The Department of the Treasury has commented unfavorably on the preemption rule proposed by one of its own bureaus, the Office of the Comptroller of the Currency (OCC). (Click here to read an earlier e-alert summarizing the proposal.)

In a letter dated June 27, 2011, the last day of the comment period, from Treasury General Counsel George W. Madison to Acting Comptroller of the Currency John Walsh, Treasury stated that OCC’s approach was incompatible with the text and legislative history of Section 1044(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which adopted the “prevents or significantly interferes” standard in the U.S. Supreme Court decision in Barnett Bank of Marion County, N.A. v. Nelson, 517 U.S. 25 (1996).

In its May 19, 2011, Notice of Proposed Rulemaking, OCC staked out the following preemption turf:

  • The “prevents or significantly interferes with” language is not the entirety of the “conflict preemption” approach the Court takes in Barnett but merely shorthand for its preemption analysis in the case.

  • “[B]ecause the Dodd-Frank Act preserves the Barnett conflict preemption standard, OCC’s rules and existing precedents (including judicial decisions and interpretations) consistent with that analysis are also preserved” (citing the OCC’s pre-Dodd-Frank Preemption Regulations and Acting Comptroller Walsh’s May 12, 2011, letter to Senators Thomas Carper and Mark Warner).

  • As Dodd-Frank contains no statement that Congress intended to apply “procedural” requirements (such as the case-by-case determination, the “substantial evidence” standard, and consultation with the Consumer Financial Protection Bureau (CFPB)) retroactively, they do not undermine existing precedent and regulations (including the OCC’s pre-Dodd-Frank Preemption Regulations), and any such interpretation “would be contrary to the presumption against retroactive legislation” (citing Landgraf v. USI Film Products, 511 U.S., 272-73 (1994)).

Treasury’s criticism of OCC’s approach centered on three basic concerns.

First, Treasury is concerned that OCC’s proposed rule would read the “prevents or significantly interferes with” language out of the statute in favor of a vague codification of Barnett. That approach, according to Treasury, is inconsistent with both the plain meaning of the statute and its legislative history. “[W]e believe that Congress intended ‘prevents or significantly interferes’ (as used in Barnett) to be the relevant test, not some broader test encompassing the entirety of the Barnett opinion.”

Second, insistence in the proposed rule that all prior OCC and judicial preemption determinations continue to be valid, even including those that were based on the OCC’s pre-Dodd-Frank “obstruct, impair, or condition” standard, is incompatible with Section 1044(a).

The [proposed] rule seems to take the position that the Dodd-Frank standard has no effect: the proposed rule expressly argues that the new Dodd-Frank standard would not change the outcome of any previous determination, and the same logic would apply to any future determination. The notion that the new standard does not have any effect runs afoul of basic canons of statutory construction: it is also contrary to the legislative history, which states that Congress sought to “revise[e] the standard the OCC will use to preempt state consumer protection laws.”

Third, Treasury is concerned that OCC’s proposed rule could prospectively be read to preempt broad categories of state consumer financial laws. That result does not comport with Dodd-Frank’s requirement of preemption determinations on a “case-by-case” basis and in consultation with the new CFPB.

Treasury is urging OCC to make appropriate revisions and clarifications to its proposed preemption rule in order to allay these three concerns.

Ballard Spahr’s Consumer Financial Services Group is monitoring Dodd-Frank developments and counseling clients accordingly. The Group has been engaged by numerous national banks and federal thrifts to assist them in identifying state laws that are applicable to them. Our attorneys also assist in responding to proposed and final regulations, regulatory examinations and investigations, and state and federal enforcement proceedings. For more information on the subject of this e-alert, please contact Group Chair Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Vice Chair Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; or Keith R. Fisher, 202.661.2284 or fisherk@ballardspahr.com.


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