Senators Tom Carper (D-DE) and Mark Warner (D-VA) have expressed their surprise and disappointment over the comment letter of the General Counsel of the Treasury, sent to the OCC on June 27 relating to the OCC’s proposed rule on federal preemption. The Senators were the sponsors of the Senate amendment to Dodd-Frank on federal preemption and were involved in the negotiations on preemption during the House-Senate conference. In a letter to Secretary Tim Geithner, the Senators said that, while they understand that the position of the Administration was to eliminate federal preemption for national banks, the fact is that Congress did not accept that position. The Carper-Warner amendment maintaining the Supreme Court’s Barnett Bank standard passed the Senate by an overwhelming vote of 80 to 18. The Senators said that both the language of the final law and its legislative history clearly demonstrate that the Barnett standard is maintained, and the Treasury position in this comment process was, in fact, rejected by Congress.
In Barnett Bank of Marion County, N. A. v. Nelson, the Supreme Court addressed a Florida statute that prohibited national banks from offering insurance coverage in small towns. In determining whether there was an “irreconcilable conflict” between the state statute and the National Bank Act, the Court found the controlling question to be whether the state statute forbids, or impairs significantly, the exercise of a power that Congress explicitly granted. 517 U.S. 25, 33, 116 S. Ct. 1103, 1109 (1996)
According to the Senators, there is very strong Dodd-Frank legislative history supporting the position that the Barnett standard was maintained. First, the House-Senate Conference Committee Report specifically states that the Conference Report language “codifies” the Barnett standard. Second, in the Senate floor debate on the Conference Report, it was specifically noted that the Conference Report maintained the Barnett standard as the basic legal standard for preemption.
Importantly, Senator Dodd, then Chairman of the Senate Banking Committee, agreed and explicitly confirmed that the legislation codifies the preemption standard of the Barnett Bank case, saying “There should be no doubt that the legislation codifies the preemption standard stated by the U.S. Supreme Court in that case. Senator Tim Johnson, current Chairman of the Banking Committee, also agreed with this analysis and added that such codification would provide “certainty” to consumers and providers of financial services. Senators Warner and Carper said that Treasury’s position would completely undermine such certainty and therefore is contrary to Senator Johnson’s statement.
The codification of Barnett in the Dodd-Frank Act is explicitly stated elsewhere in the Act itself. Section 1044 says that a court can only uphold an OCC determination to preempt a state law if it is “in accordance with the legal standard of the decision of the Supreme Court of the United States in Barnett Bank. . . .” Thus courts are explicitly ordered to judge the OCC’s determination based on the legal standard of Barnett, reasoned the Senators, not some part of it. It would obviously be an absurdity for a court to be instructed by Congress to use a broader standard of review than the OCC itself could use.
The Senators further pointed out that the language in the Dodd-Frank Act closely tracks preemption language in the Gramm-Leach-Bliley Act that also included “prevent or significant interfere.” Both the clear legislative history and court cases interpreting that language confirm that this Gramm-Leach-Bliley language was a codification of the Barnett standard.
The position taken in the Treasury letter is also extremely troublesome to the Senators from a public policy point of view. As Senator Johnson stated on the Senate floor, Congress wished to provide “certainty” on the issue of the preemption standard. If the Treasury position were to be adopted, reasoned Senators Carper and Warner, there would be great uncertainty as to what the new standard would mean. Products and services offered nationally could literally be subject to hundreds of differing state and local laws.
Finally, the Senators pointed out that a federal appeals court panel has already ruled that under the Dodd-Frank Act the proper standard for preemption is the full conflict preemption standard of the Barnett decision. Baptista v. JPMorgan Chase, N.A., CA-11, No. 10-13105, May 11, 2011.