Pacific Capital Bank, N.A. v. Connecticut

National banking trade associations

Our attorneys are representing the major banking trade associations in a case pending in the Second Circuit, which concerns preemption of state law with respect to national bank refund anticipation loans (RALs). The case was brought by Pacific Capital Bank, N.A., which is located in California, to challenge the application to its loans of a Connecticut statute that limits the amount of interest that may be charged on RALs. The statute purported to apply this limit to national banks and prohibited "facilitators" of RAL lending, including tax preparers such as Jackson Hewitt and H&R Block, from servicing RALs at interest rates above the statutory maximum. Pacific argued that the Connecticut statute was preempted by the NBA and the regulations and opinions of the OCC, which, like those of the OTS with respect to federal thrifts, authorize national banks to conduct their lending activities by using non-bank third parties. In an opinion issued on August 10, 2006, Pacific Capital Bank, N.A. v. Connecticut, No. 3:06-CV-28, 2006 WL 2331075 (D. Conn. Aug. 10, 2006), the district court agreed with Pacific and enjoined enforcement of the statute to the extent it would prohibit national banks from charging interest on RALs at rates in excess of the statutory limit, including RALs offered to consumers through tax preparers. Connecticut appealed, the appellate briefing is complete, and the Second Circuit is expected to schedule an oral argument soon.

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