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1.5.1 In General

Federal banking law or regulations may preempt the application of state law to products or services offered by banks and credit unions. The law of preemption is summarized only briefly here as it relates to deposit taking and payments activities. It is addressed in detail in two other treatises in this series:

  • • Chapter 5 of NCLC’s Mortgage Lending,104 which includes a full analysis of the general principles underlying federal preemption law, including considerable discussion of preemption of state laws outside the mortgage context; and
  • • NCLC’s Consumer Credit Regulation,105 which addresses preemption of state laws relating to non-mortgage lending and also includes a thorough analysis of the extent to which charges are considered “interest” for purposes of rate exportation.

The primary vehicles for preemption of state laws are the National Bank Act (NBA),106 which governs national banks, and the Home Owners Loan Act (HOLA),107 which governs federal savings associations (federal savings and loan associations). The Federal Credit Union Act is also sometimes a vehicle for preempting state laws as applied to federal credit unions.108

Federal law also has an impact on regulation of state-chartered banks, savings associations, and credit unions. Federal law provides that a branch of an out-of-state state-chartered bank or savings association can comply with its home state’s law and not the host state’s law if OCC regulation preempts a host state law’s applicability to a national bank or federal savings association.109

States have also enacted “parity” laws that generally provide that a state-chartered depository has the same rights as a federally chartered depository of the same type doing business in the state.110 However, the scope of the parity law must be examined for the state in question.

Federal preemption of state laws governing the payment of interest on bank accounts is governed by the same panoply of federal preemption laws and state parity laws.111 But the rules governing the preemption of state laws governing interest charged by financial institutions can be different than for other bank practices. While this treatise generally examines questions related to payments and not the interest that banks charge, the preemption rules governing interest rates can impact bank fees if those fees are considered to be interest.112 Federal statutes explicitly provide that national banks and federal savings associations can export interest rates; interest rates are governed by their home state’s law and not that of the host state. Federal law is somewhat different for state-chartered banks, savings associations, and credit unions in that such depositories can charge the higher of what is allowed by their home state or the state where the interest is assessed.113 When a bank charge is treated as interest, these rules regarding rate exportation apply as opposed to the rules concerning preemption based on OCC regulations.114

The subsections that follow begin with some general principles regarding federal preemption of state laws: an overview of the relevant federal statutes (§ 1.5.2, infra), the inapplicability of preemption to subsidiaries, affiliates, and agents (§ 1.5.3, infra), and OCC’s former practice of preemption-by-letter (§ 1.5.4, infra). The remainder of this chapter then looks at the application of federal preemption to state laws regarding bank accounts and payments:

  • • The OCC’s deposit-taking preemption regulation and a brief summary of court preemption decisions in the deposit-taking area (§ 1.5.5, infra.);
  • • The OCC’s regulation authorizing national banks to impose non-interest fees and charges, and a brief summary of court preemption decisions in the fee area (§ 1.5.6, infra);
  • • The OCC’s regulation authorizing national banks to engage in electronic services, and a brief summary of court preemption decisions in the electronic services area (§ 1.5.7, infra);
  • • Preemption regarding establishment of bank branches and other facilities such as ATMs (§ 1.5.8, infra);
  • • Preemption of state “visitorial” activities (§ 1.5.9, infra);
  • • Cases considering preemption regarding overdraft fees (§ 1.5.10, infra), gift card inactivity fees (§ 1.5.11.1, infra), other fees (§ 1.5.11.2, infra), and deception, debt collection, and discrimination (§ 1.5.11.3, infra);
  • • Preemption by the Federal Credit Union Act and regulations under it (§ 1.5.13, infra).

Another federal preemption issue involves the extent to which the Electronic Funds Transfer Act preempts state regulation of international wires. This issue is examined at § 6.7.3, infra.

Footnotes

  • 104 {103} National Consumer Law Center, Mortgage Lending (3d ed. 2019), updated at www.nclc.org/library.

  • 105 {104} National Consumer Law Center, Consumer Credit Regulation (2d ed. 2015), updated at www.nclc.org/library.

  • 106 {105} 12 U.S.C. § 25b (effective July 21, 2010).

  • 107 {106} 12 U.S.C. § 1465 (effective July 21, 2010).

  • 108 {107} See § 1.5.13, infra.

  • 109 {108} 12 U.S.C. § 1831a(j). See generally National Consumer Law Center, Consumer Credit Regulation § 3.2.6 (2d ed. 2015), updated at www.nclc.org/library.

  • 110 {109} See National Consumer Law Center, Consumer Credit Regulation § 3.6 (2d ed. 2015), updated at www.nclc.org/library.

  • 111 {110} See § 1.5.6, infra.

  • 112 {111} See § 1.5.6, infra.

  • 113 {112} See National Consumer Law Center, Consumer Credit Regulation § 3.4 (2d ed. 2015), updated at www.nclc.org/library.

  • 114 {113} Id.