Home Owners’ Loan Act Does Not Preempt Contract and Texas Debt Collection Practices Act Claim

The United States District Court for the Northern District of Texas was faced with the issue of whether the Home Owners’ Loan Act, 12 C.F.R. 560.2(c), preempted all of Plaintiffs’ claims in a foreclosure case when Wells Fargo filed a motion to dismiss for failure to state a claim under Federal Rule 12(b)(6). In essence, Wells Fargo argued that all of the home owner’s claims were preempted by the Home Owners’ Loan Act because it was, in essence, the original lender, as a result of a series of mergers involving a federal savings bank. Henderson v. Wells Fargo Bank, 2014 WL 3744685, 2014 U.S. Dist. LEXIS 103657 (N.D. Tex. July 30, 2014).

In Henderson, Henderson, the home owner, obtained a home equity loan from World Savings Bank, which subsequently merged with Wachovia Bank, which in turn merged with Wells Fargo Bank. World Savings Bank was a federal savings bank. A dispute arose as to whether Henderson was to make monthly payments that included escrow taxes and insurance and Henderson provided copies of the insurance policy he had purchased himself. Henderson was notified that his monthly payment was going to increase from $1,630 a month to $2,859.42 a month and that he owed $14,920.28 in escrow advances including forced placed insurance amounts. Wells Fargo subsequently accelerated the amounts due under the note and initiated a judicial foreclosure proceeding in state court. Henderson filed and subsequently dismissed his chapter 13 bankruptcy proceeding and filed suit alleging violations of the Texas DTPA, RESPA, False Claims Act, breach of contract, negligence, negligence misrepresentation and violations of the Texas Debt Collection Practices Act. Wells Fargo removed to federal court and filed a motion to dismiss for failure to state a claim under Federal Rule 12(b)(6) claiming that the Home Owners’ Loan Act (hereinafter “HOLA”) preempted the claims along with other pleading deficiencies by Plaintiff. Henderson, relying on Gerber v. Wells Fargo Bank, N.A., No. 11-01083-PHX-NVW, 2012 WL 413997, at *4 (D.Ariz. Feb. 9, 2012), argued that the plain language of the statute only protects federal savings banks and Wells Fargo is a national bank, not a federal savings bank and therefore, it is not entitled to rely on 12 C.F.R. 560.2(c).

In considering the issue, the court noted that the 5th Circuit has not addressed the issue of whether an entity that acquires a mortgage by merger or acquisition with a federal savings bank is entitled to the same protection under HOLA as the originating bank even though it is not a federal savings institution itself. Further, the court, in rejecting the conflicting authority provided by Wells Fargo, and accepting the reasoning of the Gerber court that the plain language of the HOLA only preempts “state laws affecting the operations of federal savings associations” and leaves room for state laws that “only incidentally affect the lending operations of Federal Savings Associations”, the court concluded that HOLA does not apply to Henderson’s state claims against Wells Fargo and dismissal on that ground would be improper. It should be noted that while the court did allow the breach of contract claim and Texas Debt Collection Practices claim to survive, the remaining claims were dismissed for other reasons set out in the court’s 38 page opinion.

Preemption arguments always require a case-by-case analysis and even more so in light of the Dodd-Frank legislation and the changes it has made to reduce broader field preemption with conflict preemption. Starting with the plain language of a statute, as the Henderson court did, is always the first step.  The opinions of this blog are solely the author’s and any suggestions, comments and replies should be sent to john@jrjoneslaw.com.