News + Events
U.S. Supreme Court Curtails Preemption and Subjects National Banks to State Enforcement of State Fair Lending and Other Laws
July 1, 2009
Jacob "Jake" A. Lutz, III
Fred W. Palmore III
Charles P. Greenman
William H. Hurd
Ashley L. Taylor, Jr.
Anthony "Tony" F. Troy
In a far reaching decision delivered on June 29, 2009, the U.S. Supreme Court in Cuomo v. Clearing House Association, LLC, et al., severely limited the extent to which national banks and their operating subsidiaries are exempt from compliance with state laws, such as fair lending and other consumer laws. The court struck down a regulation adopted by the Office of the Comptroller of the Currency purporting to preempt state law enforcement actions as an unreasonable extension of the preemption statute, 12 USC § 484(a), which in part provides: “no national bank shall be subject to any visitorial powers except as authorized by federal law, [or] vested in the courts of justice . . . .”
The regulation in question provided that state officials could not exercise “visitorial powers” and defined “visitorial powers” to include “prosecuting enforcement actions.” The court concluded that the Comptroller’s broad definition of visitorial powers went too far and improperly prevented ordinary law enforcement by state attorneys general through suits brought to enforce state laws. The court drew a distinction between the proper exercise of visitorial powers by the Comptroller and the power of states to enforce compliance with their laws, and concluded that the National Bank Act preempted only the states’ visitorial authority, thus leaving to the states the right to enforce national bank compliance with state civil and criminal laws, including fair lending and other consumer laws.
The court based its decision in part on the language of 12 U.S.C. § 484(a) reserving to the states certain powers “vested in the courts of justice.” As a result, it appears that the court’s ruling is limited to civil or criminal law enforcement proceedings brought by state attorneys general in court proceedings and not administrative proceedings or investigations conducted by either state attorneys general or state agencies. However, state attorneys general and state agencies may file suit in state courts against national banks and may use the court’s subpoena power to obtain documents and other information from national banks. Cuomo is one of a number of recent cases involving preemption where state Attorneys General have been allowed greater authority over entities hereto thought to be subject only to federal regulatory oversight.
The ruling is a profound one which severely curtails what was thought to be a special advantage that national banks had over state chartered banks, i.e., the ability to operate in multiple states without having to comply with many of the laws of the states in which they operate. For this reason, the decision will have far reaching implications, and will help level the playing field between national banks and state chartered banks as they compete with each other in our “dual banking” system. These limitations on preemption became effective upon the delivery of the court’s opinion on June 29, 2009, and national banks should take steps immediately to comply with state laws and to prepare for actions by state authorities to enforce compliance.
Troutman Sanders advises national banks regarding compliance with applicable laws and regulations and represents a wide array of national business clients on matters involving multi-state law enforcement actions brought by state Attorneys General and understands the unique aspects of such multi-state law suits.