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                 Presented by the
     Preemption and Federalism Subcommittee
          ABA Section of Business Law

        Winter Meeting - Scottsdale, Arizona
                January 10-13,2009
                      AMERICAN BAR ASSOCIATION
                   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

Vice Chair:     David L. Beam
                K&L GATES
                1601 K Street, NW
                Washington, D.C. 20006-1600


                          IN UDAP PREEMPTION

Guest Speakers:

                Jeffrey I. Langer, CHAPMAN CUTLER LLP, Chicago, IL
                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
                                            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

            The bank responded that the plaintiffs' claims were preempted by federal law
            applicable to a federal savings bank.
                                          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

           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.
                                 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.
                                      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.
                                      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
                                          2009 WINTER MEETING


                 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

                                  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-

  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.
                                                    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

 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.

                                                     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.

 The case caption identifies World Savings and Loan Association as the primary defendant, but this decision related
only to the National City defendants.

                                                    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.

 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.

                                          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

           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

           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.

                                             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

      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

      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

                                           PREEMPTION AND FEDERALISM SUBCOMMITTEE

     with respect to conduct that the national bank engaged in before it became a national

     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

            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-

                                          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-

                                                      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

                 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.

                 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.

  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
  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.

         '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.
   News Release, lidward L. Yingliog, Prcsidcnt and CEO, American hnlaxs
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
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.").
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                             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,
http://www.rcaltor.orgipress, room/news,,~cleascs/2007/statemcntprec
  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.

          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
rcgistretion, fees, investigation, ctc.).
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                            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
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).
     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
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
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
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

   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
  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).
     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
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
     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)
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
" I2 U.S.C. 9 24(Sevcnth).
     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.").
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                          Fli1)IillAl.         P1llXM1.ZrION
                     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
           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
0Ki~c"'~    empowcrs tlie OCC to promulgate ".str,i~ilor.ds," does not
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.").
     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-

  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/
                                          Rcspoudcnt.pdf [hcrcinafter
"Rcs. Br."].
2008             IY.I~?ws I / IV,iclii~imA RJNCTIONAI.
                                                               .TO        137
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
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).
  Id at 46-50 ("[E]xclusivc federal ~quiation activities of state-chartcmd
corporations is well established. Such regulation is entirely consonant with
the design of our fedcral system. . . . Accol-dingly, there is no Tenth
Amcndmcnt violation.").
     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
  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
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
"  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-
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
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
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
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.").
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~?.~:
                          1           A RXCSIONAI.   APIWACII'SO           14 1
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
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
significantly impair the exercise of autliority, ctiu~iicmtcd inciclcn-
tal u~idcr KBA, the Stale's rcgulatioas must give way."7U
         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
         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
" 3 1 7 U S 25 (1996).
   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
York, 347 U S 373,377-79 (1954)).
" Id   at 1568.
'' i .("State laws that conditioned national banks' real estate lending on
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
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).
     ,Ye<, PVul/er.s, 127 S. Ct, at 1571-72 (citing 12 IJ.S.C.   5 24a(g)(3)(A)
     Id. at 157 1
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                    MQWI:I~S 1'. lK~C1lOl'l;l: A             AI'I  AC     143
                             Fii1)EXAL.D A N n m PIU:lih~lr~LON
 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
         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
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
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
   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)).
SY See, e.g., Nina A. Mcndelson, <liimiioi~            nnd /'~wvipt;oi~, Micli. L.
RIW. 737 (2004); Jack W. Cilmpbcll IV, Reg.gul~i/oiy                 Preeinption b~ the
G~~i-(:irr/(%evro~~ U. PITT. L. Rtiv. 805 (1998): IIoward P. Walthall,
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).
     I d at 1581.
" I d at 1573-78.
   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.").
     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
 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
 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
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
      I d at 1573 (Stevens, J., dissenting).

"  I (footnote omitted). I n kct, as the tnaurity explained in response:
"[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
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
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 (quoting Rice v. S a m i:c Elevator Corp., 33 1 US. 218, 230 (1947)).
      Id (quoting Rice, 331 U.S. at 230)

    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.").
'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

   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
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.
'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-
2008                 IVil"rElL9 iJ, J'VAV/ICIIOI'IA: RINCSIOI\'Al.AIVIIOACII '0
                                                  A                        '
                                                                           7      149
                              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

IV.         Beyond Opcr.utinp S~~b.sidinr.ic.s:  What Due.s Wattets Imply
           ,for. Preer(ptiorz With I(e.specf to Other ~Vorr-Unrrk

          '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
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.").
      kt. at 1585.

  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).
      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.").
      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
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

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
                           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
PARTY RISK (2000) (alerting national bank managements and executives of
potential credit risk implications f o third pnrty dealings), niwiial~leot
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

   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
                       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/
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 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
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.
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.
'"See ilyo/fe,488 F.3d at 532-534; 1~1umei1l/1rrl, 17.3dat 188-89.
   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.""'
         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.
      Ayofre, 443 1:. Supg. 2d at 205.
13"d. at 201, 205.
" ' I d at 207.
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^."'"^
           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

       Id. at 206.
'"old(quoting Reply Brief for State's reply brief at 6, 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
                                     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
          '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
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)).
      Id. (sccond emphasis added).
      Id at 191-92,
      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.

            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

' " 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
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).
    ('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).
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                                  F I ~ ~ I ~ I W I . PIII:EMTION

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,
           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
                      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

" Id tit *S ("Defendants argue that
 "                                    6 42-480 docs not   actually apply to
Plaintiff. . . .").
"' Id at *8.
      Id (empbi~sis
''"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).
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                                BANKlN(i Pl<El:bP~ION
            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
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
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
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)).
      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
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

    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).
  Complaint at 1; 20, State I%rm 13ank v. Burke, 445 1:. Supp 2d 207 (D.
Conn. 2006) (No. 3:05CV808), 2005 WL. 1539054.
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                                                                           '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
          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

      , ee Strrte Fmm Boidc, 445 1:. Supp. 2d at 209-10, 212-13.
      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
         '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
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
IS8   Id. at I I.
'89Slnt~i l m UCIII~,445 1;. Supp. 2d at 219 ("[T]hc record . . . demonstrates
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
'"  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
1107 (S.D. Ohio 2007), q ~ p e ndocl~etedI 07-4260 ((6th Cir.).
                     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 . ' " ' ~

            )       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
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.
       E.g., 12 C.F.R. $5 7.4006-7.4009, 34.4.
    Waiters v. W~chovia    Dank, 127 S. Ct. 1559, 1572 (2007) ("Under our
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

      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
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
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).
     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.").
   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).
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                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-
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
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
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

""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.
"i at 381-82 (quoting Betcs & Ciuild Co. v. Payne, 194U.S. 106, 108.09
(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
preemption on (I) the extent of rielegotior, ~ ~ f / ~ o l i c j ~ i r
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
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 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

   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
"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
rcguk~te lcnding practices of fcdcml savings and loans.").
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                                    BANKING PIIEI'hPTION
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
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
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)
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-
'"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
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).
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                               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
properly promul&atcd regulation can have preemptive effect sliould it
conf7ict with statc l a ~ . " ~ ' ~ u s t iStevens specifically distinguished
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,
.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:)~
   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
agcncy's views should be graotcd substantial t~cfcrcncc.~"

         B.        'l'hc Authority of thc OCC to M a k e Preemption

         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
ktwfully cntitled to co~ntncncc busincss of banking.").
    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).
   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
    E,g., id $8 181-200 (describing, inter diir, the dissolution process,
receivership pussibilitics ;ind distributio~~ asscts).
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                                       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
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
          '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
      Id at 161
      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.'~'
         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

    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
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., 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).
     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
 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
""ub.    L. No. 103-328, I08 Stat. 2338 (1994) (codified as I? [J.S.C.   5 43
4     12 U.S.C. $ 4 3 (2000).
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                                   BA*KlNCi PIW~~~II'TION
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

"' 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
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. $$ Ha, 371. Section 9311 indicates that "the Co~nptrolierof
the Cumency is authorized to prescribe rulcs and regulations to carly out the
rcsponsibilitics of thc office . . . . " I d $ 938. Section 371gives thc OCC thc
powcr to prcscribc mstrictions and rcquirelncnts on national banks ability to
make real cstate loans. I d $ 371.
    If7a11er:s, 127 S. Ct. at 1583 n.23 (Stevens, J., dissenting) (citing 12
[J.S.C. $$ 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
that "nothing in tlie Cablc Act or its lcgislative liistory indicates that
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
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

         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
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.
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.,
    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.
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,
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
          '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).
''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 to usc tlic opcrating subsidiary as a
convcnieot and useful corporate form for conducting activities tliat
tlic parcnt bank could conduct directly."'"      Both "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
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
          'Thc OCC similarly applied its cxpericnce and cxpcrlisc in
pro~nulgatilig moi-e gcncml preemption regulatiotis ia 2004.'" By
 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
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
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

    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~
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
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

   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
      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 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
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
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
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
consumer protection laws that were particuk~rly aimed at banks and thrift
institutions have been prc-cmptcd").
                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.
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
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-
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
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
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                                                           reg,‘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

 12 CFR Part 706
                                                                    Moil: Jennifer J. Johnson, Secrelarp.
                                                           Iloi~rtlof Governors i ~ the I'oilcrz~l
                                                           ilesiirve System, 211th Street m d
                                                                                                                       .           in;rppropri;llc ibr public disclasun:.

                                                                                                                                           ~ j ~ : ~ , ;~oml,lcr,t,s~~:lccirl~nico~ly:
                                                                                                                                   Go L 11tlp://~~~~.~t~.r1?g1ili11ii~i1,  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 ) ;
                                                          ~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
p ~ ~ h l icomnrant.
                                                          me), also be viowt?d clectro~iicallyor in e-mail to p~iDlic.ii~jo@ot,,                                     or
                                                                                                                                  scnd a facsimile transmission to (202)

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
                                                          "": 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
'Truth i n Savings Act, which arc
pt~hlishcdclsowhere in today's Fetlerel
                                                          relalcii materials f i ~ this proposed
                                                          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
                                                                                                                                                 Include 'IYour
                                                          provides informtltion on using                           name] Comments o n l'ropusod Rule Part
                                                          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
                                                          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).
        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
                                                nnmbor o credit card pradices,                       unf;~irnf:ss deception used by lho
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
;~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
;~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,
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
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
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.
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 ,

~ : 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 ,\      '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 -
interest rate increiise that is triggered by concern thal arc rcleviint lo tho practices Iinneslais: l.u,,~-os,,.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        
                                                                                                       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
tliesc practices 81s al)usive a n d ~unfiiir   to subptimc credit cards be prohibited if
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                                                                    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,,,!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~?
      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
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~\].
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
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

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
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
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
                                            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
                                                                                                 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

(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
                                                                      1   .I,.'
                                                                           '.     .I I : . ,
 I            I . .            .   I . 0 . .                  I            !       .:
consislent will1 the slimc~rrds                                                                                                                is il reprcsent;ttion'or omission of
;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
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
                                                                                           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
   First, the PTC has slalod t l x ~ a
                                                                                                                                                     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
Anslysir for FL.~IcL.PI    'Tratla Conunissioii Credit
1'rsciici.s Iluie (Siatcnsi~ PIC Crudit I'mcticer
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
          ,       .               .         ,     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
                                                                                           53500, i m : (NO". 10.1975) rmdin<!dai l o c i : ~
                                                                                           433)): see d s u IYSC lJolio)r Stalcineni on Uocqxion,
                                                                                           I.cuor from iiio 1°K to ihe lion, lolm i ~Iiinecli. iI.
                         Federal Register1 Vol. 73, No. !17/Monday, May '10, 201
                                                 ~           ..
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
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
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
                                                          i~spocts their r~spectivc          Crcdit        pamgrnph to ~lescriba            those entities lo
                                                          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.
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
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
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
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
                                                       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
                                                                                                                         I'nrsumt lo their a ~ ~ t h o r iundcr 19
cliscusscd above, the Iloi~ril
consolidate the consumer conipli~int                                                                                          57a(i)(l), the Agoncics are
                                                       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
                                                       (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 : ~
                                                                                                                       (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               <ercmption lo Wiscousin. 51 i:R 45078
illis mic riilce prolnalgatln~, Crarlil Piaclicur
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.
                                                     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
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
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
                                                                                                        I'rop~scdS . .22(li) lprovidcs a safe
                                                      ~: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
                                            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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