Preemption Under the Dodd-Frank Act
The Dodd-Frank Act changes some of the rules, particularly in the procedural area, regarding preemption. Below are some frequently asked questions about these changes.
Did the Dodd-Frank Act eliminate preemption? No. Federal law will still preempt a conflicting state law for national banks and federal thrifts.
Did Congress change the standard for when there will be a conflict? No. Both before and after the Dodd-Frank Act takes effect, a state law will be preempted if it "prevents or significantly interferes" with the exercise of a national bank’s (or federal thrift’s) powers. That standard is a short-hand description for several tests used by the U.S. Supreme Court to determine when a state law will conflict with federal law. Congress said that those tests will continue to apply going forward.
What will change as a result of the Dodd-Frank Act? The biggest change will be to the OCC’s process for deciding when a state law is preempted. Starting next July 21, preemption determinations by the OCC will have to be made on a case-by-case basis. That means the OCC will have to review a particular state law and make a determination based on whether that law conflicts with a federal power. Another significant change is that preemption will no longer apply to subsidiaries or agents of national banks or federal thrifts. Thus, subsidiaries and agents of national banks and federal thrifts will have to comply with applicable state laws.
Will the case-by-case determinations apply to similar laws in other states? Yes, unless the OCC says otherwise. The statute defines "case-by-case basis" to refer to a determination regarding a law of a particular state and laws of any other state that have "substantively equivalent terms."
What will happen to the OCC’s existing preemption regulations? That’s not yet clear. However, those regulations were based on standards for preemption that will continue to apply. Thus it seems reasonable that a court would find a state law that is preempted under the existing regulations to be preempted even if there were no regulations.
What should a bank do if it believes that a state or local law is (or should be) preempted? Can it raise the defense on its own or in court, or does it need to seek an opinion from the OCC? A bank does not need to get an opinion from the OCC. While an OCC opinion certainly is helpful, courts have the final say about whether a state law is preempted.
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