Unclear Whether Latest Preemption Developments Create Clear Path Or Muddy Waters For Federally Chartered Banks

Recent pronouncements from the courts and the Office of the Comptroller of the Currency ("OCC") have begun to shed some light on what preemption for national banks and federal savings associations will look like on and after July 21, 2011, the effective date of the preemption provisions of Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act").1 In Baptista v. JP Morgan Chase Bank, N.A., the 11th Circuit upheld a pre-Dodd-Frank Act District Court determination that a Florida statute limiting check-cashing fees does not apply to national banks.2 One day later, the Acting Comptroller of the Currency wrote a letter to a member of Congress to outline the agency's interpretation of particular aspects of the preemption provisions of the Dodd- Frank Act and the agency's plans to amend its regulations to reflect such interpretation (the "May 12th OCC Letter").3 These events were closely followed by a notice of proposed rulemaking by the OCC that sets those plans in motion (the "Preemption NPR").4 The comment deadline for the Preemption NPR closed on June 27, 2011.

Public comments submitted in response to the Preemption NPR reflect viewpoints from industry, government, trade and consumer groups that range from "you got it right" to "you got it all wrong," with respect to the OCC's position on preemption as reflected in the proposed rules.

In particular, the U.S. Department of the Treasury ("U.S. Treasury Department") submitted an unprecedented comment letter raising a number of significant concerns about the Preemption NPR.

Further, the recent nomination of Thomas J. Curry, a former Massachusetts banking commissioner, further muddies the waters for discerning federal policy in this important area. It remains to be seen whether the U.S. Treasury Department's letter and Curry's nomination indicates that the Obama Administration is looking for a Comptroller who takes a more favorable view of states' rights when it comes to banking regulation.

These latest developments are only the beginning of events that will continue to shape the preemption landscape for federally chartered banks. It remains to be seen how the preemption provisions of the Dodd-Frank Act may impact the interstate operations of federally chartered banks and what the OCC's implementing regulations for the preemption provisions of the Dodd-Frank Act will look like in final form.

Baptista v. JP Morgan Chase Bank, N.A.

In Baptista, the 11th Circuit considered an appeal from the U.S. District Court for the Middle District of Florida, which dismissed the plaintiff's two-count class action complaint against JP Morgan Chase Bank, N.A. ("Chase") for failure to state a claim upon which relief can been granted.5 The plaintiff, Vida Baptista, filed the case in early 2010, after she cashed a check for $262.48 written to her by one of Chase's account holders. Baptista was not an account holder at Chase, and when she brought the check in person to Chase to cash it, Chase charged her a $6.00 fee to provide cash immediately. Baptista sought damages from Chase on behalf of herself and those similarly situated on two counts: 1) that Chase's imposition of a check-cashing service fee violated Fla. Stat. § 655.85,6 and 2) Chase was unjustly enriched by the service fee.7 The District Court had determined that Fla. Stat. § 655.85 only bars check-cashing fees on bank-to-bank transactions, however "assuming that [Fla. Stat.] § 655.85 does apply to Plaintiff, it is preempted by the National Bank Act ("NBA"), 12 U.S.C. § 21 et seq., and its implementing regulations."8

In affirming the District Court decision dismissing plaintiff's class action suit, the 11th Circuit court looked to guidance from the 5th Circuit which, in 2003, interpreted a Texas "par value" statute with language that is similar to the Florida statute at issue.9 The Texas law, which prohibits all banks operating in Texas from charging non-account holders check-cashing fees, was determined by the 5th Circuit to be preempted under the NBA and in particular, the federal authority for national banks to charge non-interest charges and fees under section 7.4002 of the rules and regulations of the OCC.10 Citing to Barnett Bank of Marion County, N.A. v. Nelson,11 the 5th Circuit court determined that the Texas par value statute was in "irreconcilable conflict" with the NBA because the NBA "expressly authorize[d] an activity which the state scheme disallows."12 Specifically, the 5th Circuit reasoned "where a state statute interferes with a power which national banks are authorized to exercise, the state statute irreconcilably conflicts with the federal statute and is preempted by operation of the Supremacy Clause."13

Upon establishing the OCC's authority to promulgate the regulation, and that the OCC's interpretation of the term "customer" to include any person presenting a check for payment was reasonable, the 5th Circuit concluded that "a bar on a [national] bank's ability to charge fees to persons presenting checks for payment would clearly and irreconcilably conflict with the OCC's allowance of the charging of such fees."14 The Baptista II court adopted the conflict preemption rationale of the 5th Circuit and held that Fla. Stat. § 655.85 is preempted by section 7.4002 of the OCC's regulations promulgated pursuant to the NBA, which authorizes national banks to establish non-interest charges and fees in connection with their services. Specifically, the court concluded that "the state's prohibition on charging fees to nonaccount- holders, which reduces the bank's fee options by 50%, is in substantial conflict with federal authorization to charge such fees."15 Accordingly, the 11th Circuit viewed that such conflict with federal law satisfied the preemption standard under Barnett.

The OCC Interprets the Barnett Standard Under Title X of the Dodd-Frank Act

1. Title X of the Dodd-Frank Act

   Pursuant to Title X of the Dodd-Frank Act, effective July 21, 2011, preemption of a "state consumer financial law"16 is permissible only if:

   application of the...