fb tracking

McShannock v. JP Morgan Chase

A California law requires payment of interest on escrow accounts maintained by financial institutions that hold mortgages on consumers’ homes. In this case, a consumer brought a class action against Chase, a national bank, for not paying interest on escrow accounts in connection with mortgages it acquired when it purchased the assets of Washington Mutual, a failed savings and loan, in 2008. A 2018 decision of the U.S. Court of Appeals for the Ninth Circuit holds that the National Bank Act does not preempt application of the California consumer law to national banks. Chase claimed, however, that the Home Owners’ Loan Act (as it existed before it was amended by the Dodd-Frank Act in 2010) and regulations promulgated under it by the Office of Thrift Supervision (the former regulator of federal savings and loans until it was abolished by the Dodd-Frank Act) preempted California law as applied to mortgages originated by a savings and loan before the enactment of Dodd-Frank.

A federal district court rejected Chase’s argument, and the bank appealed. Public Citizen filed an amicus group in support of the consumer. The brief argues that OTS’s now-repealed regulation, assuming it still has any effect, does not provide for preemption of California law as applied to a national bank, as the OTS regulation only preempted the field of regulation of savings associations. The brief also explains that Chase’s reliance on “deference” to the former agency’s construction of its regulation is incompatible with the Supreme Court’s recent decision in Kisor v. Wilkie (2019), which sets forth limits on deference to agencies’ interpretations of their regulations.

In September 2020, the panel ruled by a 2-1 vote that the OTS’s defunct regulation continues to preempt application of California’s interest-on-escrow requirement to loans originated by savings associations before Dodd-Frank and resold to national banks. The plaintiff filed a petition for rehearing en banc, and Public Citizen filed an amicus brief in support of the petition. The court denied rehearing by a divided vote.