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A federal appeals court has cited Dodd-Frank in a ruling that a national bank does not have to comply with a Florida consumer protection statute that limits bank fees.
May 11 -
A growing number of preemption experts are arguing that the conventional wisdom on federal preemption of state banking laws — that it's been rolled back — is dead wrong.
March 14 -
Defenders of federal preemption publicly insist the Dodd-Frank Act left things pretty much the way they were. The "Barnett standard," they will tell you, is plenty strong enough to maintain a single set of rules for national banks to follow. But privately? Those same people concede they are worried, and they should be.
August 25 -
It took just one sentence in the 2,300-page financial reform law to end federal preemption for mortgage lenders that operate as subsidiaries of national banks.
August 20
WASHINGTON — Meet the new preemption standard, same as the old preemption standard.
That was, essentially, the message sent by the Office of the Comptroller of the Currency late Thursday in a letter to lawmakers outlining how it has interpreted its preemption powers in light of the enactment of the Dodd-Frank Act.
The agency acknowledged the reform law forced certain changes, including mandating that operating subsidiaries of national banks must now follow state consumer protection laws and that the OCC must revise its 2004 preemption rule to remove certain contentious language.
The agency also confirmed it must consult with the new Consumer Financial Protection Bureau on certain preemption issues, and allow state attorneys general to enforce any non-preempted state law against national banks.
Despite these concessions, however, the OCC maintained that its 2004 preemption rule - which some Democrats and state regulatory officials argued was overturned by Dodd-Frank - is still valid for national banks.
"The OCC is saying the 2004 rule continues to be effective and national banks may continue to rely upon it," said Ray Natter, a former top OCC official and now a partner at Barnett Sivon & Natter. "If the 2004 rule was no longer in effect, there could be no way for a national bank to say what state laws are preempted… It would have been a total mess."
But state rights advocates already disagreed with the OCC's conclusions, arguing they were misinterpreting Congressional will in Dodd-Frank.
Art Wilmarth, a professor at George Washington University Law School, noted that Dodd-Frank specifically preserved existing preemption rules as they relate to national bank contracts and the meaning of interest. He said that proves Congress intended to reopen preemption standards as they relate to all other matters.
The OCC's argument "doesn't wash with what the statutory language says," Wilmarth said. "There would be no reason for Congress to put those provisions in if they thought the rules and regulations OCC had in place right now were fine."
"At issue are the preemption rules as redefined in the Dodd-Frank Act. Under the law, the OCC has the power to preempt state laws that "prevent or significantly interfere" with the business of banking at nationally-chartered institutions. The law specifically refers to this as the Barnett standard, a reference to a landmark 1996 Supreme Court decision related to preemption.
The law appeared intended to overturn additional language used by the OCC in its 2004 preemption rule, which said that national banks do not have to comply with any state laws that "obstruct, impair or condition" the business of banking. While the agency said the new language was an attempt to "distill" the Barnett standard, many state officials cried foul, arguing it was an attempt to preempt additional laws.
In the letter sent to Sen. Tom Carper, D-Del., and other lawmakers, the OCC conceded the new language should be removed from the 2004 regulation.
"Elimination of this language from our regulations would remove any ambiguity that the 'conflict preemption' principles of the Supreme Court's Barnett decision are the governing standard for national bank preemption," wrote John Walsh, acting comptroller of the currency, in the letter, which is dated May 12.
Yet the OCC said this does not substantively change its position. The agency had long argued the new language — "obstruct, impair, or condition" — was articulating the Barnett standard. As a result, the 2004 regulation still stands largely as is with exceptions made for operating subsidiaries, which no longer enjoy preemption benefits.
That interpretation pleased Carper, who sought to preserve preemption during the Dodd-Frank debate. Noting the uncertainty created by the regulatory reform law, Carper said he was "glad to see the comptroller's view of these provisions is consistent with my intent."
"These provisions do not create a brand new preemption standard, but instead clarify that the traditional preemption tests, as laid out by the Supreme Court in the Barnett case, continue to apply," Carper said in a statement to American Banker.
The OCC's position is also a relief to banking industry representatives.
"The question prior to this was: is every decision that relies on the 2004 rule and the Barnett standard, is that now gone?" said Scott Talbott, a senior vice president at the Financial Services Roundtable. "The certainty here is retrospective as well as prospective."
But state regulatory officials beg to disagree. They contend that "obstruct, impair or condition" was a higher bar for states to meet, and said the OCC should have used the traditional Barnett standards of "prevent or significantly interfere" with the business of banking.
"'Obstruct, impair or condition' was different from 'significantly interfere,'" said Buz Gorman, the general counsel for the Conference of State Bank Supervisors. "It's a different standard."
In the OCC's letter, however, Walsh makes it clear that while "significantly interfere" is part of the Barnett test, they are not the only words relevant to the issue. The OCC contends that the entire Barnett decision, which includes a longer discussion of preemption, can be used as the basis for any existing or future preemption decisions.
"The provision incorporates the 'prevent or significantly interfere' conflict preemption formulation as the touchstone or starting point in the analysis, but… the analysis may not stop there, and must consider the whole of the conflict preemption analysis in the Supreme Court's decision," Walsh wrote.
George Washington University's Wilmarth argues this position is untenable, saying the OCC can't go beyond the "significantly interfere" language.
"Congress made it very clear - that is the standard," Wilmarth said. "I don't agree with the idea there is some other standard."
But the OCC received a boost last week after the 11th Circuit Court of Appeals affirmed a lower court ruling that a national bank does not have to comply with a Florida consumer protection statute that limits bank fees.
The decision specifically referenced Dodd-Frank, even though the law is not effective until July 21, and signaled that the OCC's recent preemption decisions were consistent with the Barnett standard.
"The Court of Appeals cited other formulations of conflict preemption used in the Barnett decision for the conclusion that under the Dodd-Frank Act, the proper preemption test is conflict preemption," Walsh wrote.
