VA Federal Court: HOLA Preempts Tort Claims Alleging Savings Bank Posed as Lender to Collect Fees
April 4, 2011 - The U.S. District Court for the Eastern District of Virginia held that the Home Owner's Loan Act (HOLA) preempts state tort law claims alleging that Flagstar Bank F.S.B. improperly represented itself as as a lender to collect brokerage fees on a home mortgage (Down v. Flagstar Bank F.S.B., E.D. Va., No. 3:10-cv-847, 4/4/11).
The plaintiff (borrower) asserted "bait and switch" claims under Virginia law, alleging that Flagstar used a Good Faith Estimate to pose as the lender in order to collect brokerage fees. The borrower claimed that he paid fees and rates than he could have avoided by dealing directly with the lender, First National Bank of Arizona.
Flagstar removed the case to federal court, arguing that HOLA preempts the Virginia claims. The federal court (J. O'Grady) agreed. Although HOLA regulations (12 C.F.R §560.2(c)(4)) includes an exception to the normal preemption for tort law claims that only "incidentally affect the lending operations," the exception did not apply in this instance because Flagstar's representations about its role and the loan transaction are “inextricably linked to one another.”
“If a plaintiff were permitted to allege fraud and to receive the return of fees required to be disclosed by RESPA in state court, state courts would be left to interpret the RESPA statute and regulations, analyzing a defendant's compliance in each individual case—and this is precisely what federal preemption intends to avoid.”
The Court's holding recognizes the broad reach of HOLA preemption, and evidences a federal court's willingness reject one of the special preemption exceptions in the post Dodd-Frank era.
