Patton Boggs says Dodd-Frank sets new standard for preemption
The Dodd-Frank Act changes the way the Office of the Comptroller of the Currency determines preemption for state banking laws that conflict with federal ones, which could lead to more litigation, according to a memo from the law firm Patton Boggs. Before Dodd-Frank, the OCC made blanket determinations of preemption, which is the act of invalidating a state law in lieu of a superseding federal law. The Riegle-Neal Interstate Banking and Branching Efficiency Act in 1994 allowed national banks to establish branches across state boundaries. It was interpreted to give national banks the power to take advantage of the most favorable interest rates between where it was headquartered and where the branch was located. In 2004, the OCC issued a preemption regulation that said national banks were not subject to state laws that impaired its ability to make loans or deposits under federal law. It even restricted a state's authority to examine and supervise the banks. Dodd-Frank, passed and signed in July, directs the OCC to make preemption determinations on a case-by-case basis, meaning it can no longer rely on its blanket regulation written in 2004. Also, Dodd-Frank engages the courts to review the thoroughness of the OCC's preemption decisions when before courts merely deferred to the regulator. "State laws rarely discriminate against national banks. Accordingly, the relevant inquiry will generally be whether state laws prevent or significantly interfere with a national bank’s powers or whether an existing federal law covers the subject," according to the Patton Boggs memo. Because the OCC is taking on these matters case-by-case, Patton Boggs said "significant litigation will ensue." "While parties may debate whether and to what extent the act modifies the current law and regulation with respect to federal preemption, at a minimum the act will produce increased scrutiny of national banks and federal thrift institutions by states and local authorities," Patton Boggs said in the memo. Write to Jon Prior.