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A New York federal court has considered a challenge to the Office of the Comptroller of the Currency's ("OCC") regulations which prohibit any other entity, including states, from regulating national banks.
Eliot Spitzer, Attorney General for the State of New York ("AG"), began investigating the residential mortgage lending practices of several national banks ("Banks") doing business in the State of New York. A data analysis conducted by the AG revealed that home price differences may be influenced by the race of the borrower. Therefore, the AG sent letters of inquiry to the Banks alerting them to the investigation and also that their practices may violate federal and state lending laws.
The OCC then filed a lawsuit, seeking a declaratory ruling and injunctive relief to stop the AG's investigation into the Banks. The OCC argued that it had the exclusive authority to regulate national banks and so the AG's actions interfered with this authority. The AG argued that the OCC had exceeded his authority in enacting its regulations and so sought to have these regulations set aside.
The United States District Court for the Southern District of New York ruled in favor of the OCC and entered an order enjoining the AG and its staff from taking any further investigative actions related to the Banks. National banks are created and governed by the National Bank Act ("Act"). The Act states that national banks are subject to state laws, but limits the authority of states to regulate national banks. The OCC is the federal agency charged with regulating the "business of banking", and it amended its regulations in 2004 clarifying the scope of the "visitorial powers" a state or local government could exercise over a national bank. The revised regulations now explicitly maintain that a state or local government does not have the authority to "inspect, superintend, direct, regulate or compel compliance by a national bank with respect to any law regarding the content of activities authorized for national banks under federal law."
The AG raised a number of arguments setting forth why the OCC's regulations had exceeded its authority. First, the AG argued that Congress had not specifically directed the OCC to regulate visitorial authority in the way that the OCC had in its regulations. The court stated that regulatory agencies like the OCC can interpret undefined statutory terms in order to provide certainty to affected parties. Since the regulations were the OCC’s interpretation of undefined terms in the Act, the court rejected the AG’s argument.
Next, the AG argued that the OCC had acted outside of its authority in creating its regulations. The AG argued that the OCC could only create regulations related to "safety and soundness" concerns of national banks, and these regulations went beyond the scope of those concerns. The court found that the AG had misstated the OCC's authority and ruled that the OCC had not overstepped its authority in creating its regulations.
Finally, the court considered whether the OCC's regulations represented a permissible construction of the Act. When Congress has directed an administrative agency to fill in statutory gaps, courts will defer to these regulations so long as the regulation "harmonizes with the language, origins, and purpose of the statute." Looking at the Act, the court determined that the OCC's conclusion that it was exclusive administrative enforcement authority for national banks was a reasonable interpretation of the terms of the Act and so the OCC’s regulations were entitled to judicial deference. Therefore, the court upheld the OCC's regulations and entered an order barring the AG and his office from conducting any further investigations of the Banks.
Office of the Comptroller of the Currency v. Spitzer, 369 F.Supp.2d 383 (S.D.N.Y. 2005).
Editor's Note: NAR filed an amicus curiae brief in support of the AG in this case.
Click below to download a copy of NAR's amicus curiae brief.