Opposing Duplicative State Regulation of a National Bank Subsidiary
At issue in this case was the claim by Connecticut’s Banking Commissioner that the Connecticut-based Wachovia Mortgage Corp. (“Wachovia Mortgage”) is subject to state regulation even though it is a wholly-owned subsidiary of Wachovia Bank (“Wachovia”), which is a national bank. Connecticut’s position is directly contrary to 12 C.F.R. § 7.4006, a federal regulation promulgated by the Office of the Comptroller of the Currency, which provides that “[u]nless otherwise provided by Federal law or OCC regulation, State laws apply to national bank operating subsidiaries to the same extent that those laws apply to the parent national bank.” Since state laws do not apply to national banks, under this regulation they also do not apply to a national bank’s wholly owned subsidiary.
In this case, Wachovia Mortgage was initially a partially-owned subsidiary of Wachovia and, as such, it complied with Connecticut’s state licensing, inspection and reporting procedures. When Wachovia Mortgage became a wholly-owned subsidiary on January 1, 2003, it notified the Connecticut Banking Commission and claimed exemption from state regulation under § 7.4006 and the Supremacy Clause. The Commissioner responded by threatening to issue a cease and desist order, prohibiting Wachovia Mortgage from doing business in Connecticut unless it renewed its state license. Wachovia and Wachovia Mortgage then initiated a declaratory judgment in the federal district court in Connecticut, obtaining a judgment that Wachovia Mortgage is exempt from state regulatory oversight. Wachovia Bank, N.A. v. Burke, 319 F. Supp. 2d 275 (D. Conn. 2004). The Connecticut Banking Commissioner appealed to the U.S. Court of Appeals for the Second Circuit.
Consistent with NELF’s longstanding support for rational administrative procedures that provide adequate oversight without burdening business with conflicting mandates, NELF filed an amicus curiae brief on November 8, 2004, in the Court of Appeals for the Second Circuit appeal in support of Wachovia. In its brief, NELF concentrated its argument on the reasonableness prong of the federal preemption analysis of Chevron, USA, Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), in order to counteract the Banking Commissioner’s public policy argument that state regulation of national banks’ mortgage subsidiaries is required to prevent abuses like “predatory lending.” NELF argued that (1) duplicative state and federal regulation is economically inefficient and (2) constitutional history demonstrates the importance of the Supremacy Clause and federal preemption as part of the system of checks and balances in the United States federal system.
n its decision issued on July 11, 2005, the Court of Appeals affirmed the district court, agreeing with Wachovia and NELF “that federal law preempts state regulation of a national bank operating subsidiary to the same extent that it preempts regulation of the parent national bank.”
At issue in this case was the claim by Connecticut’s Banking Commissioner that the Connecticut-based Wachovia Mortgage Corp. (“Wachovia Mortgage”) is subject to state regulation even though it is a wholly-owned subsidiary of Wachovia Bank (“Wachovia”), which is a national bank. Connecticut’s position is directly contrary to 12 C.F.R. § 7.4006, a federal regulation promulgated by the Office of the Comptroller of the Currency, which provides that “[u]nless otherwise provided by Federal law or OCC regulation, State laws apply to national bank operating subsidiaries to the same extent that those laws apply to the parent national bank.” Since state laws do not apply to national banks, under this regulation they also do not apply to a national bank’s wholly owned subsidiary.
In this case, Wachovia Mortgage was initially a partially-owned subsidiary of Wachovia and, as such, it complied with Connecticut’s state licensing, inspection and reporting procedures. When Wachovia Mortgage became a wholly-owned subsidiary on January 1, 2003, it notified the Connecticut Banking Commission and claimed exemption from state regulation under § 7.4006 and the Supremacy Clause. The Commissioner responded by threatening to issue a cease and desist order, prohibiting Wachovia Mortgage from doing business in Connecticut unless it renewed its state license. Wachovia and Wachovia Mortgage then initiated a declaratory judgment in the federal district court in Connecticut, obtaining a judgment that Wachovia Mortgage is exempt from state regulatory oversight. Wachovia Bank, N.A. v. Burke, 319 F. Supp. 2d 275 (D. Conn. 2004). The Connecticut Banking Commissioner appealed to the U.S. Court of Appeals for the Second Circuit.
Consistent with NELF’s longstanding support for rational administrative procedures that provide adequate oversight without burdening business with conflicting mandates, NELF filed an amicus curiae brief on November 8, 2004, in the Court of Appeals for the Second Circuit appeal in support of Wachovia. In its brief, NELF concentrated its argument on the reasonableness prong of the federal preemption analysis of Chevron, USA, Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984), in order to counteract the Banking Commissioner’s public policy argument that state regulation of national banks’ mortgage subsidiaries is required to prevent abuses like “predatory lending.” NELF argued that (1) duplicative state and federal regulation is economically inefficient and (2) constitutional history demonstrates the importance of the Supremacy Clause and federal preemption as part of the system of checks and balances in the United States federal system.
n its decision issued on July 11, 2005, the Court of Appeals affirmed the district court, agreeing with Wachovia and NELF “that federal law preempts state regulation of a national bank operating subsidiary to the same extent that it preempts regulation of the parent national bank.”
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