The National Credit Union Administration has promulgated regulations regarding the applicability of state laws to federal credit unions, including 12 C.F.R. s. 701.35(c), which, after setting out how a federal credit union may may determine the types of fees affecting the maintenance of its accounts, provides: “State laws regulating such activities are not applicable to federal credit unions.”
Despite this provision a customer of the Navy Federal Credit Union brought a claim under the California Unfair Competition Law after a check he attempted to deposit did not go through, and he was charged a $15 fee. The district court dismissed this claim as preempted by the NCUA regulations, and, in a decision issued last week, the Ninth Circuit affirmed.
Despite the plaintiff’s “Olympic level of verbal gymnastics to argue that the UCL transcends § 701.35(c)’s preemption clause,” the court found the text clear, and rejected the plaintiff’s argument that there was no preemption if the fee violated federal law–finding that state law was displaced regardless of whether there was a violation of federal law. In so doing, it rejected an interpretation contained in a 2024 NCUA guidance document that stated “the Federal Credit Union Act does not preempt State laws that apply to practices of federal credit unions that violate other federal laws.” The court also rejected the argument that “generally applicable laws” like the UCL were outside the scope of preemption.
