Dodd-Frank Title X (Subtitle D) dramatically modifies and confines the authority of federal regulators to preempt more stringent consumer protection laws. As way of background, in 1999, North Carolina passed a groundbreaking predatory law covering every city in the state. Soon after, over twenty cities passed similar laws. However, lawsuits brought by the American Financial Services Association, a financial industry trade association, successfully challenged these predatory lending laws.
A major regulatory preemption case began in April of 2005, when the New York State Attorney General’s office found significant racial disparities in the lending patterns of several lending institutions in violation of New York state civil rights laws. The OCC filed a lawsuit pronouncing that it alone has the authority to draft and enforce regulations governing nationally chartered banks. In 2007, the U.S. District Court for the Southern District of New York ruled that the OCC was correct. In upholding OCC exclusive authority, the court ruled that the National Bank Act and OCC regulations preempted the AG office from examining national banks or their operating subsidiaries, inspecting books and records of national banks or their operating subsidiaries.
The Supreme Court reiterated federal regulatory authority over state enforcement in Watters v. Wachovia. Similarly, in Barnett Bank v. Nelson, the Supreme Court affirmed the preemptive effect of OCC regulatory authority and Federal banking law under the Supremacy Clause. Finally, Cuomo v. Clearing House held that AG offices could enforce judicial but not administrative subpoenas against national banks in connection with civil lawsuits.
Dodd-Frank eliminates preemption of state law for national bank subsidiaries, agents, and affiliates. Dodd-Frank expressly codifies that the ‘visitorial powers’ provision of federal law can not be constructed to limit the authority of AG offices to bring an action in court. In support of Cuomo v. Clearing House, Dodd-Frank amends the National Bank Act and Home Owners’ Loan Act to clarify that these statutes do not restrict the authority of a state attorney general to enforce a subpoena against a national bank or federal thrift in a court of appropriate jurisdiction.