This week, the U.S. Court of Appeals for the Ninth Circuit ruled that the Rees-Levering Act (also known as the California Automobile Sales Finance Act), a California law regulating debt collection and repossession, is not preempted by the National Bank Act.

In Aguayo v. U.S. Bank, ___ F.3d ___, No. 09-56679 (9th Cir. Aug. 1, 2011), the Ninth Circuit held that a national banking association is subject to the state law, which requires the lender (and any other auto loan lender) to provide each obligor with 15 days’ advance written notice of the lender’s intent to dispose of  a repossessed or surrendered vehicle and of the obligors’ right to redeem the vehicle or reinstate the contract during such 15-day period.  

The plaintiff, Jose Aguayo, had defaulted on a retail installment sale contract which had been previously assigned by the auto dealer to U.S. Bank.  U.S. Bank repossessed the vehicle and sent Aguayo notices which the Court found did not strictly comply with the requirements of the Rees-Levering Act.  The bank subsequently sold the vehicle for less than the amount owed by Aguayo and sought to recover the deficiency from Aguayo.  Aguayo responded by bring a class action against U.S. Bank under the California Unfair Competition Law, alleging that the bank’s failure to send him notices complying with the Rees-Levering Act constituted unlawful, unfair and fraudulent practices.  U.S. Bank removed the case from California state court to federal court, and then moved to dismiss the case, arguing that the National Bank Act and regulations promulgated by the Office of the Comptroller of the Currency (OCC) preempt the Rees-Levering Act’s notice requirements.  The U.S. District Court for the Southern District of California granted the bank’s motion to dismiss the case, finding that the Rees-Levering notice requirement was a "disclosure" requirement which was expressly preempted by the National Bank Act and OCC regulations.  Aguayo appealed. 

In reversing the District Court, the Court of Appeals held that the Rees-Levering notice requirement falls within an exception in the OCC regulations, which provides that state laws pertaining to "contracts" and "rights to collect debts" are not preempted.  12 C.F.R. 7.4008(e)(1), (4).  The Court of Appeals noted that the District Court committed a reversible error in applying a "field preemption" standard.