OCC Issues Interpretation of Preemption Standards

The OCC issued a "comprehensive" interpretation of preemption standards and procedural requirements, which are codified in Section 25b ("State Law Preemption Standards for National Banks and Subsidiaries Clarified") of the National Banking Act.

Federal preemption, as described in the OCC Interpretive Letter, is "fundamental to the design" of the federal banking system because it permits federally chartered financial institutions that operate across state lines to be regulated under a single set of federal rules. To set forth a "consistent framework for compliance," the OCC provided the following guidance in connection with preemption actions.

1. The OCC evaluates whether the state law is a state consumer financial law as defined under Section 25b(a)(2). If the OCC determines the state law to be a state consumer financial law, the OCC assesses whether the state consumer financial law would be preempted under one or more of the preemption standards established in Section 25b(b)(1).
2. If the OCC makes a preemption determination based on the Barnett standard under Section 25b(b)(1)(B), the OCC may issue a regulation or order on a case-by-case basis and will:
   • ensure that "substantial evidence" exists to support the finding of preemption and make a record of OCC proceedings, as required by Section 25b(c);
   • release the Section 25b(b)(1)(B) preemption determination in a quarterly report, as required by Section 25b(g); and
   • conduct periodic reviews of the determination and submit a report to Congress regarding such reviews, as required by Section 25b(d).
3. If the OCC concludes that a state consumer financial law is only preempted based on the discriminatory effect or other federal law standard, then only the requirements listed under Section 25b(d) apply.