In 2005, just as the current economic downturn was rearing its head, the Attorney General for the State of New York, Eliot Spitzer, sent letters to several national banks demanding information about their lending practices. He wanted to evaluate whether the banks had violated New York's fair-lending laws. Mr. Spitzer threatened that if the banks did not voluntarily honor his request, he would issue an executive subpoena for the information. The banks refused to cooperate. They contended that Mr. Spitzer had no power to compel production of their records. Relying on an Office of the Comptroller of the Currency (OCC) regulation, they argued they were not subject to state investigation or enforcement actions related to their banking activities.
The OCC and the Clearing House Association, a banking trade group, filed an action in federal court to stop Mr. Spitzer from attempting to enforce New York's fair-lending laws through demands for records or judicial proceedings. The district court ruled that Mr. Spitzer had no power to enforce New York fair-lending laws against national banks. The appellate court later agreed. However, on June 29, 2009, in a 5-4 decision, the Supreme Court of the United States reversed the lower courts (Cuomo v. Clearing House Association, LLC). It ruled the attorney general, now Andrew Cuomo, could bring enforcement actions against national banks, and does not have to defer to the federal government to enforce New York law.
At issue in the Cuomo case was whether the OCC's regulation purporting to preempt state law enforcement was a reasonable interpretation of the (NBA). The NBA provides that only the OCC or its authorized representative may exercise "visitorial" powers over national banks. To clear up confusion, the OCC issued a regulation that defined these powers. According to the OCC, visitorial powers include the examination of banks, the inspection of their books and records, the regulation and supervision of banking activities, and enforcing compliance with any federal or state laws concerning those activities. The Supreme Court held the OCC overstepped its authority with regard to the "enforcing compliance" limitation.
The Supreme Court explained that visitorial powers and enforcement powers are two different things. The NBA preempts only a state's attempt to exercise visitorial powers. States are still free to enforce state laws that are not substantively preempted. For example, the federal Equal Employment Opportunity Act prohibits discrimination in the extension of credit. A state law that does the same thing is not preempted, because it is consistent with federal law. Prior to this case, only the OCC would have the power to bring an action for violation of a state's nondiscrimination law. Now, a state attorney general can bring his or her own claim against a national bank.
The lower courts' decisions prohibiting the attorney general from making good on his threat to issue a subpoena on his own authority under New York Executive Law were upheld. Issuing subpoenas is more like visitation. If the New York attorney general wants records from a national bank, he must follow the judicial process.
This decision is extremely important to national banks. If the lower courts' decisions concerning enforcement were upheld, national banks would have been, as a practical matter, immune from most state attorney general actions. It is highly unlikely that the OCC would regularly put its limited resources into enforcing the law of a particular state. State attorneys general now have the right to go after national banks for violations of their state law. Given how popular bank bashing is these days, we expect that they will do so with enthusiasm.
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