Trust Updates Archive

2005.06.17 NYAG and OCC OCC Preemption Rule
NY Stage for "War of the Regulators"

(June 17, 2005--Chicago, IL)--New York may be the battle ground testing the validity of the Office of the Comptroller of the Currency's preemption rule.

The OCC sued New York Attorney General Eliot Spitzer in federal court to quash further efforts by his office to obtain lending data from national banks. In motions filed June 16, the OCC asked a federal court to prohibit New York state regulators from making demands on national banks for nonpublic information without seeking a formal subpoena.

New York Attorney General Eliot Spitzer in March 2005 informally requested lending information from Citibank, JP Morgan Chase, HSBC Bank, and Wells Fargo. Spitzer requested nonpublic data related to "lending disparities" between "white borrowers and African-American and Hispanic borrowers," according to court filings. Such pricing discrepancies, if they exist, would violate both federal and New York law.

Citibank and JP Morgan complied with Spitzer's requests. Wells Fargo and HSBC Bank provide limited information, declining to provide information on national bank subsidiaries.

Spitzer's office informed Wells and HSBC that failure to fully comply would result in "enforcement proceedings," according to filings.

The OCC's request will most likely be upheld, say legal sources, forcing Spitzer either to drop the issue or obtain court subpoenas. However, legal sources believe that in addition to any subpoenas, Spitzer's will challenge the OCC preemption rule by suing Wells Fargo and HSBC. Federal courts have suggested in previous lawsuits between state regulators and the OCC that, in disputes over the agency's rulings, state officials should sue individual banks rather than the OCC.

When regulators in West Virginia and Massachusetts sued the OCC over its preemption rule, they argued that the scope of the rule exceeded the OCC's authority.  Federal courts disagreed. The courts concluded that federal agencies had the right to interpret federal law, but that those interpretations were "nonbinding" and did not carry "the force of law." The court suggested that state regulators sue individual banks which rely on the OCC rule.

"In deciding whether state laws are preempted," the Massachusetts court ruled, "courts are going to have to make judgment calls [which will be] better made on an evidentiary record created in litigation in the trial courts."

To date, state regulator have not brought suits against national banks testing the OCC's preemption rules which addresses fiduciary operations and predatory lending.

If Spitzer opts to seek formal subpoenas for the banks' lending data, it is widely assumed that it will lead to a lawsuit against the banks which in turn will test the validity of the OCC's rule. Spitzer's office in January 2004 threatened legal action against all New York banks deemed to be in violation of state law regardless of the OCC's position on preemption (see TRN January 2004).

-- Copyright ©2005 A.M. Publishing, Inc., Trust Regulatory News

No statement in this issue is offered as or should
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