U.S. Supreme Court Upholds States’ Right To Impose Laws on National Banks
- United States
- 07/01/2009
On Monday, the U.S. Supreme Court held in Cuomo v. Clearing House Association, LLC that although the National Bank Act pre-empts states from supervising and overseeing nationally-chartered banking institutions, it does not pre-empt states’ efforts to enforce their laws against those banks. As the Court put it, “the question presented is whether the [federal Office of the Comptroller of the Currency’s] regulation purporting to pre-empt state law enforcement” is a valid interpretation of the National Bank Act. The Court answered the question with a resounding “no.”
The case involved an attempt by the Comptroller and a banking trade group to enjoin former New York Attorney General Eliot Spitzer’s efforts to obtain information from several national banks through a request “in lieu of subpoena.” Mr. Spitzer sought to obtain non-public information about lending practices so the State could evaluate whether the banks had violated state fair-lending laws. The crux of the Court’s legal analysis revolved around whether regulations enacted to implement the National Bank Act’s prohibition on states’ exercise of “visitorial powers” also barred states’ law enforcement efforts. The Court concluded that “visitorial powers,” which generally involve the supervision, control, and oversight of banks’ affairs, were “quite separate” from powers to enforce laws, and that states were free to use judicial law enforcement proceedings to enforce state laws against national banks.
In the end, the Supreme Court held the lower courts correctly enjoined Mr. Spitzer’s efforts because those efforts did not involve the “exercise of the power of law enforcement vested in the courts of justice which [the National Bank Act] exempts from the ban on exercise of supervisory power.” However, the Court observed that New York’s Attorney General could initiate judicial proceedings against national banks to enforce the State’s fair-lending laws.
In light of the current financial climate, the Supreme Court’s decision likely will spur states to enact new legislation aimed at banking activities and state attorneys general to increase their enforcement efforts. It can be expected that inevitably some new piece of state legislation will push the line between law enforcement and “visitorial” efforts.
