Order Code RL32197
CRS Report for Congress
Received through the CRS Web
Preemption of State Law for
National Banks and Their Subsidiaries by the
Office of the Comptroller of the Currency
Updated March 4, 2004
M. Maureen Murphy
American Law Division
Congressional Research Service ˜ The Library of Congress
Preemption of State Law for National Banks and Their
Subsidiaries by the Office of the Comptroller of the
This report focuses on regulations issued by the Comptroller of the Currency
preempting certain state laws. It contains a brief summary of those regulations; a
review of the case law setting forth standards of preemption in the banking law area;
summaries of various statutes that contain explicit statements as to their effect upon
state law; summaries of recent agency interpretations and court decisions on newly
enacted state laws; and a general analysis of the proposed regulations.
The question of whether or not a state law applies to a federally chartered
banking institution depends upon whether or not the state law has been preempted
by federal law. Unless there is an explicit federal statute specifically preempting the
particular type of state law, indicating that such state laws are not to be applied to
federally chartered banks, thrifts, or credit unions, the issue often turns on
interpretation of the applicable federal laws. Generally, if the statutory authority is
ambiguous and the courts determine that the statute at issue is one that the federal
banking regulators are charged by Congress with administering, the courts will defer
to a reasonable, well-reasoned interpretation by the regulator.
With this in mind, the Office of the Comptroller of the Currency (OCC), the
regulator of national banks, has recently issued regulations that preempt various state
laws that affect national bank real estate lending, other lending, and deposit-taking
functions. There is also a regulation that sets a procedure for OCC to preempt other
state laws affecting other activities or powers authorized by Congress for national
banks. OCC premises these regulations on legal arguments flowing from principles
of federal preemption derived from various judicial decisions and on practical
argument, which in turn are based on the array of federal regulations addressing
functions of national banks, including recent OCC guidance on real estate lending
and predatory lending.
State regulators, consumer advocates, and certain Members of Congress have
questioned whether OCC has the authority to issue such broad regulations. Some
have criticized OCC as going beyond the standard articulated by the Supreme Court
in Barnett Bank of Madison County v. Nelson, 517 U.S. 25, 31 (1996), when it
decided that a state law that would prevent some national banks from exercising
insurance powers authorized by federal law was preempted because it would “prevent
or significantly interfere with the national bank’s exercise of its powers.” In recent
years, criticism of increased bank fees and entry into new market areas have
provoked state legislation aimed at protecting consumers in such areas as insurance
sales, insurance licensing requirements, ATM fees, check cashing fees, and credit
card warnings. National banks, sometimes supported by amicus briefs by the OCC,
have challenged this type of legislation. Generally, the courts have been receptive
to claims that such laws interfere with the federally authorized powers of national
banks to such an extent that they are preempted by federal law.
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
OCC’s Preemption Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Preemption by Opinion: Georgia Predatory Lending Law . . . . . . . . . . 3
Preemption by Regulation: OCC’s Proposed Regulations . . . . . . . . . . 3
Specifics of OCC’s Preemption Regulations as Proposed . . . . . . . . . . . 4
OCC’s Preemption Regulations as Promulgated . . . . . . . . . . . . . . . . . . 4
Statutory Authority for Preempting State Laws . . . . . . . . . . . . . . . . . . . 5
OCC Preemption and the Dual Banking System . . . . . . . . . . . . . . . . . . 9
Standards for Federal Preemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Explicit Statutory Preemption Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Alternative Mortgage Transaction Parity Act of 1982 . . . . . . . . . . . . . 13
Depository Institutions Deregulation and Monetary Control Act of 1980
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Electronic Funds Transfer Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Equal Credit Opportunity Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Expedited Funds Availability Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Fair Credit Reporting Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Fair Debt Collection Practices Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Fair Housing Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Garn-St Germain Depository Institutions Act of 1982 . . . . . . . . . . . . 16
Gramm-Leach-Bliley Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
National Bank Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Real Estate Settlement Procedures Act . . . . . . . . . . . . . . . . . . . . . . . . 17
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Truth in Lending Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Truth in Savings Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Preemption by Agency Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Recent Preemption Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Insurance Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Insurance Licensing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ATM Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Check Cashing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Credit Card Minimum Payment Warnings . . . . . . . . . . . . . . . . . . . . . 27
Analysis of Preemption Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Preemption of State Law for National Banks
and Their Subsidiaries by the Office of the
Comptroller of the Currency
Certain state laws defining various responsibilities of financial services
providers have been pronounced by federal regulators to be inapplicable to federally
chartered banks, thrifts, or credit unions because of federal preemption. The
regulators–the Office of the Comptroller of the Currency (OCC) for national banks,
the Office of Thrift Supervision (OTS) for federal thrifts and savings associations,
and the National Credit Union Administration (NCUA), for federal credit
unions–have done this by several means: regulations, informal opinions, guidance,
and amicus briefs in litigation. Recently, the issue of federal preemption has arisen
in the context of individual state laws addressing such diverse topics as predatory
lending, ATM fees, insurance sales by banks, and credit card disclosures.
The federal regulators generally premise preemption on their analysis of the
federal legislation under which these institutions have been chartered: the National
Bank Act (NBA)1 for national banks, the Home Owners Loan Act (HOLA)2 for
federally chartered thrifts and savings associations, and the Federal Credit Union Act
(FCUA)3 for federal credit unions. Usually, they can cite no explicit statutory
language preempting state law. To find preemption, they look to the general
purposes of the federal legislation, the nature of the powers conferred on the
institutions, and the effect of state law on the those purposes and powers. They then
apply preemption standards derived from federal court decisions, including several
Supreme Court cases dealing with national banks, thrifts, or credit unions.
Unlike the OTS, which has well-established preemptive authority and
comprehensive regulations providing for preemption of state laws,4 OCC has
12 U.S.C. §§ 1-215.
12 U.S.C. §§ 1461 et seq.
12 U.S.C. §§ 1751 et seq.
These have been issued under authority of various federal laws. See e.g., 12 C.F.R. , Part
535, issued under the Federal Trade Commission Act, 15 U.S.C. 57a, defining prohibited
credit practices; 12 C.F.R.. §§ 557.11, issued under HOLA, defining the extent to which
federal law preempts deposit related state laws; 12 C.F.R. § 560.2, issued under the HOLA,
declaring that OTS “occupies the entire field of lending regulations for federal savings
associations”; 12 C.F.R., Part 590, issued under HOLA and the Depository Institutions
previously relied heavily on opinion letters and other forms of advice and guidance,
rather than rulemaking for preemption.
Before discussing the OCC situation, it might be well to look at how the courts
have treated OTS’s use of regulations to assert broad preemption. The leading case
is Fidelity Federal Savings and Loan Association v. de la Cuesta.5 It involved a
conflict between a California Supreme Court ruling which limited the right to enforce
“due-on-sale” clauses6 in mortgage contracts and a regulation issued by OTS’s
predecessor, the Federal Home Loan Bank Board (FHLBB). The U.S. Supreme
Court upheld the regulation, finding the state rule that prohibited due-on-sale clauses
to be preempted on the basis of an analysis of the language and history of the HOLA.
From this, it discerned that “Congress plainly envisioned that federal savings and
loans would be governed by what the Board – not any particular State – deemed to
be “‘best practices.’”7 Both the OTS and, its predecessor, FHLBB, as the U.S.
Supreme Court recognized in de la Cuesta,8 have exerted broad regulatory authority
over the federal savings associations, subjecting them to an array of regulations,
leading courts to find adequate support for OTS’s preemption conclusions.
Deregulation and Monetary Control Act of 1980, 12 U.S.C. § 1725f-7a, preempting state
usury laws; and, 12 C.F.R., Part 591, issued under the Thrift Industry Reconstruction Act
and the Garn-St Germain Depository Institutions Act of 1872 (12 U.S.C. § 1701-j-3),
preempting state due-on-sale clauses.
458 U.S. 141 (1982).
With respect to mortgage loans, this means requiring the full payment of the remaining
balance upon sale of the property.
458 U.S. 141, 161 (citations omitted). Critical to the decision was the fact that the due-onsale clause regulation was tied to the core purpose of the HOLA–putting in place a reliable
system of institutions to provide sufficient credit for residential mortgages. The purported
purpose of the regulation was to permit federally chartered thrifts to have a mechanism for
escaping from long- term mortgage commitments that carried interest rates that, at the time,
were low in comparison with the market rate, thereby, inhibiting the ability of the thrifts to
be profitable and to continue to supply home mortgages in the quantities needed.
“Section 5(a) of the HOLA, 12 U.S.C. § 1464(a) (1976 ed., Supp. IV), empowers the
Board, ‘under such rules and regulations as it may prescribe, to provide for the organization,
incorporation, examination, operation, and regulation of associations to be known as
“Federal Savings and Loan Associations.”’ Pursuant to this authorization, the Board has
promulgated regulations governing ‘the powers and operations of every Federal savings and
loan association from its cradle to its corporate grave.’” 458 U.S. 141 144-145, citing People
v. Coast Federal Savings & Loan Association, 98 F. Supp. 311, 316 (S.D. Cal. 1951). The
current version of this provision delegates this authority to the Director of OTS. 12 U.S.C.
OCC’s Preemption Regulations
Preemption by Opinion: Georgia Predatory Lending Law.
Generally, to date, OCC has relied less on regulations than on interpretative
letters, informal opinions, and other types of guidance to make preemption
determinations. These do not provide courts the same groundwork for upholding
agency preemptions as would issuing rules intended to have the force of law.9
Individual opinion letters and guidance issuances are not intended to have the force
of law, thereby potentially raising the implication that the agency, itself, is uncertain
as to whether it has the authority from Congress to issue substantive regulations on
the matter. Establishing a solid record of its authority to issue preemption regulations
having the force of law seems to have been one consideration for the OCC ‘s
issuance of proposed amendments to its regulations on bank activities and operations
and on real estate lending and appraisals “to identify types of sate laws that are
preempted.”.10 At the same time it issued a determination11 that a Georgia law
addressing predatory lending12 does not apply to the real estate lending activity of
national banks and their subsidiaries because it has been preempted by federal law.
Preemption by Regulation: OCC’s Proposed Regulations.
The proposed regulations solicited public comments on a regulatory proposal
that would define by category state real estate and lending laws that are preempted
for national banks and their subsidiaries. It would do the same for state laws
affecting deposit-taking and other lending activities and set forth which categories
of state laws are not preempted by federal law. There would also be a regulation
setting standards that are to be applied to state laws regulating other authorized
activities of national banks and their subsidiaries. OCC also raised a query as to
whether or not it should issue a determination that OCC regulations, “like those of
OTS, should state explicitly that a Federal law occupies the entire field of national
See, e.g. , United States v. Mead Corp, 533 U.S. 218 (2001).
68 Fed. Reg. 46119 (August 5, 2003).
OCC Docket No. 03-17, 68 Fed. Reg. 46264 (August 5, 2003). In it, OCC held that
federal law (12 U.S.C. §§ 24, 85, and 371) preempted the application of various provisions
of the Georgia law to national banks and their subsidiaries. OCC held that 12 C.F.R. §
34.4(a) preempts the Georgia law’s provisions limiting prepayment fees and prohibiting
acceleration of a loan in absence of default, as well as the provision affording a right to cure
a default. Under 12 U.S.C. § 85 and 12 C.F.R. §7.4001, the Georgia provisions limiting
interest rates were preempted. Georgia limits on non-interest fees were preempted under
12 U.S.C. § 24 (Seventh) and 12 C.F.R. § 7.4002(a), which authorize incidental powers,
which OCC interprets to include the ability to charge fees for services. Under 12 C.F.R. §
34.4(b), OCC applied “recognized principles of Federal preemption” and declared
provisions in the Georgia law regarding the following topics to be preempted: restriction on
financing of credit insurance, restriction on refinancings, requiring borrower counseling,
limiting underwriting standards, restrictions on home improvement loans, and notice
Ga. Code Ann. §§ 7-6A-1 et seq.
banks’ real estate lending activities.”13 The comment period for the proposed
rulemaking ended on September 18, 2003.
Specifics of OCC’s Preemption Regulations as Proposed.
The proposal first discussed the history of the National Bank Act, federal
standards for preemption, and recent court cases finding state laws preempted with
respect to their applicability to national banks. Then, OCC listed examples of types
of state laws that have been found to be preempted: licensing laws, filing
requirements, terms of real estate loans, advertising, permissible interest rates;
permissible fees and charges; management of credit accounts; due-on-sale clauses;
leaseholds as acceptable security; and mandated statements and disclosures. Some
of these have been preempted by federal court decisions; others, by OCC regulations.
After establishing a history of judicial treatment of national banks’ relationship
with state law setting forth the reasons for issuing the proposals, OCC proceeded to
discuss each of the regulatory proposals in turn. It proposed to preempt state laws
with respect to real estate lending, deposit-taking, and other lending. It also proposed
to provide a standard for preempting state laws affecting other activities authorized
for national banks by federal law. Under the proposed standard, state laws that
“obstruct, in whole or in part, or condition a national bank’s exercise” of powers
granted to it would be preempted. Certain types of state laws would be
presumptively not preempted but would be subject to preemption should they be
found have more than an incidental effect upon national bank powers. With respect
to real estate lending, the agency also solicited comments as to whether OCC, should
make an explicit statement that its regulations preempt the entire field, similar to the
OCC’s Preemption Regulations as Promulgated.
Final rules were promulgated on January 7, 2004.15 They generally conform
to the format of the proposed rules. There is some modification of the preemption
standard and of the text of the rules, but no field preemption.16 There is also a
predatory lending provision that prohibits making consumer loans based on the
foreclosure or liquidation value of the real property or collateral and a specific rule
enforcing section 5 of the Federal Trade Commission Act, declaring unfair methods
of competition or unfair or deceptive acts or practices affecting commerce to be
68 Fed. Reg. 46119, 46124, citing 12 C.F.R. 560.2.
12 C.F.R. § 560.1.
See [http://www.occ.treas.gov/newrules.htm]. 69 Fed. Reg. 1904.
This is primarily because OCC indicated that it will deal with issues as they arise under
the various statutes that it has cited as providing it with authority to preempt inconsistent
15 U.S.C. § 45(a)(1).
OCC had approximately 2600 comments to consider. The material
accompanying the final rules assured realtors that the regulations were not a means
of authorizing real estate brokerage activities.18 To the concerns raised by consumer
advocates that consumer protections would be weakened, OCC responded by
extending the prohibition on practices that might be viewed as predatory lending
practices to cover all consumer loans, rather than only real estate loans. Comments
were also received from state banking regulators, Members of Congress, various state
legislators and attorneys general, and consumer groups, arguing against field
preemption and challenging the “obstruct, in whole or in part” standard that OCC
had proposed. OCC responded by choosing not to issue a field preemption rule and
by slightly modifying the preemption standard. The final rules employ the following
preemption standard: “state laws that obstruct, impair, or condition a national bank’s
ability to fully exercise a ... power.” The proposal’s standard had read: “state laws
that obstruct , in whole or in part, or condition, a national bank’s exercise of ...
The commentary accompanying the issuance of final rules discusses the basis
and authority of these regulations, expanding upon the material accompanying the
proposed regulations. It emphasizes the nature of the national banking system, its
Congressionally mandated goals, and the need for it to be responsive to the demands
of an increasingly mobile and technologically advanced society. OCC refutes
arguments that there is any one particular articulation of the standard that applies to
preemption of state law affecting national banks by referring to the variety of
formulations used in previous Supreme Court cases.
Statutory Authority for Preempting State Laws.
Under the authority of 12 U.S.C. § 371, which authorizes national banks to
engage in real estate lending subject to “such restrictions and requirements as the
Comptroller of the Currency may prescribe by regulation or order,” the OCC
regulation lists state laws by type that are preempted and types that are generally not
preempted. Two basic banking functions authorized under 12 U.S.C. § 24, Seventh:
deposit-taking and lending other than real estate lending, are covered by separate
sections of the regulations. A final section covers all other functions of national
banks and their subsidiaries in a general rule preempting state law respecting all
powers authorized under federal law, including activities conducted under the
incidental powers clause of 12 U.S.C. § 24, Seventh.
OCC appears to be interpreting its rulemaking authority as virtually exclusive
under the real estate lending statute, 12 U.S.C. § 371, which includes the phrase,
“subject to section 1828(o)19 and such restrictions and requirements as the
Comptroller of the Currency may prescribe by regulation or order.” The other
statutory authority that OCC relies on is 12 U.S.C. § 93a , which grants general
rulemaking authority to OCC “to prescribe rules and regulations to carry out the
See CRS Report RS21104, Should Banking Powers Expand into Real Estate Brokerage
and Management?, by William D. Jackson.
This provision requires all federal banking agencies to issue uniform real estate lending
laws with respect to safety and soundness considerations.
responsibilities of the office,” subject to the following exception, “[e]xcept to the
extent that authority to issue rules and regulations has been expressly granted to
another regulatory agency.”20 This OCC interpretation may well be consistent with
the way the courts have since the 1970's interpreted such general grants of
rulemaking authority as authority to issue substantive regulations.21
OCC use of these two statutes to issue preemptive regulations has already
been upheld in the context of litigation. In Conference of State Bank Supervisors v.
Conover,22 a federal appellate court, relying on the reasoning of Fidelity, upheld an
OCC regulation allowing national banks to offer or to purchase adjustable rate
mortgages and preempting inconsistent state laws. In reaching the conclusion, the
court specifically found that the language in 12 U.S.C. § 371 provided such authority
and further held, that even without the language added by Garn-St Germain,23 OCC
had the authority to issue such regulations. The court also found that 12 U.S.C. § 93a
provided authority to issue such rules and that it was not merely housekeeping
authority.24 According to the court, section 93a provides OCC with power to issue
rules that have the force of law to discharge its obligations with respect to overseeing
the national banking system. The court stated:
the entire legislative scheme is one that contemplates the operation of state
law only in the absence of federal law and where such state law does not
conflict with the policies of the National Banking Act. So long as he does
In comments submitted to OCC, on October 6, 2003, the Center for Responsible Lending
(hereafter, the Center) criticizes the OCC’s legal analysis of the authority provided in 12
U.S.C. § 371. It reads the OCC proposal on real estate lending as tantamount to field
preemption because it refrains from preempting only those state laws that are beneficial to
national banks. It reads OCC’s interpretation of amendments to 12 U.S.C. § 371 as
misguided because the mere requirement of compliance with safety and soundness
regulations promulgated by all banking regulators cannot mean that Congress intended to
provide OCC with authority to occupy the field exclusive of state consumer protection laws.
There is a similar assertion that OCC’s interpretation of Barnett Bank of Marion County v.
Nelson, 517 U.S. 25 (1996) inaccurately compares 12 U.S.C. § 371 with 12 U.S.C. § 92, at
issue in that case. According to the Center, the latter is clearer as to the limit of state
In “Agency Rules with the Force of Law: the Original Convention,” 116 Harvard Law
Review 470, 473 (2002), Thomas W. Merrill and Kathryn Tongue Watts make this point
and summarize the current state of the law, with respect to all federal agencies but the
Internal Revenue Service, as embracing “the assumption ... that facially ambiguous
rulemaking grants always include the authority to adopt rules having the force of law.”
710 F. 2d 878 (D.C. Cir. 1983).
This is the language that OCC relies on in the proposed regulations. It reads: “subject to
such terms, conditions, and limitations as may be prescribed by the Comptroller of the
Currency by order, rule or regulations,” and refers to the power of national banks to make
real estate loans.
With respect to the interaction of national bank legislation and the dual banking system,
the court opined that “a congressional decision to upgrade the powers of national banks
because they were at a competitive disadvantage does not entail the altogether different
proposition that Congress intended to compel national banks to move in lockstep with state
banks.” 710 F. 2d 878, 885.
not authorize activities that run afoul of federal laws governing the
activities of national banks, therefore, the Comptroller has the power to
preempt inconsistent state law.25
The OCC regulations cover real estate lending, deposit-taking and other
lending and specify that state laws that “ obstruct, impair, or condition a national
bank’s ability to fully exercise” the power in question, are inapplicable, except
“where made applicable by federal law.” Each identifies specific types of state laws
that are preempted within the subject area. Each sets forth a list of types of state laws
generally not preempted, provided they have no more than an incidental effect on a
national bank’s exercise of its powers.26
There are prohibitions, applicable to consumer loans, both real estate and
non-real estate loans, that are designed to preclude predatory lending by national
banks and their subsidiaries.27 Consumer loans based on the foreclosure value of the
collateral or property rather than on the lender’s ability to pay are forbidden28 There
are also provisions enforcing, with respect to all loans by national banks and their
subsidiaries, the unfair or deceptive practices prohibitions of the Federal Trade
Commission Act and regulations promulgated thereunder.29
With respect to deposit-taking, state laws concerning the following are
preempted: dormant accounts, checking accounts, disclosure requirements, funds
availability, savings account orders of withdrawal, state licensing requirements
(except for service of process), and special purpose services.30 The list of preempted
710 F. 2d 878, 885.
The types of state laws generally preempted for real estate lending and appraisals are:
(1) licensing, registration, filings, or reports by creditors; (2) ability of a creditor to require
or obtain private insurance; (3) loan-to value ratios; (4) terms of credit; (5) aggregate
amount to be loaned on real estate; (6) escrow and similar accounts; (7) security property;
(8) access to and use of credit reports; (9) mandated statements, disclosure, and advertising;
(10) processing, origination, servicing, sale or purchase of, or investment or participation
in mortgages; (11) disbursements and repayments; (12) rates of interest on loans; (13) dueon-sale clauses; (14) covenants and restrictions for lease to qualify as security for a real
estate loan. 12 C.F.R. § 34.4.(a). A parallel list of preempted state laws is given for non-real
estate lending. 12 C.F.R. § 7.4008(d). Prior to promulgation of these rules, the list of
preempted state laws in 12 C.F.R., Part 34, included only: advertising, permissible rates of
interest, permissible fees and non-interest charges; management of credit accounts; due-onsale clauses; leasehold as acceptable security; and mandated statements and disclosures.
For deposit-taking and other authorized activities, the following types of state laws are
generally not preempted: (1) contracts; (2) torts; (3) criminal law; (4)certain debt collection;
(5) acquisition and transfer of property; (6) taxation; and (7) zoning.
12 C.F.R. §§ 34.3(b) and 7.4008(b).
12 C.F.R. §§ 34.3(b) and (c)
12 C.F.R. §§ 34.3(c) and 7.4008(c). The Federal Trade Commission Act section cited
is 15 U.S.C. § 45(a)(1).
State laws on fees and charges are preempted according to the terms of an existing
state laws for lending other than real estate lending is similar to that for real estate
lending. The types of laws generally not preempted are contracts, torts, criminal law
(except those specifically applicable by their terms to national banks),31 debt
collection right, property acquisition, taxation, zoning, and any other law OCC
determines to have merely an incidental effect on the deposit-taking or lending
operations of a national bank.32
Under the general rule applicable to all other authorized activities of national
banks, there is a broad preemption of state laws. The rule proclaims that “[a]
national bank may exercise all powers authorized to it under Federal law, including
conducting any activity that is part of, or incidental to, the business of banking,
subject to such terms, conditions, and limitations prescribed by the Comptroller of
the Currency and any applicable federal law.”33 It states that, “[e]xcept where made
applicable by Federal law, state laws that obstruct, impair, or condition, a national
bank’s ability to fully exercise its powers to conduct activities authorized under
Federal law do not apply to national banks”34 There is also a statement that state
contract, tort, criminal, certain debt collection, acquisition and transfer of property,
tax, zoning and “any other law the effect of which the OCC determines to be
incidental to the exercise of national bank powers or otherwise consistent with the
powers set out” apply “to the extent that they only incidentally affect the exercise of
national bank powers.”35 In the commentary accompanying this provision as
proposed, OCC noted that state laws will apply if federal law directs their application
and if state law “has only an incidental effect on a national bank’s exercise of its
Federally authorized powers or if it is otherwise consistent with national bank’s
uniquely federal status.”36 The OCC commentary characterizes state laws that would
generally be applicable as “types of laws [that] typically ... do not regulate the manner
or the content of the business of banking authorized for national banks, but rather
establish the legal infrastructure that surrounds and supports the conduct of that
regulation, 12 C.F.R. § 7.4002.
See Easton v. Iowa, 188 U.S. 220 (1903).
12 C.F.R. § 7.4007(c).
12 C.F.R. § 7.4009(a).
12 C.F.R. § 7.4009(b).
12 C.F.R. § 7.4009 c).
68 Fed. Reg. 46119, 46129.
68 Fed. Reg. 46119, 46129.
OCC Preemption and the Dual Banking System.
Some Members of Congress38 and state banking regulators39 have voiced
concern about the prospect of preemption of state laws by federal banking regulators
because of the potential impact on consumer protections and on the dual banking
system.40 Banking trade associations, on the other hand, have taken the view that
OCC’s regulations “help to preserve the dual banking system against state attempts
to restrict or condition the authorized activities of national banks.”41 Of course, one
aspect of the dual banking system that permits an OCC ruling to work to the
advantage of state-chartered banks vis-a-vis non-bank lenders in a state with
predatory lending laws is 12 U.S.C. § 1831d. Under it, a state-chartered bank with
branches in more than one state may take advantage of the “most favored lender
standard” and operate under the rules applicable to national banks in its home state.42
The dual banking system refers to the fact that two separate systems of
chartering banks and thrifts exist in this country: federal and state. In the early days,
although there was the experience of the First and Second Banks of the United States,
banking was generally conducted through state-chartered banks even after the
Supreme Court had upheld the authority of Congress to charter banks.43 In 1863,44
however, Congress established a system of federally-chartered national banks, as a
means of raising funds to finance the Civil War.45 Ever since, banks–either new
banks or those in operation–may choose a federal or a state charter or convert from
one charter to another and thereby from one primary regulator to another. Although
the chartering authority–OCC for national banks and state bank regulators for statechartered banks–is the primary regulator, every bank is to some extent subject to
regulation by both state and federal governments. Deposit insurance carries with it
regulation by the FDIC; Federal Reserve System membership brings Federal Reserve
Board regulation. In addition, federal tax, consumer protection, securities, fair
housing, anti-money laundering, and bank secrecy laws apply to all banks, thrifts, and
R. Christian Bruce, “Rep. Kelly to Seek Hearings on OCC Rule, Says Agency May Be
Skirting Hill Mandates,” 81 BNA’s Banking Report 681 (Nov. 10, 2003); Karen L. Werner,
“Ranking Member Sarbanes at Odds With OCC Proposal to Preempt State Laws,” Daily
Report for Executives A-15 (November 20, 2003). (Text of the letter is available on
[http://sarbanes.senate.gov]. It requests that OCC defer this rulemaking procedure.)
Richard Croyden, “Bankers Laud Benefits of State Charters, Seek Defenses Against
Federal Preemption,” 81 BNA’s Banking Report 685 (Nov. 10, 2003).
State attorneys general, [http://www.naag.org/issues/20031006-multi-occ.php] and
consumer groups, [http://www.predatorylending.org], commented negatively.
R. Christian Bruce, “Trade Groups Back Hawke on Preemption, Question Sarbanes
Request to Delay Rules, 81 BNA’ s Banking Report 918 (December 22, 2003).
Greenwood Trust Co. v. Massachusetts, 971 F. 2d 818 (1st Cir. 1993).
McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819) (the power to charter banks is
necessary and proper to Congressionally enumerated borrowing and taxing powers).
Act of Feb. 25, 1863, ch. 58, 12 Stat. 665.
National banks were required to purchase and hold Treasury securities and were
permitted to issue currency, national bank notes, backed by these securities.
credit unions, as do various laws of general applicability. Moreover, there is no
question that certain state laws apply to national banks. The preemption issue arises
because there is no precise way of identifying each and every state law that may
apply to a national bank. OCC’s initiative appears to be that agency’s attempt to
place itself in the position of making an initial determination on that issue.
While some federal laws contain explicit language of preemption, many do
not. Under the Supremacy Clause of the U.S. Constitution,46 Congress may override
state laws conflicting with its exercise of delegated powers. When Congress has
done so, preempted state laws are unenforceable. That was the ruling in McCulloch
v. Maryland,47 a case dealing with the power of Congress to create national banks.
In it, the Court found a Maryland law establishing tax rates for notes issued by the
first Bank of the United States to be void. In broad language the Court voiced its
conviction “that the states have no power by taxation or otherwise, to retard, impede,
burden, or in any manner control, the operations of the constitutional laws enacted
by Congress to carry into execution the powers vested in the general government.”48
A federal statute addresses the procedures that the banking agencies must use
in issuing preemption determinations in certain areas. It does not, however, include
language curtailing their substantive authority to issue preemption determinations.
Section 114 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of
199449 requires the OCC, in making preemption determinations as to the application
of a state law “regarding community reinvestment, consumer protection, fair lending,
or the establishment of intrastate branches” to follow certain procedures. It generally
requires a Federal Register notice, at least a 80-day comment period, consideration
of comments, and publication of the final determination. The Conference Report
accompanying this legislation counsels OCC to be cautious rather than aggressive in
finding state laws to be preempted.50 The statutory language, however, contains no
Standards for Federal Preemption
Although national banks are federal instrumentalities, much of their daily
activity is subject to state law.51 In matters affecting aspects of banks that are shared
U.S. Const., Art. VI, cl. 2. It declares that the Constitution and “the Laws of the United
States which shall be made in Pursuance thereof ... shall be the supreme Law of the Land
... any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”
17 U.S. (4 Wheat) 316, 435.
Id., at 435. Tax on the operations of a nationally chartered bank was distinguished from
tax on its real property or on bank interests held by state residents.
P.L. 103-328, tit. 1, § 114, 108 Stat. 2338, 2367; 12 U.S.C. § 43.
See infra, at 16 - 18.
“It is certain that, in so far as not repugnant to acts of congress [sic.], the contracts and
dealings of national banks are left subject to the state law.” Davis v. Elmira Savings Bank,
in common with other businesses, the Supreme Court has upheld state authority,
often starting from a presumption of the applicability of state law. In Waite v.
Dowley, 94 U.S. 527 (1877), the Court found that a state statute not in conflict with
federal law regarding the place for assessing national bank shares for tax purposes
could be enforced. Subsequently, in First National Bank v. Missouri, 263 U.S. 640,
656 (1924), it upheld a state law that prohibited banks, including national banks,
from forming branches. The principal reason appears to have been its interpretation
of federal law as not contemplating branch bank operations. The Court said:
“national banks are subject to the laws of a State in respect of their affairs unless such
laws interfere with the purpose of their creation, tend to impair or destroy their
efficiency as federal agencies or conflict with the paramount law of the United
States.” It examined the language and purpose of the National Bank Act and
determined “that the power sought to be exercised by the bank finds no justification
in any law or authority of the United States,” and found “the way ... open for the
enforcement of the state statute.”52
The starting point for preemption analysis is the language of the federal
legislation. If Congress enacts legislation under one of its delegated powers that
includes an explicit statement that state law is preempted, the Supreme Court
generally will give effect to that legislative intent.53 Where there is no language of
preemption, the Court is likely to find preemption when it identifies a direct conflict
between the federal law and the state law or when it concludes that the federal
government has so occupied the field as to preclude enforcement of state law with
respect to the subject at hand.54
Where there is a direct conflict with federal law relating to national banks,
i.e., where complying with the federal and state law is impossible, the Supreme Court
has repeatedly upheld the federal law. Often it has used broader language than the
facts of the case require. For example, in finding a direct conflict between a New
York law setting priorities in the administration of a receivership and the distribution
mandated by the National Bank Act, an 1896 Supreme Court opinion, Davis v.
Elmira Savings Bank, 161 U.S. 275, 283, used very broad language in finding
National banks are instrumentalities of the federal government, created for
a public purpose.... It follows that an attempt by a state to define their
duties or control the conduct of their affairs is absolutely void, wherever
such attempted exercise of authority expressly conflicts with the laws of the
United States, and either frustrates the purpose of the national legislation
or impairs the efficiency of these agencies of the federal government to
discharge the duties for the performance of which they were created.
161 U.S. 275, 287 (1896)
263 U.S. 640, 660.
Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947); Wisconsin Public Intervenor
v. Mortier, 501 U.S. 597, 605 (1991).
CRS Report 97-589, Statutory Interpretation: General Principles and Recent Trends, by
The most recent Supreme Court case on the issue, Barnett Bank of Marion
County v. Nelson, 517 U.S. 25 (1996), employs more precise language, although it,
too, favors a reading of Congressional grants of power to national banks as
presumptively preemptive. The Court, in Barnett, upheld OCC in permitting
national banks to sell insurance nationwide from a small town office. The federal
statute in question, 12 U.S.C. § 92, authorized national banks in towns of not more
than 5,000 to sell insurance. Under the state statute, banks with affiliates could not
sell insurance. The Court began its analysis from the premise that Congress had
granted national banks a power that was to be free of state interference. It reasoned
that since there was no clear statutory language of preemption, preemption was to be
determined by an examining the statutory “structure and purpose” for “a clear, but
implicit, preemptive intent.”55 It listed three possible ways of finding preemptive
intent: (1) finding that the federal law so occupies the regulatory field as to exclude
a role for the state; (2) determining that there is an “irreconcilable conflict,” i.e., that
complying with both the federal and state law is impossible; or (3) finding that
complying with the state law would obstruct one of the purposes of the federal
The Court did not find that federal regulation of national banks is so extensive
as to occupy the field; nor did it find that the state statute was in complete conflict
with the federal one. Nonetheless, it held that the state statute was preempted as an
obstacle to the accomplishment of the congressional intent of permitting all national
banks, whatever their affiliation, in towns of not more than 5,000, to sell insurance.
In reaching its conclusion, the Court treated earlier decisions requiring
interpretations of statutes conferring powers on national banks. Grants of powers by
Congress to national banks are to be treated as “grants of authority not normally
limited by, but rather ordinarily pre-empting, contrary state law.”56 The Court
In defining the pre-emptive scope of statutes and regulations granting a
power to national banks, these cases take the view that normally Congress
would not want States to forbid, or to impair significantly, the exercise of
a power that Congress explicitly granted. To say this is not to deprive
States of the power to regulate national banks, where (unlike here) doing
so does not prevent or significantly interfere with the national bank’s
exercise of its powers.57
Although Barnett found a state law that completely prevented some national banks
from exercising a statutory power to have been preempted as significant interference,
it did not set forth any measuring tool to decipher degrees on interference. This may
raise the question as to whether OCC’s proposed preemption regulations, although
based on Barnett, expand its reach by setting forth a method to preempt laws by
Barnett Bank of Marion County v. Nelson, 517 U.S. 25, 31, citing Fidelity Federal
Savings & Loan Association v. de la Cuestra, 458 U.S. 141, 152-153 (1982).
Barnett Bank of Marion County v. Nelson, 517 U.S. 25, 30, citing First National Bank
of San Jose v. California, 262 U.S. 366 (1923); Easton v. Iowa, 188 U.S. 220 (1903); and
Waite v. Dowley, 94 U.S. 527 (1876).
Barnett Bank of Marion County v. Nelson, 517 U.S. 25, 33.
which any state law involving more than mere incidental interference with national
bank powers may be subjected to preemption by OCC.
Explicit Statutory Preemption Provisions
Some of the more prominent explicit58 statutory preemption provisions that
provide a backdrop against which OCC preemption regulations have been issued
include various lending, deposit-taking, housing, and other consumer protection laws.
A sampling of them follows.
Alternative Mortgage Transaction Parity Act of 1982.
The Alternative Mortgage Transaction Parity Act of 198259 preempts state
laws that require residential mortgages to have a fixed rate, a fixed term, or both.
Federally chartered banks, thrifts, and credit unions had been authorized by their
regulators to offer alternative mortgage transactions without regard to state
prohibitions. This legislation permits all “nonfederally chartered housing creditors”
to offer such mortgages provided they follow the regulations issued by the federal
Depository Institutions Deregulation and Monetary Control Act of
The Depository Institutions Deregulation and Monetary Control Act of 198060
contains provisions preempting state usury interest ceilings on: deposits; residential
first mortgages; business and agricultural loans over $25,000; other loans by federally
insured banks, thrifts, and credit unions; and loans by small business investment
companies. The legislation authorized states to override its provisions.
Electronic Funds Transfer Act.
The Electronic Funds Transfer Act (EFTA), 12 U.S.C. § 1693q, preempts
inconsistent state law to the extent of inconsistency, as determined by the Board of
Governors of the Federal Reserve Board; it states that “if the protection such law
affords any consumer is greater than the protection afforded” by the EFTA, it is not
inconsistent. There is also a safe harbor for financial institutions that fail to comply
with a state law determined by the Fed to be inconsistent, ”notwithstanding that such
determination is subsequently amended, rescinded, or determined by judicial or other
Providing an explicit statement of the effect upon state law of federal legislation dealing
with national banks has not been the norm. A variety of such provisions exists, particularly
in the field of consumer law. Many of them employ complex standards that often need
interpretation either by a federal agency or by the courts.
12 U.S.C. §§ 3801, et seq.
P.L. 96-221, § 501 et seq., 94 Stat. 161.
authority to be invalid for any reason.”61 In Regulation E, 12 C.F.R. Part 205, the
Fed has listed types of state law provisions that will be deemed inconsistent with the
EFTA.62 The statute specifically permits the Board “on its own motion,” as well as
upon the motion of a financial institution, a state, or an interested party, to make a
preemption determination.63 There is also a specific provision permitting the Fed to
exempt “any class of electronic fund transfers within any State if the Board
determines that, under the law of that State, that class of electronic fund transfers is
subject to requirements substantially similar to those imposed under ... [EFTA] and
that there is adequate provision for enforcement.”64
Equal Credit Opportunity Act.
The Equal Credit Opportunity Act (ECOA), 16 U.S.C. § 1691(f), preempts
inconsistent state laws only to the extent to which they are inconsistent with the
federal law and the regulations65 promulgated thereunder. In addition, there are
specific provisions preempting certain types of state law66 and authorization for the
Federal Reserve Board to make determinations as to state law inconsistency. The
legislation specifies that there is no inconsistency in a state law that provides greater
protection to a credit applicant. The Federal Reserve Board is given authority to
exempt “any class of credit transaction within any State if it determines that under
the law of that State that class of transactions is subject to requirements substantially
similar to those imposed under” ECOA.67
Expedited Funds Availability Act.
The Expedited Funds Availability Act68 prescribes schedules that banks must
meet in making funds deposited to checking and other transaction accounts available
to their customers. It preempts state laws except those in effect before September 1,
1989, that require that funds be made available in a shorter time period.69
15 U.S.C. § 1693q.
12 C.F.R. § 20.12(b).
15 U.S.C. § 1693q.
15 U.S.C. § 1693r.
Regulation B, 12 C.F.R. § 102.
For example, 15 U.S.C. § 1691d(d) preempts, under specified circumstances, state laws
that forbid separate grants of credit to each spouse.
15 U.S.C. § 1691d(f).
12 U.S.C. §§ 4001 et seq.
12 U.S.C. § 4007.
Fair Credit Reporting Act.
The Fair Credit Reporting Act (FCRA)70 has a preemption provision, that
preempts state laws relating to the collection, distribution, or use of any information
on consumers or for the prevention and detection of identity theft to the extent that
they are inconsistent. Amendments to the FCRA in 1996 and 200371 explicitly
preempt state laws relating to various aspects of consumer reporting, including prescreening of consumer reports, timelines for disputing accuracy of information in a
consumer’s report, duties of persons taking an adverse action regarding a consumer,
duties of persons using a consumer report in connection with a credit or insurance
transaction not initiated by a consumer, information in consumer reports,
responsibilities of persons furnishing information to a consumer reporting agency,
exchange of information among affiliated entities, measures relating to preventing
and ameliorating the effect of identity theft, and annual free consumer reports.
Fair Debt Collection Practices Act.
The Fair Debt Collection Practices Act72 regulates professional debt collectors
collecting debts incurred by natural persons for personal, family, or household
purposes. It preempts state laws only to the extent of their inconsistency and
specifies that a state law that provides any consumer greater protection is not
Fair Housing Act.
The Fair Housing Act74 forbids discrimination on the basis of race, color,
religion, sex, handicap, family status, or national origin in connection with the sale
or leasing of housing or residential real estate-related transactions, such as making
or purchasing residential mortgages or home improvement loans or selling,
brokering, or appraising residential real estate. It contains a provision stating that it
is not to be construed to “invalidate or limit any law of a State or political
subdivision of a State ... that grants, guarantees, or protects the same rights as are
granted by this subchapter; but any law of a State, a political subdivision, or other
such jurisdiction that purports to require or permit any action that would be a
discriminatory housing practice under this subchapter shall to that extent be
15 U.S.C. §§ 1681 et seq. For a fuller explication of its preemptions provisions, see CRS
Report RS21449, The Fair Credit Reporting Act: Preemption of State Law, by Angie A.
P.L. 108-159,The Fair and Accurate Credit Transactions Act of 2003.
15 U.S.C. §§ 1692 et seq.
15 U.S.C. § 1692n.
42 U.S.C. §§ 3601 et seq.
42 U.S.C. § 3615.
Garn-St Germain Depository Institutions Act of 1982.
The Garn-St Germain Depository Institutions Act of 198276 preempts state
prohibitions on the enforcement of due-on-sale clauses by lenders.
The Gramm-Leach-Bliley Act (GLBA)77 authorizes affiliations among
depository institutions, securities firms, and insurance companies and reaffirms that
the regulation of the business of insurance is a matter relegated to the states.78 It
preempts state laws prohibiting depository institutions from affiliating with insurance
companies and specifies exceptions to this rule that permit states to engage in certain
oversight of the process of affiliation, e.g., collecting information on proposed
The legislation also preempts states from preventing a depository institution
or an affiliate of a depository institution from engaging in any activity authorized by
the legislation, and provides separate rules for preempting insurance sales,
solicitation, and cross marketing.80 A state “statute, regulation, order, interpretation,
or other action regarding insurance sales, solicitation, or cross marketing activities”
in effect before September 3, 1998, is preempted if it “prevents or significantly
interferes with” a national bank’s exercise of those powers; and OCC’s rulings on
such statutes should be accorded deference.81 State laws or regulations enacted after
that date are subject to the same “significantly interferes with” standard, but not to
the OCC deference. They are also subject to an additional non-discrimination test.
That test has four parts each of which seeks to prohibit states from adversely
distinguishing depository institutions and their affiliates from other providers of the
same services.82 The legislation singles out 13 safe harbors, provisions which states
may enact with respect to depository institution sale, solicitation, or cross-marketing
of insurance, without being subject to preemption.83 These permit states to enact
provisions such as those prohibiting the tying of a sale of insurance product to a loan;
deceptive advertising that could reasonably be interpreted to link the insurance
P.L. 97-320, Tit. III, § 341; 12 U.S.C. § 1701j-3.
P.L. 106-102, 113 Stat. 1338 (1999).
15 U.S.C. § 6701, citing the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq.
15 U.S.C. § 6701(c).
15 U.S.C. § 6701(d).
15 U.S.C. § 6701(d)(2)(C). “Deference” refers to application of the rule in Chevron,
U.S.A. v. Natural Resources Defense Council, 467 U.S. 837 (1984), by which a court
reviewing an agency regulation interpreting an ambiguous statutory provision is required
to defer to the agency’s interpretation of the statute, if it is reasonable. In the case of an
opinion letter, however, the agency’s interpretation is to accorded respect, ‘but only to the
extent those interpretations have the ‘power to persuade.’” Christensen v. Harris County,
529 U.S. 576, 587 (2000), citing Skidmore v. Swift & Co., 323 U.S. 134 (1944).
15 U.S.C. § 6701(e).
15 U.S.C. § 6701(d)(2)(B).
product to federal deposit insurance; or paying broker’s fees to persons not licensed
to sell the insurance product. Other provisions of GLBA address such topics as
insurance underwriting in national banks and title insurance activities of national
banks and their affiliates.84
A separate provision85 authorizes a federal or state regulator to seek expedited
judicial review in a federal appellate court “[i]n the case of a regulatory conflict
between a State regulator and a Federal regulator regarding insurance issues,
including whether a State law, rule, regulation, order or interpretation regarding any
insurance sales or solicitation activity is properly treated as preempted under Federal
law.” Under Gramm-Leach-Bliley’s special rules applicable to conflicts on
interpretation between OCC and a state insurance regulator, OCC is to be accorded
deference with respect to state laws enacted prior to September 3, 1998, 15 U.S.C.
§ 6701(d)(2)(C); for subsequent enactments, the courts are to “review on the merits
... all questions presented under State and Federal law, including the nature of the
product or activity and the history and purpose of its regulation under State and
Federal law without unequal deference.”86
Title V of GLBA sets rules for financial institutions to safeguard nonpublic
personal information of consumers and prohibits them from sharing that information
with nonaffiliated third parties unless the customer has been given an opportunity to
prevent the sharing (an opt-out). It preempts inconsistent state law and declares that
a state “statute, regulation, order, or interpretation” is not inconsistent if, as
determined by the Federal Trade Commission, it affords any person greater
protection than provided in the legislation.87
National Bank Act.
The National Bank Act, 12 U.S.C. §§ 85 and 86, prescribes the interest rates
that national banks may charge: (1) the rate permitted state banks in the place where
the bank is located; (2) 1% over a specified Fed discount rate; or (3) 7%, when no
rate is fixed by state law.
Real Estate Settlement Procedures Act.
The Real Estate Settlement Procedures Act88 applies to federally-related
mortgages on residential property. It requires various disclosures in advance of
settlement, forbids certain practices, and prescribes certain procedures. It preempts
15 U.S.C. §§ 302 and 303.
15 U.S.C. § 6714.
15 U.S.C. § 6714(e). In Cline v. Hawke, 51 Fed. Appx 392; 2002 U.S. App. LEXIS
23831 (4th Cir. 2002), cert. denied ___ U.S. ___; 124 S.Ct. 63 (2003), this procedure was
used by the Insurance Commissioner of West Virginia to challenge an OCC opinion letter
that had found provisions of a state insurance sales consumer protection act to be preempted.
See infra, p. 21.
15 U.S.C. § 6824.
12 U.S.C. §§ 2601 et seq.
inconsistent state law to the extent of inconsistency as determined by the Secretary
of Housing and Urban Development.89
Riegle-Neal Interstate Banking and Branching Efficiency Act of
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 199490
authorized interstate banking through holding companies and through mergers
subject to various conditions, including certain specifications respecting the
applicability of various types of state law. With respect to interstate branches, for
example, state laws relating to community reinvestment, consumer protection, fair
lending, and establishment of intrastate branches apply to interstate branches of
national banks to the extent they apply to a branch of a state-chartered bank subject
to certain exemptions–where preempted by federal law or where the OCC determines
that the application of the state law would have a discriminatory effect on the
national bank branch as compared with a the branches of a state-chartered bank.91
This section also contains a statement that none of its provisions “may be
construed as affecting the legal standards for preemption of the application of State
law to national banks.” 12 U.S.C. § 36(f)(3). Although the legislation, itself, does
not expand upon this, the accompanying Conference Report contains a lengthy
discussion of the Congressional view of how state laws apply to national banks: It
reads, in pertinent part:
States have a strong interest in the activities and operations of depository
institutions doing business within their jurisdictions, regardless of the type
of charter an institution holds. In particular, States have a legitimate
interest in protecting the rights of their consumers, businesses, and
communities. Federal banking agencies, through their opinion letters and
interpretative rules on preemption issues, play an important role in
maintaining the balance of Federal and State law under the dual banking
system. Congress does not intend that the Interstate Banking and
Branching Efficiency Act of 1994 alter this balance and thereby weaken
States’ authority to protect the interests of their consumers, businesses, or
Under well-established judicial principles, national banks are subject to
State law in many significant respects. The laws of the State in which a
national bank is situated will apply to the national bank unless those State
laws are preempted by Federal law. Generally, State law applies to
national banks unless the State law is in direct conflict with the Federal
law, Federal law is so comprehensive as to evidence Congressional intent
to occupy a given field, or the State law stands as an obstacle to the
accomplishment of the full purposes and objectives of the Federal law. In
this regard, the impact of a State law on the safe and sound operations of
a national bank is one factor that may be taken into account in considering
whether Federal law preempts State law. Courts generally use a rule of
12 U.S.C. § 2616.
P.L. 103-328, 108 Stat. 2343.
12 U.S.C. § 36(f).
construction that avoids finding a conflict between the Federal and State
law where possible. The title does not change these judicially established
During the course of consideration of the title, the Conferees have been
made aware of certain circumstances in which the Federal banking agencies
have applied traditional preemption principles in a manner the Conferees
believe is inappropriately aggressive, resulting in preemption of State law
in situations where the federal interest did not warrant that result....It is of
utmost concern to the Conferees that the agencies issue opinion letters and
interpretative rules concluding that Federal law preempts state law
regarding community reinvestment, consumer protection, fair lending, or
establishment of intrastate branches only when the agency has determined
that the Federal policy interest in preemption is clear ....
The Conferees have similar concerns regarding the scope of the OCC
interpretative rule that appears at 12 C.F.R. § 7.8000, which broadly asserts
that Federal law governing the deposit-taking functions of national banks
preempts any State law that attempts to prohibit, limit, or restrict deposit
account service charges.....
In view of the Congressional concern regarding preemption of State law
regarding community reinvestment, consumer protection, fair lending, and
establishment of intrastate branches, the Conferees concluded that a more
open process for reaching preemption conclusions in these areas, with a
clearly structured, meaningful opportunity for interested parties to
communicate their views to the agency, was warranted....The Conferees
believe that the public notice and openness provided by the new process
will be a vital safeguard to ensure that an agency applies the recognized
principles of preemption, discussed above, in a balance fashion.
This process is not intended to confer upon the agency any new authority
to preempt or to determine preemptive Congressional intent in the four
areas described, or to change the substantive theories of preemption as set
forth in existing law. Rather, it is intended to help focus any administrative
preemption analysis and to help ensure that an agency only makes a
preemption determination when the legal basis is compelling and the
Federal policy interest is clear.92
Truth in Lending Act.
The Truth in Lending Act (TILA), 15 U.S.C. § 1610(a), preempts state laws
“relating to the disclosure of information in connection with credit transactions” to
the extent of inconsistency, as determined by the Federal Reserve Board. Regulation
Z, promulgated by the Federal Reserve Board, details requirements in state laws that
will be deemed to be inconsistent with this legislation as contradicting its terms.93
Special preemption rules apply to correction of billing errors and correction of credit
H.Conf. Rep. No. 103-65, 103d Cong., 1st sess. 53-55 (1994).
12 C.F.R. § 226.28.
reports.94 TILA provides the Federal Reserve Board with authority to issue
regulations and to provide “for such adjustments and exceptions for any class of
transactions, as in the judgment of the Board are necessary or proper to effectuate the
purposes” of the legislation.95 Under this authority, the Federal Reserve Board has
issued a regulation to establish a procedure for states to seek exemptions from
preemption for a class of transactions96 and the Board has granted certain limited
Truth in Savings Act.
The Truth in Savings Act, 12 U.S.C. § 4312, preempts state laws “relating to
the disclosure of yields payable or terms for accounts” to the extent of their
inconsistency and authorizes the Federal Reserve Board to determine inconsistency.
Preemption by Agency Interpretation
There is a considerable body of decisional law interpreting agency decisions
or regulations preempting state laws affecting federally chartered banks. Examining
some of these decisions sheds light on what the Barnett standard may mean and how
OCC is interpreting it. There are so few federal laws respecting the basic lending and
deposit-taking activities of banking institutions that explicitly define their effect upon
state law that questions of preemption are often determined by litigation. Often the
cases focus on explication of statutory terms, rather than the issue of whether the
statute, itself, has preemptive effect.98 Generally, the cases involve a federal
regulator interpreting federal law generously to promote what may appear to be
policy interests favoring the federally-chartered institutions. Frequently, such
regulatory decisions are challenged by state regulators, state-chartered institutions in
competition with the federally-chartered institutions, or by trade groups representing
other competitors. In one instance, a national bank’s ability to charge its homestate’s interest rates on credit card balances of customers from a second state was
challenged by a national bank located in the second state and, therefore, by the terms
of 12 U.S.C. § 85, explicitly subject to the usury laws of the second state.99 In that
case, Marquette National Bank of Minneapolis v. First Omaha Service Corporation,
439 U.S. 299 (1974), the Supreme Court ruled that the state usury law was preempted
by the National Bank Act’s section 85.100 The Court saw the issue in terms of the
12 C.F.R. § 226.28(a); See 12 C.F.R. , Part 226, Supp. I, Official Staff Commentary, §
12 U.S.C. § 1604(a).
12 C.F.R. § 226.29(a).
See 12 C.F.R., Part 226, Supp. 1, Official Staff Commentary, § 226.29.
See Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735, 743-744 (1996).
See supra, at 17, describing interest rates permissible under the National Bank Act.
12 U.S.C. § 85. This sets the interest rate that a national bank may charge on the basis
of the interest rate allowed on loans by the laws of the state in which the national bank is
inequalities resulting from the intersection of a national banking system with state
law. It examined the legislative history of the 1864 National Bank Act and concluded
that Congress had intended that national banks operate their lending business on an
interstate basis. Impairment of “the ability of States to enact effective usury laws”
was, therefore, “implicit in the structure of the National Bank Act until Congress
chose to alter section 85.101
In Smiley v. Citibank (South Dakota), N.A., 517 U.S.735 (1996), the Supreme
Court upheld the authority of the OCC to interpret the word, “interest,” in a section
of the National Bank Act, 12 U.S.C. § 85, and to include late charges within its
meaning. The result was that California credit card holders were lawfully charged
late fees on credit cards issued by a South Dakota bank despite a California law
prohibiting such fees. In a unanimous opinion, written by Justice Scalia, the Court
upheld the OCC interpretation of the National Banking Act. It did so primarily by
deferring to the OCC’s interpretation of the statute, relying on Chevron U.S.A. Inc.
v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). Under that
opinion, courts are to defer to an agency interpretation of a statute that Congress has
committed to its charge when the statute is ambiguous and the agency’s interpretation
is a reasonable one. In Smiley, the fact that the OCC had promulgated its
interpretation by regulation following notice and consideration of public comments
strengthened the case for deferring to OCC. That the regulation was issued after the
litigation had commenced and that it departed from an earlier position taken by OCC
were not controlling because the Court found no arbitrary or capricious change in a
former full blown agency position.
located. The Court found that a national bank is located in the place named in its charter
and may not be deemed to be located elsewhere–where its credit card customers reside, or
where the merchants enrolled in its credit card business operate. This case built on an early
case, Tiffany v. National Bank of Missouri, 85 U.S. (18 Wall.) 409 (1873), in which the
Court held that under § 85 of the National Bank Act, a state law that allowed “natural
persons” to charge a higher interest rate than banks would be preempted to the extent that
it would confine national banks to the bank rate of interest. National banks could charge the
interest permitted the most favored lender. In this case, the Court addressed the issue of the
purpose and structure of the National Banking Act:
National banks have been National favorites. They were established for the
purpose, in part, of providing a currency for the whole country, and in part to
create a market for the loans of the General government. It could not have been
intended, therefore, to expose them to the hazard of unfriendly legislation by the
States, or to ruinous competition with State banks....the act of Congress we have
been considering ... gives advantages to National banks over their State
competitors. It allows such banks to charge such interest as State banks may
charge, and more, if by the laws of the State more may be charged by natural
persons. 85 U.S. 409, 413.
439 U.S. 299, 318. The Court stated that “the protection of state usury laws is an
issue of legislative policy, and any plea to alter § 85 to further that end is better
addressed to the wisdom of Congress than to the judgment of this Court.” 439 U.S.
Under the Chevron reasoning, the OCC, in Nationsbank v. Variable Annuity
Life Insurance Co.,102 was been upheld in its interpretation of the meaning of a clause
in the powers provision of the National Bank Act, 12 U.S.C. § 24, according to which
national banks are authorized “to exercise” “all such incidental powers as shall be
necessary to carry on the business of banking.”103 Under the authority of that clause,
OCC authorized national banks, through subsidiaries, to sell annuities as “investment
products” rather than as insurance. Had they been deemed insurance, under 12
U.S.C. § 92, such sales would have been limited to national bank offices in towns of
no more than 5,000. The insurance company challenging the OCC decision to permit
the annuity sales argued for a restrictive interpretation of the clause in 12 U.S.C. §
24, limiting national banks to the activities enumerated. The Court looked at the
entire section and the legislative history of some of its provisions and embraced a
broad view of the section and the OCC position.
Supreme Court cases subsequent to Chevron indicate that deferring to an
agency’s interpretation of an ambiguous statute may require a showing that Congress
has delegated authority to the agency to promulgate rules having the force of law and
that the rule or regulation for which the agency is claiming deference has actually
been promulgated pursuant to that authority. In United States v. Mead Corp., 533
U.S. 218 (2001), the Supreme Court held that a United States Customs Service letter
ruling that set a tariff classification for a particular form of stationery, day planners,
was not entitled to deference because it was not promulgated as a regulation
following notice and comment and did not affect rights other than the recipient of the
letter.104 In Food and Drug Administration v. Brown & Williamson Tobacco Corp.,
529 U.S. 120 (2000), the Court ruled that the Food and Drug Administration (FDA)
did not have authority to promulgate regulations covering tobacco products as
“drugs” and “devices”under the Food, Drug, and Cosmetic Act. In addition to
looking at the entire structure and purpose of the legislation that FDA was citing, the
Court looked at a broader statutory context, including Congressional statutes
regulating labeling and advertising of cigarettes, and concluded that Congress had
never delegated authority to the FDA to regulate tobacco products, but had precluded
administrative regulation of tobacco products. The Court distinguished the case from
the conventional Chevron type of case. Regulation of tobacco products was
extraordinary in terms of the breadth of the authority that the FDA was asserting, its
economic and political implications, and the long debate about tobacco policy in the
United States. The Court reviewed a history of almost forty years of Congressional
interest in tobacco issues and delegations of regulatory authority to the Federal
Communication Commission and the FTC, but not to the FDA. It reached the
conclusion that there was no Congressional intent for FDA to issue rules on tobacco
products. The Court was “confident that Congress could not have intended to
513 U.S. 251 (1995).
12 U.S.C. § 24 (Seventh).
In a similar case, Christensen v. Harris County, 529 U.S. 576 (2000), the Court refused
to apply Chevron deference to a Department of Labor opinion letter interpreting a statutory
provision respecting the scheduling of county employee use of compensatory time.
delegate a decision of such economic and political significance to an agency in so
cryptic a fashion.”105
Recent Preemption Cases
National banks, through subsidiaries or affiliated companies in a bank or
financial services holding company are often able to combine great marketing power
and nation-wide presence to offer multi-faceted financial services.106 Their ability
to take advantage of favorable interest rates authorized by their chartering state may
have impelled state legislatures to enact consumer protection laws in an attempt to
require out-of-state banking concerns to abide by rules applicable to those with instate charters. With some regularity, OCC, generally at the request of a national
bank or a group of national banks, has taken the stand that these state laws are
preempted. As the following summaries of some of the recent cases illustrate, the
federal courts have tended to agree with OCC and to restrict the areas that states may
legitimately address with respect to national bank activity in their jurisdictions.
Cline v. Hawke107 upheld an OCC preemption of a state law regarding bank
sales of insurance by finding OCC’s rationale persuasive. Prompted by a request
from the West Virginia Bankers Association, after having published a notice and
solicited public comments, OCC issued a letter declaring certain provisions of West
Virginia’s insurance law were preempted. In deciding on a challenge to that ruling,
a federal appellate court found that OCC was exercising implicit authority to interpret
provisions of the Gramm-Leach Bliley Act’s (GLBA) expansion of 12 U.S.C. § 92,
authorizing national banks to engage in insurance sales. It also found that because the
West Virginia law had been enacted prior to September 3, 1998, OCC’s
interpretation was entitled to deference,108 but not the full deference that would be
accorded under Chevron 109 because what was at issue was not an agency regulation.
The deference that was to be accorded was that prescribed by the Supreme Court in
Skidmore v. Swift & Co.,110 and Christensen V. Harris County.111 Under that
standard, the agency’s opinion letter is entitled to deference only if it is persuasive.
To determine persuasiveness, the court looked for “thoroughness of the OCC’s
consideration, the validity of its reasoning, and its consistency with earlier and later
FDA v, Brown & Williamson, 529 U.S. 120, 160.
See CRS Report RS21680, Affiliates in Banking, Finance, and Commerce: Development
and Regulatory Background, by William D. Jackson.
51 Fed Appx. 391, 2002 WL 31557392 (4th Cir. 2002).
Supra at 16, Gramm-Leach-Bliley Act, text accompanying n. 80-81.
467 U.S. 837 (1984).
323 U.S. 134 (1944).
529 U.S. 576 (2000).
pronouncements.”112 The thoroughness standard was found to be satisfied by the
formal notice and comment procedures; OCC’s reasoning was found to be valid in
light of the OCC findings that the provisions in question would disrupt bank
operations and “significantly interfere” with bank insurance sales.
Bowler v. Hawke113 represents a conflict in the federal circuits because it
disagrees with the Cline ruling. The case dealt with a Massachusetts insurance sales
consumer protection law, similar to that in Cline v. Hawke, that OCC had
preempted by an informal opinion letter,114. The court refused to find a justiciable
“regulatory conflict” within the meaning of the GLBA’s dispute resolution section.115
It viewed the OCC letter as an advisory opinion. In rejecting the case, the opinion
indicated some discontent with GLBA’s vesting the appellate courts with jurisdiction
for disputes between federal banking regulators and state insurance commissioners.116
Insurance Licensing Requirements.
Association of Banks in Insurance, Inc. v. Duryee117 involved a conflict
between 12 U.S.C. § 92, authorizing national banks to sell insurance in small towns,
and an Ohio insurance sales licensing law denying a license to any entity that had as
its principal purpose soliciting insurance sales from persons for whom the entity
acted as a trustee or agent, including for those for whom it held deposit accounts.
OCC filed an amicus brief in support of national banks’ position that such a
requirement was preempted. One part of the law was subject to GLBA’s “without
unequal deference”118 standard of review; other parts predated September 3, 1998,
and were, therefore, subject to the Barnett preemption standard, which accords OCC
deference. The evidence showed that the principal purpose test had been enacted as
a consumer protection measure and to protect general insurance agents. Its
proponents viewed it as non-discriminatory. Those speaking for preemption took the
contrary position: that the principal purpose test discriminated against national
banks, preventing them from fully developing their most natural source of insurance
customers, their banking customers. Against the banks’ argument that there would
be “significant interference” within the meaning of Barnett, the defenders of the state
Cline v. Hawke, 51 Fed. Appx. 392, 396-397, citing Skidmore.
320 F. 3d 59 (1st Cir. 2003).
Comments on the request for preemption of the Massachusetts law were solicited in 65
Fed, Reg. 43827 (July 13, 2000).
15 U.S.C. § 6714.
320 F. 3d 59, 64. The court said: “The questions Massachusetts’s petition seeks to
have us adjudicate are unlikely to be purely legal. It is apparent that, in deciding
whether state laws are preempted by GLBA § 104(d)(2), courts are going to have to
make judgment calls about the extent to which the laws hinder the ability of
depository institutions to engage in sales, solicitation, and cross-marketing activities,
as a factual matter. Such judgment calls will often be better made on an evidentiary
record created in litigation in the trial court.”
270 F. 3d 397 (6th Cir. 2001).
15 U.S.C. § 6714(e).
law sought the court to construe “significant interference” test to mean “effectively
thwart.” The court found significant interference and preemption under Barnett and
under GLBA’s non-discrimination standards, finding that the law adversely impacted
national banks as compared with “other persons or entities providing the same
products or services ... that are not depository institutions....”119 The court also found
other registration provisions of the Ohio law preempted in language that suggests that
requirements for a state insurance sales license that go beyond the merely formal
would be preempted.
Bank of America v. City and County of San Francisco120 (Bank of America)
involved municipal ordinances prohibiting ATM fees for non-depositors. The court
ruled that such ordinances were preempted by the National Bank Act, the Home
Owners’ Loan Act, and OCC and OTS regulations that permit the charging of such
fees. The court applied the Chevron standard, and found reasonable the OCC
interpretation that providing electronic services and charging fees for services are
incidental powers of national banks under 12 U.S.C. § 24. It also ruled that state
laws limiting ATM fees are not within the Electronic Funds Transfer Act’s (EFTA)
provision preserving more protective state law.121 A similar ruling on the
inapplicability of the EFTA anti-preemption clause was reached by the U.S. Court
of Appeals for the Eighth Circuit in Bank One v. Guttau,122 a case that found various
state law restrictions on advertising on ATM’s preempted as to national banks.
Metrobank v. Foster,123 upheld the authority of national banks in Iowa to
charge non-account holders a fee for using an ATM. The decision relied on the
incidental powers clause of the National Bank Act and OCC’s implementing
regulations. It found the situation analogous to that decided by the Supreme Court
in Barnett.124 Having been reversed in Guttau on the issue of whether EFTA
preempts state ATM fee limits, the court followed up on the Court of Appeals ruling
on this issue and held that the ATM Fee Reform Act125 requirement that ATM
providers give users notice of a fee charge before the transaction is completed did not
alter the preemption analysis.
15 U.S.C. § 6701(e)(2).
309 F.3d 551 (9th Cir. 2002), cert. denied, ___ U.S. ___, 123 S.Ct. 2220 (2003).
12 U.S.C. § 1693q.
190 F. 3d 844 (8th Cir. 1999), cert. denied, 529 U.S. 1087 (2000).
193 F. Supp. 2d 1156 (D. Iowa 2002).
517 U.S. 25 (1996).
15 U.S.C.§ 1693(b)(d)(3).
Check Cashing Fees.
Wells Fargo Bank of Texas, N.A. v. James126 found a Texas law that
prohibited check-cashing fees for any checks presented by non-account holders to the
institution on which it is drawn to be preempted under an OCC interpretation of a
regulation that permits national banks to charge customers fees.127 Using a Chevron
analysis, the court found the National Bank Act ambiguous on the question of which
fees national banks may charge, determined that Congress intended the OCC to have
the discretion to make such determinations, and, therefore, deferred to what it found
to be OCC’s reasonable determination. Finally, since the OCC regulation did not
speak to the particular type of fee, the court ruled that the OCC’s interpretation that
the term “customer” included those who presented checks at teller windows was a
reasonable one, entitled to deference under the standard applicable to agency
interpretations of their own regulations under Auer v. Robins.128
Bank of America v. Sorrell,129 a case in which the OCC filed an amicus brief,
enjoined the enforcement against national banks of Georgia laws that precluded
charging non-customers fees for cashing checks. The court found the state laws
preempted by the incidental powers clause of the National Banking Act, the
regulations issued thereunder, and an OCC General Counsel opinion letter
Wells Fargo Bank, N.A. v. Boutris131 held that OCC’s visitorial powers over
national banks–i.e., the power to examine and oversee national banks, which are
exclusive under 12 U.S.C. § 484, also applied to an operating subsidiary of a national
bank doing mortgage business in California and incorporated under California law.
The state banking commissioner was, therefore, preempted from requiring an audit
of the mortgage loans made by that subsidiary. OCC regulation, 12 C.F.R. § 7.4006,
provides that state laws and regulations apply to national bank operating subsidiaries
to the same extent as they apply to national banks.132 The court found that OCC had
321 F. 3d 488 (5th Cir. 2003).
12 C.F.R.§ 7.4002(a).
519 U.S. 451 (1997).
248 F. Supp. 2d 1196 (D. Ga. 2002).
OCC Interpretative Letter No. 933 (August 17, 2002), Avail. In LEXIS, BANKNG
Library, ALLOCC file includes an elaboration on the term, “customer,” as used in the
regulation: “‘customer’” simply means any party that obtains a product or service from the
bank.” The kinds of considerations that might persuade a bank to charge such a fee include:
deterrence of check fraud; minimizing of risk to bank; provide better service to account
holders by reducing teller lines; avoid passing cost of such check cashing on to account
265 F. Supp. 2d 1162 (E.D. Cal. 2003).
The court relied on various cases that treated operating subsidiary activities as equivalent
authority under the National Bank Act to promulgate the regulation and that the
regulation was a reasonable interpretation of legislation.
Credit Card Minimum Payment Warnings.
American Bankers Association v. Lockyer,133 a case in which OCC filed an
amicus brief, held preempted California laws requiring credit card issuers to charge
no interest, demand 10% repayment each month, or provide notice to the cardholder
of the cost of paying only the minimum payment and the length of time before the
balance would be paid. The court ruled that this statute was preempted for all
national banks, thrifts, and credit unions. Because the OCC and the NUCA did not
have explicit regulations, the court found that the minimum payment warning would
not have been preempted, had it been severable.134 Following the Ninth Circuit Court
of Appeals ruling in Bank of America that EFTA did not preserve state ATM fee
limits, the court found the Truth in Lending Act anti- preemption clause, which is
similarly worded, inapplicable. The court held that the California credit card
minimum payment warning law was preempted with respect to federally-chartered
thrifts, by virtue of the Home Owners’ Loan Act and OTS regulations. In one of
these regulations, OTS declared that “OTS hereby occupies the entire field of lending
regulation for federal savings associations.”135 OCC has no similar assertion in its
regulations, although it made a parallel argument in its amicus brief.136 OCC asserted
that the California law clashed with 12 U.S.C. § 85 prescribing interest rates that
national banks may charge and 12 U.S.C. § 24, Seventh,137 granting lending power
to national banks, and that complying with it would impose a substantial burden on
national banks. The court, using the Chevron standard, found the OCC interpretation
reasonable; and the burden, substantial, and, thus, found the state law preempted
to activities of the national bank: e.g., Nationsbank of North Carolina. N.A. v. Variable
Annuity Life Ins. Co., 513 U.S. 251 (1995);Marquette National Bank of Minneapolis v. First
Omaha Service Corporation, 439 U.S. 299 (1978).
239 F. Supp. 100 (E.D. Cal. 2002).
This finding with respect to OCC was based on an admission by the attorney for OCC
in oral argument and on the court’s analysis of an OCC opinion letters preempting portions
of a West Virginia insurance sales statute, Preemption Opinion, 66 Fed. Reg. 51,502
(October 9, 2001). American Bankers Association v. Lockyer, 239 F. Supp. 2d 1000, 10151016.
12 C.F.R. § 560.2(a).
“[T]he terms and conditions of extensions of credit, and the lender’s management of
credit accounts, are at the heart of the National Bank Act’s power to lend money.” OCC
Amicus Brief at 9, quoted in American Bankers Association v. Lockyer, 239 F. Supp. 2d
This authorizes “loaning money on personal security.”
Analysis of Preemption Regulations
Both in proposing and finalizing the regulations on preemption, OCC sets
forth legal and practical justifications. The legal argument is based on principles of
federal preemption relating to national banks; the history of the National Bank Act
and its conferral of powers, particularly the real estate power; and the analysis of the
Supreme Court in Barnett. The practical arguments center on the fact that there has
been no significant history of national bank predatory lending problems and state
enforcement efforts have focused primarily on unregulated financial institutions.
Even with this record, according to OCC, it has taken steps and has adequate tools
to prevent the problem from surfacing in national banks or to deal with it if it does.
It issued two advisory letters on predatory lending in 2003. It stands ready to
enforce the various federal laws in place, including the Federal Trade Commission
Act,138 to prevent practices that are the target of predatory lending laws. Loan
flipping, equity stripping, and refinancing of subsidized mortgages are subject to
enforcement actions under the FTC Act as unfair or deceptive practices.
The major criticisms of the OCC position may also be classified as legal and
practical–that OCC’s legal standard is slanted and that the regulator of national banks
has not provided sufficient data for its conclusions about the impact of the various
types of state laws at issue on national banks. The basis for the assertion that OCC
has extended Barnett’s more limited standard139 may be seen in comparing the two
standards. According to OCC, where there is no statute delineating the applicability
of state law to a particular situation involving a national bank, state law would be
applicable only if it is not “altering or conditioning a national bank’s ability to
exercise a power that Federal law grants to it.” The Barnett standard, which OCC
cites as authority for the OCC version,140 reads:
In defining the pre-emptive scope of statutes and regulations granting a
power to national banks, these cases take the view that normally Congress
would not want States to forbid, or to impair significantly, the exercise of
a power that Congress explicitly granted. To say this is not to deprive
States of the power to regulate national banks where ... doing so does not
prevent or significantly interfere with the national bank’s exercise of its
The Federal Trade Commission Act, 15 U.S.C. §§ 41-58, outlaws deceptive acts and
practices in or affecting commerce. Under 15 U.S.C. § 57a(f)(3), the federal banking
agencies are empowered to enforce this legislation by issuing rules, by investigating
complaints, and by using the array of enforcement tools under section 8 of the Federal
Deposit Insurance Act, 12 U.S.C. § 1818.
According to a comment letter filed with the OCC by the Center for Responsible
Lending, dated October 6, 2003, at 2, “the proposed rulemaking subtly, but substantially
alters the conflict preemption standard to dramatically lower the threshold for preemption.”
517 U.S. at 33.
Also on the page cited by OCC , Barnett cites with approval standards from three other
cases: “state statute administering abandoned deposit accounts did not ‘uinlawful[ly]
encroac[h] on the rights and privileges of national banks’” (Anderson National Bank v.
The shorthand for this standard has been: “prevent or significantly interfere” with
national bank powers. When Congress incorporated a preemption standard in the
Gramm-Leach Bliley Act, it used this formulation.142 If OCC is broadening the
Barnett standard, it may be that it is not following the advice of the Conference
Committee Report accompanying the enactment of the Riegle-Neal Interstate
Branching Efficiency Act of 1994, which set up certain procedural requirements
before OCC could promulgate certain preemption determinations as a means, among
other things, “to help ensure that an agency only makes a preemption determination
when the legal basis is compelling and the Federal policy interest is clear.143
Since the Supreme Court’s preemption rulings concerning national banks
predate FDA v. Brown & Williamson, that case may provide some arguments to
convince courts to impose the more stringent test of that case, rather than a pure
Chevron analysis, in ruling on challenges to OCC’s authority to promulgate these
rules or some aspects of them. The potential economic impact of preempting state
lending and deposit-taking state laws for national banks is considerable. The contrast
between the history of judicial approval of and Congressional acquiescence to OCC
preemption rulings over the years and the forty-year history of the refusal of
Congress to provide FDA with explicit rulemaking authority over tobacco products
seems to preclude any analogy between the two situations. It is true, however, that
OCC has no explicit statutory authority to preempt state laws on the covered subjects
or with respect to subsidiaries. What the agency relies on is the breadth of the overall
purposes of the national banking system, the comprehensive general authority
delegated to OCC to regulate national banks, and various specific statutory
authorizations to issue rules on subject matters covered by these proposed
Luckett, 321 U.S. 233, 247-252 (1944); “application to national banks of state statute
forbidding certain real estate transfers by insolvent transferees would not ‘destroy[y] or
hampe[r]’ national banks’ functions” (McClellan v. Chipman, 164 U.S. 347, 358 (1896));
and “national banks subject to state law that does not ‘interfere with, or impair [national
banks’] efficiency in performing the functions by which they are designed to serve [the
Federal] Government’” (National Bank v. Commonwealth, 76 U.S. (9 Wall.) 353, 362
P.L. 106-102, 113 Stat. 1338 (1999). In the section of GLBA dealing with the operation
of state law with respect to the applicability of state insurance laws to bank sales of
insurance, the legislation applies the Barnett standard to state laws and expresses that
standard in the following terms: “no State may by statute, regulation, order, interpretation,
or other action prevent or significantly interfere with the ability of a depository institution,
or affiliate thereof, to engage directly or indirectly, either by itself or in conjunction with
an affiliate or another person, in any insurance sales, solicitation, or crossmarketing.” 15
U.S.C. § 6701(d)(2).
H.Conf. Rep. No. 103-65, 103d Cong., 1st Sess. 53-55 (1994).