The word of the day is…preemption

Federal credit unions ask about preemption from time to time, and we’ve blogged on the topic more generally in the past. A recent appellate case out of the Ninth Circuit has some FCUs asking questions about state laws that require payment of interest on mortgage escrow accounts.

As a starting point, the Ninth Circuit Court of Appeals encompasses Alaska, Arizona, California, and Hawaii. Opinions out of this court influence litigation outcomes in these states, but may also be persuasive to judges considering similar issues in other jurisdictions.  Recently, this court heard a case called Lusnak v. Bank of America, here’s a highly abridged version.

A consumer sued the bank for not paying interest on mortgage escrow accounts as required by California state law. The bank argued that the National Bank Act preempted the state law, and thus as an institution chartered under this act, the state law did not apply. The court disagreed, in part on the nuances of the specific preemption provision, and in part because of section 1639d(g)(3) of the Truth in Lending Act which states:


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