National Banks Subject to State Banking Laws, Supreme Court Rules

In recent years, the Office of the Comptroller of Currency (OCC), the chief regulator of national banks, has preempted dozens of state banking laws designed to protect consumers, ensure fair lending, and maintain competition.  Among those laws preempted by the OCC were regulations in place to protect consumers from the predatory lending schemes that led to the rash of subprime mortgages and subsequent foreclosures that have ravaged communities nationwide.

The OCC’s gutting of state banking laws has come to an end.

On June 29 2009, in Cuomo v. The Clearing House Corporation (2009), the United States Supreme Court ruled in a 5-4 decision that the OCC could no longer preclude states from enforcing lending laws affecting the national banks, such as Citigroup, Wells Fargo, and JPMorgan Chase.

The lawsuit began when New York’s then Attorney General, Eliot Spitzer, attempted to inquire into national banks’ lending practices with regard to minority consumers.  The OCC promptly brought a suit to block New York’s enforcement of its laws, and won in the lower courts by arguing that Spitzer had ventured into federal jurisdiction granted under the National Bank Act of 1864.

Delivering the majority opinion, Justice Antonin Scalia clarified that the Attorney General’s attempts to enforce its law were different than the supervisory powers reserved by the federal government over national banks. Therefore, the OCC’s preemption of state law enforcement was invalid.