Federal Preemption of State Banking Laws: Cuomo v. Clearing House Association
In a case decided at the end of this most recent term, the U.S. Supreme Court ruled that New York State prosecutors are permitted to investigate national banks for lending discrimination. The case opinion in Cuomo v. Clearing House Association is contrary to what was the Office of the Comptroller of the Currency’s interpretation of federal banking regulations. The OCC had blocked an investigation by New York into lending practices of national banks, but the Court held that states have the power to enforce their banking-related laws against national banks.
At issue was an OCC regulation that expansively interpreted the National Bank Act’s preemption of a state’s visitorial powers to preclude states from enforcing national banks’ compliance with state and federal discrimination-in-lending laws. In a 5-4 opinion, the Court ruled that the OCC’s regulation preempting state law enforcement is not a reasonable interpretation of the NBA.
The case is potentially an affront to the OCC’s long-standing position in favor of preemption. As the bureau of the Department of Treasury charged with regulating national banks, the OCC has long argued for preemption of state banking law in what some have called an effort to make the national bank charter more attractive. The United States Supreme Court had previously endorsed the OCC’s position on preemption in the 2007 case of Watters v. Wachovia Bank, N.A.
In that opinion, the Court held that Wachovia Mortgage Corporation, a real estate lending business and wholly owned operating subsidiary of Wachovia, was subject to the superintendence of the OCC and not to the regulatory regimes of the several states in which the subsidiary operated.
The OCC’s victory in Watters was the culmination of years of opinion letters by the agency on the subject of preemption, each letter offering guidance on why various state laws are subject to preemption by federal law. The specific question of whether the OCC has the authority to preempt state law had, until Watters, remained unanswered by the Supreme Court, despite dissention on the issue among the circuit courts. The decision in the Watters case, which can be characterized as a clash between federal agency power and states’ rights, concludes that Congress has consistently supported the national banks’ right to avoid registration, inspection, and enforcement in every state in which they do business.
The decision indicates that the OCC, without authorization from Congress, does have the power to conclude that state banking law interferes with federal law and is therefore preempted. Surprisingly, a supreme court that has remained committed to states’ rights in other contexts supported the power of federal agencies in the context of banking law in the Watters decision.
Some commentators had thought the Watters decision, as the dissent states, “threatens the vitality of most state laws as applied to national banks.” In the realm of consumer protection laws, however, it seems the Watters decision has been significantly limited by the Cuomo decision.
