On May 20 2009 President Barack Obama released a presidential memorandum setting out the administration's general policy with regard to federal pre-emption of state law by executive departments and agencies of the federal government. It states that in recent years, agencies have sometimes announced that their regulations pre-empt state law without explicit pre-emption by Congress or an otherwise sufficient basis under applicable legal principles.

The memorandum generally provides that it is the administration's policy that pre-emption of state law by agencies "should be undertaken only with full consideration of the legitimate prerogatives of the [s]tates and with a sufficient legal basis" for pre-emption.

It also sets forth the following three specific directions:

  • A regulatory preamble should not include statements that the agency intends to pre-empt state law through the regulation, except where pre-emption provisions are also included in the codified regulation.
  • Pre-emption provisions should not be included in codified regulations, except where such provisions would be justified under legal principles governing pre-emption.
  • Agencies should review all regulations issued within the past 10 years to determine whether statements in regulatory preambles or codified provisions intending to pre-empt state law are justified under applicable legal principles and, if not, amend the regulation or take other appropriate action.

In the last 10 years the federal banking agencies have taken several regulatory actions, including the adoption of final rules, that construe the extent to which federal law pre-empts state law. One notable example is the pre-emption regulation promulgated by the Office of the Controller of the Currency in 2004. However, the Office of Thrift Supervision's pre-emption regulation was adopted more than 10 years ago in 1996. The scope of the review required by the memorandum appears limited to regulations that include preambles or codified provisions intended to pre-empt state law and does not expressly include a review of interpretive letters on pre-emption issued by the agencies.

The memorandum states that the legal principles governing federal pre-emption include Executive Order 13132 (Federalism), issued by President Clinton on August 4 1999, which contains, among other things, the following specific instructions:

  • An agency should construe a federal statute, in regulations or otherwise, to pre-empt state law only where:
    • the statute contains an express pre-emption provision;
    • there is some other clear evidence that the Congress intended pre-emption of state law; or
    • the exercise of state authority conflicts with the exercise of federal authority under the federal statute.
  • Where a federal statute is not construed to pre-empt state law, an agency should construe any authorization for the issuance of regulations as authorizing the pre-emption of state law by rulemaking only when (i) the exercise of state authority directly conflicts with the exercise of federal authority under the federal statute, or (ii) there is clear evidence to conclude that Congress intended the agency to have the authority to pre-empt state law.
  • Any regulatory pre-emption of state law should be restricted to the minimum level necessary to achieve the objectives of the federal statute.
  • When an agency foresees the possibility of a conflict between state law and federally protected interests within its area of regulatory responsibility, the agency should consult with appropriate state and local officials to the extent possible in an effort to avoid such a conflict.
  • When an agency proposes to act through adjudication or rulemaking to pre-empt state law, the agency should provide all affected state and local officials with notice and opportunity for appropriate participation in the proceedings.

Pre-emption under federal regulations has been increasingly important to banks in recent years, with the Supreme Court and other courts regularly deferring to pre-emption regulations applicable to national banks and federal savings banks. Among other things, the memorandum may signal that agencies will be less likely to issue pre-emption regulations and support banks' pre-emption positions in private litigation.

For further information on this topic please contact William Eckland, James Huizinga, David Teitelbaum or Gretchen Lamberg at Sidley Austin LLP by telephone (+1 202 736 8000) or by fax (+1 202 736 8711) or by email ([email protected] or [email protected] or [email protected] or [email protected]).