[Federal Register Volume 66, Number 91 (Thursday, May 10, 2001)]
[Notices]
[Pages 23977-23979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-11744]


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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

[Docket No. 01-09]


Preemption Opinion

AGENCY: Office of the Comptroller of the Currency, Treasury.

ACTION: Notice.

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SUMMARY: The Office of the Comptroller of the Currency (OCC) is 
publishing its response to a written request for the OCC's opinion of 
whether Federal law would preempt certain provisions of Ohio law that 
limit the ability of national banks to engage in the business of 
leasing automobiles. The OCC has determined that the state law 
provisions, as applied, would be preempted under Federal law.

FOR FURTHER INFORMATION CONTACT: MaryAnn Nash, Senior Attorney, or Mark 
Tenhundfeld, Assistant Director, Legislative and Regulatory Activities 
Division, (202) 874-5090.

SUPPLEMENTARY INFORMATION: The request for a preemption opinion was 
submitted by two national banks that engage in the business of motor 
vehicle leasing in Ohio (collectively, the Requester). As part of that 
business, the Requester disposes of vehicles that come off lease at the 
end of the lease term or as a result of early termination or the 
lessor's default. The Requester seeks to sell these vehicles directly 
to the public in order to obtain the highest price.
    On November 12, 1993, the Registrar of the Ohio Bureau of Motor 
Vehicles (OBMV) issued a memorandum concluding that section 4517 of the 
Ohio Revised Code \1\ prohibits the public sale of reclaimed leased 
vehicles. The memorandum interpreted Ohio law to permit direct sales to 
the public in the case of repossessed vehicles, but then concluded that 
vehicles reclaimed from a lessor for non-payment were not considered 
repossessed vehicles. As a result of this interpretation, reclaimed 
leased vehicles can only be sold at wholesale to persons licensed under 
section 4517 as ``dealers.''
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    \1\ Ohio Rev. Code Ann. Sec. 4517.
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    The Requester has asked for the OCC's opinion on whether the 
National Bank Act would preempt section 4517 as interpreted by the 
OBMV. The National Bank Act authorizes national banks to engage in 
leasing activities consistent with the provisions of 12 CFR 23.\2\ The 
Requester asserts that this authority includes the authority to dispose 
of reclaimed or off-lease vehicles in the manner that is economically 
most beneficial. The Requester further asserts that the OBMV's 
construction of Ohio

[[Page 23978]]

law impairs its ability to exercise its Federally authorized power.
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    \2\ 12 U.S.C. 24 (Seventh) and 12 U.S.C. 24 (Tenth).
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    Section 114 of the Riegle-Neal Interstate Banking and Branching 
Efficiency Act of 1994 generally requires the OCC to publish notice in 
the Federal Register requests for preemption opinions in one of the 
four specified areas: community reinvestment, consumer protection, fair 
lending, or the establishment of intrastate branches.\3\ Section 114 
also requires the OCC to publish any final opinion letter in which the 
OCC concludes that federal law preempts a state law in one of these 
four areas. Without expressly determining whether section 114 applied 
to this request, the OCC published a Notice of Request for Preemption 
Determination dated October 16, 2000. The OCC is publishing its 
response to the request as an appendix to this notice.
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    \3\ 12 U.S.C. 43.
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    As is explained in greater detail in the response, the OCC agrees 
that national banks, as part of their authority to engage in the 
business of leasing automobiles under 12 U.S.C. 24 (Seventh) and 12 
U.S.C. 24 (Tenth) may sell reclaimed or off-lease vehicles in the 
manner that is most economically beneficial. The OCC further agrees 
that the Ohio law, as interpreted by the OBMV, would be preempted, 
because it would frustrate the ability of national banks to operate 
their leasing businesses in an economically efficient manner consistent 
with safe and sound banking principles.

    Dated: May 2, 2001.
John D. Hawke, Jr.,
Comptroller of the Currency.

Appendix

May 3, 2001.

Thomas A. Plant, Senior Vice President, Assistant General Counsel, 
National City Bank, 1900 East Ninth Street, Cleveland, Ohio 44114-
3484.
Re: Request for Preemption Determination
Dear Mr. Plant:

    This responds to your letter dated September 14, 2000, filed on 
behalf of National City Bank, Cleveland, Ohio and National City Bank 
of Indiana, Indianapolis, Indiana (the Banks). The Banks are wholly-
owned subsidiaries of National City Corporation, a financial holding 
company headquartered in Cleveland, Ohio. In that letter, you 
request our opinion on whether Federal law would preempt certain 
provisions of Ohio law that limit the manner in which reclaimed 
leased vehicles may be sold. For the reasons discussed below, it is 
our opinion that Federal law would preempt those provisions.

Background

    The Banks are engaged in the business of leasing automobiles. As 
part of the leasing business, the Banks dispose of vehicles that 
come off lease at the end of the lease term or as a result of early 
termination or the lessor's default. The Banks want to dispose of 
these vehicles in the manner they believe will result in the highest 
sales price in order to avoid or limit the losses taken on returned 
vehicles. The Banks assert that selling reclaimed automobiles 
directly to the public at auction typically yields the best 
price.\4\
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    \4\ The Banks state that selling reclaimed automobiles directly 
to the public nets the Banks on average $1500 more per vehicle than 
selling the vehicles at wholesale auctions, that is auctions in 
which only automobile dealers participate. Arguing in support of the 
Banks' position, one commenter suggested that this differential is 
supported by an analysis of prices in the November 2000 edition of 
the Black Book National Auto Research Official Used Car Market Guide 
Monthly.
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    On November 12, 1993, the Ohio Bureau of Motor Vehicles (the 
OBMV) issued a memorandum that effectively prohibited the public 
sale of reclaimed leased vehicles. The OBMV interpreted Ohio law to 
permit direct sales to the public only in the case of repossessed 
vehicles.\5\ The memorandum specifically states that leased vehicles 
reclaimed from the lessor for non-payment are not considered 
repossessed vehicles. Since the issuance of that memorandum, the 
Banks have been required to sell their reclaimed or off-lease 
vehicles only at wholesale auctions to dealers licensed under Ohio 
law.
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    \5\ The OBMV memorandum appears to interpret section 4517 of the 
Ohio Revised Code. That section generally provides that no person 
shall--
    Engage in the business of offering for sale, displaying for 
sale, or selling at retail or wholesale used motor vehicles or 
assume to engage in that business, unless the person is licensed as 
a dealer under sections 4517.01 to 4517.45 of the Revised Code, or 
is a salesperson licensed under those sections and employed by a 
licensed used motor vehicle dealer or licensed new motor vehicle 
dealer.''
    Ohio Rev. Code Ann. Sec. 4517.02(A)(2)(Anderson 1999).
    The law provides an exception for ``mortgagees selling at retail 
only those motor vehicles that have come into their possession by a 
default in the terms of the mortgage contract.'' Ohio Rev. Code Ann. 
Sec. 4517.02(A)(2)(Anderson 1999). Ohio law provides no similar 
exception for reclaimed leased vehicles.
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    The Banks assert that the OBMV's construction of the Ohio law to 
prohibit public sales of reclaimed lease vehicles impairs their 
ability to exercise their leasing authority. The Banks have asked 
the OCC for its opinion on whether the National Bank Act preempts 
chapter 4517 of the Ohio Revised Code as interpreted by the OBMV.
    On October 25, 2000, the OCC published a notice of your request 
in the Federal Register (Notice),\6\ inviting interested parties to 
comment on whether federal law preempts the Ohio law. The OCC 
received seven comments in response to the Notice. Six commenters 
opined that Federal law preempts the type of state law in question. 
One commenter asserted that it does not. Each of the commenters who 
thought that federal law preempts the Ohio law cited the authority 
of national banks under 12 U.S.C. 24 (Seventh) to engage in leasing 
activities and noted that Federal law preempts state laws that 
purport to restrict an activity that is authorized by Federal law. 
Several commenters offered factual support for the assertion that 
selling reclaimed vehicles directly to the public generally yields a 
higher price.
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    \6\ 65 FR 63916 (October 25, 2000) (the Notice). As stated in 
the Notice, section 114 of the Riegle-Neal Interstate Banking and 
Branching Efficiency Act of 1994 (Pub. L. 103-328, sec. 114, 108 
Stat. 2338, 2366-68 (1994), codified at 12 U.S.C. 43) requires the 
OCC to publish notice in the Federal Register before issuing a final 
written opinion about the preemptive effect of Federal law in the 
areas of community reinvestment, consumer protection, fair lending, 
and the establishment of interstate branches. The OCC decided to 
publish the notice and invite comments on the issues raised in your 
letter without making a determination as to whether section 114 
applies to your request.
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    The Ohio Department of Public Safety (OPDS) filed the only 
comment letter asserting that Federal law does not preempt the Ohio 
law. In that letter, the ODPS argued that there is no basis for 
preemption because the Ohio statute in question does not conflict 
with Federal law.

Analysis

Permissibility of the activity

    It is well established that national banks are authorized to 
engage in the business of leasing automobiles. M&M Leasing 
Corporation v. Seattle First National Bank, 563 F. 2d 1377 (9th Cir. 
1977). In M&M Leasing, the court determined that personal property 
leasing was a permissible activity for national banks because it was 
the functional equivalent of lending, an express power under the 
National Bank Act, 12 U.S.C. 24 (Seventh). Id. at 1382. In 1987, 
Congress specifically authorized national banks to lease personal 
property. 12 U.S.C. 24 (Tenth).\7\ See also 12 CFR Part 23 (OCC 
regulation authorizing leasing for national banks and establishing 
requirements applicable to leasing activities conducted pursuant to 
12 U.S.C. 24 (Seventh) and 12 U.S.C. 24 (Tenth)).
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    \7\ Your letter does not indicate on which source of authority 
the Banks rely in conducting the leasing activities in question.
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    The authority to engage in the business of leasing includes the 
authority to dispose of leased property at the end of the lease. 
Courts have long recognized the ability of national banks to engage 
in the component activities of a permissible business. See Franklin 
Nat'l. Bank v. New York, 347 U.S. 373 (1954) (national banks may 
advertise bank services); Auten v. United States Nat'l. Bank, 174 
U.S. 125 (1899) (national bank may borrow money); Arnold Tours, Inc. 
v. Camp, 472 F.2d 427 (1st Cir. 1972) (activity is permissible if it 
is convenient or useful to the business of banking). In these cases, 
the courts' holdings relied on whether the activity in question was 
``useful'' to national banks in exercising their express powers.
    In the situation you present, clearly the ability to dispose of 
reclaimed lease property is useful to banks engaging in leasing 
activities. Without the ability to dispose of

[[Page 23979]]

reclaimed leased property, the banks could not conduct the leasing 
business. Thus, the issue presented by your letter is whether 
Federal law preempts a state law that restricts an essential aspect 
or component of an activity expressly authorized for a national 
bank.

Preemptive effect of Federal law

    When the federal government acts within the sphere of authority 
conferred upon it by the Constitution, the Supreme Court has held 
that Federal law is paramount over, and thus preempts, state law. 
U.S. Const. art. VI, cl. 2 (the Supremacy Clause); Cohen v. 
Virginia, 19 U.S. (6 Wheat.) 264, 414 (1821) (Marshall, C.J.). 
Federal authority over national banks stems from several 
constitutional sources, including the Necessary and Proper Clause 
and the Commerce Clause of the United States Constitution. U.S. 
Const. art. I, Sec. 8, cl.3, cl. 18; McCulloch v. Maryland, 17 U.S. 
(4 Wheat.) 316, 409 (1819).
    The United States Supreme Court has identified several bases for 
Federal preemption of state law. First, Congress may enact a statute 
that preempts state law. E.g., Jones v. Rath Packing Co., 430 U.S. 
519 (1977). Second, a Federal statute may create a scheme of Federal 
regulation ``so pervasive as to make reasonable the inference that 
Congress left no room for the States to supplement it.'' Rice v. 
Norman Williams Co., 458 U.S. 654, 659 (1982). Third, the state law 
may conflict with a Federal law. See, e.g., Franklin National Bank, 
supra; Davis v. Elmira Savings Bank, 161 U.S. 275 (1896).
    In elaborating on the concept of conflict, the Supreme Court has 
recognized that conflict may exist even where compliance with both 
Federal and state law is possible. The Barnett court recognized 
that--
    Federal law may be in ``irreconcilable conflict'' with state 
law. Rice v. Norman Williams Co., 458 U.S. 654, 659 (1982). 
Compliance with both statutes, for example, may be a ``physical 
impossibility,'' Florida Lime & Avocado Growers, Inc. v. Paul, 373 
U.S. 132, 142-143 (1963); or, the state law may ``stan[d] as an 
obstacle to the accomplishment and execution of the full purposes 
and objectives of Congress.'' Hines v. Davidowitz, 312 U.S. 52, 67 
(1941).
    Barnett Bank v. Nelson, 517 U.S. 25, 31 (1996) (emphasis added).
    The Supreme Court has recognized that state law generally should 
not limit powers granted by Congress--
    In using the word ``powers,'' the statute chooses a legal 
concept that, in the context of national bank legislation, has a 
history. That history is one of interpreting grants of both 
enumerated and incidental ``powers'' to national banks as grants of 
authority not normally limited by, but rather ordinarily preempting, 
contrary state law.
    Barnett, 517 U.S. at 32. See also Bank One v. Guttau, 190 F.3d 
844, 847 (8th Cir.1999).
    In determining whether a state law stands as an obstacle to a 
national bank's exercise of a Federally authorized power, the 
Supreme Court has evaluated whether a state statute interferes with 
the ability of a national bank to exercise that power. The Barnett 
Court stated that--
    In defining the pre-emptive scope of statutes and regulations 
granting a power to national banks, these cases [i.e., national bank 
preemption cases] take the view that normally Congress would not 
want States to forbid, or to impair significantly, the exercise of a 
power that Congress explicitly granted. To say this is not to 
deprive States of the power to regulate national banks, where * * * 
doing so does not prevent or significantly interfere with the 
national bank's exercise of its powers.
    Barnett, 517 U.S. at 33.
    The Court has held that Federal law preempts not only state laws 
that purport to prohibit a national bank from engaging in an 
activity permissible under Federal law but also state laws that 
condition the exercise by a national bank of a Federally authorized 
activity.
    [W]here Congress has not expressly conditioned the grant of 
`power' upon a grant of state permission, the Court has ordinarily 
found that no such condition applies. In Franklin Nat. Bank, the 
Court made this point explicit. It held that Congress did not intend 
to subject national banks' power to local restrictions because the 
federal power-granting statute there in question contained `no 
indication that Congress[so] intended * * * as it has done by 
express language in several other instances.'
    Barnett, 517 U.S. at 34 (citations omitted; emphasis in 
original).
    Thus, a conflict between state law and Federal law need not be 
complete in order for Federal law to have preemptive effect. If a 
state law places limits on an unrestricted grant of authority under 
Federal law, the state law will be preempted.\8\
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    \8\ See also OCC Interpretive Letter No. 866 (Oct. 8, 1999) 
(opining that state law requirements that preclude national banks 
from soliciting trust business from customers located in states 
other than where the bank's main office is located would be 
preempted); OCC Interpretive Letter No. 749 (Sept. 13, 1996) 
(opining that state law requiring national banks to be licensed by 
the state to sell annuities would be preempted); OCC Interpretive 
Letter 644 (March 24, 1994) (opining that state registration and fee 
requirements imposed on mortgage lenders would be preempted).
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Application to Ohio law

    In disposing of reclaimed property, national banks, like any 
other businesses, will endeavor to maximize their recovery on the 
property by disposing of it in the manner that will bring the 
highest return. In the case of national banks, the ordinary 
motivation to maximize return and minimize loss is reinforced by the 
legal obligation to operate in a safe and sound manner. National 
banks that engage in the business of automobile leasing are required 
by regulation to liquidate or re-lease such property as soon as 
practicable. 12 CFR 23.4(c). This requirement is contained in a 
section of the OCC's regulations designed ensure that national banks 
limit their exposure by conducting their leasing businesses in a 
safe and sound manner. See 12 CFR Part 23. A state law that 
prohibits a bank from disposing of off-lease property in the way 
that is most economically beneficial not only limits the bank's 
exercise of its Federally authorized power, but also increases the 
bank's loss exposure in a manner that is inconsistent with safe and 
sound banking principles.
    While the Ohio law, as interpreted by the OBMV, does not 
prohibit a national bank from disposing of reclaimed vehicles, it 
does restrict national banks from disposing of leased vehicles in 
one of the usual and customary ways of doing so, namely, selling 
directly to the public. You have represented that the Banks' 
experience indicates that selling reclaimed vehicles directly to the 
public is the best way to recover vehicle costs. The OBMV has 
interpreted Ohio law to prohibit lessors from selling reclaimed 
vehicles at non-dealer auctions.
    In our opinion, to the extent it is interpreted and applied in 
this manner, Ohio law frustrates the Banks' ability to operate their 
leasing businesses in an economically efficient manner consistent 
with safe and sound banking principles. Applying the standards set 
forth in Barnett, the state law significantly interferes with the 
Banks' exercise of their Federal powers. Therefore, it is our 
opinion that Federal law preempts the Ohio statute as interpreted by 
the OBMV.
    Our conclusions are based on the facts and representations made 
in your letter. Any material change in facts or circumstances could 
affect the conclusions stated in this letter.

    Sincerely,

Julie L. Williams,
First Senior Deputy Comptroller and Chief Counsel.

[FR Doc. 01-11744 Filed 5-9-01; 8:45 am]
BILLING CODE 4810-33-P