On July 19, we blogged about comments Acting Comptroller Hsu made before the Exchequer Club on July 17 particularly his decision to review prior OCC preemption determinations in light of the Supreme Court’s recent opinion in Cantero v. Bank of America reversing the Second Circuit’s holding that a New York State law which requires the payment of 2% interest on mortgage escrow accounts is preempted because such law exercises control over a federal power, regardless of the magnitude of its effects. Cantero, 144 S. Ct. at 1296. According to the Supreme Court, the Second Circuit’s approach did not comply with the Dodd-Frank Act because, instead of conducting a “nuanced comparative analysis,” the Second Circuit “relied on a line of cases going back to McCulloch v. Maryland to distill a categorical test that would preempt virtually all state laws that regulate national banks, at least other than generally applicable laws such as contract or property laws.” Id at 1301.

On July 19, the Americans for Financial Reform Education Fund, the Center for Responsible Lending, Consumer Federation of America, Consumer Reports, National Association of Consumer Advocates, the National Consumer Law Center and Public Citizen (collectively, the “Consumer Groups”), in response to the Acting Comptroller’s speech, wrote a letter.

In their letter, the Consumer Groups demanded that the OCC “conduct a [case-by-case] nuanced assessment of those [state consumer financial] laws” and determine which ones “prevent or significantly interfere with the powers of national banks or federal savings associations.” The OCC must also “conduct the five-year review of any regulations and other determinations that remain on the books. The current preemption regulations impermissibly draw categorical lines. The OCC might prefer “a clearer preemption line… But Congress expressly incorporated Barnett Bank into the U.S. Code[,and] … Barnett Bank did not draw a bright line.” Instead, the OCC must “carefully account for and navigate [the Supreme] Court’s prior bank preemption cases” and “may find a state law preempted ‘only if,’ ‘in accordance with the legal standard’ from Barnett Bank, the law ‘prevents or significantly interferes with the exercise by the national bank of its powers.’”” Cantero, 144 S. Ct. at 1301

On July 26, 2024, the Conference of State Bank Supervisors wrote a similar letter to the Acting Comptroller.

This may be one of the few times that we have agreed with the Consumer Groups about any policy interpretation. As we have stated in other blogs, the same preemption issue in pending before the Second, First and Ninth Circuits. As things stand now, none of those Courts will defer to the OCC’s preemption regulations because they are clearly not in accordance with Cantero, Barnett Bank and Dodd-Frank. If, however, the OCC conducts a “nuanced “ review of its preemption regulations in accordance with Cantero, Barnett Bank and Dodd-Frank, the Circuit Courts and the Supreme Court may give them Skidmore deference. We think that the end result of having the OCC conduct its review in advance of the three Circuits deciding the preemption cases before them is likely to be more satisfactory to the industry than having the three courts decide the cases without the expert guidance from the OCC. We hope that the parties will jointly seek stays from the Circuit Courts and that the Courts will grant stays pending the outcome of the OCC review.

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