Bank of America N.A v. Riffard
Date: Nov. 7, 2023
Issue: Whether the National Bank Act preempts Wisconsin’s notice-to-cure law.
Case Summary: ABA and a group of trade associations (Amici) filed an amicus brief urging the Wisconsin Court of Appeals to affirm a Circuit Court ruling holding that the National Bank Act (NBA) preempts the Wisconsin Consumer Act (WCA).
Jean-Pierre Riffard applied for two separate credit cards from Bank of America and defaulted on his obligation to make monthly payments on each account. BofA sued Riffard for breach of contract. Riffard argued the action should be dismissed because BofA failed to provide him with notice of his right to cure before accelerating his debt and suing. In response, BofA argued the NBA preempts the WCA. The WCA is a state law that regulates consumer credit transactions and debt collection. Under section 425 of the Wisconsin Consumer Act in the Wisconsin Statutes, a creditor must give a consumer notice of any default on a credit account and an opportunity to cure the default.
The Wisconsin circuit court denied Riffard’s motion to dismiss and entered a judgment for BofA. The circuit court emphasized district courts are divided over whether the WCA provision is preempted. The Eastern District of Wisconsin held the WCA provision is not preempted in Boerner v. LVNV Funding LLC (2019). However, the Western District of Wisconsin held the WCA is preempted in Lako v. Portfolio Recovery Associates (2021). In Lako, the district court concluded “the WCA goes beyond debt collection and sets conditions on the lending relationship between the creditor and the borrower.” In particular, the court explained “the WCA prohibits a lender not just from pursuing debt collection, but also from accelerating the maturity of a loan, unless and until it provides notice under Wis. Stat. § 425.104.” The Wisconsin circuit court agreed with the Western District’s analysis and held the WCA provision is preempted by the NBA. Riffard appealed the decision.
Amici filed an amicus brief supporting BofA and urged the Wisconsin Court of Appeals to affirm. First, Amici argued the NBA preempts the WCA notice-to-cure provisions because they significantly interfere with national banks’ ability to set credit terms. Riffard conceded the NBA preempts state laws that restrict a national bank’s ability to set the terms of credit on loans. However, Riffard attempted to characterize the WCA’s notice-to-cure provisions as mere “debt collection” rules that are not preempted. Amici emphasized the notice-to-cure requirements do not simply govern how banks may collect on a defaulted loan, but impede national banks’ management of credit risk by impairing a bank’s ability to determine whether a loan may be called due. But even if viewed as debt collection provisions, Amici claimed the notice-to-cure state provisions are still preempted under the Barnett Bank standard. In Barnett Bank, the court ruled a state law is preempted by the NBA if it “prevents or significantly interferes with the exercise by the national bank of its powers.” Amici explained this standard is met because the WCA not only inhibits national banks’ right to collect a loan, but also substantively alters the terms of their credit agreements.
Second, Amici argued applying notice-to-cure requirements to national banks would subject them to a 50-state regulatory framework and defeat the NBA’s purpose of fostering uniform regulation. Amici emphasized reversing the decision would force national banks to follow a patchwork of different state laws imposing notice-to-cure requirements.
Third, Amici argued a ruling that the NBA does not preempt the WCA notice-to-cure provisions will harm Wisconsin borrowers. Banks use various contract terms, fees and interest rates to mitigate the risks associated with extending unsecured credit. By impairing banks’ loan maturity acceleration, Amici emphasized banks could be forced to extend credit to borrowers who already defaulted. In effect, banks would have to manage risk by charging borrowers higher interest rates or curtailing lending to higher-risk borrowers.
Bottom Line: Thirteen states have enacted notice-to-cure statutes. BofA v. RIffard is the first case to examine NBA preemption involving a state’s notice-to-cure statute.