WASHINGTON — Just two years after deciding a landmark preemption case in the banking industry's favor, the Supreme Court is poised to take the issue up again this week, and the result could be far different this time.
The high court will meet Tuesday to hear arguments over whether the Office of the Comptroller of the Currency has sole power to enforce laws — even applicable state ones — against a national bank.
The fact that the Supreme Court even took the case so soon after resolving another preemption matter is unsettling to many in the banking industry, who fear that, given how negative the current political climate is for financial companies, the result could go against the OCC and national banks.
"Nothing is ever over in Washington," said former Comptroller of the Currency Robert Clarke, now a senior partner at Bracewell & Giuliani LLP. "We thought preemption was pretty well set and people were not going to waste their time to convince a court somewhere that preemption doesn't live, but here we are."
National bank advocates argue that legislative and court history, including the 2007 ruling in Watters v. Wachovia, support the OCC's sole authority to enforce laws against national banks. But state advocates argue that barring the states from enforcing their own laws threatens their sovereignty.
"I don't think there's any more core or central issue than to be able to enforce the laws you've made," said Art Wilmarth, a professor at George Washington University Law School. "I can't imagine a stronger case for state sovereignty than this one."
The case stems from a 2005 investigation by then-New York Attorney General Eliot Spitzer, who requested information from several banking companies — including Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. — to determine if they engaged in discriminatory practices. Spitzer threatened to sue if the banks did not give him the lending data.
The OCC objected, arguing that it had sole visitorial powers, and it supported a lawsuit by The Clearing House Payments Co. LLC, representing the bankers, that disputed the subpoenas.
New York Attorney General Andrew Cuomo, who inherited the case, argued that federal preemption does not prevent a state from prosecuting its own laws.
"OCC has invoked" the visitorial powers regulation "to bar the attorney general from enforcing New York's fair-lending law against national banks, even though it is undisputed that New York's law is not preempted in its application to those banks," Cuomo wrote in a brief. "This regime of 'enforcement preemption' is inconsistent with the text of … [visitorial power], which OCC's regulation purports to construe."
But the Clearing House, the OCC and the U.S. solicitor general argue that granting state attorneys general enforcement authority over national banks would result in conflicting remedies and priorities. "Even when a state fair-lending statute is not preempted because its substantive requirements are not meaningfully different from those imposed by federal law, enforcement of the law by state officials poses a significant threat to national banks' performance of their federal responsibilities and to OCC's exercise of its supervisory duties," the government wrote.
The OCC also argued that the Supreme Court already supported their position in the Watters ruling, which blocked states from charging subsidiaries of national banks with consumer law violations.
"Diverse and duplicative superintendence of national banks engagement in the business of banking, we observed over a century ago, is precisely what" the National Bank Act "was designed to prevent," Justice Ruth Bader Ginsburg wrote for the majority in the decision.
In a joint brief, all the living past comptrollers wrote that individual state enforcement against national banks would interfere with nationwide consumer protections.
"The rights and interest of consumers would be undermined if states could use their limited resources to impose additional layers of enforcement authority on national banks, rather than concentrating those resources on state-regulated entities," the comptrollers wrote.
But Cuomo wrote that the Watters case was different, because the state law, which would have required national banks' operating subsidiaries to register with the state of Michigan, was preempted. The New York law, which bans discriminatory lending, was not.
The appeals courts have backed the OCC and the Clearing House to date, and it remains unclear why the Supreme Court took the case in the first place.
The justices ruled 5 to 3 in the Watters case. Cuomo's supporters said it is likely that Justice Clarence Thomas, who recused himself from that case, could join forces with the dissenters: Chief Justice John Roberts and Justices John Paul Stevens and Antonin Scalia.
If one of the other justices is convinced this case is different, the court could rule against the OCC.
"Clearly, at least four of the justices of the Supreme Court thought Watters didn't decide this case, or they would not have taken this case," said Buzz Gorman, general counsel for the Conference of State Bank Supervisors.
The case is also the first direct challenge to the OCC's 2004 preemption rules, which for the first time officially said that no state agency had visitorial rights over national banks.
Cuomo said it was "utterly implausible" that Congress wanted the OCC to interpret the National Bank Act so broadly.
At least some lawmakers agree. House Financial Services Committee Chairman Barney Frank, along with several other Democratic committee members, filed a brief supporting the states and asserting that Congress never intended the OCC to have the broad preemption authority it enjoys.
The form of preemption asserted by OCC, in particular, is based on the claim that Congress has preempted the entire field of state enforcement by conferring exclusive 'visitorial' power on OCC," the lawmakers wrote. "Because states traditionally have the responsibility for enforcing their own laws, and there is no claim that the states laws themselves are preempted, 'clear and manifest' congressional intent is required to preempt the field of enforcement. … Congress did not intend to occupy the entire field of banking regulation, leaving ample room outside OCC visitation for regulatory enforcement by states."
But Howard Cayne, a partner at Arnold & Porter LLP, said these lawmakers' comments should not carry any special weight in the case. "The brief filed by individual members of Congress does not represent the views of Congress as a whole and therefore deserves little weight in conveying anything about what Congress meant to do in the National Bank Act in 1864 or any later enactments," he said.
Observers were mixed about whether the banking crisis and the public's poor view of bankers would play into the case.
"You expect the Supreme Court to decide the case on the law, and not on social policy," said L. Richard Fischer, a partner with Morrison & Foerster LLP.
But a few industry representatives expressed concern.
"Politics always does play into Supreme Court decisions," said Chris Cole, senior regulatory counsel at the Independent Community Bankers of America. "There is always that possibility that it may become a silent factor in the decision."
