Acting Comptroller of the OCC Rightly Reaffirms Federal Preemption as Fundamental to U.S. Banking System 

Last week, the Office of the Comptroller of the Currency (OCC) Acting Comptroller Rodney E. Hood released a letter reaffirming the agency’s support of federal preemption, defending it as fundamental to the federal banking system. Hood’s letter was in response to a letter from Conference of State Bank Supervisors President and CEO Brandon Milhorn who asked for the OCC to rescind its preemption regulations.

In his letter, Hood rightly noted the importance of federal preemption within our national banking system:

“Federal preemption is a cornerstone of the dual banking system, under which federally and state-chartered banks operate alongside one another.”

Federal preemption is in place to prevent state laws from interfering with federal laws to avoid a regulatory environment where a law in one state contradicts that in another state or one at the federal level.

To create a uniform regulatory financial system, the National Banking Act (NBA) was passed under the leadership of President Lincoln over 150 years ago. Since then, consumers and businesses alike benefit from effective, consistent national banking standards rather than a patchwork system of state laws due in part to federal preemption.

Underscoring the benefits of federal preemption, Hood continued:

“Federal preemption has helped to foster the development of national products and services and multi-state markets, which have benefitted individuals and businesses in every state and powered this Nation’s economy.”

Despite its importance to a uniform regulatory system, preemption is under attack. For example, the governor of Illinois signed into law the Interchange Fee Prohibition Act (IFPA), which bars interchange fees on credit card transactions, pitting it against the NBA. Thankfully, the IFPA is being challenged in courts by the Illinois Bankers Association (IBA), American Bankers Association (ABA), America’s Credit Unions (ACU) and the Illinois Credit Union League (ICUL), and separately, an Illinois district court judge has also issued a preliminary injunction against the legislation. In the judge’s ruling, she found merit in the argument that the IFPA is preempted by federal law under the NBA.

Hood’s announcement is a welcomed step to ensure consistent and efficient access to the banking system no matter what state you’re in. As states consider their own laws impacting banks and the consumers they serve, legislatures should take note of the OCC’s announcement — there is no reason state legislatures should consider any partisan, burdensome regulatory proposals that disrupt the financial system following this definitive statement from the OCC.

Read More:

The CLA’s amicus brief argues that the legal concept of preemption is critical to maintaining uniformity and stability in the banking system. The brief makes the case that ignoring preemption would lead to a patchwork of regulations that undermine efficiency and predictability in the national banking system, directly interfering with the NBA.

Read more about IFPA and preemption from former Attorney General Bill Barr, who leads the Center for Legal Action (CLA) for the American Free Enterprise Chamber of Commerce (AmFree) here.

Read the CLA’s amicus brief here.