On Wednesday, June 21, the California Supreme Court issued a decision in a case of major importance to the banking industry: Parks v MBNA America Bank, N.A. The Court unanimously held that the claim brought by the plaintiff, Allan Parks, on behalf of a putative class of California credit card customers of MBNA is preempted by federal law -- specifically, the National Bank Act (NBA).
The case involved Parks’ claim that MBNA was required to comply with a California statute requiring specific disclosures to be made by credit card issuers with respect to “convenience checks” offered to their customers in California. A near-identical claim was previously made in a federal court case, in which Arnold & Porter also prevailed on grounds of preemption by the NBA, as well as the implementing preemption regulations of the Office of the Comptroller of the Currency (OCC). Rose v. Chase Bank USA, N.A., 513 F.3d 1032, 1034-35 (9th Cir. 2008). Although the trial court in Parks found Rose persuasive and ruled for MBNA, the California Court of Appeal reversed, explicitly and directly rejecting the Ninth Circuit’s decision in Rose and opining that the OCC lacked authority to issue its preemption regulations and, as well, that to find preemption under the NBA requires an evidentiary showing that application of the state law at issue imposes a significant burden on a national bank.
In the California Supreme Court (as well as the appellate court below), Parks was supported by the California Attorney General, who also presented oral argument along with Parks. Despite their arguments, and also without relying on Rose, the California Supreme Court held that the California statute is preempted by the NBA. The Court found the state statute burdensome on its face as a matter of law, and hence preempted, because it imposes requirements specifically targeted at credit card issuers and purports to dictate the form, text, content and manner of disclosure beyond those required by federal law and because other states (and localities) could impose similar but differing requirements than those in the California statute, thereby adding to the burden on the Bank. In addition, the Court specifically rejected the appellate court’s holding that an evidentiary showing is required for preemption of state disclosure laws.
The new decision brings California case law in line with favorable U.S. Supreme Court precedent on banking preemption and mitigates the lingering ill-effects of previous California Supreme Court decisions on banking preemption. It also underscores that the NBA preempts not only state laws that literally bar or proscribe particular banking activities or services, but also state laws that implicitly have the effect of conditioning a banking activity or service on compliance with state laws, including state disclosure requirements.
Arnold & Porter’s Larry Hutt and Nancy Perkins were the lead attorneys representing the defendant.