US District Court Decision Casts Doubt on Applicability of NBA Preemption to Bank Partners

The recent decision in Edwards v. Macy’s Inc. from a US District Court in New York seemed to provide reassurance that NBA preemption extends to non-bank agents acting on behalf of a national bank. In the Edwards decision, the court relied on Madden v. Midland Funding for its finding that “the Second Circuit has indeed held that [NBA] preemption extends to an entity that is not a national bank only where that entity is an agent or subsidiary of a national bank or is otherwise acting on behalf of the national bank in carrying out the bank’s business.” This holding is the metaphorical silver lining of the Madden decision, which has become a significant cause of concern for companies in the financial services industry.

A US District Court in Pennsylvania, however, issued an opinion earlier this week that casts doubt on the applicability of NBA preemption to non-bank agents. In the Pennsylvania case, a credit card holder filed a putative class action against a national bank and its department store agent. The cardholder alleged that the defendants had charged her for two ancillary card services that she had not requested or authorized.

Among other defenses, the department store argued that the NBA preempted some of the plaintiff’s claims against it because the store only serviced the cardholder’s account on behalf of the bank and was, therefore, acting as an agent of a national bank. As support for its argument, the store relied on the Supreme Court’s decision in Watters v. Wachovia Bank, N.A, 550 U.S. 1 (2007), which held that the NBA preempted state-law claims against the non-national bank subsidiaries of national banks if such claims would significantly impair the national banks’ ability to carry out their authorized banking activities. The Supreme Court’s holding was extended by subsequent Circuit Court decisions to claims against non-bank agents acting for national banks.

Despite the Supreme Court’s prior holdings, the Pennsylvania District Court refused to apply NBA preemption to the department store. The Court explained that provisions of the Dodd-Frank act had narrowed NBA preemption for national banks and eliminated it all together for non-bank subsidiaries, affiliates and agents. The Court cited 12 U.S.C. 25B(h)(2) as statutory authority for the elimination of non-bank preemption. That section states:

No provision of [the NBA] or section 24 of the Federal Reserve Act (12 U.S.C. 371) shall be construed as preempting, annulling, or affecting the applicability of State law to any subsidiary, affiliate, or agent of a national bank (other than a subsidiary, affiliate, or agent that is chartered as a national bank).

The Court also cited to a OCC interpretive letter which noted that “[t]he [Dodd-Frank] Act eliminates preemption of state law for national bank subsidiaries, agents and affiliates.” Based on the new statutory language, the District Court held that “the Dodd-Frank Act effectively overturned the subsidiary-preemption holding in Watters” and the Circuit Court decisions that extended its holding to non-bank agents. Therefore, the Court rejected the store’s argument that the claims against it were preempted by the NBA.

Though well reasoned, the District Court’s holding stands in direct conflict with the findings in Madden and Edwards to the extent that those decisions hold that NBA preemption extends to non-bank agents acting on behalf of a national bank. This growing uncertainty in the area of NBA preemption further highlights the appropriateness for the Supreme Court to grant the petitioner’s request for certiorari in Madden. 

Gordon v. Kohl’s Dep’t Stores, 2016 U.S. Dist. LEXIS 40008 (E.D. Pa. Mar. 28, 2016)

About Patrick Siegfried

Patrick Siegfried is the author of the Usury Law Blog. Patrick is a practicing attorney in Bethesda, Maryland. Patrick’s work focuses on issues regarding alternative small business financing. He can be reached at
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