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| ## Comptroller of the Currency                                        |
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| > Administrator of National Banks                                     |
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Washington, DC 20219

#### Interpretive Letter #958

#### March 2003

January 27, 2003 **12 USC 484**

#### 12 CFR 7.4006

Thomas A. Plant, Esq. **12 CFR 5.34(e)(3)**

Senior Vice President

Assistant General Counsel

National City Corporation

1900 East Ninth Street

Cleveland, OH 44114

Dear Mr. Plant:

This responds to your letter of November 8, 2002, on behalf of National
City Bank of Indiana ("Bank") and its wholly-owned operating
subsidiaries, National City Mortgage Company, First Franklin Financial
Corporation, and Altegra Credit Company ("Subsidiaries"). In that
letter, you request guidance as to the ability of State regulatory
authorities to exercise visitorial powers over the Bank and the
Subsidiaries in the conduct of their mortgage banking and servicing
businesses.

You represent that the Subsidiaries conduct mortgage lending and
mortgage servicing activities as permitted for a national bank and its
operating subsidiaries pursuant to 12 U.S.C. § 24(Seventh). As operating
subsidiaries of a national bank, the Subsidiaries are subject to ongoing
supervision and examination by the OCC in the same manner and to the
same extent as the Bank.[^1] You represent that State governmental
authorities have sought to exercise examination or other visitorial
powers over the Subsidiaries, including by requesting documents and
other information. You question the extent to which State authorities
may engage in such activities in connection with national banks and
their operating subsidiaries.

As discussed in detail below, pursuant to 12 U.S.C. § 484, and 12 C.F.R.
§§ 5.34(e)(3) and 7.4006, the OCC has exclusive visitorial authority
over national banks and their operating subsidiaries except where
*Federal* law provides otherwise. This authority pertains to activities
expressly authorized or recognized as permissible for national banks
under Federal law or regulation, or by OCC issuance or interpretation,
including the content of those activities and the manner in which, and
standards whereby, those activities are conducted. As a result, States
are precluded from examining or requiring information[^2] from national
banks or their operating subsidiaries or otherwise seeking to exercise
visitorial powers with respect to national banks or their operating
subsidiaries in these respects. Thus, States may not exercise visitorial
powers over the Bank and the Subsidiaries in the conduct of their
mortgage banking and servicing business.

[Background]{.underline}

The OCC's exclusive visitorial authority over national bank operations
is established by 12 U.S.C. § 484.[^3] Paragraph (a) of that section
states that \--

\[n\]o national bank shall be subject to any visitorial powers except as
authorized by Federal law, vested in the courts of justice or such as
shall be, or have been exercised or directed by Congress or by either
House thereof or by any committee of Congress or of either House duly
authorized.

Paragraph (b) of the statute then permits lawfully authorized State
auditors or examiners to review a national bank\'s records \"solely to
ensure compliance with applicable State unclaimed property or escheat
laws upon reasonable cause to believe that the bank has failed to comply
with such laws.\"

This provision, enacted with the creation of the national banking system
in 1863, is integral to the design and structure of the national banking
system and fundamental to the character of national banks. Congress
enacted the National Currency Act ("Currency Act") in 1863 and the
National Bank Act the year after for the purpose of establishing a new
national banking system that would operate distinctly and separately
from the existing system of State banks. At that time, both proponents
and opponents of the new national banking system expected that it would
supersede the existing system of State banks.[^4] Given this anticipated
impact on State banks and the resulting diminution of control by the
States over banking in general,[^5] proponents of the national banking
system were concerned that States would attempt to undermine it.

The allocation of any supervisory responsibility for the new national
banking system to the States would have been inconsistent with the need
to protect national banks from State interference. Congress,
accordingly, established a Federal supervisory regime and created a
Federal agency within the Department of Treasury---the OCC---to carry it
out. Congress granted the OCC the broad authority \"to make a thorough
examination of all the affairs of \[a national\] bank,\"[^6] and
solidified this Federal supervisory authority by vesting the OCC with
exclusive visitorial powers over national banks. These provisions
assured, among other things, that the OCC would have comprehensive
authority to examine all the affairs of a national bank and protected
national banks from potential State action by establishing that the
authority to examine and supervise national banks is vested *only* in
the OCC, unless otherwise provided by *Federal* law.[^7]

In *Guthrie v. Harkness*, 199 U.S. 148 (1905), the Supreme Court
recognized how the National Bank Act was designed to operate:

> Congress had in mind, in passing this section \[*i.e.,* section 484\]
> that in other sections of the law it had made full and complete
> provision for investigation by the Comptroller of the Currency and
> examiners appointed by him, and, authorizing the appointment of a
> receiver, to take possession of the business with a view to winding up
> the affairs of the bank. It was the intention that this statute should
> contain a full code of provisions upon the subject, and that no state
> law or enactment should undertake to exercise the right of visitation
> over a national corporation. Except in so far as such corporation was
> liable to control in the courts of justice, this act was to be the
> full measure of visitorial power.

*Id*. at 159. The Supreme Court also has recognized the clear intent on
the part of Congress to limit the authority of States over national
banks precisely so that the nationwide system of banking that was
created in the Currency Act could develop and flourish. For instance, in
*Easton v. Iowa,* 188 U.S. 220 (1903), the Court stated that Federal
legislation affecting national banks---

> has in view the erection of a system extending throughout the country,
> and independent, so far as powers conferred are concerned, of state
> legislation which, if permitted to be applicable, might impose
> limitations and restrictions as various and as numerous as the States
> . . . . It thus appears that Congress has provided a symmetrical and
> complete scheme for the banks to be organized under the provisions of
> the statute . . . . \[W\]e are unable to perceive that Congress
> intended to leave the field open for the States to attempt to promote
> the welfare and stability of national banks by direct legislation. If
> they had such power it would have to be exercised and limited by their
> own discretion, and *confusion would necessarily result from control
> possessed and exercised by two independent authorities.*

*Id*. at 229, 231-232 (emphasis added). The Court in *Farmers\' and
Mechanics\' Bank*, 91 U.S. 29 (1875), after observing that national
banks are means to aid the government, stated---

> Being such means, brought into existence for this purpose, and
> intended to be so employed, the States can exercise no control over
> them, nor in any wise affect their operation, except in so far as
> Congress may see proper to permit. Any thing beyond this is \"an
> abuse, because it is the usurpation of power which a single State
> cannot give.\"

*Id*. at 34 (citation omitted).

Congress recently affirmed the OCC\'s exclusive visitorial powers with
respect to national banks operating on an interstate basis in the
Riegle-Neal Interstate Banking Act of 1994 ("Riegle-

Neal").[^8] Riegle-Neal makes interstate operations of national banks
subject to specified types of laws of a \"host\" State in which the bank
has an interstate branch to the same extent as a branch of a State bank
of that State, *unless* the State law is preempted by Federal law. For
those State laws that are not preempted, the statute makes clear that
the authority to enforce the law is vested in the OCC. *See* 12 U.S.C.
§ 36(f)(1)(B) (\"The provisions of any State law to which a branch of a
national bank is subject under this paragraph shall be enforced, with
respect to such branch, by the Comptroller of the Currency.\"). This
approach is another, and very recent, recognition of the broad scope of
the OCC\'s exclusive visitorial powers with respect to national banks.

The OCC\'s exclusive visitorial authority complements principles of
Federal preemption, to accomplish the objectives of the National Bank
Act. The Supremacy Clause of the United States Constitution[^9] provides
that Federal law prevails over any conflicting State law. An extensive
body of judicial precedent has developed over the nearly 140 years of
existence of the national banking system, explaining and defining the
standards of Federal preemption of State laws as applied to national
banks.[^10] Visitorial power is a closely related authority, which
Congress specifically addressed in section 484 to enable national banks
to avoid inconsistent and potentially disruptive application of
standards by State authorities. Together, Federal preemption and the
OCC\'s exclusive visitorial authority are defining characteristics of
the national bank charter.

[Application of the OCC's Visitorial Powers to Operating
Subsidiaries]{.underline}

In section 121 of the GLBA, Congress expressly acknowledged that
national banks may own subsidiaries that engage "solely in activities
that national banks are permitted to engage in directly and are
conducted subject to the same terms and conditions that govern the
conduct of such activities by national banks."[^11]

Consistent with section 121, the OCC regulations state that "\[a\]n
operating subsidiary conducts activities authorized under \[12 C.F.R. §
5.34\] pursuant to the same authorization, terms and conditions that
apply to the conduct of such activities by its parent national
bank."[^12] Addressing this point in the context of State laws, our
regulations state that "\[u\]nless otherwise provided by Federal law or
OCC regulation, State laws apply to national bank operating subsidiaries
to the same extent that those laws apply to the parent national
bank."[^13]

In order for a subsidiary to operate in the manner contemplated by
section 121 of GLBA, the subsidiary must be subject to the same
regulation and supervision as is its parent national bank. As described
at the outset of this letter, our regulations at § 5.34(e)(3) require
that result. The terms and conditions governing the conduct of
activities in an operating subsidiary include being subject to the same
visitorial powers as are exercised with respect to the parent.
Accordingly, the OCC's exclusive visitorial authority extends to
operating subsidiaries of national banks.

The Subsidiaries are national bank operating subsidiaries conducting
mortgage lending and servicing activities as permitted for a national
bank pursuant to 12 U.S.C. § 24(Seventh), 12 U.S.C. § 371, and 12 C.F.R.
§ 5.34(e)(5)(v). As such, they are subject to the OCC's exclusive
visitorial authority, and, pursuant to 12 U.S.C. § 484, State regulatory
authorities do not have the right to exercise visitorial powers over the
Bank or the Subsidiaries in the conduct of these activities, except
where that visitorial authority is specifically granted by *Federal*
law, which is not the case here.

It is relevant to observe that while State authorities may not examine
and supervise the Subsidiaries, the Subsidiaries are subject to an
extensive regime of Federal law and regulations and the Bank and the
Subsidiaries are subject to comprehensive and continuous supervision by
the OCC. Since the Bank is part of the OCC's Large Bank Program, its
activities and those of its subsidiaries are examined on a continuous
basis by teams of examiners specifically assigned to, and in most cases
physically present at the facilities of, the Bank and its subsidiaries.

Our conclusion that the OCC's exclusive visitorial powers preclude
States from asserting supervisory authority or enforcement jurisdiction
over the Subsidiaries is not intended to imply that any particular State
laws concerning the mortgage banking and servicing business apply to the
Subsidiaries. Instead, under Federal law[^14] and principles of
preemption established by the courts,[^15] provisions of State law may
well be preempted. This opinion, however, addresses only the issue of
visitorial authority.

I hope the foregoing is helpful in explaining the applicability of the
OCC's exclusive visitorial powers to the Subsidiaries. Please do not
hesitate to contact my office at (202) 874-5200 or MaryAnn Nash,
Counsel, in our Law Department at (202) 874-5090 if you have any
questions or if you need any additional information.

Sincerely,

/s/ Julie L. Williams

Julie L. Williams

First Senior Deputy Comptroller and Chief Counsel

[^1]: Twelve C.F.R. § 5.34(e)(3) provides that --

    > \[a\]n operating subsidiary conducts activities authorized under
    > this section pursuant to the same authorization, terms and
    > conditions that apply to the conduct of such activities by its
    > parent national bank. If, upon examination, the OCC determines
    > that the operating subsidiary is operating in violation of law,
    > regulation, or written condition, or in an unsafe or unsound
    > manner or otherwise threatens the safety or soundness of the bank,
    > the OCC will direct the bank or operating subsidiary to take
    > appropriate remedial action, which may include requiring the bank
    > to divest or liquidate the operating subsidiary, or discontinue
    > specified activities. OCC authority under this paragraph is
    > subject to the limitations and requirements of section 45 of the
    > Federal Deposit Insurance Act (12 U.S.C. 1831v) and section 115 of
    > the Gramm-Leach-Bliley Act \[GLBA\] (12 U.S.C. § 1820a).

    The provisions of the Federal Deposit Insurance Act and the GLBA
    referenced in the regulation pertain to the functional regulation of
    securities, insurance, and commodities firms. These provisions are
    not relevant to mortgage lending and servicing activities conducted
    by the Subsidiaries.

[^2]: The OCC currently maintains information sharing agreements with 48
    States, the District of Columbia, and Puerto Rico. These agreements
    provide a mechanism through which State regulators may seek and
    obtain supervisory information from the OCC. Typically, the OCC will
    make confidential bank examination information available to State
    bank regulatory agencies if they demonstrate a specific regulatory
    need for the examination information (*e.g*., in connection with a
    merger of a national bank into a State bank, where the State bank
    regulator must approve the transaction), and if the State agency has
    entered into an appropriate information sharing/confidentiality
    agreement with the OCC governing the use of the information. In
    Advisory Letter 2002-9 (November 25, 2002), the OCC outlined a
    procedure to address circumstances when State officials raise issues
    concerning potential violations of laws by national banks, including
    when State officials may seek information from a national bank about
    its compliance with any law or for other purposes. The advisory
    letter is available on the OCC's website at
    [www.occ.treas.gov/ftp/advisory/2002%2D9.txt](http://www.occ.treas.gov/ftp/advisory/2002-9.txt).

[^3]: "Visitorial powers" generally refer to the power to "visit" a
    national bank to examine the conduct of its business and to enforce
    its observance of applicable laws. *See, e.g., Guthrie v. Harkness*,
    199 U.S. 148, 158 (1905) (the word "visitation" means "inspection;
    superintendence; direction; regulation") (internal quotations
    omitted).

[^4]: Representative Samuel Hooper, who reported the bill to the House,
    stated in support of the legislation that one of its purposes was
    \"to render the law \[*i.e.,* the Currency Act\] so perfect that the
    State banks may be induced to organize under it, in preference to
    continuing under their State charters.\" Cong. Globe, 38^th^ Cong.
    1^st^ Sess. 1256 (March 23, 1864). Opponents of the legislation
    believed that it was intended to \"take from the States . . . all
    authority whatsoever over their own State banks, and to vest that
    authority . . . in Washington . . . .\" Cong. Globe, 38^th^ Cong.,
    1^st^ Sess. 1267 (March 24, 1864) (statement of Rep. Brooks). *See
    also* statement of Rep. Pruyn (stating that the legislation would
    \"be the greatest blow yet inflicted upon the States . . . .\")
    Cong. Globe, 38^th^ Cong., 1^st^ Sess. 1271 (March 24, 1864);
    statement of Sen. Sumner (\"Clearly, the \[national\] bank must not
    be subjected to any local government, State or municipal; it must be
    kept absolutely and exclusively under that Government from which it
    derives its functions.\") Cong. Globe, 38th Cong., 1st Sess., at
    1893 (April 27, 1864).

[^5]: *See, e.g., Tiffany v. National Bank of the State of Missouri*, 85
    U.S. 409, 412-413 (1874) (\"It cannot be doubted, in view of the
    purpose of Congress in providing for the organization of national
    banking associations, that it was intended to give them a firm
    footing in the different states where they might be located. It was
    expected they would come into competition with state banks, and it
    was intended to give them at least equal advantages in such
    competition . . . . National banks have been national favorites.
    They were established for the purpose, in part, of providing a
    currency for the whole country, and in part to create a market for
    the loans of the general government. It could not have been
    intended, therefore, to expose them to the hazard of unfriendly
    legislation by the states, or to ruinous competition with state
    banks.\"). *See also* B. Hammond, *Banks and Politics in America
    from the Revolution to the Civil War*, 725-34 (1957); P. Studenski &
    H. Krooss, *Financial History of the United States*, 155 (1st ed.
    1952).

[^6]: Act of June 3, 1864, c. 106, § 54, 13 Stat. 116, *codified* *at*
    12 U.S.C. § 481.

[^7]: Writing shortly after the Currency Act and National Bank Act were
    enacted, then-Secretary of the Treasury, and formerly the first
    Comptroller of the Currency, Hugh McCulloch observed that \"Congress
    has assumed entire control of the currency of the country, and, to a
    very considerable extent, of its banking interests, prohibiting the
    interference of State governments . . . .\" Cong. Globe, 39th Cong.,
    1st Sess., Misc. Doc. No. 100, at 2 (April 23, 1866).

[^8]: ^?^ Pub. L. 103-328, 108 Stat. 2338 (Sept. 29, 1994).

[^9]: U.S. Const. Art. VI, cl. 2 (\"This Constitution, and the Laws of
    the United States which shall be made in Pursuance thereof; and all
    Treaties made, or which shall be made, under the Authority of the
    United States, shall be the supreme Law of the Land; and the Judges
    in every State shall be bound thereby, any Thing in the Constitution
    or Laws of any State to the Contrary notwithstanding.\").

[^10]: *See, e.g., Barnett Bank of Marion County, N.A. v. Nelson*, 517
    U.S. 25, 26, 32, 33 (1996) (\"grants of both enumerated and
    incidental \'powers\' to national banks \[are\] grants of authority
    not normally limited by, but rather ordinarily pre-empting, contrary
    state law.\" States may not \"prevent or significantly interfere
    with the national bank\'s exercise of its powers.\"); *Franklin
    National Bank*, 347 U.S. at 378-379 (1954) (Federal law preempts
    State law when there is a conflict between the two; \"The compact
    between the states creating the Federal Government resolves them as
    a matter of supremacy. However wise or needful \[the state\'s\]
    policy, . . . it must give way to contrary federal policy.\");
    *Anderson National Bank v. Luckett*, 321 U.S. 233, 248, 252 (1944)
    (State law may not \"infringe the national banking laws or impose an
    undue burden on the performance of the banks\' functions\" or
    \"unlawful\[ly\] encroac\[h\] on the rights and privileges of
    national banks\"); *First National Bank v. Missouri*, 263 U.S. 640,
    656 (1924) (Federal law preempts State laws that \"interfere with
    the purposes of \[national banks\'\] creation, tend to impair or
    destroy their efficiency as federal agencies or conflict with the
    paramount law of the United States.\"); *First National Bank of San
    Jose v. California*, 262 U.S. 366, 368-369 (1923) (\"\[National
    banks\] are instrumentalities of the federal government . . . .
    \[A\]ny attempt by a state to define their duties or control the
    conduct of their affairs is void whenever it conflicts with the laws
    of the United States or frustrates the purposes of the national
    legislation, or impairs the efficiency of the bank to discharge the
    duties for which it was created.\"); *McClellan v. Chipman*, 164
    U.S. 347, 358 (1896) (application to national banks of State statute
    forbidding certain real estate transfers by insolvent transferees
    would not \"destro\[y\] or hampe\[r\]\" national bank functions);
    *First National Bank of Louisville v. Commonwealth of Kentucky*, 76
    U.S. (9 Wall.) 353, 362-63 (1870) (national banks subject to State
    law that does not "interfere with, or impair \[national banks\'\]
    efficiency in performing the functions by which they are designed to
    serve \[the Federal\] Government"); *Bank of America et al. v. City
    and County of San Francisco et al*., 309 F.3d 551, 561 (9^th^ Cir.
    2002) (\"\[s\]tate attempts to control the conduct of national banks
    are void if they conflict with federal law, frustrate the purposes
    of the National Bank Act, or impair the efficiency of national banks
    to discharge their duties.\") (citation omitted); *Association of
    Banks in Insurance, Inc. v. Duryee*, 270 F.3d 397, 403-404 (6th Cir.
    2001) (\"The Supremacy Clause \'invalidates state laws that
    \"interfere with, or are contrary to,\" federal law\' . . . . A
    state law also is pre-empted if it interferes with the methods by
    which the federal statute was designed to reach th\[at\] goal.\")
    (citations omitted).

[^11]: ^?^ Pub. L. No. 106-102, § 121, 113 Stat. at 1378, *codified at*
    12 U.S.C. § 24a(g)(3).

[^12]: 12 C.F.R. § 5.34(e)(3).

[^13]: 12 C.F.R. § 7.4006.

[^14]: *See*, *e.g.*, 12 U.S.C. §§ 371, 1735f-7, 1735f-7a, and 3801 *et
    seq*.

[^15]: *See, e.g.,* the cases cited in note 10, *supra.*