The Office of the Comptroller of the Currency (OCC), moving to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act, has proposed a variety of amendments to its regulations, including in two significant areas: preemption of state laws and visitorial powers.

A 70-page Notice of Proposed Rulemaking (NPR) published May 26, 2011, in the Federal Register largely comprises a first wave of regulatory changes designed to implement the merging of certain Office of Thrift Supervision (OTS) regulatory authority into the national bank regulatory fold. In eliminating OTS, Dodd-Frank amended the National Bank Act to transfer to OCC the supervisory and regulatory authority over federal thrift institutions and rulemaking authority for all thrift institutions.

Comments are due by June 27, 2011. The following is a summary of the proposed changes.

OCC’s Revised Approach to Preemption. Title X of Dodd-Frank, in addition to creating the Bureau of Consumer Financial Protection (CFPB), eliminated field preemption for federal thrift institutions and significantly addressed OCC’s preemptive authority, as well as the degree of judicial deference to which an OCC preemption determination is entitled. In a May 12, 2011, letter to Senator Thomas R. Carper, responding to a letter from Senators Carper and Mark Warner, Acting Comptroller John Walsh set forth OCC’s interpretation of those statutory provisions and their impact on OCC’s pre-existing Preemption Regulations. (See Bank Activities and Operations, Real Estate Lending and Appraisals, in the January 13, 2004, Federal Register (the OCC Preemption Regulations)). In this NPR, OCC expands upon the approach taken in the May 12 letter.

On the purely ministerial side, OCC proposes to rescind its operating subsidiary preemption regulation, 12 C.F.R. Section 7.4006, to comport with Dodd-Frank’s prohibition against applying preemption to national bank operating subsidiaries. In accordance with the elimination of field preemption for thrift institutions, OCC is folding federal thrifts into the preemption regime applicable to national banks.

OCC takes the position that the only limitations on its preemptive authority in Dodd-Frank relate to a “State consumer financial law,” which, as defined in Section 5136C(a)(2) of the Revised Statutes (newly added by Dodd-Frank Section 1044(b), to be codified at 12 U.S.C. Section 25b), means “a State law that does not directly or indirectly discriminate against national banks and that directly and specifically regulates the manner, content, or terms and conditions of any financial transaction (as may be authorized for national banks to engage in), or any account related thereto, with respect to a consumer.” Such a law, the statute continues, may be preempted only in the following cases:

  • Application of a State consumer financial law would have a discriminatory effect on national banks, in comparison with the effect of the law on a bank chartered by that State
  • In accordance with the legal standard for preemption in the decision of the Supreme Court of the United States in Barnett Bank of Marion County, N. A. v. Nelson, Florida Insurance Commissioner, et al., 517 U.S. 25 (1996), the State consumer financial law prevents or significantly interferes with the exercise by the national bank of its powers; any preemption determinations under this subparagraph may be made by a court, or by regulation or order of the Comptroller of the Currency on a case-by-case basis, in accordance with applicable law
  • The State consumer financial law is preempted by a provision of Federal law other than this title

Rev. Stat. Section 5136C(b)(1) (to be codified at 12 U.S.C. § 25b(b)(1).

The statute defines a “case-by-case” preemption determination as “a determination pursuant to this section made by the Comptroller concerning the impact of a particular State consumer financial law on any national bank that is subject to that law, or the law of any other State with substantively equivalent terms.” Id. Section 5136C(b)(3)(A) (to be codified at 12 U.S.C. Section 25b(b)(3)(A)).

OCC preemption determinations that would invalidate or hold inapplicable a State consumer financial law may not be made “unless substantial evidence, made on the record of the proceeding, supports the specific finding regarding the preemption of such provision in accordance with the legal standard of the decision of the Supreme Court of the United States in Barnett Bank of Marion County, N.A. v. Nelson, Florida Insurance Commissioner, et al., 517 U.S. 25 (1996).” Id. Section 5136C(c) (to be codified at 12 U.S.C. Section 25b(c). Such determinations also need to be made in consultation with the CFPB. Id. Section 5136C(b)(3)(B) (to be codified at 12 U.S.C. Section 25b(b)(3)(B)).

From these premises, OCC deduces the following:

  • The OCC Preemption Regulations remain valid as to any state law other than a “State consumer financial law.”
  • Barnett’s “prevents or significantly interferes with” language is not the entirety of the “conflict preemption” approach taken by the Court in that case but is merely shorthand for the totality of the Court’s conflict preemption analysis therein.
  • “[B]ecause the Dodd-Frank Act preserves the Barnett conflict preemption standard, OCC’s rules and existing precedents (including judicial decisions and interpretations) consistent with that analysis are also preserved.”
  • As Dodd-Frank contains no statement that Congress intended to apply “procedural” requirements (such as the case-by-case determination, the “substantial evidence” standard, and consultation with the CFPB) retroactively, they do not undermine existing precedent and regulations (including the OCC Preemption Regulations), and any such interpretation “would be contrary to the presumption against retroactive legislation” (citing Landgraf v. USI Film Products, 511 U.S., 272-73 (1994)).

OCC proposes to amend its Preemption Regulations in accordance with these views. That will entail, inter alia, deletion of 12 C.F.R. Sections 7.4006 (applicability of state law to national bank operating subsidiaries) and 7.4009 (applicability of state law to national bank operations).  

Visitorial Powers. Dodd-Frank Section 1047 specifically adopted the holding of the Supreme Court in Cuomo v. The Clearing House Ass’n, L.L.C., 129 S. Ct. 2710 (2009), to the effect that a judicial proceeding brought by a State Attorney General to enforce a non-preempted provision of state law against a national bank does not constitute the exercise of “visitorial powers” and is not prohibited by the National Bank Act’s visitorial powers provision, 12 U.S.C. Section 484. OCC is accordingly clarifying its visitorial powers regulation, 12 C.F.R. Section 7.4000, with respect to a State Attorney General or other chief law enforcement officer. That clarification, consistent with Cuomo, does not extend to nonjudicial investigatory actions or oversight by state law enforcement authorities, however.

Dodd-Frank Section 1047 specifically adopted the holding of the Supreme Court in Cuomo v. The Clearing House Ass’n, L.L.C., 129 S. Ct. 2710 (2009), to the effect that a judicial proceeding brought by a State Attorney General to enforce a non-preempted provision of state law against a national bank does not constitute the exercise of “visitorial powers” and is not prohibited by the National Bank Act’s visitorial powers provision, 12 U.S.C. Section 484. OCC is accordingly clarifying its visitorial powers regulation, 12 C.F.R. Section 7.4000, with respect to a State Attorney General or other chief law enforcement officer. That clarification, consistent with Cuomo, does not extend to nonjudicial investigatory actions or oversight by state law enforcement authorities, however.

Finally, OCC proposes to add to its regulations, 12 C.F.R. Sections 7.4010(a) and 34.6, that federal thrift institutions and their subsidiaries are subject to state laws to the same extent and in the same manner that those laws apply to national banks and their subsidiaries, and also language to Section 7.4010(b) providing that visitorial powers applicable to federal thrifts are coextensive with those applicable to national banks.