- Key insight: Critics argue the OCC is stretching National Bank Act preemption beyond the limits Congress imposed in Dodd-Frank, while banks say uniform standards are essential to avoid a patchwork of state laws.
- Supporting data: The OCC issued two interchange-related interim final rules in April: one affirming banks' authority to charge fees set by third parties and another explicitly preempting Illinois' law restricting interchange fees on taxes and tips. The agency issued another preempting state law that requires banks to pay interest on mortgage escrow accounts in May.
- Forward look: Circuit splits over state escrow interest laws and a growing number of state interchange fee statutes could send the issue back to the Supreme Court — and could also draw congressional scrutiny through the Congressional Review Act.
The Office of the Comptroller of the Currency's recent rulings on preemption are an attempt to claw back authority Congress curtailed after the 2008 financial crisis, critics argue, and legal challenges to those rulings augur for a Supreme Court showdown.
Critics of the Office of the Comptroller of the Currency's recent stances on preemption say the agency is attempting to claw back authority Congress curtailed in the Dodd-Frank Act, which could be headed for another Supreme Court showdown.
The OCC issued two such rules in April: one affirming banks' authority to charge fees set by third parties and another explicitly preempting Illinois'
"I think it's back to the future," said Art Wilmarth, professor emeritus at George Washington University Law School, an expert on OCC preemption. "They're definitely trying to recreate the 2004 [era], what I call, de facto field preemption."
The debate comes as the agency has taken an active role in an
A long legal fight
The fight over preemption is just the most recent of a string of debates over banking regulation that have waxed and waned across parts of three centuries.
Preemption stems from the Constitution's supremacy clause, which generally subordinates state law to law passed by Congress. When national banks may enjoy preemption has been shaped by decades of Supreme Court decisions interpreting the National Bank Act, the 1864 law that created the national banking system and its federal powers.
In some cases, the court has reined in state laws over nationally chartered firms. In 1978, the Supreme Court — in deciding Marquette National Bank v. First of Omaha — allowed national banks to adhere to the interest rate limits allowed in their home states even when lending to borrowers in other states, cementing one of the industry's most powerful federal authorities, known as "
However, in the 1996 case Barnett Bank v. Nelson, the court decided that state laws are preempted only when they "prevent or significantly interfere" with a national bank's exercise of its federally granted powers.
In 2004, the OCC led by Comptroller John Hawke adopted broad preemption rules identifying categories of state laws it argued were preempted by the NBA.
A few years later, the Supreme Court's decision in Cuomo v. Clearing House Association
Critics argued the OCC's broader preemption regime prevented states from policing abusive mortgage lending before the financial crisis.
"The OCC likes to forget the role that its 2004 blanket preemption rules played in encouraging abusive mortgage lending in bringing about the devastating 2008 financial crash," said Dominick Freda, legal director at Better Markets. "While the agency frames [their preemption determinations] as narrow clarifications, OCC is in fact asserting a sweeping power to override state consumer protections whenever the agency decides a state law touches on something a national bank does."
Following the financial crisis, Congress responded in the Dodd-Frank Act by codifying Barnett's "prevents or significantly interferes" standard. The law also requires the OCC to make preemption determinations on a case-by-case basis, supported by substantial evidence, rather than through broad categorical findings.
In the 2024 case Cantero v. Bank of America, the Supreme Court unanimously affirmed the Barnett standard. The Court also directed lower courts reviewing NBA preemption cases to make "a practical assessment of the nature and degree of the interference" caused by a state law and compare it with prior Supreme Court preemption cases.
Wilmarth argues the OCC's recent determinations revive the agency's pre-Dodd-Frank philosophy by treating almost any state law that imposes costs or operational constraints on national banks as preempted.
"In Cantero, the Supreme Court said, 'The statute means what it says,'" Wilmarth said. "The Barnett Bank [decision] does not say 'prevent or interfere.' It says 'prevent or significantly interfere.' They're just reading the word 'significantly' out of the law."
Wilmarth also criticized the OCC for
"They said, 'We did not make any factual determination. We didn't do any studies,'" Wilmarth said. "How do you square that with what the Supreme Court said? I just don't get it."
Consumer advocates echo that criticism. Freda said the OCC's current approach amounts to a broad assertion of federal authority over state consumer protection laws.
"The OCC will tell you this is longstanding policy, and in one narrow sense, that is true — it is longstanding in that it echoes early 2000s field preemption, but it is a significant and aggressive shift post Dodd-Frank," Freda said. "Particularly audacious is the OCC's willingness to package a preemption determination together with a companion rule that manufactures the very 'federal power' the preemption then claims to protect. That bootstrapping is transparently results-oriented and flies in the face of the Supreme Court's unanimous ruling in Cantero, which rejected exactly this sort of flimsy reasoning."
"That is not clarity; it is the agency trying to reclaim authority that Congress clearly told it that it does not have," Freda continued.
'Cantero round two'
Supporters of the OCC's approach argue national banks require uniform federal standards to operate efficiently across state lines.
The Independent Community Bankers of America backed the OCC's preemption determination,
The law in question, known as the Illinois Interchange Fee Prohibition Act, doesn't merely regulate payment processing but directly interferes with federally authorized banking powers by restricting how national banks price card transactions according to the ICBA. The Illinois law would force banks to fundamentally overhaul their operations, they say, warning that compliance could require banks to abandon product lines altogether.
"A national bank facing the IFPA's operational regime and its $1,000 per-transaction penalty has limited choices," ICBA wrote. "It can attempt to comply with a regime that cannot be operationally implemented in the time available. It can decline categories of transactions. It can raise costs for cardholders, cut rewards programs, or defer fraud-prevention investments. Or it can exit the card business."
The threat, according to them, extends beyond Illinois because similar bills are advancing around the country, creating what ICBA described as an unworkable patchwork of state requirements.
"A national payment card system cannot function under a patchwork of state-by-state taxation rules at the transaction level," ICBA wrote. "The federal interest the OCC is protecting is the ability of a national bank in Indiana to issue a card that works the same way when its cardholder uses it in Illinois, in Ohio, or in another state."
The debate will likely return to the Supreme Court, says Wilmarth.
"I expect the Supreme Court will take one of these cases," Wilmarth said. "We're going to have Cantero round two."
Congress has options as well. Lawmakers could use the Congressional Review Act to nullify OCC preemption determinations, similar to how Congress overturned the agency's True Lender Rule in 2021.
"At least it would put people on record," Wilmarth said. "I mean, are you, as a member of Congress, OK with what the OCC is doing, basically obliterating state consumer protection laws, and saying they don't apply at all to national banks? Are you OK with that? That kind of puts people on record where they stand about protecting consumers."
