Supreme Court Ruling Affects Texas Banks

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On Monday, the US Supreme Court ruled that state attorneys general (“AGs”) may engage in ordinary enforcement of state laws that are not otherwise pre-empted by federal law, and that this enforcement is not prohibited by the National Bank Act (“NBA”) limits on “visitorial” powers.  The court concluded that the OCC regulation that purports to pre-empt state law is not a reasonable interpretation of the NBA.

The result of this decision is that state AGs may file lawsuits to enforce state laws such as fair lending acts.  However, AGs may not conduct examinations and generally inspect or require the production of books or records of national banks (e.g. by issuance of an AG’s subpoena against a bank).  They may request records in the course of litigation, with all of the limitations and protections that a court proceeding requires.  (This ruling has nothing to do with an AG’s subpoena for the records of a customer.)

In Cuomo v. Clearing House Association, the New York attorney general had informally requested “voluntary” delivery of information from national banks regarding the banks’ possible discrimination against minorities.  If the banks did not comply, then the AG would bring a civil suit.  Therefore, the Supreme Court concluded that the AG’s investigation was properly enjoined, but that the AG could investigate through litigation.  In short, the AG lost the battle but won the war because it was questionable as to whether the AG could investigate a national bank at all.

In recent cases, the Supreme Court has given deference to the OCC’s reasonable interpretation of statutes it administers.  However, the Supreme Court did not give the OCC deference in its rule making in this case—a very rare result.  The court held that uncertainty does not expand deference to cover any interpretation.  The court also did not overrule earlier preemption cases, like Watters v. Wachovia Bank (state licensing of bank operating subs).

The decision was 5 to 4, with Justice Scalia writing the majority opinion and Justice Thomas writing an opinion that dissents in part and concurs in part.  Meanwhile, the Obama administration has issued a position paper reflecting that it does not favor pre-emption and will support it only if there is clear statutory authority for it.  In short, the banking industry can expect more activity and arguments against broad pre-emption.

The OCC issued a statement regarding the decision that expressed disappointment in the Court's interpretation of the scope of visitorial powers under the under the National Bank Act, but did acknowledge that 'everyone benefits from the clarification of the law.'

You can read the Court Decision here.

Click here to read the response from the Conference of State Bank Supervisors.