Hawaii Bank Overcharge Suit Reinstated

Six major banks must face Hawaii state attorney general claims that they deceptively marketed expensive services to credit card holders in violation of state law, a federal appeals court ruled Friday.

The 9th U.S. Circuit Court of Appeals said the state law claims were not preempted by federal banking law because the attorney general was not complaining about rates of interest but rather the allegedly unfair and deceptive marketing of credit services.

The appeals court held the federal court lacked jurisdiction to rule on the complaints, which are not preempted by national law and rightly belong in Hawaii state court.  It sent the case back to Hawaii state court where it was originally filed.

The 9th Circuit joins the 2nd, 3rd and 4th circuits in holding the Class Action Fairness Act did not provide an alternative basis for jurisdiction in federal court.  The appeals court said the attorney general was acting on behalf of the public, rather than raising class action claims.

In 2012, Hawaii Attorney General David Louie sued JP Morgan Chase, HSBC Bank Nevada, Capial One Bank, Discover Financial Services, Bank of America and Citigroup Inc. Alleging the banks enrolled people in various debt protection products, including payment protection plans and extended warranties for purchased items, identity theft protection and stolen card protection.

The state’s lawsuit focused on the payment protection plans, which cancel all or part of a cardholder’s balance if the cardholder dies, is disabled or loses a job.  The state accused the banks of enrolling people without their consent, including people who did not qualify and targeted vulnerable populations, among them, subprime borrowers and the elderly, according to the court.

If found liable, Hawaii law would impose penaltieis of up to $10,000 for each deceptive act.

The federal judge found the state was in effect arguing excessive interest rates, which are regulated under federal law which preempts any state action.  The appeals court disagreed.

Rejecting the banks’ claims that the suit is about interest rates, the 9th Circuit said, “These allegations are most consistent with a Uniform Deceptive Trade Practice Act claim.”

“Regardless of the rates charged, the banks had independent state law obligations to obtain consent from and not to deceive consumers,” the court held.

These claims are not preempted by the National Bank Act, the court said.

Case:  State of Hawaii v. HSBC Bank Nevada, No. 13-15611



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