Preemption's New Status

Article excerpt

The Dodd-Frank bill preserves preemption for national banks and federal thrifts, despite efforts by the Administration and some members of Congress to prevent preemption of state consumer financial laws. At the same time, the bill makes some changes in the application of preemption, and this will impact existing OCC and OTS preemption regulations.

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Barnett standard codified. The Dodd-Frank bill codifies a preemption standard from the 1996 decision of the U.S. Supreme Court in Barnett Bank v. Nelson. In that case, the Supreme Court identified many of the reasons why a state law would not apply to a national bank. For example, the court noted that a state law could not "hamper" a national bank's functions or "impair the efficiency" of a national bank. The Court also noted a state law would not be preempted if it does not "prevent or significantly interfere" with the exercise of a national bank's powers.

The Dodd-Frank bill adopts the phrase "prevent or significantly interfere" as the standard for preemption. The bill provides that this standard is to be applied "in accordance with the legal standard for preemption" in the Barnett Bank case. Also, in a statement on the Senate floor, Senator Dodd noted that the bill codifies the preemption standard expressed by the Supreme Court in that case. As with any new federal law, it will be up to the federal regulators (the OCC in this case) and federal courts to interpret this standard.

OCC preemption now case by case. The Dodd-Frank bill imposes some limitations on the application of preemption. For example, the bill provides that OCC preemption determinations must be made on a "case-by-case" basis. …