The OCC Issues Final Rulemaking Concerning Preemption and Visitorial Powers In Response To Dodd-Frank

July 22, 2011


The Office of the Comptroller of the Currency (“OCC”) has issued final rules with respect to preemption and visitorial powers as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203 (July 21, 2010) (“Dodd-Frank”). The final rules, which are published in today’s Federal Register,[1] implement the provisions of Dodd-Frank eliminating preemption for national bank subsidiaries, agents and affiliates. Dodd-Frank changes the preemption standards applicable to federal savings associations to conform to those applicable to national banks. Dodd-Frank also specifies that state consumer financial laws are preempted only if:

  1. application of such a law would have a “discriminatory effect” on national banks compared with state-chartered banks in that state;
  2. "in accordance with the legal standard for preemption in the decision of the Supreme Court in” Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996), the state consumer financial law “prevents or significantly interferes with the exercise by the national bank of its powers”; or
  3. the state consumer financial law is preempted by a provision of Federal law other than Title LXII of the Revised Statutes.

Dodd-Frank leaves to the discretion of the OCC, through rulemaking and enforcement, the precise scope and contours of OCC preemption of “state consumer financial law.” The final rule represents the OCC’s interpretation of and guidance as to how it will apply these preemption principles. As expected by many commentators, the OCC has confirmed that Dodd-Frank changed little in the scope of preemption with respect to national banks. In particular,

  • The OCC concludes that the “prevents or significantly interferes” standard does not stand alone but rather must be viewed in light of the entire Barnett opinion. The standard set forth in Barnett is conflict preemption, and while the “prevents or significantly interferes” analysis is one component of conflict preemption, it does not bound conflict preemption. The OCC reasons that “prevents or significantly interferes” is only a component of the Barnett conflict preemption standard, authorities consistent with the Barnett standard will remain in force.
  • The OCC retained its 2004 preemption category rules on the grounds that the case-by-case analysis of preemption application required by Dodd-Frank lends itself to categorical determinations that certain kinds of state laws are always preempted under the Barnett conflict preemption standard. Examples of state laws that fall into this category include laws affecting:
    • underwriting and credit risk mitigation, 
    • protection of collateral value, 
    • loan amortization and repayment requirements, 
    • escrow standards, 
    • use of credit reports to assess creditworthiness of borrowers, and 
    • originating, managing, and purchasing and selling extensions of credit or interests therein.

State laws regulating these activities clearly pose significant interference with a national bank’s exercise of its powers.

  • The OCC has eliminated from its regulations the phrase “obstruct, impair, or condition.” In the future, the OCC will not consider whether a state consumer financial law obstructs, impairs, or conditions the ability of a national bank to exercise its powers when conducting a preemption analysis. To the extent that any existing preemption precedent relies exclusively on this phrase, the OCC will reexamine the precedent.

Dodd-Frank codifies the interpretation of exclusivity of visitorial powers expounded in the Supreme Court’s decision in Cuomo v. Clearing House Ass’n LLC, 129 S.Ct. 2710 (June 29, 2009), and clarifies some key points. Under Cuomo, the definition of visitorial powers in 12 CFR § 7.4000(a)(2)(iv) includes “direct investigations of national banks such as through requests for documents or testimony directed to the bank to ascertain the bank’s compliance with law” but does not include “collecting information from other sources or from the bank through actions that do not constitute visitations or as authorized under federal law.” This principle is reflected in the new 12 CFR § 7.4000(b), which now provides “[i]n accordance with the decision of the Supreme Court in Cuomo . . ., an action against a national bank in a court of appropriate jurisdiction brought by a state attorney general (or other chief law enforcement officer) to enforce an applicable law against a national bank and to seek relief as authorized by such law is not an exercise of visitorial powers[.]” One critical change is that the OCC changed the phrase “non-preempted state law” to “applicable law” because the former could be interpreted more narrowly than the latter.

We continue to monitor the OCC’s decisions and guidance in this area as it continues to shape this important area of law.

[1] See 76 F.R. 43549 (July 21, 2011).