Clever class-action lawyers are always looking for new, cutting-edge ways to sue corporate defendants. Until now, those attorneys have had little success with claims involving the Home Owners’ Loan Act. A new ruling from a federal appeals court threatens to reverse that trend.
In the decision, Campidoglio v. Wells Fargo Bank & Company, a borrower accused her lender of charging her too much interest on her adjustable-rate mortgage. According to her mortgage note, her interest rate was to be the sum of a “stated margin” and the “current index.” The note changed hands due to bank mergers, and the eventual holder, Wells Fargo, obtained permission from the U.S. Office of Thrift Supervision to use an index that differed from the original one. Wells Fargo argued that the Home Owner’s Loan Act (HOLA) preempted—or barred—Campidoglio from suing the company on grounds that it supposedly use a wrong index. Indeed, most courts have held that, because Congress intended HOLA to occupy the field of lending laws, borrowers cannot file lawsuits on matters that that statute deals with.
But the court in Campidoglio, the United States Court of Appeals for the Ninth Circuit, carved a hole in that line of precedent. The Ninth Circuit held that, since Campidoglio asserted her claim as a standard breach-of-contract cause of action, HOLA did not preempt it. She could therefore sue Wells Fargo for supposedly departing from the terms of her mortgage note.
While that result might not be surprising—and it is probably uncontestable on some level—it does pose a danger to the real estate industry. The ruling is basically a roadmap for future class actions, instructing attorneys to frame their HOLA lawsuits in terms of garden-variety contract cases so as to avoid HOLA preemption. That is a very low hurdle that any competent plaintiff’s lawyer can overcome.