Today's Trends in Credit Regulation

New Developments Shed Light on the Future of Federal Preemption
By Meghan S. Musselman

Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) revamped the preemption standards that determine whether state law applies to national banks and federal savings associations and their subsidiaries. In some instances, it is not entirely clear how Dodd-Frank’s preemption provisions change federal preemption as we know it, and national banks and federal savings associations continue to grapple with this uncertainty. However, two recent developments shed some light on the future of federal preemption that appear to favor the current state of preemption. In mid-May, the U.S. Court of Appeals for the Eleventh Circuit decided a preemption case in favor of a national bank, relying on the new Dodd-Frank preemption standard. The following day, John Walsh, Acting Comptroller of the Currency, delivered a letter to Senator Thomas Carper (D-DE) explaining how the Office of the Comptroller of the Currency interprets certain of Dodd-Frank’s preemption provisions.

In Baptista v. JP Morgan Chase Bank, N.A., the Eleventh Circuit held that the National Bank Act preempted a Florida par value statute that prohibited banks from charging fees to non-account holders to cash checks. In support of its argument for preemption, JP Morgan Chase pointed to 12 U.S.C. § 24 (Seventh), a provision of the National Bank Act that allows banks to exercise incidental powers necessary to carry on the business of banking, including discounting and negotiating promissory notes, drafts, bills of exchange or other evidences of debt. More specifically, JP Morgan Chase looked to the OCC’s regulation at 12 C.F.R. § 7.4002(a) that expressly allows national banks to charge customers non-interest fees and charges, including deposit account service charges. The OCC interpreted the term “customer” to include any person presenting a check for payment.

The court relied on Dodd-Frank’s new conflict preemption standard as enumerated in Barnett Bank of Marion County, N.A. v. Nelson to find that the National Bank Act preempted Florida law. First, the court determined that Florida law directly and irreconcilably conflicted with the OCC’s regulation at 12 C.F.R. § 7.4002(a). The OCC’s regulation specifically authorizes national banks to charge a fee to non-account holders to cash a check, and Florida law expressly prohibits charging such a fee. Further, the court deferred to the OCC’s interpretation of the term “customer” under Auer v. Robbins, which governs an agency’s interpretation of its own regulations. The Baptista holding is somewhat narrow in that it concerns a state statute that clearly conflicted with an OCC regulation, but nonetheless strikes a positive blow for preemption as the banking industry tries to make sense of the Dodd-Frank preemption standard.

The day after the Eleventh Circuit decided Baptista, the OCC submitted a letter to Congress explaining its interpretation of the Dodd-Frank preemption standard. The OCC confirmed that it will change its regulations to reflect some of the more clear-cut changes, such as rescinding the regulation that currently gives national bank operating subsidiaries preemption authority, clarifying that the same preemption rules now apply to federal savings banks as well as national banks, and adding a provision to the OCC’s visitorial powers regulation to permit state attorneys general to enforce non-preempted state laws against national banks and federal savings associations in court.

But the OCC also delved into some of the more difficult questions, including how the new preemption standard, derived from Barnett Bank of Marion County, N.A. v. Nelson, will affect the OCC’s general preemption regulations adopted in 2004. As an initial matter, the OCC explained its interpretation that Dodd-Frank preemption provision incorporates “the whole of the conflict preemption analysis” articulated in the Barnett case, rather than strictly the “prevent or significantly interfere” language. Although the “prevent or significantly impair” standard is the starting point for any analysis, the OCC believes that Barnett’s conflict preemption analysis in its entirety must inform any preemption determination.

The OCC also said that it will revise its preemption regulations to eliminate the “obstruct, impair or condition” standard that the OCC adopted in 2004. The OCC intended that language as an abbreviated formulation of the Barnett standard, but the OCC believes that eliminating that language will make clear that Barnett is the governing standard for preemption. The OCC then stated its position that Dodd-Frank preserved any precedents consistent with the Barnett preemption analysis, including judicial decisions and regulations based on Barnett. The OCC relied on the Barnett standard in formulating its 2004 rules. Thus, the OCC seems to believe that Dodd-Frank does not alter its 2004 regulations, because the OCC based those rules on Barnett. As such, the OCC intends only to revise the 2004 regulations, not rescind them.

Though uncertainty still remains surrounding the Dodd-Frank preemption standard and how it will change banks’ lending practices, these two preemption determinations seem to preserve the status quo in the post-Dodd-Frank world, or at least indicate that any changes will not be as drastic as initially feared.

Meghan S. Musselman is a partner in the Maryland office of Hudson Cook, LLP. Meghan can be reached at 410-865-5403 or by email at

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