Federal thrifts may not be as immune to state consumer protection laws as some legal experts have believed. In the first decision of its kind, the West Virginia Supreme Court has ruled that Chevy Chase Bank must comply with the state's debt collection act.

"We are aware of no federal laws or regulations that expressly preempt the specific field of debt collection by federal savings associations," the court said.

Lawyers said the decision could seriously harm the attractiveness of the federal thrift charter. Many banking and nonbanking companies have acquired federal thrift charters because they are able to operate nationwide without worrying about complying with conflicting state consumer protection laws.

"This is a disturbing decision," said David W. Roderer, a partner in the Washington office of the Goodwin, Procter & Hoar law firm. "We had been fairly comfortable that you could ignore state laws. Now you now have to be more discriminating about which state laws you do not comply with."

The West Virginia court found that the Home Owners Loan Act of 1933 only preempts state laws that govern loan originations. State laws that apply to debt collections-and presumably any other activity not related to loan originations-are enforceable, the court ruled.

Because the court issued a per curiam ruling, the decision does not create a binding precedent for future cases. But legal experts warned that other judges are free to adopt the West Virginia court's reasoning.

"The concern outside West Virginia is that some other judge is going to get a hold of this decision and use it as binding precedent," said Stephen L. Gaylock, a partner at the Michael R. Cline Law Offices, Charleston, W.Va., who represented Chevy Chase.

Banking lawyers must aggressively remind judges outside West Virginia that the decision is not binding precedent and should not be cited in challenges to debt collections by thrifts, he said.

Carolyn J. Buck, chief counsel at the Office of Thrift Supervision, said she disagrees with the court's interpretation of the law. However, the agency does not plan to intervene. "I don't view this as damaging to the lending operations of a federal institution," she said.

The dispute involved William C. McCamant Jr., who incurred more than $5,000 in unpaid charges on a Chevy Chase credit card. As the account became more delinquent, the thrift began increasing the interest rate charged. It eventually suspended the account and sued Mr. McCamant in county court.

Mr. McCamant countersued, arguing that Chevy Chase violated the West Virginia Consumer Credit and Protection Act when an out-of-state lawyer for the thrift sent him a letter threatening legal action if the bill went unpaid. He also alleged that the thrift broke the law when it contacted a neighbor regarding his account.

The trial court in 1997 issued a split decision, ruling Mr. McCamant must pay most of the outstanding balance plus interest, but finding that the thrift violated the state credit protection act when it contacted the neighbor.

Both sides appealed, setting up the December 1998 West Virginia Supreme Court decision.

Mr. Gaylock said the thrift considers the decision a partial victory because the court ruled that an out-of-state lawyer may send a debt collection letter to a delinquent credit card holder. Chevy Chase is not expected to appeal the ruling to the Supreme Court, Mr. Gaylock said.

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