Recently, the Eighth Circuit Court of Appeals issued an important opinion for federal savings associations (FSAs) when it found that federal law preempted Missouri law in a case involving loan-related document preparation by non-attorney employees. Casey v. Federal Deposit Insurance Corporation, et al., No. 09-1096 (8th Cir. Oct. 20, 2009).
For years, parties have been litigating the issue of whether lenders who employ non-attorneys for the preparation of loan-related documents engage in the “unauthorized practice of law” and whether the imposition of a document preparation fee changes that analysis. The states’ purview over what constitutes the “practice of law” has resulted in a patchwork of different state laws which have provided divergent answers to those questions and varying constructs for analysis. Compare Charter One Mortgage Corp. v. Condra, 865 N.E.2d 602 (Ind. 2007) (fee for preparation of mortgage documents not the unauthorized practice of law in Indiana); King v. First Capital Fin. Svcs. Corp., 828 N.E.2d 1155 (Ill. 2005) (preparation of mortgage forms by non-attorneys constitutes the “practice of law” in Illinois, but lenders whose employees fill out forms for transactions involving the lender fall under the “pro se” exception), with In re First Escrow Inc., 840 S.W.2d 839 (Mo. 1992) (en banc) (escrow companies may complete simple, standardized forms not requiring the exercise of judgment or discretion, but may not charge a separate fee for document preparation). This patchwork of laws often makes inter-state lending confusing and difficult.
In order to attempt to obtain more uniformity, lenders have been arguing that the use of non-attorney employees to fill out lending paperwork and the imposition of a fee for that service is preempted by federal law. Most recently, this argument was persuasive in Casey. In that case, homeowners who borrowed and received mortgages from FSAs alleged that the preparation of loan-related documents and the imposition of a fee for that service violated Missouri prohibitions on the unauthorized practice of law. The Eighth Circuit found that the Home Owner’s Loan Act (HOLA) of 1933 (12 U.S.C. §§ 1461-1468) and the regulations promulgated thereunder by the Office of Thrift Supervision (“OTS”) (12 C.F.R. § 560.2) preempt Missouri law. The Court noted that OTS intended to “occupy the entire field of lending regulation for” FSAs. Among other things, the Court relied upon OTS’ interpretative guidelines (61 Fed. Reg. 50951-01, 50965-67 (Sept. 30, 1996)) and two OTS advisory opinions issued on March 10, 1999 and December 24, 1996 to determine that the Missouri law, as applied, is preempted because the OTS regulations expressly preempt “loan-related fees”.
Whether this case will be appealed to the United States Supreme Court is unknown at this point. However, after the Supreme Court’s decision this past Summer in Cuomo v. The Clearing House Association, No. 08-453 (U.S. June 29, 2009), which rejected the notion that the Office of Comptroller Currency (OCC) regulations preempt Attorney General Cuomo’s “letters in lieu of subpoenas” to national banks seeking information in connection with an investigation into violations of New York’s lending laws, class action plaintiffs may well be more inclined to seek Supreme Court guidance on the preemption issue.