Score one for state oversight of national banks. States can now challenge the practices of national banks through judicial enforcement actions. On June 29, 2009 the United States Supreme Court cleared the way for states to enforce their own consumer-protection and fair-lending laws against national banks. Historically, asserted pre-emption under the National Bank Act (NBA) prevented states from enforcing these laws. National banks can expect a substantial increase in law enforcement actions and a hodgepodge of regulations and laws likely to impact the way they conduct business.
The Supreme Court, in a 5-4 ruling, held that the National Bank Act does not pre-empt state law enforcement of national banks, and the Comptroller’s regulation professing pre-emption of state law enforcement with respect to national banks is not a reasonable interpretation of the NBA.
In 2005, New York Attorney General Eliot Spitzer sent letters to several national banks requesting the disclosure of certain non-public information regarding their lending practices “in lieu of subpoena.” Spitzer was investigating whether the national banks had violated New York’s fair-lending laws. Subsequently, the Comptroller and the Clearing House Association, L.L.C. brought suit to enjoin the information request against Spitzer’s successor in office, Andrew Cuomo. The district court granted the Comptroller’s requested injunction and prohibited the state attorney general from enforcing state fair-lending laws through demands for records or judicial proceedings. The Second Circuit affirmed the decision, and the U.S. Supreme Court subsequently agreed to hear arguments on the matter.
The issue before the Supreme Court was whether the “Comptroller’s regulation purporting to pre-empt state law enforcement” could be upheld as a reasonable interpretation of the NBA. The Court held that the regulation was unreasonable to the extent that it claimed pre-emption of state law enforcement against national banks through judicial enforcement actions.
The Court noted the ambiguity of the term “visitorial powers” in the NBA. Generally, visitorial powers are those powers associated with a sovereign’s oversight and supervision of corporations. The Court afforded the Comptroller deference with respect to its interpretation of the term “visitorial powers.” The Court determined, however, that the Comptroller’s regulation interpreting the meaning of “visitorial powers” was expansive and unreasonable, because the regulation sought to encompass ordinary state law enforcement against national banks under the umbrella term of “visitorial powers.” The Court cited a line of precedent in support of the argument that “visitorial powers” are “separate from the power to enforce the law.” The Court noted that “if the Comptroller’s exclusive exercise of visitorial powers precluded law enforcement by the States, it would also preclude law enforcement by federal agencies.” The Court opined that such a result would be absurd.
The Court noted the plain requirement that exercise of law enforcement by states be “vested in the courts of justice” in order to be exempt from the general ban on a state’s exercise of supervisory power by the NBA. Accordingly, the Supreme Court affirmed the injunction against the issuance of executive subpoenas, but vacated the injunction to the extent that it prohibited the state attorney general from bring a judicial enforcement action. For more information, please contact Larry Childs, Brian Malcom or any member of Waller Lansden’s Financial Services practice at 866-362-6380. |
