ABA Flags State Banking Laws that Threaten Federal Preemption
Commentary by Tim Byrne
The American Bankers Association ("ABA") urged the Department of Justice ("DOJ") and the National Economic Council ("NEC") to rein in state laws that conflict with federal authority and threaten the uniformity of the national banking system.
The ABA submitted its letter in response to a joint DOJ/NEC request for information on state laws with significant adverse effects on the national economy or interstate commerce. The ABA stressed that the National Bank Act ("NBA") and Supreme Court precedent preempt state laws that interfere with national bank powers, warning that a patchwork of state rules is driving uncertainty, costs, and financial stability risks.
The ABA pointed to a range of state measures that disrupt the uniform federal framework for banking, including:
- Interchange Mandates: The ABA contended that Illinois’ Interchange Fee Prohibition Act and similar bills undermine uniform national payment networks and conflict with federal standards under the Durbin Amendment and Regulation II, which creates debit card interchange fee standards.
- State-Level Supervision of National Banks: The ABA maintained that new laws in Idaho, Florida, and Tennessee improperly expand state oversight to national banks, contrary to the NBA's preemption framework and the doctrine limiting state "visitorial" powers.
- Debt Collection: The ABA asserted that debt collection regimes in New York City and Massachusetts, as well as state licensing requirements for subsidiaries, interfere with banks’ core powers and conflict with the Fair Debt Collection Practices Act.
- Consumer Privacy: The ABA cautioned that state privacy regimes, such as the California Consumer Privacy Act, impose duplicative costs and obligations that conflict with the Gramm–Leach–Bliley Act and prudential regulatory standards.
- Artificial Intelligence: The ABA warned that Colorado’s Artificial Intelligence Act, and similar state proposals, would create a patchwork that burdens financial innovation and conflicts with existing federal supervisory frameworks.
- Medical Debt: The ABA argued that state restrictions on reporting medical debt are preempted by the Fair Credit Reporting Act, which expressly sets uniform national credit reporting standards.
- Subordinate Liens: The ABA explained that California’s Assembly Bill 130 redefines mortgage servicing failures as "unlawful practices," creating conflicts with the Truth in Lending Act, the Real Estate Settlement Procedures Act, and related federal servicing rules.
- Interest on Mortgage Escrow Accounts: The ABA argued that state laws in New York, Rhode Island, and California requiring banks to pay interest on escrow accounts impose impermissible price controls that interfere with banks’ lending powers under the NBA.
The ABA called on federal agencies to reaffirm preemption, block conflicting state laws, and protect the efficiency and competitiveness of the U.S. banking system.
Commentary
The ABA’s letter sets out a number of areas where states are seeking to apply state banking law to national banks, thereby interfering with the operations of national banks, especially those that operate on a multistate basis. Some issues are longstanding ones and some reflect more recent initiatives, such as state regulation of AI.
States have become more assertive in recent years on a number of bank regulatory fronts, including to support industries in their states and to fill potential gaps left by retreating federal regulators. The matter of federal preemption of state law in the banking context continues to be the subject of legislative and regulatory policy initiatives as well as prominent cases in the federal courts (including the Cantero case involving interest on mortgage escrow accounts).