The Court of Appeals for the Ninth Circuit has affirmed the dismissal of a lawsuit brought by a consumer who alleged a credit union engaged in unfair practices when it charged a returned check fee even though he was not at fault, ruling the credit union is entitled to preemption from the state law it was accused of violating.
The background: The dispute began when the plaintiff, a member of a federal credit union, attempted to deposit a large check in July 2022. The check failed to process and the credit union imposed a $15 returned check fee.
- After efforts to resolve the matter informally were unsuccessful, the plaintiff filed suit in California state court. He claimed the credit union violated California’s Unfair Competition Law by engaging in “unfair” and “unlawful” fee practices and cited the federal Consumer Financial Protection Act (CFPA), though no federal causes of action were pleaded.
- The credit union removed the case to federal court, which dismissed the claim on the grounds that federal law expressly preempts the state law in question.
The ruling: The Ninth Circuit agreed with the district court, affirming that the credit union’s fee practices were shielded from state regulation under the National Credit Union Administration’s (NCUA) authority over federal credit unions and its efforts to preserve a dual chartering system free from conflicting state oversight.
- The ruling noted that the regulation’s language is “difficult to imagine [being] more explicit” and emphasized that whether a fee violates federal law has no bearing on whether a state law challenge may proceed.
- The court found the plaintiff’s argument that state law should be allowed to proceed if the fee also violates federal law was unconvincing and inconsistent with the regulatory history and purpose.
- “Although [the plaintiff] offers an Olympic level of verbal gymnastics to argue that the UCL transcends [the federal] preemption clause,” the panel concluded, “we agree with the district court — and every other court to confront this issue — that all state laws that regulate account fees — general, specific, or otherwise — have no application to federal credit unions.”
