Friday, March 13, 2009


NASAA Opposes OCC's Assertion of Regulatory Preemption


The North American Securities Administrators Association (NASAA) has filed an amicus brief in the case of Cuomo v. Clearing House Assn., L.L.C., urging the United States Supreme Court to reverse a ruling of the Second Circuit that enjoined the New York Attorney General from investigating racially discriminatory lending practices by several national banks and their operating subsidiaries. NASAA argued that the decision, which held that regulations of the Office of the Comptroller of the Currency (OCC) preempted state investigatory authority, struck a heavy blow against consumer protection by effectively insulating national banks and their affiliates from accountability under state law. Noting that state securities regulators and their banking counterparts both play a vital role in protecting consumers from fraud and abuse, NASAA asserted its interest and that of its members in preserving the states' investigative and enforcement powers.

NASAA observed that the case forms part of a sequence of cases in recent years in which the OCC, through assertions of preemptive authority, has upset the federal-state balance in banking regulation that has existed since the passage of the National Bank Act in 1863. Nothing in the National Bank Act, NASAA argued, supports the OCC's encroachments into traditional areas of state authority. Rather, the incursions have been carried out through regulatory fiat, in an industry which is of profound local concern. In NASAA's view, this strategy has had well-documented, catastrophic effects, such as the role played by lax federal regulation during the current economic crisis.

The OCC has sought not only to aggrandize its power through substantive preemption regulations, NASAA explained, but also to extend its reach by "enforcement preemption," accomplished through an overbroad interpretation of the "visitorial powers" provision of the National Bank Act. Under the traditional interpretation, state officials are permitted to conduct reasonable investigations of national banks as part of their duties to enforce non-preempted state laws of general application. Although more than a century of case law has consistently supported the view that national banks are subject to state law, NASAA argued, the OCC's revisionist interpretation has sought to nullify the enforcement authority of state officials by claiming that the provision's "courts of justice" exception does not permit a state to use the courts to "examine, regulate, or compel action by a national bank." Rather, the OCC has asserted that the courts of justice exception "simply permits private litigants to obtain discovery and other judicial relief in actions involving national banks."

NASAA argued that the OCC's interpretation, set forth at 12 C.F.R. § 7.4000, is subject constitutionally to the presumption against preemption, which requires unmistakenly clear evidence that Congress has given the agency power to preempt. NASAA reminded the high court that the power to enforce laws is an essential attribute of sovereignty. According to NASAA, the OCC's attempt to foist "enforcement preemption" on the states not only usurps state sovereign power, but creates confusion among the citizenry as to who is responsible for lax or non-existent enforcement.

Neither the Second Circuit nor the OCC made any attempt to identify conflicting provisions of state law, NASAA maintained, but rather cut a broad swath through traditional areas of state sovereignty by ruling out the power of state officials to enforce their own non-preempted laws against national banks and their affiliates. According to NASAA, this encroachment on state autonomy and self-governance directly implicates the core concerns of the Tenth Amendment. Moreover, NASAA believes, the OCC's regulation is the most disenfranchising type of regulatory preemption because it eliminates state and local problem solvers from the playing field.

NASAA's brief was authored by Keith R. Fisher, Visiting Professor of Law at the Franklin Pierce Law Center in Concord, New Hampshire. Mr. Fisher has also authored the journal article, Toward a Basal Tenth Amendment: A Riposte to National Bank Preemption of State Consumer Protection Laws, 29 Harv. J.L. & Pub. Policy 981 (2006), which may be downloaded from the website of the Harvard Journal of Law & Public Policy.

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