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06 July 2012
On June 21 2012 in Parks v MBNA America Bank, NA (Cal Sup Ct No S183703), a case with potentially significant implications for state regulation of national banks, the California Supreme Court ruled unanimously that a state law mandating the form and content of disclosures printed on the front of convenience checks issued to credit card customers was pre-empted by the National Bank Act. In the decision, the court adopted a pre-emption analysis that reaffirmed the primacy of the act in regulating the activities of national banks, and rejected the argument that a national bank must make a specific factual showing in order to establish that a state regulation significantly impairs a power granted to it by the act.
The case addressed a California state law (Cal Civ Code Section 1748.9) that required credit card issuers to include a specified disclosure on the front of any convenience check issued to a consumer. The trial court held that the state law was pre-empted, following the Ninth Circuit's decision reaching the same result in Rose v Chase Bank USA, NA (513 F 3d 1032 (9th Cir 2008)). The California Court of Appeal reversed. The appellate court concluded that the state law was a "generally applicable disclosure law" that did not forbid national banks from exercising their powers. That court further held that, on its face, the law did not "significantly impair" the bank's powers, and stated that a factual showing would be necessary to find pre-emption on that basis.
The Supreme Court rejected both of the appeal court's conclusions. As an initial matter, the court concluded that requiring particular content and language in, or prescribing the manner and format of, a disclosure amounted to a prohibition on issuing convenience checks unless the national bank complied with the state law. Equating a "conditional permission" with a "contingent prohibition", the court determined that the state law forbade national banks from exercising their powers unless they complied with state law – therefore, the state law must be pre-empted. The court further noted the potential issue that if the California law were not pre-empted, national banks could be required to monitor and comply with separate disclosure requirements in every state, and perhaps in individual municipalities. The prospect of compliance "with a diverse or duplicative patchwork of local disclosure requirements" also constituted a significant impairment on the national bank's power to lend money pursuant to the National Bank Act.
The court also concluded that a bank need not make a specific factual showing in order to prove significant impairment. In addition to noting that it was aware of no Supreme Court or California Supreme Court decision imposing such a requirement, the court opined that such a test would be unworkable in practice. A cost threshold, articulated either in absolute terms or in proportion to the size of the bank, would create a situation where a state law might be pre-empted as to some national banks, but not as to others. Furthermore, the court noted that, whether a law was pre-empted as to a particular bank might change, as the bank's relevant activities increased or decreased in scope. The court concluded that such a system would be unworkable.
Importantly, the court reached its conclusion based solely on the National Bank Act, and did not consider whether the state law was pre-empted by the regulations of the Office of the Comptroller of the Currency. As a result, the court did not reach the question of the validity of the regulations.
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