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Bankruptcy

: Credit Slips

Cuomo v. The Clearing House Association: OCC Loses Even with Chevron Deference

By Adam Levitin

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The Supreme Court delivered its decision in Cuomo v. the Clearing House Association today. The issue in the case was whether the a regulation passed by the Office of the Comptroller of the Currency (OCC) preempted state enforcement of state fair lending laws against national banks. Coming on the heels of the OCC's victory in Wachovia v. Watters, in which the Supreme Court held that a state could not exercise visitorial powers over an operating subsidiary of a national bank, many thought that the Supreme Court would extend the OCC's power to near complete preemption of any state authority over national banks. To the surprise of many observers, however, the Court ruled 6-3 (Thomas, Roberts, and Kennedy dissenting) in favor of the State of New York (Cuomo).

Justice Scalia, writing for the majority emphasized the distinction between supervisory powers (where the OCC has a monopoly) and law enforcement (where other federal agencies also have jurisdiction over national banks, as well as states). Although the Supreme Court applied Chevron deference to the OCC's interpretation of the National Bank Act, it still held that the OCC's interpretation was unreasonable. It's the rare case where an agency gets Chevron deference and losses. I'm particularly pleased that the Court addressed the reasonableness of the OCC's interpretation under Chevron; it was an issue that they avoided in Watters v. Wachovia, but one that sorely needed attention.

Hopefully this opinion, combined with the emphasis in the Obama financial restructuring plan on ending federal preemption of state consumer protection laws (federal law will be a floor, not a ceiling), marks a turning point in the long march of federal preemption of state consumer protection laws in financial services, a trend that has really been a focal point of deregulation.

Full post as published by Credit Slips on June 29, 2009 (boomark / email).