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preemptioin Cuomo clearing house comptroller currency supreme court scalia Banks Regulation Trusts Regulators Performance States Can Enforce Laws against National Banks, says Supreme Court

(July 6, 2009--Chicago, IL) -- State bank regulators have reason to rejoice in the wake of the U.S. Supreme Courts 5 to 4 decision against the Office of the Comptroller of the Currency, but they should probably hold off opening the good Champagne. While the decision clarifies that state attorneys general are permitted to enforce state law against national banks, it does not give state regulators visitorial powers.

In 2005, New York’s attorney general launched an investigation into possible racial discrimination in the real estate lending practices of several national banks. In lieu of subpoena, New York requested certain non-public information from the banks. While some of the banks were willing to provide the information, all were concerned with the legal ramifications of doing so and sought guidance from the Clearing House Association, a consortium of national banks, and the OCC.

The OCC’s position was that New York should drop its investigation because OCC regulation, under the National Bank Act, prohibited states from “exercis[ing] visitorial powers with respect to national banks, such as conducting examinations, inspecting or requiring the production of books or records of national banks, or prosecuting enforcement actions.” New York’s attorney general, in refusing to drop the case, labeled the OCC’s position as “shameful.”

The OCC’s position was upheld by a federal district court. On appeal, the Second Circuit affirmed the lower court’s decision but not on the merits of the case. The appeals court skirted that decision by finding that lower court lacked jurisdiction. It nevertheless upheld an injunction barring New York from proceeding with its request. New York appealed to the U.S. Supreme Court.

Writing for the majority, Justice Antonin Scalia held that a state’s “visitorial powers” and its power to enforce the law are two different things, and the National Bank Act preempts only the former. The majority acknowledged “some ambiguity” regarding the meaning of visitorial powers, a key issue for dissenters. Nevertheless, Scalia concludes, “[Supreme Court] cases have always understood ‘visitation’ as this right to oversee corporate affairs, quite separate from the power to enforce the law.”

The high court ruling made clear that it does not grant Cuomo the right to obtain the documents originally requested, rather it gives him the right to seek those documents through court order.

In the trust area, federal courts have upheld a national bank’s right to open trust offices in any state without registering with state regulators. However, state attorney generals have warned for some time that those trust offices may have problems doing business in their states. The Supreme Court’s ruling in Cuomo v. Clearing House Association gives teeth to that threat.

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