by AARP Foundation Litigation (AFL) - reflect more than 15 years of work in federal and state courts across the country. Through our efforts, we support the Foundation’s four priority areas: Hunger, Income, Housing and Isolation, and ensure that those 50 and older have a voice in the laws and policies that affect their daily lives.