The U.S. Supreme Court on January 16, 2009, in Cuomo v. The Clearing House Association, L.L.C. and Office of the Comptroller of the Currency, agreed to review a Second Circuit decision that the New York Attorney General (AG) could not enforce New York fair lending law against a group of national banks. A reversal of the Second Circuit decision would be a serious defeat for the banking industry.

Concerns about the Supreme Court's action are inevitable in light of the current political environment, widespread criticism of the banking industry, and the fact that the Supreme Court did not take the case to resolve an appellate court conflict. However, it bears noting that in Watters v. Wachovia Bank, the Supreme Court also agreed to review a preemption decision that favored the banking industry, even though there was no conflicting appellate decision, but the Court nevertheless went on to rule for the bank. We believe the Second Circuit reached the correct result in Cuomo and remain cautiously optimistic that the Supreme Court will agree.

The National Bank Act (NBA) provides, in general, that only the Office of the Comptroller of the Currency (OCC) may exercise "visitorial powers" over national banks. The Second Circuit's decision in Cuomo deferred to an OCC regulation that broadly defines "visitorial powers" to include governmental efforts to enforce compliance with laws regulating permitted activities for national banks. Because the New York AG's enforcement efforts constituted an exercise of "visitorial powers" under the OCC regulation, the Second Circuit affirmed the lower court's grant of an injunction barring the AG from taking any action to enforce New York fair lending law against the national banks in question.

In his petition seeking Supreme Court review, the AG argued that the OCC regulation was not entitled to deference. According to the AG, the OCC regulation would deny states' authority to enforce against national banks state laws that are not substantively preempted (such as state fair lending laws) and, therefore, the OCC's regulation was an invalid interpretation of the NBA "visitorial powers" restriction.

Ballard Spahr's Consumer Financial Services Group has significant experience in representing financial services clients in investigations and enforcement actions brought by state authorities, and federal preemption issues are a particular focus of the group's practice. The group regularly counsels clients on the availability of preemption in developing business strategies and defending against challenges to business practices.  For further information, please contact Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; or Barbara Mishkin, 215.864.8528 or mishkinb@ballardspahr.com.


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