Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—DHaw: Hawaii Attorney General’s Predatory Practices Claims Preempted by National Bank Act, (Dec 5, 2012)

By Jody Coultas, J.D.

The National Bank Act (NBA) completely preempted Hawaii Uniform Deceptive Trade Practices Act (UDTPA) claims brought by the Hawaii Attorney General against six national banks for allegedly deceptive marketing of credit cards, according to the federal district court in Honolulu (Hawaii v. JP Morgan Chase & Co., November 30, 2012, Kobayashi, L.).

The Attorney General alleged that the six banks engaged in deceptive and predatory practices in marketing and selling ancillary credit card products to Hawaii residents in violation of the UDTPA. Each claim specifically disclaimed any such claims that would support removal of the action on the basis of diversity, jurisdictional mandates under the Class Action Fairness Act, federal question jurisdiction, or any other basis. In May, the banks removed the claims to federal court based on complete preemption of the UDTPA claims by the NBA.

The Attorney General argued that the complete preemption doctrine did not apply because the charges for the ancillary products did not constitute interest under the NBA and, even assuming the charges were interest, the claims did not challenge the rate of interest charged.

Because the NBA completely preempted the Attorney General’s UDTPA claims, the court found that removal was proper. The banks removed the claims based on the fact that the fees for payment protection plans were interest under the NBA. Interest, as defined by the NBA, includes any payment compensating a creditor or prospective creditor for an extension of credit, making available of a line of credit, or any default or breach by a borrower of a condition upon which credit was extended. The payment protection plans and other ancillary products at issue were debt cancellation contracts and/or debt suspension agreements. Although the mere fact that federal regulations govern debt cancellation contracts and debt suspension agreements did not alone create federal question jurisdiction, the banks’ declarations and the applicable regulations led the court to conclude that the charges imposed for participation in the payment protection plans constituted interest. At least some of the Attorney General’s claims challenged the rate of interest charged in connection with the ancillary products and these claims constituted usury claims against national banks.

The case is No. 12-00263 LEK-KSC.

L. Richard Fried , Jr. (Cronin Fried Sekiya Kekina & Fairbanks) for the State of Hawaii. Andrew Soukup (Covington & Burling LLP) for JP Morgan Chase & Co.

Cases: StateUnfairTradePractices HawaiiNews