Opposing Duplicative State Regulation of a National Bank Subsidiary
Agreeing with Wachovia and NELF, the Supreme Court held in a decision rendered on April 17 in the Watters case that Wachovia’s mortgage business, whether conducted by the bank itself or through its wholly owned operating subsidiary, is subject to federal superintendence under the National Bank Act, 12 U.S.C. § 1 et seq. (“NBA”), and not to the regulations of the several states in which the subsidiary operates. It has long been established that the NBA preempts duplicative or conflicting state regulation of national banks themselves. Wachovia argued for extension of federal preemption to its wholly owned subsidiary based in part on 12 C.F.R. § 7.4006, a regulation of the Office of the Comptroller of the Currency (“OCC”) 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.”
NELF filed a merits amicus brief in support of Wachovia concentrating 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 Michigan’s 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 as part of the system of checks and balances in our federal system.
Justice Ginsburg wrote the majority opinion (joined by Justices Alito, Breyer, Kennedy, and Souter) holding that, while state law may govern issues related to incorporation of a national bank’s subsidiaries, it does not govern the “business of banking” conducted by those entities. Justice Stevens filed a dissenting opinion joined by Chief Justice Roberts and Justice Scalia (Justice Thomas taking no part in the case), arguing that the majority opinion improperly found preemption based, in the dissenters’ view, on an OCC regulation rather than an explicit federal statute. On April 27 the Court denied the Connecticut Banking Commissioner’s petition for certiorari in the case of Wachovia Bank, N.A. v. Burke, which raised this same preemption issue and in which NELF had filed a similar amicus brief with the Court of Appeals for the Second Circuit.
Agreeing with Wachovia and NELF, the Supreme Court held in a decision rendered on April 17 in the Watters case that Wachovia’s mortgage business, whether conducted by the bank itself or through its wholly owned operating subsidiary, is subject to federal superintendence under the National Bank Act, 12 U.S.C. § 1 et seq. (“NBA”), and not to the regulations of the several states in which the subsidiary operates. It has long been established that the NBA preempts duplicative or conflicting state regulation of national banks themselves. Wachovia argued for extension of federal preemption to its wholly owned subsidiary based in part on 12 C.F.R. § 7.4006, a regulation of the Office of the Comptroller of the Currency (“OCC”) 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.”
NELF filed a merits amicus brief in support of Wachovia concentrating 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 Michigan’s 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 as part of the system of checks and balances in our federal system.
Justice Ginsburg wrote the majority opinion (joined by Justices Alito, Breyer, Kennedy, and Souter) holding that, while state law may govern issues related to incorporation of a national bank’s subsidiaries, it does not govern the “business of banking” conducted by those entities. Justice Stevens filed a dissenting opinion joined by Chief Justice Roberts and Justice Scalia (Justice Thomas taking no part in the case), arguing that the majority opinion improperly found preemption based, in the dissenters’ view, on an OCC regulation rather than an explicit federal statute. On April 27 the Court denied the Connecticut Banking Commissioner’s petition for certiorari in the case of Wachovia Bank, N.A. v. Burke, which raised this same preemption issue and in which NELF had filed a similar amicus brief with the Court of Appeals for the Second Circuit.
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