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| #     |   | ## Questions Concerning Applicability and Enfor      |   |
| # Sub |   | cement of State Laws: Contacts From State Officials  |   |
| ject: |   |                                                      |   |
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**TO:** Chief Executive Officers of all National Banks, Department and
Division Heads, and All Examining Personnel

**PURPOSE**

This advisory letter describes the general principles that apply in
determining whether a state law is applicable to a national bank. It
also describes the statutory authority of the OCC to regulate national
banks, to examine national banks for compliance with federal and
applicable state laws, and to enforce these laws. Finally, it advises
national banks to consult with the OCC if state officials contact them
concerning the potential application of a state law, or if these
officials seek information concerning a national bank's operations.

**BACKGROUND**

Recently, we have been asked for guidance on the role of state officials
in the enforcement of state laws that may affect national bank
operations. The applicability of state laws to national banks and their
operating subsidiaries \-- and the authority to enforce those laws \--
raise complex issues of both federal preemption and the statutory
authority of the OCC as the supervisor and regulator of national
banks.[^1] Due to the often complex nature of the determinations
regarding the application and enforcement of state law in a particular
instance, this advisory letter notifies national banks to consult with
the OCC on such matters. In addition, it encourages state officials to
contact the OCC when they have information that would be relevant to the
OCC in its supervision of national banks and their compliance with
applicable laws, or if they seek information from national banks. We
appreciate the interest of state officials in these issues, and this
advisory is designed to summarize the standards that are applicable in
this area.

*Applicability of State Laws to National Banks*

The National Bank Act was enacted in 1864 to create a new system of
nationally chartered banks that would operate independently of state
regulation.[^2] Since that time, courts have recognized the essentially
federal character of national banks,[^3] and the Supreme Court has
repeatedly held that subjecting national banks' federally authorized
activities to state regulation and supervision would conflict with their
federally derived powers and with the purposes for which the national
banking system was established.[^4] In one such decision, the Court
noted that national banks are "instrumentalities" of the federal
government and stated that "any attempt by a State to define \[the\]
duties \[of a national bank\] or control the conduct of \[the\] affairs
\[of the national bank\] 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."[^5]

Essential to the character of national banks and the national banking
system is the uniform and consistent regulation of national banks by
*federal* standards.[^6] To that end, Congress vested in the OCC broad
authority to regulate the conduct of national banks except where the
authority to issue such regulations has been "expressly and exclusively"
given to another federal regulatory agency. 12 USC 93a. State law could
be applicable to national banks, however, in limited circumstances when
it does not conflict or interfere with the national bank's exercise of
its powers. Thus, for instance, one federal court recently noted that
states retain some power to regulate national banks in areas such as
"contracts, debt collection, acquisition and transfer of property, and
taxation, zoning, criminal, and tort law."[^7]

###### Supervision of National Banks and Enforcement of Applicable Laws

In addition to uniform federal standards for regulation of national
banks, Congress provided for a complementary system of uniform federal
oversight of the activities of national banks as an integral component
of the national banking system. Exclusive federal oversight, uniform
federal regulation, and state law preemption constitute three essential
and distinctive elements of the national bank charter.[^8]

Congress provided that the uniform federal standards that would govern
national banks -- and state laws, where federal law makes them
applicable -- would be enforced by a single, federal supervisor, the
OCC. By statute, national banks generally are not subject to any
visitorial powers except as authorized by federal law:

No 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. [^9]

12 USC 484(a). The OCC is specifically authorized under the National
Bank Act to "examine every national bank as often as the Comptroller of
the Currency shall deem necessary," and OCC examiners have the power to
"make a thorough examination of all the affairs of the bank." 12
USC 481. Thus, except in specialized instances where federal law makes
provision for another regulator to have a role, the OCC's visitorial
powers are exclusive with respect to activities that are authorized or
permitted for national banks under federal law or regulation, or by OCC
issuance or interpretation.

Congress reaffirmed the OCC's exclusive visitorial powers in the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.
Pub. L. 103-328, 108 Stat. 2338 (1994). Congress provided in that
legislation that specified types of laws of the "host" state in which a
national bank has an interstate branch are applicable, *unless* federal
law preempts their application to national banks. However, Congress
stated that "\[t\]he 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." 12 USC
36(f)(1)(B).[^10]

The OCC's regulations also set forth the agency's exclusive visitorial
authority, providing that, subject to limited exceptions, only the OCC
may exercise visitorial powers with respect to national banks. 12 CFR
7.4000(a)(1). These exclusive visitorial powers include:

1.  examination of a bank,

2.  inspection of a bank's books and records,

3.  regulation and supervision of activities authorized or permitted
    pursuant to federal banking law, and

4.  enforcing compliance with any applicable federal or state laws
    concerning those activities.

12 CFR 7.4000(a)(2)(i - iv).

##### PROCEDURE

The OCC recognizes that state officials may from time to time possess
information that would be valuable to the OCC in connection with its
oversight of national banks, or may seek to obtain information from
national banks concerning their operations. Given the complexity of
issues that can arise with respect to whether a state law is applicable
to national bank operations, the enforcement of any such laws, or the
propriety of disclosure of information concerning a national bank's
operations, the OCC has established the following 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:

-   **State officials are urged to contact the OCC** if they have any
    information to indicate that a national bank may be violating
    federal or an applicable state law or if they seek information
    concerning a national bank's operations. The OCC will review any
    such information and, if appropriate, take supervisory action, which
    may include an enforcement action, if it concludes that a national
    bank has violated an applicable law.

-   **National banks should contact the OCC** if they are contacted by a
    state official seeking information from the bank that may constitute
    an attempt to exercise visitation or enforcement power over the
    bank. National banks are encouraged to consult with the OCC as soon
    as possible following the initial contact by a state official on
    whether such request may conflict with the federal standards
    applicable to the regulation and supervision of national banks.
    Following such consultation, the OCC may want to contact the state
    official directly to discuss the state's inquiry and to obtain any
    information that the state might possess that may be relevant to the
    OCC's supervision of the bank.

**OCC Contacts:**

-   Director, Enforcement and Compliance Division, at (202) 874-4800
    (for inquiries by state officials and questions about this Advisory
    Letter)

-   Director, Community and Consumer Law Division, at (202) 874-5750
    (for inquiries by state officials and questions about this Advisory
    Letter)

-   The OCC District Counsel for the district in which the bank is
    headquartered (for inquiries by state officials)

-   Director, Legislative and Regulatory Activities Division, at (202)
    874-5090 (for questions about preemption and visitorial powers
    generally)

##### 

##### 

##### 

##### 

##### \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Julie L. Williams

First Senior Deputy Comptroller and Chief Counsel

[^1]: In most instances, the OCC is responsible for enforcing federal
    laws that apply to national banks or to their operating
    subsidiaries. However, some federal statutes also specifically give
    enforcement authority to state attorneys general. See*, e.g.,* 15
    USC 1681s(c) (Fair Credit Reporting Act). Even in these instances,
    issues may arise as to the appropriate role of a state official with
    respect to a national bank's activities. Thus, the procedures
    discussed in this advisory letter should also be followed by
    national banks in instances involving any state attorney general
    enforcement action under federal law.

[^2]: *Bank of Am. v. City and County of San Francisco*, 309 F.3d 551,
    561 (9^th^ Cir. 2002) (citing Cong. Globe, 38^th^ Cong., 1^st^
    Sess., 1451 (1864)).

[^3]: *See, e.g., Davis v. Elmira Savings Bank*, 161 U.S. 275, 283
    (1896) ("\[n\]ational banks are instrumentalities of the Federal
    government").

[^4]: *See Easton v. Iowa*, 188 U.S. 220, 229, 231-32 (1903), in which
    the Supreme Court explained:

    > \[Federal legislation concerning national banks\] 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 numerous as the
    > states. ... \[W\]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.

    *See also Barnett Bank of Marion County, N.A. v. Nelson*, 517 U.S.
    25, 32 (1996) (the powers of national banks are "grants of authority
    not normally limited by, but rather ordinarily pre-empting contrary
    state law").

[^5]: *First Nat'l Bank of San Jose v. California*, 262 U.S. 366, 368,
    369 (1923). *See also* *Bank of Am.*, 309 F.3d at 561 (state
    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").

[^6]: Such standards may be embodied explicitly in OCC regulations, or
    in other federal law, including various federal consumer protection
    laws, such as the Truth in Lending Act, the Truth in Savings Act,
    the Electronic Fund Transfer Act, the Real Estate Settlement
    Procedures Act, the Equal Credit Opportunity Act, and the Federal
    Trade Commission Act. *See* 15 USC 1601 *et seq.*; 12 USC 4301 *et
    seq.;* 15 USC 1693 *et seq.*; 12 USC 2601 *et seq.*; 15 USC 1691 *et
    seq.*; 15 USC 45. However, whether or not the OCC has specifically
    addressed a national bank activity in a regulation, all national
    bank operations must be conducted in a safe and sound manner, in
    accordance with the OCC's supervisory standards. 

[^7]: *Bank of Am*., 309 F.3d at 559.

[^8]: Moreover, OCC regulations provide for comparable treatment of
    national bank operating subsidiaries. The OCC's regulations state:
    "Unless 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." 12
    CFR 7.4006. In addition, 12 CFR 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."

[^9]: "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). Section 484 provides an exception to the OCC's exclusive
    visitorial authority for state examiners inspecting for compliance
    with state unclaimed property or escheat laws upon reasonable cause
    to believe the bank has failed to comply with those laws. 12 USC
    484(b).

[^10]: *See also National State Bank v. Long*, 630 F.2d 981, 989 (3^rd^
    Cir. 1980) ("\[E\]nforcement of the state statute is the
    responsibility of the Comptroller of the Currency rather than the
    State Commissioner.")