Court Says National Bank Has to Keep Its Word to Car Buyer
Rejects bank’s claim that federal law allows it to flout Maryland’s consumer protections
In an important breakthrough for consumer rights, the U.S. Fourth Circuit Court of Appeals in Richmond, Va., held on April 5 that the National Bank Act does not mean a national bank can walk away from its own promise to follow a Maryland law whenever the bank repossesses a car.
The ruling in Epps v. JP Morgan Bank reverses a federal district court in Maryland, which held that federal law preempted a state law requiring lenders to make certain disclosures to consumers before repossessing their cars.
The case arose when a Maryland woman bought a car from a dealership and took out a loan to finance it. The contract said that, in the event of repossession, the lender would give the consumer certain accurate and complete disclosures about the repossession process, designed to make sure that the car sale was legal and reasonable.
JP Morgan Chase then purchased the loan contract from the car dealer, including the promise to follow Maryland law. But when the consumer fell upon difficult economic times and her car was repossessed, Chase did not provide the full and accurate information required under state law. Nonetheless, the bank argued that it had a right to collect a large sum of money from the consumer as a “deficiency judgment” for the difference between the value of the car and the amount owed on it.
Since Maryland law says no lender may receive a deficiency judgment if it did not provide the required notices to the consumer, the woman sued to have the deficiency judgments erased and for other relief. The bank sought dismissal of her lawsuit on the grounds that the National Bank Act overrides state law.
“The problem with the bank’s theory is that there are not any federal laws that deal with this subject at all,” noted Paul Bland, senior attorney at Public Justice, who argued the successful appeal. “The Fourth Circuit rightly rejected the bank’s idea that it isn’t governed by any laws, particularly because the federal government has never chosen to regulate this area.”
In its decision, the Fourth Circuit held that even if one provision of the National Bank Act would preempt the state law, the state law was still “saved” by another provision of the law that exempts certain state laws from preemption. The court also noted that first the car dealer, and then in turn Chase, had chosen to follow a
