Consumer Finance Litigation

In Thomas v. CitiMortgage, Inc., No. 12-40122-FDS, 2013 WL 4786060 (D. Mass. Sept. 5, 2013), the U.S. District Court for the District of Massachusetts recently addressed preemption under the Dodd-Frank Act. While the court found that the Dodd-Frank amendment limited the preemptive scope of the HOLA, it held that the amendment did not apply retroactively. Additionally, the court held, for the first time, that a bank that table-funds a loan is considered the original lender for the purposes of the HOLA preemption analysis that existed prior to Dodd-Frank's enactment. Plaintiff KathleenThomas filed an adversary proceeding against CitiMortgage, Inc. ("CitiMortgage"), Flagstar Bank, FSB ("Flagstar"), and Allied Mortgage Capital Corporation ("Allied Mortgage") alleging violations of Massachusetts General Laws Chapter 183C. The bankruptcy court granted the defendants' motion for summary judgment, and Thomas appealed. On appeal, Thomas challenged the bankruptcy court's holding that the Home Owner's Loan Act ("HOLA") preempted Chapter 183C. Addressing Thomas's argument, the court found that Chapter 183C mandates additional disclosures than those required by state law for high-cost loans. The court also determined that the HOLA authorized the creation of the Office of Thrift Supervision ("OTS") which, in turn, was given "broad authority under HOLA to regulate and govern 'the powers and operations of every Federal savings and loan association. . . .'" 2013 WL 4786060, at 3 (quoting Sovereign Bank v. Sturgis, 863 F.Supp.2d 75, 91 (D. Mass. 2012)). The court then found that the OTS occupied the field for federal savings associations. The court noted, however, that the Dodd-FrankAct limited the preemptive scope of the HOLA by limiting it to specific conflicts between state and federal law. Because Thomas's loan was consummated prior to Dodd-Frank's enactment, the court applied the HOLA preemption analysis that existed prior to Dodd-Frank's enactment. Applying the preemption analysis applicable to Thomas's loan, the court said that it involved a two-step inquiry. First, the HOLA requires a determination of whether the challenged law falls within a category listed in 12 C.F.R. § 560.2(b). If it does not, the court must then determine whether the challenged law affects lending. The court found that Chapter 183C easily fell within subsection (b) because it purported to regulate loan related fees and purported to regulate loan disclosures. The court also rejected Thomas's argument that Chapter 183C was not preempted because Massachusetts was exempt from the TILA and, thus, the exemption should also apply to more general OTS regulations. Specifically, the court found that the exemption did not apply when the creditor was a federally-chartered institution. Because Flagstar, the creditor, was a federally-chartered institution, any exemption did not apply. Defendants also argued that Thomas's loan was table-funded, thereby making Flagstar the original lender for the purposes of HOLA preemption. Addressing the issue for the first time, the court found that a bank which table-funds the loan should be considered the original lender for the purposes of the preemption analysis. Additionally, the court found it was irrelevant that the loan closed in the name of another entity. Finding that preemption extended to loans table-funded by a federal thrift, the court affirmed the bankruptcy court's decision. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.