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Federal Appeals Court Upholds California Consumer Credit Protection Law

The U.S. Court of Appeals for the Ninth Circuit agreed with AARP that state borrower protection laws can be enforced against nationally chartered banks. An adverse decision would have had repercussions in a wide swath of transactions, ranging from everyday consumer transactions to real estate foreclosure laws.


California's Rees-Levering Motor Vehicle Sales and Finance Act requires that car owners receive basic notices specifying what they must do to recover their cars after default. The law provides an important protection to borrowers while allowing loan holders a quick way to collect after default.

The protections for both borrower and lender under Rees-Levering provide assurances absent in federal law. Yet the federal Office of the Comptroller of the Currency (OCC) has interpreted Rees-Levering as conflicting with federal law when applied to nationally chartered banks.

Attorneys with AARP Foundation Litigation filed AARP's "friend of the court" brief, pointing out that state laws have long occupied the field in governing repossession practices. In contrast, federal law provides loan holders with no provisions on how to conduct repossessions, just as it provides borrowers with no enforceable protections against unfair repossession practices. Moreover, the few tools that federal regulators have at their disposal are rarely used. The OCC, actually has never taken a consumer protection enforcement action against a national bank for unfair or deceptive car lending or repossession practices. The OCC admits that it was not until 2000 that it invoked consumer protection authorities granted by Congress in 1975.

In fact, today's mortgage crisis has been laid at the feet of the OCC's abdication of authority over one area where it did take action, albeit weak and ineffectual action: subprime lending. AARP's brief also pointed out that the U.S. Supreme Court has clearly carved out a role for states in regulating some of the practices of national banks.

The appeals court ruled that OCC's authority stopped short of the authority granted the state in Rees-Levering and therefore there is no preemption. This means that the state law stands.

What's at Stake

While Aguayo v. U.S. Bank centered on a car repossession dispute, the justification used by the OCC for federal supremacy is identical to the justification it uses in real estate loan preemption regulation — and a decision in this case could resonate across the spectrum of state laws including foreclosure laws. Allowing preemption of state borrower protections could have far-reaching consequences for the older Americans who find themselves at risk of losing their largest investment and the place they call home, at a time when they are being squeezed by economic recession, spiraling health care costs, and fixed incomes often pegged to assets whose values have plummeted.

Case Status

Aguayo v. U.S. Bank
was decided by the U.S. Court of Appeals for the Ninth Circuit.

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