Supreme Court Upholds State Rule Over Banks

Mixed decision on lending laws allows states to sue for information.

WASHINGTON – In what can be called a partial victory for states, the Supreme Court ruled that states can enforce their own fair lending laws over national banks. However, the court said states must sue these banks in order to obtain information on an individual bank’s fair lending practices. This ruling reaffirms the dual-banking system and provides consumer protection.

In this case, Cuomo v. Clearinghouse, New York Attorney General Andrew Cuomo sought to overturn the enforcement of the Office of Comptroller of the Currency (OCC), which usurps state authority to enforce lending laws against national banks.  The OCC charters and regulates all national banks.

The National Conference of State Legislatures filed an amicus brief earlier this year, citing the lack of authority of the OCC over the New York Attorney General’s Office’s to enforce the state’s fair lending laws against federal banks. While the ruling allows states to pursue the necessary information to ensure national banks are following individual state laws, it also complicates the process.

State banking departments cannot retrieve information from national banks without first going to court, which could take months. Furthermore, states cannot force a bank to change a practice that violates a state fair lending practice without first going to court.

“We applaud the Supreme Court for affirming state authority to regulate banks within our boarders,” said William T. Pound, executive director of NCSL. “The ruling is a mixed blessing in that it allows states to enforce state consumer-protection laws against banks, but only through going to court.”

This ruling follows up on the Obama administration's proposal for financial services regulatory reform and other consumer protection measures.  NCSL looks forward to working with the Obama administration on any measures regarding federal reform of the financial services industry, including improving consumer protection laws. At the same time, NCSL wants to ensure state authority over banks remains intact and state regulation of financial services is not preempted.

NCSL is a bipartisan organization that serves the legislators and staffs of the states, commonwealths and territories. It provides research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues and is an effective and respected advocate for the interests of the states in the American federal system.