“DEVELOPMENTS IN UDAP PREEMPTION” Presented by the COMMITTEE ON CONSUMER FINANCIAL SERVICES Preemption and Federalism Subcommittee ABA Section of Business Law Winter Meeting - Scottsdale, Arizona January 10-13,2009 AMERICAN BAR ASSOCIATION FINANCIAL COMMITTEE CONSUMER ON SERVICES Winter Meeting - Scottsdale, Arizona January 10-13,2009 Preemption and Federalism Subcommittee Chair: Ralph T. Wutscher KAHRL WUTSCHER LLP 105 W. Madison Street, Suite 2100 Chicago, Illinois 60602 E-Mail: RWutscher@krw-llp.com Vice Chair: David L. Beam K&L GATES 1601 K Street, NW Washington, D.C. 20006-1600 E-Mail: David.Beam@klgates.com Presentation: IN UDAP PREEMPTION DEVELOPMENTS Guest Speakers: Jeffrey I. Langer, CHAPMAN CUTLER LLP, Chicago, IL AND Howard N. Cayne, ARNOLD &PORTERLLP, Washington, D.C. Nancy L. Perkins, ARNOLD&PORTERLLP, Washington, D.C. Recent Developments: I. National Banks A. State Restrictions on Fees to Cash Checks Preempted The United States District Court for the Eastern District of Michigan held that consumer's claims regarding fees to cash checks were preempted by the National Bank Act (NBA). NNDJ, Inc. v. National City Bank, 540 F. Supp. 2d 851 (E.D. Mich. 2008). Consumers brought a class action against several national banks alleging that the banks violate the UCC, as enacted in Michigan, by issuing AMERICAN BAR ASSOCIATION COMMITTEE ON CONSUMER FINANCIAL SERVICES PREEMPTION AND FEDERALISM SUBCOMMITTEE official checks and subsequently charging non-accountholders a fee to cash them. The banks issued official checks in the form of cashier's checks or teller's checks. The banks charge non-accountholder customers a fee to cash official checks that the banks issued. The fees generally ranged from $5 to $10. After examining the NBA and OCC Letters, the court explained that the NBA grants national banks the powers necessary to carry on the business of banking and the OCC has reasonably interpreted this grant of powers to include the authority of national banks to charge their customers fees. The court held that the banks' practice of charging non-accountholder customers a fee to cash official checks is an exercise of the authority granted to national banks by the NBA. Because the NBA grants the national banks the authority to charge non- accountholdcr customers a fee to cash official checks, the court held that state laws that prohibit them from doing so stand as an obstacle to the accomplishment of Congress' objectives and are, therefore, prccmpted. 11. Federal Savings Bank A. State Unfair Competition Law Not Preempted The United States District Court for the Central District of California held that claims that a federal savings bank violated the California unfair competition law by promising a lower interest and rate than delivered, misrepresenting loans terms and breaching the contract were not preempted. Reyes v. Downey, 541 F. Supp. 2d 1108 (C.D. Cal. 2008). The court held that state law claims predicated on violations of the Truth in Lending Act were preempted. Plaintiffs were consumers who applied for mortgage loans through the bank. Plaintiffs allege that the bank sold Option ARM home loans to Plaintiffs. In selling these home loans, plaintiffs allege that the bank promised a low fixed interest rate and that plaintiffs relied upon that promise. The Plaintiffs allege that the interest rate increased almost immediately after the signing. Plaintiffs allege that the bank informed plaintiffs that their monthly payments would be applied to both principal and interest owed on the loans and that the bank breached that agreement. Further, plaintiffs allege that the bank informed plaintiffs that if they made payments based on the promised low interest rate, no negative amortization would occur and this was not true. Finally, plaintiffs allege that plaintiffs could not pay off the loans because of harsh exit penalties. Plaintiffs brought a claim under the California Unfair Competition Law (UCL) alleging that the bank engaged in "unfair" and "fraudulent" business practices based on the above allegations. The bank responded that the plaintiffs' claims were preempted by federal law applicable to a federal savings bank. AMERICAN BAR ASSOCIATION COMMITTEE ON CONSUMER FINANCIAL SERVICES PREEMPTION AND FEDERALISM SUBCOMMITTEE The court explained that when plaintiffs rely on state law of general application and the application of the state law does not purport to specifically regulate lending activity, the state law is not preempted by federal law applicable to federal savings banks. The court found this analysis to be supported by the plain language of Section 560.2, which expresses its intent to "occup[y]" the entire field of lending regulation for federal savings associations." The court found the laws listed in Section 560.2 to be specific laws narrowly tailored to the lending industry. The court found that plaintiffs base their claim for relief on the generally applicable duty of any contracting party to not misrepresent material facts and on the duty to refrain from unfair and deceptive business practices. Thus, the court held that plaintiffs are seeking to use the UCL to apply general principles of contract law such as the principles of breach of contract and fraud in the inducement, which are not specific to lending activitics. Thus, the court held that fedcral law does not precmpt this application of the UCL. Regarding UCL claims predicated on TILA, the court explained that TILA provides for a one year statute of limitations period, while the UCL provides for a four year statute of limitations period. The court held that this procedural difference amounts to state regulation of savings associations since it alters the rules controlling how the association operates. Thus, the court held that plaintiffs' UCL claim predicated on TILA is preempted. Partner Chapman and Cutler LLP Jeff Langer is a partner in the Banking Department of Chapman and Cutler LLP. Mr. Langer focuses his practice on consumer financial services and financial institutions transactional and regulatory matters, with emphasis on the development of nationwide and multi- state credit card (including business card), student, mortgage, personal property secured and other lending programs and stored value card programs, strategic planning and new product development matters, consumer finance (including class action) litigation defense, acquisitions and sales of consumer credit receivables, bank powers and affiliate transactions matters, and federal and state regulatory compliance. Prior to joining Chapman and Cutler, Mr. Langer was a Partner at Dreher Langer & Tomkies L.L.P. in Columbus, Ohio. Partner Arnold & Porter LLP Howard Cayne counsels financial and other institutions on a broad range of regulatory, compliance, and transactional issues. Mr. Cayne has also litigated many significant enforcement, supervisory, and liability issues facing institutions, and their officers and directors. He has played a prominent role in much of the most significant federal banking litigation of the past three decades, and served as trial counsel in a number of cases resulting in hundreds of millions of dollars in total judgments against the United States. Currently, Mr. Cayne is actively involved in challenging, on grounds of federal preemption, state and local efforts to supervise and regulate activities of federally chartered financial institutions. He, together with other members of the firm's preemption litigation team, has achieved a number of important victories for national banks, savings and loan institutions, and credit unions threatened with overreaching state and local actions. A particularly significant case in which Mr. Cayne participated, Bene$cial National Bank v. Anderson, involved a purported Alabama state-law claim for usury against a national bank. The bank removed the case to Federal District Court on the basis of federal question jurisdiction. The US Supreme Court reversed the Eleventh Circuit's refusal to permit removal, thereby extending the doctrine of "complete preemption" to the usury provisions of the National Bank Act. In another successful litigation handled by Mr. Cayne, Loclcyer v. American Banlcers Association, the US District Court for the Central District of California granted summary judgment in favor of plaintiff national banks and trade associations, and permanently enjoined California state officials from enforcing against any federally chartered financial institutions a California law regulating the terms of credit card lending. Other representative matters in which Mr. Cayne has played an active role include the ongoing Winstar-related breach of contract litigations arising out of legislation targeting entities that acquired failed savings and loan institutions from the government. In addition, Mr. Cayne has successfully handled the litigation and settlement of major class and derivative actions against large financial institutions. Mr. Cayne also represents plaintiff utilities in prosecuting claims against the federal government arising out of United States' failure to perform its contractual obligations to remove spent nuclear fuel stored at commercial nuclear power plants and dispose of it in accordance with the Nuclear Waste Policy Act of 1982. Before joining Arnold & Porter LLP in 1984, Mr. Cayne served as a senior attorney in the Enforcement and Compliance Division of the Comptroller of the Currency. In addition, he has served on the adjunct faculty teaching Banking Law Enforcement at the Boston University. Counsel Arnold & Porter LLP Nancy Perkins has a diverse practice including litigation, legislative, and regulatory work involving emerging policy issues. Her litigation practice is both at the trial and appellate court levels, including the US Supreme Court, as well in international arbitration. Ms. Perkins focuses in particular on class actions, including major nationwide class actions, and on cases involving federal preemption of state law. She has extensive experience representing clients in the financial services industry, including both banks and insurers, as well as pharmaceutical companies. She also has particular expertise in the area of international immunities, and has successfully defended international organizations on immunities grounds in numcrous cases. Ms. Perkins served as a law clerk to Judge Eugene H. Nickerson of the US District Court for the Eastern District of New York from 1987 to 1988. At Harvard Law School, she was an editor of the Harvard Law Review as well as the Havvard International Law .Jozirnal. AMERICAN BAR ASSOCIATION CONSUMER FINANCIAL SERVICES COMMITTEE 2009 WINTER MEETING PREEMPTION AND FEDERALISM SUBCOMMITTEE Ralph T. Wutscher David L. Beam ROBERTS & WUTSCHER, LTD. K&L GATES LLP 10 S. LASALLE STREET, SUITE 3500 1601 K STREET, NW CHICAGO, ILLINOIS 60603 WASHINGTON, D.C. 20006 TELEPHONE: (312) 551-9320 TELEPHONE: (202) 778-9026 E-FACSIMILE: (866) 581-9302 E-FACSIMILE: (202) 778-9100 email@example.com DBEAM@KLGATES.COM REPORT ON RECENT DEVELOPMENTS1 I. State Fee Restrictions State Restrictions on Fees to Cash Checks Preempted for National Banks The United States District Court for the Eastern District of Michigan held that a consumer’s claims regarding fees to cash checks were preempted by the National Bank Act (“NBA”). NNDJ, Inc. v. National City Bank, 540 F. Supp. 2d 851 (E.D. Mich. 2008). Consumers brought a class action against several national banks alleging that the banks violate the UCC, as enacted in Michigan, by issuing official checks and subsequently charging non-accountholders a fee to cash them. The fees generally ranged from $5 to $10. After examining the NBA and letters issued by the Office of the Comptroller of the Currency (“OCC”), the court explained that the NBA grants national banks the powers necessary to carry on the business of banking and the OCC has reasonably interpreted this grant of powers to include the authority of national banks to charge their customers fees. The court held that the banks’ practice of charging non-accountholder customers a fee to cash official checks is an exercise of the authority granted to national banks by the NBA. Because the NBA grants the national banks the authority to charge non- 1 This survey of recent developments is provided for informational purposes only and does not contain legal advice. This survey does not include every important development related to federal preemption. Descriptions of facts in individual cases are drawn entirely from the facts set forth in the relevant opinions. Summaries of court decisions are intended to report on the outcome of the cases and the courts’ reasoning, not to provide commentary thereon. Nothing in this survey is intended, nor should anything in this survey be interpreted, to express the views of the authors about the soundness or precedential value of the decisions described herein. This summary does not reflect developments that occurred after December 3, 2008. AMERICAN BAR ASSOCIATION COMMITTEE ON CONSUMER FINANCIAL SERVICES PREEMPTION AND FEDERALISM SUBCOMMITTEE accountholder customers a fee to cash official checks, the court held that state laws that prohibit them from doing so stand as an obstacle to the accomplishment of Congress’s objectives and are, therefore, preempted. II. State Laws Regulating Deposit Accounts Federal District Court Says That State Laws Claims Related to Debit-Posting Procedures Not Preempted This case, Gutierrez v. Wells Fargo Bank, N.A., 2008 U.S. Dist. LEXIS 70124 (N.D. Cal.), involved several sets of allegations against Wells Fargo Bank, N.A., related to its procedures for posting account debits and imposing overdraft charges. The plaintiffs claimed that these practices violated California law. (The court did not specify which California laws the plaintiffs claimed the practice violated; it may have included California’s Unfair Competition Law.) Wells Fargo moved for summary judgment, arguing that the plaintiffs’ claims were preempted by the NBA and OCC regulations.2 The first set of claims were based on Wells Fargo’s practice of posting each day’s debits in order of amount from largest to smallest, instead of in the order that they were received by Wells Fargo. This caused accountholders to incur more overdraft charges than they otherwise would. The second set of claims related to Wells Fargo’s practice of deleting pending debits after three days. The plaintiffs said that this misled them into thinking that they had more money in their accounts than they actually did, resulting in overdraft charges when the final payments were processed and posted. Wells Fargo argued that these claims were preempted by, inter alia, 12 C.F.R. § 7.4007(b), which provides that “state laws that obstruct, impair, or condition a national bank’s ability to fully exercise its Federally authorized deposit-taking powers are not applicable to national banks,” and that a “national bank may exercise its deposit-taking powers without regard to state law limitations concerning . . . [c]hecking accounts.” The court concluded that this regulation “would likely apply if a customer were challenging a bank’s fundamental right to employ an overdraft fee at all.” The regulation did not apply, the court concluded, because “the issue is whether Wells Fargo has been manipulating—indeed downright altering—customers’ transaction records so as to maximize overdraft penalties imposed on customers.” The court also noted that no OCC regulation or issuance specifically authorized the discrete debit-posting policies challenged by plaintiffs. The court also pointed to a provision in Wells Fargo’s account agreement which provided that Wells Fargo could “post items presented against the Account in any order the Bank chooses, unless the laws governing your Account either requires or prohibits a particular 2 Wells Fargo advanced several other grounds for summary judgment, but they do not relate to federal preemption and are beyond the scope of this summary. 2 AMERICAN BAR ASSOCIATION COMMITTEE ON CONSUMER FINANCIAL SERVICES PREEMPTION AND FEDERALISM SUBCOMMITTEE order.” The court asserted that the “governing law on bank deposits is normally state law,” and that this contract provision therefore obligated Wells Fargo to follow state law. III. UDAP Cases Federal regulations preempt state laws related to disclosures and advertising for national banks and federal thrifts. However, federal law generally does not preempt state laws that prohibit fraud or misrepresentation in business activities. When plaintiffs assert claims against a national bank or federal thrift under a state UDAP law, the question of whether the claim is preempted often in one of characterization: Are the plaintiffs claiming that the bank engaged in fraud or misrepresentation, or are they trying to impose affirmative disclosure or advertising requirements on federally-regulated institutions through the vehicle of state UDAP laws? A. Failure-to-Disclose Claims Masquerading as Misrepresentation Claims Preempted, Court Holds The plaintiffs alleged that National City Bank3 and National City Mortgage Company (collectively, “National City”) misstated the costs and terms of residential mortgage loans made to the plaintiffs. Fultz v. World Savings and Loan Ass’n, 2008 U.S. Dist. LEXIS (W.D. Wash.). The plaintiffs asserted that National City had violated both the Truth in Lending Act (“TILA”) and various state laws of general application that prohibited, inter alia, fraud, breach of fiduciary duty, and unfair trade practices. The court held that the plaintiffs’ claims were preempted by the NBA and OCC regulations. OCC regulations specifically preempt state laws that purport to impose requirements regarding disclosures in loan applications or credit-related documents, but generally do not preempt state laws of general applicability that have only an incidental effect on the lending operations of national banks. The court conceded that the state laws invoked by plaintiffs were general laws that did not specifically mention disclosures in loan transactions. The court found that the plaintiffs’ claims were nevertheless preempted because the plaintiffs were “attempting to use the laws to require particular disclosures at particular times and in a particular manner.” The plaintiffs also argued that the claims were saved from preemption because TILA’s preemption provision does not preempt state laws that are not inconsistent with TILA. The court rejected this argument, explaining that “TILA’s preemption provision tells us only what state laws are preempted by TILA: it does not determine the preemptive effect of other federal statutes,” such as the NBA. 3 The case caption identifies World Savings and Loan Association as the primary defendant, but this decision related only to the National City defendants. 3 AMERICAN BAR ASSOCIATION COMMITTEE ON CONSUMER FINANCIAL SERVICES PREEMPTION AND FEDERALISM SUBCOMMITTEE Finally, the plaintiffs argued that their state law claims were not preempted because they were predicted on violations of TILA. The court rejected the plaintiffs’ characterization of their state law claims, and concluded that they were asserting that National City’s actions violated state law without regard to whether those actions also violated TILA.4 B. Federal Law Preempts Claim Under State UDAP Law Related to National Bank’s Dislcosure and Advertising Practices In Weiss v. Wells Fargo Bank, N.A., 2008 U.S. Dist. LEXIS 50304 (W.D. Mo.), the plaintiff enrolled in an “accelerated ownership plan” (“AOP”) offered by his mortgage loan servicer, Wells Fargo Bank, N.A. Under the AOP, Wells Fargo Bank automatically withdrew half of the borrower’s monthly mortgage payment every two weeks. There was, however, some miscommunication between the borrower and Wells Fargo Bank about how these withdrawals would be applied. The plaintiff claimed that he thought Wells Fargo Bank would be applying the biweekly payments immediately. In fact, Wells Fargo applied the payments every four weeks. The system Wells Fargo Bank used resulted in the loan being paid down faster—since it led to thirteen payments each year—but did not produce as much interest savings as would have been produced had Wells Fargo Bank applied each biweekly payment immediately. The borrower blamed the miscommunication on Wells Fargo Bank, and sued it under the Missouri Merchanising Practices Act (“MPA”), a consumer protection statute of general applicability. The court held that the plaintiffs’ claims were preempted because they related to Wells Fargo Bank’s disclosure and advertising practices, and OCC regulations expressly preempt state laws relating to disclosure and advertising for national banks. The court concluded that the claims were not saved from preemption just because the MPA was a law of general applicability, rather than a law that specifically regulated advertising and disclosure practices of mortgage lenders. C. State Unfair Competition Law Not Preempted for Federal Savings Banks The United States District Court for the Central District of California held that claims that a federal savings bank violated the California unfair competition law by promising a lower interest and rate than delivered, misrepresenting loans terms and breaching the contract were not preempted. Reyes v. Downey Savides and Loan Ass’n, F.A., 541 F. Supp. 2d 1108 (C.D. Cal. 2008). The court held that state law claims predicated on violations of TILA were preempted. 4 The court did not address whether the plaintiffs’ claims would have been preempted even if the claims had been predicated on a violation of TILA. 4 AMERICAN BAR ASSOCIATION COMMITTEE ON CONSUMER FINANCIAL SERVICES PREEMPTION AND FEDERALISM SUBCOMMITTEE Plaintiffs were consumers who applied for mortgage loans through the bank. Plaintiffs allege that the bank sold payment option ARM home loans to Plaintiffs. In selling these home loans, plaintiffs allege that the bank promised a low fixed interest rate and that plaintiffs relied upon that promise. The Plaintiffs allege that the interest rate increased almost immediately after the signing. Plaintiffs allege that the bank informed plaintiffs that their monthly payments would be applied to both principal and interest owed on the loans and that the bank breached that agreement. Further, plaintiffs allege that the bank informed plaintiffs that if they made payments based on the promised low interest rate, no negative amortization would occur and this was not true. Finally, plaintiffs allege that plaintiffs could not pay off the loans because of harsh exit penalties. Plaintiffs brought a claim under the California Unfair Competition Law (UCL) alleging that the bank engaged in “unfair” and “fraudulent” business practices based on the above allegations. The bank responded that the plaintiffs’ claims were preempted by federal law applicable to a federal savings bank. The court explained that when plaintiffs rely on state law of general application and the application of the state law does not purport to specifically regulate lending activity, the state law is not preempted by federal law applicable to federal savings banks. The court found this analysis to be supported by the plain language of Section 560.2, which expresses its intent to “occup[y] “the entire field of lending regulation for federal savings associations.” The court found the laws listed in Section 560.2 to be specific laws narrowly tailored to the lending industry. The court found that plaintiffs base their claim for relief on the generally applicable duty of any contracting party to not misrepresent material facts and on the duty to refrain from unfair and deceptive business practices. Thus, the court held that plaintiffs are seeking to use the UCL to apply general principles of contract law such as the principles of breach of contract and fraud in the inducement, which are not specific to lending activities. Thus, the court held that federal law does not preempt this application of the UCL. Regarding UCL claims predicated on TILA, the court explained that TILA provides for a one year statute of limitations period, while the UCL provides for a four year statute of limitations period. The court held that this procedural difference amounts to state regulation of savings associations since it alters the rules controlling how the association operates. Thus, the court held that plaintiffs’ UCL claim predicated on TILA is preempted. 5 AMERICAN BAR ASSOCIATION COMMITTEE ON CONSUMER FINANCIAL SERVICES PREEMPTION AND FEDERALISM SUBCOMMITTEE IV. Visitorial Powers Preemption District Court Says that Federal Law Prevents a State Attorney General from Servicing a Subpoena on a National Bank That Converted from a State Charter—But Not the Bank’s Agent The NBA and OCC regulations preclude state officials from exercising “visitorial powers” over national banks (which includes investigating the banks’ compliance with legal requirements and instituting enforcement proceedings), except in a few limited situations. But what effect do these provisions of the NBA and OCC regulations have on state investigations that commenced against a bank before it switched from a state to a federal charter? And to what extent do these provisions shield an affiliate of a national bank from state investigations into activities that the affiliate engaged in on behalf of the bank? The United States District Court for the Southern District of West Virginia addressed these questions in Capital One Bank (USA), N.A. v. McGraw, 563 F. Supp. 2d 613 (S.D. W. Va. 2008). It concluded that federal law prevented a state official from continuing an investigation against a bank after the bank converted to a federal charter, but that federal law did not prevent the state from exercising visitorial powers over the bank’s affiliate. Capital One Bank, N.A. (“Capital One”) was a Virginia-chartered bank until March 1, 2008, when it converted to a national bank charter. Captial One Services, Inc. (“COSI”) is a Delaware-chartered corporation. Both Capital One and COSI are owned by Capital One Financial Services. COSI does not issue credit cards, but it does provide Capital One with various support services in connection with Capital One’s credit card program, including (1) marketing, advertising, and solicitation of all bank products; (2) bank account management, including issuance of account statements; (3) customer service activities and communications; (4) payment remittance and payment processing; (5) collections; and (6) other acts of servicing accounts and products issued by Capital One. The West Virginia Attorney General served subpoenas on Capital One and COSI in 2005. The subpoenas demanded informtion about the credit card practices of Capital One and COSI in West Virginia. When Capital One became a national bank, it asked the Attorney General to withdraw the subpoenas, which the Attorney General refused to do. The court held that federal law precluded the Attorney General from enforcing the subpoena against Capital One, even if the subpoena were limited to information about the activities of Capital One before its conversion. The Attorney General protested that the visitorial powers preemption provision should not preclude state officials from investigating activities that a bank engaged in as a state bank, but the court concluded that there was no support in the law for fashioning what the court characterized as a “special rule” that a state official may exercise visitorial powers over a national bank 6 AMERICAN BAR ASSOCIATION COMMITTEE ON CONSUMER FINANCIAL SERVICES PREEMPTION AND FEDERALISM SUBCOMMITTEE with respect to conduct that the national bank engaged in before it became a national bank. The court held, however, that federal law did not preclude the Attorney General from enforcing the subpoena against COSI. Relying on the principles of Watters v. Wachovia Bank, N.A. and several agent preemption cases, COSI argued that the visitorial powers provisions should shield it from state investigations into its activities as an agent of Capital One. Allowing the state to investigate COSI’s activities as agent of Capital One would, COSI argued, be tantamount to investigating the activities of Capital One itself. The court rejected this argument. It concluded that the holding of Watters was limited to operating subsidiaries of national banks, and that the holdings of the other agent preemption cases did not extent to exercises of visitorial powers over agents of national banks. Accordingly, the court declined to enjoin the Attorney General from enforcing the subpoena against COSI. V. Agents, Affiliates and Other Parties Associated With Federally-Regulated Banks A. Second Circuit Court of Appeals Holds That the NBA Preempts State-Law Restriction on Non-Bank Service Providers for Refund Anticipation Loans The U.S. Court of Appeals for the Second Circuit held that the NBA preempts a state's attempt to regulate refund anticipation loans (“RALs”) by placing restrictions on in-state non-bank tax preparers, when a national bank extends the RAL. Conn. Gen. Stat. § 42-480 limits interest rates on and otherwise attempts to regulate refund anticipation loans (“RALs”) by placing restrictions on in-state non-bank tax preparers or “facilitators.” The Connecticut Attorney General issued an official opinion as to the scope of the statute in 2005, stating that “the protections against abusive lending practices embodied within the Act are fully enforceable against ‘facilitators’ of refund anticipation loans regardless of the source of the loan financing and are not preempted by federal law.” The state AG concluded that the Act, “by its own terms, does not apply to national banks, but that the Act is enforceable against facilitators of refund anticipation loans made by national banks.” A national bank sued the Connecticut Attorney General and Banking Commissioner of the State of Connecticut challenging the constitutionality of Conn. Gen. Stat. § 42-480, and seeking a declaratory judgment that the state law limits the ability of national banks to offer such loans and limits the rates they may charge, and would thereby conflict with and be preempted by provisions of the National Bank Act. The national bank won in the lower court, and the state officials appealed to the Second Circuit. The appellate court rejected the state’s contention that the national bank lacked standing to challenge § 42-480, and rejected that state’s contention because § 42- 7 AMERICAN BAR ASSOCIATION COMMITTEE ON CONSUMER FINANCIAL SERVICES PREEMPTION AND FEDERALISM SUBCOMMITTEE 480 does not apply to national banks and the NBA should not be construed to preempt the state statute because the statute regulates only non-bank entities. Under the national bank’s procedure for issuing RALs, the taxpayer-borrower completes a loan application provided by his or her tax-return preparer; the tax- return preparer forwards the application to the national bank, which alone decides whether or not to issue the loan. If the national bank decides to issue the RAL, it disburses to the borrower the expected amount of his or her anticipated tax refund, minus a fee, part of which may be retained by the tax-return preparer. The taxpayer authorizes the IRS to make a direct deposit of the refund into a temporary bank account established by the national bank, enabling the national bank to be repaid when the refund is deposited. The national bank does not charge RAL borrowers any fees other than interest on the RAL. The interest charged is established by nationwide contracts with tax- return-preparation businesses. Although the average fee charged by Pacific for a $3,000 RAL is $100, if calculated on an annualized basis as a fee for a loan period of 11 days, this $100 fee amounts to a 115 percent rate of interest, even though the borrower pays only a total finance charge of 3.3 percent of the loan amount. The state contended that the NBA cannot preempt a state statute that regulates only non-banks, and that in practice the state’s anticipated regulation of facilitators that assist the national bank in making refund anticipation loans would not significantly interfere with the national bank’s business of making such loans. However, the Second Circuit noted that, under the Supreme Court’s recent decision in Watters v. Wachovia, the proper focus is not on whether the state statute regulates national banks directly but rather on whether it significantly interferes with national banks’ exercise of their federally-granted “powers” or authorized activities. The court further noted that the NBA provides that a national bank may exercise “all such incidental powers as shall be necessary to carry on the business of banking” through the use of “duly authorized agents” (12 U.S.C. § 24, Seventh), and therefore that a state statute that forbade national banks to exercise their incidental powers through agents would thus “plainly be preempted.” The Second Circuit held that “[w]e think it equally plain that a state statute cannot be allowed to avoid preemption by imposing such a prohibition indirectly.” The court went on to state that, “[i]f a state statute subjects non-bank entities to punishment for acting as agents for national banks with respect to a particular NBA-authorized activity and thereby significantly interferes with national banks’ ability to carry on that activity, the state statute does not escape preemption on the theory that, on its face, it regulates only non-bank entities.” According to the Court, “the natural effect” of the state’s plan to enforce § 42-480 against facilitators that assist the national bank in offering RALs at federally- 8 AMERICAN BAR ASSOCIATION COMMITTEE ON CONSUMER FINANCIAL SERVICES PREEMPTION AND FEDERALISM SUBCOMMITTEE permitted rates “would thus be either to prevent a facilitator from assisting such national banks with respect to RALs or to cause it to refuse such assistance unless the national banks agreed to forgo their NBA-permitted rates and limit themselves to the lower rates specified by § 42-480(d),” and “[p]lainly, losing the assistance of facilitators would pose a significant obstacle to the offering of RALs” by national banks. B. State Attorney General Can Serve Subpoena on Company that is an Affiliate and Agent of a National Bank, Court Holds See discussion of Capital One Bank (USA), N.A. v. McGraw, above. C. Affiliate Cannot Rely on Federal Preemption Provisions for Federal Savings Associations Wells Fargo Escrow Co. (“Wells Fargo Escrow”) acted as escrow agent in the plaintiffs’ real estate closing. Wells Fargo Escrow charged the plaintiffs two wire transfer fees, each for $30. Wells Fargo Escrow ultimately did not pay any wire transfer fees in the transaction, but did not refund the fees to the plaintiffs. They sued, claiming that Wells Fargo Escrow violated the Washington Consumer Protection Act (WCP) by keeping the wire transfer fees paid by the plaintiffs.5 Contos v. Wells Fargo Escrow Co., LLC, 2008 U.S. Dist. LEXIS 88484 (W.D. Wash.). Wells Fargo Escrow moved to dismiss the claims under the WCP on the grounds that they were preempted by the Home Owners’ Loan Act (“HOLA”) and regulations issued by the Office of Thrift Supervision (“OTS”). The court denied the motion to dismiss because the federal provisions cited by Wells Fargo Escrow expressly preempted state laws only for federal savings associations,6 which Wells Fargo Escrow was not. Wells Fargo Escrow asserted that the claims might still be preempted because subjecting it to state law would affect the lending operations of an affiliated federal savings association. The court did not reject Wells Fargo Mortgage’s premise that the OTS regulations might preempt some state laws for an affiliate of a federal savings association if applying the state laws to the affiliate would impact the lending operations of the association. However, the court concluded that the claim could require greater factual development on the part of Wells Fargo Escrow. 5 The plaintiffs also claimed that Wells Fargo Escrow had violated the Real Estate Settlement Procedures Act (“RESPA”). That claim did not involve questions of federal preemption, and is therefore beyond the scope of this survey. 6 The court did not note that other OTS regulations purport to extend the coverage of these preemption provisions to operating subsidiaries of federal savings associations. Wells Fargo Escrow was not an operating subsidiary of a federal savings association, so the court’s omission of any reference to operating subsidiaries appears to be because the issue was not raised. 9 'Tile ilnitcd States Suprctnc Court recc~itly held that the Natiotial Bank A c t ("XUA")2 preempts state liccnsiag arid rcgistra- lion requirc~ncnts as applied to operating subsidiarics o f tiational banks.' In Wdtel:s V . IVm/?ovin Bnnli," the Court, by a 5-3 margin, determined that sue11 national bank subsidiarics m y not be hindered by state licensing, rcgistmtion, and other attendant rcquircmcnts io the cxcrcisc of banking-rclatcd activities o n behalf o f thcir national bank p a c n t s , eve11 tliougli they w c r c chartered under statc law.' I Ms. Pcrkins, Mr. Cayne, and Mr. IIutt arc iiicinbcrs of the Washington, D.C. law firm Arnold & Portcr LLP. Dcforc joining Arnold & Portcr LLP, Mr. Caync served as a senior attorney in the lhforccmcnt and Colnpliiince Division at the Officc of the Coinptrollcr of the Currency. IIe, Mr. Butt and Ms. Perkins bave litigated numerous cescs involving prceniption of statc law under the Yational Bank Act and other federal banking la\m (including the SIafe firm Bai7k $1. B I I I case discussed itfia), and they filed an ~ miiars cwinc brief in the JVultcis case that is the subject of this article. Tlic views exprcsscd in this a~ticlcare those of the authors alone and are not ncccssarily the views of thcir firm or its clients. * 12 U.S.C. $5 21-43 (2000). ' An "operating subsidiary" of a national bank is a subsidiary of the bank that "engages x,lcly in activities that national banks are pcrinitted to engage in directly and arc conductcd sub.jcct to the same terms and conditions tbat govern the conduct of such activities by national banks." 12 U.S.C. 9 24a(g)(3)(A) (describing opcrating subsidiarics as subsidiaries that arc not "financial subsidiarics," but without express mention); 12 C.I:.R, ji 5.34(e)("A national bank may conduct in an operating subsidiuy activities that are pcrmissiblc for a national hank to engage in directly cithcr as past of, or incidental to, the business of banking . . . ."). %aners v. WachoviaBank, 127 S . Ct. 1559 (2007). "d at 1572-73 (finding that "a national bank's cngagcrnent in the 'business of banking' wlicthcr conducted by the bank itself or by an operating subsidiary" is protected itoil? state hindrance). According to Justice Ruth Badcr Ginsburg's tnajority opinion, any sucli statc-imposed hindrance would conflict with Congms's intent that national banks have the fiecdotn to exercise thcir federally granted powers without state intcrfcrcnce, inciudiiig through operating subsidiarics."l'hus, as the Court held, such subsidiaries enjoy federal preemption of statc law to llie same cxtcnt as national banks tl~crnsclvcs.~ 'l'hc iVdterv dccision was hailed by thc banking industiy as confirmalioti of Iongstandhg principlcs which arc critical to the cfficictit operatiot~of federally chartered financial institutions. Tlic l'rcsidcnt and Chief Executive Officer of the American Bankers Association ("ABA"), Edward L. Yingling, said "[t]lic Court's decision rcaffinns that, Cor national hanks, tlic busincss of banking- whctlicr tlirougli llic bank itself or an opcrating subsidia~y-is regulated by the OCC."' For national banks, the ruling gives assurance that they may continue, without statc interference, to use operating subsidiaries as a incans of scgwgaling and concentrating particular portions of thcir banking atid bat~liing-relatedactivities within a separate corporate stnictorc. Sucli segregation and conccn- tmtion have t~u~nerous benefits, including efficiency of maoagctncnt, oversight, accounting, and legal compliance.' l'hus, it was a great relief to national banks (as well as other fcdcrally chartcrcd banks) that the Court ruled for Wacliovia regarding the preemption issue in the Wcirter.~ case. Id. at 1572. ' Id. S News Release, lidward L. Yingliog, Prcsidcnt and CEO, American hnlaxs Cou~t Association, AIM Statcmcnt on S~~prcmc Decision on Wancrs v. Wzichovia (Apr. 17, ?007), li~p:llwww.i1ba.cotn/Pr~ss+Ri!o1niO41707SupretneDecision.hhn. America's Community Dnnkcrs, imother lcading bank trade i~ssociation, said the soling "reaffirms a long line of cascs that support fedes;ll prcernption for national bmks and their operating subsidiaries." R. Christian Bruce, /'i~~irncid111sfitlrliot1.s:U.S. Strpme Courl Ru1e.s f i r I~unl~ers, Bunk ,Su)>s Pro171 Subs Sl~icld~il Slule L m v , 74 Daily Rep. for Executives (BNA) A-42 (Apr. 18,2007). "ingling, .rrq~rirnote 8 ("Avoiding a patchrvo~d(of duplicativc and conflicting federal and statc regulation makes it casicr for national banks to grant credit to customers across state lines and preserves our industry's cotnpctitivc structure."). 2008 Il!rl.l?il?sI/. IV~lCIlOl'7i: FUKC'CKNA~. A AI~I%OACII 1.0 129 F~:nr;a~f.DANKINGP ~ t l i i m l ' m ~ For Michigan, wliosc laws wcrc held prcclnptcd in Wnttem, however, the Court's decision was a major blow. Neil Milncr, president of tlie Confercnce of Slate Bank Supervisors, said tlie dccision "docs irreparable harm to tlic states' liistorical role in advancing consumer protection and ability to respond to local i s ~ u c s . " ' ~Pat Vrcdcvoogd Combs, 2007 president of tlie National Association of Realtors, similarly cornplaitled tliat the Court's ruling "gives a trcmcndous coinpctitivc advantage to Ccdcrally chartered banks over financial and non-financial competitors, increasing tlie value of tlic federal cliartcr at the cxpcnsc oC statc licensing, marketplace colnpetitioti and potentially even consumer protection measures."" And certain Mctnbcrs of Congress immcdiatcly vowed to take action to undo the tlccision. Kcprescatativc Luis Futicucz (D-IL) said tlie Court's ruling "drastically undermines consumers' interests and slate sovcrcignty," and tliat it "flies in the Cacc oC clear congressional intcnt and wcakcns the dual cliartcr system Cor banks"; lie promised to introduce legislation to "correct" tlic ruling." Such heated reactions demonstrate tlic continuing tension between thc iiitcrcsts of the fcderal banking regulators and tlie institutions tlicy cliartcr on the one hand, and state governments, state-cliartcrcd entities, and certain consumer advocates, on tlie other, regarding tlic jurisdictional boundaries lor bank regulation. 'This tension has long liistorical roots dating back to tlic creation of tlic first Bank of the United ~ t a t e s . ' ~ 'l'lic Wrrtteis tlccision raises a variety oCquestions about the balance of regulatory authority bctwccn the federal and state governments. Did the Courl alter tlic parameters for Ccdcnil banking law preemption, or did it ~nerclyconfinn preexisting boundaries'? lo Bruce, srqxw note 8. " Press Release, Pat Vredevoogd Combs, Statement by NAR President on Supreme Court Ruling on Prcelnption of Statc Danking Laws (Apr. 17, 2007). on http://www.rcaltor.orgipress, room/news,,~cleascs/2007/statemcntprec inption,,,~anking,,,i;~~vs.html. 12 Chcycnne Ilopkins, De~iiowuls Dill us IIigli C o ~ wBocks OCC: Splil @e f 1 ~ 1 in JVachovio (~reotfplior~ Roher./,sjoim disseiit, AM. BANKER, e case; Agr. 18, 2007, at I. l3 CON(;. Gi.ooli, 38th Cong., 1st Scss. I893 (1864) (statement of Sen. Suniner) (describing the tension inherent in statc efforts to rctsin bank rcgutatoly authority and the establishment of national banks). What arc the implications of the Court's ruling Col' entities otlicr than operating subsidiaries with respect to activities they may undertake for national banks atid othcr fctlcrally cliartercd institutions'! What does the C:oort's clccision suggest about judicial dcfcrcncc to Cederal agency rcgalatious and opinions that declare precmptioti of state law? This wrticlc cxplorcs tlicsc questions it1 an effort to probe tlic Wrrtters decision's significance and lcgal untlcrpinnings. I'art I oC tlic article provides general backgsouud on the ciisc, both as to its facts and relcvatlt law. Part II su~ninariiesthe lccy argu~iientstlic partics presented to the Court. Part 111 discusses tlic Court's majority and disscotiog opinions. Part 1V cxplorcs the legal implications of tlic majority's dccisio~i from a jurisprudential standpoint as well as for practical purposes of bank operations. Part V, focusing on the issue thc dissent Cound most critical, disctrsses when courts slio~ilddcfcr to dctcrminatiotis by adininistrativc agen- cies sucli as the Office of tlic Coinpti-ollcr of the Currency ("OCC:") that Ccdcral law prccmpts statc law. l'ioaily, the article co~icludes with somc predictions rcgalrtlitig possible legislative and rcgitlatoty actions dcsigned to further recine-if not curtail-the banking prccmptioo principles articulated in Wnttexs. as Wcrtteis co~nlne~icctl a cliallengc to ccrlaio Michigan laws as applicd to Wachovia Mortgage Corporation ("Wacliovia Mortgage"), a North-Carolilia ~iotibauk corporation cngagcd in l'iior L becoming a mortgage lending in Michigan illid c l ~ e ~ b c r c . o national bank operating subsidia~yin 2003, Wachovia Mortgage had complied with Michigan's requirements that aonbaok niortgagc Icntlitig institutioiis register with statc aotlioritics, submit fccs, repoils, a i d financial statements to tlicsc autlioritics, and bc subject to potential investigatory and enCorccmcnt proceedings uutlcr Michigan statc law." I11 January 2001, liowcvcr, when Wacliovia Mortgage bccaine a wholly-owticd opcrating subsidiary oC Wnchovio Bonk ("Wachovia Bank"), it inCormed rhc Michigan authorities that it '" See Mortgage Brokers, Lcndcrs, and Services Licensing Act, Mcki. COMP. LAWS A $8 445.1651-,1684 (West 2002) (setting fhlth requirements for registration, investigation, cnforcenicnt, ctc.); Secondary Mortgage Loen Act, i $5 493.51-.XI (West 2002) (providing for d rcgistretion, fees, investigation, ctc.). 2008 A M<~IY~I:I~S r; JV,rc:~~orm F U N ~ I ~ N A I , .ro AI~I~IK)ACII 131 BANKING FKI)~~I(AI. Pi~li~ih~i~ioh' was sun.eudcring its mortgage lending rcgistration, on the undcrslandiug that such registration rcquire~ncutsarc prccmptcd as applicd to national bank operating subsidiaries. Linda Wattcrs, the and Cominissioncr of the Michigan Officc of Insu~-a~lncc Financial Scivices, respouded by advising Wachovia Mortgage tliat it 110 longer was autllorizcd to cogage in mortgage lending in the late." Wachovia Mortgage, together wit11 Wachovia Bank, liled suit in t l ~ cU.S. District Court for the Western District of Michigan seeking declaratory relief aud an iujunction to prohibit Wattcrs from euforciug Michigan's mortgage Icudiug rcgistration and rclatcd requircmcots agaiust Wachovia Mortgage. 'The plaintiffs claimed tliat such cnforccmcnl was ptrecmptcd by 12 F l $ 7.4006 ("Section 7.4006"), the OCC's regulation statiug that "[u]nlcss otlmwisc provided by Fcdcml law or OCC rcgulation, State laws apply to national bauk opcrating subsidiaries to the same extent that those laws apply to the parcnt uational bank."'"^^ other words, state law is preempted for opcrating subsitliarics to the same extcut that it is for national banks. Guder 12 U.S.C. $ 484 ("Section 484"), the OCC bas the exclusive right, with limited cxceptious, to cxercise visitorial powers over national banks." "Visitorial powers" include, iiiter. a h , "[elnforcing co~npliaucewith any applicable federal or state laws concerning those activities."'* 'fhc district court grautcd sulnlnary judgmcut for the plaintifk, finding tliat Section 7.4006 was cutitled to dcfcret~ce under Resozrrces Defense Cozrrlcil.'"~nder Chevrort USA, Inc, I,. iV~rtzrr.rt1 ''Watters v. Wachovia flank, 127 S. Ct. 1559, 1565 (2007). l6 12 C.I:.R. $ 7.4006. " Section 484, wl~iclidates back to the origiiial enactment of the NDA in 1864, providcs that "No iiational bank shall be subject to any visitorial powers except as authorized by 1:cdcral h v , vested in the courts of justice or such as shall be, or have been cxcrciscd or directed by Congress or by cithcr House thereof or by any committee of Congress or of citlicr Iloilsc duly authorized." 12 [J.S.C. 8 484(a). IS I2 C.F.R. 5 7.4000(a)(2)(iv). '"achovia Dank v. Wattcrs, 334 1:. Supp. 2d 957, 963-66 (W.D. Mich. 2004) (holding that "EPA's interpretation of the statute wns a pcrmissiblc construction and entitled to dcfcrcilcc, where the legislative history of the statute was silent as to the instant issue") (applying Chevron W . A . Inc, v. Naturai Res. Dcf Council, Inc., 467 U.S. 837 (1984)). (%evron, dcfcrcticc is duc to at1 agency's interpetation of a statutc tlic agency is charged to administer if ( I ) Congress has left atiibiguous its intent witli rcspcct to tlic precise issuc in qucstion and (2) the agency's intci-pretation is based on a reasonable (or "permissible") construction of tlic 1 1 1 that regard, the district court fouud that Congress had not addl-cssed the precise issuc of NUA preemption with respect to operating subsidiaries, that Congrcss had granted the OCC "broad and pcrvasive" authority to rcgulatc national baiilcs antl their subsidiaries, antl, thus, dcfcrcncc was due to the Comptroller's inter11rctation of Section 4.7006." 'The district court also hcld, in rcspoosc to arguments put foi-lli by to Wattcrs, that the 'Tenth Amc~id~iieiit the Constitution" was "not implicated" in the case, because Congrcss has the lpowcr to regulate national banks (and thus tlicir activities througli operating sobsidi- arics) under the Constitution's Commerce ~ : l a u s c , ~ ~ A unanimous p a d of the Sixth Circuit Court of Appeals ~ held that "section 7.4006 makes clear that statcs cannot a C f i r ~ n c d .it ~ obstruct a national bank's power . . . to contluct 'the busillcss of banking' through the use ofoperatitig subsidiaries, by imposing state laws atid rcguiatio~is the subsidiaries that could tiot be i~iiposedon 011 the Ilic Court of Appeals opined that utidcr 12 U.S.C. 8 24(Scvcntli) ("Section 24(Scvcntli)"), national batiks are itnbued not only with certain specifically identified ba~ikitig powers, but also powcrs witli "all such i ~ ~ c i d e ~ ~ t a l as shall be neccssaty to carty on the busincss of banking."" The court Cound that "[t]lic Complrollcr has 467 See Cl~e~a.on, U.S. at 843-44 (holding that "[ilf Congress hm explicitly lefi a gap for the agcncy to fill, thwc is an cxpress delegation of authority to tlic agcncy to elucidate a specific provision of the statutc by reguiation."). Wuf/cr-;, 334 1'. Supp. 2d at 964 ("The OCC holds broad and pervasive authority to rcgulatc national banking associations."). '' U S . CONST, anicntl. X ("The powers not delcgatcd to the linitcd States by the Constitution, nor prohibited by it to the states, arc resewed to the statcs respectively, or to thc people."). '"~'rrlters, 334 1:.Supp. 2d at 963-66. '"Wachovi;~Dank v. Wattcrs, 43 1 P.3d 556, 558 (6th Cir. 2005). 25 Id at 561. '"d at 559. the autllority to define a national bank's 'incideatal powers' to include conducting the busitless o r banking through an operating has subsidiary"" atid that "the OCC h~rthcr the authority to prcempt statc law concerning operating subsidiaries to the same extent that those laws would bc preempted with respect to the parent national bank."28 'I'he appellate court also affirmed the district court's holding that Scction 7.4006 raised no Tent11 Amendment concerns." Both thc district court and Lhe appcllate court rulings in Wnttei..s were consistent with the decisions of all oT the other courts that had adtlrcssctl the national bank operating subsidiary preemption issue by tllc time it was consitlercd by thc Supreme Court.'" A. Petitioncr's Arguments In prcsctlting her case to thc Supreme Court, Wattcrs argucd: (1) the NBA provides no basis for believing that Congress intended the statute to preempt statc law with respect to operating subsidiaries; (2) Section 7.4006 should not bc accordct1,iudicial deference; and (3) the l'cnlli Amcndmcnt bars the OCC from usurping regulatory authority over statc-charicred entities Trom the statcs." "Id at 561-62 Id (quoting Wachovix Bank v. Durkc. 414 F.3d 305, 3 18 (2d Cir. 2005)) (internal quotations omitted). '' Scc Xat'l City Bank of lnd. v. Tm-nb;mgh, 463 t:.3d 325 (4th Cir. 2006), oJ'g 367 1: Supp. 2d 805 . (D. Md. 2005); Wachovi;~lhnk v. Burke, 414 1'.3d 305 (2d Cir. 2005), in part and rev'g in part 319 F. Supp. Zd 275 (D.Conn. 2004); Wclls Fargo Bank v. Doutris, 419 l:.?d 949 (9th Cir. 2005), Nfjlg 265 1:. Supp. 2d 1162 (ED. (h1. 2003). ''See Brief for the Petitioner at i, Watters v. Wachovia, 127 S. Ct. 1559 (2006) (No. 05-1342), mwiinhle (11 littp://www.abanct,orgi [hercin- publiccd/prcview/bricfs/pc~fs/06-07i~~5-1342...Pctitioncr.pdf ;~ftcr Pel. Dr.]. 1. Statntory Construction and Congressional Intent Kclying on principles of statutory construction, Wattcrs argued tliat acitlicr the NUA nor any other statute suggests Coiigrcss's intent to preempt state law. The analysis first focused oti the plaia language of Section 484, wliicli says that "no national batik shall bc subject to any visitorial powers except as authorized by federal law."" Wattcrs argucd that the rcfcrcncc to "national banks" should be ititcrprctcd narrowly to include only national banks and not tlicir a~filiatcs.'~She bolstcrctl this argomcnt by pointing out the NUA's separate definitions for "national bank? and "aflXatc."34 Given the scparatc definitions and the absence of ally rcfcrc~iccto "affiliatcs" in Section 484, Wattcrs argncd, Congress mist not have ititctidcd "to cxtcotl the prccmptivc scope of that statute to reach oonbank operating subsidiarics."" Wattcrs Llico focused on Section 24(Sevcntli), wliicli provicics that a ~iatiotial bank may "cxcrcisc by its board of directors or duly authorized officers or aycnts, subjcct to law, all such incidental powcrs as sliall be ncccssary lo carly on tlic business of banking.'""hile conceding tliat this language iniplicitly authoriics national banks to use lionbank operating subsidiaries to conduct tlic business oC banking, she argued that "a lialioual bank's 'incidctital powers' cannot I-casonably be understood to include the power to oblitcratc the distinction between 'naliocial biuilts' and tlicir 'afriliates,"'" which Congress cxprcssly defined and otherwise treated d i f ~ c r e n t l y . ~ ~ I3Pet. Ib., s ~ q note 3 1, at 13 ("By its express terms, 12 USC $ 484(a) m applies only to 'nationwl banks."'). "'See 12 U.S.C. $$21-24,221 ("national bimk"); id.5 221a(b) ("afiili;uc"). '' I dat 13-14 (citing Kccnc Corp. v. linitcd Statcs, 508 I1.S. 200, 208 (1993)). " I2 U.S.C. 9 24(Sevcnth). 37 Pet. Br., s q r n note 3 I , at 21 (internal quotations omittcd) " Id at 22 ("Congress has carefully scpi~ratcdnational banks iiom their affiliates, including operating subsidiaries."). 2008 AL'I A RJNCIIOIVI\I.'IKIACLI I.0 bl<ll?lll(S 1' ~~~l~IICIlOI'J.~l: 135 Fli1)IillAl. P1llXM1.ZrION BANKING 2. .Judicial Deference to Section 7.4006 Using her "plain language" argument as a spriogboard, Wattcrs went 011 lo argue that tlicrc was no basis for deference to Scctio~i 7.4006 because tlie NUA itself is "clear and una~nbiguous."'~ Morcovcr, even if Section 484 were ambiguous, Watters contendcd tliat still would not justify cdcCemncc to Section 7.4006 because "ao agency's rulemaking power is limited to adopting regulations to carry into effect the will of Congress as expressed in the statute," aud "Congress could not Iiavc intcndcd to dclcgatc a decision of such ccotiomic and political sig~iifica~icc an agency in so cryptic a to fasllioo.""" Wattcrs also argucd tluit, as a gmcral mattcr, "[algcncy rulcs purporting to prccmpt statc law arc not worthy of Cl?evr.on deference."" Tliougli slie conceded that certain administrative agencies, by statotoly grant, do have authority to issue regulations Lliat prcctnpt statc law, she posited tlie OCX was no such Watters argued tliat Congress's grant to the OCC of authority "to prescribe r~llcs rcgulatiotis to carry out the responsibilities of the and 0Ki~c"'~ empowcrs tlie OCC to promulgate ".str,i~ilor.ds," does not but givc it "tlic autliority to decide the prc-cinptive scope of tlic ~cdcral statute.""' In csscace, Watters's position was tliat tlic OCC could issue prescriptive rulcs citlier per~nittingor limiting tlic activities of national banks and their operating subsidiaries, which rniglit prccinpt statc law in tlic event of a conflict tlicrewitli, hut that tlic OCC could not declare preemption of statc law as a general matter with respect to operating subsidiaries. '' Id at 28-30 ("if the Paw passed by Congress is clear and unambiguous, it must be applied as written."). 40 Id at 30-3 1 (internal quotation marks and citations omitted). " I d at3l. 'IZ I d at 33-35 ("[A]gcncy regulations arc generally not entitled to dcfi?rcncc when they precmpt State liws [except] where Congress specifically dele- gates to an agcncy the euthority to makc prccniptivc determinations that have force of law. The OCC, liowcver, has not been specifically dclegatcd the authority to expend the preemptive reach of the National B;~nkAct."). " Pet. Br., slrpra notc 31, at 34 (quoting Gonzales v. Oregon, 126 S. Ct. 904, 919 (2006)) (internal quotations omitted). 3. T h c l'cnth Amendment With rcspcct lo tbc 'l'ctith Amcndtnctit, Wattcrs contended that it was abridged by Section 7.4006 because, io cfCccl, the regulation "transform[sl State-chartered opcrating subsidiarics into 'creatures of tlic federal government' without the permission of tile cbartcriiig Statcs and put them beyond the rcach of those States in which the corporation docs business."" She criticized the Sixth Circuit Cor having reasoncd "simplistically and crroncously" that Congress's authority to rcgulatc national banks uodcr the Coin~ncrcc Clause Incans the 'Tenth Amendmcnt cannot bc a bar to ao OCC rcgulatiom4"'~t thc vcry least," Wattcrs coocludcd, "the scriousncss oC the cotistitotional question warrants application of the constitutional doubt doctritlc and rcjcction oC the OCC's radical expansion of its rcgulato~y authority under the National Bank ~ c t . " " B. Respondents' Arguments In rcspoosc to Wattcrs, Wachovia Bank and Wacliovia Mortgage (collcctivcly, "Wacliovia") a]-gucd that, because national banks indisputably have the power to coliduct bankitig through opcrating subsidiaries, and because opcrating subsidiaries are subject to the same "tcnns and conditions" of law as national banks, the OCC was h l l y justified in concludi~igthat tlic same prccmptioo applicable with rcspcct to national banks applies with respect to those batiks' operating subsidiarics."' 'That conclusion merited judicial clcferc~icc,Wacliovia argued, because it was a reasonable interprc- .IS Id. at 43 (quoting IIopkins Vcd. Sav. & Loan Ass'n v. Clcaiy, 296 U.S. 315,335 (1935)). "'Id. at 44. "'See Brief for the Rcspondents at 18-20, 33, Wnttcrs v. Wachovia bank, 127 S. Ct. 1559 (2006) (No. 05-134?), o~miloblen/ http:llwww.abanct.org/ Rcspoudcnt.pdf [hcrcinafter pul~liccdlprevicw/bricfsi~~~ifs/06-07/05-l342, "Rcs. Br."]. 2008 IY.I~?ws I / IV,iclii~imA RJNCTIONAI. AI~I'IIOA(:II .TO 137 Fel:)r;iul.RANKINGPIIEE~@TION 'Tlic tation of an issue tllc NBA left a~iibiguous?~ 'Tenth A ~ i i e n d ~ n c ~ i t , Wacliovia al-gucd, posed no barrier to such a conclusio~i.'" 1. Statutory Construction Wachovia's argumcnt that the "sainc terms and conditio~is" apply to opcrating subsidiarics as apply to national banks was based on a provision enactcd as part of thc (ira~nm-Lcacli-BliIcy Act ("GLBA")~' referring to operating subsidiaries of national banks as subsidiarics that engage "solely in activitics that national banks arc permitted to cngagc in directly and arc conducted subject to thc snrrte terms m d co~iditio~is govern the conduct of such activities by that national banks."" In promulgating Section 7.4006, the OCC empha- sized that this GLUA provision-as well as the OCC's own regulation to tlic same effect"-reasonably Incans that statc laws apply to operating subsidiarics to the same extent as they apply to thc parcnt national bank." 'l'lius, "unless otlicrwise provided by Federal law or OCC regulation, Statc laws, such as licetlsing requiretncnts, "d at 40 (citing 12 U.S.C. g 24a(g)(3)(A) as the basis for a reesonablc " interpretation by the OCC regarding its reylato~yscope over operating subsidiarics of national banks, and invoking C/?evr.on'smandate of judicial deference to an agency's reasonable interpretation of an ambiguous statute it is charged to administer). 50 Id at 46-50 ("[E]xclusivc federal ~quiation activities of state-chartcmd of corporations is well established. Such regulation is entirely consonant with the design of our fedcral system. . . . Accol-dingly, there is no Tenth Amcndmcnt violation."). 51 Pub. L. No. 106-102, 113 Stat. I338 (1999). " I2 U.S.C. 5 24a(g)(3)(A)(2000) (emphasis addcd). " 12 C.F.R. 9s 5.34(c)(l), (3) (2007) ("A national bank may conduct in an opelxting subsidial-y nctivitics that are permissible for a national bank to cngagc in directly," and "[aln opcrating subsidisry conducts rlctivities authorized under this section pursuant to the satnc authorizi~tion,terms and conditions that apply to the conduct of such activities by its parent national bank."). SJ Applicebility of Statc L;tw to Hi~tionaiBank Subsidiaries, 66 Fed. Reg. 34,784, 34,788 (July 2, 2001) (codified tit I2 C.F.R. 5 7.4006) ("A fundmental cotnponcnt o f . . . the characteristics of opcrating subsidiarics in GLUA und the OCC's rule is that statc laws apply to operiiting subsidiaries to the same cxtcnt as thcy apply to the parcnt national bank."). arc applicable to a national bank operatiug subsidiary only to the extent lliat they are applicable to national banks."" With rcspcct to Section 484 and tlic NUA provisions defining and regulating national bank "affiliatcs," Wachovia argued that no conclusions could be dmwn Cram them about preemption of state law Tor opcrating subsidiaries, as they wcrc c~iactcdwell before national banks wcrc authorized to maintain opcrating subsidiarics." 2. Deference to the OCC On tlic issue ol' dcfcrcncc, Wnchovia pointed out that thc Court has repeatedly held that tlic OCC's interpretations of the NBA stating that the OCC "is chargcd merit dccercncc undcr C l m i i ~ o ~ ~ , with the etiforcciiient of banking laws to an extent that warrants the invocation of this principle with respect to his deliberative concio- sions as to the mcaning of these laws."" rn response to Watters's argumcot that declarations of precmptioo-as opposed to substantive regulations that havc the crfect ol' preempting itlconsistcnt state law-arc beyond the scope of agcncy authority, Wachovia argued that tlic OCC's rcgulation mcritcd deference because, as the Court has recognized, an agcncy with expertise in administering a statute "is uniquely qualified to determine whethcr a particular form of state law stautls as an obstacle to thc acco~nplislunentand execution of the Tn11 purposes and objectives ~TCougress."'~ " Res. Dr., S Z I ~ I ' Unofc 48, at 29 ("[NIeithcr tlie 1864 Congress . . . nor thc 1933 Congress . . . can be assu~ncd have any intention as to applicability to of [their banking rcgulation laws] to opcmting subsidiaries, which were not imthorizcd until 1966."). " Id at 39 (quoting NationsOank of N.C, v. Variablc Annuity Lifc ins. Co., 513 U.S. 251, 256-57 (1995) (internal quotation inarks and citations omitted)). " Id a t 42 (quoting Mcdtronic, Inc. v. Lohr, 518 US. 470, 496 (1996) (quoting Ilines v. Dilvidowitz, 312 1J.S. 52, 67 (1941)) (internal quotation inarks and citations omittcd)). 3. 'l'cntb Amendment Ln addressing Watters's argument that, in promulgating Section 7.4006, the OCC had "fcderalizcd" a state corporation and thereby violated tlie Tenth Amendment, Wachovia pointed out that the OCC's rcgulatious clearly disclaim any Tcderal authority with respect to tlic Connation, dissolution, and corporate govcrnance of operating subsidiaries and that it is only thc banking nctivities of opcmtitig subsidiaries over which the OCC clai~iisexclusive rcgula- bauk toiy authority, because those are activities that a ~iatio~ial could do itself but has chosen instead, in its discretion, to dclegatc to its operating subsidiaries." Arguitig that "[tlhe Courl has upheld federal banking laws that liavc a far more intrusive cffcct on llic the States tlia~i laws at issuc in this c a s c , " " ~ W a o v i a concluded tbat "tbere is no question, let alone a 'serious' question, tliat federal rcgulatio~ioT mortgage lending activities is permissible under the 'l'cotli ~ t n c n d m e n t . " ~ ' A. 'l'hc Majority Opinion Justice Ginsburg's opinion Cor the majority approached tlie issuc oT preetnptiot~through a dicfcrent lens thao any oT the courts below. llatlier than Cocusing on Scctioo 7.4006 and tlie OCC's authority to pmmulgatc it, tlic Court Cocuscd on the NUA's precinptivc scope with rcspcct to tlie exercise of banking powers by national batilts. The Court found that opcrati~ig subsidiaries, by perhrtniog batilci~igCunctions Tor thcir bank parents, are acting it1 of fulfill~ne~it Congress's intent with respect to national banks as j Id. at 47-48 ("[Tjhc OCC expressly disclaims authority to regulate thc 9 finnation, dissolution, and corporate govcrnance of operating subsidiaries, [and] only fcderally-authorized burrhirig m/iiiIies tbat national banks conduct through thcir operating subsidiaries are rcguiatcd by the OCC."). "Od at 49 u.28 (citing Missouri cx rel. Burncs Nat'l Bank of St. Joscph v. Duiicau, 265 U.S. 17, 23 (1924); Van Rccd v. People's Nat'l Dank of Lebanon, 198 U.S. 554,557 (1905)). " Id. at 49-50. created by the federal govcmmcnt." It followed naturally then that state law should not obstl-uct the banking activities of opcrating subsidiaries any more than it should obstruct tliosc activities if undcr- taken by national banks themsclvcs. Any other conclusion, the Court reasoned, wonld undcnninc the congressional objective for the cficicnt nationwide exercise by natio~ial banks of the powers granted to thcm under the XBA.~' 1. Statutory Constrnction and Congressiollal Intent 'l'hc Court began with the NUA provisions that specifically authorize national banks to cngagc in real cstatc icnding"%and, more broadly, give thcm authority "[tlo cxcrcisc . . . all such incidental powers as shall be necessa~yto carry on thc busincss of banking."" As the Conrt cniphasized, the parties did not dispute that, under these provisions, national banks have authority to engage in real cstatc lending through operating subsidiaries." l l i e only issue in dispute was whether the preemptive scope of the NUA, including its ('' See WBtters v . Wachovia Dank, 127 S. C:t. 1559, 1570-71 (2007) ("Over the past four decades, during which operating subsidiaries have c~ncrged as important instrumentalities of natioiial banks, Congress and OCC have indicrltcd no doubt that such subsidiaries arc 'sul)ject to the same tcrins and conditions' as national banks thcmselvcs."). " See id at 1567-68, 1572-73 ("[Sltatc lilw may not significantly bmdcn ;I national bank's own cxcrcisc of its real cstatc lending powm-, just as it may not currid or hinder a national bank's cfficicnt cxcrcisc of any other power, incidental or enumci-atedundcr the NBA."). 6 . 1 I ? 1J.S.C. 5 371 (2000) ("Any national banking association nay mekc, arrange, purchase or sell loans or extensions of credit sccurcd by liens on interests in real estate, subject to section 1828(o) of this title and such restrictions 8nd requirements as thc Co~nptrollerof the Cuucncy may prescribe by regulation or order."). 12 U.S.C. 5 24(Sevcnth) (2000). " ~ V ~ U I ~127YS. Ct. at 1564 (citing 12 U.S.C. 5 24a(g)(3)(A); I? C.F.R. $ I' , 5.34(e) (2007)) ("It is uncontested in this suit that Wachovia's real csti~tc business, if conducted by the national bank itself, would be subject to the OCC's superintendcncc, to the exclusion of state registration rcquire~nents and visitorial authority."). 2008 1 . iY,~c~rni~?.~: I~C~T~IX$' 1 A RXCSIONAI. APIWACII'SO 14 1 DANKINGPII~:I:I\I'ITION FL:I)I%I(AI. of prcc~nptioti statc authority to cxcrcisc "visitorial powers" cxtcnded to operating subsidiaries engaged in real cstate lcnding. 'Yo answer that qucstioti, tlie Court looked to the long liistoly of its interpretations of the NUA in relation to statc law. That jurisproclcncc, "ma[kcs] clear that federal control sliiclds natioaal banking fro111 miduly burclctisomc and duplicative state r c g ~ l a t i o n . " ~ ~ Quoting its sclnilial opi~iioli Barnett BNIZIC Mmion (,'ozmty, IVA. in of v. els son,^^ Llic Court observed tliat it has "intcrpret[ed] grants of and both ctiu~nerated incidental powers to national banks as grants of autliority not nonnally limited by, but ratlicr ordinarily prc-empling, con11.ary state law."" More specifically, "when statc prescriptiotis or significantly impair the exercise of autliority, ctiu~iicmtcd inciclcn- tal u~idcr KBA, the Stale's rcgulatioas must give way."7U the Given the congressional purposes u~iderlyitigtlic NBA and express statutory authority for national banks to engage in real estate Icnding, it is "[blcyond genuine dispute [tliat] state law may not significantly burden a natiotlal bank's own exercise of its real estate Icnding power."" I'reemption accordiligly must extend to any state law with such an effect, including those of Michigan, because national banks would otherwise bc subjected to tlic vatying rcguia- tory and ctiforcclnetit regimes imposed by all tlie states in which they ~pcrate."'~ I'lic Court c~npl~asized that Section 484 is a dircct and explicit expression of C;otigress's intent to prcveot any such ioterfcrc~iccwith respect to any authorized business of a national " Id. at 1566-67 (citing Bcncficial Nat'l Bank v. Anderson, 539 US. I , I0 (2003)). " 3 1 7 U S 25 (1996). 69 CIiutfel:s, 127 S. Ct. at 1567 (quoting Ilai,lelf I h k , 517 U.S. at 32) (internal quotations omitted). i (citing Brrrr7etl Burdc, 5 17 U.S., at 32-34; I:~.anklin Nat'l Bank v. Ucw d York, 347 U S 373,377-79 (1954)). " Id at 1568. '' i .("State laws that conditioned national banks' real estate lending on d registration with thc State, and subjcctcd such lcnding to the State's invcsti- gative and cnforce~rienttnachinely would surely interfere with the banks' federally authorized business: National banks would be subject to scgistra- tion, inspection, and cnforccmcnt regimes irnposed not just by Michigan, but by all States in which the banks opcrate."). baok. In providing in Scction 484 tliat "[nlo national bauk shall bc subjcct to any visitorial powers except as authorized by Fctlcml law,"73 Congress dictated that the states, including Micliigau, cannot exercise examination and cnforcemcnt authority over the banking busincss dotic by national banks.74 Wattcrs conccded this. But, as discussed above, she contco- dctl that the NBA's preemption-and in particular the preemption of statc "visitatioos" untlcr Scction 484-could not cxtcntl to statc- chartered nonbank opcniting subsidiarics, which arc one type o r "affiliate" oC national banks and cannot bc equated with national banks thcmselvcs. 'The Court, liowcvcr, was not persuaded. First, the Court rcjccted Watters's argument tliat Section 484 must not cover operating subsidiarics bccausc it docs not mention tlicni spccifically. As tlic Couii reasoned, the abseucc of sucli a reference suggests no clcar congressional intent because operatiug subsidiarics did not cxist when Congrcss cnactcd Section 484.7' Second, tlie Court found that Congress's identification oC an "opcrating subsidiary" as distinct fi-om another type of"aCfili~~tc" a of national bank coufinns the spccial relationship bctwccn national banks and thcir operating subsidiarics. Specifically, in identifying a national batik operating subsidiary as a sobsidia~y that "engages solely in wtivitics that national banks arc permitted to engage in directly and are conducted subjcct to tbc same tcnns and conditions that govern the conduct of sucli activities by national banks,"76 Congress subjected national bank opcrating subsidiaries to the sirnle regulatory regime, including the exclusive visitorial authority of the OCC, as applies to national banks t l i c n i s c l ~ c s . ~ ~ 'Tlic Coult Couud that nothing in the NUA suggcstcd tliat banking activilics pcrrnissibly undcrtakcn by national banks through real thcir operating subsiciiarics--i~icl~~di~ig cstatc lending-should bc any more subject to statc law than tlie saiiic activitics undertakco by national banks Nor do the facts that an operating " 12 11.S.C. $ 484(a). 127 S. Ct. tit 1569. " iVullers, 7d at 1571 ("[O]pcratii~g " subsidiaries wcre not authorized until 1966."). ' "2 1J.S.C.$ 24a(g)(3)(A) (2000). 17 ,Ye<, PVul/er.s, 127 S. Ct, at 1571-72 (citing 12 IJ.S.C. 5 24a(g)(3)(A) (2000)). 7s Id. at 157 1 2008 FUNCTIONAL.~ I ~ ~ 'TO U MQWI:I~S 1'. lK~C1lOl'l;l: A AI'I AC 143 Fii1)EXAL.D A N n m PIU:lih~lr~LON is subsidia~y incorporated under statc law and is not a batik aCCcct tlie determination oC which laws sliould apply to tlie exercise of a national batik's bnnlri17g activitics through sucli a subsidiary. As tlie Court cmpliasized: "[wle have ncvcr held that tlic preemptive rcacli of the KUA cxtcnds only to a natio~ial bank itself. Rather, in analyzing whether statc law Iiampcrs the federally pcnnittcd activi- tics oCa liatio~ialbatik, we have Cocused on the exercise of a national bank'spowe~r,not on its corporate ~tructurc."~" 'l'lius, as the Court noted, in prior cases concerning the autliority oCnationa1 banks to undcr(a1tc certain activitics, it made no diffcrcncc to the analysis of tlic cxistcncc oC sucli authority that Llic activities were conducted by an operating subsidia~yratlicr than by tlic national balilc itself"! A national bank is cqually Ccttcrcd in tlic exercisc of its powcrs by state eticroaclimcnts on its authorized bankitig activities when those activities are co~iductcd directly by the national bank and wlicn they are conducted indirectly tbrougli an opcratitig subsidiary, Accordingly, tlic Court foutid tliat, just as national batiks must be afforded security against intcrCcrcncc by statc rcgulatol-s, so too should that security adlicrc "whetlicr the business is conducted by tlic bank itsell or is assigned to an opcratitig subsidialy."8' In coticlusion~tlic Court licld: "The NUA is thus properly read by OCC to pmtcct from statc hindrance a national bank's cligagctnmt it1 the 'busit~cssof banking' wlictlier conducted by the batik itself or by an operating subsidiary, empowcrcd to do only what tlie bank itself could do."82 Despite its finding that "the NUA is . . . properly read by o , ~ Court OCC" with rcspect L the prectnptioti question at i ~ s u c tlic ~ explicitly empllasizcd that its holding was not based on dcfercocc to Scctio~i 7.4006. Tlic Court explained tliat, "undcr our ititcrpretation of the statute, the level of deference owed to tlie regulation is an "See id at 1571 (discussing NationsDank of N.C, v. Variablc Annuity Lifc Ins. Co., 513 U.S. 251, 256-61 (1995)). " Ld (citations otnitted). Id. at 1572. s? Id. acadcniic question. Section 7.4006 mcrely clarifies and confinns what the NUA already conveys . . . ."'" 2. T h e Tenth Amendment 'l'he Court devoted a single short paragraph to Wattcrs's contentio~i that Section 7.4006 violates tlic 'l'cntli Amendment. lieiterating its previous holding that "'[ilf a power is dclegittcd to Congress in thc Cotistitution, the 'Tenth Amcndmcnt expressly disclai~nsany rcscrvatio~iof tliat power to the ~tatcs,"'~halid the well-cstablislicd undcrstaoding tliat Congress has autliority to rcguliitc national batik operations under the Commcrcc Clause and tlic Nccessaly and I'~-opcr~ l a u s c , " the Court conclutlcd (as bad the courts below) that the 'l'cnth Amendincnt "is not implicated ~icrc."~' B. T h e Dissenting Opinion Justicc Stcveos' dissenting opinion, joined by Chief Jnsticc Roberts and by Juslicc Scalia, rcflccls a pronounced disagrcc~nent among the justiccs in tile R'UA context with rcspcct to principles of federalism, statutoly intcrprctatioa, and tlic role of ad~ninislrativc agencies in defining thc scope of federal prccmptioo. Justicc Stevens' docision highlights the oncertainty that currently prevails r concerning Llic slinidards f i ~ judicial deference to agency dctcrmi- nations regarding preemption of state law. Although an in-depth analysis of that issue-whicli has been the subject of considerable is scholarly c o m ~ n e n t a r ~ ~ ~ -beyond the scope of this articlc, its '' Id at 1573 (quoting New York v. United States, 505 U S . 144, 156 (1992)). 31 i d ("Reguhtion of national bank operations is a prerogative of Congress under the Conmcrcc and Ncccssa~yand Proper Clauses.") (citing Citizens I3mk v. ALafhba), Inc., 539 U.S. 52, 58 (2003) (per curiam)). d i SY See, e.g., Nina A. Mcndelson, <liimiioi~ nnd /'~wvipt;oi~, Micli. L. 102 RIW. 737 (2004); Jack W. Cilmpbcll IV, Reg.gul~i/oiy Preeinption b~ the 59 G~~i-(:irr/(%evro~~ U. PITT. L. Rtiv. 805 (1998): IIoward P. Walthall, /h, Jr., C/lern.oi?11. / " E c ~ c ' I ~ ~ s I ~ ~ : o/'k/?I'c?ilce((1 A~ii7li,lilli.s/rntil~e A lIcr1,s,sc~.s.siilei7/ Pxw,ip/iori, 28 CUMII. L. REV.715 (1997-98). implications foi- OCC preemption determinations specifically arc explored in Part VI below. 1. Statutory Construction a n d Congressional Intent Justicc Stevens coln~nencedhis dissent in CVoffers witli tlie sliarply critical contention that tlie Court's ruling disrupts tlie Ccderal- statc balance in rcgulatioli ofthe "dual" banking system in the United ~tiltcs." According to Justicc Stevens, llic majority's decision "tIircn_tens the vitality of inost statc laws as applied to national banks-a result at otltls witli tlie long and nnbrokcn 1iisto1-y of dual statc and federal authority over national banks . . . .im To demoostratc this pcrccived impact, Justicc Stevcns of ~ provided a detailed discussion of the liisto~y bank r c g u l ~ t i o ini the l h i t e d States, includiilg Congress's grant of specific powers to national batiks, such as the power to engage in rcal estate letidilig and to affiliate with nonbank entities." Justice Stcvcns opined tliat "Congrcss has colisistently recognized tliat statc law must usually govern tlic activities of both national and statc banks for the dual banking system to operate effecttivcly." Ile acknowledged that the Court has in some cascs licld statc laws to be preempted bccausc they "itnpair significantly" the cxcrcisc of core banking powers by national banks:2 but distitiguislicd those cascs on tlic ground tliat the Michigan laws in qucstion did nol apply to liational bauks and, morcovcr, tliat there was no indication that those laws imposed any "special burdcns" on Wachovia Mortgage's a c t i v i t i ~ s . ~ ~ lo any eveut, Justicc Stevcns argued, it is irrelevant whetlicr 11ic Court bclicvcs tliat Michigan's laws lianipcr national banks' ability to carry out their banking hnctions through operating subsidiaries, bccausc "[ilt is Congrcss' judgnlcnt tliat matters licre, S9 lVurtici.,s, 127 S. Ct. at 1573-78 (Stcvcns, J., disscilting). 1 '0 I d at 1581. " I d at 1573-78. 92 Bernctt I3ank of Marion County v. Nclson, 517 U S 25, 33 (1996) ("[T]hesc cascs take the view that nor~nallyCongrcss would not want States to forbid, or impair significantly, the excrcisc of 11 power that Congress explicitly granted."). 93 iVdm..s, 127 S. Ct. ;It 1580 (Stevcns, .I., dissenting). 146 REVIEW 01: BANKING FINANCIAL & LAW Vol. 27 and Congrcss lias in tile NUA preempted only those laws purporting to Iodgc with state authorities visitorial power ovcr ~iatioiinl 11nrtkr.s."" Coogrcss, Justicc Stcvens asserted, has cnacted no bank Icgislation "innnuniziog" ~iatio~ial subsidiarics from statc laws regulating ~ C R I estatc lcndiog, nor has it authorized at1 administrative agency to prcempt such state laws." Section 484, which explicitly prccludcs state visitatio~~s national banks, makes 110 mention of of opcratiog subsidiarics or of "affi1iatcs"-dcspite the fact that Congrcss "lavished . . . attcotioo on national bank affiliates" it1 othcr provisions o f t h e NuA.'~ Justice Stevens thus rcaso~icdthat Scction 484 "rcflcct[s] Congrcss' considered judgtncnt ,lot to preempt the application of state visitorial laws to natioclal bank 'arfi1iatcs.""J7 'l'hc abscncc of atiy refcrencc to "affiliates" in Section 484, and the abscncc of any cxpress metition of "operating subsidiarics" citlicr in Scction 484 or clscwlicrc in tlic I\'UA, led to tlic dissent's co~iclusionthat Congress did not i ~ ~ t e ~ l t l preemption urged by tlic Wacliovia. While aclcnowlcdgitig that tlie GLBA does refer to opera- ting subsidiaries in defining "finaticial subsidiarics" as subsidiaries wliosc activities arc sabjcct to tlie "samc tenns and conditiotls" as national banks, tlic ciisscnt found that "slanting rcfcrcocc" imma- tcrial." '"~Ihe'samc t e r m and conditions' languagc at most reflects an uticontrovcrsial acknowlcdgmcot that opcrating sllbsitliaries of national banks arc subject to tlic same Ccdcral oversight as their national batik parcnts. It lias nothing to do with prec~nptio~i."'~ In sum, from thc dissent's pcrspcctivc, thc Court's opitiioo "inCtis[cs] congressional silencc with preemptive This was "especially troubling" bccaosc, in the dissent's view, tlic Michigan (citing 12 1J.S.C. j 484(a) (2000)) " I d at 1580-81 (emphasis ;~dded) i 95 I d at 1573 (Stevens, J., dissenting). " I (footnote omitted). I n kct, as the tnaurity explained in response: d "[The Court's ruling] cxprcss[cs] no opinion on that matter. [Its] point is more modest: The GLBA simply dc~nonstratesCongress' formal rccogni- tion that national bmks have incidental gowcr to do business through opesilting subsidia~.ies."Id at 1572 n.12 (majority opinion). 'Oo 1'1. at I58 1 (Stevens, J., dissenting). laws at issue were "dcsigticd to protect consu~ncrs."'~' Because "[c]onsoiner protection is cjuintcssentially a 'field which the States liave traditionally occupied,""02 the dissent lainei~tcd,"the Couli slioold . . . have been all the more reluctalit to conclude that the 'clear and tnanifcst purpose of Cotigrcss' was to set aside the laws of a sovereign State.""" Directly contrary to the majority's view that, in light of the NUA's preemptive effect, dcrcrcncc to the OCC was "beside the ticc p o i ~ i t , " " ' ~ ~ ~ s Stevens argued that the most "pressing questions" in the cast were wlictlicr Congress delegated to the OCC tlic authority to preempt state laws as applied "to operating subsidiaries, and iC so, whctlier that authority was properly cxerciscd l~crc."'~'On both questions, lie and his disscoting colleagues found the answer to be no. Wit11 respect to delegatioli of authority, Justice Stevens drew a sharp distiliction bctwccn agency authority L issuc (1) regulations o that (itilliorize or regtilore conduct (such as an OCC rule approving a tiatiooai bank's use of an operating subsidiary as an cxcrcisc of the bank's "incidcntal powers" under Scctioti 24(SeventIi) and (2) rulcs "granting immunity from rcgulatio~i."'~~ Issuance of regulations governing conduct is well withiti the scope of the OCC's authority, and sucli rcylatiocis may p m m p t state law to tlic extent of any Id lo? Id (quoting Rice v. S a m i:c Elevator Corp., 33 1 US. 218, 230 (1947)). 103 Id (quoting Rice, 331 U.S. at 230) 105 Id at 1582. See ai,so id. at I585 ("Whatever the Court says, this is a case about an adiiiinistiative agency's powcr t preempt statc isws."). o 'Oa Id at 1583 ("[Tlhcm is a vast and obvious difference between rulcs authorizing or regulating conduct arid iulcs granting immunity fiom rcgukttion. Tlie Comptroller may well have the authority to decide whcthcr the activities . . . should be chiiractcrized as 'incidental' to banking, and to approve a bimk's entry into those businesses, cithcr directly or through its subsidiarics. But that lesser powcr does not imply the far greater power to ini~nunize banks or their subsidiaries fiom statc ktws regulating the conduct of their competitors."). conflict thercwitli."" But that does not mean, Stevens opined, that tlie OCC has the "far greatcr power" simply to declare prccmption of an cntirc body of state law, eitlicr with respcct to national banks the~nseivesor regarding operating s~bsidiarics."'~ Stevcns opined that sucli admi~iistrativetleclarations, tlirougli which an agency "purports to dccidc tlic scope of federal prccmptioti, arc entitled to sonictliing less than (:/m~r.ori tlc~crcticc."'~~ 'l'lie dissent parsed carefully the possible statutoty bases for OCC utliority to preempt. It noted that, in promulgatinb its most recent regulations conccrning NUA prccmption in 2004, the OCC liad citcd as the source of its preemptive authority both 12 U.S.C. $ 03a ("Section 93an), which provides that "the Comptroller of tlic Currcocy is authorized to prcscribc rulcs and rcgulatioos to carry out tlic rcsyonsibilitics of the office," and 12 U.S.C. 5 37l(a), wliicli anthori~esnational banks to makc real estate loans "subject to . . . sucli restrictions and rcquircnicnts as the Co~nptrollcr of the Currency may prescribe by regulation or or~ler.""~ But neither of these provisions, thc disscnt protested, "says a word about preetnp- lion.""' Similarly, tlie disscnt obsc~vctl,the OLBA's "samc terms ~ and conditions" p r o ~ i s i o n , "wliicl! tlic OCC liad cited as authority Tor protnulgating Section 7,4006, "says nothing about Absent any clear statutory expression of congressional intcot to delegate prccmptivc autliority to the OCC, tlic clisscnt concluded, there is no basis for according Uievron defcrcnce to Scction LO7 See id (citing Nations Bank of N.C. v. Veriablc Annuity Liti: Ins. Co., 513 U.S. 251, 256-57 (1995)); i at 1583 n.24 ("This conclusion docs not d touch our cases holding that a propcrly promulgated agency rcguliition can have a prcc~nptivce//ct should it conflict with state law."). "\See id. 10'ld at 1584 (citations omitted) "Old at 1583 11.23. Ill Id 'IZ 12 U.S.C. g 24n(g)(3) (2000). ' I 3 Wancrs, 127 S. Ct. at 1584 (Stevens, J., dissenting) (citing i . at 1581- d 82). 2008 IVil"rElL9 iJ, J'VAV/ICIIOI'IA: RINCSIOI\'Al.AIVIIOACII '0 A ' 7 149 I. F I ~ R ABANKING PI1l;IMl'IION 7.4006."~ And, while agreeing witli tlic Court that tlic Tctitli Alnctldlnent docs not preclude tlic cxcrcise of an administrative agency's power to preempt statc laws, Justice Stevens counsclcd that the rcasotis Tor adopting that amencimctit, which "ontlcrgird tlic well- cstablislied presumption against prcc~nption,""~ should inConn the Court's decisions, including witli respect to agcncy authority to preempt. In the dissent's view, tlic Court's hilure to properly apply such a prcsu~nption io Watten led to an uoprcccdcntcd result: "Never bcCorc have we endorsed adiniciistrativc action whose sole purpose was to preempt statc law rather than to implement a statutory command.""" IV. Beyond Opcr.utinp S~~b.sidinr.ic.s: What Due.s Wattets Imply Third ,for. Preer(ptiorz With I(e.specf to Other ~Vorr-Unrrk Pwtics? 'l'lic dire predictions of Justice Stevens and his dissenting collcagucs about the impact o r tlic Wnttec tlccision suggcsls that the Court has effected a radical cliangc in the balance o r regolatory aictliority between the rcdcral and statc govcmments over the dual banking system. I'ropcrly understood, however, the Court's opinion increly coiifir~ns that national banks may continue to respond to an evolving financial services marketplace by developing new means of cTfeclively servicing their customers on a nationwide basis, iticluding tlimugli tlic use or third parties. Merely because an opcraticig subsi- diary is a separate corporation (as opposed to, for example, an automated teller ~nacliioc),"' and is chartered under slate law, docs banking activities not m a t i that its use by a national bank to co~itluct makes those activities any less an excrcisc by the iz~~tioi~oi of its bank banking powers. "" See id. at 1584 ("No case from this Court has ever applied such a deferential standard to ;in agency decision that could so cilsily disrupt the fcderal-state balance."). 11s kt. at 1585. 117r Jee, e.g., Bank One v. Guttau, I90 F.3d 844 (8th Cir. l999), cs.1. rier~ial, 529 U.S.1087 (2000) (finding the NBA to prcempt state liiw restricting a national bank's use of ATMs). 'fhc dissent in Wcrtteis apparently perceived the case to be all about wliosc law sl~oultl govern which corporcrt6 eiltities. But the majority properly Cocused on whosc law should govcri~the bcrnkiiig nctivities at issue. As the majority recognized, Congrcss did not ititend the KBA to preempt state law to protect national banks as corporations per sc, but rather to protect the bc~iclicial fiii7ctioiis of national banks fiotn being encumbered by state law. 118 This intent was well articulated by tlic Court in the late 1800s when it declared that the activitics oC national batiks arc "tlcccssarily subject to the paramount authority oT the United ~ t a t e s . " " ~ (iivcn the Cctleral interest in the dficicot nationwide operations of national hanks, [A]n attempt by a state to dciinc [national banks'] dzitim or coiitrol the cono'z~r of their qfrfiiii:~is absolutely void, whcrcvcr such attcmptcd exercise oC authority cxprcssly conflicts with the laws of t l ~ eUnitcd States, and either Crustratcs the purpose of tlic tiational legislation or iii7ptiis the eficieiicy of thme cigerrcies of the ,fider.crl goiieri7rnent to dischcrrge the duties fiw the pu'fonncrnce of which tlmy were ~ r e n t e d . " ~ Wliethcr a national bank co~lductsits aCCairs witbin its own corporate form or instead delegates tlmn to a tliird party, includitig an operating subsidiary, docs not alter tbc nccd for prce~nptionto costirc that statc law will not "impair t11c efiicictlcy" oCt11c bank in cxcrcising its autliorizcd powers."' 'nlus, tllc fact that a national " ' S e e IVoire,-r, 127 S . Ct. :it 1567 (explaining that states arc permitted to rcgulatc activities of national banks to the extent there is no intcrfcmncc with a national bank's cxercise of its powers). ti9 Davis v. llitnira Sav. Bank, 161 U.S. 275, 283 (1x96); see also Parmcrs' & Meclls.' Nat'l Dank v. Dearing, 91 U.S. 29, 34 (1875) ("The principle annuunccd in the autlioritics cited [(freedom fhn state regulation )] is indispensable to the cfficicncy, the indepcndcncc, iind indeed to the beneficial existence, of the (;enera1 Ciovcrnmcnt."). I20 Davis, I6 l I1.S. at 283 (einphasis added). ' I National banks may inlprove their cfticiency in numerous ways by using third parties to assist with their banking activitics. 1:or example, national hanks may use third pwties to originate loans, 12 C.F.R. $ 7.1004(a) (2007); to deliver loan proceeds to a borrower, id $ 7.1003(h); to bank cliooscs to use a third party lo assist in its banking operations should tiot deprive it of the protection afforded to its own conduct of those operations by preemption of "hostilc" statc law.'22 The majority's recognition o r this in Wattem sliould provide valuable clarity atid guidance in Tuture cascs involvitig the application of state law to notibank entities wliosc regulation by tlie statcs tnay intinge b on tlic exercise of banking powers by tiatio~ial a o k ~ . ' ~ " Scveral cascs liigliliglit Llic iinportaticc oC this issue, including four that were advancing tlirougli tlic lower courLs during tlie time wlic~iWottem was decided. As tlicsc cascs dcmonslratc, it is not eooogli to look solcly to the form or typc o r entity directly subject to statc law to adhere to congressional intcot. Rathcr, as the majority pcrccivcd in Watten, to rcach a correct co~iciusion concerning NUA preemption of statc law it is necessary to cxaminc tlic @ct of such state law on the e,~erc;se f hrr~ikbigpowers1))) tile o 1)ank. ~icrt;o~icr/ seivc designated bonding agents to sell its money orders at nonbanking outlets, id S: 7.1014; among other things. In this context, the OCC has provided national banks with careful guidance to ensure that thcir use of tbi1.d parties involves no risk to their safe and sound operation, consistent with congrcssionill objectives. See, e.g., OFFICI? OF Tllli C~MPTROI.I,EII OF TIIE CURRENCY, ADM'I1 OF NAT'I. DANKS, OCC Ul!I.L. 2001-47: TIllRD III ~: PARTY R I ~ I A T I O N ~RISKP MANAGI:MI;NT PRINCIPI..BS (2001) (detailing guidance given to national Ranks to manage risks arising from thcir reliltionships with third parties), moilobie rrl http:llwww.OCC. treas.govlfiplbullctinl2001-47.doc;OFI:ICII01:THE COMPTROI.I.I:R TIIE OF CERRENCY, ADM'R OF XAT'I.BANKS, ADVISORY LETTIlR 2000-9: TlilRn- PARTY RISK (2000) (alerting national bank managements and executives of potential credit risk implications f o third pnrty dealings), niwiial~leot rm littp:llwww.occ.trea~~govlftplacivisory/oc). 12' CON\'(;.CiLODI:, 38th Cong., 1st Sess. 1893 (1864) (remarks of Sen. Sumner) (stressing that Congrcss ~iiustnot, in establishing a new national banking system pursuant to the NBA, "lcavc its lnost delicate nerves exposed to hostile influences" t o m thc states). See lfimm, 127 S. Ct. at 1559. A. 'L'he S P G G C Cases: Use of Agents With Hespcct to Gift Cards In two similar cases, the lower couils have grapplcd with dcterminitig the KBA's prcc~nptivcscopc in relation to the same oonbank entity, Sl'GGC, LLC ("SI'GCC"), a subsidia~yof Simon Property Group, which managcs the Simon chain of shopping malls. In 2001, SI'GGC entered illto a contract with Bank oS America ("BOA"), a national bank, to sell Simon-branded stored value gilt cards1" issoeci by B~A.''' 'I'liat contract termiuatcd in Scptcmbcr 2005, at which point SI'GGC cntcred into contracts for sale of the c a d s to he issued by auothcr national bank, U.S. Bank, and by Melabank, a federally chartered savings bank ("federal thrift")."" Amoug the states in which SI'GGC inarketcd aud sold the Simon gift cards were New llampshirc and Coaocclicuc, both of which purpor( to prohibit the salc ofgift cards that arc subject to expiration dates or tlic imposition oldormancy, inactivity or otiicr administmtivc fees or service charges. 127 I11 November 2004, the Attorneys (icticral of Wcw Ilampsliirc and Connecticut infonncd SI'GGC of their intcntiotis to bring cnl'orccment proceedings against it because the bank-issued Simon gift cards werc subject to expiration dates and Cccs in allcgcd violation of the statcs' respective laws. SI'GGC rcspondcd by filiug federal court actioas in both statcs, clai~niugfederal preemption of 124 A gift card "is a type of prepaid or stored value ciwd th;a is designed to be purchased by one consumcr (purchaser) and presented as a gift to a second consumer (recipient)." OI:I:ICE OP T I ~ K COMPTROI.I.I!R Tllli OF CrJRRIiXCY, ADM'R0 'NAT'L BANKS, 1 OCC I3Ui.l.. 2006-34: Cili:T CARD Dlscrosrl~lis (2006), ( ~ ~ i l i r b l01 http://ww\v.occ.trei~s~go~~lRplbullerin/ e 2006-34.doc. National banks ah: authorizcd to issue gift czirds as a for~n of stored-vduc system. 12 C.Y.R. 7.5002(e)(3) (2007) (authorizing nationel banks to offer "electronic stored value systems"). 12' SPCiCiC, LLC v. Ayotte, 488 1'.3d 525, 528 (1st Cis. 2007). '"Id Both U.S. Dank and Metabank joined Sitnon as plnintiffs in the New I-hmpshire case. Id at 527. "'New Hampshire Consumcr Protection Act, N.11. RE\!. STAT. $ 358-A:2 (prohibition on expisation dates applicable to c d s with a face value of $100 or Icss); CONN. i i ~STAT. G . ANN.$6 3-65c, 42-460(a). 2008 W,I(;IKII,/~~:R~NC~IONAI.~ ~ I ~.ro A C I I 153 P l < m / m i~, A AI~ ~ RANKIN(; m i ~ i ~ ' ~ l ? O ~ FEDEIIAL. Pl the statc law restrictions based on its rclatiotiship with the federally chartered issuing banks.'" In both cases, Sl'GGC sought declaratory and i~ijunctive relief from cnforccmcnt of the statc restrictions based on the claim tliat, as applied to it, those restrictions infringed on the federally authorized lendiug activities of the issuing batiks. Relying on tlie authority of a ~iatio~lal or federal thrift to issue gift cards bank as an cxcrcisc of its banking powers,"%and the authority of aatiotial batiks and federal thrifts to excrcisc tlicir banking powers Crcc from statc intcrfer~nce,"~ SI'GGC clai~ned that it would violate the NUA and the 'Iome Owners' Loan Act ("IIoLA"),"' as well the rcgula- tions issued tliercundcr, for the states to ctiforce their girt card restrictions against SI'GGC. Ncithcr of the tlefcndanl Attorneys (.?enera1 contested the propositiotl that the state law rcstrictions at issue were prectiiptcd as applied to the fctlcrally cliartcrcd banks issuing tlie Si~iiou cards. gift tly However, they v e h e ~ ~ ~ e t icootcstcd the notion tliat tlie statc laws were preempted as applied to SPGGC.'" Thus, at the c ~ n x both of cases was the question whether statc law provisions, even if they arc not applicd to m y federally chartered bank (or any subsidiary or other affiliate thereof), may ncvertlicless be preempted by federal banking law.133 In both cases, tlic district courts issued their ' 2 " ~ ~v.i Ayottc, 443 F. Supp. 2d 197 (D. N.H 2006), @c1, 488 F.3d ~ ~ 525 (1st Cir. 2007); SPCiGC v. Ulumenthal, 408 L:. Supp. 2d 87 (D. Conn 2006), o y d in par/, vocn/ed in port, remmrrlerl hy SPCiCC:, Inc, v. Dlumenthal, 505 F.3d 183 (2d Cir. 2007). 129 . See 12 C.F.R. $ 7.5002(a)(3) (2007) (authorizing national banks to offcr "elcctronic storcd value systems"); 12 C.F.R. 555.200(a) (2007) (author- izing federal thrifts to use "elcctronic Incans or frlcilities to perform any function" of such a thrift). '"See Darnett Ihnk of Marion County v. Nelson, 517 U.S. 25, 33 (1996) ("To say this is not to dcprivc States of the power to regulate national banks where (unlike hwe) doing so does not prevent or significantly intcrferc with the national bank's exercise of its power."); 12 C.F.R. $ 545.2 (preempting "any state lrlw purporting to addrcss the subject of the operations of a I'cderal savings association"). '" 12 0.S.C. $ 1461 el seq. The IIOLA was at issue only in tlie Xew Ilampshirc case. 505 '"See ilyo/fe,488 F.3d at 532-534; 1~1umei1l/1rrl, 17.3dat 188-89. 131 As the court noted in the 1Ucw Ilampshirc action, there had been no challenge by the statc to the sde of storcd value cards by either US. Uank decisio~isprior to tlic Supreme Court's ruling in Wntfe,:~, whereas the Second Circuits-lnlcd IIicrcaCtcr. appellate courts-the First a ~ i d I11 SI'GGC's action ill New llampshirc, SPGGC I,. Ayofte, the district court reasoned tliat, as tlic state restrictions at issue regulatctl a particular product (gin cards), wlictlicr those restrictions were prectnptcd would dcpcod on how closcly the product was tied to tlic baiiki~~g operations of tlie two fctlcrally cliartcrcti banks that issued the c a r ~ l s . " ~Specifically, the court posited that tlic question for resolution was wlictlicr Sl'(.i(.;C's involvcmcnt in the Simon gift card program "is so substantial and its relationship with Giftcard consumers so close that it rctidcrs the batiks' involvcmc~ittoo remote to properly co~isidcr Giftcard a national bank prodact.""' the As tlic record showed, under the contracts bctwccn SI'GGC and the two banks, SI'GGC's role witli respect to tlie bank-issued girt cards was limited to their marketing and salc. Wlicn SI'GGC sold a gift card to a consumer, it would collect the coosumcr's payment, but would not setaio ally o r that payment nor collect lecs imposed on tlic colisumer p u r s ~ ~ a toi tthe COIISUIIIC~'S agrccmeot with tlie issuing ~ bank. Rather, SI'GGC reccivcd commissions from the banks at tlic end of each qoartcr. SI'GGC had no involvcmcnl i n establishing Lhc tcnns of tlic cardholder agreement witli the batiks, including tlic provisions Cor fccs and tlic cxpii-ation date. 136 'l'hc district coort fomid that, under tliesc circumstances, Sl'GGC's role in promoting and sclling gift cards "[tlici] not alter the Cact that the Giftcarcis arc federal banking Thc ~zlationsliipbctwccn the bank and the consumer was "substantial," and SI'GGC's involvcmcol in tlic marketing and salc oCtlic gift cards did "not alter or even attenuate tliat reiatio~~slii~.""" Given those or Metabimk dircctly to consumers, which both banks apparently did through the Intcrnct. Ayolfe, 443 1:. Supp. 2d at 203. ill Ayofre, 443 1:. Supg. 2d at 205. 1'1. 13"d. at 201, 205. " ' I d at 207. 1 13s 1' . 2008 I,. A FIINCI'IONAI. [.i!.~?-r~:it,$ lV,~~,l(iio~m: AI'PIK)ACH'ro 155 Fl3)liIlAl. BANKING Plll<liMI"?ION facts, the court found, "the terms of tlic relationship betweeti the Giftcard consumer and citlicr U.S. Batik or Mctabank (including tlie fec scliedule atid provisions regarding expiration dates) arc governed by Ccdcral banking law."I3" Altliot~glithe New tlampsliire Attorney General argued that federal law was not implicated, because the state had 110 ititention of enforcing its gift card restrictions agaitist U S . Bank or etab bank,^^^ the district court disagreed. 'l'lie court rcaso~ied tliat, if the slate were able to enforce its restrictions against SI'GGC, tlie banks would either have to stop all sales of Simon gificnrtls in New IIa~npsliireor, allcr~iativcly, change tlic terms and conditions oftheir contracts with purchasers of tlic giftcards.'" Bul, the district court Couad: "Given that tlie Giftcwrds arc banking producls issued by federally clia~ic?ctl and federally regulated banks, the State cannot force tliose batiks to elect between thosc option^."'"^ the liclyi~igon PV~~ttem, First Circuit a f f i n n c d . ' " ~ c l ~ o i t ~ ~ Wottntters's elucidatioti tliat there is no basis for believing that "the preemptive reach of the [NBA] extends only to a national bank itself,"'" the First Circuit rejected tlie New Ilampsliire Attorney General's cotitetitio~ithat tlic state restrictions were not preempted bccawc they "regulate only Simon, a company tliat is not a ba~ik."'~' 'l'lie court fou~itltliat such an aoalysis "is too formalistic: tlie question here is not ivhom the New IIampsIiire statute regulates, but rather, against M , ~ N Imtivity it segulates . . . .,7146 It was evident to tlie court that the state statute did 11ot purport to regulate SI'GGC's activities, which were "limited to how and where tlie giCtcards are 139 Id. at 206. '"old(quoting Reply Brief for State's reply brief at 6, id.). ,',I Id 'R21d.And as the court further found: "If there are to be any restrictions on fees associated with the Giftcards, or limitations imposed on expiration dates, they must come either fiom Congress or thc federal agencics ctnpowered by Congress to ovcrsce nationiil banks and federal savings i~ssociations."I d 1.13 SP(I &C, LLC v. Ayotte, 488 P.3d 525 (1st Cir. 2007). '"'Id at 532. la' Id ""d (citing Wattcrs v. Wacliovia Dank, 127 S. Ct. 1559, 1570 (2007)). 2008 ~~<A.l!il2?'I:lfS ~ ~ ' A C I i O i i l Al :F~~NCTIONAL Id. ~ API'I<OA<:II'70 157 FI~III'I~AI. DINKING P R I ~ C W ~ I O N With JVottei~as its guidance, the Second Circuit reversed in part, affir~iicdin part, and remanded the case to the district cou11."~ Based on Wattem and infonned by an nmicz~s brief subinitted by the OCC, tlie Sccond Circuit rejected tlic district court's categorical conclusion that, because SPGGC was neither a national bauk nor an operating subsidiary thereof, tile NBA could not preempt state law as applied to Sl'GGC. Consistent with the First Circuit iii Ayotte, the Sccond Circuit recognized that "a ~latio~ial bank's dccisio~lto carry out its busiucss t11roug11 an unacfiliated third party such as Sl'(.?(.?C might constitute an cxcrcisc of the bank's i~icidcntalpowers under the NUA.""' 'l'lic Sccond Circuit observed, however, tliat "it does not follow that a statc's attempt to regulate the tl7ii.dprrrty's conduct is ~me.s,sm.i/yprccmptctl as it would be if directed toward the bank itscll'or toward an operating subsidiary.""' 'l'lic court rcasoclctl that ascertaining whcthcr atid to what extent such preemption docs exist rcquircs discerning whcthcr the state regulation at issuc actually affects the cxcrcisc of any national bank powers or, rather, wlictlicr it simply limits the activities of a tliird party otherwise subject to statc contro~.'~" 'The Sccond Circuit found tliat, wit11 respect to Conticcticut's pmliibition on giTt card expiration dates, BoA's right to issuc gifi cards might bc affected, because it appeared that BOA needed to impose expiration dates 011 the cards so that it could use the Visa card But 11ctwo1-Itfor card pay~nc~its.1'7 the court found insufficicnt facts in t11c record to rcsolvc tlic issue, and so remanded to the district court Tor rcconsidcmtion tlie portion of the judgment relating to prccmption of the statc's ban on gift card expiration d a t c ~ . " ~ With respect to tlie statc's proliibition on dormancy and other Cccs on gift card-holding consumers, however, tlic Second Circuit aCfirmed tlie district court's ruling that there was no pree~nption.~'' Uoliltc in Ayotte, SI'GGC collcctcd and retained all the Tees 'j3 SPCiCiC, LLC: v. Dlumenthal, 505 P.3d 183 (2d Cir. 2007) " " I d at 190 (citing 12 U.S.C. $ 24 (Scvcnth)). I55 Id. (sccond emphasis added). 1'6 Id. 157 Id at 191-92, 158 Id et 192. '5"d at 191. associated with thc cards issued by BOA, and SPGGC-not UoA- had the powcr to cstablisli the tcrins and conditions for tllosc fees."' 'flic Second Circuit found tliat, tlwcfore, tlic enforcement o the C Cotinccticut prohibition on gift card fees "aCCccts only the conduct of SI'GGC, which is ncither protected under Cedcral law nor subjcct to the OCC's cxclusivc uversigb(."'" Accordingly, tllcre was no basis for Sl'GGC's claim of prccmption o f tlic state's prollibition on gin card fces with respect to tlic BOA-issued cards.'62 Both Bltrmenthal and Ayott8 confinn that, following Wirttem, there is no basis for a categorical conclusion that in1 mtity tliat is not a national batik may not claim preemption bascd on the NUA.'" At the salnc timc, BlLrr~iei~tlinlsuggests thc possible liniits of Wutter:~ with respect to such a claim. 0 t h cases, as discussed below, similarly suggcst such li~nits thc context of particular facts. in B. 'l'he Pacific Capital Bank Case: Use of Tax l'reparers to Market Reti~nd Anticipation Loans I ' c I ~ I ~ ~ ~ i p i t i r ~~ I , N.A. 1,. Connecticut ( " ~ ' ~ i c p c " ) ' ~ ;~ BNI (which, as of the date of publication of this article, is pcnding bcCorc the Second Circuit) parallcls Ayotte and tll~iri~ei~fliiil that it in involves a prccmption challenge to statc law as applied to third partics engaged in marketing a national bank's prociuct. At issuc in 160 ld. 161 Id ' " I d The court noted, however, that a different conclusioii might be called for were the fees in cpiestion established and collected by the bank, as werc the fees in Aj,oik~ See id. ;st 101 6 n.1 (citing SPGGC, LLC v. Ayotte, 488 : 17.3d 525, 533 (1st Cir. 20071, and observing that both the 1% Circuit in ilyoue and the OCC in its nmiciis brief on appeal in Ij/liit~er~fl~al, the drew same distinctions between SPMiC's rclationship with the issuing banks in Ayottc, on tile one hand, and SPGCiC's rclationship with 130.4 in Ijiirmen~hul, tile other). on 161 ('j:Golcta Nat'l Bank v. O'Donucll, 239 I:. Supp. 2d 745, 752 (S.D. Ohio 2002) (finding that a nationel bank kicked standing to challenge the application to its nonbank agent of certain Ohio iritcrest rare limit;~tiouson loans where the agent apparently was the "true lender"). "'Pncific Capital L3ank v. Connecticut, No. 3:06-CV-28 (PCD), 2006 WL 233 1075 (Aug. 10,2006), upped pe~~diiillg, 06-4149-CV (2d Cir. 2007). NO. 2008 Il'~f?"/I:Itits AL i FV,ICIIOI'LI: F ~ C T I O NAI'I'I<OACfI TO ; A 159 F I ~ ~ I ~ I W I . PIII:EMTION BANKING Pm3fic is a Connccticut statute that purports lo regulate the intcrcst ratcs charged on rcl'und anticipation loans ("KALs"),'" which are t borrower's short-tcnn loatis that are repaid with thc rcfunds fso~n l ~ c tax rctum. As a practical mattcr, almost all KALs arc obtained throogll tax preparers and, undcr tlie Connccticut statutc, this practi- cality is niadc a requircmcnt: All RALs in Contlecticut must be ~ n a d c at "a location in which tllc principal busi~lcss is tax preparation."'"" The statute dcfines a tax prepares who offcrs RALs as a "facilitator," and explicitly excludcs &om thc definition of "Tacilitator" any bank, including a nalional O a ~ i k . ~ ~ ' I'acilic Capital Bank ("I'acific"), n national bank locatccl in California and not having any branch or office in Connccticut, challcngcd thc Connccticut statutc on NUA precnlptio~lgrounds, arguing that the statutc in~pcr~nissil~ly rcgulatcd the interest ratcs charged on I'acific's IZALs.'" Bccausc thc NBA expressly pcrmits a tmtiooal bank to make loans at the rate of intcrcst set by its "home" state (in I'acific's case, California), and becausc (as was undisputed) thc KUA givcs I'acific tlic sight to market its loans tl~rougllthird partics-including tax preparcn-I'acilic clainicd that tllc Conncc- ticat statutc was in conflict with federal law and was, ll~crcfore, preernpt~d.'~' In response, Connccticut argued that Pacific had no grounds for clialletiging the statc statutc, bccause, propcrly const~ucd, lawlllc did not apply to I'acific, but rather only to "facilitators" of tllc 2006 WL 2331075, at *4. Pnc@c did not challenge tlie disclo- I" P~irciJic, sure mquim~nentsin the Connecticut statutc, CONN.GEN. STAT. $ 42- 480(b), but, pasticuiarly in light of lVoaeix, a national bank woulcl have grounds to chdlcnge than based on tho OCCs precmption regulation governing non-real cstatc lending. See 12 C.F.R. 5; 7.4008(d)(2)(viii) (preempting state laws concerning "[d]isclosure and advertising, including laws requiring specific statements, informstion, or other contcnt to be includcd in credit application forms, credit soliciri~tions. . . or other credit- rciatcd documents"). "'See P~iclfii:,2006 WL 2331075, at *7-9. 160 LAW REVIEW DANKING FINANCIAL OF & Vol. 27 loans. 170 'nit State asserted that the Connecticut Lcgislaturc, recognizing that the State coultl not regulate national batiks' iatcrcst rates, deliberately focuscd thc statute's mandates and proliibitio~is exclzr.sively onfocilitnto,s (excluding tlational banks.)."' According to C;onnccticnt, bccausc "a law which docs nor regulate national banks cannot be preempted under the NBA," Pacific had no NBA causc of action.'72 'l'liat argu~ncnt,wliicli echoed [lie argumcats of Connccticut atid New llampsliirc in tlic SI'GGC cases, proved only partially pcrsuasivc. 'l'lic court Connd tliat "[tlhe [act that a statute regulates non-bank entities and not national banks is a sign that the statute will likely not bc a burticn to ~iationalbanks, but it docs not end tlic inqairy,""' For example, the court reasoned, "a stale statutc [orbidding citizens from bcco~ningcustoincrs at a bank whicli lends at high interest rates would clcarly and significantly interfere with the bank's right under the NBA, cvcn tliough it does not rcglrlalc banks at all."'7q The Co~niccticut statutc, by regulating facilitators, likcwisc adversely c@cts national banks that makc llALs bccausc "[t]lie services o r a tax prcparcr are clcarly cssctitial to the efficient opcmtion oC RALS.""' And although it would theoretically be pos- sible, as tlcfcndants had argued, Tor I'acific to avoid the Connccticut stati~tc'slimitations by o p i n g branches in Coetiecticut a ~ i d offering KALs through such branclics rather than tthrongli tax preparers, tlic cfficicncy of I'aciCic's llAL lending woulcl thereby plainly be compromised. Thus, tlic court concludctl, the Connccticut statute "stands as an obstacle to the cxcrcisc of [I'acificl's rights under the NUA,"17" " Id tit *S ("Defendants argue that " 6 42-480 docs not actually apply to Plaintiff. . . ."). "' Id at *8. Id 113 added). Id (empbi~sis Id ''"d at *7. Indeed, as the rccord showcd, all 8,313 of tlic RALs Pacific made in Connccticut in 2004 wcrc originated through tax prcparcrs. In! at *8 (citing to mcord). L7"d 2008 l l < m ~ m ~V,ICIK~IW ' 1 FIXCIIONAI. L ~ I T ~ As oI I A A C 161 BANKlN(i Pl<El:bP~ION FCIXI<AL. Despite this conclusion, tlic district court it1 I k ~ J i cdid not go on to hold that the statute was preempted. Ratlicr, at the defendants' urging, tlic court sought to Casliioti an interpretation of tlie Connecticut statute that would avoid sl~clia lioldiog, citing the principle that "courts should construe statutes to avoid constitutiotial The p r o b l e m i C p o ~ s i b l e . " ' ~ ~ court constructcd a theoretical basis on which to "upliold" tlie Connecticut statute as "constitutional," by reasoning that the Connecticut Lcgislaturc must not liavc intendcct it to apply to any KALs ofcercd by ~iatiotlal banks.'78 Altliougli reaching the correct result with rcspcct to I'acific, the district court's analytical approach was unncccssaty and risks a potentially unwarranted intrusion oC the judiciary into the lcgislativc pnrvicw. A Ccdcral prccmption clialletigc to a statc statute, wlicthcr under tlic NBA or otlicr Cctlcral law, docs not involvc a claim that statc law is "uncoiistitutionai"-i.e., will1 i~ico~isiste~it tlic Cmsfifw rio17----rather presents a claim that tlie statc law is inconsistent with the ititcot oC Coiigress (or oC a fctlcral agency acting by delcgatio~lof congressional autI~ority).~~".~.Iiu~,o ~ i t r a ~to the IJllcifiC court's c y cliaractcrizatioti, Cedcral preemptioa is not a "cotislitutional problem" at Katlier, preemption is an ordinary and necessary that result of Cotigrcss's dctermi~iatio~i Ccdcral law should operate without obstruction by incoosistcnt state dictates. Intlcetl, the benefits of prccmption (including tlie reliability, predictability, and cfficicocy oC operating ~~atiotiwidc under a single set of uniform and rules) arc conti~iually appropriately recognized by Congress as it goes about its daily business ~Ccrcatitig Ccdcral legislation. In coacting tlie NUA, Congrcss inadc eminently clear that statc law obstnoting tlic batiking operations of national banks wonltl 177 1d. at "1 l (citing Jones v. IJnitcd States, 529 U.S. 848, 857 (2000) and IJnited States ex rel. Attorney Gcncral v. Delawwre & Hudson Co., 213 U S 365,408 (1909)). 17"ee Swift 6: Co. v. Wicklmn, 382 U.S. 111, 125 (1965) ("'Tlic declaration of the supremacy clause gives superiority to valid fcdcral acts over conflicting statc statutcs but this superiority for present purposcs involves merely thc construction of an act of Congrcss, not the constitu- tionality of the statc enactment."') (quoting Ex paite Bransford, 310 U.S. 354, 358-59 (1940)). 180 " PuciJic, 2006 WL 233 1075, at l I . 162 Rlivliiw 01: BANKINGI:INANCIAI. LAW & Vol. 27 be incotisistccit witli tlic NUA.'" 'l'lius, a finding ofNI3A precmplion liave any reason to seek to avoid. 'Uie is not somctliing that c o u ~ t s on Second Circuit, in ruling in P r ~ c ~ f i c appeal, could appropriately affirm the judginc~lloT the district court 011 slraigllthward prccinp- tion grouatls, and simply liold tliat tlie statute is prccmpled to the extent that it purports to regulate RALs made by tiatio~ialbanks, whctlicr tlirougli "facilitators" or otlienvisc. C. 'l'hc State Harm Bank Cases: Use of Exclusive Agents to Warltct Loans lo both tlic SI'GGC cascs and in Pacific, the statc law rcstrictions at issue regulated tlic terms and contlitions under which particular banking products (gilt cards in SI'GGC cascs: IlALs in Pacific) could bc ofkrcd to coosumcrs in tlie statc. 'l'lic Michigan mortgage Ic~idcrregistration and related rcquiremenb clialle~igedin Wnfters were different, it1 tliat they provided Tor broad regulato~y oversight and ctiforccmcnt authority over certain en ti tie.^. It remains to be seen wlicllicr Woftecr will serve to justicy preemption oT the latter type of laws with respect to tionbank entities otlicr than opcl-ating subsidiaries. A case dccidcd prior to Wofte~s,liowever, Sfare Fbi.m Bonlc, f/S.B. 1,. ~urlv?,'~'strotigly suggests h a t tlie rationale Tor preemption articulatctl in Woffm properly extends beyond the operating subsidia~y context to circu~nsta~iccs wlicrc another type of nonbaolc entity pcrfor~nsCunctions for a federally cliartcrcd financial itistitutio~isubject to fcdcral regulato~yoversight and cotitrol. In Sfrrfe f i m Bnnk, Stalc t'ann Bank, F.S.B., togctlicr witli one of its exclusive a g c ~ ~ t s , 'sued the Banking Cornmissio~icrof x3 AS one Scnator explained during the debates over enactment of the NBA: "'[Ilt is of the vcly essence of supremacy to renluvc ail obstaclcs to its action within its own sphere,"' and accordingly, a bank created by the fcdcral government "must not be subjected to any local govwnment, State ur municipal; it must bc kept absolutely and cxclusivciy uudcr that Government from which it dcrives its functions." CON(;. (;l.OlIil, 38th Cong., 1st Sess. 1803 (1864) (statement of Sen. Sunmer) (quoting McCullocIi v. Maryland, 17 U.S. (4 Wheat.) 316,427 (1819)). '" 445 P. Supp. 2d 207 (D. Conn. 2006). IS3 Complaint at 1; 20, State I%rm 13ank v. Burke, 445 1:. Supp 2d 207 (D. Conn. 2006) (No. 3:05CV808), 2005 WL. 1539054. 2008 A FUNC?'IONAI. Pl<.ll'ri;ll,T.1 l~~l~;ll~Jl'l4 , AI'I~IKIA('I~'0 '1 163 F1:onnl. RANKING ~'RliEMI'IPON Con~iccticut for itijunctivc and declaratory relief to prevent the ctiforcelnclit against tlie exclusive agetits of the bank (tlie "Agents") olConnccticut's mortgage broker liccnsing and rcgistration laws and also certain state securities dcalcr rcgistration laws. 'l'lie Agents, who also act as agents of Statc Farm Bank's parent company, Statc Farm Mutual Autolnobiic Insurance Coinpmy ("State Fann"), 81-e "exclu- sive" to Statc Farm Bank in that they perform banking-related services o~ily State Farm 13anb.""tate for Farm Bank, wliicli does not maintain any braticlies or offices open to tlic public, uses its Agents to perform the bank's marketing and cusloincr service activities (but not its lcndilig activities), pritnarily because the Agcnts already maintain well-establislicd marketing channels due to their agency relationships with Statc Farm's alfiliated insurance co~npanics.~~' In cliallcnging the application olC:onnccticut's liccnsing and rcgistration requirements to the Agents, State Farm Batik claimed tliat the laws were precmptcd because they interfered with tlie bank's right to engage in banking-related activities through the most efficient Incans available to State Fann Bank.'" bin support of this claim, State Farm Bank submitted an opinion issued to it by tlie (ITS (the " U f S Opioioti"), in which the OTS hat1 found tliat, under the IlOLA and the UI'S iinplc~nentingrcgnlations, statc mortgage broker licensing and sccuritics dcalcr registration laws such as tliosc of C:omiccticut indeed were preempted as applied to tlic agents of Statc Fann ~ a o k . ' " As the 01's Opinion cmphasizcs, Statc Fann Bank isr , ee Strrte Fmm Boidc, 445 1:. Supp. 2d at 209-10, 212-13. 185 Complaint, s l y m note 183, tit r/ 19. lR7 Authority of a Federal Savings Association to Pcrfonn Banking Activities through Agents Witbout Rcgard to State Licensing Rcquiremcnts, P-2004-7 OTS L.Op. 13 (Oct. 25, 2004), nvnilrihle of I~ttp://www.ots.trcas. gov/docs/51560404.pdf [hereinafter OTS Op.]. The OTS reached this conclusion in part by analogizing the Agents to opcmting subsidiaries, which, undcr the OTS's regulation paralleling Section 7.4006, 12 C.V.R. 5 559.3(n)(I), are not subject to statc licensing and registration rcquirenicnts that arc preempted for thcir fedcrsl thrift parent. I d ("Whcrc an association exercises sufficient control over an agent's performance of authorized banking activitics, the agent . . . will he subject to OTS rcguli~tionand supervision, and federal preemption of state license tmd rcgistration "should not be liatnstrung in the cxercisc of its authorized powers inerely because it chooses to market its protlucts and sewices using agents whose activities the association closely monitors and colltrols.~~lxx 'I'lie district court agreed. The court found a "fu~ictiooal" similarity bctwccn the State Farm Bank agents and operating s~bsidiarics,~" and concluded that, just as O'1.S regulations prccmpt statc licensing and registratio11 rcquircmcnts arc prcetnptcd for operating subsiciiarics of federal thrifts, so too "the O'I'S regulations preempt tlie Connecticut statutes as applied to the lc~idingand deposit-related activities of Statc Farm [Bankl's exclusive agc~its.""~ Underlying the courl's dccisioci in State P'r11711 Bonk was tlic as rccoguition, much like that cxprcssed by the Court in iV~ittws well as by tlie courts in the P G G C and I'acffic cases, that the &cr of the statc requirements at issue, as applied to the agents of Statc Ylirtn Bank, was to burden impermissibly tbc autliorizcd banking activities oS tlie bank itself. As stated in the O'I'S Opinion upon which the court relied: "Sobjcctiog the Associr~tion, through its Agents, to state liccosing and registration requirements impermissibly iotcrScrcs with and burdens the Associntiort's deposit and lcndhig olxxatio~is."191 requirclllents applies to the agent, just as it would apply to an opcn~ting subsidia~y."). IS8 Id. at I I. '89Slnt~i l m UCIII~,445 1;. Supp. 2d at 219 ("[T]hc record . . . demonstrates f substantial fimctional similarity bctwccn the activitics of opcrating subsidiaries and State lanii's cxclusivc agcnts."). Note the connection bctwccn the term "functional" i n this context and the Court's emphasis on the exercise of national bank "powers" in Cl/allei:s. Watters v. Wachovia Dank, 127 S. Ct. 1559, 1570 (2007) ("[[In analyzing wliether statc law hi~mpcrsthe federally per~nittcdactivities of a national bank, we have focused on the cxercisc of a rational hank's poweis, not on its corporate st~ucturc."). '" Id. at 220-21. In a subscqucnnt decision in a parallel action, Statc [:arm I3a11kv. Rcardon, 512 P. Supp. 2d 1107 (S.D. Ohio 2007), the District Court fbr the Southcrn District of Ohio reached a different concli~sionbased on the theory that the OTS Opinion should have been subject to nutice-and- comment rulemaking procedures under the Administrative Procedure Act. That decision is on appcd. State I:im Bank v. Reardon, 512 1:. Supp. 2d l 1107 (S.D. Ohio 2007), q ~ p e ndocl~etedI 07-4260 ((6th Cir.). No. 19, note 187, at 12 (emphasis added). OTS Op., s1111,a 'l'hc applicalioti of such state laws to the agents "would operate so as to indirectly apply state licensing or registration rcquircmcnts to the Associntion as a prccooditioti to exercising powcrs granted utidcr fedcral law.""' Because such statc requirements, as applied cither to Statc Farm Bank or its agcnts, "arc inconsistent with thc authority of the Association to exercise its deposit and Icnding powcrs and with thc OTS's cxclusivc rcgulatoly authority," they are prccinptctl Gotn application either "to the Association or its A ~ c I I ~ s . ' " ' ~ I. ) Implications: 'The Limits of State liarin B w k 'The dccision in Stnte Firnil B m k (Cram which tlie dcfcndaot Connecticut officials did uot appeal) raises thc question of whctlicr a wide rangc ofagctits or both Ccderal tlirifls and national banks might quali& for prcctnptive protection from state liccnsing and rcgistra- tion rcquiretncnts and llic "visitations" atteudant thereto. In cousi- deritig this question, several aspects of the case merit particular attention. First, tlic relationship between State Farm Dauk aud its Agents is unique. As the OTS Opinion cmpliasizcs, utilcss a federal saviugs association can tlclnoustrate that it, like Statc Farm Bank, maintaitls a level of supervision and coutrol over its agctits' banking- related activities that is coinparable to that maintained over an operating subsidiary, preemption or statc law would not ncccssarily ud, apply with rcspcct to the association's a g c n t ~ . ' ~ ~ e c o even if such a dcmonstratioa could be made, agcnts who do not cxclusivcly act on bchalf of rcdcrally chartered fiuancial itlstitutious could enjoy preemption of state regulatory requirements (including liccnsing) only to the cxtent of their activities for those fcdcrally chartcrcd institutions. 'Third, State Fbnn Bcrnlc turned on dcferecice to the 01's Opinion, and there is uo comparable opinion from tlie OCC.'~' 192 Id at 14 (emphasis added). ' " I d at 14-15 (emphasis added) "'See id at App. A (listing the conditions that, as a ~niniuiurn reqoiremcnt, other fedcral savings associntions must comply with if they scck to use agents to perform activities related to the association's authorized banking products or services). '" In an opinion issucd in 2001, the OCC found that certain Michigan law provisions, including licensing requircments, were prceinptcd with rcspcct to motor vchicle sales financing activities conducted by two national banks thmugh motor vchiclc dcalers who (much like the Agents of State Farm 166 & FINANCIAL RBVIEW 01' I~ANI<ISO LAW Vol. 27 Fourth, the O'I'S Opinion itself relied on preemption regulations not challenged by the defendant statc autlioriticsN%and, even aCter M/rrtfers, state authorities might challenge tlic OCC's separate preemption regulations.'" As discussed above, the Court in Wrr1ter:s left open the question whether tlie OCC's preemption regulations nierit deCci-w~e."~ 'l'lius, in tlie contcxt of entities that act on hclialf of national banks but arc not operating subsidiaries thereof, the boondaries of statc law prccmption remain subject to clefinition. 'Tlie OCC may well, as did the OTS in its opinion to Sfute Funn B m k , take steps to dclineatc those boundaries on a case-by-case basis. But tlic states' vigorous arguments in Wutferr indicate that deferring to an OCC intcrprc(iition, as the court deferred to the OTS Opinioii in St& Fcirm Bonk, could be highly controvcrsial. 'The iicxt section, Pa11 V, blfin, addresses the issuc of dcfcrcncc to agency decisions regarding preemption, and specific- ally, the dcfcrcnce due to OCC preccmption tlctcrminations. It argues ~ that the position taken by the W u f f e r dissent [ails adequately to rccognizc tlic scope of autliority dciegatcd to tlie OCC to niakc such dctcminations. 'This authority, coupled with the OCC's unique cxpcricncc and expcrtisc, provides ample basis for judicial dcfcrcncc to OCC opinions on wliethcr the NBA preempts statc law. Bank) "acted as the Banks' agents for thc purpose of soliciting . . . loans, taking applications for the . . . loans, preparing the loan documentation, and obtaining the buyers' signatures on all required documents." OCC Prcc~nptionDctcr~ninationNo. 01-10, 66 Fcd. Reg. 28,593, 28,594 (May 23, 2001). The OCC fhund that the Michigan provisions at issuc ilnpcrinissibly "prohibit[ed] tlic Banks from originating loans st an auto- mobile dcalcnhip in Michigan." Id. Although the OCC did not explicitly statc that the state liceirsii~grcquil.emcnrs were preempted with rcspect to the motor vcllicle dcalor agents as well ;IS with respect to the Dauks, its opinion suggests that the agency would reach that conclusion today under the "functional" analysis set forth in WaIIem. See id nt 28,595-96. ""/:'.g. 12 C.F.R. $5 545.2, 557.11, 557.12, 560.2. 107 E.g., 12 C.F.R. $5 7.4006-7.4009, 34.4. 1'18 Waiters v. W~chovia Dank, 127 S. Ct. 1559, 1572 (2007) ("Under our of intcrprcti~tior tlic statute, the levcl of deference owed to the regulation is :In academic question."). As observed above, the dissctiting justices ill Wcrtters argued tliat "[w]hntcvcr the Court says, lliis is a case about all administrative agency's power to preempt statc laws.""' The case had bccn decided as sucli in tlic lower courts, and Watters articulated her first question prcsented as a challenge to tlic Sixth Circuit's decision that Section 7.4006 merited Cliev~oiidcfcren~e.'"~ Furtlicr, the Circuit Courts ol' Appcals in all three of llic other cases raising tlic salnc issues also reached tlicir cotlclusions by granting deference to Section 7.4006.~'' Although the JVrrtters majority correctly found that, in light of the NBA itself, there was no need to rcach tlic left tliat dcferencc issue, that delelrni~~atio~i open important q u c s t i o ~ ~ s will conlitioc to arise ia ollicr NBA cases. A rcview ol' tlic Court's prior jurisprudcncc concerning dcfcrcncc to agency preemption determinations is instructive as a framework for approaching sucli fulurc cases. A. 'The Court's I'rior Jurisprudence on Deference to Agency Preemption Regalations 'I'he Courl's deference jurisprudc~lcc largely centers on its lalidmark decision in Chevron, in which the Court held that judicial dcfcrcticc is due to agency regulations intcrpietitig a statute tlie agency is charged with administcritig if (1) Congress has left ambiguous its intent with rcspcct to tlie precise issue in question and 200 See Pet. Dr., .srii,m note 3 1, at Part 1l.A. See Nat'l City Bank v. Turnbaugh, 453 F.3d 025, 332 (4th Cir. 2006) (finding that bcciluse Section 7.4006 is "re;~sonable"and "within the OCC's delegated authority" it is "entitled to Cl?evi.on dcferencc"); Wachovia v. Burke, 414 P.3d 305, 319 (2d Cir. 2005) (finding that the OCC promulgated Scction 7.4006 to codify its bclicf that statc law should be preemptcd when it would causc ;I subsidiary to be subject to different rules than its national parent bank, and that this "policy judgnicnt is rcasonablc and entitled to deference"); Wells Fargo v. Boutris, 419 K3d 949, 958 (9th Cir. 2005) (finding that tlie OCC's interpretation of ambiguous languitgc in the NDA, "as manifested in 6 7.4006 . . . . is entitled to deference ut~der two-stcp tl~c framework of Clm~mn . ."). . (2) the agency's interpretation is based on a rcasouable construction of tlic statute."' Cl7evrorz, liowcvcr, did uot involve an agency's interpretation of the i)~eert~pIive effect of a statute. Thus, altliongli most of the lower courts in Wuttees analyzed dcCcretice tlirougli the CI~evrorz framework, it is not clear tliat tlic Supreme Court dce~iis Cl~ewon applicable to sucli agcticy ititerpretatious regarding precmp- tion. Indeed, the Court lias explicitly distinguished (witlioul deter- mitling tlie import of the distinction) ageticy interpretations o r tlic "meoi~irtg of a statute" from agcticy tlctcr~ninatiotis of "whether a statutc is prce~nptive."?03 'l'lic Court has ye1 to directly opine on tlic cxtcnt to wliicli administrative agcticies may authoritatively answcr tlie latter qucstion-i,e., whetl7er a statute tliat docs uot itsclrspcak to preemption has preemptive cffcct-and some Justices apparently may believe tliat qucslioti "mnst always be decided by the court^."'^' Cases decided prior to Chevroi~and cited in it, liowevcr, reveal that tlicrc is an aualytical basis for concluding that at least ccrtain agencies, including the OCC, s h o d d be nccorded deference with respect to their preemption dctcnninations. In tlircc particularly ~iotablcprior cases, United Stntes v. Sl7ir11er,"" F'iclflit)~ Feclc~ol 202 . (.l~evron U.S.A. Inc. v. Nature1 Res. Def Council, Inc., 467 US. 837, 843-44 (1984) ("if tlie intent of Congress is clear, that is the end of the matter; for the court, ;IS well as the agency, must give effect to the uixi~nbiguouslyexpressed intent of Congress. [And] if the statute is silent or anbiguous with respect to the specific issue, the qucstion for tlie court is whether the agency's answer is based on a permissible construction of the statute."). ' O"Srnilcy v. Citibsnk, 517 U.S. 735, 744 (1996) (upholding the OCC's definition of "interest" as used in 12 1J.S.C. 5 85 because the OCC's intcrprctation is entitled to deference, and it is reasonable). 204 I d ("We may assume (witboot deciding) that the latter qucstion must always he decided de now by the courts. That is riol the question at issue here; there is no doubt that f 85 prc-empts state law."); see o h Medtronic v. Lahr, 518 [IS. 470, 512 (1996) (O'Connor, S.,joined by Rehnquist, C.S., and Scalia and Thomas, J.I., concurring in part and dissenting in part) ("It is not ccrtain that an agency regulation dctcrmining the pre-cmptivc effect of at!,) fedcral statute is entitled to deference."). 203 367 US. 374 (1961) (11olding that the Servicemen's Readjust~nclitAct authorized the Veterans' Adliiinistr~ltionto displace state law by regulation, and that the rcgulation in the instant case was a valid exercise of autl~ority). 2008 . ,1 A F~JNCIIONAL. Pl~Ai!.12'rI~/~I(S 1VACIIOI'I.I: AI'PIIOACII SO I59 FlilX3lAI. DANKIN(; PlUili.Ml'TiON Snving,~ Loan Ass i v. de irr C ~ c e s t a ~ ~C q~ t o l Cities ~ h b i e , st ? and ~ i Jnc. v. O i s p y the Court laid the groundwork for principles of dcfcrcncc tliat liave cotititiued to be applicd both by it and by lower courts, eveti after Chevron. Boll1 S h b i w and de 11 Ctresfo are routinely citcd for the proposition tliat courts must dcfcr to agcncy decisio~is preemption, irrcspcclive of any indication of clear con- on gressional intcat lo preempt, where Cotigrcss has delegated sufficient regulatory authority to tlic agency to makc decisions of policy. In Shinzer, which involved a conflict bctwccn certain I'entisylvania law nod xgulalions issued by the Vctcratis' Admini- stration ("VA"), tlic Court did not even mention coogrcssional intcnl. Instead, il considcrctl two qucslions: (I) did the VA inlcnd its rcgulations lo pree~nptstatc law, and (2) if so, did the VA liave ~I authority to issuc tliosc r c g u 1 a t i o n s ~ ~ " thef answer to those two qucstiolis was affiniiativc, the Court reasoned, tlie rcguiations would preempt statc law, because '"wlicrc Congress has committed to the licad of a dcpartmc~it ccrtai~i duties requiring the cxcrcisc of judgment and discretion, liis action thcrcon . . . will not be reviewed by tlic courts unless lie has excccdcd liis authority or . . . liis action was clearly wrong."'2n9 Put slightly differently: "[I][ [tlie agency's] choice reprcscnts a reasonable accoin~~iodatioli conflicting policics of tliat were committed to tlie agency's carc by tlie statute, we should not disturb it unless it appears kotn the statute or its lcgislalivc history that the accolntnodatioli is not one tliat Congress would have ~aoctioncd.""~ ""45 81,s. 141 (1982) (holding that thc llolne Owners' Loan Act cinpowcred the Federal Ilon~cLoan Dank Board to issuc regulations regarding ceitain clauses in deeds for the sale of real estate which preempted California statc law). 20' 467 U.S. 591 (1984) (holding that an Oklahoma state ban on alcohol advenisemcnts conilictcd with anti was pmeniptcd by the I'edersl Cominunications Commission's rcgulations that required that out-of-state television signals whicb are imported be retransinitted to subscribers without deletion or alteration). SeeS/?b?~w, U.S. at 081. 367 "i at 381-82 (quoting Betcs & Ciuild Co. v. Payne, 194U.S. 106, 108.09 'd (1904)) (emphasis added). 'The forcgoitig laaguagc, quoted by the Court in Uiei~i.o~i,'" set the stage for a focus in subscqnent cases concerning agency ~kir~g preemption on (I) the extent of rielegotior, ~ ~ f / ~ o l i c j ~ i r in~~tlioi.it~~ to the agency itivolvcd and (2) the agency's intent to preempt, as opposed to inquiries into coiigre.ssioim1 intcnt to preempt. For cxamplc, iu d e In Cuestrr, tlic Court applied this analysis with respect to a regulation issued by the Federal I h n e Loan Bank Board (thc "Board") (the predecessor to the current OClice of Thrifl Supcrvision) that pcnnittcd federal thrifts to use "due-on-sale" clauses in mollgage o contracts, despite a Califor~iialaw L tlie cootrary."' 'The Court cmpl~asizcdtlmt "[a] pre-emplive regulation's force docs not dcpcnd on cxprcss congressionnl authorization to displace statc law."'"' Katlicr, tlic questions upon which the case turned were "whether thc Board meant to pre-cmpt CaliComia's ciuc-oo-salc law, and, if so, whclhcr that actioti is witliin the scope oC (lie Board's delcgetcd authority ."'li Finding it quite clear that the Board intended its regulation to prccmpt state restrictions on due-on-sale clauses for federal thrifts, the Court then examined the statutory source of authority for tlic Board's regulation. It found that the I-IOLA, which anthosized the Board to "provitlc [via rules and regulations] Cor the organization, iucorporatioci, cxamiiialio~~, operation, antl rcgulatioli o r . . . 'Federal Savings antl Loan ~ssociations,""'~ciclcgatcd "amplc authority" to the the Board to preempt statc l a ~ . ~ ' ( ' I n d e e d , Court found, the lIOLA dclcgation language "cxprcss[cd] no limits on the Board's 211 Chevron U.S.A. Inc, v. Natural Res, Def. Council, Inc., 467 U.S. 837, 845 (1984). "'See 44 Fed. Reg. 39108, 39149 (1979) (describing due-on-sale clauses) (codified at 12 C:.I'.R. 5 545.8-3(t) (1982). '" I'idelity Fcd. Sav. & Loan Ass'n v. dc la Cuesta, 458 lJ.S. 141, 154 (1982). Id "j I2 II.S.C. 5 1454(a) (Supp. IV 1978) (current version at 12 U.S.C. 5 1464(a) (2000)). 'I6 458 de IN Cl~estr~, U.S. at 159-60 ('Thc language and history of thc IlOLA convince us that Congrcss dclegatcd to the Board amplc authority to the rcguk~te lcnding practices of fcdcml savings and loans."). 2008 1 ff~(I 0 ' 4 . ' 1 A FiiNCrlONAl. API'ROACLi ~f<l'..rl?I;l<S' l:1 c . : 'TO 171 BANKING PIIEI'hPTION Flilll3<.kl. authority to regulate . . . . 'It would have bcen dicficult for Congress to give the Bank Board a broader tnan~late."'~'" C~isp rcflccts a n extcmion oC the same line of reasoning. In Crisp, thc Court found that a regulation of the Fedcral Commu- nications Co~n~nission ("FCC") preempted an O k l a h o ~ mconstitu- tional prohibition on alcohol advertising hccause (1) the FCC had indicated its iutent to that eCCect and (2) the Fcdcral Co~nrnu~~ications Act of 1934, as the Court had prcviously found, gave the FCC "broad rcspotlsibilitics" to regulate "all aspects" of intcrstatc wire or radio The c o m ~ n u n i c a t i o n . ~ ' ~ Court rcpcated the dercrencc Connulation of Shimer and De In Czfesttr, staling that "if the FCC has rcsolvcd to pre-cmpt an arca of cable tclcvision regulation and iC this dctennination 'represents a reasonable accommodation oCconflictiag policics' that arc within the agency's domain, we must concludc that all conflicting state regulations have becn prcc~uded."~'" Enter Clm,ron: "Wc have long recognized that considerable wcight should be accorded to 811 cxccutivc dcparmxwt's construction of a statutory s c l ~ c ~ n e is entrusted to administer, and the principle it of defcrcncc to administrative interpretation^."'^^ Citing Sliiiiier and Id at 161 (alteration in original) (quoting Glendale Fed. Sav. & Loan Ass'n v. Fox, 459 1:. Supp. 903, 910 (C.D. Ci~l.1978)). 'IS Capital Cities Cable, Inc. v. Crisp, 467 US. 691, 700 (1984) (citing United Statcs v. Southwcstcm Cable Co., 392 U.S. 157, 177-78 (1968) (holding that the K C "had hccn given 'broad responsibiiitics' to regulate all aspects of intcrstatc comtnunication by wire or n~dio virtue of 5 ?(a) by of the Communications Act of 1934, 47 l J . S. C. 5 15?(ii), and that this comprehensive authority included power to regulate cable co~n~nunications systcins"); Communications Act of 1934, 47 U.S.C. 5 152(a) (2000) ("The provisions of this Act shnll apply to all interstate and foreign communi- cation by wire or radio and all interstate and foreign trans~nissionof energy by radio, which originates andlor is received within thc Unitcd States, and to all pcrsons engaged within the Unitcd Statcs i n such communication or such transmission of cnergy by radio, and to the licensing and rcgukating of all radio stations as hereinafter provided: . . . . The provisions of this Act shall apply with rcspcct to cable service, to ail pcrsons engaged within the lJnitcd States in providing such service, and to the facilities of cable operators which relate to such service . . . . "). 'I9Cri,sp, 467 US. at 700 (quoting Unitcd Stiitcs v. Shimcr, 367 lJ.S. 374, 383 (1961)). "O Chevron IJ.S.A. Inc. v. Natural Res. Dcf. Council, Inc., 467 U.S. 837, 844 (1984). Crisp, tlic Court explained tliat, in accordance with this well- cstahlislietl principle, if an agcucy's determitiation "represents a reasonable accotntnodation of cotiflicting policies that wcrc committed to the agency's care by tiic statute, w e should not disturb it u~ilcssit appears kom the statute or its legislativc liistory that tlic accommodation is no1 one that Cougrcss would liavc satictio~icd."~~' Although Chevron itself involved an agency's intcrprclatioo of a particular statutoly term and did not involve tlie issue of preemption, thcrc is no inconsistency between the atlalytical basis for dcCcrcnce in tliat conlcxt and the basis ibr dcfcrcoce to an agency's determination that stale law s1iouId be preanptcd in n particular area. I'hc fundamental reasoning is the same: If Congress dclcgatcs to an agcncy authority to administer a statute, tlic agency may-aod should -cxcrcise that authority to implcmcnt tlie statutc using its particular expertise and policytnaking judgment, consistent wit11 tlic statute's underlying objectivc~.'~' The agcncy may apply that expertise to interpret particular statuto~yterms or plirascs tliat Congress left ambiguous, or, as in Shbner and de In Cuestcr, it may do so to declare state law preempted whcrc Cougrcss did not speak directly to prcc~ption.2'3 'l'l~us,as a unanimous Court cmpliasized ill CiQ of iVew Y o ~ kv. FCC ("NYC v. FCC'),'" Cetleral agencies propcrly effectuate prccmptioti of state law not only because "[t]lic statntorily authorized rcgulations of an agcncy will prc-cmpt atiy statc or local law that conflicts with such rcgolations or kustrates the purposes tliercof," but also because, "[b]cyond that, in proper circu~nstatices, "I Id at 845 (citing Slzir?zer, 367 U S . at 382-83; C'ri,sp, 467 U . S . at 699- 700). '"See Geier v. Am. lIonda Motor Co., Inc., 529 U S . 861, 883 ("Congress has delegated to [the federal agency] iiutliority to iinpleinent the smtute; the subject matter is teclmical; and the relevant histoiy and background arc complex and extensive. The agcncy is likely to have a tborough understanding of its own regulation and objectives and is 'uniquely qualitied' to comprehend the likely impact of statc rcquircments." (quoting Mcdtmnic, Inc. v Lolir, 518 U S 470,496 (1996) (Dreyer, .I., concurring)). "3See~Ie10 C ' I ~ I L458 U S , at I54 ("If [the agency's] choice represents il I, rcasonabie accommodation of conflicting policies th;it were co~ntnittcdto the agency's care by the statute, wc should not disturb it unless it appcars from the statute or its Iegislativc histoly that the accommodation is not one that Congress would have sanctioned."). ""86 6J.S. 57 (1988). 2008 '1 R~NC~IONAI. A W<~TI?;I(S 1~~1('/101/1/1: AIVIIOACLI TO 173 FI:DEI<AI. BANKING Plll:ll.\ll'llON tlie agcncy may dctcnninc tliat its authority is cxcl~~sivc prc- and einpts any state efforts to regulate in [a particular] lo Wclttel-s, Justice Stevcns cited botli NYC v. K C and de Irr O ~ e , ~ tinr his dissent, but lie did so to support tlie proposition that "a r properly promul&atcd regulation can have preemptive effect sliould it conf7ict with statc l a ~ . " ~ ' ~ u s t iStevens specifically distinguished cc such a I-cgulation from "agcncy regulations . . . that 'purport to settle the scope of fedcral preemptioo' atid 'reflec[t] an agcticy's cfl"ort to transfor~nthe preemption question from a judicial inquiry iino an administrative ,hit r~ccon?pii.""~~In so doing, lic cast doubt on wlictlicr he still agrees wit11 NYC v. FCC Inilced, .rustice Stevens and ilie other dissenting Justiccs in JVntttos sccln to suggcst that an agcncy determination "that its authority is cxclusivc and prc-cmpts any statc efforts to regulate in [a pariicular] ase~'"" cca never incrit deference unless tlmt c/etermbirltion is explicitly compelled by specific statutory language (or possibly legislative history). But such a positioci undercuts the value of ad~nitiistrativc agencies and does not appear necessary to ensure that preemption of statc law occurs it1 accordaticc with cotigrcssional intent. An insistence on explicit statutory authority to precmpt cffectivcly requires either (1) tliat Congress foresee (or return to address on a casc-by-case basis) cvel-y instalice in which its utidcrlyitig legislative intent would be frustrated by thc application of statc law or (2) that prccmption qucstioiis be resolved tlirougli litigatio~iin the courts. But, as discussed below, wlic~iCotig~css dclcgatcs broad authority to an agcncy to construe and implcmcnt a statute, as Congress did in the KBA with respect to the OCC, that agency is uni~lucly well- positiotlcd to asccrtaia wlictlicr a particular statc law (or type ol" statc law) is in conflict with tlic statut's underlyi~igobjectives. Thus, altliough tlic existence of prcctnptioo m y in tlie abstract appear to be a quintessentially "legal" issue to be scsolvcd by the courts, in "'Id at 64 (citing Crisp, 467 IJ.S, at 700), 226 Watters v. Wachovia Dank, 127 S. Ct. 1559, 1583 11.24(2007) (Stevcns, added). .I., dissenting) (cmphas~s 227 Id (quoting Nicholas Daglcy, Note, The Um'urranted lleg~rinlor), 1.e11cli11gI,UIIIS,7 9 N.Y.U. L. Rev. 2274, 2289 Pi.ccnzpriorr o P~.eriuloi:)~ , f (2004)). 228 Ci& o/'i\kw Yorlc I,. FCC, 486 IJS. at 64 (citing Capital Cities Ciiblc, Inc. v. Crisp, 467 1J.S. 691, 700 (1984)). practice, at least with respect L preemption undcr the NUA, the o agcncy's views should be graotcd substantial t~cfcrcncc.~" B. 'l'hc Authority of thc OCC to M a k e Preemption Dctermirtations The OCC's authority undcr the KBA is extremely broad. 'l'hc NUA grants Lhc OCC plcnary power to regulate national banks, ~' including their organization,230 i o c o r p ~ r a t i o n , ~ cxa~nitiation,~" operation,"" regulati~n,'~' and d i ~ s o l u t i o n . ~Notably, tlicsc powers ~' parallel those grsatcd to the (ITS uetlcr the ILOLA, whicli, as mcntioncd above. authorizes thc OTS (Cormcrly the l I o ~ n cLoan "' The dcfcrcncc due to agency opinions rcgarding the existence of prectiiption docs not raisc the same concerns ;IS an agcncy's opinion regarding the scope of thc agcncy's uwn jurisdiction. See, e x . , Miss. Power & Light Co. v. Mississippi, 487 U.S. 357, 386-89 (1988) (Brennan, J., dissenting) (criticizing Justice Scalia's "conclusion that courts most defer to an agcncy's statutory construction even where . . . tlie statute is dcsigncd to confine the scope of the agcncy's jurisdiction"). A federal rlgcncy may not have expertise superior to the courts to determine the boundarics set by Congress on the agency's own jurisdiction, but, wilere an agency does hilvc jurisdictioii to administer 21 statute, it generally docs have superior cxpcrtise with respect to dctcrmining the extent to which state law interferes with tlie proper ad~ninistrationof that sfi~tutcand, thus, the extent to whicli state law is preempted by tlic statute and the agcncy's ilnple~ncnting regulations. '" 112U.S.C. $5 21, 26 (2000) ("[After rccciving a certificate of incorporation by a bank applicant,] the C:omptrollcr slmll cxaminc into the condition of such association. . . to determine whether the association is the ktwfully cntitled to co~ntncncc busincss of banking."). 331 Id (outlining tile process of forming a "national hank" through an assockuion with documentation submitted to the OCC ). 332 Id 5 481 (giving the OCC power to appoint, control and regulate banks tllrough bank examiners). 233 E g . , id $8 81-92~1(setting limits on lending, interest rates, and other operational aspects of kinking). 1'1, $$ ~ a 371(a) ("[Tlhe Comptroller of the Currency is authorized to , prescribe rules and regulations to carty out the rcsponsibilities of the office."). 3' E,g., id $8 181-200 (describing, inter diir, the dissolution process, of receivership pussibilitics ;ind distributio~~ asscts). 2008 ~ F~~KIIOI+I: A R ~ ~ I O NAWIIOA<:II O i l < i m : li ~ ~ AI. L 175 I~ NG FEI)EIIAI. N K I PIII'X~WI'ION Bank Board), "untlcr such rules and rcgulatioas as [it] may prescribe . . . to provide for tlic organization, incorporation, exami- nation, operation, and regulation oC.. . Fcdcral savings associa- tions . . . , giving prilnaly consideration oftlie best practices of local in mutual t1iriR and home fillalicilig itistitutio~is the United ~tates.""" In de In Czie.rfc~,the Court found that the abovc-quoted HOLA language "suggcsts tliat Congress cxprcssly contcmplatcd, and approved, the [UI'SI's promulgation of regulations superseding state law."'" 111 particular, tlic Court b u n d that, by directing the 0'1's to considcr the "best practices" of thrift institutions, "Congress plainly clivisiol~etlthat Ccdcral savings and loan [associations] would bc govcmed by what the [OTS]-not any particular Statc- dcclncd to be tlic "bcst It was this language, togctlicr with the dcicgation of broad rulemalting authority to tlie agcncy, that Icd the Court to conclude that Congress intended to autliorize the OTS to issue regulations aimed at preempting state law, and tliat obviated the need to look for spccific congres.siond intent to prcctnpt.23" 'l'lic NBA pmvidcs at least as niucli cvidcncc oC a congressio~ialgrant of authority to the OCC Cor tletcrminations oC preemption. The ncar-cxclusivc visitorial authority ovcr national ballla granted to the OCC in Section 484 clearly cvitices Congress's intent that the OCC exclusively bc rcspotisibie for cnsuring national banks employ "bcst practiccs" in cotiliectiot~with their exercise oC banking powel-s grantcd under tlic NBA.'~' Indcctl, tlic NUA's legislative history is rcplctc with statements of intent to oust the statcs from any type of supcrvisory role ovcr tlie exercise oC the banking powers grantcd by tlic Ccdcral govcrnmcnt to national ""2 U.S.C. 6 1464(a) (2000). "' IPideiity Fat. Sav. & Loan Ass'n. v. de la Cuestn, 458 U.S. 131, I62 (1982). 235 Id at 161 219 See id. ? " Scction 484 was dcsigncd "to takc from the States . . . till authority whatsocvcr over . . . [national] hanks, and to vest that authority here in Washington, in the . . . Sccretwty of the Tre;~sury." Coxc;. Cii.ofx, 38th Cong., 1st Sess. 1267 (1864) (statcmcnt of Rcp. Drouks). banks.24' It would defy that intent for thc OCC to regulate llatio~ial banks witlioul considering the possiblc ways in which state regulation might impair the excrcisc of their banking powers, and a Cailure to respect the OCC's policy detcnninatious bascd on such consitlcrations would be contrary to the fundamental purposes and schcmc oSthe NBA.'~' it Congress, in fact, nndcrscorcd this point wl~cli enacted tlie Kicglc-Kcal lntcrstatc Banking and Urancliing Efficiency Act of 1904 ("~icgle-Neal")."' llicglc-Neal specifically recognizes the OCC's aritliority to "coticlude tliat Federal law preempts the application to a national bank of any Statc law."2i' It provides that, wlieti rcaching any such conclusion with rcspcct to certain types o r statc laws, tlie OCC must Sollow public notice-and-commcnt 24, As one Senator reminded his collcngucs during the debates lading to enactment of the NBA, a bank created by the fcdcral govunmcnt "must not be subjcctcd to any local government, State or municipal; it inust be kept ;ibsolutely and exclusively under that Government from which it derives its functions." CoKc;. (ilmll, 38th Cong., 1st Scss. 1893 (1864) (datcmcnt of Sen. Sumner) (quoting McCulloch v. Maryland, 17 U.S. (4. Wheat.) at 427); see niso CoNG. (;i.ORli, 37th Cong., 3d Sess. I1 I5 (1863) ("[The NDA to would establish a banking system] ~nadc operate directly upon the people independently of State boundaries or State sovereignty, . . , wholly independent of Statc ;iuthority.") (statement of Rep. Spaulding); CosG. Gr.onl:, 38th Cong., 1st Sess. 1413 (1864) ("[Tlhe wliole purpose and object and scope and tendency of the bill is to pmstratc Statc powcr and put it at the control of the great ccntralizcd powcr to be established here.") (statement of Rcp. Mallory). M? Indeed, cvcn critics of OCC pl.ecmption concede that tlic agency's cxpcrtisc is uniquely important to determining whcn certain statc laws frustrate tlie purpose of the NBA. See, e.g., Baglcy, srrprn note 227, at in 2287, 2295 ("Pcdcrd agencies, p;~rticul;~rly highly tccliiiical fields (like banking) have the exgcrtisc and the institutional capacity to make refined judg~ncntsabout whether srate laws will in fact conflict with congrcssional purposes . . . [and thus will] sotneti~nes far undcrsti~nd better than courts the laws and cuinplicated fcdcral mguiato~y complex i n t e r d o n s bctwccn stl~tc rcgimcs."). ""ub. L. No. 103-328, I08 Stat. 2338 (1994) (codified as I? [J.S.C. 5 43 (2000)). " 4 12 U.S.C. $ 4 3 (2000). 2008 FJ'.I~I;I?S ., ~V,ICIIOVI!I: A R~INCTIONAI. ~ A C T I 1 AITI IO 177 BA*KlNCi PIW~~~II'TION Fi~l>lXAl. proccdures.245 As Congrcss explained, the purpose oCthat proccdural rcqoircrncnt is "to help focus any adini~~istralive preemption analysis and lo help cnsurc that an agency only inakcs a preemption dcter- mination wlten tllc legal basis is compelling and the Federal policy i~ltcrcst is clear."246 Thus, tlirough Ricgle-Neal, "Congress has expressly recognized the OCC's powcr to preempt particular state laws by issuing opinion letters and inlcrprctivc rulings, subjcct to ccltain notice-and-comtncnt p r ~ c c d u r c s . " ~ " ~ 'file dissent in Wrttter-s acknowlcdgcd Kiegle-Neal's cxprcss coog1'essional confinnation of the OCC's prccmptivc authority, but brushed it aside, stating that, "[bly its own terms . . . this provision gxrntad no preemption authority to tlic OCC."'"~ 'That is hardly a basis to recute that sucli OCC authority exists: obviously, Congress could no1 put procedural cotistraints on the OCC's exercise o r an ilntllority Congrcss did not believe the OCX has. 'l'hc Ricglc-Neal pmvisioas, therefore, bclic tlic insistence of the CVcrttecs's ciisscnt that, because Sections 93a and 371 oC the NBA (granting rulemaking aotl~orityto tlic oCC)"" do not "say a word about preemption," thcrc is "no tcxtuill hundntion Tor the OCC's prccmptioo autl~orit~."~~~ "' The notice-and-commcnt require~nent i~pplics to dctcnninations of preemption with respect to state law in the areas of coinmunity reinvcst- mcnt, consumer protection, fair lending, and the esti~blishnmtof interstate branches. Id $ 43(a) (spelling out the notice-end-comment rcquiremcnts a) used whenever the OCC decides it has the authority to preempt state l w . "'"1.~. RI~P. 53 No. 103.65 1, i ~ t (1994) (Conf. Rep.), reprin~edb? 1994 U.S.C.C.A.N. 2068,2074. "'Wachovia v. Burkc, 414 1'.3d 305, 314 (2d Cir. 2005); see d s o Wells Fargo Bank v. Boutris, 419 F.3d 949, 962 (9th Cir. 2005) ("12 U.S.C. 5 43 specifically contemplates that the O C C . . . has authority to prccmpt state laws . . . ."). "' Wattcrs v. Wachovia Bank, 127 S. Ct. 1559, 1583 n.22 (2007) (Stevens, J., dissenting). 12 U.S.C. $$ Ha, 371. Section 9311 indicates that "the Co~nptrolierof the Cumency is authorized to prescribe rulcs and regulations to carly out the rcsponsibilitics of thc office . . . . " I d $ 938. Section 371gives thc OCC thc powcr to prcscribc mstrictions and rcquirelncnts on national banks ability to make real cstate loans. I d $ 371. 250 If7a11er:s, 127 S. Ct. at 1583 n.23 (Stevens, J., dissenting) (citing 12 [J.S.C. $$ 93a, 371). Intlccd, it is intcmting to note that the unanimous C o u ~ in l IVYC v. FCC, including Justices Stevens and Scalia, were satislied with implicit indications of congressional inlent to imbue the FCC with authority to dctenninc preemption of certain local standa~ds under tile Cablc Com~nunicationsPolicy Act of 1984 ("Cable Act"), despite that statute's lack of '"cxprcss congressional autliorimtioti to displace state . Coult in NYC 11. FCC Cound it sufficient rile that "nothing in tlie Cablc Act or its lcgislative liistory indicates that of Congrcss explicitly d i s c p ~ ~ r o i m / the Commission's pre-cmption o l local technical standards," indicating at1 oclo?om~ledg~nenf lbc of FCC's powcr to declare such l~rce~iil)tion.'52 liicglc-Neal, which spealts to the OCC's autliority to makc preemption ex~~.v(,,e.s.;.sly dctcnninatious, is at least as clear evidence of Congress's endorscmcot oC an agency's preemptive antliority as the lcgislativc history tlie Court relied on in NYC v. FCC. C. Deference Due to the OCC's Preemption Determinations Evcti in the abscncc of Riegle-Neal's cxprcss acknowledg- ment of the OCC's autl~orityto make preemption dcterminations, there wonld be ample grounds for concluding that dcCcrcncc is due to snch dcterminations. Whco Coogrcss vests Cull responsibility in an agency for administering a statute, "[t]liat responsibility means inforined agency involvcmcnt and, tlicrcforc, spccial understanding of the likely impact of both statc and Ccdcral requirements, as wcll as " k i t y of Sew York v. 1:CC, 486 lJ.S. 57, 54 (1988) ("[Iln a situation to where statc law is ciai~ncd be prc-emptcd by fcdcral regulation 'a narrow focus on Congrcss' intent to superscdc statc law [is] misdirccted,' for 'a pre- emptive regulation's force does not depcnd on cxprcss congression;~l suthorizstion to displace statc li~w."' (quoting Fidclity IPedcral Sav. and Loan Ass'n v. de la Cuestit, 458 lJ.S. 141, 154 (1982))). 252 ki, at 68-69 (emphasis adtlcd) ("It is also quite significant that nothing in tlie Cable Act or its lcgislativc history indiciitcs tbat Congress explicitly disapproved of the Commissions' prc-emption of local technical st;~ndards. d Given tlie difficdtics tlic Coinrnissioii l ~ experienced in that area, wllich bad ceilscd it to rcvcrsc its ground i n 1974 after two years of unhappy experience with thc practical consequences of inconsistent technical standi~rds imposed by various localities, we doubt that Congress intended to ovuturn the Commissions dccade-old policy without discussion or even any suggestion that it was doing a)."). an understanding of wlietlicr (or the cxtcnt to which) statc rcquirernents may i~itcrferewith fedcral objectives.""" It is the recognition of just such understatitling that ondcrlics the principle of A altl~oughCliei~i~oi? not deference articulated in ~11ei,roi7."~ ~ i d did involve an agency's dccisio~i concerning preemption, it bas properly scrvcd in many cases as the analytical basis for testing whctlier a preemption decision merits judicial tlcfcrencc. Indeed, all of the Circuit Courts that decided the operating subsidia~y preemptioti question posed in Wcrttecs Tound that the OCC's tlcclaration of preemption in 7.4006 met tbc Clievrort defcrc~icc test."' 'j' Mcdtronic, Inc. Lohr, 518 US. 470, 506 (1996) (Brcycr, I., concuning). 2% Clicvron U.S.A. Inc. v. Natural Res. Def Council, Inc., 467 11.S. 837, 865-66 (1984) ("[Aln agency to which Congress has dclcg:~ted policy- making responsibilities niay, within the limits of that delegation, properly rely on the incu~nbeotad~ninistration'sviews of wisc policy to inform its judgncnts . . . [l]t is entirely appropriate for [the cxccutive branch] to makc such policy choices--resolving the conipcting interests which Congress itself either inadvertently did not resolve, or intentionally left to be resolved by the agency charged with the adniinistration of the statute in light of evc~ydayrealities. Wlicn a challenge to an agency construction of a statuto~y provision, fairly conceptualized, really centers on thc wisdon~of the agency's policy, rathcr than whether it is ;I reasonable choice within a gap left open by Congress, the challenge must fail."). "'See Nat'l City Bank v. Turnbaugh, 463 F.3d 325, 330 (4th Cir. 2006) ("The district court found that a presu~liptionagainst preemption does not exist, the Mdlyland statutes conflict with federal law, and the regulations are cntitlcd to Cl7e1vo11deference. The district court accordingly found that federal l w preempts the Ivlaryland statute. Wc ;~grce."); Wachovia v. a Durkc, 414 P.3d 305, 314-15 (2d Cir. 2005) ("Given these principles, the Co~nniissionerincorrectly attempts to fraine the issuc as whether Congress has cxprcssly and clearly manifested an intcnt to precmpt statc visitorial power over operating subsidiaries. The focus, rathcr, is on the rcasonable- ness of tlic OCC's cxcrcise of its regulato~yauthority. The District Court prupcrly approached the issuc througli the fiirmcwork of Chevron . . . ."); Wells Fargo v. Boutris, 419 F.3d 949, 958 (9th Cir. 2005) ("Ciiven this rulcinaking authority, the OCC's interpretation of ambiguous language in the Bank Act is entitled to deference under the two-stcp framework of CI~er,rm);Wachovia v. Waiters, 4 1 1'.3d 556, 560 (6th Cir. 2005) ("We therefore decline Michigan's invitation to came the issue as whcthcr Congress has cxpressly manifcstcd its intcnt to preempt stwte laws such 81s Michigan's and instcad focus on whethcr the Comptroller has cxccedcd its 180 LAW Rli\mw 01:BAXKING I'INANCIAI. gi Vol. 27 111 any event, as the Second Circuit aptly pointed out in Wctchoviri v. B ~ t d e ,"the analysis woultl be tlie same even if [tlic court] did not apply Cl7eimr7 i l s c l ~ . " ~ ~ ~ o l l the Shimi., Crisp, owi~i~ aiid de Irr Ctresrcr line of decisions, the Second Circuit rcasot~ed,the judicialy's task in revicwi~igOCC preemption rcgulatiolis is "'only to determilie wlictlicr [the agcucy] lias exceeded [its] statutory authority or acted arbitrarily,"' and tlic rcgulatioos must be enforced '"unlcss they arc unrcasonablc or inconsistent with the statutory sche~iic."'~" 'flic Second Circuit's observation is eminently reasonable anti consistcnl witli pcrtincnt Suprcmc Court prccedcnt. As the Court undcrscorcd in iVntionsB(rnk mf N.C. IVA. v. I'wicihle A~m~rity L~fe Ins. Co., tlic OCC is responsible Cor the "survcillancc oC'thc busincss of banking' autliorizcd by [tlic NUA]." " 'flie OCC's expericticc and expertise in supervising, examining, and regulating that busincss iinbucs it witli uniquc capability to makc policy judginclits about tlic impact oCstatc law oti the cxcrcisc of the banking powers of national banks. "Because tlic [ O K ] is the federal agency to which Congrcss lias dclcgatetl its authority to implcmcnt the provisions o r the [NBA], tlie agency is uniqucly qualiCicd to tictcrminc whctlier a pailicular form CIC state law 'stands as an obstaclc to the accomplislimcnt and execution of the full pnrposcs and objectives of Congress,' and, thcrcCore, whether it should be pre-ctnplcd."'-'" In dissctititig in Wuttecr, .lustice Stevens suggcstctl that Section 7.4006 embodied no such uniquely qualified dclcrminxtion becausc the OCC had slated, in its ccononiic impact assessment upon promulgatiog tlie regulalion, that the preemption declared tlicrcin '"rcflccts the conclusion [the OCC] belicve[s] a Fcdcral court would authority or actcd arbitrarily. Wc do x) through tlie tiamcwork established by C ' I I ~ I ~ J.I.I. . ."). ?"1ri. (quoting Fidelity Fcd. Sav, and Loan Ass'n v. dc la Cucstil, 458 U.S. 141, 154 (1982)). "'N~tionsDiinkof N.C. v. Variable Annuity Life Ins. Co., 513 IJ.S. 251, 250 (1995). inc. ''9 ~~edtronic v. Lolir, 518 U S 470, 495 (1996) (quoting 'Iincs v. Dwidowitz, 312 U.S. 52, 67 (1941)) (footnotc omitted). 2008 Jl/,I2?IXT I/, ~'f'~1Cl/Ol'l,l: A ~ J N C ~ I O N A L API'I<OACII 10 181 FI~I~WI. DANKING Pl~l~Eh41~loN reach, even in the absence of the regulation.""6o But the fact tliat tlic OCC has taken judicial prcccdent into account (among other factors) in detcnniniog thc scope of federal precmptiou, and believes its policy coliclusions are in accord with likely court judgments, in no way indicates the agcucy did not employ its unique expcrielicc and expertise regarding batikicig operations to [-each tliosc conclusions. 'To the contrary: the ~ulemakitignotice issued by tlic OCC upon promulgating Section 7.4006 plainly sliows that the agency made "explicit findings, based on considerable cxpcrience in tli[c] area [of national banks' banking powcrs], that complementary or additiolial . . . standards set by state and local autlioritics . . . conflict with tlie basic ol)jectivcs of fctlcral policy" underlying Section 484.""' For example, thc OCC observed that "[Tjor decades national banks h a w been autlhoori.~.cd to usc tlic opcrating subsidiary as a convcnieot and useful corporate form for conducting activities tliat tlic parcnt bank could conduct directly."'" Both fi.om "a consumer protection [and] a safety aud soundocss standpoint," the OCC found, consistent regulation oC operating subsidiaries and national banks is the appropriate policy al~proacli.26""l"ic OCC considers tlic overall risk exposure of a national bank as pall oC its supervisory processes, includitig safety and souodness aud compliance risk originating in, or uulider resulting kotn, tlie bank's operating subsidiaries."'" ' ~ l i u s ~ tlie OCC's operating subsidiary regulation, "an opcmtitig subsidia~y couducts its activitics subject to the same authorization, tcnns, and conditions that apply to the conduct of tliosc activities by its parccit ba~ik."~" 'Tliesc circumstauccs justify tlic OCC's policy coticlusion that "state laws apply to operating subsidiaries to the same extent as they apply to tlic parcnt national bank. Thus, tuiless otlic~wisc provided by Fcdcral law or OCC regulation, State laws, such as '" Wattcrs v. Wacliovia Bank, 127 S. Ct. 1559, 1583-84 (Stevens, J., dissenting) (quoting Invcshllcnt Securities; Bank Activities and Cfpcrations; Leasing, 66 Fed. Reg. 34,784, 34,790 (July 2, 2001) (tc bc codificd at I2 C.F.R, 1"s. 1,7,23)). '"City ofNcw York v. FCC, 486 U.S. 57,69 (1988). '"Invcstrnent Sccuritics; Denk Activities and Operations; Leasing, 66 Fed. Rcg. 34,784, 34,788 (July 2,2001) (to be codificd at 12 C.I:.R. pts. 1,7,23). licc~isingrcquircmcnts, arc applicable to a national bank operating subsidiaiy only to tlic extent that they arc applicable to national ba~iks."*~~ 'Thc OCC similarly applied its cxpericnce and cxpcrlisc in pro~nulgatilig moi-e gcncml preemption regulatiotis ia 2004.'" By its following the stclndn?ds for NUA preemption set forth in cases such as Brtrnett B ~ I I I theCOCC ~reached policy conci~,sionisas to which ~ ~ ~ types of slate laws, due to tlicir effect on tlic exercise of tiational bank powcrs, arc prccmpted, and wliicli gcocrally arc tiot. 269 Observing that several factors, including tccliuological innovations, the erosion of legal barriers, nod an increasingly mobile society, liavc "affcclcd both thc type of products tliat may bc offered nnd tlic gcograpbic region in which banks-large and small-may conduct business," the OCC found a liciglitcocd need to cnsurc tliat the excrcise of national bank powcrs nol be obstructed by "the costs atid iiiterfcrcncc [imposed by] divcrsc and potentially conflicting statc and local Not olily is the applicatio~iof "~nultipIc,oflen unpredictable, different stale or local restrictio~isand rcquircmcuts . . . costly ant1 burdcnsomc," tlic OCC found, but it also interferes with tlic ability of national banks to "plan tlicir business and inatiagc tlicir risks, aud subjects tbcm to uticcrtaiti liabilities ant1 potential expo- sure. I11 some cases, this deters tliem from making cciiain products available in certain jurisdi~tioos."~~' 266 Id. "'The 2004 preemption regulations are codified at I2 C.1J.R. $jj 7.4007, 7.4008, 7.4009, and 34.4(2) (2004). I3arnctt Bank of Marion County v. Nelson, 517 U.S. 25, 33-34 (1996) (Finding that state law is preempted if it would "intcrferc with," "cncroac[h]" upon, or "hampe[r]" the exercise of a powcr autlmrized under the NDA). 269 See Bank Activities and Operations; Real Estate Lending and Appmisals, 69 Fed. Reg. 1004 (Jan 13, 2004) (codified at 12 C.P.R. pts. 7 & 34) [hereinafter 2004 Precniption Rule Notice] (explaining tliat the list of state laws that arc prccmpted "reflects judicial preccdcnts and OCC: interpretations concerning the types of statc laws that can obstruct the exercise of national banks' dcposit-taking and non-real estate lending powcrs") (emphasis addcd). Botli Section 7.4006 and the OCC's 2004 preemption rules plainly embody policy judgments made by tlie agency in accordance witli its ititcrpretation of Supreme Court prccedcnt. By issuing rules delincatiog tlie circumstances in wl~iclistate laws are prcctnptcd witli respect to national banks' banking operations, the OCC "translate[d] [its] understandings [of sucli prccedcnt] into particularized prc- crnptive intentio~is.'"'~ tinder Clievron as well tlic Court's other dcfcrct~ce-relatedopinions, [lie OCC's preemption regulations merit substantial deference from tlie courts. VI. Cunclrrsiun I'hc practical result of tlic Court's ruling in M/rrtte~:sis to confirni the prcemptioo alrcady declared by tlie OCC in Section 7.4006. By ruling that statc laws apply to national bank operating o subsidiaries only L the extent they apply to liatiotial banks tilein- sclvcs, the Court did not effect a radical cliatigc in the national bank preemption landscape, contraly to dissent's suggcstiotis. It may bc true tliat the ruling could, in Justice Stevens' words, "drive coinpallies seeking refuge from state regulation into the arms of federal parents.'"" But sucli an outcome docs not mean tliat tlic preemption found in Wortem "thrcatcns both the dual banking syskm and tlie principle of cornpetitivc cquality tliat is its c o t n c r s t o ~ ~ e . " ~ ~ " Indeed, thcrc is no reason to helievc that Wrcttem will liavc a and greater impact on competition bclwccn national ba~lks their statc- chartrcd couatcrpirts than inany of tlic other determinations regarding national bank powers that have beell inade over the past 150 years. The states have proven liiglily resilient in responding to such determinations, including by cnliancing the authority of state- chartered banlts (and their operating subsidiaries) to colnpctc witli 272 Medtronic, Inc. v. Lohr, 518 U.S. 470, 505 (1996) (Brcycr, J., concurring) (citing Hillsborough County v. Automated Mcdical Labs., Inc., 471 U.S. 707,718-21 (1985)). Dank, 127 S. Ct. 1559, 1585 (2007) (Stevens, J., ''I Wattcrs V. W~~chovil~ dissenting). ='.'Id national banks pursuant to so-called "parity" slatittcs (also often referred to as "wild card" statutes).275 Typically, a statc parity statutc grants a statc bank the authority to engage in activities pertnissibly untlertalcen by national banks (or other fedcriilly chartered lit~ancial institutions). For ie example, under the California's State Bank Parity ~ c t , * ' ~ l Califor- nia Dc1)artment of Fi~iancialIustitutio~is(L'DFI") tnay authorize statc banks to cxcrcisc the powers of national banks, iC the CaliCornia Financial Code would not otlierwisc autliorizc the exercise of such powers.277 As described by its sponsor, tlic California law "provides competitive parity for state-chartered co~ntnercial banks vis-kvis national banks licadquarlcrcd in California" by allowing the DFI to "adopt regulations giving Californiil statc-chartcrcd batiks or trost coinpanics parity with national banlts wheticver Congrcss or federal ageticics extend by statute or regulatioo to national banks any right, power or privilege that is not authorized to statc banks or trust co~iipanies.""~ Otlicr slates' bank parity statutcs cniploy slightly different means to achicvc similar goals."' TIic states' interest in cotisulncr protection also is not threatened by the Wotfers decision, contraty to intimations by the dissent and certain tnctnbcrs of Congress."' As Comptroller of the 271 See, i..g.,Christian A. Joiinson, Wild (.!ri~dSlol~itcs, Parioi orlo' N(zlioiiu1 1 1 1 sT l i e Rmasce~~ce Stirte Bir~drhvg of Powem, 26 LOY. U. Clrl. L.J. 35 1 , 363-67 (1 995). '77 The statute provides that "if the commissioner [of the DI:I] finds that any provision of fcdclsl l:lw q~plicablcto national bwking associations doing busilicss in this state is subsrantively differcnt eotn the provisions of this code applicable to bmks orgl~nizcd under the laws of this state, the colninissioncr tilay by regulation m k c that provision of fcdelal law applicable to banks organized under the lams of this state. Id. $ 753(b)(l). 17' Letter i?om Gregory 0. Willieim, California Bankers Ass'n, Sponsor, to S. Fin., Inv. & Iiit'l Trade Cornm. (Apr. 7, 1995) (Leg. tfist. at 7). "'.See, e.g, CONN. (;EN. STAT. $ 3(ia-?50(a)(41); ME. REV. STAT. ANN. tit. 943, $ 416; MASS. GIN. LAWSch. 1671i, $ 2(31); N.1-I. REV. STAT. ANN. 5 394. 280 See Wattcrs v. Wachovi;l Dank, 127 S. Ct. 1559, 1581 (2007) (Stevens, J., dissenting) ("It is espccialiy troubling that tile Cowt so blithely preempts Michigan laws designed to protect consumers."); sea oI.so Bill Swindcll, , I.i.uiik Lilcel,? 10 A h e Me~i.wi.elo Give OCC A f i r e P ~ w I -COX(;. DArl,Y, 2008 wrwiiits I. iV,icrioi,i.a: A R ; N ~ X I O ~ ~ A I . 'TO AI'I'IIOACII 185 BANKING PIII!I:.MITION FI;I~BI<AI. Currency John C. Dugan testified bcforc Congress sliortly after tlie "[l'hc OCC] beiievc[s] tliat tlicrc d i n g in kVutfem was ~ I I I I O U I ~ C C ~ : is much promise for cnha~iced fcderallstatc cooperation and corresponding improvcmcnts in consumer protection, antl tliat tlie recent decision of tlic Supreme Court in W u t f e ~ v. Wcichovirr Ualik r ~~' does not utideniiitic tliosc ~ ~ ) ~ o r t u n i t i c s . "Comptroller Dugan cxylaitied tliat, altliough federal kind statc standards may differ in ccttain respects with respect to cotisu~ncrprotection, that docs ~ i o t mean there is "gap" in consumer protectio~ifor cuslomcrs of national ba~iks."'~' Such regulatory diffcrenccs reflect "tlie essence ol' our dual banking system and federalism, where individual states can take difkrcnt approaclics to a particular issue affecting statc banks," and arc "the inlicrcnt and csscntial result ol' the differcot approaches possiblc--atid cncouragcd-in our dual system of national antl statc Accepting tliosc differences, tlicrc arc ilnportant steps toward cooperation and collaboratio~i bclwccn federal antl state regulators that will serve to strengtlicn colisutncr protcctioli. One cxa~ilple ofsucli coopcmtioti is the model Mcmoraodum oT ilndcrstatiding agreed to by the OCC and tlie Conference of State t3ank Supervisors ("CSBS") in late 2006, wliicli is dcsigticd to facilitate the rcfcrral of complai~its,atid the sharing of information about tlic dispositio~i of complaints, bctwccn tlic OCC and tlie individual states.284 'The OCC has executed agrcc~ncnts with as many of as 20 states based on the niodcl Metnoratidu~n Understanding, and Apr. 18, 2007 (quoting IIousc I3nancial Services Chainni~nDarney I'rank's stiltcincnt that "[ilt is now the l w of the land tliat the grcat nxjority of state a consumer protection laws that were particuk~rly aimed at banks and thrift institutions have been prc-cmptcd"). ?PI F Cor~.s~mer Ir,~pr.ovii?g ~ ~ l e r u I Seivicm: Hearir~g Proleclion in P i ~ ~ a i ~ c i a i B@ii,r.e the If. Cutim oil Pin. Seri~,s.,I 10th Cong. 120, 147 (2007) (state- ment John C. Dugan, Comptroller of the Cui~cncy)[hcreinafter i h g u n Teslinfoi!~] (statement John C. Dugan, Comptroller of the Currency), cn,nilcrhle nl l i t t p : i / ~ ~ ~ w m . h o u s c . g o ~ ~ / i ~ ~ ~ p s i l i s t / h htdugan06 1307.pdf. "'Id. at 149. S J The more are likely in the r~turc.'~* OCC also is dcvcloping a web- based tccli~iologyplalfonn to expedite co~nplai~it infortnation sharing called tlic "Cotnplaint Referral Express" ("cKE").'~" Once operational, the CllE will facilitate the transfer of inisdirected complaints and referrals between tlic OCC and otlicr federal and state banking agencies, and enable the agency with jurisdiction over a particular complaint to rctricvc the consumer's complaint inrorma- tioti in a digital fonnat and incorporate that information into tlic agency's own case management systcm. In addition, likc tlic infor- mation-sharing agrccmcnts based on the Mc~normduino r Under- standing with the CSBS, the CKE will provide access to reports on the status and disposition o r complaints rcrcrred to the OCC by the 'l'hc jurisdictional boundaries confirmed it1 r4'otter.s arc not, therefore3 impcdi~ncntsto a coinpetitivc dual banking system or to and consumer protection. I.Vfr1tei-r conl'ir~ns clarifies the ~undamcntal principles of preemption that guarantee national banks the right L o experiment with and cxpa~idon the channels through wliicli they exercise their federally granted bankiug powc~-s tiationwide. Banking is a dytiamic process, and the preemption analysis applied in W ~ t t e c r properly recognizes this, by eschewing a narrow and Cormalistic approach it1 favor of a flexible, functional test for dctcnnining when state regulato~yauthority iliipirigcs on a national batik's ability to conduct its banking operatiotis most efficiently and cKectivcly across state lines. '"See News Release Yo. 2007-69, OCC, OCC and Puerto Rico Agree to Sharc Consumcr Complaints, Bringing Total of Such Agreements to Twenty (July 10, 2007), n ~ ~ o i l u i ~ l e http:/l~vw~~~.occ.t1.eas.govlfip/reIei~~e/2007- ol 69.htm. Monday, May 19, 2008 Part 111 Federal Reserve System 12 CFR Part 227 Department of the Treasury Office of Thrift Supervision 12 CFR Part 535 National Credit Union Administration 12 CFR Part 706 Unfair o r Deceptive Acts or Practices; Proposed Rule 28904 F e d e r a l Register1 Voi. 73, No. 9 7 / M o n t i a y , May 10, 2008lP1.oposetl Rulcs ~ ~ .. ~.~ . . ~ .~~ ~~~ ~ .. ~ ~~~~ ~.~... ~ ~ ~~ ~~~~~~~ ~~. ~ FEDERALRESERVESYSTEM Uoord: You may submit comments, Comments, Chief Counsel's Office, identified by Dockot No. ll-1314, by any Attention: OK-2008-11004. 12 CFR Part 227 [Regulation AA; Docket No. R-13141 . of the Solluwing mothods: Agc?ncy Mkl! site: http:// ~vwrv,]'cderokcscrv~:.gi~~r. the Follow lil,struction.s: All submissions received inust include the agency namo and ducket n u m l x r for this rulcmaking. DEPARTMENT OF THE TREASURY inslrrlctions for srtbnlitting cmnmcnts at All aomnlcnts rocoix,eii will he entered I ~ l l p : / / ~ m v w . ~ d e r c ~ I r ~ : , s e r v i ~ . g o ~ ~ /into the docket a n d postoil on gcni:roli~~fo/jbio/l'ro~~~~,s~~~lllegs.cfiri. Rcgulzllions.gov without changc, Office of Thrift Supervision 1,'edemI cfliilemnking IJor~tul: htl(~:// i n c l r ~ d i n ~ porsonai inf,Jrmiltion any 12 CFR Part 535 ~vww.r~?g~ili~tior~s.go~~. Follow the provided. Comments, ineliding instructions for s d ~ m i l t i n g commmts. stt;~chments and other supporting [Docket ID, OTS-2008-00041 E-mail: materids roceiveil are part of the piiblic reg,s.co~~~me~~ts@~i~iieroIi‘esi~r~~c.go~~.and s~ihjact public ilisclosilre. recrinl to RIN 1550-AC17 Include tho dockct n i m b e r in tho 110 not cni:lose m y infor~mition your in subject line of the message. i:oniment or supporting matcrids that NATIONAL CREDIT UNION Ff~csimile:(202) 452-3819 or (202) yell consiilor conficluntiillor ADMINISTRATION 12 CFR Part 706 452-3102. Moil: Jennifer J. Johnson, Secrelarp. Iloi~rtlof Governors i ~ the I'oilcrz~l ilesiirve System, 211th Street m d f . in;rppropri;llc ibr public disclasun:. o ~ j ~ : ~ , ;~oml,lcr,t,s~~:lccirl~nico~ly: ,,~ Go L 11tlp://~~~~.~t~.r1?g1ili11ii~i1,~.gov~ SCICCL RIN 3133-AD47 "Office of 'ThriTt Supervision" from the Conslit~ltionAvenue, NW., Washington, tlro,,.do,, I1C 20551. $n menu, then click Unfair or Deceptive Acts o r Practices "Sd)niil." Solcct Ilockct I11 "O'SS- All ]p~IIlic CIIIIIIII~IIIS ;it(! avail;~blc 2008-0004" lo view piilllir: commonts AGENCIES: Ila;~rd r,CCovctnors ofthe the h r d ' s Wch site at llllp:// for ,kIis u~prnposcll rllll+,ll;lkinR, I'aileral Rcsorur! Systcm I ~ o i ~ r d ) ; 0ffii::c ~u~vuv.fi?dwoh.cs~:r~ri~.gov/gi:~i~:r~iIi~ifi~/ ~ia/l'rripos~~1/11c:gs.~f111 as submitlotl, On-Sile: Viewing C o i i ~ ~ ~ ~ c i ~ i s You of'SliriCt S~ipnrvision, 'l'roasury (O'l'S); inay inspact conimcnts at lho l'iiblia find National Crcdit Union ~mless niodiliccl for icchnical reasons. Ar:cnrdingly, your comments will not he Itei~iling Iloom, 1700 G Street, NW., by Administration (NCIJA). appointmcnt. To makc an qipoiniment ACTION: Pruposcd rule; roqliest for edited to removo any identifying or conklct information. I'ublic conumenls for ill;cess, c;lli (202) 908-5922, send iin i: p ~ ~ h l icomnrant. me), also be viowt?d clectro~iicallyor in e-mail to p~iDlic.ii~jo@ot,s.lr~~cis~go~, or scnd a facsimile transmission to (202) ~ NCIJA SUMMARY: The I3oart1, OTS. t ~ n d I?i?er f ~ [toom M1'-500 ofthi! l !lllH-(j518, irlenticying llo;~nl's Martin l311ilcling(20th and C Slrwls, NW) between 9 a.m. ;ind 5 p n l . m;ltcriills you M,ijl relil,osting will assist 11s in sorving yo11.1Ws schcdulc onm:You aliip sol,,llit weekdays. o ~ippointments n hr~sincss days h e t u w n iilontifieil 01.S-20118-0004, by 1 0 a.111. and 4 p.m. In niosl casos, the rollowing mcthocls: appointments will be available tho noxt 1;'ederol elliderniikir~gl'orial- h~isincss day fbllowing the rlnto mo "Kogulatiuns.gov": Go to l~ttp:// receive a request. acts or practices in connecliun with iV(;UA: You m w s o h i t cummcnts. consuner crcdit cards accolmts and w , u , v . ~ e ~ ~ r ~ o l ~ o 1 7llntlcr l J~ l l,a sSg T1 Searr:h Oplionsl~ click next to lhe idmtifiad by number RIN 3233-131147. nvonlmft services for deposit accounts. by any o f t h e follnwing methods: 'This proposal evolvoil from the iloi~ril's "i\dvanced llocket Search" option ,,,here inllicatoil,sclcctaaellcy llr"p.MOrfice e king I~cclerd l i ~ r l c o ~ ~ ~Poriol: http// Junc 2007 Notice i d Pn~poseil Rule '~l~w.rl!g"I"I'ol1~s.g<11~. I~ollc1w the rlnder the 'Troth in 1,entling Act and instmctions for sr~bniiltingconimonts. O'TS's Aug~ist 2007 Advmcc Notico of do\,,n menlr, tllc,l click ~ S l , b , l l i t ,Ins ~ "l>ot:ket 11)" column, selccl "OTS- sile: litlp:// NCIJA W I : ~ i'mlmed Rulamaking under the I'o~leral 2000-l1004~~ to or r,iew w~~~v.~~m~~go~~/iic~~v~/~~r~!~~o,s~:~I~ 'Trade Con~mission Act. The pniposcd co,llnlen~s to slipporting ant^ p"pcl,~c(l-r~?gs.lltrni. Follow (he rule relates to other lluarrl propos;~ls ondcr tho 'Tri~th Lcnding Act and the in 'Truth i n Savings Act, which arc pt~hlishcdclsowhere in today's Fetlerel relalcii materials f i ~ this proposed r rulemaking. Tho "lHuw to Use 'This Site" l i n k on Regulations,gor, lloluc ,lilgc . instructions for sribmitting comments. E-mi~il: Address to ri!gcorn~~i~:i~l,s@l~~:~ii~.go~~. Include 'IYour provides informtltion on using name] Comments o n l'ropusod Rule Part Register. Regu~ations,go,,, incll,i~ing 706'' in the s-mail subjcat linn. DATES: Comments niiist 11c roooivail on I~bc,sinrile: (703) 518-8310, lisc the or for s~ibniitting vicwing pol~lic o r bofc~roAugust 4. 20118. suI)jecl line ricscrihcd d m v c for (!-mail. viewillg otllcr snplIorting ADDRESSES: Ileca~~s(! paper mail in the and relstcil mntorials, and viewing lhc. Moil: Address to Mnrp Riipp, Washington 1lC arm^ and at the Agencies clockot close oftlle colllmcnl hc S w n t a t y ~ ~ f t Board, National Credit is subject to daisy, we cncourilge period IJnion Administr;~(ion,1775 1)uko i:ommenlcrs to s~lbiiiil comnicnls by e- mail, if pussiblo. We also oncooragc , ,m;l:~ ~c ~ ~ ~ ~ chief Strcct, Alexandria, VlA 22314-34.211. ~ ~ ~ : ~ ~ ~ ~ , ~ irirnd i)clir~ci'y/Coiiri~:r:Smlo as ~ ~ Corunsei's Ofrice, OCSice uf 'l'hriR co111menLl:rs to use tho title "Unfair or Soporvision, 1700 G Street, NW., mail ilddress. Washington, I)(: 211552, Attootion: 07's- FOR FURTHER INFORMATION CONTACT: 2008-0004. Doilid: Benjamin K. Olson, Atlornoy, commonts. Con~inents tu sul~mitted onc F'msi117ile: (202) 90li-6518. ur Ky l‘ran-l'rong, Counsel, Division of o r moro of tho Agencies will he made ilond 13cliv1?ry/Co~1rie1.:Guard's Consumer end Community i\fl;rirs, at available to all of the Agencies. Desk, elst l.obby Entr;lnco, 1700 ( ; (202) 452-2412 or (202) 452-3667, intoresled parlies arc invitcd to si~bmit Street, NW., from 0 a.m. to 4 p . m on Board of(:overnors of the iJr:derai comments ;IS fc~llows: business Oays, Attonlion: Regllli~tion Itcservc System, 20th ;mil C Stracts, Federal Register 1 Vol. 73, No. 9 7 I M o n d a y , M a y 10, 2 0 0 8 l P r o p o s o d llules 28909 . ~ ~~~ NW., Washington, IIC 20551, For nsers llic eCfoctivoncss of tho disclosnres (hat t Practices that ulhcr federal agencies o f 'I'f?Iet:om~iiunici~tioiis Device for tho ~:rcditors provide to consr~mars at have ailtlresseti throtigh rulemaking; I3eaf CI'DD) only, conlact (202) 263- ihc applicalion and ihro~~gliont life of a n i'ractices Lhat states have ;d(lrcsserl f~pcn-end (not home-socnrcd) acconnt. stalulorily; As part ofthis offort, lho Board Acls or practices O'TS might targcl retained ;I resei~rch and consulting firm involving prodncts such as crcdit cards, (M;~cra International) to assist lhe IJoard rosidcntial mortgages, gift cards, and in conflr~ctingmtcnsive consumcr doposit acaonnls; and losling in ordcr to dovelop improvod O'I'S's existing Advertising Rule (12 ilisclos~~res consumers w o i ~ l d (hat he CFR 51j3.27). Mi~naaer. Comoliancc and Cons~nncr more likely to pay attention to, O'I'S recognized in its ANI'R lhat the llntlerst;lnd, ;lilcl ilse in their decisions, finmcial sorvicos industry and while at the same time not creating ~:onsumers have benefited from Counsel, Regulations and 1.e~islalion bnr(lons for creditors. while the in m n s i s t t ~ c y rulcs iiml guidance as the Ilivision, 12021 906-7409, at Offico of tc!~ting the ljoanl in dovelolling fo:cderal banking iigcncics and the NCUA improve(l disclosures, the testing ;Ilso h a w ndoptcd uniform ur w r y similar idenlified the liniitalions of&closurc, rlllcs in many areas. 72 FR at 43571. ill cerl;lin airci,mstances, mo;lllsof O'I'S cmphasixed in its !\Nl'l< that it Officer. Office oCExa~nin;~lion and enahling consumtirs lo make decisiuns w d d be mindful of the goal of .. . olfectively. .See72 FR at 32048-52. consistent interagency slandanls ;is it I. Green or i<oss1'. ~ c n t l a l iSlalf . In response to the June 20117 Proposal, aonsidcrcd issues relaling to unfair iind Altornoys, Office of Ccncml Counsel. the iJoard roceivcrl more Lhan 2,500 ilf, :,?tive acls or pri~atir:cs.111. (703) 518-0540, Natiannl Credit Union comments, including approximatuly ?& received 20 commont icltars on i(s ANPR, including Ihirtccn f r o ~ n !\flminislratirin, 1775 i h k c Street, 2,1110 ci~mmenls Srotn iiidivirln;~l Aloxondriii, VA 22314-:142(1. l:onsumcrs. (;olllmcn(s from collsu,llf;rs, Cinanciiii inslili~lions and h e i r Lradc SUPPLEMENTARY INFORMATION: The mnsuincr groilps, a ~niotnbcrof i~ssociatiuns, lhroe frrini i:onsumcr liedoral Kcserve iloartl (iloard), Ihc congress, n[ller gol,crnillr:n(;lgoncics, xlvocitoy organizations. lwo lroiii Offici! oCl'hrin Supervision ( O X ) , and and some creditors cvcru gonorally rnembcrs of Congross, one from tho IT(:, thu National Crcdil Union ~ , , ~ j p o r t i ~ o proposed revisions to ortho and tcn S r ~ m olhers. (:onerally speaking, Administr;~tion(NCUA) (collectively, I<ogolation %. \I nl~mI)er comments, of the com~ncnlcrs agreed on only one the Agencies) are proposing several new liowcvor, urged the lloard lo lake point . . . llmt 0'1‘s should adopl the provisions intended tu protect nrldilionai action with respect lo a s;~mc ptinciplcs-bilsed stmdards for consumers ilcainst tinfair or dcceolive " C nnmbor o credit card pradices, unf;~irnf:ss deception used by lho and ncls ur pracliccs with respect to incluiling late fees and other penalties WC, tho olhcr federal banking iigencias, cunsrnner credit cnrd accounts anil rcsnlting from perceived rednctions in and tho NCIIA. 1lle timount oftilllo cunSlllllerS given I'inancid iniluslry cc~mmenters . overdraft services for delmsit accolinls. I,hose nro~)os;~ls ~?rumulealod are t o make tilnei), pa),ments, Illlocation oppnsf:d 01's laking any lirrthor action l,ily,nents to jlalances with the lov,(!sl b w m d issning grridancc along those ,Innual rate, ilpplic;rlion of il lines. They a ~ ~ a cth;rlO'I'S must not Act), which makes (lie Agcncics im:rc;~seilanniial potconlago rales to create an unlcvel playing field for O'I'S- rasnonsibla fur oroscribine rueulalions Ijre.csisting b;,lZinals, anrl the so.c;llloc~ r ~ ~ l a t ~ linstilutions and 111;1t ~," Ihal prawn1 unltlir or ileceplive acls or two.cycic l l l e ~ ~ l ,,fcompnting intarost, o(~ nnlrormity among tha fciier;~lbanking pr,!lclices in or sCfccling ctlmmarcc agencies and (he NCIJA is essenlial. B. ~ 1 1(~1:~'s e gost st 2UU7 1"'~;~ c f 'They qnestioncd lhc need for any new within the meaning of section 5(a) of the Advoncc Nolice ofi'mposcd PI'C Act. Sce25 I1.S.C. 57a(O(1), 45.h). OTS rules. 'Shcy i:hallenged the list of lliilernuking prnctiaes 01's had indicated il could I. B;~ckgroantl On August 6, 2007, OX issued ;111 considor targoking, arguing thal lho A. The IJoi~rd'sJirnc2007 Ilcgololion Z ANPK requesting comment on its rilles primlices lisled were neithcr nnfair nor Proposal on Open-End (A~oi~-flonie under section 5 oClhe I T C Act. Set: 72 flocoptivc tinder (he IT(; slan~lards. S~x:ciired) r d i l C N1 43570 (01's ANI'R), The purpose of 'i'h~y lho cxp~aineri reasons thcy usf! thf? OI'S's /\NIT was to determine whcthcr particular practices listed and how samc O n Jnnc 14, 2007, the i3oi1rtl reqnestad O'I'S should expand on its currcnl benefil consnmers. Sonic cummcnters public comment on proposed prohibitions against unfair and urged O'I'S to await the Board's to ;~mendmcnts the opon-end croilit (not dcoeptivo acts or pracliccs in its Credit ri~lemaking under the i-Iamc Ownership homc-socurcrl) provisions of ilcgulalion SJmcliccs ilnlc (12 CFR piirt 535). iind Eqnity Protection Acl (I-IOLI'A) on %, which implomonts the 'l'rntli in O'l'S's ANPR discussed a very broad unfair or ~lcccplive acts or practices and i.ending Act Ci'iLA), as well ;ISproposod ilrray of issues including: Ihen follow the Boarrl's leail.' Thcy d s o to ;~menrlmonls ihe corresponding staff The legal background on O'I'S's opposed nsing stale laws as a model or (:ommenlary lu Regul;~tion 72 I T %. authority under the PI'C Acl and the converting g ~ ~ i d a n c o rillcs. Forihcr, tu 32040 (June 2007 Proposal). 'I'ho IHume Owners' i.,o;ln Act (I-1Ol.A); they opl~osod OTS expandin:: its putpose ofTILA is to promolo the OX'Soxisling Credit I'mcticcs arlvorlising r d c s . informcd use of consumer credit by I<nlc; In contras(. Ihe consumer commontors providing disclosures about its costs I'ossible principles 0'1's could i ~ s o to lirgcl~ y r ~ morre ahc;,ci witll a rule ( and terms. See 15 U.S.C. 1601 el stiq. lo define unfair and deceptive acts or that wnulll combinn the flcs 'I'II.A's disclosnrcs dilfor depending on pr;lclices, including looking lo principles-based stand;~rils with wliolhor the consumer cmdil is an o p m - stantlartls the PI'C and stalcs follow; l,rohibi(ions on spot:ific pmcticcs. .i.ilcy i?nd (revolving) plan or ;I closo~l-end l'racliccs that O'I'S, individndiy ur (installment) loan, Tho go;d of the rm an inloragency basis, has i~ddressccl i , ~ lloai.r! iss,,o<l , iioEl,,, l,m,,,,sorl o pruposad amondmonts was L improvt! through goiil;~ncc; Jarnmry zooa. .%c 73 PI< 1072 (jili,. 9. ~ O O I J ) . 28906 Federal Register1 08 I I'uoposod Rulos ~ ~~~~ ~~ ~~~~~~~~~~~ ~~~ lhc Agcncics have reviewed consumer complz~ints rot:eived by each oSihe Scdcral btinking iigencics and several constuners soch as zero or low-cost y.~ studies of the crcdit card i ~ i d r ~ s t r'The ~ n r ~not im?mnnl state laws on unfair st balance triinsfcrs. Some commented thilt Auencics' onclerstanclin~of cri:dil cnrd applying payments in this manner was fundamenlal and wo~rlcl impose significi~ntimplanientntion costs to r:liango. the Board in connection with ils J I I I ~ C Pinancial Institutions a n d Consumer O'TS receivcd cvmments o n the 2007 l'roposal under R~?guialion %. practice of imposing a n ovcr-the-credit- 13ased on this and other information limit See that is triggered by the have cliscusscd bolow, the A ~ e n c i c s ienulations on unfair c:om~~rciiensive 81s imposition o f a penalty lee (sr~ch a and &xcotive actsor oractices. A late feel and the i)ractice ofcharninn card accounts. I'ocused his comment o n unfi~ir or the Pini~lly, Agencies haw: also deccptivc credit can1 praclicss. r actions. O ~ n s o m c groups supporleil from oiithereil i n l ~ ~ t n ~ a t i o i l ;I n u m l ) ~ r of A caninicnt from the 1VC summarixod prohihiling these prscticcs and recant Conen!ssional hcarinas on Llin 1TC's interest anil exprrricncc with prohibiting any over-tli<?-cre<lit-hnit iee to r c s p ~ : t Financial serviccs, described where lhc creditor a p p n ~ v o d the how the W C has used its unfilirness iind tri~iisaclio~i paddod thc croilil limit. or mcml~crs olCongress heard teslimony <lccaptionauthority in rulemaking and as ;~brisivo unfnir to consumurs. O n itom individual consumers. anil I;IW cnlbrconicnt aations, i d the other hand, sr:vard i n ~ l i ~ s i r y rccommenderl tlial 073 considat lho caninicnlcrs dek!ndcil llicsc pr;~clices. z S e ~c.g:, A m . I l ~ i i k o ,\SSOC.. Likoh~linpmI , r~ 01' ITC's oxpcricnce in determining 'i'liey o~nimentodthat the pmcticcs l'ropo~cd L,cdil Cwrl i.c~islntiuin:S i w c v llonulir o j (,'mlit CUKI imms [ s l d > g 20081: I I ~ I ~.1 $ ~ o m r , : whether io impose rules prohihiling or d arc deter fuli~re e f ~ u l t is~ n d a way L o tong. ~escsn:li sirc.. 'me Cmlir ( i ~~kirkci: ;d restricting pi~rticular acts and pmcticcs. i:harge ti liltlo inore to il cristonicr who l:~<:c~,l'rremls,i:,miinx (;"sl I $ s , ~ S , mw1 llq>rlcin~ O'YS rocuived coiinients o n several has den~rmstrated higher risk without i'rocricos [Pol,. 20nn):'i'iiaWcrlrir:l> & Clliirliso 1 .: practices rcicvant lo tho spocilic credit pcrn~iinailly raising the ci~slomer's w d h , cw rbr A I , I ~ ~ SI I O U ~ Cojcmds: S , l ~ : m gmcticcs aclilressocl in today's (,~onsmncm 'Twn lo Crcdil Cmls Amid IIM . b i o ~ l ~ o ~ o borrowing costs, They :1rguet1that p . Dclnyir~glmviloblel h j ~ m l l r .,,as, 1I:ob. 20001 prilpvs;ll: othor~uise. these costs w u d d be oasscrl (au.iilsl,li! ;it lillp:Nii~>s>,~.n,ne1i~<,~,~>rog4444~"4~g/ 01's rcceived comments on the lssries/2000/oz/ii~1j/liiiiieeef.~~~r~lis: A lost orilctice ol"onivcrsai rlcfiult" or carr:ia,Iloiilos. IJorr.o,vi*,g to.M<,kci:i,ris ,\1e.ii.ar: 'The " d v s r s e action pricing," which the C,,d lM,l Hi ilrllciico (Nov. ilopid C i 0 l l i I l i " j C , ~ i l i l 20071 (il1~1ldBIo rll l i l l p : / / ~ ~ ~ ~ i ~ r ~ - . d o ~ ~ ~ ~ s . o r g l ~ ~ t ~ l ~ ~ / O T S ANI'R described ;is imposing nn b~~r?o~visgpd/l: Consilimr lsw Ctt... i b o - Nzil'l interest rate increiise that is triggered by concern thal arc rcleviint lo tho practices Iinneslais: l.u,,~-os,lil.I.li~l,.c"sl(:<,rils l!lecd adverse information unrelated to lhc addressed in today's proposal. 'They Consii,nws (Nov. 2007) (available n l hIlp:// credit card account. The 01's ANI'K urged that payment cut-offtinies be ~~~ivi~~.co~ii~~~i~rl~~~~~.~~g/isst~~slc~~~IiL~.c~~ l:l~i~-II<~~z~~sleei:iiiiil.~><lJ); M. ilisi"~ jonarl,;,,, 8 contrastcil this praclia! to I i q - and p r ~ ~ h i b i t e d that paynicnls be trei~toil S t i s m ii. Mniininb, i\m, llankors Arsoc.. An cslal>lished risk based pricing. if : Sti~ncly thay arc yostniarkod ns o l I Cronaeic ,\sscraiioal of lleyiln~iiig Czcdil Cwd Consumer groups supported prohil~iting tho due ilnte. l'hcy also iirged that I,%esOiid iillcrcrl Iloles ((lcl. 2007) (.iinii.ible :a1 i?ll~~://l"c~~r~~."l~<r.co~~7/~~l>~,/~loc~,,,,~,,fs/l>r~~s/ tliesc practices 81s al)usive a n d ~unfiiir to subptimc credit cards be prohibited if 1~~izlrilin,g..o~illl~~~r~l..t~~~s.iii1~r~sl~r~11esiJZ5O7.~~~ijl: c:onsomors. 'They cited inacanracics in less than $300 ofavailable credit is IeSl C i ~ l i l y%oldin Mark Ri~knvin,l l o ~ n o r Dui.,owiq lo , Ihc credit reporting system and aflcr inilial lees are subtracted ur inilial ,Slay ilciilliig: I i m Cmlll Con1 ilchl Is licloled 10 dispiwale mcial impact as roasons 11.1 foes total more llian 10% oltlic overall lWedic01 I<.xpoicr[Jsn. 2007) (avuilohla a! 1,llp:N ptvhibil i ~ s i n gcredit reports or crcdit ii~i~~~r.de~i~or.nrg/~~t~b~/iii~~lIi~j~~~~~eb.~~~ljl: IJS. Gov'i credit line. r\cc"iiiiml>iliigO~fici?. Cl~ilil Coiils: Iiii:i.e<ls~li scorcs to impose penalty rates. O n the n ~ m p ~ o ; iiii /I I O and i ~ e lieighiois s e c d joi ~ s other hand, several induslry C. 1lclutc:rl Acrio,i by tlic Agmicics Mom l:l/cclive llrrclusirrrs lo Cotisilmc1~ S o p ( comnienters defcndetl these pmclices. 111addition to receiving inCormatiou 2006) ("ZhO Cl.c<li! Gin1 Repon") ( ~ w i l a l l i u # a via comments, the Agcncics have i?llp://r,~~,~rt~.~~t".go~~/,,o,t~.il~,,!s/<iii8~2~.~><ifl; lloa~d They comnientc!d that credit c i ~ n l s of Govsrnors ofll>cPoderol Rcsciae Syrlaal. 1lapoi.l slioold be priced to reflect their current ~:oiiducted outreach reai~rdinncredii " 10 C",igronr o, I+<,c~~cFs1 , ~ , Of 1 (,'",,SIIIIICI O.~dil risk. 'I'hcy argued t l ~ a otherwise, credit. c;~rdptacticcs, including meetings iind t Iridosliy it, Soliciliz~g and E,~lm~itq atid Cmdil ciinl issuers wmild btiild ti risk premi~im discussions with consuilier group . . llloir I~jf~lfecls Coi~samo. h b l and lnsulvm~:,~ on I (Jiliia 20011) (nsailnblo at Bll~i:// into a11 r;~tes tlic detriniant ulother lo rcpresentalivcs, indnslry i~~~n~~/cdcrrih-csei~~.goi~/~~~~~~r~l~Io~~/r~i1~o~~ i:ustoiiiers. mpresontalivcs, olher kderal and stiitc l~~!~~kr~~~~lcy/l~~~~~kr~~~~lcj~i~illsl~~~ly2~lO~~O~? s O'I'S rcccivod c o m n ~ c n l o n the lx~nking agencies, and the KC. On Doinor 8 Clir h ilusgoiisll~lcI.onriin(. Ilie l'larlic i practice oli~pplping payments lirst L n Aptil 8, 20118, the Board hosled il f ~ i r ~ ~ n i Nol: Tlic RoaiiO* Bchii~d iii Aoie,i:o Sofoly IIelM (OCI.20051 (ili.;iilobls 8, 1lllp://>virl~.<icli~~>si"rg/ I~alances sd)icct L a lower rate oC o on credit cards i n twhir:h c m l issircrs p~zbs/i',S~\~..io~~~.~~~lf]. interest Ilelore applying pilymonts to "See, cg., 'The Cirdil Cmi1,uIdoia'lJiii ojilighls: balances siibjcct to higher rates of I~r,>,,i<iii~ I~r,>l~di",,s (;<,nwnlers:IIM,riz,~ '\Tm, for interest, a s well a s the praclicn of agoncies, and othor regulalory agencies bejwe l h 11.S~ib~:miin. i:iu hslils. bCm$wner 01, met to discuss rolcvi~nt iniliistrv trends (,'hUl, 3111111 Coiig. (2007): Creiiil Cord I'mclices: applying payments first to fees, lI,,f~iirIille~~slllalc l,lorases:ilciiriiig 1ir,'oic tii0 S. pcniillies, or olher chirrgos before i)emiai,eiil salicoma, on lin/erri,gotio,is, llolli applying thcni lo principal and intorest. Coiib (2007): Crcdil Cimi I+~~lic~li: Ciwenl Cons~inicr groups supported prohil~iting Coizsil,r,e,.a,i~iilcgirl<,loi~.lss~,es:ll~:i,rh,~ 11. bcfiic (,'otimi, oil 17in Servs., 11nlir Cong. (zoo7):Cirilif as Iliesc pri~clicos t~busive and unfair lo Cord i'mcli~os: I h , liilossi lloles, n r d Cmac consnnicrs. O n tho other hand, scverd ir~ I+VIO~S: . a , i ~ , ~ iIIW S.~ l r i ~ j PL.IIIIIIIICIII industry coiiimentcrs dclcnded thcsc ,soeco,,ii,,. on liiwrlignli",,s. l l O l 1 , conq. (2007). F e d e r a l Register1 Val. 73, No. ! J i I M o n ~ i a v ,Mav 18, 201 ~ uf rc~msent;~tivcs consumer " zroum. L . c:onaideratrons, l e a d risks, and best rasiwnsible for i~rescribinu " ,II'lons " "read. roprescntatives of financial a n d credit prz~ctices-while Zie O.TS ~ u i d i ~ n c e defining with specificity * * * unfair or ciiril indnslry gronps, and others. focuses on s;~fc!tyand sorindncss docoptive acts or practices, a n d s Consr~mer n r i c o n h u n i t y group a consideri~tions n d best f~rai:ticcs. 'The rcnrcscntatives acnerallv testified thilt focus on tile marketina hesl l>ri~clices ~:onimittccl o a particular tmnsilction. L program feat~ircs,including the 'These witnesses rurther testified that o i~rnvision l e consunier clcolion or oot- wilh respect to banks, savings theso practices should be prohihitcd ; fcderal crodit nnions i~ssociations. ~ n d ~s b e a ~ ~ theyelead conslnners to undcrsstimate the costs of usinn credit consumer b r o c h u r c m ovorrlraCt servicc~.~ 0 ; ) the Corrcncy ( U and lhe I'oderal In May 2005, tho Board sopamtcly I)eposit Insurance Corporation (I'IllC). iss~icd revisions tu Ragulation Dl) ilnd See 15 IJ.S.C. 57a(l)(2)-(41, The TL'C Acl the staff commentary pursuant to ils Rrilnts the Fl'C rulemakini: and anthority under the 'L'rnth in Savings i r : .lr.l I r!n, 11111 8 r l i l i < ~iIl l 11 Act rL'1SA) to i~dilrr!ss concerns about uthw oarsons and ontitins. stihiect to i ~ i l l ~ i . , ! i,.,lrl.~.i i n , .II r:: .is.. ~ ~ ~ ~ . , the r;nifr&ity and atlcqoiicy of . , certain exceptions and limitations. Sr?e , m , V . : I L I I,.:, I , h:yl .! :!II r .,I ~ i , , institutions' tlisclosr~re .! ufovcrdraft fees 1 5 IJ.S.C. 45(;1)(2);15 [I.S.C. 57o(a). 'The? for ail horrowors as weil as reduced , ~ e n e r a l l yand to address concerns a b o ~ i t , 1"l'C Act. l i o ~ w c rsets fbrth snccific Qdvmtiskd oserdrall services in o;~rticihr.'The cod of the final rnlc rcgnrdingcrudit cards:" consnmors about i~vcrclrafli ~ n d oil Smvices 13, fige111;y Actioil~ O~,I!~I~N$ em r c t ~ ~ r n e ~ l - i tfees to nssisl consumers 19. Slondords jbr l.i17J(1iri1e,ssIJndcr lhc Overdmft serviccs are somclimcs Y1'C Ac1 offered to transaction account customers 11s a n altcrni~tive tn~ditional to ways of Congress has cndified stantlarris covcring o ~ w t l r a n s (e.g., ovcrclraft lines ;~ddressctl some of the Uoard's concerns doveloped by the I~cderal Trade of credit or linked accounts). Coverage ;ihrul insfilulions' marl Commission (iTC) for the i T C to ost! in is gcnwdly "a~itomatic;~lly" provirlod lo or detnrniinins whether i~cts lnrscticos consumers that meet a depository arc rinfair rlndcr soctioii 5(a) irflhc l T C inslitrttion's criteria, and the servico Specifically. h I T ( ; Act may extend to check as well as other es ~ ~ r o v i d that the 1"L'C has no authorilv transactions, such as ;~utomatctl teller legislation introduced seeking to curb machino (A'TM) wilhdram~ls, dchit card sonic o f l h c perceived abmive praclices transactions a n d i ~ ~ t o m a t e d associated with these services. In June clcaringhonse (,\(;I-I) lri~nsnctions. Most 2007, a hearing was held to discuss the injury is not rea6naI1ly avoirkhie Ihy instilutions statc that oavment of a n proposed logislation with testimony ctinsomers ihomselvcs; and (3) the from consumer advocates and industry injury is not oirtwcighed by rcpre~entatives.~ counlcrvailing bencfits to consumers or tu compcliiion. In addition, thc 1TC CIIO d s o may apply for each day the may consider cst;rblished public policy, account remains overdrawn. 11111 p111)iiopolicy msy no1 serve as the In rcsponsc to Llic incret~seil pri~iiary basis for its detcrn~inationthat amil;ibility and customer use of these Practices a n act or preclice is r~nlhir.Scc 15 overdrafi protoclion services, the I'UIC, A. Rulernaking oiid #nforcoi~~eiit I1.S.C. 45(n). lioi~rd, OCC, OTS, iind NCUA ~)ul)lished A ~ i t l ~ o r iUnder tlie 1;"I'CAcl ly Section 18(0(1) oflhe YI'C Acl provides that the Board (with respect to banks), WL'S (with respccl to savings . . 1.1. .. associi~tions), the NCiJA (with and : . . * / I : ' . 1. rcspcct lo Ccdor;il credit unions) are 5 ' . I . . . I * . . , I .~ I I . . ' , I , ~ . .. < ~ ~ , ~ < ,'' , , nsscciarioiW in othm l~nwisioiis, Allliougii L'I o'Tiia lbi"clisia, ciiliilud "i'ioloatiilg Y o I I I ~ ~ 131,111~ " ~ a o i n p assucistionr" is ll,o torin currently osod in OucidioIl nod Hoonced-Clicck Peer." can bo found llie HOl.A,see, e.g., I 2 U.S.C. 1482(4). lhe toms st: l~rrp://imri~~.j~~ier~~i~~se~~~e.~o~~/p~~!~s/iiii~t~~~~:o/ "sai-ingrand louo ins~iisilonr" "ravings and (May 3 . 2007); 'Tiis C d i t Ctirtl ~ ~ ~ o i m a b i l i t ~ I l c r ~ ~ o t i s i i ~ l l lnlty i)isclosura i\cl 012007. 1I.R n l 14131. 110111 Conn. (Mar. 9 , 20071. .'. I I , , . I ' :. , . I i I \ . I . . I < , , : I . , 1 .I,.' '. .I I : . , I I . . . I . 0 . . I ! .: .. consislent will1 the slimc~rrds is il reprcsent;ttion'or omission of by ;lrtio~ilaleil tho 1TC. 'The 13o;lrd, information that is likcly tu mislcnd I'IIIC, on11 OCC have issued gnidanco l:onsunlers acting rcssonei~lyunder lht? gonerally adopting these s(an11ards for cansumer~conlil have made a wisor circimislimcos; and (2) that ink~rination purposes of enforcing the i l CAcl's '' decision l h t whethitr a n act or titactice is malcrial to consnmors.~5 Allhongh o prohil~ition n unfair or deceptive acts lhasc standards have not been r:otlificd, or p r a c t i c t ? ~ .~ l' t h o n g h O'i'S has ~ ~ the thoy h;iw been applied by mmicroils not h k o n similiir action i n gancr;llly to make lhat decisirrn frecly.'o in ~:o~irIs.zWccordingly, proposing ilpp1ic;ll)lc g o i i l a n ~ e , the cornmenlets '~ 'Third, the FI'C has stated ihal ihe acl rules iindcr section 1.8(0(1) ol'the PTC u n (ITS'S t\NI'R who adrircssetl this or [x;i~:tiorcausing thc injury m i s t no1 Acl, lho Agencies h a w applied the to also pmdncc l~cnofits consitmars of s1;mdards arlicolaled hy the 1"I'C for ~:ornyelition that ontweigh (he i n j n ~ y . ~ ' ~ictcrmining whether a n acl or pmctice unfairness. (;cnerillly, it is impor1;inl lo consider is 1lccolitive.'7 Accordini! L the 171'C, a n onfair act or o both the costs of imposing ;I tenlady and or A rc~~rasontation omission is practice will alinusl always represent a any benefits that consr~mers enjoy a s a marknt failure or imperfection lhiil resnll of the pmcticc.'2 The I'I'C has prcvenls tho forccs of siipply and stalorl thal Iioth consnm~?rs d m dcmztnrl froln maximizing benefits and competilion benefit from prohibitions dclerinine whclhor a rcnrt!sonIalion or minin~izing cosls.":' No1 all mark01 un imfair or r1cr:cplive acts or praclicos Ik1lurr:s or impcrfcctions cnnstilutc 11ot:;mse prices may liellcr rellecl actual unfair ;icts or pr;~cliccs,h o w v a t . tr;insacli~!n cllsls and merchmls who dm Instcad, lhe ccnlral fc)cus oflho 1'l'C's no1 rely ion imfair or dccepti\w ; ~ t or s nnfairness zinalysis is whelhcr lho acl or ~irx:licosarc no longer retpired to priictice cilliscs sub~lilntiitlconsuni(!r coinpelc with those who do.^^ injnry."' g r o n ~ u h 6 i the ;let or practice is to First, the PTC has slalod t l x ~ a t tiir~elod.:'" Ifa rcnresenialion is suhstanlial consilmer injury gcnerully consists ofmonelary, ccunomic, or other The 1 ° K has also a d o p l d standiirils tsngililc harm.'"~riuid or speculalive r for dotcrmining ~ s h c l h c s n act or harms d o no1 constitnlo substanlid consumer injnry.'" Cunsnmcr injury is relx~smlzilion dccoptiv(,~evon if may bc subslantial, howevar, if il arc olhcr, non-dcceplivc intcr~~rctaiiilns imooscs ;I small harm on a lame number ~ ~ ~~ " A representation or omission is risk of concrete h;irm.'7 material if it is likely to iiffixt the Sccond, thc ITC has sl;llotl lhal an consumer's contlocior decision injury is not re;lsonnl)ly avoidable when . . consmners arc ptevenied fro111 effectivclv makina their own ilacisions " abonl wheLhcr to incur that injury."' 'The markrlpliice is normi~lly axpccted ~ " ~ c r n o n of llvsis owl l'tirposc and llogiiiiilory t Anslysir for FL.~IcL.PI 'Tratla Conunissioii Credit 1'rsciici.s Iluie (Siatcnsi~ PIC Crudit I'mcticer ior lliilc).40 IX 7740. 7744 (ivlilr.1 . 10041. l ' ~ I < lat 7 7 u . J i s e c iii.: PSC Policy Sialamool on Uniniinosa at 3. , . . , 8 :., ,. .I. , --,. 1 1 , ~ . -2. < 8 , ,. ~ V . . . I. . I . . . ' , . I %3 8 . ai D (citing I'roservniio~i oSCoiissmari' Cisims nnd Ihiuiisos. Slnto~nani i h s i s ;and Purposc, 40 1 3 o 53500, i m : (NO". 10.1975) rmdin<!dai l o c i : ~ ~ 433)): see d s u IYSC lJolio)r Stalcineni on Uocqxion, l I.cuor from iiio 1°K to ihe lion, lolm i ~Iiinecli. iI. Federal Register1 Vol. 73, No. !17/Monday, May '10, 201 ~ .. ... t clainis regarding tho o ~ s o f a product or ileci!ptive credit card pmclices in baliincns, inslituli~~ns would bc required today's proposi~l, rather than thro~ighan to allocate amounts m i d in excess of the interpmtillion or expansion of its niininium payment using one of three 13. Choice o t R c n ~ c d v Adverlising Ilulc, also fosters spc~cifiorlnictliods or a method that is consistency because the other Agcncics n o less beneficial lo cunsilniers. 'She d o nul havc ooniparablc advertising arc specified n~elliuils applying the or prevent a n ~lnfair dcceptive act ur rcgr~lations. entire amount first to the balance with oractice so lone ;is that renit:rlv has a " lhe highest annual parcentage rate, reasoniible relation to the act or (,'i.~dif I'KIC~~CCS/?II/C splitting the amount equally ilniong the practice." "Thus, the Agencios arc nut 'The Agcncics are proposing to make balances, or splitling tlit? ;lmuunt pro required to adopt the most restrictive nnn-sul~stantive,organizi~tionalchanges rata among the l?alances. l~~irlhcrniorc, nleans of preventing the act or practice, to the Credit Praclices R d o . when a n account lias a discounted nor arc they required to adopt tlic least Specifically, in order to avoid restrictive means. repetition, tlie Agencies worild move tlie statement mlautliority, purpose, a n d would be required to b' c o n s ~ i n ~ e r s 'ive Ill. Summary of Pmposecl Revisions scope old orllie Credit Practices Rule the h111 benefit of that discountcd rate in order to best ensure tlial all entities o a n d revise it to apply not only L the that offer the 1)roducts adilrcsscd i n tho Crctlit 1'r;laticcs Ilulc h t alsu to thc pay~ncnt rirst to balances on which the rate is not discounted or interest is not deferred (except, in the cilse fa p r o p o ~ 'This inloragency ;rpproach is ~l a~lditional, nun-sol~slantivc changes to ilafi!rrcd intcrest plan, [or the lmt two consistent with section 303 of tile Ricglc of tlic org;~nimtinn thair versions of the l~illing cyclcs during whicli interest is Co~iinlnnity l)ovrlopmenl ilnd Crctlit 1'r;icticos llnli!. ddcrred). Instit~itions win11il also 110 I<cgul;itory Improvement Act 011 094. Consirn~er Crcdil C(~i.d ilcco~inls from ~prdiil~itctl ilenping ccinsruners ;I See 12 [J.S.C. 4803. Section 303(;1)(3),12 gmcc period on purc11;rsos [if ona is U.S.C. 4803(;1)(3), ilirocts the federal 'The Agencies arc proposing seven affarcd) sololy hcc;r~isc llioy Iiavo nut banking ngcncics to work jnintly to provisions under the 1°K; Act togarding p i r l o f f a lxilancc at a promotional rate makc uniform d l rcgulalions and cansrunor crcdit card ;rcco~~nts. 'These or o Ix11anr:e on which interest is gnidolincs iniplcmcnting common llcfkrrecl. st;ltutory or s u p c r \ h r y policies. In 'Third, institutions wordd he today's proposiil, two C~?cloml Ixmking pruhil~iledfro111increasing the annual agencies-the Board and O'SS-arc crodil card acaounls without being rnte )x:r~:cnt;~gc on an oiitstaucling primarily iniplcnicnting the sanio snbjcctcd to nnfair or deceptive acts or haloncc. 'This prohibition w u ~ ~ nut ld slatrrtory provision, section 1 O ( f l of the pracliccs. apply, ho~ucver. where ti viiriable rale 1;'TC Act, as is the NCIJA. Accordingly, I" .t , institutions would he prohibited ,m o increases ilw? L tlie operation of a n the Agencies have cndc;~vorcd to a frum trei~ling payment as late fc~r any ai index, where a ~ r o n i o t i ~ nrate lias propose rules that arc as llniform as pllrposc unless consumers havc l ~ e c n the exoired or is lost i~~rtivirled rate is possil~la. 'She Agencies also consullod provided a re;~sonahlcamount of time to with the two oLli~!rfederal banking make lhat paynicnt. 'l'lic proposed rnlc agencies, OCC and FDIC, as well as wiih would r:roate a safe hharhor for I I,,! . .-. VW! due date. 'The effort to z~chicve n aven playing a be Fourth, institutions u ~ o u l d fi~:lrlis alsu filrthcred by the Agencies' nrohil~itedfrom assessina a fcc if a Cociis on unfair and deceplivc zlcts or pri~ctices involving credit cilrds mcl overdrail services, which are gcnarellg pruvidcil only by depository institutions ;~clnal ;nnonnt o l the tr;~nszlctiunwould such ;IS banks. s;winas associations. am1 " two atlditi&al proposals rlndnr liavc exceedeil llie credit limil, thcn ;I credit unions. 'The Agencies recognize Ileg~~lalionthat w o i ~ l d % Curlher ensure fcc may be ;usesseil. Illat state-chartered credit unions and that consumers receive a reasonahlo Fifth, institntions woiild IIC anv entities nrovidine consillncr credit amount uf time to makc payment. from ~~roliihited ini~osinic finance Spm':iCically, the Uoml is proposing to charges on balancci bascil on balances rcvisc 1 2 ( T I < 226.10(b) to pruhibil rnr days in l~iiling cycles tlial prsceclo creditors fronl setting s cu-off time Cur the most recent billing cycle. Tho not be snhicct to thcse rules. 'The mailed yaymcnts that is earlier Illan 5 proposcctl rule wonld prohibit p.m. ;it the localion spnciricd by thc institutions from reacliina hack to craditor for rcccipt of such payments. earliar hilling cycles when calculating pGcenlage of the market for consumer 'The 13oard is d s o proposing lo a d d 1 2 i the amount of interest c h i l r ~ s d n lha credil card accounts and ovardralt C I T 226.10idi, which wonld reooire services. I'or O'TS, addressing cerlain somolimes referred to as twu-or doul~le- cycle billing. nu\ ilcliver mail or the creditor doos not Sixth, instilutians \vordd 11c from secririty ~)roliil~itcd f i n o n c i n ~ ;ielxxits or fees for the isinancc or availability ofcrcdil (such as account- opening fees or nic~nhership foes) i f nFccnnil,r prates different annual p~~ os i'percentage whim. apply to iliCCerent those ileposils or fees utilize the majorily or the availd~le credit on tlin 28910 F e d e r a l Register 1 Vol. 73, No. !17iMonday, May 19, 20081Proposed Rulos ...... ~ -- ~ .~ ~ ~ . ...... ..~~ ~~ ~ . ~ .. ~ ~-.~ acaiunt. l'lm propc~s;~l wo11ld also b;il;ini:cs that reflect the consumer's own a~illiority,I)N'POS% m r l scopc require security dcposits and fees Cmils (without Tuncls adiled by thc prcnisions i n the Agencies' rospoclivc exceeding 25 percent of the credit limit institution to cover overtlr~~ns) in Credit Practices Rnles. to be spread ovcr the first yoar, rather response to consumer inquiries received . l ( a ) Authority than charged as a lnnip sum during the through an automated systom such as ;I first I~illine cvclc. In additiun, cisawhere telephone nsponsc system, A'I'M, or an I'roposed S: -.l(a) provides that the institution's Web silo. Agencies have issiierl this part under soctiim la([) of the I T C Act. In OI'S's IV. Section-by-Section Analysis of the prl sNl rule, Illis pro,,ision ;blains a C O ~ ~ I I I ~ I B Iagreeiii~!nt to pay Credit l'ractict!~ Sabpnrt I'S provides that O T S is also cxr:rcising its a fee lbefore providing ;~cconnt-vponing O n March 1. 1084, tho f l C ailopted ardhoritp undor various provisions of ilisclosures must permit that consumer its Crcdit Practices Rule pllrsrlant to its IIOI.A,altllorlg~l yr(; ~~i is the to reject the plan after receiving the ellthority o n ~ l c the Fl'C Act to r primary authority for O'I'S's rrile. riisclosnres and, if the consumer does pronmlgatc rules that d e h e and so, must refand any fee collected or lake r prcvcnt o n k ~ i or deceptive acts or .?(bl 1'11rpose any irther action necessary to ensura tho practices in or affecting comr~ierce.~" I'roposed S: , _ - ~ . l ( I i )provides that the conslimor is not ol~ligatsd pay the fee. to 'Thc 1°K Act provides that, u~henever i~i~ pllrposo o f t h e part is to l b r i b ~ l lln$ir Seventh, institutions making firm oCfcrs nrcrcdit advertising multiple the YSC promulgates a rule prohibiting spoaific 11nf;lir or dscoptive prill:ticcs, ,,, cleccptivo ilats practices in viol;l(;on ofsoction 5(;1)(1)orthe P?'C annual percentage rates ur aradit limits the Board, OX (as Lhc suc~:cssorL Ilia u , ~ , : t 15 u.s.(:, 45(4(1). 11 fllrthcr wunlil he requitad to disclose in the licclcral lloma I n a n n m k 13onrd), zlnd provides that the part cont;~ins solicitation the hators tlitit dcterminc NCIIA n~rist adopt suIbstanti;lily similzlr [il;lt &fine ailli set [nrth ruhelher ii consumcr will q d i f y for the rogdations i~npnsing snbstantiillly nquircmcnts prescribed lor the pirpos[? lowast ;~nnir;llpcraantage mte a n d similar mqniremcnts with rcspoct lo orljreven[inl: specific ,,nl;lir or highcst cn:dit liniil i~dvertise~l. bmks, savings iind l o w inslitutions. decoptivc x:ts or pmctioos. 'The and rederill r:rcilit onions within GO days p,geilcics ,ha, thusc ijrovisio,ls (:,Ithe eCfbcliva h t c o l t h c I'TC's rule <lcfinoand sljecirio llilf;lir or tinless the iigcncy fiilds Lhzrt such acts or dcceIliive ill:ts or prat:ticcs ~ ' i t h i n a pracliccs by lxlnks, savings associaliuns, single pruvision, r;~thcrthan setting or federal crcdit unions arc not nnfair or fiirlll (he definitions and rcmc(lies connection with COIISIIIIIC~ de~busit dcccptiw or tho Board finds that tho seiiar;ltcly. pillillly, it cl;lrirics [hilt tho ailuplion of similar rcg~ilalionsfor prohibitions in slibparts 8, C, and 1) do hilnks, savings associations, or federal not limit tile i\gencies' ;lnthority to thc choice to avoid the associaled costs credit nnions \ v o ~ d d scria~isly conflict enr~,,,~:c y i . ~ ,,,ith to with essential monetary and papnicnl- llnf,lir or dccop(iv~! whero such services iln not meet their systoms policies of the Board. 'The practices. Agencies have ;~dnpted ri~les sul~stantially similar to tlic WC's Credit -l(c1 Scope I'mctices Role."" l'roposcrl 5 l(c) ilescribes tho trl assess a fee or charm on a consumor's 11s part of this rolemaking, thc scope ofcacli agency's rulcs. The Agcncics arc proposing Lo reorgsnix Agencies have oacli lailomd this of i~spocts their r~spectivc Crcdit pamgrnph to ~lescriba those entities lo the I'ractices l<illes. Alth~ioglu Agcncies which tlIeir .rhe ill,p~ios, ,loar(ys have ;lppto~chcil thoso revisions provision states that its rules wv~iild ;I reasonable opportnnily to oxcrcise tho difkrently i n somc respects, lhe aplily to Iianks and thoit sr~bsitiinries, opt out, and the ccinsumcr does not opt Agencies do nnt intend to create any oot. 'i'hc proposed opt-ont right wor~lil oxccl,t s;l,,ings assui:i;ltions as ilefineil siil~st;rntive cliffercnce among their in 1 2 1J.S.C. 1813(bI. The iloartl's apply to all transactions that overdraw respective rrdcs. a n account regardless oCwhetlu1x the provision fnrtlicr cxplains that transaction is, for oxamplo, a check, an Prc~posal enforcenient of its rules is ;~llocaled AClH tr;iiis;lction, an A'I'M wilh~lrawal, a ilrnong the 13oard, OCC, iind IWC, rocnrring payiiient, or a dihit (:arc1 Subpart A-General Provisions rlepcniling on the typo c~finstitution. [n~~i:Iiase ;I point of sale. at This prnvision has heen updated to Subpart A contains general provisiirns rellcct intervening changes in law. 'She 'The soconil proposal w t d d prohil~it that apply to the entirc pzirl. As certain acts or ~ i r a t i c e s associated with I3oar1l's StafC Cnidclinos to the Crcdit disausscd l)elow, thcrc are somn l'ractiocs Rule w o d d be revised to ;issessina nverdraft fees in connection the diihrcnces i~mong Agencies' I I I I I . 1 . i i i I.I\,iI! removi: questions ll(c1-2 and ll(c)-2 ptqxmls. ilnd the silbstance of tho i3oard's . r 11 , 1 I r 1 i i l l i ! i . 11 ..... . I Autllorily, I'urpose, mid Scope" ;lnswors u f o d d ibc updated and .r~lc r isions in proposcil s , . p i"li'1ishcd as c ~ ~ n l m e n ~under ary arc largely drawn from the clirrcnt proposed S: 227.2(c). Scc proposid lloaril commcnls 227.1(cl-'1 and -2. Tho inless this nurchasrr aniol~ntwould 3s,see42 F117740(Mai., 4l (codifiod.Il re~iiainingquestions and answers in the Cl;R part 444): sce olso 13 O.S.C. 57ii(n](l)(Il). 45IeXl). YOI. ~ C I ofl.ofeieilce. 1 I 1 ~iia:imion iliir ~ ill 3 Y S1~ CI:R plirt 227, s o b p r l I? (1?0ai~dl: 2 CFIl 2 ~ 1 InfO~r~t&on r a S ~ ~ ~ ~ ~ I ~ ~ ~ c n l lisesytho d i d i d 535 (iYSS1: 12 CI'R 700 (NCII.4). namerical mfnr o i c s c l ~agency's r u l e Por c x m p l e . sr'slx I1oa1.d.OI'S. ;iod K i J h would [place lllc pioposcd 4 1 would 114 coliifia<iiii 12 C1:R &sciosur& by generally requiring l p l ~ O ~ ~ O s rules In icrl~actisnly,parlr 227. 535, n l i d c?~l 227.1 1)) tiin iloanl. 1 2 CP11 535.1 I>) OTS, mil I 2 ilopository inslitillinns to provirlo only 700 o l lllle 1 2 or Ill,! Codc d F c d e r a I 1log.yalaiioliS. C I X 700.1 by NCl!ii. Federal RegisterIVol. 73, No. 9 7 / M o n i l a y , May 1 9 , 2 0 0 8 l P r o p o s a d Kulcs 28011 ~ ~~~~ ~~~ ~~~ ~ Iloard's Staff Guidelines would remain oSanlhorily, purpose, zrnd scope. 'She Section 535.15 Sfute E.~onptioils in place. oihcr provisions of the lloard's Crcdit (Exisli~igScctioll 535.51 W S ' s provision would state that its I'raclices Rule (SS 227.12 thmngh O'I'S would revise the subsection on rnlcs apply lo savings ;~ssoci;~tions and 227.18) u'ould not be rcvisod. o l dolcgatctl authority L ~~pciiltoh ~ s~ibsidiarios awned in whole or in part O W is propusing thcfollowing current Litlc uf the 01's official with hv a s;~vin.rsassociation. O'I'S d s o notthlo changes to its version of Subpart to dolegated ;n~lhurity makc enforcas compliance with respecl to detcrniini~lions uniler this sticlion. I1: thcse inslitutions. Tho cnliro 01's part wol~ltl have lhe same scoile. O'I'S notes Request for Comment The 1"I'C's Crcdit I'racticas Rule inclodeil a provision allowing stiltes to OX cvould delele the definitions of seek exemplions Croni the rille if stale Rule cnrrcntly applies to savings "Act," "credilor," iiml "st~vings l;rw aSfcrrds ;I grealer or substi~utially, ;~ssuciations and servico corporations ;~ssocialion"as unnccessarv. I'or the similar level of proleclion. See 1 G (,I'll that arc whully owned by one or more , c i v , ~ l i : ~<~I~ . I . 0 . 111 111.1 444.9. Th(+Agencies aclopted similsr savings ;~ssociations, which engage in in,. v1.c ?.$I,? .I, rimii .ti c I . ~ , I I ! I I < . ~ provisions in lheir rcspcclive Credit 111,. ' ' the business of providing credit lo I!, l i ~ ~ I I I 111isS,..II I > ,I~,I:,I.I .I C d ,. s pr. ~ l i c e Illilc!~.See 12 CPIl 227.16; 12 consnmers. Since the proposed rules t:,iw;<, , . ,,-I .,I, I .I-.<v , I .1!1ii.1 .I> s~ CI:R 535.9; 12 CPR 70(i.5. In the abscncc would covcr more practices lhan ,I .t!~..i!i< i.1,1 , 1 1 1 i ~ , . ! I ' I I I : I , I fl'.'>'> < of any legal requiremcnl, however, the consumer crodit, the rel'crcnce to rulcs. OTS w o ~ i l d move the dcfinilion of Agencies do not prnposc lo oxlend lhis of engaging in the 1111sincss providing "cosigner" to the section on nnfair or pnruision lo the pmposcd rnles for crodit lo crrnstlmcrs would ilc dciated. cmsunicr crodil card accounts and 'The reference to whnlly nwncd scrvicr: c rekr o corpuralions wo11ld bo ~ ~ p d : ~ tL d instearl to subsidiilries. lo roflool tho c~irrenl lerminology nsed in O'I'S's Ilnl~:."' 13cc;msc the i!xc!nipliun is Sd~ordinate Organixations Il~~lc.:'" avail;~bIe when slat(! law is 'The NCUA's provision M W Istale ~ ~ unfnir c r d i l contract provisiuns. "subst:~nlidly cquimlent" to lho federal that its rules iqiply to federal credit rulc, a n exemption m;iy provide little ~~nions. Sectio~i 535.12 Unfair Credit Conll!uct rclioflrom regulatory burden while 227.3 (11) Definitions I'rovisions &isling Scction 595.21 undermining tho unihirni i~pplic;ilionoS I'eder:~l slandarils. Accordingly, the i'ro~~oscd S l ( d ) of the Doanl's (YI'S would revise the title uftliis Agcncios request commcnt on whothor rulc ri.uuld clarify thnl, llnless olherwiso seclion lo renecl its focus on credit states shnrild be pcrniittcd to seek noted, the terms izsed i n Lhe Hoard's contracl provisions. O'I'S mQuk1 dck~tl! exemption from the proposail rriles on proposed .l(c) that nro not defined the obsolcte refercnoo to cxtensions of consrunier crodit card ilccounts :~nd in the YTC Act or in section 3(s) of the i:reclit after January 1 , 1986. C overdraft services i stale law affords Federal S~cpusit Insurance Act (12 greater or substantitilly si~riilar level of U.S.C. 1813(s)) havc the mcaning given protection. lo thcni in section l(b) of the In addition, 0% also rcqilcsls International Ilnnking Acl of 1978 (12 r:omment on whether the state U.S.C. 31031. O'SS and NCUA d o not WI'S would delete the d ~ s o l e l o exemption provision in its Credit h w o ;I need fur a comparable subseclion reference to extensions of credit niter be I'r;~oliccs 1l11lashoi~ld rclaincd. su none is included in lheir prnlx~sod Janwlry 1 , 1988. OTS would sal)stitute V. Section-by-Section Analysis of the rulcs. similar" the term " s ~ ~ l ~ s t a n l i i ~ l l y for the Consumer Credit Card Practices 227.2 Consiimel!-Co:npl0i~11I'iaccrlllrc lcrm "subslanlialls euuivalcnt" in Subpart In urrler to accommodate Ihe revisions ly I'nrsumt lo their a ~ ~ t h o r iundcr 19 ivor~ld cliscusscd above, the Iloi~ril consolidate the consumer conipli~int 57a(i)(l), the Agoncics are [~J.S.C. with the lerm uf arl "snbstantinl proposing tu adopt rules prohibiting provisions ci~rrcntly located i n 12 CFR oonivalcncv" used in the section on specific unfair acts or priicliccs with 227.1 and 227.2 in nruvoseri S 227.2. ,I .I . . n l n I ' ! ,I I l l , res~,ectto ctinsinner arodil card : , r 1 1 1 1 1 I . llll.l 111<.\,:< ,lit1 .I ;~c<ounts. The Agencies w ~ u l d locate provisions 1.11 11. I c I ,.,'I1 li.1. I1 I l l Iheso roles in i~ new Snbpart C lo their ,....I n I . v 11. I .ll , i t ,11111ld Subpart B-Credit Practices 1 1 1 I l l ! 111 9-1.1 11 Each agency would place tho <:,,,,: .X.>Il,,~ 57a(g). .+o'Slis 1lo.inlnnd tilo 1°K iiavo grantoil snbstanlive nrovisions of their current Section 535.14 1Jnfbi1'Lntc Clli~rges cx~inpions \\'isconsin. Now Yolk, nod lo (Existing Section 535.41 51 I:R 24304 (jiily 3 , lo061 (iri'c erwnplion fix Wiecoorlnl:51 PI'. 2tnsn (Aug. 7. (ITS would ruvise tho title of this IODBI [i:'ri; e ~ ~ l l l , ~ i ~ l l N O W YO&): 51 1'14 4 1 7 : ~ for (Nov. lo, 1906) (Bmnl ioxairplion for Wisconsin): would reserve 12 CPR 227.11. which section to rcflocl its focus on m f a i r I;ltc 52 l'l? 2300 [Jao. 22. 1007) (Ilosrri uxamplioll for corronlly contains the Doanl's slaternen1 chzrrges. OTS would delete the ohsolote N W ~orkj: IT ?onon (jane 1. ~ ( ~ o o ] s:, (PI'C refcmnco to cxtensions nl'creilit aner exciaglion for Cdiioniiiij:53 I'R292233 ( h g . 3 , :'@I2 CPRlmrt 550. 01's lhas iai~staolirilly ruvissil 19nn) (Iloard cxontption for iktliloroia).Oi'S iiss January 1, 1 0 f B Sirnilarlp, NCUA gi.ml~i1 <ercmption lo Wiscousin. 51 i:R 45078 mi illis mic riilce prolnalgatln~, Crarlil Piaclicur its I<ale. See. e.8.. Subsidiaries a n d 1:qoity 1misrtinsi~lr: would propose revisions 10 S 70fi.14 (Ilsc. 23. 1!100). The N C U h ills oolgianled any Flu81 l < i l l o . 01 FRBDSO1 Illoc, 1 0 , 19O01. (existing S 706.4). i.nol,lpli"ui. to applic;iI~lc one rir more Imlonccs or davs for i1 consumer it may lake savcr;~l trtlnsactirriis o n ;I consumer credil (:ard acconnt for a sl>ociSied ocriod of lime thal consliiners who pry by mail m i ~ y neeel to mail their oavmonts several that period. I'roposed cammonl Section . ~ ~ ~ ~ ~ ~ . ~ ~ - L I ( ! ~ ~ I I ~ / ~ O I I S ~ 2lid)il)-1 r:i;~rificsthat, for p ~ ~ r p o sof + s I'roposed S: 21 woilid clcfino dotormining whether a rate is a certain t e r m used in now Schpart C. "promolional rate" when the rate that ..~ ...2l(a) Annual Percentage! Rate will ;apply at the end or the specificti period is a v;iriabie rate, the rate cifS~!rctl I'roposed S:-_.2l(a) defines "annnal by lhc institulion is conipi~red the to percentage rate" ils the product of have variable rale that r~~oolcl been niultii)lvin:!.. each ~)oriodiarate for a .. disclosed at Lhe time ofthe offer if the The 13oard received comnicnls from biili~nceor transaction o n a constuncr promotional ratc had not I~cen offered intlivitl~lal consiimers, consumor credit can1 acconnt by thc number of bv the instituliun, siil~ioct aniAicabic to groups, and a member oCCongrcss periods i n n pear. 'This t l c h i t i o n inclicaling that consinnars were not corrosponrls lo the definition oF"annna1 being provided with a rcasonal,lo pc!rcl:nt;igc mle" in 12 CFIl 220.14(b). As ~ ; ~ m n r uoft time to pay thcir credit card ~liscr~ssoil the 13o;ird's official staff ill bills. Comments indicated ihat. because (:ommsnl;iry to 5 220.14(11),this o f t h a liilln rcallircd for nariodic cmnpulalion does not mllect any particol;~r Sinanco chargo or pcrii~dic l)alancc. See comlnent 14ib)-I. 'This rli!finilion alsu incorpuratcs the Ihc annrml perconisgo ratc that applies lo lime in lbctu~oon review Lheir definition of "periodic rato" Srom o lo other ir;rns;~ctions f l h o samo tvoo. llcgillation %. See 1 2 ( P I < 226.2. .2'I(b) Consunior or otherwise uni~hlo aivo theto i'ropuscd S 21(b) clefincs lonr? as that bai,lnce cxists. I'roimsod "consumer" as a natiml pcrson to whmni arcdit is c:xtenilcd iincler a the ~:unip;lrc stalemcnl to receipts or consumer cr~?dit card iiccount or n other rot:orrIs. In aildition. som! natural person who is :I c c ~ - o l ~ I i oro r ~ conlmcnls indicated that cunswncrs are guar;~ntorof a cons!micr credit card un:~bleto accnrately predict whon thcir . . ilccounl. ilavment will be receivad lbv ;I creditor ;I& to mcortainties i n h o ~ ; c ~ ~ ~ i c k l y . ..... ..21 ic) Consrimer Credit C m l mail is delivered. Solno comments Accrlunt z~rgilod of that, l~ecausa these l'roposcd 5 .. Zl(c) defines oaymenls o n :I consumer credit i a n l cliffiiculti~:s,cunsnmers' o;ivmcnts wore "oonsnmor credit card account" as an accorint provided to a consun1er primarily for personal, IBniily, or horisehold prwposes under an open-cnil consumers to make psyment. Currently, credit plan that is accessed By a crodit section lli3in) oCI'ILA rcipircs creditors o r charge card. This definitiiin lo send pcriodic statements at iosst 14 incrirpcmlas the ~lofinilions of"open- clays 1)clbrc expiration oiilny periird iurn?ntlg receive iimpla timo to ~n;ikc ond credit," "credit card," m d "ahiirgc (luring which consumors can avoid paymm"ts, p;rrticularly i n light of the ~:ard"from R(?aulation %. See 12 CIIR fimnco charges on purchases by paying increasing noinbar of mnsnmors who 220.2, tinder &is definition, a n u n ~ h e r ihe balance in lull (i.e., the "grace rcceive p ? r i i d i c statcnients ol ilccoonts would be c x c l i ~ l o d ]period"). 15 U.S.C. lG~i(jIb(a). Federal e1ectroni1:iilly ilnd makc paymonls a consistent with cxcaiilirins lo disclosure i;lw does not, huwevcr, n~anclate grace eleclrunici~llp by tclcphone. 'l'liaso or rc~inirenionis credit and charm card for i)eriotI. and arscc ocriods " w . aencmllv do commimts also stated that providing nol apply when consumers carry ;I o~ldilional lime for consumors to make Baliinae from month lo month. p$~y"cnts would be operationally 33045-40. lior cxamplc, home-equity Ro:!ulalion % r c ~ ~ i ~ ilhats creditors mail rillf~colt rc mil wordd reduce intarasl olnns accessible bv ;I credit card and or &liver periodic statements 14 days ~ ~ revonuo, which would have lo he lines of credit accessible by ;I ~Icblt card before the dnte by which papmcnt is due recovered by raising the cost o credit C are not covered by proposed h r purposes of avoiding d d i t i o n n l clscwhsrc. S: ,21ic). finance charges or other charges, snch as . ~ . ,, ., . late Ccos. Sel? 12 C171122li.5ll,11211iii: 'The Agencies imlcrstaml thal, .2l(cl) Promotionirl Rete <:omment 5(b)(2)(ii)-1. although inoreasin:! numbars of I'roprised S 21(d) is siinilirr to the In its Jnnc 2007 I'roposi~l, the Board constiniors sro receiving periodic M i n i t i o n of"pmmotianol rato" noted anccdoli~i avidencc uf consumers statements a n d making paymenis proposed by the Bcmd in 12 CFIl receiving statements relatively clcm to electronically, a significanl number still 226.16(e)(2) elsewhore in today's lhe payment dim ilato, with little limc utilize mziil. In addition, the Agencies Petlernl Register. 'The first type of rrmnining to mail thcir payments in rct:ognizc that, while first class mail is "promotional rate" covered by this ordeir to avoid having h s c payments ciften dclivan!rl within three Inisiness definilion is nny annnal percontzige rille treated iis late. 'The I h w d obsenicd th;it dngs, in so1110 cases it can lake Federal Register1 Vol. 73, No. Y7iMonclay, May 10, 2008 I i'roposed Kulos 28913 ..... ~ ~ ~ ~ ..... ~ ~ . . ~ ~ ~ ~~~~ ~ signilicantly longer:" Indeed, soma the consumor as delinauenl to ;I cmdit within the aniorml of time provided large credit card isslicrs recommend that the under this sociion. A i t b o ~ ~ g h consumers allow u p to seven days far pruposed role does not mandate a o thoir poymenls L be receivad liy the soccific amount of lime, tha issuer via mail. Accordingly, in some! cases, a sliltemont sent 14 days before Ihe papmcmt d u e date mily nut provide consumers with s reasonable amount of instit~ltibn. propused comment Scc 22b)-2. I'rop~scdS . .22(li) lprovidcs a safe to ~:onsun~e!rs make payment if they are harbor for institutions t11;it h a w ;ldootcd " 1101 given a reasonable amount oftiine enacting S 1G3(a) of'l'll.A, Congress st?I to do so after receiving a periodic tho minimum amount o l time Iictwi?un sliiteme!nt. 'S1I.A and Regolalion % spocif$ing the pilynient duo data are somling the poriodic statement a n d provide consumers with the right L o mailed or dolivcreil ta aonsilmcrs at expiration of any grace period ofrered by dispute 1rans;lclinns or other itoms tliat 21 Iei~sr days bolorc the paymcnt due the creditor at 14 days. At the time of appear on their periodic statements. In date. Compliance with this s a h I~arbor its June 2007 I'roposal, the Board orilor to cxert:ise carlain of lliesa rights. wi~uld t1110w seven days ror the periodic believed Illat consumers might benefit consumc?rs mrlst lulvc a reasonable statement lo reach the consumer by from receiving additional tinie to make mail, scvcn days Eibr tho cunsrmor lo paymonl. 'l'he Boilrtl underslands lhat review tho stnlemcnt fmd makc most creditors currently oflor grace in I~iirthcrn~ort!, some casos, travel or mvmcnt, and s e w n (lavs for t11;it poriuds i ~ n dthat they use a single duo uthcr circiimst;incc?s mav orwcnl the dilto, wliiali is both the expiration of the grz~c~: which ;I porioc! ilnll thc diltc i~ftcr olre;~dprocommend thal cnnsiimars pavmcnt will he considered lato Cur z~liow sovon days for roccipl ofm;~iIi:d &lhar l~orooscs control when ;I niailctl paymen1 will be isuch 81s the assess~iienl payme!nls. The Agencies linlieve 21 days received liy the instili~tion. 'l'lius, a il to bo reasonalilo Iiomi~so ;illows payment mailed well in advance of the sufficient time for even delayed mail lo request thal Congress incrcasc tho 14- dr~u cliito map nevcrthaless ;lrrivo illtor lie doliveroil whilc also allowing most " . d;lv minimum nlailinil rcllniremenl with that d;lte. respect to gr;iac poriods. Dascd a n tlii? Injury is no1 onliueig11r:d by consumers at least a week to review Ihcir bill ilnd m i k e pilymcnl. commonts and othor information counlcrwiline benefits. 'She iniurv does " , , cliscr~ssed herein. howover, the Accncios 1101appe;ir to 110 outwoighod liy any i:ountcrvailin?, lbenofils to consiimars or are concerned that a separate rnlcmay i:ompetilion. The Agencies are not lie ni?ecled that specifiai~llyililtlresses iustilution with rcasondAe oroccrlurcs awrilre of iinv direct bcnefit to consumers harms ullier than loss or tho grace i n place dasignocl to onsrlrc tliat period when institulions rlo not pruvirlo statomcnts arc mailed or delivered a reasonable amount of time lor to mzlkc payment could rosull in wilhin a certain numller of &ips from (:onsnmcrs to make piiymcnt. This harm ilddilional finance choraes for the closing dale of the billing cycle may includes late fees and rate incre;lsos ;is ritilizo Lhe safe harbor by adding that a ~ponaltyfor lzrto payment. 'l'ha number to tho 21-clay saSe harbor for Aguncios' proposd duos not d f e d tho rcquiremi!nts of'l'II..A S lli3(a). date to make payment. The Agencies ilre Legal Analysis also aware thal, as a rcsuil of tho proposed rille, solno institulions m;iy hc reilscmablc procixlnros in p1ai:c ilesignctl Treating a payment on a cilnsumor to the cnsurc that statements arc mailed lo rcqr~irctl i n c m costs lo allcr their crialil card account as Isle for m y systems and will, r1iret:lly or indircctly, pllrpose (othor than cxpiralion o f a grace period) rinless tho consumer has been ~iasfihoso costs on lo amsllmers. It provided a rcasonablo amount of lime lo does not ;ippeiir, howcvcr, that these costs w o ~ ~ l i l outweigh tho lienofits to harlior by stating a pa$mont duo date on make that paynient appears lo be tin consumers of receiving ;I reasonable its poriodic slatemcnts that is 24 days ilnhir act or practioc under 15 U.S.C. aniuunt of t i ~ n e make payincut. to from the close ortho billing cycle (i.o., 45(n) and tho stiinilanls arliculatod by 21 days 1ilus throe days). Siniiiarly, ifiln tlia I'"l'C. Proposiil institulion's procedures reasonably l'ropost?d S 22(a) pnhiliits onsurcd thal paymenls would he sent instit~itions Srom treating a paymcnt as within live cliiys of the close o f t h e consimars a roasr~nablc amount of tima late for any purpose onless the billing cycle, lhe instilntion coi~lil to makc payment appears lo cause consumer has been provided ;I comply with tho safe harlior by setting sulist;~ntiel monetary and othw inji~ry. ro;lson;~blei~iiiount I E ~ lime to make Ilia1 A tho rltlo dale 2 days [rum the closo of When a payment is raccivt~il after tho psymolit. I'roliosod comment 22(a)-1 tho billing cycla. i'mposatl nimment ~lue dale, institutions may imposo la10 clarifies that treating ;I payment as 1;itc b. 2 2. - 2 h ~ r t h a r i:l;lrifios that lhc I'm, increase tho annuill percentage riita for any plirpose includes increasing tho payment duo date is lhe dale by whicli on the accuml as a penalty, ur ruport annual pcrccntilge rate as a penalty, the institution requires the consumer tu repurting the consumer as delinqoent to make psynmit in-onlor to inroid baing a credit reqiorting agency, or assessing a treilted as late for any purpose (exccpl late h e or any othar fee b a s d un thc with respect tu expiration of ;i graci: consumer's Siilore to miiko il payment p(?rioil).
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