Ninth Circuit Affirms Dismissal Of Unfair Competition Claims Over Teaser Rates

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On January 9, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s dismissal of a putative class action against a national bank over its adjustable rate mortgage disclosure and payment application. O’Donnell v. Bank of Am., N.A., No. 11-16351, slip op. (9th Cir. Jan. 9, 2013). On appeal, the borrowers argued that the district court erred in holding that their California state-law claims for common law fraud and violations of the Unfair Competition Law based on the lender’s alleged concealment of material facts about the loans’ escalating principal balances and interest rates are preempted by the National Bank Act and OCC regulations. The borrowers also challenged the district court’s dismissal of their state-law breach of contract claim based on allegations that the lender improperly applied payments solely toward satisfying part of the interest owed while adding the remaining interest to the principal balance. In affirming the dismissal, the appeals court held that the fraud and unfair competition claims are expressly preempted because they would force the lender to make additional disclosures not required by federal law. The appeals court also affirmed the district court’s holding that the FTC Act does not provide a private right of action and therefore cannot be employed as a premise for the borrowers’ unfair competition claim. With regard to the borrowers’ breach of contract claim, the court held that the mortgage contract did not include any representation that the lender would apply payments to principal if the payment failed to cover the accrued interest, and, therefore, the borrowers failed to state a plausible claim.