Fourth Circuit Rules JPMorgan Must Follow State Law Protecting Consumers’ Rights
In an important breakthrough for consumer rights, the U.S. Fourth Circuit Court of Appeals in Richmond, VA, held 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. JPMorgan 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 also took out a loan to finance it. The contract said that, in the event of repossession, the lender would give the consumer accurate and complete disclosures about the repossession process, designed to make sure that the car sale was legal and reasonable.
JPMorgan 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 by Maryland law. Nonetheless, the bank argued that it had a right to be paid 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.
Under state law, no lender can receive a deficiency judgment if it did not provide the required notices to the consumer. For example, the value placed on a repossessed car that is re-sold is a particularly important piece of information, allowing the consumer to know how much he or she owes a lender – or vice versa – after the repossessed car is sold.
The consumer sued to have the deficiency judgments erased, and for other relief provided by Maryland law. The bank sought dismissal 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 from preemption 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 particular Maryland statute that offered them certain advantages, and thus could not later argue that the statute was wiped away. “Chase may not take advantage of favorable, voluntary contract terms, and then cry foul when it fails to adhere to its own contractually derived obligations,” wrote the court.
“The bank’s theory is that just because it bought the contract, that means that the contract was somehow magically re-written to eliminate some of the bank’s most important obligations,” explained Scott Borison of the Legg Law Firm in Frederick, MD, lead counsel for the plaintiffs in the case. “The Court of Appeals hit the nail on the head when it said that Chase is bound by that choice.”
In addition to Bland and Borison, the plaintiffs are also represented by Jane Santoni of Baltimore and Peter Holland, also of Baltimore. The plaintiffs were supported by an amicus brief from the Center for Responsible Lending and the National Consumer Law Center.