As Florida and other states pass laws that seemingly conflict with national banks’ ability to comply with federal anti-money laundering laws, the Office of the Comptroller of the Currency needs to clarify when federal mandates preempt state statute, financial analyst Karen Petrou wrote in a recent blog post on her firm’s website.
Florida earlier this year passed a law preventing banks from denying services to customers because of their political or religious beliefs. Other states have adopted or are considering adopting similar laws. Petrou, the co-founder of Federal Financial Analytics, wrote that House lawmakers recently pressed Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell on whether federal law preempts state laws like the one in Florida. However, she noted that the power of preemption rests only with the OCC, which has been quiet on the issue.
“So far, it’s done nothing and the nothing it’s done points to the consequences of one of the quieter decisions in this year’s tumultuous Supreme Court term and the threat this poses to the national-bank charter,” Petrou said, referring to Cantero v. Bank of America, in which a majority of justices ruled that a lower court failed to analyze whether a New York state law was preempted in a manner consistent with the Dodd-Frank Act.
“In short, the Supreme Court says that the OCC must make a carefully-reasoned decision about what undermines national banking when it preempts state consumer law and, if this is challenged, the courts have to like the agency’s reasoning,” Petrou said. “Combine this high bar to preemption with the end of deference to the OCC’s rulings on what it thinks warrants preemption, and you’ve got a much tougher challenge for preemption to prevail.”
Acting Comptroller of the Currency Michael Hsu could issue a preemption determination, according to Petrou. Or the Treasury Department may separately assert its right to enforce AML laws in a manner meant to bind both national and state banks. “We shall see, but one key benefit of national-bank charters—preemption—faces the fight of its life,” she wrote.
