On Dec. 4, 2007, the U.S. Court of Appeals for the Second Circuit upheld a lower court ruling that attempts by state officials to obtain internal books and records of national banks and their operating subsidiaries are preempted by the Comptroller’s exclusive “visitorial powers” with regard to national banks. The case, Clearing House Association v. Cuomo (2d. Cir. Dec. 4, 2007), reaffirms federal primacy in the oversight of national banks and their operating subsidiaries.

The Clearing House Association case originated in 2005 when then-New York Attorney General Elliot Spitzer issued “letters of inquiries” to several national banks and their operating subsidiaries requesting data related to alleged discriminatory mortgage loan practices. The Office of the Comptroller of the Currency (“OCC”) and the Clearing House Association – a consortium of national banks – sued to enjoin the State of New York from (i) exercising “visitorial” powers over a national bank and its operating subsidiaries, and (ii) enforcing compliance with federal and state laws against a national bank and its operating subsidiaries. The U.S. District Court for the Southern District of New York ruled against the New York Attorney General, finding that the OCC’s interpretation of 12 U.S.C. § 484, the National Bank Act’s visitorial powers provision, was entitled to deference.

In a 2-1 decision, the Second Circuit agreed with the District Court that the state Attorney General’s investigation into alleged discriminatory practices in residential lending infringed on the OCC’s exclusive visitorial authority over national banks. Specifically, the Second Circuit upheld an OCC regulation precluding state officials from engaging in visitorial activities (namely the inspection of a bank’s books and records).

The Comptroller’s regulation was found by the Court to reflect a reasonable interpretation of the National Bank Act in that it reinforces the long-standing notion that the OCC maintains exclusive visitorial authority over national banks (and their operating subsidiaries), and that the OCC likewise maintains exclusive enforcement authority with regard to both state and federal laws which impact the powers and activities of national banks (and their operating subsidiaries).

The Second Circuit’s opinion establishes that intrusion by state officials on the OCC’s exclusive authority is prohibited even if state laws are consistent with federal law. In addition, the opinion is clear that a state lacking regulatory authority over a national bank cannot simply bring an enforcement lawsuit against a national bank to accomplish the same objectives.

Federal courts continue to grant the OCC broad preemptive authority and deference under the National Bank Act in its regulation of national banks, while limiting the ability of states to intervene in that process. This decision will have increased significance as states grapple with enforcement and legislative issues in reacting to the current nationwide mortgage situation.