SUPREME COURT RULING AUTHORIZES STATE ATTORNEYS GENERAL TO ENFORCE STATE LAWS AGAINST NATIONAL BANKS
On June 29, 2009, the United States Supreme Court issued its decision in Cuomo v. Clearing House Association. This decision invalidates certain regulatory provisions adopted by the Office of the Comptroller of Currency ("OCC") and holds that state enforcement entities are permitted to bring suit against national banks to enforce certain state laws—rejecting the OCC’s position that the National Bank Act preempted such lawsuits and permitted enforcement only by the OCC.
The case arose from the efforts of New York Attorney General Eliot Spitzer (and later his successor, Andrew Cuomo) to determine whether national banks had violated New York’s fair lending laws. Spitzer sent letters "in lieu of subpoena" asking banks to produce nonpublic information about their lending practices to aid in the investigation. The OCC and the Clearing House Association brought suit to enjoin Spitzer’s request, asserting that federal law preempted state attorney general enforcement against national banks.
The National Bank Act, 12 U.S.C. § 484(a), provides that: "No national bank shall be subject to any visitorial powers except as authorized by Federal law…." In 12 CFR § 7.4000, the OCC stated its position that only the OCC was permitted to exercise visitorial powers and, therefore, only the OCC could: (1) examine banks; (2) inspect bank books and records; (3) regulate and supervise activities authorized or permitted pursuant to federal banking law; and (4) enforce compliance with any federal or state laws concerning these activities.
The Supreme Court, in a 5-4 decision authored by Justice Scalia, found that the OCC’s interpretation of "visitorial powers" was unreasonable in light of the historical meaning of that term and that the OCC could not bar "ordinary enforcement of the law" by state public entities, stating: "If a State chooses to pursue enforcement of its laws in court, then it is not exercising its power of visitation and will be treated like a litigant."
Although the Court’s decision removes the preemptive bar to certain state litigation against national banks, preemption remains in place with respect to conducting examinations of banks and inspecting or requiring the production of books or records of national banks, actions the Court held are reasonably considered an exercise of "visitorial powers" and, thus, properly reserved exclusively to the OCC. As a result, the Court found that an injunction barring the New York Attorney General from issuing subpoenas to national banks under state executive authority was appropriate. Nevertheless, "visitorial powers" preemption does not limit state attorney general enforcement through litigation.
What This Means for National Banks
From their statements in amicus curiae briefs and elsewhere, it is apparent that state enforcement entities believe that some violations of state law have gone unnoticed or unaddressed by the OCC. It is reasonable to assume that this decision will encourage state attorneys general and other state regulatory officials and entities to initiate litigation alleging violations of state consumer fraud and protection, mortgage fraud, anti-discrimination, deceptive trade practices, and other laws.
This decision does not change the scope of the substantive law with which national banks must comply. The National Bank Act has long been held to preempt substantive state law in a variety of areas and this preemption remains unaffected. The Court’s decision only affects—by substantially increasing—which entities are authorized to bring lawsuits against national banks for the enforcement of those laws.
Sweeping changes in the scope of substantive preemption may, however, be on the horizon. On June 30, 2009, the Treasury Department submitted to Congress a draft version the Consumer Financial Protection Agency Act of 2009. In addition to creating a federal agency charged with regulating consumer financial products, the Act (in its current version) provides that "any consumer protection provision in State consumer laws of general application, including any law relating to unfair or deceptive acts or practices, any consumer fraud law and repossession, foreclosure, and collection law, shall apply to any national banks." The Act later clarifies that state consumer laws are preempted if they afford consumers less protection than is provided under federal law, as determined by the newly-established agency. This proposed legislation merits tracking as it proceeds through Congress.
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