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4th Circuit backs consumers whose cars are totaled

National banks that are assigned car loans must comply with a Maryland law excusing borrowers from paying the remainder of their loans if their vehicles are totaled, a federal appeals court has ruled in a case the plaintiff’s attorneys hope will become a consumer class action.

In its 3-0 decision, the 4th U.S. Circuit Court of Appeals said the National Banking Act’s goal of setting uniform standards for the industry does not trump the Maryland Credit Grantor Closed End Credit Provisions law when a loan is assigned to — rather than made directly by — a national bank.

The court’s decision marked a defeat for Capital One N.A., which had argued that Philip Decohen of Washington, D.C., owed it $1,504 on the car loan it had bought from the auto dealer, Nation Auto of Marlow Heights, even after he subsequently totaled the Chrysler Pacifica. Decohen’s attorneys brought the case on behalf of him and other unnamed Maryland consumers similarly situated.

“The case has implications for thousands of consumers,” said Decohen’s attorney, Benjamin H. Carney. “There are many situations where loans from car dealers are assigned to national banks. It’s something that happens every day.”

In its ruling Wednesday, the 4th Circuit overturned U.S. District Judge William D. Quarles Jr.’s decision that the state consumer protection law, also known as CLEC, for closed-end credit, was preempted by the federal banking act.

“The doctrine of federal preemption, which regulates the interplay between federal and state laws when they appear to conflict, tilts in favor of the federal government in the arena of national banking,” Judge Andre M. Davis wrote for the appellate court.

“[But] examining state laws for usury limits, notice requirements and contract provisions is exactly what national banks already do,” Davis added. “They are certainly capable of determining the definitions of debt collection agreements in the states in which they wish to acquire through assignment loans that contain such agreements. Capital One makes no showing to the contrary.”

Carney said the decision stands for the principle that when a bank assumes a car loan in Maryland it must “honor the choice and comply with the law.” The ruling “holds banks to their agreements with consumers,” added Carney, of Gordon & Wolf Chtd. in Towson.

McLean, Va.-based Capital One, through its attorney Sung B. “Ben” Yhim, declined to comment on the case or the decision. Yhim is with McGuireWoods LLP in Baltimore.

In its decision, the 4th Circuit cited federal regulations stating that the National Banking Act’s preemptive force applies to agreements “entered into by national banks.” The regulations, however, are silent with regard to loans assigned to the banks, the court said.

“Undoubtedly, if Capital One had directly loaned Decohen the money to purchase his vehicle, and that loan included a debt cancellation agreement, it would be governed by federal regulations,” Davis wrote. “That is not the case before us. Here, Capital One did not loan Decohen the money to purchase his vehicle; Nation Auto did, and then Nation Auto assigned the loan to Capital One.”

Decohen financed his $22,669 purchase of the Pacifica in September 2007 with a retail installment contract with the dealer, Nation Auto. The purchase price included a $600 charge for an optional debt cancellation agreement, which under the Maryland law excuses the debtor from repaying the balance of the loan — after any insurance payout is provided to the lender — if the car is totaled.

Nation Auto assigned the loan to Capital One, after which Decohen totaled the vehicle in May 2010. Decohen’s insurance company paid him $12,839, which he provided to the lender. That payment left Decohen with a debt of $1,504, which he argued was excused under the Maryland law.

When Capital One sought payment of that debt, Decohen filed suit in Baltimore County Circuit Court on Sept. 29, 2010, alleging a violation of CLEC. Capital One had the case removed to U.S. District Court in Baltimore.

Quarles dismissed the case on July 26, 2011, and Decohen appealed to the 4th Circuit.

Judges Dennis W. Shedd and James A. Wynn Jr. joined Davis’ published opinion.



Philip Decohen v. Capital One, N.A., 4USCA No. 11-2161. Reported. Opinion by Davis, J. Argued Oct. 25, 2012. Filed Dec. 26, 2012.


Does the National Banking Act preempt the Maryland Credit Grantor Closed End Credit Provisions law with regard to loans assigned to a national bank?


No; national banks must comply with the “debt collection agreements in the states in which they wish to acquire [loans] through assignment.”


Benjamin H. Carney for appellant; Bryan A. Fratkin for appellee.

RecordFax # 12-1226-60 (21 pages).