Opinion ID: 779698
Heading Depth: 2
Heading Rank: 3

Heading: The National Bank Act Preempts the Ordinances.

Text: 38 We also find that National Bank Act preempts the Ordinances. 39
40 National banks are instrumentalit[ies] of the federal government, created for a public purpose, and ... subject to the paramount authority of the United States. Marquette Nat'l Bank v. First of Omaha Serv. Corp., 439 U.S. 299, 308, 99 S.Ct. 540, 58 L.Ed.2d 534 (1978) (citation and internal quotation marks omitted). 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. First Nat. Bank v. California, 262 U.S. 366, 369, 43 S.Ct. 602, 67 L.Ed. 1030 (1923). The supremacy of the federal government in regulating national banks has long been recognized. 5 41 The National Bank Act of 1864 was enacted to protect national banks against intrusive regulation by the States. See Cong. Globe, 38th Cong., 1st Sess., 1451 (1864) (noting that the object of the National Bank Act was to establish a national banking system free from intrusive state regulation); Marquette Nat'l Bank, 439 U.S. at 314-15, 99 S.Ct. 540 (Close examination of the National Bank Act of 1864, its legislative history, and its historical context makes clear that ... Congress intended to facilitate ... a national banking system.) (internal quotations and citations omitted). To fulfill this Congressional purpose, the Supreme Court has interpret[ed] 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 Bank, 517 U.S. at 32, 116 S.Ct. 1103 (citations omitted). Therefore, in determining the preemptive scope of federal statutes and regulations granting a power to national banks, the Supreme Court has adopted the view that normally Congress would not want States to forbid, or to impair significantly, the exercise of a power that Congress explicitly granted. Id. at 33, 116 S.Ct. 1103. 42
43 The National Bank Act of 1864, 12 U.S.C. § 24 (Seventh), confers upon national banks the authority: 44 To exercise ... all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes.... 45 12 U.S.C. § 24 (Seventh). 46 The business of banking is not limited to the powers enumerated in § 24 (Seventh). NationsBank v. Variable Annuity Life Ins. Co., 513 U.S. 251, 258 n. 2, 115 S.Ct. 810, 130 L.Ed.2d 740 (1995). Therefore, the OCC may authorize additional activities if encompassed by a reasonable interpretation of § 24 (Seventh). Indep. Ins. Agents of Am., Inc. v. Hawke, 211 F.3d 638, 640 (D.C.Cir.2000). 47 Incidental powers include activities that are convenient or useful in connection with the performance of one of the bank's established activities pursuant to its express powers under the National Bank Act. M & M Leasing Corp. v. Seattle First Nat'l Bank, 563 F.2d 1377, 1382 (9th Cir.1977), cert. denied, 436 U.S. 956, 98 S.Ct. 3069, 57 L.Ed.2d 1121 (1978), quoting Arnold Tours, Inc. v. Camp, 472 F.2d 427, 432 (1st Cir.1972). The incidental powers of national banks are thus not limited to activities deemed essential to the exercise of enumerated powers but include activities closely related to banking and useful in carrying out the business of banking. First Nat'l Bank v. Taylor, 907 F.2d 775, 778 (8th Cir.1990), cert. denied, 498 U.S. 972, 111 S.Ct. 442, 112 L.Ed.2d 425 (1990). 48
49 OCC Regulation § 7.5002 authorizes national banks to deliver through electronic means and facilities any ... service that [they are] otherwise authorized to... provide. 12 C.F.R. § 7.5002. Also, Regulation § 7.4003 authorizes national banks to operate ATMs pursuant to their incidental powers under 12 U.S.C. § 24 (Seventh). 12 C.F.R. § 7.4003. Finally, Regulation § 7.4002(a) authorizes national banks to collect non-interest charges and fees, including deposit account service charges. 12 C.F.R. § 7.4002(a). The establishment of such fees are business decisions to be made by each bank ... according to sound business judgment and safe and sound banking principles. 12 C.F.R. § 7.4002(b)(2). 6 These regulations make no distinction between depositors and non-depositors with respect to a national bank's authority to collect fees for provision of authorized services. It follows that national banks may charge ATM fees to non-depositors. 50 The OCC has similarly construed the National Bank Act. 51 D. The OCC Has Reasonably Construed the National Bank Act as Authorizing the Charging of ATM Fees to Non-Depositors. 52 We give great weight to any reasonable construction of a regulatory statute adopted by the agency charged with its enforcement. Clarke v. Secs. Indus. Ass'n, 479 U.S. 388, 403, 107 S.Ct. 750, 93 L.Ed.2d 757 (1987). As the administrator charged with supervision of the National Bank Act, the [OCC] bears primary responsibility for surveillance of `the business of banking' authorized by § 24 Seventh. NationsBank, 513 U.S. at 256, 115 S.Ct. 810 (internal citations omitted). 53 In its amicus brief and in two interpretive letters issued following passage of the Ordinances, the OCC has construed the incidental powers of national banks under § 24 (Seventh) as encompassing the provision of ATM services to nondepositors at a charge. The OCC's position is reasonable and thus entitled to great weight. NationsBank, 513 U.S. at 256-57, 115 S.Ct. 810. 7 54 The depositing of funds and the withdrawal of cash are services provided by banks since the days of their creation. Indeed, such activities define the business of banking. Although the ATM is a relatively new technology, the deposit and lending-related services offered through ATMs are traditional banking functions. As we held in M & M Leasing Corp., the National Bank Act did not freeze the practices of national banks in their nineteenth century forms.... [W]e believe the powers of national banks must be construed so as to permit the use of new ways of conducting the very old business of banking. 563 F.2d at 1382. In our view, the widespread use of ATMs by banks to deliver deposit and lending-related services exemplifies a new way[ ] of conducting the very old business of banking. Id. 55 We find no support in the Cities' contention that the charging of ATM fees to non-depositors renders the provision of ATM services beyond the incidental powers granted to national banks under § 24 (Seventh). As held in First Union Nat'l Bank v. Burke, 48 F.Supp.2d 132, 147 (D.Conn. 1999), the notion that determination of state regulatory authority over national banks' ATM services is predicated on who accesses the ... ATMs, is without legal authority or sound rationale. The ATM service offered to [ ] non-depositors allows them to access their accounts at their own banks from a different geographic location and logically constitutes part of banking business. 56 The language of the National Bank Act provides no support for the Cities' position. To the contrary, Regulation § 7.4002(a) authorizes national banks to collect non-interest charges and fees. 12 C.F.R. § 7.4002(a). 57 We hold that the National Bank Act and OCC regulations together preempt conflicting state limitations on the authority of national banks to collect fees for provision of deposit and lending-related electronic services and that prohibition of 20 ATM fees by the Ordinances is therefore invalid under the Supremacy Clause of the Constitution. 58 IV. The EFTA Does Not Save the Ordinances from Preemption by the HOLA and the National Bank Act. 59 The Cities contend that the EFTA authorizes states to regulate ATM fees as a consumer protection measure. This argument fails on two grounds. First, regulation of ATM fees is not the type of consumer protection measure contemplated by the EFTA. Second, the EFTA's anti-preemption provision does not preclude preemption of state laws by the HOLA and the National Bank Act. 60 A. Regulation of ATM Fees Is Not the Type of Consumer Protection Measure Contemplated by the EFTA. 61 The Ordinances purport to protect consumers against excessive fees and anti-competitive business practices that encourage consumers to hold their accounts at national banks who operate more ATMs in the Cities than state-chartered financial institutions. The Cities claim that prohibition of ATM fees is the type of consumer protection measure contemplated by the EFTA. However, the language and legislative history of the EFTA point to the contrary. 62 The stated purpose of the EFTA is to provide a basic framework establishing the rights, liabilities, and responsibilities of participants in electronic fund transfer systems. 15 U.S.C. § 1693(b). The EFTA's primary objective ... is the provision of individual consumer rights. Id. 63 The language of the EFTA indicates that the consumer protection measures contemplated by it are aimed at promoting disclosure, preventing fraud, and allocating liability. See 15 U.S.C. § 1693c (requiring disclosure of terms and conditions of electronic transfers); § 1693d (requiring documentation of transfers); § 1693e (requiring a writing for preauthorized electronic fund transfers); § 1693f (establishing procedures for error resolution); § 1693g (outlining consumer liability); § 1693h (outlining the liability of financial institutions); § 1693i (establishing requirements for issuance of cards); § 1693j (suspending consumer obligations in instances of system malfunction); § 1693 l (prohibiting waiver of consumer rights under the EFTA). 64 The EFTA's ambit thus extends to regulation of ATM transactions. 15 U.S.C. § 1693a(6). However, the EFTA does not regulate ATM fees. Prohibition of ATM fees is not the type of consumer protection measure contemplated by the EFTA. The EFTA was enacted to prevent fraud, embezzlement, and unauthorized disclosure in electronic fund transfers, not to regulate service fees charged by financial institutions. See Kashanchi v. Texas Commerce Med. Bank, 703 F.2d 936, 940-41 (5th Cir. 1983) (noting that the lack of a written record and the absence of any human contact in electronic fund transfers were factors that motivated Congress to pass the EFTA.), citing H.R.Rep. No. 95-1315, at 2 (1978) (Congress passed the EFTA because of its concern that electronic transactions were much more vulnerable to fraud, embezzlement, and unauthorized use than the traditional payment methods.); Wachter v. Denver Nat'l Bank, 751 F.Supp. 906, 908 (D.Colo.1990). 65 This is evident from the passage of the ATM Fee Reform Act of 1999, 8 which requires that ATM operators who impose a fee notify customers of imposition of the fee and of the amount and prohibits charging a fee unless the customer elects to continue with the transaction after receiving notice. 15 U.S.C. § 1693b(d)(3). By requiring that ATM operators notify customers of imposition of fees, Congress recognized that ATM operators can charge fees. Therefore, the prohibition of ATM fees is not the type of consumer protection measure contemplated by the EFTA. 66 B. The EFTA's Anti-Preemption Provision Does Not Apply to the HOLA and the National Bank Act. 67 The EFTA contains an anti-preemption provision which provides that state laws affording greater protection to consumers than the EFTA are not preempted by the EFTA. It provides: 68 This subchapter does not annul, alter, or affect the laws of any State relating to electronic fund transfers, except to the extent that those laws are inconsistent with the provisions of this subchapter, and then only to the extent of the inconsistency. A State law is not inconsistent with this subchapter if the protection such law affords any consumer is greater than the protection afforded by this subchapter. 69 15 U.S.C. § 1693q (emphasis added). 70 The Cities insist that § 1693q empowers them to regulate ATM fees charged by national banks and federal savings associations as a consumer protection measure. They claim that the EFTA's anti-preemption provision saves the Ordinances against preemption by the HOLA and the National Bank Act. However, the plain language of § 1693q indicates that it is limited to the EFTA. Section 1693q's reference to this subchapter indicates that the EFTA's anti-preemption provision does not apply to other statutes. 71 In Bank One v. Guttau, 190 F.3d 844 (8th Cir.1999), the Eighth Circuit rejected the same argument raised by the Cities here that the EFTA's anti-preemption provision authorizes states to regulate ATMs operated by national banks irrespective of whether the state regulations are preempted by the National Bank Act. The Eighth Circuit explained that the EFTA's anti preemption provision is specifically limited to the provisions of the federal EFTA, and nothing therein grants the states any additional authority to regulate national banks. Id. at 850. It thus held that a state regulation restricting a national bank's placement of, and advertising on, ATMs was preempted by the National Bank Act notwithstanding the EFTA's anti-preemption provision. 9 Id. 72 Because the EFTA's anti-preemption provision is limited to the EFTA, it does not save the Ordinances against preemption by the HOLA and the National Bank Act. See Locke, 529 U.S. at 106, 120 S.Ct. 1135 (anti-preemption clause in Oil Pollution Act did not extend to subjects addressed in the other titles of the Act or other acts and therefore did not preclude preemption of state laws by Ports and Waterways Safety Act); Int'l Paper Co. v. Ouellette, 479 U.S. 481, 493, 107 S.Ct. 805, 93 L.Ed.2d 883 (1987) (anti-preemption clause in citizen-suit provisions of the Clean Water Act did not preclude pre-emption of state law by other provisions of the Act.). 73 We hold that the EFTA does not save the Ordinances from preemption by the HOLA and the National Bank Act.