On August 1, the United States Court of Appeals for the Ninth Circuit issued an opinion rejecting federal jurisdiction under the Class Action Fairness Act (CAFA) and the National Banking Act for a lawsuit filed by the Attorney General of Hawaii on behalf of state residents (sometimes called a parens patriae suit) against financial companies under state consumer protection laws.
In Hawaii v. HSBC Bank Nevada, N.A., No. 13-15611, 2014 U.S. App. LEXIS 14966 (9th Cir Aug. 1, 2014), the Attorney General of Hawaii had filed state court complaints against six credit card providers stating claims under various Hawaii consumer protection statutes. The complaints were aimed at debt protection products offered by these companies, including “payment protection plans,” which the Attorney General claimed were deceptively marketed and targeted at vulnerable populations like subprime borrowers and senior citizens.
The defendants removed the case to federal court, arguing that either the National Banking Act completely preempted the Attorney General’s suit or that the suit should be treated as a class action under CAFA. Although the district court held that there was federal jurisdiction under the National Banking Act, the Ninth Circuit Court of Appeals reversed.
Relying on a 2013 decision by the Fifth Circuit Court of Appeals, the Ninth Circuit concluded that, in challenging the payment protection plans, the Attorney General was not really seeking to recover “interest” (which would have provided jurisdiction under the National Banking Act), but instead was seeking damages for unfair and deceptive trade practices under state law. The National Banking Act thus did not preempt the action.
The court of appeals also held that CAFA did not provide an alternative basis for federal jurisdiction, relying on the Attorney General’s explicit disclaimer of class status. Citing decisions from the Second, Third, and Fourth Circuits, the court stated, “Failure to request class status or its equivalent is fatal to CAFA jurisdiction.”
While much of the HSBC opinion favored the Attorney General, the court rejected a number of the Attorney General’s arguments, including (1) that the National Banking Act only preempts claims that explicitly invoke a state usury law, and (2) that credit card payment protection fees could never constitute “interest” under the National Banking Act. This latter point is important because it left open the argument that challenges to fees based on excessiveness (rather than deceptiveness) might be covered by the National Banking Act.