Supreme Court holds state banking laws preempted

In a case challenging Michigan’s regulation of a national bank’s subsidiary, the Supreme Court held that banking conducted by a national bank’s subsidiary is subject to the “superintendence” of the federal government’s Office of the Comptroller of the Currency (OCC). The court ruled that federal banking law preempts state banking laws and regulations, and the bank’s subsidiary may not be subjected to state audits and surveillance. Watters v. Wachovia Bank, 2007 WL 1119539, No. 05-1342 (April 17, 2007). The decision was written by Justice Ginsberg and joined by Justices Kennedy, Souter, Breyer, and Alito. Justice Stevens wrote a dissent and was joined by Chief Justice Roberts and Justice Scalia. Justice Thomas did not take part in the case.

Many consumer groups filed amicus briefs arguing in favor of state regulation, which is generally more protective of consumer rights.  In addition, all of the other 49 states sided with Michigan.  These efforts did not persuade the majority of the Supreme Court.  The Court’s decision is viewed as a victory for the banking industry and the expansive power of the executive branch of the federal government.

 

There had been extensive briefing in the case regarding whether the OCC regulations were sufficient to preempt state law.  Justice Stevens’ dissent states: [n]one of the four Circuits to have addressed this issue relied on the preemptive force of the [National Banking Act] NBA itself.  Each instead asked whether the OCC’s regulations preempted state law.” 

 

The majority opinion does not address the question of whether the federal regulations could choose to preempt state banking regulation, if the federal statute did not do so.  Instead, the Court based its decision on the National Banking Act, not the regulations.  In a footnote, Justice Ginsberg states: “Because we hold that the NBA itself – independent of OCC’s regulation – preempts the application of the pertinent Michigan laws to national bank operating subsidiaries, we need not consider the dissent’s lengthy discourse on the dangers of vesting preemptive authority in administrative agencies.”

 

The dissent disagreed with the Court’s finding that the NBA preempts state laws as applied to national bank subsidiaries.  At the end of his dissent, Justice Stevens wrote (citations omitted):

 

Whatever the Court says, this is a case about an administrative agency’s power to preempt state laws. . . . With rare exception, we have found preemption only when a federal statute commanded it, when a conflict between federal and state law precluded obedience to both sovereigns, or when a federal statute so completely occupied a field that it left no room for additional state regulation.  Almost invariably the finding of preemption has been based on this Court’s interpretation of statutory language or of regulations plainly authorized by Congress.  Never before have we endorsed administrative action whose sole purpose was to preempt state law rather than to implement a statutory command.

 

Thus, the case ducks the important question of whether federal regulations alone are sufficient to preempt state law.