OCC denies state supervisors' request to restrict preemption

National Credit Union Administration

The Office of the Comptroller of the Currency Monday doubled down on its 2011 state preemption rules that broadly state federal law trumps overlapping state laws, rebuffing a bid to revise the rules by a group representing state bank supervisors.

In a letter to Brandon Milhorn, president and CEO of the Conference of State Bank Supervisors, acting Comptroller of the Currency Rodney Hood said the existing rules meet applicable law and that the agency would not be revising its rules to curb federal preemption. 

"The OCC will not rescind its regulations and will continue to vigorously support and defend federal preemption," Hood wrote. "The OCC has thoroughly considered the points you raised and, as set forth above, reaffirms that its preemption regulations are valid under applicable law."

Hood's letter responds to a letter CSBS sent to the OCC in May urging the OCC to revisit its current regulations. CSBS argued they defy both the law, contradict court precedent and recent executive orders from President Trump.

The National Bank Act — which established the national banking system and its regulator the OCC — provides the legal foundation for preemption in the national banking system, allowing federal law to override certain state regulations that interfere with the powers of nationally chartered banks. Preemption is a legal concept grounded in the supremacy clause of the U.S. Constitution, which establishes that federal laws override conflicting state laws.

The OCC has historically interpreted its preemption authority expansively, particularly with the 2004 iteration of its preemption rules, which explicitly preempted state laws affecting national banks' real estate lending, non-real estate lending and deposit-taking powers.

CSBS says the OCC's current standards preserve blanket preemption across more than 30 categories of state law and fail to meet the "Barnett" standard — a Supreme Court-mandated test for whether nationally chartered banks are hindered by state law.

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Section 1044 of Dodd-Frank codified a standard for preemption in bank regulatory matters that was established in the Supreme Court's 1996 decision Barnett Bank v. Nelson, which held that state laws are preempted if they prevent or significantly interfere with a national bank's exercise of its powers. Dodd-Frank further codified that standard and expanded it to apply to consumer financial protection laws, finding that state consumer financial laws are also preempted if they favor state banks over national banks.

OCC countered that Dodd-Frank did not create a new preemption standard and that its 2011 standards were reviewed to ensure compliance with the law. It argues its comprehensive review of preemption rules in 2011 satisfied its Dodd-Frank mandate.

"The OCC considered the relevant statutory language, legislative history, and judicial precedent and concluded that Dodd-Frank codified the conflict preemption standard in Barnett Bank of Marion County, N.A. v. Nelson, including the antecedent cases it cited," Hood wrote. "The Supreme Court's subsequent decision in Cantero v. Bank of America, N.A., which rejects arguments that Dodd-Frank created a new preemption standard and instead notes that 'Dodd-Frank adopted Barnett' and that Barnett 'was also the governing preemption standard before Dodd-Frank.'"

Hood also says the broad preemption standard promotes competition, bolstering the split banking system: between federal and state governance. He also notes preemption allows federally chartered banks more certainty about operating nationwide, avoiding a patchwork of laws in each state. 

"Federally chartered banks … rely on preemption to remove barriers and achieve efficiencies associated with a uniform set of rules," wrote Hood. "Thus, federal preemption has helped to foster the development of national products and services and multi-state markets."