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Minnett v. Commerce Bank, N.A.

2005 WL 2447969 (N.J. Super. App. Div. 2005) (Unpublished)

MORTGAGES; LOANS; PARITY ACT—A national bank isn’t restricted by state law limitations on points and pre-payments fees, and under New Jersey’s Parity Act, state banks might not be covered either.

A borrower obtained a second mortgage loan on his home from a national bank. The bank charged four points at the origination of the loan and the loan had a pre-payment fee “in the event the loan was paid off in the first years.” When the loan was paid, the pre-payment fee was required and the borrower sued arguing that under New Jersey State banking laws, the origination fee and the pre-payment fee exceeded state law limits. The borrower, in its suit, did not allege a violation of the National Bank Act. The lower court dismissed the borrower’s case on the basis that its state law claims were preempted by the National Bank Act. The Appellate Division agreed with the lower court, but decided to “touch upon only the claim that pursuant to the federal favored lender’s rule, N.J.S.A. 17:9a-24B.1 (Parity Act) and N.J.A.C. 3:10-7.1, state chartered banks and savings banks are authorized to charge the point and prepayment fee at issue [in this case].” The Parity Act, “enacted in 2000, was intended to place New Jersey banks and savings bank on a more equal playing federal with their federal or out-of-state counterparts.” Essentially, the statute “provides that state banks may exercise the ‘powers, rights, benefits or privileges’ that any national of out-of-state bank can exercise so long as the Commissioner of Banking and Insurance has promulgated a regulation to that effect.” In New Jersey, the Commissioner promulgates such a regulation providing, “[New Jersey chartered] [b]anks may make secondary mortgage loans on the same terms and conditions under which national banks may make such loans pursuant to Federal law.” Under the National Bank Act, “national banks are considered ‘most favored lenders’ and may ‘export’ the most favorable interest laws of states in which they are located to its customers in more restrictive states, including New Jersey.” According to the Court, “there are two neighboring states which permit origination and prepayment charges on mortgage loans. ... Because the federal ‘favored lender’ doctrine would permit national banks located in these states to assess New Jersey’s customers with an origination fee and a prepayment fee,’ notwithstanding any New Jersey law,” the Court believed that the Parity Act “would seem to permit New Jersey banks to do likewise.” By reason of this analysis, the Appellate Division believed that had the bank in question been a state bank, it probably would have been authorized to charge the points and prepayment fee at issue in this particular case, but although it expressed “tentative agreement with this proposition [it did] not definitively resolve it.”

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