The OCC recently issued a Notice of Proposed Rulemaking (NPRM) on integration of the OTS into the OCC and other Dodd-Frank Act implementation matters, including changes to national bank preemption and the OCC’s visitorial authority. Per Dodd Frank, the OCC will assume responsibility for the ongoing examination, supervision and regulation of federal savings associations on July 21, 2011. 

The NPRM revises OCC rules related to internal agency functions and operations (and integrates references to the OTS and federal thrifts, where applicable), including those related to OCC organization, availability of information under FOIA, release of non-public OCC information and post-employment restrictions for senior examiners. The NPRM also amends the OCC’s assessment fee rule to include federal savings associations and to synchronize payment due dates. In addition, the NPRM implements the Dodd Frank three-year moratorium on changes in control of credit card banks, industrial banks and trust banks, where the change would result in direct or indirect control by a commercial firm. 

Perhaps most significant, however, are the changes made to the OCC regulations governing preemption and the OCC’s visitorial authority. As mandated by Dodd Frank, these changes will: 

  • Eliminate preemption of state law for national bank operating subsidiaries, agents and affiliates.
  • Remove language permitting field preemption (that is, preemption over an entire body of law, even if there is no conflict, because federal law “occupies the field”). 
  • Implement statutory changes made by Dodd Frank as to when state consumer financial laws may be preempted, based in part on the Barnett standard for conflict preemption. 
  • Revise the OCC’s visitorial powers rule to conform to the Supreme Court’s Cuomo decision, recognizing the ability of state attorneys general to bring enforcement actions in court to enforce non-preempted state laws against national banks. 
  • Apply the national bank and national bank subsidiary preemption and visitorial powers standards to federal thrifts and their subsidiaries. (The affected OTS preemption regulations will be repealed.)

Dodd Frank permits federal preemption of state consumer financial laws in three situations: (1) when application of the state law would have a “discriminatory effect” on national banks as compared to the effect on the state’s state-chartered banks, (2) the state’s consumer financial law prevents or significantly interferes with the exercise by the national bank of its powers, as established by the Supreme Court in the Barnett case or (3) the state law is preempted by another provision of federal law (other than the banking laws contained in title 12 of the U.S. Code).

The OCC has interpreted item (2) above as referring to conflict preemption as articulated in Barnett on the whole, rather than just the “prevents or significantly interferes” language used in the Dodd Frank, which is one of many formulations of conflict preemption articulated in Barnett. The NPRM posits that the specific language used in Dodd Frank may have been meant to clarify that standard in comparison to the OCC’s current rule preempting state laws that “obstruct, impair or condition” a national bank’s powers, which has created ambiguities and misunderstandings.

Because Dodd Frank preserves the Barnett conflict preemption standard, OCC rules and existing precedent consistent with the Barnett analysis, including judicial decisions and interpretations, are preserved. Even where existing precedent cites the specific language used in the current OCC regulations, that precedent remains valid because the OCC’s regulations were “premised on principles drawn from the Barnett case.” However, going forward, “that formulation would be removed as a regulatory preemption standard.”

Dodd Frank contains a number of new procedural and consultation requirements for preemption decisions and clarifies the criteria for judicial review of those determinations. The OCC must make preemption determinations under the Barnett standard by regulation or order on a case-by-case basis, which means a determination by the Comptroller as to the impact of a “particular” state consumer financial law on “any national bank that is subject to that law,” or the law of any other states with substantially equivalent terms. When making such a determination, the OCC must first consult with and take into account the views of the CFPB. There must be substantial evidence, made on the record of the proceeding, to support an order or regulation declaring a state law inapplicable under the Barnett standard. Finally, the OCC must publish a list of its preemption determinations every quarter, and must conduct a review, subject to notice and comment, every five years after issuing a decision preempting a state consumer financial law.

The NPRM expands upon the letter sent by the OCC to Sen. Tom Carper (D-Dela.) in response to the Senator’s request for clarification on how it would interpret particular aspects of the preemption provisions of the Dodd-Frank Act. The OCC has requested comments on all aspects of the NPRM, which are due by June 27, 2011.