Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, June 29, 2009

Supreme Court Upholds Power of State Banking Regulators to Enforce State Law

In an important case for state regulators, the Supreme Court held (5-4), in Cuomo v.Clearing House, that the federal Comptroller of the Currency’s regulation under the National Bank Act purporting to pre-empt state law enforcement is not a reasonable interpretation of the NBA.  This case arose out of an investigation initiated in 2005 by the New York Attorney General to determine whether various national banks had violated New York’s fair-lending laws.  The AG sent the banks letters requesting “in lieu of subpoena” that they provide certain nonpublic information about their lending practices. Both the Comptroller or OCC and a banking trade group brought this action to enjoin the information request, claiming that the Comptroller’s regulation prohibits that form of state law enforcement against national banks. The lower courts agreed with the Comptroller and issued an injunction prohibiting the AG from enforcing the state fair-lending laws through demands for records or judicial proceedings.  A majority of the Justices, however, affirmed the injunction as applied to the AG's threatened issuance of executive subpoenas, but vacated it as it prohibits the AG from bringing judicial enforcement actions. 

The relevant provision of the NBA provides: “No national bank shall be subject to any visitorial powers except as authorized by Federal law, vested in the courts . . . , or . . . directed by Congress.” Among other things, the Comptroller’s implementing regulation forbids States to “exercise visitorial powers with respect to national banks, such as conducting examinations, inspecting or requiring the production of books or records,” or (the language at issue here) “prosecuting enforcement actions” “except in limited circumstances authorized by federal law.” 

The majority noted the ambiguity in the NBA’s term “visitorial powers” and recognized that, under Chevron, the Comptroller can give authoritative meaning to the term within the bounds of that uncertainty. However, the majority stated, "the presence of some uncertainty does not expand Chevron deference to cover virtually any interpretation of the NBA."  The Court goes on to find that evidence from the time of NBA's enactment, the Court's precedents, and ordinary principles of construction make clear that the NBA does not prohibit ordinary enforcement of state law.

Moreover, the Court noted that the regulation’s consequences also cast its validity into doubt.  Even the OCC acknowledges that the NBA leaves in place some state substantive laws affecting banks, yet the Comptroller’s rule says that the State may not enforce its valid, non-pre-empted laws against national banks. “To demonstrate the binding quality of a statute but deny the power of enforcement involves a fallacy made apparent by the mere statement of the proposition, for such power is essentially inherent in the very conception of law.” ... In contrast, channeling state attorneys general into judicial law-enforcement proceedings (rather than allowing them to exercise “visitorial” oversight) would preserve a regime of exclusive administrative oversight by the Comptroller while honoring in fact rather than merely in theory Congress’s decision not to pre-empt substantive state law.

SCALIA, J., delivered the opinion of the Court, in which STEVENS, SOUTER, GINSBURG, and BREYER, JJ., joined. THOMAS, J., filed an opinion concurring in part and dissenting in part, in which ROBERTS, C. J., and KENNEDY and ALITO, JJ., joined.

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