By Hugh Carney and Dale Baker
ABA Viewpoint
With a new comptroller at the helm, the Office of the Comptroller of the Currency faces an early and critical test. The OCC must vigorously defend one of the bedrock principles of our national banking system: national banks must operate under a consistent, predictable framework rooted in federal law.
Hugh Carney is EVP for financial institutions policy and regulatory affairs at ABA. Dale Baker is VP for regulatory policy at ABA.
When then-Acting Comptroller Rodney Hood issued his recent letter pushing back on the Conference of State Bank Supervisors’ call to roll back key preemption determinations, he did more than respond to a regulatory challenge. He set a clear example of how OCC leadership can and must defend the national charter. Now Comptroller Jonathan Gould inherits that mantle, with the opportunity to affirm and strengthen the OCC’s longstanding commitment to national bank preemption.
In May, CSBS called on the OCC to rescind preemption determinations contained in a 2011 Final Rule, arguing that it overreaches and wrongly diminishes the role of states in supervising national banks. To be sure, state banking commissioners play a critical regulatory role in our banking system, but the CSBS letter misrepresents the Dodd-Frank Act, clear OCC regulations, and relevant case law. As Hood pointed out in his letter, prior to publishing the 2011 final rule, the OCC considered the relevant statutory language, legislative history, and judicial precedent and concluded that Dodd-Frank codified the conflict preemption standard in Barnett Bank of Marion County, N.A. v. Nelson, including the antecedent cases it cited. Therefore, the preemption determinations at issue are wholly consistent with Dodd-Frank and Supreme Court precedent, and thus, they meet the requirements of EO 14219.
Hood’s letter made clear that OCC’s framework provides legal certainty not just for banks but also for regulators, courts and consumers. Repealing the rule would create confusion and instability. It would open the door to inconsistent state-by-state requirements that will undermine the national banking charter and create unnecessary barriers to serving customers across state lines.
This is not a debate about whether consumer protection is important. National banks are subject to strong federal consumer protection laws and ongoing supervision by federal regulators, and failure to adhere to those requirements carries stiff consequences in terms of penalties, fines and even harsher punishments. Allowing every state to impose additional rules on national banks would not improve consumer outcomes. Instead, it would lead to fragmentation, higher compliance costs and reduced consumer access to affordable, high-quality financial products and services.
National bank preemption is not a niche legal issue. It is a core element of the U.S. dual banking system. The dual banking system depends on the coexistence of both state and national charters, each with clearly defined boundaries. National bank preemption ensures federally chartered banks can operate across the country under uniform rules enforced by federal regulators. Without national bank preemption, the national charter becomes indistinguishable from a state license, disrupting a framework that has fostered competition and innovation for more than 150 years.
OCC’s 2011 rule remains legally sound and essential to good policy. National bank preemption is not about favoring one charter over another. It is about preserving a coherent, functional regulatory system that benefits consumers, banks, and the broader economy.
Still, red and blue states continue to move forward with new laws that impose restrictions on financial institutions, and concerns are mounting across the industry about the potential for inconsistent and intrusive state-level mandates. These developments could soon present a direct challenge to OCC’s authority and test the resilience of national bank preemption at a time when clarity is needed most.
Recognizing that state-level laws and practices can drive up nationwide costs, the administration has underscored the importance of a consistent national approach through its recent executive orders on fair access, which emphasize that banks should not be providing services based on political pressures.
Furthermore, the Department of Justice and National Economic Council just invited the public to identify state laws that adversely affect the national economy or interstate economic activity, noting that state laws can undermine “federalism by projecting the regulatory preferences of a few states into all states.” These directives recognize that only a national framework can ensure fair, predictable, and nondiscriminatory access to financial services, reinforcing the very principles at the heart of national bank preemption.
Moreover, the same principles the administration set out in its executive order on debanking apply to politically motivated state legislation. While Comptroller Gould’s OCC has stated that the regulator has already taken initial steps to depoliticize the federal banking system consistent with the president’s executive order, these directives will only be effective if they are backed by a strong defense of national bank preemption.
The new comptroller has an opportunity to build on the OCC’s tradition of upholding the uniform standards that define the national banking charter. Clear leadership in this area will give banks and customers confidence that the regulatory framework will remain consistent, predictable, and supportive of the dual banking system. By reinforcing preemption, the OCC can ensure that national banks continue to serve communities across the country under a coherent set of rules that foster competition, innovation, and access to financial services.
ABA Viewpoint is the source for analysis, commentary and perspective from the American Bankers Association on the policy issues shaping banking today and into the future. Click here to view all posts in this series.
