WASHINGTON — The Supreme Court ruled Tuesday that operating subsidiaries of national banks enjoy the same preemption from state consumer protection laws as the banks themselves.
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In the majority opinion, Associate Justice Ruth Bader Ginsburg wrote that the law was clearly on the OCC’s side.
“We hold that Wachovia’s mortgage business, whether conducted by the bank itself or through the bank’s operating subsidiary, is subject to OCC’s superintendence, and not to the licensing, reporting, and visitorial regimes of the several states in which the subsidiary operates,” Justice Ginsburg wrote.
In April 2003, citing the OCC’s rules, Wachovia Corp. told the Michigan Office of Financial and Insurance Services that it was surrendering its state lending registration. Linda Watters, the commissioner of the Michigan office, told the nation’s fourth-largest banking company that it would no longer be authorized to make mortgages in the state, so Wachovia sued.
At oral hearings on the case Nov. 29, several Supreme Court justices appeared sympathetic to the state’s case, signaling that a ruling could go against the OCC. Instead, Justice Ginsburg wrote that the National Bank Act is “properly read by OCC to protect from state hindrance a national bank’s engagement in the 'business of banking’ whether conducted by the bank itself or by an operating subsidiary.”
She also wrote, “State law, all agree, governs incorporation-related issues, such as the formation, dissolution, and internal governance of operating subsidiaries. And the laws of the states in which national banks or their affiliates are located govern matters the NBA does not address. But state regulators cannot interfere with the 'business of banking’ by subjecting national banks or their OCC-licensed operating subsidiaries to multiple audits and surveillance under rival oversight regimes.”
But three justices — Chief Justice John G. Roberts Jr. and Associate Justices Antonin Scalia and John Paul Stevens — dissented from the majority opinion.
“Congress has enacted no legislation immunizing national bank subsidiaries from compliance with nondiscriminatory state laws, regulating the business activities of mortgage brokers or lenders, nor has it authorized an executive agency to preempt such state laws whenever it concludes that they interfere with national bank activities,” Justice Stevens wrote in the dissenting opinion. “The OCC’s regulation threatens both the dual banking system and the principle of competitive equality that is its cornerstone.”
Associate Justice Clarence Thomas recused himself from the case.
