4th Circuit: Epps v. JP Morgan Chase- No Federal Preemption of State Debt Collection Laws

Summary: Epps purchased a vehicle from Thompson Toyota subject to a retail sales installment contract ("RIC")  that provided, among other things, that it was subject to federal and Maryland law, including the Maryland Closed End Credit Provisions ("CLEC").  The note was later assigned to Chase.  When Epps later defaulted, Chase repossessed the vehicle and notified Epps of its intent to sell the vehicle.  Contrary to the provisions of CLEC, however, Chase did not notify Epps of the current location of the vehicle or where and when it was to be sold.  Epps later commenced a class action against Chase under CLEC for these omissions and also for breach of contract under the RIC. Chase moved for dismissal pursuant to Rule 12(b)(6), arguing that any claims under CLEC were pre-empted by the National Bank Act ("NBA") and its implementing regulations.  The district court ruled in favor of Chase and dismissed the action, finding that the CLEC post-repossession requirements were related to the initial extension of consumer credit and thereby pre-empted.  The district court also dismissed the breach of contract claim, finding that "where one party to a contract had no choice but to include in that contract a provision calling for the applicability of a particular law, the other party to the contract cannot assert a breach of contract claim based on violation of that law." The Court of Appeals, however, held that, even assuming the NBA applied to a loan that did not originate with Chase, that the "savings clause" of 12 C.F.R. § 7.4008(e) specifically excludes from preemption "debt collection."  While C.F.R. § 7.4008(d)(2)(viii) does preempt state laws requiring specific disclosures "in credit application forms, credit solicitations, billing statements, credit contracts or other credit-related documents" (Emphasis added), the post-repossession notices of the CLEC are only triggered when there is an attempt to collect a debt and does not fall within the ambit of § 7.4008(d)(2)(viii). Chase further argued that the CLEC was not protected from preemption by the savings clause of § 7.4008(e), as the CLEC more than incidentally burdened its lending powers.  The 4^th Circuit rejected this, finding that debt collection was distinct from a creditor’s initial determination to extend credit, particularly as holding otherwise would preempt all state debt collection laws, rendering § 7.4008(e) a nullity. The Court of Appeals also rejected the argument that since Chase did not negotiate the terms of the RIC, it should not be bound by the election of the CLEC, which was mandatory.  Finding, however, that the RIC could have elected the CLEC or instead Maryland’s Retail Installment Sales Act ("RISA"), which allows, among other differences, smaller late fees.  Accordingly, the RIC could not elect the favorable terms of the CLEC "and then cry fould when it fails to adhere to its own contractually derived obligations." Commentary: While this action concerned the preemption related to  a national bank’s non-real estate lending  powers, the real estate lending powers under 12 C.F.R. §34.4 (b) are largely the same. For a copy of the opinion, please see: Epps v. JP Morgan Chase- No Federal Preemption of State Debt Collection Laws.PDF