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OCC Interpretive Letter 1016

The Office of the Comptroller of the Currency (OCC) in 2005


found a state law the National Bank Act does not preempt.
In a letter, the agency upheld the application of state laws
to loans that were purchased and held by national banks
acting as trustees in connection with the
issuance of mortgage-backed securities.
Kelly L. Hansen, on February 10, 2011 at 1:44 pm said:

I had a reader write me a comment on the following OCC Interpretive Letter #1016 February 2005, and
now I have a question after reading the Supreme Court Case it decided, Cuomo v Clearinghouse by US
Supreme Court, June, 2009.

If all Banks (including and especially National Banks) are subject to the laws of the State where they bring
a civil foreclosure action, why do our State Courts continue to allow them to foreclose in States where they
are not registered to do business with the State’s Secretary of State, nor are they licensed to conduct
mortgage servicing business with the State’s Bank Commissioner, AND when they DID NOT ORIGINATE
THE DEFENDANT’S MORTGAGE LOAN?

http://wfhmcaught.blogspot.com/2010/07/daniel-p-stipano-states-national-banks.html

http://www.supremecourt.gov/opinions/08pdf/08-453.pdf

This reader commented:


rod said…

this letter is actually known as OCC Interpretive Letter #1016 February 2005.

It took me 6 years to discover it. Same issue decided in Cuomo v Clearinghouse by US Supreme Court,
June, 2009.

We all need to stress these points of law, until the courts hear us and listen and obey their own laws.
SEE ALSO: Preemption Links (Catalog of Cases for Federal Removal)
IF THE ENTITY FORECLOSING AGAINST YOU IS BREAKING YOUR STATE'S
LAWS, YOU MAY HAVE GROUNDS FOR DISMISSAL
If the entity foreclosing against you is breaking your state's laws, you may have grounds for a dismissal "WITH" prejudice. (Not
without!!!) DO NOT FORGET to ask for "with prejudice". It means they can't come back and bother you ever again.

Please discuss this with your attorney: If you have already been foreclosed against, and the foreclosing entity was not
registered with your Secretary of State to do business in your state, and if they were not registered to do mortgage servicing with
the Banking Commissioner in your state, file a MOTION TO VACATE BASED ON LOSS OF SUBJECT MATTER JURISDICTION
OVER THE CASE. Subject matter jurisdiction is not subject to a statute of limitations, and can be invoked at any time.

"Daniel P. Stipano states


National Banks Are Subject to State Laws
When Foreclosing Mortgage Loans
They Did Not Originate"

rod said...

this letter is actually known as OCC Interpretive Letter #1016 February 2005. ARE YOU A VICTIM OF WELLS
FARGO'S PAIN? ALL COMMENTS

It took me 6 years to discover it. Same issue decided in Cuomo v Clearinghouse by US Supreme
Court, June, 2009.

We all need to stress these points of law, until the courts hear us and listen and obey their own laws

February 7, 2011 11:02 PM

Kelly L. Hansen said...

Rod!

I just have to tell you how good you comment made me feel. Now I know I'm not a complete and total
idiot. I knew that letter was of great importance. These damn banks keep saying they don't have to
conform to state laws, yet they foreclose against mortgages in States where they aren't licenced or
registered on mortgage loans they don't originate, and usually aren't even registered on at the Register of
Deeds Office...and then they attempt to invoke the state's statutes in their lawsuits if it helps them to do
so!

February 14, 2011 11:30 AM

Sunny said:

Could someone please explain what the OCC Letter means and it's relevance? I am not able to understand
the legal jargon. Thank you very kindly in advance for your support.

Sunny

February 15, 2011 11:49 AM


Cat West said...
The OCC is the Office of the Comptroller of Currency

They are the branch of our treasury department that is supposed to be watching these banks to make sure
they follow the law. Clearly, they aren't doing enough for the homeowners who have become victims of the
crimes we hear about on this blog.
February 16, 2011 8:20 AM
Kelly L. Hansen said...
Sunny,

I'm not a lawyer, this is just my "slant" however when I read this I found
it to be of HUGE importance if you have been foreclosed against in a State Court, by an entity that is not
registered in your state to do business, if:

that entity did not originate your mortgage loan.

In the case referenced by Rod, the U.S. Supreme Court ruled that National Banks are subject to state laws
when they are litigating in state courts.

Daniel P. Stipano's letter goes a step further stating when these entities are foreclosing against loans they
did not originate, once again, they are subject to the state's laws in which they are foreclosing.

What is significant about the Supreme Court decision and Daniel P. Stipano's letter is that they both clarify
the law regarding National Banks being subject to state laws when foreclosing. (Because your case is
subject to dismissal if the entity foreclosing against you has not followed state laws before filing its
foreclosure action. Anyone who has been foreclosed against, your foreclosure is subject to a motion to
vacate due to loss of subject matter jurisdiction over the case.)

National Banks continue to claim they are "exempt" from state laws: they don't have to be registered in the
state to do business; they don't have to be licensed in the state as a mortgage loan servicer, etc. However,
if they intend to file foreclosures and use a state court to litigate, they better conform to the state's laws
prior to filing or face losing their case. CHECK IF YOUR FORECLOSING ENTITY IS REGISTERED WITH YOUR
SECRETARY OF STATE AND IF THEY ARE LICENSED WITH THE BANKING COMMISSIONER AS IS
REQUIRED BY STATE LAW.

Daniel P. Stipano's letter also has great relevance when it comes to SECURITIZED LOANS.

More often than not, the entity that is foreclosing against you will not be the entity that originated your
mortgage loan. Usually, mortgage loans have been securitized.

Daniel P. Stipano's letter confirms that when a foreclosing entity is foreclosing upon a mortgage loan held in
a securitized trust (all securitized loans) they are subject to the state's laws in which they are foreclosing.
That is the majority of all mortgage loans. And it is certainly all MERS loans.

So, file a motion to dismiss on the fact that the entity foreclosing against you is not legally registered or
licensed to do mortgage business in your state. Or file a motion to vacate a past foreclosure. AFTER YOU
TALK TO YOUR LAWYER!!!!!!

Related articles

Massachusetts Court: Banks Must Own a House to Foreclose on It (emptywheel.firedoglake.com)


Why a New York Judge Is Throwing Out Foreclosure Cases (dailyfinance.com)
Massachusetts court voids foreclosures by Wells Fargo and US Bancorp (dailykos.com)
When Banks Outsource Foreclosures, Nothing Good Happens (dailyfinance.com)
"Mass. Supreme Court rules US Bancorp, Wells Fargo foreclosure invalid" and related posts
(irvinehousingblog.com)
Fixing Massachusetts Foreclosures Won't Be So Easy (dailyfinance.com)
Real Issues in Foreclosure Fraud Laid Out at House Judiciary Hearing (news.firedoglake.com)
State court's mortgage ruling may undo foreclosures (seattletimes.nwsource.com)
Mortgage registrar cannot transfer mortgages-court (reuters.com)
Why the Massachusetts Supreme Court Voided Two Foreclosures and What It Could Mean for Banks
(propublica.org)
Top Court in Massachusetts Voids Foreclosures by 2 Banks (nytimes.com)
'Focus on the positives' of the Ibanez case, Amherst says (ftalphaville.ft.com)
Will Florida Finally Punish Banks and Lawyers for Foreclosure Document Fraud? (dailyfinance.com)
Richard Zombeck: Massachusetts Courts to Banks on Foreclosures: The Law Matters
(huffingtonpost.com)
Re-Foreclosure, Counterfeit Notaries, and Petrified Lawyers: Tales of Foreclosure Fraud
(news.firedoglake.com)
Buyer May Not Own in Faulty Foreclosure (businessweek.com)
mass supreme court & the mortgage mess (orgtheory.wordpress.com)
Court voids foreclosures - slams banks for 'utter carelessness' (money.cnn.com)
ALERT: CA Supreme Court to Review Request in Prop 8 Case Today (towleroad.com)
ALERT: CA Supreme Court to Review Request in Prop 8 Case Today (pinkbananaworld.com)

Posted by Kelly L. Hansen at 5:43 PM

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ARE YOU A VICTIM OF WELLS FARGO'S PAIN?: Daniel P. Stipano states National Banks Are Subject to State Laws When Foreclosing Mortgage Loans They Did Not...

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Monday, July 12, 2010

Daniel P. Stipano states National Banks Are Subject


to State Laws When Foreclosing Mortgage Loans
They Did Not Originate
THESE LENDERS ARE SNEAKY, MY FRIENDS,
YOU CAN NOT BELIEVE ANYTHING, A-N-Y-T-H-I-
N-G, THEY TELL YOU.
January 14, 2005

Anthony J. Sylvester

Riker, Danzig, Scherer, Hyland & Perretti, LLP


Headquarters Plaza
One Speedwell Avenue
Morristown, NJ 07962-1981

Madeline L. Houston
Houston & Totaro

http://wfhmcaught.blogspot.com/2010/07/daniel-p-stipano-states-national-banks.html[2/16/2011 5:29:51 PM]


ARE YOU A VICTIM OF WELLS FARGO'S PAIN?: Daniel P. Stipano states National Banks Are Subject to State Laws When Foreclosing Mortgage Loans They Did Not...

56 Broad Street, Suite 1


Bloomfield, N.J. 07003

Subject: Wells Fargo Bank, Minnesota, N.A. v. Alberta Harris, et al.


Docket No. ESX -L-4676-02
and
Bank One National Association v. Feinstein

Docket No. F-11450-00

Dear Mr. Sylvester and Ms. Houston:

This letter is in response to your letter dated December 13, 2004, seeking the views of the
Office of the Comptroller of the Currency (“OCC”) concerning preemption of certain state
laws in connection with claims and defenses asserted by the parties in the above -named
cases. You requested the OCC’s views at the direction of the Honorable Kenneth S. Levy,
J.S.C., presiding judge in this litigation. For the reasons stated below, based on the facts
presented in the materials provided to us, we believe that neither 12 C.F.R. § 34.4 nor the
National Bank Act preempts application of the state laws at issue here to loans simply
because they were purchased and held by national banks acting as trustees in connection
with issuance of the mortgage-backed securities involved in this case.

Background

According to the materials provided with the December 13 th letter addressed to me, Delta
Funding made a mortgage loan to Alberta Harris in December 1999 (Wells Fargo
Complaint, First Count ¶1), and subsequently assigned the mortgage to Wells Fargo “as
Trustee for Delta Funding Home Equity Loan Trust 2000 -1” (Wells Fargo Complaint, First
Count ¶4). Delta Funding made a mortgage loan to Dequilla Robinson in November 1999
(Bank One Statement of Material Facts Not in Dispute ¶3), and subsequently assigned the
mortgage to Bank One National Association “as Trustee in Trust for the Registered Holders
of Delta Funding Home Equity Loan Asset-Backed Certificates Series 1999-3” (Certification
of Harold L. Kofman, Esq. ¶¶1, 3). There is no indication that either Wells Fargo or Bank
One made the original mortgage loans to Alberta Harris or Dequilla Robinson, nor does
any party assert that Wells Fargo or Bank One has any other interest in these transactions
except as trustees for investors in the mortgage-backed securities.

As trustee acting on behalf of the investors in Home Equity Loan Trust 2000-1, Wells
Fargo filed suit against Ms. Harris alleging that she had defaulted on the loan made by
Delta and sought to foreclose on the real estate she had pledged as collateral for that loan
(Wells Fargo Complaint, First Count ¶¶1 -14). As trustee acting on behalf of the investors
in Delta Asset-Backed Certificates Series 1999-3, Bank One filed suit against Jack
Feinstein, as Administrator Ad Prosequendum for the estate of Ms. Robinson, seeking to
foreclose on the real estate she had pledged as collateral for the loan made by Delta
(Memorandum of Law in Support of Plaintiff Bank One National Association’s Motion for
Summary Judgment at 3-4). Ms. Harris and Mr. Feinstein (“Defendants”), through counsel,
opposed the foreclosure actions. They alleged in counterclaims against the Banks (and
third-party claims against Delta and others) defenses based upon alleged violations of the
New Jersey Consumer Fraud Act (“CFA”), N.J.S.A. 56.8-2, which, among other things,
proscribes unconscionable practices in real estate transactions. N.J.S.A. 56.8-2. See
Defendant’s Brief in Opposition to Plaintiff Wells Fargo’s Motion for Partial Summary
Judgment at 3; Defendant’s Brief in Opposition to Plaintiff Bank One’s Motion for Summary
Judgment at 4. Asserting that federal law authorizing national banks to make and
purchase real estate loans preempted the Defendants’ state law defenses under the CFA,
Wells Fargo and Bank One, as trustees acting on behalf of the investors, sought partial
summary judgment on the cross -claims.

Discussion

http://wfhmcaught.blogspot.com/2010/07/daniel-p-stipano-states-national-banks.html[2/16/2011 5:29:51 PM]


ARE YOU A VICTIM OF WELLS FARGO'S PAIN?: Daniel P. Stipano states National Banks Are Subject to State Laws When Foreclosing Mortgage Loans They Did Not...

Pursuant to 12 U.S.C. § 371, national banks may “make, arrange, purchase or sell loans
or extensions of credit secured by liens on interests in real estate, subject to * * * such
restrictions and requirements as the Comptroller of the Currency may prescribe by
regulation or order.” The OCC’s real estate lending regulations provide that, “[e]xcept
where made applicable by Federal law, state laws that obstruct, impair, or condition a
national bank’s ability to fully exercise its Federally authorized real estate lending powers
do not apply to national banks.” 12 C.F.R. § 34.4(a).

The Banks assert that application of the CFA is preempted because it would interfere with
their power as national banks to purchase loans as authorized under 12 U.S.C. § 371, and
that holding them liable for violations of the CFA as loan purchasers would be contrary to
12 C.F.R. § 34.4(a), which preempts state laws that interfere with national bank real estate
lending authority.

Section 34.4(a)(10) states that national banks “may make real estate loans under 12
U.S.C. § 371 without regard to state law limitations concerning * * * [p]rocessing,
origination, servicing, sale or purchase of, or investment or participation in,
mortgages.” 12 C.F.R.§ 34.4(a)(10) (emphasis added). However, in no sense, under the
facts presented, can the Banks be viewed as making a real estate loan under 12 U.S.C.
§ 371 and 12 C.F.R. § 34.4. The Banks did not originate the loans. They did not fund the
loans at inception. Nor did they “purchase” the loans as part of any real estate lending
program comprehended by the regulation. Here, the Banks act as trustees for the benefit
of investors in the trusts. The substance of the transaction is that the investors, not the
Banks, are purchasing the loans that have been made by Delta. The investors own the
beneficial interest in the loans held by the Banks as trustees. And the effect of any liability
for violation of the CFA ultimately falls on the investors. Nowhere do the Banks allege that
they themselves, as opposed to the trusts they represent, are exposed to liability for any
violation of the CFA. For all these reasons, 12 U.S.C. § 371 and 12 C.F.R. § 34.4(a)
simply do not apply to the transactions by which the Banks acquired legal title to the loans
in the circumstances at issue here.

With respect to the activities of Wells Fargo and Bank One as trustees, the banks derive
their power to act as trustees from 12 U.S.C. § 92a. When state law conflicts with national
banks exercising powers granted to them by federal law, the Supremacy Clause of the
United States Constitution requires that the state law yield to the paramount authority of
federal law, with the result that application of the state law to national banks is preempted.
The Supreme Court has explained this principle stating that it interprets “grants of both
enumerated and incidental ‘powers’ to national banks as grants of authority not normally
limited by, but rather ordinarily pre-empting, contrary state law.” Barnett Bank of Marion
County v. Nelson, 517 U.S. 25, 32 (1996).

As the Supreme Court demonstrated in its review of preemption cases in the Barnett case, Supremacy
Clause principles animating conflict preemption have been expressed in a wide variety of phrases that
do not yield materially different meanings, including “stand as an obstacle to,” “impair the efficiency
of,” “significantly interfere,” “interfere,” “infringe,” and “hamper.” See Barnett , 517 U.S. at 33.
Thus, if application of the CFA to the loans held by the Banks as trustee were to obstruct,
impair, condition, or otherwise interfere with the Banks’ exercise of fiduciary powers
granted to them under federal law, the state statute would be preempted.

Based on the facts presented, we do not believe that to be the case. The Banks have not
claimed that application of the CFA would impair their ability to act as trustee in these
circumstances or that the state law otherwise interferes with the performance of their legal
obligations as trustee. Nor could they claim that having to respond to state law defenses
to recovery on assets held in trust obstructs or impairs their power to act as trustee absent
some indication that the state law infringes their authority, conditions their actions, or
imposes a burden in a way prohibited by federal law. In short, the Banks’ authority to act
as trustees under federal law does not insulate the assets the Banks hold in trust for the
benefit of investors from state law requirements otherwise applicable to those assets.

http://wfhmcaught.blogspot.com/2010/07/daniel-p-stipano-states-national-banks.html[2/16/2011 5:29:51 PM]


ARE YOU A VICTIM OF WELLS FARGO'S PAIN?: Daniel P. Stipano states National Banks Are Subject to State Laws When Foreclosing Mortgage Loans They Did Not...

We trust that the foregoing is responsive to your request.

Sincerely,

/s/ Daniel P. Stipano

Daniel P. Stipano
Acting Chief Counsel

Cc: Hon. Kenneth S. Levy, J.S.C.


212 Washington Street
The Wilentz Justice Complex
General Equity, 8 th Floor
Newark, New Jersey 07102

Posted by Kelly L. Hansen at 12:46 AM

0 Ratings No rating

6 comments:
rod said...
this letter is actually known as OCC Interpretive Letter #1016 February 2005.

It took me 6 years to discover it. Same issue decided in Cuomo v


Clearinghouse by US Supreme Court, June, 2009.

We all need to stress these points of law, until the courts hear us and listen
and obey their own laws
February 7, 2011 11:02 PM

Kelly L. Hansen said...


Rod!

I just have to tell you how good you comment made me feel. Now I know I'm
not a complete and total idiot. I knew that letter was of great importance.
These damn banks keep saying they don't have to conform to state laws, yet
they foreclose against mortgages in States where they aren't licenced or
registered on mortgage loans they don't originate, and usually aren't even
registered on at the Register of Deeds Office...and then they attempt to invoke
the state's statutes in their lawsuits if it helps them to do so!
February 7, 2011 11:20 PM

karen said...
Kelly Hansen is an angel! Larry, Mike, Sunny, don't give up!!!Write an e-mail to
Cara Heiden's office; contact the OCC. Contact the attorney she referredarry
to. We are stronger as a group than we are individually! We have had our
house sold too, to Wells of course, but they are putting us in a holding pattern
until they investigate our case. Larry, we have been praying for you since we
read your blog. God bless us all. Please,please, keep fighting!!! You can pack

http://wfhmcaught.blogspot.com/2010/07/daniel-p-stipano-states-national-banks.html[2/16/2011 5:29:51 PM]


ARE YOU A VICTIM OF WELLS FARGO'S PAIN?: Daniel P. Stipano states National Banks Are Subject to State Laws When Foreclosing Mortgage Loans They Did Not...

up if you want to, but don't move out until you have done EVERYTHING you
can do. Then you can say you fought the good fight. These are our homes for
Pete's sake!!!!!
Karen
Lodi,California
February 14, 2011 11:30 AM

Anonymous said...
Could someone please explain what the OCC Letter means and it's relevance?
I am not able to understand the legal jargon. Thank you very kindly in advance
for your support.
Sunny
February 15, 2011 11:49 AM

Cat West said...


The OCC is the Office of the Comptroller of Currency

They are the branch of our treasury department that is supposed to be


watching these banks to make sure they follow the law. Clearly, they aren't
doing enough for the homeowners who have become victims of the crimes we
hear about on this blog.
February 16, 2011 8:20 AM

Kelly L. Hansen said...


Sunny,

I'm not a lawyer, this is just my "slant" however when I read this I found
it to be of HUGE importance if you have been foreclosed against in a State
Court, by an entity that is not registered in your state to do business, if:

that entity did not originate your mortgage loan.

In the case referenced by Rod, the U.S. Supreme Court ruled that National
Banks are subject to state laws when they are litigating in state courts.

Daniel P. Stipano's letter goes a step further stating when these entities are
foreclosing against loans they did not originate, once again, they are subject to
the state's laws in which they are foreclosing.

What is significant about the Supreme Court decision and Daniel P. Stipano's
letter is that they both clarify the law regarding National Banks being subject to
state laws when foreclosing. (Because your case is subject to dismissal if the
entity foreclosing against you has not followed state laws before filing its
foreclosure action. Anyone who has been foreclosed against, your foreclosure
is subject to a motion to vacate due to loss of subject matter jurisdiction over
the case.)

National Banks continue to claim they are "exempt" from state laws: they don't
have to be registered in the state to do business; they don't have to be
licensed in the state as a mortgage loan servicer, etc. However, if they intend
to file foreclosures and use a state court to litigate, they better conform to the
state's laws prior to filing or face losing their case. CHECK IF YOUR
FORECLOSING ENTITY IS REGISTERED WITH YOUR SECRETARY OF
STATE AND IF THEY ARE LICENSED WITH THE BANKING
COMMISSIONER AS IS REQUIRED BY STATE LAW.

http://wfhmcaught.blogspot.com/2010/07/daniel-p-stipano-states-national-banks.html[2/16/2011 5:29:51 PM]


ARE YOU A VICTIM OF WELLS FARGO'S PAIN?: Daniel P. Stipano states National Banks Are Subject to State Laws When Foreclosing Mortgage Loans They Did Not...

If not, file a motion to dismiss on those grounds. AFTER YOU TALK TO YOUR
LAWYER!!!!!!
February 16, 2011 11:04 AM

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ARE YOU A VICTIM OF WELLS FARGO'S PAIN?: Daniel P. Stipano states National Banks Are Subject to State Laws When Foreclosing Mortgage Loans They Did Not...

I AM NOT GIVING YOU LEGAL ADVICE, I DO NOT HAVE LICENSE TO DO SO


Remember, I am not yet an attorney, I am a goofy woman from Kansas with acquired knowledge that I would like to share with you. I believe
determined minds are powerful and fraud is rampant in this industry. If we endeavor to do so we will find what we need to find to keep you in
your home. I do know that giving legal advice without a license to do so is breaking the law, so I must be very careful at all times to make
sure you understand I am only sharing my ideas with you, and I'm sharing with you what I've seen work and what I've seen not work. I do
not charge fees for any services that I provide, I simply care about you as a homeowner, I want to work with you in what I see as a project of
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WBSK
NOVEMBER 2005

MORTGAGE FINANCE NEWSLETTER


A P U B L I C AT I O N O F W E I N E R B R O D S K Y S I D M A N K I D E R P C

FHA Allows Federal Courts Begin to Apply


Nationwide
Lending Class Action Fairness Act

T
On October 20, 2005, through the he much-anticipated Class Action Fairness Act of 2005 (“CAFA”) was signed
issuance of Mortgagee Letter 05-40 (ML
05-40), the FHA announced two changes into law on February 18, 2005 in order to, among other things, expand
to the geographic areas where federal jurisdiction to include interstate class actions in which: (1) the ag-
mortgagees (including loan cor-
respondents) may originate new single- gregate amount in controversy exceeds v. Lott, 417 F.3d 725 (7th Cir . 2005), and
family loans. First, the FHA has $5 million; (2) any member of a class of the Tenth Circuit Court of Appeals in
plaintiffs is a citizen of a state different Pritchett v. Office Depot, Inc. , 404 F .3d
expanded all lending areas where each
from any defendant; (3) the primary de- 1232 (10th Cir . 2005), have each con-
registered office of a lender may
fendants are not states, state of ficials, or cluded that the term “commenced” in
originate FHA-insured loans. Previously, other government entities against whom CAFA’s enacting clause refers to the date
the lender ’s approved lending area the district court may be foreclosed from the action was first filed in state court, not
extended only to certain HUD field office ordering relief; and (4) the number of the date that it was removed to federal
jurisdictions contiguous to the location members of the plaintif f class numbers court. Section 9 of theAct states that “[t]he
of the lender ’s approved office. In 100 or more. (A more complete review of amendments made by this Act shall apply
CAFA’s provisions was reported in the to any civil action commenced on or after
Mortgagee Letter 05-40, however , HUD
March 2005 edition of the WBSK Mort- the date of enactment of this Act.”
announced that the lending areas now
gage Finance Newsletter.) CAFA was en- District courts in other federal circuits
will be expanded to all HUD field office acted amidst concerns that existing juris- have reached the same conclusion in nu-
jurisdictions within groups of states. dictional standards facilitated class action merous other opinions. For example, in
Under current FHA rules, when the abuse in the state courts and thwarted the one memorable published opinion,Lander
FHA approves a mortgagee to originate underlying purpose of the constitutional and Berkowitz, P .C. v. Transfirst Health
insured single family mortgages, each requirement of diversity of the parties’ Services, Inc., 374 F. Supp. 2d 776 (E.D.
citizenship. CAFA was designed to ad- Mo. 2005), Judge Sippel of the United
of the mortgagee’s registered offices is
dress these problems by establishing a States District Court for the Eastern Dis-
restricted to originating mort-
“balanced diversity” rule, trict of Missouri held that the date of
gages only on properties that are thereby permitting a lar ger CAFA’s enactment was the day it was ac-
located within that office’ s number of class actions to tually signed into law by the President, not
“Lending Area” (also known as proceed in the federal courts. the day Congress passed the bill that ulti-
the “Areas Approved for Nine months later , the mately became CAF A. Tongue in cheek,
Business”). These lending areas federal courts have only be- Judge Sippel noted that “[a]lthough it is
gun to interpret the Act’s certainly not binding precedent, the par -
are tied to the jurisdictions of HUD
provisions. As with any fed- ties may recall a popular episode of the
field office locations. Under this
eral legislation of such television series Schoolhouse Rock titled
approach, a lender could achieve a prominence, the courts have not always I’m Just a Bill . In that episode, Bill sang,
nationwide FHA lending “footprint” by agreed how CAFA should be applied. ‘I’m just a bill/Yes, I’m only a bill/And if
establishing approximately twenty-five they vote for me on Capitol Hill/Well, then
(25) branches in selected locations A SUIT “COMMENCES” IN STATE COURT I’m off to the White House/Where I’ll wait
throughout the U.S. One point which the courts to date have in a line/W ith a lot of other bills/For the
As revised by Mortgagee Letter 05-40,
agreed upon, however , is that CAF A can- president to sign/And if he signs me, then
not be applied retroactively to cases filed I’ll be a law/How I hope and pray that he
however, the use of the new exp anded
in state courts prior to February 18, 2005. will/But today I am still just a bill.’”
lending areas potentially would allow The First Circuit Court ofAppeals in Natale Although the federal courts to date have
the lender to est ablish a nationwide v. Pfizer, Inc., __ F .3d __ (1st Cir . 2005), been unanimous in holding that an action
lending “footprint” with as few as the Seventh Circuit Court of Appeals in “commences” the day it is filed in state
Knudsen v. Liberty Mutual Insurance Co. , court, some courts have found that CAFA
CONTINUED ON PAGE 5 411 F.3d 805 (7th Cir. 2005) and Pfizer, Inc. can be applied to cases filed in state court
A P U B L I C AT I O N O F W E I N E R B R O D S K Y S I D M A N K I D E R P C
prior to CAFA’s enactment date if a subse- federal jurisdiction and whether a court’s case to state court on the grounds that defen-
quent change in the scope of the litigation doubts about the propriety of a removal dants retain the burden of proving the pro-
was sufficiently dramatic that courts would should be resolved in favor of or against priety of removal and that this burden could
treat it as a new claim. InPlummer v. Farm- remanding the case to state court. not be met where the only relief sought was
ers Group, Inc., No. CIV-05-242, 2005 WL In the pre-CAFA era, it was undisputed injunctive, rather than monetary, in nature.
2292174 (E.D. Okla. Sept. 15, 2005), the that federal courts were required to strictly Although ultimately remanding the case
district court found that if a post-enactment construe the removal statutes, including to state court on the ground that the $5 mil-
amendment to the plaintif f’s complaint 28 U.S.C. § 1446, against permitting fed- lion cost of complying with the injunction
constitutes a “ de facto commencement of eral jurisdiction. As part of this presump- was “wholly speculative,” theBerry court did
a new suit,” then CAF A may apply . The tion against against removal, the courts hold that the burden of proving jurisdiction
Plummer suit was initially filed in Okla- placed the burden of proving that re-moval rests exclusively on the party seeking remand
homa state court on August 15, 2003, by was proper squarely on the removing party. and that the $5 million jurisdictional amount
single plaintiff with a single cause of ac- The legislative history of CAFA, however, could potentially be satisfied by the aggre-
tion. On May 23, 2005, however, the plain- suggests an intent to reverse this presump- gate cost to a defendant of complying with a
tiff filed an amended pleading adding two tion in the class action context and shift requested injunction. The court held that
additional causes of action and purporting the burden of proof to the remanding party . committee reports are an authoritative source
to represent a national class.The defendant For example, in one floor statement, Con- for ascertaining congressional intent and that
removed pursuant to CAFA. Stating that the gressman Sensenbrenner opined that the Senate Report on CAFA “expresses a clear
central question was whether the defendant CAFA “should be read broadly , with a intention” to place the burden of proof “on
had such notice of the added claims at the strong preference that interstate class ac- the party opposing removal to demonstrate
time the suit was initially filed that rela- tions should be heard in a Federal court if that an interstate class action should be re-
tion back of the added claims would un- removed by any defendant.” Likewise, the manded to state court.” The court observed
duly prejudice the defendant, the United Senate Report prepared in connection that “[a]lthough plaintiff argues that the fail-
States District Court for the Eastern Dis- with the bill that became CAFA states that ure to incorporate this directive on the bur -
trict of Oklahoma held that, under the cir - “it is the intent of the Committee that the den of proof into the statute evinces an ex-
cumstances, the amended pleading consti- named plaintiff(s) should bear the burden plicit intent to maintain the status quo,” the
tuted “a de facto commencement of a new of demonstrating that a case should be re- failure to address the burden of proof in the
suit.” The court nonetheless remanded the manded to state court (e.g., the burden of Act “reflects the Legislature’s expectation that
case on other grounds. demonstrating that more than two-thirds the clear statements in the Senate Report
The Seventh Circuit reached a different of the proposed class members are citi- would be suf ficient to shift the burden of
result in Schillinger v. Union Pacific Rail- zens of the forum state). Allocating the proof.” The court further held that, in the pre-
road Co., __ F .3d __ (7th Cir . 2005), in burden in this manner is important to en- CAFA era, “the Ninth Circuit did not permit
which the defendant railroad companies sure that the named plaintif fs will not be the value of injunctive relief sought in a class
removed to the Southern District of Illinois able to evade federal jurisdiction with action to be determined by examination of
under CAFA. The defendants acknowl- vague class definitions or other ef forts to its potential aggregate cost to the defendant,”
edged that the filing of the suit predated obscure the citizenship of members.” but that “[g]iven the explicit statutory change
CAFA, but ar gued that the reinstatement Seizing on these congressional clues, allowing aggregation of claims in class ac-
of an additional defendant and the expan- the United S tates District Court for the tions, it appears as though the justifications
sion of the class definition changed the case Central District of California found in previously advanced for considering only the
so dramatically that it created a new claim. Berry v. American Expr ess Publishing value to individual plaintiffs in a class action
The federal district court remanded to state Corp., 381 F . Supp. 2d 1 118 (C.D. Cal. are no longer relevant.”
court. The Seventh Circuit denied defen- 2005), that Congress “clearly” expressed Courts that, like Berry, have found that
dants’ petition for appeal, holding that the its intention to place the burden of proof CAFA shifts the burden of proof to the party
apparent reinstatement of a defendant who on the party seeking remand. The Berry seeking remand include Lussier v. Dollar Tree
had previously been voluntarily dismissed plaintiff had filed his class action in the Stores, Inc. , No. CV 05-768, 2005 WL
was merely a “scrivener ’s error” and that Orange County Superior Court on March 2211094 (D. Or . Sept. 8, 2005), Harvey v.
the expansion of the class was not signifi- 3, 2005, alleging that the defendants’ prac- Blockbuster, Inc., 384 F. Supp. 2d 749 (D.N.J.
cant enough to create a new claim or new tice of char ging credit credit holders for 2005), Natale v . Pfizer, Inc. , No. Civ .A.05-
action. The Seventh Circuit had also pre- unsolicited magazine subscriptions was 10590, 2005 WL 1793451 (D. Mass. July 28,
viously held in Schorsch v. Hewlett- deceptive and violated several provisions 2005), Waitt v. Merck Co. , No. C05-0759,
Packard Co., 417 F.3d 748 (7th Cir. 2005) of the California Civil Code.Although the 2005 WL 1799740 (W .D. Wash. July 27,
that that a change to the proposed class defi- plaintiff had been able to reverse the 2005), In re Textainer Partnership Securities
nition occurring after CAFA’s effective date charges and cancel an unwanted subscrip- Litigation, No. C05-0969, 2005WL 1791559
did not constitute the commencement of tion, he nonetheless sought to enjoin the (N.D. Cal. July 27, 2005), and Yeroushalmi
new claim. defendants from continuing their practice. v. Blockbuster, Inc., No. CV 05-225, 2005WL
Notably, the plaintif f did not seek mon- 2083008 (C.D. Cal. July 11, 2005).
THE PRESUMPTION IN FAVOR OF etary damages and, to avoid federal juris-
FEDERAL JURISDICTION diction under CAFA, explicitly pled that JUDICIAL DIVISIONS EMERGE
With the passage of time, however , the no amount was sought that would exceed Other federal district courts, however, have
federal opinions have become less con- the sum or value of $5 million. expressly rejected Berry’s use of CAFA’s leg-
cerned with whether CAFA applies to cases On April 1, 2005, the Berry defendants islative history in shifting the burden of proof.
filed prior to CAFA’s enactment date, and removed the case to federal court on the In Schwartz v. Comcast Corp., No. Civ.A.
more concerned with how the Act should basis of CAFA. They contended that the 05-2340, 2005 WL 1799414 (E.D. Pa. July
be substantively interpreted and applied. cost of complying with the plaintif f’s re- 28, 2005), the United S tates District Court
The issues that seem destined for a judi- quested injunctive relief would exceed $5 for the Eastern District of Pennsylvania held
cial showdown are whether a removing million and that, accordingly, removal was that “notwithstanding its legislative history ,
defendant bears the burden of establishing proper. The plaintiff moved to remand the CAFA does not shift the burden of proof from

PAGE 2 A P U B L I C AT I O N O F W E I N E R B R O D S K Y S I D M A N K I D E R P C
a removing defendant to a remanding plain- tions for the full three years, and the excep- son, Jasper , Jefferson, Jef ferson Davis,
tiff.” The Schwartz court reasoned that tions expire on August 29, 2008 with re- Jones, Kemper , Lamar , Lauderdale,
“Congress is presumed to have been famil- gard to Hurricane Katrina and on Septem- Lawrence, Leake, Lincoln, Lowndes,
iar with the longstanding and well known ber 24, 2008 with regard to Hurricane Rita. Madison, Marion, Neshoba, Newton,
case law construing old Section 1332,” and, Based on the authority under the Noxubee, Oktibbeha, Pearl River , Perry,
accordingly, the court “was hesitant to read DIDRA, the Agencies granted relief from Pike, Rankin, Scott, Simpson, Smith,
into the statute a Congressional intent to compliance with the appraisal requirements Stone, W althall, Warren, W ayne,
shift the longstanding burden of proof for under Title XI of the Financial Institutions Wilkinson, Winston and Yazoo.
establishing diversity jurisdiction, where Reform, Recovery and EnforcementAct of
HURRICANE RITA
Congress expressly enacted numerous other 1989 (“FIRREA”), subject to four condi-
intended changes discussed by the Judiciary tions. The conditions are that: Louisiana: Acadia, Allen, Beauregard,
Committee in its Report to the exclusion Calcasieu, Cameron, Iberia, Jef ferson
of the change with respect to the burden of 1. The transaction involves real property Davis, Lafayette, Lafourche, S t. Mary ,
proof.” located in an area that (a) the President Terrebonne and Vermilion.
To date, the Plummer opinion, discussed determined to be a major disaster area Texas: Chambers, Galveston, Hardin,
above, appears to be the only other federal pursuant to Section 401 of the Stafford Jasper, Jefferson, Liberty, Newton, Orange
opinion directly in accord with Schwartz. Disaster Relief Emergency Assistance and Tyler.
Citing Schwartz, the Plummer court ac- Act as a result of Hurricane Katrina in
knowledged that other cases have shifted
the burden of proof to the remanding party,
Alabama, Louisiana and Mississippi or
as a result of Hurricane Rita in Louisi-
Federal Reserve
but stated that “[w]hile the purpose of ana and Texas, and (b) has been desig- Board Issues Second
CAFA may arguably militate in favor of re-
versing this burden, Congress did not ex-
nated by the Federal Emergency Man-
agement Agency (“FEMA”) as eligible
Round of Comment
pressly say so in the statute.” Other federal
district courts have simply assumed that the
for certain federal assistance (Indi- Requests for Changes
vidual and PublicAssistance for all cat-
burden remains incumbent upon the remov- egories or for categories A and B). to Regulation Z
ing party, without referring at all to CAFA’s
legislative history or purposes. Such cases
include Komeshak v. Concentra, Inc. , No.
2. The real property involved (a) was di-
rectly affected by the major disaster, or
(b) was not directly affected by the ma-
T he Federal Reserve Board(“Board”)
has published a second advance
notice of proposed rulemaking
05-CV-261, 2005 WL 2488431 (S.D. Ill. jor disaster, but the transaction would (“ANPR”) amending Regulation Z, the
Oct. 7, 2005), Brill v. Countrywide Home facilitate recovery from the disaster. Truth in Lending Act (“TILA”) regu-
Loans, Inc. , No 05 C 2713, 2005 W L 3. There is a binding commitment to fund lation, with respect to the Regulation’s
2230193 (N.D. Ill. Sept. 8, 2005), and a transaction that is made within three open-end credit rules. This ANPR
Sneddon v. Hotwire, Inc. , Nos. 05-0951, years after the major disaster was de- serves a dual function. In December of
2005 WL 1593593 (N.D. Cal. June 29, clared by the President. 2004, as part of its periodic review of
2005). 4. The institution must retain in its files, its regulations, the Board published an
The split among the federal district for examiner review, appropriate docu- ANPR requesting specific comments
courts will ultimately require resolution in mentation indicating that the require- on Regulation Z’ s open-end credit
the courts of appeal. For now, the question ments of the first three conditions are rules. Then, on April 20, 2005, the
of which party bears the burden of demon- met, and supporting the valuation of Bankruptcy Abuse Prevention and
strating that a case should be remanded to the real property. Consumer Protection Act (“Bank-
state court will remain an uncertainty. ruptcy Reform Act”), which contained
The Federal Register release announc- several amendments to TILA and its
Katrina and Rita ing the exceptions identifies the follow-
ing counties and parishes as those desig-
open-end credit regulations, was
signed into law (see WBSK Mortgage
Appraisal Exceptions nated by FEMA for the applicable fed- Finance Newsletter June 2005 for

T he federal financial institution regula


tors recently announced a temporary
exception to the real property appraisal
eral assistance:

HURRICANE KATRINA
more details). The Bankruptcy Reform
Act requires the Board to adopt cer -
tain rules with respect to open-end
requirements in communities declared Alabama: Baldwin, Choctaw, Clarke, credit plans. The second ANPR is the
major disaster areas as a result of Hurri- Greene, Hale, Mobile, Pickens, Sumter , Board’s attempt to address both the pe-
canes Katrina and Rita. Tuscaloosa and Washington. riodic review of Regulation Z and the
The federal Depository Institutions Di- Louisiana: Acadia, Ascension, As- Bankruptcy Reform Act regulations in
saster Relief Act of 1992 (“DIDRA”) au- sumption, Calcasieu, Cameron, East Ba- one promulgation.
thorizes the Comptroller of the Currency, ton Rouge, East Feliciana, Iberia, The initial comment period on the
Federal Reserve Board, Federal Deposit Iberville, Jef ferson, Jef ferson Davis, periodic review of Regulation Z closed
Insurance Corporation, Of fice of Thrift Lafayette, Lafourche, Livingston, Or - on March 28, 2005. Now that the
Supervision and National Credit Union leans, Pointe Coupee, Plaquemines, S t. Board is implementing the Bankruptcy
Administration (the “Agencies”) to make Bernard, S t. Charles, S t. Helena, S t. Reform Act rules in tandem with and
exceptions to statutory and regulatory ap- James, St. John the Baptist, St. Mary, St. as part of the periodic review amend-
praisal requirements for transactions lo- Martin, St. T ammany, T angipahoa, ments, it has reopened the comment
cated in areas in which the President de- Terrebonne, Vermilion, Washington, West period. Public comments are now due
termines that a major disaster exists.Any Baton Rouge and West Feliciana. on or before December 16, 2005.
exceptions granted by the Agencies must Mississippi: Adams, Amite, Attala, The integrated approach will permit
expire not later than three years after the Choctaw, Claiborne, Clarke, Copiah, the Board to conduct consumer test-
determination that a major disaster exists. Covington, Forrest, Franklin, Geor ge, ing as part of its development of the dis-
The Agencies decided to grant the excep - Greene, Hancock, Harrison, Hinds, Jack- closures and guidance on the “clear and

A P U B L I C AT I O N O F W E I N E R B R O D S K Y S I D M A N K I D E R P C PAGE 3
conspicuous” standard that the Bankruptcy It also seeks guidance on what account bal- In cases where multiple APRs apply to
Reform Act requires. Until the new regu- ance, APR and typical minimum payment the subject credit transaction, the Board has
lations become ef fective, the Board has percentage should be used in the event that asked whether it would be appropriate for
advised that the “clear and conspicuous” revision is in order. the estimated repayment period to be cal-
standard currently provided for in Regula- With respect to the toll-free number culated using a single APR (as contem-
tion Z will be the standard that will apply that consumers could call to determine plated in the Bankruptcy Reform Act), and
to all TILA disclosures, including the their payof f period, the Board has indi- if so, whichAPR should be used.The Board
Bankruptcy Reform Act amendments. cated that certain information will be re- also asks whether it should develop a for -
quired to be provided by the consumer in mula that uses multiple APRs but incorpo-
MINIMUM PAYMENT DISCLOSURES order for the payoff date to be determined. rates assumptions as to how those APRs
The Bankruptcy Reform Act requires The Board has proposed three approaches should be weighted.
creditors that extend open-end credit to pro- to developing a system for calculating the Because certain assumptions must be
vide a disclosure on the front of each peri- repayment period for consumers who call made in calculating the repayment period
odic statement about the ef fects of making the toll-free number: estimate, the Board seeks comments on
only minimum payments. The disclosure • Prompting consumers to provide an ac- whether certain key assumptions should be
must include: (1) a “warning” statement in- count balance, a minimum payment disclosed to the consumer . If so, clarifica-
dicating that making only the minimum pay- amount and APRs in order to obtain an tion on which assumptions should be dis-
ment will increase the interest the consumer estimated repayment amount. For infor- closed as well as the manner and timing of
pays and the time it takes to repay the mation about minimum payments and disclosure should be provided.
consumer’s balance; (2) a hypothetical ex- APRs that is not currently disclosed on The Bankruptcy Reform Act permits
ample of how long it would take to pay off a periodic statements, the Board could re- creditors to omit the toll-free number on
specified balance if only minimum payments quire such information to be disclosed the minimum payment disclosure if, in-
are made; and (3) a toll-free number that the or develop a formula that makes as- stead, the creditor provides the “actual num-
consumer may call to obtain an estimate of sumptions about these variables for a ber of months” to repay the account. The
the time it would take to repay their actual typical account. Board seeks clarification on how to deter -
account balance. • Prompting consumers to input informa- mine whether a creditor has accurately pro-
The Bankruptcy ReformAct provides that tion, or using assumptions based on a vided the actual number of months to re-
the minimum payment disclosure require- typical account to calculate an esti- pay the outstanding balance, including
ment does not apply to a “char ge card” ac- mated repayment period, but also giv- whether there should be any safe harbors
count, the primary purposes of which is to ing creditors the option of inputting or tolerances in the calculation.
require payment of char ges in full each information from their own systems re-
month. In theANPR, the Board seeks com- garding the consumers’ account
CLEAR AND CONSPICUOUS
ments on whether certain open-end ac- termsto provide REQUIREMENT
counts should be exempt from the mini- more accurate esti-
“The Board points The Bankruptcy ReformAct requires the
mum payment disclosure requirements. mates.
minimum payment disclosures to be made
The Board points out that the ratio- out that the •Prompting con-
in a clear and conspicuous manner . It fur -
nale behind the minimum payment dis- sumers to proide
rationale behind ther requires the Board to issue model dis-
closure requirements may not translate their account bal-
ance but requiring closures and promulgate rules providing
to certain types of transactions, such as the minimum
creditors to input guidance on the clear and conspicuous re-
home equity lines of credit (“HELOCs”), payment
information from quirement. The Board has asked for com-
for which the length of time allotted to
ments on what guidance it should provide
pay the outstanding balance is fixed and disclosure their own systems
regarding the ac- on the location or format of the disclosures
expressed in the credit agreement. Simi- requirements may
count’s minimum and whether a minimum type size require-
larly, reverse mortgages may not be con- not translate to
payment require- ment is appropriate. It also seeks comments
ducive to the minimum payment disclo-
sure requirements since, typically , the certain types of ment and the por- on what model forms or clauses it should
principal and interest on a reverse mort- transactions, such tion of the balance consider.
gage are not due until some triggering subject to each
as home equity APR. PAYMENT DEADLINE/LATE PAYMENT
event (i.e., the homeowner moves, sells
the home or dies). In such cases where lines of credit In addition to PENALTY DISCLOSURES
the payment dates are unknown, it would (“HELOCs”) ...” these three ap- The Bankruptcy Reform Act’s amend-
difficult to provide an estimate of the proaches, the Board ments to TILA require that creditors offer-
time necessary to pay off the account, as has asked whether ing open-end plans provide additional dis-
required under the minimum payment dis- there are alternative approaches it should closures on periodic statements if a late fee
closures. With these considerations in consider in developing the repayment will be imposed for failure to make a pay-
mind, the Board asks whether certain trans- calculation formula. ment on or before the required due date.
actions should be wholly or partially ex- The Board seeks comments on whether This disclosure must state, in a clear and
empt from the minimum payment disclo- it should select “typical” minimum pay- conspicuous manner, the date on which the
sure requirements. ment formulas for various types of ac- payment is due or , if different, the earliest
With respect to the hypothetical example counts, and if so, what the typical minimum date on which a late payment fee may be
that must be provided with the disclosure, payment formulas are for accounts other charged. The disclosure must include the
the Board asks whether it should revise the than general-purpose credit cards, such as amount of the late payment fee that may be
account balance, APR or typical minimum HELOCs. The Board also asks whether its imposed.
payment percentage used in the hypotheti- typical minimum payment calculation The Board is seeking comments on the
cal example for open-end accounts other should assume that negative amortization payment deadline/late payment penalty dis-
than credit card accounts, such as HELOCs. is permitted. closure. Some comments it requests include

PAGE 4 A P U B L I C AT I O N O F W E I N E R B R O D S K Y S I D M A N K I D E R P C
whether there are special considerations for NATIONWIDE LENDING CONTINUED FROM PAGE 1
open-end accounts other than credit cards
(such as HELOCs) that it should consider , thirteen (13) offices (or only ten branch offices if the lender were to lend only in the
whether additional guidance on how to contiguous 48 states, and not in Hawaii or Alaska). Mortgagee offices approved after
make the disclosure clear and conspicuous the date of ML05-40 will receive automatic access to the new exp anded “lending areas.”
is needed and whether the Board should is-
Mortgagee offices approved prior to ML 05-40 will automatically receive access to the
sue a rule requiring creditors to credit pay-
ments as of the date they are received (re- expanded “lending areas” within 30 days of the date of ML 05-40.
gardless of the time of day they are received). Second, the FHA has announced that it will now permit approved mortgagees
The Board also asks whether, in cases where (including loan correspondents) to originate FHA-insured loans nationwide through
a late payment triggers an increased APR, the use of the Internet and/or a call center . This type of “direct nationwide”
the late fee disclosure should include infor- origination must meet all current FHA origination requirements and RESPA.
mation about the increased rate. In order to lend nationwide through the Internet or call center, an FHA approved
Title II mortgagee or loan correspondent must obtain such approval by requesting
DISCLOSURES FOR HOME-SECURED a separate ten (10) digit FHA branch ID number to be used for the sole purpose of
LOANS THAT MAY EXCEED THE direct (Internet or call center) nationwide lending. HUD will limit mortgagees to
DWELLING’S FAIR MARKET VALUE only one such branch ID number for its direct nationwide lending operation. HUD
The Bankruptcy Reform Act amended has also stated that the nationwide lending branch must have a separate manager
TILA to require that creditors extending (separate from that of any other branch of the lender), but the branch andsitmanager
home-secured credit (open-end and closed-
may operate out of an existing office of the mortgagee, or may est ablish a new
end) include with each written advertise-
ment relating to a credit product that may physical location.
exceed the fair market value of the dwell- HUD has also announced the following policies and procedures for such
ing a clear and conspicuous statement that: nationwide Internet or call center lending authority:
(1) the interest on the portion of the credit • The mortgagee or loan correspondent must submit a fully executed Branch Office
extension that is greater than the fair mar - Notification form (HUD 92001-B) to the FHA for review and approval. If HUD
ket value of the dwelling is not tax deduct- approves the branch for this purpose, then a separate 10-digit ID number will be
ible for federal income tax purposes; and, assigned to the lender for direct (Internet or call center) lending only.
(2) the consumer should consult a tax ad- • The mortgagee also must submit a written request for the direct lending
viser for further information about the de- nationwide approval on it s letterhead, signed by a V ice President or higher
ductibility of interest and charges. The dis- corporate officer, and include a statement in which the mortgagee it agrees that
closure applies to advertisements circulated
it will originate only direct mortgages through the branch ID number and not
in paper form or on the Internet. Creditors
use the ID number to order case numbers for loans that are not originated through
must also make the above referenced dis-
closure at the time of application if the ex- any means other than the internet and/or call center operation. By keeping the
tension of credit exceeds or may exceed the direct lending operation separate, and exclusively using this new ID number for
fair market value of the dwelling. the direct (Internet and call center) lending, HUD will be able to track and evaluate
The Board is seeking guidance on the this type of loan origination, and it will not jeopardize the lender’s other branch
factors to consider in interpreting when an offices.
“extension of credit may exceed the fair mar- • In addition to the foregoing, the lender ’s letter also must include a list of the
ket value of the dwelling” and in determin- states where the mortgagee will engage in the origination of FHA single-family
ing whether the debt “may exceed” the fair mortgages by direct nationwide lending. The letter must cont ain the following
market value. It also asks whether additional certifications as of the date of the request:
guidance is necessary with respect to the (i) the mortgagee has updated its quality control plan to include specific
timing of the disclosures.
elements covering direct market lending;
(ii) the mortgagee has already obtained the appropriate state licenses and
PROHIBITION ON TERMINATING
ACCOUNTS FOR FAILURE TO INCUR meets all other state requirements to originate loans in the specific states
FINANCE CHARGES included in the request;
Under the amended TILA, creditors may (iii) the mortgagee agrees to notify HUD in writing if it no longer meets the
not terminate an open-end credit plan be- requirements of any of these states (which will result in the state being
fore its expiration date solely because the removed from the lending area of the direct lending branch);
consumer has not incurred finance char ges (iv) neither the mortgagee nor any of its officers, directors, or principals or
on the account. An account that has been employees have been denied a license or otherwise sanctioned by any
inactive for three or more consecutive federal, state, or local agency or have been suspended, debarred, or
months, however, may be terminated by the otherwise denied participation in HUD programs.
creditor. Similar to other branch office application requests, each request for a separate
The Board has asked what issues it
branch ID number for nationwide direct lending must include a $300 check ayable p
should consider in determining when an
to HUD as a nonrefundable processing fee. HUD will review all information and
account expires. It also asks whether there
are special issues it should consider with certifications provided and will also determine whether the mortgagee is in good
respect to open-end credit plans other than standing with the HUD, including that it: (i) has no actions pending or unresolved
credit card accounts. Finally , it asks issues with the Mortgagee Review Board; and (ii) has no unresolved audit findings
whether it should provide guidance on with HUD’s Quality Assurance Division or HUD’s Office of the Inspector General.
what constitutes inactivity for purposes of Following its review, the FHA will notify the mortgagee when the request is approved
this provision. or disapproved.

A P U B L I C AT I O N O F W E I N E R B R O D S K Y S I D M A N K I D E R P C PAGE 5
Safeguarding Customer
Data: What Are Your States: Licensing Update
Obligations In Event of
A Breach? MICHIGAN: Use of Temporary Employees

S ince July 1, 2003, when California’s


Security Information Breach Act
went into ef fect, twenty states (Arkan-
Effective September 22, 2005, the Michigan Mortgage Brokers, Lend-
ers, and Servicers Licensing Act (the “Act”) was amended to permit the use
sas, Connecticut, Delaware, Florida, of employees of professional employer organizations as residential mort-
Georgia, Illinois, Indiana, Louisiana, gage originators by licensees and registrant s. S pecifically, employees of
Maine, Minnesota, Montana, Nevada, professional employer organizations (also known as temporary st affing
New Jersey, New York, North Carolina,
North Dakota, Rhode Island,Tennessee, agencies) that act as a residential mortgage originator on behalf of one
Texas and Washington) have joined Cali- licensee or registrant are not required to be licensed or registered under
fornia by enacting legislation imposing a the Act. However, in connection with the employment of these individuals,
duty upon organizations that own, license a licensee or registrant must: (1) direct and control the activities of the indi-
or maintain computerized data that con-
vidual employed by the professional employer organization; and (2) be re-
tains personal information to alert con-
sumers when their personal information sponsible for all activities of the individual.
has been compromised, or where the or-
ganization has reason to believe that such
information has been compromised. Simi-
lar legislation is pending in seven addi-
tional states (Massachusetts, Michigan, tion. The term “personal information” is maintained as part of the or ganization’s
Missouri, Ohio, Oregon, Pennsylvania generally defined as a customer ’s first information security policy will be suffi-
and Wisconsin). These laws (“Data Se- name or first initial and his or her last cient to comply with the notification re-
curity Laws”) are intended, at least in name, in combination with one or more quirements of the Data Security Laws. In-
part, to provide consumers with the in- of the following data elements: Social ternal procedures, however, must be rea-
formation they need to help prevent iden- Security Number, driver license or state sonable and must be consistent with the
tity theft. ID number, account, credit card or debit state Data Security Laws in terms of their
Data Security Laws generally require card number with the corresponding PIN timing requirements.
any organization that stores personal in- code or password that would allow ac- The Data Security Laws typically con-
formation electronically to notify its cus- cess to the customer ’s account. Certain tain exceptions to the notice and/or tim-
tomers of a data security breach in the states, however, define the term more ing requirements. Notification often is not
most expedient time and manner possible broadly. In North Dakota, for example, required if, after a reasonable investiga-
after the determination of the breach. Cer- the definition of personal information also tion, the organization makes a determi-
tain states impose a specific timeline for includes such data elements as the nation that there is no reasonable likeli-
such notice. For example, Florida law re- customer’s date of birth, the maiden name hood of harm to the af fected customers.
quires notification no later than 45 days of the customer’s mother, the customer’s Notification typically may be delayed in
following the determination of the breach, employer ID number, and the customer’s order to determine the scope of the breach
unless a delay is justified (as discussed digitized or other electronic signature. In and to restore the reasonable integrity of
below). Notice to consumers typically can Georgia, the duty to notify customers the computer data system in order to
be given in any of the following meth- arises if the compromised information is guard against further breaches. Notifica-
ods: in writing, by telephone, or electroni- sufficient to perform or attempt to per- tion may also be delayed if it becomes
cally. In certain instances, such as when form an identity theft against the cus- necessary to assist a law enforcement
the cost of providing ordinary notice ex- tomer. agency with a criminal investigation.
ceeds a certain level (typically $250,000) The duty to notify does not arise in The cost of providing the required no-
or the number of people affected is large connection with personal information that tification may be substantial. However, or-
(typically 500,000), “substitute notice” is is lawfully made available to the general ganizations that maintain computerized
permitted. Substitute notice generally public. Also, most states create an excep- personal information must be aware that
consists of the following elements: (i) e- tion if the compromised personal infor - many states provide for penalties for fail-
mail notice, if customer’s e-mail address mation was encrypted or redacted and ure to make timely notification. For ex-
is known; (ii) conspicuous posting of the thus rendered unreadable or unusable. ample, Florida provides for fines of $1,000
notice on the organization’s web page, if Pennsylvania’s pending legislation, how- per day for each day the breach goes un-
a web page is maintained by the organi- ever, states that even if the compromised disclosed for up to 30 days and $50,000
zation; and (iii) notification to major state- personal information was encrypted, the thereafter for each 30-day period up to 180
wide media. duty to notify arises where there has also days. In Texas, the fine for a violation of
The term “data security breach” is gen- been a breach of the encryption system the data security breach notification law is
erally defined as an unauthorized acqui- itself or where the breach involves a per- at least $2,000 but not more than $50,000
sition of computerized data that compro- son with access to the encryption key. for each violation. Many states also autho-
mises the security, confidentiality, or in- Most states provide that compliance rize private civil actions allowing affected
tegrity of customer ’s personal informa- with internal notification procedures individuals to seek damages.

PAGE 6 A P U B L I C AT I O N O F W E I N E R B R O D S K Y S I D M A N K I D E R P C
States: Legislation and Rulings

CALIFORNIA : Amends Its Covered Loan Law ing that the loan is “governed by federal law and the law of
California A.B. 901 amends the definition of “covered the jurisdiction in which the property is located.”
loan” contained in the California high cost home loan law The plaintiff in Dannewitz alleged that the prepayment
by raising the dollar limit for mortgage loans to which such penalty contained in the mortgage loan contract originated
law potentially applies. California law currently defines a by a state chartered lender violated the Illinois Interest Act
covered loan as a consumer loan secured by a deed of as an unlawful charge, as well as the Illinois Consumer
trust where the original principal balance of the loan does Fraud and Deceptive Business Practices Act due to the
not exceed $250,000, and when one (or both) of the fol- nondisclosure of the prep ayment penalty. The Appellate
lowing “triggers” are met: (1) the APR at the consumma- Court of Illinois held, however, that because the claim was
tion of the loan transaction exceeds by more than eight against the assignee and holder of the mortgage,
percentage points the yield on comp arable Treasury se- EquiCredit, a wholly owned subsidiary of a national bank,
curities; or, (2) the total point s and fees p ayable by the the National Bank Act preempts the plaintiff’s claims under
consumer at or before closing of the loan will exceed six these two Illinois laws.
percent of the total loan amount. In affirming the lower court’ s judgment, the Appellate
California A.B. 901 raises the loan amount to mirror Court of Illinois cited to Beneficial National Bank v. Ander-
the conforming limits established by Fannie Mae. Califor- son, 539 U.S. 1, 123 S. Ct. 2058 (2003), a United S tates
nia A.B. 901 defines a covered loan as a consumer loan Supreme Court case holding that: (1) the National Bank
where the original principal balance of the loan does not Act defines what constitutes the t aking of usury by a na-
exceed the most current conforming limit for a single-family tional bank, while st ate law merely determines the maxi-
first mortgage loan established by Fannie Mae (currently mum permitted rate, and that (2) sections 85 and 86 of the
$359,650), and when one or both of the above triggers National Bank Act supersede both the substantive and the
met. As amended, the California law potentially will im- remedial provisions of state usury laws and create an ex-
pact more loans. The amendment goes into effect on Janu- clusive federal remedy for overcharges. In reaching it s
ary 1, 2006. conclusion, the Appellate Court of Illinois st ated that the
National Bank Act was dispositive and it distinguished cer-
ILLINOIS: National Bank Act Preempts State tain cases ( Goleta National Bank v . O’Donnell and Flow-
Law application to Operating Subsidiary ers v. EZPawn of Oklahoma, Inc. ) and an Of fice of the
Holder of Mortgage Loan Comptroller of the Currency interpretive letter cited by the
In a matter that appears to be a case of first impres- plaintiff (OCC Interpretive Letter #1016, February , 2005).
sion, the Appellate Court of Illinois in Dannewitz, v . Goleta involved the lack of st anding on the part of a na-
EquiCredit Corp. of America upheld the dismissal of the tional bank to intervene on behalf of it s state chartered
plaintiff’s claims against an assignee/holder of their mort- pay day loan agent in an action by a state regulator against
gage, EquiCredit, a wholly owned subsidiary of a national the state chartered p ay day lender . Flowers concerned a
bank, on the basis that the National Bank Act preempts non-bank lender’s violation of state usury law . And, OCC
the plaintiff’s claims under several Illinois laws. Interpretive Letter #1016 addressed the non-applicability
The originator of the loan, HomeGold, is a non-bank of National Bank Act preemption to st ate consumer pro-
mortgage lending company incorporated in South Caro- tection laws against the ultimate owners of loans when a
lina. HomeGold assigned the loan to EquiCredit. national bank merely acted as trustee for a loan
EquiCredit is a wholly owned subsidiary of a national bank. securitization pool, but such bank did not originate or pur-
The plaintiff’s loan cont ained a prep ayment penalty pro- chase the underlying loans.
viding if the borrowers pre-paid the loan in full within 60 It remains to be seen whether other courts will follow
months of the date of the loan, the borrowers agreed to the reasoning of the Dannewitz court and hold that Na-
pay a prep ayment fee. The Illinois Interest Act generally tional Bank Act (or Home Owners Loan Act) preemption of
does not allow the imposition of a prep ayment penalty in state law applies to residential mortgage loans purchased
connection with a loan secured by a mortgage on resi- by a national bank (or federal thrift s), or their operating
dential real estate when the rate of interest exceeds 8% subsidiaries, when the loan was originated by a non-bank,
per annum. The mortgage also contained a clause st at- state chartered lender.

A P U B L I C AT I O N O F W E I N E R B R O D S K Y S I D M A N K I D E R P C PAGE 7
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MORTGAGE FINANCE NEWSLETTER
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developments, federal and state James A. Brodsky Christine Y. Rim
legislative, regulatory and other legal Donald C. Brown, Jr. Leah Schmulewitz Getlan
matters affecting the mortgage finance Jo A. DeRoche Mark H. Sidman
industry. It is not intended to be relied Troy W. Garris John D. Socknat
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Copyright 2005 by W einer Brodsky Don J. Halpern Cynthia G. Swann
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OCC Sustains State Power « Pratts Letter

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Those who accuse the Office of the Comptroller of the Currency (OCC) of stretching its Capitol Grounds
power to preempt state laws may be surprised, but that agency recently found a state law FDIC
the National Bank Act does not preempt. In a recent letter, the agency upheld the application
of state laws to loans that were purchased and held by national banks acting as trustees in Federal Reserve
connection with the issuance of mortgage-backed securities. ( OCC Interpretive Letter 1016)
FHA
The OCC letter responded to questions raised by Wells Fargo and Bank One with regard to Financial Services
suits alleging violations of the New Jersey Consumer Fraud Act (CFA). Although Wells Fargo
and Bank One did not make the original mortgage loans in question, they became involved Leg Reform
when, in their capacity as trustees for investors in mortgage-backed securities, they sued
borrowers. Mortgage

OCC
Both banks contend that application of the CFA is preempted because it would interfere with
their power as national banks to purchase loans as authorized under 12 U.S.C. 371, and that Quote
holding them liable for violations of the CFA as loan purchasers would be contrary to 12
C.F.R. 34.4(a), which preempts state laws that interfere with national bank real estate Trends
lending authority.
Recent Posts
But the OCC disagreed with both assertions. In no sense can the banks be viewed as making
a real estate loan, the OCC concluded in its letter. The banks did not fund the loans at
Obama Touts Financial Reform Plan
inception or purchase them. The effect of any liability for violation of the CFA ultimately falls
on the investors, which own the beneficial interest in the loans held by the banks as Beware the CFPA Monster
trustees.
Risk-Based Insurance Premium
Proposed
“Nowhere do the banks allege that they themselves, as opposed to the trusts they represent,
are exposed to liability for any violation of the CFA. For all these reasons, 12 U.S.C. 371 and Small Banks Need Better Risk
12 C.F.R. 34.4(a) simply do not apply to the transactions by which the banks acquired legal Management, Tarullo Says
title to the loans in the circumstances at issue here.”
Economy Will Grow Soon, Bank
Economists Say
The OCC acknowledged that the state statute would be preempted if applying it to the loans
in question were to interfere with the banks’ exercise of fiduciary powers granted to them
under federal law. But that is not the case here, the OCC wrote. The banks made no claim Archives
that the state law interfered with their obligations as trustees. “In short,” the OCC letter said,
“the banks’ authority to act as trustees under federal law does not insulate the assets the June 2009 (29)
banks hold in trust … from state law requirements otherwise applicable to those assets.”
May 2009 (33)

Filed under: OCC No Comments April 2009 (31)

March 2009 (37)

February 2009 (31)

January 2009 (30)

December 2008 (29)

November 2008 (30)

October 2008 (27)

September 2008 (39)

August 2008 (32)

July 2008 (26)

June 2008 (36)

May 2008 (33)

http://prattsletter.com/test2/occ/occ-sustains-state-power[2/16/2011 8:36:18 PM]


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Dannewitz v. Equicredit Corp.


Docket No. 1-04-2132

1-04-2132, Dannewitz v. Equicredit Corp.

FIFTH DIVISION
November 10, 2005

No. 1-04-2132

DOUGLAS D. DANNEWITZ and


ELLYN K. DANNEWITZ,

Plaintiffs-Appellants,

v.

EQUICREDIT CORPORATION OF
AMERICA, and JOHN DOES 1-10,

Defendants-Appellees. )
)
)
)
)
)
)
)
)
)
) Appeal from the
Circuit Court of
Cook County
No. 01 L 008188

Honorable
Allen S. Goldberg,
Judge Presiding.

JUSTICE O'BRIEN delivered the opinion of the court:

Plaintiffs, Douglas and Ellyn Dannewitz, appeal a judgment of the circuit court denying plaintiffs' motion for
partial summary judgment and granting defendant EquiCredit Corporation of America's motion for summary
judgment. On appeal, plaintiffs contend: (1) the circuit court erred in granting the defendant's motion for
summary judgment and finding that plaintiffs' claims under the Illinois Interest Act (815 ILCS 205/4 et seq.
(West 2002)) and the Illinois Consumer Fraud and Deceptive Business Practices Act (Illinois Consumer
Fraud Act) (815 ILCS 505/1 et seq. (West 2002)) were preempted by the National Bank Act (12 U.S.C. §§
85, 86 (2000)) ; and (2) the circuit court erred in denying the plaintiffs' motion for partial summary
judgment. We affirm.

The pleadings allege that on November 18, 2000, plaintiffs obtained a mortgage loan from HomeGold, Inc.,
a loan corporation then organized and existing under the laws of South Carolina. The mortgage included a
choice of law provision stating that the loan was to be "governed by federal law and the law of the
jurisdiction in which the property is located." The note also included a prepayment penalty providing that if
plaintiffs made full prepayments within "60 months of the date of [their] loan, [they] agree to pay the note
holder a prepayment fee."

A former assistant general counsel for EquiCredit attested in an affidavit that the defendant later purchased
plaintiffs' loan from HomeGold. He further attested that the defendant is a Delaware corporation,
headquartered in Florida, doing business in Illinois. Defendant is a wholly owned subsidiary of Bank of
America.

Douglas Dannewitz testified in a deposition that in June, 2001 he and his wife were selling their home to be
closer to his terminally ill father. They received a payoff letter from defendant outlining the prepayment
penalty of $9,354.32. He requested that the prepayment penalty not be assessed against him; his request
was refused, and he was forced to pay the penalty in order to prevent defaulting on the sale of his home.
Dannewitz testified that until he requested the payoff letter, both he and his wife were unaware of the
prepayment penalty. Dannewitz was forced to borrow $9,500 from his dying father to purchase a new
home closer to his parents. He was still repaying the loan to his father's estate at 6% interest rate at the
time of the deposition.

Plaintiffs filed a two-count complaint against defendant alleging violations of the Illinois Interest Act (815
ILCS 205/4 et seq. (West 2002)) and the Illinois Consumer Fraud Act (815 ILCS 505/1 et seq. (West 2002))
based on the inclusion of an allegedly unlawful prepayment penalty in plaintiffs' residential mortgage loan.
Plaintiffs moved for a partial summary judgment on the issue of whether defendant's actions constituted a
violation of the Illinois Interest Act. The circuit court denied the plaintiffs' motion for partial summary
judgment. Defendant filed a motion for summary judgment on the basis that the National Bank Act
preempts plaintiffs' claims under the Illinois Interest Act and the Illinois Consumer Fraud Act. The circuit
court granted defendant's motion for summary judgment. Plaintiffs filed this timely appeal.

A motion for summary judgment is properly granted if the pleadings, depositions and admissions on file,
together with affidavits or exhibits demonstrate there is no genuine issue as to any material fact and the
moving party is entitled to judgment as a matter of law. Abrams v. City o f Chicago, 211 Ill. 2d 251, 257
(2004). The proper standard of review for an order granting summary judgment is de novo. Abrams, 211
Ill. 2d. at 258.

Plaintiffs contend that the circuit court erred by granting defendant's motion for summary judgment and
finding that federal law preempts the plaintiffs' claims against defendant under the Illinois Interest Act and
the Illinois Consumer Fraud Act. The preemption doctrine, rooted in the supremacy clause of the United
States Constitution, requires courts to examine whether it was Congress' intent for federal law to preempt
state law in any given case. Fidelity Federal Savings & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 73 L. Ed.
2d 664, 102 S. Ct. 3014 (1982). There are three ways in which federal laws and statutes can preempt state
law: (1) when the language of the federal statute expressly preempts state law; (2) when the scope of the
statute indicates Congress intended federal law to occupy the field exclusively; or (3) when state law is in
actual conflict with federal law. Sprietsma v. Mercury Marine, 537 U.S. 51, 154 L. Ed. 2d 466, 123 S. Ct.
518 (2002).

In the National Bank Act, Congress gave national banks and their subsidiaries the power to "take, receive,
reserve, and charge on any loan or discount made *** interest at the rate allowed by the laws of the State,
Territory, or District where the bank is located." 12 U.S.C. § 85 (2000). Congress also provided that the
"taking, receiving, reserving, or charging a rate of interest greater than is allowed by section 85 of this title,
when knowingly done, shall be deemed a forfeiture of the entire interest which the note, bill, or other
evidence of debt carries with it, or which has been agreed to be paid thereon". 12 U.S.C. § 86 (2000). The
United States Supreme Court has held that the National Bank Act completely defines what constitutes the
taking of usury by a national bank, referring to the state law only to determine the maximum permitted
rate. Beneficial National Bank v. Anderson, 539 U.S. 1, 156 L. Ed. 2d 1, 123 S. Ct. 2058 (2003). The
Supreme Court has further held that sections 85 and 86 of the National Bank Act "supersede both the
substantive and the remedial provisions of state usury laws and create a federal remedy for overcharges
that is exclusive ." Beneficial, 539 U.S. at 11, 156 L. Ed. 2d at 10, 123 S. Ct. at 2064.

Here, defendant is a subsidiary of a national bank, to which the National Bank Act applies. Plaintiffs,
however, contend that where loans are made by a non-national bank and subsequently purchased by a
national bank, the National Bank Act does not apply. Plaintiffs cite to Flowers v. EZPawn Oklahoma, Inc, 307
F. Supp. 2d 1191 (N.D. OK. 2004), as support. Flowers is inapposite. Flowers' claims were based upon a
nonbank's violation of a state law, there were no claims made against a national bank, and no support that
the county bank named was the actual lender. Flowers, 307 F. Supp. 2d at 1205-1206.

Plaintiffs also cite Goleta National Bank v. O'Donnell, 239 F.Supp. 2d 745 (S.D. Ohio 2002), in support for
their claim. Goleta is also unpersuasive. Goleta National Bank brought suit seeking to restrain the
superintendent of financial institutions of the Ohio Department of Commerce from enforcing the Ohio Small
Loan Act (Ohio Revised Code Chapter 1321), against ACE Cash Express, Inc. (ACE), a company Goleta
contended was acting as its agent in making loans to Ohio consumers. Goleta contended that the National
Bank Act preempted the superintendent's authority to enforce the Ohio Small Loan Act against ACE. The
court found that Goleta lacked standing to bring its claim because the underlying state claims were being
made against ACE and not the national bank itself. The court found there "is nothing in the [National Bank
Act] that prevents Ohio from regulating the activities of a lending institution located in Ohio and making
loans to Ohio citizens if such loans are in fact made by that lending institution and not by a national bank."
Goleta, 239 F. Supp. 2d at 753.

Here plaintiffs make state claims against a subsidiary of a national bank, which is distinguishable from the
cases cited by the plaintiffs.

Plaintiffs further rely on the Office of the Comptroller of the Currency's (OCC) Interpretive Letter #1016, of
February 2005. In the February 2005 letter, acting chief counsel Daniel P. Stipano responded to a request
for clarification in the cases of Wells Fargo Bank v. Harris, Docket No. ESX-L-467-02 and Bank One National
Association v. Feinstein, Docket No. F-11450-00. In Wells Fargo, Delta Funding made a mortgage loan to
Alberta Harris and later assigned the mortgage to Wells Fargo as "Trustee for Delta Funding Home Equity
Loan Trust 2000-1." As trustee acting on behalf of the investors in Home Equity Loan Trust 2000-1, Wells
Fargo filed suit against Ms. Harris alleging that she had defaulted on the loan made by Delta. In Bank One,
Delta Funding made a mortgage loan to Dequilla Robinson and later assigned the mortgage to Bank One
National Association as "Trustee in Trust for the Registered Holders of Delta Funding Home Equity Loan
Asset-Backed Certificates Series 1999-3." As trustee acting on behalf of the investors in Delta Asset-Backed
Certificates Series 1999-3, Bank One filed suit against Jack Feinstein, the administrator of Ms. Robinson's
estate, seeking to foreclose on the real estate she had pledged as collateral for the loan made by Delta.
In Wells Fargo and in Bank One, Ms. Harris and Mr. Feinstein alleged defenses based on the New Jersey
Consumer Fraud Act (New Jersey Act) (N.J. Stat. Ann. § 56:8-1 (West 2001)). Wells Fargo and Bank One
(the Banks) asserted that federal law authorizing national banks to make and purchase real estate loans (12
U.S.C. §371 (2000); 12 C.F.R. §34.4 (a) (10) (2005)) preempted the state law defenses under the New
Jersey Act. The OCC found no federal preemption. The OCC stated:

"[I]n no sense, under the facts presented, can the Banks be viewed as making a real estate loan under 12
U.S.C. §371 and 12 C.F.R. §34.4. The Banks did not originate the loans. They did not fund the loans at
inception. Nor did they 'purchase' the loans as part of any real estate lending program comprehended by
the regulation. *** [T]he Banks act as trustees for the benefit of investors in the trusts. The substance of
the transaction is that the investors, not the Banks, are purchasing the loans that have been made by Delta.
The investors own the beneficial interest in the loans held by the Banks as trustees. And the effect of any
liability for violation of the [New Jersey Act] ultimately falls on the investors. Nowhere do the Banks allege
that they themselves, as opposed to the trusts they represent, are exposed to liability for any violation of
the [New Jersey Act]. For all these reasons, 12 U.S.C. §371 and 12 C.F.R. §34.4(a) simply do not apply to
the transactions by which the Banks acquired legal title to the loans***." Office of the Comptroller of the
Currency, Interpretive Letter #1016 (February 2005).

Unlike the situation described in Interpretive Letter #1016 in which the national banks were trustees and
the beneficial interest was owned by investors, the defendant in the present case purchased and held the
loan directly, acting on its own behalf and not as a trustee for a third party. Because this loan differs from
the cases and situation presented to the OCC, the interpretation of the OCC letter of February 2005 is
inapplicable here. Thus, the National Bank Act is dispositive.

The circuit court relied upon Beneficial in making its decision to grant the defendants' motion for summary
judgment. We agree. In Beneficial, the Supreme Court held that because section 85 and section 86 of the
National Bank Act "provide the exclusive cause of action for [usury] claims, there is, in short, no such thing
as a state-law claim of usury against a national bank." Beneficial, 539 U.S. at 11 156 L. Ed. 2d at 10, 123 S.
Ct. at 2064. Thus, the circuit court did not err in determining that the National Bank Act preempted the
Illinois Interest Act and the Illinois Consumer Fraud Act, and the circuit court's grant of summary judgment
was not error.

Because defendant's motion for summary judgment is affirmed, we need not address the circuit court's
denial of the plaintiffs' motion for partial summary judgment.

For the foregoing reasons we affirm the circuit court.

Affirmed.

GALLAGHER, P.J., and O'MARA FROSSARD, J., concur.


(Slip Opinion) OCTOBER TERM, 2008 1

Syllabus

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is


being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.

SUPREME COURT OF THE UNITED STATES

Syllabus

CUOMO, ATTORNEY GENERAL OF NEW YORK v.


CLEARING HOUSE ASSOCIATION, L. L. C., ET AL.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR


THE SECOND CIRCUIT

No. 08–453. Argued April 28, 2009—Decided June 29, 2009


To determine whether various national banks had violated New York’s
fair-lending laws, the State’s Attorney General, whose successor in
office is the petitioner here, sent them letters in 2005 requesting “in
lieu of subpoena” that they provide certain nonpublic information
about their lending practices. Respondents, the federal Office of the
Comptroller of the Currency (Comptroller or OCC) and a banking
trade group, brought suit to enjoin the information request, claiming
that the Comptroller’s regulation promulgated under the National
Bank Act (NBA) prohibits that form of state law enforcement against
national banks. The District Court entered an injunction prohibiting
the Attorney General from enforcing state fair-lending laws through
demands for records or judicial proceedings. The Second Circuit af
firmed.
Held: The Comptroller’s regulation purporting to pre-empt state law
enforcement is not a reasonable interpretation of the NBA. Pp. 2–15.
(a) Evidence from the time of the NBA’s enactment, this Court’s
cases, and application of normal construction principles make clear
that the NBA does not prohibit ordinary enforcement of state law.
Pp. 2–11.
(i) The NBA provides: “No national bank shall be subject to any
visitorial powers except as authorized by Federal law, vested in the
courts . . . , or . . . directed by Congress.” 12 U. S. C. §484(a). Among
other things, the Comptroller’s regulation implementing §484(a) for
bids States to “exercise visitorial powers with respect to national
banks, such as conducting examinations, inspecting or requiring the
production of books or records,” or, as here pertinent, “prosecuting
enforcement actions” “except in limited circumstances authorized by
2 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Syllabus

federal law.” 12 CFR §7.4000(a)(1). There is some ambiguity in the


NBA’s term “visitorial powers,” and the Comptroller can give authori
tative meaning to the term within the bounds of that uncertainty.
Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467
U. S. 837. However, the presence of some uncertainty does not ex
pand Chevron deference to cover virtually any interpretation of the
NBA. Pp. 2–3.
(ii) When the NBA was enacted in 1864, scholars and courts un
derstood “visitation” to refer to the sovereign’s supervisory power
over the manner in which corporations conducted business, see, e.g.,
Guthrie v. Harkness, 199 U. S. 148, 157. That power allowed the
States to use the prerogative writs to exercise control if a corporation
abused its lawful power, acted adversely to the public, or created a
nuisance. Pp. 3–4.
(iii) This Court’s consistent teaching, both before and after the
NBA’s enactment, is that a sovereign’s “visitorial powers” and its
power to enforce the law are two different things. See, e.g., Trustees
of Dartmouth College v. Woodward, 4 Wheat. 518, 676, 681; Guthrie,
supra, at 159, 157; First Nat. Bank in St. Louis v. Missouri, 263 U. S.
640, 660. Watters v. Wachovia Bank, N. A., 550 U. S. 1, 21, distin
guished. And contrary to the Comptroller’s regulation, the NBA pre
empts only the former. Pp. 4–7.
(iv) The regulation’s consequences also cast its validity into
doubt: Even the OCC acknowledges that the NBA leaves in place
some state substantive laws affecting banks, yet the Comptroller’s
rule says that the State may not enforce its valid, non-pre-empted
laws against national banks. “To demonstrate the binding quality of
a statute but deny the power of enforcement involves a fallacy made
apparent by the mere statement of the proposition, for such power is
essentially inherent in the very conception of law.” St. Louis, supra,
at 660. In contrast, channeling state attorneys general into judicial
law-enforcement proceedings (rather than allowing them to exercise
“visitorial” oversight) would preserve a regime of exclusive adminis
trative oversight by the Comptroller while honoring in fact rather
than merely in theory Congress’s decision not to pre-empt substan
tive state law. This reading is also suggested by §484(a)’s otherwise
inexplicable reservation of state powers “vested in the courts of jus
tice.” And on a pragmatic level, the difference between visitation and
law enforcement is clear: If a State chooses to pursue enforcement of
its laws in court, its targets are protected by discovery and proce
dural rules. Pp. 7–9.
(b) The Comptroller’s interpretation of the regulation demonstrates
its own flaw: the Comptroller is forced to limit the regulation’s sweep
in areas such as contract enforcement and debt collection, but those
Cite as: 557 U. S. ____ (2009) 3

Syllabus

exceptions rest upon neither the regulation’s nor the NBA’s text. Pp.
9–11.
(c) The dissent’s objections are addressed and rejected. Pp. 11–13.
(d) Under the foregoing principles, the Comptroller reasonably in
terpreted the NBA’s “visitorial powers” term to include “conducting
examinations [and] inspecting or requiring the production of books or
records of national banks,” when the State conducts those activities
as supervisor of corporations. When, however, a state attorney gen
eral brings suit to enforce state law against a national bank, he is not
acting in the role of sovereign-as-supervisor, but rather sovereign-as
law-enforcer. Because such a lawsuit is not an exercise of “visitorial
powers,” the Comptroller erred by extending that term to include
“prosecuting enforcement actions” in state courts. In this case, the
Attorney General’s threatened action was not the bringing of a civil
suit, or the obtaining of a judicial search warrant based on probable
cause, but the issuance of subpoena on his own authority if his re
quest for information was not voluntarily honored. That is not the
exercise of the law enforcement power “vested in the courts of jus
tice,” which the NBA exempts from the ban on the exercise of super
visory power. Accordingly, the injunction below is affirmed as ap
plied to the Attorney General’s threatened issuance of executive
subpoenas, but vacated insofar as it prohibits the Attorney General
from bringing judicial enforcement actions. Pp. 13–15.
510 F. 3d 105, affirmed in part and reversed in part.

SCALIA, J., delivered the opinion of the Court, in which STEVENS,


SOUTER, GINSBURG, and BREYER, JJ., joined. THOMAS, J., filed an opin
ion concurring in part and dissenting in part, in which ROBERTS, C. J.,
and KENNEDY and ALITO, JJ., joined.
Cite as: 557 U. S. ____ (2009) 1

Opinion of the Court


NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.

SUPREME COURT OF THE UNITED STATES


_________________

No. 08–453
_________________

ANDREW M. CUOMO, ATTORNEY GENERAL OF NEW


YORK, PETITIONER v. THE CLEARING HOUSE
ASSOCIATION, L. L. C., ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE SECOND CIRCUIT
[June 29, 2009]
JUSTICE SCALIA delivered the opinion of the Court.
In 2005, Eliot Spitzer, Attorney General for the State of
New York, sent letters to several national banks making a
request “in lieu of subpoena” that they provide certain
non-public information about their lending practices. He
sought this information to determine whether the banks
had violated the State’s fair-lending laws. Spitzer’s suc
cessor in office, Andrew Cuomo, is the petitioner here.
Respondents, the federal Office of the Comptroller of the
Currency (“Comptroller” or “OCC”) and the Clearing
House Association, a banking trade group, brought suit to
enjoin the information request, claiming that the Comp
troller’s regulation promulgated under the National Bank
Act prohibits that form of state law enforcement against
national banks.
The United States District Court for the Southern Dis
trict of New York entered an injunction in favor of respon
dents, prohibiting the attorney general from enforcing
state fair-lending laws through demands for records or
judicial proceedings. The United States Court of Appeals
for the Second Circuit affirmed. 510 F. 3d 105 (2007). We
granted certiorari. 555 U. S. ___ (2009). The question
presented is whether the Comptroller’s regulation pur
porting to pre-empt state law enforcement can be upheld
2 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of the Court

as a reasonable interpretation of the National Bank Act.


I
Section 484(a) of Title 12, U. S. C., a provision of the
National Bank Act, 13 Stat. 99, reads as follows:
“No national bank shall be subject to any visitorial
powers except as authorized by Federal law, vested in
the courts of justice or such as shall be, or have been
exercised or directed by Congress or by either House
thereof or by any committee of Congress or of either
House duly authorized.”
The Comptroller, charged with administering the National
Bank Act, adopted, through notice-and-comment rulemak
ing, the regulation at issue here designed to implement
the statutory provision. Its principal provisions read as
follows:
Ҥ7.4000 Visitorial powers.
“(a) General rule. (1) Only the OCC or an author
ized representative of the OCC may exercise visitorial
powers with respect to national banks, except as pro
vided in paragraph (b) of this section. State officials
may not exercise visitorial powers with respect to na
tional banks, such as conducting examinations, in
specting or requiring the production of books or re
cords of national banks, or prosecuting enforcement
actions, except in limited circumstances authorized by
federal law. However, production of a bank’s records
(other than non-public OCC information under 12
CFR part 4, subpart C) may be required under normal
judicial procedures.
“(2) For purposes of this section, visitorial powers
include:
“(i) Examination of a bank;
“(ii) Inspection of a bank’s books and records;
“(iii) Regulation and supervision of activities au
Cite as: 557 U. S. ____ (2009) 3

Opinion of the Court

thorized or permitted pursuant to federal banking


law; and
“(iv) Enforcing compliance with any applicable fed
eral or state laws concerning those activities.” 12
CFR §7.4000 (2009).
By its clear text, this regulation prohibits the States from
“prosecuting enforcement actions” except in “limited cir
cumstances authorized by federal law.”
Under the familiar Chevron framework, we defer to an
agency’s reasonable interpretation of a statute it is
charged with administering. Chevron U. S. A. Inc. v.
Natural Resources Defense Council, Inc., 467 U. S. 837
(1984). There is necessarily some ambiguity as to the
meaning of the statutory term “visitorial powers,” espe
cially since we are working in an era when the prerogative
writs—through which visitorial powers were traditionally
enforced—are not in vogue. The Comptroller can give
authoritative meaning to the statute within the bounds of
that uncertainty. But the presence of some uncertainty
does not expand Chevron deference to cover virtually any
interpretation of the National Bank Act. We can discern
the outer limits of the term “visitorial powers” even
through the clouded lens of history. They do not include,
as the Comptroller’s expansive regulation would provide,
ordinary enforcement of the law. Evidence from the time
of the statute’s enactment, a long line of our own cases,
and application of normal principles of construction to the
National Bank Act make that clear.
A
Historically, the sovereign’s right of visitation over
corporations paralleled the right of the church to supervise
its institutions and the right of the founder of a charitable
institution “to see that [his] property [was] rightly em
ployed,” 1 W. Blackstone, Commentaries on the Laws of
England 469 (1765). By extension of this principle, “[t]he
4 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of the Court

king [was] by law the visitor of all civil corporations,” ibid.


A visitor could inspect and control the visited institution
at will.
When the National Bank Act was enacted in 1864,
“visitation” was accordingly understood as “[t]he act of
examining into the affairs of a corporation” by “the gov
ernment itself.” 2 J. Bouvier, A Law Dictionary 790 (15th
ed. 1883). Lower courts understood “visitation” to mean
“the act of a superior or superintending officer, who visits
a corporation to examine into its manner of conducting
business, and enforce an observance of its laws and regu
lations.” First Nat. Bank of Youngstown v. Hughes, 6 F.
737, 740 (CC ND Ohio 1881). A State was the “visitor” of
all companies incorporated in the State, simply by virtue
of the State’s role as sovereign: The “legislature is the
visitor of all corporations founded by it.” Guthrie v. Hark
ness, 199 U. S. 148, 157 (1905) (internal quotation marks
omitted).
This relationship between sovereign and corporation
was understood to allow the States to use prerogative
writs—such as mandamus and quo warranto—to exercise
control “whenever a corporation [wa]s abusing the power
given it, or, . . . or acting adversely to the public, or creat
ing a nuisance.” H. Wilgus, Private Corporations, in 8
American Law and Procedure §157, pp. 224–225 (1910).
State visitorial commissions were authorized to “exercise
a general supervision” over companies in the State.
I. Wormser, Private Corporations §80, pp. 100, 101, in 4
Modern American Law (1921).
B
Our cases have always understood “visitation” as this
right to oversee corporate affairs, quite separate from the
power to enforce the law. In the famous Dartmouth Col
lege case, Justice Story, describing visitation of a charita
ble corporation, wrote that Dartmouth was “subject to the
Cite as: 557 U. S. ____ (2009) 5

Opinion of the Court

controlling authority of its legal visitor, who . . . may


amend and repeal its statutes, remove its officers, correct
abuses, and generally superintend the management of [its]
trusts,” and who are “liable to no supervision or control.”
Trustees of Dartmouth College v. Woodward, 4 Wheat. 518,
676, 681 (1819) (concurring opinion). This power of “gen
era[l] superintend[ence]” stood in contrast to action by the
court of chancery, which acted “not as itself possessing a
visitorial power . . . but as possessing a general jurisdic
tion . . . to redress grievances, and frauds.” Id., at 676.1
In Guthrie, supra, we held that a shareholder acting in
his role as a private individual was not exercising a “visi
torial power” under the National Bank Act when he peti
tioned a court to force the production of corporate records,
id., at 159. “[C]ontrol in the courts of justice,” we said, is
not visitorial, and we drew a contrast between the nonvisi
torial act of “su[ing] in the courts of the State” and the
visitorial “supervision of the Comptroller of the Currency,”
id., at 159, 157.
In First Nat. Bank in St. Louis v. Missouri, 263 U. S.
640 (1924), we upheld the right of the Attorney General of
Missouri to bring suit to enforce a state anti-bank
branching law against a national bank. We said that only
the United States may perform visitorial administrative
——————
1 JUSTICE THOMAS’s opinion concurring in part and dissenting in part

(hereinafter the dissent) attempts to distinguish Dartmouth College on


the ground that the college was a charitable corporation, whose visitors
(unlike the State as visitor of for-profit corporations) had no law
enforcement power. See post, at 7, n. 1. We doubt that was so. As
Justice Story’s opinion in Dartmouth College stated, visitors of charita
ble corporations had “power . . . to correct all irregularities and abuses,”
4 Wheat., at 673, which would surely include operations in violation of
law. But whether or not visitors of charitable corporations had law
enforcement powers, the powers that they did possess demonstrate that
visitation is different from ordinary law enforcement. Indeed, if those
powers did not include the power to assure compliance with law that
demonstration would be all the more forceful.
6 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of the Court

oversight, such as “inquir[ing] by quo warranto whether a


national bank is acting in excess of its charter powers.”
Id., at 660. But if a state statute of general applicability is
not substantively pre-empted, then “the power of enforce
ment must rest with the [State] and not with” the Na
tional Government, ibid.2
Our most recent decision, Watters v. Wachovia Bank,
N. A., 550 U. S. 1 (2007), does not, as the dissent contends,
post, at 18, “suppor[t] OCC’s construction of the statute.”
To the contrary, it is fully in accord with the well estab
lished distinction between supervision and law enforce
ment. Watters held that a State may not exercise “ ‘gen
eral supervision and control’ ” over a subsidiary of a
national bank, 550 U. S., at 8, because “multiple audits
and surveillance under rival oversight regimes” would
cause uncertainty, id., at 21. “[G]eneral supervision and
control” and “oversight” are worlds apart from law en
forcement. All parties to the case agreed that Michigan’s
general oversight regime could not be imposed on national
banks; the sole question was whether operating subsidiar
ies of national banks enjoyed the same immunity from
state visitation. The opinion addresses and answers no
other question.
——————
2 The
dissent attempts to distinguish St. Louis by invoking the prin
ciple that an agency is free to depart from a court’s interpretation of the
law. Post, at 16–17 (citing National Cable & Telecommunications Assn.
v. Brand X Internet Services, 545 U. S. 967, 982 (2005)). This again
misses the point. St. Louis is relevant to proper interpretation of 12
U. S. C. §484(a) not because it is authoritative on the question whether
States can enforce their banking laws, but because it is one in a long
and unbroken line of cases distinguishing visitation from law enforce
ment. Respondents contend that St. Louis holds only that States can
enforce their law when federal law grants the national bank no author
ity to engage in the activity at issue. Even if that were true it would
make no difference. The case would still stand for the proposition that
the exclusive federal power of visitation does not prevent States from
enforcing their law.
Cite as: 557 U. S. ____ (2009) 7

Opinion of the Court

The foregoing cases all involve enforcement of state law.


But if the Comptroller’s exclusive exercise of visitorial
powers precluded law enforcement by the States, it would
also preclude law enforcement by federal agencies. Of
course it does not. See, e.g., Bank of America Nat. Trust &
Sav. Assn. v. Douglas, 105 F. 2d 100, 105–106 (CADC
1939) (Securities Exchange Commission investigation of
bank fraud is not an exercise of “visitorial powers”); Peo
ples Bank of Danville v. Williams, 449 F. Supp. 254, 260
(WD Va. 1978) (same).
In sum, the unmistakable and utterly consistent teach
ing of our jurisprudence, both before and after enactment
of the National Bank Act, is that a sovereign’s “visitorial
powers” and its power to enforce the law are two different
things. There is not a credible argument to the contrary.
And contrary to what the Comptroller’s regulation says,
the National Bank Act pre-empts only the former.
C
The consequences of the regulation also cast doubt upon
its validity. No one denies that the National Bank Act
leaves in place some state substantive laws affecting
banks. See Brief for Federal Respondent 20; Brief for
Respondent Clearing House Association, L. L. C. 29; post,
at 16–17. But the Comptroller’s rule says that the State
may not enforce its valid, non-pre-empted laws against
national banks. Ibid. The bark remains, but the bite does
not.
The dissent admits, with considerable understatement,
that such a result is “unusual,” ibid. “Bizarre” would be
more apt. As the Court said in St. Louis:
“To demonstrate the binding quality of a statute but
deny the power of enforcement involves a fallacy made
apparent by the mere statement of the proposition, for
such power is essentially inherent in the very concep
tion of law.” 263 U. S., at 660.
8 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of the Court

In sharp contrast to the “unusual” reading propounded by


the Comptroller’s regulation, reading “visitorial powers” as
limiting only sovereign oversight and supervision would
produce an entirely commonplace result—the precise
result contemplated by our opinion in St. Louis, which
said that if a state statute is valid as to national banks,
“the corollary that it is obligatory and enforceable neces
sarily results.” Id., at 659–660 (emphasis added). Chan
neling state attorneys general into judicial law
enforcement proceedings (rather than allowing them to
exercise “visitorial” oversight) would preserve a regime of
exclusive administrative oversight by the Comptroller
while honoring in fact rather than merely in theory Con
gress’s decision not to pre-empt substantive state law.
This system echoes many other mixed state/federal re
gimes in which the Federal Government exercises general
oversight while leaving state substantive law in place.
See, e.g., Wyeth v. Levine, 555 U. S. ___ (2009).
This reading is also suggested by §484(a)’s otherwise
inexplicable reservation of state powers “vested in the
courts of justice.” As described earlier, visitation was
normally conducted through use of the prerogative writs of
mandamus and quo warranto. The exception could not
possibly exempt that manner of exercising visitation, or
else the exception would swallow the rule. Its only con
ceivable purpose is to preserve normal civil and criminal
lawsuits. To be sure, the reservation of powers “vested in
the courts of justice” is phrased as an exception from the
prohibition of visitorial powers. But as we have just dis
cussed, it cannot possibly be that, and it is explicable only
as an attempt to make clear that the courts’ ordinary
powers of enforcing the law are not affected. 3
——————
3 We reject respondents’ contention that the Riegle-Neal Interstate

Banking and Branching Efficiency Act of 1994, §102(f)(1)(B), 108 Stat.


2349, 2350, 12 U. S. C. §36(f)(1)(B), establishes that the Comptroller’s
Cite as: 557 U. S. ____ (2009) 9

Opinion of the Court

On a pragmatic level, the difference between visitation


and law enforcement is clear. If 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.
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
trusted to prevent “fishing expeditions” or an undirected
rummaging through bank books and records for evidence
of some unknown wrongdoing. In New York, civil discov
ery is far more limited than the full range of “visitorial
powers” that may be exercised by a sovereign. Courts may
enter protective orders to prevent “unreasonable annoy
ance, expense, embarrassment, disadvantage, or other
prejudice,” N. Y. Civ. Prac. Law Ann. §3103(a) (West
2005), and may supervise discovery sua sponte, §3104(a).
A visitor, by contrast, may inspect books and records at
any time for any or no reason.
II
The Comptroller’s regulation, therefore, does not com
port with the statute. Neither does the Comptroller’s
interpretation of its regulation, which differs from the text
and must be discussed separately.
Evidently realizing that exclusion of state enforcement
of all state laws against national banks is too extreme to
be contemplated, the Comptroller sought to limit the
——————
visitorial power pre-empts state law enforcement. That provision
states that some state laws respecting bank branching “shall be en
forced” by the Comptroller. We need not decide here whether convert
ing the Comptroller’s visitorial power to assure compliance with all
applicable laws, see infra, at 12, into an obligation to assure compliance
with certain state laws preempts state enforcement of those particular
laws. Even if it had that effect it would shed no light on the meaning of
“visitorial powers” in the National Bank Act, a statute that it does not
refer to and that was enacted more than a century earlier.
10 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of the Court

sweep of its regulation by the following passage set forth


in the agency’s statement of basis and purpose in the
Federal Register:
“What the case law does recognize is that ‘states re
tain some power to regulate national banks in areas
such as contracts, debt collection, acquisition and
transfer of property, and taxation, zoning, criminal,
and tort law.’ [citing a Ninth Circuit case.] Applica
tion of these laws to national banks and their imple
mentation by state authorities typically does not af
fect the content or extent of the Federally-authorized
business of banking . . . but rather establishes the le
gal infrastructure that surrounds and supports the
ability of national banks . . . to do business.” 69 Fed.
Reg. 1896 (2004) (footnote omitted).
This cannot be reconciled with the regulation’s almost
categorical prohibition in 12 CFR §7.4000(a)(1) of “prose
cuting enforcement actions.”4 Nor can it be justified by the
provision in subsection (a)(2)(iv) which defines visitorial
powers to include “[e]nforcing compliance with any appli
cable . . . state laws concerning” “activities authorized or
permitted pursuant to federal banking law,”
§7.4000(a)(2)(iii). The latter phrase cannot be interpreted
——————
4 The prohibition is not entirely categorical only because it is subject
to the phrase at the end of the sentence (applicable to all of the regula
tion’s enumerated “visitorial powers” forbidden to the States): “except
in limited circumstances authorized by federal law.” This replicates a
similar exception contained in §484(a) itself (“No national bank shall be
subject to any visitorial powers except as authorized by Federal law”),
and certainly does not refer to case law finding state action nonpre
empted. If it meant that, §484(a)’s apparent limitation of visitorial
powers would be illusory—saying, in effect, that national banks are
subject to only those visitorial powers that the courts say they are
subject to. Cases that find state action nonpre-empted might perhaps
be described as “permitting” the state action in question, but hardly as
“authorizing” it. In both the statutory and regulation context, “federal
law” obviously means federal statutes.
Cite as: 557 U. S. ____ (2009) 11

Opinion of the Court

to include only distinctively banking activities (leaving the


States free to enforce nonbanking state laws), because if it
were so interpreted subsection (a)(2)(iii), which uses the
same terminology, would limit the Comptroller’s exclusive
visitorial power of “regulation and supervision” to distinc
tively banking activities—which no one thinks is the case.
Anyway, the National Bank Act does specifically authorize
and permit activities that fall within what the statement
of basis and purpose calls “the legal infrastructure that
surrounds and supports the ability of national banks . . . to
do business.” See, e.g., 12 U. S. C. §24 Third (power to
make contracts); §24 Seventh (“all such incidental powers
as shall be necessary to carry on the business of banking”).
And of course a distinction between “implementation” of
“infrastructure” and judicial enforcement of other laws can
be found nowhere within the text of the statute. This
passage in the statement of basis and purpose, resting
upon neither the text of the regulation nor the text of the
statute, attempts to do what Congress declined to do:
exempt national banks from all state banking laws, or at
least state enforcement of those laws.
III
The dissent fails to persuade us. Its fundamental con
tention—that the exclusive grant of visitorial powers can
be interpreted to preclude state enforcement of state
laws—rests upon a logical fallacy. The dissent estab
lishes, post, at 8–9 (and we do not at all contest), that in
the course of exercising visitation powers the sovereign
can compel compliance with the law. But it concludes
from that, post, at 11, that any sovereign attempt to com
pel compliance with the law can be deemed an exercise of
the visitation power. That conclusion obviously does not
follow. For example, in the course of exercising its visita
tion powers, the sovereign can assuredly compel a bank to
honor obligations that are in default. Does that mean that
12 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of the Court

the sovereign’s taking the same action in executing a civil


judgment for payment of those obligations can be consid
ered an exercise of the visitation power? Of course not.
Many things can be compelled through the visitation
power that can be compelled through the exercise of other
sovereign power as well. The critical question is not what
is being compelled, but what sovereign power has been
invoked to compel it. And the power to enforce the law
exists separate and apart from the power of visitation.
The dissent argues that the Comptroller’s expansive
reading of “visitorial powers” does not intrude upon the,
“ ‘the historic police powers of the States,’ ” post, at 20,
(quoting Rice v. Santa Fe Elevator Corp., 331 U. S. 218,
230 (1947)), because, like federal maritime law, federal
involvement in this field dates to “ ‘the earliest days of the
Republic,’ ” post, at 21 (quoting United States v. Locke, 529
U. S. 89, 108 (2000). For that reason, the dissent con
cludes, this case does not raise the sort of federalism
concerns that prompt a presumption against pre-emption.
We have not invoked the presumption against pre
emption, and think it unnecessary to do so in giving force
to the plain terms of the National Bank Act. Neither,
however, should the incursion that the Comptroller’s
regulation makes upon traditional state powers be mini
mized. Although the sovereign visitorial power of assur
ing national-bank compliance with all laws inhered in the
Federal Government from the time of its creation of na
tional banks, the Comptroller was not given authority to
enforce nonpre-empted state laws until 1966. See Finan
cial Institutions Supervisory Act of 1966, Tit. III, 80 Stat.
1046–1055. A power first exercised during the lifetime of
every current Justice is hardly involvement “from the
earliest days of the Republic.”
States, on the other hand, have always enforced their
general laws against national banks—and have enforced
their banking-related laws against national banks for at
Cite as: 557 U. S. ____ (2009) 13

Opinion of the Court

least 85 years, as evidenced by St. Louis, in which we


upheld enforcement of a state anti-bank-branching law,
263 U. S., at 656. See also Anderson Nat. Bank v. Luckett,
321 U. S. 233, 237, 248–249 (1944) (state commissioner of
revenue may enforce abandoned-bank-deposit law against
national bank through “judicial proceedings”); State by
Lord v. First Nat. Bank of St. Paul, 313 N. W. 2d 390, 393
(Minn. 1981) (state treasurer may enforce general un
claimed-property law with “specific provisions directed
toward” banks against national bank); Clovis Nat. Bank v.
Callaway, 69 N. M. 119, 130–132, 364 P. 2d 748, 756
(1961) (state treasurer may enforce unclaimed-property
law against national bank deposits); State v. First Nat.
Bank of Portland, 61 Ore. 551, 554–557, 123 P. 712, 714
(1912) (state attorney general may enforce bank-specific
escheat law against national bank).5
The dissent seeks to minimize the regulation’s incursion
upon state powers by claiming that the regulation does not
“declare the pre-emptive scope of the [National Bank Act]”
but merely “interpret[s] the term ‘visitorial powers.’ ” Post,
at 20. That is much too kind. It is not without reason that
the regulation is contained within a subpart of the Comp
troller’s regulations on Bank Activities and Operations
that is entitled “Preemption.” The purpose and function of
the statutory term “visitorial powers” is to define and
thereby limit the category of action reserved to the Federal
Government and forbidden to the States. Any interpreta
tion of “visitorial powers” necessarily “declares the pre
emptive scope of the NBA,” ibid. What is clear from logic
is also clear in application: The regulation declares that
“[s]tate officials may not . . . prosecut[e] enforcement

——————
5 Allof these cases were decided before Congress added to §484 its
current subsection (b), which authorizes “State auditors and examin
ers” to review national-bank records to assure compliance with state
unclaimed-property and escheat laws. See 96 Stat. 1521.
14 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of the Court

actions.” 12 CFR §7.4000(a). If that is not pre-emption,


nothing is.
IV
Applying the foregoing principles to this case is not
difficult. “Visitorial powers” in the National Bank Act
refers to a sovereign’s supervisory powers over corpora
tions. They include any form of administrative oversight
that allows a sovereign to inspect books and records on
demand, even if the process is mediated by a court
through prerogative writs or similar means. The Comp
troller reasonably interpreted this statutory term to in
clude “conducting examinations [and] inspecting or requir
ing the production of books or records of national banks,”
§7.4000, when the State conducts those activities in its
capacity as supervisor of corporations.
When, however, a state attorney general brings suit to
enforce state law against a national bank, he is not acting
in the role of sovereign-as-supervisor, but rather in the
role of sovereign-as-law-enforcer. Such a lawsuit is not an
exercise of “visitorial powers” and thus the Comptroller
erred by extending the definition of “visitorial powers” to
include “prosecuting enforcement actions” in state courts,
§7.4000.
The request for information in the present case was
stated to be “in lieu of” other action; implicit was the
threat that if the request was not voluntarily honored,
that other action would be taken. All parties have as
sumed, and we agree, that if the threatened action would
have been unlawful the request-cum-threat could be en
joined. Here the threatened action was not the bringing of
a civil suit, or the obtaining of a judicial search warrant
based on probable cause, but rather the Attorney Gen
eral’s issuance of subpoena on his own authority under
New York Executive Law, which permits such subpoenas
in connection with his investigation of “repeated fraudu
lent or illegal acts . . . in the carrying on, conducting or
Cite as: 557 U. S. ____ (2009) 15

Opinion of the Court

transaction of business.” See N. Y. Exec. Law Ann.


§63(12) (West 2002). That is not the exercise of the power
of law enforcement “vested in the courts of justice” which
12 U. S. C. §484(a) exempts from the ban on exercise of
supervisory power.
Accordingly, the injunction below is affirmed as applied
to the threatened issuance of executive subpoenas by the
Attorney General for the State of New York, but vacated
insofar as it prohibits the Attorney General from bringing
judicial enforcement actions.
* * *
The judgment of the Court of Appeals is affirmed in part
and reversed in part.
It is so ordered.
Cite as: 557 U. S. ____ (2009) 1

Opinion of THOMAS, J.

SUPREME COURT OF THE UNITED STATES


_________________

No. 08–453
_________________

ANDREW M. CUOMO, ATTORNEY GENERAL OF NEW


YORK, PETITIONER v. THE CLEARING HOUSE
ASSOCIATION, L. L. C., ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE SECOND CIRCUIT

[June 29, 2009]

JUSTICE THOMAS, with whom THE CHIEF JUSTICE,


JUSTICE KENNEDY, and JUSTICE ALITO join, concurring in
part and dissenting in part.
The Court holds that the term “visitorial powers” as
used in the National Bank Act (NBA), 12 U. S. C. §484(a),
refers only “to a sovereign’s supervisory powers over cor
porations,” which are limited to “administrative oversight”
including “inspect[ion of] books and records on demand.”
Ante, at 14. Based on this definition, the Court concludes
that §484(a) does not pre-empt a “state attorney gen
eral[’s] . . . suit to enforce state law against a national
bank.” Ibid. I would affirm the Court of Appeals’ deter
minations that the term “visitorial powers” is ambiguous
and that it was reasonable for the Office of the Comptrol
ler of the Currency (OCC) to interpret the term to encom
pass state efforts to obtain national bank records and to
enforce state fair lending laws against national banks.
Accordingly, I respectfully concur in part and dissent in
part.
2 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of THOMAS, J.

I
A
The NBA provides that “[n]o national bank shall be
subject to any visitorial powers except as authorized by
Federal law, vested in the courts of justice or such as shall
be, or have been exercised or directed by Congress or by
either House thereof or by any committee of Congress or of
either House duly authorized.” 12 U. S. C. §484(a).
Through notice-and-comment rulemaking, OCC issued a
regulation defining “visitorial powers” as including: “(i)
Examination of a bank; (ii) Inspection of a bank’s books
and records; (iii) Regulation and supervision of activities
authorized or permitted pursuant to federal banking law;
and (iv) Enforcing compliance with any applicable federal
or state laws concerning those activities.” 12 CFR
§7.4000(a)(2) (2005). OCC further concluded that 12
U. S. C. §484(a)’s “vested in the courts of justice” exception
pertains only to the “powers inherent in the judiciary and
does not grant state or other governmental authorities any
right to inspect, superintend, direct, regulate or compel
compliance by a national bank with respect to any law,
regarding the content or conduct of activities authorized
for national banks under Federal law.” 12 CFR
§7.4000(b)(2). The Court of Appeals upheld OCC’s regula
tion as reasonable. See 510 F. 3d 105 (CA2 2007).
This Court’s decision in Chevron U. S. A. Inc. v. Natural
Resources Defense Council, Inc., 467 U. S. 837 (1984),
provides the framework for deciding this case. “In Chev
ron, this Court held that ambiguities in statutes within an
agency’s jurisdiction to administer are delegations of
authority to the agency to fill the statutory gap in reason
able fashion.” National Cable & Telecommunications
Assn. v. Brand X Internet Services, 545 U. S. 967, 980
(2005). Accordingly, “[i]f a statute is ambiguous, and if the
implementing agency’s construction is reasonable, Chev
ron requires a federal court to accept the agency’s con
Cite as: 557 U. S. ____ (2009) 3

Opinion of THOMAS, J.

struction of the statute, even if the agency’s reading differs


from what the court believes is the best statutory interpre
tation.” Ibid.
OCC is “the administrator charged with supervision of
the [NBA],” NationsBank of N. C., N. A. v. Variable Annu
ity Life Ins. Co., 513 U. S. 251, 256 (1995), and it acted
through notice-and-comment rulemaking procedures in
promulgating the regulation at issue in this case, see 69
Fed. Reg. 1895 (2004). As a result, 12 CFR §7.4000 falls
within the heartland of Chevron. See United States v.
Mead Corp., 533 U. S. 218, 229–230 (2001); see also, e.g.,
Smiley v. Citibank (South Dakota), N. A., 517 U. S. 735,
739 (1996) (deferring to OCC’s interpretation of the term
“ ‘interest’ ” in the NBA). “It is our practice to defer to the
reasonable judgments of agencies with regard to the
meaning of ambiguous terms in statutes that they are
charged with administering,” and “that practice extends to
the judgments of the Comptroller of the Currency with
regard to the meaning of the banking laws.” Ibid. The
majority does not disagree. See ante, at 3. As a result, the
only disputed question is whether the statutory term
“visitorial powers” is ambiguous and, if so, whether OCC’s
construction of it is reasonable.
B
The majority concedes that there is “some ambiguity as
to the meaning of the statutory term ‘visitorial powers.’ ”
Ibid. Yet it concludes that OCC’s interpretation of §484(a)
is not entitled to deference because the Court “can discern
the outer limits of the term ‘visitorial powers’ even
through the clouded lens of history” and these outer defi
nitional limits “do not include . . . ordinary enforcement of
the law.” Ibid. I cannot agree. The statutory term “visi
torial powers” is susceptible to more than one meaning,
and the agency’s construction is reasonable.
Because the NBA does not define “visitorial powers,” the
4 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of THOMAS, J.

ordinary meaning of the words chosen by Congress pro


vides the starting point for interpreting the statute. See
Dean v. United States, 556 U. S. ___, ___ (2009) (slip op.,
at 3) (“We start, as always, with the language of the stat
ute” (internal quotation marks omitted)); Asgrow Seed Co.
v. Winterboer, 513 U. S. 179, 187 (1995) (“When terms
used in a statute are undefined, we give them their ordi
nary meaning”). In 1864, when the NBA was enacted,
“visitation” was generally defined as “[i]nspection; super
intendence; direction; [and] regulation.” 2 A. Burrill, A
Law Dictionary and Glossary 598 (1860); see also 2 J.
Bouvier, A Law Dictionary 633 (1852) (defining “visita
tion” as “[t]he act of examining into the affairs of a corpo
ration”). With respect to civil corporations, “visitation”
was conducted “by the government itself, through the
medium of the courts of justice.” Id., at 634. The Court
has previously looked to these definitions in examining the
meaning of “visitorial powers” for purposes of the NBA.
See Guthrie v. Harkness, 199 U. S. 148, 158 (1905).
OCC’s interpretation of “visitorial powers” to include
both “[r]egulation and supervision of activities authorized
or permitted pursuant to federal banking law” and
“[e]nforcing compliance with any applicable federal or
state laws concerning those activities,” 12 CFR
§§7.4000(a)(2)(iii), (vi), fits comfortably within this broad
dictionary definition of “visitation.” And, in turn, peti
tioner’s demand for nonpublic information to force na
tional banks to comply with state fair lending laws under
threat of judicial action would appear to qualify as an
attempt to “superinten[d]” the banks’ federally authorized
operations “through the medium of the courts of justice.”
See Burrill, supra, at 598; Bouvier, supra, at 634.
On the other hand, as the majority concludes, “visitorial
powers” could be limited to conducting examinations of
national banks or otherwise interfering with their internal
operations. To support this argument, the majority briefly
Cite as: 557 U. S. ____ (2009) 5

Opinion of THOMAS, J.

alludes to the common-law history of visitation. See ante,


at 3–4; see also United States v. Shabani, 513 U. S. 10, 13
(1994) (“[A]bsent contrary indications, Congress intends to
adopt the common law definition of statutory terms”). In
so doing, the majority fully accepts petitioner’s argument
that “Congress invoked a then-familiar common law term
of corporate governance—visitation—to clarify that the
States, traditionally the supervisors of private corpora
tions doing business within their jurisdictions, had no
authority to examine the condition of a national bank,
respond to any perceived financial risk, or hold the bank to
its charter or the laws of its creation.” Brief for Petitioner
21–22. Under the majority’s view, any construction of
§484(a) that fails to preserve the right of the States to
enforce through judicial action their generally applicable
laws against national banks is unreasonable and, there
fore, not entitled to deference. See ante, at 6–7.
But contrary to the majority’s determination, the com
mon-law tradition does not compel the conclusion that
petitioner’s definition of visitation is the only permissible
interpretation of the term. Indeed, a more thorough ex
amination of §484(a)’s common-law ancestry suggests the
opposite. As the majority notes, see ante, at 3–4, the
concept of visitation originated in Roman and canon law in
which the term was used to describe the church hierar
chy’s authority over its own institutions, see Pound, Visi
tatorial Jurisdiction Over Corporations in Equity, 49
Harv. L. Rev. 369, 369–370 (1936). The practice of visita
tion later expanded to include the supervision of charities,
universities, and civil corporations. Ibid.
With respect to churches, charities, and universities, a
visitor’s duties were narrow. In the university setting, for
example, the “power of the visitor [was] confined to of
fences against the private laws of the college; he ha[d] no
cognizance of acts of disobedience to the general laws of
the land.” 2 S. Kyd, Law of Corporations 276 (1794) (em
6 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of THOMAS, J.

phasis in original). The visitor’s duties were equally nar


row in the governance of ecclesiastical and charitable
institutions. See 1 W. Blackstone, Commentaries on the
Laws of England 467–472 (1765); Trustees of Dartmouth
College v. Woodward, 4 Wheat. 518, 673–677 (1819)
(Story, J., concurring). If the sweep of a visitor’s authority
with respect to civil corporations was the same, the major
ity would have a stronger argument that the “visitorial
powers” prohibition was similarly limited. See ante, at 3–
4. However, the common-law tradition instead suggests
that visitorial powers were broader with respect to civil
corporations, including banks.
Historically, visitorial authority over civil corporations
was exercised only by the sovereign who had broad au
thority to assure compliance with generally applicable
laws. See Blackstone, supra, at 469 (“The king being thus
constituted by law the visitor of all civil corporations, the
law has also appointed the place, wherein he shall exercise
this jurisdiction: which is the court of king’s bench; where,
and where only, all misbehaviors of this kind of corpora
tions are enquired into and redressed, and all their con
troversies decided”); 2 J. Kent, Commentaries on Ameri
can Law 241 (1827) (explaining that “visitation of civil
corporations is by the government itself, through the
medium of the courts of justice”). “Civil corporations,
whether public, as the corporations of towns and cities; or
private, as bank, insurance, manufacturing, and other
companies of the like nature, are not subject to [private]
visitation. They are subject to the general law of the land,
and amenable to the judicial tribunals for the exercise and
the abuse of their powers.” Id., at 244; see also J. Angell &
S. Ames, Law of Private Corporations §684, p. 680 (4th ed.
1852) (“Civil corporations, whether public or private, being
created for public use and advantage, properly fall under
the superintendency of that sovereign power whose duty it
is to take care of the public interest; whereas, corpora
Cite as: 557 U. S. ____ (2009) 7

Opinion of THOMAS, J.

tions, whose object is the distribution of a private benefac


tion, may well find jealous guardians in the zeal or vanity
of the founder, his heirs, or appointees”).
States have traditionally exercised their visitorial pow
ers over civil corporations by invoking the authority of the
judiciary to “compel domestic corporations or their officers
to perform specific duties incumbent on them by reason of
their charters, or under statutes or ordinances or imposed
by the common law.” Pound, supra, at 375 (emphasis
added); see also S. Merrill, Law of Mandamus §158, p. 194
(1892) (explaining that “under the visitorial power of the
state, any breach of duty by a private corporation may be
corrected by” the writ of mandamus and that the duty
“may be imposed by [the corporation’s] charter, by the
general statutes, or by the common law” (footnotes omit
ted)). As Merrill explained, such actions were employed to
compel common carriers and certain other civil corpora
tions to adhere to “statutory or common law” duties, in
cluding the duty to “exten[d] to all without discrimination
the use of their services.” Id., §162, at 200; see also J.
Grant, A Practical Treatise on the Law of Corporations in
General, As Well Aggregate as Sole 262 (1854) (explaining
that mandamus was available when corporations “re
fuse[d] to perform a duty cast upon them by the law of the
land”).1
——————
1 By looking to Justice Story’s concurrence in Trustees of Dartmouth

College v. Woodward, 4 Wheat. 518 (1819), for authoritative guidance,


see ante, at 4–5, the majority seemingly rejects the distinction between
the visitor’s role in supervising civil corporations and the visitor’s far
more limited role in supervising private institutions such as churches,
universities, and charitable organizations. See ante, at 5, n. 1. In
Woodward, the Court addressed the scope of the visitor’s authority over
a private college—not a civil corporation. See 4 Wheat., at 562–563
(“The corporation in question is not a civil, although it is a lay corpora
tion. It is an eleemosynary corporation. . . . Eleemosynary corporations
are for the management of private property, according to the will of the
donors. They are private corporations” (emphasis in original)). Visitors
8 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of THOMAS, J.

Even before enactment of the NBA, several States en


acted laws granting banking commissioners specific au
thority to investigate compliance with generally applicable
laws and to use the courts to ensure observance therewith.
See, e.g., Act of Feb. 23, ch. 14, §2, 1838 Mass. Acts p. 303
(authorizing banking commissioners to “visit” a bank and
“examine all [its] affairs” to determine whether it had
“complied with the provisions of law applicable to [its]
transactions”); Act of May 14, ch. 363, §12, 1840 N. Y.
Laws pp. 307–308 (authorizing banking commissioners to
bring judicial actions against banks “found to have vio
lated any law of this state . . . in the same manner and
with the like effect as any incorporated bank may be
proceeded against for a violation of its charter”). Indeed,
Congress modeled the NBA after New York’s supervisory
regime. See J. Knox, A History of Banking in the United
States 422 (1903) (reprint 1969).
Petitioner contends, and the majority agrees, that this
understanding of the common law confuses the sovereign’s
“enforcement of general laws that apply equally to all
actors within a State, like the ban on discrimination found
in New York Executive Law §296–a” with “an exercise of
visitorial powers.” Brief for Petitioner 24; see also ante, at
7 (concluding that “a sovereign’s ‘visitorial powers’ and its
power to enforce the law are two different things”). But
this narrow conception of visitorial powers does not fully
capture the common law. In a section entitled “Visitorial
——————
historically did not have “law enforcement power” over churches,
universities, and charitable organizations. See supra, at 5–6. But
there is strong evidence that visitors of civil corporations—i.e., sover
eigns—were so empowered. See supra, at 6–7. The distinction between
these species of visitation is crucial because it yields divergent under
standings as to the scope of the visitor’s power to enforce generally
applicable laws in court. Moreover, the majority’s failure to confront
this important difference leaves a gap in its historical analysis that, in
turn, undermines its conclusion that OCC’s interpretation of §484(a)
was unreasonable.
Cite as: 557 U. S. ____ (2009) 9

Opinion of THOMAS, J.

power,” one treatise explained that “[a]s a general rule the


state has the same control, in this respect, over corpora
tions that it has over individuals.” C. Elliott, Law of
Private Corporations §90, p. 80 (rev. 3d ed. 1900); see also
1 S. Thompson, Commentaries on the Law of Private
Corporations §475, p. 580 (2d ed. 1908) (“In its visitorial
capacity the state checks and controls corporate affairs,
even for the protection of those who deal with them”). If
the sovereign’s power of visitation was limited to oversight
of “corporate affairs,” visitation would not parallel the
sovereign’s control over individuals or allow the sovereign
to protect through judicial action the rights of individuals
who “deal with” the corporation. See ibid.
The Wisconsin Supreme Court’s decision in Attorney
General v. Chicago & Northwestern R. Co., 35 Wis. 425
(1874)—which has been referred to as “the leading Ameri
can case for the visitorial jurisdiction of equity,” Pound, 49
Harv. L. Rev., at 380—illustrates the point. In that case,
the state attorney general sought a writ of injunction to
“restrain the two defendant companies from exacting tolls
for the carriage of passengers or freight in excess of the
maximum rates established by” Wisconsin law, 35 Wis., at
432. The attorney general “appl[ied] for the writ on behalf
of the public,” id., at 531, in order “ ‘to correct abuses and
save the rights of the people,’ ” id., at 572. The court found
that the attorney general’s visitorial power included en
forcement of generally applicable law against civil corpo
rations through courts of equity. See id., at 529–530. As
the court explained, the common-law understanding of
visitorial powers had expanded beyond its ecclesiastical
roots to include such authority. See id., at 530 (“The
grounds on which this jurisdiction rests are ancient; but
the extent of its application has grown rapidly of late
years, until a comparatively obscure and insignificant
jurisdiction has become one of great magnitude and public
import”).
10 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of THOMAS, J.

As a result, the majority’s conclusion that when “a state


attorney general brings suit to enforce state law against a
national bank, he is not acting in the role of sovereign-as
supervisor, but rather in the role of sovereign-as-law
enforcer,” ante, at 14, cannot be reconciled with this lead
ing case or the general common-law understanding on
which the decision rests. At common law, all attempts by
the sovereign to compel civil corporations to comply with
state law—whether through administrative subpoenas or
judicial actions—were visitorial in nature. Thus, even if
the sovereign’s law enforcement and visitorial powers
were at one time distinct, by common law, they had
merged at least with respect to the enforcement of gener
ally applicable public laws against civil corporations. See
Thompson, supra, §460, at 556 (“The police power, in its
visitorial aspect, as exercised by congress and the several
states, extends to the minutest details of the banking
business” (emphasis added)). By construing visitation so
narrowly, the majority implicitly rejects the efforts of
William Blackstone, James Kent, and Roscoe Pound, see
supra, at 6–7, in elucidating the historical meaning of this
concept. Like OCC, each of these venerable legal scholars
understood visitation of civil corporations to include the
power to enforce generally applicable laws through judicial
actions. See ibid.
In the end, OCC was presented with a broad dictionary
definition of “visitation” and a common-law history sug
gesting that the scope of the visitor’s authority varied in
accordance with the nature of the organization under
supervision. It is possible that the “visitorial powers” are
narrower than OCC concluded. But a visitor’s powers
could also be broader. There is support for the proposition
that visitation includes enforcement of all generally appli
cable laws. See supra, at 5–10. OCC instead interpreted
“visitorial powers” to prohibit only enforcement of laws
concerning “activities authorized or permitted pursuant to
Cite as: 557 U. S. ____ (2009) 11

Opinion of THOMAS, J.

federal banking law.” 12 CFR §§7.4000(a)(2)(iii) and (iv).


States are thus free to enforce applicable laws that do not
regulate federally authorized banking activities, see
§7.4000(a)(3), “including, for example, criminal, tax, zon
ing, and labor and employment laws,” Brief for Federal
Respondent 15 (citing 69 Fed. Reg. 1896).
Thus, although the text and history of visitation do not
authoritatively support either party’s construction of the
statute, OCC’s decision to adopt a more modest construc
tion than could have been supported by the common-law
and dictionary definition reinforces the reasonableness of
its regulation. Put simply, OCC selected a permissible
construction of a statutory term that was susceptible to
multiple interpretations.
C
Petitioner nonetheless argues that the original structure
of the NBA compels us to adopt his reading of “visitorial
powers.” When enacted in 1864, the “visitorial powers”
clause was preceded by a statutory provision directing the
Comptroller of the Currency to appoint persons “to make a
thorough examination into all the affairs of [every bank
ing] association” and to “make a full and detailed report of
the condition of the association to the comptroller.” Act of
June 3, 1864, ch. 106, §54, 13 Stat. 116. In addition, the
“visitorial powers” clause was succeeded by a sentence
concerning the compensation due to the examiners. See
ibid. Petitioner contends that the placement of the “visi
torial powers” clause between these two provisions indi
cates that it originally meant to ban States only from
conducting the particular type of “thorough examination”
of banking affairs described in the neighboring provisions.
And, petitioner adds, §484 currently resides in the sub
chapter of the statute entitled “Bank Examinations,”
which still includes a provision directing the Comptroller
to appoint examiners “to make a thorough examination of
12 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of THOMAS, J.

all the affairs of the bank and . . . make a full and detailed
report of the condition of said bank to the Comptroller of
the Currency.” 12 U. S. C. §481.
Petitioner’s argument is undermined, however, by other
structural attributes of this subchapter. In §484(b), for
example, Congress provided that “[n]otwithstanding” the
statute’s visitorial-powers prohibition, “State auditors and
examiners may . . . review [a national bank’s] records
solely to ensure compliance with applicable State un
claimed property or escheat laws.” Such review does not
fall within petitioner’s definition of “visitorial powers”
because the enforcement of state property laws is in no
way associated with national bank examinations or inter
nal operations. Thus, were §484(a) to have the meaning
petitioner assigns, there would have been no reason for
Congress to identify the §484(b) authority as an exception
to §484(a)’s “visitorial powers” prohibition, as the author
ity granted in §484(b) would never have been eliminated
by §484(a).
Other exceptions in §484 also support OCC’s construc
tion of the statute. For example, §484(a) includes an
exception for visitations “authorized by Federal law.” One
type of visitation authorized by law is described in 26
U. S. C. §3305(c), which provides that “[n]othing contained
in [§484] shall prevent any State from requiring any na
tional” bank to provide payroll records and reports for
unemployment tax purposes. Similarly, 12 U. S. C. §62
permits state tax officials to inspect national bank share
holder lists. Both provisions would be unnecessary if
“visitorial powers” were limited to bank examinations and
internal operations.
In sum, the NBA’s structure does not compel the con
struction of §484(a)’s text that petitioner advocates. If
anything, given the manner in which Congress crafted
exceptions to the “visitorial powers” ban in the statute, the
Cite as: 557 U. S. ____ (2009) 13

Opinion of THOMAS, J.

opposite is true.2
D
The majority also accepts petitioner’s contention that
OCC’s construction of “visitorial powers” is unreasonable
because it conflicts with several of this Court’s decisions.
See ante, at 4–7. But petitioner cannot prevail by simply
showing that this Court previously adopted a construction
of §484 that differs from the interpretation later chosen by
the agency. “A court’s prior judicial construction of a
statute trumps an agency construction otherwise entitled
to Chevron deference only if the prior court decision holds
that its construction follows from the unambiguous terms
of the statute and thus leaves no room for agency discre
tion.” Brand X, 545 U. S., at 982. These decisions do not
construe §484 in a manner that trumps OCC’s regulation.
——————
2 Contrary to the majority’s conclusion, see ante, at 8–9, n. 3, peti

tioner’s structural argument is also undermined by the Riegle-Neal


Interstate Banking and Branching Efficiency Act of 1994 (Riegle-Neal),
108 Stat. 2338, which authorized national banks to operate interstate
branches. The statute provides that “[t]he laws of the host State
regarding community reinvestment, consumer protection, fair lending,
and establishment of intrastate branches shall apply to any branch in
the host State of an out-of-State national bank to the same extent as
such State laws apply to a branch of a bank chartered by that State”
unless federal law separately pre-empts their application or the Comp
troller determines that application of the state law would have a
“discriminatory effect” on the national bank branch. See id., at 2349–
2350, 12 U. S. C. §36(f)(1)(A). Riegle-Neal further provides that “[t]he
provisions of any State law to which a branch of a national bank is
subject under this paragraph shall be enforced, with respect to such
branch, by the Comptroller of the Currency.” See id., at 2350, 12
U. S. C. §36(f)(1)(B). The United States has interpreted the “shall be
enforced” language to provide OCC with exclusive enforcement author
ity. See Brief for Federal Respondent 46–48. This construction rein
forces OCC’s interpretation of §484(a). If OCC has exclusive authority
to enforce state law with respect to interstate branches of national
banks, it would be reasonable to interpret the statute to operate simi
larly with respect to the national banks themselves.
14 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of THOMAS, J.

This Court’s only decision directly addressing the mean


ing of “visitorial powers” is Guthrie, which held that the
NBA did not prohibit a suit brought by a private share
holder seeking to inspect the books of a national bank, 199
U. S., at 157. In so holding, the Court contrasted “the
private right of the shareholder to have an examination of
the business in which he is interested” with a visitor’s
“public right” to examine “the conduct of the corporation
with a view to keeping it within its legal powers.” Id., at
158–159. Guthrie thus draws a line between enforcement
of private rights and the public act of visitation that is
consistent with the definition of visitation embraced by
OCC. See id., at 158 (“In no case or authority that we
have been able to find has there been a definition of this
right, which would include the private right of the share
holder to have an examination of the business in which he
is interested . . .”). The agency has never taken the posi
tion that the “visitorial powers” prohibition extends to
private action.
Nor does this Court’s decision in First Nat. Bank in St.
Louis v. Missouri, 263 U. S. 640 (1924) (St. Louis), fore
close OCC’s construction of the statute. In that case, the
State of Missouri brought a quo warranto proceeding in
state court “to determine [the national bank’s] authority to
establish and conduct a branch bank in the City of
St. Louis.” Id., at 655. The Court first held that federal
law did not authorize national banks to engage in branch
banking. See id., at 656–659. “Having determined that
the power sought to be exercised by the bank finds no
justification in any law or authority of the United States,”
the Court then concluded that “the way is open for the
enforcement of the state statute.” Id., at 660.
Petitioner contends, and the majority agrees, see ante,
at 5–6, and n. 2, that St. Louis stands for the proposition
that a State retains the right to enforce any state law that
is not substantively pre-empted with respect to national
Cite as: 557 U. S. ____ (2009) 15

Opinion of THOMAS, J.

banks, see 263 U. S., at 660 (“To demonstrate the binding


quality of a statute but deny the power of enforcement
involves a fallacy made apparent by the mere statement of
the proposition, for such power is essentially inherent in
the very conception of law. . . . What the state is seeking to
do is to vindicate and enforce its own law . . .”). Under this
view, then, because the New York fair lending laws are
not substantively pre-empted, he is not exercising “visito
rial powers” by enforcing them.
Respondents counter that the holding of St. Louis is not
so broad. In their view, the Court held only that a State
may enforce its laws against a national bank when federal
law grants the bank no authority to engage in the underly
ing activity at issue. See Brief for Respondent Clearing
House Association 33–34. Here, federal law expressly
authorizes national banks to make mortgage loans. See
12 U. S. C. §371(a). Thus, unlike in St. Louis—in which
the relevant state-law-proscribed conduct in a category
that was wholly beyond the powers granted to national
banks—petitioner seeks to superintend the manner in
which the national banks engage in activity expressly
authorized by federal law. According to respondents, then,
§484(a)’s ban on unauthorized visitation provides the
“controlling reason” forbidding state enforcement that was
absent from St. Louis, see 263 U. S., at 660.
There is no need to decide which party has the better
argument. The St. Louis decision nowhere references
§484(a) or addresses “visitorial powers.” Thus, as noted
above, even if the decision is best read to support peti
tioner’s view of the statute, that conclusion is insufficient
to deny Chevron deference to OCC’s construction of
§484(a). “Since Chevron teaches that a court’s opinion as
to the best reading of an ambiguous statute an agency is
charged with administering is not authoritative, the
agency’s decision to construe that statute differently from
a court does not say that the court’s holding was legally
16 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of THOMAS, J.

wrong. Instead, the agency may, consistent with the


court’s holding, choose a different construction, since the
agency remains the authoritative interpreter (within the
limits of reason) of such statutes.” Brand X, 545 U. S., at
983. A judicial decision that fails to directly confront the
provision at issue cannot be deemed to have adopted the
“authoritative” construction of the statute.3 Petitioner’s
reliance on other decisions of this Court is misplaced for
this very same reason. See First Nat. Bank in Plant City
v. Dickinson, 396 U. S. 122 (1969); Anderson Nat. Bank v.
Luckett, 321 U. S. 233 (1944); First Nat. Bank of Bay City
v. Fellows, 244 U. S. 416 (1917); Easton v. Iowa, 188 U. S.
220 (1903); Waite v. Dowley, 94 U. S. 527 (1877); National
Bank v. Commonwealth, 9 Wall. 353 (1870). None of these
decisions addressed the meaning of “visitorial powers” for
purposes of §484(a), let alone provided a definitive con
struction of the statute.
Finally, this Court’s decision in Watters v. Wachovia
Bank, N. A., 550 U. S. 1 (2007), supports OCC’s construc
tion of the statute. Watters addressed whether the NBA
——————
3 The majority’s suggestion that the Court’s decision in First Nat.
Bank in St. Louis v. Missouri, 263 U. S. 640 (1924), is not “authorita
tive” falls short of the mark. See ante, at 6, n. 2; see, e.g., ante, at 7–8
(“[R]eading ‘visitorial powers’ as limiting only sovereign oversight and
supervision would produce an entirely commonplace result—the precise
result contemplated by our opinion in St. Louis”). According to the
majority, irrespective of which party has the better reading of that case,
it “would still stand for the proposition that the exclusive federal power
of visitation does not prevent States from enforcing their law.” Ante, at
6, n. 2. But that conclusion rests on the assumption that the St. Louis
Court shared the majority’s conception of law enforcement and visita
tion as categorically distinct for purposes of §484(a). It is impossible to
verify that assumption, however, because the bank never raised the
“visitorial powers” defense in that case. See Reply Brief for Petitioner
6. If the Chevron doctrine is to have any interpretative value, an
agency’s construction of a statute cannot be foreclosed by a prior
judicial decision in which the provision in question was neither raised
by the parties nor passed upon by the court.
Cite as: 557 U. S. ____ (2009) 17

Opinion of THOMAS, J.

pre-empted the application of certain Michigan laws to the


mortgage-lending activities of an operating subsidiary of
a national bank. See id., at 7–8. In deciding that issue,
the Court did not reach the question presented here. But
the Court was fully aware that the Michigan statutes
granted state banking commissioners the very enforce
ment authority that petitioner seeks to exert over the
national banks in this case. See id., at 9–10 (citing Mich.
Comp. Laws Ann. §§445.1661 (West 2002), 493.56b (West
Supp. 2005)); see also 550 U. S., at 34 (STEVENS, J., dis
senting) (describing §§445.1661 and 493.56b as “state
visitorial oversight”).4
As the Court explained, although “the Michigan provi
sions at issue exempt[ed] national banks from coverage . . .
[t]his [was] not simply a matter of the Michigan Legisla
ture’s grace. For, as the parties recognize, the NBA would
have preemptive force, i.e., it would spare a national bank
from state controls of the kind here involved.” 550 U. S.,
at 13 (citations omitted); see ibid. (explaining that “real
estate lending, when conducted by a national bank, is
immune from state visitorial control”). The Court’s con
clusion in Watters that §484(a) deprives the States of
inspection and enforcement authority over the mortgage
lending practices of national banks lends weight to the
——————
4 The majority contends that Watters is “fully in accord with the well

established distinction between supervision and law enforcement.”


Ante, at 6. But this argument ignores the reach of the statutes that the
Court assumed were visitorial in Watters. The Michigan laws at issue
in Watters allowed for much more than “ ‘general supervision and
control’ ” of the operating subsidiaries of national banks. Ante, at 6.
They also included provisions permitting the state attorney general to
“take any appropriate legal action to enjoin the operation of the busi
ness” and allowing the commissioner “[t]o bring an action in . . . circuit
court in the name and on behalf of this state” to enjoin “any unsafe or
injurious practice or act in violation of this act or a rule promulgated
under this act.” Mich. Comp. Laws Ann. §§445.1661(e) (West 2002);
493.56b (West Supp. 2005).
18 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of THOMAS, J.

agency’s construction of the statute.


II
Petitioner also argues that three different background
principles trigger a clear-statement rule that overcomes
any Chevron deference to which OCC’s construction of
§484 otherwise might be entitled. I disagree. None of
petitioner’s arguments provide a doctrinal basis for refus
ing to defer to the agency’s reasonable construction of this
statute.
First, petitioner contends that OCC’s regulation, which
interprets §484(a) to pre-empt state enforcement of state
law but not the substantive state law itself, undermines
important federalism principles and therefore triggers a
requirement that Congress clearly state its pre-emptive
intentions, see Gregory v. Ashcroft, 501 U. S. 452, 460
(1991) (“[I]f Congress intends to alter the usual constitu
tional balance between the States and the Federal Gov
ernment, it must make its intention to do so unmistakably
clear in the language of the statute” (internal quotation
marks omitted; alteration in original)). Petitioner is incor
rect because OCC’s construction of the statute does not
alter the balance of power established by the Constitution.
National banks are created by federal statute and there
fore are subject to full congressional control. The States
“can exercise no control over them, nor in any wise affect
their operation, except in so far as Congress may see
proper to permit.” Farmers’ and Mechanics’ Nat. Bank v.
Dearing, 91 U. S. 29, 34 (1875); see also Watters, 550 U. S.,
at 10 (“Nearly 200 years ago, in McCulloch v. Maryland, 4
Wheat. 316 (1819), this Court held federal law supreme
over state law with respect to national banking”). As a
result, the only question presented by this case is whether
Congress has seen it “proper to permit” the States to
enforce state fair lending laws against national banks.
OCC’s reasonable conclusion that §484(a) answers that
Cite as: 557 U. S. ____ (2009) 19

Opinion of THOMAS, J.

question in the negative does not alter the federal-state


balance; it simply preserves for OCC the oversight respon
sibilities assigned to it by Congress. See id., at 22 (“Regu
lation of national bank operations is a prerogative of
Congress under the Commerce and Necessary and Proper
Clauses. The Tenth Amendment, therefore, is not impli
cated here” (citation omitted)).
Second, petitioner argues that a clear statement is
required because “the historic police powers of the States
[are] not to be superseded by the Federal Act unless that
was the clear and manifest purpose of Congress,” Rice v.
Santa Fe Elevator Corp., 331 U. S. 218, 230 (1947). There
should be no presumption against pre-emption because
Congress has expressly pre-empted state law in this case.
See Altria Group, Inc. v. Good, 555 U. S. ___, ___ (2008)
(THOMAS, J., dissenting) (slip op., at 9) (“[T]he presump
tion against pre-emption ‘dissolves once there is conclusive
evidence of intent to pre-empt in the express words of the
statute itself’ ” (quoting Cipollone v. Liggett Group, Inc.,
505 U. S. 504, 545 (1992) (SCALIA, J., concurring in judg
ment in part and dissenting in part)); see, e.g., Riegel v.
Medtronic, Inc., 552 U. S. ___, ___ (2008) (slip op., at 2)
(construing the express pre-emption provision of the
Medical Device Amendments of 1976, 21 U. S. C. §360c
et seq., without any reliance on the presumption against
pre-emption).
In any event, this presumption is “not triggered when
the State regulates in an area where there has been a
history of significant federal presence.” United States v.
Locke, 529 U. S. 89, 108 (2000). National banking is the
paradigmatic example “In defining the pre-emptive scope
of statutes and regulations granting a power to national
banks,” this Court has taken the firm view that “normally
Congress would not want States to forbid, or to impair
significantly, the exercise of a power that Congress explic
itly granted.” Barnett Bank of Marion Cty., N. A. v. Nel
20 CUOMO v. CLEARING HOUSE ASSN., L. L. C.

Opinion of THOMAS, J.

son, 517 U. S. 25, 33 (1996). As a result, federal legisla


tion concerning national banks is “not normally limited by,
but rather ordinarily pre-empt[s], contrary state law.” Id.,
at 32. As with general maritime law, Congress’ “legis
lat[ion] in th[is] field from the earliest days of the Repub
lic” and its creation of an “extensive federal statutory and
regulatory scheme” means that an “ ‘assumption’ of non
pre-emption is not triggered.” Locke, supra, at 108. That
the States may also have legislated alongside Congress in
this area, see ante, at 12–13, does not alter this conclusion,
see, e.g., Franklin Nat. Bank of Franklin Square v. New
York, 347 U. S. 373 (1954).
Last, petitioner argues that Chevron deference is inap
plicable because OCC’s regulation declares the pre
emptive scope of the NBA. And, the majority flatly asserts
that “[i]f that is not pre-emption, nothing is.” Ante, at 13.
But OCC did not declare the pre-emptive scope of the
statute; rather, it interpreted the term “visitorial powers”
to encompass state enforcement of state fair lending laws.
The pre-emption of state enforcement authority to which
petitioner objects thus follows from the statute itself—not
agency action. See Smiley, 517 U. S., at 744 (“This argu
ment confuses the question of the substantive (as opposed
to pre-emptive) meaning of a statute with the question of
whether a statute is pre-emptive. We may assume (with
out deciding) that the latter question must always be
decided de novo by the courts. That is not the question at
issue here; there is no doubt that §85 pre-empts state law”
(emphasis in original)).
Here, Congress—not the agency—has decided that “[n]o
national bank shall be subject to any visitorial powers
except as authorized by Federal law.” 12 U. S. C. §484(a).
Indeed, the majority agrees that it is the “statutory
term”—and not OCC’s regulation—that “define[s] and
thereby limit[s] the category of action reserved to the
Federal Government and forbidden to the States.” Ante,
Cite as: 557 U. S. ____ (2009) 21

Opinion of THOMAS, J.

at 13. As a result, OCC has simply interpreted that term


to encompass petitioner’s decision to demand national
bank records and threaten judicial enforcement of New
York fair lending laws as a means of obtaining them. As
Smiley showed, a federal agency’s construction of an am
biguous statutory term may clarify the pre-emptive scope
of enacted federal law, but that fact alone does not mean
that it is the agency, rather than Congress, that has ef
fected the pre-emption.
Petitioner’s federalism-based objections to Chevron
deference ultimately turn on a single proposition: It is
doubtful that Congress pre-empted state enforcement of
state laws but not the underlying state laws themselves.
But it is not this Court’s task to decide whether the statu
tory scheme established by Congress is unusual or even
“[b]izarre.” See ante, at 7. The Court must decide only
whether the construction adopted by the agency is unam
biguously foreclosed by the statute’s text. Here, the text,
structure, and history of “visitorial powers” support the
agency’s reasonable interpretation of §484. Petitioner has
not identified any constitutional principle that would
require Congress to take the greater step of pre-empting
all enforcement of state lending laws (including private
enforcement) even though its central concern was the
allocation of the right to exercise public visitation over
national bank activities.
* * *
For all these reasons, I would affirm the judgment of the
Court of Appeals.
Close

Home About OCC News and Issuances Publications Tools and Forms Topics

Corporate Applications:
Vol.
February 200518,
No. 2

IN THIS ISSUE:

Interpretive Letters

Letter
Topic
No.

Letter concludes that Bank may buy and sell, for its own account, exchange-traded units of beneficial interest in
1013
gold. WORD 01/07/2005

Letter concludes that it is legally permissible for national banks to become members of the Government
1014 Securities Division of the Fixed Income Clearing Corporation and participate in its loss allocation system. WORD
01/10/2005

Letter concludes that part 34 and the OCC's past preemption opinions preempt section 24-4.5-3-402 of the
1015
Indiana Code when originating subordinate lien mortgages. WORD 01/11/2005

Letter concludes that neither 12 CFR 34.4 nor the National Bank Act preempts application of the state laws at
1016 issue here to loans simply because they were purchased and held by national banks acting as trustees in
connection with issuance of mortgage-backed securities. WORD 01/14/2005

Letter concludes that interest-bearing negotiable order of withdrawal ("NOW") accounts may be established at
1017 national banks for the purpose of receiving and holding qualified trust funds deposited under the Pennsylvania
Supreme Court's Interest on Trusts Account Program for the Minor Judiciary. WORD 01/28/2005

Community Development Investment Letters

Letter
Topic
No.

Transitional Housing for Homeless – A national bank may invest, through its subsidiary community development
corporation, in the acquisition and rehabilitation of a single-family dwelling to provide transitional housing for the
2004-2
homeless. The CDC will own and manage the property and residents of the facility will receive case
management support from an established nonprofit social services provider. WORD 04/26/2004

2 nd Trust Deed Permanent Loans – A national bank may invest, as a limited partner, in a community
2004-3 development entity formed under the federal New Markets Tax Credit program which acquires real estate loan
made to qualified, active, low-income community businesses. The specific investment fund invests in 2nd trust
deed permanent loans on retail, office, commercial, and industrial projects. WORD 11/22/2004

Bridge Loans for Infrastructure Construction – A national bank's subsidiary community development corporation
2004-4 may provide bridge loans to low- and moderate-individuals and individuals living in low- and moderate-income
areas to finance in the installation of water and sewer infrastructure improvements. WORD 12/27/2004

Approvals with conditions enforceable under 12 U.S.C. 1818

Letter
Topic

http://www.occ.gov/static/interpretations-and-precedents/feb05/intfeb05.html[2/16/2011 6:19:29 PM]


No.

Application by Eagle National Bank, Doral, Florida, to establish a domestic branch in the vicinity of Northwest
673
116 Way and Northwest 102 Roads, Medley, Florida. (Control Number 2004 SO 05 0274) WORD 01/26/2005

Charters with standard conditions

Letter
Topic
No.

Application to establish a new national bank with the title of Legacy National Bank, Springdale, Arkansas.
674
(Control Number 2004 SO 01 0020), WORD 01/26/2005

Application to establish a new national bank with the title of Excel National Bank, Beverly Hills, California.
675
(Control Number 2003 WE 01 0010), WORD 01/27/2005

Final Enforcement Actions


Enclosed is a copy of the OCC's news release number 2005-16, announcing the availability of enforcement actions. Copies of
the final actions are available by writing to the OCC, Public Information Room, Mail Stop 1-5, Washington, D.C. 20219. When
ordering, specify the appropriate enforcement action number.
Community Reinvestment Act (CRA) Performance Evaluations
Enclosed is a list of CRA performance evaluations that became public during the period of January 15, 2004 through February
14, 2005.
PLEASE NOTE: Interpretive Letters and No-Objection Letters reflect the views of the Comptroller's legal staff. Corporate
Decisions, CRA Decisions and Conditional Approvals are from the office of Licensing. The Community Development Investment
Letters are from the office of Community Affairs. The list of CRA Ratings is from the Communications Division. For copies of the
CRA evaluations, you may either contact the bank directly, or you may write to the Office of the Comptroller of the Currency
(OCC) in any of three ways: by mail to the OCC, Attn: Public Information Room, Mail Stop 1-5, Washington, D.C. 20219; by fax
to (202) 874-4448; or by e-mail to FOIA-PA@occ.treas.gov. You may also write to the OCC for copies of enforcement actions
and charters with standard conditions.

Members of the news media are encouraged to cite the letter number when reporting or summarizing documents from this
package. This helps us to process single requests based upon your citation in a timelier manner.

The Office of the Comptroller of the Currency publishes INTERPRETATIONS AND ACTIONS monthly. Subscriptions are
available at a rate of $175 per year by writing to the Comptroller of the Currency, ATTN: Accounts Receivable, Mail Stop 4-8,
250 E Street, S.W., Washington, DC 20219. Prepayment is requested. Suggestions, comments or questions may be sent to
Jacqueline J. England, Comptroller of the Currency, Communications Division, Mail Stop 3-2, Washington, DC 20219.

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| Freedom of Information Act | Contact Webmaster

http://www.occ.gov/static/interpretations-and-precedents/feb05/intfeb05.html[2/16/2011 6:19:29 PM]


O
Comptroller of the Currency
Administrator of National Banks

Washington, DC 20219
Interpretive Letter #1016
February 2005
VIA FIRST CLASS MAIL 12 CFR 34.4

January 14, 2005


Anthony J. Sylvester
Riker, Danzig, Scherer, Hyland & Perretti, LLP
Headquarters Plaza
One Speedwell Avenue
Morristown, NJ 07962-1981

Madeline L. Houston
Houston & Totaro
56 Broad Street, Suite 1
Bloomfield, N.J. 07003

Subject: Wells Fargo Bank, Minnesota, N.A. v. Alberta Harris, et al.


Docket No. ESX-L-4676-02

and

Bank One National Association v. Feinstein


Docket No. F-11450-00

Dear Mr. Sylvester and Ms. Houston:

This letter is in response to your letter dated December 13, 2004, seeking the views of the Office
of the Comptroller of the Currency (“OCC”) concerning preemption of certain state laws in
connection with claims and defenses asserted by the parties in the above-named cases. You
requested the OCC’s views at the direction of the Honorable Kenneth S. Levy, J.S.C., presiding
judge in this litigation. For the reasons stated below, based on the facts presented in the
materials provided to us, we believe that neither 12 C.F.R. § 34.4 nor the National Bank Act
preempts application of the state laws at issue here to loans simply because they were purchased
and held by national banks acting as trustees in connection with issuance of the mortgage-backed
securities involved in this case.

Background

According to the materials provided with the December 13th letter addressed to me, Delta
Funding made a mortgage loan to Alberta Harris in December 1999 (Wells Fargo Complaint,
First Count ¶1), and subsequently assigned the mortgage to Wells Fargo “as Trustee for Delta
Funding Home Equity Loan Trust 2000-1” (Wells Fargo Complaint, First Count ¶4). Delta
Funding made a mortgage loan to Dequilla Robinson in November 1999 (Bank One Statement of
Material Facts Not in Dispute ¶3), and subsequently assigned the mortgage to Bank One
National Association “as Trustee in Trust for the Registered Holders of Delta Funding Home
Equity Loan Asset-Backed Certificates Series 1999-3” (Certification of Harold L. Kofman, Esq.
¶¶1, 3). There is no indication that either Wells Fargo or Bank One made the original mortgage
loans to Alberta Harris or Dequilla Robinson, nor does any party assert that Wells Fargo or Bank
One has any other interest in these transactions except as trustees for investors in the mortgage-
backed securities.

As trustee acting on behalf of the investors in Home Equity Loan Trust 2000-1, Wells Fargo
filed suit against Ms. Harris alleging that she had defaulted on the loan made by Delta and sought
to foreclose on the real estate she had pledged as collateral for that loan (Wells Fargo Complaint,
First Count ¶¶1-14). As trustee acting on behalf of the investors in Delta Asset-Backed
Certificates Series 1999-3, Bank One filed suit against Jack Feinstein, as Administrator Ad
Prosequendum for the estate of Ms. Robinson, seeking to foreclose on the real estate she had
pledged as collateral for the loan made by Delta (Memorandum of Law in Support of Plaintiff
Bank One National Association’s Motion for Summary Judgment at 3-4). Ms. Harris and Mr.
Feinstein (“Defendants”), through counsel, opposed the foreclosure actions. They alleged in
counterclaims against the Banks (and third-party claims against Delta and others) defenses based
upon alleged violations of the New Jersey Consumer Fraud Act (“CFA”), N.J.S.A. 56.8-2,
which, among other things, proscribes unconscionable practices in real estate transactions.
N.J.S.A. 56.8-2. See Defendant’s Brief in Opposition to Plaintiff Wells Fargo’s Motion for
Partial Summary Judgment at 3; Defendant’s Brief in Opposition to Plaintiff Bank One’s Motion
for Summary Judgment at 4. Asserting that federal law authorizing national banks to make and
purchase real estate loans preempted the Defendants’ state law defenses under the CFA, Wells
Fargo and Bank One, as trustees acting on behalf of the investors, sought partial summary
judgment on the cross-claims.

Discussion

Pursuant to 12 U.S.C. § 371, national banks may “make, arrange, purchase or sell loans or
extensions of credit secured by liens on interests in real estate, subject to * * * such restrictions
and requirements as the Comptroller of the Currency may prescribe by regulation or order.” The
OCC’s real estate lending regulations provide that, “[e]xcept where made applicable by Federal
law, state laws that obstruct, impair, or condition a national bank’s ability to fully exercise its
Federally authorized real estate lending powers do not apply to national banks.” 12 C.F.R.
§ 34.4(a).

The Banks assert that application of the CFA is preempted because it would interfere with their
power as national banks to purchase loans as authorized under 12 U.S.C. § 371, and that holding
them liable for violations of the CFA as loan purchasers would be contrary to 12 C.F.R.
§ 34.4(a), which preempts state laws that interfere with national bank real estate lending
authority.

-2-
Section 34.4(a)(10) states that national banks “may make real estate loans under 12 U.S.C. § 371
without regard to state law limitations concerning * * * [p]rocessing, origination, servicing, sale
or purchase of, or investment or participation in, mortgages.” 12 C.F.R.§ 34.4(a)(10) (emphasis
added). However, in no sense, under the facts presented, can the Banks be viewed as making a
real estate loan under 12 U.S.C. § 371 and 12 C.F.R. § 34.4. The Banks did not originate the
loans. They did not fund the loans at inception. Nor did they “purchase” the loans as part of any
real estate lending program comprehended by the regulation. Here, the Banks act as trustees for
the benefit of investors in the trusts. The substance of the transaction is that the investors, not the
Banks, are purchasing the loans that have been made by Delta. The investors own the beneficial
interest in the loans held by the Banks as trustees. And the effect of any liability for violation of
the CFA ultimately falls on the investors. Nowhere do the Banks allege that they themselves, as
opposed to the trusts they represent, are exposed to liability for any violation of the CFA. For all
these reasons, 12 U.S.C. § 371 and 12 C.F.R. § 34.4(a) simply do not apply to the transactions by
which the Banks acquired legal title to the loans in the circumstances at issue here.

With respect to the activities of Wells Fargo and Bank One as trustees, the banks derive their
power to act as trustees from 12 U.S.C. § 92a. When state law conflicts with national banks
exercising powers granted to them by federal law, the Supremacy Clause of the United States
Constitution requires that the state law yield to the paramount authority of federal law, with the
result that application of the state law to national banks is preempted. The Supreme Court has
explained this principle stating that it interprets “grants of both enumerated and incidental
‘powers’ to national banks as grants of authority not normally limited by, but rather ordinarily
pre-empting, contrary state law.” Barnett Bank of Marion County v. Nelson, 517 U.S. 25, 32
(1996).

As the Supreme Court demonstrated in its review of preemption cases in the Barnett case,
Supremacy Clause principles animating conflict preemption have been expressed in a wide
variety of phrases that do not yield materially different meanings, including “stand as an obstacle
to,” “impair the efficiency of,” “significantly interfere,” “interfere,” “infringe,” and “hamper.”
See Barnett, 517 U.S. at 33. Thus, if application of the CFA to the loans held by the Banks as
trustee were to obstruct, impair, condition, or otherwise interfere with the Banks’ exercise of
fiduciary powers granted to them under federal law, the state statute would be preempted.

Based on the facts presented, we do not believe that to be the case. The Banks have not claimed
that application of the CFA would impair their ability to act as trustee in these circumstances or
that the state law otherwise interferes with the performance of their legal obligations as trustee.
Nor could they claim that having to respond to state law defenses to recovery on assets held in
trust obstructs or impairs their power to act as trustee absent some indication that the state law
infringes their authority, conditions their actions, or imposes a burden in a way prohibited by
federal law. In short, the Banks’ authority to act as trustees under federal law does not insulate
the assets the Banks hold in trust for the benefit of investors from state law requirements
otherwise applicable to those assets.

-3-
We trust that the foregoing is responsive to your request.

Sincerely,

/s/ Daniel P. Stipano

Daniel P. Stipano
Acting Chief Counsel

Cc: Hon. Kenneth S. Levy, J.S.C.


212 Washington Street
The Wilentz Justice Complex
General Equity, 8th Floor
Newark, New Jersey 07102

-4-
Preemption Links - American Bar Association
This Preemption Task Force page is a joint undertaking of the
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materials relating to federal preemption.

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Greg Baer, Brad Boericke,


gbaer@wilmer.com, Boerickj@pepperlaw.com,
202-663-6859 215-981-4000 x4790
(banking powers (trust and fiduciary
and structures) products and services)
Bob Eager, Chrys Lemon,
reager@gibsondunn.com, clemon@mcintyrelf.com,
202-955-8544 202-659-3900
(GLB s104, preemption for (insurance products and
state banks, banking generally) services)
Chuck Lockyer, Beth McGinn,
lockych@ffhsj.com, emcginn@skadden.com,
202-639-7164 202-371-7314
(banking generally)
Andy Sandler, Bob Serino,
asandler@skadden.com, rserino@watkinsconsulting.com,
202-371-7400 202-861-0200
(consumer financial services) (agency actions and powers)
Mike Tomkies, Ralph Wutscher,
mtomkies@dltlaw.com rwutscher@rw-llp.com,
614-628-1603 312-551-9320
(consumer financial services; (Consumer financial services;
Chair, Preemption and Vice-Chair, Preemption and
Federalism Subcommittee of Federalism Subcommittee of the
the Consumer Financial Consumer Financial Services
Services Committee) Committee)
Maureen Young,

http://apps.americanbar.org/buslaw/committees/CL230044pub/links.shtml[2/16/2011 8:04:56 PM]


maureen.young@bingham.com,
415-393-2788
(financial institutions
regulatory and transactional)
4. Materials will be posted under one of the following headings:
Federal court decisions (chronologically, with most recent first)
Federal Statutes
Federal agency regulations and other actions
State court decisions (chronologically, with most recent first)
State Statutes
State agency regulations and other actions
Commentaries (law review and other scholarly articles, consumer and law firm
commentaries, etc.)
At some future time, the editors may decide that more specific categories would be
useful. For the time being, however, we believe the creation of more specific
categories would be time-consuming and counterproductive, and that users can decide
on their own what is and isn't useful to them.
5. Technical problems should be brought to the attention of Frank Hillis or LaVaughn
Haynes at the American Bar Association.
6. Other comments and suggestions about this site should be sent to Mike Roster,
mroster988@gdw.com 510- 446-3401and/or Mike Tomkies mtomkies@dltlaw.com
614-628-1603, the managing editors for the site.

Web Postings
.::: About this Site :::.

Federal court decisions (shown chronologically, with most recent first)

View link
King v. HomeSide Lending, Inc., et al., 2007 U.S. Dist. LEXIS 24576, No.
2:03-2134 (S.D. W.Va. Mar. 30, 2007). The United States District Court for the
Southern District of West Virginia held that the Home Owners Loan Act and
related OTS regulations do not "completely preempt" state law claims, as
HOLA and the related OTS regulations do not provide an exclusive cause of
action or remedy against federal savings banks and thrifts. The borrowers sued
for alleged illegal collection practices, unauthorized charges, breach of duty of
good faith, improper collection of default fees by attorney, and unconscionable
contract, pursuant to the West Virginia Consumer Credit and Protection Act,
W. Va.Code § 46A-1-101, et seq., and common law. The defendant answered,
raising the affirmative defense of preemption, and later sought to remove the
case to federal court based on complete preemption. Relying on the Fourth
Circuit Court of Appeals decision in Pinney v. Nokia, Inc., 402 F.3d 430 (4th
Cir. 2005), the court held that, in order to show that complete preemption is
present, "a defendant must establish that: (1) the plaintiff has a 'discernible
federal [claim]' and (2) that 'Congress intended [the federal claim] to be the
exclusive remedy for the alleged wrong.'" The court found that neither HOLA
nor any of the related OTS regulations completely preempt the plaintiffs'
causes of action inasmuch as there is no exclusive federal cause of action
arising under HOLA or its corresponding regulations. Among other things, the
court also rejected the defendant's argument that HOLA preemption raised a

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"substantial question of federal law" sufficient to warrant removal.

View link
State Farm Bank, F.S.B. v. Burke, Case No. 3:05CV808 (JBA), 2006 WL
1728919 (D. Conn. June 21, 2006). The United States District Court for the
District of Connecticut upheld the application of HOLA preemption to certain
qualified agents of a federal savings bank, affording "controlling weight" to an
OTS interpretive letter on the subject (P-2004-7, Oct. 25, 2004), as the position
taken by the OTS in its interpretive letter was not "plainly erroneous or
inconsistent with OTS regulations."

View link
Forness v. Cross Country Bank, No. 05-CV-417-DRH (S.D. Ill. Jan. 13, 2006).
The court denied a plaintiffs' motion to remand a case that had been removed
based on complete preemption of the asserted claims under Section 521 of
DIDMCA (12 USC § 1831d). The plaintiffs claimed that the defendants
charged various fees bearing no relationship to the related costs, and thereby
"committed a variety of unfair and deceptive trade practices." They asserted
that their lawsuit was about deceptive and misleading fees, not the amount of
the fees in themselves. Accordingly, plaintiffs argued, preemption under
Section 521 of DIDMCA did not apply and removal was improper. The court
disagreed, and held not only that Section 521 of DIDMCA allows complete
preemption (allowing a defendant to remove the case, rather than merely assert
an affirmative defense), but also that the substance of plaintiffs' allegations was
in fact to challenge the amount of the fees, such that preemption under Section
521 of DIDMCA applied.

View link
Kroske v. U.S. Bancorp ., No. 04-35187 (9th Cir. Dec. 23, 2005). The Ninth
Circuit held that the provision of the National Bank Act allowing national
banks to dismiss its officers "at pleasure" (12 U.S.C. s 24(5th)) did not
preempt the entire field of law regarding national banks' employment practices,
and did not preempt a former employee's state -law age discrimination claim.
The Ninth Circuit reasoned that, because Congress intended for national banks
to be subject to the federal anti-discrimination laws, and because those laws
conflict with the National Bank Act's "at-pleasure" provision, the federal
ADEA repealed by implication the National Bank Act's "at-pleasure"
provision. Because the state anti-discrimination statute at issue essentially
mirrored the ADEA, and because there was no clear Congressional intent to the
contrary, the Ninth Circuit concluded that the National Bank Act's "at-
pleasure" provision did not preempt the state anti- discrimination statute, even
though the state law was more expansive in scope than the ADEA.
Accordingly, the Ninth Circuit reversed the lower court's grant of summary
judgment for the bank on an age discrimination claim under the Washington
Law Against Discrimination.

View link
Wachovia Bank, N.A. v. Watters, No. 04-2257 (6th Cir. Dec. 19, 2005).
Following rulings of the Second and Ninth Circuits and several district courts,
the Sixth Circuit upheld the OCC's extension of National Bank Act preemption
to operating subsidiaries of national banks. The Sixth Circuit held that the OCC
did not exceed its Congressional grant of authority when it promulgated
operating subsidiary rules (applying Chevron deference to those rules) that
preempted Michigan's attempt to assert regulatory and licensing authority over

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a mortgage lending operating subsidiary of Wachovia Bank, N.A.

View link
OCC v. Spitzer, No. 05-CV-5636 (S.D.N.Y. Oct. 12, 2005); Clearing House
Ass'n v. Spitzer, No. 05- CV-5269 (SHS) (S.D.N.Y. Oct. 12, 2005). The court
granted the Office of the Comptroller of the Currency's and The Clearing
House Ass'n, LLC's applications for permanent injunctions against New York
Attorney General Spitzer's attempts to enforce the Fair Housing Act against
national banks and their operating subsidiaries. Under these rulings, the state
Attorney General is permanently enjoined from enforcing the FHA against
national banks and their operating subsidiaries.

View link (Aug. 12, 2005)


Wells Fargo Bank, N.A. v. Boutris, 419 F.3d 949 (9th Cir. 2005). The Ninth
Circuit upheld the application of National Bank Act preemption to operating
subsidiaries of national banks, but found that California's "per diem" interest
limitation (Cal. Civ. Code Section 2948.5(a)) was not preempted under Section
501 of DIDMCA.

View link (Aug. 11, 2005)


In re Community Bank of Northern Virginia, 418 F.3d 277 (3rd Cir. 2005). The
Third Circuit held that Section 521 of DIDMCA (a/k/a Section 27 of the FDIA)
completely preempts state-law usury claims, and must be interpreted in pari
materia with Sections 85 and 86 of the National Bank Act.

View link (Aug. 9, 2005)


Sweeney v. Savings First Mortgage, LLC, 388 Md. 319 (Md. App., Aug. 9,
2005). A Maryland appellate court held that Section 501 of DIDMCA only
operates with respect to state laws that regulate creditors. Because the
mortgage broker defendant was not a creditor, it could not avail itself of
preemption under DIDMCA.

View link
Wachovia Bank, N.A. v. Burke, Case No. 04-3770-CV (2d Cir. July 11, 2005).
The Second Circuit held that federal law preempts state regulation of a national
bank operating subsidiary to the same extent that it preempts regulation of a
parent national bank. The court deferred to OCC regulations affording such
operating subsidiaries the same powers as their parent national banks.

View link
American Bankers Association v. Gould (a/k/a ABA v. Lockyer) Nos. 04-16334
and 04-16560 (9th Cir. June 20, 2005). The Ninth Circuit held that the federal
Fair Credit Reporting Act preempts at least some part (maybe all) of the
California Financial Information Privacy Act's (Cal. "SB1") affiliate
information-sharing provisions. The court remanded the case to the district
court for further proceedings as to which SB1 affiliate-sharing provisions, if
any, are not preempted.

View link
OCC v. Spitzer, No. 05- CV-5636 (S.D.N.Y filed June 16, 2005); Clearing
House Ass'n v. Spitzer, No. 05-Civ.-5269(SHS) (S.D.N.Y filed June 16, 2005).
In a highly publicized dispute regarding whether the Office of the Comptroller
of the Currency has exclusive jurisdiction over national bank entities as to fair
lending matters, the OCC filed a lawsuit against New York's Attorney General,

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Eliot Spitzer. The OCC seeks a declaratory judgment and permanent injunction
barring the New York State AG from interfering with the OCC's supervision
and examination of national banks and their operating subsidiaries, particularly
with regard to the enforcement of federal or state fair lending laws. The
Clearing House Association, L.L.C. filed a similar lawsuit. The CHA action
seeks to enjoin Spitzer from investigating or taking any other action to enforce
federal or state fair lending laws against its national bank members and their
operating subsidiaries, or otherwise asserting visatorial powers over those
entities. Numerous entities have filed amicus briefs in the two cases, including,
34 attorneys general, including those of the District of Columbia and the
Commonwealth of Puerto Rico; the NAACP Legal Defense & Educational
Fund, Inc.; the National Community Reinvestment Coalition; the Center for
Responsible Lending; the National Fair Housing Alliance; the AARP; the
National Association of Realtors; the American Bankers Association; the
Consumer Bankers Association and the Financial Services Roundtable, among
others.

View link
Turnbaugh v. National City Bank of Indiana, 367 F Supp.2d 805, (D.C. Md.,
April 15, 2005). District court held that Maryland law restricting prepayment
fees imposed by mortgage lenders was preempted as to national banks and
their operating subsidiaries under the National Bank Act and OCC regulations.
The court found the OCC preemption regulations to be a reasonable
interpretation of the National Bank Act. The court enjoined the Maryland
Commissioner of Financial Regulation from exercising visitorial and regulatory
power over the operating subsidiaries of national banks.

View link
Jamal v WMC Mortgage Corp., Case No. 04- CV-5489, 2005 WL 724204
(E.D. Pa. March 28, 2005). On a motion to remand to state court, the Federal
District Court for the Eastern District of Pennsylvania held that based on the
statutory language the Truth in Lending Act (as amended by the Home
Ownership Equity Protection Act), Equal Credit Opportunity Act and Real
Estate Settlement Procedures Act preempt states' statutory scheme only in the
event and to the extent that a state law conflicts with these federal acts and
accompanying regulations. The court concluded that "conflict" preemption does
not equate to complete preemption and this while the defendants may raise
preemption as a defense in the state court action, the raising of a federal
defense does not, of itself, support removal. The court remanded the case to
state court.

View link
Bankwest, Inc. v. Baker, 2005 WL 1367795 (11th Cir. June 10, 2005). The
United States Court of Appeals for the Eleventh Circuit affirmed the district
court decision denying a preliminary injunction to bar enforcement of the
Georgia Payday Lending statute. The court declined to give Chevron deference
to the Federal Deposit Insurance Corporation stating that Chevron deference is
not warranted for "opinion letters, policy statements, manuals and the like."
The court distinguished the broad federal preemption authority of national
banks based on the National Bank Act with the narrow authority of state banks.
The court concluded that the portion of the Georgia law that voids an out-of-
state bank's loan procured by an in -state agent under a prohibited agency
agreement is not preempted.

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View link
Massachusetts Bankers Association v. Bowler, Civil Action No. 03-11522-
RWZ (D. Mass. Jan. 10, 2005). The United States District Court for the District
of Massachusetts ruled that four provisions of Massachusetts bank-insurance
sales law are preempted by the Gramm -Leach-Bliley Act (GLBA). The court
relied on Section 104 of GLBA, which incorporated the standard enunciated by
the United States Supreme Court in Barnett Bank v. Nelson, 517 U.S. 25
(1996), to prohibit the state from 'preventing or significantly interfering' with
the ability of a bank to engage in insurance sales, solicitation or cross-
marketing activities.

Alkan v. Citimortgage Inc., ___ F.Supp. 2d ___ (N.D. Cal. 2004), 2004 U.S.
Dist. LEXIS 19316, 2004 WL 2125857. The United States District Court for
the Northern District of California has denied defendant Citimortgage Inc.'s
motion to dismiss a case filed by a mortgage borrower alleging violations of,
inter alia, the California Rosenthal Fair Debt Collection Practices Act
(CFDCPA) for failure to state a claim. The District Court rejected
Citimortgage's argument that because debt collection is an essential part of
lending practices, any limitation on debt collection constitutes a lending
regulation. Comparing illustrative examples of lending regulations in
Regulation 560.2(b) (i.e., laws affecting loan terms, interest rates, security
requirements, loan-related fees, escrow account requirements and processing or
servicing issues) to the practices regulated by CFDCPA (i.e., making harassing
telephone calls, using obscene language or engaging in threatening conduct to
collect a debt after a loan is made), the court concluded that the CFDCPA was
too dissimilar from Regulation 560.2 examples to constitute a "lending
regulation." In reaching this conclusion, the court relied on Hussey-Head v.
World Savings & Loan Association, 111 Cal. App. 4th 773, 782 (2003), which
held that the California Consumer Credit Reporting Agencies Act was not
preempted by Regulation 560.2(a) because "[t]he California statutory scheme
does not come into play until after a loan is made or credit otherwise extended,
and it does not affect the manner in which the lender services or maintains the
loan." The same is true for the CFDCPA, posited the Alkan court, so the
CFDCPA does not constitute a lending regulation and the plaintiff's claims
under the CFDCPA are not preempted.

View link
Wachovia Bank, N.A. v. Watters, No. 5:03 -CV-105 (W.D. Mich. August 30,
2004). Judge Robert Holmes Bell ruled for Wachovia Bank, N.A. and
Wachovia Mortgage Corporation in their case against the Michigan Office of
Insurance and Financial Services. The OIFS had sought to force WMC to
register as a licensed lender and generally submit to the OIFS's regulatory
oversight. WMC asserted that as an operating subsidiary of a national bank it
was exempt from Michigan's regulatory scheme pursuant to the National Bank
Act and the Office of the Comptroller of the Currency's implementing
regulations. The court held that the licensing and oversight requirements are
preempted because they created impermissible conditions upon the authority of
a national bank to do business.

View link
Karis House, Inc. v. Bank of America, No. CV 04‑2898 (C.D. Cal. July
19, 2004). The United States District Court for the Central District of
California held a national bank could be sued in state court on state law claims
where removal of the action to federal court was not proper because the court

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lacked diversity and federal question jurisdiction. The plaintiff claimed that a
national bank (i) committed an unfair business practice under Section 17200 of
California's Business and Professions Code and (ii) caused the plaintiff to
violate Section 212 of the California Labor Code (which requires employers to
issue paychecks that are negotiable and payable in cash, on demand, without
discount at some established place of business in California) by instituting a
policy of charging a $5 check cashing fee to non‑accountholders
without informing the plaintiff of this policy. The court found that the parties
shared California citizenship so diversity jurisdiction was lacking and that the
plaintiff's Section 17200 claim was not preempted by Section 484 of the
National Bank Act.

View link
National Home Equity Mortgage Association v. Office of Thrift Supervision,
No. 03- 5204 (D.C. Cir., July 13, 2004). On July 13, 2004, the United States
Court of Appeals for the District of Columbia Circuit ruled that the Office of
Thrift Supervision (OTS) did not exceed its statutory authority in promulgating
a final rule pursuant to the Alternative Mortgage Transaction Parity Act, 12
U.S.C. §§ 3801 et seq. ("Parity Act"), designating certain of its alternative
mortgage transaction regulations (e.g., prepayment penalty and late fee
regulations) inapplicable to state-chartered housing creditors. The National
Home Equity Mortgage Association had sought an order declaring the final
rule, published at 67 Fed. Reg. 60,542 (Sept. 26, 2002), invalid. The appeals
court's decision affirmed a grant of summary judgment in favor of the OTS by
the district court. See 271 F. Supp. 2d 264 (D.D.C. 2003). The district court
had concluded that the Parity Act was ambiguous with regard to the scope of
state law preempted and that the OTS' interpretation of the extent of such
preemption was based upon a permissible construction of the statute and was
therefore entitled to deference under Chevron. See 271 F. Supp. 2d at 270-71,
273; see also Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837 (1984).

View link
ABA v. Lockyer
On June 30, 2004, the United States District Court for the Eastern District of
California held that the California Financial Information Privacy Act, Cal. Fin.
Code §§ 4050 et seq., enacted by 2003 Cal. S.B. 1 (effective July 1, 2004)
(FIPA), is not preempted by the federal Fair Credit Reporting Act (FCRA).
Three trade groups (the American Bankers Association, the Financial Services
Roundtable and the Consumer Bankers Association) filed suit in April 2004
alleging that the FIPA is preempted in part by the FCRA, which provides that
no requirement or prohibition may be imposed under the laws of any state with
respect to the exchange of information among affiliates. See 15 U.S.C. §
1681t(b)(2). The court rejected the plaintiff's arguments, concluding that (i) the
FCRA was not intended to regulate the simple sharing of information between
affiliates, (ii) the only reasonable reading of the FCRA preemption provision is
that it prevents states from enacting laws that prohibit or restrict the sharing of
consumer reports among affiliates and (iii) the FCRA preemption provision
does not broadly preempt all state laws regulating information sharing by
affiliates. In addition, the court looked to the federal Gramm-Leach-Bliley Act
(GLBA), 15 U.S.C. § 6809(3)(A), and found that the GLBA savings clause
preserving states' ability to enact laws providing greater protection against
dissemination of financial information than the GLBA weighed heavily against
preemption by the FCRA. Accordingly, the court granted summary judgment

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for the defendants, who included Attorney General Bill Lockyer,
Commissioner of the Department of Financial Institutions Howard Gould,
Commissioner of the Department of Corporations William P. Wood and
Commissioner of the Department of Insurance John Garamendi.

View link
Wachovia Bank, N.A. v. Burke, No. CIV.A. 303CV0738JCH (D. Ct., May 25,
2004). The United States District Court concluded that if a state regulation
interferes with a national bank's operation of the business of banking through
an operating subsidiary, a power which national banks are authorized to
exercise, then the state regulation is preempted. Wachovia filed suit in April of
2003 challenging Connecticut's authority to license and supervise Wachovia
Mortgage Corporation, a wholly‑owned operating subsidiary of
Wachovia Bank, N.A. Wachovia claimed that federal law preempts the
authority of state officials to regulate the operating subsidiaries of national
banks. Thirty‑five state attorneys general, supported by 43 state bank
commissioners, filed an amicus brief in support of Connecticut Banking
Commissioner John P. Burke. In granting Wachovia's motion for summary
judgment, the court agreed with Wachovia's conflict preemption analysis,
holding that 12 C.F.R. § 7.4006, the Office of the Comptroller of the
Currency's rule on operating subsidiaries, is a reasonable interpretation of the
National Bank Act, entitling plaintiffs to a declaratory judgment that the
Commissioner cannot enforce the Connecticut state laws in issue against
Wachovia Bank's operating subsidiary, Wachovia Mortgage Corporation, in
connection with the subsidiary's mortgage lending business. The OCC's
determination, that state regulation of operating subsidiaries to a greater extent
than regulation of national banks themselves would potentially hinder the
bank's "incidental" power, granted by regulation and implicitly acknowledged
by statute, to conduct its banking business through a subsidiary, is reasonable,
the court wrote. The court also found it reasonable for the OCC to conclude
that its "surveillance, as it applies to the activities here, should be exclusive and
preemptive." (Emphasis in the original.)

Chevy Chase Bank, F.S.B. v. Wells, 124 S. Ct. 1875 (2004). The United States
Supreme Court denied a petition for certiorari. In Wells v. Chevy Chase Bank,
F.S.B. 377 Md. 197 (2003) [View link], cert. denied, 124 S. Ct. 1875 (2004),
the Maryland Supreme Court found that a federal savings bank's contractual
undertakings are not preempted under 12 C.F.R. § 560.2 where a credit card
agreement expressly selected as its governing law Subtitle 9 of Title 12 of
Maryland's Commercial Law. The Maryland court remanded Wells so that a
lower court could apply state law contract interpretation to determine the
parties' rights and obligations under the agreement.

Flagg v. Yonkers Sav. & Loan Ass'n , 307 F. Supp. 2d 565 (S.D.N.Y. 2004).
The United States District Court for the South District of New York concluded
that a general choice of law clause is insufficient as a matter of law to
incorporate by reference preempted state laws as prevailing terms of a contract.

View link
New York v. County Bank of Rehoboth Beach, No. 1:03 -CV-1320 (N.D.N.Y.
May 25, 2004). The United States District Court for the Northern District of
New York granted a motion to remand in a case involving a Delaware-
chartered bank and its agents, two Pennsylvania-based companies. The New

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York Attorney General brought suit in New York state court in October 2003,
alleging numerous violations of New York law by the agents in the making of
short-term "payday loans" to New York residents, aided and supported by the
bank. The agents successfully removed the case to federal court on grounds of
federal preemption under Section 27 of the Federal Deposit Insurance Act. On
motion to remand, the District Court concluded that because (i) the claims
against the bank included only allegations of criminal facilitation, fraudulent
business conduct and deceptive business practices, none of which is preempted
by federal law, (ii) the state law usury claims were against the non-bank parties
only and (iii) the weight of authority argues against federal preemption, the
court lacked federal subject matter jurisdiction in this case. The District Court
distinguished Hudson v. Ace Cash Express, Inc., 2002 WL 1205060 (S.D. Ind.
2002), and Krispin v. May Dept. Stores Co., 218 F.3d 919 (8th Cir. 2000),
while citing with approval Flowers v. EZ Pawn Oklahoma, Inc., 307 F.
Supp.2d 1191 (N.D. Okla. 2004).

View link
Bankwest, Inc. v. Baker, No. 1:04-CV-988-MHS (N.D. Ga. May 13, 2004).
The United States District Court for the Northern District of Georgia denied a
motion for preliminary injunction against implementation of a Georgia payday
lending law to the in -state agents of out -of-state banks where the in-state
agents were allegedly the true lenders on Georgia payday loans under Georgia
law.

Bank of America v. City of Daly City (no government link currently known)
(N.D. Cal July 29, 2003) The Federal District Court that upheld preemption
with respect to the Fair Credit Reporting Act. However, the judge did not
address the National Bank Act question. Also, while affiliate sharing is
protected by the court as a matter of preemption under the FCRA, the court
upheld the local ordinances' restrictions on the sharing of information between
financial institutions and non-affiliated third parties.

View link
National Home Equity Mortgage Association v. Office of Thrift Supervision, et
al., 2003 WL 21663983 (D.D.C. July 14, 2003) The United States District
Court of the District of Columbia granted defendants' motion for summary
judgment and found that "it is rationale for the OTS to conclude that its
comprehensive regulatory framework - including examination, supervision, and
enforcement - governing federal institutions is adequate to discourage
predatory lending practices among federal institutions."

Bank One v. Wilens (no government link currently known) 2003 WL 21697749
(C.D. Cal. July 8, 2003) The court held that "only the Office of the Comptroller
of the Currency or an authorized representative of the OCC may exercise
visitorial powers over national banks."

View link
Beneficial National Bank v. Anderson 123 S.Ct. 2058 (2003) The U.S. Supreme
Court held that "Congress created an exclusive federal usury remedy precisely
to avoid subjecting national banks to the potentially draconian remedies of
state usury law. State law actions that are "artfully plead" to avoid federal law
expose national banks to the very danger that Congress sought to avoid." (June
2, 2003)

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View link
Jessup v. Pulaski, No. 02- 3314, 2003 WL 21000812 (8th Cir. May 5, 2003).
The Eighth Circuit held that Gramm -Leach-Bliley Financial Modernization
Act allows a federally -insured Arkansas banks to charge interest at a rate
allowed by the state of any out-of-state bank with a branch office in Arkansas,
except when the Arkansas bank has "made" the loan in any state other than
Arkansas. Such rate may be imposed without regard to the location of the
borrower (i.e., "exported"). For purposes of the GLBFMA governing state law
interest rate caps on loans made by federally insured state banks, a loan is
"made" at the location of the branch that approves the loan, extends credit and
disburses the funds.

View link
In American Bankers Association v. Lockyer, NO. CIV. S -02-1138 FCD JFM
(E.D. Cal., Dec. 23, 2002), the California federal district court invalidated on
federal preemption grounds the entire California minimum payment periodic
statement disclosure law (Civil Code Section 1748.13) with respect to national
banks, federal savings associations or savings banks and federal credit unions.

View link
In Cline v. Hawke, 2002 WL 31557392 (4th Cir. Nov. 19, 2002), an
unpublished opinion of a three-judge panel of the United States Court of
Appeals for the Fourth Circuit, the court upheld an OCC opinion that
concluded that Section 104 of the Gramm -Leach-Bliley Act (" GLBA")
preempts certain portions of the West Virginia Insurance Sales Consumer
Protection Act ("CPA").

View link
or
View link
In Bank of America v. City and County of San Francisco, 309 F.3d 551 (9th
Cir. 2002), the U.S. Court of Appeals for the Ninth Circuit held that national
banks and federal savings associations need not comply with ordinances
limiting ATM fees enacted by San Francisco and Santa Monica due to federal
preemption.

View link
The Ninth Circuit Court of Appeals held that federal law preempted California
Civil Procedure Code Section 704.080 exempting social security and SSI
benefits from any enforcement action. Lopez v. Washington Mutual Bank, FA,
2002 WL 1792494 (9th Cir. 2002).

View link
Association of Banks in Insurance Inc. v. Duryee, 270 F. 3d 397 (6th Cir.
2001). The U.S. Court of Appeals for the Sixth Circuit held that Section 92 of
the National Bank Act overrides Ohio insurance agent licensing requirements.

View link
Valley National Bank v. LaVecchia, No. 99- 1222 (D.N.J. June 16, 1999). The
federal district court held that Section 17:46B-30.1 of New Jersey law
prohibiting the issuance of title insurance agent license to a business affiliated
with a national bank was preempted by Section 92. BNA Banking Report, Vol.
72, No. 25, June 21, 1999, at 1125.

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Gutter v. Bank One, Louisiana, N.A., 1997 WL 722952 (E.D. La., Nov. 17,
1997) and Pippen v. Regions Bank, 1997 WL 627560 (E.D. La., Oct. 9, 1997)
relied on Doe v. Norwest Bank, 107 F. 3d 1297 (8th Cir. 1997) to conclude that
"collateral protection insurance" did not, as a matter of law, constitute
"interest" within the meaning of Section 85.

View link
Doe v. Norwest Bank Minnesota, N.A., 107 F.3d. 1297 (8th Cir. 1997).
Interpreting Smiley and OCC Interpretive Rule 7.4001, the court held that
collateral protection insurance premiums charged to borrower's account did not
constitute "interest" under National Bank Act (12 U.S.C. § 85).

[an error occurred while processing this directive] Barnett Bank v. Nelson, 517
U.S. 25 (1996)
View link
Landmark case upholding preemption of the state law restricting a national
bank acquisition of an insurance agency, based on 12 U.S.C.

View link
Smiley v. Citibank (South Dakota), N.A., 116 S. Ct. 1730 (1996). In deferring
to the Comptroller's interpretation, the court upheld as reasonable the
Comptroller's regulation defining "interest."

View link,
First Nat'l Bank v. Missouri, 263 U.S. 640 (1924); and

View link,
Davis v. Elmira Sav. Bank, 161 U.S. 275 (1896) — National banks are not
subject to state law if state law conflicts with, or frustrates the purpose of,
federal legislation or disrupts national banks in their performance as federal
"agencies."

View link
Barnett Bank of Marion County, N.A. v. Bill Nelson, Florida Insurance U.S.
Commissioner, 517 U.S. 25 (1996). The Supreme Court held that a Florida law
which forbade banks in Florida from selling insurance was preempted by a
federal statute that expressly authorized national banks to sell insurance. The
Court concluded that a state statute may regulate national banks "where...doing
so does not prevent or significantly interfere with the national bank's exercise
of its powers." Id. at 31. When a state statute interferes with a power which
national banks are authorized to exercise, the state statute "irreconcilably
conflicts" with the federal statute and is preempted under the Supremacy
Clause.

First Gibraltar Bank, FSB v. Morales, United States Court of Appeals, Fifth
Circuit, April 29, 1994.
The Court held that a Texas homestead law is preempted by federal law, and
that the OTS did not exceed its authority in preempting such Texas law, to the
extent that the Texas law prohibits either federal or state savings associations
from taking enforceable security interests in homestead property through
reverse annuity mortgages and line of credit conversion mortgages.

Greenwood Trust Co. v. Massachusetts, 971 F.2d 818, 823 (1st Cir. 1992), cert.
denied, 506 U.S. 1052, 113 S.Ct. 974, 122 L.Ed.2d 129 (1993). The First

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Circuit Court of Appeals held that late charges are a form of interest, and that
the State of Massachusetts could not bar an out -of-state state -chartered bank
from charging late -payment fees on delinquent credit -card accounts in
Massachusetts .

[an error occurred while processing this directive] The Guerra case provides
an overview of the various types of federal preemption:

In determining whether a state statute is pre-empted by federal law and


therefore invalid under the Supremacy Clause of the Constitution, our sole
task is to ascertain the intent of Congress. See Shaw v. Delta Air Lines,
Inc., 463 U.S. 85, 95 (1983); Malone v. White Motor Corp., 435 U.S. 497,
504 (1978). Federal law may supersede state law in several different ways.
First, when acting within constitutional limits, Congress is empowered to
pre-empt state law by so stating in express terms. E. g., Jones v. Rath
Packing Co., 430 U.S. 519, 525 (1977). Second, congressional intent [479
U.S. 272, 281] to pre -empt state law in a particular area may be inferred
where the scheme of federal regulation is sufficiently comprehensive to
make reasonable the inference that Congress "left no room" for
supplementary state regulation. Rice v. Santa Fe Elevator Corp., 331 U.S.
218, 230 (1947). Neither of these bases for pre- emption exists in this case.
Congress has explicitly disclaimed any intent categorically to pre-empt
state law or to "occupy the field" of employment discrimination law. See
42 U.S.C. 2000e-7 and 2000h-4.

As a third alternative, in those areas where Congress has not completely


displaced state regulation, federal law may nonetheless pre-empt state law
to the extent it actually conflicts with federal law. Such a conflict occurs
either because "compliance with both federal and state regulations is a
physical impossibility," Florida Lime & Avocado Growers, Inc. v. Paul ,
373 U.S. 132, 142 -143 (1963), or because the state law stands "as an
obstacle to the accomplishment and execution of the full purposes and
objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67 (1941).

Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984)


View link
Seminal case on judicial review of agency actions, holding that a federal court
should defer to a permissible interpretation of an ambiguous provision in a
federal statute that is administered by that agency.

View link
For federally chartered thrifts, HOLA preemption of state laws based on OTS'
(formerly FHLBB's) plenary power to regulate federal thrifts' lending practices.
See Fidelity Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141 (1982).

Fidelity Federal Savings and Loan Association v. de la Cuesta, 458 U.S. 141
(1982)
View link

Lewis v. BT Investment Advisors, 447 U.S. 27 (1980)


View link
The Commerce Clause bars a state from excluding out-of-state trust companies

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seeking to do business in that state.

View link
Marquette National Bank v. First Omaha Service Corporation, 439 U.S. 299
(1978). the Supreme Court held that the interest rate that a national bank may
charge in a credit card program is governed by federal law, not state law.
Under 12 U.S.C. § 85, national banks may charge interest rates permitted under
the law of the state in which they are located on an extension of credit made to
a resident of another state.

View link

Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977)


Federal law preempts state law only where the United States Congress intends
for it to do so.

Fisher v. The First National Bank of Chicago, 538 F.2d 1284 (1976).
Upholding a national bank's most favored lender status, the Court held that an
Illinois interest rate statute applied to a national bank with its principal place of
business in Illinois, but if the bank was "existing" in Iowa, and Iowa allowed a
higher rate of interest to its own state banks, the national bank could charge
such higher rate to the bank's customers in Iowa.

Tiffany v. The National Bank of the State of Missouri, 85 U.S. 409 (1874).
The Supreme Court enunciated the most favored lender status for national
banks, holding that Congress intended that 12 U.S.C. Section 85 place national
banks in a position of limited advantage over state banks by allowing them to
charge interest at the highest rate applicable under state law to lenders
generally and not necessarily at the rate applicable to state banks, which might
be lower.

Florida Lime and Avocado Growers, Inc. v. Paul, 373 U.S. 132 (1963)
View link

Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132 (1963).
Congress' intent to preempt may be implied where federal and state laws
conflict such that both laws cannot be complied with and obeyed. A conflict
exists when compliance with both federal and state regulations is a physical
impossibility.

Franklin National Bank v. New York, 347 U.S. 373 (1954)


View link
National bank Act preempts state law restricting advertising of savings
accounts.

California v. Coast Federal Savings and Loan Association, 98 F. Supp. 311


(S.D.Cal. 1951)
Seminal Case for HOLA preemption, citing "cradle to grave" authority of
Federal Home Loan Bank Board, now OTS (no publicly available website
link).

Rice v. Santa Fe Elevator Corp., 331 U.S. 218 (1947)


The Supreme Court stated that the "scheme of federal regulation may be so
pervasive as to make reasonable the inference that Congress left no room for

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the States to supplement it."

Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947)


View link

View link,
Anderson Nat'l Bank v. Luckett, 321 U.S. 233 (1944);

Hines v. Davidowitz, 312 U.S. 52, 57 (1941)


View link

Hines v. Davidowitz, 312 U.S. 52 (1941).


Preemption of the state law will occur if a court finds that the state law "stands
as an obstacle to the accomplishment and execution of the full purposes and
objectives of Congress."

View link Evans v. National Bank of Savannah, 251 U.S. 108, 114 (1919) —
The Supreme Court stated that "federal law ... completely defines what
constitutes the taking of usury by a national bank, referring to the state law
only to determine the maximum permitted rate."

View link
Easton v. Iowa, 188 U.S. 220 (1903)

View link
Haseltine v. Central Bank of Springfield, 183 U.S. 132, 134 (1901) — [T]he
definition of usury and the penalties affixed thereto must be determined by the
National Banking Act and not by the law of the State".

View link
Farmers' and Mechanics' Nat. Bank v. Dearing, 91 U.S. 29, 32—33 (1875) —
The Supreme Court rejected the borrower's attempt to have an entire debt
forfeited, as authorized by New York law, stating that the various provisions of
§§ 85 and 86 "form a system of regulations ... [a]ll the parts [of which] are in
harmony with each other and cover the entire subject," so that "the State law
would have no bearing whatever upon the case." The Court also observed that
"[i]n any view that can be taken of [§86], the power to supplement it by State
legislation is conferred neither expressly nor by implication." Id., at 35.

View link --
McCulloch v. Maryland, 17 U.S. 316 (1819) (USSCt)

Preemption of New Mexico Home Loan Protection Act


Federal law preempts various provisions of the New Mexico Home Loan
Protection Act for federal savings associations.
View link

Federal Statutes

United States Code, Title 12 — Banks and Banking


View link
This title includes the National Bank Act, see particularly 12 U.S.C. § §
24(Seventh) (national bank powers), 481 (OCC examination, supervision, and

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"visitorial" powers, and the Home Owners Loan Act, as recodified in 1989, see
particularly 12 U.S.C. § 1464 (OTS chartering authority and federal savings
association powers).

Gramm-Leach Bliley Act of 1999 (P.L. 106-102, 113 STAT 1338) This statute
amends the Bank Holding Company Act to allow affiliations between banks,
investment banks, insurance underwriters, and other "financial" companies.
While preserving authority of states to regulate the business of insurance under
the McCarran-Ferguson Act, the act includes complex provisions in Section
104 that override state actions that have the effect of preventing, discriminating
against, or unduly burdening any insured bank or thrift and any affiliate in
selling or cross- marketing insurance or any other type of financial product.
View link

Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (P.L.


103-328, 108 STAT. 2338). Authorizes interstate acquisitions of insured banks
and establishment of interstate branches. Generally preserves preemption under
the National Bank Act, but requires the OCC take public new preemption
interpretations for public comment.
View link

Riegle-Neal Amendments of 1997 Amends Riegle -Neal to provide that the


home state law of a state chartered bank applies to its interstate branches to the
same extent that the National Bank Act applies to interstate branches of a
national bank.
View link

Federal agency regulations and other actions

View Link
The FDIC received numerous comments regarding its notice of proposed
rulemaking to amend its regulations regarding insured state banks (see
discussion below). Three such comment letters are attached. The entire
collection of comment letters is available at:
http://www.fdic.gov/regulations/laws/federal/2005/05comprointerstate.html.

View Link 1 (7/27/2005)


View Link 2 (8/2/2005)
In two separate Interpretive Letters (Nos. 1054 and 1055), the Office of the
Comptroller of the Currency confirmed its prior interpretations (OCC
Interpretive Letters 932, 933 and 934) and the Fifth Circuit's ruling in Wells
Fargo Bank of Texas, N.A. v. James, 321 F.3d 488 (5th Cir. 2003), that state
statutes prohibiting "on-us" check cashing fees do not apply to national banks.
"On-us" fees refer to the fees a bank charges for cashing a check drawn on one
its customer's accounts but presented by a non- accountholder, and are
sometimes described as convenience fees charged for the service of making
funds immediately available to non-customers.

View link
OTS Opinion Letter from John E. Bowman, Esq., Chief Counsel (Mar. 7,
2006), OTS 06-010. The Office of Thrift Supervision concluded that federal
law preempts the application to federal savings associations of recent
amendments to the Code of Montgomery County, Maryland. According to the

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OTS, federal law preempts the county ordinance to the extent the county
ordinance purports to prohibit federal savings associations and their operating
subsidiaries from making mortgage loans in Montgomery County that include
certain lending terms outlined in the law. In addition, with regard to provisions
of the county ordinance designed to address discriminatory lending activities,
the agency's opinion concludes that only OTS has the authority to enforce such
laws against a federal savings association and its operating subsidiaries, and
that the OTS would work with County officials to address any consumer
complaints received by the County alleging discriminatory lending activities by
a federal savings association or operating subsidiary.

View link (10/14/2005)


Responding to a petition for rulemaking and public hearings held on that
petition earlier in the year, the FDIC issued a notice of proposed rulemaking to
amend its regulations regarding insured state banks. Generally, the proposed
rules would provide that the home state laws of an insured state bank apply to
the interstate activities of the bank and its operating subsidiaries to the same
extent that the National Bank Act applies to the interstate activities of national
banks and their operating subsidiaries. The proposed rules would also
implement the federal statutory provisions regarding interest charged by
insured state banks and insured U.S. branches of foreign banks. Comments
must be submitted by December 13, 2005.

View link (01/14/2005)


OCC Interpretive Letter #1016 concludes that neither 12 C.F.R. § 34.4 nor the
National Bank Act (see, e.g., 12 U.S.C. §§ 92a and 371) preempts application
of New Jersey Consumer Fraud Act, N.J. Stat. Ann. § 56.8-2 (respecting claims
and defenses), to loans simply because the loans were purchased and held by
national banks acting as trustees in connection with issuance of mortgage-
backed securities.

View link (10/25/2004)


OTS legal opinion finds that state licensing and registration requirements do
not apply to agents of federal savings associations where the agents perform
marketing, solicitation and customer service activities related to the federal
association's authorized banking powers. The opinion and appendix include a
number of conditions concerning, among other things, the need for written
agreements, training, compliance programs, OTS approvals and the like.

View link (09/20/2004)


OCC Interpretive Letter #1015 concludes that 12 C.F.R. Part 34 and the OCC's
past preemption opinions preempt Section 24-4.5-3-402 of the Indiana Code
(restrictions on the terms of balloon loans) when originating subordinate lien
mortgages.

View link (9/17/2004)


OTS legal opinion holds that a federal savings association may use and export
the interest rate on loans permitted by the state in which its home office is
located. The opinion further holds that the performance of certain non-
ministerial functions in another state in which the association has branch
offices does not necessitate the use of the interest rate of the branch office
state.

View link (08/19/2004)

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MS Word format
OCC Interpretive Letter 1006 to the National Association of State Treasurers
and National Association of Unclaimed Property Administrators clarifies that
the Office of the Comptroller of the Currency's preemption and visitorial
powers regulations do not change existing standards, established by U.S.
Supreme Court precedent and federal statute [12 U.S.C. § 484(a)], that govern
the applicability and enforcement of state unclaimed property and escheat laws.
Thus, states may review national banks' records to ensure compliance with
state unclaimed property or escheat laws.

View link (08/04/2004)


MS Word format
OCC Interpretive Letter No. 1004 concludes that pursuant to the "most favored
lender doctrine" under Section 85 of the National Bank Act [see 12 U.S.C. §
85; Tiffany v. National Bank of Missouri, 85 U.S. 409 (1885), and 12 C.F.R. §
7.4001(b)] and the Michigan "parity" statute, Mich. Comp. Laws §
487.14201(1), national banks can charge prepayment fees to the same extent as
federal savings associations if state banks can, as well.

View link (06/10/2004)


MS Word format
OCC Interpretive Letter 1005 to the National Conference of Commissioners on
Uniform State Laws and the American Law Institute concludes that neither the
Office of the Comptroller of the Currency's preemption regulations nor
judicially-developed standards of preemption applicable to laws not
specifically listed in the OCC's preemption regulations would preempt
provisions of the Uniform Commercial Code.

View link (05/13/2004)


MS Word format
OCC Interpretive Letter No. 1002 further clarifies the applicability of the
Office of the Comptroller of the Currency's (OCC) Preemption and
Determination and Order concerning the Georgia Fair Lending Act and the
OCC's new preemption rule to mortgage brokers.

View link (04/02/2004)


MS Word format
OCC Interpretive Letter No. 1000: (1) lists provisions of the Georgia Fair
Lending Act (GFLA) that are not preempted by the Office of the Comptroller
of the Currency's August 5, 2003 Preemption and Determination and Order
concerning GFLA; (2) explains that questions about the applicability of any
state insurance sales laws to national banks are outside the scope of the
Determination and Order and the new preemption rule; and (3) discusses the
applicability of the Determination and Order and preemption rule to mortgage
brokers.

View link (03/09/2004)


MS Word format
OCC Interpretive Letter No. 999 addresses concerns about the impact of the
Office of the Comptroller of the Currency's (OCC) preemption and visitorial
powers rules on consumers and reaffirms the OCC's commitment to assuring
that predatory lending practices have no place in the national banking system.

View link (03/09/2004)

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MS Word format
OCC Interpretive Letter No. 998 confirms that state anti- discrimination laws
are not preempted by the Office of the Comptroller of the Currency's new
preemption rule.

On February 12, 2004, OCC Chief Counsel Julie L. Williams explained the
OCC's new preemption rules and urged cooperation between the states and the
OCC in a speech before a conference of bank lawyers sponsored by the
Independent Bankers Association of Texas and the Texas Savings and
Community Bankers Association.

View link (news release)


View link (speech)

View link (News Release 2004-30)


View link (written testimony)
View link (oral testimony)
On April 20, 2004, Comptroller of the Currency John D. Hawke, Jr. presented
testimony before the Senate Banking Committee, observing that the national
banking system was strong and outlining the Office of the Comptroller of the
Currency's supervision program for various sizes of national banks, noting that
the OCC customizes its supervision to particular institutions and that OCC
examiners are supported by an extensive team of analysts, accountants,
economists, and attorneys in OCC district and headquarters offices, who
monitor industry, market, and economic trends, provide technical expertise,
and develop analytical tools and models to support the OCC's examination
functions. The OCC's supervisory capability has been a significant issue in the
debate over the OCC's preemption and visitorial powers rules.

View link (News Release 2004-28)


View link (written testimony)
View link (oral statement)
View link (links to other testimony and video archive)
On April 7, 2004, Comptroller of the Currency John D. Hawke, Jr. presented
testimony before the Senate Committee on Banking, Housing, and Urban
Affairs regarding the OCC's rules on preemption and visitorial powers.

View link (hearing statements and testimony)


On Thursday, April 01, 2004, the House Committee on Financial Services held
a hearing entitled "Oversight of the Office of the Comptroller of the Currency"
to discuss, among other things, the OCC's recent preemption rule. Opening
statements were made by Chairman Michael G. Oxley, Representative Peter
King, Representative Luis Gutierrez and Representative Rahm Emanuel.
Prepared testimony was presented by John D. Hawke, Jr., Comptroller of the
Currency.

View link (NR 2004-25)


View link (speech)
In a speech before the New York Bankers Association Financial Services
Forum on March 25, 2004, Julie L. Williams, Chief Counsel and First Senior
Deputy Comptroller of the Office of the Comptroller of the Currency, set forth
her most comprehensive statement regarding perceived misunderstandings and

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mischaracterizations of the new OCC rules on preemption and visitorial
powers, replying to recent criticisms, citing OCC accomplishments and
reiterating the OCC's commitment to consumer protection and good banking
practices.

View link (NR2004-24)


View link (proposed rule)
On March 24, 2004, the Office of the Comptroller of the Currency published a
proposed rule to assist consumers in identifying national bank operating
subsidiaries that are subject to OCC supervisory authority.

View link (speech)


In a speech before the New York Bar Association's Banking Law Committee
Luncheon in Manhattan on March 18, 2004, New York Banking Department
Superintendent Diane Taylor discussed the purpose of bank regulation,
preemption, and future challenges facing her Banking Department.

View link (NR 2004-18)


View link (speech)
On March 9, 2004, Julie L. Williams, Chief Counsel and First Senior Deputy
Comptroller of the Office of the Comptroller of the Currency, delivered a
speech to a America's Community Bankers Government Affairs Conference in
which Ms. Williams discussed perceived misunderstandings and
mischaracterizations of the new OCC rules on preemption and visitorial powers
and strongly aligned the OCC's new rule with the prevailing rules of the Office
of Thrift Supervision.

View Link (NR 2004-16)


View Link (AL 2004-2)
The Office of the Comptroller of the Currency issues Advisory Letter 2004-2
on March 1, 2004. The advisory letter supplements OCC Advisory Letter 2002-
9 by providing general guidance for national banks and their operating
subsidiaries on handling consumer complaints referred or sent to the national
bank by state officials. The guidance makes clear that the OCC expects national
banks to take steps to resolve consumer complaints fairly and expeditiously
regardless of the source of the complaint. The guidance also clarifies that the
referral of a complaint for resolution does not constitute a "visitation" under
Federal law and the OCC's rules and that national banks should not cite the
OCC's exclusive visitorial powers as a justification for not addressing the
complaint. In most cases, a national bank can deal with a complaint directly
without involving the OCC. However, if the state makes an effort to direct the
bank's conduct, exercise authority over the bank, or take enforcement action
against the bank, then the OCC asks national banks to bring the matter to the
OCC's attention. Where state officials forward a complaint and ask the bank to
follow up with information about how the complaint was resolved, the bank
should comply, provided that it can do so without compromising a customer's
privacy interests.

View link
December 17, 2003 Letter from Comptroller of the Currency John D. Hawke,
Jr. to Senator Paul S. Sarbanes explaining the Office of the Comptroller of the
Currency's position on preemption.

View link

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New York v. First Horizon Home Loan Corp. (filed 1/17/04). New York
Attorney General Eliot Spitzer filed suit, in New York State Supreme Court,
alleging wrongdoing by a subsidiary of First Tennessee National Corp., a
nationally chartered bank. The national bank subsidiary, First Horizon Home
Loan Corp., allegedly overcharged a consumer on an acquired mortgage loan
that should have reached maturity in 1999 but for an error in the amortizations
schedule. First Horizon had threatened to foreclose on the consumer's home
before the consumer brought the error to the attention of the bank. Spitzer's
office asserted violations of New York fair debt collection practices and unfair
and deceptive acts and practices laws. Spitzer claimed that the suit was
intended to challenge OCC's assertion that national banks aren't subject to
oversight at the state level.

House Congressional Hearing on OCC Preemption - On Wednesday, January


28, 2004, the Subcommittee on Oversight and Investigations of the House
Committee on Financial Institutions held a hearing regarding Office of the
Comptroller of the Currency (OCC) regulations released on January 7, 2004
[published January 12, 2004 in 69 Fed. Reg. 1895 (visitorial powers); 69 Fed.
Reg. 1904 (preemption)]. See links for witness lists, statements and other
materials.

View link (witness list)


View link (opening statement of House Financial Services Committee
Chairman Michael G. Oxley and testimony of various witnesses)
View link (OCC News Release regarding testimony)
View link (Oral Statement of OCC First Senior Deputy Comptroller and
Chief Counsel Julie L. Williams)
View link (Written Testimony of OCC First Senior Deputy Comptroller
and Chief Counsel Julie L. Williams)

View link
On January 7, 2004, the OCC issued final regulations on preemption and on
visitorial powers, as well as a statement from the Comptroller of the Currency,
a press release, two sets of questions and answers, and a chart comparing the
preemption regulations of the OCC with those of the OTS and NCUA.

View link
All 10 Democratic members on the Senate Banking, Housing and Urban
Affairs Committee sent a letter to the Comptroller of the Currency dated
November 24, 2003, expressing their continued concern about the Office of the
Comptroller of the Currency's (OCC) "positions on the issue of federal
preemption of state laws and state enforcement relating to national banks," and
urged a deferral of any further rulemaking on preemption of state laws at this
time.

View link
The OTS published a letter on October 30, 2003 stating that federal savings
institutions do not have to follow New York state law for paying interest on
escrow accounts.The OTS cited a provision in the New York law that states
that interest payments on escrow accounts are not required "where such
payment would violate any federal law or regulation."The OTS also stated that

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a reference to federal law and state law in a mortgage document would not
create an obligation to follow New York's escrow interest requirements. The
OTS said it had addressed the preemption of New York law previously. On the
issue of a reference to state law in loan documents, the OTS said that the
Supreme Court has recognized "the incorporation of state law does not signify
the inapplicability of federal law."

View link
National Association of Attorneys General comment letter dated October 6,
2003 on the OCC's proposed regulations on preemption, signed by the AG's of
all 50 states, plus DC and the Virgin Islands.

View link
Comment letter dated October 6, 2003 from the Center for Responsible
Lending on the OCC's proposal to preempt state anti-predatory lending and
other laws.

View link
Critique dated October 6, 2003 by the Center for Responsible Lending of the
OCC's working paper on the economic issues in predatory lending.

View link
Comptroller of the Currency John D. Hawke, Jr. discusses federal preemption
and the dual banking system in a speech dated September 9, 2003 for Women
in Housing and Finance.

View link
The OTS issued a preemption letter finding that federal law preempts the
provisions of the New Mexico Home Loan Protection Act from applying to
federal savings banks and their operating subsidiaries. (The OTS previously
addressed similar provisions of Georgia, New York and New Jersey predatory
lending laws.)The OTS stated that the New Mexico Home Loan Protection Act
provisions preempted from applying to federal savings associations were those
(1) using state foreclosure law as a tool to compel compliance; (2) allowing
borrowers to bring civil action for violations and to assert claims, defenses,
counterclaims, and actions against creditors or subsequent holders or assignees
including in foreclosures actions; (3) making violations unfair or deceptive
trade practices; and (4) providing for administrative enforcement by the
Financial Institutions Division of the New Mexico Department of Regulation
and Licensing. OTS Letter P-2003-6 from Carolyn Buck, OTS Chief Counsel,
Carolyn Buck. (September 2, 2003)

View link
The OCC issued an interpretive letter stating that a mortgage subsidiary of a
national bank headquartered in Michigan can charge Michigan interest rates for
out-of-state loans. The OCC stated that the mortgage subsidiary may export the
Michigan interest rates under the same terms and conditions applicable to the
bank.OCC Interpretive Letter No. 954, December 16, 2002.

Federal Register, Vol. 67, No. 56, March 22, 2002.


The OCC published a preemption determination stating that federal law
preempts certain provisions of the Masschusetts Consumer Protection Act with
respect to the sale of insurance by banks and related state regulations. The
OCC determined that the Massachusetts provisions would frustrate the ability

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of national banks to cross-market insurance products and would restrict the
methods by which a bank may solicit an insurance sale from a customer. The
OCC determined that these provisions would be preempted under the Barnett
standards incorporated in section 104(d)(2) of the Gramm-Leach-Bliley Act.

The OCC issued a letter in response to a bank inquiry asking when an interstate
national bank may charge home state interest rates on its loans. The bank
wanted to adopt uniform pricing policies and stated that it would include in its
loan documents a choice -of-law clause disclosing to borrowers that loan
charges will be governed by federal and home state law. The OCC concluded
that an interstate bank may charge interest permitted by the laws of its home
state unless the loan is made --- that is, the loan is approved, credit is extended
and funds are disbursed -- in a branch or branches of the bank in a single host
state. If one or two of those three functions occur in a host state, the bank may,
alternatively, charge the interest permitted by that state if, based on an
assessment of all of the facts and circumstances, the loan has a clear nexus to
that state. Moreover, if a bank is permitted to charge the rates of a particular
home or host state, it may under section 85, the usury savings clause, and the
Supreme Court's decisions in Marquette and Tiffany, charge the most favored
lender rates permitted by that state and may charge the permissible interest
rates irrespective of the state of residence of the borrower.OCC Letter dated
February 17, 1998 from Julie Williams, Chief Counsel, to Jeremy Rosenblum,
Esq., Ballard, Spahr, Andrews & Ingersoll.

View link
The OCC issued an interpretive letter stating that 12 U.S.C. 24(Seventh) of the
National Bank Act preempts Texas insurance licensing laws with respect to
annuities sales by national banks to the extent that those laws prevent or impair
the ability of national banks to exercise their authority under section
24(Seventh) to sell annuities.The OCC stated that it does not believe that the
McCarran- Ferguson Act, 15 U.S.C. 1012, insulates Texas law in this case for
two reasons: First, annuities are not "insurance" without the meaning of the
Act. Second, even if annuities were insurance for that purpose, laws that have
the effect of negating or impairing the corporate powers of an entire class of
entity -- in this case the authority of national banks to sell annuities -- are not
laws "regulating the business of insurance" within the meaning of the
McCarran-Ferguson Act.

OCC Interpretive Letter No. 748, September 13, 1996 See, also, View link,
OCC Interpretive Letter No. 749, part 2, which sets forth a longer discussion
regarding the preemption of state laws that conflict with a federal statute on the
same issue.

The OCC issued an interpretive letter stating that credit card charges consisting
of annual fees, overlimit charges and late charges that are permissible for
lenders to impose under the laws of the state where a bank is located constitute
"interest" under 12 U.S.C. section 85, without reference to whether such fees
and charges are denominated "interest" by the laws of the state where the bank
is located or the state where the customer resides, and without reference to
whether the fees and charges are permissible under the laws of the state where
the customer resides. Such fees may be assessed by a national bank if similar
charges may be imposed by another lender in the state where the national bank
is located.The OCC noted that its response was limited to the question of
whether the charges constitute "interest" within the meaning of section 85 and

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is not a determination that federal law preempts the application to a national
bank of state law. OCC Interpretive Letter No. 670, February 17, 1995.

The OCC issued a letter in response to a bank inquiring whether following the
interstate merger of two institutions, the application of 12 U.S.C Section 85
would require a different result as to applicable rates that could be charged in
connection with loans originated, processed and disbursed in the same manner
as they currently are handled prior to the merger. The OCC responded that the
permissible rates that may be charged by the Idaho bank and the Washington
bank will not be affected following the merger of the two banks. The resulting
bank, following the merger, may charge rates permissible under Washington
law to Idaho customers who obtain loans through a Washington branch and
may charge rates permitted under Idaho law to Washington customers who
obtain loans through an Idaho branch. The OCC stated that in the case of a
bank with its offices located in more than one state, what is relevant in
choosing the appropriate interest rate is the nexus between the loan and a
branch in the state whose interest rates are being imposed.OCC Letter, dated
January 31, 1996, from Julie Williams, Chief Counsel, OCC to Bill Resnik,
Esq., Seattle- First National Bank.

Federal Register, Vol. 60, No. 118, June 20, 1995, page 32209
The OCC published a preemption determination stating that federal law does
not preempt the application to national banks of a Texas regulation that
prescribed certain requirements relating to the signs and advertising used to
identify branch banking facilities located in Texas. The OCC's policy on this
matter is that the naming of a national bank, or of a branch of a national bank,
is primarily a business decision of the bank, subject to applicable state law.

With respect to the applicability of certain provisions of the Georgia


Residential Mortgage Act, the OCC issued an interpretive letter stating that
national banks cannot be required to register with the Georgia Department of
Banking and Finance ("DBF"), nor can they be compelled to pay a fee to the
DBF for every mortgage loan they closed in Georgia.OCC Interpretive Letter
No. 644, March 24, 1994.

The OTS issued a letter asking how the "most favored lender" and trust powers
provision of HOLA apply to a federal savings association that operates on an
interstate basis.The OTS concluded that, first, for purposes of HOLA Section 4
(g) (the most favored lender provision), a federal savings association is
"located" in the state where its home office is located, as well as in any state
where it maintains a branch office. Second, for purposes of HOLA Section 5(n)
(trust powers), federal savings associations are located in the same places as
they are located for purposes of HOLA Section 4(g). Thus, the OTS has legal
authority to authorize federal savings associations to exercise trust powers in
their home state and any branch state.OTS Letter dated December 24, 1992
from Harris Weinstein, Chief Counsel, to John H. Huffstutler, Esq.,
BankAmerica Corporation.

FDIC General Counsel's Opinion No. 10, 63 Fed. Reg. 19258 (April 17, 1998).
View link
Discussing parity for state banks with national banks when engaging in
interstate lending and collecting charges under their home state usury laws.

FDIC General Counsel's Opinion No. 11, 63 Fed. Reg. 27282 (May 18, 1998).

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View link
Discussing ability of state banks with interstate branches to engage in interstate
lending under their home state law

View link
Preemption of Georgia Fair Lending Act in response to National City. (July 31,
2003) The OCC was asked to determine whether the Georgia Fair Lending Act
applies to national banks and their operating subsidiaries. The OCC concluded
that the provisions of the GFLA affecting national banks' real estate lending are
preempted by federal law. Therefore, the GFLA does not apply to National
City or to any other national bank that engages in real estate lending activities
in Georgia.

View link
OCC Proposed Rule re: Bank Activities and Operations; Real Estate Lending
and Appraisals (July 31, 2003) The OCC proposed to amend parts 7 and 34 of
the OCC regulations to add provisions clarifying the applicability of state law
to national banks. The provisions would identify the types of state laws that are
preempted, as well as the types of state laws that are not preempted, in the
context of national bank lending, deposit-taking and other authorized activities.

View link
OCC Jerry Hawk speech on preemption, and how the OCC is addressing
predatory lending. (July 24, 2003)

View link
News release stating that mortgage loan originations to mainstream subprime
borrowers dropped 30 percent in the first 18 months following the passage of
the North Carolina predatory lending law. The same types of loans in
neighboring states dropped by only three percent during the same 18 months.
Mr. Hawke said "a far more effective approach would be to focus on the
abusive practitioners and let federal regulators bring to bear their formidable
enforcement powers where they find abusive practices among the institutions
they supervise." (July 24, 2003)

View link
OTS Chief Counsel, Carolyn Buck, confirmed that federal law preempts
application of various provisions of the recently enacted New Jersey Home
Ownership Security Act of 2002 to federal savings associations and their
operating subsidiaries. "Purchasers of loans originated by a federal savings
association would be subject only to the same claims and defenses that would
apply to the federal savings association that originated the loan." (July 23,
2003)

View link
OCC Interpretive Letter from Julie L. Williams, Chief Counsel (Oct. 8, 1999),
concludes that state laws are preempted to the extent they impermissibly
conflict with a national bank's authority to (i) solicit trust business in those
states, (ii) act as trustee in trust appointments for customers in those states, or
(iii) have trust representative offices in those states. Specifically references as
preempted certain restrictions found under the laws of Utah, Virginia,
Wisconsin, New Jersey, Minnesota.

View link

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OCC Interpretive Letter from Julie L. Williams (Oct. 28, 1999), concludes that
national bank may solicit and conduct trust business and operate non-branch
trust offices in California, and state laws that prohibit the national bank from
engaging in these activities are preempted by federal law.

View link
OCC Corporate Decision discusses federal preemption with respect to interstate
trust operations through interstate branches and non-branch trust offices, in the
context of Wisconsin statutes.

View link
OCC final rule adopting regulations relating to interstate trust operations, and
application of state law to such operations. Defers action on its ANPR relating
to uniform standards of care.

View link
OCC notice of proposed rule making (NPRM), proposing to amend its
regulations to codify OCC interpretations on national bank multi-state trust
operations, and advance notice of proposed rule making (ANPR) inviting
comment on whether uniform standards of care generally applicable to national
bank trustees' administration of private trusts and investment of private trust
property should be established.

OCC Interpretive Letter 695 (Dec. 1995)


OCC Interpretive Letter from Julie L. Williams discussing application of state
laws under Section 92a.

View link (Counsel Opinion)


and
View link
(12 CFR 560.2 cite) — OTS General Counsel Opinion (March 10, 1999).
Federal law preempts the California Unfair Competition Act with respect to
FSB's advertising, forced placement of hazard insurance and charging of loan
related fees. Home Owners Loan Act, Sec. 4(a) and Sec. 5(a). 12 C.F.R. §
560.2(a).

View link
OCC Rule on Visitorial Powers.

View link
OCC Interpretive Ruling defining interest for most favored lender and
exportation purposes. 12 C.F.R. § 7.4001.

View link
OCC Interpretive Ruling defining charges permitted by national banks. 12
C.F.R. § 7.4002.

View link
Operating Subsidiaries. Unless otherwise provided by Federal law or OCC
regulation, State laws apply to national bank operating subsidiaries to the same
extent that those laws apply to the parent national bank. 12 C.F.R. § 7.4006.

View link
The Office of the Comptroller of the Currency issued a response to a request

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by the West Virginia Bankers Association as to whether federal law preempts
certain provisions of the West Virginia Insurance Sales Consumer Protection
Act. The OCC determined that federal law preempted some, but not all,
provisions of the Act. 66 Fed. Reg. 51502.

View link
The OCC issued a preemption opinion in response to the request by two
national banks for a preemption determination based on the National Bank Act
with respect to the Michigan Motor Vehicle Sales Finance Act (MVSFA) as
interpreted by the Michigan Financial Institutions Bureau. The OCC concluded
that the MVSFA is preempted to the extent it limits a national bank's motor
vehicle financing arrangements. 66 Fed. Reg. 28593.

View link
The OCC issued a preemption opinion concluding that national banks, as part
of their authority to engage in the business of leasing automobiles under
Sections 24 (Seventh) and 24 (tenth), may sell reclaimed or off-lease vehicles
in the manner that is most economically beneficial. 66 Fed. Reg. 23977.

View link
The OTS issued a preemption letter finding that federal law preempts
provisions of the Georgia Fair Lending Act from applying to federal savings
banks and their operating subsidiaries. OTS Letter P -2003-1 from Carolyn J.
Buck, Chief Counsel (January 21, 2003).

View link
The OCC issued an advisory letter describing the general principles that apply
when determining if a state law applies to a national bank and the exclusive
enforcement authority of the OCC in regard to national banks. OCC Letter
2002-9 from Julie L. Williams, First Senior Deputy Comptroller and Chief
Counsel (Nov. 25, 2002).

View link
The Office of Thrift Supervision (OTS) concluded that federal law preempts
the application of California's minimum payment law to federal savings
associations. OTS Letter from Carolyn J. Buck, Chief Counsel (Oct. 1, 2002).

The Office of Thrift Supervision in a letter concluded that Oklahoma state laws
purporting to bar out-of-state federal savings associations from engaging in
authorized activities, including electronic operations, and requiring written
notice to the State before installing, operating or utilizing ATMs, are
preempted by federal law. OTS Letter from Carolyn J. Buck, Chief Counsel
(June 12, 2002).

The Office of Thrift Supervision concluded in a letter that reporting


requirements that appear to be attempts by a State to monitor and examine
federal savings associations are preempted. OTS Letter from Carolyn J. Buck,
Chief Counsel (Mar. 21, 2002).

View link
OCC Interpretive Letter from Julie L. Williams, Chief Counsel (Jan. 7, 1998),
provides that late fees and non- sufficient funds fees imposed by a national
bank in connection with its credit card accounts after either the bank or the
customer notifies the other that they are terminating credit privileges but before

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the outstanding balance is paid off constitute "interest."

View link
OCC Interpretive Letter from Julie L. Williams, Chief Counsel (Oct. 7, 1997),
discusses certain fees levied in connection with home equity loans, concluding
that (1) an account opening fee, (2) a fee for exercising a fixed rate option, (3)
a fee for prepaying a fixed rate option, and (4) a fee for early closure of the
account constitute "interest" for purposes of Section 85 and Section 7.4001(a).

View link
Letter of Carolyn J. Buck, Chief Counsel, OTS, 83-106 (December 24, 1996).
Federal law preempts Indiana laws that pertain to disclosure and loan-related
charges (except for charges that constitute "interest" under the most favored
lender provision).

View link
OCC Interpretive Letter No. 744 from Julie L. Williams, Chief Counsel (Aug.
21, 1996), found that prepayment fees constitute "interest" for the purpose of
12 U.S.C. § 85.

Operating subsidiaries are viewed as divisions or departments of their parent


federal savings associations for virtually all regulatory purposes, including
federal preemption. OTS Letter of Carolyn B. Lieberman, Acting Chief
Counsel, (October 17, 1994).

In interpretive letters, the OCC has concluded that the National Bank Act
preempts several states' laws (i) requiring a national bank to, inter alia, file a
notification or to obtain a license before engaging in credit card operations, file
certain credit card information (such as rate or fee information) with state
authorities or register, if an out-of-state national bank, with state authorities if
the bank engages in residential lending or (ii) subjecting national banks to
cease and desist orders and civil money penalties enforced by state regulators.
OCC Interpretive Letter No. 614 from Wallace S. Nathan, Dir., Bank Ops. &
Assets Div., (Jan. 15, 1993); OCC Interpretive Letter No. 616 from William B.
Glidden, Ass't. Dir., Bank Ops. & Assets Div., (Feb. 26, 1993); OCC
Interpretive Letter No. 644 from Peter Liebesman, Assistant Director, Bank
Ops. & Assets Div., (Mar. 24, 1994); OCC Interpretive Letter No. 572 from
William P. Bowden, Jr., Chief Counsel (Jan. 15, 1992).

State court decisions (shown chronologically, with most recent first)

View link
Hood v. Santa Barbara Bank & Trust, Case No. B184489 (Cal. App. 2d Sept.
28, 2006). In case involving state -law challenges to tax refund anticipation
loans against a national bank, a California state appellate court reversed the
dismissal of the class action complaint on National Bank Act preemption
grounds. The appellate court held that the exclusive "visatorial powers" enjoyed
by national banks and the OCC does not prevent or preempt state-law claims
from being asserted in a private action against national banks. The appellate
court also held that the claims under the California Rosenthal Fair Debt
Collection Practices Act do not have more than an "incidental effect" on the
national banks' lending and other banking activities, and therefore that those
state-law claims were not preempted under the NBA and the OCC's
regulations. In addition, the court held that because the state-law UDAP claims

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were asserting violations of federal law, the state-law claims were not
preempted. Importantly, the court agreed that the general presumption against
preemption does not apply in an area where there has been "significant federal
presence." The court noted (without deciding) that courts may not need to defer
to an administrative agency's regulations concerning preemption. The court
also declined to address the issue of whether the OCC exceeded it authority in
issuing the preemption regulations, which the California Attorney General had
urged in an amicus filing.

View link
WFS Fin., Inc. v. Sup. Ct. San Joaquin County, Case No. CV024031 (Cal.
App. 3rd. June 15, 2006). A California appellate court held that certain
disclosures required under California state law in connection with the disposal
of repossessed motor vehicles (Rees -Levering Automobile Sales Finance Act,
CA Civ. Code s. 2981, et seq.) did not apply to an operating subsidiary of a
federal savings bank. In so ruling, the court rejected the consumer car
purchaser's arguments that: (1) consumer protection policy requires that the
state law apply to federal savings banks; (2) allowing HOLA preemption would
provide federal savings banks with an unfair advantage with respect to other
types of assignees; and (3) HOLA preemption does not apply to
purchasers/assignees of sales contracts for consumer goods.

View link (June 12, 2006)


Charter One Mortgage Corp. v. Condra, No. 49D03-0311-PL-2102 (Ind. App.
May 12, 2006). An Indiana appellate court held that the National Bank Act
does not preempt an action under state law alleging that charging a separate fee
for the preparation of the mortgage instrument constitutes the unauthorized
practice of law. The court specifically noted that the Indiana law at issue does
not "stand as an obstacle to the accomplishment and execution of the purposes
and objectives" of the OCC regulation allowing national banks to assess non-
interest charges and fees, including the document preparation fees at issue (12
C.F.R. 7.4002). The court remarked that the interstate national bank may still
charge the document preparation fee, provided that it hires an Indiana lawyer to
perform the document preparation services.

View link
Fuchs v. Wachovia Mortgage Corp., Index No. 17000-03 (Sup. Ct. NY,
Nassau County). Dismissing a challenge to a lender's document preparation fee
as the unauthorized practice of law, a trial court in New York held that state
law is preempted to the extent it purports to prevent a federally chartered bank
or its operating subsidiary from collecting a document preparation fee.Fuchs v.
Wachovia Mortgage Corp., Index No. 17000-03 (Sup. Ct. NY, Nassau
County). Dismissing a challenge to a lender's document preparation fee as the
unauthorized practice of law, a trial court in New York held that state law is
preempted to the extent it purports to prevent a federally chartered bank or its
operating subsidiary from collecting a document preparation fee.

View link (Sept. 22, 2005)


U.S. Bank, N.A. v. Clark, 216 Ill. 2d 334 (2005). The Illinois Supreme Court
reversed the appellate court's controversial ruling and held as follows: (1) the
portion of Section 4.1a of the Illinois Interest Act restricting applicable charges
to 3% when the mortgage loan rate exceeded 8% was implicitly repealed by the
amendment of Section 4 in 1981; (2) Section 501 of DIDMCA applies in
Illinois and covers certain purchase money and nonpurchase money first lien

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mortgage loans; and (3) Illinois did not "opt-out" of or "override" Section 501
of DIDMCA when it amended the Illinois Interest Act in 1992.

View link
Branick v Downey Savings and Loan Association No. B172981 (California
Court of Appeal, Second Appellate District, February 9, 2005)

This California Second District Court of Appeal, using the OTS' own three-
prong test, held that preemption does not apply where the state laws in
question are general contract and commercial laws that only incidentally affect
lending operations. However, this court, differing from the First District in
Californians for Disability Rights v. Mervyn's, also held that Proposition 64,
which amended Business & Professions Code Sections 17,200 and 17,500 in
November 2004 to eliminate the statutory grant of standing for persons who did
not suffer actual injury, is retroactive and applies to cases that were pending
but not yet decided.

View link
Miller v. Bank of America N.T & S.A., No. CGC99301917 (Cal. Superior Oct.
13, 2004). A California court has held that claims brought under California law
against a national bank for seizing governmental benefits deposited into
accounts held at the bank were not preempted by federal law. The bank had
argued, among other things, that the California laws were preempted by the
National Bank Act because they would impair, obstruct and condition the
bank's right to take deposits and charge fees. The court failed to find any
conflict between California and federal law. According to the court, no federal
statute expressly authorized the bank to deduct fees from exempt governmental
benefits that were directly deposited into checking or savings accounts.
Moreover, the court indicated that the California laws did not conflict with the
bank's ability to charge fees or take deposits as the plaintiff's action did not
challenge the bank's ability to charge fees, but instead, challenged the bank's
collection of monetary claims through the exercise of a setoff against exempt
governmental benefits. The court also indicated that the plaintiff's complaint
addressed issues relating to unlawful debt collection, a subject within the realm
of the state's historic police powers.

View link
On March 31, 2004, in U.S. Bank National Association v. Clark, an Illinois
Appellate Court decided that the Illinois Legislature opted out of the federal
preemption afforded under the Depository Institutions Deregulation and
Monetary Control Act of 1980 and, as a result, the Illinois Interest Act still
prohibits mortgage lenders in Illinois from making loans with a combination of
fees in excess of 3% of the principal and an interest rate in excess of 8%.

View link
In Glukowsky v. Equity One, Inc. (May 26, 2004), the New Jersey Supreme
Court overruled an intermediate state court and held that OTS did in fact have
the authority under the Alternative Mortgage Transaction Parity Act to preempt
state laws regarding prepayment penalties in connection with alternative
mortgage transactions. The court likewise found it permissible for the OTS
later to revise its regulations, including changing the provisions relating to
prepayment penalties.

View link

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New York v. First Horizon Home Loan Corp. (filed 1/17/04). New York
Attorney General Eliot Spitzer filed suit, in New York State Supreme Court,
alleging wrongdoing by a subsidiary of First Tennessee National Corp., a
nationally chartered bank. The national bank subsidiary, First Horizon Home
Loan Corp., allegedly overcharged a consumer on an acquired mortgage loan
that should have reached maturity in 1999 but for an error in the amortizations
schedule. First Horizon had threatened to foreclose on the consumer's home
before the consumer brought the error to the attention of the bank. Spitzer's
office asserted violations of New York fair debt collection practices and unfair
and deceptive acts and practices laws. Spitzer claimed that the suit was
intended to challenge OCC's assertion that national banks aren't subject to
oversight at the state level.

[an error occurred while processing this directive] View link


Pinchot v. Charter One Bank, 99 Ohio St. 3d 390, 2003-Ohio-4122,
The Ohio Supreme Court ruled on August 20, 2003 that a state law governing
the recording of a mortgage is not preempted by the federal Home Owners'
Loan Act. In this case, a borrower sued a federal savings association when it
failed to record the payoff of a mortgage within 90 days. Under the state law, if
a lender failed to record the satisfaction within 90 days, the borrower may
recover damages. The federal savings association argued that the recording of a
mortgage satisfaction is either a loan servicing or a loan origination function
that is preempted by state law. The Court disagreed, stating that the recording
of a mortgage satisfaction or real estate lien release is not an integral part of the
lending process because it occurs after the debt is satisfied and the extension of
credit is extinguished. The Court further stated that the recording does not
center around the essential reasons why lenders issue home loans, for it has
nothing to do with charging and collecting interest or any other lending or
credit-related function.

Washington Mutual Bank, FA v. Superior Court, 95 Cal. App. 4th 606 (Cal.
App. 2002). A California Court of Appeal held that a state prohibition against
charging pre ?closing interest on residential mortgage loans was preempted as
to a federal savings bank based on 12 C.F.R. § 560.2(b).

View link
A California Court of Appeals Court held that borrowers' actions against a
federal savings bank to recover under a state unfair competition statute for
charges related to forced place insurance were not preempted. Gibson v. World
Savings and Loan Ass'n, 103 Cal. App. 4th 1291 (Cal. App. 4 Dist. 2002).

View link
The Texas Court of Appeals held that the National Bank Act preempted a
Texas statute that restricts maintaining a suit in Texas. In re Hibernia National
Bank, 21 S.W. 3d 908 (Tex. Ct. App. 2000).

Konynenbelt v. Flagstar Bank, FSB, 22 Mich. App. 21 (2000). A Michigan


appellate court found that a mortgage release service fee was not a charge
within Section 560 and that the Home Owners' Loan Act does not preempt the
field with regard to the fees and charges that a federal thrift can charge to its
borrowers.

Operating subsidiaries are viewed as divisions or departments of their parent


federal savings associations for virtually all regulatory purposes, including

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federal preemption. WFS Financial Inc. v. Dean, Case No. 99-C-0345-C
(W.D. Wi., Dec. 16, 1999).

View link
and
View link
Chevy Chase Bank v. McCamant, 1998 WL 865120 (W. Va. Dec. 14, 1998).
The court held that the West Virginia Consumer Credit Protection Act
("WVCCPA") is not preempted by federal law from regulating a federal
savings bank's debt collection practices.

FDIC Letter No. 10 from James D. La Pierre, Deputy Executive Secretary


(April 17, 1998), provided that Section 27 of the Federal Deposit Insurance Act
and Section 85 of the National Bank Act (NBA) have been and should be
construed in pari materia because Section 27 is patterned after Section 85 and
the provisions embody similar terms and concepts.

Dikeou v. Dikeou , 928 P.2d 1286 (Colo. 1996). Following Smiley and
Copeland v. MBNA America Bank, N.A., the court held that late fees of set
amount in a commercial loan agreement constituted "interest" under the
Colorado usury statute.

Fenning v. Glenfed, Inc. (1995), 40 Cal.App.4th 1285


California court rejected preemption argument by federal savings association
with respect to an unfair business practice claim against a federal savings
association based on its relationship to a brokerage subsidiary.

People ex rel. Sepulveda v. Highland Fed. Savings & Loan (1993), 14


Cal.App.4th 1692
California court rejected preemption argument by federal savings association
with respect to an unfair business practice claim based on a federal savings
association's ownership of slum dwellings.

Siegel v. American Savings & Loan Assn. (1989), 210 Cal.App.3d 953
California court rejected preemption argument by federal savings association
with respect to a state statute regulating the collection of reconveyance fees.

The following state cases can be accessed at View link. Enter the name of
the party through this link and register (free) in order to be able to view
the cases:

Fenning v. Glenfed, 40 Cal. App. 4th 1285 (1995)


People ex rel Sepulveda v. Highland FS&L, 14 Cal App. 4th 1692 (1993)
Siegel v. American S&L, 210 Cal. App. 3d 953 (1989)
Lopez v. World Savings , 105 Cal. App. 4th 729 ( No. A095666, January 23,
2003)

State Statutes

View link
The Conference of State Bank Supervisors has available for ordering its 2002
Profile of State- Chartered Banking.The Profile includes a state -by-state chart
with comprehensive cites to state parity laws.It may be ordered via the web, or

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by e-mailing Tharrington@csbs.org.

[an error occurred while processing this directive] 2002 New York Predatory
Lending Law:
View link

2002 Georgia Fair Lending Act ("GFLA"):


View link

State Agency Regulations and Other Actions

View link
In re: Advance America, Cash Advance Centers Of North Carolina, Inc., North
Carolina Commissioner of Banks, Docket No. 05:008:CF (Dec. 22, 2005). The
North Carolina Office of Commissioner of Banks halted the marketing,
processing and servicing activities of a North Carolina payday cash advance
and installment loan agent of an out -of-state bank. The respondent in the
hearings was the wholly-owned North Carolina subsidiary of one of the largest
providers of payday cash advance services in the United States. The challenged
payday cash advances were being made pursuant to processing, marketing and
servicing agreements between the respondent and certain out -of-state insured
state banks. None of the banks were parties to the proceedings, nor had they
challenged the issues in any other way. The Commissioner found that the
respondent was not the mere agent of the banks but rather indirectly contracted
for, exacted and received charges on the payday advances that exceeded the
limits permitted under North Carolina law. Among many other things, the
Commissioner stated in its Order that Section 27 of the FDIA (Section 521 of
DIDMCA) does not apply to third-party affiliates or agents of insured state
banks.

View link
The Conference of State Bank Supervisors submitted a comment letter dated
September 26, 2003 re: the OCC's proposed rules published on August 5, 2003,
Notice of Proposed Rulemaking, 68 Fed. Reg. 46119 (2003) re: Bank Activities
and Operations, Real Estate Lending, and Appraisals. The CSBS's 18-page
letter argues that the OCC's proposed rules seek to dramatically expand
existing preemption standards by encouraging banks and their operating
subsidiaries to avoid state consumer protection laws, thus harming the state
banking system and the dual banking system. The letter argues that the OCC
lacks the lawful authority to adopt the proposed preemption rules or to apply
such rules to operating subsidiaries. The letter attaches a 73-page case law
discussion further developing CSBS's position.

View link
Nationwide Cooperative Agreement.Agreement signed by every state banking
department with the federal banking agencies to create a streamlined regulatory
system for state- chartered banks that operate across state lines. Includes
acknowledgments with respect to the application of host state versus home
state laws. (revised December 9, 1997)

View link.
Nationwide State/Federal Supervisory Agreement. Agreement signed by every
state banking department with the federal banking agencies to create a

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streamlined supervisory system for state-chartered banks that operate across
state lines.(November 14, 1996).

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On August 26, 2003, the Conference of State Bank Supervisors announced that
35 attorneys general, supported by 43 state bank commissioners, filed an
amicus brief in support of Connecticut Banking Commissioner John P. Burke
in Wachovia Bank N.A. and Wachovia Mortgage Corporation v. John P.
Burke, Civil Action No. 303 CV 070738 (JCH), a suit pending in the U.S.
District for the District of Connecticut.The brief contends, in part, that under
this country's system of corporate governance, each state has the unquestioned
authority to exercise comprehensive supervision over the corporations it
charters and to license and regulate corporations chartered by other states that
transact business within its borders. It argues that the operating subsidiaries of
national banks are not "national banks" for purposes of 12 U.S.C Section 484
and, therefore, are not entitled to any immunity from state oversight. The brief
further contends that the courts have repeatedly upheld the authority of state-
chartered providers of financial services, particularly in the area of mortgage
lending. The brief further suggests that in recently enacted federal banking
laws, particularly the 1994 Riegle - Neal Banking and Branching Efficiency
Act, Congress reaffirmed the states' authority to apply consumer protection
laws to all financial institutions engaging in business with their citizens. The
brief contends that in the field of mortgage lending, both federal and state
courts have upheld the validity of state laws designed to prevent lenders from
engaging in fraud, predatory lending, redlining and other unconscionable
practices.

Commentaries

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Federalism, Consumer Protection and Preemption: A Case for Heightened
Judicial Review by Professor Vincent Di Lorenzo, St. John's University
School of Law

A Federal Preemption Parity Framework For State Banks, by Robert C. Eager


and C. F. Muckenfuss
View link
This outline reviews federal law preemption for the benefit of state-chartered
banks under the 1980 Depository Institutions Deregulation and Monetary
Control Act (Marquette parity), under the Riegle -Neal Interstate Banking and
Branching Efficiency Act of 1994, as amended in 1997 (parity for state banks
with interstate branches based upon export of home state law), and Section 104
of the Gramm-Leach-Bliley Act (federal preemption of state laws barriers and
burdens on insured depository institutions and their affiliates). It also addresses
state wild card statutes and the multi-state compacts adopted by the Conference
of State Bank Supervisors (CSBS).

Preemption Under the Howe Owners Loan Act, by C.F. Muckenfuss and
Robert C. Eager
View link

Dreher, Darrell L. and Deborah Freye. Continuing Challenges to Interstate


Lending by Depository Institutions, 57 BUS. LAW 3, 2002.

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Dreher, Darrell L. and Elizabeth L. Anstaett. Federal Savings Banks — The
Vehicle of Choice, 52 CONSUMER FIN. L.Q. REP. 407 (1998).

Dreher, Darrell L. and Michael C. Tomkies. Developments in the Interstate


Delivery of Consumer Financial Services, 50 BUS. LAW. 1093 (1995).

Dreher, Darrell L. and Michael C. Tomkies. Developments in the Interstate


Delivery of Consumer Financial Services: Location, Fees, and Common Law,
49 BUS. LAW. 1325 (1994).

Dreher, Darrell L. and Tomkies, Michael C. Developments in the Interstate


Delivery of Consumer Financial Services: Credit Card Issuers Win Decisions
in Greenwood Trust and Related Cases, 48 BUS. LAW. 1097 (1993).

Dreher, Darrell L. and Michael C. Tomkies. Developments in the Interstate


Delivery of Consumer Financial Services: Greenwood Trust Decision
Rendered, 47 BUS. LAW. 1251 (1992).

Dreher, Darrell L. and Tomkies, Michael C. Developments in the Interstate


Delivery of Consumer Financial Services, 46 BUS. LAW. 1223 (1991).

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