“The handwriting on the wall may be a forgery” Ralph Hodgson (1871-1962)
Federal preemption of state banking and financial services
law and regulation is important to state regulators and state attorney
generals. It becomes important to banks when
preemption rules are different between state and federally chartered
institutions.
Justice Daniels, speaking for the New Mexico Supreme Court
in the February 2014 case of Bank of New York v. Romero , stated “[a]ny entity that makes home loans in New
Mexico must follow the HLPA [Home Loan Protection Act], regardless of whether
the lender is a state or nationally chartered bank”. Justice Daniels held that
Dodd-Frank and 2011 final OCC preemption regulations significantly changed the
federal preemption standards and “the OCC corrected its 2004 blanket preemption
rule to conform to the [Dodd-Frank] legislative clarifications”. He concluded that the sweeping 2004 OCC preemptions
were no longer applicable. Although
Justice Daniel’s view looked well researched at first reading of the Bank of
New York opinion, it appears that things are
not as simple as Justice Daniels thought.
The Dodd-Frank
Act’s general principles are that any preemption of state law is limited to the
inconsistency and a state law is not inconsistent “if the protection that
[it] affords to consumers is greater
than the provisions under this Title.” (emphasis added) Consequently, the Consumer Federal Protection
Bureau follows Dodd-Frank and considers only state law that is more lenient than CFPB’s regulations to
be preempted. CFPB has only challenged a few state laws on preemption grounds and it has focused on state laws that reduce consumer rights.
The final 2011
OCC preemption regulation was controversial from its inception. The title of an American Bankers Association
article by a prominent law professor says it all: OCC Gets It Wrong On
Preemption, Again. The article
criticizes the OCC’ s failure to follow Dodd Frank ‘s guide for preemption. The article states, contrary to Justice
Daniel’s view, that the final rules also violate Dodd-Frank by “re-adopting three
blanket preemption rules issued in 2004. Those rules proclaim nationwide
preemptions of broad categories of state law — including state disclosure laws
and other consumer protections — with respect to deposit-taking, real estate
and other lending by national banks.” For the full article see, www.americanbanker.com/.../OCC-preemption-Dodd-Frank. Not
only did some banking circles object to the final OCC rule, the final rule was
passed over the Treasury Department’s strong objections with only minor
changes. One change was to codify a U.S. Supreme Court case which permits
state attorney generals to sue national banks to enforce certain consumer
protection laws.
The potential conflict between the CFPB and
OCC with their differing views of state consumer law preemption stands waiting
in the wings.
Since the OCC
enacted its final rule, federal courts in Florida, Iowa and elsewhere have held
that Dodd-Frank did not materially change the preemption standards to be
applied to national banks--effectively endorsing the OCC approach. Contrary
decisions have come from West Virginia, South Dakota and a few other federal
district courts. More rulings will come. The final word may
have to await a ruling by the U.S. Supreme Court.
It appears that the
OCC’s 2004 preemption rules remain basically unchanged, with some deference
given to actions by state attorney generals.
Justice Daniels' view that the OCC had "corrected its 2004 blanket preemption rule to conform to the [Dodd-Frank] legislative clarifications” is open to serious question.
Do Good,
MARSHALL G. MARTIN
505-768-1500 (office)505-2
Tinnin Law Firm
505-228-8506 (cell)
505-768-1500 (office)505-2
mgm@marshallgmartin.com
