Not so fast, state AGs. Banks don't owe you automatic data access

Andrew Harrer/Bloomberg

Why would a coalition of state attorneys general urge the Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau to ensure that national banks cooperate with the AGs' investigations into violations of state laws? Because, notwithstanding their invocations of Supreme Court precedent and the Dodd-Frank Act, they don't have the authority to conduct such investigations themselves. The agencies should disregard the AGs' request.

In their letter to acting Comptroller Michael Hsu and CFPB Director Rohit Chopra, the AGs correctly note that both the Supreme Court (in Cuomo v. Clearing House Association) and the relevant provision of the Dodd-Frank Act (codified in 12 U.S.C. § 25b(i)) authorize the AGs to bring court actions to enforce applicable law. But neither Cuomo nor Dodd-Frank authorizes them to seek production of a national bank's records outside of normal judicial procedures. 

On the contrary, the Cuomo court firmly distinguished between law enforcement through court action and the exercise of visitorial powers reserved exclusively to the OCC under the National Bank Act, writing that "[i]f a State chooses to pursue enforcement of its laws in court, then it is not exercising its power of visitation and will be treated like a litigant," while making clear that visitorial powers, on the other hand, "include any form of administrative oversight that allows [the State] to inspect books and records on demand, even if the process is mediated by a court" (557 U.S. at 535).  

The AGs ignore this distinction and instead refer to their inability to "seek information, documents, and testimony from national banks" as something "the OCC has left unaddressed." This assertion flatly ignores the fact that the Supreme Court's Cuomo decision settled this question in 2009 after years of litigation, Congress codified that ruling in the Dodd-Frank Act (in 12 USC 25b) and the OCC amended its rules (at 12 CFR 7.4000) accordingly in 2011.

In Cuomo, the court explained that the judicial process affords important protections to the subject of a state investigation. An attorney general acting as a civil litigant "must file a lawsuit, survive a motion to dismiss, endure the rules of procedure and discovery, and risk sanctions if his claim is frivolous or his discovery tactics abusive." Judges are entrusted to protect the AG's target from "fishing expeditions or an undirected rummaging through bank books and records for evidence of some unknown wrongdoing." 

Dodd-Frank did not alter the court's distinction between authorized judicial actions and impermissible "rummaging." Thus, although state AGs can sue a national bank in a court of appropriate jurisdiction to enforce non-preempted state laws, they cannot conduct nonjudicial investigations or oversight of a national bank. The OCC's amended visitorial powers rules codify that legal principle and provide that only the OCC may "exercise visitorial powers with respect to national banks, such as conducting examinations, inspecting or requiring the production of books or records of national banks, or prosecuting enforcement actions." Full stop.

Politics and policy

Sen. Warren criticizes OCC's record on state consumer protection rules

Sen. Elizabeth Warren, D-Mass., and other Senate Democrats urged the Office of the Comptroller of the Currency to rescind regulations or guidance that contradict the way Dodd-Frank says the OCC should deal with state consumer protection rules.

By Claire Williams

December 18

Why should people care if big banks — singled out in the AGs' letter — are inundated with investigative requests? Because subjecting these banks to such oversight would be inefficient, expensive and unnecessary. And consumers would pay the price.

In my practice, I routinely hear from nonbanks attempting to serve consumers nationwide who are vexed by complex, burdensome and, at times, duplicative state regulatory schemes. Figure CEO Mike Cagney, for example, recently reported that his company maintains more than 200 state licenses for lending, servicing and money transmission. Managing multiple examinations can be operationally challenging and expensive — and customers ultimately shoulder operations costs in the form of higher prices or fees. 

For appropriately qualified financial institutions, a national bank charter offers both strong supervision by the nation's oldest bank regulator and reduced operational complexity and expense relative to the costs of managing relationships with multiple state regulators and their examination teams. OCC examiners are, by any account, among the best-trained and most professional that any of the federal or state banking agencies have to offer, and large national banks receive continuous, on-site supervision from expert OCC teams. And, as recognized by Cuomo and Dodd-Frank, these banks do not operate above the law. Nothing precludes the AGs from bringing national banks to court. The AGs are only precluded from nonjudicial "fishing expeditions."

The real question is why the AGs are raising this issue again nearly a decade and a half after it was settled decisively by the Supreme Court, and doing so by informal letter rather than judicial complaint. Perhaps they think they stand a better chance with the current OCC leadership than they do with the conservative Supreme Court, where visitorial powers litigation could end up. And they may be right.

But it would be a shame if the acting comptroller acted as the AGs request, ignoring the decades of legal precedent that underpin the value of the national bank charter and the efficiency it provides. The OCC has been examining national banks and protecting those banks' customers since before the states some of these AGs represent joined the Union. It can be trusted to keep doing so without their help.