PASEDENA, Calif.—In a key decision, the U.S. Court of Appeals for the Ninth Circuit has upheld the dismissal of a putative class action challenging a Navy FCU’s returned-check fee, ruling that the plaintiff’s state law claims are preempted by federal regulation, the Consumer Financial Services Law Monitor reported.
The case involved a $15 returned-check fee assessed by the credit union after a deposited check was declined and no funds were made available. The plaintiff alleged the fee violated California’s Unfair Competition Law (UCL), claiming it constituted an “unfair” and “unlawful” business practice.
However, the Ninth Circuit affirmed the lower court’s dismissal, holding that the claim was preempted by 12 C.F.R. § 701.35, a federal regulation which explicitly provides that state laws regulating fees charged by federal credit unions do not apply, the Consumer Financial Services Law Monitor explained.
The ruling reinforces the broad scope of federal preemption in matters concerning fee structures at federally chartered credit unions.
While NCUA has rulemaking authority over federal credit unions, the plaintiff argued that the California UCL statute transcended § 701.35(c)’s preemption clause. The panel disagreed, finding that “all state laws that regulate account fees — general, specific, or otherwise — have no application to federal credit unions,” the Consumer Financial Services Law Monitor said.
Judge John B. Owens, writing for the panel, opined, “It is difficult to imagine preemption language more explicit than this,” highlighting the clarity of the regulation’s text. The court further noted that allowing state laws to govern fee practices would “directly undermine the deregulatory objectives underlying § 701.35(c)” and “overlook the unique role that a federal credit union member plays in the governance of the union.” Specifically, unlike other financial institutions, federal credit union members have a direct say in fee-setting and can force out directors who impose unreasonable fees.