Opinion ID: 3033121
Heading Depth: 3
Heading Rank: 4

Heading: The OCC’s Exclusive Authority To Regulate

Text: Operating Subsidiaries [9] As the Supreme Court has explained: When the administrator promulgates regulations intended to pre-empt state law, the court’s inquiry is . . . limited: “If [h]is choice represents a reasonable accommodation of conflicting policies that were committed to the agency’s care by the statute, we should not disturb it unless it appears from the statute or its legislative history that the accommodation is not one that Congress would have sanctioned.” Fidelity Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141, 154 (1982) (quoting United States v. Shimer, 367 U.S. 374, 383 (1961)) (alteration in original); see also La. Pub. Serv. Comm’n v. F.C.C., 476 U.S. 355, 369 (1986) (“Preemption may result not only from action taken by Congress itself; a federal agency acting within the scope of its congressionally delegated authority may pre-empt state regulation.”); Credit Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119, 1128 (9th Cir. 2005); Lopez v. Wash. Mut. Bank, FA, 302 F.3d 900, 906 (9th Cir. 2002), amended by 311 F.3d 928 (9th Cir. 2002). [10] Applying these principles here, we conclude that promulgating § 7.4006 was within the OCC’s authority. Section 7.4006 provides that a state law is preempted as applied to an operating subsidiary only if it would be preempted as applied to a national bank. By so stating, the OCC has simply explicated further its specification, in 12 C.F.R. § 5.34(e)(1) and (3), that operating subsidiaries are to have the same authority as, and be subject to the same governmental regulation as, their national banks parents, by making clear in § 7.4006 that the principle is symmetrical: Operating subsidiaries are subject to no less and no more governmental regulation, state and federal, than national banks. The connection between the WELLS FARGO BANK v. BOUTRIS 10475 OCC’s substantive determinations regarding the authority of national banks to conduct their business through operating subsidiaries and the preemption regulation is thus close and logical. We are therefore convinced that once the OCC’s authority to allow the creation of and to regulate operating subsidiaries as it has done is established, its authority to displace contrary state regulation where the Bank Act itself preempts contrary state regulation of national banks follows.15 That § 7.4006 is “a reasonable accommodation of conflicting policies that were committed to the agency’s care by the statute,” Fidelity, 458 U.S. at 154 (internal quotation marks omitted), is further supported by an unusual provision in the Bank Act itself. Indeed, 12 U.S.C. § 43 specifically contemplates that the OCC sometimes has authority to preempt state laws such as those here at issue. See 12 U.S.C. § 43 (setting procedural prerequisites for OCC regulations preempting “[s]tate law regarding community reinvestment, consumer protection, fair lending, or the establishment of intrastate branches” (emphasis added)).16 With this general approval of the OCC’s preemptive authority regarding state law regulation of national bank operating subsidiaries in mind, we turn to the specific state laws that WFHMI and the OCC maintain are preempted under § 7.4006. 15 Accord Wachovia Bank, N.A. v. Burke, No. 04-3770-CV, 2005 WL 1607740 (2d Cir. July 11, 2005) (holding the Bank Act and OCC regulations preempt state banking laws concerning subsidiaries of nationally chartered banks to the same extent that they preempt regulation of the parent national bank). 16 As the Commissioner here maintains, the laws he is seeking to enforce concern consumer protection. Section 43 prescribes the procedures that “the appropriate Federal banking agency,” in this instance the OCC, see 12 U.S.C. § 1813(z), must follow whenever it issues an “opinion letter or interpretive rule” concluding that certain state laws, including consumer protection laws, are preempted as applied to national banks, see id. § 43(a). There is no allegation in this case that the OCC did not follow the requisite procedures. 10476 WELLS FARGO BANK v. BOUTRIS
WFHMI and the OCC submit that the Commissioner’s state law authority to conduct or require audits of national bank operating subsidiaries is displaced by § 7.4006. Their argument, with which we agree, is that section 54 of the Bank Act, 12 U.S.C. § 484, makes federal “visitorial” authority — but not necessarily federal substantive law — exclusive with regard to national banks, and § 7.4006 extends that exclusivity to operating subsidiaries. [11] Since shortly after the Bank Act was enacted in 1864,17 see Nat’l Bank v. Kentucky, 76 U.S. (9 Wall.) 353, 362 (1870), the Supreme Court has oft reiterated that federal substantive authority over national banks is not exclusive. Rather, states may regulate national banks where “doing so does not prevent or significantly interfere with the national bank’s exercise of its powers.” Barnett Bank, 517 U.S. at 33; see also id. (citing cases). “Thus, 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.” Bank of Am., 309 F.3d at 559. [12] One area of authority over national banks that has historically been the exclusive province of the federal government, however, is the “visitorial” power. For purposes of the Bank Act and OCC regulations, the OCC has defined “visitorial” power as “(i) [e]xamination of a bank; (ii) [i]nspection of a bank’s books and records; (iii) [r]egulation and supervision of activities authorized or permitted pursuant to federal banking law; and (iv) [e]nforcing compliance with any applicable federal or state laws concerning those activities.” 12 17 Although the Bank Act was promulgated in 1864, the current banking statutes largely derive from the Bank Act’s immediate predecessor, the National Currency Act of 1863, ch. 58, 12 Stat. 665. See U.S. Nat’l Bank of Ore. v. Indep. Ins. Agents of Am., Inc., 508 U.S. 439, 449 & n.4 (1993) (summarizing the statutory history). WELLS FARGO BANK v. BOUTRIS 10477 C.F.R. § 7.4000(a)(2). The exclusivity of federal visitorial authority over national banks is codified in the Bank Act, section 54 of which provides that: 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. 12 U.S.C. § 484(a).18 As the definition makes clear, the preemption of state law accomplished by § 484(a) is entirely procedural, not substantive. The exclusively federal power to “visit” national banks is not the power to oust all state regulation of those entities. Instead, the exclusivity of visitorial authority preempts only enforcement of state visitation laws by state officials, subject to the exceptions stated in § 484(a) itself. See, e.g., Nat’l State Bank, Elizabeth, N.J. v. Long, 630 F.2d 981, 989 (3d Cir. 1980); cf. Conference of Fed. Sav. & Loan Ass’ns v. Stein, 604 F.2d 1256, 1260 (9th Cir. 1979) (holding that regulatory control provided by California’s Housing Financial Discrimination Act is procedurally preempted by Federal Home Loan Bank Board authority), summarily aff’d, 445 U.S. 921 (1980) (mem.). National banks remain bound by state laws and regulations, except for those laws substantively preempted by other provisions of the Bank Act. [13] Still, despite its procedural limitation, § 484(a) does “evidence[ ] a broad intent to preempt state law as to national banks.” Wachovia Bank, N.A. v. Burke, 319 F. Supp. 2d 275, 279 (D. Conn. 2004), aff’d in part, rev’d and vacated in part 18 But for minor technical corrections in 1913 and 1982, the provision remains unchanged from its initial codification in 1864. See Act of June 3, 1864, ch. 106, § 54, 13 Stat. 99, 116. 10478 WELLS FARGO BANK v. BOUTRIS on other grounds, No. 04-3770-CV, 2005 WL 1607740 (2d Cir. July 11, 2005); see also Guthrie v. Harkness, 199 U.S. 148, 159 (1905) (“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.”); Tiffany v. Nat’l Bank of Mo., 85 U.S. (18 Wall.) 409, 412 (1873). The power the Commissioner claimed in ordering WFHMI and NCMC to audit their loan records rests on precisely the inspection and enforcement authority preempted by § 484(a). The OCC’s conclusion that § 484(a) and § 7.4006, taken together, foreclose the exercise of such authority by the states, is thus eminently “permissible.” Chevron, 467 U.S. at 843. [14] We hold that the Commissioner is preempted from ordering regulatory audits of national bank operating subsidiaries such as WFHMI and NCMC, and that the injunction issued by the district court is valid insofar as it precludes the Commissioner from doing so.
WFHMI and, particularly, the OCC also argue that California’s state real-estate lending licensing requirements are preempted as applied to national bank operating subsidiaries. The state law requirements here at issue are codified in sections 50120-50130 of the California Finance Code, part of the CRMLA.19 Although the licensing requirements as a whole are too exhaustive to recount here, the most significant provisions are section 50121, which imposes four conditions on the 19 We focus here on the CRMLA licensing requirements. The CFLL licensing requirements, which, as noted above, are relevant only where the CRMLA does not apply, see ante at 10461 n.5, are codified at CAL. FIN. CODE §§ 22100-22112. WELLS FARGO BANK v. BOUTRIS 10479 granting of a license,20 and section 50125(a), which empowers the Commissioner to refuse to issue a license if “[t]he applicant is not in material compliance with a provision of [the CRMLA] or an order or rule of the commissioner.” In light of the foregoing discussion, one might expect that the proper route to evaluating whether the state law provisions can apply to national bank operating subsidiaries would be to apply the same analysis we applied to the visitorial preemption issue: If state licensing requirements are preempted as applied to national banks, then § 7.4006 precludes applying those requirements to operating subsidiaries. As it turns out, this straightforward approach does not work as applied to licensing requirements. 20 Specifically, the provision authorizes the Commissioner to issue a license only after: (a) The filing with the commissioner of a complete and verified application for licensure. (b) The filing as an exhibit to the application of a listing of material judgments filed against, and bankruptcy petitions filed by, the applicant for the preceding five years, and the disposition thereof. (c) The payment of a nonrefundable investigation fee of one hundred dollars ($100), plus the cost of fingerprint processing and clearance, and an application filing fee of nine hundred dollars ($900). (d) An investigation of the statements required by [California Financial Code §] 50124 based upon which the commissioner is able to issue findings that the financial responsibility, criminal records (verified by fingerprint, at the discretion of the commissioner), experience, character, and general fitness of the applicant and of the partners or members thereof, if the applicant is a partnership or association, and of the principal officers and directors thereof, if the license applicant is a corporation, support a finding that the business will be operated honestly, fairly, and in accordance with the requirements of this division. CAL. FIN. CODE § 50121. 10480 WELLS FARGO BANK v. BOUTRIS Licensing is one mode of regulation as to which there is no ready parallel between national banks and their operating subsidiaries. The California licensing requirements at issue here, for example, do not apply to national banks. See CAL. FIN. CODE § 50003(g)(1) (exempting from the CRMLA’s licensing requirements “[a]ny bank . . . doing business under the authority of or in accordance with a license, certificate, or charter issued by the United States”); see also id. § 22050(a) (providing that the CFLL’s licensing requirements do not apply to “any person doing business under any law of this state or the United States relating to banks”). That California saw fit to exempt national banks from its mortgage-lending licensing requirements despite their prevalent activity in that area of business may well reflect the state’s own conclusion — almost certainly a correct one — that the chartering of national banks by the federal government is an exclusive function, inconsistent with state licensing requirements unless they are federally authorized.21 Operating subsidiaries, however, are not directly chartered by the federal government; instead, they are incorporated under a state’s law — WFHMI in California; NCMC in Ohio. This chartering distinction is the one irreducible difference between national banks and their operating subsidiaries, and precludes the direct transfer of the banks’ immunity from state entry barriers, such as licensing requirements, to their operating subsidiaries. We are convinced, however, by the OCC’s alternative argument — that California’s attempt to license operating subsidiaries is field-preempted by the OCC’s own licensing regulations.22 21 The Bank Act itself refers to the charter as the “organization certificate,” which is created by the bank according to the terms of 12 U.S.C. §§ 21-23, and approved by the Comptroller pursuant to the procedures set forth in 12 U.S.C. §§ 26-27. 22 The substantive limits of the Bank Act’s express preemption provisions do not preclude the possibility of implicit preemption. “[T]he incluWELLS FARGO BANK v. BOUTRIS 10481 [15] The OCC regulations establish a comprehensive and finely calibrated scheme for the creation of operating subsidiaries. Denominated “Licensing Requirements,” see 12 C.F.R. § 5.34(b), these regulations prescribe the specific circumstances in which a national bank needs formal approval from the OCC to establish operating subsidiaries. A national bank must ordinarily “submit an application to, and receive approval from, the OCC,” before it acquires or establishes any operating subsidiary. See id. § 5.34(e)(5) (i)(A). “The application must include a complete description of the bank’s investment in the subsidiary, the proposed activities of the subsidiary, the organizational structure and management of the subsidiary, the relations between the bank and the subsidiary, and other information necessary to adequately describe the proposal.” Id. In some circumstances, national banks can create or acquire an operating subsidiary without OCC approval, although notice to the OCC is required: Under 12 C.F.R. § 5.34(e) (5)(iv), operating subsidiaries can be established by a “well capitalized” and “well managed” national bank (as defined by 12 C.F.R. § 5.34(d)(2)-(3)) solely by providing notice to the OCC, so long as the activity falls within one of twenty-five categories specifically delineated in 12 C.F.R. § 5.34(e)(5)(v). No notice is required, however, for a well-capitalized bank to establish an operating subsidiary, if the new subsidiary is conducting activities already approved for an earlier operating subsidiary of the same bank; those activities are legally permissible for the subsidiary; and the new subsidiary abides by any conditions the OCC imposed on the activities of prior operating subsidiaries of that bank. See id. § 5.34(e)(5)(vi). If sion of an express preemption provision in a statute does not by itself obviate implied preemption . . . .” Allarcom Pay Television, Ltd. v. Gen. Instrument Corp., 69 F.3d 381, 387 (9th Cir. 1995); see also Ass’n of Banks in Ins., Inc. v. Duryee, 270 F.3d 397, 404 (6th Cir. 2001) (citing Anderson Nat’l Bank v. Luckett, 321 U.S. 233 (1944)). 10482 WELLS FARGO BANK v. BOUTRIS the bank, however, “controls the subsidiary but owns 50 percent or less of the voting (or similar type of controlling) interest of the subsidiary,” then an application and OCC approval are always necessary, and the exceptions noted above are inapplicable. See id. § 5.34(e)(5)(i)(B). The OCC thus has a role in either pre-approving or later reviewing the creation of an operating subsidiary in most instances. That the OCC has chosen to require formal agency approval in certain cases but not in others, to require notice in certain cases but not in others, and to specify the content of the application or notice in great detail indicates to us that § 5.34 manifests the OCC’s intent to regulate pervasively the field of licensing operating subsidiaries. Allowing certain national banks to create certain classes of operating subsidiaries without case-by-case approval is itself a regulatory decision. Where such a decision not to regulate represents, as in § 5.34, a considered determination that no regulation is appropriate, that choice preempts contrary state law imposing governing standards. See, e.g., Lodge 76, Int’l Ass’n of Machinists & Aerospace Workers v. Wis. Employment Relations Comm’n, 427 U.S. 132, 140 (1976) (holding that, by regulating certain forms of economic pressure used during labor disputes but not others, Congress expressed a clear intent to leave other economic weapons free from federal or state regulation). Such field preemption can occur when an agency, acting pursuant to its delegated authority, promulgates regulations that evidence a clear intent to occupy a specific field. See, e.g., R.J. Reynolds Tobacco Co. v. Durham County, N.C., 479 U.S. 130, 149 (1986) (“[W]here, as in this case, Congress has entrusted an agency with the task of promulgating regulations to carry out the purposes of a statute, as part of the pre-emption analysis we must consider whether the regulations evidence a desire to occupy a field completely.” (citation omitted)). [16] As we emphasized earlier, Congress and the OCC, acting pursuant to congressional authority, have left some room WELLS FARGO BANK v. BOUTRIS 10483 for substantive regulation by the states in the field of banking. In the specific context of licensing requirements for operating subsidiaries authorized only to conduct those activities that their parent national banks may conduct, however, the OCC’s regulations “evidence a desire to occupy a field completely.”23 Id. A state’s attempt to require advance licensing before an operating subsidiary may engage in the activities covered by the Bank Act, including real estate lending, runs headlong into the OCC’s finely nuanced licensing scheme. [17] We hold that California’s real-estate lending licensing requirements as applied to operating subsidiaries of national banks are field-preempted by 12 C.F.R. § 5.34.