Compliance Blog

Consumer Lending Jan 04, 2008

NCUA Legal Opinion Issued on Preemption

Yesterday, NCUA released legal opinion 07-0562A, which concludes that the Federal Credit Union Act and NCUA's lending regulations preempt a California law that would limit the ability of a lender to collect a deficiency judgment unless certain disclosures were made to the affected consumer. You can read the legal opinion here.

The California law requires creditors intending to repossess a vehicle to issue a number of consumer-oriented disclosures, such as rights to redeem the vehicle, whether a right to reinstate the contract exists, the right to an accounting regarding the disposition of the vehicle, among other things.  As noted above, creditors that fail to issue the required disclosures lose their right to collect any deficiency.  In a word, ouch.

Enter NCUA, which concluded:

The California law at issue affects the terms of repayment by placing additional burdens on lenders before they may recover deficiency balances owed by borrowers. NCUA’s long-standing position is that state laws affecting terms of repayment are preempted.