On May 12, 2011, the Office of the Comptroller of the Currency (“OCC”) issued Interpretive Letter #1132, explaining its interpretation of the Dodd-Frank Wall Street Reform and Consumer Protection Act’s (“Dodd-Frank Act”) changes to the federal preemption standard applicable to federally chartered banks. (OCC Interpretive Letter #1132 to The Honorable Thomas R. Carper, May 12, 2011 (“Interpretive Letter #1132”).) These changes, located in Section 1044 of the Dodd-Frank Act, take effect on July 21, 2011. 12 U.S.C. §§ 25b, 5582. Summarized, the OCC’s interpretation of Section 1044 is that there are no significant changes to the federal preemption standard. (Interpretive Letter #1132, pp. 2-4.) The Interpretive Letter contains two key points that likely will not be well received by state regulatory agencies or advocates of state consumer financial protection laws. (Id.) These two points are explained in this article, which concludes by highlighting a few of the changes recognized by the OCC.
First, the OCC explained that existing OCC rules, interpretations, and decision that apply to federally chartered banks and comply with the conflict preemption standard described in the United States Supreme Court’s decision in Barnett Bank of Marion County, N.A. v. Nelson, Fla. Ins. Comm’r, 517 U.S. 25 (1996) will remain in effect. (Id., pp. 3-4.) This interpretation is in contrast to the argument by state regulators that the case-by-case preemption determination requirements contained in Section 1044 effectively eliminated existing OCC preemption rules and interpretations, except where those rules and interpretations were specifically preserved under the Dodd-Frank Act. The OCC’s interpretation that existing rules, interpretations, and judicial decisions may face court challenges from state regulators in the future.
Second. the OCC explained that the preemption standard is not limited to the “prevents or significantly interferes” conflict preemption formulation contained in Barnett. (Id., pp. 2-3.) Instead, the OCC relied on the language of Section 1044 that provides preemption must be “in accordance with the legal standard for preemption in” Barnett Bank. (Id., p. 2.) The OCC interpreted this portion of Section 1044 to require application of the entirety of the Barnett decision, which explains in detail the whole of the conflict preemption analysis. (Id.) Citing, among other things, a 6th Circuit decision, the OCC explained that this interpretation is consistent with existing precedent and other portions of Section 1044. (Id., pp 2-3, citing Assoc. of Banks in Ins., Inc. v. Duryee, 270 F.3d 397, 405 & 408 (6th Cir. 2001) (holding that the phrase “prevents or significantly interferes” as used in the Gramm-Leach-Bliley Act of 1999, which has preemption language virtually identical to Section 1044, was a reference to the whole of the Barnett preemption analysis).) It is also likely that state regulators may challenge, through litigation, the OCC’s interpretation that the entire conflict preemption analysis applies to determine if state consumer financial laws are preempted.
But the Interpretive Letter does explain some changes to current preemption doctrine recognized by the OCC. First, the OCC recognized that the Dodd-Frank Act eliminates preemption of state law for national bank subsidiaries, agents, and affiliates. (Interpretive Letter #1132, p. 1 (citing Dodd-Frank Act §§ 1044(a), 1045).) Consistent with this change, the OCC plans to propose rescission of 12 C.F.R. § 7.4006, “which is the OCC’s regulation concerning the application of state laws to national bank operating subsidiaries.” (Id.) Second, the OCC plans to propose amendments to its current regulations to clarify that federal savings associations will be subject to the same preemptions standards that apply to national. (Id., p. 2.) These proposed amendments are in response to Section 1046 of the Dodd-Frank Act, which provides that the preemption standards under the Home Owner’s Loan Act must conform to the standards applicable to national banks. (Id.) Third, the OCC acknowledged a new standard for preemption under Section 1044—whether application of a state law would have a “discriminatory effect” on a national bank compared to a state-chartered bank in that state. (Id., citing Dodd-Frank Act §1044(a).)
Only time will tell if the OCC’s interpretation of the portions of the Dodd-Frank Act’s Section 1044 regarding the federal preemption standard applicable to federally chartered banks will withstand judicial scrutiny. Until then, the principles of conflict preemption, including existing OCC rules, interpretations, and judicial decision consistent with conflict preemption, apply to determine whether a federally chartered bank is subject to a state consumer financial law.