In a 5-4 decision, the U.S. Supreme Court ruled today that a state agency may bring judicial actions to enforce non-preempted state laws against a national bank. Affirming in part and reversing in part the decision of the Second Circuit, the court held in Cuomo v. The Clearing House Association, L.L.C. that New York's Attorney General could not issue administrative subpoenas to a group of national banks but could bring judicial proceedings to enforce New York's fair lending laws against the national banks.

The National Bank Act (NBA) provides that only the Office of the Comptroller of the Currency (OCC) may exercise "visitorial powers" over national banks. While an OCC regulation broadly defines "visitorial powers" to include governmental efforts to judicially enforce compliance with laws regulating permitted activities for national banks, the Supreme Court found the OCC's interpretation to be unreasonable and overbroad in light of Supreme Court and other cases dating back to the adoption of the NBA (and earlier visitorial power cases in other contexts).

Under the decision, a state agency or official who has sufficient evidence of a national bank's violation of state law may sue the bank in court. The lawsuit would be governed by normal pleading, discovery, and motions rules designed to prevent "fishing expeditions," unsupported claims, and abusive discovery. In lieu of proceeding in court, the agency would not be allowed to demand production of books and records, issue an administrative subpoena, or undertake an administrative proceeding against a national bank.

Both sides may rightly claim a measure of vindication in this case. However, the Supreme Court's refusal to give deference to the OCC represents the first departure from a series of prior decisions, dating back to the court's 1987 decision in Clarke v. Securities Industry Association, rejecting challenges to OCC regulations and interpretations under the NBA. Coupled with the Supreme Court's refusal to rely upon the OCC's preemption views in Watters v. Wachovia Bank, the decision may increase the willingness of courts to more closely scrutinize OCC preemption views. The prospect of state agency actions against national banks in state court, a venue likely to be friendly to the agency, does not portend well for national banks. Of course, this decision will be wholly insignificant if the sweeping cutbacks on preemption proposed in the Obama administration's financial regulatory reform plan are enacted. (Click here to read Ballard Spahr's June 25, 2009, alert on the plan.)

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documentation of new consumer financial services products, its significant experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). The group has frequently represented banks and savings institutions in administrative and judicial enforcement proceedings. For more information, please contact Alan S. Kaplinsky, 215.864.8544 or; Jeremy T. Rosenblum, 215.864.8505 or; John L. Culhane, Jr., 215.864.8535 or; Barbara S. Mishkin, 215.864.8528 or; or Mark J. Furletti, 215.864.8138 or

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