Rentezelas on Watkins v. Wells Fargo Home Mortgage

Rentezelas on Watkins v. Wells Fargo Home Mortgage


In Watkins v. Wells Fargo Home Mort., a borrower filed a class action against Wells Fargo, alleging that the company’s mortgage division had originated predatory loans that were unconscionable under West Virginia’s contract principles. However, the court ruled that certain of the purported class action claims were preempted by the National Bank Act. In this commentary, Jeanne R. Rentezelas challenges the court’s holding with respect to the availability of field preemption under the National Bank Act as a viable defense to state law contract claims. She writes:
 
     National banks originate mortgage loans under the authority of the National Bank Act, 12 U.S.C. § 84 Shepardize (NBA) and are overseen in this process by the Office of the Comptroller of the Currency (OCC). It is this authority and oversight that Wells Fargo relied upon in crafting its defense to the purported class action brought by borrower Corletta Watkins challenging that Wells Fargo’s mortgage division had originated predatory loans that were unconscionable under West Virginias long-standing contract principle[s]. Plaintiff asserted that Wells Fargo remained subject to state contract law defenses despite federal preemptive authority in the real estate lending space. Specifically, OCC regulations permit state law to apply to national banks in certain specified areas where there is only an incidental affect on the banks real estate lending powers, including in the realm of state contract law (among others, including torts, criminal law, and other enumerated exceptions).
 
     Plaintiff argued that her claim of unconscionability is a contract-based claim that may be brought under state law as a result of the OCC’s exception from preemptive effect of the NBA. The court was not persuaded by Plaintiff’s argument in this regard. Rather, the court found that Wells Fargo could rely on broad-based field preemption allowing national banks to disregard state law pertaining to real-estate lending activities. Other judicial bodies may disagree with this court’s liberal reading of the NBA and pertinent OCC regulations in this regard. The court’s determination that field preemption applied in this case is inconsistent with the OCC regulation’s clear expression that state law may apply in the area of contracts. The court seemingly renders this exception completely moot through its edict that field preemption applies. The better argument seems to be the court’s alternative argument that conflict preemption would be available to thwart Plaintiff’s claims, if not field preemption. In this latter regard, the court discusses several distinct regulatory provisions that squarely apply to the conduct alleged to be unconscionable, such that contrary state law must be overridden.
 
     Borrowers may be well-served to challenge the availability of field preemption with respect to national bank powers in the real estate lending process. Courts are not always so quick to dispense with the OCC’s allowance of state limitations in the area of contract or other enumerated types of state law. The Supreme Court has articulated clearly that the NBA does not preempt the field of banking, and that Federally chartered banks are subject to state laws of general application in their daily business to the extent such laws do not conflict with the letter or the general purposes of the NBA. The court in Jefferson recently allowed the California Consumer Legal Remedies Act and the False Advertising Act to withstand an NBA preemption defense, ruling that the laws were of general application and required all businesses (including banks) to refrain from misrepresentations and abide by contracts and representations such that there was only an incidental affect on bank powers. The preemption argument more readily available to national banks is that of conflict preemption, which the court in Watkins, of course, used as an alternative basis for its ruling in favor of the bank on a motion to dismiss.
 
(citations omitted)