On Dec. 4, 2007 the U.S. Court of Appeals for the Second Circuit, by a vote of 2–1, continued the series of strong and favorable preemption rulings that federal courts have issued in support of the broad “incidental powers” language of the National Bank Act. In effect, the distinction that used to exist as between the preemption authority of a thrift chartered under the Federal Savings and Loan Holding Company Act found at 12 U.S.C. 1464(a), and a national bank chartered under the National Bank Act found at 12 U.S.C. 24(7), has been significantly narrowed, although thrifts retain the unfettered right to branch nationwide.

In its Dec. 4 ruling, the Second Circuit held that the New York Attorney General, Andrew Cuomo (when the action was brought Eliot Spitzer was New York’s State Attorney General), could not subpoena or otherwise request that national banks and their operating subsidiaries provide nonpublic information regarding their mortgage policies and practices, nor data concerning loans related to realty in New York State. The New York Attorney General’s investigation was prompted by HMDA data that “appeared to indicate that a significantly higher percentage of high-interest home mortgage loans are issued to African-American and Hispanic borrowers than to white borrowers.” The New York Attorney General contended these practices may violate federal and state anti-discrimination laws such as ECOA and the New York State statutory counterpart.

The Office of the Comptroller of the Currency (“OCC”) sued to enjoin the Attorney General’s investigation and enforcement efforts as an unlawful exercise of visitorial powers that vest only with the OCC under the National Bank Act’s visitorial powers provision (at 12 U.S.C. § 484). The Clearing House Association filed a comparable complaint. After a trial on the merits, the U.S. District Court for the Southern District of New York deferred to the OCC’s interpretation (citing Chevron, 467 US 837 (1984)) and concluded the investigation was prohibited (OCC v. Spitzer, 396 F. Supp. 2d 383 (S.D.N.Y. 2005)). In a separate opinion, the district court agreed with the Clearing House Association that the Federal Fair Housing Act does not create an exception authorizing the exercise of visitorial powers otherwise prohibited under 12 U.S.C.S.§484(a). (Clearing House v. Spitzer, 394 F. Supp. 2d 620 (S.D.N.Y. 2005)).

The Court of Appeals affirmed the district court’s judgment in OCC v. Spitzer. In the Clearing House case, they affirmed the injunctive relief request, but on the FHA claim the Court of Appeals held the district court lacked jurisdiction to decide the claim.

The Court of Appeals’ majority opinion held that Congress was very clear in its desire to limit the role of states in regulating national banks, “especially when such conduct involves the exercise of powers granted to the banks by federal statute and regulation—we do not perceive the need for any further statement of intent to achieve the  limitation at issue here.” The court gave an expansive interpretation to the visitorial powers language of the National Bank Act in that “after Watters, …investigative and enforcement powers of the type the [New York] Attorney General has sought to exercise here are at least in some sense ‘visitorial’, whether or not they unambiguously fall within the scope of § 484(a)).” (Watters v. Wachovia Bank, N.A., 127 S. Ct. 1559 (2007).)

The New York Attorney General’s focus is on real estate lending, an activity and power that is clearly within the National Bank Act, subject to rules prescribed by the OCC. Also, “real estate lending, when conducted by a national bank is immune from state visitorial control” since “the National Bank Act vests exclusive authority to examine and specifically inspect in the OCC” (citing Watters). The Court of Appeals supported the OCC’s implementing regulation (found at 12 CFR7.4000) as not granting state or other governmental authorities any right of inspection, superintendence or regulation over national banks regarding their activities authorized for national banks under federal law.

The dissenting opinion focuses on the federalist structure of our government and that the Tenth Amendment reserves certain powers to the states, including the New York Attorney General’s police power to investigate civil rights violations committed by entities in New York state.

This opinion continues the string of cases, including the Supreme Court’s Nations Bank v. VALIC (1995) (annuities may be offered by a national bank), Barnett Bank v. Nelson (1996) (sale of insurance in towns under 5,000), and Watters v. Wachovia Bank (2007) (OCC authority preempts state laws with respect to national banks’ operating subsidiaries). (Also, Reed Smith’s April 18, 2007 audio conference on the Watters ruling.) Shortly after Watters, the U.S. Court of Appeals for the First Circuit upheld the OCC’s preemption authority with respect to New Hampshire’s law on stored value gift cards (SPG GC, LLC: METABANK: US BANK, N.A. v. Kelly A. Ayotte (2007)).

With this string of rulings it will be difficult for a state to challenge an OCC ruling relating to a national bank’s powers.